II.

ESSENSTIAL REQUISITES OF CONTRACT

1. General (Art. 1318, NCC)
Art. 1318. There 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.
2. CONSENT (Arts. (1319-1346)
Art. 1319. Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract. The offer must
be certain andthe acceptance absolute. A qualified acceptance constitutes a
counter-offer.
Acceptance made by letter or telegram does not bind the offerer except from the
time it came to his knowledge. The contract, in such a case, is presumed to have
been entered into in the place where the offer was made.
Art. 1320. An acceptance may be express or implied.
Art. 1321. The person making the offer may fix the time, place, and manner of
acceptance, all of which must be complied with.
Art. 1322. An offer made through an agent is accepted from the time acceptance
is communicated to him.
Art. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity,
or insolvency of either party before acceptance is conveyed.
Art. 1324. When the offerer has allowed the offeree certain period to accept, the
offer may be withdrawn at any time before acceptance by communicating such
withdrawal, except when the option is founded upon a consideration, as
something paid or promised.
Art. 1325. Unless it appears otherwise, business advertisements of things for sale
are not definite offers, but mere invitations to make an offer.
Art. 1326. Advertisements for bidders are simply invitations to make proposals,
and the advertiser is not bound to accept the highest or lowest bidder, unless the
contrary appears.
Art. 1327. The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to write.
Art. 1328. Contracts entered into during a lucid interval are valid. Contracts
agreed to in a state of drunkenness or during a hypnotic spell are voidable.

Art. 1329. The incapacity declared in Article 1327 is subject to the modifications
determined by law, and is understood to be without prejudice to special
disqualification established in the laws.
Art. 1330. A contract where consent is given through mistake, violence,
intimidation, undue influence, or fraud is voidable.
Art. 1331. In order that mistake may invalidate consent, it should refer to the
substance of the thing which is the object of the contract, or to those conditions
which have principally moved one or both parties to enter into the contract.
Mistake as to the identity or qualifications of one of the parties will vitiate
consent only when such identity or qualifications have been the principal cause of
the contract. A simple mistake of account shall give rise to its correction.
Art. 1332. When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully
explained to the former.
Art. 1333. There is no mistake if the party alleging it knew the doubt, contingency
or risk affecting the object of the contract.
Art. 1334. Mutual error as to the legal effect of an agreement when the real
purpose of the parties is frustrated may vitiate consent.
Art. 1335. There is violence when in order to wrest consent, serious or irresistible
force is employed. There is intimidation when one of the contracting parties is
compelled by a reasonable and well-grounded fear of an imminent and grave evil
upon his person or property, or upon the person or property of his spouse,
descendants or ascendants, to give his consent.
To determine the degree of the intimidation, the age, sex and condition of the
person shall be borne in mind. A threat to enforce ones claim through competent
authority, if the claim is just or legal, does not vitiate consent.
Art. 1336. Violence or intimidation shall annul the obligation, although it may
have been employed by a third person who did not take part in the contract.
Art. 1337. There is undue influence when a person takes improper advantage of
his power over the will of another, depriving the latter of a reasonable freedom of
choice. The following circumstances shall be considered: the confidential, family,
spiritual and other relations between the parties, or the fact that the person
alleged to have been unduly influenced was suffering from mental weakness, or
was ignorant or in financial distress.
Art. 1338. There is fraud when, through insidious words or machinations of one of
the contracting parties, the other is induced to enter into a contract which,
without them, he would not have agreed to.
Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when
the parties are bound by confidential relations, constitutes fraud.
Art. 1340. The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent.

Art. 1341. A mere expression of an opinion does not signify fraud, unless made by
an expert and the other party has relied on the formers special knowledge.
Art. 1342. Misrepresentation by a third person does not vitiate consent, unless
such misrepresentation has created substantial mistake and the same is mutual.
Art. 1343. Misrepresentation made in good faith is not fraudulent but may
constitute error.
Art. 1344. In order that fraud may make a contract voidable, it should be serious
and should not have been employed by both contracting parties. Incidental fraud
only obliges the person employing it to pay damages.
Art. 1345. Simulation of a contract may be absolute or relative. The former takes
place when the parties do not intend to be bound at all; the latter, when the
parties conceal their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is void. A relative
simulation, when it does not prejudice a third person and is not intended for any
purpose contrary to law, morals, good customs, public order, or public policy
binds the parties to their real agreement.
A. Requisites, Manifestation Offer and Acceptance, Unilateral Offer and Opinion
Contract
Cases
XYST CORPORATION,
Petitioner,

G.R. No. 171968

Present:
QUISUMBING, J., Chairperson,
CARPIO MORALES,
CHICO-NAZARIO,*
LEONARDO-DE CASTRO,** and
PERALTA, *** JJ.

- versus -

DMC
URBAN
PROPERTIES
DEVELOPMENT INC.,
Respondent,

Promulgated:

FE AURORA C. CASTRO,
July 31, 2009
Intervenor.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
QUISUMBING, J.:

Before us is a petition for review assailing the September 26, 2005

Decision[1] and the March 13, 2006 Order[2] of the Regional Trial Court (RTC) of
Makati City, Branch 64 in Civil Case No. 95-063.

The facts are as follows:

DMC Urban Properties Development, Inc. and Citibank N.A. entered into an
agreement whereby they agreed to take part in the construction of
the Citibank Tower, an office condominium building located at Villar corner Valero
Streets, Makati City. In said agreement, DMC was allocated the 18 th floor of
the Citibank Tower subject to the condition that DMC shall not transfer any
portion of its allocated floor or rights or interests thereto prior to the completion
of the building without the written consent of Citibank N.A.
Subsequently, DMC gave authority to sell to several brokers, one of which
is herein intervenor, Fe Aurora Castro. Through her effort, Castro found a
prospective buyer, Saint Agen Et Fils Limited (SAEFL for brevity), a foreign
corporation represented by William Seitz. Notwithstanding the fact that the
construction of the Citibank Tower was not yet completed, DMC negotiated with
Seitz for the sale of its allocated floor to SAEFL.
In a letter dated September 14, 1994,[3] SAEFL accepted DMCs offer to
sell. The terms of said letter are reproduced below:
(1 ) Property Description
Location
Gross Floor Area
Net Saleable Area
Net Usable Area
Selling Price
Total Price
Parking Slots

: 18th Floor, Citibank Tower

Paseo de Roxas, Makati
Metro Manila
: 2,034 sq m
: 1,866 sq m
: 1,678 sq m
: P53,500/ - psm of saleable area
: P99,831,000/-*
: 22

* VAT tax for the account of the buyer, except that if payment of 26% of
the total price is made before 30 September 1994, then VAT, if
any, shall be for the account of the seller.
The balance of P6,822,552.97 due to Citibank is included and,
hence, is to be deducted from the amount due to DMC-UPDI.
(2 ) Payment Terms *
Reservation Fee
: P1,000,000/ - good [until]
26 September 1994
Non-refundable but
applicable to the down
payment.
26% - Upon signing of
agreement but not later
: P24,956,060/ than first banking
hourof the 28th of
September 1994.
24% - Due on

31 October 1994
(via
check)

: P23,959,440/ post-dated

50% - Due on
: P43,092,947.03
30 November 1994
(via
post-dated
check)
: Expanded Withholding Tax
* For the Account of the Seller
with BIR clearance to the buyer
stating that the seller has paid
capital gains tax.
For the Account of the Buyer

: Doc stamps; registration; and

notarial and all other [similar]
fees.

On September 16, 1994,[4] SAEFL, knowing that the consent of Citibank N.A.
must first be obtained, sent another letter obliging DMC to cause Citibank N.A. to
enter into a Contract to Sell with SAEFL as an additional condition to the payment
of the P1,000,000.00 reservation fee.
Soon after, Seitz was informed that the 18 th floor is not available for foreign
acquisition, so Seitz told DMC that he would instead use XYST Corporation, a
domestic corporation of which he is a director and shareholder, to purchase the
subject property. XYST then paid the reservation fee. However, DMC advised XYST
that the signing of the formal document will not take place since Citibank N.A.
opted to exercise its right of first refusal. Hence, the parties agreed that should
Citibank N.A. fail to purchase the 18 thfloor on the agreed date, the same should be
sold to XYST.
Eventually, Citibank N.A. did not exercise its right of first refusal, but it
reminded DMC that should the sale of the floor to any party materialize, it should
be consistent with the documents adopted by the co-founders of the
project. Hence, a copy of a pro-forma Contract to Sell was given to DMC, a copy of
which was then forwarded to XYST.
DMC then undertook to obtain the conformity of Citibank N.A. to the
intended sale but DMC encountered problems getting Citibank N.A. to accept the
amendments that XYST wanted on the pro-forma contract. For such failure, DMC
allowed XYST and Citibank N.A. to negotiate directly with one another to facilitate
the transaction, but to no avail. Citibank N.A. refused to concur with the
amendments imposed by XYST on the pro-forma contract. Hence, DMC decided to
call off the deal and return the reservation fee of P1,000,000.00 to XYST.

A complaint for specific performance with damages was then filed by XYST
against DMC. Trial ensued and on September 26, 2005, the RTC dismissed XYSTs
complaint. The dispositive portion of said decision reads:
WHEREFORE, in view of the foregoing, judgment is rendered as
follows:
1.

The Complaint for Specific Performance and Damages

filed by plaintiff XYST CORPORATION against defendant
DMC-URBAN
PROPERTIES
DEVELOPMENT,
INC.,
is
DISMISSED. Plaintiff XYST CORPORATION is hereby ordered
to pay defendant DMC-URBAN PROPERTIES DEVELOPMENT,
INC. the amount of P1,000,000.00 as attorneys fees; and
2.
The counterclaim of defendant DMC-URBAN PROPERTIES
DEVELOPMENT, INC. against the Intervenor Fe Aurora Castro
is DISMISSED.
SO ORDERED.[5]
XYSTs motion for reconsideration was likewise denied. Hence, the instant
petition where XYST raises the following issues:
I.
DID THE TRIAL COURT ERR IN FINDING THAT THERE WAS NO
PERFECTED CONTRACT TO SELL BETWEEN XYST AND DEFENDANT
DMC BASED ON THE SEPTEMBER 14 AND 16, 1994 LETTER
AGREEMENTS, AND THAT DMC CANNOT BE COMPELLED TO PERFORM
ITS OBLIGATIONS UNDER THE AGREEMENT?
II.
DID THE TRIAL COURT
ATTORNEYS FEES?

ERR IN

ORDERING XYST TO PAY

DMC

III.
IS XYST ENTITLED TO ATTORNEYS FEES AND EXEMPLARY DAMAGES. [6]

Simply stated, in our view, there is one major legal issue for our resolution:
whether there is a perfected contract between DMC and XYST. This issue of a
legal nature assumes primordial significance because it justified direct resort by
petitioner to this Court in a petition for review.

XYST argues that there exists a perfected contract of sale between the
parties. This was perfected from the moment there was a meeting of the minds
upon the thing which is object of the contract and upon the price as manifested

by the September 14, 1994 letter. Hence, upon the perfection of the contract, the
parties

may

reciprocally

demand

performance. Further,

XYST

avers

that

the P1,000,000.00 reservation fee it paid is actually in the nature of earnest

money or down payment and shall be considered as part of the price and as proof
of the perfection of the contract.

Conversely, DMC insists that a contract to sell was entered into by the
parties. It avers that in the contract to sell, the element of consent is lacking, and
since the acceptance made by XYST is not absolute, no contract of sale existed
between the parties. It claims that the terms, conditions and amendments which
XYST tried to impose upon DMC and Citibank N.A. were proof that indeed XYST
had qualifiedly accepted DMCs offer.

We find the petition of XYST Corporation bereft of merit.

It is a fundamental rule that, being consensual, a contract is perfected by

mere consent.[7] From the moment of a meeting of the offer and the acceptance
upon the object and the cause that would constitute the contract, consent arises.
[8]

The essence of consent is the conformity of the parties on the terms of the

contract, that is, the acceptance by one of the offer made by the other. [9] However,
the acceptance must be absolute; otherwise, the same constitutes a counteroffer[10] and has the effect of rejecting the offer. [11]

Equally important are the three stages of a contract: (1) preparation or

negotiation, (2) perfection, and (3) consummation. Negotiation begins from the
time the prospective contracting parties manifest their interest in the contract
and ends at the moment of agreement of the parties. The perfection or birth of
the contract takes place when the parties agree upon the essential elements of
the contract. The last stage is the consummation of the contract wherein the

parties fulfill or perform the terms agreed upon in the contract, culminating in the
extinguishment thereof.[12]

XYST and DMC were still in the negotiation stage of the contract when the
latter called off the deal. The facts show that DMC as agreed undertook to obtain
the conformity of Citibank N.A. However, Citibank N.A.s consent to the intended
sale cannot be obtained since it does not conform to the amendments made by
XYST on the pro-forma Contract to Sell. By introducing amendments to the
contract, XYST presented a counter-offer to which DMC did not agree. Clearly,
there was only an offer and a counter-offer that did not sum up to any final
arrangement containing the elements of a contract. No meeting of the minds was
established. The rule on the concurrence of the offer and its acceptance did not
apply because other matters or detailsin addition to the subject matter and the
considerationwould still be stipulated and agreed upon by the parties. [13]

Therefore, since the element of consent is absent, there is no contract to

speak of. Where the parties merely exchanged offers and counter-offers, no
agreement or contract is perfected.

As to XYSTs claim that the P1,000,000.00 reservation fee it paid is earnest

money, we hold that it is not. Earnest money applies to a perfected sale. Here, no
contract

whatsoever

was

perfected

since

the

element

of

consent

was

lacking. Therefore, the reservation fee paid by XYST could not be earnest money.

Coming now to the issue of whether DMC is entitled to attorneys fees, the
Court finds that the award of attorneys fees to DMC is not proper. Article 2208 of the
Civil Code states that in the absence of a stipulation, attorneys fees cannot be
recovered, except in any of the following circumstances:
(1)

When exemplary damages are awarded;

(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)

When the defendants act or omission has compelled the

plaintiff to litigate with third persons or to incur expenses to
protect his interest;
In criminal cases of malicious prosecution against the
plaintiff;
In case of a clearly unfounded civil action or proceeding
against the plaintiff;
Where the defendant acted in gross and evident bad
faith in refusing to satisfy the plaintiffs plainly valid, just and
demandable claim;
In actions for legal support;
In actions for the recovery of wages of household
helpers, laborers and skilled workers;
In actions for indemnity under workmens compensation
and employers liability laws;
In a separate civil action to recover civil liability arising
from a crime;
When at least double judicial costs are awarded;
In any other case where the court deems it just and
equitable that attorneys fees and expenses of litigation should
be recovered.

In the instant case, none of the enumerated grounds for recovery of attorneys
fees is present.
WHEREFORE, this petition is DENIED. The September 26, 2005 Decision
and March 13, 2006 Order of the Regional Trial Court of Makati City, Branch 64 in
Civil Case No. 95-063 are hereby AFFIRMED with the modification that the award
of attorneys fees in favor of DMC is deleted. Costs against petitioner.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 109125 December 2, 1994

ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT
CORPORATION, respondents.
Antonio M. Albano for petitioners.
Umali, Soriano & Associates for private respondent.

VITUG, J.:
Assailed, in this petition for review, is the decision of the Court of Appeals, dated
04 December 1991, in CA-G.R. SP No. 26345 setting aside and declaring without
force and effect the orders of execution of the trial court, dated 30 August 1991
and 27 September 1991, in Civil Case No. 87-41058.
The antecedents are recited in good detail by the appellate court thusly:
On July 29, 1987 a Second Amended Complaint for Specific
Performance was filed by Ang Yu Asuncion and Keh Tiong, et al.,
against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the
Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058,
alleging, among others, that plaintiffs are tenants or lessees of
residential and commercial spaces owned by defendants described as
Nos. 630-638 Ongpin Street, Binondo, Manila; that they have
occupied said spaces since 1935 and have been religiously paying the
rental and complying with all the conditions of the lease contract;
that on several occasions before October 9, 1986, defendants
informed plaintiffs that they are offering to sell the premises and are
giving them priority to acquire the same; that during the
negotiations, Bobby Cu Unjieng offered a price of P6-million while
plaintiffs made a counter offer of P5-million; that plaintiffs thereafter
asked the defendants to put their offer in writing to which request
defendants acceded; that in reply to defendant's letter, plaintiffs
wrote them on October 24, 1986 asking that they specify the terms
and conditions of the offer to sell; that when plaintiffs did not receive
any reply, they sent another letter dated January 28, 1987 with the
same request; that since defendants failed to specify the terms and
conditions of the offer to sell and because of information received
that defendants were about to sell the property, plaintiffs were
compelled to file the complaint to compel defendants to sell the
property to them.

Defendants filed their answer denying the material allegations of the

complaint and interposing a special defense of lack of cause of
action.
After the issues were joined, defendants filed a motion for summary
judgment which was granted by the lower court. The trial court found
that defendants' offer to sell was never accepted by the plaintiffs for
the reason that the parties did not agree upon the terms and
conditions of the proposed sale, hence, there was no contract of sale
at all. Nonetheless, the lower court ruled that should the defendants
subsequently offer their property for sale at a price of P11-million or
below, plaintiffs will have the right of first refusal. Thus the
dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered in favor of
the defendants and against the plaintiffs summarily
dismissing the complaint subject to the aforementioned
condition that if the defendants subsequently decide to
offer their property for sale for a purchase price of
Eleven Million Pesos or lower, then the plaintiffs has the
option to purchase the property or of first refusal,
otherwise, defendants need not offer the property to the
plaintiffs if the purchase price is higher than Eleven
Million Pesos.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this Court in
CA-G.R. CV No. 21123. In a decision promulgated on September 21,
1990 (penned by Justice Segundino G. Chua and concurred in by
Justices Vicente V. Mendoza and Fernando A. Santiago), this Court
affirmed with modification the lower court's judgment, holding:
In resume, there was no meeting of the minds between
the parties concerning the sale of the property. Absent
such requirement, the claim for specific performance will
not lie. Appellants' demand for actual, moral and
exemplary damages will likewise fail as there exists no
justifiable ground for its award. Summary judgment for
defendants was properly granted. Courts may render
summary judgment when there is no genuine issue as to
any material fact and the moving party is entitled to a
judgment as a matter of law (Garcia vs. Court of
Appeals, 176 SCRA 815). All requisites obtaining, the
decision of the court a quo is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the
judgment appealed from is hereby AFFIRMED, but
subject to the following modification: The court a quo in
the aforestated decision gave the plaintiffs-appellants
the right of first refusal only if the property is sold for a
purchase price of Eleven Million pesos or lower;
however, considering the mercurial and uncertain forces
in our market economy today. We find no reason not to

grant the same right of first refusal to herein appellants

in the event that the subject property is sold for a price
in excess of Eleven Million pesos. No pronouncement as
to costs.
SO ORDERED.
The decision of this Court was brought to the Supreme Court by
petition for review on certiorari. The Supreme Court denied the
appeal on May 6, 1991 "for insufficiency in form and substances"
(Annex H, Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was pending
consideration by this Court, the Cu Unjieng spouses executed a Deed
of Sale (Annex D, Petition) transferring the property in question to
herein petitioner Buen Realty and Development Corporation, subject
to the following terms and conditions:
1. That for and in consideration of the sum of FIFTEEN
MILLION PESOS (P15,000,000.00), receipt of which in full
is hereby acknowledged, the VENDORS hereby sells,
transfers and conveys for and in favor of the VENDEE,
his heirs, executors, administrators or assigns, the
above-described property with all the improvements
found therein including all the rights and interest in the
said property free from all liens and encumbrances of
whatever nature, except the pending ejectment
proceeding;
2. That the VENDEE shall pay the Documentary Stamp
Tax, registration fees for the transfer of title in his favor
and other expenses incidental to the sale of abovedescribed property including capital gains tax and
accrued real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the name of
the Cu Unjieng spouses was cancelled and, in lieu thereof, TCT No.
195816 was issued in the name of petitioner on December 3, 1990.
On July 1, 1991, petitioner as the new owner of the subject property
wrote a letter to the lessees demanding that the latter vacate the
premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating that
petitioner brought the property subject to the notice of lis
pendens regarding Civil Case No. 87-41058 annotated on TCT No.
105254/T-881 in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991 of the
Decision in Civil Case No. 87-41058 as modified by the Court of
Appeals in CA-G.R. CV No. 21123.

On August 30, 1991, respondent Judge issued an order (Annex A,

Petition) quoted as follows:
Presented before the Court is a Motion for Execution
filed by plaintiff represented by Atty. Antonio Albano.
Both defendants Bobby Cu Unjieng and Rose Cu Unjieng
represented by Atty. Vicente Sison and Atty. Anacleto
Magno respectively were duly notified in today's
consideration of the motion as evidenced by the rubber
stamp and signatures upon the copy of the Motion for
Execution.
The gist of the motion is that the Decision of the Court
dated September 21, 1990 as modified by the Court of
Appeals in its decision in CA G.R. CV-21123, and
elevated to the Supreme Court upon the petition for
review and that the same was denied by the highest
tribunal in its resolution dated May 6, 1991 in G.R. No.
L-97276, had now become final and executory. As a
consequence, there was an Entry of Judgment by the
Supreme Court as of June 6, 1991, stating that the
aforesaid modified decision had already become final
and executory.
It is the observation of the Court that this property in
dispute was the subject of theNotice of Lis Pendens and
that the modified decision of this Court promulgated by
the Court of Appeals which had become final to the
effect that should the defendants decide to offer the
property for sale for a price of P11 Million or lower, and
considering the mercurial and uncertain forces in our
market economy today, the same right of first refusal to
herein plaintiffs/appellants in the event that the subject
property is sold for a price in excess of Eleven Million
pesos or more.
WHEREFORE, defendants are hereby ordered to execute
the necessary Deed of Sale of the property in litigation
in favor of plaintiffs Ang Yu Asuncion, Keh Tiong and
Arthur Go for the consideration of P15 Million pesos in
recognition of plaintiffs' right of first refusal and that a
new Transfer Certificate of Title be issued in favor of the
buyer.
All previous transactions involving the same property
notwithstanding the issuance of another title to Buen
Realty Corporation, is hereby set aside as having been
executed in bad faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another order, the
dispositive portion of which reads:

WHEREFORE, let there be Writ of Execution issue in the

above-entitled case directing the Deputy Sheriff Ramon
Enriquez of this Court to implement said Writ of
Execution ordering the defendants among others to
comply with the aforesaid Order of this Court within a
period of one (1) week from receipt of this Order and for
defendants to execute the necessary Deed of Sale of the
property in litigation in favor of the plaintiffs Ang Yu
Asuncion, Keh Tiong and Arthur Go for the consideration
of P15,000,000.00 and ordering the Register of Deeds of
the City of Manila, to cancel and set aside the title
already issued in favor of Buen Realty Corporation which
was previously executed between the latter and
defendants and to register the new title in favor of the
aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong and
Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ of
execution (Annex C, Petition) was issued. 1
On 04 December 1991, the appellate court, on appeal to it by private respondent,
set aside and declared without force and effect the above questioned orders of
the court a quo.
In this petition for review on certiorari, petitioners contend that Buen Realty can
be held bound by the writ of execution by virtue of the notice of lis pendens,
carried over on TCT No. 195816 issued in the name of Buen Realty, at the time of
the latter's purchase of the property on 15 November 1991 from the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the adoption of such
arrangements as the right of first refusal, a purchase option and a contract to
sell. For ready reference, we might point out some fundamental precepts that
may find some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil
Code). The obligation is constituted upon the concurrence of the essential
elements thereof, viz: (a) The vinculum juris or juridical tie which is the efficient
cause established by the various sources of obligations (law, contracts, quasicontracts, delicts and quasi-delicts); (b) the object which is the prestation or
conduct; required to be observed (to give, to do or not to do); and (c) the subjectpersons who, viewed from the demandability of the obligation, are the active
(obligee) and the passive (obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a
meeting of minds between two persons whereby one binds himself, with respect
to the other, to give something or to render some service (Art. 1305, Civil Code). A
contract undergoes various stages that include its negotiation or preparation, its
perfection and, finally, its consummation. Negotiation covers the period from the
time the prospective contracting parties indicate interest in the contract to the
time the contract is concluded (perfected). The perfection of the contract takes

place upon the concurrence of the essential elements thereof. A contract which
is consensual as to perfection is so established upon a mere meeting of minds,
i.e., the concurrence of offer and acceptance, on the object and on the cause
thereof. A contract which requires, in addition to the above, the delivery of the
object of the agreement, as in a pledge or commodatum, is commonly referred to
as a real contract. In a solemn contract, compliance with certain formalities
prescribed by law, such as in a donation of real property, is essential in order to
make the act valid, the prescribed form being thereby an essential element
thereof. The stage ofconsummation begins when the parties perform their
respective undertakings under the contract culminating in the extinguishment
thereof.
Until the contract is perfected, it cannot, as an independent source of obligation,
serve as a binding juridical relation. In sales, particularly, to which the topic for
discussion about the case at bench belongs, the contract is perfected when a
person, called the seller, obligates himself, for a price certain, to deliver and to
transfer ownership of a thing or right to another, called the buyer, over which the
latter agrees. Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell"
where invariably the ownership of the thing sold is retained until the fulfillment of
a positive suspensive condition (normally, the full payment of the purchase price),
the breach of the condition will prevent the obligation to convey title from
acquiring an obligatory force. 2 In Dignos vs. Court of Appeals (158 SCRA 375), we
have said that, although denominated a "Deed of Conditional Sale," a sale is still
absolute where the contract is devoid of any proviso that title is reserved or the
right to unilaterally rescind is stipulated, e.g., until or unless the price is paid.
Ownership will then be transferred to the buyer upon actual or constructive
delivery (e.g., by the execution of a public document) of the property sold. Where
the condition is imposed upon the perfection of the contract itself, the failure of
the condition would prevent such perfection. 3 If the condition is imposed on the
obligation of a party which is not fulfilled, the other party may either waive the
condition or refuse to proceed with the sale (Art. 1545, Civil Code). 4
An unconditional mutual promise to buy and sell, as long as the object is made
determinate and the price is fixed, can be obligatory on the parties, and
compliance therewith may accordingly be exacted. 5
An accepted unilateral promise which specifies the thing to be sold and the price
to be paid, when coupled with a valuable consideration distinct and separate from
the price, is what may properly be termed a perfected contract of option. This
contract is legally binding, and in sales, it conforms with the second paragraph of
Article 1479 of the Civil Code, viz:
Art. 1479. . . .

An accepted unilateral promise to buy or to sell a determinate thing

for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price. (1451a) 6
Observe, however, that the option is not the contract of sale itself. 7 The optionee
has the right, but not the obligation, to buy. Once the option is exercised timely,
i.e., the offer is accepted before a breach of the option, a bilateral promise to sell
and to buy ensues and both parties are then reciprocally bound to comply with
their respective undertakings. 8
Let us elucidate a little. A negotiation is formally initiated by an offer. An
imperfect promise (policitacion) is merely an offer. Public advertisements or
solicitations and the like are ordinarily construed as mere invitations to make
offers or only as proposals. These relations, until a contract is perfected, are not
considered binding commitments. Thus, at any time prior to the perfection of the
contract, either negotiating party may stop the negotiation. The offer, at this
stage, may be withdrawn; the withdrawal is effective immediately after its
manifestation, such as by its mailing and not necessarily when the offeree learns
of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given to the
offeree within which to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration, the
offeror is still free and has the right to withdraw the offer before its acceptance,
or, if an acceptance has been made, before the offeror's coming to know of such
fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code;
see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is
applicable to a unilateral promise to sell under Art. 1479, modifying the previous
decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319,
Civil Code; Rural Bank of Paraaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez
vs. Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised
whimsically or arbitrarily; otherwise, it could give rise to a damage claim under
Article 19 of the Civil Code which ordains that "every person must, in the exercise
of his rights and in the performance of his duties, act with justice, give everyone
his due, and observe honesty and good faith."
(2) If the period has a separate consideration, a contract of "option" is
deemed perfected, and it would be a breach of that contract to withdraw the offer
during the agreed period. The option, however, is an independent contract by
itself, and it is to be distinguished from the projected main agreement (subject
matter of the option) which is obviously yet to be concluded. If, in fact, the
optioner-offeror withdraws the offer before its acceptance(exercise of the option)
by the optionee-offeree, the latter may not sue for specific performance on the
proposed contract ("object" of the option) since it has failed to reach its own
stage of perfection. The optioner-offeror, however, renders himself liable for
damages for breach of the option. In these cases, care should be taken of the real
nature of the consideration given, for if, in fact, it has been intended to be part of
the consideration for the main contract with a right of withdrawal on the part of
the optionee, the main contract could be deemed perfected; a similar instance
would be an "earnest money" in a contract of sale that can evidence its perfection
(Art. 1482, Civil Code).
In the law on sales, the so-called "right of first refusal" is an innovative juridical
relation. Needless to point out, it cannot be deemed a perfected contract of sale
under Article 1458 of the Civil Code. Neither can the right of first refusal,

understood in its normal concept, per se be brought within the purview of an

option under the second paragraph of Article 1479, aforequoted, or possibly of an
offer under Article 1319 9 of the same Code. An option or an offer would require,
among other things, 10 a clear certainty on both the object and the cause or
consideration of the envisioned contract. In a right of first refusal, while the
object might be made determinate, the exercise of the right, however, would be
dependent not only on the grantor's eventual intention to enter into a binding
juridical relation with another but also on terms, including the price, that
obviously are yet to be later firmed up. Prior thereto, it can at best be so
described as merely belonging to a class of preparatory juridical relations
governed not by contracts (since the essential elements to establish the vinculum
juris would still be indefinite and inconclusive) but by, among other laws of
general application, the pertinent scattered provisions of the Civil Code on human
conduct.
Even on the premise that such right of first refusal has been decreed under a final
judgment, like here, its breach cannot justify correspondingly an issuance of a
writ of execution under a judgment that merely recognizes its existence, nor
would it sanction an action for specific performance without thereby negating the
indispensable element of consensuality in the perfection of contracts. 11 It is not
to say, however, that the right of first refusal would be inconsequential for, such
as already intimated above, an unjustified disregard thereof, given, for instance,
the circumstances expressed in Article 19 12 of the Civil Code, can warrant a
recovery for damages.
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely
accorded a "right of first refusal" in favor of petitioners. The consequence of such
a declaration entails no more than what has heretofore been said. In fine, if, as it
is here so conveyed to us, petitioners are aggrieved by the failure of private
respondents to honor the right of first refusal, the remedy is not a writ of
execution on the judgment, since there is none to execute, but an action for
damages in a proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development Corporation,
the alleged purchaser of the property, has acted in good faith or bad faith and
whether or not it should, in any case, be considered bound to respect the
registration of the lis pendens in Civil Case No. 87-41058 are matters that must
be independently addressed in appropriate proceedings. Buen Realty, not having
been impleaded in Civil Case No. 87-41058, cannot be held subject to the writ of
execution issued by respondent Judge, let alone ousted from the ownership and
possession of the property, without first being duly afforded its day in court.
We are also unable to agree with petitioners that the Court of Appeals has erred
in holding that the writ of execution varies the terms of the judgment in Civil Case
No. 87-41058, later affirmed in CA-G.R. CV-21123. The Court of Appeals, in this
regard, has observed:
Finally, the questioned writ of execution is in variance with the
decision of the trial court as modified by this Court. As already
stated, there was nothing in said decision 13 that decreed the
execution of a deed of sale between the Cu Unjiengs and respondent
lessees, or the fixing of the price of the sale, or the cancellation of
title in the name of petitioner (Limpin vs. IAC, 147 SCRA 516;

Pamantasan ng Lungsod ng Maynila vs. IAC, 143 SCRA 311; De

Guzman vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA 885).
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could
not have decreed at the time the execution of any deed of sale between the Cu
Unjiengs and petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the
questioned Orders, dated 30 August 1991 and 27 September 1991, of the court a
quo. Costs against petitioners.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 111238 January 25, 1995

ADELFA PROPERTIES, INC., petitioner,
vs.
COURT OF APPEALS, ROSARIO JIMENEZ-CASTAEDA and SALUD
JIMENEZ, respondents.

REGALADO, J.:
The main issues presented for resolution in this petition for review on certiorari of
the judgment of respondent Court of appeals, dated April 6, 1993, in CA-G.R. CV
No. 34767 1 are (1) whether of not the "Exclusive Option to Purchase" executed
between petitioner Adelfa Properties, Inc. and private respondents Rosario
Jimenez-Castaeda and Salud Jimenez is an option contract; and (2) whether or
not there was a valid suspension of payment of the purchase price by said
petitioner, and the legal effects thereof on the contractual relations of the parties.
The records disclose the following antecedent facts which culminated in the
present appellate review, to wit:
1. Herein private respondents and their brothers, Jose and Dominador Jimenez,
were the registered co-owners of a parcel of land consisting of 17,710 square
meters, covered by Transfer Certificate of Title (TCT) No. 309773, 2situated in
Barrio Culasi, Las Pias, Metro Manila.
2. On July 28, 1988, Jose and Dominador Jimenez sold their share consisting of
one-half of said parcel of land, specifically the eastern portion thereof, to herein

petitioner pursuant to a "Kasulatan sa Bilihan ng Lupa." 3Subsequently, a

"Confirmatory Extrajudicial Partition Agreement" 4 was executed by the Jimenezes,
wherein the eastern portion of the subject lot, with an area of 8,855 square
meters was adjudicated to Jose and Dominador Jimenez, while the western portion
was allocated to herein private respondents.
3. Thereafter, herein petitioner expressed interest in buying the western portion
of the property from private respondents. Accordingly, on November 25, 1989, an
"Exclusive Option to Purchase" 5 was executed between petitioner and private
respondents, under the following terms and conditions:
1. The selling price of said 8,655 square meters of the subject
property is TWO MILLION EIGHT HUNDRED FIFTY SIX THOUSAND ONE
HUNDRED FIFTY PESOS ONLY (P2,856,150.00)
2. The sum of P50,000.00 which we received from ADELFA
PROPERTIES, INC. as an option money shall be credited as partial
payment upon the consummation of the sale and the balance in the
sum of TWO MILLION EIGHT HUNDRED SIX THOUSAND ONE HUNDRED
FIFTY PESOS (P2,806,150.00) to be paid on or before November 30,
1989;
3. In case of default on the part of ADELFA PROPERTIES, INC. to pay
said balance in accordance with paragraph 2 hereof, this option shall
be cancelled and 50% of the option money to be forfeited in our favor
and we will refund the remaining 50% of said money upon the sale of
said property to a third party;
4. All expenses including the corresponding capital gains tax, cost of
documentary stamps are for the account of the VENDORS, and
expenses for the registration of the deed of sale in the Registry of
Deeds are for the account of ADELFA PROPERTIES, INC.
Considering, however, that the owner's copy of the certificate of title issued to
respondent Salud Jimenez had been lost, a petition for the re-issuance of a new
owner's copy of said certificate of title was filed in court through Atty. Bayani L.
Bernardo, who acted as private respondents' counsel. Eventually, a new owner's
copy of the certificate of title was issued but it remained in the possession of
Atty. Bernardo until he turned it over to petitioner Adelfa Properties, Inc.
4. Before petitioner could make payment, it received summons 6 on November 29,
1989, together with a copy of a complaint filed by the nephews and nieces of
private respondents against the latter, Jose and Dominador Jimenez, and herein
petitioner in the Regional Trial Court of Makati, docketed as Civil Case No. 895541, for annulment of the deed of sale in favor of Household Corporation and
recovery of ownership of the property covered by TCT No. 309773. 7
5. As a consequence, in a letter dated November 29, 1989, petitioner informed
private respondents that it would hold payment of the full purchase price and
suggested that private respondents settle the case with their nephews and
nieces, adding that ". . . if possible, although November 30, 1989 is a holiday, we
will be waiting for you and said plaintiffs at our office up to 7:00 p.m." 8 Another
letter of the same tenor and of even date was sent by petitioner to Jose and
Dominador Jimenez. 9 Respondent Salud Jimenez refused to heed the suggestion

of petitioner and attributed the suspension of payment of the purchase price to

"lack of word of honor."
6. On December 7, 1989, petitioner caused to be annotated on the title of the lot
its option contract with private respondents, and its contract of sale with Jose and
Dominador Jimenez, as Entry No. 1437-4 and entry No. 1438-4, respectively.
7. On December 14, 1989, private respondents sent Francisca Jimenez to see Atty.
Bernardo, in his capacity as petitioner's counsel, and to inform the latter that
they were cancelling the transaction. In turn, Atty. Bernardo offered to pay the
purchase price provided that P500,000.00 be deducted therefrom for the
settlement of the civil case. This was rejected by private respondents. On
December 22, 1989, Atty. Bernardo wrote private respondents on the same
matter but this time reducing the amount from P500,000.00 to P300,000.00, and
this was also rejected by the latter.
8. On February 23, 1990, the Regional Trial Court of Makati dismissed Civil Case
No. 89-5541. Thus, on February 28, 1990, petitioner caused to be annotated anew
on TCT No. 309773 the exclusive option to purchase as Entry No. 4442-4.
9. On the same day, February 28, 1990, private respondents executed a Deed of
Conditional Sale 10 in favor of Emylene Chua over the same parcel of land for
P3,029,250, of which P1,500,000.00 was paid to private respondents on said date,
with the balance to be paid upon the transfer of title to the specified one-half
portion.
10. On April 16, 1990, Atty. Bernardo wrote private respondents informing the
latter that in view of the dismissal of the case against them, petitioner was willing
to pay the purchase price, and he requested that the corresponding deed of
absolute sale be executed. 11 This was ignored by private respondents.
11. On July 27, 1990, private respondents' counsel sent a letter to petitioner
enclosing therein a check for P25,000.00 representing the refund of fifty percent
of the option money paid under the exclusive option to purchase. Private
respondents then requested petitioner to return the owner's duplicate copy of the
certificate of title of respondent Salud Jimenez. 12 Petitioner failed to surrender
the certificate of title, hence private respondents filed Civil Case No. 7532 in the
Regional Trial Court of Pasay City, Branch 113, for annulment of contract with
damages, praying, among others, that the exclusive option to purchase be
declared null and void; that defendant, herein petitioner, be ordered to return the
owner's duplicate certificate of title; and that the annotation of the option
contract on TCT No. 309773 be cancelled. Emylene Chua, the subsequent
purchaser of the lot, filed a complaint in intervention.
12. The trial court rendered judgment 13 therein on September 5, 1991 holding
that the agreement entered into by the parties was merely an option contract,
and declaring that the suspension of payment by herein petitioner constituted a
counter-offer which, therefore, was tantamount to a rejection of the option. It
likewise ruled that herein petitioner could not validly suspend payment in favor of
private respondents on the ground that the vindicatory action filed by the latter's
kin did not involve the western portion of the land covered by the contract
between petitioner and private respondents, but the eastern portion thereof
which was the subject of the sale between petitioner and the brothers Jose and
Dominador Jimenez. The trial court then directed the cancellation of the exclusive

option to purchase, declared the sale to intervenor Emylene Chua as valid and
binding, and ordered petitioner to pay damages and attorney's fees to private
respondents, with costs.
13. On appeal, respondent Court of appeals affirmed in toto the decision of the
court a quo and held that the failure of petitioner to pay the purchase price within
the period agreed upon was tantamount to an election by petitioner not to buy
the property; that the suspension of payment constituted an imposition of a
condition which was actually a counter-offer amounting to a rejection of the
option; and that Article 1590 of the Civil Code on suspension of payments applies
only to a contract of sale or a contract to sell, but not to an option contract which
it opined was the nature of the document subject of the case at bar. Said
appellate court similarly upheld the validity of the deed of conditional sale
executed by private respondents in favor of intervenor Emylene Chua.
In the present petition, the following assignment of errors are raised:
1. Respondent court of appeals acted with grave abuse of discretion in making its
finding that the agreement entered into by petitioner and private respondents
was strictly an option contract;
2. Granting arguendo that the agreement was an option contract, respondent
court of Appeals acted with grave abuse of discretion in grievously failing to
consider that while the option period had not lapsed, private respondents could
not unilaterally and prematurely terminate the option period;
3. Respondent Court of Appeals acted with grave abuse of discretion in failing to
appreciate fully the attendant facts and circumstances when it made the
conclusion of law that Article 1590 does not apply; and
4. Respondent Court of Appeals acted with grave abuse of discretion in
conforming with the sale in favor of appellee Ma. Emylene Chua and the award of
damages and attorney's fees which are not only excessive, but also without in
fact and in law. 14
An analysis of the facts obtaining in this case, as well as the evidence presented
by the parties, irresistibly leads to the conclusion that the agreement between
the parties is a contract to sell, and not an option contract or a contract of sale.
I
1. In view of the extended disquisition thereon by respondent court, it would be
worthwhile at this juncture to briefly discourse on the rationale behind our
treatment of the alleged option contract as a contract to sell, rather than a
contract of sale. The distinction between the two is important for in contract of
sale, the title passes to the vendee upon the delivery of the thing sold; whereas
in a contract to sell, by agreement the ownership is reserved in the vendor and is
not to pass until the full payment of the price. In a contract of sale, the vendor
has lost and cannot recover ownership until and unless the contract is resolved or
rescinded; whereas in a contract to sell, title is retained by the vendor until the
full payment of the price, such payment being a positive suspensive condition and
failure of which is not a breach but an event that prevents the obligation of the
vendor to convey title from becoming effective. Thus, a deed of sale is considered

absolute in nature where there is neither a stipulation in the deed that title to the
property sold is reserved in the seller until the full payment of the price, nor one
giving the vendor the right to unilaterally resolve the contract the moment the
buyer fails to pay within a fixed period. 15
There are two features which convince us that the parties never intended to
transfer ownership to petitioner except upon the full payment of the purchase
price. Firstly, the exclusive option to purchase, although it provided for automatic
rescission of the contract and partial forfeiture of the amount already paid in case
of default, does not mention that petitioner is obliged to return possession or
ownership of the property as a consequence of non-payment. There is no
stipulation anent reversion or reconveyance of the property to herein private
respondents in the event that petitioner does not comply with its obligation. With
the absence of such a stipulation, although there is a provision on the remedies
available to the parties in case of breach, it may legally be inferred that the
parties never intended to transfer ownership to the petitioner to completion of
payment of the purchase price.
In effect, there was an implied agreement that ownership shall not pass to the
purchaser until he had fully paid the price. Article 1478 of the civil code does not
require that such a stipulation be expressly made. Consequently, an implied
stipulation to that effect is considered valid and, therefore, binding and
enforceable between the parties. It should be noted that under the law and
jurisprudence, a contract which contains this kind of stipulation is considered a
contract to sell.
Moreover, that the parties really intended to execute a contract to sell, and not a
contract of sale, is bolstered by the fact that the deed of absolute sale would
have been issued only upon the payment of the balance of the purchase price, as
may be gleaned from petitioner's letter dated April 16, 1990 16 wherein it
informed private respondents that it "is now ready and willing to pay you
simultaneously with the execution of the corresponding deed of absolute sale."
Secondly, it has not been shown there was delivery of the property, actual or
constructive, made to herein petitioner. The exclusive option to purchase is not
contained in a public instrument the execution of which would have been
considered equivalent to delivery. 17 Neither did petitioner take actual, physical
possession of the property at any given time. It is true that after the
reconstitution of private respondents' certificate of title, it remained in the
possession of petitioner's counsel, Atty. Bayani L. Bernardo, who thereafter
delivered the same to herein petitioner. Normally, under the law, such possession
by the vendee is to be understood as a delivery. 18 However, private respondents
explained that there was really no intention on their part to deliver the title to
herein petitioner with the purpose of transferring ownership to it. They claim that
Atty. Bernardo had possession of the title only because he was their counsel in
the petition for reconstitution. We have no reason not to believe this explanation
of private respondents, aside from the fact that such contention was never
refuted or contradicted by petitioner.
2. Irrefragably, the controverted document should legally be considered as a
perfected contract to sell. On this particular point, therefore, we reject the
position and ratiocination of respondent Court of Appeals which, while awarding
the correct relief to private respondents, categorized the instrument as "strictly
an option contract."

The important task in contract interpretation is always the ascertainment of the

intention of the contracting parties and that task is, of course, to be discharged
by looking to the words they used to project that intention in their contract, all
the words not just a particular word or two, and words in context not words
standing alone. 19Moreover, judging from the subsequent acts of the parties which
will hereinafter be discussed, it is undeniable that the intention of the parties was
to enter into a contract to sell. 20 In addition, the title of a contract does not
necessarily determine its true nature. 21 Hence, the fact that the document under
discussion is entitled "Exclusive Option to Purchase" is not controlling where the
text thereof shows that it is a contract to sell.
An option, as used in the law on sales, is a continuing offer or contract by which
the owner stipulates with another that the latter shall have the right to buy the
property at a fixed price within a certain time, or under, or in compliance with,
certain terms and conditions, or which gives to the owner of the property the
right to sell or demand a sale. It is also sometimes called an "unaccepted offer."
An option is not of itself a purchase, but merely secures the privilege to buy. 22 It
is not a sale of property but a sale of property but a sale of the right to
purchase. 23 It is simply a contract by which the owner of property agrees with
another person that he shall have the right to buy his property at a fixed price
within a certain time. He does not sell his land; he does not then agree to sell it;
but he does sell something, that it is, the right or privilege to buy at the election
or option of the other party. 24 Its distinguishing characteristic is that it imposes
no binding obligation on the person holding the option, aside from the
consideration for the offer. Until acceptance, it is not, properly speaking, a
contract, and does not vest, transfer, or agree to transfer, any title to, or any
interest or right in the subject matter, but is merely a contract by which the
owner of property gives the optionee the right or privilege of accepting the offer
and buying the property on certain terms. 25
On the other hand, a contract, like a contract to sell, involves a meeting of minds
two persons whereby one binds himself, with respect to the other, to give
something or to render some service. 26 Contracts, in general, are perfected by
mere consent, 27 which is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract.
The offer must be certain and the acceptance absolute. 28
The distinction between an "option" and a contract of sale is that an option is an
unaccepted offer. It states the terms and conditions on which the owner is willing
to sell the land, if the holder elects to accept them within the time limited. If the
holder does so elect, he must give notice to the other party, and the accepted
offer thereupon becomes a valid and binding contract. If an acceptance is not
made within the time fixed, the owner is no longer bound by his offer, and the
option is at an end. A contract of sale, on the other hand, fixes definitely the
relative rights and obligations of both parties at the time of its execution. The
offer and the acceptance are concurrent, since the minds of the contracting
parties meet in the terms of the agreement. 29
A perusal of the contract in this case, as well as the oral and documentary
evidence presented by the parties, readily shows that there is indeed a
concurrence of petitioner's offer to buy and private respondents' acceptance
thereof. The rule is that except where a formal acceptance is so required,
although the acceptance must be affirmatively and clearly made and must be
evidenced by some acts or conduct communicated to the offeror, it may be made

either in a formal or an informal manner, and may be shown by acts, conduct, or

words of the accepting party that clearly manifest a present intention or
determination to accept the offer to buy or sell. Thus, acceptance may be shown
by the acts, conduct, or words of a party recognizing the existence of the contract
of sale. 30
The records also show that private respondents accepted the offer of petitioner to
buy their property under the terms of their contract. At the time petitioner made
its offer, private respondents suggested that their transfer certificate of title be
first reconstituted, to which petitioner agreed. As a matter of fact, it was
petitioner's counsel, Atty. Bayani L. Bernardo, who assisted private respondents
in filing a petition for reconstitution. After the title was reconstituted, the parties
agreed that petitioner would pay either in cash or manager's check the amount of
P2,856,150.00 for the lot. Petitioner was supposed to pay the same on November
25, 1989, but it later offered to make a down payment of P50,000.00, with the
balance of P2,806,150.00 to be paid on or before November 30, 1989. Private
respondents agreed to the counter-offer made by petitioner. 31 As a result, the socalled exclusive option to purchase was prepared by petitioner and was
subsequently signed by private respondents, thereby creating a perfected
contract to sell between them.
It cannot be gainsaid that the offer to buy a specific piece of land was definite and
certain, while the acceptance thereof was absolute and without any condition or
qualification. The agreement as to the object, the price of the property, and the
terms of payment was clear and well-defined. No other significance could be given
to such acts that than they were meant to finalize and perfect the transaction.
The parties even went beyond the basic requirements of the law by stipulating
that "all expenses including the corresponding capital gains tax, cost of
documentary stamps are for the account of the vendors, and expenses for the
registration of the deed of sale in the Registry of Deeds are for the account of
Adelfa properties, Inc." Hence, there was nothing left to be done except the
performance of the respective obligations of the parties.
We do not subscribe to private respondents' submission, which was upheld by
both the trial court and respondent court of appeals, that the offer of petitioner
to deduct P500,000.00, (later reduced to P300,000.00) from the purchase price
for the settlement of the civil case was tantamount to a counter-offer. It must be
stressed that there already existed a perfected contract between the parties at
the time the alleged counter-offer was made. Thus, any new offer by a party
becomes binding only when it is accepted by the other. In the case of private
respondents, they actually refused to concur in said offer of petitioner, by reason
of which the original terms of the contract continued to be enforceable.
At any rate, the same cannot be considered a counter-offer for the simple reason
that petitioner's sole purpose was to settle the civil case in order that it could
already comply with its obligation. In fact, it was even indicative of a desire by
petitioner to immediately comply therewith, except that it was being prevented
from doing so because of the filing of the civil case which, it believed in good
faith, rendered compliance improbable at that time. In addition, no inference can
be drawn from that suggestion given by petitioner that it was totally abandoning
the original contract.
More importantly, it will be noted that the failure of petitioner to pay the balance
of the purchase price within the agreed period was attributed by private

respondents to "lack of word of honor" on the part of the former. The reason of
"lack of word of honor" is to us a clear indication that private respondents
considered petitioner already bound by its obligation to pay the balance of the
consideration. In effect, private respondents were demanding or exacting
fulfillment of the obligation from herein petitioner. with the arrival of the period
agreed upon by the parties, petitioner was supposed to comply with the
obligation incumbent upon it to perform, not merely to exercise an option or a
right to buy the property.
The obligation of petitioner on November 30, 1993 consisted of an obligation to
give something, that is, the payment of the purchase price. The contract did not
simply give petitioner the discretion to pay for the property. 32 It will be noted that
there is nothing in the said contract to show that petitioner was merely given a
certain period within which to exercise its privilege to buy. The agreed period was
intended to give time to herein petitioner within which to fulfill and comply with
its obligation, that is, to pay the balance of the purchase price. No evidence was
presented by private respondents to prove otherwise.
The test in determining whether a contract is a "contract of sale or purchase" or a
mere "option" is whether or not the agreement could be specifically
enforced. 33 There is no doubt that the obligation of petitioner to pay the purchase
price is specific, definite and certain, and consequently binding and enforceable.
Had private respondents chosen to enforce the contract, they could have
specifically compelled petitioner to pay the balance of P2,806,150.00. This is
distinctly made manifest in the contract itself as an integral stipulation,
compliance with which could legally and definitely be demanded from petitioner
as a consequence.
This is not a case where no right is as yet created nor an obligation declared, as
where something further remains to be done before the buyer and seller obligate
themselves. 34 An agreement is only an "option" when no obligation rests on the
party to make any payment except such as may be agreed on between the parties
as consideration to support the option until he has made up his mind within the
time specified. 35 An option, and not a contract to purchase, is effected by an
agreement to sell real estate for payments to be made within specified time and
providing forfeiture of money paid upon failure to make payment, where the
purchaser does not agree to purchase, to make payment, or to bind himself in any
way other than the forfeiture of the payments made. 36 As hereinbefore discussed,
this is not the situation obtaining in the case at bar.
While there is jurisprudence to the effect that a contract which provides that the
initial payment shall be totally forfeited in case of default in payment is to be
considered as an option contract, 37 still we are not inclined to conform with the
findings of respondent court and the court a quo that the contract executed
between the parties is an option contract, for the reason that the parties were
already contemplating the payment of the balance of the purchase price, and
were not merely quoting an agreed value for the property. The term "balance,"
connotes a remainder or something remaining from the original total sum already
agreed upon.
In other words, the alleged option money of P50,000.00 was actually earnest
money which was intended to form part of the purchase price. The amount of
P50,000.00 was not distinct from the cause or consideration for the sale of the
property, but was itself a part thereof. It is a statutory rule that whenever earnest

money is given in a contract of sale, it shall be considered as part of the price and
as proof of the perfection of the contract. 38 It constitutes an advance payment
and must, therefore, be deducted from the total price. Also, earnest money is
given by the buyer to the seller to bind the bargain.
There are clear distinctions between earnest money and option money, viz.: (a)
earnest money is part of the purchase price, while option money ids the money
given as a distinct consideration for an option contract; (b) earnest money is
given only where there is already a sale, while option money applies to a sale not
yet perfected; and (c) when earnest money is given, the buyer is bound to pay the
balance, while when the would-be buyer gives option money, he is not required to
buy. 39
The aforequoted characteristics of earnest money are apparent in the so-called
option contract under review, even though it was called "option money" by the
parties. In addition, private respondents failed to show that the payment of the
balance of the purchase price was only a condition precedent to the acceptance of
the offer or to the exercise of the right to buy. On the contrary, it has been
sufficiently established that such payment was but an element of the performance
of petitioner's obligation under the contract to sell. 40
II
1. This brings us to the second issue as to whether or not there was valid
suspension of payment of the purchase price by petitioner and the legal
consequences thereof. To justify its failure to pay the purchase price within the
agreed period, petitioner invokes Article 1590 of the civil Code which provides:
Art. 1590. Should the vendee be disturbed in the possession or
ownership of the thing acquired, or should he have reasonable
grounds to fear such disturbance, by a vindicatory action or a
foreclosure of mortgage, he may suspend the payment of the price
until the vendor has caused the disturbance or danger to cease,
unless the latter gives security for the return of the price in a proper
case, or it has been stipulated that, notwithstanding any such
contingency, the vendee shall be bound to make the payment. A
mere act of trespass shall not authorize the suspension of the
payment of the price.
Respondent court refused to apply the aforequoted provision of law on the
erroneous assumption that the true agreement between the parties was a
contract of option. As we have hereinbefore discussed, it was not an option
contract but a perfected contract to sell. Verily, therefore, Article 1590 would
properly apply.
Both lower courts, however, are in accord that since Civil Case No. 89-5541 filed
against the parties herein involved only the eastern half of the land subject of the
deed of sale between petitioner and the Jimenez brothers, it did not, therefore,
have any adverse effect on private respondents' title and ownership over the
western half of the land which is covered by the contract subject of the present
case. We have gone over the complaint for recovery of ownership filed in said
case 41 and we are not persuaded by the factual findings made by said courts. At a
glance, it is easily discernible that, although the complaint prayed for the
annulment only of the contract of sale executed between petitioner and the

Jimenez brothers, the same likewise prayed for the recovery of therein plaintiffs'
share in that parcel of land specifically covered by TCT No. 309773. In other
words, the plaintiffs therein were claiming to be co-owners of the entire parcel of
land described in TCT No. 309773, and not only of a portion thereof nor, as
incorrectly interpreted by the lower courts, did their claim pertain exclusively to
the eastern half adjudicated to the Jimenez brothers.
Such being the case, petitioner was justified in suspending payment of the
balance of the purchase price by reason of the aforesaid vindicatory action filed
against it. The assurance made by private respondents that petitioner did not
have to worry about the case because it was pure and simple harassment 42 is not
the kind of guaranty contemplated under the exceptive clause in Article 1590
wherein the vendor is bound to make payment even with the existence of a
vindicatory action if the vendee should give a security for the return of the price.
2. Be that as it may, and the validity of the suspension of payment
notwithstanding, we find and hold that private respondents may no longer be
compelled to sell and deliver the subject property to petitioner for two reasons,
that is, petitioner's failure to duly effect the consignation of the purchase price
after the disturbance had ceased; and, secondarily, the fact that the contract to
sell had been validly rescinded by private respondents.
The records of this case reveal that as early as February 28, 1990 when petitioner
caused its exclusive option to be annotated anew on the certificate of title, it
already knew of the dismissal of civil Case No. 89-5541. However, it was only on
April 16, 1990 that petitioner, through its counsel, wrote private respondents
expressing its willingness to pay the balance of the purchase price upon the
execution of the corresponding deed of absolute sale. At most, that was merely a
notice to pay. There was no proper tender of payment nor consignation in this
case as required by law.
The mere sending of a letter by the vendee expressing the intention to
pay, without the accompanying payment, is not considered a valid tender of
payment. 43 Besides, a mere tender of payment is not sufficient to compel private
respondents to deliver the property and execute the deed of absolute sale. It is
consignation which is essential in order to extinguish petitioner's obligation to
pay the balance of the purchase price. 44 The rule is different in case of an option
contract 45 or in legal redemption or in a sale with right to repurchase, 46 wherein
consignation is not necessary because these cases involve an exercise of a right
or privilege (to buy, redeem or repurchase) rather than the discharge of an
obligation, hence tender of payment would be sufficient to preserve the right or
privilege. This is because the provisions on consignation are not applicable when
there is no obligation to pay. 47 A contract to sell, as in the case before us,
involves the performance of an obligation, not merely the exercise of a privilege
of a right. consequently, performance or payment may be effected not by tender
of payment alone but by both tender and consignation.
Furthermore, petitioner no longer had the right to suspend payment after the
disturbance ceased with the dismissal of the civil case filed against it.
Necessarily, therefore, its obligation to pay the balance again arose and resumed
after it received notice of such dismissal. Unfortunately, petitioner failed to
seasonably make payment, as in fact it has deposit the money with the trial court
when this case was originally filed therein.

By reason of petitioner's failure to comply with its obligation, private respondents

elected to resort to and did announce the rescission of the contract through its
letter to petitioner dated July 27, 1990. That written notice of rescission is
deemed sufficient under the circumstances. Article 1592 of the Civil Code which
requires rescission either by judicial action or notarial act is not applicable to a
contract to sell. 48 Furthermore, judicial action for rescission of a contract is not
necessary where the contract provides for automatic rescission in case of
breach, 49 as in the contract involved in the present controversy.
We are not unaware of the ruling in University of the Philippines vs. De los
Angeles, etc. 50 that the right to rescind is not absolute, being ever subject to
scrutiny and review by the proper court. It is our considered view, however, that
this rule applies to a situation where the extrajudicial rescission is contested by
the defaulting party. In other words, resolution of reciprocal contracts may be
made extrajudicially unless successfully impugned in court. If the debtor impugns
the declaration, it shall be subject to judicial determination 51 otherwise, if said
party does not oppose it, the extrajudicial rescission shall have legal effect. 52
In the case at bar, it has been shown that although petitioner was duly furnished
and did receive a written notice of rescission which specified the grounds
therefore, it failed to reply thereto or protest against it. Its silence thereon
suggests an admission of the veracity and validity of private respondents'
claim. 53 Furthermore, the initiative of instituting suit was transferred from the
rescinder to the defaulter by virtue of the automatic rescission clause in the
contract. 54 But then, the records bear out the fact that aside from the
lackadaisical manner with which petitioner treated private respondents' latter of
cancellation, it utterly failed to seriously seek redress from the court for the
enforcement of its alleged rights under the contract. If private respondents had
not taken the initiative of filing Civil Case No. 7532, evidently petitioner had no
intention to take any legal action to compel specific performance from the former.
By such cavalier disregard, it has been effectively estopped from seeking the
affirmative relief it now desires but which it had theretofore disdained.
WHEREFORE, on the foregoing modificatory premises, and considering that the
same result has been reached by respondent Court of Appeals with respect to the
relief awarded to private respondents by the court a quo which we find to be
correct, its assailed judgment in CA-G.R. CV No. 34767 is hereby AFFIRMED.
SO ORDERED.

Heirs of Ignacio vs. Home Bankers Savings and Trust Co. (2013) (Civil Law)
Heirs of Ignacio vs. Home Bankers Savings and Trust Co. | G.R. No. 177783 |
January 23, 2013
Facts: The case sprang from a real estate mortgage of two parcels of land in
August 1981. Fausto C. Ignacio mortgaged the properties to Home Bankers
Savings and Trust Company (Bank) as security for a loan extended by the Bank.
After Ignacio defaulted in the payment of the loan, the property was foreclosed

and subsequently sold to the Bank in a public auction.Ignacio offered to

repurchase the property. Universal Properties Inc. (UPI), the banks collecting
agent sent Ignacio a letter on March 22, 1984 which contained the terms of the
repurchase. However, Ignacio annotated in the letter new terms and conditions.
He claimed that these were verbal agreements between himself and the Banks
collection agent, UPI.No repurchase agreement was finalized between Ignacio and
the Bank. Thereafter the Bank sold the property to third parties. Ignacio then
filed an action for specific performance against the Bank for the reconveyance of
the properties after payment of the balance of the purchase price. He argued that
there was implied acceptance of the counter-offer of the sale through the receipt
of the terms by representatives of UPI. The Bank denied that it gave its consent
to the counter-offer of Ignacio. It countered that it did not approve the unilateral
amendments placed by Ignacio.
Issue: Whether or not the negotiations between Ignacio and UPI is binding on the
Bank.
Held: A contract of sale is perfected only when there is consent validly given.
There is no consent when a party merely negotiates a qualified acceptance or a
counter-offer. An acceptance must reflect all aspects of the offer to amount to a
meeting of the minds between the parties.In this case, while it is apparent that
Ignacio proposed new terms and conditions to the repurchase agreement, there
was no showing that the Bank approved the modified offer. =
The negotiations between Ignacio and UPI, the collection agent, were merely
preparatory to the repurchase agreement and, therefore, was not binding on the
Bank. Ignacio could not compel the Bank to accede to the repurchase of the
property.
A corporation may only give valid acceptance of an offer of sale through its
authorized officers or agents. Specifically, a counter-offer to repurchase a
property will not bind a corporation by mere acceptance of an agent in the
absence of evidence of authority from the corporations board of directors.

SECOND DIVISION
KOREAN AIR CO., LTD. G.R. No. 170369
and SUK KYOO KIM,
Petitioners,
Present:
CARPIO, J., Chairperson,
BRION,*
- versus - PERALTA,
ABAD, and
PEREZ,** JJ.
ADELINA A.S. YUSON, Promulgated:
Respondent. June 16, 2010
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION
CARPIO, J.:
The Case
This is a petition[1] for review on certiorari under Rule 45 of the Rules of
Court. The petition challenges the 28 June 2005 Decision [2] and 3 November 2005
Resolution[3] of the Court of Appeals in CA-G.R. SP No. 86762. The Court of
Appeals set aside the 30 July 2004 Resolution [4] of the National Labor Relations
Commission (NLRC) in NLRC NCR CA No. 034928-03, affirming the 31 January 2003
Decision[5] of Labor Arbiter Ariel Cadiente Santos (Labor Arbiter Santos) in NLRCNCR S Case No. 30-11-05543-01.
The Facts
In July 1975, Korean Air Co., Ltd. (Korean Air) hired Adelina A.S. Yuson (Yuson) as
reservations agent. Korean Air promoted Yuson to assistant manager in 1993, and
to passenger sales manager in 1999.
Korean Air had an International Passenger Manual (IPM) which contained, among
others, travel benefit to its employees. However, Korean Air never implemented
the travel benefit under the manual. Instead, Korean Air granted all its employees
travel benefit as contained in the collective bargaining agreement (CBA). Yuson
availed of the travel benefit under the CBA during her stay in the company.
In 2000, Korean Air suffered a net loss of over $367,000,000. Consequently,
Korean Air reduced its budget for 2001 by 10 percent.
In April 2001, Yuson requested Korean Air that she be transferred from the
passenger sales department to the cargo department. Yuson wanted to be
exposed to the operations of the cargo department because she intended to
pursue a cargo agency business after her retirement. On 4 June 2001, Korean Air
temporarily transferred Yuson to the cargo department as cargo dispatch. Yuson
continued to receive the same compensation and exercise the same authority as
passenger sales manager.

In order to cut costs, Korean Air offered its employees an early retirement
program (ERP). In a memorandum[6] dated 21 August 2001, Korean Air stated that:
The results of operation of Korean Air for the Year 2000, was [sic]
bad. The Company suffered a net loss of over THREE HUNDRED SIXTY
SEVEN MILLION DOLLARS, (USD367,000,000.00). For this reason, the
budget for the Year 2001 was reduced by 10%. Accordingly, to
prevent further losses, Head Office recently implemented an early
retirement program not only for Head Office staffs but throughout all
Korean Air branches abroad. Unfortunately, in Head Office alone, 500
positions will be affected. This program is being offered before finally
conducting a retrenchment program.
In compliance with Head Office instruction, MNLSM Management, on
its discretion, is hereby offering the said early retirement program to
its staff. Availing employees shall be given ONE AND A HALF MONTHS
(1.50%) [sic] salary for every year of service and other benefits. This
rate is 50% higher than the retrenchment pay prevailing in the CBA.
Please accept our deepest regrets.[7]
In a letter[8] dated 23 August 2001 and addressed to Korean Airs Philippine
general manager Suk Kyoo Kim (Suk), Yuson accepted the offer for early
retirement.
In a letter[9] dated 24 August 2001, Suk informed Yuson that she was excluded
from the ERP because she was retiring on 8 January 2002. Suk stated that:
Please be informed that you are excluded from the Early Retirement
Program. The program is intended to staffs, upon discretion of
management, who still have long years left with the Company before
reaching retirement age. You are already due for retirement on
January 8, 2002. This program is being implemented by the Company
as a cost saving tool to prevent further losses.[10]
In a letter[11] dated 1 September 2001 and addressed to Suk, Yuson claimed that
Korean Air was bound by the perfected contract and accused the company of
harassment and discrimination. Yuson stated that:
Korean Air offered the Early Retirement Program through its memo
under MNLSM#01-13 dated 21 August 2001. I accepted this offer
under my letter dated 23 August 2001. With this Offer and

Acceptance, a Contract has been legally perfected between Korean

Air and myself.
xxxx
Not too long ago, you tried to demote me from my position as
Passenger Sales Manager to Cargo Dispatch, a clerical position. This
was not only done internally but also communicated with other
airlines. This has caused me undue embarrassment and humiliation. x
xx
Your unilateral decision to exclude me from the early Retirement
Program which Head Office has stated as (and I quote) ..... [sic] not
only for Head Office staffs but THROUGHOUT ALL KOREAN AIR
BRANCHES
ABROAD
is
another
case
of
harassment
and
discrimination. It is very clear that the Program does not allow for
discretion on the part of Korean Air MNL Manager to harass or
discriminate against any employee for any reason whatsoever, be it
age, gender or nationality.
I therefore request that Korean Air perform its obligation arising out
of a Contract legally perfected with the Offer of 21 August 2001 and
Acceptance of 23 August 2001. I sincerely hope I will not have to
engage the services of counsel to enforce performance of our
Contract as this will subject me to further distress and mental
anguish, plus a considerable amount of expenditure, which can be
the basis for additional claim for damages.[12]
In a letter[13] dated 12 September 2001 and addressed to Yuson, Suk stated that:
1.

The Early Retirement Program (ERP) is a plan by the Head

Office for the purpose of reducing the workforce of Korean Air
(the Company) due to substantial losses prior to undertaking a
retrenchment program. Contrary to your assertion, my letter
dated 21 August 2001 was not an absolute offer but rather an
invitation to possible qualified employees to consider the ERP
subject to the approval and acceptance by the Company, through
the Head Office, in the exercise of its discretion. x x x

2.

This explains the Companys position stated in my letterresponse dated 24 August 2001 wherein the ERP is supposedly for
employees who have still a number of years to serve the Company
in order to prevent further losses. It is, therefore, clear why you
are disqualified under the ERP since you are scheduled to retire
on 08 January 2002. There is no closure of business contemplated
herein but merely a reduction of personnel to prevent further
losses to the Company.

3.
4.

xxxx
It is unfortunate that you invoke the afore-said [sic]
announcement knowing that as early as April 2001, your request
for payment of one and one-half 1 and 1/2 months for every year
of service retirement benefit was denied by our SSG, Mr. Lee. As

unmistakably explained to you, you cannot avail of the ERP since

you are due to retire on 08 January 2002. As a cost-saving
measure, it would be contrary to this objective of the Company to
include you simply because you accept the offer for early
retirement.
5.

On the other hand, you have also been informed that since you
have less than one (1) year from your retirement date, you have
the option to retire before such date. x x x

6.

Also, as in previous ERPs implemented by the Company, you

very well know as Sales Manager that the Head Office does the
acceptance and approval of any ERP application. In fact, in the
case of your staff, I even consult your opinion before forwarding
MNLSMs recommendation on the matter to the Head Office. x x x

7.

In

xxxx

8.

For the record, your supposed transfer from Passenger Sales

Department to the Cargo Department on June 4, 2001 was upon
your own request in April 2001 since, as you mentioned to me,
you intend to pursue a cargo agency business with your sister
upon your retirement. x x x

9.

Lest you forgot our discussion on the matter, you were never
demoted from your position as Sales Manager, whether in terms
of your compensation or scope of authority. As agreed upon, your
transfer was temporary for you to learn the particulars involving
cargo operations. In fact, I never appointed a new Sales Manager
to replace you.

10.

The term Cargo Dispatch, again as known to you, is a phrase

peculiar to the Company referring to the Cargo Department. I, for
instance, while assigned as Regional Sales Manager of Manila, if
temporarily assigned to Hongkong [sic] Cargo, would be referred
to as HKGRH Cargo Dispatch. This position, despite the title, is
obviously not clerical or derogatory of my rank and authority.

11.

Everybody in our Office can attest to the truth that you

yourself requested the temporary transfer to cargo. I am
saddened, therefore, to hear, especially from you, of your
accusation that I have tried to demote and/or discriminate against
you. For your information, before your transfer, I even instructed
SSF, Mr. Kim, to extend his full support to you in your desire to
learn cargo operations.[14]

memorandum[15] dated

20

September

2001,

Korean

Air

informed

its

employees that application for the ERP ended on 15 September 2001 and that
only the applications of eligible employees shall be forwarded to the head office
for approval.

In a letter[16] dated 22 September 2001 and addressed to Suk, Yuson reiterated

her claims that (1) Korean Airs offer for early retirement and her acceptance of
the offer constituted a perfected contract; (2) Korean Air unjustly transferred her
from passenger sales department to cargo department; and (3) the transfer
caused her embarrassment.
In a letter[17] dated 10 October 2001 and addressed to Yuson, Suk stated that:
1.

We believe that the Companys position regarding the Early

Retirement Program (ERP) has been fully explained to you in our
letters dated 21 September 2001 and 24 August 2001,
respectively.

2.

You complained of injustice, undue embarrassment and

humiliation, in relation to your transfer to Cargo. However, in our
meeting on 04 October 2001, with SSG, Tito Cosico and Chito
Cajucom, you informed us to forget about the issue on
discrimination concerning Cargo Dispatch, since you just included
it when you were excluded from the ERP. Furthermore, you also
stated I like to be in Cargo, I love working in Cargo, I have no
regrets.[18]

In a letter[19] dated 6 November 2001 and addressed to Suk, a certain Patricia A.

Galang, representing Yuson, followed up and made a final demand for Yusons
benefit

under

the

ERP. In

another

letter[20] dated

27

November

2001

and

addressed to Suk, Yuson applied for travel benefit under the IPM. Chapter 14,
Section 2.14.3.4 of the manual states:
2.14.3.4 Retired Officers or Employees
Retired officers or employees may be granted free transportation on
the following basis provided that the application therefore shall be
submitted to the office which he/she belonged just before retirement
for approval not later than maximum five years from the date of
retirement:
xxxx
b) Employees who terminated their employment after having served
ten consecutive years or more and their immediate families be
favored with their Points (if any) not later than three years from the
date of retirement.
c) Officers who completed their term of services or employees who
reached full retirement status and their immediate families may be

favored with their Points (if any) not later than five years from the
date of retirement.[21]
On 28 November 2001, Yuson filed with the arbitration branch of the NLRC a
complaint against Korean Air and Suk for payment of benefit under the ERP, moral
damages, exemplary damages, and attorneys fees.
In a letter[22] dated 29 November 2001, Suk informed Yuson that the points system
as contained in the IPM had never been practiced in the Philippines. Suk stated
that:
The points system of earning travel benefits you referred to under
Chapter 14 of the International Passenger Manual (IPM) is not
applicable in your case since the Company follows the system as
agreed upon between MNLSM staffs and Management. You are aware
that in our 26 years of operation in Manila, we never used point
system in this regard. Doing so can result to a lesser travel benefit
which is a violation of the said agreement.[23]
On 8 January 2002, her 60th birthday, Yuson availed of the optional retirement
under Article 287[24] of the Labor Code, as amended.
On 12 March 2002, Yuson filed with the Makati Prosecution Office a criminal
complaint against Korean Air officials Tae Sang Kim (Tae), Kwan Hee Lee (Lee),
and Benedicto Cajucom for violation of Article 287. A corresponding information
was filed with Branch 146 of the Makati Regional Trial Court (RTC).
Yuson filed with the Bureau of Immigration a complaint for deportation against
Korean Air officials Tae, Lee, Byung Jo Kim, Ja Chool Koo, Yoo Jin Kim, Cho Mahn
Hung, Kim Seong Ung, Evi Sung Hwang, and Park Jin Suk. In a Resolution[25] dated
30 July 2002, the Bureau dismissed the complaint.
The Labor Arbiters Ruling
In his 31 January 2003 Decision, Labor Arbiter Santos denied for lack of merit
Yusons claims for benefit under the ERP, for moral and exemplary damages, and
for attorneys fees. The dispositive portion of the Decision stated:

WHEREFORE, premises considered, complainants claim under the

Early Retirement Program and payment of moral and exemplary
damages, and attorneys fees are hereby denied for lack of
merit. Complainant is nevertheless deemed to have opted to retire
on January 8, 2002 when she reached the age of sixty years pursuant
to Article 287 of the Labor Code. However, in view of the previous
offer of respondent company to pay complainant one (1) month for
every year of service, respondent company is accordingly directed to
pay complainant her retirement benefits as follows:
Monthly salary x No. of Years in Service
P59,000.00 x 26 years - P1,534,000.00
SO ORDERED.[26]
Labor Arbiter Santos held that (1) the 21 August 2001 ERP memorandum included
only rank-and-file, and excluded managerial, employees; (2) the memorandum
reserved to Korean Air discretion in approving applications for the ERP; (3)
approval of applications for the ERP was a valid exercise of Korean Airs
management prerogative; (4) Yuson could not claim benefits under both Article
287 and Korean Airs ERP; (5) Yusons claim for benefit under the ERP became moot
when she availed of the optional retirement under Article 287; (6) Yuson was not
entitled to travel benefit under the IPM because Korean Air never implemented
such travel benefit; (7) Yuson was not demoted she requested to be transferred to
the

cargo

department

and

continued

to

receive

the

same

compensation

and exercise the same authority as passenger sales manager; (8) Yuson was not
entitled to moral damages because there was no showing of evil motive on
Korean Airs part; (9) Yuson was not entitled to exemplary damages because
Korean Air did not act in a wanton, oppressive, or malevolent manner; and (10)
Korean Air acted in good faith.
On 14 February 2003, Tae and Yuson entered into a compromise agreement [27] and
amicably settled the criminal case. They stated that:
1. Without necessarily admitting that they violated any law, and in
deference to the desire of the Honorable Judge that the parties
amicably settle the RTC Case if only to buy peace and avoid a
protracted criminal litigation, Messrs. Tae Sang Kim, Benedicto
Cajucom and the Company have agreed to pay Adelina A.S. Yuson,
and the latter acknowledges receipt from them the amount of ONE
MILLION SIX HUNDRED SEVENTY ONE THOUSAND FIVE HUNDRED
FORTY SIX PESOS AND NINETY TWO CENTAVOS (P1,671,546.92),
representing her retirement benefit pursuant to Article 287 of the
Labor Code, as amended. This amount includes six percent (6%) legal

interest from the date of her retirement on 8 January 2002 until 8

February 2003, less Ms. Yusons salary loan balance in the amount of
TWENTY FIVE THOUSAND PESOS (P25,000.00). x x x This amount
represents a complete settlement of all her claims in the RTC Case
and such compensation and benefits to which she may be entitled
under Article 287 of the Labor Code, as amended;
2. x x x x
3. x x x x
4. x x x x
5. The parties hereby agree and understand that the withdrawal of
the RTC Case is without prejudice to other claims, which Mrs. Yuson
may have in the NLRC Case. The parties agree and understand that
Ms. Yuson shall continue to pursue her claims in the NLRC Case,
which shall remain pending until final decision by the NLRC and the
appropriate courts. The parties agree that Ms. Yuson shall deduct the
amount of ONE MILLION FIVE HUNDRED NINETY THREE THOUSAND
ONE PESOS AND EIGHTY CENTAVOS (P1,593,001.80), which she
received under this Compromise Agreement, from the amount that
will be awarded to her by the NLRC and the appropriate courts should
the NLRC Case be decided in her favor. [28]

Yuson filed with the NLRC an appeal memorandum [29] dated 10 March 2003
challenging Labor Arbiter Santos 31 January 2003 Decision. The NLRC referred the
case to Labor Arbiter Cristeta D. Tamayo (Labor Arbiter Tamayo) for report and
recommendation.
The NLRCs Ruling
In

its

30

January

2004

Decision, [30] the

NLRC

adopted

the

report

and

recommendations of Labor Arbiter Tamayo to order Korean Air and Suk to pay
Yuson her benefit under the ERP and to give her 10 Korean Air economy tickets.
Korean Air and Suk filed with the NLRC a motion [31] for reconsideration dated 6
May 2004. In its 30 July 2004 Resolution, the NLRC set aside its 30 January 2004
Decision and affirmed Labor Arbiter Santos 31 January 2003 Decision. The NLRC
held that (1) the 21 August 2001 memorandum reserved to Korean Air discretion
in approving applications for the ERP; (2) approval of applications for the ERP was
a valid exercise of Korean Airs management prerogative; (3) Yuson was retiring

on 8 January 2002; (4) inclusion of Yuson in the ERP would have been contrary to
the objective of the program as a cost-saving scheme; (5) Labor Arbiter Tamayo
had no basis in granting Yuson 10 Korean Air economy tickets; (6) Yuson did not
show that Korean Air ever implemented the travel benefit under the IPM; and (7)
Korean Air and Suk adequately showed that the company had been giving one
Korean Air ticket to retiring employees.

Yuson filed with the Court of Appeals a petition [32] for certiorari under Rule 65 of
the Rules of Court.
The Court of Appeals Ruling
In its 28 June 2005 Decision, the Court of Appeals set aside the NLRCs 30 July
2004 Resolution and affirmed the commissions 30 January 2004 Decision. The
Court of Appeals held that (1) the 21 August 2001 memorandum included both
rank-and-file and managerial employees; (2) Korean Airs offer for early retirement
and Yusons acceptance of the offer constituted a perfected contract under Article
1315 of the Civil Code; (3) Korean Air forced Yuson to retire on 8 January 2002;
and (4) Korean Airs reason for excluding Yuson in the ERP was misplaced because
the company would have incurred more costs by keeping Yuson in its employ until
her compulsory retirement on 8 January 2007.
Hence, the present petition.
The Issues
Korean Air and Suk raise as issues that the Court of Appeals erred in (1) failing to
consider that Yusons claim for benefit under the ERP became moot when she
availed of the optional retirement under Article 287 of the Labor Code, as
amended; (2) ruling that Yuson may claim benefit under the ERP; and (3)
awarding Yuson 10 Korean Air economy tickets.

The Courts Ruling

The petition is meritorious.
On 8 January 2002, Yuson availed of the optional retirement under Article 287 of
the Labor Code, as amended. The third paragraph of Article 287 states that:
In the absence of a retirement plan or agreement providing for
retirement benefits of employees in the establishment, an employee
upon reaching the age of sixty (60) years or more, but not beyond
sixty-five (65) years which is hereby declared the compulsory
retirement age, who has served at least five (5) years in the said
establishment, may retire and shall be entitled to retirement pay
equivalent to at least one-half (1/2) month salary for every year of
service, a fraction of at least six (6) months being considered as one
whole year.
On 14 February 2003, Yuson accepted P1,671,546.92 as retirement benefit under
Article 287. The compromise agreement between Tae and Yuson stated that:
Without necessarily admitting that they violated any law, and in
deference to the desire of the Honorable Judge that the parties
amicably settle the RTC Case if only to buy peace and avoid a
protracted criminal litigation, Messrs. Tae Sang Kim, Benedicto
Cajucom and the Company have agreed to pay Adelina A.S. Yuson,
and the latter acknowledges receipt from them the amount of ONE
MILLION SIX HUNDRED SEVENTY ONE THOUSAND FIVE HUNDRED
FORTY SIX PESOS AND NINETY TWO CENTAVOS (P1,671,546.92),
representing her retirement benefit pursuant to Article 287 of the
Labor Code, as amended. This amount includes six percent (6%) legal
interest from the date of her retirement on 8 January 2002 until 8
February 2003, less Ms. Yusons salary loan balance in the amount of
TWENTY FIVE THOUSAND PESOS (P25,000.00). x x x This amount
represents a complete settlement of all her claims in the RTC Case
and such compensation and benefits to which she may be entitled
under Article 287 of the Labor Code, as amended. [33] (Emphasis
supplied)
Yusons claim for benefit under the ERP became moot when she availed of the
optional

retirement

under

Article

287

and

accepted

the

benefit. By

her

acceptance of the benefit, Yuson is deemed to have opted to retire under Article
287. In Capili v. National Labor Relations Commission,[34] the Court held that:
[A] suprevening event worked against the petitioner. On 30 April
1994, after receiving the Labor Arbiters decision but before filing his
appeal from that decision, the petitioner received partial payment of

his retirement pay and other accrued benefits from respondent

UM. During the pendency of his appeal with the NLRC, specifically, on
6 October 1994, he received full payment of his retirement
benefits. In his Counter-Manifestation he declared:
COMPLAINANT-APPELLANT . . . most respectfully
maintains that the partial acceptance of the retirement
benefits does not render the instant case moot and
academic. The complainant-appellant who had long and
unjustly been denied of his retirement benefits since
August 18, 1993 cannot be expected to remain idle.
By his acceptance of retirement benefits the petitioner is deemed to
have opted to retire under the third paragraph of Article 287 of the
Labor Code, as amended by R.A. No. 7641.Thereunder he could
choose to retire upon reaching the age of 60 years, provided it is
before reaching 65 years, which is the compulsory age of retirement.
Also worth noting is his statement that he had long and unjustly been
denied of his retirement benefits since August 18, 1993. Elsewise
stated, he was entitled to retirement benefits as early as 18 August
1993 but was denied thereof without justifiable reason. This could
only mean that he has already acceded to his retirement, effective on
such date when he reached the age of 60 years. [35] (Emphasis
supplied)
The Court of Appeals held that Yuson may claim benefit under the ERP because
the offer was certain and the acceptance is absolute; hence, there is a valid
contract pursuant to the last paragraph of Article 1315 of the New Civil Code. [36]
The Court disagrees. Articles 1315, 1318 and 1319 of the Civil Code, respectively,
state:
Art. 1315. Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfillment of what has
been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage
and law.
Art. 1318. There is no contract unless the following requisites concur:
(1)

Consent of the contracting parties;

(2)
contract;

Object certain which is the subject matter of the

(3)

Cause of the obligation which is established.

Art. 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the

contract. The offer must be certain and the acceptance absolute. x x

x (Emphasis supplied)
An offer is a unilateral proposition made by one party to another for the
celebration of a contract. For an offer to be certain, a contract must come into
existence by the mere acceptance of the offeree without any further act on the
offerors part. The offer must be definite, complete and intentional. In Spouses
Paderes v. Court of Appeals,[37] the Court held that, There is an offer in the context
of Article 1319 only if the contract can come into existence by the mere
acceptance

of

the

offeree,

without

any

further

act

on

the

offeror. Hence, the offer must be definite, complete and intentional.

part

of

the

[38]

In the present case, the offer is not certain: (1) the 21 August 2001 memorandum
clearly states that, MNLSM Management, on its discretion, is hereby offering the
said early retirement program to its staff; (2) applications for the ERP were
forwarded to the head office for approval, and further acts on the offerors part
were necessary before the contract could come into existence; and (3) the 21
August 2001 memorandum clearly states Korean Airs intention, which was, to
prevent further losses. Korean Air could not have intended to ministerially
approve all applications for the ERP.
The Court of Appeals held that Korean Air forced Yuson to retire on 8 January
2002. The Court of Appeals stated that, By its letter of August 24, 2001, Private
Respondent is forcing Petitioner to retire even if the choice of optional retirement
belongs to the latter.[39]
The Court disagrees. The surrounding circumstances show that Korean Air did not
force Yuson to retire on 8 January 2002. Yuson was actually retiring on 8 January
2002: (1) inApril 2001, Yuson requested Korean Air that she be transferred to the
cargo department because she intended to pursue a cargo agency business after
her retirement; (2) in its 24 August and 12 September 2001 letters, Korean Air
clearly stated that Yuson was retiring on 8 January 2002; (3) Yuson never
corrected or denied Korean Airs statements regarding her retirement date; (4) on
8

January

2002,

Yuson

retired under

Article

287

of

the

Labor

Code,

as

amended; (5) in his 31 January 2003 Decision, Labor Arbiter Santos stated, As
admitted by complainant, she was set to retire by January 2002;[40] and (6) in its

30 July 2004 Resolution, the NLRC stated, it was shown in the records of this case
that [Yuson] was about to retire sometime in January 2002, which in fact
happened.[41]
Approval

of

applications

for the

ERP is

within

Korean

Airs

management

prerogatives. The exercise of management prerogative is valid as long as it is not

done in a malicious, harsh, oppressive, vindictive, or wanton manner. [42] In the
present case, the Court sees no bad faith on Korean Airs part. The 21 August 2001
memorandum clearly states that Korean Air, on its discretion, was offering ERP to
its employees. The memorandum also states that the reason for the ERP was to
prevent further losses. Korean Air did not abuse its discretion when it excluded
Yuson in the ERP. To allow Yuson to avail of the ERP would have been contrary to
the purpose of the ERP.
The Court of Appeals awarded Yuson 10 Korean Air economy tickets. The Court
disagrees. Aside from a photocopy of two pages of the IPM, the records fail to
show the basis for the award of the tickets. Even the Court of Appeals totally
failed to discuss the basis for the award. In his 31 January 2003 Decision, Labor
Arbiter Santos held that Yuson was not entitled to the tickets. Labor Arbiter
Santos stated that:
Anent the issue on the applicability of the IPM, complainant alleged
that the non-implementation thereof with respect to her was a
discriminatory act on the part of the respondents. Such argument
would have been meritorious if said policy was used in the
Philippines by respondent company but was denied her. x x x
Verily the use of different policies for employees benefits in various
countries is not necessarily discriminatory. Complainants reliance on
Pakistan International Airlines vs. Ople (190 SCRA 90) is
unfortunately misplaced. In said case, the issue is the enforceability
of the provisions in the employment contract which provided for the
exclusive application of Pakistani laws in case of labor disputes and
the venue for settlement of any dispute arising out of or in
connection with the contract which should only be heard in the
courts of Karachi, Pakistan. For this reason, the Supreme Court
correctly ruled that said provision was inapplicable considering that
employer-employee relationship is imbued with public interest, thus,
Philippine laws were applicable.[43]
In its 30 July 2004 Resolution, the NLRC also held that Yuson was not entitled to
the tickets. The NLRC stated that:

[O]n the award of ten (10) Korean Air tickets, we likewise assiduously
re-examined the record of this case and we must admit that we have
overlooked the fact that in the recommendation made by Labor
Arbiter Cristeta D. Tamayo, which as we stated earlier was adopted
en toto by former Commissioner Vicente S.E. Veloso, except in her
summation, there was nothing in her disquisition which shows that
she ever discussed the basis of her award of ten Korean Air tickets in
favor of complainant. Decisions, however, concisely written, must
distinctly and clearly set forth the facts and the law upon which they
are based, a rule applicable as well to dispositions by quasi-judicial
and administrative bodies. (Naguiat vs. NLRC, 269 SCRA 664) In any
event, while it may be argued that the point system of earning travel
benefits is mentioned in Chapter 14, Section 2.14.3.4 of the
International Passenger Manual of Korean Air, nevertheless, it is also
very clear that complainant has not shown that this policy has been
implemented in the Philippines or has ever been granted to local
managers. In the absence of a single precedent where this privilege
was extended by the respondent company, the effort of complainant
to prove her entitlement to this benefit must also fall on barren
ground. In contrast, respondents have adequately shown that, during
complainants tenure, respondent company has extended to her CBA
benefits on free tickets, and even more. Certainly, complainant
cannot enjoy the best of both worlds, so to speak. [44]
Korean Air had never implemented the IPM in the Philippines. Its, employees,
including Yuson, received the travel benefit under the CBA. During her 26-year
stay in Korean Air, Yuson already received more than 10 tickets.
WHEREFORE, we GRANT the petition. We SET ASIDE the 28 June 2005 Decision and
3 November 2005 Resolution of the Court of Appeals in CA-G.R. SP No. 86762,
andAFFIRM the

30

July

2004

Resolution

of

the

National

Labor

Relations

Commission in NLRC NCR CA No. 034928-03 which, in turn, affirmed the 31

January 2003 Decision of the Labor Arbiter in NLRC-NCR S Case No. 30-11-0554301.
SO ORDERED.

B. Parties and Capacities of the Parties Absolute Incapacity and Relative

Incapacity
Case:
FIRST DIVISION

CORAZON CATALAN, G.R. No. 159567

LIBRADA CATALAN-LIM,
EULOGIO CATALAN,
MILA CATALAN-MILAN,
ZENAIDA CATALAN, Present:
ALEX CATALAN, DAISY
CATALAN, FLORIDA PUNO, C.J., Chairperson,
CATALAN and GEMMA SANDOVAL-GUTIERREZ,
CATALAN, Heirs of the late CORONA,
FELICIANO CATALAN, AZCUNA, and
Petitioners, GARCIA, JJ.
- versus Promulgated:
JOSE BASA, MANUEL BASA,
LAURETA BASA, DELIA BASA,
JESUS BASA and ROSALINDA
BASA, Heirs of the late MERCEDES
CATALAN,
Respondents. July 31, 2007
x------------------------------------------------x

DECISION

PUNO, C.J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules
of Court of the Court of Appeals decision in CA-G.R. CV No. 66073, which affirmed
the judgment of the Regional Trial Court, Branch 69, Lingayen, Pangasinan, in
Civil Case No. 17666, dismissing the Complaint for Declaration of Nullity of
Documents, Recovery of Possession and Ownership, and damages.

The facts, which are undisputed by the parties, follow:

On October 20, 1948, FELICIANO CATALAN (Feliciano) was discharged from
active military service. The Board of Medical Officers of the Department of
Veteran Affairs found that he was unfit to render military service due to
his schizophrenic reaction, catatonic type, which incapacitates him because of
flattening of mood and affect, preoccupation with worries, withdrawal, and sparce
(sic) and pointless speech.[1]

On September 28, 1949, Feliciano married Corazon Cerezo.[2]

On June 16, 1951, a document was executed, titled Absolute Deed of
Donation,[3] wherein

Feliciano

allegedly

donated

to

his

sister

MERCEDES

CATALAN(Mercedes) one-half of the real property described, viz:

A parcel of land located at Barangay Basing, Binmaley,
Pangasinan. Bounded on the North by heirs of Felipe Basa; on the
South by Barrio Road; On the East by heirs of Segundo Catalan; and
on the West by Roman Basa. Containing an area of Eight Hundred
One (801) square meters, more or less.

The donation was registered with the Register of Deeds. The Bureau of
Internal Revenue then cancelled Tax Declaration No. 2876, and, in lieu thereof,
issued Tax Declaration No. 18080[4] to Mercedes for the 400.50 square meters
donated to her. The remaining half of the property remained in Felicianos name
under Tax Declaration No. 18081.[5]
On December 11, 1953, Peoples Bank and Trust Company filed Special
Proceedings No. 4563[6] before the Court of First Instance of Pangasinan to
declare Feliciano incompetent. On December 22, 1953, the trial court issued its
Order for Adjudication of Incompetency for Appointing Guardian for the Estate
and Fixing Allowance[7] of Feliciano. The following day, the trial court appointed
Peoples Bank and Trust Company as Felicianos guardian. [8] Peoples Bank and Trust
Company has been subsequently renamed, and is presently known as the Bank of
the Philippine Islands (BPI).
On November 22, 1978, Feliciano and Corazon Cerezo donated Lots 1 and 3
of their property, registered under Original Certificate of Title (OCT) No. 18920, to
their son Eulogio Catalan. [9]
On March 26, 1979, Mercedes sold the property in issue in favor of her
children Delia and Jesus Basa.[10] The Deed of Absolute Sale was registered with
the Register of Deeds of Pangasinan on February 20, 1992, and Tax Declaration
No. 12911 was issued in the name of respondents.[11]

On June 24, 1983, Feliciano and Corazon Cerezo donated Lot 2 of the
aforementioned property registered under OCT No. 18920 to their children Alex
Catalan, Librada Catalan and Zenaida Catalan. On February 14, 1983, Feliciano
and Corazon Cerezo donated Lot 4 (Plan Psu-215956) of the same OCT No. 18920
to Eulogio and Florida Catalan.[12]
On April 1, 1997, BPI, acting as Felicianos guardian, filed a case for
Declaration of Nullity of Documents, Recovery of Possession and Ownership, [13] as
well as damages against the herein respondents. BPI alleged that the Deed of
Absolute Donation to Mercedes was void ab initio, as Feliciano never donated the
property to Mercedes. In addition, BPI averred that even if Feliciano had truly
intended to give the property to her, the donation would still be void, as he was
not of sound mind and was therefore incapable of giving valid consent. Thus, it
claimed that if the Deed of Absolute Donation was void ab initio, the subsequent
Deed of Absolute Sale to Delia and Jesus Basa should likewise be nullified, for
Mercedes Catalan had no right to sell the property to anyone. BPI raised doubts
about the authenticity of the deed of sale, saying that its registration long after
the death of Mercedes Catalan indicated fraud. Thus, BPI sought remuneration for
incurred damages and litigation expenses.
On August 14, 1997, Feliciano passed away. The original complaint was
amended to substitute his heirs in lieu of BPI as complainants in Civil Case No.
17666.
On December 7, 1999, the trial court found that the evidence presented by
the complainants was insufficient to overcome the presumption that Feliciano was
sane and competent at the time he executed the deed of donation in favor of
Mercedes Catalan. Thus, the court declared, the presumption of sanity or
competency not having been duly impugned, the presumption of due execution of
the donation in question must be upheld.[14] It rendered judgment, viz:
WHEREFORE, in view
judgment is hereby rendered:
1.

of

the

foregoing

Dismissing plaintiffs complaint;

considerations,

2.

Declaring the defendants Jesus Basa and Delia Basa the

lawful owners of the land in question which is now declared
in their names under Tax Declaration No. 12911 (Exhibit 4);

3.

Ordering the plaintiff to pay the defendants Attorneys

fees of P10,000.00, and to pay the Costs.(sic)

SO ORDERED.[15]
Petitioners challenged the trial courts decision before the Court of Appeals
via a Notice of Appeal pursuant to Rule 41 of the Revised Rules of Court. [16] The
appellate court affirmed the decision of the trial court and held, viz:
In sum, the Regional Trial Court did not commit a reversible
error in disposing that plaintiff-appellants failed to prove the insanity
or mental incapacity of late (sic) Feliciano Catalan at the precise
moment when the property in dispute was donated.
Thus, all the elements for validity of contracts having been
present in the 1951 donation coupled with compliance with certain
solemnities required by the Civil Code in donation inter vivos of real
property under Article 749, which provides:
xxx
Mercedes Catalan acquired valid title of ownership over the
property in dispute. By virtue of her ownership, the property is
completely subjected to her will in everything not prohibited by law
of the concurrence with the rights of others (Art. 428, NCC).
The validity of the subsequent sale dated 26 March
1979 (Exhibit 3, appellees Folder of Exhibits) of the property by
Mercedes Catalan to defendant-appellees Jesus Basa and Delia Basa
must be upheld. Nothing of the infirmities which allegedly flawed its
authenticity is evident much less apparent in the deed itself or from
the evidence adduced. As correctly stated by the RTC, the fact that
the Deed of Absolute Sale was registered only in 1992, after the
death of Mercedes Catalan does not make the sale void ab
initio. Moreover, as a notarized document, the deed of absolute sale
carries the evidentiary weight conferred upon such public document
with respect to its due execution (Garrido vs. CA 236 SCRA 450). In a
similar vein, jurisprudence has it that documents acknowledged
before a notary public have in their favor the presumption of
regularity, and to contradict the same, there must be evidence that is
clear, convincing and more than preponderant (Salame vs. CA, 239
SCRA 256).
WHEREFORE, foregoing premises considered, the Decision
dated December 7, 1999 of the Regional Trial Court, Branch 69, is
hereby affirmed.
SO ORDERED.[17]

Thus, petitioners filed the present appeal and raised the following issues:
1.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
HAS DECIDED CA-G.R. CV NO. 66073 IN A WAY PROBABLY NOT
IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF
THE HONORABLE COURT IN HOLDING THAT THE REGIONAL
TRIAL COURT DID NOT COMMIT A REVERSIBLE ERROR IN
DISPOSING
THAT
PLAINTIFF-APPELLANTS
(PETITIONERS)
FAILED TO PROVE THE INSANITY OR MENTAL INCAPACITY OF
THE LATE FELICIANO CATALAN AT THE PRECISE MOMENT WHEN
THE PROPERTY IN DISPUTE WAS DONATED;
2.

WHETHER OR NOT THE CERTIFICATE OF DISABILITY FOR

DISCHARGE (EXHIBIT S) AND THE REPORT OF A BOARD OF
OFFICERS CONVENED UNDER THE PROVISIONS OF ARMY
REGULATIONS (EXHIBITS S-1 AND S-2) ARE ADMISSIBLE IN
EVIDENCE;

3.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS

HAS DECIDED CA-G.R. CV NO. 66073 IN A WAY PROBABLY NOT
IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF
THE HONORABLE COURT IN UPHOLDING THE SUBSEQUENT SALE
OF THE PROPERTY IN DISPUTE BY THE DONEE MERCEDES
CATALAN TO HER CHILDREN RESPONDENTS JESUS AND DELIA
BASA; AND-

4.

WHETHER OR NOT CIVIL CASE NO. 17666 IS BARRED BY

PRESCRIPTION AND LACHES.[18]

Petitioners aver that the presumption of Felicianos competence to donate

property to Mercedes had been rebutted because they presented more than the
requisite preponderance of evidence. First, they presented the Certificate of
Disability for the Discharge of Feliciano Catalan issued on October 20, 1948 by the
Board of Medical Officers of the Department of Veteran Affairs. Second, they
proved that on December 22, 1953, Feliciano was judged an incompetent by the
Court of First Instance of Pangasinan, and put under the guardianship of
BPI. Based on these two pieces of evidence, petitioners conclude that Feliciano
had been suffering from a mental condition since 1948 which incapacitated him
from entering into any contract thereafter, until his death on August 14,
1997. Petitioners

contend

that

Felicianos

marriage

to

Corazon

Cerezo

on September 28, 1948 does not prove that he was not insane at the time he
made the questioned donation. They further argue that the donations Feliciano
executed in favor of his successors (Decision, CA-G.R. CV No. 66073) also cannot
prove his competency because these donations were approved and confirmed in

the guardianship proceedings.[19] In addition, petitioners claim that the Deed of

Absolute Sale executed on March 26, 1979 by Mercedes Catalan and her children
Jesus and Delia Basa is simulated and fictitious. This is allegedly borne out by the
fact that the document was registered only on February 20, 1992, more that 10
years after Mercedes Catalan had already died. Since Delia Basa and Jesus Basa
both knew that Feliciano was incompetent to enter into any contract, they cannot
claim to be innocent purchasers of the property in question. [20] Lastly, petitioners
assert that their case is not barred by prescription or laches under Article 1391 of
the New Civil Code because they had filed their case on April 1, 1997, even before
the four year period after Felicianos death on August 14, 1997 had begun.[21]
The petition is bereft of merit, and we affirm the findings of the Court of
Appeals and the trial court.
A donation is an act of liberality whereby a person disposes gratuitously a
thing or right in favor of another, who accepts it. [22] Like any other contract, an
agreement of the parties is essential. Consent in contracts presupposes the
following requisites: (1) it should be intelligent or with an exact notion of the
matter to which it refers; (2) it should be free; and (3) it should be spontaneous.
[23]

The parties' intention must be clear and the attendance of a vice of consent,

like any contract, renders the donation voidable.[24]

In order for donation of property to be valid, what is crucial is the donors
capacity to give consent at the time of the donation. Certainly, there lies no doubt
in the fact that insanity impinges on consent freely given. [25] However, the burden
of proving such incapacity rests upon the person who alleges it; if no sufficient
proof to this effect is presented, capacity will be presumed. [26]
A thorough perusal of the records of the case at bar indubitably shows that
the evidence presented by the petitioners was insufficient to overcome the
presumption that Feliciano was competent when he donated the property in
question to Mercedes. Petitioners make much ado of the fact that, as early as
1948, Feliciano had been found to be suffering from schizophrenia by the Board of

Medical Officers of the Department of Veteran Affairs. By itself, however, the

allegation cannot prove the incompetence of Feliciano.
A study of the nature of schizophrenia will show that Feliciano could still be
presumed capable of attending to his property rights. Schizophrenia was brought
to the attention of the public when, in the late 1800s, Emil Kraepelin, a German
psychiatrist, combined hebrephrenia and catatonia with certain paranoid states
and called the condition dementia praecox. Eugene Bleuler, a Swiss psychiatrist,
modified Kraepelins conception in the early 1900s to include cases with a better
outlook and in 1911 renamed the condition schizophrenia. According to medical
references, in persons with schizophrenia, there is a gradual onset of symptoms,
with symptoms becoming increasingly bizarre as the disease progresses. The
condition improves (remission or residual stage) and worsens (relapses) in
cycles. Sometimes, sufferers may appear relatively normal, while other patients in
remission may appear strange because they speak in a monotone, have odd
speech habits, appear to have no emotional feelings and are prone to have ideas
of reference. The latter refers to the idea that random social behaviors are
directed against the sufferers.[27] It has been proven that the administration of the
correct

medicine

helps

the

patient. Antipsychotic

medications

help

bring

biochemical imbalances closer to normal in a schizophrenic. Medications reduce

delusions, hallucinations and incoherent thoughts and reduce or eliminate
chances of relapse.[28] Schizophrenia can result in a dementing illness similar in
many aspects to Alzheimers disease. However, the illness will wax and wane over
many years, with only very slow deterioration of intellect. [29]
From these scientific studies it can be deduced that a person suffering from
schizophrenia does not necessarily lose his competence to intelligently dispose
his property. By merely alleging the existence of schizophrenia, petitioners failed
to show substantial proof that at the date of the donation, June 16, 1951,
Feliciano Catalan had lost total control of his mental faculties. Thus, the lower
courts correctly held that Feliciano was of sound mind at that time and that this
condition continued to exist until proof to the contrary was adduced. [30] Sufficient
proof of his infirmity to give consent to contracts was only established when the

Court of First Instance of Pangasinan declared him an incompetent onDecember

22, 1953.[31]
It is interesting to note that the petitioners questioned Felicianos capacity at
the time he donated the property, yet did not see fit to question his mental
competence when he entered into a contract of marriage with Corazon Cerezo or
when he executed deeds of donation of his other properties in their favor. The
presumption that Feliciano remained competent to execute contracts, despite his
illness, is bolstered by the existence of these other contracts. Competency and
freedom from undue influence, shown to have existed in the other acts done
or contracts executed, are presumed to continue until the contrary is shown. [32]
Needless to state, since the donation was valid, Mercedes had the right to
sell the property to whomever she chose. [33] Not a shred of evidence has been
presented to prove the claim that Mercedes sale of the property to her children
was tainted with fraud or falsehood. It is of little bearing that the Deed of Sale
was registered only after the death of Mercedes. What is material is that the sale
of the property to Delia and Jesus Basa was legal and binding at the time of its
execution. Thus, the property in question belongs to Delia and Jesus Basa.
Finally, we note that the petitioners raised the issue of prescription and
laches for the first time on appeal before this Court. It is sufficient for this Court
to note that even if the present appeal had prospered, the Deed of Donation was
still a voidable, not a void, contract. As such, it remained binding as it was not
annulled in a proper action in court within four years.[34]
IN VIEW WHEREOF, there being no merit in the arguments of the
petitioners, the petition is DENIED. The decision of the Court of Appeals in CA-G.R.
CV No. 66073 is affirmed in toto.
SO ORDERED.

C. Vitiated Consent Mistake, Violence and Intimidation, Undue Influence, and

Fraud
Cases:

THIRD DIVISION

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

RESTITUTA LEONARDO, assisted by JOSE T. RAMOS, petitioners, vs. COURT OF

APPEALS, and TEODORO SEBASTIAN, VICENTE SEBASTIAN, CORAZON
SEBASTIAN, assisted by ANDRES MARCELO; PEDAD SEBASTIAN, HEIRS OF
EDUVIGIS SEBASTIAN, namely: EDUARDO S. TENORLAS, ABELARDO J.
TENORLAS, ADELA S. and SOLEDAD S. TENORLAS, represented by EDUARDO
S. TENORLAS, and HEIRS OF DOMINADOR, namely: NAPOLEON SEBASTIAN,
RUPERTO SEBASTIAN, ADORACION SEBASTIAN, PRISCILLA SEBASTIAN, LITA
SEBASTIAN, TITA SEBASTIAN and GLORIA SEBASTIAN, represented by
NAPOLEON SEBASTIAN; EVELYN SEBASTIAN; AURORA SEBASTIAN; and
JULIETA SEBASTIAN, respondents.
DECISION
CORONA, J.:
This is a petition for review under Rule 45 of the Rules of Court seeking to
reverse and set aside the decision [1] of the Court of Appeals which in turn affirmed
the judgment[2] of Branch 57, Regional Trial Court (RTC) of San Carlos City,
dismissing for lack of cause of action the complaint filed by petitioner against
private respondents for declaration of nullity of the extrajudicial settlement of
the estate of Jose Sebastian and Tomasina Paul.
Petitioner Restituta Leonardo is the only legitimate child of the late spouses
Tomasina Paul and Balbino Leonardo. Private respondents Teodoro, Victor,
Corazon, Piedad, as well as the late Eduvigis and Dominador, all surnamed
Sebastian, are the illegitimate children of Tomasina with Jose Sebastian after she
separated from Balbino Leonardo.
In an action to declare the nullity of the extrajudicial settlement of the estate
of Tomasina Paul and Jose Sebastian before Branch 57, RTC of San Carlos City,
Pangasinan, petitioner alleged that, on June 24, 1988, at around 5:00 p.m.,
private respondent Corazon Sebastian and her niece Julieta Sebastian, and a
certain Bitang, came to petitioners house to persuade her to sign a deed of
extrajudicial partition of the estate of Tomasina Paul and Jose Sebastian. Before
signing the document, petitioner allegedly insisted that they wait for her husband
Jose Ramos so he could translate the document which was written in English.
Petitioner, however, proceeded to sign the document even without her husband
and without reading the document, on the assurance of private respondent
Corazon Sebastian that petitioners share as a legitimate daughter of Tomasina
Paul was provided for in the extrajudicial partition. Petitioner then asked private
respondent Corazon and her companions to wait for her husband so he could read
the document. When petitioners husband arrived, however, private respondent
Corazon and her companions had left without leaving a copy of the document. It
was only when petitioner hired a lawyer that they were able to secure a copy and
read the contents thereof.

Petitioner refuted[3] private respondents claim that they were the legitimate
children and sole heirs of Jose Sebastian and Tomasina Paul. Despite the (de
facto) separation of petitioners father Balbino Leonardo and Tomasina Paul, the
latter remained the lawful wife of Balbino. Petitioner maintained that no joint
settlement of the estate of Jose Sebastian and Tomasina Paul could be effected
since what existed between them was co-ownership, not conjugal partnership.
They were never married to each other. The extrajudicial partition was therefore
unlawful and illegal.
Petitioner also claimed that her consent was vitiated because she was
deceived into signing the extrajudicial settlement. She further denied having
appeared before Judge Juan Austria of the Municipal Trial Court (MTC) of
Urbiztondo, Pangasinan on July 27, 1988 to acknowledge the execution of the
extrajudicial partition.
Private respondents, in their answer with counterclaim, [4] raised the defense
of lack of cause of action. They insisted that the document in question was valid
and binding between the parties. According to them, on July 27, 1988, they
personally appeared before Judge Austria of the MTC of Urbiztondo, who read and
explained the contents of the document which all of them, including petitioner,
voluntarily signed.
Private respondents contended that their declaration that they were
legitimate children of Jose Sebastian and Tomasina Paul did not affect the validity
of the extrajudicial partition. Petitioners act of signing the document estopped
her to deny or question its validity. They moreover averred that the action filed by
petitioner was incompatible with her complaint. Considering that petitioner
claimed vitiation of consent, the proper action was annulment and not declaration
of nullity of the instrument.
On July 27, 1989, petitioner filed an amended complaint [5] to include parties to
the extrajudicial partition who were not named as defendants in the original
complaint.
During the August 23, 1990 pre-trial conference, [6] no amicable settlement
was reached and the parties agreed that the only issue to be resolved was
whether petitioners consent to the extrajudicial partition was voluntarily given.
In a decision dated February 22, 1993, the RTC of San Carlos City, Pangasinan
rendered a decision[7] dismissing the complaint as well as the counterclaim. The
court a quo ruled that the element of duress or fraud that vitiates consent was
not established and that the proper action was the reformation of the instrument,
not the declaration of nullity of the extrajudicial settlement of estate. By way
of obiter dictum, the trial court stated that, being a legitimate child, petitioner
was entitled to one-half (or 19,282.5 sq.m.) of Tomasina Pauls estate as her
legitime. The 7,671.75 square meters allotted to her in the assailed extrajudicial
partition was therefore less than her correct share as provided by law.
On appeal, the Court of Appeals affirmed the judgment of the trial court in its
May 23, 1996 decision.[8] Hence, this petition for review on certiorari under Rule
45.
The sole issue in this case is whether the consent given by petitioner to the
extrajudicial settlement of estate was given voluntarily.
We hold that it was not.
The essence of consent is the agreement of the parties on the terms of the
contract, the acceptance by one of the offer made by the other. It is the

concurrence of the minds of the parties on the object and the cause which
constitutes the contract.[9] The area of agreement must extend to all points that
the parties deem material or there is no consent at all. [10]
To be valid, consent must meet the following requisites: (a) it should be
intelligent, or with an exact notion of the matter to which it refers; (b) it should
be free and (c) it should be spontaneous. Intelligence in consent is vitiated by
error; freedom by violence, intimidation or undue influence; and spontaneity by
fraud.[11]
In determining the effect of an alleged error, the courts must consider both
the objective and subjective aspects of the case which is the intellectual capacity
of the person who committed the mistake.[12]
Mistake, on the other hand, in order to invalidate consent should refer to the
substance of the thing which is the object of the contract, or to those conditions
which have principally moved one or both parties to enter into the contract. [13]
According to the late civil law authority, Arturo M. Tolentino, the (old) rule
that a party is presumed to know the import of a document to which he affixes his
signature and is bound thereby, has been altered by Art. 1332 of the Civil Code.
The provision states that [w]hen one of the parties is unable to read, or if the
contract is in a language not understood by him, and mistake or fraud is alleged,
the person enforcing the contract must show that the terms thereof have been
fully explained to the former.
Article 1332 was a provision taken from american law, necessitated by the
fact that there continues to be a fair number of people in this country without the
benefit of a good education or documents have been written in English or
Spanish.[14] The provision was intended to protect a party to a contract
disadvantaged by illiteracy, ignorance, mental weakness or some other handicap.
It contemplates a situation wherein a contract is entered into but the consent of
one of the contracting parties is vitiated by mistake or fraud committed by the
other.[15]
Thus, in case one of the parties to a contract is unable to read and fraud is
alleged, the person enforcing the contract must show that the terms thereof have
been fully explained to the former. [16] Where a party is unable to read, and he
expressly pleads in his reply that he signed the voucher in question without
knowing (its) contents which have not been explained to him, this plea is
tantamount to one of mistake or fraud in the execution of the voucher or receipt
in question and the burden is shifted to the other party to show that the former
fully understood the contents of the document; and if he fails to prove this, the
presumption of mistake (if not fraud) stands unrebutted and controlling. [17]
Contracts where consent is given by mistake or because of violence,
intimidation, undue influence or fraud are voidable. [18] These circumstances are
defects of the will, the existence of which impairs the freedom, intelligence,
spontaneity and voluntariness of the party in giving consent to the agreement. In
determining whether consent is vitiated by any of the circumstances mentioned in
Art. 1330 of the Civil Code, courts are given a wide latitude in weighing the facts
or circumstances in a given case and in deciding in favor of what they believe
actually occurred, considering the age, physical infirmity, intelligence,
relationship and the conduct of the parties at the time of making the contract and
subsequent thereto, irrespective of whether the contract is in a public or private
writing.[19]

Although under Art. 1332 there exists a presumption of mistake or

error accorded by the law to those who have not had the benefit of a good
education, one who alleges any defect or the lack of a valid consent to a contract
must establish the same by full, clear and convincing evidence, not merely by
preponderance of evidence.[20] Hence, even as the burden of proof shifts to the
defendants to rebut the presumption of mistake, the plaintiff who alleges such
mistake (or fraud) must show that his personal circumstances warrant the
application of Art. 1332.
In this case, the presumption of mistake or error on the part of petitioner was
not sufficiently rebutted by private respondents. Private respondents failed to
offer any evidence to prove that the extrajudicial settlement of estate was
explained in a language known to the petitioner, i.e. the Pangasinan dialect.
Clearly, petitioner, who only finished Grade 3, was not in a position to give her
free, voluntary and spontaneous consent without having the document, which
was in English, explained to her in the Pangasinan dialect. She stated in open
court that she did not understand English. Her testimony, translated into English,
was as follows:
Q: While you were there is your house at barangay Angatel, Urbiztondo,
Pangasinan, what happened?
A: On June 24, 1988, I was in our house because I got sick, sir.
Q: What happened?
A: When the time was about 5:00 oclock, I was awaken by my daughter-inlaw, Rita Ramos, and told me that my half sister Corazon would like to
tell us something, sir.
Q: What did you do?
A: I let them come in, sir.
Q: Did they come in?
A: Yes, sir.
Q: Who was the companion of your half sister Corazon Sebastian when she
arrived in your house?
A: Julita Sebastian and her daughter Bitang, sir.
Q: And who is this Julita Sebastian to you?
A: She is my niece, sir.
Q: And then when they got inside the house, what happened?
A: I asked them their purpose, sir.
Q: Did they tell you their purpose?
A: I asked their purpose in coming to our house and they told me, I came
here because I have a partition executed so that the share of each one
of us will be given, she said sir.
Q: Did you see that document?
A: Yes, sir.
ATTY. L. TULAGAN

Q: Did you read the document?

A: No, sir because I was waiting for my husband to have that document
read or translated to me because I could not understand, sir.
Q: What could you not understand?
A: I can not understand English, sir.
Q: But anyway, can you read?
A: Yes, sir in Pangasinan.
Q: Now, that document which according to you was brought by your half
sister Corazon Sebastian, what happened to that document?
A: Corazon Sebastian request(ed) me to sign, sir.
Q: Did you sign immediately?
A: Yes, sir, because according to her, all my shares were embodied in that
document as a legal daughter.[21]
Petitioners wish to wait for her husband, Jose T. Ramos, to explain to her the
contents of the document in the Pangasinan dialect was a reasonable and prudent
act that showed her uncertainty over what was written. Due to her limited
educational attainment, she could not understand the document in English. She
wanted to seek assistance from her husband who was then out of the house.
However, due to the misrepresentation, deception and undue pressure of her halfsister Corazon Sebastian, petitioner signed the document. Corazon assured
petitioner that she would receive her legitimate share in the estate of their late
mother.
Later on, when petitioners husband examined the extrajudicial partition
agreement, he found out that petitioner was deprived of her full legitime. Under
the law, petitioners share should have been one-half of her mothers estate,
comprising a total area of 19,282.50 square meters. Under the defective
extrajudicial settlement of estate, however, petitioner was to receive only
7,671.75 square meters. This was a substantial mistake clearly prejudicial to the
substantive interests of petitioner in her mothers estate. There is no doubt that,
given her lack of education, petitioner is protected by Art. 1332 of the Civil Code.
There is reason to believe that, had the provisions of the extrajudicial agreement
been explained to her in the Pangasinan dialect, she would not have consented to
the significant and unreasonable diminution of her rights.
MTC Judge Austria, the officer who notarized the extrajudicial settlement,
stated that he explained the contents to all the parties concerned.
Granting arguendo, however, that Judge Austria did indeed explain the provisions
of the agreement to them, the records do not reflect that he explained it to
petitioner in a language or dialect known to her. Judge Austria never stated in his
testimony before the court a quo what language or dialect he used in explaining
the contents of the document to the parties. [22] Significantly, he was not even
certain if the parties to the agreement were present during the notarization of
the document:
ATTY. TULAGAN
Q: Reflected upon all the pages of this Exhibit 1 are numerous signatures,
two of whom belongs (sic) to Piedad Paul Sebastian and Eduardo
Sebastian Tenorlas.

ATTY. D. TULAGAN
(continuing)
The Philippines on July, 1989, will you please educate us now Judge
Austria on this document?
ATTY. O. DE GUZMAN
That will be improper, your Honor.
COURT
What is the question, you repeat the question.
INTERPRETER:
Reflected upon all the pages of this Exhibit 1 are numerous signatures,
two of whom belongs (sic) to Piedad Paul Sebastian and Eduardo
Sebastian Tenorlas, in your just concluded testimony, you said that
everyone of them appeared with you, we have here a documented
evidence coming from the Department of Justice, Bureau of
Immigration and Deportation, Manila, certifying that Piedad Paul
Sebastian and Eduardo Sebastian Tenorlas did not arrive in the
Philippines or departed from the Philippines on July, 1998, will you
please educate us now Judge Austria on this document?
ATTY. O. DE GUZMAN:
Your Honor please, before the witness answer, may we examine the
certification first and may we state for the record that the month of
July, 1998 does not specify any date.
ATTY. L. TULAGAN:
July.
ATTY. O. DE GUZMAN:
But not a particular date, for the record.
ATTY. L. TULAGAN:
For the whole month of July, no departure and no arrival. This is a
certificate from the Bureau of Immigration, Manila. I do not know
about this, as a matter of fact, I do not even know this person
personally
WITNESS:
Somebody that kind of name appeared before me.
ATTY. L. TULAGAN:
Q: Since you do not know everybody from Urbiztondo, Pangasinan it is
possible that another person appeared and signed for that name?
A: Yes, possible.[23]
Therefore, the presumption of mistake under Article 1332 is controlling,
having remained unrebutted by private respondents. The evidence proving that
the document was not fully explained to petitioner in a language known to her,
given her low educational attainment, remained uncontradicted by private
respondents. We find that, in the light of the circumstances presented by the

testimonies of the witnesses for both parties, the consent of petitioner was
invalidated by a substantial mistake or error, rendering the agreement voidable.
The extrajudicial partition between private respondents and petitioner should
therefore be annulled and set aside on the ground of mistake.
In Rural Bank of Caloocan, Inc. v. Court of Appeals,[24] we ruled that a contract
may be annulled on the ground of vitiated consent, even if the act complained of
is committed by a third party without the connivance or complicity of one of the
contracting parties. We found that a substantial mistake arose from the
employment of fraud or misrepresentation. The plaintiff in that case was a 70year-old unschooled and unlettered woman who signed an unauthorized loan
obtained by a third party on her behalf. The Court annulled the contract due to a
substantial mistake which invalidated her consent.
By the same reasoning, if it is one of the contracting parties who commits the
fraud or misrepresentation, such contract may all the more be annulled due to
substantial mistake.
In Remalante v. Tibe,[25] this Court ruled that misrepresentation to an illiterate
woman who did not know how to read and write, nor understand English, is
fraudulent. Thus, the deed of sale was considered vitiated with substantial error
and fraud. This Court further held:[26]
Since it has been established by uncontradicted evidence that the plaintiff is
practically unschooled and illiterate, not knowing how to read, write and
understand the English language in which Exhibit 22 was drafted, it would have
been incumbent upon the defendant to show that the terms there of have been
fully explained to the plaintiff. The evidence is entirely lacking at this point, and
the lack of it is fatal to the cause of the defendant for his failure to discharge the
burden of proof.
Generally, the remedy of appeal by certiorari under Rule 45 of the Rules of
Court contemplates only questions of law and not issues of fact. [27] This rule,
however, is inapplicable in cases such as the one at bar where the factual findings
complained of are absolutely devoid of support in the records or the assailed
judgment of the appellate court is based on a misapprehension of facts. [28] Thus,
this case is an exception to the general rule on the conclusiveness of facts, the
evidence pointing to no other conclusion but the existence of vitiated consent,
given the diminished intellectual capacity of the petitioner and the
misrepresentation of private respondent Corazon Sebastian on the contents of
the extrajudicial partition.
Private respondents also maintain that petitioner has no cause of action since
the remedy that should be pursued is an action for annulment and not for
declaration of nullity. Private respondents therefore pray for the dismissal of this
petition on the ground of lack of cause of action.
Before ruling on this procedural matter, a distinction between an action for
annulment and one for declaration of nullity of an agreement is called for.
An action for annulment of contract is one filed where consent is vitiated by
lack of legal capacity of one of the contracting parties, or by mistake, violence,
intimidation, undue influence or fraud.[29] By its very nature, annulment
contemplates a contract which is voidable, that is, valid until annulled. Such
contract is binding on all the contracting parties until annulled and set aside by a
court of law. It may be ratified. An action for annulment of contract has a fouryear prescriptive period.[30]

On the other hand, an action for declaration of nullity of contract presupposes

a void contract or one where all of the requisites prescribed by law for contracts
are present but the cause, object or purpose is contrary to law, morals, good
customs, public order or public policy, prohibited by law or declared by law to be
void.[31] Such contract as a rule produces no legal and binding effect even if it is
not set aside by direct legal action. Neither may it be ratified. An action for the
declaration of nullity of contract is imprescriptible.[32]
The petitioners pleading was for the declaration of nullity of the extrajudicial
settlement of estate. However, this did not necessarily mean the automatic
dismissal of the case on the ground of lack of cause of action.
Granting that the action filed by petitioner was incompatible with her
allegations, it is not the caption of the pleading but the allegations that
determine the nature of the action.[33] The court should grant the relief warranted
by the allegations and the proof even if no such relief is prayed for. [34] In this case,
the allegations in the pleading and the evidence adduced point to no other
remedy but to annul the extrajudicial settlement of estate because of vitiated
consent.
WHEREFORE, the decision of the Court of Appeals dated 23 May 1996 is
hereby REVERSED. The extrajudicial settlement of the estate of Tomasina Paul
and Jose Sebastian is hereby ANNULLED and SET ASIDE. No cost.
SO ORDERED.
Republic of the Philippines
Supreme Court
Baguio City
SECOND DIVISION
THE ROMAN CATHOLIC CHURCH,
represented by the Archbishop of
Caceres,
Petitioner,

- versus -

G.R. No. 174118

Present:
CARPIO, J., Chairperson,
BRION,
PEREZ,
SERENO, and
REYES, JJ.
Promulgated:
April 11, 2012

REGINO PANTE,
Respondent.
x-------------------------------------------------------------------------------------------------------------x
DECISION
BRION, J.:

Through a petition for review on certiorari,[1] the petitioner Roman Catholic

Church (Church) seeks to set aside the May 18, 2006 decision[2] and the August
11, 2006 resolution[3] of the Court of Appeals (CA) in CA-G.R.-CV No. 65069. The
CA reversed the July 30, 1999 decision [4] of the Regional Trial Court (RTC) of Naga
City, Branch 24, in Civil Case No. 94-3286.

THE FACTUAL ANTECEDENTS

The Church, represented by the Archbishop of Caceres, owned a 32-square

meter lot that measured 2x16 meters located in Barangay Dinaga, Canaman,
Camarines Sur.[5]On September 25, 1992, the Church contracted with respondent
Regino Pante for the sale of the lot (thru a Contract to Sell and to Buy [6]) on the
belief that the latter was an actual occupant of the lot. The contract between
them fixed the purchase price at P11,200.00, with the initial P1,120.00 payable as
down payment, and the remaining balance payable in three years or until
September 25, 1995.

On June 28, 1994, the Church sold in favor of the spouses Nestor and Fidela Rubi
(spouses Rubi) a 215-square meter lot that included the lot previously sold to
Pante. The spouses Rubi asserted their ownership by erecting a concrete fence
over the lot sold to Pante, effectively blocking Pante and his familys access from
their family home to the municipal road. As no settlement could be reached
between the parties, Pante instituted with the RTC an action to annul the sale
between the Church and the spouses Rubi, insofar as it included the lot previously
sold to him.[7]

The Church filed its answer with a counterclaim, seeking the annulment of its
contract with Pante. The Church alleged that its consent to the contract was
obtained by fraud when Pante, in bad faith, misrepresented that he had been an
actual occupant of the lot sold to him, when in truth, he was merely using the 32-

square meter lot as a passageway from his house to the town proper. It
contended that it was its policy to sell its lots only to actual occupants. Since the
spouses Rubi and their predecessors-in-interest have long been occupying the
215-square meter lot that included the 32-square meter lot sold to Pante, the
Church claimed that the spouses Rubi were the rightful buyers.
During pre-trial, the following admissions and stipulations of facts were made:

1.

The lot claimed by Pante is a strip of land measuring only 2x16 meters;

2.

The lot had been sold by the Church to Pante on September 25, 1992;

3.

The lot was included in the sale to the spouses Rubi by the Church; and

4.

Pante expressly manifested and represented to the Church that he had

been actually occupying the lot he offered to buy. [8]

In a decision dated July 30, 1999, [9] the RTC ruled in favor of the Church,
finding that the Churchs consent to the sale was secured through Pantes
misrepresentation that he was an occupant of the 32-square meter lot. Contrary
to his claim, Pante was only using the lot as a passageway; the Churchs policy,
however, was to sell its lots only to those who actually occupy and reside
thereon. As the Churchs consent was secured through its mistaken belief that
Pante was a qualified occupant, the RTC annulled the contract between the
Church and Pante, pursuant to Article 1390 of the Civil Code.[10]

The RTC further noted that full payment of the purchase price was made only on
September 23, 1995, when Pante consigned the balance of P10,905.00 with the
RTC, after theChurch refused to accept the tendered amount. It considered the
three-year delay in completing the payment fatal to Pantes claim over the subject
lot; it ruled that if Pante had been prompt in paying the price, then the Church
would have been estopped from selling the lot to the spouses Rubi. In light of
Pantes delay and his admission that the subject lot had been actually occupied by

the spouses Rubis predecessors, the RTC upheld the sale in favor of the spouses
Rubi.

Pante appealed the RTCs decision with the CA. In a decision dated May 18, 2006,
[11]

the

CA

granted

Pantes

appeal

and

reversed

the

RTCs

ruling. The

CA

characterized the contract between Pante and the Church as a contract of sale,
since the Church made no express reservation of ownership until full payment of
the price is made. In fact, the contract gave the Church the right to repurchase in
case Pante fails to pay the installments within the grace period provided; the CA
ruled that the right to repurchase is unnecessary if ownership has not already
been transferred to the buyer.

Even assuming that the contract had been a contract to sell, the CA
declared that Pante fulfilled the condition precedent when he consigned the
balance within the three-year period allowed under the parties agreement; upon
full payment, Pante fully complied with the terms of his contract with the Church.

After recognizing the validity of the sale to Pante and noting the
subsequent sale to the spouses Rubi, the CA proceeded to apply the rules on
double sales in Article 1544 of the Civil Code:
Article 1544. If the same thing should have been sold to different
vendees, the ownership shall be transferred to the person who may
have first taken possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the ownership shall belong to the
person acquiring it who in good faith first recorded it in the Registry
of Property.
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in the possession; and, in the
absence thereof, to the person who presents the oldest title,
provided there is good faith. [Emphasis ours.]

Since neither of the two sales was registered, the CA upheld the full effectiveness
of the sale in favor of Pante who first possessed the lot by using it as a
passageway since 1963.

The Church filed the present petition for review on certiorari under Rule 45 of the
Rules of Court to contest the CAs ruling.

THE PETITION

The Church contends that the sale of the lot to Pante is voidable under Article
1390 of the Civil Code, which states:
Article 1390. The following contracts are voidable or
annullable, even though there may have been no damage to the
contracting parties:
(1) Those where one of the parties is incapable of giving
consent to a contract;
(2) Those where the consent is vitiated by mistake, violence,
intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a
proper action in court. They are susceptible of ratification. [Emphasis
ours.]

It points out that, during trial, Pante already admitted knowing that the spouses
Rubi have been residing on the lot. Despite this knowledge, Pante misrepresented
himself as an occupant because he knew of the Churchs policy to sell lands only
to occupants or residents thereof. It thus claims that Pantes misrepresentation
effectively vitiated its consent to the sale; hence, the contract should be nullified.

For the Church, the presence of fraud and misrepresentation that would
suffice to annul the sale is the primary issue that the tribunals below should have
resolved. Instead, the CA opted to characterize the contract between the Church
and Pante, considered it as a contract of sale, and, after such characterization,
proceeded to resolve the case in Pantes favor. The Church objects to this

approach, on the principal argument that there could not have been a contract at
all considering that its consent had been vitiated.

THE COURTS RULING

The Court resolves to deny the petition.

No misrepresentation existed vitiating the
sellers consent and invalidating the contract

Consent is an essential requisite of contracts [12] as it pertains to the

meeting of the offer and the acceptance upon the thing and the cause which
constitute the contract.[13]To create a valid contract, the meeting of the minds
must be free, voluntary, willful and with a reasonable understanding of the
various obligations the parties assumed for themselves. [14] Where consent,
however, is given through mistake, violence, intimidation, undue influence, or
fraud, the contract is deemed voidable. [15] However, not every mistake renders a
contract voidable. The Civil Code clarifies the nature of mistake that vitiates
consent:
Article 1331. In order that mistake may invalidate consent, it
should refer to the substance of the thing which is the object of the
contract, or to those conditions which have principally moved one or
both parties to enter into the contract.
Mistake as to the identity or qualifications of one of the parties
will vitiate consent only when such identity or qualifications have
been the principal cause of the contract.
A simple mistake of account shall give rise to its correction.
[Emphasis ours.]

For mistake as to the qualification of one of the parties to vitiate consent, two
requisites must concur:
1.

the mistake must be either with regard to the identity or with regard to
the qualification of one of the contracting parties; and

2.

the identity or qualification must have been the principal consideration

for the celebration of the contract. [16]

In the present case, the Church contends that its consent to sell the lot was given
on the mistaken impression arising from Pantes fraudulent misrepresentation
that he had been the actual occupant of the lot. Willful misrepresentation existed
because of its policy to sell its lands only to their actual occupants or residents.
Thus, it considers the buyers actual occupancy or residence over the subject lot a
qualification necessary to induce it to sell the lot.

Whether the facts, established during trial, support this contention shall
determine if the contract between the Church and Pante should be annulled. In
the process of weighing the evidentiary value of these established facts, the
courts should consider both the parties objectives and the subjective aspects of
the

transaction,

specifically,

the

parties

circumstances

their

condition,

relationship, and other attributes and their conduct at the time of and
subsequent to the contract. These considerations will show what influence the
alleged error exerted on the parties and their intelligent, free, and voluntary
consent to the contract.[17]

Contrary to the Churchs contention, the actual occupancy or residency of a

buyer over the land does not appear to be a necessary qualification that the
Church requires before it could sell its land. Had this been indeed its policy, then
neither Pante nor the spouses Rubi would qualify as buyers of the 32-square
meter lot, as none of them actually occupied or resided on the lot. We note in this
regard that the lot was only a 2x16-meter strip of rural land used as a
passageway from Pantes house to the municipal road.
We find well-taken Pantes argument that, given the size of the lot, it could
serve no other purpose than as a mere passageway; it is unthinkable to consider
that a 2x16-meter strip of land could be mistaken as anyones residence. In fact,

the spouses Rubi were in possession of the adjacent lot, but they never asserted
possession over the 2x16-meter lot when the 1994 sale was made in their favor; it
was only then that they constructed the concrete fence blocking the passageway.

We find it unlikely that Pante could successfully misrepresent himself as the

actual occupant of the lot; this was a fact that the Church (which has a parish
chapel in the samebarangay where the lot was located) could easily verify had it
conducted

an

ocular

inspection

of

its

own

property.

The

surrounding

circumstances actually indicate that the Church was aware that Pante was using
the lot merely as a passageway.

The above view is supported by the sketch plan, [18] attached to the contract
executed by the Church and Pante, which clearly labeled the 2x16-meter lot as a
RIGHT OF WAY; below these words was written the name of Mr. Regino Pante.
Asked during cross-examination where the sketch plan came from, Pante
answered that it was from the Archbishops Palace; neither the Church nor the
spouses Rubi contradicted this statement.[19]

The records further reveal that the sales of the Churchs lots were made
after a series of conferences with the occupants of the lots. [20] The then parish
priest of Canaman, Fr. Marcaida, was apparently aware that Pante was not an
actual occupant, but nonetheless, he allowed the sale of the lot to Pante, subject
to the approval of the Archdioceses Oeconomous. Relying on Fr. Marcaidas
recommendation and finding nothing objectionable, Fr. Ragay (the Archdioceses
Oeconomous) approved the sale to Pante.

The above facts, in our view, establish that there could not have been a
deliberate, willful, or fraudulent act committed by Pante that misled the Church
into giving its consent to the sale of the subject lot in his favor. That Pante was
not an actual occupant of the lot he purchased was a fact that the Church either

ignored or waived as a requirement. In any case, the Church was by no means led
to believe or do so by Pantes act; there had been no vitiation of the Churchs
consent to the sale of the lot to Pante.

From another perspective, any finding of bad faith, if one is to be made,

should be imputed to the Church. Without securing a court ruling on the validity
of its contract with Pante, the Church sold the subject property to the spouses
Rubi. Article 1390 of the Civil Code declares that voidable contracts are binding,
unless annulled by a proper court action. From the time the sale to Pante was
made and up until it sold the subject property to the spouses Rubi, the Church
made no move to reject the contract with Pante; it did not even return the down
payment he paid. The Churchs bad faith in selling the lot to Rubi without
annulling its contract with Pante negates its claim for damages.

In the absence of any vitiation of consent, the contract between the Church
and Pante stands valid and existing. Any delay by Pante in paying the full price
could not nullify the contract, since (as correctly observed by the CA) it was
a contract of sale. By its terms, the contract did not provide a stipulation that the
Church retained ownership until full payment of the price. [21] The right to
repurchase given to the Church in case Pante fails to pay within the grace period
provided[22] would have been unnecessary had ownership not already passed to
Pante.

The rule on double sales

The sale of the lot to Pante and later to the spouses Rubi resulted in a
double sale that called for the application of the rules in Article 1544 of the Civil
Code:

Article 1544. If the same thing should have been sold to

different vendees, the ownership shall be transferred to the person
who may have first taken possession thereof in good faith, if it
should be movable property.
Should it be immovable property, the ownership shall belong
to the person acquiring it who in good faith first recorded it in the
Registry of Property.
Should there be no inscription, the ownership shall pertain to
the person who in good faith was first in the possession; and, in the
absence thereof, to the person who presents the oldest title,
provided there is good faith. [Emphasis ours.]

As neither Pante nor the spouses Rubi registered the sale in their favor, the
question now is who, between the two, was first in possession of the property in
good faith.

Jurisprudence has interpreted possession in Article 1544 of the Civil Code

to mean both actual physical delivery and constructive delivery.[23] Under either
mode of delivery, the facts show that Pante was the first to acquire possession of
the lot.

Actual delivery of a thing sold occurs when it is placed under the control and
possession of the vendee.[24] Pante claimed that he had been using the lot as a
passageway, with the Churchs permission, since 1963. After purchasing the lot in
1992, he continued using it as a passageway until he was prevented by the
spouses Rubis concrete fence over the lot in 1994. Pantes use of the lot as a
passageway after the 1992 sale in his favor was a clear assertion of his right of
ownership that preceded the spouses Rubis claim of ownership.

Pante also stated that he had placed electric connections and water pipes
on the lot, even before he purchased it in 1992, and the existence of these
connections and pipes was known to the spouses Rubi.[25] Thus, any assertion of
possession over the lot by the spouses Rubi (e.g., the construction of a concrete
fence) would be considered as made in bad faith because works had already

existed on the lot indicating possession by another. [A] buyer of real property in
the possession of persons other than the seller must be wary and should
investigate the rights of those in possession. Without such inquiry, the buyer can
hardly be regarded as a buyer in good faith and cannot have any right over the
property."[26]

Delivery of a thing sold may also be made constructively. Article 1498 of

the Civil Code states that:
Article 1498. When the sale is made through a public
instrument, the execution thereof shall be equivalent to the delivery
of the thing which is the object of the contract, if from the deed the
contrary does not appear or cannot clearly be inferred.

Under this provision, the sale in favor of Pante would have to be upheld since the
contract executed between the Church and Pante was duly notarized, converting
the deed into a public instrument. [27] In Navera v. Court of Appeals,[28] the Court
ruled that:
[A]fter the sale of a realty by means of a public instrument, the
vendor, who resells it to another, does not transmit anything to the
second vendee, and if the latter, by virtue of this second sale, takes
material possession of the thing, he does it as mere detainer, and it
would be unjust to protect this detention against the rights of the
thing lawfully acquired by the first vendee.
Thus, under either mode of delivery, Pante acquired prior possession of the lot.

WHEREFORE, we DENY the petition for review on certiorari, and AFFIRM the
decision of the Court of Appeals dated May 18, 2006, and its resolution dated
August 11, 2006, issued in CA-G.R.-CV No. 65069. Costs against the Roman
Catholic Church.

SO ORDERED.

THIRD DIVISION

[G.R. No. 112212. March 2, 1998]

GREGORIO FULE, petitioner, vs. COURT OF APPEALS, NINEVETCH CRUZ and JUAN
BELARMINO, respondents.
DECISION
ROMERO, J.:
This petition for review on certiorari questions the affirmance by the Court of
Appeals of the decision[1] of the Regional Trial Court of San Pablo City, Branch 30,
dismissing the complaint that prayed for the nullification of a contract of sale of a
10-hectare property in Tanay, Rizal in consideration of the amount of P40,000.00
and a 2.5 carat emerald-cut diamond (Civil Case No. SP-2455). The lower courts
decision disposed of the case as follows:
WHEREFORE, premises considered, the Court hereby renders judgment dismissing
the complaint for lack of merit and ordering plaintiff to pay:
1. Defendant Dra. Ninevetch M. Cruz the sum of P300,000.00 as and for moral
damages and the sum of P100,000.00 as and for exemplary damages;
2. Defendant Atty. Juan Belarmino the sum of P250,000.00 as and for moral
damages and the sum of P150,000.00 as and for exemplary damages;
3. Defendant Dra. Cruz and Atty. Belarmino the sum of P25,000.00 each as and for
attorneys fees and litigation expenses; and
4. The costs of suit.
SO ORDERED.
As found by the Court of Appeals and the lower court, the antecedent facts of
this case are as follows:
Petitioner Gregorio Fule, a banker by profession and a jeweler at the same time,
acquired a 10-hectare property in Tanay, Rizal (hereinafter Tanay property),
covered by Transfer Certificate of Title No. 320725 which used to be under the
name of Fr. Antonio Jacobe. The latter had mortgaged it earlier to the Rural Bank
of Alaminos (the Bank), Laguna, Inc. to secure a loan in the amount
of P10,000.00, but the mortgage was later foreclosed and the property offered for
public auction upon his default.
In July 1984, 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 one in the person of herein private respondent Dr.
Ninevetch Cruz. It so happened that at the time, petitioner had shown interest in
buying a pair of emerald-cut diamond earrings owned by Dr. Cruz which he had
seen in January of the same year when his mother examined and appraised them
as genuine. Dr. Cruz, however, declined petitioners offer to buy the jewelry
for P100,000.00. Petitioner then made another bid to buy them for US$6,000.00

at the exchange rate of $1.00 to P25.00. At this point, petitioner 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 for twenty to thirty minutes,
petitioner gave them back to Dr. Cruz who again refused to sell them since the
exchange rate of the peso at the time appreciated to P19.00 to a dollar.
Subsequently, however, negotiations for the barter of the jewelry and the
Tanay property ensued. Dr. Cruz requested herein private respondent Atty. Juan
Belarmino to check the property who, in turn, found out that no sale or barter was
feasible because the one-year period for redemption of the said property had not
yet expired at the time.
In an effort to cut through any legal impediment, petitioner executed on
October 19, 1984, a deed of redemption on behalf of Fr. Jacobe purportedly in the
amount of P15,987.78, and on even date, Fr. Jacobe sold the property to
petitioner for P75,000.00. The haste with which the two deeds were executed is
shown by the fact that the deed of sale was notarized ahead of the deed of
redemption. As Dr. Cruz had already agreed to the proposed barter, 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 at the
latters residence to prepare the documents of sale. [2] Dr. Cruz herself was not
around but Atty. Belarmino was aware that she and petitioner had previously
agreed to exchange a pair of emerald-cut diamond earrings for the Tanay
property. Atty. Belarmino 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 and gave Atty. Belarmino the amount of P13,700.00 for
necessary expenses in the transfer of title over the Tanay property. Petitioner
also issued a certification to the effect that the actual consideration of the sale
was P200,000.00 and not P80,000.00 as indicated in the deed of absolute sale.
The disparity between the actual contract price and the one indicated on the deed
of absolute sale was purportedly aimed at minimizing the amount of the capital
gains tax that petitioner would have to shoulder. 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.
As pre-arranged, petitioner left Atty. Belarminos residence with Dichoso and
Mendoza and headed for the bank, arriving there at past 5:00 p.m. Dr. Cruz also
arrived shortly thereafter, but the cashier who kept the other key to the deposit
box had already left the bank. Dr. Cruz and Dichoso, therefore, looked for said
cashier and found him having a haircut. As soon as his haircut was finished, the
cashier returned to the bank and arrived there at 5:48 p.m., ahead of Dr. Cruz and
Dichoso who arrived at 5:55 p.m. Dr. Cruz and the cashier then opened the safety
deposit box, the former retrieving a transparent plastic or 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 banks 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.
For services rendered, petitioner paid the agents, Dichoso and Mendoza, the
amount of US$300.00 and some pieces of jewelry. He did not, however, give them
half of the pair of earrings in question which he had earlier promised.

Later, at about 8:00 oclock 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. Meanwhile, at 8:30 p.m.,
Dichoso and Mendoza went to the residence of Dr. Cruz to borrow her car so that,
with Atty. Belarmino, they could register the Tanay property. After Dr. Cruz had
agreed to lend her car, Dichoso called up Atty. Belarmino. The latter, however,
instructed Dichoso to proceed immediately to his residence because petitioner
was there. Believing that petitioner had finally agreed to give them half of the
pair of earrings, Dichoso went posthaste to the residence of Atty. Belarmino only
to find petitioner already demonstrating with a tester that the earrings were
fake. Petitioner then accused Dichoso and Mendoza of deceiving him which they,
however, denied. They countered that petitioner could not have been fooled
because he had vast experience regarding jewelry. Petitioner nonetheless took
back the US$300.00 and jewelry he had given them.
Thereafter, the group decided to go to the house of a certain Macario
Dimayuga, a jeweler, to have the earrings tested. Dimayuga, after taking one look
at the earrings, immediately declared them counterfeit. At around 9:30 p.m.,
petitioner went to one Atty. Reynaldo Alcantara residing at Lakeside Subdivision
in San Pablo City, complaining about the fake jewelry.Upon being advised by the
latter, petitioner reported the matter to the police station where Dichoso and
Mendoza likewise executed sworn statements.
On October 26, 1984, petitioner filed a complaint before the Regional Trial
Court of San Pablo City 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.
On October 30, 1984, the lower court issued a temporary restraining order
directing the Register of Deeds of Rizal to refrain from acting on the pertinent
documents involved in the transaction. On November 20, 1984, however, the same
court lifted its previous order and denied the prayer for a writ of preliminary
injunction.
After trial, the lower court rendered its decision on March 7, 1989.
Confronting the issue of whether or not the genuine pair of earrings used as
consideration for the sale was delivered by Dr. Cruz to petitioner, the lower court
said:
The Court finds that the answer is definitely in the affirmative. Indeed, Dra. Cruz
delivered (the) subject jewelries (sic) into the hands of plaintiff who even raised
the same nearer to the lights of the lobby of the bank near the door. When asked
by Dra. Cruz if everything was in order, plaintiff even nodded his satisfaction
(Hearing of Feb. 24, 1988). At that instance, plaintiff did not protest, complain or
beg for additional time to examine further the jewelries (sic). Being a professional
banker and engaged in the jewelry business plaintiff is conversant and competent
to detect a fake diamond from the real thing. Plaintiff was accorded the
reasonable time and opportunity to ascertain and inspect the jewelries (sic) in
accordance with Article 1584 of the Civil Code. Plaintiff took delivery of the
subject jewelries (sic) before 6:00 p.m. of October 24, 1984. When he went at 8:00
p.m. that same day to the residence of Atty. Belarmino already with a tester
complaining about some fake jewelries (sic), there was already undue delay
because of the lapse of a considerable length of time since he got hold of subject
jewelries (sic). The lapse of two (2) hours more or less before plaintiff complained
is considered by the Court as unreasonable delay. [3]

The lower court further ruled that all the elements of a valid contract under
Article 1458 of the Civil Code were present, namely: (a) consent or meeting of the
minds; (b) determinate subject matter, and (c) price certain in money or its
equivalent. The same elements, according to the lower court, were present
despite the fact that the agreement between petitioner and Dr. Cruz was
principally a barter contract. The lower court explained thus:
x x x. Plaintiffs ownership over the Tanay property passed unto Dra. Cruz upon the
constructive delivery thereof by virtue of the Deed of Absolute Sale (Exh. D). On
the other hand, the ownership of Dra. Cruz over the subject jewelries (sic)
transferred to the plaintiff upon her actual personal delivery to him at the lobby
of the Prudential Bank. It is expressly provided by law that the thing sold shall be
understood as delivered, when it is placed in the control and possession of the
vendee (Art. 1497, Civil Code; Kuenzle & Straff vs. Watson & Co. 13 Phil. 26). The
ownership and/or title over the jewelries (sic) was transmitted immediately before
6:00 p.m. of October 24, 1984. Plaintiff signified his approval by nodding his head.
Delivery or tradition, is one of the modes of acquiring ownership (Art. 712, Civil
Code).
Similarly, when Exhibit D was executed, it was equivalent to the delivery of
the Tanay property in favor of Dra. Cruz. The execution of the public instrument
(Exh. D) operates as a formal or symbolic delivery of the Tanay property and
authorizes the buyer, Dra. Cruz to use the document as proof of ownership
(Florendo v. Foz, 20 Phil. 399). More so, since Exhibit D does not contain any
proviso or stipulation to the effect that title to the property is reserved with the
vendor until full payment of the purchase price, nor is there a stipulation giving
the vendor the right to unilaterally rescind the contract the moment the vendee
fails to pay within a fixed period (Taguba v. Vda. De Leon, 132 SCRA 722; Luzon
Brokerage Co. Inc. vs. Maritime Building Co. Inc. 86 SCRA 305; Froilan v. Pan
Oriental Shipping Co. et al. 12 SCRA 276).[4]
Aside from concluding that the contract of barter or sale had in fact been
consummated when petitioner and Dr. Cruz parted ways at the bank, the trial
court likewise dwelt on the unexplained delay with which petitioner complained
about the alleged fakery. Thus:
x x x. Verily, plaintiff is already estopped to come back after the lapse of
considerable length of time to claim that what he got was fake. He is a Business
Management graduate of La Salle University, Class 1978-79, a professional banker
as well as a jeweler in his own right. Two hours is more than enough time to make
a switch of a Russian diamond with the real diamond. It must be remembered that
in July 1984 plaintiff made a sketch of the subject jewelries (sic) at the Prudential
Bank. Plaintiff had a tester at 8:00 p.m. at the residence of Atty. Belarmino. Why
then did he not bring it out when he was examining the subject jewelries (sic) at
about 6:00 p.m. in the banks lobby? Obviously, he had no need for it after being
satisfied of the genuineness of the subject jewelries (sic). When Dra. Cruz and
plaintiff left the bank both of them had fully performed their respective
prestations. Once a contract is shown to have been consummated or fully
performed by the parties thereto, its existence and binding effect can no longer
be disputed. It is irrelevant and immaterial to dispute the due execution of a
contract if both of them have in fact performed their obligations thereunder and
their respective signatures and those of their witnesses appear upon the face of
the document (Weldon Construction v. CA G.R. No. L-35721, Oct. 12, 1987). [5]
Finally, in awarding damages to the defendants, the lower court remarked:

The Court finds that plaintiff acted in wanton bad faith. Exhibit 2-Belarmino
purports to show that the Tanay property is worth P25,000.00. However, also on
that same day it was executed, the propertys worth was magnified at P75,000.00
(Exh. 3-Belarmino). How could in less than a day (Oct. 19, 1984) the value would
(sic) triple under normal circumstances? Plaintiff, with the assistance of his
agents, was able to exchange the Tanay property which his bank valued only
at P25,000.00 in exchange for a genuine pair of emerald cut diamond
worth P200,000.00 belonging to Dra. Cruz. He also retrieved the US$300.00 and
jewelries (sic) from his agents. But he was not satisfied in being able to get
subject jewelries for a song. He had to file a malicious and unfounded case
against Dra. Cruz and Atty. Belarmino who are well known, respected and held in
high esteem in San Pablo City where everybody practically knows
everybody. Plaintiff came to Court with unclean hands dragging the defendants
and soiling their clean and good name in the process. Both of them are near the
twilight of their lives after maintaining and nurturing their good reputation in the
community only to be stunned with a court case. Since the filing of this case on
October 26, 1984 up to the present they were living under a pall of doubt. Surely,
this affected not only their earning capacity in their practice of their respective
professions, but also they suffered besmirched reputations. Dra. Cruz runs her
own hospital and defendant Belarmino is a well respected legal practitioner.
The length of time this case dragged on during which period their reputation
were (sic) tarnished and their names maligned by the pendency of the case, the
Court is of the belief that some of the damages they prayed for in their answers
to the complaint are reasonably proportionate to the sufferings they underwent
(Art. 2219, New Civil Code). Moreover, because of the falsity, malice and baseless
nature of the complaint defendants were compelled to litigate. Hence, the award
of attorneys fees is warranted under the circumstances (Art. 2208, New Civil
Code).[6]
From the trial courts adverse decision, petitioner elevated the matter to the
Court of Appeals. On October 20, 1992, the Court of Appeals, however, rendered a
decision[7]affirming in
toto the
lower
courts
decision. His
motion
for
reconsideration having been denied on October 19, 1993, petitioner now files the
instant petition alleging that:
I. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFFS COMPLAINT AND IN
HOLDING THAT THE PLAINTIFF ACTUALLY RECEIVED A GENUINE PAIR OF
EMERALD CUT DIAMOND EARRING(S) FROM DEFENDANT CRUZ x x x;
II. THE TRIAL COURT ERRED IN AWARDING MORAL AND EXEMPLARY
DAMAGES AND ATTORNEYS FEES IN FAVOR OF DEFENDANTS AND
AGAINST THE PLAINTIFF IN THIS CASE; and
III.THE TRIAL COURT ERRED IN NOT DECLARING THE DEED OF SALE OF THE
TANAY PROPERTY (EXH. `D) AS NULL AND VOID OR IN NOT ANNULLING
THE SAME, AND IN FAILING TO GRANT REASONABLE DAMAGES IN FAVOR
OF THE PLAINTIFF.[8]
As to the first allegation, the Court observes that petitioner is essentially
raising a factual issue as it invites us to examine and weigh anew the facts
regarding the genuineness of the earrings bartered in exchange for the Tanay
property. This, of course, we cannot do without unduly transcending the limits of
our review power in petitions of this nature which are confined merely to pure
questions of law. We accord, as a general rule, conclusiveness to a lower courts
findings of fact unless it is shown, inter alia, that: (1) the conclusion is a finding
grounded
on
speculations,
surmises
or
conjectures;
(2) the inference

is manifestly mistaken, absurd and impossible; (3) when there is a grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5)
when the findings of fact are conflicting; and (6) when the Court of Appeals, in
making its findings, went beyond the issues of the case and the same is contrary
to the admission of both parties. [9] We find nothing, however, that warrants the
application of any of these exceptions.
Consequently, this Court upholds the appellate courts findings of fact
especially because these concur with those of the trial court which, upon a
thorough scrutiny of the records, are firmly grounded on evidence presented at
the trial.[10] To reiterate, this Courts jurisdiction is only limited to reviewing errors
of law in the absence of any showing that the findings complained of are totally
devoid of support in the record or that they are glaringly erroneous as to
constitute serious abuse of discretion. [11]
Nonetheless, this Court has to closely delve into petitioners allegation that
the lower courts decision of March 7, 1989 is a ready-made one because it was
handed down a day after the last date of the trial of the case. [12] Petitioner, in this
regard, finds it incredible that Judge J. Ausberto Jaramillo was able to write a 12page single-spaced decision, type it and release it on March 7, 1989, less than a
day after the last hearing on March 6, 1989. He stressed that Judge Jaramillo
replaced Judge Salvador de Guzman and heard only his rebuttal testimony.
This allegation is obviously no more than a desperate effort on the part of
petitioner to disparage the lower courts findings of fact in order to convince this
Court to review the same. It is noteworthy that Atty. Belarmino clarified that
Judge Jaramillo had issued the first order in the case as early as March 9, 1987 or
two years before the rendition of the decision. In fact, Atty. Belarmino terminated
presentation of evidence on October 13, 1987, while Dr. Cruz finished hers on
February 4, 1989, or more than a month prior to the rendition of the judgment.
The March 6, 1989 hearing was conducted solely for the presentation of
petitioner's rebuttal testimony. [13] In other words, Judge Jaramillo had ample time
to study the case and write the decision because the rebuttal evidence would only
serve to confirm or verify the facts already presented by the parties.
The Court finds nothing anomalous in the said situation. No proof has been
adduced that Judge Jaramillo was motivated by a malicious or sinister intent in
disposing of the case with dispatch. Neither is there proof that someone else
wrote the decision for him. The immediate rendition of the decision was no more
than Judge Jaramillos compliance with his duty as a judge to dispose of the courts
business promptly and decide cases within the required periods. [14] The two-year
period within which Judge Jaramillo handled the case provided him with all the
time to study it and even write down its facts as soon as these were presented to
court. In fact, this Court does not see anything wrong in the practice of writing a
decision days before the scheduled promulgation of judgment and leaving the
dispositive portion for typing at a time close to the date of promulgation,
provided that no malice or any wrongful conduct attends its adoption. [15] The
practice serves the dual purposes of safeguarding the confidentiality of draft
decisions and rendering decisions with promptness. Neither can Judge Jaramillo
be made administratively answerable for the immediate rendition of the
decision. The acts of a judge which pertain to his judicial functions are not subject
to disciplinary power unless they are committed with fraud, dishonesty,
corruption or bad faith.[16] Hence, in the absence of sufficient proof to the
contrary, Judge Jaramillo is presumed to have performed his job in accordance
with law and should instead be commended for his close attention to duty.

Having disposed of petitioners first contention, we now come to the core issue
of this petition which is whether the Court of Appeals erred in upholding the
validity of the contract of barter or sale under the circumstances of this case.
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. [17] 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. [18] 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,[19] and registration of the instrument only
adversely affects third parties.[20] Formal requirements are, therefore, for the
benefit of third parties. Non-compliance therewith does not adversely affect the
validity of the contract nor the contractual rights and obligations of the parties
thereunder.
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. [21]
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.
[22]
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[23] 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.[24] 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 petitioners
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 petitioners 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. [25] An example of
mistake as to the object of the contract is the substitution of a specific thing
contemplated by the parties with another. [26] 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 bankerjeweler, 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. [27] 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. [28]
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.[30] 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. [31] 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. [32]
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:

(1) Should it have been so stipulated;

(2) Should the thing sold and delivered produce fruits or income;
(3) 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. This case should, of course, be distinguished
from De la Cruz v. Legaspi,[33] where the court held that failure to pay the
consideration after the notarization of the contract as previously promised
resulted in the vendees liability for payment of interest. In the case at bar, 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.
All told, petitioner appears to have elevated this case to this Court for the
principal reason of mitigating the amount of damages awarded to both private
respondents which petitioner considers as exorbitant. He contends that private
respondents do not deserve at all the award of damages. In fact, he pleads for the
total deletion of the award as regards private respondent Belarmino whom he
considers a mere nominal party because no specific claim for damages against
him was alleged in the complaint. When he filed the case, all that petitioner
wanted was that Atty. Belarmino should return to him the owners duplicate copy
of TCT No. 320725, the deed of sale executed by Fr. Antonio Jacobe, the deed of
redemption and the check alloted for expenses. Petitioner alleges further that
Atty. Belarmino should not have delivered all those documents to Dr. Cruz
because as the lawyer for both the seller and the buyer in the sale contract, he
should have protected the rights of both parties. Moreover, petitioner asserts that
there was no firm basis for damages except for Atty. Belarminos uncorroborated
testimony.[34]
Moral and exemplary damages may be awarded without proof of pecuniary
loss. In awarding such damages, the court shall take into account the
circumstances obtaining in the case and assess damages according to its
discretion.[35] To warrant the award of damages, it must be shown that the person
to whom these are awarded has sustained injury. He must likewise establish
sufficient data upon which the court can properly base its estimate of the amount
of damages.[36] Statements of facts should establish such data rather than mere
conclusions or opinions of witnesses.[37] Thus:
x x x. For moral damages to be awarded, it is essential that the claimant
must have satisfactorily proved during the trial the existence of the
factual basis of the damages and its causal connection with the adverse
partys acts. If the court has no proof or evidence upon which the claim for
moral damages could be based, such indemnity could not be outrightly
awarded. The same holds true with respect to the award of exemplary
damages where it must be shown that the party acted in a wanton,
oppressive or malevolent manner. [38]
In this regard, the lower court appeared to have awarded damages on a
ground analogous to malicious prosecution under Article 2219(8) of the Civil
Code[39] as shown by (1) petitioners wanton bad faith in bloating the value of the
Tanay property which he exchanged for a genuine pair of emerald-cut diamond
worth P200,000.00; and (2) his filing of a malicious and unfounded case against
private respondents who were well known, respected and held in high esteem in
San Pablo City where everybody practically knows everybody and whose good
names in the twilight of their lives were soiled by petitioners coming to court with

unclean hands, thereby affecting their earning capacity in the exercise of their
respective professions and besmirching their reputation.
For its part, the Court of Appeals affirmed the award of damages to private
respondents for these reasons:
The malice with which Fule filed this case is apparent. Having taken
possession of the genuine jewelry of Dra. Cruz, Fule now wishes to return
a fake jewelry to Dra. Cruz and, more than that, get back the real
property, which his bank owns. Fule has obtained a genuine jewelry which
he could sell anytime, anywhere and to anybody, without the same being
traced to the original owner for practically nothing. This is plain and
simple, unjust enrichment.[40]
While, as a rule, moral damages cannot be recovered from a person who has
filed a complaint against another in good faith because it is not sound policy to
place a penalty on the right to litigate, [41] the same, however, cannot apply in the
case at bar. The factual findings of the courts a quo to the effect that petitioner
filed this case because he was the victim of fraud; that he could not have been
such a victim because he should have examined the jewelry in question before
accepting delivery thereof, considering his exposure to the banking and jewelry
businesses; and that he filed the action for the nullification of the contract of sale
with unclean hands, all deserve full faith and credit to support the conclusion that
petitioner was motivated more by ill will than a sincere attempt to protect his
rights in commencing suit against respondents.
As pointed out earlier, a closer scrutiny of the chain of events immediately
prior to and on October 24, 1984 itself would amply demonstrate that petitioner
was not simply negligent in failing to exercise due diligence to assure himself that
what he was taking in exchange for his property were genuine diamonds. He had
rather placed himself in a situation from which it preponderantly appears that his
seeming ignorance was actually just a ruse. Indeed, he had unnecessarily dragged
respondents to face the travails of litigation in speculating at the possible
favorable outcome of his complaint when he should have realized that his
supposed predicament was his own making. We, therefore, see here no
semblance of an honest and sincere belief on his part that he was swindled by
respondents which would entitle him to redress in court. It must be noted that
before petitioner was able to convince Dr. Cruz to exchange her jewelry for the
Tanay property, petitioner took pains to thoroughly examine said jewelry, even
going to the extent of sketching their appearance. Why at the precise moment
when he was about to take physical possession thereof he failed to exert extra
efforts to check their genuineness despite the large consideration involved has
never been explained at all by petitioner. His acts thus failed to accord with what
an ordinary prudent man would have done in the same situation. Being an
experienced banker and a businessman himself who deliberately skirted a legal
impediment in the sale of the Tanay property and to minimize the capital gains
tax for its exchange, it was actually gross recklessness for him to have merely
conducted a cursory examination of the jewelry when every opportunity for doing
so was not denied him. Apparently, he carried on his person a tester which he
later used to prove the alleged fakery but which he did not use at the time when
it was most needed. Furthermore, it took him two more hours of unexplained
delay before he complained that the jewelry he received were counterfeit. Hence,
we stated earlier that anything could have happened during all the time that
petitioner was in complete possession and control of the jewelry, including the
possibility of substituting them with fake ones, against which respondents would
have a great deal of difficulty defending themselves. The truth is that petitioner
even failed to successfully prove during trial that the jewelry he received from Dr.

Cruz were not genuine. Add to that the fact that he had been shrewd enough to
bloat the Tanay propertys price only a few days after he purchased it at a much
lower value. Thus, it is our considered view that if this slew of circumstances were
connected, like pieces of fabric sewn into a quilt, they would sufficiently
demonstrate that his acts were not merely negligent but rather studied and
deliberate.
We do not have here, therefore, a situation where petitioners complaint was
simply found later to be based on an erroneous ground which, under settled
jurisprudence, would not have been a reason for awarding moral and exemplary
damages.[42] Instead, the cause of action of the instant case appears to have been
contrived by petitioner himself. In other words, he was placed in a situation where
he could not honestly evaluate whether his cause of action has a semblance of
merit, such that it would require the expertise of the courts to put it to a test. His
insistent pursuit of such case then coupled with circumstances showing that he
himself was guilty in bringing about the supposed wrongdoing on which he
anchored his cause of action would render him answerable for all damages the
defendant may suffer because of it. This is precisely what took place in the
petition at bar and we find no cogent reason to disturb the findings of the courts
below that respondents in this case suffered considerable damages due to
petitioners unwarranted action.
WHEREFORE, the decision of the Court of Appeals dated October 20, 1992 is
hereby AFFIRMED in toto. Dr. Cruz, however, is ordered to pay petitioner the
balance of the purchase price of P40,000.00 within ten (10) days from the finality
of this decision. Costs against petitioner.
SO ORDERED.

SECOND DIVISION
[G.R. No. 115734. February 23, 2000]
RUBEN LOYOLA, CANDELARIA LOYOLA, LORENZO LOYOLA, FLORA LOYOLA,
NICANDRO LOYOLA, ROSARIO LOYOLA, TERESITA LOYOLA and VICENTE
LOYOLA, petitioners, vs. THE HONORABLE COURT OF APPEALS, NIEVES, ROMANA,
ROMUALDO, GUILLERMO, LUCIA, PURIFICACION, ANGELES, ROBERTO, ESTRELLA,
all surnamed ZARRAGA and THE HEIRS OF JOSE ZARRAGA, namely AURORA,
MARITA, JOSE, RONALDO, VICTOR, LAURIANO, and ARIEL, all surnamed
ZARRAGA, respondents.
DECISION
QUISUMBING, J.:
For review on certiorari is the decision of the Court of Appeals in CA-G.R. No. CV
36090, promulgated on August 31, 1993, reversing the judgment of the Regional
Trial Court of Bian, Laguna, Branch 24, in Civil Case No. B-2194. In said decision,
the appellate court decreed:
"PREMISES CONSIDERED, the decision appealed from is hereby
REVERSED and a new judgment rendered as follows:

1. Dismissing the plaintiffs Complaint;

2. Declaring the "Bilihang Tuluyan ng Kalahati (1/2) ng
Isang (1) Lagay na Lupa" dated August 24, 1980 (Exhibit
1) as well as Transfer Certificate of Title No. T-116067 of
the Registry of Deeds for the Calamba Branch to be
lawful, valid, and effective.
"SO ORDERED."[1]
The RTC decision reversed by the Court of Appeals had disposed of the complaint
as follows:
"WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiffs and against the defendants as follows:
1. Declaring the simulated deed of absolute sale purportedly
executed by the late Gaudencia Zarraga on August 24, 1980 as well
as the issuance of the corresponding certificate of title in favor of the
defendants null and void from the beginning;
2. Ordering the Register of Deeds of Laguna, Calamba Branch to
cancel Transfer Certificate of Title No. T-116087 issued in favor of the
defendants and to issue another one, if feasible, in favor of the
plaintiffs and the defendants as co-owners and legal heirs of the late
Gaudencia Zarraga;
3. Order(ing) the defendants to reconvey and deliver the possession
of the shares of the plaintiff on (sic) the subject property;
4. Ordering the defendants to pay the amount of P20,000 as and for
attorneys fees and the costs of this suit.
5. As there is no preponderance of evidence showing that the
plaintiffs suffered moral and exemplary damages, their claim for such
damages is hereby dismissed.
The plaintiffs claim under the second cause of action is hereby
dismissed on the ground of prescription.
Likewise, the defendants counterclaim is hereby dismissed for lack of
merit.
"SO ORDERED."[2]
We shall now examine the factual antecedents of this petition.
In dispute here is a parcel of land in Bian, Laguna, particularly described as
follows:
"A PARCEL OF LAND (Lot 115-A-1) of the subdivision plan (LRC) Psd32117), being a portion of Lot 115-A, described on Plan Psd-55228,

LRC (GLRO) Record No. 8374), situated in the Poblacion, Municipality

of Bian, Province of Laguna, Island of Luzon. Bounded on the NE.,
points 3 to 4 by the Bian River; on the SE., points 4 to 1 by Lot 115-A2 of the subd. Plan; on the SW., points 1 to 2 by the Road and on
points 2 to 3 by Lot 115-B, Psd-55228 x x x containing an area of
SEVEN HUNDRED FIFTY THREE (753) SQ. METERS, more or less x x
x."[3]
Originally owned in common by the siblings Mariano and Gaudencia Zarraga, who
inherited it from their father, the parcel is covered by Transfer Certificate of Title
(TCT) No. T-32007. Mariano predeceased his sister who died single, without
offspring on August 5, 1983, at the age of 97.
Victorina Zarraga vda. de Loyola and Cecilia Zarraga, are sisters of Gaudencia and
Mariano. Victorina died on October 18, 1989, while Civil Case No. B-2194 was
pending with the trial court. Cecilia died on August 4, 1990, unmarried and
childless. Victorina and Cecilia were substituted by petitioners as plaintiffs.
Private respondents, children of Mariano excepting those denominated as the
"Heirs of Jose Zarraga," are first cousins of petitioners. Respondents designated
as the "Heirs of Jose Zarraga" are first cousins once removed of the petitioners.
Private respondents allege that they are the lawful owners of Lot 115-A-1, the
one-half share inherited by their father, Mariano and the other half purchased
from their deceased aunt, Gaudencia. Transfer Certificate of Title No. 116067 was
issued in their names covering Lot 115-A-1.
The records show that the property was earlier the subject of Civil Case No. B1094 before the then Court of First Instance of Laguna, Branch 1,
entitled "Spouses Romualdo Zarraga, et al. v. Gaudencia Zarraga, et
al." Romualdo Zarraga, one of the private respondents now, was the plaintiff in
Civil Case No. B-1094. The defendants were his siblings: Nieves, Romana,
Guillermo, Purificacion, Angeles, Roberto, Estrella, and Jose, all surnamed
Zarraga, as well as his aunt, the late Gaudencia. The trial court decided Civil Case
No. B-1094 in favor of the defendants. Gaudencia was adjudged owner of the onehalf portion of Lot 115-A-1. Romualdo elevated the decision to the Court of
Appeals and later the Supreme Court. The petition, docketed as G.R. No. 59529,
was denied by this Court on March 17, 1982.
The present controversy began on August 24, 1980, nearly three years before the
death of Gaudencia while G.R. No. 59529 was still pending before this Court. On
said date, Gaudencia allegedly sold to private respondents her share in Lot 115-A1 for P34,000.00. The sale was evidenced by a notarized document denominated
as "Bilihang Tuluyan ng Kalahati (1/2) ng Isang Lagay na Lupa."[4] Romualdo, the
petitioner in G.R. No. 59529, was among the vendees.
Meanwhile, the decision in Civil Case No. B-1094 became final. Private
respondents filed a motion for execution. On February 16, 1984, the sheriff
executed the corresponding deed of reconveyance to Gaudencia. On July 23, 1984,
however, the Register of Deeds of Laguna, Calamba Branch, issued in favor of
private respondents, TCT No. T-116067, on the basis of the sale on August 24,
1980 by Gaudencia to them.

On January 31, 1985, Victorina and Cecilia filed a complaint, docketed as Civil
Case No. B-2194, with the RTC of Bian, Laguna, for the purpose of annulling the
sale and the TCT. The trial court rendered judgment in favor of complainants.
On appeal, the appellate court REVERSED the trial court. On September 15, 1993,
herein petitioners (as substitute parties for Victorina and Cecilia, the original
plaintiffs) filed a motion for reconsideration, which was denied on June 6, 1994.
Hence, the instant petition.
Petitioners submit the following issues for resolution by this Court:
1. WHETHER OR NOT THERE ARE STRONG AND COGENT REASON(S) TO
DISTURB THE FINDINGS AND CONCLUSIONS OF THE TRIAL COURT
THAT THE CONTRACT DENOMINATED AS DEED OF ABSOLUTE SALE IS
SIMULATED AND THEREFORE NULL AND VOID.
2. WHETHER THE ACTS OF PRIVATE RESPONDENTS IS (SIC)
CONSISTENT WITH THE ACTS OF VENDEES WHEN THEY DEFIED LOGIC
AS FOUND BY THE TRIAL COURT...
3. WHETHER THE ALLEGED VENDORS (SIC) GAUDENCIA ZARRAGA
WHO WAS THEN 94 YEARS OLD, ALREADY WEAK AND WHO WAS
UNDER THE CARE OF ONE OF THE VENDEES PRIVATE RESPONDENT
ROMANA ZARRAGA, SINGLE AND WITHOUT ANY CHILD BUT HAS
SISTERS AND OTHER NEPHEWS AND NIECES WILL SELL HER
PROPERTY THEN WORTH P188,250.00 IN 1980 FOR ONLY P34,000,
AND WHETHER A CONTRACT OF SALE OF REALTY IS PERFECTED,
VALID AND GENUINE WHEN ONE OF THE VENDEES ROMUALDO
ZARRAGA DOES NOT KNOW OF THE TRANSACTION, THE OTHER
VENDEE JOSE ZARRAGA WAS ALREADY LONG DEAD BEFORE THE
EXECUTION OF THE BILIHAN IN QUESTION AND YET WAS INCLUDED AS
ONE OF THE VENDEES, LIKEWISE, OTHER SUPPOSED VENDEES NIEVES
ZARRAGA AND GUILLERMO ZARRAGA ASIDE FROM ROMUALDO WERE
NOT PRESENT WHEN THE TRANSACTION TOOK PLACE.
4. THE LEGAL MEANING AND IMPORT OF SIMULATED CONTRACT OF
SALE WHICH INVALIDATES A TRANSACTION IS ALSO A LEGAL ISSUE TO
BE THRESHED OUT IN THIS CASE AT BAR.
5. WHETHER PETITIONERS HAVE THE LEGAL PERSONALITY TO SUE.[5]
Notwithstanding petitioners formulation of the issues, we find the only issue for
resolution in this case is whether or not the deed of absolute sale is valid.
Petitioners vigorously assail the validity of the execution of the deed of absolute
sale suggesting that since the notary public who prepared and acknowledged the
questioned Bilihan did not personally know Gaudencia, the execution of the deed
was suspect. However, the notary public testified that he interviewed Gaudencia
prior to preparing the deed of sale.[6] Petitioners failed to rebut this testimony.
The rule is that a notarized document carries the evidentiary weight conferred
upon it with respect to its due execution, [7] and documents acknowledged before
a notary public have in their favor the presumption of regularity. [8] By their failure

to overcome this presumption, with clear and convincing evidence, petitioners are
estopped from questioning the regularity of the execution of the deed. [9]
Petitioners also charge that one of the vendees, Jose Zarraga, was already dead
at the time of the sale. However, the records reveal that Jose died on July 29,
1981.[10] He was still alive on August 24, 1980, when the sale took place.
Petitioners then contend that three of the vendees included in the deed, namely,
Romualdo, Guillermo, and Nieves, were not aware of the transaction, which casts
doubt on the validity of the execution of the deed. Curiously, Romualdo who
questioned Gaudencias ownership in Civil Case No. B-1094, was one of those
included as buyer in the deed of sale. Romana, however, testified that Romualdo
really had no knowledge of the transaction and he was included as a buyer of the
land only because he was a brother.
Petitioners suggest that all the aforecited circumstances lead to the conclusion
that the deed of sale was simulated.
Simulation is "the declaration of a fictitious will, deliberately made by agreement
of the parties, in order to produce, for the purposes of deception, the
appearances of a juridical act which does not exist or is different what that which
was really executed."[11] Characteristic of simulation is that the apparent contract
is not really desired or intended to produce legal effect or in any way alter the
juridical situation of the parties. Perusal of the questioned deed will show that
the sale of the property would convert the co-owners to vendors and vendees, a
clear alteration of the juridical relationships. This is contrary to the requisite of
simulation that the apparent contract was not really meant to produce any legal
effect. Also in a simulated contract, the parties have no intention to be bound by
the contract. But in this case, the parties clearly intended to be bound by the
contract of sale, an intention they did not deny.
The requisites for simulation are: (a) an outward declaration of will different from
the will of the parties; (b) the false appearance must have been intended by
mutual agreement; and (c) the purpose is to deceive third persons. [12] None of
these are present in the assailed transaction.
Anent Romualdos lack of knowledge and participation in the sale, the rule is that
contracts are binding only upon the parties who execute them. [13] Romualdo had
no knowledge of the sale. He was a stranger and not a party to it. Article 1311 of
the Civil Code[14] clearly covers this situation.
Petitioners fault the Court of Appeals for not considering that at the time of the
sale in 1980, Gaudencia was already 94 years old; that she was already weak;
that she was living with private respondent Romana; and was dependent upon
the latter for her daily needs, such that under these circumstances, fraud or
undue influence was exercised by Romana to obtain Gaudencias consent to the
sale.
The rule on fraud is that it is never presumed, but must be both alleged and
proved.[15] For a contract to be annulled on the ground of fraud, it must be shown
that the vendor never gave consent to its execution. If a competent person has
assented to a contract freely and fairly, said person is bound. There also is a
disputable presumption, that private transactions have been fair and regular.
[16]
Applied to contracts, the presumption is in favor of validity and regularity. In

this case, the allegations of fraud was unsupported, and the presumption stands
that the contract Gaudencia entered into was fair and regular.
Petitioners also claim that since Gaudencia was old and senile, she was incapable
of independent and clear judgment. However, a person is not incapacitated to
contract merely because of advanced years or by reason of physical infirmities.
[17]
Only when such age or infirmities impair his mental faculties to such extent as
to prevent him from properly, intelligently, and fairly protecting his property
rights,[18] is he considered incapacitated. Petitioners show no proof that
Gaudencia had lost control of her mental faculties at the time of the sale. The
notary public who interviewed her, testified that when he talked to Gaudencia
before preparing the deed of sale, she answered correctly and he was convinced
that Gaudencia was mentally fit and knew what she was doing.
On whether or not Gaudencia was under the undue influence of the private
respondents, Article 1337 of the Civil Code states:
"There is undue influence when a person takes improper advantage
of his power over the will of another, depriving the latter of a
reasonable freedom of choice. The following circumstances shall be
considered: confidential, family, spiritual, and other relations
between the parties, or the fact that the person alleged to have been
unduly influenced was suffering from mental weakness, or was
ignorant or in financial distress."
Undue influence depends upon the circumstances of each case[19] and not on bare
academic rules.[20] For undue influence to be established to justify the cancellation
of an instrument, three elements must be present: (a) a person who can be
influenced; (b) the fact that improper influence was exerted; (c) submission to the
overwhelming effect of such unlawful conduct.[21]In the absence of a confidential
or fiduciary relationship between the parties, the law does not presume that one
person exercised undue influence upon the other. [22] A confidential or fiduciary
relationship may include any relation between persons, which allows one to
dominate the other, with the opportunity to use that superiority to the others
disadvantage.[23] Included are those of attorney and client, [24] physician and
patient,[25] nurse and invalid,[26] parent and child,[27] guardian and ward,[28] member
of a church or sect and spiritual adviser, [29] a person and his confidential adviser,
[30]
or whenever a confidential relationship exists as a fact. [31] That Gaudencia
looked after Romana in her old age is not sufficient to show that the relationship
was confidential. To prove a confidential relationship from which undue influence
may arise, the relationship must reflect a dominant, overmastering influence
which controls over the dependent person.[32] In the present case, petitioners
failed to show that Romana used her aunts reliance upon her to take advantage
or dominate her and dictate that she sell her land. Undue influence is not to be
inferred from age, sickness, or debility of body, if sufficient intelligence remains.
[33]
Petitioners never rebutted the testimony of the notary public that he observed
Gaudencia still alert and sharp.
In Baez v. Court of Appeals, 59 SCRA 15 (1974), we had occasion to say that
solicitation, importunity, argument, and persuasion are not undue influence. A
contract is not to be set aside merely because one party used these means to
obtain the consent of the other. We have likewise held in Martinez v. Hongkong
and Shanghai Bank, 15 Phil. 252 (1910), that influence obtained by persuasion,
argument, or by appeal to the affections is not prohibited either in law or morals,

and is not obnoxious even in courts of equity. Absent any proof that Romana
exerted undue influence, the presumption is that she did not.
Petitioners also seek the annulment of the sale due to gross inadequacy of price.
They contend that Gaudencia, in her right senses, would never have sold her
property worth P188,250.00 in 1980 for only P34,000.00. The records show that
much of petitioners evidence was meant to prove the market value of the lot at
the time of the sale.[34] A review of the records will show that lesion was not an
issue raised before the lower courts. An issue which was neither averred in the
complaint nor raised in the court below, cannot be raised for the first time on
appeal. To do so would be offensive to the basic rules of fair play.
Petitioners seem to be unsure whether they are assailing the sale of Lot 115-A-1
for being absolutely simulated or for inadequacy of the price. These two grounds
are irreconcilable. If there exists an actual consideration for transfer evidenced
by the alleged act of sale, no matter how inadequate it be, the transaction could
not be a "simulated sale."[35] No reversible error was thus committed by the Court
of Appeals in refusing to annul the questioned sale for alleged inadequacy of the
price.
WHEREFORE, the petition is DENIED, and the assailed decision of the Court of
Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 207176

June 18, 2014

SPOUSES VICTOR and EUNA BINUA, Petitioners,

vs.
LUCIA P. ONG, Respondent.
DECISION
REYES, J.:
Spouses Victor and Edna Binua (petitioners) seek the declaration of the nullity of
the real estate mortgages executed by petitioner Victor in favor of Lucia P. Ong
(respondent), on the ground that these were executed under fear, duress and
threat.
Facts of the Case
In a Joint Decision1 dated January 10, 2006 by the Regional Trial Court of
Tuguegarao City, Branch 2 (RTC-Branch 2), in Criminal Cases Nos. 8230, 8465-70,

petitioner Edna was found guilty of Estafa and was sentenced to imprisonment
from six ( 6) years and one ( 1) day of prision mayor, as minimum, to thirty (30)
years of reclusion perpetua, as maximum, for each conviction. Petitioner Edna
was also ordered to pay the respondent the amount of P2,285,000.00, with ten
percent (10%) interest, and damages.2
Petitioner Edna sought to avoid criminal liability by settling her indebtedness
through the execution of separate real estate mortgages over petitioner Victors
properties on February 2, 2006, and covering the total amount ofP7,000,000.00.
Mortgaged were portions of Lot No. 1319 covered by Transfer Certificate of Title
(TCT) No. T-15232 and Lot No. 2399 covered by TCT No. T-15227, both located in
Tuguegarao City.3
Thereafter, petitioner Edna filed a motion for new trial, which was granted by the
RTC-Branch 2. Consequently, the RTC-Branch 2 rendered a Decision4 on February
24, 2006, ordering petitioner Edna to pay the respondent the amount
of P2,285,000.00 as actual damages, with ten percent (10%) interest, and other
damages.5 The RTC-Branch 2 ruled that the presentation of a promissory note
dated March 4, 1997 novated the original agreement between them into a civil
obligation. The decision further reads:
During the hearing of the motion [for new trial], [petitioner Ednas] counsel
presented [petitioner Edna]. In the course of her testimony, she narrated that a
promissory note (Exhibit "1") dated March 4, 1997 was executed by her in favor of
Lucia P. Ong, the herein private complainant.
xxxx
With the surfacing and finally the introduction of Exhibit "1", the nature of the
liability of [petitioner Edna] changed from both criminal and civil in nature to
purely civil in character.
The Promissory Note novated the complexity of the nature of the course of action
the [respondent] had from the beginning against [petitioner Edna].
xxxx
However, after the Promissory Note (Exh. "1") was executed by the parties, the
whole scenario was novated into purely civil in nature. It was the intention of
both [the respondent] and [petitioner Edna] to turn the debt into a mere loan,
hence, this agreement of theirs being the law that binds them must be respected.
[Petitioner Edna] nonetheless, admits in Exhibit "1," that, she is indebted to [the
respondent]. Thus, she must pay her just debt.6 (Emphasis ours)
Petitioner Edna, however, failed to settle her obligation, forcing the respondent to
foreclose the mortgage on the properties, with the latter as the highest bidder
during the public sale.
The petitioners then filed the case for the Declaration of Nullity of Mortgage
Contracts, alleging that the mortgage documents were "executed under duress,
as the [petitioners] at the time of the execution of said deeds were still suffering

from the effect of the conviction of [petitioner] Edna, and could not have been
freely entered into said contracts."7
On December 12, 2008, the RTC of Tuguegarao City, Branch 5 (RTC-Branch 5),
rendered a Decision8 dismissing the complaint for lack of factual and legal
merit.9 The RTC-Branch 5 ruled:
When the [petitioners] executed the Deeds of Mortgage, did they act under fear,
or duress, or threat? Quite clearly, they did because a judgment of conviction
was hanging over Ednas head sentencing her to a prison term x x x. However,
Article 1335 of the Civil Code is equally unmistakable. The last paragraph of the
article reads: "A threat to enforce ones claim through competent authority, if the
claim is just or legal, does not vitiate consent."
The Court cannot see its way to an agreement with the [petitioners]. They asked
for a "compromise" consisting in the execution of a promissory note by deeds of
mortgage. Edna profited from it she did not go to jail. She was in fact acquitted.
The judgment of Branch 2 of this Court attained finality for failure of the accused
to perfect a seasonable appeal. And now they come to Court asking it to set aside
the very deeds of mortgage they had signed to keep Edna away from prison? 10
The petitioners brought their case to the Court of Appeals (CA) and in the assailed
Decision11 dated November 13, 2012 and Resolution 12 dated May 14, 2013, the
RTC-Branch 5 decision was affirmed. The CA ruled that:
[T]he claim of [petitioner] Victor that he executed the real estate mortgages for
fear that his wife would go to jail is obviously not the intimidation referred to by
law. In asserting that the above-mentioned circumstance constituted fear, duress
and threat, [the petitioners] missed altogether the essential ingredient that
would qualify the act complained of as intimidation, that the threat must be of an
unjust act.13
In the present petition for review under Rule 45 of the Rules of Court, the
petitioners claim that:
I.
THE LOWER COURT ERRED IN GIVING FULL FAITH AND CREDENCE TO THE DECISION
OFTHE COURT A QUO BASED ON FINDINGS OF FACTS NOT SUPPORTED BY THE
EVIDENCE ON RECORD
II.
THE LOWER COURT ERRED IN REFUSING TO DECLARE NULL AND VOID THE
MORTGAGE CONTRACTS DESPITE ITS FINDING THAT SAID CONTRACTS WERE
EXECUTED UNDER FEAR, DURESS AND THREAT
III.
THE LOWER COURT ERRED IN REFUSING TO DECLARE NULL AND VOID THE
MORTGAGE CONTRACTS DESPITE THE FACT THAT THEY WERE EXECUTED TO
SECURE A MONETARY OBLIGATION THAT IMPOSES A MONTHLY INTEREST OF TEN
PERCENT14

The petitioners contend that the CA erred when it sustained the findings of the
RTC that the execution of the promissory note changed petitioner Ednas
obligation to a civil one. According to the petitioners, the RTCs findings are not in
accord with the RTC-Branch 2 Decision dated February 24, 2006, which ruled that
petitioner Ednas liability is purely civil and not based on the compromise
agreement with the respondent. The petitioners insist that the RTC-Branch 2
decision allegedly show "the lack of criminal liability of x x x Edna Binua due to
novation." The petitioners also contend that there was no evidence during trial
regarding the existence of the promissory note or that the basis of petitioner
Ednas exoneration from criminal liability was the execution of the mortgage. 15
The petitioners also claim that the threat and coercion levelled by the respondent
against petitioner Victor, i.e., the wrongful criminal conviction of petitioner Edna,
and which resulted into the signing of the mortgages, do not fall within the
coverage of Article 1335 of the Civil Code.16 Finally, the petitioners argue that the
CA committed an error when it refused to rule on the legality of the ten percent
(10%) monthly interest rate imposed on petitioner Ednas loan obligation. 17
Ruling of the Court
First, the Court must emphasize that in a Rule 45 petition for review, only
questions of law may be raised because the Court is not a trier of facts and is not
to review or calibrate the evidence on record; and when supported by substantial
evidence, the findings off act by the CA are conclusive and binding on the parties
and are not reviewable by this Court,18 unless the case falls under any of the
exceptions.19
In this case, the Court notes that the petitioners arguments are exact repetitions
of the issues raised in the CA, and the petitioners failed to advance any
convincing reason that would alter the resolution in this case. Not only that, the
petitioners arguments are also downright inaccurate, if not maliciously
misleading.
The decisive factor in this case is the RTC-Branch 2 Decision dated February 24,
2006 in Criminal Case Nos. 8230, 8465, 8466, 8467, 8468, 8469 & 8470. This was
the decision that overturned petitioner Ednas previous conviction for estafa and
adjudged her only to be civilly liable to the respondent. Said RTC decision is
already final and executory,20 and this was not refuted by the petitioners. The
Court has consistently ruled that "once a decision attains finality, it becomes the
law of the case regardless of any claim that it is erroneous. Having been rendered
by a court of competent jurisdiction acting within its authority, the judgment may
no longer be altered even at the risk of occasional legal infirmities or errors it
may contain."21 Thus, said RTC decision bars a rehash, not only of the issues
raised therein but also of other issues that might have been raised, and this
includes the existence of the promissory note upon which petitioner Ednas
exoneration rested. As a matter of fact, the RTC decision embodied petitioner
Ednas own admission that she is indebted to the respondent. The issue of
whether petitioner Ednas liability under the note was, from the very beginning,
civil and not criminal in nature has no relevance in this case as the only issue to
be resolved is whether the mortgage contracts were executed under duress. Any
other discussion pertinent to the RTC decision will transgress the principle of
immutability of a final judgment.22

The petitioners claim that they were compelled by duress or intimidation when
they executed the mortgage contracts.1wphi1 According to them, they "were
still suffering from the effect of the conviction of [petitioner] Edna, and could not
have been freely entered into said contracts." 23 The petitioners also allege that
the respondent subsequently "rammed the two (2) mortgage contracts involving
two (2) prime properties on [petitioner Victors] throat, so to speak[,] just so to
make him sign the said documents,"24 and that the respondent took advantage of
the misfortune of the petitioners and was able to secure in her favor the real
estate mortgages.25
Article 1390(2) of the Civil Code provides that contracts where the consent is
vitiated by mistake, violence, intimidation, undue influence or fraud are voidable
or annullable. Article 1335 of the Civil Code, meanwhile, states that "[t]here is
intimidation when one of the contracting parties is compelled by a reasonable and
well-grounded fear of an imminent and grave evil upon his person or property, or
upon the person or property of his spouse, descendants or ascendants, to give his
consent." The same article, however, further states that "[a] threat to enforce
ones claim through competent authority, if the claim is just or legal, does not
vitiate consent."
In De Leon v. Court of Appeals,26 the Court held that in order that intimidation
may vitiate consent and render the contract invalid, the following requisites must
concur: (1) that the intimidation must be the determining cause of the contract,
or must have caused the consent to be given; (2) that the threatened act be
unjust or unlawful; (3) that the threat be real and serious, there being an evident
disproportion between the evil and the resistance which all men can offer, leading
to the choice of the contract as the lesser evil; and (4) that it produces a
reasonable and well-grounded fear from the fact that the person from whom it
comes has the necessary means or ability to inflict the threatened injury. 27
In cases involving mortgages, a preponderance of the evidence is essential to
establish its invalidity, and in order to show fraud, duress, or undue influence of a
mortgage, clear and convincing proof is necessary. 28
Based on the petitioners own allegations, what the respondent did was merely
inform them of petitioner Ednas conviction in the criminal cases for estafa. It
might have evoked a sense of fear or dread on the petitioners part, but certainly
there is nothing unjust, unlawful or evil in the respondent's act. The petitioners
also failed to show how such information was used by the respondent in coercing
them into signing the mortgages. The petitioners must remember that petitioner
Edna's conviction was a result of a valid judicial process and even without the
respondent allegedly "ramming it into petitioner Victor's throat," petitioner
Edna's imprisonment would be a legal consequence of such conviction. In Callanta
v. National Labor Relations Commission,29 the Court stated that the threat to
prosecute for estafa not being an unjust act, but rather a valid and legal act to
enforce a claim, cannot at all be considered as intimidation. 30 As correctly ruled
by the CA, "[i]f the judgment of conviction is the only basis of the [petitioners] in
saying that their consents were vitiated, such will not suffice to nullify the real
estate mortgages and the subsequent foreclosure of the mortgaged properties.
No proof was adduced to show that [the respondent] used [force], duress, or
threat to make [petitioner] Victor execute the real estate mortgages." 31
Finally, the petitioners assail the ten percent (10%) imposed by the RTC-Branch 2
in the criminal cases for estafa. As previously stated, however, the decision in

said case is already final and executory. 32 The Court will not even consider the
petitioners' arguments on such issue for to do so would sanction the petitioners'
act of subverting the immutability of a final judgment.
WHEREFORE, the petition is DENIED for lack of merit.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 171428

November 11, 2013

ALEJANDRO V. TANKEH, Petitioner,

vs.
DEVELOPMENT BANK OF THE PHILIPPINES, STERLING SHIPPING LINES, INC.,
RUPERTO V. TANKEH, VICENTE ARENAS, and ASSET PRIVATIZATION
TRUST, Respondents.
DECISION
LEONEN, J.:
This is a Petition for Review on Certiorari praying that the assailed October 25,
2005 Decision and the February 9, 2006 Resolution of the Court of Appeals 1 be
reversed, and that the January 4, 1996 Decision of the Regional Trial Court of
Manila Branch 32 be affirmed. Petitioner prays that this Court grant his claims for
moral damages and attorneys fees, as proven by the evidence.
Respondent Ruperto V. Tankeh is the president of Sterling Shipping Lines, Inc. It
was incorporated on April 23, 1979 to operate ocean-going vessels engaged
primarily in foreign trade.2 Ruperto V. Tankeh applied for a $3.5 million loan from
public respondent Development Bank of the Philippines for the partial financing of
an ocean-going vessel named the M/V Golden Lilac. To authorize the loan,
Development Bank of the Philippines required that the following conditions be
met:
1) A first mortgage must be obtained over the vessel, which by then had been
renamed the M/V Sterling Ace;
2) Ruperto V. Tankeh, petitioner Dr. Alejandro V. Tankeh, Jose Marie Vargas, as
well as respondents Sterling Shipping Lines, Inc. and Vicente Arenas should
become liable jointly and severally for the amount of the loan;
3) The future earnings of the mortgaged vessel, including proceeds of Charter and
Shipping Contracts, should be assigned to Development Bank of the Philippines;
and

4) Development Bank of the Philippines should be assigned no less than 67% of

the total subscribed and outstanding voting shares of the company. The
percentage of shares assigned should be maintained at all times, and the
assignment was to subsist as long as the assignee, Development Bank of the
Philippines, deemed it necessary during the existence of the loan. 3
According to petitioner Dr. Alejandro V. Tankeh, Ruperto V. Tankeh approached
him sometime in 1980.4 Ruperto informed petitioner that he was operating a new
shipping line business. Petitioner claimed that respondent, who is also
petitioners younger brother, had told him that petitioner would be given one
thousand (1,000) shares to be a director of the business. The shares were
worth P1,000,000.00.5
On May 12, 1981, petitioner signed the Assignment of Shares of Stock with Voting
Rights.6 Petitioner then signed the May 12, 1981 promissory note in December
1981. He was the last to sign this note as far as the other signatories were
concerned.7 The loan was approved by respondent Development Bank of the
Philippines on March 18, 1981. The vessel was acquired on September 29, 1981
for $5.3 million.8 On December 3, 1981, respondent corporation Sterling Shipping
Lines, Inc. through respondent Ruperto V. Tankeh executed a Deed of Assignment
in favor of Development Bank of the Philippines. The deed stated that the
assignor, Sterling Shipping Lines, Inc.:
x x x does hereby transfer and assign in favor of the ASSIGNEE (DBP), its
successors and assigns, future earnings of the mortgaged M/V "Sterling Ace,"
including proceeds of charter and shipping contracts, it being understood that
this assignment shall continue to subsist for as long as the ASSIGNORS obligation
with the herein ASSIGNEE remains unpaid.9
On June 16, 1983, petitioner wrote a letter to respondent Ruperto V. Tankeh
saying that he was severing all ties and terminating his involvement with Sterling
Shipping Lines, Inc.10 He required that its board of directors pass a resolution
releasing him from all liabilities, particularly the loan contract with Development
Bank of the Philippines. In addition, petitioner asked that the private respondents
notify Development Bank of the Philippines that he had severed his ties with
Sterling Shipping Lines, Inc.11
The accounts of respondent Sterling Shipping Lines, Inc. in the Development Bank
of the Philippines were transferred to public respondent Asset Privatization Trust
on June 30, 1986.12
Presently, respondent Asset Privatization Trust is known as the Privatization and
Management Office. Asset Privatization Trust was a government agency created
through Presidential Proclamation No. 50, issued in 1986. Through Administrative
Order No. 14, issued by former President Corazon Aquino dated February 3, 1987,
assets including loans in favor of Development Bank of the Philippines were
ordered to be transferred to the national government. In turn, the management
and facilitation of these assets were delegated to Asset Privatization Trust,
pursuant to Presidential Proclamation No. 50. In 1999, Republic Act No. 8758 was
signed into law, and it provided that the corporate term of Asset Privatization
Trust would end on December 31, 2000. The same law empowered the President
of the Philippines to determine which office would facilitate the management of
assets held by Asset Privatization Trust. Thus, on December 6, 2000, former
President Joseph E. Estrada signed Executive Order No. 323, creating the

Privatization Management Office. Its present function is to identify disposable

assets, monitor the progress of privatization activities, and approve the sale or
divestment of assets with respect to price and buyer. 13
On January 29, 1987, the M/V Sterling Ace was sold in Singapore for $350,000.00
by Development Bank of the Philippines legal counsel Atty. Prospero N. Nograles.
When petitioner came to know of the sale, he wrote respondent Development
Bank of the Philippines to express that the final price was inadequate, and
therefore, the transaction was irregular. At this time, petitioner was still bound as
a debtor because of the promissory note dated May 12, 1981, which petitioner
signed in December of 1981. The promissory note subsisted despite Sterling
Shipping Lines, Inc.s assignment of all future earnings of the mortgaged M/V
Sterling Ace to Development Bank of the Philippines. The loan also continued to
bind petitioner despite Sterling Shipping Lines, Inc.s cash equity contribution
of P13,663,200.00 which was used to cover part of the acquisition cost of the
vessel, pre-operating expenses, and initial working capital. 14
Petitioner filed several Complaints 15 against respondents, praying that the
promissory note be declared null and void and that he be absolved from any
liability from the mortgage of the vessel and the note in question.
In the Complaints, petitioner alleged that respondent Ruperto V. Tankeh, together
with Vicente L. Arenas, Jr. and Jose Maria Vargas, had exercised deceit and fraud
in causing petitioner to bind himself jointly and severally to pay respondent
Development Bank of the Philippines the amount of the mortgage loan. 16 Although
he had been made a stockholder and director of the respondent corporation
Sterling Shipping Lines, Inc., petitioner alleged that he had never invested any
amount in the corporation and that he had never been an actual member of the
board of directors.17 He alleged that all the money he had supposedly invested
was provided by respondent Ruperto V. Tankeh. 18 He claimed that he only
attended one meeting of the board. In that meeting, he was introduced to two
directors representing Development Bank of the Philippines, namely, Mr. Jesus
Macalinag and Mr. Gil Corpus. Other than that, he had never been notified of
another meeting of the board of directors.
Petitioner further claimed that he had been excluded deliberately from
participating in the affairs of the corporation and had never been compensated by
Sterling Shipping Lines, Inc. as a director and stockholder. 19According to
petitioner, when Sterling Shipping Lines, Inc. was organized, respondent Ruperto
V. Tankeh had promised him that he would become part of the administration staff
and oversee company operations. Respondent Ruperto V. Tankeh had also
promised petitioner that the latters son would be given a position in the
company.20 However, after being designated as vice president, petitioner had not
been made an officer and had been alienated from taking part in the respondent
corporation.21
Petitioner also alleged that respondent Development Bank of the Philippines had
been inexcusably negligent in the performance of its duties. 22 He alleged that
Development Bank of the Philippines must have been fully aware of Sterling
Shipping Lines, Inc.s financial situation. Petitioner claimed that Sterling Shipping
Lines, Inc. was controlled by the Development Bank of the Philippines because
67% of voting shares had been assigned to the latter. 23 Furthermore, the
mortgage contracts had mandated that Sterling Shipping Lines, Inc. "shall furnish
the DBP with copies of the minutes of each meeting of the Board of Directors

within one week after the meeting. Sterling Shipping Lines Inc. shall likewise
furnish DBP its annual audited financial statements and other information or data
that may be needed by DBP as its accommodations [sic] with DBP are
outstanding."24Petitioner further alleged that the Development Bank of the
Philippines had allowed "highly questionable acts"25 to take place, including the
gross undervaluing of the M/V Sterling Aces.26 Petitioner alleged that one day
after Development Bank of the Philippines Atty. Nograles sold the vessel, the
ship was re-sold by its buyer for double the amount that the ship had been
bought.27
As for respondent Vicente L. Arenas, Jr., petitioner alleged that since Arenas had
been the treasurer of Sterling Shipping Lines, Inc. and later on had served as its
vice president, he was also responsible for the financial situation of Sterling
Shipping Lines, Inc.
Lastly, in the Amended Complaint dated April 16, 1991, petitioner impleaded
respondent Asset Privatization Trust for being the agent and assignee of the M/V
Sterling Ace.
In their Answers28 to the Complaints, respondents raised the following defenses
against petitioner: Respondent Development Bank of the Philippines categorically
denied receiving any amount from Sterling Shipping Lines, Inc.s future earnings
and from the proceeds of the shipping contracts. It maintained that equity
contributions could not be deducted from the outstanding loan obligation that
stood at P245.86 million as of December 31, 1986. Development Bank of the
Philippines also maintained that it is immaterial to the case whether the
petitioner is a "real stockholder" or merely a "pseudo-stockholder" of the
corporation.29 By affixing his signature to the loan agreement, he was liable for
the obligation. According to Development Bank of the Philippines, he was in pari
delicto and could not be discharged from his obligation. Furthermore, petitioner
had no cause of action against Development Bank of the Philippines since this
was a case between family members, and earnest efforts toward compromise
should have been complied with in accordance with Article 222 of the Civil Code of
the Philippines.30
Respondent Ruperto V. Tankeh stated that petitioner had voluntarily signed the
promissory note in favor of Development Bank of the Philippines and with full
knowledge of the consequences. Respondent Tankeh also alleged that he did not
employ any fraud or deceit to secure petitioners involvement in the company,
and petitioner had been fully aware of company operations. Also, all that
petitioner had to do to avoid liability had been to sell his shareholdings in the
company.31
Respondent Asset Privatization Trust raised that petitioner had no cause of action
against them since Asset Privatization Trust had been mandated under
Proclamation No. 50 to take title to and provisionally manage and dispose the
assets identified for privatization or deposition within the shortest possible
period. Development Bank of the Philippines had transferred and conveyed all its
rights, titles, and interests in favor of the national government in accordance with
Administrative Order No. 14. In line with that, Asset Privatization Trust was
constituted as trustee of the assets transferred to the national government to
effect privatization of these assets, including respondent Sterling Shipping Lines,
Inc.32 Respondent Asset Privatization Trust also filed a compulsory counterclaim

against petitioner and its co-respondents Sterling Shipping Lines, Inc., Ruperto V.
Tankeh, and Vicente L. Arenas, Jr. for the amount of P264,386,713.84.
Respondent Arenas did not file an Answer to any of the Complaints of petitioner
but filed a Motion to Dismiss that the Regional Trial Court denied. Respondent
Asset Privatization Trust filed a Cross Claim against Arenas. In his Answer 33 to
Asset Privatization Trusts Cross Claim, Arenas claimed that he had been released
from any further obligation to Development Bank of the Philippines and its
successor Asset Privatization Trust because an extension had been granted by the
Development Bank of the Philippines to the debtors of Sterling Shipping Lines,
Inc. and/or Ruperto V. Tankeh, which had been secured without Arenas consent.
The trial proceeded with the petitioner serving as a sole witness for his case. In a
January 4, 1996 Decision,34 the Regional Trial Court ruled:
Here, we find
1. Plaintiff being promised by his younger brother, Ruperto V. Tankeh, 1,000
shares with par value of P1 Million with all the perks and privileges of being
stockholder and director of SSLI, a new international shipping line;
2. That plaintiff will be part of the administration and operation of the
business, so with his son who is with the law firm Romulo Ozaeta Law
Offices;
3. But this was merely the come-on or appetizer for the Real McCoy or the
primordial end of congregating the incorporators proposed - - that he sign
the promissory note (Exhibit "C"), the mortgage contract (Exhibit "A"), and
deed of assignment so SSLI could get the US $3.5 M loan from DBP to
partially finance the importation of vessel M.V. "Golden Lilac" renamed M.V.
"Sterling ACE";
4. True it is, plaintiff was made a stockholder and director and VicePresident in 1979 but he was never notified of any meeting of the Board
except only once, and only to be introduced to the two (2) directors
representing no less than 67% of the total subscribed and outstanding
voting shares of the company. Thereafter, he was excluded from any board
meeting, shorn of his powers and duties as director or Vice-President, and
was altogether deliberately demeaned as an outsider.
5. What kind of a company is SSLI who treated one of their incorporators,
one of their Directors and their paper Vice-President in 1979 by preventing
him access to corporate books, to corporate earnings, or losses, and to any
compensation or remuneration whatsoever? Whose President and Treasurer
did not submit the required SEC yearly report? Who did not remit to DBP
the proceeds on charter mortgage contracts on M/V Sterling Ace?
6. The M/V Sterling Ace was already in the Davao Port when it was then
diverted to Singapore to be disposed on negotiated sale, and not by public
bidding contrary to COA Circular No. 86-264 and without COAs approval.
Sterling Ace was seaworthy but was sold as scrap in Singapore. No
foreclosure with public bidding was made in contravention of the
Promissory Note to recover any deficiency should DBP seeks [sic] to recover

it on the outstanding mortgage loan. Moreover the sale was done after the
account and asset (nay, now only a liability) were transferred to APT. No
approval of SSLI Board of Directors to the negotiated sale was given.
7. Plaintiffs letter to his brother President, Ruperto V. Tankeh, dated June
15, 1983 (Exhibit "D") his letter thru his lawyer to DBP (Exhibit "J") and
another letter to it (Exhibit "K") show no estoppel on his part as he
consistently and continuously assailed the several injurious acts of
defendants while assailing the Promissory Note itself x x x (Citations
omitted) applying the maxim: Rencintiatio non praesumitur. By this Dr.
Tankeh never waived the right to question the Promissory Note contract
terms. He did not ratify, by concurring acts, express or tacit, after the
reasons had surfaced entitling him to render the contract voidable,
defendants acts in implementing or not the conditions of the mortgage,
the promissory note, the deed of assignment, the lack of audit and
accounting, and the negotiated sale of MV Sterling Ace. He did not ratify
defendants [sic] defective acts (Art. 1396, New Civil Code (NCC).
The foregoing and the following essays, supported by evidence, the fraud
committed by plaintiffs brother before the several documents were signed (SEC
documents, Promissory Note, Mortgage (MC) Contract, assignment (DA)), namely:
1. Ruperto V. Tankeh approaches his brother Alejandro to tell the latter of
his new shipping business. The project was good business proposal [sic].
2. Ruperto tells Alejandro hes giving him shares worth P1 Million and hes
going to be a Director.
3. He tells his brother that he will be part of the companys Administration
and Operations and his eldest son will be in it, too.
4. Ruperto tells his brother they need a ship, they need to buy one for the
business, and they therefore need a loan, and they could secure a loan
from DBP with the vessel brought to have a first mortgage with DBP but
anyway the other two directors and comptroller will be from DBP with a
67% SSLI shares voting rights.
Without these insidious, devastating and alluring words, without the
machinations used by defendant Ruperto V. Tankeh upon the doctor, without the
inducement and promise of ownership of shares and the exercise of
administrative and operating functions, and the partial financing by one of the
best financial institutions, the DBP, plaintiff would not have agreed to join his
brother; and the safeguarding of the Banks interest by its nominated two (2)
directors in the Board added to his agreeing to the new shipping business. His
consent was vitiated by the fraud before the several contracts were
consummated.
This alone convenes [sic] this Court to annul the Promissory Note as it relates to
plaintiff himself.
Plaintiff also pleads annulment on ground of equity. Article 19, NCC, provides him
the way as it requires every person, in the exercise of his rights and performance
of his duties, to act with justice, give everyone his due, and observe honesty and

good faith (Velayo vs. Shell Co. of the Phils., G.R. L-7817, October 31, 1956). Not
to release him from the clutch of the Promissory Note when he was never made a
part of the operation of the SSLI, when he was not notified of the Board Meetings,
when the corporation nary remitted earnings of M/V Sterling Ace from charter or
shipping contracts to DBP, when the SSLI did not comply with the deed of
assignment and mortgage contract, and when the vessel was sold in Singapore
(he, learning of the sale only from the newspapers) in contravention of the
Promissory Note, and which he questioned, will be an injustice, inequitable, and
even iniquitous to plaintiff. SSLI and the private defendants did not observe
honesty and good faith to one of their incorporators and directors. As to DBP, the
Court cannot put demerits on what plaintiffs memorandum has pointed out:
While defendant DBP did not exercise the caution and prudence in the discharge
of their functions to protect its interest as expected of them and worst, allowed
the perpetuation of the illegal acts committed in contrast to the virtues they
publicly profess, namely: "palabra de honor, delicadeza, katapatan, kaayusan,
pagkamasinop at kagalingan" Where is the vision banking they have for our
country?
Had DBP listened to a cry in the wilderness that of the voice of the doctor the
doctor would not have allowed the officers and board members to defraud DBP
and he would demand of them to hew and align themselves to the deed of
assignment.
Prescinding from the above, plaintiffs consent to be with SSLI was vitiated by
fraud. The fact that defendant Ruperto Tankeh has not questioned his liability to
DBP or that Jose Maria Vargas has been declared in default do not detract from
the fact that there was attendant fraud and that there was continuing fraud
insofar as plaintiff is concerned.
Ipinaglaban lang ni Doctor ang karapatan niya. Kung wala siyang sense of
righteous indignation and fairness, tatahimik na lang siya, sira naman ang
pinangangalagaan niyang pangalan, honor and family prestige [sic] (Emphasis
provided).35
xxxx
All of the defendants counterclaims and cross-claims x x x including plaintiffs
and the other defendants prayer for damages are not, for the moment, sourced
and proven by substantial evidence, and must perforce be denied and dismissed.
WHEREFORE, this Court, finding and declaring the Promissory Note (Exhibit "C")
and the Mortgage Contract (Exhibit "A") null and void insofar as plaintiff DR.
ALEJANDRO V. TANKEH is concerned, hereby ANNULS and VOIDS those documents
as to plaintiff, and it is hereby further ordered that he be released from any
obligation or liability arising therefrom.
All the defendants counterclaims and cross-claims and plaintiffs and defendants
prayer for damages are hereby denied and dismissed, without prejudice.
SO ORDERED.36

Respondents Ruperto V. Tankeh, Asset Privatization Trust, and Arenas

immediately filed their respective Notices of Appeal with the Regional Trial Court.
The petitioner filed a Motion for Reconsideration with regard to the denial of his
prayer for damages. After this Motion had been denied, he then filed his own
Notice of Appeal.
In a Decision37 promulgated on October 25, 2005, the Third Division of the Court
of Appeals reversed the trial courts findings. The Court of Appeals held that
petitioner had no cause of action against public respondent Asset Privatization
Trust. This was based on the Court of Appeals assessment of the case records
and its findings that Asset Privatization Trust did not commit any act violative of
the right of petitioner or constituting a breach of Asset Privatization Trusts
obligations to petitioner. The Court of Appeals found that petitioners claim for
damages against Asset Privatization Trust was based merely on his own selfserving allegations.38
As to the finding of fraud, the Court of Appeals held that:
xxxx
In all the complaints from the original through the first, second and third
amendments, the plaintiff imputes fraud only to defendant Ruperto, to wit:
4. That on May 12, 1981, due to the deceit and fraud exercised by Ruperto V.
Tankeh, plaintiff, together with Vicente L. Arenas, Jr. and Jose Maria Vargas signed
a promissory note in favor of the defendant, DBP, wherein plaintiff bound himself
to jointly and severally pay the DBP the amount of the mortgage loan. This
document insofar as plaintiff is concerned is a simulated document considering
that plaintiff was never a real stockholder of Sterling Shipping Lines, Inc.
(Emphasis provided)
More allegations of deceit were added in the Second Amended Complaint, but
they are also attributed against Ruperto:
6. That THE DECEIT OF DEFENDANT RUPERTO V. TANKEH IS SHOWN BY THE FACT
THAT when the Sterling Shipping Lines, Inc. was organized in 1980, Ruperto V.
Tankeh promised plaintiff that he would be a part of the administration staff so
that he could oversee the operation of the company. He was also promised that
his son, a lawyer, would be given a position in the company. None of these
promsies [sic] was complied with. In fact he was not even allowed to find out the
data about the income and expenses of the company.
7. THAT THE DECEIT OF RUPERTO V. TANKEH IS ALSO SHOWN BY THE FACT THAT
PLAINTIFF WAS INVITED TO ATTEND THE BOARD MEETING OF THE STERLING
SHIPPING LINES INC. ONLY ONCE, WHICH WAS FOR THE SOLE PURPOSE OF
INTRODUCING HIM TO THE TWO DIRECTORS OF THE DBP IN THE BOARD OF THE
STERLING SHIPPING LINES, INC., NAMELY, MR. JESUS MACALINAG AND MR. GIL
CORPUS. THEREAFTER HE WAS NEVER INVITED AGAIN. PLAINTIFF WAS NEVER
COMPENSATED BY THE STERLING SHIPPING LINES, INC. FOR HIS BEING A SOCALLED DIRECTOR AND STOCKHOLDER.
xxxx

8-A THAT A WEEK AFTER SENDING THE ABOVE LETTER PLAINTIFF MADE EARNEST
EFFORTS TOWARDS A COMPROMISE BETWEEN HIM AND HIS BROTHER RUPERTO V.
TANKEH, WHICH EFFORTS WERE SPURNED BY RUPERTO V. TANKEH, AND ALSO
AFTER THE NEWS OF THE SALE OF THE STERLING ACE WAS PUBLISHED AT THE
NEWSPAPER, PLAINTIFF TRIED ALL EFFORTS TO CONTACT RUPERTO V. TANKEH
FOR THE PURPOSE OF ARRIVING AT SOME COMPROMISE, BUT DEFENDANT
RUPERTO V. TANKEH AVOIDED ALL CONTACTS WITH THE PLAINTIFF UNTIL HE WAS
FORCED TO SEEK LEGAL ASSISTANCE FROM HIS LAWYER.
In the absence of any allegations of fraud and/or deceit against the other
defendants, namely, the DBP, Vicente Arenas, Sterling Shipping Lines, Inc., and
the Asset Privatization Trust, the plaintiffs evidence thereon should only be
against Ruperto, since a plaintiff is bound to prove only the allegations of his
complaint. In any case, no evidence of fraud or deceit was ever presented against
defendants DBP, Arenas, SSLI and APT.
As to the evidence against Ruperto, the same consists only of the testimony of
the plaintiff. None of his documentary evidence would prove that Ruperto was
guilty of fraud or deceit in causing him to sign the subject promissory note. 39
xxxx
Analyzing closely the foregoing statements, we find no evidence of fraud or
deceit. The mention of a new shipping lines business and the promise of a free
1,000-share and directorship in the corporation do not amount to insidious words
or machinations. In any case, the shipping business was indeed established, with
the plaintiff himself as one of the incorporators and stockholders with a share of
4,000, worth P4,000,000.00 of whichP1,000,000.00 was reportedly paid up. As
such, he signed the Articles of Incorporation and the corporations By-Laws which
were registered with the Securities and Exchange Commission in April 1979. It
was not until May 12, 1981 that he signed the questioned promissory note. From
his own declaration at the witness stand, the plaintiff signed the promissory note
voluntarily. No pressure, force or intimidation was made to bear upon him. In fact,
according to him, only a messenger brought the paper to him for signature. The
promised shares of stock were given and recorded in the plaintiffs name. He was
made a director and Vice-President of SSLI. Apparently, only the promise that his
son would be given a position in the company remained unfulfilled. However, the
same should have been threshed out between the plaintiff and his brother,
defendant Ruperto, and its non-fulfillment did not amount to fraud or deceit, but
was only an unfulfilled promise.
It should be pointed out that the plaintiff is a doctor of medicine and a seasoned
businessman. It cannot be said that he did not understand the import of the
documents he signed. Certainly he knew what he was signing. He should have
known that being an officer of SSLI, his signing of the promissory note together
with the other officers of the corporation was expected, as the other officers also
did. It cannot therefore be said that the promissory note was simulated. The same
is a contract validly entered into, which the parties are obliged to comply
with.40(Citations omitted)
The Court of Appeals ruled that in the absence of any competent proof, Ruperto V.
Tankeh did not commit any fraud. Petitioner Alejandro V. Tankeh was unable to
prove by a preponderance of evidence that fraud or deceit had been employed by

Ruperto to make him sign the promissory note. The Court of Appeals reasoned
that:
Fraud is never presumed but must be proved by clear and convincing evidence,
mere preponderance of evidence not even being adequate. Contentions must be
proved by competent evidence and reliance must be had on the strength of the
partys evidence and not upon the weakness of the opponents defense. The
plaintiff clearly failed to discharge such burden.41 (Citations omitted)
With that, the Court of Appeals reversed and set aside the judgment and ordered
that plaintiffs Complaint be dismissed. Petitioner filed a Motion for
Reconsideration dated October 25, 2005 that was denied in a
Resolution42promulgated on February 9, 2006.
Hence, this Petition was filed.
In this Petition, Alejandro V. Tankeh stated that the Court of Appeals seriously
erred and gravely abused its discretion in acting and deciding as if the evidence
stated in the Decision of the Regional Trial Court did not exist. He averred that
the ruling of lack of cause of action had no leg to stand on, and the Court of
Appeals had unreasonably, whimsically, and capriciously ignored the ample
evidence on record proving the fraud and deceit perpetrated on the petitioner by
the respondent. He stated that the appellate court failed to appreciate the
findings of fact of the lower court, which are generally binding on appellate
courts. He also maintained that he is entitled to damages and attorney's fees due
to the deceit and machinations committed by the respondent.
In his Memorandum, respondent Ruperto V. Tankeh averred that petitioner had
chosen the wrong remedy. He ought to have filed a special civil action of certiorari
and not a Petition for Review. Petitioner raised questions of fact, and not
questions of law, and this required the review or evaluation of evidence. However,
this is not the function of this Court, as it is not a trier of facts. He also contended
that petitioner had voluntarily entered into the loan agreement and the position
with Sterling Shipping Lines, Inc. and that he did not fraudulently induce the
petitioner to enter into the contract.
Respondents Development Bank of the Philippines and Asset Privatization Trust
also contended that petitioner's mode of appeal had been wrong, and he had
actually sought a special civil action of certiorari. This alone merited its dismissal.
The main issue in this case is whether the Court of Appeals erred in finding that
respondent Rupert V. Tankeh did not commit fraud against the petitioner.
The Petition is partly granted.
Before disposing of the main issue in this case, this Court needs to address a
procedural issue raised by respondents. Collectively, respondents argue that the
Petition is actually one of certiorari under Rule 65 of the Rules of Court 43 and not
a Petition for Review on Certiorari under Rule 45.44 Thus, petitioners failure to
show that there was neither appeal nor any other plain, speedy or adequate
remedy merited the dismissal of the Complaint.

Contrary to respondents imputation, the remedy contemplated by petitioner is

clearly that of a Rule 45 Petition for Review. In Tagle v. Equitable PCI Bank, 45 this
Court made the distinction between a Rule 45 Petition for Review on Certiorari
and a Rule 65 Petition for Certiorari:
Certiorari is a remedy designed for the correction of errors of jurisdiction, not
errors of judgment.1wphi1 In Pure Foods Corporation v. NLRC, we explained the
simple reason for the rule in this light: When a court exercises its jurisdiction, an
error committed while so engaged does not deprive it of the jurisdiction being
exercised when the error is committed x x x. Consequently, an error of judgment
that the court may commit in the exercise of its jurisdiction is not correctable
through the original civil action of certiorari.
xxxx
Even if the findings of the court are incorrect, as long as it has jurisdiction over
the case, such correction is normally beyond the province of certiorari. Where the
error is not one of jurisdiction, but of an error of law or fact a mistake of
judgment, appeal is the remedy.
In this case, what petitioner seeks to rectify may be construed as errors of
judgment of the Court of Appeals. These errors pertain to the petitioners
allegation that the appellate court failed to uphold the findings of facts of the
lower court. He does not impute any error with respect to the Court of Appeals
exercise of jurisdiction. As such, this Petition is simply a continuation of the
appellate process where a case is elevated from the trial court of origin, to the
Court of Appeals, and to this Court via Rule 45.
Contrary to respondents arguments, the allegations of petitioner that the Court
of Appeals "committed grave abuse of discretion" 46 did not ipso facto render the
intended remedy that of certiorari under Rule 65 of the Rules of Court. 47
In any case, even if the Petition is one for the special civil action of certiorari, this
Court has the discretion to treat a Rule 65 Petition for Certiorari as a Rule 45
Petition for Review on Certiorari. This is allowed if (1) the Petition is filed within
the reglementary period for filing a Petition for review; (2) when errors of
judgment are averred; and (3) when there is sufficient reason to justify the
relaxation of the rules.48 When this Court exercises this discretion, there is no
need to comply with the requirements provided for in Rule 65.
In this case, petitioner filed his Petition within the reglementary period of filing a
Petition for Review. 49 His Petition assigns errors of judgment and appreciation of
facts and law on the part of the Court of Appeals. Thus, even if the Petition was
designated as one that sought the remedy of certiorari, this Court may exercise
its discretion to treat it as a Petition for Review in the interest of substantial
justice.
We now proceed to the substantive issue, that of petitioners imputation of fraud
on the part of respondents. We are required by the circumstances of this case to
review our doctrines of fraud that are alleged to be present in contractual
relations.
Types of Fraud in Contracts

Fraud is defined in Article 1338 of the Civil Code as:

x x x fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without
them, he would not have agreed to.
This is followed by the articles which provide legal examples and illustrations of
fraud.
Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when
the parties are bound by confidential relations, constitutes fraud. (n)
Art. 1340. The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent. (n)
Art. 1341. A mere expression of an opinion does not signify fraud, unless made by
an expert and the other party has relied on the former's special knowledge. (n)
Art. 1342. Misrepresentation by a third person does not vitiate consent, unless
such misrepresentation has created substantial mistake and the same is mutual.
(n)
Art. 1343. Misrepresentation made in good faith is not fraudulent but may
constitute error. (n)
The distinction between fraud as a ground for rendering a contract voidable or as
basis for an award of damages is provided in Article 1344:
In order that fraud may make a contract voidable, it should be serious and should
not have been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages. (1270)
There are two types of fraud contemplated in the performance of contracts: dolo
incidente or incidental fraud and dolo causante or fraud serious enough to render
a contract voidable.
In Geraldez v. Court of Appeals,50 this Court held that:
This fraud or dolo which is present or employed at the time of birth or perfection
of a contract may either be dolo causante or dolo incidente. The first, or causal
fraud referred to in Article 1338, are those deceptions or misrepresentations of a
serious character employed by one party and without which the other party would
not have entered into the contract. Dolo incidente, or incidental fraud which is
referred to in Article 1344, are those which are not serious in character and
without which the other party would still have entered into the contract. Dolo
causante determines or is the essential cause of the consent, while dolo incidente
refers only to some particular or accident of the obligation. The effects of dolo
causante are the nullity of the contract and the indemnification of damages, and
dolo incidente also obliges the person employing it to pay damages. 51

In Solidbank Corporation v. Mindanao Ferroalloy Corporation, et al., 52 this Court

elaborated on the distinction between dolo causante and dolo incidente:
Fraud refers to all kinds of deception -- whether through insidious machination,
manipulation, concealment or misrepresentation -- that would lead an ordinarily
prudent person into error after taking the circumstances into account. In
contracts, a fraud known as dolo causante or causal fraud is basically a deception
used by one party prior to or simultaneous with the contract, in order to secure
the consent of the other. Needless to say, the deceit employed must be serious. In
contradistinction, only some particular or accident of the obligation is referred to
by incidental fraud or dolo incidente, or that which is not serious in character and
without which the other party would have entered into the contract anyway. 53
Under Article 1344, the fraud must be serious to annul or avoid a contract and
render it voidable. This fraud or deception must be so material that had it not
been present, the defrauded party would not have entered into the contract. In
the recent case of Spouses Carmen S. Tongson and Jose C. Tongson, et al., v.
Emergency Pawnshop Bula, Inc.,54 this Court provided some examples of what
constituted dolo causante or causal fraud:
Some of the instances where this Court found the existence of causal fraud
include: (1) when the seller, who had no intention to part with her property, was
"tricked into believing" that what she signed were papers pertinent to her
application for the reconstitution of her burned certificate of title, not a deed of
sale; (2) when the signature of the authorized corporate officer was forged; or (3)
when the seller was seriously ill, and died a week after signing the deed of sale
raising doubts on whether the seller could have read, or fully understood, the
contents of the documents he signed or of the consequences of his
act.55 (Citations omitted)
However, Article 1344 also provides that if fraud is incidental, it follows that this
type of fraud is not serious enough so as to render the original contract voidable.
A classic example of dolo incidente is Woodhouse v. Halili. 56 In this case, the
plaintiff Charles Woodhouse entered into a written agreement with the defendant
Fortunato Halili to organize a partnership for the bottling and distribution of soft
drinks. However, the partnership did not come into fruition, and the plaintiff filed
a Complaint in order to execute the partnership. The defendant filed a
Counterclaim, alleging that the plaintiff had defrauded him because the latter was
not actually the owner of the franchise of a soft drink bottling operation. Thus,
defendant sought the nullification of the contract to enter into the partnership.
This Court concluded that:
x x x from all the foregoing x x x plaintiff did actually represent to defendant that
he was the holder of the exclusive franchise. The defendant was made to believe,
and he actually believed, that plaintiff had the exclusive franchise. x x x The
record abounds with circumstances indicative that the fact that the principal
consideration, the main cause that induced defendant to enter into the
partnership agreement with plaintiff, was the ability of plaintiff to get the
exclusive franchise to bottle and distribute for the defendant or for the
partnership. x x x The defendant was, therefore, led to the belief that plaintiff had
the exclusive franchise, but that the same was to be secured for or transferred to
the partnership. The plaintiff no longer had the exclusive franchise, or the option
thereto, at the time the contract was perfected. But while he had already lost his

option thereto (when the contract was entered into), the principal obligation that
he assumed or undertook was to secure said franchise for the partnership, as the
bottler and distributor for the Mission Dry Corporation. We declare, therefore,
that if he was guilty of a false representation, this was not the causal
consideration, or the principal inducement, that led plaintiff to enter into the
partnership agreement.
But, on the other hand, this supposed ownership of an exclusive franchise was
actually the consideration or price plaintiff gave in exchange for the share of 30
percent granted him in the net profits of the partnership business. Defendant
agreed to give plaintiff 30 per cent share in the net profits because he was
transferring his exclusive franchise to the partnership. x x x.
Plaintiff had never been a bottler or a chemist; he never had experience in the
production or distribution of beverages. As a matter of fact, when the bottling
plant being built, all that he suggested was about the toilet facilities for the
laborers.
We conclude from the above that while the representation that plaintiff had the
exclusive franchise did not vitiate defendant's consent to the contract, it was
used by plaintiff to get from defendant a share of 30 per cent of the net profits; in
other words, by pretending that he had the exclusive franchise and promising to
transfer it to defendant, he obtained the consent of the latter to give him
(plaintiff) a big slice in the net profits. This is the dolo incidente defined in article
1270 of the Spanish Civil Code, because it was used to get the other party's
consent to a big share in the profits, an incidental matter in the agreement. 57
Thus, this Court held that the original agreement may not be declared null and
void. This Court also said that the plaintiff had been entitled to damages because
of the refusal of the defendant to enter into the partnership. However, the
plaintiff was also held liable for damages to the defendant for the
misrepresentation that the former had the exclusive franchise to soft drink
bottling operations.
To summarize, if there is fraud in the performance of the contract, then this fraud
will give rise to damages. If the fraud did not compel the imputing party to give
his or her consent, it may not serve as the basis to annul the contract, which
exhibits dolo causante. However, the party alleging the existence of fraud may
prove the existence of dolo incidente.
This may make the party against whom fraud is alleged liable for damages.
Quantum of Evidence to Prove the Existence of Fraud and the Liability of the
Parties
The Civil Code, however, does not mandate the quantum of evidence required to
prove actionable fraud, either for purposes of annulling a contract (dolo causante)
or rendering a party liable for damages (dolo incidente). The definition of fraud is
different from the quantum of evidence needed to prove the existence of fraud.
Article 1338 provides the legal definition of fraud. Articles 1339 to 1343
constitute the behavior and actions that, when in conformity with the legal
provision, may constitute fraud.

Jurisprudence has shown that in order to constitute fraud that provides basis to
annul contracts, it must fulfill two conditions. First, the fraud must be dolo
causante or it must be fraud in obtaining the consent of the party. Second, this
fraud must be proven by clear and convincing evidence. In Viloria v. Continental
Airlines,58 this Court held that:
Under Article 1338 of the Civil Code, there is fraud when, through insidious words
or machinations of one of the contracting parties, the other is induced to enter
into a contract which, without them, he would not have agreed to. In order that
fraud may vitiate consent, it must be the causal (dolo causante), not merely the
incidental (dolo incidente), inducement to the making of the contract. In Samson
v. Court of Appeals, causal fraud was defined as "a deception employed by one
party prior to or simultaneous to the contract in order to secure the consent of
the other." Also, fraud must be serious and its existence must be established by
clear and convincing evidence. (Citations omitted)59
In Viloria, this Court cited Sierra v. Court of Appeals 60 stating that mere
preponderance of evidence will not suffice in proving fraud.
Fraud must also be discounted, for according to the Civil Code:
Art. 1338. There is fraud when, through insidious words or machinations of one of
the contracting parties, the other is induced to enter into a contract which
without them, he would not have agreed to.
Art. 1344. In order that fraud may make a contract voidable, it should be serious
and should not have been employed by both contracting parties.
To quote Tolentino again, the "misrepresentation constituting the fraud must be
established by full, clear, and convincing evidence, and not merely by a
preponderance thereof. The deceit must be serious. The fraud is serious when it is
sufficient to impress, or to lead an ordinarily prudent person into error; that
which cannot deceive a prudent person cannot be a ground for nullity. The
circumstances of each case should be considered, taking into account the
personal conditions of the victim."61
Thus, to annul a contract on the basis of dolo causante, the following must
happen: First, the deceit must be serious or sufficient to impress and lead an
ordinarily prudent person to error. If the allegedly fraudulent actions do not
deceive a prudent person, given the circumstances, the deceit here cannot be
considered sufficient basis to nullify the contract. In order for the deceit to be
considered serious, it is necessary and essential to obtain the consent of the
party imputing fraud. To determine whether a person may be sufficiently
deceived, the personal conditions and other factual circumstances need to be
considered.
Second, the standard of proof required is clear and convincing evidence. This
standard of proof is derived from American common law. It is less than proof
beyond reasonable doubt (for criminal cases) but greater than preponderance of
evidence (for civil cases). The degree of believability is higher than that of an
ordinary civil case. Civil cases only require a preponderance of evidence to meet
the required burden of proof. However, when fraud is alleged in an ordinary civil
case involving contractual relations, an entirely different standard of proof needs
to be satisfied. The imputation of fraud in a civil case requires the presentation of

clear and convincing evidence. Mere allegations will not suffice to sustain the
existence of fraud. The burden of evidence rests on the part of the plaintiff or the
party alleging fraud. The quantum of evidence is such that fraud must be clearly
and convincingly shown.
The Determination of the Existence of Fraud in the Present Case
We now determine the application of these doctrines regarding fraud to ascertain
the liability, if any, of the respondents.
Neither law nor jurisprudence distinguishes whether it is dolo incidente or dolo
causante that must be proven by clear and convincing evidence. It stands to
reason that both dolo incidente and dolo causante must be proven by clear and
convincing evidence. The only question is whether this fraud, when proven, may
be the basis for making a contract voidable (dolo causante), or for awarding
damages (dolo incidente), or both.
Hence, there is a need to examine all the circumstances thoroughly and to assess
the personal circumstances of the party alleging fraud. This may require a review
of the case facts and the evidence on record.
In general, this Court is not a trier of facts. It makes its rulings based on
applicable law and on standing jurisprudence. The findings of the Court of
Appeals are generally binding on this Court provided that these are supported by
the evidence on record. In the recent case of Medina v. Court of Appeals, 62 this
Court held that:
It is axiomatic that a question of fact is not appropriate for a petition for review
on certiorari under Rule 45. This rule provides that the parties may raise only
questions of law, because the Supreme Court is not a trier of facts. Generally, we
are not duty-bound to analyze again and weigh the evidence introduced in and
considered by the tribunals below. When supported by substantial evidence, the
findings of fact of the Court of Appeals are conclusive and binding on the parties
and are not reviewable by this Court, unless the case falls under any of the
following recognized exceptions: (1) When the conclusion is a finding grounded
entirely on speculation, surmises and conjectures; (2) When the inference made is
manifestly mistaken, absurd or impossible; (3) Where there is a grave abuse of
discretion; (4) When the judgment is based on a misapprehension of facts; (5)
When the findings of fact are conflicting; (6) When the Court of Appeals, in
making its findings, went beyond the issues of the case and the same is contrary
to the admissions of both appellant and appellee; (7) When the findings are
contrary to those of the trial court; (8) When the findings of fact are conclusions
without citation of specific evidence on which they are based; (9) When the facts
set forth in the petition as well as in the petitioners main and reply briefs are not
disputed by the respondents; and (10) When the findings of fact of the Court of
Appeals are premised on the supposed absence of evidence and contradicted by
the evidence on record. (Emphasis provided)63
The trial court and the Court of Appeals had appreciated the facts of this case
differently.
The Court of Appeals was not correct in saying that petitioner could only raise
fraud as a ground to annul his participation in the contract as against respondent
Rupert V. Tankeh, since the petitioner did not make any categorical allegation that

respondents Development Bank of the Philippines, Sterling Shipping Lines, Inc.,

and Asset Privatization Trust had acted fraudulently. Admittedly, it was only in the
Petition before this Court that the petitioner had made the allegation of a "wellorchestrated fraud"64 by the respondents. However, Rule 10, Section 5 of the
Rules of Civil Procedure provides that:
Amendment to conform to or authorize presentation of evidence. When issues
not raised by the pleadings are tried with the express or implied consent of the
parties they shall be treated in all respects as if they had been raised in the
pleadings. Such amendment of the pleadings as may be necessary to cause them
to conform to the evidence and to raise these issues may be made upon motion of
any party at any time, even after judgment; but failure to amend does not effect
the result of the trial of these issues. If evidence is objected to at the trial on the
ground that it is not within the issues made by the pleadings, the court may allow
the pleadings to be amended and shall do so with liberality if the presentation of
the merits of the action and the ends of substantial justice will be subserved
thereby. The court may grant a continuance to enable the amendment to be
made. (5a)
In this case, the commission of fraud was an issue that had been tried with the
implied consent of the respondents, particularly Sterling Shipping Lines, Inc.,
Asset Privatization Trust, Development Bank of the Philippines, and Arenas.
Hence, although there is a lack of a categorical allegation in the pleading, the
courts may still be allowed to ascertain fraud.
The records will show why and how the petitioner agreed to enter into the
contract with respondent Ruperto V. Tankeh:
ATTY. VELAYO: How did you get involved in the business of the Sterling Shipping
Lines, Incorporated" [sic]
DR. TANKEH: Sometime in the year 1980, I was approached by Ruperto Tankeh
mentioning to me that he is operating a new shipping lines business and he is
giving me free one thousand shares (1,000) to be a director of this new business
which is worth one million pesos (P1,000,000.00.),
ATTY. VELAYO: Are you related to Ruperto V. Tankeh?
DR. TANKEH: Yes, sir. He is my younger brother.
ATTY. VELAYO: Did you accept the offer?
DR. TANKEH: I accepted the offer based on his promise to me that I will be made a
part of the administration staff so that I can oversee the operation of the business
plus my son, the eldest one who is already a graduate lawyer with a couple of
years of experience in the law firm of Romulo Ozaeta Law Offices (TSN, April 28,
1988, pp. 10-11.).65
The Second Amended Complaint of petitioner is substantially reproduced below to
ascertain the claim:
xxxx

2. That on May 12, 1981, due to the deceit and fraud exercised by Ruperto
V. Tankeh, plaintiff, together with Vicente L. Arenas, Jr. and Jose Maria
Vargas, signed a promissory note in favor of the defendant DBP, wherein
plaintiff bound himself to jointly and severally pay the DBP the amount of
the mortgage loan. This document insofar as plaintiff is concerned is a
simulated document considering that plaintiff was never a real stockholder
of the Sterling Shipping Lines, Inc.
3. That although plaintiffs name appears in the records of Sterling
Shipping Lines, Inc. as one of its incorporators, the truth is that he had
never invested any amount in said corporation and that he had never been
an actual member of said corporation. All the money supposedly invested
by him were put by defendant Ruperto V. Tankeh. Thus, all the shares of
stock under his name in fact belongs to Ruperto V. Tankeh. Plaintiff was
invited to attend the board meeting of the Sterling Shipping Lines, Inc. only
once, which was for the sole purpose of introducing him to the two
directors of the DBP, namely, Mr. Jesus Macalinag and Mr. Gil Corpus.
Thereafter he was never invited again. Plaintiff was never compensated by
the Sterling Shipping Lines, Inc. for his being a so-called director and
stockholder. It is clear therefore that the DBP knew all along that plaintiff
was not a true stockholder of the company.
4. That THE DECEIT OF DEFENDANT RUPERTO V. TANKEH IS SHOWN BY THE
FACT THAT when the Sterling Shipping Lines, Inc. was organized in 1980,
Ruperto V. Tankeh promised plaintiff that he would be a part of the
administration staff so that he could oversee the operation of the company.
He was also promised that his son, a lawyer, would be given a position in
the company. None of these promises was complied with. In fact, he was
not even allowed to find out the data about the income and expenses of the
company.
5. THAT THE DECEIT OF RUPERTO V. TANKEH IS ALSO SHOWN BY THE FACT
THAT PLAINTIFF WAS INVITED TO ATTEND THE BOARD MEETING OF THE
STERLING SHIPPING LINES, INC. ONLY ONCE, WHICH WAS FOR THE SOLE
PUPOSE OF INTRODUCING HIM TO THE TWO DIRECTORS OF THE DBP IN THE
BOARD OF THE STERLING SHIPPING LINES, INC., NAMELY, MR. JESUS
MACALINAG AND MR. GIL CORPUS. THEREAFTER HE WAS NEVER INVITED
AGAIN. PLAINTIFF WAS NEVER COMPENSATED BY THE STERLING SHIPPING
LINES, INC. FOR HIS BEING A SO-CALLED DIRECTOR AND STOCKHOLDER.
6. That in 1983, upon realizing that he was only being made a tool to realize
the purposes of Ruperto V. Tankeh, plaintiff officially informed the company
by means of a letter dated June 15, 1983 addressed to the company that he
has severed his connection with the company, and demanded among
others, that the company board of directors pass a resolution releasing him
from any liabilities especially with reference to the loan mortgage contract
with the DBP and to notify the DBP of his severance from the Sterling
Shipping Lines, Inc.
8-A. THAT A WEEK AFTER SENDING THE ABOVE LETTER, PLAINTIFF MADE
EARNEST EFFORTS TOWARDS A COMPROMISE BETWEEN HIM AND HIS
BROTHER RUPERTO V. TANKEH, WHICH EFFORTS WERE SPURNED BY
RUPERTO V. TANKEH, AND ALSO AFTER THE NEWS OF THE SALE OF THE
"STERLING ACE" WAS PUBLISHED AT THE NEWSPAPER [sic], PLAINTIFF

TRIED ALL EFFORTS TO CONTACT RUPERTO V. TANKEH FOR THE PURPOSE OF

ARRIVING AT SOME COMPROMISE, BUT DEFENDANT RUPERTO V. TANKEH
AVOIDED ALL CONTACTS [sic] WITH THE PLAINTIFF UNTIL HE WAS FORCED
TO SEEK LEGAL ASSISTANCE FROM HIS LAWYER. 66
In his Answer, respondent Ruperto V. Tankeh stated that:
COMES NOW defendant RUPERTO V. TANKEH, through the undersigned counsel,
and to the Honorable Court, most respectfully alleges:
xxxx
3. That paragraph 4 is admitted that herein answering defendant together
with the plaintiff signed the promissory note in favor of DBP but specifically
denied that the same was done through deceit and fraud of herein
answering defendant the truth being that plaintiff signed said promissory
note voluntarily and with full knowledge of the consequences thereof; it is
further denied that said document is a simulated document as plaintiff was
never a real stockholder of the company, the truth being those alleged in
the special and affirmative defenses;
4. That paragraphs 5,6,7,8 and 8-A are specifically denied specially the
imputation of deceit and fraud against herein answering defendant, the
truth being those alleged in the special and affirmative defenses;
xxxx
SPECIAL AND AFFIRMATIVE DEFENSES x x x
8. The complaint states no cause of action as against herein answering
defendant;
9. The Sterling Shipping Lines, Inc. was a legitimate company organized in
accordance with the laws of the Republic of the Philippines with the
plaintiff as one of the incorporators;
10. Plaintiff as one of the incorporators and directors of the board was fully
aware of the by-laws of the company and if he attended the board meeting
only once as alleged, the reason thereof was known only to him;
11. The Sterling Shipping Lines, Inc. being a corporation acting through its
board of directors, herein answering defendant could not have promised
plaintiff that he would be a part of the administration staff;
12. As member of the board, plaintiff had all the access to the data and
records of the company; further, as alleged in the complaint, plaintiff has a
son who is a lawyer who could have advised him;
13. Assuming plaintiff wrote a letter to the company to sever his connection
with the company, he should have been aware that all he had to do was sell
all his holdings in the company;

14. Herein answering defendant came to know only of plaintiffs alleged

predicament when he received the summons and copy of the complaint; x x
x.67
An assessment of the allegations in the pleadings and the findings of fact of both
the trial court and appellate court based on the evidence on record led to the
conclusion that there had been no dolo causante committed against the petitioner
by Ruperto V. Tankeh.
The petitioner had given his consent to become a shareholder of the company
without contributing a single peso to pay for the shares of stock given to him by
Ruperto V. Tankeh. This fact was admitted by both petitioner and respondent in
their respective pleadings submitted to the lower court.
In his Amended Complaint,68 the petitioner admitted that "he had never invested
any amount in said corporation and that he had never been an actual member of
said corporation. All the money supposedly invested by him were put up by
defendant Ruperto V. Tankeh."69 This fact alone should have already alerted
petitioner to the gravity of the obligation that he would be undertaking as a
member of the board of directors and the attendant circumstances that this
undertaking would entail. It also does not add any evidentiary weight to
strengthen petitioners claim of fraud. If anything, it only strengthens the
position that petitioners consent was not obtained through insidious words or
deceitful machinations.
Article 1340 of the Civil Code recognizes the reality of some exaggerations in
trade which negates fraud. It reads:
Art. 1340. The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent.
Given the standing and stature of the petitioner, he was in a position to ascertain
more information about the contract.
Songco v. Sellner70 serves as one of the key guidelines in ascertaining whether a
party is guilty of fraud in obtaining the consent of the party claiming that fraud
existed. The plaintiff Lamberto Songco sought to recover earnings from a
promissory note that defendant George Sellner had made out to him for payment
of Songcos sugar cane production. Sellner claimed that he had refused to pay
because Songco had promised that the crop would yield 3,000 piculs of sugar,
when in fact, only 2,017 piculs of sugar had been produced. This Court held that
Sellner would still be liable to pay the promissory note, as follows:
Notwithstanding the fact that Songco's statement as to the probable output of his
crop was disingenuous and uncandid, we nevertheless think that Sellner was
bound and that he must pay the price stipulated. The representation in question
can only be considered matter of opinion as the cane was still standing in the
field, and the quantity of the sugar it would produce could not be known with
certainty until it should be harvested and milled. Undoubtedly Songco had better
experience and better information on which to form an opinion on this question
than Sellner. Nevertheless the latter could judge with his own eyes as to the
character of the cane, and it is shown that he measured the fields and ascertained
that they contained 96 1/2 hectares.

xxxx
The law allows considerable latitude to seller's statements, or dealer's talk; and
experience teaches that it is exceedingly risky to accept it at its face value. The
refusal of the seller to warrant his estimate should have admonished the
purchaser that that estimate was put forth as a mere opinion; and we will not now
hold the seller to a liability equal to that which would have been created by a
warranty, if one had been given.
xxxx
It is not every false representation relating to the subject matter of a contract
which will render it void. It must be as to matters of fact substantially affecting
the buyer's interest, not as to matters of opinion, judgment, probability, or
expectation. (Long vs. Woodman, 58 Me., 52; Hazard vs. Irwin, 18 Pick. [Mass.],
95; Gordon vs. Parmelee, 2 Allen [Mass.], 212; Williamson vs. McFadden, 23 Fla.,
143, 11 Am. St. Rep., 345.) When the purchaser undertakes to make an
investigation of his own, and the seller does nothing to prevent this investigation
from being as full as he chooses to make it, the purchaser cannot afterwards
allege that the seller made misrepresentations. (National Cash Register Co. vs.
Townsend, 137 N. C., 652, 70 L. R. A., 349; Williamson vs. Holt, 147 N. C., 515.)
We are aware that where one party to a contract, having special or expert
knowledge, takes advantage of the ignorance of another to impose upon him, the
false representation may afford ground for relief, though otherwise the injured
party would be bound. But we do not think that the fact that Songco was an
experienced farmer, while Sellner was, as he claims, a mere novice in the
business, brings this case within that exception.71
The following facts show that petitioner was fully aware of the magnitude of his
undertaking:
First, petitioner was fully aware of the financial reverses that Sterling Shipping
Lines, Inc. had been undergoing, and he took great pains to release himself from
the obligation.
Second, his background as a doctor, as a bank organizer, and as a businessman
with experience in the textile business and real estate should have apprised him
of the irregularity in the contract that he would be undertaking. This meant that
at the time petitioner gave his consent to become a part of the corporation, he
had been fully aware of the circumstances and the risks of his participation.
Intent is determined by the acts.
Finally, the records showed that petitioner had been fully aware of the effect of
his signing the promissory note. The bare assertion that he was not privy to the
records cannot counteract the fact that petitioner himself had admitted that after
he had severed ties with his brother, he had written a letter seeking to reach an
amicable settlement with respondent Rupert V. Tankeh. Petitioners actions defied
his claim of a complete lack of awareness regarding the circumstances and the
contract he had been entering.
The required standard of proof clear and convincing evidence was not met.
There was no dolo causante or fraud used to obtain the petitioners consent to

enter into the contract. Petitioner had the opportunity to become aware of the
facts that attended the signing of the promissory note. He even admitted that he
has a lawyer-son who the petitioner had hoped would assist him in the
administration of Sterling Shipping Lines, Inc. The totality of the facts on record
belies petitioners claim that fraud was used to obtain his consent to the contract
given his personal circumstances and the applicable law.
However, in refusing to allow petitioner to participate in the management of the
business, respondent Ruperto V. Tankeh was liable for the commission of
incidental fraud. In Geraldez, this Court defined incidental fraud as "those which
are not serious in character and without which the other party would still have
entered into the contract."72
Although there was no fraud that had been undertaken to obtain petitioners
consent, there was fraud in the performance of the contract. The records showed
that petitioner had been unjustly excluded from participating in the management
of the affairs of the corporation. This exclusion from the management in the
affairs of Sterling Shipping Lines, Inc. constituted fraud incidental to the
performance of the obligation.
This can be concluded from the following circumstances.
First, respondent raised in his Answer that petitioner "could not have promised
plaintiff that he would be a part of the administration staff" 73 since petitioner had
been fully aware that, as a corporation, Sterling Shipping Lines, Inc. acted
through its board of directors. Respondent admitted that petitioner had been "an
incorporator and member of the board of directors"74 and that petitioner "was
fully aware of the by-laws of the company." 75 It was incumbent upon respondent
to act in good faith and to ensure that petitioner would not be excluded from the
affairs of Sterling Shipping Lines, Inc. After all, respondent asserted that
petitioner had entered into the contract voluntarily and with full consent.
Second, respondent claimed that if petitioner was intent on severing his
connection with the company, all that petitioner had to do was to sell all his
holdings in the company. Clearly, the respondent did not consider the fact that
the sale of the shares of stock alone did not free petitioner from his liability to
Development Bank of the Philippines or Asset Privatization Trust, since the latter
had signed the promissory and had still been liable for the loan. A sale of
petitioners shares of stock would not have negated the petitioners responsibility
to pay for the loan.
Third, respondent Ruperto V. Tankeh did not rebuff petitioners claim that the
latter only received news about the sale of the vessel M/V Sterling Ace through
the media and not as one of the board members or directors of Sterling Shipping
Lines, Inc.
All in all, respondent Ruperto V. Tankehs bare assertion that petitioner had
access to the records cannot discredit the fact that the petitioner had been
effectively deprived of the opportunity to actually engage in the operations of
Sterling Shipping Lines, Inc. Petitioner had a reasonable expectation that the
same level of engagement would be present for the duration of their working
relationship. This would include an undertaking in good faith by respondent
Ruperto V. Tankeh to be transparent with his brother that he would not
automatically be made part of the companys administration.

However, this Court finds there is nothing to support the assertion that Sterling
Shipping Lines, Inc. and Arenas committed incidental fraud and must be held
liable. Sterling Shipping Lines, Inc. acted through its board of directors, and the
liability of respondent Tankeh cannot be imposed on Sterling Shipping Lines, Inc.
The shipping line has a separate and distinct personality from its officers, and
petitioners assertion that the corporation conspired with the respondent Ruperto
V. Tankeh to defraud him is not supported by the evidence and the records of the
case.
As for Arenas, in Lim Tanhu v. Remolete,76 this Court held that:
In all instances where a common cause of action is alleged against several
defendants, some of whom answer and the others do not, the latter or those in
default acquire a vested right not only to own the defense interposed in the
answer of their co-defendant or co-defendants not in default but also to expect a
result of the litigation totally common with them in kind and in amount whether
favorable or unfavorable. The substantive unity of the plaintiffs cause against all
the defendants is carried through to its adjective phase as ineluctably demanded
by the homogeneity and indivisibility of justice itself.77
As such, despite Arenas failure to submit his Answer to the Complaint or his
declaration of default, his liability or lack thereof is concomitant with the liability
attributed to his co-defendants or co-respondents. However, unlike respondent
Ruperto V. Tankehs liability, there is no action or series of actions that may be
attributed to Arenas that may lead to an inference that he was liable for
incidental fraud. In so far as the required evidence for both Sterling Shipping
Lines, Inc. and Arenas is concerned, there is no basis to justify the claim of
incidental fraud.
In addition, respondents Development Bank of the Philippines and Asset
Privatization Trust or Privatization and Management Office cannot be held liable
for fraud. Incidental fraud cannot be attributed to the execution of their actions,
which were undertaken pursuant to their mandated functions under the law.
"Absent convincing evidence to the contrary, the presumption of regularity in the
performance of official functions has to be upheld."78
The Obligation to Pay Damages
As such, respondent Ruperto V. Tankeh is liable to his older brother, petitioner
Alejandro, for damages. The obligation to pay damages to petitioner is based on
several provisions of the Civil Code.
Article 1157 enumerates the sources of obligations.
Article 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and

(5) Quasi-delicts. (1089a)

This enumeration does not preclude the possibility that a single action may serve
as the source of several obligations to pay damages in accordance with the Civil
Code. Thus, the liability of respondent Ruperto V. Tankeh is based on the law,
under Article 1344, which provides that the commission of incidental fraud
obliges the person employing it to pay damages.
In addition to this obligation as the result of the contract between petitioner and
respondents, there was also a patent abuse of right on the part of respondent
Tankeh. This abuse of right is included in Articles 19 and 21 of the Civil Code
which provide that:
Article 19. Every person must, in the exercise of his rights and in the performance
of his duties, act with justice, give everyone his due, and observe honesty and
good faith.
Article 21. Any person who willfully causes loss or injury to another in manner
that is contrary to morals, good customs or public policy shall compensate the
latter for the damage.
Respondent Ruperto V. Tankeh abused his right to pursue undertakings in the
interest of his business operations. This is because of his failure to at least act in
good faith and be transparent with petitioner regarding Sterling Shipping Lines,
Inc.s daily operations.
In National Power Corporation v. Heirs of Macabangkit Sangkay, 79 this Court held
that:
When a right is exercised in a manner not conformable with the norms enshrined
in Article 19 and like provisions on human relations in the Civil Code, and the
exercise results to [sic] the damage of [sic] another, a legal wrong is committed
and the wrongdoer is held responsible.80
The damage, loss, and injury done to petitioner are shown by the following
circumstances.
First, petitioner was informed by Development Bank of the Philippines that it
would still pursue his liability for the payment of the promissory note. This would
not have happened if petitioner had allowed himself to be fully apprised of
Sterling Shipping Lines, Inc.s financial straits and if he felt that he could still
participate in the companys operations. There is no evidence that respondent
Ruperto V. Tankeh showed an earnest effort to at least allow the possibility of
making petitioner part of the administration a reality. The respondent was the
brother of the petitioner and was also the primary party that compelled petitioner
Alejandro Tankeh to be solidarily bound to the promissory note. Ruperto V. Tankeh
should have done his best to ensure that he had exerted the diligence to comply
with the obligations attendant to the participation of petitioner.
Second, respondent Ruperto V. Tankehs refusal to enter into an agreement or
settlement with petitioner after the latters discovery of the sale of the M/V
Sterling Ace was an action that constituted bad faith. Due to Rupertos refusal,
his brother, petitioner Alejandro, became solidarily liable for an obligation that

the latter could have avoided if he had been given an opportunity to participate in
the operations of Sterling Shipping Lines, Inc. The simple sale of all of petitioners
shares would not have solved petitioners problems, as it would not have negated
his liability under the terms of the promissory note.
Finally, petitioner is still bound to the creditors of Sterling Shipping Lines, Inc.,
namely, public respondents Development Bank of the Philippines and Asset
Privatization Trust. This is an additional financial burden for petitioner. Nothing in
the records suggested the possibility that Development Bank of the Philippines or
Asset Privatization Trust through the Privatization Management Office will not
pursue or is precluded from pursuing its claim against the petitioner. Although
petitioner Alejandro voluntarily signed the promissory note and became a
stockholder and board member, respondent should have treated him with
fairness, transparency, and consideration to minimize the risk of incurring grave
financial reverses.
In Francisco v. Ferrer,81 this Court ruled that moral damages may be awarded on
the following bases:
To recover moral damages in an action for breach of contract, the breach must be
palpably wanton, reckless, malicious, in bad faith, oppressive or abusive.
Under the provisions of this law, in culpa contractual or breach of contract, moral
damages may be recovered when the defendant acted in bad faith or was guilty of
gross negligence (amounting to bad faith) or in wanton disregard of his
contractual obligation and, exceptionally, when the act of breach of contract itself
is constitutive of tort resulting in physical injuries.
Moral damages may be awarded in breaches of contracts where the defendant
acted fraudulently or in bad faith.
Bad faith does not simply connote bad judgment or negligence, it imports a
dishonest purpose or some moral obliquity and conscious doing of a wrong, a
breach of known duty through some motive or interest or ill will that partakes of
the nature of fraud.
xxxx
The person claiming moral damages must prove the existence of bad faith by
clear and convincing evidence for the law always presumes good faith. It is not
enough that one merely suffered sleepless nights, mental anguish, serious
anxiety as the result of the actuations of the other party. Invariably such action
must be shown to have been willfully done in bad faith or will ill motive. Mere
allegations of besmirched reputation, embarrassment and sleepless nights are
insufficient to warrant an award for moral damages. It must be shown that the
proximate cause thereof was the unlawful act or omission of the [private
respondent] petitioners.
An award of moral damages would require certain conditions to be met, to wit: (1)
first, there must be an injury, whether physical, mental or psychological, clearly
sustained by the claimant; (2) second, there must be culpable act or omission
factually established; (3) third, the wrongful act or omission of the defendant is
the proximate cause of the injury sustained by the claimant; and (4) fourth, the

award of damages is predicated on any of the cases stated in Article 2219 of the
Civil Code. (Citations omitted)82
In this case, the four elements cited in Francisco are present. First, petitioner
suffered an injury due to the mental duress of being bound to such an onerous
debt to Development Bank of the Philippines and Asset Privatization Trust.
Second, the wrongful acts of undue exclusion done by respondent Ruperto V.
Tankeh clearly fulfilled the same requirement. Third, the proximate cause of his
injury was the failure of respondent Ruperto V. Tankeh to comply with his
obligation to allow petitioner to either participate in the business or to fulfill his
fiduciary responsibilities with candor and good faith. Finally, Article 221983 of the
Civil Code provides that moral damages may be awarded in case of acts and
actions referred to in Article 21, which, as stated, had been found to be attributed
to respondent Ruperto V. Tankeh.
In the Appellants Brief,84 petitioner asked the Court of Appeals to demand from
respondents, except from respondent Asset Privatization Trust, the amount of five
million pesos (P5,000,000.00). This Court finds that the amount of five hundred
thousand pesos (P500,000.00) is a sufficient amount of moral damages.
In addition to moral damages, this Court may also impose the payment of
exemplary damages.1wphi1 Exemplary damages are discussed in Article 2229 of
the Civil Code, as follows:
ART. 2229. Exemplary or corrective damages are imposed, by way of example or
correction of the public good, in addition to moral, temperate, liquidated or
compensatory damages.
Exemplary damages are further discussed in Articles 2233 and 2234, particularly
regarding the pre-requisites of ascertaining moral damages and the fact that it is
discretionary upon this Court to award them or not:
ART. 2233. Exemplary damages cannot be recovered as a matter of right; the
court will decide whether or not they should be adjudicated.
ART. 2234. While the amount of the exemplary damages need not be proven, the
plaintiff must show that he is entitled to moral, temperate or compensatory
damages before the court may consider the question of whether or not exemplary
damages should be awarded x x x
The purpose of exemplary damages is to serve as a deterrent to future and
subsequent parties from the commission of a similar offense. The case of People
v. Rante85 citing People v. Dalisay86 held that:
Also known as punitive or vindictive damages, exemplary or corrective
damages are intended to serve as a deterrent to serious wrong doings, and as a
vindication of undue sufferings and wanton invasion of the rights of an injured or
a punishment for those guilty of outrageous conduct. These terms are generally,
but not always, used interchangeably. In common law, there is preference in the
use of exemplary damages when the award is to account for injury to feelings and
for the sense of indignity and humiliation suffered by a person as a result of an
injury that has been maliciously and wantonly inflicted, the theory being that
there should be compensation for the hurt caused by the highly reprehensible

conduct of the defendantassociated with such circumstances as willfulness,

wantonness, malice, gross negligence or recklessness, oppression, insult or fraud
or gross fraudthat intensifies the injury. The terms punitive or vindictive
damages are often used to refer to those species of damages that may be
awarded against a person to punish him for his outrageous conduct. In either
case, these damages are intended in good measure to deter the wrongdoer and
others like him from similar conduct in the future.87
To justify an award for exemplary damages, the wrongful act must be
accompanied by bad faith, and an award of damages would be allowed only if the
guilty party acted in a wanton, fraudulent, reckless or malevolent manner. 88In this
case, this Court finds that respondent Ruperto V. Tankeh acted in a fraudulent
manner through the finding of dolo incidente due to his failure to act in a manner
consistent with propriety, good morals, and prudence.
Since exemplary damages ensure that future litigants or parties are enjoined
from acting in a similarly malevolent manner, it is incumbent upon this Court to
impose the damages in such a way that will serve as a categorical warning and
will show that wanton actions will be dealt with in a similar manner. This Court
finds that the amount of two hundred thousand pesos (P200,000.00) is sufficient
for this purpose.
In sum, this Court must act in the best interests of all future litigants by
establishing and applying clearly defined standards and guidelines to ascertain
the existence of fraud.
WHEREFORE, this Petition is PARTIALLY GRANTED. The Decision of the Court of
Appeals as to the assailed Decision in so far as the finding of fraud is SUSTAINED
with the MODIFICATION that respondent RUPERTO V. TANKEH be ordered to pay
moral damages in the amount of FIVE HUNDRED THOUSAND PESOS (P500,000.00)
and the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00) by way of
exemplary damages.
SO ORDERED.
SECOND DIVISION

SPOUSES CARMEN S. TONGSON G.R. No. 167874

and JOSE C. TONGSON
substituted by his children namely: Present:
JOSE TONGSON, JR.,
RAUL TONGSON, CARPIO, J., Chairperson,
TITA TONGSON, BRION,
GLORIA TONGSON DEL CASTILLO,

ALMA TONGSON, ABAD, and

Petitioners, PEREZ, JJ.

- versus -

EMERGENCY PAWNSHOP BULA, Promulgated:

INC. and DANILO R. NAPALA,
Respondents. January 15, 2010
x-----------------------------------------------------------------------------------------x

DECISION

CARPIO, J.:

The Case

Before the Court is a petition for review [1] of the 31 August 2004 Decision[2] and 10
March 2005 Resolution[3] of the Court of Appeals in CA-G.R. CV No. 58242. In the
31 August 2004 Decision, the Court of Appeals partially granted the appeal filed
by Emergency Pawnshop Bula, Inc. (EPBI) and Danilo R. Napala (Napala) by
modifying the decision of the trial court. In the 10 March 2005 Resolution, the
Court of Appeals denied the motion for partial reconsideration filed by the
Spouses Jose C. Tongson and Carmen S. Tongson (Spouses Tongson).

The Facts

In May 1992, Napala offered to purchase from the Spouses Tongson their 364square meter parcel of land, situated in Davao City and covered by Transfer
Certificate of Title (TCT) No. 143020, for P3,000,000. Finding the offer acceptable,
the Spouses Tongson executed with Napala a Memorandum of Agreement [4] dated
8 May 1992.

On 2 December 1992, respondents lawyer Atty. Petronilo A. Raganas, Jr. prepared

a Deed of Absolute Sale[5] indicating the consideration as only P400,000. When
Carmen Tongson noticed that the consideration was very low, she [complained]
and called the attention of Napala but the latter told her not to worry as he would
be the one to pay for the taxes and she would receive the net amount
of P3,000,000.[6]

To conform with the consideration stated in the Deed of Absolute Sale, the parties
executed another Memorandum of Agreement, which allegedly replaced the first
Memorandum of Agreement,[7] showing that the selling price of the land was
only P400,000.[8]

Upon signing the Deed of Absolute Sale, Napala paid P200,000 in cash to the
Spouses Tongson and issued a postdated Philippine National Bank (PNB) check in
the amount ofP2,800,000,[9] representing the remaining balance of the purchase
price of the subject property. Thereafter, TCT No. 143020 was cancelled and TCT
No. T-186128 was issued in the name of EPBI. [10]

When presented for payment, the PNB check was dishonored for the reason
Drawn Against Insufficient Funds. Despite the Spouses Tongson's repeated
demands to either pay the full value of the check or to return the subject parcel of
land, Napala failed to do either. Left with no other recourse, the Spouses Tongson
filed with the Regional Trial Court, Branch 16, Davao City a Complaint for
Annulment of Contract and Damages with a Prayer for the Issuance of a
Temporary Restraining Order and a Writ of Preliminary Injunction. [11]

In their Answer, respondents countered that Napala had already delivered to the
Spouses Tongson the amount of P2,800,000 representing the face value of the
PNB check, as evidenced by a receipt issued by the Spouses

Tongson. Respondents pointed out that the Spouses Tongson never returned the
PNB check claiming that it was misplaced.Respondents asserted that the payment
they made rendered the filing of the complaint baseless. [12]

At the pre-trial, Napala admitted, among others, issuing the postdated PNB check
in the sum of P2,800,000.[13] The Spouses Tongson, on the other hand, admitted
issuing a receipt which showed that they received the PNB check from
Napala. Thereafter, trial ensued.

The Ruling of the Trial Court

The trial court found that the purchase price of the subject property has not been
fully paid and that Napalas assurance to the Spouses Tongson that the PNB check
would not bounce constituted fraud that induced the Spouses Tongson to enter
into the sale. Without such assurance, the Spouses Tongson would not have
agreed to the contract of sale. Accordingly, there was fraud within the ambit of
Article 1338 of the Civil Code,[14] justifying the annulment of the contract of sale,
the award of damages and attorneys fees, and payment of costs.

The dispositive portion of the 9 December 1996 Decision of the trial court reads:

WHEREFORE, judgment is hereby rendered

I Annulling the
the defendants;

contract

entered

into

by

the

plaintiffs

with

II Declaring the writs of preliminary injunctions issued permanent;

III Ordering defendants to:

1)

2)

reconvey the property subject matter

of the case to the plaintiffs;

pay plaintiffs:

a) P100,000 as moral
damages;
b) P50,000 as exemplary damages;
c) P20,000 as attorneys fees; and
d) P35,602.50 cost of suit broken down as
follows:
P70.00 bond fee
P60.00 lis pendens fee
P902.00 docket fee
P390.00 docket fee
P8.00 summons fee
P12.00 SDF
P178.50 Xerox
P9,000 Sidcor Insurance Bond fee
P25,000 Sidcor Insurance Bond fee

or the total sum of P205,602.50.

It is further ordered that the monetary award be offsetted [sic] to defendants

downpayment of P200,000 thereby leaving a balance of P5,602.50.[15]

Respondents appealed to the Court of Appeals.

The Ruling of the Court of Appeals

The Court of Appeals agreed with the trial courts finding that Napala employed
fraud when he misrepresented to the Spouses Tongson that the PNB check in the

amount ofP2,800,000 would be properly funded at its maturity. However, the

Court of Appeals found that the issuance and delivery of the PNB check and
fraudulent representation made by Napala could not be considered as the
determining cause for the sale of the subject parcel of land. Hence, such fraud
could not be made the basis for annulling the contract of sale. Nevertheless, the
fraud employed by Napala is a proper and valid basis for the entitlement of the
Spouses

Tongson

to

the

balance

of

the

purchase

price

in

the

amount

ofP2,800,000 plus interest at the legal rate of 6% per annum computed from the
date of filing of the complaint on 11 February 1993.

Finding the trial courts award of damages unconscionable, the Court of Appeals
reduced the moral damages from P100,000 to P50,000 and the exemplary
damages from P50,000to P25,000.

The dispositive portion of the 31 August 2004 Decision of the Court of Appeals
reads:

WHEREFORE, the instant appeal is PARTIALLY GRANTED. The assailed

decision of the Regional Trial Court, 11 th Judicial Region, Branch 16,
Davao City, in Civil Case No. 21,858-93, is hereby MODIFIED, to read:

WHEREFORE,
judgment
is
defendants to pay plaintiffs:

hereby

rendered

ordering

a) the sum of P2,800,000.00 representing the balance

of the purchase price of the subject parcel of land, plus
interest at the legal rate of 6% per annum computed
from the date of filing of the complaint on 11 February
1993, until the finality of the assailed decision;
thereafter, the interest due shall be at the legal rate of
12% per annum until fully paid;

b) P50,000 as moral damages;

c) P25,000 as exemplary damages;

d) P20,000 as attorneys fees; and
e) The costs of suit in the total amount of P35,602.50.

It is understood, however, that plaintiffs entitlement to items a to d, is subject to

the condition that they have not received the same or equivalent amounts in
criminal case for Violation of Batas Pambansa Bilang 22, docketed as Criminal
Case No. 30508-93, before the Regional Trial Court of Davao City, Branch 12,
instituted against the defendant Danilo R. Napala by plaintiff Carmen S. Tongson.

SO ORDERED.[16]

The Spouses Tongson filed a partial motion for reconsideration which was denied
by the Court of Appeals in its Resolution dated 10 March 2005.

The Issues
The Spouses Tongson raise the following issues:

1.

WHETHER THE CONTRACT OF SALE CAN BE ANNULLED BASED ON

THE FRAUD EMPLOYED BY NAPALA; and

2.

WHETHER THE COURT OF APPEALS ERRED IN REDUCING THE

AMOUNT OF DAMAGES AWARDED BY THE TRIAL COURT.

The Ruling of the Court

The petition has merit.

On the existence of fraud

A contract is a meeting of the minds between two persons, whereby one is bound
to give something or to render some service to the other. [17] A valid contract
requires the concurrence of the following essential elements: (1) consent or
meeting of the minds, that is, consent to transfer ownership in exchange for the
price; (2) determinate subject matter; and (3) price certain in money or its
equivalent.[18]

In the present case, there is no question that the subject matter of the sale is the
364-square meter Davao lot owned by the Spouses Tongson and the selling price
agreed upon by the parties is P3,000,000. Thus, there is no dispute as regards
the presence of the two requisites for a valid sales contract, namely, (1) a
determinate subject matter and (2) a price certain in money.

The problem lies with the existence of the remaining element, which is consent of
the contracting parties, specifically, the consent of the Spouses Tongson to sell
the property to Napala. Claiming that their consent was vitiated, the Spouses
Tongson point out that Napalas fraudulent representations of sufficient funds to
pay for the property induced them into signing the contract of sale. Such fraud,
according to the Spouses Tongson, renders the contract of sale void.
On the contrary, Napala insists that the Spouses Tongson willingly consented to
the sale of the subject property making the contract of sale valid. Napala
maintains that no fraud attended the execution of the sales contract.
The trial and appellate courts had conflicting findings on the question of whether
the consent of the Spouses Tongson was vitiated by fraud. While the Court of
Appeals agreed with the trial courts finding that Napala employed fraud when he
assured the Spouses Tongson that the postdated PNB check was fully funded
when it fact it was not, the Court of Appeals disagreed with the trial courts ruling
that such fraud could be the basis for the annulment of the contract of sale
between the parties.
Under Article 1338 of the Civil Code, there is fraud when, through insidious words
or machinations of one of the contracting parties, the other is induced to enter
into a contract which, without them, he would not have agreed to. In order that

fraud may vitiate consent, it must be the causal (dolo causante), not merely the
incidental (dolo incidente), inducement to the making of the contract.
[19]
Additionally, the fraud must be serious.[20]
We find no causal fraud in this case to justify the annulment of the contract of
sale between the parties. It is clear from the records that the Spouses Tongson
agreed to sell their 364-square meter Davao property to Napala who offered to
pay P3,000,000 as purchase price therefor. Contrary to the Spouses Tongsons
belief that the fraud employed by Napala was already operational at the time of
the perfection of the contract of sale, the misrepresentation by Napala that the
postdated PNB check would not bounce on its maturity hardly equates to dolo
causante. Napalas assurance that the check he issued was fully funded was not
the principal inducement for the Spouses Tongson to sign the Deed of Absolute
Sale. Even before Napala issued the check, the parties had already consented and
agreed to the sale transaction. The Spouses Tongson were never tricked into
selling their property to Napala. On the contrary, they willingly accepted Napalas
offer to purchase the property at P3,000,000. In short, there was a meeting of the
minds as to the object of the sale as well as the consideration therefor.
Some of the instances where this Court found the existence of causal fraud
include: (1) when the seller, who had no intention to part with her property, was
tricked into believing that what she signed were papers pertinent to her
application for the reconstitution of her burned certificate of title, not a deed of
sale;[21] (2) when the signature of the authorized corporate officer was forged;
[22]

or (3) when the seller was seriously ill, and died a week after signing the deed

of sale raising doubts on whether the seller could have read, or fully understood,
the contents of the documents he signed or of the consequences of his act.
[23]

Suffice it to state that nothing analogous to these badges of causal fraud

exists in this case.

However, while no causal fraud attended the execution of the sales contract,
there is fraud in its general sense, which involves a false representation of a fact,
[24]

when Napala inveigled the Spouses Tongson to accept the postdated PNB

check on the representation that the check would be sufficiently funded at its
maturity. In other words, the fraud surfaced when Napala issued the worthless
check to the Spouses Tongson, which is definitely not during the negotiation and
perfection stages of the sale. Rather, the fraud existed in the consummation
stage of the sale when the parties are in the process of performing their
respective obligations under the perfected contract of sale. In Swedish Match, AB
v. Court of Appeals,[25] the Court explained the three stages of a contract, thus:

I n general, contracts undergo three distinct stages, to wit:

negotiation; perfection or birth; and consummation. Negotiation
begins from the time the prospective contracting parties manifest
their interest in the contract and ends at the moment of agreement
of the parties. Perfection or birth of the contract takes place when
the parties agree upon the essential elements of the contract.
Consummation occurs when the parties fulfill or perform the terms
agreed upon in the contract, culminating in the extinguishment
thereof.
Indisputably, the Spouses Tongson as the sellers had already performed their
obligation of executing the Deed of Sale, which led to the cancellation of their
title in favor of EPBI. Respondents as the buyers, on the other hand, failed to
perform their correlative obligation of paying the full amount of the contract
price. While Napala paid P200,000 cash to the Spouses Tongson as partial
payment, Napala issued an insufficiently funded PNB check to pay the remaining
balance of P2.8 million. Despite repeated demands and the filing of the complaint,
Napala failed to pay the P2.8 million until the present. Clearly, respondents
committed a substantial breach of their reciprocal obligation, entitling the
Spouses Tongson to the rescission of the sales contract. The law grants this relief
to the aggrieved party, thus:

Article 1191 of the Civil Code provides:

Article 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.

Article 1385 of the Civil Code provides the effects of rescission, viz:

ART. 1385. Rescission creates the obligation to return the things

which were the object of the contract, together with their fruits, and
the price with its interest; consequently, it can be carried out only

when he who demands rescission can return whatever he may be

obliged to restore.
Neither shall rescission take place when the things which are the object of the
contract are legally in the possession of third persons who did not act in bad
faith.
While they did not file an action for the rescission of the sales contract, the
Spouses Tongson specifically prayed in their complaint for the annulment of the
sales contract, for the immediate execution of a deed of reconveyance, and for
the return of the subject property to them.[26] The Spouses Tongson likewise
prayed for such other reliefs which may be deemed just and equitable in the
premises. In view of such prayer, and considering respondents substantial breach
of their obligation under the sales contract, the rescission of the sales contract is
but proper and justified. Accordingly, respondents must reconvey the subject
property to the Spouses Tongson, who in turn shall refund the initial payment
ofP200,000 less the costs of suit.

Napalas claims that rescission is not proper and that he should be given more
time

to

pay

for

the

unpaid

remaining

balance

of P2,800,000

cannot

be

countenanced. Having acted fraudulently in performing his obligation, Napala is

not entitled to more time to pay the remaining balance of P2,800,000, and
thereby erase the default or breach that he had deliberately incurred. [27] To do
otherwise would be to sanction a deliberate and reiterated infringement of the
contractual obligations incurred by Napala, an attitude repugnant to the stability
and obligatory force of contracts.[28]

The Court notes that the selling price indicated in the Deed of Absolute Sale was
only P400,000,

instead

of

the

true

purchase

price

of P3,000,000.

The

undervaluation of the selling price operates to defraud the government of the

taxes due on the basis of the correct purchase price. Under the law,[29] the sellers
have the obligation to pay the capital gains tax. In this case, Napala undertook to
advance the capital gains tax, among other fees, under the Memorandum of
Agreement, thus:

ATTY. ALABASTRO: Q Is it not a fact that you were the one who paid
for the capital gains tax?
A No, I only advanced the money.
Q To whom? A To BIR.

COURT: Q You were the one who went to the BIR to pay the capital gains tax?
A It is embodied in the memorandum agreement.[30]
While Carmen Tongson protested against the very low consideration, she
eventually agreed to the reduced selling price indicated in the Deed of Absolute
since Napala assured her not to worry about the taxes and expenses, as he had
allegedly made arrangements with the Bureau of Internal Revenue (BIR)
regarding the payment of the taxes, thus:
Q What is the amount in the Deed of Absolute Sale?
A It was only Four Hundred Thousand. And he told me not to worry because x x x
the BIR and not to worry because he will pay me what was agreed the amount of
Three Million and he will be paying all these expenses so I was thinking, if that is
the case, anyway he paid me the Two Hundred Thousand cash and a subsequent
Two Point Eight Million downpayment check so I really thought that he was paying
the whole amount.
COURT: Proceed.
ATTY. LIZA: Q So you eventually agreed that this consideration be reduced to Four
Hundred Thousand Pesos and to be reflected in the Deed of Absolute Sale?
A Yes, but when I was complaining to him why it is so because I was worried why
that was like that but Mr. Napala told me dont worry because [he] can remedy
this. And I asked him how can [he] remedy this? And he told me we can make
another Memorandum of Agreement.

COURT:

Q Before you signed the Deed of Absolute Sale, you found out the amount?
A Yes, sir.

Q And you complained?

A Yes.[31]

Considering that the undervaluation of the selling price of the subject property,
initiated by Napala, operates to defraud the government of the correct amount of
taxes due on the sale, the BIR must therefore be informed of this Decision for its
appropriate action.

On the award of damages

Citing Article 1338 of the Civil Code, the trial court awarded P100,000 moral
damages and P50,000 exemplary damages to the Spouses Tongson. While
agreeing with the trial court on the Spouses Tongsons entitlement to moral and
exemplary damages, the Court of Appeals reduced such awards for being
unconscionable.

Thus,

the

moral

damages

was

reduced

from P100,000

to P50,000, and the exemplary damages was reduced from P50,000 to P25,000.

As discussed above, Napala defrauded the Spouses Tongson in his acts of issuing
a worthless check and representing to the Spouses Tongson that the check was
funded, committing in the process a substantial breach of his obligation as a
buyer. For such fraudulent acts, the law, specifically the Civil Code, awards moral
damages to the injured party, thus:

ART. 2220. Willful injury to property may be a legal ground for

awarding moral damages if the court should find that, under the
circumstances, such damages are justly due. The same rule applies
to breaches of contract where the defendant acted fraudulently or in
bad faith. (Emphasis supplied)
Considering that the Spouses Tongson are entitled to moral damages, the Court
may also award exemplary damages, thus:

ART. 2232. In contracts and quasi-contracts, the court may award

exemplary damages if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner.

Article 2234. When the amount of the exemplary damages need not
be proved, the plaintiff must show that he is entitled to moral,
temperate or compensatory damages before the court may consider
the question of whether or not exemplary damages would be
awarded. In case liquidated damages have been agreed upon,
although no proof of loss is necessary in order that such liquidated
damages may be recovered, nevertheless, before the court may
consider the question of granting exemplary in addition to the
liquidated damages, the plaintiff must show that he would be
entitled to moral, temperate or compensatory damages were it not
for the stipulation for liquidated damages. (Emphasis supplied)

Accordingly, we affirm the Court of Appeals awards of moral and exemplary

damages, which we find equitable under the circumstances in this case.

WHEREFORE, we PARTIALLY GRANT the petition. We SET ASIDE the 31 August

2004 Decision and 10 March 2005 Resolution of the Court of Appeals in CA-G.R.
CV No. 58242, except as to the award of moral and exemplary damages,
and ORDER the rescission of the contract of sale between the Spouses Tongson
and Emergency Pawnshop Bula, Inc.
Let a copy of this Decision be forwarded to the Bureau of Internal Revenue for its
appropriate action.
SO ORDERED.

FIRST DIVISION

[G.R. No. 128850. November 20, 1998]

ARCHIPELAGO
MANAGEMENT
AND
MARKETING
CORPORATION, petitioner,
vs. COURT OF APPEALS and the HEIRS OF ROSALINA SANTOS-MORALES,
namely, EMETERIO MORALES, LYDIA TRINIDAD, ROGELIO DE LA PAZ and
EMMANUEL S. DE LA PAZ, respondents.
DECISION

PANGANIBAN, J.:
The issue of whether fraud attended the execution of a contract is factual in
nature. Normally, this Court is bound by the appellate courts findings, unless they
are contrary to those of the trial court, in which case we may wade into the
factual dispute to settle it with finality. However, after meticulously poring over
the records and carefully weighing the arguments of the parties, we find no
reversible error in the Amended Decision of the Court of Appeals resolving this
property dispute between the separate heirs of the first marriages of a widow and
a widower who, after the death of their respective first spouses, married each
other.

The Case

This is the gist of our ruling on the Petition for Review before us, which seeks
to set aside the January 28, 1997 Amended Decision [1] and the April 23, 1997
Resolution[2] of the Court of Appeals[3] in CA-GR CV No. 46014. The Amended
Decision granted private respondents Motion for Reconsideration, [4] viz.:
WHEREFORE, the Decision of this Court dated July 31, 1996 dismissing the
complaint is SET ASIDE, and a new one is hereby rendered, REVERSING the
appealed Decision of the lower court and declaring the Deed of Absolute Sale
dated May 3, 1989 ANNULLED.[5]
The April 23, 1997 Resolution, on the other hand, denied petitioners own
Motion for Reconsideration.
This case originated from a Complaint for Annulment of Contract with
Damages, filed[6] before the Regional Trial Court (RTC) of Quezon City [7] by
Rosalina Santos-Morales, through her daughter Lydia Trinidad, against Petitioner
Archipelago Management and Marketing Corporation. Upon the death of Rosalina
on October 7, 1992,[8] herein private respondents, in their capacity as heirs, filed
an Amended Complaint[9] stating inter alia that they were substituting the
deceased as plaintiffs.[10]
On April 15, 1994, the Complaint and the Counterclaim [11] were dismissed in
the RTC Decision, which was initially affirmed by the Court of Appeals (CA) in its
original Decision dated July 31, 1996.[12] Acting on private respondents Motion for
Reconsideration with Motion for New Trial, the appellate court, [13] in its Amended
Decision, reversed its previous ruling. Subsequently, as already stated, it also
denied petitioners own plea for reconsideration.
Undaunted, petitioner has brought this appeal for a final ruling on the matter.
[14]

The Facts

The factual antecedents of the case were identically summarized by the

appellate tribunal in both its original and its amended Decisions, as follows:

At the center of the controversy is a parcel of land upon which are erected
residential buildings located at No. 58, South Maya Street, Philamlife Homes,
Quezon City. Before the controversy, the subject property was owned and titled in
the name of Rosalina Santos Morales, covered by TCT No. 255716. The latter had
children by first marriage, one of whom is Lydia Trinidad (plaintiffappellant). When Rosalina was widowed, she married Emeterio Morales, a
widower, who also had children by a former marriage, including Narciso Morales,
president of Archipelago Management and Marketing Corporation (defendantappellee). For more than forty (40) years, Rosalina and Emeterio lived together in
the subject property, leasing out the building as a retreat house to outside
parties.
When several offices in the Quezon City Hall w[ere] razed by fire in 1988, many
records, including original certificates of title[,] were reduced to
ashes. Consequently, landowners with real properties in Quezon City had to apply
for reconstitution of their individual titles. Sometime in August of that year, it is
alleged that Emeterio Morales took the owners duplicate certificate of title over
the subject property from Rosalinas designated caretaker, and on the pretext that
he was going to apply for reconstitution of title, he was able to convince Rosalina
to affix her signature on several documents. One of those documents turned out
to be a Deed of Absolute Sale dated May 3, 1989, wherein it was stipulated that
Rosalina sold to the defendant-appellee corporation the subject property for One
Million Two Hundred Thousand (P1,200,000.00) Pesos. By virtue thereof, a new
title was issued in favor of the defendant-appellee corporation.
Meanwhile, Rosalina Morales and her husband, Emeterio, continued to reside in
the subject property. She even entered into a 5-year lease contract over the
buildings with the siblings of Rodolfo and Nympha Alano on May 19, 1989. She
also continued to pay the yearly realty taxes on said property.
In 1992, Rosalinas daughter, Lydia Trinidad, returned from the United States of
America. Lydia inquired about the title to the subject property, and she learned
from the Office of the Register of Deeds of Quezon City about the Deed of
Absolute Sale between Rosalina and the defendant-appellee corporation.
On July 17, 1992, Rosalina Santos-Morales, represented by Lydia Trinidad, filed an
action for annulment of the Deed of Absolute Sale with damages against the
defendant corporation. She denied having sold the subject property, allegedly
paraphernal, to anybody, much less to the defendant corporation. She further
alleged that her signature on the said document was obtained by means of fraud,
deceit and insidious machinations on the part of her husband, Emeterio, and her
stepson, Narciso Morales, for and in behalf of the defendant corporation. She also
denied having received any consideration in the amount of P1,200,000.00. In fact,
when she learned of the said transaction, she immediately filed an affidavit of
adverse claim before the Register of Deeds of Quezon City. She argued that the
fact the she entered into a contract of lease over the subject property even after
the Deed of Absolute Sale was supposedly executed is proof that she knew of no
sale to the defendant corporation. Consequently, she contended that the said
Deed of Absolute Sale was invalid for fraud and vices of consent.
Furthermore, she pointed out that there were irregularities in the execution of
the disputed Deed of Absolute Sale. First, the residence certificate cited in the
Deed dated May 3, 1989 was issued way back on January 26, 1988 in Malabon,
Rizal, when she already had a new one issued on January 26, 1989 in Quezon

City. Second, Vicente M. Joyas, who notarized the disputed Deed of Absolute Sale
was not appointed as Notary Public of Manila in 1988 for the term ending on
December 31, 1989, per verification from the Office of the Clerk of Court of
Manila.
Accordingly, she prayed that the Deed of Absolute Sale be annulled; that Lydia
Trinidad be appointed her guardian ad litem; and that the defendant corporation
be made to pay P200,000.00 as and for moral damages; P100,000.00 as and for
actual and compensatory damages; P150,000.00 as and for attorneys fees and
litigation costs.
In its answer, the defendant corporation denied that the subject property was
paraphernal, claiming that it was purchased and the improvements thereon
constructed using the money of Emeterio Morales, the plaintiffs husband, during
the existence of their marriage. It was also contended that the plaintiff, who was
at that point physically disabled and senile, could not have known of nor
consented to her daughters filing of the present action, for her (plaintiff)
thumbmark could have easily been affixed on the adverse claim and the complaint
itself by Lydia Trinidad. The defendant also questioned Lydia Trinidads authority
to file the action when she had not yet been appointed guardian ad litem.
Moreover, the defendant negated the plaintiffs allegation that Emeterio Morales
took the certificate of title from the caretaker since the said title was in Rosalina
Morales possession, and he could not have misled her to sign the Deed of
Absolute Sale on the pretext that it was only in connection with the application
for reconstitution of said title. It was pointed out that at that time, Rosalina
Morales was in full possession of her mental faculties and was in fact, a very
intelligent and astute woman. To corroborate this allegation, the defendant
corporation attached as annexes several motions and a compromise agreement
executed by Rosalina Morales in Special Proceeding No. 5010 before the RTC of
Pasig, Metro Manila, in the exercise of her duties as administratrix of the sizable
estate of her deceased aunt. Thus, there was no truth to the allegation that
Rosalina Morales consent to the sale of the subject property was not given freely
and voluntarily, considering that she was mentally and physically aware of
everything that was going on around her.
Furthermore, the defendant argued that the alleged irregularity in the residence
certificate and the notarization of the document would not in any way affect the
validity of the sale since a public instrument [was] not essential to its
validity. Insofar as the lease was concerned, Narciso Morales alleged that he
tolerated it since he made a commitment to his father and stepmother (the
Morales spouses) that they could reside in and enjoy the fruits of the subject
property for as long as they lived, out of his love and devotion for them. Thus, the
plaintiff had no cause of action and the suit was baseless in fact and in law.
The defendant then prayed that judgment be rendered in its favor, dismissing the
complaint and ordering the plaintiff to pay P1,000,000.00 by way of compensatory
damages, P500,000.00 as corrective damages; P200,000.00 as and for attorneys
fees and costs of suit.
Even before the pre-trial conference could be held, on October 7, 1992, plaintiff
Rosalina Santos-Morales passed away. Accordingly, her heirs, namely, Lydia
Trinidad, Rogelio de la Paz, Emmanuel de la Paz and Emeterio Morales, as her
surviving spouse, were substituted as co-plaintiffs. Emeterio Morales thereafter

executed an affidavit wherein he declared that his inclusion as a party-plaintiff

was without his consent or authorization. He also deposed that as one of Rosalina
Morales forced heirs, he [was] requesting that the civil case be withdrawn and/or
dismissed.
On April 30, 1993, the trial court issued the pre-trial Order limiting the issues to
be resolved to the following[:]
I. Whether or not the plaintiff, Rosalina Santos Morales, was of sound
mind when the questioned Deed of Absolute Sale was executed on
May 3, 1989.
II. Whether or not the consent of Rosalina Santos-Morales, when she
affixed her signature on the questioned Deed of Absolute Sale was
vitiated by fraud.
III. Whether or not defendant corporation paid the consideration stated in
the Deed of Absolute Sale.[15]

The Ruling of the Court of Appeals

In its assailed Amended Decision reversing the trial courts judgment, as well
as its own earlier pronouncement, the CA ruled that Rosalina never sold the
property in question to defendant, contrary to what the Deed of Absolute Sale
dated May 3, 1989 purports to show. [16]
The appellate court held that fraud vitiated the consent of Rosalina as
indicated by the following circumstances surrounding the signing of the Deed of
Sale: (1) she was tricked into believing that what she was signing was an
application for the reconstitution of the lost [certificate of] title but which was
actually a deed of absolute sale of the property in question; (2) there was no
reason for [her] to sell her house and lot, because [t]here was no evidence that
would hint that the couple was in any economic problem; (3) the person who
notarized the document was not a commissioned notary public; (4) her expired
residence certificate appeared on the Deed, although a new one had already been
issued to her; (5) there is no substantial proof of payment; and (6) her
subsequent acts showed that she did not know or was not aware that she signed
any deed of sale.[17]

The Issue

Petitioner raises this solitary issue:

Whether or not the Court of Appeals committed a reversible error in reversing its
original decision and the decision of the Regional Trial Court by annulling the
Deed of Absolute Sale on a mere motion for reconsideration which did not raise
new and substantial issues.[18]
Simply put, the main issue is whether the appellate court committed
reversible error in ruling that the signature of Rosalina was fraudulently

obtained. However, in discussing and determining the existence of a reversible

error, we shall take up all the issues raised by petitioner before the Court of
Appeals, as all of them revolve around the core question of fraud. First, we shall
tackle a preliminary matter: the propriety of private respondents Motion for
Reconsideration before the CA.

This Courts Ruling

The petition is devoid of merit.

Preliminary Issue:

Motion for Reconsideration

The petitioner submits that the CA should have denied private respondents
Motion for Reconsideration, as it did not raise new and substantial arguments and
issues that would warrant the reversal of its original Decision.
We rule otherwise. Rule 9 of the Revised Internal Rules of the Court of
Appeals simply requires that a motion for reconsideration state (1) the material
dates and (2) the grounds relied upon by the movant. [19] The appellate tribunal is
thus accorded the opportunity to correct a possible error in its decision. [20]
Herein private respondents Motion for Reconsideration (MR) alleged that
there was a newly discovered evidence -- the holographic will [21] of Rosalina. It is
therefore incorrect to say that the arguments in the MR were mere rehashes of
those already passed upon by the appellate court.
More important, the following discussion will show that the CA committed no
reversible error in granting the Motion for Reconsideration, because the reversal
of the original CA Decision was clearly justified.

Main Issue:
Circumstances Showing Fraud

A contract is a meeting of minds between two persons, whereby one is bound

to give something or to render some service to the other. [22] A valid contract
requires the concurrence of the following essential requisites: (1) consent of the
contracting parties, (2) object certain which is the subject matter of the contract,
and (3) cause of the obligation which is established. [23] Under Article 1330 of the
Civil Code, consent may be vitiated by any of the following: (1) mistake, (2)
violence, (3) intimidation, (4) undue influence, and (5) fraud.
As earlier noted, the present case revolves around the question of
fraud. There is fraud when one party is induced by the other to enter into a
contract, through and solely because of the latters insidious words or
machinations.[24] But not all forms of fraud can vitiate consent. Under Article 1330,
fraud refers to dolo causante or causal fraud, in which, prior to or simultaneous

with the execution of a contract, one party secures the consent of the other by
using deception, without which such consent would not have been given. [25]
Because the factual findings of the trial court and the Court of Appeals
differed, we undertook a scrutiny of the records, which persuaded us that the
assailed Amended Decision should be affirmed and the contested contract
annulled. We believe that causal fraud is clearly demonstrated by the following
facts which were duly established during the trial.

Certificate of Title Obtained by Misrepresentation

When Emeterio Morales, father of Narciso Morales, took the owners duplicate
certificate of title of the subject property from Gregorio Baonguis, Rosalinas
caretaker, he did not reveal that the property was the subject of a sale. Instead,
Emeterio claimed that he needed the owners duplicate to enable him to follow up
Rosalinas application for a reconstitution of the certificate of title, which had
been burned during the fire that gutted the Quezon City Hall. This is evident from
Baonguis testimony:[26]
Q Where is the title of this property now?
A It was taken from me by Mr. Emeterio Morales, in 1988, sir.
Q Where did you give it to him?
A In their house at 58 South Maya Street, Philamlife Homes, Quezon City, sir.
Q Did Mr. Morales tell you his purpose why he need[ed] that owners copy of the
title?
A According to him, he need[ed] that owners copy to facilitate
reconstitution of title. They [would] be the one to follow it up, sir.

the

Q Did you come to know the result of this reconstitution of this title[?]
A After that, sir, I heard nothing about it anymore.
Worse, when confronted by Lydia Trinidad (Rosalinas daughter), Emeterio
denied that he had ever taken the certificate of title from Baonguis. She testified:
[27]

Q After learning from Mr. B[a]ong[u]is that the title of the property in question
was taken by your stepfather, what did you do?
A I confronted my stepfather and asked for it and he denied.
Q What, more or less, did you ask your stepfather about this thing?
A I asked him about the title and he said he [did] not have it.
Q After learning from your stepfather that he did not have this title, what did
you do next?
A I told him that I [was] inquiring from the Register of Deeds.
Irregularities in the Notarization

Irregularities also impair the notarization of the alleged Deed of Sale. Very
glaring is the fact that the Deed carried the expired residence certificate of
Rosalina, although a new one had been issued to her at the time. [28] The

significance of this detail was correctly appreciated by the Court of Appeals in the
following terms:
x x x Furthermore, investigation also revealed that an [a]pplication for
[r]econstitution of the original TCT No. 255716, duly signed by Rosalina SantosMorales, was filed with the Office of the Registry of Deeds of Quezon City on
August 8, 1988, and that her Residence Certificate No. 85119801-G issued on
January 26, 1988, in Malabon, Rizal, appearing therein [was] the same as that one
appearing in the Deed of Absolute Sale dated May 3, 1989, which is an indication
of irregularity considering that as early as January 26, 1989, she had already been
issued Residence Certificate No. 04022287 in Quezon City, which was even used in
the notarization of the Contract of Lease dated May 19, 1989. If it were true that
Rosalina Morales personally appeared before Atty. Joyas and herself presented
her residence certificate to Atty. Joyas, there is no reason why her 1988 residence
certificate should be the one that should appear in the deed of sale, the only
possible conclusion being that she never appeared before Atty. Joyas to present
her residence certificate to the latter. x x x (Underscoring supplied.)
The conclusion of the Court of Appeals is buttressed by the fact that Atty.
Vicente M. Joyas, who notarized the Deed of Absolute Sale, was not a
commissioned notary.[29]
We have ruled that while [a] writing may have been accompanied by the most
solemn formalities, no instrument is so sacred when tainted with fraud as to place
it beyond scrutiny of extrinsic evidence.This evidence overcomes the known
presumption fraus est odiosa et non praesumenda.[30] Such rule is especially
applicable when the instrument fails to conform to the formalities required by
law.

Acts of Ownership Exercised by Rosalina Even After the Alleged Execution of the Deed of Sale

Ownership of a property means, among others, the right to enjoy and dispose
of it, subject to limitations established by law. [31] The law recognizes in the owner
the right to enjoy and dispose of the thing owned. The right to enjoy includes:
the jus utendi or the right to receive from the thing what it produces, and the jus
abutendi or the right to consume the thing by its use. Further, [t]he right to
dispose or thejus disponendi, is the power of the owner to alienate, encumber,
transform, and even destroy the thing owned.[32]
In
the
present
case,
even
after
Rosalina
allegedly
sold
her
paraphernal[33] property to herein petitioner, she still performed acts of ownership
over the same. Sixteen days after the alleged execution of the Deed of Sale,
[34]
she entered into a contract of lease [35] with siblings Rodolfo and Nympha as
lessees. The lease contract clearly stated that Rosalina was the absolute owner of
the disputed property.[36]Indeed, she did not even mention petitioners alleged
interest over the property when she signed the said contract. This was affirmed
on the witness stand by Nymphas husband, Reynaldo Ortiz, who stated that he
was unaware of the existence of either Petitioner Corporation or Narciso Morales.
[37]

Furthermore, Rosalina (and her heirs) continued to possess the disputed

property even after the alleged sale. She also paid the real estate taxes and
collected rentals from the lessees. In fact, after the alleged execution of the
questioned Deed of Sale, she even executed a holographic will bequeathing the

property to her husband Emeterio, her caretaker Baonguis and her children by her
first husband.
In stark contrast, petitioner never exercised acts of ownership over the
property. Indeed, aside from the alleged Deed of Sale, it presented no other
evidence
of
its
ownership
such
as
books,
records
or
financial
statements. Moreover, it did not pay the real estate taxes even after a new TCT
had been issued in its name on May 5, 1989 as a consequence of the registration
of the purported Deed.[38] It must also be underscored that Atty. Narciso Morales,
president of the petitioner corporation, knew of the subsequent acts of Rosalina,
but offered no objection thereto.

Rosalinas Immediate Disavowal of the Deed of Sale

Upon learning of the existence of the Deed of Absolute Sale, Rosalina

immediately denied that she ever signed the said contract. Her reaction was
described by her daughter Lydia, who testified thus:[39]
Q What did you do with this Deed of Absolute Sale and the title you procured
from the Office of the Register of Deeds when you talked to your mother?
A I showed it to my mother and she said: No I have not sold this. Over and over
again, that was her answer.
Q In this Deed of Absolute Sale, marked in evidence as Exhibit C, it appears
that it purports that this property which is the parcel of land covered by
TCT No. 255716 from the Register of Deeds of Quezon City, to have been
sold by your mother to the defendant corporation in the consideration
of P1,200,000.00. Did you mention this to your mother? Did you confront
her with this particular portion of the Deed of Absolute Sale?
A Yes, sir.
Q What did she tell you?
A She said she never sold that. She told me she did not receive any single
amount out of that sale.
Thereafter, Rosalina executed an affidavit repudiating the said contract. The
following averments in the affidavit are instructive:
1. I am the registered owner of that parcel of land, together with the
improvements thereon, located in Philamlife Homes, Quezon City, covered by
Transfer Certificate of Title No. 255716 issued by the Register of Deeds of Quezon
City, which property is my paraphernal property;
2. Considering my present state of health, I requested my daughter Lydia Santos
dela Paz Trinidad, to make the necessary verification with the Office of the
Register of Deeds of Quezon regarding said property because my owners copy of
the title was reportedly taken by my husband, Emeterio S. Morales, from my
caretaker without my previous authority and consent;
3. Said verification made by my daughter disclosed that on May 5, 1989, [a] Deed
of Absolute Sale purporting to have been executed by me in favor of Archipelago

Management and Marketing Corporation, covering said property, was presented

to the Office of the Register of Deeds of Quezon City;
4. I was very much surprised to learn this because I ha[d] not sold the said
property to anybody much less to Archipelago Management and Marketing
Corporation;
5. In view of this, I have executed this Affidavit of Adverse Claim for the purpose
of requesting the Office of the Register of Deeds of Quezon City and/or the Land
Registration Authority not to deliver the reconstituted owners duplicate of the
said TCT No. 255716 except to me or to my duly authorized representative under
my written authority.
6. I hereby further request the said Office to hold in abeyance registration of any
document affecting the said parcel of land.[40]
Eventually, Rosalina filed the present Complaint to annul the contract of sale.

Consideration for the Sale

There is no conclusive showing that Rosalina ever received any consideration

for the alleged sale. Although petitioner argues that private respondents failed to
overcome the legal presumption that there was sufficient consideration for the
contract,[41] its own evidence fails to provide any factual basis for the
presumption.
Indeed, petitioners version is so outlandish that it defies belief. It asserts that
the geriatric Rosalina travelled all the way from her home in Quezon City to
Narciso
Morales
Greenhills
residence
where
she
was
given
the
payment. Afterwards, the parties supposedly went to the Manila City Hall to have
the Deed of Sale notarized. Incredibly, petitioner alleges that the payment, which
was in cash, was made in Greenhills because Rosalina was afraid of holdups!
Simply stated, petitioners account is highly implausible. We find more
credibility in private respondents version denying that Rosalina ever sold her
property, executed a deed of sale, or received any amount from the petitioner.
[42]
The fact that Rosalinas bank passbook shows no increase in the deposit on or
after the date of the alleged sale[43] supports the cause of the private
respondents.

Deceased Not Guilty of Negligence

Citing Songco v. Sellner, [44] petitioner argues that private respondents cannot
invoke fraud, because Rosalina was negligent in signing the Deed of Sale. It
contends that Rosalina did not exercise due care when she affixed her signature
to the Deed of Absolute Sale without first reading the contents thereof.
The argument is not persuasive. In the first place, Songco does not apply. In
that case, a party claimed fraud based on the vendors exaggerated statement
concerning the probable yield of sugar from the cane sold. The Court held that
such party should have exercised diligence instead of merely relying on the

representation of the vendor. Clearly, the factual setting of Songco is different

from that of the present controversy.
In this case, Rosalina was not aware that she ever signed any deed of sale. All
she knew was that she had applied for the reconstitution of her title. In fact, her
subsequent conduct confirms that she did not sell or intend to sell her property.
Petitioner maintains that she should have read the documents before signing
the same. The peculiar circumstances of this case, however, render that
contention unacceptable. While it may be presumed that Rosalina was of sound
mind, it is undisputed that she was also quite old. In fact, two years after the
alleged execution of the Deed of Sale, according to the testimony of Narciso
Morales,[45] Rosalina entered into her second childhood. Thus, while Rosalinas
mind may have been sound when she signed the said contract, it was
degenerating
and
becoming
susceptible
to
surreptitious
machinations.Furthermore, it was her husband who asked her to sign the
documents, purportedly in connection with her application for a reconstitution of
title. She cannot be expected to have exercised the same high degree of vigilance
usually observed in ordinary arms length transactions.
All the foregoing circumstances militate against petitioners cause. Apropos to
the present case is the following pronouncement of this Court:
x x x. The statement that fraud cannot be presumed does not mean that the
presumption of fraud may not arise, and be legitimately deduced, from
circumstantial evidence, but only that it is not to be assumed of a transaction
that it is fraudulent, in the absence of proof afforded by intrinsic evidence of
unfairness in the transaction itself, or extrinsic facts and circumstances leading to
that conclusion. The general rule, therefore, must be understood only as affirming
that a contract or conduct apparently honest and lawful must be treated as such
until it is shown to be otherwise by either positive or circumstantial
evidence. Fraud may be, and often is, proved by or inferred from circumstances,
and the circumstances proved may in some cases raise a presumption of its
existence. On the other hand it has been held that while fraud may be proved by
circumstances or presumed from them, it cannot be demonstrated by
construction, and hence must be prove[n] in all cases.[46]

Conclusion

After an exhaustive scrutiny of the records of this case, we find no reversible

error in the CAs conclusion that fraud attended the execution of the subject Deed.
In reversing its original Decision, the reviewing court ratiocinated:
Considering the above pleadings of the parties, which necessitated a re-review of
the facts and issues of the case, it appears that there were certain facts of
substance and value which were overlooked that, if considered, would affect the
outcome of the case. Thus, the need to render this Amended Decision.
While it is true that Rosalina Morales was of sound mind when she executed the
disputed Deed of Absolute Sale, it is likewise true that it does not necessarily
follow that no fraud was committed, since, through deceit and certain
manipulations, she could be made to erroneously affix her signature to the deed
of sale. Again, while it is true that a deed of sale does not have to be notarized to

be valid, it is likewise true that consent may be vitiated as shown by the

circumstances surrounding the signing of the deed of sale, thereby rendering the
sale voidable for lack of consent, x x x[47]
The chain of circumstances indubitably shows that Rosalina was tricked into
believing[48] that what she was signing were papers pertinent to her application
for the reconstitution of her burned certificate of title. And the CA correctly
observed that x x x Rosalina Morales series of acts subsequent to the alleged date
of execution of the deed of sale shows that she did not know, and was not aware,
of having affixed her signature on a document that turned out later to be a deed
of sale xxx.[49] Petitioner could not have obtained the signature of Rosalina
without the help of Emeterio Morales. Thus, the appellate court had reason to rule
that Atty. Narciso Morales, x x x, as president of the defendant corporation,
conspiring and confederating with his father, Mr. Emeterio Morales, obtained by
means of fraud and deceit the signature of Rosalina Santos-Morales. [50]
Taken together, the aforecited circumstances in this case overwhelmingly
demonstrate the causal fraud committed in obtaining Rosalinas signature on the
Deed of Sale. Rosalina had no intention to part with her property, and as the
appellate court ruefully observed, she had no reason to. In fact, her conduct
reveals that she had no knowledge at all of the alleged Deed of Sale, and that
during her lifetime, she considered herself the absolute owner of the property. Au
contraire, petitioner and its president manifested no conduct showing ownership
or challenge to her dominion over the subject real estate, even after the alleged
execution of the Deed.
In closing,
hereunder: [51]

an

earlier

observation

of

this

Court

is

aptly

reiterated

[T]he fertility of mans invention in devising new schemes of fraud is so great that
courts have declined to define it, reserving to themselves the liberty to deal with
it under whatever form it may present itself.In the case at bar the fraudulent
scheme is evidenced by a series of related acts committed one after another,
silently, quietly and surreptitiously. Our jurisprudence abounds with cases where
fraud had been held to exist but we have found none in which all the
circumstances above indicated are present, the circumstances being varied as the
men who schemed the fraud in each case.
WHEREFORE, the petition is hereby DENIED for lack of merit. The assailed
Decision dated January 28, 1997 and the Resolution dated April 23, 1997, both
promulgated by the Court of Appeals in CA-GR No. 46014, are AFFIRMED. Costs
against petitioner.
SO ORDERED.

Republic of the Philippines

Supreme Court
Manila
SECOND DIVISION

CARMELA BROBIO MANGAHAS,

Petitioner,

G.R. No. 183852

Present:
CORONA, C.J.,*
CARPIO,
Chairperson,
NACHURA,
LEONARDO-DE CASTRO,**and
MENDOZA, JJ.

- versus -

EUFROCINA A. BROBIO,
Respondent.

Promulgated:
October 20, 2010

x------------------------------------------------------------------------------------x
RESOLUTION
NACHURA, J.:

This petition for review on certiorari seeks to set aside the Court of Appeals (CA)
Decision[1] dated February 21, 2008, which dismissed petitioners action to enforce
payment of a promissory note issued by respondent, and Resolution[2] dated July
9, 2008, which denied petitioners motion for reconsideration.
The case arose from the following facts:
On January 10, 2002, Pacifico S. Brobio (Pacifico) died intestate, leaving three
parcels of land. He was survived by his wife, respondent Eufrocina A. Brobio, and
four

legitimate

and

three

illegitimate

children;

petitioner

Carmela

Brobio

Mangahas is one of the illegitimate children.

On May 12, 2002, the heirs of the deceased executed a Deed of Extrajudicial
Settlement of Estate of the Late Pacifico Brobio with Waiver. In the Deed,
petitioner and Pacificos other children, in consideration of their love and affection
for respondent and the sum of P150,000.00, waived and ceded their respective

shares over the three parcels of land in favor of respondent. According to

petitioner, respondent promised to give her an additional amount for her share in
her fathers estate. Thus, after the signing of the Deed, petitioner demanded from
respondent the promised additional amount, but respondent refused to pay,
claiming that she had no more money.[3]
A year later, while processing her tax obligations with the Bureau of Internal
Revenue (BIR), respondent was required to submit an original copy of the Deed.
Left with no more original copy of the Deed, respondent summoned petitioner to
her office on May 31, 2003 and asked her to countersign a copy of the Deed.
Petitioner refused to countersign the document, demanding that respondent first
give her the additional amount that she promised. Considering the value of the
three parcels of land (which she claimed to be worthP20M), petitioner asked
for P1M, but respondent begged her to lower the amount. Petitioner agreed to
lower it to P600,000.00. Because respondent did not have the money at that time
and petitioner refused to countersign the Deed without any assurance that the
amount would be paid, respondent executed a promissory note. Petitioner agreed
to sign the Deed when respondent signed the promissory note which read
31 May 2003
This is to promise that I will give a Financial Assistance to CARMELA
B. MANGAHAS the amount of P600,000.00 Six Hundred Thousand
only on June 15, 2003.
(SGD)

EUFROCINA A. BROBIO[4]

When the promissory note fell due, respondent failed and refused to pay despite
demand. Petitioner made several more demands upon respondent but the latter
kept on insisting that she had no money.
On January 28, 2004, petitioner filed a Complaint for Specific Performance with
Damages[5] against respondent, alleging in part
2. That plaintiff and defendant are legal heirs of the deceased,
Pacifico S. Brobio[,] who died intestate and leaving without a will,
on January 10, 2002, but leaving several real and personal
properties (bank deposits), and some of which were the subject of

the extra-judicial settlement among them, compulsory heirs of the

deceased, Pacifico Brobio. x x x.
3. That in consideration of the said waiver of the plaintiff over the
listed properties in the extra-judicial settlement, plaintiff received
the sum of P150,000.00, and the defendant executed a
Promissory Note on June 15, 2003, further committing herself to
give plaintiff a financial assistance in the amount of P600,000.00.
x x x.
4. That on its due date, June 15, 2003, defendant failed to make good
of her promise of delivering to the plaintiff the sum
of P600,000.00 pursuant to her Promissory Note dated May 31,
2003, and despite repeated demands, defendant had maliciously
and capriciously refused to deliver to the plaintiff the amount
[of] P600,000.00, and the last of which demands was on October
29, 2003. x x x.[6]

In her Answer with Compulsory Counterclaim, [7] respondent admitted that she
signed the promissory note but claimed that she was forced to do so. She also
claimed that the undertaking was not supported by any consideration. More
specifically, she contended that
10. Defendant was practically held hostage by the demand of the
plaintiff. At that time, defendant was so much pressured and was in
[a] hurry to submit the documents to the Bureau of Internal Revenue
because of the deadline set and for fear of possible penalty if not
complied with. Defendant pleaded understanding but plaintiff was
adamant. Her hand could only move in exchange for 1 million pesos.
11. Defendant, out of pressure and confused disposition, was
constrained to make a promissory note in a reduced amount in favor
of the plaintiff. The circumstances in the execution of the promissory
note were obviously attended by involuntariness and the same was
issued without consideration at all or for illegal consideration. [8]
On May 15, 2006, the Regional Trial Court (RTC) rendered a decision in favor of
petitioner. The RTC found that the alleged pressure and confused disposition
experienced by respondent and the circumstances that led to the execution of the
promissory note do not constitute undue influence as would vitiate respondents
consent thereto. On the contrary, the RTC observed that
It is clear from all the foregoing that it is the defendant who took
improper advantage of the plaintiffs trust and confidence in her by
resorting to a worthless written promise, which she was intent on
reneging. On the other hand, plaintiff did not perform an unlawful
conduct when she insisted on a written commitment from the
defendant, as embodied in the promissory note in question, before
affixing her signature that was asked of her by the defendant

because, as already mentioned, that was the only opportunity

available to her or which suddenly and unexpectedly presented itself
to her in order to press her demand upon the defendant to satisfy
the correct amount of consideration due to her. In other words, as
the defendant had repeatedly rebuffed her plea for additional
consideration by claiming lack of money, it is only natural for the
plaintiff to seize the unexpected opportunity that suddenly
presented itself in order to compel the defendant to give to her
[what is] due [her]. And by executing the promissory note which the
defendant had no intention of honoring, as testified to by her, the
defendant clearly acted in bad faith and took advantage of the trust
and confidence that plaintiff had reposed in her. [9]

The RTC also brushed aside respondents claim that the promissory note was not
supported by valuable consideration. The court maintained that the promissory
note was an additional consideration for the waiver of petitioners share in the
three properties in favor of respondent. Its conclusion was bolstered by the fact
that the promissory note was executed after negotiation and haggling between
the parties. The dispositive portion of the RTC decision reads:
WHEREFORE, judgment is hereby rendered as follows:
1.

Ordering the defendant to pay to plaintiff the sum of Six

Hundred Thousand Pesos (P600,000.00) which she
committed to pay to plaintiff under the promissory note in
question, plus interest thereon at the rate of 12% per
annum computed from the date of the filing of the
complaint;

2.

Ordering the defendant to pay to plaintiff the sum

of P50,000.00 as attorneys fees; and

3.

Ordering the defendant to pay to plaintiff the costs of

this suit.

SO ORDERED.[10]

On February 21, 2008, the CA reversed the RTC decision and dismissed the
complaint.[11] The CA found that there was a complete absence of consideration in
the execution of the promissory note, which made it inexistent and without any
legal force and effect. The court noted that financial assistance was not the real
reason why respondent executed the promissory note, but only to secure
petitioners signature. The CA held that the waiver of petitioners share in the
three properties, as expressed in the deed of extrajudicial settlement, may not be
considered as the consideration of the promissory note, considering that

petitioner signed the Deed way back in 2002 and she had already received the
consideration of P150,000.00 for signing the same. The CA went on to hold that if
petitioner disagreed with the amount she received, then she should have filed an
action for partition.
Further, the CA found that intimidation attended the signing of the
promissory note. Respondent needed the Deed countersigned by petitioner in
order to comply with a BIR requirement; and, with petitioners refusal to sign the
said document, respondent was forced to sign the promissory note to assure
petitioner that the money promised to her would be paid.
Petitioner moved for the reconsideration of the CA Decision. In a Resolution dated
July 9, 2008, the CA denied petitioners motion. [12]
In this petition for review, petitioner raises the following issues:
1.

The Honorable Court of Appeals erred in the appreciation of the

facts of this case when it found that intimidation attended the
execution of the promissory note subject of this case.

2.

The Honorable Court of Appeals erred when it found that the

promissory note was without consideration.

3.

The Honorable Court of Appeals erred when it stated that

petitioner should have filed [an action] for partition instead of a
case for specific performance.[13]

The petition is meritorious.

Contracts are voidable where consent thereto is given through mistake,
violence,

intimidation,

undue

influence,

or

fraud.

In

determining

whether

consent is vitiated by any of these circumstances, courts are given a wide latitude
in weighing the facts or circumstances in a given case and in deciding in favor of
what they believe actually occurred, considering the age, physical infirmity,
intelligence, relationship, and conduct of the parties at the time of the execution
of the contract and subsequent thereto, irrespective of whether the contract is in
a public or private writing.[14]

Nowhere is it alleged that mistake, violence, fraud, or intimidation attended the

execution of the promissory note. Still, respondent insists that she was forced
into signing the promissory note because petitioner would not sign the document
required by the BIR. In one case, the Court in characterizing a similar argument
by respondents therein held that such allegation is tantamount to saying that the
other party exerted undue influence upon them. However, the Court said that the
fact that respondents were forced to sign the documents does not amount to
vitiated consent.[15]
There is undue influence when a person takes improper advantage of his
power over the will of another, depriving the latter of a reasonable freedom of
choice.[16] For undue influence to be present, the influence exerted must have so
overpowered or subjugated the mind of a contracting party as to destroy his free
agency, making him express the will of another rather than his own. [17]
Respondent may have desperately needed petitioners signature on the Deed, but
there is no showing that she was deprived of free agency when she signed the
promissory note. Being forced into a situation does not amount to vitiated
consent where it is not shown that the party is deprived of free will and choice.
Respondent still had a choice: she could have refused to execute the promissory
note and resorted to judicial means to obtain petitioners signature. Instead,
respondent chose to execute the promissory note to obtain petitioners signature,
thereby agreeing to pay the amount demanded by petitioner.
The

fact

circumstances,

that
to

respondent
execute

the

may

have

promissory

felt

compelled,

note

will

under
not

the

negate

the voluntariness of the act. As rightly observed by the trial court, the execution
of the promissory note in the amount of P600,000.00 was, in fact, the product of a
negotiation between the parties. Respondent herself testified that she bargained
with petitioner to lower the amount:
ATTY. VILLEGAS:
Q And is it not that there was even a bargaining from P1-M
to P600,000.00 before you prepare[d] and [sign[ed] that
promissory note marked as Exhibit C?
A Yes, sir.

Q And in fact, you were the one [who] personally wrote the amount
of P600,000.00 only as indicated in the said promissory note?
A Yes, sir.
COURT:
Q So, just to clarify. Carmela was asking an additional amount of P1M for her to sign this document but you negotiated with her
and asked that it be lowered to P600,000.00 to which she
agreed, is that correct?
A Yes, Your Honor. Napilitan na po ako.
Q But

you negotiated
to P600,000.00?
A Yes, Your Honor.[18]

and

asked

for

its

reduction

from P1-M

Contrary to the CAs findings, the situation did not amount to intimidation that
vitiated consent. There is intimidation when one of the contracting parties is
compelled to give his consent by a reasonable and well-grounded fear of an
imminent and grave evil upon his person or property, or upon the person or
property of his spouse, descendants, or ascendants. [19] Certainly, the payment of
penalties for delayed payment of taxes would not qualify as a reasonable and
well-grounded fear of an imminent and grave evil.
We join the RTC in holding that courts will not set aside contracts merely because
solicitation, importunity, argument, persuasion, or appeal to affection was used to
obtain the consent of the other party. Influence obtained by persuasion or
argument or by appeal to affection is not prohibited either in law or morals and is
not obnoxious even in courts of equity. [20]
On the issue that the promissory note is void for not being supported by a
consideration, we likewise disagree with the CA.
A contract is presumed to be supported by cause or consideration. [21] The
presumption that a contract has sufficient consideration cannot be overthrown by
a mere assertion that it has no consideration. To overcome the presumption, the
alleged lack of consideration must be shown by preponderance of evidence.
[22]

The burden to prove lack of consideration rests upon whoever alleges it,

which, in the present case, is respondent.

Respondent failed to prove that the promissory note was not supported by
any consideration. From her testimony and her assertions in the pleadings, it is
clear that the promissory note was issued for a cause or consideration, which, at
the very least, was petitioners signature on the document.
It may very well be argued that if such was the consideration, it was
inadequate. Nonetheless, even if the consideration is inadequate, the contract
would not be invalidated, unless there has been fraud, mistake, or undue
influence.[23] As previously stated, none of these grounds had been proven
present in this case.
The foregoing discussion renders the final issue insignificant. Be that as it
may, we would like to state that the remedy suggested by the CA is not the
proper one under the circumstances. An action for partition implies that the
property is still owned in common. [24] Considering that the heirs had already
executed a deed of extrajudicial settlement and waived their shares in favor of
respondent, the properties are no longer under a state of co-ownership; there is
nothing more to be partitioned, as ownership had already been merged in one
person.
WHEREFORE, premises considered, the CA Decision dated February 21,
2008 and its Resolution dated July 9, 2008 are REVERSED and SET ASIDE. The RTC
decision dated May 15, 2006 is REINSTATED.
SO ORDERED.

D. Simulated Contract Absolute Simulation and Relative Simulation

Cases:
Heirs of Intac vs. CA
Facts:
Ireneo Mendoza, married to Salvacion Fermin, was the owner of the subject
property located in Quezon city which he purchased in 1954. (TCT No. 242655)
Ireneo had two children: respondents Josefina and Martina (respondents),
Salvacion being their stepmother.

When he was still alive, Ireneo, also took care of his niece, Angelina, since she
was three years old until she got married.
On October 25, 1977, Ireneo, with the consent of Salvacion, executed a deed of
absolute sale of the property in favor of Angelina and her husband, Mario
(Spouses Intac).
Despite the sale, Ireneo and his family, including the respondents, continued
staying in the premises and paying the realty taxes. After Ireneo died intestate in
1982, his widow and the respondents remained in the premises. After Salvacion
died, respondents still maintained their residence there. Up to the present, they
are in the premises, paying the real estate taxes thereon, leasing out portions of
the property, and collecting the rentals.
The controversy arose when respondents sought the cancellation of TCT No.
242655, claiming that the sale was only simulated and, therefore, void.
The heirs of Ireneo, the respondents in this case, alleged that: 1. When Ireneo
was still alive, Spouses Intac borrowed the title of the property (TCT No. 106530)
from him to be used as collateral for a loan from a financing institution; 2. they
objected because the title would be placed in the names of said spouses and it
would then appear that the couple owned the property; that Ireneo, however,
tried to appease them, telling them not to worry because Angelina would not take
advantage of the situation considering that he took care of her for a very long
time; that during his lifetime, he informed them that the subject property would
be equally divided among them after his death; and 3. that respondents were the
ones paying the real estate taxes over said property.
Spouses Intac countered, among others, that the subject property had been
transferred to them based on a valid deed of absolute sale and for a valuable
consideration; that the action to annul the deed of absolute sale had already
prescribed; that the stay of respondents in the subject premises was only by
tolerance during Ireneos lifetime because they were not yet in need of it at that
time; and that despite respondents knowledge about the sale that took place on
October 25, 1977, respondents still filed an action against them.
RTC ruled in favor of the respondents saying that the sale to the spouses Intac
was null and void. The CA also ruled that there was no consideration in the sale to
the spouses Intac and that the contract was one for equitable mortgage.

Issues:
WON the Deed of Absolute Sale was a simulated contract or a valid agreement.
WON the Deed of Absolute Sale, dated October 25, 1977, involving the subject
real property in Pagasa, Quezon City, was a simulated contract or a valid
agreement.
Held:
The deed of sale executed by Ireneo and Salvacion was absolutely simulated for
lack of consideration and cause and, therefore, void.
Articles 1345 and 1346 of the Civil Code provide:
Art. 1345. Simulation of a contract may be absolute or relative. The former takes
place when the parties do not intend to be bound at all; the latter, when the
parties conceal their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is void. A relative
simulation, when it does not prejudice a third person and is not intended for any

purpose contrary to law, morals, good customs, public order or public policy binds
the parties to their real agreement.
Relatively simulated agreement vs. Absolute simulation
If the parties state a false cause in the contract to conceal their real agreement,
the contract is only relatively simulated and the parties are still bound by their
real agreement. Hence, where the essential requisites of a contract are present
and the simulation refers only to the content or terms of the contract, the
agreement is absolutely binding and enforceable between the parties and their
successors in interest
In absolute simulation, there is a colorable contract but it has no substance as the
parties have no intention to be bound by it. "The main characteristic of an
absolute simulation is that the apparent contract is not really desired or intended
to produce legal effect or in any way alter the juridical situation of the parties."
"As a result, an absolutely simulated or fictitious contract is void, and the parties
may recover from each other what they may have given under the contract."
No valid sale took place between Ireneo and Spouses Intac
In the case at bench, the Court is one with the courts below that no valid sale of
the subject property actually took place between the alleged vendors, Ireneo and
Salvacion; and the alleged vendees, Spouses Intac. There was simply no
consideration and no intent to sell it.
Evidences to prove that there was no absolute deed of sale between the parties
Critical is the testimony of Marietto, a witness to the execution of the subject
absolute deed of sale. He testified that Ireneo personally told him that he was
going to execute a document of sale because Spouses Intac needed to borrow the
title to the property and use it as collateral for their loan application. Ireneo and
Salvacion never intended to sell or permanently transfer the full ownership of the
subject property to Spouses Intac. Marietto was characterized by the RTC as a
credible witness.
Aside from their plain denial, the heirs of Intac failed to present any concrete
evidence to disprove Mariettos testimony. They claimed that they actually paid
P150,000.00 for the subject property. They, however, failed to adduce proof, even
by circumstantial evidence, that they did, in fact, pay it. Even for the
consideration of P60,000.00 as stated in the contract, petitioners could not show
any tangible evidence of any payment therefor. Their failure to prove their
payment only strengthened Mariettos story that there was no payment made
because Ireneo had no intention to sell the subject property.
Angelinas story, except on the consideration, was consistent with that of
Marietto. Angelina testified that she and her husband mortgaged the subject
property sometime in July 1978 to finance the construction of a small hospital in
Sta. Cruz, Laguna. Angelina claimed that Ireneo offered the property as he was in
deep financial need.
The contract of sale was only for the purpose of lending the title of the property
to Spouses Intac to enable them to secure a loan.
Their arrangement was only temporary and could not give rise to a valid sale.
Where there is no consideration, the sale is null and void ab initio. The case of
Lequin vs. VIzconde was cited in this case.

The fact that Ireneo was still in physical possession of the subject property after
the sale is a strong evidence to prove that there was no valid sale between the
parties.
More importantly, Ireneo and his family continued to be in physical possession of
the subject property after the sale in 1977 and up to the present. They even went
as far as leasing the same and collecting rentals. If Spouses Intac really
purchased the subject property and claimed to be its true owners, why did they
not assert their ownership immediately after the alleged sale took place? Why did
they have to assert their ownership of it only after the death of Ireneo and
Salvacion? One of the most striking badges of absolute simulation is the complete
absence of any attempt on the part of a vendee to assert his right of dominion
over the property.
As heretofore shown, the contemporaneous and subsequent acts of both parties
in this case, point to the fact that the intention of Ireneo was just to lend the title
to the Spouses Intac to enable them to borrow money and put up a hospital in
Sta. Cruz, Laguna. Clearly, the subject contract was absolutely simulated and,
therefore, void.
The Spouses Intac never became the owners of the property despite its
registration in their names.
It is also of no moment that TCT No. 106530 covering the subject property was
cancelled and a new TCT (TCT No. 242655)21 was issued in their names. After all,
registration does not vest title. As a logical consequence, petitioners did not
become the owners of the subject property even after a TCT had been issued in
their names.

THIRD DIVISION

[G.R. No. 147788. March 19, 2002]

EDILBERTO CRUZ and SIMPLICIO CRUZ, petitioners, vs. BANCOM FINANCE

CORPORATION (NOW UNION BANK OF THE PHILIPPINES), respondent.
DECISION
PANGANIBAN, J.:
An absolutely simulated contract of sale is void ab initio and transfers no
ownership right. The purported buyer, not being the owner, cannot validly
mortgage the subject property.Consequently, neither does the buyer at the
foreclosure sale acquire any title thereto.

Statement of the Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of

Court, assailing the March 30, 2001 Decision [1] of the Court of Appeals (CA) in CAGR No. 58346. The decretal portion of the challenged Decision reads as follows:
WHEREFORE, upon the premises, the assailed Decision is REVERSED and SET
ASIDE. A new one is rendered declaring BANCOMs right to the subject land as a
purchaser in good faith and for value, and ordering the cancellation of the Notice
of Lis Pendens on TCT No. 248262-Bulacan. Without pronouncement as to costs. [2]

The Facts
The factual antecedents of the case are summarized by the Court of Appeals
thus:
Brothers Rev. Fr. Edilberto Cruz and Simplicio Cruz, plaintiffs herein, were the
registered owners of a 339,335 square meter or 33.9335 hectare parcel of
agricultural land together with improvements located in Barangay Pulang Yantoc,
Angat, Bulacan covered by TCT No. 19587. Sometime in May 1978, defendant
Norma Sulit, after being introduced by Candelaria Sanchez to Fr. Cruz, offered to
purchase the land. Plaintiffs asking price for the land was P700,000.00, but
Norma only had P25,000.00 which Fr. Cruz accepted as earnest money with the
agreement that titles would be transferred to Norma upon payment of the
balance of P675,000.00. Norma failed to pay the balance and proposed [to] Fr.
Cruz to transfer the property to her but the latter refused, obviously because he
had no reason to trust Norma. But capitalizing on the close relationship of
Candelaria Sanchez with the plaintiffs, Norma succeeded in having the plaintiffs
execute a document of sale of the land in favor of Candelaria who would then
obtain a bank loan in her name using the plaintiffs land as collateral. On the same
day, Candelaria executed another Deed of Absolute Sale over the land in favor of
Norma. In both documents, it appeared that the consideration for the sale of the
land was only P150,000.00. Pursuant to the sale, Norma was able to effect the
transfer of the title to the land in her name under TCT No. T-248262.
Evidence shows that aside from the P150,000.00, Candelaria undertook to pay the
plaintiffs the amount of P655,000.00 representing the balance of the actual price
of the land. In a Special Agreement dated September 1, 1978, Norma assumed
Candelarias obligation, stipulating to pay the plaintiffs the said amount within six
months on pain of fine or penalty in case of non-fulfillment. Unknown to the
plaintiffs, Norma managed to obtain a loan from Bancom in the amount
of P569,000.00 secured by a mortgage over the land now titled in her name.
On account of Normas failure to pay the amount stipulated in the Special
Agreement and her subsequent disappearance from her usual address, plaintiffs
were prompted to file the herein complaint for the reconveyance of the land.
Norma filed an Answer on February 11, 1980 but failed to appear in court and was
eventually declared in default. On May 20, 1980, Bancom filed a motion for leave
to intervene which was granted by the trial court. In its Answer in Intervention,
Bancom claimed priority as mortgagee in good faith; and that its contract of
mortgage with Norma had been executed before the annotation of plaintiffs
interest in the title.

Meanwhile in the middle of 1980, Norma defaulted in her payment to the Bank
and her mortgage was foreclosed. At the subsequent auction sale, Bancom was
declared the highest bidder and was issued the corresponding certificate of sale
over the land.
On January 25, 1996, the trial court rendered the herein assailed Decision in favor
of the plaintiffs. It ruled that the contract of sale between plaintiffs and
Candelaria was absolutely simulated. Consequently, the second contract of sale,
that is, between Candelaria and Norma, produced no legal effect. As for Bancom,
the trial court held that the Bank was not a mortgagee in good faith thus it can
not claim priority of rights over plaintiffs property. [3]

Ruling of the Court of Appeals

In reversing the RTC, the CA held that the Deeds of Sale were valid and
binding, not simulated. Thus, the Contract of Mortgage between Sulit and
respondent was likewise valid.
Petitioners, the CA ruled, intended to be bound by the Contracts of Sale and
Mortgage, because they did not seek to annul the same but instead executed a
special agreement to enforce payment of the balance of the price in the amount
of P665,000.00.[4]
Furthermore, it upheld respondent as a mortgagee in good faith; ergo, it had
a preferential right to the land.
Hence, this Petition.[5]

Issues
In their Memorandum, petitioners raise the following issues for this Courts
consideration:
I
Whether or not the Honorable Court of Appeals seriously erred when it held that
the petitioners intended to enter into a sale of the property in question and that
the declarations of Petitioner Fr. Edilberto Cruz in Court belied the court a
quos finding that the Deeds of Sale in question were absolute simulations.
II
Whether or not the Honorable Court of Appeals gravely erred when it ruled that
respondent bank was a mortgagee in good faith, despite the fact that respondent
Bancom was in truth and in fact a mortgagee in bad faith over the subject
property.
III
Whether or not the Honorable Court of Appeals seriously erred when it ruled that
the face of the title [to] the property did not disclose any irregularity that would

arouse suspicion by respondent bank as to the condition of the subject land

despite the fact that questions and circumstances abound which would render
respondent bank not a mortgagee in good faith, and that the case of Sunshine
Finance Investment Corporation vs. Intermediate Appellate Court applies to the
instant case.
IV
Whether or not the Honorable Court of Appeals gravely erred when it ruled that
respondent bank possesses a preferential right over petitioners on the subject
land as a mortgagee in good faith.[6]
The above issues can be summed up into two: (1) the validity of the Deeds of
Sale and Mortgage and (2) the good faith of the mortgagee.

This Courts Ruling

The Petition is meritorious.

First Issue:
Validity of the Sale and the Mortgage
Petitioners claim that the Deed of Sale [7] they executed with Sanchez, as well
as the Deed of Sale [8] executed between Sanchez and Sulit, was absolutely
simulated; hence, null and void. On the other hand, echoing the appellate court,
respondent contends that petitioners intended to be bound by those Deeds, and
that the real estate mortgage over the subject property was valid.
As a general rule, when the terms of a contract are clear and unambiguous
about the intention of the contracting parties, the literal meaning of its
stipulations shall control. But if the words appear to contravene the evident
intention of the parties, the latter shall prevail over the former. [9] The real nature
of a contract may be determined from the express terms of the agreement, as
well as from the contemporaneous and subsequent acts of the parties thereto. [10]
On the other hand, simulation takes place when the parties do not really want
the contract they have executed to produce the legal effects expressed by its
wordings.[11] Simulation or vices of declaration may be either absolute or
relative. Article 1345 of the Civil Code distinguishes an absolute simulation from a
relative one while Article 1346 discusses their effects, as follows:
Art. 1345. Simulation of a contract may be absolute or relative. The former takes
place when the parties do not intend to be bound at all; the latter when the
parties conceal their true agreement.
Art. 1346. An absolutely simulated contract is void. A relative simulation, when it
does not prejudice a third person and is not intended for any purpose contrary to
law, morals, good customs, public order or public policy binds the parties to their
agreement.

In Rongavilla v. Court of Appeals,[12] we held that a deed of sale, in which the

stated consideration had not in fact been paid, was a false contract; that is void
ab initio. Furthermore,Ocejo v. Flores,[13] ruled that a contract of purchase and
sale is null and void and produces no effect whatsoever where it appears that
[the] same is without cause or consideration which should have been the motive
thereof, or the purchase price which appears thereon as paid but which in fact
has never been paid by the purchaser to the vendor.
Although the Deed of Sale[14] between petitioners and Sanchez stipulated a
consideration of P150,000, there was actually no exchange of money between
them. Petitioner Edilberto Cruz narrated how the transaction came about:
ATTY. CABRERA:
Q Why did you execute the deed of sale in favor of Candelaria Sanchez
since it was Norma Sulit with whom you are transacting?
A Because Norma Sulit made the promise to Mrs. Candelaria Sanchez that
upon acquiring the title from us, they can borrow money from the
Bank. So it is a way of acquiring the title from us, sir.
Q. This deed of sale marked Exhibit D which you just identified, stipulates
a consideration of P150,000.00. The question, Father, is - did you
receive the P150,000.00?
ATTY. AGRAVANTE
Objection, your Honor, the document is the best evidence.
ATTY. CABRERA
This is an action to annul a certain contract.
COURT
He received the consideration stated in the contract. The witness may
answer.
WITNESS
A Not a single centavo we received from Candelaria Sanchez as if it is
nominal, sir.
ATTY. CABRERA
Q If you did not receive this P150,000.00 stated in this deed of sale that
you and your brother executed from Candelaria Sanchez, did you
receive the said amount from Norma Sulit or anybody else for that
matter?
A Not a single centavo, sir.[15]
His claim was corroborated by Sanchez. She likewise said that the Deed of
Sale[16] she executed with Sulit, for which she did not receive any consideration
was only for the purpose of placing the title to the property in the latters
name. She testified as follows:
Q And so you transferred the property in favor of Norma Sulit?
A Yes, sir.
Q I am showing to you this document which has already been marked
when the representative of the Register of Deeds produced the

pertinent documents before the court as Exhibit C, is this that

document that you executed transferring the property in the name of
Norma Sulit?
A Yes, sir, this is it.
Q There is a consideration of P150,000.00 stated in this Exhibit C, were
you paid by Norma Sulit the amount of P150,000.00 appearing in this
Exhibit C?
ATTY BUYCO:
The question is leading, Your Honor.
COURT:
Witness may answer.
A No amount was given, sir. We prepared this document to transfer the
title [to] her name only.[17]
Respondent never offered any evidence to refute the foregoing testimonies.
On the contrary, it even admitted that the stipulated consideration of P150,000
in the two Deeds of Sale had never been actually paid by Sanchez to petitioners;
[19]
neither by Sulit to the former.[20]
[18]

Another telling sign of simulation was the complete absence of any attempt
on the part of the buyers -- Sanchez and Sulit -- to assert their alleged rights of
ownership over the subject property. [21] This fact was confirmed by respondent
which, however, tried to justify the non-occupancy of the land by Sanchez and
Sulit. Supposedly, because the two failed to pay the purchase price of the land,
they could not force petitioners to vacate it.[22]
The records clearly show that the two Deeds of Absolute Sale were executed
over the same property on the same date, June 21, 1978. Six days thereafter, on
June 27, 1978, it was mortgaged by Sulit to Federal Insurance Company
for P500,000. The mortgage was cancelled when she again mortgaged the
property to respondent for P569,000 on August 22, 1979. It is also undisputed
that petitioners did not receive any portion of the proceeds of the loan.
Clearly, the Deeds of Sale were executed merely to facilitate the use of the
property as collateral to secure a loan from a bank. [23] Being merely a subterfuge,
these agreements could not have been the source of any consideration for the
supposed sales.[24] Indeed, the execution of the two documents on the same day
sustains the position of petitioners that the Contracts of Sale were absolutely
simulated, and that they received no consideration therefor. [25]
The failure of Sulit to take possession of the property purportedly sold to her
was a clear badge of simulation that rendered the whole transaction void and
without force and effect, pursuant to Article 1409 [26] of the Civil Code.[27] The fact
that she was able to secure a Certificate of Title to the subject property in her
name did not vest her with ownership over it. [28] A simulated deed of sale has no
legal effect; consequently any transfer certificate of title (TCT) issued in
consequence thereof should be cancelled. [29] A simulated contract is not a
recognized mode of acquiring ownership.[30]

Second Issue:
Good Faith of Mortgagee

Petitioners argue that respondent was not a mortgagee in good faith because,
at the time it registered the real estate mortgage over the subject property, their
adverse claim and notice of lis pendens had already been annotated on the TCT
(on October 30, 1979 and December 10, 1979, respectively). On the other hand,
respondent maintains that petitioners were the ones in bad faith, because they
already had knowledge of the existence of the mortgage over the property when
they caused the annotation of their adverse claim and notice of lis pendens.
As a general rule, every person dealing with registered land may safely rely
on the correctness of the certificate of title and is no longer required to look
behind the certificate in order to determine the actual owner. [31] To do so would be
contrary to the evident purpose of Section 39 of Act 496 which we quote
hereunder:
Sec. 39. Every person receiving a certificate of title in pursuance of a decree of
registration, and every subsequent purchaser of registered land who takes a
certificate of title for value in good faith shall hold the same free of all
encumbrances except those noted on said certificate, and any of the following
encumbrances which may be subsisting, namely:
First. Liens, claims, or rights arising or existing under the laws or Constitution of
the United States or of the Philippine Islands which the statutes of the Philippine
Islands cannot require to appear of record in the Registry.
Second. Taxes within two years after the same became due and payable.
Third. Any public highway, way, private way established by law, or any
Government irrigation canal or lateral thereof, where the certificate of title does
not state that the boundaries of such highway, way, or irrigation canal or lateral
thereof, have been determined.
But if there are easements or other rights appurtenant to a parcel of registered
land which for any reason have failed to be registered, such easements or rights
shall remain so appurtenant notwithstanding such failure, and shall be held to
pass with the land until cut off or extinguished by the registration of the servient
estate, or in any other manner.
This rule is, however, subject to the right of a person deprived of land through
fraud to bring an action for reconveyance, provided the rights of innocent
purchasers for value and in good faith are not prejudiced. An innocent purchaser
for value or any equivalent phrase shall be deemed, under Section 38 of the same
Act,[32] to include an innocent lessee, mortgagee or any other encumbrancer for
value.[33]
Respondent claims that, being an innocent mortgagee, it should not be
required to conduct an exhaustive investigation on the history of the mortgagors
title before it could extend a loan. [34]
Respondent, however, is not an ordinary mortgagee; it is a mortgageebank. As such, unlike private individuals, it is expected to exercise greater care
and prudence in its dealings, including those involving registered lands. [35] A
banking institution is expected to exercise due diligence before entering into a
mortgage contract.[36] The ascertainment of the status or condition of a property
offered to it as security for a loan must be a standard and indispensable part of
its operations.[37]

In Rural Bank of Compostela v. CA,[38] we held that a bank that failed to

observe due diligence was not a mortgagee in good faith. In the words of
the ponencia:
x x x [T]he rule that persons dealing with registered lands can rely solely on the
certificate of title does not apply to banks.
Banks, indeed, should exercise more care and prudence in dealing even with
registered lands, than private individuals, for their business is one affected with
public interest, keeping in trust money belonging to their depositors, which they
should guard against loss by not committing any act of negligence which amounts
to lack of good faith by which they would be denied the protective mantle of the
land registration statute, Act [No.] 496, extended only to purchasers for value
and in good faith, as well as to mortgagees of the same character and
description. (Citations omitted)
Recently, in Adriano v. Pangilinan,[39] we said that the due diligence required
of banks extended even to persons regularly engaged in the business of lending
money secured by real estate mortgages.
The evidence before us indicates that respondent bank was not a mortgagee
in good faith.[40] First, at the time the property was mortgaged to it, it failed to
conduct an ocular inspection.[41] Judicial notice is taken of the standard practice
for banks before they approve a loan: to send representatives to the premises of
the land offered as collateral and to investigate the ownership thereof. [42] As
correctly observed by the RTC, respondent, before constituting the mortgage over
the subject property, should have taken into consideration the following
questions:
1) Was the price of P150,000.00 for a 33.9 hectare agricultural parcel of land not
too cheap even in 1978?
2) Why did Candelaria Sanchez sell the property at the same price of P150,000.00
to Norma Sulit on the same date, June 21, 1978 when she supposedly acquired it
from the plaintiffs?
3) Being agricultural land, didnt it occur to the intervenors that there would be
tenants to be compensated or who might pose as obstacles to the mortgagees
exercise of acts of dominion?
4) In an area as big as that property, [why] did they not verify if there were
squatters?
5) What benefits or prospects thereof could the ultimate owner expect out of the
property?
Verily, the foregoing circumstances should have been looked into, for if either or
both companies did, they could have discovered that possession of the land was
neither with Candelaria nor with Norma.[43]
Respondent was clearly wanting in the observance of the necessary
precautions to ascertain the flaws in the title of Sulit and to examine the
condition of the property she sought to mortgage. [44] It should not have simply

relied on the face of the Certificate of Title to the property, as its ancillary
function of investing funds required a greater degree of diligence. [45]Considering
the substantial loan involved at the time, it should have exercised more caution.
[46]

Moreover, the subject property, being situated in Bulacan, could have been
easily and conveniently inspected by respondent. A person who deliberately
ignores a significant fact that would create suspicion in an otherwise reasonable
person is not an innocent purchaser for value. [47]
Second, respondent was already aware that there was an adverse claim and
notice of lis pendens annotated on the Certificate of Title when it registered the
mortgage on March 14, 1980. Unless duly registered, a mortgage does not affect
third parties like herein petitioners, as provided under Section 51 of PD NO. 1529,
[48]
which we reproduce hereunder:
SEC. 51. Conveyance and other dealings by registered owner. - An owner of
registered land may convey, mortgage, lease, charge or otherwise deal with the
same in accordance with existing laws. He may use such forms of deeds,
mortgages, leases or other voluntary instruments [as] are sufficient in law. But no
deed, mortgage, lease, or other voluntary instrument except a will, purporting to
convey or affect registered land, shall take effect as a conveyance or bind the
land, but shall operate only as a contract between the parties and as evidence of
authority to the clerk or register of deeds to make registration.
The act of registration shall be the operative act to convey and affect the land,
and in all cases under this Act the registration shall be made in the office of the
register of deeds for the province or city, where the land lies.
True, registration is not the operative act for a mortgage to be binding
between the parties. But to third persons, it is indispensible.[49] In the present
case, the adverse claim and the notice of lis pendens were annotated on the title
on October 30, 1979 and December 10, 1979, respectively; the real estate
mortgage over the subject property was registered by respondent only on March
14, 1980. Settled in this jurisdiction is the doctrine that a prior registration of a
lien creates a preference.[50] Even a subsequent registration of the prior mortgage
will not diminish this preference, which retroacts to the date of the annotation of
the notice of lis pendens and the adverse claim.[51] Thus, respondents failure to
register the real estate mortgage[52] prior to these annotations, resulted in the
mortgage being binding only between it and the mortgagor, Sulit. Petitioners,
being third parties to the mortgage, were not bound by it. [53] Contrary to
respondents claim that petitioners were in bad faith because they already had
knowledge of the existence of the mortgage in favor of respondent when they
caused the aforesaid annotations, petitioner Edilberto Cruz said that they only
knew of this mortgage when respondent intervened in the RTC proceedings. [54]
On the question of who has a preferential right over the property, the longstanding rule, as provided by Article 2085[55] of the Civil Code,[56] is that only the
absolute owner of the property can constitute a valid mortgage on it. In case of
foreclosure, a sale would result in the transmission only of whatever rights the
seller had over of the thing sold.[57]
In the instant case, the two Deeds of Sale were absolutely simulated; hence,
null and void.[58] Thus, they did not convey any rights that could ripen into valid
titles.[59] Necessarily, the subsequent real estate mortgage constituted by Sulit in
favor of respondent was also null and void, because the former was not the owner

thereof. There being no valid real estate mortgage, there could also be no valid
foreclosure or valid auction sale, either. At bottom, respondent cannot be
considered either as a mortgagee or as a purchaser in good faith. This being so,
petitioners would be in the same position as they were before they executed the
simulated Deed of Sale in favor of Sanchez. They are still the owners of the
property.[60]
WHEREFORE,
the
Petition
is GRANTED and the
assailed
Decision SET
ASIDE. The Decision of the RTC of Bulacan, (Branch 21) dated January 25, 1996
is REINSTATED. No costs.
SO ORDERED.

FIRST DIVISION

SPOUSES JOSE and MILAGROS

G.R. No. 169055

VILLACERAN and FAR EAST

BANK & TRUST COMPANY,

Present:

Petitioners,
CORONA, C.J.,
Chairperson,
LEONARDO-DE CASTRO,
- versus -

BERSAMIN,
VILLARAMA, JR., and
PERLAS-BERNABE,* JJ.

JOSEPHINE DE GUZMAN,

Promulgated:

Respondent.
February 22, 2012
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

VILLARAMA, JR., J.:

Before us is a petition for review on certiorari assailing the November 26, 2004
Decision[1] and June 29, 2005 Resolution[2] of the Court of Appeals (CA) in CA-G.R.
CV No. 71831. The CA had affirmed with modification the Decision[3] of the
Regional Trial Court (RTC), Branch 24, of Echague, Isabela, in Civil Case No. 240495 entitled Josephine De Guzman vs. Spouses Jose and Milagros Villaceran, et
al.
The antecedent facts follow:
Josephine De Guzman filed a Complaint [4] with the RTC of Echague, Isabela
against the spouses Jose and Milagros Villaceran and Far East Bank & Trust
Company (FEBTC), Santiago City Branch, for declaration of nullity of sale,
reconveyance,

redemption

of

mortgage

and

damages

with

preliminary

injunction. The complaint was later amended to include annulment of foreclosure

and Sheriffs Certificate of Sale.
In her Amended Complaint, [5] De Guzman alleged that she is the registered
owner of a parcel of land covered by Transfer Certificate of Title (TCT) No. T236168,[6]located in Echague, Isabela, having an area of 971 square meters and
described as Lot 8412-B of the Subdivision Plan Psd-93948. On April 17, 1995, she
mortgaged the lot to the Philippine National Bank (PNB) of Santiago City to
secure a loan of P600,000. In order to secure a bigger loan to finance a business
venture, De Guzman asked Milagros Villaceran to obtain an additional loan on her
behalf. She executed a Special Power of Attorney in favor of Milagros. Considering
De Guzmans unsatisfactory loan record with the PNB, Milagros suggested that the
title of the property be transferred to her and Jose Villaceran and they would
obtain a bigger loan as they have a credit line of up toP5,000,000 with the bank.
On June 19, 1996, De Guzman executed a simulated Deed of Absolute
Sale[7] in favor of the spouses Villaceran. On the same day, they went to the PNB
and

paid

the

amount

of P721,891.67

using

the

money

of

the

spouses

Villaceran. The spouses Villaceran registered the Deed of Sale and secured TCT
No. T-257416[8] in their names.Thereafter, they mortgaged the property with
FEBTC Santiago City to secure a loan of P1,485,000. However, the spouses

Villaceran concealed the loan release from De Guzman.Later, when De Guzman

learned of the loan release, she asked for the loan proceeds less the amount
advanced by the spouses Villaceran to pay the PNB loan. However, the spouses
Villaceran refused to give the money stating that they are already the registered
owners of the property and that they would reconvey the property to De Guzman
once she returns the P721,891.67 they paid to PNB.[9]
De Guzman offered to pay P350,000 provided that the spouses Villaceran
would execute a deed of reconveyance of the property. In view of the simulated
character of their transaction, the spouses Villaceran executed a Deed of Absolute
Sale[10] dated September 6, 1996 in favor of De Guzman. They also promised to
pay their mortgage debt with FEBTC to avoid exposing the property to possible
foreclosure and auction sale. However, the spouses Villaceran failed to settle the
loan and subsequently the property was extrajudicially foreclosed. A Sheriffs
Certificate of Sale was issued in favor of FEBTC for the amount of P3,594,000. De
Guzman asserted that the spouses Villaceran should be compelled to redeem their
mortgage so as not to prejudice her as the real owner of the property. [11]
On the other hand, the spouses Villaceran and FEBTC, in their Amended Answer,
[12]

averred that in 1996 De Guzman was introduced to Milagros by a certain Digna

Maranan.Not long afterwards, De Guzman requested Milagros to help her relative

who had a loan obligation with the PNB in the amount of P300,000. As a
consideration for the accommodation, De Guzman would convey her property
located at Maligaya, Echague, Isabela which was then being held in trust by her
cousin, Raul Sison. Because of this agreement, Milagros paid De Guzmans
obligation with the PNB in the amount of P300,000.
When Milagros asked for the title of the lot, De Guzman explained that her cousin
would not part with the property unless he is reimbursed the amount of P200,000
representing the amount he spent tilling the land. Milagros advanced the amount
of P200,000 but De Guzmans cousin still refused to reconvey the property. In
order for De Guzman to settle her obligation, she offered to sell her house and lot
in Echague, Isabela. At first, Milagros signified her non-interest in acquiring the
same

because

she

knew

that

it

was

mortgaged

with the

PNB Santiago

for P600,000. De Guzman proposed that they will just secure a bigger loan from
another bank using her house and lot as security. The additional amount will be

used in settling De Guzmans obligation with PNB. Later, De Guzman proposed that
she borrow an additional amount from Milagros which she will use to settle her
loan with PNB. To this request, Milagros acceded. Hence, they went to the PNB
and paid in full De Guzmans outstanding obligation with PNB which already
reached P880,000.[13]
Since De Guzmans total obligation already reached P1,380,000, the spouses
Villaceran requested her to execute a deed of absolute sale over the subject
property in their favor.Thus, the Deed of Absolute Sale is supported by a valuable
consideration, and the spouses Villaceran became the lawful owners of the
property as evidenced by TCT No. 257416 issued by the Office of the Register of
Deeds of Isabela. Later, they mortgaged the property to FEBTC for P1,485,000.
The spouses Villaceran denied having executed a deed of conveyance in favor of
De Guzman relative to the subject property and asserted that the signatures
appearing on the September 6, 1996 Deed of Sale, which purported to sell the
subject property back to De Guzman, are not genuine but mere forgeries. [14]
After due proceedings, the trial court rendered its decision on September 27,
2000.
The RTC ruled that the Deed of Sale dated June 19, 1996 executed by De Guzman
in favor of the spouses Villaceran covering the property located in Echague,
Isabela was valid and binding on the parties. The RTC ruled that the said contract
was a relatively simulated contract, simulated only as to the purchase price, but
nonetheless binding upon the parties insofar as their true agreement is
concerned. The RTC ruled that De Guzman executed the Deed of Absolute Sale
dated June 19, 1996 so that the spouses Villaceran may use the property located
in Echague, Isabela as collateral for a loan in view of De Guzmans need for
additional capital to finance her business venture. The true consideration for the
sale, according to the RTC, was the P300,000 the spouses Villaceran gave to De
Guzman plus the P721,891.67 they paid to PNB in order that the title to the
subject property may be released and used to secure a bigger loan in another
bank.

The RTC also found that although the spouses Villaceran had already mortgaged
the subject property with FEBTC and the title was already in the possession of
FEBTC -- which facts were known to De Guzman who even knew that the loan
proceeds amounting to P1,485,000 had been released -- the spouses Villaceran
were nonetheless still able to convince De Guzman that they could still reconvey
the subject property to her if she pays the amount they had paid to PNB. The RTC
found that the Deed of Sale dated September 6, 1996 was actually signed by the
spouses Villaceran although De Guzman was able to pay only P350,000, which
amount was stated in said deed of sale as the purchase price. The RTC
additionally said that the spouses Villaceran deceived De Guzman when the
spouses Villaceran mortgaged the subject property with the understanding that
the proceeds would go to De Guzman less the amounts the spouses had paid to
PNB. Hence, according to the RTC, the spouses Villaceran should return to De
Guzman (1) the P350,000 which she paid to them in consideration of the
September 6, 1996 Deed of Sale, which sale did not materialize because the title
was in the possession of FEBTC; and (2) the amount of P763,108.33 which is the
net proceeds of the loan after deducting the P721,891.67 that the spouses paid to
PNB. Thus, the decretal portion of the RTC decision reads:
WHEREFORE, judgment is hereby rendered as follows:
a) declaring the Deed of Sale, dated June 1996 (Exhibit B) as
valid and binding;
b) ordering defendants Villaceran to pay to plaintiff the amount of
P763,108.33 and P350,000.00 or the total amount of P1,113,108.33
plus the legal rate of interest starting from the date of the filing of
this case;
c) declaring the Extrajudicial Foreclosure and the Certificate of Sale
as valid;
d) ordering defendants Villaceran to pay attorneys fees in the
amount of P20,000.00 and to pay the costs of suit.
SO ORDERED.[15]

Aggrieved, the spouses Villaceran appealed to the CA arguing that the trial court
erred in declaring the June 19, 1996 Deed of Sale as a simulated contract and
ordering them to pay De Guzman P1,113,108.33 plus legal rate of interest and
attorneys fees.[16]

On November 26, 2004, the CA rendered its Decision, the dispositive

portion of which reads as follows:
IN VIEW OF ALL THE FOREGOING, the judgment appealed from is
hereby AFFIRMED with MODIFICATION, to read as follows:
WHEREFORE, judgment is hereby rendered as follows:
1. Declaring the Deed of Sale dated June 16, 1996 (Exh. B)
September 6, 1996, as not reflective of the true intention of
parties, as the same were merely executed for the purpose of
loan accommodation in favor of the plaintiff-appellee by
defendants-appellants;

and
the
the
the

2. Ordering defendants-appellants Villaceran to pay plaintiff-appellee

the
difference
between
the FEBTC loan
of P1,485,000.00
less P721,891.67 (used to redeem the PNB loan), plus legal interest
thereon starting from the date of the filing of this case;
3. Declaring the extrajudicial foreclosure and certificate of sale in
favor of FEBTC, as valid; and
4. For the appellants to pay the costs of the suit.
SO ORDERED.[17]

The CA ruled that the RTC was correct in declaring that there was relative
simulation of contract because the deeds of sale did not reflect the true intention
of the parties. It found that the evidence established that the documents were
executed for the purpose of an agency to secure a higher loan whereby the
spouses Villaceran only accommodated De Guzman. However, the CA did not find
any evidence to prove that De Guzman actually parted away with the P350,000 as
consideration of the reconveyance of the property.Thus, it held the trial court
erred in ordering the spouses Villaceran to return the P350,000 to De Guzman.
Furthermore, the CA observed that the spouses Villaceran were the ones
who redeemed the property from the mortgage with PNB by paying P721,891.67
so that De Guzmans title could be released. Once registered in their name, the
spouses Villaceran mortgaged the property with FEBTC for P1,485,000. With the
loan proceeds ofP1,485,000, there was no need for the spouses Villaceran
to demand for the return of the P721,891.67 they paid in releasing the PNB loan
before the property is reconveyed to De Guzman. All they had to do was to deduct

the amount of P721,891.67 from the P1,485,000 FEBTC loan proceeds. Hence, the
CA ruled that only the balance of the P1,485,000 loan proceeds from FEBTC minus
the P721,891.67 used to redeem the PNB loan should be paid by the spouses
Villaceran to De Guzman. The CA also deleted the grant of attorneys fees for lack
of factual, legal or equitable justification.
On

December

22,

2004,

the

spouses

Villaceran

filed

motion

for

reconsideration of the foregoing decision. Said motion, however, was denied for
lack of merit by the CA in its Resolution dated June 29, 2005. Hence, this appeal.
In their petition for review on certiorari, the spouses Villaceran allege that:
1.
THE RESPONDENT COURT OF APPEALS ERRED AND
GRAVELY ABUSED ITS DISCRETION IN DECLARING THE DEED OF SALE
DATED JUNE 19, 1996 AS SIMULATED AND THAT THE SAME WAS
MERELY EXECUTED FOR THE PURPOSE OF THE LOAN ACCOMODATION
OF PETITIONERS VILLACERAN IN FAVOR OF THE RESPONDENT DE
GUZMAN INSTEAD OF DECLARING SAID DEED AS A VALID DEED OF
ABSOLUTE SALE, THE CONTENTS OF WHICH ARE CLEARLY REFLECTIVE
OF THEIR TRUE INTENTION TO ENTER INTO A CONTRACT OF SALE AND
NOT OTHERWISE, IN DIRECT CONTRAVENTION OF THE RULES ON
EVIDENCE AND OF THE ADMISSIONS OF THE PARTIES AND THE
HONORABLE COURTS RULINGS OR JURISPRUDENCE ON THE MATTER;
AND
2.
THE RESPONDENT COURT OF APPEALS ERRED AND
GRAVELY ABUSED ITS DISCRETION IN ORDERING PETITIONERS
VILLACERAN TO PAY RESPONDENT DE GUZMAN THE DIFFERENCE
BETWEEN THE FAR EAST BANK AND TRUST COMPANY (FEBTC) LOAN
OF PHP1,485,000.00 LESS P721,891.67 (USED TO PAY THE PHILIPPINE
NATIONAL BANK [PNB] LOAN) PLUS LEGAL INTEREST THEREON AND
TO PAY THE COSTS OF SUIT.[18]

Essentially, the issue for our resolution is whether the CA erred in ruling
that the Deed of Sale dated June 19, 1996 is a simulated contract and not a true
sale of the subject property.
Petitioners contend that the previous loans they extended to De Guzman in
the amounts of P300,000, P600,000 and P200,000 should have been considered
by the CA.When added to the P721,891.67 used to settle the PNB loan, De
Guzmans total loan obtained from them would amount to P1,821,891.67. Thus, it

would clearly show that the Deed of Sale dated June 19, 1996, being supported by
a valuable consideration, is not a simulated contract.
We do not agree.
Article 1345[19] of the Civil Code provides that the simulation of a contract may
either be absolute or relative. In absolute simulation, there is a colorable contract
but it has no substance as the parties have no intention to be bound by it. The
main characteristic of an absolute simulation is that the apparent contract is not
really desired or intended to produce legal effect or in any way alter the juridical
situation of the parties.[20] As a result, an absolutely simulated or fictitious
contract is void, and the parties may recover from each other what they may have
given under the contract. However, if the parties state a false cause in the
contract to conceal their real agreement, the contract is only relatively simulated
and the parties are still bound by their real agreement. Hence, where the
essential requisites of a contract are present and the simulation refers only to the
content or terms of the contract, the agreement is absolutely binding and
enforceable between the parties and their successors in interest. [21]
The primary consideration in determining the true nature of a contract is
the intention of the parties. If the words of a contract appear to contravene the
evident intention of the parties, the latter shall prevail. Such intention is
determined not only from the express terms of their agreement, but also from the
contemporaneous and subsequent acts of the parties. [22] In the case at bar, there
is a relative simulation of contract as the Deed of Absolute Sale dated June 19,
1996 executed by De Guzman in favor of petitioners did not reflect the true
intention of the parties.
It is worthy to note that both the RTC and the CA found that the evidence
established that the aforesaid document of sale was executed only to enable
petitioners to use the property as collateral for a bigger loan, by way of
accommodating De Guzman. Thus, the parties have agreed to transfer title over
the property in the name of petitioners who had a good credit line with the
bank. The CA found it inconceivable for De Guzman to sell the property
for P75,000 as stated in the June 19, 1996 Deed of Sale when petitioners were
able to mortgage the property with FEBTC for P1,485,000. Another indication of

the lack of intention to sell the property is when a few months later, on
September 6, 1996, the same property, this time already registered in the name
of petitioners, was reconveyed to De Guzman allegedly for P350,000.
As regards petitioners assertion that De Guzmans previous loans should
have been considered to prove that there was an actual sale, the Court finds the
same to be without merit. Petitioners failed to present any evidence to prove that
they indeed extended loans to De Guzman in the amounts of P300,000, P600,000
and P200,000. We note that petitioners tried to explain that on account of their
close friendship and trust, they did not ask for any promissory note, receipts or
documents to evidence the loan. But in view of the substantial amounts of the
loans, they should have been duly covered by receipts or any document
evidencing the transaction. Consequently, no error was committed by the CA in
holding that the June 19, 1996 Deed of Absolute Sale was a simulated contract.
The issue of the genuineness of a deed of sale is essentially a question of
fact. It is settled that this Court is not duty-bound to analyze and weigh again the
evidence considered in the proceedings below. This is especially true where the
trial courts factual findings are adopted and affirmed by the CA as in the present
case. Factual findings of the trial court, affirmed by the CA, are final and
conclusive and may not be reviewed on appeal. [23]
The Court has time and again ruled that conclusions and findings of fact of
the trial court are entitled to great weight and should not be disturbed on appeal,
unless strong and cogent reasons dictate otherwise. This is because the trial
court is in a better position to examine the real evidence, as well as to observe
the demeanor of the witnesses while testifying in the case. [24] In sum, the Court
finds that there exists no reason to disturb the findings of the CA.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated
November 26, 2004 and Resolution dated June 29, 2005 of the Court of Appeals in
CA-G.R. CV No. 71831 are AFFIRMED.
With costs against the petitioners.
SO ORDERED.

SECOND DIVISION
GAUDENCIO VALERIO for himself G.R. No. 163687
and as attorney-in-fact of BIENVENIDO
VALERIO, CONRADO VALERIO,
DIONISIO VALERIO, EFEPANIA Present:
VALERIO and CARLOTA DE
LEON VALENZUELA, PUNO, J., Chairman,
Petitioners, SANDOVAL-GUTIERREZ, CORONA,
- versus - AZCUNA, and
GARCIA, JJ.
VICENTA REFRESCA, MARIANO[1]
REFRESCA, DOMINGO REFRESCA,
REMEDIOS REFRESCA, OLY Promulgated:
REFRESCA, LALET REFRESCA
and BENITO REFRESCA,
Respondents. March 28, 2006
x-----------------------------------x
DECISION
PUNO, J.:

Narciso Valerio, married to Nieves Valerio, owned two (2) adjacent agricultural
lots in Calamba, Laguna, with a total area of 6.5 hectares. One of these
lots, Lot 428, was a four-hectare land. A portion thereof, consisting of 511 sq. m.
and known as Lot 428-A, is the subject of the petition in the case at bar.
It

is

undisputed

that

and Vicenta Refresca started

as

early

cultivating

as
the

1963,

spouses

6.5-hectare

land

as

Alejandro
tenants. In

1968, Narciso Valerio acquired ownership over the land. The tenancy relations
between

the Valerios and Refrescas were

established

and

their

harmonious

relations continued uninterrupted. In 1974, the Valerios entered into a leasehold

contract[2] with tenant Alejandro Refresca whereby the latter was allowed to
continue tilling the 6.5-hectare land in exchange for fixed rentals.
On February 10, 1975, Narciso Valerio, with the consent of his wife Nieves,
executed a Deed of Sale whereby he sold his 6.5-hectare landholding to his heirs,
namely: Susana de Leon, Leslie de Leon, petitioners Carlota de Leon Valenzuela,
and Bienvenido, Dionisio, Conrado, Gaudencio,

and Efepania,

all

surnamed Valerio. Narcisolikewise conveyed 511 sq. m. of his landholding, known

as Lot 428-A, in favor of his tenant Alejandro Refresca in recognition of his long
service

and

cultivation

of

the

subject

land. On February

15,

1975, Narciso Valerio died.

On December 13, 1982, the parties to the Deed of Sale, as co-owners, subdivided
the 6.5-hectare land and executed a Deed of Agreement of Subdivision. [3] The
same 511 sq. m. of land was granted to tenant Alejandro Refresca. Individual
titles over the apportioned areas were subsequently issued to the vendees.
Nieves Valerio, widow of Narciso, entered into another leasehold agreement with
the Refrescas over the 6.5-hectare landholding for the period 1984-1985 in
exchange for the latters payment of rentals.
On March

4,

1987,

petitioners

mother,

Nieves Valerio,

died.

After

tenant

Alejandros demise in 1994, his widow, respondent Vicenta Refresca, succeeded

him by operation of law in tilling the land.
Thereafter, petitioners demanded that the respondents vacate the land. They
alleged that the 511 sq. m. lot was given to the respondents on the condition that
they will surrender their tenancy rights over the entire land but respondents
failed to do so. In 1995, the Department of Agrarian Reform (DAR), Legal Division,
in

Sta.

Cruz,

Laguna,

issued

Resolution

recognizing

the

right

of

respondent Vicenta Refresca, widow of tenant Alejandro, to continue her peaceful

possession and cultivation of the 6.5-hectare land.
In 1998, despite the DAR ruling, petitioners sent a demand letter to respondents
to vacate the land. Respondents refused. Petitioners filed a complaint [4] before
the Regional Trial Court (RTC) of Calamba, Laguna, against respondents -- widow
and children of Alejandro Refresca -- for the annulment of documents of transfer
and title of Alejandro. They alleged that the cause or consideration for the
transfer

of

the

511

sq.

m.

lot

to

the Refrescas was

an

agreement

between Narciso and Alejandro that conveyance of said portion would serve as
disturbance compensation in favor of the latter, i.e., the 511 sq. m. lot was
granted to the Refrescas in exchange for the surrender of their tenancy rights
over the entire 6.5-hectare land; that Alejandro allegedly obliged himself to
return the 6.5-hectare land he was tilling as a tenant; that Alejandro failed to

fulfill his promise and instead continued to till the land until his death; that
respondents succeeded in cultivating the entire land; that as the cause for the
cession of the land was not complied with, the transfer of the 511 sq. m. lot to
Alejandro should be declared void as a contract without cause or consideration
produced no effect.
In their Answer,[5] respondents maintained that the 511 sq. m. lot was granted
by Narciso to

tenant

Alejandro

as

a homelot due

to

the

generosity

of

the Valerio spouses with whom they had always maintained good relations; that
the lot was given to them in recognition of their long years of cultivating the
land; that in the 1975 Deed of Sale, Narcisoapportioned his 6.5-hectare land
among petitioners as his heirs and Alejandro Refresca as his tenant; that as coowners, petitioners and Alejandro subdivided the land in order that separate
titles may be issued to them; that, thereafter, respondent Vicenta succeeded her
husband in tilling the 6.5-hectare land; that as tenant, she paid lease rentals to
petitioners who initially accepted them; and, that upon the death of petitioners
mother, Nieves Valerio, petitioners demanded the Refrescas to return the 511 sq.
m. land as the former intended to sell the entire land which shall then be
converted

to

commercial

use. Respondents

likewise

invoked

prescription

and estoppel in their defense.

At the pre-trial conference, the parties stipulated that the transfer of the 511 sq.
m. lot to Alejandro was without monetary consideration. At the trial, petitioners
themselves admitted that they did not pay monetary consideration for the
transfer of the specific portions of the land to them.
After the trial, the RTC ruled in favor of petitioners.[6] It held that as the
Deed of Sale executed by Narciso Valerio is absolutely simulated or fictitious and,
as both parties were in pari delicto, petitioners could not demand the surrender
of the 511 sq. m. lot nor could respondents retain possession thereof. The RTC
ordered

that

the

511

sq.

m.

lot

be

reverted

to

the

estate

of

deceased Valerio spouses. The dispositive portion reads:

ACCORDINGLY, judgment is hereby rendered as follows:
a)

the Deed of Absolute Sale and its resultant document,

the Deed of Agreement of Subdivision[,] are hereby
declared null and void and with no further force and effect;

the

b)

Transfer Certificate of Title No. T-151186 covering lot

no. 428 of the Calamba Friar Land Estate with an area of
five hundred eleven (511) square meters issued in the name
of
Alejandro Refresca married
to Vicenta Refresca is
likewise declared null and void;

c)

the said 511[-]square meter lot is ordered reverted to the

estate of the deceased Narciso Valerio and Nieves Valerio.

The prayer for damages by the plaintiffs and the counterclaim

interposed by defendants are likewise ordered DISMISSED for lack of
merit.
With costs against plaintiffs and defendants.
SO ORDERED.[7]

On appeal, the Court of Appeals reversed the decision of the RTC. It ruled that the
Deed of Sale was not absolutely, but relatively simulated as the parties intended
to be bound by it. On the issue of consideration, the Court of Appeals held that
although the Deed of Sale was not supported by monetary consideration, a cause
exists although the parties could not agree on what it was, i.e., while petitioners
maintained that the lot was granted to Alejandro in exchange for his tenancy
rights, respondents claimed that the lot was granted to them out of the
generosity of the Valerio spouses. It also ruled that the remedy of petitioners for
breach of contract was to either ask for rescission of the sale or specific
performance within ten (10) years from the alleged breach of contract. However,
as petitioners action was filed thirteen (13) years after the alleged breach, their
present

action

has

prescribed. In

any

case,

it

ruled

that

petitioners

were estopped from assailing the deed of sale after they have agreed to
subdivide the land as co-owners, thus acknowledging its provision transferring
ownership of the 511 sq. m. lot to respondents.[8]
In this appeal, petitioners impugn the Decision of the Court of Appeals on the
following grounds:
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN NOT HOLDING
[THAT] THE AGREEMENT DATED FEBRUARY 10, 1975 BY AND BETWEEN
NARCISO VALERIO AND ALEJANDRO REFRESCA [IS] ABSOLUTELY
SIMULATED AND FICTITIOUS.
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN DECLARING
THAT PETITIONERS ACTION [HAS] ALREADY PRESCRIBED.

On the first issue, petitioners contend the 1975 Deed of Sale between Narciso and
Alejandro is absolutely simulated or fictitious and produced no legal effect as
there was no monetary consideration involved.[9] Petitioners further argue that as
the Deed of Sale is void, it cannot be ratified by the subsequent execution of a
deed of partition among the parties.
Petitioners arguments fail to impress.
Article 1345 of the Civil Code[10] provides that the simulation of a contract may
either be absolute or relative. In absolute simulation, there is a colorable contract
but it has no substance as the parties have no intention to be bound by it. The
main characteristic of an absolute simulation is that the apparent contract is not
really desired or intended to produce legal effect or in any way alter the juridical
situation of the parties.[11] As a result, an absolutely simulated or fictitious
contract is void, and the parties may recover from each other what they may have
given under the contract. However, if the parties state a false cause in the
contract to conceal their real agreement, the contract is relatively simulated and
the parties are still bound by their real agreement. Hence, where the essential
requisites of a contract are present and the simulation refers only to the content
or terms of the contract, the agreement is absolutely binding and enforceable
between the parties and their successors in interest. [12]
In the case at bar, the records reveal that the clear intent of Narciso Valerio in
executing the 1975 Deed of Sale was to transfer ownership of the apportioned
areas of his 6.5-hectare land to petitioners as his heirs and to his tenant
Alejandro. Although

no

monetary

consideration

was

received

by

landowner Narciso from any of the vendees, it cannot be said that the contract
was not supported by a cause or consideration or that Narciso never intended to
transfer ownership thereof.
Indeed, the primary consideration in determining the true nature of a contract is
the intention of the parties. If the words of a contract appear to contravene the
evident intention of the parties, the latter shall prevail. Such intention is
determined not only from the express terms of their agreement, but also from the
contemporaneous and subsequent acts of the parties. [13] In the case at bar, the
circumstances reveal that when landowner Narciso executed the 1975 Deed of
Sale, he intended to transfer ownership of his entire 6.5-hectare landholding and

apportion the area among Alejandro and the petitioners. Neither he nor his wife,
during their lifetime, exerted effort to evict respondents when the latter allegedly
failed to comply with the condition to surrender their tenancy rights after the
sale. That petitioners and tenant Alejandro then took possession of their
respective portions of the land additionally shows that Narciso divested himself of
his title and control over the property. Truly, one of the most striking badges of
absolute simulation is the complete absence of any attempt on the part of a
vendee to assert his right of dominion over the property. [14] In the case at bar,
petitioners and respondents were not amiss in claiming their right over their
respective lots.
Petitioners urge that the transfer of the lot to Alejandro was subject to the
condition that the latter shall waive his tenancy rights over the 6.5-hectare
land. They now impugn the transfer of ownership as the Refrescas allegedly failed
to abide by the condition. Respondents, on the other hand, assert that it was
generosity

that

motivated Narcisoto

cede

the

511

sq.

m.

land

to

Alejandro Refresca, as an acknowledgment of his long years of cultivating the

land as tenant. As the contract is one of pure beneficence, the respondents
contend

that

the

cause

or

consideration therefor is

the

liberality

of

the

benefactor Narciso Valerio.

We find that the transfer of the lot to petitioners and Alejandro is
supported by a cause or consideration. If, as alleged by petitioners, the transfer
was conditioned on the surrender of respondents of their tenancy rights, said
condition is the consideration for the contract. If no such condition was imposed
by Narciso prior to the execution of the deed of sale, the cause for the transfer of
the lot to Alejandro is clearly the liberality or generosity of landowner Narciso. In
either case, we agree with the ruling of the Court of Appeals that there was a
cause or consideration for the transfer of the land although the parties cannot
agree on what it is.
On the issue of consideration, the Court is more inclined to give credence to
respondents

claim

that

the

cause

of

the

contract

is

the

generosity

of Narciso Valerio who intended to divest himself of ownership over the land. The
alleged condition imposed by Narciso on respondents, i.e., for the latter to
surrender their tenancy rights in exchange for the transfer of the 511 sq. m. lot to
them, is belied by the records. Respondents testified that no such condition

attached to the transfer as after the execution of the Deed of Sale and even after
Alejandros death, respondents were allowed to continue cultivating the entire
land

as

tenants. The

NievesValerio,

widow

records

show

of Narciso,

that

executed

after
a

the

1975

leasehold

Deed

of

Sale,

contract

in

favor

of Vicenta Refresca, widow of Alejandro, allowing her to continue tilling the land
in exchange for payment of the rentals. In fact, the tenancy right of the
respondents to succeed Alejandro in tilling the land has been recognized by the
DAR. Petitioners themselves admitted that Narcisotransferred ownership of the
511 sq. m. land to Alejandro and the other apportioned lots to them out of the
liberality of Narciso as neither the petitioners nor Alejandro paid monetary
consideration therefor.[15] Clearly, Narciso was motivated by generosity when he
divested himself of ownership over the land. This was the true intent of the
parties although they tried to conceal it with the execution of a deed of sale,
when the contract is in reality one of donation inter vivos.
We likewise agree with the findings of the Court of Appeals that petitioners
are estopped in impugning the sale as they overtly recognized the validity of the
transfer of the apportioned lot to tenant Alejandro. Indeed, subsequent to the
execution of the Deed of Sale, petitioners and Alejandro, as co-owners, voluntarily
partitioned the 6.5-hectare lot which became the basis for the issuance of
separate titles in their names.[16] By this explicit act, petitioners clearly intended
to be bound by the 1975 Deed of Sale which transferred the subdivided lots to
each of the parties.
Thus, we rule that the 1975 Deed of Sale between the parties is a relatively
simulated contract as the clear intent was to transfer ownership over the
land. Hence, the contract binds the parties to their true agreement, i.e., to cause
the

transfer

of

the

specific

apportioned

areas

to

Alejandro

and

petitioners. Petitioners failed to discharge the burden of proving their allegation

that the 1975 Deed of Sale is a void contract for being absolutely simulated.
As this Court has ruled on the validity of the 1975 Deed of Sale, we find no
reason to pass upon the issue of prescription raised by petitioners.
IN VIEW WHEREOF, the petition is dismissed. No pronouncement as to costs.
SO ORDERED.

3. Object (Arts. 1347-1349)

OBJECT OF CONTRACTS
Art. 1347. All things which are not outside the commerce of men, including future
things, may be the object of a contract. All rights which are not in transmissible
may also be the object of contracts.
No contract may be entered into upon future inheritance except in cases
expressly authorized by law.
All services which are not contrary to law, morals, good customs, public order or
public policy may likewise be the object of a contract.
Art. 1348. Impossible things or services cannot be the object of contracts.
Art. 1349. The object of every contract must be determinate as to its kind. The
fact that the quantity is not determinate shall not be obstacle to the existence of
the contract, provided it is possible to determine the same, without the need of a
new contract between the parties.
Cases:

SECOND DIVISION
[G.R. No. 135634. May 31, 2000]
HEIRS OF JUAN SAN ANDRES (VICTOR S. ZIGA) and SALVACION S.
TRIA, petitioners, vs. VICENTE RODRIGUEZ, respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision of the Court of
Appeals[1] reversing the decision of the Regional Trial Court, Naga City, Branch 19,
in Civil Case No. 87-1335, as well as the appellate courts resolution denying
reconsideration. Slxsc
The antecedent facts are as follows:

Juan San Andres was the registered owner of Lot No. 1914-B-2 situated in Liboton,
Naga City. On September 28, 1964, he sold a portion thereof, consisting of 345
square meters, to respondent Vicente S. Rodriguez for P2,415.00. The sale is
evidenced by a Deed of Sale.[2]
Upon the death of Juan San Andres on May 5, 1965, Ramon San Andres was
appointed judicial administrator of the decedents estate in Special Proceedings
No. R-21, RTC, Branch 19, Naga City. Ramon San Andres engaged the services of a
geodetic engineer, Jose Peero, to prepare a consolidated plan (Exh. A) of the
estate. Engineer Peero also prepared a sketch plan of the 345-square meter lot
sold to respondent. From the result of the survey, it was found that respondent
had enlarged the area which he purchased from the late Juan San Andres by 509
square meters.[3]
Accordingly, the judicial administrator sent a letter, [4] dated July 27, 1987, to
respondent demanding that the latter vacate the portion allegedly encroached by
him. However, respondent refused to do so, claiming he had purchased the same
from the late Juan San Andres. Thereafter, on November 24, 1987, the judicial
administrator brought an action, in behalf of the estate of Juan San Andres, for
recovery of possession of the 509-square meter lot. Slxmis
In his Re-amended Answer filed on February 6, 1989, respondent alleged that
apart from the 345-square meter lot which had been sold to him by Juan San
Andres on September 28, 1964, the latter likewise sold to him the following day
the remaining portion of the lot consisting of 509 square meters, with both
parties treating the two lots as one whole parcel with a total area of 854 square
meters. Respondent alleged that the full payment of the 509-square meter lot
would be effected within five (5) years from the execution of a formal deed of sale
after a survey is conducted over said property. He further alleged that with the
consent of the former owner, Juan San Andres, he took possession of the same
and introduced improvements thereon as early as 1964.
As proof of the sale to him of 509 square meters, respondent attached to his
answer a receipt (Exh. 2)[5] signed by the late Juan San Andres, which reads in full
as follows: Missdaa
Received from Vicente Rodriguez the sum of Five Hundred (P500.00)
Pesos representing an advance payment for a residential lot
adjoining his previously paid lot on three sides excepting on the
frontage with the agreed price of Fifteen (15.00) Pesos per square
meter and the payment of the full consideration based on a survey
shall be due and payable in five (5) years period from the execution
of the formal deed of sale; and it is agreed that the expenses of
survey and its approval by the Bureau of Lands shall be borne by Mr.
Rodriguez.
Naga City, September 29, 1964.
(Sgd.)
JUAN
R.
SAN

ANDR
ES
Vendo
r
Noted:
(Sgd.)
VICENTE RODRIGUEZ
Vendee
Respondent also attached to his answer a letter of judicial administrator Ramon
San Andres (Exh. 3),[6] asking payment of the balance of the purchase price. The
letter reads:
Dear Inting,
Please accommodate my request for Three Hundred (P300.00) Pesos
as I am in need of funds as I intimated to you the other day.
We will just adjust it with whatever balance you have payable to the
subdivision.
Thanks.
Sincer
ely,
(Sgd.)
RAMO
N SAN
ANDR
ES
Vicente Rodriguez
Penafrancia Subdivision, Naga City
P.S.
You can let bearer Enrique del Castillo sign for the amount.
Received One Hundred Only
(Sgd.)

RAMO
N SAN
ANDR
ES
3/30/6
6
Respondent deposited in court the balance of the purchase price amounting to
P7,035.00 for the aforesaid 509-square meter lot. Sdaadsc
While the proceedings were pending, judicial administrator Ramon San Andres
died and was substituted by his son Ricardo San Andres. On the other hand,
respondent Vicente Rodriguez died on August 15, 1989 and was substituted by his
heirs.[7]
Petitioner, as plaintiff, presented two witnesses. The first witness, Engr. Jose
Peero,[8] testified that based on his survey conducted sometime between 1982
and 1985, respondent had enlarged the area which he purchased from the late
Juan San Andres by 509 square meters belonging to the latters estate. According
to Peero, the titled property (Exh. A-5) of respondent was enclosed with a fence
with metal holes and barbed wire, while the expanded area was fenced with
barbed wire and bamboo and light materials. Rtcspped
The second witness, Ricardo San Andres,[9] administrator of the estate, testified
that respondent had not filed any claim before Special Proceedings No. R-21 and
denied knowledge of Exhibits 2 and 3. However, he recognized the signature in
Exhibit 3 as similar to that of the former administrator, Ramon San Andres.
Finally, he declared that the expanded portion occupied by the family of
respondent is now enclosed with barbed wire fence unlike before where it was
found without fence.
On the other hand, Bibiana B. Rodriguez,[10] widow of respondent Vicente
Rodriguez, testified that they had purchased the subject lot from Juan San
Andres, who was their compadre, on September 29, 1964, at P15.00 per square
meter. According to her, they gave P500.00 to the late Juan San Andres who later
affixed his signature to Exhibit 2. She added that on March 30, 1966, Ramon San
Andres wrote them a letter asking for P300.00 as partial payment for the subject
lot, but they were able to give him only P100.00. She added that they had paid
the total purchase price of P7,035.00 on November 21, 1988 by depositing it in
court. Bibiana B. Rodriquez stated that they had been in possession of the 509square meter lot since 1964 when the late Juan San Andres signed the receipt.
(Exh. 2) Lastly, she testified that they did not know at that time the exact area
sold to them because they were told that the same would be known after the
survey of the subject lot. Korte
On September 20, 1994, the trial court[11] rendered judgment in favor of
petitioner. It ruled that there was no contract of sale to speak of for lack of a valid
object because there was no sufficient indication in Exhibit 2 to identify the
property subject of the sale, hence, the need to execute a new contract.
Respondent appealed to the Court of Appeals, which on April 21, 1998 rendered a
decision reversing the decision of the trial court. The appellate court held that the
object of the contract was determinable, and that there was a conditional sale

with the balance of the purchase price payable within five years from the
execution of the deed of sale. The dispositive portion of its decisions reads:
IN VIEW OF ALL THE FOREGOING, the judgment appealed from is
hereby REVERSED and SET ASIDE and a new one entered DISMISSING
the complaint and rendering judgment against the plaintiff-appellee:
1. to accept the P7,035.00 representing the balance of the purchase
price of the portion and which is deposited in court under Official
Receipt No. 105754 (page 122, Records);
2. to execute the formal deed of sale over the said 509 square meter
portion of Lot 1914-B-2 in favor of appellant Vicente Rodriguez;
3. to pay the defendant-appellant the amount of P50,000.00 as
damages and P10,000.00 attorneys fees as stipulated by them during
the trial of this case; and
4. to pay the costs of the suit.
SO ORDERED.
Hence, this petition. Petitioner assigns the following errors as having been
allegedly committed by the trial court: Sclaw
I.THE HON. COURT OF APPEALS ERRED IN HOLDING THAT THE
DOCUMENT (EXHIBIT "2") IS A CONTRACT TO SELL DESPITE ITS
LACKING ONE OF THE ESSENTIAL ELEMENTS OF A CONTRACT, NAMELY,
OBJECT CERTAIN AND SUFFICIENTLY DESCRIBED.
II.THE HON. COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER
IS OBLIGED TO HONOR THE PURPORTED CONTRACT TO SELL DESPITE
NON-FULFILLMENT BY RESPONDENT OF THE CONDITION THEREIN OF
PAYMENT OF THE BALANCE OF THE PURCHASE PRICE.
III.THE HON. COURT OF APPEALS ERRED IN HOLDING THAT
CONSIGNATION WAS VALID DESPITE NON-COMPLIANCE WITH THE
MANDATORY REQUIREMENTS THEREOF.
IV.THE HON. COURT OF APPEALS ERRED IN HOLDING THAT LACHES
AND PRESCRIPTION DO NOT APPLY TO RESPONDENT WHO SOUGHT
INDIRECTLY TO ENFORCE THE PURPORTED CONTRACT AFTER THE
LAPSE OF 24 YEARS.
The petition has no merit.
First. Art. 1458 of the Civil Code provides:
By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate
thing, and the other to pay therefor a price certain in money or its
equivalent.

A contract of sale may be absolute or conditional.

As thus defined, the essential elements of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer
ownership in exchange for the price;
b) Determinate subject matter; and,
c) Price certain in money or its equivalent. [12]
As shown in the receipt, dated September 29, 1964, the late Juan San Andres
received P500.00 from respondent as "advance payment for the residential lot
adjoining his previously paid lot on three sides excepting on the frontage;" the
agreed purchase price was P15.00 per square meter; and the full amount of the
purchase price was to be based on the results of a survey and would be due and
payable in five (5) years from the execution of a deed of sale.
Petitioner contends, however, that the "property subject of the sale was not
described with sufficient certainty such that there is a necessity of another
agreement between the parties to finally ascertain the identity, size and purchase
price of the property which is the object of the alleged sale." [13] He argues that the
"quantity of the object is not determinate as in fact a survey is needed to
determine its exact size and the full purchase price therefor." [14] In support of his
contention, petitioner cites the following provisions of the Civil Code: Sclex
Art. 1349. The object of every contract must be determinate as to its
kind. The fact that the quantity is not determinable shall not be an
obstacle to the existence of a contract, provided it is possible to
determine the same without the need of a new contract between the
parties.
Art. 1460 . . . The requisite that a thing be determinate is satisfied if
at the time the contract is entered into, the thing is capable of being
made determinate without the necessity of a new and further
agreement between the parties.
Petitioners contention is without merit. There is no dispute that respondent
purchased a portion of Lot 1914-B-2 consisting of 345 square meters. This portion
is located in the middle of Lot 1914-B-2, which has a total area of 854 square
meters, and is clearly what was referred to in the receipt as the "previously paid
lot." Since the lot subsequently sold to respondent is said to adjoin the
"previously paid lot" on three sides thereof, the subject lot is capable of being
determined without the need of any new contract. The fact that the exact area of
these adjoining residential lots is subject to the result of a survey does not
detract from the fact that they are determinate or determinable. As the Court of
Appeals explained:[15]
Concomitantly, the object of the sale is certain and determinate.
Under Article 1460 of the New Civil Code, a thing sold is determinate
if at the time the contract is entered into, the thing is capable of
being determinate without necessity of a new or further agreement
between the parties. Here, this definition finds realization.

Appellees Exhibit "A" (page 4, Records) affirmingly shows that the

original 345 sq. m. portion earlier sold lies at the middle of Lot 1914B-2 surrounded by the remaining portion of the said Lot 1914-B-2 on
three (3) sides, in the east, in the west and in the north. The
northern boundary is a 12 meter road. Conclusively, therefore, this is
the only remaining 509 sq. m. portion of Lot 1914-B-2 surrounding
the 345 sq. m. lot initially purchased by Rodriguez. It is quite
defined, determinate and certain. Withal, this is the same portion
adjunctively occupied and possessed by Rodriguez since September
29, 1964, unperturbed by anyone for over twenty (20) years until
appellee instituted this suit.
Thus, all of the essential elements of a contract of sale are present, i.e., that
there was a meeting of the minds between the parties, by virtue of which the late
Juan San Andres undertook to transfer ownership of and to deliver a determinate
thing for a price certain in money. As Art. 1475 of the Civil Code provides: Xlaw
The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon
the price. . . .
That the contract of sale is perfected was confirmed by the former administrator
of the estates, Ramon San Andres, who wrote a letter to respondent on March 30,
1966 asking for P300.00 as partial payment for the subject lot. As the Court of
Appeals observed:
Without any doubt, the receipt profoundly speaks of a meeting of the
mind between San Andres and Rodriguez for the sale of the property
adjoining the 345 square meter portion previously sold to Rodriguez
on its three (3) sides excepting the frontage. The price is certain,
which is P15.00 per square meter. Evidently, this is a perfected
contract of sale on a deferred payment of the purchase price. All the
pre-requisite elements for a valid purchase transaction are present.
Sale does not require any formal document for its existence and
validity. And delivery of possession of land sold is a consummation of
the sale (Galar vs. Husain, 20 SCRA 186 [1967]). A private deed of
sale is a valid contract between the parties (Carbonell v. CA, 69 SCRA
99 [1976]). Xsc
In the same vein, after the late Juan R. San Andres received the
P500.00 downpayment on March 30, 1966, Ramon R. San Andres
wrote a letter to Rodriguez and received from Rodriguez the amount
of P100.00 (although P300.00 was being requested) deductible from
the purchase price of the subject portion. Enrique del Castillo,
Ramons authorized agent, correspondingly signed the receipt for the
P100.00. Surely, this is explicitly a veritable proof of the sale over
the remaining portion of Lot 1914-B-2 and a confirmation by Ramon
San Andres of the existence thereof.[16]
There is a need, however, to clarify what the Court of Appeals said is a conditional
contract of sale. Apparently, the appellate court considered as a "condition" the
stipulation of the parties that the full consideration, based on a survey of the lot,
would be due and payable within five (5) years from the execution of a formal
deed of sale. It is evident from the stipulations in the receipt that the vendor Juan

San Andres sold the residential lot in question to respondent and undertook to
transfer the ownership thereof to respondent without any qualification,
reservation or condition. In Ang Yu Asuncion v. Court of Appeals,[17] we held: Sc
In Dignos v. Court of Appeals (158 SCRA 375), we have said that,
although denominated a "Deed of Conditional Sale," a sale is still
absolute where the contract is devoid of any proviso that title is
reserved or the right to unilaterally rescind is stipulated, e.g., until
or unless the price is paid. Ownership will then be transferred to the
buyer upon actual or constructive delivery (e.g., by the execution of
a public document) of the property sold. Where the condition is
imposed upon the perfection of the contract itself, the failure of the
condition would prevent such perfection. If the condition is imposed
on the obligation of a party which is not fulfilled, the other party may
either waive the condition or refuse to proceed with the sale. (Art.
1545, Civil Code)
Thus, in one case, when the sellers declared in a "Receipt of Down Payment" that
they received an amount as purchase price for a house and lot without any
reservation of title until full payment of the entire purchase price, the implication
was that they sold their property. [18] In Peoples Industrial and Commercial
Corporation v. Court of Appeals,[19] it was stated:
A deed of sale is considered absolute in nature where there is neither a
stipulation in the deed that title to the property sold is reserved in the seller until
full payment of the price, nor one giving the vendor the right to unilaterally
resolve the contract the moment the buyer fails to pay within a fixed
period. Scmis
Applying these principles to this case, it cannot be gainsaid that the contract of
sale between the parties is absolute, not conditional. There is no reservation of
ownership nor a stipulation providing for a unilateral rescission by either party. In
fact, the sale was consummated upon the delivery of the lot to respondent.
[20]
Thus, Art. 1477 provides that the ownership of the thing sold shall be
transferred to the vendee upon the actual or constructive delivery thereof.
The stipulation that the "payment of the full consideration based on a survey shall
be due and payable in five (5) years from the execution of a formal deed of sale"
is not a condition which affects the efficacy of the contract of sale. It merely
provides the manner by which the full consideration is to be computed and the
time within which the same is to be paid. But it does not affect in any manner the
effectivity of the contract. Consequently, the contention that the absence of a
formal deed of sale stipulated in the receipt prevents the happening of a sale has
no merit. Missc
Second. With respect to the contention that the Court of Appeals erred in
upholding the validity of a consignation of P7,035.00 representing the balance of
the purchase price of the lot, nowhere in the decision of the appellate court is
there any mention of consignation. Under Art. 1257 of this Civil Code,
consignation is proper only in cases where an existing obligation is due. In this
case, however, the contracting parties agreed that full payment of purchase price
shall be due and payable within five (5) years from the execution of a formal deed
of sale. At the time respondent deposited the amount of P7,035.00 in the court,
no formal deed of sale had yet been executed by the parties, and, therefore, the

five-year period during which the purchase price should be paid had not
commenced. In short, the purchase price was not yet due and payable.
This is not to say, however, that the deposit of the purchase price in the court is
erroneous. The Court of Appeals correctly ordered the execution of a deed of sale
and petitioners to accept the amount deposited by respondent.
Third. The claim of petitioners that the price of P7,035.00 is iniquitous is
untenable. The amount is based on the agreement of the parties as evidenced by
the receipt (Exh. 2). Time and again, we have stressed the rule that a contract is
the law between the parties, and courts have no choice but to enforce such
contract so long as they are not contrary to law, morals, good customs or public
policy. Otherwise, courts would be interfering with the freedom of contract of the
parties. Simply put, courts cannot stipulate for the parties nor amend the latters
agreement, for to do so would be to alter the real intentions of the contracting
parties when the contrary function of courts is to give force and effect to the
intentions of the parties. Misspped
Fourth. Finally, petitioners argue that respondent is barred by prescription and
laches from enforcing the contract. This contention is likewise untenable. The
contract of sale in this case is perfected, and the delivery of the subject lot to
respondent effectively transferred ownership to him. For this reason, respondent
seeks to comply with his obligation to pay the full purchase price, but because the
deed of sale is yet to be executed, he deemed it appropriate to deposit the
balance of the purchase price in court. Accordingly, Art. 1144 of the Civil Code has
no application to the instant case.[21] Considering that a survey of the lot has
already been conducted and approved by the Bureau of Lands, respondents heirs,
assigns or successors-in-interest should reimburse the expenses incurred by
herein petitioners, pursuant to the provisions of the contract. Spped
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the
modification that respondent is ORDERED to reimburse petitioners for the
expenses of the survey. Jospped
SO ORDERED.

FIRST DIVISION

[G.R. No. 108169. August 25, 1999]

SPOUSES VENANCIO DAVID and PATRICIA MIRANDA DAVID and FLORENCIA

VENTURA VDA. DE BASCO, petitioners, vs. ALEJANDRO and GUADALUPE
TIONGSON, respondents.
DECISION
PARDO, J.:

Before the Court is a petition for review on certiorari of the decision of the
Court of Appeals[1] modifying that of the trial court[2] in an action for specific
performance with damages filed by petitioners against respondents.
The facts are as follows:
On February 23, 1989, three sets of plaintiffs, namely, spouses Feliciano and
Macaria Ventura, spouses Venancio and Patricia David and Florencia Ventura Vda.
De Basco, filed with the Regional Trial Court, San Fernando, Pampanga, a
complaint for specific performance with damages, against private respondents
spouses Alejandro and Guadalupe Tiongson, alleging that the latter sold to them
lots located in Cabalantian, Bacolor, Pampanga, as follows:
(a) a parcel of residential land with an area of 300 square meters (sq. m.),
more or less, for a total purchase price of P16,500.00, sold to spouses
Feliciano and Macaria Ventura;
(b) a parcel of land consisting of 308 sq.m., more or less, which is a
portion of Lot No. 1547-G-2-G covered by TCT No. 187751-R, for a total
consideration of P15,000.00, sold to spouses Venancio and Patricia M.
David;
(c) two parcels of land with a total area of 169 sq. m., 109 sq. m., which is
a portion of Lot No. 1547-G-2-G and a 60 sq. m., which is part of a lot
covered by TCT No. 200835-R, for a total consideration of P10,400.00,
sold to Florencia Ventura Vda. De Basco.
The parties expressly agreed that as soon as the plaintiffs fully paid the
purchase price on their respective lots, respondents would execute an individual
deed of absolute sale and cause the issuance of the corresponding certificate of
title in plaintiffs favor.
Spouses Ventura immediately took possession of the lot, erected their house
thereon and fenced the perimeters. As of October 28, 1985, the Venturas had fully
paid the price of their lot, evidenced by a certification [3] issued by Alejandro
Tiongson. Sometime in November 1985, the Venturas demanded the execution of
a deed of sale and the issuance of the corresponding certificate of title, but the
latter refused to issue the same.
Spouses David claimed that, as agreed by the parties, the P15,000.00
purchase price would be paid as follows: P3,800.00, as downpayment and a
monthly amortization of P365.00, starting on March 8, 1983, until fully paid. On
October 31, 1985, the Davids had paid a total of P15,050.00, evidenced by the
receipts issued by Alejandro Tiongson.[4] On the first week of November 1985, the
Davids demanded the execution of a deed of sale and the issuance of the
corresponding certificate of title, but respondents refused. Unlike the Venturas,
they were not able to take possession of the property.
Plaintiff Florencia Ventura Vda. De Basco averred that she bought two parcels
of land, a 109 sq. m. lot and a 60 sq. m. lot, for P6,425.00 and P6,500.00,
respectively. As of February 6, 1984, Florencia had paid P12,945.00 for the two
lots, evidenced by receipts issued by Alejandro Tiongson. [5] Sometime in March
1984, she demanded the execution of the deeds of sale and issuance of the
corresponding certificates of title over the lots. However, respondents failed to
comply with their obligation.
After no settlement was reached at the barangay level, on February 23, 1989,
plaintiffs filed a complaint with the Regional Trial Court, San Fernando,
Pampanga, for specific performance with damages.On April 18, 1989, upon motion

of the plaintiffs, respondents Tiongsons were declared in default for failure to file
their answer, despite the fifteen (15) days extension granted by the trial court.
On June 14, 1989, the trial court rendered a decision, the dispositive portion
of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiffs and against the defendants:
1) Ordering the defendants to execute the deeds of absolute sale covering
the lots respectively sold to plaintiffs and to cause the issuance of the
title covering the aforesaid lots at their own expense;
2) Ordering the defendants to pay unto the plaintiffs P15,000.00 as moral
damages.
Defendants are likewise ordered to pay the costs of suit. [6]
Respondents Tiongsons appealed the decision to the Court of Appeals. They
claimed that their failure to file an answer in due time amounted to excusable
negligence.[7] They contended that the plaintiffs had not fully paid the agreed
price of P120 per sq. m. They argued that the Venturas were still in arrears for
P30,000.00, the Davids for P21,000.00 and Florencia for P9,880.00. Hence, the
deeds of sale and certificates of title were not issued.
On October 19, 1992, the Court of Appeals [8] modified the trial courts
decision. Although it blamed respondents for their failure to file an answer in due
time, it held that there was no perfected contracts of sale entered into by the
Davids and Florencia Vda. de Basco with respondents. However, the Court of
Appeals upheld the sale involving the Venturas and ordered respondents to
execute a deed of sale and cause the issuance of the corresponding certificate of
title in Venturas favor.
With respect to spouses David, the Court of Appeals said that there was no
agreement as to the price, as well as the manner and time of payment of the
installments. It held that Patricia Davids testimony regarding the price,
P15,000.00, payable in monthly installments of P365.00, contradicted a receipt
stating: the balance to be paid on installment to be agreed upon later on. [9] The
appellate court referred to another receipt[10] wherein only P300.00 was paid but
with the following statement Subject to further discussion later on. It stated that
there was no agreement as to the price, since it was subject to further discussion
by the parties. It held that the P115.00 overpayment [11] illustrate the lack of an
agreed price. The receipts failed to state the total purchase price or prove that
full payment was made. Thus, there was no meeting of minds regarding the
price. Consequently, there was no perfected contract of sale.
In ruling against the Davids, the Court of Appeals applied the doctrine
in Yuvienco v. Dacuycuy[12] that in sale of real property on installments, the
statute of frauds read together with the requirements of Article 1475, must be
understood and applied in the sense that the payment on installments must be in
the requisite form of a note or memorandum. In other words, there must be a
note or memorandum evidencing the agreement to pay on installment, otherwise,
the contract is unenforceable under the statute of frauds. In the instant case, the
agreement to pay in installment was not reduced in writing.
As regards Florencia Ventura Vda. De Basco, the Court of Appeals ruled that
there was no meeting of the minds with regard to both object and consideration

of the contract. It held that the 109 sq. m. lot could not be specifically determined
or identified by the parties.
As to the sixty (60) sq. m. lot, the Court of Appeals held that the object was
not determinate nor determinable. Assuming arguendo that the lot was
determinate or determinable, the Court of Appeals held that there was no
purchase price agreed upon. The receipts indicated a price of P70.00 per sq. m.,
or a total of P4,200.00. However, Florencia paid P6,500.00 for the lot. The
discrepancy between Florencias claim of full payment and the last
receipt[13] stating that only a partial payment was made, bolstered the finding that
there was no agreed price.
The Court of Appeals, however, upheld the contract of sale with respect to the
spouses Ventura. It held that the Venturas had fully paid for the lot, evidenced by
the certification issued by Alejandro Tiongson. There was also actual delivery
when the Venturas took possession, erected their house thereon and fenced the
perimeters.
The Court of Appeals decreed as follows:
PREMISES CONSIDERED, the appealed decision is hereby MODIFIED. The contracts
of sale not having been perfected between plaintiff-appellee spouses Venancio
and Patricia M. David, and plaintiff-appellee Florencia Ventura Vda. De Basco
(vendees) and defendant-appellants Alejandro and Guadalupe D. Tiongson
(vendors), hence, inefficacious, the formers action for specific performance must
fail, but defendants-appellants must return to plaintiffs-appellees spouses
Venancio and Patricia David the amount of fifteen thousand one hundred fifteen
pesos (P15,115.00) and to plaintiff-appellee Florenica Ventura Vda. De Basco, the
amount of twelve thousand nine hundred twenty five pesos (P12,925.00) with
legal interest from the time of the filing of the complaint until the return of the
said amounts.
As to plaintiff-appellee spouses Feliciano and Macaria Ventura, the decision of the
court a quo is AFFIRMED. We hereby order: (a) Plaintiff-appellee spouses Feliciano
and Macaria Ventura to have the lot purchased by them segregated by a licensed
surveyor from the rest of the Lot 8 described in TCT No. 200835-R and to have the
corresponding subdivision plan, duly approved by the Land Registration
Authority, submitted to the court of origin for approval; (b) the defendantsappellants Alejandro and Guadalupe D. Tiongson to be divested of their title to
the lot purchased under Rule 39, Section 10, Rules of Court; and (c) the Register
of Deeds of Pampanga to cancel TCT No. 200835-R and issue, in lieu thereof, one
title to the names of Feliciano and Macaria Ventura for the lot they purchased
another title in the names of Alejandro and Guadalupe D. Tiongson.
In the light of the above, moral damages in the amount of three thousand pesos
(P3,000.00) to be paid to plaintiffs-appellees Feliciano and Macaria Ventura by
defendant-appellant spouses Tiongson is considered fair and reasonable. Without
costs.[14]
On November 6, 1992, Venancio and Patricia M. David and Florencia Ventura
Vda. de Basco filed a motion for reconsideration of the foregoing decision. On
December 11, 1992, the Court of Appeals denied the motion. [15]
Hence, this petition for review.

We shall discuss
respondents in seriatim.

the

sales

transactions

between

petitioners

and

As to the Spouses Venancio and Patricia David

Petitioners Davids contend that there was an implied agreement on the price
and manner of installment payments. The receipts issued by respondents and
Patricia Davids testimony clearly indicate the agreement.
We disagree with the finding of the Court of Appeals that there was no
agreement as to the price of the lots. The Court of Appeals relied heavily on the
receipts issued by Alejandro Tiongson. However, Patricia David testified that there
was an agreement to purchase the lot for P15,000.00, payable as
follows: P3,800.00 as down payment, with P385.00 monthly installments
thereafter.[16] The respondents failed to rebut such declaration, as the default
order rendered them without personality to adduce evidence in their behalf.
However, in the brief filed with the appellate court, the Tiongsons alleged that the
agreed price was P120.00 per sq. m. Hence, they are now estopped to deny the
existence of an agreed price. The question to be determined should not be
whether there was an agreed price, but what that agreed price was, whether for a
total of P15,000.00, as claimed by the Davids or P120.00 per sq. m., as alleged by
respondents.The sellers could not render invalid a perfected contract of sale by
merely contradicting the buyers allegation regarding the price, and subsequently
raising the lack of agreement as to the price.
It is a fact that for three consecutive years, the Davids had religiously paid
P385.00 as monthly installments, until it amounted to P15,050.00, including the
downpayment. As to the first installment receipt, wherein only P300.00 was paid
and a notation was written, to wit Subject to further discussion later on, Patricia
David explained that what was subject to further discussion was not the total
purchase price, but only the P65.00 underpayment.
The Court of Appeals held that the P115.00 overpayment confirmed the lack of
agreement as to the price. However, the receipts showed that Davids paid only
P15,050.00. It perplexes this Court how the appellate court came up with the
P15,115.00 figure. At any rate, an overpayment of P50.00, as in this case, does
not negate the existence of an agreed purchase price. Instead, this entitles the
buyer to claim reimbursement of any overpayment made.
Furthermore, the Court of Appeals erred in applying the statute of frauds. The
rule presupposes the existence of a perfected contract and requires only that a
note or memorandum be executed in order to compel judicial enforcement
thereof.[17]
At any rate, we rule that there was a perfected contract. However, the statute
of frauds is inapplicable. The rule is settled that the statute of frauds applies only
to executory and not to completed, executed, or partially executed contracts.
[18]
In the case of spouses David, the payments made rendered the sales contract
beyond the ambit of the statute of frauds.
The Court of Appeals erred in concluding that there was no perfected contract
of sale. However, in view of the stipulation of the parties that the deed of sale and
corresponding certificate of title would be issued after full payment, then, they
had entered into a contract to sell and not a contract of sale. [19]

As to Florencia Ventura Vda. de Basco

Petitioner Florencia Ventura Vda. de Basco contends that the receipts

described the two (2) lots that she bought. The receipts also indicated the price
of each lot, to wit, P6,425.00 for the 109 sq. m. lot, and P6,500.00 for the 60
sq.m. lot.
As regards the 109 sq.m. lot, Florencia presented the following receipts as
evidence of full payment:
"Received from Mrs. Florencia Ventura-Basco of Cabalantian, Bacolor
Pampanga, the sum of FIVE HUNDRED PESOS (P500.00), Philippine Currency, as
additional partial payment on the parcel of land located at Cabalantian, Bacolor
Pampanga, being the portion of Lot 1547-G-2-G of Psd-03-004803.
"It is understood that this lot is the portion formerly earmarked for Mrs.
Rosita Ventura-Muslan wherein she already paid the sum of P1,500.00; hence, by
agreement of Mrs. Basco and Mrs. Muslan, who are sisters, the sum of P1,500.00
are applied herein as additional payment for and in behalf of Mrs. Basco, thereby
making the total payments made by Mrs. Basco to said lot in the sum of
P2,000.00, as of this date.
"San Fernando, Pampanga, June 4, 1983.
(signed)
"CONFORME: ALEJANDRO C. TIONGSON
(signed)
"FLORENCIA VENTURA-BASCO
(signed)
"ROSITA VENTURA-MUSLAN[20]
Received from Mrs. Florencia Ventura-Basco of Cabalantian, Bacolor Pampanga,
the sum of FOUR THOUSAND FOUR HUNDRED TWENTY FIVE PESOS (P4,425.00),
Philippine Currency, representing the last and full payment on the purchase price
of Lot 1547-G-2-G-2, Plan Psd-03-05957, located at Cabalantian, Bacolor
Pampanga, with an area of 109 square meters, more or less, as regards the sum
of P3,625 and the sum of P800.00 applied for the payment of the segregation
survey of said lot.
Title over this lot shall be issued upon the survey and segregation of the
additional portion which Mrs. Florencia V. Basco is also buying to be taken from
Lot 1547-G-2-G-I, wherein the said portion of said Lot 1547-G-2-G-2 shall be
consolidated into one lot only at the expense of the buyer.
San Fernando, Pampanga, September 1, 1983.
CONFORME: FOR ALEJANDRO TIONGSON

Seller
(signed) By: (signed)
FLORENCIA VENTURA-BASCO PORFIRIO C. PINEDA
Buyer[21]
According to the Court of Appeals, the object is neither determinate nor
determinable. It held that the receipts described two different lots, one described
as Psd-03-004803, while the other as Psd-03-05957. It stated that the discrepancy
showed there was no meeting of the minds as regards the object of the contract.
We disagree. We find that the 109 sq. m. lot was adequately described in the
receipt, or at least, can be easily determinable. The receipt issued on June 4, 1983
stated that the lot being purchased by Florencia was the one earlier earmarked
for her sister, Rosita Muslan. Thus, the subject lot is determinable. Any mistake in
the designation of the lot does not vitiate the consent of the parties or affect the
validity and binding effect of the contract of sale. [22] The receipt issued on
September 1, 1983 clearly described the lot area as 109 sq. m. It also showed that
Florencia had fully paid the purchase price.
With respect to the sixty (60) sq. m. lot, Florencia presented the following
receipts to prove full payment:
Received from Mrs. Florencia Basco of Cabalantian, Bacolor, Pampanga, the sum
of THREE THOUSAND PESOS (P3,000.00), Philippine Currency, as partial and down
payment on the purchase price of the additional portion adjacent to Lot 1547-G-2G. The price on this portion shall be computed at P70.00 per square meter, and
said portion shall be determined later as to its area, but in no case shall it be
extended farther than the gate opening at Juan Cunanans lot and the acacia tree
on the north.
San Fernando, Pampanga, November 8, 1983.
(signed)
ALEJANDRO TIONGSON
Seller
xxx
Received from Mrs. Florencia Basco of Cabalantian, Bacolor, Pampanga, the sum
of ONE THOUSAND PESOS (P1,000.00), Philippine Currency, as partial and down
payment on a portion of Lot 1547-G-2-I, which is a portion of Lot 6 of the
provisional plan with marking of Lot 35 on the sketch plan. The price shall be
computed at P70.00 per square meter. The final area shall be determined in the
final survey to be conducted.
This portion shall be across the road opposite the portion of same lot purchased
by Macaria Ventura.

San Fernando, Pampanga, November 8, 1983.

(signed)
ALEJANDRO TIONGSON
Seller
xxx
Received from Mrs. Florencia Basco of Cabalantian, Bacolor, Pampanga, the sum
of TWO THOUSAND FIVE HUNDRED PESOS (P2,500.00), to be applied as partial
payment on the purchase price of Lots 8-A (60 square meters), computed at
P70.00 and Lot 6-U (338 square meters), computed at P70.00 per square meter.
San Fernando, Pampanga, February 6, 1984.
(signed)
ALEJANDRO TIONGSON
Seller[23]
Regarding this lot, we find that there was also a perfected contract of sale. In
fact, in the last receipt the parties agreed on the specific lot area. This suffices to
identify the specific lot involved. It was unnecessary for the parties to enter into
another agreement to determine the exact property bought. What remained to be
done was the actual segregation of the 60 square meters.
Furthermore, the parties agreed on the price. The receipts clearly indicate the
price as P70.00 per sq. m., hence the total price should be P4,200.00. However,
Florencia paid P6,500.00 for the lot. Hence, there was even an overpayment of
P2,300.00.
WHEREFORE, we REVERSE and SET ASIDE the decision of the Court of Appeals
in CA-G.R. CV No. 24667. In lieu thereof, we render judgment ordering the
respondents Tiongsons to execute deeds of absolute sale covering the following
lots respectively sold to petitioners, and cause the issuance of the corresponding
certificates of title, to wit:
1. 300 sq. m. lot sold to spouses Venancio and Patricia David;
2. 109 sq. m. lot sold to Florencia Ventura Vda. de Basco.
With respect to the 60 sq. m. lot sold to Florencia Ventura Vda. de Basco,
respondent Tiongson is ordered to cause the segregation of the lot, and
thereafter, to execute a deed of absolute sale to Florencia Ventura Vda. de Basco
and cause the issuance of a certificate of title thereto.
We delete the award for moral damages, for lack of basis.
No costs.
SO ORDERED.

4. Cause of Consideration (Arts. 1350CAUSE OF CONTRACTS

Art. 1350. In onerous contracts the cause is understood to be, for each
contracting party, the prestation or promise of a thing or service by the other; in
remuneratory ones, the service or benefit which is remunerated; and in contracts
of pure beneficence, the mere liberality of the benefactor.

THIRD DIVISION

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

RIDO MONTECILLO, petitioner, vs. IGNACIA REYNES and SPOUSES REDEMPTOR and
ELISA ABUCAY, respondents.
DECISION
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 petitioners Motion for
Reconsideration, affirmed the trial courts 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 (Montecillos 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. Montecillos 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-ininterest 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 Montecillos 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,
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.
[12]

In their Reply, Reynes and the Abucay Spouses contended that Montecillo did
not have authority to discharge the chattel mortgage, especially after Reynes
revoked Montecillos 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 Jayags 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 Jayags 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
Montecillos 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
Montecillos 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
Montecillos Deed of Sale produced no effect whatsoever for want of
consideration. The dispositive portion of the trial courts 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 attorneys
fees in the sum of P2,000.00 plus cost of the suit.
xxx
Not satisfied with the trial courts 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 Montecillos Deed of Sale is void for
lack of consideration. The appellate court also denied Montecillos 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.

Montecillos 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, Montecillos payment to Cebu Ice Storage is not the payment that would
extinguish[16] Montecillos 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 Jayags 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, Montecillos payment to Jayags 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 Montecillos 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.
Montecillos 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, Montecillos 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
Montecillos 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 Montecillos 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.

[29]

The Court reiterated this rule in Vda. De Catindig v. Heirs of Catalina Roque,
to wit

The Appellate Courts 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
Montecillos 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 Jayags mortgage
debt. Montecillo also acknowledged a balance of P10,000.00 in favor of Reynes
although this amount is not stated in Montecillos 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, Montecillos 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.

FIRST DIVISION

[G.R. No. 126376. November 20, 2003]

SPOUSES BERNARDO BUENAVENTURA and CONSOLACION JOAQUIN, SPOUSES

JUANITO EDRA and NORA JOAQUIN, SPOUSES RUFINO VALDOZ and EMMA
JOAQUIN, and NATIVIDAD JOAQUIN, petitioners, vs. COURT OF APPEALS,
SPOUSES LEONARDO JOAQUIN and FELICIANA LANDRITO, SPOUSES FIDEL
JOAQUIN and CONCHITA BERNARDO, SPOUSES TOMAS JOAQUIN and
SOLEDAD ALCORAN, SPOUSES ARTEMIO JOAQUIN and SOCORRO ANGELES,
SPOUSES ALEXANDER MENDOZA and CLARITA JOAQUIN, SPOUSES
TELESFORO CARREON and FELICITAS JOAQUIN, SPOUSES DANILO VALDOZ

and
FE
JOAQUIN,
ASIS, respondents.

and

SPOUSES

GAVINO

JOAQUIN

and

LEA

DECISION
CARPIO, J.:

The Case
This is a petition for review on certiorari[1] to annul the Decision[2] dated 26
June 1996 of the Court of Appeals in CA-G.R. CV No. 41996. The Court of Appeals
affirmed the Decision[3]dated 18 February 1993 rendered by Branch 65 of the
Regional Trial Court of Makati (trial court) in Civil Case No. 89-5174. The trial
court dismissed the case after it found that the parties executed the Deeds of
Sale for valid consideration and that the plaintiffs did not have a cause of action
against the defendants.

The Facts
The Court of Appeals summarized the facts of the case as follows:
Defendant spouses Leonardo Joaquin and Feliciana Landrito are the parents of
plaintiffs Consolacion, Nora, Emma and Natividad as well as of defendants Fidel,
Tomas, Artemio, Clarita, Felicitas, Fe, and Gavino, all surnamed JOAQUIN. The
married Joaquin children are joined in this action by their respective spouses.
Sought to be declared null and void ab initio are certain deeds of sale of real
property executed by defendant parents Leonardo Joaquin and Feliciana Landrito
in favor of their co-defendant children and the corresponding certificates of title
issued in their names, to wit:
1. Deed of Absolute Sale covering Lot 168-C-7 of subdivision plan (LRC)
Psd-256395 executed on 11 July 1978, in favor of defendant Felicitas
Joaquin, for a consideration of P6,000.00 (Exh. C), pursuant to which
TCT No. [36113/T-172] was issued in her name (Exh. C-1);
2. Deed of Absolute Sale covering Lot 168-I-3 of subdivision plan (LRC)
Psd-256394 executed on 7 June 1979, in favor of defendant Clarita
Joaquin, for a consideration of P1[2],000.00 (Exh. D), pursuant to which
TCT No. S-109772 was issued in her name (Exh. D-1);
3 Deed of Absolute Sale covering Lot 168-I-1 of subdivision plan (LRC) Psd256394 executed on 12 May 1988, in favor of defendant spouses Fidel
Joaquin and Conchita Bernardo, for a consideration of P54,[3]00.00
(Exh. E), pursuant to which TCT No. 155329 was issued to them (Exh. E1);
4. Deed of Absolute Sale covering Lot 168-I-2 of subdivision plan (LRC)
Psd-256394 executed on 12 May 1988, in favor of defendant spouses
Artemio
Joaquin
and
Socorro
Angeles,
for
a
consideration

of P[54,3]00.00 (Exh. F), pursuant to which TCT No. 155330 was issued
to them (Exh. F-1); and
5. Absolute Sale of Real Property covering Lot 168-C-4 of subdivision plan
(LRC) Psd-256395 executed on 9 September 1988, in favor of Tomas
Joaquin, for a consideration of P20,000.00 (Exh. G), pursuant to which
TCT No. 157203 was issued in her name (Exh. G-1).
[6. Deed of Absolute Sale covering Lot 168-C-1 of subdivision plan (LRC)
Psd-256395 executed on 7 October 1988, in favor of Gavino Joaquin, for
a consideration of P25,000.00 (Exh. K), pursuant to which TCT No.
157779 was issued in his name (Exh. K-1).]
In seeking the declaration of nullity of the aforesaid deeds of sale and certificates
of title, plaintiffs, in their complaint, aver:
- XXThe deeds of sale, Annexes C, D, E, F, and G, [and K] are simulated as they are,
are NULL AND VOID AB INITIO because
a) Firstly, there was no actual valid consideration for the deeds of sale xxx
over the properties in litis;
b) Secondly, assuming that there was consideration in the sums reflected
in the questioned deeds, the properties are more than three-fold
times more valuable than the measly sums appearing therein;
c) Thirdly, the deeds of sale do not reflect and express the true intent of
the parties (vendors and vendees); and
d) Fourthly, the purported sale of the properties in litis was the result of a
deliberate conspiracy designed to unjustly deprive the rest of the
compulsory heirs (plaintiffs herein) of their legitime.
- XXI Necessarily, and as an inevitable consequence, Transfer Certificates of Title Nos.
36113/T-172, S-109772, 155329, 155330, 157203 [and 157779] issued by the
Registrar of Deeds over the properties in litisxxx are NULL AND VOID AB INITIO.
Defendants, on the other hand aver (1) that plaintiffs do not have a cause of
action against them as well as the requisite standing and interest to assail their
titles over the properties in litis; (2) that the sales were with sufficient
considerations and made by defendants parents voluntarily, in good faith, and
with full knowledge of the consequences of their deeds of sale; and (3) that the
certificates of title were issued with sufficient factual and legal basis. [4] (Emphasis
in the original)

The Ruling of the Trial Court

Before the trial, the trial court ordered the dismissal of the case against
defendant spouses Gavino Joaquin and Lea Asis. [5] Instead of filing an Answer with
their co-defendants, Gavino Joaquin and Lea Asis filed a Motion to Dismiss. [6] In
granting the dismissal to Gavino Joaquin and Lea Asis, the trial court noted that
compulsory heirs have the right to a legitime but such right is contingent since
said right commences only from the moment of death of the decedent pursuant to
Article 777 of the Civil Code of the Philippines.[7]
After trial, the trial court ruled in favor of the defendants and dismissed the
complaint. The trial court stated:
In the first place, the testimony of the defendants, particularly that of the xxx
father will show that the Deeds of Sale were all executed for valuable
consideration. This assertion must prevail over the negative allegation of
plaintiffs.
And then there is the argument that plaintiffs do not have a valid cause of action
against defendants since there can be no legitime to speak of prior to the death
of their parents. The court finds this contention tenable. In determining the
legitime, the value of the property left at the death of the testator shall be
considered (Art. 908 of the New Civil Code). Hence, the legitime of a compulsory
heir is computed as of the time of the death of the decedent. Plaintiffs therefore
cannot claim an impairment of their legitime while their parents live.
All the foregoing considered, this case is DISMISSED.
In order to preserve whatever is left of the ties that should bind families together,
the counterclaim is likewise DISMISSED.
No costs.
SO ORDERED.[8]

The Ruling of the Court of Appeals

The Court of Appeals affirmed the decision of the trial court. The appellate
court ruled:
To the mind of the Court, appellants are skirting the real and decisive issue in this
case, which is, whether xxx they have a cause of action against appellees.
Upon this point, there is no question that plaintiffs-appellants, like their
defendant brothers and sisters, are compulsory heirs of defendant spouses,
Leonardo Joaquin and Feliciana Landrito, who are their parents. However, their
right to the properties of their defendant parents, as compulsory heirs, is merely
inchoate and vests only upon the latters death. While still alive, defendant
parents are free to dispose of their properties, provided that such dispositions
are not made in fraud of creditors.
Plaintiffs-appellants are definitely not parties to the deeds of sale in
question. Neither do they claim to be creditors of their defendant

parents. Consequently, they cannot be considered as real parties in interest to

assail the validity of said deeds either for gross inadequacy or lack of
consideration or for failure to express the true intent of the parties. In point is the
ruling of the Supreme Court in Velarde, et al. vs. Paez, et al., 101 SCRA 376, thus:
The plaintiffs are not parties to the alleged deed of sale and are not principally or
subsidiarily bound thereby; hence, they have no legal capacity to challenge their
validity.
Plaintiffs-appellants anchor their action on the supposed impairment of their
legitime by the dispositions made by their defendant parents in favor of their
defendant brothers and sisters. But, as correctly held by the court a quo, the
legitime of a compulsory heir is computed as of the time of the death of the
decedent. Plaintiffs therefore cannot claim an impairment of their legitime while
their parents live.
With this posture taken by the Court, consideration of the errors assigned by
plaintiffs-appellants is inconsequential.
WHEREFORE, the decision appealed from is hereby AFFIRMED, with costs against
plaintiffs-appellants.
SO ORDERED.[9]
Hence, the instant petition.

Issues
Petitioners assign the following as errors of the Court of Appeals:
1. THE COURT OF APPEALS ERRED IN NOT HOLDING
CONVEYANCE IN QUESTION HAD NO VALID CONSIDERATION.

THAT

THE

2. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT EVEN ASSUMING

THAT THERE WAS A CONSIDERATION, THE SAME IS GROSSLY
INADEQUATE.
3. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE DEEDS
OF SALE DO NOT EXPRESS THE TRUE INTENT OF THE PARTIES.
4. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
CONVEYANCE WAS PART AND PARCEL OF A CONSPIRACY AIMED AT
UNJUSTLY DEPRIVING THE REST OF THE CHILDREN OF THE SPOUSES
LEONARDO JOAQUIN AND FELICIANA LANDRITO OF THEIR INTEREST
OVER THE SUBJECT PROPERTIES.
5. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONERS
HAVE A GOOD, SUFFICIENT AND VALID CAUSE OF ACTION AGAINST THE
PRIVATE RESPONDENTS.[10]

The Ruling of the Court

We find the petition without merit.

We will discuss petitioners legal interest over the properties subject of the
Deeds of Sale before discussing the issues on the purported lack of consideration
and gross inadequacy of the prices of the Deeds of Sale.

Whether Petitioners have a legal interest

over the properties subject of the Deeds of Sale
Petitioners Complaint betrays their motive for filing this case. In their
Complaint, petitioners asserted that the purported sale of the properties in
litis was the result of a deliberate conspiracy designed to unjustly deprive the
rest of the compulsory heirs (plaintiffs herein) of their legitime. Petitioners
strategy was to have the Deeds of Sale declared void so that ownership of the
lots would eventually revert to their respondent parents. If their parents die still
owning the lots, petitioners and their respondent siblings will then co-own their
parents estate by hereditary succession.[11]
It is evident from the records that petitioners are interested in the properties
subject of the Deeds of Sale, but they have failed to show any legal right to the
properties. The trial and appellate courts should have dismissed the action for
this reason alone. An action must be prosecuted in the name of the real party-ininterest.[12]
[T]he question as to real party-in-interest is whether he is the party who would be
benefitted or injured by the judgment, or the party entitled to the avails of the
suit.
xxx
In actions for the annulment of contracts, such as this action, the real parties are
those who are parties to the agreement or are bound either principally or
subsidiarily or are prejudiced in their rights with respect to one of the contracting
parties and can show the detriment which would positively result to them from
the contract even though they did not intervene in it (Ibaez v. Hongkong &
Shanghai Bank, 22 Phil. 572 [1912]) xxx.
These are parties with a present substantial interest, as distinguished from a
mere expectancy or future, contingent, subordinate, or consequential interest.
The phrase present substantial interest more concretely is meant such interest of
a party in the subject matter of the action as will entitle him, under the
substantive law, to recover if the evidence is sufficient, or that he has the legal
title to demand and the defendant will be protected in a payment to or recovery
by him.[13]
Petitioners do not have any legal interest over the properties subject of the
Deeds of Sale. As the appellate court stated, petitioners right to their parents
properties is merely inchoate and vests only upon their parents death. While still
living, the parents of petitioners are free to dispose of their properties. In their
overzealousness to safeguard their future legitime, petitioners forget that
theoretically, the sale of the lots to their siblings does not affect the value of their
parents estate. While the sale of the lots reduced the estate, cash of equivalent
value replaced the lots taken from the estate.

Whether the Deeds of Sale are void

for lack of consideration
Petitioners assert that their respondent siblings did not actually pay the
prices stated in the Deeds of Sale to their respondent father. Thus, petitioners ask
the court to declare the Deeds of Sale void.
A contract of sale is not a real contract, but a consensual contract. As a
consensual contract, a contract of sale becomes a binding and valid contract upon
the meeting of the minds as to price. If there is a meeting of the minds of the
parties as to the price, the contract of sale is valid, despite the manner of
payment, or even the breach of that manner of payment. If the real price is not
stated in the contract, then the contract of sale is valid but subject to
reformation. If there is no meeting of the minds of the parties as to the price,
because the price stipulated in the contract is simulated, then the contract is
void.[14] Article 1471 of the Civil Code states that if the price in a contract of sale
is simulated, the sale is void.
It is not the act of payment of price that determines the validity of a contract
of sale. Payment of the price has nothing to do with the perfection of the
contract. Payment of the price goes into the performance of the 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 while the latter prevents the existence of a valid contract.
[15]

Petitioners failed to show that the prices in the Deeds of Sale were absolutely
simulated. To prove simulation, petitioners presented Emma Joaquin Valdozs
testimony stating that their father, respondent Leonardo Joaquin, told her that he
would transfer a lot to her through a deed of sale without need for her payment of
the purchase price.[16] The trial court did not find the allegation of absolute
simulation of price credible. Petitioners failure to prove absolute simulation of
price is magnified by their lack of knowledge of their respondent siblings financial
capacity to buy the questioned lots. [17] On the other hand, the Deeds of Sale which
petitioners presented as evidence plainly showed the cost of each lot sold. Not
only did respondents minds meet as to the purchase price, but the real price was
also stated in the Deeds of Sale. As of the filing of the complaint, respondent
siblings have also fully paid the price to their respondent father. [18]

Whether the Deeds of Sale are void

for gross inadequacy of price
Petitioners ask that assuming that there is consideration, the same is grossly
inadequate as to invalidate the Deeds of Sale.
Articles 1355 of the Civil Code states:
Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall
not invalidate a contract, unless there has been fraud, mistake or undue
influence. (Emphasis supplied)
Article 1470 of the Civil Code further provides:

Art. 1470. Gross inadequacy of price does not affect a contract of sale, except as
may indicate a defect in the consent, or that the parties really intended a
donation or some other act or contract. (Emphasis supplied)
Petitioners failed to prove any of the instances mentioned in Articles 1355
and 1470 of the Civil Code which would invalidate, or even affect, the Deeds of
Sale. Indeed, there is no requirement that the price be equal to the exact value of
the subject matter of sale. All the respondents believed that they received the
commutative value of what they gave. As we stated inVales v. Villa:[19]
Courts cannot follow one every step of his life and extricate him from bad
bargains, protect him from unwise investments, relieve him from one-sided
contracts, or annul the effects of foolish acts. Courts cannot constitute
themselves guardians of persons who are not legally incompetent. Courts operate
not because one person has been defeated or overcome by another, but because
he has been defeated or overcome illegally. Men may do foolish things, make
ridiculous contracts, use miserable judgment, and lose money by them indeed, all
they have in the world; but not for that alone can the law intervene and
restore. There must be, in addition, a violation of the law, the commission of what
the law knows as an actionable wrong, before the courts are authorized to lay
hold of the situation and remedy it. (Emphasis in the original)
Moreover, the factual findings of the appellate court are conclusive on the
parties and carry greater weight when they coincide with the factual findings of
the trial court. This Court will not weigh the evidence all over again unless there
has been a showing that the findings of the lower court are totally devoid of
support or are clearly erroneous so as to constitute serious abuse of discretion.
[20]
In the instant case, the trial court found that the lots were sold for a valid
consideration, and that the defendant children actually paid the purchase price
stipulated in their respective Deeds of Sale. Actual payment of the purchase price
by the buyer to the seller is a factual finding that is now conclusive upon us.
WHEREFORE, we AFFIRM the decision of the Court of Appeals in toto.
SO ORDERED.

Republic of the Philippines

Supreme Court
Manila
SECOND DIVISION

CARMELA BROBIO MANGAHAS,

Petitioner,

G.R. No. 183852

Present:
CORONA, C.J.,*
CARPIO,
Chairperson,
NACHURA,
LEONARDO-DE CASTRO,**and
MENDOZA, JJ.

- versus -

EUFROCINA A. BROBIO,
Respondent.

Promulgated:
October 20, 2010

x------------------------------------------------------------------------------------x
RESOLUTION
NACHURA, J.:

This petition for review on certiorari seeks to set aside the Court of Appeals (CA)
Decision[1] dated February 21, 2008, which dismissed petitioners action to enforce
payment of a promissory note issued by respondent, and Resolution[2] dated July
9, 2008, which denied petitioners motion for reconsideration.
The case arose from the following facts:
On January 10, 2002, Pacifico S. Brobio (Pacifico) died intestate, leaving three
parcels of land. He was survived by his wife, respondent Eufrocina A. Brobio, and
four

legitimate

and

three

illegitimate

children;

petitioner

Carmela

Brobio

Mangahas is one of the illegitimate children.

On May 12, 2002, the heirs of the deceased executed a Deed of Extrajudicial
Settlement of Estate of the Late Pacifico Brobio with Waiver. In the Deed,
petitioner and Pacificos other children, in consideration of their love and affection
for respondent and the sum of P150,000.00, waived and ceded their respective
shares over the three parcels of land in favor of respondent. According to

petitioner, respondent promised to give her an additional amount for her share in
her fathers estate. Thus, after the signing of the Deed, petitioner demanded from
respondent the promised additional amount, but respondent refused to pay,
claiming that she had no more money.[3]
A year later, while processing her tax obligations with the Bureau of Internal
Revenue (BIR), respondent was required to submit an original copy of the Deed.
Left with no more original copy of the Deed, respondent summoned petitioner to
her office on May 31, 2003 and asked her to countersign a copy of the Deed.
Petitioner refused to countersign the document, demanding that respondent first
give her the additional amount that she promised. Considering the value of the
three parcels of land (which she claimed to be worthP20M), petitioner asked
for P1M, but respondent begged her to lower the amount. Petitioner agreed to
lower it to P600,000.00. Because respondent did not have the money at that time
and petitioner refused to countersign the Deed without any assurance that the
amount would be paid, respondent executed a promissory note. Petitioner agreed
to sign the Deed when respondent signed the promissory note which read
31 May 2003
This is to promise that I will give a Financial Assistance to CARMELA
B. MANGAHAS the amount of P600,000.00 Six Hundred Thousand
only on June 15, 2003.
(SGD)

EUFROCINA A. BROBIO[4]

When the promissory note fell due, respondent failed and refused to pay despite
demand. Petitioner made several more demands upon respondent but the latter
kept on insisting that she had no money.
On January 28, 2004, petitioner filed a Complaint for Specific Performance with
Damages[5] against respondent, alleging in part
2. That plaintiff and defendant are legal heirs of the deceased,
Pacifico S. Brobio[,] who died intestate and leaving without a will,
on January 10, 2002, but leaving several real and personal
properties (bank deposits), and some of which were the subject of
the extra-judicial settlement among them, compulsory heirs of the
deceased, Pacifico Brobio. x x x.

3. That in consideration of the said waiver of the plaintiff over the

listed properties in the extra-judicial settlement, plaintiff received
the sum of P150,000.00, and the defendant executed a
Promissory Note on June 15, 2003, further committing herself to
give plaintiff a financial assistance in the amount of P600,000.00.
x x x.
4. That on its due date, June 15, 2003, defendant failed to make good
of her promise of delivering to the plaintiff the sum
of P600,000.00 pursuant to her Promissory Note dated May 31,
2003, and despite repeated demands, defendant had maliciously
and capriciously refused to deliver to the plaintiff the amount
[of] P600,000.00, and the last of which demands was on October
29, 2003. x x x.[6]

In her Answer with Compulsory Counterclaim, [7] respondent admitted that she
signed the promissory note but claimed that she was forced to do so. She also
claimed that the undertaking was not supported by any consideration. More
specifically, she contended that
10. Defendant was practically held hostage by the demand of the
plaintiff. At that time, defendant was so much pressured and was in
[a] hurry to submit the documents to the Bureau of Internal Revenue
because of the deadline set and for fear of possible penalty if not
complied with. Defendant pleaded understanding but plaintiff was
adamant. Her hand could only move in exchange for 1 million pesos.
11. Defendant, out of pressure and confused disposition, was
constrained to make a promissory note in a reduced amount in favor
of the plaintiff. The circumstances in the execution of the promissory
note were obviously attended by involuntariness and the same was
issued without consideration at all or for illegal consideration. [8]
On May 15, 2006, the Regional Trial Court (RTC) rendered a decision in favor of
petitioner. The RTC found that the alleged pressure and confused disposition
experienced by respondent and the circumstances that led to the execution of the
promissory note do not constitute undue influence as would vitiate respondents
consent thereto. On the contrary, the RTC observed that
It is clear from all the foregoing that it is the defendant who took
improper advantage of the plaintiffs trust and confidence in her by
resorting to a worthless written promise, which she was intent on
reneging. On the other hand, plaintiff did not perform an unlawful
conduct when she insisted on a written commitment from the
defendant, as embodied in the promissory note in question, before
affixing her signature that was asked of her by the defendant
because, as already mentioned, that was the only opportunity
available to her or which suddenly and unexpectedly presented itself

to her in order to press her demand upon the defendant to satisfy

the correct amount of consideration due to her. In other words, as
the defendant had repeatedly rebuffed her plea for additional
consideration by claiming lack of money, it is only natural for the
plaintiff to seize the unexpected opportunity that suddenly
presented itself in order to compel the defendant to give to her
[what is] due [her]. And by executing the promissory note which the
defendant had no intention of honoring, as testified to by her, the
defendant clearly acted in bad faith and took advantage of the trust
and confidence that plaintiff had reposed in her. [9]

The RTC also brushed aside respondents claim that the promissory note was not
supported by valuable consideration. The court maintained that the promissory
note was an additional consideration for the waiver of petitioners share in the
three properties in favor of respondent. Its conclusion was bolstered by the fact
that the promissory note was executed after negotiation and haggling between
the parties. The dispositive portion of the RTC decision reads:
WHEREFORE, judgment is hereby rendered as follows:
1.

Ordering the defendant to pay to plaintiff the sum of Six

Hundred Thousand Pesos (P600,000.00) which she
committed to pay to plaintiff under the promissory note in
question, plus interest thereon at the rate of 12% per
annum computed from the date of the filing of the
complaint;

2.

Ordering the defendant to pay to plaintiff the sum

of P50,000.00 as attorneys fees; and

3.

Ordering the defendant to pay to plaintiff the costs of

this suit.

SO ORDERED.[10]

On February 21, 2008, the CA reversed the RTC decision and dismissed the
complaint.[11] The CA found that there was a complete absence of consideration in
the execution of the promissory note, which made it inexistent and without any
legal force and effect. The court noted that financial assistance was not the real
reason why respondent executed the promissory note, but only to secure
petitioners signature. The CA held that the waiver of petitioners share in the
three properties, as expressed in the deed of extrajudicial settlement, may not be
considered as the consideration of the promissory note, considering that
petitioner signed the Deed way back in 2002 and she had already received the
consideration of P150,000.00 for signing the same. The CA went on to hold that if

petitioner disagreed with the amount she received, then she should have filed an
action for partition.
Further, the CA found that intimidation attended the signing of the
promissory note. Respondent needed the Deed countersigned by petitioner in
order to comply with a BIR requirement; and, with petitioners refusal to sign the
said document, respondent was forced to sign the promissory note to assure
petitioner that the money promised to her would be paid.
Petitioner moved for the reconsideration of the CA Decision. In a Resolution dated
July 9, 2008, the CA denied petitioners motion. [12]
In this petition for review, petitioner raises the following issues:
1.

The Honorable Court of Appeals erred in the appreciation of the

facts of this case when it found that intimidation attended the
execution of the promissory note subject of this case.

2.

The Honorable Court of Appeals erred when it found that the

promissory note was without consideration.

3.

The Honorable Court of Appeals erred when it stated that

petitioner should have filed [an action] for partition instead of a
case for specific performance.[13]

The petition is meritorious.

Contracts are voidable where consent thereto is given through mistake,
violence,

intimidation,

undue

influence,

or

fraud.

In

determining

whether

consent is vitiated by any of these circumstances, courts are given a wide latitude
in weighing the facts or circumstances in a given case and in deciding in favor of
what they believe actually occurred, considering the age, physical infirmity,
intelligence, relationship, and conduct of the parties at the time of the execution
of the contract and subsequent thereto, irrespective of whether the contract is in
a public or private writing.[14]
Nowhere is it alleged that mistake, violence, fraud, or intimidation attended the
execution of the promissory note. Still, respondent insists that she was forced
into signing the promissory note because petitioner would not sign the document

required by the BIR. In one case, the Court in characterizing a similar argument
by respondents therein held that such allegation is tantamount to saying that the
other party exerted undue influence upon them. However, the Court said that the
fact that respondents were forced to sign the documents does not amount to
vitiated consent.[15]
There is undue influence when a person takes improper advantage of his
power over the will of another, depriving the latter of a reasonable freedom of
choice.[16] For undue influence to be present, the influence exerted must have so
overpowered or subjugated the mind of a contracting party as to destroy his free
agency, making him express the will of another rather than his own. [17]
Respondent may have desperately needed petitioners signature on the Deed, but
there is no showing that she was deprived of free agency when she signed the
promissory note. Being forced into a situation does not amount to vitiated
consent where it is not shown that the party is deprived of free will and choice.
Respondent still had a choice: she could have refused to execute the promissory
note and resorted to judicial means to obtain petitioners signature. Instead,
respondent chose to execute the promissory note to obtain petitioners signature,
thereby agreeing to pay the amount demanded by petitioner.
The

fact

circumstances,

that
to

respondent
execute

the

may

have

promissory

felt

compelled,

note

will

under
not

the

negate

the voluntariness of the act. As rightly observed by the trial court, the execution
of the promissory note in the amount of P600,000.00 was, in fact, the product of a
negotiation between the parties. Respondent herself testified that she bargained
with petitioner to lower the amount:
ATTY. VILLEGAS:
Q And is it not that there was even a bargaining from P1-M
to P600,000.00 before you prepare[d] and [sign[ed] that
promissory note marked as Exhibit C?
A Yes, sir.
Q And in fact, you were the one [who] personally wrote the amount
of P600,000.00 only as indicated in the said promissory note?
A Yes, sir.
COURT:

Q So, just to clarify. Carmela was asking an additional amount of P1M for her to sign this document but you negotiated with her
and asked that it be lowered to P600,000.00 to which she
agreed, is that correct?
A Yes, Your Honor. Napilitan na po ako.
Q But

you negotiated
to P600,000.00?
A Yes, Your Honor.[18]

and

asked

for

its

reduction

from P1-M

Contrary to the CAs findings, the situation did not amount to intimidation that
vitiated consent. There is intimidation when one of the contracting parties is
compelled to give his consent by a reasonable and well-grounded fear of an
imminent and grave evil upon his person or property, or upon the person or
property of his spouse, descendants, or ascendants. [19] Certainly, the payment of
penalties for delayed payment of taxes would not qualify as a reasonable and
well-grounded fear of an imminent and grave evil.
We join the RTC in holding that courts will not set aside contracts merely because
solicitation, importunity, argument, persuasion, or appeal to affection was used to
obtain the consent of the other party. Influence obtained by persuasion or
argument or by appeal to affection is not prohibited either in law or morals and is
not obnoxious even in courts of equity. [20]
On the issue that the promissory note is void for not being supported by a
consideration, we likewise disagree with the CA.
A contract is presumed to be supported by cause or consideration. [21] The
presumption that a contract has sufficient consideration cannot be overthrown by
a mere assertion that it has no consideration. To overcome the presumption, the
alleged lack of consideration must be shown by preponderance of evidence.
[22]

The burden to prove lack of consideration rests upon whoever alleges it,

which, in the present case, is respondent.

Respondent failed to prove that the promissory note was not supported by
any consideration. From her testimony and her assertions in the pleadings, it is
clear that the promissory note was issued for a cause or consideration, which, at
the very least, was petitioners signature on the document.

It may very well be argued that if such was the consideration, it was
inadequate. Nonetheless, even if the consideration is inadequate, the contract
would not be invalidated, unless there has been fraud, mistake, or undue
influence.[23] As previously stated, none of these grounds had been proven
present in this case.
The foregoing discussion renders the final issue insignificant. Be that as it
may, we would like to state that the remedy suggested by the CA is not the
proper one under the circumstances. An action for partition implies that the
property is still owned in common. [24] Considering that the heirs had already
executed a deed of extrajudicial settlement and waived their shares in favor of
respondent, the properties are no longer under a state of co-ownership; there is
nothing more to be partitioned, as ownership had already been merged in one
person.
WHEREFORE, premises considered, the CA Decision dated February 21,
2008 and its Resolution dated July 9, 2008 are REVERSED and SET ASIDE. The RTC
decision dated May 15, 2006 is REINSTATED.
SO ORDERED.