YU TEK and CO., plaintiff-appellant, vs. BASILIO GONZALES, defendant-appellant.

Beaumont, Tenney and Ferrier for plaintiff. Buencamino and Lontok for defendant.

TRENT, J.:

The basis of this action is a written contract, Exhibit A, the pertinent paragraphs of which follow:

1. That Mr. Basilio Gonzalez hereby acknowledges receipt of the sum of P3,000 Philippine currency from Messrs. Yu Tek and Co., and that in consideration of said sum be obligates himself to deliver to the said Yu Tek and Co., 600 piculs of sugar of the first and second grade, according to the result of the polarization, within the period of three months, beginning on the 1st day of January, 1912, and ending on the 31st day of March of the same year, 1912.

2. That the said Mr. Basilio Gonzales obligates himself to deliver to the said Messrs. Yu Tek and Co., of this city the said 600 piculs of sugar at any place within the said municipality of Santa Rosa which the said Messrs. Yu Tek and Co., or a representative of the same may designate.

3. That in case the said Mr. Basilio Gonzales does not deliver to Messrs. Yu Tek and Co. the 600 piculs of sugar within the period of three months, referred to in the second paragraph of this document, this contract will be rescinded and the said Mr. Basilio Gonzales will then be obligated to return to Messrs. Yu Tek and Co. the P3,000 received and also the sum of P1,200 by way of indemnity for loss and damages.

Plaintiff proved that no sugar had been delivered to it under this contract nor had it been able to recover the P3,000. Plaintiff prayed for judgment for the P3,000 and, in addition, for P1,200 under paragraph 4, supra. Judgment was rendered for P3,000 only, and from this judgment both parties appealed.

The points raised by the defendant will be considered first. He alleges that the court erred in refusing to permit parol evidence showing that the parties intended that the sugar was to be secured from the crop which the defendant raised on his plantation, and that he was unable to fulfill the contract by reason of the almost total failure of his crop. This case appears to be one to which the rule which excludes parol evidence to add to or vary the terms of a written contract is decidedly applicable. There is not the slightest intimation in the contract that the sugar was to be raised by the defendant. Parties are presumed to have reduced to writing all the essential conditions of their contract. While parol evidence is admissible in a variety of ways to explain the meaning of written contracts, it cannot serve the purpose of incorporating into the contract additional contemporaneous conditions which are not mentioned at all in the writing, unless there has been fraud or mistake. In an early case this court declined to allow parol evidence showing that a party to a written contract was to become a partner in a firm instead of a creditor of the firm. (Pastor vs. Gaspar, 2 Phil. Rep., 592.) Again, in Eveland vs. Eastern Mining Co. (14 Phil. Rep., 509) a contract of employment provided that the plaintiff should receive from the defendant a stipulated salary and expenses. The defendant sought to interpose as a defense to recovery that the payment of the salary was contingent upon the plaintiff's employment redounding to the benefit of the defendant company. The contract contained no such condition and the court declined to receive parol evidence thereof.

In the case at bar, it is sought to show that the sugar was to be obtained exclusively from the crop raised by the defendant. There is no clause in the written contract which even remotely suggests such a condition. The defendant undertook to deliver a specified quantity of sugar within a specified time. The contract placed no restriction upon the defendant in the matter of obtaining the sugar. He was equally at liberty to purchase it on the market or raise it himself. It may be true that defendant owned a plantation and expected to raise the sugar himself, but he did not limit his obligation to his own crop of sugar. Our conclusion is that the condition which the defendant seeks to add to the contract by parol evidence cannot be considered. The rights of the parties must be determined by the writing itself.

The second contention of the defendant arises from the first. He assumes that the contract was limited to the sugar he might raise upon his own plantation; that the contract represented a perfected sale; and that by failure of his crop he was relieved from complying with his undertaking by loss of the thing due. (Arts. 1452, 1096, and 1182, Civil Code.) This argument is faulty in assuming that there was a perfected sale. Article 1450 defines a perfected sale as follows:

The sale shall be perfected between vendor and vendee and shall be binding on both of them, if they have agreed upon the thing which is the object of the contract and upon the price, even when neither has been delivered.

Article 1452 reads: "The injury to or the profit of the thing sold shall, after the contract has been perfected, be governed by the provisions of articles 1096 and 1182."

This court has consistently held that there is a perfected sale with regard to the "thing" whenever the article of sale has been physically segregated from all other articles Thus, a particular tobacco factory with its contents was held sold under a contract which did not provide for either delivery of the price or of the thing until a future time. McCullough vs. Aenlle and Co. (3 Phil. Rep., 295). Quite similar was the recent case of Barretto vs. Santa Marina(26 Phil. Rep., 200) where specified shares of stock in a tobacco factory were held sold by a contract which deferred delivery of both the price and the stock until the latter had been appraised by an inventory of the entire assets of the company. In Borromeo vs. Franco (5 Phil. Rep., 49) a sale of a specific house was held perfected between the vendor and vendee, although the delivery of the price was withheld until the necessary documents of ownership were prepared by the vendee. In Tan Leonco vs. Go Inqui (8 Phil. Rep., 531) the plaintiff had delivered a quantity of hemp into the warehouse of the defendant. The defendant drew a bill of exchange in the sum of P800, representing the price which had been agreed upon for the hemp thus delivered. Prior to the presentation of the bill for payment, the hemp was destroyed. Whereupon, the defendant suspended payment of the bill. It was held that the hemp having been already delivered, the title had passed and the loss was the vendee's. It is our purpose to distinguish the case at bar from all these cases.

In the case at bar the undertaking of the defendant was to sell to the plaintiff 600 piculs of sugar of the first and second classes. Was this an agreement upon the "thing" which was the object of the contract within the meaning of article 1450, supra? Sugar is one of the staple commodities of this country. For the purpose of sale its bulk is weighed, the customary unit of weight being denominated a "picul." There was no delivery under the contract. Now, if called upon to designate the article sold, it is clear that the defendant could only say that it was "sugar." He could only use this generic name for the thing sold. There was no "appropriation" of any particular lot of sugar. Neither party could point to any specific quantity of sugar and say: "This is the article which was the subject of our contract." How different is this from the contracts discussed in the cases referred to above! In the McCullough case, for instance, the tobacco factory which the parties dealt with was specifically pointed out and distinguished from all other tobacco factories. So, in the Barretto case, the particular shares of stock which the parties desired to transfer were capable of designation. In the Tan Leonco

case, where a quantity of hemp was the subject of the contract, it was shown that that quantity had been deposited in a specific warehouse, and thus set apart and distinguished from all other hemp.

A number of cases have been decided in the State of Louisiana, where the civil law prevails, which confirm our position. Perhaps the latest is Witt Shoe Co. vs. Seegars and Co. (122 La., 145; 47 Sou., 444). In this case a contract was entered into by a traveling salesman for a quantity of shoes, the sales having been made by sample. The court said of this contract:

But it is wholly immaterial, for the purpose of the main question, whether Mitchell was authorized to make a definite contract of sale or not, since the only contract that he was in a position to make was an agreement to sell or an executory contract of sale. He says that plaintiff sends out 375 samples of shoes, and as he was offering to sell by sample shoes, part of which had not been manufactured and the rest of which were incorporated in plaintiff's stock in Lynchburg, Va., it was impossible that he and Seegars and Co. should at that time have agreed upon the specific objects, the title to which was to pass, and hence there could have been no sale. He and Seegars and Co. might have agreed, and did (in effect ) agree, that the identification of the objects and their appropriation to the contract necessary to make a sale should thereafter be made by the plaintiff, acting for itself and for Seegars and Co., and the legend printed in red ink on plaintiff's billheads ("Our responsibility ceases when we take transportation Co's. receipt `In good order'" indicates plaintiff's idea of the moment at which such identification and appropriation would become effective. The question presented was carefully considered in the case of State vs. Shields, et al. (110 La., 547, 34 Sou., 673) (in which it was absolutely necessary that it should be decided), and it was there held that in receiving an order for a quantity of goods, of a kind and at a price agreed on, to be supplied from a general stock, warehoused at another place, the agent receiving the order merely enters into an executory contract for the sale of the goods, which does not divest or transfer the title of any determinate object, and which becomes effective for that purpose only when specific goods are thereafter appropriated to the contract; and, in the absence of a more specific agreement on the subject, that such appropriated takes place only when the goods as ordered are delivered to the public carriers at the place from which they are to be shipped, consigned to the person by whom the order is given, at which time and place, therefore, the sale is perfected and the title passes.

This case and State vs. Shields, referred to in the above quotation are amply illustrative of the position taken by the Louisiana court on the question before us. But we cannot refrain from referring to the case of Larue and Prevost vs. Rugely, Blair and Co. (10 La. Ann., 242) which is summarized by the court itself in the Shields case as follows:

. . . It appears that the defendants had made a contract for the sale, by weight, of a lot of cotton, had received $3,000 on account of the price, and had given an order for its delivery, which had been presented to the purchaser, and recognized by the press in which the cotton was stored, but that the cotton had been destroyed by fire before it was weighed. It was held that it was still at the risk of the seller, and that the buyer was entitled to recover the $3,000 paid on account of the price.

We conclude that the contract in the case at bar was merely an executory agreement; a promise of sale and not a sale. At there was no perfected sale, it is clear that articles 1452, 1096, and 1182 are not applicable. The defendant having defaulted in his engagement, the plaintiff is entitled to recover the P3,000 which it advanced to the defendant, and this portion of the judgment appealed from must therefore be affirmed.

The plaintiff has appealed from the judgment of the trial court on the ground that it is entitled to recover the additional sum of P1,200 under paragraph 4 of the contract. The court below held that this paragraph was simply a limitation upon the amount of damages which could be recovered and not liquidated damages as contemplated by the law. "It also appears," said the lower court, "that in any event the defendant was prevented from fulfilling the contract by the delivery of the sugar by condition over which he had no control, but these conditions were not sufficient to absolve him from the obligation of returning the money which he received."

The above quoted portion of the trial court's opinion appears to be based upon the proposition that the sugar which was to be delivered by the defendant was that which he expected to obtain from his own hacienda and, as the dry weather destroyed his growing cane, he could not comply with his part of the contract. As we have indicated, this view is erroneous, as, under the contract, the defendant was not limited to his growth crop in order to make the delivery. He agreed to deliver the sugar and nothing is said in the contract about where he was to get it.

We think is a clear case of liquidated damages. The contract plainly states that if the defendant fails to deliver the 600 piculs of sugar within the time agreed on, the contract will be rescinded and he will be obliged to return the P3,000 and pay the sum of P1,200 by way of indemnity for loss and damages. There cannot be the slightest doubt about the meaning of this language or the intention of the parties. There is no room for either interpretation or construction. Under the provisions of article 1255 of the Civil Code contracting parties are free to execute the contracts that they may consider suitable, provided they are not in contravention of law, morals, or public order. In our opinion there is nothing in the contract under consideration which is opposed to any of these principles.

For the foregoing reasons the judgment appealed from is modified by allowing the recovery of P1,200 under paragraph 4 of the contract. As thus modified, the judgment appealed from is affirmed, without costs in this instance.

Arellano, C.J., Torres, Carson and Araullo, JJ., concur. Johnson, J., dissents.

COMPAÑIA GENERAL DE TABACOS DE FILIPINAS, petitioner, vs. COURT OF APPEALS, PHILIPPINE NATIONAL BANK and DEVELOPMENT BANK OF THE PHILIPPINES,respondents.

Siguion Reyna, Montecillo & Ongsiako for petitioner.

Pelaez, Adriano & Gregorio for respondents San Carlos Planters' Association & Theo Davis & Co., Far East Ltd. et al.

NARVASA, J.:

The conflicting claims of the mortgagees of a sugar quota or production allowance, on the one hand, and the mortgagors' subsequent vendees of the same, on the other, are the subject of the petition for review on certiorariat bar.

It appears that an unregistered partnership known as Gomez & Torres — composed of Francisco M. Gomez and Hector Torres — was the "principal and majority stockholder of the Philippine Milling

Company, a domestic corporation which owns and operates in the Mindoro Mill District a sugar mill where all the sugar cane planters of that mill district mill their sugar cane." 1 "Gomez & Torres" was also "registered in the Sugar Quota Administration as the owner and holder of the entire production allowance or quota appertaining to Plantation No. 30-15 of the Mindoro Mill District." 2

As security for a loan of P2,000,000.00 obtained from the Rehabilitation Finance Corporation (RFC), said Philippine Milling Company (thru its president, Hector A. Torres), and the above mentioned Hector A. Torres and Francisco Gomez, executed on August 7, 1950, a deed of mortgage hypothecating to the RFC, particularly described real and personal property, "together with all the buildings and improvements now existing or which may hereafter be constructed on the mortgaged property, all easements, sugar quotas, agricultural or land indemnities, aids or subsidies and all other rights or benefits annexed to or inherent therein, now existing or which may hereafter exist." 3

The mortgagors above named also assigned to the RFC on August 16, 1950, in a public instrument, 4 the sugar quota of the mill district aggregating no less than 148,000 piculs and sugar

warehouse receipts covering, the first 29,500 piculs of sugar milled by the sugar central annually and such additional sugar as may be necessary to cover the annual amortization of the loan, taking into consideration the fluctuating sugar prices, which assignments shall remain in full force and effect as long as . . . (their) aforementioned loan has not been settled in full."

Some fifteen months later, or on November 2, 1951, the same mortgagors executed in favor of the same mortgagee (the R.F.C) a second mortgage, this time as security for another loan of P1,860,000.00. The mortgage covered real and/or personal properties listed in the deed, "together with all the buildings and improvements now existing or which may hereafter be constructed on the mortgaged property, all easements, sugar quotas, agricultural or land indemnities, aids or subsidies, and all other rights or benefits annexed to or inherent therein, now existing or which may hereafter exist . . . and also other assets acquired with the proceeds of such loan . . . " 5

The mortgagors also executed on November 2, 1951 an assignment in favor of the RFC, like that of August 16, 1950, supra, respecting "its rights and interests on all the sugar quota of the Mindoro Mill District aggregating no less than 148,000 piculs and additional sugar warehouse receipts covering the first 27,350 piculs of sugar milled by the sugar central annually, and such additional sugar may be necessary to cover the annual amortization on the loan, until the full amount of the additional loan has been fully paid." 6

Both deeds of (real estate and chattel) mortgages were registered in the Register of Deeds of Occidental Mindoro on August 20, 1950 and November 9, 1951, respectively. 7

Earlier, or on or about January 13, 1951, the real estate and personal property subject of the two (2) mortgages just described, were again mortgaged by Philippine Milling Co., Francisco M. Gomez and Hector A. Torres, this time in favor of the Philippine National Bank as collateral for a loan of P235,000.00. This real estate and chattel mortgage was amended on April 6, 1951 by increasing its consideration from P235,000.00 to P335,000.00, and still later, on January 18, 1952, by further increasing the consideration to P1,405,0,00.00. 8 The original deed and its two (2) amendments were

all registered with the Register of Deeds of Occidental Mindoro.

In July, 1957, two (2) letters-agreements were executed between Gomez & Torres (represented by Francisco M. Gomez) on the one hand, and Theo H. Davies & Co., Ltd. ("for itself and representing [or as authorized representative of) San Carlos Planters' Association"]), on the other, by virtue of which the former sold to the latter a total of 18,000 piculs of the production allowance (or sugar quota) of Plantation No. 30-15, to wit:

1) On July 3, 1957: 8,250 piculs of "our ''A" quota and 1,750.00 piculs of our "B" quota corresponding to Plantation No. 30-15 of the Mindoro Mill District which is duly registered in our name;" 9 and

2) on July 11, 1957: 6,600.00 piculs of "our "A" quota and 1,400.00 piculs of our "B" quota . . ."

In the later agreement, Gomez & Torres guaranteed "that said 8,000.00 piculs of quotas as well as the 10,000.00 piculs sold to you on July 3, 1957, belong to us and are free from any lien or incumbrance whatsoever." 10

The transferees presented the two (2) agreements for recording in the District Office of the Sugar Quota Administration, on July 12, 1957. But the Sugar Quota Administration declined to give due course to the transfer until "necessary corrections" were made in the registration documents (known as DTRs: "district transfer registries"), and "the written conformity of the PNB," secured. 11

In a letter to the Philippine Mining Company dated September 10, 1957, the Administrator cited several reasons for his refusal: 12

1. There is no signature nor initial of the Permit Agent assigned to your District.

2. There is no distribution of coefficients in Columns F, I, and J in both of your DTR's.

3. This Office received a letter from the Philippine National Bank advising this Office that the allotments of Plantations Nos. 30-4, 30-8c, 30-9c, 30-14, 30-15 and 30-16a are mortgaged to the PNB and to advise the PNB of any sale, transfer or conveyance affecting the quota of the Philippine Milling Company, Hector A. Torres and Francisco M. Gomez and to withhold the registration without the consent of the PNB.

The letter of the PNB above referred to (par. 3) was that written by its Vice President, J.V. Buenaventura, dated September 4, 1957. 13

On October 2, 1957, San Carlos Planters' Association and Theo H. Davies Co. Ltd. submitted "two copies of the mill district coefficients and allowances of the 1957-1958 crop of the San Carlos Mill District." In response, the Sugar Quota Administrator sent them a letter dated October 3, 1957 advising that it was inappropriate for them to include "in said list, sugar allotments rights in the quantity of 14,850 piculs for 'A' and 3,150 for 'B' purchased by San Carlos Milling Co., Ltd. from Mindoro Mill District," because "this purchase has not been given due course by this office in view of the defects . . . (which) have not yet been corrected." 14

The Governor of the RFC also wrote to the SQA, under date of October 9, 1957, informing it of the mortgage to it of the sugar quota in question "aggregating no less than 148,000 piculs," and requesting "that no transfer or conveyance affecting the said sugar quota rights of the Philippine Milling Co. and Messrs. Hector A. Torres and Francisco Gomez that may have been presented or . . . may be presented . . . be given due course without the written consent of this Corporation." 15

On October 17, 1957, the San Carlos Milling Co. Ltd. and Theo H. Davies & Co. Far East Ltd. wrote to the SQA, in reply to the latter's communication of October 3, 1957. Adverting to a letter of the Philippine Milling Co. "of Sept. 15th, 1957 and . . . memorandum enclosure of the same date addressed to the Phil. Milling Co., the transferor central, by Torres and Gomez, owners and sellers of the quota rights in question, " they demanded "that the transfer of said quotas be given effect immediately from Mindoro Plantation Audit 30-15 of Torres and Gomez to Plantation Audit No. 38-E-

24 of the San Carlos Mill District for account of the San Carlos Planters Association." 16

The matter of registration remained in a state of flux until about a year later, or more precisely, August 5, 1958, when the Administrator ultimately authorized the transfer. 17

On January 6 and 7, 1959, the San Carlos Planters' Association in turn executed sales of portions of the sugar quota of 18,000 piculs acquired by it in favor of various individual sugar planters, all of which sales were recorded in the San Carlos District Transfer Registry. 18 Then on January 16, 1959,

San Carlos effected a change in the Plantation Number of its remaining portion of the sugar quota purchased by it (57.06 piculs of "A" quota and 12.12, piculs of "B" quota) from No. 38-E-24 to No. 38-343. 19

Eventually, the Development Bank of the Philippines (formerly RFC) caused the extrajudicial foreclosure of its mortgages of August 7, 1950 and November 2, 1951 by the Provincial Sheriff of Occidental Mindoro. The foreclosure sale was held on November 28, 1958. The DBP was the highest bidder. A certificate of sale was accordingly drawn up in its favor by the Sheriff on January 19, 1959. 20 As might be expected, among the properties specified in the certificate of sale, as having

been sold to DBP, were. 21

All sugar quota rights of the Philippine Milling Company including those of Spouses, Francisco M. Gomez and Francisca Villanueva and the Spouses, Hector A. Torres and Galinica Romano, as well as those of Gomez and Torres partnership in the Mindoro Mill District aggregating to no less than 148,000 piculs of sugar, which are attached to any and or all parcels of land described above and mortgaged to the Rehabilitation Finance Corporation now Development Bank, of the Philippines as well as the said sugar central's share in the above sugar and quota rights.

On June 17, 1960 — the one-year redemption period granted by law to the mortgagors, having expired without a redemption having been attempted, and the DBP having consolidated its ownership over the real and personal property subject of the mortgage sale — the DBP executed a deed of sale in favor of the PNB covering all the foreclosed property, for P5,147,309.07 and other valuable consideration. 22

Now, as regards the sugar quota in question, said deed stipulated inter alia that:

1) The "sugar quota rights pertaining to the Philippine Milling Company shall not be covered-by this agreement until after the expiration of the 1959-1960 crop year, but in no case earlier than June 30, 1960;" 23 and

2) ". . . while the l8,000 piculs of "A" and "B" sugar are expressly excluded in this Deed of Sale because of certain circumstances, the Vendee may, however, take such action as it may deem proper in order to recover the said 18,000 piculs of "A" and "B" sugar quotaand Vendor agrees to join such action whenever requested by the Vendee, it being understood, however, that Vendor shall not in any way be responsible for said 18,000 piculs nor be liable for the outcome of such action . . . 24

After about two (2) years, in March, 1962, PNB wrote to the San Carlos Planters' Association and the planters to whom the latter had sold portions of the 18,000 piculs of the sugar quota in

question, supra, demanding the restoration and delivery to it (the PNB) of their respective portions of said quota. As already mentioned, 25 the 18,000 piculs consisted of 14,850 piculs of 'A' quota and 3,150 piculs of 'B' quota.

When the latter failed to do so, the PNB together with the DBP brought suit in the Court of First Instance of Occidental Mindoro against Francisco M. Gomez and Hector A. Torres and their spouses; the partnership of Gomez & Torres; the Philippine Planters' Association; all the sugar planters to whom as aforementioned had been sold parts of the 18,000 piculs of the sugar quota in question; and the Sugar Quota Administration. 26 It set out three (3) causes of action in its complaint

and prayed for judgment as follows:

ON THE FIRST CAUSE OF ACTION

a. Declare the plaintiff PNB owner of the sugar quota in question in the quantity equal to 14,850 piculs of "A" quota and 3,150 piculs of "B" quota presently registered in the Sugar Quota Administration in the names of the defendants PLANTERS and defendant San Carlos Planters' Ass'n in the quantity and under the plantation numbers indicated in par. 3 of the First Cause of Action of this Complaint;

b. Order the defendants PLANTERS of the San Carlos Mill District and the defendant San Carlos Planters' Ass'n to return and restore to the plaintiff PNB the sugar quota in question;

c. Order the cancellation of the District Transfer Registry . . . (regarding the transfers to the defendants) and declare same of no force and effect.

ON THE SECOND AND ALTERNATIVE CAUSE OF ACTION

a. Declare the plaintiff PNB owner of the sugar quota in question in the quantity equal to 14,850 piculs of "A" quota and 3,150 piculs of "B" quota presently registered in the Sugar Quota Administration in the names of the defendants PLANTERS and defendant San Carlos Planters' Assn. in the quantity and under the plantation numbers indicated in par. 3 of the First Cause of Action of this Complaint;

b. Declare the sale of the sugar quota in question made by defendant TORRES & GOMEZ on July 3, 1957 and July 11, 1957 null and void;

c. Declare the transfer of the sugar quota in question from the Mindoro Mill District to the San Carlos Mill District null and void;

d. Declare the subsequent transfer of the sugar quota in question made by defendant San Carlos Planters' Assn. to the defendant PLANTERS of the San Carlos Mill District null and void;

e. Order the said defendants PLANTERS and the defendant San Carlos Planters' Assn. to return and restore to the plaintiff PNB the sugar quota in question; and

f. Order the cancellation of the. District Transfer Registry, Annexes "F", "G", "H", "I" and "J" and declare same of no force and effect.

ON THE THIRD CAUSE OF ACTION

a. Order the defendants TORRES & GOMEZ, Francisco Gomez, Hector A. Torres, Conrado Manalansan, as Sugar Quota Administrator, Theo H. Davies & Co. Ltd. and the San Carlos Planters' Assn. to pay jointly and severally the plaintiff PNB the sum of P50,400.00 as lost and/or unrealized rental of the sugar quota in question for the 1958-1959 crop year;

b. Order the defendants TORRES & GOMEZ, Francisco Gomez, Hector A. Torres, Conrado Manalansan, as Sugar Quota Administrator, Theo H. Davies & Co. Ltd. and the San Carlos Planters' Assn. to pay jointly and severally the plaintiff PNB the sum of P93,465.00 as unrealized profits on the sugar quota in question in connection with the agreement for conversion for 1959-1960 crop year;

c. Order the defendants TORRES & GOMEZ, Francisco Gomez, Hector A. Torres, Conrado Manalansan, as Sugar Quota Administrator, Theo H. Davies & Co. Ltd. and the San Carlos Planters' Assn. to pay jointly and severally the plaintiff PNB the sum of P93,465.00 as unrealized profits on the sugar quota in question in connection with the agreement for conversion entered with the BISCOM for the 1960-1961 crop year;

d. Order the defendants TORRES & GOMEZ, Francisco Gomez, Hector A. Torres, Conrado Manalansan, as Sugar Quota Administrator, Theo H. Davies & Co. Ltd., San Carlos Planters' Assn. and the defendants PLANTERS to pay jointly and severally the Plaintiff PNB the sum of P9,000.00 annually for three crop years beginning with the 1961-1962 as lost and/or unrealized rental of the sugar quota in question.

Plaintiff further pray for such other relief which this Honorable Court may deem just and proper to grant in the premises, with costs against the defendants.

Answers were in due course filed by the several defendants. At the pre-trial, the parties entered into a partial stipulation of facts which contained, in substance:

1) an admission of all the relevant documents appended to the complaint, as well as other documents, already above specified;

2) an acknowledgment that the consideration fixed in the two (2) letters-contracts between Gomez & Torres and Theo H. Davies & Co., Ltd. and the San Carlos Planters' Association, dated July 3 and 11, 1957, 27 had been paid;

3) a statement that the transfer of a part of the sugar quota to Cia. General de Tabacos de Filipinos (TABACALERA) was for valid consideration, and was accompanied by the usual warranty of the vendor's full right of disposition thereof and of absence of any lien or encumbrance thereon; and

4) a request that the court "take judicial notices of all executive orders, circulars and regulations which are pertinent to sugar quotas or which are otherwise in implementation of, or connected with, legislation on sugar trade and industry." 28

Trial ensued after which judgment was rendered. The Trial Court's judgment, rendered on April 8, 1968, 29 went against the plaintiffs. 30 It made the following explicit findings:

1. That while the defendants, Philippine Milling Company and Gomez and Torres assigned the rights over the Sugar Quota to the R.F.C., said assignment of rights, not having been duly registered in accordance with the rules and regulations of the Sugar Quota Administration, did not effect third parties who acquired said sugar quota in good faith and for value;

2. That the San Carlos Planters Association, the Theo H. Davies, the TABACALERA and all the transferees had acquired the sugar quota in question legally and in good faith, hence, the plaintiff has no cause of action against them; (and)

3. That nevertheless, a valid cause of action exists as against defendants Francisco M. Gomez and Hector Torres on the basis of the mortgage and assignment executed by them in favor of the Development Bank of the Philippines and the Philippine National Bank.

And on said findings, the Court:

1) dismissed the case "as against the San Carlos (Planters') Association, Theo H. Davies Co., Ltd., TABACALERA, the Sugar Quota Administrator and all the other private defendants who are the transferees;" but

2) ordered defendants 'Francisco M. Gomez and Hector Torres . . . to pay the value of the 18,000 piculs of 'A' and 'B' sugar quota allowance in the amount of P270,000.00 to the Philippine National Bank, plus interest at the legal rate from 1958 up to the actual payment thereof and to pay the costs."

PNB and Francisco Gomez appealed to the Court of Appeals. 31 The PNB ascribed to the Trial Court

the following errors to wit:

1) not finding that a valid mortgage was duly constituted also on the sugar quota allowances in question with binding effect against third persons including the defendants-appellees;

2) not finding that the defendants-appellees had both actual and constructive notice of the mortgage in favor of the Philippine National Bank and the Development Bank of the Philippines which covered the sugar quota allowances;

3) not finding that the PNB is the owner of the sugar quota allowance and in not ordering the defendants-appellees to return or reconvey the said sugar quota allowances to the PNB.

The decision of the Court of Appeals 32 was rendered on October 30, 1980. 33 It modified the Trial Court's judgment as follows:

IN VIEW OF THE FOREGOING CONSIDERATIONS, the judgment appealed from is hereby modified, in these aspects:

1. declaring the Philippine National Bank the owner of the sugar quota or production allowances in question;

2. ordering the defendants-appellees (excepting the defendant-appellee Administrator of the Sugar Quota Office) to reconvey to plaintiff-appellant PNB, the said sugar quota or production allowance

in question registered in their names, or if the same can not now be legally done, directing the defendants-appellees (excepting appellee Administrator of the Sugar Quota Office) to jointly and severally pay to PNB the value of the sugar quota or production allowance in question.

The appealed judgment is hereby affirmed in all other respects.

From this judgment, the Compañia General de Tabacos (TABACALERA) has appealed to this Court. Here it submits that said judgment should be reversed on the basis of the following considerations, to wit:

1) that sugar quotas are not "ordinary property . . . which may be appropriated, transferred, conveyed and/or encumbered by the private grantee at his whim and discretion without the intervention of the State," it being "regulated property, the disposal or encumbrance of which is made subject to certain restrictions and regulations provided for by law;" hence, "any form of alienation thereof should be made subject to governmental regulations and should be processed and approved by the implementing arm of the government, the Sugar Quota Administration;" and the mortgage constituted over the sugar quota in this case by the parties to whom the same had originally been awarded — the partnership of Gomez and Torres or the Philippine Milling Company — was void, "(a)pproval or sanction of the Sugar Quota Administration . . . (being) sorely and fatally lacking;"

a) moreover, "the very terms of the deed of sale executed by the DBP in favor of PNB on June 17, 1966 specifically and expressly excluded the 18,000 piculs in question;

2) even if the mortgage be accorded validity, it was "binding only as between the mortgagors and the mortgagees and did not have any effect in third persons who subsequently acquired the same," because the mortgages had not yet been "duly registered with the Sugar Quota Administration" when TABACALERA and others purchased parts of the quota in question from the Philippine Planters' Association; indeed, the transferees from the latter had "received the sanction and approval of the Sugar Quota Administrator;"

3) the direction by the Court of Appeals for TABACALERA among others, to reconvey the quota to the PNB is vague and indefinite since it does not state the point of time to be considered in computing the value thereof; furthermore, since it "benefited only to the extent of the . . . (precise quantity purchased by it, out of the 18,000 piculs), it would be "clearly contrary to law and grossly iniquitous" for it to be made solidarily liable for the value of the entire sugar quota in question; and

4) if TABACALERA reconveys or pays the value of the sugar quota acquired from San Carlos Planters' Association, the latter should, upon its implied and express warranty against eviction, reimburse it therefor.

The argument that Theo H. Davies & Co., Ltd., San Carlos Planters' Association, and their privies and successors in interest like TABACALERA, are purchasers in good faith of the sugar quota in question because they could not he deemed to have prior knowledge of the encumbrances thereon, is untenable.

For one thing, as the Court of Appeals has pointed out, the intangible property that is the sugar quota in question should be considered as real property by destination, "an improvement attaching to the land entitled thereto." 34 Moreover, as is axiomatic, the recording in the Registry of Deeds of a mortgage over lands

and other immovables operates to charge "the whole world" with notice thereof. 35 The registration therefore of the mortgages executed by the Philippine Milling Company, Hector A. Torres and Francisco Gomez in favor of the RFC and later of the PNB, thus had the effect of charging all persons, including Theo H. Davies & Co., Ltd., San Carlos Planters' Association, and their privies and successors in interest, with notice of the encumbrance, not only over the lands belonging to the mortgagors but also of the sugar quotas as well as "all the buildings and improvements . . . existing or which may hereafter be constructed on the mortgaged property, all; elements, . . . agricultural or land indemnities, aids or subsidies and all other rights or benefits annexed to or inherent therein, now existing or which may hereafter exist." So, none of the parties in this case can plead lack of knowledge of the mortgage lien over the sugar quota or production allowance.

Even if the sugar quota is assumed to be personal, not raid property, and hence not embraced in the mortgage of the immovables created by the corresponding deeds, it would nevertheless still be covered by the chattel mortgage created in and by the same deeds. Since, like the recording of a real estate mortgage, registration of a chattel mortgage also puts all persons on notice of its existence, the legal situation would be exactly the same: the registration of the above described deeds of chattel (and real estate) mortgage over the sugar quota, among other things, would also have charged all persons with notice thereof from the time of such registration. 36

Again, being themselves engaged and possessed of no little experience in the sugar industry, said Theo H. Davies & Co., Ltd., San Carlos Planters' Association (and their own transferees) could not but have known, when negotiations for their respective purchases of the sugar quota in question commenced, that the sugar quota they were dealing with had perforce to pertain to some specific sugar plantation or farm, i.e., Plantation 30-15 of the Mindoro Mill District. Sugar quota allocations do not have existence independently of any particular tract of land. They are essentially ancillary, not principal, assets, necessarily annexed to a specific sugar plantation or land, improvements "attaching to the land entitled thereto." 37 Hence, the very first inquiry in any negotiation affecting sugar

quotas necessarily would have to do with the identification of the district, plantation or land to which the quotas appertain. No transaction can be had of sugar quotas in the abstract, without reference whatsoever to any particular land. Indeed, any deed of conveyance of sugar quota would unavoidably have to describe the sugar plantation and district to which it refers or relates. There can be no sale simply of sugar quota of a certain number of piculs without specification of the land to which it relates. Such a sale would be inconsistent with established usage, and would be void for want of a determinate subject matter. 38 Theo H. Davies & Co., Ltd. and San Carlos Planters' Association can not therefore plead ignorance of the fact that the quota they were buying pertained to land belonging to the sellers, Plantation No. 30-15 of the Mindoro Mill District.

Furthermore, Theo H. Davies & Co., Ltd. and San Carlos Planters' Association were obviously of the belief that a mortgage or sale of a sugar quota is void if "(a)pproval or sanction of the Sugar Quota Administration . . . (is) lacking," this being in fact a proposition TABACALERA lays before this Court, although it cites no particular authority for it and has thus failed to convince this Court of its validity. Be this as it may, it was with this proposition in mind that Theo H. Davies & Co. Ltd. and San Carlos Planters' Association submitted the deed of conveyance in their favor of the sugar quota in question, to the SQA, precisely to obtain the latter's approval of that transaction. That approval, as already stated, was not given until a year later. But long before that approval, they were clearly and categorically informed that the sugar quota, subject of the sale to them for which they were seeking approval by the SQA was already mortgaged to the RFC and then to the PNB. Since good faith is obviously a state of the mind, and since — prior to the approval of the conveyance to them of the sugar quota by the SQA which approval they thought to be essential for the validity of said conveyance-they came to know of the earlier encum brance thereof to other parties, it is not possible for them without, contradicting themselves, to claim good faith in the transaction.

Turning now to TABACALERA and the other vendees of Theo H. Davies & Co. Ltd. and San Carlos Planters' Association, it is self-evident that they are also quite familiar with sugar quotas, including the nature and process of transferring the same, these being an important factor in their operations and transactions. They therefore had to know that the sugar quotas they were purchasing had originally to be part and parcel of some sugar plantation. Hence, apart from being charged with knowledge, as above discussed, of the mortgage of the land to which the sugar quota in question was an integrated adjunct — and that the mortgage extended to said sugar quotas like the buildings and improvements thereon standing — it may reasonably be assumed as a fact, too, that they inquired about and were duly informed of the origin of, and immediately preceding transactions involving, the sugar quotas they were acquiring.

They should therefore all be regarded as buyers in bad faith — the original vendees of Gomez and Torres and the Philippine Milling Company (i.e., the Philippine Planters Association and Theo H. Davies & Co. Ltd.) as well as the latter's own vendees (TABACALERA, et al.). The Court of Appeals was thus quite correct in "ordering the defendants-appellees (excepting the defendant-appellee Administrator of the Sugar Quota Office) to reconvey to plaintiff-appellant PNB, the said sugar quota or production allowance in question registered in their names, or if the same can not now be legally done, directing the defendants-appellees (excepting appellee Administrator of the Sugar Quota Office) to jointly and severally pay to PNB the value of the sugar quota or production allowance in question."

The fact that "the very terms of the deed of sale executed by the DBP in favor of PNB on June 17, 1966 specifically and expressly excluded the 18,000 piculs in question," of which TABACALERA would make capital, is of no moment. As also held by the Court of Appeals, the exclusion is more apparent than real. It is true that the deed of June 17, 1966 does provide that "the 18,000 piculs of 'A' and 'B' sugar are expressly excluded . . . because of certain circumstances." It is however pointed out that "the Vendee may . . . take such action as it may deem proper in order to recover the said 18, 000 piculs of 'A' and 'B' sugar quota and Vendor agrees to join such action whenever requested by the Vendee." The clear implication is that notwithstanding those "certain circumstances" causing the exclusion of the 18,000 piculs, there was an express assertion that a right to recover the same existed in favor of the vendor and/or its vendee; a declaration, in other words, that the sugar quota of 18,000 piculs rightfully belonged to the vendor and, by the sale, to the vendee. The ambivalent stipulation, in the mind of the Court of Appeals, merely evidenced the DBP's intention not be rendered liable to PNB on any warranty of legal title considering that the quota had in point of fact already been sold to third persons before foreclosure; the ostensible exclusion of the 18,000 piculs was a mere cautionary proviso. This Court agrees, after undertaking a review and analysis of the relevant facts.

However, TABACALERA's argument that it should not be made solidarily liable for the value of the entire sugar quota in question, because it benefited only to the extent of the precise quantity purchased by it, out of the 18,000 piculs is well taken. It does not appear that it acted in concert with the other vendees in the acquisition of all the 18,000 piculs comprising the sugar quota in question. For aught that appears on the record, it dealt separately and individually with its vendor. Its liability should indeed be limited to a return of the exact quantity and quality of the sugar quota separately purchased by it, as indubitably appears on record, or the payment of the value thereof computed as of the time that its obligation to return that quota was adjudged by the Court of Appeals.

One final question remains to be resolved, that posed by TABACALERA, to wit: if it reconveys the sugar quota acquired from San Carlos Planters' Association, or pays its value, should not it be reimbursed therefor by the latter, upon its implied and express warranty against eviction? The answer win have to be in the negative. They, vendor and vendee, are in pari delicto. At the time of the transaction between them they were well aware of the encumbrance on the property dealt with, they had the common intention of negating the rights that they knew had earlier and properly been

acquired by the mortgagee of the property they were treating of; they were both consequently acting in bad faith. The object or purpose of their contract was "contrary to law, morals, good customs, public order or public policy." 39 The law says that in such a case, where "the unlawful or forbidden

cause consists does not constitute a criminal offense, . . . and the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking." 40 No relief can be granted to either party; the law will leave them where they are. 41

WHEREFORE, the challenged judgment of the Court of Appeals is hereby AFFIRMED, with the modification that the liability of petitioner Compañia General de Tabacos de Filipinas (TABACALERA) is limited to the return to the Philippine National Bank of the exact quantity and quality of the sugar quota purchased by it from the Philippine Planters Association and/or Theo H. Davies & Co., Ltd., as indubitably appears on record, or the payment of the value thereof to said Philippine National Bank computed as of the time that its obligation to return that quota was adjudged by the Court of Appeals.

IT IS SO ORDERED.

Griño-Aquino and Medialdea, JJ., concur.

Cruz, J., took no part.

Gancayno, J., is on leave.

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

D E C I S I O N

MENDOZA, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals[1] reversing the decision of the Regional Trial Court, Naga City, Branch 19, in Civil Case No. 87-1335, as well as the appellate court’s resolution denying reconsideration. 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 decedent’s estate in Special Proceedings No. R-21, RTC, Branch 19, Naga City. Ramon San Andres engaged the services of a geodetic engineer, Jose Peñero, to prepare a

consolidated plan (Exh. A) of the estate. Engineer Peñero also prepared a sketch plan of the 345-square meter lot sold to respondent. From the result of the survey, it was found that respondent had enlarged the 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 ANDRES

Vendor

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.

Sincerely,

(Sgd.)

RAMON SAN ANDRES

Vicente Rodriguez

Penafrancia Subdivision, Naga City

P.S.

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

Received One Hundred Only

(Sgd.)

RAMON SAN ANDRES

3/30/66

Respondent deposited in court the balance of the purchase price amounting to P7,035.00 for the aforesaid 509-square meter lot. 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 Peñero,[8] testified that based on his survey conducted sometime between 1982 and 1985, respondent had enlarged the area which he purchased from the late Juan San Andres by 509 square meters belonging to the latter’s estate. According to Peñero, the titled property (Exh. A-5) of respondent was enclosed with a fence with metal holes and barbed wire, while the expanded area was fenced with barbed wire and bamboo and light materials. 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 509-square meter lot since 1964 when the late Juan San Andres signed the receipt. (Exh. 2) Lastly, she testified that they did not know at that time the exact area sold to them because they were told that the same would be known after the survey of the subject lot. 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 decision’s reads:

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

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

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

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

4. to pay the costs of the suit.

SO ORDERED.

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

Petitioner’s contention is without merit. There is no dispute that respondent purchased a portion of Lot 1914-B-2 consisting of 345 square meters. This portion is located in the middle of Lot 1914-B-2, which has a total area of 854 square meters, and is clearly what was referred to in the receipt as the "previously paid lot." Since the lot subsequently sold to respondent is said to adjoin the "previously paid lot" on three sides thereof, the subject lot is capable of being determined without the need of any new contract. The fact that the exact area of these adjoining residential lots is subject to the result of a survey does not detract from the fact that they are determinate or determinable. As the Court of Appeals explained:[15]

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

Appellee’s Exhibit "A" (page 4, Records) affirmingly shows that the original 345 sq. m. portion earlier sold lies at the middle of Lot 1914-B-2 surrounded by the remaining portion of the said Lot 1914-B-2 on three (3) sides, in the east, in the west and in the north. The northern boundary is a 12 meter road. Conclusively, therefore, this is the only remaining 509 sq. m. portion of Lot 1914-B-2 surrounding the 345 sq. m. lot initially purchased by Rodriguez. It is quite 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, Ramon’s 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 People’s 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 latter’s agreement, for to do so would be to alter the real intentions of the contracting parties when the contrary function of courts is to give force and effect to the intentions of the parties. 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, respondent’s 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.

G.R. No. L-36902 January 30, 1982

LUIS PICHEL, petitioner, vs. PRUDENCIO ALONZO, respondent.

GUERRERO, J.:

This is a petition to review on certiorari the decision of the Court of First Instance of Basilan City dated January 5, 1973 in Civil Case No. 820 entitled "Prudencio Alonzo, plaintiff, vs. Luis Pichel, defendant."

This case originated in the lower Court as an action for the annulment of a "Deed of Sale" dated August 14, 1968 and executed by Prudencio Alonzo, as vendor, in favor of Luis Pichel, as vendee, involving property awarded to the former by the Philippine Government under Republic Act No. 477. Pertinent portions of the document sued upon read as follows:

That the VENDOR for and in consideration of the sum of FOUR THOUSAND TWO HUNDRED PESOS (P4,200.00), Philippine Currency, in hand paid by the VENDEE to the entire satisfaction of the VENDOR, the VENDOR hereby sells transfers, and conveys, by way of absolute sale, all the coconut fruits of his coconut land, designated as Lot No. 21 - Subdivision Plan No. Psd- 32465, situated at Balactasan Plantation, Lamitan, Basilan City, Philippines;

That for the herein sale of the coconut fruits are for all the fruits on the aforementioned parcel of land presently found therein as well as for future fruits to be produced on the said parcel of land during the years period; which shag commence to run as of SEPTEMBER 15,1968; up to JANUARY 1, 1976 (sic);

That the delivery of the subject matter of the Deed of Sale shall be from time to time and at the expense of the VENDEE who shall do the harvesting and gathering of the fruits;

That the Vendor's right, title, interest and participation herein conveyed is of his own exclusive and absolute property, free from any liens and encumbrances and he warrants to the Vendee good title thereto and to defend the same against any and all claims of all persons whomsoever. 1

After the pre-trial conference, the Court a quo issued an Order dated November 9, 1972 which in part read thus:

The following facts are admitted by the parties:

Plaintiff Prudencio Alonzo was awarded by the Government that parcel of land designated as Lot No. 21 of Subdivision Plan Psd 32465 of Balactasan, Lamitan, Basilan City in accordance with Republic Act No. 477. The award was cancelled by the Board of Liquidators on January 27, 1965 on the ground that, previous thereto, plaintiff was proved to have alienated the land to another, in violation of law. In 197 2, plaintiff's rights to the land were reinstated.

On August 14, 1968, plaintiff and his wife sold to defendant an the fruits of the coconut trees which may be harvested in the land in question for the period, September 15, 1968 to January 1, 1976, in consideration of P4,200.00. Even as of the date of sale, however, the land was still under lease to one, Ramon Sua, and it was the agreement that part of the consideration of the sale, in the sum of P3,650.00, was to be paid by defendant directly to Ramon Sua so as to release the land from the clutches of the latter. Pending said payment plaintiff refused to snow the defendant to make any harvest.

In July 1972, defendant for the first time since the execution of the deed of sale in his favor, caused the harvest of the fruit of the coconut trees in the land.

xxx xxx xxx

Considering the foregoing, two issues appear posed by the complaint and the answer which must needs be tested in the crucible of a trial on the merits, and they are:

First.— Whether or nor defendant actually paid to plaintiff the full sum of P4,200.00 upon execution of the deed of sale.

Second.— Is the deed of sale, Exhibit 'A', the prohibited encumbrance contemplated in Section 8 of Republic Act No. 477? 2

Anent the first issue, counsel for plaintiff Alonzo subsequently 'stipulated and agreed that his client ... admits fun payment thereof by defendant. 3 The remaining issue being one of law, the Court below considered the case submitted for summary judgment on the basis of the pleadings of the parties, and the admission of facts and documentary evidence presented at the pre-trial conference.

The lower court rendered its decision now under review, holding that although the agreement in question is denominated by the parties as a deed of sale of fruits of the coconut trees found in the vendor's land, it actually is, for all legal intents and purposes, a contract of lease of the land itself. According to the Court:

... the sale aforestated has given defendant complete control and enjoyment of the improvements of the land. That the contract is consensual; that its purpose is to allow the enjoyment or use of a thing; that it is onerous because rent or price certain is stipulated; and that the enjoyment or use of the thing certain is stipulated to be for a certain and definite period of time, are characteristics which admit of no other conclusion. ... The provisions of the contract itself and its characteristics govern its nature. 4

The Court, therefore, concluded that the deed of sale in question is an encumbrance prohibited by Republic Act No. 477 which provides thus:

Sec. 8. Except in favor of the Government or any of its branches, units, or institutions, land acquired under the provisions of this Act or any permanent improvements thereon shall not be thereon and for a term of ten years from and after the date of issuance of the certificate of title, nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of such period.

Any occupant or applicant of lands under this Act who transfers whatever rights he has acquired on said lands and/or on the improvements thereon before the date of the award or signature of the contract of sale, shall not be entitled to apply for another piece of agricultural land or urban, homesite or residential lot, as the case may be, from the National Abaca and Other Fibers Corporation; and such transfer shall be considered null and void. 5

The dispositive portion of the lower Court's decision states:

WHEREFORE, it is the judgment of this Court that the deed of sale, Exhibit 'A', should be, as it is, hereby declared nun and void; that plaintiff be, as he is, ordered to pay back to defendant the consideration of the sale in the sum of P4,200.00 the same to bear legal interest from the date of the filing of the complaint until paid; that defendant shall pay to the plaintiff the sum of P500.00 as attorney's fees.

Costs against the defendant. 6

Before going into the issues raised by the instant Petition, the matter of whether, under the admitted facts of this case, the respondent had the right or authority to execute the "Deed of Sale" in 1968, his award over Lot No. 21 having been cancelled previously by the Board of Liquidators on January 27, 1965, must be clarified. The case in point is Ras vs. Sua 7 wherein it was categorically stated by this Court that a cancellation of an award granted pursuant to the provisions of Republic Act No. 477 does not automatically divest the awardee of his rights to the land. Such cancellation does not result in the immediate reversion of the property subject of the award, to the State. Speaking through Mr. Justice J.B.L. Reyes, this Court ruled that "until and unless an appropriate proceeding for reversion is instituted by the State, and its reacquisition of the ownership and possession of the land decreed by a competent court, the grantee cannot be said to have been divested of whatever right that he may have over the same property." 8

There is nothing in the record to show that at any time after the supposed cancellation of herein respondent's award on January 27, 1965, reversion proceedings against Lot No. 21 were instituted by the State. Instead, the admitted fact is that the award was reinstated in 1972. Applying the doctrine announced in the above-cited Ras case, therefore, herein respondent is not deemed to have lost any of his rights as grantee of Lot No. 21 under Republic Act No. 477 during the period material to the case at bar, i.e., from the cancellation of the award in 1965 to its reinstatement in 1972. Within said period, respondent could exercise all the rights pertaining to a grantee with respect to Lot No. 21.

This brings Us to the issues raised by the instant Petition. In his Brief, petitioner contends that the lower Court erred:

1. In resorting to construction and interpretation of the deed of sale in question where the terms thereof are clear and unambiguous and leave no doubt as to the intention of the parties;

2. In declaring — granting without admitting that an interpretation is necessary — the deed of sale in question to be a contract of lease over the land itself where the respondent himself waived and abandoned his claim that said deed did not express the true agreement of the parties, and on the contrary, respondent admitted at the pre-trial that his agreement with petitioner was one of sale of the fruits of the coconut trees on the land;

3. In deciding a question which was not in issue when it declared the deed of sale in question to be a contract of lease over Lot 21;

4. In declaring furthermore the deed of sale in question to be a contract of lease over the land itself on the basis of facts which were not proved in evidence;

5. In not holding that the deed of sale, Exhibit "A" and "2", expresses a valid contract of sale;

6. In not deciding squarely and to the point the issue as to whether or not the deed of sale in question is an encumbrance on the land and its improvements prohibited by Section 8 of Republic Act 477; and

7. In awarding respondent attorney's fees even granting, without admitting, that the deed of sale in question is violative of Section 8 of Republic Act 477.

The first five assigned errors are interrelated, hence, We shall consider them together. To begin with, We agree with petitioner that construction or interpretation of the document in question is not called for. A perusal of the deed fails to disclose any ambiguity or obscurity in its provisions, nor is there doubt as to the real intention of the contracting parties. The terms of the agreement are clear and unequivocal, hence the literal and plain meaning thereof should be observed. Such is the mandate of the Civil Code of the Philippines which provides that:

Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control ... .

Pursuant to the afore-quoted legal provision, the first and fundamental duty of the courts is the application of the contract according to its express terms, interpretation being resorted to only when such literal application is impossible. 9

Simply and directly stated, the "Deed of Sale dated August 14, 1968 is precisely what it purports to be. It is a document evidencing the agreement of herein parties for the sale of coconut fruits of Lot No. 21, and not for thelease of the land itself as found by the lower Court. In clear and express terms, the document defines the object of the contract thus: "the herein sale of the coconut fruits are for an the fruits on the aforementioned parcel of land during the years ...(from) SEPTEMBER 15, 1968; up to JANUARY 1, 1976." Moreover, as petitioner correctly asserts, the document in question expresses a valid contract of sale. It has the essential elements of a contract of sale as defined under Article 1485 of the New Civil Code which provides thus:

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.

The subject matter of the contract of sale in question are the fruits of the coconut trees on the land during the years from September 15, 1968 up to January 1, 1976, which subject matter is a determinate thing. Under Article 1461 of the New Civil Code, things having a potential existence may be the object of the contract of sale. And inSibal vs. Valdez, 50 Phil. 512, pending crops which have potential existence may be the subject matter of the sale. Here, the Supreme Court, citing Mechem

on Sales and American cases said which have potential existence may be the subject matter of sale. Here, the Supreme Court, citing Mechem on Sales and American cases said:

Mr. Mechem says that a valid sale may be made of a thing, which though not yet actually in existence, is reasonably certain to come into existence as the natural increment or usual incident of something already in existence, and then belonging to the vendor, and the title will vest in the buyer the moment the thing comes into existence. (Emerson vs. European Railway Co., 67 Me., 387; Cutting vs. Packers Exchange, 21 Am. St. Rep. 63) Things of this nature are said to have a potential existence. A man may sell property of which he is potentially and not actually possess. He may make a valid sale of the wine that a vineyard is expected to produce; or the grain a field may grow in a given time; or the milk a cow may yield during the coming year; or the wool that shall thereafter grow upon sheep; or what may be taken at the next case of a fisherman's net; or fruits to grow; or young animals not yet in existence; or the goodwill of a trade and the like. The thing sold, however, must be specific and Identified. They must be also owned at the time by the vendor. (Hull vs. Hull 48 Conn. 250 (40 Am. Rep., 165) (pp. 522-523).

We do not agree with the trial court that the contract executed by and between the parties is "actually a contract of lease of the land and the coconut trees there." (CFI Decision, p. 62, Records). The Court's holding that the contract in question fits the definition of a lease of things wherein one of the parties binds himself to give to another the enjoyment or use of a thing for a price certain and for a period which may be definite or indefinite (Art. 1643, Civil Code of the Philippines) is erroneous. The essential difference between a contract of sale and a lease of things is that the delivery of the thing sold transfers ownership, while in lease no such transfer of ownership results as the rights of the lessee are limited to the use and enjoyment of the thing leased.

In Rodriguez vs. Borromeo, 43 Phil. 479, 490, the Supreme Court held:

Since according to article 1543 of the same Code the contract of lease is defined as the giving or the concession of the enjoyment or use of a thing for a specified time and fixed price, and since such contract is a form of enjoyment of the property, it is evident that it must be regarded as one of the means of enjoyment referred to in said article 398, inasmuch as the terms enjoyment, use, and benefit involve the same and analogous meaning relative to the general utility of which a given thing is capable. (104 Jurisprudencia Civil, 443)

In concluding that the possession and enjoyment of the coconut trees can therefore be said to be the possession and enjoyment of the land itself because the defendant-lessee in order to enjoy his right under the contract, he actually takes possession of the land, at least during harvest time, gather all of the fruits of the coconut trees in the land, and gain exclusive use thereof without the interference or intervention of the plaintiff-lessor such that said plaintiff-lessor is excluded in fact from the land during the period aforesaid, the trial court erred. The contract was clearly a "sale of the coconut fruits." The vendor sold, transferred and conveyed "by way of absolute sale, all the coconut fruits of his land," thereby divesting himself of all ownership or dominion over the fruits during the seven-year period. The possession and enjoyment of the coconut trees cannot be said to be the possession and enjoyment of the land itself because these rights are distinct and separate from each other, the first pertaining to the accessory or improvements (coconut trees) while the second, to the principal (the land). A transfer of the accessory or improvement is not a transfer of the principal. It is the other way around, the accessory follows the principal. Hence, the sale of the nuts cannot be interpreted nor construed to be a lease of the trees, much less extended further to include the lease of the land itself.

The real and pivotal issue of this case which is taken up in petitioner's sixth assignment of error and as already stated above, refers to the validity of the "Deed of Sale", as such contract of sale, vis-a-vis the provisions of Sec. 8, R.A. No. 477. The lower Court did not rule on this question, having reached the conclusion that the contract at bar was one of lease. It was from the context of a lease contract that the Court below determined the applicability of Sec. 8, R.A. No. 477, to the instant case.

Resolving now this principal issue, We find after a close and careful examination of the terms of the first paragraph of Section 8 hereinabove quoted, that the grantee of a parcel of land under R.A. No. 477 is not prohibited from alienating or disposing of the natural and/or industrial fruits of the land awarded to him. What the law expressly disallows is the encumbrance or alienation of the land itself or any of the permanent improvements thereon. Permanent improvements on a parcel of land are things incorporated or attached to the property in a fixed manner, naturally or artificially. They include whatever is built, planted or sown on the land which is characterized by fixity, immutability or immovability. Houses, buildings, machinery, animal houses, trees and plants would fall under the category of permanent improvements, the alienation or encumbrance of which is prohibited by R.A. No. 477. While coconut trees are permanent improvements of a land, their nuts are natural or industrial fruits which are meant to be gathered or severed from the trees, to be used, enjoyed, sold or otherwise disposed of by the owner of the land. Herein respondents, as the grantee of Lot No. 21 from the Government, had the right and prerogative to sell the coconut fruits of the trees growing on the property.

By virtue of R.A. No. 477, bona fide occupants, veterans, members of guerilla organizations and other qualified persons were given the opportunity to acquire government lands by purchase, taking into account their limited means. It was intended for these persons to make good and productive use of the lands awarded to them, not only to enable them to improve their standard of living, but likewise to help provide for the annual payments to the Government of the purchase price of the lots awarded to them. Section 8 was included, as stated by the Court a quo, to protect the grantees from themselves and the incursions of opportunists who prey on their misery and poverty." It is there to insure that the grantees themselves benefit from their respective lots, to the exclusion of other persons.

The purpose of the law is not violated when a grantee sells the produce or fruits of his land. On the contrary, the aim of the law is thereby achieved, for the grantee is encouraged and induced to be more industrious and productive, thus making it possible for him and his family to be economically self-sufficient and to lead a respectable life. At the same time, the Government is assured of payment on the annual installments on the land. We agree with herein petitioner that it could not have been the intention of the legislature to prohibit the grantee from selling the natural and industrial fruits of his land, for otherwise, it would lead to an absurd situation wherein the grantee would not be able to receive and enjoy the fruits of the property in the real and complete sense.

Respondent through counsel, in his Answer to the Petition contends that even granting arguendo that he executed a deed of sale of the coconut fruits, he has the "privilege to change his mind and claim it as (an) implied lease," and he has the "legitimate right" to file an action for annulment "which no law can stop." He claims it is his "sole construction of the meaning of the transaction that should prevail and not petitioner. (sic). 10 Respondent's counsel either misapplies the

law or is trying too hard and going too far to defend his client's hopeless cause. Suffice it to say that respondent-grantee, after having received the consideration for the sale of his coconut fruits, cannot be allowed to impugn the validity of the contracts he entered into, to the prejudice of petitioner who contracted in good faith and for a consideration.

The issue raised by the seventh assignment of error as to the propriety of the award of attorney's fees made by the lower Court need not be passed upon, such award having been apparently based

on the erroneous finding and conclusion that the contract at bar is one of lease. We shall limit Ourselves to the question of whether or not in accordance with Our ruling in this case, respondent is entitled to an award of attorney's fees. The Civil Code provides that:

Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot be recovered, except:

(1) When exemplary damages are awarded;

(2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest;

(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim;

(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;

(8) In actions for indemnity under workmen's compensation and employer's liability laws;

(9) In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that attorney's fees and expenses of litigation should be recovered.

In all cases, the attorney's fees and expenses of litigation must be reasonable.

We find that none of the legal grounds enumerated above exists to justify or warrant the grant of attorney's fees to herein respondent.

IN VIEW OF THE FOREGOING, the judgment of the lower Court is hereby set aside and another one is entered dismissing the Complaint. Without costs.

SO ORDERED.

Teehankee (Chairman), Makasiar, Fernandez, Melencio-Herrera and Plana, JJ., concur.

TAN TIAH (alias T. SUYA), petitioner, vs. YU JOSE (alias JOSE Y. NAVARRO), respondent.

Pastor Salazar and Vamenta and Vamenta for petitioner. Norberto Romualdez for respondent.

VILLA-REAL, J.:

This is an appeal by way of certiorari taken by Tan Tiah (alias T. Suya), wherein he prays, on the grounds alleged therein, for the review of the decision rendered in the case by the Court of Appeals reversing that of the Court of First Instance of Leyte, for the reversal thereof, and for the affirmance of the decision of said Court of First Instance.

As grounds for the allowance of the appeal, petitioner assigns the following alleged errors of law committed by said Court of Appeals in its decision, to wit:

1. The Court of Appeals erred in finding in its decision, subject of the present petition for certiorari, that the 5th paragraph of the contract of lease Exhibit A establishes rights for the petitioner and for the respondent, which are antagonistic and, therefore, unenforceable by action.

2. The Court of Appeals likewise erred in finding in its decision that the promise, if any, made by respondent to sell to petitioner the land in question is not enforceable by action for lack of a price.

3. The Court of Appeals also erred in finding in its decision that the 5th paragraph of the contract of lease entered into by petitioner and respondent does not state two promises to buy and to sell which are mutually demandable.

4. Lastly, the Court of Appeals erred in holding that the herein petitioner has no cause of action against defendant-respondent.

5. On May 14, 1923 petitioner and respondent entered into a contract of lease in the fifth clause of which, pertinent to the question at issue, provides:

5th. That upon termination of the period of this contract, namely, ten years, the lessor shall have the option to buy the building or improvement which the lessee may have built upon the lots, reimbursing the latter ninety per cent (90%) of the original net cost of the construction; but should the lessor be unable or unwilling to buy said building or improvement, the income or rent derived therefrom shall be equally divided between said lessor and lessee, and the latter shall no longer have the obligation to pay the rent agreed upon for the lots in the second paragraph of this contract; provided, however, that the present contract, with the modification just mentioned, with respect to the income from the building and the rent from the lot, shall continue in force until the lessor buys the building or improvement or the lessee buys the land.

The judgment rendered by the Court of First Instance of Leyte and reversed by the Court of Appeals, which absolved the defendant is as follows:

Wherefore, judgment is rendered sentencing defendant to buy the house of plaintiff or to sell to plaintiff the land on which the latter's house is built. Each of the parties must submit the name of a person to be appointed commissioner for the assessment and appraisal of the land on which plaintiff's house is built.

Defendant is sentenced to pay the costs of the suit.

The main question to be decided in this appeal is whether plaintiff, as lessee, has a right, by virtue of the aforecited fifth clause of the contract of lease, to compel defendant as lessor, to sell to him the land on which he built his house in accordance with said contract.

It will be seen that the lessor is given the preference of buying the building erected on the leased land at a price equivalent to 90 per cent of the original net cost of the construction upon the termination of the ten years fixed in the contract as the duration of the lease. As ten years have elapsed and the lessor has not exercised his right to buy the building, and has no intention to do so, may the lessee compel the lessor to sell to him the leased land? The lessee is not given the option to buy the land. The grant of said right may not be inferred from the conditional clause of paragraph 5 and from paragraph 4 of the contract since neither in the conditional clause aforecited nor in the fourth paragraph of the contract is the lessor bound to sell the questioned land to the lessee. Furthermore, in the said conditional clause the price which the lessee would have to pay should he decide to buy the land is not fixed. Article 1445 of the Civil Code provides that "By the contract of purchase and sale one of the contracting parties binds himself to deliver a determinate thing and the other to pay a certain price therefor in money or in something representing the same." According to article 1451, "a promise to sell or buy, when there is an agreement as to the thing and the price, entitles the contracting parties reciprocally to demand the fulfillment of the contract." And article 1447 of the same Code provides that in order that the price may be considered certain, it shall be sufficient that it be so in relation to some certain thing, or that its determination be left to the judgment of some particular person, and should the latter be unable or unwilling to fix the price, the contract shall be inoperative. And according to article 1449 of the same Code, the designation of the price can never be left to the determination of one of the contracting parties.

As we have said, a price certain which the lessee should pay the lessor for the land in case he should desire to buy it has not been fixed; neither has anything which may have definite value or which may serve as a basis for the fixing of the price been designated. Also, no determinate person has been named to fix the price.

The price of the leased land not having been fixed and the lessor not having bound himself to sell it, the essential elements which give life to the contract are lacking. It follows that the lessee cannot compel the lessor to sell the leased land to him.

Having arrived at this conclusion, we do not find sufficient grounds for reversing the decision appealed from, which is hereby affirmed, with costs against the appellant.

Imperial, Diaz, Laurel, and Concepcion, JJ., concur.

G.R. No. L-116650 May 23, 1995

TOYOTA SHAW, INC., petitioner, vs. COURT OF APPEALS and LUNA L. SOSA, respondents.

DAVIDE, JR., J.:

At the heart of the present controversy is the document marked Exhibit "A" 1 for the private

respondent, which was signed by a sales representative of Toyota Shaw, Inc. named Popong Bernardo. The document reads as follows:

4 June 1989

AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA

SHAW, INC.

1. all necessary documents will be submitted to TOYOTA SHAW, INC. (POPONG BERNARDO) a week after, upon arrival of Mr. Sosa from the Province (Marinduque) where the unit will be used on the 19th of June.

2. the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15, 1989.

3. the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic] and released by TOYOTA SHAW, INC. on the 17th of June at 10 a.m.

Very truly yours,

(Sgd.) POPONG BERNARDO.

Was this document, executed and signed by the petitioner's sales representative, a perfected contract of sale, binding upon the petitioner, breach of which would entitle the private respondent to

damages and attorney's fees? The trial court and the Court of Appeals took the affirmative view. The petitioner disagrees. Hence, this petition for review oncertiorari.

The antecedents as disclosed in the decisions of both the trial court and the Court of Appeals, as well as in the pleadings of petitioner Toyota Shaw, Inc. (hereinafter Toyota) and respondent Luna L. Sosa (hereinafter Sosa) are as follows. Sometime in June of 1989, Luna L. Sosa wanted to purchase a Toyota Lite Ace. It was then a seller's market and Sosa had difficulty finding a dealer with an available unit for sale. But upon contacting Toyota Shaw, Inc., he was told that there was an available unit. So on 14 June 1989, Sosa and his son, Gilbert, went to the Toyota office at Shaw Boulevard, Pasig, Metro Manila. There they met Popong Bernardo, a sales representative of Toyota.

Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 because he, his family, and abalikbayan guest would use it on 18 June 1989 to go to Marinduque, his home province, where he would celebrate his birthday on the 19th of June. He added that if he does not arrive in his hometown with the new car, he would become a "laughing stock." Bernardo assured Sosa that a unit would be ready for pick up at 10:00 a.m. on 17 June 1989. Bernardo then signed the aforequoted "Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc." It was also agreed upon by the parties that the balance of the purchase price would be paid by credit financing through B.A. Finance, and for this Gilbert, on behalf of his father, signed the documents of Toyota and B.A. Finance pertaining to the application for financing.

The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver the downpayment of P100,000.00. They met Bernardo who then accomplished a printed Vehicle Sales Proposal (VSP) No. 928, 2 on which Gilbert signed under the subheading CONFORME. This document shows that the

customer's name is "MR. LUNA SOSA" with home address at No. 2316 Guijo Street, United Parañaque II; that the model series of the vehicle is a "Lite Ace 1500" described as "4 Dr minibus"; that payment is by "installment," to be financed by "B.A.," 3 with the initial cash outlay of P100,000.00 broken down as follows:

a) downpayment — P 53,148.00

b) insurance — P 13,970.00

c) BLT registration fee — P 1,067.00

CHMO fee — P 2,715.00

service fee — P 500.00

accessories — P 29,000.00

and that the "BALANCE TO BE FINANCED" is "P274,137.00." The spaces provided for "Delivery Terms" were not filled-up. It also contains the following pertinent provisions:

CONDITIONS OF SALES

1. This sale is subject to availability of unit.

2. Stated Price is subject to change without prior notice, Price prevailing and in effect at time of selling will apply. . . .

Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the VSP.

On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform him that the vehicle would not be ready for pick up at 10:00 a.m. as previously agreed upon but at 2:00 p.m. that same day. At 2:00 p.m., Sosa and Gilbert met Bernardo at the latter's office. According to Sosa, Bernardo informed them that the Lite Ace was being readied for delivery. After waiting for about an hour, Bernardo told them that the car could not be delivered because "nasulot ang unit ng ibang malakas."

Toyota contends, however, that the Lite Ace was not delivered to Sosa because of the disapproval by B.A. Finance of the credit financing application of Sosa. It further alleged that a particular unit had already been reserved and earmarked for Sosa but could not be released due to the uncertainty of payment of the balance of the purchase price. Toyota then gave Sosa the option to purchase the unit by paying the full purchase price in cash but Sosa refused.

After it became clear that the Lite Ace would not be delivered to him, Sosa asked that his downpayment be refunded. Toyota did so on the very same day by issuing a Far East Bank check for the full amount of P100,000.00, 4 the receipt of which was shown by a check voucher of Toyota, 5 which Sosa signed with the reservation, "without prejudice to our future claims for damages."

Thereafter, Sosa sent two letters to Toyota. In the first letter, dated 27 June 1989 and signed by him, he demanded the refund, within five days from receipt, of the downpayment of P100,000.00 plus interest from the time he paid it and the payment of damages with a warning that in case of Toyota's failure to do so he would be constrained to take legal action. 6 The second, dated 4 November 1989 and signed by M. O. Caballes, Sosa's counsel, demanded one million pesos representing interest and damages, again, with a warning that legal action would be taken if payment was not made within three days. 7 Toyota's counsel answered through a letter dated 27 November 1989 8 refusing to accede to the demands of Sosa. But even before this answer was made and received by Sosa, the latter filed on 20 November 1989 with Branch 38 of the Regional Trial Court (RTC) of Marinduque a complaint against Toyota for damages under Articles 19 and 21 of the Civil Code in the total amount of P1,230,000.00. 9 He alleges, inter alia, that:

9. As a result of defendant's failure and/or refusal to deliver the vehicle to plaintiff, plaintiff suffered embarrassment, humiliation, ridicule, mental anguish and sleepless nights because: (i) he and his family were constrained to take the public transportation from Manila to Lucena City on their way to Marinduque; (ii) his balikbayan-guest canceled his scheduled first visit to Marinduque in order to avoid the inconvenience of taking public transportation; and (iii) his relatives, friends, neighbors and other provincemates, continuously irked him about "his Brand-New Toyota Lite Ace — that never was." Under the circumstances, defendant should be made liable to the plaintiff for moral damages in the amount of One Million Pesos (P1,000,000.00). 10

In its answer to the complaint, Toyota alleged that no sale was entered into between it and Sosa, that Bernardo had no authority to sign Exhibit "A" for and in its behalf, and that Bernardo signed Exhibit "A" in his personal capacity. As special and affirmative defenses, it alleged that: the VSP did not state date of delivery; Sosa had not completed the documents required by the financing company, and as a matter of policy, the vehicle could not and would not be released prior to full compliance with financing requirements, submission of all documents, and execution of the sales agreement/invoice; the P100,000.00 was returned to and received by Sosa; the venue was improperly laid; and Sosa did not have a sufficient cause of action against it. It also interposed compulsory counterclaims.

After trial on the issues agreed upon during the pre-trial session, 11 the trial court rendered on 18 February 1992 a decision in favor of Sosa. 12 It ruled that Exhibit "A," the "AGREEMENTS BETWEEN MR. SOSA AND POPONG BERNARDO," was a valid perfected contract of sale between Sosa and

Toyota which bound Toyota to deliver the vehicle to Sosa, and further agreed with Sosa that Toyota acted in bad faith in selling to another the unit already reserved for him.

As to Toyota's contention that Bernardo had no authority to bind it through Exhibit "A," the trial court held that the extent of Bernardo's authority "was not made known to plaintiff," for as testified to by Quirante, "they do not volunteer any information as to the company's sales policy and guidelines because they are internal matters." 13 Moreover, "[f]rom the beginning of the transaction up to its

consummation when the downpayment was made by the plaintiff, the defendants had made known to the plaintiff the impression that Popong Bernardo is an authorized sales executive as it permitted the latter to do acts within the scope of an apparent authority holding him out to the public as possessing power to do these acts." 14 Bernardo then "was an agent of the defendant Toyota Shaw, Inc. and hence bound the defendants." 15

The court further declared that "Luna Sosa proved his social standing in the community and suffered besmirched reputation, wounded feelings and sleepless nights for which he ought to be compensated." 16 Accordingly, it disposed as follows:

WHEREFORE, viewed from the above findings, judgment is hereby rendered in favor of the plaintiff and against the defendant:

1. ordering the defendant to pay to the plaintiff the sum of P75,000.00 for moral damages;

2. ordering the defendant to pay the plaintiff the sum of P10,000.00 for exemplary damages;

3. ordering the defendant to pay the sum of P30,000.00 attorney's fees plus P2,000.00 lawyer's transportation fare per trip in attending to the hearing of this case;

4. ordering the defendant to pay the plaintiff the sum of P2,000.00 transportation fare per trip of the plaintiff in attending the hearing of this case; and

5. ordering the defendant to pay the cost of suit.

SO ORDERED.

Dissatisfied with the trial court's judgment, Toyota appealed to the Court of Appeals. The case was docketed as CA-G.R. CV No. 40043. In its decision promulgated on 29 July 1994, 17 the Court of Appeals affirmed in toto the appealed decision.

Toyota now comes before this Court via this petition and raises the core issue stated at the beginning of the ponenciaand also the following related issues: (a) whether or not the standard VSP was the true and documented understanding of the parties which would have led to the ultimate contract of sale, (b) whether or not Sosa has any legal and demandable right to the delivery of the vehicle despite the non-payment of the consideration and the non-approval of his credit application by B.A. Finance, (c) whether or not Toyota acted in good faith when it did not release the vehicle to Sosa, and (d) whether or not Toyota may be held liable for damages.

We find merit in the petition.

Neither logic nor recourse to one's imagination can lead to the conclusion that Exhibit "A" is a perfected contract of sale.

Article 1458 of the Civil Code defines a contract of sale as follows:

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.

and Article 1475 specifically provides when it is deemed perfected:

Art. 1475. 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.

From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.

What is clear from Exhibit "A" is not what the trial court and the Court of Appeals appear to see. It is not a contract of sale. No obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative obligation on the part of the latter to pay therefor a price certain appears therein. The provision on the downpayment of P100,000.00 made no specific reference to a sale of a vehicle. If it was intended for a contract of sale, it could only refer to a sale on installment basis, as the VSP executed the following day confirmed. But nothing was mentioned about the full purchase price and the manner the installments were to be paid.

This Court had already ruled that a definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of sale. 18 This is so because the agreement as to 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. Definiteness as to the price is an essential element of a binding agreement to sell personal property. 19

Moreover, Exhibit "A" shows the absence of a meeting of minds between Toyota and Sosa. For one thing, Sosa did not even sign it. For another, Sosa was well aware from its title, written in bold letters, viz.,

AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA SHAW, INC.

that he was not dealing with Toyota but with Popong Bernardo and that the latter did not misrepresent that he had the authority to sell any Toyota vehicle. He knew that Bernardo was only a sales representative of Toyota and hence a mere agent of the latter. It was incumbent upon Sosa to act with ordinary prudence and reasonable diligence to know the extent of Bernardo's authority as an agent 20 in respect of contracts to sell Toyota's vehicles. A person dealing with an agent is put upon

inquiry and must discover upon his peril the authority of the agent. 21

At the most, Exhibit "A" may be considered as part of the initial phase of the generation or negotiation stage of a contract of sale. There are three stages in the contract of sale, namely:

(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties;

(b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and

(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. 22

The second phase of the generation or negotiation stage in this case was the execution of the VSP. It must be emphasized that thereunder, the downpayment of the purchase price was P53,148.00 while the balance to be paid on installment should be financed by B.A. Finance Corporation. It is, of course, to be assumed that B.A. Finance Corp. was acceptable to Toyota, otherwise it should not have mentioned B.A. Finance in the VSP.

Financing companies are defined in Section 3(a) of R.A. No. 5980, as amended by P.D. No. 1454 and P.D. No. 1793, as "corporations or partnerships, except those regulated by the Central Bank of the Philippines, the Insurance Commission and the Cooperatives Administration Office, which are primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises, either by discounting or factoring commercial papers or accounts receivables, or by buying and selling contracts, leases, chattel mortgages, or other evidence of indebtedness, or by leasing of motor vehicles, heavy equipment and industrial machinery, business and office machines and equipment, appliances and other movable property." 23

Accordingly, in a sale on installment basis which is financed by a financing company, three parties are thus involved: the buyer who executes a note or notes for the unpaid balance of the price of the thing purchased on installment, the seller who assigns the notes or discounts them with a financing company, and the financing company which is subrogated in the place of the seller, as the creditor of the installment buyer. 24 Since B.A. Finance did not approve Sosa's application, there was then no

meeting of minds on the sale on installment basis.

We are inclined to believe Toyota's version that B.A. Finance disapproved Sosa's application for which reason it suggested to Sosa that he pay the full purchase price. When the latter refused, Toyota cancelled the VSP and returned to him his P100,000.00. Sosa's version that the VSP was cancelled because, according to Bernardo, the vehicle was delivered to another who was "mas malakas" does not inspire belief and was obviously a delayed afterthought. It is claimed that Bernardo said, "Pasensiya kayo, nasulot ang unit ng ibang malakas," while the Sosas had already been waiting for an hour for the delivery of the vehicle in the afternoon of 17 June 1989. However, in paragraph 7 of his complaint, Sosa solemnly states:

On June 17, 1989 at around 9:30 o'clock in the morning, defendant's sales representative, Mr. Popong Bernardo, called plaintiff's house and informed the plaintiff's son that the vehicle will not be ready for pick-up at 10:00 a.m. of June 17, 1989 but at 2:00 p.m. of that day instead. Plaintiff and his son went to defendant's office on June 17 1989 at 2:00 p.m. in order to pick-up the vehicle but the defendant for reasons known only to its representatives, refused and/or failed to release the vehicle to the plaintiff. Plaintiff demanded for an explanation, but nothing was given; . . . (Emphasis supplied). 25

The VSP was a mere proposal which was aborted in lieu of subsequent events. It follows that the VSP created no demandable right in favor of Sosa for the delivery of the vehicle to him, and its non-delivery did not cause any legally indemnifiable injury.

The award then of moral and exemplary damages and attorney's fees and costs of suit is without legal basis. Besides, the only ground upon which Sosa claimed moral damages is that since it was known to his friends, townmates, and relatives that he was buying a Toyota Lite Ace which they expected to see on his birthday, he suffered humiliation, shame, and sleepless nights when the van was not delivered. The van became the subject matter of talks during his celebration that he may not have paid for it, and this created an impression against his business standing and reputation. At the bottom of this claim is nothing but misplaced pride and ego. He should not have announced his plan to buy a Toyota Lite Ace knowing that he might not be able to pay the full purchase price. It was he who brought embarrassment upon himself by bragging about a thing which he did not own yet.

Since Sosa is not entitled to moral damages and there being no award for temperate, liquidated, or compensatory damages, he is likewise not entitled to exemplary damages. Under Article 2229 of the Civil Code, exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages.

Also, it is settled that for attorney's fees to be granted, the court must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the legal reason for the award of attorney's fees. 26 No such explicit determination thereon was made in the body of the decision of the trial

court. No reason thus exists for such an award.

WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV NO. 40043 as well as that of Branch 38 of the Regional Trial Court of Marinduque in Civil Case No. 89-14 are REVERSED and SET ASIDE and the complaint in Civil Case No. 89-14 is DISMISSED. The counterclaim therein is likewise DISMISSED.

No pronouncement as to costs.

SO ORDERED.

Padilla, Bellosillo and Kapunan, JJ., concur.

Quiason, J., is on leave.

IMELDA ONG, ET AL., petitioners, vs. ALFREDO ONG, ET AL., respondents.

Faustino Y Bautista and Fernando M. Mangubat for private respondent.

RELOVA, J.:

This is a petition for review on certiorari of the decision, dated June 20, 1984, of the Intermediate Appellate Court, in AC-G.R. No. CV-01748, affirming the judgment of the Regional Trial Court of Makati, Metro Manila. Petitioner Imelda Ong assails the interpretation given by respondent Appellate Court to the questioned Quitclaim Deed.

Records show that on February 25, 1976 Imelda Ong, for and in consideration of One (P1.00) Peso and other valuable considerations, executed in favor of private respondent Sandra Maruzzo, then a minor, a Quitclaim Deed whereby she transferred, released, assigned and forever quit-claimed to Sandra Maruzzo, her heirs and assigns, all her rights, title, interest and participation in the ONE-HALF (½) undivided portion of the parcel of land, particularly described as follows:

A parcel of land (Lot 10-B of the subdivision plan (LRC) Psd 157841, being a portion of Lot 10, Block 18, Psd-13288, LRC (GLRC) Record No. 2029, situated in the Municipality of Makati, Province of Rizal, Island of Luzon ... containing an area of ONE HUNDRED AND TWENTY FIVE (125) SQUARE METERS, more or less.

On November 19, 1980, Imelda Ong revoked the aforesaid Deed of Quitclaim and, thereafter, on January 20, 1982 donated the whole property described above to her son, Rex Ong-Jimenez.

On June 20, 1983, Sandra Maruzzo, through her guardian (ad litem) Alfredo Ong, filed with the Regional Trial Court of Makati, Metro Manila an action against petitioners, for the recovery of ownership/possession and nullification of the Deed of Donation over the portion belonging to her and for Accounting.

In their responsive pleading, petitioners claimed that the Quitclaim Deed is null and void inasmuch as it is equivalent to a Deed of Donation, acceptance of which by the donee is necessary to give it validity. Further, it is averred that the donee, Sandra Maruzzo, being a minor, had no legal personality and therefore incapable of accepting the donation.

Upon admission of the documents involved, the parties filed their responsive memoranda and submitted the case for decision.

On December 12, 1983, the trial court rendered judgment in favor of respondent Maruzzo and held that the Quitclaim Deed is equivalent to a Deed of Sale and, hence, there was a valid conveyance in favor of the latter.

Petitioners appealed to the respondent Intermediate Appellate Court. They reiterated their argument below and, in addition, contended that the One (P1.00) Peso consideration is not a consideration at all to sustain the ruling that the Deed of Quitclaim is equivalent to a sale.

On June 20, 1984, respondent Intermediate Appellate Court promulgated its Decision affirming the appealed judgment and held that the Quitclaim Deed is a conveyance of property with a valid cause or consideration; that the consideration is the One (P1.00) Peso which is clearly stated in the deed itself; that the apparent inadequacy is of no moment since it is the usual practice in deeds of conveyance to place a nominal amount although there is a more valuable consideration given.

Not satisfied with the decision of the respondent Intermediate Appellate Court, petitioners came to Us questioning the interpretation given by the former to this particular document.

On March 15, 1985, respondent Sandra Maruzzo, through her guardian ad litem Alfredo Ong, filed an Omnibus Motion informing this Court that she has reached the age of majority as evidenced by her Birth Certificate and she prays that she be substituted as private respondent in place of her guardian ad litem Alfredo Ong. On April 15, 1985, the Court issued a resolution granting the same.

A careful perusal of the subject deed reveals that the conveyance of the one- half (½) undivided portion of the above-described property was for and in consideration of the One (P 1.00) Peso and

the other valuable considerations (emphasis supplied) paid by private respondent Sandra Maruzzo through her representative, Alfredo Ong, to petitioner Imelda Ong. Stated differently, the cause or consideration is not the One (P1.00) Peso alone but also the other valuable considerations. As aptly stated by the Appellate Court-

... although the cause is not stated in the contract it is presumed that it is existing unless the debtor proves the contrary (Article 1354 of the Civil Code). One of the disputable presumptions is that there is a sufficient cause of the contract (Section 5, (r), Rule 131, Rules of Court). It is a legal presumption of sufficient cause or consideration supporting a contract even if such cause is not stated therein (Article 1354, New Civil Code of the Philippines.) This presumption cannot be overcome by a simple assertion of lack of consideration especially when the contract itself states that consideration was given, and the same has been reduced into a public instrument with all due formalities and solemnities. To overcome the presumption of consideration the alleged lack of consideration must be shown by preponderance of evidence in a proper action. (Samanilla vs, Cajucom, et al., 107 Phil. 432).

The execution of a deed purporting to convey ownership of a realty is in itself prima facie evidence of the existence of a valuable consideration, the party alleging lack of consideration has the burden of proving such allegation. (Caballero, et al. vs. Caballero, et al., (CA), 45 O.G. 2536).

Moreover, even granting that the Quitclaim deed in question is a donation, Article 741 of the Civil Code provides that the requirement of the acceptance of the donation in favor of minor by parents of legal representatives applies only to onerous and conditional donations where the donation may have to assume certain charges or burdens (Article 726, Civil Code). The acceptance by a legal guardian of a simple or pure donation does not seem to be necessary (Perez vs. Calingo, CA-40 O.G. 53). Thus, Supreme Court ruled in Kapunan vs. Casilan and Court of Appeals, (109 Phil. 889) that the donation to an incapacitated donee does not need the acceptance by the lawful representative if said donation does not contain any condition. In simple and pure donation, the formal acceptance is not important for the donor requires no right to be protected and the donee neither undertakes to do anything nor assumes any obligation. The Quitclaim now in question does not impose any condition.

The above pronouncement of respondent Appellate Court finds support in the ruling of this Court in Morales Development Co., Inc. vs. CA, 27 SCRA 484, which states that "the major premise thereof is based upon the fact that the consideration stated in the deeds of sale in favor of Reyes and the Abellas is P1.00. It is not unusual, however, in deeds of conveyance adhering to the Anglo-Saxon practice of stating that the consideration given is the sum of P1.00, although the actual consideration may have been much more. Moreover, assuming that said consideration of P1.00 is suspicious, this circumstance, alone, does not necessarily justify the inference that Reyes and the Abellas were not purchasers in good faith and for value. Neither does this inference warrant the conclusion that the sales were null and void ab initio. Indeed, bad faith and inadequacy of the monetary consideration do not render a conveyance inexistent, for the assignor's liberality may be sufficient cause for a valid contract (Article 1350, Civil Code), whereas fraud or bad faith may render either rescissible or voidable, although valid until annulled, a contract concerning an object certain entered into with a cause and with the consent of the contracting parties, as in the case at bar."

WHEREFORE. the appealed decision of the Intermediate Appellate Court should be, as it is hereby AFFIRMED, with costs against herein petitioners.

SO ORDERED.

HILARIA AGUILAR, plaintiff-appellant, vs. JUAN RUBIATO, defendant-appellant, and MANUEL GONZALEZ VILA, defendant-appellee.

Francisco A. Delgado for plaintiff and appellant. Abaya and Pamatmat for defendant and appellant.

MALCOLM, J.:

As certainly as may be ascertained, the facts of record in this case are believed to be the following:

Juan Rubiato is a resident of the municipality of Nagcarlan, Province of Laguna, of somewhat ordinary intelligence and astuteness. Early in the year 1915, he was the owner of various parcels of land having a potential value of approximately P26,000. Rubiato was desirous of obtaining a loan of not to exceed P1,000. Being in this state of mind, two men, Manuel Gonzalez Vila a procurador judicial and one Gregorio Azucena, and possibly another, one Marto Encarnacion, came to the house of Rubiato and there induced him to sign the second page of a power of attorney in favor of Manuel Gonzalez Vila. This power of attorney, introduced in evidence as Exhibit A, reads as follows:

To all whom it may concern:

I, Juan Rubiato e Isles, of age, married, a resident of the barrio of Rizal, municipality of Nagcarlan, Province of Laguna, Philippine Islands, do hereby freely and voluntarily set forth the following:

First. That I own and possess the full and absolute dominion over eight parcels of land (planted with about two thousand five hundred coconut trees) situated in the aforesaid barrio, municipality of Nagcarlan, Province of Laguna, P. I.; that the description and boundaries of same are duly described in the possessory title (dated the 15th day of January, 1896) (titulo posesorio) issued to me by the former Spanish sovereignty; that same is inscribed in the register of property of said province under numbers 141, 144, 146, 148, 150, 152, 154 and 156; that these facts are proven by the certificate written on the legal official papers numbered 0.153.826, 0.460.498, 0.455.683 and 0.460.459 and duly authorized by registrar, Sr. Antonio Roura, . . .law phi1.net

Second. That being unable, on account of illness, to go in person to Manila, I hereby declare that I grant to Sr. Manuel Gonzalez Vila, a resident of the municipality of San Pablo, Province of Laguna, P. I., any power whatever required by law to secure in said city a loan not exceeding one thousand pesos (P1,000), Philippine currency; that he shall secure same in my name and representation; that he may secure same either under the rate of interest and conditions considered most convenient and beneficial for my interests, or under pacto de retro; that furthermore he has ample power to execute, sign and ratify, as though he were myself, any writing necessary for the mortgage of my land described in the aforementioned document; and the he holds this special power of attorney over said lands to the end that same may be used as a guaranty of the loan to be secured. . . .

By reason of the power thus given, Manuel Gonzalez Vila on April 29, 1915, formulated the document introduced in evidence as Exhibit C, by which the lands of Rubiato were sold to Hilaria Aguilar of Manila, for the sum of P800, with right of repurchase within one year, Rubiato to remain in possession of the land as lessee and to pay P120 every three months as lease rent. Hilaria Aguilar never saw the lands in question and did not know, until after she had consulted her attorney, exactly what her rights were. Manuel Gonzalez Vila received from Hilaria Aguilar the P800 mentioned in

Exhibit C as the selling price of the land. Whether this money was then passed on to Juan Rubiato is uncertain, although it is undeniable that Hilaria Aguilar has never been paid the money she advanced.

The one year mentioned in the pacto de retro having expired without Hilaria Aguilar having received the principal nor any part of the lease rent, she began action against Juan Rubiato and Manuel Gonzalez Vila to consolidate the eight parcels of land in her name. After due trial, the trial judge, the Hon. Manuel Camus, rendered a decision in which he recited the facts somewhat, although not exactly, as hereinbefore set forth. The court found that the power of attorney only authorized Manuel Gonzalez Vila to obtain a loan subject to a mortgage, and not to sell the property. The judgment handed down was to the effect that the plaintiff Hilaria Aguilar recover from the defendant Juan Rubiato the sum of P800 with interest at the rate of 60 per cent per annum from April 29, 1915 until May 1, 1916, and with interest at the rate of 12 per cent per annum from May 1, 1916, until the payment of the principal, with the costs against the defendant. Both parties appealed.

The points raised by the plaintiff-appellant going as they do to the facts and these being as hereinbefore stated, no lengthy discussion of plaintiff's five assignments of error need be indulged in. The issue is not precisely relative to an interpretation of the power of attorney. The court is under no necessity of seizing on inexact language in order to hold that the document authorized a mortgage and not a sale. The so-called power of attorney might indeed be construed as authorizing Vila to sell the property of Rubiato. And it might indeed be construed under a conception similar to that of the trial court's as a loan guaranteed by a mortgage. But the controlling fact is, that the power of attorney was in reality no power of attorney but a sham document.

In addition to the evidence, there is one very cogent reason which impels us to the conclusion that Rubiato is only responsible to the plaintiff for a loan. It is — that the inadequacy of the price which Vila obtained for the eight parcels of land belonging to Rubiato is so great that the minds revolts at it. It is an agreement which a reasonable man would neither directly nor indirectly be likely to enter into or to consent to. To hold that the power of attorney signed by Rubiato authorized Vila to enter into the instant contract of sale would be equivalent to holding, if we may be permitted to use the language of Lord Hardwicke, that "a man in his senses and not under delusion" would dispose of lands worth P26,000 for P1,000, and would pay interest thereon at the rate of 60 per cent per annum. (See 6 R. C. L., 679, 841.)

The members of this court after most particular and cautious consideration, having in view all the facts and all the naturals tendencies of mankind, consider that Rubiato is only responsible to the plaintiff for the loan of P800.

The points advanced by defendant-appellant likewise necessitate only brief consideration. While entertaining some doubt as to the justice of requiring Rubiato to pay back the amount of P800, we do not feel authorized in disturbing this finding of the trial court. It may well be that Vila and his partners, acting as middlemen, fabricated the document which Rubiato signed, secured the money from Hilaria Aguilar, and then pocketed the same. Yet as minor details somewhat corroborative of the result reached by the trial court, are the undeniable facts that Rubiato admitted his desire to obtain a loan, that Hilaria Aguilar made such a loan, and that while the testimony of Vila is not overly truthful, in this one respect we do have his forceful statement that the money was paid over to Rubiato. That payment of the sum of P800 was not explicity prayed for in the complaint, does not deprive the court of power to render judgment for this amount, because it is a rule of good pleading that "the demand in the complaint is no part of the statement of the cause of action, and does not give it character. The facts alleged do this, and the plaintiff is entitled to so much relief as they warrant." (Sutherland on Code Pleading, Vol. I, sec. 186; Code of Civil Procedure, sec. 126.)

The only remaining question which merits resolution, on which the plaintiff and defendants flatly disagree, relates to the interest which should be allowed. The trial court, it will be remembered, permitted the plaintiff to recover interest at the rate of 60 per cent per annum from April 29, 1915, when the pacto de retro was formulated, until May 1, 1916, the date when the Usury Law, Act No. 2655, went into effect, and interest at the rate of 12 per cent per annum after that date. It is, of course, true, as previously decided by this court in United States vs. Constantino Tan Quingco Chua ([1919], 39 Phil., 552), that usury laws, such as that in force in the Philippines, are to be construed prospectively and not retrospectively. As stated in the decision just cited, "The reason is, that if the contract is legal at its inception, it cannot be rendered illegal by any subsequent legislation, for this would be tantamount to the impairment of the obligation for the contract." As we have held that the defendant is under obligation to the plaintiff for a mere loan, as this loan fails to name a lawful rate of interest, and as interest at the rate of 60 per cent per annum is unquestionably exorbitant and usurious under the Usury Law, on and after the date when this law became effective, the defendant would be liable for the legal rate of interest, which is 6 per cent per annum. We would even go further and hold that he would be liable only for such interest prior to the enactment of the Usury Law. This we can do under the sanction of article 1255 of the Civil Code which condemns agreements contrary to morals and public policy.

Judgment is affirmed, with the sole modification that the plaintiff shall only recover interest at the rate of 6 per cent per annum on the sum of P800 from April 29, 1915 until paid, without special finding as to costs in this instance. So ordered.

Arellano, C.J., Torres, Araullo, Street and Avanceña, JJ., concur.

RAMON A. GONZALES, petitioner, vs. THE PHILIPPINE NATIONAL BANK, respondent.

Ramon A. Gonzales in his own behalf.

Juan Diaz for respondent.

VASQUEZ, J.:

Petitioner Ramon A. Gonzales instituted in the erstwhile Court of First Instance of Manila a special civil action for mandamus against the herein respondent praying that the latter be ordered to allow him to look into the books and records of the respondent bank in order to satisfy himself as to the truth of the published reports that the respondent has guaranteed the obligation of Southern Negros Development Corporation in the purchase of a US$ 23 million sugar-mill to be financed by Japanese suppliers and financiers; that the respondent is financing the construction of the P 21 million Cebu-Mactan Bridge to be constructed by V.C. Ponce, Inc., and the construction of Passi Sugar Mill at Iloilo by the Honiron Philippines, Inc., as well as to inquire into the validity of Id transactions. The petitioner has alleged hat his written request for such examination was denied by the respondent. The trial court having dismissed the petition for mandamus, the instant appeal to review the said dismissal was filed.

The facts that gave rise to the subject controversy have been set forth by the trial court in the decision herein sought to be reviewed, as follows:

Briefly stated, the following facts gathered from the stipulation of the parties served as the backdrop of this proceeding.

Previous to the present action, the petitioner instituted several cases in this Court questioning different transactions entered into by the Bark with other parties. First among them is Civil Case No. 69345 filed on April 27, 1967, by petitioner as a taxpayer versus Sec. Antonio Raquiza of Public Works and Communications, the Commissioner of Public Highways, the Bank, Continental Ore Phil., Inc., Continental Ore, Huber Corporation, Allis Chalmers and General Motors Corporation In the course of the hearing of said case on August 3, 1967, the personality of herein petitioner to sue the bank and question the letters of credit it has extended for the importation by the Republic of the Philippines of public works equipment intended for the massive development program of the President was raised. In view thereof, he expressed and made known his intention to acquire one share of stock from Congressman Justiniano Montano which, on the following day, August 30, 1967, was transferred in his name in the books of the Bank.

Subsequent to his aforementioned acquisition of one share of stock of the Bank, petitioner, in his dual capacity as a taxpayer and stockholder, filed the following cases involving the bank or the members of its Board of Directors to wit:

l. On October l8,1967, Civil Case No. 71044 versus the Board of Directors of the Bank; the National Investment and Development Corp., Marubeni Iida Co., Ltd., and Agro-Inc. Dev. Co. or Saravia;

2. On May 11, 1968, Civil Case No. 72936 versus Roberto Benedicto and other Directors of the Bank, Passi (Iloilo) Sugar Central, Inc., Calinog-Lambunao Sugar Mill Integrated Farming, Inc., Talog sugar Milling Co., Inc., Safary Central, Inc., and Batangas Sugar Central Inc.;

3. On May 8, 1969, Civil Case No. 76427 versus Alfredo Montelibano and the Directors of both the PNB and DBP;

On January 11, 1969, however, petitioner addressed a letter to the President of the Bank (Annex A, Pet.), requesting submission to look into the records of its transactions covering the purchase of a sugar central by the Southern Negros Development Corp. to be financed by Japanese suppliers and financiers; its financing of the Cebu-Mactan Bridge to be constructed by V.C. Ponce, Inc. and the construction of the Passi Sugar Mills in Iloilo. On January 23, 1969, the Asst. Vice-President and Legal Counsel of the Bank answered petitioner's letter denying his request for being not germane to his interest as a one-share stockholder and for the cloud of doubt as to his real intention and purpose in acquiring said share. (Annex B, Pet.) In view of the Bank's refusal the petitioner instituted this action.' (Rollo, pp. 16-18.)

The petitioner has adopted the above finding of facts made by the trial court in its brief which he characterized as having been "correctly stated." (Petitioner-Appellant"s Brief, pp. 57.)

The court a quo denied the prayer of the petitioner that he be allowed to examine and inspect the books and records of the respondent bank regarding the transactions mentioned on the grounds that the right of a stockholder to inspect the record of the business transactions of a corporation granted under Section 51 of the former Corporation Law (Act No. 1459, as amended) is not absolute, but is

limited to purposes reasonably related to the interest of the stockholder, must be asked for in good faith for a specific and honest purpose and not gratify curiosity or for speculative or vicious purposes; that such examination would violate the confidentiality of the records of the respondent bank as provided in Section 16 of its charter, Republic Act No. 1300, as amended; and that the petitioner has not exhausted his administrative remedies.

Assailing the conclusions of the lower court, the petitioner has assigned the single error to the lower court of having ruled that his alleged improper motive in asking for an examination of the books and records of the respondent bank disqualifies him to exercise the right of a stockholder to such inspection under Section 51 of Act No. 1459, as amended. Said provision reads in part as follows:

Sec. 51. ... The record of all business transactions of the corporation and the minutes of any meeting shall be open to the inspection of any director, member or stockholder of the corporation at reasonable hours.

Petitioner maintains that the above-quoted provision does not justify the qualification made by the lower court that the inspection of corporate records may be denied on the ground that it is intended for an improper motive or purpose, the law having granted such right to a stockholder in clear and unconditional terms. He further argues that, assuming that a proper motive or purpose for the desired examination is necessary for its exercise, there is nothing improper in his purpose for asking for the examination and inspection herein involved.

Petitioner may no longer insist on his interpretation of Section 51 of Act No. 1459, as amended, regarding the right of a stockholder to inspect and examine the books and records of a corporation. The former Corporation Law (Act No. 1459, as amended) has been replaced by Batas Pambansa Blg. 68, otherwise known as the "Corporation Code of the Philippines."

The right of inspection granted to a stockholder under Section 51 of Act No. 1459 has been retained, but with some modifications. The second and third paragraphs of Section 74 of Batas Pambansa Blg. 68 provide the following:

The records of all business transactions of the corporation and the minutes of any meeting shag be open to inspection by any director, trustee, stockholder or member of the corporation at reasonable hours on business days and he may demand, in writing, for a copy of excerpts from said records or minutes, at his expense.

Any officer or agent of the corporation who shall refuse to allow any director, trustee, stockholder or member of the corporation to examine and copy excerpts from its records or minutes, in accordance with the provisions of this Code, shall be liable to such director, trustee, stockholder or member for damages, and in addition, shall be guilty of an offense which shall be punishable under Section 144 of this Code: Provided, That if such refusal is made pursuant to a resolution or order of the board of directors or trustees, the liability under this section for such action shall be imposed upon the directors or trustees who voted for such refusal; and Provided, further, That it shall be a defense to any action under this section that the person demanding to examine and copy excerpts from the corporation's records and minutes has improperly used any information secured through any prior examination of the records or minutes of such corporation or of any other corporation, or was not acting in good faith or for a legitimate purpose in making his demand.

As may be noted from the above-quoted provisions, among the changes introduced in the new Code with respect to the right of inspection granted to a stockholder are the following the records must be

kept at the principal office of the corporation; the inspection must be made on business days; the stockholder may demand a copy of the excerpts of the records or minutes; and the refusal to allow such inspection shall subject the erring officer or agent of the corporation to civil and criminal liabilities. However, while seemingly enlarging the right of inspection, the new Code has prescribed limitations to the same. It is now expressly required as a condition for such examination that the one requesting it must not have been guilty of using improperly any information through a prior examination, and that the person asking for such examination must be "acting in good faith and for a legitimate purpose in making his demand."

The unqualified provision on the right of inspection previously contained in Section 51, Act No. 1459, as amended, no longer holds true under the provisions of the present law. The argument of the petitioner that the right granted to him under Section 51 of the former Corporation Law should not be dependent on the propriety of his motive or purpose in asking for the inspection of the books of the respondent bank loses whatever validity it might have had before the amendment of the law. If there is any doubt in the correctness of the ruling of the trial court that the right of inspection granted under Section 51 of the old Corporation Law must be dependent on a showing of proper motive on the part of the stockholder demanding the same, it is now dissipated by the clear language of the pertinent provision contained in Section 74 of Batas Pambansa Blg. 68.

Although the petitioner has claimed that he has justifiable motives in seeking the inspection of the books of the respondent bank, he has not set forth the reasons and the purposes for which he desires such inspection, except to satisfy himself as to the truth of published reports regarding certain transactions entered into by the respondent bank and to inquire into their validity. The circumstances under which he acquired one share of stock in the respondent bank purposely to exercise the right of inspection do not argue in favor of his good faith and proper motivation. Admittedly he sought to be a stockholder in order to pry into transactions entered into by the respondent bank even before he became a stockholder. His obvious purpose was to arm himself with materials which he can use against the respondent bank for acts done by the latter when the petitioner was a total stranger to the same. He could have been impelled by a laudable sense of civic consciousness, but it could not be said that his purpose is germane to his interest as a stockholder.

We also find merit in the contention of the respondent bank that the inspection sought to be exercised by the petitioner would be violative of the provisions of its charter. (Republic Act No. 1300, as amended.) Sections 15, 16 and 30 of the said charter provide respectively as follows:

Sec. 15. Inspection by Department of Supervision and Examination of the Central Bank. — The National Bank shall be subject to inspection by the Department of Supervision and Examination of the Central Bank'

Sec. 16. Confidential information. —The Superintendent of Banks and the Auditor General, or other officers designated by law to inspect or investigate the condition of the National Bank, shall not reveal to any person other than the President of the Philippines, the Secretary of Finance, and the Board of Directors the details of the inspection or investigation, nor shall they give any information relative to the funds in its custody, its current accounts or deposits belonging to private individuals, corporations, or any other entity, except by order of a Court of competent jurisdiction,'

Sec. 30. Penalties for violation of the provisions of this Act.— Any director, officer, employee, or agent of the Bank, who violates or permits the violation of any of the provisions of this Act, or any person aiding or abetting the violations of any of the

provisions of this Act, shall be punished by a fine not to exceed ten thousand pesos or by imprisonment of not more than five years, or both such fine and imprisonment.

The Philippine National Bank is not an ordinary corporation. Having a charter of its own, it is not governed, as a rule, by the Corporation Code of the Philippines. Section 4 of the said Code provides:

SEC. 4. Corporations created by special laws or charters. — Corporations created by special laws or charters shall be governed primarily by the provisions of the special law or charter creating them or applicable to them. supplemented by the provisions of this Code, insofar as they are applicable.

The provision of Section 74 of Batas Pambansa Blg. 68 of the new Corporation Code with respect to the right of a stockholder to demand an inspection or examination of the books of the corporation may not be reconciled with the abovequoted provisions of the charter of the respondent bank. It is not correct to claim, therefore, that the right of inspection under Section 74 of the new Corporation Code may apply in a supplementary capacity to the charter of the respondent bank.

WHEREFORE, the petition is hereby DISMISSED, without costs.

Melencio-Herrera, Plana and Gutierrez, Jr., JJ., concur.

Teehankee (Chairman), concurs in the result.

Relova, J., is on leave.

EN BANC

[G.R. No. L-30871. December 28, 1970.] AURORA P. DE LEON, Petitioner, v. HON. SERAFIN SALVADOR, as Judge of Branch XIV of the Court of First Instance of Rizal (Caloocan City), and EUSEBIO BERNABE, ALBERTO A. VALINO, Special Deputy Sheriff of the Office of the Provincial Sheriff, Province of Rizal, and the REGISTER OF DEEDS for Caloocan City, Respondents. [G.R. No. L-31603. December 28, 1970] EUSEBIO BERNABE, Petitioner, v. THE HONORABLE JUDGE FERNANDO A. CRUZ of the Court of

First Instance of Rizal, Caloocan City, Branch XII, SPECIAL DEPUTY SHERIFF, ALBERTO A. VALINO of the Provincial Sheriff of Rizal and AURORA P. DE LEON, Respondents. Jose A. Garcia and Ismael M. Estrella for Petitioner. De los Santos, De los Santos & De los Santos and Felipe L. Abel for Respondents. Felipe L. Abel for Petitioner. Ismael M. Estrella and Jose A. Garcia for Respondents.

D E C I S I O N

TEEHANKEE, J.:

Joint decision of two special civil actions which were ordered consolidated since they involve the same

properties and the common issue of conflict of jurisdiction of the two Caloocan City branches of the Court of

First Instance of Rizal.

Case L-30871 arose from the following facts: A judgment for P35,000.00-actual, moral and exemplary

damages obtained by Enrique de Leon against private respondent Eusebio Bernabe in Civil Case No. C-189

of Branch XII of the Rizal court of first instance, Caloocan City branch presided by Judge Fernando A. Cruz,

having become final and executory, a writ of execution was issued by said court. Pursuant thereto, the city

sheriff, on November 8, 1966 levied on execution on two parcels of land of 682.5 square meters each

registered in the names of Bernabe under T.C.T. Nos. 94985 and 94986 of Caloocan City. At the execution

sale held on February 14, 1967, the city sheriff sold the said properties to herein petitioner, Aurora (sister of

the judgment creditor) as the highest bidder for the total sum of P30,194.00, (the property then being

subject to an existing mortgage lien in the amount of P120,000.00). The sheriff executed the corresponding

certificate of sale in her favor, which was duly registered on February 21, 1967 with the Caloocan City

register of deeds.

On February 7, 1968, just about two weeks before the expiration of the one-year period to redeem the

properties sold in execution, the judgment debtor Bernabe filed a separate civil action docketed as Civil Case

No. C-1217 against his judgment creditor Enrique de Leon, herein petitioner Aurora P. de Leon as purchaser

and the sheriff as defendants for the setting aside or annulment of the execution sale on February 14, 1967

"for being anomalous and irregular," and for the ordering of a new auction sale. This second case, instead of

being referred to Judge Cruz presiding over Branch XII which had issued the writ of execution, was assigned

to Branch XIV, the other Caloocan City branch of the Rizal Court of First Instance presided by Judge Serafin

Salvador, who issued on February 19, 1968 a writ of preliminary injunction enjoining therein defendants,

particularly the sheriff to desist "from taking further proceedings against the properties of the plaintiff

[Bernabe] that were sold at public auction on February 14, 1967, and from issuing a sheriff’s deed of sale at

the expiration of the period of redemption on February 21, 1968 in favor of defendant Aurora P. de Leon."

Aurora moved to dissolve the injunction and to dismiss this second case on the grounds of laches and lack of

jurisdiction of Judge Salvador’s court to interfere with the execution proceedings pending in the first case

before Judge Cruz’ court which is of equal and co-ordinate jurisdiction, but Judge Salvador denied the same

for not being indubitable and tried the case, notwithstanding Aurora’s pleas before and after the trial to

resolve the issue of his court’s lack of jurisdiction.

Pending his decision, Judge Salvador issued on May 20, 1969 an order granting two ex-parte motions of

Bernabe of May 12, and May 15, 1969 and ordering the sheriff to allow Bernabe to redeem the two

properties sold at public auction more than two years ago on February 14, 1967 under the writ of execution

issued by Judge Cruz’ court in the first case. On the following day, May 21, 1969, Bernabe deposited with

the sheriff the sum of P33,817.28 as the redemption price (P15,987,00 per lot plus interests), who issued a

certificate of redemption. Bernabe then registered on the following day, May 22, 1969, the sheriff’s

certificate of redemption with the register of deeds, who in turn cancelled the entry of the execution sale in

favor of Aurora, as well as registered on one of the properties covered by T.C.T. No. 94986 a deed of first

mortgage executed on May 20, 1969 by Bernabe in favor of one Antonio de Zuzuarregui to secure a loan of

P130,000.00. Aurora’s motion of May 28, 1969 in the second case to set aside the order and certificate of

redemption and registration of mortgage on the ground of lack of jurisdiction was denied by Judge Salvador,

who ruled in his order of June 23, 1969 that "there is no question that this Court has jurisdiction to hear and

determine this case which questions the regularity and legality of the auction sale of properties held on

February 14, 1967, hence the authority granted by the Court to redeem said properties within the

redemption period in order to write finis to the pending case." 1 Hence, this action for certiorari filed by

Aurora impleading the sheriff and the register of deeds for the annulment and setting aside for lack of

jurisdiction of the questioned orders of Judge Salvador’s court as well as of the challenged actuations of the

other respondent officials pursuant thereto. As prayed for, the Court issued a writ of preliminary injunction

enjoining said respondents from doing or taking any other act in connection with the said properties.

On May 30, 1969, Aurora also filed in the first case before Judge Cruz’ court a motion with proper notice for

consolidation of title and for the court to order the sheriff to issue in her favor a final deed of sale over the

subject parcels of land. Judge Cruz’ order of September 5, 1969, granting Aurora’s motion over Bernabe’s

opposition that he had redeemed on May 21, 1969 the said properties by virtue of Judge Salvador’s order of

May 20, 1969 in the second case and ordering Bernabe to surrender his owner’s duplicates of title for

transfer to Aurora, in turn gave rise to Case L-31603 filed by Bernabe. After Bernabe’s motion for

reconsideration urging Judge Cruz to hold in abeyance Aurora’s motion for consolidation of title until this

Court’s decision in Case L-30871 "which will end once and for all the legal controversy" over the conflict of

jurisdiction between the two courts, was denied by Judge Cruz’ order of January 8, 1970, he filed this action

for certiorari, impleading the sheriff, for the annulment and revocation of the questioned orders of Judge

Cruz, on the ground of the latter’s lack of jurisdiction to issue the same. As prayed for, the Court also issued

a writ of preliminary injunction against the enforcement of Judge Cruz’ orders, until the conflict between the

parties could be finally resolved.

The decisive issue at bar is a simple one of jurisdiction: which court, Branch XII presided by Judge Cruz or

Branch XIV presided by Judge Salvador has exclusive jurisdiction to set aside for alleged irregularities the

execution sale held on February 14, 1967 by virtue of the writ for the execution of the final judgment in the

first case (No. C-189) issued by Judge Cruz’ court and to order a new auction sale — which was the relief

sought by the judgment debtor in the second case (No. C-1217) in Judge Salvador’s court?

It is patent that such exclusive jurisdiction was vested in Judge Cruz’ court. Having acquired jurisdiction over

Case No. C-189 and rendered judgment that had become final and executory, it retained jurisdiction over its

judgment, to the exclusion of all other co-ordinate courts for its execution and all incidents thereof, and to

control, in furtherance of justice, the conduct of its ministerial officers in connection therewith. 2 Execution

of its judgment having been carried out by the sheriff with the levy and sale of the judgment debtor’s

properties, Eusebio Bernabe as judgment debtor could not in the guise of a new and separate second action

(Case No. 1217) ask another court of coordinate jurisdiction, Judge Salvador’s court, to interfere by

injunction with the execution proceedings, to set them aside and to order the holding of a new execution

sale — instead of seeking such relief by proper motion and application from Judge Cruz’ court which had

exclusive jurisdiction over the execution proceedings and the properties sold at the execution sale.

As early as 1922, in Cabigao v. del Rosario, 3 this Court laid down the doctrine that "no court has power to

interfere by injunction with the judgments or decrees of a court of concurrent or coordinate jurisdiction

having power to grant the relief sought by injunction," pointing out that" (T)he various branches of the

Court of First Instance of Manila are in a sense coordinate courts and to allow them to interfere with each

other’s judgments or decrees by injunctions would obviously lead to confusion and might seriously hinder

the administration of justice."cralaw virtua1aw libra ry

The Court similarly ruled in Hubahib v. Insular Drug Co., Inc., 4 with reference to Branch II of the Cebu

court of first instance having taken cognizance of an independent action for the annulment of a writ of

execution issued by Branch III of the same court which has rendered the judgment, that "the institution of

said action was not only improper but also absolutely unjustified, on the ground that the appellant had the

remedy of applying to the same Branch III of the lower court, which issued the orders in question, for

reconsideration thereof . . . or of appealing from said orders or from that denying his motion in case such

order has been issued. The various branches of a Court of First Instance of a province or city, having as they

have the same or equal authority and exercising as they do concurrent and coordinate jurisdiction, should

not, cannot, and are not permitted to interfere with their respective cases, much less with their orders or

judgments, by means of injunction."cralaw virtua1aw library

In National Power Corporation v. De Veyra, 5 the Court, through former Chief Justice Bengzon, thus

explained that the garnishment or levy of property on execution brings the property into custodia legis of

the court issuing the writ of execution, beyond the interference of all other co-ordinate courts, thereby

avoiding conflicts of power between such courts:" (T)he garnishment of property to satisfy a writ of

execution ‘operates as an attachment and fastens upon the property a lien by which the property is brought

under the jurisdiction of the court issuing the writ." It is brought into custodia legis, under the sole control of

such court. Property is in the custody of the court when it has been seized by an officer either under a writ

of attachment on mesne process or under a writ of execution. A court which has control of such property,

exercises exclusive jurisdiction over the same. No court, except one having a supervisory control or superior

jurisdiction in the premises, has a right to interfere with and change that possession."cralaw virtua1aw libra ry

The Court in striking down the Baguio court’s issuance of a writ of preliminary injunction against the Baguio

City sheriff’s garnishment of cash funds of Baguio City deposited in the Baguio branch of the Philippine

National Bank pursuant to a writ of execution issued by the Manila court of first instance for the satisfaction

of a final judgment rendered in favor of the National Power Corporation, and its assuming cognizance of the

separate complaint filed with it, duly indicated the proper procedure in such cases and the fundamental

reason therefor:" (T)he reason advanced by the respondent court of Baguio City that it should grant relief

when ‘there is apparently an illegal service of the writ’ (the property garnished being allegedly exempt from

execution) may not be upheld, there being a better procedure to follow, i.e., a resort to the Manila court,

wherein the remedy may be obtained, it being the court under whose authority the illegal levy had been

made. Needless to say, an effective ordering of legal relationships in civil society is possible only when each

court is granted exclusive jurisdiction over the property brought to it." 6

The Court time and again has applied this long established doctrine admonishing court and litigant alike last

year in Luciano v. Provincial Governor 7 that a judge of a branch of a court may not interfere with the

proceedings before a judge of another branch of the same court.

The properties in question were brought into custodia legis of Judge Cruz court and came under its exclusive

jurisdiction when they were levied upon by the sheriff pursuant to the writ for execution of the judgment

rendered by said court. The levy is the essential act by which the judgment debtor s property is set apart for

the satisfaction of the judgment and taken into custody of the law, and from such time the court issuing the

execution acquires exclusive jurisdiction over the property and all subsequent claims of other parties are

subordinated thereto, irrespective of the time when the property is actually sold. 8 The execution sale

having been carried out upon order of Judge Cruz court, any and all questions concerning the validity and

regularity of the sale necessarily had to be addressed to his court which had exclusive jurisdiction over the

properties and were beyond interference by Judge Salvador s court. Justice Cruz court alone had jurisdiction

— subject only to the supervisory control or appellate jurisdiction of superior courts — to rule upon the

regularity and validity of the sale conducted by its ministerial officers from the sheriff’s office, and his

affirmative ruling thereon could not be interfered with by injunction of, nor sought to be foreclosed by, the

challenged orders of Judge Salvador’s court.

Bernabe’s contention that "he does not attempt to annul or nullify the judgment or order issued by (Judge

Cruz’ court) . . . If (Judge Salvador’s Court) finds the allegations of the complaint to be true, then it has the

jurisdiction to order a new auction sale, which has nothing to do with the judgments or decrees issued by

Judge Cruz’ court)" 9 is untenable. As above stated, the properties upon being levied on and sold by virtue

of Judge Cruz’ order of execution were brought into the exclusive custodia legis of Judge Cruz’ court This is

but in accordance with the established principle that "A case in which an execution has been issued is

regarded as still pending, so that all proceedings on the execution are proceedings in the suit" 10 and that"

(A)n execution is the fruit and end of the suit, and is very aptly called the life of the law. The suit does not

terminate with the judgment; and all proceedings on the execution, are proceedings in the suit, and which

are expressly, by the act of Congress, put under the regulation and control of the Court of which it issues. It

is a power incident to every Court from which process issues, when delivered to the proper officer, to

enforce upon such officer a compliance with his duty." 11 Any and all questions involving the execution sale

concerned the proceedings in Judge Cruz’ court and had to be raised and determined in that court, subject

to review by the higher courts. They could not be improperly passed upon by another co-ordinate court —

behind the back, as it were — of Judge Cruz’ court.

Judge Salvador’s order of May 20, 1969 granting two ex-parte motions of the judgment debtor Bernabe and

directing the sheriff to allow the redemption of the properties notwithstanding that the one-year redemption

period had already lapsed more than one year ago on February 21, 1968 (one year after registration on May

21, 1967 of the sheriff’s sale of May 14, 1967) was equally untenable. It must be noted that Bernabe’s

action in Judge Salvador’s court filed on February 7, 1968 two weeks before the expiration of the

redemption period sought to set aside the execution sale and to have a new auction sale ordered, on the

grounds that the sheriff had allegedly sold the two parcels of land jointly instead of separately, and that the

total sales price of P30,194.00 was shocking to the conscience, alleging that the two parcels, if sold

separately, could easily be sold at P235,000.00 and P150,000.00. Pending decision and without ruling

squarely on his court’s lack of jurisdiction over the properties, Judge Salvador peremptorily issued his

redemption order on Bernabe’s bare manifestation that" (he) has but barely two days left of the one (1)

year period granted by law to redeem" and that" (he) is now ready and willing to redeem" the properties.

Aside from the basic lack of jurisdiction of Judge Salvador’s court to issue the redemption order, the order

per se suffered from other grave flaws. Bernabe’s motions in effect amounted to an abandonment of his

position on the alleged irregularity of the execution sale, and the logical consequence thereof which have

been the dismissal of his suit. (Thus, soon after Aurora’s filing of her action for certiorari in this Court,

Bernabe filed his so-called "Urgent Motion to Dismiss" of August 27, 1969 with Judge Salvador’s court

praying for the dismissal of the very case filed by him on the ground that having redeemed the properties,

"the case can therefore be considered closed and terminated considering that defendants [Aurora, Et. Al.]

did not interpose any appeal" from the redemption order) But Bernabe’s motions were presented on May 12

and May 15, 1969 and it was self-evident from the record that the one-year period for redemption had long

expired more than a year ago on February 21, 1968 as above stated and that Bernabe’s allegations that he

had two days left — of the redemption period was a gratuitous one. Nothing in the record indicates that

Bernabe had ever timely made a valid offer of redemption so as to safeguard his right thereto prior to his

filing his separate action questioning the validity of the execution sale. It was therefore void and illogical for

Judge Salvador to rule, in denying Aurora’s motion for reconsideration, that "there is no question that this

Court has jurisdiction to hear and determine this case which questions the regularity and legality of the

auction sale of properties held on February 14, 1967, hence the authority granted by the Court to redeem

said properties within the redemption period in order to write finis to the pending case." For Judge Salvador

thereby begged the basic prejudicial questions of his court’s lack of jurisdiction and the expiration over a

year ago of Bernabe’s alleged right of redemption, not to mention that any grant of such right to redeem

could not be decreed in a summary unreasoned order but would have to be adjudged in a formal decision

reciting the facts and the law on which it is based, and which may not be immediately executed, without a

special order therefor. Under Judge Salvador’s void orders, all that a judgment debtor whose properties

have been sold at execution sale but who does not have the funds to effect redemption has to do to

unilaterally extend the one-year redemption period would be to file a separate action before another court of

co-ordinate jurisdiction questioning the regularity of the execution sale and upon his getting the funds,

notwithstanding the expiration of the redemption period, get an order of redemption and ask the court "to

write finis to the pending case" — which should have been dismissed in the first instance for lack of

jurisdiction.

The doctrine cited that a court or a branch thereof may not interfere with the proceedings before a judge of

another court or branch of the same court since they are all courts of equal and co-ordinate jurisdiction is an

elementary doctrine that has been established with the very system of courts. Understandable as Bernabe’s

plight and financial predicament may be, still it is incomprehensible why he should futilely resort, as he did,

to filing his separate action with Judge Salvador’s court which patently lacked jurisdiction over the properties

sold in execution instead of questioning the regularity of the execution sale before Judge Cruz’ court as the

court of competent and exclusive jurisdiction, and properly applying, if he had just grounds, for extension of

the redemption period.

As to the alleged gross inadequacy of the price of P30,194.00 paid by Aurora when according to Bernabe the

properties could have been easily sold for a total price of P385,000.00, Bernabe has admitted that there was

an existing mortgage lien on the properties in the amount of P120,000,00 which necessarily affected their

value. This question was not raised at all before Judge Cruz’ court nor did Judge Salvador rule thereupon,

since he merely issued his void order of redemption. Suffice it to state on the basis of the record, however,

that the failure of Bernabe to timely sell the properties for their fair value through negotiated sales with third

persons either before or after the execution sale in order to be able to discharge his judgment debt or

redeem the properties within the redemption period, or to raise the necessary amount therefrom to so effect

redemption notwithstanding that they have been collecting the substantial monthly rentals thereof of

P2,500.00 monthly even up to now 12 can be attributed only to his own failings and gross improvidence.

They cannot be cited in law or in equity to defeat the lawful claim of Aurora nor to give validity to the void

orders of Judge Salvador’s court. The applicable rule on forced sales where the law gives the owner the right

of redemption was thus stated by the Court in Velasquez v. Coronel: 13 "However, while in ordinary sales

for reasons of equity a transaction may be invalidated on the ground of inadequacy of price, or when such

inadequacy shocks one’s conscience as to justify the courts to interfere, such does not follow when the law

gives to the owner the right to redeem, as when a sale is made at public auction, upon the theory that the

lesser the price the easier it is for the owner to effect the redemption. And so it was aptly said: ‘When there

is the right to redeem, inadequacy of price should not be material, because the judgment debtor may

reacquire the property or also sell his right to redeem and thus recover the loss he claims to have suffered

by reason of the price obtained at the auction sale.’"

Bernabe’s petition challenging the jurisdiction of Judge Cruz’ court to issue its orders of September 5, 1969

and January 5, 1970, confirming Aurora’s acquisition of title to the properties by virtue of the execution sale

and ordering Bernabe to transfer possession thereof to her, because of the separate civil action filed by him

in Judge Salvador’s court, must necessarily fail — since said orders were within the exclusive competence

and jurisdiction of Judge Cruz’ court.

ACCORDINGLY, in Case L-30871, the writ of certiorari prayed for his granted; respondent Judge Salvador’s

court is declared without jurisdiction over Civil Case No. C-1217 other than to dismiss the same and the writ

of preliminary injunction of February 19, 1968 therein issued and the orders of May 20, 1969 and June 23,

1969 therein issued, as well as respondent sheriff’s certificate of redemption issued on May 21, 1969 are set

aside and declared null and void; and the writ of preliminary injunction issued by the Court on September 2,

1969, is made permanent. In Case L-31603, the petition for certiorari is dismissed and the writ of

preliminary injunction issued by this Court on February 11, 1970 is dissolved. No pronouncement as to

costs.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Fernando, Barredo, Villamor and Makasiar, JJ., concur.

Concepcion, C.J., concurs in the result.

Castro, J., did not take part.

HEIRS OF POLICRONIO M.

URETA, SR., namely: CONRADO

B. URETA, MACARIO B. URETA,

GLORIA URETA-GONZALES,

ROMEO B. URETA, RITA

URETA-SOLANO, NENA URETA-

TONGCUA, VENANCIO B.

URETA, LILIA URETA-TAYCO,

and HEIRS OF POLICRONIO B.

URETA, JR., namely: MIGUEL T.

G.R. No. 165748

URETA, RAMON POLICRONIO

T. URETA, EMMANUEL T.

URETA, and BERNADETTE T.

URETA,

Petitioners,

- versus -

HEIRS OF LIBERATO M.

URETA, namely: TERESA F.

URETA, AMPARO URETA-

CASTILLO, IGNACIO F. URETA,

SR., EMIRITO F. URETA,

WILKIE F. URETA, LIBERATO F.

URETA, JR., RAY F. URETA,

ZALDY F. URETA, and MILA

JEAN URETA CIPRIANO;

HEIRS OF PRUDENCIA URETA

PARADERO, namely: WILLIAM

U. PARADERO, WARLITO U.

PARADERO, CARMENCITA P.

PERLAS, CRISTINA P.

CORDOVA, EDNA P.

GALLARDO, LETICIA P. REYES;

NARCISO M. URETA;

VICENTE M. URETA;

HEIRS OF FRANCISCO M.

URETA, namely: EDITA T.

URETA-REYES and LOLLIE T.

URETA-VILLARUEL; ROQUE M.

URETA; ADELA URETA-

GONZALES; HEIRS OF

INOCENCIO M. URETA, namely:

BENILDA V. URETA, ALFONSO

V. URETA II, DICK RICARDO V.

URETA, and ENRIQUE V.

URETA; MERLINDA U. RIVERA;

JORGE URETA; ANDRES

URETA, WENEFREDA U.

TARAN; and BENEDICT URETA,

Respondents.

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

HEIRS OF LIBERATO M.

URETA, namely: TERESA F.

URETA, AMPARO URETA-

CASTILLO, IGNACIO F. URETA,

SR., EMIRITO F. URETA,

WILKIE F. URETA, LIBERATO F.

URETA, JR., RAY F. URETA,

ZALDY F. URETA, and MILA

JEAN URETA CIPRIANO;

HEIRS OF PRUDENCIA URETA

PARADERO, namely: WILLIAM

U. PARADERO, WARLITO U.

PARADERO, CARMENCITA P.

PERLAS, CRISTINA P.

CORDOVA, EDNA P.

GALLARDO, LETICIA P. REYES;

NARCISO M. URETA;

VICENTE M. URETA;

HEIRS OF FRANCISCO M.

URETA, namely: EDITA T.

URETA-REYES and LOLLIE T.

URETA-VILLARUEL; ROQUE M.

URETA; ADELA URETA-

GONZALES; HEIRS OF

INOCENCIO M. URETA, namely:

BENILDA V. URETA, ALFONSO

V. URETA II, DICK RICARDO V.

URETA, and ENRIQUE V.

URETA; MERLINDA U. RIVERA;

JORGE URETA; ANDRES

URETA, WENEFREDA U.

TARAN; and BENEDICT URETA,

G.R. No. 165930

Petitioners,

- versus –

HEIRS OF POLICRONIO M.

URETA, SR., namely: CONRADO

B. URETA, MACARIO B. URETA,

GLORIA URETA-GONZALES,

ROMEO B. URETA, RITA

URETA-SOLANO, NENA URETA-

TONGCUA, VENANCIO B.

URETA, LILIA URETA-TAYCO,

and HEIRS OF POLICRONIO B.

URETA, JR., namely: MIGUEL T.

URETA, RAMON POLICRONIO

T. URETA, EMMANUEL T.

URETA, and BERNADETTE T.

URETA,

Present:

VELASCO, JR., J., Chairperson,

PERALTA,

ABAD,

MENDOZA, and

SERENO, JJ.

Promulgated:

Respondents. September 14, 2011

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

MENDOZA, J.:

These consolidated petitions for review on certiorari under Rule 45 of the

1997 Revised Rules of Civil Procedure assail the April 20, 2004 Decision[1]

of the

Court of Appeals (CA), and its October 14, 2004 Resolution[2]

in C.A.-G.R. CV No.

71399, which affirmed with modification the April 26, 2001 Decision[3]

of the

Regional Trial Court, Branch 9, Kalibo, Aklan(RTC) in Civil Case No. 5026.

The Facts

In his lifetime, Alfonso Ureta (Alfonso) begot 14 children, namely,

Policronio, Liberato, Narciso, Prudencia, Vicente, Francisco, Inocensio, Roque,

Adela, Wenefreda, Merlinda, Benedicto, Jorge, and Andres. The children of

Policronio (Heirs of Policronio), are opposed to the rest of Alfonso’s children and

their descendants (Heirs of Alfonso).

Alfonso was financially well-off during his lifetime. He owned several

fishpens, a fishpond, a sari-sari store, a passenger jeep, and was engaged in the

buying and selling of copra. Policronio, the eldest, was the only child of Alfonso

who failed to finish schooling and instead worked on his father’s lands.

Sometime in October 1969, Alfonso and four of his children, namely,

Policronio, Liberato, Prudencia, and Francisco, met at the house of Liberato.

Francisco, who was then a municipal judge, suggested that in order to reduce the

inheritance taxes, their father should make it appear that he had sold some of his

lands to his children. Accordingly, Alfonso executed four (4) Deeds of Sale

covering several parcels of land in favor of

Policronio,[4]

Liberato,[5]

Prudencia,[6]

and his common-law wife, Valeriana Dela

Cruz.[7]

The Deed of Sale executed onOctober 25, 1969, in favor of Policronio,

covered six parcels of land, which are the properties in dispute in this case.

Since the sales were only made for taxation purposes and no monetary

consideration was given, Alfonso continued to own, possess and enjoy the lands

and their produce.

When Alfonso died on October 11, 1972, Liberato acted as the administrator

of his father’s estate. He was later succeeded by his sister Prudencia, and then by

her daughter, Carmencita Perlas. Except for a portion of parcel 5, the rest of the

parcels transferred to Policronio were tenanted by the Fernandez Family. These

tenants never turned over the produce of the lands to Policronio or any of his heirs,

but to Alfonso and, later, to the administrators of his estate.

Policronio died on November 22, 1974. Except for the said portion of parcel

5, neither Policronio nor his heirs ever took possession of the subject lands.

On April 19, 1989, Alfonso’s heirs executed a Deed of Extra-Judicial

Partition,[8]

which included all the lands that were covered by the four (4) deeds of

sale that were previously executed by Alfonso for taxation purposes. Conrado,

Policronio’s eldest son, representing the Heirs of Policronio, signed the Deed of

Extra-Judicial Partition in behalf of his co-heirs.

After their father’s death, the Heirs of Policronio found tax declarations in

his name covering the six parcels of land. On June 15, 1995, they obtained a copy

of the Deed of Sale executed on October 25, 1969 by Alfonso in favor of

Policronio.

Not long after, on July 30, 1995, the Heirs of Policronio allegedly learned

about the Deed of Extra-Judicial Partition involving Alfonso’s estate when it was

published in the July 19, 1995 issue of the Aklan Reporter.

Believing that the six parcels of land belonged to their late father, and as

such, excluded from the Deed of Extra-Judicial Partition, the Heirs of Policronio

sought to amicably settle the matter with the Heirs of Alfonso. Earnest efforts

proving futile, the Heirs of Policronio filed a Complaint for Declaration of

Ownership, Recovery of Possession, Annulment of Documents, Partition, and

Damages[9]

against the Heirs of Alfonso before the RTC on November 17, 1995

where the following issues were submitted: (1) whether or not the Deed of Sale was

valid; (2) whether or not the Deed of Extra-Judicial Partition was valid; and (3)

who between the parties was entitled to damages.

The Ruling of the RTC

On April 26, 2001, the RTC dismissed the Complaint of the Heirs of

Policronio and ruled in favor of the Heirs of Alfonso in a decision, the dispositive

portion of which reads:

WHEREFORE, the Court finds that the preponderance of evidence

tilts in favor of the defendants, hence the instant case is hereby DISMISSED.

The counterclaims are likewise DISMISSED. With costs against plaintiffs. SO ORDERED.

The RTC found that the Heirs of Alfonso clearly established that the Deed of

Sale was null and void. It held that the Heirs of Policronio failed to rebut the

evidence of the Heirs of Alfonso, which proved that the Deed of Sale in the

possession of the former was one of the four (4) Deeds of Sale executed by Alfonso

in favor of his 3 children and second wife for taxation purposes; that although tax

declarations were issued in the name of Policronio, he or his heirs never took

possession of the subject lands except a portion of parcel 5; and that all the produce

were turned over by the tenants to Alfonso and the administrators of his estate and

never to Policronio or his heirs.

The RTC further found that there was no money involved in the sale. Even

granting that there was, as claimed by the Heirs of Policronio, ₱2,000.00 for six

parcels of land, the amount was grossly inadequate. It was also noted that the

aggregate area of the subject lands was more than double the average share

adjudicated to each of the other children in the Deed of Extra-Judicial Partition;

that the siblings of Policronio were the ones who shared in the produce of the land;

and that the Heirs of Policronio only paid real estate taxes in 1996 and 1997. The

RTC opined that Policronio must have been aware that the transfer was merely for

taxation purposes because he did not subsequently take possession of the properties

even after the death of his father.

The Deed of Extra-Judicial Partition, on the other hand, was declared valid

by the RTC as all the heirs of Alfonso were represented and received equal shares

and all the requirements of a valid extra-judicial partition were met. The RTC

considered Conrado’s claim that he did not understand the full significance of his

signature when he signed in behalf of his co-heirs, as a gratutitous assertion. The

RTC was of the view that when he admitted to have signed all the pages and

personally appeared before the notary public, he was presumed to have understood

their contents.

Lastly, neither party was entitled to damages. The Heirs of Alfonso failed to

present testimony to serve as factual basis for moral damages, no document

was presented to prove actual damages, and the Heirs of Policronio were found to

have filed the case in good faith.

The Ruling of the CA

Aggrieved, the Heirs of Policronio appealed before the CA, which rendered a

decision on April 20, 2004, the dispositive portion of which reads as follows:

WHEREFORE, the appeal is PARTIALLY GRANTED. The appealed

Decision, dated 26 April 2001, rendered by Hon. Judge Dean R. Telan of the Regional Trial Court of Kalibo, Aklan, Branch 9, is hereby AFFIRMED

with MODIFICATION: 1.) The Deed of Sale in favor of Policronio Ureta, Sr., dated 25

October 1969, covering six (6) parcels of land is hereby declared VOID for being ABSOLUTELY SIMULATED;

2.) The Deed of Extra-Judicial Partition, dated 19 April 1989, is ANNULLED;

3.) The claim for actual and exemplary damages are DISMISSED for

lack of factual and legal basis. The case is hereby REMANDED to the court of origin for the proper

partition of ALFONSO URETA’S Estate in accordance with Rule 69 of the 1997 Rules of Civil Procedure. No costs at this instance.

SO ORDERED.

The CA affirmed the finding of the RTC that the Deed of Sale was void. It

found the Deed of Sale to be absolutely simulated as the parties did not intend to be

legally bound by it. As such, it produced no legal effects and did not alter the

juridical situation of the parties. The CA also noted that Alfonso continued to

exercise all the rights of an owner even after the execution of the Deed of Sale, as it

was undisputed that he remained in possession of the subject parcels of land and

enjoyed their produce until his death.

Policronio, on the other hand, never exercised any rights pertaining to an

owner over the subject lands from the time they were sold to him up until his death.

He never took or attempted to take possession of the land even after his father’s

death, never demanded delivery of the produce from the tenants, and never paid

realty taxes on the properties. It was also noted that Policronio never disclosed the

existence of the Deed of Sale to his children, as they were, in fact, surprised to

discover its existence. The CA, thus, concluded that Policronio must have been

aware that the transfer was only made for taxation purposes.

The testimony of Amparo Castillo, as to the circumstances surrounding the

actual arrangement and agreement between the parties prior to the execution of the

four (4) Deeds of Sale, was found by the CA to be unrebutted. The RTC’s

assessment of the credibility of her testimony was accorded respect, and the

intention of the parties was given the primary consideration in determining the true

nature of the contract.

Contrary to the finding of the RTC though, the CA annulled the Deed of

Extra-Judicial Partition due to the incapacity of one of the parties to give his

consent to the contract. It held that before Conrado could validly bind his co-heirs

to the Deed of Extra-Judicial Partition, it was necessary that he be clothed with the

proper authority. The CA ruled that a special power of attorney was required under

Article 1878 (5) and (15) of the Civil Code. Without a special power of attorney, it

was held that Conrado lacked the legal capactiy to give the consent of his co-heirs,

thus, rendering the Deed of Extra-Judicial Partition voidable under Article 1390 (1)

of the Civil Code.

As a consequence, the CA ordered the remand of the case to the RTC for the

proper partition of the estate, with the option that the parties may still voluntarily

effect the partition by executing another agreement or by adopting the assailed

Deed of Partition with the RTC’s approval in either case. Otherwise, the RTC may

proceed with the compulsory partition of the estate in accordance with the Rules.

With regard to the claim for damages, the CA agreed with the RTC and

dismissed the claim for actual and compensatory damages for lack of factual and

legal basis.

Both parties filed their respective Motions for Reconsideration, which were

denied by the CA for lack of merit in a Resolution dated October 14, 2004.

In their Motion for Reconsideration, the Heirs of Policronio argued that the

RTC violated the best evidence rule in giving credence to the testimony of Amparo

Castillo with regard to the simulation of the Deed of Sale, and that prescription had

set in precluding any question on the validity of the contract.

The CA held that the oral testimony was admissible under Rule 130, Section

9 (b) and (c), which provides that evidence aliunde may be allowed to explain the

terms of the written agreement if the same failed to express the true intent and

agreement of the parties thereto, or when the validity of the written agreement was

put in issue. Furthermore, the CA found that the Heirs of Policronio waived their

right to object to evidence aliunde having failed to do so during trial and for raising

such only for the first time on appeal. With regard to prescription, the CA ruled that

the action or defense for the declaration of the inexistence of a contract did not

prescribe under Article 1410 of the Civil Code.

On the other hand, the Heirs of Alfonso argued that the Deed of Extra-

Judicial Partition should not have been annulled, and instead the preterited heirs

should be given their share. The CA reiterated that Conrado’s lack of capacity to

give his co-heirs’ consent to the extra-judicial settlement rendered the same

voidable.

Hence, the present Petitions for Review on Certiorari.

The Issues

The issues presented for resolution by the Heirs of Policronio in G.R. No.

165748 are as follows:

I.

Whether the Court of Appeals is correct in ruling that the Deed of

Absolute Sale of 25 October 1969 is void for being absolutely

fictitious and in relation therewith, may parol evidence be

entertained to thwart its binding effect after the parties have both

died?

Assuming that indeed the said document is simulated, whether or

not the parties thereto including their successors in interest are

estopped to question its validity, they being bound by Articles

1412 and 1421 of the Civil Code?

II.

Whether prescription applies to bar any question respecting the

validity of the Deed of Absolute Sale dated 25 October 1969?

Whether prescription applies to bar any collateral attack on the

validity of the deed of absolute sale executed 21 years earlier?

III.

Whether the Court of Appeals correctly ruled in nullifying the

Deed of Extrajudicial Partition because Conrado Ureta signed the

same without the written authority from his siblings in

contravention of Article 1878 in relation to Article 1390 of the

Civil Code and in relation therewith, whether the defense of

ratification and/or preterition raised for the first time on appeal

may be entertained?

The issues presented for resolution by the Heirs of Alfonso in G.R. No.

165930 are as follows:

I.

Whether or not grave error was committed by the Trial Court

and Court of Appeals in declaring the Deed of Sale of subject

properties as absolutely simulated and null and void thru parol

evidence based on their factual findings as to its fictitious nature,

and there being waiver of any objection based on violation of the

parol evidence rule.

II.

Whether or not the Court of Appeals was correct in holding that

Conrado Ureta’s lack of capacity to give his co-heirs’ consent to

the Extra-Judicial Partition rendered the same voidable.

III.

Granting arguendo that Conrado Ureta was not authorized to

represent his co-heirs and there was no ratification, whether or

not the Court of Appeals was correct in ordering the remand of

the case to the Regional Trial Court for partition of the estate of

Alfonso Ureta.

IV.

Since the sale in favor of Policronio Ureta Sr. was null and void ab

initio, the properties covered therein formed part of the estate of

the late Alfonso Ureta and was correctly included in the Deed of

Extrajudicial Partition even if no prior action for nullification of

the sale was filed by the heirs of Liberato Ureta.

V.

Whether or not the heirs of Policronio Ureta Sr. can claim that

estoppel based on Article 1412 of the Civil Code as well as the

issue of prescription can still be raised on appeal.

These various contentions revolve around two major issues, to wit: (1)

whether the Deed of Sale is valid, and (2) whether the Deed of Extra-Judicial

Partition is valid. Thus, the assigned errors shall be discussed jointly and

in seriatim.

The Ruling of the Court

Validity of the Deed of Sale

Two veritable legal presumptions bear on the validity of the Deed of Sale:

(1) that there was sufficient consideration for the contract; and (2) that it was the

result of a fair and regular private transaction. If shown to hold, these presumptions

infer prima facie the transaction’s validity, except that it must yield to the evidence

adduced.[10]

As will be discussed below, the evidence overcomes these two

presumptions.

Absolute Simulation

First, the Deed of Sale was not the result of a fair and regular private

transaction because it was absolutely simulated.

The Heirs of Policronio argued that the land had been validly

sold to Policronio as the Deed of Sale contained all the essential elements

of a valid contract of sale, by virtue of which, the subject properties were

transferred in his name as evidenced by the tax declaration. There being no

invalidation prior to the execution of the Deed of Extra-Judicial Partition, the

probity and integrity of the Deed of Sale should remain undiminished and accorded

respect as it was a duly notarized public instrument.

The Heirs of Policronio posited that his loyal services to his father and his

being the eldest among Alfonso’s children, might have prompted the old man to

sell the subject lands to him at a very low price as an advance inheritance. They

explained that Policronio’s failure to take possession of the subject lands and to

claim their produce manifests a Filipino family practice wherein a child would take

possession and enjoy the fruits of the land sold by a parent only after the latter’s

death. Policronio simply treated the lands the same way his father Alfonso treated

them - where his children enjoyed usufructuary rights over the properties, as

opposed to appropriating them exclusively to himself. They contended

that Policronio’s failure to take actual possession of the lands did not prove that he

was not the owner as he was merely exercising his right to dispose of them. They

argue that it was an error on the part of the CA to conclude that ownership by

Policronio was not established by his failure to possess the properties

sold. Instead, emphasis should be made on the fact that the tax declarations, being

indicia of possession, were in Policronio’s name.

They further argued that the Heirs of Alfonso failed to appreciate that the

Deed of Sale was clear enough to convey the subject parcels of land. Citing

jurisprudence, they contend that there is a presumption that an instrument sets out

the true agreement of the parties thereto and that it was executed for valuable

consideration,[11]

and where there is no doubt as to the intention of the parties to a

contract, the literal meaning of the stipulation shall control.[12]

Nowhere in the

Deed of Sale is it indicated that the transfer was only for taxation purposes. On the

contrary, the document clearly indicates that the lands were sold. Therefore, they

averred that the literal meaning of the stipulation should control.

The Court disagrees.

The Court finds no cogent reason to deviate from the finding of the CA that

the Deed of Sale is null and void for being absolutely simulated. The Civil Code

provides:

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.

Valerio v. Refresca[13]

is instructive on the matter of simulation of contracts:

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. 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.

Lacking, therefore, in an absolutely simulated contract is consent which is

essential to a valid and enforceable contract.[14]

Thus, where a person, in order to

place his property beyond the reach of his creditors, simulates a transfer of it to

another, he does not really intend to divest himself of his title and control of the

property; hence, the deed of transfer is but a sham.[15]

Similarly, in this case,

Alfonso simulated a transfer to Policronio purely for taxation purposes, without

intending to transfer ownership over the subject lands.

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.[16]

The true intention of the parties in this case

was sufficiently proven by the Heirs of Alfonso.

The Heirs of Alfonso established by a preponderance of evidence[17]

that the

Deed of Sale was one of the four (4) absolutely simulated Deeds of Sale which

involved no actual monetary consideration, executed by Alfonso in favor of his

children, Policronio, Liberato, and Prudencia, and his second wife, Valeriana, for

taxation purposes.

Amparo Castillo, the daughter of Liberato, testified, to wit:

Q: Now sometime in the year 1969 can you recall if your grandfather and his children [met] in your house? A: Yes sir, that was sometime in October 1969 when they [met] in our house, my grandfather, my late uncle Policronio Ureta, my late uncle Liberato Ureta, my uncle Francisco Ureta, and then my auntie Prudencia Ureta they talk[ed] about, that idea came from my uncle Francisco Ureta to [sell] some parcels of land to his children to lessen the inheritance tax whatever happened to my grandfather, actually no money involved in this sale. Q: Now you said there was that agreement, verbal agreement. [W]here were you when this Alfonso Ureta and his children gather[ed] in your house? A: I was near them in fact I heard everything they were talking [about]

x x x

Q: Were there documents of sale executed by Alfonso Ureta in furtherance of their verbal agreement? A: Yes sir. Q: To whom in particular did your grandfather Alfonso Ureta execute this deed of sale without money consideration according to you? A: To my uncle Policronio Ureta and to Prudencia Ureta Panadero. Q: And who else? A: To Valeriana dela Cruz. Q: How about your father? A: He has.[18]

The other Deeds of Sale executed by Alfonso in favor of his children

Prudencia and Liberato, and second wife Valeriana, all bearing the same date of

execution, were duly presented in evidence by the Heirs of Alfonso, and were

uncontested by the Heirs of Policronio. The lands which were the subject of these

Deeds of Sale were in fact included in the Deed of Extra-Judicial Partition

executed by all the heirs of Alfonso, where it was expressly stipulated:

That the above-named Amparo U. Castillo, Prudencia U. Paradero,

Conrado B. Ureta and Merlinda U. Rivera do hereby recognize and acknowledge as a fact that the properties presently declared in their respective names or in the names of their respective parents and are included in the foregoing instrument are actually the properties of the deceased Alfonso Ureta and were transferred only for the purpose of effective administration and development and convenience in the payment of taxes and, therefore, all instruments conveying or affecting the transfer of said properties are null and void from the beginning.[19]

As found by the CA, Alfonso continued to exercise all the rights of an owner

even after the execution of the Deeds of Sale. It was undisputed that Alfonso

remained in possession of the subject lands and enjoyed their produce until his

death. No credence can be given to the contention of the Heirs of Policrionio that

their father did not take possession of the subject lands or enjoyed the fruits thereof

in deference to a Filipino family practice. Had this been true, Policronio should

have taken possession of the subject lands after his father died. On the contrary, it

was admitted that neither Policronio nor his heirs ever took possession of the

subject lands from the time they were sold to him, and even after the death of both

Alfonso and Policronio.

It was also admitted by the Heirs of Policronio that the tenants of the subject

lands never turned over the produce of the properties to Policronio or his heirs but

only to Alfonso and the administrators of his estate. Neither was there a demand for

their delivery to Policronio or his heirs. Neither did Policronio ever pay real estate

taxes on the properties, the only payment on record being those made by his heirs

in 1996 and 1997 ten years after his death. In sum, Policronio never exercised any

rights pertaining to an owner over the subject lands.

The most protuberant index of simulation of contract is the complete absence

of an attempt in any manner on the part of the ostensible buyer to assert rights of

ownership over the subject properties. Policronio’s failure to take exclusive

possession of the subject properties or, in the alternative, to collect rentals, is

contrary to the principle of ownership. Such failure is a clear badge of simulation

that renders the whole transaction void. [20]

It is further telling that Policronio never disclosed the existence of the Deed

of Sale to his children. This, coupled with Policronio’s failure to exercise any rights

pertaining to an owner of the subject lands, leads to the conclusion that he was

aware that the transfer was only made for taxation purposes and never intended to

bind the parties thereto.

As the above factual circumstances remain unrebutted by the Heirs of

Policronio, the factual findings of the RTC, which were affirmed by the CA,

remain binding and conclusive upon this Court.[21]

It is clear that the parties did not intend to be bound at all, and as such, the

Deed of Sale produced no legal effects and did not alter the juridical situation of

the parties. The Deed of Sale is, therefore, void for being absolutely simulated

pursuant to Article 1409 (2) of the Civil Code which provides:

Art. 1409. The following contracts are inexistent and void from the beginning:

x x x (2) Those which are absolutely simulated or fictitious;

x x x

For guidance, the following are the most fundamental characteristics of void

or inexistent contracts:

1) As a general rule, they produce no legal effects whatsoever in

accordance with the principle "quod nullum est nullum producit

effectum."

2) They are not susceptible of ratification.

3) The right to set up the defense of inexistence or absolute nullity

cannot be waived or renounced.

4) The action or defense for the declaration of their inexistence or

absolute nullity is imprescriptible.

5) The inexistence or absolute nullity of a contract cannot be invoked

by a person whose interests are not directly affected.[22]

Since the Deed of Sale is void, the subject properties were properly included

in the Deed of Extra-Judicial Partition of the estate of Alfonso.

Absence and Inadequacy of Consideration

The second presumption is rebutted by the lack of consideration for the

Deed of Sale.

In their Answer,[23]

the Heirs of Alfonso initially argued that the Deed of

Sale was void for lack of consideration, and even granting that there was

consideration, such was inadequate. The Heirs of Policronio counter that the

defenses of absence or inadequacy of consideration are not grounds to render a

contract void.

The Heirs of Policronio contended that under Article 1470 of the Civil

Code, gross inadequacy of the price does not affect a contract of sale, except as it

may indicate a defect in the consent, or that the parties really intended a donation

or some other act or contract. Citing jurisprudence, they argued that inadequacy of

monetary consideration does not render a conveyance inexistent as liberality may

be sufficient cause for a valid contract, whereas fraud or bad faith may render it

either rescissible or voidable, although valid until annulled.[24]

Thus, they argued

that if the contract suffers from inadequate consideration, it remains valid until

annulled, and the remedy of rescission calls for judicial intervention, which remedy

the Heirs of Alfonso failed to take.

It is further argued that even granting that the sale of the subject lands for a

consideration of ₱2,000.00 was inadequate, absent any evidence of the fair market

value of the land at the time of its sale, it cannot be concluded that the price at

which it was sold was inadequate.[25]

As there is nothing in the records to show that

the Heirs of Alfonso supplied the true value of the land in 1969, the amount of

₱2,000.00 must thus stand as its saleable value.

On this issue, the Court finds for the Heirs of Alfonso.

For lack of consideration, the Deed of Sale is once again found to be void. It

states that Policronio paid, and Alfonso received, the ₱2,000.00 purchase price on

the date of the signing of the contract:

That I, ALFONSO F. URETA, x x x for and in consideration of the

sum of TWO THOUSAND (₱2,000.00) PESOS, Philippine Currency, to me in hand paid by POLICRONIO M. URETA, x x x, do hereby CEDE, TRANSFER, and CONVEY, by way of absolute sale, x x x six (6) parcels of land x x x.[26] [Emphasis ours]

Although, on its face, the Deed of Sale appears to be supported by valuable

consideration, the RTC found that there was no money involved in the sale.[27]

This

finding was affirmed by the CA in ruling that the sale is void for being absolutely

simulated. Considering that there is no cogent reason to deviate from such factual

findings, they are binding on this Court.

It is well-settled in a long line of cases that where a 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 for lack of consideration.[28]

Thus, although the contract states that

the purchase price of ₱2,000.00 was paid by Policronio to Alfonso for the subject

properties, it has been proven that such was never in fact paid as there was no

money involved. It must, therefore, follow that the Deed of Sale is void for lack of

consideration.

Given that the Deed of Sale is void, it is unnecessary to discuss the issue on

the inadequacy of consideration.

Parol Evidence and Hearsay

The Heirs of Policronio aver that the rules on parol evidence and hearsay

were violated by the CA in ruling that the Deed of Sale was void.

They argued that based on the parol evidence rule, the Heirs of Alfonso and,

specifically, Amparo Castillo, were not in a position to prove the terms outside of

the contract because they were not parties nor successors-in-interest in the Deed of

Sale in question. Thus, it is argued that the testimony of Amparo Castillo violates

the parol evidence rule.

Stemming from the presumption that the Heirs of Alfonso were not parties

to the contract, it is also argued that the parol evidence rule may not be properly

invoked by either party in the litigation against the other, where at least one of the

parties to the suit is not a party or a privy of a party to the written instrument in

question and does not base a claim on the instrument or assert a right originating in

the instrument or the relation established thereby.[29]

Their arguments are untenable.

The objection against the admission of any evidence must be made at the

proper time, as soon as the grounds therefor become reasonably apparent, and if

not so made, it will be understood to have been waived. In the case of testimonial

evidence, the objection must be made when the objectionable question is asked or

after the answer is given if the objectionable features become apparent only by

reason of such answer.[30]

In this case, the Heirs of Policronio failed to timely

object to the testimony of Amparo Castillo and they are, thus, deemed to have

waived the benefit of the parol evidence rule.

Granting that the Heirs of Policronio timely objected to the testimony of

Amparo Castillo, their argument would still fail.

Section 9 of Rule 130 of the Rules of Court provides:

Section 9. Evidence of written agreements. — When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement.

However, a party may present evidence to modify, explain or add to the terms of written agreement if he puts in issue in his pleading:

(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;

(b) The failure of the written agreement to express the true intent and agreement of the parties thereto;

(c) The validity of the written agreement; or

(d) The existence of other terms agreed to by the parties or their successors in interest after the execution of the written agreement.

The term "agreement" includes wills.

[Emphasis ours]

Paragraphs (b) and (c) are applicable in the case at bench.

The failure of the Deed of Sale to express the true intent and agreement of

the parties was clearly put in issue in the Answer[31]

of the Heirs of Alfonso to the

Complaint. It was alleged that the Deed of Sale was only made to lessen the

payment of estate and inheritance taxes and not meant to transfer ownership. The

exception in paragraph (b) is allowed to enable the court to ascertain the true intent

of the parties, and once the intent is clear, it shall prevail over what the document

appears to be on its face.[32]

As the true intent of the parties was duly proven in the

present case, it now prevails over what appears on the Deed of Sale.

The validity of the Deed of Sale was also put in issue in the Answer, and

was precisely one of the issues submitted to the RTC for resolution.[33]

The

operation of the parol evidence rule requires the existence of a valid written

agreement. It is, thus, not applicable in a proceeding where the validity of such

agreement is the fact in dispute, such as when a contract may be void for lack of

consideration.[34]

Considering that the Deed of Sale has been shown to be void for

being absolutely simulated and for lack of consideration, the Heirs of Alfonso are

not precluded from presenting evidence to modify, explain or add to the terms of

the written agreement.

The Heirs of Policronio must be in a state of confusion in arguing that the

Heirs of Alfonso may not question the Deed of Sale for not being parties or

successors-in-interest therein on the basis that the parol evidence rule may not be

properly invoked in a proceeding or litigation where at least one of the parties to

the suit is not a party or a privy of a party to the written instrument in question and

does not base a claim on the instrument or assert a right originating in the

instrument or the relation established thereby. If their argument was to be accepted,

then the Heirs of Policronio would themselves be precluded from invoking the

parol evidence rule to exclude the evidence of the Heirs of Alfonso.

Indeed, the applicability of the parol evidence rule requires that the case be

between parties and their successors-in-interest.[35]

In this case, both the Heirs of

Alfonso and the Heirs of Policronio are successors-in-interest of the parties to the

Deed of Sale as they claim rights under Alfonso and Policronio, respectively. The

parol evidence rule excluding evidence aliunde, however, still cannot apply

because the present case falls under two exceptions to the rule, as discussed above.

With respect to hearsay, the Heirs of Policronio contended that the rule on

hearsay was violated when the testimony of Amparo Castillo was given weight in

proving that the subject lands were only sold for taxation purposes as she was a

person alien to the contract. Even granting that they did not object to her testimony

during trial, they argued that it should not have been appreciated by the CA

because it had no probative value whatsoever.[36]

The Court disagrees.

It has indeed been held that hearsay evidence whether objected to or not

cannot be given credence for having no probative value.[37]

This principle,

however, has been relaxed in cases where, in addition to the failure to object to the

admissibility of the subject evidence, there were other pieces of evidence presented

or there were other circumstances prevailing to support the fact in issue. In Top-

Weld Manufacturing, Inc. v. ECED S.A.,[38] this Court held:

Hearsay evidence alone may be insufficient to establish a fact in an

injunction suit (Parker v. Furlong, 62 P. 490) but, when no objection is made thereto, it is, like any other evidence, to be considered and given the importance it deserves. (Smith v. Delaware & Atlantic Telegraph & Telephone Co., 51 A 464). Although we should warn of the undesirability of issuing judgments solely on the basis of the affidavits submitted, where

as here, said affidavits are overwhelming, uncontroverted by competent evidence and not inherently improbable, we are constrained to uphold the allegations of the respondents regarding the multifarious violations of the contracts made by the petitioner.

In the case at bench, there were other prevailing circumstances which

corroborate the testimony of Amparo Castillo. First, the other Deeds of Sale which

were executed in favor of Liberato, Prudencia, and Valeriana on the same day as

that of Policronio’s were all presented in evidence. Second, all the properties

subject therein were included in the Deed of Extra-Judicial Partition of the estate of

Alfonso. Third, Policronio, during his lifetime, never exercised acts of ownership

over the subject properties (as he never demanded or took possession of them,

never demanded or received the produce thereof, and never paid real estate taxes

thereon). Fourth, Policronio never informed his children of the sale.

As the Heirs of Policronio failed to controvert the evidence presented, and to

timely object to the testimony of Amparo Castillo, both the RTC and the CA

correctly accorded probative weight to her testimony.

Prior Action Unnecessary

The Heirs of Policronio averred that the Heirs of Alfonso should have filed

an action to declare the sale void prior to executing the Deed of Extra-Judicial

Partition. They argued that the sale should enjoy the presumption of regularity, and

until overturned by a court, the Heirs of Alfonso had no authority to include the

land in the inventory of properties of Alfonso’s estate. By doing so, they arrogated

upon themselves the power of invalidating the Deed of Sale which is exclusively

vested in a court of law which, in turn, can rule only upon the observance of due

process. Thus, they contended that prescription, laches, or estoppel have set in to

militate against assailing the validity of the sale.

The Heirs of Policronio are mistaken.

A simulated contract of sale is without any cause or consideration, and is,

therefore, null and void; in such case, no independent action to rescind or annul the

contract is necessary, and it may be treated as non-existent for all purposes.[39]

A

void or inexistent contract is one which has no force and effect from the beginning,

as if it has never been entered into, and which cannot be validated either by time or

ratification. A void contract produces no effect whatsoever either against or in

favor of anyone; it does not create, modify or extinguish the juridical relation to

which it refers.[40]

Therefore, it was not necessary for the Heirs of Alfonso to first

file an action to declare the nullity of the Deed of Sale prior to executing the Deed

of Extra-Judicial Partition.

Personality to Question Sale

The Heirs of Policronio contended that the Heirs of Alfonso are not parties,

heirs, or successors-in-interest under the contemplation of law to clothe them with

the personality to question the Deed of Sale. They argued that under Article 1311

of the Civil Code, contracts take effect only between the parties, their assigns and

heirs. Thus, the genuine character of a contract which personally binds the parties

cannot be put in issue by a person who is not a party thereto. They posited that the

Heirs of Alfonso were not parties to the contract; neither did they appear to be

beneficiaries by way of assignment or inheritance. Unlike themselves who are

direct heirs of Policronio, the Heirs of Alfonso are not Alfonso’s direct heirs. For

the Heirs of Alfonso to qualify as parties, under Article 1311 of the Civil Code,

they must first prove that they are either heirs or assignees. Being neither, they

have no legal standing to question the Deed of Sale.

They further argued that the sale cannot be assailed for being barred under

Article 1421 of the Civil Code which provides that the defense of illegality of a

contract is not available to third persons whose interests are not directly affected.

Again, the Court disagrees.

Article 1311 and Article 1421 of the Civil Code provide: Art. 1311. Contracts take effect only between the parties, their assigns and heirs, x x x Art. 1421. The defense of illegality of contracts is not available to third persons whose interests are not directly affected.

The right to set up the nullity of a void or non-existent contract is not limited

to the parties, as in the case of annullable or voidable contracts; it is extended to

third persons who are directly affected by the contract. Thus, where a contract is

absolutely simulated, even third persons who may be prejudiced thereby may set

up its inexistence.[41]

The Heirs of Alfonso are the children of Alfonso, with his

deceased children represented by their children (Alfonso’s grandchildren). The

Heirs of Alfonso are clearly his heirs and successors-in-interest and, as such, their

interests are directly affected, thereby giving them the right to question the legality

of the Deed of Sale.

Inapplicability of Article 842

The Heirs of Policronio further argued that even assuming that the Heirs of

Alfonso have an interest in the Deed of Sale, they would still be precluded from

questioning its validity. They posited that the Heirs of Alfonso must first prove that

the sale of Alfonso’s properties to Policronio substantially diminished their

successional rights or that their legitimes would be unduly prejudiced, considering

that under Article 842 of the Civil Code, one who has compulsory heirs may

dispose of his estate provided that he does not contravene the provisions of the

Civil Code with regard to the legitime of said heirs. Having failed to do so, they

argued that the Heirs of Alfonso should be precluded from questioning the validity

of the Deed of Sale.

Still, the Court disagrees.

Article 842 of the Civil Code provides:

Art. 842. One who has no compulsory heirs may dispose by will of all his estate or any part of it in favor of any person having capacity to succeed. One who has compulsory heirs may dispose of his estate provided he does not contravene the provisions of this Code with regard to the legitime of said heirs.

This article refers to the principle of freedom of disposition by will. What is

involved in the case at bench is not a disposition by will but by Deed of Sale.

Hence, the Heirs of Alfonso need not first prove that the disposition substantially

diminished their successional rights or unduly prejudiced their legitimes.

Inapplicability of Article 1412

The Heirs of Policronio contended that even assuming that the contract was

simulated, the Heirs of Alfonso would still be barred from recovering the

properties by reason of Article 1412 of the Civil Code, which provides that if the

act in which the unlawful or forbidden cause does not constitute a criminal offense,

and the fault is both on the contracting parties, neither may recover what he has

given by virtue of the contract or demand the performance of the other’s

undertaking. As the Heirs of Alfonso alleged that the purpose of the sale was to

avoid the payment of inheritance taxes, they cannot take from the Heirs of

Policronio what had been given to their father.

On this point, the Court again disagrees.

Article 1412 of the Civil Code is as follows:

Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: (1) When the fault is on the part of both contracting parties, neither may

recover what he has given by virtue of the contract, or demand the performance of the other’s undertaking;

(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise.

Article 1412 is not applicable to fictitious or simulated contracts, because

they refer to contracts with an illegal cause or subject-matter.[42]

This article

presupposes the existence of a cause, it cannot refer to fictitious or simulated

contracts which are in reality non-existent.[43]

As it has been determined that the

Deed of Sale is a simulated contract, the provision cannot apply to it.

Granting that the Deed of Sale was not simulated, the provision would still

not apply. Since the subject properties were included as properties of Alfonso in

the Deed of Extra-Judicial Partition, they are covered by corresponding inheritance

and estate taxes. Therefore, tax evasion, if at all present, would not arise, and

Article 1412 would again be inapplicable.

Prescription

From the position that the Deed of Sale is valid and not void, the Heirs of

Policronio argued that any question regarding its validity should have been

initiated through judicial process within 10 years from its notarization in

accordance with Article 1144 of the Civil Code. Since 21 years had already

elapsed when the Heirs of Alfonso assailed the validity of the Deed of Sale in

1996, prescription had set in. Furthermore, since the Heirs of Alfonso did not seek

to nullify the tax declarations of Policronio, they had impliedly acquiesced and

given due recognition to the Heirs of Policronio as the rightful inheritors and

should, thus, be barred from laying claim on the land.

The Heirs of Policronio are mistaken.

Article 1410 of the Civil Code provides:

Art. 1410. The action for the declaration of the inexistence of a contract does not prescribe.

This is one of the most fundamental characteristics of void or inexistent

contracts.[44]

As the Deed of Sale is a void contract, the action for the declaration of its

nullity, even if filed 21 years after its execution, cannot be barred by prescription

for it is imprescriptible. Furthermore, the right to set up the defense of inexistence

or absolute nullity cannot be waived or renounced.[45]

Therefore, the Heirs of

Alfonso cannot be precluded from setting up the defense of its inexistence.

Validity of the Deed of Extra-Judicial Partition

The Court now resolves the issue of the validity of the Deed of Extra-

Judicial Partition.

Unenforceability

The Heirs of Alfonso argued that the CA was mistaken in annulling the Deed

of Extra-Judicial Partition due to the incapacity of Conrado to give the consent of

his co-heirs for lack of a special power of attorney. They contended that what was

involved was not the capacity to give consent in behalf of the co-heirs but the

authority to represent them. They argue that the Deed of Extra-Judicial Partition is

not a voidable or an annullable contract under Article 1390 of the Civil Code, but

rather, it is an unenforceable or, more specifically, an unauthorized contract under

Articles 1403 (1) and 1317 of the Civil Code. As such, the Deed of Extra-Judicial

Partition should not be annulled but only be rendered unenforceable against the

siblings of Conrado.

They further argued that under Article 1317 of the Civil Code, when the

persons represented without authority have ratified the unauthorized acts, the

contract becomes enforceable and binding. They contended that the Heirs of

Policronio ratified the Deed of Extra-Judicial Partition when Conrado took

possession of one of the parcels of land adjudicated to him and his siblings, and

when another parcel was used as collateral for a loan entered into by some of the

Heirs of Policronio. The Deed of Extra-Judicial Partition having been ratified and

its benefits accepted, the same thus became enforceable and binding upon them.

The Heirs of Alfonso averred that granting arguendo that Conrado was not

authorized to represent his co-heirs and there was no ratification, the CA should

not have remanded the case to the RTC for partition of Alfonso’s estate. They

argued that the CA should not have applied the Civil Code general provision on

contracts, but the special provisions dealing with succession and partition. They

contended that contrary to the ruling of the CA, the extra-judicial parition was not

an act of strict dominion, as it has been ruled that partition of inherited land is not a

conveyance but a confirmation or ratification of title or right to the

land.[46]

Therefore, the law requiring a special power of attorney should not be

applied to partitions.

On the other hand, the Heirs of Policronio insisted that the CA

pronouncement on the invalidity of the Deed of Extra-Judicial Partition should not

be disturbed because the subject properties should not have been included in the

estate of Alfonso, and because Conrado lacked the written authority to represent

his siblings. They argued with the CA in ruling that a special power of attorney

was required before Conrado could sign in behalf of his co-heirs.

The Heirs of Policronio denied that they ratified the Deed of Extra-Judicial

Partition. They claimed that there is nothing on record that establishes that they

ratified the partition. Far from doing so, they precisely questioned its execution by

filing a complaint. They further argued that under Article 1409 (3) of the Civil

Code, ratification cannot be invoked to validate the illegal act of including in the

partition those properties which do not belong to the estate as it provides another

mode of acquiring ownership not sanctioned by law.

Furthermore, the Heirs of Policronio contended that the defenses of

unenforceability, ratification, and preterition are being raised for the first time on

appeal by the Heirs of Alfonso. For having failed to raise them during the trial, the

Heirs of Alfonso should be deemed to have waived their right to do so.

The Court agrees in part with the Heirs of Alfonso.

To begin, although the defenses of unenforceability, ratification and

preterition were raised by the Heirs of Alfonso for the first time on appeal, they are

concomitant matters which may be taken up. As long as the questioned items bear

relevance and close relation to those specifically raised, the interest of justice

would dictate that they, too, must be considered and resolved. The rule that only

theories raised in the initial proceedings may be taken up by a party thereto on

appeal should refer to independent, not concomitant matters, to support or oppose

the cause of action.[47]

In the RTC, the Heirs of Policronio alleged that Conrado’s consent was

vitiated by mistake and undue influence, and that he signed the Deed of Extra-

Judicial Partition without the authority or consent of his co-heirs.

The RTC found that Conrado’s credibility had faltered, and his claims were

rejected by the RTC as gratuitous assertions. On the basis of such, the RTC ruled

that Conrado duly represented his siblings in the Deed of Extra-Judicial Partition.

On the other hand, the CA annulled the Deed of Extra-Judicial Partition

under Article 1390 (1) of the Civil Code, holding that a special power of attorney

was lacking as required under Article 1878 (5) and (15) of the Civil Code. These

articles are as follows: Art. 1878. Special powers of attorney are necessary in the following cases:

x x x (5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration;

x x x (15) Any other act of strict dominion.

Art. 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.

This Court finds that Article 1878 (5) and (15) is inapplicable to the case at

bench. It has been held in several cases[48]

that partition among heirs is not legally

deemed a conveyance of real property resulting in change of ownership. It is not a

transfer of property from one to the other, but rather, it is a confirmation or

ratification of title or right of property that an heir is renouncing in favor of another

heir who accepts and receives the inheritance. It is merely a designation and

segregation of that part which belongs to each heir. The Deed of Extra-Judicial

Partition cannot, therefore, be considered as an act of strict dominion. Hence, a

special power of attorney is not necessary.

In fact, as between the parties, even an oral partition by the heirs is valid if

no creditors are affected. The requirement of a written memorandum under the

statute of frauds does not apply to partitions effected by the heirs where no

creditors are involved considering that such transaction is not a conveyance of

property resulting in change of ownership but merely a designation and segregation

of that part which belongs to each heir.[49]

Neither is Article 1390 (1) applicable. Article 1390 (1) contemplates the

incapacity of a party to give consent to a contract. What is involved in the case at

bench though is not Conrado’s incapacity to give consent to the contract, but rather

his lack of authority to do so. Instead, Articles 1403 (1), 1404, and 1317 of the

Civil Code find application to the circumstances prevailing in this case. They are as

follows: Art. 1403. The following contracts are unenforceable, unless they are ratified: (1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers;

Art. 1404. Unauthorized contracts are governed by Article 1317 and the principles of agency in Title X of this Book.

Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him.

A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party.

Such was similarly held in the case of Badillo v. Ferrer:

The Deed of Extrajudicial Partition and Sale is not a voidable or an

annullable contract under Article 1390 of the New Civil Code. Article 1390 renders a contract voidable if one of the parties is incapable of giving consent to the contract or if the contracting party’s consent is vitiated by mistake, violence, intimidation, undue influence or fraud. x x x

The deed of extrajudicial parition and sale is an unenforceable or,

more specifically, an unauthorized contract under Articles 1403(1) and 1317 of the New Civil Code.[50]

Therefore, Conrado’s failure to obtain authority from his co-heirs to sign the

Deed of Extra-Judicial Partition in their behalf did not result in his incapacity to

give consent so as to render the contract voidable, but rather, it rendered the

contract valid but unenforceable against Conrado’s co-heirs for having been

entered into without their authority.

A closer review of the evidence on record, however, will show that the Deed

of Extra-Judicial Partition is not unenforceable but, in fact, valid, binding and

enforceable against all the Heirs of Policronio for having given their consent to the

contract. Their consent to the Deed of Extra-Judicial Partition has been proven by a

preponderance of evidence.

Regarding his alleged vitiated consent due to mistake and undue influence to

the Deed of Extra-Judicial Partition, Conrado testified, to wit:

Q: Mr. Ureta you remember having signed a document entitled deed of extra judicial partition consisting of 11 pages and which have previously [been] marked as Exhibit I for the plaintiffs? A: Yes sir. Q: Can you recall where did you sign this document? A: The way I remember I signed that in our house.

Q: And who requested or required you to sign this document? A: My aunties. Q: Who in particular if you can recall? A: Nay Pruding Panadero. Q: You mean that this document that you signed was brought to your house by your Auntie Pruding Pa[r]adero [who] requested you to sign that document? A: When she first brought that document I did not sign that said document because I [did] no[t] know the contents of that document. Q: How many times did she bring this document to you [until] you finally signed the document? A: Perhaps 3 times. Q: Can you tell the court why you finally signed it? A: Because the way she explained it to me that the land of my grandfather will be partitioned. Q: When you signed this document were your brothers and sisters who are your co-plaintiffs in this case aware of your act to sign this document? A: They do not know.

x x x Q: After you have signed this document did you inform your brothers and sisters that you have signed this document? A: No I did not. [51]

x x x

Q: Now you read the document when it was allegedly brought to your house by your aunt Pruding Pa[r]adero? A: I did not read it because as I told her I still want to ask the advise of my brothers and sisters.

Q: So do I get from you that you have never read the document itself or any part thereof? A: I have read the heading.

x x x

Q: And why is it that you did not read all the pages of this document because I understand that you know also how to read in English? A: Because the way Nay Pruding explained to me is that the property of my grandfather will be partitioned that is why I am so happy.

x x x

Q: You mean to say that after you signed this deed of extra judicial partition up to the present you never informed them? A: Perhaps they know already that I have signed and they read already the document and they have read the document. Q: My question is different, did you inform them? A: The document sir? I did not tell them. Q: Even until now? A: Until now I did not inform them.[52]

This Court finds no cogent reason to reverse the finding of the RTC that

Conrado’s explanations were mere gratuitous assertions not entitled to any

probative weight. The RTC found Conrado’s credibility to have faltered when he

testified that perhaps his siblings were already aware of the Deed of Extra-Judicial

Partition. The RTC was in the best position to judge the credibility of the witness’

testimony. The CA also recognized that Conrado’s consent was not vitiated by

mistake and undue influence as it required a special power of attorney in order to

bind his co-heirs and, as such, the CA thereby recognized that his signature was

binding to him but not with respect to his co-heirs. Findings of fact of the trial

court, particularly when affirmed by the CA, are binding to this Court.[53]

Furthermore, this Court notes other peculiarities in Conrado’s testimony.

Despite claims of undue influence, there is no indication that Conrado was forced

to sign by his aunt, Prudencia Paradero. In fact, he testified that he was happy to

sign because his grandfather’s estate would be partitioned. Conrado, thus, clearly

understood the document he signed. It is also worth noting that despite the

document being brought to him on three separate occasions and indicating his

intention to inform his siblings about it, Conrado failed to do so, and still neglected

to inform them even after he had signed the partition. All these circumstances

negate his claim of vitiated consent. Having duly signed the Deed of Extra-Judicial

Partition, Conrado is bound to it. Thus, it is enforceable against him.

Although Conrado’s co-heirs claimed that they did not authorize Conrado to

sign the Deed of Extra-Judicial Partition in their behalf, several circumstances

militate against their contention.

First, the Deed of Extra-Judicial Partition was executed on April 19, 1989,

and the Heirs of Policronio claim that they only came to know of its existence

on July 30, 1995 through an issue of the Aklan Reporter. It is difficult to believe

that Conrado did not inform his siblings about the Deed of Extra-Judicial Partition

or at least broach its subject with them for more than five years from the time he

signed it, especially after indicating in his testimony that he had intended to do so.

Second, Conrado retained possession of one of the parcels of land

adjudicated to him and his co-heirs in the Deed of Extra-Judicial Partition.

Third, after the execution of the partition on April 19, 1989 and more than a

year before they claimed to have discovered the existence of the Deed of Extra-

Judicial Partition on July 30, 1995, some of the Heirs of Policronio, namely, Rita

Solano, Macario Ureta, Lilia Tayco, and Venancio Ureta executed on June 1, 1994,

a Special Power of Attorney[54]

in favor of their sister Gloria Gonzales, authorizing

her to obtain a loan from a bank and to mortgage one of the parcels of land

adjudicated to them in the Deed of Extra-Judicial Partition to secure payment of the

loan. They were able to obtain the loan using the land as collateral, over which a

Real Estate Mortgage[55]

was constituted. Both the Special Power of Attorney and

the Real Estate Mortgage were presented in evidence in the RTC, and were not

controverted or denied by the Heirs of Policronio.

Fourth, in the letter dated August 15, 1995, sent by the counsel of the Heirs

of Policronio to the Heirs of Alfonso requesting for amicable settlement, there was

no mention that Conrado’s consent to the Deed of Extra-Judicial Partition was

vitiated by mistake and undue influence or that they had never authorized Conrado

to represent them or sign the document on their behalf. It is questionable for such a

pertinent detail to have been omitted. The body of said letter is reproduced

hereunder as follows: Greetings: Your nephews and nieces, children of your deceased brother Policronio Ureta, has referred to me for appropriate legal action the property they inherited from their father consisting of six (6) parcels of land which is covered by a Deed of Absolute Sale dated October 25, 1969. These properties ha[ve] already been transferred to the name of their deceased father immediately after the sale, machine copy of the said Deed of Sale is hereto attached for your ready reference. Lately, however, there was published an Extra-judicial Partition of the estate of Alfonso Ureta, which to the surprise of my clients included the properties already sold to their father before the death of said Alfonso Ureta. This inclusion of their property is erroneous and illegal because these properties were covered by the Deed of Absolute Sale in favor of their father Policronio Ureta no longer form part of the estate of Alfonso Ureta. Since Policronio Ureta has [sic] died in 1974 yet, these properties have passed by hereditary succession to his children who are now the true and lawful owners of the said properties. My clients are still entitled to a share in the estate of Alfonso Ureta who is also their grandfather as they have stepped into the shoes of their deceased father Policronio Ureta. But this estate of Alfonso Ureta should already exclude the six (6) parcels of land covered by the Deed of Absolute Sale in favor of Policronio Ureta.

My clients cannot understand why the properties of their late father [should] be included in the estate of their grandfather and be divided among his brothers and sisters when said properties should only be divided among themselves as children of Policronio Ureta. Since this matter involves very close members of the same family, I have counseled my clients that an earnest effort towards a compromise or amicable settlement be first explored before resort to judicial remedy is pursued. And a compromise or amicable settlement can only be reached if all the parties meet and discuss the problem with an open mind. To this end, I am suggesting a meeting of the parties on September 16, 1995 at 2:00 P.M. at B Place Restaurant at C. Laserna St., Kalibo, Aklan. It would be best if the parties can come or be represented by their duly designated attorney-in-fact together with their lawyers if they so desire so that the problem can be discussed unemotionally and intelligently. I would, however, interpret the failure to come to the said meeting as an indication that the parties are not willing to or interested in amicable

settlement of this matter and as a go signal for me to resort to legal and/or judicial remedies to protest the rights of my clients. Thank you very much.[56]

Based on the foregoing, this Court concludes that the allegation of Conrado’s

vitiated consent and lack of authority to sign in behalf of his co-heirs was a mere

afterthought on the part of the Heirs of Policronio. It appears that the Heirs of

Policronio were not only aware of the existence of the Deed of Extra-Judicial

Partition prior to June 30, 1995 but had, in fact, given Conrado authority to sign in

their behalf. They are now estopped from questioning its legality, and the Deed of

Extra-Judicial Partition is valid, binding, and enforceable against them.

In view of the foregoing, there is no longer a need to discuss the issue of

ratification.

Preterition

The Heirs of Alfonso were of the position that the absence of the Heirs of

Policronio in the partition or the lack of authority of their representative results, at

the very least, in their preterition and not in the invalidity of the entire deed of

partition. Assuming there was actual preterition, it did not render the Deed of

Extra-Judicial Partition voidable. Citing Article 1104 of the Civil Code, they aver

that a partition made with preterition of any of the compulsory heirs shall not be

rescinded, but the heirs shall be proportionately obliged to pay the share of the

person omitted. Thus, the Deed of Extra-Judicial Partition should not have been

annulled by the CA. Instead, it should have ordered the share of the heirs omitted

to be given to them.

The Heirs of Alfonso also argued that all that remains to be adjudged is the

right of the preterited heirs to represent their father, Policronio, and be declared

entitled to his share. They contend that remand to the RTC is no longer necessary

as the issue is purely legal and can be resolved by the provisions of the Civil Code

for there is no dispute that each of Alfonso’s heirs received their rightful

share. Conrado, who received Policronio’s share, should then fully account for

what he had received to his other co-heirs and be directed to deliver their share in

the inheritance.

These arguments cannot be given credence.

Their posited theory on preterition is no longer viable. It has already been

determined that the Heirs of Policronio gave their consent to the Deed of Extra-

Judicial Partition and they have not been excluded from it. Nonetheless, even

granting that the Heirs of Policronio were denied their lawful participation in the

partition, the argument of the Heirs of Alfonso would still fail.

Preterition under Article 854 of the Civil Code is as follows:

Art. 854. The preterition or omission of one, some, or all of the compulsory heirs in the direct line, whether living at the time of the execution of the will or born after the death of the testator, shall annul the institution of heir; but the devises and legacies shall be valid insofar as they are not inofficious.

If the omitted compulsory heirs should die before the testator, the institution shall be effectual, without prejudice to the right of representation.

Preterition has been defined as the total omission of a compulsory heir from

the inheritance. It consists in the silence of the testator with regard to a compulsory

heir, omitting him in the testament, either by not mentioning him at all, or by not

giving him anything in the hereditary property but without expressly disinheriting

him, even if he is mentioned in the will in the latter case.[57]

Preterition is thus a

concept of testamentary succession and requires a will. In the case at bench, there

is no will involved. Therefore, preterition cannot apply.

Remand Unnecessary

The Deed of Extra-Judicial Partition is in itself valid for complying with all

the legal requisites, as found by the RTC, to wit:

A persual of the Deed of Extra-judicial Partition would reveal that

all the heirs and children of Alfonso Ureta were represented therein; that nobody was left out; that all of them received as much as the others as their shares; that it distributed all the properties of Alfonso Ureta except a portion of parcel 29 containing an area of 14,000 square meters, more or less, which was expressly reserved; that Alfonso Ureta, at the time of his death, left no debts; that the heirs of Policronio Ureta, Sr. were represented by Conrado B. Ureta; all the parties signed the document, was witnessed and duly acknowledged before Notary Public Adolfo M. Iligan of Kalibo, Aklan; that the document expressly stipulated that the heirs to whom some of the properties were transferred before for taxation purposes or their children, expressly recognize and acknowledge as a fact

that the properties were transferred only for the purpose of effective administration and development convenience in the payment of taxes and, therefore, all instruments conveying or effecting the transfer of said properties are null and void from the beginning (Exhs. 1-4, 7-d).[58]

Considering that the Deed of Sale has been found void and the Deed of

Extra-Judicial Partition valid, with the consent of all the Heirs of Policronio duly

given, there is no need to remand the case to the court of origin for partition.

WHEREFORE, the petition in G.R. No. 165748 is DENIED. The petition

in G.R. No. 165930 is GRANTED. The assailed April 20, 2004 Decision

and October 14, 2004Resolution of the Court of Appeals in CA-G.R. CV No.

71399, are hereby MODIFIED in this wise:

(1) The Deed of Extra-Judicial Partition, dated April 19, 1989, is

VALID, and

(2) The order to remand the case to the court of origin is

hereby DELETED.

SO ORDERED.