G.R. No. 115307 July 8, 1997

MANUEL LAO, petitioner,

vs.

COURT OF APPEALS and BETTER HOMES REALTY & HOUSING CORPORATION, respondents.

PANGANIBAN, J.:

As a general rule, the main issue in an ejectment suit is possession de facto, not possession de jure. In the event the

issue of ownership is raised in the pleadings, such issue shall be taken up only for the limited purpose of determining

who between the contending parties has the better right to possession. However, where neither of the parties objects

to the allegation of the question of ownership — which may be initially improvident or improper — in an ejectment suit

and, instead, both present evidence thereon, argue the question in their various submissions and participate in all

aspects of the trial without objecting to the Metropolitan (or Municipal) Trial Court's jurisdiction to decide the question

of ownership, the Regional Trial Court — in the exercise of its original jurisdiction as authorized by Section 11, Rule 40 of

the Rules of Court — may rule on the issue and the corollary question of whether the subject deed is one of sale or of

equitable mortgage.

These postulates are discussed by the Court as it resolves this petition under Rule 45 seeking a reversal of the December

21, 1993 Decision 1 and April 28, 1994 Resolution 2 of the Court of Appeals in CA-G.R. SP No. 92-14293.

The Antecedent Facts

The facts of this case are narrated by Respondent Court of Appeals as follows: 3

On June 24, 1992, (herein Private Respondent Better Homes Realty and Housing Corporation) filed with the

Metropolitan Trial Court of Quezon City, a complaint for unlawful detainer, on the ground that (said private respondent)

is the owner of the premises situated at Unit I, No. 21 N. Domingo Street, Quezon City, evidenced by Transfer Certificate

of Title No. 22184 of the Registry of Deeds of Quezon City; that (herein Petitioner Manuel Lao) occupied the property

without rent, but on (private respondent's) pure liberality with the understanding that he would vacate the property

upon demand, but despite demand to vacate made by letter received by (herein petitioner) on February 5, 1992, the

(herein petitioner) refused to vacate the premises.

In his answer to the complaint, (herein petitioner) claimed that he is the true owner of the house and lot located at Unit

I, No. 21 N. Domingo Street, Quezon City; that the (herein private respondent) purchased the same from N. Domingo

Realty and Development Corporation but the agreement was actually a loan secured by mortgage; and that plaintiff's

cause of action is for accion publiciana, outside the jurisdiction of an inferior court.

On October 9, 1992, the Metropolitan Trial Court of Quezon City rendered judgment ordering the (petitioner) to vacate

the premises located at Unit I, No. 21 N. Domingo Street, Quezon City; to pay (private respondent) the sum of P300.00 a

day starting on January 31, 1992, as reasonable rent for the use and occupation of the premises; to pay plaintiff

P5,000.00, as attorney's fees, and costs.

On appeal to the Regional Trial Court of Quezon City, 4 on March 30, 1993, the latter court rendered a decision reversing

that of the Metropolitan Trial Court, and ordering the dismissal of the (private respondent's) complaint for lack of merit,

with costs taxed against (private respondent).

In its decision, the Regional Trial Court held that the subject property was acquired by (private respondent) from N.

Domingo Realty and Development Corporation, by a deed of sale, and (private respondent) is now the registered owner

under Transfer Certificate of Title No. 316634 of the Registry of Deeds of Quezon City, but in truth the (petitioner) is the

beneficial owner of the property because the real transaction over the subject property was not a sale but a loan

secured by a mortgage thereon.

The dispositive portion of the Regional Trial Court's decision is quoted below: 5

WHEREFORE, judgment is hereby rendered reversing the appealed decision and ordering the dismissal of plaintiffs

complaint for lack of merit, with the costs taxed against it.

IT IS SO ORDERED.

On April 28, 1993, private respondent filed an appeal with the Court of Appeals which reversed the decision of the

Regional Trial Court. The Respondent Court ruled:

The Metropolitan Trial Court has no jurisdiction to resolve the issue of ownership in an action for unlawful detainer (B.P.

129, Sec. 33 [2]; Cf. Alvir vs. Vera, 130 SCRA 357). The jurisdiction of a court is determined by the nature of the action

alleged in the complaint (Ching vs. Malaya, l53 SCRA 412). In its complaint in the inferior court, the plaintiff alleged that

it is the owner of the premises located at Unit I, No. 21 N. Domingo Street, Quezon City, and that defendant's occupation

is rent free and based on plaintiffs pure liberality coupled with defendant's undertaking to vacate the premises upon

demand, but despite demands, defendant has refused to vacate. The foregoing allegations suffice to constitute a cause

of action for ejectment (Banco de Oro vs. Court of Appeals, 182 SCRA 464).

The Metropolitan Trial Court is not ousted of jurisdiction simply because the defendant raised the question ownership

(Bolus vs. Court of Appeals, 218 SCRA 798). The inferior court shall resolve the issue of ownership only to determine who

is entitled to the possession of the premises (B.P. 129, Sec. 33[2]; Bolus vs. Court of Appeals, supra).

Here, the Metropolitan Trial Court ruled that as owner, plaintiff (herein private respondent Better Homes Realty and

Housing Corporation) is entitled to the possession of the premises because the defendant's stay is by mere tolerance of

the plaintiff (herein private respondent).

On the other hand, the Regional Trial Court ruled that the subject property is owned by the defendant, (herein

petitioner Manuel Lao) and, consequently, dismissed the complaint for unlawful detainer. Thus, the Regional Trial Court

resolved the issue of ownership, as if the case were originally before it as an action for recovery of possession, or accion

publiciana, within its original jurisdiction. In an appeal from a decision of the Municipal Trial Court, or Metropolitan Trial

Court, in an unlawful detainer case, the Regional Trial Court is simply to determine whether the inferior court correctly

resolved the issue of possession; it shall not delve into the issue of ownership (Manuel vs. Court of Appeals, 199 SCRA

603). What the Regional Trial Court did was to rule that the real agreement between the plaintiff and the previous

owner of the property was not a sale, but an equitable mortgage. Defendant was only a director of the seller

corporation, and his claim of ownership could not be true. This question could not be determined summarily. It was not

properly in issue before the inferior court because, as aforesaid, the only issue was possession de facto (Manlapaz vs.

Court of Appeals, 191 SCRA 795), or who has a better right to physical possession (Dalida vs. Court of Appeals, 117 SCRA

480). Consequently, the Regional Trial Court erred in reversing the decision of the Metropolitan Trial Court.

WHEREFORE, the Court hereby REVERSES the decision of the Regional Trial Court. In lieu thereof, We affirm the decision

of the Metropolitan Trial Court of Quezon City sentencing the defendant and all persons claiming right under him to

vacate the premises situated at Unit I, No. 21 N. Domingo Street, Quezon City, and to surrender possession to the

plaintiff; to pay plaintiff the sum of P300.00, a day starting on January 31, 1992, until defendant shall have vacated the

premises; to pay plaintiff P5,000.00 as attorneys fees, and costs.

SO ORDERED. 6

Manuel Lao's motion for reconsideration dated January 24, 1994 was denied by the Court of Appeals in its Resolution

promulgated on April 28, 1994. Hence, this petition for review before this Court. 7

The Issues

Petitioner Manuel Lao raises three issues:

3.1 Whether or not the lower court can decide on the issue of ownership in the present ejectment case.

3.2 Whether or not private respondent had acquired ownership over the property in question.

3.3 Whether or not petitioner should be ejected from the premises in question 8

The Court's Ruling

The petition for review is meritorious.

First Issue: Jurisdiction to Decide the Issue of Ownership

The Court of Appeals held that as a general rule, the issue in an ejectment suit is possession de facto, not possession de

jure, and that in the event the issue of ownership is raised as a defense, the issue is taken up for the limited purpose of

determining who between the contending parties has the better right to possession. Beyond this, the MTC acts in excess

of its jurisdiction. However, we hold that this is not a hard and fast rule that can be applied automatically to all unlawful

detainer cases.

Section 11, Rule 40 of the Rules of Court provides that "[a] case tried by an inferior court without jurisdiction over the

subject matter shall be dismissed on appeal by the Court of First Instance. But instead of dismissing the case, the Court

of First Instance, in the exercise of its original jurisdiction, may try the case on the merits if the parties therein file their

pleadings and go to the trial without any objection to such jurisdiction." After a thorough review of the records of this

case, the Court finds that the respondent appellate court failed to apply this Rule and erroneously reversed the RTC

Decision.

Respondent Court cites Alvir vs. Vera to support its Decision. On the contrary, we believe such case buttresses instead

the Regional Trial Court's decision. The cited case involves an unlawful detainer suit where the issue of possession was

inseparable from the issue of transfer of ownership, and the latter was determinable only after an examination of a

contract of sale involving the property in question. The Court ruled that where a "case was tried and heard by the lower

court in the exercise of its original jurisdiction by common assent of the parties by virtue of the issues raised . . . and the

proofs presented by them," any dismissal on the ground of lack of jurisdiction "would only lead to needless delays and

multiplicity of suits." The Court held:

In actions of forcible entry and detainer, the main issue is possession de facto, independently of any claim of ownership

or possession de jure that either party may set forth in his pleading. . . . Defendant's claim of ownership of the property

from which plaintiff seeks to eject him is not sufficient to divest the inferior court of its jurisdiction over the action of

forcible entry and detainer. However, if it appears during the trial that the principal issue relates to the ownership of the

property in dispute and any question of possession which maybe involved necessarily depends upon the result of the

inquiry into the title, previous rulings of this Court are that the jurisdiction of the municipal or city court is lost and the

action should be dismissed.

We have at bar a case where, in effect, the question of physical possession could not properly be determined without

settling that of lawful or de jure possession and of ownership and hence, following early doctrine, the jurisdiction of the

municipal court over the ejectment case was lost and the action should have been dismissed. As a consequence,

respondent court would have no jurisdiction over the case on appeal and it should have dismissed the case on appeal

from the municipal trial court. However, in line with Section 11, Rule 40 of the Revised Rules of Court, which

reads —

Sec. 11. Lack of Jurisdiction. — A case tried by an inferior court without jurisdiction over the subject matter shall be

dismissed on appeal by the Court of First Instance. But instead of dismissing the case, the Court of First Instance in the

exercise of its original jurisdiction, may try the case on the merits if the parties therein file their pleadings and go to trial

without objection to such jurisdiction.

this Court held in Saliwan vs. Amores, 51 SCRA 329, 337, that dismissal "on the said ground of lack of appellate

jurisdiction on the part of the lower court flowing from the municipal court's loss of jurisdiction would lead only to

needless delay and multiplicity of suits in the attainment of the same result and ignores, as above stated, that the case

was tried and heard by the lower court in the exercise of its original jurisdiction by common assent of the parties by

virtue of the issues raised by the parties and the proof presented by them thereon." 9

This pronouncement was reiterated by this Court through Mr. Justice Teodoro R. Padilla in Consignado vs. Court of

Appeals 10 as follows:

As the MTC of Laguna had no jurisdiction over the unlawful detainer case in view of the raised question of title or

ownership over the property in dispute, the RTC of Laguna also had no appellate jurisdiction to decide the case on the

merits. It should have dismissed the appeal. However, it had original jurisdiction to pass upon the controversy. It is to be

noted, in this connection, that in their respective memoranda filed with the RTC of Laguna, the petitioners and private

respondents did not object to the said court exercising its original jurisdiction pursuant to the aforequoted provisions of

Section 11, Rule 40 of the Rules of Court.

xxx xxx xxx

Petitioners now contend, among others, that the Court of Appeals erred in resolving the question of ownership as if

actual title, not mere possession of subject premises, is involved in the instant case.

The petitioner's contention is untenable. Since the MTC and RTC of Laguna decided the question of ownership over the

property in dispute, on appeal the Court of Appeals had to review and resolve also the issue of ownership. . . .

It is clear, therefore, that although an action for unlawful detainer "is inadequate for the ventilation of issues involving

title or ownership of controverted real property, [i]t is more in keeping with procedural due process that where issues of

title or ownership are raised in the summary proceedings for unlawful detainer, said proceeding should be dismissed for

lack of jurisdiction, unless, in the case of an appeal from the inferior court to the Court of First Instance, the parties

agree to the latter Court hearing the case in its original jurisdiction in accordance with Section 11, Rule 40 . . ." 11

In the case at bar, a determination of the issue of ownership is indispensable to resolving the rights of both parties over

the property in controversy, and is inseparable from a determination of who between them has the right to possess the

same. Indeed, the very complaint for unlawful detainer filed in the Metropolitan Trial Court of Quezon City is anchored

on the alleged ownership of private respondent over the subject premises. 12 The parties did not object to the

incongruity of a question of ownership being brought in an ejectment suit. Instead they both submitted evidence on

such question, and the Metropolitan Trial Court decided on the issue. These facts are evident in the Metropolitan Trial

Court's decision:

From the records of the case, the evidence presented and the various arguments advanced by the parties, the Court

finds that the property subject matter of this case is in the name of (herein private respondent) Better Homes and Realty

Housing Corporation; that the Deed of Absolute Sale which was the basis for the issuance of said TCT No. 22184 is

between N. Domingo Realty and Development Corporation and Better Homes Realty and Housing Corporation which

was signed by Artemio S. Lao representing the seller N. Domingo and Realty Development Corporation; that a Board

Resolution of N. Domingo and Realty and Development Corporation (Exhibit "D" position paper) shows that the

Directors of the Board of the N. Domingo Realty and Development Corporation passed a resolution selling apartment

units I and F located at No. 21 N. Domingo St., Quezon City and designating the (herein petitioner) with his brother

Artemio S. Lao as signatories to the Deed of Sale. The claim therefore of the (herein petitioner) that he owns the

property is not true . . . 13

When the MTC decision was appealed to the Regional Trial Court, not one of the parties questioned the Metropolitan

Trial Court's jurisdiction to decide the issue of ownership. In fact, the records show that both petitioner and private

respondent discussed the issue in their respective pleadings before the Regional Trial Court. 14 They participated in all

aspects of the trial without objection to its jurisdiction to decide the issue of ownership. Consequently, the Regional Trial

Court aptly decided the issue based on the exercise of its original jurisdiction as authorized by Section 11, Rule 40 of the

Rules of Court.

This Court further notes that in both of the contending parties' pleadings filed on appeal before the Court of Appeals,

the issue of ownership was likewise amply discussed. 15 The totality of evidence presented was sufficient to decide

categorically the issue of ownership.

These considerations, taken together with the fact that both the Metropolitan Trial Court and the Regional Trial Court

decided the issue of ownership, justify the review of the lower courts' findings of fact and decision on the issue of

ownership. This we now do, as we dispose of the second issue and decide the case with finality to spare the parties the

time, trouble and expense of undergoing the rigors of another suit where they will have to present the same evidence all

over again and where, in all probability, the same ultimate issue of ownership will be brought up on appeal.

Second Issue: Absolute Sale or Equitable Mortgage?

Private Respondent Better Homes Realty and Housing Corporation anchored its right in the ejectment suit on a contract

of sale in which petitioner (through their family corporation) transferred the title of the property in question. Petitioner

contends, however that their transaction was not an absolute sale, but an equitable mortgage.

In determining the nature of a contract, the Court looks at the intent of the parties and not at the nomenclature used to

describe it. Pivotal to deciding this issue is the true aim and purpose of the contracting parties as shown by the

terminology used in the covenant, as well as "by their conduct, words, actions and deeds prior to, during and

immediately after executing the agreement." 16 In this regard, parol evidence becomes admissible to prove the true

intent and agreement of the parties which the Court will enforce even if the title of the property in question has already

been registered and a new transfer certificate of title issued in the name of the transferee. In Macapinlac vs. Gutierrez

Repide, which involved an identical question, the Court succintly stated:

. . . This conclusion is fully supported by the decision in Cuyugan vs. Santos (34 Phil., 100), where this court held that a

conveyance in the form of a contract of sale with pacto de retro will be treated as a mere mortgage, if really executed as

security for a debt, and that this fact can be shown by oral evidence apart from the instrument of conveyance, a

doctrine which has been followed in the later cases of Villa vs. Santiago (38 Phil., 157), and Cuyugan vs. Santos (39 Phil.,

970).

xxx xxx xxx

In the first place, it must be borne in mind that the equitable doctrine which has been so fully stated above, to the effect

that any conveyance intended as security for a debt will be held in effect to be a mortgage, whether so actually

expressed in the instrument or not, operates regardless of the form of the agreement chosen by the contracting parties

as the repository of their will. Equity looks through the form and considers the substance; and no kind of engagement

can be adopted which will enable the parties to escape from the equitable doctrine to which reference is made. In other

words, a conveyance of land, accompanied by registration in the name of the transferee and the issuance of a new

certificate, is no more secured from the operation of this equitable doctrine than the most informal conveyance that

could be devised. 17

The law enumerates when a contract may be presumed to be an equitable mortgage:

(1) When the price of a sale with right to repurchase is unusually inadequate;

(2) When the vendor remains in possession as lessee or otherwise;

(3) When upon or after the expiration of the right repurchase another instrument extending the period of

redemption or granting a new period is executed;

(4) When the purchaser retains for himself a part of the purchase price;

(5) When the vendor binds himself to pay the taxes on the thing sold;

(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall

secure the payment of a debt or the performance of any other obligation.

xxx xxx xxx 18

The foregoing presumption applies also to a "contract purporting to be an absolute sale." 19

Applying the preceding principles to the factual milieu of this case, we find the agreement between the private

respondent and N. Domingo Realty & Housing Corporation, as represented by petitioner, manifestly one of equitable

mortgage. First, possession of the property in the controversy remained with Petitioner Manuel Lao who was the

beneficial owner of the property, before, during and after the alleged sale. 20 It is settled that a "pacto de retro sale

should be treated as a mortgage where the (property) sold never left the possession of the vendors." 21 Second, the

option given to Manuel Lao to purchase the property in controversy had been extended twice 22 through documents

executed by Mr. Tan Bun Uy, President and Chairman of the Board of Better Homes Realty & Housing Corporation. The

wording of the first extension is a refreshing revelation that indeed the parties really intended to be bound by a loan

with mortgage, not by a pacto de retro. It reads, "On June 10, 88, this option is extended for another sixty days to

expired (sic) on Aug. 11, 1988. The purchase price is increased to P137,000.00. Since Mr. Lao borrow (sic) P20,000.00

from me." 23 These extensions clearly represent the extension of time to pay the loan given to Manuel Lao upon his

failure to pay said loan on its maturity. Mr. Lao was even granted an additional loan of P20,000.00 as evidenced by the

above-quoted document. Third, unquestionably, Manuel Lao and his brother were in such "dire need of money" that

they mortgaged their townhouse units registered under the name of N. Domingo Realty Corporation, the family

corporation put up by their parents, to Private Respondent Better Homes Realty & Housing Corporation. In retrospect, it

is easy to blame Petitioner Manuel Lao for not demanding a reformation of the contract to reflect the true intent of the

parties. But this seeming inaction is sufficiently explained by the Lao brothers' desperate need for money, compelling

them to sign the document purporting to be a sale after they were told that the same was just for "formality." 24 In fact,

this Court, in various cases involving the same situation, had occasion to state:

. . . In Jayme, et al. v. Salvador, et al., this Court upheld a judgment of the Court of First Instance of Iloilo which found the

transaction between the parties to be a loan instead of a sale of real property notwithstanding the terminology used in

the document, after taking into account the surrounding circumstances of the transaction. The Court through Justice

Norberto Romualdez stated that while it was true that plaintiffs were aware of the contents of the contracts, the

preponderance of the evidence showed however that they signed knowing that said contracts did not express their real

intention, and if they did so notwithstanding this, it was due to the urgent necessity of obtaining fund. "Necessitous men

are not, truly speaking, free men; but to answer a present emergency, will submit to any terms that the crafty may

impose upon them." 25

Moreover, since the borrower's urgent need for money places the latter at a disadvantage vis-a-vis the lender who can

thus dictate the terms of their contract, the Court, in case of an ambiguity, deems the contract to be one which involves

the lesser transmission of rights and interest over the property in controversy. 26

As aptly found and concluded by the regional trial court:

The evidence of record indicates that while as of April 4, 1988 (the date of execution of the Deed of Absolute Sale

whereby the N. Domingo and Realty & Development Corporation purportedly sold the townhouse and lot subject of this

suit to [herein private respondent Better Homes Realty & Housing Corporation] for P100,000.000) said N. Domingo

Realty & Development Corporation (NDRDC, for short) was the registered owner of the subject property under Transfer

Certificate of Title (TCT) No. 316634 of the Registry of Deeds for Quezon City, (herein petitioner Manuel Lao) in fact was

and has been since 1975 the beneficial owner of the subject property and, thus, the same was assigned to him by the

NDRDC, the family corporation set up by his parents and of which (herein petitioner) and his siblings are directors. That

the parties' real transaction or contract over the subject property was not one of sale but, rather, one of loan secured,

by a mortgage thereon is unavoidably inferrable from the following facts of record, to (herein petitioner's) possession of

the subject property, which started in 1975 yet, continued and remained even after the alleged sale of April 4, 1988;

(herein private respondent) executed an option to purchase in favor (herein petitioner) as early as April 2, 1988 or two

days before (herein private respondent) supposedly acquired ownership of the property; the said option was renewed

several times and the price was increased with each renewal (thus, the original period for the exercise of the option was

up to June 11, 1988 and the price was P109,000.00; then, on June 10, 1988, the option was extended for 60 days or until

August 11, 1988 and the price was increased to P137,000.00; and then on August 11, 1988, the option was again

extended until November 11,1988 and the price was increased to P158,840.00); and, the Deed of Absolute Sale of April

4, 1988 was registered and the property transferred in the name of (private respondent) only on May 10, 1989, per TCT

No. 22184 of the Registry of Deeds for Quezon City (Arts. 1602, nos. 2, 3, & 6, & 1604, Civil Code). Indeed, if it were true,

as it would have the Court believe, that (private respondent) was so appreciative of (petitioner's) alleged facilitation of

the subject property's sale to it, it is quite strange why (private respondent) some two days before such supposed sale

would have been minded and inclined to execute an option to purchase allowing (petitioner) to acquire the property —

the very same property it was still hoping to acquire at the time. Certainly, what is more likely and thus credible is that, if

(private respondent) was indeed thankful that it was able to purchase the property, it would not given (petitioner) any

option to purchase at all . . . 27

Based on the conduct of the petitioner and private respondent and even the terminology of the second option to

purchase, we rule that the intent and agreement between them was undoubtedly one of equitable mortgage and not of

sale.

Third Issue: Should Petitioner Be Ejected?

We answer in the negative. An action for unlawful detainer is grounded on Section 1, Rule 70 of the Rules of Court which

provides that:

. . . a landlord, vendor, vendee, or other person against whom the possession of any land or building is unlawfully

withheld after the expiration or termination of the right to hold possession, by virtue of any contract, express or implied,

or the legal representatives or assigns of any such landlord, vendor, vendee, or other person, may, at any time within

one (1) year after such unlawful deprivation or withholding of possession, bring an action in the proper inferior court

against the person or persons unlawfully withholding or depriving of possession, or any person or persons claiming

under them, for the restitution of such possession, together with damages and costs . . . .

Based on the previous discussion, there was no sale of the disputed property. Hence, it still belongs to petitioner's family

corporation, N. Domingo Realty & Development Corporation. Private respondent, being a mere mortgagee, has no right

to eject petitioner. Private respondent, as a creditor and mortgagee, " . . . cannot appropriate the things given by way of

pledge

or mortgage, or dispose of them. Any stipulation to the contrary is null and void." 28

Other Matters

Private respondent in his memorandum also contends that (1) petitioner is not the real party in interest and (2) the

petition should be dismissed for "raising/stating facts not so found by the Court of Appeals." These deserve scant

consideration. Petitioner was impleaded as party defendant in the ejectment suit by private respondent itself. Thus,

private respondent cannot question his standing as a party. As such party, petitioner should be allowed to raise defenses

which negate private respondent's right to the property in question. The second point is really academic. This ponencia

relies on the factual narration of the Court of Appeals and not on the "facts" supplied by petitioner.

WHEREFORE, the petition is hereby GRANTED. The challenged Decision of the Court of Appeals is REVERSED and SET

ASIDE. The decision of the Regional Trial Court of Quezon City ordering the dismissal of the complaint for ejectment is

REINSTATED and AFFIRMED. No pronouncement as to costs.

SO ORDERED.

G.R. No. 170479 February 18, 2008

ANDRE T. ALMOCERA, petitioner,

vs. JOHNNY ONG, respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

Before Us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure which seeks to set aside the Decision1 of the Court of Appeals dated 18 July 2005 in CA-G.R. CV No. 75610 affirming in toto the Decision2 of Branch 11 of the Regional Trial Court (RTC) of Cebu City in Civil Case No. CEB-23687 and its Resolution3 dated 16 November 2005 denying petitioner’s motion for reconsideration. The RTC decision found petitioner Andre T. Almocera, Chairman and Chief Executive Officer of First Builder Multi-

Purpose Cooperative (FBMC), solidarily liable with FMBC for damages.

Stripped of non-essentials, the respective versions of the parties have been summarized by the Court of

Appeals as follows:

Plaintiff Johnny Ong tried to acquire from the defendants a "townhome" described as Unit No. 4 of Atrium Townhomes in Cebu City. As reflected in a Contract to Sell, the selling price of the unit was P3,400,000.00 pesos, for a lot area of eighty-eight (88) square meters with a three-storey building. Out of the purchase price, plaintiff was able to pay the amount of P1,060,000.00. Prior to the full payment of this amount, plaintiff claims that defendants Andre Almocera and First Builders fraudulently concealed the fact that before and at the time of the perfection of the aforesaid contract to sell, the property was already mortgaged to and encumbered with the Land Bank of the Philippines (LBP). In addition, the construction of the house has long been delayed and remains unfinished. On March 13, 1999, Lot 4-a covered by TCT No. 148818, covering the unit was advertised in a local tabloid for public auction for foreclosure of mortgage. It is the assertion of the plaintiff that had it not for the fraudulent concealment of the mortgage and encumbrance by defendants, he would have not entered into the

contract to sell.

On the other hand, defendants assert that on March 20, 1995, First Builders Multi-purpose Coop. Inc., borrowed money in the amount of P500,000.00 from Tommy Ong, plaintiff’s brother. This amount was used to finance the documentation requirements of the LBP for the funding of the Atrium Town Homes. This loan will be applied in payment of one (1) town house unit which Tommy Ong may eventually purchase from the project. When the project was under way, Tommy Ong wanted to buy another townhouse for his brother, Johnny Ong, plaintiff herein, which then, the amount of P150,000.00 was given as additional partial payment. However, the particular unit was not yet identified. It was only on January 10, 1997 that Tommy Ong identified Unit No. 4 plaintiff’s chosen unit and again tendered P350,000.00 as his third partial payment. When the contract to sell for Unit 4 was being drafted, Tommy Ong requested that another contract to sell covering Unit 5 be made so as to give Johnny Ong another option to choose whichever unit he might decide to have. When the construction was already in full blast, defendants were informed by Tommy Ong that their final choice was Unit 5. It was only upon knowing that the defendants will be selling Unit 4 to some other persons for P4million

that plaintiff changed his choice from Unit 5 to Unit 4.4

In trying to recover the amount he paid as down payment for the townhouse unit, respondent Johnny Ong filed a complaint for Damages before the RTC of Cebu City, docketed as Civil Case No. CEB-23687, against defendants Andre T. Almocera and FBMC alleging that defendants were guilty of fraudulent concealment and breach of contract when they sold to him a townhouse unit without divulging that the same, at the time of the perfection of their contract, was already mortgaged with the Land Bank of the Philippines (LBP), with the latter causing the foreclosure of the mortgage and the eventual sale of the townhouse unit to a third person.

In their Answer, defendants denied liability claiming that the foreclosure of the mortgage on the townhouse unit

was caused by the failure of complainant Johnny Ong to pay the balance of the price of said townhouse unit.

After the pre-trial conference was terminated, trial on the merits ensued. Respondent and his brother, Thomas

Y. Ong, took the witness stand. For defendants, petitioner testified.

In a Decision dated 20 May 2002, the RTC disposed of the case in this manner:

WHEREFORE, in view of all the foregoing premises, judgment is hereby rendered in this case in favor

of the plaintiff and against the defendants:

(a) Ordering the defendants to solidarily pay to the plaintiff the sum of P1,060,000.00, together with a legal interest thereon at 6% per annum from April 21, 1999 until its full payment before finality of the judgment. Thereafter, if the amount adjudged remains unpaid, the interest rate shall be 12% per annum

computed from the time when the judgment becomes final and executory until fully satisfied;

(b) Ordering the defendants to solidarily pay to the plaintiff the sum of P100,000.00 as moral damages,

the sum of P50,000.00 as attorney’s fee and the sum of P15,619.80 as expenses of litigation; and

(c) Ordering the defendants to pay the cost of this suit.5

The trial court ruled against defendants for not acting in good faith and for not complying with their obligations under their contract with respondent. In the Contract to Sell6 involving Unit 4 of the Atrium Townhomes, defendants agreed to sell said townhouse to respondent for P3,400,000.00. The down payment wasP1,000,000.00, while the balance of P2,400,000.00 was to be paid in full upon completion, delivery and acceptance of the townhouse. Under the contract which was signed on 10 January 1997, defendants agreed to complete and convey to respondent the unit within six months from the signing thereof.

The trial court found that respondent was able to make a down payment or partial payment of P1,060,000.00 and that the defendants failed to complete the construction of, as well as deliver to respondent, the townhouse within six months from the signing of the contract. Moreover, respondent was not informed by the defendants at the time of the perfection of their contract that the subject townhouse was already mortgaged to LBP. The mortgage was foreclosed by the LBP and the townhouse was eventually sold at public auction. It said that defendants were guilty of fraud in their dealing with respondent because the mortgage was not disclosed to respondent when the contract was perfected. There was also non-compliance with their obligations under the contract when they failed to complete and deliver the townhouse unit at the agreed time. On the part of respondent, the trial court declared he was justified in suspending further payments to the defendants and was

entitled to the return of the down payment.

Aggrieved, defendants appealed the decision to the Court of Appeals assigning the following as errors:

1. THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF HAS A VALID CAUSE OF ACTION

FOR DAMAGES AGAINST DEFENDANT(S).

2. THE LOWER COURT ERRED IN HOLDING THAT DEFENDANT ANDRE T. ALMOCERA IS SOLIDARILY LIABLE WITH THE COOPERATIVE FOR THE DAMAGES TO THE PLAINTIFF.7

The Court of Appeals ruled that the defendants incurred delay when they failed to deliver the townhouse unit to the respondent within six months from the signing of the contract to sell. It agreed with the finding of the trial court that the nonpayment of the balance of P2.4M by respondent to defendants was proper in light of such delay and the fact that the property subject of the case was foreclosed and auctioned. It added that the trial court did not err in giving credence to respondent’s assertion that had he known beforehand that the unit was used as collateral with the LBP, he would not have proceeded in buying the townhouse. Like the trial court, the Court of Appeals gave no weight to defendants’ argument that had respondent paid the balance of the purchase price of the townhouse, the mortgage could have been released. It explained:

We cannot find fault with the choice of plaintiff not to further dole out money for a property that in all events, would never be his. Moreover, defendants could, if they were really desirous of satisfying their obligation, demanded that plaintiff pay the outstanding balance based on their contract. This they had not done. We can fairly surmise that defendants could not comply with their obligation themselves, because as testified to by Mr. Almocera, they already signified to LBP that they cannot pay their

outstanding loan obligations resulting to the foreclosure of the townhouse.8

Moreover, as to the issue of petitioner’s solidary liability, it said that this issue was belatedly raised and cannot

be treated for the first time on appeal.

On 18 July 2005, the Court of Appeals denied the appeal and affirmed in toto the decision of the trial court. The

dispositive portion of the decision reads:

IN LIGHT OF ALL THE FOREGOING, this appeal is DENIED. The assailed decision of the Regional

Trial Court, Branch 11, Cebu City in Civil Case No. CEB-23687 is AFFIRMED in toto.9

In a Resolution dated 16 November 2005, the Court of Appeals denied defendants’ motion for reconsideration.

Petitioner is now before us pleading his case via a Petition for Review on Certiorari under Rule 45 of the 1997

Rules of Civil Procedure. The petition raises the following issues:

I. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT DEFENDANT

HAS INCURRED DELAY.

II. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN SUSTAINING RESPONDENT’S REFUSAL TO PAY THE BALANCE OF THE PURCHASE PRICE.

III. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT DEFENDANT ANDRE T. ALMOCERA IS SOLIDARILY LIABLE WITH THE DEFENDANT COOPERATIVE FOR

DAMAGES TO PLAINTIFF.10

It cannot be disputed that the contract entered into by the parties was a contract to sell. The contract was denominated as such and it contained the provision that the unit shall be conveyed by way of an Absolute Deed of Sale, together with the attendant documents of Ownership – the Transfer Certificate of Title and Certificate of Occupancy – and that the balance of the contract price shall be paid upon the completion and delivery of the unit, as well as the acceptance thereof by respondent. All these clearly indicate that ownership of the townhouse has not passed to respondent.

In Serrano v. Caguiat, 11 we explained:

A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor’s obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had

never existed. The suspensive condition is commonly full payment of the purchase price.

The differences between a contract to sell and a contract of sale are well-settled in jurisprudence. As early as 1951, in Sing Yee v. Santos [47 O.G. 6372 (1951)], we held that:

"x x x [a] distinction must be made between a contract of sale in which title passes to the buyer upon delivery of the thing sold and a contract to sell x x x where by agreement the ownership is reserved in the seller and is not to pass until the full payment of the purchase price is made. In the first case, non-payment of the price is a negative resolutory condition; in the second case, full payment is a positive suspensive condition. Being contraries, their effect in law cannot be identical. In the first case, the vendor has lost and cannot recover the ownership of the land sold until and unless the contract of sale is itself resolved and set aside. In the second case, however, the title remains in the vendor if the vendee does not comply with the condition

precedent of making payment at the time specified in the contract."

In other words, in a contract to sell, ownership is retained by the seller and is not to pass to the

buyer until full payment of the price.

The Contract to Sell entered into by the parties contains the following pertinent provisions:

4. TERMS OF PAYMENT:

4a. ONE MILLION PESOS (P1,000,000.00) is hereby acknowledged as Downpayment for the above-

mentioned Contract Price.

4b. The Balance, in the amount of TWO MILLION FOUR HUNDRED PESOS (P2,400,000.00) shall be paid thru financing Institution facilitated by the SELLER, preferably Landbank of the Philippines (LBP).

Upon completion, delivery and acceptance of the BUYER of the Townhouse Unit, the BUYER shall

have paid the Contract Price in full to the SELLER.

x x x x

6. COMPLETION DATES OF THE TOWNHOUSE UNIT:

The unit shall be completed and conveyed by way of an Absolute Deed of Sale together with the attendant documents of Ownership in the name of the BUYER – the Transfer Certificate of Title and

Certificate of Occupancy within a period of six (6) months from the signing of Contract to Sell.12

From the foregoing provisions, it is clear that petitioner and FBMC had the obligation to complete the townhouse unit within six months from the signing of the contract. Upon compliance therewith, the obligation of respondent to pay the balance of P2,400,000.00 arises. Upon payment thereof, the townhouse shall be delivered and conveyed to respondent upon the execution of the Absolute Deed of Sale and other relevant documents.

The evidence adduced shows that petitioner and FBMC failed to fulfill their obligation -- to complete and deliver the townhouse within the six-month period. With petitioner and FBMC’s non-fulfillment of their obligation, respondent refused to pay the balance of the contract price. Respondent does not ask that ownership of the townhouse be transferred to him, but merely asks that the amount or down payment he had made be returned

to him.

Article 1169 of the Civil Code reads:

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially

or extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declares; or

(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the

establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties

fulfills his obligation, delay by the other begins.

The contract subject of this case contains reciprocal obligations which were to be fulfilled by the parties, i.e., to complete and deliver the townhouse within six months from the execution of the contract to sell on the part of petitioner and FBMC, and to pay the balance of the contract price upon completion and delivery of the

townhouse on the part of the respondent.

In the case at bar, the obligation of petitioner and FBMC which is to complete and deliver the townhouse unit within the prescribed period, is determinative of the respondent’s obligation to pay the balance of the contract price. With their failure to fulfill their obligation as stipulated in the contract, they incurred delay and are liable for damages.13 They cannot insist that respondent comply with his obligation. Where one of the parties to a contract did not perform the undertaking to which he was bound by the terms of the agreement to perform, he is not entitled to insist upon the performance of the other party.14

On the first assigned error, petitioner insists there was no delay when the townhouse unit was not completed within six months from the signing of the contract inasmuch as the mere lapse of the stipulated six (6) month period is not by itself enough to constitute delay on his part and that of FBMC, since the law requires that there must either be judicial or extrajudicial demand to fulfill an obligation so that the obligor may be declared in default. He argues there was no evidence introduced showing that a prior demand was made by respondent

before the original action was instituted in the trial court.

We do not agree.

Demand is not necessary in the instant case. Demand by the respondent would be useless because the impossibility of complying with their (petitioner and FBMC) obligation was due to their fault. If only they paid their loans with the LBP, the mortgage on the subject townhouse would not have been foreclosed and

thereafter sold to a third person.

Anent the second assigned error, petitioner argues that if there was any delay, the same was incurred by

respondent because he refused to pay the balance of the contract price.

We find his argument specious.

As above-discussed, the obligation of respondent to pay the balance of the contract price was conditioned on petitioner and FBMC’s performance of their obligation. Considering that the latter did not comply with their obligation to complete and deliver the townhouse unit within the period agreed upon, respondent could not have incurred delay. For failure of one party to assume and perform the obligation imposed on him, the other

party does not incur delay.15

Under the circumstances obtaining in this case, we find that respondent is justified in refusing to pay the balance of the contract price. He was never in possession of the townhouse unit and he can no longer be its owner since ownership thereof has been transferred to a third person who was not a party to the proceedings below. It would simply be the height of inequity if we are to require respondent to pay the balance of the

contract price. To allow this would result in the unjust enrichment of petitioner and FBMC. The fundamental doctrine of unjust enrichment is the transfer of value without just cause or consideration. The elements of this doctrine which are present in this case are: enrichment on the part of the defendant; impoverishment on the part of the plaintiff; and lack of cause. The main objective is to prevent one to enrich himself at the expense of another. It is commonly accepted that this doctrine simply means a person shall not be allowed to profit or enrich himself inequitably at another's expense.16Hence, to allow petitioner and FBMC keep the down payment made by respondent amounting to P1,060,000.00 would result in their unjust enrichment at the expense of the

respondent. Thus, said amount should be returned.

What is worse is the fact that petitioner and FBMC intentionally failed to inform respondent that the subject townhouse which he was going to purchase was already mortgaged to LBP at the time of the perfection of their contract. This deliberate withholding by petitioner and FBMC of the mortgage constitutes fraud and bad faith.

The trial court had this say:

In the light of the foregoing environmental circumstances and milieu, therefore, it appears that the defendants are guilty of fraud in dealing with the plaintiff. They performed voluntary and willful acts which prevent the normal realization of the prestation, knowing the effects which naturally and necessarily arise from such acts. Their acts import a dishonest purpose or some moral obliquity and conscious doing of a wrong. The said acts certainly gtive rise to liability for damages (8 Manresa 72; Borrell-Macia 26-27; 3 Camus 34; O’Leary v. Macondray & Company, 454 Phil. 812; Heredia v. Salinas, 10 Phil. 157). Article 1170 of the New Civil Code of the Philippines provides expressly that "those who in the performance of their obligations are guilty of fraud and those who in any manner

contravene the tenor thereof are liable for damages.17

On the last assigned error, petitioner contends that he should not be held solidarily liable with defendant FBMC, because the latter is a separate and distinct entity which is the seller of the subject townhouse. He claims that he, as Chairman and Chief Executive Officer of FBMC, cannot be held liable because his

representing FBMC in its dealings is a corporate act for which only FBMC should be held liable.

This issue of piercing the veil of corporate fiction was never raised before the trial court. The same was raised for the first time before the Court of Appeals which ruled that it was too late in the day to raise the same. The Court of Appeals declared:

In the case below, the pleadings and the evidence of the defendants are one and the same and never had it made to appear that Almocera is a person distinct and separate from the other defendant. In fine, we cannot treat this error for the first time on appeal. We cannot in good conscience, let the defendant Almocera raise the issue of piercing the veil of corporate fiction just because of the adverse decision

against him. x x x.18

To allow petitioner to pursue such a defense would undermine basic considerations of due process. Points of law, theories, issues and arguments not brought to the attention of the trial court will not be and ought not to be considered by a reviewing court, as these cannot be raised for the first time on appeal. It would be unfair to the adverse party who would have no opportunity to present further evidence material to the new theory not

ventilated before the trial court.19

As to the award of damages granted by the trial court, and affirmed by the Court of Appeals, we find the same

to be proper and reasonable under the circumstances.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated 18 July 2005 in CA-G.R.

CV No. 75610 is AFFIRMED. Costs against the petitioner.

SO ORDERED.

CAVITE DEVELOPMENT BANK and FAR EAST BANK AND TRUST COMPANY, petitioners, vs. SPOUSES CYRUS LIM and LOLITA CHAN LIM and COURT OF APPEALS, respondents.

D E C I S I O N

MENDOZA, J.:

This is a petition for review on certiorari of the decision[1] of the Court of Appeals in C.A. GR CV No. 42315 and

the order dated December 9, 1997 denying petitioners motion for reconsideration.

The following facts are not in dispute.

Petitioners Cavite Development Bank (CDB) and Far East Bank and Trust Company (FEBTC) are banking institutions duly organized and existing under Philippine laws. On or about June 15, 1983, a certain Rodolfo Guansing obtained a loan in the amount of P90,000.00 from CDB, to secure which he mortgaged a parcel of land situated at No. 63 Calavite Street, La Loma, Quezon City and covered by TCT No. 300809 registered in his name. As Guansing defaulted in the payment of his loan, CDB foreclosed the mortgage. At the foreclosure sale held on March 15, 1984, the mortgaged property was sold to CDB as the highest bidder. Guansing failed to redeem, and on March 2, 1987, CDB consolidated title to the property in its name. TCT No. 300809 in the

name of Guansing was cancelled and, in lieu thereof, TCT No. 355588 was issued in the name of CDB.

On June 16, 1988, private respondent Lolita Chan Lim, assisted by a broker named Remedios Gatpandan, offered to purchase the property from CDB. The written Offer to Purchase, signed by Lim and Gatpandan,

states in part:

We hereby offer to purchase your property at #63 Calavite and Retiro Sts., La Loma, Quezon

City for P300,000.00 under the following terms and conditions:

(1) 10% Option Money;

(2) Balance payable in cash;

(3) Provided that the property shall be cleared of illegal occupants or

tenants. Scjuris

Pursuant to the foregoing terms and conditions of the offer, Lim paid CDB P30,000.00 as Option Money, for which she was issued Official Receipt No. 3160, dated June 17, 1988, by CDB. However, after some time following up the sale, Lim discovered that the subject property was originally registered in the name of Perfecto Guansing, father of mortgagor Rodolfo Guansing, under TCT No. 91148. Rodolfo succeeded in having the property registered in his name under TCT No. 300809, the same title he mortgaged to CDB and from which the latters title (TCT No. 355588) was derived. It appears, however, that the father, Perfecto, instituted Civil Case No. Q-39732 in the Regional Trial Court, Branch 83, Quezon City, for the cancellation of his sons title. On March 23, 1984, the trial court rendered a decision[2] restoring Perfectos previous title (TCT No. 91148) and cancelling TCT No. 300809 on the ground that the latter was fraudulently secured by Rodolfo. This decision

has since become final and executory.

Aggrieved by what she considered a serious misrepresentation by CDB and its mother-company, FEBTC, on their ability to sell the subject property, Lim, joined by her husband, filed on August 29, 1989 an action for specific performance and damages against petitioners in the Regional Trial Court, Branch 96, Quezon City, where it was docketed as Civil Case No. Q-89-2863. On April 20, 1990, the complaint was amended by

impleading the Register of Deeds of Quezon City as an additional defendant.

On March 10, 1993, the trial court rendered a decision in favor of the Lim spouses. It ruled that: (1) there was a perfected contract of sale between Lim and CDB, contrary to the latters contention that the written offer to purchase and the payment of P30,000.00 were merely pre-conditions to the sale and still subject to the approval of FEBTC; (2) performance by CDB of its obligation under the perfected contract of sale had become impossible on account of the 1984 decision in Civil Case No. Q-39732 cancelling the title in the name of mortgagor Rodolfo Guansing; (3) CDB and FEBTC were not exempt from liability despite the impossibility of performance, because they could not credibly disclaim knowledge of the cancellation of Rodolfo Guansings title without admitting their failure to discharge their duties to the public as reputable banking institutions; and (4) CDB and FEBTC are liable for damages for the prejudice caused against the Lims. [3] Based on the foregoing findings, the trial court ordered CDB and FEBTC to pay private respondents, jointly and severally, the amount of P30,000.00 plus interest at the legal rate computed from June 17, 1988 until full payment. It also ordered petitioners to pay private respondents, jointly and severally, the amounts of P250,000.00 as moral damages, P50,000.00 as exemplary damages, P30,000.00 as attorneys fees, and the costs of the suit. [4]

Petitioners brought the matter to the Court of Appeals, which, on October 14, 1997, affirmed in toto the

decision of the Regional Trial Court. Petitioners moved for reconsideration, but their motion was denied by the appellate court on December 9, 1997. Hence, this petition. Petitioners contend that - Jjlex

1. The Honorable Court of Appeals erred when it held that petitioners CDB and FEBTC were aware of the decision dated March 23, 1984 of the Regional Trial Court of Quezon City in Civil

Case No. Q-39732.

2. The Honorable Court of Appeals erred in ordering petitioners to pay interest on the deposit of

THIRTY THOUSAND PESOS (P30,000.00) by applying Article 2209 of the New Civil Code.

3. The Honorable Court of Appeals erred in ordering petitioners to pay moral damages, exemplary damages, attorneys fees and costs of suit.

I.

At the outset, it is necessary to determine the legal relation, if any, of the parties.

Petitioners deny that a contract of sale was ever perfected between them and private respondent Lolita Chan Lim. They contend that Lims letter-offer clearly states that the sum of P30,000.00 was given as option money, not as earnest money.[5] They thus conclude that the contract between CDB and Lim was merely an option

contract, not a contract of sale.

The contention has no merit. Contracts are not defined by the parties thereto but by principles of law. [6] In determining the nature of a contract, the courts are not bound by the name or title given to it by the contracting parties.[7] In the case at bar, the sum of P30,000.00, although denominated in the offer to purchase as "option money," is actually in the nature of earnest money or down payment when considered with the other terms of the offer. In Carceler v. Court of Appeals,[8] we explained the nature of an option contract, viz. -

An option contract is a preparatory contract in which one party grants to the other, for a fixed period and under specified conditions, the power to decide, whether or not to enter into a principal contract, it binds the party who has given the option not to enter into the principal contract with any other person during the period designated, and within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the option. It is a separate agreement distinct from the contract to which the parties may enter upon

the consummation of the option. Newmiso

An option contract is therefore a contract separate from and preparatory to a contract of sale which, if perfected, does not result in the perfection or consummation of the sale. Only when the option is exercised

may a sale be perfected.

In this case, however, after the payment of the 10% option money, the Offer to Purchase provides for the payment only of the balance of the purchase price, implying that the "option money" forms part of the purchase price. This is precisely the result of paying earnest money under Art. 1482 of the Civil Code. It is clear then that the parties in this case actually entered into a contract of sale, partially consummated as to the payment of the price. Moreover, the following findings of the trial court based on the testimony of the witnesses establish that

CDB accepted Lims offer to purchase:

It is further to be noted that CDB and FEBTC already considered plaintiffs offer as good and no longer subject to a final approval. In his testimony for the defendants on February 13, 1992, FEBTCs Leomar Guzman stated that he was then in the Acquired Assets Department of FEBTC wherein plaintiffs offer to purchase was endorsed thereto by Myoresco Abadilla, CDBs senior vice-president, with a recommendation that the necessary petition for writ of possession be filed in the proper court; that the recommendation was in accord with one of the conditions of the offer, i.e., the clearing of the property of illegal occupants or tenants (tsn, p. 12); that, in

compliance with the request, a petition for writ of possession was thereafter filed on July 22, 1988 (Exhs. 1 and 1-A); that the offer met the requirements of the banks; and that no rejection of the offer was thereafter relayed to the plaintiffs (p. 17); which was not a normal procedure,

and neither did the banks return the amount of P30,000.00 to the plaintiffs. [9]

Given CDBs acceptance of Lims offer to purchase, it appears that a contract of sale was perfected and, indeed, partially executed because of the partial payment of the purchase price. There is, however, a serious legal obstacle to such sale, rendering it impossible for CDB to perform its obligation as seller to deliver and

transfer ownership of the property. Acctmis

Nemo dat quod non habet, as an ancient Latin maxim says. One cannot give what one does not have. In

applying this precept to a contract of sale, a distinction must be kept in mind between the "perfection" and "consummation" stages of the contract.

A 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.[10] It is, therefore, not required that, at the perfection stage, the seller be the owner of the thing sold or even that such subject matter of the sale exists at that point in time. [11] Thus, under Art. 1434 of the Civil Code, when a person sells or alienates a thing which, at that time, was not his, but later acquires title thereto, such title passes by operation of law to the buyer or grantee. This is the same principle behind the sale of "future goods" under Art. 1462 of the Civil Code. However, under Art. 1459, at the time of delivery or consummation stage of the sale, it is required that the seller be the owner of the thing sold. Otherwise, he will not be able to comply with his obligation to transfer ownership to the buyer. It is at the consummation stage where the principle of nemo dat quod non habetapplies.

In Dignos v. Court of Appeals,[12] the subject contract of sale was held void as the sellers of the subject land were no longer the owners of the same because of a prior sale. [13] Again, inNool v. Court of Appeals,[14] we

ruled that a contract of repurchase, in which the seller does not have any title to the property sold, is invalid:

We cannot sustain petitioners view. Article 1370 of the Civil Code is applicable only to valid and enforceable contracts. The Regional Trial Court and the Court of Appeals ruled that the principal contract of sale contained in Exhibit C and the auxiliary contract of repurchase in Exhibit D are both void. This conclusion of the two lower courts appears to find support in Dignos v. Court of Appeals, where the Court held:

"Be that as it may, it is evident that when petitioners sold said land to the Cabigas

spouses, they were no longer owners of the same and the sale is null and void."

In the present case, it is clear that the sellers no longer had any title to the parcels of land at the time of sale. Since Exhibit D, the alleged contract of repurchase, was dependent on the validity of Exhibit C, it is itself void. A void contract cannot give rise to a valid one. Verily, Article 1422 of the Civil Code provides that (a) contract which is the direct result of a previous illegal contract, is

also void and inexistent."

We should however add that Dignos did not cite its basis for ruling that a "sale is null and void" where the sellers "were no longer the owners" of the property. Such a situation (where the sellers were no longer owners) does not appear to be one of the void contracts enumerated in Article 1409 of the Civil Code. Moreover, the Civil Code itself recognizes a sale where the goods are to be acquired x x x by the seller after the perfection of the contract of sale, clearly implying that a sale is possible even if the seller was not the owner at the time of sale, provided he acquires title to the property later on. Misact

In the present case, however, it is likewise clear that the sellers can no longer deliver the object of the sale to the buyers, as the buyers themselves have already acquired title and delivery thereof from the rightful owner, the DBP. Thus, such contract may be deemed to be inoperative and may thus fall, by analogy, under item No. 5 of Article 1409 of the Civil Code: Those which contemplate an impossible service. Article 1459 of the Civil Code provides that "the vendor must have a right to transfer the ownership thereof [subject of the sale] at the time it is delivered." Here, delivery of ownership is no longer possible. It has become impossible.[15]

In this case, the sale by CDB to Lim of the property mortgaged in 1983 by Rodolfo Guansing must, therefore, be deemed a nullity for CDB did not have a valid title to the said property. To be sure, CDB never acquired a valid title to the property because the foreclosure sale, by virtue of which the property had been awarded to

CDB as highest bidder, is likewise void since the mortgagor was not the owner of the property foreclosed.

A foreclosure sale, though essentially a "forced sale," is still a sale in accordance with Art. 1458 of the Civil Code, under which the mortgagor in default, the forced seller, becomes obliged to transfer the ownership of the thing sold to the highest bidder who, in turn, is obliged to pay therefor the bid price in money or its equivalent. Being a sale, the rule that the seller must be the owner of the thing sold also applies in a foreclosure sale. This is the reason Art. 2085[16] of the Civil Code, in providing for the essential requisites of the contract of mortgage and pledge, requires, among other things, that the mortgagor or pledgor be the absolute owner of the thing pledged or mortgaged, in anticipation of a possible foreclosure sale should the mortgagor default in the

payment of the loan.

There is, however, a situation where, despite the fact that the mortgagor is not the owner of the mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy. This is the doctrine of "the mortgagee in good faith" based on the rule that all persons dealing with property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not

required to go beyond what appears on the face of the title. [17] The public interest in upholding the indefeasibility of a certificate of title, as evidence of the lawful ownership of the land or of any encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on the face of the

certificate of title. Sdjad

This principle is cited by petitioners in claiming that, as a mortgagee bank, it is not required to make a detailed

investigation of the history of the title of the property given as security before accepting a mortgage.

We are not convinced, however, that under the circumstances of this case, CDB can be considered a mortgagee in good faith. While petitioners are not expected to conduct an exhaustive investigation on the history of the mortgagors title, they cannot be excused from the duty of exercising the due diligence required of banking institutions. In Tomas v. Tomas,[18] we noted that it is standard practice for banks, before approving a

loan, to send representatives to the premises of the land offered as collateral and to investigate who are the real owners thereof, noting that banks are expected to exercise more care and prudence than private individuals in their dealings, even those involving registered lands, for their business is affected with public

interest. We held thus:

We, indeed, find more weight and vigor in a doctrine which recognizes a better right for the innocent original registered owner who obtained his certificate of title through perfectly legal and regular proceedings, than one who obtains his certificate from a totally void one, as to prevail over judicial pronouncements to the effect that one dealing with a registered land, such as a purchaser, is under no obligation to look beyond the certificate of title of the vendor, for in the latter case, good faith has yet to be established by the vendee or transferee, being the most essential condition, coupled with valuable consideration, to entitle him to respect for his newly acquired title even as against the holder of an earlier and perfectly valid title. There might be circumstances apparent on the face of the certificate of title which could excite suspicion as to prompt inquiry, such as when the transfer is not by virtue of a voluntary act of the original registered owner, as in the instant case, where it was by means of a self-executed deed of extra-judicial settlement, a fact which should be noted on the face of Eusebia Tomas certificate of title. Failing to make such inquiry would hardly be consistent with any pretense of good faith, which the appellant bank invokes to claim the right to be protected as a mortgagee, and for the

reversal of the judgment rendered against it by the lower court.[19]

In this case, there is no evidence that CDB observed its duty of diligence in ascertaining the validity of Rodolfo Guansings title. It appears that Rodolfo Guansing obtained his fraudulent title by executing an Extra-Judicial Settlement of the Estate With Waiver where he made it appear that he and Perfecto Guansing were the only surviving heirs entitled to the property, and that Perfecto had waived all his rights thereto. This self-executed deed should have placed CDB on guard against any possible defect in or question as to the mortgagors title. Moreover, the alleged ocular inspection report[20] by CDBs representative was never formally offered in evidence. Indeed, petitioners admit that they are aware that the subject land was being occupied by persons other than Rodolfo Guansing and that said persons, who are the heirs of Perfecto Guansing, contest the title of Rodolfo.[21] Sppedsc

II.

The sale by CDB to Lim being void, the question now arises as to who, if any, among the parties was at fault for the nullity of the contract. Both the trial court and the appellate court found petitioners guilty of fraud, because on June 16, 1988, when Lim was asked by CDB to pay the 10% option money, CDB already knew that it was no longer the owner of the said property, its title having been cancelled. [22] Petitioners contend that: (1) such finding of the appellate court is founded entirely on speculation and conjecture; (2) neither CDB nor FEBTC was a party in the case where the mortgagors title was cancelled; (3) CDB is not privy to any problem among the Guansings; and (4) the final decision cancelling the mortgagors title was not annotated in the latters title.

As a rule, only questions of law may be raised in a petition for review, except in circumstances where questions of fact may be properly raised.[23] Here, while petitioners raise these factual issues, they have not sufficiently shown that the instant case falls under any of the exceptions to the above rule. We are thus bound by the findings of fact of the appellate court. In any case, we are convinced of petitioners negligence in approving the mortgage application of Rodolfo Guansing.

III.

We now come to the civil effects of the void contract of sale between the parties. Article 1412(2) of the Civi l

Code provides:

If the act in which the unlawful or forbidden cause consists does not constitute a criminal

offense, the following rules shall be observed:

. . . .

(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.

Private respondents are thus entitled to recover the P30,000.00 option money paid by them. Moreover, since the filing of the action for damages against petitioners amounted to a demand by respondents for the return of their money, interest thereon at the legal rate should be computed from August 29, 1989, the date of filing of Civil Case No. Q-89-2863, not June 17, 1988, when petitioners accepted the payment. This is in accord with our ruling in Castillo v. Abalayan[24] that in case of a void sale, the seller has no right whatsoever to keep the

money paid by virtue thereof and should refund it, with interest at the legal rate, computed from the date of filing of the complaint until fully paid. Indeed, Art. 1412(2) which provides that the non-guilty party "may demand the return of what he has given" clearly implies that without such prior demand, the obligation to return

what was given does not become legally demandable. Sccalr

Considering CDBs negligence, we sustain the award of moral damages on the basis of Arts. 21 and 2219 of the Civil Code and our ruling in Tan v. Court of Appeals[25] that moral damages may be recovered even if a banks negligence is not attended with malice and bad faith. We find, however, that the sum of P250,000.00 awarded by the trial court is excessive. Moral damages are only intended to alleviate the moral suffering undergone by private respondents, not to enrich them at the expense of the petitioners. [26] Accordingly, the award of moral damages must be reduced to P50,000.00.

Likewise, the award of P50,000.00 as exemplary damages, although justified under Art. 2232 of the Civil Code, is excessive and should be reduced to P30,000.00. The award of P30,000.00 attorneys fees based on Art.

2208, pars. 1, 2, 5 and 11 of the Civil Code should similarly be reduced to P20,000.00.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the MODIFICATION as to the award of

damages as above stated.

SO ORDERED.2/29/0

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

416 SCRA 263

D E C I S I O N

CARPIO, J.:

The Case

This is a petition for review on certiorari[1] to annul the Decision[2] dated 26 June 1996 of the Court of

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

The Facts

The Court of Appeals summarized the facts of the case as follows:

Defendant spouses Leonardo Joaquin and Feliciana Landrito are the parents of plaintiffs Consolacion, Nora, Emma and Natividad as well as of defendants Fidel, Tomas, Artemio, Clarita, Felicitas, Fe, and Gavino, all surnamed

JOAQUIN. The married Joaquin children are joined in this action by their respective spouses.

Sought to be declared null and void ab initio are certain deeds of sale of real property executed by defendant parents

Leonardo Joaquin and Feliciana Landrito in favor of their co-defendant children and the corresponding certificates of title

issued in their names, to wit:

1. Deed of Absolute Sale covering Lot 168-C-7 of subdivision plan (LRC) Psd-256395 executed on 11 July 1978, in favor of defendant Felicitas Joaquin, for a consideration of P6,000.00 (Exh. C), pursuant to which TCT No. [36113/T-172] was issued in her name (Exh. C-1);

2. Deed of Absolute Sale covering Lot 168-I-3 of subdivision plan (LRC) Psd-256394 executed on 7 June 1979, in favor of defendant Clarita Joaquin, for a consideration of P1[2],000.00 (Exh. D), pursuant to which TCT No. S-109772 was issued in her name (Exh. D-1);

3 Deed of Absolute Sale covering Lot 168-I-1 of subdivision plan (LRC) Psd-256394 executed on 12 May 1988, in favor of defendant spouses Fidel Joaquin and Conchita Bernardo, for a consideration of P54,[3]00.00 (Exh. E), pursuant to which TCT No. 155329 was issued to them (Exh. E-1);

4. Deed of Absolute Sale covering Lot 168-I-2 of subdivision plan (LRC) Psd-256394 executed on 12 May 1988, in favor of defendant spouses Artemio Joaquin and Socorro Angeles, for a consideration of P[54,3]00.00 (Exh. F), pursuant to which TCT No. 155330 was issued to them (Exh. F-1); and

5. Absolute Sale of Real Property covering Lot 168-C-4 of subdivision plan (LRC) Psd-256395 executed on 9 September 1988, in favor of Tomas Joaquin, for a consideration of P20,000.00 (Exh. G), pursuant to which TCT No. 157203 was issued in her name (Exh. G-1).

[6. Deed of Absolute Sale covering Lot 168-C-1 of subdivision plan (LRC) Psd-256395 executed on 7 October 1988, in favor of Gavino Joaquin, for a consideration of P25,000.00 (Exh. K), pursuant to which TCT No. 157779 was issued in his name (Exh. K-1).]

In seeking the declaration of nullity of the aforesaid deeds of sale and certificates of title, plaintiffs, in their complaint,

aver:

- XX-

The deeds of sale, Annexes C, D, E, F, and G, [and K] are simulated as they are, are NULL AND VOID AB

INITIO because

a) Firstly, there was no actual valid consideration for the deeds of sale xxx over the properties in litis;

b) Secondly, assuming that there was consideration in the sums reflected in the questioned deeds, the properties

are more than three-fold times more valuable than the measly sums appearing therein;

c) Thirdly, the deeds of sale do not reflect and express the true intent of the parties (vendors and vendees); and

d) Fourthly, the purported sale of the properties in litis was the result of a deliberate conspiracy designed to

unjustly deprive the rest of the compulsory heirs (plaintiffs herein) of their legitime.

- XXI -

Necessarily, and as an inevitable consequence, Transfer Certificates of Title Nos. 36113/T-172, S-109772, 155329,

155330, 157203 [and 157779] issued by the Registrar of Deeds over the properties in litisxxx are NULL AND VOID AB

INITIO.

Defendants, on the other hand aver (1) that plaintiffs do not have a cause of action against them as well as the requisite standing and interest to assail their titles over the properties in litis; (2) that the sales were with sufficient considerations

and made by defendants parents voluntarily, in good faith, and with full knowledge of the consequences of their deeds of

sale; and (3) that the certificates of title were issued with sufficient factual and legal basis.[4]

(Emphasis in the original)

The Ruling of the Trial Court

Before the trial, the trial court ordered the dismissal of the case against defendant spouses Gavino Joaquin and Lea Asis.[5] Instead of filing an Answer with their co-defendants, Gavino Joaquin and Lea Asis filed a Motion to Dismiss.[6] In granting the dismissal to Gavino Joaquin and Lea Asis, the trial court noted that compulsory heirs have the right to a legitime but such right is contingent since said right commences only from the moment of death of the decedent pursuant to Article 777 of the Civil Code of the Philippines. [7]

After trial, the trial court ruled in favor of the defendants and dismissed the complaint. The trial court stated:

In the first place, the testimony of the defendants, particularly that of the xxx father will show that the Deeds of Sale were

all executed for valuable consideration. This assertion must prevail over the negative allegation of plaintiffs.

And then there is the argument that plaintiffs do not have a valid cause of action against defendants since there can be no legitime to speak of prior to the death of their parents. The court finds this contention tenable. In determining the legitime,

the value of the property left at the death of the testator shall be considered (Art. 908 of the New Civil Code). Hence, the

legitime of a compulsory heir is computed as of the time of the death of the decedent. Plaintiffs therefore cannot claim an

impairment of their legitime while their parents live.

All the foregoing considered, this case is DISMISSED.

In order to preserve whatever is left of the ties that should bind families together, the counterclaim is likewise

DISMISSED.

No costs.

SO ORDERED.[8]

The Ruling of the Court of Appeals

The Court of Appeals affirmed the decision of the trial court. The appellate court ruled:

To the mind of the Court, appellants are skirting the real and decisive issue in this case, which is, whether xxx they have a

cause of action against appellees.

Upon this point, there is no question that plaintiffs-appellants, like their defendant brothers and sisters, are compulsory heirs of defendant spouses, Leonardo Joaquin and Feliciana Landrito, who are their parents. However, their right to the

properties of their defendant parents, as compulsory heirs, is merely inchoate and vests only upon the latters death. While

still alive, defendant parents are free to dispose of their properties, provided that such dispositions are not made in fraud of

creditors.

Plaintiffs-appellants are definitely not parties to the deeds of sale in question. Neither do they claim to be creditors of their defendant parents. Consequently, they cannot be considered as real parties in interest to assail the validity of said deeds

either for gross inadequacy or lack of consideration or for failure to express the true intent of the parties. In point is the

ruling of the Supreme Court in Velarde, et al. vs. Paez, et al., 101 SCRA 376, thus:

The plaintiffs are not parties to the alleged deed of sale and are not principally or subsidiarily bound thereby; hence, they

have no legal capacity to challenge their validity.

Plaintiffs-appellants anchor their action on the supposed impairment of their legitime by the dispositions made by their defendant parents in favor of their defendant brothers and sisters. But, as correctly held by the court a quo, the legitime of

a compulsory heir is computed as of the time of the death of the decedent. Plaintiffs therefore cannot claim an impairment

of their legitime while their parents live.

With this posture taken by the Court, consideration of the errors assigned by plaintiffs-appellants is inconsequential.

WHEREFORE, the decision appealed from is hereby AFFIRMED, with costs against plaintiffs-appellants.

SO ORDERED.[9]

Hence, the instant petition.

Issues

Petitioners assign the following as errors of the Court of Appeals:

1. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CONVEYANCE IN QUESTION HAD NO VALID CONSIDERATION.

2. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT EVEN ASSUMING THAT THERE WAS A CONSIDERATION, THE SAME IS GROSSLY INADEQUATE.

3. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE DEEDS OF SALE DO NOT EXPRESS THE TRUE INTENT OF THE PARTIES.

4. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CONVEYANCE WAS PART AND PARCEL OF A CONSPIRACY AIMED AT UNJUSTLY DEPRIVING THE REST OF THE CHILDREN OF THE SPOUSES LEONARDO JOAQUIN AND FELICIANA LANDRITO OF THEIR INTEREST OVER THE SUBJECT PROPERTIES.

5. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONERS HAVE A GOOD, SUFFICIENT AND VALID CAUSE OF ACTION AGAINST THE PRIVATE RESPONDENTS.[10]

The Ruling of the Court

We find the petition without merit.

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

Whether Petitioners have a legal interest over the properties subject of the Deeds of Sale

Petitioners Complaint betrays their motive for filing this case. In their Complaint, petitioners asserted that the purported sale of the properties in litis was the result of a deliberate conspiracy designed to unjustly deprive the rest of the compulsory heirs (plaintiffs herein) of their legitime. Petitioners strategy was to have the Deeds of Sale declared void so that ownership of the lots would eventually revert to their respondent parents. If their parents die still owning the lots, petitioners and their respondent siblings will then co-own their parents estate by hereditary succession.[11]

It is evident from the records that petitioners are interested in the properties subject of the Deeds of Sale, but they have failed to show any legal right to the properties. The trial and appellate courts should have

dismissed the action for this reason alone. An action must be prosecuted in the name of the real party-in-interest.[12]

[T]he question as to real party-in-interest is whether he is the party who would be benefitted or injured by the judgment,

or the party entitled to the avails of the suit.

x x x

In actions for the annulment of contracts, such as this action, the real parties are those who are parties to the agreement or are bound either principally or subsidiarily or are prejudiced in their rights with respect to one of the contracting parties

and can show the detriment which would positively result to them from the contract even though they did not intervene in

it (Ibaez v. Hongkong & Shanghai Bank, 22 Phil. 572 [1912]) xxx.

These are parties with a present substantial interest, as distinguished from a mere expectancy or future, contingent, subordinate, or consequential interest. The phrase present substantial interest more concretely is meant such interest of a

party in the subject matter of the action as will entitle him, under the substantive law, to recover if the evidence is

sufficient, or that he has the legal title to demand and the defendant will be protected in a payment to or recovery by

him.[13]

Petitioners do not have any legal interest over the properties subject of the Deeds of Sale. As the appellate court stated, petitioners right to their parents properties is merely inchoate and vests only upon their parents death. While still living, the parents of petitioners are free to dispose of their properties. In their overzealousness to safeguard their future legitime, petitioners forget that theoretically, the sale of the lots to their siblings does not affect the value of their parents estate. While the sale of the lots reduced the estate, cash of equivalent value replaced the lots taken from the estate.

Whether the Deeds of Sale are void for lack of consideration

Petitioners assert that their respondent siblings did not actually pay the prices stated in the Deeds of Sale to their respondent father. Thus, petitioners ask the court to declare the Deeds of Sale void.

A contract of sale is not a real contract, but a consensual contract. As a consensual contract, a contract of sale becomes a binding and valid contract upon the meeting of the minds as to price. If there is a meeting of the minds of the parties as to the price, the contract of sale is valid, despite the manner of payment, or even the breach of that manner of payment. If the real price is not stated in the contract, then the contract of sale is valid but subject to reformation. If there is no meeting of the minds of the parties as to the price, because the price stipulated in the contract is simulated, then the contract is void. [14] Article 1471 of the Civil Code states that if the price in a contract of sale is simulated, the sale is void.

It is not the act of payment of price that determines the validity of a contract of sale. Payment of the price has nothing to do with the perfection of the contract. Payment of the price goes into the performance of the contract. Failure to pay the consideration is different from lack of consideration. The former results in a right to demand the fulfillment or cancellation of the obligation under an existing valid contract while the latter prevents the existence of a valid contract.[15]

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

Whether the Deeds of Sale are void for gross inadequacy of price

Petitioners ask that assuming that there is consideration, the same is grossly inadequate as to invalidate the Deeds of Sale.

Articles 1355 of the Civil Code states:

Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there

has been fraud, mistake or undue influence. (Emphasis supplied)

Article 1470 of the Civil Code further provides:

Art. 1470. Gross inadequacy of price does not affect a contract of sale, except as may indicate a defect in the consent, or

that the parties really intended a donation or some other act or contract. (Emphasis supplied)

Petitioners failed to prove any of the instances mentioned in Articles 1355 and 1470 of the Civil Code which would invalidate, or even affect, the Deeds of Sale. Indeed, there is no requirement that the price be equal to the exact value of the subject matter of sale. All the respondents believed that they received the commutative value of what they gave. As we stated inVales v. Villa:[19]

Courts cannot follow one every step of his life and extricate him from bad bargains, protect him from unwise investments, relieve him from one-sided contracts, or annul the effects of foolish acts. Courts cannot constitute themselves guardians of

persons who are not legally incompetent. Courts operate not because one person has been defeated or overcome by

another, but because he has been defeated or overcome illegally. Men may do foolish things, make ridiculous contracts, use miserable judgment, and lose money by them indeed, all they have in the world; but not for that alone can the law

intervene and restore. There must be, in addition, a violation of the law, the commission of what the law knows as

an actionable wrong, before the courts are authorized to lay hold of the situation and remedy it. (Emphasis in the original)

Moreover, the factual findings of the appellate court are conclusive on the parties and carry greater weight when they coincide with the factual findings of the trial court. This Court will not weigh the evidence all over again unless there has been a showing that the findings of the lower court are totally devoid of support or are clearly erroneous so as to constitute serious abuse of discretion. [20] In the instant case, the trial court found that the lots were sold for a valid consideration, and that the defendant children actually paid the purchase price stipulated in their respective Deeds of Sale. Actual payment of the purchase price by the buyer to the seller is a factual finding that is now conclusive upon us.

WHEREFORE, we AFFIRM the decision of the Court of Appeals in toto.

SO ORDERED.

BINAN STEEL CORPORATION, petitioner, vs. HON. COURT OF APPEALS, MYLENE C. GARCIA and MYLA C. GARCIA, respondents.

MYLENE C. GARCIA and MYLA C. GARCIA, petitioners, vs. HON. ENRICO A. LANZANAS, Presiding Judge, RTC, Branch 7, Manila and RUFO J. BERNARDO, Sheriff-In-Charge, for the Ex-Officio Sheriff of Manila, respondents.

D E C I S I O N

CORONA, J.:

Before us are two consolidated petitions: (1) G.R. No. 142013, a special civil action for certiorari and mandamus seeking to annul and set aside the Resolutions[1] of the Court of Appeals dated October 21, 1999 and January 31, 2000, denying petitioner Bian Steel Corporations motion for intervention and motion for reconsideration, and (2) G.R. No. 148430, seeking to set aside the decision [2] and resolution of the Court of Appeals dated February 10, 2000 and May 31, 2001, respectively, dismissing the petition of petitioners Mylene C. Garcia and Myla C. Garcia for violating the rules on forum-shopping.

Stripped of the non-essentials, the facts of the case are as follows:

On July 22, 1998, Bian Steel Corporation (BSC) filed with the Regional Trial Court of Manila a complaint against Joenas Metal Corporation and spouses Ng Ley Huat and Leticia Dy Ng (the spouses Ng) for collection of a sum of money with damages, docketed as Civil Case No. 98-89831.

On July 24, 1998, the trial court[3] issued a Writ of Preliminary Attachment after BSC filed an attachment bond. Pursuant thereto, on July 27, 1998, the sheriff of Branch 7 of the RTC of Manila, Manuelito P. Viloria, levied on the property registered in the names of the spouses Ng and covered by TCT No. 11387 of the Registry of Deeds of Quezon City. This property under preliminary attachment was in fact mortgaged to the Far East Bank and Trust Company (FEBTC), now Bank of the Philippine Islands (BPI), and consisted of a 268-square-meter lot located at 14 Tulip Road, Gardenville Town and Country Homes, Congressional Avenue, Project 8, Quezon City.

On August 5, 1998, a sheriffs return was filed by Viloria, stating that, as of that date, summons was not served upon the defendant spouses Ng because they could not be located. BSC caused the filing of a motion to serve the summons by publication which was granted. Summons by publication thereafter ensued.

In the meantime, defendant-spouses Ng sold the property to petitioners (in G.R. No. 148430) Mylene and Myla Garcia by means of a deed of sale dated June 29, 1998. Said transaction was registered only about a month-and-a-half later, on August 12, 1998, after the mortgagee FEBTC gave its approval to the sale. On August 19, 1998, TCT No. 11387 in the name of the spouses Ng was cancelled and, in lieu thereof, TCT No. 194226 in the names of Mylene and Myla Garcia was issued. The annotation of the preliminary attachment made earlier on July 27, 1998 by sheriff Viloria on the old title, TCT No. 11387, was transferred to TCT No. 194226.

On August 28, 1998, the Garcias filed a complaint-in-intervention in Civil Case No. 98-89831 pending at Branch 7 of the Manila RTC, alleging that they were the registered owners of the property covered by TCT No. 194226 which was the subject of BSCs writ of preliminary attachment. Said complaint-in-intervention was denied by the trial court for lack of merit.

On April 14, 1999, the trial court rendered judgment by default in favor of BSC, the dispositive portion of which was:

WHEREFORE, decision is hereby rendered in favor of plaintiff Bian Steel Corporation, and against defendants Joenas

Metal Corporation, Ng Ley Huat and Leticia Dy Ng, ordering the latter to jointly and severally:

1. pay the plaintiff the amount of FIVE MILLION EIGHT HUNDRED FIFTY SIX THOUSAND PESOS

(P5,856,000.00) as actual damages;

2. pay the plaintiff the amount of ONE MILLION PESOS (P1,000,000.00) as and for consequential damages;

3. pay the plaintiff the amount equivalent to 25% of the total amount due the plaintiff from the defendant as and for

attorneys fees; and

4. to pay the costs of suit.

SO ORDERED.[4]

On June 14, 1999, a Notice of Sale of Execution on Real Property was issued by respondent sheriff Rufo J. Bernardo. It scheduled the public auction of the property on July 7, 1999.

Meanwhile, on February 18, 1999, in view of the dismissal of their complaint-in-intervention, the Garcias filed an action against BSC, sheriff Manuelito P. Viloria, the Register of Deeds of Quezon City and FEBTC (now BPI) for cancellation of the notice of levy annotated on TCT No. 194226 before Branch 98 of the Regional Trial Court of Quezon City,[5] docketed as Civil Case No. 99-36804. The Garcias claimed that they were the registered owners of the property in dispute, having acquired the same on June 29, 1998 by means of a deed of sale with assumption of mortgage from spouses Ng Ley Huat and Leticia Dy Ng.

In said case in the Quezon City RTC, the Garcias were able to secure a temporary restraining order enjoining sheriff Rufo J. Bernardo or any person acting in his behalf from continuing with the public auction sale of the subject property initially scheduled on July 7, 1999. This TRO was disregarded by the Manila RTC.

Acting on the ex-parte manifestation with motion to proceed with the execution sale filed by BSC, Judge Enrico Lanzanas of Branch 7, RTC, Manila affirmed, on July 8, 1999, his previous order and directed the public auction of the attached property, unless otherwise enjoined by the Court of Appeals or this Court. Thereafter, the public auction was rescheduled from July 7, 1999 to August 6, 1999.

On August 4, 1999, the Garcias filed another case with the Court of Appeals for the issuance of a writ of preliminary injunction with prayer for temporary restraining order which sought to perpetually enjoin Judge Lanzanas and sheriff Bernardo from proceeding with the public auction on August 6, 1999. Their petition did not implead BSC as private respondent.

In a resolution dated August 5, 1999, the Third Division of the Court of Appeals [6] temporarily restrained public respondents Judge Lanzanas and Bernardo from proceeding with the public auction of the subject property. Hence, the scheduled public sale on August 6, 1999 did not transpire. This prompted petitioner BSC to file a motion for intervention on August 16, 1999, praying that it be allowed to intervene and be heard in the case as private respondent, and to comment and oppose the petition filed by the Garcias. Likewise, said motion sought to oppose the prayer for preliminary injunction with urgent request for the issuance of the temporary restraining order.

On October 21, 1999, the First Division of the Court of Appeals, in its resolution, [7] denied BSCs motion for intervention on the ground that its rights could be protected in a separate proceeding, particularly in the cancellation case filed by the Garcias. BSC's motion for reconsideration was likewise denied on January 31, 2000. Thus, on March 13, 2000, BSC filed with this Court a special civil action for certiorari and mandamus, docketed as G.R. No. 142013, seeking to annul and set aside the Resolutions of the Court of Appeals dated October 21, 1999 and January 31, 2000. BSC is invoking the following issues:

I

THE RESPONDENT HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION IN DENYING PETITIONERS MOTION FOR

INTERVENTION FOR BEING IMPROPER AS INTERVENORS RIGHTS MAY BE PROTECTED IN A SEPARATE PROCEEDING IN CIVIL CASE NO. 99-36804 OF THE RTC, BRANCH 98, QUEZON CITY, FOR CANCELLATION

OF THE NOTICE OF LEVY ANNOTATED ON TCT NO. 194226.

II

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION IN HOLDING THAT TO ENTERTAIN PETITIONERS INTERVENTION WOULD NECESSARY (SIC) PRE-EMPT THE ADJUDICATION OF ISSUES IN CIVIL CASE NO. 99-36804

BECAUSE EVIDENCE AND COUNTER-EVIDENCE WILL BE PRODUCED BY THE PARTIES IN THE

INJUNCTION SUIT, AND THIS WILL UNDULY DELAY OR PREJUDICE THE ADJUDICATION OF THE RIGHTS

OF THE PRINCIPAL PARTIES.

III

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION IN RULING THAT THE ALLOWANCE OR DISALLOWANCE OF A

MOTION TO INTERVENE IS ADDRESSED TO THE SOUND DISCRETION OF THE COURT, OVERLOOKING

THE FACT THAT IN THE INSTANT CASE, THE APPELLATE COURT DID NOT EXERCISE WISELY ITS

SOUND DISCRETION WHEN IT DENIED PETITIONERS MOTION FOR INTERVENTION.

Similarly, the Fifteenth Division of the Court of Appeals, in its decision [8] dated February 10, 2000, dismissed the petition of the Garcias for violating the rules on forum-shopping. It denied their motion for reconsideration on May 31, 2001.

The Garcias thus filed with this Court a petition for review on certiorari, docketed as G.R. No. 148430, seeking to set aside the February 10, 2000 decision of the Court of Appeals as well as its resolution dated May 31, 2001 denying their motion for reconsideration, raising the following errors:

I

WHETHER OR NOT PETITIONERS WERE GUILTY OF VIOLATING THE RULES ON FORUM-SHOPPING.

II

WHETHER OR NOT PETITIONERS ARE ENTITLED TO THE ISSUANCE OF A WRIT OF INJUNCTION.

Subsequently, G.R. No. 142013 and G.R. No. 148430 were consolidated pursuant to this Court's Resolution dated February 27, 2002.

In the meantime, on August 4, 2001, the Garcias were again served by the sheriff of the Manila RTC with a notice of sale of execution of the disputed property scheduled for August 7, 2001. Because no TRO was issued by this Court, the public auction ordered by the Manila RTC was held as scheduled and the property was awarded to BSC as the highest bidder.

On August 15, 2001, a little too late, this Court[9] issued the TRO sought by the Garcias in a resolution which partially stated that:

Acting on the Petitioners Urgent Motion for the Issuance of a temporary restraining order and/or writ of preliminary injunction dated August 6, 2001, praying that public respondents be enjoined from proceeding with the conduct of the public auction sale involving Petitioners property, registered under TCT No. 194226 of the Registry of Deeds of Quezon

City, the Court Resolved to ISSUE the TEMPORARY RESTRAINING ORDER prayed for, effective immediately until

further orders from this Court.[10]

A year after the public auction, on August 6, 2002, the Garcias, fearful of the impending consolidation of title in favor of BSC, filed before this Court an urgent ex-parte motion for the issuance of an order maintaining the status quo ante. They wanted to prevent the consolidation of the title and possession by BSC until such

time as the rights and interests of both sets of petitioners in the two cases before us shall have been determined and finally resolved.

Acting on the said motion, on August 9, 2002, the Court [11] resolved to grant the motion and directed the parties to maintain the status quo as of August 6, 2002.

Going over the merits of the petitions, the Court deems it essential to resolve two pivotal issues: (1) who, between BSC and the Garcias, has a better right to the disputed property, and (2) whether the Garcias violated the rule against forum- shopping.

It should be noted that, at the time of the attachment of the property on July 27, 1998, the spouses Ng were still the registered owners of said property. It should also be observed that the preliminary attachment in favor of petitioner BSC was annotated and recorded in the Registry of Deeds of Quezon City on July 27, 1998 in accordance with the provisions of the Property Registration Decree (PD 1529). This annotation produced all the effects which the law gives to its registration or inscription.[12]

This Court has always held that attachment is a proceeding in rem. It is against the particular property,

enforceable against the whole world. The attaching creditor acquires a specific lien on the attached property which ripens into a judgment against the res when the order of sale is made. Such a proceeding in effect

means that the property attached is an indebted thing and a virtual condemnation of it to pay the owners debt.[13] This doctrine was validated by this Court in the more recent case of Republic vs. Saludares[14]:

xxx.

The law does not provide the length of time an attachment lien shall continue after the rendition of the judgment, and it

must therefore necessarily continue until the debt is paid, or sale is had under execution issued on the judgment, or until

the judgment is satisfied, or the attachment discharged or vacated in some manner provided by law. Thus, if the property

attached is subsequently sold, the purchaser of the attached property acquires it subject to an attachment legally

and validly levied thereon.

xxx.

In the instant case, the records reveal that the levy on attachment covering the subject property was annotated on TCT No. 11387 on July 27, 1998. The deed of sale executed on June 29, 1998 in favor of the Garcias was approved by FEBTC only on August 12, 1998 which was also the date when the sale was registered. From the foregoing, it can be seen that, when the Garcias purchased the property in question, it was already under a duly registered preliminary attachment. In other words, there was already notice to said purchasers (and the whole world) of the impending acquisition by BSC, as the judgment creditor, of a legal lien on the title of the Ng spouses as judgment debtors in case BSC won its case in the Manila RTC.

The Garcias claim they acquired the subject property by means of a deed of sale with assumption of mortgage dated June 29, 1998, meaning, they purchased the property ahead of the inscription of the levy on

attachment thereon on July 27, 1998. But, even if consensual, not all contracts of sale became automatically and immediately effective.[15] In Ramos vs. Court of Appeals[16] we held:

In sales with assumption of mortgage, the assumption of mortgage is a condition precedent to the sellers consent and

therefore, without approval of the mortgagee, the sale is not perfected.

Apart therefrom, notwithstanding the approval of the sale by mortgagee FEBTC (BPI), there was yet another step the Garcias had to take and it was the registration of the sale from the Ngs to them. Insofar as third persons are concerned, what validly transfers or conveys a person's interest in real property is the registration of the deed.[17]

Thus, when the Garcias bought the property on June 29, 1998, it was, at that point, no more than a private transaction between them and the Ngs. It needed to be registered before it could become binding on all third parties, including BSC. It turned out that the Garcias registered it only on August 12, 1998, after FEBTC

(now BPI) approved the sale. It was too late by then because, on July 27, 1998, the levy in favor of BSC, pursuant to the preliminary attachment ordered by the Manila RTC, had already been annotated on the original title on file with the Registry of Deeds. This registration of levy (or notice, in laymans language) now became binding on the whole world, including the Garcias. The rights which had already accrued in favor of BSC by virtue of the levy on attachment over the property were never adversely affected by the unregistered transfer from the spouses Ng to the Garcias.

We sympathize with the Garcias but, had they only bothered to check first with the Register of Deeds of Quezon City before buying the property as a prudent buyer would have done they would have seen the warning about BSCs superior rights over it. This alone should have been sufficient reason for them to back out of the deal.

It is doctrinal that a levy on attachment, duly registered, has preference over a prior unregistered sale and, even if the prior unregistered sale is subsequently registered before the sale on execution but after the levy is made, the validity of the execution sale should be upheld because it retroacts to the date of levy. The priority enjoyed by the levy on attachment extends, with full force and effect, to the buyer at the auction sale conducted by virtue of such levy.[18] The sale between the spouses Ng and the Garcias was undoubtedly a valid transaction between them. However, in view of the prior levy on attachment on the same property, the Garcias took the property subject to the attachment. The Garcias, in buying registered land, stood exactly in the shoes of their vendors, the Ngs, and their title ipso facto became subject to the incidents or results of the pending litigation[19] between the Ngs and BSC.

Even the alleged lack of actual and personal knowledge of the existence of the levy on attachment over the subject property by the Garcias cannot be sustained by this Court on the ground that one who deals with registered land is charged with notice of the burdens on the property which are duly noted on the certificate of title. On this specific point, we are concerned not with actual or personal knowledge but constructive notice through registration in the Registry of Deeds. Otherwise stated, what we should follow is the annotation (or lack thereof) on the original title on file with the Registry of Deeds, not on the duplicate title in the hands of the private parties.

When a conveyance has been properly recorded, such record is constructive notice of its contents and all interests, legal and equitable, included therein. Under the rule on notice, it is presumed that the purchaser has examined every instrument on record affecting the title. Such presumption is irrefutable and cannot be overcome by any claim of innocence or good faith.Therefore, such presumption cannot be defeated by proof of lack of knowledge of what the public record contains any more than one may be permitted to show that he was ignorant of the provisions of the law. The rule that all persons must take notice of the facts which the public record contains is a rule of law. The rule must be absolute. Any variation would lead to endless confusion and useless litigation.[20] Otherwise, the very purpose and object of the law requiring public registration would be for naught.

Pertinent to the matter at hand is Article 1544 of the New Civil Code which provides:

If the same thing should have been sold to different vendees, x x x should it be immovable property, the ownership

shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. x x x

Because of the principle of constructive notice to the whole world, one who deals with registered property which is the subject of an annotated levy on attachment cannot invoke the rights of a purchaser in good faith. As between two purchasers, the one who registers the sale in his favor has a preferred right over the other who has not registered his title even if the latter is in actual possession of the immovable property.[21] And, as between two purchasers who both registered the respective sales in their favor, the one who registered his sale ahead of the other would have better rights than the other who registered later.

Applying said provision of the law and settled jurisprudence to the instant case, when the disputed property was consequently sold on execution to BSC, this auction sale retroacted to the date of inscription of BSC's notice of attachment on July 27, 1998. The earlier registration thus gave BSC superior and preferential rights over the attached property as against the Garcias[22] who registered their purchase of the property at a later date. Notably, the Garcias were not purchasers for value in view of the fact that they acquired the property in payment of the loan earlier obtained from them by the Spouses Ng. [23]

All told, the purchaser of a property subject to an attachment legally and validly levied thereon is merely subrogated to the rights of the vendor and acquires the property subject to the rights of the attachment creditor. An attaching creditor who registers the order of attachment and the sale by public auction of the property to him as the highest bidder acquires a superior title to the property as against a vendee who previously bought the same property from the registered owner but who failed to register his deed of sale. [24]

Petitioners Garcias failed to show that BSC acted in bad faith which would have impelled this Court to rule otherwise.

The foregoing considerations show that the Garcias are not entitled to the issuance of a writ of preliminary injunction from this Court. For the issuance of the writ to be proper, it must be shown that the invasion of the right sought to be protected is material and substantial, that the right of the Garcias is clear and unmistakable and that there is an urgent and paramount necessity for the writ to prevent serious damage. [25] Such requirements are all wanting in the case at bar. Thus, in view of the clear and unmistakable absence of any legal basis for the issuance thereof, the same must be denied.

On the second question whether the Garcias violated the rule against forum-shopping we answer in the affirmative.

The Court of Appeals, in dismissing the Garcias' petition on the ground of forum-shopping, explained:

A party is guilty of forum-shopping where he repetitively availed of several judicial remedies in different courts, simultaneously or successively, all substantially founded on the same transactions and the same essential facts and

circumstances, and all raising substantially the same issues either pending in, or already resolved adversely by some other

court (Gatmaytan vs. Court of Appeals, 267 SCRA 487).

The test to determine whether a party violated the rule against forum-shopping is where the elements of litis pendentia are present or where a final judgment in one case will amount to res judicata in another (Solid Homes, Inc. vs. Court of

Appeals, 271 SCRA 157).

What is truly important to consider in determining whether forum-shopping exists or not is the vexation caused the courts

and parties-litigants by a party who asks different courts and/or administrative agencies to rule on the same or related

causes and/or grant the same or substantially the same reliefs, in the process creating possibility of conflicting decisions

being rendered by the different fora upon the same issues (Golangco vs. Court of Appeals, 283 SCRA 493).

The above jurisprudence instructs us the various indicia of forum-shopping. The more important of these are: when the

final judgment in one case will amount to res judicata in another, or where the cases filed are substantially founded on the

same transactions and the same essential facts and circumstances, or raising substantially the same issues, or more importantly, where there exists the possibility of conflicting decisions being rendered by different fora upon the same

issues.

If we take a look closely on the instant Petition for Injunction, forum-shopping is evident. In Civil Case No. 99-36804

raffled to Branch 98 of RTC- Quezon City, petitioners therein prayed for the cancellation of the notice of levy in their

title. They are claiming that the controverted property is owned by them such that the respondent therein has no right to levy on their property, petitioners not being the respondents debtor. In the present petition, petitioners seek that the

scheduled auction sale of the same property be perpetually enjoined, claiming that the property is owned by them and that

the same is erroneously made to answer for liability not owing by them. Ultimately, the two actions involve the same

essential facts and circumstances, and are raising the same issues.

x x x The propriety of the issuance of injunction would depend on the finding that the petitioners have a clear legal right

over the property - a right in esse or the existence of a right to be protected. Thus, this court must make a categorical

finding of fact. This very same issue of fact who as between the two contending parties have a better right to the property

is the very issue presented before the RTC of Quezon City. Clearly therefore, this Court and that of RTC Quezon City are called upon to decide on the same issues based on the same essential facts and circumstances. Hence, the possibility of

these two courts rendering or coming up with different or conflicting decisions is very much real. Needless to say, the

decision in one case would constitute res judicata in the other. The instant petition for injunction obviously violates the

rule on forum-shopping.

We agree with the Court of Appeals.

As clearly demonstrated, the willful attempt by the Garcias to obtain a preliminary injunction in another court (the Court of Appeals) after they filed a case seeking the same relief from the original court (the Quezon City RTC) constitutes grave abuse of the judicial process. Such contemptuous act is penalized by the summary dismissal of both actions as mandated by paragraph 17 of the Interim Rules and Guidelines issued by this Court on January 11, 1983 and Supreme Court Circular No. 28-91, to wit:

x x x

SUBJECT: ADDITIONAL REQUISITES FOR PETITIONS FILED WITH THE SUPREME COURT AND THE

COURT OF APPEALS TO PREVENT FORUM-SHOPPING OR MULTIPLE FILING OF PETITIONS AND

COMPLAINTS.

The attention of the Court has been called to the filing of multiple petitions and complaints involving the same issues in

the Supreme Court, the Court of Appeals or different Divisions thereof, or any other tribunal or agency, with the result

that said tribunals or agency have to resolve the same issues.

x x x.

3. Penalties.

(a) Any violation of this Circular shall be a cause for the summary dismissal of the multiple petition or complaint;

x x x.

In Bugnay Construction & Development Corporation vs. Laron,[26] we declared:

Forum-shopping, an act of malpractice, is proscribed and condemned as trifling with the courts and abusing their processes. It is improper conduct that degrades the administration of justice. The rule has been formalized in Paragraph 17 of the Interim Rules and Guidelines issued by this Court of January 11, 1983, in connection with the implementation of

the Judiciary Reorganization Act x x x. The Rule ordains that (a) violation of the rule shall constitute a contempt of court

and shall be a cause for the summary dismissal of both petitions, without prejudice to the taking of appropriate action

against the counsel or party concerned.

The rule against forum-shopping has been further strengthened by the issuance of Supreme Court Administrative Circular No. 04-94. Said circular formally established the rule that the deliberate filing of multiple complaints to obtain favorable action constitutes forum-shopping and shall be a ground for summary dismissal thereof.

Accordingly, the Garcias cannot pursue simultaneous remedies in two different fora. This is a practice which degrades the judicial process, messes up the orderly rules of procedure and is vexatious and unfair to the other party in the case.

We rule therefore that the execution sale in favor of BSC was superior to the sale of the same property by the Ngs to the Garcias on August 12, 1998. The right of petitioner BSC to the ownership and possession of the property, the surrender of the owner's duplicate copy of TCT No. 194226 covering the subject property for inscription of the certificate of sale, the cancellation of TCT No. 194226 and the issuance of a new title in favor of BSC, is affirmed without prejudice to the right of the Garcias to seek reimbursement from the spouses Ng.

In view of our disposition of the first issue resulting in the denial of the Garcias petition, the petition of BSC praying that it be allowed to intervene therein has been rendered moot. The Court thus finds it unnecessary to discuss it.

WHEREFORE, the petitions are DENIED. The Resolution dated August 9, 2002 issued by this Court directing the parties to maintain the status quo as of August 6, 2002 is hereby lifted and set aside. The Registry

of Deeds of Quezon City is hereby ordered to cancel TCT No. 194226 in the names of Myla and Mylene Garcia and issue a new title in favor of BSC without further delay.

SO ORDERED.

G.R. No. 156437 March 1, 2004

NATIONAL HOUSING AUTHORITY, petitioner,

vs.

GRACE BAPTIST CHURCH and the COURT OF APPEALS, respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

This is a petition for review under Rule 45 of the Rules of Court, seeking to reverse the Decision of the Court of Appeals

dated February 26, 2001,1 and its Resolution dated November 8, 2002,2 which modified the decision of the Regional

Trial Court of Quezon City, Branch 90, dated February 25, 1997.3

On June 13, 1986, respondent Grace Baptist Church (hereinafter, the Church) wrote a letter to petitioner National

Housing Authority (NHA), manifesting its interest in acquiring Lots 4 and 17 of the General Mariano Alvarez

Resettlement Project in Cavite.4 In its letter-reply dated July 9, 1986, petitioner informed respondent:

In reference to your request letter dated 13 June 1986, regarding your application for Lots 4 and 17, Block C-3-CL, we are

glad to inform you that your request was granted and you may now visit our Project Office at General Mariano Alvarez

for processing of your application to purchase said lots.

We hereby advise you also that prior to approval of such application and in accordance with our existing policies and

guidelines, your other accounts with us shall be maintained in good standing.5

Respondent entered into possession of the lots and introduced improvements thereon.6

On February 22, 1991, the NHA’s Board of Directors passed Resolution No. 2126, approving the sale of the subject lots to

respondent Church at the price of P700.00 per square meter, or a total price of P430,500.00.7 The Church was duly

informed of this Resolution through a letter sent by the NHA.8

On April 8, 1991, the Church tendered to the NHA a manager’s check in the amount of P55,350.00, purportedly in full

payment of the subject properties.9 The Church insisted that this was the price quoted to them by the NHA Field Office,

as shown by an unsigned piece of paper with a handwritten computation scribbled thereon.10 Petitioner NHA returned

the check, stating that the amount was insufficient considering that the price of the properties have changed. The

Church made several demands on the NHA to accept their tender of payment, but the latter refused. Thus, the Church

instituted a complaint for specific performance and damages against the NHA with the Regional Trial Court of Quezon

City,11 where it was docketed as Civil Case No. Q-91-9148.

On February 25, 1997, the trial court rendered its decision, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering the defendant to reimburse to the plaintiff the amount of P4,290.00 representing the overpayment made

for Lots 1, 2, 3, 18, 19 and 20;

2. Declaring that there was no perfected contract of sale with respect to Lots 4 and 17 and ordering the plaintiff to

return possession of the property to the defendant and to pay the latter reasonable rental for the use of the property at

P200.00 per month computed from the time it took possession thereof until finally vacated. Costs against defendant.

SO ORDERED.12

On appeal, the Court of Appeals, affirmed the trial court’s finding that there was indeed no contract of sale between the

parties. However, petitioner was ordered to execute the sale of the lots to Grace Baptist Church at the price of P700.00

per square meter, with 6% interest per annum from March 1991. The dispositive portion of the Court of Appeals’

decision, dated February 26, 2001, reads:

WHEREFORE, the appealed Decision is hereby AFFIRMED with the MODIFICATION that defendant-appellee NHA is

hereby ordered to sell to plaintiff-appellant Grace Baptist Church Lots 4 and 17 at the price of P700.00 per square meter,

or a total cost P430,000.00 with 6% interest per annum from March, 1991 until full payment in cash.

SO ORDERED.13

The appellate court ruled that the NHA’s Resolution No. 2126, which earlier approved the sale of the subject lots to

Grace Baptist Church at the price of P700.00 per square meter, has not been revoked at any time and was therefore still

in effect. As a result, the NHA was estopped from fixing a different price for the subject properties. Considering further

that the Church had been occupying the subject lots and even introduced improvements thereon, the Court of Appeals

ruled that, in the interest of equity, it should be allowed to purchase the subject properties.14

Petitioner NHA filed a Motion for Reconsideration which was denied in a Resolution dated November 8, 2002. Hence,

the instant petition for review on the sole issue of: Can the NHA be compelled to sell the subject lots to Grace Baptist

Church in the absence of any perfected contract of sale between the parties?

Petitioner submits that the Court cannot compel it to sell the subject property to Grace Baptist Church without violating

its freedom to contract.15 Moreover, it contends that equity should be applied only in the absence of any law governing

the relationship between the parties, and that the law on sales and the law on contracts in general apply to the present

case.16

We find merit in petitioner’s submission.

Petitioner NHA is not estopped from selling the subject lots at a price equal to their fair market value, even if it failed to

expressly revoke Resolution No. 2126. It is, after all, hornbook law that the principle of estoppel does not operate

against the Government for the act of its agents,17 or, as in this case, their inaction.

On the application of equity, it appears that the crux of the controversy involves the characterization of equity in the

context of contract law. Preliminarily, we reiterate that this Court, while aware of its equity jurisdiction, is first and

foremost, a court of law. While equity might tilt on the side of one party, the same cannot be enforced so as to overrule

positive provisions of law in favor of the other.18 Thus, before we can pass upon the propriety of an application of

equitable principles in the case at bar, we must first determine whether or not positive provisions of law govern.

It is a fundamental rule that contracts, once perfected, bind both contracting parties, and obligations arising therefrom

have the force of law between the parties and should be complied with in good faith.19 However, it must be understood

that contracts are not the only source of law that govern the rights and obligations between the parties. More

specifically, no contractual stipulation may contradict law, morals, good customs, public order or public policy.20 Verily,

the mere inexistence of a contract, which would ordinarily serve as the law between the parties, does not automatically

authorize disposing of a controversy based on equitable principles alone. Notwithstanding the absence of a perfected

contract between the parties, their relationship may be governed by other existing laws which provide for their

reciprocal rights and obligations.

It must be remembered that contracts in which the Government is a party are subject to the same rules of contract law

which govern the validity and sufficiency of contract between individuals. All the essential elements and characteristics

of a contract in general must be present in order to create a binding and enforceable Government contract.21

It appearing that there is no dispute that this case involves an unperfected contract, the Civil Law principles governing

contracts should apply. In Vda. de Urbano v. Government Service Insurance System,22 it was ruled that a qualified

acceptance constitutes a counter-offer as expressly stated by Article 1319 of the Civil Code. In said case, petitioners

offered to redeem mortgaged property and requested for an extension of the period of redemption. However, the offer

was not accepted by the GSIS. Instead, it made a counter-offer, which petitioners did not accept. Petitioners again offer

to pay the redemption price on staggered basis. In deciding said case, it was held that when there is absolutely no

acceptance of an offer or if the offer is expressly rejected, there is no meeting of the minds. Since petitioners’ offer was

denied twice by GSIS, it was held that there was clearly no meeting of the minds and, thus, no perfected contract. All

that is established was a counter-offer.23

In the case at bar, the offer of the NHA to sell the subject property, as embodied in Resolution No. 2126, was similarly

not accepted by the respondent.24 Thus, the alleged contract involved in this case should be more accurately

denominated as inexistent. There being no concurrence of the offer and acceptance, it did not pass the stage of

generation to the point of perfection.25 As such, it is without force and effect from the very beginning or from its

incipiency, as if it had never been entered into, and hence, cannot be validated either by lapse of time or ratification.26

Equity can not give validity to a void contract,27 and this rule should apply with equal force to inexistent contracts.

We note from the records, however, that the Church, despite knowledge that its intended contract of sale with the NHA

had not been perfected, proceeded to introduce improvements on the disputed land. On the other hand, the NHA

knowingly granted the Church temporary use of the subject properties and did not prevent the Church from making

improvements thereon. Thus, the Church and the NHA, who both acted in bad faith, shall be treated as if they were both

in good faith.28 In this connection, Article 448 of the Civil Code provides:

The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to

appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in articles 546 and

548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent.

However, the builder or planter cannot be obliged to buy the land and if its value is considerably more than that of the

building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the

building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of

disagreement, the court shall fix the terms thereof.

Pursuant to our ruling in Depra v. Dumlao,29 there is a need to remand this case to the trial court, which shall conduct

the appropriate proceedings to assess the respective values of the improvements and of the land, as well as the

amounts of reasonable rentals and indemnity, fix the terms of the lease if the parties so agree, and to determine other

matters necessary for the proper application of Article 448, in relation to Articles 546 and 548, of the Civil Code.

WHEREFORE, in view of the foregoing, the petition is GRANTED. The Court of Appeals’ Decision dated February 26, 2001

and Resolution dated November 8, 2002 are REVERSED and SET ASIDE. The Decision of the Regional Trial Court of

Quezon City-Branch 90, dated February 25, 1997, is REINSTATED. This case is REMANDED to the Regional Trial Court of

Quezon City, Branch 90, for further proceedings consistent with Articles 448 and 546 of the Civil Code.

No costs.

SO ORDERED.

BOSTON BANK OF THE G. R. No. 158149

PHILIPPINES, (formerly BANK

OF COMMERCE),

Petitioner, Present:

PANGANIBAN, J., Chairperson,

YNARES-SANTIAGO,

AUSTRIA-MARTINEZ,

- versus - CALLEJO, SR., and

CHICO-NAZARIO, JJ.

PERLA P. MANALO and CARLOS

MANALO, JR.,

Promulgated:

Respondents. February 9, 2006

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

D E C I S I O N

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari of the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 47458

affirming, on appeal, the Decision[2] of the Regional Trial Court (RTC) of Quezon City, Branch 98, in Civil Case No. Q-89-

3905.

The Antecedents

The Xavierville Estate, Inc. (XEI) was the owner of parcels of land in Quezon City, known as the Xavierville Estate

Subdivision, with an area of 42 hectares. XEI caused the subdivision of the property into residential lots, which was then

offered for sale to individual lot buyers.[3]

On September 8, 1967, XEI, through its General Manager, Antonio Ramos, as vendor, and The Overseas Bank of Manila

(OBM), as vendee, executed a Deed of Sale of Real Estate over some residential lots in the subdivision, including Lot 1,

Block 2, with an area of 907.5 square meters, and Lot 2, Block 2, with an area of 832.80 square meters. The transaction

was subject to the approval of the Board of Directors of OBM, and was covered by real estate mortgages in favor of the

Philippine National Bank as security for its account amounting to P5,187,000.00, and the Central Bank of the Philippines

as security for advances amounting to P22,185,193.74.[4] Nevertheless, XEI continued selling the residential lots in the

subdivision as agent of OBM.[5]

Sometime in 1972, then XEI president Emerito Ramos, Jr. contracted the services of Engr. Carlos Manalo, Jr. who was in

business of drilling deep water wells and installing pumps under the business name Hurricane Commercial, Inc. For

P34,887.66, Manalo, Jr. installed a water pump at Ramos residence at the corner of Aurora Boulevard and Katipunan

Avenue, Quezon City. Manalo, Jr. then proposed to XEI, through Ramos, to purchase a lot in the Xavierville subdivision,

and offered as part of the downpayment the P34,887.66 Ramos owed him. XEI, through Ramos, agreed. In a letter dated

February 8, 1972, Ramos requested Manalo, Jr. to choose which lots he wanted to buy so that the price of the lots and

the terms of payment could be fixed and incorporated in the conditional sale.[6] Manalo, Jr. met with Ramos and

informed him that he and his wife Perla had chosen Lots 1 and 2 of Block 2 with a total area of 1,740.3 square meters.

In a letter dated August 22, 1972 to Perla Manalo, Ramos confirmed the reservation of the lots. He also pegged the price

of the lots at P200.00 per square meter, or a total of P348,060.00, with a 20% down payment of the purchase price

amounting to P69,612.00 less the P34,887.66 owing from Ramos, payable on or before December 31, 1972; the

corresponding Contract of Conditional Sale would then be signed on or before the same date, but if the selling

operations of XEI resumed after December 31, 1972, the balance of the downpayment would fall due then, and the

spouses would sign the aforesaid contract within five (5) days from receipt of the notice of resumption of such selling

operations. It was also stated in the letter that, in the meantime, the spouses may introduce improvements thereon

subject to the rules and regulations imposed by XEI in the subdivision. Perla Manalo conformed to the letter

agreement.[7]

The spouses Manalo took possession of the property on September 2, 1972, constructed a house thereon, and installed

a fence around the perimeter of the lots.

In the meantime, many of the lot buyers refused to pay their monthly installments until they were assured that they

would be issued Torrens titles over the lots they had purchased.[8] The spouses Manalo were notified of the resumption

of the selling operations of XEI.[9] However, they did not pay the balance of the downpayment on the lots because

Ramos failed to prepare a contract of conditional sale and transmit the same to Manalo for their signature. On August

14, 1973, Perla Manalo went to the XEI office and requested that the payment of the amount representing the balance

of the downpayment be deferred, which, however, XEI rejected. On August 10,

1973, XEI furnished her with a statement of their account as of July 31, 1973, showing that they had a balance of

P34,724.34 on the downpayment of the two lots after deducting the account of Ramos, plus P3,819.68[10] interest

thereon from September 1, 1972 to July 31, 1973, and that the interests on the unpaid balance of the purchase price of

P278,448.00 from September 1, 1972 to July 31, 1973 amounted to P30,629.28.[11] The spouses were informed that

they were being billed for said unpaid interests.[12]

On January 25, 1974, the spouses Manalo received another statement of account from XEI, inclusive of interests on the

purchase price of the lots.[13] In a letter dated April 6, 1974 to XEI, Manalo, Jr. stated they had not yet received the

notice of resumption of Leis selling operations, and that there had been no arrangement on the payment of interests;

hence, they should not be charged with interest on the balance of the downpayment on the property.[14] Further, they

demanded that a deed of conditional sale over the two lots be transmitted to them for their signatures. However, XEI

ignored the demands. Consequently, the spouses refused to pay the balance of the downpayment of the purchase

price.[15]

Sometime in June 1976, Manalo, Jr. constructed a business sign in the sidewalk near his house. In a letter dated June 17,

1976, XEI informed Manalo, Jr. that business signs were not allowed along the sidewalk. It demanded that he remove

the same, on the ground, among others, that the sidewalk was not part of the land which he had purchased on

installment basis from XEI.[16] Manalo, Jr. did not respond. XEI reiterated its demand on September 15, 1977.[17]

Subsequently, XEI turned over its selling operations to OBM, including the receivables for lots already contracted and

those yet to be sold.[18] On December 8, 1977, OBM warned Manalo, Jr., that putting up of a business sign is specifically

prohibited by their contract of conditional sale and that his failure to comply with its demand would impel it to avail of

the remedies as provided in their contract of conditional sale.[19]

Meanwhile, on December 5, 1979, the Register of Deeds issued Transfer Certificate of Title (TCT) No. T-265822 over Lot

1, Block 2, and TCT No. T-265823 over Lot 2, Block 2, in favor of the OBM.[20] The lien in favor of the Central Bank of the

Philippines was annotated at the dorsal portion of said title, which was later cancelled on August 4, 1980.[21]

Subsequently, the Commercial Bank of Manila (CBM) acquired the Xavierville Estate from OBM. CBM wrote Edilberto Ng,

the president of Xavierville Homeowners Association that, as of January 31, 1983, Manalo, Jr. was one of the lot buyers

in the subdivision.[22] CBM reiterated in its letter to Ng that, as of January 24, 1984, Manalo was a homeowner in the

subdivision.[23]

In a letter dated August 5, 1986, the CBM requested Perla Manalo to stop any on-going construction on the property

since it (CBM) was the owner of the lot and she had no permission for such construction.[24] She agreed to have a

conference meeting with CBM officers where she informed them that her husband had a contract with OBM, through

XEI, to purchase the property. When asked to prove her claim, she promised to send the documents to CBM. However,

she failed to do so.[25] On September 5, 1986, CBM reiterated its demand that it be furnished with the documents

promised,[26] but Perla Manalo did not respond.

On July 27, 1987, CBM filed a complaint[27] for unlawful detainer against the spouses with the Metropolitan Trial Court

of Quezon City. The case was docketed as Civil Case No. 51618. CBM claimed that the spouses had been unlawfully

occupying the property without its consent and that despite its demands, they refused to vacate the property. The latter

alleged that they, as vendors, and XEI, as vendee, had a contract of sale over the lots which had not yet been

rescinded.[28]

While the case was pending, the spouses Manalo wrote CBM to offer an amicable settlement, promising to abide by the

purchase price of the property (P313,172.34), per agreement with XEI, through Ramos. However, on July 28, 1988, CBM

wrote the spouses, through counsel, proposing that the price of P1,500.00 per square meter of the property was a

reasonable starting point for negotiation of the settlement.[29] The spouses rejected the counter proposal,[30]

emphasizing that they would abide by their original agreement with XEI. CBM moved to withdraw its complaint[31]

because of the issues raised.[32]

In the meantime, the CBM was renamed the Boston Bank of the Philippines. After CBM filed its complaint against the

spouses Manalo, the latter filed a complaint for specific performance and damages against the bank before the Regional

Trial Court (RTC) of Quezon City on October 31, 1989.

The plaintiffs alleged therein that they had always been ready, able and willing to pay the installments on the lots sold to

them by the defendants remote predecessor-in-interest, as might be or stipulated in the contract of sale, but no

contract was forthcoming; they constructed their house worth P2,000,000.00 on the property in good faith; Manalo, Jr.,

informed the defendant, through its counsel, on October 15, 1988 that he would abide by the terms and conditions of

his original agreement with the defendants predecessor-in-interest; during the hearing of the ejectment case on

October 16, 1988, they offered to pay P313,172.34 representing the balance on the purchase price of said lots; such

tender of payment was rejected, so that the subject lots could be sold at considerably higher prices to third parties.

Plaintiffs further alleged that upon payment of the P313,172.34, they were entitled to the execution and delivery of a

Deed of Absolute Sale covering the subject lots, sufficient in form and substance to transfer title thereto free and clear

of any and all liens and encumbrances of whatever kind and nature.[33] The plaintiffs prayed that, after due hearing,

judgment be rendered in their favor, to wit:

WHEREFORE, it is respectfully prayed that after due hearing:

(a) The defendant should be ordered to execute and deliver a Deed of Absolute Sale over subject lots in favor of the

plaintiffs after payment of the sum of P313,172.34, sufficient in form and substance to transfer to them titles thereto

free and clear of any and all liens and encumbrances of whatever kind or nature;

(b) The defendant should be held liable for moral and exemplary damages in the amounts of P300,000.00 and

P30,000.00, respectively, for not promptly executing and delivering to plaintiff the necessary Contract of Sale,

notwithstanding repeated demands therefor and for having been constrained to engage the services of undersigned

counsel for which they agreed to pay attorneys fees in the sum of P50,000.00 to enforce their rights in the premises and

appearance fee of P500.00;

(c) And for such other and further relief as may be just and equitable in the premises.[34]

In its Answer to the complaint, the defendant interposed the following affirmative defenses: (a) plaintiffs had no cause

of action against it because the August 22, 1972 letter agreement between XEI and the plaintiffs was not binding on it;

and (b) it had no record of any contract to sell executed by it or its predecessor, or of any statement of accounts from its

predecessors, or records of payments of the plaintiffs or of any documents which entitled them to the possession of the

lots.[35] The defendant, likewise, interposed counterclaims for damages and attorneys fees and prayed for the eviction

of the plaintiffs from the property.[36]

Meanwhile, in a letter dated January 25, 1993, plaintiffs, through counsel, proposed an amicable settlement of the case

by paying P942,648.70, representing the balance of the purchase price of the two lots based on the current market

value.[37] However, the defendant rejected the same and insisted that for the smaller lot, they pay P4,500,000.00, the

current market value of the property.[38] The defendant insisted that it owned the property since there was no contract

or agreement between it and the plaintiffs relative thereto.

During the trial, the plaintiffs adduced in evidence the separate Contracts of Conditional Sale executed between XEI and

Alberto Soller;[39] Alfredo Aguila,[40] and Dra. Elena Santos-Roque[41] to prove that XEI continued selling residential

lots in the subdivision as agent of OBM after the latter had acquired the said lots.

For its part, defendant presented in evidence the letter dated August 22, 1972, where XEI proposed to sell the two lots

subject to two suspensive conditions: the payment of the balance of the downpayment of the property, and the

execution of the corresponding contract of conditional sale. Since plaintiffs failed to pay, OBM consequently refused to

execute the corresponding contract of conditional sale and forfeited the P34,877.66 downpayment for the two lots, but

did not notify them of said forfeiture.[42] It alleged that OBM considered the lots unsold because the titles thereto bore

no annotation that they had been sold under a contract of conditional sale, and the plaintiffs were not notified of XEIs

resumption of its selling operations.

On May 2, 1994, the RTC rendered judgment in favor of the plaintiffs and against the defendant. The fallo of the decision

reads:

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

(a) Ordering the latter to execute and deliver a Deed of Absolute Sale over Lot 1 and 2, Block 2 of the Xavierville Estate

Subdivision after payment of the sum of P942,978.70 sufficient in form and substance to transfer to them titles thereto

free from any and all liens and encumbrances of whatever kind and nature.

(b) Ordering the defendant to pay moral and exemplary damages in the amount of P150,000.00; and

(c) To pay attorneys fees in the sum of P50,000.00 and to pay the costs.

SO ORDERED.[43]

The trial court ruled that under the August 22, 1972 letter agreement of XEI and the plaintiffs, the parties had a

complete contract to sell over the lots, and that they had already partially consummated the same. It declared that the

failure of the defendant to notify the plaintiffs of the resumption of its selling operations and to execute a deed of

conditional sale did not prevent the defendants obligation to convey titles to the lots from acquiring binding effect.

Consequently, the plaintiffs had a cause of action to compel the defendant to execute a deed of sale over the lots in

their favor.

Boston Bank appealed the decision to the CA, alleging that the lower court erred in (a) not concluding that the letter of

XEI to the spouses Manalo, was at most a mere contract to sell subject to suspensive conditions, i.e., the payment of the

balance of the downpayment on the property and the execution of a deed of conditional sale (which were not complied

with); and (b) in awarding moral and exemplary damages to the spouses Manalo despite the absence of testimony

providing facts to justify such awards.[44]

On September 30, 2002, the CA rendered a decision affirming that of the RTC with modification. The fallo reads:

WHEREFORE, the appealed decision is AFFIRMED with MODIFICATIONS that (a) the figure P942,978.70 appearing [in]

par. (a) of the dispositive portion thereof is changed to P313,172.34 plus interest thereon at the rate of 12% per annum

from September 1, 1972 until fully paid and (b) the award of moral and exemplary damages and attorneys fees in favor

of plaintiffs-appellees is DELETED.

SO ORDERED.[45]

The appellate court sustained the ruling of the RTC that the appellant and the appellees had executed a Contract to Sell

over the two lots but declared that the balance of the purchase price of the property amounting to P278,448.00 was

payable in fixed amounts, inclusive of pre-computed interests, from delivery of the possession of the property to the

appellees on a monthly basis for 120 months, based on the deeds of conditional sale executed by XEI in favor of other lot

buyers.[46] The CA also declared that, while XEI must have resumed its selling operations before the end of 1972 and

the downpayment on the property remained unpaid as of December 31, 1972, absent a written notice of cancellation of

the contract to sell from the bank or notarial demand therefor as required by Republic Act No. 6552, the spouses had, at

the very least, a 60-day grace period from January 1, 1973 within which to pay the same.

Boston Bank filed a motion for the reconsideration of the decision alleging that there was no perfected contract to sell

the two lots, as there was no agreement between XEI and the respondents on the manner of payment as well as the

other terms and conditions of the sale. It further averred that its claim for recovery of possession of the aforesaid lots in

its Memorandum dated February 28, 1994 filed before the trial court constituted a judicial demand for rescission that

satisfied the requirements of the New Civil Code. However, the appellate court denied the motion.

Boston Bank, now petitioner, filed the instant petition for review on certiorari assailing the CA rulings. It maintains that,

as held by the CA, the records do not reflect any schedule of payment of the 80% balance of the purchase price, or

P278,448.00. Petitioner insists that unless the parties had agreed on the manner of payment of the principal amount,

including the other terms and conditions of the contract, there would be no existing contract of sale or contract to

sell.[47] Petitioner avers that the letter agreement to respondent spouses dated August 22, 1972 merely confirmed their

reservation for the purchase of Lot Nos. 1 and 2, consisting of 1,740.3 square meters, more or less, at the price of

P200.00 per square meter (or P348,060.00), the amount of the downpayment thereon and the application of the

P34,887.00 due from Ramos as part of such downpayment.

Petitioner asserts that there is no factual basis for the CA ruling that the terms and conditions relating to the payment of

the balance of the purchase price of the property (as agreed upon by XEI and other lot buyers in the same subdivision)

were also applicable to the contract entered into between the petitioner and the respondents. It insists that such a

ruling is contrary to law, as it is tantamount to compelling the parties to agree to something that was not even

discussed, thus, violating their freedom to contract. Besides, the situation of the respondents cannot be equated with

those of the other lot buyers, as, for one thing, the respondents made a partial payment on the downpayment for the

two lots even before the execution of any contract of conditional sale.

Petitioner posits that, even on the assumption that there was a perfected contract to sell between the parties,

nevertheless, it cannot be compelled to convey the property to the respondents because the latter failed to pay the

balance of the downpayment of the property, as well as the balance of 80% of the purchase price, thus resulting in the

extinction of its obligation to convey title to the lots to the respondents.

Another egregious error of the CA, petitioner avers, is the application of Republic Act No. 6552. It insists that such law

applies only to a perfected agreement or perfected contract to sell, not in this case where the downpayment on the

purchase price of the property was not completely paid, and no installment payments were made by the buyers.

Petitioner also faults the CA for declaring that petitioner failed to serve a notice on the respondents of cancellation or

rescission of the contract to sell, or notarial demand therefor. Petitioner insists that its August 5, 1986 letter requiring

respondents to vacate the property and its complaint for ejectment in Civil Case No. 51618 filed in the Metropolitan

Trial Court amounted to the requisite demand for a rescission of the contract to sell. Moreover, the action of the

respondents below was barred by laches because despite demands, they failed to pay the balance of the purchase price

of the lots (let alone the downpayment) for a considerable number of years.

For their part, respondents assert that as long as there is a meeting of the minds of the parties to a contract of sale as to

the price, the contract is valid despite the parties failure to agree on the manner of payment. In such a situation, the

balance of the purchase price would be payable on demand, conformably to Article 1169 of the New Civil Code. They

insist that the law does not require a party to agree on the manner of payment of the purchase price as a prerequisite to

a valid contract to sell. The respondents cite the ruling of this Court in Buenaventura v. Court of Appeals[48] to support

their submission.

They argue that even if the manner and timeline for the payment of the balance of the purchase price of the property is

an essential requisite of a contract to sell, nevertheless, as shown by their letter agreement of August 22, 1972 with the

OBM, through XEI and the other letters to them, an agreement was reached as to the manner of payment of the balance

of the purchase price. They point out that such letters referred to the terms of the

terms of the deeds of conditional sale executed by XEI in favor of the other lot buyers in the subdivision, which

contained uniform terms of 120 equal monthly installments (excluding the downpayment, but inclusive of pre-computed

interests). The respondents assert that XEI was a real estate broker and knew that the contracts involving residential lots

in the subdivision contained uniform terms as to the manner and timeline of the payment of the purchase price of said

lots.

Respondents further posit that the terms and conditions to be incorporated in the corresponding contract of conditional

sale to be executed by the parties would be the same as those contained in the contracts of conditional sale executed by

lot buyers in the subdivision. After all, they maintain, the contents of the corresponding contract of conditional sale

referred to in the August 22, 1972 letter agreement envisaged those contained in the contracts of conditional sale that

XEI and other lot buyers executed. Respondents cite the ruling of this Court in Mitsui Bussan Kaisha v. Manila E.R.R. & L.

Co.[49]

The respondents aver that the issues raised by the petitioner are factual, inappropriate in a petition for review on

certiorari under Rule 45 of the Rules of Court. They assert that petitioner adopted a theory in litigating the case in the

trial court, but changed the same on appeal before the CA, and again in this Court. They argue that the petitioner is

estopped from adopting a new theory contrary to those it had adopted in the trial and appellate courts. Moreover, the

existence of a contract of conditional sale was admitted in the letters of XEI and OBM. They aver that they became

owners of the lots upon delivery to them by XEI.

The issues for resolution are the following: (1) whether the factual issues raised by the petitioner are proper; (2)

whether petitioner or its predecessors-in-interest, the XEI or the OBM, as seller, and the respondents, as buyers, forged

a perfect contract to sell over the property; (3) whether

petitioner is estopped from contending that no such contract was forged by the parties; and (4) whether respondents

has a cause of action against the petitioner for specific performance.

The rule is that before this Court, only legal issues may be raised in a petition for review on certiorari. The reason is that

this Court is not a trier of facts, and is not to review and calibrate the evidence on record. Moreover, the findings of facts

of the trial court, as affirmed on appeal by the Court of Appeals, are conclusive on this Court unless the case falls under

any of the following exceptions:

(1) when the conclusion is a finding grounded entirely on speculations, surmises and conjectures; (2) when the inference

made is manifestly mistaken, absurd or impossible; (3) where there is a grave abuse of discretion; (4) when the

judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of

Appeals, in making its findings went beyond the issues of the case and the same is contrary to the admissions of both

appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings of fact are

conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as

well as in the petitioners main and reply briefs are not disputed by the respondents; and (10) when the findings of fact

of the Court of Appeals are premised on the supposed absence of evidence and contradicted by the evidence on

record.[50]

We have reviewed the records and we find that, indeed, the ruling of the appellate court dismissing petitioners appeal is

contrary to law and is not supported by evidence. A careful examination of the factual backdrop of the case, as well as

the antecedental proceedings constrains us to hold that petitioner is not barred from asserting that XEI or OBM, on one

hand, and the respondents, on the other, failed to forge a perfected contract to sell the subject lots.

It must be stressed that the Court may consider an issue not raised during the trial when there is plain error.[51]

Although a factual issue was not raised in the trial court, such issue may still be considered and resolved by the Court in

the interest of substantial justice, if it finds that to do so is necessary to arrive at a just decision,[52] or when an issue is

closely related to an issue raised in the trial court and the Court of Appeals and is necessary for a just and complete

resolution of the case.[53] When the trial court decides a case in favor of a party on certain grounds, the Court may base

its decision upon some other points, which the trial court or appellate court ignored or erroneously decided in favor of a

party.[54]

In this case, the issue of whether XEI had agreed to allow the respondents to pay the purchase price of the property was

raised by the parties. The trial court ruled that the parties had perfected a contract to sell, as against petitioners claim

that no such contract existed. However, in resolving the issue of whether the petitioner was obliged to sell the property

to the respondents, while the CA declared that XEI or OBM and the respondents failed to agree on the schedule of

payment of the balance of the purchase price of the property, it ruled that XEI and the respondents had forged a

contract to sell; hence, petitioner is entitled to ventilate the issue before this Court.

We agree with petitioners contention that, for a perfected contract of sale or contract to sell to exist in law, there must

be an agreement of the parties, not only on the price of the property sold, but also on the manner the price is to be paid

by the vendee.

Under Article 1458 of the New Civil Code, in a contract of sale, whether absolute or conditional, one of the contracting

parties obliges himself to transfer the ownership of and deliver a determinate thing, and the other to pay therefor a

price certain in money or its equivalent. A contract of sale is perfected at the moment there is a meeting of the minds

upon the thing which is the object of the contract and the price. From the averment of perfection, the parties are bound,

not only to the fulfillment of what has been

expressly stipulated, but also to all the consequences which, according to their nature, may be in keeping with good

faith, usage and law.[55] On the other hand, when the contract of sale or to sell is not perfected, it cannot, as an

independent source of obligation, serve as a binding juridical relation between the parties.[56]

A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property

because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation of a

binding and enforceable contract of sale. The fixing of the price can never be left to the decision of one of the

contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected

sale.[57]

It is not enough for the parties to agree on the price of the property. The parties must also agree on the manner of

payment of the price of the property to give rise to a binding and enforceable contract of sale or contract to sell. 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.[58]

In a contract to sell property by installments, it is not enough that the parties agree on the price as well as the amount of

downpayment. The parties must, likewise, agree on the manner of payment of the balance of the purchase price and on

the other terms and conditions relative to the sale. Even if the buyer makes a downpayment or portion thereof, such

payment cannot be considered as sufficient proof of the perfection of any purchase and sale between the parties.

Indeed, this Court ruled in Velasco v. Court of Appeals[59] that:

It is not difficult to glean from the aforequoted averments that the petitioners themselves admit that they and the

respondent still had to meet and agree on how and when the down-payment and the installment payments were to be

paid. Such being the situation, it cannot, therefore, be said that a definite and firm sales agreement between the parties

had been perfected over the lot in question. Indeed, this Court has already ruled before that a definite agreement on

the manner of payment of the purchase price is an essential element in the formation of a binding and enforceable

contract of sale. The fact, therefore, that the petitioners delivered to the respondent the sum of P10,000.00 as part of

the downpayment that they had to pay cannot be considered as sufficient proof of the perfection of any purchase and

sale agreement between the parties herein under article 1482 of the New Civil Code, as the petitioners themselves

admit that some essential matter the terms of payment still had to be mutually covenanted.[60]

We agree with the contention of the petitioner that, as held by the CA, there is no showing, in the records, of the

schedule of payment of the balance of the purchase price on the property amounting to P278,448.00. We have

meticulously reviewed the records, including Ramos February 8, 1972 and August 22, 1972 letters to respondents,[61]

and find that said parties confined themselves to agreeing on the price of the property (P348,060.00), the 20%

downpayment of the purchase price (P69,612.00), and credited respondents for the P34,887.00 owing from Ramos as

part of the 20% downpayment. The timeline for the payment of the balance of the downpayment (P34,724.34) was also

agreed upon, that is, on or before XEI resumed its selling operations, on or before December 31, 1972, or within five (5)

days from written notice of such resumption of selling operations. The parties had also agreed to incorporate all the

terms and conditions relating to the sale, inclusive of the terms of payment of the balance of the purchase price and the

other substantial terms and conditions in the corresponding contract of conditional sale, to be later signed by the

parties, simultaneously with respondents settlement of the balance of the downpayment.

The February 8, 1972 letter of XEI reads:

Mr. Carlos T. Manalo, Jr.

Hurricane Rotary Well Drilling

Rizal Avenue Ext.,Caloocan City

Dear Mr. Manalo:

We agree with your verbal offer to exchange the proceeds of your contract with us to form as a down payment for a lot

in our Xavierville Estate Subdivision.

Please let us know your choice lot so that we can fix the price and terms of payment in our conditional sale.

Sincerely yours,

XAVIERVILLE ESTATE, INC.

(Signed)

EMERITO B. RAMOS, JR.

President

CONFORME:

(Signed)

CARLOS T. MANALO, JR.

Hurricane Rotary Well Drilling[62]

The August 22, 1972 letter agreement of XEI and the respondents reads:

Mrs. Perla P. Manalo

1548 Rizal Avenue Extension

Caloocan City

Dear Mrs. Manalo:

This is to confirm your reservation of Lot Nos. 1 and 2; Block 2 of our consolidation-subdivision plan as amended,

consisting of 1,740.3 square meters more or less, at the price of P200.00 per square meter or a total price of

P348,060.00.

It is agreed that as soon as we resume selling operations, you must pay a down payment of 20% of the purchase price of

the said lots and sign the corresponding Contract of Conditional Sale, on or before December 31, 1972, provided,

however, that if we resume selling after December 31, 1972, then you must pay the aforementioned down payment and

sign the aforesaid contract within five (5) days from your receipt of our notice of resumption of selling operations.

In the meanwhile, you may introduce such improvements on the said lots as you may desire, subject to the rules and

regulations of the subdivision.

If the above terms and conditions are acceptable to you, please signify your conformity by signing on the space herein

below provided.

Thank you.

Very truly yours,

XAVIERVILLE ESTATE, INC. CONFORME:

By:

(Signed) (Signed)

EMERITO B. RAMOS, JR. PERLA P. MANALO

President Buyer[63]

Based on these two letters, the determination of the terms of payment of the P278,448.00 had yet to be agreed upon

on or before December 31, 1972, or even afterwards, when the parties sign the corresponding contract of conditional

sale.

Jurisprudence is that if a material element of a contemplated contract is left for future negotiations, the same is too

indefinite to be enforceable.[64] And when an essential element of a contract is reserved for future agreement of the

parties, no legal obligation arises until such future agreement is concluded.[65]

So long as an essential element entering into the proposed obligation of either of the parties remains to be determined

by an agreement which they are to make, the contract is incomplete and unenforceable.[66] The reason is that such a

contract is lacking in the necessary qualities of definiteness, certainty and mutuality.[67]

There is no evidence on record to prove that XEI or OBM and the respondents had agreed, after December 31, 1972, on

the terms of payment of the balance of the purchase price of the property and the other substantial terms and

conditions relative to the sale. Indeed, the parties are in agreement that there had been no contract of conditional sale

ever executed by XEI, OBM or petitioner, as vendor, and the respondents, as vendees.[68]

The ruling of this Court in Buenaventura v. Court of Appeals has no bearing in this case because the issue of the manner

of payment of the purchase price of the property was not raised therein.

We reject the submission of respondents that they and Ramos had intended to incorporate the terms of payment

contained in the three contracts of conditional sale executed by XEI and other lot buyers in the corresponding contract

of conditional sale, which would later be signed by them.[69] We have meticulously reviewed the respondents

complaint and find no such allegation therein.[70] Indeed, respondents merely alleged in their complaint that they were

bound to pay the balance of the purchase price of the property in installments. When respondent Manalo, Jr. testified,

he was never asked, on direct examination or even on cross-examination, whether the terms of payment of the balance

of the purchase price of the lots under the contracts of conditional sale executed by XEI and other lot buyers would form

part of the corresponding contract of conditional sale to be signed by them simultaneously with the payment of the

balance of the downpayment on the purchase price.

We note that, in its letter to the respondents dated June 17, 1976, or almost three years from the execution by the

parties of their August 22, 1972 letter agreement, XEI stated, in part, that respondents had purchased the property on

installment basis.[71] However, in the said letter, XEI failed to state a specific amount for each installment, and whether

such payments were to be made monthly, semi-annually, or annually. Also, respondents, as plaintiffs below, failed to

adduce a shred of evidence to prove that they were obliged to pay the P278,448.00 monthly, semi-annually or annually.

The allegation that the payment of the P278,448.00 was to be paid in installments is, thus, vague and indefinite. Case

law is that, for a contract to be enforceable, its terms must be certain and explicit, not vague or indefinite.[72]

There is no factual and legal basis for the CA ruling that, based on the terms of payment of the balance of the purchase

price of the lots under the contracts of conditional sale executed by XEI and the other lot buyers, respondents were

obliged to pay the P278,448.00 with pre-computed interest of 12% per annum in 120-month installments. As gleaned

from the ruling of the appellate court, it failed to justify its use of the terms of payment under the three contracts of

conditional sale as basis for such ruling, to wit:

On the other hand, the records do not disclose the schedule of payment of the purchase price, net of the downpayment.

Considering, however, the Contracts of Conditional Sale (Exhs. N, O and P) entered into by XEI with other lot buyers, it

would appear that the subdivision lots sold by XEI, under contracts to sell, were payable in 120 equal monthly

installments (exclusive of the downpayment but including pre-computed interests) commencing on delivery of the lot to

the buyer.[73]

By its ruling, the CA unilaterally supplied an essential element to the letter agreement of XEI and the respondents.

Courts should not undertake to make a contract for the parties, nor can it enforce one, the terms of which are in

doubt.[74] Indeed, the Court emphasized in Chua v. Court of Appeals[75] that it is not the province of a court to alter a

contract by construction or to make a new contract for the parties; its duty is confined to the interpretation of the one

which they have made for themselves, without regard to its wisdom or folly, as the court cannot supply material

stipulations or read into contract words which it does not contain.

Respondents, as plaintiffs below, failed to allege in their complaint that the terms of payment of the P278,448.00 to be

incorporated in the corresponding contract of conditional sale were those contained in the contracts of conditional sale

executed by XEI and Soller, Aguila and Roque.[76] They likewise failed to prove such allegation in this Court.

The bare fact that other lot buyers were allowed to pay the balance of the purchase price of lots purchased by them in

120 or 180 monthly installments does not constitute evidence that XEI also agreed to give the respondents the same

mode and timeline of payment of the P278,448.00.

Under Section 34, Rule 130 of the Revised Rules of Court, evidence that one did a certain thing at one time is not

admissible to prove that he did the same or similar thing at another time, although such evidence may be received to

prove habit, usage, pattern of conduct or the intent of the parties.

Similar acts as evidence. Evidence that one did or did not do a certain thing at one time is not admissible to prove that

he did or did not do the same or a similar thing at another time; but it may be received to prove a specific intent or

knowledge, identity, plan, system, scheme, habit, custom or usage, and the like.

However, respondents failed to allege and prove, in the trial court, that, as a matter of business usage, habit or pattern

of conduct, XEI granted all lot buyers the right to pay the balance of the purchase price in installments of 120 months of

fixed amounts with pre-computed interests, and that XEI and the respondents had intended to adopt such terms of

payment relative to the sale of the two lots in question. Indeed, respondents adduced in evidence the three contracts of

conditional sale executed by XEI and other lot buyers merely to prove that XEI continued to sell lots in the subdivision as

sales agent of OBM after it acquired said lots, not to prove usage, habit or pattern of conduct on the part of XEI to

require all lot buyers in the subdivision to pay the balance of the purchase price of said lots in 120 months. It further

failed to prive that the trial court admitted the said deeds[77] as part of the testimony of respondent Manalo, Jr.[78]

Habit, custom, usage or pattern of conduct must be proved like any other facts. Courts must contend with the caveat

that, before they admit evidence of usage, of habit or pattern of conduct, the offering party must establish the degree of

specificity and frequency of uniform response that ensures more than a mere tendency to act in a given manner but

rather, conduct that is semi-automatic in nature. The offering party must allege and prove specific, repetitive conduct

that might constitute evidence of habit. The examples offered in evidence to prove habit, or pattern of evidence must be

numerous enough to base on inference of systematic conduct. Mere similarity of contracts does not present the kind of

sufficiently similar circumstances to outweigh the danger of prejudice and confusion.

In determining whether the examples are numerous enough, and sufficiently regular, the key criteria are adequacy of

sampling and uniformity of response. After all, habit means a course of behavior of a person regularly represented in like

circumstances.[79] It is only when examples offered to establish pattern of conduct or habit are numerous enough to

lose an inference of systematic conduct that examples are admissible. The key criteria are adequacy of sampling and

uniformity of response or ratio of reaction to situations.[80]

There are cases where the course of dealings to be followed is defined by the usage of a particular trade or market or

profession. As expostulated by Justice Benjamin Cardozo of the United States Supreme Court: Life casts the moulds of

conduct, which will someday become fixed as law. Law preserves the moulds which have taken form and shape from

life.[81] Usage furnishes a standard for the measurement of many of the rights and acts of men.[82] It is also well-

settled that parties who contract on a subject matter concerning which known usage prevail, incorporate such usage by

implication into their agreement, if nothing is said to be contrary.[83]

However, the respondents inexplicably failed to adduce sufficient competent evidence to prove usage, habit or pattern

of conduct of XEI to justify the use of the terms of payment in the contracts of the other lot buyers, and thus grant

respondents the right to pay the P278,448.00 in 120 months, presumably because of respondents belief that the

manner of payment of the said amount is not an essential element of a contract to sell. There is no evidence that XEI or

OBM and all the lot buyers in the subdivision, including lot buyers who pay part of the downpayment of the property

purchased by them in the form of service, had executed contracts of conditional sale containing uniform terms and

conditions. Moreover, under the terms of the contracts of conditional sale executed by XEI and three lot buyers in the

subdivision, XEI agreed to grant 120 months within which to pay the balance of the purchase price to two of them, but

granted one 180 months to do so.[84] There is no evidence on record that XEI granted the same right to buyers of two

or more lots.

Irrefragably, under Article 1469 of the New Civil Code, the price of the property sold may be considered certain if it be so

with reference to another thing certain. It is sufficient if it can be determined by the stipulations of the contract made by

the parties thereto[85] or by reference to an agreement incorporated in the contract of sale or contract to sell or if it is

capable of being ascertained with certainty in said contract;[86] or if the contract contains express or implied provisions

by which it may be rendered certain;[87] or if it provides some method or criterion by which it can be definitely

ascertained.[88] As this Court held in Villaraza v. Court of Appeals,[89] the price is considered certain if, by its terms, the

contract furnishes a basis or measure for ascertaining the amount agreed upon.

We have carefully reviewed the August 22, 1972 letter agreement of the parties and find no direct or implied reference

to the manner and schedule of payment of the balance of the purchase price of the lots covered by the deeds of

conditional sale executed by XEI and that of the other lot buyers[90] as basis for or mode of determination of the

schedule of the payment by the respondents of the P278,448.00.

The ruling of this Court in Mitsui Bussan Kaisha v. Manila Electric Railroad and Light Company[91] is not applicable in this

case because the basic price fixed in the contract was P9.45 per long ton, but it was stipulated that the price was subject

to modification in proportion to variations in calories and ash content, and not otherwise. In this case, the parties did

not fix in their letters-agreement, any method or mode of determining the terms of payment of the balance of the

purchase price of the property amounting to P278,448.00.

It bears stressing that the respondents failed and refused to pay the balance of the downpayment and of the purchase

price of the property amounting to P278,448.00 despite notice to them of the resumption by XEI of its selling

operations. The respondents enjoyed possession of the property without paying a centavo. On the other hand, XEI and

OBM failed and refused to transmit a contract of conditional sale to the respondents. The respondents could have at

least consigned the balance of the downpayment after notice of the resumption of the selling operations of XEI and filed

an action to compel XEI or OBM to transmit to them the said contract; however, they failed to do so.

As a consequence, respondents and XEI (or OBM for that matter) failed to forge a perfected contract to sell the two lots;

hence, respondents have no cause of action for specific performance against petitioner. Republic Act No. 6552 applies

only to a perfected contract to sell and not to a contract with no binding and enforceable effect.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No.

47458 is REVERSED and SET ASIDE. The Regional Trial Court of Quezon City, Branch 98 is ordered to dismiss the

complaint. Costs against the respondents.

SO ORDERED.

G.R. No. L-7721 March 25, 1914

INCHAUSTI & CO., plaintiff-appellant,

vs.

GREGORIO YULO, defendant-appellee.

Hausserman, Cohn and Fisher for appellant.

Rohde and Wright for appellee.

Bruce, Lawrence, Ross and Block, Amici Curiae, for Manuel, Francisco and Carmen Yulo.

ARELLANO, C.J.:

This suit is brought for the recovery of a certain sum of money, the balance of a current account opened by the firm of Inchausti & Company with Teodoro Yulo and after his death continued with his widow and children, whose principal representative is Gregorio Yulo. Teodoro Yulo, a property owner of Iloilo, for the exploitation and cultivation of his numerous haciendas in the province of Occidental Negros, had been borrowing money from the firm of Inchausti & Company under specific conditions. On April 9, 1903; Teodoro Yulo died testate and for the execution of the provisions of his will he had appointed as administrators his widow and five of his sons, Gregorio Yulo being one of the latter. He thus left a widow, Gregoria Regalado, who died on October 22d of the following year, 1904, there remaining of the marriage the following legitimate children: Pedro, Francisco, Teodoro, Manuel, Gregorio, Mariano, Carmen, Concepcion, and Jose Yulo y Regalado. Of these children Concepcion and Jose were minors, while Teodoro was mentally incompetent. At the death of their predecessor in interest, Teodoro Yulo, his widow and children held the conjugal property in common and at the death of this said widow, Gregoria Regalado, these children preserved the same relations under the name of Hijos de T. Yulo continuing their current account with Inchausti & Company in the best and most harmonious reciprocity until said balance amounted to two hundred thousand pesos. In for the payment of the disbursements of money which until that time it had been making in favor of its debtors, the Yulos.

First. Gregorio Yulo, for himself and in representation of his brothers Pedro Francisco, Manuel, Mariano, and Carmen, executed on June 26, 1908, a notarial document (Exhibit S) whereby all admitted their indebtedness to Inchausti & Company in the sum of P203,221.27 and, in order to secure the same with interest thereon at 10 per cent per annum, they especially mortgaged an undivided six-ninth of their thirty-eight rural properties, their remaining urban properties, lorchas, and family credits which were listed, obligating themselves to make a forma inventory and to describe in due form all the said properties, as well as to cure all the defects which might prevent the inscription of the said instrument in the registry of property and finally to extend by the necessary formalities the aforesaid mortgage over the remaining three-ninths part of all the property and rights

belonging to their other brothers, the incompetent Teodoro, and the minors Concepcion and Jose.

Second. On January 11, 1909, Gregorio Yulo in representation of Hijos de T. Yulo answered a letter of the firm of Inchausti & Company in these terms: "With your favor of the 2d inst. we have received an abstract of our current account with your important firm, closed on the 31st of last December, with which we desire to express our entire conformity as also with the balance in your favor of P271,863.12." On July 17, 1909, Inchausti & Company informed Hijos de T. Yulo of the reduction of the said balance to P253,445.42, with which balance Hijos de T. Yulo expressed its conformity by means of a letter of the 19th of the same month and year.

Regarding this conformity a new document evidencing the mortgage credit was formalized.

Third. On August 12, 1909, Gregorio Yulo, for himself and in representation of his brother Manuel Yulo, and in their own behalf Pedro Yulo, Francisco Yulo, Carmen Yulo, and Concepcion Yulo, the latter being of age at the time, executed the notarial instrument (Exhibit X). Through this, the said persons, including Concepcion Yulo ratified all the contents of the prior document of June 26, 1908, severally and jointly acknowledged and admitted their indebtedness to Inchausti & Company for the net amount of two hundred fifty-three thousand four hundred forty-five pesos and forty-two centavos (P253,445.42) which they obligated themselves to pay, with interest at ten per cent per annum, in five installments at the rate of fifty thousand pesos (P50,000), except the last, this being fifty-three thousand four hundred forty-five pesos and forty-two centavos (P53,445.42), beginning June 30, 1910, continuing successively on the 30th of each June until the last payment on June 30,

1914. Among other clauses, they expressly stipulated the following:

Fifth. The default in payment of any of the installments established in clause 3, or the noncompliance of any of the other obligations which by the present document and that of June 26, 1908, we, the Yulos, brothers and sisters, have assumed, will result in the maturity of all the said installments, and as a consequence thereof, if they so deem expedient Messrs. Inchausti & Company may exercise at once all the rights and actions which to them appertain in order to obtain the immediate and total payment of our debt, in the same manner that they

would have so done at the maturity of the said installments.

Fifteenth. All the obligations which by this, as well as by the document of June 26, 1908, concern us, will be understood as having been contradicted in solidum by all of us, the Yulos, brothers and sisters.

Sixteenth. It is also agreed that this instrument shall be confirmed and ratified in all its parts, within the present week, by our brother Don Mariano Yulo y Regalado who resides in Bacolod, otherwise it will not be binding on Messrs. Inchausti & Company who can make use of their rights to demand and obtain immediate payment of their credit without any further extension or delay, in accordance with what we have agreed.

Fourth. This instrument was neither ratified nor confirmed by Mariano Yulo.

Fifth. The Yulos, brothers and sisters, who executed the preceding instrument, did not pay the first

installment of the obligation.

Sixth. Therefore, on March 27, 1911, Inchausti & Company brought an ordinary action in the Court of First Instance of Iloilo, against Gregorio Yulo for the payment of the said balance due of two hundred fifty-three thousand, four hundred forty-five pesos and forty-two centavos P253,445.42) with interest at ten per cent per annum, on that date aggregating forty-two thousand, nine hundred forty-four pesos and seventy-six centavos

(P42,944.76)

Seventh. But, on May 12, 1911, Francisco, Manuel, and Carmen Yulo y Regalado executed in favor Inchausti & Company another notarial instrument in recognition of the debt and obligation of payment in the following terms: "First, the debt is reduce for them to two hundred twenty-five thousand pesos (P225,000); second, the interest is likewise reduced for them to 6 percent per annum, from March 15, 1911; third, the installments are increase to eight, the first of P20,000, beginning on June 30, 1911, and the rest of P30,000 each on the same date of each successive year until the total obligation shall be finally and satisfactorily paid on June 30, 1919," it being expressly agreed "that if any of the partial payments specified in the foregoing clause be not paid at its maturity, the amount of the said partial payment together with its interest shall bear interest at the rate of 15 per cent per annum from the date of said maturity, without the necessity of demand until its complete payment;" that "if during two consecutive years the partial payments agreed upon be not made, they shall lose the right to make use of the period granted to them for the payment of the debt or the part thereof which remains unpaid, and that Messrs. Inchausti & Company may consider the total obligation due and demandable, and proceed to collect the same together with the interest for the delay above stipulated through all legal means." (4th clause.)

Thus was it stipulated between Inchausti & Company and the said three Yulos, brothers and sisters — by way of compromise so that Inchausti & Company might, as it did, withdraw the claims pending in the special proceedings for the probate of the will of Don Teodoro Yulo and of the intestacy of Doña Gregoria Regalado — stipulating expressly however in the sixth clause that "Inchausti & Company should include in their suit brought in the Court of First Instance of Iloilo against Don Gregorio Yulo, his brother and joint co-obligee, Don Pedro Yulo, and they will procure by all legal means and in the least time possible a judgment in their favor against the said Don Gregorio and Don Pedro, sentencing the later to pay the total amount of the obligation acknowledged by them in the aforementioned instrument of August 12, 1909; with the understanding that if they should deem it convenient for their interests, Don Francisco, Don Manuel, and Doña Carmen Yulo may

appoint an attorney to cooperate with the lawyers of Inchausti & Company in the proceedings of the said case."

Eighth. Matters being thus on July 10, 1911, Gregorio Yulo answered the complaint and alleged as defenses; first, that an accumulation of interest had taken place and that compound interest was asked for the Philippine currency at par with Mexican; second, that in the instrument of August 21, 1909, two conditions were agreed one of which ought to be approved by the Court of First Instance, and the other ratified and confirmed by the other brother Mariano Yulo, neither of which was complied with; third , that with regard to the same debt claims were presented before the commissioners in the special proceedings over the inheritances of Teodoro Yulo and Gregoria Regalado, though later they were dismissed, pending the present suit; fourth and finally, that the instrument of August 12, 1909, was novated by that of May 12, 1911, executed by Manuel, Francisco and Carmen Yulo.

Ninth. The Court of First Instance of Iloilo decided the case "in favor of the defendant without prejudice to the plaintiff's bringing within the proper time another suit for his proportional part of the joint debt, and that the

plaintiff pay the costs." (B. of E., 21.)

The plaintiff appealed from this judgment by bill of exceptions and before this court made the following

assignment of errors:

I. That the court erred in considering the contract of May 12, 1911, as constituting a novation of that of August 12, 1909.

II. That the court erred in rendering judgment in favor of the defendant.

III. And that the court erred n denying the motion for a new trial.

"No one denies in this case," says the trial judge, "that the estate of Teodoro Yulo or his heirs owe Inchausti & Company an amount of money, the object of this action, namely, P253,445.42" (B. of E. 18). "The fact is admitted," says the defendant, "that the plaintiff has not collected the debt, and that the same is owing" (Brief, 33). "In the arguments of the attorneys," the judge goes on, "it was really admitted that the plaintiff had a right to bring an action against Gregorio Yulo, as one of the conjoint and solidary obligors in the contract of August 12, 1909; but the defendant says that the plaintiff has no right to sue him alone, since after the present suit was brought, the plaintiff entered into a compromise with the other conjoint and solidary debtors, the result being the new contract of May 12, 1911, by virtue of which the payments were extended, the same constituting a novation of the contract which gave him the same privileges that were given his conjoint and solidary

codebtors. This (the judge concludes) is the only question brought up by the parties." (B. of E., 19.)

And this is the only one which the Supreme Court has to solve by virtue of the assignments of errors alleged. Consequently, there is no need of saying anything regarding the first three defenses of the answer, nor regarding the lack of the signature of Mariano Yulo ratifying and confirming the instrument of August 12, 1909, upon which the appellee still insists in his brief for this appeal; although it will not be superfluous to state the doctrine that a condition, such as is contained in the sixteenth clause of the said contract (third point in the statement of facts), is by no means of suspensive but a resolutory condition; the effect of the failure of compliance with the said clause, that is to say, the lack of the ratification and confirmance by Mariano Yulo being not to suspend but to resolve the contract, leaving Inchausti & Company at liberty, as stipulated, "to

make use of its rights to demand and obtain the immediate payment of its credit."

The only question indicated in the decision of the inferior court involves, however, these others: First, whether the plaintiff can sue Gregorio Yulo alone, there being other obligors; second, if so, whether it lost this right by the fact of its having agreed with the other obligors in the reduction of the debt, the proroguing of the obligation and the extension of the time for payment, in accordance with the instrument of May 12, 1911; third, whether this contract with the said three obligors constitutes a novation of that of August 12, 1909, entered into with the six debtors who assumed the payment of two hundred fifty-three thousand and some odd pesos, the subject matter of the suit; and fourth, if not so, whether it does have any effect at all in the action brought, and in this

present suit.

With respect to the first it cannot be doubted that, the debtors having obligated themselves in solidum, the creditor can bring its action in toto against any one of them, inasmuch as this was surely its purpose in demanding that the obligation contracted in its favor should be solidary having in mind the principle of law that, "when the obligation is constituted as a conjoint and solidary obligation each one of the debtors is bound to perform in full the undertaking which is the subject matter of such obligation." (Civil Code, articles 1137 and

1144.)

And even though the creditor may have stipulated with some of the solidary debtors diverse installments and conditions, as in this case, Inchausti & Company did with its debtors Manuel, Francisco, and Carmen Yulo through the instrument of May 12, 1911, this does not lead to the conclusion that the solidarity stipulated in the instrument of August 12, 1909 is broken, as we already know the law provides that "solidarity may exist even though the debtors are not bound in the same manner and for the same periods and under the same

conditions." (Ibid, article 1140.) Whereby the second point is resolved.

With respect to the third, there can also be no doubt that the contract of May 12, 1911, does not constitute a novation of the former one of August 12, 1909, with respect to the other debtors who executed this contract, or more concretely, with respect to the defendant Gregorio Yulo: First, because "in order that an obligation may be extinguished by another which substitutes it, it is necessary that it should be so expressly declared or that the old and the new be incompatible in all points" (Civil Code, article 1204); and the instrument of May 12, 1911, far from expressly declaring that the obligation of the three who executed it substitutes the former signed by Gregorio Yulo and the other debtors, expressly and clearly stated that the said obligation of Gregorio Yulo to pay the two hundred and fifty-three thousand and odd pesos sued for exists, stipulating that the suit must continue its course and, if necessary, these three parties who executed the contract of May 12, 1911, would

cooperate in order that the action against Gregorio Yulo might prosper (7th point in the statement of facts), with other undertakings concerning the execution of the judgment which might be rendered against Gregorio Yulo in this same suit. "It is always necessary to state that it is the intention of the contracting parties to extinguish the former obligation by the new one" (Judgment in cassation, July 8, 1909). There exist no incompatibility between the old and the new obligation as will be demonstrated in the resolution of the last point, and for the present we will merely reiterate the legal doctrine that an obligation to pay a sum of money is not novated in a new instrument wherein the old is ratified, by changing only the term of payment and adding other obligations

not incompatible with the old one. (Judgments in cassation of June 28, 1904 and of July 8, 1909.)

With respect to the last point, the following must be borne in mind:

Facts. — First. Of the nine children of T. Yulo, six executed the mortgage of August 12, 1909, namely, Gregorio, Pedro, Francisco, Manuel, Carmen, and Concepcion, admitting a debt of P253,445.42 at 10 per cent per annum and mortgaging six-ninths of their hereditary properties. Second. Of those six children, Francisco, Manuel and Carmen executed the instrument of May 12, 1911, wherein was obtained a reduction of the capital to 225,000 pesos and of the interest to 6 per cent from the 15th of March of the same year of 1911. Third. The other children of T. Yulo named Mariano, Teodoro, and Jose have not taken part in these instruments and have not mortgaged their hereditary portions. Fourth. By the first instrument the maturity of the first installment was June 30, 1910, whereas by the second instrument, Francisco, Manuel, and Carmen had in their favor as the maturity of the first installment of their debt, June 30, 1912, and Fifth, on March 27, 1911, the action against Gregorio Yulo was already filed and judgment was pronounced on December 22, 1911, when the whole debt was not yet due nor even the first installment of the same respective the three aforesaid debtors,

Francisco, Manuel, and Carmen.

In jure it would follow that by sentencing Gregorio Yulo to pay 253,445 pesos and 42 centavos of August 12, 1909, this debtor, if he should pay all this sum, could not recover from his joint debtors Francisco, Manuel, and Carmen their proportional parts of the P253,445.42 which he had paid, inasmuch as the three were not obligated by virtue of the instrument of May 12, 1911, to pay only 225,000 pesos, thus constituting a violation of Gregorio Yulo's right under such hypothesis, of being reimbursed for the sum paid by him, with the interest of the amounts advanced at the rate of one-sixth part from each of his five codebtors. (Civ. Code, article 1145, par. 2). This result would have been a ponderous obstacle against the prospering of the suit as it had been brought. It would have been very just then to have absolved the solidary debtor who having to pay the debt in its entirety would not be able to demand contribution from his codebtors in order that they might reimburse him pro rata for the amount advanced for them by him. But such hypothesis must be put out of consideration by reason of the fact that occurred during the pendency of the action, which fact the judge states in his decision. "In this contract of May last," he says, "the amount of the debt was reduced to P225,000 and the attorney of the plaintiff admits in his plea that Gregorio Yulo has a right to the benefit of this reduction." (B. of E., 19.) This is a fact which this Supreme Court must hold as firmly established, considering that the plaintiff in its brief, on page 27, corroborates the same in these words: "What effect," it says, "could this contract have over the rights and obligations of the defendant Gregorio Yulo with respect to the plaintiff company? In the first place, we are the first to realize that it benefits him with respect to the reduction of the amount of the debt. The obligation being solidary, the remission of any part of the debt made by a creditor in favor of one or more of the solidary debtors necessarily benefits the others, and therefore there can be no doubt that, in accordance with the provision of article 1143 of the Civil Code, the defendant has the right to enjoy the benefits of the partial

remission of the debt granted by the creditor."

Wherefore we hold that although the contract of May 12, 1911, has not novated that of August 12, 1909, it has affected that contract and the outcome of the suit brought against Gregorio Yulo alone for the sum of P253,445.42; and in consequence thereof, the amount stated in the contract of August 12, 1909, cannot be recovered but only that stated in the contract of May 12, 1911, by virtue of the remission granted to the three of the solidary debtors in this instrument, in conformity with what is provided in article 1143 of the Civil Code, cited by the creditor itself.

If the efficacy of the later instrument over the former touching the amount of the debt had been recognized, should such efficacy not likewise be recognized concerning the maturity of the same? If Francisco, Manuel, and Carmen had been included in the suit, they could have alleged the defense of the nonmaturity of the installments since the first installment did not mature until June 30, 1912, and without the least doubt the defense would have prospered, and the three would have been absolved from the suit. Cannot this defense of the prematurity of the action, which is implied in the last special defense set up in the answer of the defendant

Gregorio Yulo be made available to him in this proceeding?

The following commentary on article 1140 of the Civil Code sufficiently answers this question: ". . . . Before the performance of the condition, or before the execution of a term which affects one debtor alone proceedings may be had against him or against any of the others for the remainder which may be already demandable but the conditional obligation or that which has not yet matured cannot be demanded from any one of them. Article

1148 confirms the rule which we now enunciate inasmuch as in case the total claim is made by one creditor, which we believe improper if directed against the debtor affected by the condition or the term, the latter can make use of such exceptions as are peculiarly personal to his own obligation; and if against the other debtors, they might make use of those exceptions, even though they are personal to the other, inasmuch as they alleged they are personal to the other, inasmuch as they alleged them in connection with that part of the

responsibility attaching in a special manner to the other." (8 Manresa, Sp. Civil Code, 196.)

Article 1148 of the Civil Code. — "The solidary debtor may utilize against the claims of the creditor of the defenses arising from the nature of the obligation and those which are personal to him. Those personally pertaining to the others may be employed by him only with regard to the share of the debt for which the latter

may be liable."

Gregorio Yulo cannot allege as a defense to the action that it is premature. When the suit was brought on March 27, 1911, the first installment of the obligation had already matured of June 30, 1910, and with the maturity of this installment, the first not having been paid, the whole debt had become mature, according to the express agreement of the parties, independently of the resolutory condition which gave the creditor the right to demand the immediate payment of the whole debt upon the expiration of the stipulated term of one week allowed to secure from Mariano Yulo the ratification and confirmation of the contract of August 12, 1909.

Neither could he invoke a like exception for the shares of his solidary codebtors Pedro and Concepcion Yulo,

they being in identical condition as he.

But as regards Francisco, Manuel, and Carmen Yulo, none of the installments payable under their obligation, contracted later, had as yet matured. The first payment, as already stated, was to mature on June 30, 1912. This exception or personal defense of Francisco, Manuel, and Carmen Yulo "as to the part of the debt for which they were responsible" can be sent up by Gregorio Yulo as a partial defense to the action. The part of the debt for which these three are responsible is three-sixths of P225,000 or P112,500, so that Gregorio Yulo may claim that, even acknowledging that the debt for which he is liable is P225,000, nevertheless not all of it can now be demanded of him, for that part of it which pertained to his codebtors is not yet due, a state of affairs which not only prevents any action against the persons who were granted the term which has not yet matured, but also against the other solidary debtors who being ordered to pay could not now sue for a contribution, and for this reason the action will be only as to the P112,500.

Against the propriety and legality of a judgment against Gregorio Yulo for this sum, to wit, the three-sixths part of the debt which forms the subject matter of the suit, we do not think that there was any reason or argument offered which sustains an opinion that for the present it is not proper to order him to pay all or part of the debt, the object of the action.

It has been said in the brief of the appellee that the prematurity of the action is one of the defenses derived from the nature of the obligation, according to the opinion of the commentator of the Civil Code, Mucius Scaevola, and consequently the defendant Gregorio Yulo may make use of it in accordance with article 1148 of the said Code. It may be so and yet, taken in that light, the effect would not be different from that already stated in this decision; Gregorio Yulo could not be freed from making any payment whatever but only from the payment of that part of the debt which corresponds to his codebtors Francisco, Manuel, and Carmen. The same author, considering the case of the opposing contention of two solidary debtors as to one of whom the obligation is pure and unconditional and as to the other it is conditional and is not yet demandable, and comparing the disadvantages which must flow from holding that the obligation is demandable with these which

must follow if the contrary view is adopted, favors this solution of the problem:

There is a middle ground, (he says), from which we can safely set out, to wit, that the creditor may of course, demand the payment of his credit against the debtor not favored by any condition or extension of time." And further on, he decides the question as to whether the whole debt may be recovered or only that part unconditionally owing or which has already matured, saying, "Without failing to proceed with juridical rigor, but without falling into extravagances or monstrosities, we believe that the solution of the difficulty is perfectly possible. How? By limiting the right of the creditor to the recovery of the amount owed by the debtors bound unconditionally or as to whom the obligation has matured, and leaving in suspense the right to demand the payment of the remainder until the expiration of the term of the fulfillment of the condition. But what then is the effect of solidarity? How can this restriction of right be reconciled with the duty imposed upon each one of the debtors to answer for the whole obligation? Simply this, by recognizing in the creditor the power, upon the performance of the condition or the expiration of the term of claiming from any one or all of the debtors that

part of the obligation affected by those conditions. (Scaevola, Civil Code, 19, 800 and 801.)

It has been said also by the trial judge in his decision that if a judgment be entered against Gregorio Yulo for the whole debt of P253,445.42, he cannot recover from Francisco, Manuel, and Carmen Yulo that part of the amount which is owed by them because they are obliged to pay only 225,000 pesos and this is eight installments none of which was due. For this reason he was of the opinion that he (Gregorio Yulo) cannot be obliged to pay his part of the debt before the contract of May 12, 1911, may be enforced, and "consequently he

decided the case in favor of the defendant, without prejudice to the plaintiff proceeding in due time against him

for his proportional part of the joint debt." (B. of E., 21 and 22.)

But in the first place, taking into consideration the conformity of the plaintiff and the provision of article 1143 of the Civil Code, it is no longer possible to sentence the defendant to pay the P253,445.42 of the instrument of

August 12, 1909, but, if anything, the 225,000 of the instrument of May 12, 1911.

In the second place, neither is it possible to curtail the defendant's right of recovery from the signers of the instrument of May 12, 1911, for he was justly exonerated from the payment of that part of the debt corresponding to them by reason of there having been upheld in his favor the exception of an unmatured installment which pertains to them.

In the third place, it does not seem just, Mucius Scaevola considers it "absurd," that, there being a debtor who is unconditionally obligated as to when the debt has matured, the creditor should be forced to await the realization of the condition (or the expiration of the term.) Not only is there no reason for this, as stated by the author, but the court would even fail to consider the special law of the contract, neither repealed nor novated, which cannot be omitted without violating article 1091 of the Civil Code according to which "the obligations arising from contracts have the force of law between the contracting parties and must be complied with in accordance with the tenor of the same." Certain it is that the trial court, in holding that this action was premature but might be brought in the time, regarded the contract of August 12, 1909, as having been expressly novated; but it is absolutely impossible in law to sustain such supposed novation, in accordance with the legal principles already stated, and nevertheless the obligation of the contract of May 12, 1911, must likewise be complied with in accordance with its tenor, which is contrary in all respects to the supposed novation, by obliging the parties who signed the contract to carry on the suit brought against Gregorio Yulo. The contract of May 12, 1911, has affected the action and the suit, to the extent that Gregorio Yulo has been able to make in his favor the defense of remission of part of the debt, thanks to the provision of article 1148, because it is a defense derived from the nature of the obligation, so that although the said defendant was not

party to the contract in question, yet because of the principle of solidarity he was benefited by it.

The defendant Gregorio Yulo cannot be ordered to pay the P253,445.42 claimed from him in the suit here, because he has been benefited by the remission made by the plaintiff to three of his codebtors, many times named above.

Consequently, the debt is reduced to 225,000 pesos.

But, as it cannot be enforced against the defendant except as to the three-sixths part which is what he can recover from his joint codebtors Francisco, Manuel, and Carmen, at present, judgment can be rendered only

as to the P112,500.

We therefore sentence the defendant Gregorio Yulo to pay the plaintiff Inchausti & Company P112,500, with the interest stipulated in the instrument of May 12, 1911, from March 15, 1911, and the legal interest on this interest due, from the time that it was claimed judicially in accordance with article 1109 of the Civil Code,

without any special finding as to costs. The judgment appealed from is reversed. So ordered.

G.R. No. L-47207 September 25, 1980

JOSE F. ESCANO, JESUS F. ESCANO, VICENTA F. ESCANO, PILAR ESCANO-BERNAD, SAMUEL F. ESCANO, ANA MA. N. ILANO, MARIA LOURDES E. NOEL, PILAR VICTORIA E. NOEL and GABRIEL NOEL, for himself and the minor heirs of his deceased wife LOURDES ESCANO, petitioners-appellants,

vs.

COURT OF APPEALS and REPUBLIC OF THE PHILIPPINES, respondents-appellees.

AQUINO, J.:

The petitioners complain about the judgment of the Court of Appeals, engrafting conditions on their repurchase of ten lots, which were expropriated to form part of the Lahug Airport in Cebu City, as well as the failure of the Appellate Court to grant them compensation for the use of the lots by the Civil Aeronautics Administration (CAA) from the time that they tendered the redemption price (Escano vs. Republic of the Philippines, CA-G.R. No. 57188-R, March 17, 1977).

In 1964, those ten lots with a total area of 10,639 square meters were sold for P31,977 by Mamerto Escano, Inc. to the Republic for use by the CAA.

The sale was subject to the resolutory condition that when the CAA would no longer use the lots as part of the airport, then the title thereto would revert to the seller upon reimbursement of the price of P31,977 without interest. That condition was annotated on the title issued to the Republic of the Philippines.

In 1966, by means of two deeds of assignment and other documents, the petitioners became the successors of Mamerto Escano, Inc. to the reversionary right or the right to repurchase the lots from the Republic of the Philippines.

In the meantime, or on April 27, 1966, the Mactan Airport commenced its operation and the Philippine Airlines stopped using the Lahug Airport. Filipinas Airways and Air Manila ceased to use the Lahug Airport at the end of 1966 and thereafter used the Mactan Airport. (pp. 28-29, Record on Appeal p. 38, Rollo).

On the premise that the above-mentioned resolutory condition had already been fulfilled, meaning that the ten lots were no longer being used as part of the Lahug Airport because of the operation of the Mactan Airport, the petitioners, through counsel, made on October 2, 1972 a written tender to the CAA of the repurchase price of P31,977 (Exh. G).

The Director of Civil Aviation rejected the tender in his reply of October 4, 1972. He reasoned out that because the Lahug Airport was still being utilized for general aviation, the ten lots could not yet be released and returned to the reversionary owners (Exh. H).

On November 29, 1972, the petitioners sued the Republic of the Philippines (CAA) in the Court of First Instance of Cebu for the reconveyance of the ten lots (Civil Case No. L-13078).

After hearing, the trial court rendered a decision on October 30, 1974, ordering the CAA to reconvey to the petitioners the ten lots after payment of the repurchase price of P31,977.

The trial court found that the lots were no longer needed for the airport and that since 1964 they were never used for any Airport facility.

The petitioners (plaintiffs) appealed because the lower court did not award to them the reasonable compensation for the use and occupation of the lots from the time that they tendered the redemption price.

The Government appealed because it believed that the resolutory condition for the repurchase had not yet materialized.

The Court of Appeals affirmed the trial court's judgment allowing the repurchase but it went farther. The Appellate Court ruled that the repurchase should be subject to the same five conditions which were imposed in 1961 on the resale made by the CAA to General Isagani Campo of his two lots which are in proximity to petitioners' ten lots. Those conditions were as follows (Exh. J-3):

(a) That all taxes imposed on the property from the time the property is repossessed by the said spouses shall be paid by them.

(b) That the repurchasers shall allow the CAA to continue the property repurchased for airfield purposes, until such time as the airport operations are finally transferred to Mactan Airport.

(c) That the CAA shall not pay any rents or other charges for its continued use of the property.

(d) That the repurchase price of the property in question shall be based on the price paid by the CAA for the acquisition.

(e) That the property shall not be resold by the repurchasers until , the Lahug landing field is finally transferred to Mactan Airport.

The petitioners appealed to this Court. The Government did not appeal.

We hold that the Court of Appeals erred in imposing the said conditions on the reconveyance of the ten lots to the petitioners, a matter which was not raised in the pleadings.

The propriety of imposing those conditions was not in issue in the trial court and in the Court of Appeals. It was an immaterial point in the case. It was not included in any assignment of errors in the Government's brief.

When the petitioners filed in the Court of Appeals their motion for reconsideration, the Solicitor General did not oppose their prayer that the imposition of the conditions be deleted from the decision. The Solicitor General confined his opposition to petitioners prayer that the CAA be adjudged liable to pay compensation for the use of the lots.

The Court of Appeals ignored the rule that the questions to be raised on appeal are those raised in the court below and within the issues framed by the parties (Sec. 18, Rule 46, Rules of Court).

It also disregarded the rule that "no error which does not affect the jurisdiction over the subject matter will be considered unless stated in the assignment of errors and properly argued in the brief, save as the court, at its option, may notice plain errors not specified, and also clerical errors" (Sec. 7, Rule 51, Rules of Court).

It departed from the accepted and usual course of an appeal by adjudicating a point which was not raised by the parties.

The 1964 contract of sale between the petitioners' predecessors-in-interest and the Government is the law between them. Had they intended that the conditions imposed in the resale of General Campo's lots in 1961 should likewise be imposed in the resale to the reversionary owners of the ten lots, they could have easily made a stipulation to that effect in the 1964 deed of sale.

The fact that the contract of sale does not mention those conditions means that they were never within the contemplation of the parties. The Court of Appeals, in gratuitously imposing those conditions, made a new contract for them.

In fact, the second condition "that the repurchases allow the CAA to continue using the property repurchased for airfield purposes, until such time as the airport operation is finally transferred to Mactan Airport" nullifies the reversion or resolutory condition and negatives the trial court's findings that the Lahug Aiport had ceased to be operational and that it had been replaced by the Mactan Airport.

The other point is that the Court of Appeals denied petitioners' claim for reasonable compensation for the CAA's alleged use and occupancy of the lots from October 2, 1972 when the tender of the redemption price was made.

The trial court disallowed that claim because (1) the compensation was not stipulated by the parties in the contract of sale; (2) the claim is inconsistent with petitioners' theory that the CAA never used their lots for aviation purposes; (3) the Government, as owner, should not be required to pay rentals for the lots registered in its name, and (4) the petitioners' predecessors-in-interest were able to use the price of P31,977.

To those grounds, the Solicitor General adds that the CAA, as owner, should not answer for the compensation for the use of the lots before the issuance of a judicial declaration that the resolutory condition had been fulfilled.

We hold that, while petitioners' claim for compensation may be justified on the ground that the CAA should have reconveyed the ten lots upon the tender of the redemption price, nevertheless, it would seem to be inequitable to require the CAA to pay compensation when it had not derived any benefit from the lots.

And, on the other hand, it is undeniable that during all the time that the reconveyance has not been effected the petitioners have been able to use the redemption price of P31,977 for their own purposes.

If any damage had been suffered by the petitioners due to the delay in the reconveyance, that damage might be equivalent to damnum absque injuria which is damage without injury or damage or injury inflicted without injustice, or loss or damage without violation of a legal right, or a wrong done to a man for which the law provides no remedy (1 Bouvier's Law Dictionary, 3rd Ed., p. 754).

The petitioners have been dealing with a governmental entity whose activities are presumably dictated by policy considerations and the public interest.

WHEREFORE, the decision of the Court of Appeals is modified by deleting therefrom the five conditions for the reconveyance of the ten lots to the petitioners. The trial court's judgment is affirmed. No costs.

SO ORDERED.