IV. PERFECTION OF CONTRACT OF SALE

HEIRS OF JESUS M. MASCUÑANA, represented by JOSE MA. R. MASCUÑANA, petitioners, vs. COURT OF APPEALS, AQUILINO BARTE, and SPOUSES RODOLFO and CORAZON LAYUMAS, respondents.

D E C I S I O N CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 53117 affirming the Decision[2] of the Regional Trial Court (RTC) of San Carlos City, Negros Occidental, which ordered the dismissal of the petitioners’ complaint for recovery of possession and damages. The Antecedents

Gertrudis Wuthrich and her six other siblings were the co-owners of a parcel of land identified as Lot No. 124 of the San Carlos City, Negros Occidental Cadastre, with an area of 1,729 square meters and covered by Transfer Certificate of Title (TCT) No. 1453-R (T-29937)-38.[3] Over time, Gertrudis and two other co-owners sold each of their one-seventh (1/7) shares, or a total area of 741 square meters, to Jesus Mascuñana. The latter then sold a portion of his 140-square-meter undivided share of the property to Diosdado Sumilhig. Mascuñana later sold an additional 160-square-meter portion to Sumilhig on April 7, 1961. However, the parties agreed to revoke the said deed of sale and, in lieu thereof, executed a Deed of Absolute Sale on August 12, 1961. In the said deed, Mascuñana, as vendor, sold an undivided 469-square-meter portion of the property forP4,690.00, with P3,690.00 as down payment, and under the following terms of payment: That the balance of ONE THOUSAND PESOS (P1,000.00) shall be paid by the VENDEE unto the VENDOR as soon as the above-portions of Lot 124 shall have been surveyed in the name of the VENDEE and all papers pertinent and necessary to the issuance of a separate Certificate of Title in the name of the VENDEE shall have been prepared.[4]

On December 31, 1961, Mascuñana and Jose G. Estabillo executed a Deed of Exchange and Absolute Sale of Real Estate,[5] in which Estabillo deeded to Mascuñana a portion of his property abutting that of Sumilhig on the southeast.

In the meantime, a survey was conducted for the co-owners of Lot No. 124 on July 9, 1962. The subdivision plan of the said lot was approved by the Director of Lands on August 2, 1962. The portion of the property deeded to Sumilhig was identified in the said plan as Lot No. 124-B.[6]

Meanwhile, Mascuñana died intestate on April 20, 1965 and was survived by his heirs, Eva M. Ellisin, Renee Hewlett, Carmen Vda. de Opeña, Marilou Dy and Jose Ma. R. Mascuñana.

On April 24, 1968, Sumilhig executed a Deed of Sale of Real Property[7] on a portion of Lot No. 124-B with an area of 469 square meters and the improvements thereon, in favor of Corazon Layumas, the wife of Judge Rodolfo Layumas, for the price of P11,000.00. The spouses Layumas then had the property subdivided into two lots: Lot No. 124-B-2 with an area of 71 square meters under the name of Jesus Mascuñana, and Lot No. 124-B-1, with an area of 469 square meters under their names.[8] The spouses Layumas took possession of the property and caused the cutting of tall grasses thereon. Upon the plea of a religious organization, they allowed a chapel to be constructed on a portion of the property.[9] In January 1985, the spouses Layumas allowed Aquilino Barte to stay on a portion of the property to ward off squatters.[10] Barte and his kin, Rostom Barte, then had their houses constructed on the property.

On October 1, 1985, the spouses Layumas received a Letter[11] from the counsel of Renee Tedrew, offering to buy their share of the property for US$1,000.00. For her part, Corazon Layumas wrote Pepito Mascuñana, offering to pay the amount of P1,000.00, the balance of the purchase price of the property under the deed of absolute sale executed by Mascuñana and Sumilhig on August 12, 1961.[12] However, the addressee refused to receive the mail matter.[13]

Unknown to the spouses Layumas, TCT No. 8986[14] was issued over Lot No. 124-B in the name of Jesus Mascuñana on March 17, 1986.

On November 17, 1986, the heirs of Mascuñana filed a Complaint[15] for recovery of possession of Lot No. 124-B and damages with a writ of preliminary injunction, alleging that they owned the subject lot by virtue of successional rights from their deceased father. They averred that Barte surreptitiously entered the premises, fenced the area and constructed a house thereon without their consent. Attached as annexes to the complaint were TCT No.

8986 and a certification[16] from the Office of the City Treasurer, Land Tax Division, vouching that the property in question was owned by the petitioners and that they had paid the taxes thereon until 1992.

In his answer to the complaint, Barte admitted having occupied a portion of Lot No. 124-B, but claimed that he secured the permission of Rodolfo Layumas, the owner of the subject property. He added that he did not fence the property, and that the petitioners did not use the same as a passageway in going to Broce Street from their house. Barte raised the following special defenses: (a) the petitioners were estopped from asserting ownership over the lot in question because they did not object when he occupied the said portion of the lot; (b) neither did the petitioners protest when a church was built on the property, or when residential houses were constructed thereon; (c) the petitioners still asked Barte and the other occupants whether they had notified Rodolfo Layumas of the constructions on the property; and (d) the heirs of Mascuñana, through the lawyer of Mrs. Renee M. Tedrew, even wrote a letter[17] to Rodolfo Layumas on October 1, 1985, expressing her willingness to buy the subject property for US$1,000.00.

On April 8, 1991, the spouses Layumas filed a Motion for Leave to Intervene,[18] alleging therein that they had a legal interest in Lot No. 124-B-1 as its buyers from Sumilhig, who in turn purchased the same from Mascuñana. In their answer in intervention,[19] the spouses Layumas alleged that they were the true owners of the subject property and that they had wanted to pay the taxes thereon, but the Land Tax clerk refused to receive their payments on account that the petitioners had already made such payment. The spouses Layumas further maintained that the petitioners had no cause of action against Barte, as they had authorized him to occupy a portion of Lot No. 124-B-1. The spouses Layumas also averred that the petitioners were estopped from denying their right of ownership and possession of the subject lot, as one of them had even offered to repurchase a portion of Lot No. 124-B via letter. The said spouses interposed a counterclaim for damages, claiming ownership over the property, and prayed, thus: WHEREFORE, it is most respectfully prayed that this HONORABLE COURT render judgment in favor of the Intervenors and the defendant Aquilino Barte, ordering:

1. That the complaint against Aquilino Barte be dismissed with costs against the plaintiff;

2. That the Intervenors spouses Judge Rodolfo S. Layumas and Corazon A. Layumas be declared as the legal and true owners of Lot 124-B;

3. That the plaintiffs should deliver immediately to the Intervenors, TCT No. 8986 which is in their possession;

4. That the plaintiffs be made to pay to the Intervenors the sum of THIRTY THOUSAND (P30,000.00) PESOS moral damages; TEN THOUSAND (P10,000.00) PESOS attorney’s fees plus THREE HUNDRED (P300.00) PESOS as appearance fee per hearing.

Intervenors pray for such other relief and remedies as may be deemed by this Honorable Court as just and equitable in the premises.

At the trial, intervenor Rodolfo Layumas testified that he and his wife bought the subject property in 1968, and that nobody objected to their possession of the land, including the petitioners. In 1970, a religious organization asked his permission to construct a chapel on the disputed lot; he allowed the construction since the same would be used for thefiesta. He further declared that part of the chapel still stood on the property. In 1985, a fire razed the town’s public market, thereby dislocating numerous people. Barte was one of the fire victims, who also happened to be a good friend and political supporter of Rodolfo. Out of goodwill, Barte was allowed to occupy a portion of the said lot, along with some other fire victims. Rodolfo clarified that the others were to stay there only on a temporary basis, but admitted that Barte’s children also stayed in the subject property.[20]

Rodolfo Layumas further narrated that in 1987, Corazon wrote one of the petitioners-heirs, Pepito Mascuñana, requesting that the title of the lot be transferred in Sumilhig’s name so that they could likewise arrange for the conveyance of the title in their names. Pepito failed to claim the letter, and thereafter, filed a case of ejectment against Barte and Rodolfo Layumas’ brother-in-law, Pepito Antonio. The case, the witness added, was dismissed as against the two parties. Offered in evidence were the following: a Sworn Statement on the Current and Fair Market Value of the Real Property issued in 1973 as required by Presidential Decree No. 76, and tax receipts.[21]

Rodolfo Layumas admitted on cross-examination that at the time they bought the property from Sumilhig, the title was still in the possession of the Wuthrich family. He added

that he filed an adverse claim before the Register of Deeds of San Carlos City, Negros Occidental, on Lot No. 124-B in January 1986, or after the case had already been filed in court. Lastly, the witness deposed that he did not fence the property after buying the same, but that his brother-in-law constructed a coco-lumber yard thereon upon his authority.[22]

On January 30, 1996, the trial court rendered judgment in favor of Barte and the spouses Layumas. The fallo of the decision reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of Intervenors-counterclaimants and defendant and against plaintiffs-counterclaim defendants ordering as follows:

1. The dismissal of the plaintiff’s complaint with costs against them; 2. The plaintiffs to jointly pay Intervenors-counterclaimants now RTC Judge

Rodolfo S. Layumas and Corazon A. Layumas: (a) P10,000.00 for attorney’s fees; and (b) P30,000.00 as moral damages;

3. The plaintiffs, as counterclaim defendants, to comply with the above-stated obligation of their late father, Mr. Jesus Mascuñana, under the Deed of Absolute Sale, Exh. “3”, pp. 92-93, Exp., thru plaintiff Mr. Jose Mascuñana, including the desegragation (sic) survey to desegregate the 469-square-meter portion of said Lot No. 124-B, San Carlos Cadastre, this province, sold to the late Diosdado Sumilhig, if the same has not yet been done despite what has been said herein earlier to said effect, and the execution of the Final Deed of Sale in their capacity as the heirs and successors-in-interest of the late Mr. Jesus Mascuñana, thru Mr. Jose Mascuñana, covering the 469-square-meter desegregated portion of said Lot No. 124-B, within sixty (60) days counted from the finality of this Decision, in favor of the Intervenors-spouses, after which the said Intervenors-spouses shall pay them, thru Mr. Jose Mascuñana, the P1,000.00 balance due to them as successors-in-interest of the late Mr. Jesus Mascuñana;

4. In case plaintiffs fail to comply with what are herein ordered for them to do, the Clerk of Court V of this Court to do all that they were to do as herein ordered in the text and dispositive portion hereof, at the expense of Intervenors spouses to be later reimbursed by plaintiffs, including the desegragation (sic) survey of said 469-square-meter portion of said Lot [No.] 124-B, San Carlos Cadastre, Negros Occidental, if the same has not yet been done and the execution of the Final Deed of Sale on behalf of all the plaintiffs as heirs and successors-in-interest of the late Mr. Jesus Mascuñana covering the said desegregated portion of 469 square meters of the aforesaid lot, in favor of Intervenors spouses, to the end that separate title therefor may be issued in their names, after they shall have paid the P1,000.00 balance due plaintiffs under said Deed of Absolute Sale, Exh. “3.”

SO ORDERED.[23] Forthwith, the petitioners appealed the case to the CA, raising the following issues of fact

and law: a. Whether or not the contract of alienation of Lot No. 124-B in favor of Diosdado

Sumilhig in 1961 was a contract to sell or a contract of sale; b. Whether or not Diosdado Sumilhig had any right to sell Lot No. 124-B in favor of

intervenor Corazon Layumas in 1968.[24] On May 5, 2003, the CA affirmed the decision of the trial court. It ruled that the contract

between the petitioners’ father and Sumilhig was one of sale. Foremost, the CA explained, the contract was denominated as a “Deed of Absolute Sale.” The stipulations in the contract likewise revealed the clear intention on the part of the vendor (Mascuñana) to alienate the property in favor of the vendee (Sumilhig). In three various documents, the late Mascuñana even made declarations that Sumilhig was already the owner of the disputed land. The CA added that the admission may be given in evidence against Mascuñana and his predecessors-in-interest under Section 26, Rule 130 of the Revised Rules on Evidence. As to the argument that the contract between Mascuñana and Sumilhig was not effective because it was subject to a suspensive condition that did not occur, the CA ruled that the condition referred to by the petitioners refers only to the payment of the balance of the purchase price and not to the effectivity of the contract.

As to the petitioners’ contention that even if the contract were one of sale, ownership cannot be transferred to Sumilhig because Mascuñana was not yet the owner of the lot at the

time of the alleged sale, the appellate court ruled that the registration of the land to be sold is not a prerequisite to a contract of sale. The Present Petition

Aggrieved, the petitioners filed the instant petition for review on certiorari with this Court, where the following lone legal issue was raised: WAS THE SALE OF LOT NO. 124-B MADE BY JESUS M. MASCUÑANA IN FAVOR OF DIOSDADO SUMILHIG A CONTRACT TO SELL OR CONTRACT OF SALE?[25]

We note that the original action of the petitioners against Aquilino Barte was one for recovery of possession of Lot No. 124-B. With the intervention of the respondents Rodolfo and Corazon Layumas who claimed ownership over the property, and the acquiescence of the parties, evidence was adduced to prove who, between the petitioners (as plaintiffs) and the respondents (as defendants-intervenors) were the lawful owners of the subject property and entitled to its possession.

The petitioners resolutely contend that the Deed of Absolute Sale dated August 12, 1961 between their father and Sumilhig was a mere contract to sell because at the time of the said sale, the late Mascuñana was not yet the registered owner of Lot No. 124 or any of its portions. They assert that Sumilhig could not have acquired any rights over the lot due to the fact that a person can only sell what he owns or is authorized to sell, and the buyer can acquire no more than what the seller can transfer legally. Finally, the petitioners insist that the document in controversy was subject to a suspensive condition, not a resolutory condition, which is a typical attribute of a contract of sale.

The petition is denied for lack of merit. The issues raised by the petitioners in this case are factual, and under Rule 45 of the

Rules of Court, only questions of law may be raised in this Court, the reason being that this Court is not a trier of facts. It is not to re-examine the evidence on record and to calibrate the same. Moreover, the findings and conclusions of the trial court as affirmed by the CA are conclusive on the Court, absent of any evidence that the trial court, as well as the CA ignored, misinterpreted and misconstrued facts and circumstances of substance which, if considered, would alter or reverse the outcome of the case.[26]

We have reviewed the records and find no justification for a reversal or even a modification of the assailed decision of the CA.

Even on the merits of the petition, the Court finds that the decision of the trial court as well as the ruling of the CA are based on the evidence on record and the applicable law.

The petitioners reiterated their pose that the deed of absolute sale over the property executed by their father, Jesus Mascuñana, as vendor, and Diosdado Sumilhig as vendee, was a contract to sell and not a contract of sale. They assert that on its face, the contract appears to be a contract to sell, because the payment of the P1,000.00 balance of the purchase price was subject to a suspensive condition: the survey of the property, the segregation of the portion thereof subject of the sale, and the completion of the documents necessary for the issuance of a Torrens title over the property to and in the name of Sumilhig who was the vendee. The petitioners assert that Sumilhig never paid the aforesaid amount to the vendor; hence, the obligation of the latter and his predecessors-in-interest (herein petitioners) to execute a final deed of sale never arose. As such, they aver, title to the property remained reserved in the vendor and his heirs even after his death. There was no need for the vendor to rescind the deed or collect the said amount ofP1,000.00 under Article 1191 of the New Civil Code because such a remedy applies only to contracts of sale. The petitioners insist that Sumilhig never acquired title over the property; he could not have transferred any title to the respondents. Sumilhig could not have transferred that which he did not own.

The petitioners’ contention has no factual and legal bases. The deed of absolute sale executed by Jesus Mascuñana and Sumilhig, provides, thus:

That the VENDOR is the true and absolute owner of a parcel of land known as Lot No. 124 of the Cadastral Survey of San Carlos, situated at Broce Street and is free from liens and encumbrances, and covered by O.C.T. No. T-299[3]7 (R-1453) of Reg. of Deeds, Negros Occ. That for and in consideration of the sum of FOUR THOUSAND SIX HUNDRED NINETY PESOS (P4,690.00), Philippine Currency, to be paid by the VENDEE in the manner hereinafter stated, the VENDOR does hereby sell, transfer, cede and convey, a portion of the above-described property containing an area of 469 square meters, the sketch of which can be found at the back of this document and having a frontage at Broce Street of around 14 meters, and from the Broce Street to the interior on its Southwest side with a length of 30.9 meters, with a length of 24.8 meters on its Northeast side where it turned to the right with a length of 2.8 meters and continuing to Northwest with a length of 6.72 meters, the backyard dimension

is 17.5 meters to the Northwest, unto the VENDEE, his heirs and assigns, by way of Absolute Sale, upon the receipt of the down payment of THREE THOUSAND SIX HUNDRED NINETY PESOS (P3,690.00), which is hereby acknowledged by the VENDOR as received by him. That the balance of ONE THOUSAND PESOS (P1,000.00) shall be paid by the VENDEE unto the VENDOR as soon as the above-portions of Lot 124 shall have been surveyed in the name of the VENDEE and all papers pertinent and necessary to the issuance of a separate Certificate of Title in the name of the VENDEE shall have been prepared.

The evidence on record shows that during the lifetime of vendor Jesus Mascuñana, and even after his death, his heirs, the petitioners herein, unequivocably declared that Diosdado Sumilhig was the owner of the property subject of this case, and that the respondents acquired title over the property, having purchased the same via a deed of absolute sale from Diosdado Sumilhig. Thus, on December 31, 1961, Jesus Mascuñana and Jose Estabillo executed a Deed of Exchange and Absolute Sale of Real Estate, in which both parties declared that they were co-owners of portions of Lot No. 124 abutted by the property owned by Diosdado Sumilhig.[27]

In the subdivision plan of Lot No. 124, signed by Ricardo Quilop, Private Land Surveyor, following his survey of Lot No. 124 on July 9, 1962 for and in behalf of Jesus Mascuñana, et al., it appears that Lot No. 124-B with an area of 540 square meters belonged to Diosdado Sumilhig,[28] which is abutted by Lot No. 124-C, owned by Jesus Mascuñana.

On October 1, 1985, long after the death of Jesus Mascuñana, one of his heirs, petitioner Renee Tedrew, through counsel, wrote respondent Rodolfo Layumas offering to buy the property occupied by his overseer Aquilino Barte for US$1,000.00: ATTY. RODOLFO S. LAYUMAS San Carlos City Negros Occidental

Dear Atty. Layumas: This has reference to the lot located at Broce Street, portions of which are presently occupied by Mr. Barte. Mrs. Renee Tedrew (nee Agapuyan), who is now in the United States, would like to offer the amount of $1,000.00 to buy your share of the said lot. If you are amenable, kindly inform the undersigned for him to communicate [with] Mrs. Tedrew in California.

Very truly yours, (Sgd.)

SAMUEL SM LEZAMA[29] It was only after the respondents rejected the proposal of petitioner Renee Tedrew that

the petitioners secured title over the property on March 17, 1986 in the name of Jesus Mascuñana (already deceased at the time), canceling TCT No. 967 issued on July 6, 1962 under the name of Jesus Mascuñana, who appears to be a co-owner of Lot No. 124 with an undivided two-seventh (2/7) portion thereof.[30]

While it is true that Jesus Mascuñana executed the deed of absolute sale over the property on August 12, 1961 in favor of Diosdado Sumilhig for P4,690.00, and that it was only on July 6, 1962 that TCT No. 967 was issued in his name as one of the co-owners of Lot No. 124, Diosdado Sumilhig and the respondents nevertheless acquired ownership over the property. The deed of sale executed by Jesus Mascuñana in favor of Diosdado Sumilhig on August 12, 1961 was a perfected contract of sale over the property. It is settled that a perfected contract of sale cannot be challenged on the ground of the non-transfer of ownership of the property sold at that time of the perfection of the contract, since it is consummated upon delivery of the property to the vendee. It is through tradition or delivery that the buyer acquires ownership of the property sold. As provided in Article 1458 of the New Civil Code, when the sale is made through a public instrument, the execution thereof is equivalent to the delivery of the thing which is the object of the contract, unless the contrary appears or can be inferred. The record of the sale with the Register of Deeds and the issuance of the certificate of title in the name of the buyer over the property merely bind third parties to the sale. As between the seller and the buyer, the transfer of ownership takes effect upon the execution of a public instrument covering the real property.[31] Long before the petitioners secured a Torrens title over the property, the respondents had been in actual possession of the property and had designated Barte as their overseer.

Article 1458 of the New Civil Code provides:

By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional.

Thus, there are three essential elements of sale, to wit: a) Consent or meeting of the minds, that is, consent to transfer ownership in

exchange for the price; b) Determinate subject matter; and c) Price certain in money or its equivalent.[32] In this case, there was a meeting of the minds between the vendor and the vendee, when

the vendor undertook to deliver and transfer ownership over the property covered by the deed of absolute sale to the vendee for the price of P4,690.00 of which P3,690.00 was paid by the vendee to the vendor as down payment. The vendor undertook to have the property sold, surveyed and segregated and a separate title therefor issued in the name of the vendee, upon which the latter would be obliged to pay the balance of P1,000.00. There was no stipulation in the deed that the title to the property remained with the vendor, or that the right to unilaterally resolve the contract upon the buyer’s failure to pay within a fixed period was given to such vendor. Patently, the contract executed by the parties is a deed of sale and not a contract to sell. As the Court ruled in a recent case: In Dignos v. Court of Appeals (158 SCRA 375), we have said that, although denominated a “Deed of Conditional Sale,” a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive delivery (e.g. by the execution of a public document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such perfection. If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale. (Art. 1545, Civil Code) Thus, in one case, when the sellers declared in a “Receipt of Down Payment” that they received an amount as purchase price for a house and lot without any reservation of title until full payment of the entire purchase price, the implication was that they sold their property. In People’s Industrial and Commercial Corporation v. Court of Appeals, it was stated: A deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. Applying these principles to this case, it cannot be gainsaid that the contract of sale between the parties is absolute, not conditional. There is no reservation of ownership nor a stipulation providing for a unilateral rescission by either party. In fact, the sale was consummated upon the delivery of the lot to respondent. Thus, Art. 1477 provides that the ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof.[33]

The condition in the deed that the balance of P1,000.00 shall be paid to the vendor by the vendee as soon as the property sold shall have been surveyed in the name of the vendee and all papers pertinent and necessary to the issuance of a separate certificate of title in the name of the vendee shall have been prepared is not a condition which prevented the efficacy of the contract of sale. It merely provides the manner by which the total purchase price of the property is to be paid. The condition did not prevent the contract from being in full force and effect: The stipulation that the “payment of the full consideration based on a survey shall be due and payable in five (5) years from the execution of a formal deed of sale” is not a condition which affects the efficacy of the contract of sale. It merely provides the manner by which the full consideration is to be computed and the time within which the same is to be paid. But it does not affect in any manner the effectivity of the contract. …[34]

In a contract to sell, ownership is retained by a seller and is not to be transferred to the vendee until full payment of the price. Such payment is a positive suspensive condition, the failure of which is not a breach of contract but simply an event that prevented the obligation from acquiring binding force.[35]

It bears stressing that in a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time, existed and discharges the obligation created under the transaction.[36] A seller cannot unilaterally and extrajudicially

rescind a contract of sale unless there is an express stipulation authorizing it. In such case, the vendor may file an action for specific performance or judicial rescission.[37]

Article 1169 of the New Civil Code provides that 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. In this case, the vendor (Jesus Mascuñana) failed to comply with his obligation of segregating Lot No. 124-B and the issuance of a Torrens title over the property in favor of the vendee, or the latter’s successors-in-interest, the respondents herein. Worse, petitioner Jose Mascuñana was able to secure title over the property under the name of his deceased father.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners.

SO ORDERED. Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.

H. RIGHT OF FIRST REFUSAL

G.R. No. 86150 March 2, 1992 GUZMAN, BOCALING & CO., petitioner, vs. RAOUL S. V. BONNEVIE, respondent. E. Voltaire Garcia for petitioner. Guinto Law Office for private respondent. CRUZ, J.: The subject of the controversy is a parcel of land measuring six hundred (600) square meters, more or less, with two buildings constructed thereon, belonging to the Intestate Estate of Jose L. Reynoso. This property was leased to Raoul S. Bonnevie and Christopher Bonnevie by the administratrix, Africa Valdez de Reynoso, for a period of one year beginning August 8, 1976, at a monthly rental of P4,000.00. The Contract of lease contained the following stipulation:

20. — In case the LESSOR desire or decides to sell the lease property, the LESSEES shall be given a first priority to purchase the same, all things and considerations being equal.

On November 3, 1976 according to Reynoso, she notified the private respondents by registered mail that she was selling the leased premises for P600.000.00 less a mortgage loan of P100,000.00, and was giving them 30 days from receipt of the letter within which to exercise their right of first priority to purchase the subject property. She said that in the event that they did not exercise the said right, she would expect them to vacate the property not later then March, 1977. On January 20, 1977, Reynoso sent another letter to private respondents advising them that in view of their failure to exercise their right of first priority, she had already sold the property. Upon receipt of this letter, the private respondents wrote Reynoso informing her that neither of them had received her letter dated November 3, 1976; that they had advised her agent to inform them officially should she decide to sell the property so negotiations could be initiated; and that they were "constrained to refuse (her) request for the termination of the lease. On March 7, 1977, the leased premises were formally sold to petitioner Guzman, Bocaling & Co. The Contract of Sale provided for immediate payment of P137,500.00 on the purchase price, the balance of P262,500.00 to be paid only when the premises were vacated. On April 12, 1977, Reynoso wrote a letter to the private respondents demanding that they vacate the premises within 15 days for their failure to pay the rentals for four months. When they refuse, Reynoso filed a complaint for ejectment against them which was docketed as Civil Case No. 043851-CV in the then City Court of Manila. On September 25, 1979, the parties submitted a Compromise Agreement, which provided inter alia that "the defendant Raoul S.V. Bonnevie shall vacate the premises subject of the Lease Contract, Voluntarily and Peacefully not later than October 31, 1979." This agreement was approved by the City Court and became the basis of its decision. However, as the private respondents failed to comply with the above-qouted stipulation,

Reynoso filed a motion for execution of the judgment by compromise, which was granted on November 8, 1979. On November 12, 1979, private respondent Raoul S. Bonnevie filed a motion to set aside the decision of the City Court as well as the Compromise Agreement on the sole ground that Reynoso had not delivered to him the "records of payments and receipts of all rentals by or for the account of defendant ..." The motion was denied and the case was elevated to the then Court of First Instance. That Court remanded the case to the City Court of Manila for trial on the merits after both parties had agreed to set aside the Compromise Agreement. On April 29, 1980, while the ejectment case was pending in the City Court, the private respondents filed an action for annulment of the sale between Reynoso and herein petitioner Guzman, Bocaling & Co. and cancellation of the transfer certificate of title in the name of the latter. They also asked that Reynoso be required to sell the property to them under the same terms ands conditions agreed upon in the Contract of Sale in favor of the petitioner This complaint was docketed as Civil Case No. 131461 in the then Court of First Instance of Manila. On May 5, 1980, the City Court decided the ejectment case, disposing as follows:

WHEREFORE, judgment is hereby rendered ordering defendants and all persons holding under them to vacate the premises at No. 658 Gen. Malvar Street, Malate, Manila, subject of this action, and deliver possession thereof to the plaintiff, and to pay to the latter; (1) The sum of P4,000.00 a month from April 1, 1977 to August 8, 1977; (2) The sum of P7,000.00 a month, as reasonable compensation for the continued unlawful use and occupation of said premises, from August 9, 1977 and every month thereafter until defendants actually vacate and deliver possession thereof to the plaintiff; (3) The sum of P1,000.00 as and for attorney's fees; and (4) The costs of suit.

The decision was appealed to the then Court of First Instance of Manila, docketed as Civil Case No. 132634 and consolidated with Civil Case No. 131461. In due time, Judge Tomas P. Maddela, Jr., decided the two cases as follows:

WHEREFORE, premises considered, this Court in Civil Case No. 132634 hereby modifies the decision of the lower court as follows: 1 Ordering defendants Raoul S.V. Bonnevie and Christopher Bonnevie and all persons holding under them to vacate the premises at No. 658 Gen. Malvar St., Malate, Manila subject of this action and deliver possessions thereof to the plaintiff; and 2 To pay the latter the sum of P4,000.00 a month from April 1, 1977 up to September 21, 1980 (when possession of the premises was turned over to the Sheriff) after deducting whatever payments were made and accepted by Mrs. Africa Valdez Vda. de Reynoso during said period, without pronouncement as to costs. As to Civil Case No. 131461, the Court hereby renders judgment in favor of the plaintiff Raoul Bonnevie as against the defendants Africa Valdez Vda. de Reynoso and Guzman and Bocaling & Co. declaring the deed of sale with mortgage executed by defendant Africa Valdez Vda. de Reynoso in favor of defendant Guzman and Bocaling null and void; cancelling the Certificate of Title No. 125914 issued by the Register of Deeds of Manila in the name of Guzman and Bocaling & Co.,; the name of Guzman and Bocaling & Co.,; ordering the defendant Africa Valdez Vda. de Reynoso to execute favor of the plaintiff Raoul Bonnevie a deed of sale with mortgage over the property leased by him in the amount of P400,000.00 under the same terms and conditions should there be any other occupants or tenants in the premises; ordering the defendants jointly and severally to pay the plaintiff Raoul Bonnevie the amount of P50,000.00 as temperate damages; to pay the plaintiff jointly and severally the of P2,000.00 per month from the time the property was sold to defendant Guzman and Bocaling by defendant Africa Valdez Vda de Reynoso on March 7, 1977, up to the execution of a deed of sale of the property by defendant Africa Valdez Vda. de Reynoso in favor of plaintiff Bonnevie; to pay jointly and severally the plaintiff Bonnevie the amount of P20,000.00 as exemplary damages, for attorney's fees in the amount of P10,000.00, and to pay the cost of suit.

Both Reynoso and the petitioner company filed with the Court of Appeals a petition for review of this decision. The appeal was eventually resolved against them in a decision promulgated

on March 16, 1988, where the respondent court substantially affirmed the conclusions of the lower court but reduced the award of damages. 1 Its motion for reconsideration having been denied on December 14, 1986, the petitioner has come to this Court asserting inter alia that the respondent court erred in ruling that the grant of first priority to purchase the subject properties by the judicial administratrix needed no authority from the probate court; holding that the Contract of Sale was not voidable but rescissible; considering the petitioner as a buyer in bad faith ordering Reynoso to execute the deed of sale in favor of the Bonnevie; and not passing upon the counterclaim. Reynoso has not appealed. The Court has examined the petitioner's contentions and finds them to be untenable. Reynoso claimed to have sent the November 3, 1976 letter by registered mail, but the registry return card was not offered in evidence. What she presented instead was a copy of the said letter with a photocopy of only the face of a registry return card claimed to refer to the said letter. A copy of the other side of the card showing the signature of the person who received the letter and the data of the receipt was not submitted. There is thus no satisfactory proof that the letter was received by the Bonnevies. Even if the letter had indeed been sent to and received by the private respondent and they did not exercise their right of first priority, Reynoso would still be guilty of violating Paragraph 20 of the Contract of Lease which specifically stated that the private respondents could exercise the right of first priority, "all things and conditions being equal." The Court reads this mean that there should be identity of the terms and conditions to be offered to the Bonnevies and all other prospective buyers, with the Bonnevies to enjoy the right of first priority. The selling price qouted to the Bonnevies was P600,000.00, to be fully paid in cash less only the mortgage lien of P100,000.00. 2 On the other hand, the selling price offered to and accepted by the petitioner was only P400,000.00 and only P137,500.00 was paid in cash while the balance of P272,500.00 was to be paid "when the property (was) cleared of tenants or occupants. 3 The fact that the Bonnevies had financial problems at that time was no justification for denying them the first option to buy the subject property. Even if the Bonnevies could not buy it at the price qouted, Reynoso could not sell it to another for a lower price and under more favorable terms and conditions. Only if the Bonnevies failed to exercise their right of first priority could Reynoso lawfully sell the subject property to others, and at that only under the same terms and conditions offered to the Bonnevies. The Court agrees with the respondent court that it was not necessary to secure the approval by the probate court of the Contract of Lease because it did not involve an alienation of real property of the estate nor did the term of the lease exceed one year so as top make it fall under Article 1878(8) of the Civil Code. Only if Paragraph 20 of the Contract of Lease was activated and the said property was intended to be sold would it be required of the administratrix to secure the approval of the probate court pursuant to Rule 89 of the Rules of Court. As a strict legal proposition, no judgment of the probate court was reviewed and eventually annuled collaterally by the respondent court as contended by the petitioner. The order authorizing the sale in its favor was duly issued by the probate court, which thereafter approved the Contract of Sale resulting in the eventual issuance if title in favor of the petitioner. That order was valid insofar as it recognized the existence of all the essential elements of a valid contract of sale, but without regard to the special provision in the Contract of Lease giving another party the right of first priority. Even if the order of the probate court was valid, the private respondents still had a right to rescind the Contract of Sale because of the failure of Reynoso to comply with her duty to give them the first opportunity to purchase the subject property. The petitioner argues that assuming the Contract of Sale to be voidable, only the parties thereto could bring an action to annul it pursuant to Article 1397 of the Civil Code. It is stressed that private respondents are strangers to the agreement and therefore have no personality to seek its annulment. The respondent court correctly held that the Contract of Sale was not voidable rescissible. Under Article 1380 to 1381 (3) of the Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason of injury to third persons, like creditors. The status of creditors could be validly accorded the Bonnevies for they had substantial interests that were prejudiced by the sale of the subject property to the petitioner without recognizing their right of first priority under the Contract of Lease. According to Tolentino, rescission is a remedy granted by law to the contracting parties and even to third persons, to secure reparation for damages caused to them by a contract, even if

this should be valid, by means of the restoration of things to their condition at the moment prior to the celebration of said contract. 4 It is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause, or to protect some incompatible and preferent right created by the contract. 5 Recission implies a contract which, even if initially valid, produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of equity. 6 It is true that the acquisition by a third person of the property subject of the contract is an obstacle to the action for its rescission where it is shown that such third person is in lawful possession of the subject of the contract and that he did not act in bad faith. 7 However, this rule is not applicable in the case before us because the petitioner is not considered a third party in relation to the Contract of Sale nor may its possession of the subject property be regarded as acquired lawfully and in good faith. Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the petitioner cannot be deemed a purchaser in good faith for the record shows that its categorically admitted it was aware of the lease in favor of the Bonnevies, who were actually occupying the subject property at the time it was sold to it. Although the Contract of Lease was not annotated on the transfer certificate of title in the name of the late Jose Reynoso and Africa Reynoso, the petitioner cannot deny actual knowledge of such lease which was equivalent to and indeed more binding than presumed notice by registration. A purchaser in good faith and for value is one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same at the time of such purchase or before he has notice of the claim or interest of some other person in the property. 8 Good faith connotes an honest intention to abstain from taking unconscientious advantage of another. 9 Tested by these principles, the petitioner cannot tenably claim to be a buyer in good faith as it had notice of the lease of the property by the Bonnevies and such knowledge should have cautioned it to look deeper into the agreement to determine if it involved stipulations that would prejudice its own interests. The petitioner insists that it was not aware of the right of first priority granted by the Contract of Lease, Assuming this to be true, we nevertherless agree with the observation of the respondent court that:

If Guzman-Bocaling failed to inquire about the terms of the Lease Contract, which includes Par. 20 on priority right given to the Bonnevies, it had only itself to blame. Having known that the property it was buying was under lease, it behooved it as a prudent person to have required Reynoso or the broker to show to it the Contract of Lease in which Par. 20 is contained.

Finally, the petitioner also cannot invoke the Compromise Agreement which it says canceled the right of first priority granted to the Bonnevies by the Contract of Lease. This agreement was set side by the parties thereto, resulting in the restoration of the original rights of the private respondents under the Contract of Lease. The Joint Motion to Remand filed by Reynoso and the private respondents clearly declared inter alia:

That without going into the merits of instant petition, the parties have agreed to SET ASIDE the compromise agreement, dated September 24, 1979 and remand Civil Case No. 043851 of the City Court of Manila to Branch IX thereof for trial on the merits. 10

We find, in sum, that the respondent court did not commit the errors imputed to it by the petitioner. On the contrary, its decision is conformable to the established facts and the applicable law and jurisprudence and so must be sustained. WHEREFORE, the petition in DENIED, with costs against the petitioner. The challeged decision is AFFIRMED in toto. It is so ordered. Narvasa, C.J., Griño-Aquino and Medialdea, JJ., concur.

G.R. No. 117355 April 5, 2002 RIVIERA FILIPINA, INC., petitioner, vs. COURT OF APPEALS, JUAN L. REYES, (now deceased), substituted by his heirs, namely, Estefania B. Reyes, Juanita R. de la Rosa, Juan B. Reyes, Jr. and Fidel B. Reyes, PHILIPPINE CYPRESS CONSTRUCTION & DEVELOPMENT CORPORATION, CORNHILL TRADING CORPORATION and URBAN DEVELOPMENT BANK,respondents. DE LEON, JR., J.:

Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals2 dated June 6, 1994 in CA-G.R. CV No. 26513 affirming the Decision3 dated March 20, 1990 of the Regional Trial Court of Quezon City, Branch 89 dismissing Civil Case No. Q-89-3371. Civil Case No. Q-89-3371 is a suit instituted by Riviera Filipina, Inc. (Riviera) on August 31, 19894 to compel the defendants therein Juan L. Reyes, now deceased, Philippine Cypress Construction & Development Corporation (Cypress), Cornhill Trading Corporation (Cornhill) and Urban Development Bank to transfer the title covering a 1,018 square meter parcel of land located along EDSA, Quezon City for alleged violation of Riviera’s right of first refusal. It appears that on November 23, 1982, respondent Juan L. Reyes (Reyes, for brevity) executed a Contract of Lease with Riviera. The ten-year (10) renewable lease of Riviera, which started on August 1, 1982, involved a 1,018 square meter parcel of land located along Edsa, Quezon City, covered and described in Transfer Certificate of Title No. 186326 of the Registry of Deeds of Quezon City in the name of Juan L. Reyes.5 The said parcel of land was subject of a Real Estate Mortgage executed by Reyes in favor of Prudential Bank. Since the loan with Prudential Bank remained unpaid upon maturity, the mortgagee bank extrajudicially foreclosed the mortgage thereon. At the public auction sale, the mortgagee bank emerged as the highest bidder. The redemption period was set to expire on March 7, 1989. Realizing that he could not possibly raise in time the money needed to redeem the subject property, Reyes decided to sell the same.6 Since paragraph 11 of the lease contract expressly provided that the "LESSEE shall have the right of first refusal should the LESSOR decide to sell the property during the term of the lease,"7 Reyes offered to sell the subject property to Riviera, through its President Vicente C. Angeles, for Five Thousand Pesos (P5,000.00) per square meter. However, Angeles bargained for Three Thousand Five Hundred Pesos (P3,500.00) per square meter. Since Reyes was not amenable to the said price and insisted on Five Thousand Pesos (P5,000.00) per square meter, Angeles requested Reyes to allow him to consult the other members of the Board of Directors of Riviera.8 Seven (7) months later, or sometime in October 1988, Angeles communicated with Reyes Riviera’s offer to purchase the subject property for Four Thousand Pesos (P4,000.00) per square meter. However, Reyes did not accept the offer. This time he asked for Six Thousand Pesos (P6,000.00) per square meter since the value of the property in the area had appreciated in view of the plans of Araneta to develop the vicinity.9 In a letter dated November 2, 1988, Atty. Irineo S. Juan, acting as counsel for Reyes, informed Riviera that Reyes was selling the subject property for Six Thousand Pesos (P6,000.00) per square meter, net of capital gains and transfer taxes, registration fees, notarial fees and all other attendant charges. He further stated therein that:

In this connection, conformably to the provisions stipulated in Paragraph/Item No. 11 of your CONTRACT OF LEASE (Doc. No. 365, Page No. 63, Book No. X, Series of 1982, of the Notarial Registry of Notary Public Leovillo S. Agustin), notice is served upon your goodselves for you to exercise "the right of first refusal" in the sale of said property, for which purpose you are hereby given a period of ten (10) days from your receipt hereof within which to thus purchase the same under the terms and conditions aforestated, and failing which you shall be deemed to have thereby waived such pre-emptive right and my client shall thereafter be absolutely free to sell the subject property to interested buyers.10

To answer the foregoing letter and confirm their telephone conversation on the matter, Riviera sent a letter dated November 22, 1988 to Atty. Juan, counsel for Reyes, expressing Riviera’s interest to purchase the subject property and that Riviera is already negotiating with Reyes which will take a couple of days to formalize.11 Riviera increased its offer to Five Thousand Pesos (P5,000.00) per square meter but Reyes did not accede to said price as it was still lower than his quoted price of Six Thousand Pesos (P6,000.00) per square meter.12 Angeles asked Reyes to give him until the end of November 1988 for Riviera’s final decision. 1âwphi1.nêt In a letter dated December 2, 1988, Angeles wrote Reyes confirming Riviera’s intent to purchase the subject property for the fixed and final13 price of Five Thousand Pesos (P5,000.00) per square meter, complete payment within sixty (60) to ninety (90) days which "offer is what we feel should be the market price of your property." Angeles asked that the decision of Reyes and his written reply to the offer be given within fifteen (15) days since there are also other properties being offered to them at the moment.14 In response to the foregoing letter, Atty. Juan sent a letter to Riviera dated December 5, 1988 informing Riviera that Riviera’s offer is not acceptable to his client. He further expressed, "let

it be made clear that, much as it is the earnest desire of my client to really give you the preference to purchase the subject property, you have unfortunately failed to take advantage of such opportunity and thus lost your right of first refusal in sale of said property."15 Meanwhile, on December 4, 1988, Reyes confided to Rolando P. Traballo, a close family friend and President of Cypress, his predicament about the nearing expiry date of the redemption period of the foreclosed mortgaged property with Prudential Bank, the money for which he could not raise on time thereby offering the subject property to him for Six Thousand Pesos (P6,000.00) per square meter. Traballo expressed interest in buying the said property, told Reyes that he will study the matter and suggested for them to meet the next day.16 They met the next day, December 5, 1988, at which time Traballo bargained for Five Thousand Three Hundred Pesos (P5,300.00) per square meter. After considering the reasons cited by Traballo for his quoted price, Reyes accepted the same. However, since Traballo did not have the amount with which to pay Reyes, he told the latter that he will look for a partner for that purpose.17 Reyes told Traballo that he had already afforded Riviera its right of first refusal but they cannot agree because Riviera’s final offer was for Five Thousand Pesos (P5,000.00) per square meter.18 Sometime in January 1989, apprehensive of the impending expiration in March 1989 of the redemption period of the foreclosed mortgaged property with Prudential Bank and the deal between Reyes and Traballo was not yet formally concluded, Reyes decided to approach anew Riviera. For this purpose, he requested his nephew, Atty. Estanislao Alinea, to approach Angeles and find out if the latter was still interested in buying the subject property and ask him to raise his offer for the purchase of the said property a little higher. As instructed, Atty. Alinea met with Angeles and asked the latter to increase his offer of Five Thousand Pesos (P5,000.00) per square meter but Angeles said that his offer is Five Thousand Pesos (P5,000.00) per square meter.19 Following the meeting, Angeles sent a letter dated February 4, 1989 to Reyes, through Atty. Alinea, that his offer is Five Thousand Pesos (P5,000.00) per square meter payment of which would be fifty percent (50%) down within thirty (30) days upon submission of certain documents in three (3) days, the balance payable in five (5) years in equal monthly installments at twelve percent (12%) interest in diminishing balance.20 With the terms of this second offer, Angeles admittedly downgraded the previous offer of Riviera on December 2, 1988.21 Atty. Alinea conveyed to Reyes Riviera’s offer of Five Thousand Pesos (P5,000.00) per square meter but Reyes did not agree. Consequently, Atty. Alinea contacted again Angeles and asked him if he can increase his price. Angeles, however, said he cannot add anymore.22 Reyes did not expressly offer his subject property to Riviera at the price of Five Thousand Three Hundred Pesos (P5,300.00) per square meter.23 Sometime in February 1989, Cypress and its partner in the venture, Cornhill Trading Corporation, were able to come up with the amount sufficient to cover the redemption money, with which Reyes paid to the Prudential Bank to redeem the subject property.24 On May 1, 1989, a Deed of Absolute Sale covering the subject property was executed by Reyes in favor of Cypress and Cornhill for the consideration of Five Million Three Hundred Ninety Five Thousand Four Hundred Pesos (P5,395,400.00).25 On the same date, Cypress and Cornhill mortgaged the subject property to Urban Development Bank for Three Million Pesos (P3,000,000.00).26 Thereafter, Riviera sought from Reyes, Cypress and Cornhill a resale of the subject property to it claiming that its right of first refusal under the lease contract was violated. After several unsuccessful attempts,27 Riviera filed the suit to compel Reyes, Cypress, Cornhill and Urban Development Bank to transfer the disputed title to the land in favor of Riviera upon its payment of the price paid by Cypress and Cornhill. Following trial on the merits, the trial court dismissed the complaint of Riviera as well as the counterclaims and cross-claims of the other parties.28 It ruled that the defendants therein did not violate Riviera’s right of first refusal, ratiocinating in this wise:

Resolving the first issue, this Court takes note that since the beginning of the negotiation between the plaintiff and defendant Reyes for the purchase of the property, in question, the plaintiff was firm and steadfast in its position, expressed in writing by its President Vicente Angeles, that it was not willing to buy the said property higher than P5,000.00, per square meter, which was far lower than the asking price of defendant Reyes for P6,000.00, per square meter, undoubtedly,

because, in its perception, it would be difficult for other parties to buy the property, at a higher price than what it was offering, since it is in occupation of the property, as lessee, the term of which was to expire after about four (4) years more. On the other hand, it was obvious, upon the basis of the last ditch effort of defendant Reyes, thru his nephew, Atty. Alinea, to have the plaintiff buy the property, in question, that he was willing to sell the said property at a price less than P6,000.00 and a little higher than P5,000.00, per square meter, precisely, because Atty. Alinea, in behalf of his uncle, defendant Reyes, sought plaintiff’s Angeles and asked him to raise his price a little higher, indicating thereby the willingness of defendant Reyes to sell said property at less than his offer of P6,000.00, per square meter. This being the case, it can hardly be validly said by the plaintiff that he was deprived of his right of first refusal to buy the subject property at a price of P5,300.00, per square meter which is the amount defendants Cypress/Cornhill bought the said property from defendant Reyes. For, it was again given such an opportunity to exercise its right of first refusal by defendant Reyes had it only signified its willingness to increase a little higher its purchase price above P5,000.00, per square meter, when its President, Angeles, was asked by Atty. Alinea to do so, instead of adamantly sticking to its offer of only P5,000.00 per square meter, by reason of which, therefore, the plaintiff had lost, for the second time, its right of first refusal, even if defendant Reyes did not expressly offer to sell to it the subject land at P5,300.00, per square meter, considering that by the plea of Atty. Alinea, in behalf of defendant Reyes, for it to increase its price a little, the plaintiff is to be considered as having forfeited again its right of first refusal, it having refused to budged from its regid (sic) offer to buy the subject property at no more than P5,000.00, per square meter. As such, this Court holds that it was no longer necessary for the defendant Reyes to expressly and categorically offer to the plaintiff the subject property at P5,300.00, per square meter, in order that he can comply with his obligation to give first refusal to the plaintiff as stipulated in the Contract of Lease, the plaintiff having had already lost its right of first refusal, at the first instance, by refusing to buy the said property at P6,000.00, per square meter, which was the asking price of defendant Reyes, since to do so would be a useless ceremony and would only be an exercise in futility, considering the firm and unbending position of the plaintiff, which defendant Reyes already knew, that the plaintiff, at any event, was not amenable to increasing its price at over P5,000.00, per square meter.

Dissatisfied with the decision of the trial court, both parties appealed to the Court of Appeals.29 However, the appellate court, through its Special Seventh Division, rendered a Decision dated June 6, 1994 which affirmed the decision of the trial court in its entirety.30 In sustaining the decision of the trial court, the Court of Appeals adopted the above-quoted ratiocination of the trial court and further added:

To put things in its proper perspective in accordance with the peculiar attendant circumstances herein, particular stress should be given to RIVIERA’s uncompromising counter offer of only P5,000.00 per square meter on all the occasions when REYES offered the subject property to it. RIVIERA, in its letter to REYES dated December 2, 1988 (Exhibit "D", p. 68, Rollo) justified its rigid offer by saying that "the above offer is what we feel should be the market price of your property." If that be the case, We are convinced, the same manner that REYES was, that RIVIERA was unwilling to increase its counter offer at any present or future time. RIVIERA’s unilateral valuation of the subject property thus binds him, it cannot now be heard to claim that it could have upped its offer had it been informed of CYPRESS’ and CORNHILL’S offer of P5,000.00 (sic) per square meter. Defendants CYPRESS and CORNHILL were therefore right in saying that:

On the basic assumption that RIVIERA really meant what it said in its letter, DR. REYES could not be faulted for believing that RIVIERA was definitely NOT WILLING TO PAY MORE THAN P5,000.00 PER SQUARE METER ON HIS PROPERTY. The fault lies with the deceptive and insincere words of RIVIERA. Injustice (sic) and equity, RIVIERA must be deemed in estoppel in now belatedly asserting that it would have been willing to pay a price higher than P5,000.00 x x x." (Defendants-Appellees Cypress’ and Cornhill’s Brief, p. 8)

For this reason, no adverse inference can be drawn from REYES’ failure to disclose to RIVIERA the intervening counter-offer of CYPRESS and CORNHILL. It would have been far different had REYES’ non-disclosure of CYPRESS’ and CORNHILL’s counter-offer to RIVIERA resulted in the sale of the subject property at equal or less than RIVIERA’s offer; in which case, REYES would have been rightly accused of cunningly circumventing RIVIERA’s right of first refusal. But the incontrovertible antecedents obtaining here clearly reveal REYES’ earnest efforts in respecting RIVIERA’s contractual right to initially purchase the subject property. Not only once – but twice – did REYES approach RIVIERA, the last one being the most telling indication of REYES’ sincerest intention in RIVIERA eventually purchasing the subject property if only the latter would increase a little its offer of P5,000.00 per square meter. And to this REYES was desperately willing to accede to despite the financial quandary he was then in as the expiration of the redemption period drew closer and closer, and despite the better offer of CYPRESS and CORNHILL. REYES unquestionably had displayed good faith. Can the same be said of RIVIERA? We do not think so. It appears that RIVIERA all along was trying to push REYES’ back against the wall, for RIVIERA was well-aware of REYES’ precarious financial needs at that time, and by clinging to its offer, REYES might eventually succumb to its offer out of sheer desperation. RIVIERA was, to be frank, whimsically exercising its contractual right to the prejudice of REYES who had commendably given RIVIERA extra leeway in exercising it. And to this We say that no amount of jurisprudence RIVIERA might avail of for the purpose of construing the right of first refusal, however enlightening and persuasive they may be, will cover-up for its arrogant exercise of its right as can be gleaned from the factual premises. Equity in this case tilts in favor of defendants REYES, CYPRESS and CORNHILL that the consummated sale between them concerning the subject property be given this Court’s imprimatur, for if RIVIERA lost its opportunity to acquire it, it has only itself to blame. For after all, REYES’ fundamental and intrinsic right of ownership which necessarily carries with it the exclusive right to dispose of it to whoever he pleases, must ultimately prevail over RIVIERA’s right of first refusal which it unscrupulously tried to exercise.

From this decision, Riviera filed a motion for reconsideration,31 but the appellate court denied the same in a Resolution dated September 22, 1994.32 Hence, Riviera interposed the instant petition anchored on the following errors:33

I THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN RULING THAT PETITIONER RIVIERA FILIPINA, INC. ALREADY LOST ITS RIGHT OF FIRST REFUSAL.

II THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN NOT FINDING THAT IT WAS THE PETITIONER, NOT RESPONDENT JUAN L. REYES, WHICH HAD BEEN THOROUGHLY DECEIVED BY THE LATTER OUT OF ITS RIGHTS TO ITS CONTINUING PREJUDICE.

III THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN DENYING RECONSIDERATION.

IV THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION IN DECIDING PETITIONER’S APPEAL AT A TIME WHEN THE PRINCIPAL APPELLEE IS ALLEGEDLY DEAD AND NO PROPER SUBSTITUTION OF THE ALLEGED DECEASED PARTY HAS BEEN MADE; HENCE, THE DECISION OF THE COURT OF APPEALS AND ITS RESOLUTION DENYING RECONSIDERATION, IS NULL AND VOID.

At the outset, we note that, while Riviera alleges that the Court of Appeals committed grave abuse of discretion amounting to lack or excess of jurisdiction, the instant petition is, as it should be, treated as a petition for review under Rule 45 and not as a special civil action for certiorari under Rule 65 of the Revised Rules of Court, now the 1997 Rules of Civil Procedure.

The distinctions between Rule 45 and 65 are far and wide, the most notable of which is that errors of jurisdiction are best reviewed in a special civil action for certiorari under Rule 65, while errors of judgment are correctible only by appeal in a petition for review under Rule 45.34 The rationale for the distinction is simple. When a court exercises its jurisdiction an error committed while so engaged does not deprive it of the jurisdiction being exercised when the error is committed. If it did, every error committed by a court would deprive it of its jurisdiction and every erroneous judgment would be a void judgment. This cannot be allowed. The administration of justice would not countenance such a rule. Thus, an error of judgment that the court may commit in the exercise of its jurisdiction is not correctible through the original special civil action of certiorari.35 Appeal from a final disposition of the Court of Appeals, as in the case at bar, is by way of a petition for review under Rule 45.36 In the petition at bar, Riviera posits the view that its right of first refusal was totally disregarded or violated by Reyes by the latter’s sale of the subject property to Cypress and Cornhill. It contends that the right of first refusal principally amounts to a right to match in the sense that it needs another offer for the right to be exercised. The concept and interpretation of the right of first refusal and the consequences of a breach thereof evolved in Philippine juristic sphere only within the last decade. It all started in 1992 with Guzman, Bocaling & Co. v. Bonnevie37 where the Court held that a lease with a proviso granting the lessee the right of first priority "all things and conditions being equal" meant that there should be identity of the terms and conditions to be offered to the lessee and all other prospective buyers, with the lessee to enjoy the right of first priority. A deed of sale executed in favor of a third party who cannot be deemed a purchaser in good faith, and which is in violation of a right of first refusal granted to the lessee is not voidable under the Statute of Frauds but rescissible under Articles 1380 to 1381 (3) of the New Civil Code. Subsequently in 1994, in the case of Ang Yu Asuncion v. Court of Appeals,38 the Court en banc departed from the doctrine laid down in Guzman, Bocaling & Co. v. Bonnevie and refused to rescind a contract of sale which violated the right of first refusal. The Court held that the so-called "right of first refusal" cannot be deemed a perfected contract of sale under Article 1458 of the New Civil Code and, as such, a breach thereof decreed under a final judgment does not entitle the aggrieved party to a writ of execution of the judgment but to an action for damages in a proper forum for the purpose. In the 1996 case of Equatorial Realty Development, Inc. v. Mayfair Theater, Inc.,39 the Court en bancreverted back to the doctrine in Guzman Bocaling & Co. v. Bonnevie stating that rescission is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause or to protect some incompatible and preferred right by the contract. Thereafter in 1997, in Parañaque Kings Enterprises, Inc. v. Court of Appeals,40 the Court affirmed the nature of and the concomitant rights and obligations of parties under a right of first refusal. The Court, summarizing the rulings in Guzman, Bocaling & Co. v. Bonnevie and Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., held that in order to have full compliance with the contractual right granting petitioner the first option to purchase, the sale of the properties for the price for which they were finally sold to a third person should have likewise been first offered to the former. Further, there should be identity of terms and conditions to be offered to the buyer holding a right of first refusal if such right is not to be rendered illusory. Lastly, the basis of the right of first refusal must be the current offer to sell of the seller or offer to purchase of any prospective buyer. Thus, the prevailing doctrine is that a right of first refusal means identity of terms and conditions to be offered to the lessee and all other prospective buyers and a contract of sale entered into in violation of a right of first refusal of another person, while valid, is rescissible. However, we must remember that general propositions do not decide specific cases. Rather, laws are interpreted in the context of the peculiar factual situation of each proceeding. Each case has its own flesh and blood and cannot be ruled upon on the basis of isolated clinical classroom principles.41 Analysis and construction should not be limited to the words used in the contract, as they may not accurately reflect the parties’ true intent.42 The court must read a contract as the average person would read it and should not give it a strained or forced construction.43 In the case at bar, the Court finds relevant and significant the cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded primordial consideration and in case of doubt, their contemporaneous and subsequent acts shall be principally considered.44 Where the parties to a contract have given it a practical construction by their conduct as by acts in partial performance, such construction may be considered by

the court in construing the contract, determining its meaning and ascertaining the mutual intention of the parties at the time for contracting. The parties’ practical construction of their contract has been characterized as a clue or index to, or as evidence of, their intention or meaning and as an important, significant, convincing, persuasive, or influential factor in determining the proper construction of the contract.45 An examination of the attendant particulars of the case do not persuade us to uphold Riviera’s view. As clearly shown by the records and transcripts of the case, the actions of the parties to the contract of lease, Reyes and Riviera, shaped their understanding and interpretation of the lease provision "right of first refusal" to mean simply that should the lessor Reyes decide to sell the leased property during the term of the lease, such sale should first be offered to the lessee Riviera. And that is what exactly ensued between Reyes and Riviera, a series of negotiations on the price per square meter of the subject property with neither party, especially Riviera, unwilling to budge from his offer, as evidenced by the exchange of letters between the two contenders. It can clearly be discerned from Riviera’s letters dated December 2, 1988 and February 4, 1989 that Riviera was so intractable in its position and took obvious advantage of the knowledge of the time element in its negotiations with Reyes as the redemption period of the subject foreclosed property drew near. Riviera strongly exhibited a "take-it or leave-it" attitude in its negotiations with Reyes. It quoted its "fixed and final" price as Five Thousand Pesos (P5,000.00) and not any peso more. It voiced out that it had other properties to consider so Reyes should decide and make known its decision "within fifteen days." Riviera, in its letter dated February 4, 1989, admittedly, even downgraded its offer when Reyes offered anew the property to it, such that whatever amount Reyes initially receives from Riviera would absolutely be insufficient to pay off the redemption price of the subject property. Naturally, Reyes had to disagree with Riviera’s highly disadvantageous offer. Nary a howl of protest or shout of defiance spewed forth from Riviera’s lips, as it were, but a seemingly whimper of acceptance when the counsel of Reyes strongly expressed in a letter dated December 5, 1989 that Riviera had lost its right of first refusal. Riviera cannot now be heard that had it been informed of the offer of Five Thousand Three Hundred Pesos (P5,300.00) of Cypress and Cornhill it would have matched said price. Its stubborn approach in its negotiations with Reyes showed crystal-clear that there was never any need to disclose such information and doing so would be just a futile effort on the part of Reyes. Reyes was under no obligation to disclose the same. Pursuant to Article 133946 of the New Civil Code, silence or concealment, by itself, does not constitute fraud, unless there is a special duty to disclose certain facts, or unless according to good faith and the usages of commerce the communication should be made.47 We apply the general rule in the case at bar since Riviera failed to convincingly show that either of the exceptions are relevant to the case at bar. In sum, the Court finds that in the interpretation of the right of first refusal as understood by the parties herein, the question as to what is to be included therein or what is meant by the same, as in all other provisions of the contract, is for the parties and not for the court to determine, and this question may not be resolved by what the parties might have provided had they thought about it, which is evident from Riviera claims, or by what the court might conclude regarding abstract fairness.48 The Court would be rewriting the contract of Reyes and Riviera under the guise of construction were we to interpret the right of first refusal as Riviera propounds it, despite a contrary construction as exhibited by its actions. A court, even the Supreme Court, has no right to make new contracts for the parties or ignore those already made by them, simply to avoid seeming hardships. Neither abstract justice nor the rule of liberal construction justifies the creation of a contract for the parties which they did not make themselves or the imposition upon one party to a contract of an obligation not assumed.49 On the last error attributed to the Court of Appeals which is the effect on the jurisdiction of the appellate court of the non-substitution of Reyes, who died during the pendency of the appeal, the Court notes that when Riviera filed its petition with this Court and assigned this error, it later filed on October 27, 1994 a Manifestation50 with the Court of Appeals stating that it has discovered that Reyes is already dead, in view of which the appellate court issued a Resolution dated December 16, 1994 which noted the manifestation of Riviera and directed the counsel of Reyes to submit a copy of the latter’s death certificate and to file the proper motion for substitution of party.51Complying therewith, the necessary motion for substitution of deceased Reyes, who died on January 7, 1994, was filed by the heirs, namely, Estefania B. Reyes, Juanita R. de la Rosa, Juan B. Reyes, Jr. and Fidel B. Reyes.52 Acting on the motion for substitution, the Court of Appeals granted the same.53

Notwithstanding the foregoing, Section 1654 and 1755 of Rule 3 of the Revised Rules of Court, upon which Riviera anchors its argument, has already been amended by the 1997 Rules of Civil Procedure.56 Even applying the old Rules, the failure of a counsel to comply with his duty under Section 16 of Rule 3 of the Revised Rules of Court, to inform the court of the death of his client and no substitution of such is effected, will not invalidate the proceedings and the judgment thereon if the action survives the death of such party,57 as this case does, since the death of Reyes did not extinguish his civil personality. The appellate court was well within its jurisdiction to proceed as it did with the case since the death of a party is not subject to its judicial notice. Needless to stress, the purpose behind the rule on substitution of parties is the protection of the right of every party to due process. This purpose has been adequately met in this case since both parties argued their respective positions through their pleadings in the trial court and the appellate court. Besides, the Court has already acquired jurisdiction over the heirs of Reyes by voluntarily submitting themselves to our jurisdiction.58 In view of all the foregoing, the Court is convinced that the appellate court committed no reversible error in its challenged Decision.1âwphi1.nêt WHEREFORE, the instant petition is hereby DENIED, and the Decision of the Court of Appeals dated June 6, 1994 in CA-G.R. CV No. 26513 is AFFIRMED. No pronouncement as to costs. SO ORDERED. Bellosillo, Mendoza, and Quisumbing, JJ., concur.

G.R. No. 111538 February 26, 1997 PARAÑAQUE KINGS ENTERPRISES, INCORPORATED, petitioner, vs. COURT OF APPEALS, CATALINA L. SANTOS, represented by her attorney-in-fact, LUZ B. PROTACIO, and DAVID A. RAYMUNDO, respondents. PANGANIBAN, J.: Do allegations in a complaint showing violation of a contractual right of "first option or priority to buy the properties subject of the lease" constitute a valid cause of action? Is the grantee of such right entitled to be offered the same terms and conditions as those given to a third party who eventually bought such properties? In short, is such right of first refusal enforceable by an action for specific performance? These questions are answered in the affirmative by this Court in resolving this petition for review under Rule 45 of the Rules of Court challenging the Decision 1 of the Court of Appeals 2 promulgated on March 29, 1993, in CA-G.R. CV No. 34987 entitled "Parañaque Kings Enterprises, Inc. vs. Catalina L. Santos, et al.," which affirmed the order 3 of September 2, 1991, of the Regional Trial Court of Makati, Branch 57, 4 dismissing Civil Case No. 91-786 for lack of a valid cause of action.

Facts of the Case On March 19, 1991, herein petitioner filed before the Regional Trial Court of Makati a complaint, 5 which is reproduced in full below:

Plaintiff, by counsel, respectfully states that: 1. Plaintiff is a private corporation organized and existing under and by virtue of the laws of the Philippines, with principal place of business of (sic) Dr. A. Santos Avenue, Parañaque, Metro Manila, while defendant Catalina L. Santos, is of legal age, widow, with residence and postal address at 444 Plato Street, Ct., Stockton, California, USA, represented in this action by her attorney-in-fact, Luz B. Protacio, with residence and postal address at No, 12, San Antonio Street, Magallanes Village, Makati, Metro Manila, by virtue of a general power of attorney. Defendant David A. Raymundo, is of legal age, single, with residence and postal address at 1918 Kamias Street, Damariñas Village, Makati, Metro Manila, where they (sic) may be served with summons and other court processes. Xerox copy of the general power of attorney is hereto attached as Annex "A". 2. Defendant Catalina L. Santos is the owner of eight (8) parcels of land located at (sic) Parañaque, Metro Manila with transfer certificate of title nos. S-19637, S-19638 and S-19643 to S-19648. Xerox copies of the said title (sic) are hereto attached as Annexes "B" to "I", respectively.

3. On November 28, 1977, a certain Frederick Chua leased the above-described property from defendant Catalina L. Santos, the said lease was registered in the Register of Deeds. Xerox copy of the lease is hereto attached as Annex "J". 4. On February 12, 1979, Frederick Chua assigned all his rights and interest and participation in the leased property to Lee Ching Bing, by virtue of a deed of assignment and with the conformity of defendant Santos, the said assignment was also registered. Xerox copy of the deed of assignment is hereto attached as Annex "K". 5. On August 6, 1979, Lee Ching Bing also assigned all his rights and interest in the leased property to Parañaque Kings Enterprises, Incorporated by virtue of a deed of assignment and with the conformity of defendant Santos, the same was duly registered, Xerox copy of the deed of assignment is hereto attached as Annex "L". 6. Paragraph 9 of the assigned leased (sic) contract provides among others that:

"9. That in case the properties subject of the lease agreement are sold or encumbered, Lessors shall impose as a condition that the buyer or mortgagee thereof shall recognize and be bound by all the terms and conditions of this lease agreement and shall respect this Contract of Lease as if they are the LESSORS thereof and in case of sale, LESSEE shall have the first option or priority to buy the properties subject of the lease;"

7. On September 21, 1988, defendant Santos sold the eight parcels of land subject of the lease to defendant David Raymundo for a consideration of FIVE MILLION (P5,000,000.00) PESOS. The said sale was in contravention of the contract of lease, for the first option or priority to buy was not offered by defendant Santos to the plaintiff. Xerox copy of the deed of sale is hereto attached as Annex "M". 8. On March 5, 1989, defendant Santos wrote a letter to the plaintiff informing the same of the sale of the properties to defendant Raymundo, the said letter was personally handed by the attorney-in-fact of defendant Santos, Xerox copy of the letter is hereto attached as Annex "N". 9. Upon learning of this fact plaintiff's representative wrote a letter to defendant Santos, requesting her to rectify the error and consequently realizing the error, she had it reconveyed to her for the same consideration of FIVE MILLION (P5,000,000.00) PESOS. Xerox copies of the letter and the deed of reconveyance are hereto attached as Annexes "O" and "P". 10. Subsequently the property was offered for sale to plaintiff by the defendant for the sum of FIFTEEN MILLION (P15,000,000.00) PESOS. Plaintiff was given ten (10) days to make good of the offer, but therefore (sic) the said period expired another letter came from the counsel of defendant Santos, containing the same tenor of (sic) the former letter. Xerox copies of the letters are hereto attached as Annexes "Q" and "R". 11. On May 8, 1989, before the period given in the letter offering the properties for sale expired, plaintiff's counsel wrote counsel of defendant Santos offering to buy the properties for FIVE MILLION (P5,000,000.00) PESOS. Xerox copy of the letter is hereto attached as Annex "S". 12. On May 15, 1989, before they replied to the offer to purchase, another deed of sale was executed by defendant Santos (in favor of) defendant Raymundo for a consideration of NINE MILLION (P9,000,000.00) PESOS. Xerox copy of the second deed of sale is hereto attached as Annex "T". 13. Defendant Santos violated again paragraph 9 of the contract of lease by executing a second deed of sale to defendant Raymundo. 14. It was only on May 17, 1989, that defendant Santos replied to the letter of the plaintiff's offer to buy or two days after she sold her properties. In her reply she stated among others that the period has lapsed and the plaintiff is not a privy (sic) to the contract. Xerox copy of the letter is hereto attached as Annex "U".

15. On June 28, 1989, counsel for plaintiff informed counsel of defendant Santos of the fact that plaintiff is the assignee of all rights and interest of the former lessor. Xerox copy of the letter is hereto attached as Annex "V". 16. On July 6, 1989, counsel for defendant Santos informed the plaintiff that the new owner is defendant Raymundo. Xerox copy of the letter is hereto attached as Annex "W". 17. From the preceding facts it is clear that the sale was simulated and that there was a collusion between the defendants in the sales of the leased properties, on the ground that when plaintiff wrote a letter to defendant Santos to rectify the error, she immediately have (sic) the property reconveyed it (sic) to her in a matter of twelve (12) days. 18. Defendants have the same counsel who represented both of them in their exchange of communication with plaintiff's counsel, a fact that led to the conclusion that a collusion exist (sic) between the defendants. 19. When the property was still registered in the name of defendant Santos, her collector of the rental of the leased properties was her brother-in-law David Santos and when it was transferred to defendant Raymundo the collector was still David Santos up to the month of June, 1990. Xerox copies of cash vouchers are hereto attached as Annexes "X" to "HH", respectively. 20. The purpose of this unholy alliance between defendants Santos and Raymundo is to mislead the plaintiff and make it appear that the price of the leased property is much higher than its actual value of FIVE MILLION (P5,000,000.00) PESOS, so that plaintiff would purchase the properties at a higher price. 21. Plaintiff has made considerable investments in the said leased property by erecting a two (2) storey, six (6) doors commercial building amounting to THREE MILLION (P3,000,000.00) PESOS. This considerable improvement was made on the belief that eventually the said premises shall be sold to the plaintiff. 22. As a consequence of this unlawful act of the defendants, plaintiff will incurr (sic) total loss of THREE MILLION (P3,000,000.00) PESOS as the actual cost of the building and as such defendants should be charged of the same amount for actual damages. 23. As a consequence of the collusion, evil design and illegal acts of the defendants, plaintiff in the process suffered mental anguish, sleepless nights, bismirched (sic) reputation which entitles plaintiff to moral damages in the amount of FIVE MILLION (P5,000,000.00) PESOS. 24. The defendants acted in a wanton, fraudulent, reckless, oppressive or malevolent manner and as a deterrent to the commission of similar acts, they should be made to answer for exemplary damages, the amount left to the discretion of the Court. 25. Plaintiff demanded from the defendants to rectify their unlawful acts that they committed, but defendants refused and failed to comply with plaintiffs just and valid and (sic) demands. Xerox copies of the demand letters are hereto attached as Annexes "KK" to "LL", respectively. 26. Despite repeated demands, defendants failed and refused without justifiable cause to satisfy plaintiff's claim, and was constrained to engaged (sic) the services of undersigned counsel to institute this action at a contract fee of P200,000.00, as and for attorney's fees, exclusive of cost and expenses of litigation. PRAYER WHEREFORE, it is respectfully prayed, that judgment be rendered in favor of the plaintiff and against defendants and ordering that:

a. The Deed of Sale between defendants dated May 15, 1989, be annulled and the leased properties be sold to the plaintiff in the amount of P5,000,000.00; b. Dependants (sic) pay plaintiff the sum of P3,000,000.00 as actual damages; c. Defendants pay the sum of P5,000,000.00 as moral damages;

d. Defendants pay exemplary damages left to the discretion of the Court; e. Defendants pay the sum of not less than P200,000.00 as attorney's fees. Plaintiff further prays for other just and equitable reliefs plus cost of suit.

Instead of filing their respective answers, respondents filed motions to dismiss anchored on the grounds of lack of cause of action, estoppel and laches. On September 2, 1991, the trial court issued the order dismissing the complaint for lack of a valid cause of action. It ratiocinated thus:

Upon the very face of the plaintiff's Complaint itself, it therefore indubitably appears that the defendant Santos had verily complied with paragraph 9 of the Lease Agreement by twice offering the properties for sale to the plaintiff for ~1 5 M. The said offers, however, were plainly rejected by the plaintiff which scorned the said offer as "RIDICULOUS". There was therefore a definite refusal on the part of the plaintiff to accept the offer of defendant Santos. For in acquiring the said properties back to her name, and in so making the offers to sell both by herself (attorney-in-fact) and through her counsel, defendant Santos was indeed conscientiously complying with her obligation under paragraph 9 of the Lease Agreement. . . . .

xxx xxx xxx This is indeed one instance where a Complaint, after barely commencing to create a cause of action, neutralized itself by its subsequent averments which erased or extinguished its earlier allegations of an impending wrong. Consequently, absent any actionable wrong in the very face of the Complaint itself, the plaintiffs subsequent protestations of collusion is bereft or devoid of any meaning or purpose. . . . . The inescapable result of the foregoing considerations point to no other conclusion than that the Complaint actually does not contain any valid cause of action and should therefore be as it is hereby ordered DISMISSED. The Court finds no further need to consider the other grounds of estoppel and laches inasmuch as this resolution is sufficient to dispose the matter. 6

Petitioners appealed to the Court of Appeals which affirmed in toto the ruling of the trial court, and further reasoned that:

. . . . Appellant's protestations that the P15 million price quoted by appellee Santos was reduced to P9 million when she later resold the leased properties to Raymundo has no valid legal moorings because appellant, as a prospective buyer, cannot dictate its own price and forcibly ram it against appellee Santos, as owner, to buy off her leased properties considering the total absence of any stipulation or agreement as to the price or as to how the price should be computed under paragraph 9 of the lease contract, . . . . 7

Petitioner moved for reconsideration but was denied in an order dated August 20, 1993. 8 Hence this petition. Subsequently, petitioner filed an "Urgent Motion for the Issuance of Restraining Order and/or Writ of Preliminary Injunction and to Hold Respondent David A. Raymundo in Contempt of Court." 9 The motion sought to enjoin respondent Raymundo and his counsel from pursuing the ejectment complaint filed before the barangay captain of San Isidro, Parañaque, Metro Manila; to direct the dismissal of said ejectment complaint or of any similar action that may have been filed; and to require respondent Raymundo to explain why he should not be held in contempt of court for forum-shopping. The ejectment suit initiated by respondent Raymundo against petitioner arose from the expiration of the lease contract covering the property subject of this case. The ejectment suit was decided in favor of Raymundo, and the entry of final judgment in respect thereof renders the said motion moot and academic.

Issue The principal legal issue presented before us for resolution is whether the aforequoted complaint alleging breach of the contractual right of "first option or priority to buy" states a valid cause of action. Petitioner contends that the trial court as well as the appellate tribunal erred in dismissing the complaint because it in fact had not just one but at least three (3) valid causes of action, to wit: (1) breach of contract, (2) its right of first refusal founded in law, and (3) damages.

Respondents Santos and Raymundo, in their separate comments, aver that the petition should be denied for not raising a question of law as the issue involved is purely factual — whether respondent Santos complied with paragraph 9 of the lease agreement — and for not having complied with Section 2, Rule 45 of the Rules of Court, requiring the filing of twelve (12) copies of the petitioner's brief. Both maintain that the complaint filed by petitioner before the Regional Trial Court of Makati stated no valid cause of action and that petitioner failed to substantiate its claim that the lower courts decided the same "in a way not in accord with law and applicable decisions of the Supreme Court"; or that the Court of Appeals has "sanctioned departure by a trial court from the accepted and usual course of judicial proceedings" so as to merit the exercise by this Court of the power of review under Rule 45 of the Rules of Court. Furthermore, they reiterate estoppel and laches as grounds for dismissal, claiming that petitioner's payment of rentals of the leased property to respondent Raymundo from June 15, 1989, to June 30, 1990, was an acknowledgment of the latter's status as new owner-lessor of said property, by virtue of which petitioner is deemed to have waived or abandoned its first option to purchase. Private respondents likewise contend that the deed of assignment of the lease agreement did not include the assignment of the option to purchase. Respondent Raymundo further avers that he was not privy to the contract of lease, being neither the lessor nor lessee adverted to therein, hence he could not be held liable for violation thereof.

The Court's Ruling Preliminary Issue: Failure to File

Sufficient Copies of Brief We first dispose of the procedural issue raised by respondents, particularly petitioner's failure to file twelve (12) copies of its brief. We have ruled that when non-compliance with the Rules was not intended for delay or did not result in prejudice to the adverse party, dismissal of appeal on mere technicalities — in cases where appeal is a matter of right — may be stayed, in the exercise of the court's equity jurisdiction. 10 It does not appear that respondents were unduly prejudiced by petitioner's nonfeasance. Neither has it been shown that such failure was intentional.

Main Issue: Validity of Cause of Action We do not agree with respondents' contention that the issue involved is purely factual. The principal legal question, as stated earlier, is whether the complaint filed by herein petitioner in the lower court states a valid cause of action. Since such question assumes the facts alleged in the complaint as true, it follows that the determination thereof is one of law, and not of facts. There is a question of law in a given case when the doubt or difference arises as to what the law is on a certain state of facts, and there is a question of fact when the doubt or difference arises as to the truth or the falsehood of alleged facts. 11 At the outset, petitioner concedes that when the ground for a motion to dismiss is lack of cause of action, such ground must appear on the face of the complaint; that to determine the sufficiency of a cause of action, only the facts alleged in the complaint and no others should be considered; and that the test of sufficiency of the facts alleged in a petition or complaint to constitute a cause of action is whether, admitting the facts alleged, the court could render a valid judgment upon the same in accordance with the prayer of the petition or complaint. A cause of action exists if the following elements are present: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right, and (3) an act or omission on the part of such defendant violative of the right of plaintiff or constituting a breach of the obligation of defendant to the plaintiff for which the latter may maintain an action for recovery of damages. 12 In determining whether allegations of a complaint are sufficient to support a cause of action, it must be borne in mind that the complaint does not have to establish or allege facts proving the existence of a cause of action at the outset; this will have to be done at the trial on the merits of the case. To sustain a motion to dismiss for lack of cause of action, the complaint must show that the claim for relief does not exist, rather than that a claim has been defectively stated, or is ambiguous, indefinite or uncertain. 13 Equally important, a defendant moving to dismiss a complaint on the ground of lack of cause of action is regarded as having hypothetically admitted all the averments thereof. 14 A careful examination of the complaint reveals that it sufficiently alleges an actionable contractual breach on the part of private respondents. Under paragraph 9 of the contract of lease between respondent Santos and petitioner, the latter was granted the "first option or priority" to purchase the leased properties in case Santos decided to sell. If Santos never

decided to sell at all, there can never be a breach, much less an enforcement of such "right." But on September 21, 1988, Santos sold said properties to Respondent Raymundo without first offering these to petitioner. Santos indeed realized her error, since she repurchased the properties after petitioner complained. Thereafter, she offered to sell the properties to petitioner for P15 million, which petitioner, however, rejected because of the "ridiculous" price. But Santos again appeared to have violated the same provision of the lease contract when she finally resold the properties to respondent Raymundo for only P9 million without first offering them to petitioner at such price. Whether there was actual breach which entitled petitioner to damages and/or other just or equitable relief, is a question which can better be resolved after trial on the merits where each party can present evidence to prove their respective allegations and defenses. 15 The trial and appellate courts based their decision to sustain respondents' motion to dismiss on the allegations of Parañaque Kings Enterprises that Santos had actually offered the subject properties for sale to it prior to the final sale in favor of Raymundo, but that the offer was rejected. According to said courts, with such offer, Santos had verily complied with her obligation to grant the right of first refusal to petitioner. We hold, however, that in order to have full compliance with the contractual right granting petitioner the first option to purchase, the sale of the properties for the amount of P9 million, the price for which they were finally sold to respondent Raymundo, should have likewise been first offered to petitioner. The Court has made an extensive and lengthy discourse on the concept of, and obligations under, a right of first refusal in the case of Guzman, Bocaling & Co. vs. Bonnevie. 16 In that case, under a contract of lease, the lessees (Raul and Christopher Bonnevie) were given a "right of first priority" to purchase the leased property in case the lessor (Reynoso) decided to sell. The selling price quoted to the Bonnevies was 600,000.00 to be fully paid in cash, less a mortgage lien of P100,000.00. On the other hand, the selling price offered by Reynoso to and accepted by Guzman was only P400,000.00 of which P137,500.00 was to be paid in cash while the balance was to be paid only when the property was cleared of occupants. We held that even if the Bonnevies could not buy it at the price quoted (P600,000.00), nonetheless, Reynoso could not sell it to another for a lower price and undermore favorable terms and conditions without first offering said favorable terms and price to the Bonnevies as well. Only if the Bonnevies failed to exercise their right of first priority could Reynoso thereafter lawfully sell the subject property to others, and only under the same terms and conditions previously offered to the Bonnevies. Of course, under their contract, they specifically stipulated that the Bonnevies could exercise the right of first priority, "all things and conditions being equal." This Court interpreted this proviso to mean that there should be identity of terms and conditions to be offered to the Bonnevies and all other prospective buyers, with the Bonnevies to enjoy the right of first priority. We hold that the same rule applies even without the same proviso if the right of first refusal (or the first option to buy) is not to be rendered illusory. From the foregoing, the basis of the right of first refusal* must be the current offer to sell of the seller or offer to purchase of any prospective buyer. Only after the optionee fails to exercise its right of first priority under the same terms and within the period contemplated, could the owner validly offer to sell the property to a third person, again, under the same terms as offered to the optionee. This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair Theater, Inc. 17 which was decided en banc. This Court upheld the right of first refusal of the lessee Mayfair, and rescinded the sale of the property by the lessor Carmelo to Equatorial Realty "considering that Mayfair, which had substantial interest over the subject property, was prejudiced by its sale to Equatorial without Carmelo conferring to Mayfair every opportunity to negotiate within the 30-day stipulated period" (emphasis supplied). In that case, two contracts of lease between Carmelo and Mayfair provided "that if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30 days exclusive option to purchase the same." Carmelo initially offered to sell the leased property to Mayfair for six to seven million pesos. Mayfair indicated interest in purchasing the property though it invoked the 30-day period. Nothing was heard thereafter from Carmelo. Four years later, the latter sold its entire Recto Avenue property, including the leased premises, to Equatorial for P11,300,000.00 without priorly informing Mayfair. The Court held that both Carmelo and Equatorial acted in bad faith: Carmelo for knowingly violating the right of first option of Mayfair, and Equatorial for purchasing the property despite being aware of the

contract stipulation. In addition to rescission of the contract of sale, the Court ordered Carmelo to allow Mayfair to buy the subject property at the same price of P11,300,000.00.

No cause of action under P.D. 1517

Petitioner also invokes Presidential Decree No. 1517, or the Urban Land Reform Law, as another source of its right of first refusal. It claims to be covered under said law, being the "rightful occupant of the land and its structures" since it is the lawful lessee thereof by reason of contract. Under the lease contract, petitioner would have occupied the property for fourteen (14) years at the end of the contractual period. Without probing into whether petitioner is rightfully a beneficiary under said law, suffice it to say that this Court has previously ruled that under Section 6 18 of P.D. 1517, "the terms and conditions of the sale in the exercise of the lessee's right of first refusal to purchase shall be determined by the Urban Zone Expropriation and Land Management Committee. Hence, . . . . certain prerequisites must be complied with by anyone who wishes to avail himself of the benefits of the decree."19 There being no allegation in its complaint that the prerequisites were complied with, it is clear that the complaint did fail to state a cause of action on this ground.

Deed of Assignment included the option to purchase

Neither do we find merit in the contention of respondent Santos that the assignment of the lease contract to petitioner did not include the option to purchase. The provisions of the deeds of assignment with regard to matters assigned were very clear. Under the first assignment between Frederick Chua as assignor and Lee Ching Bing as assignee, it was expressly stated that:

. . . . the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein ASSIGNEE, all his rights, interest and participation over said premises afore-described, . . . . 20 (emphasis supplied)

And under the subsequent assignment executed between Lee Ching Bing as assignor and the petitioner, represented by its Vice President Vicenta Lo Chiong, as assignee, it was likewise expressly stipulated that;

. . . . the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and participation over said leased premises, . . . . 21 (emphasis supplied)

One of such rights included in the contract of lease and, therefore, in the assignments of rights was the lessee's right of first option or priority to buy the properties subject of the lease, as provided in paragraph 9 of the assigned lease contract. The deed of assignment need not be very specific as to which rights and obligations were passed on to the assignee. It is understood in the general provision aforequoted that all specific rights and obligationscontained in the contract of lease are those referred to as being assigned. Needless to state, respondent Santos gave her unqualified conformity to both assignments of rights.

Respondent Raymundo privy to the Contract of Lease

With respect to the contention of respondent Raymundo that he is not privy to the lease contract, not being the lessor nor the lessee referred to therein, he could thus not have violated its provisions, but he is nevertheless a proper party. Clearly, he stepped into the shoes of the owner-lessor of the land as, by virtue of his purchase, he assumed all the obligations of the lessor under the lease contract. Moreover, he received benefits in the form of rental payments. Furthermore, the complaint, as well as the petition, prayed for the annulment of the sale of the properties to him. Both pleadings also alleged collusion between him and respondent Santos which defeated the exercise by petitioner of its right of first refusal. In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not indispensable, party to the case. 22 A favorable judgment for the petitioner will necessarily affect the rights of respondent Raymundo as the buyer of the property over which petitioner would like to assert its right of first option to buy. Having come to the conclusion that the complaint states a valid cause of action for breach of the right of first refusal and that the trial court should thus not have dismissed the complaint, we find no more need to pass upon the question of whether the complaint states a cause of action for damages or whether the complaint is barred by estoppel or laches. As these matters require presentation and/or determination of facts, they can be best resolved after trial on the merits.

While the lower courts erred in dismissing the complaint, private respondents, however, cannot be denied their day in court. While, in the resolution of a motion to dismiss, the truth of the facts alleged in the complaint are theoretically admitted, such admission is merely hypothetical and only for the purpose of resolving the motion. In case of denial, the movant is not to be deprived of the right to submit its own case and to submit evidence to rebut the allegations in the complaint. Neither will the grant of the motion by a trial court and the ultimate reversal thereof by an appellate court have the effect of stifling such right. 23 So too, the trial court should be given the opportunity to evaluate the evidence, apply the law and decree the proper remedy. Hence, we remand the instant case to the trial court to allow private respondents to have their day in court. WHEREFORE, the petition is GRANTED. The assailed decisions of the trial court and Court of Appeals are hereby REVERSED and SET ASIDE. The case is REMANDED to the Regional Trial Court of Makati for further proceedings. SO ORDERED. Narvasa, C.J., Davide, Jr., Melo and Francisco, JJ., concur.

V. PARTIES TO A CONTRACT OF SALE

C. SPECIAL INCAPACITY

G.R. No. 72306 October 6, 1988 DAVID P. FORNILDA, JUAN P. FORNILDA, EMILIA P. FORNILDA OLILI, LEOCADIA P. FORNILDA LABAYEN and ANGELA P. FORNILDA GUTIERREZ, petitioners, vs. THE BRANCH 164, REGIONAL TRIAL COURT IVTH JUDICIAL REGION, PASIG, JOAQUIN C. ANTONIO Deputy Sheriff, RTC, 4JR Tanay, Rizal and ATTY. SERGIO I. AMONOY respondents. Irene C. Ishiwata for petitioner A. Gutierrez. Sergio L Amonoy for and in his own behalf. MELENCIO-HERRERA, J.: The Petition entitled "Petisiyung Makapagpasuri Taglay ang Pagpapapigil ng Utos", translated as one for certiorari with Preliminary Injunction, was filed on 27 September 1985 by three (3) petitioners, namely David P. Fornilda, Emilia P. Fornilda-Olili and Angela P. Fornilda-Gutierrez. They seek the reversal of the Order of respondent Trial Court, dated 25 July 1985, granting a Writ of Possession, as well as its Orders, dated 25 April 1986 and 16 May 1986 (p. 241, Rollo), directing and authorizing respondent Sheriff to demolish the houses of petitioners Angela and Leocadia Fornilda (who is listed as a petitioner but who did not sign the Petition). Neither is Juan P. Fornilda a signatory. The facts disclose that the deceased, Julio M. Catolos formerly owned six (6) parcels of land located in Tanay, Rizal, which are the controverted properties in the present litigation. His estate was the subject of settlement in Special Proceedings No. 3103 of the then Court of First Instance of Rizal, at Pasig, Branch 1. Francesca Catolos Agnes Catolos Alfonso I. ForniIda and Asuncion M. Pasamba were some of the legal heirs and were represented in the case by Atty. Sergio Amonoy (hereinafter referred to as Respondent Amonoy). A Project of Partition was filed in the Intestate Court whereby the Controverted Parcels were adjudicated to Alfonso I. Fornilda and Asuncion M. Pasamba. On 12 January 1965, the Court approved the Project of Partition. It was not until 6 August 1969, however, that the estate was declared closed and terminated after estate and inheritance taxes had been paid, the claims against the estate settled and all properties adjudicated. Eight (8) days thereafter, or on 20 January 1965, Alfonso 1. Fornilda and Asuncion M. Pasamba executed a Contract of Mortgage wherein they mortgaged the Controverted Parcels to Respondent Amonoy as security for the payment of his attorney's fees for services rendered in the aforementioned intestate proceedings, in the amount of P27,600.00 (Annex "A", Comment). Asuncion M. Pasamba died on 24 February 1969 while Alfonso 1. Fornilda passed away on 2 July 1969. Petitioners are some of the heirs of Alfonso I. Fornilda. Since the mortgage indebtedness was not paid, on 21 January 1970, Respondent Amonoy instituted foreclosure proceedings before the Court of First Instance of Rizal, at Pasig, Branch

VIII entitled "Sergio I. Amonoy vs. Heirs of Asuncion M. Pasamba and Heirs of Alfonso 1. Fornilda" [Civil Case No. 12726] (Annex "B", Ibid.). Petitioners, as defendants therein, alleged that the amount agreed upon as attorney's fees was only Pll,695.92 and that the sum of P27,600.00 was unconscionable and unreasonable. Appearing as signatory counsel for Respondent Amonoy was Atty. Jose S. Balajadia. On 28 September 1972, the Trial Court 1 rendered judgement in the Foreclosure Case ordering the Pasamba and Fornilda heirs to pay Respondent Amonoy, within ninety (90).days from receipt of the decision, the sums of P27,600.00 representing the attorney's fees secured by the mortgage; Pl l,880.00 as the value of the harvest from two (2) parcels of land; and 25% of the total of the two amounts, or P9,645.00, as attorney's fees, failing which the Controverted Parcels would be sold at public auction (Annex "C", Ibid.). On 6 February 1973, the Controverted Parcels were foreclosed and on 23 March 1973, an auction sale was held with Respondent Amonoy as the sole bidder for P23,760.00 (Annex "D", Ibid.). Said sale was confirmed by the Trial Court on 2 May 1973 (Annex "E", Ibid.). To satisfy the deficiency, another execution sale was conducted with Respondent Amonoy as the sole bidder for P12,137.50. On the basis of an Affidavit of Consolidation of Ownership by Respondent Amonoy, the corresponding tax declarations covering the Controverted Parcels were consolidated in his name. On 19 December 1973, or a year after the judgment in the Foreclosure Case, an action for Annulment of Judgment entitled "Maria Penano et al. vs. Sergio Amonoy, et al." (Civil Case No. 18731) was filed before the then Court of First Instance of Rizal, at Pasig the Annulment Case (Annex "F", Ibid.) Petitioners were also included as plaintiffs. Appearing for the plaintiffs in that case was Atty. Jose F. Tiburcio. Squarely put in issue were the propriety of the mortgage, the validity of the judgment in the Foreclosure Case, and the tenability of the acquisitions by Respondent Amonoy at the Sheriffs sale. Of particular relevance to the instant Petition is the contention that the mortgage and the Sheriffs sales were null and void as contrary to the positive statutory injunction in Article 1491 (5) of the Civil Code, which prohibits attorneys from purchasing, even at a public or judicial auction, properties and rights in litigation, and that the Trial Court, in the Foreclosure Case, had never acquired jurisdiction over the subject matter of the action, i.e., the Controverted Parcels. On 7 November 1977, the Trial Court 2 dismissed the Annulment Case holding that the particular disqualification in Article 1491 of the Civil Code is not of general application nor of universal effect but must be reconciled with the rule that permits judgment creditors to be bidders at sheriffs sales, so that Respondent Amonoy was "clearly not prohibited from bidding his judgment and his acquisitions therefore are sanctioned by law" (Annex "G", Ibid.). On 22 July 1981, the Court of Appeals (in CA-G.R. No. 63214-R) (the Appealed Case) 3 affirmed the aforesaid judgment predicated on three principal grounds: (1) that no legal impediment exists to bar an heir from encumbering his share of the estate after a project of partition has been approved, that act being a valid exercise of his right of ownership; (2) res judicata, since petitioners never questioned the capacity of Respondent Amonoy to acquire the property in the Foreclosure Case; and (3) the complaint in the Annulment Case did not allege extrinsic fraud nor collusion in obtaining the judgment so that the action must fail. Upon remand of the Foreclusure Case to respondent Regional Trial Court, Branch 164, at Pasig, Respondent Sheriff, on 26 August 1985, notified petitioners to vacate the premises (p. 17, Rollo), subject of the Writ of Possession issued on 25 July 1985 (p. 18, Rollo). On 27 September 1985, petitioners came to this Court in a pleading entitled "Petisiyung Makapagpasuri Taglay ang Pagpapapigil ng Utos". On 11 November 1985, we dismissed the petition for non-payment of docket and other fees. However, upon payment thereof, the Order of dismissal was set aside and respondents were directed to submit their Comment. In his Comment, Respondent Amonoy denies that he had acquired the Controverted Parcels through immoral and illegal means contending that "the question of attorney's fees, the mortgage to secure the same, the sale of the mortgaged properties at public auction, which was confirmed by the Court, and ultimately, the ownership and possession over them, have all been judicially adjudicated (p. 146, Rollo) We gave due course to the petition and required the filing of the parties' respective memoranda. Meanwhile, on motion of Respondent Amonoy, dated 24 April 1986, respondent Trial Court, in the Foreclosure Case, issued Orders dated 25 April and 16 May 1986 authorizing the demolition of the houses and other structures of petitioners Leocadia and Angela Fornilda (p. 241, Rollo).

On 1 June 1986 the house of Angela Fornilda was totally demolished while that of Leocadia was spared due to the latter's assurance that she would seek postponement. On 1 June 1986, in a pleading entitled "Mahigpit na Musiyung Para Papanagutin Kaugnay ng Paglalapastangan", followed by a Musiyung Makahingi ng Utos sa Pagpapapigil ng Pagpapagiba at Papanagutin sa Paglalapastangan' petitioners applied for a Restraining Order, which we granted on 2 June 1986, enjoining respondents and the Sheriff of Rizal from demolishing petitioners' houses (p. 221, Rollo). In a pleading entitled 'Mahigpit na Musiyung para Papanagutin Kaugnay ng Paglapastangan' and 'Masasamang Gawain (Mal-Practices)' and 'Paninindigan (Memorandum)' both filed on 16 June 1988, petitioners likewise charged Respondent Amonoy with malpractice and prayed for his disbarment (pp. 224; 226, Rollo). In Respondent Amonoy's "Comment and Manifestations" filed on 30 June 1986, he indicated that the Restraining Order received by the Deputy Sheriff of Rizal only on 6 June 1986 had already become moot and academic as Angela Fornilda's house had been demolished on 2 June 1986 while Leocadia offered to buy the small area of the land where her house is built and he had relented. In the interim, Respondent Amonoy was appointed as Assistant Provincial Fiscal of Rizal, and subsequently as a Regional Trial Court Judge in Pasay City. The threshold issue is whether or not the mortgage constituted on the Controverted Parcels in favor of Respondent Amonoy comes within the scope of the prohibition in Article 1491 of the Civil Code. The pertinent portions of the said Articles read:

Art. 1491. The following persons cannot acquire by purchase even at a public or judicial or auction, either in person or through the mediation of another: xxx xxx xxx (5) Justices, judges, prosecuting attorneys, ... the property and rights in litigation or levied upon on execution before the court within whose junction or territory they exercise their respective functions; this prohibition includes the act of acquitting by assignment and shall apply to lawyers with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession. (Emphasis supplied)

Under the aforequoted provision, a lawyer is prohibited from acquiring either by purchase or assignment the property or rights involved which are the object of the litigation in which they intervene by virtue of their profession ( Padilla Vol. H Civil Law, 1974 Ed., p. 230 citing Hernandez vs. Villanueva, 40 Phil. 773 and Rubias vs. Batiller 51 SCRA 130). The prohibition on purchase is all embracing to include not only sales to private individuals but also public or judicial sales (ibid., p. 221). The rationale advanced for the prohibition is that public policy disallows the transactions in view of the fiduciary relationship involved i.e., the relation of trust and confidence and the peculiar control exercised by these persons (Paras, Civil Code, Vol. V, 1973., p. 70). In the instant case, it is undisputed that the Controverted Parcels were part of the estate of the late Julio M. Catolos subject of intestate estate proceedings, wherein Respondent Amonoy acted as counsel for some of the heirs from 1959 until 1968 by his own admission (Comment, p. 145, Rollo); that these properties were adjudicated to Alfonso Fornilda and Asuncion M. Pasamba in the Project of Partition approved by the Court on 12 January 1965; that on 20 January 1965, or only eight (8) days thereafter, and while he was still intervening in the case as counsel, these properties were mortgaged by petitioners' predecessor-in-interest to Respondent Amonoy to secure payment of the latter's attorney's fees in the amount of P27,600.00; that since the mortgage indebtedness was not paid, Respondent Amonoy instituted an action for judicial foreclosure of mortgage on 21 January 1970; that the mortgage was subsequently ordered foreclosed and auction sale followed where Respondent Amonoy was the sole bidder for P23,600.00; and that being short of the mortgage indebtedness, he applied for and further obtained a deficiency judgment. Telling, therefore, is the fact that the transaction involved falls squarely within the prohibition against any acquisition by a lawyer of properties belonging to parties they represent which are still in suit. For, while the Project of Partition was approved on 12 January 1965, it was not until 6 August 1969 that the estate was declared closed and terminated (Record on Appeal, Civil Case No. 3103, p. 44). At the time the mortgage was executed, therefore, the relationship of lawyer and client still existed, the very relation of trust and confidence sought to be protected by the prohibition, when a lawyer occupies a vantage position to press upon or dictate terms to an harassed client. What is more, the mortgage was executed only eight (8) days after approval of the Project of Partition thereby evincing a clear intention on

Respondent Amonoy's part to protect his own interests and ride roughshod over that of his clients. From the time of the execution of the mortgage in his favor, Respondent Amonoy had already asserted a title adverse to his clients' interests at a time when the relationship of lawyer and client had not yet been severed. The fact that the properties were first mortgaged and only subsequently acquired in an auction sale long after the termination of the intestate proceedings will not remove it from the scope of the prohibition. To rule otherwise would be to countenance indirectly what cannot be done directly. There is no gainsaying that petitioners' predecessor-in-interest, as an heir, could encumber the property adjudicated to him; that the Complaint in the Annulment Case did not contain any specific allegation of fraud or collusion in obtaining the judgment appealed from as opined by the Court of appeals in the Appealed Case; and that the auction sale of the properties to Respondent Amonoy was judicially confirmed and ownership and possession of the Controverted Parcels ultimately transferred to him. Nonetheless, considering that the mortgage contract, entered into in contravention of Article 1491 of the Civil Code, supra, is expressly prohibited by law, the same must be held inexistent and void ab initio (Director of Lands vs. Abagat, 53 Phil. 147).

Art. 1409. The following contracts are inexistent and void from the beginning: (1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; xxx xxx xxx (7) Those expressly prohibited or declared void by law. These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived. (Civil Code)

Being a void contract, the action or defense for the declaration of its inesistence is imprescriptible (Article 1410, Civil Code). The defect of a void or inexistence contract is permanent. Mere lapse of time cannot give it efficacy. Neither can the right to set up the defense of illegality be waived (Article 1409, Civil Code). The Controverted Parcels could not have been the object of any mortgage contract in favor of Respondent Amonoy and consequently neither of a foreclosure sale. By analogy, the illegality must be held to extend to whatsover results directly from the illegal source (Article 1422, Civil Code). Such being the case, the Trial Court did not acquire any jurisdiction over the subject matter of the Foreclosure Case and the judgment rendered therein could not have attained any finality and could be attacked at any time. Neither could it have been a bar to the action brought by petitioners for its annulment by reason of res judicata. (Municipality of Antipolo vs. Zapanta, No. L-65334, December 26, 1984, 133 SCRA 820). Two of the requisites of the rule of prior judgment as a bar to a subsequent case, namely, (1) a final judgment and (2) that it must have been rendered by a Court having jurisdiction over the subject matter, are conspicuously absent. And since the nullity of the transaction herein involved proceeds from the illegality of the cause or object of the contract, and the act does not constitute a criminal offense, the return to petitioners of the Controverted Parcels is in order.

Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: xxx xxx xxx (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. (Civil Code).

WHEREFORE, certiorari is granted; the Order of respondent Trial Court, dated 25 July 1985, granting a Writ of Possession, as well as its Orders, dated 25 April 1986 and 16 May 1986, directing and authorizing respondent Sheriff to demolish the houses of petitioners Angela and Leocadia Fornilda are hereby set aside, and the Temporary Restraining Order heretofore issued, is made permanent. The six (6) parcels of land herein controverted are hereby ordered returned to petitioners unless some of them have been conveyed to innocent third persons. With respect to petitioners' prayer for disbarment by reason of malpractice of Respondent Amonoy embodied in their pleading entitled 'Mahigpit na Musiyung para Papanagutin Kaugnay ng Paglalapastangan' and 'Masasamang Gawain (Mal-Pracrices) and "Paninindigan (Memorandum)" both filed on Sergio I. Amonoy is hereby required, within fifteen (15) days

from notice hereof, to submit an Answer thereto. After receipt of the same, a new docket number will be assigned to the case. Costs against respondent, Sergio I. Amonoy. SO ORDERED. Paras, Sarmiento and Regalado, JJ., concur. Padilla, J., took no part. G.R. No. L-26096 February 27, 1979 THE DIRECTOR OF LANDS, petitioner, vs. SILVERETRA ABABA, ET AL., claimants, JUAN LARRAZABAL, MARTA C. DE LARRAZABAL, MAXIMO ABAROQUEZ and ANASTACIA CABIGAS, petitioners-appellants, ALBERTO FERNANDEZ, adverse claimant-appellee. Juanito Ll. Abao for petitioners-appellants. Alberto R Fernandez in his own behalf. MAKASIAR, J.: This is an appeal from the order of the Court of First Instance of Cebu dated March 19, 1966 denying the petition for the cancellation of an adverse claim registered by the adverse claimant on the transfer certificate of title of the petitioners. The adverse claimant, Atty. Alberto B. Fernandez was retained as counsel by petitioner, Maximo Abarquez, in Civil Case No. R-6573 of the Court of First Instance of Cebu, entitled "Maximo Abarquez vs. Agripina Abarquez", for the annulment of a contract of sale with right of repurchase and for the recovery of the land which was the subject matter thereof. The Court of First Instance of Cebu rendered a decision on May 29, 1961 adverse to the petitioner and so he appealed to the Court of Appeals. Litigating as a pauper in the lower court and engaging the services of his lawyer on a contingent basis, petitioner, liable to compensate his lawyer whom he also retained for his appeal executed a document on June 10, 1961 in the Cebuano-Visayan dialect whereby he obliged himself to give to his lawyer one-half (1/2) of whatever he might recover from Lots 5600 and 5602 should the appeal prosper. The contents of the document as translated are as follows:

AGREEMENT KNOW ALL MEN BY THESE PRESENTS: That I, MAXIMO ABARQUEZ, Plaintiff in Case No. R-6573 of the Court of First Instance of Cebu, make known through this agreement that for the services rendered by Atty. Alberto B. Fernandez who is my lawyer in this case, if the appeal is won up to the Supreme Court, I Promise and will guarantee that I win give to said lawyer one-half (1/2) of what I may recover from the estate of my father in Lots No. 5600 and 5602 which are located at Bulacao Pardo, City of Cebu. That with respect to any money which may be adjudged to me from Agripina Abarquez, except 'Attorney's Fees', the same shall pertain to me and not to said lawyer. IN WITNESS WHEREOF, I have caused my right thumb. mark to be affixed hereto this 10th of June, 1961, at the City of Cebu.

THUMBMARK MAXIMO

ABARQUEZ

(p. 5, Petitioner-Appellant's Brief, p. 26, rec.) The real Property sought to be recovered in Civil Case No. R6573 was actually the share of the petitioner in Lots 5600 and 5602, which were part of the estate of his deceased parents and which were partitioned the heirs which included petitioner Maximo Abarquez and his elder sister Agripina Abarquez, the defendant in said civil case. This partition was made pursuant to a project of partition approved by the Court which provided am other that Lots Nos. 5600 and 5602 were to be divided into three equal Parts, one third of which shall be given to Maximo Abarquez. However, Agripina Abarquez the share of her brother stating that the latter executed an instrument of pacto de retroprior to the partition conveying to her any or all rights in the estate of their parents. Petitioner discovered later that the claim of his sister over his share was based on an instrument he was believe all along to be a mere acknowledgment of the receipt of P700.00 which his sister gave to him as a consideration for g care of their father during the latter's illness and never an instrument of pacto de retro. Hence, he instituted an action to annul the alleged instrument of pacto de retro. The Court of Appeals in a decision promulgated on August 27, 1963 reversed the decision of the lower court and annulled the dead of pacto de retro. Appellee Agripina Abarquez filed a motion for reconsideration but the same was denied in a resolution dated January 7, 1964 (p. 66, Record on Appeal; p. 13, Rec.) and the judgment became final and executory on January 22,1964. Subsequently, Transfer Certificate of Title No. 31841 was issued on May 19,1965 in the name of Maximo Abarquez, married to Anastacia Cabigas, over his adjudged share in Lots Nos. 5600 and 5602 containing an area of 4,085 square meters (p. 110, ROA; p. 13, rec.). These parcels of land later by the subject matter of the adverse claim filed by the claimant. The case having been resolved and title having been issued to petitioner, adverse claimant waited for petitioner to comply with ha obligation under the document executed by him on June 10, 1961 by delivering the one-half (½) portion of the said parcels of land. Petitioner refused to comply with his obligation and instead offered to sell the whole parcels of land covered by TCT No. 31841 to petitioner-spouses Juan Larrazabal and Marta C. de Larrazabal. Upon being informed of the intention of the petitioner, adverse t claimant immediately took stops to protect his interest by filing with the trial court a motion to annotate Ins attorney's lien on TCT No. 31841 on June 10, 1965 and by notifying the prospective buyers of his claim over the one-half portion of the parcels of land. Realizing later that the motion to annotate attorney's lien was a wrong remedy, as it was not within the purview of Section 37, rule 138 of the Revised Rule of Court, but before the same was by the trial court, adverse t by an affidavit of adverse claim on July 19, 1965 with the Register of Deeds of Cebu (p. 14, ROA; p. 13, rec.). By virtue of the petition of mid affidavit the adverse claim for one-half (½) of the lots covered by the June 10, 1961 document was annotated on TCT No. 31841. Notwithstanding the annotation of the adverse claim, petitioner-spouse Maximo Abarquez and Anastacia Cabigas conveyed by deed of absolute sale on July 29, 1965 two-thirds (2/3) of the lands covered by TCT No. 31841 to petitioner-spouses Juan Larrazabal and Marta C. de Larrazabal. When the new transfer certificate of title No. 32996 was issued, the annotation of adverse claim on TCT No. 31841 necessarily had to appear on the new transfer certificate of title. This adverse claim on TCT No. 32996 became the subject of cancellation proceedings filed by herein petitioner-spouses on March 7, 1966 with the Court of First Instance of Cebu (p. 2 ROA; p. 13, rec.). The adverse claimant, Atty. Alberto B. Fernandez, filed his opposition to the petition for cancellation on March 18, 1966 (p. 20, ROA; p. 13 rec.). The trial court resolved the issue on March 19, 1966, when it declared that:

...the petition to cancel the adverse claim should be denied. The admission by the petitioners that the lawyers (Attys. Fernandez and Batiguin) are entitled to only one-third of the lot described in Transfer Certificate of Title No.

32966 is the best proof of the authority to maintain said adverse claim (p. 57, ROA; p. 13, rec.).

Petitioner-spouses decided to appeal the order of dismissal to this Court and correspondingly filed the notice of appeal on April 1, 1966 with the trial court. On April 2, 1966, petitioner-spouses filed the appeal bond and subsequently filed the record on appeal on April 6, 1966. The records of the case were forwarded to this Court through the Land Registration Commission of Manila and were received by this Court on May 5, 1966. Counsel for the petitioner-spouses filed the printed record on appeal on July 12, 1966. Required to file the appellants' brief, counsel filed one on August 29, 1966 while that of the appellee was filed on October 1, 1966 after having been granted an extension to file his brief. The case was submitted for decision on December 1, 1966. Counsel for the petitioners filed a motion to expunge appellees' brief on December 8, 1966 for having been filed beyond the reglementary period, but the same was denied by this Court in a resolution dated February 13, 1967. The pivotal issue to be resolved in the instant case is the validity or nullity of the registration of the adverse claim of Atty. Fernandez, resolution of which in turn hinges on the question of whether or not the contract for a contingent fee, basis of the interest of Atty. Fernandez, is prohibited by the Article 1491 of the New Civil Code and Canon 13 of the Canons of Professional Ethics. Petitioners contend that a contract for a contingent fee violates Article 1491 because it involves an assignment of a property subject of litigation. That article provides:

Article 1491. The following persons cannot acquire by purchase even at a public or judicial auction, either in person or through the petition of another. xxx xxx xxx (5) Justices, judges, prosecuting attorneys, clerks of superior and inferior and other o and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions;this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession (Emphasis supplied).

This contention is without merit. Article 1491 prohibits only the sale or assignment between the lawyer and his client, of property which is the subject of litigation. As WE have already stated. "The prohibition in said article a only to applies stated: " The prohibition in said article applies only to a sale or assignment to the lawyer by his client of the property which is the subject of litigation. In other words, for the prohibition to operate, the sale or t of the property must take place during the pendency of the litigation involving the property" (Rosario Vda. de Laig vs. Court of Appeals, et al., L-26882, November 21, 1978). Likewise, under American Law, the prohibition does not apply to "cases where after completion of litigation the lawyer accepts on account of his fee, an interest the assets realized by the litigation" (Drinker, Henry S., Legal Ethics, p. 100 [1953], citing App. A, 280; N.Y. Ciu 714). "There is a clear distraction between such cases and one in which the lawyer speculates on the outcome of the matter in which he is employed" (Drinker, supra, p. 100 citing A.B.A. Op. 279). A contract for a contingent fee is not covered by Article 1491 because the tranfer or assignment of the property in litigation takes effect only after the finality of a favorable judgment. In the instant case, the attorney's fees of Atty. Fernandez, consisting of one-half (1/2) of whatever Maximo Abarquez might recover from his share in the lots in question, is contingent upon the success of the appeal. Hence, the payment of the attorney's fees, that is, the transfer or assignment of one-half (1/2) of the property in litigation will take place only if the appeal prospers. Therefore, the tranfer actually takes effect after the finality of a favorable judgment rendered on appeal and not during the pendency of the litigation involving the property in question. Consequently, the contract for a contingent fee is not covered by Article 1491. While Spanish civilists differ in their views on the above issue — whether or not a contingent fee contract (quota litis agreement) is covered by Article 1491 — with Manresa advancing that it is covered, thus:

Se ha discutido si en la incapacidad de Ion Procumdam y Abogados asta o el pecto de quota litis. Consiste este, como es sabido, en la estipulacion de que el Abogado o el Procurador ban de hacer suyos una parte alicuota de In cona

que se li m la son es favorable. Con es te concepto a la vista, es para nosortros que el articulo que comentamos no menciona ese pacto; pero como la incapacidad de los Abogados y Procuradores se extinede al acto de adquirir por cesion; y la efectividad del pacto dequota litis implica necesariamente una cesion, estimamos que con solo el num. 5 del articulo 1459 podria con exito la nulidad de ese pacto tradicionalmente considerado como ilicito. xxx xxx xxx Debe tenerse tambien en cuenta, respecto del ultimo parrafo del articulo 1459, la sentencia del Tribunal Supreme de 25 Enero de 1902, que delcara que si bien el procurador no puede adquirir para si los bienes, en cuanto a los cuales tiene incapacidad, puede adquirirlos para otra persona en quien no concurra incapacidad alguna (Manresa, Comentarios al Codigo Civil Español, Tomo X, p. 110 [4a ed., 1931] emphasis supplied).

Castan, maintaining that it is not covered, opines thus; C. Prohibiciones impuestas a las personas encargadas, mas o menos directamente, de la administracion de justicia.—El mismo art. 1,459 del Codigo civil prohibe a los Magistrados, Jueces, individuos del Minesterio fiscal, Secretarios de Tribunales y Juzgados y Oficiales de Justicia adquirir por compra (aunque sea en subasta publica o judicial, por si ni por persona alguna intermedia). 'Los bienes y derechos que estuviesen en litigio ante el Tribunal en cuya jurisdicion on teritorio ejercieran sus respectivas funciones, extendiendo se esta prohibicion al acto de adquirir por cesion', y siendo tambien extensiva ' Alos Abogados y Procuradores respecto a los bienes y derecho que fueran objeto del un litigio en que intervengan pos su profession y oficio.' El fundamento de esta prohibicion es clarismo. No solo se trata—dice Manresa—de quitar la ocasion al fraude; persiguese, ademas, el proposito de rodear a las personas que intervienen en la administracion de justicia de todos los prestigios que necesitan para ejercer su ministerio, librando los de toda sospecha, que, aunque fuere infundada, redundaria en descredito de la institucion. Por no dor lugar a recelos de ninguna clase, admite el Codigo (en el apartado penutimo del art. 1.459) algunos casos en que, por excepcion, no se aplica el pricipio prohibitivo de que venimos hablando. Tales son los de que se trate de acciones hereditarias entre coheredero, de cesion en pago de creditos, o de garantia de los bienes que posean los funcionarios de justicia.

Algunos autores (Goyena, Manresa, Valverde) creen que en la prohibicion del art. 1.459 esta comprendido el pacto de quota litis (o sea el convenio por el cual se concede al Abogado o Procurador, para el caso de obtener sentencia favorable una parte alicuota de la cosa o cantidad que se litiga), porque dicho pacto supone la venta o cesion de una parte de la cosa o drecho que es objecto del litigio. Pero Mucius Scaevola oberva, conrazon, que en el repetido pacto no hay propiamente caso de compraventa ni de cesion de derechos, y bastan para estimario nulo otros preceptos del Codigo como los relativos a la ilicitud de la causa (Castan, Derecho Civil Espñol, Tomo 4, pp. 68-69, [9a ed., 1956], emphasis supplied).

The Supreme Court of Spain, in its sentencia of 12 November 1917, has ruled that Article 1459 of the Spanish Civil Code (Article 1491 of our Civil Code) does not apply to a contract for a contingent fee because it is not contrary to morals or to law, holding that:

... que no es susceptible de aplicarse el precepto contenido en el num. 5 del art. 1.459 a un contrato en el que se restrigen los honorarios de un Abogado a un tanto por ciento de lo que se obtuviera en el litigio, cosa no repudiada por la moral ni por la ley (Tolentino, Civil Code of the Philippines, p. 35, Vol. V [1959]; Castan, supra; Manresa, supra).

In the Philippines, among the Filipino commentators, only Justice Capistrano ventured to state his view on the said issue, thus:

The incapacity to purchase or acquire by assignment, which the law also extends to lawyers with t to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession, also covers contracts for professional services quota litis. Such contracts, however, have been declared valid by the Supreme Court" (Capistrano, Civil Code of the Philippines, p. 44, Vol. IV [1951]).

Dr. Tolentino merely restated the views of Castan and Manresa as well as the state of jurisprudence in Spain, as follows:

Attorneys-at-law—Some writers, like Goyena, Manresa and Valverde believe that this article covers quota litis agreements, under which a lawyer is to be given an aliquot part of the property or amount in litigation if he should win the case for his client. Scaevola and Castan, however, believe that such a contract does not involve a sale or assignment of right but it may be void under other articles of the Code, such as those referring to illicit cause- On the other hand the Spanish Supreme Court has held that this article is not applicable to a contract which limits the fees of a lawyer to a certain percentage of what may be recovered in litigation, as this is not contrary to moral or to law. (Tolentino, Civil Code of the Philippines, p. 35, Vol. V [1959]; Castan, supra, Emphasis supplied).

Petitioners her contend that a contract for a contingent fee violates the Canons of Professional Ethics. this is likewise without merit This posture of petitioners overlooked Canon 13 of the Canons which expressly contingent fees by way of exception to Canon 10 upon which petitioners relied. For while Canon 10 prohibits a lawyer from purchasing ...any interest in the subject matter of the litigation which he is conducting", Canon 13, on the other hand, allowed a reasonable contingent fee contract, thus: "A contract for a con. tangent fee where sanctioned by law, should be reasonable under all the circumstances of the ca including the risk and uncertainty of the compensation, but should always be subject to the supervision of a court, as to its reasonableness." As pointed out by an authority on Legal Ethics:

Every lawyer is intensely interested in the successful outcome of his case, not only as affecting his reputation, but also his compensation. Canon 13 specifically permits the lawyer to contract for a con tangent fee which of itself, negatives the thought that the Canons preclude the lawyer's having a stake in his litigation. As pointed out by Professor Cheatham on page 170 n. of his Case Book, there is an inescapable conflict of interest between lawyer and client in the matter of fees. Nor despite some statements to the con in Committee opinions, is it believed that, particularly in view of Canon 13, Canon 10 precludes in every case an arrangement to make the lawyer's fee payable only out of the results of the litigation. The distinction is between buying an interest in the litigation as a speculation which Canon 10 condemns and agreeing, in a case which the lawyer undertakes primarily in his professional capacity, to accept his compensation contingent on the outcome (Drinker, Henry S Legal Ethics, p. 99, [1953], Emphasis supplied).

These Canons of Professional Ethics have already received "judicial recognition by being cited and applied by the Supreme Court of the Philippines in its opinion" Malcolm, Legal and Judicial Ethics, p. 9 [1949]). And they have likewise been considered sources of Legal Ethics. More importantly, the American Bar Association, through Chairman Howe of the Ethics Committee, opined that "The Canons of Professional Ethics are legislative expressions of professional opinion ABA Op. 37 [1912])" [See footnote 25, Drinker, Legal Ethics, p. 27]. Therefore, the Canons have some binding effect Likewise, it must be noted that this Court has already recognized this type of a contract as early as the case ofUlanday vs. Manila Railroad Co. (45 PhiL 540 [1923]), where WE held that "contingent fees are not prohibited in the Philippines, and since impliedly sanctioned by law 'Should be under the supervision of the court in order that clients may be protected from unjust charges' (Canons of Profession 1 Ethics)". The same doctrine was subsequently reiterated in Grey vs. Insular Lumber Co. (97 PhiL 833 [1955]) and Recto vs. Harden (100 PhiL 427 [1956]). In the 1967 case of Albano vs. Ramos (20 SCRA 171 [19671), the attorney was allowed to recover in a separate action her attomey's fee of one-third (1/3) of the lands and damages recovered as stipulated in the contingent fee contract. And this Court in the recent case of Rosario Vda de Laig vs. Court of Appeals, et al. (supra), which involved a contingent fee of one-half (½) of the property in question, held than ,contingent fees are recognized in this i

jurisdiction (Canon 13 of the Canons of Professional Ethics adopted by the Philippine Bar association in 1917 [Appendix B, Revised Rules of Court)), which contingent fees may be a portion of the property in litigation." Contracts of this nature are permitted because they redound to the benefit of the poor client and the lawyer "especially in cases where the client has meritorious cause of action, but no means with which to pay for legal services unless he can, with the sanction of law, make a contract for a contingent fee to be paid out of the proceeds of the litigation" (Francisco, Legal Ethics, p. 294 [1949], citing Lipscomb vs. Adams 91 S.W. 1046, 1048 [1949]). Oftentimes, contingent fees are the only means by which the poor and helpless can redress for injuries sustained and have their rights vindicated. Thus:

The reason for allowing compensation for professional services based on contingent fees is that if a person could not secure counsel by a promise of large fees in case of success, to be derived from the subject matter of the suit, it would often place the poor in such a condition as to amount to a practical denial of justice. It not infrequently happens that person are injured through the negligence or willful misconduct of others, but by reason of poverty are unable to employ counsel to assert their rights. In such event their only means of redress lies in gratuitous service, which is rarely given, or in their ability to find some one who will conduct the case for a contingent fee. That relations of this king are often abused by speculative attorneys or that suits of this character are turned into a sort of commercial traffic by the lawyer, does not destroy the beneficial result to one who is so poor to employ counsel (id, at p. 293, citing Warvelle, Legal Ethics, p. 92, Emphasis supplied).

Justice George Malcolm, writing on contingent fees, also stated that: ... the system of contingent compensation has the merit of affording to certain classes of persons the opportunity to procure the prosecution of their claims which otherwise would be beyond their means. In many cases in the United States and the Philippines, the contingent fee is socially necessary (Malcolm, Legal and Judicial Ethics, p. 55 [1949], emphasis supplied).

Stressing further the importance of contingent fees, Professor Max Radin of the University of California, said that:

The contingent fee certainly increases the possibility that vexatious and unfounded suits will be brought. On the other hand, it makes possible the enforcement of legitimate claims which otherwise would be abandoned because of the poverty of the claimants. Of these two possibilities, the social advantage seems clearly on the side of the contingent fee. It may in fact be added by way of reply to the first objection that vexations and unfounded suits have been brought by men who could and did pay substantial attorney's fees for that purpose (Radin, Contingent Fees in California, 28 Cal. L. Rev. 587, 589 [1940], emphasis supplied).

Finally, a contingent fee contract is always subject to the supervision of the courts with respect to the stipulated amount and may be reduced or nullified. So that in the event that there is any undue influence or fraud in the execution of the contract or that the fee is excessive, the client is not without remedy because the court will amply protect him. As held in the case of Grey vs. Insular Lumber Co., supra, citing the case of Ulanday vs. Manila Railroad Co., supra:

Where it is shown that the contract for a contingent fee was obtained by any undue influence of the attorney over the client, or by any fraud or imposition, or that the compensation is so clearly excessive as to amount to extortion, the court win in a proper case protect the aggrieved party.

In the present case, there is no iota of proof to show that Atty. Fernandez had exerted any undue influence or had Perpetrated fraud on, or had in any manner taken advantage of his client, Maximo Abarquez. And, the compensation of one-half of the lots in question is not excessive nor unconscionable considering the contingent nature of the attorney's fees. With these considerations, WE find that the contract for a contingent fee in question is not violative of the Canons of Professional Ethics. Consequently, both under the provisions of Article 1491 and Canons 10 and 13 of the Canons of Profession Ethics, a contract for a contingent fee is valid

In resolving now the issue of the validity or nullity for the registration of the adverse claim, Section 110 of the Land Registration Act (Act 496) should be considered. Under d section, an adverse claim may be registered only by..

Whoever claims any part or interest in registered land adverse to the registered owner, arising subsequent to the date of the o registration ... if no other provision is made in this Act for registering the same ...

The contract for a contingent fee, being valid, vested in Atty Fernandez an interest or right over the lots in question to the extent of one-half thereof. Said interest became vested in Atty. Fernandez after the case was won on appeal because only then did the assignment of the one-half (½) portion of the lots in question became effective and binding. So that when he filed his affidavit of adverse claim his interest was already an existing one. There was therefore a valid interest in the lots to be registered in favor of Atty. Fernandez adverse to Mo Abarquez. Moreover, the interest or claim of Atty. Fernandez in the lots in question arose long after the original petition which took place many years ago. And, there is no other provision of the Land Registration Act under which the interest or claim may be registered except as an adverse claim under Section 110 thereof. The interest or claim cannot be registered as an attorney's charging lien. The lower court was correct in denying the motion to annotate the attomey's lien. A charging lien under Section 37, Rule 138 of the Revised Rules of Court is limited only to money judgments and not to judgments for the annulment of a contract or for delivery of real property as in the instant case. Said Section provides that:

Section 37. An attorney shall have a lien upon the funds, documents and papers of his client which have lawfully come into his oppossession and may retain the same until his lawful fees and disbursements have been paid, and may apply such funds to the satisfaction thereof. He shall also have a lien to the same extent upon all judgments, for the payment of money, and executions issued in pursuance of such judgments, which he has secured in a litigation of his client ... (emphasis supplied).

Therefore, as an interest in registered land, the only adequate remedy open to Atty. Fernandez is to register such interest as an adverse claim. Consequently, there being a substantial compliance with Section 110 of Act 496, the registration of the adverse claim is held to be valid. Being valid, its registration should not be cancelled because as WE have already stated, "it is only when such claim is found unmeritorious that the registration thereof may be cancelled" (Paz Ty Sin Tei vs. Jose Lee Dy Piao 103 Phil. 867 [1958]). The one-half (½) interest of Atty. Fernandez in the lots in question should therefore be respected. Indeed, he has a better right than petitioner-spouses, Juan Larrazabal and Marta C. de Larrazabal. They purchased their two-thirds (2/3) interest in the lots in question with the knowledge of the adverse claim of Atty. Fernandez. The adverse claim was annotated on the old transfer certificate of title and was later annotated on the new transfer certificate of title issued to them. As held by this Court:

The annotation of an adverse claim is a measure designed to protect the interest of a person over a piece of real property where the registration of such interest or right is not otherwise provided for by the Land Registration Act, and serves as a notice and warning to third parties dealing with said property that someone is claiming an interest on the same or a better right than the registered owner thereof (Sanchez, Jr. vs. Court of Appeals, 69 SCRA 332 [1976]; Paz Ty Sin Tei vs. Jose Le Dy Piao supra).

Having purchased the property with the knowledge of the adverse claim, they are therefore in bad faith. Consequently, they are estopped from questioning the validity of the adverse claim. WHEREFORE, THE DECISION OF THE LOWER COURT DENYING THE PETITION FOR THE CANCELLATION OF THE ADVERSE CLAIM SHOULD BE, AS IT IS HEREBY AFFIRMED, WITH COSTS AGAINST PETITIONER-APPELLANTS JUAN LARRAZABAL AND MARTA C. DE LARRAZABAL. SO ORDERED. Barsobia vs. Cuenco, No. L-33048, 113 SCRA 547 , April 16, 1982 Barsobia vs.   Cuenco, 113 SCRA 547, G.R. No. L-33048 April 16, 1982 EPIFANIA SARSOSA VDA. DE BARSOBIA and PACITA W. VALLAR, petitioners, vs. VICTORIANO T. CUENCO, respondent.

MELENCIO-HERRERA, J.: Sought to be reviewed herein is the judgment dated August 18, 1970, of the Court of Appeals, 1 rendered in CA-G.R. No. 41318-R, entitled "Victoriano T. Cuenco, Plaintiff-appellant, vs. Epifania Sarsosa Vda. de Barsobia and Pacita W. Vallar, Defendants- appellees, " declaring Victoriano T. Cuenco (now the respondent) as the absolute owner of the coconut land in question. The lot in controversy is a one-half portion (on the northern side) of two adjoining parcels of coconut land located at Barrio Mancapagao, Sagay, Camiguin, Misamis Oriental (now Camiguin province), with an area of 29,150 square meters, more or less. 2 The entire land was owned previously by a certain Leocadia Balisado, who had sold it to the spouses Patricio Barsobia (now deceased) and Epifania Sarsosa, one of the petitioners herein. They are Filipino citizens. On September 5, 1936, Epifania Sarsosa then a widow, sold the land in controversy to a Chinese, Ong King Po, for the sum of P1,050.00 (Exhibit "B"). Ong King Po took actual possession and enjoyed the fruits thereof. On August 5, 1961, Ong King Po sold the litigated property to Victoriano T. Cuenco (respondent herein), a naturalized Filipino, for the sum of P5,000.00 (Exhibit "A"). Respondent immediately took actual possession and harvested the fruits therefrom. On March 6, 1962, Epifania "usurped" the controverted property, and on July 26, 1962, Epifania (through her only daughter and child, Emeteria Barsobia), sold a one-half (1/2) portion of the land in question to Pacita W. Vallar, the other petitioner herein (Exhibit "2"). Epifania claimed that it was not her intention to sell the land to Ong King Po and that she signed the document of sale merely to evidence her indebtedness to the latter in the amount of P1,050.00. Epifania has been in possession ever since except for the portion sold to the other petitioner Pacita. On September 19, 1962, respondent filed a Forcible Entry case against Epifania before the Municipal Court of Sagay, Camiguin. The case was dismissed for lack of jurisdiction since, as the laws then stood, the question of possession could not be properly determined without first settling that of ownership. On December 27, 1966, respondent instituted before the Court of First Instance of Misamis Oriental a Complaint for recovery of possession and ownership of the litigated land, against Epifania and Pacita Vallar (hereinafter referred to simply as petitioners). In their Answer below, petitioners insisted that they were the owners and possessors of the litigated land; that its sale to Ong King Po, a Chinese, was inexistent and/or void ab initio; and that the deed of sale between them was only an evidence of Epifania's indebtedness to Ong King Po. The trial Court rendered judgment: 1. Dismissing the complaint with costs against plaintiff (respondent herein). 2. Declaring the two Deeds of Sale, Exhibits A and B, respectively, inexistent and void from the beginning; and 3. Declaring defendant Pacita W. Vallar as the lawful owner and possessor of the portion of land she bought from Emeteria Barsobia (pp. 57, 67, Record.) 3 On appeal, the Court of Appeals reversed the aforementioned Decision and decreed instead that respondent was the owner of the litigated property, thus:

xxx xxx xxx In view of all the foregoing considerations, the judgment appealed from is hereby reversed. In lieu thereof, we render judgment: (a) Declaring the plaintiff-appellant Victoriano T. Cuenco the absolute owner of the land in question, with the right of possession thereof; (b) Ordering the defendants-appellees to restore the possession of said land to the plaintiff; (c) Dismissing the defendants' counterclaim; (d) Condemning the defendants to pay to the plaintiff the sum of P10,000.00 representing the latter's share from the sale of copra which he failed to receive since March, 1962 when he was deprived of his possession over the land, and which defendants illegally appropriated it to their own use and benefit, plus legal interest from the filing of the complaint until fully paid; plus P2,000.00 representing expenses and attorney's fees; (e) Sentencing the defendants to pay the costs. SO ORDERED. 4 Following the denial of their Motion for Reconsideration, petitioners filed the instant Petition for Review on certiorari with this Court on January 21, 1971. Petitioners claim that the Court of Appeals erred: I. ... when it reversed the judgment of the trial court declaring petitioner Pacita W. Vallar as the lawful possessor and owner of the portion of land she purchased from Emeteria Barsobia, not a party to this case, there being no evidence against her. II ... when it included petitioner Pacita W. Vallar to pay P10,000.00, with legal interest from the filing of the complaint, representing respondent's share in the harvest and to pay the costs, there being no evidence against her. III. ... when it condemned petitioners to pay P2,000.00 representing expenses and attorney's fees, there being no factual, legal and equitable justification. IV. ... in not applying the rule on pari delicto to the facts of the case or the doctrine enunciated ... in the case of Philippine Banking Corporation vs. Lui She, L-17587, September 12, 1967, to ... Petitioner Epifania Sarsosa Vda. de Barsobia. V. ... in denying, for lack of sufficient merits, petitioners' motion for rehearing or reconsideration of its decision. 5 As the facts stand, a parcel of coconut land was sold by its Filipino owner, petitioner Epifania, to a Chinese, Ong King Po, and by the latter to a naturalized Filipino, respondent herein. In the meantime, the Filipino owner had unilaterally repudiated the sale she had made to the Chinese and had resold the property to another Filipino. The basic issue is: Who is the rightful owner of the property? There should be no question that the sale of the land in question in 1936 by Epifania to Ong King Po was inexistent and void from the beginning (Art. 1409 [7], Civil Code) 6 because it was a contract executed against the mandatory provision of the 1935 Constitution, which is an expression of public policy to conserve lands for the Filipinos. Said provision reads: Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned except to individuals, corporations, or associations, qualified to acquire or hold lands of the public domain. 7

Had this been a suit between Epifania and Ong King Po, she could have been declared entitled to the litigated land on the basis, as claimed, of the ruling in Philippine Banking Corporation vs. Lui She, 8 reading: ... For another thing, and this is not only cogent but also important. Article 1416 of the Civil Code provides as an exception to the rule on pari delicto that when the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has sold or delivered. ... But the factual set-up has changed. The litigated property is now in the hands of a naturalized Filipino. It is no longer owned by a disqualified vendee. Respondent, as a naturalized citizen, was constitutionally qualified to own the subject property. There would be no more public policy to be served in allowing petitioner Epifania to recover the land as it is already in the hands of a qualified person. Applying by analogy the ruling of this Court in Vasquez vs. Giap and Li Seng Giap & Sons: 9 ... if the ban on aliens from acquiring not only agricultural but also urban lands, as construed by this Court in the Krivenko case, is to preserve the nation's lands for future generations of Filipinos, that aim or purpose would not be thwarted but achieved by making lawful the acquisition of real estate by aliens who became Filipino citizens by naturalization. While, strictly speaking, Ong King Po, private respondent's vendor, had no rights of ownership to transmit, it is likewise inescapable that petitioner Epifania had slept on her rights for 26 years from 1936 to 1962. By her long inaction or inexcusable neglect, she should be held barred from asserting her claim to the litigated property (Sotto vs. Teves, 86 SCRA 157 [1978]). Laches has been defined as the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due diligence could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it. (Tijam, et al. vs. Sibonghanoy, et al., No. L-21450, April 15, 1968, 23 SCRA 29, 35). (cited in Sotto vs. Teves, 86 SCRA 154 [1978]). Respondent, therefore, must be declared to be the rightful owner of the property. The award of actual damages in respondent's favor of P10,000.00, as well as of attorney's fees and expenses of litigation of P2,000.00, is justified. Respondent was deprived of the possession of his land and the enjoyment of its fruits from March, 1962. The Court of Appeals fixed respondent's share of the sale of copra at P10,000.00 for eight years at four (4) harvests a year. The accuracy of this finding has not been disputed. However, we find merit in the assigned error that petitioner, Pacita Vallar, should not be held also liable for actual damages to respondent. In the absence of contrary proof, she, too, must be considered as a vendee in good faith of petitioner Epifania. The award of attorney's fees and litigation expenses in the sum of P2,000.00 in respondent's favor is in order considering that both petitioners compelled respondent to litigate for the protection of his interests. Moreover, the amount is reasonable. 10 WHEREFORE, except for that portion holding petitioner, Pacita W. Vallar, also liable for damages of P10,000.00, the appealed judgment is hereby affirmed. Costs against petitioners. SO ORDERED. Herrera v. Luy Kim Guan, 1 SCRA 406 - D a t e o f d e a t h o f t h e p r i n c i p a l h a s n o t b e e n s a t i s f a c t o r i l y p r o v e n , therefore, documents are presumed to have been executed during the lifetime of the

principal- A l s o , t h e r e w a s n o p r o o f t h a t a g e n t w a s a w a r e o f d e a t h o f t h e principal; death of the principal does not render the act of an agent unenforceable, where the agent had no knowledge of such extinguishment of the agency

G.R. No. L-36731 January 27, 1983 VICENTE GODINEZ, ET AL., plaintiffs-appellants, vs. FONG PAK LUEN ET AL., defendants, TRINIDAD S. NAVATA, defendant-appellee. Dominador Sobrevinas for plaintiffs-appellants. Muss S. Inquerto for defendant-appellee GUTIERREZ, JR., J.: The plaintiffs filed this case to recover a parcel of land sold by their father, now deceased, to Fong Pak Luen, an alien, on the ground that the sale was null and void ab initio since it violates applicable provisions of the Constitution and the Civil Code. The order of the Court of First Instance of Sulu dismissing the complaint was appealed to the Court of Appeals but the latter court certified the appeal to us since only pure questions of law were raised by the appellants. The facts of the case were summarized by the Court of Appeals as follows:

On September 30, 1966, the plaintiffs filed a complaint in the Court of First Instance of Sulu alleging among others that they are the heirs of Jose Godinez who was married to Martina Alvarez Godinez sometime in 1910; that during the marriage of their parents the said parents acquired a parcel of land lot No. 94 of Jolo townsite with an area of 3,665 square meters as evidenced by Original Certificate of Title No. 179 (D -155) in the name of Jose Godinez; that their mother died sometime in 1938 leaving the plaintiffs as their sole surviving heirs; that on November 27, 1941, without the knowledge of the plaintiffs, the said Jose Godinez, for valuable consideration, sold the aforesaid parcel of land to the defendant Fong Pak Luen, a Chinese citizen, which transaction is contrary to law and in violation of the Civil Code because the latter being an alien who is inhibited by law to purchase real property; that Transfer Certificate Title No. 884 was then issued by the Register of Deeds to the said defendant, which is null and void ab initio since the transaction constituted a non-existent contract; that on January 11, 1963, said defendant Fong Pak Luen executed a power of attorney in favor of his co-defendant Kwan Pun Ming, also an alien, who conveyed and sold the above described parcel of land to co-defendant Trinidad S. Navata, who is aware of and with full knowledge that Fong Pak Luen is a Chinese citizen as well as Kwan Pun Ming, who under the law are prohibited and disqualified to acquire real property in this jurisdiction; that defendant Fong Pak Luen has not acquired any title or interest in said parcel of land as the purported contract of sale executed by Jose Godinez alone was contrary to law and considered non- existent, so much so that the alleged attorney-in-fact, defendant Kwan Pun Ming had not conveyed any title or interest over said property and defendant Navata had not acquired anything from said grantor and as a consequence Transfer Certificate of Title No. 1322, which was issued by the Register of Deeds in favor of the latter is null and void ab initio,- that since one-half of the said property is conjugal property inherited by the plaintiffs from their mother, Jose Godinez could -not have legally conveyed the entire property; that notwithstanding repeated demands on said defendant to surrender to plaintiffs the said property she refused and still refuses to do so to the great damage and prejudice of the plaintiffs; and that they were constrained to engage the services of counsel in the sum of P2,000.00.1äwphï1.ñët The plaintiffs thus pray that they be adjudged as the owners of the parcel of land in question and that Transfer Certificate of Title RT-90 (T-884) issued in the name of defendant Fong Pak Luen be declared null and void ab initio; and that the power of attorney issued in the name of Kwan Pun Ming, as well as Transfer Certificate of Title No. 'L322 issued in the name of defendant Navata be likewise declared null and void, with costs against defendants.

On August 18, 1966, the defendant Register of Deeds filed an answer claiming that he was not yet the register of deeds then; that it was only the ministerial duty of his office to issue the title in favor of the defendant Navata once he was determined the registerability of the documents presented to his office. On October 20, 1966, the defendant Navata filed her answer with the affirmative defenses and counterclaim alleging among others that the complaint does not state a cause of action since it appears from the allegation that the property is registered in the name of Jose Godinez so that as his sole property he may dispose of the same; that the cause of action has been barred by the statute of limitations as the alleged document of sale executed by Jose Godinez on November 27, 1941, conveyed the property to defendant Fong Pak Luen as a result of which a title was issued to said defendant; that under Article 1144 (1) of the Civil Code, an action based upon a written contract must be brought within 10 years from the time the right of action accrues; that the right of action accrued on November 27, 1941 but the complaint was filed only on September 30, 1966, beyond the 10 year period provided for by law; that the torrens title in the name of defendant Navata is indefeasible who acquired the property from defendant Fong Pak Luen who had been in possession of the property since 1941 and thereafter defendant Navata had possessed the same for the last 25 years including the possession of Fong Pak Luen; that the complaint is intended to harass the defendant as a civic leader and respectable member of the community as a result of which she suffered moral damages of P100,000.00, P2,500.00 for attorney's fees and P500.00 expenses of litigation, hence, said defendant prays that the complaint be dismissed and that her counterclaim be granted, with costs against the plaintiffs. On November 24, 1967, the plaintiffs filed an answer to the affirmative defenses and counter-claim. As the defendants Fong Pak Luen and Kwan Pun Ming are residing outside the Philippines, the trial court upon motion issued an order of April 17, 1967, for the service of summons on said defendants by publication. No answer has been filed by said defendants. On December 2, 196 7, the court issued an order as follows:

Both parties having agreed to the suggestion of the Court that they submit their supplemental pleadings to support both motion and opposition and after submittal of the same the said motion to dismiss which is an affirmative defense alleged in the complaint is deemed submitted. Failure of both parties or either party to submit their supplemental pleadings on or about December 9, the Court will resolve the case.

On November 29, 1968, the trial court issued an order missing the complaint without pronouncement as to costs. (Record on Appeal, pp. 31- 37). A motion for reconsideration of this order was filed by the plaintiffs on December 12, 196F, which was denied by the trial court in an order of July 11, 1969, (Rec. on Appeal, pp. 38, 43, 45, 47). The plaintiffs now interpose this appeal with the following assignments of errors:

I. The trial court erred in dismissing plaintiffs-appellants' complaint on the ground of prescription of action, applying Art. 1144 (1) New Civil Code on the basis of defendant Trinidad S. Navata's affirmative defense of prescription in her answer treated as a motion to dismiss. II. The trial court erred in denying plaintiffs-appellants' motion for reconsideration of the order of dismissal. III. The trial court erred in not ordering this case to be tried on the merits."

The appellants contend that the lower court erred in dismissing the complaint on the ground that their cause of action has prescribed. While the issue raised appears to be only the applicability of the law governing prescription, the real question before us is whether or not the heirs of a person who sold a parcel of land to an alien in violation of a constitutional prohibition may recover the property if it had, in the meantime, been conveyed to a Filipino citizen qualified to own and possess it.

The question is not a novel one. Judicial precedents indicate fairly clearly how the question should be resolved. There can be no dispute that the sale in 1941 by Jose Godinez of his residential lot acquired from the Bureau of Lands as part of the Jolo townsite to Fong Pak Luen, a Chinese citizen residing in Hongkong, was violative of Section 5, Article XIII of the 1935 Constitution which provided:

Sec. 5. Save in cases of hereditary succession, no private agricultural land will be transferred or assigned except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain in the Philippines.

The meaning of the above provision was fully discussed in Krivenko v. Register of Deeds of Manila (79 Phil. 461) which also detailed the evolution of the provision in the public land laws, Act No. 2874 and Commonwealth Act No. 141. The Krivenko ruling that "under the Constitution aliens may not acquire private or agricultural lands, including residential lands" is a declaration of an imperative constitutional policy. Consequently, prescription may never be invoked to defend that which the Constitution prohibits. However, we see no necessity from the facts of this case to pass upon the nature of the contract of sale executed by Jose Godinez and Fong Pak Luen whether void ab initio, illegal per se or merely pro-exhibited.** It is enough to stress that insofar as the vendee is concerned,prescription is unavailing. But neither can the vendor or his heirs rely on an argument based on imprescriptibility because the land sold in 1941 is now in the hands of a Filipino citizen against whom the constitutional prescription was never intended to apply. The lower court erred in treating the case as one involving simply the application of the statute of limitations. From the fact that prescription may not be used to defend a contract which the Constitution prohibits, it does not necessarily follow that the appellants may be allowed to recover the property sold to an alien. As earlier mentioned, Fong Pak Luen, the disqualified alien vendee later sold the same property to Trinidad S. Navata, a Filipino citizen qualified to acquire real property. In Vasquez v. Li Seng Giap and Li Seng Giap & Sons (96 Phil. 447), where the alien vendee later sold the property to a Filipino corporation, this Court, in affirming a judgment dismissing the complaint to rescind the sale of real property to the defendant Li Seng Giap on January 22, 1940, on the ground that the vendee was an alien and under the Constitution incapable to own and hold title to lands, held:

In Caoile vs. Yu Chiao 49 Qff Gaz., 4321; Talento vs. Makiki 49 Off. Gaz., 4331; Bautista vs. Uy 49 Off. Gaz., 4336; Rellosa vs. Gaw Chee 49 Off. Gaz., 4345 and Mercado vs. Go Bio, 49 Off. Gaz., 5360, the majority of this Court has ruled that in sales of real estate to aliens incapable of holding title thereto by virtue of the provisions of the Constitution (Section 5, Article XIII Krivenko vs. Register of Deeds, 44 Off. Gaz., 471) both the vendor and the vendee are deemed to have committed the constitutional violation and being thus in pari delicto the courts will not afford protection to either party. (Article 1305, old Civil Code; Article 1411, new Civil Code) From this ruling three Justices dissented. (Mr. Justice Pablo, Mr. Justice Alex. Reyes and the writer. See Caoile vs. Yu Chiao Talento vs. Makiki Bautista us. Uy, Rellosa vs. Gaw Chee and Mercado vs. Go Bio). supra. The action is not of rescission because it is not postulated upon any of the grounds provided for in Article 1291 of the old Civil Code and because the action of rescission involves lesion or damage and seeks to repair it. It is an action for annulment under Chapter VI, Title II, Book 11, on nullity of contracts, based on a defect in the contract which invalidates it independently of such lesion or damages. (Manresa, Commentarios al Codigo Civil Espanol Vol. VIII, p. 698, 4th ed.) It is very likely that the majority of this Court proceeded upon that theory when it applied the in pari delicto rule referred to above. In the United States the rule is that in a sale of real estate to an alien disqualified to hold title thereto the vendor divests himself of the title to such real estate and has no recourse against the vendee despite the latter's disability on account of alienage to hold title to such real estate and the vendee may hold it against the whole world except as against the State. It is only the State that is entitled by proceedings in the nature of office found to have a forfeiture or escheat declared against the vendee who is incapable of holding title to the real estate sold and conveyed to him. Abrams vs. State, 88

Pac. 327; Craig vs. Leslie et al., 4 Law, Ed. 460; 3 Wheat, 563, 589590; Cross vs. Del Valle, 1 Wall, [U.S.] 513; 17 Law. Ed., 515; Governeur vs. Robertson, 11 Wheat, 332, 6 Law. Ed., 488.) However, if the State does not commence such proceedings and in the meantime the alien becomes naturalized citizen, the State is deemed to have waived its right to escheat the real property and the title of the alien thereto becomes lawful and valid as of the date of its conveyance or transfer to him. (Osterman vs. Baldwin, 6 Wall, 116, 18 Law. ed. 730; Manuel vs. Wulff, 152 U.S. 505, 38 Law. ed. 532; Pembroke vs. Houston, 79, SW 470; Fioerella vs. Jones, 259 SW 782. The rule in the United States that in a sale of real estate to an alien disqualified to hold title thereto, the vendor divests himself of the title to such real estate and is not permitted to sue for the annulment Of his Contract, is also the rule under the Civil Code. ... Article 1302 of the old Civil Code provides: ... Persons sui juriscannot, however, avail themselves of the incapacity of those with whom they contracted; ... xxx xxx xxx . . . (I)f the ban on aliens from acquiring not only agricultural but, also urban lands, as construed by this Court in the Krivenko case, is to preserve the nation's land for future generations of Filipinos, that aim or purpose would not be thwarted but achieved by making lawful the acquisition of real estate by aliens who became Filipino citizens by naturalization. The title to the parcel of land of the vendee, a naturalized Filipino citizen, being valid that of the domestic corporation to which the parcel of land has been transferred, must also be valid, 96.67 per cent of its capital stock being owned by Filipinos.

Herrera v. Luy Kim Guan (SCRA 406) reiterated the above ruling by declaring that where land is sold to a Chinese citizen, who later sold it to a Filipino, the sale to the latter cannot be impugned. The appellants cannot find solace from Philippine Banking Corporation v. Lui She (21 SCRA 52) which relaxed the pari delicto doctrine to allow the heirs or successors-in-interest, in appropriate cases, to recover that which their predecessors sold to aliens. Only recently, in Sarsosa vda. de Barsobia v. Cuenco (113 SCRA 547) we had occasion to pass upon a factual situation substantially similar to the one in the instant case. We ruled:

But the factual set-up has changed. The litigated property is now in the hands of a naturalized Filipino. It is no longer owned by a disqualified vendee. Respondent, as a naturalized citizen, was constitutionally qualified to own the subject property. There would be no more public policy to be served in allowing petitioner Epifania to recover the land as it is already in the hands of a qualified person. Applying by analogy the ruling of this Court in Vasquez vs. Giap & Sons: (.96 Phil. 447 [1955]) ... if the ban on aliens from acquiring not only agricultural but also urban lands, as construed by this Court in the Krivenko case, is to preserve the nation's lands for future generations of Filipinos, that aim or purpose would not be thwarted but achieved by making lawful the acquisition of real estate by aliens who became Filipino citizens by naturalization. While, strictly speaking, Ong King Po, private respondent's vendor, had no rights of ownership to transmit, it is likewise in escapable that petitioner Epifania had slept on her rights for 26 years from 1936 to 1962. By her long inaction or inexcusable neglect, she should be held barred from asserting her claim to the litigated property (Sotto vs. Teves, 86 SCRA 157 [1978]) Laches has been defined as the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due diligence could or should have been done earlier; it is negligence or ommission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it. (Tijam, et al. vs. Sibonghanoy, et al., No. L-21450, April 15, 1968, 23 SCRA 29, 35).' (Cited in Sotto vs. Teves, 86 SCRA 154 [1978]). Respondent, therefore, must be declared to be the rightful owner of the property.

In the light of the above considerations, we find the second and third assignments of errors without merit. Respondent Navata, the titled owner of the property is declared the rightful owner. WHEREFORE, the instant appeal is hereby denied. The orders dismissing the complaint and denying the motion for reconsideration are affirmed. SO ORDERED. Teehankee (Chairman), Melencio-Herrera, Plana, Vasquez and Relova, JJ., concur. G.R. No. 156364 September 3, 2007 JACOBUS BERNHARD HULST, petitioner, vs. PR BUILDERS, INC., respondent.

D E C I S I O N AUSTRIA-MARTINEZ, J.: Before the Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court assailing the Decision1 dated October 30, 2002 of the Court of Appeals (CA) in CA-G.R. SP No. 60981. The facts: Jacobus Bernhard Hulst (petitioner) and his spouse Ida Johanna Hulst-Van Ijzeren (Ida), Dutch nationals, entered into a Contract to Sell with PR Builders, Inc. (respondent), for the purchase of a 210-sq m residential unit in respondent's townhouse project in Barangay Niyugan, Laurel, Batangas. When respondent failed to comply with its verbal promise to complete the project by June 1995, the spouses Hulst filed before the Housing and Land Use Regulatory Board (HLURB) a complaint for rescission of contract with interest, damages and attorney's fees, docketed as HLRB Case No. IV6-071196-0618. On April 22, 1997, HLURB Arbiter Ma. Perpetua Y. Aquino (HLURB Arbiter) rendered a Decision2 in favor of spouses Hulst, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the complainant, rescinding the Contract to Sell and ordering respondent to: 1) Reimburse complainant the sum of P3,187,500.00, representing the purchase price paid by the complainants to P.R. Builders, plus interest thereon at the rate of twelve percent (12%) per annum from the time complaint was filed; 2) Pay complainant the sum of P297,000.00 as actual damages; 3) Pay complainant the sum of P100,000.00 by way of moral damages; 4) Pay complainant the sum of P150,000.00 as exemplary damages; 5) P50,000.00 as attorney's fees and for other litigation expenses; and 6) Cost of suit. SO ORDERED.3

Meanwhile, spouses Hulst divorced. Ida assigned her rights over the purchased property to petitioner.4 From then on, petitioner alone pursued the case. On August 21, 1997, the HLURB Arbiter issued a Writ of Execution addressed to the Ex-Officio Sheriff of the Regional Trial Court of Tanauan, Batangas directing the latter to execute its judgment.5 On April 13, 1998, the Ex-Officio Sheriff proceeded to implement the Writ of Execution. However, upon complaint of respondent with the CA on a Petition for Certiorari and Prohibition, the levy made by the Sheriff was set aside, requiring the Sheriff to levy first on respondent's personal properties.6 Sheriff Jaime B. Ozaeta (Sheriff) tried to implement the writ as directed but the writ was returned unsatisfied.7 On January 26, 1999, upon petitioner's motion, the HLURB Arbiter issued an Alias Writ of Execution.8 On March 23, 1999, the Sheriff levied on respondent's 15 parcels of land covered by 13 Transfer Certificates of Title (TCT)9 in Barangay Niyugan, Laurel, Batangas.10 In a Notice of Sale dated March 27, 2000, the Sheriff set the public auction of the levied properties on April 28, 2000 at 10:00 a.m..11 Two days before the scheduled public auction or on April 26, 2000, respondent filed an Urgent Motion to Quash Writ of Levy with the HLURB on the ground that the Sheriff made an overlevy since the aggregate appraised value of the levied properties at P6,500.00 per sq m is P83,616,000.00, based on the Appraisal Report12 of Henry Hunter Bayne Co., Inc. dated December 11, 1996, which is over and above the judgment award.13

At 10:15 a.m. of the scheduled auction date of April 28, 2000, respondent's counsel objected to the conduct of the public auction on the ground that respondent's Urgent Motion to Quash Writ of Levy was pending resolution. Absent any restraining order from the HLURB, the Sheriff proceeded to sell the 15 parcels of land. Holly Properties Realty Corporation was the winning bidder for all 15 parcels of land for the total amount ofP5,450,653.33. The sum of P5,313,040.00 was turned over to the petitioner in satisfaction of the judgment award after deducting the legal fees.14 At 4:15 p.m. of the same day, while the Sheriff was at the HLURB office to remit the legal fees relative to the auction sale and to submit the Certificates of Sale15 for the signature of HLURB Director Belen G. Ceniza (HLURB Director), he received the Order dated April 28, 2000 issued by the HLURB Arbiter to suspend the proceedings on the matter.16 Four months later, or on August 28, 2000, the HLURB Arbiter and HLURB Director issued an Order setting aside the sheriff's levy on respondent's real properties,17 reasoning as follows:

While we are not making a ruling that the fair market value of the levied properties is PhP6,500.00 per square meter (or an aggregate value of PhP83,616,000.00) as indicated in the Hunter Baynes Appraisal Report, we definitely cannot agree with the position of the Complainants and the Sheriff that the aggregate value of the 12,864.00-square meter levied properties is only around PhP6,000,000.00. The disparity between the two valuations are [sic] so egregious that the Sheriff should have looked into the matter first before proceeding with the execution sale of the said properties, especially when the auction sale proceedings was seasonably objected by Respondent's counsel, Atty. Noel Mingoa. However, instead of resolving first the objection timely posed by Atty. Mingoa, Sheriff Ozaete totally disregarded the objection raised and, posthaste, issued the corresponding Certificate of Sale even prior to the payment of the legal fees (pars. 7 & 8, Sheriff's Return). While we agree with the Complainants that what is material in an execution sale proceeding is the amount for which the properties were bidded and sold during the public auction and that, mere inadequacy of the price is not a sufficient ground to annul the sale, the court is justified to intervene where the inadequacy of the price shocks the conscience (Barrozo vs. Macaraeg, 83 Phil. 378). The difference between PhP83,616,000.00 and Php6,000,000.00 is PhP77,616,000.00 and it definitely invites our attention to look into the proceedings had especially so when there was only one bidder, the HOLLY PROPERTIES REALTY CORPORATION represented by Ma, Chandra Cacho (par. 7, Sheriff's Return) and the auction sale proceedings was timely objected by Respondent's counsel (par. 6, Sheriff's Return) due to the pendency of the Urgent Motion to Quash the Writ of Levy which was filed prior to the execution sale. Besides, what is at issue is not the value of the subject properties as determined during the auction sale, but the determination of the value of the properties levied upon by the Sheriff taking into consideration Section 9(b) of the 1997 Rules of Civil Procedure x x x. x x x x It is very clear from the foregoing that, even during levy, the Sheriff has to consider the fair market value of the properties levied upon to determine whether they are sufficient to satisfy the judgment, and any levy in excess of the judgment award is void (Buan v. Court of Appeals, 235 SCRA 424). x x x x18 (Emphasis supplied).

The dispositive portion of the Order reads: WHEREFORE, the levy on the subject properties made by the Ex-Officio Sheriff of the RTC of Tanauan, Batangas, is hereby SET ASIDE and the said Sheriff is hereby directed to levy instead Respondent's real properties that are reasonably sufficient to enforce its final and executory judgment, this time, taking into consideration not only the value of the properties as indicated in their respective tax declarations, but also all the other determinants at arriving at a fair market value, namely: the cost of acquisition, the current value of like properties, its actual or potential uses, and in the particular case of lands, their size, shape or location, and the tax declarations thereon. SO ORDERED.19

A motion for reconsideration being a prohibited pleading under Section 1(h), Rule IV of the 1996 HLURB Rules and Procedure, petitioner filed a Petition for Certiorari and Prohibition with the CA on September 27, 2000.

On October 30, 2002, the CA rendered herein assailed Decision20 dismissing the petition. The CA held that petitioner's insistence that Barrozo v. Macaraeg21 does not apply since said case stated that "when there is a right to redeem inadequacy of price should not be material" holds no water as what is obtaining in this case is not "mere inadequacy," but an inadequacy that shocks the senses; that Buan v. Court of Appeals22 properly applies since the questioned levy covered 15 parcels of land posited to have an aggregate value of P83,616,000.00 which shockingly exceeded the judgment debt of only around P6,000,000.00. Without filing a motion for reconsideration,23 petitioner took the present recourse on the sole ground that:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE ARBITER'S ORDER SETTING ASIDE THE LEVY MADE BY THE SHERIFF ON THE SUBJECT PROPERTIES.24

Before resolving the question whether the CA erred in affirming the Order of the HLURB setting aside the levy made by the sheriff, it behooves this Court to address a matter of public and national importance which completely escaped the attention of the HLURB Arbiter and the CA: petitioner and his wife are foreign nationals who are disqualified under the Constitution from owning real property in their names. Section 7 of Article XII of the 1987 Constitution provides:

Sec. 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain. (Emphasis supplied).

The capacity to acquire private land is made dependent upon the capacity to acquire or hold lands of the public domain. Private land may be transferred or conveyed only to individuals or entities "qualified to acquire lands of the public domain." The 1987 Constitution reserved the right to participate in the disposition, exploitation, development and utilization of lands of the public domain for Filipino citizens25 or corporations at least 60 percent of the capital of which is owned by Filipinos.26 Aliens, whether individuals or corporations, have been disqualified from acquiring public lands; hence, they have also been disqualified from acquiring private lands.27 Since petitioner and his wife, being Dutch nationals, are proscribed under the Constitution from acquiring and owning real property, it is unequivocal that the Contract to Sell entered into by petitioner together with his wife and respondent is void. Under Article 1409 (1) and (7) of the Civil Code, all contracts whose cause, object or purpose is contrary to law or public policy and those expressly prohibited or declared void by law are inexistent and void from the beginning. Article 1410 of the same Code provides that the action or defense for the declaration of the inexistence of a contract does not prescribe. A void contract is equivalent to nothing; it produces no civil effect.28It does not create, modify or extinguish a juridical relation.29 Generally, parties to a void agreement cannot expect the aid of the law; the courts leave them as they are, because they are deemed in pari delicto or "in equal fault."30 In pari delicto is "a universal doctrine which holds that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or the money agreed to be paid, or damages for its violation; and where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other."31 This rule, however, is subject to exceptions32 that permit the return of that which may have been given under a void contract to: (a) the innocent party (Arts. 1411-1412, Civil Code);33 (b) the debtor who pays usurious interest (Art. 1413, Civil Code);34 (c) the party repudiating the void contract before the illegal purpose is accomplished or before damage is caused to a third person and if public interest is subserved by allowing recovery (Art. 1414, Civil Code);35 (d) the incapacitated party if the interest of justice so demands (Art. 1415, Civil Code);36 (e) the party for whose protection the prohibition by law is intended if the agreement is not illegal per se but merely prohibited and if public policy would be enhanced by permitting recovery (Art. 1416, Civil Code);37 and (f) the party for whose benefit the law has been intended such as in price ceiling laws (Art. 1417, Civil Code)38 and labor laws (Arts. 1418-1419, Civil Code).39 It is significant to note that the agreement executed by the parties in this case is a Contract to Sell and not a contract of sale. A distinction between the two is material in the determination

of when ownership is deemed to have been transferred to the buyer or vendee and, ultimately, the resolution of the question on whether the constitutional proscription has been breached. In a contract of sale, the title passes to the buyer upon the delivery of the thing sold. The vendor has lost and cannot recover the ownership of the property until and unless the contract of sale is itself resolved and set aside.40 On the other hand, 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.41 In other words, in a contract to sell, the prospective seller agrees to transfer ownership of the property to the buyer upon the happening of an event, which normally is the full payment of the purchase price. But even upon the fulfillment of the suspensive condition, ownership does not automatically transfer to the buyer. The prospective seller still has to convey title to the prospective buyer by executing a contract of absolute sale.42 Since the contract involved here is a Contract to Sell, ownership has not yet transferred to the petitioner when he filed the suit for rescission. While the intent to circumvent the constitutional proscription on aliens owning real property was evident by virtue of the execution of the Contract to Sell, such violation of the law did not materialize because petitioner caused the rescission of the contract before the execution of the final deed transferring ownership. Thus, exception (c) finds application in this case. Under Article 1414, one who repudiates the agreement and demands his money before the illegal act has taken place is entitled to recover. Petitioner is therefore entitled to recover what he has paid, although the basis of his claim for rescission, which was granted by the HLURB, was not the fact that he is not allowed to acquire private land under the Philippine Constitution. But petitioner is entitled to the recovery only of the amount of P3,187,500.00, representing the purchase price paid to respondent. No damages may be recovered on the basis of a void contract; being nonexistent, the agreement produces no juridical tie between the parties involved.43 Further, petitioner is not entitled to actual as well as interests thereon,44 moral and exemplary damages and attorney's fees. The Court takes into consideration the fact that the HLURB Decision dated April 22, 1997 has long been final and executory. Nothing is more settled in the law than that a decision that has acquired finality becomes immutable and unalterable and may no longer be modified in any respect even if the modification is meant to correct erroneous conclusions of fact or law and whether it was made by the court that rendered it or by the highest court of the land.45 The only recognized exceptions to the general rule are the correction of clerical errors, the so-called nunc pro tunc entries which cause no prejudice to any party, void judgments, and whenever circumstances transpire after the finality of the decision rendering its execution unjust and inequitable.46 None of the exceptions is present in this case. The HLURB decision cannot be considered a void judgment, as it was rendered by a tribunal with jurisdiction over the subject matter of the complaint.47 Ineluctably, the HLURB Decision resulted in the unjust enrichment of petitioner at the expense of respondent. Petitioner received more than what he is entitled to recover under the circumstances. Article 22 of the Civil Code which embodies the maxim, nemo ex alterius incommode debet lecupletari (no man ought to be made rich out of another's injury), states:

Art. 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.

The above-quoted article is part of the chapter of the Civil Code on Human Relations, the provisions of which were formulated as basic principles to be observed for the rightful relationship between human beings and for the stability of the social order; designed to indicate certain norms that spring from the fountain of good conscience; guides for human conduct that should run as golden threads through society to the end that law may approach its supreme ideal which is the sway and dominance of justice.48 There is unjust enrichment when a person unjustly retains a benefit at the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.49 A sense of justice and fairness demands that petitioner should not be allowed to benefit from his act of entering into a contract to sell that violates the constitutional proscription. This is not a case of equity overruling or supplanting a positive provision of law or judicial rule. Rather, equity is exercised in this case "as the complement of legal jurisdiction [that]

seeks to reach and to complete justice where courts of law, through the inflexibility of their rules and want of power to adapt their judgments to the special circumstances of cases, are incompetent to do so."50 The purpose of the exercise of equity jurisdiction in this case is to prevent unjust enrichment and to ensure restitution. Equity jurisdiction aims to do complete justice in cases where a court of law is unable to adapt its judgments to the special circumstances of a case because of the inflexibility of its statutory or legal jurisdiction.51 The sheriff delivered to petitioner the amount of P5,313,040.00 representing the net proceeds (bidded amount isP5,450,653.33) of the auction sale after deducting the legal fees in the amount of P137,613.33.52 Petitioner is only entitled to P3,187,500.00, the amount of the purchase price of the real property paid by petitioner to respondent under the Contract to Sell. Thus, the Court in the exercise of its equity jurisdiction may validly order petitioner to return the excess amount of P2,125,540.00. The Court shall now proceed to resolve the single issue raised in the present petition: whether the CA seriously erred in affirming the HLURB Order setting aside the levy made by the Sheriff on the subject properties. Petitioner avers that the HLURB Arbiter and Director had no factual basis for pegging the fair market value of the levied properties at P6,500.00 per sq m or P83,616,000.00; that reliance on the appraisal report was misplaced since the appraisal was based on the value of land in neighboring developed subdivisions and on the assumption that the residential unit appraised had already been built; that the Sheriff need not determine the fair market value of the subject properties before levying on the same since what is material is the amount for which the properties were bidded and sold during the public auction; that the pendency of any motion is not a valid ground for the Sheriff to suspend the execution proceedings and, by itself, does not have the effect of restraining the Sheriff from proceeding with the execution. Respondent, on the other hand, contends that while it is true that the HLURB Arbiter and Director did not categorically state the exact value of the levied properties, said properties cannot just amount to P6,000,000.00; that the HLURB Arbiter and Director correctly held that the value indicated in the tax declaration is not the sole determinant of the value of the property. The petition is impressed with merit. If the judgment is for money, the sheriff or other authorized officer must execute the same pursuant to the provisions of Section 9, Rule 39 of the Revised Rules of Court, viz:

Sec. 9. Execution of judgments for money, how enforced. – (a) Immediate payment on demand. - The officer shall enforce an execution of a judgment for money by demanding from the judgment obligor the immediate payment of the full amount stated in the writ of execution and all lawful fees. x x x (b) Satisfaction by levy. - If the judgment obligor cannot pay all or part of the obligation in cash, certified bank check or other mode of payment acceptable to the judgment obligee, the officer shall levy upon the properties of the judgment obligor of every kind and nature whatsoever which may be disposed of for value and not otherwise exempt from execution, giving the latter the option to immediately choose which property or part thereof may be levied upon, sufficient to satisfy the judgment. If the judgment obligor does not exercise the option, the officer shall first levy on the personal properties, if any, and then on the real properties if the personal properties are insufficient to answer for the judgment. The sheriff shall sell only a sufficient portion of the personal or real property of the judgment obligor which has been levied upon. When there is more property of the judgment obligor than is sufficient to satisfy the judgment and lawful fees, he must sell only so much of the personal or real property as is sufficient to satisfy the judgment and lawful fees. Real property, stocks, shares, debts, credits, and other personal property, or any interest in either real or personal property, may be levied upon in like manner and with like effect as under a writ of attachment (Emphasis supplied).53

Thus, under Rule 39, in executing a money judgment against the property of the judgment debtor, the sheriff shall levy on all property belonging to the judgment debtor as is amply sufficient to satisfy the judgment and costs, and sell the same paying to the judgment creditor so much of the proceeds as will satisfy the amount of the judgment debt and costs. Any excess in the proceeds shall be delivered to the judgment debtor unless otherwise directed by the judgment or order of the court.54

Clearly, there are two stages in the execution of money judgments. First, the levy and then the execution sale. Levy has been defined as the act or acts by which an officer sets apart or appropriates a part or the whole of a judgment debtor's property for the purpose of satisfying the command of the writ of execution.55 The object of a levy is to take property into the custody of the law, and thereby render it liable to the lien of the execution, and put it out of the power of the judgment debtor to divert it to any other use or purpose.56 On the other hand, an execution sale is a sale by a sheriff or other ministerial officer under the authority of a writ of execution of the levied property of the debtor.57 In the present case, the HLURB Arbiter and Director gravely abused their discretion in setting aside the levy conducted by the Sheriff for the reason that the auction sale conducted by the sheriff rendered moot and academic the motion to quash the levy. The HLURB Arbiter lost jurisdiction to act on the motion to quash the levy by virtue of the consummation of the auction sale. Absent any order from the HLURB suspending the auction sale, the sheriff rightfully proceeded with the auction sale. The winning bidder had already paid the winning bid. The legal fees had already been remitted to the HLURB. The judgment award had already been turned over to the judgment creditor. What was left to be done was only the issuance of the corresponding certificates of sale to the winning bidder. In fact, only the signature of the HLURB Director for that purpose was needed58 – a purely ministerial act. A purely ministerial act or duty is one which an officer or tribunal performs in a given state of facts, in a prescribed manner, in obedience to the mandate of a legal authority, without regard for or the exercise of his own judgment upon the propriety or impropriety of the act done. If the law imposes a duty upon a public officer and gives him the right to decide how or when the duty shall be performed, such duty is discretionary and not ministerial. The duty is ministerial only when the discharge of the same requires neither the exercise of official discretion nor judgment.59In the present case, all the requirements of auction sale under the Rules have been fully complied with to warrant the issuance of the corresponding certificates of sale. And even if the Court should go into the merits of the assailed Order, the petition is meritorious on the following grounds: Firstly, the reliance of the HLURB Arbiter and Director, as well as the CA, on Barrozo v. Macaraeg60 and Buan v. Court of Appeals61 is misplaced. The HLURB and the CA misconstrued the Court's pronouncements in Barrozo. Barrozo involved a judgment debtor who wanted to repurchase properties sold at execution beyond the one-year redemption period. The statement of the Court in Barrozo, that "only where such inadequacy shocks the conscience the courts will intervene," is at best a mere obiter dictum. This declaration should be taken in the context of the other declarations of the Court in Barrozo, to wit:

Another point raised by appellant is that the price paid at the auction sale was so inadequate as to shock the conscience of the court. Supposing that this issue is open even after the one-year period has expired and after the properties have passed into the hands of third persons who may have paid a price higher than the auction sale money, the first thing to consider is that the stipulation contains no statement of the reasonable value of the properties; and although defendant' answer avers that the assessed value wasP3,960 it also avers that their real market value was P2,000 only. Anyway, mere inadequacy of price – which was the complaint' allegation – is not sufficient ground to annul the sale. It is only where such inadequacy shocks the conscience that the courts will intervene. x x x Another consideration is that the assessed value being P3,960 and the purchase price being in effect P1,864 (P464 sale price plusP1,400 mortgage lien which had to be discharged) the conscience is not shocked upon examining the prices paid in the sales in National Bank v. Gonzales, 45 Phil., 693 and Guerrero v. Guerrero, 57 Phil., 445, sales which were left undisturbed by this Court. Furthermore, where there is the right to redeem – as in this case – inadequacy of price should not be material because the judgment debtor may re-acquire the property or else sell his right to redeem and thus recover any loss he claims to have suffered by reason of the price obtained at the execution sale. x x x x (Emphasis supplied).62

In other words, gross inadequacy of price does not nullify an execution sale. In an ordinary sale, for reason of equity, a transaction may be invalidated on the ground of inadequacy of

price, or when such inadequacy shocks one's conscience as to justify the courts to interfere; such does not follow when the law gives the owner the right to redeem as when a sale is made at public auction,63 upon the theory that the lesser the price, the easier it is for the owner to effect redemption.64 When there is a right to redeem, inadequacy of price should not be material because the judgment debtor may re-acquire the property or else sell his right to redeem and thus recover any loss he claims to have suffered by reason of the price obtained at the execution sale.65 Thus, respondent stood to gain rather than be harmed by the low sale value of the auctioned properties because it possesses the right of redemption. More importantly, the subject matter in Barrozo is the auction sale, not the levy made by the Sheriff. The Court does not sanction the piecemeal interpretation of a decision. To get the true intent and meaning of a decision, no specific portion thereof should be isolated and resorted to, but the decision must be considered in its entirety.66 As regards Buan, it is cast under an entirely different factual milieu. It involved the levy on two parcels of land owned by the judgment debtor; and the sale at public auction of one was sufficient to fully satisfy the judgment, such that the levy and attempted execution of the second parcel of land was declared void for being in excess of and beyond the original judgment award granted in favor of the judgment creditor. In the present case, the Sheriff complied with the mandate of Section 9, Rule 39 of the Revised Rules of Court, to "sell only a sufficient portion" of the levied properties "as is sufficient to satisfy the judgment and the lawful fees." Each of the 15 levied properties was successively bidded upon and sold, one after the other until the judgment debt and the lawful fees were fully satisfied. Holly Properties Realty Corporation successively bidded upon and bought each of the levied properties for the total amount of P5,450,653.33 in full satisfaction of the judgment award and legal fees.67 Secondly, the Rules of Court do not require that the value of the property levied be exactly the same as the judgment debt; it can be less or more than the amount of debt. This is the contingency addressed by Section 9, Rule 39 of the Rules of Court. In the levy of property, the Sheriff does not determine the exact valuation of the levied property. Under Section 9, Rule 39, in conjunction with Section 7, Rule 57 of the Rules of Court, the sheriff is required to do only two specific things to effect a levy upon a realty: (a) file with the register of deeds a copy of the order of execution, together with the description of the levied property and notice of execution; and (b) leave with the occupant of the property copy of the same order, description and notice.68 Records do not show that respondent alleged non-compliance by the Sheriff of said requisites. Thirdly, in determining what amount of property is sufficient out of which to secure satisfaction of the execution, the Sheriff is left to his own judgment. He may exercise a reasonable discretion, and must exercise the care which a reasonably prudent person would exercise under like conditions and circumstances, endeavoring on the one hand to obtain sufficient property to satisfy the purposes of the writ, and on the other hand not to make an unreasonable and unnecessary levy.69 Because it is impossible to know the precise quantity of land or other property necessary to satisfy an execution, the Sheriff should be allowed a reasonable margin between the value of the property levied upon and the amount of the execution; the fact that the Sheriff levies upon a little more than is necessary to satisfy the execution does not render his actions improper.70 Section 9, Rule 39, provides adequate safeguards against excessive levying. The Sheriff is mandated to sell so much only of such real property as is sufficient to satisfy the judgment and lawful fees. In the absence of a restraining order, no error, much less abuse of discretion, can be imputed to the Sheriff in proceeding with the auction sale despite the pending motion to quash the levy filed by the respondents with the HLURB. It is elementary that sheriffs, as officers charged with the delicate task of the enforcement and/or implementation of judgments, must, in the absence of a restraining order, act with considerable dispatch so as not to unduly delay the administration of justice; otherwise, the decisions, orders, or other processes of the courts of justice and the like would be futile.71 It is not within the jurisdiction of the Sheriff to consider, much less resolve, respondent's objection to the continuation of the conduct of the auction sale. The Sheriff has no authority, on his own, to suspend the auction sale. His duty being ministerial, he has no discretion to postpone the conduct of the auction sale. Finally, one who attacks a levy on the ground of excessiveness carries the burden of sustaining that contention.72In the determination of whether a levy of execution is excessive, it is proper to take into consideration encumbrances upon the property, as well as the fact that

a forced sale usually results in a sacrifice; that is, the price demanded for the property upon a private sale is not the standard for determining the excessiveness of the levy.73 Here, the HLURB Arbiter and Director had no sufficient factual basis to determine the value of the levied property. Respondent only submitted an Appraisal Report, based merely on surmises. The Report was based on the projected value of the townhouse project after it shall have been fully developed, that is, on the assumption that the residential units appraised had already been built. The Appraiser in fact made this qualification in its Appraisal Report: "[t]he property subject of this appraisal has not been constructed. The basis of the appraiser is on the existing model units."74 Since it is undisputed that the townhouse project did not push through, the projected value did not become a reality. Thus, the appraisal value cannot be equated with the fair market value. The Appraisal Report is not the best proof to accurately show the value of the levied properties as it is clearly self-serving. Therefore, the Order dated August 28, 2000 of HLURB Arbiter Aquino and Director Ceniza in HLRB Case No. IV6-071196-0618 which set aside the sheriff's levy on respondent's real properties, was clearly issued with grave abuse of discretion. The CA erred in affirming said Order. WHEREFORE, the instant petition is GRANTED. The Decision dated October 30, 2002 of the Court of Appeals in CA-G.R. SP No. 60981 is REVERSED and SET ASIDE. The Order dated August 28, 2000 of HLURB Arbiter Ma. Perpetua Y. Aquino and Director Belen G. Ceniza in HLRB Case No. IV6-071196-0618 is declared NULL andVOID. HLURB Arbiter Aquino and Director Ceniza are directed to issue the corresponding certificates of sale in favor of the winning bidder, Holly Properties Realty Corporation. Petitioner is ordered to return to respondent the amount of P2,125,540.00, without interest, in excess of the proceeds of the auction sale delivered to petitioner. After the finality of herein judgment, the amount of P2,125,540.00 shall earn 6% interest until fully paid. SO ORDERED. AURORA ALCANTARA-DAUS, petitioner, vs. Spouses HERMOSO and SOCORRO

DE LEON, respondents. D E C I S I O N

PANGANIBAN, J.: While a contract of sale is perfected by mere consent, ownership of the thing sold is

acquired only upon its delivery to the buyer. Upon the perfection of the sale, the seller assumes the obligation to transfer ownership and to deliver the thing sold, but the real right of ownership is transferred only “by tradition” or delivery thereof to the buyer.

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

aside the February 9, 2001 Decision and the August 31, 2001 Resolution of the Court of Appeals[2](CA) in CA-GR CV No. 47587. The dispositive portion of the assailed Decision reads as follows: “WHEREFORE, premises considered, the decision of the trial court is hereby REVERSED, and judgment rendered:

1. Declaring null and void and of no effect, the [D]eed of [A]bsolute [S]ale dated December 6, 1975, the [D]eed of [E]xtra-judicial [P]artition and [Q]uitclaim dated July 1, 1985, and T.C.T. No. T-31262;

2. Declaring T.C.T. No. 42238 as valid and binding; 3. Eliminating the award of P5,000.00 each to be paid to defendants-appellees.”[3] The assailed Resolution[4] denied petitioner’s Motion for Reconsideration.

The Facts The antecedents of the case were summarized by the Regional Trial Court (RTC) and

adopted by the CA as follows: “This is a [C]omplaint for annulment of documents and title, ownership, possession, injunction, preliminary injunction, restraining order and damages. “[Respondents] alleged in their [C]omplaint that they are the owners of a parcel of land hereunder described as follows, to wit: ‘A parcel of land (Lot No. 4786 of the Cadastral Survey of San Manuel) situated in the Municipality of San Manuel, Bounded on the NW., by Lot No. 4785; and on the SE., by Lot Nos. 11094 & 11096; containing an area of Four Thousand Two Hundred Twelve (4,212) sq. m., more or less. Covered by Original Certificate of Title No. 22134 of the Land Records of Pangasinan.’

which [Respondent] Hermoso de Leon inherited from his father Marcelino de Leon by virtue of a [D]eed of [E]xtra-judicial [P]artition. Sometime in the early 1960s, [respondents] engaged the services of the late Atty. Florencio Juan to take care of the documents of the properties of his parents. Atty. Juan let them sign voluminous documents. After the death of Atty. Juan, some documents surfaced and most revealed that their properties had been conveyed by sale or quitclaim to [Respondent] Hermoso’s brothers and sisters, to Atty. Juan and his sisters, when in truth and in fact, no such conveyances were ever intended by them. His signature in the [D]eed of [E]xtra-judicial [P]artition with [Q]uitclaim made in favor of x x x Rodolfo de Leon was forged. They discovered that the land in question was sold by x x x Rodolfo de Leon to [Petitioner] Aurora Alcantara. They demanded annulment of the document and reconveyance but defendants refused x x x.

x x x x x x x x x

“[Petitioner] Aurora Alcantara-Daus [averred] that she bought the land in question in good faith and for value on December 6, 1975. [She] has been in continuous, public, peaceful, open possession over the same and has been appropriating the produce thereof without objection from anyone.”[5]

On August 23, 1994, the RTC (Branch 48) of Urdaneta, Pangasinan[6] rendered its Decision[7] in favor of herein petitioner. It ruled that respondents’ claim was barred by laches, because more than 18 years had passed since the land was sold. It further ruled that since it was a notarial document, the Deed of Extrajudicial Partition in favor of Rodolfo de Leon was presumptively authentic.

Ruling of the Court of Appeals In reversing the RTC, the CA held that laches did not bar respondents from pursuing

their claim. Notwithstanding the delay, laches is a doctrine in equity and may not be invoked to resist the enforcement of a legal right.

The appellate court also held that since Rodolfo de Leon was not the owner of the land at the time of the sale, he could not transfer any land rights to petitioner. It further declared that the signature of Hermoso de Leon on the Deed of Extrajudicial Partition and Quitclaim -- upon which petitioner bases her claim -- was a forgery. It added that under the above circumstances, petitioner could not be said to be a buyer in good faith.

Hence, this Petition.[8] The Issues

Petitioner raises the following issues for our consideration: “1. Whether or not the Deed of Absolute Sale dated December 6, 1975 executed by Rodolfo de Leon (deceased) over the land in question in favor of petitioner was perfected and binding upon the parties therein? “2. Whether or not the evidentiary weight of the Deed of Extrajudicial Partition with Quitclaim, executed by [R]espondent Hermoso de Leon, Perlita de Leon and Carlota de Leon in favor of Rodolfo de Leon was overcome by more than [a] preponderance of evidence of respondents? “3. Whether or not the possession of petitioner including her predecessor-in-interest Rodolfo de Leon over the land in question was in good faith? “4. And whether or not the instant case initiated and filed by respondents on February 24, 1993 before the trial court has prescribed and respondents are guilty of laches?”[9]

The Court’s Ruling The Petition has no merit.

First Issue: Validity of the Deed of Absolute Sale

Petitioner argues that, having been perfected, the Contract of Sale executed on December 6, 1975 was thus binding upon the parties thereto.

A contract of sale is consensual. It is perfected by mere consent,[10] upon a meeting of the minds[11] on the offer and the acceptance thereof based on subject matter, price and terms of payment.[12] At this stage, the seller’s ownership of the thing sold is not an element in the perfection of the contract of sale.

The contract, however, creates an obligation on the part of the seller to transfer ownership and to deliver the subject matter of the contract.[13] It is during the delivery that the law requires the seller to have the right to transfer ownership of the thing sold.[14] In general, a perfected contract of sale cannot be challenged on the ground of the seller’s non-ownership of the thing sold at the time of the perfection of the contract.[15]

Further, even after the contract of sale has been perfected between the parties, its consummation by delivery is yet another matter. It is through tradition or delivery that the buyer acquires the real right of ownership over the thing sold.[16]

Undisputed is the fact that at the time of the sale, Rodolfo de Leon was not the owner of the land he delivered to petitioner. Thus, the consummation of the contract and the consequent transfer of ownership would depend on whether he subsequently acquired ownership of the land in accordance with Article 1434 of the Civil Code.[17] Therefore, we need to resolve the issue of the authenticity and the due execution of the Extrajudicial Partition and Quitclaim in his favor.

Second Issue: Authenticity of the Extrajudicial Partition

Petitioner contends that the Extrajudicial Partition and Quitclaim is authentic, because it was notarized and executed in accordance with law. She claims that there is no clear and convincing evidence to set aside the presumption of regularity in the issuance of such public document. We disagree.

As a general rule, the due execution and authenticity of a document must be reasonably established before it may be admitted in evidence.[18] Notarial documents, however, may be presented in evidence without further proof of their authenticity, since the certificate of acknowledgment is prima facie evidence of the execution of the instrument or document involved.[19] To contradict facts in a notarial document and the presumption of regularity in its favor, the evidence must be clear, convincing and more than merely preponderant.[20]

The CA ruled that the signature of Hermoso de Leon on the Extrajudicial Partition and Quitclaim was forged. However, this factual finding is in conflict with that of the RTC. While normally this Court does not review factual issues,[21] this rule does not apply when there is a conflict between the holdings of the CA and those of the trial court,[22] as in the present case.

After poring over the records, we find no reason to reverse the factual finding of the appellate court. A comparison of the genuine signatures of Hermoso de Leon[23] with his purported signature on the Deed of Extrajudicial Partition with Quitclaim[24] will readily reveal that the latter is a forgery. As aptly held by the CA, such variance cannot be attributed to the age or the mechanical acts of the person signing.[25]

Without the corroborative testimony of the attesting witnesses, the lone account of the notary regarding the due execution of the Deed is insufficient to sustain the authenticity of this document. He can hardly be expected to dispute the authenticity of the very Deed he notarized.[26] For this reason, his testimony was -- as it should be --minutely scrutinized by the appellate court, and was found wanting.

Third Issue: Possession in Good Faith

Petitioner claims that her possession of the land is in good faith and that, consequently, she has acquired ownership thereof by virtue of prescription. We are not persuaded.

It is well-settled that no title to registered land in derogation of that of the registered owner shall be acquired by prescription or adverse possession.[27] Neither can prescription be allowed against the hereditary successors of the registered owner, because they merely step into the shoes of the decedent and are merely the continuation of the personality of their predecessor in interest.[28] Consequently, since a certificate of registration[29] covers it, the disputed land cannot be acquired by prescription regardless of petitioner’s good faith.

Fourth Issue: Prescription of Action and Laches

Petitioner also argues that the right to recover ownership has prescribed, and that respondents are guilty of laches. Again, we disagree.

Article 1141 of the New Civil Code provides that real actions over immovable properties prescribe after thirty years. This period for filing an action is interrupted when a complaint is filed in court.[30] Rodolfo de Leon alleged that the land had been allocated to him by his brother Hermoso de Leon in March 1963,[31] but that the Deed of Extrajudicial Partition assigning the contested land to the latter was executed only on September 16, 1963.[32] In any case, the Complaint to recover the land from petitioner was filed on February 24, 1993,[33] which was within the 30-year prescriptive period.

On the claim of laches, we find no reason to reverse the ruling of the CA. Laches is based upon equity and the public policy of discouraging stale claims.[34] Since laches is an equitable doctrine, its application is controlled by equitable considerations.[35] It cannot be used to defeat justice or to perpetuate fraud and injustice.[36] Thus, the assertion of laches to thwart

the claim of respondents is foreclosed, because the Deed upon which petitioner bases her claim is a forgery.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.

SO ORDERED. Puno, (Chairman), Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

VI. OBLIGATIONS OF SELLER

1. CONCEPT OF DELIVERY OR TRADITION

AURORA ALCANTARA-DAUS, petitioner, vs. Spouses HERMOSO and SOCORRO DE LEON, respondents.

D E C I S I O N PANGANIBAN, J.:

While a contract of sale is perfected by mere consent, ownership of the thing sold is acquired only upon its delivery to the buyer. Upon the perfection of the sale, the seller assumes the obligation to transfer ownership and to deliver the thing sold, but the real right of ownership is transferred only “by tradition” or delivery thereof to the buyer.

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

aside the February 9, 2001 Decision and the August 31, 2001 Resolution of the Court of Appeals[2](CA) in CA-GR CV No. 47587. The dispositive portion of the assailed Decision reads as follows: “WHEREFORE, premises considered, the decision of the trial court is hereby REVERSED, and judgment rendered:

1. Declaring null and void and of no effect, the [D]eed of [A]bsolute [S]ale dated December 6, 1975, the [D]eed of [E]xtra-judicial [P]artition and [Q]uitclaim dated July 1, 1985, and T.C.T. No. T-31262;

2. Declaring T.C.T. No. 42238 as valid and binding; 3. Eliminating the award of P5,000.00 each to be paid to defendants-appellees.”[3] The assailed Resolution[4] denied petitioner’s Motion for Reconsideration.

The Facts The antecedents of the case were summarized by the Regional Trial Court (RTC) and

adopted by the CA as follows: “This is a [C]omplaint for annulment of documents and title, ownership, possession, injunction, preliminary injunction, restraining order and damages. “[Respondents] alleged in their [C]omplaint that they are the owners of a parcel of land hereunder described as follows, to wit: ‘A parcel of land (Lot No. 4786 of the Cadastral Survey of San Manuel) situated in the Municipality of San Manuel, Bounded on the NW., by Lot No. 4785; and on the SE., by Lot Nos. 11094 & 11096; containing an area of Four Thousand Two Hundred Twelve (4,212) sq. m., more or less. Covered by Original Certificate of Title No. 22134 of the Land Records of Pangasinan.’ which [Respondent] Hermoso de Leon inherited from his father Marcelino de Leon by virtue of a [D]eed of [E]xtra-judicial [P]artition. Sometime in the early 1960s, [respondents] engaged the services of the late Atty. Florencio Juan to take care of the documents of the properties of his parents. Atty. Juan let them sign voluminous documents. After the death of Atty. Juan, some documents surfaced and most revealed that their properties had been conveyed by sale or quitclaim to [Respondent] Hermoso’s brothers and sisters, to Atty. Juan and his sisters, when in truth and in fact, no such conveyances were ever intended by them. His signature in the [D]eed of [E]xtra-judicial [P]artition with [Q]uitclaim made in favor of x x x Rodolfo de Leon was forged. They discovered that the land in question was sold by x x x Rodolfo de Leon to [Petitioner] Aurora Alcantara. They demanded annulment of the document and reconveyance but defendants refused x x x.

x x x x x x x x x

“[Petitioner] Aurora Alcantara-Daus [averred] that she bought the land in question in good faith and for value on December 6, 1975. [She] has been in continuous, public, peaceful, open

possession over the same and has been appropriating the produce thereof without objection from anyone.”[5]

On August 23, 1994, the RTC (Branch 48) of Urdaneta, Pangasinan[6] rendered its Decision[7] in favor of herein petitioner. It ruled that respondents’ claim was barred by laches, because more than 18 years had passed since the land was sold. It further ruled that since it was a notarial document, the Deed of Extrajudicial Partition in favor of Rodolfo de Leon was presumptively authentic.

Ruling of the Court of Appeals In reversing the RTC, the CA held that laches did not bar respondents from pursuing

their claim. Notwithstanding the delay, laches is a doctrine in equity and may not be invoked to resist the enforcement of a legal right.

The appellate court also held that since Rodolfo de Leon was not the owner of the land at the time of the sale, he could not transfer any land rights to petitioner. It further declared that the signature of Hermoso de Leon on the Deed of Extrajudicial Partition and Quitclaim -- upon which petitioner bases her claim -- was a forgery. It added that under the above circumstances, petitioner could not be said to be a buyer in good faith.

Hence, this Petition.[8] The Issues

Petitioner raises the following issues for our consideration: “1. Whether or not the Deed of Absolute Sale dated December 6, 1975 executed by Rodolfo de Leon (deceased) over the land in question in favor of petitioner was perfected and binding upon the parties therein? “2. Whether or not the evidentiary weight of the Deed of Extrajudicial Partition with Quitclaim, executed by [R]espondent Hermoso de Leon, Perlita de Leon and Carlota de Leon in favor of Rodolfo de Leon was overcome by more than [a] preponderance of evidence of respondents? “3. Whether or not the possession of petitioner including her predecessor-in-interest Rodolfo de Leon over the land in question was in good faith? “4. And whether or not the instant case initiated and filed by respondents on February 24, 1993 before the trial court has prescribed and respondents are guilty of laches?”[9]

The Court’s Ruling The Petition has no merit.

First Issue: Validity of the Deed of Absolute Sale

Petitioner argues that, having been perfected, the Contract of Sale executed on December 6, 1975 was thus binding upon the parties thereto.

A contract of sale is consensual. It is perfected by mere consent,[10] upon a meeting of the minds[11] on the offer and the acceptance thereof based on subject matter, price and terms of payment.[12] At this stage, the seller’s ownership of the thing sold is not an element in the perfection of the contract of sale.

The contract, however, creates an obligation on the part of the seller to transfer ownership and to deliver the subject matter of the contract.[13] It is during the delivery that the law requires the seller to have the right to transfer ownership of the thing sold.[14] In general, a perfected contract of sale cannot be challenged on the ground of the seller’s non-ownership of the thing sold at the time of the perfection of the contract.[15]

Further, even after the contract of sale has been perfected between the parties, its consummation by delivery is yet another matter. It is through tradition or delivery that the buyer acquires the real right of ownership over the thing sold.[16]

Undisputed is the fact that at the time of the sale, Rodolfo de Leon was not the owner of the land he delivered to petitioner. Thus, the consummation of the contract and the consequent transfer of ownership would depend on whether he subsequently acquired ownership of the land in accordance with Article 1434 of the Civil Code.[17] Therefore, we need to resolve the issue of the authenticity and the due execution of the Extrajudicial Partition and Quitclaim in his favor.

Second Issue: Authenticity of the Extrajudicial Partition

Petitioner contends that the Extrajudicial Partition and Quitclaim is authentic, because it was notarized and executed in accordance with law. She claims that there is no clear and convincing evidence to set aside the presumption of regularity in the issuance of such public document. We disagree.

As a general rule, the due execution and authenticity of a document must be reasonably established before it may be admitted in evidence.[18] Notarial documents, however, may be presented in evidence without further proof of their authenticity, since the certificate of acknowledgment is prima facie evidence of the execution of the instrument or document involved.[19] To contradict facts in a notarial document and the presumption of regularity in its favor, the evidence must be clear, convincing and more than merely preponderant.[20]

The CA ruled that the signature of Hermoso de Leon on the Extrajudicial Partition and Quitclaim was forged. However, this factual finding is in conflict with that of the RTC. While normally this Court does not review factual issues,[21] this rule does not apply when there is a conflict between the holdings of the CA and those of the trial court,[22] as in the present case.

After poring over the records, we find no reason to reverse the factual finding of the appellate court. A comparison of the genuine signatures of Hermoso de Leon[23] with his purported signature on the Deed of Extrajudicial Partition with Quitclaim[24] will readily reveal that the latter is a forgery. As aptly held by the CA, such variance cannot be attributed to the age or the mechanical acts of the person signing.[25]

Without the corroborative testimony of the attesting witnesses, the lone account of the notary regarding the due execution of the Deed is insufficient to sustain the authenticity of this document. He can hardly be expected to dispute the authenticity of the very Deed he notarized.[26] For this reason, his testimony was -- as it should be --minutely scrutinized by the appellate court, and was found wanting.

Third Issue: Possession in Good Faith

Petitioner claims that her possession of the land is in good faith and that, consequently, she has acquired ownership thereof by virtue of prescription. We are not persuaded.

It is well-settled that no title to registered land in derogation of that of the registered owner shall be acquired by prescription or adverse possession.[27] Neither can prescription be allowed against the hereditary successors of the registered owner, because they merely step into the shoes of the decedent and are merely the continuation of the personality of their predecessor in interest.[28] Consequently, since a certificate of registration[29] covers it, the disputed land cannot be acquired by prescription regardless of petitioner’s good faith.

Fourth Issue: Prescription of Action and Laches

Petitioner also argues that the right to recover ownership has prescribed, and that respondents are guilty of laches. Again, we disagree.

Article 1141 of the New Civil Code provides that real actions over immovable properties prescribe after thirty years. This period for filing an action is interrupted when a complaint is filed in court.[30] Rodolfo de Leon alleged that the land had been allocated to him by his brother Hermoso de Leon in March 1963,[31] but that the Deed of Extrajudicial Partition assigning the contested land to the latter was executed only on September 16, 1963.[32] In any case, the Complaint to recover the land from petitioner was filed on February 24, 1993,[33] which was within the 30-year prescriptive period.

On the claim of laches, we find no reason to reverse the ruling of the CA. Laches is based upon equity and the public policy of discouraging stale claims.[34] Since laches is an equitable doctrine, its application is controlled by equitable considerations.[35] It cannot be used to defeat justice or to perpetuate fraud and injustice.[36] Thus, the assertion of laches to thwart the claim of respondents is foreclosed, because the Deed upon which petitioner bases her claim is a forgery.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.

SO ORDERED. Puno, (Chairman), Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

SAMPAGUITA PICTURES, INC., vs. JALWINDOR MANUFACTURERS, INC. 43 SCRA 420, G.R. No. L-43059 October II, 1979

FACTS:

CASE DIGESTS IN SALES – Leng J. Page 13

Plaintiff-appellant Sampaguita Pictures, Inc. leased to Capitol ―300ǁ‖ Inc. the roofdeck of the Sampaguita Pictures building and all existing improvements. It was agreed, among other things, that any remodelling, alterations and/or addition to the premises shall be at the expense of the lessee and such improvements belong to the lessor without any obligation to reimburse the lessee of any sum spent for said improvements. Capitol "300" purchased on credit from defendant-appellee Jalwindor Manufacturers, Inc. glass and wooden jalousies which were delivered and installed in the leased premises by Jalwindor replacing the existing windows. On June I, 1964, Jalwindor filed with the CFI of Rizal, Quezon City, an action for collection of a sum of money with a petition for preliminary attachment against Capitol for its failure to pay its purchases. The parties submitted to the trial court a Compromise Agreement wherein Capitol acknowledged its indebtedness to Jalwindor in the amount of P9,53 1.09, exclusive of attorney's fees and interest, payable in monthly installments of at least P300.00 a month beginning December 15, 1964; and pending liquidation of the said obligation, all the materials purchased by Capitol will be considered as security for such undertaking.

In the meantime, Capitol ―300ǁ‖ was not able to pay rentals to Sampaguita from March 1964 to April 1965. Sampaguita filed a complaint for ejectment and for collection of a sum of money against Capitol and on June 8, 1965, the City Court of Quezon City rendered judgment ordering Capitol to vacate the premises and to pay Sampaguita. On the other hand, Capitol likewise failed to comply with the terms of the Compromise Agreement, and on July 31, 1965, the Sheriff of Quezon City made levy on the glass and wooden jalousies in question. Sampaguita filed a third party claim alleging that it is the owner of said materials and not Capitol. Jalwindor however, field an indemnity bond in favor of the Sheriff and the items were sold at public auction on August 30, 1965 with Jalwindor as the highest bidder for P6,000.00.

G.R. No. L-26937 October 5, 1927 PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. SEVERO EUGENIO LO, ET AL., defendants. SEVERIO EUGENIO LO, NG KHEY LING and YEP SENG, appellants. Jose Lopez Vito for appellants. Roman Lacson for appellee. VILLAMOR, J.: On September 29, 1916, the appellants Severo Eugenio Lo and Ng Khey Ling, together with J. A. Say Lian Ping, Ko Tiao Hun, On Yem Ke Lam and Co Sieng Peng formed a commercial partnership under the name of "Tai Sing and Co.," with a capital of P40,000 contributed by said partners. In the articles of copartnership, Exhibit A, it appears that the partnership was to last for five years from after the date of its organization, and that its purpose was to do business in the City of Iloilo, Province of Iloilo, or in any other part of the Philippine Islands the partners might desire, under the name of "Tai Sing & Co.," for the purchase and sale of merchandise, goods, and native, as well as Chinese and Japanese, products, and to carry on such business and speculations as they might consider profitable. One of the partners, J. A. Say Lian Ping was appointed general manager of the partnership, with the appointed general manager of the partnership, with the powers specified in said articles of copartnership. On June 4, 1917, general manager A. Say Lian Ping executed a power of attorney (Exhibit C-1) in favor of A. Y. Kelam, authorizing him to act in his stead as manager and administrator of "Tai Sing & Co.," on July 26, 1918, for, and obtained a loan of P8,000 in current account from the plaintiff bank. (Exhibit C). As security for said loan, he mortgaged certain personal property of "Tai Sing & Co., (Exhibit C.) This credit was renew several times and on March 25, 1919, A. Y. Kelam, as attorney-in-fact of "Tai Sing & Co., executed a chattel mortgage in favor of plaintiff bank as security for a loan of P20,000 with interest (Exhibit D). This mortgage was again renewed on April 16, 1920 and A. Y. Kelam, as attorney-in-fact of "Tai Sing & Co., executed another chattel mortgage for the said sum of P20,000 in favor of plaintiff bank. (Exhibit E.) According to this mortgage contract, the P20,000 loan was to earn 9 per cent interest per annum. On April 20, 1920, Yap Seng, Severo Eugenio Lo, A. Y. Kelam and Ng Khey Ling, the latter represented by M. Pineda Tayenko, executed a power of attorney in favor of Sy Tit by virtue of which Sy Tit, representing "Tai Sing & Co., obtained a credit of P20,000 from

plaintiff bank on January 7, 1921, executing a chattel mortgage on certain personal property belonging to "Tai Sing & Co. Defendants had been using this commercial credit in a current account with the plaintiff bank, from the year 1918, to May 22, 1921, and the debit balance of this account, with interest to December 31, 1924, is as follows:

TAI SING & CO.

To your outstanding account (C. O. D.) with us on June 30, 1922 P16,518.74

Interest on same from June 30, 1922 to December 31,1924, at 9 per cent per annum 3,720.86

Total

20, 239.00 =========

This total is the sum claimed in the complaint, together with interest on the P16,518.74 debt, at 9 per cent per annum from January 1, 1925 until fully paid, with the costs of the trial. Defendant Eugenio Lo sets up, as a general defense, that "Tai Sing & Co. was not a general partnership, and that the commercial credit in current account which "Tai Sing & Co. obtained from the plaintiff bank had not been authorized by the board of directors of the company, nor was the person who subscribed said contract authorized to make the same, under the article of copartnership. The other defendants, Yap Sing and Ng Khey Ling, answered the complaint denying each and every one of the allegations contained therein. After the hearing, the court found:

(1) That defendants Eugenio Lo, Ng Khey Ling and Yap Seng Co., Sieng Peng indebted to plaintiff Philippine National Bank in sum of P22,595.26 to July 29, 1926, with a daily interest of P4.14 on the balance on account of the partnership "Tai Sing & Co. for the sum of P16,518.74 until September 9, 1922; (2) Said defendants are ordered jointly and severally to pay the Philippine National Bank the sum of P22,727.74 up to August 31, 1926, and from the date, P4.14 daily interest on the principal; and (3) The defendants are furthermore ordered to pay the costs of the action.1awph!l.net

Defendants appealed, making the following assignments of error: I. The trial court erred in finding that article 126 of the Code of Commerce at present in force is not mandatory. II. The trial court erred in finding that the partnership agreement of "Tai Sing & Co., (Exhibit A), is in accordance with the requirements of article 125 of the Code of Commerce for the organization of a regular partnership. III. The trial court erred in not admitting J. A. Sai Lian Ping's death in China in November, 1917, as a proven fact. IV. The trial court erred in finding that the death of J. A. Say Lian Ping cannot extinguish the defendants' obligation to the plaintiff bank, because the last debt incurred by the commercial partnership "Tai Sing & Co., was that evidence by Exhibit F, signed by Sy Tit as attorney-in-fact of the members of "Tai Sing & Co., by virtue of Exhibit G. V. The trial court erred in not finding that plaintiff bank was not able to collect its credit from the goods of "Tai Sing & Co., given as security therefor through its own fault and negligence; and that the action brought by plaintiff is a manifest violation of article 237 of the present Code of Commerce. VI. The trial court erred in finding that the current account of "Tai Sing & Co. with plaintiff bank shows a debit balance of P16,518.74, which in addition to interest at 9 per cent per annum from July 29, 1926, amount to P16,595.26, with a daily interest of P4.14 on the sum of P16,518.74. VII. The trial court erred in ordering the defendants appellants to pay jointly and severally to the Philippine National Bank the sum of P22,727.74 up to August 31,

1926, and interest on P16,518.74 from that date until fully paid, with the costs of the action. VIII. The trial court erred in denying the motion for a new trial filed by defendants-appellants.

Appellants admit, and it appears from the context of Exhibit A, that the defendant association formed by the defendants is a general partnership, as defined in article 126 of the Code Commerce. This partnership was registered in the mercantile register of the Province of Iloilo. The only anomaly noted in its organization is that instead of adopting for their firm name the names of all of the partners, of several of them, or only one of them, to be followed in the last two cases, by the words "and to be followed in the last two cases, by the words "and company" the partners agreed upon "Tai Sing & Co." as the firm name. In the case of Hung-Man-Yoc, under the name of Kwong-Wo-Sing vs. Kieng-Chiong-Seng, cited by appellants, this court held that, as the company formed by defendants had existed in fact, though not in law due to the fact that it was not recorded in the register, and having operated and contracted debts in favor of the plaintiff, the same must be paid by someone. This applies more strongly to the obligations contracted by the defendants, for they formed a partnership which was registered in the mercantile register, and carried on business contracting debts with the plaintiff bank. The anomalous adoption of the firm name above noted does not affect the liability of the general partners to third parties under article 127 of the Code of Commerce. And the Supreme Court so held in the case of Jo Chung Cang vs. Pacific Commercial Co., (45 Phil., 142), in which it said that the object of article 126 of the Code of Commerce in requiring a general partnership to transact business under the name of all its members, of several of them, or of one only, is to protect the public from imposition and fraud; and that the provision of said article 126 is for the protection of the creditors rather than of the partners themselves. And consequently the doctrine was enunciated that the law must be unlawful and unenforceable only as between the partners and at the instance of the violating party, but not in the sense of depriving innocent parties of their rights who may have dealt with the offenders in ignorance of the latter having violated the law; and that contracts entered into by commercial associations defectively organized are valid when voluntarily executed by the parties, and the only question is whether or not they complied with the agreement. Therefore, the defendants cannot invoke in their defense the anomaly in the firm name which they themselves adopted. As to the alleged death of the manager of the company, Say Lian Ping, before the attorney-in-fact Ou Yong Kelam executed Exhibits C, D and E, the trial court did not find this fact proven at the hearing. But even supposing that the court had erred, such an error would not justify the reversal of the judgment, for two reasons at least: (1) Because Ou Yong Kelam was a partner who contracted in the name of the partnership, without any objection of the other partners; and (2) because it appears in the record that the appellant-partners Severo Eugenio Lo, Ng Khey Ling and Yap Seng, appointed Sy Tit as manager, and he obtained from the plaintiff bank the credit in current account, the debit balance of which is sought to be recovered in this action. Appellants allege that such of their property as is not included in the partnership assets cannot-be seized for the payment of the debts contracted by the partnership until after the partnership property has been exhausted. The court found that the partnership property described in the mortgage Exhibit F no loner existed at the time of the filing of the herein complaint nor has its existence been proven, nor was it offered to the plaintiff for sale. We find no just reason to reverse this conclusion of the trial court, and this being so, it follows that article 237 of the Code of Commerce, invoked by the appellant, can in no way have any application here. Appellants also assign error to the action of the trial court in ordering them to pay plaintiff, jointly and severally, the sums claimed with 9 per cent interest on P16,518.74, owing from them. The judgment against the appellants is in accordance with article 127 of the Code of Commerce which provides that all the members of a general partnership, be they managing partners thereof or not, shall be personally and solidarily liable with all their property, for the results of the transactions made in the name and for the account of the partnership, under the signature of the latter, and by a person authorized to use it. As to the amount of the interest suffice it to remember that the credit in current account sued on in this case as been renewed by the parties in such a way that while it appears in the mortgage Exhibit D executed on March 25, 1919 by the attorney-in-fact Ou Yong Kelam that the P20,000 credit would earn 8 per cent interest annually, yet from that executed on April

16, 1920, Exhibit E, it appears that the P20,000 would earn 9 per cent interest per annum. The credit was renewed in January, 1921, and in the deed of pledge, Exhibit F, executed by "Tai Sing & Co., represented by the attorney-in-fact Sy Tit, it appears that this security is for the payment of the sums received by the partnership, not to exceed P20,000 with interest and collection fees. There can be no doubt that the parties agreed upon the rate of interest fixed in the document Exhibit E, namely 9 per cent per annum. The judgment appealed from is in accordance with the law, and must therefore be, as it is hereby, affirmed with costs against the appellants. So ordered. Avanceña, C.J., Johnson, Street, Malcolm, Johns and Romualdez, JJ., concur.

NORKIS DISTRIBUTORS, INC. vs. COURT OF APPEALS 193 SCRA 694, G.R. No. 91029 February 7,1991 GRINO-AQUINO, J.:

FACTS:

Petitioner Norkis Distributors, Inc. is the distributor of Yamaha motorcycles in Negros Occidental. On September 20, 1979, private respondent Alberto Nepales bought trom the Norkis Bacolod branch a brand new Yamaha Wonderbike motorcycle Model YL2DX. The price of P7,500.00 was payable by means of a Letter of Guaranty from the DBP, which Norkis agreed to accept. Credit was extended to Nepales for the price of the motorcycle payable by DBP upon release of his motorcycle loan. As security for the loan, Nepales would execute a chattel mortgage on the motorcycle in favor of DBP. Petitioner issued a sales invoice which Nepales signed in conformity with the terms of the sale. In the meantime, however, the motorcycle remained in Norkis' possession. On January 22, 1980, the motorcycle was delivered to a certain Julian Nepales, allegedly the agent of Alberto Nepales. The motorcycle met an accident on February 3, 1980 at Binalbagan, Negros Occidental. An investigation conducted by the DBP revealed that the unit was being driven by a certain Zacarias Payba at the time of the accident. The unit was a total wreck was returned.

On March 20, 1980, DBP released the proceeds of private respondent's motorcycle loan to Norkis in the total sum of P7,500. As the price of the motorcycle later increased to P7,828 in March, 1980, Nepales paid the difference of P328 and demanded the delivery of the motorcycle. When Norkis could not deliver, he filed an action for specific performance with damages against Norkis in the RTC of Negros Occidental. He alleged that Norkis failed to deliver the motorcycle which he purchased, thereby causing him damages. Norkis answered that the motorcycle had already been delivered to private respondent before the accident, hence, the risk of loss or damage had to be borne by him as owner of the unit.

ADDISON vs. FELIX and TIOCO 38 SCRA 404, No. 12342, August 3, 1918

FACTS:

By a public instrument, plaintiff Addison sold to the defendant Marciana Felix and husband Balbino Tioco, 4 parcels of land. Defendants paid, at the time of the execution of the deed, the sum of P3,000.00 on account of the purchase price, and bound herself to pay the remainder in installments. It was further stipulated that the purchaser was to deliver to the vendor 25 per centum of the value of the products that she might obtain from the 4 parcels "from the moment she takes possession of them until the

CASE DIGESTS IN SALES – Leng J. Page 12

Torrens certificate of title be issued in her favor." It was likewise covenanted that "within I year from the date of the certificate of title in favor of Felix, she may rescind the contract of sale in which she shall be obliged to return to Addison the net value of all the products of the 4 parcels sold, and Addison shall be obliged to return to her all the sums that she may have paid, together with interest at the rate of I 0 percent per annum.

However, Addison was able to designate only 2 of the 4 parcels and more than two-thirds of these two were found to be in the possession of one Juan Villafuerte, who claimed to be the owner of the parts so occupied by him.

Addison filed suit in CFI to compel Felix to make payment of the first installment, in accordance with the terms of the contract and of the interest at the stipulated rate. Defendant answered and alleged that the plaintiff had failed to deliver the lands that were the subject matter of the sale.

ISSUE:

1. Whether or not the delivery had been effected by reason of the issuance of the Torrens Certificate of title, notwithstanding the fact that the thing sold was not subject to the control of the vendor.

2. Whether or not the purchaser can rescind the contract.

HELD:

1. No.

The record shows that the plaintiff did not deliver the thing sold. With respect to two of the parcels of land, he was not even able to show them to the purchaser; and as regards the other two, more than two-thirds of their area was in the hostile and adverse possession of a third person.

The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be delivered when it is placed "in the hands and possession of the vendee." It is true that the same article declares that the execution of a public instrument is equivalent to the delivery of the thing which is the object of the contract, but, in order that this symbolic delivery may produce the effect of tradition, I t is necessary that the vendor shall have control over the thing sold that, at the moment of sale, it its material delivery could have been made.

It is not enough to confer upon the purchaser the ownership and the right of possession. The thing sold must be placed in his control. When there is no impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor, symbolic delivery through the execution of the public instrument is sufficient. But if, notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and material tenancy of the thing and make use of it himself or through another in his name, because such tenancy and enjoyment are opposed by the interposition of another will, then fiction yields to reality - the delivery has not been effected.

2. Yes.

It is evident in the case at bar, that the mere execution of the instrument was not a fulfillment of the vendor's obligation to deliver the thing sold, and that from such non-fulfillment arises the purchaser's right to demand, as she has demanded, the rescission of the sale and the return of the price.

WAYS OF EFFECTING DELIVERY

-CONSTRUCTIVE OR LEGAL

TEN FORTY REALTY V. CRUZ| PanganibanG.R. No. 151212 | September 10, 2003 Jun28

FACTS: • Petitioner filed an ejectment complaint against Marina Cruz(respondent) before the MTC. Petitioner alleges that the land indispute was purchased from Barbara Galino on December 1996, andthat said land was again sold to respondent on April 1998;

• On the other hand, respondent answer with counterclaim that never was there an occasion when petitioner occupied a portion of the premises. In addition, respondent alleges that said land was a public land (respondent filed a miscellaneous sales application with the Community Environment and Natural Resources Office) and the action for ejectment cannot succeed where it appears that respondent had been in possession of the property prior to the petitioner; • On October 2000, MTC ordered respondent to vacate the land and surrender to petitioner possession thereof. On appeal, the RTC reversed the decision. CA sustained the trial court’s decision. ISSUE/S: Whether or not petitioner should be declared the rightful owner of the property. HELD: No. Respondent is the true owner of the land.1) The action filed by the petitioner, which was an action for “unlawful detainer”, is improper. As the bare allegation of petitioner’s tolerance of respondent’s occupation of the premises has not been proven, the possession should be deemed illegal from the beginning. Thus, the CA correctly ruled that the ejectment case should have been for forcible entry. However, the action had already prescribed  because the complaint was filed on May 12, 1999 – a month after the last day forfiling;2) The subject property had not been delivered to petitioner; hence, it did not acquire possession either materially or symbolically. As between the two buyers, therefore, respondent was first in actual possession of the property.  As regards the question of whether there was good faith in the second buyer. Petitioner has not proven that respondent was aware that her mode of acquiring the property was defective at the time she acquired it from Galino. At the time, the property — which was public land –had not been registered in the name of Galino; thus, respondent relied on the tax declarations thereon. As shown, the former’s name appeared on the tax declarations for the property until its sale to the latter in 1998. Galino was in fact occupying the realty when respondent took over possession. Thus, there was no circumstance that could have placed the latter upon inquiry or required her to further investigate petitioner’s right of ownership. DOCTRINE/S: Execution of Deed of Sale; Not sufficient as delivery. Ownership is transferred not by contract but by tradition or delivery. Nowhere in the Civil Code is it provided that the execution of a Deed of Sale is  a conclusive presumption of delivery of possession of a piece of real estate. The execution of a public instrument gives rise only to a prima facie presumption of delivery. Such presumption is destroyed when the delivery is not effected, because of a legal impediment. Such constructive or symbolic delivery, being merely presumptive, was deemed negated by the failure of the vendee to take actual possession of the land sold. Disqualification from Ownership of Alienable Public Land. Private corporations are disqualified from acquiring lands of the public domain, as provided under Section 3 of Article XII of the Constitution. While corporations cannot acquire land of the public domain, they can however acquire private land. However, petitioner has not presented proof that, at the time it purchased the property from Galino, the property had ceased to be of the public domain and was already private land. The established rule is that alienable and disposable land of the public domain held and occupied by a possessor — personally or through predecessors-in-interest, openly, continuously, and exclusively for 30 years — is ipso jure converted to private property by the mere lapse of time. RULING: The Supreme Court DENIED the petition.

QUASI-TRADIO

DOLORES SALINAS, ASSISTED BY HER HUSBAND, JUAN CASTILLO, PETITIONER, VS. SPS. BIENVENIDO S. FAUSTINO AND ILUMINADA G.

FAUSTINO, RESPONDENTS.

D E C I S I O N

CARPIO MORALES, J.:

It appears that respondent Bienvenido S. Faustino (Faustino), by a Deed of Absolute Sale (Deed of Sale)[1] dated June 27, 1962, purchased from his several co-heirs, including his first cousins Benjamin Salinas and herein petitioner Dolores Salinas, their respective shares to a parcel of land covered by Tax Declaration No. 14687, in the name of their grandmother Carmen Labitan, located in Subic, Zambales, with a "superficial area of 300.375 square meters [sq. m.] more or less," and with boundaries "in the North: Carmen Labitan; in the South: Calle, in the East: Callejon and in the West: Roque Demetrio." On March 15, 1982, respondent Faustino, joined by his wife, filed before the then Court of First Instance of Zambales a complaint for recovery of possession with damages against petitioner, assisted by her husband, docketed as Civil Case No. 3382-0, alleging that the parcel of land he bought via the June 27, 1962 Deed of Sale from his co-heirs consisted of 1,381 sq. m. and is more particularly described as follows:

A residential land located at Barrio Matain, Subic, Zambales now know as Lot 3, Block 5-K, Psd-8268 bounded on the NORTH by Road Lot 1, Block 5-1, PSD-8268; on the SOUTH by Road Lot 2, Block 5-1, Psd-8268; on the EAST by Road Lot 2, Block 5-1, Psd-8286; and, on the WEST by the property of Roque Demetrio Lot 2, Block 5-k, Psd 8268; containing an area of ONE THOSUAND THREE HUNDRED EIGHTY-ONE(1,381) SQUARE METERS, more or less. Declared for taxation purposes under Tax Declaration No. 1896 in the name of Spouses Bienvenido S. Faustino and Iluminada G. Faustino.[2] (Emphasis and underscoring supplied)

Respondent spouses further alleged that they allowed petitioner and co-heirs to occupy and build a house on a 627 sq. m. portion of the land, particularly described as follows:

The northeastern portion of the land of the plaintiffs described in Paragraph 2 of this complaint; bounded on the NORTH by Road Lot 1, Block 5-1, Psd-8268; on the East by Road Lot 2, Block 5-1, Psd-8268; and on the SOUTH and WEST by the remaining portion of Lot 5, Block 5-1, PSD-8268 of herein plaintiffs which is the land described in Paragraph 2 of this complaint owned by the plaintiffs and that this portion in question has an area of SIX HUNDRED TWENTY-SEVEN (627) SQUARE METERS, more or less;[3] (Emphasis and underscoring supplied),

on the condition that they would voluntarily and immediately remove the house and vacate that portion of the land should they (respondents) need the land; and that when they asked petitioner and her co-heir-occupants to remove the house and restore the possession of the immediately-described portion of the land, they refused, hence, the filing of the complaint. In her Answer,[4] petitioner claimed that she is the owner of a 628 sq. m. lot covered by Tax Declaration No. 1017 in her name, particularly described as follows:

A residential lot, together with the two (2) storey house thereon constructed, and all existing improvements thereon, situated at Matain, Subic, Zambales, containing an area of 628 square meters, more or less. Bounded on the North, by Lot 12313 [sic]; on the East, by Lot 12413 (Road Lot); on the South, by Lot 12005-Cecilia Salinas; and on the West, by Lot 12006, Loreto Febre. Declared under Tax No. 1017, in the name of Dolores Salinas Castillo. (Emphasis and underscoring supplied);

that if respondents refer to the immediately described lot, then they have no right or interest thereon;[5] and that her signature in the June 27, 1962 Deed of Sale is forged. After trial, Branch 73 of the Regional Trial Court (RTC) of Olongapo City, by Decision of August 31, 1993, found petitioner's claim of forgery unsupported. It nevertheless dismissed the complaint,[6] it holding that, inter alia, the Deed of Sale indicated that only 300.375 sq. m. was sold to petitioner.

. . . [I]n the . . . Deed of Sale [dated June 27, 1962] (Exhibit "B"), the area of the land sold was only 300.375 square meters while the plaintiffs[-herein respondents] in their complaint

claim 1,381 square meters or the whole of the lot shown by exhibit "A" (Lot 3, Block 5-A, Psd-8268). Since the document is the best evidence, and the deed of sale indicates only 300.375 square meters, so then, only the area as stated in the Deed of Sale should be owned by the plaintiffs. The allegations [sic] that there might be a typographical error is again mere conjecture and not really supported by evidence. The boundaries of the land indicated in the Deed of Sale (Exhibit "B") [are] different from that of Exhibit "A" claimed by the plaintiff[s-herein respondents] to be the plan of the lot which they allegedly bought. The Deed of Sale states [that the boundary of the lot in the] North is the lot of Carmen Labitan while Exhibit "A" indicated that North of the land is Lot 3, Block 5-A, Psd-8268 (Exhibit "A") is a Road Lot (Lot 1, Block 5-1, Psd-8268). This Court believes that after examining the documents presented, that the land bought by the plaintiff is only a portion of the land appearing in Exhibit "A" and not the whole lot. The land bought being situated at the southern portion of Lot 3, Block 5-K, Psd-8268. This explains why the northern portion of the lot sold indicated in the Deed of Sale is owned by Carmen Labitan, the original owner of the whole Lot 3, Block 5-K, Psd-8268 (Exhibit "C-1"). Even the tax declaration submitted by the plaintiff indicatesdifferent boundaries with that of the land indicated in the Deed of Sale. The law states in Art. 434 of the Civil Code:

"Art. 434. In an action to recover, the property must be identified, and the plaintiff must rely on the weakness of the defendant's claim." x x x x

Herein plaintiffs[-respondents] only own the area of 300.375 square meters of the said lot and not the whole area of 1,381 square meters as claimed by them. There is no evidence to substantiate the plaintiffs' claim for the area of 1,381 square meters. x x x x[7] (Emphasis and underscoring supplied)

On respondents' appeal,[8] the Court of Appeals, by Decision of December 20, 2001,[9]modified the RTC decision. It held that since respondents are claiming the whole lot containing 1,381 sq. m. but that petitioner is claiming 628 sq. m. thereof, then respondents are "entitled to the remaining portion . . . of 753 square meters." The appellate court explained:

x x x [T]he Court agrees with the court a quo that only a portion of the whole lot was indeed sold to the plaintiffs-appellants by the heirs of deceased Isidro Salinas and Carmen Labitan. What remains to be determined is the particular portion of the area that was sold to the plaintiffs-appellants. x x x [W]hat really defines a piece of land is not the area calculated with more or less certainty mentioned in the description but the boundaries therein laid down as enclosing the land and indicating its limits. Where the land is sold for a lump sum and not so much per unit of measure or number, the boundaries of the land stated in the contract determine the effects and scope of the sale not the area thereof. Based on these rules, plaintiffs-appellants are not strictly bound by the area stated in the Deed of Sale which is merely 300.375 square meters, but by the metes and bounds stated therein. As found by the court a quo, the land bought by the plaintiffs-appellants is a portion of the land appearing in Exhibit "A", situated at the southern portion of Lot 3, Block 5-K, Psd 8268 where the northern portion of the land sold as indicated in the Deed of Sale is owned by Carmen Labitan, the original owner of the whole Lot 3, Block 5-K, Psd-8268 (Exhibit "C-1".) None of the other heirs questioned the sale of the property as described in the Deed of Sale. Considering the foregoing, this Court believes that plaintiffs-appellants[-herein respondents] own more than 300.375 square meters of the land in question. However, said ownership does

not extend to the northern portion of the land being claimed by the defendants-appellees, consisting of 628 (erroneously stated in the decision of the court a quo as 268) square meters and covered by Tax Declaration No. 1017 in the name of defendant-appellee[-herein petitioner] Dolores Salinas.Plaintiffs-appellants are[,] however, entitled to the remaining portion of the property consisting of seven hundred fifty-three (753) square meters, more or less. (Emphasis and underscoring supplied)

The appellate court thus disposed:

WHEREFORE, based on the foregoing premises, the judgment appealed from is hereby MODIFIED, as follows:

1. Plaintiffs-appellants Bienvenido S. Faustino and Iluminada G. Faustin[o] are declared owners of seven hundred fifty-three (753) square meters, more or less, of the parcel of land subject of this case.

2. Plaintiffs-appellants and defendants-appellees are directed to cause the segregation of their respective shares in the property as determined by this Court, with costs equally shared between them.

x x x x[10] (Underscoring supplied) Petitioner's motion for reconsideration having been denied,[11] she filed the present petition[12] faulting the Court of Appeals

a. x x x IN MODIFYING THE DECISION OF THE COURT A QUO DISMISSING THE COMPLAINT FOR INSUFFICIENCY OF EVIDENCE;

b. x x x IN DECLARING THE PRIVATE RESPONDENTS OWNERS OF 753 SQUARE METERS, MORE OR LESS, OF THE PARCEL OF LAND SUBJECT OF THE CASE[;]

c. x x x IN NOT AFFIRMING THE DECISION OF THE COURT A QUO AND XXX IN NOT DECLARING THE PETITIONER AS OWNER OF HER PROPERTY WHICH, SINCE THEN UP TO THE PRESENT, SHE HAD BEEN OCCUPYING AND DESPITE PREPONDERANCE OF EVIDENCE OF HER OWNERSHIP THERETO.[13] (Underscoring in the original)

The petition is meritorious. Indeed, in a contract of sale of land in a mass, the specific boundaries stated in the contract must control over any statement with respect to the area contained within its boundaries.[14] Thus, it is the boundaries indicated in a deed of absolute sale, and not the area in sq. m. mentioned therein — 300.375 sq. m. in the Deed of Sale in respondents' favor - that control in the determination of which portion of the land a vendee acquires. In concluding that respondents acquired via the June 27, 1962 Deed of Sale the total land area of 753 sq. m., the Court of Appeals subtracted from the total land area of 1,381 sq. m. reflected in Exh. "A," which is "Plan of Lot 3, Block 5-k, Psd-8268, asprepared for Benjamin R. Salinas" containing an area of 1,381 sq. m. and which was prepared on February 10, 1960 by a private land surveyor, the 628 sq. m. area of the lot claimed by petitioner as reflected in Tax Declaration No. 1017 in her name. As will be shown shortly, however, the basis of the appellate court's conclusion is erroneous. As the immediately preceding paragraph reflects, the "Plan of Lot 3, Bk 5-K, Psd-82" was prepared for respondent Faustino's and petitioner's first cousin co-heir Benjamin Salinas on February 10, 1960. Why the appellate court, after excluding the 628 sq. m. lot covered by a Tax Declaration in the name of petitioner from the 1,381 sq. m. lot surveyed for Benjamin P. Salinas in 1960, concluded that what was sold via the 1962 Deed of Sale to respondent Faustino was the remaining 753 sq. m., despite the clear provision of said Deed of Sale that what was conveyed was 300.375 sq. m., escapes comprehension. It defies logic, given that respondents base their claim of ownership of the questioned 628 sq. m. occupied by petitioner on that June 27, 1962 Deed of Sale covering a 300.375 sq. m. lot. The trial court in fact noted in its Pre-trial Order that "the parties cannot agree as to

the identity of the property sought to be recovered by the plaintiff."[15] (Emphasis and underscoring supplied.) Indeed, in her Answer to the Complaint, petitioner alleged "[t]hat if the plaintiffs refer to [the lot covered by Tax Declaration No. 1017], then they have no right or interest or participation whatsoever over the same x x x."[16](Emphasis and italics supplied.) Even the boundaries of the 628 sq. m. area covered by Tax Declaration No. 1017 in petitioner's name and those alleged by respondents to be occupied by petitioner are different. Thus, the boundaries of the lot covered by Tax Declaration No. 1017 are: Lot No. 12302 on the North; Lot No. 12005 (Cecilia Salinas) on the South; Lot No. 12413 (road lot) on the East; and Lot No. 12006 (Loreto Febre) on the West.[17] Whereas, following respondents' claim, the 627 sq. m. area occupied by petitioner has the following boundaries, viz: The northeastern portion of the land of the plaintiffs described in Paragraph 2 of this complaint; bounded on the NORTH by Road Lot 1, Block 5-1, Psd-8268; on the EAST by Road Lot 2, Block 5-1, Psd-8268; and on the SOUTH and WEST by the remaining portion of Lot 5, Block 5-1, PSD-8268 of herein plaintiffs which is the land described in Paragraph 2 of this complaint owned by the plaintiffs and that this portion in question has an area of SIX HUNDRED TWENTY-SEVEN (627) SQUARE METERS, more or less.[18] (Emphasis and underscoring supplied) The Court of Appeals thus doubly erred in concluding that 1) what was sold to respondents via the June 27, 1962 Deed of Sale was the 1,381 sq. m. parcel of land reflected in the Plan-Exh. "A" prepared in 1960 for Benjamin Salinas, and 2) petitioner occupied 628 sq. m. portion thereof, hence, respondents own the remaining 753 sq. m. WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals dated December 20, 2001 is REVERSED and SET ASIDE, and the Decision of Branch 73 of the Regional Trial Court of Olongapo City dated August 31, 1993 DISMISSING Civil Case No. 3382-0 is REINSTATED. SO ORDERED. Quisumbing, (Chairperson), Tinga, Velasco, Jr., and Brion, JJ., concur.

De Leon vs. Benita T. Ong GR No. 170405, Feb. 2, 2010 Absolute and Conditional Sales

Facts: On March 10, 1993, Raymundo S. De Leon (petitioner) sold 3 parcels of land to Benita T. Ong (respondent). The said properties were mortgaged to a financial institution; Real Savings & Loan Association Inc. (RSLAI). The parties then executed a notarized deed of absolute sale with assumption of mortgage. As indicated in the deed of mortgage, the parties stipulated that the petitioner (de leon) shall execute a deed of assumption of mortgage in favor of Ong (respondent) after full payment of the P415,000. They also agreed that the respondent (Ong) shall assume the mortgage. The respondent then subsequently gave petitioner P415,000 as partial payment. On the other hand, de leon handed the keys to Ong and de leon wrote a letter to inform RSLAI that the mortgage will be assumed by Ong. Thereafter, the respondent took repairs and made improvements in the properties. Subsequently, respondent learned that the same properties were sold to a certain Viloria after March 10, 1993 and changed the locks, rendering the keys given to her useless. Respondent proceeded to RSLAI but she was informed that the mortgage has been fully paid and that the titles have been given to the said person. Respondent then filed a complaint for specific performance and declaration of nullity of the second sale and damages. The petitioner contended that respondent does not have a cause of action against him because the sale was subject to a condition which requires the approval of RSLAI of the mortgage. Petitioner reiterated that they only entered into a contract to sell. The RTC dismissed the case. On appeal, the CA upheld the sale to respondent and nullified the sale to Viloria. Petitioner moved for reconsideration to the SC.

Issue: Whether the parties entered into a contract of sale or a contract to sell?

Held: In a contract of sale, the seller conveys ownership of the property to the buyer upon the perfection of the contract. The non-payment of the price is a negative resolutory condition. Contract to sell is subject to a positive suspensive condition. The buyer does not acquire ownership of the property until he fully pays the purchase price. In the present case, the deed executed by the parties did not show that the owner intends to reserve ownership of the properties. The terms and conditions affected only the manner of payment and not the immediate transfer of ownership. It was clear that the owner intended a sale because he unqualifiedly delivered and transferred ownership of the properties to the respondent.

ASSET PRIVATIZATION TRUST, G.R. No. 167195 Petitioner, Present: CARPIO MORALES, J.,* - versus - Acting Chairperson, TINGA, VELASCO, JR.,

LEONARDO-DE CASTRO,** and BRION, JJ. T.J. ENTERPRISES, Respondent. Promulgated: May 8, 2009 x----------------------------------------------------------------------------------x

D E C I S I O N

TINGA, J.::

This is a Rule 45 petition[1] which seeks the reversal of the Court of Appeals’ decision[2] and resolution[3] affirming the RTC’s decision[4] holding petitioner liable for actual damages for breach of contract.

Petitioner Asset Privatization Trust[5] (petitioner) was a government entity created for

the purpose to conserve, to provisionally manage and to dispose assets of government institutions.[6] Petitioner had acquired from the Development Bank of the Philippines (DBP) assets consisting of machinery and refrigeration equipment which were then stored at Golden City compound, Pasay City. The compound was then leased to and in the physical possession of Creative Lines, Inc., (Creative Lines). These assets were being sold on an as-is-where-is basis.

On 7 November 1990, petitioner and respondent entered into an absolute deed of sale

over certain machinery and refrigeration equipment identified as Lots Nos. 2, 3 and 5. Respondent paid the full amount of P84,000.00 as evidenced by petitioner’s Receipt No. 12844. After two (2) days, respondent demanded the delivery of the machinery it had purchased. Sometime in March 1991, petitioner issued Gate Pass No. 4955. Respondent was able to pull out from the compound the properties designated as Lots Nos. 3 and 5. However, during the hauling of Lot No. 2 consisting of sixteen (16) items, only nine (9) items were pulled out by respondent. The seven (7) items that were left behind consisted of the following: (1) one (1) Reefer Unit 1; (2) one (1) Reefer Unit 2; (3) one (1) Reefer Unit 3; (4) one (1) unit blast freezer with all accessories; (5) one (1) unit chest freezer; (6) one (1) unit room air-

conditioner; and (7) one (1) unit air compressor. Creative Lines’ employees prevented respondent from hauling the remaining machinery and equipment.

Respondent filed a complaint for specific performance and damages against

petitioner and Creative Lines.[7] During the pendency of the case, respondent was able to pull out the remaining machinery and equipment. However, upon inspection it was discovered that the machinery and equipment were damaged and had missing parts.

Petitioner argued that upon the execution of the deed of sale it had complied with its

obligation to deliver the object of the sale since there was no stipulation to the contrary. It further argued that being a sale on an as-is-where-is basis, it was the duty of respondent to take possession of the property. Petitioner claimed that there was already a constructive delivery of the machinery and equipment.

The RTC ruled that the execution of the deed of absolute sale did not result in

constructive delivery of the machinery and equipment. It found that at the time of the sale, petitioner did not have control over the machinery and equipment and, thus, could not have transferred ownership by constructive delivery. The RTC ruled that petitioner is liable for breach of contract and should pay for the actual damages suffered by respondent.

On petitioner’s appeal, the Court of Appeals affirmed in toto the decision of the RTC. Hence this petition. Before this Court, petitioner raises issues by attributing the following errors to the

Court of Appeals, to wit:

I. The Court of Appeals erred in not finding that petitioner had complied with its obligation to make delivery of the properties subject of the contract of sale.

II. The Court of Appeals erred in not considering that the sale was on an “as-is-where-is” basis wherein the properties were sold in the condition and in the place where they were located.

III.

The Court of Appeals erred in not considering that respondent’s acceptance of petitioner’s disclaimer of warranty forecloses respondent’s legal basis to enforce any right arising from the contract.

IV.

The reason for the failure to make actual delivery of the properties was not attributable to the fault and was beyond the control of petitioner. The claim for damages against petitioner is therefore bereft of legal basis.[8]

The first issue hinges on the determination of whether there was a constructive

delivery of the machinery and equipment upon the execution of the deed of absolute sale between petitioner and respondent.

The ownership of a thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof.[9] The thing sold shall be understood as delivered when it is placed in the control and possession of the vendee.[10]

As a general rule, when the sale is made through a public instrument, the execution

thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. And with regard to movable property, its delivery may also be made by the delivery of the keys of the place or depository where it is stored or kept.[11] In order for the execution of a public instrument to effect tradition, the purchaser must be placed in control of the thing sold.[12]

However, the execution of a public instrument only gives rise to a prima

facie presumption of delivery. Such presumption is destroyed when the delivery is not effected because of a legal impediment.[13] It is necessary that the vendor shall have control over the thing sold that, at the moment of sale, its material delivery could have been made.[14] Thus, a person who does not have actual possession of the thing sold cannot transfer constructive possession by the execution and delivery of a public instrument.[15] In this case, there was no constructive delivery of the machinery and equipment upon the execution of the deed of absolute sale or upon the issuance of the gate pass since it was not petitioner but Creative Lines which had actual possession of the property. The presumption of constructive delivery is not applicable as it has to yield to the reality that the purchaser was not placed in possession and control of the property.

On the second issue, petitioner posits that the sale being in an as-is-where-is basis, respondent agreed to take possession of the things sold in the condition where they are found and from the place

where they are located. The phrase as-is where-is basis pertains solely to the physical condition of the thing sold, not to its legal situation.[16] It is merely descriptive of the state of the thing sold. Thus, the as-is where-is basis merely describes the actual state and location of the machinery and equipment sold by petitioner to respondent. The depiction does not alter petitioner’s responsibility to deliver the property to respondent.

Anent the third issue, petitioner maintains that the presence of the disclaimer of

warranty in the deed of absolute sale absolves it from all warranties, implied or otherwise. The position is untenable.

The vendor is bound to transfer the ownership of and deliver, as well as warrant the

thing which is the object of the sale.[17] Ownership of the thing sold is acquired by the vendee from the moment it its delivered to him in any of the ways specified in articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee.[18] A perusal of the deed of absolute sale shows that both the vendor and the vendee represented and warranted to each other that each had all the requisite power and authority to enter into the deed of absolute sale and that they shall

perform each of their respective obligations under the deed of absolute in accordance with the terms thereof.[19] As previously shown, there was no actual or constructive delivery of the things sold. Thus, petitioner has not performed its obligation to transfer ownership and possession of the things sold to respondent.

As to the last issue, petitioner claims that its failure to make actual delivery was

beyond its control. It posits that the refusal of Creative Lines to allow the hauling of the machinery and equipment was unforeseen and constituted a fortuitous event.

The matter of fortuitous events is governed by Art. 1174 of the Civil Code which

provides that except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires assumption of risk, no person shall be responsible for those events which could not be foreseen, or which though foreseen, were inevitable. The elements of a fortuitous event are: (a) the cause of the unforeseen and unexpected occurrence, must have been independent of human will; (b) the event that constituted the caso fortuito must have been impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have been such as to render it impossible for the debtors to fulfill their obligation in a normal manner, and; (d) the obligor must have been free from any participation in the aggravation of the resulting injury to the creditor.[20]

A fortuitous event may either be an act of God, or natural occurrences such as floods

or typhoons, or an act of man such as riots, strikes or wars.[21]However, when the loss is found to be partly the result of a person’s participation–whether by active intervention, neglect or failure to act—the whole occurrence is humanized and removed from the rules applicable to a fortuitous event.[22]

We quote with approval the following findings of the Court of Appeals, to wit:

We find that Creative Lines’ refusal to surrender the property to the vendee does not constitute force majeure which exculpates APT from the payment of damages. This event cannot be considered unavoidable or unforeseen. APT knew for a fact that the properties to be sold were housed in the premises leased by Creative Lines. It should have made arrangements with Creative Lines beforehand for the smooth and orderly removal of the equipment. The principle embodied in the act of God doctrine strictly requires that the act must be one occasioned exclusively by the violence of nature and all human agencies are to be excluded from creating or entering into the cause of the mischief. When the effect, the cause of which is to be considered, is found to be in part the result of the participation of man, whether it be from active intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it were, and removed from the rules applicable to the acts of God.[23] Moreover, Art. 1504 of the Civil Code provides that where actual delivery has been

delayed through the fault of either the buyer or seller the goods are at the risk of the party in fault. The risk of loss or deterioration of the goods sold does not pass to the buyer until there is actual or constructive delivery thereof. As previously discussed, there was no actual or constructive delivery of the machinery and equipment. Thus, the risk of loss or deterioration of property is borne by petitioner. Thus, it should be liable for the damages that may arise from the delay.

Assuming arguendo that Creative Lines’ refusal to allow the hauling of the machinery

and equipment is a fortuitous event, petitioner will still be liable for damages. This Court agrees with the appellate court’s findings on the matter of damages, thus:

Article 1170 of the Civil Code states: “Those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof are liable for damages.” In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of

the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted.[24] The trial court correctly awarded actual damages as pleaded and proven during trial.[25] WHEREFORE, the Court AFFIRMS in toto the Decision of the Court of Appeals

dated 31 August 2004. Cost against petitioner. SO ORDERED.

G.R. No. L-15155 December 29, 1960 BOARD OF LIQUIDATORS, petitioner-appellant, vs. EXEQUIEL FLORO, ET AL., oppositors-appellees. Godofredo Zandueta for appellant. Isidero A. Vera for appellee. REYES, J.B.L., J.: From the order of the Court of First Instance of Manila, dated August 10, 1955, denying its petition to exclude certain pieces of steel matting from the assets of the insolvent M. P. Malabanan, the Board of Liquidators appealed to the Court of Appeals. The latter certified the case to this Court on the ground that only questions of law are involved. The Board of Liquidators (hereinafter referred to as the Board) is an agency of the Government created under Executive Order No. 372 (November 24, 1950), and, pursuant to Executive Order No. 377 (December 1, 1950), took over the functions of the defunct Surplus Property Liquidating Committee. On June 14, 1952 Melecio Malabanan entered into an agreement with the Board for the salvage of surplus properties sunk in territorial waters off the provinces of Mindoro, La Union, and Batangas (Exhibit "A"). By its terms, Malabanan was to commence operations within 30 days from execution of said contract, which was to be effective for a period of one (1) year from the start of operations, extendible for a total period of not more than six (6) months. On June 10, 1953, Malabanan requested for an extension of one (1) year for the salvage in waters of Mindoro and Batangas; and the Board extended the contract up to November 30, 1953. On November 18, 1953, Malabanan requested a second extension of one more year for the waters of Occidental Mindoro, and Board again extended the contract up to August 31, 1954. Malabanan submitted a recovery report dated July 26, 1954, wherein it is stated that he had recovered a total of 13,107 pieces of steel mattings, as follows:

1. December, 1953-April 30, 1954 2,5552

2. May 1, 1954-June 30, 1954 10,552

13,107 (pieces)

Four months previously, Malabanan had entered into an agreement with Exequiel Floro, dated March 31, 1954 (Exhibit 1, Floro), in which, among other things, it was agreed that Floro would advance to Malabanan certain sums of money, not to exceed P25,000.00, repayment, thereof being secured by quantities of steel mattings which Malabanan would consign to Floro; that said advances were to paid within a certain period, and upon default at the expiration thereof, Floro was, authorized to sell whatever steel mattings were in his possession under said contract, in amount sufficient to satisfy the advances. Pursuant thereto, Floro claims to have made total advances to the sum of P24,224.50. It appears that as Malabanan was not able to repay Floro's advances, the latter, by a document dated August 4, 1954, sold 11,047 pieces of steel mattings to Eulalio Legaspi for the sum of P24,803.40.

Seventeen days later, on August 21, 1954, Malabanan filed in the Court of First Instance of Manila a petition for voluntary insolvency, attaching thereto a Schedule of Accounts, in which the Board was listed as one of the creditors for P10,874.46, and Exequiel Floro for P24,220.50, the origin of the obligations being described as "Manila Royalty" and "Salvaging Operations", respectively. Also attached was an Inventory of Properties, listing certain items of personal property allegedly aggregating P33,707.00 in value. In this list were included 11,167 pieces of steel mattings with an alleged estimated value of P33,501.00. Soon after, the Board, claiming to be the owner of the listed steel matting, filed a petition to exclude them from the inventory; and to make the insolvent account for a further 1,940 pieces of steel matting, the difference between the number stated in the insolvent's recovery report of July 26, 1954 and that stated in the inventory. Exequiel Floro opposed the Board's petition and claimed that the steel matting listed had become the property of Eulalio Legaspi by virtue of a deed of sale in his favor, executed by Floro pursuant to the latter's contract with Malabanan on March 31, 1954. The court below, after reception of evidence as to the genuineness and due execution of the deed of sale to Legaspi, as well as of the contract between Malabanan and Floro, denied the Board's petition, declaring that Malabanan had acquired ownership over the steel mattings under his contract with the Board; that Exequiel Floro was properly authorized to dispose of the steel mattings under Floro's contract with Malabanan; and that the sale to Eulalio Legaspi was valid and not contrary to the Insolvency Law. In this appeal, the Board contends that Malabanan did not acquire ownership over the steel mattings due to his failure to comply with the terms of the contract, allegedly constituting conditions precedent for the transfer of title, namely: payment of the price; audit and check as to the nature, quantity and value of properties salvaged; weighing of the salvaged properties to be conducted jointly by representatives of the Board and of Malabanan; determination of the site for storage; audit and verification of the recovery reports by government auditors; and firing of performance bond. We are of the opinion, and so hold, that the contract (Exhibit "A") between Malabanan and the Board had effect of vesting Malabanan with title to, or ownership of the steel mattings in question as soon as they were brought up from the bottom of the sea. This is shown by pertinent provisions of the contract as follows:

10. For and in consideration of the assignment by the BOARD OF LIQUIDATORS to the CONTRACTOR (Malabanan) of all right, title and interest in and to all surplus properties salvaged by the CONTRACTOR under this contract, the CONTRACTOR shall pay to the Government Ninety Pesos (P90.00) per long ton(2,240 lbs.) of surplus properties recovered. 11. Payment of the agreed price shall be made monthly during the first ten (10) days of every month on the basis of recovery reports of sunken surplus properties salvaged during the preceding month, duly verified and audited by the authorized representative of the BOARD OF LIQUIDATORS.

That Malabanan was required under the contract to post a bond of P10,000.00 to guarantee compliance with the terms and conditions of the contract; that the operation for salvage were entirely at Malabanan's expense and risks; that gold, silver, copper, coins, currency, jewelry, precious stones, etc. were excepted from the contract, and were instead required to be turned over to the Board for disposition; that the expenses for storage, including guard service, were for Malabanan's account — all these circumstances indicated that ownership of the goods passed to Malabanan as soon as they were recovered or salvaged (i.e., as soon as the salvor had gained effective possession of the goods), and not only after payment of the stipulated price. . While there can be reservation of title in the seller until full payment of the price (Article 1478, N.C.C.), or, until fulfillment of a condition (Article 1505, N.C.C.); and while execution of a public instrument amounts to delivery only when from the deed the contrary does not appear or cannot clearly be inferred (Article 1498, supra), there is nothing in the said contract which may be deemed a reservation of title, or from which it may clearly be inferred that delivery was not intended. The contention that there was no delivery is incorrect. While there was no physical tradition, there was one by agreement (traditio longa manu) in conformity with Article 1499 of the Civil Code.lawphil.net

Art. 1499 — The delivery of movable property may likewise be made by the mere consent or agreement of the contracting parties, if the thing sold cannot be transferred to the possession of the vendee at the time of the sale. . . .

As observed earlier, there is nothing in the terms of the public instrument in question from which an intent to withhold delivery or transfer of title may be inferred. The Board also contends that as no renewal of the bond required was filed for the extension of the contract, it ceased to have any force and effect; and, as the steel mattings were recovered during the extended period of the contract, Malabanan did not acquire any rights thereto. The pertinent portion of the contract provides:

12. Jointly with the execution of this contract, the CONTRACTOR shall file a bond in the amount of TEN THOUSAND (P10,000.00) PESOS to guarantee his faithful compliance with the terms and conditions herein; Provided, that this contract shall not be considered to have been executed notwithstanding the signing hereof by the parties until said bond shall have been properly filed.

Malabanan filed a bond dated June 10, 1952, effective for one (1) year, or up to June 10, 1953. The principal contract, executed on June 14, 1952, was first extended to November 30, 1953, and finally, to August 31, 1954. As can be seen, there was no longer any bond from June 11, 1953 to August 31, 1954. The lapse of the bond did not extinguish the contract between Malabanan and the Board. The requirement that a bond be posted was already complied with when Malabanan filed the bond dated June 10, 1952. A bond merely stands as guaranty for a principal obligation which exist independently of said bond, the latter being an accessory contract (Valencia vs. RFC & C.A., 103 Phil., 444). Significantly, its purpose, as per the terms of the contract, was "to guarantee his (Malabanan's) faithful compliance with the terms and conditions herein" and, for violation of the contract, the Board may declare "the bond forfeited" (par. 13). Being for its benefit, the Board could legally waive the bond requirement (Valencia vs. RFC, et al., supra.), and it did so when, the bond already having expired, it extended the contract not only once, but twice. In none of the resolutions extending contract (Annexes "C" & "E", pp. 108-112, Record on Appeal) was there a requirement that the bond be renewed, in the face of the first indorsement by the Executive Officer recommending that Malabanan's request for a second extension be granted "provided the bond be originally posted should continue." There is no merit to the suggestion that there being a novation, Article 1299 of the Civil Code should govern. Novation is never presumed, it being required that the intent to novate be expressed clearly and unequivocally, or that the terms of the new agreement be incompatible with the old contract (Article 1292, N.C.C.; Martinez vs. Cavives, 25 Phil. 581; Tiu Siuce vs. Habaña, 45 Phil. 707; Pablo vs. Sapungan, 71 Phil. 145; Young vs. Villa, 93 Phil., 21; 49 Off. Gaz., [5] 1818.) Here there was neither express novation nor incompatibility from which it could be implied. Moreover, a mere extension of the term (period) for payment or performance is not novation (Inchausti vs. Yulo, 34 Phil. 978; Zapanta vs. De Rotaeche, 21 Phil. 154; Pablo vs. Sapungan, Supra); and, while the extension covered only some of the areas originally agreed upon, this change did not alter the essence of the contract (cf. Ramos vs. Gibbon, 67 Phil., 371; Bank of P.I. vs. Herridge, 47 Phil., 57). It is next contended that the sale by Floro to Legaspi on August 4, 1954 (within 30 days prior to petition for insolvency) was void as a fraudulent transfer under Section 70 of the Insolvency Law. The court below held that the sale to Legaspi was valid and not violative of Section 70; but there having been no proceedings to determine whether the sale was fraudulent, we think it was premature for the court below to decide this point, especially because under section 36, No. 8. of the Insolvency Act, all proceedings to set aside fraudulent transfers should be brought and prosecuted by the assignee, who can legally represent all the creditors of the insolvent (Maceda, et al., vs. Hernandez, et al., 70 Phil., 261). To allow a single creditor to bring such a proceeding would invite a multiplicity of suits, since the resolution of his case would not bind the other creditors, who may refile the same claim independently, with diverse proofs, and possibly give rise to contradictory rulings by the courts. The order appealed from is hereby affirmed in so far as it declares the disputed goods to be the property of the insolvent; but without prejudice to the right of the assignee in insolvency to take whatever action may be proper to attack the alleged fraudulent transfer of the steel matting to Eulalio Legaspi, and to make the proper parties account for the difference between the number of pieces of steel matting stated in the insolvent's recovery report, Annex "B" (13,107), and that stated in his inventory (11,167). Costs against appellant. Paras, C.J., Bengzon, Bautista Angelo, Labrador, Barrera, Gutierrez David, Paredes and Dizon, JJ., concur.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 158646 June 23, 2005

HEIRS OF JESUS M. MASCUÑANA, represented by JOSE MA. R. MASCUÑANA, petitioners, vs. COURT OF APPEALS, AQUILINO BARTE, and SPOUSES RODOLFO and CORAZON LAYUMAS, respondents. DECISION CALLEJO, SR., J.: This is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 53117 affirming the Decision 2 of the Regional Trial Court (RTC) of San Carlos City, Negros Occidental, which ordered the dismissal of the petitioners complaint for recovery of possession and damages. The Antecedents Gertrudis Wuthrich and her six other siblings were the co-owners of a parcel of land identified as Lot No. 124 of the San Carlos City, Negros Occidental Cadastre, with an area of 1,729 square meters and covered by Transfer Certificate of Title (TCT) No. 1453-R (T-29937)-38.3 Over time, Gertrudis and two other co-owners sold each of their one-seventh (1/7) shares, or a total area of 741 square meters, to Jesus Mascuñana. The latter then sold a portion of his 140 -square-meter undivided share of the property to Diosdado Sumilhig. Mascuñana later sold an additional 160 -square-meter portion to Sumilhig on April 7, 1961. However, the parties agreed to revoke the said deed of sale and, in lieu thereof, executed a Deed of Absolute Sale on August 12, 1961. In the said deed, Mascuñana, as vendor, sold an undivided 469-square-meter portion of the property for P4,690.00, with P3,690.00 as down payment, and under the following terms of payment: That the balance of ONE THOUSAND PESOS (P1,000.00) shall be paid by the VENDEE unto the VENDOR as soon as the above-portions of Lot 124 shall have been surveyed in the name of the VENDEE and all papers pertinent and necessary to the issuance of a separate Certificate of Title in the name of the VENDEE shall have been prepared. 4 On December 31, 1961, Mascuñana and Jose G. Estabillo executed a Deed of Exchange and Absolute Sale of Real Estate,5 in which Estabillo deeded to Mascuñana a portion of his property abutting that of Sumilhig on the southeast. In the meantime, a survey was conducted for the co-owners of Lot No. 124 on July 9, 1962. The subdivision plan of the said lot was approved by the Director of Lands on August 2, 1962. The portion of the property deeded to Sumilhig was identified in the said plan as Lot No. 124 -B.6

Meanwhile, Mascuñana died intestate on April 20, 1965 and was survived by his heirs, Eva M. Ellisin, Renee Hewlett, Carmen Vda. de Opeña, Marilou Dy and Jose Ma. R. Mascuñana. On April 24, 1968, Sumilhig executed a Deed of Sale of Real Property 7 on a portion of Lot No. 124-B with an area of 469 square meters and the improvements thereon, in favor of Corazon Layumas, the wife of Judge Rodolfo Layumas, for the price of P11,000.00. The spouses Layumas then had the property subdivided into two lots: Lot No. 124-B-2 with an area of 71 square meters under the name of Jesus Mascuñana, and Lot No. 124-B-1, with an area of 469 square meters under their names.8 The spouses Layumas took possession of the property and caused the cutting of tall grasses thereon. Upon the plea of a religious organization, they allowed a chapel to be constructed on a portion of the property. 9 In January 1985, the spouses Layumas allowed Aquilino Barte to stay on a portion of the property to ward off squatters. 10 Barte and his kin, Rostom Barte, then had their houses constructed on the property. On October 1, 1985, the spouses Layumas received a Letter11 from the counsel of Renee Tedrew, offering to buy their share of the property for US$1,000.00. For her part, Corazon Layumas wrote Pepito Mascuñana, offering to pay the amount of P1,000.00, the balance of the purchase price of the property under the deed of absolute sale executed by Mascuñana and Sumilhig on August 12, 1961.12 However, the addressee refused to receive the mail matter.13 Unknown to the spouses Layumas, TCT No. 898614 was issued over Lot No. 124-B in the name of Jesus Mascuñana on March 17, 1986. On November 17, 1986, the heirs of Mascuñana filed a Complaint 15 for recovery of possession of Lot No. 124-B and damages with a writ of preliminary injunction, alleging that they owned the subject lot by virtue of successional rights from their deceased father. They averred that Barte surreptitiously entered the premises, fenced the area and constructed a house thereon without their consent. Attached as annexes to the complaint were TCT No. 8986 and a certification 16 from the Office of the City Treasurer, Land Tax Division, vouching that the property in question was owned by the petitioners and that they had paid the taxes thereon until 1992. In his answer to the complaint, Barte admitted having occupied a portion of Lot No. 124-B, but claimed that he secured the permission of Rodolfo Layumas, the owner of the subject property. He added that he did not fence the property, and that the petitioners did not use the same as a passageway in going to Broce Street from their house. Barte raised the following special defenses: (a) the petitioners were estopped from asserting ownership over the lot in question because they did not object when he occupied the said portion of the lot; (b) neither did the petitioners protest when a church was built on the property, or when residential houses were constructed thereon; (c) the petitioners still asked Barte and the other occupants whether they had notified Rodolfo Layumas of the constructions on the property; and (d) the heirs of Mascuñana, through the lawyer of Mrs. Renee M. Tedrew, even wrote a letter17 to Rodolfo Layumas on October 1, 1985, expressing her willingness to buy the subject property for US$1,000.00. On April 8, 1991, the spouses Layumas filed a Motion for Leave to Intervene, 18 alleging therein that they had a legal interest in Lot No. 124-B-1 as its buyers from Sumilhig, who in turn purchased the same from Mascuñana. In their answer in intervention, 19 the spouses Layumas alleged that they were the true owners of the subject property and that they had wanted to pay the taxes thereon, but the Land Tax clerk refused to receive their payments on account that the petitioners had already made such payment. The spouses Layumas further maintained that the petitioners had no

cause of action against Barte, as they had authorized him to occupy a portion of Lot No. 124-B-1. The spouses Layumas also averred that the petitioners were estopped from denying their right of ownership and possession of the subject lot, as one of them had even offered to repurchase a portion of Lot No. 124-B via letter. The said spouses interposed a counterclaim for damages, claiming ownership over the property, and prayed, thus: WHEREFORE, it is most respectfully prayed that this HONORABLE COURT render judgment in favor of the Intervenors and the defendant Aquilino Barte, ordering: 1. That the complaint against Aquilino Barte be dismissed with costs against the plaintiff; 2. That the Intervenors spouses Judge Rodolfo S. Layumas and Corazon A. Layumas be declared as the legal and true owners of Lot 124-B; 3. That the plaintiffs should deliver immediately to the Intervenors, TCT No. 8986 which is in their possession; 4. That the plaintiffs be made to pay to the Intervenors the sum of THIRTY THOUSAND (P30,000.00) PESOS moral damages; TEN THOUSAND (P10,000.00) PESOS attorney s fees plus THREE HUNDRED (P300.00) PESOS as appearance fee per hearing. Intervenors pray for such other relief and remedies as may be deemed by this Honorable Court as just and equitable in the premises. At the trial, intervenor Rodolfo Layumas testified that he and his wife bought the subject property in 1968, and that nobody objected to their possession of the land, including the pet itioners. In 1970, a religious organization asked his permission to construct a chapel on the disputed lot; he allowed the construction since the same would be used for the fiesta. He further declared that part of the chapel still stood on the property. In 1985, a fire razed the town s public market, thereby dislocating numerous people. Barte was one of the fire victims, who also happened to be a good friend and political supporter of Rodolfo. Out of goodwill, Barte was allowed to occupy a portion of the said lot, along with some other fire victims. Rodolfo clarified that the others were to stay there only on a temporary basis, but admitted that Barte s children also stayed in the subject property. 20 Rodolfo Layumas further narrated that in 1987, Corazon wrote one of the petitioners -heirs, Pepito Mascuñana, requesting that the title of the lot be transferred in Sumilhig s name so that they could likewise arrange for the conveyance of the title in their names. Pepito failed to claim the letter, and thereafter, filed a case of ejectment against Barte and Rodolfo Layumas brother-in-law, Pepito Antonio. The case, the witness added, was dismissed as against the two parties. Offered in evidence were the following: a Sworn Statement on the Current and Fair Market Value of the Real Property issued in 1973 as required by Presidential Decree No. 76, and tax receipts.21 Rodolfo Layumas admitted on cross-examination that at the time they bought the property from Sumilhig, the title was still in the possession of the Wuthrich family. He added that he filed an adverse claim before the Register of Deeds of San Carlos City, Negros Occidental, on Lot No. 124-B in January 1986, or after the case had already been filed in court. Lastly, the witness deposed that he did not fence the property after buying the same, but that his brother -in-law constructed a cocolumber yard thereon upon his authority. 22

On January 30, 1996, the trial court rendered judgment in favor of Barte and the spouses Layumas. The fallo of the decision reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of Intervenorscounterclaimants and defendant and against plaintiffs-counterclaim defendants ordering as follows: 1. The dismissal of the plaintiff s complaint with costs against them; 2. The plaintiffs to jointly pay Intervenors-counterclaimants now RTC Judge Rodolfo S. Layumas and Corazon A. Layumas: (a) P10,000.00 for attorney s fees; and (b) P30,000.00 as moral damages; 3. The plaintiffs, as counterclaim defendants, to comply with the above-stated obligation of their late father, Mr. Jesus Mascuñana, under the Deed of Absolute Sale, Exh. "3", pp. 92-93, Exp., thru plaintiff Mr. Jose Mascuñana, including the desegragation (sic) survey to desegregate the 469-square-meter portion of said Lot No. 124-B, San Carlos Cadastre, this province, sold to the late Diosdado Sumilhig, if the same has not yet been done despite what has been said herein earlier to said effect, and the execution of the Final Deed of Sale in their capacity as the heirs and successors-in-interest of the late Mr. Jesus Mascuñana, thru Mr. Jose Mascuñana, covering the 469-square-meter desegregated portion of said Lot No. 124 -B, within sixty (60) days counted from the finality of this Decision, in favor of the Intervenorsspouses, after which the said Intervenors-spouses shall pay them, thru Mr. Jose Mascuñana, the P1,000.00 balance due to them as successors-in-interest of the late Mr. Jesus Mascuñana; 4. In case plaintiffs fail to comply with what are herein ordered for them to do, the Clerk of Court V of this Court to do all that they were to do as herein ordered in the text and dispositive portion hereof, at the expense of Intervenors spouses to be later reimbursed by plaintiffs, including the desegragation (sic) survey of said 469-square-meter portion of said Lot [No.] 124-B, San Carlos Cadastre, Negros Occidental, if the same has not yet been done and the execution of the Final Deed of Sale on behalf of all the plaintiffs as heirs and successors-in-interest of the late Mr. Jesus Mascuñana covering the said desegregated portion of 469 square meters of the aforesaid lot, in favor of Intervenors spouses, to the end that separate title therefor may be issued in their names, after they shall have paid the P1,000.00 balance due plaintiffs under said Deed of Absolute Sale, Exh. "3." SO ORDERED.23 Forthwith, the petitioners appealed the case to the CA, raising the following issues of fact and law: a. Whether or not the contract of alienation of Lot No. 124-B in favor of Diosdado Sumilhig in 1961 was a contract to sell or a contract of sale; b. Whether or not Diosdado Sumilhig had any right to sell Lot No. 124-B in favor of intervenor Corazon Layumas in 1968. 24

On May 5, 2003, the CA affirmed the decision of the trial court. It ruled that the contract between the petitioners father and Sumilhig was one of sale. Foremost, the CA explained, the contract was denominated as a "Deed of Absolute Sale." The stipulations in the contract likewise revealed the clear intention on the part of the vendor (Mascuñana) to alienate the property in favor of the vendee (Sumilhig). In three various documents, the late Mascuñana even made declarations that Sumilhig was already the owner of the disputed land. The CA added that the admission may be given in evidence against Mascuñana and his predecessors-in-interest under Section 26, Rule 130 of the Revised Rules on Evidence. As to the argument that the contract between Mascuñana and Sumilhig was not effective because it was subject to a suspensive condition that did not occur, the CA ruled that the condition referred to by the petitioners refers only to the payment of the balance of the purchase price and not to the effectivity of the contract.1avvphi1.zw+ As to the petitioners contention that even if the contract were one of sale, ownership cannot be transferred to Sumilhig because Mascuñana was not yet the owner of the lot at the time of the alleged sale, the appellate court ruled that the registration of the land to be sold is not a prerequisite to a contract of sale. The Present Petition Aggrieved, the petitioners filed the instant petition for review on certiorari with this Court, where the following lone legal issue was raised: WAS THE SALE OF LOT NO. 124-B MADE BY JESUS M. MASCUÑANA IN FAVOR OF DIOSDADO SUMILHIG A CONTRACT TO SELL OR CONTRACT OF SALE?25 We note that the original action of the petitioners against Aquilino Barte was one for recovery of possession of Lot No. 124-B. With the intervention of the respondents Rodolfo and Corazon Layumas who claimed ownership over the property, and the acquiescence of the parties, evidence was adduced to prove who, between the petitioners (as plaintiffs) and the respondents (as defendants-intervenors) were the lawful owners of the subject property and entitled to its possession. The petitioners resolutely contend that the Deed of Absolute Sale dated August 12, 1961 between their father and Sumilhig was a mere contract to sell because at the time of the said sale, the late Mascuñana was not yet the registered owner of Lot No. 124 or any of its portions. They assert that Sumilhig could not have acquired any rights over the lot due to the fact that a person can only sell what he owns or is authorized to sell, and the buyer can acquire no more than what the seller can transfer legally. Finally, the petitioners insist that the document in controversy was subject to a suspensive condition, not a resolutory condition, which is a typical attribute of a contract of sale. The petition is denied for lack of merit. The issues raised by the petitioners in this case are factual, and under Rule 45 of the Rules of Court, only questions of law may be raised in this Court, the reason being that this Court is not a trier of facts. It is not to re-examine the evidence on record and to calibrate the same. Moreover, the findings and conclusions of the trial court as affirmed by the CA are conclusive on the Court, absent of any evidence that the trial court, as well as the CA ignored, misinterpreted and misconstrued facts and circumstances of substance which, if considered, would alter or reverse the outcome of the case.26

We have reviewed the records and find no justification for a reversal or even a modification of the assailed decision of the CA. Even on the merits of the petition, the Court finds that the decision of the trial court as well as the ruling of the CA are based on the evidence on record and the applicable law. The petitioners reiterated their pose that the deed of absolute sale over the property executed by their father, Jesus Mascuñana, as vendor, and Diosdado Sumilhig as vendee, was a contract to sell and not a contract of sale. They assert that on its face, the contract appears to be a contract to sell, because the payment of the P1,000.00 balance of the purchase price was subject to a suspensive condition: the survey of the property, the segregation of the portion thereof subject of the sale, and the completion of the documents necessary for the issuance of a Torrens title over the property to and in the name of Sumilhig who was the vendee. The petitioners assert that Sumilhig never paid the aforesaid amount to the vendor; hence, the obligation of the latter and his predecessors-ininterest (herein petitioners) to execute a final deed of sale never arose. As such, they aver, title to the property remained reserved in the vendor and his heirs even after his death. There was no need for the vendor to rescind the deed or collect the said amount of P1,000.00 under Article 1191 of the New Civil Code because such a remedy applies only to contracts of sale. The petitioners insist that Sumilhig never acquired title over the property; he could not have transferred any title to the respondents. Sumilhig could not have transferred that which he did not own. The petitioners contention has no factual and legal bases. The deed of absolute sale executed by Jesus Mascuñana and Sumilhig, provides, thus: That the VENDOR is the true and absolute owner of a parcel of land known as Lot No. 124 of the Cadastral Survey of San Carlos, situated at Broce Street and is free from liens and encumbrances, and covered by O.C.T. No. T-299[3]7 (R-1453) of Reg. of Deeds, Negros Occ. That for and in consideration of the sum of FOUR THOUSAND SIX HUNDRED NINETY PESOS (P4,690.00), Philippine Currency, to be paid by the VENDEE in the manner hereinafter stated, the VENDOR does hereby sell, transfer, cede and convey, a portion of the above-described property containing an area of 469 square meters, the sketch of which can be found at the back of this document and having a frontage at Broce Street of around 14 meters, and from the Broce Street to the interior on its Southwest side with a length of 30.9 meters, with a length of 24.8 meters on its Northeast side where it turned to the right with a length of 2.8 meters and continuing to Northwest with a length of 6.72 meters, the backyard dimension is 17.5 meters to the Northwest, unto the VENDEE, his heirs and assigns, by way of Absolute Sale, upon the receipt of the down payment of THREE THOUSAND SIX HUNDRED NINETY PESOS (P3,690.00), which is hereby acknowledged by the VENDOR as received by him.lawphil.net That the balance of ONE THOUSAND PESOS (P1,000.00) shall be paid by the VENDEE unto the VENDOR as soon as the above-portions of Lot 124 shall have been surveyed in the name of the VENDEE and all papers pertinent and necessary to the issuance of a separate Certificate of Title in the name of the VENDEE shall have been prepared. The evidence on record shows that during the lifetime of vendor Jesus Mascuñana, and even after his death, his heirs, the petitioners herein, unequivocably declared that Diosdado Sumilhig was the owner of the property subject of this case, and that the respondents acquired title over the

property, having purchased the same via a deed of absolute sale from Diosdado Sumilhig. Thus, on December 31, 1961, Jesus Mascuñana and Jose Estabillo executed a Deed of Exchange and Absolute Sale of Real Estate, in which both parties declared that they were co-owners of portions of Lot No. 124 abutted by the property owned by Diosdado Sumilhig. 27 In the subdivision plan of Lot No. 124, signed by Ricardo Quilop, Private Land Surveyor, following his survey of Lot No. 124 on July 9, 1962 for and in behalf of Jesus Mascuñana, et al., it appears that Lot No. 124-B with an area of 540 square meters belonged to Diosdado Sumilhig, 28 which is abutted by Lot No. 124-C, owned by Jesus Mascuñana. On October 1, 1985, long after the death of Jesus Mascuñana, one of his heirs, petitioner Renee Tedrew, through counsel, wrote respondent Rodolfo Layumas offering to buy the property occupied by his overseer Aquilino Barte for US$1,000.00: ATTY. RODOLFO S. LAYUMAS San Carlos City Negros Occidental Dear Atty. Layumas: This has reference to the lot located at Broce Street, portions of which are presently occupied by Mr. Barte. Mrs. Renee Tedrew (nee Agapuyan), who is now in the United States, would like to offer the amount of $1,000.00 to buy your share of the said lot. If you are amenable, kindly inform the undersigned for him to communicate [with] Mrs. Tedrew in California. Very truly yours, (Sgd.) SAMUEL SM LEZAMA 29 It was only after the respondents rejected the proposal of petitioner Renee Tedrew that the petitioners secured title over the property on March 17, 1986 in the name of Jesus Mascuñana (already deceased at the time), canceling TCT No. 967 issued on July 6, 1962 under the name of Jesus Mascuñana, who appears to be a co-owner of Lot No. 124 with an undivided two -seventh (2/7) portion thereof. 30 While it is true that Jesus Mascuñana executed the deed of absolute sale over the property on August 12, 1961 in favor of Diosdado Sumilhig for P4,690.00, and that it was only on July 6, 1962 that TCT No. 967 was issued in his name as one of the co-owners of Lot No. 124, Diosdado Sumilhig and the respondents nevertheless acquired ownership over the property. The deed of sale executed by Jesus Mascuñana in favor of Diosdado Sumilhig on August 12, 1961 was a perfected contract of sale over the property. It is settled that a perfected contract of sale cannot be challenged on the ground of the non-transfer of ownership of the property sold at that time of the perfection of the contract, since it is consummated upon delivery of the property to the vendee. It is through tradition or delivery that the buyer acquires ownership of the property sold. As provided in Article

1458 of the New Civil Code, when the sale is made through a public instrument, the execution thereof is equivalent to the delivery of the thing which is the object of the contract, unless the contrary appears or can be inferred. The record of the sale with the Register of Deeds and the issuance of the certificate of title in the name of the buyer over the property merely bind third parties to the sale. As between the seller and the buyer, the transfer of ownership takes effect upon the execution of a public instrument covering the real property. 31 Long before the petitioners secured a Torrens title over the property, the respondents had been in actual possession of the property and had designated Barte as their overseer. Article 1458 of the New Civil Code provides: By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. Thus, there are three essential elements of sale, to wit: a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; b) Determinate subject matter; and c) Price certain in money or its equivalent.32 In this case, there was a meeting of the minds between the vendor and the vendee, when the vendor undertook to deliver and transfer ownership over the property covered by the deed of absolute sale to the vendee for the price of P4,690.00 of which P3,690.00 was paid by the vendee to the vendor as down payment. The vendor undertook to have the property sold, surveyed and segregated and a separate title therefor issued in the name of the vendee, upon which the latter would be obliged to pay the balance of P1,000.00. There was no stipulation in the deed that the title to the property remained with the vendor, or that the right to unilaterally resolve the contract upon the buyer s failure to pay within a fixed period was given to such vendor. Patently, the contract executed by the parties is a deed of sale and not a contract to sell. As the Court ruled in a recent case: In Dignos v. Court of Appeals (158 SCRA 375), we have said that, although denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive delivery (e.g. by the execution of a public document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such perfection. If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale. (Art. 1545, Civil Code) Thus, in one case, when the sellers declared in a "Receipt of Down Payment" that they received an amount as purchase price for a house and lot without any reservation of title until full payment of the entire purchase price, the implication was that they sold their property. In People s Industrial and Commercial Corporation v. Court of Appeals, it was stated:

A deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. Applying these principles to this case, it cannot be gainsaid that the contract of sale between the parties is absolute, not conditional. There is no reservation of ownership nor a stipulation providing for a unilateral rescission by either party. In fact, the sale was consummated upon the delivery of the lot to respondent. Thus, Art. 1477 provides that the owner ship of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof.33 The condition in the deed that the balance of P1,000.00 shall be paid to the vendor by the vendee as soon as the property sold shall have been surveyed in the name of the vendee and all papers pertinent and necessary to the issuance of a separate certificate of title in the name of the vendee shall have been prepared is not a condition which prevented the efficacy of the contract of sale. It merely provides the manner by which the total purchase price of the property is to be paid. The condition did not prevent the contract from being in full force and effect: The stipulation that the "payment of the full consideration based on a survey shall be due and payable in five (5) years from the execution of a formal deed of sale" is not a condition which affects the efficacy of the contract of sale. It merely provides the manner by which the full consideration is to be computed and the time within which the same is to be paid. But it does not affect in any manner the effectivity of the contract. 34 In a contract to sell, ownership is retained by a seller and is not to be transferred to the vendee until full payment of the price. Such payment is a positive suspensive condition, the failure of which is not a breach of contract but simply an event that prevented the obligation from acquiring binding force.35 It bears stressing that in a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time, existed and discharges the obligation created under the transaction.36 A seller cannot unilaterally and extrajudicially rescind a contract of sale unless there is an express stipulation authorizing it. In such case, the vendor may file an action for specific performance or judicial rescission.37 Article 1169 of the New Civil Code provides that 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. In this case, the vendor (Jesus Mascuñana) failed to comply with his obligation of segregating Lot No. 124-B and the issuance of a Torrens title over the property in favor of the vendee, or the latter s successors-in-interest, the respondents herein. Worse, petitioner Jose Mascuñana was able to secure title over the property under the name of his deceased father. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners. SO ORDERED. Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.

G.R. No. 124242 January 21, 2005 SAN LORENZO DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS, PABLO S. BABASANTA, SPS. MIGUEL LU and PACITA ZAVALLA LU, respondents.

D E C I S I O N TINGA, J.: From a coaptation of the records of this case, it appears that respondents Miguel Lu and Pacita Zavalla, (hereinafter, the Spouses Lu) owned two (2) parcels of land situated in Sta. Rosa, Laguna covered by TCT No. T-39022 and TCT No. T-39023 both measuring 15,808 square meters or a total of 3.1616 hectares. On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to respondent Pablo Babasanta, (hereinafter, Babasanta) for the price of fifteen pesos (P15.00) per square meter. Babasanta made a downpayment of fifty thousand pesos (P50,000.00) as evidenced by a memorandum receipt issued by Pacita Lu of the same date. Several other payments totaling two hundred thousand pesos (P200,000.00) were made by Babasanta.

Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the execution of a final deed of sale in his favor so that he could effect full payment of the purchase price. In the same letter, Babasanta notified the spouses about having received information that the spouses sold the same property to another without his knowledge and consent. He demanded that the second sale be cancelled and that a final deed of sale be issued in his favor. In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged having agreed to sell the property to him at fifteen pesos (P15.00) per square meter. She, however, reminded Babasanta that when the balance of the purchase price became due, he requested for a reduction of the price and when she refused, Babasanta backed out of the sale. Pacita added that she returned the sum of fifty thousand pesos (P50,000.00) to Babasanta through Eugenio Oya. On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional Trial Court (RTC), Branch 31, of San Pedro, Laguna, a Complaint for Specific Performance and Damages1 against his co-respondents herein, the Spouses Lu. Babasanta alleged that the lands covered by TCT No. T- 39022 and T-39023 had been sold to him by the spouses at fifteen pesos (P15.00) per square meter. Despite his repeated demands for the execution of a final deed of sale in his favor, respondents allegedly refused. In their Answer,2 the Spouses Lu alleged that Pacita Lu obtained loans from Babasanta and when the total advances of Pacita reached fifty thousand pesos (P50,000.00), the latter and Babasanta, without the knowledge and consent of Miguel Lu, had verbally agreed to transform the transaction into a contract to sell the two parcels of land to Babasanta with the fifty thousand pesos (P50,000.00) to be considered as the downpayment for the property and the balance to be paid on or before 31 December 1987. Respondents Lu added that as of November 1987, total payments made by Babasanta amounted to only two hundred thousand pesos (P200,000.00) and the latter allegedly failed to pay the balance of two hundred sixty thousand pesos (P260,000.00) despite repeated demands. Babasanta had purportedly asked Pacita for a reduction of the price from fifteen pesos (P15.00) to twelve pesos (P12.00) per square meter and when the Spouses Lu refused to grant Babasanta’s request, the latter rescinded the contract to sell and declared that the original loan transaction just be carried out in that the spouses would be indebted to him in the amount of two hundred thousand pesos (P200,000.00). Accordingly, on 6 July 1989, they purchased Interbank Manager’s Check No. 05020269 in the amount of two hundred thousand pesos (P200,000.00) in the name of Babasanta to show that she was able and willing to pay the balance of her loan obligation. Babasanta later filed an Amended Complaint dated 17 January 19903 wherein he prayed for the issuance of a writ of preliminary injunction with temporary restraining order and the inclusion of the Register of Deeds of Calamba, Laguna as party defendant. He contended that the issuance of a preliminary injunction was necessary to restrain the transfer or conveyance by the Spouses Lu of the subject property to other persons. The Spouses Lu filed their Opposition4 to the amended complaint contending that it raised new matters which seriously affect their substantive rights under the original complaint. However, the trial court in its Order dated 17 January 19905 admitted the amended complaint. On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC) filed a Motion for Intervention6 before the trial court. SLDC alleged that it had legal interest in the subject matter under litigation because on 3 May 1989, the two parcels of land involved, namely Lot 1764-A and 1764-B, had been sold to it in a Deed of Absolute Sale with Mortgage.7 It alleged that it was a buyer in good faith and for value and therefore it had a better right over the property in litigation. In his Opposition to SLDC’s motion for intervention,8 respondent Babasanta demurred and argued that the latter had no legal interest in the case because the two parcels of land involved herein had already been conveyed to him by the Spouses Lu and hence, the vendors were without legal capacity to transfer or dispose of the two parcels of land to the intervenor. Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to intervene. SLDC filed its Complaint-in-Intervention on 19 April 1990.9 Respondent Babasanta’s motion for the issuance of a preliminary injunction was likewise granted by the trial court in its Order dated 11 January 199110 conditioned upon his filing of a bond in the amount of fifty thousand pesos (P50,000.00). SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the Spouses Lu executed in its favor anOption to Buy the lots subject of the complaint. Accordingly, it paid an option money in the amount of three hundred sixteen thousand one hundred sixty pesos

(P316,160.00) out of the total consideration for the purchase of the two lots of one million two hundred sixty-four thousand six hundred forty pesos (P1,264,640.00). After the Spouses Lu received a total amount of six hundred thirty-two thousand three hundred twenty pesos (P632,320.00) they executed on 3 May 1989 a Deed of Absolute Sale with Mortgage in its favor. SLDC added that the certificates of title over the property were delivered to it by the spouses clean and free from any adverse claims and/or notice of lis pendens. SLDC further alleged that it only learned of the filing of the complaint sometime in the early part of January 1990 which prompted it to file the motion to intervene without delay. Claiming that it was a buyer in good faith, SLDC argued that it had no obligation to look beyond the titles submitted to it by the Spouses Lu particularly because Babasanta’s claims were not annotated on the certificates of title at the time the lands were sold to it. After a protracted trial, the RTC rendered its Decision on 30 July 1993 upholding the sale of the property to SLDC. It ordered the Spouses Lu to pay Babasanta the sum of two hundred thousand pesos (P200,000.00) with legal interest plus the further sum of fifty thousand pesos (P50,000.00) as and for attorney’s fees. On the complaint-in-intervention, the trial court ordered the Register of Deeds of Laguna, Calamba Branch to cancel the notice of lis pendens annotated on the original of the TCT No. T-39022 (T-7218) and No. T-39023 (T-7219). Applying Article 1544 of the Civil Code, the trial court ruled that since both Babasanta and SLDC did not register the respective sales in their favor, ownership of the property should pertain to the buyer who first acquired possession of the property. The trial court equated the execution of a public instrument in favor of SLDC as sufficient delivery of the property to the latter. It concluded that symbolic possession could be considered to have been first transferred to SLDC and consequently ownership of the property pertained to SLDC who purchased the property in good faith. Respondent Babasanta appealed the trial court’s decision to the Court of Appeals alleging in the main that the trial court erred in concluding that SLDC is a purchaser in good faith and in upholding the validity of the sale made by the Spouses Lu in favor of SLDC. Respondent spouses likewise filed an appeal to the Court of Appeals. They contended that the trial court erred in failing to consider that the contract to sell between them and Babasanta had been novated when the latter abandoned the verbal contract of sale and declared that the original loan transaction just be carried out. The Spouses Lu argued that since the properties involved were conjugal, the trial court should have declared the verbal contract to sell between Pacita Lu and Pablo Babasanta null and void ab initio for lack of knowledge and consent of Miguel Lu. They further averred that the trial court erred in not dismissing the complaint filed by Babasanta; in awarding damages in his favor and in refusing to grant the reliefs prayed for in their answer. On 4 October 1995, the Court of Appeals rendered its Decision11 which set aside the judgment of the trial court. It declared that the sale between Babasanta and the Spouses Lu was valid and subsisting and ordered the spouses to execute the necessary deed of conveyance in favor of Babasanta, and the latter to pay the balance of the purchase price in the amount of two hundred sixty thousand pesos (P260,000.00). The appellate court ruled that the Absolute Deed of Sale with Mortgage in favor of SLDC was null and void on the ground that SLDC was a purchaser in bad faith. The Spouses Lu were further ordered to return all payments made by SLDC with legal interest and to pay attorney’s fees to Babasanta. SLDC and the Spouses Lu filed separate motions for reconsideration with the appellate court.12 However, in aManifestation dated 20 December 1995,13 the Spouses Lu informed the appellate court that they are no longer contesting the decision dated 4 October 1995. In its Resolution dated 11 March 1996,14 the appellate court considered as withdrawn the motion for reconsideration filed by the Spouses Lu in view of their manifestation of 20 December 1995. The appellate court denied SLDC’s motion for reconsideration on the ground that no new or substantial arguments were raised therein which would warrant modification or reversal of the court’s decision dated 4 October 1995. Hence, this petition. SLDC assigns the following errors allegedly committed by the appellate court: THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A BUYER IN GOOD FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU OBTAINED FROM IT THE CASH ADVANCE OF P200,000.00, SAN LORENZO WAS PUT ON INQUIRY OF A PRIOR TRANSACTION ON THE PROPERTY. THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE ESTABLISHED FACT THAT THE ALLEGED FIRST BUYER, RESPONDENT BABASANTA, WAS NOT IN

POSSESSION OF THE DISPUTED PROPERTY WHEN SAN LORENZO BOUGHT AND TOOK POSSESSION OF THE PROPERTY AND NO ADVERSE CLAIM, LIEN, ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED ON THE TITLES. THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT RESPONDENT BABASANTA HAS SUBMITTED NO EVIDENCE SHOWING THAT SAN LORENZO WAS AWARE OF HIS RIGHTS OR INTERESTS IN THE DISPUTED PROPERTY. THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS FULL CONCURRENCE ON THE FINDINGS OF FACT OF THE TRIAL COURT, IT REVERSED AND SET ASIDE THE DECISION OF THE TRIAL COURT UPHOLDING THE TITLE OF SAN LORENZO AS A BUYER AND FIRST POSSESSOR IN GOOD FAITH. 15 SLDC contended that the appellate court erred in concluding that it had prior notice of Babasanta’s claim over the property merely on the basis of its having advanced the amount of two hundred thousand pesos (P200,000.00) to Pacita Lu upon the latter’s representation that she needed the money to pay her obligation to Babasanta. It argued that it had no reason to suspect that Pacita was not telling the truth that the money would be used to pay her indebtedness to Babasanta. At any rate, SLDC averred that the amount of two hundred thousand pesos (P200,000.00) which it advanced to Pacita Lu would be deducted from the balance of the purchase price still due from it and should not be construed as notice of the prior sale of the land to Babasanta. It added that at no instance did Pacita Lu inform it that the lands had been previously sold to Babasanta. Moreover, SLDC stressed that after the execution of the sale in its favor it immediately took possession of the property and asserted its rights as new owner as opposed to Babasanta who has never exercised acts of ownership. Since the titles bore no adverse claim, encumbrance, or lien at the time it was sold to it, SLDC argued that it had every reason to rely on the correctness of the certificate of title and it was not obliged to go beyond the certificate to determine the condition of the property. Invoking the presumption of good faith, it added that the burden rests on Babasanta to prove that it was aware of the prior sale to him but the latter failed to do so. SLDC pointed out that the notice of lis pendens was annotated only on 2 June 1989 long after the sale of the property to it was consummated on 3 May 1989.1awphi1.nét Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the Spouses Lu informed the Court that due to financial constraints they have no more interest to pursue their rights in the instant case and submit themselves to the decision of the Court of Appeals.16 On the other hand, respondent Babasanta argued that SLDC could not have acquired ownership of the property because it failed to comply with the requirement of registration of the sale in good faith. He emphasized that at the time SLDC registered the sale in its favor on 30 June 1990, there was already a notice of lis pendens annotated on the titles of the property made as early as 2 June 1989. Hence, petitioner’s registration of the sale did not confer upon it any right. Babasanta further asserted that petitioner’s bad faith in the acquisition of the property is evident from the fact that it failed to make necessary inquiry regarding the purpose of the issuance of the two hundred thousand pesos (P200,000.00) manager’s check in his favor. The core issue presented for resolution in the instant petition is who between SLDC and Babasanta has a better right over the two parcels of land subject of the instant case in view of the successive transactions executed by the Spouses Lu. To prove the perfection of the contract of sale in his favor, Babasanta presented a document signed by Pacita Lu acknowledging receipt of the sum of fifty thousand pesos (P50,000.00) as partial payment for 3.6 hectares of farm lot situated at Barangay Pulong, Sta. Cruz, Sta. Rosa, Laguna.17 While the receipt signed by Pacita did not mention the price for which the property was being sold, this deficiency was supplied by Pacita Lu’s letter dated 29 May 198918 wherein she admitted that she agreed to sell the 3.6 hectares of land to Babasanta for fifteen pesos (P15.00) per square meter. An analysis of the facts obtaining in this case, as well as the evidence presented by the parties, irresistibly leads to the conclusion that the agreement between Babasanta and the Spouses Lu is a contract to sell and not a contract of sale. Contracts, in general, are perfected by mere consent,19 which is manifested by the meeting of the offer and the acceptance upon the thing which are to constitute the contract. The offer must be certain and the acceptance absolute.20 Moreover, contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present.21

The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand pesos (P50,000.00) from Babasanta as partial payment of 3.6 hectares of farm lot situated in Sta. Rosa, Laguna. While there is no stipulation that the seller reserves the ownership of the property until full payment of the price which is a distinguishing feature of a contract to sell, the subsequent acts of the parties convince us that the Spouses Lu never intended to transfer ownership to Babasanta except upon full payment of the purchase price. Babasanta’s letter dated 22 May 1989 was quite telling. He stated therein that despite his repeated requests for the execution of the final deed of sale in his favor so that he could effect full payment of the price, Pacita Lu allegedly refused to do so. In effect, Babasanta himself recognized that ownership of the property would not be transferred to him until such time as he shall have effected full payment of the price. Moreover, had the sellers intended to transfer title, they could have easily executed the document of sale in its required form simultaneously with their acceptance of the partial payment, but they did not. Doubtlessly, the receipt signed by Pacita Lu should legally be considered as a perfected contract to sell. The distinction between a contract to sell and a contract of sale is quite germane. In a contract of sale, title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full payment of the price.22 In a contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.23 The perfected contract to sell imposed upon Babasanta the obligation to pay the balance of the purchase price. There being an obligation to pay the price, Babasanta should have made the proper tender of payment and consignation of the price in court as required by law. Mere sending of a letter by the vendee expressing the intention to pay without the accompanying payment is not considered a valid tender of payment.24 Consignation of the amounts due in court is essential in order to extinguish Babasanta’s obligation to pay the balance of the purchase price. Glaringly absent from the records is any indication that Babasanta even attempted to make the proper consignation of the amounts due, thus, the obligation on the part of the sellers to convey title never acquired obligatory force. On the assumption that the transaction between the parties is a contract of sale and not a contract to sell, Babasanta’s claim of ownership should nevertheless fail. Sale, being a consensual contract, is perfected by mere consent25 and from that moment, the parties may reciprocally demand performance.26 The essential elements of a contract of sale, to wit: (1) consent or meeting of the minds, that is, to transfer ownership in exchange for the price; (2) object certain which is the subject matter of the contract; (3) cause of the obligation which is established.27 The perfection of a contract of sale should not, however, be confused with its consummation. In relation to the acquisition and transfer of ownership, it should be noted that sale is not a mode, but merely a title. A mode is the legal means by which dominion or ownership is created, transferred or destroyed, but title is only the legal basis by which to affect dominion or ownership.28 Under Article 712 of the Civil Code, "ownership and other real rights over property are acquired and transmitted by law, by donation, by testate and intestate succession, and in consequence of certain contracts, by tradition." Contracts only constitute titles or rights to the transfer or acquisition of ownership, while delivery or tradition is the mode of accomplishing the same.29 Therefore, sale by itself does not transfer or affect ownership; the most that sale does is to create the obligation to transfer ownership. It is tradition or delivery, as a consequence of sale, that actually transfers ownership. Explicitly, the law provides that the ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Article 1497 to 1501.30 The word "delivered" should not be taken restrictively to mean transfer of actual physical possession of the property. The law recognizes two principal modes of delivery, to wit: (1) actual delivery; and (2) legal or constructive delivery. Actual delivery consists in placing the thing sold in the control and possession of the vendee.31 Legal or constructive delivery, on the other hand, may be had through any of the following ways: the execution of a public instrument evidencing the sale;32 symbolical tradition such as the delivery of the keys of the place where the movable sold is being kept;33 traditio longa manu or by mere consent or agreement if the movable sold cannot yet be transferred to the possession of the buyer at the time of the sale;34 traditio brevi manu if

the buyer already had possession of the object even before the sale;35 and traditio constitutum possessorium, where the seller remains in possession of the property in a different capacity.36 Following the above disquisition, respondent Babasanta did not acquire ownership by the mere execution of the receipt by Pacita Lu acknowledging receipt of partial payment for the property. For one, the agreement between Babasanta and the Spouses Lu, though valid, was not embodied in a public instrument. Hence, no constructive delivery of the lands could have been effected. For another, Babasanta had not taken possession of the property at any time after the perfection of the sale in his favor or exercised acts of dominion over it despite his assertions that he was the rightful owner of the lands. Simply stated, there was no delivery to Babasanta, whether actual or constructive, which is essential to transfer ownership of the property. Thus, even on the assumption that the perfected contract between the parties was a sale, ownership could not have passed to Babasanta in the absence of delivery, since in a contract of sale ownership is transferred to the vendee only upon the delivery of the thing sold.37 However, it must be stressed that the juridical relationship between the parties in a double sale is primarily governed by Article 1544 which lays down the rules of preference between the two purchasers of the same property. It provides: Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. The principle of primus tempore, potior jure (first in time, stronger in right) gains greater significance in case of double sale of immovable property. When the thing sold twice is an immovable, the one who acquires it and first records it in the Registry of Property, both made in good faith, shall be deemed the owner.38 Verily, the act of registration must be coupled with good faith— that is, the registrant must have no knowledge of the defect or lack of title of his vendor or must not have been aware of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor.39 Admittedly, SLDC registered the sale with the Registry of Deeds after it had acquired knowledge of Babasanta’s claim. Babasanta, however, strongly argues that the registration of the sale by SLDC was not sufficient to confer upon the latter any title to the property since the registration was attended by bad faith. Specifically, he points out that at the time SLDC registered the sale on 30 June 1990, there was already a notice of lis pendens on the file with the Register of Deeds, the same having been filed one year before on 2 June 1989. Did the registration of the sale after the annotation of the notice of lis pendens obliterate the effects of delivery and possession in good faith which admittedly had occurred prior to SLDC’s knowledge of the transaction in favor of Babasanta? We do not hold so. It must be stressed that as early as 11 February 1989, the Spouses Lu executed the Option to Buy in favor of SLDC upon receiving P316,160.00 as option money from SLDC. After SLDC had paid more than one half of the agreed purchase price of P1,264,640.00, the Spouses Lu subsequently executed on 3 May 1989 a Deed of Absolute Sale in favor or SLDC. At the time both deeds were executed, SLDC had no knowledge of the prior transaction of the Spouses Lu with Babasanta. Simply stated, from the time of execution of the first deed up to the moment of transfer and delivery of possession of the lands to SLDC, it had acted in good faith and the subsequent annotation of lis pendens has no effect at all on the consummated sale between SLDC and the Spouses Lu. A purchaser in good faith is one who buys property of another without notice that some other person has a right to, or interest in, such property and pays a full and fair price for the same at the time of such purchase, or beforehe has notice of the claim or interest of some other person in the property.40 Following the foregoing definition, we rule that SLDC qualifies as a buyer in good faith since there is no evidence extant in the records that it had knowledge of the prior transaction in favor of Babasanta. At the time of the sale of the property to SLDC, the vendors were still the registered owners of the property and were in fact in possession of the lands.l^vvphi1.net Time and again, this Court has ruled that a person dealing with the owner of registered land is not bound to go beyond the certificate of title as he is charged with notice

of burdens on the property which are noted on the face of the register or on the certificate of title.41 In assailing knowledge of the transaction between him and the Spouses Lu, Babasanta apparently relies on the principle of constructive notice incorporated in Section 52 of the Property Registration Decree (P.D. No. 1529) which reads, thus: Sec. 52. Constructive notice upon registration. – Every conveyance, mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting registered land shall, if registered, filed, or entered in the office of the Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all persons from the time of such registering, filing, or entering. However, the constructive notice operates as such¾by the express wording of Section 52¾from the time of the registration of the notice of lis pendens which in this case was effected only on 2 June 1989, at which time the sale in favor of SLDC had long been consummated insofar as the obligation of the Spouses Lu to transfer ownership over the property to SLDC is concerned. More fundamentally, given the superiority of the right of SLDC to the claim of Babasanta the annotation of the notice of lis pendens cannot help Babasanta’s position a bit and it is irrelevant to the good or bad faith characterization of SLDC as a purchaser. A notice of lis pendens, as the Court held in Nataño v. Esteban,42serves as a warning to a prospective purchaser or incumbrancer that the particular property is in litigation; and that he should keep his hands off the same, unless he intends to gamble on the results of the litigation." Precisely, in this case SLDC has intervened in the pending litigation to protect its rights. Obviously, SLDC’s faith in the merit of its cause has been vindicated with the Court’s present decision which is the ultimate denouement on the controversy. The Court of Appeals has made capital43 of SLDC’s averment in its Complaint-in-Intervention44 that at the instance of Pacita Lu it issued a check for P200,000.00 payable to Babasanta and the confirmatory testimony of Pacita Lu herself on cross-examination.45 However, there is nothing in the said pleading and the testimony which explicitly relates the amount to the transaction between the Spouses Lu and Babasanta for what they attest to is that the amount was supposed to pay off the advances made by Babasanta to Pacita Lu. In any event, the incident took place after the Spouses Lu had already executed the Deed of Absolute Sale with Mortgage in favor of SLDC and therefore, as previously explained, it has no effect on the legal position of SLDC. Assuming ex gratia argumenti that SLDC’s registration of the sale had been tainted by the prior notice of lis pendens and assuming further for the same nonce that this is a case of double sale, still Babasanta’s claim could not prevail over that of SLDC’s. In Abarquez v. Court of Appeals,46 this Court had the occasion to rule that if a vendee in a double sale registers the sale after he has acquired knowledge of a previous sale, the registration constitutes a registration in bad faith and does not confer upon him any right. If the registration is done in bad faith, it is as if there is no registration at all, and the buyer who has taken possession first of the property in good faith shall be preferred. In Abarquez, the first sale to the spouses Israel was notarized and registered only after the second vendee, Abarquez, registered their deed of sale with the Registry of Deeds, but the Israels were first in possession. This Court awarded the property to the Israels because registration of the property by Abarquez lacked the element of good faith. While the facts in the instant case substantially differ from that in Abarquez, we would not hesitate to rule in favor of SLDC on the basis of its prior possession of the property in good faith. Be it noted that delivery of the property to SLDC was immediately effected after the execution of the deed in its favor, at which time SLDC had no knowledge at all of the prior transaction by the Spouses Lu in favor of Babasanta.1a\^/phi1.net The law speaks not only of one criterion. The first criterion is priority of entry in the registry of property; there being no priority of such entry, the second is priority of possession; and, in the absence of the two priorities, the third priority is of the date of title, with good faith as the common critical element. Since SLDC acquired possession of the property in good faith in contrast to Babasanta, who neither registered nor possessed the property at any time, SLDC’s right is definitely superior to that of Babasanta’s. At any rate, the above discussion on the rules on double sale would be purely academic for as earlier stated in this decision, the contract between Babasanta and the Spouses Lu is not a contract of sale but merely a contract to sell. In Dichoso v. Roxas,47 we had the occasion to rule that Article 1544 does not apply to a case where there was a sale to one party of the land itself while the other contract was a mere promise to sell the land or at most an actual

assignment of the right to repurchase the same land. Accordingly, there was no double sale of the same land in that case. WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals appealed from is REVERSED and SET ASIDE and the decision of the Regional Trial Court, Branch 31, of San Pedro, Laguna is REINSTATED. No costs. SO ORDERED. Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur. G.R. No. L-20091 July 30, 1965 PERPETUA ABUAN, ET AL., plaintiffs-appellants, vs. EUSTAQUIO S. GARCIA, ET AL., defendants-appellees. Emilio R. Gombio for plaintiffs-appellants. Ruperto G. Martin and Associates for defendants-appellees. BENGZON, C.J.: This is an action for legal redemption under Section 119 of the Public Land Law 1 which provides that:

Every conveyance of land acquired under the free patient or homestead provisions, when proper, shall be subject to re-purchase by the applicant, his widow, or legal heirs, for a period of five years from the date of conveyance.

Acquired by Laureano Abuan the homestead passed after his death to his legal heirs, the plaintiffs herein. Consequently, the Original Certificate of Title in his name was cancelled, and in lieu thereof, Transfer Certificate of Title No. T-5486 was issued in their names. On August 7, 1953, plaintiffs sold the parcel of land to defendants, the sale being evidenced by a public instrument entitled "Deed of Absolute Sale"; and by virtue thereof, Transfer Certificate of Title No. T-5906 was issued to defendants. Later, plaintiffs filed an action to recover the land, alleging that the deed of absolute sale had been executed through fraud, without consideration. However, the case was subsequently settled amicably, when the parties entered into an "Agreement" dated February 28, 1955, under the terms of which defendants paid P500.00 on that day as partial payment of the purchase price of the land, and promised to pay the balance of P1,500.00 on or before April 30, 1955, with a grace period of thirty days. The parties also stipulated in said Agreement that it "shall supersede all previous agreements or contracts heretofore entered into and executed by and between plaintiff and defendants, involving the same parcel of riceland ... . Claiming that full payment had been effected only sometime in May, 1955, plaintiffs instituted the present action on March 4, 1960. Defendants moved to dismiss, on the ground that plaintiffs' right of action was already barred, because the five-year redemption period had already expired. Sustaining the motion, the Nueva Vizcaya court dismissed the complaint. Plaintiffs appealed to the Court of Appeals, which certified the case to this Court because only a legal issue remains to be determined. The sole question is: When did the five-year period (within which plaintiffs may exercise their right of repurchase) begin to run? Should it be August 7, 1953, when the Deed of Absolute Sale was executed, or February 28, 1955, when the compromise "Agreement" was entered into; or should it be in May, 1955, upon full payment of the purchase price? It is obvious that counted from either of the first two dates more than five years had elapsed when this action for redemption was brought (March 1960); whereas the action would be well within the period, if computed from the date of full payment of the purchase price. The lower court, in dismissing plaintiffs' complaint, fixed the starting date as February 28, 1955, when the Agreement (Annex "B") was entered into. It is plaintiffs' contention, on the other hand, that the prescriptive period should be counted from the full payment of the purchase price, that is, from May, 1955, since it was on this date that the contract was consummated. Plaintiffs' contention is untenable. The law speaks of "five years from date of conveyance." Conveyance means transfer of ownership; it means the date when the title to the land is transferred from one person to another. 2 The five-year period should, therefore, be reckoned with from the date that defendants acquired ownership of the land. Now, when did defendants legally acquire ownership over the land? Art. 1477 of the New Civil Code provides that ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof; and Art. 1496 points out that ownership of the thing sold is acquired by the vendee from the moment it is delivered to him

in any of the ways specified in articles 1497 to 1501. Under Art. 1498, When the sale is made through a public instrument — as in this case — the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot be clearly inferred. 3 This manner of delivery of the thing through the execution of a public document is common to personal as well as real property. 4 It is clear, therefore, that defendants acquired ownership to the land in question upon the execution of the deed of sale. The deed of sale was executed on August 7, 1953, which was "superseded" by the Agreement of February 28, 1955, as to the terms and conditions of payment of the purchase price. The latter agreement did not operate to revest the ownership of the land in the plaintiffs. 5 It is apparent that five years had elapsed since the execution of the deed of sale at the time plaintiffs filed this action for redemption. Our view finds support in a long line of decisions holding, that the five-year period starts from the date of the execution of the instrument of conveyance. 6 But assuming arguendo that Annex "A" is null and void, as plaintiffs aver, and did not serve to effectuate delivery of the property, we can consider the date of the Agreement (Annex "B"), at the latest, as the time within which ownership is vested in the defendants. True, Annex "B" is a private instrument the execution of which could not be construed as constructive delivery under Art. 1498 of the New Civil Code. But Art. 1496 explicitly provides that ownership of the thing sold is acquired by the vendee from the moment it is delivered to him "in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee." The intention to give possession (and ownership) is manifest in the agreement (Annex "B") entered into by the parties, specially considering the following circumstances: (1) the payment of part of the purchase price, there being no stipulation in the agreement that ownership will not vest in the vendees until full payment of the price; and (2) the fact that the agreement was entered into in consideration of plaintiffs' desistance, as in fact they did desist, in prosecuting their reivindicatory action, thereby leaving the property in the hands of the then and now defendants — as owners thereof, necessarily. This was delivery brevi manu permissible under Articles 1499 and 1501 of the New Civil Code. The circumstance that full payment was made only, as plaintiffs allege, in May, 1955, does not alter the fact that ownership of the land passed to defendants upon the execution of the agreement with the intention of letting them hold it as owners. In the absence of an express stipulation to the contrary, the payment of the price is not a condition precedent to the transfer of ownership, which passes by delivery of the thing to the buyer. 7 IN VIEW OF THE FOREGOING, the order of the court a quo dismissing the complaint is hereby affirmed, with costs against plaintiffs-appellants. Bautista Angelo, Reyes, J.B.L., Paredes, Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ., concur. Concepcion, J., took no part. Barrera, J., is on leave.

PERFECTO DY, JR. petitioner, vs. COURT OF APPEALS, GELAC TRADING INC., and ANTONIO V. GONZALES, Respondents. G.R. No. 92989 July 8, 1991

FACTS:

Wilfredo Dy purchased a truck and a farm tractor through LIBRA which was also mortgaged with the latter, as a security to the loan.

Petitioner, expresses his desire to purchased his brother’s tractor in a letter to LIBRA which also includes his intention to shoulder its mortgaged. LIBRA approved the request. At the

time that Wilfredo Dy executed a deed of absolute sale in favor of petitioner, the tractor and truck were in the possession of LIBRA for his failure to pay the amortization.

When petitioner finally fulfilled its obligation to pay the tractor, LIBRA would only release the same only if he would also pay for the truck. In order to fulfill LIBRA’s condition, petitioner convinced his sister to pay for the remaining truck, to which she released a check amounting to P22,000. LIBRA however, insisted that the check must be first cleared before it delivers the truck and tractor.

Meanwhile, another case penned “Gelac Trading Inc vs. Wilfredo Dy” was pending in Cebu as a case to recover for a sum of money (P12,269.80). By a writ of execution the court in Cebu ordered to seize and levy the tractor which was in the premise of LIBRA, it was sold in a public auction to which it was purchased by GELAC. The latter then sold the tractor to Antonio Gonzales.

RTC rendered in favor of petitioner.

CA dismissed the case, alleging that it still belongs to Wilfredo Dy.

ISSUE:

Whether or not there was a consummated sale between Petitioner and LIBRA?

HELD:

NO.

The payment of the check was actually intended to extinguish the mortgage obligation so that the tractor could be released to the petitioner. It was never intended nor could it be considered as payment of the purchase price because the relationship between Libra and the petitioner is not one of sale but still a mortgage. The clearing or encashment of the check which produced the effect of payment determined the full payment of the money obligation and the release of the chattel mortgage. It was not determinative of the consummation of the sale. The transaction between the brothers is distinct and apart from the transaction between Libra and the petitioner. The contention, therefore, that the consummation of the sale depended upon the encashment of the check is untenable.

RULES IN DOUBLE SALE

G.R. No. 123547 May 21, 2001 REV. FR. DANTE MARTINEZ, petitioner, vs. HONORABLE COURT OF APPEALS, HONORABLE JUDGE JOHNSON BALLUTAY, PRESIDING JUDGE, BRANCH 25, REGIONAL TRIAL COURT OF CABANA TUAN CITY, HONORABLE JUDGE ADRIANO TUAZON, JR.,

PRESIDING JUDGE, BRANCH 28, REGIONAL TRIAL COURT OF CABANATUAN CITY, SPOUSES REYNALDO VENERACION and SUSAN VENERACION, SPOUSES MAXIMO HIPOLITO and MANUELA DE LA PAZ and GODOFREDO DE LA PAZ, respondents. MENDOZA, J.: This is a petition for review on certiorari of the decision, dated 7, 1995, and resolution, dated January 31, 1996, of the Court of Appeals, which affirmed the decisions of the Regional Trial Court, Branches 251 and 28,2Cabanatuan City, finding private respondents spouses Reynaldo and Susan Veneracion owners of the land in dispute, subject to petitioner's rights as a builder in good faith. The facts are as follows: Sometime in February 1981, private respondents Godofredo De la Paz and his sister Manuela De la Paz, married to Maximo Hipolito, entered into an oral contract with petitioner Rev. Fr. Dante Martinez, then Assistant parish priest of Cabanatuan City, for the sale of Lot No. 1337-A-3 at the Villa Fe Subdivision in Cabanatuan City for the sum of P15,000.00. The lot is located along Maharlika Road near the Municipal Hall of Cabanatuan City. At the time of the sale, the lot was still registered in the name of Claudia De la Paz, mother of private respondents, although the latter had already sold it to private respondent Manuela de la Paz by virtue of a Deed of Absolute Sale dated May 26, 1976 (Exh. N/Exh. 2-Veneracion).3 Private respondent Manuela subsequently registered the sale in her name on October 22, 1981 and was issued TCT No. T-40496 (Exh. 9).4 When the land was offered for sale to petitioner, private respondents De la Paz were accompanied by their mother, since petitioner dealt ' with the De la Fazes as a family and not individually. He was assured by them that the lot belonged to Manuela De la Paz. It was agreed that petitioner would give a downpayment of P3,000.00 to private respondents De la Paz and that the balance would be payable by installment. After giving the P3,000.00 downpayment, petitioner started the construction of a house on the lot after securing a building permit from the City Engineer's Office on April 23, 1981, with the written consent of the then registered owner, Claudia de la Paz (Exh. B/Exh, 1).5 Petitioner likewise began paying the real estate taxes on said property (Exh. D, D-l, D-2).6 Construction on the house was completed on October 6, 1981 (Exh. V).7 Since then, petitioner and his family have maintained their residence there.8 On January 31, 1983, petitioner completed payment of the lot for which private respondents De la Paz executed two documents. The first document (Exh. A) read:

1-31-83 Ang halaga ng Lupa sa Villa Fe Subdivision na ipinagbili kay Fr. Dante Martinez ay P15,000.00 na pinangangako namin na ibibigay ang Deed of Sale sa ika-25 ng Febrero 1983.

[SGD.] METRING HIPOLITO [SGD.] JOSE GODOFREDO DE LA PAZ9

The second writing (Exh. O) read: Cabanatuan City March 19, 1986

TO WHOM IT MAY CONCERN: This is to certify that Freddie dela Paz has agreed to sign tomorrow (March 20) the affidavit of sale of lot located at Villa Fe Subdivision sold to Fr. Dante Martinez.

[Sgd.] Freddie dela Paz FREDDIE DELA PAZ10

However, private respondents De la Paz never delivered the Deed of Sale they promised to petitioner. In the meantime, in a Deed of. Absolute Sale with Right to Repurchase dated October 28, 1981 (Exh. 10),11private respondents De la Paz sold three lots with right to repurchase the same within one year to private respondents spouses Reynaldo and Susan Veneracion for the sum of P150,000.00. One of the lots sold was the lot previously sold to petitioner.12 Reynaldo Veneracion had been a resident of Cabanatuan City since birth. He used to pass along Maharlika Highway in going to the Municipal Hall or in going to and from Manila. Two of the lots subject of the sale were located along Maharlika Highway, one of which was the lot sold earlier by the De la Pazes to petitioner. The third lot (hereinafter referred to as the Melencio lot) was occupied by private respondents De la Paz. Private respondents Veneracion never took actual possession of any of these lots during the period of redemption, but all titles to the lots were given to him.13

Before the expiration of the one year period, private respondent Godofredo De la Paz informed private respondent Reynaldo Veneracion that he was selling the three lots to another person for P200,000.00. Indeed, private respondent Veneracion received a call from a Mr. Tecson verifying if he had the titles to the properties, as private respondents De la Paz were offering to sell the two lots along Maharlika Highway to him (Mr. Tecson) for P180,000.00 The offer included the lot purchased by petitioner in February, 1981. Private respondent Veneracion offered to purchase the same two lots from the De la razes for the same amount, The offer was accepted by private respondents De la Paz. Accordingly, on June 2, 1983, a Deed of Absolute Sale was executed over the two lots (Exh. I/Exh. 5-Veneracion).14 Sometime in January, 1984, private respondent Reynaldo Veneracion asked a certain Renato Reyes, petitioner's neighbor, who the owner of the building erected on the subject lot was. Reyes told him that it was Feliza Martinez, petitioner's mother, who was in possession of the property. Reynaldo Veneracion told private respondent Godofredo about the matter and was assured that Godofredo would talk to Feliza. Based on that assurance, private respondents Veneracion registered the lots with the Register of Deeds of Cabanatuan on March 5, 1984. The lot in dispute was registered under TCT No. T-44612 (Exh. L/Exh. 4-Veneracion).15 Petitioner discovered that the lot he was occupying with his family had been sold to the spouses Veneracion after receiving a letter, (Exh. P/Exh. 6-Veneracion) from private respondent Reynaldo Veneracion on March 19, 1986, claiming ownership of the land and demanding that they vacate the property and remove their improvements thereon.16 Petitioner, in turn, demanded through counsel the execution of the deed of sale from private respondents De la Paz and informed Reynaldo Veneracion that he was the owner of the property as he had previously purchased the same from private respondents De la Paz.17 The matter was then referred to the Katarungang Pambarangay of San Juan, Cabanatuan City for conciliation, but the parties failed to reach an agreement (Exh. M/Exh. 13).18 As a consequence, on May 12, 1986, private respondent Reynaldo Veneracion brought an action for ejectment in the Municipal Trial Court, Branch III, Cabanatuan City against petitioner and his mother (Exh. 14).19 On the other hand, on June 10, 1986, petitioner caused a notice of lis pendens to be recorded on TCT No. T-44612 with the Register of Deeds of Cabanatuan City (Exh. U).20 During the pre-trial conference, the parties agreed to have the case decided under the Rules on Summary Procedure and defined the issues as follows:

1. Whether of not defendant (now petitioner) may be judicially ejected. 2. Whether or not the main issue in this case is ownership. 3. Whether or not damages may be awarded.21

On January 29, 1987, the trial court rendered its decision, pertinent portions of which are quoted as follows:

With the foregoing findings of the Court, defendants [petitioner Rev. Fr. Dante Martinez and his mother] are the rightful possessors and in good faith and in concept of owner, thus cannot be ejected from the land in question. Since the main issue is ownership, the better remedy of the plaintiff [herein private respondents Veneracion] is Accion Publiciana in the Regional Trial Court, having jurisdiction to adjudicate on ownership. Defendants' counterclaim will not be acted upon it being more than P20,000.00 is beyond this Court's power to adjudge. WHEREFORE, judgment is hereby rendered, dismissing plaintiff's complaint and ordering plaintiff to pay Attorney's fee of P5,000.00 and cost of suit. SO ORDERED.22

On March 3, 1987, private respondents Veneracion filed a notice of appeal with the Regional Trial Court, but failed to pay the docket fee. On June 6, 1989, or over two years after the filing of the notice of appeal, petitioner filed a Motion for Execution of the Judgment, alleging finality of judgment for failure of private respondents Veneracion to perfect their appeal and failure to prosecute the appeal for an unreasonable length of time. Upon objection of private respondents Veneracion, the trial court denied on June 28, 1989 the motion for execution and ordered the records of the case to be forwarded to the appropriate Regional Trial Court. On July 11, 1989, petitioner appealed from this order. The appeal of private respondents Veneracion from the decision of the MTC and the appeal of petitioner from the order denying petitioner's motion for execution were forwarded to the Regional Trial Court, Branch 28, Cabanatuan City. The cases were thereafter consolidated under Civil Case No. 670-AF.

On February 20, 1991, the Regional Trial Court rendered its decision finding private respondents Veneracion as the true owners of the lot in dispute by virtue of their prior registration with the Register of Deeds, subject to petitioner's rights as builder in good faith, and ordering petitioner and his privies to Vacate the lot after receipt of the cost of the construction of the house, as well as to pay the sum of P5,000.00 as attorney's fees and the costs of the suit. It, however, failed to rule on petitioner's appeal of the Municipal Trial Court's order denying their Motion for Execution of Judgment. Meanwhile, on May 30, 1986, while the ejectment case was pending before the Municipal Trial Court, petitioner Martinez filed a complaint for annulment of sale with damages against the Veneracions and De la Pazes with the Regional Trial Court, Branch 25, Cabanatuan City. On March 5, 1990, the trial court rendered its decision finding private respondents Veneracion owners of the land in dispute, subject to the rights of petitioner as a builder in good faith, and ordering private respondents De la Paz to pay petitioner the sum of P50,000.00 as moral damages and P10,000.00 as attorney's fees, and for private respondents to pay the costs of the suit. On March 20, 1991, petitioner then filed a petition for review with the Court of Appeals of the RTC's decision in Civil Case No. 670-AF (for ejectment). Likewise, on April 2, 1991, petitioner appealed the trial court's decision in Civil Case No. 44-[AF]-8642-R (for annulment of sale and damages) to the Court of Appeals. The cases were designated as CA G.R. SP. No. 24477 and CA G.R. CY No. 27791, respectively, and were subsequently consolidated. The Court of Appeals affirmed the trial courts' decisions, without ruling on petitioner's appeal from the Municipal Trial Court's order denying his Motion for Execution of Judgment. It declared the Veneracions to be owners of the lot in dispute as they were the first registrants in good faith, in accordance with Art. 1544 of the Civil Code. Petitioner Martinez failed to overcome the presumption of good faith for the following reasons:

1. when private respondent Veneracion discovered the construction on the lot, he immediately informed private respondent Godofredo about it and relied on the latter's assurance that he will take care of the matter. 2. the sale between petitioner Martinez and private respondents De la Paz was not notarized, as required by Arts. 1357 and 1358 of the Civil Code, thus it cannot be said that the private respondents Veneracion had knowledge of the first sale.23

Petitioner's motion for reconsideration was likewise denied in a resolution dated January 31, 1996.24 Hence this petition for review. Petitioner raises the following assignment of errors:

I THE PUBLIC RESPONDENTS HONORABLE COURT OF APPEALS AND REGIONAL TRIAL COURT JUDGES JOHNSON BALLUTAY AND ADRIANO TUAZON ERRED IN HOLDING THAT PRIVATE RESPONDENTS REYNALDO VENERACION AND WIFE ARE BUYERS AND REGISTRANTS IN GOOD FAITH IN RESOLVING THE ISSUE OF OWNERSHIP AND POSSESSION OF THE LAND IN DISPUTE. II THAT PUBLIC RESPONDENTS ERRED IN NOT RESOLVING AND DECIDING THE APPLICABILITY OF THE DECISION OF THIS HONORABLE COURT IN THE CASES OF SALVORO VS. TANEGA, ET AL., G. R. NO. L 32988 AND IN ARCENAS VS. DEL ROSARIO, 67 PHIL 238, BY TOTALLY IGNORING THE SAID DECISIONS OF THIS HONORABLE COURT IN THE ASSAILED DECISIONS OF THE PUBLIC RESPONDENTS. III THAT THE HONORABLE COURT OF APPEALS ERRED IN NOT GIVING DUE COURSE TO THE PETITION FOR REVIEW IN CA G. R. SP. NO. 24477. IV THAT THE HONORABLE COURT OF APPEALS IN DENYING PETITIONER'S PETITION FOR REVIEW AFORECITED INEVITABLY SANCTIONED AND/OR WOULD ALLOW A VIOLATION OF LAW AND DEPARTURE FROM THE USUAL COURSE OF JUDICIAL PROCEEDINGS BY PUBLIC RESPONDENT HONORABLE JUDGE ADRIANO TUAZON WHEN THE LATTER RENDERED A DECISION IN CIVIL CASE NO. 670-AF [ANNEX "D"] REVERSING THE DECISION OF THE MUNICIPAL TRIAL COURT JUDGE SENDON DELIZO IN CIVIL CASE NO. 9523 [ANNEX "C"] AND IN NOT RESOLVING IN THE SAME CASE THE APPEAL INTERPOSED BY DEFENDANTS ON THE ORDER OF THE SAME COURT DENYING THE MOTION FOR EXECUTION. V THAT THE RESOLUTION [ANNEX "B"] (OF THE COURT OF APPEALS) DENYING PETITIONER'S MOTION FOR RECONSIDERATION [ANNEX "1"] WITHOUT STATING CLEARLY THE FACTS AND THE LAW ON WHICH SAID RESOLUTION WAS BASED, (IS ERRONEOUS).

These assignment of errors raise the following issues: 1. Whether or not private respondents Veneracion are buyers in good faith of the lot in dispute as to make them the absolute owners thereof in accordance with Art. 1544 of the Civil Code on double sale of immovable property. 2. Whether or not payment of the appellate docket fee within the period to appeal is not necessary for the perfection of the appeal after a notice of appeal has been filed within such period. 3. Whether or not the resolution of the Court of Appeals denying petitioner's motion for reconsideration is contrary to the constitutional requirement that a denial of a motion for reconsideration must state the legal reasons on which it is based.

First. It is apparent from the first and second assignment of errors that petitioner is assailing the findings of fact and the appreciation of the evidence made by the trial courts and later affirmed by the respondent court. While, as a general rule, only questions of law may be raised in a petition for review under Rule 45 of the Rules of Court, review may nevertheless be granted under certain exceptions, namely: (a) when the conclusion is a finding grounded entirely on speculation, surmises, or conjectures; (b) when the inference made is manifestly mistaken, absurd, or impossible; (c) where there is a grave abuse of discretion; (d) when the judgment is based on a misapprehension of facts; (e) when the findings of fact are conflicting; (f) when the Court of Appeals, in making its findings, went beyond the issue of the case and the same is contrary to the admissions of both appellant and appellee; (g) when the findings of the Court of Appeals are contrary to those of the trial court; (h) when the findings of fact are conclusions without citation of specific evidence on which they are based; (I) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondents; (j) when the finding of fact of the Court of Appeals is premised on the supposed absence of evidence but is contradicted by the evidence on record; and (k) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion.25 In this case, the Court of Appeals based its ruling that private respondents Veneracion are the owners of the disputed lot on their reliance on private respondent Godofredo De la Paz's assurance that he would take care of the matter concerning petitioner's occupancy of the disputed lot as constituting good faith. This case, however, involves double sale and, on this matter, Art. 1544 of the Civil Code provides that where immovable property is the subject of a double sale, ownership shall be transferred (1) to the person acquiring it who in good faith first recorded it to the Registry of Property; (2) in default thereof, to the person who in good faith was first in possession; and (3) in default thereof, to the person who presents the oldest title.26 The requirement of the law, where title to the property is recorded in the Register of Deeds, is two-fold: acquisition in good faith and recording in good faith. To be entitled to priority, the second purchaser must not only prove prior recording of his title but that he acted in good faith, i.e., without knowledge or notice of a prior sale to another. The presence of good faith should be ascertained from the circumstances surrounding the purchase of the land.27 1. With regard to the first sale to private respondents Veneracion, private respondent Reynaldo Veneracion testified that on October 10, 1981, 18 days before the execution of the first Deed of Sale with Right to Repurchase, he inspected the premises and found it vacant.28 However, this is belied by the testimony of Engr. Felix D. Minor, then building inspector of the Department of Public Works and Highways, that he conducted on October 6, 1981 an ocular inspection of the lot in dispute in the performance of his duties as a building inspector to monitor the progress of the construction of the building subject of the building permit issued in favor of petitioner on April 23, 1981, and that he found it 100 % completed (Exh. V).29 In the absence of contrary evidence, he is to be presumed to have regularly performed his official duty.30 Thus, as early as October, 1981, private respondents Veneracion already knew that there was construction being made on the property they purchased. 2. The Court of Appeals failed to determine the nature of the first contract of sale between the private respondents by considering their contemporaneous and subsequent acts.31 More specifically, it overlooked the fact that the first contract of sale between the private respondents shows that it is in fact an equitable mortgage. The requisites for considering a contract of sale with a right of repurchase as an equitable mortgage are (1) that the parties entered into a contract denominated as a contract of sale and (2) that their intention was to secure an existing debt by way of mortgage.32 A contract of sale with right to repurchase gives rise to the presumption that it is an equitable mortgage in any of the following cases: (1) when the price of a sale with a 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 to 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.33 In case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage.34 In this case, the following circumstances indicate that the private respondents intended the transaction to be an equitable mortgage and not a contract of sale: (1) Private respondents Veneracion never took actual possession of the three lots; (2) Private respondents De la Paz remained in possession of the Melencio lot which was co-owned by them and where they resided; (3) During the period between the first sale and the second sale to private respondents Veneracion, they never made any effort to take possession of the properties; and (4) when the period of redemption had expired and private respondents Veneracion were informed by the De la Pazes that they are offering the lots for sale to another person for P200,000.00, they never objected. To the contrary, they offered to purchase the two lots for P180,000.00 when they found that a certain Mr. Tecson was prepared to purchase it for the same amount. Thus, it is clear from these circumstances that both private respondents never intended the first sale to be a contract of sale, but merely that of mortgage to secure a debt of P150,000.00. With regard to the second sale, which is the true contract of sale between the parties, it should be noted that this Court in several cases,35 has ruled that a purchaser who is aware of facts which should put a reasonable man upon his guard cannot turn a blind eye and later claim that he acted in good faith. Private respondent Reynaldo himself admitted during the pre-trial conference in the MTC in Civil Case No. 9523 (for ejectment) that petitioner was already in possession of the property in dispute at the time the second Deed of Sale was executed on June 1, 1983 and registered on March 4, 1984. He, therefore, knew that there were already occupants on the property as early as 1981. The fact that there are persons, other than the vendors, in actual possession of the disputed lot should have put private respondents on inquiry as to the nature of petitioner's right over the property. But he never talked to petitioner to verify the nature of his right. He merely relied on the assurance of private respondent Godofredo De la Paz, who was not even the owner of the lot in question, that he would take care of the matter. This does not meet the standard of good faith. 3. The appellate court's reliance on Arts. 1357 and 1358 of the Civil Code to determine private respondents Veneracion's lack of knowledge of petitioner's ownership of the disputed lot is erroneous. Art. 135736 and Art. 1358,37 in relation to Art. 1403(2)38 of the Civil Code, requires that the sale of real property must be in writing for it to be enforceable. It need not be notarized. If the sale has not been put in writing, either of the contracting parties can compel the other to observe such requirement.39 This is what petitioner did when he repeatedly demanded that a Deed of Absolute Sale be executed in his favor by private respondents De la Paz. There is nothing in the above provisions which require that a contract of sale of realty must be executed in a public document. In any event, it has been shown that private respondents Veneracion had knowledge of facts which would put them on inquiry as to the nature of petitioner's occupancy of the disputed lot. Second. Petitioner contends that the MTC in Civil Case No. 9523 (for ejectment) erred in denying petitioner's Motion for Execution of the Judgment, which the latter filed on June 6, 1989, two years after private respondents Veneracion filed a notice of appeal with the MTC on March 3, 1987 without paying the appellate docket fee. He avers that the trial court's denial of his motion is contrary to this Court's ruling in the cases of Republic v. Director of Lands,40 and Aranas v. Endona41 in which it was held that where the appellate docket fee is not paid in full within the reglementary period, the decision of the MTC becomes final and unappealable as the payment of docket fee is not only a mandatory but also a jurisdictional requirement. Petitioner's contention has no merit. The case of Republic v. Director of Lands deals with the requirement for appeals from the Courts of First Instance, the Social Security Commission, and the Court of Agrarian Relations to the Court of Appeals. The case of Aranas v. Endona, on the other hand, was decided under the 1964 Rules of Court and prior to the enactment of the Judiciary Reorganization Act of 1981 (B. P. Blg. 129) and the issuance

of its Interim Rules and Guidelines by this Court on January 11, 1983. Hence, these cases are not applicable to the matter at issue.1âwphi1.nêt On the other hand, in Santos v. Court of Appeals,42 it was held that although an appeal fee is required to be paid in case of an appeal taken from the municipal trial court to the regional trial court, it is not a prerequisite for the perfection of an appeal under §2043 and §2344 of the Interim Rules and Guidelines issued by this Court on January 11, 1983 implementing the Judiciary Reorganization Act of 1981 (B.P. Blg. 129). Under these sections, there are only two requirements for the perfection of an appeal, to wit: (a) the filing of a notice of appeal within the reglementary period; and (b) the expiration of the last day to appeal by any party. Even in the procedure for appeal to the regional trial courts,45 nothing is mentioned about the payment of appellate docket fees. Indeed, this Court has ruled that, in appealed cases, the failure to pay the appellate docket fee does not automatically result in the dismissal of the appeal, the dismissal being discretionary on the part of the appellate court.46 Thus, private respondents Veneracions' failure to pay the appellate docket fee is not fatal to their appeal. Third. Petitioner contends that the resolution of the Court of Appeals denying his motion for reconsideration was rendered in violation of the Constitution because it does not state the legal basis thereof. This contention is likewise without merit. Art. VIII, Sec. 14 of the Constitution provides that "No petition for review or motion for reconsideration of a decision of the court shall be refused due course or denied without stating the basis therefor." This requirement was fully complied with when the Court of Appeals, in denying. reconsideration of its decision, stated in its resolution that it found no reason to change its ruling because petitioner had not raised anything new.47 Thus, its resolution denying petitioner's motion for reconsideration states:

For resolution is the Motion for Reconsideration of Our Decision filed by the petitioners. Evidently, the motion poses nothing new. The points and arguments raised by the movants have been considered and passed upon in the Decision sought to be reconsidered. Thus, We find no reason to disturb the same. WHEREFORE, the motion is hereby DENIED. SO ORDERED.48

Attorney's. fees should be awarded as petitioner was compelled to litigate to protect his interest due to private respondents' act or omission.49 WHEREFORE, the decision of the Court of Appeals is REVERSED and a new one is RENDERED:

(1) declaring as null and void the deed of sale executed by private respondents Godofredo and Manuela De la Paz in favor of private respondents spouses Reynaldo and Susan Veneracion; (2) ordering private respondents Godofredo and Manuela De la Paz to execute a deed of absolute sale in favor of petitioner Rev. Fr. Dante Martinez; (3) ordering private respondents Godofredo and Manuela De la Paz to reimburse private respondents spouses Veneracion the amount the latter may have paid to the former; (4) ordering the Register of Deeds of Cabanatuan City to cancel TCT No. T-44612 and issue a new one in the name of petitioner Rev. Fr. Dante Martinez; and (5) ordering private respondents to pay petitioner jointly and severally the sum of P20,000.00 as attorney's fees and to pay the costs of the suit.

SO ORDERED.1âwphi1.nêt

MARLON DELIM, LEON DELIM, MANUEL DELIM alias “BONG,” NORBERTO DELIM and RONALD DELIM alias “BONG,” Accused, NORBERTO DELIM, Accused-Appellant.

G.R. No. 175942 Present: PUNO, C.J., Chairperson, SANDOVAL-GUTIERREZ, CORONA, AZCUNA, and GARCIA, JJ. Promulgated: September 13, 2007

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D E C I S I O N

GARCIA, J.: On appeal to this Court is the Decision[1] dated July 28, 2006 of the Court of Appeals (CA) in CA-G.R. CR.-HC No. 02001, finding herein accused-appellant Norberto Delim guilty beyond reasonable doubt of the crime of Homicide. The decision affirmed with modifications an earlier decision of the Regional Trial Court (RTC) of Urdaneta City, Pangasinan, Branch 46, in its Criminal Case No. U-10059 which found appellant guilty of the more serious offense of Murder and sentenced him to the supreme penalty of death.

On account of the penalty of death imposed by the trial court, the case was directly elevated to this Court for automatic review in G.R. No. 153543. However, pursuant to our decision in People v. Mateo[2] modifying the pertinent provisions of the Revised Rules on Criminal Procedure insofar as direct appeals from the RTC to the Supreme Court in cases where the penalty imposed is death, reclusion perpetua or life imprisonment, the case was transferred to the CA for “appropriate action and disposition” per this Court’s Resolution of January 17, 2006,[3] whereat it was docketed as CA-G.R. CR.-HC No. 02001. Following the CA’s affirmance, albeit with modifications, of the trial court’s decision, appellant is again with this Court via the present recourse pursuant to a Notice of Appeal[4]filed by him with the CA.

The Case

Marlon, Leon, Manuel @ “Bong,” Norberto and Ronald @ “Bong,” all surnamed Delim, were jointly indicted in the RTC of Urdaneta City, Pangasinan for the crime of Murder under an Information[5] which reads as follows:

That on or about January 23, 1999, in the evening at Brgy. Bila, Sison, Pangasinan and within the jurisdiction of this Honorable Court, the above-named accused armed with short firearms barged-in and entered the house of Modesto Delim and once inside with intent to kill, treachery, evident premeditation, conspiring with one another, did then and there, willfully, unlawfully and feloniously grab, hold, hogtie, gag with a piece of cloth, brought out and abduct Modesto Delim, accused Leon and Manuel Delim stayed in the house guarded and prevented the wife and son of Modesto Delim from helping the latter, thereafter with abuse of superior

strength stabbed and killed said Modesto Delim, to the damage and prejudice of his heirs. CONTRARY to Art. 248, Revised Penal Code, as amended by Republic Act No. 7659.

Since Marlon, Leon and Ronald were the only ones duly apprehended, said three

accused stood trial for the crime. On January 14, 2000, the trial court rendered judgment finding the three guilty beyond reasonable doubt of the crime of Murder and sentenced them to suffer the death penalty. On January 28, 2003, this Court, on automatic review, affirmed the decision of the trial court but with the modification that the three were only guilty of Homicide.[6] Marlon, Leon and Ronald are already serving their respective sentences at the New Bilibid Prisons, Muntinlupa City. The other accused, Manuel Delim, remained at-large up to the present, while herein accused-appellant Norberto Delim, then known as “Robert Delim,” was subsequently arrested by the police authorities.

Subsequent to his arrest, Robert was arraigned under the same information for

Murder. Assisted by counsel, he pleaded “Not guilty” to the charge. After a reinvestigation was conducted, the real name of Robert was found to be Norberto Delim. Accordingly, the Information was amended on July 10, 2001.[7] Thereafter, trial with respect to herein accused-appellant Norberto Delim ensued.

The Evidence

In the course of the proceedings, the prosecution proffered in evidence the

testimonies of Rita Manalo and Randy Manalo, the victim’s wife and son, respectively, and that of Dra. Ma. Fe Lagmay de Guzman, the Municipal Health Officer of Sison, Pangasinan, who conducted the autopsy on the body of the victim, plus the documents marked in the course of trial. For its part, the defense adduced in evidence the testimonies of appellant himself and those of his mother, Lucila Delim, and neighbors Emilio Lutan and Nora Ramos. In its Brief, the People, thru the Office of the Solicitor General, presents the prosecution's version of the incident, to wit:

On January 23, 1999, at around six-thirty in the evening, the victim, Modesto Delim, his wife Rita Manalo, son, Randy Manalo, and two young grandchildren, were about to take their supper in their house at Brgy. Bila, Sison, Pangasinan, when suddenly, appellant Norbert Delim, together with co-accused Marlon Delim and Ronald Delim, barged into their house carrying short firearms. While Modesto was seated at the dinner table, Marlon poked a gun at him, and then appellant and Ronald dragged him out of the house. Randy saw the group which abducted his father who was then taken to Brgy. Paldit, Sison, Pangasinan. Shortly, appellant’s co-accused Leon Delim and Manuel Delim, who were also armed with short firearms, appeared and guarded the front door of the house to prevent Rita and Randy from following the victim. Leon and Manuel left the house at around seven o’clock in the morning of the next day.

On January 27, 1999, four days after Modesto’s abduction, his lifeless and decomposing body with several stab wounds and a gunshot wound in the head was discovered in a grassy area at the housing project in Brgy. Paldit.[8] The testimony of Dra. Ma. Fe Lagmay de Guzman, given on August 16, 1999 during

the trial of the other three (3) accused (Marlon, Leon and Ronald), was adopted by the prosecution without objection from the appellant. Said witness’ testimony showed that the victim (1) suffered from five gunshot wounds, inflamed penis and scrotum and seven stab wounds; (2) died of multiple gunshot wounds; and (3) autopsy was conducted four days after the victim died.

In defense, herein appellant denied the charge against him and averred that on the date of the alleged commission of the crime, he was in Villa Paz, Naguilian, Isabela where his

family had transferred from Bila, Sison, Pangasinan in the year 1986. According to him, he worked at the farm on that day of January 23, 1999, and later in the afternoon of the same day, he, together with some companions, walked home and arrived at their house at eight o’clock in the evening. Though admitting that one of his co-accused, Marlon, is his brother, appellant denied any relation with the victim Modesto Delim despite their having the same surname. He completely denied knowing Modesto’s wife, Rita, and son, Randy. Lastly, appellant declared that since his family moved to Isabela in 1986, he had been to Pangasinan only once and that was in 1997. Lucila Delim, mother of appellant, corroborated her son’s testimony and added that the trip by buses from Sison, Pangasinan to Naguilian, Isabela is every 30 minutes. Nora Ramos and Emilio Lutan, appellant’s neighbors at Villa Paz, Naguilian, Isabela both attested to appellant’s presence thereat on January 23, 1999, the former having seen appellant at about ten o’clock in the evening of said day and at six o’clock the following morning, while the latter claiming to have been with the appellant at the farm the whole day of January 23, 1999.

The trial and appellate court’s decisions

In a decision[9] dated April 29, 2002, the trial court, basing its judgment purely on

circumstantial evidence and appreciating the qualifying circumstance of treachery, adjudged appellant guilty beyond reasonable doubt of murder and sentenced him to suffer the death penalty. Dispositively, the decision states:

WHEREFORE, JUDGMENT OF CONVICTION beyond reasonable doubt is hereby rendered against Norberto Delim the commission of Murder, a crime defined and penalized under Article 248 of the Revised Penal Code as amended by R.A. 7659 and the Court sentences him to suffer the penalty of DEATH, to be implemented in the manner as provided for by law; the Court likewise orders the accused to jointly and solidarily (with accused Ronald, Marlon and Leon all surnamed Delim), to pay civil indemnity of P50,000.00; to indemnify the heirs of Modesto Delim the sum of P75,000.00 as moral damages; and P25,000.00 as exemplary damages as stated in the decision of this Court against accused Ronald Delim, Marlon Delim and Leon Delim dated January 14, 2000. The Branch Clerk of Court is hereby ordered to transmit the entire records of this case to the Honorable Supreme Court and to prepare the mitimus fifteen (15) days from date of promulgation. The Jail Warden, Bureau of Jail Management and Penology, Urdaneta City, is hereby ordered to transmit the person of Norberto Delim to the New Bilibid Prisons, Muntinlupa City, fifteen (15) days from receipt of this decision. Let an Alias Warrant of Arrest be issued for the apprehension of accused Manuel Delim. In the meantime, let the case against him be ARCHIVED. SO ORDERED.

As earlier stated, when directly elevated to this Court for automatic review in view of

the penalty imposed, the case was transferred to the CA for appropriate action and disposition, whereat it was docketed as CA-G.R. CR.-HC No. 02001.

In its decision dated July 28, 2006, the CA partially granted the appeal as it ruled that

while appellant’s guilt was duly proved, nonetheless, it was only for the crime of homicide since the qualifying circumstance of treachery was not attendant at the time the victim was killed. We quote the fallo of the CA decision:

WHEREFORE, the Appeal is partially GRANTED. The assailed decision of the RTC, Br. 46 of Urdaneta City is hereby modified in that appellant Norberto Delim is found guilty of homicide as defined in and penalized by Article 249 of the Revised Penal Code and is meted the indeterminate penalty of 10 years and I day of prision mayor in its maximum period as minimum to 14 years, 8 months and 1 day of reclusion temporal in its medium period as maximum, there being no modifying circumstances in the commission of the crime.

Accused is ordered to pay the heirs of the victim in the amount of

P50,000.00 by way of civil indemnity, the amount of P50,000.00 by way of moral damages and the amount of P25,000.00 as exemplary damages.

SO ORDERED.[10]

The case is again with us in view of the Notice of Appeal interposed by appellant from

the CA decision.

In its Resolution[11] of February 26, 2007, the Court accepted the appeal and required the parties to file their respective supplemental briefs, if they so desire. In their respective Manifestations,[12] the parties waived the filing of supplemental briefs and instead merely adopted the Briefs[13] they have earlier respectively filed with this Court before the case was transferred to the CA.

In his Brief, appellant asks this Court to consider the following: (1) whether the

circumstantial evidence presented was sufficient for conviction; (2) whether conspiracy was sufficiently established; and (3) whether his guilt was proved beyond reasonable doubt.

The appeal must fail. Conviction in a criminal case does not entail absolute certainty; what is required only

is that degree of proof which, after an examination of the entire records of the case, produces in an unprejudiced mind moral certainty of the culpability of the accused.[14]

At the outset, we may well emphasize that direct evidence of the commission of a

crime is not the only basis on which a court draws its finding of guilt, because established facts that form a chain of circumstances can lead the mind intuitively or impel a conscious process of reasoning towards a conviction.[15]Indeed, rules on evidence and principles in jurisprudence sustain the conviction of an accused through circumstantial evidence, defined as that which “indirectly proves a fact in issue through an inference which the fact-finder draws from the evidence established.”[16] Resort thereto is essential when the lack of direct testimony would result in setting a felon free.[17] It is not a weaker form of evidence vis-a-vis direct evidence.[18] Cases have recognized that in its effect upon the courts, circumstantial evidence may surpass direct evidence in weight and probative force.[19]

Section 4, Rule 133 of the Rules of Court states that circumstantial evidence suffices

to convict if: (a) there is more than one circumstance; (b) the facts from which the inferences are derived have been proven; and (c) the combination of all the circumstances is such as to produce a conviction beyond reasonable doubt.Thus, to justify a conviction based on circumstantial evidence, the combination of circumstances must be interwoven in such a way as to leave no reasonable doubt as to the guilt of the accused. [20]

After a careful review of the records of this case, we find that, when viewed as a whole,

the circumstantial evidence proved by the prosecution points unerringly to the culpability of appellant Norberto Delim as one of the persons responsible for the killing of the victim, Modesto Delim. Indeed, the combination of the circumstances which comprised such evidence forms an unbroken chain that points to appellant as one of the perpetrators of the crime.

First, the forcible abduction of the victim from his house with the use of short firearms by the appellant together with Marlon Delim and Ronald Delim on January 23, 1999 at about eight o’clock in the evening. Second, right after the victim was taken out of the house, appellant’s two other co-accused, Manuel Delim and Leon Delim, armed with short firearms, guarded and prevented household members from getting out until the following morning of January 24, 1999. And third, four days after the abduction, the victim’s dead body was found with multiple gunshot wounds.

The circumstance of abduction was duly established by the testimony of the victim’s

son, Randy Manalo, to wit:

Q While taking your supper that time, do you recall if there was anything unusual that happened at that time?

A When we were about to eat three armed men entered our house.

Q Do you know these three armed men who entered your

house? A Yes, sir. Q Who are they, name them one by one? A Marlon Delim, Robert Delim and Ronald Delim.

xxx xxx xxx

Q xxx What kind of arm were they carrying at that time? A Short handgun, (sic) sir. Q When these three armed persons whom you have

mentioned, armed with short firearms, what did they do then when they entered your house?

A They took my father, sir. Q Who took your father? A Marlon Delim, Robert Delim, and Ronald Delim, sir.

xxx xxx xxx

Q How did they get your father? A They poked a gun and brought him outside the house, sir.[21]

Q What is the name of Norberto Delim, has he another name?

A The name that they called him in our place is Robert, madam. xxx xxx xxx Q His name given to the Honorable Court was Norberto and you said

Robert entered your house that evening. This Norberto and Robert is the same who entered that evening of your house on January 23, 1999?

A Yes, sir. Q How did these three (3) enter your house that evening of January 23,

1999? A They entered thru the door, sir. Q In other words, before they enter (sic) your house, your door was

already open, is that correct? A Yes sir.

Q When these three (3) including Robert Delim entered your

house, what happened next after that? A They forcibly took hold of my father and brought out, sir. Q You said your father was forcibly took (sic) how did they

forcibly take your father? A They took hold of him, pulled him outside the house, sir. Q Who pulled your father outside your House? A Marlon, Ronald, and Robert, sir.[22]

The second circumstance was likewise established by Randy’s testimony, viz: Q What did you do after that when these three (3) pulled your

father Modesto Delim outside your house? A When my father was pulled outside from the house, Leon

Delim and Manuel Delim were with arms, sir. Q What kind of arms were they holding? A Short firearms, sir.[23] Q After bringing your father out from your house, what

transpired next? A Manuel Delim and Leon Delim said “Stay in your house,”

and guarded us. xxx xxx xxx

Q When your father was pulled out from your house by these

three persons, what did you and your mother do while these three persons were taking out of your house?

A We did not do anything because Manuel and Leon Delim guarded us.

COURT

Where, in your house? A Yes, sir. xxx xxx xxx COURT Why do you know that they were guarding you? A Because they were at the door, sir?

Q What was their appearance that time when these two persons were guarding you, these Leon and Manuel?

A They were armed, sir. Q What do you mean by armed? A They have gun, sir. Q What kind of firearm? A Short firearm, sir.[24]

Notably, another witness, the victim’s wife, Rita Manalo, corroborated Randy’s afore-

quoted testimony.[25]

As for the victim dying of multiple gunshot wounds which were all fatal, the Autopsy Report[26] and the testimony of the municipal health officer[27] who conducted the autopsy duly proved such circumstance.

In light of the aforementioned evidence, the collapse of appellant’s defenses, i.e.,

denial and alibi, is inevitable. More so, in the face of the categorical and positive identification of appellant by the two (2) prosecution witnesses, both of whom saw appellant up close, as one of the three (3) malefactors who forcibly abducted and dragged the victim out of the house on that fateful night of January 23, 1999. For sure, alibi cannot be given greater evidentiary value than the testimonies of credible witnesses who testify on affirmative matters.[28] Positive identification destroys the defense of alibi and renders it impotent, especially where such identification is credible and categorical.[29]

Besides, basic is the rule that for alibi to prosper, the accused must prove that he was somewhere else when the crime was committed and that it was physically impossible for him to have been at the scene of the crime.[30] Physical impossibility refers to the distance between the place where the appellant was when the crime transpired and the place where it was committed, as well as the facility of access between the two places.[31]

Here, appellant argues that he was nowhere near the crime scene on the night

of January 23, 1999. But even assuming that the distance between Naguilian, Isabela where appellant allegedly was, and Sison, Pangasinan where the crime took place, can be negotiated in eight (8) hours as asserted by the appellant, still, it was not physically impossible for him to be at the locus criminis at the time of the killing, for, as admitted by his mother, Lucila Delim, the bus trips to and from said places are every thirty (30) minutes.

Notwithstanding the foregoing established facts, appellant insists on his innocence,

claiming that conspiracy was not established by clear and convincing evidence. Conspiracy exists when two or more persons come to an agreement concerning the

commission of a crime and decide to commit it.[32] It may be proved by direct or circumstantial evidence consisting of acts, words, or conduct of the alleged conspirators before, during and after the commission of the felony to achieve a common design or purpose.[33] Hence, common design is the essence of conspiracy.

Here, as found by the trial and appellate courts, appellant acted in concert with his

other co-accused Marlon, Ronald, Manuel and Leon to achieve a common criminal design. Indeed, conspiracy among said accused could easily be deduced from their presence and actual participation in the commission of the crime. As aptly stated by the trial court:

In this case, while there was no previous agreement between accused

Norberto Delim and all other accused to kill the victim, the simultaneous acts of accused Marlon, Ronald and Norberto Delim in forcibly taking hold and bringing out the victim from his house and the use of Manuel and Leon Delim as guards to watch the wife and son and other members of the household showed unity of purpose. The concerted action of all the afore-named accused against the victim, Modesto Delim, made them co-principals by direct participation, and therefore conspiracy is proved.[34]

In any event, this Court, in People v. Delim,[35] already ruled as to the existence of conspiracy among appellant’s co-accused, Marlon, Ronald and Leon, all surnamed Delim. We held therein:

In the case at bar, Marlon, Ronald and Leon arrived together in the house

of Modesto, each armed with a handgun. Marlon and Ronald barged into said house while Leonstood guard by the door thereof. After Marlon and Ronald had left with Modesto in tow, Leon stood by the door and warned Randy and Rita not to leave the house. Leon stood guard by the door of the house until 7:00 a.m. of January 24, 1999 when he left the house. The overt acts of all the malefactors were so synchronized and executed with precision evincing a preconceived plan or design of

all the malefactors to achieve a common purpose, namely the killing of Modesto. Irrefragably, the tasks assigned to Leon in the commission of the crime were (a) to act as a lookout; (b) to ensure that Rita and Randy remain in their house to prevent them from seeking assistance from police authorities and their relatives before their mission to kill Modesto shall have been a fait accompli as well as the escape of Marlon and Roland. Patently, Leon, a lookout for the group, is guilty of the killing of Modesto. Leonmay not have been at the situs criminis when Modesto was killed by Marlon and Roland nevertheless he is a principal by direct participation. If part of a crime has been committed in one place and part in another, each person concerned in the commission of either part is liable as principal. No matter how wide may be the separation of the conspirators, if they are all engaged in a common plan for the execution of a felony and all take their part in furtherance of the common design, all are liable as principals. Actual presence is not necessary if there is a direct connection between the actor and the crime.

`

Conspiracy having been established, the act of one, therefore, is the act of all and everyone of the conspirators, appellant included, is guilty with the others in equal degree.

The sufficiency of the circumstantial evidence having been established and the

existence of conspiracy duly proved, appellant’s exact criminal responsibility must now be determined.

Pertinently, as defined by Article 248 of the Revised Penal Code, the crime of

Murder is committed by a person who kills another with treachery. Treachery exists when the offender commits a crime against persons, employing means, methods or forms in the execution thereof which tend directly and specifically to ensure its execution, without risk to himself arising from any defense or retaliatory act which the victim might make.[36]

Under the facts of this case, no one actually saw how the killing was

perpetrated. No evidence, whether direct or circumstantial, was presented to establish that there had been the qualifying circumstance of treachery in the commission of the crime. Indeed, a review of the trial court’s decision reveals that the trial judge discussed the presence of treachery during the abduction of the victim but was silent as to its presence at the time of the killing. Ergo, treachery, which must be proven positively, cannot be appreciated in this case so as to elevate the killing to murder.

We, thus, concur with the following observations of the CA:

We subscribe to appellee’s stand that appellant should be convicted and sentenced only for the crime of homicide and not murder since the qualifying circumstance of treachery was not proved. The circumstance allegedly pointed out as implying treachery had reference to victim Modesto Delim’s forcible abduction by Marlon, Ronald and by appellant Norberto Delim and not when he was killed. For treachery to be correctly appreciated, the following elements must be shown: (1) that the means of execution employed prevented the victim from defending himself or retaliating and (2) it was deliberately and consciously adopted.

In the case at bar, there was no evidence showing that victim Modesto

Delim was defenseless before and at the time he was killed. The fact of dragging and forcibly abducting the victim cannot imply that he was killed with treachery.[37] Furthermore, in the aforesaid case of People v. Delim,[38] this Court made the

following ratiocination:

xxx Although the victim may have been defenseless at the time he was seized but there is no evidence as to the particulars of how he was assaulted and killed, treachery cannot be appreciated against the accused. In this case, the victim was defenseless when seized by Marlon and Ronald. However, the prosecution

failed to present any witness or conclusive evidence that Modesto was defenseless immediately before and when he was attacked and killed. It cannot be presumed that although he was defenseless when he was seized, the victim was in the same situation when he was attacked, shot and stabbed by the malefactors. xxx

The qualifying circumstance of treachery not having been appreciated then against appellant’s co-accused Marlon, Ronald and Leon Delim, said circumstance cannot now be appreciated against appellant. Verily, absent any qualifying circumstance, appellant can be convicted only of homicide defined and penalized by Article 249 of the Revised Penal Code.[39]

In sum, we find appellant’s guilt for the crime of homicide to have been proven

beyond reasonable doubt. Thus, the CA correctly meted on appellant the indeterminate penalty of 10 years and 1

day of prision mayor in its maximum period as minimum to 14 years, 8 months and 1 day of reclusion temporal in its medium period as maximum, there being no modifying circumstance in the commission of the crime. Likewise proper are the awards of civil indemnity and moral damages in the amount of P50,000.00 each, as well as exemplary damages in the amount of P25,000.00.

WHEREFORE, the appealed decision of the Court of Appeals in CA-G.R. CR.-HC No. 02001 is hereby AFFIRMED in all respects.

No costs. SO ORDERED.

 

SPOUSES AMANCIO and LUISA SARMIENTO and PEDRO OGSINER, P e t i t i o n e r s, - versus - THE HON. COURT OF APPEALS (Special Former Fifth Division), RODEANNA REALTY CORPORATION, THE HEIRS OF CARLOS MORAN SISON, PROVINCIAL SHERIFF OF PASIG, M.M., MUNICIPAL (CITY) TREASURER OF MARIKINA, JOSE F. PUZON, THE HON. EFICIO ACOSTA, REGIONAL TRIAL COURT OF PASIG CITY, BRANCH 155 and REGISTER OF DEEDS OF MARIKINA (CITY), RIZAL, R e s p o n d e n t s.

G.R. No. 152627 Present: PUNO, Chairman, AUSTRIA-MARTINEZ, CALLEJO, SR., TINGA and CHICO-NAZARIO, JJ. Promulgated: September 16, 2005

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D E C I S I O N

CHICO-NAZARIO, J.: In a case for recovery of possession based on ownership (accion reivindicatoria), is the

defendant’s third-party complaint for cancellation of plaintiff’s title a collateral attack on such title?

This is the primary issue that requires resolution in this petition for review on certiorari of the Decision[1] of the Court of Appeals dated 27 November 2001 and its Resolution[2] dated 08 March 2002 affirming the Decision of the Regional Trial Court (RTC) of Pasig, Branch 162, in Civil Case No. 54151, finding for then plaintiff (private respondent herein) Rodeanna Realty Corporation (RRC).

The relevant antecedents of this case have been summarized by the Court of Appeals as

follows:

The subject of the present controversy is a parcel of land situated in Marikina covered by Transfer Certificate of Title No. N-119631 and registered in the name of the plaintiff-appellee RODEANNA REALTY CORPORATION.

The aforementioned land was previously owned by the Sarmiento spouses

by virtue of a deed of absolute sale executed on July 17, 1972 and as evidenced by a Transfer Certificate of Title No. 3700807. Upon acquisition of the land, the Sarmiento spouses appointed PEDRO OGSINER as their overseer.

On August 15, 1972, the subject land was mortgaged by the Sarmiento

spouses to Carlos Moran Sison (Mr. Sison) as a security for a sixty-five thousand three hundred seventy pesos and 25/100 loan obtained by the Sarmiento spouses from Mr. Sison.

Upon failure of the Sarmiento spouses to pay the loan, Mr. Sison initiated

the extra-judicial foreclosure sale of the mortgaged property, and on October 20, 1977, the said property was foreclosed through the Office of the Sheriff of Rizal, which accordingly, issued a certificate of sale in favor of Mr. Sison, and which Mr. Sison caused to be annotated on the title of Sarmiento spouses on January 31, 1978.

On August 25, 1982, JOSE PUZON (Mr. Puzon) purchased the same

property in an auction sale conducted by the Municipal Treasurer of Marikina for non-payment of taxes. After paying P3,400.00, he was issued a certificate of sale and caused it to be registered in the Registry of Deeds of Marikina. No redemption having been made by the Sarmiento spouses, a final bill of sale was issued in his (Mr. Puzon) favor. Thereafter, Mr. Puzon filed a petition for consolidation of ownership and issuance of new title over the subject property before the Regional Trial Court of Pasig, Branch 155. The said petition, which was docketed as LRC Case No. T-3367, was granted by the court in its Order dated August 03, 1984. Thereafter, Transfer Certificate of Title No. 102902 was issued in the name of Jose Puzon.

On August 16, 1986, Mr. Puzon sold the property in question to herein

plaintiff-appellee. By virtue of such sale, a transfer certificate of title over the subject property was issued in favor of the plaintiff-appellee. Records show that Mr. Puzon assured the plaintiff-appellee that he (Jose Puzon) will take care of the squatters in the subject property by filing an ejectment case against them. However, Mr. Puzon failed to comply with his promise.

On December 19, 1986, plaintiff-appellee filed a complaint for recovery of

possession with damages against the Sarmiento spouses and Pedro Ogsiner, the Sarmiento spouses’ caretaker of the subject property who refused to vacate the premises. In its complaint, plaintiff-appellee alleged that the Sarmiento spouses lost all the rights over the property in question when a certificate of sale was executed in favor of Mr. Sison for their failure to pay the mortgage loan.

On January 30, 1987, the Sarmiento spouses filed a motion for leave to file

a third-party complaint against Mr. Sison, the Provincial Sheriff of Pasig, Mr. Puzon, the Judge of Regional Trial Court of Branch 155 in LRC Case No. R-3367 and the Register of Deeds of Marikina. On the same date the Sarmiento spouses filed their answer to the complaint. Expectedly, plaintiff-appellee opposed the motion.

In its order dated June 16, 1987, the trial court denied the motion of the Sarmiento spouses. Records show that the said order of the trial court was set aside in a petition for certiorari filed before this Court. Hence, the third-party complaint was admitted. Consequently, Mr. Sison, the Register of Deeds of Marikina filed their answer, while Mr. Puzon filed a motion to dismiss the third-party complaint on the grounds of misjoinder of causes of action and non-jurisdiction of the trial court over said third-party complaint. In a motion to set for hearing its special and affirmative defenses, the Register of Deeds of Marikina moved for the dismissal of the third-party complaint against them. The motion of Mr. Puzon was held in abeyance by the trial court ratiocinating that the issues raised in the motion still do not appear to be indubitable.

On October 20, 1988, Mr. Puzon filed his answer. In its order dated February 22, 1989, the trial court dismissed the third-party

complaint against the Register of Deeds of Marikina on the ground that the case may proceed even without the Register of Deeds being impleaded.

On April 29, 1991, the trial court issued its assailed decision in favor of the

plaintiff-appellee. A timely appeal was filed by the Sarmiento spouses. In their manifestation filed on July 17, 1989, the Heirs of Mr. Sison prayed for substitution for their late father. Consequently, the Heirs of Mr. Sison moved for new trial or reconsideration on the ground that they were not properly represented in the case after the death of Mr. Sison. In its order dated November 28, 1991, the trial court granted the motion.

On February 4, 1993, the trial court dismissed the claim of Mr. Sison as

represented by his heirs, that he is the beneficial owner of the subject property. In its order dated May 18, 1993, the court a quo denied the motion for reconsideration of the Heirs of Mr. Sison.[3]

The dispositive portion of the trial court ruling dated 29 April 1991 reads as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff against all defendants:

1) ordering defendant Pedro Ogsiner and all

persons claiming rights under him to vacate the premises and surrender peaceful possession to the plaintiff within fifteen (15) days from receipt of this order;

2) ordering defendant spouses Sarmiento to pay the sum of P20,000.00 as and for attorney’s fees;

3) ordering the defendants jointly and severally to

pay the sum of P300.00 a month as reasonable compensation for the use of the property in question starting June, 1986 until such time that they actually surrendered the possession of the property to the plaintiff;

4) ordering defendant spouses Sarmiento to pay the

cost of this suit.

Defendant’s third-party complaint against all third-party defendants is hereby dismissed for lack of sufficient merit.[4]

On appeal by herein petitioners Amancio and Luisa Sarmiento (Sarmiento spouses) and by the heirs of Carlos Moran Sison, the Court of Appeals rendered the assailed Decision, dated 27 November 2001, the dispositive portion of which reads:

WHEREFORE, for lack of merit, the instant appeal is hereby DISMISSED.

The assailed April 29, 1991 Decision of the Regional Trial Court of Pasig, Metro Manila is hereby AFFIRMED with the modification that the award of P 20,000.00 as attorney’s fees is hereby DELETED. The February 03, 1993 Resolution and the May 18, 1993 Order of the trial court are also hereby AFFIRMED.[5]

On 08 March 2002, the Court of Appeals rendered the assailed Resolution denying petitioners’ motion for reconsideration.

The Sarmiento spouses anchor their petition on the following legal arguments:

1) The ruling of the Court of Appeals that private respondent RRC’s certificate of title cannot be collaterally attacked and that their right to claim ownership over the subject property is beyond the province of the action for recovery of possession is contrary to law and applicable decisions of the Supreme Court;

2) The ruling of the Court of Appeals that private respondent RRC is entitled to ownership of subject property simply by virtue of its title as evidenced by Transfer Certificate of Title (TCT) No. N-119631 is contrary to law and jurisprudence and is not supported by evidence; and

3) The affirmation by the Court of Appeals of the award of rentals to private respondent RRC lacks factual and legal basis.

First Issue: The Court of Appeals, in holding that the third-party complaint of the Sarmiento spouses amounted to a collateral attack on TCT No. N-119631, ratiocinated as follows:

In resolving the errors/issues assigned by the herein parties, We should be guided by the nature of action filed by the plaintiff-appellee before the lower court, and as previously shown it is an action for the recovery of possession of the property in question with damages. Thus, from the said nature of action, this Court believes that the focal point of the case is whether or not the plaintiff-appellee has a better right to possess the contested real property. Corollary, it must also be answered whether or not the Transfer Certificate of Title No. N-119631 can be collaterally attacked in an action for recovery of possession.

. . .

In their assigned errors, the Sarmiento spouses alleged that the plaintiff-appellee is not a purchaser in good faith, as they were chargeable with the knowledge of occupancy by Pedro Ogsiner in behalf of the Sarmiento spouses, and that the auction sale of the property in favor of Mr. Puzon is null and void for its failure to comply with the requirement of notice provided by the law. The same have been argued by the Heirs of Mr. Sison. The above assertions, We rule, amounts to a collateral attack on the certificate of title of the plaintiff-appellee. A collateral attack is made when, in another action to obtain a different relief, an attack on the judgment is made as an incident in said action. This is proper only when the judgment on its face is null and void, as where it is patent that the court, which rendered said judgment has no jurisdiction. On the other hand, a direct attack against a judgment is made through an action or proceeding the main object of which is to annul, set aside, or enjoin the enforcement of such judgment, if not carried into effect, or if the property has been disposed of, the aggrieved party may sue for recovery.

In the present case, to rule for the nullity of the auction sale in favor of Mr. Puzon will result in ruling for the nullity of the order of Branch 155 of theRegional Trial Court of Pasig City, granting the petition for consolidation of ownership over the subject property filed by Mr. Puzon. It will also result in the nullity of title issued in the name of Mr. Puzon. Hence, the end objective in raising the aforementioned arguments is to nullify the title in the name of the plaintiff-appellee. In fact, a reading of the answer of the Sarmiento spouses and the Heirs of Mr. Sison reveals that they are asking the court to nullify all documents and proceedings which led to the issuance of title in favor of the plaintiff-appellee. This is obviously a collateral attack which is not allowed under the principle of indefeasibility of torrens title. The issue of validity of plaintiff-appellee’s title can only be raised in an action expressly instituted for that purpose. A certificate of title shall not be subject to collateral attack. It cannot be altered, modified, or canceled except in a direct proceeding in accordance with law. Case law on the matter shows that the said doctrine applies not only with respect to the original certificate of title but also to transfer certificate of title. Hence, whether or not the plaintiff-appellee has a right to claim ownership over the subject property is beyond the province of the present action. It does not matter whether the plaintiff-appellee’s title is questionable because this is only a suit for recovery of possession. It should be raised in a proper action for annulment of questioned documents and proceedings, considering that it will not be procedurally unsound for the affected parties to seek for such remedy. In an action to recover possession of real property, attacking a transfer certificate of title covering the subject property is an improper procedure. The rule is well-settled that a torrens title as a rule, is irrevocable and indefeasible, and the duty of the court is to see to it that this title is maintained and respected unless challenged in a direct proceeding.[6] (Emphasis and underscoring supplied)

An action is deemed an attack on a title when the object of the action or proceeding is to nullify the title, and thus challenge the judgment pursuant to which the title was decreed.[7] The attack is direct when the object of the action is to annul or set aside such judgment, or enjoin its enforcement.[8] On the other hand, the attack is indirect or collateral when, in an action to obtain a different relief, an attack on the judgment is nevertheless made as an incident thereof.[9]

In its analysis of the controversy, the Court of Appeals, alas, missed one very crucial detail

which would have turned the tide in favor of the Sarmiento spouses. What the Court of Appeals failed to consider is that Civil Case No. 54151 does not merely consist of the case for recovery of possession of property (filed by RRC against the Sarmiento spouses) but embraces as well the third-party complaint filed by the Sarmiento spouses against Carlos Moran Sison, Jose F. Puzon (Mr. Puzon), the Provincial Sherriff of Pasig, Metro Manila, the Municipal Treasurer of Marikina, Rizal, the Judge of the RTC, Branch 155, in LRC Case No. R-3367 and the Register of Deeds of the then Municipality of Marikina, Province of Rizal.

The rule on third-party complaints is found in Section 22, Rule 6 of the 1997 Rules of Court,

which reads:

Sec. 22. Third, (fourth, etc.)–party complaint. – A third (fourth, etc.)-party complaint is a claim that a defending party may, with leave of court, file against a person not a party to the action, called the third-party defendant, for contribution, indemnity, subrogation or any other relief, in respect of his opponent’s claim.

A third-party complaint is in the nature of an original complaint. This is so because it is “actually independent of and separate and distinct from the plaintiff’s complaint.”[10] In herein case, after leave of court was secured[11] to file a third-party complaint, the third-party complainants

(Sarmiento spouses) had to pay the necessary docket fees.[12] Summonses were then issued on the third-party defendants[13] who answered in due time.[14]

In Firestone Tire and Rubber Company of the Philippines v. Tempongko,[15] we had occasion to expound on the nature of a third-party complaint, thus:

The third-party complaint, is therefore, a procedural device whereby a “third

party” who is neither a party nor privy to the act or deed complained of by the plaintiff, may be brought into the case with leave of court, by the defendant, who acts as third-party plaintiff to enforce against such third-party defendant a right for contribution, indemnity, subrogation or any other relief, in respect of the plaintiff’s claim. The third-party complaint is actually independent of and separate and distinct from the plaintiff’s complaint. Were it not for this provision of the Rules of Court, it would have to be filed independently and separately from the original complaint by the defendant against the third-party. But the Rules permit defendant to bring in a third-party defendant or so to speak, to litigate his separate cause of action in respect of plaintiff’s claim against a third party in the original and principal case with the object of avoiding circuity of action and unnecessary proliferation of lawsuits and of disposing expeditiously in one litigation the entire subject matter arising from one particular set of facts. . . When leave to file the third-party complaint is properly granted, the Court renders in effect two judgments in the same case, one on the plaintiff’s complaint and the other on the third-party complaint. (Emphasis supplied)

Prescinding from the foregoing, the appellate court grievously erred in failing to appreciate the legal ramifications of the third-party complaint vis-à-vis the original complaint for recovery of possession of property. The third-party complaint for cancellation of TCT being in the nature of an original complaint for cancellation of TCT, it therefore constitutes a direct attack of such TCT.

The situation at bar can be likened to a case for recovery of possession wherein the defendant

files a counterclaim against the plaintiff attacking the validity of the latter’s title. Like a third-party complaint, a counterclaim is considered an original complaint, as such, the attack on the title in a case originally for recovery of possession cannot be considered as a collateral attack. We thus held in Development Bank of the Philippines (DBP) v. Court of Appeals:[16]

Nor is there any obstacle to the determination of the validity of TCT No.

10101. It is true that the indefeasibility of torrens titles cannot be collaterally attacked. In the instant case, the original complaint is for recovery of possession filed by petitioner against private respondent, not an original action filed by the latter to question the validity of TCT No. 10101 on which the petitioner bases its right. To rule on the issue of validity in a case for recovery of possession is tantamount to a collateral attack. However, it should not be overlooked that private respondent filed a counterclaim against petitioner, claiming ownership over the land and seeking damages. Hence, we could rule in the question of the validity of TCT No. 10101 for the counterclaim can be considered a direct attack on the same. “A counterclaim is considered a complaint, only this time, it is the original defendant who becomes plaintiff … It stands on the same footing and is to be tested by the same rules as if it were an independent action.”

There being a direct attack on the TCT which was unfortunately ignored by the appellate court, it behooves this Court to deal with and to dispose of the said issue more so because all the facts and evidence necessary for a complete determination of the controversy are already before us. Again, DBP instructs:

. . . In an analogous case, we ruled on the validity of a certificate of title

despite the fact that the original action instituted before the lower court was a case for

recovery of possession. The Court reasoned that since all the facts of the case are before it, to direct the party to institute cancellation proceedings would be needlessly circuitous and would unnecessarily delay the termination of the controversy which has already dragged on for 20 years.[17]

Second Issue:

In their third-party complaint, as amended, the Sarmiento spouses asserted six causes of action. The second[18] to sixth causes of action referred to the proceedings leading to and resulting from the tax sale held on 28 August 1982, summarized by the trial court as follows:

. . . Third Party Plaintiffs alleged that on August 28, 1982, the Municipal

Treasurer of Marikina sold at public auction, the same property in favor of Jose F. Puzon for tax deficiency at the price of Three Thousand Three Hundred Eighty Four Pesos and 89/100 (P 3,383.89) which is very low considering that the area of the property is 1,060 square meters; that they were not notified of the public auction sale and further, the requirements, such as posting of notices in public places, among other requirements, were not complied with; that since the property was sold at a very low price, the public auction sale and the Certificate of Sale issued by Municipal Treasurer of Marikina in favor of third party defendant Jose F. Puzon are null and void; that in August 1984, the third party defendant in order to consolidate his ownership and title to the property filed a Petition with the Land Registration Commission in the Regional Trial Court, Branch 155, Pasig, Metro Manila in LRC Case No. R-3367, for consolidation of his ownership and title; that third party plaintiffs were not notified thereof and did not have their day in Court; hence, the order of the Judge of the Regional trial Court in LRC Case No. R-3367 authorizing the consolidation of the ownership and title of Jose F. Puzon is null and void, that Jose F. Puzon after having been issued a new title in his name sold in June 1986, the property in favor of plaintiff RODEANNA REALTY CORPORATION.[19]

The Sarmiento spouses thus prayed that: (a) the certificate of sale executed by the Municipal Treasurer of the then Municipality of Marikina, Rizal, in favor of Mr. Puzon be declared null and void and all subsequent transactions therefrom declared null and void as well; (b) the Order of the RTC in LRC Case No. R-3367, authorizing the consolidation of ownership of and issuance of new TCT No. 102909 in favor of Mr. Puzon, be declared null and void; (c) the Register of Deeds be directed to cancel the Certificate of Sale and TCT No. 102909 issued in favor of Mr. Puzon as well as TCT No. N-119631 issued in the name of RRC and that TCT No. 370807 in the name of the Sarmiento spouses be restored; (d) all third-party defendants be made to pay, jointly and severally, moral and exemplary damages such amount as to be fixed by the court as well as attorney’s fees in the amount of P10,000.00; and (e) Mr. Puzon be made to payP500,000.00 – the actual value of the property at the time of the tax sale – in the remote event that the title of RRC is not invalidated.

The trial court held that the Sarmiento spouses were not entitled to the relief sought by them as there was nothing irregular in the way the tax sale was effected, thus:

Defendants Sarmiento aver that they were not notified of the auction sale of the property by the Municipal Treasurer of Marikina. However, the Court would like to point out that during the examination of Amancio Sarmiento, he testified that in 1969 or 1970, he started residing at No. 13 19th Avenue, Cubao, Quezon City; that his property was titled in 1972; that he transferred his residence from Cubao to No. 76 Malumanay Street, Quezon City but he did not inform the Municipal Treasurer of the said transfer. Hence, notice was directed to his last known address.

. . .

The law requires posting of notice and publication. Personal notice to the delinquent taxpayer is not required. In the case at bar, notice was sent to defendants (sic) address at No. 12 13th Avenue, Cubao Quezon City. If said notice did not reach the defendant, it is because of defendants’ fault in not notifying the Municipal Treasurer of Marikina of their change of address.[20]

The above-quoted ratiocination does not sit well with this Court for two fundamental reasons. First, the trial court erroneously declared that personal notice to the delinquent taxpayer is not required. On the contrary, personal notice to the delinquent taxpayer is required as a prerequisite to a valid tax sale under the Real Property Tax Code,[21] the law then prevailing at the time of the tax sale on 28 August 1982.[22]

Section 73 of the Real Property Tax Code provides:

Sec. 73. Advertisement of sale of real property at public auction. – After the expiration of the year for which the tax is due, the provincial or city treasurer shall advertise the sale at public auction of the entire delinquent real property, except real property mentioned in subsection (a) of Section forty hereof, to satisfy all the taxes and penalties due and the costs of sale. Such advertisement shall be made by posting a notice for three consecutive weeks at the main entrance of the provincial building and of all municipal buildings in the province, or at the main entrance of the city or municipal hall in the case of cities, and in a public and conspicuous place in barrio or district wherein the property is situated, in English, Spanish and the local dialect commonly used, and by announcement at least three market days at the market by crier, and, in the discretion of the provincial or city treasurer, by publication once a week for three consecutive weeks in a newspaper of general circulation published in the province or city.

The notice, publication, and announcement by crier shall state the amount of

the taxes, penalties and costs of sale; the date, hour, and place of sale, the name of the taxpayer against whom the tax was assessed; and the kind or nature of property and, if land, its approximate areas, lot number, and location stating the street and block number, district or barrio, municipality and the province or city where the property to be sold is situated.

Copy of the notice shall forthwith be sent either by registered mail or

by messenger, or through the barrio captain, to the delinquent taxpayer, at his address as shown in the tax rolls or property tax record cards of the municipality or city where the property is located, or at his residence, if known to said treasurer or barrio captain: Provided, however, That a return of the proof of service under oath shall be filed by the person making the service with the provincial or city treasurer concerned. (Emphasis supplied)

We cannot overemphasize that strict adherence to the statutes governing tax sales is imperative not only for the protection of the taxpayers, but also to allay any possible suspicion of collusion between the buyer and the public officials called upon to enforce the laws.[23] Notice of sale to the delinquent land owners and to the public in general is an essential and indispensable requirement of law, the non-fulfillment of which vitiates the sale.[24] Thus, the holding of a tax sale despite the absence of the requisite notice is tantamount to a violation of delinquent taxpayer’s substantial right to due process. [25] Administrative proceedings for the sale of private lands for nonpayment of taxes being in personam, it is essential that there be actual notice to the delinquent taxpayer, otherwise the sale is null and void although preceded by proper advertisement or publication.[26] The consequential issue in this case, therefore, is whether or not the registered owners – the Sarmiento spouses – were personally notified that a tax sale was to be conducted on 28 August 1982.

The Sarmiento spouses insist that they were not notified of the tax sale. The trial court found otherwise, as it declared that a notice was sent to the spouses’ last known address. Such conclusion constitutes the second fundamental error in the trial court’s disposition of the case as such conclusion is totally bereft of factual basis. When findings of fact are conclusions without citation of specific evidence upon which they are based, this Court is justified in reviewing such finding.[27]

In herein case, the evidence does not support the conclusion that notice of the tax sale was

sent to the Sarmiento spouses’ last known address. What is clear from the evidence is that the Sarmiento spouses were notified by mail after the subject property was already sold, i.e., the notice that was sent to the last known address was the “Notice of Sold Properties” and not the notice to hold a tax sale.[28] This was testified upon by third-party defendant Natividad M. Cabalquinto, the Municipal Treasurer of Marikina, who swore that per her records, neither notice of tax delinquency nor notice of tax sale was sent to the Sarmiento spouses.[29] Counsel for respondent RRC did not cross-examine Ms. Cabalquinto on this on the theory that Ms. Cabalquinto had no personal knowledge of the tax sale and the proceedings leading thereto as she became Municipal Treasurer only in 1989.[30]

Notwithstanding Ms. Cabalquinto’s lack of personal knowledge, her testimony -- that per

records in her possession no notice was actually sent to the Sarmiento spouses -- is sufficient proof of the lack of such notice in the absence of contrary proof coming from the purchaser in the tax sale, Mr. Puzon, and from his eventual buyer, herein private respondent RRC. Be it noted that under Section 73 of the Real Property Tax Code, it is required that a return of the proof of service to the registered owner be made under oath and filed by the person making the service with the provincial or city treasurer concerned. This implies that as far as tax sales are concerned, there can be no presumption of the regularity of any administrative action; hence the registered owner/delinquent taxpayer does not have the burden of proof to show that, indeed, he was not personally notified of the sale thru registered mail.

There can be no presumption of the regularity of any administrative action which results in

depriving a taxpayer of his property through a tax sale.[31] This is an exception to the rule that administrative proceedings are presumed to be regular.[32] This doctrine can be traced to the 1908 case of Valencia v. Jimenez and Fuster[33] where this Court held:

The American law does not create a presumption of the regularity of any

administrative action which results in depriving a citizen or taxpayer of his property, but, on the contrary, the due process of law to be followed in tax proceedings must be established by proof and the general rule is that the purchaser of a tax title is bound to take upon himself the burden of showing the regularity of all proceedings leading up to the sale. The difficulty of supplying such proof has frequently lead to efforts on the part of legislatures to avoid it by providing by statute that a tax deed shall be deemed either conclusive or presumptive proof of such regularity.

Those statutes attributing to it a conclusive effect have been held invalid as

operating to deprive the owner of his property without due process of law. But those creating a presumption only have been sustained as affecting a rule of evidence, changing nothing but the burden of proof. (Turpin v. Lemon, 187 U.S., 51.)

The tax law applicable to Manila does not attempt to give any special

probative effect to the deed of the assessor and collector, and therefore leaves the purchaser to establish the regularity of all vital steps in the assessment and sale.

In the fairly recent case of Requiron v. Sinaban,[34] we had occasion to reiterate the doctrine laid down in Valencia with respect specifically to tax sales conducted under Commonwealth Act No. 470 (Assessment Law). Nevertheless, no substantial variance exists between Commonwealth Act No. 470 and the Real Property Tax Code, which took effect on 01 June 1974, concerning the required procedure in the conduct of public auction sale involving real properties with tax delinquencies.[35]

In sum, for failure of the purchaser in the tax sale (third-party defendant Mr. Puzon) to prove

that notice of the tax sale was sent to the Sarmiento spouses, such sale is null and void.

As the tax sale was null and void, the title of the buyer therein (Mr. Puzon) was also null and

void, which thus leads us to the question of who between petitioners and private respondent RRC has the right to possess the subject property.

In its complaint for recovery of possession with damages filed before the trial court, RRC averred that it is the present registered owner of the subject land which it bought from Mr. Puzon, who was then the registered owner thereof, free from liens and encumbrances. It also stated that therein defendant Pedro Ogsiner was an illegal occupant as he was the overseer for the Sarmiento spouses who no longer had any title to or rights over the property. It thus prayed that Pedro Ogsiner vacate the property and that he and the Sarmiento spouses be ordered to pay attorney’s fees and rent in the amount of P500.00 monthly from 1984 until Pedro Ogsiner finally vacates the land.[36]

In their Answer,[37] the Sarmiento spouses invoked certain affirmative defenses, to wit:

(1) The certificate of sale issued by the Municipal Treasurer of Marikina, Rizal, the order authorizing consolidation of ownership and the issuance of a new title all in favor of Mr. Puzon were null and void as the Sarmiento spouses and Pedro Ogsiner were not notified of the tax sale; (2) Mr. Puzon, knowing that the sale of the subject property by the Municipal Treasurer of Marikina was null and void, still sold the same to herein private respondent RRC; and (3) RRC purchased the property in bad faith, thus the sale to it was null and void.

A complaint for recovery of possession based on ownership (accion reivindicatoria or accion

reivindicacion) is an action whereby the plaintiff alleges ownership over a parcel of land and seeks recovery of its full possession.[38] As possession is sought based on ownership, we must inquire into the title of RRC which it acquired from Mr. Puzon who, in turn, derived his title from the void tax sale.

The void tax sale notwithstanding, RRC’s title cannot be assailed if it is a purchaser in good

faith and for value.[39] In its narration of the facts, the trial court acknowledged that RRC -- through its President,

Roberto Siy, and through its representative, Lorenzo Tabilog – conducted an ocular inspection of the subject land and found therein that its actual occupant, Pedro Ogsiner, had a house erected thereon and that such occupant was the overseer for the Sarmiento spouses who claimed ownership over the subject land.[40] Armed with this knowledge, RRC did only one thing: it offered Pedro Ogsiner P2,000.00 to vacate the subject property.[41] Relying on the fact that the TCT in Mr. Puzon’s name was free of liens and encumbrances and that Mr. Puzon would take care of the “squatters,” RRC did not investigate whatever claim Pedro Ogsiner and the Sarmiento spouses had over the subject land.

From the foregoing undisputed facts, the trial court held:

There is no doubt that when the plaintiff Rodeanna Realty Corporation purchased the property, there was a title in the name of Jose Puzon, thus, making them a purchaser (sic) in good faith and for value. Said buyers relied on the owners (sic) title which is free and clear of all liens and encumbrances.

. . . After a careful evaluation of the facts of this case, the Court believes that

plaintiff is entitled to the relief sought for. As enunciated in the case of Carmelita E. Reyes vs. Intermediate Appellate Court, Gregorio Galang and Soledad Pangilinan (No. L-60941, February 28, 1985, 135 SCRA 214), a contract of sale between a buyer from public auction of land sold for unpaid realty taxes and subsequent innocent purchaser in good faith and for value is valid whether or not the City Treasurer followed the prescribed procedure.

In the case at bar, assuming that the Municipal Treasurer of Marikina failed

to comply with certain procedure, it does not follow that the Rodeanna Realty Corporation has no valid title. For as they have asserted, they are purchaser in good

faith and for value in the amount of P190, 000.00. There is nothing in the record which would show that they were aware or they were party to the alleged irregularities. Hence, title of Rodeanna Realty Corporation cannot now be assailed (William vs. Barrera, 68 Phil. 656; PMHC vs. Mencias, August 16, 1967, 20 SRCA 1031; Pascua vs. Capuyos, 77 SCRA 78).[42]

In affirming the trial court, the Court of Appeals ruled:

As proven by the plaintiff-appellee, they obtained the property in question from Mr. Puzon, who in turn acquired it in a public auction conducted by theMunicipality of Marikina. By virtue of the sale by Mr. Puzon to plaintiff-appellee, TCT No. N-119631 was issued in its name. The best proof of ownership of a piece of land is the certificate of title. The certificate of title is considered the evidence of plaintiff-appellee’s ownership over the subject real property, and as its registered owner, it is entitled to its possession. Hence, as compared to the Sarmiento spouses whose previous title over the subject property has been cancelled, and to the Heirs of Mr. Sison, who had not shown any better proof of ownership, the plaintiff-appellee, as evidenced by its certificate of title, has superior right to possess the contested property. Xxx[43] Verily, every person dealing with registered land may safely rely on the correctness of the

certificate of title issued therefor and the law will in no way oblige him to go behind the certificate to determine the condition of the property.[44] Thus, the general rule is that a purchaser may be considered a purchaser in good faith when he has examined the latest certificate of title.[45] An exception to this rule is when there exist important facts that would create suspicion in an otherwise reasonable man to go beyond the present title and to investigate those that preceded it. Thus, it has been said that a person who deliberately ignores a significant fact which would create suspicion in an otherwise reasonable man is not an innocent purchaser for value.[46] A purchaser cannot close his eyes to facts which should put a reasonable man upon his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor.[47] As we have held:

The failure of appellees to take the ordinary precautions which a prudent

man would have taken under the circumstances, specially in buying a piece of land in the actual, visible and public possession of another person, other than the vendor, constitutes gross negligence amounting to bad faith.

In this connection, it has been held that where, as in this case, the land sold

is in the possession of a person other than the vendor, the purchaser is required to go beyond the certificate of title to ma[k]e inquiries concerning the rights of the actual possessor. Failure to do so would make him a purchaser in bad faith. (Citations omitted).

. . . One who purchases real property which is in the actual possession of

another should, at least make some inquiry concerning the right of those in possession. The actual possession by other than the vendor should, at least put the purchaser upon inquiry. He can scarely, in the absence of such inquiry, be regarded as a bona fide purchaser as against such possessors.[48] (Emphasis supplied)

Prescinding from the foregoing, the fact that private respondent RRC did not investigate the Sarmiento spouses’ claim over the subject land despite its knowledge that Pedro Ogsiner, as their overseer, was in actual possession thereof means that it was not an innocent purchaser for value upon said land. Article 524 of the Civil Code directs that possession may be exercised in one’s name or in that of another. In herein case, Pedro Ogsiner had informed RRC that he was occupying the subject

land on behalf of the Sarmiento spouses. Being a corporation engaged in the business of buying and selling real estate,[49] it was gross negligence on its part to merely rely on Mr. Puzon’s assurance that the occupants of the property were mere squatters considering the invaluable information it acquired from Pedro Ogsiner and considering further that it had the means and the opportunity to investigate for itself the accuracy of such information. Third Issue: As it is the Sarmieno spouses, as exercised by their overseer Pedro Ogsiner, who have the right of possession over the subject property, they cannot be made to pay rent to private respondent RRC. WHEREFORE, premises considered, the Decision of the Court of Appeals dated 27 November 2001 and its Resolution dated 08 March 2002 are REVERSED and SET ASIDE. The public auction sale conducted on 28 August 1982 is declared VOID for lack of notice to the registered owners Amancio and Luisa Sarmiento. Transfer Certificate of Title No. N-119631 of the Registry of Deeds of what was then the Municipality of Marikina, Province of Rizal, in the name of Rodeanna Realty Corporation is hereby ANNULLED. The Register of Deeds of Marikina City, Metro Manila, is ordered to cancel TCT No. N-119631 and to issue, in lieu thereof, a new title in the name of spouses Amancio and Luisa Sarmiento. Costs against private respondent RRC. SO ORDERED. LILLIAN N. MERCADO, CYNTHIA M. FEKARIS, and JULIAN MERCADO, JR., represented by their Attorney-In-Fact, ALFREDO M. PEREZ, Petitioners,

- versus - ALLIED BANKING CORPORATION, Respondent.

G.R. No. 171460 Present: YNARES-SANTIAGO, J., Chairperson, AUSTRIA-MARTINEZ, CHICO-NAZARIO, and NACHURA, JJ. Promulgated: July 24, 2007

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D E C I S I O N CHICO-NAZARIO, J.: Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, filed by petitioners Lillian N. Mercado, Cynthia M. Fekaris and Julian Mercado, Jr., represented by their Attorney-In-Fact, Alfredo M. Perez, seeking to reverse and set aside the Decision[1] of the Court of Appeals dated 12 October 2005, and its Resolution[2] dated 15 February 2006 in CA-G.R. CV No. 82636. The Court of Appeals, in its assailed Decision and Resolution, reversed the Decision[3] of the Regional Trial Court (RTC) of Quezon City, Branch 220 dated 23 September 2003, declaring the deeds of real estate mortgage constituted on TCT No. RT-18206 (106338) null and void. The dispositive portion of the assailed Court of Appeals Decision thus reads: WHEREFORE, the appealed decision is REVERSED and SET ASIDE, and a

new judgment is hereby entered dismissing the [petitioners] complaint.[4]

Petitioners are heirs of Perla N. Mercado (Perla). Perla, during her lifetime, owned several pieces of real property situated in different provinces of thePhilippines.

Respondent, on the other hand, is a banking institution duly authorized as such under the Philippine laws.

On 28 May 1992, Perla executed a Special Power of Attorney (SPA) in favor of her husband,

Julian D. Mercado (Julian) over several pieces of real property registered under her name, authorizing the latter to perform the following acts:

1. To act in my behalf, to sell, alienate, mortgage, lease and deal otherwise

over the different parcels of land described hereinafter, to wit: a) Calapan, Oriental Mindoro Properties covered by

Transfer Certificates of Title Nos. T-53618 - 3,522 Square Meters, T-46810 – 3,953 Square Meters, T-53140 – 177 Square Meters, T-21403 – 263 square Meters, T- 46807 – 39 Square Meters of the Registry of Deeds of Oriental Mindoro;

b) Susana Heights, Muntinlupa covered by Transfer

Certificates of Title Nos. T-108954 – 600 Square Meters and RT-106338 – 805 Square Meters of the Registry of Deeds of Pasig (now Makati);

c) Personal property – 1983 Car with Vehicle

Registration No. R-16381; Model 1983; Make – Toyota; Engine No. T- 2464

2. To sign for and in my behalf any act of strict dominion or ownership

any sale, disposition, mortgage, lease or any other transactions including quit-claims, waiver and relinquishment of rights in and over the parcels of land situated in General Trias, Cavite, covered by Transfer Certificates of Title Nos. T-112254 and T-112255 of the Registry of Deeds of Cavite, in conjunction with his co-owner and in the person ATTY. AUGUSTO F. DEL ROSARIO;

3. To exercise any or all acts of strict dominion or ownership over the

above-mentioned properties, rights and interest therein. (Emphasis supplied.)

On the strength of the aforesaid SPA, Julian, on 12 December 1996, obtained a loan from the respondent in the amount of P3,000,000.00, secured by real estate mortgage constituted on TCT No. RT-18206 (106338) which covers a parcel of land with an area of 805 square meters, registered with the Registry of Deeds of Quezon City (subject property).[5]

Still using the subject property as security, Julian obtained an additional loan from the respondent in the sum of P5,000,000.00, evidenced by a Promissory Note[6] he executed on 5 February 1997 as another real estate mortgage (REM).

It appears, however, that there was no property identified in the SPA as TCT No. RT – 18206

(106338) and registered with the Registry of Deeds of Quezon City. What was identified in the SPA instead was the property covered by TCT No. RT-106338 registered with the Registry of Deeds of Pasig.

Subsequently, Julian defaulted on the payment of his loan obligations. Thus, respondent

initiated extra-judicial foreclosure proceedings over the subject property which was subsequently sold at public auction wherein the respondent was declared as the highest bidder as shown in the Sheriff’s Certificate of Sale dated 15 January 1998.[7]

On 23 March 1999, petitioners initiated with the RTC an action for the annulment of REM constituted over the subject property on the ground that the same was not covered by the SPA and that the said SPA, at the time the loan obligations were contracted, no longer had force and effect since it was previously revoked by Perla on 10 March 1993, as evidenced by the Revocation of SPA signed by the latter.[8]

Petitioners likewise alleged that together with the copy of the Revocation of SPA, Perla, in a

Letter dated 23 January 1996, notified the Registry of Deeds of Quezon City that any attempt to mortgage or sell the subject property must be with her full consent documented in the form of an SPA duly authenticated before the Philippine Consulate General in New York. [9]

In the absence of authority to do so, the REM constituted by Julian over the subject property

was null and void; thus, petitioners likewise prayed that the subsequent extra-judicial foreclosure proceedings and the auction sale of the subject property be also nullified.

In its Answer with Compulsory Counterclaim,[10] respondent averred that, contrary to

petitioner’s allegations, the SPA in favor of Julian included the subject property, covered by one of the titles specified in paragraph 1(b) thereof, TCT No. RT- 106338 registered with the Registry of Deeds of Pasig (nowMakati). The subject property was purportedly registered previously under TCT No. T-106338, and was only subsequently reconstituted as TCT RT-18206 (106338). Moreover, TCT No. T-106338 was actually registered with the Registry of Deeds of Quezon City and not before the Registry of Deeds of Pasig(now Makati). Respondent explained that the discrepancy in the designation of the Registry of Deeds in the SPA was merely an error that must not prevail over the clear intention of Perla to include the subject property in the said SPA. In sum, the property referred to in the SPA Perla executed in favor of Julian as covered by TCT No. 106338 of the Registry of Deeds of Pasig (now Makati) and the subject property in the case at bar, covered by RT – 18206 (106338) of theRegistry of Deeds of Quezon City, are one and the same.

On 23 September 2003, the RTC rendered a Decision declaring the REM constituted over the

subject property null and void, for Julian was not authorized by the terms of the SPA to mortgage the same. The court a quo likewise ordered that the foreclosure proceedings and the auction sale conducted pursuant to the void REM, be nullified. The dispositive portion of the Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor

of the [herein petitioners] and against the [herein respondent] Bank: 1. Declaring the Real Estate Mortgages constituted and registered under

Entry Nos. PE-4543/RT-18206 and 2012/RT-18206 annotated on TCT No. RT-18206 (106338) of the Registry of Deeds of Quezon City as NULL and VOID;

2. Declaring the Sheriff’s Sale and Certificate of Sale under FRE No. 2217

dated January 15, 1998 over the property covered by TCT No. RT-18206 (106338) of the Registry of Deeds of Quezon City as NULL and VOID;

3. Ordering the defendant Registry of Deeds of Quezon City to cancel the

annotation of Real Estate Mortgages appearing on Entry Nos. PE-4543/RT-18206 and 2012/RT-18206 on TCT No. RT-18206 (106338) of the Registry of Deeds of Quezon City;

4. Ordering the [respondent] Bank to deliver/return to the [petitioners]

represented by their attorney-in-fact Alfredo M. Perez, the original Owner’s Duplicate Copy of TCT No. RT-18206 (106338) free from the encumbrances referred to above; and

5. Ordering the [respondent] Bank to pay the [petitioners] the amount

of P100,000.00 as for attorney’s fees plus cost of the suit.

The other claim for damages and counterclaim are hereby DENIED for lack of merit.[11]

Aggrieved, respondent appealed the adverse Decision before the Court of Appeals. In a Decision dated 12 October 2005, the Court of Appeals reversed the RTC Decision and

upheld the validity of the REM constituted over the subject property on the strength of the SPA. The appellate court declared that Perla intended the subject property to be included in the SPA she executed in favor of Julian, and that her subsequent revocation of the said SPA, not being contained in a public instrument, cannot bind third persons.

The Motion for Reconsideration interposed by the petitioners was denied by the Court of

Appeals in its Resolution dated 15 February 2006. Petitioners are now before us assailing the Decision and Resolution rendered by the Court of

Appeals raising several issues, which are summarized as follows: I WHETHER OR NOT THERE WAS A VALID MORTGAGE

CONSTITUTED OVER SUBJECT PROPERTY. II WHETHER OR NOT THERE WAS A VALID REVOCATION OF THE

SPA. III WHETHER OR NOT THE RESPONDENT WAS A MORTGAGEE-IN-

GOOD FAITH. For a mortgage to be valid, Article 2085 of the Civil Code enumerates the following essential

requisites:

Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:

(1) That they be constituted to secure the fulfillment of a principal

obligation; (2) That the pledgor or mortgagor be the absolute owner of the thing

pledged or mortgaged; (3) That the persons constituting the pledge or mortgage have the free

disposal of their property, and in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the

latter by pledging or mortgaging their own property.

In the case at bar, it was Julian who obtained the loan obligations from respondent which he secured with the mortgage of the subject property. The property mortgaged was owned by his wife, Perla, considered a third party to the loan obligations between Julian and respondent. It was, thus, a situation recognized by the last paragraph of Article 2085 of the Civil Code afore-quoted. However, since it was not Perla who personally mortgaged her own property to secure Julian’s loan obligations with respondent, we proceed to determining if she duly authorized Julian to do so on her behalf.

Under Article 1878 of the Civil Code, a special power of attorney is necessary in cases where

real rights over immovable property are created or conveyed.[12] In the SPA executed by Perla in favor of Julian on 28 May 1992, the latter was conferred with the authority to “sell, alienate, mortgage, lease and deal otherwise” the different pieces of real and personal property registered in Perla’s name. The SPA likewise authorized Julian “[t]o exercise any or all acts of strict dominion or ownership” over

the identified properties, and rights and interest therein. The existence and due execution of this SPA by Perla was not denied or challenged by petitioners.

There is no question therefore that Julian was vested with the power to mortgage the pieces of

property identified in the SPA. However, as to whether the subject property was among those identified in the SPA, so as to render Julian’s mortgage of the same valid, is a question we still must resolve.

Petitioners insist that the subject property was not included in the SPA, considering that it

contained an exclusive enumeration of the pieces of property over which Julian had authority, and these include only: (1) TCT No. T-53618, with an area of 3,522 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (2) TCT No. T-46810, with an area of 3,953 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (3) TCT No. T-53140, with an area of 177 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (4) TCT No. T-21403, with an area of 263 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (5) TCT No. T- 46807, with an area of 39 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (6) TCT No. T-108954, with an area of 690 square meters and located at Susana Heights, Muntinlupa;(7) RT-106338 – 805 Square Meters registered with the Registry of Deeds of Pasig (now Makati); and (8) Personal Property consisting of a 1983 Car with Vehicle Registration No. R-16381, Model – 1983, Make – Toyota, and Engine No. T- 2464. Nowhere is it stated in the SPA that Julian’s authority extends to the subject property covered by TCT No. RT – 18206 (106338) registered with the Registry of Deeds of Quezon City. Consequently, the act of Julian of constituting a mortgage over the subject property is unenforceable for having been done without authority.

Respondent, on the other hand, mainly hinges its argument on the declarations made by the

Court of Appeals that there was no property covered by TCT No. 106338 registered with the Registry of Deeds of Pasig (now Makati); but there exists a property, the subject property herein, covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City. Further verification would reveal that TCT No. RT-18206 is merely a reconstitution ofTCT No. 106338, and the property covered by both certificates of title is actually situated in Quezon City and not Pasig. From the foregoing circumstances, respondent argues that Perla intended to include the subject property in the SPA, and the failure of the instrument to reflect the recent TCT Number or the exact designation of the Registry of Deeds, should not defeat Perla’s clear intention.

After an examination of the literal terms of the SPA, we find that the subject property was not among those enumerated therein. There is no obvious reference to the subject property covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City.

There was also nothing in the language of the SPA from which we could deduce the intention of Perla to include the subject property therein. We cannot attribute such alleged intention to Perla who executed the SPA when the language of the instrument is bare of any indication suggestive of such intention. Contrariwise, to adopt the intent theory advanced by the respondent, in the absence of clear and convincing evidence to that effect, would run afoul of the express tenor of the SPA and thus defeat Perla’s true intention. In cases where the terms of the contract are clear as to leave no room for interpretation, resort to circumstantial evidence to ascertain the true intent of the parties, is not countenanced. As aptly stated in the case of JMA House, Incorporated v. Sta. Monica Industrial and Development Corporation,[13] thus:

[T]he law is that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control. When the language of the contract is explicit, leaving no doubt as to the intention of the drafters, the courts may not read into it [in] any other intention that would contradict its main import. The clear terms of the contract should never be the subject matter of interpretation. Neither abstract justice nor the rule on liberal interpretation justifies the creation of a contract for the parties which they did not

make themselves or the imposition upon one party to a contract or obligation not assumed simply or merely to avoid seeming hardships. The true meaning must be enforced, as it is to be presumed that the contracting parties know their scope and effects.[14]

Equally relevant is the rule that a power of attorney must be strictly construed and pursued. The instrument will be held to grant only those powers which are specified therein, and the agent may neither go beyond nor deviate from the power of attorney.[15] Where powers and duties are specified and defined in an instrument, all such powers and duties are limited and are confined to those which are specified and defined, and all other powers and duties are excluded.[16] This is but in accord with the disinclination of courts to enlarge the authority granted beyond the powers expressly given and those which incidentally flow or derive therefrom as being usual and reasonably necessary and proper for the performance of such express powers.[17] Even the commentaries of renowned Civilist Manresa[18] supports a strict and limited construction of the terms of a power of attorney:

The law, which must look after the interests of all, cannot permit a man to

express himself in a vague and general way with reference to the right he confers upon another for the purpose of alienation or hypothecation, whereby he might be despoiled of all he possessed and be brought to ruin, such excessive authority must be set down in the most formal and explicit terms, and when this is not done, the law reasonably presumes that the principal did not mean to confer it.

In this case, we are not convinced that the property covered by TCT No. 106338 registered with the Registry of Deeds of Pasig (now Makati) is the same as the subject property covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City. The records of the case are stripped of supporting proofs to verify the respondent’s claim that the two titles cover the same property. It failed to present any certification from the Registries of Deeds concerned to support its assertion. Neither did respondent take the effort of submitting and making part of the records of this case copies of TCTs No. RT-106338 of the Registry of Deeds of Pasig (now Makati) and RT-18206 (106338) of the Registry of Deeds of Quezon City, and closely comparing the technical descriptions of the properties covered by the said TCTs. The bare and sweeping statement of respondent that the properties covered by the two certificates of title are one and the same contains nothing but empty imputation of a fact that could hardly be given any evidentiary weight by this Court. Having arrived at the conclusion that Julian was not conferred by Perla with the authority to mortgage the subject property under the terms of the SPA, the real estate mortgages Julian executed over the said property are therefore unenforceable.

Assuming arguendo that the subject property was indeed included in the SPA executed by Perla in favor of Julian, the said SPA was revoked by virtue of a public instrument executed by Perla on 10 March 1993. To address respondent’s assertion that the said revocation was unenforceable against it as a third party to the SPA and as one who relied on the same in good faith, we quote with approval the following ruling of the RTC on this matter:

Moreover, an agency is extinguished, among others, by its revocation

(Article 1999, New Civil Code of the Philippines). The principal may revoke the agency at will, and compel the agent to return the document evidencing the agency. Such revocation may be express or implied (Article 1920, supra).

In this case, the revocation of the agency or Special Power of Attorney is

expressed and by a public document executed on March 10, 1993. The Register of Deeds of Quezon City was even notified that any attempt to

mortgage or sell the property covered by TCT No. [RT-18206] 106338 located at No. 21 Hillside Drive, Blue Ridge, Quezon City must have the full consent documented

in the form of a special power of attorney duly authenticated at the Philippine Consulate General, New York City, N.Y., U.S.A.

The non-annotation of the revocation of the Special Power of Attorney on

TCT No. RT-18206 is of no consequence as far as the revocation’s existence and legal effect is concerned since actual notice is always superior to constructive notice. The actual notice of the revocation relayed to defendant Registry of Deeds of Quezon City is not denied by either the Registry of Deeds of Quezon City or the defendant Bank. In which case, there appears no reason why Section 52 of the Property Registration Decree (P.D. No. 1529) should not apply to the situation. Said Section 52 of P.D. No. 1529 provides:

“Section 52. Constructive notice upon registration. –

Every conveyance, mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting registered land shall, if registered, filed or entered in the Office of the Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all persons from the time of such registering, filing or entering. (Pres. Decree No. 1529, Section 53) (emphasis ours) It thus developed that at the time the first loan transaction with defendant

Bank was effected on December 12, 1996, there was on record at the Office of the Register of Deeds of Quezon City that the special power of attorney granted Julian, Sr. by Perla had been revoked. That notice, works as constructive notice to third parties of its being filed, effectively rendering Julian, Sr. without authority to act for and in behalf of Perla as of the date the revocation letter was received by the Register of Deeds of Quezon City on February 7, 1996.[19]

Given that Perla revoked the SPA as early as 10 March 1993, and that she informed the Registry of Deeds of Quezon City of such revocation in a letter dated 23 January 1996 and received by the latter on 7 February 1996, then third parties to the SPA are constructively notified that the same had been revoked and Julian no longer had any authority to mortgage the subject property. Although the revocation may not be annotated on TCT No. RT-18206 (106338), as the RTC pointed out, neither the Registry of Deeds of Quezon City nor respondent denied that Perla’s 23 January 1996 letter was received by and filed with the Registry of Deeds of Quezon City. Respondent would have undoubtedly come across said letter if it indeed diligently investigated the subject property and the circumstances surrounding its mortgage.

The final issue to be threshed out by this Court is whether the respondent is a mortgagee-in-good faith. Respondent fervently asserts that it exercised reasonable diligence required of a prudent man in dealing with the subject property.

Elaborating, respondent claims to have carefully verified Julian’s authority over the subject

property which was validly contained in the SPA. It stresses that the SPA was annotated at the back of the TCT of the subject property. Finally, after conducting an investigation, it found that the property covered by TCT No. 106338, registered with the Registry of Deeds of Pasig (now Makati) referred to in the SPA, and the subject property, covered by TCT No. 18206 (106338)registered with the Registry of Deeds of Quezon City, are one and the same property. From the foregoing, respondent concluded that Julian was indeed authorized to constitute a mortgage over the subject property.

We are unconvinced. The property listed in the real estate mortgages Julian executed in favor of PNB is the one covered by “TCT#RT-18206(106338).” On the other hand, the Special Power of Attorney referred to TCT No. “RT-106338 – 805 Square Meters of the Registry of Deeds of Pasig now Makati.” The palpable difference between the TCT numbers referred to in the real estate mortgages and Julian’s SPA, coupled with the fact that the said TCTs are registered in the Registries of Deeds of different cities, should have put respondent on guard. Respondent’s claim of prudence is debunked by the fact that it had conveniently or otherwise overlooked the inconsistent details appearing on the face of the documents, which it was relying on for its rights as mortgagee, and which

significantly affected the identification of the property being mortgaged. In Arrofo v. Quiño,[20] we have elucidated that:

[Settled is the rule that] a person dealing with registered lands [is not

required] to inquire further than what the Torrens title on its face indicates. This rule, however, is not absolute but admits of exceptions. Thus, while its is true, x x x that a person dealing with registered lands need not go beyond the certificate of title, it is likewise a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which should put a reasonable man on his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor or mortgagor. His mere refusal to face up the fact that such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in the vendor’s or mortgagor’s title, will not make him an innocent purchaser for value, if it afterwards develops that the title was in fact defective, and it appears that he had such notice of the defect as would have led to its discovery had he acted with the measure of precaution which may be required of a prudent man in a like situation.

By putting blinders on its eyes, and by refusing to see the patent defect in the scope of Julian’s authority, easily discernable from the plain terms of the SPA, respondent cannot now claim to be an innocent mortgagee.

Further, in the case of Abad v. Guimba,[21] we laid down the principle that where the

mortgagee does not directly deal with the registered owner of real property, the law requires that a higher degree of prudence be exercised by the mortgagee, thus:

While [the] one who buys from the registered owner does not need to look behind the certificate of title, one who buys from [the] one who is not [the] registered owner is expected to examine not only the certificate of title but all factual circumstances necessary for [one] to determine if there are any flaws in the title of the transferor, or in [the] capacity to transfer the land. Although the instant case does not involve a sale but only a mortgage, the same rule applies inasmuch as the law itself includes a mortgagee in the term “purchaser.”[22]

This principle is applied more strenuously when the mortgagee is a bank or a banking institution. Thus, in the case of Cruz v. Bancom FinanceCorporation,[23] we ruled:

Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank.

As such, unlike private individuals, it is expected to exercise greater care and prudence in its dealings, including those involving registered lands. A banking institution is expected to exercise due diligence before entering into a mortgage contract. The ascertainment of the status or condition of a property offered to it as security for a loan must be a standard and indispensable part of its operations.[24] Hence, considering that the property being mortgaged by Julian was not his, and there are

additional doubts or suspicions as to the real identity of the same, the respondent bank should have proceeded with its transactions with Julian only with utmost caution. As a bank, respondent must subject all its transactions to the most rigid scrutiny, since its business is impressed with public interest and its fiduciary character requires high standards of integrity and performance.[25] Where respondent acted in undue haste in granting the mortgage loans in favor of Julian and disregarding the apparent defects in the latter’s authority as agent, it failed to discharge the degree of diligence required of it as a banking corporation.

Thus, even granting for the sake of argument that the subject property and the one identified

in the SPA are one and the same, it would not elevate respondent’s status to that of an innocent mortgagee. As a banking institution, jurisprudence stringently requires that respondent should take more precautions than an ordinary prudent man should, to ascertain the status and condition of the properties offered as collateral and to verify the scope of the authority of the agents dealing with these. Had respondent acted with the required degree of diligence, it could have acquired knowledge

of the letter dated 23 January 1996 sent by Perla to the Registry of Deeds of Quezon City which recorded the same. The failure of the respondent to investigate into the circumstances surrounding the mortgage of the subject property belies its contention of good faith.

On a last note, we find that the real estate mortgages constituted over the subject property are unenforceable and not null and void, as ruled by the RTC. It is best to reiterate that the said mortgage was entered into by Julian on behalf of Perla without the latter’s authority and consequently, unenforceable under Article 1403(1) of the Civil Code. Unenforceable contracts are those which cannot be enforced by a proper action in court, unless they are ratified, because either they are entered into without or in excess of authority or they do not comply with the statute of frauds or both of the contracting parties do not possess the required legal capacity.[26] An unenforceable contract may be ratified, expressly or impliedly, by the person in whose behalf it has been executed, before it is revoked by the other contracting party.[27] Without Perla’s ratification of the same, the real estate mortgages constituted by Julian over the subject property cannot be enforced by any action in court against Perla and/or her successors in interest.

In sum, we rule that the contracts of real estate mortgage constituted over the subject property

covered by TCT No. RT – 18206 (106338) registered with the Registry of Deeds of Quezon City are unenforceable. Consequently, the foreclosure proceedings and the auction sale of the subject property conducted in pursuance of these unenforceable contracts are null and void. This, however, is without prejudice to the right of the respondent to proceed against Julian, in his personal capacity, for the amount of the loans.

WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition

is GRANTED. The Decision dated 12 October 2005 and its Resolution dated15 February 2006 rendered by the Court of Appeals in CA-G.R. CV No. 82636, are hereby REVERSED. The Decision dated 23 September 2003 of the Regional Trial Court of Quezon City, Branch 220, in Civil Case No. Q-99-37145, is hereby REINSTATED and AFFIRMED with modification that the real estate mortgages constituted over TCT No. RT – 18206 (106338) are not null and void but UNENFORCEABLE. No costs.

SO ORDERED.

SPOUSES AMANCIO and LUISA SARMIENTO and PEDRO OGSINER, P e t i t i o n e r s, - versus - THE HON. COURT OF APPEALS (Special Former Fifth Division), RODEANNA REALTY CORPORATION, THE HEIRS OF CARLOS MORAN SISON, PROVINCIAL SHERIFF OF PASIG, M.M., MUNICIPAL (CITY) TREASURER OF MARIKINA, JOSE F. PUZON, THE HON. EFICIO ACOSTA, REGIONAL TRIAL COURT OF PASIG CITY, BRANCH 155 and REGISTER OF DEEDS OF MARIKINA (CITY), RIZAL, R e s p o n d e n t s.

G.R. No. 152627 Present: PUNO, Chairman, AUSTRIA-MARTINEZ, CALLEJO, SR., TINGA and CHICO-NAZARIO, JJ. Promulgated: September 16, 2005

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D E C I S I O N

CHICO-NAZARIO, J.:

In a case for recovery of possession based on ownership (accion reivindicatoria), is the defendant’s third-party complaint for cancellation of plaintiff’s title a collateral attack on such title?

This is the primary issue that requires resolution in this petition for review on certiorari of the Decision[1] of the Court of Appeals dated 27 November 2001 and its Resolution[2] dated 08 March 2002 affirming the Decision of the Regional Trial Court (RTC) of Pasig, Branch 162, in Civil Case No. 54151, finding for then plaintiff (private respondent herein) Rodeanna Realty Corporation (RRC).

The relevant antecedents of this case have been summarized by the Court of Appeals as

follows:

The subject of the present controversy is a parcel of land situated in Marikina covered by Transfer Certificate of Title No. N-119631 and registered in the name of the plaintiff-appellee RODEANNA REALTY CORPORATION.

The aforementioned land was previously owned by the Sarmiento spouses

by virtue of a deed of absolute sale executed on July 17, 1972 and as evidenced by a Transfer Certificate of Title No. 3700807. Upon acquisition of the land, the Sarmiento spouses appointed PEDRO OGSINER as their overseer.

On August 15, 1972, the subject land was mortgaged by the Sarmiento

spouses to Carlos Moran Sison (Mr. Sison) as a security for a sixty-five thousand three hundred seventy pesos and 25/100 loan obtained by the Sarmiento spouses from Mr. Sison.

Upon failure of the Sarmiento spouses to pay the loan, Mr. Sison initiated

the extra-judicial foreclosure sale of the mortgaged property, and on October 20, 1977, the said property was foreclosed through the Office of the Sheriff of Rizal, which accordingly, issued a certificate of sale in favor of Mr. Sison, and which Mr. Sison caused to be annotated on the title of Sarmiento spouses on January 31, 1978.

On August 25, 1982, JOSE PUZON (Mr. Puzon) purchased the same

property in an auction sale conducted by the Municipal Treasurer of Marikina for non-payment of taxes. After paying P3,400.00, he was issued a certificate of sale and caused it to be registered in the Registry of Deeds of Marikina. No redemption having been made by the Sarmiento spouses, a final bill of sale was issued in his (Mr. Puzon) favor. Thereafter, Mr. Puzon filed a petition for consolidation of ownership and issuance of new title over the subject property before the Regional Trial Court of Pasig, Branch 155. The said petition, which was docketed as LRC Case No. T-3367, was granted by the court in its Order dated August 03, 1984. Thereafter, Transfer Certificate of Title No. 102902 was issued in the name of Jose Puzon.

On August 16, 1986, Mr. Puzon sold the property in question to herein

plaintiff-appellee. By virtue of such sale, a transfer certificate of title over the subject property was issued in favor of the plaintiff-appellee. Records show that Mr. Puzon assured the plaintiff-appellee that he (Jose Puzon) will take care of the squatters in the subject property by filing an ejectment case against them. However, Mr. Puzon failed to comply with his promise.

On December 19, 1986, plaintiff-appellee filed a complaint for recovery of

possession with damages against the Sarmiento spouses and Pedro Ogsiner, the Sarmiento spouses’ caretaker of the subject property who refused to vacate the premises. In its complaint, plaintiff-appellee alleged that the Sarmiento spouses lost all the rights over the property in question when a certificate of sale was executed in favor of Mr. Sison for their failure to pay the mortgage loan.

On January 30, 1987, the Sarmiento spouses filed a motion for leave to file

a third-party complaint against Mr. Sison, the Provincial Sheriff of Pasig, Mr. Puzon, the Judge of Regional Trial Court of Branch 155 in LRC Case No. R-3367 and the Register of Deeds of Marikina. On the same date the Sarmiento spouses filed their answer to the complaint. Expectedly, plaintiff-appellee opposed the motion.

In its order dated June 16, 1987, the trial court denied the motion of the

Sarmiento spouses. Records show that the said order of the trial court was set aside in a petition for certiorari filed before this Court. Hence, the third-party complaint was admitted. Consequently, Mr. Sison, the Register of Deeds of Marikina filed their answer, while Mr. Puzon filed a motion to dismiss the third-party complaint on the grounds of misjoinder of causes of action and non-jurisdiction of the trial court over said third-party complaint. In a motion to set for hearing its special and affirmative defenses, the Register of Deeds of Marikina moved for the dismissal of the third-party complaint against them. The motion of Mr. Puzon was held in abeyance by the trial court ratiocinating that the issues raised in the motion still do not appear to be indubitable.

On October 20, 1988, Mr. Puzon filed his answer. In its order dated February 22, 1989, the trial court dismissed the third-party

complaint against the Register of Deeds of Marikina on the ground that the case may proceed even without the Register of Deeds being impleaded.

On April 29, 1991, the trial court issued its assailed decision in favor of the

plaintiff-appellee. A timely appeal was filed by the Sarmiento spouses. In their manifestation filed on July 17, 1989, the Heirs of Mr. Sison prayed for substitution for their late father. Consequently, the Heirs of Mr. Sison moved for new trial or reconsideration on the ground that they were not properly represented in the case after the death of Mr. Sison. In its order dated November 28, 1991, the trial court granted the motion.

On February 4, 1993, the trial court dismissed the claim of Mr. Sison as

represented by his heirs, that he is the beneficial owner of the subject property. In its order dated May 18, 1993, the court a quo denied the motion for reconsideration of the Heirs of Mr. Sison.[3]

The dispositive portion of the trial court ruling dated 29 April 1991 reads as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff against all defendants:

1) ordering defendant Pedro Ogsiner and all

persons claiming rights under him to vacate the premises and surrender peaceful possession to the plaintiff within fifteen (15) days from receipt of this order;

2) ordering defendant spouses Sarmiento to pay the sum of P20,000.00 as and for attorney’s fees;

3) ordering the defendants jointly and severally to

pay the sum of P300.00 a month as reasonable compensation for the use of the property in question starting June, 1986 until such time that they actually surrendered the possession of the property to the plaintiff;

4) ordering defendant spouses Sarmiento to pay the

cost of this suit.

Defendant’s third-party complaint against all third-party defendants is hereby dismissed for lack of sufficient merit.[4]

On appeal by herein petitioners Amancio and Luisa Sarmiento (Sarmiento spouses) and by the heirs of Carlos Moran Sison, the Court of Appeals rendered the assailed Decision, dated 27 November 2001, the dispositive portion of which reads:

WHEREFORE, for lack of merit, the instant appeal is hereby DISMISSED.

The assailed April 29, 1991 Decision of the Regional Trial Court of Pasig, Metro Manila is hereby AFFIRMED with the modification that the award of P 20,000.00 as attorney’s fees is hereby DELETED. The February 03, 1993 Resolution and the May 18, 1993 Order of the trial court are also hereby AFFIRMED.[5]

On 08 March 2002, the Court of Appeals rendered the assailed Resolution denying petitioners’ motion for reconsideration.

The Sarmiento spouses anchor their petition on the following legal arguments:

1) The ruling of the Court of Appeals that private respondent RRC’s certificate of title cannot be collaterally attacked and that their right to claim ownership over the subject property is beyond the province of the action for recovery of possession is contrary to law and applicable decisions of the Supreme Court;

2) The ruling of the Court of Appeals that private respondent RRC is entitled to ownership of subject property simply by virtue of its title as evidenced by Transfer Certificate of Title (TCT) No. N-119631 is contrary to law and jurisprudence and is not supported by evidence; and

3) The affirmation by the Court of Appeals of the award of rentals to private respondent RRC lacks factual and legal basis.

First Issue: The Court of Appeals, in holding that the third-party complaint of the Sarmiento spouses amounted to a collateral attack on TCT No. N-119631, ratiocinated as follows:

In resolving the errors/issues assigned by the herein parties, We should be guided by the nature of action filed by the plaintiff-appellee before the lower court, and as previously shown it is an action for the recovery of possession of the property in question with damages. Thus, from the said nature of action, this Court believes that the focal point of the case is whether or not the plaintiff-appellee has a better right to possess the contested real property. Corollary, it must also be answered whether or not the Transfer Certificate of Title No. N-119631 can be collaterally attacked in an action for recovery of possession.

. . .

In their assigned errors, the Sarmiento spouses alleged that the plaintiff-appellee is not a purchaser in good faith, as they were chargeable with the knowledge of occupancy by Pedro Ogsiner in behalf of the Sarmiento spouses, and that the auction sale of the property in favor of Mr. Puzon is null and void for its failure to comply with the requirement of notice provided by the law. The same have been argued by the Heirs of Mr. Sison. The above assertions, We rule, amounts to a collateral attack on the certificate of title of the plaintiff-appellee. A collateral attack is made when, in another action to obtain a different relief, an attack on the judgment is made as an incident in said action. This is proper only when the judgment on its face is null and void, as where it is patent that the court, which rendered said judgment has no jurisdiction. On the other hand, a direct attack against a judgment is made through an action or proceeding the main object of which is to annul, set aside, or enjoin the enforcement of such judgment, if not carried into effect, or if the property has been disposed of, the aggrieved party may sue for recovery.

In the present case, to rule for the nullity of the auction sale in favor of Mr. Puzon will result in ruling for the nullity of the order of Branch 155 of theRegional Trial Court of Pasig City, granting the petition for consolidation of ownership over the subject property filed by Mr. Puzon. It will also result in the nullity of title issued in the name of Mr. Puzon. Hence, the end objective in raising the aforementioned arguments is to nullify the title in the name of the plaintiff-appellee. In fact, a reading of the answer of the Sarmiento spouses and the Heirs of Mr. Sison reveals that they are asking the court to nullify all documents and proceedings which led to the issuance of title in favor of the plaintiff-appellee. This is obviously a collateral attack which is not allowed under the principle of indefeasibility of torrens title. The issue of validity of plaintiff-appellee’s title can only be raised in an action expressly instituted for that purpose. A certificate of title shall not be subject to collateral attack. It cannot be altered, modified, or canceled except in a direct proceeding in accordance with law. Case law on the matter shows that the said doctrine applies not only with respect to the original certificate of title but also to transfer certificate of title. Hence, whether or not the plaintiff-appellee has a right to claim ownership over the subject property is beyond the province of the present action. It does not matter whether the plaintiff-appellee’s title is questionable because this is only a suit for recovery of possession. It should be raised in a proper action for annulment of questioned documents and proceedings, considering that it will not be procedurally unsound for the affected parties to seek for such remedy. In an action to recover possession of real property, attacking a transfer certificate of title covering the subject property is an improper procedure. The rule is well-settled that a torrens title as a rule, is irrevocable and indefeasible, and the duty of the court is to see to it that this title is maintained and respected unless challenged in a direct proceeding.[6] (Emphasis and underscoring supplied)

An action is deemed an attack on a title when the object of the action or proceeding is to nullify the title, and thus challenge the judgment pursuant to which the title was decreed.[7] The attack is direct when the object of the action is to annul or set aside such judgment, or enjoin its enforcement.[8] On the other hand, the attack is indirect or collateral when, in an action to obtain a different relief, an attack on the judgment is nevertheless made as an incident thereof.[9]

In its analysis of the controversy, the Court of Appeals, alas, missed one very crucial detail

which would have turned the tide in favor of the Sarmiento spouses. What the Court of Appeals failed to consider is that Civil Case No. 54151 does not merely consist of the case for recovery of possession of property (filed by RRC against the Sarmiento spouses) but embraces as well the third-party complaint filed by the Sarmiento spouses against Carlos Moran Sison, Jose F. Puzon (Mr. Puzon), the Provincial Sherriff of Pasig, Metro Manila, the Municipal Treasurer of Marikina, Rizal, the Judge of the RTC, Branch 155, in LRC Case No. R-3367 and the Register of Deeds of the then Municipality of Marikina, Province of Rizal.

The rule on third-party complaints is found in Section 22, Rule 6 of the 1997 Rules of Court,

which reads:

Sec. 22. Third, (fourth, etc.)–party complaint. – A third (fourth, etc.)-party complaint is a claim that a defending party may, with leave of court, file against a person not a party to the action, called the third-party defendant, for contribution, indemnity, subrogation or any other relief, in respect of his opponent’s claim.

A third-party complaint is in the nature of an original complaint. This is so because it is “actually independent of and separate and distinct from the plaintiff’s complaint.”[10] In herein case, after leave of court was secured[11] to file a third-party complaint, the third-party complainants

(Sarmiento spouses) had to pay the necessary docket fees.[12] Summonses were then issued on the third-party defendants[13] who answered in due time.[14]

In Firestone Tire and Rubber Company of the Philippines v. Tempongko,[15] we had occasion to expound on the nature of a third-party complaint, thus:

The third-party complaint, is therefore, a procedural device whereby a “third

party” who is neither a party nor privy to the act or deed complained of by the plaintiff, may be brought into the case with leave of court, by the defendant, who acts as third-party plaintiff to enforce against such third-party defendant a right for contribution, indemnity, subrogation or any other relief, in respect of the plaintiff’s claim. The third-party complaint is actually independent of and separate and distinct from the plaintiff’s complaint. Were it not for this provision of the Rules of Court, it would have to be filed independently and separately from the original complaint by the defendant against the third-party. But the Rules permit defendant to bring in a third-party defendant or so to speak, to litigate his separate cause of action in respect of plaintiff’s claim against a third party in the original and principal case with the object of avoiding circuity of action and unnecessary proliferation of lawsuits and of disposing expeditiously in one litigation the entire subject matter arising from one particular set of facts. . . When leave to file the third-party complaint is properly granted, the Court renders in effect two judgments in the same case, one on the plaintiff’s complaint and the other on the third-party complaint. (Emphasis supplied)

Prescinding from the foregoing, the appellate court grievously erred in failing to appreciate the legal ramifications of the third-party complaint vis-à-vis the original complaint for recovery of possession of property. The third-party complaint for cancellation of TCT being in the nature of an original complaint for cancellation of TCT, it therefore constitutes a direct attack of such TCT.

The situation at bar can be likened to a case for recovery of possession wherein the defendant

files a counterclaim against the plaintiff attacking the validity of the latter’s title. Like a third-party complaint, a counterclaim is considered an original complaint, as such, the attack on the title in a case originally for recovery of possession cannot be considered as a collateral attack. We thus held in Development Bank of the Philippines (DBP) v. Court of Appeals:[16]

Nor is there any obstacle to the determination of the validity of TCT No.

10101. It is true that the indefeasibility of torrens titles cannot be collaterally attacked. In the instant case, the original complaint is for recovery of possession filed by petitioner against private respondent, not an original action filed by the latter to question the validity of TCT No. 10101 on which the petitioner bases its right. To rule on the issue of validity in a case for recovery of possession is tantamount to a collateral attack. However, it should not be overlooked that private respondent filed a counterclaim against petitioner, claiming ownership over the land and seeking damages. Hence, we could rule in the question of the validity of TCT No. 10101 for the counterclaim can be considered a direct attack on the same. “A counterclaim is considered a complaint, only this time, it is the original defendant who becomes plaintiff … It stands on the same footing and is to be tested by the same rules as if it were an independent action.”

There being a direct attack on the TCT which was unfortunately ignored by the appellate court, it behooves this Court to deal with and to dispose of the said issue more so because all the facts and evidence necessary for a complete determination of the controversy are already before us. Again, DBP instructs:

. . . In an analogous case, we ruled on the validity of a certificate of title

despite the fact that the original action instituted before the lower court was a case for

recovery of possession. The Court reasoned that since all the facts of the case are before it, to direct the party to institute cancellation proceedings would be needlessly circuitous and would unnecessarily delay the termination of the controversy which has already dragged on for 20 years.[17]

Second Issue:

In their third-party complaint, as amended, the Sarmiento spouses asserted six causes of action. The second[18] to sixth causes of action referred to the proceedings leading to and resulting from the tax sale held on 28 August 1982, summarized by the trial court as follows:

. . . Third Party Plaintiffs alleged that on August 28, 1982, the Municipal

Treasurer of Marikina sold at public auction, the same property in favor of Jose F. Puzon for tax deficiency at the price of Three Thousand Three Hundred Eighty Four Pesos and 89/100 (P 3,383.89) which is very low considering that the area of the property is 1,060 square meters; that they were not notified of the public auction sale and further, the requirements, such as posting of notices in public places, among other requirements, were not complied with; that since the property was sold at a very low price, the public auction sale and the Certificate of Sale issued by Municipal Treasurer of Marikina in favor of third party defendant Jose F. Puzon are null and void; that in August 1984, the third party defendant in order to consolidate his ownership and title to the property filed a Petition with the Land Registration Commission in the Regional Trial Court, Branch 155, Pasig, Metro Manila in LRC Case No. R-3367, for consolidation of his ownership and title; that third party plaintiffs were not notified thereof and did not have their day in Court; hence, the order of the Judge of the Regional trial Court in LRC Case No. R-3367 authorizing the consolidation of the ownership and title of Jose F. Puzon is null and void, that Jose F. Puzon after having been issued a new title in his name sold in June 1986, the property in favor of plaintiff RODEANNA REALTY CORPORATION.[19]

The Sarmiento spouses thus prayed that: (a) the certificate of sale executed by the Municipal Treasurer of the then Municipality of Marikina, Rizal, in favor of Mr. Puzon be declared null and void and all subsequent transactions therefrom declared null and void as well; (b) the Order of the RTC in LRC Case No. R-3367, authorizing the consolidation of ownership of and issuance of new TCT No. 102909 in favor of Mr. Puzon, be declared null and void; (c) the Register of Deeds be directed to cancel the Certificate of Sale and TCT No. 102909 issued in favor of Mr. Puzon as well as TCT No. N-119631 issued in the name of RRC and that TCT No. 370807 in the name of the Sarmiento spouses be restored; (d) all third-party defendants be made to pay, jointly and severally, moral and exemplary damages such amount as to be fixed by the court as well as attorney’s fees in the amount of P10,000.00; and (e) Mr. Puzon be made to payP500,000.00 – the actual value of the property at the time of the tax sale – in the remote event that the title of RRC is not invalidated.

The trial court held that the Sarmiento spouses were not entitled to the relief sought by them as there was nothing irregular in the way the tax sale was effected, thus:

Defendants Sarmiento aver that they were not notified of the auction sale of the property by the Municipal Treasurer of Marikina. However, the Court would like to point out that during the examination of Amancio Sarmiento, he testified that in 1969 or 1970, he started residing at No. 13 19th Avenue, Cubao, Quezon City; that his property was titled in 1972; that he transferred his residence from Cubao to No. 76 Malumanay Street, Quezon City but he did not inform the Municipal Treasurer of the said transfer. Hence, notice was directed to his last known address.

. . .

The law requires posting of notice and publication. Personal notice to the delinquent taxpayer is not required. In the case at bar, notice was sent to defendants (sic) address at No. 12 13th Avenue, Cubao Quezon City. If said notice did not reach the defendant, it is because of defendants’ fault in not notifying the Municipal Treasurer of Marikina of their change of address.[20]

The above-quoted ratiocination does not sit well with this Court for two fundamental reasons. First, the trial court erroneously declared that personal notice to the delinquent taxpayer is not required. On the contrary, personal notice to the delinquent taxpayer is required as a prerequisite to a valid tax sale under the Real Property Tax Code,[21] the law then prevailing at the time of the tax sale on 28 August 1982.[22]

Section 73 of the Real Property Tax Code provides:

Sec. 73. Advertisement of sale of real property at public auction. – After the expiration of the year for which the tax is due, the provincial or city treasurer shall advertise the sale at public auction of the entire delinquent real property, except real property mentioned in subsection (a) of Section forty hereof, to satisfy all the taxes and penalties due and the costs of sale. Such advertisement shall be made by posting a notice for three consecutive weeks at the main entrance of the provincial building and of all municipal buildings in the province, or at the main entrance of the city or municipal hall in the case of cities, and in a public and conspicuous place in barrio or district wherein the property is situated, in English, Spanish and the local dialect commonly used, and by announcement at least three market days at the market by crier, and, in the discretion of the provincial or city treasurer, by publication once a week for three consecutive weeks in a newspaper of general circulation published in the province or city.

The notice, publication, and announcement by crier shall state the amount of

the taxes, penalties and costs of sale; the date, hour, and place of sale, the name of the taxpayer against whom the tax was assessed; and the kind or nature of property and, if land, its approximate areas, lot number, and location stating the street and block number, district or barrio, municipality and the province or city where the property to be sold is situated.

Copy of the notice shall forthwith be sent either by registered mail or

by messenger, or through the barrio captain, to the delinquent taxpayer, at his address as shown in the tax rolls or property tax record cards of the municipality or city where the property is located, or at his residence, if known to said treasurer or barrio captain: Provided, however, That a return of the proof of service under oath shall be filed by the person making the service with the provincial or city treasurer concerned. (Emphasis supplied)

We cannot overemphasize that strict adherence to the statutes governing tax sales is imperative not only for the protection of the taxpayers, but also to allay any possible suspicion of collusion between the buyer and the public officials called upon to enforce the laws.[23] Notice of sale to the delinquent land owners and to the public in general is an essential and indispensable requirement of law, the non-fulfillment of which vitiates the sale.[24] Thus, the holding of a tax sale despite the absence of the requisite notice is tantamount to a violation of delinquent taxpayer’s substantial right to due process. [25] Administrative proceedings for the sale of private lands for nonpayment of taxes being in personam, it is essential that there be actual notice to the delinquent taxpayer, otherwise the sale is null and void although preceded by proper advertisement or publication.[26] The consequential issue in this case, therefore, is whether or not the registered owners – the Sarmiento spouses – were personally notified that a tax sale was to be conducted on 28 August 1982.

The Sarmiento spouses insist that they were not notified of the tax sale. The trial court found otherwise, as it declared that a notice was sent to the spouses’ last known address. Such conclusion constitutes the second fundamental error in the trial court’s disposition of the case as such conclusion is totally bereft of factual basis. When findings of fact are conclusions without citation of specific evidence upon which they are based, this Court is justified in reviewing such finding.[27]

In herein case, the evidence does not support the conclusion that notice of the tax sale was

sent to the Sarmiento spouses’ last known address. What is clear from the evidence is that the Sarmiento spouses were notified by mail after the subject property was already sold, i.e., the notice that was sent to the last known address was the “Notice of Sold Properties” and not the notice to hold a tax sale.[28] This was testified upon by third-party defendant Natividad M. Cabalquinto, the Municipal Treasurer of Marikina, who swore that per her records, neither notice of tax delinquency nor notice of tax sale was sent to the Sarmiento spouses.[29] Counsel for respondent RRC did not cross-examine Ms. Cabalquinto on this on the theory that Ms. Cabalquinto had no personal knowledge of the tax sale and the proceedings leading thereto as she became Municipal Treasurer only in 1989.[30]

Notwithstanding Ms. Cabalquinto’s lack of personal knowledge, her testimony -- that per

records in her possession no notice was actually sent to the Sarmiento spouses -- is sufficient proof of the lack of such notice in the absence of contrary proof coming from the purchaser in the tax sale, Mr. Puzon, and from his eventual buyer, herein private respondent RRC. Be it noted that under Section 73 of the Real Property Tax Code, it is required that a return of the proof of service to the registered owner be made under oath and filed by the person making the service with the provincial or city treasurer concerned. This implies that as far as tax sales are concerned, there can be no presumption of the regularity of any administrative action; hence the registered owner/delinquent taxpayer does not have the burden of proof to show that, indeed, he was not personally notified of the sale thru registered mail.

There can be no presumption of the regularity of any administrative action which results in

depriving a taxpayer of his property through a tax sale.[31] This is an exception to the rule that administrative proceedings are presumed to be regular.[32] This doctrine can be traced to the 1908 case of Valencia v. Jimenez and Fuster[33] where this Court held:

The American law does not create a presumption of the regularity of any

administrative action which results in depriving a citizen or taxpayer of his property, but, on the contrary, the due process of law to be followed in tax proceedings must be established by proof and the general rule is that the purchaser of a tax title is bound to take upon himself the burden of showing the regularity of all proceedings leading up to the sale. The difficulty of supplying such proof has frequently lead to efforts on the part of legislatures to avoid it by providing by statute that a tax deed shall be deemed either conclusive or presumptive proof of such regularity.

Those statutes attributing to it a conclusive effect have been held invalid as

operating to deprive the owner of his property without due process of law. But those creating a presumption only have been sustained as affecting a rule of evidence, changing nothing but the burden of proof. (Turpin v. Lemon, 187 U.S., 51.)

The tax law applicable to Manila does not attempt to give any special

probative effect to the deed of the assessor and collector, and therefore leaves the purchaser to establish the regularity of all vital steps in the assessment and sale.

In the fairly recent case of Requiron v. Sinaban,[34] we had occasion to reiterate the doctrine laid down in Valencia with respect specifically to tax sales conducted under Commonwealth Act No. 470 (Assessment Law). Nevertheless, no substantial variance exists between Commonwealth Act No. 470 and the Real Property Tax Code, which took effect on 01 June 1974, concerning the required procedure in the conduct of public auction sale involving real properties with tax delinquencies.[35]

In sum, for failure of the purchaser in the tax sale (third-party defendant Mr. Puzon) to prove

that notice of the tax sale was sent to the Sarmiento spouses, such sale is null and void.

As the tax sale was null and void, the title of the buyer therein (Mr. Puzon) was also null and

void, which thus leads us to the question of who between petitioners and private respondent RRC has the right to possess the subject property.

In its complaint for recovery of possession with damages filed before the trial court, RRC averred that it is the present registered owner of the subject land which it bought from Mr. Puzon, who was then the registered owner thereof, free from liens and encumbrances. It also stated that therein defendant Pedro Ogsiner was an illegal occupant as he was the overseer for the Sarmiento spouses who no longer had any title to or rights over the property. It thus prayed that Pedro Ogsiner vacate the property and that he and the Sarmiento spouses be ordered to pay attorney’s fees and rent in the amount of P500.00 monthly from 1984 until Pedro Ogsiner finally vacates the land.[36]

In their Answer,[37] the Sarmiento spouses invoked certain affirmative defenses, to wit:

(1) The certificate of sale issued by the Municipal Treasurer of Marikina, Rizal, the order authorizing consolidation of ownership and the issuance of a new title all in favor of Mr. Puzon were null and void as the Sarmiento spouses and Pedro Ogsiner were not notified of the tax sale; (2) Mr. Puzon, knowing that the sale of the subject property by the Municipal Treasurer of Marikina was null and void, still sold the same to herein private respondent RRC; and (3) RRC purchased the property in bad faith, thus the sale to it was null and void.

A complaint for recovery of possession based on ownership (accion reivindicatoria or accion

reivindicacion) is an action whereby the plaintiff alleges ownership over a parcel of land and seeks recovery of its full possession.[38] As possession is sought based on ownership, we must inquire into the title of RRC which it acquired from Mr. Puzon who, in turn, derived his title from the void tax sale.

The void tax sale notwithstanding, RRC’s title cannot be assailed if it is a purchaser in good

faith and for value.[39] In its narration of the facts, the trial court acknowledged that RRC -- through its President,

Roberto Siy, and through its representative, Lorenzo Tabilog – conducted an ocular inspection of the subject land and found therein that its actual occupant, Pedro Ogsiner, had a house erected thereon and that such occupant was the overseer for the Sarmiento spouses who claimed ownership over the subject land.[40] Armed with this knowledge, RRC did only one thing: it offered Pedro Ogsiner P2,000.00 to vacate the subject property.[41] Relying on the fact that the TCT in Mr. Puzon’s name was free of liens and encumbrances and that Mr. Puzon would take care of the “squatters,” RRC did not investigate whatever claim Pedro Ogsiner and the Sarmiento spouses had over the subject land.

From the foregoing undisputed facts, the trial court held:

There is no doubt that when the plaintiff Rodeanna Realty Corporation purchased the property, there was a title in the name of Jose Puzon, thus, making them a purchaser (sic) in good faith and for value. Said buyers relied on the owners (sic) title which is free and clear of all liens and encumbrances.

. . . After a careful evaluation of the facts of this case, the Court believes that

plaintiff is entitled to the relief sought for. As enunciated in the case of Carmelita E. Reyes vs. Intermediate Appellate Court, Gregorio Galang and Soledad Pangilinan (No. L-60941, February 28, 1985, 135 SCRA 214), a contract of sale between a buyer from public auction of land sold for unpaid realty taxes and subsequent innocent purchaser in good faith and for value is valid whether or not the City Treasurer followed the prescribed procedure.

In the case at bar, assuming that the Municipal Treasurer of Marikina failed

to comply with certain procedure, it does not follow that the Rodeanna Realty Corporation has no valid title. For as they have asserted, they are purchaser in good

faith and for value in the amount of P190, 000.00. There is nothing in the record which would show that they were aware or they were party to the alleged irregularities. Hence, title of Rodeanna Realty Corporation cannot now be assailed (William vs. Barrera, 68 Phil. 656; PMHC vs. Mencias, August 16, 1967, 20 SRCA 1031; Pascua vs. Capuyos, 77 SCRA 78).[42]

In affirming the trial court, the Court of Appeals ruled:

As proven by the plaintiff-appellee, they obtained the property in question from Mr. Puzon, who in turn acquired it in a public auction conducted by theMunicipality of Marikina. By virtue of the sale by Mr. Puzon to plaintiff-appellee, TCT No. N-119631 was issued in its name. The best proof of ownership of a piece of land is the certificate of title. The certificate of title is considered the evidence of plaintiff-appellee’s ownership over the subject real property, and as its registered owner, it is entitled to its possession. Hence, as compared to the Sarmiento spouses whose previous title over the subject property has been cancelled, and to the Heirs of Mr. Sison, who had not shown any better proof of ownership, the plaintiff-appellee, as evidenced by its certificate of title, has superior right to possess the contested property. Xxx[43] Verily, every person dealing with registered land may safely rely on the correctness of the

certificate of title issued therefor and the law will in no way oblige him to go behind the certificate to determine the condition of the property.[44] Thus, the general rule is that a purchaser may be considered a purchaser in good faith when he has examined the latest certificate of title.[45] An exception to this rule is when there exist important facts that would create suspicion in an otherwise reasonable man to go beyond the present title and to investigate those that preceded it. Thus, it has been said that a person who deliberately ignores a significant fact which would create suspicion in an otherwise reasonable man is not an innocent purchaser for value.[46] A purchaser cannot close his eyes to facts which should put a reasonable man upon his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor.[47] As we have held:

The failure of appellees to take the ordinary precautions which a prudent

man would have taken under the circumstances, specially in buying a piece of land in the actual, visible and public possession of another person, other than the vendor, constitutes gross negligence amounting to bad faith.

In this connection, it has been held that where, as in this case, the land sold

is in the possession of a person other than the vendor, the purchaser is required to go beyond the certificate of title to ma[k]e inquiries concerning the rights of the actual possessor. Failure to do so would make him a purchaser in bad faith. (Citations omitted).

. . . One who purchases real property which is in the actual possession of

another should, at least make some inquiry concerning the right of those in possession. The actual possession by other than the vendor should, at least put the purchaser upon inquiry. He can scarely, in the absence of such inquiry, be regarded as a bona fide purchaser as against such possessors.[48] (Emphasis supplied)

Prescinding from the foregoing, the fact that private respondent RRC did not investigate the Sarmiento spouses’ claim over the subject land despite its knowledge that Pedro Ogsiner, as their overseer, was in actual possession thereof means that it was not an innocent purchaser for value upon said land. Article 524 of the Civil Code directs that possession may be exercised in one’s name or in that of another. In herein case, Pedro Ogsiner had informed RRC that he was occupying the subject

land on behalf of the Sarmiento spouses. Being a corporation engaged in the business of buying and selling real estate,[49] it was gross negligence on its part to merely rely on Mr. Puzon’s assurance that the occupants of the property were mere squatters considering the invaluable information it acquired from Pedro Ogsiner and considering further that it had the means and the opportunity to investigate for itself the accuracy of such information. Third Issue: As it is the Sarmieno spouses, as exercised by their overseer Pedro Ogsiner, who have the right of possession over the subject property, they cannot be made to pay rent to private respondent RRC. WHEREFORE, premises considered, the Decision of the Court of Appeals dated 27 November 2001 and its Resolution dated 08 March 2002 are REVERSED and SET ASIDE. The public auction sale conducted on 28 August 1982 is declared VOID for lack of notice to the registered owners Amancio and Luisa Sarmiento. Transfer Certificate of Title No. N-119631 of the Registry of Deeds of what was then the Municipality of Marikina, Province of Rizal, in the name of Rodeanna Realty Corporation is hereby ANNULLED. The Register of Deeds of Marikina City, Metro Manila, is ordered to cancel TCT No. N-119631 and to issue, in lieu thereof, a new title in the name of spouses Amancio and Luisa Sarmiento. Costs against private respondent RRC. SO ORDERED.