G.R. No. L-15127 May 30, 1961

EMETERIO CUI, plaintiff-appellant, vs.ARELLANO UNIVERSITY, defendant-appellee.

G.A.S. Sipin, Jr., for plaintiff-appellant.E. Voltaire Garcia for defendant-appellee.

CONCEPCION, J.:

Appeal by plaintiff Emeterio Cui from a decision of the Court of First Instance of Manila, absolving defendant Arellano University from plaintiff's complaint, with costs against the plaintiff, and dismissing defendant's counter claim, for insufficiency of proof thereon.

In the language of the decision appealed from:

The essential facts of this case are short and undisputed. As established by the agreement of facts Exhibits X and by the respective oral and documentary evidence introduced by the parties, it appears conclusive that plaintiff, before the school year 1948-1949 took up preparatory law course in the defendant University. After finishing his preparatory law course plaintiff enrolled in the College of Law of the defendant from the school year 1948-1949. Plaintiff finished his law studies in the defendant university up to and including the first semester of the fourth year. During all the school years in which plaintiff was studying law in defendant law college, Francisco R. Capistrano, brother of the mother of plaintiff, was the dean of the College of Law and legal counsel of the defendant university. Plaintiff enrolled for the last semester of his law studies in the defendant university but failed to pay his tuition fees because his uncle Dean Francisco R. Capistrano having severed his connection with defendant and having accepted the deanship and chancellorship of the College of Law of Abad Santos University, plaintiff left the defendant's law college and enrolled for the last semester of his fourth year law in the college of law of the Abad Santos University graduating from the college of law of the latter university. Plaintiff, during all the time he was studying law in defendant university was awarded scholarship grants, for scholastic merit, so that his semestral tuition fees were returned to him after the ends of semester and when his scholarship grants were awarded to him. The whole amount of tuition fees paid by plaintiff to defendant and refunded to him by the latter from the first semester up to and including the first semester of his last year in the college of law or the fourth year, is in total P1,033.87. After graduating in law from Abad Santos University he applied to take the bar examination. To secure permission to take the bar he needed the transcripts of his records in defendant Arellano University. Plaintiff petitioned the latter to issue to him the needed transcripts. The defendant refused until after he had paid back the P1,033 87 which defendant refunded to him as above stated. As he could not take the bar examination without those transcripts, plaintiff paid to defendant the said sum under protest. This is the sum which plaintiff seeks to recover from defendant in this case.

Before defendant awarded to plaintiff the scholarship grants as above stated, he was made to sign the following contract covenant and agreement:

"In consideration of the scholarship granted to me by the University, I hereby waive my right to transfer to another school without having refunded to the University (defendant) the equivalent of my scholarship cash.

(Sgd.) Emeterio Cui".

It is admitted that, on August 16, 1949, the Director of Private Schools issued Memorandum No. 38, series of 1949, on the subject of "Scholarship," addressed to "All heads of private schools, colleges and universities," reading:

1. School catalogs and prospectuses submitted to this, Bureau show that some schools offer full or partial scholarships to deserving students — for excellence in scholarship or for leadership in extra-curricular activities. Such inducements to poor but gifted students should be encouraged. But to stipulate the condition that such scholarships are good only if the students concerned continue in the same school nullifies the principle of merit in the award of these scholarships.

2. When students are given full or partial scholarships, it is understood that such scholarships are merited and earned. The amount in tuition and other fees corresponding to these scholarships should not be subsequently charged to the recipient students when they decide to quit school or to transfer to another institution. Scholarships should not be offered merely to attract and keep students in a school.

3. Several complaints have actually been received from students who have enjoyed scholarships, full or partial, to the effect that they could not transfer to other schools since their credentials would not be released unless they would pay the fees corresponding to the period of the scholarships. Where the Bureau believes that the right of the student to transfer is being denied on this ground, it reserves the right to authorize such transfer.

that defendant herein received a copy of this memorandum; that plaintiff asked the Bureau of Private Schools to pass upon the issue on his right to secure the transcript of his record in defendant University, without being required to refund the sum of P1,033.87; that the Bureau of Private Schools upheld the position taken by the plaintiff and so advised the defendant; and that, this notwithstanding, the latter refused to issue said transcript of records, unless said refund were made, and even recommended to said Bureau that it issue a written order directing the defendant to release said transcript of record, "so that the case may be presented to the court for judicial action." As above stated, plaintiff was, accordingly, constrained to pay, and did pay under protest, said sum of P1,033.87, in order that he could take the bar examination in 1953. Subsequently, he brought this action for the recovery of said amount, aside from P2,000 as moral damages, P500 as exemplary damages, P2,000 as attorney's fees, and P500 as expenses of litigation.

In its answer, defendant reiterated the stand it took, vis-a-vis the Bureau of Private Schools, namely, that the provisions of its contract with plaintiff are valid and binding and that the memorandum above-referred to is null and void. It, likewise, set up a counterclaim for P10,000.00 as damages, and P3,000 as attorney's fees.

The issue in this case is whether the above quoted provision of the contract between plaintiff and the defendant, whereby the former waived his right to transfer to another school without refunding to the latter the equivalent of his scholarships in cash, is valid or not. The lower court resolved this question in the affirmative, upon the ground that the aforementioned memorandum of the Director of Private Schools is not a law; that the provisions thereof are advisory, not mandatory in nature; and that, although the contractual provision "may be unethical, yet it was more unethical for plaintiff to quit studying with the defendant without good reasons and simply because he wanted to follow the example of his uncle." Moreover, defendant maintains in its brief that the aforementioned memorandum of the Director of Private Schools is null and void because said officer had no authority to issue it, and because it had been neither approved by the corresponding department head nor published in the official gazette.

We do not deem it necessary or advisable to consider as the lower court did, the question whether plaintiff had sufficient reasons or not to transfer from defendant University to the Abad Santos University. The nature of the issue before us, and its far reaching effects, transcend personal equations and demand a determination of the case from a high impersonal plane. Neither do we deem it essential to pass upon the validity of said

Memorandum No. 38, for, regardless of the same, we are of the opinion that the stipulation in question is contrary to public policy and, hence, null and void. The aforesaid memorandum merely incorporates a sound principle of public policy. As the Director of Private Schools correctly pointed, out in his letter, Exhibit B, to the defendant,

There is one more point that merits refutation and that is whether or not the contract entered into between Cui and Arellano University on September 10, 1951 was void as against public policy. In the case of Zeigel vs. Illinois Trust and Savings Bank, 245 Ill. 180, 19 Ann. Case 127, the court said: 'In determining a public policy of the state, courts are limited to a consideration of the Constitution, the judicial decisions, the statutes, and the practice of government officers.' It might take more than a government bureau or office to lay down or establish a public policy, as alleged in your communication, but courts consider the practices of government officials as one of the four factors in determining a public policy of the state. It has been consistently held in America that under the principles relating to the doctrine of public policy, as applied to the law of contracts, courts of justice will not recognize or uphold a transaction which its object, operation, or tendency is calculated to be prejudicial to the public welfare, to sound morality or to civic honesty (Ritter vs. Mutual Life Ins. Co., 169 U.S. 139; Heding vs. Gallaghere 64 L.R.A. 811; Veazy vs. Allen, 173 N.Y. 359). If Arellano University understood clearly the real essence of scholarships and the motives which prompted this office to issue Memorandum No. 38, s. 1949, it should have not entered into a contract of waiver with Cui on September 10, 1951, which is a direct violation of our Memorandum and an open challenge to the authority of the Director of Private Schools because the contract was repugnant to sound morality and civic honesty. And finally, in Gabriel vs. Monte de Piedad, Off. Gazette Supp. Dec. 6, 1941, p. 67 we read: 'In order to declare a contract void as against public policy, a court must find that the contract as to consideration or the thing to be done, contravenes some established interest of society, or is inconsistent with sound policy and good morals or tends clearly to undermine the security of individual rights. The policy enunciated in Memorandum No. 38, s. 1949 is sound policy. Scholarship are awarded in recognition of merit not to keep outstanding students in school to bolster its prestige. In the understanding of that university scholarships award is a business scheme designed to increase the business potential of an education institution. Thus conceived it is not only inconsistent with sound policy but also good morals. But what is morals? Manresa has this definition. It is good customs; those generally accepted principles of morality which have received some kind of social and practical confirmation. The practice of awarding scholarships to attract students and keep them in school is not good customs nor has it received some kind of social and practical confirmation except in some private institutions as in Arellano University. The University of the Philippines which implements Section 5 of Article XIV of the Constitution with reference to the giving of free scholarships to gifted children, does not require scholars to reimburse the corresponding value of the scholarships if they transfer to other schools. So also with the leading colleges and universities of the United States after which our educational practices or policies are patterned. In these institutions scholarships are granted not to attract and to keep brilliant students in school for their propaganda mine but to reward merit or help gifted students in whom society has an established interest or a first lien. (Emphasis supplied.)

WHEREFORE, the decision appealed from is hereby reversed and another one shall be entered sentencing the defendant to pay to the plaintiff the sum of P1,033.87, with interest thereon at the legal rate from September 1, 1954, date of the institution of this case, as well as the costs, and dismissing defendant's counterclaim. It is so ordered.

Bengzon, C.J., Padilla, Labrador, Reyes, J.B.L., Barrera, Parades, Dizon, De Leon and Natividad, JJ., concur.Bautista Angelo, J., reserves his vote.

G.R. No. L-20175 October 30, 1967

MARIA A. GARCIA, ET AL., petitioners, vs.RITA LEGARDA, INC., respondent.

Picazo and Agcaoili for petitioners. Gregorio Fajardo for respondent.

DIZON, J.:

Appeal taken by the spouses Maria A. Garcia and Marcelino A. Timbang — hereinafter referred to as petitioners — from the decision of the Court of Appeals in CA-G.R. No. 27194-R reversing the one rendered on January 9, 1960 by the Court of First Instance of Manila in Civil Case No. 1962 entitled "Maria A. Garcia, et al. vs. Rita Legarda, Inc." The latter is a corporation organized under Philippine laws, and is engaged in the sale and resale of residential lots in Manila and suburbs. We shall refer to it hereinafter as the respondent.

On May 20, 1953 the petitioners instituted the civil case mentioned above against the respondent to have certain contracts numbered 322, 324, and 965 declared as existing and subsisting; to compel the respondent to accept payments tendered by them; and to recover moral and exemplary damages and attorney's fees in the amounts of P6,000.00 and P1,500.00, respectively.

The three causes of action alleged in their complaint involved the three parcels of land subject matter of the contracts aforesaid. Each had an area of about 150 square meters, and formed part of the Rita Legarda Estate situated in Manila, and subdivided into lots sold on installment basis.

(1) Contract to Sell No. 322 (Exhs. A and A-1) covering Lot 40, Block 8-CC, was executed by the respondent in favor of Emiliano Orellana on March 1, 1947. On June 26, 1947, the latter transferred all his rights, and interest thereunder to Encarnacion Vito who, in turn, on November 3 of the same year, made a similar transfer of rights in favor of Delfin Bacho. Finally, on May 29, 1948, Bacho also transferred all his rights and interest to the petitioners.

(2) On March 1, 1947, Contract to Sell No. 324 (Exh. 2) covering Lot No. 20, Block 5-CC was executed by respondent in favor of Jesusa Felix. Two months later, Felix, with the written consent of the respondent, sold her rights and interest to petitioners.

(3) Contract to Sell No. 965 (Exh. 3) covering Lot No. 27, Block 5-CC was executed by the respondent in favor of Angela Alvarez Solomon on January 8, 1948. With the written consent of the former, Solomon also sold her rights and interest to the petitioners on May 11, 1948.

In its answer to the complaint, the respondent averred that in relation to the Contracts to Sell Nos. 822, 965 and 324, petitioners paid on November 7, 1951 the 53rd, 43rd and 53rd installments, respectively, corresponding to the installments for the month of July, 1951; that the petitioners, as of June 11, 1952, had failed to pay the stipulated monthly installments for Contracts Nos. 322 and 324 corresponding to the period from August, 1951 through June, 1952, and in the case of Contract No. 965, from August, 1951 through May, 1952; that despite several demands for payment of arrears made between December, 1951 and June, 1952 by the respondent, the petitioners had failed to pay the amounts due; and that upon the expiration of the 90-day grace period on June 11, 1952 stipulated in the sixth paragraph of the contracts, the respondent had cancelled them. The answer also prayed for an award of damages and attorney's fees in the sum of P2,000.00.

On April 20, 1954 the petitioners filed a reply denying that they were in arrears as to their obligations under the three contracts and, further averred as affirmative defense that the cancellation thereof was unlawful

and arbitrary.

After trial the Court rendered judgment declaring Contracts Nos. 322, 324 and 965 as existing and subsisting; ordering the respondent to accept the payments tendered by the petitioners and to pay attorney's fees in the sum of P1,500.00. but denied the award of moral and exemplary damages. From this decision the respondent appealed to the Court of Appeals from whose decision — reversing that of the lower court — the instant appeal was taken.

Petitioners now urge Us, in turn, to reverse the decision of the Court of Appeals, claiming that the latter had committed the following errors:

I. The Honorable Court of Appeals erred in declaring that the respondent Rita Legarda, Inc. had not waived its rights to cancel its contracts with the petitioners on the ground that it had previously accepted late payments of the installments due on such contracts.

II. The Honorable Court of Appeals erred in declaring that par. 9 of the contracts in question is not in violation of Art. 1308 of the New Civil Code.

III. The Honorable Court of Appeals erred in not declaring that the respondent Rita Legarda, Inc., after having tolerated and accepted previously late payments on the installments due on the contracts, suddenly and without suitable warning and giving of further opportunity to pay the same could not and should not have precipitously decided to forfeit, as it actually forfeited, all the payments which have already been made to it by petitioners.

IV. The Honorable Court of Appeals erred in reversing and in not affirming the decision of the Court of First Instance of Manila in its entirety.

The second assignment of error is based on petitioners' contention that the questioned stipulations of the contracts are in violation of the provisions of Article 1308 of the New Civil Code, while the first and third are based on the claim that the respondent having previously accepted late payments of installments due on the contracts aforesaid, must be deemed to have waived its right to cancel said contracts on the ground of late payment of installments, and that, at any rate, after having tolerated and accepted said late payments, it was arbitrary on its part to cancel the contracts suddenly and without suitable warning. The fifth and last assignment of error is merely a consequence of the others.

Article 1308 of the New Civil Code reads as follows:

The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.

The above legal provision is a virtual reproduction of Article 1256 of the old Civil Code but it was so phrased as to emphasize the principle that the contract must bind both parties. This, of course, is based firstly, on the principle that obligations arising from contracts have the force of law between the contracting parties and secondly, that there must be mutuality between the parties based on their essential equality to which is repugnant to have one party bound by the contract leaving the other free therefrom (8 Manresa 556). Its ultimate purpose is to render void a contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties.

Paragraph 6 of the contracts in question — which is the one claimed to be violative of the legal provision above quoted — reads as follows:

SIXTH — In case the party of the SECOND PART fails to satisfy any monthly installments, or any other payments herein agreed upon, he is granted a month of grace within which to make the retarded payment, together with the one corresponding to the said month of grace; it is understood, however, that should the month of grace herein granted to the party of the SECOND PART expire, without the payments corresponding to both months

having been satisfied, an interest of 10% per annum will be charged on the amounts he should have paid; it is understood further, that should a period of 90 days elapse, to begin from the expiration of the month of grace herein mentioned, and the party of the SECOND PART has not paid all the amounts he should have paid with the corresponding interest up to that date, the party of the FIRST PART has the right to declare this contract cancelled and of no effect, and as consequence thereof, the party of the FIRST PART may dispose of the parcel or parcels of land covered by this contract in favor of other persons, as if this contract had never been entered into. In case of such cancellation of this contract, all the amounts paid in accordance with this agreement together with all the improvements made on the premises, shall be considered as rents paid for the use and occupation of the above mentioned premises, and as payment for the damages suffered by failure of the party of the SECOND PART to fulfill his part of this agreement; and the party of the SECOND PART hereby renounces all his right to demand or reclaim the return of the same and obliges himself to peacefully vacate the premises and deliver the same to the party of the FIRST PART.

The above stipulation, to our mind, merely gives the vendor "the right to declare this contract cancelled and of no effect" upon fulfillment of the conditions therein set forth. It does not leave the validity or compliance of the contract entirely "to the will of one of the contracting parties"; the stipulation or agreement simply says that in case of default in the payment of installments by the vendee, he shall have (1) "a month of grace", and that (2) should said month of grace expire without the vendee paying his arrears, he shall have another "period of 90 days" to pay "all the amounts he should have paid", etc., then the vendor "has the right to declare this contract cancelled and of no effect." We have heretofore upheld the validity of similar stipulations. In Taylor vs. Ky Tieng Piao, etc., 43 Phil. 873, 876-878 the ruling was that a contract expressly giving to one party the right to cancel, the same if a resolutory condition therein agreed upon — similar to the one under consideration — is not fulfilled, is valid, the reason being that when the contract is thus cancelled, the agreement of the parties is in reality being fulfilled. Indeed, the power thus granted can not be said to be immoral, much less unlawful, for it could be exercised — not arbitrarily — but only upon the other contracting party committing the breach of contract of non-payment of the installments agreed upon. Obviously, all that said party had to do to prevent the other from exercising the power to cancel the contract was for him to comply with his part of the contract. And in this case, after the maturity of any particular installment and its non-payment, the contract gave him not only a month grace but an additional period of 90 days.

Having arrived at the above conclusions, We now come to the question of whether or not by having previously accepted payments of overdue installments the respondent had waived its right to declare the contracts cancelled and of no effect.

In this connection the record shows that on June 11, 1952 when the Contracts to Sell Nos. 234 and 965 were cancelled, the vendees were ten months in arrears and that in the case of contract to Sell No. 322 the vendees had never resumed payment of a single installment from the date when, upon their petition, said contract was reinstated on September 28, 1952. The contracts under consideration are not of absolute sale but mere contracts to sell — on installment. They give the respondent's (vendor) the right to declare the contracts cancelled and of no effect — as in fact it did — upon fulfillment of certain conditions. All said conditions — so the record shows — have been fulfilled. Consequently, respondent's (vendor) right to cancel the contracts can not be doubted.

That prior to the cancellation it had in fact accepted payment of installments in arrears was but another act of forbearance on its part to give the petitioners an additional opportunity to keep the contracts alive. Rather than give rise to the presumption that by such act of humanity it waived its right to cancel the contracts, it strengthens its right to do so, considering that even after such act of accommodation beneficial to the petitioners, the latter subsequently defaulted again and again in the

fulfillment of their obligation.

It is, of course, painful for the petitioners to lose not only the right they had acquired under the contracts but also whatever amounts they had already paid thereunder, but such consequences had been foreseen by the contracting parties. To avoid them, all that petitioners had to do — as already said heretofore — was to comply with their part of the bargain. Having failed to do so, they really have no valid reason to complain. That one contracting party appears to have made a poor bargain is no reason for setting aside the agreement (Fernandez vs. Manila Railroad, 14 Phil. 274, 287).

WHEREFORE, the appealed judgment being in accordance with law and the facts of the case, the same is hereby affirmed.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.

G.R. No. L-27696 September 30, 1977

MIGUEL FLORENTINO, ROSARIO ENCARNACION de FLORENTINO, MANUEL ARCE, JOSE FLORENTINO, VICTORINO FLORENTINO, ANTONIO FLORENTINO, REMEDION ENCARNACION and SEVERINA ENCARNACION, petitioners-appellants, vs.SALVADOR ENCARNACION, SR., SALVADOR ENCARNACION, JR., and ANGEL ENCARNACION, oppositors to encumbrance-petitioners-appelles.

Jose F. Singson and Miguel Florentino for appellants.

Pedro Singson for appellees.

GUERRERO, J.:

Appeal from the decision of the Court of First Instance of Ilocos Sur, acting as a land registration court, in Land Registration case No. N-310.

On May 22, 1964, the petitioners-appellants Miguel Florentino, Remedios Encarnacion de Florentino, Manuel Arce, Jose Florentino, Victorino Florentino, Antonio Florentino, Remedior, Encarnacion and Severina Encamacion, and the Petitiners-appellees Salvador Encamacion, Sr., Salvador Encamacion, Jr. and Angel Encarnacion filed with the Court of First Instance of ilocos Sur an application for the registration under Act 496 of a parcel of agricultural land located at Barrio Lubong Dacquel Cabugao Ilocos Sur.

The application alleged among other things that the applicants are the common and pro-indiviso owners in fee simple of the said land with the improvements existing thereon; that to the best of their knowledge and belief, there is no mortgage, lien or encumbrance of any kind whatever affecting said land, nor any other person having any estate or interest thereon, legal or equitable, remainder, reservation or in expectancy; that said applicants had acquired the aforesaid land thru and by inheritance from their predecessors in interest, lately from their aunt, Doña Encarnacion Florentino who died in Vigan, Ilocos Sur in 1941, and for which the said land was adjudicated to them by virtue of the deed of extrajudicial partition dated August 24, 1947; that applicants Salvador Encarnacion, Jr. and Angel Encarnacion acquired their respective shares of the land thru purchase from the original heirs, Jesus, Caridad, Lourdes and Dolores surnamed Singson one hand and from Asuncion Florentino on the other.

After due notice and publication, the Court set the application for hearing. No Opposition whatsoever was filed except that of the Director of Lands which was later withdrawn, thereby leaving the option unopposed. Thereupon, an order of general default was withdrawn against the whole world. Upon application of the asets the Clerk Of court was commission will and to have the evidence of the agents and or to submit the for the Court's for resolution.

The crucial point in controversy in this registration case is centered in the stipulation marked Exhibit O-1 embodied in the deed of extrajudicial partition (Exhibit O) dated August 24, 1947 which states:

Los productos de esta parcela de terreno situada en el Barrio Lubong Dacquel Cabugao Ilocos Sur, se destination para costear los tos de procesio de la Tercera Caida celebration y sermon de Siete Palbras Seis Estaciones de Cuaresma, procesion del Nino Jesus, tilaracion y conservacion de los mismos, construction le union camarin en conde se depositan los carros mesas y otras cosas que seven para lot leiracion de Siete Palabras y otras cosas mas Lo que sobra de lihos productos despues de descontados todos los gastos se repartira nosotros los herederos.

In his testimony during the trial, applicant Miguel Florentino asked the court to include the said stipulation (Exhibit O-1) as an encumbrance on the

land sought to be registered, and cause the entry of the same on the face of the title that will finally be issued. Opposing its entry on the title as an encumbrance, petitionersappellee Salvador Encamacion, Sr., Salvador Encarnaciori, Jr. and Angel Encarriacion filed on October 3, 1966 a manifestation seeking to withdraw their application on their respective shares of the land sought to be registered. The withdrawal was opposed by the petitioners-appellants.

The Court after hearing the motion for withdrawal and the opposition thereto issued on November 17, 1966 an order and for the purpose of ascertaining and implifying the issues therein stated that all the applicants admit the truth of the following;

(1) That just after the death of Encarnacion FIorentino in 1941 up to last year and as had always been the case since time immomorial the products of the land made subiect matter of this land has been used in answering for the payment for the religious functions specified in the Deed Extrajudicial Partition belated August 24, 1947:

(2) That this arrangement about the products answering for the comment of experisence for religions functions as mentioned above was not registered in the office of the Register of Deeds under Act No 3344, Act 496 or and, other system of registration;

(3) That all the herein applicants know of the existence of his arrangement as specified in the Deed of Extra judicial Partition of A adjust 24, 1947;

(4) That the Deed of Extrajudicial Partition of August 24, 194-, not signed by Angel Encarnacion or Salvador Encarnacion, Jr,.

The court denied the petitioners-appellee motion to withdraw for lack of merit, and rendered a decision under date of November 29, 1966 confirming the title of the property in favor of the f appoints with their respective shares as follows:

Spouses Miguel Florentino and Rosario Encarnacion de Florentino, both of legal age, Filipinos, and residents of Vigan, Ilocos Sur, consisting of an undivided 31/297 and 8.25/297 portions, respectively;

Manuel Arce, of legal age, Filipino, married to Remedios Pichay and resident of Vigan, Ilocos Sur, consisting of an undivided 66/297 portion;

Salvador Encarnacion, Jr., of legal age, Filipino, married to Angelita Nagar and resident of Vigan, Ilocos Sur, consisting of an undivided 66/297; Jose Florentino, of legal age, Filipino, married to Salvacion Florendo and resident of 16 South Ninth Diliman, Quezon City, consisting of an undivided 33/297 portion;

Angel Encarnacion, of legal age, Filipino, single and resident of 1514 Milagros St., Sta. Cruz, Manila, consisting of an undivided 33/297 portion;

Victorino Florentino, of legal age, Filipino, married to Mercedes L. Encarnacion and resident of Vigan, Ilocos Sur, consisting of an undivided 17.5/297 portion;

Antonio Florentino, of legal age, Filipino, single and resident of Vigan, Ilocos Sur, consisting of an undivided 17.5/297;

Salvador Encarnacion, Sr., of legal age, Filipino, married to Dolores Singson, consisting of an undivided 8.25/297;

Remedios Encarnacion, of legal age, Filipino, single and resident of Vigan, Ilocos Sur, consisting of an undivided 8.25/297 portion; and

Severina Encarnacion, of legal age, Filipino, single and resident of Vigan, Ilocos Sur, consisting of 8.25/297 undivided portion.

The court, after ruling "that the contention of the proponents of encumbrance is without merit bemuse, taking the self-imposed arrangement in favor of the Church as a pure and simple donation, the same is void for the that the donee here has riot accepted the donation (Art. 745, Civil Code) and for the further that, in the case of Salvador Encarnacion, Jr. and Angel Encarnacion, they had made no oral or written grant at all (Art. 748) as in fact they are even opposed to it," 1 held in the Positive portion, as follows:

In view of all these, therefore, and insofar as the question of encumbrance is concerned, let the religious expenses as herein specified be made and entered on the undivided shares, interests and participations of all the applicants in this case, except that of Salvador Encarnacion, Sr., Salvador Encarnacion, Jr. and Angel Encarnacion.

On January 3, 1967, petitioners-appellants filed their Reply to the Opposition reiterating their previous arguments, and also attacking the junction of the registration court to pass upon the validity or invalidity of the agreement Exhibit O-1, alleging that such is specified only in an ordinary action and not proper in a land registration proceeding.

The Motion for Reconsideration and of New Trial was denied on January 14, 1967 for lack of merit, but the court modified its earlier decision of November 29, 1966, to wit:

This Court believes, and so holds, that the contention of the movants (proponents of the encumbrance) is without merit because the arrangement, stipulation or grant as embodied in Exhibit O (Escritura de Particion Extrajudicial), by whatever name it may be (called, whether donation, usufruct or ellemosynary gift, can be revoked as in fact the oppositors Salvador Encarnacion, Sr., who is the only one of the three oppositors who is a party to said Exhibit O (the two others, Salvador Encarnacion, Jr. and Angel Encarnacion no parties to it) did revoke it as shown by acts accompanying his refusal to have the same appear as an encumbrance on the title to be issued. In fact, legally, the same can also be ignored or discararded by will the three oppositors. The reasons are: First, if the said stipulation is pour bodies in Exhibit O-1 is to be viewed as a stipulation pour autrui the same cannot now be enforced because the Church in whose favor it was made has not communicated its acceptance to the oppositors before the latter revoked it. Says the 2nd par. of Art. 1311 of the New Civil Code:

"If a contract should contain some stipulation in favor of a third person he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person." No evide nee has ever been submitted by the Church to show its clear acceptance of the grant before its revocation by the oppositor Salvador Encarnacion, Sr. (or of the two other oppositors, Salvador Encarnacion, Jr. and Angel Encarnacion, who didn't even make any giant, in the first place), and so not even the movants who have officiously taken into themselves the right to enforce the grant cannot now maintain any action to compel compliance with it. (Bank of the P.I. v. Concepcion y Hijos, Inc., 53 Phil. 806). Second, the Church in whose favor the stipulation or grant had apparently been made ought to be the proper party to compel the herein three oppositors to abide with the stipulation. But it has not made any appearance nor registered its opposition to the application even before Oct. 18, 1965 when an order of general default was issued. Third, the movants are not, in the contemplation of Section 2, Rule 3 of the Rules of Court, the real party in interest to raise the present issue; and Fourth, the movants having once alleged in their application for registration that the land is without encumbrance (par. 3 thereof), cannot now be alloted by the rules of pleading to contradict said allegation of theirs. (McDaniel v. Apacible, 44 Phil. 248)

SO ORDERED. 2

After Motions for Reconsideration were denied by the court, the petitioners- appellants appealed directly to this Court pursuant to Rule 4 1, Rules of Court, raising the following assign of error:

I. The lower court erred in concluding that the stipulation embodied in Exhibit O on religious expenses is just an arrangement stipulation, or grant revocable at the unilateral option of the coowners.

II. The lower court erred in finding and concluding that the encumbrance or religious expenses embodied in Exhibit O, the extrajudicial partition between the co-heirs, is binding only on the appoints Miguel Florentino, Rosario Encarnacion de Florentino, Manuel Arce, Jose Florentino, Antonio Florentino, Victorino Florentino, Remedios Encarnacion and Severina Encarnacion.

III. The lower court as a registration court erred in passing upon the merits of the encumbrance (Exhibit O-1) as the sanie was never put to issue and as the question involved is an adjudication of rights of the parties.

We find the first and second assignments of error impressed with merit and, therefore, tenable. The stipulation embodied in Exhibit O-1 on religious expenses is not revocable at the unilateral option of the co-owners and neither is it binding only on the petitioners-appellants Miguel Florentino, Rosario Encarnacion de Florentino Manuel Arce, Jose Florentino, Victorino Florentino Antonio Florentino, Remedios Encarnacion and Severina E It is also binding on the oppositors-appellees Angel Encarnacion,

The stipulation (Exhibit 411) in pan of an extrajudicial partition (Exh. O) duly agreed and signed by the parties, hence the sanie must bind the contracting parties thereto and its validity or compliance cannot be left to the with of one of them (Art. 1308, N.C.C.). Under Art 1311 of the New Civil Code, this stipulation takes effect between the parties, their assign and heirs. The article provides:

Art. 1311. — Contracts take effect only between the parties, their assigns and heirs, except in cases where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent.

If a contract should contain a stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person.

The second paragraph of Article 1311 above-quoted states the law on stipulations pour autrui. Consent the nature and purpose of the motion (Exh. O-1), We hold that said stipulation is a station pour autrui. A stipulation pour autrui is a stipulation in favor of a third person conferring a clear and deliberate favor upon him, and which stipulation is merely a part of a contract entered into by the parties, neither of whom acted as agent of the third person, and such third person and demand its fulfillment provoked that he communicates his to the obligor before it is revoked. 3 The requisites are: (1) that the stipulation in favor of a third person should be a part, not the whole, of the contract; (2) that the favorable stipulation should not be conditioned or compensated by any kind of obligation whatever; and (3) neither of the contracting bears the legal represented or authorization of third person.

To constitute a valid stipulation pour autrui it must be the purpose and intent of the stipulating parties to benefit the third and it is not sufficient that the third person may be incidentally benefited by the stipulation. The fairest test to determine whether the interest of third person in a contract is a stipulation pour autrui or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract. In applying this

test, it meters not whether the stipulation is in the nature of a gift or whether there is an obligation owing from the promisee to the third person. That no such obsorption exists may in some degree assist in determining whether the parties intended to benefit a third person.4

In the case at bar, the determining point is whether the co-owners intended to benefit the Church when in their extrajudicial partition of several parcels of land inherited by them from Doña Encarnacion Florendo they agreed that with respect to the land situated in Barrio Lubong Dacquel Cabugao Ilocos Sur, the fruits thereof shall serve to defray the religious expenses specified in Exhibit O-1. The evidence on record shows that the true intent of the parties is to confer a direct and material benefit upon the Church. The fruits of the aforesaid land were used thenceforth to defray the expenses of the Church in the preparation and celebration of the Holy Week, an annual Church function. Suffice it to say that were it not for Exhibit O-1, the Church would have necessarily expended for this religious occasion, the annual relisgious procession during the Holy Wock and also for the repair and preservation of all the statutes, for the celebration of the Seven Last Word.

We find that the trial court erred in holding that the stipulation, arrangement or grant (Exhibit O-1) is revocable at the option of the co-owners. While a stipulation in favor of a third person has no binding effect in itself before its acceptance by the party favored, the law does not provide when the third person must make his acceptance. As a rule, there is no time at such third person has after the time until the stipulation is revoked. Here, We find that the Church accepted the stipulation in its favor before it is sought to be revoked by some of the co-owners, namely the petitioners-appellants herein. It is not disputed that from the time of the with of Doña Encarnacion Florentino in 1941, as had always been the case since time immemorial up to a year before the firing of their application in May 1964, the Church had been enjoying the benefits of the stipulation. The enjoyment of benefits flowing therefrom for almost seventeen years without question from any quarters can only be construed as an implied acceptance by the Church of the stipulation pour autrui before its revocation.

The acceptance does not have to be in any particular form, even when the stipulation is for the third person an act of liberality or generosity on the part of the promisor or promise. 5

It need not be made expressly and formally. Notification of acceptance, other than such as is involved in the making of demand, is unnecessary. 6

A trust constituted between two contracting parties for the benefit of a third person is not subject to the rules governing donation of real property. The beneficiary of a trust may demand performance of the obligation without having formally accepted the benefit of the this in a public document, upon mere acquiescence in the formation of the trust and acceptance under the second paragraph of Art. 1257 of the Civil Code. 7

Hence, the stipulation (Exhibit O-1) cannot now be revoked by any of the stipulators at their own option. This must be so because of Article 1257, Civil Code and the cardinal rule of contracts that it has the force of law between the parties. 8 Thus, this Court ruled in Garcia v. Rita Legarda, Inc., 9 "Article 1309 is a virtual reproduction of Article 1256 of the Civil Code, so phrased to emphasize that the contract must bind both parties, based on the principles (1) that obligation arising from contracts have the force of law between the contracting parties; and (2) that there must be mutuality between the parties based on their principle equality, to which is repugnant to have one party bound by the contract leaving the other free therefrom."

Consequently, Salvador Encarnacion, Sr. must bear with Exhibit O-1, being a signatory to the Deed of Extrajudicial Partition embodying such beneficial stipualtion. Likewise, with regards to Salvador, Jr. and Angel Encarnacion, they too are bound to the agreement. Being subsequent purchasers, they are privies or successors in interest; it is axiomatic that contracts are

enforceable against the parties and their privies. 10 Furthermore, they are shown to have given their conformity to such agreement when they kept their peace in 1962 and 1963, having already bought their respective shares of the subject land but did not question the enforcement of the agreement as against them. They are also shown to have knowledge of Exhibit O-1 as they had admitted in a Deed of Real Mortgage executed by them on March 8, 1962 involving their shares of the subject land that, "This parcel of land is encumbered as evidenced by the document No. 420, page 94, Book 1, series 1947, executed by the heirs of the late Encarnacion Florentino, on August 26, 1947, before M. Francisco Ante, Notwy Public of Vigan, Ilocos Sur, in its page 10 of the said document of partition, and also by other documents."

The annotation of Exhibit O-1 on the face of the title to be issued in this case is merely a guarantee of the continued enforcement and fulfillment of the beneficial stipulation. It is error for the lower court to rule that the petitioners-appellants are not the real parties in interest, but the Church. That one of the parties to a contract pour autrui is entitled to bring an action for its enforcement or to prevent its breach is too clear to need any extensive discussion. Upon the other hand, that the contract involved contained a stipulation pour autrui amplifies this settled rule only in the sense that the third person for whose benefit the contract was entered into may also demand its fulfillment provoked he had communicated his acceptance thereof to the obligor before the stipulation in his favor is revoked. 11

Petitioners-appellants' third assignment of error is not well-taken. Firstly, the otherwise rigid rule that the jurisdiction of the Land Registration Court, being special and limited in character and proceedings thereon summary in nature, does not extend to cases involving issues properly litigable in other independent suits or ordinary civil actions, has time and again been relaxed in special and exceptional circumstances. (See Government of the Phil. Islands v. Serafica, 61 Phil. 93 (1934); Caoibes v. Sison, 102 Phil. 19 (1957); Luna v. Santos, 102 Phil. 588 (1957); Cruz v. Tan, 93 Phil. 348 (1953); Gurbax Singh Pabla & Co. v. Reyes, 92 Phil. 177 (1952). From these cases, it may be gleaned and gathered that the peculiarity of the exceptions is based not only on the fact that Land Registration Courts are likewise the same Courts of First Instance, but also the following premises (1) Mutual consent of the parties or their acquired in submitting the at aforesaid determination by the court in the registration; (2) Full opportunity given to the parties in the presentation of their respective skies of the issues and of the evidence in support thereto; (3) Consideration by the court that the evidence already of record is sufficient and adequate for rendering a decision upon these issues. 12 In the case at bar, the records clearly show that the second and third premism enumerated abow are fully mt. With regards to first premise, the petioners-appellants cannot claim that the issues anent Exhibit O-1 were not put in issue because this is contrary to their stand before the lower court where they took the initial step in praying for the court's determination of the merits of Exhibit O-1 as an encumbrance to be annotated on the title to be issued by such court. On the other hand, the petitioners-appellees who had the right to invoke the limited jurisdiction of the registration court failed to do so but met the issues head-on.

Secondly, for this very special reason, We win uphold the actuation of the lower court in determining the conflicting interests of the parties in the registration proceedings before it. This case has been languishing in our courts for thirteen tong years. To require that it be remanded to the lower court for another proceeding under its general jurisdiction is not in consonance with our avowed policy of speedy justice. It would not be amiss to note that if this case be remanded to the lower court, and should appeal again be made, the name issues will once more be raised before us hence, Our decision to resolve at once the issues in the instant petition.

IN VIEW OF THE FOREGOING, the decision of the Court of First Instance of Ilocos Sur in Land Registration Case No. N-310 is affirmed but modified to allow the annotation of Exhibit O-1 as an encumbrance on the face of the title to be finally issued in favor of all the applications (herein appellants and herein appellees) in the registration proceedings below.

No pronouncement as to cost.

SO ORDERED.

Teehankee (Chairman), Muñoz Palma, Fernandez, JJ., concur.

G.R. No. L-25494 June 14, 1972

NICOLAS SANCHEZ, plaintiff-appellee, vs.SEVERINA RIGOS, defendant-appellant.

Santiago F. Bautista for plaintiff-appellee.

Jesus G. Villamar for defendant-appellant.

CONCEPCION, C.J.:p

Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals, which certified the case to Us, upon the ground that it involves a question purely of law.

The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos executed an instrument entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and committed ... to sell" to Sanchez the sum of P1,510.00, a parcel of land situated in the barrios of Abar and Sibot, municipality of San Jose, province of Nueva Ecija, and more particularly described in Transfer Certificate of Title No. NT-12528 of said province, within two (2) years from said date with the understanding that said option shall be deemed "terminated and elapsed," if "Sanchez shall fail to exercise his right to buy the property" within the stipulated period. Inasmuch as several tenders of payment of the sum of Pl,510.00, made by Sanchez within said period, were rejected by Mrs. Rigos, on March 12, 1963, the former deposited said amount with the Court of First Instance of Nueva Ecija and commenced against the latter the present action, for specific performance and damages.

After the filing of defendant's answer — admitting some allegations of the complaint, denying other allegations thereof, and alleging, as special defense, that the contract between the parties "is a unilateral promise to sell, and the same being unsupported by any valuable consideration, by force of the New Civil Code, is null and void" — on February 11, 1964, both parties, assisted by their respective counsel, jointly moved for a judgment on the pleadings. Accordingly, on February 28, 1964, the lower court rendered judgment for Sanchez, ordering Mrs. Rigos to accept the sum judicially consigned by him and to execute, in his favor, the requisite deed of conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00, as attorney's fees, and other costs. Hence, this appeal by Mrs. Rigos.

This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which provides:

ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price.

In his complaint, plaintiff alleges that, by virtue of the option under consideration, "defendant agreed and committed to sell" and "the plaintiff agreed and committed to buy" the land described in the option, copy of which was annexed to said pleading as Annex A thereof and is quoted on the margin. 1 Hence, plaintiff maintains that the promise contained in the contract is "reciprocally demandable," pursuant to the first paragraph of said Article 1479. Although defendant had really "agreed, promised and committed" herself to sell the land to the plaintiff, it is not true that the latter had, in turn, "agreed and committed himself " to buy said property. Said Annex A does not bear out plaintiff's allegation to this effect. What is more, since Annex A has been made "an integral part" of his complaint, the provisions of said instrument form part "and parcel" 2 of said pleading.

The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex A is not a "contract to buy and sell." It merely granted plaintiff an "option" to buy. And both parties so understood it, as indicated by the caption, "Option to Purchase," given by them to said instrument. Under the provisions thereof, the defendant "agreed, promised and committed" herself to sell the land therein described to the plaintiff for P1,510.00, but there is nothing in the contract to indicate that her aforementioned agreement, promise and undertaking is supported by a consideration "distinct from the price" stipulated for the sale of the land.

Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said consideration, and this would seem to be the main factor that influenced its decision in plaintiff's favor. It should be noted, however, that:

(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to "sales" in particular, and, more specifically, to "an accepted unilateral promise to buy or to sell." In other words, Article 1479 is controlling in the case at bar.

(2) In order that said unilateral promise may be "binding upon the promisor, Article 1479 requires the concurrence of a condition, namely, that the promise be "supported by a consideration distinct from the price." Accordingly, the promisee can not compel the promisor to comply with the promise, unless the former establishes the existence of said distinct consideration. In other words, the promisee has the burden of proving such consideration. Plaintiff herein has not even alleged the existence thereof in his complaint.

(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special defense, the absence of said consideration for her promise to sell and, by joining in the petition for a judgment on the pleadings, plaintiff has impliedly admitted the truth of said averment in defendant's answer. Indeed as early as March 14, 1908, it had been held, in Bauermann v. Casas, 3 that:

One who prays for judgment on the pleadings without offering proof as to the truth of his own allegations, and without giving the opposing party an opportunity to introduce evidence, must be understood to admit the truth of all the material and relevant allegations of the opposing party, and to rest his motion for judgment on those allegations taken together with such of his own as are admitted in the pleadings. (La Yebana Company vs. Sevilla, 9 Phil. 210). (Emphasis supplied.)

This view was reiterated in Evangelista v. De la Rosa 4 and Mercy's Incorporated v. Herminia Verde. 5

Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 6 from which We quote:

The main contention of appellant is that the option granted to appellee to sell to it barge No. 10 for the sum of P30,000 under the terms stated above has no legal effect because it is not supported by any consideration and in support thereof it invokes article 1479 of the new Civil Code. The article provides:

"ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price."

On the other hand, Appellee contends that, even granting that the "offer of option" is not supported by any consideration, that option became binding on appellant when the appellee gave notice to it of its acceptance, and that having accepted it within the period of option, the offer can no longer be withdrawn and in any event such withdrawal is ineffective. In support this

contention, appellee invokes article 1324 of the Civil Code which provides:

"ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn any time before acceptance by communicating such withdrawal, except when the option is founded upon consideration as something paid or promised."

There is no question that under article 1479 of the new Civil Code "an option to sell," or "a promise to buy or to sell," as used in said article, to be valid must be "supported by a consideration distinct from the price." This is clearly inferred from the context of said article that a unilateral promise to buy or to sell, even if accepted, is only binding if supported by consideration. In other words, "an accepted unilateral promise can only have a binding effect if supported by a consideration which means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration. It is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the acceptance of it by appellee.

It is true that under article 1324 of the new Civil Code, the general rule regarding offer and acceptance is that, when the offerer gives to the offeree a certain period to accept, "the offer may be withdrawn at any time before acceptance" except when the option is founded upon consideration, but this general rule must be interpreted as modified by the provision of article 1479 above referred to, which applies to "a promise to buy and sell" specifically. As already stated, this rule requires that a promise to sell to be valid must be supported by a consideration distinct from the price.

We are not oblivious of the existence of American authorities which hold that an offer, once accepted, cannot be withdrawn, regardless of whether it is supported or not by a consideration (12 Am. Jur. 528). These authorities, we note, uphold the general rule applicable to offer and acceptance as contained in our new Civil Code. But we are prevented from applying them in view of the specific provision embodied in article 1479. While under the "offer of option" in question appellant has assumed a clear obligation to sell its barge to appellee and the option has been exercised in accordance with its terms, and there appears to be no valid or justifiable reason for appellant to withdraw its offer, this Court cannot adopt a different attitude because the law on the matter is clear. Our imperative duty is to apply it unless modified by Congress.

However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, 8 decided later that Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 9 saw no distinction between Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral promise to sell similar to the one sued upon here was involved, treating such promise as an option which, although not binding as a contract in itself for lack of a separate consideration, nevertheless generated a bilateral contract of purchase and sale upon acceptance. Speaking through Associate Justice, later Chief Justice, Cesar Bengzon, this Court said:

Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree should decide to exercise his option within the specified time. After accepting the promise and before he exercises his option, the holder of the option is not bound to buy. He is free either to buy or not to buy later. In this case, however, upon accepting herein petitioner's offer a bilateral promise to sell and to buy ensued, and the respondent ipso facto assumed the obligation of a purchaser. He did not just get the right subsequently to buy or not to buy. It was not a mere option then; it was a bilateral contract of sale.

Lastly, even supposing that Exh. A granted an option which is not binding for lack of consideration, the authorities hold that:

"If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale, even though the option was not supported by a sufficient

consideration. ... . (77 Corpus Juris Secundum, p. 652. See also 27 Ruling Case Law 339 and cases cited.)

"It can be taken for granted, as contended by the defendant, that the option contract was not valid for lack of consideration. But it was, at least, an offer to sell, which was accepted by letter, and of the acceptance the offerer had knowledge before said offer was withdrawn. The concurrence of both acts — the offer and the acceptance — could at all events have generated a contract, if none there was before (arts. 1254 and 1262 of the Civil Code)." (Zayco vs. Serra, 44 Phil. 331.)

In other words, since there may be no valid contract without a cause or consideration, the promisor is not bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale.

This view has the advantage of avoiding a conflict between Articles 1324 — on the general principles on contracts — and 1479 — on sales — of the Civil Code, in line with the cardinal rule of statutory construction that, in construing different provisions of one and the same law or code, such interpretation should be favored as will reconcile or harmonize said provisions and avoid a conflict between the same. Indeed, the presumption is that, in the process of drafting the Code, its author has maintained a consistent philosophy or position. Moreover, the decision in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 10 holding that Art. 1324 is modified by Art. 1479 of the Civil Code, in effect, considers the latter as an exception to the former, and exceptions are not favored, unless the intention to the contrary is clear, and it is not so, insofar as said two (2) articles are concerned. What is more, the reference, in both the second paragraph of Art. 1479 and Art. 1324, to an option or promise supported by or founded upon a consideration, strongly suggests that the two (2) provisions intended to enforce or implement the same principle.

Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby reiterates the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar as inconsistent therewith, the view adhered to in the Southwestern Sugar & Molasses Co. case should be deemed abandoned or modified.

WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendant-appellant Severina Rigos. It is so ordered.

Reyes, J.B.L., Makalintal, Zaldivar, Teehankee, Barredo and Makasiar, JJ., concur.

Castro, J., took no part.

Separate Opinions

ANTONIO, J., concurring:

I concur in the opinion of the Chief Justice.

I fully agree with the abandonment of the view previously adhered to in Southwestern Sugar & Molasses Co. vs. Atlantic Gulf and Pacific Co., 1 which holds that an option to sell can still be withdrawn, even if accepted, if the same is not supported by any consideration, and the reaffirmance of the doctrine in Atkins, Kroll & Co., Inc. vs. Cua Hian Tek, 2 holding that "an option implies ... the legal obligation to keep the offer (to sell) open for the time specified;" that it could be withdrawn before acceptance, if there was no consideration for the option, but once the "offer to sell" is accepted, a

bilateral promise to sell and to buy ensues, and the offeree ipso facto assumes the obligations of a purchaser. In other words, if the option is given without a consideration, it is a mere offer to sell, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale. The concurrence of both acts — the offer and the acceptance — could in such event generate a contract.

While the law permits the offeror to withdraw the offer at any time before acceptance even before the period has expired, some writers hold the view, that the offeror can not exercise this right in an arbitrary or capricious manner. This is upon the principle that an offer implies an obligation on the part of the offeror to maintain in such length of time as to permit the offeree to decide whether to accept or not, and therefore cannot arbitrarily revoke the offer without being liable for damages which the offeree may suffer. A contrary view would remove the stability and security of business transactions. 3

In the present case the trial court found that the "Plaintiff (Nicolas Sanchez) had offered the sum of Pl,510.00 before any withdrawal from the contract has been made by the Defendant (Severina Rigos)." Since Rigos' offer sell was accepted by Sanchez, before she could withdraw her offer, a bilateral reciprocal contract — to sell and to buy — was generated.

Separate Opinions

ANTONIO, J., concurring:

I concur in the opinion of the Chief Justice.

I fully agree with the abandonment of the view previously adhered to in Southwestern Sugar & Molasses Co. vs. Atlantic Gulf and Pacific Co., 1 which holds that an option to sell can still be withdrawn, even if accepted, if the same is not supported by any consideration, and the reaffirmance of the doctrine in Atkins, Kroll & Co., Inc. vs. Cua Hian Tek, 2 holding that "an option implies ... the legal obligation to keep the offer (to sell) open for the time specified;" that it could be withdrawn before acceptance, if there was no consideration for the option, but once the "offer to sell" is accepted, a bilateral promise to sell and to buy ensues, and the offeree ipso facto assumes the obligations of a purchaser. In other words, if the option is given without a consideration, it is a mere offer to sell, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale. The concurrence of both acts — the offer and the acceptance — could in such event generate a contract.

While the law permits the offeror to withdraw the offer at any time before acceptance even before the period has expired, some writers hold the view, that the offeror can not exercise this right in an arbitrary or capricious manner. This is upon the principle that an offer implies an obligation on the part of the offeror to maintain in such length of time as to permit the offeree to decide whether to accept or not, and therefore cannot arbitrarily revoke the offer without being liable for damages which the offeree may suffer. A contrary view would remove the stability and security of business transactions. 3

In the present case the trial court found that the "Plaintiff (Nicolas Sanchez) had offered the sum of Pl,510.00 before any withdrawal from the contract has been made by the Defendant (Severina Rigos)." Since Rigos' offer sell was accepted by Sanchez, before she could withdraw her offer, a bilateral reciprocal contract — to sell and to buy — was generated.

G.R. No. L-16954 April 25, 1962

ARMINIO RIVERA, in his capacity As Administrator of the Intestate Estate of the deceased RAFAEL LITAM, plaintiff-appellee, vs.LITAM and COMPANY, INC., GREGORIO DY TAM, WILLIAM TAM, LUIS LITAM, LI HONG HAP and HENRY LITAM, defendants-appellants.

De los Santos and De los Santos for plaintiff-appellee.Benjamin H. Aquino, Arturo C. Mojica and Albert C. Mendoza for defendants-appellants.

LABRADOR, J.:

Arminio Rivera brought this action in his capacity a administrator of the estate of the deceased Rafael Litam to recover from the defendants some 54/204 shares of stock belonging to the deceased in the Li Tam & Co., Inc., or their value, alleging that the said shares have been fraudulently transferred by the defendants, and to render an accounting of the income or dividends that have accrue to said shares of stock, with attorneys' fees and costs.

The material allegations of the complaint are — That (1) Rafael Litam died intestate in Manila on January 1, 1951 and plaintiff was appointed administrator of his estate; (2) the wife of Rafael Litam, Marcosa Rivera, filed a claim against his estate for the sum of P252,658.33 which the Court of First Instance approved; (3) believing that the properties of the deceased were in the possession of Li Tim & Co., Inc., the administrator filed a motion in the probate court demanding that the President and Manager, Mr Lee Chu, be required to render an account of the income of the 54/204 shares of the deceased in said company, but said President and Manager and Gregorio Dy Tam opposed the motion, claiming that the entire assets or properties of the deceased were transferred on January 25, 1950 to William Litam, Luis Litam, Henry Litam and Li Hong Hap, and to show such transfer said defendants furnished photostat copies of the said shares of stock and the transfer thereof; (4) said transfers are fictitious, unsupported by any adequate or valuable consideration, and fraudulent, and defendants unlawfully and fraudulently conspired to bring about the said transfers; said transfers had been made to enrich themselves to the prejudice of others; said transfers were made in fraud of creditors; (5) the value of such shares is at least P300,000; and the probate court, upon motion of administrator, has authorized him to file the suit against the defendants.

All the defendants filed a common answer which their attorneys, Sycip, Salazar, et al., presented. In said answer the defendant corporation alleged that it has no knowledge or information sufficient to form a belief as to the truth of all the allegations and denied the same.

The other defendants also denied the material allegations of the complaint and alleged that the allegations of the complaint are conclusions of law; that the transfers of the shares of stock to defendants are null and void. They also denied the authority of the plaintiff to file the action; and as affirmative defenses they alleged that the shares of stock in question were disposed of by the intestate for good, sufficient and adequate consideration without intent of committing fraud; that the corporation in which Rafael Litam had shares of stock is no longer existing and the present corporation, Li Tam & Company, Inc., is formed by different incorporations; that the defendant corporation does not have in its possession any of the properties belonging to the intestate estate of Rafael Litam; and that the complaint states no cause of action against the individual defendants, said defendants not having received any sum from the deceased on January 25, 1950.

The case was set for hearing on April 2, 1956 but the trial had to be postponed because two cases involving the same parties, G.R. No. L-7644 and L-7645, were still pending before the Supreme Court. On March 31, 1957 attorney for the plaintiff informed the court that the said cases had already been decided so he prayed that the case be set for hearing anew in

June 1957; this was done but the case was again postponed to August 5, 1957. Various other postponements took place until September 24, 1957 when the attorneys for the defendants informed the court that they were withdrawing from the case but that they had not as yet secured the conformity of their clients to their withdrawal. The court again postponed the case to November 22, 1957 notifying the parties of the postponement. When the case was called for hearing on November 22, 1957, all the defendants failed to show up; so the court authorized the clerk of court to hear the evidence for plaintiff without the presence of the defendants. The case, however, was actually heard, without the presence of defendants, only on February 6 and 19, 1959.

On July 16, 1959 after the plaintiff had submitted his memorandum, the court rendered judgment, the dispositive part of which reads as follows:

PREMISES CONSIDERED, this Court finds the complaint to be substantiated by the evidence on record and judgment is hereby rendered thus:

(1) The transfer on June 25, 1950 of the certificates of stock of Rafael Litam to wit: Nos. V-2, V-3, V-9, V-10, V-11, V-12, V-13, V-14, all of Li Tam & Co., Inc., in favor of the respective transferees is hereby declared null and void and of no legal effect and the estate of Rafael Litam remains the owner or the above mentioned certificates of stock;

(2) Because of the dissolution of Li Tam & Co., Inc. in 1952, the successor defendant corporation is hereby directed either to cause the issuance in favor of the estate of Rafael Litam of the equivalent number of its shares of capital stock or should that be not possible for one reason or another, to pay to said estate, jointly and severally with the other defendants, the value of said 54/204 shares of stock which is hereby fixed at P300,000.; and

(3) All the defendants are ordered to pay jointly and severally the herein plaintiff the sum of P6,000.00 as attorney' fees and expenses of litigation. (pp. 95-96, R.O.A.)

Against the above judgment the defendants have prosecuted this appeal.

Some antecedent facts constituting the background is necessary to an understanding of the evidence on the main issue, namely, the validity of the transfer of the 54/20 shares of the deceased Rafael Litam to the defendants William, Henry, and Luis Litam and Li Hong Hap.

Rafael Litam was married to Marcosa Rivera on June 10, 1922. He died on January 10, 1950 while a resident of Hulong Duhat, Malabon, Rizal. Upon his death intestate proceedings were instituted for the settlement of his estate by Gregorio Dy Tam, who alleged that he and the others namely, William, Henry, and Luis Litam and Li Hong Hap are his (of Rafael Litam) children by a Chinese wife, with whom he had contracted marriage in China in 1911. In the petition Gregorio Dy Tam was proposed as administrator. The wife of the deceased, Marcosa Rivera, proposed Arminio Rivera, a nephew. This proposal was opposed by the petitioner Gregorio Dy Tam on the ground that Marcosa Rivera had a claim against the intestate. The lower court approved the appointment of Arminio Rivera, and the case having come to this Court in G.R. No. L-6297, We held that the appointment was proper as the administrator would have the duty of protecting the estate against the pretending heirs. (See Exhibit "E").

During the pendency of the intestate proceedings Marcosa Rivera, incompetent, filed a claim for a total sum of P252,658.33 against the intestate. (Exhibit "F") The claim was approved upon the strength of a deed dated February 24, 1946 where the deceased Rafael Litam acknowledged a new indebtedness of P197,000.00 plus interest of P62,000 for the previous year (Exhibit "F-2"). The order was appealed to this Court in G.R. No. L-7846, but We dismissed the appeal for the reason that in two cases (G.R. Nos. L-7644-45) We had held that when Rafael Litam was married to Marcosa Rivera, Rafael was not married to the mother of Gregorio Dy Tam and his four brothers and three sisters. (Exh. "H") .

On November 15, 1944 Arminio Rivera, administrator of the intestate, moved the court to require the president and manager of Li Tam & Company, Inc., to give an account of the Income derived from the 54/204 shares of stock of the intestate (Exhibit "I"). In answer Lee Chu alleged that at the time of his death, Rafael Litam was no longer a stockholder, having transferred his shares to various persons (Exhibit "J"). Upon the filing of this answer the probate court authorized the filing of this action against Henry Litam, Li Hong Hap, Luis Litam and William Litam and others (Exhibit "K").

The photostat copies of the original shares of stock (Exhibits L, L-1 to L-7) of Rafael Litam show the following transfers of the stock: .

6 shares to Luis Litam 6 shares to Luis Litam 6 shares to Luis Litam 4 shares to Luis Litam 2 to William Litam 1 shares to Li Hong Hap 6 shares to William Litam 6 shares to William Litam 8 shares to William Litam 9 shares to Henry Litam (Exhs. "L, L-1, to L-7").

In Civil Case No. 2071 of the Court of First Instance of Rizal, Gregorio Dy Tam, sought to recover certain properties in Navotas, Rizal, Malabon, Rizal and in Obando, Bulacan, alleging that Rafael Litam was survived by Li Hong Hap, Li Ko, Gregorio Dy Tam, Henry Litam, Beatriz Lee Tam, Elsa Lee Tam, William Litam and Luis Litam by a marriage in China in 1911 with Sia Khin. The Court of First Instance dismissed the action and declared the properties to be exclusive, separate paraphernal properties of Marcosa Rivera (Exhibit "M"). Upon appeal to Us, in G.R. No. L-7644, We affirmed the decision with a slight modification. (Exhibit "N").

The evidence for plaintiff consists of the testimony of himself and various documents. The gist of the testimony is as follows: Rafael Litam died on January 10, 1951, and his wife, on September 12, 1957. During his lifetime, Rafael Litam was President and General Manager of the Li Tam and Company, Inc., and had 54/204 shares therein; that upon plaintiff's qualification as administrator he inspected the properties of the deceased in the Bicol Region and during the inspection he met defendant Henry Litam at Casiguran, Sorsogon and Henry told him that the properties were still intact in different places. He further testified that he met the defendants several times in 1948 in their office at 928 San Fernando, San Nicolas, Manila and he was told that Rafael Litam owned shares in the company valued at P300,000; that when he went to collect the debt of Rafael Litam to his aunt, he was told not to worry as they did not claim the shares as their own. These facts were not contradicted is defendants did not appear in person or by attorney on the dates of the trial.

The main basis of the action are two documents, identified at the trial as Exhibits "O" and "P". They are as follows: .

KASULATAN SA PAGKAKAUTANG .

ALAMIN NG LAHAT NA MAKABABASA NITO:

Na akong si RAFAEL LITAM, ciudadano chino, may sapat na gulang, may asawa at naninirahan sa Malabon, Rizal, Pilipinas, ay malaya at kusang loob na .

NAGSASAYSAY NG SUMUSUNOD:

1. — Na bago magsiklab ang katatapos na digmaan sa Pacifico, ako may pagkakautang sa aking asawang si MARCOSA RIVERA ng halagang ISANG DAAN AT TATLONGPUT LIMANG LIBONG PISO (P135,000.00), kuwaltang pilipino, na tinanggap ko ng boong kasiyahang loob sa nasabi kong asawa, at siya kong ginamit sa aking negocio. Ang nasabing halaga ay salaping sarili ng aking asawa, at hanggang sa sandaling ito ay hindi ko pa nababayaran sa kanya kahi't bahagi nito.

2. — Na noong ika 4 ng Enero ng taong ito, sa hangad kong maitayong muli ang aking negocio na nasira ng digmaan, ay napangahasan kong galawin at kunin sa kinatataguan ang halaga pang ANIMNAPU'T DALAWANG LIBONG PISO (P62,000.00), kuwaltang pilipino, na salapi ding sarili ng aking asawang si Marcosa Rivera, kaya't sa ngayon ako ay may pagkakautang sa kanya ng halagang ISANG DAAN AT SIYAMNAPU'T PITONG LIBONG PISO (P197,000.00) kuwaltang pilipino, at sa pamamagitan nito ay ipinangangako kong babayaran sa kanya, u orden, ang nasabing halaga pati ng pakinabang na 10% isang taon ng huling halagang P62,000.00, sa ganitong paraan: .

Sa dati kong utang na P135,000.00 ako ay maghuhulog ng halagang ISANG LIBONG PISO (P1,000.00) isang buwan simula sa buwan ng Marzo, 1946, hanggang sa buwan ng Disyembre, 1947; at LIMANG LIBONG PISO (P5,000.00) isang buwan simula sa buwan ng Enero, 1948, hanggang sa matapusan ang nasabing halaga; .

Sa huling halagang P62,000.00 ako ay maghuhulog ng P31,000.00 sa buwan ng Disyembre, 1946, o bago dumating ang nasabing petsa, at P31,000.00 sa buwan ng Disyembre, 1947 o bago dumating ang nasabing petsa, at ang pakinabang na 10% isang taon ay nasabing halagang P62,000.00 ay huhulugan ko buwan-buwan por mensualidades vencidos at ang unang hulog ay gagampanan ko sa buwan ng Marzo, 1946.1äwphï1.ñët

3. — Kung sakaling hindi ko matupad ang alin man sa mga condiciones na nasaad sa kasulatang ito, ang kabuoan ng aking pagkakautang ay magiging vencido at maaaring singilin lahat ng may hawak ng kasulatang ito.

4. — Bilang garantia ng aking pagkakautang na ito ay ipinangangako kong sa loob ng lalong madaling panahon ay gagawa ako ng isang escritura de hipoteca ng lahat ng aking mga propiedades sa Sorsogon favor sa aking asawang Marcosa Rivera.

SA KATUNAYAN NG LAHAT NG ITO, ako ay lumagda sa ibaba nito, dito sa Malabon, Rizal, Pilipinas, ngayong ika 24 ng Febrero, 1946.

(Sgd.) Rafael Litam RAFAEL LITAM

NILAGDAAN SA HARAP NI: .

MACARIO B. ASISTIO ILLEGIBLE.

TAFOS UNIDOS DE AMERICA COMMONWEALTH DE FILIPINAS) S. S. PROVINCIA DE RIZAL

En el Municipio de Malabon, Provincia de Rizal, Filipinas, hoy a 25 de Febrero de 1946, A. D. comparecio personalmente anmi el Sr. Rafael Litam, con su certificado de residencia No. A-268183, expedido en Malabon, Rizal, et 25 de Febrero de 1946, de quien hoy fe que conozco por ser la misma persona que otorgo el preinserto documento y que ratifico haberlo otorgado libre y espontancamente, el cual se compone de dos paginas, inclusive la que contiine esta ratificacion, la segunda de las cual-es ha sido firmada en el margen izquierdo por el otorgante y sus testigos, y sellada con mi timbre notarial.

Anti mi,(Sgd.) ILLEGIBLE.NOTARIO PUBLICO Mi commission expira el 31 de Dic., 1946 .

Asiento No. 6; Pag. No. 2; Libro II; Serie de 1946." (Exhibit "O") .

Exhibit "P" .

Ang kabu-uan nang kualtang natangap ko na galing sa aking asawang si Marcosa Rivera simula nang ako ay pumasok sa Ospital ay LABING DALAWANG LIBONG PISO (P12,600.00).

(Sgd.) Rafael Litam RAFAEL LITAM

Noviembre 28, 1950. Manila.

The court below found that the transfer of the shares of stock to defendants was simulated, fictitious and without consideration; that it was in fraud of creditors and the conduct of the defendants at the time the transfer of the properties of the deceased was being made, renders the alleged sale doubtful. The peculiar circumstances, such as the fact that defendants claimed to be children of the deceased, and claimed various real properties as belonging to Rafael Litam when as a matter of fact they were the exclusive paraphernal properties of his wife — both of which facts were found in the decisions of the Supreme Court — reveal why the transfer of the shares was disclosed only in the year 1954, when as a matter of fact the transfers took place purportedly at the same time on July 25, 1950.

The above findings as to the existence of fraud, the lack of consideration, etc., are disputed by the appellants in their first assignment of error, it being contended by them that the premises are insufficient to prove lack of a consideration, as defendants had no duty to make public the transfer and disclose the consideration therefor, etc. Answering the above contention, we state that defendants did not prove that they ever paid any price or consideration for the transfer, or that they had the means to pay for the price, or that the deceased had ever received any payment for the transfer, as it was shown that he was so short of funds soon after the date of the supposed transfer that he had to borrow the sum of P12,000.00 from his wife on November 28, 1950 (Exhibit "P"). When in 1949 and 1950 plaintiff Rivera saw the defendants William Litam, Luis Litam and Henry Litam, these defendants admitted that Rafael Litam owned shares in the corporation valued at P300,000 (t.s.n., p. 23). And even after the death of Rafael Litam, in the year 1952, when plaintiff went to the Bicol region to check up the properties left by the intestate for the purpose of preparing the inventory thereof, he met Henry Litam in Casiguran, Sorsogon. Henry Litam then did not say that the properties did not belong to the deceased (t.s.n., p. 32), when the supposed endorsement of the shares bears date of July 25, 1950. In the year 1952, before plaintiff filed the inventory, he took up with Lee Chu the matter of the interest of Rafael Litam in the corporation, Li Tam and Company, Inc. Lee Chu, who was then president, admitted that the deceased Rafael Litam owned 54 shares of the entire stock (t.s.n., p. 33). Our conclusion from all the above facts and from these admissions in 1952 of Lee Chu, then president of Li Tam and Company, Inc., and of Henry Litam, one of the defendants, is that in 1952 the shares were still owned by Rafael Litam and had not yet been endorsed or transferred on the books of the corporation to the defendants.

Our examination of the certificates of stock shows that the deceased Rafael Litam's signatures to the indorsement were authentic, but the dates of indorsement and the names are not; so we believe, Rafael must have signed the indorsement not on January 25, 1950 but before, and the shares actually transferred in the books already after 1952. From these circumstances we conclude that the certificates of stock must have been delivered, already signed by the deceased, before his death, in secret, to his alleged children, the defendants herein, who, after Rafael Litam's death in January 1951, wrote their names on the shares as endorsees, in secret also. Their purpose is evident — so that upon Rafael's death his Filipino wife would not be able to claim the shares of stock as part of Rafael's assets and same (shares) would not be subject to the payment of his debts. These debts at the time of his death in 1950 reached more than P250,000. The fact that the real properties, presumably of the deceased, in the Bicol region were also in the name of the corporation, not in Rafael's own, must have been part of the scheme to insure that his (the deceased) assets

would pass to his children, the defendants, free from the claims of his wife.

It appears, therefore, that the deceased Rafael Litam had been getting money from his Filipina wife (to distinguish her from the Chinese wife by whom he had his children, the defendants bearing his name), borrowing from her big sums which he put in the company, Li Tam and Company, Inc., in shares of stock of this corporation, later endorsing the certificates evidencing transfer thereof, without date, and delivering the shares to his children, also investing the funds of the company, in the purchase of real estate also in the name of the corporation, thus depriving his wife, from whom the money came, of the legal means to get back the money loaned. And to complete the fraudulent scheme and in order to make the properties more invulnerable to the claims of Rafael Litam's creditors, the defendants for no apparent reason, dissolved the old corporation and formed the new Li Tam and Company, Inc., on October 3, 1952, the defendants, children of the deceased being the new stockholders (see Exhibit "X"). The fact that in the new corporation the respective shares of the incorporators do not exactly coincide with the shares each had received from Rafael Litam, according to the endorsements of the original shares, prove that Rafael Litam's children actually divided his assets among themselves, not according to the endorsements of the shares.

The fraudulent character of the transfer of all his shares of stock by Rafael Litam is clearly inferable from the following circumstances: namely, the transferees are his own children; no consideration or price was given or received for the transfer; the shares of stock were the only properties of Rafael Litam; there was no apparent need for him to dispose of all of them as the corporation was the only source of business that he had; and he had an outstanding indebtedness of more than P250,000 with his wife with whom he had no issue. It has been said that "the fertility of man's invention in devising new schemes of fraud is so great that courts have declined to define it, reserving to themselves the liberty to deal with it under whatever form it may present itself." In the case at bar the fraudulent scheme is evidenced by a series of related acts committed one after another, silently, quietly and surreptitiously. Our jurisprudence abounds with cases where fraud had been held to exist but we have found none in which all the circumstances above indicated are present, the circumstances being varied as the men who schemed the fraud in each case. The nearest to the case at bar is Ayles vs. Reyes and Reyes, 18 Phil. 243, where the Supreme Court held that fraud was proved where it was shown that the debtor went into insolvency and, conniving with his parents, sold part of his property to them and the sales were simulated, and only for the purpose of frustrating liabilities contracted.

One last point needs consideration, and this is the claim made by the defendant corporation that its obligation to transfer the shares of stock to the estate could not be inferred from the Articles of Incorporation (Exhibit "X"), because the two corporations are distinct and separate, and under the authorities cited by it, even if the new succeeded the old corporation. This claim would have been correct had not the defendant corporation expressly acquired the assets and properties of the old Li Tam and Company, Inc., and assumed its obligations and liabilities in the articles of incorporation. (Exh. "X", Par. "d"). The trial court, therefore, correctly held defendant corporation liable to the estate for the equivalent number of shares of stock, otherwise, said corporation would be enriching itself at the expense of the estate.

In view of the fraud and all the foregoing, the transfer of the shares must be declared null and void and of no effect (Article 1409, Civil Code), and the transferees, as well as the corporation which consented to the transfer, must all be held liable for the return of the properties, that the shares represented, or their values (Article 1352, Civil Code).

Another objection to the judgment raised by the appellants is that they should not be required to pay the amount of P300,000 as well as the attorney's fees. The judgment for P300,000 is an alternative relief afforded the plaintiff in case the shares of stock can not be recovered. Attorney's fees should be awarded because the plaintiff has been forced to various

litigations in order to enforce the payment of plaintiffs claim.

Art. 1388. — Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the latter for damages suffered by them on account of the alienation, whenever, due to any cause, it should be impossible for him to return them." (Civil Code of the Philippines).

Art. 1170. — 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.

Liability for Non-Performance. — In general, every debtor who fails in the performance of his obligations is bound to indemnify for the losses and damages caused thereby. (De la Cruz vs. Seminary of Manila, 18 Phil. 330; Municipality of Moncada v. Cajuigan, 21 Phil. 184; De la Cavada vs. Diaz, 37 Phil. 982; Maluenda v. Enriquez, 46 Phil. 916; Pampanga Sugar Mills v. Chong, 49 Phil. 1003; Pando v. Gimenez; 54 Phil. 459; Acme Films v. Theaters Supply, 63 Phil. 657). Tolentino's The New Civil Code Annotated, p. 314).

Therefore the damages sustained by the plaintiff by reason of the fraudulent transfer of the shares of stock are the value thereof and the expenses of litigation, which plaintiff has testified to be P6,000, for these defendants-appellants are liable by reason of the above-quoted provisions. We, therefore, find without merit the second and last assignment of errors of appellants and we, thereby, dismiss the same.

As their third assignment of error, it is claimed on behalf of the appellants that defendants William Litam, Luis Litam and Li Tam and Company, Inc., did not receive notice of the hearing on February 6, and 19, 1959; that the reason for their failure to receive said notice is because they had already transferred their places of residence; that they failed to notify the court of the changes of address because they did not know that is required of them; that if allowed to present evidence, they would substantially prove the allegations in their answer.

The arguments presented by appellants are the same as those contained in their motion for new trial and/or reconsideration, which the lower court denied. The rule in this jurisdiction is that a petition for new trial is addressed to the discretion of the court and this Court will not disturb the same on appeal, unless there is grave abuse thereof (La O v. Dee, et al., L-3890, January 23, 1952). We are only to examine the record of the case, to determine if the denial constitutes an abuse of discretion.

There is no question that defendants Henry Litam, Gregorio Dy Tam and Li Hong Hap actually received their copies of the order of the lower court setting the case for hearing on February 6 and 19, 1959. Insofar as they are concerned, therefore, they cannot claim denial of their day in court. Are the other defendants, namely, Luis and William Litam and Li Tam and Company, Inc., guilty of excusable negligence for their failure to appear during the trial?

The record discloses that as early as August 5, 1957, defendants' counsel, the law office Sycip, et al., was already withdrawing from the case and this withdrawal was reiterated in another motion for continuance of the hearing scheduled for September 24, 1957. As early as August 5, 1957, therefore, defendants must have known that they would be without counsel. They should have, therefore, taken steps to secure the services of another. Again on November 21, 1957, defendant Luis Litam agreed to the withdrawal of their counsel, and Luis Litam signed the conformity to said withdrawal in his own behalf and in those of the other defendants. There is nothing in the record, especially in the affidavit of Luis Litam supporting defendants' motion for new trial, that the other defendants did not authorized him to sign for them. Having no lawyer to assist them in the proceedings, and knowing that the case was then ready for hearing, defendants should have taken the necessary precaution of hiring a new lawyer for any subsequent hearing or hearings. Those who had changed their addresses should also have informed the court thereof. They failed to

do so, and it was only when they received a copy of the decision that they hired their present counsel. Their neglect in doing so is certainly inexcusable.

The defendants admit their places of residence alleged in the complaint in their answer. As no notices of the changes of address was sent by them to the court, naturally notices of hearing and orders of the court had to be sent to their former addresses. With respect to defendant corporation, it is alleged in the affidavit of Luis Litam that it had transferred its office to Sorsogon as early as 1953, but in their answer dated October 10, 1955, they admit that the office of the defendant corporation is at 928 San Fernando, San Nicolas, Manila, the same place where the notice of hearing was sent. This admission strengthens the impression that defendants had deliberately refused to accept the notices of hearing.

The record also discloses that the order setting the case for hearing was sent to defendants Luis and William Litam and Li Tam and Company, Inc., who failed to get said order inspite of the two notices sent to them. Inasmuch as defendants failed to get their registered letters service upon them of said order was deemed completed, five days from the date of the first notice, in accordance with the provisions of Sec. 8, Rule 27 of the Rules. Consequently, defendants can not now claim that they have not been given their day in court.

Furthermore, the petition for new trial could not be granted because there is no showing that defendants have valid defenses to the complaint. The affidavit of Luis Litam supporting defendants' motion for reconsideration and new trial do not show any such valid defense. Consequently, the trial court correctly denied defendants' motion for new trial and/or reconsideration.

FOR ALL THE FOREGOING CONSIDERATIONS the judgment appealed from should be, as it hereby is, affirmed. With costs. So ordered.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Paredes and Dizon, JJ., concur.

G.R. No. L-21489 and L-21628 May 19, 1966

MIGUEL MAPALO, ET AL., petitioners, vs.MAXIMO MAPALO, ET AL., respondents.

Pedro P. Tuason for petitioners.Primicias and Del Castillo for respondents.

BENGZON, J.P., J.:

The spouses Miguel Mapalo and Candida Quiba, simple illiterate farmers, were registered owners, with Torrens title certificate O.C.T. No. 46503, of a 1,635-square-meter residential land in Manaoag, Pangasinan. Said spouses-owners, out of love and affection for Maximo Mapalo — a brother of Miguel who was about to get married — decided to donate the eastern half of the land to him. O.C.T. No. 46503 was delivered. As a result, however, they were deceived into signing, on October 15, 1936, a deed of absolute sale over the entire land in his favor. Their signatures thereto were procured by fraud, that is, they were made to believe by Maximo Mapalo and by the attorney who acted as notary public who "translated" the document, that the same was a deed of donation in Maximo's favor covering one-half (the eastern half) of their land. Although the document of sale stated a consideration of Five Hundred (P500.00) Pesos, the aforesaid spouses did not receive anything of value for the land. The attorney's misbehaviour was the subject of an investigation but its result does not appear on record. However we took note of the fact that during the hearing of these cases said notary public was present but did not take the witness stand to rebut the plaintiffs' testimony supporting the allegation of fraud in the preparation of the document.

Following the execution of the afore-stated document, the spouses Miguel Mapalo and Candida Quiba immediately built a fence of permanent structure in the middle of their land segregating the eastern portion from its western portion. Said fence still exists. The spouses have always been in continued possession over the western half of the land up to the present.

Not known to them, meanwhile, Maximo Mapalo, on March 15, 1938, registered the deed of sale in his favor and obtained in his name Transfer Certificate of Title No. 12829 over the entire land. Thirteen years later on October 20, 1951, he sold for P2,500.00 said entire land in favor of Evaristo, Petronila Pacifico and Miguel all surnamed Narciso. The sale to the Narcisos was in turn registered on November 5, 1951 and Transfer Certificate of Title No. 11350 was issued for the whole land in their names.

The Narcisos took possession only of the eastern portion of the land in 1951, after the sale in their favor was made. On February 7, 1952 they filed suit in the Court of First Instance of Pangasinan (Civil Case No. 1191) to be declared owners of the entire land, for possession of its western portion; for damages; and for rentals. It was brought against the Mapalo spouses as well as against Floro Guieb and Rosalia Mapalo Guieb who had a house on the western part of the land with the consent of the spouses Mapalo and Quiba.

The Mapalo spouses filed their answer with a counterclaim on March 17, 1965, seeking cancellation of the Transfer Certificate of Title of the Narcisos as to the western half of the land, on the grounds that their (Mapalo spouses) signatures to the deed of sale of 1936 was procured by fraud and that the Narcisos were buyers in bad faith. They asked for reconveyance to them of the western portion of the land and issuance of a Transfer Certificate of Title in their names as to said portion.

In addition, the Mapalo spouses filed on December 16, 1957 their own complaint in the Court of First Instance of Pangasinan (Civil Case No. U-133) against the aforestated Narcisos and Maximo Mapalo. They asked that the deeds of sale of 1936 and of 1951 over the land in question be declared null and void as to the western half of said land.

Judge Amado Santiago of the Court of First Instance of Pangasinan located in the municipality of Urdaneta tried the two cases jointly. Said court rendered judgment on January 18, 1961, as follows:

WHEREFORE, judgment is hereby rendered as follows, to wit:

(a) dismissing the complaint in Civil Case No. 11991;

(b) declaring Exhibit A, plaintiffs in Case No. 11991 and Exhibit 1, defendants in Case No. U-133 as a donation only over the eastern half portion of the above-described land, and as null and void with respect to the western half portion thereof;

(c) declaring as null and void and without legal force and effect Transfer Certificate of Title No. 12829 issued in favor of Maximo Mapalo as regards the western half portion of the land covered therein;

(d) declaring as null and void Transfer Certificate of Title No. 11350 in the names of the Narcisos insofar as the western half portion of the land covered therein is concerned;

(e) ordering the spouses Mapalo and Quiba and the Narcisos to have the above-described land be subdivided by a competent land surveyor and that the expenses incident thereto be borne out by said parties pro rata;

(f) ordering the Register of Deeds of Pangasinan to issue in lieu of Transfer Certificate of Title No. 11350 two new titles upon completion of the subdivision plan, one in favor of the spouses Miguel Mapalo and Candida Quiba covering the western half portion and another for the Narcisos covering the eastern half portion of the said land, upon payment of the legal fees; meanwhile the right of the spouses Mapalo and Quiba is hereby ordered to be annotated on the back of Transfer Certificate of Title No. 11350; and

(g) sentencing Maximo Mapalo and the Narcisos to pay the costs.

IT IS SO ORDERED.

The Narcisos appealed to the Court of Appeals. In its decision on May 28, 1963, the Court of Appeals reversed the judgment of the Court of First Instance, solely on the ground that the consent of the Mapalo spouses to the deed of sale of 1936 having been obtained by fraud, the same was voidable, not void ab initio, and, therefore, the action to annul the same, within four years from notice of the fraud, had long prescribed. It reckoned said notice of the fraud from the date of registration of the sale on March 15, 1938. The Court of First Instance and the Court of Appeals are therefore unanimous that the spouses Mapalo and Quiba were definitely the victims of fraud. It was only on prescription that they lost in the Court of Appeals.

From said decision of the Court of Appeals, the Mapalo spouses appealed to this Court.

And here appellants press the contention that the document dated October 15, 1936, purporting to sell the entire land in favor of Maximo Mapalo, is void, not merely voidable, as to the western portion of the land for being absolutely simulated or fictitious.

Starting with fundamentals, under the Civil Code, either the old or the new, for a contract to exist at all, three essential requisites must concur: (1) consent, (2) object, and (3) cause or consideration.1 The Court of Appeals is right in that the element of consent is present as to the deed of sale of October 15, 1936. For consent was admittedly given, albeit obtained by fraud. Accordingly, said consent, although defective, did exist. In such case, the defect in the consent would provide a ground for annulment of a voidable contract, not a reason for nullity ab initio.

The parties are agreed that the second element of object is likewise present in the deed of October 15, 1936, namely, the parcel of land subject

matter of the same.

Not so, however, as to the third element of cause or consideration. And on this point the decision of the Court of Appeals is silent.

As regards the eastern portion of the land, the Mapalo spouses are not claiming the same, it being their stand that they have donated and freely given said half of their land to Maximo Mapalo. And since they did not appeal from the decision of the trial court finding that there was a valid and effective donation of the eastern portion of their land in favor of Maximo Mapalo, the same pronouncement has become final as to them, rendering it no longer proper herein to examine the existence, validity efficacy of said donation as to said eastern portion.1äwphï1.ñët

Now, as to the western portion, however, the fact not disputed herein is that no donation by the Mapalo spouses obtained as to said portion. Accordingly, we start with the fact that liberality as a cause or consideration does not exist as regards the western portion of the land in relation to the deed of 1936; that there was no donation with respect to the same.

It is reduced, then, to the question whether there was an onerous conveyance of ownership, that is, a sale, by virtue of said deed of October 15, 1936, with respect to said western portion. Specifically, was there a cause or consideration to support the existence of a contrary of sale?

The rule under the Civil Code, again be it the old or the new, is that contracts without a cause or consideration produce no effect whatsoever.2 Nonetheless, under the Old Civil Code, the statement of a false consideration renders the contract voidable, unless it is proven that it is supported by another real and licit consideration.3 And it is further provided by the Old Civil Code that the action for annulment of a contract on the ground of falsity of consideration shall last four years, the term to run from the date of the consummation of the contract.4

Accordingly, since the deed of sale of 1936 is governed by the Old Civil Code, it should be asked whether its case is one wherein there is no consideration, or one with a statement of a false consideration. If the former, it is void and inexistent; if the latter, only voidable, under the Old Civil Code. As observed earlier, the deed of sale of 1936 stated that it had for its consideration Five Hundred (P500.00) Pesos. In fact, however, said consideration was totally absent. The problem, therefore, is whether a deed which states a consideration that in fact did not exist, is a contract without consideration, and therefore void ab initio, or a contract with a false consideration, and therefore, at least under the Old Civil Code, voidable.

According to Manresa, what is meant by a contract that states a false consideration is one that has in fact a real consideration but the same is not the one stated in the document. Thus he says:

En primer lugar, nor interesa recordar la diferencia entre simulacion y el contrato con proposito fraudulento. Este aunque ilicito es real; mas el primero es falso en realidad, aunque se le presente como verdadero. (Manresa, Codigo Civil, Tomo VIII, Vol. II, p. 354.)

And citing a decision of the Supreme Court of Spain on the matter, Manresa further clarifies the difference of false cause and no cause, thus:

Insiste en el distingo con mas detenida descripcion la sentencia de 25 de mayo de 1944, en la que se argumenta:

Si bien es elemento fundamental de todo negocio, la declaracion de voluntad substracto de una voluntad efectiva, y la existencia de una causa que leconfiera significado juridico señalando la finalidad que con este se persigue, no ha de deducirse de esta doctrina, fundamentalmente recogida en el articulo 1.261 y concordantes del Codigo civil, que cualquier falta de adecuacion entre cualquier incongruencia entre la causa expresada y la verdadera, y, en general, entre la estructuracion y la finalidad economica;

hayan de producir la ineficacia del negocio, pues por el contrario, puede este ser valido y producir sus efectos tanto en el caso de la mera disonancia entre el medio juridico adoptado y el fin practico perseguido, por utilizacion de una via oblicua o combinacion de formas juridicas entrelazadas que permita la obtencion de un resultado no previsto en los cuadros de la ley — negocios indirectos y negocios fiduciarlos, validos cuando no envuelven fraude de ley, como en el caso de la verdadera disconformidad entre la apariencia del acto y su real contenido, preparada deliberadamente por las partes — negocio simulado — , ya que, cuando esta divergencia implica no una ausencia total de voluntad y de acto real, sino mera ocultacion de un negocio verdadero bajo la falsa apariencia de un negocio fingido "sirulacion relativa", la ineficacia de la forma externa simulada, no es obstaculo para la posible validez del negocio disimulado que contiene, en tanto este ultimo sea licito y reuna no solo los requisitos generales, sino tambien los que corresponden a su naturaleza especial, doctrina, en obligada aplicacion de los preceptos de nuestra Ley civil, especialmente en su art. 1.276, que, al establecer el principio de nulidad de los contratos en los que se hace expresion de una causa falsa, deja a salvo el caso de que esten fundados en otra verdadera y licita. (Manresa, Codigo Civil, Tomo VIII, Vol. II pp. 357-358)

Sanchez Roman says:

Ya hemos dicho que la intervencion de causa en los contratos es necesaria, y que sin ellos son nulos; solo se concibe que un hombre perturbado en su razon pueda contratar sin causa. ...

Por la misma razon de la necesidad de la intervencion de causa en el contrato, es preciso que esta sea verdadera y no supuesta, aparente o figurada. Que la falsedad de la causa vicia el consentimiento y anula el contrato, es, no solo doctrina indudable de Derecho Cientifico sino tambien de antiguo Derecho de Castilla, que en multitud de leyes asi lo declararon. (Sanchez Roman, Derecho Civil, Tomo IV, p. 206.).

In a clearer exposition of the above distinction, Castan states:

2.º. La causa ha de ser verdadera. La causa falsa puede ser erronea o simulada. Es erronea como dice Giorgi, la causa que tiene por base la credulidad en un hecho no existente; y simulada la que tiene lugar cuando se hace aparecer artificiosamente una distinta de la verdadera. La erronea produce siempre la inexistencia del contrato; la simulada no siempre produce este efecto, porque puede suceder que la causa oculta, pero verdadera, baste para sostener el contrato. De acuerdo con esta doctrina, dice el art. 1.276 de nuestro Codigo que "la expresion de una causa falsa en los contratos dara lugar a la nulidad, si no se probase que estaban fundados en otra verdadera y licita". (Castan Derecho Civil Español, Tomo II, pp. 618-619)

From the foregoing it can be seen that where, as in this case, there was in fact no consideration, the statement of one in the deed will not suffice to bring it under the rule of Article 1276 of the Old Civil Code as stating a false consideration. Returning to Manresa:

Figurando en nuestro Derecho positivo la causa, como un elemento esential del contrato, es consecuencia ineludible, se reputar simulada la entrega del precio en la compraventa de autos, el que haya que declararla nula por inexistente haciendose aplicacion indebida de art. 1.276 por el Tribunal sentenciador al cohonestar la falta de precio admitiendo se pueda tratar de una donacion, ya que la recta aplicacion del citado precepto exige que los negocios simulados, o sea con causa falsa, se justifique la verdadera y licita en que se funda el acto que las partes han querido ocultar y el cumplimiento de las formalidades impuestas por la Ley y, cual dice la sentencia de 3 de marzo de 1932, esta rigurosa doctrina ha de ser especialmente impuesta en la donaciones puras y simples; de los que deduce que la sentencia recurrida al no decretar la nulidad instada por falta de causa, incide en la infraccion de los articulos 1.261, 1.274, 1.275 y 1.276 del Codigo Civil. (Sentencia de 22 de febrero de 1940). (Manresa, Codigo Civil, Tomo VIII, Vol. II, p. 356)

In our view, therefore, the ruling of this Court in Ocejo, Perez & Co. vs. Flores, 40 Phil. 921, is squarely applicable herein. In that case we ruled that a contract of purchase and sale is null and void and produces no effect whatsoever where the same is without cause or consideration in that the purchase price which appears thereon as paid has in fact never been paid by the purchaser to the vendor.

Needless to add, the inexistence of a contract is permanent and incurable and cannot be the subject of prescription. In the words of Castan: "La inexistencia es perpetua e insubsanable no pudiendo ser objecto de confirmacion ni prescripcion (Op. cit., p. 644.) In Eugenio v. Perdido, 97 Phil. 41, 42-43, involving a sale dated 1932, this Court, speaking through Justice Cesar Bengzon, now Chief Justice, stated:

Under the existing classification, such contract would be "inexisting" and "the action or defense for declaration" of such inexistence "does not prescribe". (Art. 1410, New Civil Code). While it is true that this is a new provision of the New Civil Code, it is nevertheless a principle recognized since Tipton vs. Velasco, 6 Phil. 67 that "mere lapse of time cannot give efficacy to contracts that are null and void".

Anent the matter of whether the Narcisos were purchasers in good faith, the trial court in its decision resolved this issue, thus:

With regard to the second issue, the Narcisos contend that they are the owners of the above-described property by virtue of the deed of sale (Exh. B, plaintiffs in 11991 and Exh. 2, defendants in U-133) executed in their favor by Maximo Mapalo, and further claim that they are purchasers for value and in good faith. This court, however, cannot also give weight and credit on this theory of the Narcisos on the following reasons: Firstly, it has been positively shown by the undisputed testimony of Candida Quiba that Pacifico Narciso and Evaristo Narciso stayed for some days on the western side (the portion in question) of the above-described land until their house was removed in 1940 by the spouses Mapalo and Quiba; secondly, Pacifica Narciso admitted in his testimony in chief that when they bought the property, Miguel Mapalo was still in the premises in question (western part) which he is occupying and his house is still standing thereon; and thirdly, said Pacifico Narciso when presented as a rebuttal and sub-rebuttal witness categorically declared that before buying the land in question he went to the house of Miguel Mapalo and Candida Quiba and asked them if they will permit their elder brother Maximo to sell the property.

Aside from the fact that all the parties in these cases are neighbors, except Maximo Mapalo the foregoing facts are explicit enough and sufficiently reveal that the Narcisos were aware of the nature and extent of the interest of Maximo Mapalo their vendor, over the above-described land before and at the time the deed of sale in their favor was executed.

Upon the aforestated declaration of Pacifico Narciso the following question arises: What was the necessity, purpose and reason of Pacifico Narciso in still going to the spouses Mapalo and asked them to permit their brother Maximo to dispose of the above-described land? To this question it is safe to state that this act of Pacifico Narciso is a conclusive manifestation that they (the Narcisos) did not only have prior knowledge of the ownership of said spouses over the western half portion in question but that they also have recognized said ownership. It also conclusively shows their prior knowledge of the want of dominion on the part of their vendor Maximo Mapalo over the whole land and also of the flaw of his title thereto. Under this situation, the Narcisos may be considered purchasers in value but certainly not as purchasers in good faith. ... (pp. 97-98, Record on Appeal.)

And said finding — which is one of fact — is found by us not a bit disturbed by the Court of Appeals. Said the Court of Appeals:

In view of the conclusion thus reached, it becomes unnecessary to pass on the other errors assigned. Suffice it to say that, on the merits the appealed decision could have been upheld under Article 1332 of the new Civil Code

and the following authorities: Ayola vs. Valderrama Lumber Manufacturers Co., Inc., 49 O.G. 980, 982; Trasporte vs. Beltran, 51 O.G. 1434, 1435; Cortez vs. Cortez, CA-G.R. No. 18451-R, August 8, 1961; Castillo vs. Laberinto, CA-G.R. No. 18118-R, December 20, 1961; and 13 C.J. 372-373, as well as the several facts and circumstances appreciated by the trial court as supporting appellees' case.

thereby in effect sustaining — barring only its ruling on prescription — the judgment and findings of the trial court, including that of bad faith on the part of the Narcisos in purchasing the land in question. We therefore see no need to further remand this case to the Court of Appeals for a ruling on this point, as appellees request in their brief in the event we hold the contract of 1936 to be inexistent as regards the western portion of the land.

In view of defendants' bad faith under the circumstances we deem it just and equitable to award, in plaintiffs' favor, attorneys' fees on appeal, in the amount of P1,000.00 as prayed for in the counterclaim.

Wherefore, the decision of the Court of Appeals is hereby reversed and set aside, and another one is hereby rendered affirming in toto the judgment of the Court of First Instance a quo, with attorney's fees on appeal in favor of appellants in the amount of P1,000.00, plus the costs, both against the private appellees. So ordered.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Zaldivar and Sanchez, JJ., concur.

[G.R. No. L-23213. October 28, 1977.]

WESTERN MINDANAO LUMBER CO., INC., Plaintiff-Appellant, v. NATIVIDAD M. MEDALLE and ANTONIO MEDALLE, Defendants-Appellees.

Jalandoni & Jamir for Appellant.

Fernandez Law Office for Appellee.

D E C I S I O N

CONCEPCION, JR., J.:

Appeal from the order of the Court of First Instance of Zamboanga City dismissing the complaint upon the ground that the claim on which it is founded is unenforceable under the Statute of Fraud and special law.

The complaint, filed on December 16, 1960, alleges that:jgc:chanrobles.com.ph

"2. — The Plaintiff is engaged in logging operations in Curuan, Zamboanga City and in connection with the said logging operation it obtained on September 8, 1955 a right-of-way through the said Lot 2136 of the Cadastral Survey of Zamboanga from Mr. Luciano Hernandez, then the registered owner, a copy of the agreement being enclosed as Annex ‘A’;

"3. — The former owners of the logging concession operated by the Plaintiff constructed and maintained the said road through Lot 2136, but the Plaintiff improved the said road, paying to the registered owner for all the improvements damaged by the improvement of the road;

"4. — Long before the execution of the right-of-way agreement on September 8, 1955, since then and up to the present time the said road has been maintained and used not only by the predecessor of the Plaintiff and the Plaintiff, but also by the public;

"5. — The said Lot 2136 was purchased by the defendants in 1958 and the said road then existed and was in public use and the defendants did not oppose but instead allowed the continued use and maintenance of the road by the Plaintiff and the public;

"6. — The said road is indispensable to the business operations of the Plaintiff, because it is the only access from their concession to the highway;

"7. — That defendants have now sent to the Plaintiff a notice (Annex ‘B’) of their intention to close the road; and

"8. — The Plaintiff has the right to the continued use of said road, the closing of which will cause injustice and irreparable damages to the Plaintiff and the Plaintiff is willing to post a bond for the issuance of a writ of preliminary injunction to stop the defendants from closing the road."cralaw virtua1aw library

x x x

Wherefore, the plaintiff prayed that a writ of preliminary injunction be issued restraining the defendants from closing the said road, and after hearing, make the injunction permanent. It also prayed that the defendants be directed to recognize and respect the said road right-of-way agreement. 1 Copies of the road right-of-way agreement and the letter of the defendants advising the plaintiff of the closure of the road were attached thereto. 2 Upon the filing of a bond in the amount of P1,000.00, a writ of preliminary injunction was issued, restraining the defendants from closing

the road. 3

Instead of a responsive pleading, the defendants filed a motion to dismiss the complaint on January 4, 1961, upon the ground that the claim on which the action or suit is founded is unenforceable under the provisions of the Statute of Frauds and special law, in that the first page of the said road right-of-way agreement was not signed by both parties and there instrumental witnesses; page two thereof is not dated, and the signature of the plaintiff’s corporate agent does not appear, and that said agreement is not acknowledged before a person authorized to administer oaths. 4

The plaintiff opposed the motion, stating that the agreement between plaintiff and Luciano Hernandez is not one of those agreements specified in the Statute of frauds. 5 Nevertheless, the trial court granted the motion to dismiss on January 17, 1961 and dismissed the cases. 6

The plaintiff filed a motion for reconsideration of the said order, insisting that the road right-of-way agreement is not covered by the Statute of frauds. 7 Then, on March 4, 1961, the plaintiff filed an Amended Complaint, accompanied by a motion for its admission. The plaintiff therein prayed, among others, that the defendants be ordered to keep the road open and to respect the right-of-way agreement, and "should it be ascertained that under the law the plaintiff is bound to pay compensation for the right-of-way to the Defendants, it is prayed that the reasonable amount of such compensation be fixed." 8

After heading the parties, the trial court issued an order on September 6, 1961, denying the motion for reconsideration. 9

Whereupon, the plaintiff perfected an appeal to the Court of Appeals. 10 The appellate court, finding that only questions of law are raised, elevated the appeal to this Court. 11

The plaintiff-appellant made the following assignment of errors in its Brief:jgc:chanrobles.com.ph

"1. The trial court erred in dismissing the complaint on the ground that the claim on which the action or suit is founded is unenforceable under the provisions of the Statute of Frauds and special law; and

"2. The trial court erred in denying plaintiff’s motion for reconsideration."cralaw virtua1aw library

The appeal is meritorious. The Statute of frauds refers to specific kinds of transactions and cannot apply to any that is not enumerated therein. 12 The transactions or agreements covered by said statute are the following:jgc:chanrobles.com.ph

"(a) An agreement that by its terms is not to be performed within a year from the making thereof;

"(b) A special promise to answer for the debt, default, or miscarriage of another;

"(c) An agreement made in consideration of marriage, other than a mutual promise to marry;

"(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action, or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of purchasers and person on whose account the sale is made, it is sufficient memorandum;

"(e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest therein;

"(f) A representation as to the credit of a third person." 13

Obviously, an agreement creating an easement of right-of-way is not one of those contracts covered by the statute of frauds since it is not a sale of real property or of an interest therein. The trial court, therefore, erred in dismissing the case upon the defendants’ claim that the road right-of-way agreement in question is unenforceable under the statute of frauds. Besides, the complaint, as amended, may be viewed not only as a claim for the recognition of the existence of an easement of right-of-way on defendants’ estate, but also a demand for the establishment of an easement of right-of-way, if none exists, pursuant to Art. 649 of the Civil Code, in view of the plaintiff’s offer to pay reasonable compensation for the use of the land.

WHEREFORE, the judgment appealed from is hereby reversed and the orders of January 17, 1961 and September 6, 1961 set aside. Costs against the defendants-appellees.cralawnad

SO ORDERED.

Fernando (Chairman), Barredo, Aquino and Santos, JJ., concur.

Antonio, J., concurs in the result.