Contract of Sale

1. Bernardo v. Court of Appeals, G.R. No. 107791, 332 SCRA 1 (2000)

[G.R. No. 107791. May 12, 2000]

PEPITO BERNARDO, ROSITA BERNARDO and LILY BERNARDO, petitioners, vs.HON. COURT OF APPEALS and FRUCTUOSO TORRES, respondents.

D E C I S I O N

YNARES-SANTIAGO, J.: Scl-aw

The instant Petition for Review seeks to set aside the August 11, 1987 Decision of respondent Court of Appeals in CA-G.R. CV No. 65844[1] which reversed the December 28, 1978 Decision of the then Court of First Instance of Nueva Ecija, Branch 2, dismissing Civil Case No. 5735. [2]

The facts are as follows:

Private respondent Fructuoso Torres was the owner of five (5) parcels of land, under Transfer Certifi-cate of Title No. NT-21520 of the Register of Deeds of Nueva Ecija, with a total area of 23.2922 hectares, located in Sta. Rosa, Nueva Ecija.

On January 24, 1957, private respondent mortgaged the subject land to the Philippine National Bank for P1,500.00, and redeemed the same on March 23, 1960. Following such redemption, or on June 22, 1960, the subject land was again mortgaged for P4,200.00, this time to the Development Bank of the Philippines. Rtc-spped

Two days after the mortgage, or on June 24, 1960, the land became the subject of a Deed of Sale with Assumption of Mortgage[3] executed by private respondent Fructuoso Torres and his wife, Maura Jawili, in favor of the spouses Modesto Bernardo and Cecilia Buenavides (hereinafter referred to as the spouses Bernardo), predecessors-in-interest of petitioners. The spouses Bernardo thereafter took possession of the subject land, and since then possession thereof has remained with them and their successors-in-interest, petitioners herein.

On December 6, 1971, private respondent filed a Complaint for Annulment of Contract, Recon-veyance with Damages and Preliminary Injunction[4] against petitioners, as heirs of the spouses Bernardo, both now deceased, which was docketed as Civil Case No. 5735 before the Court of First Instance of Nueva Ecija. He alleged that he does not know how to read and write; and that neither he nor his wife knew that the document they signed was one for sale inasmuch as they were made to believe that what they had executed was a contract for the transfer of possession, or lease, of the subject land to the spouses Bernardo for a ten (10) year period, in exchange for P9,000.00. This P9,000.00, which the spouses Bernardo advanced, supposedly represented the P4,800.00 private re-spondent loaned from the spouses Bernardo sometime in 1960 to redeem the subject land from the PNB; and the payment for their P4,200.00 loan from DBP, which the spouses Bernardo were to as-sume. The amount of P9,000.00 was to be returned by private respondent to the spouses Bernardo after ten (10) years, simultaneous with the return to them of possession of the subject land. Private respondent claims that he and his wife thought the document presented to them by the Bernardo spouses and which they signed was an agreement for "Hiraman ng Lupa".

Previously, on June 3, 1970, private respondent obtained another agricultural loan from DBP in the amount of P4,900.00, part of which he used to pay off the remaining balance of P1,600.00 left unpaid by the spouses Bernardo.

However, instead of returning the subject land to private respondent after the lapse of ten (10) years, petitioner Pepito Bernardo filed an Affidavit of Adverse Claim and a criminal complaint against private respondent for estafa, both on account of the additional loan obtained by the latter from the DBP us-ing the subject land as collateral, despite the fact that ownership of the same had long been trans-ferred to the spouses Bernardo. Rtcspped

In their Answer in Civil Case No. 5735,[5] petitioners insisted that the transaction between private re-spondent and their deceased parents was one of sale with assumption of mortgage. They accused private respondent of bad faith in securing the P4,900.00 liquidation loan from DBP after learning that the remaining balance of the original loan was only P1,600.00, and even as they had no more right to derive any benefit from the subject land. Petitioners claim that this prompted them to file an Affidavit of Adverse Claim with the Register of Deeds of Nueva Ecija on October 16, 1970, followed by a crimi-nal case for estafa[6] filed on December 28, 1970. Petitioners argued that private respondent filed the Complaint in reaction to the criminal case they filed against them after private respondent admitted the existence of the Deed of Sale with Assumption of Mortgage. They asserted that private respon-dent’s sole objective in filing the civil action was to escape criminal liability.

Meanwhile, the estafa case filed by petitioners against private respondent was held in abeyance until after the termination of Civil Case No. 5735.

Following trial on the merits in the civil action, the lower court rendered its Decision of December 28, 1978, dismissing the Complaint upon a finding that the verbal allegations of private respondent can-not overcome the documentary and testimonial evidence presented by petitioners. In particular, the court upheld the presumption of regularity of the subject document which was notarized by a PNB no-tary public who would not have allowed himself to be used as a tool in deceiving private respondent and his wife. In dismissing the Complaint, the lower court also took the following into consideration: (1) the lack of evidence showing any unusual interest of the spouses Bernardo over the subject land prior to the transaction or of circumstances showing private respondent in dire need of money, which could have caused spouses Bernardo to take advantage of his situation; (2) the immediate transfer of the property to the spouses Bernardo, together with the DBP loan account passbook; (3) the fact that private respondent never paid taxes on the land during the alleged ten year "lending" period; (4) the fact that the consideration of P9,000.00 for the land did not appear inadequate as the land was at that time unirrigated and had a total assessed value of only P7,000.00; and (5) the lapse of eleven years from the time the contract was executed until the time of the filing of the Complaint.

On appeal, respondent Court of Appeals reversed the lower court’s Decision and annulled the subject Deed of Sale with Assumption of Mortgage. Petitioners were also ordered to vacate the subject land and to pay private respondent P5,000.00 as and for attorney’s fees. In so ruling, respondent Court of Appeals took note of the illiteracy of private respondent and his wife, following Article 24 of the Civil Code which enjoins the courts to be vigilant in the protection of the rights of those disadvantaged in contractual relations by virtue of their ignorance and mental handicap. The Court of Appeals also found the failure of petitioners to pay taxes on the land and to have title to the same transferred in their name as indicative of their status as mere lessees of the land and not vendees thereof. Finally, it found that prescription has not set in, since the four year period within which to bring an action for an-nulment of contract commences only upon discovery of the mistake or fraud, which it found to be only in 1970. Sclex

With the denial of their Motion for Reconsideration on October 28, 1992, petitioners filed the instant Petition for Review anchored upon the following grounds –

I.......THE RESPONDENT COURT ERRED AND EXERCISED GRAVE ABUSE OF DIS-CRETION IN DISREGARDING THE LEGAL EFFECTS AND PROBATIVE VALUE OF A PUBLIC AND DULY NOTARIZED DOCUMENT THE EXECUTION OF WHICH IS NOT DISPUTED.

II.......THE RESPONDENT COURT ERRED AND EXERCISED GRAVE ABUSE OF DIS-CRETION IN FINDING THAT THE PRESUMPTION OF LEGALITY AND REGULARITY OF A NOTARIAL ACT COULD BE DEFEATED BY MERE DENIAL OF THE PARTY EXECUTING THE NOTARIZED INSTRUMENT.

III.......THE RESPONDENT COURT ERRED AND EXERCISED GRAVE ABUSE OF DIS-CRETION IN RELYING ON THE TESTIMONY OF PRIVATE RESPONDENT THAT HE DOES NOT KNOW HOW TO READ AND WRITE DESPITE ADMISSION BY THE LAT-TER OF THE CONTENTS OF THE WRITTEN AGREEMENT.

IV.......THE RESPONDENT COURT ERRED AND EXERCISED GRAVE ABUSE OF DIS-CRETION IN REVERSING THE DECISION OF THE TRIAL COURT BASED SOLELY ON THE TESTIMONY OF THE PRIVATE RESPONDENT THAT HE DOES NOT KNOW HOW TO READ AND WRITE IN UTTER DISREGARD OF THE EVALUATION AND FINDINGS OF THE TRIAL JUDGE OF THE EVIDENCE PRESENTED BEFORE HIM.

V.......THE RESPONDENT COURT OF APPEALS ERRED AND EXERCISED ABUSE OF DISCRETION IN NOT FINDING THAT THE COMPLAINT IS BARRED BY THE STATUTE OF LIMITATIONS.[7]

Stripped to the core, the issue in the case before us is simply whether or not the transaction over the subject land was one of sale or one of lease. On one hand, we have the stark documentary evidence entitled "Deed of Sale with Assumption of Mortgage"; while on the other, we have private respon-dent’s and his wife’s denial that they had intended to sell the subject land. xlaw

It is a fact that the transaction between private respondent and the spouses Bernardo was reduced into writing by way of a document denominated "Deed of Sale with Assumption of Mortgage". [8] This document, admitted as signed by private respondent and his wife, was duly notarized by Notary Pub-lic Pedro B. Binuya and had two instrumental witnesses. Being a notarized document, it had in its fa-vor the presumption of regularity, and to overcome the same, there must be evidence that is clear, convincing and more than merely preponderant; otherwise the document should be upheld.[9]

The question that must be addressed, therefore, is: Was the evidence presented by private respon-dent against the Deed of Sale with Assumption of Mortgage clear, convincing and more than merely preponderant? We do not think so.

Far from being clear and convincing, all that private respondent offered by way of evidence was his and his wife’s mere denial that they had intended to sell the subject land. Such bare and unsubstanti-ated denial will not suffice to overcome the positive presumption of the due execution of the subject Deed, being a notarized document. Indeed, when the evidence is conflicting, the public document must still be upheld.[10]

The same strict requirements apply with respect to the contents of the subject Deed. As held in Sierra v. Court of Appeals[11] –

The Rules of Court provide that "when the terms of an agreement have been reduced to writing, it is to be considered as containing all such terms, and, therefore, there can be, between the parties and their successors in interest, no evidence of the terms of the agreement other than the contents of the writing." It is true that parol evidence may be admitted to challenge the contents of such agreement "where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the parties, or the validity of the agreement is put in issue by the pleadings." However, such evidence must be clear and convincing and of such sufficient credibility as to overturn the written agreement.

Again, mere denial by private respondent cannot refute the contents of the subject Deed which, from its very title, in no uncertain terms holds out the transaction covered as one of "Sale with Assumption of Mortgage". Further, paragraph 4 of the document clearly and unequivocally provides – xsc

"4. That, for and in consideration of the sum of Four Thousand Eight Hundred Pesos (P4,800.00), Philippine currency, receipt of which is hereby acknowledged to have been received by the Vendors from the Vendees, the Vendors have sold, transferred and conveyed, and by these presents do hereby sell, transfer and convey by way of ab-solute sale unto the Vendees, their heirs successors and assigns, the above described parcels of land, subject to the mortgage lien in favor of the Development Bank of the Philippines." (emphasis ours)

Respondent Court of Appeals relied on the claim by private respondent that neither he nor his wife could understand English and knew not what the subject Deed was about. However, the records of the case show that private respondent was not totally unschooled as he, himself, testified that he reached Grade Two.[12] And one who reaches Grade Two would very well know the import and mean-ing of the word "sale" which appears not only in the body of the subject document but even in its very title in capital letters. Indeed, we cannot see how private respondent can recognize the caption "Dec-laration of Real Estate Property"[13] and not "Deed of Sale with Assumption of Mortgage". His knowl-edge of the English language is suspiciously selective. The deed of sale is not the only document in English language entered into by private respondent. He and his wife had previously entered into the two DBP mortgage contracts[14] which were likewise written in English. Private respondent’s own Ex-hibit "F", his letter/application to DBP, is entirely written in the English language. All told, we fail to see how private respondent could not have known that the document he signed was one for sale of his property when the very title thereof as well as its provisions contained the word "sale", a simple word he would have perfectly recognized and understood.

Moreover, we note that the specific provisions of the subject document contained details which could have been known only to private respondent and his wife (i.e., the mortgage with the DBP, the amount and notarial incidents thereof, and the balance of the loan proceeds) – these signify that both of them had full participation in the drawing up of the said document and knew fully well what it was all about.

Finally, granting, without conceding, that private respondent and his wife were both illiterate, this still does not save the day for them. As stressed in Tan Sua Sia v. Yu Baio Sontua, 56 Phil. 711, cited in Mata v. Court of Appeals[15] -- Sc

"x x x. The rule that one who signs a contract is presumed to know its contents has been applied even to contracts of illiterate persons on the ground that if such persons

are unable to read, they are negligent if they fail to have the contract read to them. If a person cannot read the instrument, it is as much his duty to procure some reliable per-sons to read and explain it to him, before he signs it, as it would be to read it before he signed it if he were able to do so and his failure to obtain a reading and explanation of it is such gross negligence as will estop him from avoiding it on the ground that he was ig-norant of its contents."

We also find that the contemporaneous and subsequent acts of the parties point to sale as having been effected. Private respondent admitted turning over the DBP loan passbook to the spouses Bernardo,[16]an act which was consistent with the assumption of mortgage referred to in the subject document. Possession of the subject land was also transferred to the spouses Bernardo who by themselves and, later, through petitioners, cultivated the same. On the part of private respondent, it is noteworthy that from the time the document of sale was signed, he never paid realty taxes on the subject land, a fact inconsistent with his claim of continued ownership. Private respondent only paid taxes on the land in June 1970. Coincidentally, his letter/application for agricultural loan with the DBP on May 22, 1970[17] contains a notation regarding certification as to land tax payment and tax declara-tions, leading us to conclude that the payment of taxes on the land was a requirement for any loan to issue or, at the very least, had some bearing on the loan application.

As for petitioners, we find their failure to have title to the subject land transferred to their name ade-quately explained by paragraph 7 of the Deed of Sale with Assumption of Mortgage, to wit –

"7. That it is further agreed that this instrument shall not be registered with the office of the Register of Deeds of Nueva Ecija, until the obligation with the Development Bank of the Philippines which is hereby assumed by the Vendees is fully paid, and the title to the properties released by the said bank."

Stated differently, it was impossible for petitioners or their predecessors-in-interest to have the title transferred to their name until the original loan with DBP was paid, since the said bank retained the ti-tle of the property until such full payment.

Recapitulating, we find that the validity of the notarized Deed of Sale with Assumption of Mortgage has not successfully been overthrown, hence the Complaint for Annulment of Contract and Recon-veyance with Damages must be dismissed.

WHEREFORE, premises considered, the instant Petition for Review is GRANTED. The August 11, 1987 Decision of respondent Court of Appeals in CA-G.R. CV No. 65844 is REVERSED and SET ASIDE and the December 28, 1978 Decision of the then Court of First Instance of Nueva Ecija, Branch II, dismissing Civil Case No. 5735 is REINSTATED. No pronouncement as to costs.

SO ORDERED. Scmis

Davide, Jr., C.J., (Chairman), Kapunan, and Pardo, JJ., concur.

Puno, J., no part due to relationship to one counsel.

[1] Records, C.A. G.R. CV No. 65844, pp. 39-51.[2] Penned by Judge Bienvenido C. Vera Cruz; Records, Civil Case No. 5735, pp. 71-77.[3] Simultaneously Exh. "B" and "1".

[4] Civil Case No. 5735, pp. 1-14.[5] Id., at pp. 24-37.[6] See Exh. "G", Information, Criminal Case No. 20013.[7] Petition for Review, p. 5; Rollo, p. 16.[8] See Note 3.[9] Spouses Caoili vs. Court of Appeals, G.R. No. 128325, 14 September 1999.[10] See R & B Insurance Corporation vs. Court of Appeals, G.R. No. 108472, 9 October 1999.[11] G.R. No. 90270, 211 SCRA 785, 789-790 (1992)[12] T.S.N., 27 February 1974, p. 8.[13] T.S.N., 27 February 1974, p. 14.[14] Exhs. "J" and "L".[15] G.R. No. 87880, 207 SCRA 753, 760 (1992)[16] T.S.N., 11 December 1975, p. 7.[17] Exh. "F"

2. Ayala Life Assurance, Inc. v. Ray Burton Development Corporation, G.R. No. 163075, 479 SCRA 462 (2006)

G.R. No. 163075           January 23, 2006

AYALA LIFE ASSURANCE, INC., Petitioner, vs.RAY BURTON DEVELOPMENT CORPORATION, Respondent.

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

Before us for resolution is the petition for review on certiorari1 assailing the Decision2 dated January 21, 2004 of the Court of Appeals in CA-G.R. CV No. 74635,3 as well as its Resolution dated April 2, 2004 denying peti-tioner’s motion for reconsideration.

The facts are:

On December 22, 1995, Ayala Life Assurance, Inc., petitioner, and Ray Burton Development Corporation, re-spondent, entered into a contract denominated as a "Contract to Sell," with a "Side Agreement" of even date. In these contracts, petitioner agreed to sell to respondent a parcel of land, with an area of 1,691 square me-ters, situated at Madrigal Business Park, Ayala Alabang Village, Muntinlupa City, covered by Transfer Certifi-cate of Title No. 186485 of the Registry of Deeds of Makati City. The purchase price of the land is P55,000.00 per square meter or a total of P93,005,000.00, payable as follows:

(a) On contract date – P24,181,300.00 representing 26 percent of the purchase price, inclusive of theP-1,000,000.00 option money;

(b) Not later than January 6, 1996 – P3,720,200.00 representing 4 percent of the purchase price to complete 30 percent down payment; and

(c) In consecutive quarterly installments for a period of 5 years from December 22, 1995 – P65,103,500.00 representing the 70 percent balance of the purchase price.

The contract contains a stipulation in paragraphs 3 and 3.1 for an "Event of Default." It provides that in case the purchaser (respondent) fails to pay any installment for any reason not attributable to the seller (petitioner), the latter has the right to assess the purchaser a late penalty interest on the unpaid installment at two (2%)

percent per month, computed from the date the amount became due until full payment thereof. And if such de-fault continues for a period of six (6) months, the seller has the right to cancel the contract without need of court declaration by giving the purchaser a written notice of cancellation. In case of such cancellation, the seller shallreturn to the purchaser the amount he received, less penalties, unpaid charges and dues on the property.

Respondent paid thirty (30%) down payment and the quarterly amortization, including the one that fell due on June 22, 1998.

However, on August 12, 1998, respondent notified petitioner in writing that it will no longer continue to pay due to the adverse effects of the economic crisis to its business. Respondent then asked for the immediate cancel-lation of the contract and for a refund of its previous payments as provided in the contract.

Petitioner refused to cancel the contract to sell. Instead, on November 25, 1999, it filed with the Regional Trial Court, Branch 66, Makati City, a complaint for specific performance against respondent, docketed as Civil Case No. 99-2014, demanding from the latter the payment of the remaining unpaid quarterly installments be-ginning September 21, 1999 in the total sum of P33,242,382.43, inclusive of interest and penalties.

Respondent, in its answer, denied any further obligation to petitioner, asserting that on August 12, 1998, it (re-spondent) notified the latter of its inability to pay the remaining installments. Respondent invoked the provi-sions of paragraphs 3 and 3.1 of the contract to sell providing for the refund to it of the amounts paid, less in-terest and the sum of 25% of all sums paid as liquidated damages.

After pre-trial, petitioner moved for a summary judgment on the ground that respondent’s answer failed to ten-der any genuine issue as to any material fact, except as to the amount of damages. The trial court granted the motion and ordered the parties to submit their memoranda.

On December 10, 2001, the trial court rendered a Decision holding that respondent transgressed the law in ob-vious bad faith. The dispositive portion reads:

WHEREFORE, defendant (now respondent) is hereby sentenced and ordered to pay plaintiff (now petitioner) the sum of P33,242,383.43, representing the unpaid balance of the principal amount owing under the contract, interest agreed upon, and penalties. Defendant is further ordered to pay plaintiff the sum of P200,000.00 as at-torney’s fees and the costs of suit.

Upon full payment of the aforementioned amounts by defendant, plaintiff shall, as it is hereby ordered, execute the appropriate deed of absolute sale conveying and transferring full title and ownership of the parcel of land subject of the sale to and in favor of defendant.

On appeal, the Court of Appeals rendered a Decision dated January 21, 2004 in CA-G.R. CV No. 74635, re-versing the trial court’s Decision, thus:

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE. Ayala Life is hereby or-dered to refund all sums paid under the Contract to Sell, with interest of twelve percent (12%) per annum from 12 August 1998 until fully paid, less the amount equivalent to 25% of the total amount paid as liquidated dam-ages.

SO ORDERED.

The Court of Appeals ruled that the parties’ transaction in question is in the nature of a contract to sell, as dis-tinguished from a contract of sale. Under their contract, ownership of the land is retained by petitioner until re-spondent shall have fully paid the purchase price. Its failure to pay the price in full is not a breach of contract but merely an event that prevents petitioner from conveying the title to respondent. Under such a situation, a cause of action for specific performance does not arise. What should govern the parties’ relation are the provi-sions of their contract on the "Event of Default" stated earlier.

Hence, the instant petition for review on certiorari.

Petitioner contends that the Court of Appeals committed a reversible error in holding that: (a) the remedy of specific performance is not available in a contract to sell, such as the one at bar; and (b) petitioner is liable to refund respondent all the sums the latter paid under the contract to sell, with interest at 12% per annum from August 12, 1998 until fully paid, less the amount equivalent to 25% of the total amount paid as liquidated dam-ages.

Petitioner argues that by virtue of the contract to sell, it has the right to choose between fulfillment and rescis-sion of the contract, with damages in either case. Thus, it is immaterial to determine whether the parties’ sub-ject agreement is a contract to sell or a contract of sale.

In its comment, respondent disputed petitioner’s allegations and prayed that the petition be denied for lack of merit.

The issues are:

1. Whether respondent’s non-payment of the balance of the purchase price gave rise to a cause of action on the part of petitioner to demand full payment of the purchase price; and

2. Whether petitioner should refund respondent the amount the latter paid under the contract to sell.

At the outset, it is significant to note that petitioner does not dispute that its December 22, 1995 transaction with respondent is a contract to sell. It bears stressing that the exact nature of the parties’ contract deter-mines whether petitioner has the remedy of specific performance.

It is thus imperative that we first determine the nature of the parties’ contract.

The real nature of a contract may be determined from the express terms of the written agreement and from the contemporaneous and subsequent acts of the contracting parties.4 In the construction or interpretation of an in-strument, the intention of the parties is primordial and is to be pursued.5 If the terms of the contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall con-trol.6 If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former.7 The denomination or title given by the parties in their contract is not conclusive of the nature of its con-tents.8

Here, the questioned agreement clearly indicates that it is a contract to sell, not a contract of sale. Paragraph 4 of the contract provides:

4. TITLE AND OWNERSHIP OF THE PROPERTY. – The title to the property shall transfer to the PUR-CHASER upon payment of the balance of the Purchase Price and all expenses, penalties and other costs which shall be due and payable hereunder or which may have accrued thereto. Thereupon, the SELLER shall execute a Deed of Absolute Sale in favor of the PURCHASER conveying all the SELLER’S rights, title and in-terest in and to the Property to the PURCHASER.9

As correctly stated by the Court of Appeals in its assailed Decision, "The ruling of the Supreme Court in Lim v. Court of Appeals (182 SCRA 564 [1990]) is most illuminating. In the said case, a contract to sell and a contract of sale were clearly and thoroughly distinguished from each other, with the High Tribunal stressing that in a contract of sale, the title passes to the buyer upon the delivery of the thing sold. In a contract to sell, the owner-ship is reserved in the seller and is not to pass until the full payment of the purchase price is made. In the first case, non-payment of the price is a negative resolutory condition; in the second case, full payment is a positive suspensive condition. In the first case, the vendor has lost and cannot recover the ownership of the property until and unless the contract of sale is itself resolved and set aside. In the second case, the title remains in the vendor if the vendee does not comply with the condition precedent of making payment at the time specified in the contract."10

Considering that the parties’ transaction is a contract to sell, can petitioner, as seller, demand specific perfor-mance from respondent, as buyer?

Black’s Law Dictionary defined specific performance as "(t)he remedy of requiring exact performance of a con-tract in the specific form in which it was made, or according to the precise terms agreed upon. The actual ac-complishment of a contract by a party bound to fulfill it."11

Evidently, before the remedy of specific performance may be availed of, there must be a breach of the con-tract.

Under a contract to sell, the title of the thing to be sold is retained by the seller until the purchaser makes full payment of the agreed purchase price. Such payment is a positive suspensive condition, the non-fulfillment of which is not a breach of contract but merely an event that prevents the seller from conveying title to the pur-chaser. The non-payment of the purchase price renders the contract to sell ineffective and without force and effect. Thus, a cause of action for specific performance does not arise.

In Rayos v. Court of Appeals,12 we held:

x x x. Under the two contracts, the petitioners bound and obliged themselves to execute a deed of absolute sale over the property and transfer title thereon to the respondents after the payment of the full purchase price of the property, inclusive of the quarterly installments due on the petitioners’ loan with the PSB:

x x x

Construing the contracts together, it is evident that the parties executed a contract to sell and not a contract of sale. The petitioners retained ownership without further remedies by the respondents until the payment of the purchase price of the property in full. Such payment is a positive suspensive condition, failure of which is not really a breach, serious or otherwise, but an event that prevents the obligation of the peti-tioners to convey title from arising, in accordance with Article 1184 of the Civil Code (Leano v. Court of Appeals, 369 SCRA 36 [2001]; Lacanilao v. Court of Appeals, 262 SCRA 486 [1996]).

The non-fulfillment by the respondent of his obligation to pay, which is a suspensive condition to the obligation of the petitioners to sell and deliver the title to the property, rendered the contract to sell in-effective and without force and effect (Agustin v. Court of Appeals, 186 SCRA 375 [1990]). The parties stand as if the conditional obligation had never existed. Article 119113 of the New Civil Code will not ap-ply because it presupposes an obligation already extant (Padilla v. Posadas, 328 SCRA 434 [2001]. There can be no rescission of an obligation that is still non-existing, the suspensive condition not having happened (Rillo v. Court of Appeals, 274 SCRA 461 [1997]). (Underscoring supplied)

Here, the provisions of the contract to sell categorically indicate that respondent’s default in the payment of the purchase price is considered merely as an "event," the happening of which gives rise to the respective obliga-tions of the parties mentioned therein, thus:

3. EVENT OF DEFAULT. The following event shall constitute an Event of Default under this contract: the PURCHASER fails to pay any installment on the balance, for any reason not attributable to the SELLER, on the date it is due, provided, however, that the SELLER shall have the right to charge the PURCHASER a late penalty interest on the said unpaid interest at the rate of 2% per month computed from the date the amount be-came due and payable until full payment thereof.

3.1. If the Event of Default shall have occurred, then at any time thereafter, if any such event shall then be con-tinuing for a period of six (6) months, the SELLER shall have the right to cancel this Contract without need of court declaration to that effect by giving the PURCHASER a written notice of cancellation sent to the address of the PURCHASER as specified herein by registered mail or personal delivery. Thereafter, the SELLER shall-return to the PURCHASER the aggregate amount that the SELLER shall have received as of the cancellation of this Contract, less: (i) penalties accrued as of the date of such cancellation, (ii) an amount equivalent to

twenty five percent (25%) of the total amount paid as liquidated damages, and (iii) any unpaid charges and dues on the Property. Any amount to be refunded to the PURCHASER shall be collected by the PURCHASER at the office of the SELLER. Upon notice to the PURCHASER of such cancellation, the SELLER shall be free to dispose of the Property covered hereby as if this Contract had not been executed. Notice to the PUR-CHASER sent by registered mail or by personal delivery to its address stated in this Contract shall be consid-ered as sufficient compliance with all requirements of notice for purposes of this Contract.14

Therefore, in the event of respondent’s default in payment, petitioner, under the above provisions of the con-tract, has the right to retain an amount equivalent to 25% of the total payments. As stated by the Court of Ap-peals, petitioner having been informed in writing by respondent of its intention not to proceed with the contract on August 12, 1998, or prior to incurring delay in payment of succeeding installments,15 the provisions in the contract relative to penalties and interest find no application.

The Court of Appeals further held that with respect to the award of interest, petitioner is liable to pay interest of 12% per annum upon the net refundable amount due from the time respondent made the extrajudicial demand upon it on August 12, 1998 to refund payment under the Contract to Sell,16 pursuant to our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.17

In sum, we find that the Court of Appeals, in rendering the assailed Decision and Resolution, did not commit any reversible error.

WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals areAF-FIRMED. Costs against petitioner.

SO ORDERED.

Footnotes

1 Filed under Rule 45 of the 1997 Rules of Civil Procedure, as amended.

2 Penned by Presiding Justice Romeo A. Brawner (now retired) and concurred in by Justice Rebecca De Guia-Salvador and Justice Jose C. Reyes, Jr.

3 Titled "Ayala Life Assurance, Inc., Plaintiff-Appellee, v. Ray Burton Development Corporation, Defendant-Appellant."

4 Blas v. Angeles-Hutalla, G.R. No. 155594, September 27, 2004, 439 SCRA 273, citing Velasquez v. Court of Appeals, 345 SCRA 468 (2000).

5 Blas v. Angeles-Hutalla, id., citing Golden Diamond, Inc. v. Court of Appeals, 332 SCRA 605 (2000).

6 Article 1370, New Civil Code.

7 Id.

8 Blas v. Angeles-Hutalla, supra, citing Romero v. Court of Appeals, 250 SCRA 223 (1995).

9 Contract to Sell, p. 3; Records, p. 19.

10 See also Dijamco v. Court of Appeals, G.R. No. 113665, October 7, 2004, 440 SCRA 190; Rayos v. Court of Appeals, G.R. No. 135528, July 14, 2004, 434 SCRA 365.

11 Sixth Centennial Edition at 1138.

12 Supra; see also Pingol v. Court of Appeals, G.R. No. 102909, September 6, 1993, 226 SCRA 118.

13 "Art. 1191. The power to rescind obligation is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfill-ment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. (1124)"

14 Contract to Sell, p. 2; Record, p. 19.

15 Paragraph 7, p. 3 of the Complaint states that default in payment of installments began on 21 September 1998. (Records, p. 14)

16 Rollo, pp. 77-83.

17 G.R. No. 97412, July 12, 1994, 234 SCRA 78.

18 Labasan v. Lacuesta¸ 86 SCRA 16 (1979).

19 New Life Enterprises v. Court of Appeals, 207 SCRA 669 (1992).

20 Samson v. Court of Appeals, 238 SCRA 397 (1994).

21 Records, p. 54.

22 Villanueva v. Sandiganbayan, 223 SCRA 543 (1993).

23 Tan Ti v. Alvear, 26 Phil. 566.

24 Ramos v. Ramos, 61 SCRA 284.

25 Angel Jose Warehousing, Co. v. Chelda Enterprises, et al., L-25704, 24 April 1968, 23 SCRA 119 [1968].

26 70 SCRA 65.

27 Article 526, New Civil Code, Kasilag v. Rodriguez, 69 Phil. 217.

28 Records.

29 Rollo, pp. 77-83.

30 G.R. No. 97412, 12 July 1994, 234 SCRA 78 [1994].

3. Sps. Cruz v. Sps Fernando, G.R. No. 145470, 477 SCRA 173 (2005)

SPS. LUIS V. CRUZ and                           G.R. NO. 145470AIDA CRUZ,                             Petitioners,                    Present:                                                                        PUNO, Chairman,                                                                       AUSTRIA-MARTINEZ,          - versus -                                                         CALLEJO, SR.,                                                                       TINGA, and                                                                       CHICO-NAZARIO, JJ.SPS. ALEJANDRO FERNANDO,SR., and RITA FERNANDO,                             Promulgated:                             Respondents.                 December 9, 2005x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x  

D E C I S I O N AUSTRIA-MARTINEZ, J.:

  

For resolution is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the Decision[1] dated October 3, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 61247, dismissing petitioners’ appeal and affirming the decision of the Regional Trial Court (RTC) of Malolos, Bulacan, Branch 79, in Civil Case No. 877-M-94.

          The antecedent facts are as follows:

 

          Luis V. Cruz and Aida Cruz (petitioners) are occupants of the front portion of a 710-

square meter property located in Sto. Cristo, Baliuag, Bulacan.  On October 21, 1994, spouses

Alejandro Fernando, Sr. and Rita Fernando (respondents) filed before the RTC a complaint

for accion publiciana against petitioners, demanding the latter to vacate the premises and to pay

the amount ofP500.00 a month as reasonable rental for the use thereof.  Respondents alleged in

their complaint that: (1) they are owners of the property, having bought the same from the

spouses Clodualdo and Teresita Glorioso (Gloriosos) per Deed of Sale dated March 9, 1987; (2)

prior to their acquisition of the property, the Gloriosos offered to sell to petitioners the rear por-

tion of the property but the transaction did not materialize due to petitioners’ failure to exercise

their option; (3) the offer to sell is embodied in a Kasunduan dated August 6, 1983 executed be-

fore the Barangay Captain; (4) due to petitioners’ failure to buy the allotted portion, respondents

bought the whole property from the Gloriosos; and (5) despite repeated demands, petitioners re-

fused to vacate the property.[2]

 

          Petitioners filed a Motion to Dismiss but the RTC dismissed it for lack of merit in its Or-

der dated March 6, 1995.[3]  Petitioners then filed their Answer setting forth the affirmative de-

fenses that: (1) the Kasunduan is a perfected contract of sale; (2) the agreement has already

been “partially consummated” as they already relocated their house from the rear portion of the

lot to the front portion that was sold to them; (3) Mrs. Glorioso prevented the complete consum-

mation of the sale when she refused to have the exact boundaries of the lot bought by petition-

ers surveyed, and the existing survey was made without their knowledge and participation; and

(4) respondents are buyers in bad faith having bought that portion of the lot occupied by them

(petitioners) with full knowledge of the prior sale to them by the Gloriosos.[4]

 

          After due proceedings, the RTC rendered a Decision on April 3, 1998 in favor of respon-

dents.  The decretal portion of the decision provides:

 PREMISES CONSIDERED, the herein plaintiffs was able to prove by prepon-

derance of evidence the case of accion publiciana, against the defendants and judg-ment is hereby rendered as follows:

 1.  Ordering defendants and all persons claiming under them to vacate place-

fully (sic) the premises in question and to remove their house therefore (sic); 2.  Ordering defendants to pay plaintiff the sum of P500.00 as reasonable rental

per month beginning October 21, 1994 when the case was filed before this Court and every month thereafter until they vacate the subject premises and to pay the costs of suit.

 The counter claim is hereby DISMISSED for lack of merit. SO ORDERED.[5]

 

          Petitioners appealed the RTC decision but it was affirmed by the CA per its Decision

dated October 3, 2000. 

 

          Hence, the present petition raising the following issues:

 1.  Whether the Honorable Court of Appeals committed an error of law in hold-

ing that the Agreement (Kasunduan) between the parties was a “mere offer to sell,” and not a perfected “Contract of Purchase and Sale”?

 

2.  Whether the Honorable Court of Appeals committed an error of law in not holding that where the parties clearly gave the petitioners a period of time within which to pay the price, but did not fix said period, the remedy of the vendors is to ask the Court to fix the period for the payment of the price, and not an “accion publi-ciana”?

  3.  Whether the Honorable Court of Appeals committed an error of law in not

ordering respondents to at least deliver the “back portion” of the lot in question upon payment of the agreed price thereof by petitioners, assuming that the Regional Trial Court was correct in finding that the subject matter of the sale was said “back por-tion”, and not the “front” portion of the property?

 4.  Whether the Honorable Court of Appeals committed an error of law in af-

firming the decision of the trial court ordering the petitioners, who are possessors in good faith, to pay rentals for the portion of the lot possessed by them?[6]

 

The RTC dwelt on the issue of which portion was being sold by the Gloriosos to petition-

ers, finding that it was the rear portion and not the front portion that was being sold; while the

CA construed the Kasunduan as a mere contract to sell and due to petitioners’ failure to pay the

purchase price, the Gloriosos were not obliged to deliver to them (petitioners) the portion being

sold.

 

Petitioners, however, insist that the agreement was a perfected contract of sale, and their

failure to pay the purchase price is immaterial.  They also contend that respondents have no

cause of action against them, as the obligation set in the Kasunduan did not set a period, conse-

quently, there is no breach of any obligation by petitioners.

 

          The resolution of the issues in this case principally is dependent on the interpretation of

theKasunduan dated August 6, 1983 executed by petitioners and the Gloriosos.  The Kasunduan-

provided the following pertinent stipulations:

 a.         Na pumayag ang mga maysumbong (referring to the Gloriosos) na pagbilhan

ang mga ipinagsumbong (referring to petitioners) na bahagi ng lupa at ang ipagbibili ay may sukat na 213 metrong parisukat humigit kumulang sa hala-gang P40.00 bawat metrong parisukat;

 b.         Na sa titulong papapanaugin ang magiging kabuuang sukat na mauukol sa mga

ipinagsusumbong ay 223 metrong parisukat at ang 10 metro nito ay bilang

kaloob ng mga maysumbong sa mga Ipinagsusumbong na bahagi ng right of way;

 c.         Na ang right of way ay may luwang na 1.75 meters magmula sa daang Lopez

Jaena patungo sa likuran ng lote na pagtatayuan ng bahay ng mga Ipinag-susumbong na kanyang bibilhin;

 d.         Na ang gugol sa pagpapasukat at pagpapanaog ng titulo ay paghahatian ng

magkabilang panig na ang panig ay magbibigay ng halagang hindi kukulanging sa halagang tig-AAPAT NA DAANG PISO (P400.00);

 e.         Na ang ipinagsusumbong ay tiyakang ililipat ang bahay sa bahaging kanilang

nabili o mabibili sa buwan ng Enero 31, 1984;[7]  (Emphasis supplied)

 

          Under Article 1458 of the Civil Code, a contract of sale is a contract by which one of the

contracting parties obligates himself to transfer the ownership and to deliver a determinate

thing, and   the   other   to   pay   therefor   a   price   certain   in   money   or its equivalent.   Ar-

ticle 1475 of the Code further provides that the contract of sale is perfected at the moment there

is meeting of the minds upon the thing which  is  the  object  of  the  contract  and  upon  the 

price.    From that moment the parties may reciprocally demand performance subject to the pro-

visions of the law governing the form of contracts.

 

In a contract of sale, the title to the property passes to the vendee upon the delivery of the

thing sold, as distinguished from a contract to sell where ownership is, by agreement, reserved

in the vendor and is not to pass to the vendee until full payment of the purchase price. [8]  Other-

wise stated, in a contract of sale, the vendor loses ownership over the property and cannot re -

cover it until and unless the contract is resolved or rescinded; whereas, in a contract to sell, title

is retained by the vendor until full payment of the price.  In the latter contract, payment of the

price is a positive suspensive condition, failure of which is not a breach but an event that pre-

vents the obligation of the vendor to convey title from becoming effective.

 

The Kasunduan provides for the following terms and conditions: (a) that the Gloriosos

agreed to sell to petitioners a portion of the property with an area of 213 meters at the price of-

P40.00 per square meter; (b) that in the title that will be caused to be issued, the aggregate area

is 223 square meters with 10 meters thereof serving as right of way; (c) that the right of way

shall have a width of 1.75 meters from Lopez Jaena road going towards the back of the lot

where petitioners will build their house on the portion of the lot that they will buy; (d) that the

expenses for the survey and for the issuance of the title will be divided between the parties with

each party giving an amount of no less than P400.00; and (e) that petitioners will definitely re-

locate their house to the portion they bought or will buy by January 31, 1984. 

 

The foregoing terms and conditions show that it is a contract to sell and not a contract of

sale.  For one, the conspicuous absence of a definite manner of payment of the purchase price in

the agreement confirms the conclusion that it is a contract to sell.  This is because the manner

of payment of the purchase price is an essential element before a valid and binding con-

tract of sale can exist.[9] Although the Civil Code does not expressly state that the minds of the

parties must also meet on the terms or manner of payment of the price, the same is needed, oth-

erwise there is no sale.[10]  As held in Toyota Shaw, Inc. vs. Court of Appeals,[11] a definite agree-

ment on the manner of payment of the price is an essential element in the formation of a binding

and enforceable contract of sale.

The Kasunduan does not establish any definite agreement between the parties concerning

the terms of payment. What it merely provides is the purchase price for the 213-square meter

property at P40.00 per square meter. 

 

For another, the telltale provision in the Kasunduan that: “Na pumayag ang mga may-

sumbong na pagbilhan ang mga ipinagsumbong na bahagi ng lupa at ang ipagbibili ay may

sukat na 213 metrong parisukat humigit kumulang sa halagang P40.00 bawat metrong

parisukat,” simply means that the Gloriosos only agreed to sell a portion of the property and

thatthe portion to be sold measures 213 square meters.

 

Another significant provision is that which reads:  “Na ang ipinagsusumbong ay tiyakang

ililipat ang bahay sa bahaging kanilang nabili o mabibili sa buwan ng Enero 31, 1984.”  The

foregoing indicates that a contract of sale is yet to be consummated and ownership of the prop-

erty remained in the Gloriosos.  Otherwise, why would the alternative term “mabibili” be used

if indeed the property had already been sold to petitioners. 

 

In addition, the absence of any formal deed of conveyance is a strong indication that the

parties did not intend immediate transfer of ownership.[12]

 

Normally, in a contract to sell, the payment of the purchase price is the positive suspen-

sive condition upon which the transfer of ownership depends.[13]  The parties, however, are not

prohibited from stipulating other lawful conditions that must be fulfilled in order for the con-

tract to be converted from a contract to sell or at the most an executory sale into an executed

one.[14]

 

In the present case, aside from the payment of the purchase price, there existed another

suspensive condition, i.e.: that petitioners will relocate their house to the portion they bought or

will buy by January 31, 1984. 

 

Petitioners failed to abide by the express condition that they should relocate to the rear

portion of the property being bought by January 31, 1984.   Indeed, the Kasunduan discloses

that it is the rear portion that was being sold by the Gloriosos, and not the front portion as peti-

tioners stubbornly claim.  This is evident from the provisions establishing a right of way from

Lopez Jaena road going towards the back of the lot, and requiring them to relocate their house

to the portion being sold by January 31, 1984.  Petitioners are presently occupying the front por-

tion of the property.  Why the need for a right of way and for petitioners to relocate if the front

portion on which their house stands is the portion being sold?

 

This condition is a suspensive condition noncompliance of which prevented the Gloriosos

from proceeding with the sale and ultimately transferring title to petitioners;  and the Kasundu-

anfrom having obligatory force.[15]  It is established by evidence that the petitioners did not

transfer their house located in the front portion of the subject property to the rear portion which,

under theKasunduan, they intended to buy.  Thus, no obligation arose on the part of the Glo-

riosos to consider the subject property as having been sold to petitioners because the latter’s

non-fulfillment of the suspensive condition rendered the contract to sell ineffective and unper-

fected.

 

Petitioners admit that they have not paid a single centavo to the Gloriosos.  However, pe-

titioners argue that their nonpayment of the purchase price was due to the fact that there is yet to

be a survey made of the property.  But evidence shows, and petitioners do not dispute, that as

early as August 12, 1983, or six days after the execution of the Kasunduan, a survey has already

been made and the property was subdivided into Lot Nos. 565-B-1 (front portion) and 565-B-2

(rear portion), with Lot No. 565-B-2 measuring 223 square meters as the portion to be bought

by petitioners. 

 

Petitioners question the survey made, asserting that it is a “table survey” made without

their knowledge and participation.  It should be pointed out that the Kasunduan merely provides

that the expenses for the survey will be divided between them and that each party should give

an amount of no less than P400.00.  Nowhere is it stated that the survey is a condition precedent

for the payment of the purchase price. 

 

Petitioners further claim that respondents have no cause of action against them because

their obligation to pay the purchase price did not yet arise, as the agreement did not provide for

a period within which to pay the purchase price.  They argue that respondents should have filed

an action for specific performance or judicial rescission before they can avail of accion publi-

ciana.

 

Notably, petitioners never raised these arguments during the proceedings before the

RTC.  Suffice it to say that issues raised for the first time on appeal and not raised timely in the

proceedings in the lower court are barred by estoppel.[16]   Matters, theories or arguments not

brought out in the original proceedings cannot be considered on review or appeal where they

are raised for the first time. To consider the alleged facts and arguments raised belatedly would

amount to trampling on the basic principles of fair play, justice and due process.[17]

 

Moreover, it would be inutile for respondents to first petition the court to fix a period for

the performance of the contract.  In the first place, respondents are not parties to the Kasunduan-

between petitioners and the Gloriosos, and they have no standing whatsoever to seek such re-

course.  In the second place, such recourse properly pertains to petitioners.  It was they who

should have sought the court’s intercession. If petitioners believed that they have an actionable

contract for the sale of the property, prudence and common sense dictate that they should have

sought its enforcement forthwith.  Instead, petitioners whiled away their time.

 

Furthermore, there is no need for a judicial rescission of the Kasunduan for the simple

reason that the obligation of the Gloriosos to transfer the property to petitioners has not yet

arisen.  There can be no rescission of an obligation that is nonexistent, considering that the sus-

pensive conditions therefor have not yet happened.[18]

 

Hence, petitioners have no superior right of ownership or possession to speak of.  Their

occupation of the property was merely through the tolerance of the owners.  Evidence on record

shows that petitioners and their predecessors were able to live and build their house on the prop-

erty through the permission and kindness of the previous owner, Pedro Hipolito, who was their

relative,[19] and subsequently, Teresita Glorioso, who is also their relative.  They have no title or,

at the very least, a contract of lease over the property.  Based as it was on mere tolerance, peti-

tioners’ possession could neither ripen into ownership nor operate to bar any action by respon-

dents to recover absolute possession thereof.[20]

 

There is also no merit to petitioners’ contention that respondents are buyers in bad

faith.  As explained in Coronel vs. Court of Appeals:

 In a contract to sell, there being no previous sale of the property, a third per-

son buying such property despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property.  There is no double sale in such case.  Title to the property will transfer to the buyer after registration because there is no defect in the owner-seller’s title per se, but the latter, of course, may be sued for damages by the intending buyer.[21](Emphasis supplied)

 

A person who occupies the land of another at the latter's forbearance or permission with-

out any contract between them is necessarily bound by an implied promise that he will vacate

upon demand.[22] 

 

Considering that petitioners’ continued possession of the property has already been ren-

dered unlawful, they are bound to pay reasonable rental for the use and occupation thereof,

which in this case was appropriately pegged by the RTC at P500.00 per month beginning Octo-

ber 21, 1994 when respondents filed the case against them until they vacate the premises.

 

Finally, petitioners seek compensation for the value of the improvements introduced on

the property.  Again, this is the first time that they are raising this point.  As such, petitioners

are now barred from seeking such relief.[23]

 

 

 

WHEREFORE, the petition is DENIED.  The Decision of the Court of Appeals dated

October 3, 2000 in CA-G.R. CV No. 61247 is AFFIRMED.

 

SO ORDERED.

[1]               Penned by Associate Justice Wenceslao I. Agnir, Jr. (ret.) with Associate Justices Fermin A. Martin, Jr. (ret.) and Oswaldo D. Agcaoili (ret.), concurring.

[2]               Records, pp. 1-3.[3]               Id., pp. 37-38.[4]               Id., pp. 40-42.[5]               Id., p. 288.[6]               See Rollo, p. 8.[7]               Records, p. 184, Exhibit “Z” (Court).[8]               Chua vs. Court of Appeals, G.R. No. 119255, April 9, 2003, 401 SCRA 54.[9]               Limketkai Sons Milling, Inc. vs. Court of Appeals, G.R. No. 118509,  March 29, 1996, 255 SCRA 626.[10]             San Miguel Properties, Inc. vs. Spouses Huang, G.R. No. 137290, July 31, 2000, 336 SCRA 737.[11]             G.R. No. 116650, May 23, 1995, 244 SCRA 320, 328, citing Velasco vs. Court of Appeals, G.R. No. L-31018, June 29,

1973, 51 SCRA 439.[12]             Chua vs. Court of Appeals, G.R. No. 119255, April 9, 2003, 401 SCRA 54.[13]             Gomez vs. Court of Appeals, G.R. No. 120747, September 21, 2000, 340 SCRA 720.[14]             PNB vs. Court of Appeals, G.R. No. 119580, September 26, 1996, 262 SCRA 464.[15]             Ibid.[16]             Philippine Banking Corporation vs. Court of Appeals, G.R. No. 127469, January 15, 2004, 419 SCRA 487.[17]             De Rama vs. Court of Appeals, G.R. No. 131136,  February 28, 2001, 353 SCRA 94.[18]             Padilla vs. Paredes, G.R. No. 124874, March 17, 2000, 328 SCRA 434.[19]             TSN, May 5, 1997, p. 3.[20]             Heirs of Gamos vs. Heirs of Frando, G.R. No. 149117, December 16, 2004, 447 SCRA 136.[21]             Cited in Ursal vs. Court of Appeals, G.R. No. 142411, October 14, 2005.[22]             Macasaet vs. Macasaet, G.R. Nos. 154391-92, September 30, 2004, 439 SCRA 625.[23]             See notes 16 and 17.

4. Bayquen v. Balaore, G.R. No. L-28161, 143 SCRA 412 (1986)

G.R. No. L-28161 August 13, 1986

EUFEMIA ELPA DE BAYQUEN and ESTEFANIA BAYON VDA. DE ELPA, plaintiffs-appellants, vs.EULALIO BALAORO, defendant-appellee.

Agripino Brillantes for plaintiffs-appellants.

Demetrio V. Pre for defendant-appellee.

 

PARAS, J.:

This is an appeal from the decision of the then Court of First Instance of Abra in Civil Case No. 444 dismissing the complaint of plaintiffs-appellants against defendant-appellee.

The records show that on January 16, 1954, appellants sold the land under question to the appellee, reserving their right to repurchase the said land within four (4) years. The plaintiffs-appellants failed to repurchase the land within the four-year period. They now assert their right to repurchase the subject property after more than thirteen (13) years. (p. 40, Record.)

At the trial court, the parties agreed on the following stipulation of facts:

At this pre-trial parties are all present assisted by their respective counsel and after a short confer-ence, as the plaintiffs cannot agree on the settlement proposed by the defendant, they now come to stipulate:

1. That the land described in paragraph 2 of the complaint was the subject of a Deed of Sale with right to repurchase dated January 16, 1954, duplicate copy of which is marked as Exh. A, and that the same property described in the Tax Declaration No. 1150 in the name of Eulalio Balaoro also marked as Exh. B;

2. That plaintiffs failed to repurchase the property within the stipulated period in the contract Exh. A up to this day;

3. That the defendant failed to file in court consolidation proceedings of the property in accordance with the provisions of the Civil Code;

4. That parties renounce their respective claims for damages and submit to the court the question of law whether the plaintiffs still have the right to redeem the said property described in Exh.A; and

5. That parties submit the case for decision on the basis of these stipulations upon the firing of their respective memoranda within 10 days from today. (p. 2, Rec.)

On the basis of the aforequoted stipulation of facts and other pleadings submitted by both parties, the trial court ruled that the vendors-appellants have lost their right to repurchase the land under controversy and that by opera-tion of law, ownership of such land had become consolidated in the vendee-appellee.

The plaintiffs-appellants appealed the decision of the trial court, alleging several errors, which defendant-appellee disputed together with the corresponding evaluation thereof.

Appellants contend that the trial court erred in holding that there is no dispute between the parties regarding the na-ture of the purported "deed of sale with right to repurchase" and that actually the transaction is a mortgage. Defen-dant-appellee refutes this by putting up the claim that the fact that the contract is in truth a deed of sale with right to repurchase has been admitted by appellants and the same has been stipulated upon by the parties.

We agree with the trial court's finding that the contract is not an equitable mortgage but a deed of sale with right to repurchase. Said court thus elucidated:

The deed of conveyance states the purchase price as P2,000.00 for a parcel of land, partly riceland and partly pasture land, with an assessed value of P440.00. Based on the size, productivity and ac-cessibility, the price of P2,000.00 for said parcel is adequate.

The vendee admittedly took immediate possession after the execution of the contract; no extension of the period of redemption, at or after its expiration, was made. The vendee did not retain any part of the purchase price. The sum of Two Hundred Fifty Pesos (P250.00) claimed by vendors-plaintiffs to be delivered to them is not part of the purchase price retained by the vendee, but merely the ex-cess of the value of the yearly crops over the purchase price resulting from the computation of the plaintiffs. The vendee has declared the property under his name and paid the corresponding real es-tate taxes, and there is no circumstance by which the Court could fairly infer that the transaction was intended by the parties to secure the payment of a debt or loan. There is no doubt as to the true na-ture of the transaction and it was, the Court finds, a contract of sale with right to purchase.

Besides, not one of the instances enumerated in Article 1602 of the Civil Code (re presumption that the contract is one of equitable mortgage) exists in this case.

Appellants also insist that the trial court erred in holding that the ownership over the property in question consoli-dated by operation of law in the defendant-appellee immediately after plaintiffs-appellants failed to repurchase the property within four years.

Significantly, We long ago resolved this matter in the early case of Rosario vs. Rosario, L-13018, Dec. 29, 1960 (110 Phil. 394) where we thus enunciated:

Where the contract between the parties is admitted and which has been stipulated by the parties to be a deed of sale with right to repurchase, there should be no issue or dispute about the effects thereof that once there is failure to redeem within the stipulated period, ownership thereof becomes vested or consolidated by operation of law on the vendee. Any other interpretation would be violative of the sanctity of the contract between the parties.

Besides, the needed judicial hearing contemplated by Art. 1607 of the Civil Code refers not to the consolidation it-self, but to the registration of the consolidation.(See Rosario vs. Rosario, L-3018, Dec. 29, 1960; see also Dakandan vs. Julio, L-19101, Feb. 29, 1964.)

We find no necessity to discuss the other assigned errors because they are mere corollaries of the rest.

WHEREFORE, the decision of the court a quo is hereby AFFIRMED, with costs against appellants.

SO ORDERED.

Feria (Chairman), Fernan, Alampay and Gutierrez, Jr., JJ., concur.

5. Bortikey v. AFP Retirement and Separation Benefits System, G.R. No. 146708, 477 SCRA 511 (2005)

JOEL B. BORTIKEY,                       G.R. No. 146708                Petitioner,             

Present :                                                         PANGANIBAN, J., Chairman,       - v e r s u s -                             SANDOVAL-GUTIERREZ,                                                        CORONA,                                                        CARPIO MORALES and

                        GARCIA, JJ.*

AFP RETIREMENT ANDSEPARATION BENEFITS SYSTEM,                        Respondent.            Promulgated : 

December 13, 2005 x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x 

D E C I S I O N  

CORONA, J.: 

 

        In this petition for review on certiorari, petitioner assails the October 9,

2000 decision[1] of the Court of Appeals which denied his appeal[2] from a de-

cision[3] of the Office of the President dated June 11, 1999. 

        On May 13, 1992, petitioner bought from respondent Armed Forces of

the Philippines Retirement and Separation Benefits System (AFPRSBS) a

parcel of land covered by TCT No. 221416 of the Register of Deeds of

Caloocan City. The transaction was embodied in a contract to sell, the perti-

nent portion of which read:         THIRD – xxx BUYER hereby agrees and obliges himself/herself to pay the SELLER the sum of THREE HUNDRED TEN THOUSAND ONE HUN-DRED (P310,100.00) Pesos, Philippine Currency as follows: 

a)     The amount of THIRTY ONE THOUSAND TEN (P31,010.00) Pesos, Philippine Currency upon signing of this agreement and the same shall be considered as Down Payment xxx;

 b)     The balance/total contract price of TWO HUNDRED SEVENTY-

NINE THOUSAND NINETY (P279,090.00) Pesos, Philippine Cur-rency shall be paid in sixty (60) consecutive monthly installments xxx amounting to EIGHT THOUSAND TWENTY-EIGHT Pesos and 85/100 (8,028.85) including interest at the rate of 24% per an-num xxx 

In case of failure on the part of the BUYER to pay the amortization due on the specified maturity date, the Buyer shall be given a seven-day grace pe-riod xxx.  However, in the event that the BUYER fails to pay within the seven-day grace period, he shall be charged a penalty of 24% per annum to be reck-oned from the first day of default.[4]

  

        On June 28, 1996, petitioner filed a complaint in the Housing and Land

Use Regulatory Board[5] (HLURB) alleging that the 24% annual interest stipu-

lated in the contract was contrary to law and public morals. In dismissing

the complaint, the HLURB ruled that the stipulated interest was valid be-

cause there was no ceiling on interest rates at the time of the perfection of

the contract. Petitioner was therefore under the legal and contractual obli-

gation to comply with the stipulation.[6]  The motion for reconsidera-

tion[7] was denied.[8]

 

Petitioner raised the matter to the Office of the President which, how-

ever, ruled for the legality of the stipulated interest. According to OP, con-

tracts have the force of law between the contracting parties and should be

complied with in good faith.[9]  

        On appeal,[10] the Court of Appeals ruled that the stipulated 24% annual

interest was not contrary to law and public morals, having been mutually

agreed upon by the parties.[11] The motion for reconsideration was denied.[12]

 

Undaunted, petitioner now comes to this Court raising once again the

same issues, the crux of which is the legality of the stipulated interest of

24% per annum. 

Basic is the principle that contracting parties may establish such stipu-

lations, clauses, terms and conditions as they may deem convenient, pro-

vided these are not contrary to law, morals, good customs, public order or

public policy.[13]  Obligations arising from contracts have the force of law be-

tween the contracting parties and should be complied with in good faith.[14]

       

Petitioner was free to decide on the manner of payment, either in cash

or installment. Since he opted to purchase the land on installment basis, he

consented to the imposition of interest on the contract price. He cannot now

unilaterally withdraw from it by disavowing the obligation created by the

stipulation in the contract.  

In Relucio v. Brillante-Garfin,[15] this Court held that the vendor and the

vendee were legally free to stipulate on the manner of payment.  Since the

vendee opted to purchase a subdivision lot on installment, he was obligated

to pay interest on the cash price whether the imposition of interest and the

rate of such interest were specified in the contract or not, i.e., whether or

not the interest was specifically itemized as an add-on to the (cash) price

which the vendee agreed to pay. 

        The rationale behind having to pay a higher sum on the installment is

to compensate the vendor for waiting a number of years before receiving

the total amount due.  The amount of the stated contract price paid in full

today is worth much more than a series of small payments totaling the

same amount. Respondent vendor, had it received the full cash price, could

have deposited the same in a bank, for instance, and earned interest in-

come therefrom. To assert that mere prompt payment of the monthly in-

stallments should obviate imposition of the stipulated interest is to ignore

an economic fact and negate one of the most important principles on which

commerce operates.  

The contract for the purchase of a piece of land on installment basis is

not only lawful; it is also of widespread usage or custom in our economic

system. Moreover, the contract was entered into by the parties freely and

voluntarily. Petitioner had in fact been in possession of the property for sev-

eral years already, paying the installments as they fell due, when he at-

tacked the legality of the stipulated interest. If he eventually found the in-

terest stipulation in the contract financially disadvantageous to him, he can-

not now turn to this Court for succor without impairing the constitutional

right to the obligation of contracts.[16] This Court will not relieve petitioner of

the necessary consequences of his free and voluntary, and otherwise lawful,

act. 

Therefore, the stipulated 24% annual interest on the price of the parcel

of land purchased by petitioner from respondent on installment basis is

hereby declared valid and binding. 

WHEREFORE, premises considered, the instant petition is hereby DE-

NIED.  

Costs against petitioner. 

SO ORDERED.

*               No part.[1]               Penned by Associate Justice Andres B. Reyes, Jr., and concurred in by Associate Justices Cancio C. Garcia (now Justice of

the Supreme Court) and Romeo A. Brawner (now retired) of the Second Division of the Court of Appeals; Rollo, pp. 12-18.[2]               Under Rule 43 of the Rules of Court.[3]               CA Records, pp. 12-17.[4]               As stated in the contract to sell, CA Records, pp. 48-51.[5]               HLURB Expanded NCR Regional Office.[6]               CA Records, pp. 52-55.[7]               Motion for reconsideration was filed with HLURB Board of Commissioner.[8]               CA Records, pp. 57-58.[9]               Id., pp. 12-17.[10]             via Rule 43 of the Rules of Court.[11]             Citing Casa Filipina Development Corporation v. Deputy Executive Secretary, G.R. No. 96494, 28 May 1992, 209 SCRA

399.[12]             CA Records, p. 119.[13]             Article 1306 of the New Civil Code.[14]             Article 1159 of the New Civil Code.[15]             G.R. No. 76518, 13 July 1990, 187 SCRA 405.[16]             LL and Company Development and Agro-Industrial Corporation v. Huang Chao Chun and Yang Tung Fa, 428 Phil 665

(2002).

6. Olympia Housing v. Panasiatic Travel Corp, G.R. No. 140468, 395 SCRA 298 (2003)

[G.R. No. 140468.  January 16, 2003]

OLYMPIA HOUSING, INC., petitioner, vs. PANASIATIC TRAVEL CORPORATION and MA. NELIDA GALVEZ-YCASIANO, respondents.

D E C I S I O N

VITUG, J.:

The petition for review on certiorari before the Court assails the decision, promulgated on 11 June 1999, and the resolution, promulgated on 14 October 1999, of the Court of Appeals in CA-G.R. CV Case No. 53516.

The case originated from a complaint for Recovery of Possession (Accion Publiciana) filed by Olympia Housing, Inc., against Panasiatic Travel Corporation, Maria Nelida Ycasiano and the latter’s husband.  The object in litigation is a condominium unit sold at the price of P2,340,000.00 payable on installments at the rate of P33,657.40 per month.

On the basis of the facts encapsulated by the trial court, it would appear that –

”On August 8, 1984, plaintiff and defendant Ma. Nelida Galvez-Ycasiano entered into a Contract to Sell, whereby the former agreed to sell to the latter condominium unit no. D-12, comprising an area of 160.50 square meters, more or less, situated on the ground floor of Olympia Condominium located at Makati, Metro Manila, covered by Condominium Certifi-cate of Title No. 6711, for the agreed price of P2,340,000.00 payable in installments of P33,657.40 per month.

“The schedule of payments [were] as follows:

Date                               Particulars                               Amount

July 17, 1984     Reservation/Deposit               P100,000.00

July 19, 1984     50% Down payment               P1,070,000.00

“Balance of 50% payable in sixty (60) monthly installments at 24% per annum base on diminishing balance.

“Monthly amortization to commence on Sept. 17,1984......................................……………………………………...P33,657.40/month

“Interest of 2% is included in regular monthly amortization, past due amortization shall bear interest of 2% per month plus penalty charge of 2% per month.

“Pursuant to the Contract to Sell, defendant Ma. Nelida Galvez-Ycasiano made a reservation/de-posit in the amount of P100,000.00 on July 17, 1984 and 50% down payment in the amount of P1,070,000.00 on July 19, 1984.

“Defendants made several payments in cash and thru credit memos issued by plaintiff representing plane tickets bought by plaintiff from defendant Panasiatic Travel Corp., which is owned by defen-dant Ma. Nelida Galvez-Ycasiano, who credited/offset the amount of the said plane tickets to de-fendant’s account due to plaintiff.

“Plaintiff alleged that far from complying with the terms and conditions of said Contract to Sell, defendants failed to pay the corresponding monthly installments which as of June 2, 1988

amounted to P1,924,345.52. Demand to pay the same was sent to defendant Ma. Nelida Galvez-Ycasiano, but the latter failed to settle her obligation.

“For failure of defendant to pay her obligation plaintiff allegedly rescinded the contract by a Notar-ial Act of Rescission.

“At present, the subject condominium unit is being occupied by defendant Panasiatic Travel Corp., hence the suit for Recovery of Possession (Accion Publiciana) with prayer for attorney’s fees, ex-emplary damages and reasonable rentals for the unit from July 28,1988 at the rate of P32,100.00 per month until the condominium unit is finally vacated.

“Defendant Ma. Nelida Galvez-Ycasiano, while admitting the existence of the contract to sell, in-terposed the defense that she has made substantial payments of the purchase price of the subject condominium unit amounting to P1,964,452.82 in accordance with the provisions of the contract to sell; that she decided to stop payment of the purchase price in the meantime because of substantial differences between her and the plaintiff in the computation of the balance of the purchase price.

“xxx                                                                     xxx                                                                               xxx

“Evidence adduced by plaintiff such as the statement of account of defendant Ma. Nelida Galvez-Ycasiano (Exh. ‘C’) has been established by plaintiff’s witness, Mrs. Isabelita Rivera, which indeed shows that on several occasions defendant either failed to pay on time or was completely in default in the payment of the monthly installment of the subject condominium unit.

“It can be deduced from said documentary evidence that defendant should start paying the install-ment on September 17, 1984, but defendant paid on September 21, 1984 the amount of P51,238.00 thru credit memo. Witness claimed that a credit memo is a document issued by Olympia Housing Inc. to Panasiatic Travel Corp. for the amount of ticket purchased instead of paying in cash they just issued credit memo in order that it would be offset on the monthly amortization due to Olympia Housing Corp. She claimed that they based it on the invoice that they [were] sending them.

“Witness further claimed that since the amount due was only P33,657.40 what she did to the excess of P51,238.00 was to apply it to the next installment. The next installment was due on October 12, 1984 in the amount of P26,158.00 representing the excess. It was paid thru credit memo no. 031 on October 17, 1984. In fact, there was still an excess of P10,081.20. The third installment was due on November 17, 1984. Defendant made partial payment because the excess payment of P10,081.20 was applied to the third installment. The 4th installment was due on December 17, 1984; the defen-dant did not pay instead she paid On January 9, 1985 the amount of P51,619.08 in cash per O.R. No. 295. Before this payment on January 9, 1985 defendant owed plaintiff P59,931.81 based on the amortization. The basis [was] the unpaid amortization due and payable plus 2% interest and 2% penalty charges per month. After payment, the amount due was P8,312.73. The 5th installment was due on January 17, 1985. No payment was made on the 6th, 7th 8th installments which were due on January, February, March, April 17, 1985 respectively. The 9th installment was due on May 17, 1985, it was not paid. Defendant made a payment on June 1985 for P33,231.90 in cash per O.R. No. 439. The next payment was made on June 8, 1985 for P25,574.59. After these two payments, there was still an outstanding amount due of P32,552.44. No payment was made on the 10th and

11th installments. The next payment was made on July 24, 1985 for P60,000.00. After this payment the outstanding amount due was P43,881.76. She made payment on August 16, 1985 for P30,067.00 thru credit memo no. 045. After this payment the outstanding amount due was P15,160.46. She did not on the 12th installment, instead she paid on August 28, 1985 for P26,043.00 thru credit memo no. 046. After this payment the outstanding amount due was P23,511.07. She did not pay on the 13th installment, instead she paid on October 10, 1985 for P20,830.00 thru credit memo no. 006. After this payment the outstanding amount due was P38,728.61. She did not pay on the 14th installment, instead payment was made on November 10, 1985 for P16,212.00 thru credit memo no. 010. After this payment the outstanding amount due was P58,851.83. No payments were made on the 15th, 16th and 17th installments. She paid on January 30, 1986 for P33,657.40 in cash per O.R. No. 842. After this payment the outstanding balance was P138,233.23. No payment was made on the 18th and 19th installment which fell due on February 17 and March 17, 1986. The next payment was made on April 15, 1986 for P25,263.23. After this payment the outstanding balance was P198,425.88. She did not pay for six (6) consecutive months from April 17 to September 17, 1986 corresponding to the 20th up to the 25th installment. The next payment was made on October 14, 1986 for P82,780.33 in cash per O.R. No. 1628. After this pay-ment the outstanding amount due was P350,712.73. The 26th and 27th installments were not paid. She paid on November 24, 1986 for P134,629.60. After this payment the outstanding balance was P306,306.66. Witness claimed that the basis for the computation was the unpaid amortization due payable for the particular period plus 2% interest and 2% penalty charge per month. In computing the interest she used the simple method. The 28th up to the 31st installments were not paid. The next payment was made on April 30, 1987 for P22,213.00 thru credit memo no. 134. After this pay-ment the outstanding balance was P471,317.60. The basis for this computation is the unpaid amor-tization due plus 2% interest and 2% penalty charge per month. The 33rd, 34th and 35th install-ments were not paid. The next payment was made on July 22, 1987 for P19,752.00 thru credit memo no. 146.  After this payment the outstanding balance was P664,822.78. The 36th and 37th in-stallments were not paid.”[1]

On 31 January 1995, the Regional Trial Court, Branch V, of Makati City ruled thusly-

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

“1.     As the complaint has been prematurely filed without complying with the mandate of Repub-lic Act No. 6552, the complaint is hereby dismissed;

“2.     That the obligation of defendant Maria Nelida Galvez Ycasiano has now become due and de-mandable, said defendant is hereby ordered to pay the sum of P4,007,473.49 as of November 30, 1994 plus 18% interest per annum, computed from 1 December 1994, but within sixty days from receipt of a copy of this decision;

“3.     Upon payment thereof, for plaintiff to issue the corresponding certificate of title in favor of defendant;

“4.     In the event that said amount in full is not paid including the current amount due including the interest sans penalties, then immediately thereafter, without necessity of demand, the defen-dants must vacate the premises and all payments will be charged as rentals to the property.

“No award of damages and attorney’s fees for any parties is being adjudged.

“No costs.”[2]

Thereupon, respondents tendered the amount of P4,304,026.53 to petitioner via Metrobank Cashier’s Check No. CC008857. Petitioner refused to accept the payment, constraining respondents to consign at the disposal of the court a quo the check on 26 April 1995. In an order, dated 05 June 1996, the check was allowed to be substituted by another cashier’s check payable to the Clerk of Court of the Makati Regional Trial Court. Complying with yet another court order of 04 January 1996, respondents deposited the amount of P4,304,026.53 with the Land Bank of the Philippines and sub-sequently submitted to the court the corresponding bank book as well as the bank’s verification.

Meanwhile, both parties appealed the judgment of the trial court. In its now questioned decision of 11 June 1999, the appellate court sustained the trial court.

The denial of the motion for reconsideration prompted petitioner to file the instant petition for re-view on certiorari, raising the following assignment of errors, to wit:

“I

“THE COURT OF APPEALS ACTED IN A MANNER NOT IN ACCORD WITH LAW AND APPLICABLE JURISPRUDENCE OF THE SUPREME COURT WHEN IT FAILED AND/OR REFUSED TO RULE UPON THE EFFECT OF THE FILING OF THE COMPLAINT AND THE NOTARIAL ACT OF RESCISSION ATTACHED THERETO VIS-À-VIS THE REQUIRE-MENTS OF R.A. 6552.

“II

“THE COURT OF APPEALS ACTED IN A MANNER NOT IN ACCORD WITH LAW AND APPLICABLE JURISPRUDENCE OF THE SUPREME COURT IN REFUSING TO DECREE THE RESCISSION OF THE SUBJECT CONTRACT TO SELL ON THE GROUND THAT PE-TITIONER FAILED TO PAY THE CASH SURRENDER VALUE PRIOR TO THE FILING OF THE COMPLAINT.

“III

“THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT’S DECISION AL-LOWING RESPONDENT YCASIANO TO PAY ON HER ALREADY-DEFAULTED OBLIGA-TIONS AND, UPON SUCH PAYMENT, ORDERING PETITIONER TO ISSUE THE CERTIFI-CATE OF TITLE TO HER.”[3]

Respondents, upon the other hand, would insist that the petition should be held devoid of merit considering that: first, the issues raised in the petition would strike at fundamentally factual questions beyond the province of a petition for review on certiorari with this Court; second, there was no valid rescission of the contract to sell on account of the failure of petitioner to give notice of rescission by notarial act, a requisite laid down in Republic Act No. 6552; third, the oft-invoked Layug vs. IAC[4] case would scarcely find application, it being a case for annulment of contract, not one for the recovery of possession; fourth, no effective rescission had taken place on account of the failure of petitioner to pay the cash surrender value, conformably with the terms of the law; and fifth, there being no valid rescission, the contract remained valid and subsisting, still thereby obligating respondents to pay the outstanding balance of the purchase price.

In its Reply Brief, petitioner asseverated that, while not categorically made, the Court, in Layug,[5] had held to be sufficiently anchored, nevertheless, an action for judicial rescission even if no notarial act of rescission was priorly executed and the non-payment of the cash surrender value before the fil -ing of the complaint.[6] Moreover, petitioner argued that while the complaint before the trial court was denominated as one for “recovery of possession,” the suit could still be considered as a case for judi -cial rescission considering that the issue of whether or not it was entitled to recover possession over the property subject matter of the contract to sell would require, for its resolution, passing upon the initial issue of whether or not the contract was in fact rescinded by virtue of a notarial act. [7]

The petition must be denied.

The action for reconveyance filed by petitioner was predicated on an assumption that its contract to sell executed in favor of respondent buyer had been validly cancelled or rescinded. The records would show that, indeed, no such cancellation took place at any time prior to the institution of the ac-tion for reconveyance. What had been sent by petitioner to respondent was a letter, dated 02 June 1988, that read:

“02 June 1988

“MS. NELIDA GALVEZPan Asiatic Travel Corp.3rd Floor, S & L BuildingRoxas Boulevard, Manila

“Dear Ms. Galvez:

“We have sent you many letters in the past asking you to update your payments in accordance with the terms of our Contract to Sell dated August 25, 1984 as follows:

Purchase Price, Unit No. D-12              P2,340,000.00Terms of Payment:- July 17, 1984, Reservation/

Deposit                                                      100,000.00- July 19, 1984, 50%

Down payment                                                  1,070,000.00- balance payable in 60

monthly installments with24% p.a. interest ondiminishing balance.Monthly payments to commenceSept. 12, 1984                                           33,657.04/month

Note:      Past due payments to bear interest of 2% per month plus penalty charge of 2% per month.

“You are in default and your overdue account now stands as follows:

Purchase Price                                     P2,340,000.00

Add:       Interest on monthlyAmortizations                               849,444.00

         P3,189,444.00Add:       Interest and penalties

on overdues (Referto Exh. ‘A’)                                   679,002.34

        P3,868,446.34Less: Payments (Refer

       To Exh. ‘B’)                                  1,944,100.82TOTAL DUE AND DEMANDABLE    P1,924,345.52

                       ===========

“Unless we receive payment in full within 30 days after service of this notice upon you, our Con-tract to Sell shall be cancelled and/or rescinded.

“Please give this matter its due attention.

“Very truly yours,

“(Sgd.) Illegible(Type) FELIX H. LIMCAOCO, JR.President”[8]

As so aptly observed by the courts below, the foregoing communication to the buyer merely de-manded payment within thirty (30) days from receipt thereof with the threat that if the demand were not heeded, the contract would forthwith be cancelled or rescinded. Nor did the appellate court erro-neously ignore the “notarial rescission” attached to the complaint for reconveyance. Apparently, the so-called “notarial rescission” was not sent to respondents prior to the institution of the case for re-conveyance but merely served on respondents by way of an attachment to the complaint. In any case, a notarial rescission, standing alone, could not have invalidly effected, in this case, the cancel-lation of the contract.

As the trial court elaborated in this case:

“A careful study of the evidence presented does not show a notice of cancellation or the demand for rescission of the contract by a notarial act. The plaintiff appears to be claiming that the June 2, 1988 letter is a notice of cancellation or a demand for rescission of the contract by a notarial act. This could not be what the law contemplates. It should be a notice of cancellation or demand for rescis-sion of the contract by notarial act.

“Further, the law requires also full payment of the cash surrender value to the buyer but there is no evidence adduced by the plaintiff that they delivered to the defendant the cash surrender value. Ad-mittedly, no such full payment of the cash surrender value to the defendant was made. A mere promise to return is not what the law contemplates.”[9]

The governing law is Republic Act No. 6552, otherwise known as the “Realty Installment Buyer Protection Act,” which has become effective since 16 September 1972. Republic Act No. 6552 is a special law governing transactions that involve, subject to certain exceptions, the sale on installment

basis of real property.[10] The law has been enacted mainly “to protect buyers of real estate on install-ment payments against onerous and oppressive conditions.”[11] Section 3 of the statute provides:

“Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Number Thirty-eight hundred forty-four as amended by Republic Act Numbered Sixty three hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments:

“a)          To pay without additional interest, the unpaid installments due within the total grace pe-riod earned by him, which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any.

“b)          If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made and, after five years of installments, an additional five per cent every year but not to exceed ninety per cent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer.

“Down payments, deposits or options on the contract shall be included in the computation of the to-tal number of installments made.”

The enactment recognizes the right of the seller to cancel the contract but any such cancellation must be done in conformity with the requirements therein prescribed. [12] In addition to the notarial act of rescission, the seller is required to refund to the buyer the cash surrender value of the payments on the property.[13] The actual cancellation of the contract can only be deemed to take place upon the ex-piry of a 30-day period following the receipt by the buyer of the notice of cancellation or demand for rescission by a notarial act and the full payment of the cash surrender value.

The Court agrees with petitioner that it is not precluded from going to the court to demand judicial rescission in lieu of a notarial act of rescission. This much must be recognized. Thus, in Layug vs. In-termediate Appellate Court[14] the Court has ruled that a demand for rescission by notarial act would appear to be merely circuitous, consequently superfluous, with the filing by the seller of an action for annulment of contract and for recovery of damages. Unfortunately for petitioner, it would be incorrect to apply Layug to the instant case. Layug is basically an action for annulment of contract, a kindred concept of rescission, whereas the instant case before the Court is one for recovery of possession on the thesis of a prior rescission of the contract covering the property. [15] Not only is an action for recon-veyance conceptually different from an action for rescission but that, also, the effects that flow from an affirmative judgment in either case would be materially dissimilar in various respects. The judicial resolution of a contract gives rise to mutual restitution which is not necessarily the situation that can arise in an action for reconveyance. Additionally, in an action for rescission (also often termed as res-olution), unlike in an action for reconveyance predicated on an extrajudicial rescission (rescission by notarial act), the Court, instead of decreeing rescission, may authorize for a just cause the fixing of a period.[16]

Nor should a party in litigation be permitted to freely and substantially change the theory or the cause of action of his case[17] that, otherwise, can put to undue disadvantage the other party by not be-

ing accurately and timely apprised of what he is up against. The character of an action is determined from the issues raised by the complaint, from the nature of the right or grievance asserted, and from the relief sought in the complaint.[18] A change of theory can result in grave alteration of the stand theretofore taken by the parties, and a court must not thereafter take it upon itself to assume its own position on, or the factual and legal considerations of, the case.

WHEREFORE, all premises considered, the instant petition is DENIED and the appealed deci-sion is AFFIRMED. No costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio and Azcuna, JJ., concur.

[1] Rollo, pp. 179-184.

[2] Rollo, p. 193.

[3] Rollo, pp. 29-30.

[4] 167 SCRA 627.

[5] Ibid.

[6] Rollo, p. 429.

[7] Rollo, p. 32.

[8] Rollo, p. 59.

[9] Rollo, p. 191.

[10] Layug vs. IAC, supra.

[11] Sec. 2, R.A. No. 6552.

[12] Leano   vs . Court of Appeals, G.R. No. 129018 ,15 November 2001.

[13] Rillo   vs . Court of Appeals , 274 SCRA 461.

[14] Supra.

[15] Paragraph 5 of the complaint alleged that “for failure of Defendants to pay their unpaid installments to Plaintiff within the grace period of 30 days as mandated by Republic Act 6552, otherwise known as the Maceda Act, Plaintiff re-scinded said contract by a Notarial Act of Rescission.”

[16] Article 1191, Civil Code.

[17] See Arroyo vs. HRET, 246 SCRA 384.

[18] Ft. Smith & W.P. Co. vs. Ford, 34 Okla 575, 126 P 745.

7. Arsenal v. IAC, G.R. No. L-66696, 143 SCRA 40 (2000)

G.R. No. L-66696 July 14, 1986

FRANCISCA ARSENAL and REMEDIO ARSENAL, petitioners, vs.THE INTERMEDIATE APPELLATE COURT, HEIRS OF TORCUATO SURALTA, and SPOUSES FILOMENO PALAOS and MAHINA LAGWAS, respondents.

Ruben Gamolo for respondent Filomeno Palaos.

 

GUTIERREZ, JR., J.:

The question to be resolved in this case is who among the two alleged purchasers of a four-hectare portion of land granted in homestead has acquired a valid title thereto.

The facts as stated by the trial court are:

On January 7, 1954, the defendant Filomeno Palaos secured OCT No. P-290 (Exh. A) from the Reg-ister of Deeds of Bukidnon for Lot 81, Pls-112, consisting of 87,829 sq. m. more or less, situated at former barrio of Kitaotao now a municipality of Bukidnon, by virtue of Homestead Patent No. V-23602 granted to him.

On September 10, 1957, said Filomeno Palaos and his wife Mahina Lagwas executed in favor of the plaintiff, Torcuato Suralta, sold four (4) hectares of the land embraced in his Torrens Certificate for the sum of P 890.00, Philippine Currency, by means of a deed of acknowledged before a Notary (Exh. C). Plaintiff Suralta immediately took possession of the four-hectare portion of Lot 81 above-mentioned cultivated and worked the same openly, continuously and peacefully up to the present time in concept of owner thereof. He built a house and introduced permanent improvements thereon now valued at no less than P20,000.00.

Sometime in 1964, the defendant-spouses Francisca Arsenal and Remedio Arsenal became tenants of an adjoining land owned by Eusebio Pabualan that is separated from the land in question only by a public road. They also came to know the plaintiff as their neighbor who became their compadre later, and saw him very often working and cultivating the land in question. In the course of their rela-tionship the plaintiff came to know of their intention to buy the remaining land of Filomeno Palaos (t.s.n., pp. 13-14, 45-47).

On March 14, 1967, said Filomeno Palaos and his wife executed a notarial Deed of Sale (Exh. 1 for the defendant) in consideration of the amount of P800.00, Philippine Currency, supposedly for the remaining three (3) hectares of their land without knowing that the document covered the entirety of Lot 81 including the four-hectare portion previously deeded by them to the plaintiff. The deed of sale was presented to the Office of the Commission on National Integration at Malaybalay for approval because Palaos and his wife belong to the cultural minorities and unlettered. The field representative and inspector of that office subsequently approved the same (Exh. K and Exh. 2) without inspecting the land to determine the actual occupants thereon.

The defendants Arsenal took possession of the three-hectare portion of Lot 81 after their purchase and have cultivated the same up to the present time but they never disturbed the plaintiff's posses-sion over the four-hectare portion that he had purchased in 1957. On March 28, 1967, Francisca Ar-senal caused the tax declaration of the entire lot to be transferred in her name (Exh. 6). The plaintiff learned of the transfer of the tax declaration to Francisca Arsenal and because of their good rela-tions at the time, he agreed with Arsenal to contribute in the payment of the land taxes and paid yearly from 1968 to 1973 the amount of P10.00 corresponding to his four-hectare portion to Fran-cisca Arsenal (Exhs. F, F-1, G, G-1, H, and H-1).

On July 11, 1973, the plaintiff presented his Sales Contract in the Office of the Register of Deeds but it was refused registration for having been executed within the prohibitive period of five years from the issuance of the patent. In order to cure the defect, he caused Filomeno Palaos to sign a new Sales Contract (Exh. D) in his favor before Deputy Clerk of Court Florentina Villanueva covering the same four-hectare portion of Lot 81. In August 1973, the plaintiff caused the segregation of his por-tion from the rest of the land by Geodetic Engineer Benito P. Balbuena, who conducted the subdivi-sion survey without protest from Francisca Arsenal who was notified thereof. The subdivision plan (Exh. E) was approved by the Commissioner of Land Registration on April 18, 1974.

In December 1973, however, the plaintiff saw for the first time the Deed of Sale embracing the whole Lot 81 signed by Filomeno Palaos in favor of Francisca Arsenal. Immediately he asked Palaos for explanation but the latter told him that he sold only three hectares to Arsenal. Plaintiff approached Francisca Arsenal for a satisfactory arrangement but she insisted on abiding by her contract. Be-cause of their disagreement, Francisca Arsenal registered her Deed of Sale on December 6, 1973 and obtained Transfer Certificate of Title No. T-7879 (Exh. E) for the entire Lot 81 without the knowl-edge of the plaintiff.

On January 7, 1974, the plaintiff sent a telegram (Exh. 1) to the Secretary of Agriculture and Natural Resources requesting suspensions of the approval of the sale executed by Filomeno Palaos in favor of Francisca Arsenal, not knowing that the latter had already secured a transfer certificate of title from the Register of Deeds.

In the middle part of said month of January 1974, plaintiff however learned of the cancellation of the original certificate of title of Palaos and the issuance of the Transfer Certificate to Arsenal so he sought the help of the municipal authorities of Kitaotao to reach an amicable settlement with Fran-cisca Arsenal who, on the other hand, refused to entertain all overture to that effect. ... .

On March 6, 1974, Torcuato Suralta filed a case against Filomeno Palaos, Mahina Lagwas, Francisca Arsenal, Remedio Arsenal and the Register of Deeds of Bukidnon for the annulment of Transfer Certificate of Title No. T-7879 issued to the Arsenals insofar as it covers the four-hectare portion previously sold to him.

In answer to the complaint, the Arsenals denied previous knowledge of the sale to Suralta of the land in question. As a special defense, they assailed the validity of the purchase by Suralta in 1957, pointing to the prohibition con-tained in the Public Land Law against its disposal within the period of five years from the issuance of the homestead patent. They also questioned the legality of the sale made to Suralta in 1957 by Filomeno Palaos and Mahina Lag-was for not having been approved by the Commission on National Integration despite the fact that Palaos and his wife belong to the cultural minorities, are illiterates, and do not understand the English language in which the deed of sale in favor of Suralta was written.

In their answer, the spouses Filomeno Palaos and Mahina Lagwas sustained the sale made by them to Suralta. They alleged that they verbally sold one hectare to one Tiburcio Tadena and sold the remaining 3.7829 hectares to the Arsenals. They stated that they informed the Arsenals about the previous sale of four hectares to Suralta. They also claimed that the Arsenals took undue advantage of their ignorance and illiteracy and caused them to sign the document of sale so as to include the entire 87,829 sq. m.covered by their original title.

On May 4, 1976, the trial court rendered judgment in favor of Suralta. It imputed bad faith to the Arsenals and de-clared them disqualified to avail of the protection afforded by the provisions of the Civil Code to innocent purchasers although they registered their purchase ahead of Suralta.

The court held that:

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The defendants Arsenal could not also avail of the prohibition in the Public Land Act against the dis-posal of any land granted to a citizen under that law because the benefit of said prohibition does not inure to any third party. Only the government could have filed the adequate proceedings for confis-cation of the land for violation of the condition of the grant by Palaos. Moreover, a verbal sale of land is valid and effective as between the parties to the agreement and Filomeno Palaos had reaffirmed the sale he made in favor of the plaintiff in 1957 by executing another instrument in 1973 to cure whatever defects which may have affected their formal contract.

Likewise, Francisca Arsenal cannot take advantage of the lack of approval by the Commission on National Integration of the sale made by Filomeno Palaos in favor of plaintiff Torcuato Suralta. Only the latter, in whose favor the protection is afforded, could contest the document on the ground, as Francisca Arsenal was not a party to said contract and even if she is also a member of the cultural

minority for being only half a native of Bukidnon because she and her husband who is from Cebu are both literates.

On appeal to the Intermediate Appellate Court, the aforestated decision was affirmed in toto on October 24, 1983. The Court maintained that:

The disquisition of the lower court having been made mainly upon assessment of the facts as borne by the testimonies of witnesses presented as resolved in a long line of decisions, this Court is loath to overturn findings of facts of the court a quo, which is more in a position to determine their truth or falsity, having heard the witnesses testify ... .

On March 20, 1984, the spouses Arsenal went to this Court in a petition for review on certiorari assigning the follow-ing alleged errors of the court below:

I

THE INTERMEDIATE APPELLATE COURT ERRED IN NOT DISMISSING THE APPEALED CASE FOR LACK OF CAUSE OF ACTION.

II

THE INTERMEDIATE APPELLATE COURT ERRED IN AFFIRMING THE TRIAL COURT'S ARGU-MENT TO THE EFFECT THAT THE BENEFIT OF THE PROHIBITION IN THE PUBLIC LAND LAW AGAINST THE DISPOSAL OF ANY LAND GRANTED TO A CITIZEN UNDER THAT LAW DOES NOT INSURE TO ANY THIRD PARTY, HENCE, PETITIONERS COULD NOT AVAIL OF THE SAID PROHIBITION.

III

THE INTERMEDIATE APPELLATE COURT ERRED IN AFFIRMING THE TRIAL COURT'S ARGU-MENT THAT THE PETITIONERS COULD NOT TAKE ADVANTAGE OF THE LACK OF AP-PROVAL BY THE COMMISSION ON NATIONAL INTEGRATION OF THE SALE MADE BY RE-SPONDENT TORCUATO SURALTA.

IV

THE INTERMEDIATE APPELLATE COURT ERRED IN GIVING TOO MUCH WEIGHT TO THE AL-LEGED BAD FAITH OF PETITIONERS.

V

THE INTERMEDIATE APPELLATE COURT ERRED IN AFFIRMING THE DECISION OF THE TRIAL COURT DECLARING RESPONDENT TORCUATO SURALTA TO BE THE LEGITIMATE OWNER OF THE DISPUTED LAND AND IN ORDERING THE REGISTER OF DEEDS OF BUKID-NON TO CANCEL TCT NO. T-7879 AND ORDERING THE ISSUANCE OF ANOTHER TITLE FOR THE PORTION DESIGNATED AS LOT 8l-A OF THE SUBDIVISION PLAN LRC-PLD-198451.

VI

THE INTERMEDIATE APPELLATE COURT ERRED IN AFFIRMING THE AWARD OF MORAL DAMAGES AND ATTORNEY's FEES TO PRIVATE RESPONDENTS.

In resisting respondent Suralta's claim, the petitioners rely heavily on the nullity of the contract of sale executed in 1957 between the respondents Palaos and Suralta. They allege that because the previous sale was void from the beginning, it cannot be ratified and "No amount of bad faith on the part of the petitioners could make it valid and en-forceable in the courts of law."

These arguments are impressed with merit.

The law on the matter which is the Public Land Act (Commonwealth Act No. 141, as amended) provides:

Sec. 118. Except in favor, of the Government or any of its branches, units or institutions, lands ac-quired under free patent or homestead provisions shall not be subject to encumbrance or alienation from the date of the approval of the application and for a term of five years from and after the date of issuance of the patent or grant nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of said period, but the improvements or crops on the land may be mortgaged or pledged to qualified persons, associations, or corporations.

No alienation, transfer, or conveyance of any homestead after five years and before twenty-five years after issuance of title shall be valid without the approval of the Secretary of Agriculture and Natural Resources, which approval shall not be denied except on constitutional and legal ground (As amended by Com. Act No. 456, approved June 8, 1939).

xxx xxx xxx

Sec. 120. Conveyance and encumbrance made by persons belonging to the so-called 'non-Christian Filipinos' or national cultural minorities, when proper, shall be valid if the person making the con-veyance or encumbrance is able to read and can understand the language in which the instrument or conveyance or encumbrance is written. Conveyances and encumbrances made by illiterate non-Christians or literate non-Christians where the instrument of conveyance is in a language not under-stood by the said literate non-Christian shall not be valid unless duly approved by the Chairman of the Commission on National Integration. (As amended by Rep. Act No. 3872, approved June 18, 1964).

xxx xxx xxx

Sec. 124. Any acquisition, conveyance, alienation, transfer, or other contract made or executed in vi-olation of any of the provisions of sections one hundred and eighteen, one hundred and twenty, one hundred and twenty-one, one hundred and twenty-two, and one hundred twenty-three of this Act shall be unlawful and null and void from its execution and shall produce the effect of annulling and cancelling the grant, title, patent, or permit originally issued, recognized or confirmed, actually or pre-sumptively, and cause the reversion of the property and its improvements to the State.

The above provisions of law are clear and explicit. A contract which purports of alienate, transfer, convey or encum-ber any homestead within the prohibitory period of five years from the date of the issuance of the patent is void from its execution. In a number of cases, this Court has held that such provision is mandatory (De los Santos v. Roman Catholic Church of Midsayap, 94 Phil. 405).

Under the provisions of the Civil Code, a void contract is inexistent from the beginning. It cannot be ratified neither can the right to set up the defense of its illegality be waived. (Art. 1409, Civil Code).

To further distinguish this contract from the other kinds of contract, a commentator has stated that:

The right to set up the nullity of a void or non-existent contract is not limited to the parties as in the case of annullable or voidable contracts; it is extended to third persons who are directly affected by the contract. (Tolentino, Civil Code of the Philippines, Vol. IV, p. 604, [1973]).

Any person may invoke the inexistence of the contract whenever juridical effects founded thereon are asserted against him. (Id. p. 595).

Concededly, the contract of sale executed between the respondents Palaos and Suralta in 1957 is void. It was en-tered into three (3) years and eight (8) months after the grant of the homestead patent to the respondent Palaos in 1954.

Being void, the foregoing principles and rulings are applicable. Thus, it was erroneous for the trial court to declare that the benefit of the prohibition in the Public Land Act "does not inure to any third party." Such a sweeping declara-tion does not find support in the law or in precedents. A third person who is directly affected by a void contract may set up its nullity. In this case, it is precisely the petitioners' interest in the disputed land which is in question.

As to whether or not the execution by the respondents Palaos and Suralta of another instrument in 1973 cured the defects in their previous contract, we reiterate the rule that an alienation or sale of a homestead executed within the five-year prohibitory period is void and cannot be confirmed or ratified. This Court has on several occasions ruled on the nature of a confirmatory sale and the public policy which proscribes it. In the case ofMenil v. Court of Ap-peals (84 SCRA 413), we stated that:

It cannot be claimed that there are two contracts: one which is undisputably null and void, and an-other, having been executed after the lapse of the 5-year prohibitory period, which is valid. The sec-ond contract of sale executed on March 3, 1964 is admittedly a confirmatory deed of sale. Even the petitioners concede this point. (Record on Appeal, pp. 55-56). Inasmuch as the contract of sale exe-cuted on May 7, 1960 is void for it is expressly prohibited or declared void by law (CA 141, Section 118), it therefore cannot be confirmed nor ratified. ... .

xxx xxx xxx

Further, noteworthy is the fact that the second contract of sale over the said homestead in favor of the same vendee, petitioner Potenciano Menil, is for the same price of P415.00. Clearly, the unvary-ing term of the said contract is ample manifestation that the same is simulated and that no object or consideration passed between the parties to the contract. It is evident from the whole record of the case that the homestead had long been in the possession of the vendees upon the execution of the first contract of sale on May 7, 1960; likewise, the amount of P415.00 had long been paid to Agueda Garan on that same occasion. ...

In another case, Manzano v. Ocampo (1 SCRA 691, 697), where the sale was perfected during the prohibitory pe-riod but the formal deed of conveyance was executed after such period, this Court ruled that:

xxx xxx xxx

... This execution of the formal deed after the expiration of the prohibitory period did not and could not legalize a contract that was void from its inception. Nor was this formal deed of sale 'a totally dis-tinct transaction from the promissory note and the deed of mortgage', as found by the Court of Ap-peals, for it was executed only in compliance and fulfillment of the vendor's previous promise, under the perfected sale of January 4, 1938, to execute in favor of his vendee the formal act of conveyance after the lapse of the period of inhibition of five years from the date of the homestead patent. What is more, the execution of the formal deed of conveyance was postponed by the parties precisely to cir-cumvent the legal prohibition of their sale.

The law prohibiting any transfer or alienation of homestead land within five years from the issuance of the patent does not distinguish between executory and consummated sales; and it would hardly be in keeping with the primordial aim of this prohibition to preserve and keep in the family of the homesteader the piece of land that the State had gratuitously given to them, (Pascua v. Talens, 45 O.G. No. 9 [Supp.] 413; De los Santos v. Roman Catholic Church of .Midsayap, G.R. No. L-6088, Feb. 25, 1954.) to hold valid a homestead sale actually perfected during the period of prohibition but with the execution of the formal deed of conveyance and the delivery of possession of the land sold to the buyer deferred until after the expiration of the prohibitory period, purposely to circumvent the very law that prohibits and declares invalid such transaction to protect the homesteader and his fam-ily. To hold valid such arrangements would be to throw the door wide open to all possible fraudulent subterfuges and schemes that persons interested in land given to homesteaders may devise to cir-cumvent and defeat the legal provision prohibiting their alienation within five years from the issuance of the homestead's patent.

The respondents Palaos and Suralta admitted that they executed the subsequent contract of sole in 1973 in order to cure the defects of their previous contract. The terms of the second contract corroborate this fact as it can easily be

seen from its terms that no new consideration passed between them. The second contract of sale being merely con-firmatory, it produces no effect and can not be binding.

Notwithstanding the above circumstances of the case, however, we still think that the petitioners' claim to the land must fail.

The petitioner's view that the court erred in giving too much weight to their alleged bad faith has no merit. The issue of bad faith constitutes the fundamental barrier to their claim of ownership.

The finding of bad faith by the lower court is binding on us since it is not the function of this Court to analyze and re-view evidence on this point all over again (Sweet Lines, Inc. v. Court of Appeals, 121 SCRA 769) but only to deter-mine its substantiality (Dela Concepcion v. Mindanao Portland Cement Corporation, 127 SCRA 647).

In this case, there is substantial evidence to sustain the verdict of bad faith. We find several significant findings of facts made by the courts below, which were not disputed by the petitioners, crucial to its affirmance.

First of all, we agree with the lower court that it is unusual for the petitioners, who have, been occupying the dis-puted land for four years with respondent Suralta to believe, without first verifying the fact, that the latter was a mere mortgagee of the portion of the land he occupies.

Second, it is unlikely that the entire 8.7879 hectares of land was sold to them for only P800,00 in 1967 considering that in 1957, a four-hectare portion of the same was sold to the respondent Suralta for P819.00. The increased value of real properties through the years and the disparity of the land area show a price for the land too inadequate for a sale allegedly done in good faith and for value.

Third, contrary to the usual conduct of good faith purchasers for value, the petitioners actively encouraged the re-spondent Suralta to believe that they were co-owners of the land. There was no dispute that the petitioners, without informing the respondent Suralta of their title to the land, kept the latter in peaceful possession of the land he occu-pies and received annual real estate tax contributions from him. It was only in 1973 when the respondent Suralta discovered the petitioners' title to the land and insisted on a settlement of the adverse claim that the petitioners reg-istered their deed of sale and secured a transfer certificate of title in their favor.

Clearly, the petitioners were in bad faith in including the entire area of the land in their deed of sale. They cannot be entitled to the four-hectare portion of the land for lack of consideration. To uphold their claim of ownership over that portion of land would be contrary to the well-entrenched principle against unjust enrichment consecrated in our Civil Code to the end that in cases not foreseen by the lawmaker, no one may unjustly benefit himself to the prejudice of another (Report of the Code Commission, p. 41).

Who then is entitled to the portion of the land which is under litigation?

The peculiar circumstances of the case seem to make a categorical pronouncement on the case difficult.

At first blush, the equities of the case seem to lean in favor of the respondent Suralta who, since 1957, has been in possession of the land which was almost acquired in an underhanded manner by the petitioners. We cannot, how-ever, gloss over the fact that the respondent Suralta was himself guilty of transgressing the law by entering, in 1957, into a transaction clearly prohibited by law. It is a long standing principle that equity follows the law. Courts exercis-ing equity jurisdiction are bound by rules of law and have no arbitrary discretion to disregard them. Equitable rea-sons will not control against any well-settled rule of law or public policy (McCurdy v. County of Shiawassee, 118 N.W. 625). Thus, equity cannot give validity to a void contract. If, on the basis of equity, we uphold the respondent Suralta's claim over the land which is anchored on the contracts previously executed we would in effect be giving life to a void contract.

There is another observation worthy of consideration. This Court has ruled in a number of cases that the reversion of a public land grant to the government is effected only at the instance of the Government itself (Gacayan v. Leano, 121 SCRA 260; Gonzalo Puyat & Sons, Inc. v. De las Ama and Aliño, 74 Phil. 3). The reversion contemplated in the Public Land Act is not automatic. The Government has to take action to cancel the patent and the certificate of title in order that the land involved may be reverted to it (Villacorta v. Ulanday, 73 Phil. 655). Considering that this is an

ordinary civil action in which the Government has not been included as a party and in view of the settled jurispru-dence, we rule against the automatic reversion of the land in question to the State.

Lastly, in cases where the homestead has been the subject of void conveyances, the law still regards the original owner as the rightful owner subject to escheat proceedings by the State. In the Menil and Monzano cases earlier cited, this Court awarded the land back to the original owner notwithstanding the fact that he was equally guilty with the vendee in circumventing the law. This is so because this Court has consistently held that "the pari delicto doc-trine may not be invoked in a case of this kind since it would run counter to an avowed fundamental policy of the State, that the forfeiture of a homestead is a matter between the State and the grantee or his heirs, and that until the State had taken steps to annul the grant and asserts title to the homestead the purchaser is, as against the vendor or his heirs, no more entitled to keep the land than any intruder." (Acierto et al. v. De los Santos, et al. 95 Phil. 887; de los Santos v. Roman Catholic Church of Midsayap, et al., supra) We should stress that the vendors of the home-stead are unlettered members of a tribe belonging to the cultural minorities.

We see, however, a distinguishing factor in this case that sets it apart from the above cases. The original owners in this case, the respondent Palaos and his wife, have never disaffirmed the contracts executed between them and the respondent Suralta. More than that, they expressly sustained the title of the latter in court and failed to show any in-terest in recovering the land. Nonetheless, we apply our earlier rulings because we believe that as inpari delicto may not be invoked to defeat the policy of the State neither may the doctrine of estoppel give a validating effect to a void contract. Indeed, it is generally considered that as between parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or is against public policy (19 Am. Jur. 802). It is not within the competence of any citizen to barter away what public policy by law seeks to preserve (Gonzalo Puyat & Sons, Inc. v. De los Amas and Aliño, supra). Of course, this pronouncement covers only the previous transactions between the respondents. We cannot pass upon any new contract, between the same parties involving the same land if this is their clear intention. Any new transaction, however, would be subject to whatever steps the Government may take for the reversion of the property to it.

With the resolution of the principal issues and in view of our own conclusions of facts and law, we hold untenable the lower court's award of moral damages, attorney's fees and litigation expenses.

WHEREFORE, the decision of the Intermediate Appellate Court is REVERSED and SET ASIDE. Judgment is hereby rendered:

(a) Declaring null and void the sale of the four-hectare portion of the homestead to respondent Torcuato Suralta and his heirs;

(b) Declaring null and void the sale of the same portion of land to the petitioners Francisca Arsenal and Remedio Ar-senal:

(c) Ordering the Register of Deeds of Bukidnon to cancel Transfer Certificate of Title No. T-7879 as to the disputed four-hectare portion and to reissue an Original Certificate of Title for the portion designated as Lot 81-A of the Sub-division Plan LRC-PLD-198451 prepared by Geodetic Engineer Benito P. Balbuena and approved by the Commis-sion on Land Registration, in favor of the respondents Filomeno Palaos and Mahina Lagwas;

(d) Ordering the respondents Filomeno Palaos and Mahina Lagwas to reimburse the heirs of the respondent Torcu-ato Suralta the sum of EIGHT HUNDRED NINETY PESOS (P890.00), the price of the sale. The value of any im-provements made on the land and the interests on the purchase price are compensated by the fruits the respondent Suralta and his heirs received from their long possession of the homestead.

This judgment is without prejudice to any appropriate action the Government may take against the respondents Filomeno Palaos and Mahina Lagwas pursuant to Section 124 of Commonwealth Act No. 141, as amended.

SO ORDERED.

Feria (Chairman), Fernan, Alampay and Paras, JJ., concur.

8. Sps. Almendrala v. Sps. Wing On Ngo, G.R. No. 142408, 471 SCRA 311 (2005)

G.R. NO. 142408 September 30, 2005

SPOUSES RICARDO ALMENDRALA and ROSARIO DOROJA, Petitioners, vs.SPOUSES WING ON NGO and LILY T. NGO, and the HONORABLE COURT OF APPEALS, Respondent.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the Decision1 of the Court of Appeals (CA) dated September 30, 1999 in CA-G.R. CV No. 56458, which reversed and set aside the Decision dated April 30, 1997 of the Regional Trial Court, Branch 24, Biñan, Laguna (RTC) upholding petition-ers’ right of legal redemption; and the CA Resolution dated March 9, 2000, which denied petitioners’ motion for reconsideration.

The factual background of the case is as follows:

On February 4, 1992, petitioner spouses Ricardo Almendrala and Rosario Doroja (Almendrala spouses for brevity) filed a complaint for legal redemption and damages against respondent spouses Wing On Ngo and Lily T. Ngo (Ngo spouses for brevity) before the RTC of Biñan, Laguna, docketed as Civil Case No. B-3714 and as-signed to Branch 24 thereof.2

They alleged that: they are the registered owners of a lot situated along Mabini St., San Pedro, Laguna, known as Lot 5-B of the Subdivision Plan Csd-04-003353 with an area of 304 square meters under Transfer Certifi-cate of Title (TCT) No. T-169139; the spouses Josefina and Lysias Manalo3 (Manalo spouses for brevity), Ri-cardo’s sister and brother-in-law, respectively, used to be the registered owners of Lot 5-D also of Subdivision Plan Csd-04-003353, with an area of 22 square meters, covered by TCT No. T-150411, adjoining their lot; they discovered that the Manalo spouses sold the lot to the Ngo spouses for the sum of P44,000.00 per a Deed of Absolute Sale dated July 25, 1991; on August 21, 1991, TCT No. T-234792 was issued in the name of the Ngo spouses; the sale was registered without the requisite vendor’s affidavit regarding service of written notices thereof to adjacent owners; the subject land is not only needed by them for a reasonable frontage of the adjoin-ing street but is actually occupied by their own house; and, they are ready, able and willing to exercise their right of legal redemption.

On March 20, 1992, the Almendrala spouses filed a motion to declare the Ngo spouses in default for the failure to file their Answer.4

On March 26, 1992, the Ngo spouses filed the opposition to the motion for default with motion to admit their answer.5 In their Answer dated March 25, 1992, the Ngo spouses claimed that they merely relied in good faith on Josefina Manalo’s assurance that none of her relatives wanted to buy the property and that they have no in-tention to oppose the desire of the Almendrala spouses to redeem the same. They prayed that the case be dis-missed for being premature and for lack of merit.6

In its Order dated March 27, 1992, the RTC denied the motion for default and admitted the answer of the Ngo spouses in the interest of substantial justice.7

At the scheduled pre-trial conference on April 27, 1992, only the Almendrala spouses and their counsel ap-peared. Thus, upon motion of the Almendrala spouses, the RTC declared the Ngo spouses as in default for

their failure to attend the scheduled pre-trial conference. It also authorized the Almendrala spouses to present their evidence ex-parte.8

On May 29, 1992, the Ngo spouses filed a motion for reconsideration.9 On June 4, 1992, the RTC granted the motion for reconsideration and gave the Ngo spouses the right to cross-examine the witnesses of the Almen-drala spouses considering that the latter had already presented their evidence.10

However, for failure of the Ngo spouses to cross-examine the witnesses of the Almendrala spouses on four scheduled hearing dates called for such purpose, the RTC declared, in its Order dated October 7, 1992, that they waived such right.11

On November 18, 1992, the Ngo spouses filed a motion for reconsideration of the Order dated October 7, 1992.12 On the same date, the Ngo spouses filed a motion for leave to file an amended answer.13 In their amended answer, the Ngo spouses alleged that the Almendrala spouses have neither the right nor privilege to redeem the land in litigation; they intend to use the land for their business needs; the complaint was filed purely for harassment purposes and stated no cause of action.14 They also filed a motion for leave to file third-party complaint against the Manalo spouses for supposed breach of the latter’s guarantee as vendors to keep the vendees in peaceful possession of the property sold.15

On December 2, 1992, the Almendrala spouses filed their opposition to the motion for reconsideration, motion to amend answer and motion to file third-party complaint.16 However, on January 29, 1993, the RTC granted the three motions of the Ngo spouses.17

On May 7, 1993, the Almendrala spouses filed a motion to declare third-party defendant Manalo spouses in default for failure to file their third- party answer.18 On May 13, 1993, the RTC granted the motion.19

A day before, however, or on May 12, 1993, the Manalo spouses filed their answer, claiming therein that verbal notice of the questioned sale was given to the Almendrala spouses and that their inclusion in the instant suit was tainted with malice.20 Thus, on May 31, 1993, the Manalo spouses filed a motion for reconsideration of the May 13, 1993 default order.21

On June 10, 1993, the RTC granted the motion for reconsideration and admitted the answer of third-party de-fendants Manalo spouses.22

On July 5, 1993, the Manalo spouses filed a motion to admit their amended answer to the third-party com-plaint.23In their amended answer to the third-party complaint, they allege that: the P44,000.00 consideration stated in the deed of absolute sale actually represented their indebtedness to the Ngo spouses in the sum of P44,000.00; in executing the same deed of absolute sale, it was agreed between the parties that in the meantime they shall be allowed to remain in possession of the property and to later redeem it at the same price; and, that the land was first offered to the Almendrala spouses at P12,000.00 per square meter to no avail. In addition to tendering the sum of P44,000.00 as repayment of their loan as aforesaid, the Manalo spouses prayed that the sale be considered as a plain mortgage and that the Ngo spouses be ordered to re-convey the subject land and to pay their counterclaims for attorney’s fees and the costs of the suit.24

On September 12, 1994, the Ngo spouses and the Manalo spouses executed a compromise agreement with the following provisions:

1. The THIRD PARTY DEFENDANTS hereby acknowledge the THIRD PARTY PLAINTIFFS’ ownership over that parcel of land situated in Poblacion, San Pedro, Laguna and now registered in the latter’s names under Transfer Certificate of Title No. 23472 of the Registry of Deeds of the Province of Laguna.

2. The THIRD PARTY DEFENDANTS hereby undertake to vacate the aforesaid premises, and voluntarily sur-render possession thereof to the THIRD PARTY PLAINTIFFS, on or before November 12, 1994.

3. The THIRD PARTY PLAINTIFFS and THIRD PARTY DEFENDANTS hereby waive and quitclaim their re-spective claims against each other of whatever nature except the enforcement of this Agreement by means of a writ of execution in the event that they fail to comply with what is incumbent of them to do.25

On December 26, 1994, the RTC approved the foregoing compromise agreement.26

On April 30, 1997, the RTC rendered its decision upholding the right of legal redemption of the Almendrala spouses based on: (a) the testimony of Ricardo Almendrala, as corroborated by Ariel Uypico, that the Ngo spouses were selling the lot; (b) the non-approval by the proper building official or municipal engineer of the building design and plan for the lot prepared by Jaime Patalud for the Ngo spouses; (c) the failure of the build-ing design and plan to comply with the legal requirement imposed by the National Building Code and its Imple-menting Rules and Regulations that a commercial building with an area of 20 to 24 square meters must allow a road right of way of 6 meters in front, 3 meters at the side and 3 meters at the rear. It held that the lot is so small that it cannot be used for any practical purpose within a reasonable time and was bought by the Ngo spouses for speculation.27

Dissatisfied, the Ngo spouses filed an appeal with the CA which, on September 30, 1999, set aside the deci-sion of the RTC and dismissed the complaint for legal redemption and damages.28

The CA held that the Almendrala spouses failed to allege and prove that the disputed area of 22 square meters cannot be used for any practical purpose or was bought by the Ngo spouses merely for speculation; and that on the contrary, the Ngo spouses showed that they planned to use the lot for a two-storey bakery, store and restaurant and had not bought the lot for speculation.

The Almendrala spouses filed a motion for reconsideration29 but it was denied in the CA Resolution dated March 9, 2000.30

Hence, the present petition for review on certiorari based on the following grounds:

The Court of Appeals committed grave error and abuse of discretion tantamount to lack or excess of jurisdic-tion when it replaced the trial court’s factual findings with its own second hand appreciation.31

The Court of Appeals gravely erred and committed grave abuse of discretion tantamount to lack or excess of jurisdiction when it favored the patently false and perjured testimonies of the respondent and his witness.32

Anent the first ground, the Almendrala spouses admit that they did not allege in the complaint that the Ngo spouses bought the lot for speculation. They insist, however, that they offered evidence, without objection from the Ngo spouses, proving that the latter acquired the lot for speculation.

As to the second ground, they argue that the CA gave credence to the testimonies of Wing On Ngo and Jaime Patalud despite the patent perjuries they committed. They maintain that Wing On Ngo lied in four instances, to wit: when he swore that he inspected the lot before he purchased it; when he informed the Almendrala spouses that he was buying the lot; that he revealed to them his alleged project of a two-storey bakery and store; and that they agreed to remove the eave overhanging the lot.

The Ngo spouses, on the other hand, submit that the arguments in the present petition are a mere rehash of those submitted in the motion for reconsideration before the CA and already resolved by the said court.

As to the first ground, the Ngo spouses contend that: speculation was neither alleged nor proven; the Almen-drala spouses were duly notified of the sale but they failed to exercise the right of pre-emption or redemption within the 30-day period required by Article 162333 of the Civil Code; there is no rightful redemption as there was no valid tender of payment or even consignation in court of redemption price but simply an offer to re-deem.

On the second ground, they maintain that the alleged perjured testimonies of Wing On Ngo and Jaime Patalud are normal reactions of someone on the witness stand. They submit that the Almendrala spouses lack a full grasp of the applicability of the maxim "falsus in uno, falsus in omnibus" because it deals only with the weight of evidence and is not a positive rule of law of universal application. They further assert that their good faith and honest intention in acquiring the land was evident as early as July 31, 1991 when the National Housing Authority issued a certification approving the request of the original owner, Josefina Manalo, to transfer her rights over the lot in favor of Wing On Ngo.

At any rate, they raise, as additional error for the Court’s consideration, the CA’s refusal to grant their claim for payment of damages and attorney’s fees.

The petition lacks merit.

It is a settled rule that in the exercise of the Supreme Court’s power of review, the Court is not a trier of facts and does not normally undertake the re-examination of the evidence presented by the contending parties dur-ing the trial of the case considering that the findings of facts of the CA are conclusive and binding on the Court. While jurisprudence has recognized several exceptions in which factual issues may be resolved by this Court, such as: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the in-ference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of the case, or its findings are con-trary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner’s main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contra-dicted by the evidence on record; or (11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion,34 none of these exceptions find application here.

The Almendrala spouses maintain that they anchored their cause of action on Article 1622 of the Civil Code, which provides that:

Whenever a piece of urban land which is so small and so situated that a major portion thereof cannot be used for any practical purpose within a reasonable time, having been bought merely for speculation, is about to be re-sold, the owner of the adjoining land shall have the right of pre-emption at a reasonable price.

If the re-sale has been perfected, the owner of the adjoining land shall have a right of redemption, also at a reasonable price.

When two or more owners of adjoining lands wish to exercise the right of pre-emption or redemption, the owner whose intended use of the land in question appears best justified shall be preferred.

There are 4 elements necessary for the application of Article 1622, to wit: (1) that the piece of land is urban land; (2) that the land is so small that a major portion thereof cannot be used for any practical purpose within a reasonable time; (3) that it was bought merely for speculation; and (4) that the land is about to be resold, or that its resale has been perfected. Before a party may avail of the right of pre-emption or redemption under this provision, it is necessary that all these elements be alleged in the complaint and proved at the trial.35

A thorough reading of the complaint in this case reveals that the Almendrala spouses failed to allege in their complaint that they based their cause of action under Article 1622 because they did not allege the elements necessary for the application of said provision. They insist, nonetheless, that they adduced sufficient evidence to support their claim.

Admittedly, the failure of the Almendrala spouses to plead in the complaint that the Ngo spouses bought the lot for speculation does not forestall relief under Article 1622 if they offered sufficient evidence to support their

claim thereon. As provided for in Section 5,36 Rule 10 of the Rules of Court, when issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects, as if they had been raised in the pleadings. Thus, even if the complaint be defective, but the parties go to trial thereon, and the plaintiff, without objection, introduces sufficient evidence to constitute the particular cause of action which it intended to allege in the original complaint, and the defendant voluntarily produces witnesses to meet the cause of action thus established, an issue is joined as fully and as effectively as if it had been previously joined by the most perfect pleadings.37

In the present case, the Court finds, however, that the Almendrala spouses failed to prove the existence of all of the elements for the application of Article 1622.

It is undisputed that the subject property is urban land and that it is small at 22 square meters. However, the Almendrala spouses failed to convincingly show that a major portion of the subject property cannot be used for any practical purpose, that the lot was bought merely for speculation and that it is about to be resold or the sale has already been perfected.

The testimonies of Ricardo Almendrala and Ariel Uypico on the intention of the Ngo spouses to sell the subject property are far from convincing. Ricardo Almendrala testified that the subject property was offered to his friend, Dr. Nabua38 but he failed to present the latter in court to confirm and corroborate his testimony thereon. As for Ariel Uypico, his statement on the intention of the Ngo spouses to sell the subject property is vague and contains no specificities of individuals allegedly interested in buying it. Thus, there is no clear proof that the subject property is about to be resold.

Moreover, it does not necessarily follow that the subject property cannot be used for any practical purpose sim-ply because the building design and plan did not allegedly meet the requirements of the National Building Code on commercial buildings. In that case, all that needs to be done is to prepare a building design and plan with due consideration of the space requirements or limitations imposed by law.

In any event, the Ngo spouses have shown that 15.81 square meters of the subject property can be used for the construction of the proposed building for their business needs.39 They have shown that they did not buy the subject property for speculation. They engaged the services of an architect to draw a building design and plan thereon. The fact that the building design and plan were not yet approved by the proper building official or the municipal engineer should not be taken against them because they adequately explained that this was due to the pending litigation involving the subject property.40 Naturally, it would be a waste of their time, effort and money to submit the building design and plan to the proper building official or the municipal engineer for ap-proval and implement the construction of the proposed building should a decision later on be rendered against them.

And as regards the alleged perjured testimonies of Wing On Ngo and Jaime Patalud, it is perfectly within the discretion of the CA to accept portions of the testimony of a witness as it may deem credible and reject those which it believes to be false. The maxim falsus in uno, falsus in omnibus is not a strict legal maxim in our ju-risprudence. It is neither a categorical test of credibility nor a positive rule of universal application.41 It has its own limitations, for when the mistaken statement is consistent with good faith and is not conclusively indicative of a deliberate perversion, the believable portion of the testimony should be admitted. Although a person may err in memory or in observation in one or more respects, he may have told the truth as to other respects. Stated elsewise, the rule deals only with the weight of evidence and should not be applied to portions of the testimony corroborated by other evidence, particularly where the false portions could be innocent mis-takes.42 There is no concrete evidence that Wing On Ngo or Jaime Patalud intended to pervert the truth or pre-varicated when they testified on the intention of the Ngo spouses to make use of the subject property.

Needless to stress, the burden of proof in civil cases is on the plaintiff to establish his case by a preponderance of evidence. If he claims a right granted or created by law, he must prove his claim by competent evidence. He must rely on the strength of his own evidence and not on the weakness of that of his opponent.43 In this case, Almendrala spouses failed to show sufficient proof of their entitlement to the right of pre-emption or redemption under Article 1622 of the Civil Code and, therefore, have no enforceable legal right to speak of.

Having thus ruled that the Almendrala spouses have no right of pre-emption or redemption under Article 1622 of the Civil Code, there is no need to delve on the applicability of Article 1623 of the same Code since such provision involves the 30-day period, counted from written notice, to exercise the right of pre-emption or re-demption.

As to the contention of the Ngo spouses that the CA erred in refusing to grant their claim for damages and at-torney’s fees, suffice it to say that the Court has held in a litany of cases44 that parties who have not appealed cannot obtain from the appellate court any affirmative reliefs other than those granted, if any, in the decision of the lower tribunal. The appellees can advance only such arguments as may be necessary to defeat the appel-lants’ claims or to uphold the appealed decision. They cannot ask for a modification of the judgment in their fa-vor in order to obtain other positive reliefs.

Thus, the findings of fact of the CA may be deemed as accepted by the Ngo spouses, considering that they did not file any motion for reconsideration of the questioned decision, much less appeal therefrom. The matter of the entitlement of the Ngo spouses to damages is not in question because they did not appeal from the deci-sion of the CA.

In view of the foregoing, the Court is convinced that the CA committed no reversible error in its challenged De-cision and Resolution.

WHEREFORE, the petition is DENIED for lack of merit. The assailed Decision dated September 30, 1999 and Resolution dated March 9, 2000 of the Court of Appeals in CA-G.R. CV No. 56458 are AFFIRMED. Costs against petitioners.

SO ORDERED.

1 Penned by Justice Fermin A. Martin Jr. (now retired) and concurred in by Justices Bennie A. Adefuin-dela Cruz (now retired) and Presbitero J. Velasco, Jr. (now Court Administrator).

2 Original Records, p. 1.

3 Died during the pendency of the case, on July 1, 1993, id., p. 229.

4 Id., p. 16.

5 Id., p. 18.

6 Id., p. 20.

7 Id., p. 22.

8 Id., p. 36.

9 Id., p. 60.

10 Id., p. 65.

11 Id., p. 77.

12 Id., p. 117.

13 Id., p. 101.

14 Id., p. 103.

15 Id., p. 79.

16 Id., p. 122.

17 Id., p. 129.

18 Id., p. 140.

19 Id., p. 148.

20 Id., p. 144.

21 Id., p. 151.

22 Id., p. 161.

23 Id., p. 170.

24 Id., p. 173.

25 Id., pp. 279-280.

26 Id., p. 282.

27 Id., p. 387.

28 Rollo, p. 112.

29 Id., p. 123.

30 Id., p. 139.

31 Id., p. 27.

32 Id., p. 29.

33 Art. 1623. The right of legal pre-emption or redemption shall not be exercised except within thirty days from the notice in writing by the prospective vendor, or by the vendor, as the case may be. The deed of sale shall not be recorded in the Registry of Property, unless accompanied by an affidavit of the vendor that he has given written notice thereof to all possible redemptioners. xxx

34 The Insular Life Assurance Company, Ltd. vs. Court of Appeals, G.R. No. 126850, April 28, 2004, 428 SCRA 79, 86; Aguirre vs. Court of Appeals, G.R. No. 122249, January 29, 2004, 421 SCRA 310, 319; C & S Fishfarm Corporation vs. Court of Appeals, G.R. No. 122720, December 16, 2002, 394 SCRA 82, 88.

35 See Hernandez vs. Quitain, G.R. No. L-48457, November 29, 1988, 168 SCRA 92, 98. Also Del Rosario vs. Bansil, G.R. No. 51655, November 29, 1989, 179 SCRA 662, 666; De Santos vs. City of Manila, G.R. No. L-21677, June 29, 1972, 45 SCRA 409, 414; Ortega vs. Orcine, G.R. No. L-28317, March 31, 1971, 38 SCRA 276, 281; De la Cruz vs. Cruz, G.R. No. L-27759, April 17, 1970, 32 SCRA 307, 311; Soriente vs. Court of Ap-peals, G.R. No. L-17343, August 31, 1963, 8 SCRA 750, 755.

36 SEC. 5. Amendment to conform to or authorize presentation of evidence.—When issues not raised by the pleadings are tried with the express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them

to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure to amend does not affect the result of the trial of these issues. If evidence is objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be amended and shall do so with liberality if the presentation of the merits of the action and the ends of substantial justice will be subserved thereby. The court may grant a continuance to enable the amend-ment to be made.

37 Ayson vs. Enriquez Vda. de Carpio, G.R. No. 152438, June 17, 2004, 432 SCRA 449, 455, citing Bernardo, Sr. vs. Court of Appeals, G.R. No. 120730, October 28, 1996, 263 SCRA 660, 673-674.

38 TSN, Testimony of Ricardo Almendrala, June 28, 1993, pp. 10, 15.

39 Exhibit "1-B," Original Records, p. 264; TSN, Testimony of Jaime Patalud, June 7, 1995, pp. 16-17.

40 TSN, Testimony of Wing On Ngo, September 26, 1994, p. 11.

41 Dela Cruz vs. Court of Appeals, G.R. No. 139150, July 20, 2001, 361 SCRA 636, 648; People vs. Orio, G.R. No. 128821, April 12, 2000, 330 SCRA 576, 585; People vs. Costelo, G.R. No. 134311, October 13, 1999, 316 SCRA 895, 910.

42 People vs. Abella, G.R. No. 127803, August 28, 2000, 339 SCRA 129, 144.

43 Umpoc vs. Mercado, G.R. No. 158166, January 21, 2005, 449 SCRA 220, 238; Heirs of Spouses Julian Dela Cruz and Magdalena Tuazon vs. Heirs of Florentino Quintos, Sr.,   G.R. No. 149692 , July 30, 2002, 385 SCRA 471, 478.

44 Lagandaon vs. Court of Appeals, G.R. Nos. 102526-31, May 21, 1998, 290 SCRA 330, 347; Filflex Industrial & Manufacturing Corp. vs. NLRC, G.R. No. 115395, February 12, 1998, 286 SCRA 245, 256; Atlantic Gulf and Pacific Company of Manila, Inc. vs. Court of Appeals, G.R. Nos. 114841-42, August 23, 1995, 247 SCRA 606, 612-613; Nessia vs. Fermin, G.R. No. 102918, March 30, 1993, 220 SCRA 615, 623; SMI Fish Industries, Inc. vs. NLRC, G.R. Nos. 96952-56, September 2, 1992, 213 SCRA 444, 449; Lumibao vs. Intermediate Appellate Court, G.R. No. 64677, September 13, 1990, 189 SCRA 469, 474-475; Dizon, Jr. vs. NLRC, G.R. No. 69018, January 29, 1990, 181 SCRA 472, 477; Makati Haberdashery, Inc. vs. NLRC, G.R. Nos. 83380-81, November 15, 1989, 179 SCRA 448, 455; Alba vs. Santander, G.R. No. L-28409, April 15, 1988, 160 SCRA 8, 18.

9. Aguilar v. Aguilar, G.R. No. 141613, 478 SCRA 187 (2005)

SENEN   B.   AGUILAR,                                        Petitioner,   

- versus -   

VIRGILIO B. AGUILAR and ANGEL B. AGUILAR,                                   

G.R. No. 141613  Present:

  PANGANIBAN, J., Chairman,SANDOVAL-GUTIERREZ,CORONA,CARPIO MORALES, andGARCIA, JJ.

  

Respondents, 

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

ALEJANDRO C. SANGALANG,                   Intervenor-Respondent.

 Promulgated: December 16, 2005

 

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

 D E C I S I O N

  

SANDOVAL-GUTIERREZ, J.:   

          Assailed in this petition for review on certiorari are the Decision[1] and

Resolution[2] of the Court of Appeals, dated June 11, 1999 and January 11,

2000, respectively, in CA-G.R. CV No. 55750.

          The parties in this case are brothers, except Alejandro Sangalang,

herein intervenor-respondent.   As will be subsequently discussed, this is the

second time that the brothers Aguilar seek the intervention of this Court

regarding the same facts and the same subject matter.    The first was

in Aguilar v. Court of Appeals, G.R. No. 76351 decided on October 29, 1993

against Senen B. Aguilar.[3]     It is time to writ finis to this family wrangling.

          On October 28, 1993, Senen and Virgilio purchased a house and lot

located in Parañaque City, Metro Manila for the benefit of their father,

Maximiano Aguilar (now deceased).   The brothers wanted their father to

enjoy his retirement in a quiet neighborhood.    On February 23, 1970, they

executed a written agreement stipulating that their shares in the house and

lot would be equal; and that Senen would live with their father on condition

that he would pay the Social Security System (SSS) the remaining loan

obligation of the former owners. 

          In 1974, their father died.  Virgilio then demanded that Senen vacate

the house and that the property be sold, the proceeds to be divided

between them.   Senen refused to comply with Virgilio’s demand.

          On January 12, 1979, Virgilio filed a complaint with the Court of First

Instance (now Regional Trial Court) of Rizal at Pasay City for specific

performance.   Virgilio prayed that Senen be compelled to sell the property

so that the proceeds could be divided between them.  

          However, during the pre-trial, neither Senen nor his counsel

appeared.   Thus, Senen was declared as in default by the trial court and

Virgilio was allowed to present his evidence ex-parte.

          On July 26, 1979, the trial court rendered its Decision, declaring the

brothers co-owners of the house and lot and are entitled to equal shares;

and ordering that the property be sold, the proceeds to be divided equally

between them.    The trial court also ordered Senen to vacate the property

and to pay Virgilio rentals with interests corresponding to the period from

January 1975 until he leaves the premises.  

          On appeal, docketed as CA-G.R. CV No. 03933, the Court of Appeals

reversed the trial court’s Decision.

          Virgilio then filed with this Court a petition for review on certiorari,

docketed as G.R. No. 76351.

          On October 29, 1993, this Court rendered its Decision, the dispositive

portion of which reads:

         “WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals dated 16 October 1986 is REVERSED and SET ASIDE. The decision of the trial court in Civil Case No. 6912-P dated 26 July 1971 is REINSTATED, with the modification that respondent Senen B. Aguilar is ordered to vacate the premises in question within ninety (90) days from receipt of this decision, and to pay petitioner Virgilio B. Aguilar, a monthly rental of P1,200.00 with interest at the legal rate from the time he received the decision of the trial court directing him to vacate until he effectively leaves the premises.

            The trial court is further directed to take immediate steps to implement this decision, conformably with Art. 498 of the Civil Code and the Rules of Court. This decision is final and executory.

            SO ORDERED.”

 

 

          On March 27, 1995, Senen filed with the Regional Trial Court, Branch

260, Parañaque City, an action for legal redemption against Virgilio and

another brother, Angel, docketed as Civil Case No. 95-039.    In his

complaint, Senen alleged that while he knows that Virgilio sold his ½ share

of the property to Angel in January 1989, however, he (Senen) was not

furnished any written notice of the sale.    Consequently, as a co-owner, he

has the right to redeem the property.

          Meanwhile, on November 27, 1995, pursuant to this Court’s Decision

in G.R. No. 76351, the property was sold at public auction to Alejandro C.

Sangalang, intervenor-respondent herein. Virgilio then received his share of

the proceeds as well as the rental payments due from Senen.

          By then, Virgilio had moved to California, USA.   It was only on January

25, 1997 that he was served, through the Philippine Consulate in San

Francisco, a copy of Senen’s complaint in Civil Case No. 95-039.

          On February 24, 1997, Virgilio filed a motion to dismiss the complaint

for lack of cause of action and forum shopping.

          In an Order dated June 27, 1997, the trial court dismissed Civil Case

No. 05-039 on the ground of laches, holding that Senen incurred a delay of

seven (7) years before asserting his right to redeem the property in

question.

          On appeal, the Court of Appeals affirmed the assailed Order of the

trial court.

          Hence, the instant petition for review on certiorari.

          The sole issue for our resolution is whether the Court of Appeals erred

in holding that Senen’s complaint for legal redemption in Civil Case No. 05-

039 is barred by laches.       

          Legal redemption (retracto legal de comuneros) is a privilege created

by law, partly by reason of public policy and partly for the benefit of the

redemptioner to afford him a way out of a disagreeable or inconvenient

association into which he has been thrust.[4]

With respect to redemption by co-owners, in case the share of a co-

owner is sold to a third person, the governing law is Article 1620 of the Civil

Code which provides: 

         “ART. 1620. A co-owner of a thing may exercise the right of redemption in case the shares of all the other co-owners or of any of them are sold to a third person. If the price of the alienation is grossly excessive, the redemptioner shall pay only a reasonable rate.

            Should two or more co-owners desire to exercise the right of redemption, they may only do so in proportion to the share they may

respectively have in the thing owned in common.”

  

 

The purpose behind Article 1620 is to provide a method for

terminating the co-ownership and consolidating the dominion in one sole

owner.[5]

Article 1623 of the same Code also provides:

            ”ART. 1623. The right of legal pre-emption or redemption shall not be exercised except within thirty days from the notice in writing by the prospective vendee, or by the vendor, as the case may be. The deed of sale shall not be recorded in the Registry of Property, unless accompanied by an affidavit of the vendee that he has given written notice thereof to all possible redemptioners.

            The right of redemption of co-owners excludes that of adjoining owners.”

  

 

          From the above provisions, the following are the requisites for the

exercise of legal redemption: (1) There must be a co-ownership; (2) one of

the co-owners sold his right to a stranger;  (3) the sale was made before the

partition of the co-owned property; (4) the right of redemption must be

exercised by one or more co-owners within a period of thirty days to be

counted from the time that he or they were notified in writing by the vendee

or by the co-owner vendor; and (5) the vendee must be reimbursed for the

price of the sale.

          In this case, the sale took place in January 1989.   Petitioner admits

that he has actual knowledge of the sale.   However, he only asserted his

right to redeem the property in March 1995 by filing the instant complaint.  

Both the trial court and the Appellate Court ruled that this was seven (7)

years late.

          Petitioner, however, now contends that there being no written notice

to him of the sale by the vendee or vendor, the thirty-day redemption period

has not prescribed.

          Petitioner’s contention lacks merit.   The old rule is that a written

notice of the sale by the vendor to his co-owners is indispensable for the

latter to exercise their retracto legal de comuneros.[6]    More recently,

however, we have relaxed the written notice requirement.    Thus, in Si v.

Court of Appeals,[7] we ruled that a co-owner with actual notice of the sale is

not entitled to a written notice for such would be superfluous.    The law

does not demand what is unnecessary.

          Laches is the failure or neglect, for an unreasonable and unexplained

length of time, to do that which could or should have been done earlier

through the exercise of due diligence.[8]   Otherwise stated, laches is the

negligence or omission to assert a right within a reasonable time warranting

a presumption that the party entitled to assert it has either abandoned or

declined to assert it.[9]    Its elements are: (1) conduct on the part of the

defendant, or of one under whom he claims, giving rise to the situation for

which the complaint seeks a remedy; (2) delay in asserting the

complainant’s rights, the complainant having had knowledge or notice of

the defendant’s conduct as having been afforded an opportunity to institute

a suit; (3) lack of knowledge or notice on the part of the defendant that the

complainant would assert the right in which he bases his suit; and (4) injury

or prejudice to the defendant in the event, relief is accorded to the

complainant, or the suit is not held barred.[10]

          Petitioner has actual knowledge of the sale of Virgilio’s share to Angel

in 1989.    As provided by Article 1623, he has thirty days from such actual

knowledge within which to exercise his right to redeem the property.  

Inexplicably, petitioner did not take any action.    He waited for seven (7)

years before filing his complaint.   Definitely, such an unexplained delay is

tantamount to laches.    To be sure, to uphold his right would unduly cause

injury to respondent-intervenor, a purchaser in good faith and for value.

          Moreover, by the time Senen filed Civil Case No. 95-039 for legal

redemption, his right was no longer available to him.    We have held that

after a property has been subdivided and distributed among the co-owners,

the community has terminated and there is no reason to sustain any right of

pre-emption or redemption.[11]

          WHEREFORE, the petition is DENIED.   The Decision and Resolution

of the Court of Appeals in CA-G.R. CV No. 55750 are AFFIRMED.     Costs

against petitioner.

          SO ORDERED.

[1]       Rollo, pp. 27-47. The court’s opinion was written by Associate Justice Corona Ibay-Somera and               concurred in by Asso-ciate Justices Oswaldo D. Agcaoili and Bernardo P. Abesamis (all retired).

[2]       Rollo, p. 48.[3]       Reported in 227 SCRA 472 (1993).[4]       Villasor v. Medel, 81 Phil. 546, 550 (1948).[5]       Estrada v. Reyes, 33 Phil. 31, 35 (1915).[6]       Butte v. Manuel Uy & Sons, Inc., G.R. No. 15499, February 28, 1962, 4 SCRA 526, 533.[7]       G.R. No. 122047, October 12, 2000, 342 SCRA 463.[8]       Larena v. Mapili, G.R. No. 146341, August 7, 2003, 408 SCRA 484, 493, citing Ramos v. Heirs of Honoro Ramos, Sr., 381

SCRA 594 (2002).[9]       Reyes v. Reyes, G.R. No. 150913, February 20, 2003, 398 SCRA 24, 35, citing Reyes v. Court of Appeals, 315 SCRA 626

(1999).[10]     Felix Gochan & Sons Realty Corp. v. Heirs of Raymundo Baba, G.R. No. 138945, August 19, 2003, 409 SCRA 306, 315, cit-

ing Santos v. Santos, 366 SCRA 395 (2001). [11]     Del Rosario v. Bansil, G.R. No. 51665, November 29, 1989, 179 SCRA 662, 666, citing Caro v. Court of Appeals, 113 SCRA 17

(1982), Caram v. Court of Appeals, 101 Phil. 315 (1957).

10. Solid Homes v. Sps. Tan, G.R. Nos. 145156-57, 465 SCRA 137 (2005)

SOLID HOMES, INC., petitioner, vs. SPOUSES ANCHETA K. TAN and CORAZON DE JESUS TAN, respondents.

D E C I S I O N

GARCIA, J.:

In this appeal by way of a petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Solid Homes, Inc. urges us to nullify and set aside the following is-suances of the Court of Appeals in CA-G.R. SP No. 53443 and 55324, to wit:

1.      Decision dated May 23, 2000,[1] setting aside an earlier decision of the Office of the President in a complaint for breach of obligation filed by the herein respondents against the petitioner in connection with the sale of a subdivision lot; and

2.      Resolution dated September 12, 2000,[2] denying petitioner’s motion for reconsidera-tion.

The material facts, undisputed by the parties, may be briefly stated, as follows:

On April 7, 1980, petitioner Solid Homes, Inc., sold to the spouses Joe Uy and Myrna Uy a subdivision lot with an area of 1,069 square meters, more particularly identified as Lot 18, Block 2, located at petitioner’s Loyola Grand Villas Subdivision, Quezon City.  Thereafter, the lot was registered in the name of the Uys under Transfer Certificate of Title (TCT) No. 280963/T-1409 of the Register of Deeds of Quezon City.

Sometime in February, 1985, the spouses Uy sold the same lot to herein respondents, the spouses Ancheta K. Tan and Corazon de Jesus-Tan, by reason of which the former ti-tle covering the lot was cancelled and replaced by TCT No. RT-14465 (327754) in respon-dents’ name.

From then on, respondents visited their property a number of times, only to find out the sad state of development thereat. There was no infrastructure and utility systems for wa-ter, sewerage, electricity and telephone, as announced in the approved plans and adver-tisements of the subdivision.  Worse, squatters occupy their lot and its surrounding areas. In short, there has been no development at all.

Accordingly, in a letter dated December 18, 1995, respondents demanded on peti-tioner to provide the needed utility systems and clear the area of squatters and other ob-structions by the end of January, 1996 to enable them to start the construction of their house thereon and to allow other lot owners in the area a full access to and peaceful pos-session of their respective lots, conformably with P.D. No. 957 which requires an owner or developer of a subdivision project to develop the same within one year from the issuance of its license.

Having received no reply from petitioner, respondents filed with the Field Office of the Housing and Land Use Regulatory Board (HLURB), NCR a complaint for specific perfor-mance and damages therein praying, inter alia, that petitioner be ordered to provide the

needed facilities in the premises and rid the same of squatters; or, in the alternative, for petitioner to replace respondents’ property with another lot in the same subdivision where there are facilities and sans squatters.

After due proceedings, the Housing and Land Use Arbiter, in a decision dated Septem-ber 17, 1996,[3]rendered judgment for the respondents by directing petitioner:

a.      to perform its obligation to provide subdivision facilities in the subject premises and to rid the premises of squatters.  In the alternative, at the option of complainants xxx to re-place subject lot with a lot of similar size and with available facilities, located in the sub-ject subdivision.

b.      to pay complainants P20,000.00 as and by way of attorney’s fees.

In the same decision, the Arbiter dismissed the complaint against petitioner’s co-defen-dant, Purita Soliven.

Dissatisfied, petitioner went on appeal to the HLURB Board of Commissioners, which, in a decision dated April 16, 1997,[4] affirmed that of the Arbiter.

From there, petitioner elevated the case to the Office of the President (O.P.).

In a decision[5] dated June 3, 1999, the O.P., thru then Executive Secretary Ronaldo B. Zamora, affirmed with modification the appealed decision of the HLURB Board of Com-missioners, thus:

WHEREFORE, premises considered, the first paragraph of the decision appealed from is hereby AFFIRMED with the modification that in case Solid Homes, Inc. fails to replace subject lot with a lot of similar size and with available facilities located in the subdivision, because it had al-ready sold or transferred all of its properties in the subdivision, it shall pay spouses Ancheta Tan and Corazon Tan the total amount received from them as purchase price, with legal rate of interest from February 1985, until fully paid.  Save for this modification, the decision appealed from is hereby AFFIRMED.

SO ORDERED (Italics, ours).

On June 25, 1999, respondents filed a motion for partial reconsideration of the afore-mentioned decision, praying for the deletion of that portion thereof giving petitioner the op-tion of merely paying them the purchase price with interest in the event petitioner “fails to replace subject lot with a lot of similar size and with available facilities located in the subdi-vision, because it had already sold or transferred all of its properties in the subdivi-sion.” Respondents argued that it would be more in accord with equity and fair play if they will be paid the fair market value of the lot in question and not merely its purchase price, should there be no available lot with facilities in the area.

However, in a resolution dated September 22, 1999,[6] O.P. denied respondents’ mo-tion.

Both parties then went to the Court of Appeals via their respective petitions for review, thereat separately docketed as CA- G.R. SP No. 53443 (for petitioners) and CA-G.R. SP

No. 55324 (for respondent). Pursuant to Section 1, Rule 31 of the Rules of the Court, the appellate court ordered the consolidation of the two (2) petitions.

As stated at the threshold hereof, the Court of Appeals, in its consolidated decision dated May 23, 2000,[7] set aside that of the O.P. and affirmed the earlier decision dated April 16, 1997 of the HLURB Board of Commissioners, but subject to the modification that petitioner shall pay respondents the current market value of the lot, not merely its pur-chase price, should there be no more available lots with facilities in petitioner’s Loyola Grand Villas Subdivision.  We quote the decretal portion of the appellate court’s decision:

WHEREFORE, Premises Considered, the assailed Decision dated 03 June 1999 is hereby SET ASIDE and the Decision of the HLURB dated 16 April 1997 is hereby AFFIRMED subject to the modification that if there is no more available lot in Loyola Grand Villas to replace subject lot, Solid Homes, Inc. should pay the spouses Tan the current market value of their lot.

SO ORDERED.

This time, petitioner moved for reconsideration but its motion was denied by the same court in itsresolution of September 12, 2000.[8]

Hence, petitioner’s present recourse, contending that the Court of Appeals erred –

1.      XXX IN RULING THAT PRESCRIPTION HAS NOT SET-IN;

2.      XXX IN APPLYING THE PRINCIPLE ON EQUITY AS AGAINST POSITIVE LAW TO THE PREJUDICE OF HEREIN PETITIONER; AND

3.      XXX IN RULING THAT PETITIONER SHOULD PAY RESPONDENTS THE CUR-RENT MARKET VALUE OF THE LOT IN QUESTION.

We DENY.

The errors assigned actually simmered down to only two (2) issues, namely: (1) whether or not respondents’ right to bring the instant case against petitioner has already prescribed; and (2) in the event respondents opt to rescind the contract, should petitioner pay them merely the price they paid for the lot plus interest or the current market value thereof.

In the matter of prescription, it is petitioner’s posture that respondents’ right to bring the action against it has already prescribed, arguing that the 10-year prescriptive period therefor should be reckoned from April 7, 1980 when petitioner originally sold the lot in question to the spouses Joe Uy and Myrna Uy, or, at the latest from February, 1985, when respondents acquired the same lot from the Uy spouses.  Hence, and as respondents’ ac-tion was filed with the HLURB Field Office only on April 1, 1996 or after more than ten (10) years, it follows that the same was filed out of time and, therefore, ought to have been dis-missed.

We disagree.

There can be no debate at all on the legal postulate that the prescriptive period for bringing action for specific performance, as here, prescribes in ten (10) years. This is so provided in Article 1144 of the Civil Code.  What we cannot agree on with the petitioner, and about which petitioner is in serious error, is its submission that the 10-year prescrip-tive period should commence either on April 7, 1980, when petitioner originally sold the lot to spouses Uy; or in February, 1985, when the respondents thereafter bought the same lot from the Uy couple. Obviously, petitioner misread Article 1144 which specifically provides that the 10-year period therein referred to commences to run only from the time the right of action accrues. We quote in full the codal provision relied upon by petitioner:

Article 1144.  The following actions must be brought within ten years from the time the right of action accrues:

(1)     Upon a written contract;

(2)     Upon an obligation created by law;

(3)     Upon a judgment (Emphasis supplied).

If not on a written contract, petitioner’s obligation to introduce improvements on the area in question arises from law, more specifically P.D. 957, as amended by P.D. 1216, Section 31 of which pertinently reads:

SECTION 31.  Roads, Alleys, Sidewalks and Open Spaces. – The owner as developer of a subdivi-sion shall provide adequate roads, alleys and sidewalks.  For subdivision projects one (1) hectare or more, the owner or developer shall reserve thirty percent (30%) of the gross area for open space.

The next inquiry, then, is when the respondents’ cause of action accrued. Our earlier ruling in Banco Filipino Savings and Mortgage Bank vs. CA[9] provides the answer:

Thus, the period of prescription of any action is reckoned only from the date the cause of action ac-crued.  And a cause of action arises when that which should have been done is not done, or that which should not have been done is done.  The period should not be made to retroact to the date of execution of the contract on January 15, 1975 as claimed by the petitioner for at that time, there would be no way for the respondents to know of the violation of their rights.  The Court of Appeals therefore correctly found that respondents’ cause of action accrued on October 30, 1978, the date they received the statement of account showing the increased rate of interest, for it was only from that moment that they discovered the petitioner’s unilateral increase thereof.  We quote with approval the pertinent portions of the Court of Appeals decision as follows:

It is the legal possibility of bringing the action that determines the starting point for the computa-tion of the period of prescription.[10] In fine, the ten-year prescriptive period is to be reckoned from the accrual of the Appellee’s right of action, not necessarily on the very date of the execution of the contracts subject of the action[11] (Emphasis supplied)

In law, a cause of action exists when the following requisites concur, to wit:  (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is cre-

ated; (2) an obligation on the part on the defendant to respect such right; and (3) an act or omission on the part of such defendant violative of the right of the plaintiff. [12]

Time and again, we have emphasized that it is only upon the happening of the last ele-ment when it can be said that a cause of action has arisen.  In short, it is from the time an act is performed or an omission incurred which is violative of the plaintiff’s right, that sig-nals the accrual of a cause of action.  And it is from that time that the 10-year prescriptive period commences to run.

Here, it was only on December 18, 1995 when respondents made a written demand upon petitioner to construct subdivision roads, put up utility facilities and rid the premises of squatters, obligations which are unquestionably in the nature of an obligation to do.  And under Article 1169[13] of the Code, a party who is under obligation to do something in-curs delay only from the time that the obligee demands, either judicially or extrajudicially, for the fulfillment of the obligation.

Parenthetically, and as we have said in Social Security System vs. Moonwalk Devel-opment and Housing Corporation, et al.,[14] an obligor violates his obligation to the obligee from the time the latter made a demand for performance, which demand also marks the point of time when the former incursmora or delay:

The debtor, therefore, violates the obligation in point of time if there is mora or delay. Now, there is no mora or delay unless there is a demand. It is noteworthy that in the present case during all the period when the principal obligation was still subsisting, although there were late amortizations there was no demand made by the creditor, plaintiff-appellant for the payment of the penalty. Therefore up to the time of the letter of plaintiff-appellant there was no demand for the payment of the penalty, hence the debtor was not in mora in the payment of the penalty.

Hence, absent any demand from the obligee, the obligor does not incur delay.  And so long as the obligor does not incur in delay, he cannot be said to be guilty of some omis-sion violative of the obligee’s rights.  Consequently, as long as the obligor is not guilty of some omission violative of the obligee’s rights, the latter has no cause of action against the former.  As a result, the prescriptive period within which the obligee may bring an ac-tion against the obligor does not commence to run until a demand is made.

With the reality that in this case, respondents made their written demand upon peti-tioner to perform what is incumbent upon it only on December 18, 1995, it was only from that date when the 10-year prescriptive period under Article 1144 commenced to run. And since respondents’ complaint for specific performance was filed with the Field Office of the HLURB only on April 1, 1996, or less than four (4) months after the date of their demand, petitioner’s reliance on prescription of action is simply without any leg to stand on.

This brings us to the second question.

Petitioner submits as erroneous the appellate court’s ruling that “[e]quity and justice dictate that the injured party should be paid the market value of the lot, otherwise, respon-dents Solid Homes, Inc. & Purita Soliven would enrich themselves at the expense of herein lot owners when they sell the same lot at the present market value”. To petitioner,

equity may be availed of only in the absence of and never against statutory law or judicial rules of procedure.  It then invokes Article 1385 of the New Civil Code, which provides:

Article 1385.  Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interests; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore.

On surface, petitioner’s argument appears infallible.  However, a closer look at our laws and the reason and spirit behind their enactment, as well as established jurispru-dence, negates petitioner’s thesis.

It is true that this Court have, in the past, applied the provision of Article 1385 to cases of rescission due to breach of obligation under Article 1191.[15] But this notwithstanding, the Court finds no reason to alter the ruling of the Court of Appeals.

In many instances, this Court has refused to apply the literal import of a particular pro-vision of law when to do so would lead to unjust, unfair and absurd results. After all, it is the function of courts to see to it that justice is dispensed, fairness is observed and absur-dity prevented. So it is that in Commissioner of Internal Revenue vs. Solidbank Corpora-tion,[16] we made the following pronouncement:

A literal application of any part of a statute is to be rejected if it will operate unjustly, lead to absurd results, or contradict the evident meaning of the statute taken as a whole.  Unlike the CA, we find that the literal application of the aforesaid sections of the Tax Code and its implement-ing regulations does not operate unjustly or contradict the evident meaning of the statute taken as a whole. Neither does it lead to absurd results. Indeed, our courts are not to give words meanings that would lead to absurd or unreasonable consequences.  We have repeatedly held thus:

xxx [Statutes should receive a sensible construction, such as will give effect to the legislative intention and so as to avoid an unjust or an absurd conclusion. (Emphasis supplied.)

Were we to follow the letter of Article 1385, we will in effect be paving the way to an absurd situation whereby subdivision developers who have reneged on their contractual and legal obligation to provide utility systems and facilities for the use of subdivision lot owners  may themselves profit from their very own wrongs and shortcomings. In the curt language of the Court of Appeals, to which we are in full accord:

Indeed, there would be unjust enrichment if respondents Solid Homes, Inc. & Purita Soliven are made to pay only the purchase price plus interest.  It is definite that the value of the subject prop-erty already escalated after almost two decades from the time the petitioner paid for it.  Equity and justice dictate that the injured party should be paid the market value of the lot, otherwise, respon-dents Solid Homes, Inc. & Purita Soliven would enrich themselves at the expense of herein lot owners when they sell the same lot at the present market value.  Surely, such a situation should not be countenanced for to do so would be contrary to reason and therefore, unconscionable.  Over time, courts have recognized with almost pedantic adherence that what is inconvenient or contrary to reason is not allowed in law.

The foregoing scenario becomes even more intolerable when it is considered that P.D. 959 was issued precisely as a measure against subdivision owners, developers, operators and/or sellers who reneged on their obligation to provide the needed utility systems and facilities in their subdivisions. As expressed in one of the decree’s whereas clauses:

WHEREAS, numerous reports reveal that many real estate subdivision owners, developers, opera-tors and/or sellers have reneged on their representations and obligations to provide and maintain properly subdivision roads, drainage, sewerage, water systems, lighting systems, and other similar basic requirements, thus endangering the health and safety of home and lot buyers.

WHEREFORE, the instant petition is DENIED and the assailed decision and resolution of the Court of Appeals AFFIRMED.

Costs against petitioner.

SO ORDERED.

Panganiban, (Chairman), Sandoval-Gutierrez, and Carpio-Morales, JJ., concur.Corona, J., on official leave.

[1] Penned by then (now retired) Associate Justice Ramon A. Barcelona with Associate Justices Marina L. Buzon and Edgardo P. Cruz, concurring.

[2] Rollo, pp. 121-122.

[3] Rollo, pp. 38-44.

[4] Rollo, pp. 45-52.

[5] Rollo, pp. 53-58.

[6] Rollo, pp. 59-61.

[7] Rollo, pp. 88-102.

[8] Supra.

[9] 388 Phils. 27, 39-40 [2000].

[10] Citing Constancia C. Telentino vs. Court of Appeals, et al., 162 SCRA 66.

[11] Citing Naga Telephone Co. Inc. vs. Court of Appeals, et al., 230 SCRA 351.

[12] Lee, et al. vs. CA, 419 Phils. 392, 419 [2001].

[13] Article 1169.  Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudi-cially demands from them the fulfillment of their obligation.

[14] 221 SCRA 119, 124 [1993].

[15] E.g., Palay, Inc. vs. Clave, 124 SCRA 638 [1983] and Velarde vs. Court of Appeals, 361 SCRA 56 [2001].

[16] 416 SCRA 436, 460 [2003].

11. Laperal v. Solid Homes, Inc., G.R. No. 130913, 460 SCRA 375 (2005)

G.R. No. 130913               June 21, 2005

OLIVERIO LAPERAL and FILIPINAS GOLF & COUNTRY CLUB INC., petitioners, vs.SOLID HOMES, INC., respondent. SOUTHRIDGE VILLAGE HOMEOWNERS ASSOCIATION, intervenor.

D E C I S I O N

GARCIA, J.:

Before us is this petition for review on certriorari under Rule 45 of the Rules of Court to nullify and set aside the following issuances of the Court of Appeals in CA-G.R. CV No. 37853, to wit:

1. Decision dated September 18, 1996,1 affirming with modification an earlier decision of the Regional Trial Court at Laguna, Br. XXV, in an action for reformation of document thereat commenced by herein respon-dent Solid Homes, Inc. against the petitioners; and

2. Resolution dated September 23, 1997,2 denying the parties’ respective motions for reconsideration.

As found by the Court of Appeals in the decision under review, the material facts may be briefly stated, as fol-lows:

On June 6, 1981, Filipinas Golf Sales and Development Corporation (FGSDC), predecessor-in-interest of peti-tioner Filipinas Golf and Country Club, Inc. (FGCCI), represented by its then President, the other petitioner herein, Oliverio Laperal, entered into a Development and Management Agreement3 (Agreement, for short) with herein respondent Solid Homes, Inc., a registered subdivision developer, involving several parcels of land owned by Laperal and FGSDC with an aggregate area of approximately 42 hectares and located at Bo. San Antonio, San Pedro, Laguna.

Under the terms and conditions of the aforementioned Agreement and the Supplement4 thereto dated January 19, 1982, respondent Solid Homes, Inc., undertook to convert at its own expense the land subject of the agree-ment into a first-class residential subdivision, in consideration of which respondent will get 45% of the lot titles of the saleable area in the entire project.

On different dates, or more specifically on June 8, 1983, June 22, 1983 and July 29, 1983, Victorio V. Soliven, President and General Manager of respondent Solid Homes, Inc., wrote Oliverio Laperal, President of FGSDC, requesting Laperal to furnish Solid Homes, Inc., with the owner’s duplicate copies of the Torrens titles covering the subject land in order to facilitate the processing of respondent’s application with the Human Settlements Regulatory Commission (HSRC) for a license to sell subdivision lots, as required under Presidential Decree No. 957.

Despite repeated requests, however, Laperal did not comply.

On October 7, 1983, the aforementioned Agreement was cancelled by the parties, and, in lieu thereof, two (2) contracts identically denominated Revised Development and Management Agreement5 (Revised Agree-ments, for short) were entered into by respondent with the two (2) successors-in-interest of FGSDC, to wit: (1) one, with petitioner Oliverio Laperal as owner of the 181,075-square meter area of the subject land; and (2) another, with petitioner FGCCI as owner of the 399,075-square meter area thereof.

Unlike the original agreement, both Revised Agreements omitted the obligation of herein petitioners Laperal and FGCCI to make available to respondent Solid Homes, Inc. the owner’s duplicate copies of the titles cover-ing the subject parcels of land.

And, because there were still other matters which were inadvertently omitted in the said Revised Agreements, the parties executed an Addendum6 thereto dated November 11, 1983.

In addition to the provision on the automatic rescission of the Revised Agreements in case of breach of the terms and conditions thereof under paragraph 10 of the same, the parties further agreed in the Addendum that upon a showing that respondent deliberately abandoned or discontinued work in the subject project, all im-provements of whatever nature and kind it may have introduced in the property and existing as of the date of the violation shall be forfeited in favor of the petitioners without any obligation on their part to pay respondent therefor. Likewise, the parties agreed in the same Addendum to a forfeiture of all advances made and remit-tances of proceeds from reservations and sales upon occurrence of the aforesaid default or violation of any of the terms and conditions of the Revised Agreements and the Addendum. Under the Addendum, abandonment is deemed to have occurred upon failure or absence of any work for development for any ten (10) days.

It appears, however, that even as the Revised Agreements already provided for the non-surrender of the owner’s duplicate copies of the titles, respondent persisted in its request for the delivery thereof, explaining that said owner’s duplicate copies were necessary for: (1) the issuance by the HSRC of the license to sell; (2) the segregation of the golf course portion from the rest of the subdivision area; (3) the segregation of the individual titles for portions which are supposed to be made available for PAG-IBIG take-outs; and (4) the preparation of the technical description of nine (9) blocks already approved by the Bureau of Lands.

Then, in a letter dated December 7, 1983 addressed to herein petitioners, respondent, through its Executive Vice-President and Treasurer, Purita R. Soliven, explained that it was unable to meet the November 30, 1983 deadline for the payment of P1 Million as provided for in the Revised Agreements because there was delay in the processing of its license to sell, which, in turn, is due to petitioners’ continued refusal to deliver the owner’s duplicate copies of the titles, contrary to what was allegedly agreed upon by the parties. Respondent reiterated in the same letter that in the absence of such license from HSRC, it would not be able to comply with the rest of its undertakings within the allotted periods since the projected collection of amounts from sales and reserva-tions of the subdivision lots did not materialize. Nonetheless, in order to demonstrate that it was not reneging on its commitments under the Revised Agreements despite its difficulties to generate more funds, respondent proposed that it be allowed to assign to petitioners P1Million out of its receivables worth P1,209,000.00 from loan proceeds due in its favor under the PAG-IBIG housing program, which it expected to receive for some of the completed housing units.

In separate letters both dated December 9, 1983, however, petitioners rejected respondent’s proposal and in-stead insisted on the payment of P1Million to each of them.

It was only at this point, as alleged in respondent’s reply letter dated December 13, 1983, that respondent sup-posedly realized that instead of providing for the payment of only P500,000.00 in each contract, or a total of-P1Million for both Revised Agreements, the total amount of P1Million was erroneously carried over in each of theRevised Agreements, with the consequence that under said two (2) Revised Agreements, it was bound to pay a total of P2Million to the petitioners.

Meanwhile, in subsequent letters dated January 6, 1984, January 17, 1984 and February 6, 1984, respondent continued to press petitioners for the delivery of the owner’s duplicate copies of their titles covering the subject parcel of land.

Then, on March 9, 1984, petitioners served on respondent notices of rescission of the Revised Agree-ments with a demand to vacate the subject properties and yield possession thereof to them. In the same letter, petitioners made it clear that they are enforcing the rescission clause of the Revised Agreements on account of respondents’ failure to: (1) pay them P1Million each on November 30, 1983; (2) complete the development of Phase I-A of the project not later than February 15, 1984; and (3) obtain from the HSRC the license to sell sub-division lots.

In its response-letter dated March 14, 1984, respondent, through counsel, objected to the announced rescis-sion, arguing that the proximate cause of its inability to meet its contractual obligations was petitioners’ own failure and refusal to deliver their owner’s duplicate copies of the titles for processing by the HSRC, PAG-IBIG, accredited banks, and other government agencies, adding that on account of petitioners’ failure to do so, it was not issued the necessary license to sell, thus resulting in the slowdown in the development works in the project due to its inability to generate additional funds and to the slackening of its sales campaign.

Such was the state of things when, on April 2, 1984, in the Regional Trial Court (RTC) at Biñan, Laguna re-spondent Solid Homes, Inc. instituted the complaint in this case praying for the reformation of the Revised Agreements and the Addendum on the ground that these contracts failed to express the true intent of the par-ties. In the same complaint, respondent prayed for the issuance of a temporary restraining order (TRO) and a writ of preliminary injunction to prevent petitioners from exercising their rights as owners of the subject proper-ties. Docketed with the same court as Civil Case No. B-2069, the complaint was raffled to Branch XXV thereof.

On the very day that the complaint was filed, the trial court issued a TRO to prevent petitioners from imple-menting the unilateral rescission of the Revised Agreements and the Addendum.

Later, in an order dated May 23, 1984,7 the same court granted respondent’s application for a writ of prelimi-nary injunction upon its posting of a bond in the amount of P1Million.

On April 18, 1985,8 the Southridge Village Homeowner’s Association filed a complaint-in-intervention pray-ing that the rights and preferential status of its members who have been occupying some of the completed units in the subdivision project be respected by whoever between the principal litigants may later be adjudged as the prevailing party.

Both the petitioners and respondent filed their respective answers to the aforesaid complaint-in-intervention, commonly alleging intervenor’s lack of capacity to sue. Petitioners added in their answer that it should be re-spondent which must be made solely liable to the intervenor for whatever claims its members may be entitled to. For its part, respondent prayed for the cancellation, in whole or in part, of its contracts with the members of the intervenor Association to the extent compatible with prevailing economic conditions.

Upon petitioners’ motion, the trial court issued an order on May 20, 1985 lifting the writ of preliminary injunction over the entire property except as to Phase I-A thereof, and reducing respondent’s injunction bond from P1Mil-lion to only P200,000.00.

Petitioners then filed a motion for reconsideration. Finding merit in the motion, the trial court, in its order of Au-gust 15, 1985,9 as clarified in its order of September 27, 1985,10 completely lifted the writ of preliminary injunc-tion so as to include the area covered by Phase I-A, and cancelled the bond of P200,000.00 earlier posted by respondent.

To these orders, both parties filed their respective motions for reconsideration. In its subsequent order dated November 8, 1985,11 the trial court modified its August 15, 1985 order by maintaining the complete lifting of the writ of preliminary injunction but ordering the restoration of respondent’s P1Million bond or its substitution with another if the same had already been cancelled, to answer for whatever damages that may be proven by the petitioners during the trial of the case.

The above-mentioned orders, namely, orders dated May 20, 1985, August 15, 1985, September 27, 1985 and November 8, 1985 involving the dissolution of the writ of preliminary injunction over the entire property and the maintenance of the P1Million bond against respondent, became the subject of a petition for certiorari filed by respondent before the Court of Appeals docketed therein as CA-G.R. SP No. 47885.

In a decision dated October 9, 1987, the Court of Appeals dismissed the petition.

Therefrom, respondent went to this Court in G.R, No. 80290 but later abandoned the same, prompting this Court, in its Resolution dated February 22, 1988, to consider the Court of Appeals’ dismissal of respondent’s petition final and executory.

Meanwhile, upon respondent’s application, a notice of lis pendens was annotated on the Torrens titles covering the properties in litigation. Said notice, however, was lifted by the trial court in its orders of April 12, 1988 and May 21, 1991.

Eventually, after due proceedings in the main case, the trial court, in a decision dated December 19, 1991,12rendered judgment dismissing respondent’s complaint for reformation. We quote the dispositive portion of the same decision:

IN THE LIGHT OF THE FOREGOING, judgment is hereby rendered in favor of the defendants and against the plaintiff dismissing the complaint with costs:

On defendants’ recovery upon the bond posted by the plaintiff to answer to whatever damages that the party enjoined may suffer by reason of the injunction, resolution as to the propriety of its award is hereby held in abeyance until after proper application by the defendants and hearing thereon, as reserved by the defendants in their memorandum.

As regards the Intervenors, the defendants are directed to respect and acknowledge their preferential rights over said Intervenors’ occupied houses and lots.

SO ORDERED.

Therefrom, respondent went to the Court of Appeals via ordinary appeal in CA-G.R. CV No. 37853.

As stated at the threshold hereof, the Court of Appeals, in a decision dated September 18, 1996,13 affirmed with modification the appealed decision of the trial court, thus:

WHEREFORE, IN VIEW OF ALL THE FOREGOING, the decision appealed from is AFFIRMED with the modi-fication that [petitioners] are ordered to reimburse [respondent], jointly and severally, the amount of Five Million Two Hundred Thousand Eight Hundred Thirty Three Pesos and Twenty Seven Centavos (P5,200,833.27) rep-resenting the actual cost of the development and the completed improvements on the project. In all other re-spects, the judgment of the trial court is AFFIRMED.

SO ORDERED.

Both parties separately moved for reconsideration, but their respective motions were denied by the appellate court in its resolution of September 23, 1997.14

And, as they did not agree with the judgment, petitioners are now appealing to this Court for relief via the present recourse, it being their submission that the Court of Appeals erred-

I.

xxx IN HOLDING THAT PETITIONERS’ TERMINATION OF THE REVISED AGREEMENT AND ADDENDUM, BE-CAUSE OF THE CONTRACTUAL BREACH COMMITTED BY RESPONDENT SOLID HOMES, CARRIED WITH IT THE EFFECT PROVIDED UNDER ARTICLE 1385 OF THE NEW CIVIL CODE.

II.

xxx IN VOIDING THE FORFEITURE CLAUSES OF THE ADDENDUM, AND IN ORDERING THE REFUND OF THE SUM OF P5,200,833.27 TO RESPONDENT SOLID HOMES.

III.

xxx IN HOLDING, IN EFFECT, THAT PETITIONERS ARE NOT ENTITLED TO DAMAGES.

The Court finds merit in the petition.

While this Court does not agree with petitioners that the right to rescind under Article 1191 of the Civil Code does not carry with it the corresponding obligation for restitution, we do not subscribe to the Court of Appeals’

conclusion that: (1) "the forfeiture/penalty clause under paragraphs Nos. 2 and 3 of the ‘Addendum to the Re-vised Development and Management Agreements’ is, under the factual milieu of this case, unreasonable and unconscionable and, therefore, void for being contrary to morals and good customs"15; and (2) petitioners must reimburse respondent the actual cost of development and completed improvements on the project in the total amount of P5,200,833.27.16

It is petitioners’ thesis that inasmuch as the rescission of the Revised Agreements and its Addendum was made pursuant to Article 1191 of the Civil Code, the provision of Article 138517 of the same Code, which re-quires mutual restitution – should not apply because Article 1385 applies only if the rescission is made under the instances enumerated in Article 138118 of the Code.

We do not agree.

Mutual restitution is required in cases involving rescission under Article 1191. In Velarde vs. Court of Ap-peals,19this Court, in no uncertain terms, squarely ruled on this matter:

Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual resti-tution is required to bring back the parties to their original situation prior to the inception of the contract. Ac-cordingly, the initial payment of P800,000 and the corresponding mortgage payments in the amounts of P27,225, P23,000 and P23,925 (totaling P874,150.00) advanced by petitioners should be returned by private respondents, lest the latter unjustly enrich themselves at the expense of the former.

Rescission creates the obligation to return the object of the contract. It can be carried out only when the one who demands rescission can return whatever he may be obliged to restore (citing Co v. Court of Appeals, 312 SCRA 528, August 17, 1999; and Vitug, Compendium of Civil Law and Jurisprudence, 1993 revised ed., p. 556). To rescind is to declare a contract void at its inception and to put an end to it as though it never was. It is not merely to terminate it and release the parties from further obligations to each other, but to abrogate it from the beginning and restore the parties to their relative positions as if no contract has been made (citing Ocampo v. Court of Appeals, 233 SCRA 551, June 30, 1994).

Article 1191 of the Civil Code provides:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of the period.

This is understood without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. (1124)

Despite the fact that Article 1124 of the old Civil Code from whence Article 1191 was taken, used the term "res-olution", the amendment thereto (presently, Article 1191) explicitly and clearly used the term "rescission". Un-less Article 1191 is subsequently amended to revert back to the term "resolution", this Court has no alternative but to apply the law, as it is written.

Again, since Article 1385 of the Civil Code expressly and clearly states that "rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its inter-est," the Court finds no justification to sustain petitioners’ position that said Article 1385 does not apply to rescission under Article 1191.

In Palay, Inc. vs. Clave,20 this Court applied Article 1385 in a case involving "resolution" under Article 1191, thus:

Regarding the second issue on refund of the installment payments made by private respondent. Article 1385 of the Civil Code provides:

"ART. 1385. Rescission creates the obligation to return the things which were the object of the contract, to-gether with their fruits, and the price with its interest; consequently, it can be carried out only when he who de-mands rescission can return whatever he may be obliged to restore.

"Neither shall rescission take place when the things which are the object of the contract are legally in the pos-session of third persons who did not act in bad faith.

"In this case, indemnity for damages may be demanded from the person causing the loss."

As a consequence of the resolution by petitioners, rights to the lot should be restored to private re-spondent or the same should be replaced by another acceptable lot. However, considering that the prop-erty had already been sold to a third person and there is no evidence on record that other lots are still avail-able, private respondent is entitled to the refund of installments paid plus interest at the legal rate of 12% com-puted from the date of the institution of the action. It would be most inequitable if petitioners were to be allowed to retain private respondent's payments and at the same time appropriate the proceeds of the second sale to another.

Applying the clear language of the law and the consistent jurisprudence on the matter, therefore, the Court rules that rescission under Article 1191 in the present case, carries with it the corresponding obligation of resti-tution.

This notwithstanding, the Court does not agree with the Court of Appeals that, as a consequence of the obliga-tion of mutual restitution in this case, petitioners should return the amount of P5,200,833.27 to respondent.

Article 1191 states that "the injured party may choose between fulfillment and rescission of the obligation, with the payment of damages in either case." In other words, while petitioners are indeed obliged to return the said amount to respondent under Article 1385, assuming said figure is correct, respondent is at the same time liable to petitioners in the same amount as liquidated damages by virtue of the forfeiture/penalty clause as freely stipulated upon by the parties in the Addendum, paragraphs 1 and 221 of which respectively read:

WHEREAS, included as part of said agreement are the following:

1. Further to the stipulations on paragraph 10, upon default of performances, violations and/or non-compliance with the terms and conditions herein agreed upon by the DEVELOPER wherein it appears that the DEVEL-OPER deliberately abandoned or discontinued the work on the project, said party shall lose any entitlement, if any, to any refund and/or advances it may have incurred in connection with or relative to previous development works in the subdivision; likewise, all improvements of whatever nature and kind introduced by the DEVEL-OPER on the property, existing as of the date of default or violation, shall automatically belong to the OWNER without obligation on his part to pay for the costs thereof.

2. Similarly with the same condition of default or violation obtaining, as stated in paragraph 10 of said agree-ment, all advances made and remittances of proceeds from reservations and sales given by the DEVELOPER to the OWNER as provided for in this agreement shall be deemed absolutely forfeited in favor of the OWNER, resulting to waiver of DEVELOPER’s rights, if any, with respect to said amount(s).

If this Court recognized the right of the parties to stipulate on an extrajudicial rescission22 under Article 1191, there is no reason why this Court will not allow the parties to stipulate on the matter of damages in case of such rescission under Book IV, Title VIII, Chapter 3, Section 2 of the Civil Code governing liquidated dam-ages.23

For sure, we find no factual and legal justification to sustain the appellate court’s conclusion that the agreed forfeiture/penalty clause is unreasonable and unconscionable unless respondent had sufficiently shown that it had completely accounted for the proceeds of the sale of subdivision lots it made during the effectivity of the agreement. It must be stressed that the lots sold by respondent were owned by petitioners Laperal and FGCCI. How then could there be unjust enrichment in favor of petitioners in such a case?

Furthermore, a substantial part of the funds spent by respondent in the construction works which by the Court of Appeals required to be reimbursed by petitioners admittedly came from the proceeds of the sale of the real property still owned by petitioners. This may be gleaned from the fact that one of the main reasons respondent raised in its complaint for reformation before the trial court was that it was unable to proceed with the construc-tion works due to lack of funds on account of the slackening of its sales campaign resulting from the alleged re-fusal, which is after all justified, of the petitioners to surrender their titles to respondent.

Finally, even assuming that the foregoing forfeiture/penalty clause in the "Addendum" would result in consider-able losses on the part of respondent, it is not for this Court to release said party from its obligation. Our pro-nouncement in Esguerra vs. Court of Appeals24 is apt and pertinent:

xxx. It is a long established doctrine that the law does not relieve a party from the effects of an unwise, foolish, or disastrous contract, entered into with all the required formalities and with full awareness of what he was do-ing. Courts have no power to relieve parties from obligations voluntarily assumed, simply because their con-tracts turned out to be disastrous deals or unwise investments." xxx.

WHEREFORE, the petition is hereby GRANTED. Accordingly, the assailed decision and resolution of the Court of appeals are REVERSED and SET ASIDE and the decision dated December 19, 1991 of the Regional Trial Court in Civil Case No. B-2069 REINSTATED.

No pronouncement as to costs.

SO ORDERED.

Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

1 Penned by former Associate Justice Fermin A. Martin, Jr. with former Presiding Justice Nathanael P. De Pano, Jr. and former Associate Justice Maximiano C. Asuncion, concurring; Rollo, pp. 45-92.

2 Rollo, pp. 74-76.

3 Records, Volume I, pp. 15, et seq.

4 Records, Volume I, pp. 32, et seq.

5 Records, Volume I, pp. 40, et seq.

6 Records, Volume I, pp. 189, et seq.

7 Records, Volume I, p. 153.

8 Records, Volume II, p. 424.

9 Records, Volume II, p. 493.

10 Records, Volume II, p. 494.

11 Records, Volume II, p. 516.

12 Rollo, pp. 88, et seq.

13 Rollo, pp. 45, et seq.

14 Rollo, pp. 74-76.

15 Decision, p. 25; Rollo, p. 69.

16 Decision, p. 27; Rollo, p. 71.

17 "Article 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interests; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore.

xxx xxx xxx"

18 "Article 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the wards whom they represent suffer le-sion by more than one-fourth of the value of the things which are the object thereof;

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the pre-ceding number;

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them;

(4) Those which refer to things under litigation if they have been entered into by the defendant with-out the knowledge and approval of the litigants or of competent judicial authority;

(5) All other contracts specially declared by law to be subject to rescission."

19 361 SCRA 56, 69-70 [2001].

20 124 SCRA 638, 647-648 [1983].

21 Quoted in CA Decision dated September 18, 1996, pp. 24-25; Rollo, pp. 68-69.

22 See: Angeles vs. Calasanz, 135 SCRA 323, 329-330 [1985], to wit:

Article 1191 is explicit. In reciprocal obligations, either party has the right to rescind the contract upon the failure of the other to perform the obligation assumed thereunder. Moreover,there is nothing in the law that prohibits the parties from entering into an agreement that violation of the terms of the contract would cause its cancellation even without court intervention (Froilan v. Pan Oriental Shipping, Co., 12 SCRA 276) –

"Well settled is, however, the rule that a judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions' (Lopez v. Commissioner of Customs, 37 SCRA 327, 334, and cases cited therein).

"Resort to judicial action for rescission is obviously not contemplated… The validity of the stipulation can not be seriously disputed. It is in the nature of a facultative resolutory condition which in marry cases has been upheld by this Court. (Ponce Enrile v. Court of Appeals, 29 SCRA 504)."

The rule that it is not always necessary for the injured party to resort to court for rescission of the contract when the contract itself provides that it may be rescinded for violation of its terms and conditions, was quali-fied by this Court in University of the Philippines v. De los Angeles, (35 SCRA 102) where we explained that:

"Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provi-sional, being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.

"In other words, the party who deems the contract violated many consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk.For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not cor-rect in law. xxx .

"We see no conflict between this ruling and the previous jurisprudence of this Court invoked by respondent declaring that judicial action is necessary for the resolution of a reciprocal obligation, (Ocejo, Perez & Co. v. International Banking Corp., 37 Phil. 631; Republic v. Hospital de San Juan de Dios, et al., 84 Phil. 820) since in every case where the extrajudicial resolution is contested only the final award of the court of compe-tent jurisdiction can conclusively settle whether the resolution was proper or not. It is in this sense that judi-cial action will be necessary, as without it, the extrajudicial resolution will remain contestable and subject to judicial invalidation, unless attack thereon should become barred by acquiescence, estoppel or prescription." (Emphasis supplied.)

23 Art. 2226. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof.

Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably re-duced of they are iniquitous or unconscionable.

Art. 2228. When the breach of the contract committed by the defendant is not the one contemplated by the parties in agreeing upon the liquidated damages, the law shall determine the measure of damages, and not the stipulation.

24 335 Phils. 58, 69 [1997].

12. Santos v. CA, G.R. No. 120820, 337 SCRA 67 (2000)

G.R. No. 120820             August 1, 2000

SPS. FORTUNATO SANTOS and ROSALINDA R SANTOS, petitioners, vs.COURT OF APPEALS, SPS. MARIANO R. CASEDA and CARMEN CASEDA, respondents.

QUISUMBING, J.:

For review on certiorari is the decision of the Court of Appeals, dated March 28, 1995, in CA-G.R. CV No. 30955, which reversed and set aside the judgment of the Regional Trial Court of Makati, Branch 133, in Civil Case No. 89-4759. Petitioners (the Santoses) were the owners of a house and lot informally sold, with condi-tions, to herein private respondents (the Casedas). In the trial court, the Casedas had complained that the Santoses refused to deliver said house and lot despite repeated demands. The trial court dismissed the com-

plaint for specific performance and damages, but in the Court of Appeals, the dismissal was reversed, as fol-lows:

"WHEREFORE, in view of the foregoing, the decision appealed from is hereby REVERSED and SET ASIDE and a new one entered:

"1. GRANTING plaintiffs-appellants a period of NINETY (90) DAYS from the date of the finality of judgment within which to pay the balance of the obligation in accordance with their agreement;

"2. Ordering appellees to restore possession of the subject house and lot to the appellants upon receipt of the full amount of the balance due on the purchase price; and

"3. No pronouncement as to costs.

"SO ORDERED."1

The undisputed facts of this case are as follows:

The spouses Fortunato and Rosalinda Santos owned the house and lot consisting of 350 square meters lo-cated at Lot 7, Block 8, Better Living Subdivision, Parañaque, Metro Manila, as evidenced by TCT (S-11029) 28005 of the Register of Deeds of Parañaque. The land together with the house, was mortgaged with the Rural Bank of Salinas, Inc., to secure a loan of P150,000.00 maturing on June 16, 1987.

Sometime in 1984, Rosalinda Santos met Carmen Caseda, a fellow market vendor of hers in Pasay City and soon became very good friends with her. The duo even became kumadres when Carmen stood as a wedding sponsor of Rosalinda's nephew.

On June 16, 1984, the bank sent Rosalinda Santos a letter demanding payment of P16,915.84 in unpaid inter-est and other charges. Since the Santos couple had no funds, Rosalinda offered to sell the house and lot to Carmen. After inspecting the real property, Carmen and her husband agreed.

Sometime that month of June, Carmen and Rosalinda signed a document, which reads:

"Received the amount of P54,100.00 as a partial payment of Mrs. Carmen Caseda to the (total) amount of 350,000.00 (house and lot) that is own (sic) by Mrs. Rosalinda R. Santos.

(Sgd.) Carmen H. Caseda

direct buyer

Mrs. Carmen Caseda

"(Sgd.) Rosalinda Del R. Santos

Owner

Mrs. Rosalinda R. Santos

House and Lot

Better Living Subd. Parañaque, Metro Manila

Section V Don Bosco St."2

The other terms and conditions that the parties agreed upon were for the Caseda spouses to pay: (1) the bal-ance of the mortgage loan with the Rural bank amounting to P135,385.18; (2) the real estate taxes; (3) the electric and water bills; and (4) the balance of the cash price to be paid not later than June 16, 1987, which was the maturity date of the loan.3

The Casedas gave an initial payment of P54,100.00 and immediately took possession of the property, which they then leased out. They also paid in installments, P81,696.84 of the mortgage loan. The Casedas, however, failed to pay the remaining balance of the loan because they suffered bankruptcy in 1987. Notwithstanding the state of their finances, Carmen nonetheless paid in March 1990, the real estate taxes on the property for 1981-1984. She also settled the electric bills from December 12, 1988 to July 12, 1989. All these payments were made in the name of Rosalinda Santos.

In January 1989, the Santoses, seeing that the Casedas lacked the means to pay the remaining installments and/or amortization of the loan, repossessed the property. The Santoses then collected the rentals from the tenants.

In February 1989, Carmen Caseda sold her fishpond in Batangas. She then approached petitioners and of-fered to pay the balance of the purchase price for the house and lot. The parties, however, could not agree, and the deal could not push through because the Santoses wanted a higher price. For understandably, the real estate boom in Metro Manila at this time, had considerably jacked up realty values. On August 11, 1989, the Casedas filed Civil Case No. 89-4759, with the RTC of Makati, to have the Santoses execute the final deed of conveyance over the property, or in default thereof, to reimburse the amount of P180,000.00 paid in cash and P249,900.00 paid to the rural bank, plus interest, as well as rentals for eight months amounting to P32,000.00, plus damages and costs of suit.1âwphi1.nêt

After trial on the merits, the lower court disposed of the case as follows:

"WHEREFORE, judgment is hereby ordered:

(a) dismissing plaintiff's (Casedas') complaint; and

(b) declaring the agreement; marked as Annex "C" of the complaint rescinded. Costs against plaintiffs.

"SO ORDERED."4

Said judgment of dismissal is mainly based on the trial court's finding that:

"Admittedly, the purchase price of the house and lot was P485,385.18, i.e. P350,000.00 as cash payment and P135,385.18, assumption of mortgage. Of it plaintiffs [Casedas] paid the following: (1) P54,100.00 down payment; and (2) P81,694.64 installment payments to the bank on the loan (Exhs. E to E-19) or a total of P135,794.64. Thus, plaintiffs were short of the purchase price. They cannot, therefore, demand specific per-formance."5

The trial court further held that the Casedas were not entitled to reimbursement of payments already made, reasoning that:

"As earlier mentioned, plaintiffs made a total payment of P135,794.64 out of the purchase price of P485,385.18. The property was in plaintiffs' possession from June 1984 to January 1989 or a period of fifty-five months. During that time, plaintiffs leased the property. Carmen said the property was rented for P25.00 a day or P750.00 a month at the start and in 1987 it was increased to P2,000.00 and P4,000 a month. But the evidence is not precise when the different amounts of rental took place. Be that as it may, fairness de-mands that plaintiffs must pay defendants for the exercise of dominical rights over the property by renting it to others. The amount of P2,000.00 a month would be reasonable based on the average of P750.00, P2,000.00, P4,000.00 lease-rentals charged. Multiply P2,000 by 55 months, the plaintiffs must pay defen-dants P110,000 for the use of the property. Deducting this amount from the P135,794.64 payment of the plaintiffs on the property the difference is P25,794.64. Should the plaintiffs be entitled to a reimbursement of

this amount? The answer is in the negative. Because of failure of plaintiffs to liquidated the mortgage loan on time, it had ballooned from its original figure of P135,384.18 as of June 1984 to P337,280.78 as of De-cember 31, 1988. Defendants [Santoses] had to pay the last amount to the bank to save the property from foreclosure. Logically, plaintiffs must share in the burden arising from their failure to liquidate the loan per their contractual commitment. Hence, the amount of P25,794.64 as their share in the defendants' damages in the form of increased loan-amount, is reasonable."6

On appeal, the appellate court, as earlier noted, reversed the lower court. The appellate court held that rescis-sion was not justified under the circumstances and allowed the Caseda spouses a period of ninety days within which to pay the balance of the agreed purchase price.

Hence, this instant petition for review on certiorari filed by the Santoses.

Petitioners now submit the following issues for our consideration:

WHETHER OR NOT THE COURT OF APPEALS, HAS JURISDICTION TO DECIDE PRIVATE RESPON-DENT'S APPEAL INTERPOSING PURELY QUESTIONS OF LAW.

WHETHER THE SUBJECT TRANSACTION IS NOT A CONTRACT OF ABSOLUTE SALE BUT A MERE ORAL CONTRACT TO SELL IN WHICH CASE JUDICIAL DEMAND FOR RESCISSION (ART. 1592,7CIVIL CODE) IS NOT APPLICABLE.

ASSUMING ARGUENDO THAT A JUDICIAL DEMAND FOR RESCISSION IS REQUIRED, WHETHER PE-TITIONERS' DEMAND AND PRAYER FOR RESCISSION CONTAINED IN THEIR ANSWER FILED BE-FORE THE TRIAL SATISFIED THE SAID REQUIREMENT.

WHETHER OR NOT THE NON-PAYMENT OF MORE THAN HALF OF THE ENTIRE PURCHASE PRICE INCLUDING THE NON-COMPLIANCE WITH THE STIPULATION TO LIQUIDATE THE MORTGAGE LOAN ON TIME WHICH CAUSED GRAVE DAMAGE AND PREJUDICE TO PETITIONERS, CONSTITUTE SUB-STANTIAL BREACH TO JUSTIFY RESCISSION OF A CONTRACT TO SELL UNDER ARTICLE 11918 (CIVIL CODE).

On the first issue, petitioners argue that, since both the parties and the apellate court adopted the findings of trial court,9 no questions of fact were raised before the Court of Appeals. According to petitioners, CA-G.R. CV No. 30955, involved only pure questions of law. They aver that the court a quo had no jurisdiction to hear, much less decide, CA-G.R. CV No. 30955, without running afoul of Supreme Court Circular No. 290 (4) [c].10

There is a question of law in a given case when the doubt or difference arises as to how the law is on a certain set of facts, and there is a question of fact when the doubt or difference arises as to the truth or falsehood of the alleged facts.11 But we note that the first assignment of error submitted by respondents for consideration by the appellate court dealt with the trial court's finding that herein petitioners got back the property in question because respondents did not have the means to pay the installments and/or amortization of the loan.12 The res-olution of this question involved an evaluation of proof, and not only a consideration of the applicable statutory and case laws. Clearly, C.A.-G.R. CV No. 30955 did not involve pure questions of law, hence the Court of Ap-peals had jurisdiction and there was no violation of our Circular No. 2-90.

Moreover, we find that petitioners took an active part in the proceedings before the Court of Appeals, yet they did not raise there the issue of jurisdiction. They should have raised this issue at the earliest opportunity before the Court of Appeals. A party taking part in the proceedings before the appellate court and submitting his case for its decision ought not to later on attack the court's decision for want of jurisdiction because the decision turns out to be adverse to him.13

The second and third issues deal with the question: Did the Court of Appeals err in holding that a judicial rescission of the agreement was necessary? In resolving both issues, we must first make a preliminary deter-mination of the nature of the contract in question: Was it a contract of sale, as insisted by the respondents or a mere contract to sell, as contended by petitioners?

Petitioners argue that the transaction between them and respondents was a mere contract to sell, and not a contract of sale, since the sole documentary evidence (Exh. D, receipt) referring to their agreement clearly showed that they did not transfer ownership of the property in question simultaneous with its delivery and hence remained its owners, pending fulfillment of the other suspensive conditions, i.e. full payment of the bal-ance of the purchase price and the loan amortizations. Petitioners point to Manuel v. Rodriguez, 109 Phil. 1 (1960) andLuzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 93 (1972), where he held that ar-ticle 1592 of the Civil Code is inapplicable to a contract to sell. They charge the court a quo with reversible er-ror in holding that petitioners should have judicially rescinded the agreement with respondents when the latter failed to pay the amortizations on the bank loan.

Respondents insist that there was a perfected contract of sale, since upon their partial payment of the pur-chase price, they immediately took possession of the property as vendees, and subsequently leased it, thus exercising all the rights of ownership over the property. This showed that transfer of ownership was simultane-ous with the delivery of the realty sold, according to respondents.

It must be emphasized from the outset that a contract is what the law defines it to be, taking into consideration its essential elements, and not what the contracting parties call it.14 Article 145815 of the Civil Code defines a contract of sale. Note that the said article expressly obliges the vendor to transfer the ownership of the thing sold as an essential element of a contract of sale.16 We have carefully examined the contents of the unofficial receipt, Exh. D, with the terms and conditions informally agreed upon by the parties, as well as the proofs sub-mitted to support their respective contentions. We are far from persuaded that there was a transfer of owner-ship simultaneously with the delivery of the property purportedly sold. The records clearly show that, notwith-standing the fact that the Casedas first took then lost possession of the disputed house and lot, the title to the property, TCT No. 28005 (S-11029) issued by the Register of Deeds of Parañaque, has remained always in the name of Rosalinda Santos.17 Note further that although the parties agreed that the Casedas would assume the mortgage, all amortization payments made by Carmen Caseda to the bank were in the name of Rosalinda Santos.18 We likewise find that the bank's cancellation and discharge of mortgage dated January 20, 1990, was made in favor of Rosalinda Santos.19 The foregoing circumstances categorically and clearly show that no valid transfer of ownership was made by the Santoses to the Casedas. Absent this essential element, their agree-ment cannot be deemed a contract of sale. We agree with petitioner's averment that the agreement between Rosalinda Santos and Carmen Caseda is a contract to sell. In contracts to sell, ownership is reserved the by the vendor and is not to pass until full payment of the purchase price. This we find fully applicable and under-standable in this case, given that the property involved is a titled realty under mortgage to a bank and would re-quire notarial and other formalities of law before transfer thereof could be validly effected.

In view of our finding in the present case that the agreement between the parties is a contract to sell, it follows that the appellate court erred when it decreed that a judicial rescission of said agreement was necessary. This is because there was no rescission to speak of in the first place. As we earlier pointed, in a contract to sell, title remains with the vendor and does not pass on to the vendee until the purchase price is paid in full, Thus, in contract to sell, the payment of the purchase price is a positive suspensive condition. Failure to pay the price agreed upon is not a mere breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force.20 This is entirely different from the situation in a contract of sale, where non-payment of the price is a negative resolutory condition. The effects in law are not identical. In a contract of sale, the vendor has lost ownership of the thing sold and cannot recover it, unless the contract of sale is rescinded and set aside.21 In a contract to sell, however, the vendor remains the owner for as long as the vendee has not complied fully with the condition of paying the purchase. If the vendor should eject the vendee for failure to meet the condition precedent, he is enforcing the contract and not rescinding it. When the petitioners in the instant case repossessed the disputed house and lot for failure of private respondents to pay the purchase price in full, they were merely enforcing the contract and not rescinding it. As petitioners correctly point out the Court of Appeals erred when it ruled that petitioners should have judicially rescinded the contract pursuant to Articles 1592 and 1191 of the Civil Code. Article 1592 speaks of non-payment of the purchase price as a resolutory condition. It does not apply to a contract to sell.22 As to Article 1191, it is subordinated to the provisions of Article 1592 when applied to sales of immovable property.23 Neither provision is applicable in the present case.

As to the last issue, we need not tarry to make a determination of whether the breach of contract by private re-spondents is so substantial as to defeat the purpose of the parties in entering into the agreement and thus enti-tle petitioners to rescission. Having ruled that there is no rescission to speak of in this case, the question is moot.

WHEREFORE, the instant petition is GRANTED and the assailed decision of the Court of Appeals in CA-G.R. CV No. 30955 is REVERSED and SET ASIDE. The judgment of the Regional Trial Court of Makati, Branch 133, with respect to the DISMISSAL of the complaint in Civil Case No. 89-4759, is hereby REINSTATED. No pronouncement as to costs.1âwphi1.nêt

SO ORDERED.

Mendoza, Buena and De Leon, Jr., JJ ., concur.

Bellosillo, J ., on official leave.

1 Rollo, pp. 77-78.

2 Exhibit "D," Records, p. 119.

3 Id. at 215.

4 Rollo, p. 109.

5 Rollo, p. 107.

6 Rollo, p. 108.

7 "ART. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term."

8 "ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

"The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

"The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

"This is understood to be without prejudice to the rights of third persons who have acquired the thing, in ac-cordance with articles 1385 and 1338 and the Mortgage Law."

9 Rollo, p. 13.

10 "4. Erroneous Appeals. — An appeal taken to either the Supreme Court or the Court of Appeals by the wrong or inappropriate mode shall be dismissed.

xxx             xxx             xxx

[c] Raising issues purely of law in the Court of Appeals, or appeal by wrong mode. — If an appeal under Rule 41 is taken from the Regional Trial Court to the Court of Appeals and therein the appellant raises only questions of law, the appeal shall be dismissed, issues purely of law not being reviewable by said Court. So,

too, if an appeal is attempted from the judgment rendered by a Regional Trial Court in the exercise of its ap-pellate jurisdiction by notice of appeal, instead of by petition for review, the appeal is inefficacious and should be dismissed."

11 Dela Torre v. Pepsi Cola Products Phils., Inc., 298 SCRA 363, 373 (1998); Commissioner of Internal Rev-enue v. Court of Appeals, 298 SCRA 83, 91 (1998).

12 CA Rollo, p. 27.

13 Tijam v. Sibonghanoy, 23 SCRA 29, 35-36 (1968).

14 Quiroga v. Parsons Hardware Co., 38 Phil. 501 (1918).

15 "ART. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the owner-ship of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equiv-alent

"A contract of sale may be absolute or conditional."

16 Schmid & Oberly, Inc. v. RJL Martinez Fishing Corp., 166 SCRA 493, 501 (1988) citing Commissioner of Internal Revenue v. Constantino, 31 SCRA 779, 785 (1970); Ker & Co., Ltd., v. Lingad, 38 SCRA 524, 530 (1971) citing Salisbury v. Brooks, 94 SE 117 (1917).

17 Exhibit "A", Records, pp. 112-115.

18 Exhibit "E", Id. p. 120; Exhibits "E-1" to "E-17", Id. pp. 121-129.

19 Exhibit "3", Id. at 164.

20 Ong v. Court of Appeals, 310 SCRA 1, 10 (1999) citing Agustin v. Court of Appeals, 186 SCRA 375 (1990); Roque v. Lapuz, 96 SCRA 741 (1980), Manuel v. Rodriguez, 109 Phil. 1 (1960).

21 TOLENTINO, V CIVIL CODE 24 (1992)

22 Luzon Brokerage Co, Inc. v. Maritime Building Co., Inc., 43 SCRA 93, 104 (1972).

23 Villaruel v. Tan King, 43 Phil. 251, 255 (1922).

13. Gabuya v. Layug, G.R. No. 104846, 250 SCRA 218 (1995)

G.R. No. 104846 November 23, 1995

RODRIGO GABUYA represented by his attorney-in-fact LUCIA PONCE, petitioner, vs.ANTONIO LAYUG and HON. FEDERICO NOEL, REGIONAL TRIAL COURT, ILIGAN CITY, BRANCH 2,respon-dents.

 

BELLOSILLO, J.:

This is a petition for certiorari and prohibition under Rule 65 of the Rules of Court seeking to annul the orders dated 16 October 1991 and 11 March 1992 of respondent Judge Federico V. Noel, Regional Trial Court, Lanao del Norte, Br. 2, in Civil Case No. II-1408, Antonio Layug v. Rodrigo Gabuya, and to annul the proceedings held thereon. The questioned orders and proceedings are alleged to unduly interfere with the final judgment of this Court in G.R. No. 75364 involving the same parties, the same facts and the same issues. 1

On 4 October 1978 private respondent Antonio Layug entered into a contract with petitioner Rodrigo Gabuya for the purchase by the former of the latter's twelve (12) lots situated in Iligan City for the price of P120,000.00 payable in three (3) yearly installments. Respondent Layug paid the first two (2) annual installments totaling P80,000.00 but failed to pay the last installment of P40,000.00. When formal demands for payment were made by petitioner and re-spondent repeatedly failed to pay the former brought suit in the then Court of First Instance of Lanao del Norte (now Regional Trial Court) for annulment of contract and for recovery of damages against Layug.

After trial judgment was rendered in favor of petitioner. Respondent appealed to the Court of Appeals which on 30 August 1985 affirmed the judgment. The appellate court (1) ordered the rescission of the conditional sale of the twelve (12) lots described in the contract; (2) declared as rentals for the twelve (12) lots from 1978 to the present (30 August 1985) all payments made by respondent Layug to Gabuya plus the legal interest thereon from the execution of the contract; (3) ordered respondent Layug to vacate the twelve (12) lots and deliver the possession thereof to petitioner Gabuya; and, (4) ordered respondent Layug to pay petitioner Gabuya the sum of P5,000.00 as attorney's fees and to pay the costs.

On appeal to us we affirmed the Court of Appeals particularly insofar as it authorized the cancellation by petitioner Gabuya of the contract of sale with respondent Layug but modified the same to the affect that the cancellation should be effective and fully operative only upon payment of the "cash surrender value" of his payments in the sum of P40,000.00.

On 8 March 1989 our decision became final and executory. Consequently, on 31 May 1989 a writ of execution was issued by the trial court. On 8 June 1989 a certificate of turnover was issued by Sheriff Elias Anacleto in favor of pe-titioner. But the order of execution was elevated by respondent Layug through a petition for certiorarito the Court of Appeals which subsequently dismissed it.

On 30 September 1991 the sheriff submitted to the trial court a return of the writ of execution with the recommenda-tion that the buildings of private respondent found in the property be demolished.

Meanwhile, on 27 June 1989 respondent Layug filed a complaint for specific performance with prayer for a tempo-rary restraining order against petitioner seeking reimbursement for the value of the improvements, buildings and materials he (Layug) introduced in the premises covered by the contract of sale which by final judgment of this Court was already ordered rescinded.

His motion to dismiss in the court below having been denied petitioner filed his answer to the complaint.

On 16 October 1991 respondent judge issued an order directing Deputy Provincial Sheriff Salcedo "to refrain from disposs(ess)ing plaintiff of the possession of the property until ordered by the court." 2 On 22 January 1992 the trial court on motion of petitioner reconsidered its order. However on 11 March 1992, this time upon motion of respondent Layug, it again reconsidered its order and reinstated the restraining order of 16 October 1991 against Deputy Sheriff Salcedo. Hence this petition by Rodrigo Gabuya against respondent judge and Antonio Layug alleging grave abuse of discretion amounting to lack of jurisdiction on the part of respondent judge in taking cognizance of Civil Case No. II-1408 and in issuing the questioned orders.

There is obvious merit in the petition. The final judgment of this Court in G.R. No. 75364 promulgated 23 November 1988 involving the same parties, facts and issues constitutes an absolute bar to Civil Case No. II-1408 now pending with the Regional Trial Court of Lanao del Norte, Br. 2. It is final as to all claims and demands of petitioner Gabuya and respondent Layug with regard to the twelve (12) lots in Iligan City subject matter of the contract of sale ordered cancelled by this Court. This judgment binds the parties not only as to every matter offered and received to sustain or defeat their claims or demand but as to any other admissible matter which might have been offered for that pur-pose and of all other matters that could have been adjudged in that case.

In the case before us, the claim for reimbursement of the value of improvements introduced by respondent Layug on the property subject of the contract of sale should have been raised by him as a counterclaim in the complaint for annulment of contract before the trial court in the first case instituted by petitioner Gabuya. The failure of respondent Layug to raise these matters therein precludes the re-litigation of the same facts in a sep-arate complaint. It has been ruled that when defendants are sued for recovery of a tract of land they ought to have presented a counterclaim for the value of the improvements thereon and the amount of damages suffered by them because the claim for such improvements and indemnity is necessarily connected with the suit for the restitution or recovery of land claimed to have been improved, and with the result of the execution of the judg-ment awarding recovery. 3

On the basis of the foregoing, the questioned orders issued by respondent judge on 16 October 1991 and 11 March 1992 restraining the deputy sheriff from implementing the writ of execution of the final judgment of this Court in G.R. No. 75364 were issued by respondent judge with grave abuse of discretion amounting to lack of jurisdiction.

WHEREFORE, the petition is GRANTED. The questioned orders of respondent judge dated 16 October 1991 and 11 March 1992, as well as the proceedings in Civil Case No. II-1408 now pending with the Regional Trial Court of Lanao del Norte, Br. 2, are ANNULLED and SET ASIDE. Respondent judge, or whoever may now be acting in his behalf or assigned to the case, is directed to pursue immediately the implementation of the writ of execution issued on 31 May 1989 to satisfy the judgment that has long become final and executory. Costs against private respon-dent.

SO ORDERED.

Padilla, Davide, Jr., Kapunan and Hermosisima, Jr., JJ., concur.

1 Layug v. Intermediate Appellant Court, G.R. No. 75364, 23 November 1988; 167 SCRA 627.

2 Rollo, p. 16.

3 Francisco, Vicente J., The Revised Rules of Court in the Philippines, 1973 Ed, Vol. I, p. 465, citing Berses v. Villanueva, 25 Phil. 473.

Lease

1. Civil Code - Articles 1147, 1155, 1642, 1646 to 1688, 1358 (1), 1403 (2)(e), 1878(8)

2. Republic Act No. 96533. Lopez v. Fajardo, G.R. No. 157971, 468 SCRA 664 (2005)

[G.R. No. 157971.  August 31, 2005]

TRISTAN LOPEZ as Attorney-in-Fact of LETICIA and CECILIA LOPEZ, peti-tioner, vs. LETICIA R. FAJARDO, respondent.

D E C I S I O N

CARPIO-MORALES, J.:

Leonor Sobrepena and her kins (the Sobrepenas) were the owners of a 2-door apartment at 1326 and 1328 Tomas Mapua St., Sta. Cruz, Manila. The apartment at No. 1328 has for so many years been occupied under a verbal contract of lease by respondent, Leticia Fajardo.

On April 30, 1999, the Sobrepenas sold their property to Leticia and Cecilia Lopez (the Lopez sis-ters) who were thereafter issued Transfer Certificate of Title No. 245120[1] in their names.

On March 31, 2000, the Lopez sisters’ attorney-in-fact, herein petitioner Tristan Lopez, filed be-fore the Metropolitan Trial Court of Manila (MeTC) a complaint [2] for ejectment with damages, dock-eted as Civil Case No. 166806-CV (first ejectment complaint), against respondent on the ground of failure to pay her monthly rentals from May 1999 to February 2000.

The parties amicably settled the case after respondent paid P35,000.00 representing rental in ar-rears and current rental for June 2000.  The case was thus closed and terminated on June 28, 2000 and petitioner allowed respondent to remain in the leased premises.[3]

The following month or in July 2000, petitioner got wind of the filing by respondent of a com-plaint[4]against him, his aunts and the Sobrepenas before the Regional Trial Court (RTC) of Manila, docketed as Civil Case No. 00-97105, for the nullification of the deed of sale between the Lopez sis-ters and the Sobrepenas and for the grant to respondent of the right of first refusal over the leased premises.  Respondent in fact again failed and refused to pay her July and August 2000 rentals, drawing petitioner to send her a letter[5] dated August 18, 2000 reading:

Please be informed that my aunts (Leticia and Cecilia Lopez) have already decided to terminate our monthly lease contract effective midnight of August 31, 2000, the very time our oral lease contract shall expire. Hence, there shall be no more renewal of our lease contract on a month-to-month basis upon its expiration by said date. Thus, we expect you to eventually vacate said leased premises by that time.

Considering however, time constraint, my aunts thought of giving you a grace period of one (1) month, or until 30 September 2000 within which to vacate the premises conditioned of course on your immediate payment of the July and August 2000 rentals of P2,500.00 each, or a total sum of P5,000.00. Should this total unpaid rental of P5,000.00 be not paid immediately, then the grace period of until September 30, 2000 shall no longer be offered in which case you shall be considered (as) an interloper to the property by September 1, 2000. In such an event, you should immediately vacate the same because of the expiration of the lease contract and your non-payment of rentals for two (2) months.

Please be guided accordingly. (Emphasis supplied; underscoring in the original)

On September 21, 2000, respondent remitted to petitioner Security Bank Check No. 0121467 dated September 20, 2000 in the amount of P30,000.00 representing payment of the rentals in ar-rears for July 2000, August 2000 and September 2000, and advance rentals for October 2000 up to July 2001, without prejudice to the outcome of Civil Case No. 00-97105.[6]

By letter[7] dated September 21, 2000, petitioner thru counsel advised respondent that he could not accept the above-said check as the rental payments due to his aunts were only for  July, Au-gust andSeptember 2000, and that she was expected to vacate the leased premises by October 1, 2000.

While the dispute between the parties was brought to the barangay, no settlement or conciliation was reached,[8] drawing petitioner to file on October 25, 2000 before the MeTC Manila a com-

plaint[9] for ejectment with damages against respondent, docketed as Civil Case No. 168809-CV (sec-ond complaint), praying that judgment be rendered:

1. Ordering [respondent] Fajardo and all persons claiming rights under her to immediately vacate the leased premises, and return possession thereof to herein [petitioner]; and

2. Ordering [respondent] Fajardo to pay herein [petitioner] the following:

a.    P7,500.00 as her rental arrears/back rentals from July 2000 up to September 2000 plus the present monthly rental of P2,500.00 from October 2000 (or the corresponding yearly rental increase thereof, if any) until herein [respondent] shall have actually va-cated the leased premises;

b.    P50,000.00 as moral damages;

c.    P50,000.00 as exemplary damages;

d. P30,000.00 as attorney’s fees; and

e.    Costs of suit.

x x x

Respondent, in her Answer with Counterclaim for damages,[10] alleged that the complaint for ejectment (second) stated no valid cause of action, she contending that petitioner’s claim of expiration of the verbal monthly lease was misplaced as she never recognized the Lopez sisters as her true lessors and that her payment of the amount of P35,000.00 in connection with the first ejectment com-plaint was meant to be under protest and without prejudice to the outcome of Civil Case No. 00-97105.

Respondent likewise alleged that even assuming that an implied verbal lease exists between her and the Lopez sisters, petitioner’s claim of termination is baseless in fact and in law as the latest pay-ment she made to the Sobrepenas on April 16, 1999 was for a period covering 4 months or from Jan-uary 1999 to April 1999 while the previous payment she made on November 16, 1998 was for a pe-riod covering 11 months or from January 1998 to November 16, 1998, thus indicating that payment of the rent was not on a monthly basis.

Branch 11 of the Manila MeTC to which the second ejectment case was raffled issued a Pre-trial Order[11] defining the issues as follows:

1. Whether or not the [respondent] can be lawfully evicted from the subject premises.

2. Whether or not the [respondent] is entitled to the counterclaim she interposed.

After the parties had filed their respective position papers together with their documentary evi-dence and their comments thereon, Branch 11 of the MeTC, by Decision [12] dated April 9, 2001, find-ing that petitioner had sufficiently established his cause of action arising from the expiration of the lease contract,the lease being terminable at the end of any month after due notice, and failure of re-spondent to pay the stipulated rental ─ grounds for ejectment under Article 1673 of the Civil Code, rendered judgment in favor of petitioner the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the [petitioner] and against the [respon-dent] ordering the latter and all persons claiming rights under her:

1. To immediately vacate the subject premises describe[d] as No. 1328 Tomas Mapua St., Sta. Cruz, Manila and surrender its peaceful possession to the [petitioner];

2. To pay [petitioner] the amount of P7,500.00 as back rentals covering the period from July 2000 to September 2000; and to pay [petitioner] the amount of P2,500.00 monthly as reasonable compen-sation for the use and occupation of the subject premises known as No. 1328 Tomas Mapua St., Sta. Cruz, Manila, beginning October 2000 and every month thereafter until [respondent] shall have actually vacated the same;

3. To pay [petitioner] the sum of P5,000.00 as and by way of attorney’s fees, and to pay the costs of the suit.

Respondent appealed the MeTC decision to the Regional Trial Court of Manila (RTC) which, by Decision[13] dated June 7, 2002, affirmed in toto that of the trial court, it holding as follows:

x x x

From the aforesaid facts, it is clear then that [petitioner] allowed [respondent] to continue to occupy the subject premises on a month-to-month rental terminable at the end of each month, until the [pe-titioner] sent [respondent] a notice to vacate the subject premises on August 18, 2000. There is no dispute that there was a landlord-tenant relationship between the [petitioner] and the [respondent] that ended on August 31, 2000, as evidenced by [petitioner’s] letter dated August 18, 2000. As the rent was paid on a monthly basis, the period of the lease was considered as on a month-to-month basis in accordance with Article 1687 of the New Civil Code.

It is a lease with a definite period. In the case at bar, since the [respondent] stopped payment of her monthly rentals since July 2000 up to September 2000, then the lease on said property immediately expired and terminated upon the letter of demand made by the [petitioner] on the [respondent] to vacate the subject premises as of August 2000. Hence, [respondent’s] right to stay in the premises came to an end as of August 2000.

x x x (Underscoring supplied).

Before the Court of Appeals (CA), respondent appealed via Petition for Review with Prayer for the Issuance of Temporary Restraining Order, Writ of Preliminary Injunction and/or Status Quo Ante Or-der,[14] assigning to the RTC the following errors:

1. THE REGIONAL TRIAL COURT PALPABLY ERRED ON A MATTER OF LAW IN FAILING, IF NOT REFUSING, TO CONSIDER THE FACT THAT: (1) AT THE TIME OF DEMAND, APPEL-LANT ONLY HAD AN ALLEGED TOTAL RENTALS IN ARREARS OF TWO MONTHS AND THAT (2) AT THE TIME OF THE FILING OF THE SUBJECT COMPLAINT FOR EJECTMENT, APPEL-LANT HAD ALREADY CONSIGNED HER RENTALS IN COURT. HENCE THE SUBJECT EJECT-MENT SUIT SHOULD HAVE BEEN DISMISSED OUTRIGHT PURSUANT TO SECTION 5 (b) OF BATAS PAMBANSA BLG. 877.

2. IN THE SAME VEIN, THE REGIONAL TRIAL COURT LIKEWISE PALPABLY ERRED ON A MAT-TER OF LAW IN FAILING, IF NOT REFUSING TO CONSIDER THE FACT THAT THE REAL PURPOSE OF RESPONDENT IN FILING THE SUBJECT EJECTMENT SUIT WAS FOR HIM TO TAKE OVER THE SUBJECT PREMISES, WHICH HE SURREPTITIOUSLY BOUGHT FROM THE HEIRS OF PERLA SOBREPENA, IN CIRCUMVENTION OF SECTION 5(f), BATAS PAMBANSA BLG. 877. (Emphasis and italics omitted; underscoring supplied).

The CA, citing Batas Pambansa Blg. 877 which provides that a minimum of 3-month arrearages is required to justify a lessor to eject a lessee, held that respondent had incurred back rentals of only two (2) months when petitioner sent her the letter of demand dated August 18, 1999, hence, “the filing

of the ejectment case was premature.”  It accordingly reversed the decision of the RTC and dis-missed the complaint of petitioner.

In the present petition, petitioner attributes to the appellate court the following errors for this Court’s consideration:

I.   THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT GRANTED THE PETI-TION OF HEREIN RESPONDENT BASED ON PREMATURITY OF THE EJECTMENT CASE DUE TO THE FACT THAT THE LESSEE INCURRED BACKRENTALS FOR ONLY TWO (2) MONTHS CONSIDERING THE FACT THAT THE LETTERS ISSUED BY HEREIN PETITIONERS NOT   ONLY RAISED THE ARREARAGES   OF THREE MONTHS AS THE SOLE GROUND FOR EJECTMENT BUT AS WELL AS   RAISED THE GROUND THAT THE LEASE WAS ALREADY TERMINATED DUE TO THE EXPIRATION   OF THE PERIOD OF THE LEASE .

II. THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT DENIED THE MOTION FOR RECONSIDERATION FILED BY HEREIN PETITIONER.[15] (Emphasis and underscoring sup-plied)

As reflected in his above-quoted assigned errors, petitioner draws attention to the fact that he raised two grounds-bases for respondent’s ejectment, failure to pay rentals for 3 months and expira-tion of the lease contract.

The issue then is whether petitioner has established a valid ground for the ejectment of respon-dent.

This Court rules in the affirmative.

Section 5[16] of Batas Pambansa Blg. 877 otherwise known as the “Rent Control Law” provides for the grounds for judicial ejectment, to wit:

SECTION 5. Grounds for Judicial Ejectment. – Ejectment shall be allowed on the following grounds:

(a) Assignment of lease or subleasing of residential units in whole or in part, including the accep-tance of boarders or bedspacers, without the written consent of the owner/ lessor.

(b) Arrears in payment of rent for a total of three (3) months: Provided, That in case of refusal by the lessor to accept payment of the rental agreed upon, the lessee may either deposit, by way of consignation, the amount in court, or with the city or municipal treasurer, as the case may be, or in a bank in the name of and with notice to the lessor, within one month after the refusal of the lessor to accept payment.

The lessee shall thereafter deposit the rental within ten days of every current month. Failure to de-posit rentals for three months shall constitute a ground for ejectment. If an ejectment case is already pending, the court upon proper motion may order the lessee or any person or persons claiming un-der him to immediately vacate the leased premises without prejudice to the continuation of eject-ment proceedings. At any time, the lessor may upon authority of the court, withdraw the rentals de-posited.

The lessor, upon authority of the court in case of consignation and upon joint affidavit by him and the lessee to be submitted to the city or municipal treasurer and to the bank where deposit was made, shall be allowed to withdraw the deposits.

(c) Legitimate need of owner/lessor to repossess his property for his own use or for the use of any immediate member of his family as a residential unit, such owner or immediate member not being the owner of any available residential units within the same city or municipality: Provided, how-ever, That the lease for a definite period has expired: Provided further that the lessor has given the lessee formal notice three (3) months in advance of the lessor’s intention to repossess the property: and Provided, finally, That the owner/lessor is prohibited from leasing the residential unit or allow-ing its use by a third party for at least one year.

(d) Absolute ownership by the lessee of another dwelling unit in the same city or municipality which he may lawfully use as his residence: Provided, That the lessee shall have been formally no-tified by the lessor of the intended ejectment three months in advance.

(e) Need of the lessor to make necessary repairs of the leased premises which is the subject of an existing order of condemnation by appropriate authorities concerned in order to make the said premises safe and habitable: Provided, That after said repair, the lessee ejected shall have the first preference to lease the same premises: Provided, however, That the new rental shall be reasonable commensurate with the expenses incurred for the repair of the said residential unit; and Provided, finally, That if the residential unit is condemned or completely demolished, the lease of the new building will no longer subject to the provisions of this Act.

(f) Expiration of the period of the lease contract.

No lessor or his successor-in-interest shall be entitled to eject the lessee upon the ground that the leased premises has been sold or mortgaged to a third person regardless of whether the lease or mortgage is registered or not. (Emphasis and underscoring supplied)

The first emphasized-underscored ground for judicial ejectment — failure to pay rental arrearages for a total of three months — was established by petitioner.

For while respondent issued a check dated September 20, 2000 in the amount of P30,000.00 representing rentals for July, August   and September 2000   and advance rentals for October 2000 up to July 2001, petitioner declined to accept the check as rentals due were only for July, August and September 2000, which was communicated by petitioner’s counsel’s letter of September 21, 2000 to respondent’s counsel whose office received it on even date.[17] By said letter of September 21, 2000, petitioner was notifying respondent that aside from the rentals for July and August 2000, she had not paid the rental for September 2000.  Despite the receipt by her counsel of the September 21, 2000 letter of petitioner’s counsel, there is no showing that respondent did pay the rentals in arrears for July, August, September 2000 to thus draw petitioner to file on October 25, 2000 the second eject-ment complaint subject of the present petition.

In point of fact, respondent never questioned, either before the MeTC or the RTC, the claim that she failed to pay rentals for July, August and September before petitioner filed his complaint on Octo-ber 25, 2000.

At all events and this brings this Court to the other above-emphasized-underscored ground for judicial ejectment, there being no fixed period agreed upon by the parties and as the rent agreed upon was monthly, it is understood to be from month-to-month.  So Article 1687 of the Civil Code pro-vides:

ARTICLE 1687. If the period of the lease has not been fixed, it is understood to be from year to year, if the rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent is weekly; and form day to day, if the rent is to be paid daily. However, even though a monthly rent is paid, and no period for the lease has been set, the courts may fix a longer term for the lease after the lessee has occupied the premises for over one year. If the rent is weekly, the courts may likewise determine a longer period after the lessee has been in possession for over six months. In case of daily rent, the courts may also fix a longer period after the lessee has stayed in the place for over one month.  (Emphasis and underscoring supplied)

A month-to-month lease under Article 1687 is a lease with a definite period and expires after the last day of any given thirty-day period, upon proper demand and notice by the lessor to vacate.[18]

Under the Rent Control Law, the prohibition against the ejectment of a lessee by his lessor is not absolute. There are exceptions expressly provided by law, which include the expiration of a lease for a definite period.  In the instant case, it was noted that the rentals were paid on a month-to-month basis. Thus, the lease could be validly terminated at the end of any given month upon prior notice to that effect on the lessee. After all, when the rentals are paid monthly, the lease is deemed to be for a definite period, i.e., it expires at the end of every month.   (Emphasis and underscoring supplied)[19]

When petitioner then sent the August 18, 2000 letter to respondent informing her that the lease would be terminated effective at the end of the same month, it was well within his rights.

In fine, it was error for the appellate court to ignore the fact that by the earlier-quoted August 18, 2000 letter of petitioner[20] which was annexed as Annex “F” to the complaint, petitioner had notified respondent of the expiration of the lease contract, another legal ground for judicial ejectment.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated January 13, 2003 in CA-G.R. SP No. 72547 is hereby SET ASIDE and the decision of Branch 6 of the Manila MeTC, which was affirmed in toto by Branch 6 of the Manila RTC, is hereby REINSTATED.

SO ORDERED.

Panganiban, (Chairman), Sandoval-Gutierrez, and Corona, JJ., concur.Garcia, J., no part.

[1] Records at 11.

[2] Id. at 12-17.

[3] Id. at 18.

[4] Id. at 20-28.

[5] Id. at 30.

[6] Id. at 31-32.

[7] Id. at 33.

[8] Id. at 34.

[9] Id. at 2-8.

[10] Id. at 37-48.

[11] Id. at 70.

[12] Id. at 114-117.

[13] Id. at 304-309.

[14] Court of Appeals (CA) Rollo at 2-14.

[15] Rollo at 17-18.

[16] Substantially reproduced in Section 7 of Rental Reform Act of 2002 (Republict Act 9161).

[17] Id. at 33.

[18] La Jolla, Inc. v. Court of Appeals, 359 SCRA 102, 110 (2001); Arqueleda v. Philippine Veterans Bank, 329 SCRA 536, 553-554 (2000); Palanca v. Intermediate Appellate Court, 180 SCRA 119, 129 (1989).

[19] Amarante v. Court of Appeals, 232 SCRA 104, 108-109 (1994).

[20] Supra, note 5.

4. PEZA v. Vianzon, G.R. No. 131020, 336 SCRA 309 (2000)

[G.R. No. 131020. July 20, 2000]

PHILIPPINE ECONOMIC ZONE AUTHORITY, petitioner, vs. HON. BENJAMIN T. VIANZON, Judge, Branch 4, Regional Trial Court, Balanga, Bataan and SAF-FIROU SEACRAFTS, INC., respondents.

D E C I S I O N

GONZAGA-REYES, J.:

This Petition for Review on Certiorari seeks the reversal of the Decision of the Court of Ap-peals[1]in CA-G.R. SP No. 44080 entitled "PHILIPPINE ECONOMIC ZONE AUTHORITY versus HON. BENJAMIN T. VIANZON, as Judge RTC of Balanga, Bataan, Branch 4 and SAFFIROU SEACRAFTS, INC.". The Court of Appeals affirmed the Order of the Regional Trial Court (RTC) granting the herein respondents Saffirou Seacrafts, Inc. (SSI) the writ of preliminary in-junction which enjoined and restrained the Philippine Economic Zone Authority (PEZA) from enforcing and implementing it’s Board Resolution No. 97-023 and the "Notice of Cancellation, Termination and Demand to Vacate" pending the hearing of the case.

The following facts as found by the Court of Appeals are undisputed:

"It appears that on July 21, 1992 petitioner Philippine Economic Zone Authority and pri-vate respondent Saffirou Seacrafts, Inc. entered into a fifteen-year Registration Agree-ment under which petitioner leased to private respondent 1,500 square meters of land located in the Bataan Export Processing Zone for private respondent’s business of man-ufacture and repair of seacrafts. The said agreement provided, among other things, for a schedule to be followed by private respondent, specifically, building construction and importation of machineries by July, 1992, and start of commercial operation by August, 1992.

On December 2, 1994, petitioner and private respondent entered into a Supplemental Agreement which provided, among other things, that the leased area shall only be used

for launching or staging of private respondent’s boats for export; construction of addi-tional buildings for use as production facilities and for storage of materials and equip-ment; and construction of an administration building.

Allegedly, finding that private respondent has failed to comply with the above provisions of the agreements and after requiring private respondent’s explanation, petitioner through its Board of Trustees promulgated a resolution on February 6, 1997 canceling the agreements and demanded from private respondent to vacate the leased premises within thirty (30) days from notice. Said Board resolution was received by private re-spondent on February 13, 1997. Thus, on March 7, 1997, private respondent filed in the respondent court a petition for certiorari, prohibition, and mandamus with prayer for tem-porary restraining order and preliminary injunction against petitioner and its officers." [2]

The RTC issued a temporary restraining order[3] and on March 26, 1997 issued a writ of prelimi-nary injunction enjoining and restraining the PEZA from enforcing and implementing it’s Board Resolution No. 97-023 and the "Notice of Cancellation, Termination and Demand to Vacate" pending the hearing of the case and until further notice from the court.[4]

From this Order, the PEZA appealed to the Court of Appeals, which affirmed the decision of the RTC and dismissed the petition for lack of merit.[5] Hence this petition where the PEZA raises the following argument for consideration:

"The Court of Appeals erred in not finding that respondent Judge of the Regional Trial Court committed grave abuse of discretion in issuing the writ of preliminary injunction and thus acted without jurisdiction."[6]

In support of its appeal, the PEZA maintains that the respondents had no factual or legal basis for the issuance of a preliminary injunction for said writ may only be issued if it is shown that the applicant has a clear and unmistakable right to protect. It cannot be granted when the al-leged right is doubtful or disputed. In the case at bench, SSI allegedly lost its right to occupy the leased premises when it violated the terms of its agreement with PEZA. Under said agree-ment, the PEZA was allegedly authorized to cancel the same without need of judicial action. Thus, when the PEZA cancelled the agreement on January 22, 1997, it was merely exercising its right to do so. Considering that the PEZA validly cancelled the agreement, SSI no longer had a right to occupy the leased premises at the time it filed the case against PEZA and was therefore not entitled to the issuance of a writ of injunction as there was no existent right to protect.

In its Memorandum, the petitioner also assails the order of the RTC dated June 20, 1997 on the ground that it ministerially gives due course to and approves all SSI’s import applications. Petitioner argues that each application for importation should be separately evaluated for the reason that the merits of an import application is primarily dependent on the nature of the ma-terial to be imported and the purpose for which it will be used. There was therefore no basis for the assailed order, which removes the PEZA’s discretionary authority to determine the merits of an importation. The petitioner likewise assails the order of the RTC dated October 11, 1999, which ordered the release of a sailboat deeming it an export sale notwithstanding that such re-lease under PEZA law does not qualify as exportation. The petitioner therefore prays that the trial court be enjoined from proceeding with Civil Case No. 025-ML as it is an undue judicial in-terference with the petitioner’s exercise of its regulatory and police authority.

Finally, the petitioner alleges that it is not guilty of forum shopping inasmuch as the rule on fo-rum shopping does not prevent a party from seeking relief by appeal to another court. [7]

The only issue properly raised for determination in the present case is whether or not the trial court properly issued an injunction.

We rule affirmatively and resolve to affirm the decision of the Court of Appeals.

Petitioner’s main contention is that there was no legal basis for the issuance of an injunctive writ inasmuch as the respondent’s did not have a clear and unmistakable right to protect. We disagree.

Injunction is a judicial writ, process or proceeding whereby a party is ordered to do or refrain from doing a particular act. An applicant for preliminary injunction must file a verified complaint showing facts entitling him to the relief demanded accompanied with a bond which shall an-swer for all the damages which the party sought to be enjoined may sustain by reason of the injunction.[8] It may be issued when the following requisites are established:

"1.....The invasion of the right is material and substantial;

2.....The right of complainant is clear and unmistakable;

3.....There is an urgent and permanent necessity for the writ to prevent serious dam-age."[9]

The foregoing requisites are present in this case.

The petitioner does not contest the validity of the contractual right of SSI as lessee but claims that said right was extinguished pursuant to Board Resolution No. 97-023 which cancelled and terminated SSI’s right on the ground that SSI violated certain provisions in the Registration Agreement and Supplemental Agreement. It is also undisputed that SSI has possession over the subject property and in fact filed the action to prevent implementation of the demand made by the PEZA to vacate the leased premises since SSI claims that the PEZA’s cancellation was unauthorized and is illegal. Verily, SSI has a clear and unmistakable right to protect its contrac-tual right to lease the property lest it suffer business losses from its investments within the pro-cessing zone. We agree with the Court of Appeals that there was sufficient ground for the is-suance of an injunction and we quote with approval said court’s ratiocination to wit:

"There is no question that private respondent is simply protecting its right under the Registration Agreement and the Supplemental Agreement it entered into with the peti-tioner in praying for a writ of preliminary injunction. Under the said agreements, private respondent has the right to lease the premises in question from 1992 to 2007 or for a period of fifteen years. When petitioner demanded of private respondent to vacate the leased premises in 1997, the latter had still ten (10) years to go under the said agree-ments. Thus, in filing the instant case for injunction, private respondent was just protect-ing its right as a lessee under the said agreements with petitioner.

Private respondent’s right as a lessee of the premises in question is clear and unmistak-able as evidenced by the Retainer (sic) Agreement and Supplemental Agreement with the petitioner, granting private respondent fifteen years to lease the said premises. At the time of petitioner’s demand for private respondent to vacate the leased premises, the latter had still ten years of the agreements subsisting as adverted to earlier. Peti-tioner relies heavily on Sec. 9.1, Article IX of the Registration Agreement granting it the right to revoke the Agreement within thirty days from notice to private respondent if the latter violates said Agreement. Precisely, private respondent is questioning petitioner’s

basis in revoking the agreement, aggravated by lack of proper hearing even on the ad-ministrative level. This is where the regular court comes in as to the validity of the ground of the petitioner in revoking the agreements with private respondent. Only after a proper hearing in the respondent court can it be duly established that petitioner has the valid ground to revoke the agreements between the parties.

Finally, the urgent and permanent necessity for the issuance of the writ of injunction in this case appears to be so in order to prevent a serious damage to private respondent. Said private respondent allegedly had already infused a capital of Fifty-Five Million (P55,000,000.00) Pesos in establishing its business in the leased premises, and consid-ering that it has not even recouped said investment under the agreements with peti-tioner, not to mention its already paid rentals, the loss of employment for its workers as well as its business goodwill, private respondent stands to lose so much if it will just be unceremoniously evicted from its place of business. Thus, the need for a full-blown hearing of this case before the respondent court to resolve the conflicting positions of the parties, and also the need, meantime, to preserve the status quo through the writ of preliminary injunction until the respondent court issues a decision on the merits on pri-vate respondent’s complaint."[10]

Considering that SSI was entitled to the issuance of the injunction, was the determination by the Court of Appeals of the status quo correct? The "status quo" is the last actual peaceable uncontested situation, which precedes a controversy.[11]

We agree with the petitioner’s position that the status quo should be that existing at the time of the filing of the case.[12] However, we are not persuaded by petitioner’s reasoning that at the time of the filing of the case, SSI was no longer a lessee, therefore SSI no longer had any right to occupy the premises for the reason that the contractual right of SSI was extinguished when the PEZA cancelled the Registration Agreement on January 22, 1997. At the time of the filing of the case, SSI was still in actual physicial possession of the property in question as the lessee thereof. Although the PEZA sent SSI a letter which they received on February 13, 1997 purportedly cancelling the lease agreement and demanding that SSI vacate the same within thirty days,[13] said demand was never effectively implemented by the PEZA due to the filing of the present action for injunction on March 7, 1997 by SSI to prevent the enforcement of the PEZA’s board resolution cancelling the lease. It is precisely the propriety of the cancellation of the lease, which compelled SSI to file an action to question the PEZA resolution and simulta-neously sought to enjoin the implementation thereof through an injunction. We therefore find that at the time of the filing of the case, SSI was still the lessee of the subject property and this is precisely the status quo existingante litem motam, which an injunction seeks to preserve.

The petitioner’s claim that the Court of Appeals gravely erred in holding that there was an ab-sence of an administrative hearing that violated SSI’s right to due process is misplaced. While the Court of Appeals found that the alleged cancellation of the agreement made by the PEZA with SSI was aggravated by lack of hearing on the administrative level, the Court of Appeals never ruled on the validity of the basis of the PEZA in revoking said agreement nor the manner by which said cancellation was performed. The Court of Appeals correctly ruled that it was only after a proper hearing in the trial court where the main action (Special Civil Action No. 025-ML) was still pending when the determination of the validity of the cancellation could be made. In the same manner, we limit ourselves to only the determination of whether injunction was prop-erly issued lest we preempt the trial court’s decision in the main action in Special Civil Action No. 025-ML where a thorough hearing on the merits of the case must be held by the lower court to resolve the respective litigants’ claims. In general, courts should avoid issuing a writ of preliminary injunction, which in effect disposes of the main case without trial.[14]

With respect to the validity of the orders issued by the respondent judge dated June 20, 1997 and October 11, 1999, the Court notes that the June 20 order is being questioned by the PEZA for the first time in its Petition while the October 11 order is being questioned for the first time in its Memorandum. Inasmuch as the petitioner, in its appeal to the Court of Appeals in G. R. SP No. 44080, never questioned these orders, there is no legal basis to determine their validity through this petition where the only issue properly raised by the petitioner is the validity of the issuance of the injunction.

Finally, we rule that the petitioner is not guilty of a "special specie" of forum shopping even if it raises the same issues raised in the Court of Appeals in CA G.R. SP No. 44080. There is fo-rum shopping whenever, as a result of an adverse decision in one forum, a party seeks a fa-vorable opinion (other than by appeal or certiorari) in another.[15] Considering that the peti-tioner is questioning the Court of Appeals’ ruling in CA G.R. SP No. 44080 which held that the respondent judge did not commit grave abuse of discretion in issuing a writ of injunction by virtue of a petition for certiorari to this Court on purely questions of law, the petitioner cannot be guilty of forum shopping. To rule otherwise would render nugatory the PEZA’s right to ap-peal the decision of the Court of Appeals to the Supreme Court on purely questions of law.

ACCORDINGLY, the decision of the Court of Appeals in CA-G.R. SP No. 44080 is AFFIRMED and the instant petition is hereby DENIED.

No pronouncement as to costs.

SO ORDERED.

Melo, (Chairman), Vitug, Panganiban, and Purisima, JJ., concur.

[1] Third Division composed of the ponente J. Lourdes K. Tayao-Jaguros and the members: J. Gloria C. Paras (Chairman) and J. Sal-vador J. Valdesz, Jr. concurring.[2] Decision, pp. 1-2.[3] Order dated March 10, 1997; Rollo, p. 153.[4] Rollo, p. 154.

Real Estate MortgagePART I

1. Go v. Bacaron, G.R. No. 159048, 472 SCRA 339 (2005)

BENNY  GO,                                            G.R. No. 159048       Petitioner,                                        

Present:                                                                            

    Panganiban, J.,                                                                                Chairman,          - versus -                                             Sandoval-

Gutierrez                                                    Corona,

                                                                       Carpio Morales, and

                                                                       Garcia, JJ                                                                                                                                     Promulgated:ELIODORO BACARON,          

      Respondent.                   October 11, 2005x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - --

x 

DECISION 

PANGANIBAN, J.: 

he present Contract, which purports to be an absolute

deed of sale, should be deemed an equitable mortgage for

the following reasons: (1) the consideration has been

proven to be unusually inadequate; (2) the supposed vendor has

remained in possession of the property even after the execution

of the instrument; and (3) the alleged seller has continued to pay

the real estate taxes on the property.

The Case

 

Before us is a Petition for Review[1] under Rule 45 of the

Rules of Court, seeking to set aside the October 17, 2002

Decision[2] and the May 20, 2003 Resolution[3] of the Court of

Appeals (CA) in CA-GR CV No. 67218.  The assailed Decision

disposed as follows: “WHEREFORE, premises considered, the Decision dated February 24,

2000 of the Regional Trial Court of Davao City, Branch 12, in Civil Case No. 25,101-97 is hereby REVERSED and SET ASIDE and a new one is hereby rendered ordering the reformation of the subject instrument, such that the same

T

must be considered a mortgage contract and not a transfer of right.  Costs against [petitioner].”[4]

   

The assailed Resolution denied Reconsideration. 

 

The Facts

 

The antecedents are narrated by the CA as follows: 

“As evidenced by the Transfer of Rights dated October 1, 1993, Eliodoro Bacaron conveyed a 15.3955-hectare parcel of land located in Langub, Talomo, Davao City, in favor of Benny Go for P20,000.00.

“About a year thereafter, Bacaron, seeking to recover his property, went to Go to pay his alleged P20,000.00 ‘loan’ but the latter refused to receive the same and to return his property saying that the transaction between the two of them was a sale and not a mortgage as claimed by Bacaron.

 “Consequently, on March 5, 1997, Eliodoro Bacaron, as plaintiff [herein re-

spondent], filed a Complaint for Reformation of Instrument with Damages and prayer for the issuance of a writ of preliminary injunction, with the Regional Trial Court of Davao City, Branch 12, against the [petitioner] Benny Go, which case was docketed as Civil Case No. 25,101-97.

 “In his Complaint, [respondent] alleged that in the middle part of 1993, he

suffered business reversals which prompted him, being in urgent need of funds, to borrow P20,000.00 from the [petitioner].  He however averred that prior to ex-tending said loan to him, the [petitioner] required him to execute a document pur-porting to be a Transfer of Rights but was told that the same would only be a for-mality as he could redeem the unregistered land the moment he pays the loan.  Admitting that he signed the instrument despite knowing that the same did not express the true intention of the parties’ agreement, i.e., that the transaction was a mere equitable mortgage, the [respondent] explained that he did so only be-cause he was in a very tight financial situation and because he was assured by the [petitioner] that he could redeem his property.  To support this claim, [respon-dent] stressed the fact that the consideration in the instrument was merely P20,000.00, which is grossly inadequate as the selling price of a 15-hectare land considering that, at that time, the market value of land in Davao City amounts to P100,000.00 per hectare.  [Respondent] narrated that a year there-after, or in a middle part of 1994, he was able to raise the P20,000.00 and went to the [petitioner] to pay his loan but the latter refused to accept his payment, in-

sisting that the transaction entered into by the parties was not an equitable mort-gage, as the [respondent] insists, but a real transfer of right over the property.  Because of said refusal, [respondent] continued, he was compelled to refer the matter to his lawyer in order to request the [petitioner] to accept his payment oth-erwise he would file the necessary action in court.  Despite said formal demand by the [respondent], however, [petitioner] allegedly continued to refuse to recog-nize the ‘equitable mortgage’, prompting [respondent] to consign the P20,000.00 with the Clerk of Court of the RTC of Davao City, Branch 12.  He thus insisted that it is [petitioner] who is ‘dead wrong’ in not recognizing the equitable mort-gage since, aside from the fact that the consideration was unusually inadequate, [respondent] allegedly remained in possession of the property.

“[Respondent] thus prayed for an award for moral damages, in view of the [petitioner’s] evident bad faith in refusing to recognize the equitable mortgage, and for attorney’s fees as [petitioner’s] alleged stubbornness compelled him to engage the services of counsel.  He likewise sought an award for exemplary damages to deter others from committing similar acts and at the same time asked the court to issue a writ of preliminary injunction and/or temporary restrain-ing order to prevent [petitioner] from dispossessing [respondent] of the subject property or from disposing of the same in favor of third parties as these acts would certainly work injustice for and cause irreparable damage to the [respon-dent].  The prayer for the issuance of a restraining order was however denied by the court in an Order.

 “[Petitioner] filed his Answer on May 5, 1997, denying [respondent’s] claim

that the transaction was only an equitable mortgage and not an actual transfer of right.  He asserted that the truth of the matter was that when [respondent] suf-fered business reverses, his accounts with the [petitioner], as evidenced by post-dated checks, cash vouchers and promissory notes, remained unpaid and his to-tal indebtedness, exclusive of interests, amounted to P985,423.70.  [Petitioner] further averred that, in order to avoid the filing of cases against him, [respondent] offered to pay his indebtedness through dacion en pago, giving the land in ques-tion as full payment thereof.  In addition, he stressed that considering that the property is still untitled and the [respondent] bought the same from one Meliton Bacarro for onlyP50,000.00, it is most unreasonable for him to agree to accept said land in exchange for over a million pesos of indebtedness.  He claimed though that he was only forced to do so when [respondent] told him that if he did not accept the offer, other creditors would grab the same.

 “By way of affirmative defenses, the [petitioner] pointed out that [respon-

dent] has no cause of action against him as the [respondent] failed to comply with the essential requisites for an action for reformation of instrument.  He more-over alleged that the [respondent] is in estoppel because, by his own admission, he signed the document knowing that the same did not express the true intention of the parties.  Further, [petitioner] claimed that there was a valid transfer of the property herein since the consideration is not only the actual amount written in the instrument but it also includes the outstanding obligation of [respondent] to the [petitioner] amounting to almost P1 million.

 

“As counterclaim, [petitioner] averred that, because of this baseless com-plaint, he suffered mental anguish, wounded feelings and besmirched reputation, entitling him to moral damages amounting to P20,000.00, and that in order to de-ter others from doing similar acts, exemplary damages amounting to P20,000.00 should likewise be awarded in his favor.  [Petitioner] also prayed for attorney’s fees and litigation expenses claiming that, because he was constrained to liti-gate, he was forced to hire the services of counsel.

 x x x                       x x x                       x x x

 “Trial ensued and thereafter the trial court rendered its Decision dated

February 24, 2000 dismissing the complaint while finding the [petitioner’s] coun-terclaim meritorious.  In making said ruling, the lower court, citing Article 1350 (should be 1359) of the New Civil Code, found that [respondent] failed to estab-lish the existence of all the requisites for an action for reformation by clear, con-vincing and competent evidence.  Considering [respondent’s] own testimony that he read the document and fully understood the same, signing it without making any complaints to his lawyer, the trial court held that the evidence on record shows that the subject instrument had been freely and voluntarily entered into by the parties and that the same expresses the true intention of the parties.  The court further noted that the [respondent’s] wife even signed the document and that the same had been duly acknowledged by the parties before a notary public as their ‘true act and voluntary deed.’

 “The trial court likewise observed that, contrary to [respondent’s] claim that

the transaction was a mere mortgage of the property, the terms of the instrument are clear and unequivocable that the property subject of the document was ‘sold, transferred, ceded and conveyed’ to the [petitioner] ‘by way of absolute sale,’ and hence, no extrinsic aids are necessary to ascertain the intention of the parties as the same is determinable from the document itself.  Moreover, said court empha-sized that considering the fact that [respondent] is an educated person, having studied in an exclusive school like Ateneo de Davao, and an experienced busi-nessman, he is presumed to have acted with due care and to have signed the in-strument with full knowledge of its contents and import.  [Respondent’s] claim that he merely borrowed money from the [petitioner] and mortgaged the property subject of litigation to guarantee said loan was thus found to be specious by the court, which found that the [respondent] was actually indebted to the [petitioner] for almost a million pesos and that the true consideration of the sale was in fact said outstanding obligation.

 “With respect to [respondent’s] alleged possession of the property and

payment of real estate taxes, both of which were relied upon by the [respondent] to boost his assertion that the transaction was merely an equitable mortgage, the trial court said that his claim of possession is belied by the fact that the actual oc-cupants of the property recognize that the [petitioner] owns the same and in fact said occupants prevented [respondent’s] wife from entering the premises.  The court, noting that the [petitioner] also paid the realty taxes, was also of the opin-

ion that [respondent] merely made such payments in order to lay the basis of his allegation that the contract was a mere equitable mortgage.

 “Accordingly, the court held that [respondent] is also not entitled to his

other claims and that his unfounded action caused [petitioner] to an award for moral damages, in addition to the expenses he incurred in defending his cause, i.e. services of a lawyer and transportation and other expenses, which justifies an award for the reimbursement of his expenses and attorney’s fees.”[5]

   

Ruling of the Court of Appeals

 

          Granting respondent’s appeal, the appellate court ruled

that the Contract entered into by the parties should be deemed

an equitable mortgage, because the consideration for the sale

was grossly inadequate.  By continuing to harvest the crops and

supervise his workers, respondent remained in control of the

property.  True, upon the institution of this case, petitioner paid

the required real estate taxes that were still in arrears.  Respon-

dent, however paid the taxes for 1995, 1996 and 1997 -- the years

between the dates when the alleged absolute sale was entered

into on October 1, 1993, and when this case was instituted on

March 5, 1997.[6]

 

          Granting respondent’s prayer for reformation of the Con-

tract, the CA ruled that the instrument failed to reflect the true

intention of the parties because of petitioner’s inequitable con-

duct.[7]

 

          Hence, this Petition.[8]

  

The Issues 

 

Petitioner raises the following issues for this Court’s

consideration: 

“I. Whether o[r] not the Court of Appeals erred in ruling that there was inadequate consideration. 

“II. Whether o[r] not the Court of Appeals erred in ruling that the respondent remained in possession of the land in question. 

“III. Whether or not the Court of Appeals erred in ruling that the taxes were not paid by the petitioner. 

“IV. Whether or not the Court of Appeals erred in ruling that reformation is proper.”[9]

   

                  Simply put, these are the issues to be resolved: (1)

whether the agreement entered into by the parties was one

for equitable mortgage or for absolute sale; and (2)

whether the grant of the relief of contract reformation was

proper.  

The Court’s Ruling

 The Petition has no merit.   

First Issue:Equitable Mortgage

   

          An equitable mortgage has been defined “as one which al-

though lacking in some formality, or form or words, or other req-

uisites demanded by a statute, nevertheless reveals the intention

of the parties to charge real property as security for a debt, and

contains nothing impossible or contrary to law.”[10]   

 

The instances in which a contract of sale is presumed to be

an equitable mortgage are enumerated in Article 1602 of the Civil

Code as follows: “Art. 1602.  The contract shall be presumed to be an equitable mortgage,

in any of the following cases:

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

inadequate;(2)                                When the vendor remains in possession as lessee or other-

wise;(3)                                When upon or after the expiration of the right to repurchase

another instrument extending the period of redemption or granting a new period is executed;

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

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

(6)                                In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

 In any of the foregoing cases, any money, fruits, or other benefit to be re-

ceived by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.”

   

          Furthermore, Article 1604 of the Civil Code provides that

“[t]he provisions of Article 1602 shall also apply to a contract pur-

porting to be an absolute sale.”

 

          In the present case, three of the instances enumerated in

Article 1602 -- grossly inadequate consideration, possession of the

property, and payment of realty taxes -- attended the assailed

transaction and thus showed that it was indeed an equitable

mortgage.  Inadequate Consideration 

 

          Petitioner Go avers that the amount of P20,000 was not un-

usually inadequate.  He explains that the present parties entered

into a Dacion en Pago, whereby respondent conveyed the subject

property as payment for his outstanding debts to petitioner --

debts supposedly amounting to P985,243.70.[11]  To substantiate

his claim, petitioner presented the checks that respondent had is-

sued, as well as the latter’s testimony purportedly admitting the

genuineness and due execution of the checks and the existence of

the outstanding debts.[12]  Petitioner Go contends that respondent

failed to establish by sufficient evidence that those debts had al-

ready been paid.[13]  Petitioner relies on the trial court’s finding

that respondent knowingly and intentionally entered into a con-

tract of sale, not an equitable mortgage.[14] 

 

          On the other hand, Respondent Bacaron argues that the

value of the property at the time of the alleged sale was P120,000

per hectare, and that the indicated sale amount of P20,000 was

thus grossly iniquitous.[15]  Allegedly, the previous cash advances

secured from petitioner’s father had been settled, as evidenced

by the fact that petitioner did not negotiate further or encash the

checks; the latter could have done so, if the obligation was still

extant.[16]  Respondent points out that he paid for that obligation

with the coprax he had previously delivered to the father.[17]  Peti-

tioner allegedly admitted this fact, though inadvertently, when he

testified that respondent had already paid some of the latter’s

previous cash advances.[18]  Otherwise, petitioner would have then

set off his own debt to respondent (amounting to P214,000)

against the amount of almost one million pesos that the latter

supposedly owed him.[19]

 

          Checks have the character of negotiability.  At the same

time, they may constitute evidence of indebtedness.[20]  Those pre-

sented by petitioner may indeed evince respondent’s indebted-

ness to him in the amounts stated on the faces of those instru-

ments.  He, however, acknowledges (1) that respondent paid

some of the obligations through the coprax delivered to peti-

tioner’s father; and (2) that petitioner owed and subsequently

paid respondent P214,000.[21] 

 

          The parties’ respective arguments show that the sum

of P20,000, by itself, is inadequate to justify the purported abso-

lute Transfer of Rights.[22]  Petitioner’s claim that there was a da-

cion en pago is not reflected on the instrument executed by the

parties.  That claim, however, confirms the inadequacy of

the P20,000 paid in consideration of the Transfer of Rights;

hence, the Contract does not reflect the true intention of the par-

ties.  As to what their true intention was -- whether dacion en

pago or equitable mortgage -- will have to be determined by some

other means.

 

Possession 

According to Article 1602(2) of the New Civil Code, one of

the instances showing that a purported contract of sale is

presumed to be an equitable mortgage is when the supposed

vendor remains in possession of the property even after the

conclusion of the transaction. 

 

In general terms, possession is the holding of a thing or the

enjoyment of a right, whether by material occupation or by the

fact 

that the right -- or, as in this case, the property -- is subjected

to the will of the claimant.[23]  In Director of Lands v. Heirs of

Abaldonado,[24] the gathering of the products of and the act of

planting on the land were held to constitute occupation,

possession and cultivation.

 

In the present case, the witnesses of respondent swore that

they had seen him gather fruits and coconuts on the property. 

Based on the cited case, the witnesses’ testimonies sufficiently

establish that even after the execution of the assailed Contract,

respondent has remained in possession of the property.  The

testimonies proffered by petitioner’s witnesses merely indicated

that they were tenants of the property.  Petitioner only informed

them that he was the new owner of the property.  This attempt at

a factual presentation hardly signifies that he exercised

possession over the property.  As held by the appellate court,

petitioner’s other witness (Redoña) was unconvincing, because he

could not even say whether he resided within the premises.[25] 

 

The factual findings of the trial court and the CA are

conflicting and, hence, may be reviewed by this Court.[26] 

Normally, the findings of the trial court on the credibility of

witnesses should be respected.  Here, however, their demeanor

while testifying is not at issue.  What is disputed is the substance

of their testimonies -- the facts to which they testified.  Assuming

that the witnesses of petitioner were indeed credible, their

testimonies were insufficient to establish that he enjoyed

possession over the property. 

 

Payment of Realty Taxes 

Finally, petitioner asserts that the trial court’s finding that he

paid the realty taxes should also be given corresponding weight.[27]

 

Respondent counters with the CA’s findings that it was he

who paid realty taxes on the property.  The appellate court

concluded that he had paid taxes for the years 1995, 1996 and

1997 within each of those years; hence, before the filing of the

present controversy.  In contrast, petitioner paid only the

remaining taxes due on October 17, 1997, or after the case had

been instituted.  This fact allegedly proves that respondent has

remained in possession of the property and continued to be its

owner.[28]  He argues that if he had really transferred ownership,

he would have been foolish to continue paying for those taxes.[29]

 

          On this point, we again rule for respondent.

 

          Petitioner indeed paid the realty taxes on the property for

the years 1980 to 1997.  The records show that the payments

were all simultaneously made only on October 31, 1997, evidently

in the light of the Complaint respondent had filed before the trial

court on March 5, 1997.[30]  On the other hand, respondent contin-

ued to pay for the realty taxes due on the property for the years

1995, 1996 and 1997.[31]

 

          That the parties intended to enter into an equitable mort-

gage is bolstered by respondent’s continued payment of the real

property 

taxes subsequent to the alleged sale.  Payment of those taxes is a

usual burden attached to ownership.  Coupled with continuous

possession of the property, it constitutes evidence of great weight

that a person under whose name the realty taxes were declared

has a valid and rightful claim over the land.[32]

 

That the parties intended to enter into an equitable mortgage

is also shown by the fact that the “seller” was driven to obtain the

loan at a time when he was in urgent need of money; and that he

signed the Deed of Sale, despite knowing that it did not express

the real intention of the parties.[33]  In the present proceedings,

the collapse of his business prompted respondent to obtain the

loan.[34]  Petitioner himself admitted that at the time they entered

into the alleged absolute sale, respondent had suffered from seri-

ous business reversals.[35] 

 

Second Issue:Reformation of Instrument

  

Petitioner claims that the CA erred in granting the remedy of

reformation of contracts.   He avers that the failure of the

instrument to express the parties’ true agreement was not due to

his mistake; or to fraud, inequitable conduct, or accident. [36]

 

          We rule for respondent.

 

          Ultimately, it is the intention of the parties that determines

whether a contract is one of sale or of mortgage.[37]  In the

present case, one of the parties to the contract raises as an issue

the fact that their true intention or agreement is not reflected in

the instrument.  Under this circumstance, parol evidence be-

comes admissible and competent evidence to prove the true na-

ture of the instrument.[38]  Hence, unavailing is the assertion of

petitioner that the interpretation of the terms of the Contract is

unnecessary, and that the parties clearly agreed to execute an ab-

solute deed of sale.  His assertion does not hold, especially in the

light of the provisions of Article 1604 of the Civil Code, under

which even contracts purporting to be absolute sales are subject

to the provisions of Article 1602.

 

          Moreover, under Article 1605 of the New Civil Code, the

supposed vendor may ask for the reformation of the instrument,

should the case be among those mentioned in Articles 1602 and

1604.  Because respondent has more than sufficiently established

that the assailed Contract is in fact an equitable mortgage rather

than an absolute sale, he is allowed to avail himself of the remedy

of reformation of contracts. 

 

WHEREFORE, the Petition is hereby   DENIED,   and the

assailed Decision and Resolution   AFFIRMED .

 

SO ORDERED.

[1]           Rollo, pp. 7-19.[2]           Id., pp. 21-37. Eleventh Division. Penned by Justice Mercedes Gozo-

Dadole and concurred in by Justices Salvador J. Valdez Jr. (Division chair) and Sergio L. Pestaño (member).

[3]           Id., p. 44.[4]           CA Decision, p. 16; rollo, p. 36.[5]           Id., pp. 2-7 & 22-27. Citations omitted.[6]           Id., pp. 14-15 & 34-35.[7]           Id., pp. 15-16 & 35-36.[8]           This case was deemed submitted for decision on May 6, 2004, upon this

Court’s receipt of petitioners’ Memorandum, signed by Petitioner Benny Go, assisted by Atty. Leonardo D. Suario.  Respondent’s Memorandum, signed by Atty. Oswaldo A. Macadangdang, was received by this Court on April 13, 2004.

[9]           Petitioners’ Memorandum, p. 3; rollo, p. 291.  Original in uppercase.[10]          Villanueva, Ceasar L, Philippine Law on Sales, (1998 ed.), p. 271 (cit-

ing Matanguihan v. Court of Appeals, 341 Phil. 379, 389-390, July 11, 1997, per Davide Jr., J. [now CJ]).

[11]          Petitioners’ Memorandum, p. 6; rollo, p. 294.

[12]          Id., pp. 3-6 & 291-294.[13]          Id., pp. 6 & 294.[14]          Id., pp. 7-8 & 295-296.[15]          Id., pp. 6 & 263.[16]          Respondent’s Memorandum, p. 11; rollo, p. 268.[17]          Id., pp. 12 & 269.[18]          Ibid.[19]          Id., pp. 13-14 & 270-271.[20]          Pacheco v. CA, 377 Phil. 627, December 2, 1999; People v. Tugbang,

196 SCRA 341, April 26, 1991.[21]          The most prudent course for petitioner -- being the astute businessman

that he was -- would have been to set off partially the P214,000.00 he owed respondent against the P985,243.70 the latter owed him (Lapat v. Rosario, 371 Phil. 456, August 17, 1999).  Partial compensation would have been proper if indeed the present parties were reciprocal creditors and debtors of each other, and if all the elements provided in Article 1279 of the Civil Code existed.            “Article 1279. In order that compensation may be proper, it is necessary:

‘(1)  That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;

‘(2)  That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;

‘(3)  That the two debts be due;‘(4)  That they be liquidated and demandable;‘(5)  That over neither of them there be any retention or controversy, commenced by

third persons and communicated in due time to the debtor.’”[22]          Rollo, p. 54.[23]          Article 523 of the Civil Code; see also Tolentino, Arturo M. Commen-

taries and Jurisprudence on the Civil Code of the Philippines, Vol. II (1992), p. 238 (citing 4 Manresa 17).

[24]          44 O.G. 3848.[25]          Assailed Decision, p. 14; rollo, p. 34.[26]          Misa v. Court of Appeals, 212 SCRA 217, August 5, 1992; Cebu Shipyard

v. Eng’g. Works, Inc., 366 Phil. 439, May 5, 1999; Dee v. Court of Appeals, 238 SCRA 254, November 21, 1994.

[27]          Petitioner’s Memorandum, p. 11; rollo, p. 299.[28]          Respondent’s Memorandum, pp. 22-23; rollo, pp. 279-280.[29]          Id., pp. 23 & 280.[30]          Assailed Decision, pp. 2 & 14; rollo, pp. 22 & 34; see also Exhibits “16-

19”; rollo, pp. 110-113.[31]          Exhibit “K”; rollo, p. 92.[32]          Aguila Jr. v. CA, 377 Phil. 257, November 25, 1999; Matanguihan v. CA,

341 Phil. 379, July 11, 1997; Marquez v. Valencia, 77 Phil. 783, December 20, 1946; Escoto v. Arcilla, 89 Phil. 199, May 30, 1951.

[33]          Spouses Uy v. CA, 411 Phil. 788, June 21, 2001; Labasan v. Lacuesta, 86 SCRA 16, October 30, 1978;Marquez v. Valencia, 77 Phil. 783, December 20, 1946; See also Art. 1362, New Civil Code.

[34]          Respondent’s Memorandum, p. 15; rollo, p. 272.[35]          TSN, March 17, 1999, p. 4.

[36]          Petitioner’s Memorandum, p. 12; rollo, p. 300.[37]          Tolentino, Arturo M. Commentaries and Jurisprudence on the Civil Code

of the Philippines, Vol. V (1992), p. 156.[38]          Id., at p. 157 (citing Macapinlac v. Gutierrez Repide, 43 Phil. 770, Sep-

tember 20, 1922).

2. Ramos v. Sarao, G.R. No. 149756, 451 SCRA 103 (2005)

[G.R. No. 149756.  February 11, 2005]

MYRNA RAMOS, petitioner, vs. SUSANA S. SARAO and JONAS RAMOS,respon-dents.

D E C I S I O N

PANGANIBAN, J.:

Although the parties in the instant case denominated their contract as a “DEED OF SALE UN-DER PACTO DE RETRO,” the “sellers” have continued to possess and to reside at the subject house and lot up to the present.  This evident factual circumstance was plainly overlooked by the trial and the appellate courts, thereby justifying a review of this case.  This overlooked fact clearly shows that the petitioner intended merely to secure a loan, not to sell the property.  Thus, the contract should be deemed an equitable mortgage.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the August 31, 2001 Decision[2] of the Court of Appeals (CA) in CA-GR CV No. 50095, which disposed as follows:

“WHEREFORE, the instant appeal is DISMISSED for lack of merit.  The decision dated January 19, 1995 of the Regional Trial Court, Branch 145, Makati City is AFFIRMED in toto.”[3]

The Facts

On February 21, 1991, Spouses Jonas Ramos and Myrna Ramos executed a contract over their conjugal house and lot in favor of Susana S. Sarao for and in consideration of P1,310,430.[4]  Entitled “DEED OF SALE UNDER PACTO DE RETRO,” the contract, inter alia, granted the Ramos spouses the option to repurchase the property within six months from February 21, 1991, for P1,310,430 plus an interest of 4.5 percent a month.[5]  It was further agreed that should the spouses fail to pay the monthly interest or to exercise the right to repurchase within the stipulated period, the conveyance would be deemed an absolute sale.[6]

On July 30, 1991, Myrna Ramos tendered to Sarao the amount of P1,633,034.20 in the form of two manager’s checks, which the latter refused to accept for being allegedly insufficient.[7] On August 8, 1991, Myrna filed a Complaint for the redemption of the property and moral damages plus attor-ney’s fees.[8]  The suit was docketed as Civil Case No. 91-2188 and raffled to Branch 145 of the Re-

gional Trial Court (RTC) of Makati City.  On August 13, 1991, she deposited with the RTC two checks that Sarao refused to accept.[9]

On December 21, 1991, Sarao filed against the Ramos spouses a Petition “for consolidation of ownership in pacto de retro sale” docketed as Civil Case No. 91-3434 and raffled to Branch 61 of the RTC of Makati City.[10]  Civil Case Nos. 91-2188 and 91-3434 were later consolidated and jointly tried before Branch 145 of the said Makati RTC.[11]

The two lower courts narrated the trial in this manner:

“x x x Myrna [Ramos] testified as follows: On February 21, 1991, she and her husband borrowed from Sarao the amount of P1,234,000.00, payable within six (6) months, with an interest thereon at 4.5% compounded monthly from said date until August 21, 1991, in order for them to pay [the] mortgage on their house.  For and in consideration of the said amount, they executed a deed of sale under a [pacto de retro] in favor of Sarao over their conjugal house and lot registered under TCT No. 151784 of the Registry of Deeds of Makati (Exhibit A).  She further claimed that Sarao will keep the torrens title until the lapse of the 6-month period, in which case she will redeem [the] sub-ject property and the torrens title covering it.  When asked why it was the amount of P1,310,430 in-stead of the aforestated amount which appeared in the deed, she explained that upon signing of the deed in question, the sum of P20,000.00 representing attorney’s fees was added, and its total amount was multiplied with 4.5% interest rate, so that they could pay in advance the compounded interest.  She also stated that although the market value of the subject property as of February 1991 [was] calculated to [be] more or less P10 million, it was offered [for] only P1,310,430.00 for the reason that they intended nothing but to redeem the same.  In May 1991, she wrote a letter to Atty. Mario Aguinaldo requesting him to give a computation of the loan obligation, and [expressed] her intention to redeem the subject property, but she received no reply to her letter.  Instead, she, through her husband, secured directly from Sarao a handwritten computation of their loan obliga-tion, the total of which amount[ed] to P1,562,712.14.  Later, she sent several letters to Sarao, [fur-nishing] Atty. Aguinaldo with copies, asking them for the updated computation of their loan obliga-tion as of July 1991, but [no reply was again received].  During the hearing of February 17, 1992, she admitted receiving a letter dated July 23, 1991 from Atty. Aguinaldo which show[ed] the com-putation of their loan obligation [totaling] to P2,911,579.22 (Exhs. 6, 6-A).  On July 30, 1991, she claimed that she offered the redemption price in the form of two (2) manager’s checks amounting to P1,633,034.20 (Exhs. H-1 & H-2) to Atty. Aguinaldo, but the latter refused to accept them be-cause they [were] not enough to pay the loan obligation.  Having refused acceptance of the said checks covering the redemption price, on August 13, 1991 she came to Court to consign the checks (Exhs. L-4 and L-5).  Subsequently, she proceeded to the Register of Deeds to cause the annotation of lis pendens on TCT No. 151784 (Exh. B-1-A).  Hence, she filed the x x x civil case against Sarao.

“On the other hand, Sarao testified as follows: On February 21, 1991, spouses Ramos together with a certain Linda Tolentino and her husband, Nestor Tolentino approached her and offered transac-tion involv[ing a] sale of property[.  S]he consulted her lawyer, Atty. Aguinaldo, and on the same date a corresponding deed of sale under pacto de retrowas executed and signed (Exh. 1 ).  Later on, she sent, through her lawyer, a demand letter dated June 10, 1991 (Exh. 6) in view of Myrna’s fail-ure to pay the monthly interest of 4.5% as agreed upon under the deed[.  O]n June 14, 1991 Jonas replied to said demand letter (Exh. 8); in the reply Jonas admitted that he no longer ha[d] the capac-ity to redeem the property and to pay the interest.  In view of the said reply of Jonas, [Sarao] filed

the corresponding consolidation proceedings.  She [further claimed] that before filing said action she incurred expenses including payment of real estate taxes in arrears, x x x transfer tax and capi-tal [gains] tax, and [expenses] for [the] consolidated proceedings, for which these expenses were accordingly receipted (Exhs. 6, 6-1 to 6-0).  She also presented a modified computation of the ex-penses she had incurred in connection with the execution of the subject deed (Exh. 9).  She also tes-tified that Myrna did not tender payment of the correct and sufficient price for said real property within the 6-month period as stipulated in the contract, despite her having been shown the computa-tion of the loan obligation, inclusive of capital gains tax, real estate tax, transfer tax and other ex-penses.  She admitted though that Myrna has tendered payment amounting to P1,633,034.20 in the form of two manager’s checks, but these were refused acceptance for being insufficient.  She also claimed that several letters (Exhs. 2, 4 and 5) were sent to Myrna and her lawyer, informing them of the computation of the loan obligation inclusive of said expenses.  Finally, she denied the allega-tions made in the complaint that she allied herself with Jonas, and claimed that she ha[d] no knowl-edge about said allegation.”[12]

After trial, the RTC dismissed the Complaint and granted the prayer of Sarao to consolidate the ti-tle of the property in her favor.[13] Aggrieved, Myrna elevated the case to the CA.

Ruling of the Court of Appeals

The appellate court sustained the RTC’s finding that the disputed contract was a bonafide pacto de retro sale, not a mortgage to secure a loan.[14] It ruled that Myrna Ramos had failed to exercise the right of repurchase, as the consignation of the two manager’s checks was deemed invalid.  She al-legedly failed (1) to deposit the correct repurchase price and (2) to comply with the required notice of consignation.[15]

Hence, this Petition.[16]

The Issues

Petitioner raises the following issues for our consideration:

“1.    Whether or not the honorable appellate court erred in ruling the subject Deed of Sale under Pacto de Retro was, and is in reality and under the law an equitable mortgage;

“2.    Whether or not the honorable appellate court erred in affirming the ruling of the court a quo that there was no valid tender of payment of the redemption price neither [sic] a valid consignation in the instant case; and

“3.    Whether or not [the] honorable appellate court erred in affirming the ruling of the court a quo denying the claim of petitioner for damages and attorney’s fees.”[17]

The Court’s Ruling

The Petition is meritorious in regard to Issues 1 and 2.

First Issue:A Pacto de Retro   Sale

or an Equitable Mortgage?

Respondent Sarao avers that the herein Petition should have been dismissed outright, because petitioner (1) failed to show proof that she had served a copy of it to the Court of Appeals and (2) raised questions of fact that were not proper issues in a petition under Rule 45 of the Rules of Court.[18] This Court, however, disregarded the first ground; otherwise, substantial injustice would have been inflicted on petitioner.  Since the Court of Appeals is not a party here, failure to serve it a copy of the Petition would not violate any right of respondent.  Service to the CA is indeed mentioned in the Rules, but only to inform it of the pendency of the appeal before this Court.

As regards Item 2, there are exceptions to the general rule barring a review of questions of fact.[19]The Court reviewed the factual findings in the present case, because the CA had manifestly over-looked certain relevant and undisputed facts which, after being considered, justified a different con-clusion.[20]

Pacto de Retro Sale Distinguishedfrom Equitable Mortgage

The pivotal issue in the instant case is whether the parties intended the contract to be a bona fide-pacto de retro sale or an equitable mortgage.

In a pacto de retro, ownership of the property sold is immediately transferred to the vendee a retro, subject only to the repurchase by the vendor a retro within the stipulated period. [21] The ven-dor a retro’sfailure to exercise the right of repurchase within the agreed time vests upon the vendee a retro, by operation of law, absolute title to the property.[22] Such title is not impaired even if the vendee a retrofails to consolidate title under Article 1607 of the Civil Code.[23]

On the other hand, an equitable mortgage is a contract that -- although lacking the formality, the form or words, or other requisites demanded by a statute -- nevertheless reveals the intention of the parties to burden a piece or pieces of real property as security for a debt. [24] The essential requisites of such a contract are as follows: (1) the parties enter into what appears to be a contract of sale, but (2) their intention is to secure an existing debt by way of a mortgage. [25] The nonpayment of the debt when due gives the mortgagee the right to foreclose the mortgage, sell the property, and apply the proceeds of the sale to the satisfaction of the loan obligation.[26]

This Court has consistently decreed that the nomenclature used by the contracting parties to de-scribe a contract does not determine its nature.[27] The decisive factor is their intention -- as shown by their conduct, words, actions and deeds -- prior to, during, and after executing the agreement. [28] This juristic principle is supported by the following provision of law:

Article 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered.[29]

Even if a contract is denominated as a pacto de retro, the owner of the property may still disprove it by means of parol evidence,[30] provided that the nature of the agreement is placed in issue by the pleadings filed with the trial court.[31]

There is no single conclusive test to determine whether a deed absolute on its face is really a simple loan accommodation secured by a mortgage.[32] However, the law enumerates several in-stances that show when a contract is presumed to be an equitable mortgage, as follows:

Article 1602.  The contract shall be presumed to be an equitable mortgage, in any of the following cases:

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

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

(3) When upon or after the expiration of the right to repurchase another instrument ex-tending the period of redemption or granting a new period is executed;

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

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

(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.[33]

Furthermore, a contract purporting to be a pacto de retro is construed as an equitable mortgage when the terms of the document and the surrounding circumstances so require. [34] The law discour-ages the use of a pacto de retro, because this scheme is frequently used to circumvent a contract known as apactum commissorium.  The Court has frequently noted that a pacto de retro is used to conceal a contract of loan secured by a mortgage. [35] Such construction is consistent with the doctrine that the law favors the least transmission of rights.[36]

Equitable Mortgage Presumedto be Favored by Law

Jurisprudence has consistently declared that the presence of even just one of the circumstances set forth in the forgoing Civil Code provision suffices to convert a contract to an equitable mortgage.[37]Article 1602 specifically states that the equitable presumption applies to any of the cases therein enumerated.

In the present factual milieu, the vendor retained possession of the property allegedly sold. [38]Peti-tioner and her children continued to use it as their residence, even after Jonas Ramos had aban-doned them.[39] In fact, it remained as her address for the service of court orders and copies of Re-spondent Sarao’s pleadings.[40]

The presumption of equitable mortgage imposes a burden on Sarao to present clear evidence to rebut it.  Corollary to this principle, the favored party need not introduce proof to establish such pre-sumption; the party challenging it must overthrow it, lest it persist. [41] To overturn that prima facie fact that operated against her, Sarao needed to adduce substantial and credible evidence to prove that the contract was a bona fide pacto de retro.  This evidentiary burden she miserably failed to dis-charge.

Contrary to Sarao’s bare assertions, a meticulous review of the evidence reveals that the alleged contract was executed merely as security for a loan.

The July 23, 1991 letter of Respondent Sarao’s lawyer had required petitioner to pay a computed amount -- under the heading “House and Lot Loan”[42] -- to enable the latter to repurchase the prop-erty.  In effect, respondent would resell the property to petitioner, once the latter’s loan obligation would have been paid.  This explicit requirement was a clear indication that the property was to be used as security for a loan.

The loan obligation was clear from Sarao’s evidence as found by the trial court, which we quote:

“x x x  [Sarao] also testified that Myrna did not tender payment of the correct and sufficient price for said real property within the 6-month period as stipulated in the contract, despite her having

been shown the computation of the loan obligation, inclusive of capital gains tax, real estate tax, transfer tax and other expenses.  She admitted though that Myrna has tendered payment amounting to P1,633,034.20 in the form of two manager’s checks, but these were refused acceptance for being insufficient.  She also claimed that several letters (Exhs. 2, 4 and 5) were sent to Myrna and her lawyer, informing them of the computation of the loan obligation inclusive of said expenses. x x x.”[43]

Respondent herself stressed that the pacto de retro had been entered into on the very same day that the property was to be foreclosed by a commercial bank. [44]  Such circumstance proves that the spouses direly needed funds to avert a foreclosure sale.  Had they intended to sell the property just to realize some profit, as Sarao suggests,[45] they would not have retained possession of the house and continued to live there.  Clearly, the spouses had entered into the alleged pacto de retro sale to se-cure a loan obligation, not to transfer ownership of the property.

Sarao contends that Jonas Ramos admitted in his June 14, 1991 letter to her lawyer that the con-tract was a pacto de retro.[46] That letter, however, cannot override the finding that the pacto de retro was executed merely as security for a loan obligation.  Moreover, on May 17, 1991, prior to the transmittal of the letter, petitioner had already sent a letter to Sarao’s lawyer expressing the former’s desire to settle the mortgage on the property.[47] Considering that she had already denominated the transaction with Sarao as a mortgage, petitioner cannot be prejudiced by her husband’s alleged ad-mission, especially at a time when they were already estranged.[48]

Inasmuch as the contract between the parties was an equitable mortgage, Respondent Sarao’s remedy was to recover the loan amount from petitioner by filing an action for the amount due or by foreclosing the property.[49]

Second Issue:Propriety of Tender of

Payment and Consignation

Tender of payment is the manifestation by debtors of their desire to comply with or to pay their obligation.[50] If the creditor refuses the tender of payment without just cause, the debtors are dis-charged from the obligation by the consignation of the sum due. [51] Consignation is made by deposit-ing the proper amount to the judicial authority, before whom the tender of payment and the announce-ment of the consignation shall be proved.[52] All interested parties are to be notified of the consigna-tion.[53] Compliance with these requisites is mandatory.[54]

The trial and the appellate courts held that there was no valid consignation, because petitioner had failed to offer the correct amount and to provide ample consignation notice to Sarao. [55] This con-clusion is incorrect.

Note that the principal loan was P1,310,430 plus 4.5 per cent monthly interest compounded for six months.  Expressing her desire to pay in the fifth month, petitioner averred that the total amount due wasP1,633,034.19, based on the computation of Sarao herself.[56] The amount of P2,911,579.22 that the latter demanded from her to settle the loan obligation was plainly exorbitant, since this sum included other items not covered by the agreement.  The property had been used solely as secure ty for the P1,310,430 loan; it was therefore improper to include in that amount payments for gasoline and miscellaneous expenses, taxes, attorney’s fees, and other alleged loans.  When Sarao unjustly refused the tender of payment in the amount of P1,633,034.20, petitioner correctly filed suit and con-signed the amount  in order to be released from the latter’s obligation.

The two lower courts cited Article 1257 of the Civil Code to justify their ruling that petitioner had failed to notify Respondent Sarao of the consignation.  This provision of law states that the obligor

may be released, provided the consignation is first announced to the parties interested in the fulfill-ment of the obligation.

The facts show that the notice requirement was complied with.  In her August 1, 1991 letter, peti-tioner said that should the respondent fail to accept payment, the former would consign the amount.[57] This statement was an unequivocal announcement of consignation.  Concededly, sending to the creditor a tender of payment and notice of consignation -- which was precisely what petitioner did -- may be done in the same act.[58]

Because petitioners’ consignation of the amount of P1,633,034.20 was valid, it produced the ef-fect of payment.[59] “The consignation, however, has a retroactive effect, and the payment is deemed to have been made at the time of the deposit of the thing in court or when it was placed at the dis-posal of the judicial authority.”[60] “The rationale for consignation is to avoid making the performance of an obligation more onerous to the debtor by reason of causes not imputable to him.”[61]

Third Issue:Moral Damages and Attorney’s Fees

Petitioner seeks moral damages in the amount of P500,000 for alleged sleepless nights and anxi-ety over being homeless.[62] Her bare assertions are insufficient to prove the legal basis for granting any award under Article 2219 of the Civil Code.[63] Verily, an award of moral damages is uncalled for, considering that it was Respondent Sarao’s accommodation that settled the earlier obligation of the spouses with the commercial bank and allowed them to retain ownership of the property.

Neither have attorney’s fees been shown to be proper. [64] As a general rule, in the absence of a contractual or statutory liability therefor, sound public policy frowns on penalizing the right to litigate.[65]This policy applies especially to the present case, because there is a need to determine whether the disputed contract was a pacto de retro sale or an equitable mortgage.

Other Matters

In a belated Manifestation filed on October 19, 2004, Sarao declared that she was the “owner of the one-half share of Jonas Ramos in the conjugal property,” because of his alleged failure to file a timely appeal with the CA.[66] Such declaration of ownership has no basis in law, considering that the present suit being pursued by petitioner pertains to a mortgage covering the whole property.

Besides, it is basic that defenses and issues not raised below cannot be considered on appeal.[67]

The Court, however, observes that Respondent Sarao paid real property taxes amounting toP67,567.10 to halt the auction sale scheduled for October 8, 2004, by the City of Muntinlupa. [68] Her payment was made in good faith and benefited petitioner.  Accordingly, Sarao should be reimbursed; otherwise, petitioner would be unjustly enriched,[69] under Article 2175 of the Civil Code which pro-vides:

Art. 2175.      Any person who is constrained to pay the taxes of another shall be entitled to reim-bursement from the latter.

WHEREFORE, the Petition is partly GRANTED and the assailed Decision SET ASIDE.  Judg-ment is hereby rendered:

(1) DECLARING (a) the disputed contract as an equitable mortgage, (b) petitioner’s loan to Re-spondent Sarao to be in the amount of P1,633,034.19 as of July 30, 1991; and (c) the mortgage on the property -- covered by TCT No. 151784 in the name of the Ramos spouses and issued by the Register of Deeds of Makati City --as discharged

(2) ORDERING the RTC to release to Sarao the consigned amount of P1,633,034.19

(3) COMMANDING Respondent Sarao to return to petitioner the owner’s copy of TCT No. 151784 in the name of the Ramos spouses and issued by the Register of Deeds of Makati City

(4) DIRECTING the Register of Deeds of Makati City to cancel Entry No. 24057, the annotation appearing on TCT No. 151784

(5) ORDERING petitioner to pay Sarao in the amount of P67,567.10 as reimbursement for real property taxes

No pronouncement as to costs.

SO ORDERED.

Sandoval-Gutierrez, Corona, Carpio-Morales and Garcia, JJ., concur.

[1] Rollo, pp. 13-28.

[2] Id., pp. 60-72.  Seventh Division.  Penned by Justice Bernardo P. Abesamis, with the concurrence of Justices Godardo A. Jacinto (Division chairman) and Eliezer R. de los Santos (member).

[3] Assailed Decision, p. 13; rollo, p. 72.

[4] Id., pp. 2 & 61.

[5] Deed of Sale under Pacto de Retro, p. 2; rollo, p. 110.

[6] Ibid.

[7] Assailed Decision, p. 3; rollo, p. 62.

[8] Petition, p. 5; rollo, p. 17.

                        Myrna Ramos impleaded her husband, Jonas Ramos, as co-defendant of Sarao.  She alleged that they were already estranged, and that her husband was unwilling to sue as co-plaintiff, notwithstanding that the subject matter of the suit was conjugal property.  Petitioner’s Complaint, p. 1; rollo, p. 270.

[9] Ibid.

                        The trial court issued an order authorizing the clerk of court to receive by way of consignation the amount ofP1,633,034.20 from Myrna Ramos.  RTC Order, dated August 9, 1991; rollo, p. 327.

[10] Respondent’s Memorandum, p. 3; rollo, p. 216.

[11] Petition, ibid.

[12] Assailed Decision, pp. 2-6; rollo, pp. 61-64.

[13] Id., pp. 6 & 65.

[14] Id., pp. 7 & 66.

[15] Id., pp. 11 & 70.

[16] The case was deemed submitted for decision on March 14, 2003, upon this Court’s receipt of petitioner’s Memoran-dum, signed by Atty. Tito Abuda Oneza. Respondent Sarao’s Memorandum, signed by Attys. Mario A. Aguinaldo and Ma. Esmeralda C. Aguinaldo, was received by this Court on March 3, 2003.

Respondent Jonas Ramos submitted a Memorandum on April 22, 2004, signed by Atty. Dante S. David, in which he joined the prayer of petitioner.

In a Notice of Withdrawal of Appearance filed earlier on November 12, 2003, Atty. Dante S. David averred that Myrna and Jonas Ramos had already reconciled and “settled their differences.” Rollo, p. 337.

[17] Petitioners’ Memorandum, p. 6; rollo, p. 260.

[18] Sarao’s Memorandum, p. 20; rollo, p. 233.

[19] Fuentes v. CA, 268 SCRA 703, February 26, 1997; Mighty Corporation v. E & J Gallo Winery , GR No. 154342 , July 14, 2004; CIR v. Embroidery and Garments Industries (Phil.) Inc., 364 Phil. 541, 546, March 22, 1999; Asia Brewery, Inc. v. Court of Appeals, 224 SCRA 437, 443, July 5, 1993.

[20] Carolina Industries, Inc. v. CMS Stock Brokerage, Inc., 97 SCRA 734, 755, May 17, 1980; Abellana v. Dosdos, 121 Phil. 241, 244, February 26, 1965.

[21] Cruz v. Leis, 384 Phil. 303, March 9, 2000; Solid Homes Inc. v. Court of Appeals, 341 Phil. 261, 280, July 8, 1997; De Guzman v. Court of Appeals, 156 SCRA 701, 711, December 21, 1987; Manalansan v. Manalang, 108 Phil. 1041, 1045, July 26, 1960.

[22] Cruz v. Leis, supra; De Guzman v. Court of Appeals, supra;

[23] Article 1607 of the Civil Code provides:  “In case of real property, the consolidation of ownership in the vendee by virtue of the failure of the vendor to comply with the provisions of Article 1616 shall not be recorded in the Registry of Property without a judicial order, after the vendor has been duly heard.”

A judicial order is required merely for the recording of the consolidation of ownership with the Registry of Property.  Cruz v. Leis, supra; De Guzman v. Court of Appeals, supra; Rosario v. Rosario, 110 Phil. 394, 395, De-cember 29, 1960.

[24] Ceballos v. Mercado , GR No. 155856 , May 28, 2004; Matanguihan v. Court of Appeals, 341 Phil. 379, 389, July 11, 1997; Santos v. Court of Appeals, 179 SCRA 363, 367, November 13, 1989.

[25] San Pedro v. Lee,   GR No. 156522 , May 28, 2004; Matanguihan v. Court of Appeals, supra.

[26] Article 2087 of the Civil Code provides: “It is also of the essence of [contracts of pledge or mortgage] that when the principal obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the payment to the creditor.”  See also BPI Family Savings Bank v. Antonio, GR No. 141974, August 9, 2004.

[27] Ching Sen Ben v. Court of Appeals, 373 Phil. 544, 551, September 21, 1999; Lao v. Court of Appeals, 341 Phil. 230, 244, July 8, 1997; Zamora v. Court of Appeals, 328 Phil. 1106, 1115, July 30, 1996.

[28] Ibid.

[29] Civil Code.

[30] Ching Sen Ben v. Court of Appeals, supra; Lapat v. Rosario, 371 Phil. 456, 465, August 17, 1999;

[31] §9, Rule 130, Rules of Court.

[32] Lorbes v. Court of Appeals, 351 SCRA 716, 725, February 15, 2001; Reyes v. Court of Appeals, 393 Phil. 479, 489, August 25, 2000.

[33] Civil Code.

[34] Art. 1603, Civil Code.  See also Olea v. Court of Appeals, 317 Phil. 328, 338, August 14, 1995.

[35] Ching Sen Ben v. Court of Appeals, supra at p. 552; Matanguihan v. Court of Appeals, supra at p. 390.

[36] San Pedro v. Lee, supra; Lorbes v. Court of Appeals, supra at p. 726.

[37] Ibid.; Olea v. Court of Appeals, 317 Phil. 328, 338, August 14, 1995; Lustan v. Court of Appeals, 334 Phil. 609, 616, January 27, 1997; Lizares v. Court of Appeals, 226 SCRA 112, 115, September 6, 1993.

[38] Par. (2), Art. 1602, Civil Code.

[39] See Petition, p. 3; rollo, p. 15.

[40] Id., pp. 2 & 14.

[41] See Tison v. Court of Appeals, 342 Phil. 550, 560, July 31, 1997.

[42] Computation attached to Atty. Mario Aguinaldo’s letter, dated July 23, 1991; rollo, p. 124.

[43] RTC Decision, p. 3 (CA rollo, p. 75); Assailed Decision, p. 5 (rollo, p. 64). Emphasis supplied.

[44] Sarao’s Brief to the CA, p. 15; CA rollo, p. 144.

[45] Ibid.

[46] Sarao referred to the June 14, 1991 letter of Jonas Ramos to her lawyer, Atty. Mario Aguinaldo. It stated: “[M]y wife [Myrna Ramos] and I have at present no financial capacity to repurchase the property purchased by your client,

Mrs. Susana Sarao, to pay the interests and charges.  We are giving you therefore the privilege to exercise the right of your client under the Deed of Sale under Pacto de Retro dated February 21, 1991.” Sarao’s Memoran-dum, p. 23; rollo, p. 236.

[47] Petitioner’s letter dated May 17, 1991; rollo, p. 117.

[48] Petitioner’s Memorandum, p. 3; rollo, p. 257.

[49] Bank of America v. American Realty Corp., 378 Phil. 1279, 1291, December 29, 1999; Danao v. Court of Appeals, 154 SCRA 446, 457, September 30, 1987; Bachrach Motor Co., Inc. v. Icarañgal, 68 Phil. 287, 294, May 29, 1939.

[50] Legaspi v. Court of Appeals, 226 Phil. 24, 29, May 27, 1986.  See Tolentino, Civil Code of the Philippines (1992), Vol. V, p. 319.

[51] Art. 1256, Civil Code.

[52] Art. 1258, Civil Code.  Under Article 1256 of the Civil Code, consignation is the proper remedy (1) when the creditor is absent or unknown or does not appear at the place of payment; (2) when the creditor is incapacitated to receive the payment at the time it is due; (3) when the creditor refuses to give a receipt without just cause; (4) when two or more persons claim the same right to collect; and (5) when the title of the obligation has been lost.

[53] Ibid.

[54] Manuel v. Court of Appeals, 199 SCRA 603, 609, July 25, 1991; Licuanan v. Diaz, 175 SCRA 530, 535, July 21, 1989;Soco v. Militante, 208 Phil. 151, 160, June 28, 1983.

[55] RTC Decision, p. 6; CA rollo, p. 78; Assailed Decision, p. 11; rollo, p. 70.

[56] Computation attached to Atty. Mario Aguinaldo’s letter dated July 23, 1991, supra.

[57] Myrna Ramos letter, August 1, 1991, to Sarao, p. 2; rollo, p. 129.

[58] Tolentino, Civil Code of the Philippines (1992), Vol. IV, p. 326 (citing Perez Gonzales & Alguer: 2-I Enneccerus, Kipp & Wolf 322.)

[59] Eternal Gardens Memorial Park Corp. v. Court of Appeals, 282 SCRA 553, 580, December 9, 1997 (citing Tayag v. Court of Appeals, 219 SCRA 480, 487, March 3, 1993); Salaria v. Buenviaje, 81 SCRA 722, February 28, 1978;Limkako v. de Teodoro, 74 Phil. 313, August, 11, 1943.

[60] Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, (1991), Vol. IV, p. 330.

[61] Jespajo Realty Corporation v. Court of Appeals, 390 SCRA 27, 38, September 27, 2002, per Austria-Mar-tinez, J. (citingEternal Gardens Memorial Park Corp. v. Court of Appeals, supra).

[62] Petitioner’s Memorandum, p. 11; rollo, p. 266.

                        Under Article 2217 of the Civil Code, moral damages include “physical suffering, mental anguish, fright, se-rious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury.”  Moral damages are recoverable if they are the proximate result of the defendant’s wrongful act or omission.

[63] Under Article 2219 of the Civil Code, moral damages may be recovered in the following analogous cases: (1) a criminal offense resulting in physical injuries; (2) quasi-delicts causing physical injuries; (3) seduction, abduction, rape or other lascivious acts; (4) adultery or concubinage; (5) illegal or arbitrary detention or arrest; (6) illegal search; (7) libel, slander or any other form of defamation; (8) malicious prosecution; (9) acts mentioned in Article 309 of the Civil Code; and (10) acts of actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

[64] The pertinent provision in the Civil Code reads:

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

            (1) When exemplary damages are awarded;

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

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

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

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

            (6) In actions for legal support;

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

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

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

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

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

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

[65] Ibaan Rural Bank, Inc. v. Court of Appeals, 378 Phil. 707, 714, December 17, 1999; Philippine Airlines v. Miano, 312 Phil. 287, 294, March 8, 1995.

[66] Sarao’s Manifestation dated October 19, 2004, p. 2.

[67] Del Rosario v. Bonga, 350 SCRA 101, January 23, 2001; De Rama v. Court of Appeals, 353 SCRA 94, February 28, 2001.

[68] Sarao’s Motion for Early Resolution/Manifestation, p. 3.  The Notice of Auction Sale and the Official Receipt were at-tached as Annexes “1” and “2.”

[69] Article 2142 of the Civil Code provides:  “Certain lawful, voluntary, and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another.”

A. Francisco Realty Dev. Corp v. CA, G.R. No. 125055, 298 SCRA 349 (1998)

G.R. No. 125055 October 30, 1998

A. FRANCISCO REALTY AND DEVELOPMENT CORPORATION, petitioner, vs.COURT OF APPEALS and SPOUSES ROMULO S.A. JAVILLONAR and ERLINDA P. JAVILLONAR,respon-dents.

 

MENDOZA, J.:

This is a petition for review on certiorari of the decision rendered on February 29, 1996 by the Court of Ap-peals 1reversing, in toto, the decision of the Regional Trial Court of Pasig City in Civil Case No. 62290, as well as the appellate court's resolution of May 7, 1996 denying reconsideration.

Petitioner A. Francisco Realty and Development Corporation granted a loan of P7.5 Million to private respon-dents, the spouses Romulo and Erlinda Javillonar, in consideration of which the latter executed the following documents: (a) a promissory note, dated November 27, 1991, stating an interest charge of 4% per month for six months; (b) a deed of mortgage over realty covered by TCT No. 58748, together with the improvements thereon; and (c) an undated deed of sale of the mortgaged property in favor of the mortgagee, petitioner A. Francisco Realty. 2

The interest on the said loan was to be paid in four installments: half of the total amount agreed upon (P900,000.00) to be paid in advance through a deduction from the proceeds of the loan, while the balance to be paid monthly by means of checks post-dated March 27, April 27, and May 27, 1992. The promissory note

expressly provided that upon "failure of the MORTGAGOR (private respondents) to pay the interest without prior arrangement with the MORTGAGEE (petitioner), full possession of the property will be transferred and the deed of sale will be registered. 3 For this purpose, the owner's duplicate of TCT No. 58748 was delivered to petitioner A. Francisco Realty.

Petitioner claims that private respondents failed to pay the interest and, as a consequence, it registered the sale of the land in its favor on February 21, 1992. As a result, TCT No. 58748 was cancelled and in lieu thereof TCT No. PT-85569 was issued in the name of petitioner A. Francisco Realty. 4

Private respondents subsequently obtained an additional loan of P2.5 Million from petitioner on March 13, 1992 for which they signed a promissory note which reads:

PROMISSORY NOTE

For value received I promise to pay A. FRANCISCO REALTY AND DEVELOPMENT CORPORATION, the additional sum of Two Million Five Hundred Thousand Pesos (P2,500,000.00) on or before April 27, 1992, with interest at the rate of four percent (4%) a month until fully paid and if after the said date this note and/or the other promissory note of P7.5 Million remains unpaid and/or unsettled, without any need for prior demand or notification, I promise to vacate voluntarily and willfully and/or allow A.FRANCISCO REALTY AND DEVELOPMENT CORPORATION to appropriate and occupy for their exclusive use the real property located at 56 Dragonfly, Valle Verde VI, Pasig, Metro Manila. 5

Petitioner demanded possession of the mortgaged realty and the payment of 4% monthly interest from May 1992, plus surcharges. As respondent spouses refused to vacate, petitioner filed the present action for posses-sion before the Regional Trial Court in Pasig City. 6

In their answer, respondents admitted liability on the loan but alleged that it was not their intent to sell the realty as the undated deed of sale was executed by them merely as an additional security for the payment of their loan. Furthermore, they claimed that they were not notified of the registration of the sale in favor of petitioner A. Francisco Realty and that there was no interest then unpaid as they had in fact been paying interest even sub-sequent to the registration of the sale. As an alternative defense, respondents contended that the complaint was actually for ejectment and, therefore, the Regional Trial Court had no jurisdiction to try the case. As coun-terclaim, respondents sought the cancellation of TCT No. PT-85569 as secured by petitioner and the issuance of a new title evidencing their ownership of the property. 7

On December 19, 1992, the Regional Trial Court rendered a decision, the dispositive portion of which reads as fol-lows:

WHEREFORE, prescinding from the foregoing considerations, judgment is hereby rendered declar-ing as legal and valid, the right of ownership of A. Francisco Realty Find Development Corporation, over the property subject of this case and now registered in its name as owner thereof, under TCT No. 85569 of the Register of Deeds of Rizal, situated at No. 56 Dragonfly Street, Valle Verde VI, Pasig, Metro Manila.

Consequently, defendants are hereby ordered to cease and desist from further committing acts of dispossession or from withholding possession from plaintiff of the said property as herein described and specified.

Claim for damages in all its forms, however, including attorney's fees, are hereby denied, no competent proofs having been adduced on record, in support thereof. 8

Respondent spouses appealed to the Court of Appeals which reversed the decision of the trial court and dismissed the complaint against them. The appellate court ruled that the Regional Trial Court had no jurisdiction over the case because it was actually an action for unlawful detainer which is exclusively cognizable by municipal trial courts. Fur-thermore, it ruled that, even presuming jurisdiction of the trial court, the deed of sale was void for being in fact a pactum commissorium which is prohibited by Art. 2088 of the Civil Code.

Petitioner A. Francisco Realty filed a motion for reconsideration, but the Court of Appeals denied the motion in its resolution, dated May 7, 1996. Hence, this petition for review on certiorari raising the following issues:

WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT THE REGIONAL TRIAL COURT HAD NO JURISDICTION OVER THE COMPLAINT FILED BY THE PETITIONER.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT THE CONTRACTUAL DOCUMENTS SUBJECT OF THE INSTANT CASE ARE CONSTITUTIVE OF PACTUM COMMIS-SORIUM AS DEFINED UNDER ARTICLE 2088 OF THE CIVIL CODE OF THE PHILIPPINES.

On the first issue, the appellate court stated:

Ostensibly, the cause of action in the complaint indicates a case for unlawful detainer, as contra-distin-guished from accion publiciana. As contemplated by Rule 70 of the Rules of Court, an action for unlawful detainer which falls under the exclusive jurisdiction of the Metropolitan or Municipal Trial Courts, is de-fined as withholding from by a person from another for not more than one year, the possession of the land or building to which the latter is entitled after the expiration or termination of the supposed rights to hold possession by virtue of a contract, express or implied. (Tenorio vs. Gamboa, 81 Phil. 54; Dikit vs. Dica-ciano, 89 Phil. 44). If no action is initiated for forcible entry or unlawful detainer within the expiration of the 1 year period, the case may still be filed under the plenary action to recover possession by accion publi-ciana before the Court of First Instance (now the Regional Trial Court) (Medina vs. Valdellon, 63 SCRA 278). In plain language, the case at bar is a legitimate ejectment case filed within the 1 year period from the jurisdictional demand to vacate. Thus, the Regional Trial Court has no jurisdiction over the case. Ac-cordingly, under Section 33 of B.P. Blg. 129 Municipal Trial Courts are vested with the exclusive original jurisdiction over forcible entry and unlawful detainer case. (Sen Po Ek Marketing Corp. vs. CA, 212 SCRA 154 [1990]) 9

We think the appellate court is in error. What really distinguishes an action for unlawful detainer from a possessory action (accion publiciana) and from a reivindicatory action (accion reivindicatoria) is that the first is limited to the question of possession de facto.

An unlawful detainer suit (accion interdictal) together with forcible entry are the two forms of an eject-ment suit that may be filed to recover possession of real property. Aside from the summary action of ejectment, accion publiciana or the plenary action to recover the right of possession andaccion reivindicatoria or the action to recover ownership which includes recovery of possession, make up the three kinds of actions to judicially recover possession.

Illegal detainer consists in withholding by a person from another of the possession of a land or building to which the latter is entitled after the expiration or termination of the former's right to hold possession by virtue of a contract, express or implied. An ejectment suit is brought before the proper inferior court to re-cover physical possession only or possession de facto and not possession de jure, where dispossession has lasted for not more than one year. Forcible entry and unlawful detainer are quieting processes and the one-year time bar to the suit is in pursuance of the summary nature of the action. The use of summary procedure in ejectment cases is intended to provide an expeditious means of protecting actual posses-sion or right to possession of the property. They are not processes to determine the actual title to an es-tate. If at all, inferior courts are empowered to rule on the question of ownership raised by the defendant in such suits, only to resolve the issue of possession. Its determination on the ownership issue is, how-ever, not conclusive. 10

The allegations in both the original and the amended complaints of petitioner before the trial court clearly raise is-sues involving more than the question of possession, to wit: (a) the validity of the Transfer of ownership to petitioner; (b) the alleged new liability of private respondents for P400,000.00 a month from the time petitioner made its de-mand on them to vacate; and (c) the alleged continuing liability of private respondents under both loans to pay inter-est and surcharges on such. As petitioner A. Francisco Realty alleged in its amended complaint:

5. To secure the payment of the sum of 7.5 Million together with the monthly interest, the defendant spouses agreed to execute a Deed of Mortgage over the property with the express condition that if and when they fail to pay monthly interest or any infringement thereof they agreed to convert the

mortgage into a Deed of Absolute Sale in favor of the plaintiff by executing Deed of Sale thereto, copy of which is hereto attached and incorporated herein as Annex "A";

6. That in order to authorize the Register of Deeds into registering the Absolute Sale and transfer to the plaintiff, defendant delivered unto the plaintiff the said Deed of Sale together with the original owner's copy of Transfer Certificate of Title No. 58748 of the Registry of Rizal, copy of which is hereto attached and made an integral part herein as Annex "B";

7. That defendant spouses later secured from the plaintiff an additional loan of P2.5 Million with the same condition as aforementioned with 4% monthly interest;

8. That defendants spouses failed to pay the stipulated monthly interest and as per agreement of the parties, plaintiff recorded and registered the Absolute Deed of Sale in its favor on and was issued Transfer Certificate of Title No. PT-85569, copy of which is hereto attached and incorporated herein as Annex "C";

9. That upon registration and transfer of the Transfer Certificate of Title in the name of the plaintiff, copy of which is hereto attached and incorporated herein as Annex "C", plaintiff demanded the sur-render of the possession of the above-described parcel of land together with the improvements thereon, but defendants failed and refused to surrender the same to the plaintiff without justifiable reasons thereto; Neither did the defendants pay the interest of 4% a month from May, 1992 plus sur-charges up to the present;

10. That it was the understanding of the parties that if and when the defendants shall fail to pay the inter-est due and that the Deed of Sale be registered in favor of plaintiff, the defendants shall pay a monthly rental of P400,000.00 a month until they vacate the premises, and that if they still fail to pay as they are still failing to pay the amount of P400,000.00 a month as rentals and/or interest, the plaintiff shall take physical possession of the said property; 11

It is therefore clear from the foregoing that petitioner A. Francisco Realty raised issues which involved more than a simple claim for the immediate possession of the subject property. Such issues range across the full scope of rights of the respective parties under their contractual arrangements. As held in an analogous case:

The disagreement of the parties in Civil Case No. 96 of the Justice of the Peace of Hagonoy, Bulacan ex-tended far beyond the issues generally involved in unlawful detainer suits. The litigants therein did not raise merely the question of who among them was entitled to the possession of the fishpond of Federico Suntay. For all judicial purposes, they likewise prayed of the court to rule on their respective rights under the various contractual documents — their respective deeds of lease, the deed of assignment and the promissory note — upon which they predicate their claims to the possession of the said fishpond. In other words, they gave the court no alternative but to rule on the validity or nullity of the above documents. Clearly, the case was converted into the determination of the nature of the proceedings from a mere de-tainer suit to one that is "incapable of pecuniary estimation" and thus beyond the legitimate authority of the Justice of the Peace Court to rule on. 12

Nor can it be said that the compulsory counterclaim filed by respondent spouses challenging the title of petitioner A. Francisco Realty was merely a collateral attack which would bar a ruling here on the validity of the said title.

A counterclaim is considered a complaint, only this time, it is the original defendant who becomes the plaintiff (Valisno v. Plan, 143 SCRA 502 (1986). It stands on the same footing and is to be tested by the same rules as if it were an independent action. Hence, the same rules on jurisdiction in an independent action apply to a counterclaim (Vivar v. Vivar, 8 SCRA 847 (1963); Calo v. Ajar International, Inc. v. 22 SCRA 996 (1968); Javier v. Intermediate Appellate Court, 171 SCRA 605 (1989); Quiason, Philippine Courts and Their Jurisdictions, 1993 ed., p. 203). 13

On the second issue, the Court of Appeals held that, even "on the assumption that the trial court has jurisdiction over the instant case," petitioner's action could not succeed because the deed of sale on which it was based was void, being in the nature of a pactum commissorium prohibited by Art. 2088 of the Civil Code which provides:

Art. 2088. The creditor cannot appropriate the things given by way to pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void.

With respect to this question, the ruling of the appellate court should be affirmed. Petitioner denies, however, that the promissory notes contain a pactum commissorium. It contends that —

What is envisioned by Article 2088 of the Civil Code of the Philippines is a provision in the deed of mortgage providing for the automatic conveyance of the mortgaged property in case of the failure of the debtor to pay the loan (Tan v. West Coast Life Assurance Co., 54 Phil. 361). A pactum commis-sorium is a forfeiture clause in a deed of mortgage (Hechanova v. Adil, 144 SCRA 450; Montevergen v. Court of Appeals, 112 SCRA 641; Report of the Code Commission, 156).

Thus, before Article 2088 can find application herein, the subject deed of mortgage must be scrutinized to determine if it contains such a provision giving the creditor the right "to appropriate the things given by way of mortgage without following the procedure prescribed by law for the foreclosure of the mortgage" (Ranjo v. Salmon, 15 Phil. 436). IN SHORT, THE PROSCRIBED STIPULATION SHOULD BE FOUND IN THE MORTGAGE DEED ITSELF. 14

The contention is patently without merit. To sustain the theory of petitioner would be to allow a subversion of the prohibition in Art. 2088.

In Nakpil v. Intermediate Appellate Court, 15 which involved the violation of a constructive trust, no deed of mortgage was expressly executed between the parties in that case: Nevertheless, this Court ruled that an agreement whereby property held in trust was ceded to the trustee upon failure of the beneficiary to pay his debt to the former as secured by the said property was void for being a pactum commissorium. Itwas there held:

The arrangement entered into between the parties, whereby Pulong Maulap was to be "considered sold to him (respondent) . . ." in case petitioner fails to reimburse Valdes, must then be construed as tanta-mount to a pactum commissorium which is expressly prohibited by Art. 2088 of the Civil Code. For, there was to be automatic appropriation of the property by Valdez in the event of failure of petitioner to pay the value of the advances. Thus, contrary to respondent's manifestations, all the elements of a pactum com-missorium were present: there was a creditor-debtor relationship between the parties; the property was used as security for the loan; and, there was automatic appropriation by respondent of Pulong Maulap in case of default of petitioner. 16

Similarly, the Court has struck down such stipulations as contained in deeds of sale purporting to be pacto de retro sales but found actually to be equitable mortgages.

It has been consistently held that the presence of even one of the circumstances enumerated in Art. 1602 of the New Civil Code is sufficient to declare a contract of sale with right to repurchase an equi-table mortgage. This is so because pacto de retro sales with the stringent and onerous effects that accompany them are not favored. In case of doubt, a contract purporting to be a sale with the right to repurchase shall be construed as an equitable mortgage.

Petitioner, to prove her claim, cannot rely on the stipulation in the contract providing that complete and absolute title shall be vested on the vendee should the vendors fail to redeem the property on the speci-fied date. Such stipulation that the ownership of the property would automatically pass to the vendee in case no redemption was effected within the stipulated period is void for being a pactum commisso-rium which enables the mortgagee to acquire ownership of the mortgaged property without need of fore-closure. Its insertion in the contract is an avowal of the intention to mortgage rather that to sell the prop-erty. 17

Indeed, in Reyes v. Sierra 18 this Court categorically ruled that a mortgagee's mere act of registering the mort-gaged property in his own name upon the mortgagor's failure to redeem the property amounted to the exercise of the privilege of a mortgagee in a pactum commissorium.

Obviously, from the nature of the transaction, applicant's a predecessor-in-interest is a mere mort-gagee, and ownership of the thing mortgaged is retained by Basilia Beltran, the mortgagor. The mortgagee, however, may recover the loan, although the mortgage document evidencing the loan was nonregistrable being a purely private instrument. Failure of mortgagor to redeem the property does not automatically vest ownership of the property to the mortgagee, which would grant the latter the right to appropriate the thing mortgaged or dispose of it. This violates the provision of Article 2088 of the New Civil Code, which reads:

The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose by them. Any stipulation to the contrary is null and void.

The act of applicant in registering the property in his own name upon mortgagor's failure to redeem the property would to a pactum commissorium which is against good morals and public policy. 19

Thus, in the case at bar, the stipulations in the promissory notes providing that, upon failure of respondent spouses to pay interest, ownership of the property would be automatically transferred to petitioner A. Francisco Realty and the deed of sale in its favor would be registered, are in substance a pactum commissorium. They embody the two elements of pactum commissorium as laid down in Uy Tong v. Court of Appeals, 20 to wit:

The prohibition on pactum commissorium stipulations is provided for by Article 2088 of the Civil Code:

Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgagee, or dis-pose of the same. Any stipulation to the contrary is null and void.

The aforequoted provision furnishes the two elements for pactum commissorium to exist: (1) that there should be a pledge or mortgage wherein a property is pledged or mortgaged by way of security for the payment of the principal obligation; and (2) that there should be a stipulation for an automatic appropria-tion by the creditor of the thing pledged or mortgaged in the event of non-payment of the principal obliga-tion within the stipulated period. 21

The subject transaction being void, the registration of the deed of sale, by virtue of which petitioner A. Francisco Re-alty was able to obtain TCT No. PT-85569 covering the subject lot, must also be declared void, as prayed for by re-spondents in their counterclaim.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED, insofar as it dismissed petitioner's complaint against respondent spouses on the ground that the stipulations in the promissory notes are void for being apactum commissorium, but REVERSED insofar as it ruled that the trial court had no jurisdiction over this case. The Register of Deeds of Pasig City is hereby ORDERED to CANCEL TCT No. PT-85569 issued to petitioner and ISSUE a new one in the name of respondent spouses.

SO ORDERED.

Melo, Puno and Martinez, JJ., concur.

1 Per Justice Conrado M. Vasquez, Jr. and concurred in by Justices Gloria C. Paras and Angelina Sandoval-Gutierrez.

2 Rollo, p. 9.

3 Records, p. 40.

4 Rollo, pp. 9-10.

5 Records. p. 41.

6 Rollo. p. 10.

7 Records. pp. 71-78.

8 Id., p. 161

9 Rollo, p. 36.

10 De Leon v. Court of Appeals, 245 SCRA 166, 173-174 (1995).

11 Records, p. 25.

12 De Rivera v. Halili, 9 SCRA 59, 63-64 (1963); reiterated in De Leon v. Court of Appeals, supran-ote 10.

13 Vda. de Chua v. Intermediate Appellate Court, 229 SCRA 99, 108 (1994).

14 Rollo. pp. 23-24 (emphasis petitioner's).

15 225 SCRA 456 (1993).

16 Id., pp. 467-468 (emphasis added).

17 Olca v. Court of Appeals, 247 SCRA 274, 282-283 (1995).

18 93 SCRA 472 (1979).

19 Id., p. 480.

20 161 SCRA 383 (1988).

21 Id., at 388.

3. Republic Planters Bank v. Sarmiento, G.R. No. 170785, 537 SCRA 303 (2007)

G.R. No. 170785             October 19, 2007

REPUBLIC PLANTERS BANK (now known as MAYBANK PHILIPPINES, INC.) and PHILMAY PROPERTY, INC., petitioners, vs.VIVENCIO T. SARMIENTO, JESUSA N. SARMIENTO, JOSE N. SARMIENTO AND ELIZABETH B. SARMIENTO, respondents.

D E C I S I O N

TINGA, J.:

This is an appeal by certiorari under Rule 45 of the 1997 Rules of Civil Procedure assailing the Decision1 of the Court of Appeals in CA-G.R. CV No. 74451. The Court of Appeals’ decision affirmed the decision2 of the Re-gional Trial Court (RTC) of Parañaque City, Branch 258, which ordered petitioner Maybank Philippines, Inc. (Maybank) to execute in favor of respondents a deed of redemption covering two pieces of mortgaged realty and rescinded the deeds of sale executed by Maybank in favor of petitioner Philmay Property, Inc. (Philmay) and Clara Fabra (Fabra).

As found by the Court of Appeals, the factual antecedents are as follows:

On 13 March 1979, respondents spouses Vivencio and Jesusa Sarmiento, their son, Jose, and the latter’s spouse, Elizabeth, executed a promissory note, obligating themselves to pay Maybank, then known as Repub-lic Planters Bank, the amount of P80,000.00 due 360 days after date plus interest at the rate of 12 percent per annum.3

Earlier, on 9 March 1979, all four respondents executed a Real Estate Mortgage over two parcels of land cov-ered by OCT No. 5781 and TCT No. 145850 and registered under the names of respondents Jesusa and Jose, respectively. The mortgage secured the payment of the principal loan of P80,000.00 and all other obligations, overdrafts and other credit accommodations obtained and those that may be obtained in the future from May-bank.4

On 8 April 1980, Vivencio for himself and as attorney-in-fact of Jesusa and Jose, executed a promissory note in which he undertook to pay the amount of P100,000.00 plus 14% interest per annum on or before April 1981.5 In the same month, all four respondents executed an amendment to the real estate mortgage changing the consideration of the mortgage from P80,000.00 to P100,000.00 but adopting all the terms and conditions of the previous mortgage as integral parts of the later one.6

Vivencio was the owner of V. Sarmiento Rattan Furniture, a sole proprietorship engaged in export business. On various occasions in 1981, he incurred loan obligations from Maybank by way of export advances. As of 08 September 1982, the debts incurred under the export bills transactions totaled P1,281,748.03.

On 3 September 1981, Vivencio, Jose and Elizabeth executed a Suretyship Agreement,7 whereby they agreed to be solidarily liable with V. Sarmiento Rattan Furniture for the payment of P100,000.00 plus all obligations which the latter incurred or would incur from Maybank.

Respondents defaulted in the payment of the export advances, prompting Maybank to institute an extrajudicial foreclosure of the real estate mortgage on 9 November 1982. At the foreclosure sale, Maybank was awarded the property for its bid of P254,000.00 and issued a certificate of sale. The certificate of sale was registered with the Register of Deeds on 04 March 1983.8

Maricel Sarmiento, sister of respondent Jose, purchased a manager’s check from Maybank in the amount of-P300,000.00 on 21 July 1983.9 A week later, respondent Jesusa deposited the amount of P12,000.00.10May-bank treated the total amount of P312,000.00 as a deposit and did not grant respondents’ request for certifi-cate of redemption releasing the foreclosed property. Sometime in November 1983, Maybank demanded the payment of all outstanding loans under the export bills transactions. On 3 December 1983, respondents ten-dered the amount of P302,333.33 in the name of V. Sarmiento Rattan Furniture.

On 4 July 1990, Maybank consolidated its ownership over the foreclosed property. On 12 November 1997, Maybank and Philmay executed a deed of absolute sale, transferring ownership of the foreclosed property to the latter. On 15 July 1998, Philmay sold the same to Fabra.

On 3 September 1998, respondents Vivencio and Jose instituted an action for specific performance against Maybank, Philmay and Fabra. The Complaint,11 docketed as Civil Case No. 98-0323, prayed for judgment di-recting Maybank to execute a deed of redemption in favor of respondents and revoking the subsequent sale of the property to Philmay and Fabra. During the pendency of the trial, Fabra died and was substituted by Kim Caro as the legal representative of the former’s heirs.

On 8 January 2002, the RTC rendered a Decision, the dispositive portion of which reads:

WHEREFORE, viewed in the light of the foregoing, the plaintiffs having been able to preponderantly prove their case against the defendants, judgment for specific performance is hereby rendered ordering defendant Maybank to execute in favor of the plaintiffs a Deed of Redemption covering the two (2) parcels of land for-merly embraced in and covered by Transfer Certificates of Title Nos. 5281 and 145850 of the Register of Deeds of the City of Parañaque together with all the improvements existing thereon free from all liens and encumbrances and once accomplished, to immediately deliver the said document to plaintiffs.

Likewise, the Deed of Sale executed by Republic Planters Bank, now Maybank, in favor of Philmay Prop-erty, Inc., and thereafter, from Philmay Property, Inc. to Clara Fabra, are hereby revoked and rescinded as well as Certificate of Title No. 139161 registered in the latter’s name for being null and void.

So also, Phimay Property is hereby directed to reimburse Clara Fabra, now represented by Kim Caro, the amount of P4,200,000.00[,] representing the purchase price of the property plus interest thereon at the legal rate computed from the filing of the complaint until fully paid.

Defendants are likewise ordered to pay plaintiffs jointly and severally the following, to wit:

1. The amount of P100,000.00 as moral damages;

2. The amount of P50,000.00 as exemplary damages;

3. The amount of P100,000.00 as and by way of attorney’s fees; and

4. The cost of suit.

The counterclaims of the defendants are DISMISSED.

SO ORDERED.12

The RTC based its finding that respondents were able to tender to Maybank within the redemption period the redemption price of P312,000.00 on the testimony of respondent Jose on and the official bank receipts evi-dencing the separate payments totaling said amount made by Maricel Sarmiento and respondent Jesusa. Upon this finding, the trial court held that Maybank had no justifiable legal reason to refuse the execution of documents reconveying the titles of the mortgaged property to respondents. Thus, the trial court concluded that the subsequent transfers of the mortgaged property to Philmay and then to Fabra were void because May-bank had not acquired any rights thereto in the first place. The trial court, however, declared Fabra as a pur-chaser in good faith and, therefore, entitled to reimbursement of the purchase price.

The RTC rejected Maybank’s defense that the suretyship agreement signed by respondents Vivencio, Jose and Elizabeth also constituted the mortgaged property as security for the export advances incurred in the name of V. Sarmiento Rattan Furniture because the real estate mortgage documents were signed by respon-dents in their personal capacity, whereas the suretyship agreement was signed by Vivencio in his capacity as manager of V. Sarmiento Rattan Furniture. The trial court noted that the suretyship agreement was not even annotated in the titles of the mortgaged property.

On 12 December 2005, the Court of Appeals rendered the assailed Decision affirming the trial court’s judg-ment, particularly the latter’s finding that respondents made a valid tender of the redemption price and that the export advances in the name of V. Sarmiento Rattan Furniture did not belong to the species of obligations se-cured by the real estate mortgage. Furthermore, the appellate court construed as a contract of adhesion the proviso in the mortgage contract that included "interest and expenses or any other obligation owing to the Mortgagee, whether direct or indirect, principal or secondary, as appears in the accounts, books and records of the Mortgagee."13Describing the same as a "dragnet clause," the appellate court held that it should be carefully scrutinized and strictly construed.

Only petitioners Maybank and Philmay appealed from the decision of the Court of Appeals. In the instant peti-tion, they raise the following arguments:

THE TRIAL COURT AND THE COURT OF APPEALS ERRED IN FINDING THAT PETITIONERS HAVE PROPERLY REDEEMED THE FORECLOSED PROPERTIES.

THE TRIAL COURT AND COURT OF APPEALS ERRED IN NOT TREATING RESPONDENTS’ EXPORT ADVANCES AS SECURED BY THE REAL ESTATE MORTGAGE AND THUS SHOULD ALSO BE PAID.

THE TRIAL COURT AND COURT OF APPEALS ERRED IN NOT RULING THAT THE RESPONDENTS’ CLAIM IS ALREADY BARRED BY LACHES.

THE TRIAL COURT AND COURT OF APPEALS ERRED IN NOT CONSIDERING AND FINDING THAT PHILMAY AND DEFENDANT CLARA FABRA ARE BUYERS IN GOOD FAITH.

THE LOWER COURT AND THE COURT OF APPEALS ERRED IN FINDING THAT MAYBANK ACTED IN BAD FAITH.

RESPONDENTS ARE NOT ENTITLED TO MORAL AND EXEMPLARY DAMAGES AS WELL AS ATTOR-NEY’S FEES.14

In a nutshell, the instant petition raises the issue of whether the deposits made by respondents constituted a valid tender of the redemption price. Essential to the resolution of this issue is the determination of the amount of indebtedness that respondents were legally obligated to satisfy in order to consider the payment thereof as a valid redemption of the foreclosed property.

Maybank argues that respondents’ outstanding obligation amounted to more than P1 million as of the date of the foreclosure sale. Hence, the tender by respondents of an amount less than that did not constitute a valid redemption of the foreclosed property. For their part, respondents contend that the factual finding of both the trial court and the Court of Appeals to the effect that they were able to make a valid tender of the redemption price, is binding on this Court.

The petition is meritorious.

The crux of the controversy pertains not to the amount of redemption price tendered by respondents but rather to the sufficiency of the amount tendered that would warrant the redemption of the foreclosed property. The de-termination of whether the amount tendered by respondents was enough to redeem the foreclosed property calls for the ascertainment of the liabilities covered and secured by the mortgage based on the text of the mort-gage deed. Both the trial court and the appellate court concurred in concluding that the export advances ob-tained by respondent Vivencio from Maybank did not belong to the species of obligations secured by the mort-gage and that, hence, respondents’ tender of an amount exceeding the principal loan of P100,000.00 was suf-ficient. Whether or not this conclusion is correct is a question of law15 that is within the purview of a Rule 45 pe-tition.

The real estate mortgage provides:

x x x

That, for and in consideration of certain loans, overdrafts and other credit accommodations obtained from the Mortgagee, and to secure the payment of the same and those that may hereafter be obtained, the principal of all of which is hereby fixed as EIGHTY THOUSAND ONLY Pesos (P80,000.00), Philippine Cur-rency, as well as those that the Mortgagee may extend to the Mortgagor, including interest and ex-penses or any other obligation owing to the Mortgagee, whether direct or indirect, principal or sec-ondary, as appears in the accounts, books and records of the Mortgagee, the Mortgagor does hereby trans-fer and convey by way of mortgage unto the Mortgagee, its successor or assigns, the parcels of land which

are described in the list inserted on the back of this document, and/or appended hereto; x x x (Emphasis supplied)16

The aforementioned clause is a "blanket mortgage clause." A blanket mortgage clause, also known as a drag-net clause in American jurisprudence, is one that is specifically phrased to subsume all debts of past or future origins. Such clauses are carefully scrutinized and strictly construed. Mortgages of this character enable the parties to provide continuous dealings, the nature or extent of which may not be known or anticipated at the time, and they avoid the expense and inconvenience of executing a new security on each new transaction. A dragnet clause operates as a convenience and accommodation to the borrowers as it makes available addi-tional funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, etc.17

It is basic in the interpretation and construction of contracts that the literal meaning of the stipulations shall con-trol if the terms of the contract are clear and leave no doubt on the intention of the contracting parties.18 It is only when the words appear to contravene the evident intention of the parties that the latter shall prevail over the former. The real nature of a contract may be determined from the express terms of the agreement and from the contemporaneous and subsequent acts of the parties thereto.19

Although at the time of the execution of the real estate mortgage the export advances had not yet been in-curred and the principal obligation was fixed at P80,000.00 and thereafter amended to P100,000.00, the ex-press tenor of the mortgage contract contemplated the inclusion of future loans and obligations obtained from Maybank to be secured by the mortgaged property. Nothing in the mortgage contract would suggest that the parties actually intended to limit the security to only the principal amount of the loan fixed therein. The stipula-tions of the mortgage contract being clear, there is no necessity to ascertain the real intention of the parties. Be that as it may, nothing in the records would reveal that by the parties’ acts contemporaneous and subsequent to the execution of the real estate mortgage, they intended to be bound by terms and conditions other than those provided in the mortgage contract.

The trial court reached the conclusion that the export advances were excluded from the security of the real es-tate mortgage based on the theory that respondent Vivencio agreed to be bound as surety for the payment of the export advances in his capacity as manager of V. Sarmiento Rattan Furniture, whereas he signed the real estate mortgage in his personal capacity.

This theory is defensible if V. Sarmiento Rattan Furniture were a corporation having a personality distinct and separate from its corporate officers and Vivencio signed merely as a corporate representative of V. Sarmiento Rattan Furniture. Even then, a corporate officer may still be held personally liable for the debts of the corpora-tion if he bound himself to pay the debt of the corporation under a separate contract of surety or guaranty.

For its part, the Court of Appeals opined that the dragnet clause in the subject real estate mortgage should be strictly construed and, therefore, the subsequent export advances obtained from Maybank should not be in-cluded in the obligation secured by the mortgage contract.

It is well settled that mortgages given to secure future advancements or loans are valid and legal contracts, and that the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebted-ness can be gathered.20 A mortgage given to secure advancements is a continuing security and is not dis-charged by repayment of the amount named in the mortgage, until the full amount of the advancements is paid.21

At the time of the foreclosure sale of the mortgaged property, the outstanding obligation arising from the export bills transactions had already amounted to more than P1 million. In accordance with Section 78 of the General Banking Act, as amended,22 then governing the foreclosure of the mortgaged property, redemption may only be made by paying the amount due under the mortgage deed within one year from the sale of the property. Since respondents failed to satisfy the full amount of the indebtedness to Maybank, the latter was justified in refusing to grant respondents’ demand for redemption of the foreclosed property.

WHEREFORE, the instant petition for review on certiorari is GRANTED and the Decision of the Court of Ap-peals in CA-G.R. CV No. 74451 is hereby REVERSED and SET ASIDE. The complaint in Civil Case No. 98-0323 before the Regional Trial Court, Branch 258, Parañaque City is DISMISSED. Costs against respondents.

SO ORDERED.

Quisumbing, Carpio, Carpio-Morales, Velasco, Jr., JJ., concur.

1 Rollo, pp. 44-49. Penned by Associate Justice Eliezer R. De Los Santos, and concurred in by Associate Justices Eugenio S. Labitoria and Jose C. Reyes, Jr.

2 Id. at 50-61.

3 Records, Vol. 1, p. 39.

4 Rollo, pp. 79-82.

5 Records, Vol. 1, p. 44.

6 Id. at 45.

7 Rollo, pp. 105-106.

8 Id. at 23.

9 Records, Vol. 1, p. 260.

10 Id.

11 Records, Vol. 1, pp. 1-6.

12 Rollo, pp. 60-61.

13 Id. at 48.

14 Id. at 26-38.

15 There is a question of law when the issue does not call for an examination of the probative value of evi-dence presented, the truth or falsehood of facts being admitted and the doubt concerns the correct applica-tion of law and jurisprudence on the matter. On the other hand, there is a question of fact when the doubt or controversy arises as to the truth or falsity of the alleged facts. When there is no dispute as to fact, the ques-tion of whether or not the conclusion drawn therefrom is correct is a question of law. Gomez v. Sta. Ines, G.R. No. 132537, 14 October 2005, 473 SCRA 25, 37.

16 Rollo, p. 79.

17 Prudential Bank v. Alviar ,  G.R. No. 150197, 28 July 2005, 464 SCRA 353, 363.

18 Almira v. Court of Appeals, 447 Phil. 467, 477 (2003).

19 Dela Cruz v. Dela Cruz ,  G.R. No. 146222, January 15, 2004, 419 SCRA 648, 655.

20 China Banking Corporation v. Court of Appeals, 333 Phil. 158, 170 (1996).

21 Mojica v. Court of Appeals ,  G.R. No. 94247, 11 September 1991, 201 SCRA 517, 522.

22 SECTION 78. x x x In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is security for any loan granted before the passage of this Act or under the provisions of this Act, the mortgagor or debtor whose real property has been sold at public auction, judicially or extrajudicially, for the full or partial payment of an obligation to any bank, banking or credit institution, within the purview of this Act shall have the right, within one year after the sale of the real estate as a result of the foreclosure of the respective mortgage, to redeem the property by paying the amount fixed by the court in the order of exe-cution, or the amount due under the mortgage deed, as the case may be, with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and other expenses incurred by the bank or institu-tion concerned by reason of the execution and sale and as a result of the custody of said property less the income received from the property. x x x Presidential Decree No. 1828 (1981), Sec. 78, Amendments to R.A. No. 337 As Amended (General Banking Act).

4. Tambunting, Jr. v. Sumabat, G.R. No. 144101, 470 SCRA 92 (2005)

ANTONIO P. TAMBUNTING,            G.R. No. 144101JR.  and  COMMERCIALHOUSE OF FINANCE, INC.,                                   Petitioners,                                                        Present :                                                        PANGANIBAN, J., Chairman,                                                        SANDOVAL-GUTIERREZ,        -   v e r s u s   -                        CORONA,                                                        CARPIO MORALES and                                                        GARCIA, JJ.SPOUSES EMILIO SUMABATand ESPERANZA BAELLO,                        Respondents.          Promulgated:

September 16, 2005x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

 

D E C I S I O NCORONA, J.:  

This petition for review on certiorari under Rule 45 of the Rules of

Court assails the February 11, 2000 decision of the Regional Trial Court

(RTC) of Caloocan City, Branch 120, in Civil Case No. C-16822. 

This case involves a dispute over a parcel of land situated in Caloocan

City covered by TCT No. (87655) 18837. It was previously registered in the

names of respondents, spouses Emilio Sumabat and Esperanza Baello. On

May 3, 1973, respondents mortgaged it to petitioner Antonio Tambunting,

Jr. to secure the payment of a P7,727.95 loan. In August 1976, respondents

were informed that their indebtedness had ballooned to P15,000 for their

failure to pay the monthly amortizations. In May 1977, because respondents

defaulted  in their obligation, petitioner Commercial House of Finance, Inc.

(CHFI), as assignee of the mortgage, initiated foreclosure proceedings on

the mortgaged property but the same did not push through. It was re-

strained by the then Court of First Instance (CFI) of Caloocan City, Branch 33

(now RTC Branch 123) in Civil Case No. C-6329, a complaint for injunction

filed by respondents against petitioners. However, the case was subse-

quently dismissed for failure of the parties to appear at the hearing on No-

vember 9, 1977. 

On March 16, 1979, respondents filed an action for declaratory relief

with the CFI of Caloocan City, Branch 33, seeking a declaration of the extent

of their actual indebtedness. It was docketed as Civil Case No. C-7496. Peti-

tioners were declared in default for failure to file an answer within the regle-

mentary period. They moved for the dismissal of the action on the ground

that its subject, the mortgage deed, had already been breached prior to the

filing of the action. The motion was denied for having been filed out of time

and petitioners had already been declared in default.  

On January 8, 1981, the CFI rendered its decision. It fixed respondents’

liability at P15,743.83 and authorized them to consign the amount to the

court for proper disposition. In compliance with the decision, respondents

consigned the required amount on January 9, 1981. 

In March 1995, respondents received a notice of sheriff’s sale indicat-

ing that the mortgage had been foreclosed by CHFI on February 8, 1995 and

that an extrajudicial sale of the property would be held on March 27,

1995.    

On March 27, 1995, respondents instituted Civil Case No. C-16822, a

petition for preliminary injunction, damages and cancellation of annotation

of encumbrance with prayer for the issuance of a temporary restraining or-

der, with the RTC of Caloocan City, Branch 120. However, the public auction

scheduled on that same day proceeded and the property was sold to CHFI

as the highest bidder. Respondents failed to redeem the property during the

redemption period. Hence, title to the property was consolidated in favor of

CHFI and a new certificate of title (TCT No. 310191) was issued in its name.

In view of these developments, respondents amended their complaint to an

action for nullification of foreclosure, sheriff’s sale and consolidation of title,

reconveyance and damages. 

On February 11, 2000, the RTC issued the assailed decision.  It ruled

that the 1981 CFI decision in Civil Case No. C-7496 (fixing respondents’ lia-

bility atP15,743.83 and authorizing consignation) had long attained finality.

The mortgage was extinguished when respondents paid their indebtedness

by consigning the amount in court. Moreover, the ten-year period within

which petitioners should have foreclosed the property was already barred

by prescription. They abused their right to foreclose the property and exer-

cised it in bad faith. As a consequence, the trial court nullified the foreclo-

sure and extrajudicial sale of the property, as well as the consolidation of ti-

tle in CHFI’s name in 1995. It then ordered the register of deeds of Caloocan

City to cancel TCT No. 310191 and to reconvey the property to respondents.

It also held petitioners liable for moral damages, exemplary damages and

attorney’s fees. 

        Petitioners moved for a reconsideration of the trial court’s decision but

it was denied. Hence, this petition. 

Petitioners claim that the trial court erred when it affirmed the validity

of the consignation. They insist that the CFI was barred from taking cog-

nizance of the action for declaratory relief since, petitioners being already in

default in their loan amortizations, there existed a violation of the mortgage

deed even before the institution of the action. Hence, the CFI could not have

rendered a valid judgment in Civil Case No. C-7496 and the consignation

made pursuant to a void judgment was likewise void. Respondents also fault

the trial court for holding that their right to foreclose the property had al-

ready prescribed. 

True, the trial court erred when it ruled that the 1981 CFI decision in

Civil Case No. C-7496 was already final and executory. 

An action for declaratory relief should be filed by a person interested

under a deed, will, contract or other written instrument, and whose rights

are affected by a statute, executive order, regulation or ordinance be-

fore breach or violation thereof.[1] The purpose of the action is to secure an

authoritative statement of the rights and obligations of the parties under a

statute, deed, contract, etc. for their guidance in its enforcement or compli-

ance and not to settle issues arising from its alleged breach.[2] It may be en-

tertained only before the breach or violation of the statute, deed, con-

tract, etc. to which it refers.[3] Where the law or contract has already been

contravened prior to the filing of an action for declaratory relief, the court

can no longer assume jurisdiction over the action.[4] In other words, a court

has no more jurisdiction over an action for declaratory relief if its sub-

ject, i.e., the statute, deed, contract, etc., has already been infringed or

transgressed before the institution of the action. Under such circumstances,

inasmuch as a cause of action has already accrued in favor of one or the

other party, there is nothing more for the court to explain or clarify short of

a judgment or final order. 

Here, an infraction of the mortgage terms had already taken place be-

fore the filing of Civil Case No. C-7496.   Thus, the CFI lacked jurisdiction

when it took cognizance of the case in 1979.  And in the absence of jurisdic-

tion, its decision was void and without legal effect. As this Court held

in Arevalo v. Benedicto:[5]

 Furthermore, the want of jurisdiction by a court over the subject-matter ren-ders its judgment void and a mere nullity, and considering that a void judg-ment is in legal effect no judgment, by which no rights are divested, from which no rights can be obtained, which neither binds nor bars any one, and under which all acts performed and all claims flowing out of are void, and con-sidering further, that the decision, for want of jurisdiction of the court, is not a decision in contemplation of law, and, hence, can never become executory, it follows that such a void judgment cannot constitute a bar to another case by reason of res judicata.

 

Nonetheless, the petition must fail. 

Article 1142 of the Civil Code is clear. A mortgage action prescribes af-

ter ten years.       

An action to enforce a right arising from a mortgage should be en-

forced within ten years from the time the right of action accrues. [6] Other-

wise, it will be barred by prescription and the mortgage creditor will lose his

rights under the mortgage. 

Here, petitioners’ right of action accrued in May 1977 when respon-

dents defaulted in their obligation to pay their loan amortizations. It was

from that time that the ten-year period to enforce the right under the mort-

gage started to run. The period was interrupted when respondents filed Civil

Case No. C-6329 sometime after May 1977 and the CFI restrained the in-

tended foreclosure of the property. However, the period commenced to run

again on November 9, 1977 when the case was dismissed. 

The respondents’ institution of Civil Case No. C-7496 in the CFI on

March 16, 1979 did not interrupt the running of the ten-year prescriptive pe-

riod because, as discussed above, the court lacked jurisdiction over the ac-

tion for declaratory relief. All proceedings therein were without legal effect.

Thus, petitioners could have enforced their right under the mortgage, in-

cluding its foreclosure, only until November 7, 1987, the tenth year from the

dismissal of Civil Case No. C-6329. Thereafter, their right to do so was al-

ready barred by prescription.    

The foreclosure held on February 8, 1995 was therefore some seven

years too late. The same thing can be said about the public auction held on

March 27, 1995, the consolidation of title in CHFI’s favor and the issuance of

TCT No. 310191 in its name. They were all void and did not exist in the eyes

of the law. 

WHEREFORE, the petition is hereby DENIED.       

Costs against petitioners.

       

SO ORDERED.

[1]               Velarde v. Social Justice Society, G.R. No. 159357, 28 April 2004, 428 SCRA 283.[2]               Manila Electric Company v. Philippine Consumers Foundation, Inc., 425 Phil. 65 (2002).[3]               Id.[4]               Cf. Magtibay v. Hon. Alikpala, 116 Phil. 993 (1962). See also Oscar M. Herrera, Remedial Law, vol. III, 1991 edition, p.

103.[5]               157 Phil. 175 (1974) cited in Hilado v. Chavez, G.R. No. 134742, 22 September 2004, 438 SCRA 623.[6]               Quirino Gonzales Logging Concessionaire v. Court of Appeals, 450 Phil. 218 (2003).

5. Heirs of Sofia Quirong v. Development Bank of the Philippines, G.R. No. 173441, 3 December 2009

HEIRS OF SOFIA QUIRONG,               G.R. No. 173441Represented by ROMEO P.QUIRONG,                             Petitioners,                     Present:                                                                                                    Carpio, J., Chairperson,          - versus -                                             Leonardo-De Castro,

  Brion,  Peralta,* and  Abad, JJ.

DEVELOPMENT BANK OFTHE PHILIPPINES,                                Promulgated:                             Respondent.                                                                      December 3, 2009x ---------------------------------------------------------------------------------------- x

 

DECISION 

ABAD, J.:  This case is about the prescriptive period of an action for rescission of a contract of sale

where the buyer is evicted from the thing sold by a subsequent judicial order in favor of a third party.

 The Facts and the Case

 The facts are not disputed.  When the late Emilio Dalope died, he left a 589-square meter

untitled lot[1] in Sta. Barbara, Pangasinan, to his wife, Felisa Dalope (Felisa) and their nine children, one of whom was Rosa Dalope-Funcion.[2]  To enable Rosa and her husband Antonio Funcion (the Funcions) get a loan from respondent Development Bank of the Philippines (DBP), Felisa sold the whole lot to the Funcions.  With the deed of sale in their favor and the tax declaration transferred in their names, the Funcions mortgaged the lot with the DBP. 

 On February 12, 1979, after the Funcions failed to pay their loan, the DBP foreclosed the

mortgage on the lot and consolidated ownership in its name on June 17, 1981.[3]   Four years later or on September 20, 1983 the DBP conditionally sold the lot to Sofia

Quirong[4] for the price of P78,000.00.  In their contract of sale, Sofia Quirong waived any warranty against eviction.  The contract provided that the DBP did not guarantee possession of the property and that it would not be liable for any lien or encumbrance on the same.  Quirong gave a down payment of P14,000.00. 

 

Two months after that sale or on November 28, 1983 Felisa and her eight children (collectively, the Dalopes)[5] filed an action for partition and declaration of nullity of documents with damages against the DBP and the Funcions before the Regional Trial Court (RTC) of Dagupan City, Branch 42, in Civil Case D-7159. 

 On December 27, 1984, notwithstanding the suit, the DBP executed a deed of absolute

sale of the subject lot in Sofia Quirong’s favor.  The deed of sale carried substantially the same waiver of warranty against eviction and of any adverse lien or encumbrance. 

 On May 11, 1985, Sofia Quirong having since died, her heirs (petitioner Quirong heirs)

filed an answer in intervention[6] in Civil Case D-7159 in which they asked the RTC to award the lot to them and, should it instead be given to the Dalopes, to allow the Quirong heirs to recover the lot’s value from the DBP.  But, because the heirs failed to file a formal offer of evidence, the trial court did not rule on the merits of their claim to the lot and, alternatively, to relief from the DBP.[7]

           On December 16, 1992 the RTC rendered a decision, declaring the DBP’s sale to Sofia Quirong valid only with respect to the shares of Felisa and Rosa Funcion in the property.   It declared Felisa’s sale to the Funcions, the latter’s mortgage to the DBP, and the latter’s sale to Sofia Quirong void insofar as they prejudiced the shares of the eight other children of Emilio and Felisa who were each entitled to a tenth share in the subject lot.  

The DBP received a copy of the decision on January 13, 1993 and, therefore, it had until January 28, 1993 within which to file a motion for its reconsideration or a notice of appeal from it. But the DBP failed to appeal supposedly because of excusable negligence and the withdrawal of its previous counsel of record.[8]

 When the RTC judgment became final and the court issued a writ of execution, the DBP

resisted the writ by motion to quash, claiming that the decision could not be enforced because it failed to state by metes and bounds the particular portions of the lot that would be assigned to the different parties in the case.  The RTC denied the DBP’s motion, prompting the latter to seek recourse by special civil action of certiorari directly with this Court in G.R. 116575, Development Bank of the Philippines v. Fontanilla.  On September 7, 1994 the Court issued a resolution, denying the petition for failure of the DBP to pay the prescribed fees.  This resolution became final and executory on January 17, 1995.[9]

           On June 10, 1998 the Quirong heirs filed the present action [10] against the DBP before the RTC of Dagupan City, Branch 44, in Civil Case CV-98-02399-D for rescission of the contract of sale between Sofia Quirong, their predecessor, and the DBP and praying for the reimbursement of the price of P78,000.00 that she paid the bank plus damages.  The heirs alleged that they were entitled to the rescission of the sale because the decision in Civil Case D-7159 stripped them of nearly the whole of the lot that Sofia Quirong, their predecessor, bought from the DBP.  The DBP filed a motion to dismiss the action on ground of prescription and res judicata but the RTC denied their motion.

           On June 14, 2004, after hearing the case, the RTC rendered a decision,[11] rescinding the sale between Sofia Quirong and the DBP and ordering the latter to return to the Quirong heirs theP78,000.00 Sofia Quirong paid the bank.[12]  On appeal by the DBP, the Court of Appeals (CA) reversed the RTC decision and dismissed the heirs’ action on the ground of prescription.  The CA concluded that, reckoned from the finality of the December 16, 1992 decision in Civil Case D-7159, the complaint filed on June 10, 1998 was already barred by the four-year prescriptive period under Article 1389 of the Civil Code. [13]  The Quirong heirs filed a motion for reconsideration of the decision but the appellate court denied it,[14] thus, this petition.

 The Issues Presented

 The issues presented in this case are: 

1.       Whether or not the Quirong heirs’ action for rescission of respondent DBP’s sale of the subject property to Sofia Quirong was already barred by prescription; and

 2.       In the negative, whether or not the heirs of Quirong were entitled to

the rescission of the DBP’s sale of the subject lot to the late Sofia Quirong as a consequence of her heirs having been evicted from it.

 The Court’s Rulings

 The CA held that the Quirong heirs’ action for rescission of the sale between DBP and

their predecessor, Sofia Quirong, is barred by prescription reckoned from the date of finality of the December 16, 1992 RTC decision in Civil Case D-7159 and applying the prescriptive period of four years set by Article 1389 of the Civil Code.   

 Unfortunately, the CA did not state in its decision the date when the RTC decision in

Civil Case D-7159 became final and executory, which decision resulted in the Quirong heirs’ loss of 80% of the lot that the DBP sold to Sofia Quirong.  Petitioner heirs claim that the prescriptive period should be reckoned from January 17, 1995, the date this Court’s resolution in G.R. 116575 became final and executory.[15] 

 But the incident before this Court in G.R. 116575 did not deal with the merit of the RTC

decision in Civil Case D-7159.  That decision became final and executory on January 28, 1993 when the DBP failed to appeal from it within the time set for such appeal.  The incident before this Court in G.R. 116575 involved the issuance of the writ of execution in that case.  The DBP contested such issuance supposedly because the dispositive portion of the decision failed to specify details that were needed for its implementation.  Since this incident did not affect the finality of the decision in Civil Case   D-7159, the prescriptive period remained to be reckoned from January 28, 1993, the date of such finality. 

 

The next question that needs to be resolved is the applicable period of prescription.  The DBP claims that it should be four years as provided under Article 1389 of the Civil Code.[16] Article 1389 provides that “the action to claim rescission must be commenced within four years.” The Quirong heirs, on the other hand, claim that it should be 10 years as provided under Article 1144 which states that actions “upon a written contract” must be brought “within 10 years from the date the right of action accrues.”

 Now, was the action of the Quirong heirs “for rescission” or “upon a written

contract”? There is no question that their action was for rescission, since their complaint in Civil Case CV-98-02399-D asked for the rescission of the contract of sale between Sofia Quirong, their predecessor, and the DBP and the reimbursement of the price of P78,000.00 that Sofia Quirong paid the bank plus damages.  The prescriptive period for rescission is four years. 

 But it is not that simple.  The remedy of “rescission” is not confined to the rescissible

contracts enumerated under Article 1381.[17]  Article 1191 of the Civil Code gives the injured party in reciprocal obligations, such as what contracts are about, the option to choose between fulfillment and “rescission.”  Arturo M. Tolentino, a well-known authority in civil law, is quick to note, however, that the equivalent of Article 1191 in the old code actually uses the term “resolution” rather than the present “rescission.”[18]  The calibrated meanings of these terms are distinct.

 “Rescission” is a subsidiary action based on injury to the plaintiff’s economic interests as

described in Articles 1380 and 1381.  “Resolution,” the action referred to in Article 1191, on the other hand, is based on the defendant’s breach of faith, a violation of the reciprocity between the parties.  As an action based on the binding force of a written contract, therefore, rescission (resolution) under Article 1191 prescribes in 10 years.  Ten years is the period of prescription of actions based on a written contract under Article 1144.  

 The distinction makes sense.  Article 1191 gives the injured party an option to choose

between, first, fulfillment of the contract and, second, its rescission.  An action to enforce a written contract (fulfillment) is definitely an “action upon a written contract,” which prescribes in 10 years (Article 1144).  It will not be logical to make the remedy of fulfillment prescribe in 10 years while the alternative remedy of rescission (or resolution) is made to prescribe after only four years as provided in Article 1389 when the injury from which the two kinds of actions derive is the same. 

 Here, the Quirong heirs alleged in their complaint that they were entitled to the rescission

of the contract of sale of the lot between the DBP and Sofia Quirong because the decision in Civil Case D-7159 deprived her heirs of nearly the whole of that lot.  But what was the status of that contract at the time of the filing of the action for rescission?  Apparently, that contract of sale had already been fully performed when Sofia Quirong paid the full price for the lot and when, in exchange, the DBP executed the deed of absolute sale in her favor.  There was a turnover of control of the property from DBP to Sofia Quirong since she assumed under their contract, “the ejectment of squatters and/or occupants” on the lot, at her own expense.[19]

 Actually, the cause of action of the Quirong heirs stems from their having been ousted by

final judgment from the ownership of the lot that the DBP sold to Sofia Quirong, their predecessor, in violation of the warranty against eviction that comes with every sale of property or thing.  Article 1548 of the Civil Code provides:

 Article 1548.  Eviction shall take place whenever by a final judgment based on a

right prior to the sale or an act imputable to the vendor, the vendee is deprived of the whole or of a part of thing purchased.

 x x x x 

With the loss of 80% of the subject lot to the Dalopes by reason of the judgment of the RTC in Civil Case D-7159, the Quirong heirs had the right to file an action for rescission against the DBP pursuant to the provision of Article 1556 of the Civil Code which provides:

 Article 1556.   Should the vendee lose, by reason of the eviction, a part of the thing

sold of such importance, in relation to the whole, that he would not have bought it without said part, he may demand the rescission of the contract; but with the obligation to return the thing without other encumbrances than those which it had when he acquired it.  x x x And that action for rescission, which is based on a subsequent economic loss suffered by

the buyer, was precisely the action that the Quirong heirs took against the DBP.  Consequently, it prescribed as Article 1389 provides in four years from the time the action accrued.  Since it accrued on January 28, 1993 when the decision in Civil Case D-7159 became final and executory and ousted the heirs from a substantial portion of the lot, the latter had only until January 28, 1997 within which to file their action for rescission.  Given that they filed their action on June 10, 1998, they did so beyond the four-year period.   

 With the conclusion that the Court has reached respecting the first issue presented in this

case, it would serve no useful purpose for it to further consider the issue of whether or not the heirs of Quirong would have been entitled to the rescission of the DBP’s sale of the subject lot to Sofia Quirong as a consequence of her heirs having been evicted from it.  As the Court has ruled above, their action was barred by prescription.  The CA acted correctly in reversing the RTC decision and dismissing their action.

 Parenthetically, the Quirong heirs were allowed by the RTC to intervene in the original

action for annulment of sale in Civil Case D-7159 that the Dalopes filed against the DBP and the Funcions.  Not only did the heirs intervene in defense of the sale, they likewise filed a cross claim against the DBP.  And they were apparently heard on their defense and cross claim but the RTC did not adjudicate their claim for the reason that they failed to make a formal offer of their documentary exhibits.  Yet, they did not appeal from this omission or from the judgment of the RTC, annulling the DBP’s sale of the subject lot to Sofia Quirong.  This point is of course entirely academic but it shows that the Quirong heirs have themselves to blame for the loss of whatever right they may have in the case.  

 WHEREFORE, the Court DENIES the petition and AFFIRMS the November 30, 2005

decision of the Court of Appeals in CA-G.R. CV 83897. SO ORDERED.

[1]  Unregistered lot previously declared for taxation purposes in the name of spouses Emilio and Felisa Dalope, located at Tuliao, Sta. Barbara, Pangasinan and covered by Tax Declaration No. 720.[2]  The heirs are in possession of the land.  Standing on it are two houses, one bungalow owned by Felisa and a two-storey house owned by the Funcion spouses.[3]  CA rollo, p. 25.[4]  Now substituted by the petitioner Heirs of Sofia Quirong.[5]  Lydia, Jose, Imelda, Cesar, Fredeline, Carlos, Emilio, and Cipriano, the latter also known as Sofronio and represented by his heirs, Elena Andaca, Alma, Noemi, Gaile, and Shiela, all surnamed Dalope.[6]  Rollo, p. 182.[7] Id. at 96. Pertinent portion of the decision reads: “No evidence was formally offered in support of the intervention filed in this case by the heirs of the late Sofia P. Quirong.  The merits of the case could not therefore be passed upon in this case.”[8]  Petition in G.R. No. 116575, rollo, p. 105.[9]  Rollo, p. 114.[10]  Complaint, id. at 57.[11]  Id. at 77.[12] WHEREFORE, the Contract of Sale involving the parcel of land situated in Tuliao, Sta. Barbara, Pangasinan, x x x is ordered re-scinded and defendant is ordered to reimburse to plaintiffs the sum of Seventy Eight Thousand Pesos (P78,000.00) plus interests thereof at bank rate from 1983 until it is returned to the plaintiffs.                Furnish copies of this decision to Atty. Aurora Esguerra Valle and Atty. Rolando D. Mendoza.                SO ORDERED. (Rollo, p. 86)[13]  November 30, 2005 Decision, id. at 52.[14]  June 14, 2006 Resolution, id. at 56.[15]  Id. at 114.[16]  Art. 1389.  The action to claim rescission must be commenced within four years.                For persons under guardianship and for absentees, the period of four years shall not begin until the termination of the for-mer’s incapacity, or until the domicile of the latter is known.[17] Article 1381.  The following contracts are rescissible: (1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof; (2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number; (3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them; (4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority; (5) All other contracts specially declared by law to be subject to rescission.[18]  Tolentino, Civil Code of the Philippines, Vol. IV, 169 (1992). [19]  DBP’s Memorandum, citing par. 15, No. 3 of Deed of Conditional Sale, rollo, p. 245.