Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-24732             April 30, 1968

PIO SIAN MELLIZA, petitioner, vs.CITY OF ILOILO, UNIVERSITY OF THE PHILIPPINES and THE COURT APPEALS, respondents.

Cornelio P. Ravena for petitioner.Office of the Solicitor General for respondents.

BENGZON, J.P., J.:

Juliana Melliza during her lifetime owned, among other properties, three parcels of residential land in Iloilo City registered in her name under Original Certificate of Title No. 3462. Said parcels of land were known as Lots Nos. 2, 5 and 1214. The total area of Lot No. 1214 was 29,073 square meters.

On November 27, 1931 she donated to the then Municipality of Iloilo, 9,000 square meters of Lot 1214, to serve as site for the municipal hall. 1 The donation was however revoked by the parties for the reason that the area donated was found inadequate to meet the requirements of the development plan of the municipality, the so-called "Arellano Plan". 2

Subsequently, Lot No. 1214 was divided by Certeza Surveying Co., Inc. into Lots 1214-A and 1214-B. And still later, Lot 1214-B was further divided into Lots 1214-B-1, Lot 1214-B-2 and Lot 1214-B-3. As approved by the Bureau of Lands, Lot 1214-B-1 with 4,562 square meters, became known as Lot 1214-B; Lot 1214-B-2, with 6,653 square meters, was designated as Lot 1214-C; and Lot 1214-B-13, with 4,135 square meters, became Lot 1214-D.

On November 15, 1932 Juliana Melliza executed an instrument without any caption containing the following:

Que en consideracion a la suma total de SEIS MIL CUATRO CIENTOS VEINTIDOS PESOS (P6,422.00), moneda filipina que por la presente declaro haber recibido a mi entera satisfaccion del Gobierno Municipal de Iloilo, cedo y traspaso en venta real y difinitiva a dicho Gobierno Municipal de Iloilo los lotes y porciones de los mismos que a continuacion se especifican a saber: el lote No. 5 en toda su extension; una porcion de 7669 metros cuadrados del lote No. 2, cuya porcion esta designada como sub-lotes Nos. 2-B y 2-C del piano de subdivision de dichos lotes preparado por la Certeza Surveying Co., Inc., y una porcion de 10,788 metros cuadrados del lote No. 1214 — cuya porcion esta designada como sub-lotes Nos. 1214-B-2 y 1214-B-3 del mismo plano de subdivision.

Asimismo nago constar que la cesion y traspaso que ariba se mencionan es de venta difinitiva, y que para la mejor identificacion de los lotes y porciones de los mismos que son objeto de la presente, hago constar que dichos lotes y porciones son los que necesita el Gobierno Municipal de Iloilo para la construccion de avenidas, parques y City Hall site del Municipal Government Center de iloilo, segun el plano Arellano.

On January 14, 1938 Juliana Melliza sold her remaining interest in Lot 1214 to Remedios Sian Villanueva who thereafter obtained her own registered title thereto, under Transfer Certificate of Title No. 18178. Remedios in turn on November 4, 1946 transferred her rights to said portion of land to Pio Sian Melliza, who obtained Transfer Certificate of Title No. 2492 thereover in his name. Annotated at the back of Pio Sian Melliza's title certificate was the following:

... (a) that a portion of 10,788 square meters of Lot 1214 now designated as Lots Nos. 1214-B-2 and 1214-B-3 of the subdivision plan belongs to the Municipality of Iloilo as per instrument dated November 15, 1932....

On August 24, 1949 the City of Iloilo, which succeeded to the Municipality of Iloilo, donated the city hall site together with the building thereon, to the University of the Philippines (Iloilo branch). The site donated consisted of Lots Nos. 1214-B, 1214-C and 1214-D, with a total area of 15,350 square meters, more or less.

Sometime in 1952, the University of the Philippines enclosed the site donated with a wire fence. Pio Sian Melliza thereupon made representations, thru his lawyer, with the city authorities for payment of the value of the lot (Lot 1214-B). No recovery was obtained, because as alleged by plaintiff, the City did not have funds (p. 9, Appellant's Brief.)

The University of the Philippines, meanwhile, obtained Transfer Certificate of Title No. 7152 covering the three lots, Nos. 1214-B, 1214-C and 1214-D.

On December 10, 1955 Pio Sian Melliza filed an action in the Court of First Instance of Iloilo against Iloilo City and the University of the Philippines for recovery of Lot 1214-B or of its value.

The defendants answered, contending that Lot 1214-B was included in the public instrument executed by Juliana Melliza in favor of Iloilo municipality in 1932. After stipulation of facts and trial, the Court of First Instance rendered its decision on August 15, 1957, dismissing the complaint. Said court ruled that the instrument executed by Juliana Melliza in favor of Iloilo municipality included in the conveyance Lot 1214-B. In support of this conclusion, it referred to the portion of the instrument stating:

Asimismo hago constar que la cesion y traspaso que arriba se mencionan es de venta difinitiva, y que para la major identificacion de los lotes y porciones de los mismos que son objeto de la presente, hago constar que dichos lotes y porciones son los que necesita el Gobierno municipal de Iloilo para la construccion de avenidas, parques y City Hall site del Municipal Government Center de Iloilo, segun el plano Arellano.

and ruled that this meant that Juliana Melliza not only sold Lots 1214-C and 1214-D but also such other portions of lots as were necessary for the municipal hall site, such as Lot 1214-B. And thus it held that Iloilo City had the right to donate Lot 1214-B to the U.P.

Pio Sian Melliza appealed to the Court of Appeals. In its decision on May 19, 1965, the Court of Appeals affirmed the interpretation of the Court of First Instance, that the portion of Lot 1214 sold by Juliana Melliza was not limited to the 10,788 square meters specifically mentioned but included whatever was needed for the construction of avenues, parks and the city hall site. Nonetheless, it ordered the remand of the case for reception of evidence to determine the area actually taken by Iloilo City for the construction of avenues, parks and for city hall site.

The present appeal therefrom was then taken to Us by Pio Sian Melliza. Appellant maintains that the public instrument is clear that only Lots Nos. 1214-C and 1214-D with a total area of 10,788 square meters were the portions of Lot 1214 included in the sale; that the purpose of the second paragraph, relied upon for a contrary interpretation, was only to better identify the lots sold and none other; and that to follow the interpretation accorded the deed of sale by the Court of Appeals and the Court of First Instance would render the contract invalid because the law requires as an essential element of sale, a "determinate" object (Art. 1445, now 1448, Civil Code).

Appellees, on the other hand, contend that the present appeal improperly raises only questions of fact. And, further, they argue that the parties to the document in question really intended to include Lot 1214-B therein, as shown by the silence of the vendor after Iloilo City exercised ownership thereover; that not to include it would have been absurd, because said lot is contiguous to the others admittedly included in the conveyance, lying directly in front of the city hall, separating that building from Lots 1214-C and 1214-D, which were included therein. And, finally, appellees argue that the sale's object was determinate, because it could be ascertained, at the time of the execution of the contract, what lots were needed by Iloilo municipality for avenues, parks and city hall site "according to the Arellano Plan", since the Arellano plan was then already in existence.

The appeal before Us calls for the interpretation of the public instrument dated November 15, 1932. And interpretation of such contract involves a question of law, since the contract is in the nature of law as between the parties and their successors-in-interest.

At the outset, it is well to mark that the issue is whether or not the conveyance by Juliana Melliza to Iloilo municipality included that portion of Lot 1214 known as Lot 1214-B. If not, then the same was included, in the instrument subsequently executed by Juliana Melliza of her remaining interest in Lot 1214 to Remedios Sian Villanueva, who in turn sold what she thereunder had acquired, to Pio Sian Melliza. It should be stressed, also, that the sale to Remedios Sian Villanueva — from which Pio Sian Melliza derived title — did not specifically designate Lot 1214-B, but only such portions of Lot 1214 as were not included in the previous sale to Iloilo municipality(Stipulation of Facts, par. 5, Record on Appeal, p. 23). And thus, if said Lot 1214-B had been included in the prior conveyance to Iloilo municipality, then it was excluded from the sale to Remedios Sian Villanueva and, later, to Pio Sian Melliza.

The point at issue here is then the true intention of the parties as to the object of the public instrument Exhibit "D". Said issue revolves on the paragraph of the public instrument aforequoted and its purpose, i.e., whether it was intended merely to further describe the lots already specifically mentioned, or whether it was intended to cover other lots not yet specifically mentioned.

First of all, there is no question that the paramount intention of the parties was to provide Iloilo municipality with lots sufficient or adequate in area for the construction of the Iloilo City hall site, with its avenues and parks. For this matter, a previous donation for this purpose between the same parties was revoked by them, because of inadequacy of the area of the lot donated.

Secondly, reading the public instrument in toto, with special reference to the paragraphs describing the lots included in the sale, shows that said instrument describes four parcels of land by their lot numbers and area; and then it goes on to further describe, not only those lots already mentioned, but the lots object of the sale, by stating that said lots are the ones needed for the construction of the city hall site, avenues and parks according to the Arellano plan. If the parties intended merely to cover the specified lots — Lots 2, 5, 1214-C and 1214-D, there would scarcely have been any need for the next paragraph, since these lots are already plainly and very clearly described by their respective lot number and area. Said next paragraph does not really add to the clear description that was already given to them in the previous one.

It is therefore the more reasonable interpretation, to view it as describing those other portions of land contiguous to the lots aforementioned that, by reference to the Arellano plan, will be found needed for the purpose at hand, the construction of the city hall site.

Appellant however challenges this view on the ground that the description of said other lots in the aforequoted second paragraph of the public instrument would thereby be legally insufficient, because the object would allegedly not be determinate as required by law.

Such contention fails on several counts. The requirement of the law that a sale must have for its object a determinate thing, is fulfilled as long as, at the time the contract is entered into, the object of the sale is capable of being made determinate without the necessity of a new or further agreement between the parties (Art. 1273, old Civil Code; Art. 1460, New Civil Code). The specific mention of some of the lots plus the statement that the lots object of the sale are the ones needed for city hall site, avenues and parks, according to the Arellano plan, sufficiently provides a basis, as of the time of the execution of the contract, for rendering determinate said lots without the need of a new and further agreement of the parties.

The Arellano plan was in existence as early as 1928. As stated, the previous donation of land for city hall site on November 27, 1931 was revoked on March 6, 1932 for being inadequate in area under said Arellano plan. Appellant claims that although said plan existed, its metes and bounds were not fixed until 1935, and thus it could not be a basis for determining the lots sold on November 15, 1932. Appellant however fails to consider that thearea needed under that plan for city hall site was then already known; that the specific mention of some of the lots covered by the sale in effect fixed the corresponding location of the city hall site under the plan; that, therefore, considering the said lots specifically mentioned in the public instrument Exhibit "D", and the projected city hall site, with its area, as then shown in the Arellano plan (Exhibit 2), it could be determined which, and how much of the portions of land contiguous to those specifically named, were needed for the construction of the city hall site.

And, moreover, there is no question either that Lot 1214-B is contiguous to Lots 1214-C and 1214-D, admittedly covered by the public instrument. It is stipulated that, after execution of the contract Exhibit "D", the Municipality of Iloilo possessed it together with the other lots sold. It sits practically in the heart of the city hall site. Furthermore, Pio Sian Melliza, from the stipulation of facts, was the notary public of the public instrument. As such, he was aware of its terms. Said instrument was also registered with the Register of Deeds and such registration was annotated at the back of the corresponding title certificate of Juliana Melliza. From these stipulated facts, it can be inferred that Pio Sian Melliza knew of the aforesaid terms of the instrument or is chargeable with knowledge of them; that knowing so, he should have examined the Arellano plan in relation to the public instrument Exhibit "D"; that, furthermore, he should have taken notice of the possession first by the Municipality of Iloilo, then by the City of Iloilo and later by the University of the Philippines of Lot 1214-B as part of the city hall site conveyed under that public instrument, and raised proper objections thereto if it was his position that the same was not included in the same. The fact remains that, instead, for twenty long years, Pio Sian Melliza and his predecessors-in-interest, did not object to said possession, nor exercise any act of possession over Lot 1214-B. Applying, therefore, principles of civil law, as well as laches, estoppel, and equity, said lot must necessarily be deemed included in the conveyance in favor of Iloilo municipality, now Iloilo City.

WHEREFORE, the decision appealed from is affirmed insofar as it affirms that of the Court of First Instance, and the complaint in this case is dismissed. No costs. So ordered.

Reyes, J.B.L., Actg. C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.Concepcion , C.J., is on leave.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-9935             February 1, 1915

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

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

TRENT, J.:

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

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

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

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

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

The points raised by the defendant will be considered first. He alleges that the court erred in refusing to permit parol evidence showing that the parties intended that the sugar was to be secured from the crop which the defendant raised on his plantation, and that he was unable to fulfill the contract by

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

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

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

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

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

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

the title had passed and the loss was the vendee's. It is our purpose to distinguish the case at bar from all these cases.

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

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

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

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

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

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

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

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

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

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

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

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 74470 March 8, 1989

NATIONAL GRAINS AUTHORITY and WILLLAM CABAL, petitioners vs.THE INTERMEDIATE APPELLATE COURT and LEON SORIANO, respondents.

Cordoba, Zapanta, Rola & Garcia for petitioner National Grains Authority.

Plaridel Mar Israel for respondent Leon Soriano.

 

MEDIALDEA, J.:

This is a petition for review of the decision (pp. 9-21, Rollo) of the Intermediate Appellate Court (now Court of Appeals) dated December 23, 1985 in A.C. G.R. CV No. 03812 entitled, "Leon Soriano, Plaintiff- Appellee versus National Grains Authority and William Cabal, Defendants Appellants", which affirmed the decision of the Court of First Instance of Cagayan, in Civil Case No. 2754 and its resolution (p. 28, Rollo) dated April 17, 1986 which denied the Motion for Reconsideration filed therein.

The antecedent facts of the instant case are as follows:

Petitioner National Grains Authority (now National Food Authority, NFA for short) is a government agency created under Presidential Decree No. 4. One of its incidental functions is the buying of palay grains from qualified farmers.

On August 23, 1979, private respondent Leon Soriano offered to sell palay grains to the NFA, through William Cabal, the Provincial Manager of NFA stationed at Tuguegarao, Cagayan. He submitted the documents required by the NFA for pre-qualifying as a seller, namely: (1) Farmer's Information Sheet accomplished by Soriano and certified by a Bureau of Agricultural Extension (BAEX) technician, Napoleon Callangan, (2) Xerox copies of four (4) tax declarations of the riceland leased to him and copies of the lease contract between him and Judge Concepcion Salud, and (3) his Residence Tax Certificate. Private respondent Soriano's documents were processed and accordingly, he was given a quota of 2,640 cavans of palay. The quota noted in the Farmer's Information Sheet represented the maximum number of cavans of palay that Soriano may sell to the NFA.

In the afternoon of August 23, 1979 and on the following day, August 24, 1979, Soriano delivered 630 cavans of palay. The palay delivered during these two days were not rebagged, classified and weighed. when Soriano demanded payment of the 630 cavans of palay, he was informed that its payment will be held in abeyance since Mr. Cabal was still investigating on an information he received that Soriano was not a bona tide farmer and the palay delivered by him was not produced from his farmland but was taken from the warehouse of a rice trader, Ben de Guzman. On August 28, 1979, Cabal wrote Soriano advising him to withdraw from the NFA warehouse the 630 cavans Soriano delivered stating that NFA cannot legally accept the said delivery on the basis of the subsequent certification of the BAEX technician, Napoleon Callangan that Soriano is not a bona fide farmer.

Instead of withdrawing the 630 cavans of palay, private respondent Soriano insisted that the palay grains delivered be paid. He then filed a complaint for specific performance and/or collection of

money with damages on November 2, 1979, against the National Food Authority and Mr. William Cabal, Provincial Manager of NFA with the Court of First Instance of Tuguegarao, and docketed as Civil Case No. 2754.

Meanwhile, by agreement of the parties and upon order of the trial court, the 630 cavans of palay in question were withdrawn from the warehouse of NFA. An inventory was made by the sheriff as representative of the Court, a representative of Soriano and a representative of NFA (p. 13, Rollo).

On September 30, 1982, the trial court rendered judgment ordering petitioner National Food Authority, its officers and agents to pay respondent Soriano (as plaintiff in Civil Case No. 2754) the amount of P 47,250.00 representing the unpaid price of the 630 cavans of palay plus legal interest thereof (p. 1-2, CA Decision). The dispositive portion reads as follows:

WHEREFORE, the Court renders judgment in favor of the plaintiff and against the defendants National Grains Authority, and William Cabal and hereby orders:

1. The National Grains Authority, now the National Food Authority, its officers and agents, and Mr. William Cabal, the Provincial Manager of the National Grains Authority at the time of the filing of this case, assigned at Tuguegarao, Cagayan, whomsoever is his successors, to pay to the plaintiff Leon T. Soriano, the amount of P47,250.00, representing the unpaid price of the palay deliveries made by the plaintiff to the defendants consisting of 630 cavans at the rate Pl.50 per kilo of 50 kilos per cavan of palay;

2. That the defendants National Grains Authority, now National Food Authority, its officer and/or agents, and Mr. William Cabal, the Provincial Manager of the National Grains Authority, at the time of the filing of this case assigned at Tuguegarao, Cagayan or whomsoever is his successors, are likewise ordered to pay the plaintiff Leon T. Soriano, the legal interest at the rate of TWELVE (12%) percent per annum, of the amount of P 47,250.00 from the filing of the complaint on November 20, 1979, up to the final payment of the price of P 47,250.00;

3. That the defendants National Grains Authority, now National Food Authority, or their agents and duly authorized representatives can now withdraw the total number of bags (630 bags with an excess of 13 bags) now on deposit in the bonded warehouse of Eng. Ben de Guzman at Tuguegarao, Cagayan pursuant to the order of this court, and as appearing in the written inventory dated October 10, 1980, (Exhibit F for the plaintiff and Exhibit 20 for the defendants) upon payment of the price of P 47,250.00 and TWELVE PERCENT (12%) legal interest to the plaintiff,

4. That the counterclaim of the defendants is hereby dismissed;

5. That there is no pronouncement as to the award of moral and exemplary damages and attorney's fees; and

6. That there is no pronouncement as to costs.

SO ORDERED (pp. 9-10, Rollo)

Petitioners' motion for reconsideration of the decision was denied on December 6, 1982.

Petitioners' appealed the trial court's decision to the Intermediate Appellate Court. In a decision promulgated on December 23, 1986 (pp. 9-21, Rollo) the then Intermediate Appellate Court upheld the findings of the trial court and affirmed the decision ordering NFA and its officers to pay Soriano the price of the 630 cavans of rice plus interest. Petitioners' motion for reconsideration of the appellate court's decision was denied in a resolution dated April 17, 1986 (p. 28, Rollo).

Hence, this petition for review filed by the National Food Authority and Mr. William Cabal on May 15, 1986 assailing the decision of the Intermediate Appellate Court on the sole issue of whether or not there was a contract of sale in the case at bar.

Petitioners contend that the 630 cavans of palay delivered by Soriano on August 23, 1979 was made only for purposes of having it offered for sale. Further, petitioners stated that the procedure then prevailing in matters of palay procurement from qualified farmers were: firstly, there is a rebagging wherein the palay is transferred from a private sack of a farmer to the NFA sack; secondly, after the rebagging has been undertaken, classification of the palay is made to determine its variety; thirdly, after the determination of its variety and convinced that it passed the quality standard, the same will be weighed to determine the number of kilos; and finally, it will be piled inside the warehouse after the preparation of the Warehouse Stock Receipt (WSP) indicating therein the number of kilos, the variety and the number of bags. Under this procedure, rebagging is the initial operative act signifying acceptance, and acceptance will be considered complete only after the preparation of the Warehouse Stock Receipt (WSR). When the 630 cavans of palay were brought by Soriano to the Carig warehouse of NFA they were only offered for sale. Since the same were not rebagged, classified and weighed in accordance with the palay procurement program of NFA, there was no acceptance of the offer which, to petitioners' mind is a clear case of solicitation or an unaccepted offer to sell.

The petition is not impressed with merit.

Article 1458 of the Civil Code of the Philippines defines sale as a contract whereby one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other party to pay therefore a price certain in money or its equivalent. A contract, on the other hand, is a meeting of minds between two (2) persons whereby one binds himself, with respect to the other, to give something or to render some service (Art. 1305, Civil Code of the Philippines). The essential requisites of contracts are: (1) consent of the contracting parties, (2) object certain which is the subject matter of the contract, and (3) cause of the obligation which is established (Art. 1318, Civil Code of the Philippines.

In the case at bar, Soriano initially offered to sell palay grains produced in his farmland to NFA. When the latter accepted the offer by noting in Soriano's Farmer's Information Sheet a quota of 2,640 cavans, there was already a meeting of the minds between the parties. The object of the contract, being the palay grains produced in Soriano's farmland and the NFA was to pay the same depending upon its quality. The fact that the exact number of cavans of palay to be delivered has not been determined does not affect the perfection of the contract. Article 1349 of the New Civil Code provides: ". . .. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties." In this case, there was no need for NFA and Soriano to enter into a new contract to determine the exact number of cavans of palay to be sold. Soriano can deliver so much of his produce as long as it does not exceed 2,640 cavans.

In its memorandum (pp. 66-71, Rollo) dated December 4, 1986, petitioners further contend that there was no contract of sale because of the absence of an essential requisite in contracts, namely, consent. It cited Section 1319 of the Civil Code which states: "Consent is manifested by the meeting

of the offer and the acceptance of the thing and the cause which are to constitute the contract. ... " Following this line, petitioners contend that there was no consent because there was no acceptance of the 630 cavans of palay in question.

The above contention of petitioner is not correct Sale is a consensual contract, " ... , there is perfection when there is consent upon the subject matter and price, even if neither is delivered." (Obana vs. C.A., L-36249, March 29, 1985, 135 SCRA 557, 560) This is provided by Article 1475 of the Civil Code which states:

Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.

x x x

The acceptance referred to which determines consent is the acceptance of the offer of one party by the other and not of the goods delivered as contended by petitioners.

From the moment the contract of sale is perfected, it is incumbent upon the parties to comply with their mutual obligations or "the parties may reciprocally demand performance" thereof. (Article 1475, Civil Code, 2nd par.).

The reason why NFA initially refused acceptance of the 630 cavans of palay delivered by Soriano is that it (NFA) cannot legally accept the said delivery because Soriano is allegedly not a bona fide farmer. The trial court and the appellate court found that Soriano was a bona fide farmer and therefore, he was qualified to sell palay grains to NFA.

Both courts likewise agree that NFA's refusal to accept was without just cause. The above factual findings which are supported by the record should not be disturbed on appeal.

ACCORDINGLY, the instant petition for review is DISMISSED. The assailed decision of the then Intermediate Appellate Court (now Court of Appeals) is affirmed. No costs.

SO ORDERED.

Narvasa, Cruz, Gancayco and Griño-Aquino, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

 

G.R. No. 105387 November 11, 1993

JOHANNES SCHUBACK & SONS PHILIPPINE TRADING CORPORATION, petitioner, vs.

THE HON. COURT OF APPEALS, RAMON SAN JOSE, JR., doing business under the name and style "PHILIPPINE SJ INDUSTRIAL TRADING," respondents.

Hernandez, Velicaria, Vibar & Santiago for petitioner.

Ernesto M. Tomaneng for private respondent.

 

ROMERO, J.:

In this petition for review on certiorari, petitioner questions the reversal by the Court of Appeals 1 of the trial court's ruling that a contract of sale had been perfected between petitioner and private respondent over bus spare parts.

The facts as quoted from the decision of the Court of Appeals are as follows:

Sometime in 1981, defendant 2 established contact with plaintiff 3 through the Philippine Consulate General in Hamburg, West Germany, because he wanted to purchase MAN bus spare parts from Germany. Plaintiff communicated with its trading partner. Johannes Schuback and Sohne Handelsgesellschaft m.b.n. & Co. (Schuback Hamburg) regarding the spare parts defendant wanted to order.

On October 16, 1981, defendant submitted to plaintiff a list of the parts (Exhibit B) he wanted to purchase with specific part numbers and description. Plaintiff referred the list to Schuback Hamburg for quotations. Upon receipt of the quotations, plaintiff sent to defendant a letter dated 25 November, 1981 (Exh. C) enclosing its offer on the items listed by defendant.

On December 4, 1981, defendant informed plaintiff that he preferred genuine to replacement parts, and requested that he be given 15% on all items (Exh. D).

On December 17, 1981, plaintiff submitted its formal offer (Exh. E) containing the item number, quantity, part number, description, unit price and total to defendant. On December, 24, 1981, defendant informed plaintiff of his desire to avail of the prices of the parts at that time and enclosed Purchase Order No. 0101 dated 14 December 1981 (Exh. F to F-4). Said Purchase Order contained the item number, part number and description. Defendant promised to submit the quantity per unit he wanted to order on December 28 or 29 (Exh. F).

On December 29, 1981, defendant personally submitted the quantities he wanted to Mr. Dieter Reichert, General Manager of plaintiff, at the latter's residence (t.s.n., 13 December, 1984, p. 36). The quantities were written in ink by defendant in the same Purchase Order previously submitted. At the bottom of said Purchase Order, defendant wrote in ink above his signature: "NOTE: Above P.O. will include a 3% discount. The above will serve as our initial P.O." (Exhs. G to G-3-a).

Plaintiff immediately ordered the items needed by defendant from Schuback Hamburg to enable defendant to avail of the old prices. Schuback Hamburg in turn ordered (Order No. 12204) the items from NDK, a supplier of MAN spare parts in West Germany. On January 4, 1982, Schuback Hamburg sent plaintiff a proforma

invoice (Exhs. N-1 to N-3) to be used by defendant in applying for a letter of credit. Said invoice required that the letter of credit be opened in favor of Schuback Hamburg. Defendant acknowledged receipt of the invoice (t.s.n., 19 December 1984, p. 40).

An order confirmation (Exhs. I, I-1) was later sent by Schuback Hamburg to plaintiff which was forwarded to and received by defendant on February 3, 1981 (t.s.n., 13 Dec. 1984, p. 42).

On February 16, 1982, plaintiff reminded defendant to open the letter of credit to avoid delay in shipment and payment of interest (Exh. J). Defendant replied, mentioning, among others, the difficulty he was encountering in securing: the required dollar allocations and applying for the letter of credit, procuring a loan and looking for a partner-financier, and of finding ways 'to proceed with our orders" (Exh. K).

In the meantime, Schuback Hamburg received invoices from, NDK for partial deliveries on Order No.12204 (Direct Interrogatories., 07 Oct, 1985, p. 3). Schuback Hamburg paid NDK. The latter confirmed receipt of payments made on February 16, 1984 (Exh.C-Deposition).

On October 18, 1982, Plaintiff again reminded defendant of his order and advised that the case may be endorsed to its lawyers (Exh. L). Defendant replied that he did not make any valid Purchase Order and that there was no definite contract between him and plaintiff (Exh. M). Plaintiff sent a rejoinder explaining that there is a valid Purchase Order and suggesting that defendant either proceed with the order and open a letter of credit or cancel the order and pay the cancellation fee of 30% of F.O.B. value, or plaintiff will endorse the case to its lawyers (Exh. N).

Schuback Hamburg issued a Statement of Account (Exh. P) to plaintiff enclosing therewith Debit Note (Exh. O) charging plaintiff 30% cancellation fee, storage and interest charges in the total amount of DM 51,917.81. Said amount was deducted from plaintiff's account with Schuback Hamburg (Direct Interrogatories, 07 October, 1985).

Demand letters sent to defendant by plaintiff's counsel dated March 22, 1983 and June 9, 1983 were to no avail (Exhs R and S).

Consequently, petitioner filed a complaint for recovery of actual or compensatory damages, unearned profits, interest, attorney's fees and costs against private respondent.

In its decision dated June 13, 1988, the trial court 4 ruled in favor of petitioner by ordering private respondent to pay petitioner, among others, actual compensatory damages in the amount of DM 51,917.81, unearned profits in the amount of DM 14,061.07, or their peso equivalent.

Thereafter, private respondent elevated his case before the Court of Appeals. On February 18, 1992, the appellate court reversed the decision of the trial court and dismissed the complaint of petitioner. It ruled that there was no perfection of contract since there was no meeting of the minds as to the price between the last week of December 1981 and the first week of January 1982.

The issue posed for resolution is whether or not a contract of sale has been perfected between the parties.

We reverse the decision of the Court of Appeals and reinstate the decision of the trial court. It bears emphasizing that a "contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. . . . " 5

Article 1319 of the Civil Code states: "Consent is manifested by the meeting of the offer and acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter offer." The facts presented to us indicate that consent on both sides has been manifested.

The offer by petitioner was manifested on December 17, 1981 when petitioner submitted its proposal containing the item number, quantity, part number, description, the unit price and total to private respondent. On December 24, 1981, private respondent informed petitioner of his desire to avail of the prices of the parts at that time and simultaneously enclosed its Purchase Order No. 0l01 dated December 14, 1981. At this stage, a meeting of the minds between vendor and vendee has occurred, the object of the contract: being the spare parts and the consideration, the price stated in petitioner's offer dated December 17, 1981 and accepted by the respondent on December 24,1981.

Although said purchase order did not contain the quantity he wanted to order, private respondent made good, his promise to communicate the same on December 29, 1981. At this juncture, it should be pointed out that private respondent was already in the process of executing the agreement previously reached between the parties.

Below Exh. G-3, marked as Exhibit G-3-A, there appears this statement made by private respondent: "Note. above P.O. will include a 3% discount. The above will serve as our initial P.O." This notation on the purchase order was another indication of acceptance on the part of the vendee, for by requesting a 3% discount, he implicitly accepted the price as first offered by the vendor. The immediate acceptance by the vendee of the offer was impelled by the fact that on January 1, 1982, prices would go up, as in fact, the petitioner informed him that there would be a 7% increase, effective January 1982. On the other hand, concurrence by the vendor with the said discount requested by the vendee was manifested when petitioner immediately ordered the items needed by private respondent from Schuback Hamburg which in turn ordered from NDK, a supplier of MAN spare parts in West Germany.

When petitioner forwarded its purchase order to NDK, the price was still pegged at the old one. Thus, the pronouncement of the Court Appeals that there as no confirmed price on or about the last week of December 1981 and/or the first week of January 1982 was erroneous.

While we agree with the trial court's conclusion that indeed a perfection of contract was reached between the parties, we differ as to the exact date when it occurred, for perfection took place, not on December 29, 1981. Although the quantity to be ordered was made determinate only on December 29, 1981, quantity is immaterial in the perfection of a sales contract. What is of importance is the meeting of the minds as to the object and cause, which from the facts disclosed, show that as of December 24, 1981, these essential elements had already occurred.

On the part of the buyer, the situation reveals that private respondent failed to open an irrevocable letter of credit without recourse in favor of Johannes Schuback of Hamburg, Germany. This omission, however. does not prevent the perfection of the contract between the parties, for the opening of the letter of credit is not to be deemed a suspensive condition. The facts herein do not show that petitioner reserved title to the goods until private respondent had opened a letter of credit. Petitioner, in the course of its dealings with private respondent, did not incorporate any provision declaring their contract of sale without effect until after the fulfillment of the act of opening a letter of credit.

The opening of a etter of credit in favor of a vendor is only a mode of payment. It is not among the essential requirements of a contract of sale enumerated in Article 1305 and 1474 of the Civil Code, the absence of any of which will prevent the perfection of the contract from taking place.

To adopt the Court of Appeals' ruling that the contract of sale was dependent on the opening of a letter of credit would be untenable from a pragmatic point of view because private respondent would not be able to avail of the old prices which were open to him only for a limited period of time. This explains why private respondent immediately placed the order with petitioner which, in turn promptly contacted its trading partner in Germany. As succinctly stated by petitioner, "it would have been impossible for respondent to avail of the said old prices since the perfection of the contract would arise much later, or after the end of the year 1981, or when he finally opens the letter of credit." 6

WHEREFORE, the petition is GRANTED and the decision of the trial court dated June 13, 1988 is REINSTATED with modification.

SO ORDERED.

Feliciano, Bidin, Melo and Vitug, JJ., concur.

 

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

 

G.R. No. 59550 January 11, 1995

EDILBERTO NOEL (now PINITO W. MERCADO) as ADMINISTRATOR OF THE INTESTATE ESTATE OF GREGORIO NANAMAN and HILARIA TABUCLIN, petitioner, vs.COURT OF APPEALS and JOSE C. DELESTE, respondents.

G.R. No. 60636 January 11, 1995

PINITO W. MERCADO, as SPECIAL ADMINISTRATOR OF THE INTESTATE ESTATE OF GREGORIO NANAMAN and HILARIA TABUCLIN, petitioner, vs.HONORABLE COURT OF APPEALS and JOSE C. DELESTE, respondents.

 

QUIASON, J.:

The consolidated cases, G.R. Nos. 59550 and 60636, are petitions for review on certiorari under Rule 45 of the Revised Rules of court of the Amended Decision dated May 14, 1981 of the Court of Appeals in CA-G.R. No. 56303-R, which affirmed in toto  the decision of the Court of First Instance,

Branch II, Lanao del Norte in Special Proceedings No. 596 (II-94) in favor of Jose C. Deleste, private respondent herein.

I

Gregorio Nanaman and Hilaria Tabuclin (Nanaman spouses) were a childless, legally-married couple. Gregorio, however, had a child named Virgilio Nanaman by another woman. Since he was two years old, Virgilio was reared by Gregorio and Hilaria. He was sent to school by the couple until he reached third year of the law course.

During their marriage, Gregorio and Hilaria acquired certain property including a 34.7-hectare land in Tambo, Iligan City on which they planted sugarcane, corn and bananas. They also lived there with Virgilio and fifteen tenants.

On October 2, 1945, Gregorio died. Hilaria then administered the property with the help of Virgilio enjoyed the procedure of the land to the exclusion of Juan Nanaman, the brother of Gregorio, and Esperanza and Caridad Nanaman, Gregorio's daughters by still another woman. In 1953, Virgilio declared the property in his name for taxation purposes under Tax Declaration No. 5534 (Exhs. 13 & 13-A). On November 1, 1952, Hilaria and Virgilio, mortgaged the 34.7-hectare land in favor of private respondent, in consideration of the amount of P4,800.00 (Exh. 5).

On February 16, 1954, Hilaria and Virgilio executed a deed of sale over the same tract of land also in favor of private respondent in consideration of the sum of P16,000.00 (Exh. 7). Witnesses to the sale were the wife of Virgilio, Rosita S. Nanaman, Rufo C. Salas, the driver of private respondent, and Remedios Pilotan. The document was notarized on February 17, 1954 and was registered with the Register of Deeds of Iligan city on March 2, 1954. The tax declaration in the name of Virgilio was cancelled and a new tax declaration was issued in the name of private respondent. Having discovered that the property was in arrears in the payment of taxes from 1952, private respondent paid the taxes for 1952, 1953 and 1954 (Exhs. 13-B, 13-C & 14-B). From then on, private respondent has paid the taxes on the property.

On May 15, 1954, Hilaria died. On October 27, 1954, Esperanza and Caridad Nanaman filed intestate estate proceedings concerning the estate of their father, Gregorio. Included in the list of property of the estate was the 34.7-hectare land. Inasmuch as only Esperanza, Caridad and Virgilio Nanaman were named as heirs of Gregorio in the petition, Juan Nanaman, Gregorio's brother, opposed it. On November 26, 1954, the petition was amended to include the estate of Hilaria with Alejo Tabuclin, Hilaria's brother, and Julio Tabuclin, a son of Hilaria's deceased brother, Jose, as additional petitioners.

Having been appointed special administrator of the estate of the Nanaman couple, Juan Nanaman included the 34.7-hectare land in the list of the assets of the estate.

Juan also reported that Virgilio took the amount of P350.00 from the procedure of the estate without prior permission and that five tenants in contempt of court. Accordingly, in its Order of January 30, 1956, the probate court required private respondent and said tenants to appear before it and "show cause why they should not be cited for contempt for illegally interfering in the land" under special administration.

On June 16, 1956, when Edilberto Noel took over as regular administrator of the estate, he was not able to take possession of the land in question because it was in the possession of private respondent and some heirs of Hilaria.

On July 18, 1957, private respondent and the heirs of the Nanaman spouses executed an amicable settlement of the Nanaman estate. In the document, private respondent agreed "to relinquish his rights to one-half (1/2) of the entire parcel of land in Tambo, Iligan City, indicated in item 1 under the Estate, sold to him by Hilaria Tabuclin, in favor of all the heirs of the abovementioned intestate [estate] for the reason that not all of the heirs of Gregorio Nanaman have signed and agreed" (G.R. No. 60636, Rollo, p. 67). The court approved the amicable settlement but when it was questioned by some heirs, the court set aside its approval and declared it null and void (Exh. H-1).

The court thereafter ordered Noel, as regular administrator, to file an action to recover the 34.7-hectare land from private respondent. Consequently, on April 30, 1963, Noel filed an action against private respondent for the version of title over the 34.7-hectare land to the Nanaman estate and to order private respondent to pay the rentals and attorney's fees to the estate.

On December 14, 1973, the trial court rendered a decision, holding that the action for annulment of the deed of sale had prescribed in 1958 inasmuch as the sale was registered in 1954 and that Gregorio's heirs had slept on their rights by allowing Hilaria to exercise rights of ownership over Gregorio's share of the conjugal property after his death in 1945. On the issue that Hilaria had no authority to dispose of one-half of the property pertaining to her husband, the trial court ruled: (1) that Hilaria in effect acted as administratrix over the estate of Gregorio; (2) that she sold the 34.7- hectare land in order to pay the debts of the conjugal partnership; and (3) that out of the purchase price of P16,000.00, P4,000.00 was in payment to private respondent (who was a doctor of medicine) for medical services rendered and medicine administered during Gregorio's ailment and P800.00 was used to pay taxes in arrears.

Noel appealed to the Court of Appeals. In its Decision of February 18, 1980, the appellate court ruled that the transaction between Hilaria and Virgilio on one hand and private respondent on the other, was indeed a sale. It found that no fraud, mistake or misrepresentation attended in the execution of the deed of sale and that no proof was shown that the contract was merely a mortgage.

The appellate court, however, agreed with Noel that Hilaria could not validly sell the 37.7-hectare land because it was conjugal property, and Hilaria could sell only her one-half share thereof.

On the issue of prescription, the appellate court ruled that since no fraud, mistake or misrepresentation attended the execution of the deed of sale, the prescriptive period of ten years had not yet elapsed when the action to recover the property was filed in 1963. Moreover, the appellate court held that in the absence of proof of adverse possession by Hilaria, she should be considered as holding the property pursuant to her usufructuary rights over the same under the provisions of the Spanish Civil Code of 1889, the law in force at the time of the death of Gregorio.

Finding that Noel's claim for rentals of P5,000.00 per annum from 1957 was uncontroverted, the appellate court ruled that one-half thereof belonged to the estate of Gregorio. The dispositive portion of the decision states:

WHEREFORE, the judgment appealed from is set aside and another is hereby entered declaring the intestate estate of Gregorio Nanaman and the defendant-appellee co-owners of the land in question in the proportion of one-half (1/2) interest each; ordering defendant-appellee Jose C. Deleste to return to plaintiff-appellant, as administrator of Gregorio Nanaman's estate the land in question, and to pay plaintiff as such administrator the sum of P2,500.00 as rental of the 1/2 interest of the estate from the year 1957 until the land is returned to the estate with legal interest from the filing of plaintiff's complaint; and, to, pay the expenses of litigation and attorney's fees

to plaintiff in the sum of P3,000.00. Costs against the appellee, Jose C. Deleste (G.R. No. 60636, Rollo, p. 42).

Private respondent filed a motion for the reconsideration of said decision praying for the total affirmance of the decision of the trial court. Noel also filed a motion for reconsideration praying for the return of ownership and possession of the entire tract of land to the estate of the 34.7-hectare land.

The appellate court took into account that since Gregorio's death, Hilaria and Virgilio took physical possession of the property and enjoyed its fruits which were delivered to them by the tenants; that Virgilio instituted said tenants; and that he declared the property in his own name for tax purposes. The court also ruled that the non-payment of the real estate taxes by Juan constituted abandonment of the property and his non-filing of an action to recover the same from the time that private respondent "usurped" the property until the filing of the complaint in 1963 by Noel amounted to laches (G.R. No. 60636, Rollo, p. 50).

Hence, the appellate court tacked "the physical possession of Hilaria and Virgilio to the possession of the defendant for another nine (9) years up to the time the complaint was filed." It considered the "change of conditions or relations" which had transpired in the case such as private respondent's registration of his muniment of title over the property; the cancellation of Virgilio's tax declaration and the issuance of another tax declaration in the name of private respondent; private respondent's payment of taxes from 1952 "up to the present;" the execution of a new tenancy agreement between private respondent and the tenants; and private respondent's purchase of plows, a carabao and insecticides for use in the ricefield.

Stating that it was "proscribed from taking away property from the alert and the industrious and dumping it into the hands and possession of one has previously slept on his rights," the appellate court in its amended decision decreed:

WHEREFORE, Our decision of February 18, 1980 is hereby affirmed and reiterated insofar as it upheld the regularity and due execution of the deed of sale (Exh. A or 7) and the transaction affecting the undivided one-half portion of the property described in par. 3 of the complaint appertaining to the share of Hilaria Tabuclin, as evidenced by said Exh. A or 7, and is reconsidered and set aside and another one entered affirming the decision of the lower court in all its parts, including the award of damages and the costs of suit. No costs in this instance (G.R. No. 60636, Rollo, p. 52).

II

Pinito W. Mercado, as new administrator of the estate, appealed to this Court, questioning the court of Appeals' Amended Decision applying the doctrine of laches and equating the said doctrine with acquisitive prescription (G.R. No. 59550).

Subsequently, another petition for certiorari  to declare the sale to private respondent as an equitable mortgage, was filed by Atty. Bonifacio Legaspi (G.R. No. 60636). Said counsel explained that he represented the heirs of Hilaria while the counsel in G.R. No. 59550 represented the heirs of Gregorio (G.R. No. 60636, Rollo, pp. 104-107). These two cases, arising as they do from the same decision of the Court of Appeals, were consolidated in the resolution of September 2, 1991 and are herein jointly considered.

III

There are no cogent reasons to deviate from the ruling of the Court of Appeals that the contract involving the 34.7-hectare property was one of sale and not of mortgage in the absence of a showing that the findings complained of are totally devoid of support in the record or that they are so glaringly erroneous as to constitute serious abuse of discretion (Andres v. Manufacturers Hanover & Trust Corporation, 177 SCRA 618 [1989]). It should be noted that two contracts had been executed involving said property (the November 1, 1952 mortgage and the February 16, 1954 sale). In the absence of proof of gross inadequacy of the price, that the sale was made with what might appear as an inadequate consideration does not make the contract one of mortgage (Askay v. Cosalan, 46 Phil. 179 [1924]).

We find, however, that the resolution of these petitions hinges on whether Hilaria and Virgilio could dispose of the entire property sold to private respondent and assuming that they did not have full ownership thereof, whether the right of action to recover the share of the collateral heirs of Gregorio had prescribed or been lost through laches.

Gregorio died in 1945 long before the effectivity of the Civil Code of the Philippines on August 30, 1950. Under Article 2263 of the said Code, "rights to the inheritance of a person who died, with or without a will, before the effectivity of this Code, shall be governed by the Civil Code of 1889, by other previous laws, and by the rules of Court."

Thus, succession to the estate of Gregorio was governed primarily by the provisions of the Spanish Civil Code of 1889. Under Article 953 thereof, a spouse like Hilaria, who is survived by brothers or sisters or children of brothers or sisters of the decedent, as is obtaining in this case, was entitled to receive in usufruct the part of the inheritance pertaining to said heirs. Hilaria, however, had full ownership, not merely usufruct, over the undivided half of the estate (Spanish Civil Code of 1889, Art. 493). It is only this undivided half-interest that she could validly alienate.

On the other hand, Virgilio was not an heir of Gregorio under the Spanish Civil Code of 1889. Although he was treated as a child by the Nanaman spouses, illegitimate children who were not natural were disqualified to inherit under the said Code (Cid v. Burnaman, 24 SCRA 434 [1968]). Article 998 of the Civil Code of the Philippines, which gave an illegitimate child certain hereditary rights, could not benefit Virgilio because the right of ownership of the collateral heirs of Gregorio had become vested upon his death (Civil Code of the Philippines, Art. 2253; Uson v. Del Rosario, 92 Phil. 530 [1953]). Therefore, Virgilio had no right at all to transfer ownership over which he did not own.

In a contract of sale, it is essential that the seller is the owner of the property he is selling. The principal obligation of a seller is "to transfer the ownership of" the property sold (Civil Code of the Philippines, Art. 1458). This law stems from the principle that nobody can dispose of that which does not belong to him (Azcona v. Reyes, 59 Phil. 446 [1934]; Coronel v. Ona, 33 Phil. 456 [1916). NEMO DAT QUAD NON HABET  .

While it cannot be said that fraud attended the sale to private respondent, clearly there was a mistake on the part of Hilaria and Virgilio in selling an undivided interest in the property which belonged to the collateral heirs of Gregorio.

The sale, having been made in 1954, was governed by the Civil Code of the Philippines. Under Article 1456 of said Code, an implied trust was created on the one-half undivided interest over the 34.7-hectare land in favor of the real owners.

Said Article provides:

If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.

In Diaz v. Gorricho, 103 Phil. 261 (1958), the Court said that Article 1456 merely expresses a rule recognized inGayondato v. Insular Treasurer, 49 Phil. 244 (1926). Applying said rule, the Gayondato court held that the buyer of a parcel of land at a public auction to satisfy a judgment against a widow acquired only one-half interest the land corresponding to the share of the window and the other half belonging to the heirs of her husband became impressed with a constructive trust in behalf of said heirs.

On the issue of prescription, we hold that the action for recovery of title or possession over the 34.7-hectare land had not yet prescribed when the complaint was filed on April 30, 1963.

In its Amended Decision, the Court of Appeals reckoned the prescriptive period from the death of Gregorio on October 2, 1945.

Under the law in force in 1945, the surviving spouse was given the management of the conjugal property until the affairs of the conjugal partnership were terminated. The surviving spouse became the owner of one-half interest of the conjugal estate in his own right. he also became a trustee with respect to the other half for the benefit of whoever may be legally entitled to inherit the said portion. "He could therefore no more acquire a title by prescription against those for whom he was administering the conjugal estate than could a guardian his ward or a judicial administrator against the heirs of an estate. . . . The surviving husband as the administrator and liquidator of the conjugal estate occupies the position of a trustee of the highest order and is not permitted by the law to hold that estate or any portion thereof adversely to those for whose benefit the law imposes upon him duty of administration and liquidation" (Pamittan v. Lasam, 60 Phil. 908 [1934]).

The possession of Virgilio, his registration of the land in his name for tax purposes, his hiring of tenants to till the land, and his enjoyment of the produce of the tenants, appear more as acts done to help Hilaria in managing the conjugal property. There is no evidence to prove indubitably that Virgilio asserted a claim of ownership over the property in his own right and adverse to all including Hilaria.

In the same manner, the doctrine of laches does not apply. Upon orders of the court in the intestate proceedings, Noel, the administrator of the estate of the Nanaman spouses, immediately filed an action to recover possession and ownership of the property. There is no evidence showing any failure or neglect on his part, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier (Cristobal v. Melchor, 78 SCRA 175 [1977]). The doctrine of stale demands would apply only where by reason of the lapse of time, "[i]t would be inequitable to allow a party to enforce his legal rights" (Z.E. Lotho, Inc. v. Ice and cold Storage Industries of the Philippines, Inc., 3 SCRA 744 [1961]). Moreover, this Court, except for every strong reasons, is not disposed to sanction the application of the doctrine of laches to prejudice or defeat the right of an owner or original transferee (Raneses v. Intermediate Appellate Court, 187 SCRA 397 [1990]).

The action to recover the undivided half-interest of the collateral heirs of Gregorio prescribes in ten years. The cause of action is based on Article 1456 of the Civil Code of the Philippines, which made private respondent a trustee of an implied trust in favor of the said heirs. Under Article 1144 of the Civil Code of the Philippines, actions based upon an obligation created by law, can be brought within ten years from the time the right of action accrues (Rosario v. Auditor General, 103 Phil. 1132 [1958]).

The ten-year prescriptive period within which the collateral heirs of Gregorio could file an action to recover their share in the property sold to private respondent ( prescripcion extintiva) accrued only on march 2, 1954, when the deed of sale was registered with the Register of Deeds (Cf. Arradaza v. Court of Appeals, 170 SCRA 12 [1987]). From march 2, 1954 to April 30, 1963, when the complaint for the recovery of the property was filed, less than ten years had elapsed. Therefore, the action had not been barred by prescription.

The ten-year prescriptive period before title to real estate shall vest by adverse possession ( prescripcion adquisitiva) is also reckoned in the case of private respondent from March 2, 1954 (Corporacion de PP. Agustinos Recoletos v. Crisostomo, 32 Phil. 427 [1915]).

WHEREFORE, the Amended Decision dated May 14, 1981 of the Court of Appeals is REVERSED and SET ASIDE and the Decision dated February 18, 1980 is REINSTATED and AFFIRMED in toto.

SO ORDERED.

Padilla, Davide, Jr., Bellosillo and Kapunan, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

 

G.R. No. 116635 July 24, 1997

CONCHITA NOOL and GAUDENCIO ALMOJERA, petitioner, vs.COURT OF APPEALS, ANACLETO NOOL and EMILIA NEBRE, respondents.

 

PANGANIBAN, J.:

A contract of repurchase arising out of a contract of sale where the seller did not have any title to the property "sold" is not valid. Since nothing was sold, then there is also nothing to repurchase.

Statement of the Case

This postulate is explained by this Court as it resolves this petition for review on certiorari assailing the January 20, 1993 Decision 1 of Respondent Court of Appeals 2 in CA-G.R. CV No. 36473, affirming the decision 3 of the trial court 4which disposed as follows: 5

WHEREFORE, judgment is hereby rendered dismissing the complaint for no cause of action, and hereby:

1. Declaring the private writing, Exhibit "C", to be an option to sell, not binding and considered validly withdrawn by the defendants for want of consideration;

2. Ordering the plaintiffs to return to the defendants the sum of P30,000.00 plus interest thereon at the legal rate, from the time of filing of defendants' counterclaim until the same is fully paid;

3. Ordering the plaintiffs to deliver peaceful possession of the two hectares mentioned in paragraph 7 of the complaint and in paragraph 31 of defendants' answer (counterclaim);

4. Ordering the plaintiffs to pay reasonable rents on said two hectares at P5,000.00 per annum or at P2,500.00 per cropping from the time of judicial demand mentioned in paragraph 2 of the dispositive portion of this decision, until the said two hectares shall have been delivered to the defendants; and

5. To pay the costs.

SO ORDERED.

The Antecedent Facts

The facts, which appear undisputed by the parties, are narrated by the Court of Appeals as follows:

Two (2) parcels of land are in dispute and litigated upon here. The first has an area of 1 hectare. It was formerly owned by Victorino Nool and covered by Transfer Certificate of Title No. T-74950. With an area of 3.0880 hectares, the other parcel was previously owned by Francisco Nool under Transfer Certificate of Title No. T-100945. Both parcel's are situated in San Manuel, Isabela. The plaintiff spouses, Conchita Nool and Gaudencio Almojera, now the appellants, seek recovery of the aforementioned parcels of land from the defendants, Anacleto Nool, a younger brother of Conchita, and Emilia Nebre, now the appellees.

In their complaint, plaintiff-appellants alleged inter alia that they are the owners of subject parcels of land, and they bought the same from Conchita's other brothers, Victorino Nool and Francisco Nool; that as plaintiffs were in dire need of money, they obtained a loan from the Ilagan Branch of the Development Bank of the Philippines, in Ilagan, Isabela, secured by a real estate mortgage on said parcels of land, which were still registered in the names of Victorino Nool and Francisco Nool, at the time, and for the failure of plaintiffs to pay the said loan, including interest and surcharges, totaling P56,000.00, the mortgage was foreclosed; that within the period of redemption, plaintiffs contacted defendant Anacleto Nool for the latter to redeem the foreclosed properties from DBP, which the latter did; and as a result, the titles of the two (2) parcels of land in question were transferred to Anacleto Nool; that as part of their arrangement or understanding, Anacleto Nool agreed to buy from plaintiff Conchita Nool the two (2) parcels of land under controversy, for a total price of P100,000.00, P30,000.00 of which price was paid to Conchita, and upon payment of the balance of P14,000.00, plaintiffs were to regain possession of the two (2) hectares of land, which amounts defendants failed to pay, and the same day the said arrangement 6 was made; another covenant 7 was entered into by the parties, whereby

defendants agreed to return to plaintiffs the lands in question, at anytime the latter have the necessary amount; that plaintiffs asked the defendants to return the same but despite the intervention of the Barangay Captain of their place, defendants refused to return the said parcels of land to plaintiffs; thereby impelling them (plaintiffs) to come to court for relief.

In their Answer, defendants-appellees theorized that they acquired the lands in question from the Development Bank of the Philippines, through negotiated sale, and were misled by plaintiffs when defendant Anacleto Nool signed the private writing, agreeing to return subject lands when plaintiffs have the money to redeem the same; defendant Anacleto having been made to believe, then, that his sister, Conchita, still had the right to redeem the said properties.

The pivot of inquiry here, as aptly observed below, is the nature and significance of the private document, marked Exhibit "D" for plaintiffs, which document has not been denied by the defendants, as defendants even averred in their Answer that they gave an advance payment of P30,000.00 therefor, and acknowledged that they had a balance of P14,000.00 to complete their payment. On this crucial issue, the lower court adjudged the said private writing (Exhibit "D") as an option to sell not binding upon and considered the same validly withdrawn by defendants for want of consideration; and decided the case in the manner above-mentioned.

There is no quibble over the fact that the two (2) parcels of land in dispute were mortgaged to the Development Bank of the Philippines, to secure a loan obtained by plaintiffs from DBP (Ilagan Branch), Ilagan, Isabela. For the non-payment of said loan, the mortgage was foreclosed and in the process, ownership of the mortgaged lands was consolidated in DBP (Exhibits 3 and 4 for defendants). After DBP became the absolute owner of the two parcels of land, defendants negotiated with DBP and succeeded in buying the same. By virtue of such sale by DBP in favor of defendants, the titles of DBP were cancelled and the corresponding Transfer Certificates of Title (Annexes "C" and "D" to the Complaint) issued to the defendants. 8

It should be stressed that Manuel S. Mallorca, authorized officer of DBP, certified that the one-year redemption period was from March 16, 1982 up to March 15, 1983 and that the mortgagors' right of redemption was not exercised within this period. 9 Hence, DBP became the absolute owner of said parcels of land for which it was issued new certificates of title, both entered on May 23, 1983 by the Registry of Deeds for the Province of Isabela. 10 About two years thereafter, on April 1, 1985, DBP entered into a Deed of Conditional Sale 11 involving the same parcels of land with Private Respondent Anacleto Nool as vendee. Subsequently, the latter was issued new certificates of title on February 8, 1988. 12

The Court of Appeals ruled: 13

WHEREFORE, finding no reversible error infirming it, the appealed Judgment is hereby AFFIRMED in toto. No pronouncement as to costs.

The Issues

Petitioners impute to Respondent Court the following alleged "errors":

1. The Honorable Court of Appeals, Second Division has misapplied the legal import or meaning of Exhibit "C" in a way contrary to law and existing jurisprudence in

stating that it has no binding effect between the parties and considered validly withdrawn by defendants-appellees for want of consideration.

2. The Honorable Court of Appeals, Second Division has miserably failed to give legal significance to the actual possession and cultivation and appropriating exclusively the palay harvest of the two (2) hectares land pending the payment of the remaining balance of fourteen thousand pesos (P14,000.00) by defendants-appellees as indicated in Exhibit "C".

3. The Honorable Court of Appeals has seriously erred in affirming the decision of the lower court by awarding the payment of rents per annum and the return of P30,000.00 and not allowing the plaintiffs-appellants to re-acquire the four (4) hectares, more or less upon payment of one hundred thousand pesos (P100,000.00) as shown in Exhibit "D". 14

The Court's Ruling

The petition is bereft of merit.

First Issue: Are Exhibits "C" and "D" Valid and Enforceable?

The petitioner-spouses plead for the enforcement of their agreement with private respondents as contained in Exhibits "C" and "D," and seek damages for the latter's alleged breach thereof. In Exhibit C, which was a private handwritten document labeled by the parties as Resibo ti Katulagan or Receipt of Agreement, the petitioners appear to have "sold" to private respondents the parcels of land in controversy covered by TCT No. T-74950 and TCT No. T-100945. On the other hand, Exhibit D, which was also a private handwritten document in Ilocano and labeled as Kasuratan, private respondents agreed that Conchita Nool "can acquire back or repurchase later on said land when she has the money." 15

In seeking to enforce her alleged right to repurchase the parcels of land, Conchita (joined by her co-petitioner-husband) invokes Article 1370 of the Civil Code which mandates that "(i)f the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control." Hence, petitioners contend that the Court of Appeals erred in affirming the trial court's finding and conclusion that said Exhibits C and D were "not merely voidable but utterly void and inexistent."

We cannot sustain petitioners' view. Article 1370 of the Civil Code is applicable only to valid and enforceable contracts. The Regional Trial Court and the Court of Appeals ruled that the principal contract of sale contained in Exhibit C and the auxiliary contract of repurchase in Exhibit D are both void. This conclusion of the two lower courts appears to find support in Dignos vs. Court of Appeals, 16 where the Court held:

Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they were no longer owners of the same and the sale is null and void.

In the present case, it is clear that the sellers no longer had any title to the parcels of land at the time of sale. Since Exhibit D, the alleged contract of repurchase, was dependent on the validity of Exhibit C, it is itself void. A void contract cannot give rise to a valid one. 17 Verily, Article 1422 of the Civil Code provides that "(a) contract which is the direct result of a previous illegal contract, is also void and inexistent."

We should however add that Dignos did not cite its basis for ruling that a "sale is null and void" where the sellers "were no longer the owners" of the property. Such a situation (where the sellers were no longer owners) does not appear to be one of the void contracts enumerated in Article 1409 of the Civil Code. 18 Moreover, the Civil Code 19itself recognizes a sale where the goods are to be "acquired . . . by the seller after the perfection of the contract of sale," clearly implying that a sale is possible even if the seller was not the owner at the time of sale, provided he acquires title to the property later on.

In the present case however, it is likewise clear that the sellers can no longer deliver the object of the sale to the buyers, as the buyers themselves have already acquired title and delivery thereof from the rightful owner, the DBP. Thus, such contract may be deemed to be inoperative 20 and may thus fall, by analogy, under item no. 5 of Article 1409 of the Civil Code: "Those which contemplate an impossible service." Article 1459 of the Civil Code provides that "the vendor must have a right to transfer the ownership thereof [object of the sale] at the time it is delivered." Here, delivery of ownership is no longer possible. It has become impossible.

Furthermore, Article 1505 of the Civil Code provides that "where goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell." Here, there is no allegation at all that petitioners were authorized by DBP to sell the property to the private respondents. Jurisprudence, on the other hand, teaches us that "a person can sell only what he owns or is authorized to sell; the buyer can as a consequence acquire no more than what the seller can legally transfer." 21 No one can give what he does not have — nono dat quod non habet. On the other hand, Exhibit D presupposes that petitioners could repurchase the property that they "sold" to private respondents. As petitioners "sold" nothing, it follows that they can also "repurchase" nothing. Nothing sold, nothing to repurchase. In this light, the contract of repurchase is also inoperative — and by the same analogy, void.

Contract of RepurchaseDependent on Validity of Sale

As borne out by the evidence on record, the private respondents bought the two parcels of land directly from DBP on April 1, 1985 after discovering that petitioners did not own said property, the subject of Exhibits C and D executed on November 30, 1984. Petitioners, however, claim that they can exercise their alleged right to "repurchase" the property, after private respondents had acquired the same from DBP. 22 We cannot accede to this, for it clearly contravenes the intention of the parties and the nature of their agreement. Exhibit D reads:

W R I T I N G

Nov. 30, 1984

That I, Anacleto Nool have bought from my sister Conchita Nool a land an area of four hectares (4 has.) in the value of One Hundred Thousand (100,000.00) Pesos. It is our agreement as brother and sister that she can acquire back or repurchase later on said land when she has the money. [Emphasis supplied].

As proof of this agreement we sign as brother and sister this written document this day of Nov. 30, 1984, at District 4, San Manuel, Isabela.

Sgd ANACLETO NOOL

Anacleto Nool

Sgd Emilio Paron

Witness

Sgd Conchita Nool

Conchita Nool 23

One "repurchases" only what one has previously sold. In other words, the right to repurchase presupposes a valid contract of sale between the same parties. Undisputedly, private respondents acquired title to the property from DBP, and not from petitioners.

Assuming arguendo that Exhibit D is separate and distinct from Exhibit C and is not affected by the nullity of the latter, still petitioners do not thereby acquire a right to repurchase the property. In that scenario, Exhibit D ceases to be a "right to repurchase" ancillary and incidental to the contract of sale; rather, it becomes an accepted unilateral promise to sell. Article 1479 of the Civil Code, however, provides that "an accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price." In the present case, the alleged written contract of repurchase contained in Exhibit D is bereft of any consideration distinct from the price. Accordingly, as an independent contract, it cannot bind private respondents. The ruling in Diamante vs. CA 24 supports this. In that case, the Court through Mr. Justice Hilario G. Davide, Jr. explained:

Article 1601 of the Civil Code provides:

Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provisions of article 1616 and other stipulations which may have been agreed upon.

In Villarica, et al. Vs. Court of Appeals, et al., decided on 29 November 1968, or barely seven (7) days before the respondent Court promulgated its decisions in this case, this Court, interpreting the above Article, held:

The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument, but is a right reserved by the vendor in the same instrument of sale as one of the stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can not longer reserve the right to repurchase, and any right thereafter granted the vendor by the vendee in a separate instrument cannot be a right of repurchase but some other right like the option to buy in the instant case. . . .

In the earlier case of Ramos, et al. vs. Icasiano, et al., decided in 1927, this Court had already ruled that "an agreement to repurchase becomes a promise to sell when made after the sale, because when the sale is made without such an agreement, the purchaser acquires the thing sold absolutely, and if he afterwards grants the vendor

the right to purchase, it is a new contract entered into by the purchaser, as absolute owner already of the object. In that case the vendor has nor reserved to himself the right to repurchase.

In Vda. De Cruzo, et al. vs. Carriaga, et al. this Court found another occasion to apply the foregoing principle.

Hence, the Option to Repurchase executed by private respondent in the present case, was merely a promise to sell, which must be governed by Article 1479 of the Civil Code which reads as follows:

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

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

Right to Repurchase Based onHomestead or Trust Non-Existent

Petitioners also base their alleged right to repurchase on (1) Sec. 119 of the Public Land Act 25 and (2) an implied trust relation as "brother and sister." 26

The Court notes that Victorino Nool and Francisco Nool mortgaged the land to DBP. The brothers, together with Conchita Nool and Anacleto Nool, were all siblings and heirs qualified to repurchase the two parcels of land under Sec. 119 of the Public Land Act which provides that "(e)very conveyance of land acquired under the free patent or homestead provisions, when proper, shall be subject to repurchase by the applicant, his widow or legal heirs, within a period of five years from the date of conveyance." Assuming the applicability of this statutory provision to the case at bar, it is indisputable that Private Respondent Anacleto Nool already repurchased from DBP the contested properties. Hence, there was no more right of repurchase that his sister Conchita or brothers Victorino and Francisco could exercise. The properties were already owned by an heir of the homestead grantee and the rationale of the provision to keep homestead lands within the family of the grantee was thus fulfilled. 27

The claim of a trust relation is likewise without merit. The records show that private respondents did not purchase the contested properties from DBP in trust for petitioners. The former, as previously mentioned, in fact bought the land from DBP upon realization that the latter could not validly sell the same. Obviously, petitioners bought it for themselves. There is no evidence at all in the records that they bought the land in trust for private respondents. The fact that Anacleto Nool was the younger brother of Conchita Nool and that they signed a contract of repurchase, which as discussed earlier was void, does not prove the existence of an implied trust in favor of petitioners.

Second Issue: No Estoppel in Impugning theValidity of Void Contracts

Petitioners argue that "when Anacleto Nool took the possession of the two hectares, more or less, and let the other two hectares to be occupied and cultivated by plaintiffs-appellant, Anacleto Nool cannot later on disclaim the terms or contions (sic) agreed upon and his actuation is within the ambit of estoppel . . . 28 We disagree. The private respondents cannot be estopped from raising the defense of nullity of contract, specially in this case where they acted in good faith, believing that indeed petitioners

could sell the two parcels of land in question. Article 1410 of the Civil Code mandates that "(t)he action or defense for the declaration of the inexistence of a contract does not prescribe." It is a well-settled doctrine that "as between parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or it 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." 29 Thus, it is immaterial that private respondents initially acted to implement the contract of sale, believing in good faith that the same was valid. We stress that a contract void at inception cannot be validated by ratification or prescription and certainly cannot be binding on or enforceable against private respondents. 30

Third Issue: Return of P30,000.00 with Interestand Payment of Rent

Petitioners further argue that it would be a "miscarriage of justice" to order them (1) to return the sum of P30,000.00 to private respondents when allegedly it was Private Respondent Anacleto Nool who owed the former a balance of P14,000.00 and (2) to order petitioners to pay rent when they "were allowed to cultivate the said two hectares." 31

We are not persuaded. Based on the previous discussion, the balance of P14,000.00 under the void contract of sale may not be enforced. Petitioners are the ones who have an obligation to return what they unduly and improperly received by reason of the invalid contract of sale. Since they cannot legally give title to what they "sold," they cannot keep the money paid for the object of the sale. It is basic that "(e)very person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same." 32 Thus, if a void contract has already "been performed, the restoration of what has been given is in order." 33 Corollarily and as aptly ordered by respondent appellate court, interest thereon will run only from the time of private respondents' demand for the return of this amount in their counterclaim. 34 In the same vein, petitioners' possession and cultivation of the two hectares are anchored on private respondents' tolerance. Clearly, the latter's tolerance ceased upon their counterclaim and demand on the former to vacate. Hence, their right to possess and cultivate the land ipso facto ceased.

WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals affirming that of the trial court is hereby AFFIRMED.

SO ORDERED.

Narvasa, C.J., Davide, Jr., Melo and Francisco, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

 

G.R. No. 95694 October 9, 1997

VICENTE VILLAFLOR, substituted by his heirs, petitioner, vs.COURT OF APPEALS and NASIPIT LUMBER CO., INC., respondents.

 

PANGANIBAN, J.:

In this rather factually complicated case, the Court reiterates the binding force and effect of findings of specialized administrative agencies as well as those of trial courts when affirmed by the Court of Appeals; rejects petitioner's theory of simulation of contracts; and passes upon the qualifications of private respondent corporation to acquire disposable public agricultural lands prior to the effectivity of the 1973 Constitution.

The Case

Before us is a petition for review on certiorari seeking the reversal of the Decision 1 of the Court of Appeals, dated September 27, 1990, in CA. G.R CV No. 09062, affirming the dismissal by the trial court of Petitioner Vicente Villaflor's complaint against Private Respondent Nasipit Lumber Co., Inc. The disposition of both the trial and the appellate courts are quoted in the statement of facts below.

The Facts

The facts of this case, as narrated in detail by Respondent Court of Appeals, are as follows:  2

The evidence, testimonial and documentary, presented during the trial show that on January 16, 1940, Cirilo Piencenaves, in a Deed of Absolute Sale (exh. A), sold to [petitioner], a parcel of agricultural land containing an area of 50 hectares, 3 more or less, and particularly described and bounded as follows:

A certain parcel of agricultural land planted to abaca with visible concrete monuments marking the boundaries and bounded on the NORTH by Public Land now Private Deeds on the East by Serafin Villaflor, on the SOUTH by Public Land; and on the West by land claimed by H. Patete, containing an area of 60 hectares more or less, now under Tax Dec. 29451 in the (sic) of said Vicente Villaflor, the whole parcel of which this particular parcel is only a part, is assessed at P22,550.00 under the above said Tax Dec. Number.

This deed states:

That the above described land was sold to the said VICENTE VILLAFLOR, . . . on June 22, 1937, but no formal document was then executed, and since then until the present time, the said Vicente Villaflor has been in possession and occupation of (the same); (and)

That the above described property was before the sale, of my exclusive property having inherited from my long dead parents and my ownership to it and that of my [sic] lasted for more than fifty (50) years, possessing and occupying same peacefully, publicly and continuously without interruption for that length of time.

Also on January 16, 1940, Claudio Otero, in a Deed of Absolute Sale (exh. C) sold to Villaflor a parcel of agricultural land, containing an area of 24 hectares, more or less, and particularly described and bounded as follows:

A certain land planted to corn with visible concrete measurements marking the boundaries and bounded on the North by Public Land and Tungao Creek; on the East by Agusan River; on the South by Serafin Villaflor and Cirilo Piencenaves; and on the West by land of Fermin Bacobo containing an area of 24 hectares more or less, under Tax Declaration No. 29451 in the name already of Vicente Villaflor, the whole parcel of which this particular land is only a part, is assessed at P22,550.00 under the above said Tax Declaration No. 29451.

This deed states:

That the above described land was sold to the said VICENTE VILLAFLOR, . . . on June 22, 1937, but no sound document was then executed, however since then and until the present time, the said Vicente Villaflor has been in open and continuous possession and occupation of said land; (and)

That the above described land was before the sale, my own exclusive property, being inherited from my deceased parents, and my ownership to it and that of my predecessors lasted more than fifty (50) years, possessing and occupying the same, peacefully, openly and interruption for that length of time.

Likewise on January 16, 1940, Hermogenes Patete, in a Deed of Absolute Sale (exh. D), sold to Villaflor, a parcel of agricultural land, containing an area of 20 hectares, more or less, and particularly described and bounded as follows:

A certain parcel of agricultural land planted to abaca and corn with visible concrete monuments marking the boundaries and bounded on the North by Public Land area-private Road; on the East by land claimed by Cirilo Piencenaves; on the South by Public Land containing an area of 20 hectares more or less, now under Tax Declaration No. 29451 in the name of Vicente Villaflor the whole parcel of which this particular parcel, is assessed at P22,550.00 for purposes of taxation under the above said Tax Declaration No. 29451.

This deed states:

. . . (O)n June 22, 1937 but the formal document was then executed, and since then until the present time, the said VICENTE VILLAFLOR has been in continuous and open possession and occupation of the same; (and)

That the above described property was before the sale, my own and exclusive property, being inherited from my deceased parents and my ownership to it and that of my predecessors lasted more than fifty (50) years, possessing and occupying same, peacefully, openly and continuously without interruption for that length of time.

On February 15, 1940, Fermin Bocobo, in a Deed of Absolute Sale (exh. B), sold to Villaflor, a parcel of agricultural land, containing an area of 18 hectares, more or less, and particularly described and bounded as follows:

A certain parcel of agricultural land planted with abaca with visible part marking the corners and bounded on the North by the corners and bounded on the North by Public Land; on the East by Cirilo Piencenaves; on the South by Hermogenes Patete and West by Public Land, containing an area of 18 hectares more or less now under Tax Declaration No. 29451 in the name of Vicente Villaflor. The whole parcel of which this particular parcel is only a part is assessed as P22,550.00 for purposes of taxation under the above said Tax Declaration Number (Deed of Absolute Sale executed by Fermin Bocobo date Feb. 15, 1940). This document was annotated in Registry of Deeds on February 16, 1940).

This deed states:

That the above described property was before the sale of my own exclusive property, being inherited from my deceased parents, and my ownership to it and that of my predecessors lasted more than fifty (50) years, possessing and occupying the same peacefully, openly and continuously without interruption for that length of time.

On November 8, 1946, Villaflor, in a Lease Agreement (exh. Q), 4 leased to Nasipit Lumber Co., Inc. a parcel of land, containing an area of two (2) hectares, together with all the improvements existing thereon, for a period of five (5) years from June 1, 1946 at a rental of P200.00 per annum "to cover the annual rental of house and building sites for thirty three (33) houses or buildings." This agreement also provides: 5

3. During the term of this lease, the Lessee is authorized and empowered to build and construct additional houses in addition to the 33 houses or buildings mentioned in the next preceding paragraph, provided however, that for every additional house or building constructed the Lessee shall pay unto the Lessor an amount of fifty centavos (¢50) per month for every house or building. The Lessee is empowered and authorized by the Lessor to sublot (sic) the premises hereby leased or assign the same or any portion of the land hereby leased to any person, firm and corporation; (and)

4. The Lessee is hereby authorized to make any construction and/or improvement on the premises hereby leased as he may deem necessary and proper thereon, provided however, that any and all such improvements shall become the property of the Lessor upon the termination of this lease without obligation on the part of the latter to reimburse the Lessee for expenses incurred in the construction of the same.

Villaflor claimed having discovered that after the execution of the lease agreement, that Nasipit Lumber "in bad faith . . . surreptitiously grabbed and occupied a big portion of plaintiff's property . . ."; that after a confrontation with the corporate's (sic) field manager, the latter, in a letter dated December 3, 1973 (exh. R), 6 stated recalling having "made some sort of agreement for the occupancy (of the property at Acacia, San Mateo), but I no longer recall the details and I had forgotten whether or not we did occupy your land. But if, as you say, we did occupy it, then (he is ) sure that the company is obligated to pay the rental."

On July 7, 1948, in an "Agreement to Sell" (exh. 2), Villaflor conveyed to Nasipit Lumber, two (2) parcels of land . . . described as follows: 7

PARCEL ONE

Bounded on the North by Public Land and Tungao Creek; on the East by Agusan River and Serafin Villaflor; on the South by Public Land, on the West by Public Land. Improvements thereon consist of abaca, fruit trees, coconuts and thirty houses of mixed materials belonging to the Nasipit Lumber Company. Divided into Lot Nos. 5412, 5413, 5488, 5490, 5491, 5492, 5850, 5849, 5860, 5855, 5851, 5854, 5855, 5859, 5858, 5857, 5853, and 5852. Boundaries of this parcel of land are marked by concrete monuments of the Bureau of Lands. Containing an area of 112,000 hectares. Assessed at P17,160.00 according to Tax Declaration No. V-315 dated April 14, 1946.

PARCEL TWO

Bounded on the North by Pagudasan Creek; on the East by Agusan River; on the South by Tungao Creek; on the West by Public Land. Containing an area of 48,000 hectares more or less. Divided into Lot Nos. 5411, 5410, 5409, and 5399. Improvements 100 coconut trees, productive, and 300 cacao trees. Boundaries of said land are marked by concrete monuments of the Bureau pf (sic) Lands. Assessed value — P6,290.00 according to Tax No. 317, April 14, 1946.

This Agreement to Sell provides:

3. That beginning today, the Party of the Second Part shall continue to occupy the property not anymore in concept of lessee but as prospective owners, it being the sense of the parties hereto that the Party of the Second Part shall not in any manner be under any obligation to make any compensation to the Party of the First Part, for the use, and occupation of the property herein before described in such concept of prospective owner, and it likewise being the sense of the parties hereto to terminate as they do hereby terminate, effective on the date of this present instrument, the Contract of Lease, otherwise known as Doc. No. 420, Page No. 36, Book No. II, Series of 1946 of Notary Public Gabriel R. Banaag, of the Province of Agusan.

4. That the Party of the Second Part has bound as it does hereby bind itself, its executors and administrators, to pay unto the party of the First Part the sum of Five Thousand Pesos (P5,000.00), Philippine Currency, upon presentation by the latter to the former of satisfactory evidence that:

(a) The Bureau of Lands will not have any objection to the obtainment by the Party of the First Part of a Certificate of Torrens Title in his favor, either thru ordinary land registration proceedings or thru administrative means procedure.

(b) That there is no other private claimant to the properties hereinbefore described.

5. That the Party of the First Part has bound as he does hereby bind to undertake immediately after the execution of these presents to secure and obtain, or cause to be secured and obtained, a Certificate of Torrens Title in his favor over the properties described on Page (One) hereof, and after obtainment of such Certificate of Torrens Title, the said Party of the First Part shall execute a (D)eed of Absolute Sale unto and in favor of the Party of the Second Part, its executors, administrators and assigns, it being the sense of the parties that the Party of the Second Part upon delivery to it of such deed of absolute sale, shall pay unto the Party of the First Part in cash, the sum of Twelve Thousand (P12,000.00) Pesos in Philippine Currency, provided, however, that the Party of the First Part, shall be reimbursed by the Party of the Second Part with one half of the expenses incurred by the Party of the First Part for survey and attorney's fees; and other incidental expenses not exceeding P300.00.

On December 2, 1948, Villaflor filed Sales Application No.V-807 8 (exh. 1) with the Bureau of Lands, Manila, "to purchase under the provisions of Chapter V, XI or IX of Commonwealth Act. No. 141 (The Public Lands Act), as amended, the tract of public lands . . . and described as follows: "North by Public Land; East by Agusan River and Serafin Villaflor; South by Public Land and West by public land (Lot Nos. 5379, 5489, 5412, 5490, 5491, 5492, 5849, 5850, 5851, 5413, 5488, 5489, 5852, 5853, 5854, 5855, 5856, 5857, 5858, 5859 and 5860 . . . containing an area of 140 hectares . . . ." Paragraph 6 of the Application, states: "I understand that this application conveys no right to occupy the land prior to its approval, and I recognized (sic) that the land covered by the same is of public domain and any and all rights may have with respect thereto by virtue of continuous occupation and cultivation are hereby relinquished to the Government." 9 (exh. 1-D)

On December 7, 1948, Villaflor and Nasipit Lumber executed an "Agreement" (exh 3). 10 This contract provides:

1. That the First Party is the possessor since 1930 of two (2) parcels of land situated in sitio Tungao, Barrio of San Mateo, Municipality of Butuan, Province of Agusan;

2. That the first parcel of land abovementioned and described in Plan PLS-97 filed in the office of the Bureau of Lands is made up of Lots Nos. 5412, 5413, 5488, 5490, 5491, 5492, 5849, 5850, 5851, 5852, 5853, 5854, 5855, 5856, 5857, 5858, 5859 and 5860 and the second parcel of land is made of Lots Nos. 5399, 5409, 5410 and 5411;

3. That on July 7, 1948, a contract of Agreement to Sell was executed between the contracting parties herein, covering the said two parcels of land, copy of said Agreement to Sell is hereto attached marked as Annex "A" and made an integral part of this document. The parties hereto agree that the said Agreement to Sell be maintained in full force and effect with all its terms and conditions of this present agreement and in no way be considered as modified.

4. That paragraph 4 of the Contract of Agreement to Sell, marked as annex, "A" stipulates as follows:

Par. 4. That the Party of the Second Part has bound as it does hereby bind itself, its executors and administrators, to pay unto the Party of the First Part of the sum of FIVE THOUSAND PESOS (P5,000.00) Philippine Currency, upon presentation by the latter to the former of satisfactory evidence that:

a) The Bureau of Lands will have any objection to the obtainment by Party of the First Part of a favor, either thru ordinary land registration proceedings or thru administrative means and procedure.

b) That there is no other private claimant to the properties hereinabove described.

5. That the First Party has on December 2, 1948, submitted to the Bureau of Lands, a Sales Application for the twenty-two (22) lots comprising the two abovementioned parcels of land, the said Sales Application was registered in the said Bureau under No. V-807;

6. That in reply to the request made by the First Party to the Bureau of Lands, in connection with the Sales Application No. V-807, the latter informed the former that action on his request will be expedited, as per letter of the Chief, Public Land Division, dated December 2, 1948, copy of which is hereto attached marked as annex "B" and made an integral part of this agreement:

7. That for and in consideration of the premises above stated and the amount of TWENTY FOUR THOUSAND (P24,000.00) PESOS that the Second Party shall pay to the First Party, by these presents, the First Party hereby sells, transfers and conveys unto the Second Party, its successors and assigns, his right, interest and participation under, an(d) by virtue of the Sales Application No. V-807, which he has or may have in the lots mentioned in said Sales Application No. V-807;

8. That the amount of TWENTY FOUR THOUSAND (P24,000.00) PESOS, shall be paid by the Second Party to the First Party, as follows:

a) The amount of SEVEN THOUSAND (P7,000.00) PESOS, has already been paid by the Second Party to the First Party upon the execution of the Agreement to Sell, on July 7, 1948;

b) The amount of FIVE THOUSAND (P5,000.00) PESOS shall be paid upon the signing of this present agreement; and

c) The balance of TWELVE THOUSAND (P12,000.00) shall be paid upon the execution by the First Party of the Absolute Deed of Sale of the two parcels of land in question in favor of the Second Party, and upon delivery to the Second Party of the Certificate of Ownership of the said two parcels of land.

9. It is specially understood that the mortgage constituted by the First Party in favor of the Second Party, as stated in the said contract of Agreement to Sell dated July 7, 1948, shall cover not only the amount of SEVEN THOUSAND (P7,000.00) PESOS as specified in said document, but shall also cover the amount of FIVE THOUSAND (P5,000.00) PESOS to be paid as stipulated in paragraph 8, sub-paragraph (b) of this present agreement, if the First Party should fail to comply with the obligations as provided for in paragraphs 2, 4, and 5 of the Agreement to Sell;

10. It is further agreed that the First Party obligates himself to sign, execute and deliver to and in favor of the Second Party, its successors and assigns, at anytime upon demand by the Second Party such other instruments as may be necessary in order to give full effect to this present agreement;

In the Report dated December 31, 1949 by the public land inspector, District Land Office, Bureau of Lands, in Butuan, the report contains an Indorsement of the aforesaid District Land Officer recommending rejection of the Sales Application of Villaflor for having leased the property to another even before he had acquired transmissible rights thereto.

In a letter of Villaflor dated January 23, 1950, addressed to the Bureau of Lands, he informed the Bureau Director that he was already occupying the property when the Bureau's Agusan River Valley Subdivision Project was inaugurated, that the property was formerly claimed as private properties (sic), and that therefore, the property was segregated or excluded from disposition because of the claim of private ownership. In a letter of Nasipit Lumber dated February 22, 1950 (exh. X) 11 addressed to the Director of Lands, the corporation informed the Bureau that it recognized Villaflor as the real owner, claimant and occupant of the land; that since June 1946, Villaflor leased two (2) hectares inside the land to the company; that it has no other interest on the land; and that the Sales Application of Villaflor should be given favorable consideration.

xxx xxx xxx

On July 24, 1950, the scheduled date of auction of the property covered by the Sales Application, Nasipit Lumber offered the highest bid of P41.00 per hectare, but since an applicant under CA 141, is allowed to equal the bid of the highest bidder, Villaflor tendered an equal bid; deposited the equivalent of 10% of the bid price and then paid the assessment in full.

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On August 16, 1950, Villaflor executed a document, denominated as a "Deed of Relinquishment of Rights" (exh. N), 12 pertinent portion of which reads:

5. That in view of my present business in Manila, and my change in residence from Butuan, Agusan to the City of Manila, I cannot, therefore, develope (sic) or cultivate the land applied for as projected before;

6. That the Nasipit Lumber Company, Inc., a corporation duly organized . . . is very much interested in acquiring the land covered by the aforecited application . . . ;

7. That I believe the said company is qualified to acquire public land, and has the means to develop (sic) the above-mentioned land;

xxx xxx xxx

WHEREFORE, and in consideration of the amount of FIVE THOUSAND PESOS (P5,000.00) to be reimbursed to me by the aforementioned Nasipit Lumber Company, Inc., after its receipt of the order of award, the said amount representing part of the purchase price of the land aforesaid, the value of the improvements I introduced thereon, and the expenses incurred in the publication of the Notice of Sale, I, the applicant, Vicente J. Villaflor, hereby voluntarily renounce and relinquish whatever rights to, and interests I have in the land covered by my above-mentioned application in favor of the Nasipit Lumber Company, Inc.

Also on August 16, 1950, Nasipit Lumber filed a Sales Application over the two (2) parcels of land, covering an area of 140 hectares, more or less. This application was also numbered V-807 (exh. Y).

On August 17, 1950 the Director of Lands issued an "Order of Award" 13 in favor of Nasipit Lumber Company, Inc., pertinent portion of which reads:

4. That at the auction sale of the land held on July 24, 1950 the highest bid received was that of Nasipit Lumber Company, Inc. which offered P41.00 per hectare or P5,740.00 for the whole tract, which bid was equaled by applicant Vicente J. Villaflor, who deposited the amount of P574.00 under Official Receipt No. B-1373826 dated July 24, 1950 which is equivalent to 10% of the bid. Subsequently, the said . . . Villaflor paid the amount of P5,160.00 in full payment of the purchase price of the above-mentioned land and for some reasons stated in an instrument of relinquishment dated August 16, 1950, he (Vicente J. Villaflor) relinquished his rights to and interest in the said land in favor of the Nasipit Lumber Company, Inc. who filed the corresponding application therefore.

In view of the foregoing, and it appearing that the proceedings had . . . were in accordance with law and in [sic] existing regulations, the land covered thereby is hereby awarded to Nasipit Lumber Company, Inc. at P41.00 per hectare or P5,740.00 for the whole tract.

This application should be entered in the record of this Office as Sales Entry No. V-407.

It is Villaflor's claim that he only learned of the Order of Award on January 16, 1974, or after his arrival to the Philippines, coming from Indonesia, where he stayed for more than ten (10) years; that he went to Butuan City in the latter part of 1973 upon the call of his brother Serafin Villaflor, who was then sick and learned that Nasipit Lumber (had) failed and refused to pay the agreed rentals, although his brother was able to collect during the early years; and that Serafin died three days after his (Vicente's) arrival, and so no accounting of the rentals could be made; that on November 27, 1973, Villaflor wrote a letter to Mr. G.E.C. Mears of Nasipit Lumber, reminding him of their verbal agreement in 1955 . . . that Mr. Mears in a Reply dated December 3, 1973, appears to have referred the matter to Mr. Noriega, the corporate general manager, but the new set of corporate officers refused to recognize

(Villaflor's) claim, for Mr. Florencio Tamesis, the general manager of Nasipit Lumber, in a letter dated February 19, 1974, denied Villaflor's itemized claim dated January 5, 1974 (exh. V) to be without valid and legal basis. In the 5th January, 1974 letter, Villaflor claimed the total amount of P427,000.00 . . . .

In a formal protest dated January 31, 1974 14 which Villaflor filed with the Bureau of Lands, he protested the Sales Application of Nasipit Lumber, claiming that the company has not paid him P5,000.00 as provided in the Deed of Relinquishment of Rights dated August 16, 1950.

xxx xxx xxx

. . . (T)hat in a Decision dated August 8, 1977 (exh. 8), the Director of Lands found that the payment of the amount of P5,000.00 in the Deed . . . and the consideration in the Agreement to Sell were duly proven, and ordered the dismissal of Villaflor's protest and gave due course to the Sales Application of Nasipit Lumber. Pertinent portion of the Decision penned by Director of Lands, Ramon Casanova, in the Matter of SP No. V-807 (C-V-407) . . . reads:

xxx xxx xxx

During the proceedings, Villaflor presented another claim entirely different from his previous claim — this time, for recovery of rentals in arrears arising from a supposed contract of lease by Villaflor as lessor in favor of Nasipit as lessee, and indemnity for damages supposedly caused improvements on his other property . . . in the staggering amount of Seventeen Million (P17,000,000.00) Pesos. Earlier, he had also demanded from NASIPIT . . . (P427,000.00) . . . also as indemnity for damages to improvements supposedly caused by NASIPIT on his other real property as well as for reimbursement of realty taxes allegedly paid by him thereon.

xxx xxx xxx

It would seem that . . . Villaflor has sought to inject so many collaterals, if not extraneous claims, into this case. It is the considered opinion of this Office that any claim not within the sphere or scope of its adjudicatory authority as an administrative as well as quasi-judicial body or any issue which seeks to delve into the merits of incidents clearly outside of the administrative competence of this Office to decide may not be entertained.

There is no merit in the contention of Villaflor that owing to Nasipit's failure to pay the amount of . . . (P5,000.00) . . . (assuming that Nasipit had failed) the deed of relinquishment became null and void for lack of consideration. . . . .

xxx xxx xxx

. . . The records clearly show, however, that since the execution of the deed of relinquishment . . . Villaflor has always considered and recognized NASIPIT as having the juridical personality to acquire public lands for agricultural purposes. . . . .

xxx xxx xxx

Even this Office had not failed to recognize the juridical personality of NASIPIT to apply for the purchase of public lands . . . when it awarded to it the land so relinquished by Villaflor (Order of Award dated August 17, 1950) and accepted its application therefor. At any rate, the question whether an applicant is qualified to apply for the acquisition of public lands is a matter between the applicant and this Office to decide and which a third party like Villaflor has no personality to question beyond merely calling the attention of this Office thereto.

xxx xxx xxx

Villaflor offered no evidence to support his claim of non-payment beyond his own self-serving assertions and expressions that he had not been paid said amount. As protestant in this case, he has the affirmative of the issue. He is obliged to prove his allegations, otherwise his action will fail. For, it is a well settled principle (') that if plaintiff upon whom rests the burden of proving his cause of action fails to show in a satisfactory manner the facts upon which he bases his claim, the defendant is under no obligation to prove his exceptions or special defenses (Belen vs. Belen, 13 Phil. 202; Mendoza vs. Fulgencio, 8 Phil. 243).

xxx xxx xxx

Consequently, Villaflor's claim that he had not been paid must perforce fail.

On the other hand, there are strong and compelling reasons to presume that Villaflor had already been paid the amount of Five Thousand (P5,000.00) Pesos.

First, . . . What is surprising, however, is not so much his claims consisting of gigantic amounts as his having forgotten to adduce evidence to prove his claim of non-payment of the Five Thousand (P5,000.00) Pesos during the investigation proceedings when he had all the time and opportunity to do so. . . . The fact that he did not adduce or even attempt to adduce evidence in support thereof shows either that he had no evidence to offer . . . that NASIPIT had already paid him in fact. What is worse is that Villaflor did not even bother to command payment, orally or in writing, of the Five Thousand (P5,000.00) Pesos which was supposed to be due him since August 17, 1950, the date when the order of award was issued to Nasipit, and when his cause of action to recover payment had accrued. The fact that he only made a command (sic) for payment on January 31, 1974, when he filed his protest or twenty-four (24) years later is immediately nugatory of his claim for non-payment.

But Villaflor maintains that he had no knowledge or notice that the order of award had already been issued to NASIPIT as he had gone to Indonesia and he had been absent from the Philippines during all those twenty-four (24) years. This of course taxes credulity. . . . .

Second, it should be understood that the condition that NASIPIT should reimburse Villaflor the amount of Five Thousand (P5,000.00) Pesos upon its receipt of the order of award was fulfilled as said award was issued to

NASIPIT on August 17, 1950. The said deed of relinquishment was prepared and notarized in Manila with Villaflor and NASIPIT signing the instrument also in Manila on August 16, 1950 (p. 77, (sic)). The following day or barely a day after that, or on August 17, 1950, the order of award was issued by this Office to NASIPIT also in Manila. Now, considering that Villaflor is presumed to be more assiduous in following up with the Bureau of Lands the expeditious issuance of the order of award as the payment of the Five Thousand (P5,000.00) Pesos (consideration) would depend on the issuance of said order to award NASIPIT, would it not be reasonable to believe that Villaflor was at hand when the award was issued to NASIPIT an August 17, 1950, or barely a day which (sic) he executed the deed of relinquishment on August 16, 1950, in Manila? . . . .

Third, on the other hand, NASIPIT has in his possession a sort of "order" upon itself — (the deed of relinquishment wherein he (sic) obligated itself to reimburse or pay Villaflor the . . . consideration of the relinquishment upon its receipt of the order of award) for the payment of the aforesaid amount the moment the order of award is issued to it. It is reasonable to presume that NASIPIT has paid the Five Thousand (P5,000.00) Pesos to Villaflor.

A person in possession of an order on himself for the payment of money, or the delivery of anything, has paid the money or delivered the thing accordingly. (Section 5(k) B-131 Revised Rules of Court.

It should be noted that NASIPIT did not produce direct evidence as proof of its payment of the Five Thousand (P5,000.00) Pesos to Villaflor. Nasipit's explanation on this point is found satisfactory.

. . . (I)t was virtually impossible for NASIPIT, after the lapse of the intervening 24 years, to be able to cope up with all the records necessary to show that the consideration for the deed of relinquishment had been fully paid. To expect NASIPIT to keep intact all records pertinent to the transaction for the whole quarter of a century would be to require what even the law does not. Indeed, even the applicable law itself (Sec. 337, National Internal Revenue Code) requires that all records of corporations be preserved for only a maximum of five years.

NASIPIT may well have added that at any rate while "there are transactions where the proper evidence is impossible or extremely difficult to produce after the lapse of time . . . the law creates presumptions of regularity in favor of such transactions (20 Am. Jur. 232) so that when the basic fact is established in an action the existence of the presumed fact must be assumed by force of law. (Rule 13, Uniform Rules of Evidence; 9 Wigmore, Sec. 2491).

Anent Villaflor's claim that the 140-hectare land relinquished and awarded to NASIPIT is his private property, little (need) be said. . . . . The tracks of land referred to therein are not identical to the lands awarded to NASIPIT. Even in the assumption that the lands mentioned in the deeds of transfer are the same as the 140-hectare area awarded to NASIPIT, their purchase by Villaflor (or) the latter's occupation of the same did not change the character

of the land from that of public land to a private property. The provision of the law is specific that public lands can only be acquired in the manner provided for therein and not otherwise (Sec. 11, C.A. No. 141, as amended). The records show that Villaflor had applied for the purchase of the lands in question with this Office (Sales Application No. V-807) on December 2, 1948. . . . . There is a condition in the sales application signed by Villaflor to the effect that he recognizes that the land covered by the same is of public domain and any and all rights he may have with respect thereto by virtue of continuous occupation and cultivation are relinquished to the Government (paragraph 6, Sales Application No. V-807 . . .) of which Villaflor is very much aware. It also appears that Villaflor had paid for the publication fees appurtenant to the sale of the land. He participated in the public auction where he was declared the successful bidder. He had fully paid the purchase prive (sic) thereof (sic). It would be a (sic) height of absurdity for Villaflor to be buying that which is owned by him if his claim of private ownership thereof is to be believed. The most that can be said is that his possession was merely that of a sales applicant to when it had not been awarded because he relinquished his interest therein in favor of NASIPIT who (sic) filed a sales application therefor.

xxx xxx xxx

. . . During the investigation proceedings, Villaflor presented as his Exhibit "(sic)" (which NASIPIT adopted as its own exhibit and had it marked in evidence as Exhibit "1") a duly notarized "agreement to Sell" dated July 7, 1948, by virtue of which Villaflor undertook to sell to Nasipit the tracts of land mentioned therein, for a consideration of Twenty-Four Thousand (P24,000.00) Pesos. Said tracts of land have been verified to be identical to the parcels of land formerly applied for by Villaflor and which the latter had relinquished in favor of NASIPIT under a deed of relinquishment executed by him on August 16, 1950. In another document executed on December 7, 1948 . . . Villaflor as "FIRST PARTY" and NASIPIT as "SECOND PARTY" confirmed the "Agreement to Sell" of July 7, 1948, which was maintained "in full force and effect with all its terms and conditions . . ." (Exh. "38-A"); and that "for and in consideration of . . . TWENTY FOUR THOUSAND (P24,000.00) PESOS that the Second Party shall pay to the First Party . . . the First Party hereby sells, transfers and conveys unto the Second Party . . . his right interest and participation under and by virtue of the Sales Application No. V-807" and, in its paragraph 8, it made stipulations as to when part of the said consideration . . . was paid and when the balance was to be paid, to wit:

a) the amount of SEVEN THOUSAND . . . PESOS has already been paid by the Second Party to the First Party upon the execution of the Agreement to Sell, on July 17, 1948;

b) the amount of FIVE THOUSAND . . . PESOS shall be paid upon the signing of this present agreement; and

c) the amount of TWELVE THOUSAND . . . PESOS, shall be paid upon the execution by the First Party of the Absolute Sale of the Two parcels of land in question in favor of the

Second Party of the Certificate of Ownership of the said two parcels of land. (Exh. 38-B). (Emphasis ours)

It is thus clear from this subsequent document marked Exhibit "38 ANALCO" that of the consideration of the "Agreement to Sell" dated July 7, 1948, involving the 140-hectare area relinquished by Villaflor in favor of NASIPIT, in the amount of Twenty-Four Thousand (P24,000.00) Pesos:

(1) the amount of Seven Thousand (P7,000.00) Pesos was already paid upon the execution of the "Agreement to Sell" on July 7, 1948, receipt of which incidentally was admitted by Villaflor in the document of December 7, 1948;

(2) the amount of Five Thousand (P5,000.00) Pesos was paid when said document was signed by Vicente J. Villaflor as the First Party and Nasipit thru its President, as the Second Party, on December 7, 1948; and

(3) the balance of Twelve Thousand (P12,000.00) Pesos to be paid upon the execution by the First Party of the Absolute Deed of Sale of the two parcels of land in favor of the Second Party, and upon delivery to the Second Party of the Certificate of Ownership of the said two parcels of land.

Villaflor contends that NASIPIT could not have paid Villaflor the balance of Twelve Thousand (P12,000.00) Pesos . . . consideration in the Agreement to Sell will only be paid to applicant-assignor (referring to Villaflor) upon obtaining a Torrens Title in his favor over the 140-hectare of land applied for and upon execution by him of a Deed of Absolute Sale in favor of Nasipit Lumber Company, Inc. . . . . Inasmuch as applicant-assignor was not able to obtain a Torrens Title over the land in question he could not execute an absolute Deed of (sic) Nasipit Lumber Co., Inc. Hence, the Agreement to Sell was not carried out and no Twelve Thousand (P12,000.00) Pesos was overpaid either to the applicant-assignor, much less to Howard J. Nell Company. (See MEMORANDUM FOR THE APPLICANT-ASSIGNOR, dated January 5, 1977). . . .

. . . Villaflor did not adduce evidence in support of his claim that he had not been paid the . . . (P12,000.00) . . . consideration of the Agreement to Sell dated July 7, 1948 (Exh. "38 NALCO") beyond his mere uncorroborated assertions. On the other hand, there is strong evidence to show that said Twelve Thousand (P12,000.00) Pesos had been paid by (private respondent) to Edward J. Nell Company by virtue of the Deed of Assignment of Credit executed by Villaflor (Exh. "41 NALCO") for the credit of the latter.

Atty. Gabriel Banaag, resident counsel of NASIPIT who is in a position to know the facts, testified for NASIPIT. He described that it was he who notarized the "Agreement to Sell" (Exh. "F"); that he knew about the execution of the document of December 7, 1948 (Exh. "38") confirming the said "Agreement to Sell" having been previously consulted thereon by Jose Fernandez, who signed said document on behalf of NASIPIT . . . that subsequently, in January 1949, Villaflor executed a Deed of Assignment of credit in favor of Edward J. Nell Company (Exh. "41 NALCO") whereby Villaflor ceded to the latter his receivable for NASIPIT corresponding to the

remaining balance in the amount of Twelve Thousand . . . Pesos of the total consideration . . . stipulated in both the "Agreement to Sell" (Exh. "F") and the document dated December 7, 1948 (Exh. "39");. . . . He further testified that the said assignment of credit was communicated to (private respondent) under cover letter dated January 24, 1949 (Exh. "41-A") and not long thereafter, by virtue of the said assignment of credit, (private respondent) paid the balance of Twelve Thousand . . . due to Villaflor to Edward J. Nell Company . . . . Atty. Banaag's aforesaid testimony stand unrebutted; hence, must be given full weight and credit. . . . Villaflor and his counsel were present when Atty. Banaag's foregoing testimony was Villaflor did not demur, nor did he rebut the same, despite having been accorded full opportunity to do so.

xxx xxx xxx

Having found that both the Five Thousand . . . consideration of the deed of Relinquishment . . . and that the remaining balance of. . . (P12,000.00) to complete the Twenty-Four Thousand (P24,000.00) Pesos consideration of both the Agreement to Sell dated July 7, 1948, and the document, dated December 7, 1948, executed by the former in favor of the latter, have been paid Villaflor the issue on prescription and laches becomes academic and needs no further discussion.

But more than all the questions thus far raised and resolved is the question whether a sales patent can be issued to NASIPIT for the 140-hectare area awarded to it in the light of Section 11, Article XIV of the new Constitution which provides in its pertinent portion to wit:

. . . No private corporation or association may hold alienable land of the public domain except by lease not to exceed one thousand hectares in area . . . .

The Secretary of Justice had previous occasion to rule on this point in his opinion No. 140, s. 1974. Said the Honorable Justice Secretary:

On the second question, (referring to the questions when may a public land be considered to have been acquired by purchase before the effectivity of the new Constitution posed by the Director of Lands in his query on the effect on pending applications for the issuance of sales patent in the light of Section 11, Art. XIV of the New Constitution aforecited), you refer to this Office's Opinion No. 64 series of 1973 in which I stated:

On the other hand, with respect to sales applications ready for issuance of sales patent, it is my opinion that where the applicant had, before the Constitution took effect, fully complied with all this obligations under the Public Land Act in order to entitle him to a Sales patent, there would be no legal or equitable justification for refusing to issue or release the sales patent.

With respect to the point as to when the Sales applicant has complied with all the terms and conditions which would entitle him to a sales patent, the herein above Secretary of Justice went on:

That as to when the applicant has complied with all the terms and conditions which would entitle him to a patent is a questioned (sic) fact which your office would be in the best position to determine. However, relating this to the procedure for the processing of applications mentioned above, I think that as the applicant has fulfilled the construction/cultivation requirements and has fully paid the purchase price, he should be deemed to have acquired by purchase the particular tract of land and (sic) the area (sic) in the provision in question of the new constitution would not apply.

From the decision of the Director of Lands, Villaflor filed a Motion for Reconsideration which was considered as an Appeal M.N.R. Case 4341, to the Ministry of Natural Resources.

On June 6, 1979, the Minister of Natural Resources rendered a Decision (exh. 9), 15 dismissing the appeal and affirming the decision of the Director of Lands, pertinent portions of which reads:

After a careful study of the records and the arguments of the parties, we believe that the appeal is not well taken.

Firstly, the area in dispute is not the private property of appellant.

The evidence adduced by appellant to establish his claim of ownership over the subject area consists of deeds of absolute sale executed in his favor on January 16, and February 15, 1940, by four (4) different persons, namely, Cirilo Piencenaves, Fermin Balobo, Claudio Otero and Hermogenes Patete.

However, an examination of the technical descriptions of the tracts of land subject of the deeds of sale will disclose that said parcels are not identical to, and do not tally with, the area in controversy.

It is a basic assumption of our policy that lands of whatever classification belong to the state. Unless alienated in accordance with law, it retains its rights over the same as dominus, (Santiago vs. de los Santos, L-20241, November 22, 1974, 61 SCRA 152).

For, it is well-settled that no public land can be acquired by private persons without any grant, express or implied from the government. It is indispensable then that there be showing of title from the state or any other mode of acquisition recognized by law. (Lee Hong Hok, et al. vs. David, et al., L-30389, December 27, 1972, 48 SCRA 379.)

It is well-settled that all lands remain part of the public domain unless severed therefrom by state grant or unless alienated in accordance with law.

We, therefore, believe that the aforesaid deeds of sale do not constitute clear and convincing evidence to establish that the contested area is of private ownership. Hence, the property must be held to be public domain.

"There being no evidence whatever that the property in question was ever acquired by the applicants or their ancestors either by composition title from the Spanish Government or by possessory information title or by any other means for the acquisition of public lands, the property must be held to be public domain." (Lee Hong Hok, et al., vs. David , et al., L-30389 December 27, 1972, 48 SCRA 378-379 citing Heirs of Datu Pendatun vs. Director of Lands; see also Director of Lands vs. Reyes, L-27594, November 28, 1975, 68 SCRA 177).

Be that as it may, appellant, by filing a sales application over the controverted land, acknowledged unequivocably [sic] that the same is not his private property.

"As such sales applicant, appellant manifestly acknowledged that he does not own the land and that the same is a public land under the administration of the Bureau of Lands, to which the application was submitted, . . . All of its acts prior thereof, including its real estate tax declarations, characterized its possessions of the land as that of a "sales applicant" and consequently, as one who expects to buy it, but has not as yet done so, and is not, therefore, its owner." (Palawan Agricultural and Industrial Co., Inc. vs. Director of Lands, L-25914, March 21, 1972, 44 SCRA 20, 21).

Secondly, appellant's alleged failure to pay the consideration stipulated in the deed of relinquishment neither converts said deed into one without a cause or consideration nor ipso facto rescinds the same. Appellant, though, has the right to demand payment with legal interest for the delay or to demand rescission.

xxx xxx xxx

However, appellant's cause of action, either for specific performance or rescission of contract, with damages, lies within the jurisdiction of civil courts, not with administrative bodies.

xxx xxx xxx

Lastly, appellee has acquired a vested right to the subject area and, therefore, is deemed not affected by the new constitutional provision that no private corporation may hold alienable land of the public domain except by lease.

xxx xxx xxx

Implementing the aforesaid Opinion No. 64 of the Secretary of Justice, the then Secretary of Agriculture and Natural Resources issued a memorandum, dated February 18, 1974, which pertinently reads as follows:

In the implementation of the foregoing opinion, sales application of private individuals covering areas in excess of 24 hectares and those of corporations, associations, or partnership which fall under any of the following categories shall be given due course and issued patents, to wit:

1. Sales application for fishponds and for agricultural purposes (SFA, SA and IGPSA) wherein prior to January 17, 1973;

a. the land covered thereby was awarded;

b. cultivation requirements of law were complied with as shown by investigation reports submitted prior to January 17, 1973;

c. land was surveyed and survey returns already submitted to the Director of Lands for verification and approval; and

d. purchased price was fully paid.

From the records, it is evident that the aforestated requisites have been complied with by appellee long before January 17, 1973, the effectivity of the New Constitution. To restate, the disputed area was awarded to appellee on August 17, 1950, the purchase price was fully paid on July 26, 1951, the cultivation requirements were complied with as per investigation report dated December 31, 1949, and the land was surveyed under Pls-97.

On July 6, 1978, petitioner filed a complaint 16 in the trial court for "Declaration of Nullity of Contract (Deed of Relinquishment of Rights), Recovery of Possession (of two parcels of land subject of the contract), and Damages" at about the same time that he appealed the decision of the Minister of Natural Resources to the Office of the President.

On January 28, 1983, petitioner died. The trial court ordered his widow, Lourdes D. Villaflor, to be substituted as petitioner. After trial in due course, the then Court of First Instance of Agusan del Norte and Butuan City, Branch III, 17 dismissed the complaint on the grounds that: (1) petitioner admitted the due execution and genuineness of the contract and was estopped from proving its nullity, (2) the verbal lease agreements were unenforceable under Article 1403 (2) (e) of the Civil Code, and (3) his causes of action were barred by extinctive prescription and/or laches. It ruled that there was prescription and/or laches because the alleged verbal lease ended in 1966, but the action was filed only on January 6,

1978. The six-year period within which to file an action on an oral contract per Article 1145 (1) of the Civil Code expired in 1972. The decretal portion 18 of the trial court's decision reads:

WHEREFORE, the foregoing premises duly considered, judgment is hereby rendered in favor of the defendant and against the plaintiff. Consequently, this case is hereby ordered DISMISSED. The defendant is hereby declared the lawful actual physical possessor-occupant and having a better right of possession over the two (2) parcels of land in litigation described in par. 1.2 of the complaint as Parcel I and Parcel II, containing a total area of One Hundred Sixty (160) hectares, and was then the subject of the Sales Application No. V-807 of the plaintiff (Exhibits 1, 1-A, 1-B, pp. 421 to 421-A, Record), and now of the Sales Application No. 807, Entry No. V-407 of the defendant Nasipit Lumber Company (Exhibit Y, pp. 357-358, Record). The Agreements to Sell Real Rights, Exhibits 2 to 2-C, 3 to 3-B, and the Deed of Relinquishment of Rights, Exhibits N to N-1, over the two parcels of land in litigation are hereby declared binding between the plaintiff and the defendant, their successors and assigns.

Double the costs against the plaintiff.

The heirs of petitioner appealed to Respondent Court of Appeals 19 which, however, rendered judgment against petitioner via the assailed Decision dated September 27, 1990 finding petitioner's prayers — (1) for the declaration of nullity of the deed of relinquishment, (2) for the eviction of private respondent from the property and (3) for the declaration of petitioner's heirs as owners — to be without basis. The decretal portion 20 of the assailed 49-page, single-spaced Decision curtly reads:

WHEREFORE, the Decision appealed from, is hereby AFFIRMED, with costs against plaintiff-appellants.

Not satisfied, petitioner's heirs filed the instant 57-page petition for review dated December 7, 1990. In a Resolution dated June 23, 1991, the Court denied this petition "for being late." On reconsideration — upon plea of counsel that petitioners were "poor" and that a full decision on the merits should be rendered — the Court reinstated the petition and required comment from private respondent. Eventually, the petition was granted due course and the parties thus filed their respective memoranda.

The Issues

Petitioner, through his heirs, attributes the following errors to the Court of Appeals:

I. Are the findings of the Court of Appeals conclusive and binding upon the Supreme Court?

II. Are the findings of the Court of Appeals fortified by the similar findings made by the Director of Lands and the Minister of Natural Resources (as well as by the Office of the President)?

III. Was there "forum shopping?".

IV. Are the findings of facts of the Court of Appeals and the trial court supported by the evidence and the law?

V. Are the findings of the Court of Appeals supported by the very terms of the contracts which were under consideration by the said court?

VI. Did the Court of Appeals, in construing the subject contracts, consider the contemporaneous and subsequent act of the parties pursuant to article 1371 of the Civil Code?

VII. Did the Court of Appeals consider the fact and the unrefuted claim of Villaflor that he never knew of the award in favor of Nasipit?

VIII. Did the Court of Appeals correctly apply the rules on evidence in its findings that Villaflor was paid the P5,000.00 consideration because Villaflor did not adduce any proof that he was not paid?

IX. Is the Court of Appeals' conclusion that the contract is not simulated or fictitious simply because it is genuine and duly executed by the parties, supported by logic or the law?

X. May the prestations in a contract agreeing to transfer certain rights constitute estoppel when this very contract is the subject of an action for annulment on the ground that it is fictitious?

XI. Is the Court of Appeals' conclusion that the lease agreement between Villaflor is verbal and therefore, unenforceable supported by the evidence and the law?

After a review of the various submissions of the parties, particularly those of petitioner, this Court believes and holds that the issues can be condensed into three as follows:

(1) Did the Court of Appeals err in adopting or relying on the factual findings of the Bureau of Lands, especially those affirmed by the Minister (now Secretary) of Natural Resources and the trial court?

(2) Did the Court of Appeals err in upholding the validity of the contracts to sell and the deed of relinquishment? Otherwise stated, did the Court of Appeals err in finding the deed of relinquishment of rights and the contracts to sell valid, and not simulated or fictitious?

(3) Is the private respondent qualified to acquire title over the disputed property?

The Court's Ruling

The petition is bereft of merit. It basically questions the sufficiency of the evidence relied upon by the Court of Appeals, alleging that public respondent's factual findings were based on speculations, surmises and conjectures. Petitioner insists that a review of those findings is in order because they were allegedly (1) rooted, not on specific evidence, but on conclusions and inferences of the Director of Lands which were, in turn, based on misapprehension of the applicable law on simulated contracts; (2) arrived at whimsically — totally ignoring the substantial and admitted fact that petitioner was not notified of the award in favor of private respondent; and (3) grounded on errors and misapprehensions, particularly those relating to the identity of the disputed area.

First Issue: Primary Jurisdiction of the Director of Lands andFinality of Factual Findings of the Court of Appeals

Underlying the rulings of the trial and appellate courts is the doctrine of primary jurisdiction; i.e., courts cannot and will not resolve a controversy involving a question which is within the jurisdiction of an administrative tribunal, especially where the question demands the exercise of sound

administrative discretion requiring the special knowledge, experience and services of the administrative tribunal to determine technical and intricate matters of fact. 21

In recent years, it has been the jurisprudential trend to apply this doctrine to cases involving matters that demand the special competence of administrative agencies even if the question involved is also judicial in character. It applies "where a claim is originally cognizable in the courts, and comes into play whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body; in such case, the judicial process is suspended pending referral of such issues to the administrative body for its view." 22

In cases where the doctrine of primary jurisdiction is clearly applicable, the court cannot arrogate unto itself the authority to resolve a controversy, the jurisdiction over which is initially lodged with an administrative body of special competence. 23 In Machete vs. Court of Appeals, the Court upheld the primary jurisdiction of the Department of Agrarian Reform Adjudicatory Board (DARAB) in an agrarian dispute over the payment of back rentals under a leasehold contract. 24 In Concerned Officials of the Metropolitan Waterworks and Sewerage System vs. Vasquez, 25 the Court recognized that the MWSS was in the best position to evaluate and to decide which bid for a waterworks project was compatible with its development plan.

The rationale underlying the doctrine of primary jurisdiction finds application in this case, since the questions on the identity of the land in dispute and the factual qualification of private respondent as an awardee of a sales application require a technical determination by the Bureau of Lands as the administrative agency with the expertise to determine such matters. Because these issues preclude prior judicial determination, it behooves the courts to stand aside even when they apparently have statutory power to proceed, in recognition of the primary jurisdiction of the administrative agency. 26

One thrust of the multiplication of administrative agencies is that the interpretation of contracts and the determination of private rights thereunder is no longer a uniquely judicial function, exercisable only by our regular courts. 27

Petitioner initiated his action with a protest before the Bureau of Lands and followed it through in the Ministry of Natural Resources and thereafter in the Office of the President. Consistent with the doctrine of primary jurisdiction, the trial and the appellate courts had reason to rely on the findings of these specialized administrative bodies.

The primary jurisdiction of the director of lands and the minister of natural resources over the issues regarding the identity of the disputed land and the qualification of an awardee of a sales patent is established by Sections 3 and 4 of Commonwealth Act No. 141, also known as the Public Land Act:

Sec. 3. The Secretary of Agriculture and Commerce (now Secretary of Natural Resources) shall be the executive officer charged with carrying out the provisions of this Act through the Director of Lands, who shall act under his immediate control.

Sec. 4. Subject to said control, the Director of Lands shall have direct executive control of the survey, classification, lease, sale or any other form of concession or disposition and management of the lands of the public domain, and his decision as to questions of fact shall be conclusive when approved by the Secretary of Agriculture and Commerce.

Thus, the Director of Lands, in his decision, said: 28

. . . It is merely whether or not Villaflor has been paid the Five Thousand (P5,000.00) Pesos stipulated consideration of the deed of relinquishment made by him without touching on the nature of the deed of relinquishment. The administration and disposition of public lands is primarily vested in the Director of Lands and ultimately with the Secretary of Agriculture and Natural Resources (now Secretary of Natural Resources), and to this end —

Our Supreme Court has recognized that the Director of Lands is a quasi-judicial officer who passes on issues of mixed facts and law (Ortua vs. Bingson Encarnacion, 59 Phil 440). Sections 3 and 4 of the Public Land Law thus mean that the Secretary of Agriculture and Natural Resources shall be the final arbiter on questions of fact in public land conflicts (Heirs of Varela vs. Aquino, 71 Phil 69; Julian vs. Apostol, 52 Phil 442).

The ruling of this Office in its order dated September 10, 1975, is worth reiterating, thus:

. . . it is our opinion that in the exercise of his power of executive control, administrative disposition and allegation of public land, the Director of Lands should entertain the protest of Villaflor and conduct formal investigation . . . to determine the following points: (a) whether or not the Nasipit Lumber Company, Inc. paid or reimbursed to Villaflor the consideration of the rights in the amount of P5,000.00 and what evidence the company has to prove payment, the relinquishment of rights being part of the administrative process in the disposition of the land in question . . . .

. . . . Besides, the authority of the Director of Lands to pass upon and determine questions considered inherent in or essential to the efficient exercise of his powers like the incident at issue, i.e. , whether Villaflor had been paid or not, is conceded bylaw.

Reliance by the trial and the appellate courts on the factual findings of the Director of Lands and the Minister of Natural Resources is not misplaced. By reason of the special knowledge and expertise of said administrative agencies over matters falling under their jurisdiction, they are in a better position to pass judgment thereon; thus, their findings of fact in that regard are generally accorded great respect, if not finality, 29 by the courts. 30 The findings of fact of an administrative agency must be respected as long as they are supported by substantial evidence, even if such evidence might not be overwhelming or even preponderant. It is not the task of an appellate court to weigh once more the evidence submitted before the administrative body and to substitute its own judgment for that of the administrative agency in respect of sufficiency of evidence. 31

However, the rule that factual findings of an administrative agency are accorded respect and even finality by courts admits of exceptions. This is true also in assessing factual findings of lower courts. 32 It is incumbent on the petitioner to show that the resolution of the factual issues by the administrative agency and/or by the trial court falls under any of the exceptions. Otherwise, this Court will not disturb such findings. 33

We mention and quote extensively from the rulings of the Bureau of Lands and the Minister of Natural Resources because the points, questions and issues raised by petitioner before the trial court, the appellate court and now before this Court are basically the same as those brought up before the aforesaid specialized administrative agencies. As held by the Court ofAppeals: 34

We find that the contentious points raised by appellant in this action, are substantially the same matters he raised in BL Claim No. 873 (N). In both actions, he claimed private ownership over the land in question, assailed the validity and effectiveness of the Deed of Relinquishment of Rights he executed in August 16, 1950, that he had not been paid the P5,000.00 consideration, the value of the improvements he introduced on the land and other expenses incurred by him.

In this instance, both the principle of primary jurisdiction of administrative agencies and the doctrine of finality of factual findings of the trial courts, particularly when affirmed by the Court of Appeals as in this case, militate against petitioner's cause. Indeed, petitioner has not given us sufficient reason to deviate from them.

Land in Dispute Is Public Land

Petitioner argues that even if the technical description in the deeds of sale and those in the sales application were not identical, the area in dispute remains his private property. He alleges that the deeds did not contain any technical description, as they were executed prior to the survey conducted by the Bureau of Lands; thus, the properties sold were merely described by reference to natural boundaries. His private ownership thereof was also allegedly attested to by private respondent's former field manager in the latter's February 22, 1950 letter, which contained an admission that the land leased by private respondent was covered by the sales application.

This contention is specious. The lack of technical description did not prove that the finding of the Director of Lands lacked substantial evidence. Here, the issue is not so much whether the subject land is identical with the property purchased by petitioner. The issue, rather, is whether the land covered by the sales application is private or public land. In his sales application, petitioner expressly admitted that said property was public land. This is formidable evidence as it amounts to an admission against interest.

In the exercise of his primary jurisdiction over the issue, Director of Lands Casanova ruled that the land was public: 35

. . . Even (o)n the assumption that the lands mentioned in the deeds of transfer are the same as the 140-hectare area awarded to Nasipit, their purchase by Villaflor (or) the latter's occupation of the same did not change the character of the land from that of public land to a private property. The provision of the law is specific that public lands can only be acquired in the manner provided for therein and not otherwise (Sec. 11, C.A. No. 141, as amended). The records show that Villaflor had applied for the purchase of lands in question with this Office (Sales Application No. V-807) on December 2, 1948. . . . There is a condition in the sales application . . . to the effect that he recognizes that the land covered by the same is of public domain and any and all rights he may have with respect thereto by virtue of continuous occupation and cultivation are relinquished to the Government (paragraph 6, Sales Application No. V-807 of Vicente J. Villaflor, p. 21, carpeta) of which Villaflor is very much aware. It also appears that Villaflor had paid for the publication fees appurtenant to the sale of the land. He participated in the public auction where he was declared the successful bidder. He had fully paid the purchase prive (sic) thereor (sic). It would be a (sic) height of absurdity for Villaflor to be buying that which is owned by him if his claim of private ownership thereof is to bebelieved. . . . .

This finding was affirmed by the Minister of Natural Resources: 36

Firstly, the area in dispute is not the private property of appellant (herein petitioner).

The evidence adduced by (petitioner) to establish his claim of ownership over the subject area consists of deeds of absolute sale executed in his favor . . . .

However, an examination of the technical descriptions of the tracts of land subject of the deeds of sale will disclose that said parcels are not identical to, and do not tally with, the area in controversy.

It is a basic assumption of our policy that lands of whatever classification belong to the state. Unless alienated in accordance with law, it retains its rights over the same as dominus. (Santiago vs. de los Santos, L-20241, November 22, 1974, 61 SCRA 152).

For it is well-settled that no public land can be acquired by private persons without any grant, express or implied from the government. It is indispensable then that there be showing of title from the state or any other mode of acquisition recognized by law. (Lee Hong Hok, et al. vs. David, et al., L-30389, December 27, 1972, 48 SCRA 379).

xxx xxx xxx

We, therefore, believe that the aforesaid deeds of sale do not constitute clear and convincing evidence to establish that the contested area is of private ownership. Hence, the property must be held to be public domain.

There being no evidence whatever that the property in question was ever acquired by the applicants or their ancestors either by composition title from the Spanish Government or by possessory information title or by any other means for the acquisition of public lands, the property must be held to be public domain.

Be that as it may, [petitioner], by filing a sales application over the controverted land, acknowledged unequivocably [sic] that the same is not his private property.

As such sales applicant manifestly acknowledged that he does not own the land and that the same is a public land under the administration of the Bureau of Lands, to which the application was submitted, . . . All of its acts prior thereof, including its real estate tax declarations, characterized its possessions of the land as that of a "sales applicant". And consequently, as one who expects to buy it, has not as yet done so, and is not, therefore, its owner." (Palawan Agricultural and Industrial Co., Inc. vs. Director of Lands, L-25914, March 21, 1972, 44 SCRA 15).

Clearly, this issue falls under the primary jurisdiction of the Director of Lands because its resolution requires "survey, classification, . . . disposition and management of the lands of the public domain." It follows that his rulings deserve great respect. As petitioner failed to show that this factual finding of the Director of Lands was unsupported by substantial evidence, it assumes finality. Thus, both the trial and the appellate courts correctly relied on such finding. 37 We can do no less.

Second Issue: No Simulation of Contracts Proven

Petitioner insists that contrary to Article 1371 38 of the Civil Code, Respondent Court erroneously ignored the contemporaneous and subsequent acts of the parties; hence, it failed to ascertain their true intentions. However, the rule on the interpretation of contracts that was alluded to by petitioner is used in affirming, not negating, their validity. Thus, Article 1373, 39 which is a conjunct of Article 1371, provides that, if the instrument is susceptible of two or more interpretations, the interpretation which will make it valid and effectual should be adopted. In this light, it is not difficult to understand that the legal basis urged by petitioner does not support his allegation that the contracts to sell and the deed of relinquishment are simulated and fictitious. Properly understood, such rules on interpretation even negate petitioner's thesis.

But let us indulge the petitioner awhile and determine whether the cited contemporaneous and subsequent acts of the parties support his allegation of simulation. Petitioner asserts that the relinquishment of rights and the agreements to sell were simulated because,  first, the language and terms of said contracts negated private respondent's acquisition of ownership of the land in issue; and second, contemporaneous and subsequent communications between him and private respondent allegedly showed that the latter admitted that petitioner owned and occupied the two parcels; i.e., that private respondent was not applying for said parcels but was interested only in the two hectares it had leased, and that private respondent supported petitioner's application for a patent.

Petitioner explains that the Agreement to Sell dated December 7, 1948 did not and could not transfer ownership because paragraph 8 (c) thereof stipulates that the "balance of twelve thousand pesos (12,000.00) shall be paid upon the execution by the First Party [petitioner] of the Absolute Deed of Sale of the two parcels of land in question in favor of the Second Party, and upon delivery to the Second Party [private respondent] of the Certificate of Ownership of the said two parcels of land." The mortgage provisions in paragraphs 6 and 7 of the agreement state that the P7,000.00 and P5,000.00 were "earnest money or a loan with antichresis by the free occupancy and use given to Nasipit of the 140 hectares of land not anymore as a lessee." If the agreement to sell transferred ownership to Nasipit, then why was it necessary to require petitioner, in a second agreement, to mortgage his property in the event of nonfulfillment of the prestations in the first agreement?

True, the agreement to sell did not absolutely transfer ownership of the land to private respondent. This fact, however, does not show that the agreement was simulated. Petitioner's delivery of the Certificate of Ownership and execution of the deed of absolute sale were suspensive conditions, which gave rise to a corresponding obligation on the part of the private respondent, i.e., the payment of the last installment of the consideration mentioned in the December 7, 1948 Agreement. Such conditions did not affect the perfection of the contract or prove simulation. Neither did the mortgage.

Simulation occurs when an apparent contract is a declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce, for the purpose of deception, the appearance of a juridical act which does not exist or is different from that which was really executed. 40 Such an intention is not apparent in the agreements. The intent to sell, on the other hand, is as clear as daylight.

Petitioner alleges further that the deed of relinquishment of right did not give full effect to the two agreements to sell, because the preliminary clauses of the deed allegedly served only to give private respondent an interest in the property as a future owner thereof and to enable respondent to follow up petitioner's sales application.

We disagree. Such an intention is not indicated in the deed. On the contrary, a real and factual sale is evident in paragraph 6 thereof, which states: "That the Nasipit Lumber Co., Inc., . . . is very much interested in acquiring the land covered by the aforecited application to be used for purposes of mechanized, farming" and the penultimate paragraph stating: ". . . VICENTE J. VILLAFLOR, hereby

voluntarily renounce and relinquish whatever rights to, and interests I have in the land covered by my above-mentioned application in favor of the Nasipit Lumber Co., Inc."

We also hold that no simulation is shown either in the letter, dated December 3, 1973, of the former field manager of private respondent, George Mear. A pertinent portion of the letter reads:

(a)s regards your property at Acacia, San Mateo, I recall that we made some sort of agreement for the occupancy, but I no longer recall the details and I had forgotten whether or not we actually did occupy your land. But if, as you say, we did occupy it, then I am sure that the Company is obligated to pay a rental.

The letter did not contain any express admission that private respondent was still leasing the land from petitioner as of that date. According to Mear, he could no longer recall the details of his agreement with petitioner. This cannot be read as evidence of the simulation of either the deed of relinquishment or the agreements to sell. It is evidence merely of an honest lack of recollection.

Petitioner also alleges that he continued to pay realty taxes on the land even after the execution of said contracts. This is immaterial because payment of realty taxes does not necessarily prove ownership, much less simulation of said contracts. 41

Nonpayment of the ConsiderationDid Not Prove Simulation

Petitioner insists that nonpayment of the consideration in the contracts proves their simulation. We disagree. Nonpayment, at most, gives him only the right to sue for collection. Generally, in a contract of sale, payment of the price is a resolutory condition and the remedy of the seller is to exact fulfillment or, in case of a substantial breach, to rescind the contract under Article 1191 of the Civil Code. 42 However, failure to pay is not even a breach, but merely an event which prevents the vendor's obligation to convey title from acquiring binding force. 43

Petitioner also argues that Respondent Court violated evidentiary rules in upholding the ruling of the Director of Lands that petitioner did not present evidence to show private respondent's failure to pay him. We disagree. Prior to the amendment of the rules on evidence on March 14, 1989, Section 1, Rule 131, states that each party must prove his or her own affirmative allegations. 44 Thus, the burden of proof in any cause rested upon the party who, as determined by the pleadings or the nature of the case, asserts the affirmative of an issue and remains there until the termination of the action. 45 Although nonpayment is a negative fact which need not be proved, the party seeking payment is still required to prove the existence of the debt and the fact that it is already due. 46

Petitioner showed the existence of the obligation with the presentation of the contracts, but did not present any evidence that he demanded payment from private respondent. The demand letters dated January 2 and 5, 1974 (Exhs. "J" and "U"), adduced in evidence by petitioner, were for the payment of back rentals, damages to improvements and reimbursement of acquisition costs and realty taxes, not payment arising from the contract to sell.

Thus, we cannot fault Respondent Court for adopting the finding of the Director of Lands that petitioner "offered no evidence to support his claim of nonpayment beyond his own self-serving assertions," as he did not even demand "payment, orally or in writing, of the five thousand (P5,000.00) pesos which was supposed to be due him since August 17, 1950, the date when the order of award was issued to Nasipit, and when his cause of action to recover payment had accrued." Nonpayment of the consideration in the contracts to sell or the deed of relinquishment was

raised for the first time in the protest filed with the Bureau of Lands on January 31, 1974. But this protest letter was not the demand letter required by law.

Petitioner alleges that the assignment of credit and the letter of the former field manager of private respondent are contemporaneous and subsequent acts revealing the nonpayment of the consideration. He maintains that the P12,000.00 credit assigned pertains to the P5,000.00 and P7,000.00 initial payments in the December 7, 1948 Agreement, because the balance of P12,000.00 was not yet "due and accruing." This is consistent, he argues, with the representation that private respondent was not interested in filing a sales application over the land in issue and that Nasipit was instead supporting petitioner's application thereto in Mear's letter to the Director of Lands dated February 22, 1950 (Exh. "X") 47

This argument is too strained to be acceptable. The assignment of credit did not establish the nondelivery of theseinitial payments of the total consideration. First, the assignment of credit happened on January 19, 1949, or a month after the signing of the December 7, 1948 Agreement and almost six months after the July 7, 1948 Agreement to Sell. Second, it does not overcome the recitation in the Agreement of December 7, 1948: ". . . a) The amount of SEVEN THOUSAND (P7,000.00) PESOS has already been paid by the Second Party to the First Party upon the execution of the Agreement to Sell, on July 7, 1948; b) The amount of FIVE THOUSAND (P5,000.00) PESOS shall be paid upon the signing of this present agreement; . . . . "

Aside from these facts, the Director of Lands found evidence of greater weight showing that payment was actually made: 48

. . . (T)here is strong evidence to show that said . . . (P12,000.00) had been paid by NASIPIT to Edward J. Nell Company by virtue of the Deed of Assignment of Credit executed by Villaflor (Exh. "41 NALCO") for the credit of the latter.

Atty. Gabriel Banaag, resident counsel of NASIPIT . . . declared that it was he who notarized the "Agreement to Sell" (Exh. "F"); . . . that subsequently, in January 1949, Villaflor executed a Deed of Assignment of credit in favor of Edward J. Nell Company (Exh. "41 NALCO") whereby Villaflor ceded to the latter his receivable for NASIPIT corresponding to the remaining balance in the amount of . . . (P12,000.00) . . . of the total consideration . . . . ; He further testified that the said assignment . . . was communicated to NASIPIT under cover letter dated January 24, 1949 (Exh. "41-A") and not long thereafter, by virtue of the said assignment of credit, NASIPIT paid the balance . . . to Edward J. Nell Company (p. 58, ibid). Atty. Banaag's aforesaid testimony stand unrebutted; hence, must be given full weight and credit.

xxx xxx xxx

The Director of Lands also found that there had been payment of the consideration in the relinquishment of rights:49

On the other hand, there are strong and compelling reasons to presume that Villaflor had already been paid the amount of Five Thousand (P5,000.00) Pesos.

First, . . . What is surprising, however, is not so much his claims consisting of gigantic amounts as his having forgotten to adduce evidence to prove his claim of non-payment of the Five Thousand (P5,000.00) Pesos during the investigation proceedings when he had all the time and opportunity to do so. . . . . The fact that he did not adduce or even attempt to adduce evidence in support thereof shows either that he had no evidence to offer of that

NASIPIT had already paid him in fact. What is worse is that Villaflor did not even bother to command payment, orally or in writing, of the Five Thousand (P5,000.00) Pesos which was supposed to be due him since August 17, 1950, the date when the order of award was issued to Nasipit, and when his cause of action to recover payment had accrued. The fact that he only made a command for payment on January 31, 1974, when he filed his protest or twenty-four (24) years later is immediately nugatory of his claim for non-payment.

But Villaflor maintains that he had no knowledge or notice that the order of award had already been issued to NASIPIT as he had gone to Indonesia and he had been absent from the Philippines during all those twenty-four (24) years. This of course taxes credulity. . . .

. . . It is more in keeping with the ordinary course of things that he should have acquired information as to what was transpiring in his affairs in Manila . . . .

Second, it should be understood that the condition that NASIPIT should reimburse Villaflor the amount of Five Thousand (P5,000.00) Pesos upon its receipt of the order of award was fulfilled as said award was issued to NASIPIT on August 17, 1950. The said deed of relinquishment was prepared and notarized in Manila with Villaflor and NASIPIT signing the instrument also in Manila. Now, considering that Villaflor is presumed to be more assiduous in following up with the Bureau of Lands the expeditious issuance of the order of award as the (consideration) would depend on the issuance of said order to award NASIPIT, would it not be reasonable to believe that Villaflor was at hand when the award was issued to NASIPIT on August 17, 1950, or barely a day which he executed the deed of relinquishment on August 16, 1950, in Manila? . . . .

Third, on the other hand, NASIPIT has in his possession a sort of "order" upon itself — (the deed of relinquishment wherein he(sic) obligated itself to reimburse or pay Villaflor the . . . consideration of the relinquishment upon its receipt of the order of award) for the payment of the aforesaid amount the moment the order of award is issued to it. It is reasonable to presume that NASIPIT has paid the (consideration) to Villaflor.

xxx xxx xxx

. . . (I)t was virtually impossible for NASIPIT, after the lapse of the intervening 24 years, to be able to cope up with all the records necessary to show that the consideration for the deed of relinquishment had been fully paid. To expect NASIPIT to keep intact all records pertinent to the transaction for the whole quarter of a century would be to require what even the law does not. Indeed, even the applicable law itself (Sec. 337, National Internal Revenue Code) requires that all records of corporations be preserved for only a maximum of five years.

NASIPIT may well have added that at any rate while there are transactions where the proper evidence is impossible or extremely difficult to produce after the lapse of time . . . the law creates presumptions of regularity in favor of such transactions (20 Am. Jur. 232) so that when the basic fact is established in an action the existence of the presumed fact must be assumed by force of law. (Rule 13, Uniform Rules of Evidence; 9 Wigmore, Sec. 2491).

The Court also notes that Mear's letter of February 22, 1950 was sent six months prior to the execution of the deed of relinquishment of right. At the time of its writing, private respondent had not perfected its ownership of the land to be able to qualify as a sales applicant. Besides, although he was a party to the July 7, 1948 Agreement to Sell, Mear was not a signatory to the Deed of Relinquishment or to the December 7, 1948 Agreement to Sell. Thus, he cannot be expected to

know the existence of and the amendments to the later contracts. These circumstances explain the mistaken representations, not misrepresentations, in said letter.

Lack of Notice of the Award

Petitioner insists that private respondent suppressed evidence, pointing to his not having been notified of the Order of Award dated August 17, 1950. 50 At the bottom of page 2 of the order, petitioner was not listed as one of the parties who were to be furnished a copy by Director of Lands Jose P. Dans. Petitioner also posits that Public Land Inspector Sulpicio A. Taeza irregularly received the copies for both private respondent and the city treasurer of Butuan City. The lack of notice for petitioner can be easily explained. Plainly, petitioner was not entitled to said notice of award from the Director of Lands, because by then, he had already relinquished his rights to the disputed land in favor of private respondent. In the heading of the order, he was referred to as sales applicant-assignor. In paragraph number 4, the order stated that, on August 16, 1950, he relinquished his rights to the land subject of the award to private respondent. From such date, the sales application was considered to be a matter between the Bureau of Lands and private respondent only. Considering these facts, the failure to give petitioner a copy of the notice of the award cannot be considered as suppression of evidence. 51Furthermore, this order was in fact available to petitioner and had been referred to by him since January 31, 1974 when he filed his protest with the Bureau of Lands. 52

Third Issue: Private Respondent Qualifiedfor an Award of Public Land

Petitioner asserts that private respondent was legally disqualified from acquiring the parcels of land in question because it was not authorized by its charter to acquire disposable public agricultural lands under Sections 121, 122 and 123 of the Public Land Act, prior to its amendment by P.D. No. 763. We disagree. The requirements for a sales application under the Public Land Act are: (1) the possession of the qualifications required by said Act (under Section 29) and (2) the lack of the disqualifications mentioned therein (under Sections 121, 122, and 123). However, the transfer of ownership via the two agreements dated July 7 and December 7, 1948 and the relinquishment of rights, being private contracts, were binding only between petitioner and private respondent. The Public Land Act finds no relevance because the disputed land was covered by said Act only after the issuance of the order of award in favor of private respondent. Thus, the possession of any disqualification by private respondent under said Act is immaterial to the private contracts between the parties thereto. (We are not, however, suggesting a departure from the rule that laws are deemed written in contracts.) Consideration of said provisions of the Act will further show their inapplicability to these contracts. Section 121 of the Act pertains to acquisitions of public land by a corporation from a grantee, but petitioner never became a grantee of the disputed land. On the other hand, private respondent itself was the direct grantee. Sections 122 and 123 disqualify corporations, which are not authorized by their charter, from acquiring public land; the records do not show that private respondent was not so authorized under its charter.

Also, the determination by the Director of Lands and the Minister of Natural Resources of the qualification of private respondent to become an awardee or grantee under the Act is persuasive on Respondent Court. InEspinosa vs. Makalintal, 53 the Court ruled that, by law, the powers of the Secretary of Agriculture and Natural Resources regarding the disposition of public lands — including the approval, rejection, and reinstatement of applications — are of executive and administrative nature. (Such powers, however, do not include the judicial power to decide controversies arising from disagreements in civil or contractual relations between the litigants.) Consequently, the determination of whether private respondent is qualified to become an awardee of public land under C.A. 141 by sales application is included therein.

All told, the only disqualification that can be imputed to private respondent is the prohibition in the 1973 Constitution against the holding of alienable lands of the public domain by corporations. 54 However, this Court earlier settled the matter, ruling that said constitutional prohibition had no retroactive effect and could not prevail over avested right to the land. In Ayog vs. Cusi, Jr., 55 this Court declared:

We hold that the said constitutional prohibition has no retroactive application to the sales application of Biñan Development Co., Inc. because it had already acquired a vested right to the land applied for at the time the 1973 Constitution took effect.

That vested right has to be respected. It could not be abrogated by the new Constitution. Section 2, Article XIII of the 1935 Constitution allows private corporations to purchase public agricultural lands not exceeding one thousand and twenty-four hectares. Petitioner's prohibition action is barred by the doctrine of vested rights in constitutional law.

"A right is vested when the right to enjoyment has become the property of some particular person or persons as a present interest." (16 C.J.S. 1173). It is "the privilege to enjoy property legally vested, to enforce contracts, and enjoy the rights of property conferred by existing law" (12 C.J. 955, Note 46, No. 6) or "some right or interest in property which has become fixed and established and is no longer open to doubt or controversy" (Downs vs. Blount, 170 Fed. 15, 20, cited in Balboa vs. Farrales, 51 Phil. 498, 502).

The due process clause prohibits the annihilation of vested rights. "A state may not impair vested rights by legislative enactment, by the enactment or by the subsequent repeal of a municipal ordinance, or by a change in the constitution of the State, except in a legitimate exercise of the police power" (16 C.J.S. 1177-78).

It has been observed that, generally, the term "vested right" expresses the concept of present fixed interest, which in right reason and natural justice should be protected against arbitrary State action, or an innately just an imperative right which an enlightened free society, sensitive to inherent and irrefragable individual rights, cannot deny (16 C.J.S. 1174, Note 71, No. 5, citing Pennsylvania Greyhound Lines, Inc. vs. Rosenthal, 192 Atl. 2nd 587).

Secretary of Justice Abad Santos in his 1973 opinion ruled that where the applicant, before the Constitution took effect, had fully complied with all his obligations under the Public Land Act in order to entitle him to a sales patent, there would seem to be no legal or equitable justification for refusing to issue or release the sales patent (p. 254, Rollo).

In Opinion No. 140, series of 1974, he held that as soon as the applicant had fulfilled the construction or cultivation requirements and has fully paid the purchase price, he should be deemed to have acquired by purchase the particular tract of land and to him the area limitation in the new Constitution would not apply.

In Opinion No. 185, series of 1976, Secretary Abad Santos held that where the cultivation requirements were fulfilled before the new Constitution took effect but the full payment of the price was completed after January 17, 1973, the applicant was, nevertheless, entitled to a sales patent (p. 256, Rollo).

Such a contemporaneous construction of the constitutional prohibition by a high executive official carries great weight and should be accorded much respect. It is a correct interpretation of section 11 of Article XIV.

In the instant case, it is incontestable that prior to the effectivity of the 1973 Constitution the right of the corporation to purchase the land in question had become fixed and established and was no longer open to doubt or controversy.

Its compliance with the requirements of the Public Land Law for the issuance of a patent had the effect of segregating the said land from the public domain. The corporation's right to obtain a patent for that land is protected by law. It cannot be deprived of that right without due process (Director of Lands vs. CA, 123 Phil. 919).

The Minister of Natural Resources ruled, and we agree, that private respondent was similarly qualified to become an awardee of the disputed land because its rights to it vested prior to the effectivity of the 1973 Constitution: 56

Lastly, appellee has acquired a vested right to the subject area and, therefore, is deemed not affected by the new constitutional provision that no private corporation may hold alienable land of the public domain except by lease.

It may be recalled that the Secretary of Justice in his Opinion No. 64, series of 1973, had declared, to wit:

On the other hand, with respect to sales application ready for issuance of sales patent, it is my opinion that where the applicant had, before, the constitution took effect, fully complied with all his obligations under the Public Land act in order to entitle him to sales patent, there would seem to be not legal or equitable justification for refusing to issue or release the sales patent.

Implementing the aforesaid Opinion No. 64 . . . , the then Secretary of Agriculture and Natural Resources issued a memorandum, dated February 18, 1974, which pertinently reads as follows:

In the implementation of the foregoing opinion, sales application of private individuals covering areas in excess of 24 hectares and those of corporations, associations, or partnership which fall under any of the following categories shall be given due course and issued patents, to wit:

Sales application for fishponds and for agricultural purposes (SFA, SA and IGPSA) wherein prior to January 17, 1973,

a. the land covered thereby was awarded;

b. cultivation requirements of law were complied with as shown by investigation reports submitted prior to January 17, 1973;

c. land was surveyed and survey returns already submitted to the Director of Lands for verification and approval; and

d. purchase price was fully paid.

From the records, it is evident that the aforestated requisites have been complied with by appellee long before January 17, 1973, the effectivity of the New Constitution. To restate, the disputed area was awarded to appellee on August 17, 1950, the purchase price was fully paid on July 26, 1951, the cultivation requirements were complied with as per investigation report dated December 31, 1949, and the land was surveyed under Pls-97.

The same finding was earlier made by the Director of Lands: 57

It is further contended by Villaflor that Nasipit has no juridical personality to apply for the purchase of public lands for agricultural purposes. The records clearly show, however, that since the execution of the deed of relinquishment of August 16, 1950, in favor of Nasipit, Villaflor has always considered and recognized Nasipit as having the juridical personality to acquire public lands for agricultural purposes. In the deed of relinquishment . . . , it is stated:

6. That the Nasipit Lumber Co., Inc., a corporation duly organized in accordance with the laws of the Philippines, . . . .

Even this Office had not failed to recognize the juridical personality of Nasipit to apply for the purchase of public lands . . . when it awarded to it the land so relinquished by Villaflor (Order of Award dated August 17, 1950) and accepted its application therefor. At any rate, the question whether an applicant is qualified to apply for the acquisition of public lands is a matter between the applicant and this Office to decide and which a third party like Villaflor has no personality to question beyond merely calling the attention of this Office thereto.

Needless to say, we also agree that the November 8, 1946 Lease Agreement between petitioner and private respondent had been terminated by the agreements to sell and the relinquishment of rights. By the time the verbal leases were allegedly made in 1951 and 1955, 58 the disputed land had already been acquired and awarded to private respondent. In any event, petitioner's cause of action on these alleged lease agreements prescribed long before he filed Civil Case No. 2072-III, as correctly found by the trial and appellate courts. 59 Thus, it is no longer important, in this case, to pass upon the issue of whether or not amendments to a lease contract can be proven by parol evidence. The same holds true as regards the issue of forum-shopping.

All in all, petitioner has not provided us sufficient reason to disturb the cogent findings of the Director of Lands, the Minister of Natural Resources, the trial court and the Court of Appeals.

WHEREFORE, the petition is hereby DISMISSED.

SO ORDERED.

Narvasa, C.J., Romero and Francisco, JJ., concur.

Melo, J., took no part.

SECOND DIVISION

[G.R. No. 115734. February 23, 2000]

RUBEN LOYOLA, CANDELARIA LOYOLA, LORENZO LOYOLA, FLORA LOYOLA, NICANDRO LOYOLA, ROSARIO LOYOLA, TERESITA LOYOLA and VICENTE LOYOLA, petitioners, vs. THE HONORABLE COURT OF APPEALS, NIEVES, ROMANA, ROMUALDO, GUILLERMO, LUCIA, PURIFICACION, ANGELES, ROBERTO, ESTRELLA, all surnamed ZARRAGA and THE HEIRS OF JOSE ZARRAGA, namely AURORA, MARITA, JOSE, RONALDO, VICTOR, LAURIANO, and ARIEL, all surnamed ZARRAGA, respondents.

D E C I S I O N

QUISUMBING, J.:

For review on certiorari is the decision of the Court of Appeals in CA-G.R. No. CV 36090, promulgated on August 31, 1993, reversing the judgment of the Regional Trial Court of Biñan, Laguna, Branch 24, in Civil Case No. B-2194. In said decision, the appellate court decreed:

"PREMISES CONSIDERED, the decision appealed from is hereby REVERSED and a new judgment rendered as follows:

1.       Dismissing the plaintiff’s Complaint;

2.       Declaring the "Bilihang Tuluyan ng Kalahati (1/2) ng Isang (1) Lagay na Lupa" dated August 24, 1980 (Exhibit 1) as well as Transfer Certificate of Title No. T-116067 of the Registry of Deeds for the Calamba Branch to be lawful, valid, and effective.

"SO ORDERED."[1]

The RTC decision reversed by the Court of Appeals had disposed of the complaint as follows:

"WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the defendants as follows:

1.       Declaring the simulated deed of absolute sale purportedly executed by the late Gaudencia Zarraga on August 24, 1980 as well as the issuance of the corresponding certificate of title in favor of the defendants null and void from the beginning;

2.       Ordering the Register of Deeds of Laguna, Calamba Branch to cancel Transfer Certificate of Title No. T-116087 issued in favor of the defendants and to issue another one, if feasible, in favor of the plaintiffs

and the defendants as co-owners and legal heirs of the late Gaudencia Zarraga;

3.       Order(ing) the defendants to reconvey and deliver the possession of the shares of the plaintiff on (sic) the subject property;

4.       Ordering the defendants to pay the amount of P20,000 as and for attorney’s fees and the costs of this suit.

5.       As there is no preponderance of evidence showing that the plaintiffs suffered moral and exemplary damages, their claim for such damages is hereby dismissed.

The plaintiffs’ claim under the second cause of action is hereby dismissed on the ground of prescription.

Likewise, the defendants’ counterclaim is hereby dismissed for lack of merit.

"SO ORDERED."[2]

We shall now examine the factual antecedents of this petition.

In dispute here is a parcel of land in Biñan, Laguna, particularly described as follows:

"A PARCEL OF LAND (Lot 115-A-1) of the subdivision plan (LRC) Psd-32117), being a portion of Lot 115-A, described on Plan Psd-55228, LRC (GLRO) Record No. 8374), situated in the Poblacion, Municipality of Biñan, Province of Laguna, Island of Luzon. Bounded on the NE., points 3 to 4 by the Biñan River; on the SE., points 4 to 1 by Lot 115-A-2 of the subd. Plan; on the SW., points 1 to 2 by the Road and on points 2 to 3 by Lot 115-B, Psd-55228 x x x containing an area of SEVEN HUNDRED FIFTY THREE (753) SQ. METERS, more or less x x x."[3]

Originally owned in common by the siblings Mariano and Gaudencia Zarraga, who inherited it from their father, the parcel is covered by Transfer Certificate of Title (TCT) No. T-32007. Mariano predeceased his sister who died single, without offspring on August 5, 1983, at the age of 97.

Victorina Zarraga vda. de Loyola and Cecilia Zarraga, are sisters of Gaudencia and Mariano. Victorina died on October 18, 1989, while Civil Case No. B-2194 was pending with the trial court. Cecilia died on August 4, 1990, unmarried and childless. Victorina and Cecilia were substituted by petitioners as plaintiffs.

Private respondents, children of Mariano excepting those denominated as the "Heirs of Jose Zarraga," are first cousins of petitioners. Respondents designated as the "Heirs of Jose Zarraga" are first cousins once removed of the petitioners.

Private respondents allege that they are the lawful owners of Lot 115-A-1, the one-half share inherited by their father, Mariano and the other half purchased from their deceased aunt, Gaudencia. Transfer Certificate of Title No. 116067 was issued in their names covering Lot 115-A-1.

The records show that the property was earlier the subject of Civil Case No. B-1094 before the then Court of First Instance of Laguna, Branch 1, entitled "Spouses Romualdo Zarraga, et al. v. Gaudencia Zarraga, et al." Romualdo Zarraga, one of the private respondents now, was the plaintiff in Civil Case No. B-1094. The defendants were his siblings: Nieves, Romana, Guillermo, Purificacion, Angeles, Roberto, Estrella, and Jose, all surnamed Zarraga, as well as his aunt, the late Gaudencia. The trial court decided Civil Case No. B-1094 in favor of the defendants. Gaudencia was adjudged owner of the one-half portion of Lot 115-A-1. Romualdo elevated the decision to the Court of Appeals and later the Supreme Court. The petition, docketed as G.R. No. 59529, was denied by this Court on March 17, 1982.

The present controversy began on August 24, 1980, nearly three years before the death of Gaudencia while G.R. No. 59529 was still pending before this Court. On said date, Gaudencia allegedly sold to private respondents her share in Lot 115-A-1 for P34,000.00. The sale was evidenced by a notarized document denominated as "Bilihang Tuluyan ng Kalahati (1/2) ng Isang Lagay na Lupa."[4] Romualdo, the petitioner in G.R. No. 59529, was among the vendees.

Meanwhile, the decision in Civil Case No. B-1094 became final. Private respondents filed a motion for execution. On February 16, 1984, the sheriff executed the corresponding deed of reconveyance to Gaudencia. On July 23, 1984, however, the Register of Deeds of Laguna, Calamba Branch, issued in favor of private respondents, TCT No. T-116067, on the basis of the sale on August 24, 1980 by Gaudencia to them.

On January 31, 1985, Victorina and Cecilia filed a complaint, docketed as Civil Case No. B-2194, with the RTC of Biñan, Laguna, for the purpose of annulling the sale and the TCT. The trial court rendered judgment in favor of complainants.

On appeal, the appellate court REVERSED the trial court. On September 15, 1993, herein petitioners (as substitute parties for Victorina and Cecilia, the original plaintiffs) filed a motion for reconsideration, which was denied on June 6, 1994.

Hence, the instant petition.

Petitioners submit the following issues for resolution by this Court:

1. WHETHER OR NOT THERE ARE STRONG AND COGENT REASON(S) TO DISTURB THE FINDINGS AND CONCLUSIONS OF THE TRIAL COURT THAT THE CONTRACT DENOMINATED AS DEED OF ABSOLUTE SALE IS SIMULATED AND THEREFORE NULL AND VOID.

2. WHETHER THE ACTS OF PRIVATE RESPONDENTS IS (SIC) CONSISTENT WITH THE ACTS OF VENDEES WHEN THEY DEFIED LOGIC AS FOUND BY THE TRIAL COURT...

3. WHETHER THE ALLEGED VENDORS (SIC) GAUDENCIA ZARRAGA WHO WAS THEN 94 YEARS OLD, ALREADY WEAK AND WHO WAS UNDER THE CARE OF ONE OF THE VENDEES PRIVATE RESPONDENT ROMANA ZARRAGA, SINGLE AND WITHOUT ANY CHILD BUT HAS SISTERS AND OTHER NEPHEWS AND NIECES WILL SELL HER PROPERTY THEN WORTH P188,250.00 IN 1980 FOR ONLY P34,000, AND WHETHER A CONTRACT OF SALE OF REALTY IS PERFECTED, VALID AND GENUINE WHEN ONE OF THE VENDEES ROMUALDO ZARRAGA DOES NOT KNOW OF THE TRANSACTION, THE OTHER VENDEE JOSE ZARRAGA WAS ALREADY LONG DEAD BEFORE THE EXECUTION OF THE BILIHAN IN QUESTION AND YET WAS INCLUDED AS ONE OF THE VENDEES, LIKEWISE, OTHER SUPPOSED VENDEES NIEVES ZARRAGA AND GUILLERMO ZARRAGA ASIDE FROM ROMUALDO WERE NOT PRESENT WHEN THE TRANSACTION TOOK PLACE.

4. THE LEGAL MEANING AND IMPORT OF SIMULATED CONTRACT OF SALE WHICH INVALIDATES A TRANSACTION IS ALSO A LEGAL ISSUE TO BE THRESHED OUT IN THIS CASE AT BAR.

5. WHETHER PETITIONERS HAVE THE LEGAL PERSONALITY TO SUE.[5]

Notwithstanding petitioners’ formulation of the issues, we find the only issue for resolution in this case is whether or not the deed of absolute sale is valid.

Petitioners vigorously assail the validity of the execution of the deed of absolute sale suggesting that since the notary public who prepared and acknowledged the questioned Bilihan did not personally know Gaudencia, the execution of the deed was suspect. However, the notary public testified that he interviewed Gaudencia prior to preparing the deed of sale.[6] Petitioners failed to rebut this testimony. The rule is that a notarized document carries the evidentiary weight conferred upon it with respect to its due execution,[7] and documents acknowledged before a notary public have in their favor the presumption of regularity.[8] By their failure to overcome this presumption, with clear and convincing evidence, petitioners are estopped from questioning the regularity of the execution of the deed.[9]

Petitioners also charge that one of the vendees, Jose Zarraga, was already dead at the time of the sale. However, the records reveal that Jose died on July 29, 1981.[10] He was still alive on August 24, 1980, when the sale took place.

Petitioners then contend that three of the vendees included in the deed, namely, Romualdo, Guillermo, and Nieves, were not aware of the transaction, which casts doubt on the validity of the execution of the deed. Curiously, Romualdo who questioned Gaudencia’s ownership in Civil Case No. B-1094, was one of those included as buyer in the deed of sale. Romana, however, testified that Romualdo really had no knowledge of the transaction and he was included as a buyer of the land only because he was a brother.

Petitioners suggest that all the aforecited circumstances lead to the conclusion that the deed of sale was simulated.

Simulation is "the declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce, for the purposes of deception, the appearances of a juridical act which does not exist or is different what that which was really executed."[11] Characteristic of simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way alter the juridical situation of the parties. Perusal of the questioned deed will show that the sale of the property would convert the co-owners to vendors and vendees, a clear alteration of the juridical relationships. This is contrary to the requisite of simulation that the apparent contract was not really meant to produce any legal effect. Also in a simulated contract, the parties have no intention to be bound by the contract. But in this case, the parties clearly intended to be bound by the contract of sale, an intention they did not deny.

The requisites for simulation are: (a) an outward declaration of will different from the will of the parties; (b) the false appearance must have been intended by mutual agreement; and (c) the purpose is to deceive third persons.[12] None of these are present in the assailed transaction.

Anent Romualdo’s lack of knowledge and participation in the sale, the rule is that contracts are binding only upon the parties who execute them.[13] Romualdo had no knowledge of the sale. He was a stranger and not a party to it. Article 1311 of the Civil Code[14] clearly covers this situation.

Petitioners fault the Court of Appeals for not considering that at the time of the sale in 1980, Gaudencia was already 94 years old; that she was already weak; that she was living with private respondent Romana; and was dependent upon the latter for her daily needs, such that under these circumstances, fraud or undue influence was exercised by Romana to obtain Gaudencia’s consent to the sale.

The rule on fraud is that it is never presumed, but must be both alleged and proved.[15] For a contract to be annulled on the ground of fraud, it must be shown that the vendor never gave consent to its execution. If a competent person has assented to a contract

freely and fairly, said person is bound. There also is a disputable presumption, that private transactions have been fair and regular.[16] Applied to contracts, the presumption is in favor of validity and regularity. In this case, the allegations of fraud was unsupported, and the presumption stands that the contract Gaudencia entered into was fair and regular.

Petitioners also claim that since Gaudencia was old and senile, she was incapable of independent and clear judgment. However, a person is not incapacitated to contract merely because of advanced years or by reason of physical infirmities.[17] Only when such age or infirmities impair his mental faculties to such extent as to prevent him from properly, intelligently, and fairly protecting his property rights,[18] is he considered incapacitated. Petitioners show no proof that Gaudencia had lost control of her mental faculties at the time of the sale. The notary public who interviewed her, testified that when he talked to Gaudencia before preparing the deed of sale, she answered correctly and he was convinced that Gaudencia was mentally fit and knew what she was doing.

On whether or not Gaudencia was under the undue influence of the private respondents, Article 1337 of the Civil Code states:

"There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. The following circumstances shall be considered: confidential, family, spiritual, and other relations between the parties, or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in financial distress."

Undue influence depends upon the circumstances of each case[19] and not on bare academic rules.[20] For undue influence to be established to justify the cancellation of an instrument, three elements must be present: (a) a person who can be influenced; (b) the fact that improper influence was exerted; (c) submission to the overwhelming effect of such unlawful conduct.[21] In the absence of a confidential or fiduciary relationship between the parties, the law does not presume that one person exercised undue influence upon the other.[22] A confidential or fiduciary relationship may include any relation between persons, which allows one to dominate the other, with the opportunity to use that superiority to the other’s disadvantage.[23] Included are those of attorney and client,[24] physician and patient,[25] nurse and invalid,[26] parent and child,[27] guardian and ward,[28] member of a church or sect and spiritual adviser,[29] a person and his confidential adviser,[30] or whenever a confidential relationship exists as a fact.[31] That Gaudencia looked after Romana in her old age is not sufficient to show that the relationship was confidential. To prove a confidential relationship from which undue influence may arise, the relationship must reflect a dominant, overmastering influence which controls over the dependent person.[32] In the present case, petitioners failed to show that Romana used her aunt’s reliance upon her to take advantage or dominate her and dictate that she sell her land. Undue influence is not to be inferred from age, sickness, or debility of body, if sufficient intelligence remains.[33] Petitioners never rebutted the testimony of the notary public that he observed Gaudencia still alert and sharp.

In Bañez v. Court of Appeals, 59 SCRA 15 (1974), we had occasion to say that solicitation, importunity, argument, and persuasion are not undue influence. A contract is not to be set aside merely because one party used these means to obtain the consent of the other. We have likewise held in Martinez v. Hongkong and Shanghai Bank, 15 Phil. 252 (1910), that influence obtained by persuasion, argument, or by appeal to the affections is not prohibited either in law or morals, and is not obnoxious even in courts of equity. Absent any proof that Romana exerted undue influence, the presumption is that she did not.

Petitioners also seek the annulment of the sale due to gross inadequacy of price. They contend that Gaudencia, in her right senses, would never have sold her property worth P188,250.00 in 1980 for only P34,000.00. The records show that much of petitioners’ evidence was meant to prove the market value of the lot at the time of the sale. [34] A review of the records will show that lesion was not an issue raised before the lower courts. An issue which was neither averred in the complaint nor raised in the court below, cannot be raised for the first time on appeal. To do so would be offensive to the basic rules of fair play.

Petitioners seem to be unsure whether they are assailing the sale of Lot 115-A-1 for being absolutely simulated or for inadequacy of the price. These two grounds are irreconcilable. If there exists an actual consideration for transfer evidenced by the alleged act of sale, no matter how inadequate it be, the transaction could not be a "simulated sale."[35] No reversible error was thus committed by the Court of Appeals in refusing to annul the questioned sale for alleged inadequacy of the price.

WHEREFORE, the petition is DENIED, and the assailed decision of the Court of Appeals AFFIRMED. Costs against petitioners.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, and De Leon, Jr., JJ., concur.

Buena, J., on leave.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

 

G.R. No. 120465 September 9, 1999

WILLIAM UY and RODEL ROXAS, petitioners, vs.COURT OF APPEALS, HON. ROBERT BALAO and NATIONAL HOUSING AUTHORITY, respondents.

 

KAPUNAN, J.:

Petitioners William Uy and Rodel Roxas are agents authorized to sell eight parcels of land by the owners thereof. By virtue of such authority, petitioners offered to sell the lands, located in Tuba, Tadiangan, Benguet to respondent National Housing Authority (NHA) to be utilized and developed as a housing project.

On February 14, 1989, the NHA Board passed Resolution No. 1632 approving the acquisition of said lands, with an area of 31.8231 hectares, at the cost of P23.867 million, pursuant to which the parties executed a series of Deeds of Absolute Sale covering the subject lands. Of the eight parcels of land, however, only five were paid for by the NHA because of the report 1 it received from the Land Geosciences Bureau of the Department of Environment and Natural Resources (DENR) that the remaining area is located at an active landslide area and therefore, not suitable for development into a housing project.

On 22 November 1991, the NHA issued Resolution No. 2352 cancelling the sale over the three parcels of land. The NHA, through Resolution No. 2394, subsecguently offered the amount of P1.225 million to the landowners asdaños perjuicios.

On 9 March 1992, petitioners filed before the Regional Trial Court (RTC) of Quezon City a Complaint for Damages against NHA and its General Manager Robert Balao.

After trial, the RTC rendered a decision declaring the cancellation of the contract to be justified. The trial court nevertheless awarded damages to plaintiffs in the sum of P1.255 million, the same amount initially offered by NHA to petitioners as damages. 1âwphi1.nêt

Upon appeal by petitioners, the Court of Appeals reversed the decision of the trial court and entered a new one dismissing the complaint. It held that since there was "sufficient justifiable basis" in cancelling the sale, "it saw no reason" for the award of damages. The Court of Appeals also noted that petitioners were mere attorneys-in-fact and, therefore, not the real parties-in-interest in the action before the trial court.

. . . In paragraph 4 of the complaint, plaintiffs alleged themselves to be "sellers' agents" for the several owners of the 8 lots subject matter of the case. Obsviously, William Uy and Rodel Roxas in filing this case acted as attorneys-in-fact of the lot owners who are the real parties in interest but who were omitted to be pleaded as party-plaintiffs in the case. This omission is fatal. Where the action is brought by an attorney-in-fact of a land owner in his name, (as in our present action) and not in the name of his principal, the action was properly dismissed (Ferrer vs. Villamor, 60 SCRA 406 [1974]; Marcelo vs. de Leon, 105 Phil. 1175) because the rule is that every action must be prosecuted in the name of the real parties-in-interest (Section 2, Rule 3, Rules of Court).

When plaintiffs UY and Roxas sought payment of damages in their favor in view of the partial rescission of Resolution No. 1632 and the Deed of Absolute Sale covering TCT Nos. 10998, 10999 and 11292 (Prayer complaint, page 5, RTC records), it becomes obviously indispensable that the lot owners be included, mentioned and named as party-plaintiffs, being the real party-in-interest. UY and Roxas, as attorneys-in-fact or apoderados, cannot by themselves lawfully commence this action, more so, when the supposed special power of attorney, in their favor, was never presented as an evidence in this case. Besides, even if herein plaintiffs Uy and Roxas were authorized by the lot owners to commence this action, the same must still be filed in the name of the principal, (Filipino Industrial Corporation vs. San Diego, 23 SCRA 706 [1968]). As such indispensable party, their joinder in the action is mandatory and the complaint may be dismissed if not so impleaded (NDC vs. CA, 211 SCRA 422 [1992]). 2

Their motion for reconsideration having been denied, petitioners seek relief from this Court contending that:

I. THE RESPONDENT CA ERRED IN DECLARING THAT RESPONDENT NHA HAD ANY LEGAL BASIS FOR RESCINDING THE SALE INVOLVING THE LAST THREE (3) PARCELS COVERED BY NHA RESOLUTION NO. 1632.

II. GRANTING ARGUENDO THAT THE RESPONDENT NHA HAD LEGAL BASIS TO RESCIND THE SUBJECT SALE, THE RESPONDENT CA NONETHELESS ERRED IN DENYING HEREIN PETITIONERS' CLAIM TO DAMAGES, CONTRARY TO THE PROVISIONS OF ART. 1191 OF THE CIVIL CODE.

III. THE RESPONDENT CA ERRED IN DISMISSING THE SUBJECT COMPLAINT FINDING THAT THE PETITIONERS FAILED TO JOIN AS INDISPENSABLE PARTY PLAINTIFF THE SELLING LOT-OWNERS. 3

We first resolve the issue raised in the the third assignment of error.

Petitioners claim that they lodged the complaint not in behalf of their principals but in their own name as agents directly damaged by the termination of the contract. The damages prayed for were intended not for the benefit of their principals but to indemnify petitioners for the losses they themselves allegedly incurred as a result of such termination. These damages consist mainly of "unearned income" and advances. 4 Petitioners, thus, attempt to distinguish the case at bar from those involving agents or apoderedos  instituting actions in their own name but in behalf of their principals. 5 Petitioners in this case purportedly brought the action for damages in their own name and in their own behalf.

We find this contention unmeritorious.

Sec. 2, Rule 3 of the Rules of Court requires that every action must be prosecuted and defended in the name of the real party-in-interest. The real party-in-interest is the party who stands to be benefited or injured by the judgment or the party entitled to the avails of the suit. "Interest, within the meaning of the rule, means material interest, an interest in the issue and to be affected by the decree, as distinguished from mere interest in the question involved, or a mere incidental interest. 6 Cases construing the real party-in-interest provision can be more easily understood if it is borne

in mind that the true meaning of real party-in-interest may be summarized as follows: An action shall be prosecuted in the name of the party who, by the substantive law, has the right sought to be enforced. 7

Do petitioners, under substantive law, possess the right they seek to enforce? We rule in the negative.

The applicable substantive law in this case is Article 1311 of the Civil Code, which states:

Contracts take effect only between the parties, their assigns, and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation, or by provision of law. . . .

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

Petitioners are not parties to the contract of sale between their principals and NHA. They are mere agents of the owners of the land subject of the sale. As agents, they only render some service or do something in representation or on behalf of their principals. 8 The rendering of such service did not make them parties to the contracts of sale executed in behalf of the latter. Since a contract may be violated only by the parties thereto as against each other, the real parties-in-interest, either as plaintiff or defendant, in an action upon that contract must, generally, either be parties to said contract. 9

Neither has there been any allegation, much less proof, that petitioners are the heirs of their principals.

Are petitioners assignees to the rights under the contract of sale? In McMicking vs. Banco Español-Filipino, 10 we held that the rule requiring every action to be prosecuted in the name of the real party-in-interest.

. . . recognizes the assignments of rights of action and also recognizes that when one has a right of action assigned to him he is then the real party in interest and may maintain an action upon such claim or right. The purpose of [this rule] is to require the plaintiff to be the real party in interest, or, in other words, he must be the person to whom the proceeds of the action shall belong, and to prevent actions by persons who have no interest in the result of the same. . . .

Thus, an agent, in his own behalf, may bring an action founded on a contract made for his principal, as an assignee of such contract. We find the following declaration in Section 372 (1) of the Restatement of the Law on Agency (Second): 11

Sec. 372. Agent as Owner of Contract Right

(1) Unless otherwise agreed, an agent who has or who acquires an interest in a contract which he makes on behalf of his principal can, although not a promisee, maintain such action thereon maintain such action thereon as might a transferee having a similar interest.

The Comment on subsection (1) states:

a. Agent a transferee. One who has made a contract on behalf of another may become an assignee of the contract and bring suit against the other party to it, as any other transferee. The customs of business or the course of conduct between the principal and the agent may indicate that an agent who ordinarily has merely a security interest is a transferee of the principals rights under the contract and as such is permitted to bring suit. If the agent has settled with his principal with the understanding that he is to collect the claim against the obligor by way of reimbursing himself for his advances and commissions, the agent is in the position of an assignee who is the beneficial owner of the chose in action. He has an irrevocable power to sue in his principal's name. . . . And, under the statutes which permit the real party in interest to sue, he can maintain an action in his own name. This power to sue is not affected by a settlement between the principal and the obligor if the latter has notice of the agent's interest. . . . Even though the agent has not settled with his principal, he may, by agreement with the principal, have a right to receive payment and out of the proceeds to reimburse himself for advances and commissions before turning the balance over to the principal. In such a case, although there is no formal assignment, the agent is in the position of a transferee of the whole claim for security; he has an irrevocable power to sue in his principal's name and, under statutes which permit the real party in interest to sue, he can maintain an action in his own name.

Petitioners, however, have not shown that they are assignees of their principals to the subject contracts. While they alleged that they made advances and that they suffered loss of commissions, they have not established any agreement granting them "the right to receive payment and out of the proceeds to reimburse [themselves] for advances and commissions before turning the balance over to the principal[s]."

Finally, it does not appear that petitioners are beneficiaries of a stipulation pour autrui under the second paragraph of Article 1311 of the Civil Code. Indeed, there is no stipulation in any of the Deeds of Absolute Sale "clearly and deliberately" conferring a favor to any third person.

That petitioners did not obtain their commissions or recoup their advances because of the non-performance of the contract did not entitle them to file the action below against respondent NHA. Section 372 (2) of the Restatement of the Law on Agency (Second) states:

(2) An agent does not have such an interest in a contract as to entitle him to maintain an action at law upon it in his own name merely because he is entitled to a portion of the proceeds as compensation for making it or because he is liable for its breach.

The following Comment on the above subsection is illuminating:

The fact that an agent who makes a contract for his principal will gain or suffer loss by the performance or nonperformance of the contract by the principal or by the other party thereto does not entitle him to maintain an action on his own behalf against the other party for its breach. An agent entitled to receive a commission from his principal upon the performance of a contract which he has made on his principal's account does not, from this fact alone, have any claim against the other party for breach of the contract, either in an action on the contract or otherwise. An agent who is not a promisee cannot maintain an action at law against a purchaser merely

because he is entitled to have his compensation or advances paid out of the purchase price before payment to the principal. . . .

Thus, in Hopkins vs. Ives, 12 the Supreme Court of Arkansas, citing Section 372 (2) above, denied the claim of a real estate broker to recover his alleged commission against the purchaser in an agreement to purchase property.

In Goduco vs. Court of appeals, 13 this Court held that:

. . . granting that appellant had the authority to sell the property, the same did not make the buyer liable for the commission she claimed. At most, the owner of the property and the one who promised to give her a commission should be the one liable to pay the same and to whom the claim should have been directed. . . .

As petitioners are not parties, heirs, assignees, or beneficiaries of a stipulation pour autrui under the contracts of sale, they do not, under substantive law, possess the right they seek to enforce. Therefore, they are not the real parties-in-interest in this case.

Petitioners not being the real parties-in-interest, any decision rendered herein would be pointless since the same would not bind the real parties-in-interest. 14

Nevertheless, to forestall further litigation on the substantive aspects of this case, we shall proceed to rule on me merits. 15

Petitioners submit that respondent NHA had no legal basis to "rescind" the sale of the subject three parcels of land. The existence of such legal basis, notwithstanding, petitioners argue that they are still entitled to an award of damages.

Petitioners confuse the cancellation of the contract by the NHA as a rescission of the contract under Article 1191 of the Civil Code. The right of rescission or, more accurately, resolution, of a party to an obligation under Article 1191 is predicated on a breach of faith by the other party that violates the reciprocity between them. 16 The power to rescind, therefore, is given to the injured party. 17 Article 1191 states:

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.

In this case, the NHA did not rescind the contract. Indeed, it did not have the right to do so for the other parties to the contract, the vendors, did not commit any breach, much less a substantial breach, 18 of their obligation. Their obligation was merely to deliver the parcels of land to the NHA, an obligation that they fulfilled. The NHA did not suffer any injury by the performance thereof.

The cancellation, therefore, was not a rescission under Article 1191. Rather, the cancellation was based on the negation of the cause arising from the realization that the lands, which were the object of the sale, were not suitable for housing. 1âwphi1.nêt

Cause is the essential reason which moves the contracting parties to enter into it. 19 In other words, the cause is the immediate, direct and proximate reason which justifies the creation of an obligation through the will of the contracting parties.20 Cause, which is the essential reason for the contract, should be distinguished from motive, which is the particular reason of a contracting party which does not affect the other party. 21

For example, in a contract of sale of a piece of land, such as in this case, the cause of the vendor (petitioners' principals) in entering into the contract is to obtain the price. For the vendee, NHA, it is the acquisition of the land.22 The motive of the NHA, on the other hand, is to use said lands for housing. This is apparent from the portion of the Deeds of Absolute Sale 23 stating:

WHEREAS, under the Executive Order No. 90 dated December 17, 1986, the VENDEE is mandated to focus and concentrate its efforts and resources in providing housing assistance to the lowest thirty percent (30%) of urban income earners, thru slum upgrading and development of sites and services projects;

WHEREAS, Letters of Instructions Nos. 555 and 557 [as] amended by Letter of Instruction No. 630, prescribed slum improvement and upgrading, as well as the development of sites and services as the principal housing strategy for dealing with slum, squatter and other blighted communities;

xxx xxx xxx

WHEREAS, the VENDEE, in pursuit of and in compliance with the above-stated purposes offers to buy and the VENDORS, in a gesture of their willing to cooperate with the above policy and commitments, agree to sell the aforesaid property together with all the existing improvements there or belonging to the VENDORS;

NOW, THEREFORE, for and in consideration of the foregoing premises and the terms and conditions hereinbelow stipulated, the VENDORS hereby, sell, transfer, cede and convey unto the VENDEE, its assigns, or successors-in-interest, a parcel of land located at Bo. Tadiangan, Tuba, Benguet containing a total area of FIFTY SIX THOUSAND EIGHT HUNDRED NINETEEN (56,819) SQUARE METERS, more or less . . . .

Ordinarily, a party's motives for entering into the contract do not affect the contract. However, when the motive predetermines the cause, the motive may be regarded as the cause. In Liguez vs. Court of Appeals, 24 this Court, speaking through Justice J.B.L. REYES, HELD:

. . . it is well to note, however, that Manresa himself (Vol. 8, pp. 641-642), while maintaining the distinction and upholding the inoperativeness of the motives of the parties to determine the validity of the contract, expressly excepts from the rule those contracts that are conditioned upon the attainment of the motives of either party.

The same view is held by the Supreme Court of Spain, in its decisions of February 4, 1941, and December 4, 1946, holding that the motive may be regarded as causa when it predetermines the purpose of the contract.

In this case, it is clear, and petitioners do not dispute, that NHA would not have entered into the contract were the lands not suitable for housing. In other words, the quality of the land was an

implied condition for the NHA to enter into the contract. On the part of the NHA, therefore, the motive was the cause for its being a party to the sale.

Were the lands indeed unsuitable for housing as NHA claimed?

We deem the findings contained in the report of the Land Geosciences Bureau dated 15 July 1991 sufficient basis for the cancellation of the sale, thus:

In Tadiangan, Tuba, the housing site is situated in an area of moderate topography. There [are] more areas of less sloping ground apparently habitable. The site is underlain by . . . thick slide deposits (4-45m) consisting of huge conglomerate boulders (see Photo No. 2) mix[ed] with silty clay materials. These clay particles when saturated have some swelling characteristics which is dangerous for any civil structures especially mass housing development. 25

Petitioners contend that the report was merely "preliminary," and not conclusive, as indicated in its title:

MEMORANDUM

TO: EDWIN G. DOMINGO

Chief, Lands Geology Division

FROM: ARISTOTLE A. RILLON

Geologist II

SUBJECT: Preliminary Assessment of

Tadiangan Housing Project in Tuba, Benguet 26

Thus, page 2 of the report states in part:

xxx xxx xxx

Actually there is a need to conduct further geottechnical [sic] studies in the NHA property. Standard Penetration Test (SPT) must be carried out to give an estimate of the degree of compaction (the relative density) of the slide deposit and also the bearing capacity of the soil materials. Another thing to consider is the vulnerability of the area to landslides and other mass movements due to thick soil cover. Preventive physical mitigation methods such as surface and subsurface drainage and regrading of the slope must be done in the area. 27

We read the quoted portion, however, to mean only that further tests are required to determine the "degree of compaction," "the bearing capacity of the soil materials," and the "vulnerability of the area to landslides," since the tests already conducted were inadequate to ascertain such geological attributes. It is only in this sense that the assessment was "preliminary."

Accordingly, we hold that the NHA was justified in canceling the contract. The realization of the mistake as regards the quality of the land resulted in the negation of the motive/cause thus rendering the contract inexistent. 28 Article 1318 of the Civil Code states that:

Art. 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established. (Emphasis supplied.)

Therefore, assuming that petitioners are parties, assignees or beneficiaries to the contract of sale, they would not be entitled to any award of damages.

WHEREFORE, the instant petition is hereby DENIED.

SO ORDERED.

Puno, Pardo and Ynares-Santiago, JJ., concur.

Davide, Jr., C.J., on leave.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

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

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

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

BENGZON, J.P., J.:

The spouses Miguel Mapalo and Candida Quiba, simple illiterate farmers, were registered owners, with Torrens title certificate O.C.T. No. 46503, of a 1,635-square-meter residential land in Manaoag, Pangasinan. Said spouses-owners, out of love and affection for Maximo Mapalo — a brother of Miguel who was about to get married — decided to donate the eastern half of the land to him. O.C.T. No. 46503 was delivered. As a result, however, they were deceived into signing, on October 15, 1936, a deed of absolute sale over the entire land in his favor. Their signatures thereto were

procured by fraud, that is, they were made to believe by Maximo Mapalo and by the attorney who acted as notary public who "translated" the document, that the same was a deed of donation in Maximo's favor covering one-half (the eastern half) of their land. Although the document of sale stated a consideration of Five Hundred (P500.00) Pesos, the aforesaid spouses did not receive anything of value for the land. The attorney's misbehaviour was the subject of an investigation but its result does not appear on record. However we took note of the fact that during the hearing of these cases said notary public was present but did not take the witness stand to rebut the plaintiffs' testimony supporting the allegation of fraud in the preparation of the document.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

IT IS SO ORDERED.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sanchez Roman says:

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

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

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

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

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

Figurando en nuestro Derecho positivo la causa, como un elemento esential del contrato, es consecuencia ineludible, se reputar simulada la entrega del precio en la compraventa de autos, el que haya que declararla nula por inexistente haciendose aplicacion indebida de art. 1.276 por el Tribunal sentenciador al cohonestar la falta de precio admitiendo se pueda tratar de una donacion, ya que la recta aplicacion del citado precepto exige que los negocios simulados, o sea con causa falsa, se justifique la verdadera y licita en que se funda el acto que las partes han querido ocultar y el cumplimiento de las formalidades impuestas por la Ley y, cual dice la sentencia de 3 de marzo de 1932, esta rigurosa doctrina ha de ser

especialmente impuesta en la donaciones puras y simples; de los que deduce que la sentencia recurrida al no decretar la nulidad instada por falta de causa, incide en la infraccion de los articulos 1.261, 1.274, 1.275 y 1.276 del Codigo Civil. (Sentencia de 22 de febrero de 1940). (Manresa, Codigo Civil, Tomo VIII, Vol. II, p. 356)

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

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

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

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

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

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

Upon the aforestated declaration of Pacifico Narciso the following question arises: What was the necessity, purpose and reason of Pacifico Narciso in still going to the spouses Mapalo and asked them to permit their brother Maximo to dispose of the above-described land? To this question it is safe to state that this act of Pacifico Narciso is a conclusive manifestation that they (the Narcisos) did not only have prior knowledge of the ownership of said spouses over the western half portion in question but that they also have recognized said ownership.

It also conclusively shows their prior knowledge of the want of dominion on the part of their vendor Maximo Mapalo over the whole land and also of the flaw of his title thereto. Under this situation, the Narcisos may be considered purchasers in value but certainly not as purchasers in good faith. ... (pp. 97-98, Record on Appeal.)

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

In view of the conclusion thus reached, it becomes unnecessary to pass on the other errors assigned.Suffice it to say that, on the merits the appealed decision could have been upheld under Article 1332 of the new Civil Code and the following authorities: Ayola vs. Valderrama Lumber Manufacturers Co., Inc., 49 O.G. 980, 982; Trasporte vs. Beltran, 51 O.G. 1434, 1435; Cortez vs. Cortez, CA-G.R. No. 18451-R, August 8, 1961; Castillo vs. Laberinto, CA-G.R. No. 18118-R, December 20, 1961; and 13 C.J. 372-373, as well as the several facts and circumstances appreciated by the trial court as supporting appellees' case.

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

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

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

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

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. L-67888 October 8, 1985

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

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

 

RELOVA, J.:

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

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

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

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

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

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

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

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

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

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

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

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

A careful perusal of the subject deed reveals that the conveyance of the one- half (½) undivided portion of the above-described property was for and in consideration of the One (P 1.00) Peso and the other valuable considerations (emphasis supplied) paid by private respondent Sandra Maruzzo through her representative, Alfredo Ong, to petitioner Imelda Ong. Stated differently, the cause or consideration is not the One (P1.00) Peso alone but also the other valuable considerations. As aptly stated by the Appellate Court-

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

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

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

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

voidable, although valid until annulled, a contract concerning an object certain entered into with a cause and with the consent of the contracting parties, as in the case at bar."

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

SO ORDERED.

Teehankee (Chairman), Melencio-Herrera, Plana, De la Fuente and Patajo, JJ., concur.

Gutierrez, Jr., J., in the result.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. L-38498 August 10, 1989

ISAAC BAGNAS, ENCARNACION BAGNAS, SILVESTRE BAGNAS MAXIMINA BAGNAS, SIXTO BAGNAS and AGATONA ENCARNACION, petitioners, vs.HON. COURT OF APPEALS, ROSA L. RETONIL TEOFILO ENCARNACION, and JOSE B. NAMBAYANrespondents.

Beltran, Beltran & Beltran for petitioners.

Jose M. Legaspi for private respondents.

 

NARVASA, J.:

The facts underlying this appeal by certiorari are not in dispute. Hilario Mateum of Kawit, Cavite, died on March 11, 1964, single, without ascendants or descendants, and survived only by collateral relatives, of whom petitioners herein, his first cousins, were the nearest. Mateum left no will, no debts, and an estate consisting of twenty-nine parcels of land in Kawit and Imus, Cavite, ten of which are involved in this appeal. 1

On April 3, 1964, the private respondents, themselves collateral relatives of Mateum though more remote in degree than the petitioners, 2 registered with the Registry of Deeds for the Province of Cavite two deeds of sale purportedly executed by Mateum in their (respondents') favor covering ten parcels of land. Both deeds were in Tagalog, save for the English descriptions of the lands conveyed under one of them; and each recited the reconsideration of the sale to be" ... halagang ISANG PISO (Pl.00), salaping Pilipino, at mga naipaglingkod, ipinaglilingkod sa aking kapakanan ..." ("the sum of ONE PESO Pl.00), Philippine Currency, and services rendered, being rendered and to be rendered for my benefit"). One

deed was dated February 6,1963 and covered five parcels of land, and the other was dated March 4, 1963, covering five other parcels, both, therefore, antedating Mateum's death by more than a year. 3 It is asserted by the petitioners, but denied by the respondents, that said sales notwithstanding, Mateum continued in the possession of the lands purportedly conveyed until his death, that he remained the declared owner thereof and that the tax payments thereon continued to be paid in his name. 4 Whatever the truth, however, is not crucial. What is not disputed is that on the strength of the deeds of sale, the respondents were able to secure title in their favor over three of the ten parcels of land conveyed thereby. 5

On May 22,1964 the petitioners commenced suit against the respondents in the Court of First Instance of Cavite, seeking annulment of the deeds of sale as fictitious, fraudulent or falsified, or, alternatively, as donations void for want of acceptance embodied in a public instrument. Claiming ownership pro indiviso of the lands subject of the deeds by virtue of being intestate heirs of Hilario Mateum, the petitioners prayed for recovery of ownership and possession of said lands, accounting of the fruits thereof and damages. Although the complaint originally sought recovery of all the twenty-nine parcels of land left by Mateum, at the pre-trial the parties agreed that the controversy be limited to the ten parcels subject of the questioned sales, and the Trial Court ordered the exclusion of the nineteen other parcels from the action. 6 Of the ten parcels which remained in litigation, nine were assessed for purposes of taxation at values aggregating P10,500 00. The record does not disclose the assessed value of the tenth parcel, which has an area of 1,443 square meters. 7

In answer to the complaint, the defendants (respondents here) denied the alleged fictitious or fraudulent character of the sales in their favor, asserting that said sales were made for good and valuable consideration; that while "... they may have the effect of donations, yet the formalities and solemnities of donation are not required for their validity and effectivity, ... that defendants were collateral relatives of Hilario Mateum and had done many good things for him, nursing him in his last illness, which services constituted the bulk of the consideration of the sales; and (by way of affirmative defense) that the plaintiffs could not question or seek annulment of the sales because they were mere collateral relatives of the deceased vendor and were not bound, principally or subsidiarily, thereby. 8

After the plaintiffs had presented their evidence, the defendants filed a motion for dismissal in effect, a demurrer to the evidence reasserting the defense set up in their answer that the plaintiffs, as mere collateral relatives of Hilario Mateum, had no light to impugn the latter's disposition of his properties by means of the questioned conveyances and submitting, additionally, that no evidence of fraud maintaining said transfers had been presented. 9

The Trial Court granted the motion to dismiss, holding (a) on the authority of Armentia vs. Patriarca, 10 that the plaintiffs, as mere collateral relatives, not forced heirs, of Hilario Mateum, could not legally question the disposition made by said deceased during his lifetime, regardless of whether, as a matter of objective reality, said dispositions were valid or not; and (b) that the plaintiffs evidence of alleged fraud was insufficient, the fact that the deeds of sale each stated a consideration of only Pl.00 not being in itself evidence of fraud or simulation. 11

On appeal by the plaintiffs to the Court of Appeals, that court affirmed, adverting with approval to the Trial Court's reliance on the Armentia ruling which, it would appear, both courts saw as denying, without exception, to collaterals, of a decedent, not forced heirs, the right to impugn the latter's dispositions inter vivos of his property. The Appellate Court also analyzed the testimony of the plaintiffs' witnesses, declared that it failed to establish fraud of any kind or that Mateum had continued paying taxes on the lands in question even after executing the deeds conveying them to the defendants, and closed with the statement that "... since in duly notarized and registered deeds of sale consideration is presumed, we do not and it necessary to rule on the alternative allegations of the appellants that the said deed of sale were (sic) in reality donations. 12

One issue clearly predominates here. It is whether, in view of the fact that, for properties assuredly worth in actual value many times over their total assessed valuation of more than P10,000.00, the questioned deeds of sale each state a price of only one peso (P1.00) plus unspecified past, present and future services to which no value is assigned, said deeds were void or inexistent from the beginning ("nulo") or merely voidable, that is, valid until annulled. If they were only voidable, then it is a correct proposition that since the vendor Mateum had no forced heirs whose legitimes may have been impaired, and the petitioners, his collateral relatives, not being bound either principally or subsidiarily to the terms of said deeds, the latter had and have no actionable right to question those transfers.

On the other hand, if said deeds were void ab initio because to all intents and purposes without consideration, then a different legal situation arises, and quite another result obtains, as pointed out by the eminent civil law authority, Mr. Justice J.B.L. Reyes who, in his concurring opinion in Armentia, said:

I ... cannot bring myself to agree to the proposition that the heirs intestate would have no legal standing to contest the conveyance made by the deceased if the same were made without any consideration, or for a false and fictitious consideration. For under the Civil Code of the Philippines, Art. 1409, par. 3, contracts with a cause that did not exist at the time of the transaction are inexistent and void from the beginning. The same is true of contracts stating a false cause (consideration) unless the persons interested in upholding the contract should prove that there is another true and lawful consideration therefor. (lbid., Art. 1353).

If therefore the contract has no causa or consideration, or the causa is false and fictitious (and no true hidden causa is proved) the property allegedly conveyed never really leaves the patrimony of the transferor, and upon the latter's death without a testament, such property would pass to the transferor's heirs intestate and be recoverable by them or by the Administrator of the transferor's estate. In this particular regard, I think Concepcion vs. Sta. Ana, 87 Phil. 787 and Sobs vs. Chua Pua Hermanos, 50 Phil. 536, do not correctly state the present law, and must be clarified.

To be sure the quoted passage does not reject and is not to be construed as rejecting the Concepcion and Solisrulings 13 as outrightly erroneous, far from it. On the contrary, those rulings undoubtedly read and applied correctly the law extant in their time: Art. 1276 of the Civil Code of 1889 under which the statement of a false cause in a contract rendered it voidable only, not void ab initio. In observing that they "... do not correctly state the present law and must be clarified," Justice Reyes clearly had in mind the fact that the law as it is now (and already was in the time Armentia) no longer deems contracts with a false cause, or which are absolutely simulated or fictitious, merely voidable, but declares them void, i.e., inexistent ("nulo") unless it is shown that they are supported by another true and lawful cause or consideration. 14 A logical consequence of that change is the juridical status of contracts without, or with a false, cause is that conveyances of property affected with such a vice cannot operate to divest and transfer ownership, even if unimpugned. If afterwards the transferor dies the property descends to his heirs, and without regard to the manner in which they are called to the succession, said heirs may bring an action to recover the property from the purported transferee. As pointed out, such an action is not founded on fraud, but on the premise that the property never leaves the estate of the transferor and is transmitted upon his death to heirs, who would labor under no incapacity to maintain the action from the mere fact that they may be only collateral relatives and bound neither principally or subsidiarily under the deed or contract of conveyance.

In Armentia the Court determined that the conveyance questioned was merely annullable not void ab initio, and that the plaintiff s action was based on fraud vitiating said conveyance. The Court said:

Hypothetically admitting the truth of these allegations (of plaintiffs complaint), the conclusion is irresistible that the sale is merely voidable. Because Marta Armentia executed the document, and this is not controverted by plaintiff. Besides, the fact that the vendees were minors, makes the contract, at worst, annullable by them, Then again, inadequacy of consideration does not imply total want of consideration. Without more, the parted acts of Marta Armentia after the sale did not indicate that the said sale was void from the being.

The sum total of all these is that, in essence, plaintiffs case is bottomed on fraud, which renders the contract voidable.

It therefore seems clear that insofar as it may be considered as setting or reaffirming precedent, Armentia only ruled that transfers made by a decedent in his lifetime, which are voidable for having been fraudulently made or obtained, cannot be posthumously impugned by collateral relatives succeeding to his estate who are not principally or subsidiarily bound by such transfers. For the reasons already stated, that ruling is not extendible to transfers which, though made under closely similar circumstances, are void ab initio for lack or falsity of consideration.

The petitioners here argue on a broad front that the very recitals of the questioned deeds of sale reveal such want or spuriousness of consideration and therefore the void character of said sales. They:

1. advert to a decision of the Court of Appeals in Montinola vs. Herbosa (59 O.G. No. 47, pp, 8101, 8118) holding that a price of P l.00 for the sale of things worth at least P20,000.00 is so insignificant as to amount to no price at all, and does not satisfy the law which, while not requiring for the validity of a sale that the price be adequate, prescribes that it must be real, not fictitious, stressing the obvious parallel between that case and the present one in stated price and actual value of the property sold;

2. cite Manresa to the same effect: that true price, which is essential to the validity of a sale, means existent, real and effective price, that which does not consist in an insignificant amount as, say, P.20 for a house; that it is not the same as the concept of a just price which entails weighing and measuring, for economic equivalence, the amount of price against all the factors that determine the value of the thing sold; but that there is no need of such a close examination when the immense disproportion between such economic values is patent a case of insignificant or ridiculous price, the unbelievable amount of which at once points out its inexistence; 15

3. assert that Art. 1458 of the Civil Code, in prescribing that a sale be for a ... price certain in money or its equivalent ... requires that "equivalent" be something representative of money, e.g., a check or draft, again citing Manresa 16 to the effect that services are not the equivalent of money insofar as said requirement is concerned and that a contract is not a true sale where the price consists of services or prestations;

4. once more citing Manresa 17 also point out that the "services" mentioned in the questioned deeds of sale are not only vague and uncertain, but are unknown and not susceptible of determination without the necessity of a new agreement between the parties to said deeds.

Without necessarily according all these assertions its full concurrence, but upon the consideration alone that the apparent gross, not to say enormous, disproportion between the stipulated price (in each deed) of P l.00 plus unspecified and unquantified services and the undisputably valuable real estate allegedly sold worth at least P10,500.00 going only by assessments for tax purposes which, it is well-known, are notoriously low indicators of actual value plainly and unquestionably demonstrates that they state a false and fictitious consideration, and no other true and lawful cause having been shown, the Court finds both said deeds, insofar as they purport to be sales, not merely voidable, but void ab initio.

Neither can the validity of said conveyances be defended on the theory that their true causa is the liberality of the transferor and they may be considered in reality donations 18 because the law 19 also prescribes that donations of immovable property, to be valid, must be made and accepted in a public instrument, and it is not denied by the respondents that there has been no such acceptance which they claim is not required. 20

The transfers in question being void, it follows as a necessary consequence and conformably to the concurring opinion in Armentia, with which the Court fully agrees, that the properties purportedly conveyed remained part of the estate of Hilario Mateum, said transfers notwithstanding, recoverable by his intestate heirs, the petitioners herein, whose status as such is not challenged.

The private respondents have only themselves to blame for the lack of proof that might have saved the questioned transfers from the taint of invalidity as being fictitious and without ilicit cause; proof, to be brief, of the character and value of the services, past, present, and future, constituting according to the very terms of said transfers the principal consideration therefor. The petitioners' complaint (par. 6) 21 averred that the transfers were "... fraudulent, fictitious and/or falsified and (were) ... in reality donations of immovables ...," an averment that the private respondents not only specifically denied, alleging that the transfers had been made "... for good and valuable consideration ...," but to which they also interposed the affirmative defenses that said transfers were "... valid, binding and effective ...," and, in an obvious reference to the services mentioned in the deeds, that they "... had done many good things to (the transferor) during his lifetime, nursed him during his ripe years and took care of him during his previous and last illness ...," (pars. 4, 6, 16 and 17, their answer). lâwphî1.ñèt 

22 The onus, therefore, of showing the existence of valid and illicit consideration for the questioned conveyances rested on the private respondents. But even on a contrary assumption, and positing that the petitioners initially had the burden of showing that the transfers lacked such consideration as they alleged in their complaint, that burden was shifted to the private respondents when the petitioners presented the deeds which they claimed showed that defect on their face and it became the duty of said respondents to offer evidence of existent lawful consideration.

As the record clearly demonstrates, the respondents not only failed to offer any proof whatsoever, opting to rely on a demurrer to the petitioner's evidence and upon the thesis, which they have maintained all the way to this Court, that petitioners, being mere collateral relatives of the deceased transferor, were without right to the conveyances in question. In effect, they gambled their right to adduce evidence on a dismissal in the Trial Court and lost, it being the rule that when a dismissal thus obtained is reversed on appeal, the movant loses the right to present evidence in his behalf. 23

WHEREFORE, the appealed Decision of the Court of Appeals is reversed. The questioned transfers are declared void and of no force or effect. Such certificates of title as the private respondents may have obtained over the properties subject of said transfers are hereby annulled, and said respondents are ordered to return to the petitioners possession of an the properties involved in tills action, to account to the petitioners for the fruits thereof during the period of their possession, and to pay the costs. No damages, attorney's fees or litigation expenses are awarded, there being no evidence thereof before the Court.

SO ORDERED.

Cruz, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

 

SECOND DIVISION

[G.R. No. 120724-25.  May 21, 1998]

FERNANDO T. MATE, petitioner, vs. THE HONORABLE COURT OF APPEALS and INOCENCIO TAN, respondents.

D E C I S I O N

MARTINEZ, J.:

In this petition for review, petitioner assails the Decision[1] of the Court of Appeals dated August 29, 1994 in CA-G.R. CV No. 28225-26, which affirmed with modification the decision of the trial court, the dispositive portion of which reads, to wit:

“WHEREFORE, this Court finds the Deed of Sale with Right of Repurchase executed October 6, 1986 valid and binding between plaintiff and defendant (as vendor and vendee-a-retro respectively);  that as the period to redeem has expired, ownership thereof was consolidated by operation of law, and the Register of Deeds is hereby ordered to REGISTER this decision consolidating the defendant’s ownership over the properties covered by Transfer Certificate of Title No. T-90-71, covering Lot 8;  Original Certificate of Title No. N-311 covering Lot 5370, all of the Tacloban Cadastre, and issuing to defendant Inocencio Tan his titles after cancellation of the titles presently registered in plaintiff Fernando T. Mate’s name and that of his wife.

“The plaintiff Fernando Mate is further ordered to pay defendant the sum of ONE HUNDRED FORTY THOUSAND (P140,000.00) PESOS, for and as attorney’s fees.

“With costs against the plaintiff Fernando Mate.

“SO ORDERED.”[2]

The facts of this case, as summarized in the petition, are reproduced hereunder:

“On October 6, 1986 Josefina R. Rey (hereafter referred to as “Josie” for short) and private respondent went to the residence of petitioner at Tacloban City.  Josie who  is a cousin of petitioner’s wife solicited his help to stave off her and her family’s prosecution by private respondent for violation of B.P. 22 on account of the rubber checks that she, her mother, sister and brother issued to private respondent amounting to P4,432,067.00.  She requested petitioner to cede to private respondent his three (3) lots in Tacloban City in order to placate him.  On hearing Josie’s proposal, he immediately rejected it as he owed private respondent nothing and he was under no obligation to convey to him his properties.  Furthermore, his lots were not for sale.  Josie explained to him that he was in no danger of losing his properties as he will merely execute a simulated document transferring them to private respondent but they will be redeemed by her with her own funds.  After a long discussion, he agreed to execute a fictitious deed of sale with right to repurchase covering his three (3) lots mentioned above subject to the following conditions:

1.       The amount to be stated in the document is P1,400,000.00 with interest thereon at 5% a month;

2.       The properties will be repurchased within six (6) months or on or before April 4, 1987;

3.       Although it would appear in the document that petitioner is the vendor, it is Josie who will provide the money for the redemption of the properties with her own funds;

4.       Titles to the properties will be delivered to private respondent but the sale will not be registered in the Register of Deeds and annotated on the titles.

“To assure petitioner that Josie will redeem the aforesaid properties, she issued to him two (2) BPI checks both postdated December 15, 1986.  One check was for P1,400,000.00 supposedly for the selling price and the other was for P420,000.00 corresponding to the interests for 6 months.  Immediately thereafter petitioner prepared the Deed of Sale with Right to Repurchase (Exh. A) and after it has been signed and notarized, it was given to private respondent together with the titles of the properties and the latter did not register the transaction in the Register of Deeds as agreed upon.

“On January 14, 1987, petitioner deposited the check for P1,400,000.00 (Exh. B) in his account at the United Coconut Planters Bank and the other check for P420,000.00

(Exh. D) in his account at METROBANK preparatory to the redemption of his properties.  However, both of them were dishonored by the drawee bank for having been drawn against a closed account.  Realizing that he was swindled, he sent Josie a telegram about her checks and when she failed to respond, he went to Manila to look for her but she could not be found.  So he returned to Tacloban City and filed Criminal Cases Nos. 8310 and 8312 against her for violation of B.P. 22 but the cases were later archived as the accused (Josie) could not be found as she went into hiding.  To protect his interest, he filed Civil Case No. 7396 of the Regional Trial Court of Leyte, Branch VII, entitled `Fernando T. Mate vs. Josefina R. Rey and Inocencio Tan’ for Annulment of Contract with Damages. Defendant Josefina R. Rey (Josie) was declared in default and the case proceeded against private respondent.  But during the trial the RTC court asked private respondent to file an action for consolidation of ownership of the properties subject of the sale and pursuant thereto he filed Civil Case No. 7587 that was consolidated with the case he filed earlier which were later decided jointly by the trial court in favor of private respondent and was subsequently appealed to respondent Court that affirmed it with modification.  Thereupon, petitioner filed a motion to reconsider the decision but it was denied.  Hence, the instant petition for review.”[3]

In this petition for review, the petitioner presents as the sole issue the validity of the Deed of Sale with Right to Repurchase.  He contends that it is null and void for lack of consideration because allegedly no money changed hands when he signed it and the checks that were issued for redemption of the properties involved in the sale have been dishonored by the drawee bank for having been drawn against a closed account.[4]

The contention is without merit.

There was a consideration.  The respondent court aptly observed that -

“In preparing and executing the deed of sale with right of repurchase and in delivering to Tan the land titles, appellant actually accommodated Josefina so she would not be charged criminally by Tan.  To ensure that he could repurchase his lots, appellant got a check of P1,400,000.00 from her.  Also, by allowing his titles to be in possession of Tan for a period of six months, appellant secured from her another check for P420,000.00.  With this arrangement, appellant was convinced he had a good bargain.  Unfortunately his expectation crumbled.  For this tragic incident, not only Josefina, but also Tan, according to appellant must be answerable.

x x x                             x x x                                  x x x

“It is plain that consideration existed at the time of the execution of the deed of sale with right of repurchase.  It is not only appellant’s kindness to Josefina, being his cousin, but also his receipt ofP420,000.00 from her which impelled him to execute such contract.”[5]

Furthermore, while petitioner did not receive the P1.4 Million purchase price from respondent Tan, he had in his possession a postdated check of Josie Rey in an equivalent  amount precisely to repurchase the two lots on or before the sixth month.

As admitted by petitioner, by virtue of the sale with pacto de retro, Josie Rey gave him, as vendor-a-retro, a postdated check in the amount of P1.4 Million, which represented the repurchase price of the two (2) lots.  Aside from the P1.4 Million check, Josie gave another postdated check to petitioner in the amount of P420,000.00, ostensibly as interest for six (6) months but which apparently was his fee for having executed the pacto de retro document. Josie thus assumed the responsibility of paying the repurchase price on behalf of petitioner to private respondent.

Unfortunately, the two checks issued by Josie Rey were worthless. Both were dishonored upon presentment by petitioner with the drawee banks. However, there is absolutely no basis for petitioner to file a complaint against private respondent Tan and Josie Rey to annul the pacto de retro sale on the ground of lack of consideration, invoking his failure to encash the two checks. Petitioner’s cause of action was to file criminal actions against Josie Rey under B.P. 22, which he did.  The filing of the criminal cases was a tacit admission by petitioner that there was a consideration of the pacto de retro sale.

Petitioner further claims that the pacto de retro sale was subject to the condition that in the event the checks given by Josie Reyes to him for the repurchase of the property were dishonored, then the document shall be declared null and void for lack of consideration.

We are not persuaded.

Private respondent Tan was already poised to file criminal cases against Josie Rey and her family.  It would not be logical for respondent Tan to agree to the conditions allegedly imposed by petitioner. Petitioner knew that he was bound by the deed of sale with right to repurchase, as evidenced by his filing  criminal cases against Josie Rey when the two checks bounced.

The respondent court further made the candid but true observation that:

“If there is anybody to blame for his predicament, it is appellant himself.  He is a lawyer.  He was the one who prepared the contract.  He knew what he was entering into.  Surely, he must have been aware of the risk involved.  When Josefina’s checks bounced, he should have repurchased his lots with his own money.  Instead, he sued not only Josefina but also Tan for annulment of contract on the ground of lack of consideration and false pretenses on their part.”

Petitioner then postulates that “it is not only illegal but immoral to require him to repurchase his own properties with his own money  when he did not derive any benefit from the transaction.”  Thus, he invokes the case of Singson vs. Isabela Sawmill, 88 SCRA 633, 643, where the Court said that “where one or two innocent persons must

suffer, that person who gave occasion for the damages to be caused must bear consequences.”  Petitioner’s reliance on this doctrine is misplaced.  He is not an innocent person.  As a matter of fact, he gave occasion for the damage caused by virtue of the deed of sale with right to repurchase which he prepared and signed.  Thus, there is the equitable maxim that between two innocent parties, the one who made it possible for the wrong to be done should be the one to bear the resulting loss.[6]

Petitioner further insinuates that private respondent deceived him into signing the deed of sale with right to repurchase.  This is not borne out by the evidence nor by petitioner’s ownstatement of facts which we heretofore reproduced.  As aptly observed by the respondent court “We are at a loss why herein appellant ascribes false pretenses to Tan who merely signed the contract.”[7] Contrary to petitioner’s pretension, respondent Tan did not employ any devious scheme to make the former sign the deed of sale.  It is to be noted that Tan waived his right to collect from Josefina Rey by virtue of the pacto de retro sale.  In turn, Josefina gave petitioner a postdated check in the amount of P1.4 Million to ensure that the latter would not lose his two lots. Petitioner, a lawyer, should have known that the transaction was fraught with risks since Josefina Rey and family had a checkered history of issuing worthless checks.  But had petitioner not agreed to the arrangement, respondent Tan would not have agreed to waive prosecution of Josefina Rey.

Apparently, it was petitioner’s greed for a huge profit that impelled him to accede to the scheme of Josefina Rey even if he knew it was a dangerous undertaking.  When he drafted the pacto de retro document, he threw caution to the winds forgetting that prudence might have been the better course of action.  We can only sympathize with petitioner’s predicament.  However, a contract is a contract.  Once agreed upon, and provided all the essential elements are present, it is valid and binding between the parties. 

Petitioner has no one to blame but himself for his misfortune.

WHEREFORE, the Decision of the Court of Appeals dated August 29, 1994 is hereby AFFIRMED.   The petition for review is hereby DENIED DUE COURSE for lack of merit.

SO ORDERED.

Regalado (Chairman), Melo, Puno, and Mendoza, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-55999 August 24, 1984

SPOUSES SALVACION SERRANO LADANGA and AGUSTIN S. LADANGA, petitioners, vs.COURT OF APPEALS and BERNARDO S. ASENETA, as Guardian of the Incompetent CLEMENCIA A. ASENETA, respondents.

Venusto P. France and Ambrosia Padilla, Mempia, Reyes & Equidez Law Office for petitioners.

Agrava, Lucero & Gineta for private respondents.

 

AQUINO, J.:

The spouses Salvacion Serrano and Doctor Agustin S. Ladanga appealed from the decision of the Court of Appeals (affirming the decision of the Manila Court of First Instance), declaring void the sale to Salvacion by her aunt, Clemencia A. Aseneta, of the 166-square-meter lot with a house located at 1238 Sison Street, Paco, Manila for non-payment of the price of P26,000. It ordered the register of deeds of Manila to issue a new title to Clemencia.

The said spouses were further ordered to pay to Clemencia's estate P21,000 as moral and exemplary damages and attorney's fees and to render to Bernardo an accounting of the rentals of the property from April 6, 1974.

The Appellate Court and Judge Jose C. Colayco found that Clemencia, a spinster who retired as division superintendent of public schools at 65 in 1961, had a nephew named Bernardo S. Aseneta, the child of her sister Gloria, and a niece named Salvacion, the daughter of her sister Flora. She legally adopted Bernardo in 1961 (Exh. B).

On a single date, April 6, 1974 (when Clemencia was about 78 years old), she signed nine deeds of sale in favor of Salvacion for various real properties. One deed of sale concerned the said Paco property (administered by the Ladanga spouses) which purportedly was sold to Salvacion for P26,000 (Exh. C). The total price involved in the nine deeds of sale and in the tenth sale executed on November 8, 1974 was P92,200.

On the witness stand, Clemencia denied having "received even one centavo" of the price of P26,000 (15, 16, 32 tsn August 16, 1976), much less the P92,000. She considered the allegation that she received the price as a he, exclaiming on the witness stand: "Susmaryosep! P92,000!" (15, 28-30 tsn August 16, 1976). This testimony was corroborated by Soledad L. Maninang, 69, a dentist with whom Clemencia had lived for more than thirty years in Kamuning, Quezon City.

The notary testified that the deed of sale for the Paco property was signed in the office of the Quezon City registry of deeds. He did not see Salvacion giving any money to Clemencia.

In May, 1975, Bernardo as guardian of Clemencia, filed an action for reconveyance of the Paco property, accounting of the rentals and damages. Clemencia was not mentally incompetent but she was placed under guardianship because she was an easy prey for exploitation and deceit.

Parenthetically, it should be stated that she died on May 21, 1977 at the age of 80. She allegedly bequeathed her properties in a holographic will dated November 23, 1973 to Doctor Maninang. In that will she disinherited Bernardo. The will was presented for probate (Exh. 22-A and 22-C).

The testate case was consolidated with the intestate proceeding filed by Bernardo in the sala of Judge Ricardo L. Pronove at Pasig, Rizal. He dismissed the testate case. He appointed Bernardo as administrator in the intestate case (p. 23, Bernardo's brief).

As already stated, in the instant case, the trial court and the Appellate Court declared void the sale of the Paco property. The Ladanga spouses contend that the Appellate Court disregarded the rule on burden of proof. This contention is devoid of merit because Clemencia herself testified that the price of P26,000 was not paid to her. The burden of the evidence shifted to the Ladanga spouses. They were not able to prove the payment of that amount. The sale was fictitious.

The Ladanga spouses argue that the Appellate Court erred in not considering that inadequacy of price may indicate a donation or some other contract; in disregarding the presumption that the sale was fair and regular and for a sufficient consideration; in overlooking important facts and in not holding that Bernardo had no right to file a complaint to annul the sale.

As a rule, only important legal issues, as contemplated in section 4, Rule 45 of the Rules of Court, may be raised in a review of the Appellate Court's decision. This case does not fall within any of the exceptions to that rule (2 Moran's Comments on the Rules of Court, 1979 Ed. p. 475; Ramos vs. Pepsi-Cola Bottling Co., 125 Phil. 701).

The questions ventilated by the Ladangas in their briefs and in their comment of April 3, 1984 may be reduced to the issue of the validity of the sale which the vendor Clemencia herself assailed in her testimony on August 16 and December 3, 1976 when she was eighty years old. Her testimony and that of the notary leave no doubt that the price of P26,000 was never paid.

A contract of sale is void and produces no effect whatsoever where the price, which appears therein as paid, has in fact never been paid by the purchaser to the vendor (Meneses Vda. de Catindig vs. Heirs of Catalina Roque, L-25777, November 26, 1976, 74 SCRA 83, 88; Mapalo vs. Mapalo, 123 Phil. 979, 987; Syllabus, Ocejo, Perez & Co. vs. Flores and Bas, 40 Phil. 921).

Such a sale is inexistent and cannot be considered consummated (Borromeo' vs. Borromeo, 98 Phil. 432; Cruzado vs. Bustos and Escaler, 34 Phil. 17; Garanciang vs. Garanciang, L-22351, May 21, 1969, 28 SCRA 229).

It was not shown that Clemencia intended to donate the Paco property to the Ladangas. Her testimony and the notary's testimony destroyed any presumption that the sale was fair and regular and for a true consideration.

Judge Colayco concluded that the Ladangas abused Clemencia's confidence and defrauded her of properties with a market value of P393,559.25 when she was already 78 years old.

The contention that Bernardo had no right to institute the instant action because he was not a compulsory heir of Clemencia cannot be sustained. Bernardo was Clemencia's adopted son. Moreover, Clemencia, by testifying in this case, tacitly approved the action brought in her behalf.

But the moral damages awarded by the trial court is not sanctioned by articles 2217 to 2220 of the Civil Code. Clemencia's own signature in the deed brought about the mess within which she was entangled.

WHEREFORE, the judgment of the Appellate Court is affirmed with the modification that the adjudication for moral and exemplary damages is discarded. No costs.

SO ORDERED.

Concepcion, Jr., Guerrero, Escolin and Cuevas, JJ., concur.

Makasiar, J., (Chairman) and Abad Santos, JJ., took no part.

SECOND DIVISION

[G.R. No. 109410.  August 28, 1996]

CLARA M. BALATBAT, petitioner, vs. COURT OF APPEALS and Spouses JOSE REPUYAN and AURORA REPUYAN, respondents.

D E C I S I O N

TORRES, JR., J.:

Petitioner Clara M. Balatbat instituted this petition for review pursuant to Rule 45 of the Revised Rules of Court seeking to set aside the decision dated August 12, 1992 of the respondent Court of Appeals in CA-G.R. CV No. 29994 entitled “Alejandro Balatbat and Clara Balatbat, plaintiffs-appellants, versus Jose Repuyan and Aurora Repuyan, defendants-appellees,” the dispositive portion of which reads:[1]

“WHEREFORE, the judgment appealed from is affirmed with the modification that the awards of P10,000.00 for attorney’s fees and P5,000.00 as costs of litigation are deleted.

SO ORDERED.”

The records show the following factual antecedents:

It appears that on June 15, 1977, Aurelio A. Roque filed a complaint for partition docketed as Civil Case No. 109032 against Corazon Roque, Alberto de los Santos, Feliciano Roque, Severa Roque and Osmundo Roque before the then Court of First Instance of Manila, Branch IX. [2] Defendants therein were declared in default and plaintiff presented evidence ex-parte.  On March

29, 1979, the trial court rendered a decision in favor of plaintiff Aurelio A. Roque, the pertinent portion of which reads:[3]

“From the evidence, it has been clearly established that the lot in question covered by Transfer Certificate of Title No. 51330 was acquired by plaintiff Aurelio Roque and Maria Mesina during their conjugal union and the house constructed thereon was likewise built during their marital union.  Out of their union, plaintiff and Maria Mesina had four children, who are the defendants in this case.  When Maria Mesina died on August 28, 1966, the only conjugal properties left are the house and lot above stated of which plaintiff herein, as the legal spouse, is entitled to one-half share pro-indiviso thereof.  With respect to the one-half share pro-indiviso now forming the estate of Maria Mesina, plaintiff and the four children, the defendants here, are each entitled to one-fifth (1/5) share pro-indiviso.  The deceased wife left no debt.

Wherefore, judgment is hereby rendered ordering the partition of the properties, subject matter of this case consisting of the house and lot, in the following manner:

1.  Of the house and lot forming the conjugal properties, plaintiff is entitled to one-half share pro-indiviso thereof while the other half forms the estate of the deceased Maria Mesina;

2.  Of the Estate of deceased Maria Mesina, the same is to be divided into five (5) shares and plaintiff and his four children are entitled each to one-fifth share thereof pro-indiviso.

Plaintiff claim for moral, exemplary and actual damages and attorney’s fees not having been established to the satisfaction of the Court, the same is hereby denied.

Without pronouncement as to costs.

SO ORDERED.”

On June 2, 1979, the decision became final and executory.  The corresponding entry of judgment was made on March 29, 1979.[4]

On October 5, 1979, the Register of Deeds of Manila issued a Transfer Certificate of Title No. 135671 in the name of the following persons in the following proportions:[5]

Aurelio A. Roque                     6/10 share

Severina M. Roque                 1/10 share

Osmundo M. Roque                1/10 share

Feliciano M. Roque                 1/10 share

Corazon M. Roque                  1/10 share

On April 1, 1980, Aurelio A. Roque sold his 6/10 share in T.C.T. No. 135671 to spouses Aurora Tuazon-Repuyan and Jose Repuyan as evidenced by a “Deed of Absolute Sale.”[6]

On July 21, 1980, Aurora Tuazon Repuyan caused the annotation of her affidavit of adverse claim[7] on the Transfer Certificate of Title No. 135671, [8] to wit:

“Entry No. 5627/T-135671 - NOTICE OF ADVERSE CLAIM - Filed by Aurora Tuazon Repuyan, married, claiming among others that she bought 6/10 portion of the property herein described from Aurelio Roque for the amount of P50,000.00 with a down payment of P5,000.00 and the balance of P45,000.00 to be paid after the partition and subdivision of the property herein described, other claims set forth in Doc. No. 954, page 18, Book 94 of _____________________ 64 ________PEDRO DE CASTRO, Notary Public of Manila.

Date of instrument -  July 21, 1980

Date of inscription-  July 21, 1980 at 3:35 p.m.

TERESITA H. NOBLEJAS

Acting Register of Deeds

By:

RAMON D. MACARICAN

Acting Second Deputy”

On August 20, 1980, Aurelio A. Roque filed a complaint for “Rescission of Contract” docketed as Civil Case No. 134131 against spouses Aurora Tuazon-Repuyan and Jose Repuyan before Branch IV of the then Court of First Instance of Manila.  The complaint is grounded on spouses Repuyan’s failure to pay the balance of P45,000.00 of the purchase price. [9] On September 5, 1980, spouses Repuyan filed their answer with counterclaim.[10]

In the meantime, the trial court issued an order in Civil Case No. 109032 (Partition case) dated February 2, 1982, to wit:[11]

“In view of all the foregoing and finding that the amount of P100,000.00 as purchase price for the sale of the parcel of land covered by TCT No. 51330 of the Registry of Deeds of Manila consisting of 84 square meters situated in Callejon Sulu, District of Santa Cruz, Manila, to be reasonable and fair, and considering the opportunities given defendants to sign the deed of absolute sale voluntarily, the Court has no alternative but to order, as it hereby orders, the Deputy Clerk of this Court to sign the deed of absolute sale for and in behalf of defendants pursuant to Sec. 10, Rule 39 of the Rules of Court, in order to effect the partition of the property involved in this case.

SO ORDERED.”

A deed of absolute sale was executed on February 4, 1982 between Aurelio S. Roque, Corazon Roque, Feliciano Roque, Severa Roque and Osmundo Roque and Clara Balatbat, married to Alejandro Balatbat. [12] On April 14, 1982, Clara Balatbat filed a motion for the issuance of a writ of possession which was granted by the trial court on September 14, 1982 “subject, however, to valid rights and interest of third persons over the same portion thereof, other than vendor or any other person or persons privy to or claiming any rights or interest under it.”  The corresponding writ of possession was issued on September 20, 1982.[13]

On May 20, 1982, petitioner Clara Balatbat  filed a motion to intervene in Civil Case No. 134131[14] which was granted as per court’s resolution of October 21, 1982.[15] However, Clara Balatbat failed to file her complaint in intervention.[16] On April 15, 1986, the trial court rendered a decision dismissing the complaint, the pertinent portion of which reads:[17]

“The rescission of contracts are provided for in the laws and nowhere in the provision of the Civil Code under the title Rescissible Contracts does the circumstances in the case at bar appear to have occurred, hence, the prayer for rescission is outside the ambit for which rescissible [sic] could be granted.

“The Intervenor - Plaintiff, Clara Balatbat, although allowed to intervene, did not file her complaint in intervention.

“Consequently, the plaintiff having failed to prove with sufficient preponderance his action, the relief prayed for had to be denied.  The contract of sale denominated as “Deed of Absolute Sale” (Exh. 7 and sub-markings) being valid and enforceable, the same pursuant to the provisions of Art. 1159 of the Civil Code which says:

“Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.”

has the effect of being the law between the parties and should be complied with.  The obligation of the plaintiff under the contract being to have the land covered by TCT No. 135671 partitioned and subdivided, and title issued in the name of the defendant buyer (see page 2 par. C of Exh. 7-A) plaintiff had to comply thereto to give effect to the contract.

“WHEREFORE, judgment is rendered against the plaintiff, Aurelio A. Roque, and the plaintiff in intervention, Clara Balatbat, and in favor of the defendants, dismissing the complaint for lack of merit, and declaring the Deed of Absolute Sale dated April 1, 1980 as valid and enforceable and the plaintiff is, as he is hereby ordered, to partition and subdivide the land covered by T.C.T. No. 135671, and to aggregate therefrom a portion equivalent to 6/10 thereof, and cause the same to be titled in the name of the defendants, and after which, the defendants to pay the plaintiff the sum of P45,000.00.  Considering further that the defendants suffered damages since they were forced to litigate unnecessarily, by way of their counterclaim, plaintiff is hereby ordered to pay defendants the sum of P15,000.00 as moral damages, attorney’s fees in the amount of P5,000.00.

Costs against plaintiff.

SO ORDERED.”

On March 3, 1987, petitioner Balatbat filed a notice of lis pendens in Civil Case No. 109032 before the Register of Deeds of Manila.[18]

On December 9, 1988, petitioner Clara Balatbat and her husband, Alejandro Balatbat filed the instant complaint for delivery of the owner's duplicate copy of T.C.T. No. 135671 docketed as Civil Case No. 88-47176 before Branch 24 of the Regional Trial Court of Manila against private respondents Jose Repuyan and Aurora Repuyan.[19]

On January 27, 1989, private respondents filed their answer with affirmative defenses and compulsory counterclaim.[20]

On November 13, 1989, private respondents filed their memorandum[21] while petitioners filed their memorandum on November 23, 1989.[22]

On August 2, 1990, the Regional Trial Court of Manila, Branch 24, rendered a decision dismissing the complaint, the dispositive portion of which reads:[23]

“Considering all the foregoing, this Court finds that the plaintiffs have not been able to establish their cause of action against the defendants and have no right to the reliefs demanded in the complaint and the complaint of the plaintiff against the defendants is hereby DISMISSED.  On the counterclaim, the plaintiff are ordered to pay defendants the amount of Ten Thousand Pesos by way of attorney’s fees, Five Thousand Pesos as costs of litigation and further to pay the costs of the suit.

SO ORDERED.”

Dissatisfied, petitioner Balatbat filed on appeal before the respondent Court of Appeals which rendered the assailed decision on August 12, 1992, to wit:[24]

“WHEREFORE, the judgment appealed from is affirmed with the modification that the awards of P10,000.00 for attorney’s fees and P5,000.00 as costs of litigation are deleted.

SO ORDERED.”

On March 22, 1993, the respondent Court of Appeals denied petitioner’s motion for reconsideration.[25]

Hence, this petition for review.

Petitioner raised the following issues for this Court’s resolution:

I

WHETHER OR NOT THE ALLEGED SALE TO THE PRIVATE RESPONDENTS WAS MERELY EXECUTORY AND NOT A CONSUMMATED TRANSACTION?

II

WHETHER OR NOT THERE WAS A DOUBLE SALE AS CONTEMPLATED UNDER ART. 1544 OF THE CIVIL CODE?

III

WHETHER OR NOT PETITIONER WAS A BUYER IN GOOD FAITH AND FOR VALUE?

IV

WHETHER OR NOT THE COURT OF APPEALS ERRED IN GIVING WEIGHT AND CONSIDERATION TO THE EVIDENCE OF THE PRIVATE RESPONDENTS WHICH WERE NOT OFFERED?

Petitioner asseverates that the respondent Court of Appeals committed grave abuse of discretion tantamount to lack or excess of jurisdiction in affirming the appealed judgment considering (1) that the alleged sale in favor of the private respondents Repuyan was merely executory; (2) that there is no double sale; (3) that petitioner is a buyer in good faith and for value; and (4) that private respondents did not offer their evidence during the trial.

Contrary to petitioner’s contention that the sale dated April 1, 1980 in favor of private respondents Repuyan was merely executory for the reason that there was no delivery of the subject property and that consideration/price was not fully paid, we find the sale as consummated, hence, valid and enforceable.  In a decision dated April 15, 1986 of the Regional Trial Court of Manila, Branch IV in Civil Case No. 134131, the Court dismissed vendor’s Aurelio Roque complaint for rescission of the deed of sale and declared that the sale dated April 1, 1980, as valid and enforceable.  No appeal having been made, the decision became final and executory.  It must be noted that herein petitioner Balatbat filed a motion for intervention in that case but did not file her complaint in intervention.  In that case wherein Aurelio Roque sought to rescind the April 1, 1980 deed of sale in favor of the private respondents for non-payment of the P45,000.00 balance, the trial court dismissed the complaint for rescision.  Examining the terms and conditions of the “Deed of Sale” dated April 1, 1980, the P45,000.00 balance is payable only “after the property covered by T.C.T. No. 135671 has been partitioned and subdivided, and title issued in the name of the BUYER” hence, vendor Roque cannot demand payment of the balance unless and until the property has been subdivided and titled in the name of the private respondents.  Devoid of any stipulation that “ownership in the thing shall not pass to the purchaser until he has fully paid the price,”[26]ownership in the thing shall pass from the vendor to the vendee upon actual or constructive delivery of the thing sold even if the purchase price has not yet been fully paid.  The failure of the buyer to make good the price does not, in law, cause the ownership to revest to the seller unless the bilateral contract of sale is first rescinded or resolved pursuant to Article 1191 of the New Civil Code.[27] Non-payment only creates a right to demand the fulfillment of the obligation or to rescind the contract.

With respect to the non-delivery of the possession of the subject property to the private respondent, suffice it to say that ownership of the thing sold is acquired only from the time of delivery thereof, either actual or constructive.

[28] Article 1498 of the Civil Code provides that - when the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot be inferred.[29] The execution of the public instrument, without actual delivery of the thing, transfers the ownership from the vendor to the vendee, who may thereafter exercise the rights of an owner over the same.[30] In the instant case, vendor Roque delivered the owner’s certificate of title to herein private respondent.  It is not necessary that vendee be physically present at every square inch of the land bought by  him, possession of the public instrument of the land is sufficient to accord him the rights of ownership.  Thus, delivery of a parcel of land may be done by placing the vendee in control and possession of the land (real) or by embodying the sale in a public instrument (constructive).  The provision of Article 1358 on the necessity of a public document is only for convenience, not for validity or enforceability.  It is not a requirement for the validity of a contract of sale of a parcel of land that this be embodied in a public instrument.[31]

A contract of sale being consensual, it is perfected by the mere consent of the parties.[32] Delivery of the thing brought or payment of the price is not necessary for the perfection of the contract; and failure of the vendee to pay the price after the execution of the contract does not make the sale null and void for lack of consideration but results at most in default on the part of the vendee, for which the vendor may exercise his legal remedies.[33]

Article 1544 of the New Civil Code provides:

“If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property.

“Should it be movable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.

“Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession and in the absence thereof, to the person who present the oldest title, provided there is good faith.”

Article 1544 of the Civil Code provides that in case of double sale of an immovable property, ownership shall be transferred (1) to the person acquiring it who in good faith first recorded it in the Registry of Property; (2) in default thereof, to the person who in good faith was first in possession; and (3) in default thereof, to the person who presents the oldest title, provided there is good faith.[34]

In the case at bar, vendor Aurelio Roque sold 6/10 portion of his share in TCT No. 135671 to private respondents Repuyan on April 1, 1980.  Subsequently, the same lot was sold again by vendor Aurelio Roque (6/10) and his children (4/10), represented by the Clerk of Court pursuant to Section 10, Rule 39 of the Rules of Court, on February 4, 1982.  Undoubtedly, this is a case of double sale contemplated under Article 1544 of the New Civil Code.

This is an instance of a double sale of an immovable property hence, the ownership shall vests in the person acquiring it who in good faith first recorded it in the Registry of Property. Evidently, private respondents Repuyan’s caused the annotation of an adverse claim on the title of the subject property denominated as Entry No. 5627/T-135671 on July 21, 1980.[35] The annotation of the adverse claim on TCT No. 135671 in the Registry of Property is sufficient compliance as mandated by law and serves notice to the whole world.

On the other hand, petitioner filed a notice of lis pendens only on February 2, 1982.  Accordingly, private respondents who first caused the annotation of the adverse claim in good faith shall have a better right over herein petitioner.  Moreover, the physical possession of herein petitioners by virtue of a writ of possession issued by the trial court on September 20, 1982 is “subject to the valid rights and interest of third persons over the same portion thereof, other than vendor or any other person or persons privy to or claiming any rights to interest under it.”[36] As between two purchasers, the one who has registered the sale in his favor, has a preferred right over the other who has not registered his title even if the latter is in actual possession of the immovable property.[37] Further, even in default of the first registrant or first in possession, private respondents have presented the oldest title.[38] Thus, private respondents who acquired the subject property in good faith and for valuable consideration established a superior right as against the petitioner.

Evidently, petitioner cannot be considered as a buyer in good faith.  In the complaint for rescission filed by vendor Aurelio Roque on August 20, 1980, herein petitioner filed a motion for intervention on May 20, 1982 but did not file her complaint in intervention, hence, the decision was rendered adversely against her.  If petitioner did investigate before buying the land on February 4, 1982, she should have known that there was a pending case and an annotation of adverse claim was made in the title of the property before the Register of Deeds and she could have discovered that the subject property was already sold to the private respondents.  It is incumbent upon the vendee of the property to ask for the delivery of the owner’s duplicate copy of the title from the vendor.  A purchaser of a valued piece of property cannot just close

his eyes to facts which should put a reasonable man upon his guard and then claim that he acted in good faith and under the belief that there were no defect in the title of the vendor.[39] One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim that he has acquired title thereto in good faith as against the true owner of the land or of an interest therein; and the same rule must be applied to one who has knowledge of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor.  Good faith, or the want of it is not a visible, tangible fact that can be seen or touched, but rather a state or condition of mind which can only be judged of by actual or fancied tokens or signs.[40]

In fine, petitioner had nobody to blame but herself in dealing with the disputed property for failure to inquire or discover a flaw in the title to the property, thus, it is axiomatic that - culpa lata dolo aequiparatur - gross negligence is equivalent to intentional wrong.

IN VIEW OF THE FOREGOING PREMISES, this petition for review is hereby DISMISSED for lack of merit.  No pronouncement as to costs.

IT IS SO ORDERED.

Regalado (Chairman), Romero, Puno, and Mendoza, JJ., concur.

THIRD DIVISION

[G.R. No. 119777.  October 23, 1997]

THE HEIRS OF PEDRO ESCANLAR, FRANCISCO HOLGADO and the SPOUSES DR. EDWIN A. JAYME and ELISA TAN-JAYME, petitioners, vs. THE HON. COURT OF APPEALS, GENEROSA MARTINEZ, CARMEN CARI-AN, RODOLFO CARI-AN, NELLY CHUA CARI-AN, for herself and as guardian ad litem of her minor son, LEONELL C. CARI-AN, FREDISMINDA CARI-AN, the SPOUSES PAQUITO CHUA and NEY SARROSA-CHUA and THE REGISTER OF DEEDS OF NEGROS OCCIDENTAL, respondents.

[G.R. No. 120690.  October 23, 1997]

FRANCISCO HOLGADO and HRS. OF PEDRO ESCANLAR, namely BERNARDO, FELY, SONIA, LILY, DYESEBEL and NOEMI all surnamed ESCANLAR, petitioners, vs. HON. COURT OF APPEALS, GENEROSA MARTINEZ, CARMEN CARI-AN, RODOLFO CARI-AN, NELLY CHUA CARI-AN, for herself and as guardian ad litem of her minor son, LEONELL C. CARI-AN and FREDISMINDA CARI-AN, and SP. PAQUITO CHUA and NEY SARROSA CHUA and REGISTER OF DEEDS OF NEGROS OCCIDENTAL, respondents.

D E C I S I ON

ROMERO, J.:

Before us are consolidated petitions for review of the decision of the Court of Appeals in CA-G.R. CV No. 39975 which affirmed the trial court’s pronouncement that the deed of sale of rights, interests and participation in favor of petitioners is null and void.

The case arose from the following facts:

Spouses Guillermo Nombre and Victoriana Cari-an died without issue in 1924 and 1938, respectively.  Nombre’s heirs include his nephews and grandnephews.  Victoriana Cari-an was succeeded by her late brother’s son, Gregorio Cari-an.  The latter was declared as Victoriana’s heir in the estate proceedings for Nombre and his wife (Special Proceeding No 7-7279).[1] After Gregorio died in 1971, his wife, Generosa Martinez, and children, Rodolfo, Carmen, Leonardo and Fredisminda, all surnamed Cari-an, were also adjudged as heirs by representation to Victoriana’s estate.[2] Leonardo Cari-an passed away, leaving his widow, Nelly Chua vda. deCari-an and minor son Leonell, as his heirs.

Two parcels of land, denominated as Lot No. 1616 and 1617 of the Kabankalan Cadastre with an area of 29,350 square meters and 460,948 square meters, respectively, formed part of  the estate of Nombre and Cari-an.

On September 15, 1978, Gregorio Cari-an’s heirs, herein collectively referred to as private respondents Cari-an, executed the Deed of Sale of Rights, Interests and Participation worded as follows:

“NOW, THEREFORE, for and in consideration of the sum of TWO HUNDRED SEVENTY-FIVE THOUSAND (P275,000.00) Pesos, Philippine Currency, to be paid by the VENDEES to the VENDORS, except the share of the minor child of Leonardo Cari-an, which should be deposited with the Municipal Treasurer of Himamaylan, Province of Negros Occidental, by the order of the Court of First Instance of Negros Occidental, Branch VI, Himamaylan, by those presents, do hereby SELL, CEDE, TRANSFER and CONVEY by way of ABSOLUTE SALE, all the RIGHTS, INTERESTS and PARTICIPATION of the Vendors as to the one-half (1/2) portion pro-indiviso of Lots Nos. 1616 and 1617 (Fishpond), of the Kabankalan Cadastre, pertaining to the one-half (1/2) portion pro-indiviso of the late Victoriana Cari-an unto and in favor of the Vendees, their heirs, successors and assigns;

x x x                                             x x x                                     x x x

That this Contract of Sale of rights, interests and participations shall become effective only upon the approval by the Honorable Court of First Instance of Negros Occidental, Branch VI-     Himamaylan .” (Underscoring supplied.)

Pedro Escanlar and Francisco Holgado, the vendees, were concurrently the lessees of the lots referred to above. [3] They stipulated that the balance of the purchase price (P225,000.00) shall be paid on or before May 1979 in a Deed of Agreement executed by the parties on the same day:

“WHEREAS, at the time of the signing of the Contract, VENDEES has (sic) only FIFTY THOUSAND (P50,000.00) Pesos available thereof, and was not able to secure the entire amount;

WHEREAS, the Vendors and one of the Vendees by the name of Pedro Escanlar are relatives, and absolute faith and trust exist between them, wherein during economic crisis, has not failed to give monetary succor to the Vendors;

WHEREAS, Vendors herein understood the present scarcity of securing available each (sic) in the amount stated in the contract;

NOW THEREFORE, for and in consideration of the sum of FIFTY THOUSAND (P50,000.00) Pesos, Philippine Currency, the balance of TWO HUNDRED TWENTY FIVE THOUSAND ( P 225,000.00) Pesos to be paid by the Vendees on or before May, 1979, the Vendors herein, by these Presents, do hereby CONFIRM and AFFIRM the Deed of Sale of the Rights, Interests and Participation dated September 15, 1978, over Lots Nos. 1616 and 1617 (fishpond) of the Kabankalan Cadastre in favor of the VENDEES, their heirs and assigns.

That pending the complete payment thereof, Vendees shall not assign, sell, lease, nor mortgage the rights, interests and participation thereof;

That in the event the Vendees fail and/ or omit to pay the balance of said purchase price on May 31, 1979 and the cancellation of said Contract of Sale is made thereby, the sum of FIFTY THOUSAND (P50,000.00) Pesos shall be deemed as damages thereof to Vendors.” (Underscoring supplied)[4]

Petitioners were unable to pay the Cari-an heirs’ individual shares, amounting to P55,000.00 each, by the due date.  However, said heirs received at least 12 installments from petitioners after May 1979. [5] Rodolfo Cari-an was fully paid by June 21, 1979.  Generosa Martinez, Carmen Cari-an and Fredisminda Cari-an were likewise fully compensated for their individual shares, per receipts given in evidence.[6] The minor Leonell’s share was deposited with the Regional Trial Court on September 7, 1982.[7]

Being former lessees, petitioners continued in possession of Lot Nos. 1616 and 1617.  Interestingly, they continued to pay rent based on their lease contract.  On September 10, 1981, petitioners moved to intervene in the probate proceedings of Nombre and Cari-an as the buyers of private respondent Cari-an’s share in Lot Nos. 1616 and 1617.  Petitioners’ motion for approval of the September 15, 1978 sale before the same court, filed on November 10, 1981, was opposed by private respondents Cari-an on January 5, 1982.[8]

On September 16, 1982, the probate court approved a motion filed by the heirs of Cari-an and Nombre to sell their respective shares in the estate. On September 21, 1982, private respondents Cari-an, in addition to some heirs of Guillermo Nombre,[9] sold their shares in eight parcels of land including Lot Nos. 1616 and 1617 to the spouses Ney Sarrosa Chua and Paquito Chua for P1,850,000.00.  One week later, the vendor-heirs, including private respondents Cari-an, filed a motion for approval of sale of hereditary rights, i.e. the sale made on September 21, 1982 to the Chuas.

Private respondents Cari-an instituted this case for cancellation of sale against petitioners (Escanlar and Holgado) on November 3, 1982. [10] They complained of petitioners’ failure to pay the balance of the purchase price by May 31, 1979 and alleged that they only received a total of P132,551.00 in cash and goods.  Petitioners replied that the Cari-ans, having been paid, had no right to resell the subject lots; that the Chuas were purchasers in bad faith; and that the court approval of the sale to the Chuas was subject to their existing claim over said properties.

On April 20, 1983, petitioners also sold their rights and interests in the subject parcels of land (Lot Nos. 1616 and 1617) to Edwin Jayme for P735,000.00[11] and turned over possession of both lots to the latter.  The Jaymes in turn, were included in the civil case as fourth-party defendants.

On December 3, 1984, the probate court approved the September 21, 1982 sale “without prejudice to whatever rights, claims and interests over any of those properties of the estate which cannot be properly and legally ventilated and resolved by the court in the same intestate proceedings.” [12] The certificates of title over the eight lots sold by the heirs of Nombre and Cari-an were later issued in the name of respondents Ney Sarrosa Chua and Paquito Chua.

The trial court allowed a third-party complaint against the third-party defendants Paquito and Ney Chua on January 7, 1986 where Escanlar and Holgado alleged that the Cari-ans conspired with the Chuas when they executed the second sale on September 21, 1982 and that the latter sale is illegal and of no effect.  Respondents Chua countered that they did not know of the earlier sale of one-half portion of the subject lots to Escanlar and Holgado.  Both parties claimed damages.[13]

On April 28, 1988, the trial court approved the Chuas’ motion to file a fourth-party complaint against the spouses Jayme.  Respondents Chua alleged that the Jaymes refused to vacate said lots despite repeated demands; and that by reason of the illegal occupation of Lot Nos. 1616 and 1617 by the Jaymes, they suffered materially from uncollected rentals.

Meanwhile, the Regional Trial Court of Himamaylan which took cognizance of Special Proceeding No. 7-7279 (Intestate Estate of Guillermo Nombre and Victoriana Cari-an) had rendered its decision on October 30, 1987.[14] The probate court concluded that since all the properties of the estate were disposed of or sold by the declared heirs of both spouses, the case is considered terminated and the intestate estate of Guillermo Nombre and Victoriana Cari-an is closed.  The court held:

“As regards the various incidents of this case, the Court finds no cogent reason to resolve them since the very object of the various incidents in this case is no longer in existence, that is to say, the properties of the estate of Guillermo Nombre and Victoriana Cari-an had long been disposed of by the rightful heirs of Guillermo Nombre and Victoriana Cari-an.  In this respect, there is no need to resolve the Motion for Subrogation of Movants Pedro Escanlar and Francisco Holgado to be subrogated to the rights of the heirs of Victoriana Cari-an since all the properties of the estate had been transferred and titled to in the name of spouses Ney S. Chua and

Dr. Paquito Chua.     Since the nature of the proceedings in this case is summary, this Court, being a Probate Court, has no jurisdiction to pass upon the validity or invalidity of     the sale of rights of the declared heirs of Guillermo Nombre and Victoriana Cari- an to third parties.     This issue must be raised in another action where it can be properly ventilated and resolved. x x x Having determined, after exhausted (sic) and lengthy hearings, the rightful heirs of Guillermo Nombre and Victoriana Cari-an, the Court found out that the second issue has become moot and academic considering that there are no more properties left to be partitioned among the declared heirs as that had long ago been disposed of by the declared heirs x x x.” (Underscoring supplied)

The seminal case at bar was resolved by the trial court on December 18, 1991 in favor of cancellation of the September 15, 1978 sale.  Said transaction was nullified because it was not approved by the probate court as required by the contested deed of sale of rights, interests and participation and because the Cari-ans were not fully paid.  Consequently, the Deed of Sale executed by the heirs of Nombre and Cari-an in favor of Paquito and Ney Chua, which was approved by the probate court, was upheld.  The dispositive portion of the lower court’s decision reads:

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

1)             Declaring the following contracts null and void and of no effect:

a)        The Deed of Sale, dated Sept. 15, 1978, executed by the plaintiffs in favor of the defendants Pedro Escanlar and Francisco Holgado (Exh. “A,” Plaintiffs)

b)        The Deed of Agreement, dated Sept. 15, 1978, executed by the plaintiffs in favor of the defendants, Pedro Escanlar and Francisco Holgado (Exh. “B,” Plaintiffs)

c)        The Deed of Sale, dated April 20, 1983, executed by the defendants in favor of the fourth-party defendants, Dr. Edwin Jayme and Elisa Tan Jayme

d)        The sale of leasehold rights executed by the defendants in favor of the fourth-party defendants

2)             Declaring the amount of Fifty Thousand Pesos (P50,000.00) paid by the defendants to the plaintiffs in connection with the Sept. 15, 1978 deed of sale, as forfeited in favor of the plaintiffs, but ordering the plaintiffs to return to the defendants whatever amounts they have received from the latter after May 31, 1979 and the amount of Thirty Five Thousand Two Hundred Eighteen & 75/100

(P35,218.75)[15] deposited with the Treasurer of Himamaylan, Negros Occidental, for the minor Leonell C. Cari-an -

3)             Declaring the deed of sale, dated September 23, 1982, executed by Lasaro Nombre, Victorio Madalag, Domingo Campillanos, Sofronio Campillanos, Generosa Vda. de Martinez, Carmen Cari-an, Rodolfo Cari-an, Nelly Chua Vda. de Cari-an, for herself and as guardian ad litem of the minor Leonell C. Cari-an, and Fredisminda Cari-an in favor of the third-party defendants and fourth-party plaintiffs, spouses Dr. Paquito Chua and Ney Sarrosa Chua (Exh. “2”-Chua) as legal, valid and enforceable provided that the properties covered by the said deed of sale are subject of the burdens of the estate, if the same have not been paid yet.

4)             Ordering the defendants Francisco Holgado and Pedro Escanlar and the fourth-party defendants, spouses Dr. Edwin Jayme and Elisa Tan Jayme, to pay jointly and severally the amount of One Hundred Thousand Pesos (P100,000.00 as moral damages and the further sum of Thirty Thousand Pesos (P30,000.00) as attorney’s fees to the third-party defendant spouses, Dr. Paquito Chua and Ney Sarrosa-Chua.

5)             Ordering the fourth-party defendant spouses, Dr. Edwin Jayme and Elisa Tan Jayme,  to pay to the third-party defendants and fourth-party plaintiffs, spouses Dr. Paquito Chua and Ney Sarrosa-Chua, the sum of One Hundred Fifty Seven Thousand Pesos (P157,000.00) as rentals for the riceland and Three Million Two Hundred Thousand Pesos (P3,200,000.00) as rentals for the fishpond from October, 1985 to July 24, 1989 plus the rentals from the latter date until the property shall have been delivered to the spouses Dr. Paquito Chua and Ney Sarrosa-Chua;

6)             Ordering the defendants and the fourth-party defendants to immediately vacate Lots Nos. 1616 and 1617, Kabankalan Cadastre;

7)             Ordering the defendants and the fourth-party defendants to pay costs.

SO ORDERED.”[16]

Petitioners raised the case to the Court of Appeals.[17] Respondent court affirmed the decision of the trial court on February 17, 1995 and held that the questioned deed of sale of rights, interests and participation is a contract to sell because it shall become effective only upon approval by the probate court and upon full payment of the purchase price.[18]

Petitioners’ motion for reconsideration was denied by respondent court on April 3, 1995.[19] Hence, these petitions.[20]

1.  We disagree with the Court of Appeals’ conclusion that the September 15, 1978 Deed of Sale of Rights, Interests and Participation is a contract to sell and not one of sale.

The distinction between contracts of sale and contracts to sell with reserved title has been recognized by this Court in repeated decisions, according to Justice J.B.L. Reyes in Luzon Brokerage Co. Inc. v. Maritime Building Co., Inc.,[21] upholding the power of promisors under contracts to sell in case of failure of the other party to complete payment, to extrajudicially terminate the operation of the contract, refuse the conveyance, and retain the sums of installments already received where such rights are expressly provided for.

In contracts to sell, ownership is retained by the seller and is not to pass until the full payment of the price.  Such payment is a positive suspensive condition, the failure of which is not a breach of contract but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force.[22] To illustrate, although a deed of conditional sale is denominated as such, absent a proviso that title to the property sold is reserved in the vendor until full payment of the purchase price nor a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period, by its nature, it shall be declared a deed of absolute sale.[23]

The September 15, 1978 sale of rights, interests and participation as to 1/2 portion pro indiviso of the two subject lots is a contract of sale for the following reasons:  First, private respondents as sellers did not reserve unto themselves the ownership of the property until full payment of the unpaid balance of P225,000.00.  Second, there is no stipulation giving the sellers the right to unilaterally rescind the contract the moment the buyer fails to pay within the fixed period.[24] Prior to the sale, petitioners were in possession of the subject property as lessees.  Upon sale to them of the rights, interests and participation as to the 1/2 portion pro indiviso, they remained in possession, not in concept of lessees anymore but as owners now through symbolic delivery known astraditio brevi manu.[25] Under Article 1477 of the Civil Code, the ownership of the thing sold is acquired by the vendee upon actual or constructive delivery thereof.[26]

In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time, existed and discharges the obligations created thereunder.  The remedy of an unpaid seller in a contract of sale is to seek either specific performance or rescission.[27]

2.  Next to be discussed is the stipulation in the disputed September 15, 1978 Deed of Sale of Rights, Interests and Participation which reads: “(t)his Contract of Sale of rights, interests and participations shall become effective only upon the approval by the Honorable Court of First Instance of Negros Occidental, Branch VI-Himamaylan.”  Notably, the trial court and the Court of Appeals both held that the deed of sale is null and void for not having been approved by the probate court.

There has arisen here a confusion in the concepts of validity and the efficacy of a contract.  Under Art. 1318 of the Civil Code, the essential requisites of a contract are:  consent of the contracting parties; object certain which is the subject matter of the contract and cause of the obligation which is established.  Absent one of the above, no contract can arise.  Conversely, where all are present, the result is a valid contract.  However, some parties introduce various kinds of restrictions or modalities, the lack of which will not, however, affect the validity of the contract.

In the instant case, the Deed of Sale, complying as it does with the essential requisites, is a valid one.  However, it did not bear the stamp of approval of the court.  This notwithstanding, the contract’s validity was not affected for in the words of the stipulation, “ . . . this Contract of Sale of rights, interests and participations shall become effective only upon the approval by the Honorable Court .  . .”  In other words, only the effectivity and not the validity of the contract is affected.

Then, too, petitioners are correct in saying that the need for approval by the probate court exists only where specific properties of the estate are sold and not when only ideal and indivisible shares of an heir are disposed of.

In the case of Dillena v. Court of Appeals, [28] the Court declared that it is within the jurisdiction of the probate court to approve the sale of properties of a deceased person by his prospective heirs before final adjudication. [29] It is settled that court approval is necessary for the validity of any disposition of the decedent’s estate.  However, reference to judicial approval cannot adversely affect the substantive rights of the heirs to dispose of their ideal share in the co-heirship and/or co-ownership among the heirs. [30] It must be recalled that during the period of indivision of a decedent’s estate, each heir, being a co-owner, has full ownership of his part and may therefore alienate it. [31] But the effect of the alienation with respect to the co-owners shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership.[32]

From the foregoing, it is clear that hereditary rights in an estate can be validly sold without need of court approval and that when private respondents

Cari-an sold their rights, interests and participation in Lot Nos. 1616 and 1617, they could legally sell the same without the approval of the probate court. 

As a general rule, the pertinent contractual stipulation (requiring court approval) should be considered as the law between the parties.  However, the presence of two factors militate against this conclusion.  First, the evident intention of the parties appears to be contrary to the mandatory character of said stipulation.[33] Whoever crafted the document of conveyance, must have been of the belief that the controversial stipulation was a legal requirement for the validity of the sale.  But the contemporaneous and subsequent acts of the parties reveal that the original objective of the parties was to give effect to the deed of sale even without court approval.[34] Receipt and acceptance of the numerous installments on the balance of the purchase price by the Cari-ans and leaving petitioners in possession of Lot Nos. 1616 and 1617 reveal their intention to effect the mutual transmission of rights and obligations.  It was only after private respondents Cari-an sold their shares in the subject lots again to the spouses Chua, in September 1982, that these same heirs filed the case at bar for the cancellation of the September 1978 conveyance.  Worth considering too is the fact that although the period to pay the balance of the purchase price expired in May 1979, the heirs continued to accept payments until late 1979 and did not seek judicial relief until late 1982 or three years later.

Second, we hold that the requisite approval was virtually rendered impossible by the Cari-ans because they opposed the motion for approval of the sale filed by petitioners[35] and sued the latter for the cancellation of that sale.  The probate court explained:

“(e)     While it is true that Escanlar and Holgado filed a similar motion for the approval of Deed of Sale executed by some of the heirs in their favor concerning the one-half (1/2) portions of Lots 1616 and 1617 as early as November 10, 1981, yet the Court could not have favorably acted upon it, because there exists a pending case for the rescission of that contract, instituted by the vendors therein against Pedro Escanlar and Francisco Holgado and filed before another branch of this Court.  Until now, this case, which attacks the very source of whatever rights or interests Holgado and Escanlar may have acquired over one-half (1/2) portions of Lots Nos. 1616 and 1617, is pending resolution by another court.  Otherwise, if this Court meddles on these issues raised in that ordinary civil action seeking for the rescission of an existing contract, then, the act of this Court would be totally ineffective, as the same would be in excess of its jurisdiction.”[36]

Having provided the obstacle and the justification for the stipulated approval not to be granted, private respondents Cari-an should not be allowed to cancel their first transaction with petitioners because of lack of approval by the probate court, which lack is of their own making.

3.  With respect to rescission of a sale of real property, Article 1592 of the Civil Code governs:

“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 the 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.” (Underscoring added)

In the instant case, the sellers gave the buyers until May 1979 to pay the balance of the purchase price.  After the latter failed to pay installments due, the former made no judicial demand for rescission of the contract nor did they execute any notarial act demanding the same, as required under Article 1592.  Consequently, the buyers could lawfully make payments even after the May 1979 deadline, as in fact they paid several installments to the sellers which the latter accepted.  Thus, upon the expiration of the period to pay, the sellers made no move to rescind but continued accepting late payments, an act which cannot but be construed as a waiver of the right to rescind.  When the sellers, instead of availing of their right to rescind, accepted  and received delayed payments of installments beyond the period stipulated, and the buyers were in arrears, the sellers in effect waived and are now estopped from exercising said right to rescind.[37]

4.  The matter of full payment is another issue taken up by petitioners.  An exhaustive review of the records of this case impels us to arrive at a conclusion at variance with that of both the trial and the appellate courts.

The sole witness in the cancellation of sale case was private respondent herein Fredisminda Cari-an Bustamante.  She initially testified that after several installments, she signed a receipt for the full payment of her share in December 1979 but denied having actually received the P5,000.00 intended to complete her share.  She claims that Escanlar and Holgado made her sign the receipt late in the afternoon and promised to give the money to her the following morning when the banks opened.  She also claimed that while her brother Rodolfo Cari-an’s share had already been fully paid, her mother Generosa Martinez only received P28,334.00 and her sister-in-law Nelly Chua vda. de Cari-an received only P11,334.00.  Fredisminda also summed up all

the installments and came up with the total of P132,551.00 from the long list on a sheet of a calendar which was transferred from a small brown notebook.  She later admitted that her list may not have been complete for she gave the receipts for installments to petitioners Escanlar and Holgado.  She thus claimed that they were defrauded because petitioners are wealthy and private respondents are poor.

However, despite all her claims, Fredisminda’s testimony fails to convince this Court that they were not fully compensated by petitioners.  Fredisminda admits that her mother and her sister signed their individual receipts of full payment on their own and not in her presence.[38] The receipts presented in evidence show that Generosa Martinez was paid P45,625.00;  Carmen Cari-an,P45,625.00; Rodolfo Cari-an, P47,500.00 on June 21, 1979; Nelly Chua vda. de Cari-an, P11,334.00 and the sum of P34,218.00 was consigned in court for the minor Leonell Cari-an.[39]Fredisminda insists that she signed a receipt for full payment without receiving the money therefor and admits that she did not object to the computation.  We find it incredible that a mature woman like Fredisminda Cari-an, would sign a receipt for money she did not receive.  Furthermore, her claims regarding the actual amount of the installments paid to her and her kin are quite vague and unsupported by competent evidence.  She even admits that all the receipts were taken by petitioner Escanlar.[40] Worth noting too is the absence of supporting testimony from her co-heirs and siblings Carmen Cari-an, Rodolfo Cari-an and Nelly Chua vda. de Cari-an.

The trial court reasoned out that petitioners, in continuing to pay the rent for the parcels of land they allegedly bought, admit not having fully paid the Cari-ans.  Petitioners’ response, that they paid rent until 1986 in compliance with their lease contract, only proves that they respected this contract and did not take undue advantage of the heirs of Nombre and Cari-an who benefited from the lease.  Moreover, it is to be stressed that petitioners purchased the hereditary shares solely of the Cari-ans and not the entire lot.

The foregoing discussion ineluctably leads us to conclude that the Cari-ans were indeed paid the balance of the purchase price, despite having accepted installments therefor belatedly. There is thus no ground to rescind the contract of sale because of non-payment.

5.  Recapitulating, we have held that the September 15, 1978 deed of sale of rights, interests and participations is valid and that the sellers-private respondents Cari-an were fully paid the contract price.  However, it must be emphasized that what was sold was only the Cari-an’s hereditary shares in Lot Nos. 1616 and 1617 being held pro indiviso by them and is thus a valid

conveyance only of said ideal shares.  Specific or designated portions of land were not involved. 

Consequently, the subsequent sale of 8 parcels of land, including Lot Nos. 1616 and 1617, to the spouses Chua is valid except to the extent of what was sold to petitioners in the September 15, 1978 conveyance.  It must be noted however, that the probate court in Special Proceeding No. 7-7279 desisted from awarding the individual shares of each heir because all the properties belonging to the estate had already been sold. [41] Thus it is not certain how much private respondents Cari-an were entitled to with respect to the two lots, or if they were even going to be awarded shares in said lots.

The proceedings surrounding the estate of Nombre and Cari-an having attained finality for nearly a decade now, the same cannot be re-opened.  The protracted proceedings which have undoubtedly left the property under a cloud and the parties involved in a state of uncertainty compels us to resolve it definitively.

The decision of the probate court declares private respondents Cari-an as the sole heirs by representation of Victoriana Cari-an who was indisputably entitled to half of the estate.[42] There being no exact apportionment of the shares of each heir and no competent proof that the heirs received unequal shares in the disposition of the estate, it can be assumed that the heirs of Victoriana Cari-an collectively are entitled to half of each property in the estate.  More particularly, private respondents Cari-an are entitled to half of Lot Nos. 1616 and 1617, i.e. 14,675 square meters of Lot No. 1616 and 230,474 square meters of Lot No. 1617.  Consequently, petitioners, as their successors-in-interest, own said half of the subject lots and ought to deliver the possession of the other half, as well as pay rents thereon, to the private respondents Ney Sarrosa Chua and Paquito Chua but only if the former (petitioners) remained in possession thereof.

The rate of rental payments to be made were given in evidence by Ney Sarrosa Chua in her unrebutted testimony on July 24, 1989:  For the fishpond (Lot No. 1617) - From 1982 up to 1986, rental payment of P3,000.00 per hectare; from 1986-1989 (and succeeding years), rental payment of P10,000.00 per hectare.  For the riceland (Lot No. 1616) - 15 cavans per hectare per year; from 1982 to 1986, P125.00 per cavan; 1987-1988, P175.00 per cavan; and 1989 and succeeding years, P200.00 per cavan.[43]

WHEREFORE, the petitions are hereby GRANTED.  The decision of the Court of Appeals under review is hereby REVERSED AND SET ASIDE.  The case is REMANDED to the Regional Trial Court of Negros Occidental, Branch 61 for petitioners and private respondents Cari-an or their successors-in-

interest to determine exactly which 1/2 portion of Lot Nos. 1616 and 1617 will be owned by each party, at the option of petitioners.  The trial court is DIRECTED to order the issuance of the corresponding certificates of title in the name of the respective parties and to resolve the matter of rental payments of the land not delivered to the Chua spouses subject to the rates specified above with legal interest from date of demand.

SO ORDERED.

Melo, Francisco, and Panganiban, JJ., concur.Narvasa, C.J., (Chairman), on leave.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-10141             January 31, 1958

REPUBLIC OF THE PHILIPPINES, petitioner, vs.PHILIPPINE RESOURCES DEVELOPMENT CORPORATION and the COURT OF APPEALS, respondents.

Office of the Solicitor General Ambrosio Padilla, and Solicitor Frine C. Zaballero for petitioner.Vicente L. Santiago for respondent Corporation.

PADILLA, J.:

This is a petition under Rule 46 to review a judgment rendered by the Court of Appeals,in CA-GR No. 15767-R, Philippine Resources Development Corporation vs. The Hon. Judge Magno Gatmaitan et al.

The findings of the Court of Appeals are, as follows.

It appears that on May 6, 1955, the Republic of the Philippines in representation of the Bureau of Prisons instituted against Macario Apostol and the Empire Insurance Co. a complaint docketed as Civil Case No. 26166 of the Court of First instance of Manila. The complaint alleges as the first cause of action, that defendant Apostol submitted the highest bid the amount P450.00 per ton for the purchase of 100 tons of Palawan Almaciga from the Bureau of Prisons; that a contract therefor was drawn and by virtue of which, Apostol obtained goods from the Bureau of Prisons valued P15,878.59; that of said account, Apostol paid only P691.10 leaving a balane obligation of P15,187.49. The complaint further averes, as second cause of action, that Apostol submitted the best bid with the Bureau of Prisons for the purchase of three million board feet of logs at P88.00 per 1,000 board feet; that a contract was executed between the Director of Prisons and Apostol pursuant to which

contract Apostol obtained deliveries of logs valued at P65.830.00, and that Apostol failed to pay a balance account Of P18,827.57. All told, for the total demand set forth in complaint against Apostol is for P34,015.06 with legal interests thereon from January 8, 1952. The Empire lnsurance Company was included in the complaint having executed a performance bond of P10,000.00 in favor of Apostol.

In his answer, Apostol interposed payment as a defense and sought the dismissal of the complaint.

On July 19, 1955, the Philippine Resources Development Corporation moved to intervene, appending to its motion, the complaint in the intervention of even date. The complaint recites that for sometime prior to Apostol's transactions the corporate had some goods deposited in a warehouse at 1201 Herran, Manila; that Apostol, then the president of the corporation but without the knowledge or consent of the stockholders thereof, disposed of said goods by delivering the same to the Bureau of Prisons of in an attempt to settle his personal debts with the latter entity; that upon discovery of Apodol's act, the corporation took steps to recover said goods by demanding from the Bureau of Prisons the return thereof; and that upon the refusal of the Bureau to return said goods, the corporation sought leave to intervene in Civil Case No. 26166.

As aforestated, His Honor denied the motion for intervention and thereby issued an order to this effect on July 23, 1955. A motion for the reconsideration of said order was filed by the movant corporation and the same was likewise denied by His Honor on August 18, 1955 . . . (Annex L.).

On 3 September 1955, in a petition for a writ of certiorari filed in the Court of Appeals, the herein respondent corporation prayed for the setting aside of the order of the Court of First Instance that had denied the admission of its complaint-in-intervention and for an order directing the latter Court to allow the herein respondent corporation to intervene in the action (Annex G). On 12 December 1955 the Court of Appeals set aside the order denying the motion to intervene and ordered the respondent court to admit the herein respondent corporation's complaint-in-intervention with costs against Macario Apostol.

On 9 January 1956 the Republic of the Philippines filed this petition in this Court for the purpose stated at the beginning of this opinion.

The Goverment contends that the intervenor has no legal interest in the matter in litigation, because the action brought in the Court of First Instance of Manila against Macario Apostol and the Empire Insurance Company (Civil Case No. 26166, Annex A) is just for the collection from the defendant Apostol of a sum of money, the unpaid balance of the purchase price of logs and almaciga bought by him from the Bureau of Prisons, whereas the intervenor seeks to recover ownership and possession of G. I. sheets, black sheets, M. S. plates, round bars and G. I. pipes that it claims its owns-an intervention which would change a personal action into one ad rem and would unduly delay the disposition of the case.

The Court of Appeals held that:

Petitioner ardently claims that the reason behind its motion to intervene is the desire to protect its rights and interests over some materials purportedly belonging to it; that said material were unauthorizedly and illegally assigned and delivered to the Bureau of Prisons by petitioning corporation's president Macario Apostol in payment of the latter's personal

accounts with the said entity; and that the Bureau of Prisons refused to return said materials despite petitioner's demands to do so.

Petitioner refers to the particulars recited in Apostol's answer dated July 12, 1955 to the effect that Apostol had paid unto the Bureau of Prisons his accounts covered, among others, by BPPO 1077 for the sum of P4,638.40 and BPPO 1549 for the amount of P4,398.54. Petitioner moreover, points to the State of Paid and Unpaid accounts of Apostol dated January 16, 1954 prepared by the accounting of officer of the Bureau of Prisons (Annex B. Complaint in Intervention), wherein it appears that the aforementioned accounts covered respectively by BPPO Nos. 1077 for 892 pieces of GI sheets and 1549 for 399 pieces of GI pipes in the total sum of P9,036.94 have not been credited to Apostol's account in view of lack of supporting papers; and that according to the reply letter of the Undersecretary of Justice, said GI sheets and pipes were delivered by Macario Apostol to the Bureau of Prisons allegedly in Apostol's capacity as owner and that the black iron sheets were delivered by Apostol as President of the petitioner corporation.

Respondents, on the other hand, assert that the subject matter of the original litigation is a sum of money allegedly due to the Bureau of Prisons from Macario Apostol and not the goods or the materials reportedly turned over by Apostol as payment of his private debts to the Bureau of Prisons and the recovery of which is sought by the petitioner; and that for this reason, petitioner has no legal interest in the very subject matter in litigation as to entitle it to intervene.

We find no merit in respondents' contention. It is true that the very subject matter of the original case is a sum of money. But it is likewise true as borne out by the records, that the materials purportedly belonging to the petitioner corporation have been assessed and evaluated and their price equivalent in terms of money have been determined; and that said materials for whatever price they have been assigned by defendant now respondent Apostol as tokens of payment of his private debts with the Bureau of Prisons. In view of these considerations, it becomes enormously plain in the event the respondent judge decides to credit Macario Apostol with the value of the goods delivered by the latter to the Bureau of Prisons, the petitioner corporation stands to be adversely affected by such judgment. The conclusion, therefore, is inescapable that the petitioner possesses a legal interest in the matter in litigation and that such interest is of an actual, material, direct and immediate nature as to entitle petitioner to intervene.

x x x           x x x           x x x

Section 3 of Rule 13 of the Rules of Court endows the lower Court with discretion to allow or disapprove the motion for intrvention (Santarromana et al. vs. Barrios, 63 Phil. 456); and that in the exercise of such discretion, the court shall consider whether or not the intervention will unduly delay or prejudice the adjudicatio of the rights of the original parties and whether or not the intervenors the rights may be fully protected in a separate proceeding. The petitioner in the instant case positively authorized to a separate action against any of all the respondents. But considering that the resolution of the issues raised in and enjoined by the pleadings in the main case, would virtally affect the rights not only the original parties but also of the berein petitioner: that far from unduly delaying or prejudicing the adjudication of the rights of the original parties or bringing about confusion in the original case, the adnission of the complaint in intervention would help clarify the vital issue of the true and real ownership of the materials involved, besides preventing an abhorrent munltiplicity of suit, we believe that the motion to intervene should be given due to cause.

We find no reason for disturbing the foregoing pronouncements. The Government argues that "Price . . . is always paid in terms of money and the supposed payment beeing in kind, it is no payment at all, "citing Article 1458 of the new Civil Code. However, the same Article provides that the purschaser may pay "a price certain in money or its equivalent," which means that they meant of the price need not be in money. Whether the G.I. sheets, black sheets, M. S. Plates, round bars and G. I. pipes claimed by the respondent corporation to belong to it and delivered to the Bureau of Prison by Macario Apostol in payment of his account is sufficient payment therefore, is for the court to pass upon and decide after hearing all the parties in the case. Should the trial court hold that it is as to credit Apostol with the value or price of the materials delivered by him, certainly the herein respondent corporation would be affected adversely if its claim of ownership of such sheets, plates, bars and pipes is true.

The Government reiterates in its original stand that counsel appearing for the respondent corporation has no authority to represent it or/and sue in its behalf, the Court of Appeals held that:

Respondents aver also that petitioner lacks legal capacity to sue and that its counsel is acting merely in an individual capacity without the benefit of the corporate act authorizing him to bring sue. In this connection, respondents invoked among others section 20 of Rule 127 which provision, in our opinion, squarely disproves their claim as by virtue thereof, the authority of petitioner's counsel is pressumed. Withal, the claim of the counsel for the petitioner that a resolution to proceed against Apostol, had been unanonimously adopted by the stockholders of the corporation, has not been refuted.

Evidently, petitioner is a duly organized corporation with offices at the Samanillo Building and that as such, it is endowed with a personality distinct and separate from that of its president or stockholders. It has the right to bring suit to safeguard its interests and ordinarily, such right is exercised at the instance of the president. However, under the circumstance now obtaining, such right properly devolves upon the other officers of the corporations as said right is sought to be exercised against the president himself who is the very object of the intended suit.

The power of a corporation to sue and be sued in any court1 is lodged in the board of directors which exercises it corporater powers,2 and not in the president, as contended by the Government. The "motion for admission of complaint in intervention" (Annex C) and the "complaint in intervention" attached thereto, signed by counsel and filed in the Court of First Instance begin with the following statement: "COMES NOW the above-name Intervenor, by its undersigned counsel, . . . , "and underneath his typewritten name is affixed the description" Counsel for the Intervenor." As counsels authority to appeal for the respondent corporation was newer questioned in the Court of First Instance, it is to be pressumed that he was properly authorized to file the complaint in intervention and appeal for his client.1 It was only in the Court of Appeals where his authority to appear was questioned. As the Court of Appeals was satisfied that counsel was duly authorized by his client to file the complaint does in intervention and to appear in its behalf, hte resolution of the Court of Appeals on this point should not be disturbed.

Granting that counsel has not been actually authorized by the board of directors to appear for and in behalf of the respondent corporation, the fact that counsel is the secretary treasurer of the respondent corporation and member of the board of directors; and that the other members of the board, namely, Macario Apostol, the president, and his wife Pacita R. Apostol, who shuold normally initiate the action to protect the corporate properties and in interest are the ones to be adversely affected thereby, a single stockholder under such circumstances may sue in behalf of the corporation.2 Counsel as a stockholder and director of the respondent corporation may sue in its behalf and file the complaint in intervention in the proper court.

The judgment under review is affirmed, without pronouncements as to costs.

Bengzon, Paras, C.J., Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Endencia, and Felix, JJ., concur.

THIRD DIVISION

[G.R. No. 134559.  December 9, 1999]

ANTONIA TORRES, assisted by her husband, ANGELO TORRES; and EMETERIA BARING, petitioners, vs. COURT OF APPEALS and MANUEL TORRES,respondents.

D E C I S I O N

PANGANIBAN, J.:

Courts may not extricate parties from the necessary consequences of their acts.  That the terms of a contract turn out to be financially disadvantageous to them will not relieve them of their obligations therein.  The lack of an inventory of real property will not ipso facto release the contracting partners from their respective obligations to each other arising from acts executed in accordance with their agreement.

The Case

The Petition for Review on Certiorari before us assails the March 5, 1998 Decision[1] Second Division of the Court of Appeals[2] (CA) in CA-GR CV No. 42378 and its June 25, 1998 Resolution denying reconsideration.  The assailed Decision affirmed the ruling of the Regional Trial Court (RTC) of Cebu City in Civil Case No. R-21208, which disposed as follows:

“WHEREFORE, for all the foregoing considerations, the Court, finding for the defendant and against the plaintiffs, orders the dismissal of the plaintiff’s complaint.  The counterclaims of the defendant are likewise ordered dismissed.  No pronouncement as to costs.”[3]

The Facts

Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture agreement" with Respondent Manuel Torres for the development of a parcel of land into a subdivision.  Pursuant to the contract, they executed a Deed of Sale covering the said parcel of land in favor of respondent, who then had it registered in his name.  By mortgaging the property, respondent obtained from Equitable Bank a loan ofP40,000 which, under the Joint Venture Agreement, was to be used for the development of the subdivision.[4] All three of them also agreed to share the proceeds from the sale of the subdivided lots.

The project did not push through, and the land was subsequently foreclosed by the bank.

According to petitioners, the project failed because of “respondent’s lack of funds or means and skills.” They add that respondent used the loan not for the development of the subdivision, but in furtherance of his own company, Universal Umbrella Company.

On the other hand, respondent alleged that he used the loan to implement the Agreement.  With the said amount, he was able to effect the survey and the subdivision of the lots.  He secured the Lapu Lapu City Council’s approval of the subdivision project which he advertised in a local newspaper.  He also caused the construction of roads, curbs and gutters.  Likewise, he entered into a contract with an engineering firm for the building of sixty low-cost housing units and actually even set up a model house on one of the subdivision lots.  He did all of these for a total expense of P85,000.

Respondent claimed that the subdivision project failed, however, because petitioners and their relatives had separately caused the annotations of adverse claims on the title to the land, which eventually scared away prospective buyers.  Despite his requests, petitioners refused to cause the clearing of the claims, thereby forcing him to give up on the project.[5]

Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who were however acquitted.  Thereafter, they filed the present civil case which, upon respondent's motion, was later dismissed by the trial court in an Order dated September 6, 1982.  On appeal, however, the appellate court remanded the case for further proceedings.  Thereafter, the RTC issued its assailed Decision, which, as earlier stated,  was affirmed by the CA.

Hence, this Petition.[6]

Ruling of the Court of Appeals

In affirming the trial court, the Court of Appeals held that petitioners and respondent had formed a partnership for the development of the subdivision.  Thus, they must bear the loss suffered by the partnership in the same proportion as their share in the profits stipulated in the contract.  Disagreeing with the trial court’s pronouncement that losses as well as profits in a joint venture should be distributed equally,[7] the CA invoked Article 1797 of the Civil Code which provides:

“Article 1797 - The losses and profits shall be distributed in conformity with the agreement.  If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion.”

The CA elucidated further:

“In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed, but the industrial partner shall not be liable for the losses.  As for the profits, the industrial partner shall receive such share as may be just and equitable under the circumstances.  If besides his services he has contributed capital, he shall also receive a share in the profits in proportion to his capital.”

The Issue

Petitioners impute to the Court of Appeals the following error:

“x x x [The] Court of Appeals erred in concluding that the transaction x x x between the petitioners and respondent was that of a joint venture/partnership, ignoring outright the provision of Article 1769, and other related provisions of the Civil Code of the Philippines.”[8]

The Court’s Ruling

The Petition is bereft of merit.

Main Issue:  Existence of a Partnership

Petitioners deny having formed a partnership with respondent.  They contend that the Joint Venture Agreement and the earlier Deed of Sale, both of which were the bases of the appellate court’s finding of a partnership, were void.

In the same breath, however, they assert that under those very same contracts, respondent is liable for his failure to implement the project.  Because the agreement entitled them to receive 60 percent of the proceeds from the sale of the subdivision lots, they pray that respondent pay them damages equivalent to 60 percent of the value of the property.[9]

The pertinent portions of the Joint Venture Agreement read as follows:

“KNOW ALL MEN BY THESE PRESENTS:

“This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of March, 1969, by and between MR. MANUEL R. TORRES, x x x the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA BARING, x x x the SECOND PARTY:

W I T N E S S E T H:

“That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this property located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368 covering TCT No. T-0184 with a total area of 17,009 square meters, to be sub-divided by the FIRST PARTY;

“Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of:  TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, upon the execution of this contract for the property entrusted by the SECOND PARTY, for sub-division projects and development purposes;

“NOW THEREFORE, for and in consideration of the above covenants and promises herein contained the respective parties hereto do hereby stipulate and agree as follows:

“ONE:  That the SECOND PARTY signed an absolute Deed of Sale x x x dated March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency, for 1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of the FIRST PARTY, but the SECOND PARTY did not actually receive the payment.

“SECOND:  That the SECOND PARTY, had received from the FIRST PARTY, the necessary amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, for their personal obligations and this particular amount will serve as an

advance payment from the FIRST PARTY for the property mentioned to be sub-divided  and to be deducted from the sales.

“THIRD:  That the FIRST PARTY, will not collect from the SECOND PARTY, the interest and the principal amount involving the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, until the sub-division project is terminated and ready for sale to any interested parties, and the amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will be deducted accordingly.

“FOURTH:  That all general expense[s] and all cost[s] involved in the sub-division project should be paid by the FIRST PARTY, exclusively and all the expenses will not be deducted from the sales after the development of the sub-division project.

“FIFTH:  That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM 40% for the FIRST PARTY, and additional profits or whatever income deriving from the sales will be divided equally according to the x x x percentage [agreed upon] by both parties.

“SIXTH:  That the intended sub-division project of the property involved will start the work and all improvements upon the adjacent lots will be negotiated in both parties['] favor and all sales shall [be] decided by both parties.

“SEVENTH:  That the SECOND PARTIES, should be given an option to get back the property mentioned provided the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, borrowed by the SECOND PARTY, will be paid in full to the FIRST PARTY, including all necessary improvements spent by the FIRST PARTY, and the FIRST PARTY will be given a grace period to turnover the property mentioned above.

“That this AGREEMENT shall be binding and obligatory to the parties who executed same freely and voluntarily for the uses and purposes therein stated.”[10]

A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership pursuant to Article 1767 of the Civil Code, which provides:

“ART. 1767.  By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.”

Under the above-quoted Agreement, petitioners would contribute property to the partnership in the form of land which was to be developed into a subdivision; while

respondent would give, in addition to his industry, the amount needed for general expenses and other costs.  Furthermore, the income from the said project would be divided according to the stipulated percentage.  Clearly, the contract manifested the intention of the parties to form a partnership.[11]

It should be stressed that the parties implemented the contract.  Thus,  petitioners transferred the title to the land to facilitate its use in the name of the respondent.  On the other hand, respondent caused the subject land to be mortgaged, the proceeds of which were used for the survey and the subdivision of the land.  As noted earlier, he developed the roads, the curbs and the gutters of the subdivision and entered into a contract to construct low-cost housing units on the property.

Respondent’s actions clearly belie petitioners’ contention that he made no contribution to the partnership.  Under Article 1767 of the Civil Code, a partner may contribute not only money or property, but also industry.

Petitioners Bound by Terms of Contract

Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been expressly stipulated, but also to all necessary consequences thereof, as follows:

“ART. 1315.  Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.”

It is undisputed that petitioners are educated and are thus presumed to have understood the terms of the contract they voluntarily signed.  If it was not in consonance with their expectations, they should have objected to it and insisted on the provisions they wanted.

Courts are not authorized to extricate parties from the necessary consequences of their acts, and the fact that the contractual stipulations may turn out to be financially disadvantageous will not relieve parties thereto of their obligations.  They cannot now disavow the relationship formed from such agreement due to their supposed misunderstanding of its terms.

Alleged Nullity of the Partnership Agreement

Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code, which provides:

“ART. 1773.  A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument.”

They contend that since the parties did not make, sign or attach to the public instrument an inventory of the real property contributed, the partnership is void.

We clarify.  First, Article 1773 was intended primarily to protect third persons.  Thus, the eminent Arturo M. Tolentino states that under the aforecited provision which is a complement of Article 1771,[12] “the execution of a public instrument would be useless if there is no inventory of the property contributed, because without its designation and description, they cannot be subject to inscription in the Registry of Property, and their contribution cannot prejudice third persons.  This will result in fraud to those who contract with the partnership in the belief [in] the efficacy of the guaranty in which the immovables may consist.  Thus, the contract is declared void by the law when no such inventory is made.”  The case at bar does not involve third parties who may be prejudiced.

Second, petitioners themselves invoke the allegedly void contract as basis for their claim that respondent should pay them 60 percent of the value of the property. [13] They cannot in one breath deny the contract and in another recognize it, depending on what momentarily suits their purpose.  Parties cannot adopt inconsistent positions in regard to a contract and courts will not tolerate, much less approve, such practice.

In short, the alleged nullity of the partnership will not prevent courts from considering the Joint Venture Agreement an ordinary contract from which the parties’ rights and obligations to each other may be inferred and enforced.

Partnership Agreement Not the Result of an Earlier Illegal Contract

Petitioners also contend that the Joint Venture Agreement is void under Article 1422[14] of the Civil Code, because it is the direct result of an earlier illegal contract, which was for the sale of the land without valid consideration.

This argument is puerile.  The Joint Venture Agreement clearly states that the consideration for the sale was the expectation of profits from the subdivision project.  Its first stipulation states that petitioners did not actually receive payment for the parcel of land sold to respondent.  Consideration, more properly denominated

as cause, can take different forms, such as the prestation or promise of a thing or service by another.[15]

In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but in the expectation of profits from the subdivision project, for which the land was intended to be used.  As explained by the trial court, “the land was in effect given to the partnership as [petitioner’s] participation therein.  x x x There was therefore a consideration for the sale, the [petitioners] acting in  the expectation that, should the venture come into fruition, they [would] get sixty percent  of the net profits.”

Liability of the Parties

Claiming that respondent was solely responsible for the failure of the subdivision project, petitioners maintain that he should be made to pay damages equivalent to 60 percent of the value of the property, which was their share in the profits under the Joint Venture Agreement.

We are not persuaded.  True, the Court of Appeals held that petitioners’ acts were not the cause of the failure of the project. [16] But it also ruled that neither was respondent responsible therefor.[17] In imputing the blame solely to him, petitioners failed to give any reason why we should disregard the factual findings of the appellate court relieving him of fault.  Verily, factual issues cannot be resolved in a petition for review under Rule 45, as in this case.  Petitioners have not alleged, not to say shown, that their Petition constitutes one of the exceptions to this doctrine. [18] Accordingly, we find no reversible error in the CA's ruling that petitioners are not entitled to damages.

WHEREFORE, the Petition is hereby DENIED and the challenged Decision AFFIRMED.  Costs against petitioners.

SO ORDERED.

Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

 

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

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

 

DAVIDE, JR., J.:

At the heart of the present controversy is the document marked Exhibit "A" 1 for the private respondent, which was signed by a sales representative of Toyota Shaw, Inc. named Popong Bernardo. The document reads as follows:

4 June 1989

AGREEMENTS BETWEEN MR. SOSA& POPONG BERNARDO OF TOYOTA

SHAW, INC.

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

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

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

Very truly yours,

(Sgd.) POPONG BERNARDO.

Was this document, executed and signed by the petitioner's sales representative, a perfected contract of sale, binding upon the petitioner, breach of which would entitle the private respondent to damages and attorney's fees? The trial court and the Court of Appeals took the affirmative view. The petitioner disagrees. Hence, this petition for review oncertiorari.

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

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

The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver the downpayment of P100,000.00. They met Bernardo who then accomplished a printed Vehicle Sales Proposal (VSP) No. 928, 2 on which Gilbert signed under the subheading CONFORME. This document shows that the customer's name is "MR. LUNA SOSA" with home address at No. 2316 Guijo Street, United Parañaque II; that the model series of the vehicle is a "Lite Ace 1500" described as "4 Dr minibus"; that payment is by "installment," to be financed by "B.A.," 3 with the initial cash outlay of P100,000.00 broken down as follows:

a) downpayment — P 53,148.00

b) insurance — P 13,970.00

c) BLT registration fee — P 1,067.00

CHMO fee — P 2,715.00

service fee — P 500.00

accessories — P 29,000.00

 

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

CONDITIONS OF SALES

1. This sale is subject to availability of unit.

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

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

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

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

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

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

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

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

After trial on the issues agreed upon during the pre-trial session, 11 the trial court rendered on 18 February 1992 a decision in favor of Sosa. 12 It ruled that Exhibit "A," the "AGREEMENTS BETWEEN MR. SOSA AND POPONG BERNARDO," was a valid perfected contract of sale between Sosa and Toyota which bound Toyota to deliver the vehicle to Sosa, and further agreed with Sosa that Toyota acted in bad faith in selling to another the unit already reserved for him.

As to Toyota's contention that Bernardo had no authority to bind it through Exhibit "A," the trial court held that the extent of Bernardo's authority "was not made known to plaintiff," for as testified to by Quirante, "they do not volunteer any information as to the company's sales policy and guidelines because they are internal matters." 13 Moreover, "[f]rom the beginning of the transaction up to its consummation when the downpayment was made by the plaintiff, the defendants had made known to the plaintiff the impression that Popong Bernardo is an authorized sales executive as it permitted the latter to do acts within the scope of an apparent authority holding him out to the public as possessing power to do these acts." 14 Bernardo then "was an agent of the defendant Toyota Shaw, Inc. and hence bound the defendants." 15

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

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

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

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

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

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

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

SO ORDERED.

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

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

We find merit in the petition.

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

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

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

and Article 1475 specifically provides when it is deemed perfected:

Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.

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

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

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

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

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

that he was not dealing with Toyota but with Popong Bernardo and that the latter did not misrepresent that he had the authority to sell any Toyota vehicle. He knew that Bernardo was only a sales representative of Toyota and hence a mere agent of the latter. It was incumbent upon Sosa to act with ordinary prudence and reasonable diligence to know the extent of Bernardo's authority as anagent 20 in respect of contracts to sell Toyota's vehicles. A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. 21

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

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

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

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

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

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

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

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

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

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

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

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

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

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

No pronouncement as to costs.

SO ORDERED.

Padilla, Bellosillo and Kapunan, JJ., concur.

Quiason, J., is on leave.