1

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of sugar within the period of three months, referred to in the second paragraph of this document, this contract will be rescinded and the said Mr.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

2

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.

3

G.R. No. 59534. May 10, 1990.*

COMPAÑIA GENERAL DE TABACOS DE FILIPINAS, petitioner, vs. COURT OF APPEALS, PHILIPPINE NATIONAL BANK and DEVELOPMENT BANK OF THE

PHILIPPINES, respondents.

Civil Law; Chattel Mortgage Law; Sugar quota allocations do not have existence independently of any particular tract of land. They are essentially ancillary not principal assets, necessarily annexed to a specific sugar plantation or land, improvements “attaching to the land entitled thereto.”—Again, being themselves engaged and possessed of no little experience in the sugar industry, said Theo H. Davies & Co., Ltd., San Carlos Planters’ Association (and their own transferees) could not but have known, when negotiations for their respective purchases of the sugar quota in question commenced, that the sugar quota they were dealing with had perforce to pertain to some specific sugar plantation or farm, i.e., Plantation 30-15 of the Mindoro Mill District. Sugar quota allocations do not have existence independently of any particular tract of land. They are essentially ancillary, not principal, assets, necessarily annexed to a specific sugar plantation or land, improvements “attaching to the land entitled thereto.” Hence, the very first inquiry in any negotiation affecting sugar quotas necessarily would have to do with the identification of the district, plantation or land to which the quotas appertain. No transaction can be had of sugar quotas in the abstract, without reference whatsoever to any particular land. Indeed, any deed of conveyance of sugar quota would unavoidably have to describe the sugar plantation and district to which it refers or relates. There can be no sale simply of sugar quota of a certain number of piculs without specification of the land to which it relates. Such a sale would be inconsistent with established usage, and would be void for want of a determinate subject matter. Theo H. Davies & Co., Ltd. and San Carlos Planters’ Association can not therefore plead ignorance of the fact that the quota they were buying pertained to land belonging to the sellers, Plantation No. 30-15 of the Mindoro Mill District.

Same; Same; Same; Theo H. Davies & Co. Ltd. and San Carlos Planters’ Association having come to know of the earlier encumbrance to other parties, it is not possible for them without contradicting themselves to claim good faith in the transaction.—Furthermore, Theo H. Davies & Co., Ltd. and San Carlos Planters’ Association were obviously of the belief that a mortgage or sale of a sugar quota is void if “(a)pproval or sanction of the Sugar Quota Administration (is) lacking,” this being in fact a proposition TABACALERA lays before this Court, although it cites no particular authority for it and has thus failed to convince this Court of its validity. Be this as it may, it was with this proposition in mind that Theo H. Davies & Co. Ltd. and San Carlos Planters’ Association submitted the deed of conveyance in their favor of the sugar quota in question, to the SQA, precisely to obtain the latter’s approval of that transaction. That approval, as already stated, was not given until a year later. But long before that approval, they were clearly and categorically informed that the sugar quota, subject of the sale to them for which they were seeking approval by the SQA, was already mortgaged to the RFC and then to the PNB. Since good faith is obviously a state of the mind, and since—prior to the approval of the conveyance to them of the sugar quota by the SQA, which approval they thought to be essential for the validity of said conveyance—they came to know of the earlier encumbrance thereof to other parties,

it is not possible for them, without contradicting themselves, to claim good faith in the transaction.

Same; Same; Same; Tabacalera and the other vendees of Theo H. Davies & Co. Ltd. and San Carlos Planters’ Association had to know that the sugar quotas they were purchasing had originally to be part and parcel of some sugar plantation.—Turning now to TABACALERA and the other vendees of Theo H. Davies & Co. Ltd. and San Carlos Planters’ Association, it is self-evident that they are also quite familiar with sugar quotas, including the nature and process of transferring the same, these being an important factor in their operations and transactions. They therefore had to know that the sugar quotas they were purchasing had originally to be part and parcel of some sugar plantation. Hence, apart from being charged with knowledge, as above discussed, of the mortgage of the land to which the sugar quota in question was an integrated adjunct—and that the mortgage extended to said sugar quotas like the buildings and improvements thereon standing—it may reasonably be assumed as a fact, too, that they inquired about and were duly informed of the origin of, and immediately preceding transactions involving, the sugar quotas they were acquiring.

Same; Same; Contracts; Where the unlawful or forbidden cause consists does not constitute a criminal offense and the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract or demand the performance of the other’s undertaking.—One final question remains to be resolved, that posed by TABACALERA, to wit: if it reconveys the sugar quota acquired from San Carlos Planters’ Association, or pays its value, should not it be reimbursed therefor by the latter, upon its implied and express warranty against eviction? The answer will have to be in the negative. They, vendor and vendee, are in pari delicto. At the time of the transaction between them they were well aware of the encumbrance on the property dealt with; they had the common intention of negating the rights that they knew had earlier and properly been acquired by the mortgagee of the property they were treating of; they were both consequently acting in bad faith. The object or purpose of their contract was “contrary to law, morals, good customs, public order or public policy.” The law says that in such a case, where “the unlawful or forbidden cause consists does not constitute a criminal offense, and the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other’s undertaking.” No relief can be granted to either party; the law will leave them where they are.

PETITION for certiorari to review the judgment of the Court of Appeals.

The facts are stated in the opinion of the Court.

Siguion Reyna, Montecillo & Ongsiako for petitioner.

Pelaez, Adriano & Gregorio for respondents San Carlos Planters’ Association & Theo Davis & Co., Far East Ltd. et al.

NARVASA, J.:

The conflicting claims of the mortgagees of a sugar quota or production allowance, on the one hand, and the mortgagors' subsequent vendees of the same, on the other, are the subject of the petition for review on certiorari at bar.

4

It appears that an unregistered partnership known as Gomez & Torres — composed of Francisco M. Gomez and Hector Torres — was the "principal and majority stockholder of the Philippine Milling Company, a domestic corporation which owns and operates in the Mindoro Mill District a sugar mill where all the sugar cane planters of that mill district mill their sugar cane." 1 "Gomez & Torres" was also "registered in the Sugar Quota Administration as the owner and holder of the entire production allowance or quota appertaining to Plantation No. 30-15 of the Mindoro Mill District." 2

As security for a loan of P2,000,000.00 obtained from the Rehabilitation Finance Corporation (RFC), said Philippine Milling Company (thru its president, Hector A. Torres), and the above mentioned Hector A. Torres and Francisco Gomez, executed on August 7, 1950, a deed of mortgage hypothecating to the RFC, particularly described real and personal property, "together with all the buildings and improvements now existing or which may hereafter be constructed on the mortgaged property, all easements, sugar quotas, agricultural or land indemnities, aids or subsidies and all other rights or benefits annexed to or inherent therein, now existing or which may hereafter exist." 3

The mortgagors above named also assigned to the RFC on August 16, 1950, in a public instrument, 4 the sugar quota of the mill district aggregating no less than 148,000 piculs and sugar warehouse receipts covering, the first 29,500 piculs of sugar milled by the sugar central annually and such additional sugar as may be necessary to cover the annual amortization of the loan, taking into consideration the fluctuating sugar prices, which assignments shall remain in full force and effect as long as . . . (their) aforementioned loan has not been settled in full."

Some fifteen months later, or on November 2, 1951, the same mortgagors executed in favor of the same mortgagee (the R.F.C) a second mortgage, this time as security for another loan of P1,860,000.00. The mortgage covered real and/or personal properties listed in the deed, "together with all the buildings and improvements now existing or which may hereafter be constructed on the mortgaged property, all easements, sugar quotas, agricultural or land indemnities, aids or subsidies, and all other rights or benefits annexed to or inherent therein, now existing or which may hereafter exist . . . and also other assets acquired with the proceeds of such loan . . . " 5

The mortgagors also executed on November 2, 1951 an assignment in favor of the RFC, like that of August 16, 1950, supra, respecting "its rights and interests on all the sugar quota of the Mindoro Mill District aggregating no less than 148,000 piculs and additional sugar warehouse receipts covering the first 27,350 piculs of sugar milled by the sugar central annually, and such additional sugar may be necessary to cover the annual amortization on the loan, until the full amount of the additional loan has been fully paid." 6

Both deeds of (real estate and chattel) mortgages were registered in the Register of Deeds of Occidental Mindoro on August 20, 1950 and November 9, 1951, respectively. 7

Earlier, or on or about January 13, 1951, the real estate and personal property subject of the two (2) mortgages just described, were again mortgaged by Philippine Milling Co., Francisco M. Gomez and Hector A. Torres, this time in favor of the Philippine

National Bank as collateral for a loan of P235,000.00. This real estate and chattel mortgage was amended on April 6, 1951 by increasing its consideration from P235,000.00 to P335,000.00, and still later, on January 18, 1952, by further increasing the consideration to P1,405,0,00.00. 8 The original deed and its two (2) amendments were all registered with the Register of Deeds of Occidental Mindoro.

In July, 1957, two (2) letters-agreements were executed between Gomez & Torres (represented by Francisco M. Gomez) on the one hand, and Theo H. Davies & Co., Ltd. ("for itself and representing [or as authorized representative of) San Carlos Planters' Association"]), on the other, by virtue of which the former sold to the latter a total of 18,000 piculs of the production allowance (or sugar quota) of Plantation No. 30-15, to wit:

1) On July 3, 1957: 8,250 piculs of "our ''A" quota and 1,750.00 piculs of our "B" quota corresponding to Plantation No. 30-15 of the Mindoro Mill District which is duly registered in our name;" 9 and

2) on July 11, 1957: 6,600.00 piculs of "our "A" quota and 1,400.00 piculs of our "B" quota . . ."

In the later agreement, Gomez & Torres guaranteed "that said 8,000.00 piculs of quotas as well as the 10,000.00 piculs sold to you on July 3, 1957, belong to us and are free from any lien or incumbrance whatsoever." 10

The transferees presented the two (2) agreements for recording in the District Office of the Sugar Quota Administration, on July 12, 1957. But the Sugar Quota Administration declined to give due course to the transfer until "necessary corrections" were made in the registration documents (known as DTRs: "district transfer registries"), and "the written conformity of the PNB," secured. 11

In a letter to the Philippine Mining Company dated September 10, 1957, the Administrator cited several reasons for his refusal: 12

1. There is no signature nor initial of the Permit Agent assigned to your District.

2. There is no distribution of coefficients in Columns F, I, and J in both of your DTR's.

3. This Office received a letter from the Philippine National Bank advising this Office that the allotments of Plantations Nos. 30-4, 30-8c, 30-9c, 30-14, 30-15 and 30-16a are mortgaged to the PNB and to advise the PNB of any sale, transfer or conveyance affecting the quota of the Philippine Milling Company, Hector A. Torres and Francisco M. Gomez and to withhold the registration without the consent of the PNB.

The letter of the PNB above referred to (par. 3) was that written by its Vice President, J.V. Buenaventura, dated September 4, 1957. 13

On October 2, 1957, San Carlos Planters' Association and Theo H. Davies Co. Ltd. submitted "two copies of the mill district coefficients and allowances of the 1957-1958 crop of the San Carlos Mill District." In response, the Sugar Quota Administrator sent them a letter dated October 3, 1957 advising that it was inappropriate for them to include "in said list, sugar allotments rights in the quantity of 14,850 piculs for 'A' and 3,150 for 'B' purchased by San Carlos Milling Co., Ltd. from Mindoro Mill District," because "this purchase has not been given due course by this office in view of the

5

defects . . . (which) have not yet been corrected." 14

The Governor of the RFC also wrote to the SQA, under date of October 9, 1957, informing it of the mortgage to it of the sugar quota in question "aggregating no less than 148,000 piculs," and requesting "that no transfer or conveyance affecting the said sugar quota rights of the Philippine Milling Co. and Messrs. Hector A. Torres and Francisco Gomez that may have been presented or . . . may be presented . . . be given due course without the written consent of this Corporation." 15

On October 17, 1957, the San Carlos Milling Co. Ltd. and Theo H. Davies & Co. Far East Ltd. wrote to the SQA, in reply to the latter's communication of October 3, 1957. Adverting to a letter of the Philippine Milling Co. "of Sept. 15th, 1957 and . . . memorandum enclosure of the same date addressed to the Phil. Milling Co., the transferor central, by Torres and Gomez, owners and sellers of the quota rights in question, " they demanded "that the transfer of said quotas be given effect immediately from Mindoro Plantation Audit 30-15 of Torres and Gomez to Plantation Audit No. 38-E-24 of the San Carlos Mill District for account of the San Carlos Planters

Association." 16

The matter of registration remained in a state of flux until about a year later, or more precisely, August 5, 1958, when the Administrator ultimately authorized the transfer. 17

On January 6 and 7, 1959, the San Carlos Planters' Association in turn executed sales of portions of the sugar quota of 18,000 piculs acquired by it in favor of various individual sugar planters, all of which sales were recorded in the San Carlos District Transfer Registry. 18 Then on January 16, 1959, San Carlos effected a change in the Plantation Number of its remaining portion of the sugar quota purchased by it (57.06 piculs of "A" quota and 12.12, piculs of "B" quota) from No. 38-E-24 to No. 38-343. 19

Eventually, the Development Bank of the Philippines (formerly RFC) caused the extrajudicial foreclosure of its mortgages of August 7, 1950 and November 2, 1951 by the Provincial Sheriff of Occidental Mindoro. The foreclosure sale was held on November 28, 1958. The DBP was the highest bidder. A certificate of sale was accordingly drawn up in its favor by the Sheriff on January 19, 1959. 20 As might be expected, among the properties specified in the certificate of sale, as having been sold to DBP, were. 21

All sugar quota rights of the Philippine Milling Company including those of Spouses, Francisco M. Gomez and Francisca Villanueva and the Spouses, Hector A. Torres and Galinica Romano, as well as those of Gomez and Torres partnership in the Mindoro Mill District aggregating to no less than 148,000 piculs of sugar, which are attached to any and or all parcels of land described above and mortgaged to the Rehabilitation Finance Corporation now Development Bank, of the Philippines as well as the said sugar central's share in the above sugar and quota rights.

On June 17, 1960 — the one-year redemption period granted by law to the mortgagors, having expired without a redemption having been attempted, and the DBP having consolidated its ownership over the real and personal property subject of the mortgage sale — the DBP executed a deed of sale in favor of the PNB covering all

the foreclosed property, for P5,147,309.07 and other valuable consideration. 22

Now, as regards the sugar quota in question, said deed stipulated inter alia that:

1) The "sugar quota rights pertaining to the Philippine Milling Company shall not be covered-by this agreement until after the expiration of the 1959-1960 crop year, but in no case earlier than June 30, 1960;" 23 and

2) ". . . while the l8,000 piculs of "A" and "B" sugar are expressly excluded in this Deed of Sale because of certain circumstances, the Vendee may, however, take such action as it may deem proper in order to recover the said 18,000 piculs of "A" and "B" sugar quota and Vendor agrees to join such action whenever requested by the Vendee, it being understood, however, that Vendor shall not in any way be responsible for said 18,000 piculs nor be liable for the outcome of such action . . . 24

After about two (2) years, in March, 1962, PNB wrote to the San Carlos Planters' Association and the planters to whom the latter had sold portions of the 18,000 piculs of the sugar quota in question, supra, demanding the restoration and delivery to it (the PNB) of their respective portions of said quota. As already mentioned, 25 the 18,000 piculs consisted of 14,850 piculs of 'A' quota and 3,150 piculs of 'B' quota.

When the latter failed to do so, the PNB together with the DBP brought suit in the Court of First Instance of Occidental Mindoro against Francisco M. Gomez and Hector A. Torres and their spouses; the partnership of Gomez & Torres; the Philippine Planters' Association; all the sugar planters to whom as aforementioned had been sold parts of the 18,000 piculs of the sugar quota in question; and the Sugar Quota Administration. 26 It set out three (3) causes of action in its complaint and prayed for judgment as follows:

ON THE FIRST CAUSE OF ACTION

a. Declare the plaintiff PNB owner of the sugar quota in question in the quantity equal to 14,850 piculs of "A" quota and 3,150 piculs of "B" quota presently registered in the Sugar Quota Administration in the names of the defendants PLANTERS and defendant San Carlos Planters' Ass'n in the quantity and under the plantation numbers indicated in par. 3 of the First Cause of Action of this Complaint;

b. Order the defendants PLANTERS of the San Carlos Mill District and the defendant San Carlos Planters' Ass'n to return and restore to the plaintiff PNB the sugar quota in question;

c. Order the cancellation of the District Transfer Registry . . . (regarding the transfers to the defendants) and declare same of no force and effect.

ON THE SECOND AND ALTERNATIVE CAUSE OF ACTION

a. Declare the plaintiff PNB owner of the sugar quota in question in the quantity equal to 14,850 piculs of "A" quota and 3,150 piculs of "B" quota presently registered in the Sugar Quota Administration in the names of the defendants PLANTERS and defendant San Carlos Planters' Assn. in the quantity and under the plantation numbers indicated in par. 3 of the First Cause of Action of this Complaint;

b. Declare the sale of the sugar quota in question made by defendant TORRES &

6

GOMEZ on July 3, 1957 and July 11, 1957 null and void;

c. Declare the transfer of the sugar quota in question from the Mindoro Mill District to the San Carlos Mill District null and void;

d. Declare the subsequent transfer of the sugar quota in question made by defendant San Carlos Planters' Assn. to the defendant PLANTERS of the San Carlos Mill District null and void;

e. Order the said defendants PLANTERS and the defendant San Carlos Planters' Assn. to return and restore to the plaintiff PNB the sugar quota in question; and

f. Order the cancellation of the. District Transfer Registry, Annexes "F", "G", "H", "I" and "J" and declare same of no force and effect.

ON THE THIRD CAUSE OF ACTION

a. Order the defendants TORRES & GOMEZ, Francisco Gomez, Hector A. Torres, Conrado Manalansan, as Sugar Quota Administrator, Theo H. Davies & Co. Ltd. and the San Carlos Planters' Assn. to pay jointly and severally the plaintiff PNB the sum of P50,400.00 as lost and/or unrealized rental of the sugar quota in question for the 1958-1959 crop year;

b. Order the defendants TORRES & GOMEZ, Francisco Gomez, Hector A. Torres, Conrado Manalansan, as Sugar Quota Administrator, Theo H. Davies & Co. Ltd. and the San Carlos Planters' Assn. to pay jointly and severally the plaintiff PNB the sum of P93,465.00 as unrealized profits on the sugar quota in question in connection with the agreement for conversion for 1959-1960 crop year;

c. Order the defendants TORRES & GOMEZ, Francisco Gomez, Hector A. Torres, Conrado Manalansan, as Sugar Quota Administrator, Theo H. Davies & Co. Ltd. and the San Carlos Planters' Assn. to pay jointly and severally the plaintiff PNB the sum of P93,465.00 as unrealized profits on the sugar quota in question in connection with the agreement for conversion entered with the BISCOM for the 1960-1961 crop year;

d. Order the defendants TORRES & GOMEZ, Francisco Gomez, Hector A. Torres, Conrado Manalansan, as Sugar Quota Administrator, Theo H. Davies & Co. Ltd., San Carlos Planters' Assn. and the defendants PLANTERS to pay jointly and severally the Plaintiff PNB the sum of P9,000.00 annually for three crop years beginning with the 1961-1962 as lost and/or unrealized rental of the sugar quota in question.

Plaintiff further pray for such other relief which this Honorable Court may deem just and proper to grant in the premises, with costs against the defendants.

Answers were in due course filed by the several defendants. At the pre-trial, the parties entered into a partial stipulation of facts which contained, in substance:

1) an admission of all the relevant documents appended to the complaint, as well as other documents, already above specified;

2) an acknowledgment that the consideration fixed in the two (2) letters-contracts between Gomez & Torres and Theo H. Davies & Co., Ltd. and the San Carlos Planters' Association, dated July 3 and 11, 1957, 27 had been paid;

3) a statement that the transfer of a part of the sugar quota to Cia. General de Tabacos de Filipinos (TABACALERA) was for valid consideration, and was accompanied by the usual warranty of the vendor's full right of disposition thereof and of absence of any lien or encumbrance thereon; and

4) a request that the court "take judicial notices of all executive orders, circulars and regulations which are pertinent to sugar quotas or which are otherwise in implementation of, or connected with, legislation on sugar trade and industry." 28

Trial ensued after which judgment was rendered. The Trial Court's judgment, rendered on April 8, 1968, 29 went against the plaintiffs. 30 It made the following explicit findings:

1. That while the defendants, Philippine Milling Company and Gomez and Torres assigned the rights over the Sugar Quota to the R.F.C., said assignment of rights, not having been duly registered in accordance with the rules and regulations of the Sugar Quota Administration, did not effect third parties who acquired said sugar quota in good faith and for value;

2. That the San Carlos Planters Association, the Theo H. Davies, the TABACALERA and all the transferees had acquired the sugar quota in question legally and in good faith, hence, the plaintiff has no cause of action against them; (and)

3. That nevertheless, a valid cause of action exists as against defendants Francisco M. Gomez and Hector Torres on the basis of the mortgage and assignment executed by them in favor of the Development Bank of the Philippines and the Philippine National Bank.

And on said findings, the Court:

1) dismissed the case "as against the San Carlos (Planters') Association, Theo H. Davies Co., Ltd., TABACALERA, the Sugar Quota Administrator and all the other private defendants who are the transferees;" but

2) ordered defendants 'Francisco M. Gomez and Hector Torres . . . to pay the value of the 18,000 piculs of 'A' and 'B' sugar quota allowance in the amount of P270,000.00 to the Philippine National Bank, plus interest at the legal rate from 1958 up to the actual payment thereof and to pay the costs."

PNB and Francisco Gomez appealed to the Court of Appeals. 31 The PNB ascribed to the Trial Court the following errors to wit:

1) not finding that a valid mortgage was duly constituted also on the sugar quota allowances in question with binding effect against third persons including the defendants-appellees;

2) not finding that the defendants-appellees had both actual and constructive notice of the mortgage in favor of the Philippine National Bank and the Development Bank of the Philippines which covered the sugar quota allowances;

3) not finding that the PNB is the owner of the sugar quota allowance and in not ordering the defendants-appellees to return or reconvey the said sugar quota allowances to the PNB.

7

The decision of the Court of Appeals 32 was rendered on October 30, 1980. 33 It modified the Trial Court's judgment as follows:

IN VIEW OF THE FOREGOING CONSIDERATIONS, the judgment appealed from is hereby modified, in these aspects:

1. declaring the Philippine National Bank the owner of the sugar quota or production allowances in question;

2. ordering the defendants-appellees (excepting the defendant-appellee Administrator of the Sugar Quota Office) to reconvey to plaintiff-appellant PNB, the said sugar quota or production allowance in question registered in their names, or if the same can not now be legally done, directing the defendants-appellees (excepting appellee Administrator of the Sugar Quota Office) to jointly and severally pay to PNB the value of the sugar quota or production allowance in question.

The appealed judgment is hereby affirmed in all other respects.

From this judgment, the Compañia General de Tabacos (TABACALERA) has appealed to this Court. Here it submits that said judgment should be reversed on the basis of the following considerations, to wit:

1) that sugar quotas are not "ordinary property . . . which may be appropriated, transferred, conveyed and/or encumbered by the private grantee at his whim and discretion without the intervention of the State," it being "regulated property, the disposal or encumbrance of which is made subject to certain restrictions and regulations provided for by law;" hence, "any form of alienation thereof should be made subject to governmental regulations and should be processed and approved by the implementing arm of the government, the Sugar Quota Administration;" and the mortgage constituted over the sugar quota in this case by the parties to whom the same had originally been awarded — the partnership of Gomez and Torres or the Philippine Milling Company — was void, "(a)pproval or sanction of the Sugar Quota Administration . . . (being) sorely and fatally lacking;"

a) moreover, "the very terms of the deed of sale executed by the DBP in favor of PNB on June 17, 1966 specifically and expressly excluded the 18,000 piculs in question;

2) even if the mortgage be accorded validity, it was "binding only as between the mortgagors and the mortgagees and did not have any effect in third persons who subsequently acquired the same," because the mortgages had not yet been "duly registered with the Sugar Quota Administration" when TABACALERA and others purchased parts of the quota in question from the Philippine Planters' Association; indeed, the transferees from the latter had "received the sanction and approval of the Sugar Quota Administrator;"

3) the direction by the Court of Appeals for TABACALERA among others, to reconvey the quota to the PNB is vague and indefinite since it does not state the point of time to be considered in computing the value thereof; furthermore, since it "benefited only to the extent of the . . . (precise quantity purchased by it, out of the 18,000 piculs), it would be "clearly contrary to law and grossly iniquitous" for it to be made solidarily liable for the value of the entire sugar quota in question; and

4) if TABACALERA reconveys or pays the value of the sugar quota acquired from San Carlos Planters' Association, the latter should, upon its implied and express warranty against eviction, reimburse it therefor.

The argument that Theo H. Davies & Co., Ltd., San Carlos Planters' Association, and their privies and successors in interest like TABACALERA, are purchasers in good faith of the sugar quota in question because they could not he deemed to have prior knowledge of the encumbrances thereon, is untenable.

For one thing, as the Court of Appeals has pointed out, the intangible property that is the sugar quota in question should be considered as real property by destination, "an improvement attaching to the land entitled

thereto." 34 Moreover, as is axiomatic, the recording in the Registry of Deeds of a mortgage over lands and other immovables operates to charge "the whole world" with notice thereof. 35 The registration therefore of the mortgages executed by the Philippine Milling Company, Hector A. Torres and Francisco Gomez in favor of the RFC and later of the PNB, thus had the effect of charging all persons, including Theo H. Davies & Co., Ltd., San Carlos Planters' Association, and their privies and successors in interest, with notice of the encumbrance, not only over the lands belonging to the mortgagors but also of the sugar quotas as well as "all the buildings and improvements . . . existing or which may hereafter be constructed on the mortgaged property, all; elements,

. . . agricultural or land indemnities, aids or subsidies and all other rights or benefits annexed to or inherent therein, now existing or which may hereafter exist." So, none of the parties in this case can plead lack of knowledge of the mortgage lien over the sugar quota or production allowance.

Even if the sugar quota is assumed to be personal, not raid property, and hence not embraced in the mortgage of the immovables created by the corresponding deeds, it would nevertheless still be covered by the chattel mortgage created in and by the same deeds. Since, like the recording of a real estate mortgage, registration of a chattel mortgage also puts all persons on notice of its existence, the legal situation would be exactly the same: the registration of the above described deeds of chattel (and real estate) mortgage over the sugar quota, among other things, would also have charged all persons with notice thereof from the time of such registration. 36

Again, being themselves engaged and possessed of no little experience in the sugar industry, said Theo H. Davies & Co., Ltd., San Carlos Planters' Association (and their own transferees) could not but have known, when negotiations for their respective purchases of the sugar quota in question commenced, that the sugar quota they were dealing with had perforce to pertain to some specific sugar plantation or farm, i.e., Plantation 30-15 of the Mindoro Mill District. Sugar quota allocations do not have existence independently of any particular tract of land. They are essentially ancillary, not principal, assets, necessarily annexed to a specific sugar plantation or land, improvements "attaching to the land entitled thereto." 37 Hence, the very first inquiry in any negotiation affecting sugar quotas necessarily would have to do with the identification of the district, plantation or land to which the quotas appertain. No transaction can be had of sugar quotas in the abstract, without reference whatsoever to any particular land. Indeed, any deed of conveyance of sugar quota would

8

unavoidably have to describe the sugar plantation and district to which it refers or relates. There can be no sale simply of sugar quota of a certain number of piculs without specification of the land to which it relates. Such a sale would be inconsistent with established usage, and would be void for want of a determinate subject matter. 38 Theo H. Davies & Co., Ltd. and San Carlos Planters' Association can not therefore plead ignorance of the fact that the quota they were buying pertained to land belonging to the sellers, Plantation No. 30-15 of the Mindoro Mill District.

Furthermore, Theo H. Davies & Co., Ltd. and San Carlos Planters' Association were obviously of the belief that a mortgage or sale of a sugar quota is void if "(a)pproval or sanction of the Sugar Quota Administration . . . (is) lacking," this being in fact a proposition TABACALERA lays before this Court, although it cites no particular authority for it and has thus failed to convince this Court of its validity. Be this as it may, it was with this proposition in mind that Theo H. Davies & Co. Ltd. and San Carlos Planters' Association submitted the deed of conveyance in their favor of the sugar quota in question, to the SQA, precisely to obtain the latter's approval of that transaction. That approval, as already stated, was not given until a year later. But long before that approval, they were clearly and categorically informed that the sugar quota, subject of the sale to them for which they were seeking approval by the SQA was already mortgaged to the RFC and then to the PNB. Since good faith is obviously a state of the mind, and since — prior to the approval of the conveyance to them of the sugar quota by the SQA which approval they thought to be essential for the validity of said conveyance-they came to know of the earlier encum brance thereof to other parties, it is not possible for them without, contradicting themselves, to claim good faith in the transaction.

Turning now to TABACALERA and the other vendees of Theo H. Davies & Co. Ltd. and San Carlos Planters' Association, it is self-evident that they are also quite familiar with sugar quotas, including the nature and process of transferring the same, these being an important factor in their operations and transactions. They therefore had to know that the sugar quotas they were purchasing had originally to be part and parcel of some sugar plantation. Hence, apart from being charged with knowledge, as above discussed, of the mortgage of the land to which the sugar quota in question was an integrated adjunct — and that the mortgage extended to said sugar quotas like the buildings and improvements thereon standing — it may reasonably be assumed as a fact, too, that they inquired about and were duly informed of the origin of, and immediately preceding transactions involving, the sugar quotas they were acquiring.

They should therefore all be regarded as buyers in bad faith — the original vendees of Gomez and Torres and the Philippine Milling Company (i.e., the Philippine Planters Association and Theo H. Davies & Co. Ltd.) as well as the latter's own vendees (TABACALERA, et al.). The Court of Appeals was thus quite correct in "ordering the defendants-appellees (excepting the defendant-appellee Administrator of the Sugar Quota Office) to reconvey to plaintiff-appellant PNB, the said sugar quota or production allowance in question registered in their names, or if the same can not now be legally done, directing the defendants-appellees (excepting appellee Administrator of the Sugar Quota Office) to jointly and severally pay to PNB the value of the sugar quota or production allowance in question."

The fact that "the very terms of the deed of sale executed by the DBP in favor of PNB

on June 17, 1966 specifically and expressly excluded the 18,000 piculs in question," of which TABACALERA would make capital, is of no moment. As also held by the Court of Appeals, the exclusion is more apparent than real. It is true that the deed of June 17, 1966 does provide that "the 18,000 piculs of 'A' and 'B' sugar are expressly excluded . . . because of certain circumstances." It is however pointed out that "the Vendee may . . . take such action as it may deem proper in order to recover the said 18, 000 piculs of 'A' and 'B' sugar quota and Vendor agrees to join such action whenever requested by the Vendee." The clear implication is that notwithstanding those "certain circumstances" causing the exclusion of the 18,000 piculs, there was an express assertion that a right to recover the same existed in favor of the vendor and/or its vendee; a declaration, in other words, that the sugar quota of 18,000 piculs rightfully belonged to the vendor and, by the sale, to the vendee. The ambivalent stipulation, in the mind of the Court of Appeals, merely evidenced the DBP's intention not be rendered liable to PNB on any warranty of legal title considering that the quota had in point of fact already been sold to third persons before foreclosure; the ostensible exclusion of the 18,000 piculs was a mere cautionary proviso. This Court agrees, after undertaking a review and analysis of the relevant facts.

However, TABACALERA's argument that it should not be made solidarily liable for the value of the entire sugar quota in question, because it benefited only to the extent of the precise quantity purchased by it, out of the 18,000 piculs is well taken. It does not appear that it acted in concert with the other vendees in the acquisition of all the 18,000 piculs comprising the sugar quota in question. For aught that appears on the record, it dealt separately and individually with its vendor. Its liability should indeed be limited to a return of the exact quantity and quality of the sugar quota separately purchased by it, as indubitably appears on record, or the payment of the value thereof computed as of the time that its obligation to return that quota was adjudged by the Court of Appeals.

One final question remains to be resolved, that posed by TABACALERA, to wit: if it reconveys the sugar quota acquired from San Carlos Planters' Association, or pays its value, should not it be reimbursed therefor by the latter, upon its implied and express warranty against eviction? The answer win have to be in the negative. They, vendor and vendee, are in pari delicto. At the time of the transaction between them they were well aware of the encumbrance on the property dealt with, they had the common intention of negating the rights that they knew had earlier and properly been acquired by the mortgagee of the property they were treating of; they were both consequently acting in bad faith. The object or purpose of their contract was "contrary to law, morals, good customs, public order or public policy." 39 The law says that in such a case, where "the unlawful or forbidden cause consists does not constitute a criminal offense, . . . and the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking." 40 No relief can be granted to either party; the law will leave them where they are. 41

WHEREFORE, the challenged judgment of the Court of Appeals is hereby AFFIRMED, with the modification that the liability of petitioner Compañia General de Tabacos de Filipinas (TABACALERA) is limited to the return to the Philippine National Bank of the exact quantity and quality of the sugar quota purchased by it

9

from the Philippine Planters Association and/or Theo H. Davies & Co., Ltd., as indubitably appears on record, or the payment of the value thereof to said Philippine National Bank computed as of the time that its obligation to return that quota was adjudged by the Court of Appeals.

IT IS SO ORDERED.

Griño-Aquino and Medialdea, JJ., concur.

Cruz, J., took no part.

Gancayno, J., is on leave.

G.R. No. 135634. May 31, 2000.*

HEIRS OF JUAN SAN ANDRES (VICTOR S. ZIGA) and SALVACION S. TRIA, petitioners, vs. VICENTE RODRIGUEZ, respondent.

Sales; Elements.—As thus defined, the essential elements of sale are the following: a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; b) Determinate subject matter; and, c) Price certain in money or its equivalent.

Same; Where the lot sold is said to adjoin the “previously paid lot” on three sides thereof the subject lot is capable of being determined without the need of any new contract, and the fact that the exact area of the adjoining residential lots is subject to the result of a survey does not detract from the fact that they are determinate or determinable.—Petitioner’s contention is without merit. There is no dispute that respondent purchased a portion of Lot 1914-B-2 consisting of 345 square meters. This portion is located in the middle of Lot 1914-B-2, which has a total area of 854 square meters, and is clearly what was referred to in the receipt as the “previously paid lot.” Since the lot subsequently sold to respondent is said to adjoin the “previously paid lot” on three sides thereof, the subject lot is capable of being determined without the need of any new contract. The fact that the exact area of these adjoining residential lots is subject to the result of a survey does not detract from the fact that they are determinate or determinate.

Same; Although denominated a “Deed of Conditional Sale,” a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid.—There is a need, however, to clarify what the Court of Appeals said is a conditional contract of sale. Apparently, the appellate court considered as a “condition” the stipulation of the parties that the full consideration, based on a survey of the lot, would be due and payable within five (5) years from the execution of a formal deed of sale. It is evident from the stipulations in the receipt that the vendor Juan San Andres sold the residential lot in question to respondent and undertook to transfer the ownership thereof to respondent without any qualification, reservation or condition. In Ang Yu Asuncion v. Court of Appeals, we held: In Dignos v. Court of Appeals (158 SCRA 375), we have said that, although denominated a “Deed of Conditional Sale,” a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive delivery (e.g., by the execution of a public document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such perfection. If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale. (Art. 1545, Civil Code).

Same; The stipulation that the “payment of the full consideration based on a survey shall be due and payable in five (5) years from the execution of a formal deed of sale” is not a condition which affects the efficacy of the contract of sale.—The stipulation that the “payment of the full consideration based on a survey shall be due and payable in five (5) years from the execution of a formal deed of sale” is not a condition which affects the efficacy of the contract of sale. It merely provides the manner by which the full consideration is

10

to be computed and the time within which the same is to be paid. But it does not affect in any manner the effectivity of the contract. Consequently, the contention that the absence of a formal deed of sale stipulated in the receipt prevents the happening of a sale has no merit.

Consignation; Under Art. 1257 of this Civil Code, consignation is proper only in cases where an existing obligation is due.—With respect to the contention that the Court of Appeals erred in upholding the validity of a consignation of P7,035.00 representing the balance of the purchase price of the lot, nowhere in the decision of the appellate court is there any mention of consignation. Under Art. 1257 of this Civil Code, consignation is proper only in cases where an existing obligation is due. In this case, however, the contracting parties agreed that full payment of purchase price shall be due and payable within five (5) years from the execution of a formal deed of sale. At the time respondent deposited the amount of P7,035.00 in the court, no formal deed of sale had yet been executed by the parties, and, therefore, the five-year period during which the purchase price should be paid had not commenced. In short, the purchase price was not yet due and payable.

Contracts; Time and again, the Supreme Court has stressed the rule that a contract is the law between the parties, and courts have no choice but to enforce such contract so long as they are not contrary to law, morals, good customs or public policy.—The claim of petitioners that the price of P7,035.00 is iniquitous is untenable. The amount is based on the agreement of the parties as evidenced by the receipt (Exh. 2). Time and again, we have stressed the rule that a contract is the law between the parties, and courts have no choice but to enforce such contract so long as they are not contrary to law, morals, good customs or public policy. Otherwise, courts would be interfering with the freedom of contract of the parties. Simply put, courts cannot stipulate for the parties nor amend the latter’s agreement, for to do so would be to alter the real intentions of the contracting parties when the contrary function of courts is to give force and effect to the intentions of the parties.

Same; Sales; Prescription and Laches; Art. 1144 of the Civil Code has no application where the contract of sale has been perfected, and the delivery of the subject lot to respondent had effectively transferred ownership to him, and the buyer is now only seeking to comply with his obligation to pay the full purchase price, an act which was not done earlier because the deed of sale was yet to be èxecuted.— Petitioners argue that respondent is barred by prescription and laches from enforcing the contract. This contention is likewise untenable. The contract of sale in this case is perfected, and the delivery of the subject lot to respondent effectively transferred ownership to him. For this reason, respondent seeks to comply with his obligation to pay the full purchase price, but because the deed of sale is yet to be executed, he deemed it appropriate to deposit the balance of the purchase price in court. Accordingly, Art. 1144 of the Civil Code has no application to the instant case. Considering that a survey of the lot has already been conducted and approved by the Bureau of Lands, respondent’s heirs, assigns or successors-in-interest should reimburse the expenses incurred by herein petitioners, pursuant to the provisions of the contract.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Antonio S. Tria for petitioners.

Simando and Villanueva for private respondent.

MENDOZA, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals1 reversing the decision of the Regional Trial Court, Naga City, Branch 19, in Civil Case No. 87-1335, as well as the appellate court’s resolution denying reconsideration.

The antecedent facts are as follows:

Juan San Andres was the registered owner of Lot No. 1914-B-2 situated in Liboton, Naga City. On September 28, 1964, he sold a portion thereof, consisting of 345 square meters, to respondent Vicente S. Rodriguez for P2,415.00. The sale is evidenced by a Deed of Sale.2

Upon the death of Juan San Andres on May 5, 1965, Ramon San Andres was appointed judicial administrator of the decedent’s estate in Special Proceedings No. R-21, RTC, Branch 19, Naga City. Ramon San Andres engaged the. services of a geodetic engineer, Jose Peñero, to prepare a consolidated plan (Exh. A) of the estate. Engineer Peñero also prepared a sketch plan of the 345-square meter lot sold to respondent. From the result of the survey, it was found that respondent had enlarged the area which he purchased from the late Juan San Andres by 509 square meters.3

Accordingly, the judicial administrator sent a letter,4 dated July 27, 1987, to respondent demanding that the latter vacate the portion allegedly encroached by him. However, respondent refused to do so, claiming he had purchased the same from the late Juan San Andres. Thereafter, on November 24, 1987, the judicial administrator brought an action, in behalf of the estate of Juan San Andres, for recovery of possession of the 509-square meter lot.

In his Re-amended Answer filed on February 6, 1989, respondent alleged that apart from the 345-square meter lot which had been sold to him by Juan San Andres on September 28, 1964, the latter likewise sold to him the following day the remaining portion of the lot consisting of 509 square meters, with both parties treating the two lots as one whole parcel with a total area of 854 square meters. Respondent alleged that the full payment of the 509-square meter lot would be effected within five (5) years from the execution of a formal deed of sale after a survey is conducted over said property. He further alleged that with the consent of the former owner, Juan San Andres, he took possession of the same and introduced improvements thereon as early as 1964.

As proof of the sale to him of 509 square meters, respondent attached to his answer a receipt (Exh. 2)5 signed by the late Juan San Andres, which reads in full as follows:

Received from Vicente Rodriguez the sum of Five Hundred (P500.00) Pesos representing an advance payment for a residential lot adjoining his previously paid lot on three sides excepting on the frontage with the agreed price of Fifteen (15.00) Pesos per square meter and the payment of the full consideration based on a survey shall be due and payable in five (5) years period from the execution of the formal deed of sale; and it is agreed that the expenses of survey and its approval by the

11

Bureau of Lands shall be borne by Mr. Rodriguez.

Naga City, September 29, 1964.

(Sgd.)

JUAN R. SAN ANDRES

Vendor

Noted:

(Sgd.)

VICENTE RODRIGUEZ

Vendee

Respondent also attached to his answer a letter of judicial administrator Ramon San Andres (Exh. 3),6 asking payment of the balance of the purchase price. The letter reads:

Dear Inting,

Please accommodate my request for Three Hundred (P300.00) Pesos as I am in need of funds as I intimated to you the other day.

We will just adjust it with whatever balance you have payable to the subdivision.

Thanks.

Sincerely,

(Sgd.)

RAMON SAN ANDRES

Vicente Rodriguez

Penafrancia Subdivision, Naga City

P.S.

You can let bearer Enrique del Castillo sign for the amount.

Received One Hundred Only

(Sgd.)

RAMON SAN ANDRES

3/30/66

Respondent deposited in court the balance of the purchase price amounting to P7,035.00 for the aforesaid 509-square meter lot.

While the proceedings were pending, judicial administrator Ramon San Andres died and was substituted by his son Ricardo San Andres. On the other hand, respondent Vicente Rodriguez died on August 15, 1989 and was substituted by his heirs.7

Petitioner, as plaintiff, presented two witnesses. The first witness, Engr. Jose Peñero,8 testified that based on his survey conducted sometime between 1982 and 1985, respondent had enlarged the area which he purchased from the late Juan San Andres by 509 square meters belonging to the latter’s estate. According to Peñero, the titled property (Exh. A-5) of respondent was enclosed with a fence with metal holes and barbed wire, while the expanded area was fenced with barbed wire and bamboo and light materials.

The second witness, Ricardo San Andres,9 administrator of the estate, testified that respondent had not filed any claim before Special Proceedings No. R-21 and denied knowledge of Exhibits 2 and 3. However, he recognized the signature in Exhibit 3 as similar to that of the former administrator, Ramon San Andres. Finally, he declared that the expanded portion occupied by the family of respondent is now enclosed with barbed wire fence unlike before where it was found without fence.

On the other hand, Bibiana B. Rodriguez,10 widow of respondent Vicente Rodriguez, testified that they had purchased the subject lot from Juan San Andres, who was their compadre, on September 29, 1964, at P15.00 per square meter. According to her, they gave P500.00 to the late Juan San Andres who later affixed his signature to Exhibit 2. She added that on March 30, 1966, Ramon San Andres wrote them a letter asking for P300.00 as partial payment for the subject lot, but they were able to give him only P100.00. She added that they had paid the total purchase price of P7,035.00 on November 21, 1988 by depositing it in court. Bibiana B. Rodriquez stated that they had been in possession of the 509-square meter lot since 1964 when the late Juan San Andres signed the receipt. (Exh. 2) Lastly, she testified that they did not know at that time the exact area sold to them because they were told that the same would be known after the survey of the subject lot.

On September 20, 1994, the trial court11 rendered judgment in favor of petitioner. It ruled that there was no contract of sale to speak of for lack of a valid object because there was no sufficient indication in Exhibit 2 to identify the property subject of the sale, hence, the need to execute a new contract.

Respondent appealed to the Court of Appeals, which on April 21, 1998 rendered a decision reversing the decision of the trial court. The appellate court held that the object of the contract was determinable, and that there was a conditional sale with the balance of the purchase price payable within five years from the execution of the deed of sale. The dispositive portion of its decision reads:

IN VIEW OF ALL THE FOREGOING, the judgment appealed from is hereby REVERSED and SET ASIDE and a new one entered DISMISSING the complaint and rendering judgment against the plaintiff-appellee:

1 1. to accept the P7,035.00 representing the balance of the purchase price of the portion and which is deposited in court under Official Receipt No. 105754 (page 122, Records);

2. to execute the formal deed of sale over the said 509 square meter portion of Lot 1914-B-2 in favor of appellant Vicente Rodriguez;

1 3. to pay the defendant-appellant the amount of P50,000.00 as damages and P10,000.00 attorney’s fees as stipulated by them during the trial of this case;

12

and

2 4. to pay the costs of the suit.

SO ORDERED.

Hence, this petition. Petitioner assigns the following errors as having been allegedly committed by the trial court:

1 I. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT THE DOCUMENT (EXHIBIT “2”) IS A CONTRACT TO SELL DESPITE ITS LACKING ONE OF THE ESSENTIAL ELEMENTS OF A CONTRACT, NAMELY, OBJECT CERTAIN AND SUFFICIENTLY DESCRIBED.

2 II. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER IS OBLIGED TO HONOR THE PURPORTED CONTRACT TO SELL DESPITE NON-FULFILLMENT BY RESPONDENT OF THE CONDITION THEREIN OF PAYMENT OF THE BALANCE OF THE PURCHASE PRICE.

3 III. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT CONSIGNATION WAS VALID DESPITE NON-COMPLIANCE WITH THE MANDATORY REQUIREMENTS THEREOF.

4 IV. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT LACHES AND PRESCRIPTION DO NOT APPLY TO RESPONDENT WHO SOUGHT INDIRECTLY TO ENFORCE THE PURPORTED CONTRACT AFTER THE LAPSE OF 24 YEARS.

The petition has no merit.

First. Art. 1458 of the Civil Code provides:

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

A contract of sale may be absolute or conditional.

As thus defined, the essential elements of sale are the following:

1 a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;

2 b) Determinate subject matter; and,

3 c) Price certain in money or its equivalent.12

As shown in the receipt, dated September 29, 1964, the late Juan San Andres received P500.00 from respondent as “advance payment for the residential lot adjoining his previously paid lot on three sides excepting on the frontage”; the agreed purchase price was P15.00 per square meter; and the full amount of the purchase price was to be based on the results of a survey and would be due and payable in five (5) years from the execution of a deed of sale.

Petitioner contends, however, that the “property subject of the sale was not described with sufficient certainty such that there is a necessity of another agreement between

the parties to finally ascertain the identity, size and purchase price of the property which is the object of the alleged sale.”13 He argues that the “quantity of the object is not determinate as in fact a survey is needed to determine its exact size and the full purchase price therefor.”14 In support of his contention, petitioner cites the following provisions of the Civil Code:

Art. 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not determinable shall not be an obstacle to the existence of a contract, provided it is possible to determine the same without the need of a new contract between the parties.

Art. 1460. . . . The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new and further agreement between the parties.

Petitioner’s contention is without merit. There is no dispute that respondent purchased a portion of Lot 1914-B-2 consisting of 345 square meters. This portion is located in the middle of Lot 1914-B-2, which has a total area of 854 square meters, and is clearly what was referred to in the receipt as the “previously paid lot.” Since the lot subsequently sold to respondent is said to adjoin the “previously paid lot” on three sides thereof, the subject lot is capable of being determined without the need of any new contract. The fact that the exact area of these adjoining residential lots is subject to the result of a survey does not detract from the fact that they are determinate or determinate. As the Court of Appeals explained:15

Concomitantly, the object of the sale is certain and determinate. Under Article 1460 of the New Civil Code, a thing sold is determinate if at the time the contract is entered into, the thing is capable of being determinate without necessity of a new or further agreement between the parties. Here, this definition finds realization.

Appellee’s Exhibit “A” (page 4, Records) affirmingly shows that the original 345 sq. m. portion earlier sold lies at the middle of Lot 1914-B-2 surrounded by the remaining portion of the said Lot 1914-B-2 on three (3) sides, in the east, in the west and in the north. The northern boundary is a 12 meter road. Conclusively, therefore, this is the only remaining 509 sq. m. portion of Lot 1914-B-2 surrounding the 345 sq. m. lot initially purchased by Rodriguez. It is quite defined, determinate and certain. Withal, this is the same portion adjunctively occupied and possessed by Rodriguez since September 29, 1964, unperturbed by anyone for over twenty (20) years until appellee instituted this suit.

Thus, all of the essential elements of a contract of sale are present, i.e., that there was a meeting of the minds between the parties, by virtue of which the late Juan San Andres undertook to transfer ownership of and to deliver a determinate thing for a price certain in money. As Art. 1475 of the Civil Code provides:

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. . . .

That the contract of sale is perfected was confirmed by the former administrator of the estates, Ramon San Andres, who wrote a letter to respondent on March 30, 1966 asking for P300.00 as partial payment for the subject lot. As the Court of Appeals observed:

13

Without any doubt, the receipt profoundly speaks of a meeting of the mind between San Andres and Rodriguez for the sale of the property adjoining ‘the 345 square meter portion previously sold to Rodriguez on its three (3) sides excepting the frontage. The price is certain, which is P15.00 per square meter. Evidently, this is a perfected contract of sale on a deferred payment of the purchase price. All the pre-requisite elements for a valid purchase transaction are present. Sale does not require any formal document for its existence and validity. And delivery of possession of land sold is a consummation of the sale (Galar vs. Husain, 20 SCRA 186 [1967]). A private deed of sale is a valid contract between the parties (Carbonell v. CA, 69 SCRA 99 [1976]).

In the same vein, after the late Juan R. San Andres received the P500.00 downpayment on March 30, 1966, Ramon R. San Andres wrote a letter to Rodriguez and received from Rodriguez the amount of P100.00 (although P300.00 was being requested) deductible from the purchase price of the subject portion. Enrique del Castillo, Ramon’s authorized agent, correspondingly signed the receipt for the P100.00. Surely, this is explicitly a veritable proof of the sale over the remaining portion of Lot 1914-B-2 and a confirmation by Ramon San Andres of the existence thereof.16

There is a need, however, to clarify what the Court of Appeals said is a conditional contract of sale. Apparently, the appellate court considered as a “condition” the stipulation of the parties that the full consideration, based on a survey of the lot, would be due and payable within five (5) years from the execution of a formal deed of sale. It is evident from the stipulations in the receipt that the vendor Juan San Andres sold the residential lot in question to respondent and undertook to transfer the ownership thereof to respondent without any qualification, reservation or condition. In Ang Yu Asuncion v. Court of Appeals,17 we held:

In Dignos v. Court of Appeals (158 SCRA 375), we have said that, although denominated a “Deed of Conditional Sale,” a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive delivery (e.g., by the execution of a public document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such perfection. If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale. (Art. 1545, Civil Code)

Thus, in one case, when the sellers declared in a “Receipt of Down Payment” that they received an amount as purchase price for a house and lot without any reservation of title until full payment of the entire purchase price, the implication was that they sold their property.18 In People’s Industrial and Commercial Corporation v. Court of Appeals,19 it was stated:

A deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period.

Applying these principles to this case, it cannot be gainsaid that the contract of sale between the parties is absolute, not conditional. There is no reservation of ownership nor a stipulation providing for a unilateral rescission by either party. In fact, the sale was consummated upon the delivery of the lot to respondent.20 Thus, Art. 1477 provides that the ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof.

The stipulation that the “payment of the full consideration based on a survey shall be due and payable in five (5) years from the execution of a formal deed of sale” is not a condition which affects the efficacy of the contract of sale. It merely provides the manner by which the full consideration is to be computed and the time within which the same is to be paid. But it does not affect in any manner the effectivity of the contract. Consequently, the contention that the absence of a formal deed of sale stipulated in the receipt prevents the happening of a sale has no merit.

Second. With respect to the contention that the Court of Appeals erred in upholding the validity of a consignation of P7,035.00 representing the balance of the purchase price of the lot, nowhere in the decision of the appellate court is there any mention of consignation. Under Art. 1257 of this Civil Code, consignation is proper only in cases where an existing obligation is due. In this case, however, the contracting parties agreed that full payment of purchase price shall be due and payable within five (5) years from the execution of a formal deed of sale. At the time respondent deposited the amount of P7,035.00 in the court, no formal deed of sale had yet been executed by the parties, and, therefore, the five-year period during which the purchase price should be paid had not commenced. In short, the purchase price was not yet due and payable.

This is not to say, however, that the deposit of the purchase price in the court is erroneous. The Court of Appeals correctly ordered the execution of a deed of sale and petitioners to accept the amount deposited by respondent.

Third. The claim of petitioners that the price of P7,035.00 is iniquitous is untenable. The amount is based on the agreement of the parties as evidenced by the receipt (Exh. 2). Time and again, we have stressed the rule that a contract is the law between the parties, and courts have no choice but to enforce such contract so long as they are not contrary to law, morals, good customs or public policy. Otherwise, courts would be interfering with the freedom of contract of the parties. Simply put, courts cannot stipulate for the parties nor amend the latter’s agreement, for to do so would be to alter the real intentions of the contracting parties when the contrary function of courts is to give force and effect to the intentions of the parties.

Fourth. Finally, petitioners argue that respondent is barred by prescription and laches from enforcing the contract. This contention is likewise untenable. The contract of sale in this case is perfected, and the delivery of the subject lot to respondent effectively transferred ownership to him. For this reason, respondent seeks to comply with his obligation to pay the full purchase price, but because the deed of sale is yet to be executed, he deemed it appropriate to deposit the balance of the purchase price in court. Accordingly, Art. 1144 of the Civil Code has no application to the instant case.21 Considering that a survey of the lot has already been conducted and approved by the Bureau of Lands, respondent’s heirs, assigns or successors-in-interest should

14

reimburse the expenses incurred by herein petitioners, pursuant to the provisions of the contract.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the modification that respondent is ORDERED to reimburse petitioners for the expenses of the survey.

SO ORDERED.

Bellosillo (Chairman) and Buena, JJ., concur.

Quisumbing and De Leon, Jr., JJ., On leave.

Judgment affirmed with modification.

Notes.—Consignation or deposit of rentals should be made with the court and/or, under BP Blg. 25, in the bank and not elsewhere. (Medina vs. Court of Appeals, 225 SCRA 607 [1993])

To avail of the right of redemption, what is essential is to make an offer to redeem within the prescribed period, either through a formal tender with consignation or by filing a complaint in court coupled with consignation of the redemption price within the prescribed period. (Lee Chuy Realty Corporation vs. Court of Appeals, 250 SCRA 596 [1995])

——o0o——

© Copyright 2015 Central Book Supply, Inc. All rights reserved.

No. L-36902. January 30, 1982.*

LUIS PICHEL, petitioner, vs. PRUDENCIO ALONZO, respondent.

Public Lands; Cancellation of award of public land does not automatically divest the awardee of his rights to the land.—Before going into the issues raised by the instant Petition, the matter of whether, under the admitted facts of this case, the respondent had the right or authority to execute the “Deed of Sale” in 1968, his award over Lot No. 21 having been cancelled previously by the Board of Liquidators on January 27, 1965, must be clarified. The case in point is Ras vs. Sua wherein it was categorically stated by this Court that a cancellation of an award granted pursuant to the provisions of Republic Act No. 477 does not automatically divest the awardee of his rights to the land. Such cancellation does not result in the immediate reversion of the property subject of the award, to the State. Speaking through Mr. Justice J.B.L. Reyes, this Court ruled that “until and unless an appropriate proceeding for reversion is instituted by the State, and its reacquisition of the ownership and possession of the land decreed by a competent court, the grantee cannot be said to have been divested of whatever right that he may have over the same property.”

Contracts; Interpretation of a document is not called for where its terms are clear.—The first five assigned errors are interrelated, hence, We shall consider them together. To begin with, We agree with petitioner that construction or interpretation of the document in question is not called for. A perusal of the deed fails to disclose any ambiguity or obscurity in its provisions, nor is there doubt as to the real intention of the contracting parties. The terms of the agreement are clear and unequivocal, hence the literal and plain meaning thereof should be observed.

Same; Sale; Potential fruits of apiece of land may be the subject of sale.—The subject matter of the contract of sale in question are the fruits of the coconut trees on the land during the years from September 15, 1968 up to January 1, 1976, which subject matter is a determinate thing. Under Article 1461 of the New Civil Code, things having a potential existence may be the object of the contract of sale. And in Sibal vs. Valdez, 50 Phil 512, pending crops which have potential existence may be the subject matter of sale.

Same; Same; A transfer of possession or ownership of the fruits of apiece of land cannot be equated with the transfer of possession or ownership of the land.—The contract was clearly a “sale of the coconut fruits.” The vendor sold, transferred and conveyed “by way of absolute sale, all the coconut fruits of his land,” thereby divesting himself of all ownership or dominion over the fruits during the seven-year period. The possession and enjoyment of the coconut trees cannot be said to be the possession and enjoyment of the land itself because these rights are distinct and separate from each other, the first pertaining to the accessory or improvements (coconut trees) while the second, to the principal (the land). A transfer of the accessory or improvement is not a transfer of the principal. It is the other way around, the accessory follows the principal. Hence, the sale of the nuts cannot be interpreted nor construed to be a lease of the trees, much less extended further to include the lease of the land itself.

Public Lands; Sale; The grantee of public land is not prohibited from selling the fruits thereof, like coconut fruits, which are meant to be gathered and severed from the trees.—Resolving now this principal issue, We find after a close and careful examination of the terms of

15

the first paragraph of Section 8 hereinabove quoted, that the grantee of a parcel of land under R. A. No. 477 is not prohibited from alienating or disposing of the natural and/or industrial fruits of the land awarded to him. What the law expressly disallows is the encumbrance or alienation of the land itself or any of the permanent improvements thereon. Permanent improvements on a parcel of land are things incorporated or attached to the property in a fixed manner, naturally or artificially. They include whatever is built, planted or sown on the land which is characterized by fixity, immutability or immovability. Houses, buildings, machinery, animal houses, trees and plants would fall under the category of permanent improvements, the alienation or encumbrance of which is prohibited by R.A. No. 477. While coconut trees are permanent improvements of a land, their nuts are natural or industrial fruits which are meant to be gathered or severed from the trees, to be used, enjoyed, sold or otherwise disposed of by the owner of the land. Herein respondents, as the grantee of Lot No. 21 from the Government, had the right and prerogative to sell the coconut fruits of the trees growing on the property.

Same; Same; Sale of produce or fruits of land acquired from the government under RA. 477 does not violate the purpose of said law.—The purpose of the law is not violated when a grantee sells the produce or fruits of his land. On the contrary, the aim of the law is thereby achieved, for the grantee is encouraged and induced to be more industrious and productive, thus making it possible for him and his family to be economically self-sufficient and to lead a respectable life. At the same time, the Government is assured of payment on the annual installments on the land. We agree with herein petitioner that it could not have been the intention of the legislature to prohibit the grantee from selling the natural and industrial fruits of his land, for otherwise, it would lead to an absurd situation wherein the grantee would not be able to receive and enjoy the fruits of the property in the real and complete sense.

Same; Same; Contracts; A contracting party cannot be allowed to impugn the contract he has entered into by saying he can change his mind.—Respondent through counsel, in his Answer to the Petition contends that even granting arguendo that he executed a deed of sale of the coconut fruits, he has the “privilege to change his mind and claim it as (an) implied lease,” and he has the “legitimate right” to file an action for annulment “which no law can stop.” He claims it is his “sole construction of the meaning of the transaction that should prevail and not petitioner, (sic).” Respondent’s counsel either mis-applies the law or is trying too hard and going too far to defend his client’s hopeless cause. Suffice it to say that respondent-grantee, after having received the consideration for the sale of his coconut fruits, cannot be allowed to impugn the validity of the contracts he entered into, to the prejudice of petitioner who contracted in good faith and for a consideration.

PETITION to review on certiorari the decision of the Court of First Instance of Basilan City.

The facts are stated in the opinion of the Court.

GUERRERO, J.:

This is a petition to review on certiorari the decision of the Court of First Instance of Basilan City dated January 5, 1973 in Civil Case No. 820 entitled “Prudencio Alonzo, plaintiff, vs. Luis Pichel, defendant.”

This case originated in the lower Court as an action for the annulment of a “Deed of Sale” dated August 14, 1968 and executed by Prudencio Alonzo, as vendor, in favor of Luis Pichel, as vendee, involving property awarded to the former by the Philippine Government under Republic Act No. 477. Pertinent portions of the document sued upon read as follows:

“That the VENDOR for and in consideration of the sum of FOUR THOUSAND TWO HUNDRED PESOS (P4,200.00), Philippine Currency, in hand paid by the VENDEE to the entire satisfaction of the VENDOR, the VENDOR hereby sells, transfers, and conveys, by way of absolute sale, all the coconut fruits of his coconut land, designated as Lot No. 21—Subdivision Plan No. Psd-32465, situated at Balactasan Plantation, Lamitan, Basilan City, Philippines;

“That for the herein sale of the coconut fruits are for all the fruits on the aforementioned parcel of land presently found therein as well as for future fruits to be produced on the said parcel of land during the years period; which shall commence to run as of SEPTEMBER 15, 1968; up to JANUARY 1, 1976 (sic);

“That the delivery of the subject matter of the Deed of Sale shall be from time to time and at the expense of the VENDEE who shall do the harvesting and gathering of the fruits;

“That the Vendor’s right, title, interest and participation herein conveyed is of his own exclusive and absolute property, free from any liens and encumbrances and he warrants to the Vendee good title thereto and to defend the same against any and all claims of all persons whomsoever.”1

After the pre-trial conference, the Court a quo issued an Order dated November 9, 1972 which in part read thus:

“The following facts are admitted by the parties:

“Plaintiff Prudencio Alonzo was awarded by the Government that parcel of land designated as Lot No. 21 of Subdivision Plan Psd-32465 of Balactasan, Lamitan, Basilan City in accordance with Republic Act No. 477. The award was cancelled by the Board of Liquidators on January 27, 1965 on the ground that, previous thereto, plaintiff was proved to have alienated the land to another, in violation of law. In 1972, plaintiff’s rights to the land were reinstated.

“On August 14, 1968, plaintiff and his wife sold to defendant all the fruits of the coconut trees which may be harvested in the land in question for the period, September 15, 1968 to January 1, 1976, in consideration of P4,200.00. Even as of the date of sale, however, the land was still under lease to one, Ramon Sua, and it was the agreement that part of the consideration of the sale, in the sum of P3,650.00, was to be paid by defendant directly to Ramon Sua so as to release the land from the clutches of the latter. Pending said payment plaintiff refused to allow the defendant to make any harvest.

“In July 1972, defendant for the first time since the execution of the deed of sale in his favor, caused the harvest of the fruit of the coconut trees in the land.

x x x x x x x x x

16

“Considering the foregoing, two issues appear posed by the complaint and the answer which must needs be tested in the crucible of a trial on the merits, and they are:

“First.—Whether or nor defendant actually paid to plaintiff the full sum of P4,200.00 upon execution of the deed of sale.

“Second.—Is the deed of sale. Exhibit ‘A’, the prohibited encumbrance contemplated in Section 8 of Republic Act No. 477?”2

Anent the first issue, counsel for plaintiff Alonzo subsequently “stipulated and agreed that his client x x x admits full payment thereof by defendant.”3 The remaining issue being one of law, the Court below considered the case submitted for summary judgment on the basis of the pleadings of the parties, and the admission of facts and documentary evidence presented at the pre-trial conference.

The lower court rendered its decision now under review, holding that although the agreement in question is denominated by the parties as a deed of sale of fruits of the coconut trees found in the vendor’s land, it actually is, for all legal intents and purposes, a contract of lease of the land itself. According to the Court:

“x x x the sale aforestated has given defendant complete control and enjoyment of the improvements of the land. That the contract is consensual; that its purpose is to allow the enjoyment or use of a thing; that it is onerous because rent or price certain is stipulated; and that the enjoyment or use of the thing certain is stipulated to be for a certain and definite period of time, are characteristics which admit of no other conclusion, x x x The provisions of the contract itself and its characteristics govern its nature.”4

The Court, therefore, concluded that the deed of sale in question is an encumbrance prohibited by Republic Act No. 477 which provides thus:

“Sec. 8. Except in favor of the Government or any of its branches, units, or institutions, land acquired under the provisions of this Act or any permanent improvements thereon shall not be subject to encumbrance or alienation from the date of the award of the land or the improvements thereon and for a term of ten years from and after the date of issuance of the certificate of title, nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of such period.

“Any occupant or applicant of lands under this Act who transfers whatever rights he has acquired on said lands and/or on the improvements thereon before the date of the award or signature of the contract of sale, shall not be entitled to apply for another piece of agricultural land or urban, homesite or residential lot, as the case may be, from the National Abaca and Other Fibers Corporation; and such transfer shall be considered null and void.”5

The dispositive portion of the lower Court’s decision states:

“WHEREFORE, it is the judgment of this Court that the deed of sale, Exhibit ‘A’, should be, as it is, hereby declared null and void; that plaintiff be, as he is, ordered to pay back to defendant the consideration of the sale in the sum of P4,200.00 the same to bear legal interest from the date of the filing of the complaint until paid; that

defendant shall pay to the plaintiff the sum of P500.00 as attorney’s fees.

Costs against the defendant.”6

Before going into the issues raised by the instant Petition, the matter of whether, under the admitted facts of this case, the respondent had the right or authority to execute the “Deed of Sale” in 1968, his award over Lot No. 21 having been cancelled previously by the Board of Liquidators on January 27, 1965, must be clarified. The case in point is Ras vs. Sua 7 wherein it was categorically stated by this Court that a cancellation of an award granted pursuant to the provisions of Republic Act No. 477 does not automatically divest the awardee of his rights to the land. Such cancellation does not result in the immediate reversion of the property subject of the award, to the State. Speaking through Mr. Justice J.B.L. Reyes, this Court ruled that “until and unless an appropriate proceeding for reversion is instituted by the State, and its reacquisition of the ownership and possession of the land decreed by a competent court, the grantee cannot be said to have been divested of whatever right that he may have over the same property.”8

There is nothing in the record to show that at any time after the supposed cancellation of herein respondent’s award on January 27, 1965, reversion proceedings against Lot No. 21 were instituted by the State. Instead, the admitted fact is that the award was reinstated in 1972. Applying the doctrine announced in the above-cited Ras case, therefore, herein respondent is not deemed to have lost any of his rights as grantee of Lot No. 21 under Republic Act No. 477 during the period material to the case at bar, i.e., from the cancellation of the award in 1965 to its reinstatement in 1972. Within said period, respondent could exercise all the rights pertaining to a grantee with respect to Lot No. 21.

This brings Us to the issues raised by the instant Petition. In his Brief, petitioner contends that the lower Court erred:

2 1. In resorting to construction and interpretation of the deed of sale in question where the terms thereof are clear and unambiguous and leave no doubt as to the intention of the parties;

3 2. In declaring—granting without admitting that an interpretation is necessary—the deed of sale in question to be a contract of lease over the land itself where the respondent himself waived and abandoned his claim that said deed did not express the true agreement of the parties, and on the contrary, respondent admitted at the pre-trial that his agreement with petitioner was one of sale of the fruits of the coconut trees on the land;

4 3. In deciding a question which was not in issue when it declared the deed of sale in question to be a contract of lease over Lot 21;

5 4. In declaring furthermore the deed of sale in question to be a contract of lease over the land itself on the basis of facts which were not proved in evidence;

6 5. In not holding that the deed of sale, Exhibit “A” and “2”, expresses a valid contract of sale;

7 6. In not deciding squarely and to the point the issue as to whether or not the deed

17

of sale in question is an encumbrance on the land and its improvements prohibited by Section 8 of Republic Act 477; and

8 7. In awarding respondent attorneys fees even granting, without admitting, that the deed of sale in question is violative of Section 8 of Republic Act 477.

The first five assigned errors are interrelated, hence, We shall consider them together. To begin with, We agree with petitioner that construction or interpretation of the document in question is not called for. A perusal of the deed fails to disclose any ambiguity or obscurity in its provisions, nor is there doubt as to the real intention of the contracting parties. The terms of the agreement are clear and unequivocal, hence the literal and plain meaning thereof should be observed. Such is the mandate of the Civil Code of the Philippines which provides that:

“Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control, x x x.”

Pursuant to the afore-quoted legal provision, the first and fundamental duty of the courts is the application of the contract according to its express terms, interpretation being resorted to only when such literal application is impossible.9

Simply and directly stated, the “Deed of Sale dated August 14, 1968 is precisely what it purports to be. It is a document evidencing the agreement of herein parties for the sale of coconut fruits of Lot No. 21. and not for the lease of the land itself as found by the lower Court. In clear and express terms, the document defines the object of the contract thus: “the herein sale of the coconut fruits are for all the fruits on the aforementioned parcel of land during the years x x x (from) SEPTEMBER 15, 1968; up to JANUARY 1, 1976.” Moreover, as petitioner correctly asserts, the document in question expresses a valid contract of sale. It has the essential elements of a contract of sale as defined under Article 1485 of the New Civil Code which provides thus:

“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.”

The subject matter of the contract of sale in question are the fruits of the coconut trees on the land during the years from September 15, 1968 up to January 1, 1976, which subject matter is a determinate thing. Under Article 1461 of the New Civil Code, things having a potential existence may be the object of the contract of sale. And in Sibal vs. Valdez, 50 Phil. 512, pending crops which have potential existence may be the subject matter of sale. Here, the Supreme Court, citing Mechem on Sales and American cases said:

“Mr. Mechem says that a valid sale may be made of a thing, which though not yet actually in existence, is reasonably certain to come into existence as the natural increment or usual incident of something already in existence, and then belonging to the vendor, and the title will vest in the buyer the moment the thing comes into existence. (Emerson vs. European Railway Co., 67 Me., 387; Cutting vs. Packers Exchange, 21 Am. St. Rep. 63) Things of this nature are said to have a potential existence. A man may sell property of which he is potentially and not actually

possessed. He may make a valid sale of the wine that a vineyard is expected to produce; or the grain a field may grow in a given time; or the milk a cow may yield during the coming year; or the wool that shall thereafter grow upon sheep; or what may be taken at the next case of a fisherman’s net; or fruits to grow; or young animals not yet in existence; or the good will of a trade and the like. The thing sold, however, must be specific and identified. They must be also owned at the time by the vendor. (Hull vs. Hull, 48 Conn., 250 (40 Am. Rep., 165)” (pp. 522-523).

We do not agree with the trial court that the contract executed by and between the parties is “actually a contract of lease of the land and the coconut trees there.” (CFI Decision, p. 62, Records). The Court’s holding that the contract in question fits the definition of a lease of things wherein one of the parties binds himself to give to another the enjoyment or use of a thing for a price certain and for a period which may be definite or indefinite (Art. 1643, Civil Code of the Philippines) is erroneous. The essential difference between a contract of sale and a lease of things is that the delivery of the thing sold transfers ownership, while in lease no such transfer of ownership results as the rights of the lessee are limited to the use and enjoyment of the thing leased.

In Rodriguez vs. Borromeo, 43 Phil. 479, 490, the Supreme Court held:

“Since according to article 1543 of the same Code the contract of lease is defined as the giving or the concession of the enjoyment or use of a thing for a specified time and fixed price, and since such contract is a form of enjoyment of the property, it is evident that it must be regarded as one of the means of enjoyment referred to in said article 398, inasmuch as the terms enjoyment, use, and benefit involve the same and analogous meaning relative to the general utility of which a given thing is capable.” (104 Jurisprudencia Civil, 443)

In concluding that the possession and enjoyment of the coconut trees can therefore be said to be the possession and enjoyment of the land itself because the defendant-lessee in order to enjoy his right under the contract, he actually takes possession of the land, at least during harvest time, gather all of the fruits of the coconut trees in the land, and gain exclusive use thereof without the interference or intervention of the plaintiff-lessor such that said plaintiff-lessor is excluded in fact from the land during the period aforesaid, the trial court erred. The contract was clearly a “sale of the coconut fruits.” The vendor sold, transferred and conveyed “by way of absolute sale, all the coconut fruits of his land,” thereby divesting himself of all ownership or dominion over the fruits during the seven-year period. The possession and enjoyment of the coconut trees cannot be said to be the possession and enjoyment of the land itself because these rights are distinct and separate from each other, the first pertaining to the accessory or improvements (coconut trees) while the second, to the principal (the land). A transfer of the accessory or improvement is not a transfer of the principal. It is the other way around, the accessory follows the principal. Hence, the sale of the nuts cannot be interpreted nor construed to be a lease of the trees, much less extended further to include the lease of the land itself.

The real and pivotal issue of this case which is taken up in petitioner’s sixth assignment of error and as already stated above, refers to the validity of the “Deed of Sale”, as such contract of sale, vis-a-vis the provisions of Sec. 8, R.A. No. 477. The

18

lower Court did not rule on this question, having reached the conclusion that the contract at bar was one of lease. It was from the context of a lease contract that the Court below determined the applicability of Sec. 8, R.A. No. 477, to the instant case.

Resolving now this principal issue, We find after a close and careful examination of the terms of the first paragraph of Section 8 hereinabove quoted, that the grantee of a parcel of land under R.A. No. 477 is not prohibited from alienating or disposing of the natural and/or industrial fruits of the land awarded to him. What the law expressly disallows is the encumbrance or alienation of the land itself or any of the permanent improvements thereon. Permanent improvements on a parcel of land are things incorporated or attached to the property in a fixed manner, naturally or artificially. They include whatever is built, planted or sown on the land which is characterized by fixity, immutability or immovability. Houses, buildings, machinery, animal houses, trees and plants would fall under the category of permanent improvements, the alienation or encumbrance of which is prohibited by R.A. No. 477. While coconut trees are permanent improvements of a land, their nuts are natural or industrial fruits which are meant to be gathered or severed from the trees, to be used, enjoyed, sold or otherwise disposed of by the owner of the land. Herein respondents, as the grantee of Lot No. 21 from the Government, had the right and prerogative to sell the coconut fruits of the trees growing on the property.

By virtue of R.A. No. 477, bona fide occupants, veterans, members of guerilla organizations and other qualified persons were given the opportunity to acquire government lands by purchase, taking into account their limited means. It was intended for these persons to make good and productive use of the lands awarded to them, not only to enable them to improve their standard of living, but likewise to help provide for the annual payments to the Government of the purchase price of the lots awarded to them. Section 8 was included, as stated by the Court a quo, to protect the grantees “from themselves and the incursions of opportunists who prey on their misery and poverty.” It is there to insure that the grantees themselves benefit from their respective lots, to the exclusion of other persons.

The purpose of the law is not violated when a grantee sells the produce or fruits of his land. On the contrary, the aim of the law is thereby achieved, for the grantee is encouraged and induced to be more industrious and productive, thus making it possible for him and his family to be economically self-sufficient and to lead a respectable life. At the same time, the Government is assured of payment on the annual installments on the land. We agree with herein petitioner that it could not have been the intention of the legislature to prohibit the grantee from selling the natural and industrial fruits of his land, for otherwise, it would lead to an absurd situation wherein the grantee would not be able to receive and enjoy the fruits of the property in the real and complete sense.

Respondent through counsel, in his Answer to the Petition contends that even granting arguendo that he executed a deed of sale of the coconut fruits, he has the “privilege to change his mind and claim it as (an) implied lease,” and he has the “legitimate right” to file an action for annulment “which no law can stop.” He claims it is his “sole construction of the meaning of the transaction that should prevail and not petitioner. (sic).”10 Respondent’s counsel either mis-applies the law or is trying too hard and going too far to defend his client’s hopeless cause. Suffice it to say that

respondent-grantee, after having received the consideration for the sale of his coconut fruits, cannot be allowed to impugn the validity of the contracts he entered into, to the prejudice of petitioner who contracted in good faith and for a consideration.

The issue raised by the seventh assignment of error as to the propriety of the award of attorney’s fees made by the lower Court need not be passed upon, such award having been apparently based on the erroneous finding and conclusion that the contract at bar is one of lease. We shall limit Ourselves to the question of whether or not in accordance with Our ruling in this case, respondent is entitled to an award of attorney’s fees. The Civil Code provides that:

“Art. 2208. In the absence of stipulation, attorney’s fees and expenses of litigation, other than judicial costs, cannot be recovered, except:

3 (1) When exemplary damages are awarded;

4 (2) When the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest;

5 (3) In criminal cases of malicious prosecution against the plaintiff;

6 (4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

7 (5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable claim;

8 (6) In actions for legal support;

9 (7) In actions for the recovery of wages of household helpers, laborers and skilled workers;

10 (8) In actions for indemnity under workmen’s compensation and employer’s liability laws;

11 (9) In a separate civil action to recover civil liability arising from a crime;

12 (10) When at least double judicial costs are awarded;

13 (11) In any other case where the court deems it just and equitable that attorney’s fees and expenses of litigation should be recovered.

In all cases, the attorney’s fees and expenses of litigation must be reasonable.”

We find that none of the legal grounds enumerated above exists to justify or warrant the grant of attorney’s fees to herein respondent.

IN VIEW OF THE FOREGOING, the judgment of the lower Court is hereby set aside and another one is entered dismissing the Complaint. Without costs.

SO ORDERED.

Teehankee (Chairman), Makasiar, Fernandez, Melencio-Herrera and Plana, JJ., concur.

Judgment set aside.

Notes.—The limitations provided for by Section 118 of the Public Land Act

19

applies whether disposition of rights is made before or after the issuance of the free patent. (Gonzaga vs. Court of Appeals, 51 SCRA 381.)

Right to acquire public lands presupposes compliance with the requirements of the Public Land Act. (Piñero vs. Dir. of Lands, 57 SCRA 386.)

The government may bring an action for the reversion of public land fraudulently acquired. (Piñero, Jr. vs. Dir. of Lands, 57 SCRA 386.)

The Court may review the decision of the Director of Lands only in a direct proceeding therefor and not collaterally. (Firmalo vs. Tutaan, 53 SCRA 505.)

Titles issued over non-alienable public lands are void ab initio.

Mere inadequacy of price does not vitiate a contract of sale. (Alsua-Betts vs. Court of Appeals, 92 SCRA 332.)

A contract of sale is void where the price which appears as paid has in fact never been paid by the purchaser to the vendor and not considered consummated. (Castillo vs. Galvan, 85 SCRA 526.)

A contract of sale which stipulate payment of interest at 4% per annum in case vendor fails to issue a certificate of title to vendee is not a penal clause because even without it vendee would be entitled to interest at the legal rate of 6% per annum. (Robes-Francisco Realty & Development Corporation vs. Court of First Instance of Rizal, 86 SCRA 59.)

A contract of sale is perfected the moment there is agreemerit upon the thing object of the contract and upon the price. (Philippine Virginia Tobacco Administration vs. De los Angeles, 87 SCRA 197.)

Vendee who neglected to register the sale of property to him but in good faith first took possession of the land had better right over the property under Article 1594 of the Civil Code. (Salvoro vs. Tañega, 87 SCRA 359.)

Purchaser should examine the certificate of title and all factual circumstances necessary for him to determine whether or not flows exist which might invalidate said title. (Barrios vs. Court of Appeals, 78 SCRA 427.)

[No. 45969. May 4, 1939]

TAN TIAH (alias T. SUYA), petitioner, vs. YU JOSE (alias JOSE Y. NAVARRO), respondent.

1. PURCHASE AND SALE; PROMISE TO BUY OR SELL; PRICE CERTAIN.—Article 1445 of the Civil Code provides that "By the contract of purchase and sale one of the contracting parties binds himself to deliver a determinate thing and the other to pay a certain price therefor in money or in something representing the same." According to article 1451, "a promise to sell or buy, when there is an agreement as to 'the thing and the price, entitles the contracting parties reciprocally to demand the fulfillment of the contract." And article 1447 of the same Code provides that in order that the price may be considered certain, it shall be sufficient that it be so in relation to some certain thing, or that its determination be left to the judgment of some particular person, and should the latter be unable or unwilling to fix the price, the contract shall be inoperative. And according to article 1449 of the same Code, the designation of the price can never be left to the determination of one of the contracting parties.

2. ID. ; ID.; ID.—The price of the leased land not having been fixed and the lessor not having bound himself to sell it, the essential elements which give life to the contract are lacking. It follows that the lessee cannot compel the lessor to sell the leased land to him.

PETITION for review on certiorari.

The facts are stated in the opinion of the court.

Pastor Salazar and Vamenta & Vamenta for petitioner.

Norberto Romualdez for respondent.

VlLLA-REAL, J.;

This is an appeal by way of certiorari taken by Tan Tiah (alias T. Suya), wherein he prays, on the grounds alleged therein, for the review of the decision rendered in the case by the Court of Appeals reversing that of the Court of First Instance of Leyte, for the reversal thereof, and for the affirmance of the decision of said Court of First Instance.

As grounds for the allowance of the appeal, petitioner assigns the following alleged errors of law committed by said Court of Appeals in its decision, to wit:

5 "1. The Court of Appeals erred in finding in its decision, subject of the present petition for certiorari, that the 5th paragraph of the contract of lease Exhibit A establishes rights for the petitioner and for the respondent, which are antagonistic and, therefore, unenforceable by action.

6 "2. The Court of Appeals likewise erred in finding in its decision that the promise, if any, made by respondent to sell to petitioner the land in question is not enforceable by action for lack of a price.

7 "3. The Court of Appeals also erred in finding in its decision that the 5th paragraph of the contract of lease entered into by petitioner and respondent does not

20

state two promises to buy and to sell which are mutually demandable.

8 "4. Lastly, the Court of Appeals erred in holding that the herein petitioner has no cause of action against defendant-respondent."

On May 14, 1923 petitioner and respondent entered into a contract of lease in the fifth clause of which, pertinent to the question at issue, provides?

"5th. That upon termination of the period of this contract, namely, ten years, the lessor shall have the option to buy the building or Improvement which the lessee may have built upon the lots, reimbursing the latter ninety per cent (90 %) of the original net cost of the construction; but should the lessor be unable or unwilling to buy said building or improvement, the income or rent derived therefrom shall be equally divided between said lessor and lessee, and the latter shall no longer have the obligation to pay the rent agreed upon for the lots in the second paragraph. of this contract; provided, however, that the present contract, with the modification just mentioned, with respect to the income from the building and the rent from the lot, shall continue in force until the lessor buys the building or improvement or the lessee buys the land."

The judgment rendered by the Court of First Instance of Leyte and reversed by the Court of Appeals, which absolved the defendant is as follows:

"Wherefore, judgment is rendered sentencing defendant to buy the house of plaintiff or to sell to plaintiff the land on which the latter's house is built. Each of the parties must submit the name of a person to be appointed commissioner for the assessment and appraisal of the land on which plaintiff s house is built,

"Defendant is sentenced to pay the costs of the suit."

The main question to be decided in this appeal is whether plaintiff, as lessee, has a right, by virtue of the aforecited fifth clause of the contract of lease, to compel defendant, as lessor, to sell to him the land on which he built his house in accordance with said contract.

It will be seen that the lessor is given the preference of buying the building erected on the leased land at a price equivalent to 90 per cent of the original net cost of the construction upon the termination of the ten years fixed in the contract as the duration of the lease. As ten years have elapsed and the lessor has not exercised his right to buy the building, and has no intention to do so, may the lessee compel the lessor to sell to him the leased land? The lessee is not given the option to buy the land. The grant of said right may not be inferred from the conditional clause of paragraph 5 and from paragraph 4 of the contract since neither in the conditional clause aforecited nor in the fourth paragraph of the contract is the lessor bound to sell the questioned land to the lessee. Furthermore, in the said conditional clause the price which the lessee would have to pay should he decide to buy the land is not fixed. Article 1445 of the Civil Code provides that "By the contract of purchase and sale one of the contracting parties binds himself to deliver a determinate thing and the other to pay a certain price therefor in money or in something representing the same." According to article 1451, "a promise to sell or buy, when there is an agreement as to the thing and the price, entitles the contracting parties reciprocally to demand the fulfillment of the contract." And article 1447 of the same Code provides that in order

that the price may be considered certain, it shall be sufficient that it be so in relation to some certain thing, or that its determination be left to the judgment of some particular person, and should the latter be unable or unwilling to fix the price, the contract shall be inoperative. And according to article 1449 of the same Code, the designation of the price can never be left to the determination of one of the contracting parties.

As we have said, a price certain which the lessee should pay the lessor for the land in case he should desire to buy it has not been fixed; neither has anything which may have a definite value or which may serve as a basis for the fixing of the price been designated. Also, no determinate person has been named to fix the price.

The price of the leased land not having been fixed and the lessor not having bound himself to sell it, the essential elements which give life to the contract are lacking. It follows that the lessee cannot compel the lessor to sell the leased land to him.

Having arrived at this conclusion, we do not find sufficient grounds for reversing the decision appealed from, which is hereby affirmed, with costs against the appellant.

Imperial, Diaz, Laurel, and Concepcion, JJ., concur.

Judgment affirmed.

21

G.R. No. 116650. May 23, 1995.*

TOYOTA SHAW, INC., petitioner, vs. COURT OF APPEALS and LUNA L. SOSA, respondents.

Civil Law; Contracts; Sales; Exhibit “A” is not a contract of sale.—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.

Same; Same; Same; Definiteness as to the price is an essential element of a binding agreement to sell personal property.—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. 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.

Same; Same; Same; Agency; A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent.—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 an agent 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.

Same; Same; Same; Damages; Attorney’s Fees; Award of moral and exemplary damages and attorney’s fees and costs of suit is without legal basis.—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. 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.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Bengzon, Zarraga, Narciso, Cudala, Pecson, Bengzon & Jimenez for petitioner.

Carag, Caballes, Jamora & Somera Law Offices for private respondent.

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.

9 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.

10 2. the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15, 1989

11 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 on certiorari.

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

22

because he, his family, and a balikbayan 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 —P53,148.00

b) insurance —P13,970.00

c) BLT registration fee —P 1,067.00

CHMO fee —P 2,715.00

service fee —P 500.00

accessories —P29,000.00

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

14 1. This sale is subject to availability of unit.

15 2. Stated Price is subject to change without prior notice. Price prevailing and in effect at time of selling will apply . . . .

9 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 re-servation, “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 pay-

ment was not made within three days.7 Toyota’s counsel answered through a letter dated 27 November 19898 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:

4 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 a 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

23

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 1. ordering the defendant to pay to the plaintiff the sum of P75,000.00 for moral damages;

2 2. ordering the defendant to pay the plaintiff the sum of P10,000.00 for exemplary damages;

1 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;

2 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

3 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 ponencia and 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 an agent20 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:

24

1 (a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties;

2 (b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and

3 (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 (Chairman), Bellosillo and Kapunan, JJ., concur.

Quiason, J., On official leave.

Petition granted. Judgment reversed and set aside.

Note.—Moral damages to be recoverable in a relationship based on a contract, a party committing breach thereof must have acted fraudulently or in bad faith. (Sia vs.

Court of Appeals, 222 SCRA 24 [1993])

25

No. L-67888. October 8, 1985.*

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

Civil Law; Sales; Consideration; Conveyance of property for P1.00 consideration and other valuable considerations, valid.—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 (P1.00) Peso and the other valuable considerations (italics 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.

Same; Same; Same; Bad faith and inadequacy of monetary consideration do not render a conveyance inexistent, as the assignor's liability may be sufficient cause for a valid contract.—lt is not unusual, however, in deeds of conveyance adhering to the AngloSaxon 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."

PETITION for certiorari to review the decision of the Intermediate Appellate Court.

The facts are stated in the opinion of the Court.

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 quitclaimed 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) Psd157841, 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 x x x 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 01 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 theref ore 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 abovedescribed property was for and in consideration of the One (P1.00) Peso and the other valuable considerations (italics 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

26

Court—

"x x x 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.

Decision affirmed.

Notes.—Unless the contrary is proved, a contract is presumed to have a good and sufficient consideration. (Azarraga vs. Sta. Ana, 9 Phil. 637.) Even when the contract falls under the Statute of Frauds, it is not necessary that the consideration for the agreement be stated in writing, because it is presumed. (Behn, Meyer, & Co. vs. Davis, 37 Phil. 431.) And when it is alleged that the consideration or cause of a promissory note is a debt incurred in a prohibited game or a game of chance, and there is no proof of the nature of the game, it cannot be assumed that such game was a prohibited game, because the law presumes that the cause or consideration is licit. (Rodriguez vs. Martinez, 5 Phil. 67.)

This presumption applies when no cause is stated in the contract. But if a cause is stated in the contract, and it is shown to be false, the burden of proving the legality of the cause is upon the party enforcing the contract. Hence, if the cause is partly legal and partly unlawful, and there is no proof as to what part is supported by the lawful cause. there can be no recovery on the contract. (Luchauco vs. Martinez, 6 Phil. 594.)

Although in an option contract for the purchase of a sugar central which is the subject matter of the litigation, no consideration is expressly mentioned, it is presumed that consideration exists therefor. (Zayco vs. Serra, 44 Phil. 326.)

27

[No. 14823. December 9, 1919.]

HILARIA AGUILAR, plaintiff and appellant, vs. JUAN RUBIATO, defendant and appellant, and MANUEL GONZALEZ VILA, defendant and appellee.

12 1. CONTRACTS; NULLITY; FRAUD; INADEQUACY OF PRICE.—Where the inadequacy of the price in an agreement is so great that the mind revolts at it and is such as a reasonable man -would neither directly nor indirectly be likely to consent to, a strong reason exists for annuling a contract.

16 2. ID.; ID.; ID.; ID.—R, the owner of land valued at P26,000, was induced through the connivance of two or three other men to sign the second page of a power of attorney in favor of one of them, G, which purported to authorize G to sell the property with right of repurchase for a sum not to exceed P1,000. G sold the property to A for P800 under a pacto de retro. R having failed to pay the rent, A endeavors to obtain possession of the land. Held: That the so-called power of attorney was a sham document, and that R is only liable for the loan which he received.

10 3. ID. ; USURY; INTEREST.—As interest" at the rate of 60 per cent per annum is usurious, and as the loan thus fails to name a lawful rate of interest, on and after the date when the Usury Law became effective, a defendant would be liable for the legal rate of interest, which is 6 per cent per annum.

5 4. ID.; ID.; ID.—Under similar circumstances, a defendant would only be liable for interest at the legal rate of 6 per cent per annum for a contract made prior to the enactment of a Usury Law. (See art. 1255 of the Civil Code.)

3 5. PLEADING AND PRACTICE; COMPLAINT; DISCREPANCY BETWEEN DEMAND AND ALLEGATIONS.—"The demand in the complaint is no part of the statement of the cause of action, and does not give it character. The facts alleged do this, and the plaintiff is entitled to so much relief as they warrant." (Sutherland on Code Pleading, Vol. I, sec. 186; Code of Civil Procedure, sec. 126.)

APPEAL from a judgment of the Court of First Instance of Laguna. Camus, J.

The facts are stated in the opinion of the court.

Francisco A. Delgado for plaintiff and appellant.

Abaya & Pamatmat for defendant and appellant.

No appearance for appellee.

MALCOLM, J.:

As certainly as may be ascertained, the facts of record in this case are believed to be the f ollowing:

Juan Rubiato is a resident of the municipality of Nagcarlan, Province of Laguna, of somewhat ordinary intelligence and astuteness. Early in the year 1915, he was the owner of various parcels of land having a potential value of approximately P26,000. Rubiato was desirous of obtaining a loan of not to exceed P1,000. Being in this state of

mind, two men, Manuel Gonzalez Vila a procurador judicial and one Gregorio Azucena, and possibly another, one Marto Encarnacion, came to the house of Rubiato and there induced him to sign the second page of a power of attorney in favor of Manuel Gonzalez Vila. This power of attorney, introduced in evidence as Exhibit A, reads as follows:

"To all whom it may concern:

"I, Juan Rubiato e Isles, of age, married, a resident of the barrio of Rizal, municipality of Nagcarlan, Province of Laguna, Philippine Islands, do hereby freely and voluntarily set forth the following:

"First. That I own and possess the full and absolute dominion over eight parcels of land (planted with about two thousand five hundred coconut trees) situated in the aforesaid barrio, municipality of Nagcarlan, Province of Laguna, P. L; that the description and boundaries of same are duly described in the possessory title (dated the 15th day of January, 1896) (título posesorio) issued to me by the former Spanish sovereignty; that same is inscribed in the register of property of said province under numbers 141, 144, 146, 148, 150, 152, 154 and 156; that these facts are proven by the certificate, written on the legal official papers numbered 0.153.826, 0.460.498, 0.455.683 and 0.460.459 and duly authorized by registrar, Sr. Antonio Roura, * * *

"Second. That being unable, on account of illness, to go in person to Manila, I hereby declare that I grant to Sr. Manuel Gonzalez Vila, a resident of the municipality of San Pablo, Province of Laguna, P. I., any power whatever required by law to secure in said city a loan not exceeding one thousand pesos (P1,000), Philippine currency; that he shall secure same in my name and representation; that he may secure same either under the rate of interest and conditions considered most convenient and beneficial for my interests, or under pacto de retro; that furthermore he has ample power to execute, sign and ratify, as though he were myself, any writing necessary for the mortgage of my land described in the aforementioned document; and that he holds this special power of attorney over said lands to the end that same may be used as a guaranty of the loan to be secured." * * *

By reason of the power thus given, Manuel Gonzalez Vila on April 29, 1915, formulated the document introduced in evidence as Exhibit C, by which the lands of Rubiato were sold to Hilaria Aguilar of Manila, for the sum of P800, with right of repurchase within one year, Rubiato to remain in possession of the land as lessee and to pay P120 every three months as lease rent. Hilaria Aguilar never saw the lands in question and did not know, until after she had consulted her attorney, exactly what her rights were. Manuel Gonzalez Vila received from Hilaria Aguilar the P800 mentioned in Exhibit C as the selling price of the land. Whether this money was then passed on to Juan Rubiato is uncertain, although it is undeniable that Hilaria Aguilar has never been paid the money she advanced. The one year mentioned in the pacto de retro having expired without Hilaria Aguilar having received the principal nor any part of the lease rent, she began action against Juan Rubiato and Manuel Gonzalez Vila to consolidate the eight parcels of land in her name. After due trial, the trial judge, the Hon. Manuel Camus, rendered a decision in which he recited the facts somewhat, although not exactly, as hereinbefore set forth. The court found that the power of attorney only authorized Manuel Gonzalez Vila to obtain a loan subject to a

28

mortgage, and not to sell the property. The judgment handed down was to the effect that the plaintiff Hilaria Aguilar recover from the defendant Juan Rubiato the sum of P800 with interest at the rate of 60 per cent per annum from April 29, 1915 until May 1, 1916, and with interest at the rate of 12 per cent per annum from May 1, 1916, until the payment of the principal, with the costs against the defendant. Both parties appealed.

The points raised by the plaintiff-appellant going as they do to the facts and these being as hereinbefore stated, no lengthy discussion of plaintiff's five assignments of error need be indulged in. The issue is not precisely relative to an interpretation of the power of attorney. The court is under no necessity of seizing on inexact language in order to hold that the document authorized a mortgage and not a sale. The so-called power of attorney might indeed be construed as authorizing Vila to sell the property of Rubiato. And it might indeed be construed under a conception similar to that of the trial court's as a loan guaranteed by a mortgage. But the controlling fact is, that the power of attorney was in reality no power of attorney but a sham document.

In addition to the evidence, there is one very cogent reason which impels us to the conclusion that Rubiato is only responsible to the plaintiff for a loan. It is—that the inadequacy of the price which Vila obtained for the eight parcels of land belonging to Rubiato is so great that the mind revolts at it. It is an agreement which a reasonable man would neither directly nor indirectly be likely to enter into or to consent to. To hold that the power of attorney signed by Rubiato authorized Vila to enter into the instant contract of sale would be equivalent to holding, if we may be permitted to use the language of Lord Hardwicke, that "a man in his senses and not under delusion" would dispose of lands worth P26,000 for P1,000, and would pay interest thereon at the rate of 60 per cent per annum. (See 6 R. C. L., 679, 841.)

The members of this court after most particular and cautious consideration, having in view all the facts and all the natural tendencies of mankind, consider that Rubiato is only responsible to the plaintiff for the loan of P800.

The points advanced by defendant-appellant likewise necessitate only brief consideration. While entertaining some doubt as to the justice of requiring Rubiato to pay back the amount of P800, we do not feel authorized in disturbing this finding of the trial court. It may well be that Vila and his partners, acting- as middlemen, fabricated the document which Rubiato signed, secured the money from Hilaria Aguilar, and then pocketed the same. Yet as minor details somewhat corroborative of the result reached by the trial court, are the undeniable facts that Rubiato admitted his desire to obtain a loan, that Hilaria Aguilar made such a loan, and that while the testimony of Vila is not overly truthful, in this one respect we do have his forceful statement that the money was paid over to Rubiato. That payment of the sum of P800 was not explicitly prayed for in the complaint, does not deprive the court of power to render judgment for this amount, because it is a rule of good pleading that "the demand in the complaint is no part of the statement of the cause of action,. and does not give it character. The facts alleged do this, and the plaintiff is entitled to so much relief as they warrant." (Sutherland on Code Pleading, Vol. I, sec. 186; Code of Civil Procedure, sec. 126.)

The only remaining question which merits resolution, on which the plaintiff and

defendants flatly disagree, relates to the interest which should be allowed. The trial court, it will be remembered, permitted the plaintiff to recover interest at the rate of 60 per cent per annum from April 29, 1915, when the pacto de retro was formulated, until May 1, 1916, the date when the Usury Law, Act No. 2655, went into effect, and interest at the rate of 12 per cent per annum after that date. It is, of course, true, as previously decided by this court in United States vs. Constantino Tan Quingco Chua ([1919], 39 Phil., 552), that usury laws, such as that in force in the Philippines, are to be construed prospectively and not retrospectively. As stated in the decision just cited, "The reason is, that if the contract is legal at its inception, it cannot be rendered illegal by any subsequent legislation, for this would be tantamount to the impairment of the obligation of the contract." As we have held that the defendant is under obligation to the plaintiff for a mere loan, as this loan fails to name a lawful rate of interest, and as interest at the rate of 60 per cent per annum is unquestionably exorbitant and usurious under the Usury Law, on and after the date when this law became effective, the defendant would be liable for the legal rate of interest, which is 6 per cent per annum. We would even go further and hold that he -would be liable only for such interest prior to the enactment of the Usury Law. This we can do under the sanction of article 1255 of the Civil Code which condemns agreements contrary to morals and public policy.

Judgment is affirmed, with the sole modification that the plaintiff shall only recover interest at the rate of 6 per cent per annum on the sum of P800 from April 29, 1915 until paid, without special finding as to costs in this instance. So ordered.

Arellano, C. J., Torres, Araullo, Street, and Avanceña, JJ., concur.

Judgment modified.

29

[No. 21026. February 13, 1924]

PHILIPPINE NATIONAL BANK, plaintiff and appellee, vs MANUEL ERNESTO GONZALEZ, defendant and appellee SATURNINO LOPEZ, buyer and appellant.

1. WHEN SALE SHOULD NOT BE SET ASIDE.—In the absence of fraud duct t sion, ent, mutual mistake, breach of trust or misconduct by the purchaser, it is not a matter of discretion with the trial court to rescind the sale of real property which it has once confirmed. 2. WHAT SHOWING SHOULD BE MADE.—Where a sale has been fairly and regu arly made and confirmed by the trial court, it should not for inadequancy of price alone wihtout a proper would ng , in event a resale Was made the Property would sell at an increased price. 3. WHEN INADEQUACY OF PRICE ALONE is NOT SUFFICIENT.—In the absence of other evidence of its unfairness, a judicial sale of real property will not be set aside for inadequacy of price alone, unless the inadequacy be so great as to shock the conscience of the court. APPEAL from an order of the Court of First Instance of Pangasinan. , J.

The facts are stated in the opinion of the court.

Camus & Delgado, Turner & Rheberg, and Serviliano de la Cruz for appellant.

Palma, Leuterio & Yamzon for defendant-appellee.

No appearance for the plaintiff-appellee.

STATEMENT

November 23, 1921, the Philippine National Bank commenced a suit against Manuel Ernesto Gonzalez to foreclose a real mortgage made to secure a promissory note for P15,000. March 17, 1922, the plaintiff bank filed an amended complaint against the same defendant, in which the original was reproduced, to foreclose a second mortgage for P15,000 upon the same land described in the original complaint. The defendant was duly served in both proceedings with both the original and amended complaints, and made defaults in both cases. On April 21, 1922, the bank filed a motion for default. August 8, 1922, the court declared the defendant in default, and set the case for hearing on August 23, 1922, at which time the bank appeared and presented proofs of all the facts alleged in its original and amended complaints. August 28, 1922,, the court rendered judgment in favor of the bank and against the defendant, requiring him within three months from that date to pay the plaintiff the amount of the two mortgages in question, together with the interest and costs, and that in default thereof, execution should be issued for the sale of the property to satisfy the judgment. December 7, 1922, and for want of any payment, the plaintiff moved the court for an execution, and on January 11, 1923, an execution was issued for the sale of the real property described in the mortgages to satisfy the amount of the judgment. On August 28, 1922, the total of the judgment in the first cause of action, including the interest, was P17,313.59, and in the second mortgage, on the same date, it was P17,755.

The property advertised for sale was evidenced by Torrens Certificate of Title and described in Exhibits A, B and C, of which Exhibit A contains 3,657,703 square meters,

Exhibit B 1,335,505 square meters and Exhibit C 263,765 square meters. Pursuant to the execution the property was duly advertised for sale, and that described in Exhibits B and C was sold to Saturnino Lopez, the appellant here, for P15,000, that being the highest bid, and he being the highest bidder.

February 16, 1923, the sheriff filed a motion to confirm the sale to Lopez, which was set down for hearing on March 9, 1923, and due notice was given to all the parties in interest. At a hearing on that date, the court made an order duly confirming the sale.

April 5, 1923, the defendant Gonzalez, through his then attorney, filed the following motion:

"Comes now the defendant and to the Honorable Court respectfully shows that he applies for a reconsideration of the order entered in this case under date of March 9, 1923, confirming the sale at public auction made by the deputy provincial sheriff Mr. Jose V. Lopez in favor of Mr. Saturnino Lopez of the two parcels of land included in certificate of title No. 5136 of the property of the defendant and judgment debtor Mr. Manuel Ernesto Gonzalez. This motion is based on the following ground:

"That said order is not in accordance with law."

It was set down for hearing on April 7, 1923, and notice was duly given. April 16, 1923, the court rendered a decision in which he found as a fact that all of the necessary requisites for the notice of sale had been duly complied with but that it appeared that the value of the land, which was sold to the appellant, was P45,940, for which he did only P15,000, and on account of this difference in value for taxation purposes and the value for which the land was sold, the court set aside the confirmation, and ordered a resale "thereby giving the aforesaid defendant a greater opportunity in order that he may obtain a better price, if possible, from the sale of the aforesaid lands." From that order, Lopez appeals, assigning as error that "the trial court erred in setting aside, without good cause having been shown, the prior order confirming the judicial sale, and ordering the resale of the land in question."

JOHNS, J.:

That is the only question involved on this appeal. It will be noted that in the first instance, the trial court confirmed the sale on the motion of the sheriff, and that in the last order, he specifically found as a fact that there had been a compliance of all of the essential requisites for a sale on execution, and that the order, confirming the sale, was set aside upon the sole ground of inadequacy of consideration. It will also be noted that in the motion to set aside the sale, the only ground specified is "that order is not in accordance with law." In other words, in the motion itself no grounds are specifically set forth or alleged as to why the sale should be set aside, and that in the body of the motion, it is not claimed that the land was sold for an inadequate consideration.

Although the trial court set aside the sale "for the purpose of avoiding exorbitant damages to said defendant," the only evidence presented at the hearing on the motion as to the value of any land was the certificate of the municipal and deputy treasurer of Santo Tomas, Pangasinan, of date March 26, 1923, to the effect that four pieces of land of the defendant Gonzalez contain 162 hectares, 4 ares, and 26 centares, and had a combined assessed valuation of P45,940.

30

Not a witness was called to testify as to the value of the land. In other words, the only evidence before the court as to value was the certificate of the deputy municipal treasurer, and that was to the effect that the four pieces of land therein described had an assessed valuation of P45,940. Neither was there any showing made nor any evidence presented, that, in the event the property in question was resold, that it would sell for more than P15,000. That as to the land in question, it appears of record that on August 28, 1922, the amount of the bank's judgment was P17,313.59. It also appears that the bank was personally represented at the sale, and that it refused to bid more than P15,000. For such reason, the property was sold to Lopez, as the highest bidder. In other words, it appears of record that the bank itself consented and agreed to the sale of the property in question for more than P3,000 less than the amount of its claim.

The only ground specified in the motion of April 5, 1923, is "that said order is not in accordance with law." No other grounds are pointed out or assigned, and the order of the court setting aside the sale was based upon that motion.

The rule is fundamental that the confirmation of a sale, or the setting aside of the confirmation, is largely a matter in the discretion of the trial court, and section 257 of the Code of Civil Procedure provides:

" * * * Should the court decline to confirm the sale, for good cause shown, and should set it aside, it shall order a resale in accordance with law."

In the instant case, the court in its original order confirmed the sale and later set it aside upon a motion, specifying "that said order is not in accordance with law." In setting the sale aside, the court finds that "although the requisites prescribed for the sale at public auction of the land were complied with," it set aside the sale for inadequacy of consideration without any proof as to the value of the land, except the assessed valuation, or without any showing whatever that, in the event of a resale, the property would sell for more money. It also appears that the bank was represented at the sale, and that it consented and agreed to the sale of the property in question to Lopez for P3,000 less than the amount of its claim. It also appears that the suit to foreclose was commenced on November 23, 1921; that the judgment was rendered by default August 28, 1922; and that the property was not sold until February 14, 1923. In other words, Gonzalez had sixteen months after the suit was commenced to find a purchaser that would be ready, able, and willing to pay the amount of the mortgage, and stop the sale, and when the property in question was actually sold, it sold for P3,000 less than the amount of the bank's claim.

We frankly concede that the trial court has a large discretion in setting aside and confirming the sale of real property, and that, where a proper motion is filed, and the evidence tends to support the motion, the decision of the trial court should be final. Be that as it may, the motion to set aside the confirmation should point out and specify why it should be set aside, and there should be reasonable evidence in the record tending to support the motion. In the instant case, the motion upon which the court based its action does not specify or point out a single reason why the confirmation should be set aside, Neither is there any evidence to sustain the motion.

The rule is well stated in Graffam and Doble vs. Burgess (117 U. S., 180), in which the syllabus says:

"A judicial sale of real estate will not be set aside for inadequacy of price, unless the inadequacy be so great as to shock the conscience, or unless there be additional circumstances against its fairness.

"If the inadequacy of price paid f or the purchase of real estate at a sale on an execution be so gross as to shock the conscience, or if in addition to gross inadequacy the purchaser has been guilty of unfairness or has taken any undue advantage, or if the owner of the property or the party interested in it has been for any other reason misled or surprised, then the sale will be regarded as fraudulent and void, and the party injured will be permitted to redeem the property sold."

The same principle is laid down by this court in Warner, Barnes & Co. vs. Santos (14 Phil., 446), in which the syllabus says:

" * * * That a judicial sale of real estate in an action to foreclose will not be set aside for inadequacy of price, unless the inadequacy be so great as to shock the conscience or unless there be additional circumstances against its fairness."

Ruling Case Law, vol. 16, page 100, says:

"It is by no means a matter of discretion with the court to rescind a sale which it has once confirmed, nor is the sale to be rescinded for mere inadequacy of price, or for an increase of price alone, irregularity, and the like. Some special ground must be laid such as fraud and collusion, accident, mutual mistake, breach of trust, or misconduct upon the part of the purchaser, or other party connected with the sale, which has worked injustice to the party complaining and was unknown to him at the time the sale was confirmed."

In the instant case, there is no claim or pretense that there was any f raud or collusion, or that in any way Gonzalez was misled or deceived. The bank was personally represented at the sale, and there is no showing whatever that, if the property was resold, it would sell for a centavo, more than the P15,000.

For such reasons, the judgment of the trial court, setting aside the confirmation of the sale, is reversed, and the sale will stand affirmed as of the date of the original confirmation by the trial court, with costs in favor of the appellant. Such judgment to be without prejudice to the right of Gonzalez, if any, to redeem. So ordered.

Araullo, C. J., Johnson, Malcolm, Avanceña, and Romualdez, JJ., concur.

STREET, J., with whom concurs, OSTRAND, J., concurring:

We have hesitated somewhat to, give our assent to this decision, fearing that its effect might be unduly to hamper the legitimate discretion which is vested in the Court of First Instance in the matter of the confirmation of foreclosure sales; and we wish it to be understood that our adherence to the decision is due to the consideration that the lower court had already once confirmed the sale without opposition and that the alleged inadequacy of price has not been made to appear with such certainty as was necessary to justify the trial court in disturbing the order.

Judgment reversed.

31

No. L-30871. December 28, 1970.

AURORA P. DE LEON, petitioner, vs. HON.SERAFIN SALVADOR, as Judge of Branch XIV of the Court of First Instance of Rizal (Caloocan City), and EUSEBIO

BERNABE,ALBERTO A. VALINO, Special Deputy Sheriff of the Office of the Provincial Sheriff, Province of Rizal, and the REGISTER OF DEEDS for Caloocan

City, respondents.

No. L-31603. December 28, 1970.

EUSEBIO BERNABE, petitioner, vs. THE HONORABLE JUDGE FERNANDO A. CRUZ of the Court of First Instance of Rizal, Caloocan City, Branch XII, SPECIAL DEPUTY SHERIFF,ALBERTO A. VALINO of the Provincial Sheriff of Rizal and

AURORA P. DE L EON, respondents.

Courts of First Instance; Jurisdiction; Jurisdiction to set aside execution sale.—Having acquired jurisdiction over Case No. C-189 and rendered judgment that had become final and executory, Branch XII of the Caloocan City Branch of the CPI of Rizal retained jurisdiction over its judgment, to the exclusion of all other co-ordinate courts for its execution and all incidents thereof, and to control, in furtherance of justice, the conduct of its ministerial officers in connection therewith. Execution of its judgment having been carried out by the sheriff with the levy and sale of the judgment debtor's properties, the judgment debtor could not in the guise of a new and separate second action ask another court of co-ordinate jurisdiction, Branch XIV of the same court, to interfere by injunction with execution proceedings, to set them aside and to order the holding of a new execution sale—instead of seeking such relief by proper motion and application from Branch XII which had exclusive jurisdiction over the execution proceedings and the properties sold at the execution sale. Branch XII alone had jurisdiction—subject only to the supervisory control or appellate jurisdiction of superior courts—to rule upon the regularity and validity of the sale conducted by its ministerial officers from Sheriff's Office.

Same; Same; Concurrent and Coordinate Jurisdiction; Various branches of CFI are coordinate courts.—The various branches of a Court of First Instance of a province or city, having as they have the same or equal authority and exercising as they do concurrent and coordinate jurisdiction, should not, cannot, and are not permitted to interfere with their respective cases, much less with their orders or judgments by means of injunction. This is an elementary doctrine that has been established with the very system of courts. To allow them to interfere with each other's judgments or decree by injunctions would obviously lead to confusion and might seriously hinder the administration of justice. Needless to say, an effective ordering of legal relationships in civil society is possible only when such court is granted exclusive jurisdiction over the property brought to it.

Remedial Law; Property in Custodia Legis.—Property is in the custody of the court when it has been seized by an officer either under a writ of attachment or mesne process or under a writ of execution.

Same; Levy of Property on Execution.—The garnishment or levy of property on execution brings the property into custodia legis of the court issuing the writ of

execution, beyond the interference of all other co-ordinate courts, thereby avoiding conflicts of power between such courts. The garnishment of property to satisfy a writ of execution operates as an attachment and fastens upon the property a lien by which the property is brought under the jurisdiction of the court issuing the writ. It is brought into custodia legis, under the sole control of such court. A court which has control of such property, exercise exclusive jurisdiction over the same. No court, except one having a supervisory control or superior jurisdiction in the premises, has a right to interfere with and change that possession. The levy is the essential act by which the judgment debtor's property is set apart for the satisfaction of the judgment and taken into custody of the law, and from such time the court issuing the execution acquires exclusive jurisdiction over the property and all subsequent claims of other parties are subordinated thereto, irrespective of the time when the property is actually sold.

Same; Execution; Proceedings on Execution.—It is an established principle that a case in which an execution has been issued is regarded as still pending, so that all proceedings in the execution are proceedings in the suit and that execution is the fruit and end of the suit, and is very aptly called the life of the law. The suit does not terminate with the judgment; and all proceedings on the execution, are proceedings in the suit, and which are expressly, by the act of Congress, put under the regulation and control of the court out of which it issues. It is a power incident to every court from which process issues, when delivered to the proper officer, to enforce upon such officer a with his duty. compliance

Same; Same; Auction Sale; Price on forced sales distinguished from ordinary sales.—While in ordinary sales for reasons of equity a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one's conscience as to justify the courts to interfere, such does not follow when the law gives to the owner the right to redeem, as when a sale is made at public auction, upon the theory that the lesser the price the easier it is for the owner to effect the redemption. And so it was aptly said that when there is the right to redeem, inadequacy of price should not be material, because the judgment debtor may reacquire the property or also sell his right to redeem and thus recover the loss he claims to have suffered by reason of the price obtained at the auction sale.

SPECIAL CIVIL ACTIONS in the Supreme Court. Certiorari with preliminary injunction.

The facts are stated in the opinion of the Court.

No. L-30871

Jose A. Garcia and Ismael M. Estrella for petitioner.

De los Santos, De los Santos & De los Santos and Felipe L. Abel for respondents.

No. L-31603

Felipe L. Abel for petitioner.

Ismael M. Estrella and Jose A. Garcia for respondents.

TEEHANKEE, J.:

32

Joint decision of two special civil actions which were ordered consolidated since they involve the same properties and the common issue of conflict of jurisdiction of the two Caloocan City branches of the Court of First Instance of Rizal.

Case L-30871 arose from the following facts: A judgment for P35,000.00-actual, moral and exemplary damages obtained by Enrique de Leon against private respondent Eusebio Bernabe in Civil Case No. C-189 of Branch XII of the Rizal court of first instance, Caloocan City branch presided by Judge Fernando A. Cruz, having become final and executory, a writ of execution was issued by said court. Pursuant thereto, the city sheriff, on November 8, 1966 levied on execution on two parcels of land of 682.5 square meters each registered in the names of Bernabe under T.C.T. Nos. 94985 and 94986 of Caloocan City. At the execution sale held on February 14, 1967, the city sheriff sold the said properties to herein petitioner, Aurora (sister of the judgment creditor) as the highest bidder for the total sum of P30,194.00, (the property then being subject to an existing mortgage lien in the amount of P120,000.00). The sheriff executed the corresponding certificate of sale in her favor, which was duly registered on February 21, 1967 with the Caloocan City register of deeds.

On February 7, 1968, just about two weeks before the expiration of the one-year period to redeem the properties sold in execution, the judgment debtor Bernabe filed a separate civil action docketed as Civil Case No. C-1217 against his judgment creditor Enrique de Leon, herein petitioner Aurora P. de Leon as purchaser and the sheriff as defendants for the setting aside or annulment of the execution sale on February 14, 1967 "for being anomalous and irregular," and for the ordering of a new auction sale. This second case, instead of being referred to Judge Cruz presiding over Branch XII which had issued the writ of execution, was assigned to Branch XIV, the other Caloocan City branch of the Rizal Court of First Instance presided by Judge Serafin Salvador, who issued on February 19, 1968 a writ of preliminary injunction enjoining therein defendants, particularly the sheriff to desist "from taking further proceedings against the properties of the plaintiff [Bernabe] that were sold at public auction on February 14, 1967, and from issuing a sheriff's deed of sale at the expiration of the period of redemption on February 21, 1968 in favor of defendant Aurora P. de Leon." Aurora moved to dissolve the injunction and to dismiss this second case on the grounds of laches and lack of jurisdiction of Judge Salvador's court to interfere with the execution proceedings pending in the first case before Judge Cruz' court which is of equal and co-ordinate jurisdiction, but Judge Salvador denied the same for not being indubitable and tried the case, notwithstanding Aurora's pleas before and after the trial to resolve the issue of his court's lack of jurisdiction.

Pending his decision, Judge Salvador issued on May 20, 1969 an order granting two ex-parte motions of Bernabe of May 12, and May 15, 1969 and ordering the sheriff to allow Bernabe to redeem the two properties sold at public auction more than two years ago on February 14, 1967 under the writ of execution issued by Judge Cruz' court in the first case. On the following day, May 21, 1969, Bernabe deposited with the sheriff the sum of P33,-817.28 as the redemption price (P15,987.00 per lot plus interests), who issued a certificate of redemption. Bernabe then registered on the following day, May 22, 1969, the sheriff's certificate of redemption with the register of deeds, who in turn cancelled the entry of the execution sale in favor of Aurora, as

well as registered on one of the properties covered by T.C.T. No. 94986 a deed of first mortgage executed on May 20, 1969 by Bernabe in favor of one Antonio de Zuzuarregui to secure a loan of P130,000.00. Aurora's motion of May 28, 1969 in the second case to set aside the order and certificate of redemption and registration of mortgage on the ground of lack of jurisdiction was denied by Judge Salvador, who ruled in his order of June 23, 1969 that "there is no question that this Court has jurisdiction to hear and determine this case which questions the regularity and legality of the auction sale of properties held on February 14, 1967, hence the authority granted by the Court to redeem said properties within the redemption period in order to write finis to the pending case."1 Hence, this action for certiorari filed by Aurora impleading the sheriff and the register of deeds for the annulment and setting aside for lack of jurisdiction of the questioned orders of Judge Salvador's court as well as of the challenged actuations of the other respondent officials pursuant thereto. As prayed for, the Court issued a writ of preliminary injunction enjoining said respondents from doing or taking any other act in connection with the said properties.

On May 30, 1969, Aurora also filed in the first case before Judge Cruz' court a motion with proper notice for consolidation of title and for the court to order the sheriff to issue in her favor a final deed of sale over the subject parcels of land. Judge Cruz' order of September 5, 1969, granting Aurora's motion over Bernabe's opposition that he had redeemed on May 21, 1969 the said properties by virtue of Judge Salvador's order of May 20, 1969 in the second case and ordering Bernabe to surrender his owner's duplicates of title for transfer to Aurora, in turn gave rise to Case L-31603 filed by Bernabe. After Bernabe's motion for reconsideration urging Judge Cruz to hold in abeyance Aurora's motion for consolidation of title until this Court's decision in Case L-30871 "which will end once and for all the legal controversy" over the conflict of jurisdiction between the two courts, was denied by Judge Cruz' order of January 8, 1970, he filed this action for certiorari, impleading the sheriff, for the annulment and revocation of the questioned orders of Judge Cruz, on the ground of the latter's lack of jurisdiction to issue the same. As prayed for, the Court also issued a writ of preliminary injunction against the enforcement of Judge Cruz' orders, until the conflict between the parties could be finally resolved.

The decisive issue at bar is a simple one of jurisdiction: which court, Branch XII presided by Judge Cruz or Branch XIV presided by Judge Salvador has exclusive jurisdiction to set aside for alleged irregularities the execution sale held on February 14, 1967 by virtue of the writ for the execution of the final judgment in the first case (No. C-189) issued by Judge Cruz' court and to order a new auction sale—which was the relief sought by the judgment debtor in the second case (No. C-1217) in Judge Salvador's court?

It is patent that such exclusive jurisdiction was vested in Judge Cruz' court. Having acquired jurisdiction over Case No. C-189 and rendered judgment that had become final and executory, it retained jurisdiction over its judgment, to the exclusion of all other co-ordinate courts for its execution and all incidents thereof, and to control, in furtherance of justice, the conduct of its ministerial officers in connection therewith.2 Execution of its judgment having been carried out by the sheriff with the levy and sale of the judgment debtor's properties, Eusebio Bernabe as judgment debtor could

33

not in the guise of a new and separate second action (Case No. 1217) ask another court of coordinate jurisdiction, Judge Salvador's court, to interfere by injunction with the execution proceedings, to set them aside and to order the holding of a new execution sale—instead of seeking such relief by proper motion and application from Judge Cruz' court which had exclusive jurisdiction over the execution proceedings and the properties sold at the execution sale.

As early as 1922, in Cabigao vs. del Rosario,3 this Court laid down the doctrine that "no court has power to interfere by injunction with the judgments or decrees of a court of concurrent or coordinate jurisdiction having power to grant the relief sought by injunction," pointing out that "(T)he various branches of the Court of First Instance of Manila are in a sense coordinate courts and to allow them to interfere with each other's judgments or decrees by injunctions would obviously lead to confusion and might seriously hinder the administration of justice."

The Court similarly ruled in Hubahib vs. Insular Drug Co., Inc.4 with reference to Branch II of the Cebu court of first instance having taken cognizance of an independent action for the annulment of a writ of execution issued by Branch III of the same court which has rendered the judgment, that "the institution of said action was not only improper but also absolutely unjustified, on the ground that the appellant had the remedy of applying to the same Branch III of the lower court, which issued the orders in question, for reconsideration thereof x x x or of appealing from said orders or from that denying his motion in case such order has been issued. The various branches of a Court of First Instance of a province or city, having as they have the same or equal authority and exercising as they do concurrent and coordinate jurisdiction, should not, cannot, and are not permitted to interfere with their respective cases, much less with their orders or judgments, by means of injunction." In National Power Corporation vs. De Veyra,5 the Court, through former Chief Justice Bengzon, thus explained that the garnishment or levy of property on execution brings the property into custodia legis of the court issuing the writ of execution, beyond the inteference of all other co-ordinate courts, thereby avoiding conflicts of power between such courts: "(T)he garnishment of property to satisfy a writ of execution 'operates as an attachment and fastens upon the property a lien by which the property is brought under the jurisdiction of the court issuing the writ." It is brought into custodia legis, under the sole control of such court. Property is in the custody of the court when it has been seized by an officer either under a writ of attachment on mesne process or under a writ of execution. A court which has control of such property, exercises exclusive jurisdiction over the same. No court, except one having a supervisory control or superior jurisdiction in the premises, has a right to interfere with and change that possession."

The Court in striking down the Baguio court's issuance of a writ of preliminary injunction against the Baguio City sheriff's garnishment of cash funds of Baguio City deposited in the Baguio branch of the Philippine National Bank pursuant to a writ of execution issued by the Manila court of first instance for the satisfaction of a final judgment rendered in favor of the National Power Corporation, and its assuming cognizance of the separate complaint filed with it, duly indicated the proper procedure in such cases and the fundamental reason therefor: "(T)he reason advanced by the respondent court of Baguio City that it should grant relief when 'there is apparently an illegal service of the writ' (the property garnished being allegedly

exempt from execution) may not be upheld, there being a better procedure to follow, i.e., a resort to the Manila court, wherein the remedy may be obtained, it being the court under whose authority the illegal levy had been made. Needless to say, an effective ordering of legal relationships in civil society is possible only when each court is granted exclusive jurisdiction over the property brought to it."6

The Court time and again has applied this long established doctrine admonishing court and litigant alike last year in Luciano vs. Provincial Governor7 "that a judge of a branch of a court may not interfere with the proceedings before a judge of another branch of the same court."

The properties in question were brought into custodia legis of Judge Cruz' court and came under its exclusive jurisdiction when they were levied upon by the sheriff pursuant to the writ for execution of the judgment rendered by said court. The levy is the essential act by which the judgment debtor's property is set apart for the satisfaction of the judgment and taken into custody of the law, and from such time the court issuing the execution acquires exclusive jurisdiction over the property and all subsequent claims of other parties are subordinated thereto, irrespective of the time when the property is actually sold.8 The execution sale having been carried out upon order of Judge Cruz' court, any and all questions concerning the validity and regularity of the sale necessarily had to be addressed to his court which had exclusive jurisdiction over the properties and were beyond interference bv Judge Salvador's court. Justice Cruz' court alone had jurisdiction—subject only to the supervisory control or appellate jurisdiction of superior courts—to rule upon the regularity and validity of the sale conducted by its ministerial officers from the sheriff's office, and his affirmative ruling thereon could not be interfered with by injunction of, nor sought to be foreclosed by, the challenged orders of Judge Salvador's court.

Bernabe's contention that "he does not attempt to annul or nullify the judgment or order issued by (Judge Cruz' court) ... If (Judge Salvador's Court) finds the allegations of the complaint to be true, then it has the jurisdiction to order a new auction sale, which has nothing to do with the judgments or decrees issued by Judge Cruz' court)"9 is untenable. As above stated, the properties upon being levied on and sold by virtue of Judge Cruz' order of execution were brought into the exclusive custodia legis of Judge Cruz' court. This is but in accordance with the established principle that "A case in which an execution has been issued is regarded as still pending, so that all proceedings on the execution are proceedings in the suit"10 and that "(A)n execution is the fruit and end of the suit, and is very aptly called the life of the law. The suit does not terminate with the judgment; and all proceedings on the execution, are proceedings in the suit, and which are expressly, by the act of Congress, put under the regulation and control of the Court of which it issues. It is a power incident to every Court from which process issues, when delivered to the proper officer, to enforce upon such officer a compliance with his duty."11 Any and all questions involving the execution sale concerned the proceedings in

Judge Cruz' court and had to be raised and determined in that court, subiect to review by the higher courts. They could not be improperly passed upon bv another co-ordinate court—behind the back, as it were—of Judge Cruz' court. Judge Salvador's order of May 20, 1969 granting two ex-parte motions of the judgment debtor Bernabe and directing the sheriff to allow the redemption of the properties

34

notwithstanding that the one-year redemption period had already lapsed more than one year ago on February 21, 1968 (one year after registration on May 21, 1967 of the sheriff's sale of May 14, 1967) was equally untenable. It must be noted that Bernabe's action in Judge Salvador's court filed on February 7, 1968 two weeks before the expiration of the redemption period sought to set aside the execution sale and to have a new auction sale ordered, on the grounds that the sheriff had allegedly sold the two parcels of land jointly instead of separately, and that the total sales price of P30,194.00 was shocking to the conscience, alleging that the two parcels, if sold separately, could easily be sold at P235,000.00 and P150,000.00. Pending decision and without ruling squarely on his court's lack of jurisdiction over the properties, Judge Salvador peremptorily issued his redemption order on Bernabe's bare manifestation that "(he) has but barely two days left of the one (1) year period granted by law to redeem" and that "(he) is now ready and willing to redeem" the properties.

Aside from the basic lack of jurisdiction of Judge Salvador's court to issue the redemption order, the order per se suffered from other grave flaws. Bernabe's motions in effect amounted to an abandonment of his position on the alleged irregularity of the execution sale, and the logical consequence thereof which have been the dismissal of his suit. (Thus, soon after Aurora's filing of her action for certiorari in this Court, Bernabe filed his so-called "Urgent Motion to Dismiss" of August 27, 1969 with Judge Salvador's court praying for the dismissal of the very case filed by him on the ground that having redeemed the properties, "the case can therefore be considered closed and terminated considering that defendants [Aurora, et al.] did not interpose any appeal" from the redemption order.) But Bernabe's motions were presented on May 12 and May 15, 1969 and it was self-evident from the record that the one-year period for redemption had long expired more than a year ago on February 21, 1968 as above stated and that Bernabe's allegations that he had two days left—of the redemption period was a gratuitous one. Nothing in the record indicates that Bernabe had ever timely made a valid offer of redemption so as to safeguard his right thereto prior to his filing his separate action questioning the validity of the execution sale. It was therefore void and illogical for Judge Salvador to rule, in denying Aurora's motion for reconsideration, that "there is no question that this Court has jurisdiction to hear and determine this case which questions the regularity and legality of the auction sale of properties held on February 14, 1967, hence the authority granted by the Court to redeem said properties within the redemption period in order to write finis to the pending case." For Judge Salvador thereby begged the basic prejudicial questions of his court's lack of jurisdiction and the expiration over a year ago of Bernabe's alleged right of redemption, not to mention that any grant of such right to redeem could not be decreed in a summary unreasoned order but would have to be adjudged in a formal decision reciting the facts and the law on which it is based, and which may not be immediately executed, without a special order therefor. Under Judge Salvador's void orders, all that a judgment debtor whose properties have been sold at execution sale but who does not have the funds to effect redemption has to do to unilaterally extend the one-year redemption period would be to file a separate action before another court of co-ordinate jurisdiction questioning the regularity of the execution sale and upon his getting the funds, notwithstanding the expiration of the redemption period, get an order of redemption and ask the court "to write finis to the pending case"—which should have been dismissed in the first instance for lack of

jurisdiction.

The doctrine cited that a court or a branch thereof may not interfere with the proceedings before a judge of another court or branch of the same court since they are all courts of equal and co-ordinate jurisdiction is an elementary doctrine that has been established with the very system of courts. Understandable as Bernabe's plight and financial predicament may be, still it is incomprehensible why he should futilely resort, as he did, to filing his separate action with Judge Salvador's court which patently lacked jurisdiction over the properties sold in execution instead of questioning the regularity of the execution sale before Judge Cruz' court as the court of competent and exclusive jurisdiction, and properly applying, if he had just grounds, for extension of the redemption period.

As to the alleged gross inadequacy of the price of P30,-194.00 paid by Aurora when according to Bernabe the properties could have been easily sold for a total price of P385,000.00, Bernabe has admitted that there was an existing mortgage lien on the properties in the amount of P120,000.00 which necessarily affected their value. This question was not raised at all before Judge Cruz' court nor did Judge Salvador rule thereupon, since he merely issued his void order of redemption. Suffice it to state on the basis of the record, however, that the failure of Bernabe to timely sell the properties for their fair value through negotiated sales with third persons either before or after the execution sale in order to be able to discharge his judgment debt or redeem the properties within the redemption period, or to raise the necessary amount therefrom to so effect redemption notwithstanding that they have been collecting the substantial monthly rentals thereof of P2,500.00 monthly even up to now12 can be attributed only to his own failings and gross improvidence. They cannot be cited in law or in equity to defeat the lawful claim of Aurora nor to give validity to the void orders of Judge Salvador's court. The applicable rule on forced sales where the law gives the owner the right of redemption was thus stated by the Court in Velasquez vs. Coronel:13 "However, while in ordinary sales for reasons of equity a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one's conscience as to justify the courts to interfere, such does not follow when the law gives to the owner the right to redeem, as when a sale is made at public auction, upon the theory that the lesser the price the easier it is for the owner to effect the redemption. And so it was aptly said: 'When there is the right to redeem, inadequacy of price should not be material, because the judgment debtor may reacquire the property or also sell his right to redeem and thus recover the loss he claims to have suffered by reason of the price obtained at the auction sale.'"

Bernabe's petition challenging the jurisdiction of Judge Cruz' court to issue its orders of September 5, 1969 and January 5, 1970, confirming Aurora's acquisition of title to the properties by virtue of the execution sale and ordering Bernabe to transfer possession thereof to her, because of the separate civil action filed by him in Judge Salvador's court, must necessarily fail—since said orders were within the exclusive competence and jurisdiction of Judge Cruz' court.

ACCORDINGLY, in Case L-30871, the writ of certiorari prayed for is granted; respondent Judge Salvador's court is declared without jurisdiction over Civil Case No. C-1217 other than to dismiss the same and the writ of preliminary injunction of February 19, 1968 therein issued and the orders of May 20, 1969 and June 23, 1969

35

therein issued, as well as respondent sheriff's certificate of redemption issued on May 21, 1969 are set aside and declared null and void; and the writ of preliminary injunction issued by the Court on September 2, 1969, is made permanent. In Case L-31603, the petition for certiorari is dismissed and the writ of preliminary injunction issued by this Court on February 11, 1970 is dissolved. No pronouncement as to costs.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Fernando, Barredo, Villamor and Makasiar, JJ., concur.

Concepcion, C.J., concurs in the result.

Castro, J., did not take part.

Writ of certiorari in L-30871 granted; in L-81603, petition dismissed.

Notes.—(a) A court cannot interfere with the judgments or decrees of a court of concurrent or coordinate jurisdiction.—A court has no power to interfere with the judgments or decrees of a court of concurrent or coordinate jurisdiction having equal power to grant the relief sought by the injunction. (Cabigao vs. Del Rosario, 44 Phil. 182).

In Orais vs. Ecaño, 14 Phil. 208, before the appointment of commissioners in the administration of an estate a judge, who had appointed an administratrix, on her recommendation ordered the sale of a parcel of land to a creditor to satisfy his claim. Two years afterward a second judge appointed commissioners and another creditor filed his claim which was left to arbitration and finally fixed in amount and ordered paid: The second creditor moved to annul the sale to the first creditor and a third judge granted the order. It did not appear that the sale was made as provided by law, neither was the purchaser notified of the motion to annul. It was held that the order of annulment was improper for, as a general rule, a judge has no power to review, on the same facts, the decision of a coordinate judge, the remedy being by appeal.

To the same effect is Montesa vs. Manila Cordage Co., L-4559, Sept. 19, 1952, 48 O.G. 3863, holding that the judge of one branch of a court should not annul the order of another judge of a different branch, unless he is called upon to act in place of the former and the case and proceeding in which the order was issued comes before him as acting judge of the latter branch.

In Philippine National Bank vs. Javellana, L-5270, Jan. 28, 1953, 49 O.G. 124, it was held an abuse of discretion for a judge of one branch of the Court of First Instance of Manila, in connection with a mortgage foreclosure suit, to issue an injunction to prevent sale of the mortgaged property by the sheriff under an execution issued from another branch of the court in a different suit wherein the property had been attached before the mortgage was given, thereby bringing the orders of one branch to conflict with another.

In Yambert vs. McMicking, 10 Phil. 95, it was held that a judge of First Instance has no authority to revise the errors of law or fact which he supposes to have been committed by another judge in a criminal prosecution, by means of proceedings in habeas corpus; nor can he interfere with a prisoner who is being tried by another judge.

G.R. No. 165748. September 14, 2011.*

HEIRS OF POLICRONIO M. URETA, SR., namely: CONRADO B. URETA, MACARIO B. URETA, GLORIA URETA-GONZALES, ROMEO B. URETA, RITA

URETA-SOLANO, NENA URETA-TONGCUA, VENANCIO B. URETA, LILIA URETA-TAYCO, and HEIRS OF POLICRONIO B. URETA, JR., namely: MIGUEL

T. URETA, RAMON POLICRONIO T. URETA, EMMANUEL T. URETA, and BERNADETTE T. URETA, petitioners, vs. HEIRS OF LIBERATO M. URETA,

namely: TERESA F. URETA, AMPARO URETA-CASTILLO, IGNACIO F. URETA, SR., EMIRITO F. URETA, WILKIE F. URETA, LIBERATO F. URETA, JR., RAY F.

URETA, ZALDY F. URETA, and MILA JEAN URETA CIPRIANO; HEIRS OF PRUDENCIA URETA PARADERO, namely: WILLIAM U. PARADERO, WARLITO U. PARADERO, CARMENCITA P. PERLAS, CRISTINA P.

CORDOVA, EDNA P. GALLARDO, LETICIA P. REYES; NARCISO M. URETA; VICENTE M. URETA; HEIRS OF FRANCISCO M. URETA, namely: EDITA T.

URETA-REYES and LOLLIE T. URETA-VILLARUEL; ROQUE M. URETA; ADELA URETA-GONZALES; HEIRS OF INOCENCIO M. URETA, namely: BENILDA V. URETA, ALFONSO V. URETA II, DICK RICARDO V. URETA, and ENRIQUE V.

URETA; MERLINDA U. RIVERA; JORGE URETA; ANDRES URETA, WENEFREDA U. TARAN; and BENEDICT URETA, respondents.

G.R. No. 165930. September 14, 2011.*

HEIRS OF LIBERATO M. URETA, namely: TERESA F. URETA, AMPARO URETA-CASTILLO, IGNACIO F. URETA, SR., EMIRITO F. URETA, WILKIE F.

URETA, LIBERATO F. URETA, JR., RAY F. URETA, ZALDY F. URETA, and MILA JEAN URETA CIPRIANO; HEIRS OF PRUDENCIA URETA PARADERO, namely:

WILLIAM U. PARADERO, WARLITO U. PARADERO, CARMENCITA P. PERLAS, CRISTINA P. CORDOVA, EDNA P. GALLARDO, LETICIA P. REYES;

NARCISO M. URETA; VICENTE M. URETA; HEIRS OF FRANCISCO M. URETA, namely: EDITA T. URETA-REYES and LOLLIE T. URETA-VILLARUEL; ROQUE M. URETA; ADELA URETA-GONZALES; HEIRS OF INOCENCIO M. URETA,

namely: BENILDA V. URETA, ALFONSO V. URETA II, DICK RICARDO V. URETA, and ENRIQUE V. URETA; MERLINDA U. RIVERA; JORGE URETA;

ANDRES URETA, WENEFREDA U. TARAN; and BENEDICT URETA, petitioners, vs. HEIRS OF POLICRONIO M. URETA, SR., namely: CONRADO B. URETA,

MACARIO B. URETA, GLORIA URETA-GONZALES, ROMEO B. URETA, RITA URETA-SOLANO, NENA URETA-TONGCUA, VENANCIO B. URETA, LILIA

URETA-TAYCO, and HEIRS OF POLICRONIO B. URETA, JR., namely: MIGUEL T. URETA, RAMON POLICRONIO T. URETA, EMMANUEL T. URETA, and

BERNADETTE T. URETA, respondents.

Civil Law; Contracts; Void Contracts; Simulated Contracts; In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be bound by it; The main characteristic of an absolute 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—lacking in an absolutely simulated contract is consent which is essential to a void and enforceable contract.—Valerio v. Refresca, 485 SCRA 494 (2006), is instructive on the matter of simulation of contracts: In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be bound by it. The

36

main characteristic of an absolute 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. As a result, an absolutely simulated or fictitious contract is void, and the parties may recover from each other what they may have given under the contract. However, if the parties state a false cause in the contract to conceal their real agreement, the contract is relatively simulated and the parties are still bound by their real agreement. Hence, where the essential requisites of a contract are present and the simulation refers only to the content or terms of the contract, the agreement is absolutely binding and enforceable between the parties and their successors in interest. Lacking, therefore, in an absolutely simulated contract is consent which is essential to a valid and enforceable contract. Thus, where a person, in order to place his property beyond the reach of his creditors, simulates a transfer of it to another, he does not really intend to divest himself of his title and control of the property; hence, the deed of transfer is but a sham. Similarly, in this case, Alfonso simulated a transfer to Policronio purely for taxation purposes, without intending to transfer ownership over the subject lands.

Same; Same; Same; Same; The primary consideration in determining the true nature of a contract is the intention of the parties—if the words of a contract appear to contravene the evident intention of the parties, the latter shall prevail.—The primary consideration in determining the true nature of a contract is the intention of the parties. If the words of a contract appear to contravene the evident intention of the parties, the latter shall prevail. Such intention is determined not only from the express terms of their agreement, but also from the contemporaneous and subsequent acts of the parties. The true intention of the parties in this case was sufficiently proven by the Heirs of Alfonso. The Heirs of Alfonso established by a preponderance of evidence that the Deed of Sale was one of the four (4) absolutely simulated Deeds of Sale which involved no actual monetary consideration, executed by Alfonso in favor of his children, Policronio, Liberato, and Prudencia, and his second wife, Valeriana, for taxation purposes.

Same; Same; Same; Same; The most protuberant index of simulation of contract is the complete absence of an attempt in any manner on the part of the ostensible buyer to assert rights of ownership over the subject properties.—The most protuberant index of simulation of contract is the complete absence of an attempt in any manner on the part of the ostensible buyer to assert rights of ownership over the subject properties. Policronio’s failure to take exclusive possession of the subject properties or, in the alternative, to collect rentals, is contrary to the principle of ownership. Such failure is a clear badge of simulation that renders the whole transaction void.

Same; Same; Same; Same; Fundamental Characteristics of Void or Inexistent Contracts.—For guidance, the following are the most fundamental characteristics of void or inexistent contracts: 1) As a general rule, they produce no legal effects whatsoever in accordance with the principle “quod nullum est nullum producit effectum.” 2) They are not susceptible of ratification. 3) The right to set up the defense of inexistence or absolute nullity cannot be waived or renounced. 4) The action or defense for the declaration of their inexistence or absolute nullity is imprescriptible. 5) The inexistence or absolute nullity of a contract cannot be invoked by a person whose interests are not directly affected.

Same; Same; Same; It is well-settled in a long line of cases that where a deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of sale is null and void for lack of consideration.—It is well-settled in a long line of cases that where a deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of sale is null and void for lack of consideration. Thus, although the contract states that the purchase price of P2,000.00 was paid by Policronio to Alfonso for the subject properties, it has been proven that such was never in fact paid as there was no money involved. It must, therefore, follow that the Deed of Sale is void for lack of consideration.

Pleadings; Practice and Procedure; Objection to Admission of Evidence; The objection against the admission of any evidence must be made at the proper time, as soon as the grounds therefor become reasonably apparent, and if not so made, it will be understood to have been waived.—The objection against the admission of any evidence must be made at the proper time, as soon as the grounds therefor become reasonably apparent, and if not so made, it will be understood to have been waived. In the case of testimonial evidence, the objection must be made when the objectionable question is asked or after the answer is given if the objectionable features become apparent only by reason of such answer. In this case, the Heirs of Policronio failed to timely object to the testimony of Amparo Castillo and they are, thus, deemed to have waived the benefit of the parol evidence rule.

Parol Evidence; The exception in paragraph (b), Sec. 9, Rule 130 of the Rules of Court—failure of the written agreement to express the true intent and agreement of the parties thereto—is allowed to enable the court to ascertain the true intent of the parties, and once the intent is clear, it shall prevail over what the document appears to be on its face.—The failure of the Deed of Sale to express the true intent and agreement of the parties was clearly put in issue in the Answer of the Heirs of Alfonso to the Complaint. It was alleged that the Deed of Sale was only made to lessen the payment of estate and inheritance taxes and not meant to transfer ownership. The exception in paragraph (b) is allowed to enable the court to ascertain the true intent of the parties, and once the intent is clear, it shall prevail over what the document appears to be on its face. As the true intent of the parties was duly proven in the present case, it now prevails over what appears on the Deed of Sale.

Same; The operation of the parol evidence rule requires the existence of a valid written agreement—it is not applicable in a proceeding where the validity of such agreement is the fact in dispute, such as when a contract may be void for lack of consideration.—The validity of the Deed of Sale was also put in issue in the Answer, and was precisely one of the issues submitted to the RTC for resolution. The operation of the parol evidence rule requires the existence of a valid written agreement. It is, thus, not applicable in a proceeding where the validity of such agreement is the fact in dispute, such as when a contract may be void for lack of consideration. Considering that the Deed of Sale has been shown to be void for being absolutely simulated and for lack of consideration, the Heirs of Alfonso are not precluded from presenting evidence to modify, explain or add to the terms of the written agreement.

Hearsay Evidence Rule; While hearsay evidence whether objected to or not cannot be given credence for having no probative value, such principle has been relaxed in cases where, in addition to the failure to object to the admissibility of the subject evidence, there were other

37

pieces of evidence presented or there were other circumstances prevailing to support the fact in issue.—It has indeed been held that hearsay evidence whether objected to or not cannot be given credence for having no probative value. This principle, however, has been relaxed in cases where, in addition to the failure to object to the admissibility of the subject evidence, there were other pieces of evidence presented or there were other circumstances prevailing to support the fact in issue. In Top-Weld Manufacturing, Inc. v. ECED S.A., 138 SCRA 118 (1985), this Court held: Hearsay evidence alone may be insufficient to establish a fact in an injunction suit (Parker v. Furlong, 62 P. 490) but, when no objection is made thereto, it is, like any other evidence, to be considered and given the importance it deserves. (Smith v. Delaware & Atlantic Telegraph & Telephone Co., 51 A 464). Although we should warn of the undesirability of issuing judgments solely on the basis of the affidavits submitted, where as here, said affidavits are overwhelming, uncontroverted by competent evidence and not inherently improbable, we are constrained to uphold the allegations of the respondents regarding the multifarious violations of the contracts made by the petitioner.

Civil Law; Contracts; Void Contracts; Simulated Contracts; Rescission; A simulated contract of sale is without any cause or consideration, and is, therefore, null and void—no independent action to rescind or annul the contract is necessary, and it may be treated as non-existent for all purposes.—A simulated contract of sale is without any cause or consideration, and is, therefore, null and void; in such case, no independent action to rescind or annul the contract is necessary, and it may be treated as non-existent for all purposes. A void or inexistent contract is one which has no force and effect from the beginning, as if it has never been entered into, and which cannot be validated either by time or ratification. A void contract produces no effect whatsoever either against or in favor of anyone; it does not create, modify or extinguish the juridical relation to which it refers. Therefore, it was not necessary for the Heirs of Alfonso to first file an action to declare the nullity of the Deed of Sale prior to executing the Deed of Extra-Judicial Partition.

Same; Same; Same; Same; The right to set up the nullity of a void or non-existent contract is not limited to the parties, as in the case of annullable or voidable contracts—it is extended to third persons who are directly affected by the contract; Where a contract is absolutely simulated, even third persons who may be prejudiced thereby may set up its inexistence.—Article 1311 and Article 1421 of the Civil Code provide: Art. 1311. Contracts take effect only between the parties, their assigns and heirs, x x x Art. 1421. The defense of illegality of contracts is not available to third persons whose interests are not directly affected. The right to set up the nullity of a void or non-existent contract is not limited to the parties, as in the case of annullable or voidable contracts; it is extended to third persons who are directly affected by the contract. Thus, where a contract is absolutely simulated, even third persons who may be prejudiced thereby may set up its inexistence. The Heirs of Alfonso are the children of Alfonso, with his deceased children represented by their children (Alfonso’s grandchildren). The Heirs of Alfonso are clearly his heirs and successors-in-interest and, as such, their interests are directly affected, thereby giving them the right to question the legality of the Deed of Sale.

Same; Same; Same; Same; Wills and Succession; Art. 842 of the Civil Code refers to the principle of freedom of disposition by will and has no application to a disposition by Deed

of Sale.—Article 842 of the Civil Code provides: Art. 842. One who has no compulsory heirs may dispose by will of all his estate or any part of it in favor of any person having capacity to succeed. One who has compulsory heirs may dispose of his estate provided he does not contravene the provisions of this Code with regard to the legitime of said heirs. This article refers to the principle of freedom of disposition by will. What is involved in the case at bench is not a disposition by will but by Deed of Sale. Hence, the Heirs of Alfonso need not first prove that the disposition substantially diminished their successional rights or unduly prejudiced their legitimes.

Same; Same; Same; Same; Article 1412 of the Civil Code refers to contracts with an illegal cause or subject-matter, presupposing the existence of a cause—it is not applicable to fictitious or simulated contracts which are in reality non-existent.—Article 1412 is not applicable to fictitious or simulated contracts, because they refer to contracts with an illegal cause or subject-matter. This article presupposes the existence of a cause, it cannot refer to fictitious or simulated contracts which are in reality non-existent. As it has been determined that the Deed of Sale is a simulated contract, the provision cannot apply to it.

Same; Same; Same; Same; Prescription; Waiver; Where the Deed of Sale is a void contract, the action for the declaration of its nullity, even if filed 21 years after its execution, cannot be barred by prescription for it is imprescriptible; The right to set up the defense of inexistence or absolute nullity cannot be waived or renounced.—Article 1410 of the Civil Code provides: Art. 1410. The action for the declaration of the inexistence of a contract does not prescribe. This is one of the most fundamental characteristics of void or inexistent contracts. As the Deed of Sale is a void contract, the action for the declaration of its nullity, even if filed 21 years after its execution, cannot be barred by prescription for it is imprescriptible. Furthermore, the right to set up the defense of inexistence or absolute nullity cannot be waived or renounced. Therefore, the Heirs of Alfonso cannot be precluded from setting up the defense of its inexistence.

Appeals; Pleadings, Practice and Procedure; The rule that only theories raised in the initial proceedings may be taken up by a party thereto on appeal should refer to independent, not concomitant matters, to support or oppose the cause of action.—To begin, although the defenses of unenforceability, ratification and preterition were raised by the Heirs of Alfonso for the first time on appeal, they are concomitant matters which may be taken up. As long as the questioned items bear relevance and close relation to those specifically raised, the interest of justice would dictate that they, too, must be considered and resolved. The rule that only theories raised in the initial proceedings may be taken up by a party thereto on appeal should refer to independent, not concomitant matters, to support or oppose the cause of action.

Succession; Partition; Extra-Judicial Partition; Special Power of Attorney; Partition among heirs is not legally deemed a conveyance of real property resulting in change of ownership—it is not a transfer of property from one to the other, but rather, it is a confirmation or ratification of title or right of property that an heir is renouncing in favor of another heir who accepts and receives the inheritance; Since a Deed of Extra-Judicial Partition cannot be considered as an act of strict dominion, a special power of attorney is not necessary.—This Court finds that Article 1878 (5) and (15) is inapplicable to the case at bench. It has been held in several cases that partition among heirs is not legally

38

deemed a conveyance of real property resulting in change of ownership. It is not a transfer of property from one to the other, but rather, it is a confirmation or ratification of title or right of property that an heir is renouncing in favor of another heir who accepts and receives the inheritance. It is merely a designation and segregation of that part which belongs to each heir. The Deed of Extra-Judicial Partition cannot, therefore, be considered as an act of strict dominion. Hence, a special power of attorney is not necessary. In fact, as between the parties, even an oral partition by the heirs is valid if no creditors are affected. The requirement of a written memorandum under the statute of frauds does not apply to partitions effected by the heirs where no creditors are involved considering that such transaction is not a conveyance of property resulting in change of ownership but merely a designation and segregation of that part which belongs to each heir.

Same; Preterition; Words and Phrases; Preterition is the total omission of a compulsory heir from the inheritance—it consists in the silence of the testator with regard to a compulsory heir, omitting him in the testament, either by not mentioning him at all, or by not giving him anything in the hereditary property but without expressly disinheriting him, even if he is mentioned in the will in the latter case.—Preterition has been defined as the total omission of a compulsory heir from the inheritance. It consists in the silence of the testator with regard to a compulsory heir, omitting him in the testament, either by not mentioning him at all, or by not giving him anything in the hereditary property but without expressly disinheriting him, even if he is mentioned in the will in the latter case. Preterition is thus a concept of testamentary succession and requires a will. In the case at bench, there is no will involved. Therefore, preterition cannot apply.

PETITIONS for review on certiorari of the decision and resolution of the Court of Appeals.

The facts are stated in the opinion of the Court.

SV Ramos Law Office for Heirs of Policronio M. Ureta, Sr., et al.

Ma. Regina Mercedes B. Gatmaytan for Heirs of Liberato M. Ureta.

MENDOZA, J.:

These consolidated petitions for review on certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure assail the April 20, 2004 Decision1 of the Court of Appeals (CA), and its October 14, 2004 Resolution2 in CA-G.R. CV No. 71399, which affirmed with modification the April 26, 2001 Decision3 of the Regional Trial Court, Branch 9, Kalibo, Aklan (RTC) in Civil Case No. 5026.

The Facts

In his lifetime, Alfonso Ureta (Alfonso) begot 14 children, namely, Policronio, Liberato, Narciso, Prudencia, Vicente, Francisco, Inocensio, Roque, Adela, Wenefreda, Merlinda, Benedicto, Jorge, and Andres. The children of Policronio (Heirs of Policronio), are opposed to the rest of Alfonso’s children and their descendants (Heirs of Alfonso).

Alfonso was financially well-off during his lifetime. He owned several fishpens, a fishpond, a sari-sari store, a passenger jeep, and was engaged in the buying and

selling of copra. Policronio, the eldest, was the only child of Alfonso who failed to finish schooling and instead worked on his father’s lands.

Sometime in October 1969, Alfonso and four of his children, namely, Policronio, Liberato, Prudencia, and Francisco, met at the house of Liberato. Francisco, who was then a municipal judge, suggested that in order to reduce the inheritance taxes, their father should make it appear that he had sold some of his lands to his children. Accordingly, Alfonso executed four (4) Deeds of Sale covering several parcels of land in favor of Policronio,4 Liberato,5 Prudencia,6 and his common-law wife, Valeriana Dela Cruz.7 The Deed of Sale executed on October 25, 1969, in favor of Policronio, covered six parcels of land, which are the properties in dispute in this case.

Since the sales were only made for taxation purposes and no monetary consideration was given, Alfonso continued to own, possess and enjoy the lands and their produce.

When Alfonso died on October 11, 1972, Liberato acted as the administrator of his father’s estate. He was later succeeded by his sister Prudencia, and then by her daughter, Carmencita Perlas. Except for a portion of parcel 5, the rest of the parcels transferred to Policronio were tenanted by the Fernandez Family. These tenants never turned over the produce of the lands to Policronio or any of his heirs, but to Alfonso and, later, to the administrators of his estate.

Policronio died on November 22, 1974. Except for the said portion of parcel 5, neither Policronio nor his heirs ever took possession of the subject lands.

On April 19, 1989, Alfonso’s heirs executed a Deed of Extra-Judicial Partition,8 which included all the lands that were covered by the four (4) deeds of sale that were previously executed by Alfonso for taxation purposes. Conrado, Policronio’s eldest son, representing the Heirs of Policronio, signed the Deed of Extra-Judicial Partition in behalf of his co-heirs.

After their father’s death, the Heirs of Policronio found tax declarations in his name covering the six parcels of land. On June 15, 1995, they obtained a copy of the Deed of Sale executed on October 25, 1969 by Alfonso in favor of Policronio.

Not long after, on July 30, 1995, the Heirs of Policronio allegedly learned about the Deed of Extra-Judicial Partition involving Alfonso’s estate when it was published in the July 19, 1995 issue of the Aklan Reporter.

Believing that the six parcels of land belonged to their late father, and as such, excluded from the Deed of Extra-Judicial Partition, the Heirs of Policronio sought to amicably settle the matter with the Heirs of Alfonso. Earnest efforts proving futile, the Heirs of Policronio filed a Complaint for Declaration of Ownership, Recovery of Possession, Annulment of Documents, Partition, and Damages9 against the Heirs of Alfonso before the RTC on November 17, 1995 where the following issues were submitted: (1) whether or not the Deed of Sale was valid; (2) whether or not the Deed of Extra-Judicial Partition was valid; and (3) who between the parties was entitled to damages.

The Ruling of the RTC

On April 26, 2001, the RTC dismissed the Complaint of the Heirs of Policronio and

39

ruled in favor of the Heirs of Alfonso in a decision, the dispositive portion of which reads:

“WHEREFORE, the Court finds that the preponderance of evidence tilts in favor of the defendants, hence the instant case is hereby DISMISSED.

The counterclaims are likewise DISMISSED.

With costs against plaintiffs.

SO ORDERED.”

The RTC found that the Heirs of Alfonso clearly established that the Deed of Sale was null and void. It held that the Heirs of Policronio failed to rebut the evidence of the Heirs of Alfonso, which proved that the Deed of Sale in the possession of the former was one of the four (4) Deeds of Sale executed by Alfonso in favor of his 3 children and second wife for taxation purposes; that although tax declarations were issued in the name of Policronio, he or his heirs never took possession of the subject lands except a portion of parcel 5; and that all the produce were turned over by the tenants to Alfonso and the administrators of his estate and never to Policronio or his heirs.

The RTC further found that there was no money involved in the sale. Even granting that there was, as claimed by the Heirs of Policronio, P2,000.00 for six parcels of land, the amount was grossly inadequate. It was also noted that the aggregate area of the subject lands was more than double the average share adjudicated to each of the other children in the Deed of Extra-Judicial Partition; that the siblings of Policronio were the ones who shared in the produce of the land; and that the Heirs of Policronio only paid real estate taxes in 1996 and 1997. The RTC opined that Policronio must have been aware that the transfer was merely for taxation purposes because he did not subsequently take possession of the properties even after the death of his father.

The Deed of Extra-Judicial Partition, on the other hand, was declared valid by the RTC as all the heirs of Alfonso were represented and received equal shares and all the requirements of a valid extra-judicial partition were met. The RTC considered Conrado’s claim that he did not understand the full significance of his signature when he signed in behalf of his co-heirs, as a gratuitous assertion. The RTC was of the view that when he admitted to have signed all the pages and personally appeared before the notary public, he was presumed to have understood their contents.

Lastly, neither party was entitled to damages. The Heirs of Alfonso failed to present testimony to serve as factual basis for moral damages, no document was presented to prove actual damages, and the Heirs of Policronio were found to have filed the case in good faith.

The Ruling of the CA

Aggrieved, the Heirs of Policronio appealed before the CA, which rendered a decision on April 20, 2004, the dispositive portion of which reads as follows:

“WHEREFORE, the appeal is PARTIALLY GRANTED. The appealed Decision, dated 26 April 2001, rendered by Hon. Judge Dean R. Telan of the Regional Trial Court of Kalibo, Aklan, Branch 9, is hereby AFFIRMED with MODIFICATION:

1.) The Deed of Sale in favor of Policronio Ureta, Sr., dated 25 October 1969, covering six (6) parcels of land is hereby declared VOID for being ABSOLUTELY SIMULATED;

2.) The Deed of Extra-Judicial Partition, dated 19 April 1989, is ANNULLED;

3.) The claim for actual and exemplary damages are DISMISSED for lack of factual and legal basis.

The case is hereby REMANDED to the court of origin for the proper partition of ALFONSO URETA’S Estate in accordance with Rule 69 of the 1997 Rules of Civil Procedure. No costs at this instance.

SO ORDERED.”

The CA affirmed the finding of the RTC that the Deed of Sale was void. It found the Deed of Sale to be absolutely simulated as the parties did not intend to be legally bound by it. As such, it produced no legal effects and did not alter the juridical situation of the parties. The CA also noted that Alfonso continued to exercise all the rights of an owner even after the execution of the Deed of Sale, as it was undisputed that he remained in possession of the subject parcels of land and enjoyed their produce until his death.

Policronio, on the other hand, never exercised any rights pertaining to an owner over the subject lands from the time they were sold to him up until his death. He never took or attempted to take possession of the land even after his father’s death, never demanded delivery of the produce from the tenants, and never paid realty taxes on the properties. It was also noted that Policronio never disclosed the existence of the Deed of Sale to his children, as they were, in fact, surprised to discover its existence. The CA, thus, concluded that Policronio must have been aware that the transfer was only made for taxation purposes.

The testimony of Amparo Castillo, as to the circumstances surrounding the actual arrangement and agreement between the parties prior to the execution of the four (4) Deeds of Sale, was found by the CA to be unrebutted. The RTC’s assessment of the credibility of her testimony was accorded respect, and the intention of the parties was given the primary consideration in determining the true nature of the contract.

Contrary to the finding of the RTC though, the CA annulled the Deed of Extra-Judicial Partition due to the incapacity of one of the parties to give his consent to the contract. It held that before Conrado could validly bind his co-heirs to the Deed of Extra-Judicial Partition, it was necessary that he be clothed with the proper authority. The CA ruled that a special power of attorney was required under Article 1878 (5) and (15) of the Civil Code. Without a special power of attorney, it was held that Conrado lacked the legal capacity to give the consent of his co-heirs, thus, rendering the Deed of Extra-Judicial Partition voidable under Article 1390 (1) of the Civil Code.

As a consequence, the CA ordered the remand of the case to the RTC for the proper partition of the estate, with the option that the parties may still voluntarily effect the partition by executing another agreement or by adopting the assailed Deed of Partition with the RTC’s approval in either case. Otherwise, the RTC may proceed with the compulsory partition of the estate in accordance with the Rules.

40

With regard to the claim for damages, the CA agreed with the RTC and dismissed the claim for actual and compensatory damages for lack of factual and legal basis.

Both parties filed their respective Motions for Reconsideration, which were denied by the CA for lack of merit in a Resolution dated October 14, 2004.

In their Motion for Reconsideration, the Heirs of Policronio argued that the RTC violated the best evidence rule in giving credence to the testimony of Amparo Castillo with regard to the simulation of the Deed of Sale, and that prescription had set in precluding any question on the validity of the contract.

The CA held that the oral testimony was admissible under Rule 130, Section 9 (b) and (c), which provides that evidence aliunde may be allowed to explain the terms of the written agreement if the same failed to express the true intent and agreement of the parties thereto, or when the validity of the written agreement was put in issue. Furthermore, the CA found that the Heirs of Policronio waived their right to object to evidence aliunde having failed to do so during trial and for raising such only for the first time on appeal. With regard to prescription, the CA ruled that the action or defense for the declaration of the inexistence of a contract did not prescribe under Article 1410 of the Civil Code.

On the other hand, the Heirs of Alfonso argued that the Deed of Extra-Judicial Partition should not have been annulled, and instead the preterited heirs should be given their share. The CA reiterated that Conrado’s lack of capacity to give his co-heirs’ consent to the extra-judicial settlement rendered the same voidable.

Hence, the present Petitions for Review on Certiorari.

The Issues

The issues presented for resolution by the Heirs of Policronio in G.R. No. 165748 are as follows:

I.

Whether the Court of Appeals is correct in ruling that the Deed of Absolute Sale of 25 October 1969 is void for being absolutely fictitious and in relation therewith,

may parol evidence be entertained to thwart its binding effect after the parties have both died?

Assuming that indeed the said document is simulated, whether or not the parties thereto including their successors in interest are estopped to question its validity,

they being bound by Articles 1412 and 1421 of the Civil Code?

II.

Whether prescription applies to bar any question respecting the validity of the Deed of Absolute Sale dated 25 October 1969? Whether prescription applies to bar any collateral attack on the validity of the deed of absolute sale executed 21 years

earlier?

III.

Whether the Court of Appeals correctly ruled in nullifying the Deed of

Extrajudicial Partition because Conrado Ureta signed the same without the written authority from his siblings in contravention of Article 1878 in relation to Article 1390

of the Civil Code and in relation therewith, whether the defense of ratification and/or preterition raised for the first time on appeal may be entertained?

The issues presented for resolution by the Heirs of Alfonso in G.R. No. 165930 are as follows:

I.

Whether or not grave error was committed by the Trial Court and Court of Appeals in declaring the Deed of Sale of subject properties as absolutely simulated

and null and void thru parol evidence based on their factual findings as to its fictitious nature, and there being waiver of any objection based on violation of the

parol evidence rule.

II.

Whether or not the Court of Appeals was correct in holding that Conrado Ureta’s lack of capacity to give his co-heirs’ consent to the Extra-Judicial Partition

rendered the same voidable.

III.

Granting arguendo that Conrado Ureta was not authorized to represent his co-heirs and there was no ratification, whether or not the Court of Appeals was correct

in ordering the remand of the case to the Regional Trial Court for partition of the estate of Alfonso Ureta.

IV.

Since the sale in favor of Policronio Ureta Sr. was null and void ab initio, the properties covered therein formed part of the estate of the late Alfonso Ureta and was

correctly included in the Deed of Extrajudicial Partition even if no prior action for nullification of the sale was filed by the heirs of Liberato Ureta.

V.

Whether or not the heirs of Policronio Ureta Sr. can claim that estoppel based on Article 1412 of the Civil Code as well as the issue of prescription can still be raised on

appeal.

These various contentions revolve around two major issues, to wit: (1) whether the Deed of Sale is valid, and (2) whether the Deed of Extrajudicial Partition is valid. Thus, the assigned errors shall be discussed jointly and in seriatim.

The Ruling of the Court

Validity of the Deed of Sale

Two veritable legal presumptions bear on the validity of the Deed of Sale: (1) that there was sufficient consideration for the contract; and (2) that it was the result of a fair and regular private transaction. If shown to hold, these presumptions infer prima facie the transaction’s validity, except that it must yield to the evidence adduced.10

41

As will be discussed below, the evidence overcomes these two presumptions.

Absolute Simulation

First, the Deed of Sale was not the result of a fair and regular private transaction because it was absolutely simulated.

The Heirs of Policronio argued that the land had been validly sold to Policronio as the Deed of Sale contained all the essential elements of a valid contract of sale, by virtue of which, the subject properties were transferred in his name as evidenced by the tax declaration. There being no invalidation prior to the execution of the Deed of Extrajudicial Partition, the probity and integrity of the Deed of Sale should remain undiminished and accorded respect as it was a duly notarized public instrument.

The Heirs of Policronio posited that his loyal services to his father and his being the eldest among Alfonso’s children, might have prompted the old man to sell the subject lands to him at a very low price as an advance inheritance. They explained that Policronio’s failure to take possession of the subject lands and to claim their produce manifests a Filipino family practice wherein a child would take possession and enjoy the fruits of the land sold by a parent only after the latter’s death. Policronio simply treated the lands the same way his father Alfonso treated them—where his children enjoyed usufructuary rights over the properties, as opposed to appropriating them exclusively to himself. They contended that Policronio’s failure to take actual possession of the lands did not prove that he was not the owner as he was merely exercising his right to dispose of them. They argue that it was an error on the part of the CA to conclude that ownership by Policronio was not established by his failure to possess the properties sold. Instead, emphasis should be made on the fact that the tax declarations, being indicia of possession, were in Policronio’s name.

They further argued that the Heirs of Alfonso failed to appreciate that the Deed of Sale was clear enough to convey the subject parcels of land. Citing jurisprudence, they contend that there is a presumption that an instrument sets out the true agreement of the parties thereto and that it was executed for valuable consideration,11 and where there is no doubt as to the intention of the parties to a contract, the literal meaning of the stipulation shall control.12 Nowhere in the Deed of Sale is it indicated that the transfer was only for taxation purposes. On the contrary, the document clearly indicates that the lands were sold. Therefore, they averred that the literal meaning of the stipulation should control.

The Court disagrees.

The Court finds no cogent reason to deviate from the finding of the CA that the Deed of Sale is null and void for being absolutely simulated. The Civil Code provides:

Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter, when the parties conceal their true agreement.

Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement.

Valerio v. Refresca13 is instructive on the matter of simulation of contracts:

“In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be bound by it. The main characteristic of an absolute 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. As a result, an absolutely simulated or fictitious contract is void, and the parties may recover from each other what they may have given under the contract. However, if the parties state a false cause in the contract to conceal their real agreement, the contract is relatively simulated and the parties are still bound by their real agreement. Hence, where the essential requisites of a contract are present and the simulation refers only to the content or terms of the contract, the agreement is absolutely binding and enforceable between the parties and their successors in interest.”

Lacking, therefore, in an absolutely simulated contract is consent which is essential to a valid and enforceable contract.14 Thus, where a person, in order to place his property beyond the reach of his creditors, simulates a transfer of it to another, he does not really intend to divest himself of his title and control of the property; hence, the deed of transfer is but a sham.15 Similarly, in this case, Alfonso simulated a transfer to Policronio purely for taxation purposes, without intending to transfer ownership over the subject lands.

The primary consideration in determining the true nature of a contract is the intention of the parties. If the words of a contract appear to contravene the evident intention of the parties, the latter shall prevail. Such intention is determined not only from the express terms of their agreement, but also from the contemporaneous and subsequent acts of the parties.16 The true intention of the parties in this case was sufficiently proven by the Heirs of Alfonso.

The Heirs of Alfonso established by a preponderance of evidence17 that the Deed of Sale was one of the four (4) absolutely simulated Deeds of Sale which involved no actual monetary consideration, executed by Alfonso in favor of his children, Policronio, Liberato, and Prudencia, and his second wife, Valeriana, for taxation purposes.

Amparo Castillo, the daughter of Liberato, testified, to wit:

Q: Now sometime in the year 1969 can you recall if your grandfather and his children [met] in your house?

A: Yes sir, that was sometime in October 1969 when they [met] in our house, my grandfather, my late uncle Policronio Ureta, my late uncle Liberato Ureta, my uncle Francisco Ureta, and then my auntie Prudencia Ureta they talk[ed] about, that idea came from my uncle Francisco Ureta to [sell] some parcels of land to his children to lessen the inheritance tax whatever happened to my grandfather, actually no money involved in this sale

Q: Now you said there was that agreement, verbal agreement. [W]here were you when this Alfonso Ureta and his children gather[ed] in your house?

42

A: I was near them in fact I heard everything they were talking [about]

x x x

Q: Were there documents of sale executed by Alfonso Ureta in furtherance of their verbal agreement?

A: Yes sir.

Q: To whom in particular did your grandfather Alfonso Ureta execute this deed of sale without money consideration according to you?

A: To my uncle Policronio Ureta and to Prudencia Ureta Panadero.

Q: And who else?

A: To Valeriana dela Cruz.

Q: How about your father?

A: He has.18

The other Deeds of Sale executed by Alfonso in favor of his children Prudencia and Liberato, and second wife Valeriana, all bearing the same date of execution, were duly presented in evidence by the Heirs of Alfonso, and were uncontested by the Heirs of Policronio. The lands which were the subject of these Deeds of Sale were in fact included in the Deed of Extra-Judicial Partition executed by all the heirs of Alfonso, where it was expressly stipulated:

“That the above-named Amparo U. Castillo, Prudencia U. Paradero, Conrado B. Ureta and Merlinda U. Rivera do hereby recognize and acknowledge as a fact that the properties presently declared in their respective names or in the names of their respective parents and are included in the foregoing instrument are actually the properties of the deceased Alfonso Ureta and were transferred only for the purpose of effective administration and development and convenience in the payment of taxes and, therefore, all instruments conveying or affecting the transfer of said properties are null and void from the beginning.”19

As found by the CA, Alfonso continued to exercise all the rights of an owner even after the execution of the Deeds of Sale. It was undisputed that Alfonso remained in possession of the subject lands and enjoyed their produce until his death. No credence can be given to the contention of the Heirs of Policrionio that their father did not take possession of the subject lands or enjoyed the fruits thereof in deference to a Filipino family practice. Had this been true, Policronio should have taken possession of the subject lands after his father died. On the contrary, it was admitted that neither Policronio nor his heirs ever took possession of the subject lands from the time they were sold to him, and even after the death of both Alfonso and Policronio.

It was also admitted by the Heirs of Policronio that the tenants of the subject lands never turned over the produce of the properties to Policronio or his heirs but only to Alfonso and the administrators of his estate. Neither was there a demand for their delivery to Policronio or his heirs. Neither did Policronio ever pay real estate taxes on the properties, the only payment on record being those made by his heirs in 1996 and 1997 ten years after his death. In sum, Policronio never exercised any rights

pertaining to an owner over the subject lands.

The most protuberant index of simulation of contract is the complete absence of an attempt in any manner on the part of the ostensible buyer to assert rights of ownership over the subject properties. Policronio’s failure to take exclusive possession of the subject properties or, in the alternative, to collect rentals, is contrary to the principle of ownership. Such failure is a clear badge of simulation that renders the whole transaction void. 20

It is further telling that Policronio never disclosed the existence of the Deed of Sale to his children. This, coupled with Policronio’s failure to exercise any rights pertaining to an owner of the subject lands, leads to the conclusion that he was aware that the transfer was only made for taxation purposes and never intended to bind the parties thereto.

As the above factual circumstances remain unrebutted by the Heirs of Policronio, the factual findings of the RTC, which were affirmed by the CA, remain binding and conclusive upon this Court.21

It is clear that the parties did not intend to be bound at all, and as such, the Deed of Sale produced no legal effects and did not alter the juridical situation of the parties. The Deed of Sale is, therefore, void for being absolutely simulated pursuant to Article 1409 (2) of the Civil Code which provides:

“Art. 1409. The following contracts are inexistent and void from the beginning:

x x x

(2) Those which are absolutely simulated or fictitious;

x x x

For guidance, the following are the most fundamental characteristics of void or inexistent contracts:

1) As a general rule, they produce no legal effects whatsoever in accordance with the principle “quod nullum est nullum producit effectum.”

2) They are not susceptible of ratification.

3) The right to set up the defense of inexistence or absolute nullity cannot be waived or renounced.

4) The action or defense for the declaration of their inexistence or absolute nullity is imprescriptible.

5) The inexistence or absolute nullity of a contract cannot be invoked by a person whose interests are not directly affected.22

Since the Deed of Sale is void, the subject properties were properly included in the Deed of Extrajudicial Partition of the estate of Alfonso.

Absence and Inadequacy of Consideration

The second presumption is rebutted by the lack of consideration for the Deed of Sale.

43

In their Answer,23 the Heirs of Alfonso initially argued that the Deed of Sale was void for lack of consideration, and even granting that there was consideration, such was inadequate. The Heirs of Policronio counter that the defenses of absence or inadequacy of consideration are not grounds to render a contract void.

The Heirs of Policronio contended that under Article 1470 of the Civil Code, gross inadequacy of the price does not affect a contract of sale, except as it may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract. Citing jurisprudence, they argued that inadequacy of monetary consideration does not render a conveyance inexistent as liberality may be sufficient cause for a valid contract, whereas fraud or bad faith may render it either rescissible or voidable, although valid until annulled.24 Thus, they argued that if the contract suffers from inadequate consideration, it remains valid until annulled, and the remedy of rescission calls for judicial intervention, which remedy the Heirs of Alfonso failed to take.

It is further argued that even granting that the sale of the subject lands for a consideration of P2,000.00 was inadequate, absent any evidence of the fair market value of the land at the time of its sale, it cannot be concluded that the price at which it was sold was inadequate.25 As there is nothing in the records to show that the Heirs of Alfonso supplied the true value of the land in 1969, the amount of P2,000.00 must thus stand as its saleable value.

On this issue, the Court finds for the Heirs of Alfonso.

For lack of consideration, the Deed of Sale is once again found to be void. It states that Policronio paid, and Alfonso received, the P2,000.00 purchase price on the date of the signing of the contract:

“That I, ALFONSO F. URETA, x x x for and in consideration of the sum of TWO THOUSAND (P2,000.00) PESOS, Philippine Currency, to me in hand paid by POLICRONIO M. URETA, x x x, do hereby CEDE, TRANSFER, and CONVEY, by way of absolute sale, x x x six (6) parcels of land x x x.”26 [Emphasis ours]

Although, on its face, the Deed of Sale appears to be supported by valuable consideration, the RTC found that there was no money involved in the sale.27 This finding was affirmed by the CA in ruling that the sale is void for being absolutely simulated. Considering that there is no cogent reason to deviate from such factual findings, they are binding on this Court.

It is well-settled in a long line of cases that where a deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of sale is null and void for lack of consideration.28 Thus, although the contract states that the purchase price of P2,000.00 was paid by Policronio to Alfonso for the subject properties, it has been proven that such was never in fact paid as there was no money involved. It must, therefore, follow that the Deed of Sale is void for lack of consideration.

Given that the Deed of Sale is void, it is unnecessary to discuss the issue on the inadequacy of consideration.

Parol Evidence and Hearsay

The Heirs of Policronio aver that the rules on parol evidence and hearsay were violated by the CA in ruling that the Deed of Sale was void.

They argued that based on the parol evidence rule, the Heirs of Alfonso and, specifically, Amparo Castillo, were not in a position to prove the terms outside of the contract because they were not parties nor successors-in-interest in the Deed of Sale in question. Thus, it is argued that the testimony of Amparo Castillo violates the parol evidence rule.

Stemming from the presumption that the Heirs of Alfonso were not parties to the contract, it is also argued that the parol evidence rule may not be properly invoked by either party in the litigation against the other, where at least one of the parties to the suit is not a party or a privy of a party to the written instrument in question and does not base a claim on the instrument or assert a right originating in the instrument or the relation established thereby.29

Their arguments are untenable.

The objection against the admission of any evidence must be made at the proper time, as soon as the grounds therefor become reasonably apparent, and if not so made, it will be understood to have been waived. In the case of testimonial evidence, the objection must be made when the objectionable question is asked or after the answer is given if the objectionable features become apparent only by reason of such answer.30 In this case, the Heirs of Policronio failed to timely object to the testimony of Amparo Castillo and they are, thus, deemed to have waived the benefit of the parol evidence rule.

Granting that the Heirs of Policronio timely objected to the testimony of Amparo Castillo, their argument would still fail.

Section 9 of Rule 130 of the Rules of Court provides:

“Section 9. Evidence of written agreements.—When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement.

However, a party may present evidence to modify, explain or add to the terms of written agreement if he puts in issue in his pleading:

(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;

(b) The failure of the written agreement to express the true intent and agreement of the parties thereto;

(c) The validity of the written agreement; or

(d) The existence of other terms agreed to by the parties or their successors in interest after the execution of the written agreement.

The term “agreement” includes wills.”

[Emphasis ours]

Paragraphs (b) and (c) are applicable in the case at bench.

44

The failure of the Deed of Sale to express the true intent and agreement of the parties was clearly put in issue in the Answer31 of the Heirs of Alfonso to the Complaint. It was alleged that the Deed of Sale was only made to lessen the payment of estate and inheritance taxes and not meant to transfer ownership. The exception in paragraph (b) is allowed to enable the court to ascertain the true intent of the parties, and once the intent is clear, it shall prevail over what the document appears to be on its face.32 As the true intent of the parties was duly proven in the present case, it now prevails over what appears on the Deed of Sale.

The validity of the Deed of Sale was also put in issue in the Answer, and was precisely one of the issues submitted to the RTC for resolution.33 The operation of the parol evidence rule requires the existence of a valid written agreement. It is, thus, not applicable in a proceeding where the validity of such agreement is the fact in dispute, such as when a contract may be void for lack of consideration.34 Considering that the Deed of Sale has been shown to be void for being absolutely simulated and for lack of consideration, the Heirs of Alfonso are not precluded from presenting evidence to modify, explain or add to the terms of the written agreement.

The Heirs of Policronio must be in a state of confusion in arguing that the Heirs of Alfonso may not question the Deed of Sale for not being parties or successors-in-interest therein on the basis that the parol evidence rule may not be properly invoked in a proceeding or litigation where at least one of the parties to the suit is not a party or a privy of a party to the written instrument in question and does not base a claim on the instrument or assert a right originating in the instrument or the relation established thereby. If their argument was to be accepted, then the Heirs of Policronio would themselves be precluded from invoking the parol evidence rule to exclude the evidence of the Heirs of Alfonso.

Indeed, the applicability of the parol evidence rule requires that the case be between parties and their successors-in-interest.35 In this case, both the Heirs of Alfonso and the Heirs of Policronio are successors-in-interest of the parties to the Deed of Sale as they claim rights under Alfonso and Policronio, respectively. The parol evidence rule excluding evidence aliunde, however, still cannot apply because the present case falls under two exceptions to the rule, as discussed above.

With respect to hearsay, the Heirs of Policronio contended that the rule on hearsay was violated when the testimony of Amparo Castillo was given weight in proving that the subject lands were only sold for taxation purposes as she was a person alien to the contract. Even granting that they did not object to her testimony during trial, they argued that it should not have been appreciated by the CA because it had no probative value whatsoever.36

The Court disagrees.

It has indeed been held that hearsay evidence whether objected to or not cannot be given credence for having no probative value.37 This principle, however, has been relaxed in cases where, in addition to the failure to object to the admissibility of the subject evidence, there were other pieces of evidence presented or there were other circumstances prevailing to support the fact in issue. In Top-Weld Manufacturing, Inc. v. ECED S.A.,38 this Court held:

“Hearsay evidence alone may be insufficient to establish a fact in an injunction suit (Parker v. Furlong, 62 P. 490) but, when no objection is made thereto, it is, like any other evidence, to be considered and given the importance it deserves. (Smith v. Delaware & Atlantic Telegraph & Telephone Co., 51 A 464). Although we should warn of the undesirability of issuing judgments solely on the basis of the affidavits submitted, where as here, said affidavits are overwhelming, uncontroverted by competent evidence and not inherently improbable, we are constrained to uphold the allegations of the respondents regarding the multifarious violations of the contracts made by the petitioner.”

In the case at bench, there were other prevailing circumstances which corroborate the testimony of Amparo Castillo. First, the other Deeds of Sale which were executed in favor of Liberato, Prudencia, and Valeriana on the same day as that of Policronio’s were all presented in evidence. Second, all the properties subject therein were included in the Deed of Extra-Judicial Partition of the estate of Alfonso. Third, Policronio, during his lifetime, never exercised acts of ownership over the subject properties (as he never demanded or took possession of them, never demanded or received the produce thereof, and never paid real estate taxes thereon). Fourth, Policronio never informed his children of the sale.

As the Heirs of Policronio failed to controvert the evidence presented, and to timely object to the testimony of Amparo Castillo, both the RTC and the CA correctly accorded probative weight to her testimony.

Prior Action Unnecessary

The Heirs of Policronio averred that the Heirs of Alfonso should have filed an action to declare the sale void prior to executing the Deed of Extra-Judicial Partition. They argued that the sale should enjoy the presumption of regularity, and until overturned by a court, the Heirs of Alfonso had no authority to include the land in the inventory of properties of Alfonso’s estate. By doing so, they arrogated upon themselves the power of invalidating the Deed of Sale which is exclusively vested in a court of law which, in turn, can rule only upon the observance of due process. Thus, they contended that prescription, laches, or estoppel have set in to militate against assailing the validity of the sale.

The Heirs of Policronio are mistaken.

A simulated contract of sale is without any cause or consideration, and is, therefore, null and void; in such case, no independent action to rescind or annul the contract is necessary, and it may be treated as non-existent for all purposes.39 A void or inexistent contract is one which has no force and effect from the beginning, as if it has never been entered into, and which cannot be validated either by time or ratification. A void contract produces no effect whatsoever either against or in favor of anyone; it does not create, modify or extinguish the juridical relation to which it refers.40 Therefore, it was not necessary for the Heirs of Alfonso to first file an action to declare the nullity of the Deed of Sale prior to executing the Deed of Extrajudicial Partition.

Personality to Question Sale

The Heirs of Policronio contended that the Heirs of Alfonso are not parties, heirs, or successors-in-interest under the contemplation of law to clothe them with the

45

personality to question the Deed of Sale. They argued that under Article 1311 of the Civil Code, contracts take effect only between the parties, their assigns and heirs. Thus, the genuine character of a contract which personally binds the parties cannot be put in issue by a person who is not a party thereto. They posited that the Heirs of Alfonso were not parties to the contract; neither did they appear to be beneficiaries by way of assignment or inheritance. Unlike themselves who are direct heirs of Policronio, the Heirs of Alfonso are not Alfonso’s direct heirs. For the Heirs of Alfonso to qualify as parties, under Article 1311 of the Civil Code, they must first prove that they are either heirs or assignees. Being neither, they have no legal standing to question the Deed of Sale.

They further argued that the sale cannot be assailed for being barred under Article 1421 of the Civil Code which provides that the defense of illegality of a contract is not available to third persons whose interests are not directly affected.

Again, the Court disagrees.

Article 1311 and Article 1421 of the Civil Code provide:

Art. 1311. Contracts take effect only between the parties, their assigns and heirs, x x x

Art. 1421. The defense of illegality of contracts is not available to third persons whose interests are not directly affected.

The right to set up the nullity of a void or non-existent contract is not limited to the parties, as in the case of annullable or voidable contracts; it is extended to third persons who are directly affected by the contract. Thus, where a contract is absolutely simulated, even third persons who may be prejudiced thereby may set up its inexistence.41 The Heirs of Alfonso are the children of Alfonso, with his deceased children represented by their children (Alfonso’s grandchildren). The Heirs of Alfonso are clearly his heirs and successors-in-interest and, as such, their interests are directly affected, thereby giving them the right to question the legality of the Deed of Sale.

Inapplicability of Article 842

The Heirs of Policronio further argued that even assuming that the Heirs of Alfonso have an interest in the Deed of Sale, they would still be precluded from questioning its validity. They posited that the Heirs of Alfonso must first prove that the sale of Alfonso’s properties to Policronio substantially diminished their successional rights or that their legitimes would be unduly prejudiced, considering that under Article 842 of the Civil Code, one who has compulsory heirs may dispose of his estate provided that he does not contravene the provisions of the Civil Code with regard to the legitime of said heirs. Having failed to do so, they argued that the Heirs of Alfonso should be precluded from questioning the validity of the Deed of Sale.

Still, the Court disagrees.

Article 842 of the Civil Code provides:

Art. 842. One who has no compulsory heirs may dispose by will of all his estate or any part of it in favor of any person having capacity to succeed.

One who has compulsory heirs may dispose of his estate provided he does not contravene the provisions of this Code with regard to the legitime of said heirs.

This article refers to the principle of freedom of disposition by will. What is involved in the case at bench is not a disposition by will but by Deed of Sale. Hence, the Heirs of Alfonso need not first prove that the disposition substantially diminished their successional rights or unduly prejudiced their legitimes.

Inapplicability of Article 1412

The Heirs of Policronio contended that even assuming that the contract was simulated, the Heirs of Alfonso would still be barred from recovering the properties by reason of Article 1412 of the Civil Code, which provides that if the act in which the unlawful or forbidden cause does not constitute a criminal offense, and the fault is both on the contracting parties, neither may recover what he has given by virtue of the contract or demand the performance of the other’s undertaking. As the Heirs of Alfonso alleged that the purpose of the sale was to avoid the payment of inheritance taxes, they cannot take from the Heirs of Policronio what had been given to their father.

On this point, the Court again disagrees.

Article 1412 of the Civil Code is as follows:

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

(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other’s undertaking;

(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise.”

Article 1412 is not applicable to fictitious or simulated contracts, because they refer to contracts with an illegal cause or subject-matter.42 This article presupposes the existence of a cause, it cannot refer to fictitious or simulated contracts which are in reality non-existent.43 As it has been determined that the Deed of Sale is a simulated contract, the provision cannot apply to it.

Granting that the Deed of Sale was not simulated, the provision would still not apply. Since the subject properties were included as properties of Alfonso in the Deed of Extra-Judicial Partition, they are covered by corresponding inheritance and estate taxes. Therefore, tax evasion, if at all present, would not arise, and Article 1412 would again be inapplicable.

Prescription

From the position that the Deed of Sale is valid and not void, the Heirs of Policronio argued that any question regarding its validity should have been initiated through judicial process within 10 years from its notarization in accordance with Article 1144

46

of the Civil Code. Since 21 years had already elapsed when the Heirs of Alfonso assailed the validity of the Deed of Sale in 1996, prescription had set in. Furthermore, since the Heirs of Alfonso did not seek to nullify the tax declarations of Policronio, they had impliedly acquiesced and given due recognition to the Heirs of Policronio as the rightful inheritors and should, thus, be barred from laying claim on the land.

The Heirs of Policronio are mistaken.

Article 1410 of the Civil Code provides:

“Art. 1410. The action for the declaration of the inexistence of a contract does not prescribe.”

This is one of the most fundamental characteristics of void or inexistent contracts.44As the Deed of Sale is a void contract, the action for the declaration of its nullity, even if filed 21 years after its execution, cannot be barred by prescription for it is imprescriptible. Furthermore, the right to set up the defense of inexistence or absolute nullity cannot be waived or renounced.45 Therefore, the Heirs of Alfonso cannot be precluded from setting up the defense of its inexistence.

Validity of the Deed of Extra-Judicial Partition

The Court now resolves the issue of the validity of the Deed of Extra-Judicial Partition.

Unenforceability

The Heirs of Alfonso argued that the CA was mistaken in annulling the Deed of Extra-Judicial Partition due to the incapacity of Conrado to give the consent of his co-heirs for lack of a special power of attorney. They contended that what was involved was not the capacity to give consent in behalf of the co-heirs but the authority to represent them. They argue that the Deed of Extra-Judicial Partition is not a voidable or an annullable contract under Article 1390 of the Civil Code, but rather, it is an unenforceable or, more specifically, an unauthorized contract under Articles 1403 (1) and 1317 of the Civil Code. As such, the Deed of Extra-Judicial Partition should not be annulled but only be rendered unenforceable against the siblings of Conrado.

They further argued that under Article 1317 of the Civil Code, when the persons represented without authority have ratified the unauthorized acts, the contract becomes enforceable and binding. They contended that the Heirs of Policronio ratified the Deed of Extra-Judicial Partition when Conrado took possession of one of the parcels of land adjudicated to him and his siblings, and when another parcel was used as collateral for a loan entered into by some of the Heirs of Policronio. The Deed of Extra-Judicial Partition having been ratified and its benefits accepted, the same thus became enforceable and binding upon them.

The Heirs of Alfonso averred that granting arguendo that Conrado was not authorized to represent his co-heirs and there was no ratification, the CA should not have remanded the case to the RTC for partition of Alfonso’s estate. They argued that the CA should not have applied the Civil Code general provision on contracts, but the special provisions dealing with succession and partition. They contended that contrary to the ruling of the CA, the extrajudicial partition was not an act of strict

dominion, as it has been ruled that partition of inherited land is not a conveyance but a confirmation or ratification of title or right to the land.46 Therefore, the law requiring a special power of attorney should not be applied to partitions.

On the other hand, the Heirs of Policronio insisted that the CA pronouncement on the invalidity of the Deed of Extra-Judicial Partition should not be disturbed because the subject properties should not have been included in the estate of Alfonso, and because Conrado lacked the written authority to represent his siblings. They argued with the CA in ruling that a special power of attorney was required before Conrado could sign in behalf of his co-heirs.

The Heirs of Policronio denied that they ratified the Deed of Extra-Judicial Partition. They claimed that there is nothing on record that establishes that they ratified the partition. Far from doing so, they precisely questioned its execution by filing a complaint. They further argued that under Article 1409 (3) of the Civil Code, ratification cannot be invoked to validate the illegal act of including in the partition those properties which do not belong to the estate as it provides another mode of acquiring ownership not sanctioned by law.

Furthermore, the Heirs of Policronio contended that the defenses of unenforceability, ratification, and preterition are being raised for the first time on appeal by the Heirs of Alfonso. For having failed to raise them during the trial, the Heirs of Alfonso should be deemed to have waived their right to do so.

The Court agrees in part with the Heirs of Alfonso.

To begin, although the defenses of unenforceability, ratification and preterition were raised by the Heirs of Alfonso for the first time on appeal, they are concomitant matters which may be taken up. As long as the questioned items bear relevance and close relation to those specifically raised, the interest of justice would dictate that they, too, must be considered and resolved. The rule that only theories raised in the initial proceedings may be taken up by a party thereto on appeal should refer to independent, not concomitant matters, to support or oppose the cause of action.47

In the RTC, the Heirs of Policronio alleged that Conrado’s consent was vitiated by mistake and undue influence, and that he signed the Deed of Extra-Judicial Partition without the authority or consent of his co-heirs.

The RTC found that Conrado’s credibility had faltered, and his claims were rejected by the RTC as gratuitous assertions. On the basis of such, the RTC ruled that Conrado duly represented his siblings in the Deed of Extra-Judicial Partition.

On the other hand, the CA annulled the Deed of Extra-Judicial Partition under Article 1390 (1) of the Civil Code, holding that a special power of attorney was lacking as required under Article 1878 (5) and (15) of the Civil Code. These articles are as follows:

“Art. 1878. Special powers of attorney are necessary in the following cases:

x x x

(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration;

47

x x x

(15) Any other act of strict dominion.

Art. 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties:

(1) Those where one of the parties is incapable of giving consent to a contract;

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification.”

This Court finds that Article 1878 (5) and (15) is inapplicable to the case at bench. It has been held in several cases48 that partition among heirs is not legally deemed a conveyance of real property resulting in change of ownership. It is not a transfer of property from one to the other, but rather, it is a confirmation or ratification of title or right of property that an heir is renouncing in favor of another heir who accepts and receives the inheritance. It is merely a designation and segregation of that part which belongs to each heir. The Deed of Extra-Judicial Partition cannot, therefore, be considered as an act of strict dominion. Hence, a special power of attorney is not necessary.

In fact, as between the parties, even an oral partition by the heirs is valid if no creditors are affected. The requirement of a written memorandum under the statute of frauds does not apply to partitions effected by the heirs where no creditors are involved considering that such transaction is not a conveyance of property resulting in change of ownership but merely a designation and segregation of that part which belongs to each heir.49

Neither is Article 1390 (1) applicable. Article 1390 (1) contemplates the incapacity of a party to give consent to a contract. What is involved in the case at bench though is not Conrado’s incapacity to give consent to the contract, but rather his lack of authority to do so. Instead, Articles 1403 (1), 1404, and 1317 of the Civil Code find application to the circumstances prevailing in this case. They are as follows:

“Art. 1403. The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers;

Art. 1404. Unauthorized contracts are governed by Article 1317 and the principles of agency in Title X of this Book.

Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him.”

A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party.

Such was similarly held in the case of Badillo v. Ferrer:

“The Deed of Extrajudicial Partition and Sale is not a voidable or an annullable contract under Article 1390 of the New Civil Code. Article 1390 renders a contract voidable if one of the parties is incapable of giving consent to the contract or if the contracting party’s consent is vitiated by mistake, violence, intimidation, undue influence or fraud. x x x

The deed of extrajudicial partition and sale is an unenforceable or, more specifically, an unauthorized contract under Articles 1403(1) and 1317 of the New Civil Code.”50

Therefore, Conrado’s failure to obtain authority from his co-heirs to sign the Deed of Extra-Judicial Partition in their behalf did not result in his incapacity to give consent so as to render the contract voidable, but rather, it rendered the contract valid but unenforceable against Conrado’s co-heirs for having been entered into without their authority.

A closer review of the evidence on record, however, will show that the Deed of Extra-Judicial Partition is not unenforceable but, in fact, valid, binding and enforceable against all the Heirs of Policronio for having given their consent to the contract. Their consent to the Deed of Extra-Judicial Partition has been proven by a preponderance of evidence.

Regarding his alleged vitiated consent due to mistake and undue influence to the Deed of Extra-Judicial Partition, Conrado testified, to wit:

Q: Mr. Ureta you remember having signed a document entitled deed of extra judicial partition consisting of 11 pages and which have previously [been] marked as Exhibit I for the plaintiffs?

A: Yes sir.

Q: Can you recall where did you sign this document?

A: The way I remember I signed that in our house.

Q: And who requested or required you to sign this document?

A: My aunties.

Q: Who in particular if you can recall?

A: Nay Pruding Panadero.

Q: You mean that this document that you signed was brought to your house by your Auntie Pruding Pa[r]adero [who] requested you to sign that document?

A: When she first brought that document I did not sign that said document because I [did] no[t] know the contents of that document.

Q: How many times did she bring this document to you [until] you finally signed the document?

A: Perhaps 3 times.

48

Q: Can you tell the court why you finally signed it?

A: Because the way she explained it to me that the land of my grandfather will be partitioned.

Q: When you signed this document were your brothers and sisters who are your co-plaintiffs in this case aware of your act to sign this document?

A: They do not know.

x x x

Q: After you have signed this document did you inform your brothers and sisters that you have signed this document?

A: No I did not. 51

x x x

Q: Now you read the document when it was allegedly brought to your house by your aunt Pruding Pa[r]adero?

A: I did not read it because as I told her I still want to ask the advise of my brothers and sisters.

Q: So do I get from you that you have never read the document itself or any part thereof?

A: I have read the heading.

x x x

Q: And why is it that you did not read all the pages of this document because I understand that you know also how to read in English?

A: Because the way Nay Pruding explained to me is that the property of my grandfather will be partitioned that is why I am so happy.

x x x

Q: You mean to say that after you signed this deed of extra judicial partition up to the present you never informed them?

A: Perhaps they know already that I have signed and they read already the document and they have read the document.

Q: My question is different, did you inform them?

A: The document sir? I did not tell them.

Q: Even until now?

A: Until now I did not inform them.52

This Court finds no cogent reason to reverse the finding of the RTC that Conrado’s explanations were mere gratuitous assertions not entitled to any probative weight. The RTC found Conrado’s credibility to have faltered when he testified that perhaps his siblings were already aware of the Deed of Extra-Judicial Partition. The RTC was

in the best position to judge the credibility of the witness’ testimony. The CA also recognized that Conrado’s consent was not vitiated by mistake and undue influence as it required a special power of attorney in order to bind his co-heirs and, as such, the CA thereby recognized that his signature was binding to him but not with respect to his co-heirs. Findings of fact of the trial court, particularly when affirmed by the CA, are binding to this Court.53

Furthermore, this Court notes other peculiarities in Conrado’s testimony. Despite claims of undue influence, there is no indication that Conrado was forced to sign by his aunt, Prudencia Paradero. In fact, he testified that he was happy to sign because his grandfather’s estate would be partitioned. Conrado, thus, clearly understood the document he signed. It is also worth noting that despite the document being brought to him on three separate occasions and indicating his intention to inform his siblings about it, Conrado failed to do so, and still neglected to inform them even after he had signed the partition. All these circumstances negate his claim of vitiated consent. Having duly signed the Deed of Extra-Judicial Partition, Conrado is bound to it. Thus, it is enforceable against him.

Although Conrado’s co-heirs claimed that they did not authorize Conrado to sign the Deed of Extra-Judicial Partition in their behalf, several circumstances militate against their contention.

First, the Deed of Extra-Judicial Partition was executed on April 19, 1989, and the Heirs of Policronio claim that they only came to know of its existence on July 30, 1995 through an issue of the Aklan Reporter. It is difficult to believe that Conrado did not inform his siblings about the Deed of Extra-Judicial Partition or at least broach its subject with them for more than five years from the time he signed it, especially after indicating in his testimony that he had intended to do so.

Second, Conrado retained possession of one of the parcels of land adjudicated to him and his co-heirs in the Deed of Extra-Judicial Partition.

Third, after the execution of the partition on April 19, 1989 and more than a year before they claimed to have discovered the existence of the Deed of Extra-Judicial Partition on July 30, 1995, some of the Heirs of Policronio, namely, Rita Solano, Macario Ureta, Lilia Tayco, and Venancio Ureta executed on June 1, 1994, a Special Power of Attorney54 in favor of their sister Gloria Gonzales, authorizing her to obtain a loan from a bank and to mortgage one of the parcels of land adjudicated to them in the Deed of Extra-Judicial Partition to secure payment of the loan. They were able to obtain the loan using the land as collateral, over which a Real Estate Mortgage55 was constituted. Both the Special Power of Attorney and the Real Estate Mortgage were presented in evidence in the RTC, and were not controverted or denied by the Heirs of Policronio.

Fourth, in the letter dated August 15, 1995, sent by the counsel of the Heirs of Policronio to the Heirs of Alfonso requesting for amicable settlement, there was no mention that Conrado’s consent to the Deed of Extra-Judicial Partition was vitiated by mistake and undue influence or that they had never authorized Conrado to represent them or sign the document on their behalf. It is questionable for such a pertinent detail to have been omitted. The body of said letter is reproduced hereunder as follows:

49

Greetings:

Your nephews and nieces, children of your deceased brother Policronio Ureta, has referred to me for appropriate legal action the property they inherited from their father consisting of six (6) parcels of land which is covered by a Deed of Absolute Sale dated October 25, 1969. These properties ha[ve] already been transferred to the name of their deceased father immediately after the sale, machine copy of the said Deed of Sale is hereto attached for your ready reference.

Lately, however, there was published an Extra-judicial Partition of the estate of Alfonso Ureta, which to the surprise of my clients included the properties already sold to their father before the death of said Alfonso Ureta. This inclusion of their property is erroneous and illegal because these properties were covered by the Deed of Absolute Sale in favor of their father Policronio Ureta no longer form part of the estate of Alfonso Ureta. Since Policronio Ureta has [sic] died in 1974 yet, these properties have passed by hereditary succession to his children who are now the true and lawful owners of the said properties.

My clients are still entitled to a share in the estate of Alfonso Ureta who is also their grandfather as they have stepped into the shoes of their deceased father Policronio Ureta. But this estate of Alfonso Ureta should already exclude the six (6) parcels of land covered by the Deed of Absolute Sale in favor of Policronio Ureta.

My clients cannot understand why the properties of their late father [should] be included in the estate of their grandfather and be divided among his brothers and sisters when said properties should only be divided among themselves as children of Policronio Ureta.

Since this matter involves very close members of the same family, I have counseled my clients that an earnest effort towards a compromise or amicable settlement be first explored before resort to judicial remedy is pursued. And a compromise or amicable settlement can only be reached if all the parties meet and discuss the problem with an open mind. To this end, I am suggesting a meeting of the parties on September 16, 1995 at 2:00 P.M. at B Place Restaurant at C. Laserna St., Kalibo, Aklan. It would be best if the parties can come or be represented by their duly designated attorney-in-fact together with their lawyers if they so desire so that the problem can be discussed unemotionally and intelligently.

I would, however, interpret the failure to come to the said meeting as an indication that the parties are not willing to or interested in amicable settlement of this matter and as a go signal for me to resort to legal and/or judicial remedies to protest the rights of my clients.

Thank you very much.56

Based on the foregoing, this Court concludes that the allegation of Conrado’s vitiated consent and lack of authority to sign in behalf of his co-heirs was a mere afterthought on the part of the Heirs of Policronio. It appears that the Heirs of Policronio were not only aware of the existence of the Deed of Extra-Judicial Partition prior to June 30, 1995 but had, in fact, given Conrado authority to sign in their behalf. They are now estopped from questioning its legality, and the Deed of Extra-Judicial Partition is valid, binding, and enforceable against them.

In view of the foregoing, there is no longer a need to discuss the issue of ratification.

Preterition

The Heirs of Alfonso were of the position that the absence of the Heirs of Policronio in the partition or the lack of authority of their representative results, at the very least, in their preterition and not in the invalidity of the entire deed of partition. Assuming there was actual preterition, it did not render the Deed of Extrajudicial Partition voidable. Citing Article 1104 of the Civil Code, they aver that a partition made with preterition of any of the compulsory heirs shall not be rescinded, but the heirs shall be proportionately obliged to pay the share of the person omitted. Thus, the Deed of Extra-Judicial Partition should not have been annulled by the CA. Instead, it should have ordered the share of the heirs omitted to be given to them.

The Heirs of Alfonso also argued that all that remains to be adjudged is the right of the preterited heirs to represent their father, Policronio, and be declared entitled to his share. They contend that remand to the RTC is no longer necessary as the issue is purely legal and can be resolved by the provisions of the Civil Code for there is no dispute that each of Alfonso’s heirs received their rightful share. Conrado, who received Policronio’s share, should then fully account for what he had received to his other co-heirs and be directed to deliver their share in the inheritance.

These arguments cannot be given credence.

Their posited theory on preterition is no longer viable. It has already been determined that the Heirs of Policronio gave their consent to the Deed of Extra-Judicial Partition and they have not been excluded from it. Nonetheless, even granting that the Heirs of Policronio were denied their lawful participation in the partition, the argument of the Heirs of Alfonso would still fail.

Preterition under Article 854 of the Civil Code is as follows:

“Art. 854. The preterition or omission of one, some, or all of the compulsory heirs in the direct line, whether living at the time of the execution of the will or born after the death of the testator, shall annul the institution of heir; but the devises and legacies shall be valid insofar as they are not inofficious.

If the omitted compulsory heirs should die before the testator, the institution shall be effectual, without prejudice to the right of representation.”

Preterition has been defined as the total omission of a compulsory heir from the inheritance. It consists in the silence of the testator with regard to a compulsory heir, omitting him in the testament, either by not mentioning him at all, or by not giving him anything in the hereditary property but without expressly disinheriting him, even if he is mentioned in the will in the latter case.57 Preterition is thus a concept of testamentary succession and requires a will. In the case at bench, there is no will involved. Therefore, preterition cannot apply.

Remand Unnecessary

The Deed of Extra-Judicial Partition is in itself valid for complying with all the legal requisites, as found by the RTC, to wit:

50

“A persual of the Deed of Extra-judicial Partition would reveal that all the heirs and children of Alfonso Ureta were represented therein; that nobody was left out; that all of them received as much as the others as their shares; that it distributed all the properties of Alfonso Ureta except a portion of parcel 29 containing an area of 14,000 square meters, more or less, which was expressly reserved; that Alfonso Ureta, at the time of his death, left no debts; that the heirs of Policronio Ureta, Sr. were represented by Conrado B. Ureta; all the parties signed the document, was witnessed and duly acknowledged before Notary Public Adolfo M. Iligan of Kalibo, Aklan; that the document expressly stipulated that the heirs to whom some of the properties were transferred before for taxation purposes or their children, expressly recognize and acknowledge as a fact that the properties were transferred only for the purpose of effective administration and development convenience in the payment of taxes and, therefore, all instruments conveying or effecting the transfer of said properties are null and void from the beginning (Exhs. 1-4, 7-d).”58

Considering that the Deed of Sale has been found void and the Deed of Extra-Judicial Partition valid, with the consent of all the Heirs of Policronio duly given, there is no need to remand the case to the court of origin for partition.

WHEREFORE, the petition in G.R. No. 165748 is DENIED. The petition in G.R. No. 165930 is GRANTED. The assailed April 20, 2004 Decision and October 14, 2004 Resolution of the Court of Appeals in CA-G.R. CV No. 71399, are hereby MODIFIED in this wise:

(1) The Deed of Extra-Judicial Partition, dated April 19, 1989, is VALID, and

(2) The order to remand the case to the court of origin is hereby DELETED.

SO ORDERED.

Velasco, Jr. (Chairperson), Peralta, Abad and Sereno,** JJ., concur.

Petition in G.R. No. 165748 denied, while petition in G.R. No. 165930 granted. Judgment and resolution modified.

Notes.—Gross inadequacy of price by itself will not result in a void contract. (Bacungan vs. Court of Appeals, 574 SCRA 642 [2008])

A void contract cannot give rise to a valid one. (Nool vs. Court of Appeals, 276 SCRA 149 [1997])

G.R. No. 125172. June 26, 1998.*

Spouses ANTONIO and LUZVIMINDA GUIANG, petitioners, vs. COURT OF APPEALS and GILDA CORPUZ, respondents.

Contracts; Sales; Husband and Wife; Conjugal Partnerships; The absence of the consent of one spouse in the sale of a conjugal property renders the sale null and void, while the vitiation thereof makes it merely voidable.—The sale of a conjugal property requires the consent of both the husband and the wife. The absence of the consent of one renders the sale null and void, while the vitiation thereof makes it merely voidable. Only in the latter case can ratification cure the defect.

Same; Same; Same; Same; Family Code; Article 1390, paragraph 2, of the Civil Code refers to contracts visited by vices of consent, but where a spouse’s consent to the contract of sale of the conjugal property is totally inexistent or absent, the contract falls within the ambit of Article 124 of the Family Code.—The error in petitioners’ contention is evident. Article 1390, par. 2, refers to contracts visited by vices of consent, i.e., contracts which were entered into by a person whose consent was obtained and vitiated through mistake, violence, intimidation, undue influence or fraud. In this instance, private respondent’s consent to the contract of sale of their conjugal property was totally inexistent or absent. x x x This being the case, said contract properly falls within the ambit of Article 124 of the Family Code, which was correctly applied by the two lower courts. x x x In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal properties, the other spouse may assume sole powers of administration. These powers do not include the powers of disposition or encumbrance which must have the authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors. (165a)” (Italics supplied)

Same; Same; Same; Same; A void contract cannot be ratified.—The position is not well taken. The trial and the appellate courts have resolved this issue in favor of the private respondent. The trial court correctly held: “By the specific provision of the law [Art. 1390, Civil Code] therefore, the Deed of Transfer of Rights (Exh. ‘A’) cannot be ratified, even by an ‘amicable settlement.’ The participation by some barangay authorities in the ‘amicable settlement’ cannot otherwise validate an invalid act. Moreover, it cannot be denied that the ‘amicable settlement’ (Exh. ‘B’) entered into by plaintiff Gilda Corpuz and defendant spouses Guiang is a contract. It is a direct offshoot of the Deed of Transfer of Rights (Exh. ‘A’). By express provision of law, such a contract is also void. Thus, the legal provision, to wit: ‘Art. 1422. A contract which is the direct result of a previous illegal contract, is also void and inexistent.’ (Civil Code of the Philippines). In summation therefore, both the Deed of Transfer of Rights (Exh. ‘A’) and the ‘amicable settlement’ (Exh. ‘3’) are null and void.” Doctrinally and clearly, a void contract cannot be ratified.

PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Public Attorney’s Office for petitioners.

51

Arnold D. Cruz for private respondent. PANGANIBAN, J.: The sale of a conjugal property requires the consent of both the husband and the wife. The absence of the consent of one renders the sale null and void, while the vitiation thereof makes it merely voidable. Only in the latter case can ratification cure the defect.

The Case

These were the principles that guided the Court in deciding this petition for review of the Decision1 dated January 30, 1996 and the Resolution2 dated May 28, 1996, promulgated by the Court of Appeals in CA-GR CV No. 41758, affirming the Decision of the lower court and denying reconsideration, respectively.

On May 28, 1990, Private Respondent Gilda Corpuz filed an Amended Complaint3 against her husband Judie Corpuz and Petitioners-Spouses Antonio and Luzviminda Guiang. The said Complaint sought the declaration of a certain deed of sale, which involved the conjugal property of private respondent and her husband, null and void. The case was raffled to the Regional Trial Court of Koronadal, South Cotabato, Branch 25. In due course, the trial court rendered a Decision4 dated September 9, 1992, disposing as follows:5

“ACCORDINGLY, judgment is rendered for the plaintiff and against the defendants,

13 1. Declaring both the Deed of Transfer of Rights dated March 1, 1990 (Exh. ‘A’) and the ‘amicable settlement’ dated March 16, 1990 (Exh. ‘B’) as null and void and of no effect;

14 2. Recognizing as lawful and valid the ownership and possession of plaintiff Gilda Corpuz over the remaining one-half portion of Lot 9, Block 8, (LRC) Psd-165409 which has been the subject of the Deed of Transfer of Rights (Exh. ‘A’);

15 3. Ordering plaintiff Gilda Corpuz to reimburse defendants Luzviminda and Antonio Guiang the amount of NINE THOUSAND (P9,000.00) PESOS corresponding to the payment made by defendants Guiangs to Manuel Callejo for the unpaid balance of the account of plaintiff in favor of Manuel Callejo, and another sum of P379.62 representing one-half of the amount of realty taxes paid by defendants Guiangs on Lot 9, Block 8, (LRC) Psd-165409, both with legal interests thereon computed from the finality of the decision.

No pronouncement as to costs in view of the factual circumstances of the case.”

Dissatisfied, petitioners-spouses filed an appeal with the Court of Appeals. Respondent Court, in its challenged Decision, ruled as follows:6

“WHEREFORE, the appealed decision of the lower court in Civil Case No. 204 is hereby AFFIRMED by this Court. No costs considering plaintiff-appellee’s failure to file her brief, despite notice.”

Reconsideration was similarly denied by the same court in its assailed Resolution:7

“Finding that the issues raised in defendants-appellants’ motion for reconsideration

of Our decision in this case of January 30, 1996, to be a mere rehash of the same issues which We have already passed upon in the said decision, and there [being] no cogent reason to disturb the same, this Court RESOLVES to DENY the instant motion for reconsideration for lack of merit.”

The Facts

The facts of this case are simple. Over the objection of private respondent and while she was in Manila seeking employment, her husband sold to the petitioners-spouses one half of their conjugal property, consisting of their residence and the lot on which it stood. The circumstances of this sale are set forth in the Decision of Respondent Court, which quoted from the Decision of the trial court as follows:8

“1. Plaintiff Gilda Corpuz and defendant Judie Corpuz are legally married spouses. They were married on December 24, 1968 in Bacolod City, before a judge. This is admitted by defendants-spouses Antonio and Luzviminda Guiang in their answer, and also admitted by defendant Judie Corpuz when he testified in court (tsn. p. 3, June 9, 1992), although the latter says that they were married in 1967. The couple have three children, namely: Junie—18 years old, Harriet—17 years of age, and Jodie or Joji, the youngest, who was 15 years of age in August, 1990 when her mother testified in court. Sometime on February 14, 1983, the couple Gilda and Judie Corpuz, with plaintiff-wife Gilda Corpuz as vendee, bought a 421 sq. meter lot located in Barangay Gen. Paulino Santos (Bo. 1), Koronadal, South Cotabato, and particularly known as Lot 9, Block 8, (LRC) Psd-165409 from Manuel Callejo who signed as vendor through a conditional deed of sale for a total consideration of P14,735.00. The consideration was payable in installment, with right of cancellation in favor of vendor should vendee fail to pay three successive installments (Exh. ‘2,’ tsn, p. 6, February 14, 1990).

2. Sometime on April 22, 1988, the couple Gilda and Judie Corpuz sold one-half portion of their Lot No. 9, Block 8, (LRC) Psd-165409 to the defendants-spouses Antonio and Luzviminda Guiang. The latter have since then occupied the one-half portion [and] built their house thereon (tsn, p. 4, May 22, 1992). They are thus adjoining neighbors of the Corpuzes.

3. Plaintiff Gilda Corpuz left for Manila sometime in June 1989. She was trying to look for work abroad, in [the] Middle East. Unfortunately, she became a victim of an unscrupulous illegal recruiter. She was not able to go abroad. She stayed for sometime in Manila however, coming back to Koronadal, South Cotabato, x x x on March 11, 1990. Plaintiff’s departure for Manila to look for work in the Middle East was with the consent of her husband Judie Corpuz (tsn, p. 16, Aug. 12, 1990; p. 10, Sept. 6, 1991).

After his wife’s departure for Manila, defendant Judie Corpuz seldom went home to the conjugal dwelling. He stayed most of the time at his place of work at Samahang Nayon Building, a hotel, restaurant, and a cooperative. Daughter Harriet Corpuz went to school at King’s College, Bo. 1, Koronadal, South Cotabato, but she was at the same time working as household help of, and staying at, the house of Mr. Panes. Her brother Junie was not working. Her younger sister Jodie (Joji) was going to school. Her mother sometimes sent them money (tsn, p. 14, Sept. 6, 1991).

Sometime in January 1990, Harriet Corpuz learned that her father intended to sell the

52

remaining one-half portion including their house, of their homelot to defendants Guiangs. She wrote a letter to her mother informing her. She [Gilda Corpuz] replied that she was objecting to the sale. Harriet, however, did not inform her father about this; but instead gave the letter to Mrs. Luzviminda Guiang so that she [Guiang] would advise her father (tsn, pp. 16-17, Sept. 6, 1991).

4. However, in the absence of his wife Gilda Corpuz, defendant Judie Corpuz pushed through the sale of the remaining one-half portion of Lot 9, Block 8, (LRC) Psd-165409. On March 1, 1990, he sold to defendant Luzviminda Guiang thru a document known as ‘Deed of Transfer of Rights’ (Exh. ‘A’) the remaining one-half portion of their lot and the house standing thereon for a total consideration of P30,000.00 of which P5,000.00 was to be paid in June, 1990. Transferor Judie Corpuz’s children Junie and Harriet signed the document as witnesses.

Four (4) days after March 1, 1990 or on March 5, 1990, obviously to cure whatever defect in defendant Judie Corpuz’s title over the lot transferred, defendant Luzviminda Guiang as vendee executed another agreement over Lot 9, Block 8, (LRC) Psd-165408 (Exh. ‘3’), this time with Manuela Jimenez Callejo, a widow of the original registered owner from whom the couple Judie and Gilda Corpuz originally bought the lot (Exh. ‘2’), who signed as vendor for a consideration of P9,000.00. Defendant Judie Corpuz signed as a witness to the sale (Exh. ‘3-A’). The new sale (Exh. ‘3’) describes the lot sold as Lot 8, Block 9, (LRC) Psd-165408 but it is obvious from the mass of evidence that the correct lot is Lot 8, Block 9, (LRC) Psd-165409, the very lot earlier sold to the couple Gilda and Judie Corpuz.

17 5. Sometime on March 11, 1990, plaintiff returned home. She found her children staying with other households. Only Junie was staying in their house. Harriet and Joji were with Mr. Panes. Gilda gathered her children together and stayed at their house. Her husband was nowhere to be found. She was informed by her children that their father had a wife already.

18 6. For staying in their house sold by her husband, plaintiff was complained against by defendant Luzviminda Guiang and her husband Antonio Guiang before the Barangay authorities of Barangay General Paulino Santos (Bo. 1), Koronadal, South Cotabato, for trespassing (tsn. p. 34, Aug. 17, 1990). The case was docketed by the barangay authorities as Barangay Case No. 38 for ‘trespassing.’ On March 16, 1990, the parties thereat signed a document known as ‘amicable settlement.’ In full, the settlement provides for, to wit:

‘That respondent, Mrs. Gilda Corpuz and her three children, namely: Junie, Harriet and Judie to leave voluntarily the house of Mr. and Mrs. Antonio Guiang, where they are presently boarding without any charge, on or before April 7, 1990.

FAIL NOT UNDER THE PENALTY OF THE LAW.

Believing that she had received the shorter end of the bargain, plaintiff went to the Barangay Captain of Barangay Paulino Santos to question her signature on the amicable settlement. She was referred however to the Officer-In-Charge at the time, a certain Mr. de la Cruz. The latter in turn told her that he could not do anything on the matter (tsn. p. 31, Aug. 17, 1990).

This particular point was not rebutted. The Barangay Captain who testified did not

deny that Mrs. Gilda Corpuz approached him for the annulment of the settlement. He merely said he forgot whether Mrs. Corpuz had approached him (tsn. p. 13, Sept. 26, 1990). We thus conclude that Mrs. Corpuz really approached the Barangay Captain for the annulment of the settlement. Annulment not having been made, plaintiff stayed put in her house and lot.

7. Defendant-spouses Guiang followed thru the amicable settlement with a motion for the execution of the amicable settlement, filing the same with the Municipal Trial Court of Koronadal, South Cotabato. The proceedings [are] still pending before the said court, with the filing of the instant suit.

8. As a consequence of the sale, the spouses Guiang spent P600.00 for the preparation of the Deed of Transfer of Rights, Exh. ‘A’; P9,000.00 as the amount they paid to Mrs. Manuela Callejo, having assumed the remaining obligation of the Corpuzes to Mrs. Callejo (Exh. ‘3’); P100.00 for the preparation of Exhibit ‘3’; a total of P759.62 basic tax and special educational fund on the lot; P127.50 as the total documentary stamp tax on the various documents; P535.72 for the capital gains tax; P22.50 as transfer tax; a standard fee of P17.00; certification fee of P5.00. These expenses particularly the taxes and other expenses towards the transfer of the title to the spouses Guiangs were incurred for the whole Lot 9, Block 8, (LRC) Psd-165409.”

Ruling of Respondent Court

Respondent Court found no reversible error in the trial court’s ruling that any alienation or encumbrance by the husband of the conjugal property without the consent of his wife is null and void as provided under Article 124 of the Family Code. It also rejected petitioners’ contention that the “amicable settlement” ratified said sale, citing Article 1409 of the Code which expressly bars ratification of the contracts specified therein, particularly those “prohibited or declared void by law.”

Hence, this petition.9

The Issues

In their Memorandum, petitioners assign to public respondent the following errors:10

“I

Whether or not the assailed Deed of Transfer of Rights was validly executed.

II

Whether or not the Court of Appeals erred in not declaring as voidable contract under Art. 1390 of the Civil Code the impugned Deed of Transfer of Rights which was validly ratified thru the execution of the ‘amicable settlement’ by the contending parties.

III

Whether or not the Court of Appeals erred in not setting aside the findings of the Court a quo which recognized as lawful and valid the ownership and possession of private respondent over the remaining one-half (1/2) portion of the subject property.”

53

In a nutshell, petitioners-spouses contend that (1) the contract of sale (Deed of Transfer of Rights) was merely voidable, and (2) such contract was ratified by private respondent when she entered into an amicable settlement with them.

This Court’s Ruling

The petition is bereft of merit.

First Issue: Void or Voidable Contract?

Petitioners insist that the questioned Deed of Transfer of Rights was validly executed by the parties-litigants in good faith and for valuable consideration. The absence of private respondent’s consent merely rendered the Deed voidable under Article 1390 of the Civil Code, which provides:

“ART. 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties:

x x x x x x x x x

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification.(n)” The error in petitioners’ contention is evident. Article 1390, par. 2, refers to contracts visited by vices of consent, i.e., contracts which were entered into by a person whose consent was obtained and vitiated through mistake, violence, intimidation, undue influence or fraud. In this instance, private respondent’s consent to the contract of sale of their conjugal property was totally inexistent or absent. Gilda Corpuz, on direct examination, testified thus:11

“Q

Now, on March 1, 1990, could you still recall where you were?

A I was still in Manila during that time.

x x x x x x x x x

ATTY. FUENTES:

Q When did you come back to Koronadal, South Cotabato?

A That was on March 11, 1990, Ma’am.

Q Now, when you arrived at Koronadal, was there any problem which arose concerning the ownership of your residential house at Callejo Subdivision?

A When I arrived here in Koronadal, there was a problem which arose regarding my residential house and lot because it was sold by my husband without my knowledge.”

This being the case, said contract properly falls within the ambit of Article 124 of the Family Code, which was correctly applied by the two lower courts:

“ART. 124. The administration and enjoyment of the conjugal partnership property shall belong to both spouses jointly. In case of disagreement, the husband’s decision shall prevail, subject to recourse to the court by the wife for proper remedy, which

must be availed of within five years from the date of the contract implementing such decision.

In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal properties, the other spouse may assume sole powers of administration. These powers do not include the powers of disposition or encumbrance which must have the authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors. (165a)” (Italics supplied)

Comparing said law with its equivalent provision in the Civil Code, the trial court adroitly explained the amendatory effect of the above provision in this wise:12

“The legal provision is clear. The disposition or encumbrance is void. It becomes still clearer if we compare the same with the equivalent provision of the Civil Code of the Philippines. Under Article 166 of the Civil Code, the husband cannot generally alienate or encumber any real property of the conjugal partnership without the wife’s consent. The alienation or encumbrance if so made however is not null and void. It is merely voidable. The offended wife may bring an action to annul the said alienation or encumbrance. Thus, the provision of Article 173 of the Civil Code of the Philippines, to wit:

‘Art. 173. The wife may, during the marriage and within ten years from the transaction questioned, ask the courts for the annulment of any contract of the husband entered into without her consent, when such consent is required, or any act or contract of the husband which tends to defraud her or impair her interest in the conjugal partnership property. Should the wife fail to exercise this right, she or her heirs after the dissolution of the marriage, may demand the value of property fraudulently alienated by the husband.(n)’

This particular provision giving the wife ten (10) years x x x during [the] marriage to annul the alienation or encumbrance was not carried over to the Family Code. It is thus clear that any alienation or encumbrance made after August 3, 1988 when the Family Code took effect by the husband of the conjugal partnership property without the consent of the wife is null and void.”

Furthermore, it must be noted that the fraud and the intimidation referred to by petitioners were perpetrated in the execution of the document embodying the amicable settlement. Gilda Corpuz alleged during trial that barangay authorities made her sign said document through misrepresentation and coercion.13 In any event, its execution does not alter the void character of the deed of sale between the husband and the petitioners-spouses, as will be discussed later. The fact remains that such contract was entered into without the wife’s consent.

In sum, the nullity of the contract of sale is premised on the absence of private respondent’s consent. To constitute a valid contract, the Civil Code requires the concurrence of the following elements: (1) cause, (2) object, and (3) consent,14 the last element being indubitably absent in the case at bar.

54

Second Issue: Amicable Settlement

Insisting that the contract of sale was merely voidable, petitioners aver that it was duly ratified by the contending parties through the “amicable settlement” they executed on March 16, 1990 in Barangay Case No. 38.

The position is not well taken. The trial and the appellate courts have resolved this issue in favor of the private respondent. The trial court correctly held:15

“By the specific provision of the law [Art. 1390, Civil Code] therefore, the Deed of Transfer of Rights (Exh. ‘A’) cannot be ratified, even by an ‘amicable settlement.’ The participation by some barangay authorities in the ‘amicable settlement’ cannot otherwise validate an invalid act. Moreover, it cannot be denied that the ‘amicable settlement’ (Exh. ‘B’) entered into by plaintiff Gilda Corpuz and defendant spouses Guiang is a contract. It is a direct offshoot of the Deed of Transfer of Rights (Exh. ‘A’). By express provision of law, such a contract is also void. Thus, the legal provision, to wit:

‘Art. 1422. A contract which is the direct result of a previous illegal contract, is also void and inexistent.’ (Civil Code of the Philippines).

In summation therefore, both the Deed of Transfer of Rights (Exh. ‘A’) and the ‘amicable settlement’ (Exh. ‘3’) are null and void.”

Doctrinally and clearly, a void contract cannot be ratified.16 Neither can the “amicable settlement” be considered a continuing offer that was accepted and perfected by the parties, following the last sentence of Article 124. The order of the pertinent events is clear: after the sale, petitioners filed a complaint for trespassing against private respondent, after which the barangay authorities secured an “amicable settlement” and petitioners filed before the MTC a motion for its execution. The settlement, however, does not mention a continuing offer to sell the property or an acceptance of such a continuing offer. Its tenor was to the effect that private respondent would vacate the property. By no stretch of the imagination, can the Court interpret this document as the acceptance mentioned in Article 124.

WHEREFORE, the Court hereby DENIES the petition and AFFIRMS the challenged Decision and Resolution. Costs against petitioners.

SO ORDERED.

Davide, Jr. (Chairman), Bellosillo, Vitug and Quisumbing, JJ., concur.

Petition denied, judgment and resolution affirmed.

Notes.—The presumption is that all property of the marriage belongs to the conjugal partnership, unless it is proved that it pertains exclusively to the husband or the wife. (Cuenca vs. Cuenca, 168 SCRA 335 [1988])

Where a woman who cohabited with a married man fails to prove that she contributed money to the purchase price of a riceland, there is no basis to justify her co-ownership over the same—the riceland should revert to the conjugal partnership property of the man and his lawful wife. (Agapay vs. Palang, 276 SCRA 340 [1997])

No. L-15113. January 28, 1961.

ANTONIO MEDINA, petitioner, vs. COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents.

Husband and wife; Antenuptial agreement; Evidence; Sales between husband and wife.—The facts of the case negative the existence of an antenuptial agreement between husband and wife. Where the husband, in 1953, was already apprised that his sales of logs to his wife were void under article 1400 of the New Civil Code, and it was only in 1954 that he claimed that there was an agreement between him and his wife for separation of property, such an allegation cannot be given credence.

Evidence; Appeals; Findings of trial court.—When the credibility of witnesses is one in issue, the trial court's judgment as to their degree of credence deserves serious consideration.

Same; Best evidence rule.—Where not every copy of a supposed antenuptial agreement had been accounted for as lost, then, under the best evidence rule, little or no credence can be given to the oral testimony as secondary evidence, to prove the due execution and contents of the alleged agreement.

Sales; Husband and wife; Provisions of the Code of Commerce.—Articles 7 and 10 of the Code of Commerce do not allow sales between husband and wife. Said provisions merely state, under certain conditions, a presumption that the wife is authorized to engage in business and state the incidents that flow therefrom when she so engages therein. The transactions permitted are those with strangers and they do not constitute exceptions to the prohibitory exceptions of article 1490 of the New Civil Code against sales between spouses.

Same; Right of Government to assail sales between husband and wife.—The government is always an interested party in all matters involving taxable transactions. It is competent to question their validity or legitimacy whenever necessary to block tax evasion. It can impugn sales between husband and wife.

Same.—Contracts violative of article 1490 of the New Civil Code are void.

Taxation; Sales tax; Sales between husband and wife.—Sales made by the husband to the wife are void. Being void, they were correctly disregarded by the Commissioner of Internal Revenue.

Constitutional law; Evidence; Illegally seized evidence is admissible.—Illegally obtained documents and papers are admissible in evidence, if found to be competent and relevant to the case.

PETITION for review by certiorari of a decision of the Court of Tax Appeals.

The facts are stated in the opinion of the Court.

Eusebio D. Morales for petitioner.

Solicitor General for respondents.

REYES, J.B.L., J.:

Petition to review a decision of the Court of Tax Appeals upholding a tax assessment

55

of the Collector of Internal Revenue except with respect to the imposition of so-called compromise penalties, which were set aside.

The records show that on or about May 20, 1944, petitioning taxpayer Antonio Medina married Antonia Rodriguez. Before 1946, the spouses had neither property nor business of their own. Later, however, petitioner acquired forest concessions in the municipalities of San Mariano and Palanan in the Province of Isabela. From 1946 to 1948, the logs cut and removed by the petitioner from his concessions were sold to different persons in Manila through his agent, Mariano Osorio.

Some time in 1949, Antonia R. Medina, petitioner's wife, started to engage in business as a lumber dealer, and up to around 1952, petitioner sold to her almost all the logs produced in his San Mariano concession. Mrs. Medina, in turn, sold in Manila the logs bought from her husband through the same agent, Mariano Osorio. The proceeds were, upon instructions from petitioner, either received by Osorio for petitioner or deposited by said agent in petitioner's current account with the Philippine National Bank.

On the thesis that the sales made by petitioner to his wife were null and void pursuant to the provisions of Article 1490 of the Civil Code of the Philippines (formerly, Art. 1458, Civil Code of 1889), the Collector considered the sales made by Mrs. Medina as the petitioner's original sales taxable under Section 186 of the National Internal Revenue Code and, therefore, imposed a tax assessment on petitioner, calling for the payment of P4,553.54 as deficiency sales taxes and surcharges from 1949 to 1952. This same assessment of September 26, 1953 sought also the collection of another sum of P643.94 as deficiency sales tax and surcharge based on petitioner's quarterly returns from 1946 to 1952.

On November 30, 1953, petitioner protested the assessment; however, respondent Collector insisted on his demand. On July 9, 1954, petitioner filed a petition for reconsideration, revealing for the first time the existence of an alleged pre-marital agreement of complete separation of properties between him and his wife, and contending that the assessment for the years 1946 to 1952 had already prescribed. After one hearing, the Conference Staff of the Bureau of Internal Revenue eliminated the 50% fraud penalty and held that the taxes assessed against him before 1948 had already prescribed. Based on these findings, the Collector issued a modified assessment, demanding the payment of only P3,325.68, computed as follows:

5% tax due on P 7,209.83—1949.............................. P 360.49

5% tax due on 16,945.55—1950 ............................... 847.28

5% tax due on 16,874.52—1951................................ 843.76

5% tax due on 11,009.94—1952................................ 550.50

TOTAL sales tax due .............................................. P2,602.02

25% Surcharge thereon ........................................... 650.51

Short taxes per quarterly returns, 3rd quarter, 1950 58.52

25% Surcharge thereon ........................................... 14.63

TOTAL AMOUNT due & collectible ........................................ P3.326.68

Petitioner again requested for reconsideration, but respondent Collector, in his letter of April 4, 1955, denied the same,

Petitioner appealed to the Court of Tax Appeals, which rendered judgment as aforesaid. The Court's decision was based on two main findings, namely, (a) that there was no pre-marital agreement of absolute separation of property between the Medina spou&es; and (b) assuming that there was such an agreement, the sales in question made by petitioner to his wife were fictitious, simulated, and not bona fide.

In his petition for review to this Court, petitioner raises several assignments of error revolving around the central issue of whether or not the sales made by the petitioner to his wife could be considered as his original taxable sales under the provisions of Section 186 of the National Internal Revenue Code.

Relying mainly on testimonial evidence that before their marriage, he and his wife executed and recorded a prenuptial agreement for a regime of complete separation of property, and that all trace of the document was lost on account of the war, petitioner imputes lack of basis for the tax court's factual finding that no agreement of complete separation of property was ever executed by and between the spouses before their marriage. We do not think so. Aside from the material inconsistencies in the testimony of petitioner's witnesses pointed out by the trial court, the circumstantial evidence is against petitioner's claim. Thus, it appears that at the time of the marriage between petitioner and his wife, they neither had any property nor business of their own, as to have really urged them to enter into the supposed property agreement. Secondly, the testimony that the separation of property agreement was recorded in the Registry of Property three months before the marriage, is patently absurd, since such a prenuptial agreement could not be effective before marriage is celebrated, and would automatically be cancelled if the union was called off. How then could it be accepted for recording prior to the marriage? In the third place, despite their insistence on the existence of the ante-nuptial contract, the couple, strangely enough, did not act in accordance with its alleged covenants. Quite the contrary, it was proved that even during their taxable years, the ownership, usufruct, and administration of their properties and business were in the husband. And even when the wife was engaged in lumber dealing, and she and her husband contracted sales with each other as aforestated, the proceeds she derived from her alleged subsequent disposition of the logs—incidentally, by and through the same agent of her husband, Mariano Osorio—were either received by Osorio for the petitioner or deposited by said agent in petitioner's current account with the Philippine National Bank. Fourth, although petitioner, a lawyer by profession, already knew, after he was informed by the Collector on or about September of 1953, that the primary reason why the sales of logs to his wife could not be considered as the original taxable sales was because of the express prohibition found in Article 1490 of the Civil Code of sales between spouses married under a community system; yet it was not until July of 1954 that he alleged, for the first time, the existence of the supposed property separation agreement. Finally, the Day Book of the Register of Deeds on which the agreement would have been entered, had it really been registered as petitioner insists, and which book was among those saved from the ravages of the war, did not show that the document in question was among those recorded therein.

56

We have already ruled that when the credibility of witnesses is the one at issue, the trial court's judgment as to their degree of credence deserves serious consideration by this Court (Collector vs. Bautista, et al., G.R. Nos. L-12250 & L-12259, May 27, 1959). This is all the more true in this case because not every copy of the supposed agreement, particularly the one that was said to have been filed with the Clerk of Court of Isabela, was accounted for as lost; so that, 'applying the "best evidence rule", the court did right in giving little or no credence to the secondary evidence to prove the due execution and contents of the alleged document (see Comments on the Rules of Court, Moran, 1957 Ed., Vol. 3, pp. 10-12).

The foregoing findings notwithstanding, the petitioner argues that the prohibition to sell expressed under Article 1490 of the Civil Code has no application to the sales made by said petitioner to his wife, because said transactions are contemplated and allowed by the provisions of Articles 7 and 10 of the Code of Commerce. But said provisions merely state, under certain conditions, a presumption that the wife is authorized to engage in business and for the incidents that flow therefrom when she so engages therein. But the transactions permitted are those entered into with strangers, and do not constitute exceptions, to the prohibitory provisions of Article 1490 against sales between spouses.

Petitioner's contention that the respondent Collector cannot assail the questioned sales, he being a stranger to said transactions, is likewise untenable. The government, as correctly pointed out by the Tax Court, is always an interested party to all matters involving taxable transactions and, needless to say, qualified to question their validity or legitimacy whenever necessary to block tax evasion.

Contracts violative of the provisions of Article 1490 of the Civil Code are null and void (Uy Sui Pin vs. Cantollas, 70 Phil. 55; Uy Coque vs. Sioca, 45 Phil. 43). Being void transactions, the sales made by the petitioner to his wife were correctly disregarded by the Collector in his tax assessments that considered as the taxable sales those made by the wife through the spouses' common agent, Mariano Osorio. In upholding that stand, the Court below committed no error.

It is also the petitioner's contention that the lower court erred in using illegally seized documentary evidence against him. But even assuming arguendo the truth of petitioner's charge regarding the seizure, it is now settled in this jurisdiction that illegally obtained documents and papers are admissible in evidence, if they are found to be competent and relevant to the case (see Wong & Lee vs. Collector of Internal Revenue, G.R. No. L-10155, August 30, 1958). In fairness to the Collector, however, it should be stated that petitioner's imputation is vehemently denied by him, and relying on Sections 3, 9, 337 and 338 of the Tax Code and the pertinent portions of Revenue Regulations No. V-1 and citing this Court's ruling in U.S. vs. Aviado, 38 Phil. 10, the Collector maintains that he and other internal revenue officers and agents could require the production of books of accounts and other records from a taxpayer.

Having arrived at the foregoing conclusion, it becomes unnecessary to discuss the other issues raised, which are but premised on the assumption that a premarital agreement of total separation of property existed between the petitioner and his wife.

WHEREFORE, the decision appealed from is affirmed, with costs against the petitioner.

Padilla, Bautista Angelo, Labrador, Barrera, Gutierrez David and Dizon, JJ., concur.

Concepcion, J., concurs in a separate opinion.

CONCEPCION, J., concurring in the result:

I concur in the result. I do not share the view that documents and papers illegally obtained are admissible in evidence, if competent and relevant to the case. In this connection, I believe in the soundness of the following observations of the Supreme Court of the United States in Weeks v, United States (232 US 383, 58 L. ed, 652, 34 S. Ct. 341);1

"The effect of the Fourth Amendment is to put the courts of the United States and Federal officials, in the exercise of their power and authority, under limitations and restraints as to the exercise of such power and authority, and to forever secure the people, their persons, houses, papers, and effects against all unreasonable searches and seizures under the guise of law. This protection reaches all alike, whether accused of crime or not, and the duty of giving to it force and effect is obligatory upon all entrusted under our Federal system with the enforcement of the laws. The tendency of those who execute the criminal laws of the country to obtain conviction by means of unlawful seizures and enforced confessions, the latter often obtained after subjecting accused persons to unwarranted practices destructive of rights secured by the Federal Constitution, should find no sanction in the judgments of the courts which are charged at all times with the support of the Constitution and to which people of all conditions have a right to appeal for the maintenance of such fundamental rights.

x x x x

"x x x If letters and private documents can thus be seized and held and used in evidence against a citizen accused of an offense. the protection of the Fourth Amendment declaring his right to be secure against such searches and seizures is of no value, and, so far as those thus placed are concerned, might as well be stricken from the Constitution. The efforts of the courts and their officials to bring the guilty to punishment, praiseworthy as they are, are not to be aided by the sacrifice of those great principles established by years of endeavor and suffering which have resulted in their embodiment in the fundamental law of the land."

as applied and amplified in Elkins v. United States (June 27, 1960), 4 L. ed. 1669.

Decision affirmed.

Note.—The present rule is that illegally seized evidence

57

G.R. No. 165879. November 10, 2006.*

MARIA B. CHING, petitioner, vs. JOSEPH C. GOYANKO, JR., EVELYN GOYANKO, JERRY GOYANKO, IMELDA GOYANKO, JULIUS GOYANKO,

MARY ELLEN GOYANKO AND JESS GOYANKO, respondents.

Sales; Husbands and Wives; The proscription against sale of property between spouses applies even to common law relationships.—The proscription against sale of property between spouses applies even to common law relationships. So this Court ruled in Calimlim-Canullas v. Hon. Fortun, etc., et al., 129 SCRA 675 (1984): Anent the second issue, we find that the contract of sale was null and void for being contrary to morals and public policy. The sale was made by a husband in favor of a concubine after he had abandoned his family and left the conjugal home where his wife and children lived and from whence they derived their support. The sale was subversive of the stability of the family, a basic social institution which public policy cherishes and protects. Article 1409 of the Civil Code states inter alia that: contracts whose cause, object, or purposes is contrary to law, morals, good customs, public order, or public policy are void and inexistent from the very beginning. Article 1352 also provides that: “Contracts without cause, or with unlawful cause, produce no effect whatsoever. The cause is unlawful if it is contrary to law, morals, good customs, public order, or public policy.” Additionally, the law emphatically prohibits the spouses from selling property to each other subject to certain exceptions. Similarly, donations between spouses during marriage are prohibited. And this is so because if transfers or conveyances between spouses were allowed during marriage, that would destroy the system of conjugal partnership, a basic policy in civil law. It was also designed to prevent the exercise of undue influence by one spouse over the other, as well as to protect the institution of marriage, which is the cornerstone of family law. The prohibitions apply to a couple living as husband and wife without benefit of marriage, otherwise, “the condition of those who incurred guilt would turn out to be better than those in legal union.” Those provisions are dictated by public interest and their criterion must be imposed upon the will of the parties. . . .

Same; Same; Actions; Pleadings and Practice; Due Process; The general rule that a party in a litigation is not permitted to freely and substantially change the theory of his case so as not to put the other party to undue disadvantage by not accurately and timely apprising him of what he is up against, and to ensure that the latter is given the opportunity during trial to refute all allegations against him by presenting evidence to the contrary, does not apply where the nullification of the sale is anchored on its illegality per se, such as its being violative of Articles 1352, 1409 and 1490 of the Civil Code.—As to the change of theory by respondents from forgery of their father’s signature in the deed of sale to sale contrary to public policy, it too does not persuade. Generally, a party in a litigation is not permitted to freely and substantially change the theory of his case so as not to put the other party to undue disadvantage by not accurately and timely apprising him of what he is up against, and to ensure that the latter is given the opportunity during trial to refute all allegations against him by presenting evidence to the contrary. In the present case, petitioner cannot be said to have been put to undue disadvantage and to have been denied the chance to refute all the allegations against her. For the nullification of the sale is anchored on its illegality per se, it being violative of the above-cited Articles 1352, 1409 and 1490 of the Civil Code.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Edmund R. Abesamis for petitioner.

Zosa & Quijano Law Offices for respondents.

Villanueva, Gabionza & De Santos collaborating counsel for respondents.

CARPIO-MORALES, J.:

On December 30, 1947, Joseph Goyanko (Goyanko) and Epifania dela Cruz (Epifania) were married.1 Out of the union were born respondents Joseph, Jr., Evelyn, Jerry, Imelda, Julius, Mary Ellen and Jess, all surnamed Goyanko.

Respondents claim that in 1961, their parents acquired a 661 square meter property located at 29 F. Cabahug St., Cebu City but that as they (the parents) were Chinese citizens at the time, the property was registered in the name of their aunt, Sulpicia Ventura (Sulpicia).

On May 1, 1993, Sulpicia executed a deed of sale2 over the property in favor of respondents’ father Goyanko. In turn, Goyanko executed on October 12, 1993 a deed of sale3 over the property in favor of his common-law-wife-herein petitioner Maria B. Ching. Transfer Certificate of Title (TCT) No. 138405 was thus issued in petitioner’s name.

After Goyanko’s death on March 11, 1996, respondents discovered that ownership of the property had already been transferred in the name of petitioner. Respondents thereupon had the purported signature of their father in the deed of sale verified by the Philippine National Police Crime Laboratory which found the same to be a forgery.4

Respondents thus filed with the Regional Trial Court of Cebu City a complaint for recovery of property and damages against petitioner, praying for the nullification of the deed of sale and of TCT No. 138405 and the issuance of a new one in favor of their father Goyanko.

In defense, petitioner claimed that she is the actual owner of the property as it was she who provided its purchase price. To disprove that Goyanko’s signature in the questioned deed of sale is a forgery, she presented as witness the notary public who testified that Goyanko appeared and signed the document in his presence.

By Decision of October 16, 1998,5 the trial court dismissed the complaint against petitioner, the pertinent portions of which decision read:

“There is no valid and sufficient ground to declare the sale as null and void, fictitious and simulated. The signature on the questioned Deed of Sale is genuine. The testimony of Atty. Salvador Barrameda who declared in court that Joseph Goyanko, Sr. and Maria Ching together with their witnesses appeared before him for notarization of Deed of Sale in question is more reliable than the conflicting testimonies of the two document examiners. Defendant Maria Ching asserted that the Deed of Sale executed by Joseph Goyanko, Sr. in her favor is valid and genuine. The signature of Joseph Goyanko, Sr. in the questioned Deed of Absolute Sale is genuine as it was duly executed and

58

signed by Joseph Goyanko, Sr. himself.

The parcel of lands known as Lot No. 6 which is sought to be recovered in this case could never be considered as the conjugal property of the original Spouses Joseph C. Goyanko and Epifania dela Cruz or the exclusive capital property of the husband. The acquisition of the said property by defendant Maria Ching is well-elicited from the aforementioned testimonial and documentary evidence presented by the defendant. Although for a time being the property passed through Joseph Goyanko, Sr. as a buyer yet his ownership was only temporary and transitory for the reason that it was subsequently sold to herein defendant Maria Ching. Maria Ching claimed that it was even her money which was used by Joseph Goyanko, Sr. in the purchase of the land and so it was eventually sold to her. In her testimony, defendant Ching justified her financial capability to buy the land for herself. The transaction undertaken was from the original owner Sulpicia Ventura to Joseph Goyanko, Sr. and then from Joesph Goyanko, Sr. to herein defendant Maria Ching.

The land subject of the litigation is already registered in the name of defendant Maria Ching under TCT No. 138405. By virtue of the Deed of Sale executed in favor of Maria Ching, Transfer Certificate of Title No. 138405 was issued in her favor. In recognition of the proverbial virtuality of a Torrens title, it has been repeatedly held that, unless bad faith can be established on the part of the person appearing as owner on the certificate of title, there is no other owner than that in whose favor it has been issued. A Torrens title is not subject to collateral attack. It is a well-known doctrine that a Torrens title, as a rule, is irrevocable and indefeasible, and the duty of the court is to see to it that this title is maintained and respected unless challenged in a direct proceedings [sic].”6 (Citations omitted; italics supplied)

Before the Court of Appeals where respondents appealed, they argued that the trial court erred:

16 “1 . . . . when it dismissed the complaint a quo . . . , in effect, sustaining the sale of the subject property between Joseph, Sr. and the defendant-appellee, despite the proliferation in the records and admissions by both parties that defendant-appellee was the ”mistress” or “common-law wife” of Joseph, Sr.

17 2 . . . . when it dismissed the complaint a quo . . . , in effect, sustaining the sale of the subject property between Joseph, Sr. and the defendant-appellee, despite the fact that the marriage of Joseph, Sr. and Epifania was then still subsisting thereby rendering the subject property as conjugal property of Joseph, Sr. and Epifania.

18 3 . . . . in dismissing the complaint a quo . . . , in effect, sustaining the validity of the sale of the subject property between Joseph, Sr. and the defendant-appellee, despite the clear findings of forgery and the non-credible testimony of notary public.”7

By Decision dated October 21, 2003,8 the appellate court reversed that of the trial court and declared null and void the questioned deed of sale and TCT No. 138405. Held the appellate court:

“. . . The subject property having been acquired during the existence of a valid marriage between Joseph Sr. and Epifania dela Cruz-Goyanko, is presumed to belong to

the conjugal partnership. Moreover, while this presumption in favor of conjugality is rebuttable with clear and convincing proof to the contrary, we find no evidence on record to conclude otherwise. The record shows that while Joseph Sr. and his wife Epifania have been estranged for years and that he and defendant-appellant Maria Ching, have in fact been living together as common-law husband and wife, there has never been a judicial decree declaring the dissolution of his marriage to Epifania nor their conjugal partnership. It is therefore undeniable that the 661-square meter property located at No. 29 F. Cabahug Street, Cebu City belongs to the conjugal partnership.

Even if we were to assume that the subject property was not conjugal, still we cannot sustain the validity of the sale of the property by Joseph, Sr. to defendant-appellant Maria Ching, there being overwhelming evidence on records that they have been living together as common-law husband and wife. On this score, Art. 1352 of the Civil Code provides:

“Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatsoever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy.”

We therefore find that the contract of sale in favor of the defendant-appellant Maria Ching was null and void for being contrary to morals and public policy. The purported sale, having been made by Joseph Sr. in favor of his concubine, undermines the stability of the family, a basic social institution which public policy vigilantly protects. Furthermore, the law emphatically prohibits spouses from selling property to each other, subject to certain exceptions. And this is so because transfers or conveyances between spouses, if allowed during the marriage would destroy the system of conjugal partner ship, a basic policy in civil law. The prohibition was designed to prevent the exercise of undue influence by one spouse over the other and is likewise applicable even to common-law relationships otherwise, “the condition of those who incurred guilt would turn out to be better than those in legal union.”9 (Italics supplied)

Hence, the present petition, petitioners arguing that the appellate court gravely erred in:

I.

. . . APPLYING THE STATE POLICY ON PROHIBITION AGAINST CONVEYANCES AND TRANSFERS OF PROPERTIES BETWEEN LEGITIMATE AND COMMON LAW SPOUSES ON THE SUBJECT PROPERTY, THE SAME BEING FOUND BY THE COURT A QUO, AS THE EXCLUSIVE PROPERTY OF PETITIONER, AND THAT THE SAME WAS NEVER PART OF THE CONJUGAL PROPERTY OF THE MARRIAGE BETWEEN RESPONDENTS’ MOTHER EPIFANIA GOYANKO AND PETITIONER’S COMMON LAW HUSBAND, JOSEPH GOYANKO, SR., NOR THE EXCLUSIVE OR CAPITAL PROPERTY OF THE LATTER AT ANYTIME BEFORE THE SAME WAS VALIDLY ACQUIRED BY PETITIONER.

II.

. . . NOT FINDING THAT A JURIDICAL RELATION OF TRUST AS PROVIDED FOR

59

UNDER ARTICLES 1448 AND 1450 OF THE NEW CIVIL CODE CAN VALIDLY EXIST BETWEEN COMMON LAW SPOUSES.

III.

. . . NOT FINDING THAT A CONVEYANCE OVER A PROPERTY MADE BY A TRUSTEE, WHO BECAME AS SUCH IN CONTEMPLATION OF LAW, AND WHO HAPPENS TO BE A COMMON LAW HUSBAND OF THE BENEFICIARY, IS NOT A VIOLATION OF A STATE POLICY ON PROHIBITION AGAINST CONVEYANCES AND TRANSFERS OF PROPERTIES BETWEEN LEGITIMATE AND COMMON LAW SPOUSES.

IV.

. . . ALLOWING RESPONDENTS TO ABANDON THEIR ORIGINAL THEORY OF THEIR CASE DURING APPEAL.10

The pertinent provisions of the Civil Code which apply to the present case read:

ART. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy.

ART. 1409. The following contracts are inexistent and void from the beginning:

19 (1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;

20 (2) Those which are absolutely simulated or fictitious;

21 (3) Those whose cause or object did not exist at the time of the transaction;

22 (4) Those whose object is outside the commerce of men;

23 (5) Those which contemplate an impossible service;

24 (6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;

25 (7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

ARTICLE 1490. The husband and wife cannot sell property to each other, except:

11 (1) When a separation of property was agreed upon in the marriage settlements; or

12 (2) When there has been a judicial separation of property under Article 191. (Italics supplied)

The proscription against sale of property between spouses applies even to common law relationships. So this Court ruled in Calimlim-Canullas v. Hon. Fortun, etc., et al.:11

“Anent the second issue, we find that the contract of sale was null and void for being contrary to morals and public policy. The sale was made by a husband in favor of a concubine after he had abandoned his family and left the conjugal home where his

wife and children lived and from whence they derived their support. The sale was subversive of the stability of the family, a basic social institution which public policy cherishes and protects.

Article 1409 of the Civil Code states inter alia that: contracts whose cause, object, or purposes is contrary to law, morals, good customs, public order, or public policy are void and inexistent from the very beginning.

Article 1352 also provides that: “Contracts without cause, or with unlawful cause, produce no effect whatsoever. The cause is unlawful if it is contrary to law, morals, good customs, public order, or public policy.”

Additionally, the law emphatically prohibits the spouses from selling property to each other subject to certain exceptions. Similarly, donations between spouses during marriage are prohibited. And this is so because if transfers or conveyances between spouses were allowed during marriage, that would destroy the system of conjugal partnership, a basic policy in civil law. It was also designed to prevent the exercise of undue influence by one spouse over the other, as well as to protect the institution of marriage, which is the cornerstone of family law. The prohibitions apply to a couple living as husband and wife without benefit of marriage, otherwise, “the condition of those who incurred guilt would turn out to be better than those in legal union.” Those provisions are dictated by public interest and their criterion must be imposed upon the will of the parties. . . .”12 (Italics in the original; emphasis and italics supplied)

As the conveyance in question was made by Goyangko in favor of his common-law wife herein petitioner, it was null and void.

Petitioner’s argument that a trust relationship was created between Goyanko as trustee and her as beneficiary as provided in Articles 1448 and 1450 of the Civil Code which read:

“ARTICLE 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child.

ARTICLE 1450. If the price of a sale of property is loaned or paid by one person for the benefit of another and the conveyance is made to the lender or payor to secure the payment of the debt, a trust arises by operation of law in favor of the person to whom the money is loaned or for whom it is paid. The latter may redeem the property and compel a conveyance thereof to him.”

does not persuade.

For petitioner’s testimony that it was she who provided the purchase price is uncorroborated. That she may have been considered the breadwinner of the family and that there was proof that she earned a living do not conclusively clinch her claim.

As to the change of theory by respondents from forgery of their father’s signature in the deed of sale to sale contrary to public policy, it too does not persuade. Generally,

60

a party in a litigation is not permitted to freely and substantially change the theory of his case so as not to put the other party to undue disadvantage by not accurately and timely apprising him of what he is up against,13 and to ensure that the latter is given the opportunity during trial to refute all allegations against him by presenting evidence to the contrary. In the present case, petitioner cannot be said to have been put to undue disadvantage and to have been denied the chance to refute all the allegations against her. For the nullification of the sale is anchored on its illegality per se, it being violative of the abovecited Articles 1352, 1409 and 1490 of the Civil Code.

WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioner.

SO ORDERED.

Quisumbing (Chairman), Carpio and Velasco, Jr., JJ., concur.

Tinga, J., On Leave.

Petition denied.

Notes.—In a long line of cases, the Supreme Court has interpreted the co-ownership provided in Article 144 of the Civil Code to require that the man and the woman living together as husband and wife without the benefit of marriage or under a void marriage must not in any way be incapacitated to marry. (Malang vs. Moson, 338 SCRA 393 [2000])

Where the petitioners were sued jointly, or as “Mr. and Mrs.” over a property in which they have a common interest, the signing of one of them in the certification

substantially complies with the rule on certification of non-forum shopping. (Dar vs. Alonzo-Legasto, 339 SCRA 306 [2000])

G.R. No. 120122. November 6, 1997.*

GLORIA R. CRUZ, petitioner, vs. COURT OF APPEALS, ROMY V. SUZARA and MANUEL R. VIZCONDE, respondents.

Land Titles; Land Registration; Purpose of the Torrens system of registration is to quiet title to land and to put a stop to any question of legality of the title except claims which have been recorded in the certificate of title at the time of registration or which may arise subsequent thereto.—The real purpose of the Torrens system of registration is to quiet title to land and to put a stop to any question of legality of the title except claims which have been recorded in the certificate of title at the time of registration or which may arise subsequent thereto. Every registered owner and every subsequent purchaser for value in good faith holds the title to the property free from all encumbrances except those noted in the certificate. Hence, a purchaser is not required to explore further what the Torrens title on its face indicates in quest for any hidden defect or inchoate right that may subsequently defeat his right thereto.

Same; Same; Every person dealing with registered land may safely rely on the correctness of the certificate of title issued therefore and the law will in no way oblige him to go behind the certificate to determine the condition of the property.—Where innocent third persons, relying on the correctness of the certificate of title thus issued, acquire rights over the property the court cannot disregard such rights and order the total cancellation of the certificate. The effect of such an outright cancellation would be to impair public confidence in the certificate of title, for everyone dealing with property registered under the Torrens system would have to inquire in every instance whether the title has been regularly or irregularly issued. This is contrary to the evident purpose of the law. Every person dealing with registered land may safely rely on the correctness of the certificate of title issued therefor and the law will in no way oblige him to go behind the certificate to determine the condition of the property.

Same; Same; Vizconde being a purchaser of registered land for value in good faith holds an indefeasible title to the land.—We cannot grant petitioner’s prayer to have respondent Vizconde’s certificate of title declared null and void. Neither can we order the reconveyance of the property to petitioner. Vizconde being a purchaser of registered land for value in good faith holds an indefeasible title to the land. This is without prejudice however to any appropriate remedy petitioner may take against her erstwhile common-law husband, respondent Suzara.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Eliseo M. Cruz and Cabeza & Associates Law Office for petitioner.

Jose A. Parungo for private respondent Romy V. Suzara.

Celso O. Escobido for private respondent Manuel Vizconde.

BELLOSILLO, J.:

A woman spurned and beguiled now whines—a costly odyssey in relations extra legem.

61

Gloria R. Cruz was the owner of Lot 10, Blk. 565, PSD-38911, with an area of 747.7 square meters, together with the improvements thereon, situated at 22 Bituan St., Bgy. Doña Imelda, Quezon City, covered by TCT No. 242553 in her name; in 1977 she and respondent Romeo V. Suzara lived together as husband and wife without benefit of marriage; in September 1982, solely out of love and affection for Suzara, she executed a deed of absolute sale over Lot 10 in favor of Suzara without any monetary consideration; thereafter, Suzara registered the document in his favor and used the property as collateral for a bank loan of P350,000.00; he however failed to pay the loan so that after four (4) years the mortgage was foreclosed. She paid the bank P40,638.88 to restructure the loan resulting in the extension of the redemption period to two (2) years. However, without her knowledge and before the expiration of the extended period, Suzara redeemed the property. She tried to talk to him but he avoided her. Finally, to protect her interest, she executed an Affidavit of Adverse Claim which she filed with the Register of Deeds of Quezon City asserting that her sale in favor of Suzara was null and void for lack of consideration and being contrary to law and public policy.

On 22 February 1990 she filed a complaint with the Regional Trial Court of Manila against respondent Suzara for quieting of title, declaration of nullity of documents and damages with prayer for writ of preliminary injunction.

Denying petitioner’s claim, respondent Suzara claimed that he was already the registered owner of the property as evidenced by TCT No. 295388, having acquired the same from petitioner through a notarized deed of absolute sale; the sale was for a valuable consideration and not tainted with fraud nor executed under duress; and, petitioner was estopped from impugning the validity of the sale and questioning his title over the property.

On 22 March 1990 the trial court issued a temporary restraining order enjoining private respondent, his agents and/or any person or persons acting in his behalf, from disposing and/or encumbering the litigated property until further orders.

On 3 April 1990 petitioner filed an ex parte motion to admit her amended complaint impleading respondent Manuel R. Vizconde as additional defendant and praying that the Register of Deeds of Quezon City be ordered to annotate her notice of lis pendens on respondent Suzara’s title. Favorably resolving her motion, the trial court admitted her amended complaint and ordered the Register of Deeds to show cause why it was refusing to annotate the notice of lis pendens filed by her.

On 22 May 1990 the Register of Deeds filed a manifestation informing the trial court that the property had been sold by respondent Suzara to his co-respondent Vizconde who was already the registered owner thereof and since Vizconde was not impleaded in the case the notice of lis pendens could not be annotated on his title until the requirements of law were met and the annotation of the notice judicially ordered. As stated in the immediately preceding paragraph, the motion to admit amended complaint impleading respondent Vizconde was filed ex parte on 3 April 1990.1

On 24 September 1990, responding to the amended complaint, Vizconde answered that there was no privity of contract between him and petitioner; he (Vizconde) was a purchaser for value in good faith; the sale between him and Su-zara was executed on 22 December 1989 or long before the execution of the Affidavit of Adverse Claim;

and, the action was barred by laches, estoppel and prescription.

On 24 May 1993 the trial court rendered a decision dismissing the complaint and the counterclaims as well as the cross claim of respondent Vizconde. It ruled that the sale between petitioner and respondent Suzara was valid with “love, affection and accommodation” being the consideration for the sale. It also found Vizconde an innocent purchaser for value because at the time he purchased the property he was unaware of the adverse claim of petitioner.2

On appeal, the Court of Appeals affirmed the judgment of the court a quo.3

Petitioner now comes to us for review on certiorari seeking to reverse and set aside the decision of the Court of Appeals and that of the trial court. She contends that the lower courts erred in holding that the sale between her and Suzara was valid; that she had no legal personality to question the legality of the sale in his favor, and, respondent Vizconde was an innocent purchaser for value in good faith.

Petitioner insists that there being a factual finding by the trial court and the Court of Appeals that she and respondent Suzara were common-law husband and wife, the sale between them was void and inexistent, citing Art. 1490 of the Civil Code. She argues that the consideration of “love, affection and accommodation” for the sale was not a valid cause for the conveyance of the property as there was no price paid in money or its equivalent, and since her sale to Suzara was null and void the issue of its illegality cannot be waived or ratified; resultantly, the sale by Suzara to his co-respondent Vizconde must also be declared null and void the latter being a purchaser in bad faith. Petitioner also contends that although she filed her adverse claim on 22 January 1990 or after the execution of the deed of sale between the private respondents on 22 December 1989, the sale was nevertheless nullified when it was substituted by a second deed of sale dated 5 February 1990, registered 6 March 1990, to avoid payment of fines and penalties for late registration.

We cannot sustain petitioner. Although under Art. 1490 the husband and wife cannot sell property to one another as a rule which, for policy consideration and the dictates of morality require that the prohibition apply to common-law relationships,4 petitioner can no longer seek reconveyance of the property to her as it has already been acquired by respondent Vizconde in good faith and for value from her own transferee.

The real purpose of the Torrens system of registration is to quiet title to land and to put a stop to any question of legality of the title except claims which have been recorded in the certificate of title at the time of registration or which may arise subsequent thereto.5 Every registered owner and every subsequent purchaser for value in good faith holds the title to the property free from all encumbrances except those noted in the certificate. Hence, a purchaser is not required to explore further what the Torrens title on its face indicates in quest for any hidden defect or inchoate right that may subsequently defeat his right thereto.6

Where innocent third persons, relying on the correctness of the certificate of title thus issued, acquire rights over the property the court cannot disregard such rights and order the total cancellation of the certificate.7 The effect of such an outright cancellation would be to impair public confidence in the certificate of title, for

62

everyone dealing with property registered under the Torrens system would have to inquire in every instance whether the title has been regularly or irregularly issued. This is contrary to the evident purpose of the law.8 Every person dealing with registered land may safely rely on the correctness of the certificate of title issued therefor and the law will in no way oblige him to go behind the certificate to determine the condition of the property.9 Even if a decree in a registration proceeding is infected with nullity, still an innocent purchaser for value relying on a Torrens title issued in pursuance thereof is protected. A purchaser in good faith is one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same at the time of such purchase or before he has notice of the claim of another person.

Both lower courts found that at the time respondent Suzara executed the deed of absolute sale on 22 December 1989 in favor of respondent Vizconde, which was acknowledged before a notary public, Suzara was the registered owner appearing in the certificate of title. When the sale was executed, nothing was annotated in the certificate to indicate any adverse claim of a third person or the fact that the property was the subject of a pending litigation. It was only on 22 January 1990, after the sale to respondent Vizconde, that petitioner filed her adverse claim with the Register of Deeds. Based on this factual backdrop, which we consider binding upon this Court, there is no doubt that respondent Vizconde was a purchaser for value in good faith and that when he bought the property he had no knowledge that some other person had a right to or an adverse interest in the property. As the Court of Appeals observed, Vizconde paid a full and fair price for the property at the time of the purchase and before he had any notice of petitioner’s claim or interest in the property. For purposes of resolving the present controversy, the allegation that there was a second deed of sale executed solely for the purpose of evading the penalties resulting from late payment of taxes and registration is immaterial. The fact is, petitioner herself admits that the actual sale of the property occurred on 22 December 1989. A contract of sale is consensual and is perfected once agreement is reached between the parties on the subject matter and the consideration therefor.

We cannot grant petitioner’s prayer to have respondent Vizconde’s certificate of title declared null and void. Neither can we order the reconveyance of the property to petitioner. Vizconde being a purchaser of registered land for value in good faith holds an indefeasible title to the land. This is without prejudice however to any appropriate remedy petitioner may take against her erstwhile common-law husband, respondent Suzara.

WHEREFORE, the petition is DENIED. The decision of the Court of Appeals affirming that of the trial court is AFFIRMED. Costs against petitioner.

SO ORDERED.

Davide, Jr. (Chairman), Vitug and Kapunan, JJ., concur.

Petition denied. Judgment affirmed.

Note.—A title issued under the Torrens system enjoys the conclusive presumption of validity. (Ramos vs. Rodriguez, 244 SCRA 418 [1995])

G.R. No. L-8913 March 3, 1914 NELLIE LOUISE COOK, plaintiff-appellee,

vs. J. MCMICKING, sheriff of Manila, defendant-appellant.

GUS JOHNSON and AMPARO ESCALANTE DE JOHNSON, interveners-appellants.

Gibbs, McDonough & Blanco for appellants. Rohde & Wright for appellee. MORELAND, J.:

This is an appeal from a judgment of the Court of First Instance of the city of Manila in favor of the plaintiff and against the appellants, continuing an injunction against the appellants restraining them from selling the property described in the complaint under an execution issued against Edward Cook.

On August 8, 1912, an injunction was granted by a judge of the Court of First Instance of the city of Manila restraining the sale of certain property levied upon under an execution issued upon a judgment rendered on April 30 by the Court of First Instance of the Province of Rizal in the case of Johnson et al. vs. Edward Cook.

The complaint alleges that the plaintiff is the wife of Edward Cook; that she is the absolute owner of a piece of square meters in area, and that the same is registered in her name under the Torrens Law by certificate No. 130; that on the 15th of June 1912, a judgment was entered against Edward Cook, plaintiff's husband, for the sum of P10,000 in the Court of First Instance of the Province of Rizal; that by virtue of said judgment an execution was issued on the 10th of July of that year and levied upon the land described in the complaint as belonging to the plaintiff and that the same was advertised for sale on the 8th of August at 9 o' clock in the morning. After other allegations appropriate to an action of this kind, plaintiff prays from an junction permanently prohibiting the defendants from selling the said land.

The Torrens title introduced in evidence by the plaintiff was obtained in June 1904 in the name of plaintiff's husband, Edward Cook. Later, and sometime in August of the same year, the husband, by an intrusment in writing in the form and manner required by Act No. 496, transferred to the plaintiff the land in question. In 1911 the plaintiff's husband Edward Cook, became indebted to Johnson, the plaintiff in the action referred to, in the sum of P10,000, the purchase price of certain lands. Judgement upon said indebtedness was procured in the year 1912 as aforesaid and a levy made upon the lands described in the complaint.

It is claimed by the appellants that the so-called transfer from plaintiff's husband to her was completely void under article 1458 of the Civil Code and that, therefore, the property still remains the property of Edward Cook and subject to levy under execution against him.

In our opinion the position taken by appellants is untenable. They are not in the position the challenge the validity of the transfer, if it may be called such. They bore absolutely no relation to the parties to the transfer at the time it occurred and had no rights or interest inchoate, present, remote, or otherwise, in the property in question at the time the transfer occurred. Although certain transfers from husband to wife or from wife to husband are prohibited in the article referred to, such prohibition can be taken advantage of only two person who bear such a relation to the parties making

63

the transfer with their rights or interest. Unless such a relationship appears the transfer cannot be attacked.

So far as the record of this case demonstrates the property in question is owned by the plaintiff and is not subject to levy and sale under the execution in this case.

The judgment appealed from affirmed, with costs against the appellants.

Arellano, C.J., Carson and Araullo, JJ., concur.

[G.R. No. L-28771. March 31, 1971.]

CORNELIA MATABUENA, Plaintiff-Appellant, v. PETRONILA CERVANTES, Defendant-Appellee.

Alegre, Roces, Salazar & Sañez, for Plaintiff-Appellant.

Fernando Gerona, Jr., for Defendant-Appellee.

1. CIVIL LAW; PROPERTY RELATIONS BETWEEN HUSBAND AND WIFE; DONATIONS BY REASON OF MARRIAGE; PROHIBITION AGAINST DONATION BETWEEN SPOUSES DURING MARRIAGE; APPLICABLE TO COMMON LAW RELATIONSHIP. — While Art. 133 of the Civil Code considers as void a "donation between the spouses during the marriage", policy considerations of the most exigent character as well as the dictates of morality require that the same prohibition should apply to a common-law relationship. A 1954 Court of Appeals decision Buenaventura v. Bautista, (50 O.G. 3679) interpreting a similar provision of the old Civil Code speaks unequivocally. If the policy of the law is, in the language of the opinion of the then Justice J.B.L. Reyes of that Court, "to prohibit donations in favor of the other consort and his descendants because of fear of undue and improper pressure and influence upon the donor, a prejudice deeply rooted in our ancient law; ‘porque no se engañen despojandose el uno al otro por amor que han de consuno,’ [according to] the Partidas (Part. IV, Tit. Xl, LAW IV), reiterating the rationale ‘Ne mutuato amore invicem spoliarentur’ of the Pandects (Bk 24, Tit. I, De donat, inter virum et uxorem); then there is every reason to apply the same prohibitive policy to persons living together as husband and wife without benefit of nuptials. For it is not to be doubted that assent to such irregular connection for thirty years bespeaks greater influence of one party over the other, so that the danger that the law seeks to avoid is correspondingly increased. Moreover, as already pointed out by Ulpian (in his lib. 32 ad Sabinum, fr. 1), it would not be just that such donations should subsist lest the condition of those who incurred guilt should turn out to be better. So long as marriage remains the cornerstone of our family law, reason and morality alike demand that the disabilities attached to marriage should likewise attach to concubinage.

2. ID.; SUCCESSION; INTESTATE SUCCESSION; SURVIVING SPOUSE; RULE WHERE A SISTER SURVIVES WITH THE WIDOW. — The lack of validity of the donation made b~ the deceased to defendant Petronila Cervantes does not necessarily result in plaintiff having exclusive right to the disputed property. Prior to the death of Felix Matabuena, the relationship between him and the defendant was legitimated by their marriage on March 28. 1962. She is therefore his widow. As provided in the Civil Code, she is entitled to one-half of the inheritance and the plaintiff, as the surviving sister to the other half.

FERNANDO, J.:

A question of first impression is before this Court in this litigation. We are called upon to decide whether the ban on a donation between the spouses during a marriage applies to a common-law relationship. 1 The plaintiff, now appellant Cornelia Matabuena, a sister to the deceased Felix Matabuena, maintains that a donation made while he was living maritally without benefit of marriage to

64

defendant, now appellee Petronila Cervantes, was void. Defendant would uphold its validity. The lower court, after noting that it was made at a time before defendant was married to the donor, sustained the latter’s stand. Hence this appeal. The question, as noted, is novel in character, this Court not having had as yet the opportunity of ruling on it. A 1954 decision of the Court of Appeals, Buenaventura v. Bautista, 2 by the then Justice J. B. L. Reyes, who was appointed to this Court later that year, is indicative of the appropriate response that should be given. The conclusion reached therein is that a donation between common-law spouses falls within the prohibition and is "null and void as contrary to public policy." 3 Such a view merits fully the acceptance of this Court. The decision must be reversed.

In the decision of November 23, 1965, the lower court, after stating that in plaintiff’s complaint alleging absolute ownership of the parcel of land in question, she specifically raised the question that the donation made by Felix Matabuena to defendant Petronila Cervantes was null and void under the aforesaid article of the Civil Code and that defendant on the other hand did assert ownership precisely because such a donation was made in 1956 and her marriage to the deceased did not take place until 1962, noted that when the case was called for trial on November 19, 1965, there was stipulation of facts which it quoted. 4 Thus: "The plaintiff and the defendant assisted by their respective counsels, jointly agree and stipulate: (1) That the deceased Felix Matabuena owned the property in question; (2) That said Felix Matabuena executed a Deed of Donation inter vivos in favor of Defendant, Petronila Cervantes over the parcel of land in question on February 20, 1956, which same donation was accepted by defendant; (3) That the donation of the land to the defendant which took effect immediately was made during the common law relationship as husband and wife between the defendant-done and the now deceased donor and later said donor and done were married on March 28, 1962; (4) That the deceased Felix Matabuena died intestate on September 13, 1962; (5) That the plaintiff claims the property by reason of being the only sister and nearest collateral relative of the deceased by virtue of an affidavit of self-adjudication executed by her in 1962 and had the land declared in her name and paid the estate and inheritance taxes thereon’"

The judgment of the lower court on the above facts was adverse to plaintiff. It reasoned out thus: "A donation under the terms of Article 133 of the Civil Code is void if made between the spouses during the marriage. When the donation was made by Felix Matabuena in favor of the defendant on February 20, 1956, Petronila Cervantes and Felix Matabuena were not yet married. At that time they were not spouses. They became spouses only when they married on March 28, 1962, six years after the deed of donation had been executed."

We reach a different conclusion. While Art. 133 of the Civil Code considers as void a "donation between the spouses during the marriage," policy considerations of the most exigent character as well as the dictates of morality require that the same prohibition should apply to a common-law relationship. We reverse.

1. As announced at the outset of this opinion, a 1954 Court of Appeals decision, Buenaventura v. Bautista, 7 interpreting a similar provision of the old Civil Code 8 speaks unequivocally. If the policy of the law is, in the language of the opinion of the then Justice J.B.L. Reyes of that Court, "to prohibit donations in favor of the other consort and his descendants because of fear of undue and improper pressure and

influence upon the donor, a prejudice deeply rooted in our ancient law; ‘porque no se engañen despojandose el uno al otro por amor que han de consuno [according to] the Partidas (Part IV, Tit. XI, LAW IV), reiterating the rationale ‘Ne mutuato amore invicem spoliarentur’ of the Pandects (Bk. 24, Tit. 1, De donat, inter virum et uxorem); then there is every reason to apply the same prohibitive policy to persons living together as husband and wife without the benefit of nuptials. For it is not to be doubted that assent to such irregular connection for thirty years bespeaks greater influence of one party over the other, so that the danger that the law seeks to avoid is correspondingly increased. Moreover, as already pointed out by Ulpian (in his lib. 32 ad Sabinum, fr. 1), ‘it would not be just that such donations should subsist, lest the condition of those who incurred guilt should turn out to be better.’ So long as marriage remains the cornerstone of our family law, reason and morality alike demand that the disabilities attached to marriage should likewise attach to concubinage." 9

2. It is hardly necessary to add that even in the absence of the above pronouncement, any other conclusion cannot stand the test of scrutiny. It would be to indict the framers of the Civil Code for a failure to apply a laudable rule to a situation which in its essentials cannot be distinguished. Moreover, if it is at all to be differentiated, the policy of the law which embodies a deeply-rooted notion of what is just and what is right would be nullified if such irregular relationship instead of being visited with disabilities would be attended with benefits. Certainly a legal norm should not be susceptible to such a reproach. If there is ever any occasion where the principle of statutory construction that what is within the spirit of the law is as much a part of it as what is written, this is it. Otherwise the basic purpose discernible in such codal provision would not be attained. Whatever omission may be apparent in an interpretation purely literal of the language used must be remedied by an adherence to its avowed objective. In the language of Justice Pablo: "El espiritu que informa la ley debe ser la luz que ha de guiar a los tribunales en la aplicación de sus disposiciones.’’ 10

3. The lack of validity of the donation made by the deceased to defendant Petronila Cervantes does not necessarily result in plaintiff having exclusive right to the disputed property. Prior to the death of Felix Matabuena, the relationship between him and the defendant was legitimated by their marriage on March 28, 1962. She is therefore his widow. As provided for in the Civil Code, she is entitled to one-half of the inheritance and the plaintiff, as the surviving sister, to the other half. 11

WHEREFORE, the lower court decision of November 23, 1965 dismissing the complaint with costs is reversed. The questioned donation is declared void, with the rights of plaintiff and defendant as pro indiviso heirs to the property in question recognized. The case is remanded to the lower court for its appropriate disposition in accordance with the above opinion. Without pronouncement as to costs.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Barredo, Villamor and Makasiar, JJ., concur.

Teehankee, J, took no part.

65

No. L-35702. May 29, 1973

DOMINGO D. RUBIAS, plaintiff-appellant, vs. ISAIAS BATILLER, defendant-appellee.

Actions; Dismissal of complaint for declaration of absolute ownership and restoration of possession of land where plaintiff has no right or title thereto; Case at bar.—The stipulated facts and exhibits of record indisputably established plaintiff's lack of cause of action and justified the outright dismissal of the complaint. Plaintiff's claim of ownership to the land in question was predicated on the sale thereof made in 1956 by his father-in-law in his favor at a time when the latter's application for registration thereof had already been dismissed by the land registration court and was pending appeal in the Court of Appeals. With the appellate court's 1958 final judgment affirming the dismissal of the vendor's application for registration, the lack of any rightful claim or title of the said vendor to the land was conclusively and decisively judicially determined. Hence, there was no right or title to the land that could be transferred or sold by the vendor's purported sale in 1956 in favor of the plaintiff. Manifestly then, plaintiff's complaint against defendant, to be declared absolute owner of the land and to be restored to possession thereof with damages was bereft of any factual or legal basis.

Sales; Prohibition against purchase by lawyer of property in litigation from his client; Article 1491, paragraph (5) of the Philippine Civil Code construed.—Article 1491 of the Civil Code of the Philippines (like Article 1459 of the Spanish Civil Code) prohibits in its six paragraphs certain persons, by reason of the relation of trust or their peculiar control either directly or indirectly and "even at a public or judicial auction," as follows: (1) guardians; (2) agents; (3) administrators; (4) public officers and employees; (5) judicial officers and employees, prosecuting attorneys, and lawyers; and (6) others specially disqualified by law.

Same; Prohibited purchase void and produces no legal effect.—Castan's rationale for his conclusion that fundamental considerations of public policy render void and inexistent such expressly prohibited purchases (e.g. by public officers and employees of government property intrusted to them and by justices, judges, fiscals and lawyers of property and rights in litigation submitted to or handled by them, under Article 1491, paragraphs (4) and (5) of the Civil Code of the Philippines) has been adopted in a new article of the Civil Code of the Philippines, viz, Article 1409 declaring such prohibited contracts as "inexistent and void from the beginning."

Same; Nullity of such prohibited contracts cannot be cured by ratification.—The nullity of such prohibited contracts is definite and permanent and cannot be cured by ratification. The public interest and public policy remain paramount and do not permit of compromise or ratification.

Same; Nullity of such prohibited contracts differentiated from the nullity of contracts of purchase by the guardians, agents and administrators.—The permanent disqualification of public and judicial officers and lawyers grounded on public policy differs from the first three cases of guardians, agents and administrators (Article 1491, Civil Code), as to whose transactions, its has been opined, may be "ratified" by means of and "in the form of a new contract, in which case its validity shall be determined only by the circumstances at the time of execution of such new contract. The causes of nullity

which have ceased to exist cannot impair the validity of the new contract. Thus, the object which was illegal at the time of the first contract, may have already become lawful at the time of ratification or second contract; or the service which was impossible may have become possible; or the intention which could not be ascertained may have been clarified by the parties. The ratification or second contract would then be valid from its execution; however, it does not retroact to the date of the first contract.

APPEAL from a decision of the Court of First Instance of Iloilo. Rovira, J.

The facts are stated in the opinion of the Court.

Gregorio M. Rubias for plaintiff-appellant.

Vicente R. Acsay for defendant-appellee.

TEEHANKEE, J.:

In this appeal certified by the Court of Appeals to this Court as involving purely legal questions, we affirm the dismissal order rendered by the Iloilo court of first instance after pre-trial and submittal of the pertinent documentary exhibits. Such dismissal was proper, plaintiff having no cause of action, since it was duly established in the record that the application for registration of the land in question filed by Francisco Militante, plaintiff's vendor and predecessor in interest, had been dismissed by decision of 1952 of the land registration court as affirmed by final judgment in 1958 of the Court of Appeals and hence, there was no title or right to the land that could be transmitted by the purported sale to plaintiff.

As late as 1964, the Iloilo court of first instance had in another case of ejectment likewise upheld by final judgment defendant's "better right to possess the land in question . . . having been in the actual possession thereof under a claim of title many years before Francisco Militante sold the land to the plaintiff."

Furthermore, even assuming that Militante had anything to sell, the deed of sale executed in 1956 by him in favor of plaintiff at a time when plaintiff was concededly his counsel of record in the land registration case involving the very land in dispute (ultimately decided adversely against Militante by the Court of Appeals' 1958 judgment affirming the lower court's dismissal of Militante's application for registration) was properly declared inexistent and void by the lower court, as decreed by Article 1409 in relation to Article 1491 of the Civil Code.

The appellate court, in its resolution of certification of 25 July 1972, gave the following backgrounder of the appeal at bar:

"On August 31, 1964, plaintiff Domingo D. Rubias, a lawyer, filed a suit to recover the ownership and possession of certain portions of lot under Psu-99791 located in Barrio General Luna, Barotac Viejo, Iloilo which he bought from his father-in-law, Francisco Militante in 1956 against its present occupant defendant, Isaias Batiller, who allegedly entered said portions of the lot on two occasions—in 1945 and in 1959. Plaintiff prayed also for damages and attorney's fees. (pp. 1-7, Record on Appeal). In his answer with counter-claim defendant claims the complaint of the plaintiff does not state a cause of action, the truth of the matter being that he and his predecessors-in-

66

interest have always been in actual, open and continuous possession since time immemorial under claim of ownership of the portions of the lot in question and for the alleged malicious institution of the complaint he claims he has suffered moral damages in the amount of P2,000.00, as well as the sum of P500.00 for attorney's fees, x x x

"On December 9, 1964, the trial court issued a pre-trial order, after a pre-trial conference between the parties and their counsel which order reads as follows:

'When this case was called for a pre-trial conference today, the plaintiff appeared assisted by himself and Atty. Gregorio M. Rubias. The defendant also appeared, assisted by his counsel Atty. Vicente R. Acsay.

A. During the pre-trial conference, the parties have agreed that the following facts are attendant in this case and that they will no longer introduce any evidence, testimonial or documentary to prove them:

19 1. That Francisco Militante claimed ownership of a parcel of land located in the Barrio of General Luna, municipality of Barotac Viejo, province of Iloilo, which he caused to be surveyed on July 18-31, 1934, whereby he was issued a plan Psu-99791 (Exhibit 'B'). (The land claimed contained an area of 171.3561 hectares.)

20 2. Before the war with Japan, Francisco Militante filed with the Court of First Instance of Iloilo an application for the registration of title of the land technically described in Psu-99791 (Exh. 'B') opposed by the Director of Lands, the Director of Forestry and other oppositors. However, during the war with Japan, the record of the case was lost before it was heard, so after the war Francisco Militante petitioned this Court to reconstitute the record of the case. The record was reconstituted in the Court of First Instance of Iloilo and docketed as Land Case No. R-695, GLRO Rec. No. 54852. The Court of First Instance heard the land registration case on November 14, 1952, and after trial this Court dismissed the application for registration. The applicant, Francisco Militante, appealed from the decision of this Court to the Court of Appeals where the case was docketed as CA-G.R. No. 13497-R.

21 3. Pending the disposal of the appeal in CA-G.R. No. 13497- R and more particularly on June 18, 1956, Francisco Militante sold to the plaintiff, Domingo Rubias, the land technically described in Psu-99791 (Exh. 'A'). The sale was duly recorded in the Office of the Register of Deeds for the Province of Iloilo as Entry No. 13609 on July 14, 1960 (Exh. 'A-1').

(NOTE: As per the deed of sale, Exh. A, what Militante

26 purportedly sold to plaintiff-appellant, his son-in-law, for the sum, of P2,000.00 was "a parcel of untitled land having an area of 144.9072 hectares . . . surveyed under Psu 99791 . . . (and) subject to the exclusions made by me, under (case) CA -13497, Land Registration Case No. R-695, G.L.R.O. No. 54852, Court of First Instance of the province of Iloilo. These exclusions referred to portions of the original area of over 171 hectares originally claimed by Militante as applicant, but which he expressly recognized during the trial to pertain to some oppositors, such as the Bureau of Public Works and Bureau of Forestry

and several other individual occupants and accordingly withdrew his application over the same. This is expressly made of record in Exh.A, which is the Court of Appeals' decision of 22 September 1958 confirming the land registration court's dismissal of Militante's application for registration.)

27 4. On September 22, 1958 the Court of Appeals in CA-G.R. No. 13497-R promulgated its judgment confirming the decision of this Court in Land Case No. R-695, GLRO Rec. No. 54852 which dismissed the application for Registration filed by Francisco Militante (Exh. 'I').

28 5. Domingo Rubias declared the land described in Exh. 'B' for taxation purposes under Tax Dec. No. 8585 (Exh. 'C') for 1957; Tax Dec. Nos. 9533 (Exh. 'C-1') and 10019 (Exh. 'C-3') for the year 1961; Tax Dec. No. 9868 (Exh. 'C-2') for the year 1964, paying the land taxes under Tax Dec. No. 8585 and 9533 (Exh. 'D','D-1' &'G-6').

29 6. Francisco Militante immediate predecessor-in-interest of the plaintiff, has also declared the land for taxation purposes under Tax Dec. No. 5172 in 1940 (Exh. 'E') for 1945; under Tax Dec. No. T-86 (Exh. 'E-1') for 1948; under Tax Dec. No. 7122 (Exh. '2'), and paid the land taxes for 1940 (Exhs. 'G' and 'G-7'), for 1945-46 (Exh. 'G-1') for 1947 (Exh. 'G-2'), for 1947 & 1948 (Exh. 'G-3'), for 1948 (Exh. 'G-4'), and for 1948 and 1949 (Exh. 'G-5').

30 7. Tax Declaration No. 2434 in the name of Liberato Demontaño for the land described therein (Exh. 'F') was cancelled by Tax. Dec. No. 5172 of Francisco Militante (Exh. 'E'). Liberato Demontaño paid the land tax under Tax Dec. No. 2434 on Dec. 20, 1939 for the years 1938 (50%) and 1959 (Exh. 'H').

13 8. The defendant had declared for taxation purposes Lot No. 2 of the Psu-155241 under Tax Dec. Noc. 8583 for 1957 and a portion of Lot No. 2, Psu-155241, for 1945 under Tax Dec. No. 8584 (Exh. '2-A'.) Tax No. 8583 (Exh. '2') was revised by Tax Dec. No. 9498 in the name of the defendant (Exh. '2-B', and Tax Dec. No. 8584 (Exh. '2-A') was cancelled by Tax Dec. No. 9584 also in the name of the defendant (Exh. '2-C').The defendant paid the land taxes for Lot 2, Psu-155241, on Nov. 9, 1960 for the years 1945 and 1946, for the year 1950, and for the year 1960 as shown by the certificate of the treasurer (Exh. '3'). The defendant may present to the Court other land taxes receipts for the payment of taxes for this lot.

14 9. The land claimed by the defendant as his own was surveyed on June 6 and 7, 1956, and a plan approved by Director of Lands on November 15, 1956 was issued, identified as Psu 155241 (Exh. '5').

15 10. On April 22, 1960, the plaintiff filed a forcible Entry and Detainer case against Isaias Batiller in the Justice of the Peace Court of Barotac Viejo, Province of Iloilo (Exh. '4') to which the defendant Isaias Batiller filed his answer on August 29, 1960 (Exh. '4-A'). The Municipal Court of Barotac Viejo after trial, decided the case on May 10, 1961 in favor of the defendant and against the plaintiff (Exh. '4-B'). The plaintiff appealed from the decision of the Municipal Court of Barotac Viejo which was docketed in this Court as Civil Case No. 5750 on June 3, 1961, to which the defendant, Isaias Batiller, on June 13, 1961 filed his

67

answer (Exh. '4-C'). And this Court after the trial, decided the case on November 26, 1964, in favor of the defendant, Isaias Batiller and against the plaintiff (Exh.'4 - D').

(NOTE: As per Exh. 4-B, which is the Iloilo court of first instance decision of 26 November 1964 dismissing plaintiff's therein complaint for ejectment against defendant, the Iloilo court expressly found "that plaintiff's complaint is unjustified, intended to harass the defendant" and "that the defendant, Isaias Batiller, has a better right to possess the land in question described in Psu 155241 (Exh. "3"), Isaias Batiller having been in the actual physical possession thereof under a claim of title many years before Francisco Militante sold the land to the plaintiff; hereby dismissing plaintiff's complaint and ordering the plaintiff to pay the defendant attorney's fees x x x.")

B. During the trial of this case on the merit, the plaintiff will prove by competent evidence the following:

6 1. That the land he purchased from Francisco Militante under Exh. 'A' was formerly owned and possessed by Liberato Demontaño, but that on September 6, 1919 the land was sold at public auction by virtue of a judgment in a Civil Case entitled 'Edw. J. Pflieder, plaintiff vs. Liberato Demontaño, Francisco Balladeros and Gregorio Yulo, defendants', of which Yap Pongco was the purchaser (Exh. '1-2'). The sale was registered in the Office of the Register of Deeds of Iloilo on August 4, 1920, under Primary Entry No. 69 (Exh. '1-3') and a definite Deed of Sale was executed by Constantino A. Canto, provincial Sheriff of Iloilo, on Jan. 19, 1934 in favor of Yap Pongco (Exh. '1'), the sale having been registered in the Office of the Register of Deeds of Iloilo on February 10, 1934 (Exh. '1-1').

7 2. On September 22, 1934, Yap Pongco sold this land to Francisco Militante as evidenced by a notarial deed (Exh. 'J') which was registered in the Registry of Deeds on May 13, 1940 (Exh. 'J-1').

8 3. That plaintiff suffered damages alleged in his complaint.

C. Defendants, on the other hand will prove by competent evidence during the trial of this case the following facts:

4 1. That Lot No. 2 of the Psu-155241 (Exh. '5') was originally owned and possessed by Felipe Batiller, grandfather of the defendant, who was succeeded by Basilio Batiller, on the death of the former in 1920, as his sole heir. Isaias Batiller succeeded his father, Basilio Batiller, in the ownership and possession of the land in the year 1930, and since then up to the present, the land remains in the possession of the defendant, his possession being actual, open, public, peaceful and continuous in the concept of an owner, exclusive of any other rights and adverse to all other claimants.

5 2. That the alleged predecessors in interest of the plaintiff have never been in the actual possession of the land and that they never had any title thereto.

6 3. That Lot No. 2, Psu 155241, the subject of Free Patent application of the defendant has been approved.

7 4. The damages suffered by the defendant as alleged in his counterclaim.' "1

The appellate court further related the developments of the case, as follows:

"On August 17, 1965, defendant's counsel manifested in open court that before any trial on the merit of the case could proceed he would file a motion to dismiss plaintiff's complaint which he did, alleging that plaintiff does not have a cause of action against him because the property in dispute which he (plaintiff) allegedly bought from his father-in-law, Francisco Militante was the subject matter of LRC No. 695 filed in the CFI of Iloilo, which case was brought on appeal to this Court and docketed as CA-G-R. No. 13497-R in which aforesaid case plaintiff was the counsel on record of his father-in-law, Francisco Militante. Invoking Arts. 1409 and 1491 of the Civil Code which reads:

'Art. 1409. The following contracts are inexistent and void from the beginning:

x x x

(7) Those expressly prohibited or declared void by law.

'ART. 1491. The following persons cannot acquire any purchase, even at a public or judicial auction, either in person or through the mediation of another:

x x x

(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession.'

defendant claims that plaintiff could not have acquired any interest in the property in dispute as the contract he (plaintiff) had with on Appeal). Plaintiff strongly opposed defendant's motion to dismiss claiming that defendant can not invoke Articles 1409 and 1491 of the Civil Code as Article 1422 of the same Code provides that 'The defense of illegality of contracts is not available to third persons whose interests are not directly affected' (See pp. 32-35, Record on Appeal).

"On October 18, 1965, the lower court issued an order dismissing plaintiff's complaint (pp. 42-49, Record on Appeal.) In the aforesaid order of dismissal, the lower court practically agreed with defendant's contention that the contract (Exh. A) between plaintiff and Francisco Militante was null and void. In due season plaintiff filed a motion for reconsideration (pp. 50-56, Record on Appeal) which was denied by the lower court on January 14, 1966 (p. 57, Record on Appeal).

"Hence, this appeal by plaintiff from the orders of October 18, 1965 and January 14, 1966.

"Plaintiff-appellant imputes to the lower court the following errors:

4 '1. The lower court erred in holding that the contract of sale between the plaintiff-appellant and his father-in-law, Francisco Militante, Sr., now deceased, of the property covered by Plan Psu-99791, (Exh. 'A') was void, not voidable

68

because it was made when plaintiff- appellant was the counsel of the latter in the Land Registration case.

5 '2. The lower court erred in holding that the defendant-appellee is an interested person to question the validity of the contract of sale between plaintiff-appellant and the deceased, Francisco Militante, Sr.

6 '3. The lower court erred in entertaining the motion to dismiss of the defendant-appellee after he had already filed his answer, and after the termination of the pre-trial, when the said motion to dismiss raised a collateral question.

7 '4. The lower court erred in dismissing the complaint of the plaintiff-appellant.' "

The appellate court concluded that plaintiff's "assignment of errors gives rise to two (2) legal posers—(1) whether or not the contract of sale between appellant and his father-in-law, the late Francisco Militante over the property subject of Plan Psu-99791 was void because it was made when plaintiff was counsel of his father-in-law in a land registration case involving the property in dispute; and (2) whether or not the lower court was correct in entertaining defendant-appellee's motion to dismiss after the latter had already filed his answer and after he (defendant) and plaintiff-appellant had agreed on some matters in a pre-trial conference. Hence, its elevation of the appeal to this Court as involving pure questions of law.

It is at once evident from the foregoing narration that the pre-trial conference held by the trial court at which the parties with their counsel agreed and stipulated on the material and relevant facts and submitted their respective documentary exhibits as referred to in the pre-trial order, supra,2 practically amounted to a fulldress trial which placed on record all the facts and exhibits necessary for adjudication of the case.

The three points on which plaintiff reserved the presentation of evidence at the trial dealing with the source of the alleged right and title of Francisco Militante's predecessors, supra,3 actually are already made of record in the stipulated facts and admitted exhibits. The chain of Militante's alleged title and right to the land as supposedly traced back to Liberato Demontaño was actually asserted by Militante (and his vendee, lawyer and son-in-law, herein plaintiff) in the land registration case and rejected by the Iloilo land registration court which dismissed Militante's application for registration of the land. Such dismissal, as already stated, was affirmed by the final judgment in 1958 of the Court of Appeals.4

The four points on which defendant on his part reserved the presentation of evidence at the trial dealing with his and his ancestors' continuous, open, public and peaceful possession in the concept of owner of the land and the Director of Lands' approval of his survey plan thereof, supra,5 are likewise already duly established facts of record, in the land registration case as well as in the ejectment case wherein the Iloilo court of first instance recognized the superiority of

defendant's right to the land as against plaintiff. No error was therefore committed by the lower court in dismissing plaintiff's complaint upon defendant's motion after the pre-trial.

1. The stipulated facts and exhibits of record indisputably established plaintiff's lack

of cause of action and justified the outright dismissal of the complaint. Plaintiff's claim of ownership to the land in question was predicated on the sale thereof for P2,000.00 made in 1956 by his father-in-law, Francisco Militante, in his favor, at a time when Militante's application for registration thereof had already been dismissed by the Iloilo land registration court and was pending appeal in the Court of Appeals.

With the Court of Appeals' 1958 final judgment affirming the dismissal of Militante's application for registration, the lack of any rightful claim or title of Militante to the land was conclusively and decisively judicially determined. Hence, there was no right or title to the land that could be transferred or sold by Militante's purported sale in 1956 in favor of plaintiff.

Manifestly, then plaintiff's complaint against defendant, to be declared absolute owner of the land and to be restored to possession thereof with damages was bereft of any factual or legal basis.

2. No error could be attributed either to the lower court's holding that the purchase by a lawyer of the property in litigation from his client is categorically prohibited by Article 1491, paragraph (5) of the Philippine Civil Code, reproduced supra;6 and that consequently, plaintiff's purchase of the property in litigation from his client (assuming that his client could sell the same, since as already shown above, his client's claim to the property was defeated and rejected) was void and could produce no legal effect, by virtue of Article 1409, paragraph (7) of our Civil Code which provides that contracts "expressly prohibited or declared void by law" are "inexistent and void from the beginning" and that "(T)hese contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived."

The 1911 case of Wolfson vs. Estate of Martinez7 relied upon by plaintiff as holding that a sale of property in litigation to the party litigant's lawyer "is not void but voidable at the election of the vendor" was correctly held by the lower court to have been superseded by the later 1929 case of Director of Lands vs. Abagat.8 In this later case of Abagat, the Court expressly cited two antecedent cases involving the same transaction of purchase of property in litigation by the lawyer which was expressly declared invalid under Article 1459 of the Civil Code of Spain (of which Article 1491 of our Civil Code of the Philippines is the counterpart) upon challenge thereof not by the vendor-client but by the adverse parties against whom the lawyer was seeking to enforce his rights as vendee thus acquired.

These two antecedent cases thus cited in Abagat clearly superseded (without so expressly stating) the previous ruling in Wolfson:

"The spouses, Juan Soriano and Vicenta Macaraeg, were the owners of twelve parcels of land. Vicenta Macaraeg died in November, 1909, leaving a large number of collateral heirs but no descendants. Litigation between the surviving husband, Juan Soriano, and the heirs of Vicenta Macaraeg immediately arose, and the herein appellant Sisenando Palarca acted as Soriano's lawyer.

On May 2, 1918, Soriano executed a deed for the aforesaid twelve parcels of land in favor of Sisenando Palarca, and on the following day, May 3, 1918, Palarca filed an application for the registration of the land described in the deed. After hearing, the Court of First Instance declared that the deed was invalid by virtue of the provisions of article

69

1459 of the Civil Code, which prohibits lawyers and solicitors from purchasing property rights involved in any litigation in which they may tak e part by virtue of their profession. The application for registration was consequently denied, and upon appeal by Palarca to the Supreme Court, the judgment of the lower court was affirmed by a decision promulgated November 16, 1925.

(G.R. No. 24329, Palarca vs. Director of Lands, not reported.)

"In the meantime cadastral case No. 30 of the Province of Tarlac was instituted, and on August 21, 1923, Eleuteria Macaraeg, as administratrix of the estate of Vicenta Macaraeg, filed claims for the parcels in question. Buenaventura Lavitoria, administrator of the estate of Juan Soriano, did likewise and so did Sisenando Palarca. In a decision dated June 21, 1927, the Court of First Instance, Judge Carballo presiding, rendered judgment in favor of Palarca and ordered the registration of the land in his name. Upon appeal to this court by the administrators of the estates of Juan Soriano and Vicenta Macaraeg, the judgment of the court below was reversed and the land adjudicated to the 'two estates as conjugal property of the deceased spouses. (G.R. No. 28226, Director of Lands vs. Abagat, promulgated May 21, 1928, not reported.)"9

In the very case of Abagat itself, the Court, again affirming the invalidity and nullity of the lawyer's purchase of the land in litigation from his client, ordered the issuance of a writ of possession for the return of the land by the lawyer to the adverse parties without reimbursement of the price paid by him and other expenses, and ruled that "the appellant Palarca is a lawyer and is presumed to know the law. He must, therefore, from the beginning, have been well aware of the defect in his title and is, consequently, a possessor in bad faith."

As already stated, Wolfson and Abagat were decided with relation to Article 1459 of the Civil Code of Spain then adopted here, until it was superseded on August 30, 1950 by the Civil Code of the Philippines whose counterpart provision is Article 1491.

Article 1491 of our Civil Code (like Article 1459 of the Spanish Civil Code) prohibits in its six paragraphs certain persons, by reason of the relation of trust or their peculiar control over the property, from acquiring such property in their trust or control either directly or indirectly and "even at a public or judicial auction," as follows: (1) guardians; (2) agents; (3) administrators; (4) public officers and employees; (5) judicial officers and employees, prosecuting attorneys, and lawyers; and (6) others especially disqualified by law.

In Wolfson, which involved the sale and assignment of a money judgment by the client to the lawyer, Wolfson, whose right to so purchase the judgment was being challenged by the judgment debtor, the Court, through Justice Moreland, then expressly reserved decision on "whether or not the judgment in question actually falls within the prohibition of the article" and held only that the sale's "voidability can not be asserted by one not a party to the transaction or his representative," citing from Manresa10 that "(C)onsidering the question from the point of view of the civil law, the view taken by the code, we must limit ourselves to classifying as void all acts done contrary to the express prohibition of the statute. Now then: As the code does not recognize such nullity by the mere operation of law, the nullity of the acts hereinbefore referred to must be asserted by the person having the necessary legal capacity to do so and decreed by a competent court."11

The reason thus given by Manresa in considering such prohibited acquisitions under Article 1459 of the Spanish Civil Code as merely voidable at the instance and option of the vendor and not void—"that the Code does not recognize such nullity de pleno derecho"—is no longer true and applicable to our own Philippine Civil Code which does recognize the absolute nullity of contracts "whose cause, object, or purpose is contrary to law, morals, good customs, public order or public policy" or which are "expressly prohibited or declared void by law" and declares such contracts "inexistent and void from the beginning."12

The Supreme Court of Spain and modern authors have likewise veered from Manresa's view of the Spanish codal provision itself. In its sentencia of 11 June 1966, the Supreme Court of Spain ruled that the prohibition of Article 1459 of the Spanish Civil Code is based on public policy, that violation of the prohibition contract cannot be validated by confirmation or ratification, holding that:

" x x x la prohibición que el articulo 1459 del C.C. establece respecto a los administradores y apoderados, la cual tiene conforme a la doctrina de esta Sala, contenida entre otras, en S. de 27-5-1959, un fundamento de orden moral, dando lugar la violación de esta regla a la nulidad de pleno derecho del acto ó negocio celebrado, x x x y porque al realizarse el acto juridico en contravención con una prohibición legal, afectante al orden público, no cabe con efecto alguno la aludida ratificación x x x"13

The criterion of nullity of such prohibited contracts under Article 1459 of the Spanish Civil Code (Article 1491 of our Civil Code) as a matter of public order and policy as applied by the Supreme Court of Spain to administrators and agents in its above-cited decision should certainly apply with greater reason to judges, judicial officers, fiscals and lawyers under paragraph 5 of the codal article.

Citing the same decision of the Supreme Court of Spain, Gullón Ballesteros, in his "Curso de Derecho Civil, (Contratos Especiales)" (Madrid, 1968) p. 18, affirms that, with respect to Article 1459, Spanish Civil Code:

"Qúe carácter tendrá la compra que se realice por estas personas? Por supuesto no cabe duda de que en el caso del (art.) 1459, 4° y 5°, la nulidad es absoluta porque el motivo de la prohibición es de orden público."14

Perez Gonzales concurs in such view, stating that "Dado el carácter prohibitivo del precepto, la consequencia de la infracción es la nulidad radical y ex lege."15

Castan, quoting Manresa's own observation that

"El fundamento de esta prohibición es clarísimo. No se trata con este precepto tan solo de quitar la ocasión al fraude; persiguese, además, el propósito de rodear a las personas que intervienen en la administración de justicia de todos los restigios que necesitan para ejercer su ministerio, librándolos de toda sospecha, que aunque fuere infundada, redundaría en descredito de la institución."16 considerarse en nuestro derecho inexistente ó radicalmente nulo el contrato en los siguentes cases: a) x x x ; b) cuando el contrato se ha celebrado en violación de una prescripción ó prohibición legal, fundada sobre motivos de orden público (hipótesis del art. 4 del Código) x x x."17

It is noteworthy that Castan's rationale for his conclusion that fundamental considerations of public policy render void and inexistent such expressly prohibited

70

purchase (e.g. by public officers and employees of government property intrusted to them and by justices, judges, fiscals and lawyers of property and rights in litigation submitted to or handled by them, under Article 1491, paragraphs (4) and (5) of our Civil Code) has been adopted in a new article of our Civil Code, viz, Article 1409 declaring such prohibited contracts as "inexistent and void from the beginning."18

Indeed, the nullity of such prohibited contracts is definite and permanent and cannot be cured by ratification. The public interest and public policy remain paramount and do not permit of compromise or ratification. In this aspect, the permanent disqualification of public and judicial officers and lawyers grounded on public policy differs from the first three cases of guardians, agents and administrators (Article 1491, Civil Code), as to whose transactions, it has been opined that they may be "ratified" by means of and in "the form of a new contract, in which case its validity shall be determined only by the circumstances at the time of execution of such new contract. The causes of nullity which have ceased to exist cannot impair the validity of the new contract. Thus, the object which was illegal at the time of the first contract, may have already become lawful at the time of the ratification or second contract; or the service which was impossible may have become possible; or the intention which could not be ascertained may have been clarified by the parties. The ratification or second contract would then be valid from its execution; however, it does not retroact to the date of the first contract."19

As applied to the case at bar, the lower court therefore properly acted upon defendant-appellant's motion to dismiss on the ground of nullity of plaintiff's alleged purchase of the land, since its juridical effects and plaintiff's alleged cause of action founded thereon were being asserted against defendant-appellant. The principles governing the nullity of such prohibited contracts and judicial declaration of their nullity have been well restated by Tolentino in his treatise on our Civil Code, as follows:

"Parties Affected.—Any person may invoke the inexistence of the contract whenever juridical effects founded thereon are asserted against him. Thus, if there has been a void transfer of property, the transferor can recover it by the accion reivindicatoria; and any prossessor may refuse to deliver it to the transferee, who cannot enforce the contract. Creditors may attach property of the debtor which has been alienated by the latter under a void contract; a mortgagee can allege the inexistence of a prior encumbrance; a debtor can assert the nullity of an assignment of credit as a defense to an action by the assignee.

"Action On Contract.—Even when the contract is void or inexistent, an action is necessary to delare its inexistence, when it has already been fulfilled. Nobody can take the law into his own hands; hence, the intervention of the competent court is necessary to declare the absolute nullity of the contract and to decree the restitution of what has been given under it. The judgment, however, will retroact to the very day when the contract was entered into.

"If the void contract is still fully executory, no party need bring an action to declare its nullity; but if any party should bring an action to enforce it, the other party can simply set up the nullity as a defense."20

ACCORDINGLY, the order of dismissal appealed from is hereby affirmed, with costs

in all instances against plaintiff-appellant. So ordered.

Makalintal, Actg. C.J., Zaldivar, Castro, Fernando, Barredo, Makasiar, Antonio and Esguerra, JJ., concur.

Order affirmed.

Notes.—a) Purchase by lawyer before commencement of lawyer-client relationship.—Granting that they were attorneys for the defendant, yet they were not forbidden to buy the property in question. Attorneys are only prohibited from buying their client's property which is the subject of litigation. The questioned sale was effected before the subject thereof became involved in the present action. There was already at the time of the sale a litigation over this property between the parties but the attorneys were not the defendant's attorneys in that case (Gregorio Araneta, Inc. vs. Tuason de Paterno, L-2886, August 22, 1952).

b) Extent of article 1491, Civil Code.—Article 1491 does not prohibit a lawyer from acquiring a certain percentage of the value of the properties in litigation that may be awarded to his client. A contingent fee based on such value is allowed (Recto vs. Harden, L-6897, November 29, 1956).

c) Prohibition does not only apply where interest in the property acquired by the attorney before the property became the subject matter of litigation.—The provisions of the Civil Code and of the Canons of Legal Ethics prohibit the purchase by lawyers of any interest in the subject matter of the litigation in which they participated by reason of their profession. The attorney's alleged interest in the lots was acquired before he intervened as counsel for the defendant in the ejectment cases against the latter and that said interest is not necessarily inconsistent with that of his aforementioned client, aside from the fact that he had made no substantial misrepresentation in the pleadings filed by him in said cases (Del Rosario vs. Millado, Adm. Case No. 724, January 31, 1969).

The same prohibition is not violated by a lawyer who participates at a foreclosure sale of his client's property in behalf of his client (Diaz vs. Kapunan, 45 Phil. 482) or by an attorney who, as counsel of one of the three heirs, negotiated a contract between the heirs and a corporation of which he was an officer for the subdivision and sale of the heirs' property, the attorney himself not being a party to the contract (Tuason vs. Tuason, 88 Phil. 428).

71

No. L-72306. October 5, 1988.*

DAVID P. FORNILDA, JUAN P. FORNILDA, EMILIA P. FORNILDA OLILI, LEOCADIA P. FORNILDA LABAYEN and ANGELA P. FORNILDA GUTIERREZ, petitioners, vs. THE BRANCH 164, REGIONAL TRIAL COURT IVTH JUDICIAL

REGION, PASIG, JOAQUIN C. ANTONIL, Deputy Sheriff, RTC, 4JR Tanay, Rizal and ATTY. SERGIO I. AMONOY, respondents.

Sales; Public Policy; Attorneys; Under Art. 1491, a lawyer is prohibited from acquiring either by purchase or assignment of the property or rights involved which are object of the litigation in which they intervene by virtue of their profession; Rationale for the prohibition.—Under the aforequoted provision, a lawyer is prohibited from acquiring either by purchase or assignment the property or rights involved which are the object of the litigation in which they intervene by virtue of their profession (Padilla, Vol. II Civil Law, 1974 Ed., p. 230 citing Hernandez vs. Villanueva, 40 Phil. 773 and Rubias vs. Batiller; 51 SCRA 130). The prohibition on purchase is all embracing to include not only sales to private individuals but also public or judicial sales. (ibid., p. 221). The rationale advanced for the prohibition is that public policy disallows the transactions in view of the fiduciary relationship involved i.e., the relation of trust and confidence and the peculiar control exercised by these persons (Paras, Civil Code, Vol. V, 1973 ed., p. 70).

Same; Same; Same; The fact that the properties were first mortgaged and only subsequently acquired in an auction sale will not remove it from the scope of the prohibition; Reason.—The fact that the properties were first mortgaged and only subsequently acquired in an auction sale long after the termination of the intestate proceedings will not remove it from the scope of the prohibition. To rule otherwise would be to countenance indirectly what cannot be done directly.

Same; Same; Same; The action or defense for the declaration of the inexistence of a void contract is imprescriptible.—Being a void contract, the action or defense for the declaration of its inexistence is imprescriptible (Article 1410, Civil Code). The defect of a void or inexistent contract is permanent. Mere lapse of time cannot give it efficacy. Neither can the right to set up the defense of illegality be waived (Article 1409, Civil Code).

Same; Same; Same; Doctrine of prior judgment as a bar to a subsequent case, cannot be invoked in the case at bar; Reasons.—The Controverted Parcels could not have been the object of any mortgage contract in favor of Respondent Amonoy and consequently neither of a foreclosure sale. By analogy, the illegality must be held to extend to whatever results directly from the illegal source (Article 1422, Civil Code). Such being the case, the Trial Court did not acquire any jurisdiction over the subject matter of the Foreclosure Case and the judgment rendered therein could not have attained any finality and could be attacked at any time. Neither could it have been a bar to the action brought by petitioners for its annulment by reason of res judicata. (Municipality of Antipolo vs. Zapanta, No. L-65334, December 26, 1984, 133 SCRA 820). Two of the requisites of the rule of prior judgment as a bar to a subsequent case, namely, (1) a final judgment and (2) that it must have been rendered by a Court having jurisdiction over the subject matter, are conspicuously absent.

PETITION for certiorari to review the order of the Regional Trial Court of Pasig, Br. 164.

The facts are stated in the opinion of the Court.

Irene C. Ishiwata for petitioner A. Gutierrez.

Sergio I. Amonoy for and in his own behalf.

MELENCIO-HERRERA, J.:

The Petition entitled “Petisiyung Makapagpasuri Taglay ang Pagpapapigil ng Utos”, translated as one for Certiorari with Preliminary Injunction, was filed on 27 September 1985 by three (3) petitioners, namely David P. Fornilda, Emilia P. Fornilda-Olili, and Angela P. Fornilda-Gutierrez. They seek the reversal of the Order of respondent Trial Court, dated 25 July 1985, granting a Writ of Possession, as well as its Orders, dated 25 April 1986 and 16 May 1986 (p. 241, Rollo), directing and authorizing respondent Sheriff to demolish the houses of petitioners Angela and Leocadia Fornilda (who is listed as a petitioner but who did not sign the Petition). Neither is Juan P. Fornilda a signatory.

The facts disclose that the deceased, Julio M. Catolos, formerly owned six (6) parcels of land located in Tanay, Rizal, which are the controverted properties in the present litigation. His estate was the subject of settlement in Special Proceedings No. 3103 of the then Court of First Instance of Rizal, at Pasig, Branch I. Francisca Catolos, Agnes Catolos, Alfonso I. Fornilda and Asuncion M. Pasamba were some of the legal heirs and were represented in the case by Atty. Sergio Amonoy (hereinafter referred to as Respondent Amonoy). A Project of Partition was filed in the Intestate Court whereby the Controverted Parcels were adjudicated to Alfonso I. Fornilda and Asuncion M. Pasamba.

On 12 January 1965, the Court approved the Project of Partition. It was not until 6 August 1969, however, that the estate was declared closed and terminated after estate and inheritance taxes had been paid, the claims against the estate settled and all properties adjudicated.

Eight (8) days thereafter, or on 20 January 1965, Alfonso I. Fornilda and Asuncion M. Pasamba executed a Contract of Mortgage wherein they mortgaged the Controverted Parcels to Respondent Amonoy as security for the payment of his attorney’s fees for services rendered in the aforementioned intestate proceedings, in the amount of P27,600.00 (Annex “A”, Comment).

Asuncion M. Pasamba died on 24 February 1969 while Alfonso I. Fomilda passed away on 2 July 1969. Petitioners are some of the heirs of Alfonso I. Fornilda.

Since the mortgage indebtedness was not paid, on 21 January 1970, Respondent Amonoy instituted foreclosure proceedings before the Court of First Instance of Rizal, at Pasig, Branch VIII, entitled “Sergio I. Amonoy vs. Heirs of Asuncion M. Pasamba and Heirs of Alfonso L. Fornilda” [Civil Case No. 12726] (Annex “B”, ibid.). Petitioners, as defendants therein, alleged that the amount agreed upon as attorney’s fees was only P11,695.92 and that the sum of P27,600.00 was unconscionable and unreasonable. Appearing as signatory counsel for Respondent Amonoy was Atty. Jose S. Balajadia.

On 28 September 1972, the Trial Court1 rendered judgment in the Foreclosure Case

72

ordering the Pasamba and Fornilda heirs to pay Respondent Amonoy, within ninety (90) days from receipt of the decision, the sums of P27,600.00 representing the attorney’s fees secured by the mortgage; P11,880.00 as the value of the harvest from two (2) parcels of land; and 25% of the total of the two amounts, or P9,645.00, as attorney’s fees, failing which the Controverted Parcels would be sold at public auction (Annex “C”, ibid.).

On 6 February 1973, the Controverted Parcels were foreclosed and on 23 March 1973, an auction sale was held with Respondent Amonoy as the sole bidder for P23,760.00 (Annex “D”, ibid.). Said sale was confirmed by the Trial Court on 2 May 1973 (Annex “E”, ibid.). To satisfy the deficiency, another execution sale was conducted with Respondent Amonoy as the sole bidder for P12,137.50. On the basis of an Affidavit of Consolidation of Ownership by Respondent Amonoy, the corresponding tax declarations covering the Controverted Parcels were consolidated in his name.

On 19 December 1973, or a year after the judgment in the Foreclosure Case, an action for Annulment of Judgment entitled “Maria Penano, et al. vs. Sergio Amonoy, et al.” (Civil Case No. 18731) was filed before the then Court of First Instance of Rizal, at Pasig [the Annulment Case] (Annex “F”, ibid.) Petitioners were also included as plaintiffs. Appearing for the plaintiffs in that case was Atty. Jose F. Tiburcio. Squarely put in issue were the propriety of the mortgage, the validity of the judgment in the Foreclosure Case, and the tenability of the acquisitions by Respondent Amonoy at the Sheriffs sale. Of particular relevance to the instant Petition is the contention that the mortgage and the Sheriffs sales were null and void as contrary to the positive statutory injunction in Article 1491 (5) of the Civil Code, which prohibits attorneys from purchasing, even at a public or judicial auction, properties and rights in litigation, and that the Trial Court, in the Foreclosure Case, had never acquired jurisdiction over the subject matter of the action, i.e., the Controverted Parcels.

On 7 November 1977, the Trial Court2 dismissed the Annulment Case holding that the particular disqualification in Artide 1491 of the Civil Code is not of general application nor of universal effect but must be reconciled with the rule that permits judgment creditors to be bidders at sheriffs sales, so that Respondent Amonoy was “clearly not prohibited from bidding his judgment and his acquisitions therefore are sanctioned by law” (Annex “G”, ibid.).

On 22 July 1981, the Court of Appeals (in CA-G.R. No. 63214-R) (the Appealed Case)3 affirmed the aforesaid judgment predicated on three principal grounds: (1) that no legal impediment exists to bar an heir from encumbering his share of the estate after a project of partition has been approved, that act being a valid exercise of his right of ownership; (2) res judicata, since petitioners never questioned the capacity of Respondent Amonoy to acquire the property in the Foreclosure Case; and (3) the complaint in the Annulment Case did not allege extrinsic fraud nor collusion in obtaining the judgment so that the action must fail.

Upon remand of the Foreclusure Case to respondent Regional Trial Court, Branch 164, at Pasig, Respondent Sheriff, on 26 August 1985, notified petitioners to vacate the premises (p. 17, Rollo), subject of the Writ of Possession issued on 25 July 1985 (p. 18, Rollo).

On 27 September 1985, petitioners came to this Court in a pleading entitled

“Petisiyung Makapagpasuri Taglay ang Pagpapapigil ng Utos”. On 11 November 1985, we dismissed the petition for non-payment of docket and other fees. However, upon payment thereof, the Order of dismissal was set aside and respondents were directed to submit their Comment.

In his Comment, Respondent Amonoy denies that he had acquired the Controverted Parcels through immoral and illegal means contending that “the question of attorney’s fees, the mortgage to secure the same, the sale of the mortgaged properties at public auction, which was confirmed by the Court, and ultimately, the ownership and possession over them, have all been judicially adjudicated.” (p. 146, Rollo)

We gave due course to the petition and required the filing of the parties’ respective memoranda.

Meanwhile, on motion of Respondent Amonoy, dated 24 April 1986, respondent Trial Court, in the Foreclosure Case, issued Orders dated 25 April and 16 May 1986 authorizing the demolition of the houses and other structures of petitioners Leocadia and Angela Fornilda (p. 241, Rollo). On 1 June 1986 the house of Angela Fornilda was totally demolished while that of Leocadia was spared due to the tatter’s assurance that she would seek postponement.

On 1 June 1986, in a pleading entitled “Mahigpit na Musiyun Para Papanagutin Kaugnay ng Paglalapastangan”, followed by a “Musiyung Makahingi ng Utos sa Pagpapapigil ng Pagpapagiba at Papanagutin sa Paglalapastangan” petitioners applied for a Restraining Order, which we granted on 2 June 1986, enjoining respondents and the Sheriff of Rizal from demolishing petitioners’houses (p. 221, Rollo). In a pleading entitled “Mahigpit na Musiyun para Papanagutin Kaugnay ng Paglalapastangan” and “Masasamang Gawain (Mal-Practices)” and “Paninindigan (Memorandum)” both filed on 16 June 1988, petitioners likewise charged Respondent Amonoy with malpractice and prayed for his disbarment (pp. 224; 226, Rollo).

In Respondent Amonoy’s “Comment and Manifestations” filed on 30 June 1986, he indicated that the Restraining Order received by the Deputy Sheriff of Rizal only on 6 June 1986 had already become moot and academic as Angela Fornilda’s house had been demolished on 2 June 1986 while Leocadia offered to buy the small area of the land where her house is built and he had relented.

In the interim, Respondent Amonoy was appointed as Assistant Provincial Fiscal of Rizal, and subsequently as a Regional Trial Court Judge in Pasay City.

The threshold issue is whether or not the mortgage constituted on the Controverted Parcels in favor of Respondent Amonoy comes within the scope of the prohibition in Article 1491 of the Civil Code.

The pertinent portions of the said Articles read:

“Art. 1491. The following persons cannot acquire by purchase even at a public or judicial or auction, either in person or through the mediation of another:

x x x x x x

(5) Justices, judges, prosecuting attorneys, x x x the property and rights in litigation or levied upon on execution before the court within whose jurisdiction or territory they

73

exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession.” (Italics supplied)

Under the aforequoted provision, a lawyer is prohibited from acquiring either by purchase or assignment the property or rights involved which are the object of the litigation in which they intervene by virtue of their profession (Padillfi, Vol. II Civil Law, 1974 Ed., p. 230 citing Hernandez vs. Villanueva, 40 Phil. 773 and Rubias vs. Batiller; 51 SCRA 130;. The prohibition on purhase is all embracing to include not only sales to private individuals but also public or judicial sales (ibid., p. 221).

The rationale advanced for the prohibition is that public policy disallows the transactions in view of the fiduciary relationship involved i.e., the relation of trust and confidence and the peculiar control exercised by these persons (Paras, Civil Code, Vol. V, 1973., p. 70).

In the instant case, it is undisputed that the Controverted Parcels were part of the estate of the late Julio M. Catolos, subject of intestate estate proceedings, wherein Respondent Amonoy acted as counsel for some of the heirs from 1959 until 1968 by his own admission (Comment, p. 145, Rollo); that these properties were adjudicated to Alfonso Fornilda and Asuncion M. Pasamba in the Project of Partition approved by the Court on 12 January 1965; that on 20 January 1965, or only eight (8) days thereafter, and while he was still intervening in the case as counsel, these properties were mortgaged by petitioners’ predecessor-in-interest to Respondent Amonoy to secure payment of the latter’s attorney’s fees in the amount of P27,600.00; that since the mortgage indebtedness was not paid, Respondent Amonoy instituted an action for judicial foreclosure of mortgage on 21 January 1970; that the mortgage was subsequently ordered foreclosed and auction sale followed where Respondent Amonoy was the sole bidder for P23,600.00; and that being short of the mortgage indebtedness, he applied for and further obtained a deficiency judgment.

Telling, therefore, is the fact that the transaction involved falls squarely within the prohibition against any acquisition by a lawyer of properties belonging to parties they represent which are still in suit. For, while the Project of Partition was approved on 12 January 1965, it was not until 6 August 1969 that the estate was declared closed and terminated (Record on Appeal, Civil Case No. 3103, p. 44). At the time the mortgage was executed, therefore, the relationship of lawyer and client still existed, the very relation of trust and confidence sought to be protected by the prohibition, when a lawyer occupies a vantage position to press upon or dictate terms to an harassed client. What is more, the mortgage was executed only eight (8) days after approval of the Project of Partition thereby evincing a clear intention on Respondent Amonoy’s part to protect his own interests and ride roughshod over that of his clients. From the time of the execution of the mortgage in his favor, Respondent Amonoy had already asserted a title adverse to his clients’ interests at a time when the relationship of lawyer and client had not yet been severed.

The fact that the properties were first mortgaged and only subsequently acquired in an auction sale long after the termination of the intestate proceedings will not remove it from the scope of the prohibition. To rule otherwise would be to countenance

indirectly what cannot be done directly.

There is no gainsaying that petitioners’ predecessor-in-interest, as an heir, could encumber the property adjudicated to him; that the Complaint in the Annulment Case did not contain any specific allegation of fraud or collusion in obtaining the judgment appealed from as opined by the Court of Appeals in the Appealed Case; and that the auction sale of the properties to Respondent Amonoy was judicially confirmed and ownership and possession of the Controverted Parcels ultimately transferred to him.

Nonetheless, considering that the mortgage contract, entered into in contravention of Article 1491 of the Civil Code, supra, is expressly prohibited by law, the same must be held inexistent and void ab initio (Director of Lands vs. Abagat, 53 Phil. 147).

“Art. 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;

x x x x x x

(7) Those expressly prohibited or declared void by law. These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.” (Civil Code)

Being a void contract, the action or defense for the declaration of its inexistence is imprescriptible (Article 1410, Civil Code). The defect of a void or inexistent contract is permanent. Mere lapse of time cannot give it efficacy. Neither can the right to set up the defense of illegality be waived (Article 1409, Civil Code).

The Controverted Parcels could not have been the object of any mortgage contract in favor of Respondent Amonoy and consequently neither of a foreclosure sale. By analogy, the illegality must be held to extend to whatsover results directly from the illegal source (Article 1422, Civil Code). Such being the case, the Trial Court did not acquire any jurisdiction over the subject matter of the Foreclosure Case and the judgment rendered therein could not have attained any finality and could be attacked at any time. Neither could it have been a bar to the action brought by petitioners for its annulment by reason of res judicata. (Municipality of Antipolo vs. Zapanta, No. L-65334, December 26, 1984, 133 SCRA 820). Two of the requisites of the rule of prior judgment as a bar to a subsequent case, namely, (1) a final judgment and (2) that it must have been rendered by a Court having jurisdiction over the subject matter, are conspicuously absent.

And since the nullity of the transaction herein involved proceeds from the illegality of the cause or object of the contract, and the act does not constitute a criminal offense, the return to petitioners of the Controverted Parcels is in order.

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

x x x x x x

(2) When only one of the contracting parties is at fault, he cannot recover what he has

74

given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise.” (Civil Code).

WHEREFORE, Certiorari is granted; the Order of respondent Trial Court, dated 25 July 1985, granting a Writ of Possession, as well as its Orders, dated 25 April 1986 and 16 May 1986, directing and authorizing respondent Sheriff to demolish the houses of petitioners Angela and Leocadia Foruilda are hereby set aside, and the Temporary Restraining Order heretofore issued, is made permanent. The six (6) parcels of land herein controverted are hereby ordered returned to petitioners unless some of them have been conveyed to innocent third persons.

With respect to petitioners’ prayer for disbarment by reason of malpractice of Respondent Amonoy embodied in their pleading entitled “Mahigpit na Musiyun para Papanagutin Kaugnay ng Paglalapastangan” and “Masasamang Gawain (Mad-Practices)” and “Paninindigan (Memorandum)” both filed on 16 June 1988, Respondent Sergio I. Amonoy is hereby required, within fifteen (15) days from notice hereof, to submit an Answer thereto. After receipt of the same, a new docket number will be assigned to the case.

Costs against respondent, Sergio I. Amonoy.

SO ORDERED.

Paras, Sarmiento and Regalado, JJ., concur.

Padilla, J., no part in deliberations.

Certiorari granted.

Notes.—Vendor becomes entitled to rescission of sales contract where vendee actually did not pay the price with the period agreed upon. (Siy vs. CA, 138 SCRA 536.)

No privity of contract between the petitioners and the buyers of property where the buyers were not parties to the contract of sale in favor of the petitioners. (Centeno

vs. CA, 139 SCRA 545.)

No. L-56451. June 19, 1985.*

JUAN LAO and CANDELARIA C. LAO, petitioners, vs. HON. MELECIO A. GENATO, as Presiding Judge, Court of First Instance, Branch I, Misamis

Occidental, SOTERO A. DIONISIO, JR., as Administrator of the Intestate Estate of ROSENDA ABUTON, SOTERO B, DIONISIO III, WILLIAM L. GO, ERLINDA

DIAZ, represented by RESTITUTO N. ABUTON, Attorney-In-Fact, ESTER AIDA D. BAS, Heirs of ROSALINDA D. BELLEZA, represented by FELICENDA D.

BELLEZA, Attorney-In-Fact, LUZMINDA D. DAJAO, ADELAIDA D. NUEZA, represented by Atty. MAURICIO O. BAS, SR., Attorney-In-Fact, and FLORIDA A.

NUQUI, respondents.

Succession; Nature of duties and position of administrator.—Sotero Dionisio, Jr. is the Administrator of the estate of his deceased mother Rosenda Abutan. As such Administrator, he occupies a position of the highest trust and confidence. He is required to exercise reasonable diligence and act in entire good faith in the performance of that trust. Although he is not a guarantor or insurer of the safety of the estate nor is he expected to be infallible, yet the same degree of prudence, care and judgment which a person of a fair average capacity and ability exercises in similar transactions of his own, serves as the standard by which his conduct is to be Judged.

Same; Administrator must act with utmost circumspection.—In the discharge of his functions, the administrator should act with utmost circumspection in order to preserve the estate and guard against its dissipation so as not to prejudice its creditors and the heirs of the decedents who are entitled to the net residue thereof. In the case at bar, the sale was made necessary “in order to settle other existing obligations of the estate”. This purpose is clearly manifested in the Motion for Authority to Sell filed by Dionisio, Jr. The subsisting obligations referred to, although not specified, must be those due and owing to the creditors of the estate and also the taxes due the government. In order to guarantee faithful compliance with the authority granted respondent Judge, through the aforesaid Order made it an emphatic duty on the part of the administrator Dionisio “x x x to submit to this Court for approval the transactions made by him.”

Same; A sale made by an administrator of decedent’s property which is fictitious and illegal cannot be made lawful by the assent thereto of the heirs and approval by the trial court of the compromise settlement, being prejudicial to creditors and to the government.—The sale was made. But of all people, to his very son Sotero Dionisio III and for the grossly low price of only P75,000.00. That sale was indubitably shown to be fictitious, it clearly appearing that Dionisio III has no income whatsoever. In fact, he is still a dependent of his father, administrator Dionisio, Jr. On top of that, not a single centavo of the P75,000.00 stated consideration was ever accounted for nor reported by Dionisio, Jr. to the probate court. Neither did he submit said transaction as mandated by the order authorizing him to sell, to the probate court for its approval and just so its validity and fairness may be passed upon and resolved. It was only upon the filing by one of the heirs, Florida A. Nuqui, of the “Motion for Annulment/Revocation of Deeds of Absolute Sale” questioning the genuineness and validity of the transactions, that Dionisio, Jr. was compelled to admit that the actual consideration for the sale made by him was P200,000.00. This sale is one of the illegal and irregular transactions that

75

was confirmed and legalized by His HONOR’S approval of the assailed Amicable Settlement. No doubt, respondent Judge’s questioned approval violates Article 1409 of the New Civil Code and cannot work to confirm nor serve to ratify a fictitious contract which is non-existent and void from the very beginning. The fact that practically all the heirs are parties-signatories to the said Compromise Agreement is of no moment. Their assent to such an illegal scheme does not legalize the same nor does it impose any obligation upon respondent Judge to approve the same to the prejudice not only of the creditors of the estate, and the government by the non-payment of the correct amount of taxes legally due from the estate.

Same; Petitioner’s offer appears to be more beneficial.—The offer by the petitioner of P300,000.00 for the purchase of the property in question does not appear seriously disputed on record. As against the price stated in the assailed Compromise Agreement, the former amount is decidedly more beneficial and advantageous not only to the estate, the heirs of the decedents, but more importantly to its creditors, for whose account and benefit the sale was made. No satisfactory and convincing reason appeared given for the rejection and/or non-acceptance of said offer thus giving rise to a well-grounded suspicion that a collusion of some sort exists between the administrator and the heirs to defraud the creditors and the government.

PETITION for certiorari to review the order of the Court of First Instance of Misamis Occidental, Br. I. Genato, J.

The facts are stated in the opinion of the Court.

Felipe G. Tac-an for petitioners.

Alaric P. Acosta for private respondent as Administrator.

Eligio O. Dajao for respondent Ester Aida D. Bas.

Ramon C. Berenquel for respondent William L. Go.

CUEVAS, J.:

Petition for CERTIORARI with prayer for the declaration of nullity of the Order1 dated February 18, 1981 of the then Court of First Instance of Misamis Occidental—Branch I which confirmed and approved the two Deeds of Sale, both dated August 15, 1980, involving a commercial property belonging to the estate of the deceased Rosenda Abuton.

Petitioner spouses were promisees in a Mutual Agreement of Promise to Sell executed between them and private respondent Sotero B. Dionisio III, son of respondent Sotero A. Dionisio, Jr., heir and administrator of the intestate estate of the deceased, whereby the promisor bound himself to sell the subject property to petitioners. Private respondents, except Sotero Dionisio III and William Go, are the children and only compulsory heirs of the deceased.

On June 25, 1980, respondent administrator Sotero Dionisio, Jr., with due notice to all his co-heirs, filed with the Probate Court in Special Proceedings No. 842 a Motion for Authority to Sell certain properties of the deceased to settle the outstanding obligations of the estate.

On July 8, 1980, after hearing, there being no opposition, the lower court issued an Order2 authorizing the administrator to sell the therein described properties of the estate and such other properties under his administration at the best price obtainable, and directing him to submit to the court for approval the transaction made by him.

On August 15, 1980, respondent-administrator pursuant to said authorization, sold to his son, Sotero Dionisio III, the subject property for P75,000.00 per deed of sale3 acknowledged before Notary Public Triumfo R. Velez. On the same date, Sotero Dionisio III executed a deed of sale4 of the same property in favor of respondent William Go for a consideration of P80,000.00. On August 18, 1980, title was transferred to respondent Go.

On August 27, 1980, respondent-heir Florida Nuqui, filed a Motion for Annulment/Revocation of the Deeds of Absolute Sale for the reasons that the sale and subsequent transfer of title of the property were made in violation of the court’s order of July 8, 1980 and that the consideration of the two sales were grossly inadequate as in fact many are willing to buy the property for P400,000.00 since it is located along the corner of two main streets in the commercial center of Oroquieta City.

The respondent-administrator filed an opposition to said motion of co-heir Nuqui alleging that the actual consideration of the sale made by him is P200,000.00 and that it is the agreement of the heirs that if any of the heirs or close relatives is interested in buying the property, preference will be given to him or her in order to keep the property within the family of the deceased.

On September 9, 1980, respondent Nuqui filed a Reply to said Opposition, stating that the two sales were but a single transaction simultaneously hatched and consummated in one occasion as shown by the Notary Public’s document Nos. 56 & 57 and with the same witnesses; that the sales were in reality a single deal between the administrator and William Go, because Sotero Dionisio III is without means or income and so has no capacity to buy the property; and that the transaction is an evidence of the administrator’s intent to defraud the estate and his co-heirs, for had it not been for the Motion for Annulment, he would not have disclosed the true and actual consideration of the sale.

On September 10, 1980, all the co-heirs of respondent-administrator filed a Manifestation to Adopt the Motion for Annulment/Revocation of Deeds of Absolute Sale. They likewise filed a Manifestation on February 5, 1981 alleging that the Court order merely authorized the sale of the subject property but did not approve the same. Thus, their prayer for the cancellation of the registration of sale transaction between respondent-administrator and his son, and that between the latter and respondent William Go.

Respondent Go filed a Motion for Leave to Intervene to protect his rights, manifesting that he paid Sotero Dionisio III the actual consideration of P225,000.00 and being a purchaser in good faith and for value, his title to the property is indefeasible pursuant to law.

On February 6, 1981, petitioner spouses filed a “Manifestation In Intervention of Interest to Purchase Property Authorized by the Court to be Sold”, wherein they

76

alleged that respondent-administrator, without revealing that the property had already been sold to William Go, entered into a Mutual Agreement of Promise to Sell5 to herein petitioners, for the amount of P270,000 which was reduced to P220,000.00; that immediately upon the execution of the agreement, petitioners paid the earnest money in the amount of P70,000.00 by IBAA Check No. OQT-40063026 drawn out in favor of Sotero Dionisio III, as requested by respondent-administrator; that it was agreed upon that the balance of P150,000.00 shall immediately be paid upon the production of the Transfer Certificate of Title and the execution of the final Deed of Sale; that although the agreement was executed in the name of Sotero Dionisio III, the latter was merely a nominal party, for technically according to the administrator, he executed a Deed of Absolute Sale in favor of his son, but the negotiations and transactions were directly and personally entered into between the administrator and petitioners; that the contract of sale has been perfected considering that the earnest money was already paid; that despite repeated demands, the administrator refused to execute a final Deed of Sale in favor of petitioners, who later on found out that the subject property was sold to William Go; that both contracts of sale were made to defraud the estate and the other heirs; that assuming the consideration of P200,000.00 was supplied by William Go to Sotero Dionisio III who was not gainfully employed, then the contract of sale to Go would be without consideration, hence, it would become fictitious and simulated and there is no other recourse left to the court but to declare the sale null and void. Petitioners also manifested that in the event that the court should finally declare the sale null and void, they are still interested to purchase the property for the same amount of P220,000.00 as previously agreed upon.

At the hearing of the said incident involving the questioned sales, petitioners submitted a copy of the Contract of Mortgage6 dated July 18, 1980 executed by respondent-administrator in favor of Juan Lao, one of the petitioners, whereby the former mortgaged “all his undivided interest in the estate of his deceased mother, Rosenda Abuton Vda. de Nuqui, subject matter of Intestate Estate No. 842, now pending before the Court of First Instance of Oroquieta City, Branch I.”

Respondent heir Florida A. Nuqui filed an Opposition to William Go’s Motion to Intervene averring therein that the deed of sale executed by Sotero Dionisio, Jr. in favor of Sotero Dionisio III created no legal force and effect, since the validity of the sale absolutely depended on its approval by the court; that it therefore follows that the succeeding sale to Go and consequent issuance of the title to him are also null and void from their inception; and that the admission by William Go of the actual and true consideration of the sale at this stage, hardly bespeaks of his “innocence” or “good faith”.

After several days of hearing, respondent Judge allowed all the interested parties to bid for the property at the highest obtainable price pursuant to his Order of July 8, 1980.

On February 16, 1981, in open court, respondent Go offered to buy the property in the amount of P280,000.00. Petitioners counter-offered at P282,000.00, spot cash. On that same day, all the heirs, except the administrator, filed a Motion Ex-Parte,7 stating among other things, that the offer of William Go appears the highest obtainable price and that the offer of petitioners is not well taken as the same has not been made within a reasonable period of five (5) days from February 11, 1981.

On February 17, 1981, all the parties, with the exception of the Lao spouses and Sotero Dionisio III, submitted for approval an Amicable Settlement8 stating—

“x x x x x x x x x

That after the administrator, Sotero A. Dionisio, Jr., had accounted for the actual price received by him out of the transaction between him and Sotero B. Dionisio III in the amount of Two Hundred Thousand (P200,000.00) Pesos and that in the interest of a peaceful settlement William L. Go has offered and is ready, able and willing to pay to the heirs an additional amount of Eighty Thousand (P80,000.00) Pesos an arrangement which is most advantageous to the heirs and which they willingly accept to their satisfaction, the heirs of Rosenda Abuton hereby declare that they have no objection to the confirmation and approval of the sales/transactions executed by Sotero A. Dionisio, Jr., in favor of Sotero B. Dionisio III and that executed by Sotero B. Dionisio III in favor of the intervenor, William L. Go, and they likewise have no more objection to the lifting and cancellation of the notice of lis pendens from TCT No. 8807.

WHEREFORE, it is most respectfully prayed that an order issued by this Hon. Court confirming and approving the transaction executed by Sotero A. Dionisio, Jr., in favor of Sotero B. Dionisio III and that between the latter and William L. Go, and to direct the Register of Deeds of the Province of Misamis Occidental at Oroquieta City, for the cancellation of the notice of lis pendens annotated on Transfer Certificate of Title No. 8807, and to finally consider the matter treated in the Motion of Florida A. Nuqui dated August 27, 1980 and adopted by all the other heirs forever closed and terminated.

Oroquieta City, February 17, 1981.

x x x x x x x x x”

On February 18, 1981, petitioners filed an opposition to the approval of the Amicable Settlement on the following grounds:

22 (a) They have an interest in the property as vendees in a promise to sell and as Mortgagee of an undivided share of one of the heirs but they were not signatories to the amicable settlement, hence it is contrary to Article 2028 of the Civil Code providing that “A compromise is a contract whereby the parties, by making reciprocal concessions, avoid litigation or put an end to one already commenced”;

23 (b) The Amicable Settlement seeks the confirmation and approval of the questioned transactions but as borne out by the pleadings and oral arguments, the Deed of Absolute Sale executed by the administrator in favor of his son is without consideration, therefore, it is fictitious and simulated hence it cannot be confirmed or ratified pursuant to Article 1409 of the New Civil Code;

24 (c) The Amicable Settlement is a device to defraud the Government of Capital Gains Tax, charges and other fees because the Deeds of Sales do not reflect the true consideration; and

77

25 (d) The Deeds of Sale sought to be confirmed included the undivided share of Sotero A. Dionisio, Jr. which is presently mortgaged to herein spouses, which was executed prior to the sale, thus, if approved, the Court would abet the commission of the crime of estafa as the mortgage has not yet been paid and released.

Petitioners likewise pointed out in their opposition that respondent Judge had intimated in open court that somebody offered to buy the property for the price of P300,000.00 but since there was no formal offer in writing, they (petitioners) are ready and willing to buy the property at that amount, which definitely is the best price obtainable in the market and most beneficial to all the heirs.

Despite said opposition, respondent Judge issued an Order9 on February 18, 1981 approving the Amicable Settlement, confirming and ratifying the two questioned Deeds of Sale. Petitioners’ motion for reconsideration having been denied, they now come before Us through the instant petition raising the issue of whether or not respondent Judge is guilty of grave abuse of discretion in 1) approving the amicable settlement and confirming the two (2) Deeds of Sale in question; and 2) in not accepting the offer of the petitioners in the amount of P300,000.00 for the purchase of the lot in question.

Sotero Dionisio, Jr. is the Administrator of the estate of his deceased mother Rosenda Abutan. As such Administrator, he occupies a position of the highest trust and confidence. He is required to exercise reasonable diligence and act in entire good faith in the performance of that trust. Although he is not a guarantor or insurer of the safety of the estate nor is he expected to be infallible, yet the same degree of prudence, care and judgment which a person of a fair average capacity and ability exercises in similar transactions of his own, serves as the standard by which his conduct is to be judged.

In the discharge of his functions, the administrator should act with utmost circumspection in order to preserve the estate and guard against its dissipation so as not to prejudice its creditors and the heirs of the decedents who are entitled to the net residue thereof. In the case at bar, the sale was made necessary “in order to settle other existing obligations of the estate”. This purpose is clearly manifested in the Motion for Authority to Sell10 filed by Dionisio, Jr. The subsisting obligations referred to, although not specified, must be those due and owing to the creditors of the estate and also the taxes due the government. In order to guarantee faithful compliance with the authority granted11 respondent Judge, through the aforesaid Order made it an emphatic duty on the part of the administrator Dionisio “x x x to submit to this Court for approval the transactions made by him.”

The sale was made. But of all people, to his very son Sotero Dionisio III and for the grossly low price of only P75,000.00. That sale was indubitably shown to be fictitious, it clearly appearing that Dionisio III has no income whatsoever. In fact, he is still a dependent of his father, administrator Dionisio, Jr. On top of that, not a single centavo of the P75,000.00 stated consideration was ever accounted for nor reported by Dionisio, Jr. to the probate court. Neither did he submit said transaction as mandated by the order authorizing him to sell, to the probate court for its approval and just so its validity and fairness may be passed upon and resolved. It was only upon the filing

by one of the heirs, Florida A. Nuqui, of the “Motion for Annulment/Revocation of Deeds of Absolute Sale”12 questioning the genuineness and validity of the transactions, that Dionisio, Jr. was compelled to admit that the actual consideration for the sale made by him was P200,000.00.13 This sale is one of the illegal and irregular transactions that was confirmed and legalized by His HONOR’S approval of the assailed Amicable Settlement. No doubt, respondent Judge’s questioned approval violates Article 1409 of the New Civil Code and cannot work to confirm nor serve to ratify a fictitious contract which is non-existent and void from the very beginning. The fact that practically all the heirs are parties-signatories to the said Compromise Agreement is of no moment. Their assent to such an illegal scheme does not legalize the same nor does it impose any obligation upon respondent Judge to approve the same to the prejudice not only of the creditors of the estate, and the government by the non-payment of the correct amount of taxes legally due from the estate.

The offer by the petitioner of P300,000.00 for the purchase of the property in question does not appear seriously disputed on record. As against the price stated in the assailed Compromise Agreement, the former amount is decidedly more beneficial and advantageous not only to the estate, the heirs of the decedents, but more importantly to its creditors, for whose account and benefit the sale was made. No satisfactory and convincing reason appeared given for the rejection and/or non-acceptance of said offer thus giving rise to a well-grounded suspicion that a collusion of some sort exists between the administrator and the heirs to defraud the creditors and the government.

IN VIEW OF THE FOREGOING CONSIDERATIONS, the assailed Order dated February 18, 1981 of the respondent Judge approving the questioned Amicable Settlement is declared NULL and VOID and hereby SET ASIDE. Consequently, the sale in favor of Sotero Dionisio III and by the latter to William Go is likewise declared NULL and VOID. The Transfer Certificate of Title issued to the latter is hereby ordered CANCELLED.

The proper Regional Trial Court of Misamis Occidental to whom this case is now assigned is hereby ordered to conduct new proceedings for the sale of the property involved in this case.

No pronouncement as to costs.

SO ORDERED.

Makasiar, Concepcion, Jr., Abad Santos and Escolin, JJ., concur.

Aquino, J., in the result.

Order null and void and set aside.

Notes.—An action to declare void a sale of conjugal land by wife does not prescribe. (Felipe vs. Aldon, 120 SCRA 628.)

A contract of purchase and sale is 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. (Mapalo vs. Mapalo, 17 SCRA 114.)

78

It is not unusual, in deeds of conveyance adhering to the Anglo-Saxon practice of stating that the consideration given is only P1.00, although the actual consideration may have been much more. (Morales Development Co. vs. Court of Appeals, 27 SCRA 484.)

No. L-65594. July 9, 1986.*

MAHARLIKA PUBLISHING CORPORATION, ANGELA CALICA, ADOLFO CALICA and the HEIRS OF THE LATE PIO CALICA, petitioners, vs. SPOUSES

LUZ R. TAGLE and EDILBERTO TAGLE and the GOVERNMENT SERVICE INSURANCE SYSTEM and the HONORABLE INTERMEDIATE APPELLATE

COURT, respondents.

Public Officers; Sales; Contracts; Public Bidding; The wife of the Chief of the Retirement Division of GSIS is prohibited from bidding for the purchase of land foreclosed by GSIS. The sale to her is void.—We declare it to be a policy of the law that public officers who hold positions of trust may not bid directly or indirectly to acquire properties foreclosed by their offices and sold at public auction.

Same; Same; Same; Same; Same; Reasons.—In so providing, the Code (Art. 1491) tends to prevent fraud, or more precisely, tends not to give occasion for fraud, which is what can and must be done (Francisco, Sales, p. 111). We, therefore, reject the contention of respondents that the fact that Edilberto Tagle was, at the time of the public bidding, a GSIS official, will not alter or change the outcome of the case.

Same; Same; Same; Same; Same; Same.—A Division Chief of the GSIS is not an ordinary employee without influence or authority. The mere fact that he exercises ample authority with respect to a particular activity, i.e., retirement, shows that his influence cannot be lightly regarded. The point is that he is a public officer and his wife acts for and in his name in any transaction with the GSIS. If he is allowed to participate in the public bidding of properties foreclosed or confiscated by the GSIS, there will always be the suspicion among other bidders and the general public that the insider official had access to information and connections with his fellow GSIS officials as to allow him to eventually acquire the property. It is precisely the need to forestall such suspicions and to restore confidence in the public service that the Civil Code now declares such transactions to be void from the beginning and not merely voidable (Rubias v. Batiller, 51 SCRA 120). The reasons are grounded on public order and public policy. We do not comment on the motives of the private respondents or the officers supervising the bidding when they entered into the contract of sale. Suffice it to say that it falls under the prohibited transactions under Article 1491 of the Civil Code and, therefore, void under Article 1409.

Pleadings and Practice; Appeals; Courts; The SC may go beyond the pleadings (N.B. Petitioner is merely asking for new trial to introduce additional evidence probably to prove fraud, but S.C. resolved the case already) when the interest of justice so warrants.—The Supreme Court has ample authority to go beyond the pleadings when in the interest of justice and the promotion of public policy there is a need to make its own finding to support its conclusions. In this particular case, there is absolutely no doubt that Mr. Edilberto Tagle was a GSIS Division Chief when his wife bid for the property being sold by GSIS. The only issue is whether or not to consider this fact because it surfaced only after trial proper.

Sale; Contracts; Redemption; Public Bidding; The written instructions of the GSIS manager on debtor’s letter-proposed to “Hold the Bidding. Discuss with me!” created a binding agreement. Petitioners-debtors are allowed to repurchase the foreclosed property.—We note that the petitioners are not complete strangers entering into a contract with

79

respondent GSIS for the first time. There was an earlier contract to sell the same properties to the petitioners. That contract was perfected and there had been partial compliance with its terms. The transaction now under question in this case merely referred to the curing of certain defects which led to the cancellation of the earlier contract by GSIS. Under the peculiar circumstances of this case, therefore, the acceptance of the petitioners’ letter-proposal by Mr. Roman Cruz, Jr., the person with authority to do so, and his order to his subordinates to stop the bidding so that they could first discuss the matter with him, created an agreement of binding nature with the petitioners.

PETITION for certiorari to review the decision and resolution of the Intermediate Appellate Court.

The facts are stated in the opinion of the Court.

GUTIERREZ, JR., J.:

The Government Service Insurance System (GSIS) was the registered owner of a parcel of land consisting of 1,373 square meters situated in the district of Paco and covered by Transfer Certificate of Title No. 5986 of the Registry of Deeds of Manila.

On June 4, 1963, the GSIS entered into a conditional contract to sell the parcel of land to petitioner Maharlika Publishing Corporation (Maharlika for short) together with the building thereon as well as the printing machinery and equipment therein. Among the conditions of the sale are that the petitioner shall pay to the GSIS monthly installments of P969.94 until the total purchase price shall have been fully paid and that upon the failure of petitioner to pay any monthly installment within ninety (90) days from due date, the contract shall be deemed automatically cancelled.

After Maharlika failed to pay the installments for several months, the GSIS, on June 7, 1966, notified Maharlika in writing of its arrearages and warned Maharlika that the conditions of the contract would be enforced should Maharlika fail to settle its account within fifteen (15) days from notice. Because of Maharlika’s failure to settle the unpaid accounts, the GSIS notified Maharlika in writing on June 26, 1967 that the conditional contract of sale was annulled and cancelled and required Maharlika to sign a lease contract. Maharlika refused to vacate the premises and to sign the lease contract.

Sometime later, the GSIS published an invitation to bid several acquired properties, among which was the property in question, to be held at the Office of the General Manager, second floor, GSIS Building, Arroceros Street, Manila, from 9:00 a.m. to 3:00 p.m. on February 12, 1971.

Meanwhile, on February 11, 1971, or one day before the scheduled public bidding, Maharlika represented by its president Adolfo Calica addressed to GSIS a letter-proposal to repurchase their foreclosed properties proposing that they be allowed to pay P11,000.00 representing ten percent (10%) of their total account; that they be allowed to pay P18,300.00 as balance to complete the twenty-five percent (25%) of their total arrearages (P117,175.00) not later than February 28, 1971 and the remaining seventy-five percent (75%) to be paid in twenty four (24) months.

This letter-proposal was discussed by Adolfo Calica with GSIS Board Vice-Chairman

Leonilo Ocampo, who wrote a note to the General Manager Roman Cruz, Jr., the last paragraph of which reads as follows:

“It sounds fair and reasonable subject to your wise judgment, as usual.” (Exhibit 4, Maharlika)

Said letter-proposal and Ocampo’s note were taken by Calica to General Manager Cruz, Jr., who, in turn, wrote on the face of Exhibit 4—Maharlika a note to one Mr. Ibañez which reads: “Hold Bidding. Discuss with me.” The letter-proposal together with two (2) checks amounting to P11,000.00 were submitted to the office of General Manager Cruz, Jr. and were received by his Secretary.

On February 12, 1971, however, the public bidding of this particular property was held as scheduled prompting Adolfo Calica to submit his bid to the Bidding Committee with a deposit of P11,000.00 represented by the same two checks submitted to General Manager Cruz, Jr., together with his letter-proposal. His bid proposal reads: “I bid to match the highest bidder.”

The bidding committee rejected Maharlika’s bid as an imperfect bid and recommended acceptance of private respondent Luz Tagle’s bid of P130,000.00 with a ten percent (10%) deposit of P13,000.00.

On February 19, 1971, the GSIS addressed a letter to Adolfo Calica informing him of the non-acceptance of his bid and returning his two checks.

After approval and confirmation of the sale of the subject property to Luz Tagle on April 20, 1971, the GSIS executed a Deed of Conditional Sale in favor of the Tagles on June 8, 1971.

Due to the refusal of petitioners to surrender the possession of the property in question, respondent spouses Luz R. Tagle and Edilberto Tagle filed a case for Recovery of Possession with Damages with the Court of First Instance of Manila which rendered the following decision on May 15, 1974:

“IN VIEW OF THE FOREGOING CONSIDERATIONS, the Court hereby renders judgment:

26 “(a) declaring the letter-proposal (Exh. 3-Maharlika) ineffective and without any binding effect, being imperfect to create any contractual relation between GSIS and defendants Maharlika and Adolfo Calica;

27 “(b) declaring plaintiffs and (sic) entitled to the possession of the properties in question and directing, therefore, defendants Maharlika and Adolfo Calica, or any person or persons holding or possessing the properties in their behalf, to forthwith vacate the properties in question and to surrender the same to the plaintiffs;

28 “(c) dismissing the complaint as against defendants ‘Heirs of the deceased Pio Calica’ (except Angela Calica) it appearing that they were not properly summoned and represented in the instant suit;

29 “(d) directing the defendants Maharlika, Adolfo Calica and Angela Calica, to pay jointly and Severally the plaintiffs a monthly

80

31 rental of the properties in question in the sum of P976.00 a month commencing 12 February 1971, until the said properties are vacated by said defendants, with legal interest of all sums due from 12 Feb. 1971 up to the rendition of this judgment in this instant suit, such interest to commence from the filing of the complaint until the same is fully paid; and that such monthly rentals commencing from the date of this judgment, shall also earn interest at the legal rate unless paid within the first ten days of the current month for the rental of the preceding month;

32 “(e) dismissing the counterclaim of defendants Maharlika and the Calicas against plaintiffs;

33 “(f) dismissing the cross-claim of defendants Maharlika and the Calicas against defendant GSIS;

34 “(g) dismissing all other claims which the parties may have against each other; and

35 “(h) directing defendants Maharlika, Adolfo Calica and Angela Calica to pay the costs of this suit.”

After a motion to set aside judgment and grant a new trial was denied by the trial court for lack of merit, the case was brought on appeal to the former Court of Appeals on April 8, 1976. On March 2, 1983, the Intermediate Appellate Court affirmed the decision of the trial court, stating as follows:

x x x x x x x x x

“The mere offer to repurchase of the subject property and the deposit of the amount of P11,000.00 by the defendants on February 11, 1971, does not have the effect of reviving the conditional deed of sale (Exhibit 4-GSIS, Ibid., p. 29) executed by the GSIS and the defendants. To revive the said contract, and for the defendants to be deemed to have repurchased the subject property, there should have been payment in favor of the GSIS of all the installments due and interests thereon in the total amount of P117,175.00 as of February 11, 1971.

“But the defendants insist that the notations of Leonilo M. Ocampo, Vice-Chairman of the GSIS Board of Trustees, to GSIS General Manager Roman Cruz, Jr. (Exhibits 4-A and 4-B—Maharlika, Ibid., p. 76) as well as the notation of GSIS General Manager Roman Cruz, Jr. to ‘hold bidding. Discuss with me’ (Exhibit 4-C Maharlika, Ibid., p. 76) means that the GSIS had accepted defendants’ offer and had revived the conditional contract of sale dated June 4, 1963.

“This interpretation is far-fetched. The notations referred to by the defendants do not show acceptance of defendants’ offer to repurchase the subject property. In fact, the defendants themselves were aware that their offer was not accepted at all because they submitted to and participated in the bidding of the subject property on February 12, 1971 (Exhibits K, K-1, 6, 6-A, Ibid., pp. 16-34), using its letter-proposal as deposit for its bid. But defendants’ bid was rejected because it was imperfect and not accompanied with a deposit of 10% of the highest bid (Exhibits B-1, 7-GSIS, 7-A Maharlika, Ibid., pp. 5, 35), and that defendants’ bid did not contain a specific bid price proposal (Exhibit 7-GSIS, Ibid., p. 35).

“The consequent auction sale of the property on February 12, 1971 and execution of the conditional deed of sale in favor of the plaintiffs (Exhibit A, Ibid., p. 1) is valid. The plaintiffs are entitled to the possession of the subject property.”

x x x x x x x x x

A motion for reconsideration and/or new trial was filed by petitioners. The motion was denied by the respondent Appellate Court.

Hence, this petition for review on certiorari filed on December 16, 1983.

On January 9, 1984, we resolved to deny in a minute resolution, the petition for lack of merit. A timely motion for reconsideration was filed by the petitioners which contained the following reasons to warrant review of the case:

“It is apparent that petitioners will suffer serious injustice, consisting in the loss of the subject property, by reason of the failure of respondent Court to decide questions of substance involved herein in a way not in accord with law and the applicable decisions of this Honorable Court, such questions being the following:

16 “(1) Whether or not respondent Edilberto Tagle’s being a GSIS officer at the time of the sale by the GSIS of the subject property to his wife should be allowed to be introduced as newly discovered evidence or at any rate received in the interest of justice;

17 “(2) Whether or not respondent Court acted with grave abuse of discretion in ignoring the irregular appearance of respondent Luz Tagle’s bid and the inference of fraud flowing therefrom in the context of surrounding circumstances;

18 “(3) Whether or not the auction sale in question is void for having been conducted despite the directive of the GSIS General Manager to suspend the same in virtue of petitioners’ offer to repurchase the subject property and their payment of P11,000.00 in checks as earnest money which he accepted.”

Significantly, on September 21, 1984, the GSIS filed a Supplemental Memorandum submitting for resolution of this Court the matter of whether the respondent spouses Luz and Edilberto Tagle can still enforce their claim as winning bidders considering the fact that they have so far made only two payments to the GSIS amounting to P32,500.00 in violation of the terms and conditions of the conditional sale executed in their favor and which provides for its automatic cancellation in such case, or whether the petitioners can still repurchase the property in question as original owners thereof.

We find the petitioners’ motion for reconsideration impressed with merit.

The certification secured by the petitioners from GSIS on April 28, 1983 shows that Edilberto Tagle was Chief, Retirement Division, GSIS, from 1970 to 1978. He worked for the GSIS since 1952. Strictly speaking, the evidence of Mr. Tagle’s being a GSIS official when his wife bid for the disputed property is not newly discovered evidence. However, we cannot simply ignore the fact that on February 12, 1971 when Adolfo Calica was desperately trying to retrieve the property foreclosed against him, after receiving assurances from the highest GSIS officials that his letter-proposal would be

81

accepted and after the sale at public auction of the property was, in fact, ordered to be stopped, the wife of a GSIS official would be allowed to bid for that property and would actually win in the bidding.

As stated by the petitioners, this important factor implicit in good government, should have been considered in the interest of justice. It was incumbent under the law for GSIS to have rejected the bid of the wife of a GSIS official and to have refused to enter into the deed of conditional sale with the respondents Tagle.

The petitioners bank on the allegation that the indirect participation of Edilberto Tagle in the public bidding creates a “conflict of interests situation” which invalidates the aforesaid transaction under the precept laid down in Article 1409 paragraph (1) of the Civil Code making his participation void for being contrary to morals, good customs, and public policy.

The Supreme Court has ample authority to go beyond the pleadings when in the interest of justice and the promotion of public policy there is a need to make its own finding to support its conclusions. In this particular case, there is absolutely no doubt that Mr. Edilberto Tagle was a GSIS Division Chief when his wife bid for the property being sold by GSIS. The only issue is whether or not to consider this fact because it surfaced only after trial proper.

We declare it to be a policy of the law that public officers who hold positions of trust may not bid directly or indirectly to acquire properties foreclosed by their offices and sold at public auction.

Article XIII, Section 1 of our Constitution states that:

“Public office is a public trust. Public officers and employees shall serve with the highest degree of responsibility, integrity, loyalty and efficiency, and shall remain accountable to the people.”

We stated in Ancheta v. Hilario (96 SCRA 62):

x x x x x x x x x “x x x A public servant must exhibit at all times the highest sense of honesty and integrity. x x x”

Under Article 1491 of the Civil Code the following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another:

9 “(1) The guardian, the property of the person or persons who may be under his guardianship;

10 “(2) Agents, the property whose administration or sale may have been intrusted to them, unless the consent of the principal has been given;

11 “(3) Executors and administrators, the property of the estate under administration;

8 “(4) Public officers and employees, the property of the State or of any subdivisions thereof, or of any government owned or controlled corporation, or institution, the administration of which has been intrusted to them; this provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale;

9 “(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession;

10 “ 6) Any others specially disqualified by law.”

In so providing, the Code tends to prevent fraud, or more precisely, tends not to give occasion for fraud, which is what can and must be done (Francisco, Sales, p. 111). We, therefore, reject the contention of respondents that the fact that Edilberto Tagle was, at the time of the public bidding, a GSIS official, will not alter or change the outcome of the case.

A Division Chief of the GSIS is not an ordinary employee without influence or authority. The mere fact that he exercises ample authority with respect to a particular activity, i.e., retirement, shows that his influence cannot be lightly regarded.

The point is that he is a public officer and his wife acts for and in his name in any transaction with the GSIS. If he is allowed to participate in the public bidding of properties foreclosed or confiscated by the GSIS, there will always be the suspicion among other bidders and the general public that the insider official had access to information and connections with his fellow GSIS officials as to allow him to eventually acquire the property. It is precisely the need to forestall such suspicions and to restore confidence in the public service that the Civil Code now declares such transactions to be void from the beginning and not merely voidable (Rubias v. Batiller, 51 SCRA 120). The reasons are grounded on public order and public policy. We do not comment on the motives of the private respondents or the officers supervising the bidding when they entered into the contract of sale. Suffice it to say that it falls under the prohibited transactions under Article 1491 of the Civil Code and, therefore, void under Article 1409.

In the case of Garciano v. Oyao (102 SCRA 195), this Court held:

x x x x x x x x x

“x x x We need not exaggerate the importance of being absolutely free from any suspicion which may unnecessarily erode the faith and confidence of the People in their government. As the Constitution categorically declared: ‘Public office is a public trust. Public officers and employees shall serve with the highest degree of responsibility, integrity, loyalty and efficiency, and shall remain accountable to the people’ (Art. XIII, Sec. 1, Constitution).

x x x x x x x x x

“Respondent Wilfredo Oyao, should avoid so far as reasonably possible a situation which would normally tend to arouse any reasonable suspicion that he is utilizing his official position for personal gain or advantage to the prejudice of party litigants or the public in general. In the language of then Justice, now Chief Justice Enrique M.

82

Fernando in the case of Pineda v. Claudio (28 SCRA 34, 54): ‘There may be occasion then where the needs of the collectivity that is the government may collide with his private interest as an individual’ ”

In Mclain v. Miller County (23 SW 2d. 2-4, 255) the Court ruled that:

“As the efficiency of the public service is a matter of vital concern to the public, it is not surprising that agreements tending to injure such service should be regarded as being contrary to public policy. It is not necessary that actual fraud should be shown, for a contract which tends to the injury of the public service is void, although the parties entered into it honestly, and proceeded under it in good faith. The courts do not inquire into the motives of the parties in the particular case to ascertain whether they were corrupt or not, but stop when it is ascertained that the contract is one which is opposed to public policy. Nor is it necessary to show that any evil was in fact, done by or through the contract. The purpose of the rule is to prevent persons from assuming a position where selfish motives may impel them to sacrifice the public good to private benefit.”

There is no need, therefore, to pass upon the issue of irregularity in the appearance of the private respondents' bid and the alleged inference of fraud flowing therefrom.

We reiterate that assuming the transaction to be fair and not tainted with irregularity, it is still looked upon with disfavor because it places the officer in a position which might become antagonistic to his public duty.

There are other grounds which contain us to grant this petition.

We now come to the issue whether or not there was a repurchase of the property in question from the GSIS effected by the petitioners the day before the public bidding.

In Article 1475 of the Civil Code, we find that "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 law governing the form of contracts. "

This Court in the case of Central Bank of the Philippines vs. Court of Appeals (63 SCRA 431) ruled on the perfection of government contracts in the following manner:

“We are not persuaded that petitioner’s posture conforms with law and equity. According to Paragraph IB 114.1 of the Instructions to Bidders, Ablaza was ‘required to appear in the office of the Owner (the Bank) in person, or, if a firm or corporation, a duly authorized representative (thereof), and to execute the contract within five (5) days after notice that the contract has been awarded to him. Failure or neglect to do so shall constitute a breach of agreement effected by the acceptance of the Proposal.’ There can be no other meaning of this provision than that the Bank’s acceptance of the bid of respondent Ablaza effected an actionable agreement between them. We cannot read it in the unilateral sense suggested by petitioner that it bound only the contractor, without any corresponding responsibility or obligation at all on the part of the Bank. An agreement presupposes a meeting of minds and when that point is reached in the negotiations between two parties intending to enter into a contract, the purported contract is deemed perfected and none of them may thereafter disengage himself therefrom without being liable to the other in an action for specific performance.”

In American Jurisprudence, 2d., Section 73 (pp. 186-187), we read:

“The principle is fundamental that a party cannot be held to have contracted if there was no assent, and this is so both as to express contracts and contracts implied in fact. There must be mutual assent or a meeting of minds in all essential elements or terms in order to form a binding contract. However, ordinarily no more is meant by this than an expression or manifestation of mutual assent, as an objective thing, is necessary, and that is generally deemed sufficient in the formation of a contract x x x. In other words, appropriate conduct by the parties may be sufficient to establish an agreement, and there may be instances where interchanged correspondence does not disclose the exact point at which the deal was closed, but the actions of the parties may indicate that a binding obligation has been undertaken.”

It is undisputed that when the letter-proposal of petitioners was presented to GSIS General Manager Roman Cruz, Jr., he wrote on the face of such letter the words “Hold Bidding. Discuss with me.” These instructions were addressed to one Mr. Ibañez who was in-charge of public bidding. Thereafter, a deposit of P11,000.00 in checks was accepted by the Secretary of Mr. Roman Cruz, Jr. In the light of these circumstances an inference may be made that General Manager Cruz, Jr. had already accepted the petitioners’ offer of repurchase or at the very least had led them to understand that he had arrived at a decision to accept it.

It should also be noted that there is no serious denial as to General Manager Cruz, Jr.’s capacity to enter into binding contractual obligations for GSIS without the prior approval of the Board of Trustees.

On the other hand, the letter of endorsement made by the GSIS Board Vice-Chairman Leonilo Ocampo which states “x x x subject to your wise judgment, as usual,” leads one to conclude that it has been the practice of GSIS to permit the General Manager to do acts within the scope of his apparent authority.

In the case of Francisco v. Government Service Insurance System (7 SCRA 577), we held that:

x x x x x x x x x

“x x x Corporate transactions would speedily come to a standstill were every person dealing with a corporation held duty-bound to disbelieve every act of its responsible officers, no matter how regular they should appear on their face. This Court has observed in Ramirez v. Orientalist Co., 38 Phil. 634, 654-655, that—

“ ‘In passing upon the liability of a corporation in cases of this kind it is always well to keep in mind the situation as it presents itself to the third party with whom the contract is made. Naturally he can have little or no information as to what occurs in corporate meetings; and he must necessarily rely upon the external manifestation of corporate consent. The integrity of commercial transactions can only be maintained by holding the corporation strictly to the liability fixed upon it by its agents in accordance with law; and we would be sorry to announce a doctrine which would permit the property of a man in the city of Paris to be whisked out of his hands and carried into a remote quarter of the earth without recourse against the corporation whose name and authority had been used in the manner disclosed in this case. As already observed, it is familiar doctrine that if a corporation knowingly permits one

83

of its officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public as possessing power to do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through such agent, be estopped from denying his authority; and where it is said if the corporation permits’ this means the same as ‘if the thing is permitted by the directing power of the corporation.’ ”

We note that the petitioners are not complete strangers entering into a contract, with respondent GSIS for the first time. There was an earlier contract to sell the same properties to the petitioners. That contract was perfected and there had been partial compliance with its terms. The transaction now under question in this case merely referred to the curing of certain defects which led to the cancellation of the earlier contract by GSIS. Under the peculiar circumstances of this case, therefore, the acceptance of the petitioners’ letter-proposal by Mr. Roman Cruz, Jr., the person with authority to do so, and his order to his subordinates to stop the bidding so that they could first discuss the matter with him, created an agreement of binding nature with the petitioners.

WHEREFORE, the decision and resolution of the Intermediate Appellate Court subject of the instant petition for review on certiorari are hereby SET ASIDE. The conditional sale entered into between public respondent GSIS and private respondents Luz and Edilberto Tagle is declared NULL and VOID for being contrary to public policy. The prayer of petitioners for the repurchase of the subject property in an amount equal to the amount offered by private respondents and to retain ownership and possession of the disputed property is GRANTED.

SO ORDERED.

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

Cruz, J., in the result.

Decision and resolution set aside. Prayer of petitioners granted.

Notes.—Court employees enjoined not to incur obligations which will interfere with their functions and they should be scrupulously careful to avoid suspicion in the exercise of their duties. (Francisco vs. Springael, 139 SCRA 107.)

Government officials and employees are enjoined to observe the degree of morality, otherwise commensurate sanctions be imposed on them. (Soriano vs. Quintos, 133 SCRA 216.)

G.R. No. 168220. August 31, 2005.*

SPS. RUDY PARAGAS and CORAZON B. PARAGAS, petitioners, vs. HRS. OF DOMINADOR BALACANO, namely: DOMINIC, RODOLFO, NANETTE and

CYRIC, all surnamed BALACANO, represented by NANETTE BALACANO and ALFREDO BALACANO, respondents.

Appeals; Factual findings of the Court of Appeals, which are supported by substantial evidence, are binding, final and conclusive upon the Supreme Court, and carry even more weight when the said court affirms the factual findings of the trial court.—To start, we held in Blanco v. Quasha that this Court is not a trier of facts. As such, it is not its function to examine and determine the weight of the evidence supporting the assailed decision. Factual findings of the Court of Appeals, which are supported by substantial evidence, are binding, final and conclusive upon the Supreme Court, and carry even more weight when the said court affirms the factual findings of the trial court. Moreover, well-entrenched is the prevailing jurisprudence that only errors of law and not of facts are reviewable by this Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court.

Contracts; Sales; Nobody can dispose of that which does not belong to him.—Based on the foregoing, the Court of Appeals concluded that Gregorio’s consent to the sale of the lots was absent, making the contract null and void. Consequently, the spouses Paragas could not have made a subsequent transfer of the property to Catalino Balacano. Indeed, nemo dat quod non habet. Nobody can dispose of that which does not belong to him.

Witnesses; In the assessment of the credibility of witnesses, the Court is guided by the following well-entrenched rules: (1) that evidence to be believed must not only come from the mouth of a credible source but must itself be credible, and (2) findings of fact and assessment of credibility of witness are matters best left to the trial court who had the front-line opportunity to personally evaluate the witnesses’ demeanor, conduct, and behavior while testifying.—On the credibility of witnesses, it is in rhyme with reason to believe the testimonies of the witnesses for the complainants vis-à-vis those of the defendants. In the assessment of the credibility of witnesses, we are guided by the following well-entrenched rules: (1) that evidence to be believed must not only spring from the mouth of a credible witness but must itself be credible, and (2) findings of facts and assessment of credibility of witness are matters best left to the trial court who had the front-line opportunity to personally evaluate the witnesses’ demeanor, conduct, and behavior while testifying. In the case at bar, we agree in the trial court’s conclusion that petitioners’ star witness, Atty. De Guzman is far from being a credible witness. Unlike this Court, the trial court had the unique opportunity of observing the demeanor of said witness. Thus, we affirm the trial court and the Court of Appeals’ uniform decision based on the whole evidence in record holding the Deed of Sale in question to be null and void.

Contracts; Sales; Capacity of Parties; A contract of the sale executed by one who is already of advanced age and senile is null and void; While the general rule is that a person is not incompetent to contract merely because of advanced years or by reason of physical infirmities, when such age or infirmities have impaired the mental faculties so as to prevent the person from properly, intelligently or firmly protecting his property rights, then he is undeniably

84

incapacitated; The circumstances that the seller was an octogenarian at the time of alleged execution of the Deed of Sale and was suffering from liver cirrhosis at that raise grave doubts on his physical and mental capacity to freely give consent to the contract.—In Domingo v. Court of Appeals, the Court declared as null and void the deed of sale therein inasmuch as the seller, at the time of the execution of the alleged contract, was already of advanced age and senile. We held—. . . She died an octogenarian on March 20, 1966, barely over a year when the deed was allegedly executed on January 28, 1965, but before copies of the deed were entered in the registry allegedly on May 16 and June 10, 1966. The general rule is that a person is not incompetent to contract merely because of advanced years or by reason of physical infirmities. However, when such age or infirmities have impaired the mental faculties so as to prevent the person from properly, intelligently, and firmly protecting her property rights then she is undeniably incapacitated. The unrebutted testimony of Zosima Domingo shows that at the time of the alleged execution of the deed, Paulina was already incapacitated physically and mentally. She narrated that Paulina played with her waste and urinated in bed. Given these circumstances, there is in our view sufficient reason to seriously doubt that she consented to the sale of and the price for her parcels of land. Moreover, there is no receipt to show that said price was paid to and received by her. Thus, we are in agreement with the trial court’s finding and conclusion on the matter: . . . In the case at bar, the Deed of Sale was allegedly signed by Gregorio on his death bed in the hospital. Gregorio was an octogenarian at the time of the alleged execution of the contract and suffering from liver cirrhosis at that—circumstances which raise grave doubts on his physical and mental capacity to freely consent to the contract. Adding to the dubiety of the purported sale and further bolstering respondents’ claim that their uncle Catalino, one of the children of the decedent, had a hand in the execution of the deed is the fact that on 17 October 1996, petitioners sold a portion of Lot 1175-E consisting of 6,416 square meters to Catalino for P60,000.00. One need not stretch his imagination to surmise that Catalino was in cahoots with petitioners in maneuvering the alleged sale.

PETITION for review on certiorari of the decision and resolution of the Court of Appeals.

The facts are stated in the resolution of the Court.

Clarence B. Jandoc for petitioners.

Cirilo A. Bravo for respondents.

R E S O L U T I O N

CHICO-NAZARIO, J.:

This petition for review seeks to annul the Decision1 dated 15 February 2005 of the Court of Appeals in CA-G.R. CV No. 64048, affirming with modification the 8 March 1999 Decision2 of the Regional Trial Court (RTC), Branch 21, of Santiago City, Isabela, in Civil Case No. 21-2313. The petition likewise seeks to annul the Resolution3 dated 17 May 2005 denying petitioners’ motion for reconsideration.

The factual antecedents were synthesized by the Court of Appeals in its decision.

“Gregorio Balacano, married to Lorenza Sumigcay, was the registered owner of Lot

1175-E and Lot 1175-F of the Subd. Plan Psd-38042 [located at Baluarte, Santiago City, Isabela] covered by TCT No. T-103297 and TCT No. T-103298 of the Registry of Deeds of the Province of Isabela.

Gregorio and Lorenza had three children, namely: Domingo, Catalino and Alfredo, all surnamed Balacano. Lorenza died on December 11, 1991. Gregorio, on the other hand, died on July 28, 1996.

Prior to his death, Gregorio was admitted at the Veterans General Hospital in Bayombong, Nueva Vizcaya on June 28, 1996 and stayed there until July 19, 1996. He was transferred in the afternoon of July 19, 1996 to the Veterans Memorial Hospital in Quezon City where he was confined until his death.

Gregorio purportedly sold on July 22, 1996, or barely a week prior to his death, a portion of Lot 1175-E (specifically consisting of 15,925 square meters from its total area of 22,341 square meters) and the whole Lot 1175-F to the Spouses Rudy (“Rudy”) and Corazon Paragas (collectively, “the Spouses Paragas”) for the total consideration of P500,000.00. This sale appeared in a deed of absolute sale notarized by Atty. Alexander V. de Guzman, Notary Public for Santiago City, on the same date—July 22, 1996—and witnessed by Antonio Agcaoili (“Antonio”) and Julia Garabiles (“Julia”). Gregorio’s certificates of title over Lots 1175-E and 1175-F were consequently cancelled and new certificates of title were issued in favor of the Spouses Paragas.

The Spouses Paragas then sold on October 17, 1996 a portion of Lot 1175-E consisting of 6,416 square meters to Catalino for the total consideration of P60,000.00.

Domingo’s children (Dominic, Rodolfo, Nanette and Cyric, all surnamed Balacano; . . .) filed on October 22, 1996 a complaint for annulment of sale and partition against Catalino and the Spouses Paragas. They essentially alleged—in asking for the nullification of the deed of sale—that: (1) their grandfather Gregorio could not have appeared before the notary public on July 22, 1996 at Santiago City because he was then confined at the Veterans Memorial Hospital in Quezon City; (2) at the time of the alleged execution of the deed of sale, Gregorio was seriously ill, in fact dying at that time, which vitiated his consent to the disposal of the property; and (3) Catalino manipulated the execution of the deed and prevailed upon the dying Gregorio to sign his name on a paper the contents of which he never understood because of his serious condition. Alternatively, they alleged that assuming Gregorio was of sound and disposing mind, he could only transfer a half portion of Lots 1175-E and 1175-F as the other half belongs to their grandmother Lorenza who predeceased Gregorio – they claimed that Lots 1175-E and 1175-F form part of the conjugal partnership properties of Gregorio and Lorenza. Finally, they alleged that the sale to the Spouses Paragas covers only a 5-hectare portion of Lots 1175-E and 1175-F leaving a portion of 6,416 square meters that Catalino is threatening to dispose. They asked for the nullification of the deed of sale executed by Gregorio and the partition of Lots 1175-E and 1175-F. They likewise asked for damages.

Instead of filing their Answer, the defendants Catalino and the Spouses Paragas moved to dismiss the complaint on the following grounds: (1) the plaintiffs have no legal capacity - the Domingo’s children cannot file the case because Domingo is still alive, although he has been absent for a long time; (2) an indispensable party is not impleaded—that Gregorio’s other son, Alfredo was not made a party to the suit; and

85

(3) the complaint states no cause of action—that Domingo’s children failed to allege a ground for the annulment of the deed of sale; they did not cite any mistake, violence, intimidation, undue influence or fraud, but merely alleged that Gregorio was seriously ill. Domingo’s children opposed this motion.

The lower court denied the motion to dismiss, but directed the plaintiffs-appellees to amend the complaint to include Alfredo as a party. Alfredo was subsequently declared as in default for his failure to file his Answer to the Complaint.

The defendants-appellees filed their Answer with Counter-claim on May 7, 1997, denying the material allegations of the complaint. Additionally, they claimed that: (1) the deed of sale was actually executed by Gregorio on July 19 (or 18), 1996 and not July 22, 1996; (2) the Notary Public personally went to the Hospital in Bayombong, Nueva Vizcaya on July 18, 1996 to notarize the deed of sale already subject of a previously concluded covenant between Gregorio and the Spouses Paragas; (3) at the time Gregorio signed the deed, he was strong and of sound and disposing mind; (4) Lots 1175-E and 1175-F were Gregorio’s separate capital and the inscription of Lorenza’s name in the titles was just a description of Gregorio’s marital status; (5) the entire area of Lots 1175-E and 1175-F were sold to the Spouses Paragas. They interposed a counter-claim for damages.

At the trial, the parties proceeded to prove their respective contentions.

Plaintiff-appellant Nanette Balacano testified to prove the material allegations of their complaint. On Gregorio’s medical condition, she declared that: (1) Gregorio, who was then 81 years old, weak and sick, was brought to the hospital in Bayombong, Nueva Vizcaya on June 28, 1996 and stayed there until the afternoon on July 19, 1996; (2) thereafter, Gregorio, who by then was weak and could no longer talk and whose condition had worsened, was transferred in the afternoon of July 19, 1996 to the Veterans Memorial Hospital in Quezon City where Gregorio died. She claimed that Gregorio could not have signed a deed of sale on July 19, 1996 because she stayed at the hospital the whole of that day and saw no visitors. She likewise testified on their agreement for attorney’s fees with their counsel and the litigation expenses they incurred.

Additionally, the plaintiffs-appellees presented in evidence Gregorio’s medical records and his death certificate.

Defendants-appellees, on the other hand, presented as witnesses Notary Public de Guzman and instrumental witness Antonio to prove Gregorio’s execution of the sale and the circumstances under the deed was executed. They uniformly declared that: (1) on July 18, 1996, they went to the hospital in Bayombong, Nueva Vizcaya—where Gregorio was confined—with Rudy; (2) Atty. De Guzman read and explained the contents of the deed to Gregorio; (3) Gregorio signed the deed after receiving the money from Rudy; (4) Julia and Antonio signed the deed as witnesses. Additionally, Atty. De Guzman explained that the execution of the deed was merely a confirmation of a previous agreement between the Spouses Paragas and Gregorio that was concluded at least a month prior to Gregorio’s death; that, in fact, Gregorio had previously asked him to prepare a deed that Gregorio eventually signed on July 18, 1996. He also explained that the deed, which appeared to have been executed on July 22, 1996, was actually executed on July 18, 1996; he notarized the deed and entered it

in his register only on July 22, 1996. He claimed that he did not find it necessary to state the precise date and place of execution (Bayombong, Nueva Vizcaya, instead of Santiago City) of the deed of sale because the deed is merely a confirmation of a previously agreed contract between Gregorio and the Spouses Paragas. He likewise stated that of the stated P500,000.00 consideration in the deed, Rudy paid Gregorio P450,000.00 in the hospital because Rudy had previously paid Gregorio P50,000.00. For his part, Antonio added that he was asked by Rudy to take pictures of Gregorio signing the deed. He also claimed that there was no entry on the date when he signed; nor did he remember reading Santiago City as the place of execution of the deed. He described Gregorio as still strong but sickly, who got up from the bed with Julia’s help.

Witness for defendants-appellants Luisa Agsalda testified to prove that Lot 1175-E was Gregorio’s separate property. She claimed that Gregorio’s father (Leon) purchased a two-hectare lot from them in 1972 while the other lot was purchased from her neighbor. She also declared that Gregorio inherited these lands from his father Leon; she does not know, however, Gregorio’s brothers’ share in the inheritance. Defendant-appellant Catalino also testified to corroborate the testimony of witness Luisa Agsalda; he said that Gregorio told him that he (Gregorio) inherited Lots 1175-E and 1175-F from his father Leon. He also stated that a portion of Lot 1175-E consisting of 6,416 square meters was sold to him by the Spouses Paragas and that he will pay the Spouses Paragas P50,000.00, not as consideration for the return of the land but for the transfer of the title to his name.

Additionally, the defendants-appellants presented in evidence the pictures taken by Antonio when Gregorio allegedly signed the deed.”4

The lower court, after trial, rendered the decision declaring null and void the deed of sale purportedly executed by Gregorio Balacano in favor of the spouses Rudy Paragas and Corazon Paragas. In nullifying the deed of sale executed by Gregorio, the lower court initially noted that at the time Gregorio executed the deed, Gregorio was ill. The lower court’s reasoning in declaring the deed of sale null and void and this reasoning’s premises may be summarized as follows: (1) the deed of sale was improperly notarized; thus it cannot be considered a public document that is usually accorded the presumption of regularity; (2) as a private document, the deed of sale’s due execution must be proved in accordance with Section 20, Rule 132 of the Revised Rules on Evidence either: (a) by anyone who saw the document executed or written; or (b) by evidence of the genuineness of the signature or handwriting of the maker; and (3) it was incumbent upon the Spouses Paragas to prove the deed of sale’s due execution but failed to do so—the lower court said that witness Antonio Agcaoili is not credible while Atty. Alexander De Guzman is not reliable.5

The lower court found the explanations of Atty. De Guzman regarding the erroneous entries on the actual place and date of execution of the deed of sale as justifications for a lie. The lower court said—

“The Court cannot imagine an attorney to undertake to travel to another province to notarize a document when he must certainly know, being a lawyer and by all means, not stupid, that he has no authority to notarize a document in that province. The only logical thing that happened was that Rudy Paragas brought the deed of sale to him

86

on July 22, 1996 already signed and requested him to notarize the same which he did, not knowing that at that time the vendor was already in a hospital and [sic] Quezon City. Of course had he known, Atty. De Guzman would not have notarized the document. But he trusted Rudy Paragas and moreover, Gregorio Balacano already informed him previously in June that he will sell his lands to Paragas. In addition [sic, (,) was omitted] Rudy Paragas also told him that Balacano received an advance of P50,000.00.

The intention to sell is not actual selling. From the first week of June when, according to Atty. De Guzman, Gregorio Balacano informed him that he will sell his land to Rudy Paragas, enough time elapsed to the time he was brought to the hospital on June 28, 1996. Had there been a meeting of the minds between Gregorio Balacano and Rudy Paragas regarding the sale, surely Gregorio Balacano would have immediately returned to the office of Atty. De Guzman to execute the deed of sale. He did not until he was brought to the hospital and diagnosed to have liver cirrhosis. Because of the seriousness of his illness, it is not expected that Gregorio Balacano would be negotiating a contract of sale. Thus, Rudy Paragas negotiated with Catalino Balacano, the son of Gregorio Balacano with whom the latter was staying.”6

The lower court also did not consider Antonio Agcaoili, petitioner Rudy Paragas’s driver, a convincing witness, concluding that he was telling a rehearsed story. The lower court said—

“The only portion of his testimony that is true is that he signed the document. How could the Court believe that he brought a camera with him just to take pictures of the signing? If the purpose was to record the proceeding for posterity, why did he not take the picture of Atty. De Guzman when the latter was reading and explaining the document to Gregorio Balacano? Why did he not take the picture of both Gregorio Balacano and Atty. de Guzman while the old man was signing the document instead of taking a picture of Gregorio Balacano alone holding a ball pen without even showing the document being signed? Verily there is a picture of a document but only a hand with a ball pen is shown with it. Why? Clearly the driver Antonio Agcaoili must have only been asked by Rudy Paragas to tell a concocted story which he himself would not dare tell in Court under oath.”7

The lower court likewise noted that petitioner Rudy Paragas did not testify about the signing of the deed of sale. To the lower court, Rudy’s refusal or failure to testify raises a lot of questions, such as: (1) was he (Rudy) afraid to divulge the circumstances of how he obtained the signature of Gregorio Balacano, and (2) was he (Rudy) afraid to admit that he did not actually pay the P500,000.00 indicated in the deed of sale as the price of the land?8

The lower court also ruled that Lots 1175-E and 1175-F were Gregorio’s and Lorenza’s conjugal partnership properties. The lower court found that these lots were acquired during the marriage because the certificates of title of these lots clearly stated that the lots are registered in the name Gregorio, “married to Lorenza Sumigcay.” Thus, the lower court concluded that the presumption of law (under Article 160 of the Civil Code of the Philippines) that property acquired during the marriage is presumed to belong to the conjugal partnership fully applies to Lots 1175-E and 1175-F.9

Thus, on 8 March 1999, the RTC, Branch 21, of Santiago City, Isabela, rendered a

Decision10 in Civil Case No. 21-2313, the dispositive portion of which reads as follows:

“WHEREFORE in the light of the foregoing considerations judgment is hereby rendered:

30 1. DECLARING as NULL and VOID the deed of sale purportedly executed by Gregorio Balacano in favor of the spouses Rudy Paragas and Corazon Paragas over lots 1175-E and 1175-F covered by TCT Nos. T-103297 and T-103298, respectively;

31 2. ORDERING the cancellation of TCT Nos. T-258042 and T-258041 issued in the name of the spouses Rudy and Corazon Paragas by virtue of the deed of sale; and

DECLARING the parcel of lands, lots 1175-E and 1175-F as part of the estate of the deceased spouses Gregorio Balacano and Lorenza Balacano.”11

In the assailed Decision dated 15 February 2005, the Court of Appeals affirmed the Decision of the trial court, with the modification that Lots 1175-E and 1175-F were adjudged as belonging to the estate of Gregorio Balacano. The appellate court disposed as follows:

“WHEREFORE, premises considered, the appeal is hereby DISMISSED. We AFFIRM the appealed Decision for the reasons discussed above, with the MODIFICATION that Lots 1175-E and 1175-F belong to the estate of Gregorio Balacano.

Let a copy of this Decision be furnished the Office of the Bar Confidant for whatever action her Office may take against Atty. De Guzman.”12 (Emphasis in the original.)

Herein petitioners’ motion for reconsideration was met with similar lack of success when it was denied for lack of merit by the Court of Appeals in its Resolution13 dated 17 May 2005.

Hence, this appeal via a petition for review where petitioners assign the following errors to the Court of Appeals, viz.:

36 A. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, SERIOUSLY ERRED IN FINDING THAT THERE WAS NO PERFECTED AND PARTIALLY EXECUTED CONTRACT OF SALE OVER LOTS 1175-E AND 1175-F PRIOR TO THE SIGNING OF THE DEED OF SALE.

37 B. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, SERIOUSLY FAILED TO APPRECIATE THE SIGNIFICANCE OF THE JUDICIAL ADMISSION ON THE AUTHENTICITY AND DUE EXECUTION OF THE DEED OF SALE MADE BY THE RESPONDENTS DURING THE PRE-TRIAL CONFERENCE.

38 C. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, BASED ITS CONCLUSION THAT GREGORIO’S CONSENT TO THE SALE OF THE LOTS WAS ABSENT MERELY ON SPECULATIONS AND SURMISES.

87

39 D. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, SERIOUSLY ERRED IN NOT RULING ON THE ISSUE OF RESPONDENTS’ LACK OF LEGAL CAPACITY TO SUE FOR NOT BEING THE PROPER PARTIES IN INTEREST.

40 E. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION, SERIOUSLY ERRED IN DISMISSING ATTY. ALEXANDER DE GUZMAN AND ANTONIO AGCAOILI AS NOT CREDIBLE WITNESSES.14

At bottom is the issue of whether or not the Court of Appeals committed reversible error in upholding the findings and conclusions of the trial court on the nullity of the Deed of Sale purportedly executed between petitioners and the late Gregorio Balacano.

To start, we held in Blanco v. Quasha15 that this Court is not a trier of facts. As such, it is not its function to examine and determine the weight of the evidence supporting the assailed decision. Factual findings of the Court of Appeals, which are supported by substantial evidence, are binding, final and conclusive upon the Supreme Court,16 and carry even more weight when the said court affirms the factual findings of the trial court. Moreover, well- entrenched is the prevailing jurisprudence that only errors of law and not of facts are reviewable by this Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court.

The foregoing tenets in the case at bar apply with greater force to the petition under consideration because the factual findings by the Court of Appeals are in full agreement with that of the trial court.

Specifically, the Court of Appeals, in affirming the trial court, found that there was no prior and perfected contract of sale that remained to be fully consummated. The appellate court explained—

“In support of their position, the defendants-appellants argue that at least a month prior to Gregorio’s signing of the deed, Gregorio and the Spouses Paragas already agreed on the sale of Lots 1175-E and 1175-F; and that, in fact, this agreement was partially executed by Rudy’s payment to Gregorio of P50,000.00 before Gregorio signed the deed at the hospital. In line with this position, defendants-appellants posit that Gregorio’s consent to the sale should be determined, not at the time Gregorio signed the deed of sale on July 18, 1996, but at the time when he agreed to sell the property in June 1996 or a month prior to the deed’s signing; and in June 1996, Gregorio was of sound and disposing mind and his consent to the sale was in no wise vitiated at that time. The defendants-appellants further argue that the execution or signing of the deed of sale, however, irregular it might have been, does not affect the validity of the previously agreed sale of the lots, as the execution or signing of the deed is merely a formalization of a previously agreed oral contract.

In the absence of any note, memorandum or any other written instrument evidencing the alleged perfected contract of sale, we have to rely on oral testimonies, which in this case is that of Atty. de Guzman whose testimony on the alleged oral agreement may be summarized as follows: (1) that sometime in the first week of June 1996, Gregorio requested him (Atty. de Guzman) to prepare a deed of sale of two lots; (2)

Gregorio came to his firm’s office in the morning with a certain Doming Balacano, then returned in the afternoon with Rudy; (3) he (Atty. de Guzman) asked Gregorio whether he really intends to sell the lots; Gregorio confirmed his intention; (4) Gregorio and Rudy left the law office at 5:00 p.m., leaving the certificates of title; (5) he prepared the deed a day after Rudy and Gregorio came. With regard to the alleged partial execution of this agreement, Atty. de Guzman said that he was told by Rudy that there was already a partial payment of P50,000.00.

We do not consider Atty. de Guzman’s testimony sufficient evidence to establish the fact that there was a prior agreement between Gregorio and the Spouses Paragas on the sale of Lots 1175-E and 1175-F. This testimony does not conclusively establish the meeting of the minds between Gregorio and the Spouses Paragas on the price or consideration for the sale of Lots 1175-E and 1175-F—Atty. de Guzman merely declared that he was asked by Gregorio to prepare a deed; he did not clearly narrate the details of this agreement. We cannot assume that Gregorio and the Spouses Paragas agreed to a P500,000.00 consideration based on Atty. de Guzman’s bare assertion that Gregorio asked him to prepare a deed, as Atty. de Guzman was not personally aware of the agreed consideration in the sale of the lots, not being privy to the parties’ agreement. To us, Rudy could have been a competent witness to testify on the perfection of this prior contract; unfortunately, the defendants-appellants did not present Rudy as their witness.

We seriously doubt too the credibility of Atty. de Guzman as a witness. We cannot rely on his testimony because of his tendency to commit falsity. He admitted in open court that while Gregorio signed the deed on July 18, 1996 at Bayombong, Nueva Vizcaya, he nevertheless did not reflect these matters when he notarized the deed; instead he entered Santiago City and July 22, 1996, as place and date of execution, respectively. To us, Atty. de Guzman’s propensity to distort facts in the performance of his public functions as a notary public, in utter disregard of the significance of the act of notarization, seriously affects his credibility as a witness in the present case. In fact, Atty. de Guzman’s act in falsifying the entries in his acknowledgment of the deed of sale could be the subject of administrative and disciplinary action, a matter that we however do not here decide.

Similarly, there is no conclusive proof of the partial execution of the contract because the only evidence the plaintiffs-appellants presented to prove this claim was Atty. de Guzman’s testimony, which is hearsay and thus, has no probative value. Atty. de Guzman merely stated that Rudy told him that Rudy already gave P50,000.00 to Gregorio as partial payment of the purchase price; Atty. de Guzman did not personally see the payment being made.”17

But, did Gregorio give an intelligent consent to the sale of Lots 1175-E and 1175-F when he signed the deed of sale? The trial court as well as the appellate court found in the negative. In the Court of Appeals’ rationale—

“It is not disputed that when Gregorio signed the deed of sale, Gregorio was seriously ill, as he in fact died a week after the deed’s signing. Gregorio died of complications caused by cirrhosis of the liver. Gregorio’s death was neither sudden nor immediate; he fought at least a month-long battle against the disease until he succumbed to death on July 22, 1996. Given that Gregorio purportedly executed a

88

deed during the last stages of his battle against his disease, we seriously doubt whether Gregorio could have read, or fully understood, the contents of the documents he signed or of the consequences of his act. We note in this regard that Gregorio was brought to the Veteran’s Hospital at Quezon City because his condition had worsened on or about the time the deed was allegedly signed. This transfer and fact of death not long after speak volumes about Gregorio’s condition at that time. We likewise see no conclusive evidence that the contents of the deed were sufficiently explained to Gregorio before he affixed his signature. The evidence the defendants-appellants offered to prove Gregorio’s consent to the sale consists of the testimonies of Atty. de Guzman and Antonio. As discussed above, we do not find Atty. de Guzman a credible witness. Thus, we fully concur with the heretofore-quoted lower court’s evaluation of the testimonies given by Atty. de Guzman and Antonio because this is an evaluation that the lower court was in a better position to make.

Additionally, the irregular and invalid notarization of the deed is a falsity that raises doubts on the regularity of the transaction itself. While the deed was indeed signed on July 18, 1996 at Bayombong, Nueva Vizcaya, the deed states otherwise, as it shows that the deed was executed on July 22, 1996 at Santiago City. Why such falsity was committed, and the circumstances under which this falsity was committed, speaks volume about the regularity and the validity of the sale. We cannot but consider the commission of this falsity, with the indispensable aid of Atty. de Guzman, an orchestrated attempt to legitimize a transaction that Gregorio did not intend to be binding upon him nor on his bounty.

Article 24 of the Civil Code tells us that in all contractual, property or other relations, when one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be vigilant for his protection.”18

Based on the foregoing, the Court of Appeals concluded that Gregorio’s consent to the sale of the lots was absent, making the contract null and void. Consequently, the spouses Paragas could not have made a subsequent transfer of the property to Catalino Balacano. Indeed, nemo dat quod non habet. Nobody can dispose of that which does not belong to him.19

We likewise find to be in accord with the evidence on record the ruling of the Court of Appeals declaring the properties in controversy as paraphernal properties of Gregorio in the absence of competent evidence on the exact date of Gregorio’s acquisition of ownership of these lots.

On the credibility of witnesses, it is in rhyme with reason to believe the testimonies of the witnesses for the complainants vis-à-vis those of the defendants. In the assessment of the credibility of witnesses, we are guided by the following well-entrenched rules: (1) that evidence to be believed must not only spring from the mouth of a credible witness but must itself be credible, and (2) findings of facts and assessment of credibility of witness are matters best left to the trial court who had the front-line opportunity to personally evaluate the witnesses’ demeanor, conduct, and behavior while testifying.20

In the case at bar, we agree in the trial court’s conclusion that petitioners’ star witness, Atty. De Guzman is far from being a credible witness. Unlike this Court, the trial

court had the unique opportunity of observing the demeanor of said witness. Thus, we affirm the trial court and the Court of Appeals’ uniform decision based on the whole evidence in record holding the Deed of Sale in question to be null and void.

In Domingo v. Court of Appeals,21 the Court declared as null and void the deed of sale therein inasmuch as the seller, at the time of the execution of the alleged contract, was already of advanced age and senile. We held—

. . . She died an octogenarian on March 20, 1966, barely over a year when the deed was allegedly executed on January 28, 1965, but before copies of the deed were entered in the registry allegedly on May 16 and June 10, 1966. The general rule is that a person is not incompetent to contract merely because of advanced years or by reason of physical infirmities. However, when such age or infirmities have impaired the mental faculties so as to prevent the person from properly, intelligently, and firmly protecting her property rights then she is undeniably incapacitated. The unrebutted testimony of Zosima Domingo shows that at the time of the alleged execution of the deed, Paulina was already incapacitated physically and mentally. She narrated that Paulina played with her waste and urinated in bed. Given these circumstances, there is in our view sufficient reason to seriously doubt that she consented to the sale of and the price for her parcels of land. Moreover, there is no receipt to show that said price was paid to and received by her. Thus, we are in agreement with the trial court’s finding and conclusion on the matter: . . .

In the case at bar, the Deed of Sale was allegedly signed by Gregorio on his death bed in the hospital. Gregorio was an octogenarian at the time of the alleged execution of the contract and suffering from liver cirrhosis at that—circumstances which raise grave doubts on his physical and mental capacity to freely consent to the contract. Adding to the dubiety of the purported sale and further bolstering respondents’ claim that their uncle Catalino, one of the children of the decedent, had a hand in the execution of the deed is the fact that on 17 October 1996, petitioners sold a portion of Lot 1175-E consisting of 6,416 square meters to Catalino for P60,000.00.22 One need not stretch his imagination to surmise that Catalino was in cahoots with petitioners in maneuvering the alleged sale.

On the whole, we find no reversible error on the part of the appellate court in CA-G.R. CV No. 64048 that would warrant the reversal thereof.

WHEREFORE, the present petition is hereby DENIED. Accordingly, the Decision23 and the Resolution,24 dated 15 February 2005 and 17

May 2005, respectively, of the Court of Appeals in CA-G.R. CV No. 64048 are hereby AFFIRMED. No costs. SO ORDERED. Puno (Chairman), Austria-Martinez, Callejo, Sr. and Tinga, JJ., concur. Petition denied, judgment and resolution affirmed.

Notes.—The mere fact that a party’s evidence was not believed by both the trial court and the appellate court, and that the said courts tended to give more credence to the evidence presented by the other party, is in itself not a reason for setting aside such courts’ findings. (Tañedo vs. Court of Appeals, 252 SCRA 80 [1996])

A void contract cannot give rise to a valid one. (Nool vs. Court of Appeals, 276 SCRA 149 [1997]) An action for declaration of nullity of a void contract is imprescriptible. (Santos vs. Santos, 366 SCRA 395 [2001])