Republic of the Philippines SUPREME COURT Manila

EN BANC
G.R. No. L-9935

February 1, 1915

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

defendant-appellant.
Beaumont, Tenney and Ferrier for plaintiff. Buencamino and Lontok
for defendant.
TRENT, J.:
The basis of this action is a written contract, Exhibit A, the pertinent
paragraphs of which follow:
1. That Mr. Basilio Gonzalez hereby acknowledges receipt of the sum
of P3,000 Philippine currency from Messrs. Yu Tek and Co., and that
in consideration of said sum be obligates himself to deliver to the said
Yu Tek and Co., 600 piculs of sugar of the first and second grade,
according to the result of the polarization, within the period of three
months, beginning on the 1st day of January, 1912, and ending on
the 31st day of March of the same year, 1912.
2. That the said Mr. Basilio Gonzales obligates himself to deliver to
the said Messrs. Yu Tek and Co., of this city the said 600 piculs of
sugar at any place within the said municipality of Santa Rosa which
the said Messrs. Yu Tek and Co., or a representative of the same
may designate.
3. That in case the said Mr. Basilio Gonzales does not deliver to
Messrs. Yu Tek and Co. the 600 piculs of sugar within the period of
three months, referred to in the second paragraph of this document,
this contract will be rescinded and the said Mr. Basilio Gonzales will
then be obligated to return to Messrs. Yu Tek and Co. the P3,000
received and also the sum of P1,200 by way of indemnity for loss and
damages.
Plaintiff proved that no sugar had been delivered to it under this
contract nor had it been able to recover the P3,000. Plaintiff prayed

for judgment for the P3,000 and, in addition, for P1,200 under
paragraph 4, supra. Judgment was rendered for P3,000 only, and
from this judgment both parties appealed.
The points raised by the defendant will be considered first. He alleges
that the court erred in refusing to permit parol evidence showing that
the parties intended that the sugar was to be secured from the crop
which the defendant raised on his plantation, and that he was unable
to fulfill the contract by reason of the almost total failure of his crop.
This case appears to be one to which the rule which excludes parol
evidence to add to or vary the terms of a written contract is decidedly
applicable. There is not the slightest intimation in the contract that the
sugar was to be raised by the defendant. Parties are presumed to
have reduced to writing all the essential conditions of their contract.
While parol evidence is admissible in a variety of ways to explain the
meaning of written contracts, it cannot serve the purpose of
incorporating into the contract additional contemporaneous conditions
which are not mentioned at all in the writing, unless there has been
fraud or mistake. In an early case this court declined to allow parol
evidence showing that a party to a written contract was to become a
partner in a firm instead of a creditor of the firm. (Pastor vs. Gaspar, 2
Phil. Rep., 592.) Again, in Eveland vs. Eastern Mining Co. (14 Phil.
Rep., 509) a contract of employment provided that the plaintiff should
receive from the defendant a stipulated salary and expenses. The
defendant sought to interpose as a defense to recovery that the
payment of the salary was contingent upon the plaintiff's employment
redounding to the benefit of the defendant company. The contract
contained no such condition and the court declined to receive parol
evidence thereof.
In the case at bar, it is sought to show that the sugar was to be
obtained exclusively from the crop raised by the defendant. There is
no clause in the written contract which even remotely suggests such
a condition. The defendant undertook to deliver a specified quantity of
sugar within a specified time. The contract placed no restriction upon
the defendant in the matter of obtaining the sugar. He was equally at
liberty to purchase it on the market or raise it himself. It may be true
that defendant owned a plantation and expected to raise the sugar
himself, but he did not limit his obligation to his own crop of sugar.
Our conclusion is that the condition which the defendant seeks to add

to the contract by parol evidence cannot be considered. The rights of

the parties must be determined by the writing itself.
The second contention of the defendant arises from the first. He
assumes that the contract was limited to the sugar he might raise
upon his own plantation; that the contract represented a perfected
sale; and that by failure of his crop he was relieved from complying
with his undertaking by loss of the thing due. (Arts. 1452, 1096, and
1182, Civil Code.) This argument is faulty in assuming that there was
a perfected sale. Article 1450 defines a perfected sale as follows:
The sale shall be perfected between vendor and vendee and shall be
binding on both of them, if they have agreed upon the thing which is
the object of the contract and upon the price, even when neither has
been delivered.
Article 1452 reads: "The injury to or the profit of the thing sold shall,
after the contract has been perfected, be governed by the provisions
of articles 1096 and 1182."
This court has consistently held that there is a perfected sale with
regard to the "thing" whenever the article of sale has been physically
segregated from all other articles Thus, a particular tobacco factory
with its contents was held sold under a contract which did not provide
for either delivery of the price or of the thing until a future time.
McCullough vs. Aenlle and Co. (3 Phil. Rep., 295). Quite similar was
the recent case of Barretto vs. Santa Marina (26 Phil. Rep., 200)
where specified shares of stock in a tobacco factory were held sold
by a contract which deferred delivery of both the price and the stock
until the latter had been appraised by an inventory of the entire
assets of the company. In Borromeo vs. Franco (5 Phil. Rep., 49) a
sale of a specific house was held perfected between the vendor and
vendee, although the delivery of the price was withheld until the
necessary documents of ownership were prepared by the vendee. In
Tan Leonco vs. Go Inqui (8 Phil. Rep., 531) the plaintiff had delivered
a quantity of hemp into the warehouse of the defendant. The
defendant drew a bill of exchange in the sum of P800, representing
the price which had been agreed upon for the hemp thus delivered.
Prior to the presentation of the bill for payment, the hemp was
destroyed. Whereupon, the defendant suspended payment of the bill.

It was held that the hemp having been already delivered, the title had
passed and the loss was the vendee's. It is our purpose to distinguish
the case at bar from all these cases.
In the case at bar the undertaking of the defendant was to sell to the
plaintiff 600 piculs of sugar of the first and second classes. Was this
an agreement upon the "thing" which was the object of the contract
within the meaning of article 1450, supra? Sugar is one of the staple
commodities of this country. For the purpose of sale its bulk is
weighed, the customary unit of weight being denominated a "picul."
There was no delivery under the contract. Now, if called upon to
designate the article sold, it is clear that the defendant could only say
that it was "sugar." He could only use this generic name for the thing
sold. There was no "appropriation" of any particular lot of sugar.
Neither party could point to any specific quantity of sugar and say:
"This is the article which was the subject of our contract." How
different is this from the contracts discussed in the cases referred to
above! In the McCullough case, for instance, the tobacco factory
which the parties dealt with was specifically pointed out and
distinguished from all other tobacco factories. So, in the Barretto
case, the particular shares of stock which the parties desired to
transfer were capable of designation. In the Tan Leonco case, where
a quantity of hemp was the subject of the contract, it was shown that
that quantity had been deposited in a specific warehouse, and thus
set apart and distinguished from all other hemp.
A number of cases have been decided in the State of Louisiana,
where the civil law prevails, which confirm our position. Perhaps the
latest is Witt Shoe Co. vs. Seegars and Co. (122 La., 145; 47 Sou.,
444). In this case a contract was entered into by a traveling salesman
for a quantity of shoes, the sales having been made by sample. The
court said of this contract:
But it is wholly immaterial, for the purpose of the main question,
whether Mitchell was authorized to make a definite contract of sale or
not, since the only contract that he was in a position to make was an
agreement to sell or an executory contract of sale. He says that
plaintiff sends out 375 samples of shoes, and as he was offering to
sell by sample shoes, part of which had not been manufactured and
the rest of which were incorporated in plaintiff's stock in Lynchburg,

Va., it was impossible that he and Seegars and Co. should at that
time have agreed upon the specific objects, the title to which was to
pass, and hence there could have been no sale. He and Seegars and
Co. might have agreed, and did (in effect ) agree, that the
identification of the objects and their appropriation to the contract
necessary to make a sale should thereafter be made by the plaintiff,
acting for itself and for Seegars and Co., and the legend printed in
red ink on plaintiff's billheads ("Our responsibility ceases when we
take transportation Co's. receipt `In good order'" indicates plaintiff's
idea of the moment at which such identification and appropriation
would become effective. The question presented was carefully
considered in the case of State vs. Shields, et al. (110 La., 547, 34
Sou., 673) (in which it was absolutely necessary that it should be
decided), and it was there held that in receiving an order for a
quantity of goods, of a kind and at a price agreed on, to be supplied
from a general stock, warehoused at another place, the agent
receiving the order merely enters into an executory contract for the
sale of the goods, which does not divest or transfer the title of any
determinate object, and which becomes effective for that purpose
only when specific goods are thereafter appropriated to the contract;
and, in the absence of a more specific agreement on the subject, that
such appropriated takes place only when the goods as ordered are
delivered to the public carriers at the place from which they are to be
shipped, consigned to the person by whom the order is given, at
which time and place, therefore, the sale is perfected and the title
passes.
This case and State vs. Shields, referred to in the above quotation
are amply illustrative of the position taken by the Louisiana court on
the question before us. But we cannot refrain from referring to the
case of Larue and Prevost vs. Rugely, Blair and Co. (10 La. Ann.,
242) which is summarized by the court itself in the Shields case as
follows:
. . . It appears that the defendants had made a contract for the sale,
by weight, of a lot of cotton, had received $3,000 on account of the
price, and had given an order for its delivery, which had been
presented to the purchaser, and recognized by the press in which the
cotton was stored, but that the cotton had been destroyed by fire
before it was weighed. It was held that it was still at the risk of the

seller, and that the buyer was entitled to recover the $3,000 paid on
account of the price.
We conclude that the contract in the case at bar was merely an
executory agreement; a promise of sale and not a sale. At there was
no perfected sale, it is clear that articles 1452, 1096, and 1182 are
not applicable. The defendant having defaulted in his engagement,
the plaintiff is entitled to recover the P3,000 which it advanced to the
defendant, and this portion of the judgment appealed from must
therefore be affirmed.
The plaintiff has appealed from the judgment of the trial court on the
ground that it is entitled to recover the additional sum of P1,200 under
paragraph 4 of the contract. The court below held that this paragraph
was simply a limitation upon the amount of damages which could be
recovered and not liquidated damages as contemplated by the law.
"It also appears," said the lower court, "that in any event the
defendant was prevented from fulfilling the contract by the delivery of
the sugar by condition over which he had no control, but these
conditions were not sufficient to absolve him from the obligation of
returning the money which he received."
The above quoted portion of the trial court's opinion appears to be
based upon the proposition that the sugar which was to be delivered
by the defendant was that which he expected to obtain from his own
hacienda and, as the dry weather destroyed his growing cane, he
could not comply with his part of the contract. As we have indicated,
this view is erroneous, as, under the contract, the defendant was not
limited to his growth crop in order to make the delivery. He agreed to
deliver the sugar and nothing is said in the contract about where he
was to get it.
We think is a clear case of liquidated damages. The contract plainly
states that if the defendant fails to deliver the 600 piculs of sugar
within the time agreed on, the contract will be rescinded and he will
be obliged to return the P3,000 and pay the sum of P1,200 by way of
indemnity for loss and damages. There cannot be the slightest doubt
about the meaning of this language or the intention of the parties.
There is no room for either interpretation or construction. Under the
provisions of article 1255 of the Civil Code contracting parties are free

to execute the contracts that they may consider suitable, provided

they are not in contravention of law, morals, or public order. In our
opinion there is nothing in the contract under consideration which is
opposed to any of these principles.
For the foregoing reasons the judgment appealed from is modified by
allowing the recovery of P1,200 under paragraph 4 of the contract. As
thus modified, the judgment appealed from is affirmed, without costs
in this instance.
Arellano, C.J., Torres, Carson and Araullo, JJ., concur. Johnson, J.,
dissents.

COMPANIA GENERAL DE TABACOS DE

FILIPINAS, petitioner, vs. HON. COURT OF
APPEALS and THE COMMISSIONER OF
INTERNAL REVENUE, respondents.
DECISION
QUISUMBING, J.:

This petition for review on certiorari seeks to reverse the

Decision,[1] dated October 16, 2000, of the Court of Appeals
in CA-G.R. SP No. 48797, which set aside the Decision[2] of
the Court of Tax Appeals (CTA), in CTA Case No.
5204. The tax court ordered the refund of specific taxes in
the amount of P1,051,050 paid under protest by petitioner on
the removal, transfer and sale of its stemmed leaf tobacco
products to various cigar and cigarette manufacturers.
Petitioner likewise assails the appellate courts Resolution[3]
dated March 6, 2001 which denied the Motion for
Reconsideration.
The facts, as culled from records, are as follows:
Petitioner Compania General de Tabacos de Filipinas is

engaged in the business of re-drying of tobacco leaves, for

both the export and domestic markets. It purchases its
tobacco leaves directly from local growers. Thereafter,
petitioner cuts, re-dries, packs and sells in bulk the leaves
for delivery to cigar and cigarette manufacturers. Said redried leaves then form the raw material for the manufacture
of cigar and cigarettes.
Prior to June 1993, petitioner sold its tobacco to cigar
and cigarette manufacturers without prepayment of any
excise tax, there being no notice of assessment from nor
collection made by respondent Commissioner. Instead, what
petitioner paid were inspection fees.
Beginning
June
1993,
however,
respondent
Commissioner imposed upon petitioner a specific tax at the
rate of 75 centavos per kilogram prior to any removal, sale or
transfer of its tobacco products.
Petitioner paid said taxes under protest up to August 22,
1994.
On December 8, 1994, petitioner filed a written claim for
refund of P1,051,050 as specific taxes paid on its tobacco
leaves. It alleged that it was exempt from paying said taxes.
Petitioner based its claim on Sections 137[4] and 141[5] of
the National Internal Revenue Code and Section 20 of
Revenue Regulations No. V-39,[6] which exempted the
transfer of stripped tobacco for use in the manufacture of
other tobacco products from prepayment of excise tax.
Receiving no response from respondent Commissioner,
petitioner on February 22, 1995, filed a Petition for Review,
docketed as CTA Case No. 5204 with the tax court, praying
for refund of specific taxes it had paid since June 1993.
The CTA granted the petition in its decision dated June
15, 1998, which decreed:

WHEREFORE, in view of the foregoing, the instant Petition for

Review is hereby GRANTED. Accordingly, respondent is hereby
ORDERED to REFUND the amount of P1,051,050.00 to the
petitioner immediately.
SO ORDERED.[7]
In finding for petitioner, the CTA cited Commissioner of
Internal Revenue v. Fortune Tobacco Corporation, CA-G.R.
SP Nos. 38219/40313, dated January 30, 1998. It held that
the exemption from specific tax granted by Sections 137 and
141 of the Tax Code applies to stemmed leaf tobacco. The
appellate court held that stemmed leaf tobacco is solely
meant to be the raw material of cigarettes and other tobacco
products which are subject to excise tax. The Court of
Appeals also found that the Bureau of Internal Revenue
(BIR) went beyond its rule-making power and arrogated
legislative power unto itself when it issued both Revenue
Regulations Nos. 17-67 and V-39 since by using the power
to classify, the BIR actually amended and amplified the tax
law. Inasmuch as petitioner herein was similarly situated as
Fortune Tobacco, said the tax court, there was no reason
why the appellate courts ruling in CA-G.R. SP Nos.
38219/40313 should not apply to petitioners case. Hence,
no prepayment of excise tax was required and a refund was
in order.
Respondent Commissioner appealed the tax courts
decision to the Court of Appeals in CA-G.R. SP No.
48797. On October 16, 2000, the appellate court ruled as
follows:
WHEREFORE, in view of the foregoing, the petition is
GRANTED. The decision and resolution of the Court of Tax
Appeals is hereby ANNULLED and SET ASIDE.

SO ORDERED.[8]
The Court of Appeals reasoned that petitioner is not
entitled to a refund since it was liable to pay the tobacco
excise tax based on Sections 137 and 141 of the NIRC in
relation to Revenue Regulations Nos. V-39 and 17-67. The
CA noted that both Sections 137 and 141 contain the
qualifying phrase under such conditions as may be
prescribed in the regulations of the Department of Finance
for certain tobacco products to avail of the tax
exemption. Thus, Revenue Regulations No. V-39, which
specifies the conditions under which stemmed tobacco may
be transferred from one manufacturer to another without
prepayment of specific tax and Revenue Regulations No. 1767, which classifies stemmed leaf tobacco as partially
manufactured tobacco were issued to provide the conditions
and the framework to avail of the specific tax exemption. It
held that there was nothing irregular or illegal in the issuance
of said revenue regulations, as both had been issued under
the authority provided by law. The established rule is that a
tax refund is in the nature of exemption, said the appellate
court. It is construed strictly against the taxpayer, who has
the burden of proving his claim. Petitioner failed to
discharge this burden, according to the appellate court.
Petitioner then moved for reconsideration of the
aforesaid decision, but this was denied by the appellate
court on March 6, 2001.
Hence, this petition alleging that the respondent Court of
Appeals committed serious error:
1. .WHEN IT CONCLUDED THAT PETITIONER IS
NOT ENTITLED TO ANY TAX REFUND ON THE
BASIS OF REVENUE REGULATION NO. 17-67 AND
REVENUE
REGULATION
NO.
V-39
NOTWITHSTANDING THE CLEAR LANGUAGE OF

SECTIONS 137 AND 141 OF THE NATIONAL

INTERNAL REVENUE CODE;
2. .WHEN IT DENIED PETITIONERS CLAIM FOR
REFUND
CONTRARY
TO
THE
WELL
ESTABLISHED DOCTRINES ON STARE DECISIS.[9]

The only issue for our resolution is whether petitioner is

entitled to the refund of the amount of P1,051,050 on
specific taxes on stemmed tobacco which it paid under
protest.
Petitioner contends that it is exempt from paying the
specific tax on its stemmed tobacco since its tobacco leaves
are unfit for consumption and the cigar and cigarette
manufacturers, who are the end users of its product, pay
excise taxes thereon.
Respondent Commissioner counters that under Revenue
Regulations No. 17-67, stemmed leaf tobacco is classified
as partially manufactured tobacco, hence subject to
specific tax under Section 141 of the NIRC. Stemmed leaf
tobacco is exempt from specific tax only when sold as raw
material by one L-7[10] directly to another L-7, as prescribed
by Revenue Regulations No. V-39.
Respondent
Commissioner further points out that since petitioner is
engaged in re-drying, Revenue Regulations No. 17-67
classifies it as either an L-3R[11] or L-6,[12] and not L-7. Thus,
it cannot claim any exemption from specific tax.
The issue raised in the instant case is not novel.
We agree with petitioner that both Sections 137 and 141
of the former Tax Code allowed the sale of stemmed leaf
tobacco without any pre-payment of tax. We must stress,
however, that a careful reading of the aforementioned
provisions show that such sale is qualified by and is subject
to such conditions as may be prescribed in the regulations

of the Department of Finance. Said conditions were

provided for in Revenue Regulations Nos. V-39 and 17-67,
which were issued to clarify and implement the foregoing
provisions of the Tax Code. Hence, said provisions of the Tax
Code must be read and interpreted in accordance with said
regulations.
Section 20 of Revenue Regulations No. V-39, which
specifically lays the rules for tax exemption on tobacco
products states:
Section 20. Exemption from tax of tobacco products intended for
agricultural or industrial purposes. (a) Sale of stemmed leaf
tobacco, etc., by one factory to another. Subject to the limitations
herein established, products of tobacco entirely unfit for chewing
or smoking may be removed free of tax for agricultural or
industrial use; and stemmed leaf tobacco, fine-cut shorts, the refuse
of fine-cut chewing tobacco, refuse, scraps, cuttings, clippings, and
sweeping of tobacco may be sold in bulk as raw materials by one
manufacturer directly to another without the prepayment of the
specific tax.
Stemmed leaf tobacco, fine-cut shorts, the refuse of fine-cut
chewing tobacco, scraps, cutting, clippings, and sweeping of leaf
tobacco or partially manufactured tobacco or other refuse of
tobacco may be transferred from one factory to another under an
official L-7 invoice on which shall be entered the exact weight of
the tobacco at the time of its removal, and entry shall be made in
the L-7 register in the place provided on the page for
removals. Corresponding debit entry will be made in the L-7
register book of the factory receiving the tobacco under heading
Refuse, etc., received from other factory, showing date of
receipt, assessment and invoice numbers, name and address of the
consignor, form in which received, and the net weight of the
tobacco. x x x (Emphasis and underscoring supplied.)

Section 20 must be construed in relation to Section

2(m)(1) of Revenue Regulations No. 17-67, which classifies
stemmed leaf tobacco as partially manufactured tobacco,
and Section 3 thereof which provides for the different
designations for persons dealing with tobacco, to wit: L-3, L4, L-6, L-7, etc. Section 3(h) of Revenue Regulations No. 1767 describes an L-7 as a manufacturer of tobacco
products.
The 2001 case of Commissioner of Internal Revenue v.
La Campana Fabrica de Tabacos, Inc.[13] held that the
following conditions must be met for stemmed leaf tobacco
to be transferred without prepayment of specific tax, to wit:
(a) The transfer shall be made pursuant to an official L-7
invoice on which shall be entered the exact weight of
the tobacco at the time of its removal;
(b) Entry shall be made in the L-7 register in the place
provided on the page removals; and
(c) Corresponding debit entry shall be made in the L-7
register book of the factory receiving the tobacco
under the heading Refuse, etc., received from the
other factory, showing the date of receipt,
assessment and invoice numbers, name and address
of the consignor, form in which received, and the
weight of the tobacco.[14]

From the foregoing, it is clear that an entity claiming

exemption from specific tax under Section 137, must prove
that both the entity and the transferee are categorized as L-7
manufacturers since only an L-7 tobacco manufacturer has
an L-7 invoice and an L-7 registry book.[15] Here, petitioner is
engaged in the export, domestic sale and re-drying of
tobacco leaves, activities which are designated as falling
either under L-3R or L-6 under Revenue Regulations No. 1767. Thus, not being designated as an L-7 tobacco

manufacturer, petitioner cannot claim any exemption from

payment of the specific tax on its stemmed leaf tobacco. In
other words, petitioner, as a non-L-7 tobacco dealer of
stemmed leaf tobacco, is liable to pay the specific tax
thereon. Hence, petitioner is not entitled to any refund of the
specific taxes paid.
Petitioners arguments impugning the validity of
Revenue Regulations Nos. V-39 and 17-67 deserve scant
consideration. First, both regulations were issued pursuant
to Section 245[16] (now Section 244) of the Tax Code. The
authority of the Secretary of Finance, in conjunction with the
Commissioner of Internal Revenue, to promulgate needful
rules and regulations for the effective enforcement of internal
revenue laws cannot be controverted. Such rules and
regulations, as well as administrative opinions and rulings,
ordinarily deserve to be given weight and respect by the
courts.[17] Second, our scrutiny of Revenue Regulations Nos.
V-39 and 17-67 clearly shows that said regulations did not
modify or deviate from the text of Sections 137 and 141 but
merely implemented and clarified said two provisions by
providing certain conditions under which stemmed leaf
tobacco may be exempted from prepayment of specific tax.
WHEREFORE, the petition is DENIED for lack of
merit. The assailed Decision and the Resolution of the Court
of Appeals in CA-G.R. SP No. 48797 are AFFIRMED.
SO ORDERED.
Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.
Puno, (Chairman), J., on leave.
Republic of the Philippines SUPREME COURT Manila
FIRST DIVISION
G.R. No. L-36902 January 30, 1982

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

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 shag 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 197 2, plaintiff's rights to the land were reinstated.
On August 14, 1968, plaintiff and his wife sold to defendant an 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 snow 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.
xxx xxx xxx
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 ... admits fun payment thereof by

defendant.

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:
... 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. ... 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 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 nun 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:

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;
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;
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;
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;
5. In not holding that the deed of sale, Exhibit "A" and "2", expresses
a valid contract of sale;
6. In not deciding squarely and to the point the issue as to whether or
not the deed of sale in question is an encumbrance on the land and
its improvements prohibited by Section 8 of Republic Act 477; and
7. In awarding respondent attorney's 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 ... .
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 an the
fruits on the aforementioned parcel of land during the years ...(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 the sale. Here, the Supreme
Court, citing Mechem on Sales and American cases said 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 possess. 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 goodwill 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 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 misapplies 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:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff
to litigate with third persons or to incur expenses to protect his
interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against
the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in
refusing to satisfy the plaintiff's plainly valid, just and demandable
claim;
(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers,

laborers and skilled workers;
(8) In actions for indemnity under workmen's compensation and
employer's liability laws;
(9) In a separate civil action to recover civil liability arising from a
crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable
that attorney's fees and expenses of litigation should be recovered.
In all cases, the attorney's fees and expenses of litigation must be
reasonable.
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.
Republic of the Philippines SUPREME COURT Manila
EN BANC
G.R. No. L-45969

May 4, 1939

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

Y. NAVARRO), respondent.
Pastor Salazar and Vamenta and Vamenta for petitioner. Norberto
Romualdez for respondent.
VILLA-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:
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.
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.
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 state two promises to buy and to sell which are
mutually demandable.
4. Lastly, the Court of Appeals erred in holding that the herein
petitioner has no cause of action against defendant-respondent.
5. 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 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.
Republic of the Philippines SUPREME COURT Manila
FIRST DIVISION

G.R. No. L-116650 May 23, 1995

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

DAVIDE, JR., J.:

At the heart of the present controversy is the document marked

Exhibit "A" 1 for the private respondent, which was signed by a sales
representative of Toyota Shaw, Inc. named Popong Bernardo. The
document reads as follows:

4 June 1989
AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO
OF TOYOTA SHAW, INC.
1. all necessary documents will be submitted to TOYOTA SHAW,
INC. (POPONG BERNARDO) a week after, upon arrival of Mr. Sosa
from the Province (Marinduque) where the unit will be used on the
19th of June.
2. the downpayment of P100,000.00 will be paid by Mr. Sosa on June
15, 1989.
3. the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic]
and released by TOYOTA SHAW, INC. on the 17th of June at 10
a.m.
Very truly yours,
(Sgd.) POPONG BERNARDO.
Was this document, executed and signed by the petitioner's sales
representative, a perfected contract of sale, binding upon the
petitioner, breach of which would entitle the private respondent to
damages and attorney's fees? The trial court and the Court of
Appeals took the affirmative view. The petitioner disagrees. Hence,
this petition for review 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 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 Paraaque II; that the
model series of the vehicle is a "Lite Ace 1500" described as "4 Dr
minibus"; that payment is by "installment," to be financed by "B.A.," 3 with
the initial cash outlay of P100,000.00 broken down as follows:

a)

downpayment

P 53,148.00

b)

insurance

P 13,970.00

c)

BLT registration fee

P 1,067.00

CHMO fee

P 2,715.00

service fee

P 500.00

accessories

P 29,000.00

and that the "BALANCE TO BE FINANCED" is "P274,137.00." The

spaces provided for "Delivery Terms" were not filled-up. It also
contains the following pertinent provisions:
CONDITIONS OF SALES
1. This sale is subject to availability of unit.
2. Stated Price is subject to change without prior notice, Price
prevailing and in effect at time of selling will apply. . . .
Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and
approved the VSP.
On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to
inform him that the vehicle would not be ready for pick up at 10:00
a.m. as previously agreed upon but at 2:00 p.m. that same day. At
2:00 p.m., Sosa and Gilbert met Bernardo at the latter's office.
According to Sosa, Bernardo informed them that the Lite Ace was
being readied for delivery. After waiting for about an hour, Bernardo
told them that the car could not be delivered because "nasulot ang
unit ng ibang malakas."
Toyota contends, however, that the Lite Ace was not delivered to
Sosa because of the disapproval by B.A. Finance of the credit
financing application of Sosa. It further alleged that a particular unit
had already been reserved and earmarked for Sosa but could not be
released due to the uncertainty of payment of the balance of the
purchase price. Toyota then gave Sosa the option to purchase the
unit by paying the full purchase price in cash but Sosa refused.
After it became clear that the Lite Ace would not be delivered to him,
Sosa asked that his downpayment be refunded. Toyota did so on the
very same day by issuing a Far East Bank check for the full amount
of P100,000.00, 4 the receipt of which was shown by a check voucher of

Toyota, 5 which Sosa signed with the reservation, "without prejudice to our
future claims for damages."

Thereafter, Sosa sent two letters to Toyota. In the first letter, dated 27
June 1989 and signed by him, he demanded the refund, within five
days from receipt, of the downpayment of P100,000.00 plus interest
from the time he paid it and the payment of damages with a warning
that in case of Toyota's failure to do so he would be constrained to
take legal action. 6 The second, dated 4 November 1989 and signed by
M. O. Caballes, Sosa's counsel, demanded one million pesos representing
interest and damages, again, with a warning that legal action would be
taken if payment was not made within three days. 7 Toyota's counsel
answered through a letter dated 27 November 1989 8 refusing to accede to
the demands of Sosa. But even before this answer was made and
received by Sosa, the latter filed on 20 November 1989 with Branch 38 of
the Regional Trial Court (RTC) of Marinduque a complaint against Toyota
for damages under Articles 19 and 21 of the Civil Code in the total amount
of P1,230,000.00. 9 He alleges, inter alia, that:

9. As a result of defendant's failure and/or refusal to deliver the

vehicle to plaintiff, plaintiff suffered embarrassment, humiliation,
ridicule, mental anguish and sleepless nights because: (i) he and his
family were constrained to take the public transportation from Manila
to Lucena City on their way to Marinduque; (ii) his balikbayan-guest
canceled his scheduled first visit to Marinduque in order to avoid the
inconvenience of taking public transportation; and (iii) his relatives,
friends, neighbors and other provincemates, continuously irked him
about "his Brand-New Toyota Lite Ace that never was." Under the
circumstances, defendant should be made liable to the plaintiff for
moral damages in the amount of One Million Pesos (P1,000,000.00).
10

In its answer to the complaint, Toyota alleged that no sale was

entered into between it and Sosa, that Bernardo had no authority to
sign Exhibit "A" for and in its behalf, and that Bernardo signed Exhibit
"A" in his personal capacity. As special and affirmative defenses, it
alleged that: the VSP did not state date of delivery; Sosa had not
completed the documents required by the financing company, and as
a matter of policy, the vehicle could not and would not be released
prior to full compliance with financing requirements, submission of all
documents, and execution of the sales agreement/invoice; the

P100,000.00 was returned to and received by Sosa; the venue was

improperly laid; and Sosa did not have a sufficient cause of action
against it. It also interposed compulsory counterclaims.
After trial on the issues agreed upon during the pre-trial session,

11

the trial court rendered on 18 February 1992 a decision in favor of Sosa. 12

It ruled that Exhibit "A," the "AGREEMENTS BETWEEN MR. SOSA AND
POPONG BERNARDO," was a valid perfected contract of sale between
Sosa and Toyota which bound Toyota to deliver the vehicle to Sosa, and
further agreed with Sosa that Toyota acted in bad faith in selling to another
the unit already reserved for him.

As to Toyota's contention that Bernardo had no authority to bind it

through Exhibit "A," the trial court held that the extent of Bernardo's
authority "was not made known to plaintiff," for as testified to by
Quirante, "they do not volunteer any information as to the company's
sales policy and guidelines because they are internal matters." 13
Moreover, "[f]rom the beginning of the transaction up to its consummation
when the downpayment was made by the plaintiff, the defendants had
made known to the plaintiff the impression that Popong Bernardo is an
authorized sales executive as it permitted the latter to do acts within the
scope of an apparent authority holding him out to the public as possessing
power to do these acts." 14 Bernardo then "was an agent of the defendant
Toyota Shaw, Inc. and hence bound the defendants." 15

The court further declared that "Luna Sosa proved his social standing
in the community and suffered besmirched reputation, wounded
feelings and sleepless nights for which he ought to be compensated."
16

Accordingly, it disposed as follows:

WHEREFORE, viewed from the above findings, judgment is hereby

rendered in favor of the plaintiff and against the defendant:
1. ordering the defendant to pay to the plaintiff the sum of P75,000.00
for moral damages;
2. ordering the defendant to pay the plaintiff the sum of P10,000.00
for exemplary damages;
3. ordering the defendant to pay the sum of P30,000.00 attorney's
fees plus P2,000.00 lawyer's transportation fare per trip in attending
to the hearing of this case;

4. ordering the defendant to pay the plaintiff the sum of P2,000.00

transportation fare per trip of the plaintiff in attending the hearing of
this case; and
5. ordering the defendant to pay the cost of suit.
SO ORDERED.
Dissatisfied with the trial court's judgment, Toyota appealed to the
Court of Appeals. The case was docketed as CA-G.R. CV No. 40043.
In its decision promulgated on 29 July 1994, 17 the Court of Appeals
affirmed in toto the appealed decision.

Toyota now comes before this Court via this petition and raises the
core issue stated at the beginning of the 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 agent 20 in
respect of contracts to sell Toyota's vehicles. A person dealing with an

agent is put upon inquiry and must discover upon his peril the authority of
the agent. 21

At the most, Exhibit "A" may be considered as part of the initial phase
of the generation or negotiation stage of a contract of sale. There are
three stages in the contract of sale, namely:
(a) preparation, conception, or generation, which is the period of
negotiation and bargaining, ending at the moment of agreement of
the parties;
(b) perfection or birth of the contract, which is the moment when the
parties come to agree on the terms of the contract; and
(c) consummation or death, which is the fulfillment or performance of
the terms agreed upon in the contract. 22
The second phase of the generation or negotiation stage in this case
was the execution of the VSP. It must be emphasized that
thereunder, the downpayment of the purchase price was P53,148.00
while the balance to be paid on installment should be financed by
B.A. Finance Corporation. It is, of course, to be assumed that B.A.
Finance Corp. was acceptable to Toyota, otherwise it should not have
mentioned B.A. Finance in the VSP.
Financing companies are defined in Section 3(a) of R.A. No. 5980, as
amended by P.D. No. 1454 and P.D. No. 1793, as "corporations or
partnerships, except those regulated by the Central Bank of the
Philippines, the Insurance Commission and the Cooperatives
Administration Office, which are primarily organized for the purpose
of extending credit facilities to consumers and to industrial,
commercial, or agricultural enterprises, either by discounting or
factoring commercial papers or accounts receivables, or by buying
and selling contracts, leases, chattel mortgages, or other evidence of
indebtedness, or by leasing of motor vehicles, heavy equipment and
industrial machinery, business and office machines and equipment,
appliances and other movable property." 23
Accordingly, in a sale on installment basis which is financed by a
financing company, three parties are thus involved: the buyer who
executes a note or notes for the unpaid balance of the price of the

thing purchased on installment, the seller who assigns the notes or

discounts them with a financing company, and the financing company
which is subrogated in the place of the seller, as the creditor of the
installment buyer. 24 Since B.A. Finance did not approve Sosa's
application, there was then no meeting of minds on the sale on installment
basis.

We are inclined to believe Toyota's version that B.A. Finance

disapproved Sosa's application for which reason it suggested to Sosa
that he pay the full purchase price. When the latter refused, Toyota
cancelled the VSP and returned to him his P100,000.00. Sosa's
version that the VSP was cancelled because, according to Bernardo,
the vehicle was delivered to another who was "mas malakas" does
not inspire belief and was obviously a delayed afterthought. It is
claimed that Bernardo said, "Pasensiya kayo, nasulot ang unit ng
ibang malakas," while the Sosas had already been waiting for an
hour for the delivery of the vehicle in the afternoon of 17 June 1989.
However, in paragraph 7 of his complaint, Sosa solemnly states:
On June 17, 1989 at around 9:30 o'clock in the morning, defendant's
sales representative, Mr. Popong Bernardo, called plaintiff's house
and informed the plaintiff's son that the vehicle will not be ready for
pick-up at 10:00 a.m. of June 17, 1989 but at 2:00 p.m. of that day
instead. Plaintiff and his son went to defendant's office on June 17
1989 at 2:00 p.m. in order to pick-up the vehicle but the defendant for
reasons known only to its representatives, refused and/or failed to
release the vehicle to the plaintiff. Plaintiff demanded for an
explanation, but nothing was given; . . . (Emphasis supplied). 25
The VSP was a mere proposal which was aborted in lieu of
subsequent events. It follows that the VSP created no demandable
right in favor of Sosa for the delivery of the vehicle to him, and its
non-delivery did not cause any legally indemnifiable injury.
The award then of moral and exemplary damages and attorney's fees
and costs of suit is without legal basis. Besides, the only ground upon
which Sosa claimed moral damages is that since it was known to his
friends, townmates, and relatives that he was buying a Toyota Lite
Ace which they expected to see on his birthday, he suffered
humiliation, shame, and sleepless nights when the van was not

delivered. The van became the subject matter of talks during his
celebration that he may not have paid for it, and this created an
impression against his business standing and reputation. At the
bottom of this claim is nothing but misplaced pride and ego. He
should not have announced his plan to buy a Toyota Lite Ace
knowing that he might not be able to pay the full purchase price. It
was he who brought embarrassment upon himself by bragging about
a thing which he did not own yet.
Since Sosa is not entitled to moral damages and there being no
award for temperate, liquidated, or compensatory damages, he is
likewise not entitled to exemplary damages. Under Article 2229 of the
Civil Code, exemplary or corrective damages are imposed by way of
example or correction for the public good, in addition to moral,
temperate, liquidated, or compensatory damages.
Also, it is settled that for attorney's fees to be granted, the court must
explicitly state in the body of the decision, and not only in the
dispositive portion thereof, the legal reason for the award of
attorney's fees. 26 No such explicit determination thereon was made in the
body of the decision of the trial court. No reason thus exists for such an
award.

WHEREFORE, the instant petition is GRANTED. The challenged

decision of the Court of Appeals in CA-G.R. CV NO. 40043 as well as
that of Branch 38 of the Regional Trial Court of Marinduque in Civil
Case No. 89-14 are REVERSED and SET ASIDE and the complaint
in Civil Case No. 89-14 is DISMISSED. The counterclaim therein is
likewise DISMISSED.
No pronouncement as to costs.
SO ORDERED.
Republic of the Philippines SUPREME COURT Manila
EN BANC
G.R. No. L-14823 December 9, 1919
HILARIA AGUILAR, plaintiff-appellant, vs. JUAN RUBIATO,

defendant-appellant, and MANUEL GONZALEZ VILA, defendantappellee.

Francisco A. Delgado for plaintiff and appellant. Abaya and
Pamatmat for defendant and appellant.
MALCOLM, J.:
As certainly as may be ascertained, the facts of record in this case
are believed to be the following:
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. I.; that the description and
boundaries of same are duly described in the possessory title (dated
the 15th day of January, 1896) (titulo 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, . . .
lawphi1.net

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
the 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
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 minds 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 naturals
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 explicity 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 for
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 Avancea, JJ., concur.

Republic of the Philippines SUPREME

COURT Manila
EN BANC
February 13, 1924
G.R. No. 21026 PHILIPPINE NATIONAL BANK,
plaintiff-appellee, vs. MANUEL ERNESTO
GONZALEZ, defendant-appellee. SATURNINO
LOPEZ, buyer and appellant.
Camus and Delgado, Turner and Rheberg, Serviliano de la
Cruz for appellant. Palma, Leuterio and Yamzon for
defendant-appellee. No appearance for the plaintiffappellee.
STATEMENT
November 23, 1921, Philippine National Bank commenced
a suit against Manuel Ernesto Gonzales 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 the
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
conforming the sale.
April 5, 1923, the defendant Gonzales, 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 the 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 Gonzales. 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 15,000, 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 Gonzales contain 162 hectares, 4 ares, and 26
centares, and had a combined assessed valuation of
P45,940.
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 povides:
* * * 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, Gonzales 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 to 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 it as
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 for 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 or 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 fraud or collusion, or that in any way Gonzales
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 Gonzales, if any, to redeem. So ordered.
Araullo, C.J., Johnson, Malcolm, Avance?a and
Romualdez, JJ., concur.
Republic of the Philippines SUPREME COURT Manila
FIRST DIVISION

G.R. No. L-34518 January 24, 1974

AURORA P. DE LEON, petitioner, vs. HONORABLE JUDGE
FERNANDO CRUZ of the Court of First Instance of Rizal,
Caloocan City, Branch XII and EUSEBIO BERNABE, respondents.
Tolentino, Garcia, Cruz and Reyes for petitioner.
Taada, Sanchez, Taada and Taada and Raquiza, Esparrago and
Associates for respondent Eusebio Bernabe.

TEEHANKEE, J.:

1wph1. t

The Court herein reiterates the rule that in the absence of

overriding considerations, the judgment debtor will not be
granted preliminary injunction to enjoin execution of a final
judgment or implementation of an already executed judgment
simply because of the filing by the judgment debtor of a new
action for annulment of the executed judgment on bare
allegations of fraud, because the presumption is that such
judgment was legally and validly rendered. This rule doubly

holds true where the judgment debtor has already failed in a

previous action to annul the execution sale for alleged
irregularities and this Court has already sustained the validity of
the execution sale in a final judgment rendered over three years
ago.
On December 28, 1970, this Court rendered its joint decision in
Cases L-30871 1 and L-31603 2 involving the same protagonists at
bar, wherein the decisive issue of conflict of jurisdiction between two
branches of the Caloocan City court of first instance was stated thus:

... 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? 3
The Court sustained the exclusive jurisdiction of Judge Cruz's
court, holding that "(I)t 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 coordinate 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,
Eusebio Bernabe as judgment debtor could not in the guise of a
new and separate second action (Case No. 1217) ask another
court of co-ordinate 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. 4

This Court thus upheld the validity of the execution sale held on
February 14, 1967 of respondent Bernabe's two real properties
(registered under T.C.T. Nos. 94985 and 94986 of Caloocan City)
wherein petitioner Aurora de Leon (sister of the judgment
creditor Enrique de Leon) was the highest bidder and of Judge
Cruz' orders of September 5, 1969 and January 5, 1970 in the
first case (No. C-189) consolidating ownership of the properties
in petitioner de Leon with the expiration of the redemption
period and ordering respondent to surrender his owner's
duplicate certificates of title to the properties thus sold to
petitioner "since said orders were within the exclusive
competence and jurisdiction of Judge Cruz' court." 5
By the same token, this Court held that Judge Salvador had no
jurisdiction to take cognizance of respondent Bernabe's second
action (Case No. C-1217) against his judgment creditor Enrique
de Leon and herein petitioner Aurora P. de Leon as purchaser to
set aside or annul the execution on February 14, 1967 "for being
anomalous and irregular" and to order the holding of a new
auction sale. This Court therefore nullified Judge Salvador's
orders of May 20, 1969 and June 23, 1969 allowing redemption of
the properties "notwithstanding that the one-year redemption
period had already lapsed more than one year ago on February
21, 1968" 6 and declared his court "without jurisdiction over Civil
Case No. C-1217 other than to dismiss the same." 7

Pursuant to this Court's said decision, petitioner assumed

control of the properties and collection of the rentals therefrom,
while under the Court's resolution of March 15, 1971, Bernabe's
motion for the return of the redemption amount of P33,817.28
accepted by the sheriff under Judge Salvador's order of May 20,
1969 which this Court set aside and declared null and void, was
granted as a matter of equity.
It now turns out that respondent Bernabe filed under the same
date of March 15, 1971 still another action against petitioner
Aurora P. de Leon, et al. (docketed as Case No. C-2048) 8 for
annulment or declaration of nullity of the judgment rendered against
him in the first case (No. C-189) at the execution sale of which
petitioner de Leon had acquired his properties in question on the
ground that "the judgment rendered in Civil Case No. C-189 which led

to the execution and sale of his properties, was null and void because
the same was secured by Enrique de Leon, Jr., petitioner's brother
and the plaintiff named in Civil Case No. C-189, through fraud, deceit
and misrepresentation in that his (Enrique de Leon, Jr.') signatures
appearing in the document (lease contract) on which his complaint in
Civil Case No. C-189 was founded, and in the verification of said
complaint, were both falsified by his father, Enrique de Leon, Jr. is
not entitled to the judgment he obtained in Civil Case No. C-189
because the complaint which gave rise to it was not instituted by him
but by his father, Enrique de Leon, Sr. the person who signed the
verification thereof declaring that he is the plaintiff named therein." 9

When petitioner asked respondent judge to finally enforce his

previous orders of September 5, 1969 and January 5, 1970 for
the surrender and cancellation of respondent Bernabe's
certificates of title and the issuance of new certificates in
petitioner's favor (as upheld by this Court's previous decision
above referred to), respondent judge denied petitioner's motions
to this effect per his orders of June 11, 1971 and September 8,
1971 on the ground of pendency of respondents' new action for
annulment of judgment (Case No. C-2048). Respondent Judge
had per his order of June 10, 1971 in this new annulment case
denied petitioner's motion to dismiss (on grounds of res judicata
and lack of cause of action since it was premised on allegations
of intrinsic, not extrinsic, fraud) stating that petitioner's grounds
for dismissal "do not appear to be indubitable" and ordered
petitioner to answer the complaint. 10 In an earlier order of March
17, 1971, "to preserve the status quo between the parties" he had
ordered petitioner and her co-defendants "to refrain from taking any
further action on the properties of the plaintiff, Eusebio Bernabe." 11

Hence, the present petition for certiorari, prohibition and

mandamus. 12 The Court, in giving due course, issued on January
15, 1972 its writ of preliminary injunction enjoining respondents from
further restraining this Court's final decision in Cases L-30871 and L31603 above referred to and respondent judge from further taking
cognizance of and proceeding with the annulment case (No. C-2048).

The crucial issue thus presented at bar is whether respondent

judge acted with grave abuse of discretion amounting to excess
of jurisdiction in issuing his challenged orders restraining in

effect implementation of this Court's final decision of December

28, 1970 which sustained his own orders of September 5, 1969
and January 5, 1970 in the original case (No. C-189) "confirming
Aurora's acquisition of title to the properties by virtue of the
execution sale and ordering Bernabe to transfer possession to
her" 13 simply from the bare fact that respondent Bernabe has filed
on March 15, 1971 a second action for annulment of the executed
judgment for alleged fraud (Case No. C-2048) after his first action for
annulment of the execution sale in favor of petitioner Aurora (Case
No. C-1217) had failed and this Court had sustained by final judgment
the very orders implementing the execution sale which respondent
judge would now enjoin?

The Court holds that respondent judge did so act with grave
abuse of discretion. In the absence of overriding considerations
and none has been shown here the implementation of
execution proceedings already performed in satisfaction of a
judgment and sustained by final judgment of this Court (for
consolidation of title of the properties acquired in the execution
sale by petitioner Aurora and her exercise of the rights of
ownership and possession the same) will not be enjoined,
simply because of the filing by the judgment debtor of a new
action for annulment of the executed judgment on the ground of
fraud, because the presumption is that such judgment was
legally and validly rendered. This is doubly true where as in this
case respondent judgment debtor has already failed in a
previous action to annul the execution sale and this Court
sustained the validity of such sale in a final judgment rendered
over three years ago on December 28, 1970.
As was stressed in the similar case of Quintero vs. Martinez

14

where the judgment debtor sought to enjoin execution of a final

judgment of the municipal court in an action filed by him for the
annulment thereof on the ground "that the said judgment was
obtained through fraud, falsification and collusion", the Court
sustained the court of first instance's action of refusing to issue a
preliminary injunction against execution of the final judgment, ruling
that "unless and until the court sets aside as null and void the final
judgment of the municipal court of Manila ... on the ground of fraud,
the execution thereof cannot be enjoined ... because the presumption
is that the judgment was legally rendered. ... To issue a preliminary

injunction (on mere allegations of fraud) would be to allow judgment

debtors to delay the execution of a final judgment against them by
filing a complaint (for annulment of judgment with injunction)
irrespective of the final outcome of the action." 15 Parenthetically, it
may be noted that a judgment debtor seeking annulment of judgment
affecting real property may avail of a notice of lis pendens as
provided in Rule 14, section 24 for the protection of his alleged rights
to the property.

Equally pertinent is the established doctrine that where there is

no question about the jurisdiction of the court over the parties
and subject matter and the proceedings were free from extrinsic
fraud, the judgment cannot be declared null and void even if it
were assumed that the court committed an error of judgment or
reached an erroneous conclusion in deciding the case, since
such errors of judgment not of jurisdiction are correctible and
reviewable only by appeal and "if no appeal is taken, the
decision, erroneous or not, becomes final and executory, and is
valid and binding between the parties." 16
Thus, when respondent judge in obedience to this Court's
preliminary injunction subsequently ordered respondent
Bernabe to surrender his titles under pain of cancellation and
authorized petitioner Aurora "to resume collecting rentals from
the properties" per his orders of April 7, 1972, July 1, 1972 and
September 11, 1972 and Bernabe sought to impugn such orders
in a petition for certiorari filed with this Court on September 28,
1972 (docketed as Case L-35559 17) the Court dismissed the
petition for lack of merit per its resolutions of October 31, 1972 and
November 28, 1972.

Here, respondent Bernabe admittedly had his day in Court in the

original case (No. C-189) where judgment was obtained and
executed against him, his appeal from the judgment failed, and
his special civil action for certiorari again Judge Cruz' orders
confirming petitioner Aurora's acquisition of title to the
properties by virtue of the execution sale was decided adversely
against him in this Court's decision of December 28, 1970.
He now alleges fraud in his new complaint only in the judgment
creditor's father (Enrique de Leon, Sr.) allegedly falsified his (the

son's) signatures in the lease contract and in the complaint

supra. 18 In respondent Bernabe's belated supplementary
memorandum of May 19, 1973, however, realizing perhaps that his
bare allegations as to the father having falsified the signatures of his
son, the judgment creditor, in the lease contract and the complaint do
not make out a case of extrinsic fraud since he was no way deprived
of his day in court, he now makes for the first time allegations not
made below of a "second fraud" alleged collusion between his lawyer
in the first case (C-189) and the de Leons and indicates that he would
correspondingly seek an "amendment of pleading if necessary to
serve the ends of justice."

The best-case view for respondent then is that while he could

file such action or amended action for annulment of the
executed judgment (on the assumption that his first action to
annul the execution sale in Case No. 1217 is not res judicata)
such filing per se does not invalidate the judgment nor entitle
him to a preliminary injunction suspending effects and
consequences of the executed judgment to prejudice of
petitioner Aurora, whose rights as purchaser of the properties at
the execution sale have been recognized by this Court's final
judgment of December 28, 1970, until and unless he shall have
obtained a final judgment for annulment.
The worst-case view for respondent is that respondent judge
may take a second look at petitioner's motion to dismiss for lack
of cause of action on the ground that the fraud alleged in
respondent's new complaint does not constitute extrinsic fraud
which alone warrants annulment of a judgment and then
resolve after hearing the parties that indeed no extrinsic fraud is
alleged in respondent's second complaint for annulment or such
amendments thereof as shall have been permitted and that the
same should therefore be dismissed without need of trial for
failure to state a cause of action.
The question of extrinsic fraud has been extensively discussed
in the Court's ample jurisprudence on the matter. In the latest
case of Cruz vs. Navarro, 19 Mr. Justice Castro succinctly defined
fraud as "extrinsic when it is employed to deprive a party of his day
in court, thereby preventing him from asserting his right to the
property."

In Libudan vs. Gil

20

, extrinsic fraud was likewise described as the

"fraudulent scheme of the prevailing litigant (which) prevents a party
from having his day in court or from presenting his case." It was
therein emphasized that an action to annul judgment on grounds of
intrinsic fraud such as "acts of a party in a litigation during the trial,
such as the use of forged instruments or perjured testimony, which
did not affect the presentation of the case, but did prevent a fair and
just determination of the case," 21 would be unavailing, since it is the
business of a party litigant to meet and repel his opponent's perjured
or falsified evidence and it is settled law that judicial determination
however erroneous of matters brought within the court's jurisdiction
must be corrected in the same proceeding on appeal and cannot be
invalidated in another proceeding as otherwise the losing party could
attack the judgment at any time by attributing imaginary falsehoods
to his adversary's proofs.

In Cordovis vs. Obias

22

it was stressed that while "equity abhors

fraud ... not every fraud can be a ground to annul a judgment,
otherwise litigations would never end."

ACCORDINGLY, the writ of certiorari is granted and respondent

judge's questioned orders of June 11, 1971 and September 8,
1971 in Case No. C-189 denying implementation of his previous
orders confirming petitioner's acquisition of title to the
properties (as set aside by respondent judge in his subsequent
orders of April 7, July 1, and September 11, 1972) are hereby set
aside and annulled. The preliminary injunction heretofore issued
on January 15, 1972 by the Court is set aside insofar as it
enjoined respondent judge from further taking cognizance of
and proceeding with the annulment case (No. C-2048) with
instructions to dispose of the same, particularly as to the
unresolved question raised in petitioner's pending motion to
dismiss of whether the allegations of respondent's complaint
therein make out a case of extrinsic fraud so as to state a cause
of action, in consonance with the controlling principles and
jurisprudence thereon as set forth in the Court's opinion. No
pronouncement as to costs.
Makalintal, C.J., Castro, Makasiar, Esguerra and Muoz Palma,
JJ., concur.
1wph 1.t

Republic of the Philippines

Supreme Court
Manila

THIRD DIVISION
Heirs of uerta vs. heirs of ureta
September 14, 2011
Respondents.
x-------------------------------------------------x

DECISION
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 Decision[1] of
the Court of Appeals (CA), and its October 14, 2004
Resolution[2] in C.A.-G.R. CV No. 71399, which
affirmed with modification the April 26, 2001
Decision[3] 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 Alfonsos children and their
descendants (Heirs of Alfonso).
Alfonso was financially well-off during his
lifetime. He owned several fishpens, a fishpond, a sarisari 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 fathers 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 fathers 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, Alfonsos 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, Policronios eldest son, representing
the Heirs of Policronio, signed the Deed of ExtraJudicial Partition in behalf of his co-heirs.
After their fathers 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 ExtraJudicial Partition involving Alfonsos 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 Damages[9] 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 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
DISMISSED.

are

likewise

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, 2,000.00 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 Conrados claim that he
did not understand the full significance of his signature
when he signed in behalf of his co-heirs, as a gratutitous
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 URETAS 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 fathers 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 RTCs 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 capactiy 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
RTCs approval in either case. Otherwise, the RTC may
proceed with the compulsory partition of the estate in

accordance with the Rules.

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 Conrados lack
of capacity to give his co-heirs consent to the extrajudicial 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 Uretas
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 coheirs 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 Extra-Judicial
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
transactions validity, except that it must yield to the
evidence adduced.[10]
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 Extra-Judicial 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
Alfonsos 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 Policronios
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 latters
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 Policronios 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
Policronios 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. Refresca[13] 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 evidence[17] 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?
A:
I was near them in fact I heard
everything they were talking [about]
xxx
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.

Policronios 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 Policronios 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
inexistent and void from the beginning:
xxx

are

(2) Those which are absolutely simulated or

fictitious;
xxx

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.
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 2,000.00 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 2,000.00 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 2,000.00 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 (2,000.00) 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
2,000.00 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 successorsin-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
imperfection in the written agreement;

or

(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.
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[31] 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-ininterest 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 Policronios were
all presented in evidence. Second, all the properties
subject therein were included in the Deed of ExtraJudicial 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 Alfonsos
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 nonexistent 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 Extra-Judicial
Partition.
Personality to Question Sale
The Heirs of Policronio contended that the Heirs
of Alfonso are not parties, heirs, or successors-ininterest under the contemplation of law to clothe them
with the 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 Alfonsos 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 nonexistent 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 (Alfonsos 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 Alfonsos
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 others 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 others
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 nonexistent.[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 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.[44]

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.[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
Alfonsos 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 extra-judicial parition 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
Conrados 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 Conrados 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:
xxx
(5) To enter into any contract by which the
ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable
consideration;
xxx
(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 cases[48] 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 Conrados 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

unenforceable, unless they are ratified:

are

(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 partys
consent is vitiated by mistake, violence,
intimidation, undue influence or fraud. x x x
The deed of extrajudicial parition and
sale is an unenforceable or, more specifically,
an unauthorized contract under Articles
1403(1) and 1317 of the New Civil Code.[50]

Therefore, Conrados 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 Conrados 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 ExtraJudicial 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.

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 coplaintiffs in this case aware of your act to sign
this document?
A:

They do not know.

xxx

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]

xxx

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.

xxx

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.
xxx
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 Conrados explanations were
mere gratuitous assertions not entitled to any probative
weight. The RTC found Conrados 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
Conrados 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 Conrados 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
grandfathers 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 Conrados co-heirs claimed that they
did not authorize Conrado to sign the Deed of ExtraJudicial 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 ExtraJudicial 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 Attorney[54] 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 Mortgage[55] 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 Conrados consent to the Deed of ExtraJudicial 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:
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 Conrados 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 ExtraJudicial 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 Extra-Judicial
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 ExtraJudicial 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 Alfonsos heirs
received their rightful share. Conrado, who received
Policronios 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 ExtraJudicial 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:
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, 7d).[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.
Republic of the Philippines SUPREME COURT Manila
FIRST DIVISION
G.R. No. L-67888 October 8, 1985
IMELDA ONG, ET AL., petitioners, vs. ALFREDO ONG, ET AL.,
respondents.
Faustino Y Bautista and Fernando M. Mangubat for private
respondent.

RELOVA, J.:
This is a petition for review on certiorari of the decision, dated June
20, 1984, of the Intermediate Appellate Court, in AC-G.R. No. CV01748, affirming the judgment of the Regional Trial Court of Makati,
Metro Manila. Petitioner Imelda Ong assails the interpretation given
by respondent Appellate Court to the questioned Quitclaim Deed.
Records show that on February 25, 1976 Imelda Ong, for and in
consideration of One (P1.00) Peso and other valuable considerations,
executed in favor of private respondent Sandra Maruzzo, then a
minor, a Quitclaim Deed whereby she transferred, released, assigned
and forever quit-claimed to Sandra Maruzzo, her heirs and assigns,
all her rights, title, interest and participation in the ONE-HALF ()
undivided portion of the parcel of land, particularly described as

follows:
A parcel of land (Lot 10-B of the subdivision plan (LRC) Psd 157841,
being a portion of Lot 10, Block 18, Psd-13288, LRC (GLRC) Record
No. 2029, situated in the Municipality of Makati, Province of Rizal,
Island of Luzon ... containing an area of ONE HUNDRED AND
TWENTY FIVE (125) SQUARE METERS, more or less.
On November 19, 1980, Imelda Ong revoked the aforesaid Deed of
Quitclaim and, thereafter, on January 20, 1982 donated the whole
property described above to her son, Rex Ong-Jimenez.
On June 20, 1983, Sandra Maruzzo, through her guardian (ad litem)
Alfredo Ong, filed with the Regional Trial Court of Makati, Metro
Manila an action against petitioners, for the recovery of
ownership/possession and nullification of the Deed of Donation over
the portion belonging to her and for Accounting.
In their responsive pleading, petitioners claimed that the Quitclaim
Deed is null and void inasmuch as it is equivalent to a Deed of
Donation, acceptance of which by the donee is necessary to give it
validity. Further, it is averred that the donee, Sandra Maruzzo, being
a minor, had no legal personality and therefore incapable of
accepting the donation.
Upon admission of the documents involved, the parties filed their
responsive memoranda and submitted the case for decision.
On December 12, 1983, the trial court rendered judgment in favor of
respondent Maruzzo and held that the Quitclaim Deed is equivalent
to a Deed of Sale and, hence, there was a valid conveyance in favor
of the latter.
Petitioners appealed to the respondent Intermediate Appellate Court.
They reiterated their argument below and, in addition, contended that
the One (P1.00) Peso consideration is not a consideration at all to
sustain the ruling that the Deed of Quitclaim is equivalent to a sale.
On June 20, 1984, respondent Intermediate Appellate Court
promulgated its Decision affirming the appealed judgment and held
that the Quitclaim Deed is a conveyance of property with a valid

cause or consideration; that the consideration is the One (P1.00)

Peso which is clearly stated in the deed itself; that the apparent
inadequacy is of no moment since it is the usual practice in deeds of
conveyance to place a nominal amount although there is a more
valuable consideration given.
Not satisfied with the decision of the respondent Intermediate
Appellate Court, petitioners came to Us questioning the interpretation
given by the former to this particular document.
On March 15, 1985, respondent Sandra Maruzzo, through her
guardian ad litem Alfredo Ong, filed an Omnibus Motion informing this
Court that she has reached the age of majority as evidenced by her
Birth Certificate and she prays that she be substituted as private
respondent in place of her guardian ad litem Alfredo Ong. On April
15, 1985, the Court issued a resolution granting the same.
A careful perusal of the subject deed reveals that the conveyance of
the one- half () undivided portion of the above-described property
was for and in consideration of the One (P 1.00) Peso and the other
valuable considerations (emphasis supplied) paid by private
respondent Sandra Maruzzo through her representative, Alfredo Ong,
to petitioner Imelda Ong. Stated differently, the cause or
consideration is not the One (P1.00) Peso alone but also the other
valuable considerations. As aptly stated by the Appellate Court... although the cause is not stated in the contract it is presumed that
it is existing unless the debtor proves the contrary (Article 1354 of the
Civil Code). One of the disputable presumptions is that there is a
sufficient cause of the contract (Section 5, (r), Rule 131, Rules of
Court). It is a legal presumption of sufficient cause or consideration
supporting a contract even if such cause is not stated therein (Article
1354, New Civil Code of the Philippines.) This presumption cannot be
overcome by a simple assertion of lack of consideration especially
when the contract itself states that consideration was given, and the
same has been reduced into a public instrument with all due
formalities and solemnities. To overcome the presumption of
consideration the alleged lack of consideration must be shown by
preponderance of evidence in a proper action. (Samanilla vs,
Cajucom, et al., 107 Phil. 432).

The execution of a deed purporting to convey ownership of a realty is

in itself prima facie evidence of the existence of a valuable
consideration, the party alleging lack of consideration has the burden
of proving such allegation. (Caballero, et al. vs. Caballero, et al.,
(CA), 45 O.G. 2536).
Moreover, even granting that the Quitclaim deed in question is a
donation, Article 741 of the Civil Code provides that the requirement
of the acceptance of the donation in favor of minor by parents of legal
representatives applies only to onerous and conditional donations
where the donation may have to assume certain charges or burdens
(Article 726, Civil Code). The acceptance by a legal guardian of a
simple or pure donation does not seem to be necessary (Perez vs.
Calingo, CA-40 O.G. 53). Thus, Supreme Court ruled in Kapunan vs.
Casilan and Court of Appeals, (109 Phil. 889) that the donation to an
incapacitated donee does not need the acceptance by the lawful
representative if said donation does not contain any condition. In
simple and pure donation, the formal acceptance is not important for
the donor requires no right to be protected and the donee neither
undertakes to do anything nor assumes any obligation. The Quitclaim
now in question does not impose any condition.
The above pronouncement of respondent Appellate Court finds
support in the ruling of this Court in Morales Development Co., Inc.
vs. CA, 27 SCRA 484, which states that "the major premise thereof is
based upon the fact that the consideration stated in the deeds of sale
in favor of Reyes and the Abellas is P1.00. It is not unusual, however,
in deeds of conveyance adhering to the Anglo-Saxon practice of
stating that the consideration given is the sum of P1.00, although the
actual consideration may have been much more. Moreover,
assuming that said consideration of P1.00 is suspicious, this
circumstance, alone, does not necessarily justify the inference that
Reyes and the Abellas were not purchasers in good faith and for
value. Neither does this inference warrant the conclusion that the
sales were null and void ab initio. Indeed, bad faith and inadequacy of
the monetary consideration do not render a conveyance inexistent,
for the assignor's liberality may be sufficient cause for a valid contract
(Article 1350, Civil Code), whereas fraud or bad faith may render
either rescissible or voidable, although valid until annulled, a contract
concerning an object certain entered into with a cause and with the

consent of the contracting parties, as in the case at bar."

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