161069135 civ-revalida-cases

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G.R. No. 83992 January 27, 1993

RURAL BANK OF DAVAO CITY, INC. petitioner, vs.THE HONORABLE COURT OF APPEALS and GABRIEL ABELLANO and FRANCISCO SEQUITAN, respondents.

DAVIDE, JR., J.:

Two (2) issues are presented for Our resolution in this petition for review under Rule 45 of the Rules of Court, viz:(1) whether or not the two-year redemption period fixed by the Rural Banks' Act 1 in a foreclosure sale of property acquired through a homestead patent superseded or repealed thefive-year repurchase period prescribed in Section 119 of the Public Land Act 2 and (2) if it did not, whether, in the event of the expropriation by the Government of the subject property during the redemption or repurchase period, a homesteader, who thereafter exercised his right to redeem or repurchase, is entitled to the compensation for such expropriation less the redemption or repurchase amount. The trial court ruled in the negative for the first issue and in the affirmative for the second. The respondent Court of Appeals affirmed the trial court. Hence, We have the instant petition seeking for a contrary ruling.

The undisputed facts generative of this controversy are as follows:

On 18 April 1978, private respondents Gabriel Abellano and Francisca Sequitan obtained a loan in the amount of P45,000.00 from the petitioner, a rural bank organized and existing under the Rural Banks' Act. The terms thereof called for payment of the loan in two (2) equal installments on 21 October 1978 and 21 April 1979.

As security for the loan, the private respondents mortgaged with the petitioner a parcel of land, belonging to them, with an area of one (1) hectare, more or less, located at Matina, Davao City and covered by Original Certificate of Title No. P-7392. The land was acquired through a homestead patent.

On 1 July 1978, the National Housing Authority (NHA) filed with the then Court of First Instance (CFI) of Davao City a complaint for the expropriation of several parcels of land located in Davao City to carry out its Slum Improvement and Resettlement Program; said

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action was directed against the private respondents, with respect to the mortgaged property, and fifteen (15) other persons. The case was docketed as Special Civil Case No. 11157 and was raffled off to Branch II of said court. As mortgagee, the petitioner filed therein a motion to intervene, which the court granted.

Upon arrival of the loan's maturity dates, private respondents failed to pay their obligation to the petitioner. The latter therefore caused the extrajudicial foreclosure of the subject property in accordance with Act No. 3135, as amended. During the foreclosure sale held on 9 November 1979, the petitioner submitted the highest bid; consequently, the Deputy Sheriff executed in its favor a certificate of sale for the total amount of P54,883.00 which included the unpaid interest and other charges.

The certificate of sale was registered in the Registry of Deeds of Davao City on 7 December 1979. Private respondents, however, failed to redeem the foreclosed property within the period of two (2) years from the date of registration, or up to 7 December 1981, as provided for in Section 5 of the Rural Banks' Act. Despite such failure, the petitioner extended the period to October 1982. The private respondents still failed to redeem the property. Petitioner then asked for the consolidation of its title over the same. In due course, the private respondents' certificate of title was canceled and in lieu thereof, Transfer Certificate of Title No. T-92487 in the name of the petitioner was issued on 3 November 1982.

On 24 February 1983, Branch II of the CFI of Davao City issued an order in Special Civil Case No. 11157 requiring the NHA to pay the amount of P85.00 per square meter for the properties sought to be expropriated, which included the aforementioned foreclosed property. This amount was subsequently reduced to P49.00 per square meter. Thus, the price to be paid for the foreclosed property was P490,000.00.

On 9 November 1983, private respondents notified the petitioner of their desire to repurchase the foreclosed property pursuant to Section 119 of the Public Land Act (C.A. No. 141). Rebuffed by the latter, private respondents filed on 9 February 1984 with the Regional Trial Court (RTC) of Davao City a complaint for reconveyance of their foreclosed property under said Section 119. The case was docketed as Civil Case No. 16693 and was raffled off to Branch XIII of the said court.

In its Affirmative Defenses set up in the Answer to the complaint, petitioner claimed that the private respondents' action will no longer prosper because their right to repurchase had become moot and academic as the property could no longer be physically, materially and actually recovered or repurchased. This is so because no less than the sovereign state needed the same — pursuant to its socialized housing program under P.D. No. 875, as amended — to be divided into smaller lots for distribution to a greater number of recipients, and that "the right to repurchase cannot be exercised without the actual, material and physical recovery of the property itself, otherwise such an action, as the instant action of the plaintiffs, is purely speculative, which our Supreme Court, in a series of decisions, had frowned upon and disallowed." 3

After the issues were joined, the trial court conducted a pre-trial conference on 3 May 1984. On the same date, it issued an order requiring the private respondents to deposit the sum of P54,883.00 as repurchase price which they complied with.

On 2 July 1984, private respondents filed a Motion to Amend the Complaint and File Supplemental Pleading alleging therein, inter alia, that since "there is a seeming impossibility for the plaintiffs now to reacquire the property by reason of the order of expropriation, justice also demands that the said amount of P490,000.00 must be given to the plaintiffs, in lieu of the property expropriated." Despite the petitioner's opposition, the trial court issued on 2 August 1984 an order granting the motion and admitting the amended complaint.

The trial court decided the case on 1 February 1985 on the basis of the stipulation of facts submitted by the parties. The dispositive portion of the decision reads:

WHEREFORE, decision is hereby rendered, declaring plaintiffs entitled to the price paid by the National Housing Authority for the property in question and ordering the defendant:

1. To pay or remit the (sic) plaintiffs the sum of P435,117.00, the remaining balance of said price of

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the property paid by NHA after deducting the obligation of plaintiffs in the sum of P54,883.00;

2. To pay plaintiff's interest on the P435,117.00 at the rate defendant grants to its depositor commencing on the date when defendant received the sum of P490,000.00 from NHA in payment of the property in question until the whole obligation is fully paid;

3. To pay plaintiffs the sum of P10,000.00 as attorney's fee plus costs.

SO ORDERED. 4

Petitioner seasonably appealed this decision to the then Intermediate Appellate Court on both questions of fact and law. The case was docketed as CA-G.R. CV No. 07689.

On 30 March 1988, the respondent Court of Appeals, as the successor of the Intermediate Appellate Court, promulgated, through a division of five (5) (Sixteenth Division), its decision in CA-G.R. No. 07689 affirming the decision of the trial court in Civil Case No. 16693. 5

In affirming the trial court's decision, the respondent Court held that Section 5 of the Rural Banks' Act, as amended, did not reduce the period of redemption of homestead lands from the five (5) years prescribed in Section 119 of C.A. No. 141, as amended, to two (2) years from the date of registration of the foreclosure sale as fixed in the former; in support of such conclusion, it summoned Oliva vs. Lamadrid 6 wherein this Court, speaking through then Chief Justice Concepcion, held:

It should be noted that the period of two (2) years granted for the redemption of property foreclosed under Section 5 of Republic Act No. 720, as amended by Republic Act No. 2670, refers to lands "notcovered by a Torrens Title, a homestead or free patent," or to owners of lands "without torrens title," who can "show five years or more of peaceful, continuous and uninterrupted possession thereof in the concept of an

owner, or of homesteads or free patent lands pending the issuance of titles but already approved," or of "lands pending homestead or free patent titles." Plaintiff, however, had, on the land in question, a free patent and a Torrens title, which were issued over 26 years prior to the mortgage constituted in favor of the Bank. Accordingly, there is no conflict between Section 119 of Commonwealth Act No. 141 and Section 5 of Republic Act. No. 720, as amended, and the period of two (2) years prescribed in the latter is not applicable to him.

Moreover, the legislative history of the bills which later became said Republic Act No. 2670, amending Republic Act No. 720, shows that the original proposal was to give homesteaders or free patent holders a period of ten (10) years within which to redeem their property foreclosed by rural banks; that this proposal was eventually found to be unwise, because its effect would have been to dissuade rural banks from granting loans to homesteaders or free patent holders — which were (sic) sought to be liberalized — said period of redemption being too long, from the viewpoint of said banks; and that, consequently, the proposal was given up, with the specific intent and understanding that homesteaders or holders of free patent (sic) would retain the right to redeem within five (5) years from the conveyance of their properties, as provided in the general law, that is to say the Public Land Act, or Commonwealth Act No. 141.

It is, therefore, our considered view that plaintiff herein has the right to repurchase the property in question within five (5) years from the date of the conveyance or foreclosure sale, or up to February 4, 1966, and that having exercised such right and tendered payment long before the date last mentioned, defendants herein are bound to reconvey said property to him.

In said case, the mortgaged property involved was sold at a public auction by the Sheriff on 4 February 1961.

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Respondent Court further ruled that C.A. No. 141 is a special law and must prevail. Thus:

Neither could it readily be concluded that the Rural Banks Act is a special law and that the Public Law (sic) Act is general. The Rural Bank Act deals with all kinds of land while the Public Land Act relates to a specific class of properties.

In Cassion v. BancoNacional Filipino, 89 Phil. 560, the sole question for decision is which of the conflicting provisions ought to prevail? Section 32 and Section 6 of Act No. 2938, which amended Act No. 2717 (sic) creating the Philippine National Bank, which allows the debtor only one year to redeem property sold under a mortgage foreclosure whether judicial or extra-judicial, or Section 117 of Act No. 2874 known as the Public Land Act, as amended, which provides that "every conveyance of land acquired under free (sic) patent or homestead provisions, when proper, shall be subject to repurchase by the applicant, his widow, or legal heirs for a period of five years from the date of conveyance," the Supreme Court held:

Now then, it seems plain that Section 32 of Act No. 2938 and Section 6 of Act No. 3135 are wider in scope or more comprehensive than Section 117 of Act No. 2874. They comprehend all kinds of property brought within the relations and circumstances provided thereby, while Section 117 of Act No. 2874 relates to a specific class of property. Stated otherwise, the property on which the Philippine National Bank's Charter and Act No. 3135 are operative is any property mortgaged to the Bank, whereas, as already stated, Act No. 2874 by its own terms is operative only on lands acquired under the free patent or homestead provisions. Section 32 of Act No. 2938 and Section 6 of Act No.

3l35 standing alone would include homestead or free patented lands, while Section 117 of Act No. 2874 would not embrace any property other than that mentioned therein even if Acts Nos. 2938 and 3135 did not exist. To use the words of Act No. 190 and the Rules of Court, Act No. 2874 manifests "a particular intent," the intent to promote the spread of small land ownership and the preservation of public land grants in the hands of the underprivileged for whose benefit they are specially intended and whose welfare is a special concern of the State.

We therefore hold that Act No. 2874 is controlling, that homestead constitute an exception of Acts No. 2938 and 3135, and that the appealed decision should be affirmed. It is so ordered with costs against the appellant. (p. 562)

The Homestead Act is a social legislation enacted for the welfare and protection of the poor (Patricio vs. Bayog, 112 SCRA 42). A construction which would carry into effect the evident policy of the law should be adopted in favor of that interpretation which would defeat it. A decent respect for the policy of the law must save the Court from imputing to it a self defeating, if not disingeneous purpose (p. 65, Agpalo, Supra).

Since the mortgaged property is a homestead covered by a Torrens Title, the five-year period of repurchase should be from the foreclosure sale on November 9, 1979 or up to November 9, 1984. NHA filed the eminent domain proceedings on July 1, 1978 while appellees were still the owners of the land. For this reason, they were the ones who were made defendants therein. Although the land was foreclosed

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and sold to the Rural Bank on November 9, 1979, the latter did not become the absolute owner thereof. It never did. Under Section 119 of the Public Land Law, plaintiff has up to November 9, 1984 within which to repurchase the property. Thus on November 9, 1983 appellees notified appellant bank of their desire to repurchase said property under Section 119, CA 141, but was (sic) refused. On February 9, 1984, appellees filed with the Regional Trial Court of Davao City, Branch XIII, an action for reconveyance and on May 3, 1984, the lower court issued an order requiring appellees to deposit the amount of P54,883.00 as the amount of repurchase price which was complied with by the latter, well within the period of five years from the date of foreclosure sale. 7

As to the fact that the land had already been expropriated by the NHA, the respondent Court observed that:

While it is true that the land in question has been expropriated by the NHA who paid the total amount of P490,000.00 as the just compensation for the taking of the property, it is but fair, fitting and proper, that this amount be paid to plaintiffs-appellees as the just compensation for their property. To hand over this amount to the Rural Bank would be to unjustly enrich the rural bank at the expense of the plaintiffs who have less in life. 8

Its motion for reconsideration of the above decision having been denied by the respondent Court in the Resolution of 17 May 1988, 9 the petitioner availed of this recourse and reiterates the same errors it had raised before the respondent Court, to wit:

1. THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFFS-APPELLEES ARE ENTITLED TO THE PRICE PAID BY THE NATIONAL HOUSING AUTHORITY FOR THE PROPERTY IN QUESTION AND IN ORDERING THE DEFENDANT-APPELLANT TO PAY OR REMIT TO PLAINTIFFS-APPELLEES THE SUM OF P435,117.00, THE REMAINING BALANCE OF SAID PRICE OF THE PROPERTY PAID BY THE NATIONAL HOUSING

AUTHORITY AFTER DEDUCTING THE OBLIGATION OF PLAINTIFFS-APPELLEES IN THE SUM OF P54,883.00.

2. THE LOWER COURT ERRED IN NOT HOLDING THAT PLAINTIFFS-APPELLEES' RIGHT TO REPURCHASE UNDER SECTION 119 OF COMMONWEALTH ACT NO. 141, AS AMENDED, OTHERWISE KNOWN AS THE PUBLIC LANDS (sic) ACT, IS ONLY LIMITED TO THE LAND ITSELF.

3. THE LOWER COURT ERRED IN NOT HOLDING THAT THE ACT OF PLAINTIFFS-APPELLEES IN TRYING TO REPURCHASE THE PROPERTY IN QUESTION, OR, IN THE ALTERNATIVE, IN TRYING TO RECOVER THE PROCEEDS OF THE SALE OR PRICE THEREOF, IS PURELY SPECULATIVE IN NATURE.

4. THE LOWER COURT ERRED IN FINDING DEFENDANT-APPELLANT LIABLE FOR INTEREST, ATTORNEY'S FEES AND COSTS. 10

which may be reduced to the two (2) principal issues adverted to in the exordium of this ponencia.

After the filing of the private respondents' Comment to the petition, the petitioner's reply thereto and the former's rejoinder to the reply, this Court gave due course to the petition and required the parties to submit their respective memoranda which they complied with.

The petition is devoid of any merit. Respondent Court of Appeals committed no reversible error.

Section 119 of the Public Land Act (C.A. No. 141) provides:

Sec. 119. Every conveyance of land acquired under the free patent or homestead provisions, when proper, shall be subject to repurchase by the applicant, his widow, or legal heirs, within a period of five years from the date of the conveyance. 11

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The policy of homestead laws and the reason behind the foregoing provision are expressed by this Court inPascua vs. Talens 12 in this wise:

It is well-known that the homestead laws were designed to distribute disposable agricultural lots of the State to land-destitute citizens for their home and cultivation. Pursuant to such benevolent intention the State prohibits the sale or encumbrance of the homestead (Section 116) within five years after the grant of the patent. After that five-year period the law impliedly permits alienation of the homestead; but in line with the primordial purpose to favor the homesteader and his family the statute provides that such alienation or conveyance (Section 117) shall be subject to the right of repurchase by the homesteader, his widow or heirs within five years. This Section 117 is undoubtedly a complement of Section 116. It aims to preserve and keep in the family of the homesteader that portion of public land which the State had gratuitously given to him. It would, therefore, be in keeping with this fundamental idea to hold, as we hold, that the right to repurchase exists not only when the original homesteader makes the conveyance, but also when it is made by his widows or heirs. This construction is clearly deducible from the terms of the statute.

As pointedly stated earlier in Jocson vs. Soriano, 13 in connection with homestead statutes:

Acts Nos. 1120 and 926 were patterned after the laws granting homestead rights and special privileges under the laws of the United States and the various states of the Union. The statutes of the United States as well as of the various states of the Union contain provisions for the granting and protection of homesteads. Their object is to provide a home for each citizen of the Government, where his family may shelter and live beyond the reach of financial misfortune, and to inculcate in individuals those feelings of independence which are essential to the maintenance of free institutions. Furthermore,

the state itself is concerned that the citizens shall not be divested of a means of support, and reduced to pauperism. (Cook and Burgwall vs. McChristian, 4 Cal., 24; Franklin vs. Coffee, 70 Am. Dec., 292; Richardson vs. Woodward, 104 Fed. Rep., 873; 2l Cyc., 459).

The conservation of a family home is the purpose of homestead laws. The policy of the state is to foster families as the factors of society, and thus promote general welfare. The sentiment of patriotism and independence, the spirit of free citizenship, the feeling of interest in public affairs, are cultivated and fostered more readily when the citizen lives permanently in his own home, with a sense of its protection and durability. (Waples on Homestead and Exemptions, p. 3)

Because of such underlying policy and reason, the right to repurchase under Section 119 cannot be waived by the party entitled thereto, and applies with equal force to both voluntary and involuntary conveyances. 14 And, as early as 1951, in Cassion vs. BancoNacional Filipino, 15 this Court declared that such right is available in foreclosure sales of lands covered by a homestead or free patent. Consistently therewith, We have ruled in a number of cases that said Section 119 prevails over statutes which provide for a shorter period of redemption in extrajudicial foreclosure sales. We thus have consistent pronouncements in Paras vs. Court of Appeals, 16 Oliva vs. Lamadrid, 17 Belisario vs. Intermediate Appellate Court 18 and Philippine National Bank vs. De los Reyes. 19These cases, with the exception of Oliva, involved the question of which between the five (5) year repurchase period provided in Section 119 of C.A. No. 141 20 or the one (1) year redemption period under Act No. 3135 should prevail. While Oliva is the only case, among those cited, that involves the Rural Banks' Act, the other cases reveal the clear intent of the law on redemption in foreclosure sales of properties acquired under the free patentor homestead statutes which have been mortgaged to banks or banking institutions — i.e., to resolutely and unqualifiedly apply the 5-year period provided for in Section 119 of C.A. No. 141 and, as categorically stated inParas and Belisario, to reckon the commencement of the said period from the expiration of the one-

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year period of redemption allowed in extrajudicial foreclosures. If such be the case in foreclosure sales of lands mortgaged to banks other than rural banks, then, by reason of the express policy behind the Rural Banks' Act, 21 and following the rationale of Our ruling in Oliva, it is with greater reason that the 2-year redemption period in Section 5 of the Rural Banks' Act should yield to the period prescribed in Section 119 of C.A. No. 141. Moreover, if this Court is to be consistent with Paras and Belisario, the 5-year repurchase period under C.A. No. 141 should begin to run only from the expiration of the 2-year period under the Rural Banks' Act. It may be observed in this connection thatOliva was decided in 31 October 1967, before the Rural Banks' Act, as amended by R.A. No. 2670, was further amended by R.A. No. 5939. 22 As amended by R.A. No. 2670, the pertinent portion of Section 5 only reads as follows:

Sec. 5. . . . Provided, That when a land not covered by a Torrens Title, a homestead or free patent land is foreclosed, the homesteader or free patent holder, as well as their heirs shall have the right to redeem the same within two years from the date of foreclosure: . . .

As amended later by R.A. No. 5939, it reads:

Sec. 5. . . . Provided, That when a homestead or free patent land is foreclosed, the homesteader or free patent holder, as well as their heirs shall have the right to redeem the same within two years from the date of foreclosure in case of a land not covered by a Torrens title or two years from the date of the registration of the foreclosure in the case of a land covered by a Torrens title: . . . .

The amendment clarifies the rather vague language of Section 5 as amended by R.A. No. 2670. The ambiguity lies in the fact that although the latter seems to speak of three (3) classes of lands, namely (a) those not covered by a Torrens title, (b) homestead lands and (c) free patent lands, the two-year redemption period may only be enjoyed by the homesteader, the free patent holder or their heirs. Moreover, the clause does not clarify whether the land not covered by a Torrens title refers to unregistered land merely, or includes land acquired by a homestead or free patent not yet issued certificates of title under the Torrens system. As

amended, however, by R.A. No. 5939, land acquired under the free patent or homestead patent statutes may be redeemed within a two-year period; however, the commencement of said period is reckoned from the date of foreclosure, if such land is not yet covered by the Torrens title, or from the registration of the foreclosure — meaning, the certificate of sale — if it is already covered by a Torrens title.

Thus, following the clear intent of Oliva, since private respondents' foreclosed property was acquired under the homestead laws, they had two (2) years from 7 December 1979 — when the certificate of sale was registered — or until 7 December 1981, within which to redeem the land. And, pursuant to Section 119 of C.A. No. 141, they had five (5) years from 7 December 1981 within which to repurchase it. Since the private respondents' offer to repurchase was made well within the said 5-year period, the two (2) courts below correctly ruled in their favor.

Furthermore, We wish to stress here that We are unable to read in Section 5 of R.A. No. 720, as amended, any legislative intent to modify or repeal Section 119 of the Public Land Act. Each speaks of and deals with a different right. Specifically, the former merely liberalizes the duration of an existing right of redemption in extrajudicial foreclosure sales by extending the period of one (1) year fixed in Act No. 3135, as amended by Act No. 4118, to two (2) years insofar as lands acquired under free patent and homestead statutes are concerned. The second speaks of the right to repurchase and prescribes the period within which it may be exercised. These two (2) rights are by no means synonymous. Under Act No. 3135, the purchaser in a foreclosure sale has, during the redemption period, only an inchoate right and not the absolute right to the property with all the accompanying incidents. 23 He only becomes an absolute owner of the property if it is not redeemed during the redemption period. 24 Upon the other hand, the right to repurchase is based on the assumption that the person under obligation to reconvey the property has the full title to the property because it was voluntarily conveyed to him or that he had consolidated his title thereto by reason of a redemptioner's failure to exercise his right of redemption. Thus, in Paras vs. Court of Appeals, 25 this Court, adverting to Gonzalez vs. Calimbas, 26 stated:

After a careful study of the point raised in the present appeal by certiorari, we agree with the Court

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of Appeals that the five-year period within which a homesteader or his widow or heirs may repurchase a homestead sold at public auction or foreclosure sale under Act 3135 as amended, begins not at the date of the sale when merely a certificate is issued by the Sheriff or other official, but rather on the day after the expiration of the period of repurchase, 27 when deed of absolute sale is executed and the property formally transferred to the purchaser. As this Court said in the case of Gonzales (sic) vs. Calimbas and Poblete, 51 Phil., 355, the certificate of sale issued to the purchaser at an auction sale is intended to be a mere memorandum of the purchase. It does not transfer the property but merely identifies the purchaser and the property, states the price paid and the date when the right of redemption expires. The effective conveyance is made by the deed of absolute sale executed after the expiration of the period of redemption.

As a consequence of the inchoate character of the right during the redemption period, Act No. 3135 allows the purchaser at the foreclosure sale to take possession of the property only upon the filing of a bond in an amount equivalent to the use of the property for a period of twelve (12) months, to indemnify the mortgagor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements of the Act. That bond is not required after the purchaser has consolidated his title to the property following the mortgagor's failure to exercise his right of redemption for in such a case, the former has become the absolute owner thereof. 28

Thus, the rules on redemption in the case of an extrajudicial foreclosure of land acquired under free patent or homestead statutes may be summarized as follows: If the land is mortgaged to a rural bank under R.A. No. 720, as amended, the mortgagor may redeem the property within two (2) years from the date of foreclosure or from the registration of the sheriff's certificate of sale at such foreclosure if the property is not covered or is covered, respectively, by a Torrens title. If the mortgagor fails to exercise such right, he or his heirs may still repurchase the property within five (5) years from the expiration of the two (2) year redemption period pursuant to Section 119 of the Public Land Act (C.A. No.

141). If the land is mortgaged to parties other than rural banks, the mortgagor may redeem the property within one (1) year from the registration of the certificate of sale pursuant to Act No. 3135. If he fails to do so, he or his heirs may repurchase the property within five (5) years from the expiration of the redemption period also pursuant to Section 119 of the Public Land Act.

The expropriation of the land in question by the NHA is of no moment. The expropriation case was begun before the foreclosure sale and was brought against the private respondents, among other parties. The court's order for the payment of compensation was entered and the compliance thereof by the NHA was made within the private respondents' 5-year repurchase period. Although the petitioner had a Transfer Certificate of Title over the lot at the time of payment, its right thereto was subject to the private respondents' right to repurchase. Since the private respondents seasonably exercised said right, the petitioner was under the obligation to restore to the former the compensation paid by the NHA, which in effect replaced or substituted for the land. From such amount should be subtracted, however, the repurchase price. The argument that the petitioner was under no obligation to deliver the above portion of the compensation because the property was acquired by the NHA and therefore it was legally impossible for the former to convey the land to the private respondent, is without merit. This is so because if, instead of having been expropriated, the land was sold to other parties, the private respondents could still have repurchased the same from the subsequent vendees. 29 But since the land was expropriated by the Government, and the private respondents could no longer repurchase the same, reason, justice and equity demand that they receive the compensation therefor less the amount adverted to above, for such compensation merely substitutes for the land they are entitled to.

WHEREFORE, the instant petition is DENIED, with costs against petitioner.

The decision is immediately executory.

SO ORDERED.

Gutierrez, Jr., Bidin, Romero and Melo, JJ., concur.

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G.R. No. 86044 July 2, 1990

VICTORINO TORRES, petitioner, vs.LEON VENTURA, respondent.

GANCAYCO, J.:

This nation has a wealth of laws on agrarian reform. Such laws were enacted not only because of the constitutional mandate regarding the protection to labor and the promotion of social justice but also because of the realization that there is an urgent need to do something in order to improve the lives of the vast number of poor farmers in our land.

Yet, despite such laws, it is a fact that the agrarian problems which beset our nation have remained unsolved. Majority of our farmers still live a hand-to-mouth existence. The clamor for change has not died down.

One need not go far in order to search for the reason behind this. We all know that our beautifully-worded agrarian laws have never really been effectively implemented. Unscrupulous individuals have found various ways in order to get around the laws. Loopholes in the law and the ignorance of the poor farmers have been taken advantage of by them. Consequently, the farmers who are intended to be protected and uplifted by the said laws find themselves back to where they started or even in a worse position. We must put a stop to this vicious cycle and the time to do it is now.

This case serves to remind those who are involved in the execution of agrarian laws that it is the farmer-beneficiary's interest that must be primarily served. This also holds that agrarian laws are to be liberally construed in favor of the farmer-beneficiary. Anyone who wishes to contest the rights of the farmer to land given to him by the government in accordance with our agrarian laws has the burden of proving that the farmer does not deserve the government grant.

Posed before Us for resolution in this petition for review on certiorari is the question of to whom ownership and possession of a certain landholding rightfully belongs: to petitioner who was

the tiller of the land when Presidential Decree No. 27 was promulgated, or to private respondent in whose favor petitioner transferred his rights over the land in consideration of P5,000.00.

The following facts can be gathered from the records of this case:

Petitioner was the leasehold tenant of a 4,000 square-meter parcel of land included in the Florencio Firme Estate and located at Caloocan, Cabatuan, Isabela. In 1972, when Presidential Decree No. 27 was signed into law, petitioner was the tiller of the aforementioned piece of land and was automatically deemed owner of the property. Under Presidential Decree No. 27, any form of transfer of those lands within the coverage of the law is prohibited except as otherwise provided therein.

In 1978, urgently in need of money, petitioner was forced to enter into what is called a "selda" agreement, with private respondent, wherein he transferred his rights of possession and enjoyment over the landholding in question to the latter in consideration of a loan in the amount of P5,000.00 to be paid not earlier than 1980. As part of the agreement, petitioner signed an "Affidavit of Waiver" whereby he waived all his rights over the property in favor of private respondent. According to petitioner, it was also agreed upon by them that upon the payment of the loaned amount, private respondent will deliver possession and enjoyment of the property back to petitioner.

Two years later or in 1980, petitioner offered to pay the loaned amount but private respondent asked for an extension of one more year to continue cultivating the land and enjoying its fruits. Because of this, the money being offered by petitioner to pay for the loan was utilized for other purposes. In 1981, though petitioner really wanted to get the property back, he could not do so because he lacked the necessary funds. It was only in 1985 when petitioner was able to save enough money to make another offer but this time private respondent categorically denied said offer and refused to vacate the land.

Hence, petitioner filed a complaint with the barangay captain of Magsaysay, Cabatuan, Isabela stating therein that he mortgaged his land to private respondent and that he already wanted to

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redeem it. On the scheduled date of hearing, private respondent failed to appear.

Upon the issuance by the barangay captain of a certificate to file action, petitioner filed a complaint with the Regional Trial Court of Cauayan, Isabela for the recovery of possession of the parcel of land in question. After due trial, the said court rendered a decision in favor of petitioner with the following dispositive portion:

WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered:

(1) DECLARING the affidavit of waiver (Exh. 1) executed by the plaintiff waiving his right as a leasehold tenant to the defendant null and void;

(2) ORDERING the defendant, his agents, tenants or any person or persons acting on his behalf to deliver immediately the possession of the land in question to the plaintiff;

(3) DECLARING the loan of P5,000.00 received by the plaintiff from the defendant in 1979 including interest thereon considered paid as of December 1, 1983;

(4) ORDERING the defendant to pay the plaintiff total damages and in the amount of P5,200.00 up to December 1, 1986; and

(5) ORDERING the defendant to pay the plaintiff 6 cavans of palay at 50 kilos per planting season from December 1, 1986, or their equivalent at the NFA price of P3.50 per kilo, until the possession of the land in question is delivered to the plaintiff. 1

On appeal to the Court of Appeals, the decision of the trial court was reversed. Hence, this petition for review on certiorari. 2

Taking into consideration the circumstances surrounding this case and bearing in mind the constitutional mandate on the promotion of agrarian reform, We rule in favor of petitioner.

It is not disputed by private respondent that petitioner was in fact the tiller of the subject land when Presidential Decree No. 27 was promulgated in 1972. As a consequence of the law, petitioner was granted the right to possess and enjoy the property for himself.

The conflict arose when petitioner, by force of circumstances, transferred possession of his land to private respondent in consideration of a sum certain. As to what was actually the contract that was entered upon is being contested by the two parties herein. Petitioner has insisted from the very beginning that the agreement entered into between him and private respondent was one of mortgage and that private respondent promised to give back to him his landholding upon payment of the loaned amount. The stand of private respondent, on the other hand, is that petitioner relinquished all his rights over the property in his favor, as expressly written in the Affidavit of Waiver that petitioner signed.

In its decision, the trial court ruled in favor of petitioner having found his version more convincing than that of private respondent whose evasive attitude did not go unnoticed therein. The trial court further ruled that the transfer of property from petitioner to private respondent is null and void for being violative of Presidential Decree No. 27. The Court of Appeals, on the other hand, believed that petitioner completely waived his rights over the land as evidenced by the Affidavit of Waiver he executed. According to the Court of Appeals, the said Affidavit of Waiver is valid because at the time of its execution, petitioner was not yet the owner of the land there having been no title issued to him yet. As such, continued the Court of Appeals, the Affidavit of Waiver did not violate Presidential Decree No. 27. The Court of Appeals further added that petitioner abandoned his landholding and received benefits under the agreement, hence, should not be rewarded at the expense of private respondent.

After a careful scrutiny of the two conflicting decisions and an exhaustive study of the laws and jurisprudence applicable to this case, We affirm the judgment of the trial court. First, of all, We have given much weight to the finding of the trial court that what was entered upon by the parties herein was a contract of

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mortgage. It need not be stressed that in the matter of credibility of witnesses, We rely heavily on the findings of the trial court because it had the opportunity to meet them face to face. As the trial court observed, petitioner's version is more convincing because of the apparent evasive attitude of private respondent as compared to the candid testimony of the petitioner. 3

Indeed, We find it hard to believe that petitioner, who has been tilling the land in question for a long, long time would suddenly lose interest in it and decide to leave it for good at a time when he knew that full ownership over the same was soon going to be in his hands. Furthermore, if the situation were otherwise, petitioner would not have made repeated offers to pay for the amount he borrowed from private respondent and demand from the latter the possession of the land. He would not have even thought of bringing an action for the recovery of the same if he honestly believed that he had already given it up in favor of private respondent. Petitioner, or anyone in his right mind for that matter, would not waste his time, effort and money, especially if he is poor, to prosecute an unworthy action. If at all, petitioner is an example of a poor tenant farmer who, due to sheer poverty, was constrained to mortgage his only land 4 to somebody else 5 — situation which Presidential Decree No. 27 sought to prevent by providing an explicit prohibition on transfers.

The above finding notwithstanding, and assuming that petitioner really waived his tenancy rights in favor of private respondent, this case should still be resolved against private respondent. The transfer would still be void for being made in violation of Presidential Decree No. 27.

We shall now take a closer look at the law.

Presidential Decree No. 27 was signed into law in view of the fact that the old concept of land ownership by a few has spawned valid and legitimate grievances that gave rise to violent conflict and social tension. 6 The law points out that reformation must start with the emancipation of the tiller from the bondage of the soil. 7

The fundamental policy of the law is reflected in its title, to wit: PRESIDENTIAL DECREE NO. 27 — DECREEING THE EMANCIPATION OF TENANT FROM THE BONDAGE OF THE SOIL, TRANSFERRING TO

THEM THE OWNERSHIP OF THE LAND THEY TILL AND PROVIDING THE INSTRUMENTS AND MECHANISM THEREFOR. This policy is intended to be given effect by the following provisions:

xxxxxxxxx

The tenant farmer, whether in land classified as landed estate or not, shall be DEEMED OWNER of a portion constituting a family size farm of five (5) hectares if not irrigated and three (3) hectares if irrigated; (Emphasis supplied).

xxxxxxxxx

TITLE TO LAND ACQUIRED PURSUANT TO THIS DECREE OR THE LAND REFORM PROGRAM OF THE GOVERNMENT SHALL NOT BE TRANSFERABLE except by hereditary succession or to the Government in accordance with the provisions of this Decree, the Code of Agrarian Reforms and other existing laws and regulations; (Emphasis supplied).

xxxxxxxxx 8

The law is clear and leaves no room for doubt. Upon the promulgation of Presidential Decree No. 27 on October 21, 1972, petitioner was DEEMED OWNER of the land in question. As of that date, he was declared emancipated from the bondage of the soil. As such, he gained the rights to possess, cultivate, and enjoy the landholding for himself. Those rights over that particular property were granted by the government to him and to no other. To insure his continued possession and enjoyment of the property, he could not, under the law, make any valid form of transfer except to the government or by hereditary succession, to his successors.

Yet, it is a fact that despite the prohibition, many farmer-beneficiaries like petitioner herein were tempted to make use of their land to acquire much needed money. Hence, the then Ministry of Agrarian Reform issued the following Memorandum Circular:

Despite the above prohibition, however, there are reports that many farmer-beneficiaries of PD 27

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havetransferred the ownership, rights, and/or possession of their farms/homelots to other persons or have surrendered the same to their former landowners. All these transactions/surrenders are violative of PD 27 and therefore, null andvoid. 9 (Emphasis supplied.)

We do not agree with the Court of Appeals when it ruled that petitioner's land is not included in the legal prohibition since petitioner has not yet acquired absolute title to the land having failed to comply with all the conditions set forth by the law. With regard to the legal prohibition, We hold that title refers not only to that issued upon compliance by the tenant-farmer of the said conditions but also includes those rights and interests that the tenant-farmer immediately acquired upon the promulgation of the law. To rule otherwise would make a tenant — farmer falling in the category of those who have not yet been issued a formal title to the land they till — easy prey to those who would like to tempt them with cash in exchange for inchoate title over the same. Following this, absolute title over lands covered by Presidential Decree No. 27 would end up in the name of persons who were not the actual tillers when the law was promulgated.

Furthermore, the evidence on hand shows that Certificate of Land Transfer No. 096267 covering the land in question is in the name of petitioner Victorino Torres. 10 This is admitted by private respondent. 11 In Gloria de Oliver vs. Sisenando Cruz, et al., 12 the Court of Appeals correctly ruled that:

The rights and interests covered by the Certificate of Land Transfer are beyond the commerce of man. They are not negotiable except when it is used by the beneficiary as a collateral for a loan with the rural bank for an agricultural production.

Having settled that the contract of transfer entered into between petitioner and private respondent is void ab initio, We now go to the issue of whether or not the principle of pari delicto 13 applies to this case. We rule in the negative. Public policy and the policy of the law must prevail. To hold otherwise will defeat the spirit and intent of Presidential Decree No. 27 and the tillers will never be emancipated from the bondage of the soil.

In Catalina de los Santos vs. Roman Catholic Church, 14 this Court ruled that the pari delicto doctrine is not applicable to a homestead which has been illegally sold in violation of the homestead law. One of the reasons given by this Court for the ruling is that the policy of the law is to give land to a family for home and cultivation.

In Acierto, et al. vs. De los Santos, et al., 15 where the principle was reiterated, this Court, through Justice Alex Reyes, made the following pronouncement:

Appellants, however, contend that the voiding provision of the Act may not be invoked in favor of plaintiffs as their predecessor in interest was in pari delicto, and that, since the same provision says the illegal sale shall have the effect of annulling the grant and cause the reversion of the property and its improvements to the State, plaintiffs may no longer claim the homestead. Similar contentions were made in the case of Catalina de los Santos vs. Roman Catholic Church of Midsayap et al., G.R. No.L-6088, decided February 25, 1954, but they were there overruled, this Court holding that the paridelictodoctrine may not be invoked in a case of this kind since it would run counter to an avowed fundamental policy of the State, that the forfeiture of the homestead is a matter between the State and the grantee or his heirs, and that until the State had taken steps to annul the grant and asserts title to the homestead the purchaser is, as against the vendor or his heirs "no more entitled to keep the land than any intruder. 16

The pronouncements in the two above-mentioned cases were adopted by this Court in Angeles, et al. vs. Court of Appeals, et al., 17 wherein We ruled that the sale of the homestead by the homesteader is null and void and his heirs have the right to recover the homestead illegally disposed of.

In view of all the foregoing, We hold that the contract, being void ab initio, must be given no effect at all. The parties in this case are to be placed in status quo which was the condition prevailing prior to the execution of the void contract.

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WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 15482 is REVERSED AND SET ASIDE. The Decision of the Regional Trial Court of Cauayan, Isabela in Civil Case No. Br. XIX-167 is hereby ordered REINSTATED. Costs against private respondent.

SO ORDERED.

Narvasa, C.J., Cruz, Griño-Aquino and Medialdea, JJ., concur.

G.R. No. L-48458 November 7, 1941

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs.FIDEL FORTUNO, defendant-appellee.

Armando Magpayo for the appellant.Acting First Assistant Solicitor-General Amparo and Assistant Solicitor-General Kapunan, for the appellee.

MORAN, J.:

Defendant Fidel Fortuno rented from "El Hogar Filipino" a room in the Crystal Arcade; and the rental having become due, he issued in favor of the latter a check for P60 drawn against the Bank of the Commonwealth. This check was, upon representation to the bank for payment, dishonored for lack of funds. An information for estafawas presented against the defendant in the municipal court of Manila where, upon a plea of guilty, he was sentenced to two months and one day of arresto mayor and to pay an indemnity of P60 with subsidiary imprisonment in case of insolvency. Defendant appealed to the Court of First Instance where, after entering a plea of not guilty and thereafter substituting the same with the plea of guilty, he was sentenced to the same penalty imposed by the municipal court. Defendant interposed appeal from this judgment.

The issuance of a check with knowledge on the part of the drawer that has no funds to cover its amount and without informing the payee of such circumstance, does not constitute the crime of estafa if the check was intended as payment of a pre-existing obligation, as in the instant case. The reason for this rule is that

deceit, to constitute estafa, should be the efficient cause of the defraudation and as such should be prior to, simultaneous with, the act of fraud. (Cf. People vs. Liluis, 59 Phil., 339, 342; People vs. Quesada, 60 Phil., 515 520.)

Defendant's plea of guilty is of no moment. Such plea constitutes a mere admission of the material allegations of the information but not that the facts thus alleged constitute an offense.

Judgment is reversed and the defendant is hereby acquitted with costs de oficio.

Abad Santos, Diaz, Horilleno, and Ozaeta, JJ., concur.

G.R. No. L-19012 October 30, 1967

VICTORIA JULIO, plaintiff-appellant, vs.EMILIANO DALANDAN and MARIA DALANDAN, defendants-appellees.

Pedro Magsalin and O.M. Herrera for plaintiff-appellant. Cornelio R. Magsarili for defendants-appellees.

SANCHEZ, J.:

Disputing the correctness of the lower court's order of April 29, 1961 dismissing the complaint, plaintiff elevated the case1 to this Court on appeal.

Plaintiff's complaint — which defendants, by a motion to dismiss, successfully overturned in the court below — is planted upon a document Annex "A" of the complaint, labeled in the national language "SALAYSAY" (Statement). It was in the form of an affidavit subscribed and sworn to by one Clemente Dalandan on September 8, 1950. By the terms of this writing, Clemente Dalandan, deceased father of defendants Emiliano and Maria Dalandan, acknowledged that a four-hectare piece of riceland in Las acknowledged that a four-hectare piece of riceland in Las Piñas, Rizal belonging to Victoriana Dalandan, whose only child and heir is plaintiff Victoria Julio, was posted as security for an obligation which he, Clemente

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Dalandan, assumed but, however, failed to fulfill. The result was that Victoriana's said land was foreclosed. The key provisions of said document are:2

3. Na anglupangpalayangitonapagaarini VICTORIANA DALANDAN at sakasalukuyan ay walangibangtagapagmana kung di si VICTORIA JULIO, ay napafianzasa akin nuongbago pa dumatinganghulingdigmaan at dahilsahindiakonakatupadsaakingpananagutangnasasagutanngbukidniyangito ay naembargoangnasabiniyanglupa;

[That this riceland owned by VICTORIANA DALANDAN whose sole heir is VICTORIA JULIO was posted as security for an obligation assumed by me even before the outbreak of the last war and because I failed to fulfill the obligation secured by her said farm the same was foreclosed;]

4. Na dahildito ay akosamakatuwid ay nanagotsakanya (VICTORIA JULIO), sapagkakaembargonglupaniyangiyong kung kaya'tnagkasundo kami naako ay nanagotsakanyasapagkaembargongiyon at ipinangakokosakanyanaanglupaniyangiyonnanaembargongdahilsaakingpananagutan ay akingpapalitanngbukid din na may mahigitna APAT (4) nahectarea (o humigitkumulangsa APAT NA KABANG BINHI);

[That because of this, and as agreed upon between us, I accordingly held myself liable to Victoria Julio for the foreclosure of her said land, and I promised her that I would replace her aforesaid land which was foreclosed because of my obligation with another farm of more than four; (4) hectares, that is, one planted to four cavanes of seedlings, more or less;]

5. Na hindimaaringpilitinangakingmgaanak (EMILIANO AT MARIA DALANDAN), nahinginanganingbukidnanabangitsaitaasngsalaysaynaito;

[That my children (EMILIANO AND MARIA DALANDAN) may not be forced to give up the harvest of the farm herein above mentioned;]

6. Na hindirinmaaringhinginkaaggadsalalongmadalingpanahonangkapalitngbukidna may apatnakabangbinhi;

[That neither may the land — which was exchanged for the farm with four cavanes of seedlings — be demanded immediately;]

Victoria Julio, in turn, joined Clemente Dalandan in the execution of, and also swore to, the said document, in this wise:

Na, ako VICTORIA JULIO, nabinabanggitsaitaasnitosasalaysayni CLEMENTE DALANDAN, ay nagpapatunaynatutoonglahatangkanyangsalaysaynaiyon at tinatanggapkoangkanyangmgasinasabi.

[That I, VICTORIA JULIO, mentioned in the above statement of CLEMENTE DALANDAN, attest to the truth of, and accept, all that he stated therein.]

Back to the complaint herein. Plaintiff went on to aver that the land of Clemente Dalandan set forth in the document, Annex "A" of the complaint, referred to six small parcels described in paragraph 4 thereof with a total area of barely two hectares — "the only land owned by Clemente Dalandan at the time of the execution of the document" — except fifty plots or "banigan" (saltbeds), which were previously conveyed to plaintiff's mother by mean of pacto de retro sale and title to which had already been vested in the latter; that after the death of Clemente Dalandan, plaintiff requested from defendants, Clemente's legitimate and surviving heirs who succeeded in the possession of the land thus conveyed, to deliver the same to her; that defendants "insisted that according to the agreement", neither delivery of the land nor the fruits thereof could immediately be demanded, and that "plaintiff acceded to this contention of defendants and allowed them to continue to remain in possession" thereof; that demands have "been made upon defendants to fix the period within which they would deliver to the herein plaintiff the above-described parcels of land but defendants have refused and until now still refuse to fix a specific time within which they would deliver to plaintiff the aforementioned parcels of

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land." Predicated upon the foregoing allegations, plaintiff prayed for judgment against defendants:

(a) Adjudging the herein plaintiff as owner of the land described in paragraph 4 hereof;

(b) Fixing a time within which defendants should deliver the said parcels of land to the herein plaintiff as well as the fruits thereof;

(c) Adjudging that upon the expiration of the said time defendants convey and deliver to the herein plaintiff the said parcels of land as well as the fruits thereof;

(d) Ordering the defendants to pay the plaintiff the sum of P2,000.00 as attorneys' fees;

(e) Ordering the defendants to pay the costs of the suit; and granting such other relief and remedy as may be just and equitable in the premises.

Defendants met the complaint with a motion to dismiss grounded on: (1) prescription of plaintiff's action; (2) pendency of another suit between the same parties for the same cause; and (3) release and/or abandonment of the claim set forth in plaintiff's complaint.

By its order of April 29, 1961, the lower court ruled that plaintiff's suit, viewed either as an action for specific performance or for the fixing of a term, had prescribed. Reason: the 10-year period from the date of the document had elapsed. The lower court found it unnecessary to pass upon the other grounds for the motion to dismiss. Hence, this appeal.

1. The threshold problem, basic to an understand of the issues herein involved, is the meaning to be attached to the document now under review. Undoubtedly, bad more felicitous terms been employed, the intention of the parties could easily be read. Unfortunately, ineptness of expression exacts of us an examination of the document. Familiar rules of interpretation of documents tell us that in ascertaining the intention of the parties, the contents thereof should not be interpreted piecemeal; all parts, provisions or terms are to be considered; each paragraph clause or phrase must

be read not in isolation, but in the light of the entire writing; doubtful ones should be given that sense which may result from all of them, considered as a whole. Such construction will be adopted as will result from an overall view of the document itself.

It is, in this perspective that we now look into the writing. Adverting to paragraph 4 of the deed, defendants take the position that the deceased Clemente Dalandan simply "promised" to Victoria Julio a farm of about four hectares to replace the land of Victoriana Dalandan (mother of Victoria Julio) which was foreclosed. But this view loses sight of the later provisions thereof. By paragraph 5, Clemente's children may not be forced to give up the harvest of the farm mentioned in the deed. This was followed by paragraph 6 which states that Victoria Julio may not immediately demand the substitute (kapalit) for the forfeited land. These last two statements in the deed express the dominant purpose of the instrument. They convey the idea that the naked ownership of the land in substitution was, indeed, transferred to Victoria Julio. Else there would have been no sense in the proviso that the fruits as well as the physical possession of the land could not immediately be demanded by Victoria Julio from Clemente's children, the herein defendants. For, the right to demand fruits and physical possession of property has been known to be attributes of ownership.

The disputed complaint in paragraphs 6 and 7 thereof, in essence, avers plaintiff's request for the delivery of the real property; defendants' answer that "according to the agreement" neither land nor fruits thereof could immediately be taken away from them, and plaintiff's conformity thereto; and plaintiff's demands that the period for delivery be fixed and defendants' refusal.

The allegations of the complaint just noted carry us to another aspect of the document: defendants' rights over the land vis-a-visplaintiff's. What rights were transmitted to defendants by their father, Clemente Dalandan? Paragraphs 6 and 7 of the document supply the answer. They are usufructuaries for an undetermined length of time. For so long as that period has not been fixed and has not elapsed, they hold the property. Theirs is to enjoy the fruits of the land and to hold the same as trustees of Victoria Julio. And this because, by the deed, Clemente Dalandan divested himself of the ownership — qualified solely by withholding enjoyment of the fruits and physical possession. In consequence, Clemente Dalandan cannot transmit to his heirs, the present defendants, such

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ownership.3 Nemodat quod non habet. And then, the document is a declaration by Clemente Dalandan, now deceased, against his own proprietary interests. Such document is binding upon his heirs.4

2. But, defendants aver that recognition of the trust may not be proved by evidence aliunde. They argue that by the express terms of Article 1443 of the Civil Code, "[n]o express trusts concerning an immovable or any interest therein may be proved by parol evidence." This argument overlooks the fact that no oral evidence is necessary. The express trust imposed upon defendants by their predecessor appears in the document itself. For, while it is true that said deed did not in definitive words institute defendants as trustees, a duty is therein imposed upon them — when the proper time comes — to turn over both the fruits and the possession of the property to Victoria Julio. Not that this view is without statutory support. Article 1444 of the Civil Code states that: "No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended." In reality, the development of the trust as a method of disposition of property, so jurisprudence teaches, "seems in large part due to its freedom from formal requirements."5 This principle perhaps accounts for the provisions in Article 1444 just quoted. For, "technical or particular forms of words or phrases are not essential to the manifestation of intention to create a trust or to the establishment thereof."6 Nor would the use of some such words as "trust" or "trustee" essential to the constitution of a trust as we have held in Lorenzo vs. Posadas, 64 Phil. 353, 368. Conversely, the mere fact that the word "trust" or "trustee" was employed would not necessarily prove an intention to create a trust. What is important is whether the trustor manifested an intention to create the kind of relationship which in law is known as a trust. It is unimportant that the trustor should know that the relationship "which he intends to create is called a trust, and whether or not he knows the precise characteristics of the relationship which is called a trust."7 Here, that trust is effective as against defendants and in favor of the beneficiary thereof, plaintiff Victoria Julio, who accepted it in the document itself.8

3. Plaintiff is not to be handicapped by a lack of a clear statement as to the actual description of the land referred to in the trust deed, basis of plaintiff's cause of action. Obviously, the document was not prepared by a learned scrivener. It imperfectly speaks of a "farm of more than four (4) hectares." But averment in the complaint is not lacking to clear the uncertainty as to the identity of the land

mentioned in that document. Plaintiff points out in paragraph 4 of her complaint that while said deed does not specifically define its boundaries "the parties to the said document actually refer" to the land which was "the only land owned by Clemente Dalandan at the time of the execution" thereof, and which is set forth in small parcels under said paragraph. This allegation in the complaint does not add any new term or stipulation to the writing. Rather, it explains an obscurity occasioned by lack of precision in a clumsily prepared document. Thus it is, that authorities are not wanting in support of the view that "in so far as the identity of land involved" in a trust is concerned, "it has also been held that the writings, in being considered for the purpose of satisfying the statute of frauds, are to be considered in their setting, and that parol evidence is admissible to make clear the terms of a trust the existence of which is established by a writing, . . ."9

4. This case having been brought before us on a motion to dismiss, we need but stress that we are to be guided solely by the averments of the complaint. So guided, we must say that there is sufficient showing in the complaint that there is an acknowledgment on the part of defendants that they hold the property not as their own, but in trust. There is no statement in the complaint intimating disavowal of such trust; the complaint alleges refusal to deliver possession. In the sense in which we understand the complaint to be, it cannot be said that plaintiff's action to recover the property thus held in trust has prescribed. Given the fiduciary relation which according to the complaint is recognized by defendants, the latter may not invoke the statute of limitations as a bar to plaintiff's action.10

5. Even on the assumption that defendants have not been constituted as trustees under the document in question, still we arrive at the same conclusion. For, plaintiff's action is aimed, by an alleged owner of real property at recovery of possession thereof, conditioned upon the fixing of the period therefor. Since plaintiff claims ownership, possession, in the words of this Court "is a mere consequence of ownership."11 It may not be said that plaintiff's suit is barred by the statute of limitations. She is protected by Article 1141 of the Civil Code, which reads: "Real actions over immovables prescribe after thirty years." We take this view for the obvious reason that defendants' motion to dismiss on this score is directed at the prescription of plaintiff's action — not on acquisitive prescription.

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6. Defendants in their brief draw attention, by way of counter-assignment of error, to their claim that this case should also be dismissed upon the ground that there exists another action pending between the same parties for the same cause, and on the further ground of release and/or abandonment.

The facts bearing on this issue are: In Land Registration Case N-706, G.L.R.O. Record No. N-7014, Court of First Instance of Rizal, defendants are applicants. That case — so defendants aver — covers the very same land set forth in plaintiff's complaint. In their opposition to that application, herein plaintiff prayed that the same land — the subject of this suit — (covered by Plan PSU 129514) be registered "in the names of the herein applicants and oppositor with the specific mention therein that the herein oppositor owns fifty salt beds therein and having an absolute right to the use of the depositories." Defendants argue that if plaintiff was the real owner of the entire area, opposition should have been presented on the whole, not merely as to fifty salt beds.

Parenthetically, the question of ownership over the portion of fifty salt beds had already been resolved by this Court in a decision promulgated on February 29, 1964 in L-19101 (EmilianoDalandanand Maria Dalandan, plaintiffs, vs. Victoria Julio, et al., defendants). There, this Court affirmed the order dismissing the complaint filed by defendants herein, plaintiffs therein, for the repurchase of fifty salt beds which were the subject of a sale withpacto de retro executed on September 24, 1932 by Clemente Dalandan in favor of Victoriana Dalandan, predecessor of plaintiff.

There is no point in the argument that an action is pending between plaintiff and defendants. Because, with the exception of the fifty salt beds — which according to the complaint is not included in the deed — plaintiff filed no opposition to defendants' application for land registration. Failure to so object in reference to the registration of a bigger portion of the land, simply means that there is no case between the parties in reference thereto in the land registration proceeding.

Not that plaintiff released or abandoned the claim to that bigger portion. For, there is an averment in the complaint that an agreement exists between plaintiff and defendants to defer delivery thereof; and that defendants thereafter refused to fix the period for such delivery. So that, on the assumption that

defendants should succeed in obtaining title to the property in the land registration case, such would not bar Victoria Julio from requiring them to execute a conveyance of the property in her favor, in the event she (plaintiff herein) prevails in the present case. And this, because defendants could here be declared as mere trustees of plaintiff, if the averments of the complaint are found to be true."12

For the reasons given, the order of the Court of First Instance of Rizal dated April 29, 1961 dismissing the complaint is hereby reversed and set aside, with instructions to remand the case to the court below for further proceedings.

Costs against defendants-appellees.So ordered.

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

G.R. No. L-14714 April 30, 1960

ARISTON ANDAYA, ET AL., plaintiffs-appellees, vs.DR. MELENCIO MANANSALA, defendant-appellant.

Constante R. Ayson for appellees.Jose V. Manansala for appellant.

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

Originally brought to the Court of Appeals, this appeal was forwarded to us by said court because it raises only legal questions.

There is no dispute as to the antecedents of the case, which the lower court found to be as follows:

On June 13, 1934, one Isidro Fenis sold the land in question to EustaquiaLlanes, with right of repurchase within a period of five years. After the expiry of said period, and without repurchasing the said property, Isidro Fenis sold it again to Maria Viloria on January 13, 1944. Seven months later, or on August 21, 1914, Maria Viloria sold by way of sale with right

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to repurchase within a period of one year, the said property together with another parcel of land to the herein defendant MelencioManansala. On August 1, 1946, upon the expiry of the said period, Manansala registered with the Register of Deeds an affidavit consolidating his title on the property. A year later, or on September 28, 1947, Maria Viloria sold by way of absolute sale the same property to CiriacoCasiño, Fidela Valdez, and the plaintiff spouses Ariston Andaya and MicaelaCabrito, for P4,800.00, which deed contained the following stipulation:

The following month, or on October 18, 1947, EustaquiaLlanes, instituted Civil case No. 399 to quiet title and to recover possession of said parcel from CiriacoCasiño. Eight months later, or on June 9, 1949, a defendant MelencioManansala sold by way of absolute sale, the property in question to the spouses CiriacoCasiño and Fidela Valdez, and the plaintiffs for P1,500.00, which deed contained the following stipulation:

That from and after this date, the vendee herein named are the lawful owners of the land herein sold which I warrant to be free from all kinds of liens and encumbrances whatever and in case of eviction, I promise, agree and covenant to answer to and for the vendee in the form and manner provided by law.

This document of conveyance was recorded in the Register of Deeds under Act No. 3344, on June 9, 1948.

In the meantime, on September 28, 1948, EustaquiaLlanes, included as co-defendant in Civil Case No. 399, MelencioManansala (Annex C), and on September 2, 1950, as additional defendants, Fidela Valdez and the spouses Ariston Andaya and MicaelaCabrito (Annex D). The said defendant filed a joint answer to the second amended complaint, claiming title on said property on the basis of the conveyance made in favor of Manansala, and from the latter to the other defendants. Judgment was rendered in that case in favor of EustaquiaLlanes, and on October 17, 1955, the said judgment having become final, a writ of execution was issued against Ciriaco Casino, Fidela Valdez, Ariston Andaya and MicaelaCabrito. In the enforcement of said writ,

the properties of Fidela Valdez were attached and sold at public auction to cover the damages, representing the value of the produce of the land, amounting to P676.00, costs of the suit in the amount of P33.20, or a total of P709.20 (Annex H-1).

On March 23, 1956, plaintiffs spouses Ariston Andaya and MicaelaCabrito commenced this case in the Court of First Instance of Ilocos Sur against defendant MelencioManansala to recover damages suffered by them by reason of the latter's breach of his warranty of title or against eviction embodied in his sale of the land in question to plaintiffs. Defendant Manansala denied liability for the damages claimed, and alleged that it was plaintiffs and their co-purchasers who pleaded with him to sell said land to them at a low price after they had been sued by EustaquiaLlanes in Civil Case No. 399, considering that Manansala had registered the land in his name with the office of the Register of Deeds. After the case was submitted for a summary judgment and the parties had agreed on a statement of facts, the lower court entered the following decision:

Considering that the same land was already sold to the plaintiffs and their co-vendee, CiriacoCasiño and Fidela Valdez, it is obvious that their only purpose in acquiring the same land from the defendant at the low price of P1,500.00 was to enable them to register the prior deed of sale executed by Maria Viloria. This is true, because the title of the defendant had already consolidated pursuant to Article 1509 of the Spanish Civil Code as shown by an affidavit of the defendant registered with the Register of Deeds of this province. This was clearly the understanding of the parties, and the plaintiffs apparently knew that the stipulation on warranty in the deed was made pro forma and could not have been intended, considering the above circumstances from the fact that said property was then subject of a pending litigation as an actual warranty on the title and possession of the purchasers. This being so, it would be inequitable now to hold that the defendant is liable under the provisions of Article 1555 of the new Civil Code or under Act 1478 of the Spanish Civil Code which is the law that should be applied, the said transaction being before August 30, 1950.

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In determining therefore the obligations of the defendant, those applicable to a vendor in cases of rescission of a contract should be applied.

WHEREFORE, the Court renders judgment sentencing the defendant to return to the plaintiffs the sum of P750.00 which represent one-half of the purchase price with interest at 6% from June 9, 1948 until fully paid, and to pay the costs of this suit.

From the above decision, defendant MelencioManansala appealed, claiming that after finding that he was not liable to plaintiffs-appellees for breach of warranty against eviction, the lower court erred in holding him liable as in rescission of sale and ordering him to return to plaintiffs-appellees the price of the land in question with interests.

There is merit in the appeal.

The vendor's liability for warranty against eviction in a contract of sale is waivable and may be renounced by the vendee (last par., Art. 1475, Old Code; last par., Art. 1548, New). The contract of sale between herein appellant and the appellees included a stipulation as to the warranty; but the lower court found that the parties understood that such stipulation was merely pro forma and that the appellant vendor was not to be bound thereby, in view of the fact that the same land had been previously bought by appellees from Maria Viloria and that their only purpose in buying the same again from appellant was to enable them to register their prior deed of sale; and the further fact that when the sale between appellant and appellee was made, the property was already the subject of a pending litigation between appellees and one EustaquiaLlanes, who claimed its title and possession by virtue of an earlier sale from the original owner, and it was by final judgment in this litigation that appellees were evicted from and land. Not having appealed from the decision of the court below, appellees are bound by these findings, the implication of which is that they not only renounced or waived the warranty against eviction, but that they knew of the danger of eviction and assumed its consequences.

Now, according to Article 1477 of the old Code (the law applicable when the contract in this case was made),

When the vendee has waived the right to warranty in case of eviction, and eviction shall occur, the vendor shall only pay the price which the thing sold had at the time of the eviction, unless the vendee has made the waiver with knowledge of the danger of eviction and assumed its consequences. (Same as Art. 1554 of the new Code)

As already stated, appellees knew of the danger of eviction at the time they purchased the land in question from appellant, and assumed its consequences. Therefore, the appellant is not even obliged to restore to them the price of the land at the time of eviction, but is completely exempt from liability whatsoever.

Neither may appellant be condemned to return the price received from appellees on the theory of rescission of their contract of sale, as held by the court below. In the first place, the remedy of rescission contemplates that the one demanding it is able to return whatever he has received under the contract; and when this can not be done, rescission can not be carried out (Art. 1295, Old Code; Art. 1385, New). It is for this reason that the law on sales does not make rescission a remedy in case the vendee is totally evicted from the thing sold, as in this case, for he can no longer restore the thing to the vendor. It is only when the vendee loses "a part of the thing sold of such importance, in relation to the whole, that he would not have purchased it without said part" that he may ask for rescission, but he has "the obligation return the thing without other encumbrances than those which it had when he acquired it" (Art. 1479, old Code; 1556, New). In the second place, appellees, as already stated, assumed the risk of eviction, which stops them from asking for rescission even were it possible for them to restore what they had received under the contract.

On their part, appellees claim that in view of the eviction from the land in question, they are entitled to recover from appellant more items of damages under Article 1555 of the New Code than the mere return of the price with interests as ordered by the trial court. The claim is untenable, not only because appellant, as we have held, is exempt from any liability for appellees eviction, but also because not having appealed from the decision of the court below, appellees can not ask for a modification thereof or an award of damages not included therein (Davidvs. De la Cruz, 103 Phil., 380; 54 Off. Gaz. [35] 8073; Pineda &Ampil Mfg. Co. vs. Bartolome, 95 Phil., 930; Gorospe vs. Peñaflorida, 101 Phil., 886).

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Wherefore, the decision appealed from is reversed and the complaint dismissed, with costs against appellees Ariston Andaya, et al.

Paras, C.J., Bengzon, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia and Gutierrez David, JJ.,concur.

G.R. No. L-17384 October 31, 1961

NESTOR RIGOR VDA. DE QUIAMBAO, ET AL., petitioners, vs.MANILA MOTOR COMPANY, INC., and the HON. COURT OF APPEALS, respondents.

Manuel Y. Macias for petitioners.Ozaeta, Gibbs and Ozaeta for respondents.

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

This petition for certiorari brings to this Court for review the decision of the Court of Appeals in its CA-G.R. No. 17031-R, reversing that of the Court of First Instance of Manila and dismissing petitioners' complaint.

The facts are not in dispute. On March 7, 1940, Gaudencio R. Quiambao, deceased husband of petitioner Nestora Rigor Vda.deQuiambao and father of the other petitioners, bought from respondent Manila Motor Company, Inc. one (1) Studebaker car on the installment plan. Upon default in the payment of a number of installments, respondent company sued GaudencioQuiambao in Civil Case No. 58084 of the Court of First Instance of Manila. On December 4, 1940, judgment was entered in said case, awarding in favor of the plaintiff the sum of P3,054.32, with interest thereon at 12% per annum, and P300.00 attorney's fees.

On July 14, 1941, the court issued a writ of execution directed to the Provincial Sheriff of Tarlac, who thereupon levied on and attached two parcels of land covered by Transfer Certificate of Title No. 18390 of the Office of the Register of Deeds for Tarlac. On August 27, 1941, Attorney Felix P. David, then counsel for the Manila Motor Company, accompanied by the sheriff, personally apprised GaudencioQuiambao of the levy. The latter pleaded to

have the execution sale suspended and begged for time within which to satisfy the judgment debt, proposing that in the meanwhile, he would surrender to the company the Studebaker car. This proposition was accepted, accordingly, GaudencioQuiambao delivered the car to the company, and Attorney David issued a receipt therefor that reads:

August 27, 1941

Received from Mr. GaudencioQuiambao, Studebaker President Sedan License No. 45-368 pending settlement of the judgment in Civil Case No. 58043 CFI Manila rendered in favor of Manila Motor Company.

DAVID AND ANGELESby (Sgd.) Felix P. David.

Attorneys for Manila Motor Company

On October 16, 1941, GaudencioQuiambao remitted to the company, on account of the judgment, the sum of P500.00; he, however, failed to make further payments, thus leaving a balance still unsettled of P1,952.47, with interest thereon at 12% per annum from March 6, 1940.

In the meantime, the Pacific war broke out, and when the Japanese forces occupied the country shortly thereafter, the invaders seized all the assets of the Manila Motor Company, Inc., as enemy property.

After the war, the company filed with the Philippine War Damage Commission, among other things, a claim for its mortgage lien on the car of GaudencioQuiambao and was awarded the sum of P780.47, P409.75 of which amount had already been paid.

On October 12, 1949, the company addressed a letter to GaudencioQuiambao asking him to fill a blank form relative to the lost car. Quiambao having since died, his widow, Nestora Rigor Vda.deQuiambao, returned the form with the statement that the questioned car was surrendered to the company for storage. On May 18, 1953, a demand was made on the widow to settle the

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deceased's unpaid accounts, but in view of her refusal, the company urged the Provincial Sheriff of Tarlac to carry out the pre-war writ of execution issued in Civil Case No. 58043. Although the records of that case had been lost during the war, and have not been reconstituted, a copy of said writ of execution kept on file by the provincial sheriff was saved. Accordingly, the latter advertised for sale at public auction the properties levied upon. Notified of the sheriff's action, the heirs of the deceased Quiambao filed this suit to annul and set aside the writ of execution and to recover damages. Judgment was rendered by the Court of First Instance of Manila in favor of plaintiffs-petitioners, but on appeal to the Court of Appeals, the decision was reversed and another entered dismissing the complaint. Hence, this appeal by writ of certiorari.

Briefly, the issues are:

(a) Did the delivery of the Studebaker car to respondent company produce the effect of rescinding or annulling the contract of sale between the company and the deceased GaudencioQuiambao and of barring the former from executing its pre-war judgment in Civil Case No. 58043?

(b) Did the payment to respondent company and the latter's acceptance of war damage compensation for the lost car amount to a foreclosure of the mortgage covenated in its favor? and

(c) Was the pre-war judgment already prescribed taking into account the moratorium laws?

Anent the first issue, petitioners, citing the case of H.E. Heacock Company vs. Buntal Manufacturing Company, et al., 66 Phil. 245-246, maintain that the "taking of the automobile by respondent company from GaudencioQuiambao ... amounted to a waiver of said company's right to execute its judgment in Civil Case No. 58043 and clearly constituted a cancellation or rescission of the sale," which, under the first paragraph of Article 1454-A of the old Civil Code1, then applicable, bars any further claim for unpaid installments. There is no merit in this claim. Unlike situation that arose in the H.E. Heacock Company case wherein the vendor demanded the return of the thing sold and thereby indicated an unequivocal desire on its part to rescind its contract with the vendee, here it was the buyer (deceased GaudencioQuiambao) who

offered, indeed pleaded, to surrender his car only in order that he might given more time within which to satisfy the judgment debt, and suspend the impending execution sale of the properties levied upon. The very receipt issued then by the company, and accepted without objection by the deceased (GaudencioQuiambao), indicated that the car was received "pending settlement of the judgment in Civil Case No. 58043." Other circumstances that militate against petitioners' theory of rescission or annulment of the contract of sale and waiver of the judgment of debt and, conversely, strengthen the proposition that the delivery of the car to respondent company was merely to postpone the satisfaction of the judgment amount, are that the deceased still paid the further sum of P500.00 on account of his indebtedness about two months after the car was surrendered, and that despite respondent company's acceptance of the car, the company made repeated demands against the petitioners to settle the deceased's unpaid accounts.

Since respondent company did not receive the car for the purpose of appropriating the same, but merely as security for the ultimate satisfaction of its judgment credit, the situation under consideration could not have amounted to a foreclosure of the chattel mortgage as petitioners imply.

Petitioners next argue that "the payment of war damage compensation to respondent company . . . produced the same and equal legal effect as formal foreclosure," and in view of the second paragraph of Article 1454-A2 of the Spanish Civil Code, the latter is now precluded from claiming unpaid installments. We do not agree. Having been the party who was last in possession of the lost car, the company was well within its rights, or better still, under obligation, to protect the interest of the car owner, as well as its own, by claiming, as it did, the corresponding war damage compensation for the car. Such action of the company can not reasonably be construed as a constriction of its rights under the pre-war judgment.

Furthermore, in Manila Motor Company, Inc. vs. Fernandez, 52 Off. Gaz. No. 16, 6883, 6885, we held:

. . . At any rate, it is the actual sale of the mortgaged chattel in accordance with section 14 of Act No. 1508 that would bar the creditor (who chooses to foreclose) from recovering

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any unpaid balance (Pacific Commercial Company vs. De la Rama, 72 Phil. 380).

But perhaps the best reason why respondent company may not be construed as having rescinded or cancelled the contract of sale or foreclosed the mortgage on the automobile in question is precisely because it brought suit for specific performance, and won, in the pre-war Civil Case No. 58043.

There is likewise no merit in the contention that the pre-war judgment had already prescribed. Said judgment was entered on December 4, 1940, and on July 14, 1941, a writ of execution was issued. Respondent company took no further step to enforce the judgment until May 19, 1954, on which date, respondent scheduled two (2) parcels of land owned by the petitioners for sale at public auction pursuant to the writ of July 14, 1941. From the entry of the judgment to May 19, 1954, a period of 13 years, 5 months and 15 days had elapsed. From this term we must deduct the period covered by the debt moratorium under Executive Order No. 32 (which applied to all debts payable within the Philippines), from the time the order took effect on March 10, 1945, until it was partially lifted by Republic Act No. 342 on July 26, 1948.

Deducting the period during which Executive Order No. 32 was in force, which is 3 years, 4 months and 16 days, from 13 years, 5 months and 15 days, the period covered from the entry of the pre-war judgment to the time respondent company attempted to sell the levied properties at auction, there is still left a period of 10 years and 29 days. But as held in Talens vs. Chuakay& Co., G.R. No. L-10127, June 30, 1958, this Court may take judicial notice of the fact that regular courts in Luzon were closed for months during the early part of the Japanese occupation until they were reconstituted by order of the Chairman of the Executive Commission on January 30, 1942.3 This interruption in the functions of the courts has also been held to interrupt the running of the prescriptive period (see also Palma vs. Celda, 81 Phil. 416). That being the case, respondent company could not be barred by prescription from proceeding with the execution sale pursuant to the levy and writ of execution issued under the pre-war judgment, considering that even the minimum period of from December 8, 1941, the outbreak of the Pacific War to January 30, 1942 is already a term of one (1) month and 23 days.

Petitioners raised the issue whether or not the pre-war writ of execution and levy may still be enforced by sale of the levied property after the lapse of the five-year period within which a judgment may be executed by motion. On this point, this Court has held:

We are of the opinion that a valid execution issued and levy made within the period provided by law may be enforced by a sale thereafter. . . . The sale of the property by the sheriff and the application of the proceeds are simply the carrying out of the writ of execution and levy which when issued were valid. This rests upon the principle that the levy is the essential act by which the property is set apart for the satisfaction of the judgment and taken into custody of the law, and that after it has been taken from the defendant, his interest is limited to its application to the judgment, irrespective of the time when it may be sold (Southern Cal. L. Co. vs. Hotel Co., 94 Cal. 217, 222). (Government of P.I. vs. Echaus, 71 Phil. 318)..

The case of Ansaldo vs. Fidelity and Surety Company of the Philippine Islands, G.R. No. L-2378, April 27, 1951, invoked by the petitioners, is not in point, for there the judgment creditor attempted to carry out the writ of execution 10 years after entry of judgment. As correctly observed by the appellate court below, both cited cases —

. . . affirm the fundamental principles that a valid judgment may be enforced by motion within five years after its entry, and by action after the lapse of said period but before the same shall have been barred by any statute of limitations, and that a valid execution issued and levy made within the five-year period after entry of the judgment may be enforced by sale of the property levied upon thereafter, provided the sale is made within ten years after the entry of the judgment.

The petitioners should, however, be credited the amount of P409.75 which the respondent Manila Motor Company actually received from the Philippine War Damage Commission on account of the car of GaudencioQuiambao that had been seized from it by the enemy occupant during the war. This should reduce the

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principal amount still due the respondent from the petitioners to the sum of P1,542.72.

IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Appeals appealed from is affirmed, with costs against petitioners.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Paredes, Dizon and De Leon, JJ., concur. Barrera, J., took no part.

Footnotes

1 The provision reads:

"In a contract for the sale of personal property payable in installments, failure to pay two or more installments shall confer upon the vendor the right to cancel the sale or foreclose the mortgage if one has been given on the property, without reimbursement to the purchaser of the installments already paid, if there be an agreement to this effect."

2 The paragraph reads:

"However, if the vendor has chosen to foreclose the mortgage he shall have no further action against the purchaser for the recovery of any unpaid balance owning by the same, and any agreement to the contrary shall be null and void."

3 In Alcantara vs. Chico, 49 O.G. 150, the Court of Appeals estimated that in Bulacan, courts were not opened for nearly five (5) months.

G.R. No. L-13435 July 27, 1960

EUSEBIO MANUEL, plaintiff and appellant, vs.EULOGIO RODRIGUEZ, SR., ET AL., defendants and appellees.

Sumulong, Hialo and Vidanes for appellant.Generoso, Tolentino, Garcia and Cruz for appellee E. Rodriguez, Sr.Celestino L. de Dios for appellee Llanos Vda. deLandahl.

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

Eusebio Manuel appeals from the judgment of the Court of First Instance of Rizal, promulgated on October 31,1957, dismissing his complaint.

Questions of law and of fact are involved, but the property being worth over P2,000,000.00, the appeal was directly taken to this Court.

The complaint seeks to have plaintiff Eusebio Manuel declared absolute owner of Lot 51, Plan Psu-32606, situated in San Mateo, Rizal; to compel defendants to execute a deed of absolute sale of said lot in favor of said plaintiff and to receive the unpaid balance of the purchase price thereof; and to declare the subsequent sales of said lot null and void and to cancel the transfer certificates of title issued to the transferees. The cross-claim by defendant Eulogio Rodriquez against his co-defendant Dolores Vda.deLandahl(as Administratrix of the intestate estate of John Landahl)having been dismissed, and there being no appeal therefrom, the facts pertaining thereto will be omitted.

It appears that Januaria Rodriguez was the original registered owner of a big tract of land (part of which is the land in question), embraced by Transfer Certificate of Title No. 8821 of the Register of Deeds of Rizal. In 1924, Januara Rodriguez ceded and transferred said land to the Payatas Subdivision Inc., to be administered by said firm, subdivided, sold, leased or otherwise disposed of (Exhibit "A"-1). Defendant-appellee Eulogio Rodriguez was then the Secretary-Treasurer of said Payatas Subdivision Inc.

Sometime in April, 1926, plaintiff-appellant offered to buy the lot in question (about 248,310 sq. meters in area).The Company agreed to sell said lot (Lot 51) for P2,240 in cash, or by installments with

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10% interest (Exhibit "C"). Plaintiff-appellant made a counter-offer for P2,000, which the Payatas Subdivision accepted, provided it was paid in each (Exhibit "E"). Plaintiff-appellant wanted to pay in installments, and on August 2, 1926, the Company wrote him that it was agreeable to a down-payment of P1,500, the balance to be paid within 9 to 10 months without interest, or if the down-payment be less than P1,500, with interest at 10% on the balance (Exhibit "F"). Plaintiff-appellant then requested that the down-payment be reduced to P1,300, and through the intercession of defendant-appellee Eulogio Rodriguez, Sr., who was plaintiff-appellant's friend, this was granted. After making the initial payment of P1,300, a provisional receipt was issued, which, on August 25, 1926, was substituted by the official receipt sent by Casiano M. de Vera, the Company's bookkeeper (Exhibits "G" & "G"-1). Soon after, plaintiff-appellant was placed in the possession of the lot.

It also appears that plaintiff-appellant did not make any payments within the 9 to 10-month period mentioned in Exhibit "F", so that on April 30, 1928, the Payatas Subdivision Inc. sent him a letter urging immediate payment of his unpaid account with the Company, which, including interest, amounted to P819.23, and asking him to answer within 10 days (Exhibit "H"). Thereafter, plaintiff-appellant made another payment of P300 for which a receipt dated June 20, 1928 was issued to him (Exhibit "I"). So far as the record discloses, this appears to be the last payment made by plaintiff-appellant on Lot 51, the property in question. On April 24, 1929, the Payatas Subdivision Inc. sent plaintiff-appellant a detailed statement of his unpaid account which, including interest and taxes, amounted to P596.21, urging immediate payment thereof, so that title could be transferred to him as per agreement, and requesting answer within 10 days (Exhibit "J"). Still, plaintiff-appellant did not pay his account, despite the fact that thereafter, on several occasions, the Company sent to his residence its acting secretary, Conrado Vicente, to collect the balance.

Defendants-appellees advance the theory that in view of plaintiff-appellant's repeated default in paying his outstanding account, the Payatas Subdivision Inc. then considered his contract cancelled and extinguished, and the amounts already paid (P1,600), forfeited to the Company, the transaction being merely a contract to sell or promise to sell; that sometime in 1939, the Payatas Subdivision Inc., having sold all its properties (except some properties it was administering for Januaria Rodriguez), was extrajudically dissolved,

but its papers of dissolution were lost or destroyed during the war; that after said dissolution, all unsold properties belonging to Januaria Rodriguez were returned to her.

Sometime in 1941, Januaria Rodriguez, who was the aunt of defendant-appellee Eulogio Rodriguez, sold several properties to the latter, including Lot 51 in question, in consideration of the monthly advances, support, services, care, maintenance, medical expenses, etc. which she received from the said Eulogio Rodriguez (Exhibit "U").Pursuant to such sale, Transfer Certificate of Title No. 44709 was issued to Eulogio Rodriguez, Sr. (Exhibit 21-a).

Likewise, it appears that on February 4, 1941, Eulogio Rodriguez, Sr., then Mayor of Manila, instructed his secretary to write plaintiff-appellant to urge him to pay his unsettled account with the Payatas Subdivision, Inc. As per instructions, his secretary wrote plaintiff-appellant (Exhibit "O"). Still, there was no payment.

On August 5, 1944, Eulogio Rodriguez, Sr. sold Lot 51(among others) to John Landahl (represented in the transaction by Carlos Landahl as attorney-in-fact), for and in consideration of P157,192.80, in Japanese war notes (Exhibit 1-Landahl). The sale was duly registered and Transfer Certificate of Title No. 46521 was issued in Landahl's name (Exhibit 3-Landahl).

On April 6, 1949, or just a little less than 23 years after the alleged sale to him of Lot 51 in 1926, plaintiff-appellant brought the instant case, as aforesaid, to compel the execution of a formal deed of conveyance in his favor covering the purported sale in 1926; to compel receipt of the unpaid balance of the price which plaintiff-appellant consigned in court; and to annul the subsequent sales to Eulogio Rodriguez and to John Landahl, and the corresponding transfer certificates to title issued to them.

The decision of the trial court dismissing the complaint is predicated on two main findings —

Firstly. — That the transaction in 1926 was mere contract to sell or promise to sell of Lot 51 to plaintiff-appellant, the understanding being that upon failure to pay the installments as demanded, the vendor corporation had the right to consider the contract cancelled and the amounts already paid, forfeited.

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Secondly. — That even under plaintiff-appellant's theory that his contract with defunct Payatas Subdivision Inc. was an absolute sale, involving immediate transfer of ownership, his right of action to compel the execution of a formal deed of conveyance has prescribed, whether the contract is considered written or verbal (Sec. 43, pars. 1 & 2, Code of Civil Procedure, Act 190); moreover, the action is barred by laches.

The findings that the contract entered into 1926 was a mere contract to sell or promise to sell was predicted on the following premises:

1. The alleged contract of absolute sale was not reduced to a formal deed of conveyance, much less registered, which is unlikely if the contract had been an absolute sale, because plaintiff-appellant would have insisted that it be reduced to a public document, the land being covered by a Torrens title.

2. It is highly improbable that the Payatas Subdivision Inc. would agree to an immediate transfer of ownership to plaintiff without any guaranty or security that the balance of the price would be completely paid.

3. The statement in Exhibit "J", introduced by plaintiff as his evidence, requesting payment of the balance "at ng kayo naman y mabigyannangkatibayan, alinsunodsapinagkayarian", confirms that the agreement between plaintiff and the company was that title would be transferred to plaintiff only upon full payment of the price.

4. Plaintiff would not have waited for more than 20 years to file this action to enforce the contract if this where an absolute sale, considering that the land being covered by a Torrens title, it was easy for the vendor to resell or encumber the same property to some other person on the basis of a clean title.

5. The nature of the transaction as a mere contract to sell is established by the testimony of witnesses for defendants-appellees.

6. The dissolution of the Payatas Subdivision Inc. sometime in 1939 must have been the reason which prompted the cancellation of

plaintiff's contract, as it had to wind up all its affairs and conclude all pending business before dissolution.

7. It may be taken judicial notice of that it is a general practice among subdivision companies engaging in installment sales to place the buyer immediately in possession after the down-payment, the company remaining owner of the property until full payment, at which time the deed of conveyance is then executed in favor of the buyer; and if the buyer defaults in paying the installments due, the corporation cancels the contracts and forfeits the amount already paid.

In his brief containing 20 assignments of error, plaintiff-appellant insists that the contract in 1926 was not merely a contract to sell but an absolute sale (Errors I-IV). He contends that contrary to the finding of the lower court, the 1926 contract was not verbal but written, citing the series of communications between plaintiff-appellant and the Payatas Subdivision Inc., Exhibits "C" to "G"-1. A careful examination of these exhibits, however, reveals that Exhibits "C" to "F" are mere bargaining negotiations that took place before the parties arrived at a full understanding, while Exhibits "G" and "G"-1 are mere receipts of payment; they fail to show that the parties had committed all the terms of their agreement to writing. Exhibit "C" merely offers to sell Lot 51 for P2,240, with interest at 10% if it be by installments; Exhibit "D" offered to reduce the total price for Lots 44 and 51 (early negotiation were for 2 lots) to P2,955, and also referred to other matters concerning the sale which should be discussed personally by the parties; Exhibit "E" accepts a previous counter-offer made by plaintiff-appellant to buy Lot 51 for P2,000, provided the payment was in cash, and again referred to other matters regarding the sale which should be threshed out between the parties; Exhibits "F", after making reference to the terms of payment desired by plaintiff-appellant, laid down the condition that if the first payment is at least P1,500, the balance payable in 9 to 10 months would not bear interest; and if the initial payment was less than P1,500, the balance would bear interest at 10%; Exhibit "G" is a note by Payatas Inc. referring to the attached receipt, Exhibit "G-1"), covering the down-payment of P1,300 made by plaintiff-appellant for Lot 51.

These letters shows that if at all, only the price and the terms of payments were in writing. The most important, the alleged transfer of title, and the other matters alluded to in some of the

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communications, were not reduced to any written document. It is generally recognized that to be a written contract, all its terms must be in writing; so that a contract partly in writing and partly oral, is, in legal effect, an oral contract (Fey vs. Loose Wiles Biscuit Co., 75 P2d 810; Peifer vs. New Comer, et al., 157 NE 240; 12 Am. Jur. 550). Apart from whether the letters negotiating the transaction could constitute a written contract of sale, the absence of a formal deed of conveyance strongly indicates that the parties did not intend immediate transfer of title, but only a transfer after full payment of the price. As observed by the trial court, if the contract were an absolute sale, it is unlikely that plaintiff-appellant would not have insisted that the same be reduced to a public document, considering that Lot 51 is covered by a Torrens title. On the other hand, it is unlikely for the Payatas Subdivision Inc. to have agreed to an immediate transfer of ownership without guaranty of the balance being ever paid.

One other evidence of the true character of the transaction is the statement contained in Exhibit "J" of the following tenor: "at ng kayo naman ay mabigyannangkatibayan, alinsunodsapinagkayarian", strengthening the conclusion that what transpired in 1926 was a mere contract to sell, transfer of title being conditioned on full payment of the price. Plaintiff-appellant tries to refute this by citing El BancoNacional Filipino vs. Ah Sing, 69 Phil. 611, wherein the contract captioned "Promesa De Venta" was held to be an absolute sale. Suffice it to say that comparison will not hold, because in the cited case, the contract was reduced to a formal deed conveyance and the court found that the parties had agreed to and actually effectuated a delivery. In the instant case, there was a formal deed of conveyance, and, as the land is covered by the Torrens title, there could be no delivery except by the act of registration of the deed or instrument.

Adding to the pile of circumstances, the fact that plaintiff-appellant did not file this action to enforce the contract until after more than 20 years from the alleged absolute sale in 1926 induces no other conclusion than that the transaction was a mere contract to sell, for it if were an absolute sale, it was unlikely for plaintiff-appellant to wait as long as he did before commencing the present action, considering that as the land was covered by a Torrens title, it could have been very easy for the Payatas Subdivision to dispose or encumber the same to another party. Considering the steady increase in land values since 1926 (Martin vs. Martin,* 57 Off. Gaz.

[9] 1589), plaintiff's laches and his neglect to comply with his own obligations are powerful indicia against the merits of his case rendering his case highly inequitable.

The dissolution of the Payatas Subdivision Inc. sometime in 1939 is sufficiently established by the evidence. The only argument advanced by plaintiff-appellant to show that it was not dissolved in 1939 (Error I-IV; IX-X) is Exhibit "O", the letter written in 1941 by the secretary of defendant-appellee Eulogio Rodriguez, asking for payment of the balance of the price, wherein the statement appears "Sa utosngpangasiwanngPayatas Estate Subdivision . . .", from which it is supposed to be inferred that said corporation had not yet been dissolved. However, in Exhibit "O" itself, the payment was being asked to be made at the office of defendant-appellee Eulogio Rodriguez at the City Hall, showing that Payatas Subdivision no longer even had an office. Also significant is the computation of interest mentioned in Exhibit "O" which, according to said letter, accrued only up to January, 1939. All these, plus the other circumstances on record, give credence to defendant-appellees' contention that the corporation was really dissolved in 1939.

Although this dissolution cannot be determinative of the character of the sale in 1926 (as to whether conditional or absolute), it must really have been the occasion which prompted the termination of the contract, as the corporation had to wind up its affairs and close all pending business. Plaintiff-appellant, however, argues (Errors I-IV; VI; VIII) that the Payatas Subdivision had no right to cancel the contract, as there was no demand by suit or notarial act, as provided by Article 1504 of the Old Code (Art. 1592, N. C. C.). This is without merit, because Article 1504 requiring demand by suit or notarial act in case the vendor of realty wants to rescind, does not apply to a contract to sell or promise to sell, where title remains with the vendor until fulfillment to a positive suspensive condition, such as full payment of the price (Caridad Estates vs. Santero, 71 Phil., 114, 121; Albea vs. Inquimboy, 86 Phil., 476; 47 Off. Gaz. Supp. 12, p. 131; Jocson vs. Capitol Subdivision Inc. et al., L-6573, February 28, 1955; Mirandavs. Caridad Estates, L-2077 and Aspuria vs. Caridad Estates, L-2121, October 3, 1950).

The contention of plaintiff-appellant that Payatas Subdivision Inc. had no right to cancel the contract as there was only a "casual breach" is likewise untenable. In contracts to sell, where ownership

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is retained by the seller and is not to pass until the full payment of the price, such payment, as we said, is a positive suspensive condition, the failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force, in accordance with Article 1117 of the Old Civil Code. To argue that there was only a casual breach is to proceed from the assumption that the contract is one of absolute sale, where non-payment is a resolutory condition, which is not the case.

Whether the trial court could take judicial notice of the alleged practice in subdivision companies to retain ownership over lands they contracted to sell, until full payment of the price, we find not necessary to discuss. The circumstances shown by the trend of evidence, including the oral testimony of the witnesses for defendant-appellees, more than convince this Court that the transaction in 1926 was merely a contract to sell, subject to a suspensive condition that was terminated for the Payatas Subdivision Inc. before its dissolution, by reason of the non-payment of the balance of the price.

It is contended (Error V) that the balance of the price was not due and payable within the 9 to 10-month period mentioned in Exhibit "F". this Court had examined said letter, and finds nothing to justify such a strained conclusion. Reasonably interpreted, the pertinent portion merely stated that if the first payment is at least P1,500, then, the balance will bear interest at 10%. In other words, the initial payment determines whether or not interest will be paid, not the period within which the balance will fall due. The period here bears no relation to the amount to be initially paid. At any rate, plaintiff-appellant was legally bound to pay the obligation due upon judicial or extra-judicial demand (Art. 1100, Old Civil Code; Article 1169, N.C.C.); and it appears that demands were made which plaintiff-appellant failed to heed.

Plaintiff-appellant next contends (Errors IX-XI) that when Exhibit "O" was sent by Clemente Felix, upon instructions of defendant-appellee Eulogio Rodriguez, the latter was not yet the owner of Lot 51 and the Payatas Subdivision Inc. had not yet been dissolved. As earlier discussed, there is enough evidence that the company was dissolved in 1939. As to whether or not Eulogio Rodriguez had already acquired Lot 51 when Exhibit "O" was sent to plaintiff-appellant, it would really seem that said Eulogio Rodriguez, as of

that time, was not yet the owner of Lot 51, since Exhibit "O" is dated February 4, 1941 while Exhibit "U" (the deed of sale from Januaria Rodriguez to Eulogio Rodriguez) is dated December 26, 1941. But this is not material, since it would merely show that, for whomever Eulogio Rodriguez was acting, he still wanted to give plaintiff-appellant a chance to own the land as a gesture of liberality. Anyway, appellant failed to take advantage of the proposal, and the same remains without binding effect.

Having lost all rights to the land, plaintiff-appellant has no personality to question the sales subsequently made to Eulogio Rodriguez, and later, to John Landhal. Hence, it becomes academic to discuss the assignments of error pertaining thereto (Errors VII, XII, XIII, XIV, XV, XVI), specially since there is no evidence that Landhal was prevented from relying on the clear certificate of title in the name of Rodriguez.

From a different perspective, there is yet another reason why the purported sale to plaintiff-appellant could not have transferred title to him, and could not have prevented the subsequent sale of the property to another party. The land in question being covered by a Torrens title, only the act of registration of the deed or instrument could effect transfer of ownership (Worcester vs. Ocampo, 34 Phil. 646; Tuason vs. Raymundo, 28 Phil. 635; Buzon vs.Lichauco, 13 Phil. 354). In the instant case, there is not even a deed or instrument that could possibly be registered.

Having reached the conclusion that title to the disputed property never passed to plaintiff-appellant; that his failure to complete payment of the price and his laches in enforcing his rights render it inequitable to compel performance of the contract at the present time, we find it unnecessary to discuss the remaining errors assigned in appellant's brief.

Equity would, of course, demand that, in the absence of stipulation, the amounts paid by plaintiff be returned, since the purpose for which he paid them was not attained; and it appears of record that such reimbursement was made as early as 1945 (Exhibits 1 to 1-C).

In view of the foregoing, the judgment of the trial court is affirmed. Costs against plaintiff-appellant.

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Bengzon, Montemayor, Bautista Angelo, Labrador, Concepcion, Barrera, and Gutierrez David, JJ., concur.

April 11, 1906

G.R. No. 2412PEDRO ROMAN, plaintiff-appellant,vs.ANDRES GRIMALT, defendant-appellee.

Alberto Barretto, for appellant.Chicote, Miranda and Sierra, for appellee.TORRES, J.:On July 2, 1904, counsel for Pedro Roman filed a complaint in the Court of First Instance of this city against Andres Grimalt, praying that judgment be entered in his favor and against the defendant (1) for the purchase price of the schooner Santa Marina, to wit, 1,500 pesos or its equivalent in Philippine currency, payable by installments in the manner stipulated; (2) for legal interest on the installments due on the dates set forth in the complaint; (3) for costs of proceedings; and (4) for such other and further remedy as might be considered just and equitable.On October 24 of the same year the court made an order sustaining the demurer filed by defendant to the complaint and allowing plaintiff ten days within which to amend his complaint. To this order the plaintiff duly excepted.

Counsel for plaintiff on November 5 amended his complaint and alleged that between the 13th and the 23rd day of June, 1904, both parties, through one Fernando Agustin Pastor, verbally agreed upon the sale of the said schooner; that the defendant in a letter dated June 23 had agreed to purchase the said schooner and of offered to pay therefor in three installment of 500 pesos each, to wit, on July 15, September 15, and November 15, adding in his letter that if the

plaintiff accepted the plan of payment suggested by him the sale would become effective on the following day; that plaintiff on or about the 24th of the same month had notified the defendant through Agustin Pastor that he accepted the plan of payment suggested by him and that from that date the vessel was at his disposal, and offered to deliver the same at once to defendant if he so desired; that the contract having been closed and the vessel being ready for delivery to the purchaser, it was sunk about 3 o’clock p. m., June 25, in the harbor of Manila and is a total loss, as a result of a severe storm; and that on the 30th of the same month demand was made upon the defendant for the payment of the purchase price of the vessel in the manner stipulated and defendant failed to pay. Plaintiff finally prayed that judgment be rendered in accordance with the prayer of his previous complaint.

Defendant in his answer asked that the complaint be dismissed with costs to the plaintiff, alleging that on or about June 13 both parties met in a public establishment of this city and the plaintiff personally proposed to the defendant the sale of the said vessel, the plaintiff stating that the vessel belonged to him and that it was then in a sea worthy condition; that defendant accepted the offer of sale on condition that the title papers were found to be satisfactory, also that the vessel was in a seaworthy condition; that both parties then called on Calixto Reyes, a notary public, who, after examining the documents, informed them that they were insufficient to show the ownership of the vessel and to transfer title thereto; that plaintiff then promised to perfect his title and about June 23 called on defendant to close the sale, and the defendant believing that plaintiff had perfected his title, wrote to him on the 23d of June and set the following day for the execution of the contract, but, upon being informed that plaintiff had done nothing to perfect his title, he insisted that he would buy the vessel only when the title papers were perfected and the vessel duly inspected.

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Defendant also denied the other allegations of the complaint inconsistent with his own allegations and further denied the statement contained in paragraph 4 of the complaint to the effect that the contract was completed as to the vessel; that the purchase price and method of payment had been agreed upon; that the vessel was ready for delivery to the purchaser and that an attempt had been made to deliver the same, but admitted, however, the allegations contained in the last part of the said paragraph.

The court below found that the parties had not arrived at a definite understanding. We think that this finding is supported by the evidence introduced at the trial.

A sale shall be considered perfected and binding as between vendor and vendee when they have agreed as to the thing which is the object of the contract and as to the price, even though neither has been actually delivered. (Art. 1450 of the Civil Code.)

Ownership is not considered transmitted until the property is actually delivered and the purchaser has taken possession of the value and paid the price agreed upon, in which case the sale is considered perfected.

When the sale is made by means of a public instrument the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract. (Art. 1462 of the Civil Code.)

Pedro Roman, the owner, and Andres Grimalt, the purchaser, had been for several days negotiating for the purchase of the schooner Santa Marina - from the 13th to the 23d of June, 1904. They agreed upon the sale of the vessel for the sum of 1,500 pesos, payable in three installments, provided the title papers to the vessel were in proper form. It is so stated in the letter written by the purchaser to the owner on the 23rd of June.

The sale of the schooner was not perfected and the purchaser did not consent to the execution of the deed of transfer for the reason that the title of the vessel was in the name of one Paulina Giron and not in the name of Pedro Roman, the alleged owner. Roman promised, however, to perfect his title to the vessel, but he failed to do so. The papers presented by him did not show that he was the owner of the vessel.

If no contract of sale was actually executed by the parties the loss of the vessel must be borne by its owner and not by a party who only intended to purchase it and who was unable to do so on account of failure on the part of the owner to show proper title to the vessel and thus enable them to draw up the contract of sale.

The vessel was sunk in the bay on the afternoon of the 25th of June, 1904, during a severe storm and before the owner had complied with the condition exacted by the proposed purchaser, to wit, the production of the proper papers showing that the plaintiff was in fact the owner of the vessel in question.

The defendant was under no obligation to pay the price of the vessel, the purchase of which had not been concluded. The conversations had between the parties and the letter written by defendant to plaintiff did not establish a contract sufficient in itself to create reciprocal rights between the parties.

It follows, therefore, that article 1452 of the Civil Code relative to the injury or benefit of the thing sold after a contract has been perfected and articles 1096 and 1182 of the same code relative to the obligation to deliver a specified thing and the extinction of such obligation when the thing is either lost or destroyed, are not applicable to the case at bar.

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The first paragraph of article 1460 of the Civil Code and section 335 of the Code of Civil Procedure are not applicable. These provisions contemplate the existence of a perfected contract which can not, however, be enforced on account of the entire loss of the thing or made the basis of an action in court through failure to conform to the requisites provided by law.The judgment of the court below is affirmed and the complaint is dismissed with costs against the plaintiff. After the expiration of twenty days from the date hereof let judgment be entered in accordance herewith and ten days thereafter let the case be remanded to the Court of First Instance for proper action. So ordered.

Arellano, C.J., Mapa, Johnson, Carson and Willard, JJ., concur.

G.R. No. L-28845 June 10, 1971

TEODORA GONZALES BUNYI, petitioner, vs.SABINA REYES, LUZ JOAQUIN, ELVIRA JOAQUIN, ROSENDO JOAQUIN, JR., LUALHATI JOAQUIN and LOIDA VIVO and the HONORABLE COURT OF APPEALS, respondents.

Luis Teodoro for petitioner.

Anonuevo, Baez & Vasquez for private respondents.

TEEHANKEE, J.:

Appeal for certiorari from a decision of the Court of Appeals.

Petitioner Teodora Gonzales Bunyi was the defendant in an action for reconveyance, on the ground of fraud, of a parcel of land containing 16 ares and 59 centares (Lot No. 1310 of the Friar Lands

Estate) situated in Taguig, Rizal, covered by Transfer Certificate of Title No. 43437 issued in her name, filed by private respondents as plaintiff in the Court of First Instance of Rizal. 1

Respondents filed the suit on May 30, 1961 as heirs of the previous registered owner of the land, Gil Joaquin, who had died on June 10, 1950, leaving respondents as his heirs, namely, his surviving spouse, Sabina Reyes; his daughter, Luz Joaquin; and his minor grandchildren, Elvira, Rosendo, Jr. and Lualhati, all surnamed Joaquin (children of a deceased son, Rosendo), and represented by their mother, Loida Vivo, as their guardian ad litem.

The main facts are undisputed. On September 24, 1935, Gil Joaquin executed a deed of "Venita con Pacto de Retro", whereby for and in consideration of the sum of P100.00 paid to him. by petitioner, he ceded and transferred to petitioner the land then titled in his name, expressly excluding the house or houses built thereon, with the right of repurchasing the same within two years thereafter, and assuming the payment of the land taxes and agreeing to pay an annual rental of P12.00 as lessee thereof during the stipulated period of redemption.

On July 5, 1941, after Gil Joaquin had failed to repurchase the land, petitioner executed an affidavit of consolidation of ownership and Joaquin's title was accordingly cancelled and a new certificate of title issued on July 7, 1941 in petitioner's name.

The trial court, presided by the late Justice (then Judge) Angel H. Mojica, summarized the conflicting claims of the parties per their testimonial and documentary evidence, as follows:

Plaintiff, Sabina Reyes tried to establish that the document, Exhibit A-I, does not represent the true intention and agreement of the parties thereto; that the contents thereof were not faithfully explained to her and her late husband; that in affixing her thumbmark to the document, she and her late husband, Gil Joaquin, who signed the same, were made to understand that they were merely mortgaging the land in question to the defendant as security for the sum of P100.00 which they borrowed from her; that the conditions stated in the document

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http://philippinelaw.info/statutes/acts/act190.html

above-quoted are not true except that portion in letter (b) whereby her late husband agreed to pay an annual rent of P12.00, and the condition appearing in letter (c) whereby her late husband bound himself to pay the taxes for the land; that she had been paying interest every year to the defendant on the sum loaned; that since 1935 up to January 1961, she had been paying the taxes for the land declared in the name of her husband under Tax Declaration No. 947 (Exh. B); that there are houses on the land in question and the owners thereof pay to her the corresponding rents; and that she learned for the first time that the defendant was claiming ownership of the land only in 1961 when the defendant caused it to be surveyed and so she consulted her present counsel.

The defendant, on the other hand, attempted to show that she is the lawful owner of the land in question, having acquired same in virtue of the instrument "Venta Con Pacto de Retro," Exhibit A-1, which Gil Joaquin executed in her favor on September 24, 1935; that because of the failure of Gil Joaquin and his wife, Sabina Reyes, to repurchase the land within the period of two years and pay the rents as stipulated in the contract, she filed an affidavit of consolidation of ownership and as a consequence thereof, Transfer Certificate of Title No. 43437 covering the land was issued on July 7, 1941, in her favor. She claimed that she had been paying the real estate taxes for the land as shown by her documents, Exhibits 3 and 4, and that the land had been registered in her name for taxation purposes since 1949 (Exh. 5). She further testified that the notary public before whom Gil Joaquin and plaintiff Sabina Reyes acknowledged and ratified the document (Exh. A-I) in Biñan, Laguna, explained to them the contents thereof; that Gil Joaquin had been vice mayor of Muntinglupa and he spoke and understood Spanish; that she did not study in any school, although she was taught how to write her name by her father so that she could vote; that her

husband who reached the second grade did not understand Spanish.

The trial court rendered judgment holding that the questioned deed spoke "in unequivocal terms of a sale and the conveyance of the land with the right to repurchase. In the face of its plain terms, there is nothing to justify our construing that contract as a mere mortgage.

Passing upon the contrary claim of respondents, the trial court found the uncorroborated and lone testimony of Sabina Reyes to be inadequate and incredible: "(W)e find the uncorroborated testimony of plaintiff Sabina Reyes to the effect that she and her late husband, Gil Joaquin, were induced to sign the original of said document because of their belief that they were merely mortgaging the land in question as security for the sum of P100.00 which they borrowed from her to be incredible. Her lone and biased testimony is not sufficient to overcome the aforesaid document which is a sale with Right to repurchase (venta con pacto de retro). Deeply embedded in our jurisprudence is the rule that 'mere preponderance of providence is not sufficient to overthrow a certificate of a notary public to the effect that a grantor executed a certain document and acknowledged the fact of its execution before him. To accomplish this result, the evidence must be so clear, strong and convince as to exclude all reasonable controversy as to the falsity of the certificate, and when the evidence is conflicting, the certificate will be upheld.' (Robinson vs. Villafuerte, 18 Phil. 171; Jocson vs. Estacion, 60 Phil. 1055; V.L.J. 784; Villafuerte vs. Reyes, et al., CA-G.R. No. 1637-R, Sept. 27, 1950). In this case we find that plaintiffs failed to produce 'clear strong and convincing evidence to overcome the positive value of said document. Mere denials on the part of plaintiff Sabina Reyes can not offset or defeat said notarial documents" 2

The trial court further ruled out the applicability of Articles 1602 to 1605 of the Civil Code of the Philippines invoked by respondents as warranting the construction of the contract as an "equitable mortgage", ruling that the applicable provisions were those of the old Civil Code then in force.

The trial court further found the belated claims of respondents to be unsupported by the evidence, thus: "(I)t will be noted that the plaintiffs are attempting to defeat the effect of the deed of the

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late Gil Joaquin, their predecessor in interest, twenty six years after the execution of the instrument. After so long a period the charges of fraud must be clearly and in controvertibly proved. It is our sense that the delay of plaintiffs in seeking relief in court 'speaks against the probability of the wrong complained of.' Plaintiff Sabina Reyes failed to produce any receipt tending to prove her claim that she had regularly paid the interests on the alleged 'loan' since 1935 up to the filing of the complaint. She declared that she had religiously paid the taxes for the land, yet she failed to substantiate her testimony with the best evidence. The records show that she paid the real estate taxes for the years 1949 to 1959 on December 22, 1960 only (Exhs. C and C-1), that is, five months before the filing of the complaint. Why the belated payment if she believes to be still the owner of the property?" 3

The trial court finally upheld petitioner's defense of laches and prescription on the basis of the following considerations: "(L)astly, it appears that Gil Joaquin who died on June 10, 1950 had been Vice Mayor of Muntinglupa, he spoke, and understood Spanish; it is hard to be that he signed the document, Exhibit A-1, without understanding its contents. If he were really defrauded why did he not exercise his right of action? Why did he not repurchase the land and/or file an action for annulment of the aforesaid document during his lifetime? And why did plaintiffs sleep on their rights until May 30, 1961, when they instituted this action? The delay in the commencement of this action strongly casts a doubt in our mind as to the verity of their complaint. It is our conviction that the action has already prescribed." 4

Respondents appealed the trial court's decision to the Court of Appeals. The appellate court did not make any factual findings of its own, much less overturn those of the trial court.

It, however, pitted the lone testimony of petitioner as against that of respondent Sabina Reyes, and declared that under Article 1332 of the Philippine Civil Code, the burden was on petitioner as vendee a retro to show that the Joaquin spouses fully understood the contents of the deed and that her "bare testimony" was not sufficient to discharge the burden. It held that petitioner had consolidated her ownership in a "surreptitious manner" and that "under the facts, defendant [petitioner] has not discharged the burden of proof, hence presumption of mistake, if not fraud, under the law stands unrebutted and controlling" and that the consent to

the Joaquin spouses to the deed was therefore null and void, as was the deed itself. It finally held the respondents' action to be "one for declaration of the inexistence of the contract which does not prescribe."

The appellate court therefore reversed the trial court's judgment and granted the reconveyance of the land as prayed for in respondents' complaint, per its following brief opinion:

Plaintiff Sabina Reyes having alleged and testified that she and her late husband Gil Joaquin thumbmarked and signed the deed, Exhibit A, drawn on Spanish which they did not understand and that they were induced to sign the document on representation of defendant that it was the deed of mortgage, the burden of proof is on the defendant to allow pursuant to Article 1332 of the new civil code, that the Joaquin spouses fully understood the content thereof ... Only defendant testifies on this score. She declared pertinently that it is Gil Joaquin 'who asked the preparation of that document,' Exhibit A: that after the document was prepared by the notary public, the latter translated the contents into tagalog before it was signed by the Joaquin spouses in Biñan, Laguna; that she did not have any schooling, although her late husband reached sixth grade: that the notary gave a copy of the deed to the Joaquin spouses. Her bare testimony is not sufficient to establish by preponderance of evidence that the Joaquin spouses fully know the contents of the document, Exhibit A, to be Sale with right to repurchase, especially considering the countervailing testimony of plaintiff Sabina Reyes that she and her husband did not understand Spanish, she being illiterate and her husband having reached grade 3 only, according to him; that they signed the deed in Muntinglupa in the belief it was a deed of mortgage and that they did not appear before the notary public in Biñan, Laguna. Moreover, plaintiffs' theory finds confirmation in the surreptitious manner [that] defendant made and filed the affidavit of consolidation of ownership, Exhibit 2-A, and secured a new certificate of title in her name, Exhibit 1, on

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July 7, 1941, since the change in the status of the property was not reflected in the tax roll of the municipality of Muntinglupa until August 28, 1961, as per annotation on TD 947, Exhibit D-1 when plaintiffs TD was cancelled, and in defendant's allowing plaintiffs to continue in possession of the lot after 1941 despite said change in ownership. Under the facts, defendant has not discharged the burden of proof, hence, presumption of mistake, if not fraud, under the law stands unrebutted and controlling .... It follows that the consent of spouses Gil Joaquin and Sabina Reyes to the document, Exhibit A, is null and void, and so is the contract .... The circumstances that Exhibit A is a public document executed prior to the effectivity of the new Civil Code do not preclude the application of Article 1332 aforesaid ..., which is procedural in nature, affecting burden of proof ..., there being no vested right in the rules of evidence ....

Having found that the deed of sale, Exhibit A, null and void, it follows that the present action may be treated as one for declaration of the inexistence of the contract which does not prescribe ....

Petitioner in turn filed this appeal, which the Court finds meritorious.

1. The appellate court's error was in applying Article 1332 of the New Civil Code and declaring that thereunder petitioner had the burden which she failed to discharge as defendant — of showing that the Joaquin spouses fully understood the contents of the "Venta con Pacto de Retro", when the pertinent factual basis for application of said Article 1332 had not been duly established.

Article 1332, which was designed for the protection of illiterates and of a party to a contract who "is a disadvantage on account of his ignorance, mental weakness or other handicap," provides that: 5

Art. 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person

enforcing the contract must show that the terms thereof have been fully explained to the former. (n)

For the proper application of said article to the case at bar, it has first to be established convincingly by respondents that Gil Joaquin could not read or that the contract was written in a language not understood by him. This factual basis was far from shown. On the contrary, the trial court duly found — and the appellate court made in contrary finding — that "Gil Joaquin, ... had been vice mayor of Muntinglupa; he spoke and understood Spanish; it is hard to believe that he signed the document Exhibit A-1 without understanding its contents." The appellate court still made mention of another relevant factor testified to by petitioner — not mentioned by the trial court — that "it was Gil Joaquin who 'asked the preparation of that document', Exhibit A, "by the notary public, who translated the contents into tagalog before the Joaquin spouses signed the same — which completely relieved petitioner of any burden of proof, since the further presumption arose that the deed was prepared in accordance with Gil's understanding and instructions, since he caused its preparation.

The trial court, therefore, properly ruled that it was respondents, as plaintiffs, who failed to overcome by clear, strong and convincing evidence the positive value and effect of the notary's certificate that the Joaquin spouses duly executed the "Venta con Pacto de Retro" and acknowledged the fact of its execution of their sworn and free will before him.

2. The appellate court merely concluded that petitioner had consolidated ownership of the land on July 7, 1941 in a "surreptitious manner" on the assumption, without reference to the evidence of record, that petitioner's ownership of the land was not reflected in the municipality's tax roll "until August 28, 1961, as per annotation on TD-947, Exhibit D-1, when plaintiffs' TD was cancelled and that petitioner "allowed plaintiffs to continue in Possession of the lot after 1941 despite said change of ownership." These assumptions of the appellate court are not supported by the evidence of record cited 'in the trial court's decision that petitioner "had been paying the real estate taxes for the land as shown by her documents, Exhibits 3 and 4, and that the land had been registered in her name for taxation purposes since 1949 (Exh. 5);" and that on the other hand, "Plaintiff Sabina Reyes failed to

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produce any receipt tending to prove her claim that she had regularly paid the interests and the alleged `loan' since 1935 up to the filing of the complaint. She declared that she had religiously paid the taxes for the land, yet she failed to substantiate her testimony with the best evidence. The records show that she paid the real estate taxes for the years 1949 to 1959 on December 22, 1960 only (Exhs. C and C-1), that is, five months before the filing of the complaint." Petitioner's brief further cites as to the fact of possession that "it was admitted by Luz Joaquin herself (one of the respondents and daughter of Gil Joaquin) that after World War II, she removed her house from the same lot, (S. T. N. of August 1962 p. 8 and S. T. N. of February 27, 1963, p. 2) while one of the daughters of the petitioner, FortunataBunyi has a house on the same lot since 1959 (S. T. N. of October 26, 1962, pp. 3 & 7) which was not even denied by the respondents," which citation of the record is not denied in respondent's brief.

3. The final error of the appellate court flowed from its erroneous conclusion that "the consent of spouses Gil Joaquin and Sabina Reyes to the document, Exhibit A, is null and void," hence "it follows that the present action may be treated as one for declaration of the inexistence of the contract which does not prescribe." The sale at bar is governed by the provisions of the old civil code, and as was appointed out by Mr. Justice Reyes in one case 6, "(U)nder Article 1509 of the old Code, the vendee irrevocably acquires ownership over the thing sold upon failure of the vendor to redeem — i.e. ownership is consolidated in the vendee by operation of law." The court's jurisprudence has been uniform in support of petitioner's submittal that the rights vested in her as vendee under the provisions of the old Code could not be impaired by the provisions of the new Civil Code which took effect only in 1950. 7

On the question of prescription of action, the Court, per Mr. Justice Reyes, in Fernandez vs. Fernandez, 8 has held that "the right of action to question the nature of the original transaction as well as any action to recover the land, if any such rights ever existed, were extinguished by prescription ten years after the appellant consolidated his ownership in 1936." Respondents' right to question the nature of the deed and to seek reconveyance must be held therefore to have prescribed in 1951, ten years after petitioner's consolidation of ownership of the land on July 7, 1941, when a new certificate of title was issued in her favor and that of Gil Joaquin

was cancelled, and the filing of the present action almost twenty years after such consolidation is barred by prescription.

ACCORDINGLY, the judgment of the Court of Appeals appealed from is hereby reversed and set aside. Without costs.

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

Castro, J., took no part.

Barredo, J., reserves his vote.

G.R. No. 140479 March 8, 2001

ROSENCOR DEVELOPMENT CORPORATION and RENE JOAQUIN, petitioners, vs.PATERNO INQUING, IRENE GUILLERMO, FEDERICO BANTUGAN, FERNANDO MAGBANUA and LIZZA TIANGCO, respondents.

GONZAGA-REYES, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking reversal of the Decision1 of the Court of Appeals dated June 25, 1999 in CA-G.R. CV No. 53963. The Court of Appeals decision reversed and set aside the Decision2 dated May 13, 1996 of Branch 217 of the Regional Trial Court of Quezon City in Civil Case No. Q-93-18582.1âwphi1.nêt

The case was originally filed on December 10, 1993 by PaternoInquing, Irene Guillermo and Federico Bantugan, herein respondents, against Rosencor Development Corporation (hereinafter "Rosencor"), Rene Joaquin, and Eufrocina de Leon. Originally, the complaint was one for annulment of absolute deed of sale but was later amended to one for rescission of absolute deed of sale. A complaint-for intervention was thereafter filed by respondents Fernando Magbanua and Danna LizzaTiangco. The complaint-in-intervention was admitted by the trial court in an Order dated May 4, 1994.3

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The facts of the case, as stated by the trial court and adopted by the appellate court, are as follows:

"This action was originally for the annulment of the Deed of Absolute Sale dated September 4, 1990 between defendants Rosencor and Eufrocina de Leon but later amended (sic) praying for the rescission of the deed of sale.

Plaintiffs and plaintiffs-intervenors averred that they are the lessees since 1971 of a two-story residential apartment located at No. 150 Tomas Morato Ave., Quezon City covered by TCT No. 96161 and owned by spouses Faustino and CresenciaTiangco. The lease was not covered by any contract. The lessees were renting the premises then for P150.00 a month and were allegedly verbally granted by the lessors the pre-emptive right to purchase the property if ever they decide to sell the same.

Upon the death of the spouses Tiangcos in 1975, the management of the property was adjudicated to their heirs who were represented by Eufrocina de Leon. The lessees were allegedly promised the same pre-emptive right by the heirs of Tiangcos since the latter had knowledge that this right was extended to the former by the late spouses Tiangcos. The lessees continued to stay in the premises and allegedly spent their own money amounting from P50,000.00 to P100,000.00 for its upkeep. These expenses were never deducted from the rentals which already increased to P1,000.00.

In June 1990, the lessees received a letter from Atty. ErlindaAguila demanding that they vacate the premises so that the demolition of the building be undertaken. They refused to leave the premises. In that same month, de Leon refused to accept the lessees’ rental payment claiming that they have run out of receipts and that a new collector has been assigned to receive the payments. Thereafter, they received a letter from Eufrocina de Leon offering to sell to them the property they were leasing for P2,000,000.00. xxx.

The lessees offered to buy the property from de Leon for the amount of P1,000,000.00. De Leon told them that she will

be submitting the offer to the other heirs. Since then, no answer was given by de Leon as to their offer to buy the property. However, in November 1990, Rene Joaquin came to the leased premises introducing himself as its new owner.

In January 1991, the lessees again received another letter from Atty. Aguila demanding that they vacate the premises. A month thereafter, the lessees received a letter from de Leon advising them that the heirs of the late spouses Tiangcos have already sold the property to Rosencor. The following month Atty. Aguila wrote them another letter demanding the rental payment and introducing herself as counsel for Rosencor/Rene Joaquin, the new owners of the premises.

The lessees requested from de Leon why she had disregarded the pre-emptive right she and the late Tiangcos have promised them. They also asked for a copy of the deed of sale between her and the new owners thereof but she refused to heed their request. In the same manner, when they asked Rene Joaquin a copy of the deed of sale, the latter turned down their request and instead Atty. Aguila wrote them several letters demanding that they vacate the premises. The lessees offered to tender their rental payment to de Leon but she refused to accept the same.

In April 1992 before the demolition can be undertaken by the Building Official, the barangay interceded between the parties herein after which Rosencor raised the issue as to the rental payment of the premises. It was also at this instance that the lessees were furnished with a copy of the Deed of Sale and discovered that they were deceived by de Leon since the sale between her and Rene Joaquin/Rosencor took place in September 4, 1990 while de Leon made the offer to them only in October 1990 or after the sale with Rosencor had been consummated. The lessees also noted that the property was sold only for P726,000.00.

The lessees offered to reimburse de Leon the selling price of P726,000.00 plus an additional P274,000.00 to complete their P1,000.000.00 earlier offer. When their offer was refused, they filed the present action praying for the following: a) rescission of the Deed of Absolute Sale

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between de Leon and Rosencor dated September 4, 1990; b) the defendants Rosencor/Rene Joaquin be ordered to reconvey the property to de Leon; and c) de Leon be ordered to reimburse the plaintiffs for the repairs of the property, or apply the said amount as part of the price for the purchase of the property in the sum of P100,000.00."4

After trial on the merits, the Regional Trial Court rendered a Decision5 dated May 13, 1996 dismissing the complaint. The trial court held that the right of redemption on which the complaint. The trial court held that the right of redemption on which the complaint was based was merely an oral one and as such, is unenforceable under the law. The dispositive portion of the May 13, 1996 Decision is as follows:

"WHEREFORE, in view of the foregoing, the Court DISMISSES the instant action. Plaintiffs and plaintiffs-intervenors are hereby ordered to pay their respective monthly rental of P1,000.00 per month reckoned from May 1990 up to the time they leave the premises. No costs.

SO ORDERED."6

Not satisfied with the decision of the trial court, respondents herein filed a Notice of Appeal dated June 3, 1996. On the same date, the trial court issued an Order for the elevation of the records of the case to the Court of Appeals. On August 8, 1997, respondents filed their appellate brief before the Court of Appeals.

On June 25, 1999, the Court of Appeals rendered its decision7 reversing the decision of the trial court. The dispositive portion of the June 25, 1999 decision is as follows:

"WHEREFORE, premises considered, the appealed decision (dated May 13, 1996) of the Regional Trial Court (Branch 217) in Quezon City in Case No. Q-93-18582 is hereby REVERSED and SET ASIDE. In its stead, a new one is rendered ordering:

(1) The rescission of the Deed of Absolute Sale executed between the appellees on September 4, 1990;

(2) The reconveyance of the subject premises to appellee Eufrocina de Leon;

(3) The heirs of Faustino and CrescenciaTiangco, thru appellee Eufrocina de Leon, to afford the appellants thirty days within which to exercise their right of first refusal by paying the amount of ONE MILLION PESOS (P1,000,000.00) for the subject property; and

(4) The appellants to, in turn, pay the appellees back rentals from May 1990 up to the time this decision is promulgated.

No pronouncement as to costs.

SO ORDERED".8

Petitioners herein filed a Motion for Reconsideration of the decision of the Court of Appeals but the same was denied in a Resolution dated October 15, 1999.9

Hence, this petition for review on certiorari where petitioners Rosencor Development Corporation and Rene Joaquin raise the following assignment of errors10:

I.

THE COURT OF APPEALS GRAVELY ERRED WHEN IT ORDERED THE RESCISSION OF THE ABSOLUTE DEED OF SALE BETWEEN EUFROCINA DE LEON AND PETITIONER ROSENCOR.

II.

THE COURT OF APPEALS COMMTITED MANIFEST ERROR IN MANDATING THAT EUFROCINA DE LEON AFFORD RESPONDENTS THE OPPORTUNITY TO EXERCISE THEIR RIGHT OF FIRST REFUSAL.

III.

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THE COURT OF APPEALS GRIEVOUSLY ERRED IN CONCLUDING THAT RESPONDENTS HAVE ESTABLISHED THEIR RIGHT OF FIRST REFUSAL DESPITE PETITIONERS’ RELIANCE ON THEIR DEFENSE BASED ON THE STATUTE OF FRAUDS.

Eufrocina de Leon, for herself and for the heirs of the spouses Faustino and CrescenciaTiangco, did not appeal the decision of the Court of Appeals.

At the onset, we not that both the Court of Appeals and the Regional Trial Court relied on Article 1403 of the New Civil Code, more specifically the provisions on the statute of frauds, in coming out with their respective decisions. The trial court, in denying the petition for reconveyance, held that right of first refusal relied upon by petitioners was not reduced to writing and as such, is unenforceable by virtue of the said article. The Court of Appeals, on the other hand, also held that the statute of frauds governs the "right of first refusal" claimed by respondents. However, the appellate court ruled that respondents had duly proven the same by reason of petitioners’ waiver of the protection of the statute by reason of their failure to object to the presentation of oral evidence of the said right.

Both the appellate court and the trial court failed to discuss, however, the threshold issue of whether or not a right of first refusal is indeed covered by the provisions of the New Civil Code on the statute of frauds. The resolution of the issue on the applicability of the statute of frauds is important as it will determine the type of evidence which may be considered by the trial court as proof of the alleged right of first refusal.

The term "statute of frauds" is descriptive of statutes which require certain classes of contracts to be in writing. This statute does not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulates the formalities of the contract necessary to render it enforceable. Thus, they are included in the provisions of the New Civil Code regarding unenforceable contracts, more particularly Art. 1403, paragraph 2. Said article provides, as follows:

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

xxx

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents:

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

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

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

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

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

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

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The purpose of the statute is to prevent fraud and perjury in the enforcement of obligations depending for their evidence on the unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged.11 Moreover, the statute of frauds refers to specific kinds of transactions and cannot apply to any other transaction that is not enumerated therein.12 The application of such statute presupposes the existence of a perfected contract.13

The question now is whether a "right of first refusal" is among those enumerated in the list of contracts covered by the Statute of Frauds. More specifically, is a right of first refusal akin to "an agreement for the leasing of a longer period than one year, or for the sale of real property or of an interest therein" as contemplated by Article 1403, par. 2(e) of the New Civil Code.

We have previously held that not all agreements "affecting land" must be put into writing to attain enforceability.14Thus, we have held that the setting up of boundaries,15 the oral partition of real property16, and an agreement creating a right of way17 are not covered by the provisions of the statute of frauds. The reason simply is that these agreements are not among those enumerated in Article 1403 of the New Civil Code.

A right of first refusal is not among those listed as unenforceable under the statute of frauds. Furthermore, the application of Article 1403, par. 2(e) of the New Civil Code presupposes the existence of a perfected, albeit unwritten, contract of sale.18 A right of first refusal, such as the one involved in the instant case, is not by any means a perfected contract of sale of real property. At best, it is a contractual grant, not of the sale of the real property involved, but of the right of first refusal over the property sought to be sold19.

It is thus evident that the statute of frauds does not contemplate cases involving a right of first refusal. As such, a right of first refusal need not be written to be enforceable and may be proven by oral evidence.

The next question to be ascertained is whether or not respondents have satisfactorily proven their right of first refusal over the property subject of the Deed of Absolute Sale dated September 4, 1990 between petitioner Rosencor and Eufrocina de Leon.

On this point, we agree with the factual findings of the Court of Appeals that respondents have adequately proven the existence of their right of first refusal. Federico Bantugan, Irene Guillermo, and PaternoInquing uniformly testified that they were promised by the late spouses Faustino and CrescenciaTiangco and, later on, by their heirs a right of first refusal over the property they were currently leasing should they decide to sell the same. Moreover, respondents presented a letter20 dated October 9, 1990 where Eufrocina de Leon, the representative of the heirs of the spouses Tiangco, informed them that they had received an offer to buy the disputed property for P2,000,000.00 and offered to sell the same to the respondents at the same price if they were interested. Verily, if Eufrocina de Leon did not recognize respondents’ right of first refusal over the property they were leasing, then she would not have bothered to offer the property for sale to the respondents.

It must be noted that petitioners did not present evidence before the trial court contradicting the existence of the right of first refusal of respondents over the disputed property. They only presented petitioner Rene Joaquin, the vice-president of petitioner Rosencor, who admitted having no personal knowledge of the details of the sales transaction between Rosencor and the heirs of the spouses Tiangco21. They also dispensed with the testimony of Eufrocina de Leon22 who could have denied the existence or knowledge of the right of first refusal. As such, there being no evidence to the contrary, the right of first refusal claimed by respondents was substantially proven by respondents before the lower court.

Having ruled upon the question as to the existence of respondents’ right of first refusal, the next issue to be answered is whether or not the Court of Appeals erred in ordering the rescission of the Deed of Absolute Sale dated September 4, 1990 between Rosencorand Eufrocina de Leon and in decreeing that the heirs of the spouses Tiangco should afford respondents the exercise of their right of first refusal. In other words, may a contract of sale entered into in violation of a third party’s right of first refusal be rescinded in order that such third party can exercise said right?

The issue is not one of first impression.

In Guzman, Bocaling and Co, Inc. vs. Bonnevie23, the Court upheld the decision of a lower court ordering the rescission of a deed of

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sale which violated a right of first refusal granted to one of the parties therein. The Court held:

"xxx Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381 (3) of the Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason of injury to third persons, like creditors. The status of creditors could be validly accorded the Bonnevies for they had substantial interests that were prejudiced by the sale of the subject property to the petitioner without recognizing their right of first priority under the Contract of Lease.

According to Tolentino, rescission is a remedy granted by law to the contracting parties and even to third persons, to secure reparations for damages caused to them by a contract, even if this should be valid, by means of the restoration of things to their condition at the moment prior to the celebration of said contract. It is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause, or to protect some incompatible and preferent right created by the contract. Rescission implies a contract which, even if initially valid, produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of equity.

It is true that the acquisition by a third person of the property subject of the contract is an obstacle to the action for its rescission where it is shown that such third person is in lawful possession of the subject of the contract and that he did not act in bad faith. However, this rule is not applicable in the case before us because the petitioner is not considered a third party in relation to the Contract of Sale nor may its possession of the subject property be regarded as acquired lawfully and in good faith.

Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the petitioner cannot be deemed a purchaser in good faith for the record shows that it categorically admitted that it was aware of the lease in favor of the Bonnevies, who were actually occupying the subject property at the time it was sold to it. Although the

occupying the subject property at the time it was sold to it. Although the Contract of Lease was not annotated on the transfer certificate of title in the name of the late Jose Reynoso and Africa Reynoso, the petitioner cannot deny actual knowledge of such lease which was equivalent to and indeed more binding than presumed notice by registration.

A purchaser in good faith and for value is one who buys the property of another without notice that some other person has a right to or interest in such property without and pays a full and fair price for the same at the time of such purchase or before he has notice of the claim or interest of some other person in the property. Good faith connotes an honest intention to abstain from taking unconscientious advantage of another. Tested by these principles, the petitioner cannot tenably claim to be a buyer in good faith as it had notice of the lease of the property by the Bonnevies and such knowledge should have cautioned it to look deeper into the agreement to determine if it involved stipulations that would prejudice its own interests."

Subsequently24 in Equatorial Realty and Development, Inc. vs. Mayfair Theater, Inc.25, the Court, en banc, with three justices dissenting,26 ordered the rescission of a contract entered into in violation of a right of first refusal. Using the ruling in Guzman Bocaling& Co., Inc. vs. Bonnevie as basis, the Court decreed that since respondent therein had a right of first refusal over the said property, it could only exercise the said right if the fraudulent sale is first set aside or rescinded. Thus:

"What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair will have the right of first refusal in the event Carmelo sells the leased premises. It is undisputed that Carmelo did recognize this right of Mayfair, for it informed the latter of its intention to sell the said property in 1974. There was an exchange of letters evidencing the offer and counter-offers made by both parties. Carmelo, however, did not pursue the exercise to its logical end. While it initially recognized Mayfair’s right of first refusal, Carmelo violated such right when without affording its negotiations with Mayfair the full process to ripen to at least an interface of a definite offer and a possible corresponding acceptance within the "30-day

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exclusive option" time granted Mayfair, Carmelo abandoned negotiations, kept a low profile for some time, and then sold, without prior notice to Mayfair, the entire Claro M. Recto property to Equatorial.

Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question, rescissible. We agree with respondent Appellate Court that the records bear out the fact that Equatorial was aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts. As such, Equatorial cannot tenably claim that to be a purchaser in good faith, and, therefore, rescission lies.

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As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by bad faith, since it was knowingly entered into in violation of the rights of and to the prejudice of Mayfair. In fact, as correctly observed by the Court of Appeals, Equatorial admitted that its lawyers had studied the contract or lease prior to the sale. Equatorial’s knowledge of the stipulations therein should have cautioned it to look further into the agreement to determine if it involved stipulations that would prejudice its own interests.

Since Mayfair had a right of first refusal, it can exercise the right only if the fraudulent sale is first set aside or rescinded. All of these matters are now before us and so there should be no piecemeal determination of this case and leave festering sores to deteriorate into endless litigation. The facts of the case and considerations of justice and equity require that we order rescission here and now. Rescission is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause or to protect some incompatible and preferred right by the contract. The sale of the subject real property should now be rescinded considering that Mayfair, which had substantial interest over the subject property, was prejudiced by the sale of the subject property to Equatorial without Carmelo conferring to Mayfair every opportunity to negotiate within the 30-day stipulate periond.27

In Paranaque Kings Enterprises, Inc. vs. Court of Appeals,28 the Court held that the allegations in a complaint showing violation of a contractual right of "first option or priority to buy the properties subject of the lease" constitute a valid cause of action enforceable by an action for specific performance. Summarizing the rulings in the two previously cited cases, the Court affirmed the nature of and concomitant rights and obligations of parties under a right of first refusal. Thus:

"We hold however, that in order to have full compliance with the contractual right granting petitioner the first option to purchase, the sale of the properties for the amount of P9,000,000.00, the price for which they were finally sold to respondent Raymundo, should have likewise been offered to petitioner.

The Court has made an extensive and lengthy discourse on the concept of, and obligations under, a right of first refusal in the case of Guzman, Bocaling& Co. vs. Bonnevie. In that case, under a contract of lease, the lessees (Raul and Christopher Bonnevie) were given a "right of first priority" to purchase the leased property in case the lessor (Reynoso) decided to sell. The selling price quoted to the Bonnevies was 600,000.00 to be fully paid in cash, less a mortgage lien of P100,000.00. On the other hand, the selling price offered by Reynoso to and accepted by Guzman was only P400,000.00 of which P137,500.00 was to be paid in cash while the balance was to be paid only when the property was cleared of occupants. We held that even if the Bonnevies could not buy it at the price quoted (P600,000.00), nonetheless, Reynoso could not sell it to another for a lower price and under more favorable terms and conditions without first offering said favorable terms and price to the Bonnevies as well. Only if the Bonnevies failed to exercise their right of first priority could Reynoso thereafter lawfully sell the subject property to others, and only under the same terms and conditions previously offered to the Bonnevies.

X XX

This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair Theater, Inc. which was

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decided en banc. This Court upheld the right of first refusal of the lessee Mayfair, and rescinded the sale of the property by the lessor Carmelo to Equatorial Realty "considering that Mayfair, which had substantial interest over the subject property, was prejudiced by its sale to Equatorial without Carmelo conferring to Mayfair every opportunity to negotiate within the 30-day stipulated period"

In that case, two contracts of lease between Carmelo and Mayfair provided "that if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30 days exclusive option to purchase the same." Carmelo initially offered to sell the leased property to Mayfair for six to seven million pesos. Mayfair indicated interest in purchasing the property though it invoked the 30-day period. Nothing was heard thereafter from Carmelo. Four years later, the latter sold its entire Recto Avenue property, including the leased premises, to Equatorial for P11,300,000.00 without priorly informing Mayfair. The Court held that both Carmelo and Equatorial acted in bad faith: Carmelo or knowingly violating the right of first option of Mayfair, and Equatorial for purchasing the property despite being aware of the contract stipulation. In addition to rescission of the contract of sale, the Court ordered Carmelo to allow Mayfair to buy the subject property at the same price of P11,300,000.00.

In the recent case of Litonjuavs L&R Corporation,29 the Court, also citing the case of Guzman, Bocaling& Co. vs. Bonnevie, held that the sale made therein in violation of a right of first refusal embodied in a mortgage contract, was rescissible. Thus:

"While petitioners question the validity of paragraph 8 of their mortgage contract, they appear to be silent insofar as paragraph 9 thereof is concerned. Said paragraph 9 grants upon L&R Corporation the right of first refusal over the mortgaged property in the event the mortgagor decides to sell the same. We see nothing wrong in this provision. The right of first refusal has long been recognized as valid in our jurisdiction. The consideration for the loan mortgage includes the consideration for the right of first refusal. L&R Corporation is in effect stating that it consents to lend out money to the spouses Litonjua provided that in case they decide to sell the property mortgaged to it, then L&R

Corporation shall be given the right to match the offered purchase price and to buy the property at that price. Thus, while the spouses Litonjua had every right to sell their mortgaged property to PWHAS without securing the prior written consent of L&R Corporation, they had the obligation under paragraph 9, which is a perfectly valid provision, to notify the latter of their intention to sell the property and give it priority over other buyers. It is only upon the failure of L&R Corporation to exercise its right of first refusal could the spouses Litonjua validly sell the subject properties to the others, under the same terms and conditions offered to L&R Corporation.

What then is the status of the sale made to PWHAS in violation of L & R Corporation’s contractual right of first refusal? On this score, we agree with the Amended Decision of the Court of Appeals that the sale made to PWHAS is rescissible. The case of Guzman, Bocaling& Co. v. Bonnevie is instructive on this point.

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It was then held that the Contract of Sale there, which violated the right of first refusal, was rescissible.

In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted to L & R Corporation over the subject properties since the Deed of Real Estate Mortgage containing such a provision was duly registered with the Register of Deeds. As such, PWHAS is presumed to have been notified thereof by registration, which equates to notice to the whole world.

X XX

All things considered, what then are the relative rights and obligations of the parties? To recapitulate: the sale between the spouses Litonjua and PWHAS is valid, notwithstanding the absence of L & R Corporation’s prior written consent thereto. Inasmuch as the sale to PWHAS was valid, its offer to redeem and its tender of the redemption price, as successor-in-interest of the spouses Litonjua, within the one-

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year period should have been accepted as valid by the L & R Corporation. However, while the sale is, indeed, valid, the same is rescissible because it ignored L & R Corporation’s right of first refusal."

Thus, the prevailing doctrine, as enunciated in the cited cases, is that a contract of sale entered into in violation of a right of first refusal of another person, while valid, is rescissible.

There is, however, a circumstance which prevents the application of this doctrine in the case at bench. In the cases cited above, the Court ordered the rescission of sales made in violation of a right of first refusal precisely because the vendees therein could not have acted in good faith as they were aware or should have been aware of the right of first refusal granted to another person by the vendors therein. The rationale for this is found in the provisions of the New Civil Code on rescissible contracts. Under Article 1381 of the New Civil Code, paragraph 3, a contract validly agreed upon may be rescinded if it is "undertaken in fraud of creditors when the latter cannot in any manner collect the claim due them." Moreover, under Article 1385, rescission shall not take place "when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith."30

It must be borne in mind that, unlike the cases cited above, the right of first refusal involved in the instant case was an oral one given to respondents by the deceased spouses Tiangco and subsequently recognized by their heirs. As such, in order to hold that petitioners were in bad faith, there must be clear and convincing proof that petitioners were made aware of the said right of first refusal either by the respondents or by the heirs of the spouses Tiangco.

It is axiomatic that good faith is always presumed unless contrary evidence is adduced.31 A purchaser in good faith is one who buys the property of another without notice that some other person has a right or interest in such a property and pays a full and fair price at the time of the purchase or before he has notice of the claim or interest of some other person in the property.32 In this regard, the rule on constructive notice would be inapplicable as it is undisputed that the right of first refusal was an oral one and that the same was never reduced to writing, much less registered with the Registry of

Deeds. In fact, even the lease contract by which respondents derive their right to possess the property involved was an oral one.

On this point, we hold that the evidence on record fails to show that petitioners acted in bad faith in entering into the deed of sale over the disputed property with the heirs of the spouses Tiangco. Respondents failed to present any evidence that prior to the sale of the property on September 4, 1990, petitioners were aware or had notice of the oral right of first refusal.

Respondents point to the letter dated June 1, 199033 as indicative of petitioners’ knowledge of the said right. In this letter, a certain Atty. ErlindaAguila demanded that respondent Irene Guillermo vacate the structure they were occupying to make way for its demolition.

We fail to see how the letter could give rise to bad faith on the part of the petitioner. No mention is made of the right of first refusal granted to respondents. The name of petitioner Rosencor or any of it officers did not appear on the letter and the letter did not state that Atty. Aguila was writing in behalf of petitioner. In fact, Atty. Aguila stated during trial that she wrote the letter in behalf of the heirs of the spouses Tiangco. Moreover, even assuming that Atty. Aguila was indeed writing in behalf of petitioner Rosencor, there is no showing that Rosencor was aware at that time that such a right of first refusal existed.

Neither was there any showing that after receipt of this June 1, 1990 letter, respondents notified Rosencor or Atty. Aguila of their right of first refusal over the property. Respondents did not try to communicate with Atty. Aguila and inform her about their preferential right over the disputed property. There is even no showing that they contacted the heirs of the spouses Tiangco after they received this letter to remind them of their right over the property.

Respondents likewise point to the letter dated October 9, 1990 of Eufrocina de Leon, where she recognized the right of first refusal of respondents, as indicative of the bad faith of petitioners. We do not agree. Eufrocina de Leon wrote the letter on her own behalf and not on behalf of petitioners and, as such, it only shows that Eufrocina de Leon was aware of the existence of the oral right of first refusal. It does not show that petitioners were likewise aware

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of the existence of the said right. Moreover, the letter was made a month after the execution of the Deed of Absolute Sale on September 4, 1990 between petitioner Rosencor and the heirs of the spouses Tiangco. There is no showing that prior to the date of the execution of the said Deed, petitioners were put on notice of the existence of the right of first refusal.

Clearly, if there was any indication of bad faith based on respondents’ evidence, it would only be on the part of Eufrocina de Leon as she was aware of the right of first refusal of respondents yet she still sold the disputed property to Rosencor. However, bad faith on the part of Eufrocina de Leon does not mean that petitioner Rosencor likewise acted in bad faith. There is no showing that prior to the execution of the Deed of Absolute Sale, petitioners were made aware or put on notice of the existence of the oral right of first refusal. Thus, absent clear and convincing evidence to the contrary, petitioner Rosencor will be presumed to have acted in good faith in entering into the Deed of Absolute Sale over the disputed property.

Considering that there is no showing of bad faith on the part of the petitioners, the Court of Appeals thus erred in ordering the rescission of the Deed of Absolute Sale dated September 4, 1990 between petitioner Rosencor and the heirs of the spouses Tiangco. The acquisition by Rosencor of the property subject of the right of first refusal is an obstacle to the action for its rescission where, as in this case, it was shown that Rosencor is in lawful possession of the subject of the contract and that it did not act in bad faith.34

This does not mean however that respondents are left without any remedy for the unjustified violation of their right of first refusal. Their remedy however is not an action for the rescission of the Deed of Absolute Sale but an action for damages against the heirs of the spouses Tiangco for the unjustified disregard of their right of first refusal35.

WHEREFORE, premises considered, the decision of the Court of Appeals dated June 25, 1999 is REVERSED and SET ASIDE. The Decision dated May 13, 1996 of the Quezon City Regional Trial Court, Branch 217 is hereby REINSTATED insofar as it dismisses the action for rescission of the Deed of Absolute Sale dated September 4, 1990 and orders the payment of monthly rentals of P1,000.00

per month reckoned from May 1990 up to the time respondents leave the premises.

SO ORDERED.

Melo, Vitug, Panganiban, and Sandoval-Gutierrez, JJ., concur.

G.R. No. L-45142 April 26, 1991

SIMPROSA VDA. DE ESPINA, RECAREDO ESPINA, TIMOTEO ESPINA, CELIA ESPINA, GAUDIOSA ESPINA and NECIFORA ESPINA, petitioners, vs.THE HON. OTILIO ABAYA and SOFIA ESPINA and JOSE ESPINA, respondents.

Cipriano C. Alvizo, Sr. for private respondents.

MEDIALDEA, J.:p

This is a petition for certiorari with prayer for the issuance of a writ of preliminary injunction seeking the nullification of the orders issued by the respondent Judge Otilio Abaya, in his capacity as the presiding judge of the Court of First Instance of Surigao del Sur, Branch II, Lianga, Surigaodel Sur in Civil Case No. L-108, entitled "SimprosaVda. deEspina, et. al. v. Sofia Espina, et. al." dated May 9, 1975 dismissing the complaint for partition; July 25, 1975 denying the motion for reconsideration; August 13, 1975 denying the second motion for reconsideration and March 15, 1976 denying plaintiffs' notice of appeal.

The antecedent facts are as follows:

Marcos Espina died on February 14, 1953 and was survived by his spouses, SimprosaVda. deEspina and their children namely, Recaredo, Timoteo, Celia, Gaudiosa, Necifora, Sora and Jose, all surnamed Espina. Decedent's estate comprises of four (4) parcels

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of land located at the Municipality of Barobo Province of Surigao del Sur.

On August 23, 1973 an action for partition of the aforementioned parcels of land was filed by petitioners Simprosa and her children Recaredo, Timoteo, Celia, Gaudencia and Necifora.

The complaint alleges that parcel No. 1 is the exclusive property of the deceased, hence the same is owned in common by petitioners and private respondents in eight (8) equal parts, while the other three (3) parcels of land being conjugal properties, are also owned in common, one-half (1/2) belongs to the widow Simprosa and the other half is owned by her and her children in eight (8) equal parts.

It also alleges that parcel No. 1 has been subdivided into two lots. Lot No. 994 PL8-44 is covered by Original Certificate of Title No. 5570 in the name of one of the heirs, Sofia Espina, who acquired the title as a trustee for the beneficiaries or heirs of Marcos Espina, while lot No. 1329 PCS-44 is covered by Original Certificate of Title No. 3732 issued in the name of one of the heirs, Jose Espina as trustee for the heirs of Marcos Espina. Said parcel of land is in the possession of petitioners and private respondents who have their respective houses thereon.

Simprosa presently occupies parcel No. 2 while parcel No. 3 is occupied by Timoteo, although the same is actually titled in the name of Sofia. Parcel No. 4 is occupied by Recaredo.

Petitioners have several times demanded the partition of the aforementioned properties, but notwithstanding such demands private respondents refused to accede.

Private respondents alleged in their answer that in or about April, 1951, the late Marcos Espina and his widow, Simprosa, together with their children made a temporary verbal division and assignment of shares among their children. After the death of Marcos, the temporary division was finalized by the heirs. Thereafter the heirs took immediate possession of their respective shares on April 20, 1952. Private respondents took actual physical possession of their respective shares including the portions ceded to them by Simprosa upon their payment of P50.00 each per

quarter starting April, 1952 until the latter's death pursuant to their contract of procession The assignment of shares was as follows:

(a) To the surviving spouses, (sic) SimprosaVda. deEspina, herein plaintiffs, one-half (1/2) of the parcel of land adjudicated to each of said plaintiffs-heirs and defendants;

(b) To each of the following compulsory heirs, to wit:

1. To Recaredo (sic) Espina, one-half (1/2) portion which contains an area of one and three-fourths (1 3/4) hectares and which forms part of Parcel 4 whose description is given in paragraph III of the complaint, the said Parcel IV has been in the possession of both RecaredoEspina and plaintiff SimprosaVda. deEspina from April 20, 1952 until the present time;

2. To TimoteoEspina, one half (1/2) portion which contains an area of not less than one-half (1/2) hectare and which forms part of Parcel 3 whose description is given in paragraph III of the complaint, the said Parcel III was originally assigned by Marcos Espina who thereupon obtained an Original Certificate of Title in her (sic) name but was finally adjudicated to said TimoteoEspina in April, 1952, the other half (1/2) portion of which parcel III was the share of the surviving spouses (sic), SimprosaVda. deEspina, and said Parcel III has been in the possession of said TimoteoEspina and SimprosaVda. deEspina from April, 1952 until the present time as their share;

3. To Cecilia (sic) Espina, GaudiosaEspina and NeciforaEspina, one-half (1/2) portion, share and share alike which contains two (2) hectares and which forms part of Parcel II whose description is given in paragraph III of the complaint, the other half (1/2) of said Parcel III (sic) is the share of the surviving spouses (sic) SimprosaVda. deEspina, and said Parcel III (sic) has been in the possession of said Cecilia. (sic) Espina, GaudiosaEspina and

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NeciforaEspina and SimprosaVda.deEspina from April, 1952 until the present time;

4. To Sofia Espina, one-half (1/2) portion of the parcel of land included in the deception of Parcel 1 in paragraph III of the complaint, the other half (1/2) of said parcel being the share of the surviving spouses (sic) SimprosaVda. deEspina and having been ceded by said SimprosaVda. deEspina to said Sofia Espina for a valuable consideration payable quarterly at the rate of P50.00 beginning April, 1952 until her death, and said Sofia Espina has been regularly paying to said SimprosaVda. de Espina quarterly from April, 1952 the said amount of P50.00 until the present time, and by virtue of said agreement, Sofia Espina obtained Original Certificate of Title in her name of said parcel of land which is included in the description of said parcel 1, as her exclusive property;

5. To Jose Espina, one-half (1/2) portion of the other parcel of land included in the description of Parcel 1 in paragraph 1 of the complaint, the other half (1/2) of said parcel being the share of the surviving spouses (sic) SimprosaVda. deEspina and having been coded (sic) by said SimprosaVda. deEspina to said Jose Espina for a valuable consideration payable quarterly at the rate of P50.00 beginning April, 1952 until her death, and said Jose Espina has been regularly quarterly paying to said SimprosaVda. deEspina from April, 1952 until the present time, the said amount of P50.00, and by virtue of said agreement, Jose Espina obtained Original Certificate of Title in his name of said parcel of land which is included in the description of said Parcel 1 as his exclusive property. (Rollo, pp. 27-28)

On February 13, 1974 private respondents filed a motion to dismiss the complaint alleging the following grounds, to wit:

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THAT THE FACTS ALLEGED IN THE COMPLAINT FAIL TO CONFER UPON THE COURT COMPLETE AND LAWFUL JURISDICTION OVER THE CASE FOR NON-COMPLIANCE WITH THE CONDITION SINE QUA NON CONCERNING SUIT BETWEEN MEMBERS OF THE SAME FAMILY.

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II

THAT THE CAUSE OF ACTION IS BARRED BY . . . . STATUTE OF LIMITATIONS.

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III

THAT THE PLAINTIFFS HAS NO LEGAL CAPACITY TO SUE, (Motion to Dismiss Complaint, pp. 1-5;Rollo, pp. 34-38)

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On May 9, 1975 the trial court granted the motion and thereafter dismissed the complaint. On May 23, 1975 petitioners filed a motion for reconsideration on the following grounds, to wit:

1. THAT THE ORDER OF DISMISSAL HAS NO LEGAL BASIS IN FACT AND IN LAW.

2. THAT THE STATUTE OF LIMITATIONS IS NOT APPLICABLE IN THE CASE AT BAR. (Rollo, p. 50)

However, petitioners' motion was denied in an order dated July 23, 1975. On August 11, 1975 petitioners filed another motion for reconsideration stressing that they were denied due process when their motion was not heard. Again said motion was denied on August 13, 1975.

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Thereafter, petitioners filed their notice of appeal on September 11, 1975 and a motion for extension of time to file their Record on Appeal on September 18, 1975.

On March 15, 1976, the respondent judge disapproved petitioners' Record on Appeal and appeal bond on the ground that the notice of appeal was filed out of time. Hence, this petition. The petitioners raised four (,41) assignment of errors:

1. Whether or not an action for partition among co-heirs prescribes.

2. Whether or not an oral partition among co-heirs is valid.

3. Whether or not a hearing on a motion for reconsideration is indispensable the lack of which is a deal of due process.

4. Whether or not the second motion for reconsideration is pro forma Rollo, p. 10)

Petitioners maintain that the present action is not for reconveyance but one for partition. Hence, the rule insisted by the private respondents on prescriptibility of an action for reconcile conveyance of real property based on an implied trust is not applicable in the case at bar. In addition, petitioners, argue that private respondents cannot set up the defense of prescription or laches because their possession of the property no matter how long cannot ripen into ownership. (Memorandum for Petitioners, p. 7)

However, the private respondents stress that 'any supposed right of the petitioners to demand a new division or partition of said estate of Marcos Espina has long been barred by the Statute of Limitations and has long prescribed." (Memorandum for Private Respondents, p. 5)

The petitioners claim that the alleged oral partition is invalid and strictly under the coverage of the statute of Frauds on two grounds, to wit:

Firstly, parcel No. 1 being an exclusive property of the deceased should have been divided into eight (8) equal parts. Therefore, Simprosa .could only cede her share of the land which is 1/8 portion thereof and cannot validly cede the shares of her then minor children without being duly appointed as guardian.

Secondly, under Article 1358 of the New Civil Code, Simprosa could not have ceded her right and that of her other children except by a public document. (Memorandum of Petitioners, pp. 8-9)

On the other hand, private respondents insist that the oral partition is valid and binding and does not fall under the coverage of the Statute of Frauds.

Petitioners claim that they were denied due process when the motion for reconsideration was denied without any hearing.

However, private respondents maintain that the hearing of a motion for reconsideration in oral argument is a matter which rest upon the sound discretion of the Court.

Finally, petitioners stress that the second motion for reconsideration is not pro forma, thus, it suspends the running of the period of appeal. Hence, the notice of appeal was timely filed.

On this point, private respondent maintain that the order of respondent judge dated March 1 5, 1976 disapproving petitioners' Record on Appeal and appeal bond may not properly be a subject of a petition for certiorari. (Memorandum of Private Respondents, p. 13)

We find the petition devoid of merit.

We already ruled in Lebrilla, et al. v. Intermediate Appellate Court (G.R. No. 72623, December 18, 1989, 180 SCRA 188; 192) that an action for partition is imprescriptible. However, an action for partition among co-heirs ceases to be such, and becomes one for title where the defendants allege exclusive ownership.

In the case at bar, the imprescriptibility of the action for partition cannot be invoked because two of the co-heirs, namely private respondents Sora and Jose Espina possessed the property as

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exclusive owners and their possession for a period of twenty one (21) years is sufficient to acquire it by prescription. Hence, from the moment these co-heirs claim that they are the absolute and exclusive owners of the properties and deny the others any share therein, the question involved is no longer one of partition but of ownership.

Anent the issue of oral partition, We sustain the validity of said partition. "An agreement of partition may be made orally or in writing. An oral agreement for the partition of the property owned in common is valid and enforceable upon the parties. The Statute of Frauds has no operation in this kind of agreements, for partition is not a conveyance of property but simply a segregation and designation of the part of the property which belong to the co-owners." (Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. II, 1983 Edition, 182-183 citing Hernandez v. Andal, et. al., G.R. No. L275, March 29, 1957)

Time and again, the Court stresses that the hearing of a motion for reconsideration in oral argument is a matter which rests upon the sound discretion of the Court. Its refusal does not constitute a denial of due process in the absence of a showing of abuse of discretion. (see Philippine Manufacturing Co. v. AngBisigng PMC et. al., 118 Phil. 431, 434)

The absence of a formal hearing on the petitioners' motion for reconsideration is thoroughly explained in the order of the respondent judge dated August 13, 1975, which is hereunder quoted as follows:

When the court issued its order of June 5, 1975 requiring counsel for defendants to answer plaintiffs' motion for reconsideration, the court opted to resolve plaintiffs' motion based on the pleadings of the parties, without further oral arguments. The court considered the arguments of the parties stated in their pleadings as already sufficient to apprise the court of the issues involved in said motion.

Plaintiffs' allegation that the Clerk of Court failed to calendar their motion for reconsideration for oral

argument has not deprived the plaintiffs of any substantial right or his right to due process.

SO ORDERED. (Memorandum of Private Respondents, pp. 1213)

A cursory reading of the aforequoted order will show that there was indeed no formal hearing on the motion for reconsideration. There is no question however, that the motion is grounded on the lack of basis in fact and in law of the order of dismissal and the existence or lack of it is determined by a reference to the facts alleged in the challenged pleading. The issue raised in the motion was fully discussed therein and in the opposition thereto. Under such circumstances, oral argument on the motion is reduced to an unnecessary ceremony and should be overlooked (see Ethel Case, et al. v. Jugo, 77 Phil. 517, 522).

We adhere to the findings of the trial court that the second motion for reconsideration dated August 11, 1975 ispro forma, to it

The grounds stated in said motion being in reiteration of the same grounds alleged in his first motion, the same is pro-forma. (Order dated March 15, 1976, p. 2, Rollo, p. 74)

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Furthermore, the second motion for reconsideration has not stated new grounds considering that the alleged failure of the Clerk of Court to set plaintiffs' motion for reconsideration, although seemingly a different ground than those alleged in their first motion for reconsideration, is only incidental to the issues raised in their first motion for reconsideration, as it only refers to the right of plaintiffs' counsel to argue his motion in court just to amplify the same grounds already deed by the court. (Ibid, p. 3,Rollo, p. 75)

Therefore, it is very evident that the second motion for reconsideration being pro-forma did not suspend the running of the period of appeal. Thus, the lower court committed no error when it

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held that the notice of appeal was filed after the lapse of thirty five (35) days, which is clearly beyond the period of thirty (30) days allowed by the rules.

Finally, it has been a basic rule that certiorari is not a substitute for appeal which had been lost. (see Edra v. Intermediate Appellate Court, G.R. No. 75041, November 13, 1989, 179 SCRA 344) A special civil action under Rule 65 of the Rules of Court will not be a substitute or cure for failure to file a timely petition for review oncertiorari (appeal) under Rule 45 of the Rules of Court. (Escudero v. Dulay, G.R. No. 60578, February 23, 1988, 158 SCRA 69, 77)

The application of the abovecited rule should be relaxed where it is shown that it will result in a manifest failure or miscarriage of justice. (Ibid, p. 77) However, as emphasized earlier, the case at bar is totally devoid of merit, thus, the strict application of the said file will not in any way override sub-substantial justice.

Therefore, the delay of five (5) days in filing a notice of appeal and a motion for extension to file a record on appeal cannot be excused on the basis of equity.

All premises considered, the Court is convinced that the acts of respondent judge, in dismissing the action for partition and in subsequently denying the motions for reconsideration of the petitioners, does not amount to grave abuse of discretion.

ACCORDINGLY, the petition is DISMISSED.

SO ORDERED.

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

G.R. No. L-41132 April 27, 1988

VICTORINO HERNANDEZ, petitioner, vs.HONORABLE COURT OF APPEALS and SUBSTITUTED HEIRS OF REV. FR. LUCIO V. GARCIA (DECEASED).respondents.

NARVASA, J.:

To those prevented by fraud from proving their title to land subject of registration proceedings in another's name, the law affords the remedy of review of the decree of registration by petition in the land registration court within one year from its issuance of the order. 1 This was the remedy availed of by Victorino Hernandez, but as he could convince neither the Court of First Instance of Rizal nor the Court of Appellants 2 of the merits of his petition, he failed in his bid to reopen and correct the decree in Land Registration Case No. N-2488 Fr. Lucio V. Garcia the absolute owner of three parcels of land in Parañaque. 3 This Court however finds that upon the recorded facts, the petitioner is entitled to the relief sought.

Fr. Garcia 4 applied in 1959 for the registration in his name of Lots 1-A, 1-B, and 2 of Plan Psu-172410-B in Bo. San Dionisio, Parañaque. His property adjoined that of Hernandez, and since both estates were once owned by one Andres San Buenaventura, 5 no dividing boundaries existed thereon until cadastral surveyors from the Bureau of Lands laid down official monuments to mark the separation of the lots. These monuments were set along a line which the landowners had previously agreed upon as representing the correct boundary between their estates. This was in 1956. 6

Unknown to Hernandez, the Advance Plan Psu-172410-B submitted in Fr. Garcia's behalf to the land registration court in 1959 included 220 square meters of land now disputed — Lots ABC and 4057-A of Lot 1-B. This area fell beyond the stipulated boundaries of Fr. Garcia's land and encroached pro tanto on the land of Hernandez (on which, it should be mentioned, his tenants had been living for many years [decades, in fact] before the date of Fr. Garcia's application). 7 Allegedly lulled into complacency by the recentness of their agreement as to the limits of their respective properties, and confident that the visible landmarks installed by the government surveyors precluded any overstepping of those limits, Hernandez proffered no opposition to Fr. Garcia's application, leaving the heirs of Andres San Buenaventura as the only oppositors thereto.

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It was not until the court had already ordered the registration of the lots in Fr. Garcia's name that Hernandez discovered the anomaly in the application. He at once filed a petition for review of the decree, but in view of the new trial ordered by the court upon motion of the heirs-oppositors, the petition was dismissed on the ground of prematurity. 8 The court thereafter adjudged Fr. Garcia as the owner of Lots 1-A and 2 and the heirs-oppositors as owners of Lot 1-B.

On appeal, however, the Court of Appeals declared Fr. Garcia absolute owner, by acquisitive prescription, of an the lots. This judgment became final on December 9, 1970; Decree No. 132620 was issued by the CFI of Rizal, and the Register of Deeds issued OCT No. 8664 in Fr. Garcia's name. 9

Hernandez promptly refiled his petition for the reopening of the decree. He argued that the decree covered a substantial portion of his land to which Fr. Garcia could claim no title. He averred anew that the Advance Plan supporting the application was "irregular, because it disregarded the existing Bureau of Lands monuments designating the actual possessions of the petitioner and the applicant" and "falsely designates (other) ... boundaries ... not actually marked by any ... monuments, thus fraudulently giving the false impression to petitioner that no alteration has actually been made in originally agreed-upon boundaries in the course of the preparation of (the) Plan." Thus having been "misled to believe that no encroachment has been made by applicant," and "conscious of the previous agreement and the fact that the Bureau of Lands monuments have not been altered." Hernandez had put up no objection to the application. 10

As stated at the outset, the trial court dismissed Hernandez's petition, 11 and the appellate court gave his appeal short shrift. 12 Both courts were of the view essentially that the evidence did not bear out the claim of fraud; that under the Statute of Frauds, the parties' covenant as to their properties' metes and bounds was unenforceable since it was not reduced to writing; and that Hernandez's parents and predecessors-in-interest, 13 Victorino and Tranquilino, acquired title by purchase from San Buenaventura to only 516 square meters of land, which could not have included the disputed property. 14

Ordinarily, the Appellate Court's factual conclusions are not reviewable by this Court, 15 and since here those conclusions are decidedly adverse to Hernandez, the application of the rule should result in a verdict against him. The rule admits of exceptions, however, as when facts of substance were overlooked by the appellate court which, if correctly considered, might have changed the outcome of the case. 16

In this case there are several pivotal facts — about which there is no controversy whatever, it may be added — which clearly should have been weighed by the court a quo in Hernandez's favor, but inexplicably were not. It is of record, to begin with, that concrete monuments or "majones" were laid out by government surveyors in 1956 between the properties of Hernandez and Fr. Garcia. Hernandez avows that these structures were purposely installed to mark the limits of their estates; his opponents could only let this statement pass with telling silence. Neither did they seriously dispute that these "mojones" were installed along the line agreed upon by the parties as marking their properties' boundaries. All they averred in their defense is that the agreement did not bind them. Lastly, they freely conceded the presence of a fence along this line, but were quick to point out that they had merely "permitted" Hernandez to put up this "temporary" structure "to stop the public (from) using ... this place as a common madden shed." The excuse is lamentably feeble.

Hernandez argues that if indeed the Advance Plan, basis of Fr. Garcia's application, was prepared without regard to the boundary indicated by the fence and the surveyors markers, and worse, "falsely designate(d) as boundaries the lines marked by ... corners not actually marked by any Bureau of Lands monuments" which purposely left the mistaken impression that the exact limits of the adjoining estates had been faithfully drawn, then he was truly a victim of fraud, deftly cheated of the chance to vindicate his claim to the land. The respondents again did not care to refute the premises on which the argument is predicated. In any event, the argument is entirely in accord with the evidence and the norms of logic.

Lastly, the Appellate Court may have been convinced of the impossibility of the inclusion of the disputes lot in the 516 square meters stated as sold to Hernandez's parents in the deed of sale in their favor, 17 but only because the Court missed sight of the fact

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that the adjoining lots sold to the spouses and to Fr. Garcia were unregistered and unsurveyed at the time of the transfer. This explains the discrepancy between the area of the land purportedly conveyed to the Hernandezes in the instrument (516 square meters) and the actual area falling within the boundaries described in the same document, which, after the survey, was found to be 716 square meters. The respondents cannot hold Hernandez to the approximate area fixed in the deed and claim ownership over the excess. All the land embraced within the stated boundaries was sold. 18 If the respondent insist on the figures named in the deeds of sale, then they themselves stand to lose 736 square meters of land. San Buenaventura had only sold 1,545 square meters to Fr. Garcia, 19 but the estate was later found to be actually 2,328 square meters in area. 20

Given the weight they deserve, the recorded facts prove Hernandez's entitlement to the relief sought. The respondents' reliance on the Statute of Frauds to secure a contrary judgment is misplaced. The Statute of Frauds finds no application to this case. Not every agreement "affecting land" must be put in writing to attain enforceability. Under the Statute of Frauds, Article 1403(2) (e) of the Civil Code, such formality is only required of contracts involving leases for longer than one year, or for the sale of real property or of an interest therein. Hernandez's testimony is thus admissible to establish his agreement with Fr. Garcia as to the boundary of their estates. It is also to be noted that the presence of Hernandez's tenants on the land within his side of the border, were this to be reckoned from the "mojones," further buttresses his claim.

The foregoing considerations demonstrate more than adequately that the inclusion of the 220-square-meter area in the Original Certificate of Title No. 8664 of the Register of Deeds of Rizal is null and void.

ACCORDINGLY, the appealed decision of the Court of Appeals is hereby REVERSED and set aside and another one entered, ordering the Register of Deeds of Rizal to register the 220 square meters in question in favor of petitioner Victorino Hernandez; and to cancel Original Certificate of Title No. 8664 and issue a new one in favor of the private respondents excluding said 220-square-meter area belonging to the petitioner. No pronouncement as to costs.

SO ORDERED.

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

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