CAROLINA HERNANDEZ-NIEVERA, DEMETRIO P. HERNANDEZ, JR., and MARGARITA H. MALVAR,Petitioners, - versus

  

WILFREDO HERNANDEZ, HOME INSURANCE AND GUARANTY CORPORATION, PROJECT MOVERS REALTY AND DEVELOPMENT CORPORATION, MARIO P. VILLAMOR and LAND BANK OF THE PHILIPPINES,Respondents.

 

PERALTA, J.:  

This Rule 45 petition for review assails the October 19, 2005 Decision [1] of the Court of Appeals in CA-G.R. CV No. 83852, [2] as

well as the January 11, 2006 Resolution[3] in the same case which denied reconsideration. The said decision had reversed and set

aside the August 30, 2004 judgment[4] rendered by the Regional Trial Court (RTC) of San Pablo City, Laguna, Branch 32 in Civil

Case No. SP-5742(2000) one for rescission of a memorandum of agreement and declaration of nullity of a deed of assignment

and conveyance, with prayer for preliminary injunction and damages.

 

The facts follow.

 

Project Movers Realty & Development Corporation (PMRDC), one of the respondents herein, is a duly organized

domestic corporation engaged in real estate development.Sometime in 1995, it entered through its president, respondent Mario

Villamor (Villamor), into various agreements with co-respondents Home Insurance & Guaranty Corporation (HIGC) [5] and Land

Bank of the Philippines (LBP), in connection with the construction of the Isabel Homes housing project in Batangas and of the

Monumento Plaza commercial and recreation complex in Caloocan City. In its Asset Pool Formation Agreement, PMRDC

conveyed to HIGC the constituent assets of the two projects,[6] whereas LBP agreed to act as trustee of the resulting Asset

Pool[7] for a consideration.[8] The execution of the projects would be funded largely through securitization, a method of sourcing

development funds by the issuance of participation certificates against the direct backing assets of the projects, [9] whereby LBP

would act as the nominal issuer of such certificates with the Asset Pool itself acting as the real issuer. [10] HIGC, in turn, would

provide guaranty coverage to these participation certificates in accordance with its Contract of Guaranty with PMRDC and

LBP. [11]

 

On November 13, 1997, PMRDC entered into a Memorandum of Agreement (MOA) whereby it was given the option

to buy pieces of land owned by petitioners Carolina Hernandez-Nievera (Carolina), Margarita H. Malvar (Margarita) and

Demetrio P. Hernandez, Jr. (Demetrio). Demetrio, under authority of a Special Power of Attorney to Sell or Mortgage,[12] signed

the MOA also in behalf of Carolina and Margarita. In the aggregate, the realty measured 4,580,451 square meters and was

segregated by agreement into Area I and Area II, respectively pertaining to the parcels covered by Transfer Certificate of Title

(TCT) Nos. T-3137, T-3138, T-3139 and T-3140 on the one hand, and on the other by TCT Nos. T-3132, T-3133, T-3134, T-

3135 and T-3136, all issued by the Register of Deeds of Laguna. The MOA materially provides:

 1.                  THAT, the consideration for the sale of the parcels of land (Areas I and II) shall be TWENTY-FIVE PESOS (Php 25.00) per square meter or a total of PESOS: ONE HUNDRED FOURTEEN MILLION FIVE HUNDRED ELEVEN TWO HUNDRED SEVENTY (Php114,511,270.00);

 1.                  THAT, the VENDEE shall have the option to purchase the above-described parcels of land within a period of twelve (12) months from the date of this instrument and that the VENDEE shall pay the vendor option money in the following amounts and on the dates herein specified:

 Area IPESOS: SIX MILLION (Php6,000,000.00) payable in two (2) equal installments of PESOS: THREE MILLION (Php3,000,000.00), the first installment due on or before November 20, 1997; the second installment due on or before December 15, 1997, both installments to be covered by postdated checks upon signing of this Agreement.

 Area IIOption money of PESOS: EIGHT MILLION FIVE HUNDRED THOUSAND (Php8,500,000.00) payable within thirty (30) days after conveyance to the Isabel Homes Asset Pool.

 2.           THAT, should the VENDEE exercise the option to purchase the parcels of land within the stipulated period, the VENDEE shall complete the TWENTY-FIVE (25%) PERCENT downpayment inclusive of the option money within the said stipulated period. Balance of the TWENTY FIVE (25%) PERCENT downpayment exclusive of the option money for Area I is PESOS: TEN MILLION FOUR HUNDRED EIGHTY-TWO THOUSAND TWO HUNDRED SIXTY-TWO (Php10,482,262.00) and for Area II is PESOS: THREE MILLION SIX HUNDRED FORTY-FIVE THOUSAND FIVE HUNDRED FIFTY- SIX (Php3,645,556.00).

 The balance of the purchase price in the amount of PESOS: EIGHTY-FIVE MILLION EIGHT

HUNDRED EIGHTY-THREE FOUR HUNDRED FIFTY-SIX (Php85,883,456.00) shall be payable within two (2) years in eight (8) quarterly installments covered by postdated checks. Schedule of payments shall be as follows:

 January 31, 1999 Php 10,735,432.00April 30, 1999 10,735,432.00July 31, 1999 10,735,432.00October 31, 1999 10,735,432.00January 31, 2000 10,735,432.00April 30, 2000 10,735,432.00July 30, 2000 10,735,432.00October 31, 2000 10,735,432.00 

3.                  THAT, should the VENDEE fail to exercise its option to purchase the said described parcels of land within the stipulated period, the option money shall be forfeited in favor of the VENDOR and that the VENDEE shall return to the VENDOR all the Transfer Certificates of Title covering the said described parcels of land within a period of THIRTY (30) DAYS from the stipulated period, FREE FROM ALL LIENS AND ENCUMBRANCES; 4.                  THAT, the VENDOR, at the request of the VENDEE, shall agree to convey the parcels of land to any bank or financial institution by way of mortgage or to a Trustee by way of a Trust Agreement at any time from the date of this instrument, PROVIDED, HOWEVER, that the VENDOR is not liable for any

mortgage or loans or obligations that will be incurred by way of mortgage of Trust Agreement that the VENDEE might enter into; 5.                  It is agreed that the VENDOR shall have the sole responsibility in the settlement of the tenants and eviction of the tenants and eviction of the occupants of the described parcels of land after all consideration have been fully paid by the VENDEE to the VENDOR; 6.                  THAT, all taxes including capital gains tax, transfer tax and documentary stamps tax shall be for the account of the VENDOR;

 7.                  THAT, the VENDOR hereby warrants valid title to, and peaceful possession of the said described parcels of land after all considerations have been fully paid.[13]

  

As an implementation of the MOA, the lands within Area I were then mortgaged to Solid Bank for which petitioners

received consideration from PMRDC.[14]

 

Later on, PMRDC saw the need to convey additional properties to and augment the value of its Asset Pool to support

the collateralization of additional participation certificates to be issued. [15] Thus, on March 23, 1998, it entered with LBP and

Demetrio the latter purportedly acting under authority of the same special power of attorney as in the MOA into a Deed of

Assignment and Conveyance (DAC)[16] whereby the lands within Area II covered by TCT Nos. T-3132, T-3133, T-3134, T-3135

and T-3136 were transferred and assigned to the Asset Pool in exchange for a number of shares of stock which supposedly had

already been issued in the name and in favor of Demetrio. These pieces of land are the subject of the present controversy as far as

they are affected by the explicit provision in the DAC which dispensed with the stipulated obligation of PMRDC in the MOA to

pay option money should it opt to buy the properties.[17]

 

PMRDC admittedly did not avail of its option to purchase the lands in Area II in the twelve months that passed after the

execution of the MOA. Although PMRDC delivered to petitioners certain checks representing the money, the same however

allegedly bounced.[18] Hence, on January 8, 1999, petitioners demanded the return of the corresponding TCTs.[19] In its January

21, 1999 letter to Demetrio, however, PMRDC, through Villamor, stated that the TCTs could no longer be delivered back to

petitioners as the covered properties had already been conveyed and assigned to the Asset Pool pursuant to the March 23, 1998

DAC. In the correspondence that ensued, petitioners disowned Demetrios signature in the DAC and labeled it a mere

forgery. They explained that Demetrio could not have entered into the said agreement as his power of attorney was limited only

to selling or mortgaging the properties and not conveying the same to the Asset Pool. Boldly, they asserted that the fraudulent

execution of the DAC was made possible through the connivance of all the respondents.[20]

 

With that final word, petitioners instituted an action before the RTC of San Pablo City, Laguna, Branch 32 for the

rescission of the MOA, as well as for the declaration of nullity of the DAC. They prayed for the issuance of a writ of preliminary

injunction and for the payment of damages.[21]

 

Ruling for petitioners, the trial court, on August 30, 2004, declared the MOA to be an option contract and ordered its

rescission. It, likewise, declared the DAC null and void as it made a definite finding of forgery of Demetrios signature as well as

fraud in its execution, and accordingly, adjudged respondents PMRDC and Villamor liable to petitioner for damages. [22] The

dispositive portion of the decision reads:

 WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in the favor of the

plaintiffs and against the defendants as follows: 1. Rescinding the Memorandum of Agreement (MOA) executed between the plaintiffs

and Project Movers Realty [&] Development Corporation (PMRDC); 2. Declaring null and void the Deed of Assignment and Conveyance (DAC) executed

between Project Movers Realty [&] Development Corporation, Land Bank of the Philippines and Demetrio Hernandez whose signature is forged;

3. Ordering Transfer Certificate of Title Nos. T-3132, T-3133, T-3134 and T-3135, all in the names of the plaintiffs, which are in the custody of the Court, to be delivered to plaintiffs immediately and the plaintiffs are ordered to issue a corresponding receipt of said certificates of title signed by all the plaintiffs to be submitted to the OIC-Branch Clerk of Court of this Court within five (5) days from receipt of said titles;

 4. Ordering defendants Mario Villamor and Wilfredo Hernandez to pay plaintiffs, jointly

and severally, the following: 

a. Actual damages of P500,000.00;b. Moral damages of P200,000.00;c. Exemplary damages of P200,000.00;d. Attorneys fees in the amount of P300,000.00;e. And the costs of the suit. SO ORDERED.[23]

  

Aggrieved, respondents filed a notice of appeal and elevated the matter to the Court of Appeals.  On October 19, 2005, the Court

of Appeals issued the assailed Decision reversing and setting aside the trial courts decision as follows:

 WHEREFORE, based on the foregoing, the appeal is GRANTED. The decision dated August 30, 2004 of the Regional Trial Court, Branch 32, San Pablo City in Civil Case No. SP-5742 (2000) is REVERSED and SET ASIDE and a new one is entered declaring the Deed of Conveyance valid and thus, the Transfer Certificates of Title subject of this case are ordered returned to HIGC.No costs.

SO ORDERED.[24]

 

Central to the ruling of the Court of Appeals is its contrary finding that the allegation of forgery of Demetrios signature in the

DAC was not established by the evidence and, hence, following the legal presumption of regularity in the execution of notarized

deeds, it upheld the validity of the DAC.[25] The Court of Appeals noted that the incompatibility in the terms of the MOA and the

DAC clearly signified the intention of the parties to have the MOA novated by subsequent agreement and have the properties

conveyed to the Asset Pool in exchange for PMRDC shares to be issued to Demetrio. This, according to the appellate court,

completely changed the original obligations of PMRDC as provided in the MOA. It noted further that it was premature to order

the release of the subject TCTs to petitioners at this stage of the proceedings, because that would amount to an execution of the

decision.[26]

 

With the denial of their motion for reconsideration,[27] petitioners filed the instant petition for review attributing error to the Court

of Appeals in declining to rescind the MOA and declare the DAC null and void.

 

Petitioners insist that the obligation of PMRDC to deliver back the TCTs arises on its failure to exercise the option to

purchase the lands according to the terms of the MOA, and that the deliberate refusal of PMRDC to perform such obligation

gives ground for the rescission of the MOA. This thesis is perched on petitioners argument that the MOA could not have possibly

been novated by the DAC because first, Demetrios signature therein has been forged, and second, Demetrio could not have

validly assented to the DAC in behalf of Carolina and Margarita because his special power was limited only to selling or

mortgaging the properties and excludes conveying and assigning the said properties to the Asset Pool for consideration.[28] They

also point out that the DAC itself is infirm insofar as it stipulated to convey the lands to the Asset Pool as the latter supposedly is

neither a registered corporation nor a partnership and does not possess a legal personality.[29]

 

Commenting on the petition, PMRDC and Villamor advance that petitioners allegation of fraud and forgery are all factual matters

that are inappropriate in a Rule 45 petition.[30]More importantly, they aver that the novation of the MOA by the DAC is

unmistakable as the DAC itself has made an express reference to the MOA provisions on the payment of option money and,

hence, has expressly modified the pertinent terms thereof.[31]

 

HIGC and its president, Wilfredo Hernandez, both represented by the Office of the Government Corporate Counsel

(OGCC),[32] and LBP[33] are of the same view.[34] In addition, HIGC explains that contrary to petitioners belief, the transfer of the

properties under the DAC is valid as the conveyance has been made to the Asset Pool with LBP, an entity with juridical entity,

acting as trustee thereof.[35] Addressing the issue of forgery and fraud in the execution of the DAC, HIGC maintains that these

factual matters remain to be mere allegations which nothing in the records of the case could conclusively prove, except the self-

serving testimony of petitioners themselves.[36]

 

The Court denies the petition.

 

Petitioners cause stems from the failure of PMRDC to restore to petitioners the possession of the TCTs of the lands

within Area II upon its failure to exercise the option to purchase within the 12-month period stipulated in the MOA. Respondents

maintain, however, that said obligation, dependent as it is on the exercise of the option to purchase, has altogether been expressly

obliterated by the terms of the DAC whereby petitioners, through Demetrio as attorney-in-fact, have agreed to novate the terms

of the MOA by extinguishing the core obligations of PMRDC on the payment of option money. This seems to suggest that with

the execution of the DAC, PMRDC has already entered into the exercise of its option except that its obligation to deliver the

option money has, by subsequent agreement embodied in the DAC, been substituted instead by the obligation to issue

participation certificates in Demetrios name but which, likewise, has not yet been performed by PMRDC. But petitioners stand

against the validity of the DAC on the ground that the signature of Demetrio therein was spurious.

 

Firmly settled is the jurisprudential rule that forgery cannot be presumed from a mere allegation but rather must be

proved by clear, positive and convincing evidence by the party alleging the same.[37] The burden to prove the allegation of forgery

in this case has not been conclusively discharged by petitioners because first, nothing in the records supports the allegation except

only perhaps Demetrios explicit self-serving disavowal of his signature in open court. [38] Second, while in fact Demetrio at the

trial of the case had committed to have the subject signature examined by an expert, [39] nevertheless, the trial had terminated

without the results of the examination being submitted in evidence.Third, the claim of forgery, unsubstantiated as it is, becomes

even more unremarkable in light of the fact that the DAC involved in this case is a notarized deed guaranteed by public

attestation in accordance with law, such that the execution thereof enjoys the legal presumption of regularity in the absence of

compelling proof to the contrary.[40]

 

Yet the inquiry on the validity of the DAC does not terminate with the finding alone of the genuineness of Demetrios

signature therein, because petitioners also stand against its validity on the ground of Demetrios non-authority to execute the

same. They claim that the execution of the DAC would be beyond the power of Demetrio to perform as his authority is limited

only to selling or mortgaging the properties and does not include assigning and conveying said properties to the Asset Pool in

consideration of shares of stocks for his lone benefit. For their part, respondents, who believe Demetrios power of attorney was

broad enough to effectuate a novation of PMRDCs core obligations in the MOA or, at the least, implement the provisions thereof

through the DAC, invoke the 4th and 5th whereas-clauses in the DAC which, in relation to each other, supposedly pertain to that

certain provision in the MOA which authorizes the conveyance of the properties to the Asset Pool in exchange for corporate

shares.[41]

The 4th and 5th whereas-clauses in the DAC read as follows:

 WHEREAS, on November 3, 1997, PMRDC and LANDOWNER have entered into a

Memorandum of Agreement whereby the former agreed to convey to the Isabel Homes Asset Pool certain real properties located at Sta. Maria, Laguna;

 [WHEREAS], the LANDOWNER and PMRDC have agreed to revise and modify the said

Memorandum of Agreement, whereby the LANDOWNER shall dispense with the option money as a requisite to the sale and purchase of the properties by PMRDC, and agreed to convey absolutely and unqualifiedly the same properties directly to the Isabel Homes Asset Pool for and in exchange of shares of stock or equity in PMRDC.[42]

  

While indeed we find no provision in the MOA such as that alluded to in the aforequoted 4 th whereas-clause in the DAC which

purportedly embodies an agreement by the parties to assign and convey the subject properties to the Asset Pool, we surmise that

the clause could be referring to paragraph 5 of the MOA which stipulates a commitment on the part of petitioners to give their

consent to an assignment and conveyance of the properties to the Asset Pool but only once a request therefor is made by

PMRDC. Paragraph 5 reads:

 

5. THAT, the VENDOR at the request of the VENDEE shall agree to convey the parcels of land to any bank or financial institution by way of mortgage or to a Trustee by way of a Trust Agreement at any time from the date of this instrument, PROVIDED, HOWEVER, that the VENDOR is not liable for any mortgage or loans or obligations that will be incurred by way of mortgage of Trust Agreement that the VENDEE might enter into;[43]

 

Petitioners profess, however, that no such request was ever intimated to them at any time during the subsistence of the PMRDCs

right to exercise the option to buy. But respondents are quick to reason that a request is unnecessary because Demetrio has been

legally enabled by his special power to give such consent and accordingly execute the DAC, effect a novation of the MOA, and

extinguish the stipulated obligations of PMRDC therein, or at least that he could assent to the implementation of the MOA

provisions in the way that transpired. We agree.

 

Demetrios special power of attorney granting the powers to sell and/or mortgage reads in part: 

1. To sell and/or mortgage in favor of any person, corporation, partnership, private banking or financial institution, government or semi-government banking or financial institution for such price or amount and under such terms and conditions as our aforesaid attorney-in-fact may deem just and proper, parcels of land more particularly described as follows:x x x2. To carry out the authority aforestated, to sign, execute and deliver such deeds, instruments and other papers that may be required or necessary;3. To further attain the authority herein given, to do and perform such acts and things that may be necessary or incidental to fully carry out the authority herein granted.[44]

 

It is in the context of this vesture of power that Demetrio, representing his shared interest with Carolina and Margarita,

entered into the MOA with PMRDC. It is likewise within this same context that Demetrio later on entered into the DAC and

accordingly extinguished the previously subsisting obligation of PMRDC to deliver the stipulated option money and replaced

said obligation with the delivery instead of participation certificates in favor of Demetrio.

The powers conferred on Demetrio were exclusive only to selling and mortgaging the properties. Between these two

specific powers, the power to sell is quite controversial because it is the sale transaction which bears close resemblance to the

deal contemplated in the DAC. In fact, part of the testimony of Atty. Danilo Javier, counsel for respondent HIGC and head of its

legal department at the time, is that in the execution of the DAC, respondents had relied on Demetrios special power of attorney

and also on his supposed agreement to be paid in kind, i.e., in shares of stock, as consideration for the assignment and

conveyance of the subject properties to the Asset Pool. [45] What petitioners miss, however, is that the power conferred on

Demetrio to sell for such price or amount[46] is broad enough to cover the exchange contemplated in the DAC between the

properties and the corresponding corporate shares in PMRDC, with the latter replacing the cash equivalent of the option money

initially agreed to be paid by PMRDC under the MOA.Suffice it to say that price is understood to mean the cost at which

something is obtained, or something which one ordinarily accepts voluntarily in exchange for something else, or the

consideration given for the purchase of a thing.[47]

 

Thus, it becomes clear that Demetrios special power of attorney to sell is sufficient to enable him to make a binding

commitment under the DAC in behalf of Carolina and Margarita. In particular, it does include the authority to extinguish

PMRDCs obligation under the MOA to deliver option money and agree to a more flexible term by agreeing instead to receive

shares of stock in lieu thereof and in consideration of the assignment and conveyance of the properties to the Asset Pool. Indeed,

the terms of his special power of attorney allow much leeway to accommodate not only the terms of the MOA but also those of

the subsequent agreement in the DAC which, in this case, necessarily and consequently has resulted in a novation of PMRDCs

integral obligations. On this score, we quote with approval the decision of the Court of Appeals, aptly citing the case ofCalifornia

Bus Lines, Inc. v. State Investment House, Inc.[48] thus

 There are two ways which could indicate, in fine, the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. The first is when novation has been explicitly stated and declared in unequivocal terms. The second is when the old and the new obligations are incompatible on every point. The test of incompatibility is whether the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible, and the latter obligation novates the first. Corollarily, changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must take place in any of the essential elements of the obligation such as its object, cause or principal conditions thereof; otherwise, the change would be merely modificatory in  nature and insufficient to extinguish the original obligation.[49]

 

In view of the foregoing, the Court finds no useful purpose in addressing all the other issues raised in this petition.

 

A final note. Section 10, Book IV, Title III, Chapter 3[50] of the Revised Administrative Code of 1987 has designated

the OGCC to act as the principal law office of government-owned or controlled corporations (GOCCs) in connection with any

judicial or quasi-judicial proceeding. Yet between the two respondents GOCCs in this case LBP and HIGC it is only the latter for

which the OGCC has entered its appearance. Nowhere in the records is it shown that the OGCC has ever entered its appearance

in this case as principal legal counsel of respondent LBP, or that at the very least it has given express conformity to the LBP legal

departments representation.[51]

 

In Land Bank of the Philippines v. Martinez,[52] citing Land Bank of the Philippines v. Panlilio-Luciano,[53] we explained

that the legal department of LBP is not expressly authorized by its charter to appear in behalf of the corporation in any

proceeding as the mandate of the law is explicit enough to place the said department under the OGCCs power of control and

supervision. We held in that case:

 [Section 10] mandates the OGCC, and not the LBP Legal Department, as the principal law

office of the LBP. Moreover, it establishes the proper hierarchical order in that the LBP Legal Department remains under the control and supervision of the OGCC. x x x 

At the same time, the existence of the OGCC does not render the LBP Legal Department a superfluity. We do not doubt that the LBP Legal Department carries out vital legal services to LBP. However, the performance of such functions cannot deprive the OGCCs role as overseer of the LBP Legal Department and its mandate of exercising control and supervision over all GOCC legal departments. For the purpose of filing petitions and making submissions before this Court, such control and supervision imply express participation by the OGCC as principal legal counsel of LBP. x x x

 It should also be noted that the aforementioned Section 10, Book IV, Title III, Chapter 3 of the

Administrative Code of 1987 authorizes the OGCC to receive the attorney's fees adjudged in favor of their client GOCCs, such fees accruing to a special fund of the OGCC. Evidently, the non-participation of the OGCC in litigations pursued by GOCCs would deprive the former of its due funding as authorized by law. Hence, this is another reason why we cannot sustain Attys. Beramo and Berbao's position that the OGCC need not participate in litigations pursued by LBP. 

It may strike as disruptive to the flow of a GOCCs daily grind to require the participation of the OGCC as its principal law office, or the exercise of control and supervision by the OGCC over the acts of the GOCCs legal departments. For reasons such as proximity and comfort, the GOCC may find it convenient to rely instead on its in-house legal departments, or more irregularly, on private practitioners.  Yet the statutory role of the OGCC as principal law office of GOCCs is one of long-standing, and we have to recognize such function as part of public policy. Since the jurisdiction of the OGCC includes all GOCCs, its perspective is less myopic than that maintained by a particular legal department of a GOCC. It is not inconceivable that left to its own devices, the legal department of a given GOCC may adopt a legal position inconsistent with or detrimental to other GOCCs. Since GOCCs fall within the same governmental framework, it would be detrimental to have GOCCs foisted into adversarial positions by their respective legal departments. Hence, there is indubitable wisdom in having one overseer over all these legal departments which would ensure that the legal positions adopted by the GOCCs would not conflict with each other or the government. x x x Certainly, Section 10, Book IV, Title III, Chapter 3 of the Administrative Code of 1987 can be invoked by adverse parties or by the courts in citing as deficient the exclusive representation of LBP by its Legal Department. Then again, if neither the adverse parties nor the courts of jurisdiction choose to contest this point, there would be no impediment to the litigation to maintain. x x x[54]

  

WHEREFORE, the Petition is DENIED. The October 19, 2005 Decision and January 11, 2006 Resolution of the Court of

Appeals, in CA- G.R. CV No. 83852, are herebyAFFIRMED.

 

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

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

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

BENGZON, J.P., J.:

The spouses Miguel Mapalo and Candida Quiba, simple illiterate farmers, were registered owners, with Torrens title certificate O.C.T. No. 46503, of a 1,635-square-meter residential land in Manaoag, Pangasinan. Said spouses-owners, out of love and affection for Maximo Mapalo — a brother of Miguel who was about to get married — decided to donate the eastern half of the land to him. O.C.T. No. 46503 was delivered. As a result, however, they were deceived into signing, on October 15, 1936, a deed of absolute sale over the entire land in his favor. Their signatures thereto were procured by fraud, that is, they were made to believe by Maximo Mapalo and by the attorney who acted as notary public who "translated" the document, that the same was a deed of donation in Maximo's favor covering one-half (the eastern half) of their land. Although the document of sale stated a consideration of Five Hundred (P500.00) Pesos, the aforesaid spouses did not receive anything of value for the land. The attorney's misbehaviour was the subject of an investigation but its result does not appear on record. However we took note of the fact that during the hearing of these cases said notary public was present but did not take the witness stand to rebut the plaintiffs' testimony supporting the allegation of fraud in the preparation of the document.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

IT IS SO ORDERED.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Si bien es elemento fundamental de todo negocio, la declaracion de voluntad substracto de una voluntad efectiva, y la existencia de una causa que leconfiera significado juridico señalando la finalidad que con este se persigue, no ha de deducirse de esta doctrina, fundamentalmente recogida en el articulo 1.261 y concordantes del Codigo civil, que cualquier falta de adecuacion entre cualquier incongruencia entre la causa expresada y la verdadera, y, en general, entre la estructuracion y la finalidad economica; hayan de producir la ineficacia del negocio, pues por el contrario, puede este ser valido y producir sus efectos tanto en el caso de la mera disonancia entre el medio juridico adoptado y el fin practico perseguido, por utilizacion de una via oblicua o combinacion de formas juridicas entrelazadas que permita la obtencion de un resultado no previsto en los cuadros de la ley — negocios indirectos y negocios fiduciarlos, validos cuando no envuelven fraude de ley, como en el caso de la verdadera disconformidad entre la apariencia del acto y su real contenido, preparada deliberadamente por las partes — negocio simulado — , ya que, cuando esta divergencia implicano una ausencia total de voluntad y de acto real, sino mera ocultacion de un negocio verdadero bajo la falsa apariencia de un negocio fingido "sirulacion relativa", la ineficacia de la forma externa simulada, no es obstaculo para la posible validez del negocio disimulado que contiene, en tanto

este ultimo sea licito y reuna no solo los requisitos generales, sino tambien los que corresponden a su naturaleza especial, doctrina, en obligada aplicacion de los preceptos de nuestra Ley civil, especialmente en su art. 1.276, que, al establecer el principio de nulidad de los contratos en los que se hace expresion de una causa falsa, deja a salvo el caso de que esten fundados en otra verdadera y licita. (Manresa, Codigo Civil, Tomo VIII, Vol. II pp. 357-358)

Sanchez Roman says:

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

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

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

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

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

Figurando en nuestro Derecho positivo la causa, como un elemento esential del contrato, es consecuencia ineludible, se reputar simulada la entrega del precio en la compraventa de autos, el que haya que declararla nula por inexistente haciendose aplicacion indebida de art. 1.276 por el Tribunal sentenciador al cohonestar la falta de precio admitiendo se pueda tratar de una donacion, ya que la recta aplicacion del citado precepto exige que los negocios simulados, o sea con causa falsa, se justifique la verdadera y licita en que se funda el acto que las partes han querido ocultar y el cumplimiento de las formalidades impuestas por la Ley y, cual dice la sentencia de 3 de marzo de 1932, esta rigurosa doctrina ha de ser especialmente impuesta en la donaciones puras y simples; de los que deduce que la sentencia recurrida al no decretar la nulidad instada por falta de causa, incide en la infraccion de los articulos 1.261, 1.274, 1.275 y 1.276 del Codigo Civil. (Sentencia de 22 de febrero de 1940). (Manresa, Codigo Civil, Tomo VIII, Vol. II, p. 356)

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

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

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

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

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

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

Upon the aforestated declaration of Pacifico Narciso the following question arises: What was the necessity, purpose and reason of Pacifico Narciso in still going to the spouses Mapalo and asked them to permit their brother Maximo to dispose of the above-described land? To this question it is safe to state that this act of Pacifico Narciso is a conclusive manifestation that they (the Narcisos) did not only have prior knowledge of the ownership of said spouses over the western half portion in question but that they also have recognized said ownership. It also conclusively shows their prior knowledge of the want of dominion on the part of their vendor Maximo Mapalo over the whole land and also of the flaw of his title thereto. Under this situation, the Narcisos may be considered purchasers in value but certainly not as purchasers in good faith. ... (pp. 97-98, Record on Appeal.)

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

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

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

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

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

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

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

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

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

 

RELOVA, J.:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

concerning an object certain entered into with a cause and with the consent of the contracting parties, as in the case at bar."

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

SO ORDERED.

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

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

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

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

Beltran, Beltran & Beltran for petitioners.

Jose M. Legaspi for private respondents.

 

NARVASA, J.:

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

On April 3, 1964, the private respondents, themselves collateral relatives of Mateum though more remote in degree than the petitioners, 2 registered with the Registry of Deeds for the Province of Cavite two deeds of sale purportedly executed by Mateum in their (respondents') favor covering ten parcels of land. Both deeds were in Tagalog, save for the English descriptions of the lands conveyed under one of them; and each recited the reconsideration of the sale to be" ... halagang ISANG PISO (Pl.00), salaping Pilipino, at mga naipaglingkod, ipinaglilingkod sa aking kapakanan ..." ("the sum of ONE PESO Pl.00), Philippine Currency, and services rendered, being rendered and to be rendered for my benefit"). One deed was dated February 6,1963 and covered five parcels of land, and the other was dated March 4, 1963, covering five other parcels, both, therefore, antedating Mateum's death by more than a year. 3 It is asserted by the petitioners, but denied by the respondents, that said sales notwithstanding, Mateum continued in the possession of the lands purportedly conveyed until his death, that he remained the declared owner thereof and that the tax payments thereon continued to be paid in his name. 4 Whatever the truth, however, is not crucial. What is not disputed is that on the strength of the deeds of sale, the respondents were able to secure title in their favor over three of the ten parcels of land conveyed thereby. 5

On May 22,1964 the petitioners commenced suit against the respondents in the Court of First Instance of Cavite, seeking annulment of the deeds of sale as fictitious, fraudulent or falsified, or, alternatively, as donations void for want of acceptance embodied in a public instrument. Claiming ownership pro indiviso of the lands subject of the deeds by virtue of being intestate heirs of Hilario Mateum, the petitioners prayed for recovery of ownership and possession of said lands, accounting of the fruits thereof and damages. Although the complaint originally sought recovery of all the twenty-nine parcels of land left by Mateum, at the pre-trial the parties agreed that the controversy be limited to the ten

parcels subject of the questioned sales, and the Trial Court ordered the exclusion of the nineteen other parcels from the action. 6 Of the ten parcels which remained in litigation, nine were assessed for purposes of taxation at values aggregating P10,500 00. The record does not disclose the assessed value of the tenth parcel, which has an area of 1,443 square meters. 7

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

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

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

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

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

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

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

If therefore the contract has no causa or consideration, or the causa is false and fictitious (and no true hidden causa is proved) the property allegedly conveyed never really leaves the patrimony of the transferor, and upon the latter's death without a testament, such property would pass to the transferor's heirs intestate and be recoverable by them or by the Administrator of the transferor's

estate. In this particular regard, I think Concepcion vs. Sta. Ana, 87 Phil. 787 and Sobs vs. Chua Pua Hermanos, 50 Phil. 536, do not correctly state the present law, and must be clarified.

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

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

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

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

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

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

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

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

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

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

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

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

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

The private respondents have only themselves to blame for the lack of proof that might have saved the questioned transfers from the taint of invalidity as being fictitious and without ilicit cause; proof, to be brief, of the character and value of the services, past, present, and future, constituting according to the very terms of said transfers the principal consideration therefor. The petitioners' complaint (par. 6) 21 averred that the transfers were "... fraudulent, fictitious and/or falsified and (were) ... in reality donations of immovables ...," an averment that the private respondents not only specifically denied, alleging that the transfers had been made "... for good and valuable consideration ...," but to which they also interposed the affirmative defenses that said transfers were "... valid, binding and effective ...," and, in an obvious reference to the services mentioned in the deeds, that they "... had done many good things to (the transferor) during his lifetime, nursed him during his ripe years and took care of him during his previous and last illness ...," (pars. 4, 6, 16 and 17, their answer).lâwphî1.ñèt 22 The onus, therefore, of showing the existence of valid and illicit consideration for the questioned conveyances rested on the private respondents. But even on a contrary assumption, and positing that the petitioners initially had the burden of showing that the transfers lacked such consideration as they alleged in their complaint, that burden was shifted to the private respondents when the petitioners presented the deeds which they claimed showed that defect on their face and it became the duty of said respondents to offer evidence of existent lawful consideration.

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

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

SO ORDERED.

Cruz, Gancayco, Griñ;o-Aquino and Medialdea, JJ., concur.

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

D E C I S I O N

MARTINEZ, J.:

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

WHEREFORE, this Court finds the Deed of Sale with Right of Repurchase executed October 6, 1986 valid and binding between plaintiff and defendant (as vendor and vendee-a-retro respectively); that as the period to redeem has expired, ownership thereof was consolidated by operation of law, and the Register of Deeds is hereby ordered to REGISTER this decision consolidating the defendants ownership over the properties covered by Transfer Certificate of Title No. T-90-71, covering Lot 8; Original Certificate of Title No. N-311 covering Lot 5370, all of the Tacloban Cadastre, and issuing to defendant Inocencio Tan his titles after cancellation of the titles presently registered in plaintiff Fernando T. Mates name and that of his wife.

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

With costs against the plaintiff Fernando Mate.

SO ORDERED.[2]

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

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

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

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

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

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

To assure petitioner that Josie will redeem the aforesaid properties, she issued to him two (2) BPI checks both postdated December 15, 1986. One check was for P1,400,000.00 supposedly for the selling price and the other was for P420,000.00 corresponding to the interests for 6 months. Immediately thereafter petitioner prepared the Deed of

Sale with Right to Repurchase (Exh. A) and after it has been signed and notarized, it was given to private respondent together with the titles of the properties and the latter did not register the transaction in the Register of Deeds as agreed upon.

On January 14, 1987, petitioner deposited the check for P1,400,000.00 (Exh. B) in his account at the United Coconut Planters Bank and the other check for P420,000.00 (Exh. D) in his account at METROBANK preparatory to the redemption of his properties. However, both of them were dishonored by the drawee bank for having been drawn against a closed account.Realizing that he was swindled, he sent Josie a telegram about her checks and when she failed to respond, he went to Manila to look for her but she could not be found. So he returned to Tacloban City and filed Criminal Cases Nos. 8310 and 8312 against her for violation of B.P. 22 but the cases were later archived as the accused (Josie) could not be found as she went into hiding. To protect his interest, he filed Civil Case No. 7396 of the Regional Trial Court of Leyte, Branch VII, entitled `Fernando T. Mate vs. Josefina R. Rey and Inocencio Tan for Annulment of Contract with Damages. Defendant Josefina R. Rey (Josie) was declared in default and the case proceeded against private respondent. But during the trial the RTC court asked private respondent to file an action for consolidation of ownership of the properties subject of the sale and pursuant thereto he filed Civil Case No. 7587 that was consolidated with the case he filed earlier which were later decided jointly by the trial court in favor of private respondent and was subsequently appealed to respondent Court that affirmed it with modification. Thereupon, petitioner filed a motion to reconsider the decision but it was denied. Hence, the instant petition for review.[3]

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

The contention is without merit.

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

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

x x x x x x x x x

It is plain that consideration existed at the time of the execution of the deed of sale with right of repurchase. It is not only appellants kindness to Josefina, being his cousin, but also his receipt of P420,000.00 from her which impelled him to execute such contract.[5]

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

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

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

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

We are not persuaded.

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

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

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

Petitioner then postulates that it is not only illegal but immoral to require him to repurchase his own properties with his own money when he did not derive any benefit from the transaction. Thus, he invokes the case of Singson vs. Isabela Sawmill, 88 SCRA 633, 643, where the Court said that where one or two innocent persons must suffer, that person who gave occasion for the damages to be caused must bear consequences.  Petitioners reliance on this doctrine is misplaced. He is not an innocent person. As a matter of fact, he gave occasion for the damage caused by virtue of the deed of sale with right to repurchase which he prepared and signed. Thus, there is the equitable maxim that between two innocent parties, the one who made it possible for the wrong to be done  should be the one to bear the resulting loss.[6]

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

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

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

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

SO ORDERED.

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

 

Republic of the Philippines

Supreme Court

Manila

THIRD DIVISION 

 

LUCIA CARLOS ALIO,   G.R. No. 159550

substituted by her Surviving Heirs,    

Nicolas C. Alio and Potenciano C. Alio,    

Petitioners,    

   

- versus -   Present:

   

HEIRS OF ANGELICA A. LORENZO,   YNARES-SANTIAGO, J.,

namely: Servillano V. Lorenzo, Agerico   Chairperson,

Lorenzo, Virginia Servangelli L. Aspera,   AUSTRIA-MARTINEZ,

Ben Errol Aspera, Servillano A. Lorenzo,

Jr., Servillano Santiago A. Lorenzo III,

  CHICO-NAZARIO,

NACHURA, and

Ma. Angelica A. Lorenzo, Servillano II

and Anthony A. Lorenzo, represented

by Servillano V. Lorenzo, Sr. (father),

and Atty. Armando Lauban, in his

capacity as Register of Deeds for

Cotabato City,

  REYES, JJ.

 

 

 

 

Promulgated

Respondents.   June 27, 2008

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

D E C I S I O N

 

AUSTRIA-MARTINEZ, J.:

 

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision[1] dated February 21, 2003 of the 

Court of Appeals (CA) in CA-G.R. CV No. 44857 which affirmed the Decision dated October 28, 1993 of the Regional Trial Court (RTC), Branch 

13, Cotabato City dismissing the complaint in Civil Case No. 2823, and the CA Resolution[2] dated August 20, 2003 which denied petitioners' Motion 

for Reconsideration.

The present case arose from a controversy involving a 1,745-square meter parcel of land known as Lot 183-A-1-B-3-A of Subdivision Plan Psd-12-

001000, located at Sinsuat Avenue, Rosary Heights, Cotabato City. The subject lot was registered in the name of petitioner Lucia Carlos Alio (Lucia) 

under Transfer Certificate of Title (TCT) No. T-15443 issued by the Registry of Deeds of the City of Cotabato.

 

On April 2, 1979, Angelica A. Lorenzo (Angelica), Lucia's daughter, bought the subject lot for P10,000.00 under a Deed of Absolute Sale.

[3] Consequently, TCT No. T-15443 was canceled and TCT No. T-15500[4] was issued in Angelica's name. The subject lot was declared for taxation 

purposes in Angelica's name under Tax Declaration No. 14136.[5]  

 

In the meantime, Lucia continued to pay, under her name, the real estate taxes due on the subject lot from 1980 to 1987.[6] Sometime in 1984, 

Lucia designated Vivian Losaria (Vivian) as caretaker of the subject lot.[7] Vivian built a 100-square meter house on the subject lot and resided 

thereon.[8] She took care of the fruit-bearing trees on the subject lot and delivered the fruits thereof to Lucia every harvest season. [9] She also 

notified tenants of the two adjacent properties owned by Lucia when their rent was due.[10]  

 

On October 3, 1985, Angelica died,  leaving private respondents,  as surviving heirs,  her husband, Servillano, Sr.  and their  eight children, 

namely: Servillano, Leila Lorenzo-Gepte, Agerico,Servillano II, Virginia Servangelli Lorenzo-Aspera, Servillano III, Ma. Angelica and Anthony. Two 

and a half years later, or on May 31, 1988, Angelica's heirs executed an Extra-Judicial Settlement of her estate.[11] The subject lot was adjudicated 

to Servillano III, Ma. Angelica and Anthony, then all minors. As a result, TCT No. T-15500 was canceled and TCT No. T-24417[12]was issued in the 

name of the three minors.

 

Meanwhile, on January 31, 1989, Lucia executed a document entitled Authority to Look for a Buyer[13] authorizing Felixberto Bautista to look for a 

buyer for her lots in Rosary Heights.Subsequently, in Proposal to Sell Real Property[14] dated February 1, 1989, Lucia offered to sell to the Central 

Bank of the Philippines (CBP) her lots in Rosary Heights, including the subject lot, as registered in Angelica's name.

 

On April 12, 1989, Lucia wrote a letter to Servillano, Sr. demanding the return of the subject lot.[15] When Servillano, Sr. refused to accede to Lucia's 

demand, Lucia filed on August 3, 1989 a Complaint[16] against the heirs of Angelica[17] for the declaration of nullity of the Deed of Absolute Sale 

dated April 2, 1979, annulment of the extra-judicial settlement and partition of estate andreconveyance of land title with damages. She alleged 

that the sale of the subject lot was simulated, intended to merely accommodate the housing loan application of Angelica.

 

In their Answer,[18] the heirs of Angelica denied Lucia's allegations, contending that the subject lot was acquired for valuable consideration.

 

Following trial on the merits, the RTC rendered a Decision[19] on October 28, 1993, dismissing the complaint and ordering Lucia to pay the heirs of 

Angelica P30,000.00 as attorney's fees. It held that the sale was not simulated because Lucia recognized Angelica's ownership of the subject lot 

when she paid the taxes for the same, gave written offers to sell her properties, along with Angelica's property, to the CBP, and issued an Authority 

to Look for a Buyer indicating Angelica's children as owners of the subject lot; that Lucia did not take concrete steps to recover the subject lot for 10  

years until she demanded from Servillano, Sr. its return.

Dissatisfied, Lucia appealed. On February 21, 2003, the CA rendered a Decision[20] adopting the findings of the RTC that Lucia recognized Angelica's 

ownership of the subject lot by her payment of the real property taxes and the written offers to sell and authority to look for a buyer.  It also 

emphasized that the deed of sale was a notarized document and enjoyed the presumption of regularity which Lucia failed to overcome. It, 

however, deleted the award for attorney's fees.

 

Since   Lucia   died[21] during   the pendency of   the   appeal,   she   was   substituted   by   her   surviving   heirs,   Nicolas   and Potenciano.[22] In   a 

Resolution[23] dated August 20, 2003, the CA denied their Motion for Reconsideration.[24]  

 

Hence, the present petition. Potenciano died[25] during the pendency of the present petition and he was substituted by his wife, Rosita Pinto Alio.

[26]  

The core issue posed before the Court is whether or not the Deed of Absolute Sale dated April 2, 1979 executed by Lucia in favor of Angelica is valid 

and binding upon the parties.

 

Petitioners contend that the sale was simulated, considering the complete absence of any attempt on the part of Angelica or Servillano, Sr. to 

assert dominical rights over the subject property, even as Lucia remained in continuous, open and adverse possession of the subject lot and 

continued to pay the real property taxes due thereon. They also point to the gross disproportion between the purchase price and the market value 

of the property, the non-payment of the consideration, and sale having been made in Angelica's name only as other indications of simulation.

 

Respondent heirs, on the other hand, submit that the sale was not simulated because Lucia's subsequent acts affirmed the genuineness of the 

sale. They also contend that Lucia did not take any concrete steps to recover the subject lot.

 

The Court finds for the petitioners.

 

The general rule is that in the exercise of the Supreme Courts power of review, the Court not being a trier of facts, does not normally embark on a 

re-examination of the evidence presented by the contending parties during the trial of the case considering that the findings of facts of the CA are 

conclusive and binding on the Court.[27] This rule, however, has several well-recognized exceptions: (1) when the findings are grounded entirely on

speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse 

of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when in making its 

findings the CA went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the  appellee; (7) when 

the findings are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) 

when the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondent; (10) when the findings 

of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the CA manifestly

overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different

conclusion.[28] Exceptions (1), (2), (4) and (11) are present in the instant case.

 

It is a cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded primordial consideration. [29] Such intention is

determined from the express terms of their agreement,[30] as well as their contemporaneous and subsequent acts.[31] When the parties do not intend to

be bound at all, the contract is absolutely simulated; if the parties conceal their true agreement, then the contract is relatively simulated.

[32] Characteristic of simulation is that the apparent contract is not really desired or intended to produce legal effects or in any way alter the juridical

situation of the parties.[33]

 

In Suntay v. Court of Appeals,[34] the Court held that the most protuberant index of simulation is the complete absence of an attempt in any manner

on the part of the vendee to assert his rights of ownership over the disputed property.  This pronouncement was reiterated in such cases as Sps.

Santiago v. Court of Appeals,[35] Cruz v. Bancom Finance Corporation,[36] Ramos v. Heirs ofHonorio Ramos, Sr.,[37] Manila Banking Corporation

v. Silverio,[38] and most recently in Tating v. Marcella.[39]

In the present case, the evidence clearly shows that Angelica or Servillano, Sr. did not attempt to exercise any act of dominion over the subject

lot. From the time the sale was effected on April 2, 1979 up to the time of the institution of the complaint on August 3, 1989,[40] Angelica

or Servillano, Sr. did not enter the subject lot and occupy the premises. When Servillano, Sr. transferred his residence, he did not even choose to

utilize the subject lot.[41] None of the respondent heirs also took possession of the subject lot.

 

In contrast, Lucia was in actual possession of the property. She designated Vivian as caretaker of the subject lot in 1984.[42] Vivian constructed a

house on the subject lot and has been residing therein since then.[43] It is well-settled that actual possession of land consists in the manifestation of acts

of dominion over it of such a nature as those a party would naturally exercise over his own property. [44] It is not necessary that the owner of a parcel of

land should himself occupy the property as someone in his name may perform the act. In other words, the owner of real estate has possession, either

when he himself is physically in occupation of the property, or when another person who recognizes his rights as owner is in such occupancy.[45]

 

Furthermore, Lucia religiously paid the realty taxes on the subject lot from 1980 to 1987.[46] While tax receipts and declarations of ownership for

taxation purposes are not, in themselves, incontrovertible evidence of ownership, they constitute at least proof that the holder has a claim of title over

the property,[47] particularly when accompanied by proof of actual possession.[48]They are good indicia of the possession in the concept of owner, for

no one in his right mind would be paying taxes for a property that is not in his actual or at least constructive possession. [49]The voluntary declaration of

a piece of property for taxation purposes manifests not only ones sincere and honest desire to obtain title to the property and announces his adverse

claim against the State and all other interested parties, but also the intention to contribute needed revenues to the Government. [50] Such an act

strengthens ones bona fide claim of acquisition of ownership.[51]

 

On the other hand, respondent heirs failed to present evidence that Angelica, during her lifetime, paid the realty taxes on the subject lot.  They

presented only two tax receipts showing thatServillano, Sr. belatedly paid taxes due on the subject lot for the years 1980-1981 and part of year 1982

on September 8, 1989,[52] or about a month after the institution of the complaint on August 3, 1989, [53] a clear indication that payment was made as an

afterthought to give the semblance of truth to their claim.

Thus, the subsequent acts of the parties belie the intent to be bound by the deed of sale.

 

The lower courts fault Lucia for allegedly not taking concrete steps to recover the subject lot, demanding its return only after 10 years from the

registration of the title. They, however, failed to consider that Lucia was in actual possession of the property.

 

It is well-settled that an action for reconveyance prescribes in 10 years, the reckoning point of which is the date of registration of the deed or the date

of issuance of the certificate of title over the property. In an action for reconveyance, the decree of registration is highly regarded as

incontrovertible. What is sought instead is the transfer of the property or its title, which has been erroneously or wrongfully registered in another

persons name, to its rightful or legal owner or to one who has a better right.[54]

However, in a number of cases in the past, the Court has consistently ruled that if the person claiming to be the owner of the

property is in actual possession thereof, the right to seek reconveyance, which in effect seeks to quiet title to the property, does

not prescribe.[55] The reason for this is that one who is in actual possession of a piece of land claiming to be the owner thereof

may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right. [56] The reason being,

that his undisturbed possession gives him the continuing right to seek the aid of a court of equity to ascertain the nature of the

adverse claim of a third party and its effect on his title, which right can be claimed only by one who is in possession. [57] Thus,

considering that Lucia continuously possessed the subject lot, her right to institute a suit to clear the cloud over her title cannot be

barred by the statute of limitations.

 

Having resolved the core issue on the validity of the deed of sale, the Court sees no need to further discuss the remaining matters

raised in the petition. Suffice it to state that the concept of inadequacy or non-payment of price is irreconcilable with the concept

of simulation. If there exists an actual consideration for transfer evidenced by the alleged act of sale, no matter how inadequate

it be, the transaction could not be a simulated sale. [58] As to filial relationship, i.e., the sale was effected in the name of the

daughter only, the same, by itself, cannot be considered an indication of simulation, absent an indication of the absence of intent

to be bound by the contract,[59] which in the present case was shown by subsequent acts of the parties.

 

WHEREFORE, the present petition is GRANTED. The Decision dated February 21, 2003 and Resolution dated August 20, 2003 of the Court

of Appeals in CA-G.R. CV No. 44857 areREVERSED and SET ASIDE. The Deed of Absolute Sale dated April 2, 1979 is declared NULL

and VOID ab initio. Accordingly, respondent heirs are ordered to reconvey the subject lot to petitioners within fifteen (15) days after the Decision

becomes final and executory, failing in which, the Clerk of Court is ordered to execute the Deed of Reconveyance in favor of the petitioners.The

respondent Register of Deeds shall cancel TCT No. T-24417 upon presentation of said Deed of Reconveyance and issue a Transfer Certificate of

Title in the name of petitioners.

 

Costs against private respondents.

 

SO ORDERED.

 

G.R. No. 196577               February 25, 2013

LAND BANK OF THE PHILIPPINES, Petitioner, vs.BARBARA SAMPAGA POBLETE, Respondent.

D E C I S I O N

CARPIO, J.:

The Case

This Petition for Review on Certiorari1 seeks to reverse the Court of Appeals' Decision2 dated 28 September 20 I 0 and its Resolution3 dated 19 April 2011 in C A-G.R. CV No. 91666. The Court of Appeals (C A) affirmed in toto the Decision4 of the Regional Trial Court (RTC) of San Jose, Occidental Mindoro, Branch 46, in Civil Case No. R-1331.

The Facts

The facts, as culled from the records, are as follows:

Petitioner Land Bank of the Philippines (Land Bank) is a banking institution organized and existing under Philippine laws. Respondent Barbara Sampaga Poblete (Poblete) is the registered owner of a parcel of land, known as Lot No. 29, with an area of 455 square meters, located in Buenavista, Sablayan, Occidental Mindoro, under Original Certificate of Title (OCT) No. P-12026. In October 1997, Poblete obtained a P300,000.00 loan from Kabalikat ng Pamayanan ng Nagnanais Tumulong at Yumaman Multi-Purpose Cooperative (Kapantay). Poblete mortgaged Lot No. 29 to Kapantay to guarantee payment of the loan. Kapantay, in turn, used OCT No. P-12026 as collateral under its Loan Account No. 97-CC-013 with Land Bank-Sablayan Branch.

In November 1998, Poblete decided to sell Lot No. 29 to pay her loan. She instructed her son-in-law Domingo Balen (Balen) to look for a buyer. Balen referred Angelito Joseph Maniego (Maniego) to Poblete. According to Poblete, Maniego agreed to buy Lot No. 29 for P900,000.00, but Maniego suggested that a deed of absolute sale forP300,000.00 be executed instead to reduce the taxes. Thus, Poblete executed the Deed of Absolute Sale dated 9 November 1998 (Deed dated 9 November 1998) with P300,000.00 as consideration.5 In the Deed dated 9 November 1998, Poblete described herself as a "widow." Poblete, then, asked Balen to deliver the Deed dated 9 November 1998 to Maniego and to receive the payment in her behalf. Balen testified that he delivered the Deed dated 9 November 1998 to Maniego. However, Balen stated that he did not receive from Maniego the agreed purchase price. Maniego told Balen that he would pay the amount upon his return from the United States. In an Affidavit dated 19 November 1998, Poblete stated that she agreed to have the payment deposited in her Land Bank Savings Account.6

Based on a Certification issued by Land Bank-Sablayan Branch Department Manager Marcelino Pulayan on 20 August 1999,7 Maniego paid Kapantay’s Loan Account No. 97-CC-013 for P448,202.08. On 8 June 2000, Maniego applied for a loan of P1,000,000.00 with Land Bank, using OCT No. P 12026 as collateral. Land Bank alleged that as a condition for the approval of the loan, the title of the collateral should first be transferred to Maniego.

On 14 August 2000, pursuant to a Deed of Absolute Sale dated 11 August 2000 (Deed dated 11 August 2000),8 the Register of Deeds of Occidental Mindoro issued Transfer Certificate of Title (TCT) No. T-20151 in Maniego’s name. On 15 August 2000, Maniego and Land Bank executed a Credit Line Agreement and a Real Estate Mortgage over TCT No. T- 20151. On the same day, Land Bank released the P1,000,000.00 loan proceeds to Maniego. Subsequently, Maniego failed to pay the loan with Land Bank. On 4 November 2002, Land Bank filed an Application for Extra-judicial Foreclosure of Real Estate Mortgage stating that Maniego’s total indebtedness amounted toP1,154,388.88.

On 2 December 2002, Poblete filed a Complaint for Nullification of the Deed dated 11 August 2000 and TCT No. T-20151, Reconveyance of Title and Damages with Prayer for Temporary Restraining Order and/or Issuance of Writ of Preliminary Injunction. Named defendants were Maniego, Land Bank, the Register of Deeds of Occidental Mindoro and Elsa Z. Aguirre in her capacity as Acting Clerk of Court of RTC San Jose, Occidental Mindoro. In her Complaint, Poblete alleged that despite her demands on Maniego, she did not receive the consideration of P900,000.00 for Lot No. 29. She claimed that without her knowledge, Maniego used the Deed dated 9 November 1998 to acquire OCT No. P-12026 from Kapantay. Upon her verification with the Register of Deeds, the Deed dated 11 August 2000 was used to obtain TCT No. T-20151. Poblete claimed that the Deed dated 11 August 2000 bearing her and her deceased husband’s, Primo Poblete, supposed signatures was a forgery as their signatures were forged. As proof of the forgery, Poblete presented the Death Certificate dated 27 April 1996 of her husband and Report No. 294-502 of the Technical Services Department of the National Bureau of Investigation showing that the signatures in the Deed dated 11 August 2000 were forgeries. Accordingly, Poblete also filed a case for estafa through falsification of public document against Maniego and sought injunction of the impending foreclosure proceeding.

On 7 January 2003, Land Bank filed its Answer with Compulsory Counterclaim and Cross-claim. Land Bank claimed that it is a mortgagee in good faith and it observed due diligence prior to approving the loan by verifying Maniego’s title with the Office of the Register of Deeds. Land Bank likewise interposed a cross-claim against Maniego for the payment of the loan, with interest, penalties and other charges. Maniego, on the other hand, separately filed his Answer. Maniego denied the allegations of Poblete and claimed that it was Poblete who forged the Deed dated 11 August 2000. He also alleged that he paid the consideration of the sale to Poblete and even her loans from Kapantay and Land Bank.

The Ruling of the Regional Trial Court

On 28 December 2007, the RTC of San Jose, Occidental Mindoro, Branch 46, rendered a Decision in favor of Poblete, the dispositive portion of which reads:

WHEREFORE, by preponderance of evidence, judgment is hereby rendered in favor of the plaintiff and against the defendants, as follows:

1. Declaring the Deed of Sale dated August 11, 2000 over O.C.T. No. P-12026, as null and void;

2. Declaring Transfer of Certificate of Title No. T-20151 as null and void, it having been issued on the basis of a spurious and forged document;

3. The preliminary [i]njunction issued directing the defendants to refrain from proceedings [sic] with the auction sale of the plaintiff’s properties, dated February 10, 2002, is hereby made permanent;

4. Ordering defendant Angelito Joseph Maniego to return to the plaintiff O.C.T. No. P-12026; and

5. Ordering defendant Angelito Joseph Maniego to pay plaintiff the amount of P50,000.00, as and for reasonable attorney’s fees.

Judgment is furthermore rendered on the cross-claim of defendant Land Bank of the Philippines against defendant Angelito Joseph Maniego, as follows:

A. Ordering defendant Angelito Joseph Maniego to pay his co-defendant [L]and Bank of the Philippines his loan with a principal of P1,000,000.00, plus interests, penalties and other charges thereon; and

B. Ordering defendant Angelito Joseph Maniego to pay the costs of this suit.

SO ORDERED.9

The RTC ruled that the sale between Poblete and Maniego was a nullity. The RTC found that the agreed consideration was P900,000.00 and Maniego failed to pay the consideration. Furthermore, the signatures of Poblete and her deceased husband were proven to be forgeries. The RTC also ruled that Land Bank was not a mortgagee in good faith because it failed to exercise the diligence required of banking institutions. The RTC explained that had Land Bank exercised due diligence, it would have known before approving the loan that the sale between Poblete and Maniego had not been consummated. Nevertheless, the RTC granted Land Bank’s cross-claim against Maniego.

In an Order dated 17 March 2008, the RTC denied the Motion for Reconsideration filed by Land Bank for want of merit. Thereafter, Land Bank and Maniego separately challenged the RTC’s Decision before the CA.

The Ruling of the Court of Appeals

On 28 September 2010, the CA promulgated its Decision affirming in toto the Decision of the RTC.10 Both Land Bank and Maniego filed their Motions for Reconsideration but the CA denied both motions on 19 April 2011.11

In a Resolution dated 13 July 2011,12 the Second Division of this Court denied the Petition for Review on Certiorari filed by Maniego. This Resolution became final and executory on 19 January 2012.

On the other hand, Land Bank filed this petition.

The Issues

Land Bank seeks a reversal and raises the following issues for resolution:

1. THE COURT OF APPEALS (FORMER SPECIAL ELEVENTH DIVISION) ERRED IN UPHOLDING THE FINDING OF THE TRIAL COURT DECLARING TCT NO. T-20151 AS NULL AND VOID. THE COURT OF

APPEALS MISCONSTRUED AND MISAPPRECIATED THE EVIDENCE AND THE LAW IN NOT FINDING TCT NO. T-20151 REGISTERED IN THE NAME OF ANGELITO JOSEPH MANIEGO AS VALID.

2. THE COURT OF APPEALS (FORMER SPECIAL ELEVENTH DIVISION) MISCONSTRUED THE EVIDENCE AND THE LAW IN NOT FINDING LAND BANK A MORTGAGEE IN GOOD FAITH.

3. THE COURT OF APPEALS (FORMER SPECIAL ELEVENTH DIVISION) MISCONSTRUED THE EVIDENCE AND THE LAW IN NOT FINDING THE RESPONDENT AND ANGELITO JOSEPH MANIEGO ASIN PARI DELICTO.

4. THE COURT OF APPEALS (FORMER SPECIAL ELEVENTH DIVISION) ERRED IN NOT APPLYING THE PRINCIPLE OF ESTOPPEL OR LACHES ON RESPONDENT IN THAT THE PROXIMATE CAUSE OF HER LOSS WAS HER NEGLIGENCE TO SAFEGUARD HER RIGHTS OVER THE SUBJECT PROPERTY, THEREBY ENABLING ANGELITO JOSEPH MANIEGO TO MORTGAGE THE SAME WITH LAND BANK.13

The Ruling of the Court

We do not find merit in the petition.

A petition for review under Rule 45 of the Rules of Court specifically provides that only questions of law may be raised, subject to exceptional circumstances14 which are not present in this case. Hence, factual findings of the trial court, especially if affirmed by the CA, are binding on us.15 In this case, both the RTC and the CA found that the signatures of Poblete and her deceased husband in the Deed dated 11 August 2000 were forged by Maniego. In addition, the evidence is preponderant that Maniego did not pay the consideration for the sale. Since the issue on the genuineness of the Deed dated 11 August 2000 is essentially a question of fact, we are not dutybound to analyze and weigh the evidence again.16

It is a well-entrenched rule, as aptly applied by the CA, that a forged or fraudulent deed is a nullity and conveys no title.17 Moreover, where the deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of sale is void ab initio for lack of consideration.18 Since the Deed dated 11 August 2000 is void, the corresponding TCT No. T-20151 issued pursuant to the same deed is likewise void. In Yu Bun Guan v. Ong,19 the Court ruled that there was no legal basis for the issuance of the certificate of title and the CA correctly cancelled the same when the deed of absolute sale was completely simulated, void and without effect. In Ereña v. Querrer-Kauffman,20 the Court held that when the instrument presented for registration is forged, even if accompanied by the owner’s duplicate certificate of title, the registered owner does not thereby lose his title, and neither does the mortgagee acquire any right or title to the property. In such a case, the mortgagee under the forged instrument is not a mortgagee protected by law.21

The issue on the nullity of Maniego’s title had already been foreclosed when this Court denied Maniego’s petition for review in the Resolution dated 13 July 2011, which became final and executory on 19 January 2012.22 It is settled that a decision that has acquired finality becomes immutable and unalterable and may no longer be modified in any respect, even if the modification is meant to correct erroneous conclusions of fact or law and whether it will be made by the court that rendered it or by the highest court of the land.23 This is without prejudice, however, to the right of Maniego to recover from Poblete what he paid to Kapantay for the account of Poblete, otherwise there will be unjust enrichment by Poblete.

Since TCT No. T-20151 has been declared void by final judgment, the Real Estate Mortgage constituted over it is also void. In a real estate mortgage contract, it is essential that the mortgagor be the absolute owner of the property to be mortgaged; otherwise, the mortgage is void.24

Land Bank insists that it is a mortgagee in good faith since it verified Maniego’s title, did a credit investigation, and inspected Lot No. 29. The issue of being a mortgagee in good faith is a factual matter, which cannot be raised in this petition.25 However, to settle the issue, we carefully examined the records to determine whether or not Land Bank is a mortgagee in good faith.1âwphi1

There is indeed a situation where, despite the fact that the mortgagor is not the owner of the mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy.26 This is the doctrine of "the mortgagee in good faith" based on the rule that buyers or mortgagees

dealing with property covered by a Torrens Certificate of Title are not required to go beyond what appears on the face of the title.27 However, it has been consistently held that this rule does not apply to banks, which are required to observe a higher standard of diligence.28 A bank whose business is impressed with public interest is expected to exercise more care and prudence in its dealings than a private individual, even in cases involving registered lands.29 A bank cannot assume that, simply because the title offered as security is on its face free of any encumbrances or lien, it is relieved of the responsibility of taking further steps to verify the title and inspect the properties to be mortgaged.30

Applying the same principles, we do not find Land Bank to be a mortgagee in good faith.

Good faith, or the lack of it, is a question of intention.31 In ascertaining intention, courts are necessarily controlled by the evidence as to the conduct and outward acts by which alone the inward motive may, with safety, be determined.32

Based on the evidence, Land Bank processed Maniego’s loan application upon his presentation of OCT No. P-12026, which was still under the name of Poblete. Land Bank even ignored the fact that Kapantay previously used Poblete’s title as collateral in its loan account with Land Bank.33 In Bank of Commerce v. San Pablo, Jr.,34 we held that when "the person applying for the loan is other than the registered owner of the real property being mortgaged, [such fact] should have already raised a red flag and which should have induced the Bank x x x to make inquiries into and confirm x x x [the] authority to mortgage x x x. A person who deliberately ignores a significant fact that could create suspicion in an otherwise reasonable person is not an innocent purchaser for value."

The records do not even show that Land Bank investigated and inspected the property to ascertain its actual occupants. Land Bank merely mentioned that it inspected Lot No. 29 to appraise the value of the property. We take judicial notice of the standard practice of banks, before approving a loan, to send representatives to the premises of the land offered as collateral to investigate its real owners.35 In Prudential Bank v. Kim Hyeun Soon,36 the Court held that the bank failed to exercise due diligence although its representative conducted an ocular inspection, because the representative concentrated only on the appraisal of the property and failed to inquire as to who were the then occupants of the property.

Land Bank claims that it conditioned the approval of the loan upon the transfer of title to Maniego, but admits processing the loan based on Maniego’s assurances that title would soon be his.37 Thus, only one day after Maniego obtained TCT No. T-20151 under his name, Land Bank and Maniego executed a Credit Line Agreement and a Real Estate Mortgage. Because of Land Bank’s haste in granting the loan, it appears that Maniego’s loan was already completely processed while the collateral was still in the name of Poblete. This is also supported by the testimony of Land Bank Customer Assistant Andresito Osano.38

Where the mortgagee acted with haste in granting the mortgage loan and did not ascertain the ownership of the land being mortgaged, as well as the authority of the supposed agent executing the mortgage, it cannot be considered an innocent mortgagee.39

Since Land Bank is not a mortgagee in good faith, it is not entitled to protection. The injunction against the foreclosure proceeding in the present case should be made permanent. Since Lot No. 29 has not been transferred to a third person who is an innocent purchaser for value, ownership of the lot remains with Poblete. This is without prejudice to the right of either party to proceed against Maniego.

On the allegation that Poblete is in pari delicto with Maniego, we find the principle inapplicable. The pari delicto rule provides that "when two parties are equally at fault, the law leaves them as they are and denies recovery by either one of them."40 We adopt the factual finding of the RTC and the CA that only Maniego is at fault.

Finally, on the issues of estoppel and laches, such were not raised before the trial court.1âwphi1 I fence, we cannot rule upon the same. It is settled that an issue which was neither alleged in the complaint nor raised during the trial cannot be raised for the tirst time on appeal, as such a recourse would be offensive to the basic rules of t}1ir play, justice and due process, since the opposing party would be deprived of the opp01iunity to introduce evidence rebutting such new issue.41

WHEREFORE, we DENY the petition. We AFFIRM the 28 September 2010 Decision and the 19 April 2011 Resolution of the Court of Appeals in CA-Ci.R. CV No. 91666. The injunction against the foreclosure proceeding, issued by the Regional Trial Court of San Jose, Occidental Mindoro, Branch 46, is made permanent. Costs against Land Bank.

SO ORDERED.

ANTONIO T. CARPIOAssociate Justice

WE CONCUR: