Article 1469- 1471

Development Bank of the Philippines vs. Moll

BARREDO, J.:p

Appeal from the decision of the Court of First Instance of Manila in its Civil Case No. 56037 sentencing appellants to jointly and severally pay to the appellee Development Bank of the Philippines the sum of P1,648,591.45, claimed by the said Bank to be the deficiency or unpaid balance of appellants' overdue obligation under certain agricultural and industrial loans it had granted to appellants after applying to the said loans the proceeds of the extrajudicial foreclosure and public auction sale of the properties mortgaged to secure their payment, plus attorney's fees and costs.

It appears that on April 12, 1947 and December 15, 1947, the appellee Development Bank of the Philippines (then known as the Rehabilitation Finance Corporation) granted agricultural loans in the amounts of P120,000.00 and P22,000.00, respectively, in favor of one Sebastian Moll, Sr. who, to secure the payment of said loans, mortgaged in favor of the appellee Bank fourteen (14) parcels of land — comprising the property known as "Hacienda Moll" — covered by certificates of title and tax declarations issued by the land registry of the province of Camarines Sur. Said Sebastian Moll, Sr. having subsequently died, his heirs (appellants) executed on May 14, 1949 an extrajudicial partition of his estate, including the properties above-mentioned, adjudicating the same to themselves, albeit binding themselves, jointly and severally, to assume payment of the indebtedness of the deceased with the appellee Bank; and starting from the said date, appellants themselves applied for and were granted by the appellee Bank new and additional loans, to wit: May 14, 1949 — an industrial loan of P150,000.00; May 28, 1951 — an additional agricultural loan of P100,000.00; and May 31, 1951 — another industrial loan of P580,000.00. The additional agricultural loan was granted by the appellee Bank on the security of the same properties already mortgaged to the appellee Bank by appellants' predecessor in interest, earlier stated; while the new industrial loans were secured by mortgages on machineries, equipment and some other real estate.

Appellants thereafter failed to comply with the terms of the loan contracts as they fell due. Consequently, the above-mentioned mortgages on their properties were extrajudicially foreclosed under the provisions of Act 3135, as amended; and in the public auction sale thereof subsequently conducted by the Provincial Sheriff of Camarines Sur on June 30, 1962, the 14 parcels of land mortgaged to secure payment of the agricultural loans and the machineries, equipment and other real estate mortgaged to secure payment of the industrial loans were awarded in favor of the appellee Bank — as the sole and highest bidder — for the amounts of P176,174.50 and P19,750.00, respectively, which were accordingly applied to the payment of the corresponding portions of the said loans.

As the proceeds of the foreclosure sales aforesaid were not sufficient to cover the loan indebtedness of appellants, the appellee Bank then instituted the present case in the Court of First Instance of Manila on January 23, 1964, for the purpose of recovering so the complaint alleges, the sums of P173,117.55, on account of the agricultural loans, and P1,475,473.90, on account of the industrial loans, which it claims to be the outstanding balances or deficiencies under the two types of loans obtained by appellants.

In their answer, appellants admit the existence of their indebtedness to the appellee Bank under the loan contracts mentioned in the latter's complaint; but they deny and dispute, among others, the

deficiency claims of the appellee Bank, contending at the same time, by way of affirmative and special defenses, that the extrajudicial foreclosure and public auction sales of the properties mortgaged had been carried out by the sheriff irregularly and improperly in violation of the pertinent provisions of Rule 39 of the Rules of Court and had thus resulted in the sale for unconscionable prices of their mortgaged properties which, according to appellants' own estimate, have a total actual value of not less than P5,000,000.00.

It appears, further, that the corresponding deeds and certificates of sale issued in favor of the appellee Bank in consequence of the disputed foreclosure proceeding and public auction sales were registered with the Register of Deeds concerned only on November 11, 1964 and December 7, 1964 — some ten (10) months later than the commencement of the present action for collection of the deficiency claim of the appellee Bank. .

After trial, the court below rendered the decision appealed from which, as stated earlier in the opening paragraph hereof, sustains the above-mentioned deficiency claims of the appellee Development Bank of the Philippines. .

In this appeal, appellants assail the said judgment thus: .

"I. THE HONORABLE COURT A QUO ERRED IN NOT SETTING ASIDE THE ALLEGED AUCTION SALE ON JUNE 30,1962, OF THE MORTGAGED PROPERTIES BY THE DEFENDANTS-APPELLANTS TO THE PLAINTIFF-APPELLEE, ON THE GROUND THAT THE SELLING AUCTION PRICES OF SAID PROPERTIES WERE UNJUST, DISPROPORTIONATE AND UNCONSCIONABLE IN THE LIGHT OF THE FAIR AND CURRENT MARKET VALUE OF THE SAME PROPERTIES AT THE TIME OF SAID AUCTION SALE. .

"II. THE HONORABLE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT AT BAR FOR RECOVERY OF A DEFICIENCY CLAIM, ON THE GROUND THAT SAID COMPLAINT WAS OR IS, PREMATURE, FOR THE REASON THAT IT HAD BEEN FILED DURING THE PERIOD OF LEGAL REDEMPTION GRANTED BY LAW TO DEFENDANTS-APPELLANTS AS MORTGAGE-DEBTORS." .

The thrust of appellants' argument in respect of the first assignment of error is to the effect that if in 1947 and 1951 when the agricultural and industrial loans herein involved were obtained by appellants, the appellee Bank, after due inspection and appraisal of the securities they offered therefor, had granted them a total agricultural loan of P242,000.00 upon the security of the 14 parcels of land they mortgaged and a total industrial loan of P770,000.00 upon the security of other lands and machineries and equipment they also mortgaged, hence, it is inconceivable that after the lapse of more than ten years and the fast and steadily increasing real estate values these past years, the same properties would command, in the extrajudicial foreclosure sales conducted by the provincial sheriff of Camarines Sur in 1962, only the measly sums of P176,174.50 and P19,750.00, respectively, considering that pursuant to consistent banking practice, the aforesaid amounts of loans granted would represent only 60% of the actual and current market value of the securities at the time of the grant of said loans. In short, it is the position of appellants that the foreclosure sales aforesaid should be set aside because "the total auction selling price of P195,924.50 for both the collateral securities to the agro-industrial loans, is so inadequate, disproportionate and shocking to conscience." .

It does appear that the purchase prices in question are considerably out of proportion to the possible actual market value of appellants' securities. Considering, however, that the impugned sales were made subject to appellants' right of redemption, the following ruling in Ponce de Leon vs. Rehabilitation Finance Corporation, 1sufficiently disposes of their contention: .

In support of their second assignment of error, the Sorianos maintain that the sum of P10,000.00, for which the Parañaque property was sold to the RFC, is ridiculously inadequate, considering that said property had been assessed at P59,647.05. This presense is devoid of merit, for said property was subject to redemption and:

... where there is the right to redeem ... — inadequacy of price should not be material, because the judgment debtor may re-acquire the property or else sell his right to redeem and thus recover any loss he claims to have suffered by reason of the price obtained at the execution sale (Barrozo vs. Macaraig, 83 Phil. 378, 381, Emphasis Ours.)

Then, again, as the trial court had correctly observed:

But, mere inadequacy of the price obtained at the sheriff's sale unless shocking to the conscience will not be sufficient to set aside the sale if there is no showing that, in the event of a regular sale, a better price can be obtained. The reason is that, generally, and, in forced sales, low prices are usually offered (1 Moran's Rules of Court, 834-835). Considering that in Gov't. of P.I. vs. Soriano, G.R. No. 32196, wherein property worth P120,000.00 was sold for only P15,000.00, in Philippine National Bank vs. Gonzales, 45 Phil. 693, wherein property valued at P45,000.00 was sold for P15,000.00 and in Cu Unjieng & Sons v. Mabalacat Sugar Co., 58 Phil. 439, property worth P300,000.00 to P400,000.00 was sold for P177,000.00, the Court cannot consider the sale of the Bacolod properties, the Taft Avenue house and lot and the Parañaque property of the Sorianos null and void for having been sold at inadequate prices shocking to the conscience and there being no showing that in the event of a resale, better prices can be obtained.'

This ruling was reiterated in the more recent case of De Leon vs. Salvador, et al.,  2

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

At this juncture, it may not be amiss to make it clear that appellants' period to redeem the properties sold in the extrajudicial foreclosure sales in question is one year, "computed from the date of the registration of the certificates of sales of the mortgaged properties," since registered lands are involved in this case, and, as explained lately by this Court in Quimson, et al. vs. Philippine National Bank, 3 "this

Court has uniformly ruled that redemption from execution sales under ordinary judgments pursuant to Section 30, Rule 39 of the Rules of Court should be made within twelve (12) months from the registration of the same and We have uniformly applied the same rule to sales upon extrajudicial foreclosure of registered lands.".

On the other hand, it may also be stressed that actions seeking to set aside auction sales do not toll the running of the period of redemption; and this We have to emphasize now, if only to forestall the possibility of the parties' coming up here in the future and praying for a definite ruling on the matter. This question was resolved inSumerariz vs. Development Bank of the Philippines, L-23764, December 26, 1967, 21 SCRA 1374, thus: .

Under the second assignment of error, plaintiffs maintain that the period of one (1) year to redeem the property in question was suspended by the institution of Case No. 29306 (commenced by Sumerariz and his wife against the DBP and the Sheriff of Manila to set aside the foreclosure sale involved therein) on March 26, 1956, or three (3) days before the expiration of said period. We have not found, however, any statute or decision in support of this pretense. Moreover, up to now plaintiffs have not exercised the right of redemption. Indeed, although they have intimated their wish to redeem the property in question, they have not deposited the amount necessary therefor. It may not be amiss to note that, unlike Section 30 of Rule 39 of the Rules of Court, which permits the extension of the period of redemption of mortgaged properties, (Enage vs. Vda. e Hijas de F. Escano, 38 Phil. 657) Section 3 of Commonwealth Act No. 459, in relation to Section 9 of Republic Act No. 85, which governs the redemption of property mortgaged to the Bank, does not contain a similar provision (Nepomuceno vs. Rehabilitation Finance Corporation, L-14897, November 23, 1960). Again this question has been definitely settled by the decision in the previous case declaring that plaintiffs' right of redemption has already been extinguished in view of their failure to exercise it within the statutory period.

Perforce then We must hold that the foreclosure sales here involved cannot be set aside on the ground, vigorously alleged by appellants, that the prices obtained therein are grossly inadequate and unconscionable. Corollarily, We do not deem it necessary to discuss further and rule upon appellants' claim that the foreclosure sales referred to were improperly and irregularly conducted by the provincial sheriff of Camarines Sur because the latter sold the mortgaged properties here involved in mass and within a single day, although the record appears to be bereft of any concrete showing, other than appellants' claim that better prices could had been obtained for the said mortgaged securities had the above-mentioned provincial sheriff conducted the sales in question otherwise.  4

Anent appellants' second assignment of error to the effect that the present case was prematurely instituted on the ground that an action for recovery of an alleged deficiency claim cannot be legally entertained during the period of redemption, appellants argue in their brief (pp. 16-18), as follows: .

In the case at bar, the suit to recover deficiency claim was instituted on January 23, 1964, (page 1 Record on Appeal), but, the Certificate of Sale by the Provincial Sheriff of Camarines Sur in connection with the auction sale of the collateral securities on the industrial loans was registered in the Office of the Register of Deeds of said province on November 11, 1964, and, the Certificate of Sale of said provincial sheriff in connection

with the auction sale of the collateral securities on the agricultural loans, was registered in the same office on December 7, 1964. Therefore, the present action for recovery of deficiency claim was filed even before the registration of both Certificates of Sale, as shown by Exhibit '2' for appellants (pp. 33-34, Record on Appeal). As the running of the period of one year of the right of redemption commenced from the date and/or dates of registration of the Certificate of Sale, it is too clear and unassailable that the filing of the case at bar on January 23, 1964, was improper and premature. For indeed, the filing of a suit for recovery of a deficiency claim before the commencement or, during the period of the right of redemption, constitutes a clever anticipation that the auction sale arising from the effects of extrajudicial foreclosure had been conducted with all the earmarks of validity, even if it were not. Suppose an auction sale were declared illegal due to irregularities and violation of the mandate of the law, what would be the effect of such pronouncement in an action for deficiency claim when such action has no legal basis? If a suit for recovery of a deficiency judgment or deficiency claim is a legal consequence of an auction sale arising from judicial or extrajudicial foreclosure, then such suit should await for the expiration period of the right of redemption within which period, precisely, the redemptioner may ordinarily institute an action to assail the manner with which the auction sale was conducted. ... .

In the case of Philippine Bank of Commerce vs. De Vera, 5 We held: .

"A reading of the provisions of Act No. 3135, as amended (re extrajudicial foreclosure) discloses nothing, it is true, as to the mortgagee's right to recover such deficiency. But neither do we find any provision thereunder which expressly or impliedly prohibits such recovery. .

Article 2131 of the new Civil Code, on the contrary, expressly provides that "The form, extent and consequences of a mortgage, both as to its constitution, modification and extinguishment, and as to other matters not included in this Chapter, shall be governed by the provisions of the Mortgage Law and of the Land Registration Law." Under the Mortgage Law, which is still in force, the mortgagee has the right to claim for the deficiency resulting from the price obtained in the sale of the real property at public auction and the outstanding obligation at the time of the foreclosure proceedings. (See Soriano vs. Enriquez, 24 Phil. 584; Banco de Islas Filipinas v. Concepcion e Hijos, 53 Phil. 86; Banco Nacional v. Barreto, 53 Phil. 101). Under the Rules of Court (Sec. 6, Rule 70), "Upon the sale of any real property, under an order for a sale to satisfy a mortgage or other incumbrance thereon, if there be a balance due to the plaintiff after applying the proceeds of the sale, the court, upon motion, should render a judgment against the defendant for any such balance for which, by the record of the case, he may be personally liable to the plaintiff,... ." It is true that this refers to a judicial foreclosure, but the underlying principle is the same, that the mortgage is but a security and not a satisfaction of indebtedness. ... .

Under the provisions of section 6 of Rule 70 — now section 6 of Rule 68 of the revised Rules of Court — above-cited, it is expressly provided that "if there be a balance due to the plaintiff after applying the proceeds of the sale, the court, upon motion, shall render judgment against the defendant for any such balance for which, by the record of the case, he may be personally liable to the plaintiff, upon which execution may issue immediately if the balance is all due at the time of the rendition of the judgment." Said provisions are equivalent to those of section 260 of the old Code of Civil Procedure, under which it

was held in a case, 6 "that in order that a decree for any balance for which the mortgagor may be personally liable to the mortgagee may be issued, it is necessary that the sale of the mortgaged real property has been made according to the decree for said sale to satisfy the judgment; that there has remained a balance due the mortgagee after applying the proceeds of the sale to the debt; (and) that the mortgagee presents a motion for the issuance of a decree for said balance", while in another case, 7 it was said that "Section 260 requires the rendition and entry of a judgment for the deficiency against the defendant, who shall be personally liable to the plaintiff, and execution may issue on said judgment at once." We believe it is apparent from the provisions and decisions above-quoted that once the auction sale of the mortgaged property is effected and the resulting deficiency in the mortgage debt is ascertained, the mortgagee-creditor is then and there entitled to secure a deficiency judgment which may immediately be executed, whether or not the mortgagor is still entitled to redeem the property sold. We hold then that appellants' right to redeem their auctioned properties could not be a bar to the present action of appellee to recover the deficiencies which it claims to have resulted after applying the proceeds of the foreclosure sales here involved in payment of appellants' mortgage debt. .

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

Topacio v CA

PARAS, J.:

This is an appeal by way of certiorari from the decision 1 in CA G.R. CV 23258 which reversed the decision 2 of the Regional Trial Court, Branch 98, Quezon City in Civil Case No. 51954.

On March 9, 1988, the parties submitted the following stipulation of facts:

1. The parties admit the personal and corporate circumstances of each other as found in the complaint.

2. The spouses Juan P. de Villa, Jr. and Rosalia de Villa, parents-in-law of the plaintiff, were the former owners of Lot No. 13, Block 21-A, covered by TCT No. 280808 of the Registry of Deeds of Quezon City. This property was previously mortgaged to the Ayala Investment and Development Corporation to secure an obligation of P500,000.00. For failure of the said mortgagors to pay upon maturity, the mortgage was foreclosed and consequently, defendant acquired the property as highest bidder in the auction sale, following the foreclosure. No redemption having been exercised by the mortgagors, the defendant was able to consolidate its title over the property.

3. Plaintiff, who lives with his in-laws, negotiated to purchase the property from defendant. He first made an offer on August 9, 1985 (Annex A, complaint) for P900,000.00 but defendant asked plaintiff to improve his offer. Subsequently, the plaintiff and Mr. Manuel Ablan, then Manager of the Loans Adjustment and Special Asset Department of the defendant arrived at P1,250,000.00 as the purchase price, with 30% downpayment, and the balance, payable in cash, upon execution of the Deed of Sale. Plaintiff confirmed his offer in his letter to the defendant dated November 27, 1985 (Annex B, complaint; Annex, 1, Answer), with his check payment of P375,000.00.

4. Defendant received plaintiff's initial payment of P375,000.00 on November 28, 1985, for which a receipt was issued under defendant's Official Receipt No. 112375 (Annex C, Complaint).

5. On December 4, 1985, defendant wrote to the plaintiff, informing him of the terms and conditions of the sale, as approved by the management of defendant, which, among other things, gives plaintiff up to January 4, 1986 within which to pay the balance of P875,000.00 (Annex D, Complaint, Annex 2, Answer).

6. Plaintiff asked for extensions within which to pay the balance. The first was made on January 8, 1986 (Annex 3, Answer), another on April 22, 1986 (Annex 4, Answer). Defendant agreed to extend the payment up to June 30, 1986, in accordance with defendant's letter dated May 5, 1986, requiring plaintiff, in addition, to pay interest at 24% per annum on the unpaid balance (Annex 5, Answer).

7. Plaintiff, not having been able to meet defendant's deadline (June 30, 1986), defendant wrote a letter to plaintiff dated September 6, 1986 (Annex 6, Answer) declaring itself (defendant) free to sell the property to other buyers and informing plaintiff that he could already claim his initial payment of P375,000.00

8. In response, plaintiff, in its letter dated October 22, 1986 (Annex 7, Answer), asked for an extension of another six (6) months, within which to pay the balance of P875,000.00. Defendant denied plaintiff's request and asked plaintiff to get back his P375,000.00, in defendant's letter to plaintiff dated November 7, 1986 (Annex 8, Answer).

9. On January 5, 1987, defendant wrote plaintiff, reiterating its request that plaintiff get back his P375,000.00 (Annex 9, Answer) and on February 12, 1987 (Annex E, Complaint, Annex 10, Answer), defendant mailed to plaintiff a cashier's check for P375,000.00, payable to him. Plaintiff replied in March 6, 1987 (Annex F, Complaint, Annex 11, Answer), declining acceptance of the P375,000.00 and insisting therein the defendant allow plaintiff to pay the balance of P875,000.00.

10. Subsequently, defendant informed plaintiff that the property is being sold for P1,600.00, in its Answer. Plaintiff then wrote on April 1, 1987 to Mr. Xavier Loinaz of defendant (Annex 13, Answer) asking that original price of P1,250,000.00 be maintained. Defendant again wrote to plaintiff on May 29, 1987 (Annex 14, Answer) reiterating its position that defendant was willing to sell at P1,600,000.00.

11. Plaintiff, in its letter to defendant dated July 21, 1987, (Annex G, Complaint, Annex 15, Answer), returned the cashier's check earlier issued by defendant in favor of plaintiff. Defendant acknowledged receipt of said letter but declined to take back the said check as expressed in defendant's letter of the same date (Annex 16, Answer).

12. The cashier's check of P375,000.00 payable to plaintiff remains uncashed to date and is still in the hands of the plaintiff, after defendant refused to accept its return.

13. Plaintiff admits that Annexes 1 to 16 attached to the Answer are true and faithful copies of the originals. Defendant likewise admits that Annexes A to G attached to the complaint are true and faithful copies of the originals. Said Annexes are hereby adopted by the parties as part of this Stipulation of Facts and may be received in evidence without further authentication or identification. (Rollo, pp. 21-24)

On the basis of the foregoing stipulation, the trial court rendered judgment in favor of the petitioner, finding that there is a perfected contract of sale which is still enforceable because the respondent failed to rescind either by judicial or notarial rescission.

The dispositive portion of the trial court's decision is quoted hereunder:

Samakatwid, iginagawad ng hukumang ito ang pasiya para sa nagsasakdal at ipinag-uutos sa ipinagsakdal na BPI Investment Corporation na tanggapin mula sa nagsasakdal.

Una — Ang tsekeng P375,000.00 bilang paunang bayad na tatlumpung porsiento ng buong halaga.

Pangalawa — Ang hulihang P875,000.00 na may kalakip na interes na labindalawang (12%) porsiento simula sa ika-lima ng Oktubre, 1987 hanggang mabayaran ito;

Pangatlo — At isagawa ng nasasakdal na BPI Investment Corporation ang pagsasalin ng ari-arian na nabanggit sa dakong itaas sa pamamagitan ng isang bilihan tuluyan sa kapakanan ng nasasakdal na si Lino Topacio at kanyang may-bahay.

Ang gastos ay dapat bayaran ng ipinagsasakdal.

IPINAG-UUTOS. (Rollo, p. 24)

The Court of Appeals, on appeal, reversed the trial court's decision stating that the letter dated December 4, 1985, sent by BPI to the petitioner reveals that the contract entered into by them is a contract to sell, not a contract of sale.

The letter of December 4, 1985 is hereby quoted as follows:

We are pleased to inform you that the managament has approved for the sale for the above property to you under the following terms and conditions:

1. Selling price of P1,250,000.00 is on CASH basis;

2. Execution of a Deed of Absolute Sale;

3. All expenses relative to the sale/transfer of title shall be for the account of the buyer;

4. Eviction of tenants, if any, shall be for the account of the buyer;

5. Sale of the property is on as-is where-is basis.

If you are agreeable to the foregoing, kindly indicate your conformity by signing on the space provided below and return the copies to us together with your balance of P875,000.00. The validity of the above approval is good up to January 4, 1986. (Rollo, pp. 7-8)

The petition is impressed with merit.

The payment by petitioner of P375,000.00 on November 28, 1991 which respondent accepted, and for which an official receipt was issued, the body of which hereby quoted:

Partial payment for the purchase of real property, formerly owned by Juan de Villa.

P375,000.00

was the operative act that gave rise to a perfected contract of sale between the parties. Article 1482 of the Civil Code provides:

Art. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract.

Earnest money is something of value to show that the buyer was really in earnest, and given to the seller to bind the bargain. Under the Civil Code, earnest money is considered part of the purchase price and as proof of the perfection of the contract. The P375,000.00 given by the petitioner representing 30% of the purchase price is earnest money.

Furthermore, Article 1475 of the Civil Code states:

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

From the moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.

Based on the aforecited article, the parties have agreed on the object of the contract which is the house and lot located at No. 32 Whitefield St., White Plains, Quezon City and even before November 27, 1985, (the date petitioner sent his letter together with the 30% downpayment), the parties have agreed on the price which is P1,250,000.00.

Nowhere in the transaction indicates that BPI reserved its title property nor did it provide for any automatic rescission in case of default. So when petitioner failed to pay the balance of P875,000.00 despite several extensions given by private respondent, the latter could not validly rescind the contract without complying with the provision of Article 1592 or Article 1191 on notarial or judicial rescission respectively. The ruling in Taguba v. Vda. de Leon, 132 SCRA 722 applies in the case at bar, to wit:

Considering, therefore the nature of the transaction between petitioner Taguba and private respondent, which We affirm and sustain to be a contract of sale, absolute in nature the applicable provisions of Article 1592 of the New Civil Code which states:

Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by notarial act. After the demand the court may not grant him a new term.

In the case at bar, it is undisputed that the petitioner Taguba never notified private respondent by notarial act that he was rescinding the contract, and neither had he filed suit in suit court to rescind the sale.

Respondent cannot just consider the sale cancelled by simply returning the downpayment which petitioner refused to accept.

WHEREFORE, the appealed decision of the Court of Appeals is hereby REVERSED and SET ASIDE and the decision of the Regional Trial Court of Quezon City, Branch 89, dated April 10, 1989 is AFFIRMED with costs against respondent.

SO ORDERED.

Facts:

The spouses De Villa (parents-in-law of Topacio) were the former owners of a lot in QC. It was previously mortgaged to Ayala Investment and Development Corp to secure an obligation of P500k. For failure to pay, the mortgage was foreclosed and consequently, BPI acquired the property as highest bidder. – Topacio wanted to buy the property. He made an offer for P900k, but was asked to improve it. Together, they arrived at P1.25M as the purchase price, with 30% downpayment and the balance payable in cash upon execution of the Deed of Sale. – Topacio paid the initial payment of P375k. – BPI wrote to Topacio and informed him that he had until January 4, 1986 to pay the balance of P875k. He asked for extensions. BPI agreed to extend up to June 30. – Topacio was unable to meet the deadline, so BPI wrote a letter to Topacio, where BPI declared himself free to sell the property to other buyers and that Topacio could claim his initial payment of P375k. –

Topacio merely asked for more extensions. While BPI kept telling Topacio that he couldclaim the P375k back (in the form of a cashier’s check), Topacio declined. But BPI mailed the check to him. The check remained with Topacio, uncashed. – BPI then told Topacio that the property would be sold for P1.6M instead, so Topacio reminded him of the original agreement (P1.25M), but BPI refused. – RTC: In favor of Topacio, finding that there is a perfected contract of sale which is still enforceable because BPI did not rescind either by judicial or notarial rescission. – CA: Reversed. The contract is a contract to sell, not a contract of sale.Issue: Contract to sell or contract of sale? Held: Contract of sale. – The payment by Topacio of P375k was the operative act that gave rise to a perfect contract of sale. It is considered earnest money (something of value to show that the buyer was really in earnest, and given to the seller to bind the bargain). It is considered part of the purchase price and proof of the perfection of the contract. – The parties agreed on the object (house and lot in White Plains), and the price and the manner of payment. – Nowhere in the transaction indicates that BPI reserved its title on the property, nor did it provide for any automatic rescission in case of default. So whenTopacio failed to pay the balance of P875k despite several extensions, BPI could not validly rescind the contract w/o complying with the provision of Art 1592 or Art 1191 on notarial or judicial rescission respectively.

Labagala v. CA (see prior Digest)

Buenaventura v. CA

FACTS:

Defendant spouses Leonardo Joaquin and Feliciana Landrito are parents of co-defendants Fidel, Tomas, Artemio, Clarita, Felicitas, Fe, and Gavino.

They are also the parents of plaintiffs Consolacion, Nora, Emma, and Natividad.

A deed of sale was executed by the defendant spouses in favor of their co-defendant children.

However, such deed of sale is sought to be declared null and void by the plaintiffs.

Plaintiffs argue that: 1 ) T h e r e w a s n o a c t u a l c o n s i d e r a ti o n 2 ) E v e n a s s u m i n g t h e r e w a s c o n s i d e r a ti o n , t h e p r o p e r ti e s a r e m o r e t h a n 3 - f o l d times more valuable than the measly sums appearing therein. 3) The sale was the result of a deliberate conspiracy to unjustly deprive the rest of the compulsory heirs of their legitime.

ISSUE : I. W/N the Deeds of Sale are void for lack of consideration

HELD: DEED OF SALE VALID.A contract of sale is not a real contract, but a consensual contract. As a consensual contract, a contract of sale becomes a binding and valid contract upon the meeting of the minds as to price. If there is a meeting of the minds of the parties as to the price, the contract of sale is valid, despite the manner of payment, or even the breach of that manner of payment. It is not the act of payment of price that determines the validity of a contract of sale. Payment of the price has nothing to do with the perfection of the contract. Failure to pay the consideration is different from lack of consideration.Petitioners do not have any legal interest over the properties. Their rights over theproperties are merely inchoate and vests only upon their parents death.

Philippine Free Press, Inc. v.CA

GARCIA, J.:

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Philippine

Free Press, Inc. seeks the reversal of the Decision[1] dated February 25, 1998 of the Court of Appeals

(CA) in CA-GR CV No. 52660, affirming, with modification, an earlier decision of the Regional Trial Court

at Makati, Branch 146, in an action for annulment of deeds of sale thereat instituted by petitioner

against the Presidential Commission for Good

Government (PCGG) and the herein private respondent, Liwayway Publishing, Inc.

As found by the appellate court in the decision under review, the facts are:

xxx [Petitioner] . . . is a domestic corporation engaged in the publication of Philippine Free Press Magazine, one of the . . . widely circulated political magazines in the Philippines. Due to its wide circulation, the publication of the Free Press magazine enabled [petitioner] to attain considerable prestige prior to the declaration of Martial Law as well as to achieve a high profit margin. . . . Sometime in . . . 1963, [petitioner] purchased a parcel of land situated at No. 2249, Pasong Tamo Street, Makati which had an area of 5,000 square meters as evidenced by . . . (TCT) No. 109767 issued by the Register of Deeds of Makati (Exh. Z).

Upon taking possession of the subject land, [petitioner] constructed an office building thereon to house its various machineries, equipment, office furniture and fixture. [Petitioner] thereafter made the subject building its main office . . . . During the 1965 presidential elections, [petitioner] supported the late President Diosdado Macapagal against then Senate President Ferdinand Marcos. Upon the election of the late President Ferdinand Marcos in 1965 and prior to the imposition of Martial law on September 21, 1972, [petitioner] printed numerous articles highly critical of the Marcos administration, exposing the corruption and abuses of the regime. The [petitioner] likewise ran a series of articles exposing the plan of the Marcoses to impose a dictatorship in the guise of Martial Law . . . . In the evening of September 20, 1972, soldiers surrounded the Free Press Building, forced out its employees at gunpoint and padlocked the said establishment. The soldier in charge of the military contingent then informed Teodoro Locsin, Jr., the son of Teodoro Locsin, Sr., the President of [petitioner], that Martial Law had been declared and that they were instructed by the late President Marcos to take over the building and to close the printing press. xxx. On September 21, 1972 . . ., Teodoro Locsin, Sr. was arrested [and] . . . . was brought to Camp Crame and was subsequently transferred to the maximum security bloc at Fort Bonifacio. Sometime in December, 1972, Locsin, Sr. was informed . . . that no charges were to be filed against him and that he was to be provisionally released subject to the following conditions, to wit: (1) he remained (sic) under ‘city arrest’; xxx (5) he was not to publish the Philippine Free Press nor was he to do, say or write anything critical of the Marcos administration . . . . Consequently, the publication of the Philippine Free Press ceased. The subject building remained padlocked and under heavy military guard (TSB, 27 May 1993, pp. 51-52; stipulated). The cessation of the publication of the ... magazine led to the financial ruin of [petitioner] . . . . [Petitioner’s] situation was further aggravated when its employees demanded the payment of separation pay as a result of the cessation of its operations. [Petitioner’s] minority stockholders, furthermore, made demands that Locsin, Sr. buy out their shares. xxx. On separate occasions in 1973, Locsin, Sr. was approached by the late Atty. Crispin Baizas with offers from then President Marcos for the acquisition of the [petitioner]. However, Locsin, Sr. refused the offer stating that [petitioner] was not for sale (TSN, 2 May 1988, pp. 8-9, 40; 27 May 1993, pp. 66-67). A few months later, the late Secretary Guillermo De Vega approached Locsin, Sr. reiterating Marcos’s offer to purchase the name and the assets of the [petitioner].xxx Sometime during the middle of 1973, Locsin, Sr. was contacted by Brig. Gen. Hans Menzi, the former aide-de-camp of then President Marcos concerning the sale

of the [petitioner]. Locsin, Sr. requested that the meeting be held inside the [petitioner] Building and this was arranged by Menzi (TSN, 27 May 1993, pp. 69-70). During the said meeting, Menzi once more reiterated Marcos’s offer to purchase both the name and the assets of [petitioner] adding that “Marcos cannot be denied” (TSN, 27 May 1993, p. 71). Locsin, Sr. refused but Menzi insisted that he had no choice but to sell. Locsin, Sr. then made a counteroffer that he will sell the land, the building and all the machineries and equipment therein but he will be allowed to keep the name of the [petitioner]. Menzi promised to clear the matter with then President Marcos (TSN, 27 May 1993, p. 72). Menzi thereafter contacted Locsin, Sr. and informed him that President Marcos was amenable to his counteroffer and is offering the purchase price of Five Million Seven Hundred Fifty Thousand (P5, 750,000.00) Pesos for the land, the building, the machineries, the office furnishing and the fixtures of the [petitioner] on a “take-it-or-leave-it” basis (TSN, 2 May 1988, pp.42-43; 27 May 1993, p. 88). On August 22, 1973, Menzi tendered to Locsin, Sr. a check for One Million (P1, 000,000.00) Pesos downpayment for the sale, . . . Locsin, Sr. accepted the check, subject to the condition that he will refund the same in case the sale will not push through. (Exh. 7). On August 23, 1973, the Board of Directors of [petitioner] held a meeting and reluctantly passed a resolution authorizing Locsin, Sr. to sell the assets of the [petitioner] to Menzi minus the name “Philippine Free Press (Exhs. A-1 and 1; TSN, 27 May 1993, pp. 73-76). On October 23, 1973, the parties [petitioner, as vendor and private respondent, represented by B/Gen. Menzi, as vendee] met . . . and executed two (2) notarized Deeds of Sale covering the land, building and the machineries of the [petitioner]. Menzi paid the balance of the purchase price in the amount of . . . (P4,750,000.00) Pesos (Exhs. A and (; B and 10;TSN, 27 May 1993, pp. 81-82; 3 June 1993, p. 89). Locsin, Sr. thereafter used the proceeds of the sale to pay the separation pay of [petitioner’s] employees, buy out the shares of the minority stockholders as well as to settle all its obligations. On February 26, 1987, [petitioner] filed a complaint for Annulment of Sale against [respondent] Liwayway and the PCGG before the Regional Trail Court of Makati, Branch 146 on the grounds of vitiated consent and gross inadequacy of purchase price. On motion of defendant PCGG, the complaint against it was dismissed on October 22, 1987. (Words in bracket and underscoring added)

In a decision dated October 31, 1995,[2] the trial court dismissed petitioner’s complaint and granted

private respondent’s counterclaim, to wit: WHEREFORE, in view of all the foregoing premises, the herein complaint for annulment of sales is hereby dismissed for lack of merit.

On [respondent] counterclaim, the court finds for [respondent] and against [petitioner] for the recovery of attorney’s fees already paid for at P1,945,395.98, plus a further P316,405.00 remaining due and payable. SO ORDERED. (Words in bracket added)

In time, petitioner appealed to the Court of Appeals (CA) whereat its appellate recourse was

docketed as CA-G.R. C.V. No. 52660.

As stated at the outset hereof, the appellate court, in a decision dated February 25, 1998, affirmed

with modification the appealed decision of the trial court, the modification consisting of the deletion of

the award of attorney’s fees to private respondent, thus:

WHEREFORE, with the sole modification that the award of attorney’s fees in favor of [respondent] be deleted, the Decision appealed from is hereby AFFIRMED in all respects. SO ORDERED.

Hence, petitioner’s present recourse, urging the setting aside of the decision under review

which, to petitioner, decided questions of substance in a way not in accord with law and applicable

jurisprudence considering that the appellate court gravely erred:I

xxx IN ITS MISAPPLICATION OF THE DECISIONS OF THE HONORABLE COURT THAT RESULTED IN ITS ERRONEOUS CONCLUSION THAT PETITIONER'S CAUSE OF ACTION HAD ALREADY PRESCRIBED.

II

xxx IN CONCLUDING THAT THE UNDISPUTED FACTS AND CIRCUMSTANCES PRECEDING THE EXECUTION OF THE CONTRACTS OF SALE FOR THE PETITIONER'S PROPERTIES DID NOT ESTABLISH THE FORCE, INTIMIDATION, DURESS AND UNDUE INFLUENCE WHICH VITIATED PETITIONER'S CONSENT.

A. xxx IN CONSIDERING AS HEARSAY THE TESTIMONIAL EVIDENCE WHICH CLEARLY ESTABLISHED THE THREATS MADE UPON PETITIONER AND THAT RESPONDENT LIWAYWAY WILL BE USED AS THE CORPORATE VEHICLE FOR THE FORCED ACQUISITION OF PETITIONER'S PROPERTIES.

B. xxx IN CONCLUDING THAT THE ACTS OF THEN PRESIDENT MARCOS DURING

MARTIAL LAW DID NOT CONSTITUTE THE FORCE, INTIMIDATION, DURESS AND UNDUE INFLUENCE WHICH VITIATED PETITIONER'S CONSENT.

C. xxx IN RESOLVING THE INSTANT CASE ON THE BASIS OF MERE SURMISES AND

SPECULATIONS INSTEAD OF THE UNDISPUTED EVIDENCE ON RECORD.

III

xxx IN CONCLUDING THAT THE GROSSLY INADEQUATE PURCHASE PRICE FOR PETITIONER'S PROPERTIES DOES NOT INDICATE THE VITIATION OF PETITIONER'S CONSENT TO THE CONTRACTS OF SALE.

IV

xxx IN CONCLUDING THAT PETITIONER'S USE OF THE PROCEEDS OF THE SALE FOR ITS SURVIVAL CONSTITUTE AN IMPLIED RATIFICATION [OF] THE CONTRACTS OF SALE.

V

xxx IN EXCLUDING PETITIONER'S EXHIBITS “X-6” TO “X-7” AND “Y-3” (PROFFER) WHICH ARE ADMISSIBLE EVIDENCE WHICH COMPETENTLY PROVE THAT THEN PRESIDENT MARCOS OWNED PRIVATE RESPONDENT LIWAYWAY, WHICH WAS USED AS THE CORPORATE VEHICLE FOR THE ACQUISITION OF PETITIONER'S PROPERTIES.

The petition lacks merit.

Petitioner starts off with its quest for the allowance of the instant recourse on the submission that

the martial law regime tolled the prescriptive period under Article 1391 of the Civil Code, which

pertinently reads:

Article 391. The action for annulment shall be brought within four years. This period shall begin: In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases.

xxx xxx xxx

It may be recalled that the separate deeds of sale [3] sought to be annulled under petitioner’s

basic complaint were both executed on October 23, 1973. Per the appellate court, citing Development

Bank of the Philippines [DBP] vs. Pundogar[4], the 4-year prescriptive period for the annulment of the

aforesaid deeds ended “in late 1977”, doubtless suggesting that petitioner’s right to seek such

annulment accrued four (4) years earlier, a starting time-point corresponding, more or less, to the

date of the conveying deed, i.e., October 23, 1973. Petitioner contends, however, that the 4-year

prescriptive period could not have commenced to run on October 23, 1973, martial law being then in

full swing. Plodding on, petitioner avers that the continuing threats on the life of Mr. Teodoro

Locsin, Sr. and his family and other menacing effects of martial law – which should be considered

as force majeure - ceased only after the February 25, 1986 People Power uprising.

Petitioner instituted its complaint for annulment of contracts on February 26, 1987. The

question that now comes to the fore is: Did the 4-year prescriptive period start to run in late

October 1973, as postulated in the decision subject of review, or on February 25, 1986, as petitioner

argues, on the theory that martial law has the effects of a force majeure[5], which, in turn, works to

suspend the running of the prescriptive period for the main case filed with the trial court.

Petitioner presently faults the Court of Appeals for its misapplication of the doctrinal rule laid down

in DBP vs. Pundogar[6] where this Court, citing and quoting excerpts from the ruling in Tan vs. Court of

Appeals [7], as reiterated in National Development Company vs. Court of Appeals, [8] wrote –

We can not accept the petitioners’ contention that the period during which authoritarian rule was in force had interrupted prescription and that the same began to run only on February 25, 1986, when the Aquino government took power. It is true that under Article 1154 [of the Civil Code] xxx fortuitous events have the effect of tolling the period of prescription. However, we can not say, as a universal rule, that the period from September 21, 1972 through February 25, 1986 involves a force majeure. Plainly, we can not box in the "dictatorial" period within the term without distinction, and without, by necessity, suspending all liabilities, however demandable, incurred during that period, including perhaps those ordered by this Court to be paid. While this Court is cognizant of acts of the last regime, especially political acts, that might have indeed precluded the enforcement of liability against that regime and/or its minions, the Court is not inclined to make quite a sweeping pronouncement, . . . . It is our opinion that claims should be taken on a case-to-case basis. This selective rule is compelled, among others, by the fact that not all those imprisoned or detained by the past dictatorship were true political oppositionists, or, for that matter, innocent of any crime or wrongdoing. Indeed, not a few of them were manipulators and scoundrels. [Italization in the original; Underscoring and words in bracket added]

According to petitioner, the appellate court misappreciated and thus misapplied the correct

thrust of the Tan case, as reiterated in DBP which, per petitioner’s own formulation, is the following:[9]

The prevailing rule, therefore, is that on a case-to-case basis, the Martial Law regime may be treated as force majeure that suspends the running of the applicable prescriptive period provided that it is established that the party invoking the imposition of Martial Law as a force majeure are true oppositionists during the Martial Law regime and that said  party  was  so circumstanced that   is  was   impossible   for   said  party   to commence,   continue   or   to   even   resist   an   action   during   the   dictatorial   regime. (Emphasis and underscoring in the original)

We are not persuaded.

It strains credulity to believe that petitioner found it impossible to commence and succeed in an

annulment suit during the entire stretch of the dictatorial regime. The Court can grant that Mr. Locsin,

Sr. and petitioner were, in the context of DBP and Tan, “true oppositionists” during the period of

material law. Petitioner, however, has failed to convincingly prove that Mr. Locsin, Sr., as its then

President, and/or its governing board, were so circumstanced that it was well-nigh impossible for

him/them to successfully institute an action during the martial law years. Petitioner cannot plausibly

feign ignorance of the fact that shortly after his arrest in the evening of September 20, 1972, Mr. Locsin,

Sr., together with several other journalists[10], dared to file suits against powerful figures of the

dictatorial regime and veritably challenged the legality of the declaration of martial law. Docketed in this

Court as GR No. L-35538, the case, after its consolidation with eight (8) other petitions against the

martial law regime, is now memorialized in books of jurisprudence and cited in legal publications and

case studies as Aquino vs. Enrile.[11]

Incidentally, Mr. Locsin Sr., as gathered from the ponencia of then Chief Justice Querube Makalintal

in Aquino, was released from detention notwithstanding his refusal to withdraw from his petition in said

case. Judging from the actuations of Mr. Locsin, Sr. during the onset of martial law regime and

immediately thereafter, any suggestion that intimidation or duress forcibly stayed his hands during the

dark days of martial law to seek judicial assistance must be rejected.[12]

Given the foregoing perspective, the Court is not prepared to disturb the ensuing ruling of the

appellate court on the effects of martial law on petitioner’s right of action: In their testimonies before the trial court, both Locsin, Sr. and Locsin, Jr. claimed that they had not filed suit to recover the properties until 1987 as they could not expect justice to be done because according to them, Marcos controlled every part of the government, including the courts, (TSN, 2 May 1988, pp. 23-24; 27 May 1993, p. 121). While that situation may have obtained during the early years of the martial law administration, We could not agree with the proposition that it remained consistently unchanged until 1986, a span of fourteen (14) years. The unfolding of subsequent events would show that while dissent was momentarily stifled, it was not totally silenced. On the contrary, it steadily simmered and smoldered beneath the political surface and culminated in that groundswell of popular protest which swept the dictatorship from power.[13]

The judiciary too, as an institution, was no ivory tower so detached from the ever changing political climate. While it was not totally impervious to the influence of the dictatorship’s political power, it was not hamstrung as to render it inutile to perform its functions normally. To say that the Judiciary was not able to render justice to the persons who sought redress before it . . . during the Martial Law years is a sweeping and unwarranted generalization as well as an unfounded indictment. The Judiciary, . . . did not lack in gallant jurists and magistrates who refused to be cowed into silence by the Marcos administration. Be that as it may, the Locsin’s mistrust of the courts and of judicial processes is no excuse for their non-observance of the prescriptive period set down by law.

Corollary to the presented issue of prescription of action for annulment of contract voidable on

account of defect of consent[14] is the question of whether or not duress, intimidation or undue

influence vitiated the petitioner’s consent to the subject contracts of sale. Petitioner delves at length on

the vitiation issue and, relative thereto, ascribes the following errors to the appellate court: first, in

considering as hearsay the testimonial evidence that may prove the element of "threat" against

petitioner or Mr. Locsin, Sr., and the dictatorial regime's use of private respondent as a corporate

vehicle for forcibly acquiring petitioner’s properties; second, in concluding that the acts of then

President Marcos during the martial law years did not have a consent-vitiating effect on petitioner;

and third, in resolving the case on the basis of mere surmises and speculations.

The evidence referred to as hearsay pertains mainly to the testimonies of Messrs. Locsin, Sr. and

Teodoro Locsin, Jr. (the Locsins, collectively), which, in gist, established the following facts: 1) the widely

circulated Free Press magazine, which, prior to the declaration of Martial Law, took the strongest critical

stand against the Marcos administration, was closed down on the eve of such declaration, which closure

eventually drove petitioner to financial ruin; 2) upon Marcos’ orders, Mr. Locsin, Sr. was arrested and

detained for over 2 months without charges and, together with his family, was threatened with

execution; 3) Mr. Locsin, Sr. was provisionally released on the condition that he refrains from

reopening Free Press and writing anything critical of the Marcos administration; and 4) Mr. Locsin, Sr.

and his family remained fearful of reprisals from Marcos until the 1986 EDSA Revolution.

Per the Locsins, it was amidst the foregoing circumstances that petitioner’s property in question

was sold to private respondent, represented by Gen. Menzi, who, before the sale, allegedly applied the

squeeze on Mr. Locsin, Sr. thru the medium of the “Marcos cannot be denied” and “[you] have no choice

but to sell” line.

The appellate court, in rejecting petitioner’s above posture of vitiation of consent, observed:

It was under the above-enumerated circumstances that the late Hans Menzi, allegedly acting on behalf of the late President Marcos, made his offer to purchase the Free Press. It must be noted, however, that the testimonies of Locsin, Sr. and Locsin, Jr. regarding Menzi’s alleged implied threat that “Marcos cannot be denied” and that [respondent] was to be the corporate vehicle for Marcos’s takeover of the Free Press is hearsay as Menzi already passed away and is no longer in a position to defend himself; the same can be said of the offers to purchase made by Atty. Crispin Baizas and Secretary Guillermo de Vega who are also both dead. It is clear from the provisions of Section 36, Rule 130 of the 1989 Revised Rules on Evidence that any evidence, . . . is hearsay if its probative value is not based on the personal knowledge of the witness but on the knowledge of some other person not on the witness stand. Consequently, hearsay evidence, whether objected to or not, has no probative value unless the proponent can show that the evidence falls within the exceptions to the hearsay evidence rule (Citations omitted)

The appellate court’s disposition on the vitiation-of-consent angle and the ratio therefor commends itself for concurrence.

Jurisprudence instructs that evidence of statement made or a testimony is hearsay if offered

against a party who has no opportunity to cross-examine the witness. Hearsay evidence is excluded precisely because the party against whom it is presented is deprived of or is bereft of opportunity to cross-examine the persons to whom the statements or writings are attributed. [15] And there can be no quibbling that because death has supervened, the late Gen Menzi, like the other purported Marcos subalterns, Messrs. Baizas and De Vega, cannot cross-examine the Locsins for the threatening statements allegedly made by them for the late President.

Like the Court of Appeals, we are not unmindful of the exception to the hearsay rule provided in Section 38, Rule 130 of the Rules of Court, which reads:

SEC. 38. Declaration against interest. – The declaration made by a person deceased or unable to testify, against the interest of the declarant, if the fact asserted in the declaration was at the time it was made so far contrary to the declarant's own interest, that a reasonable man in his position would not have made the declaration unless he believed it to be true, may be received in evidence against himself or his successors-in-interest and against third persons.

However, in assessing the probative value of Gen. Menzi’s supposed declaration against interest, i.e., that he was acting for the late President Marcos when he purportedly coerced Mr. Locsin, Sr. to sell the Free Press property, we are loathed to give it the evidentiary weight petitioner endeavors to impress upon us. For, the Locsins can hardly be considered as disinterested witnesses. They are likely to gain the most from the annulment of the subject contracts. Moreover, allegations of duress or coercion should, like fraud, be viewed with utmost caution. They should not be laid lightly at the door of men whose lips had been sealed by death.[16] Francisco explains why:

[I]t has been said that “of all evidence, the narration of a witness of his conversation with a dead person is esteemed in justice the weakest.’” One reason for its unreliability is that the alleged declarant can not recall to the witness the circumstances under which his statement were made. The temptation and opportunity for fraud in such cases also operate against the testimony. Testimony to statements of a deceased person, at least where proof of them will prejudice his estate, is regarded as an unsafe foundation for judicial action except in so far as such evidence is borne out by what is natural and probable under the circumstances taken in connection with actual known facts. And a court should be very slow to act upon the statement of one of the parties to a supposed agreement after the death of the other party; such corroborative evidence should be adduced as to satisfy the court of the truth of the story which is to benefit materially the person telling it. [17]

Excepting, petitioner insists that the testimonies of its witnesses – the Locsins - are not hearsay

because:

In this regard, hearsay evidence has been defined as “the evidence not of what the witness knows himself but of what he has heard from others.” xxx Thus, the mere fact that the other parties to the conversations testified to by the witness are already deceased does [not] render such testimony inadmissible for being hearsay. [18]

xxx xxx xxx

The testimonies of Teodoro Locsin, Sr. and Teodoro Locsin, Jr. that the late Atty. Baizas, Gen. Menzi and Secretary de Vega stated that they were representing

Marcos, that “Marcos cannot be denied”, and the fact that Gen. Menzi stated that private respondent Liwayway was to be the corporate vehicle for the then President Marcos' take-over of petitioner Free Press are not hearsay. Teodoro Locsin, Sr. and Teodoro Locsin, Jr. were in fact testifying to matters of their own personal knowledge  because   they  were   either   parties to the said conversation or were present at the time the said statements were made. [19]

Again, we disagree.

Even if petitioner succeeds in halving its testimonial evidence, one-half purporting to quote

the words of a live witness and the other half purporting to quote what the live witness heard from

one already dead, the other pertaining to the dead shall nevertheless remain hearsay in character.

The all too familiar rule is that “a witness can testify only to those facts which he knows of his own

knowledge”. [20] There can be no quibbling that petitioner’s witnesses cannot testify respecting what

President Marcos said to Gen. Menzi about the acquisition of petitioner’s newspaper, if any there be,

precisely because none of said witnesses ever had an opportunity to hear what the two talked about.

Neither may petitioner circumvent the hearsay rule by invoking the exception under the

declaration-against-interest rule. In context, the only declaration supposedly made by Gen. Menzi

which can conceivably be labeled as adverse to his interest could be that he was acting in behalf of

Marcos in offering to acquire the physical assets of petitioner. Far from making a statement contrary to

his own interest, a declaration conveying the notion that the declarant possessed the authority to

speak and to act for the President of the Republic can hardly be considered as a declaration against

interest.

Petitioner next assails the Court of Appeals on its conclusion that Martial Law is not per se a

consent-vitiating phenomenon. Wrote the appellate court: [21]

In other words, the act of the ruling power, in this case the martial law administration, was not an act of mere trespass but a trespass in law - not a perturbacion de mero hecho but apertubacion de derecho - justified as it is by an act of government in legitimate self-defense (IFC Leasing & Acceptance Corporation v. Sarmiento Distributors Corporation, …, citingCaltex (Phils.) v. Reyes, 84 Phil. 654 [1949]. Consequently, the act of the Philippine Government in declaring martial law can not be considered as an act of intimidation of a third person who did not take part in the contract (Article 1336, Civil Code). It is, therefore, incumbent on [petitioner] to present clear and convincing evidence showing that the late President

Marcos, acting through the late Hans Menzi, abused his martial law powers by forcing plaintiff-appellant to sell its assets. In view of the largely hearsay nature of appellant’s evidence on this point, appellant’s cause must fall.

According to petitioner, the reasoning of the appellate court is "flawed" because:[22]

It is implicit from the foregoing reasoning of the Court of Appeals that it treated the forced closure of the petitioner's printing press, the arrest and incarceration without charges of Teodoro Locsin, Sr., the threats that he will be shot and the threats that other members of his family will be arrested as legal acts done by a dictator under the Martial Law regime. The same flawed reasoning led the Court of Appeals to the erroneous conclusion that such acts do not constitute force, intimidation, duress and undue influence that vitiated petitioner's consent to the Contracts of Sale.

The contention is a rehash of petitioner’s bid to impute on private respondent acts of force and

intimidation that were made to bear on petitioner or Mr. Locsin, Sr. during the early years of martial

law. It failed to take stock of a very plausible situation depicted in the appellate court’s decision which

supports its case disposition on the issue respecting vitiation. Wrote that court:

Even assuming that the late president Marcos is indeed the owner of [respondent], it does not necessarily follow that he, acting through the late Hans Menzi, abused his power by resorting to intimidation and undue influence to coerce the Locsins into selling the assets of Free Press to them (sic). It is an equally plausible scenario that Menzi convinced the Locsins to sell the assets of the Free Press without resorting to threats or moral coercion by simply pointing out to them the hard fact that the Free Press was in dire financial straits after the declaration of Martial Law and was being sued by its former employees, minority stockholders and creditors. Given such a state of affairs, the Locsins had no choice but to sell their assets.[23]

Petitioner laments that the scenario depicted in the immediately preceding quotation as a case of a

court resorting to “mere surmises and speculations”, [24] oblivious that petitioner itself can only offer, as

counterpoint, also mere surmises and speculations, such as its claim about Eugenio  Lopez Sr. and

Imelda R. Marcos offering “enticing amounts” to buy Free Press.[25]

It bears stressing at this point that even after the imposition of martial law, petitioner, represented

by Mr. Locsin, Sr., appeared to have dared the ire of the powers-that-be. He did not succumb to, but in

fact spurned offers to buy, lock-stock-and-barrel, the Free Press magazine, dispatching Marcos’

emissaries with what amounts to a curt “Free Press is not for sale”. This reality argues against

petitioner’s thesis about vitiation of its contracting mind, and, to be sure, belying the notion that Martial

Law worked as a Sword of Damocles that reduced petitioner or Mr. Locsin, Sr. into being a mere

automaton. The following excerpt from the Court of Appeals’ decision is self-explanatory: [26]

Noteworthy is the fact that although the threat of arrest hung over his head like the Sword of Damocles, Locsin Sr. was still able to reject the offers of Atty. Baizas and Secretary De Vega, both of whom were supposedly acting on behalf of the late President Marcos, without being subjected to reprisals. In fact, the Locsins testified that the initial offer of Menzi was rejected even though it was supposedly accompanied by the threat that “Marcos cannot be denied”. Locsin, Sr. was, moreover, even able to secure a compromise that only the assets of the Free Press will be sold. It is, therefore, quite possible that plaintiff-appellant’s financial condition, albeit caused by the declaration of Martial Law, was a major factor in influencing Locsin, Sr. to accept Menzi’s offer. It is not farfetched to consider that Locsin, Sr. would have eventually proceeded with the sale even in the absence of the alleged intimidation and undue influence because of the absence of other buyers.

Petitioner’s third assigned error centers on the gross inadequacy of the purchase price, referring to

the amount of P5,775,000.00 private respondent paid for the property in question. To petitioner, the

amount thus paid does not even approximate the actual market value of the assets and properties,[27] and is very much less than the P18 Million offered by Eugenio Lopez. [28] Accordingly, petitioner urges

the striking down, as erroneous, the ruling of the Court of Appeals on purchase price inadequacy, stating

in this regard as follows: [29]

Furthermore, the Court of Appeals in determining the adequacy of the price for the properties and assets of petitioner Free Press relied heavily on the claim that the audited financial statements for the years 1971 and 1972 stated that the book value of the land is set at Two Hundred Thirty-Seven Thousand Five Hundred Pesos (P237,500.00). However, the Court of Appeals' reliance on the book value of said assets is clearly misplaced. It should be noted that the book value of fixed assets bears very little correlation with the actual market value of an asset. (Emphasis and underscoring in the original).

With the view we take of the matter, the book or actual market value of the property at the time

of sale is presently of little moment. For, petitioner is effectively precluded, by force of the principle

of estoppel ,[30] from cavalierly disregarding with impunity its own books of account in which the

property in question is assigned a value less than what was paid therefor. And, in line with the rule on

the quantum of evidence required in civil cases, neither can we cavalierly brush aside private

respondent’s evidence, cited with approval by the appellate court, that tends to prove that-[31]

xxx the net book value of the Properties was actually only P994,723.66 as appearing in Free Press's Balance Sheet as of November 30, 1972 (marked as Exh. 13 and Exh. V), which was duly audited by SyCip, Gorres, and Velayo, thus clearly showing that Free Press actually realized a hef ty profit of P 4 ,755,276.34 from the sale to Liwayway.

Lest it be overlooked, gross inadequacy of the purchase price does not, as a matter of civil law, per

se affect a contract of sale. Article 1470 of the Civil Code says so. It reads: Article 1470. Gross inadequacy of price does not affect a contract of sale, except as it may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract.

Following the aforequoted codal provision, it behooves petitioner to first prove “a defect in the

consent”, failing which its case for annulment contract of sale on ground gross inadequacy of price

must fall. The categorical conclusion of the Court of Appeals, confirmatory of that of the trial court, is

that the price paid for the Free Press’ office building, and other physical assets is not unreasonable

to justify the nullification of the sale. This factual determination, predicated as it were on offered

evidence, notably petitioner’s Balance Sheet as of November 30, 1972 (Exh. 13), must be accorded

great weight if not finality.[32]

In the light of the foregoing disquisition, the question of whether or not petitioner’s undisputed

utilization of the proceeds of the sale constitutes, within the purview of Article 1393 of the Civil Code,[33] implied ratification of the contracts of sale need not detain us long. Suffice it to state in this regard

that the ruling of the Court of Appeals on the matter is well-taken. Wrote the appellate court: [34]

In the case at bench, Free Press’s own witnesses admitted that the proceeds of the 1973 sale were used to settle the claims of its employees, redeem the shares of its stockholders and finance the company’s entry into money-market shareholdings and fishpond business activities (TSN, 2 May 1988, pp. 16, 42-45). It need not be overemphasized that by using the proceeds in this manner, Free Press only too clearly confirmed the voluntaries of its consent and ratified the sale. Needless to state, such ratification cleanses the assailed contract from any alleged defects from the moment it was constituted (Art. 1396, Civil Code).

Petitioner’s posture that its use of the proceeds of the sale does not translate to tacit

ratification of what it viewed as voidable contracts of sale, such use being a “matter of [its financial]

survival”,[35] is untenable. As couched, Article 1393 of the Civil Code is concerned only with the act

which passes for ratification of contract, not the reason which actuated the ratifying person to act

the way he did. “Ubi lex non distinguit nec nos distinguere debemus. When the law does not

distinguish, neither should we”. [36]

Finally, petitioner would fault the Court of Appeals for excluding Exhibits “X-6” to “X-7” and “Y-3”

(proffer). These excluded documents which were apparently found in the presidential palace or

turned over by the US Government to the PCGG, consist of, among others, what appears to be private

respondent’s Certificate of Stock for 24,502 shares in the name of Gen. Menzi, but endorsed in blank.

The proffer was evidently intended to show that then President Marcos owned private respondent,

Liwayway Publishing Inc. Said exhibits are of little relevance to the resolution of the main issue

tendered in this case. Whether or not the contracts of sale in question are voidable is the issue, not the 

ownership of Liwayway Publishing, Inc.

WHEREFORE, the petition is DENIED, and the challenged decision of the Court of

Appeals AFFIRMED.

Costs against petitioner.

SO ORDERED.

FACTS:Petitioner, thru Teodoro Locsin, Sr., filed a case of Annulment of Sale of its building, lot and printing machineries during the regime of Martial Law to private respondent then represented by late B/Gen. Menzi on February 26, 1987. Petitioner contends that there was vitiated consent and gross inadequacy of purchase price during its sale on October 23, 1973. The trial court dismissed petitioner’s complaint and granted private respondent’s counterclaim. It was elevated to the Court of Appeals but was also dismissed for lack of merit.

ISSUE:Whether or not the action for annulment has already prescribed.

RULING:YES. Article 391 of the Civil Code pertinently reads “The action for annulment shall be brought within four years. This period shall begin: In cases of intimidation, violence or undue influence, from the time the defect of consent ceases x x x”.

[The Supreme Court] can not accept the petitioners’ contention that the period during which authoritarian rule was in force had interrupted prescription and that the same began to run only on February 25, 1986, when the Aquino government took power. It is true that under Article 1154 [of the Civil Code] xxx fortuitous events have the effect of tolling the period of prescription. However, [the Supreme Court] can not say, as a universal rule, that the period from September 21, 1972 through February 25, 1986 involves a force majeure. Plainly, [the Supreme Court] can not box in the “dictatorial” period within the term without distinction, and without, by necessity, suspending all liabilities, however demandable, incurred during that period, including perhaps those ordered by this Court to be paid.

Spouses Serrano and Herrera v. CA

Facts:

Petitioners are registered owners of a lot located in Las Piñas. On March 23, 1900, respondent offered to buy the lot and petitioners agreed to sell it at ₱1,500 per square meter. Respondent then gave ₱100,000 as partial payment.

A few days after, respondent, through his counsel, wrote petitioners informing them of his readiness to pay the balance of the contract price and requesting them to prepare the Deed of Sale.

Petitioners, through counsel, informed respondent in a letter that Amparo Herrera would be leaving for abroad on or before April 15, 1990 and they are canceling the transaction and that respondent may recover the earnest money (₱100,000) anytime. Petitioners also wrote him stating that they already delivered a manager’s check to his counsel in said amount.

Respondent thus filed a complaint for specific performance and damages with the RTC of Makati.

Issue: Whether or not there was a contract of sale.

Ruling:

The transaction was a contract to sell.

“When petitioners declared in the “Receipt for Partial Payment” that they –

“RECEIVED FROM MR. GODOFREDO CAGUIAT THE AMOUNT OF ONE HUNDRED THOUSAND PESOS AS PARTIAL PAYMENT OF OUR LOT SITUATED IN LAS PIÑAS…

MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE PRICE ON OR BEFORE MARCH 23, 1990, AND THAT WE WILL EXECUTE AND SIGN THE FINAL DEED OF SALE ON THIS DATE.”

there can be no other interpretation than that they agreed to a conditional contract of sale, consummation of which is subject only to the full payment of the purchase price.

“A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor’s obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. The suspensive condition is commonly full payment of the purchase price.

“In this case, the “Receipt for Partial Payment” shows that the true agreement between the parties is a contract to sell.

“First, ownership over the property was retained by petitioners and was not to pass to respondent until full payment of the purchase price. Second, the agreement between the parties was not embodied in a deed of sale. The absence of a formal deed of conveyance is a strong indication that the parties did not intend immediate transfer of ownership, but only a transfer after full payment of the purchase price. Third, petitioners retained possession of the certificate of title of the lot.

“It is true that Article 1482 provides that whenever earnest money is given in a contract of sale, it shall be considered as part of the price and proof of the perfection of the contract. However, this article speaks of earnest money given in a contract of sale. In this case, the earnest money was given in a contract to sell. The earnest money forms part of the consideration only if the sale is consummated upon full payment of the purchase price.

“Clearly, respondent cannot compel petitioners to transfer ownership of the property to him.”

Ting Ho v. Teng Gui

PUNO, C.J.: 

This is a Petition for Review on Certiorari[1] assailing the Decision[2] of the Court of Appeals (CA) in CA-G.R. CV No. 42993 which reversed and set aside the Decision of the Regional Trial Court (RTC) of Olongapo City, Branch 74, in Civil Case No. 558-0-88.

The instant case traces its origin to an action for partition filed by petitioners Felix Ting Ho, Jr., Merla Ting Ho Braden, Juana Ting Ho and Lydia Ting Ho Belenzo against their brother, respondent Vicente Teng Gui, before the RTC, Branch 74 of Olongapo City. The controversy revolves around a parcel of land, and the improvements established thereon, which, according to petitioners, should form part of the estate of their deceased father, Felix Ting Ho, and should be partitioned equally among each of the siblings.

In their complaint before the RTC, petitioners alleged that their father Felix Ting Ho died

intestate on June 26, 1970, and left upon his death an estate consisting of the following:

a) A commercial land consisting of 774 square meters, more or less, located at Nos. 16 and 18 Afable St., East Bajac-Bajac, Olongapo City, covered by Original Certificate of Title No. P-1064 and Tax Declaration No. 002-2451;

b) A two-storey residential house on the aforesaid lot;c) A two-storey commercial building, the first floor rented to different persons and the second

floor, Bonanza Hotel, operated by the defendant also located on the above described lot; andd) A sari-sari store (formerly a bakery) also located on the above described lot. [3]

According to petitioners, the said lot and properties were titled and tax declared under trust in the name of respondent Vicente Teng Gui for the benefit of the deceased Felix Ting Ho who, being a Chinese citizen, was then disqualified to own public lands in the Philippines; and that upon the death of Felix Ting Ho, the respondent took possession of the same for his own exclusive use and benefit to their exclusion and prejudice.[4]

In his answer, the respondent countered that on October 11, 1958, Felix Ting Ho sold the

commercial and residential buildings to his sister-in-law, Victoria Cabasal, and the bakery to his brother-in-law, Gregorio Fontela.[5] He alleged that he acquired said properties from the respective buyers on October 28, 1961 and has since then been in possession of subject properties in the concept of an owner; and that on January 24, 1978, Original Certificate of Title No. P-1064 covering the subject lot was issued to him pursuant to a miscellaneous sales patent granted to him on January 3, 1978.[6]

The undisputed facts as found by the trial court (RTC), and affirmed by the appellate court (CA),

are as follows: [T]he plaintiffs and the defendant are all brothers and sisters, the defendant

being the oldest. They are the only legitimate children of the deceased Spouses Felix Ting Ho and Leonila Cabasal. Felix Ting Ho died on June 26, 1970 while the wife Leonila Cabasal died on December 7, 1978. The defendant Vicente Teng Gui is the oldest among the children as he was born onApril 5, 1943. The father of the plaintiffs and the defendant was a Chinese citizen although their mother was Filipino. That sometime in 1947, the father of the plaintiffs and defendant, Felix Ting Ho, who was already then married to their mother Leonila Cabasal, occupied a parcel of land identified to (sic) as Lot No. 18 Brill which was thereafter identified as Lot No. 16 situated at Afable Street, East Bajac-Bajac, Olongapo City, by virtue of the permission granted him by the then U.S. Naval Reservation Office, Olongapo, Zambales. The couple thereafter introduced improvements on the land. They built a house of strong material at 16 Afable Street which is a commercial and residential house and another building of strong material at 18 Afable Streetwhich was a residential house and a bakery. The couple, as well as their children, lived and resided in the said properties until their death. The father, Felix Ting Ho had managed the bakery while the mother managed the sari-sari store. Long before the death of Felix Ting Ho, who died on June 26, 1970, he executed on October 11,  1958 a Deed of Absolute Sale of a house of strong material   located at 16 Afable Street, Olongapo, Zambales, specifically described in Tax Dec. No. 5432, in 

favor of Victoria Cabasal his sister-in-law (Exh. C).This Deed of Sale cancelled the Tax Dec. of Felix Ting Ho over the said building (Exh. C-1) and the building was registered in the name of the buyer Victoria Cabasal, as per Tax Dec. No. 7579 (Exh. C-2). On the same date,  October  11,  1958 the said  Felix  Ting Ho also sold  a  building of  strong material   located  at  18  Afable  Street,  described   in  Tax  Dec.  No.  5982,   in   favor  of Gregorio Fontela,  of  legal age,  an American citizen, married (Exh. D). This Deed of Sale, in effect, cancelled Tax Dec. No. 5982 and the same was registered in the name of the buyer Gregorio Fontela, as per Tax Dec. No. 7580 (Exh. D-2). In   turn  Victoria Cabasal and her husband Gregorio Fontela sold to Vicente Teng Gui on October 28, 1961   the  buildings  which  were  bought  by   them  from Felix  Ting  Ho  and   their   tax declarations   for   the   building   they   bought   (Exhs.   C-2   and   D-2)   were   accordingly cancelled and the said buildings were registered in the name of the defendant Vicente Teng Gui (Exhs. C-3 and D-3). On October 25, 1966 the father of the parties Felix Ting Ho executed an Affidavit of Transfer, Relinquishment and Renouncement of Rights and Interest including Improvements on Land in favor of his eldest son the defendant Vicente Teng Gui. On the basis of the said document the defendant who then chose Filipino citizenship filed a miscellaneous sales application with the Bureau of Lands. Miscellaneous Sales Patent No. 7457 of the land which was then identified to be Lot No. 418, Ts-308 consisting of 774 square meters was issued to the applicant Vicente Teng Gui and accordingly on the 24th of January, 1978 Original Certificate of Title No. P-1064 covering the lot in question was issued to the defendant Vicente Teng Gui. Although the buildings and improvements on the land in question were sold by Felix Ting Ho to Victoria Cabasal and Gregorio Fontela in 1958 and who in turn sold the buildings to the defendant in 1961 the said Felix Ting Ho and his wife remained in possession of the properties as Felix Ting Ho continued to manage the bakery while the wife Leonila Cabasal continued to manage the sari-sari store. During all the time that the alleged buildings were sold to the spouses Victoria Cabasal and Gregorio Fontela in 1958 and the subsequent sale of the same to the defendant Vicente Teng Gui in October of 1961 the plaintiffs and the defendant continued to live and were under the custody of their parents until their father Felix Ting Ho died in 1970 and their mother Leonila Cabasal died in 1978.[7] (Emphasis supplied)

In light of these factual findings, the RTC found that Felix Ting Ho, being a Chinese citizen and

the father of the petitioners and respondent, resorted to a series of simulated transactions in order to preserve the right to the lot and the properties thereon in the hands of the family. As stated by the trial court:

After a serious consideration of the testimonies given by both one of the

plaintiffs and the defendant as well as the documentary exhibits presented in the case, the Court is inclined to believe that Felix Ting Ho, the father of the plaintiffs and the defendant, and the husband of Leonila Cabasal thought of preserving the properties in question by transferring the said properties to his eldest son as he thought that he cannot acquire the properties as he was a Chinese citizen. To transfer the improvements on the land to his eldest son the defendant Vicente Teng Gui, he first executed simulated Deeds of Sales in favor of the sister and brother-in-law of his wife in 1958 and after three (3) years it was made to appear that these vendees had sold the improvements to the defendant Vicente Teng Gui who was then 18 years old. The Court

finds that these transaction (sic) were simulated and that no consideration was ever paid by the vendees.

x x x x x x x x x With regards (sic) to the transfer and relinquishment of Felix Ting Ho’s right to

the land in question in favor of the defendant, the Court believes, that although from the face of the document it is stated in absolute terms that without any consideration Felix Ting Ho was transferring and renouncing his right in favor of his son, the defendant Vicente Teng Gui, still the Court believes that the transaction was one of implied trust executed by Felix Ting Ho for the benefit of his family…[8]

Notwithstanding such findings, the RTC considered the Affidavit of Transfer, Relinquishment and

Renouncement of Rights and Interests over the land as a donation which was accepted by the donee, the herein respondent. With respect to the properties in the lot, the trial court held that although the sales were simulated, pursuant to Article 1471 of the New Civil Code [9] it can be assumed that the intention of Felix Ting Ho in such transaction was to give and donate such properties to the respondent. As a result, it awarded the entire conjugal share of Felix Ting Ho in the subject lot and properties to the respondent and divided only the conjugal share of his wife among the siblings. The dispositive portion of the RTC decision decreed:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against

the defendant as the Court orders the partition and the adjudication of the subject properties, Lot 418, Ts-308, specifically described in original Certificate of Title No. P-1064 and the residential and commercial houses standing on the lot specifically described in Tax Decs. Nos. 9179 and 9180 in the name of Vicente Teng Gui in the following manner, to wit: To the defendant Vicente Teng Gui is adjudicated an undivided six-tenth (6/10) of the aforementioned properties and to each of the plaintiffs Felix Ting Ho, Jr., Merla Ting-Ho Braden, Juana Ting and Lydia Ting Ho-Belenzo each an undivided one-tenth (1/10) of the properties…[10]

From this decision, both parties interposed their respective appeals. The petitioners claimed that the RTC erred in awarding respondent the entire conjugal share of their deceased father in the lot and properties in question contrary to its own finding that an implied trust existed between the parties. The respondent, on the other hand, asserted that the RTC erred in not ruling that the lot and properties do not form part of the estate of Felix Ting Ho and are owned entirely by him. On appeal, the CA reversed and set aside the decision of the RTC. The appellate court held that the deceased Felix Ting Ho was never the owner and never claimed ownership of the subject lot since he is disqualified under Philippine laws from owning public lands, and that respondent Vicente Teng Gui was the rightful owner over said lot by virtue of Miscellaneous Sales Patent No. 7457 issued in his favor, viz:

The deceased Felix Ting Ho, plaintiffs’ and defendant’s late father, was never the owner of the subject lot, now identified as Lot No. 418, Ts-308 covered by OCT No. P-1064 (Exh. A; Record, p. 104).  As stated by Felix Ting Ho no less in the “Affidavit of Transfer,  Relinquishment  and  Renouncement  of  Rights  and   Interest”  etc.   (Exh.  B: Record, p. 107), executed on October 25, 1966 he, the late Felix Ting Ho, was merely a possessor or occupant of the subject lot “by virtue of a permission granted… by the then U.S. Naval Reservation Office, Olongapo, Zambales”.  The late Felix Ting Ho was never the owner and never claimed ownership of the land. (Emphasis supplied)

The affidavit, Exhibit B, was subscribed and sworn to before a Land Investigator of

the Bureau of Lands and in the said affidavit, the late Felix Ting Ho expressly acknowledged that because he is a Chinese citizen he is not qualified to purchase public lands under Philippine laws for which reason he thereby transfers, relinquishes and renounces all his rights and interests in the subject land, including all the improvements thereon to his son, the defendant Vicente Teng Gui, who is of legal age, single, Filipino citizen and qualified under the public land law to acquire lands.

x x x x x x x x x Defendant  Vicente  Teng  Gui   acquired   the   subject   land  by   sales  patent  or 

purchase   from the government  and not   from his   father,   the   late  Felix  Ting Ho.  It cannot be said that he acquired or bought the land in trust for his father because on December 5, 1977 when the subject land was sold to him by the government and on January 3, 1978 when Miscellaneous Sales Patent No. 7457 was issued, the late Felix Ting Ho was already dead, having died on June 6, 1970 (TSN, January 10, 1990, p. 4). [11]

Regarding the properties erected over the said lot, the CA held that the finding that the sales of the two-storey commercial and residential buildings and sari-sari store to Victoria Cabasal and Gregorio Fontela and subsequently to respondent were without consideration and simulated is supported by evidence, which clearly establishes that these properties should form part of the estate of the late spouses Felix Ting Ho and Leonila Cabasal.

Thus, while the appellate court dismissed the complaint for partition with respect to the lot in question, it awarded the petitioners a four-fifths (4/5) share of the subject properties erected on the said lot. The dispositive portion of the CA ruling reads as follows:

          WHEREFORE, premises considered, the decision appealed from is REVERSED and SET ASIDE and NEW JUDGMENT rendered: 1. DISMISSING plaintiff-appellants’ complaint with respect to the subject parcel of land, identified as Lot No. 418, Ts-308, covered by OCT No. P-1064, in the name of plaintiff-appellants [should be defendant-appellant]; 2. DECLARING that the two-storey commercial building, the two-storey residential building and sari-sari store (formerly a bakery), all erected on the subject lot No. 418, Ts-

308, form part of the estate of the deceased spouses Felix Ting Ho and Leonila Cabasal, and that plaintiff-appellants are entitled to four-fifths (4/5) thereof, the remaining one-fifth (1/5) being the share of the defendant-appellant; 3. DIRECTING the court a quo to partition the said two-storey commercial building, two-storey residential building and sari-sari store (formerly a bakery) in accordance with Rule 69 of the Revised Rules of Court and pertinent provisions of the Civil Code; 4. Let the records of this case be remanded to the court of origin for further proceedings; 5. Let a copy of this decision be furnished the Office of the Solicitor General; and

6. There is no pronouncement as to costs. SO ORDERED.[12]

Both petitioners and respondent filed their respective motions for reconsideration from this

ruling, which were summarily denied by the CA in its Resolution [13]dated August 5, 1997. Hence, this petition.

According to the petitioners, the CA erred in declaring that Lot No. 418, Ts-308 does not form part of the estate of the deceased Felix Ting Ho and is owned alone by respondent. Respondent, on the other hand, contends that he should be declared the sole owner not only of Lot No. 418, Ts-308 but also of the properties erected thereon and that the CA erred in not dismissing the complaint for partition with respect to the said properties.

The primary issue for consideration is whether both Lot No. 418, Ts-308 and the properties erected thereon should be included in the estate of the deceased Felix Ting Ho. We affirm the CA ruling.

With regard to Lot No. 418, Ts-308, Article XIII, Section 1 of the 1935 Constitution states:

Section 1. All   agricultural   timber,   and  mineral   lands   of   the   public   domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy and other natural resources of the Philippines belong   to   the   State,   and   their disposition, exploitation, development, or utilization shall be limited to citizens of the Philippines or to corporations or associations at least sixty per centum of the capital of which is owned by such citizens, subject to any existing right, grant, lease, or concession at the time of the inauguration of the Government established under this Constitution… (Emphasis supplied)

Our fundamental law cannot be any clearer. The right to acquire lands of the public domain is reserved for Filipino citizens or corporations at least sixty percent of the capital of which is owned by Filipinos. Thus, in Krivenko v. Register of Deeds,[14] the Court enunciated that:

…Perhaps the effect of our construction is to preclude aliens, admitted freely into the Philippines from owning sites where they may build their homes. But if this is the solemn mandate of the Constitution, we will not attempt to compromise it even in the name of amity or equity. We are satisfied, however, that aliens are not completely excluded by the Constitution from the use of lands for residential purposes. Since their residence in the Philippines is temporary, they may be granted temporary rights such as a lease contract which is not forbidden by the Constitution. Should they desire to remain here forever and share our fortunes and misfortunes, Filipino citizenship is not impossible to acquire.[15]

In the present case, the father of petitioners and respondent was a Chinese citizen; therefore,

he was disqualified from acquiring and owning real property in thePhilippines. In fact, he was only occupying the subject lot by virtue of the permission granted him by the then U.S. Naval Reservation Office of Olongapo, Zambales. As correctly found by the CA, the deceased Felix Ting Ho was never the owner of the subject lot in light of the constitutional proscription and the respondent did not at any instance act as the dummy of his father.

On the other hand, the respondent became the owner of Lot No. 418, Ts-308 when he was

granted Miscellaneous Sales Patent No. 7457 on January 3, 1978, by the Secretary of Natural Resources “By Authority of the President of the Philippines,” and when Original Certificate of Title No. P-1064 was correspondingly issued in his name. The grant of the miscellaneous sales patent by the Secretary of Natural Resources, and the corresponding issuance of the original certificate of title in his name, show that the respondent possesses all the qualifications and none of the disqualifications to acquire alienable and disposable lands of the public domain. These issuances bear the presumption of regularity in their performance in the absence of evidence to the contrary. Registration of grants and patents involving public lands is governed by Section 122 of Act No. 496, which was subsequently amended by Section 103 of Presidential Decree No. 1529, viz:

Sec. 103. Certificate of title pursuant to patents.—Whenever public land is by the Government alienated, granted or conveyed to any person, the same shall be brought forthwith under the operation of this Decree. It shall be the duty of the official issuing the instrument of alienation, grant, patent or conveyance in behalf of the Government to cause such instrument to be filed with the Register of Deeds of the province or city where the land lies, and to be there registered like other deeds and conveyance, whereupon a certificate of title shall be entered as in other cases of registered land, and an owner’s duplicate issued to the grantee. The deeds, grant, patent or instrument of conveyance from the Government to the grantee shall not take effect as a conveyance or bind the land, but shall operate only as a contract between

the Government and the grantee and as evidence of authority to the Register of Deeds to make registration. It is the act of registration that shall be the operative act to affect and convey the land, and in all cases under this Decree registration shall be made in the office of the Register of Deeds of the province or city where the land lies. The fees for registration shall be paid by the grantee. After due registration and issuance of the certificate of title, such land shall be deemed to be registered land to all intents and purposes under this Decree.[16] (Emphasis supplied)

Under the law, a certificate of title issued pursuant to any grant or patent involving public land is as conclusive and indefeasible as any other certificate of title issued to private lands in the ordinary or cadastral registration proceeding. The effect of the registration of a patent and the issuance of a certificate of title to the patentee is to vest in him an incontestable title to the land, in the same manner as if ownership had been determined by final decree of the court, and the title so issued is absolutely conclusive and indisputable, and is not subject to collateral attack.[17]

Nonetheless, petitioners invoke equity considerations and claim that the ruling of the RTC that an implied trust was created between respondent and their father with respect to the subject lot should be upheld. This contention must fail because the prohibition against an alien from owning lands of the public domain is absolute and not even an implied trust can be permitted to arise on equity considerations.

In the case of Muller v.  Muller,[18] wherein the respondent, a German national, was seeking reimbursement of funds claimed by him to be given in trust to his petitioner wife, a Philippine citizen, for the purchase of a property in Antipolo, the Court, in rejecting the claim, ruled that:

Respondent was aware of the constitutional prohibition and expressly admitted his knowledge thereof to this Court. He declared that he had the Antipolo property titled in the name of the petitioner because of the said prohibition. His attempt at subsequently asserting or claiming a right on the said property cannot be sustained.

 The Court of Appeals erred in holding that an implied trust was created and 

resulted by operation of law in view of petitioner's marriage to respondent. Save for the exception provided in cases of hereditary succession, respondent's disqualification from owning lands in the Philippines is absolute. Not even an ownership in trust  is allowed.Besides, where the purchase is made in violation of an existing statute and in evasion of its express provision, no trust can result in favor of the party who is guilty of the fraud. To hold otherwise would allow circumvention of the constitutional prohibition.

 Invoking the principle that a court is not only a court of law but also a court of

equity, is likewise misplaced. It has been held that equity as a rule will follow the law

and will not permit that to be done indirectly which, because of public policy, cannot be done directly...[19]

Coming now to the issue of ownership of the properties erected on the subject lot, the Court

agrees with the finding of the trial court, as affirmed by the appellate court, that the series of transactions resorted to by the deceased were simulated in order to preserve the properties in the hands of the family. The records show that during all the time that the properties were allegedly sold to the spouses Victoria Cabasal and Gregorio Fontela in 1958 and the subsequent sale of the same to respondent in 1961, the petitioners and respondent, along with their parents, remained in possession and continued to live in said properties.

However, the trial court concluded that: In fairness to the defendant, although the Deeds of Sale executed by Felix Ting Ho regarding the improvements in favor of Victoria Cabasal and Gregorio Fontela and the subsequent transfer of the same by Gregorio Fontela and Victoria Cabasal to the defendant are all simulated, yet, pursuant to Article 1471 of the New Civil Code it can be assumed that the intention of Felix Ting Ho in such transaction was to give and donate the improvements to his eldest son the defendant Vicente Teng Gui… [20]

Its finding was based on Article 1471 of the Civil Code, which provides that:

Art. 1471. If the price is simulated, the sale is void, but the act may be shown to have been in reality a donation, or some other act or contract.[21]

The Court holds that the reliance of the trial court on the provisions of Article 1471 of the Civil

Code to conclude that the simulated sales were a valid donation to the respondent is misplaced because its finding was based on a mere assumption when the law requires positive proof.

The respondent was unable to show, and the records are bereft of any evidence, that the simulated sales of the properties were intended by the deceased to be a donation to him. Thus, the Court holds that the two-storey residential house, two-storey residential building and sari-sari store form part of the estate of the late spouses Felix Ting Ho and Leonila Cabasal, entitling the petitioners to a four-fifths (4/5) share thereof.

IN VIEW WHEREOF, the petition is DENIED. The assailed Decision dated December 27, 1996 of the Court of Appeals in CA-G.R. CV No. 42993 is hereby AFFIRMED.

SO ORDERED.