SAMONTE v. CA

“The exception to the rule that the Torrens System serves as a notice to the whole world.”

Facts: It is not disputed that Ignacio Atupan caused the fraudulent cancellation of OCT No. RO-238(555). The trial court found that Atupan, on the basis of his “Affidavit of Extra-judicial Settlement and Confirmation Sale,” adjudicated unto himself one-half of Lot 216 by misrepresenting himself as the sole heir of Apolonia Abao. Atupan, in said affidavit, likewise confirmed the two deeds of sale allegedly executed by him and Abao on September 15 and 16, 1939, covering the latter’s one-half lot in favor of Nicolas Jadol.

The trial court found Atupan’s affidavit, dated August 7, 1957, to be tainted with fraud because he falsely claimed therein that he was the sole heir of Abao when in fact, he merely lived and grew up with her. Jadol and his wife, Beatriz, knew about this fact. Despite this knowledge, however, the Jadol spouses still presented the affidavit of Atupan before the Register of Deeds of theProvince of Agusan when they caused the cancellation of OCT No. R0-238(555) and issuance of TCT No. RT-476 in their names covering that portion owned by Abao.

The trial court concluded that the incorporation of the statement in Atupan’s affidavit confirming the alleged execution of the aforesaid deeds of sale was intended solely to facilitate the issuance of the certificate of title in favor of the Jadol spouses. It was noted that the documents evidencing the alleged transactions were not presented in theRegister of Deeds. It was further pointed out that the Jadol spouses only sought the registration of these transactions in 1957, eighteen (18) years after they supposedly took place or twelve (12) years after Abao died.

Based on the foregoing facts, the CA, on appeal, ruled that the cancellation of OCT No. R0-238(555) and the consequent issuance of TCT No. RT-476 in its place in the name of the Jadol spouses were effected through fraudulent means and that they (spouses Jadol) not only had actual knowledge of the fraud but were also guilty of bad faith.[7]

Nonetheless, petitioner contends that respondents’ action in the court a quo had already prescribed. Generally, an action for reconveyance of real property based on fraud may be barred by the statute of limitations which requires that the

action must be commenced within four (4) years from the discovery of fraud, and in case of registered land, such discovery is deemed to have taken place from the date of the registration of title.

Issue: W/N prescription has already set in.

Held: Article 1456 of the Civil Code, however, provides:

Art. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.

As it had been indubitably established that fraud attended the registration of a portion of the subject property, it can be said that the Jadol spouses were trustees thereof on behalf of the surviving heirs of Abao. An action based on implied or constructive trust prescribes in ten (10) years from the time of its creation or upon the alleged fraudulent registration of the property.[9]

Petitioner, as successor-in-interest of the Jadol spouses, now argues that the respondents’ action for reconveyance, filed only in 1975, had long prescribed considering that the Jadol spouses caused the registration of a portion of the subject lot in their names way back in August 8, 1957. It is petitioner’s contention that since eighteen years had already lapsed from the issuance of TCT No. RT-476 until the time when respondents filed the action in the court a quo in 1975, the same was time-barred.

Petitioner’s defense of prescription is untenable. The general rule that the discovery of fraud is deemed to have taken place upon the registration of real property because it is “considered a constructive notice to all persons”[10] does not apply in this case. Instead, the CA correctly applied the ruling in Adille vs. Court of Appeals[11] which is substantially on all fours with the present case.

In Adille, petitioner therein executed a deed of extra-judicial partition misrepresenting himself to be the sole heir of his mother when in fact she had other children. As a consequence, petitioner therein was able to secure title to the land in his name alone. His siblings then filed a case for partition on the ground that said petitioner was only a trustee on an implied trust of the property.

Among the issues resolved by the Court in that case was prescription. Said petitioner registered the property in 1955 and the claim of private respondents therein was presented in 1974.

The Court’s resolution of whether prescription had set in therein is quite apropos to the instant case:

It is true that registration under the Torrens system is constructive notice of title, but it has likewise been our holding that the Torrens titledoes not furnish a shield for fraud. It is therefore no argument to say that the act of registration is equivalent to notice of repudiation, assuming there was one, notwithstanding the long-standing rule that registration operates as a universal notice oftitle.

For the same reason, we cannot dismiss private respondents’ claims commenced in 1974 over the estate registered in 1955. While actions to enforce a constructive trust prescribes in ten years, reckoned from the date of the registration of the property, we, as we said, are not prepared to count the period from such a date in this case. We note the petitioner’s sub rosa efforts to get hold of the property exclusively for himself beginning with his fraudulent misrepresentation in his unilateral affidavit of extrajudicial settlement that he is “the only heir and child of his mother Feliza with the consequence that he was able to secure title in his name [alone].” Accordingly, we hold that the right of the private respondents commenced from the time they actually discovered the petitioner’s act of defraudation. According to the respondent Court of Appeals, they "came to know [of it] apparently only during the progress of the litigation." Hence, prescription is not a bar.[12]

In this case, the CA reckoned the prescriptive period from the time respondents had actually discovered the fraudulent act of Atupan which was, as borne out by the records, only during the trial of Civil Case No. 1672.[13] Citing Adille, the CA rightfully ruled that respondents’ action for reconveyance had not yet prescribed.

MENDEZONA v. OZAMIZ

“A person is not incapacitated mainly because of old age.”

Facts: Carmen Ozamiz is the owner of the disputed property in this case. The Mendezonas claimed

that they bought a certain property in Lahug Cebu from Carmen Ozamiz. This was evidenced by a notarized DOAS and a consideration of P1,040,000.00. This however was rebutted by the other hairs of Carmen Ozamiz. They alleged that Ms. Ozamiz could not have executed such DOAS because she was already very old at the time the DOAS was executed. They alleged that her old age rendered her incapacitated to execute such contract with the Mendezonas.

Issue: W/N old age incapacitates a person to contract with annother party.

Held: Simulation is defined as “the declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce, for the purposes of deception, the appearances of a juridical act which does not exist or is different from what that which was really executed.”[20] The requisites of simulation are: (a) an outward declaration of will different from the will of the parties; (b) the false appearance must have been intended by mutual agreement; and (c) the purpose is to deceive third persons.[21] None of these were clearly shown to exist in the case at bar.

Contrary to the erroneous conclusions of the appellate court, a simulated contract cannot be inferred from the mere non-production of the checks. It was not the burden of the petitioners to prove so. It is significant to note that the Deed of Absolute Sale dated April 28, 1989 is a notarized document duly acknowledged before a notary public. As such, it has in its favor the presumption of regularity, and it carries the evidentiary weight conferred upon it with respect to its due execution. It is admissible in evidence without further proof of its authenticity and is entitled to full faith and credit upon its face.[22]

Payment is not merely presumed from the fact that the notarized Deed of Absolute Sale dated April 28, 1989 has gone through the regular procedure as evidenced by the transfer certificates of title issued in petitioners’ names by the Register of Deeds. In other words, whosoever alleges the fraud or invalidity of a notarized document has the burden of proving the same by evidence that is clear, convincing, and more than merely preponderant.[23] Therefore, with this well-recognized statutory presumption, the burden fell upon the respondents to prove their allegations attacking the validity and due execution of the said Deed of Absolute Sale. Respondents failed to discharge that burden; hence, the presumption in

favor of the said deed stands. But more importantly, that notarized deed shows on its face that the consideration of One Million Forty Thousand Pesos (P1,040,000.00) was acknowledged to have been received by Carmen Ozamiz.

Simulation cannot be inferred from the alleged absence of payment based on the testimonies of Concepcion Agac-ac, assistant of Carmen Ozamiz, and Nelfa Perdido, part-time bookkeeper of Carmen Ozamiz. The testimonies of these two (2) witnesses are unreliable and inconsistent.

While Concepcion Agac-ac testified that she was aware of all the transactions of Carmen Ozamiz, she also admitted that not all income of Carmen Ozamiz passed through her since Antonio Mendezona, as appointed administrator, directly reported to Carmen Ozamiz.[24] With respect to Nelfa Perdido, she testified that most of the transactions that she recorded refer only to rental income and expenses, and the amounts thereof were reported to her by Concepcion Agac-ac only, not by Carmen Ozamiz. She does not record deposits or withdrawals in the bank accounts of Carmen Ozamiz.[25] Their testimonies hardly deserve any credit and, hence, the appellate court misplaced reliance thereon.

Considering that Carmen Ozamiz acknowledged, on the face of the notarized deed, that she received the consideration at One Million Forty Thousand Pesos (P1,040,000.00), the appellate court should not have placed too much emphasis on the checks, the presentation of which is not really necessary. Besides, the burden to prove alleged non-payment of the consideration of the sale was on the respondents, not on the petitioners. Also, between its conclusion based on inconsistent oral testimonies and a duly notarized document that enjoys presumption of regularity, the appellate court should have given more weight to the latter. Spoken words could be notoriously unreliable as against a written document that speaks a uniform language.[26]

Furthermore, the appellate court erred in ruling that at the time of the execution of the Deed of Absolute Sale on April 28, 1989 the mental faculties of Carmen Ozamiz were already seriously impaired.[27] It placed too much reliance upon the testimonies of the respondents’ witnesses. However, after a thorough scrutiny of the

transcripts of the testimonies of the witnesses, we find that the respondents’ core witnesses all made sweeping statements which failed to show the true state of mind of Carmen Ozamiz at the time of the execution of the disputed document. The testimonies of the respondents’ witnesses on the mental capacity of Carmen Ozamiz are far from being clear and convincing, to say the least.

Carolina Lagura, a househelper of Carmen Ozamiz, testified that when Carmen Ozamiz was confronted by Paz O. Montalvan in January 1989 with the sale of the Lahug property, Carmen Ozamiz denied the same. She testified that Carmen Ozamiz understood the question then.[28] However, this declaration is inconsistent with her (Carolina’s) statement that since 1988 Carmen Ozamiz could not fully understand the things around her, that she was physically fit but mentally could not carry a conversation or recognize persons who visited her.[29] Furthermore, the disputed sale occurred on April 28, 1989 or three (3) months after this alleged confrontation in January 1989. This inconsistency was not explained by the respondents.

The revelation of Dr. Faith Go did not also shed light on the mental capacity of Carmen Ozamiz on the relevant day - April 28, 1989 when the Deed of Absolute Sale was executed and notarized. At best, she merely revealed that Carmen Ozamiz was suffering from certain infirmities in her body and at times, she was forgetful, but there was no categorical statement that Carmen Ozamiz succumbed to what the respondents suggest as her alleged “second childhood” as early as 1987. The petitioners’ rebuttal witness, Dr. William Buot, a doctor of neurology, testified that no conclusion of mental incapacity at the time the said deed was executed can be inferred from Dr. Faith Go’s clinical notes nor can such fact be deduced from the mere prescription of a medication for episodic memory loss.

It has been held that a person is not incapacitated to contract merely because of advanced years or by reason of physical infirmities. Only when such age or infirmities impair her mental faculties to such extent as to prevent her from properly, intelligently, and fairly protecting her property rights, is she considered incapacitated.The respondents utterly failed to show adequate proof that at the time of the sale on April 28, 1989 Carmen Ozamiz had allegedly lost control of her mental faculties.

We note that the respondents sought to impugn only one document, namely, the Deed of Absolute Sale dated April 28, 1989, executed by Carmen Ozamiz. However, there are nine (9) other important documents that were, signed by Carmen Ozamiz either before or after April 28, 1989 which were not assailed by the respondents.[31] Such is contrary to their assertion of complete incapacity of Carmen Ozamiz to handle her affairs since 1987. We agree with the trial court’s assessment that “it is unfair for the [respondents] to claim soundness of mind of Carmen Ozamiz when it benefits them and otherwise when it disadvantages them.”[32] A person is presumed to be of sound mind at any particular time and the condition is presumed to continue to exist, in the absence of proof to the contrary.[33] Competency and freedom from undue influence, shown to have existed in the other acts done or contracts executed, are presumed to continue until the contrary is shown.[34]

FAMANILA v. CA

Facts: Roberto G. Famanila was hired as Messman[4] for Hansa Riga. On June 21, 1990, while Hansa Riga was docked at the port of Eureka, California, U.S.A. and while petitioner was assisting in the loading operations, the latter complained of a headache. Petitioner experienced dizziness and he subsequently collapsed. Upon examination, it was determined that he had a sudden attack of left cerebral hemorrhage from a ruptured cerebral aneurysm.[5] Petitioner underwent a brain operation and he was confined at the Emmanuel Hospital in Portland,Oregon, U.S.A. On July 19, 1990, he underwent a second brain operation. Owing to petitioner’s physical and mental condition, he was repatriated to the Philippines. On August 21, 1990, he was examined at the American Hospital in Intramuros, Manila where the examining physician, Dr. Patricia Abesamis declared that he “cannot go back to sea duty and has been observed for 120 days, he is being declared permanently, totally disabled.”[6] Thereafter, authorized representatives of the respondents convinced him to settle his claim amicably by accepting the amount of US$13,200.[7] Petitioner accepted the offer as evidenced by his signature in the Receipt and Release dated February 28, 1991.[8] His wife, Gloria Famanila and one Richard Famanila, acted

as witnesses in the signing of the release.Thereafter, he filed with the NLRC a complaint for an award of disability benefits. From the NLRC to the CA, his claim was denied.

Issue: W/N there was a vitiation of consent.

Held: A vitiated consent does not make a contract void and unenforceable. A vitiated consent only gives rise to a voidable agreement. Under the Civil Code, the vices of consent are mistake, violence, intimidation, undue influence or fraud.[16] If consent is given through any of the aforementioned vices of consent, the contract is voidable.[17] A voidable contract is binding unless annulled by a proper action in court.[18]

Petitioner contends that his permanent and total disability vitiated his consent to the Receipt and Release thereby rendering it void and unenforceable. However, disability is not among the factors that may vitiate consent. Besides, save for petitioner’s self-serving allegations, there is no proof on record that his consent was vitiated on account of his disability. In the absence of such proof of vitiated consent, the validity of the Receipt and Release must be upheld. We agree with the findings of the Court of Appeals that:

In the case at bar, there is nothing in the records to show that petitioner’s consent was vitiated when he signed the agreement. Granting that petitioner has not fully recovered his health at the time he signed the subject document, the same cannot still lead to the conclusion that he did not voluntar[il]y accept the agreement, for his wife and another relative witnessed his signing.

Moreover, the document entitled receipt and release which was attached by petitioner in his appeal does not show on its face any violation of law or public policy. In fact, petitioner did not present any proof to show that the consideration for the same is not

reasonable and acceptable. Absent any evidence to support the same, the Court cannot, on its own accord, decide against the unreasonableness of the consideration.[19]

It is true that quitclaims and waivers are oftentimes frowned upon and are considered as ineffective in barring recovery for the full measure of the

worker’s right and that acceptance of the benefits therefrom does not amount to estoppel.[20] The reason is plain. Employer and employee, obviously do not stand on the same footing.[21] However, not all waivers and quitclaims are invalid as against public policy. If the agreement was voluntarily entered into and represents a reasonable settlement, it is binding on the parties and may not later be disowned simply because of change of mind. It is only where there is clear proof that the waiver was wangled from an unsuspecting or gullible person, or the terms of the settlement are unconscionable on its face, that the law will step in to annul the questionable transaction. But where it is shown that the person making the waiver did so voluntarily, with full understanding of what he was doing, and the consideration for the quitclaim is credible and reasonable, the transaction must be recognized as a valid and binding undertaking,[22] as in this case.

To be valid and effective, waivers must be couched in clear and unequivocal terms, leaving no doubt as to the intention of those giving up a right or a benefit that legally pertains to them.[23] We have reviewed the terms and conditions contained in the Receipt and Release and we find the same to be clear and unambiguous. The signing was even witnessed by petitioner’s wife, Gloria T. Famanila and one Richard T. Famanila.

It is elementary that a contract is perfected by mere consent and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.[25] Further, dire necessity is not an acceptable ground for annulling the Receipt and Release since it has not been shown that petitioner was forced to sign it.[26]

Regarding prescription, the applicable prescriptive period for the money claims against the respondents is the three year period pursuant to Article 291 of the Labor Code which provides that:

ART. 291. Money Claims. – All money claims arising from employer-employee relations accruing during the effectivity of this Code shall be filed within three (3) years from the time the cause of action accrued; otherwise they shall be forever barred.

x x x x

Since petitioner’s demand for an award of disability benefits is a money claim arising from his employment, Article 291 of the Labor Code applies. From the time petitioner was declared permanently and totally disabled on August 21, 1990 which gave rise to his entitlement to disability benefits up to the time that he filed the complaint on June 11, 1997, more than three years have elapsed thereby effectively barring his claim.

CATALAN v. BASA“A person suffering from schizophrenia does not necessarily lose his competence to intelligently dispose his property.”

Facts: On October 20, 1948, FELICIANO CATALAN (Feliciano) was discharged from active military service. The Board of Medical Officers of the Department of Veteran Affairs found that he was unfit to render military service due to his “schizophrenic reaction, catatonic type, which incapacitates him because of flattening of mood and affect, preoccupation with worries, withdrawal, and sparce (sic) and pointless speech.” He allegedly donated to his sister Mercedes his 1/2 share in a parcel of land located in Binmaley, Pangasinan. Mercedes then sold the said property to her two children. BPI thereafter was declared by the court as guardian of Feliciano Catalan. On April 1, 1997, BPI, acting as Feliciano’s guardian, filed a case for Declaration of Nullity of Documents, Recovery of Possession and Ownership,[13] as well as damages against the herein respondents. BPI alleged that the Deed of Absolute Donation to Mercedes was void ab initio, as Feliciano never donated the property to Mercedes. In addition, BPI averred that even if Feliciano had truly intended to give the property to her, the donation would still be void, as he was not of sound mind and was therefore incapable of giving valid consent. Thus, it claimed that if the Deed of Absolute Donation was void ab initio, the subsequent Deed of Absolute Sale to Delia and Jesus Basa should likewise be nullified, for Mercedes Catalan had no right to sell the property to anyone. BPI raised doubts about the authenticity of the deed of sale, saying that its registration long after the death of Mercedes Catalan indicated fraud. Thus, BPI sought remuneration for incurred damages and litigation expenses.

Issue: W/N a schizophrenic person is deemd incapacitated.

Held: A donation is an act of liberality whereby a person disposes gratuitously a thing or right in favor of another, who accepts it.[22] Like any other contract, an agreement of the parties is essential. Consent in contracts presupposes the following requisites: (1) it should be intelligent or with an exact notion of the matter to which it refers; (2) it should be free; and (3) it should be spontaneous.[23] The parties' intention must be clear and the attendance of a vice of consent, like any contract, renders the donation voidable.[24]

In order for donation of property to be valid, what is crucial is the donor’s capacity to give consent at the time of the donation. Certainly, there lies no doubt in the fact that insanity impinges on consent freely given.[25] However, the burden of proving such incapacity rests upon the person who alleges it; if no sufficient proof to this effect is presented, capacity will be presumed.[26]

A thorough perusal of the records of the case at bar indubitably shows that the evidence presented by the petitioners was insufficient to overcome the presumption that Feliciano was competent when he donated the property in question to Mercedes. Petitioners make much ado of the fact that, as early as 1948, Feliciano had been found to be suffering from schizophrenia by the Board of Medical Officers of the Department of Veteran Affairs. By itself, however, the allegation cannot prove the incompetence of Feliciano.

A study of the nature of schizophrenia will show that Feliciano could still be presumed capable of attending to his property rights. Schizophrenia was brought to the attention of the public when, in the late 1800s, Emil Kraepelin, a German psychiatrist, combined “hebrephrenia” and “catatonia” with certain paranoid states and called the condition “dementia praecox.” Eugene Bleuler, a Swiss psychiatrist, modified Kraepelin’s conception in the early 1900s to include cases with a better outlook and in 1911 renamed the condition “schizophrenia.” According to medical references, in persons with schizophrenia, there is a gradual onset of symptoms, with symptoms becoming increasingly bizarre as the disease progresses. The condition improves (remission or residual stage) and worsens (relapses) in cycles. Sometimes, sufferers may appear relatively normal, while other patients in remission may appear strange because

they speak in a monotone, have odd speech habits, appear to have no emotional feelings and are prone to have “ideas of reference.” The latter refers to the idea that random social behaviors are directed against the sufferers.[27] It has been proven that the administration of the correct medicine helps the patient. Antipsychotic medications help bring biochemical imbalances closer to normal in a schizophrenic. Medications reduce delusions, hallucinations and incoherent thoughts and reduce or eliminate chances of relapse.[28] Schizophrenia can result in a dementing illness similar in many aspects to Alzheimer’s disease. However, the illness will wax and wane over many years, with only very slow deterioration of intellect.[29]

From these scientific studies it can be deduced that a person suffering from schizophrenia does not necessarily lose his competence to intelligently dispose his property. By merely alleging the existence of schizophrenia, petitioners failed to show substantial proof that at the date of the donation, June 16, 1951, Feliciano Catalan had lost total control of his mental faculties. Thus, the lower courts correctly held that Feliciano was of sound mind at that time and that this condition continued to exist until proof to the contrary was adduced.[30] Sufficient proof of his infirmity to give consent to contracts was only established when the Court of First Instance of Pangasinan declared him an incompetent on December 22, 1953.[31]

It is interesting to note that the petitioners questioned Feliciano’s capacity at the time he donated the property, yet did not see fit to question his mental competence when he entered into a contract of marriage with Corazon Cerezo or when he executed deeds of donation of his other properties in their favor. The presumption that Feliciano remained competent to execute contracts, despite his illness, is bolstered by the existence of these other contracts. Competency and freedom from undue influence, shown to have existed in the other acts done or contracts executed, are presumed to continue until the contrary is shown.[32]

Needless to state, since the donation was valid, Mercedes had the right to sell the property to whomever she chose.[33] Not a shred of evidence has been presented to prove the claim that Mercedes’ sale of the property to her children was tainted with fraud or falsehood. It is of little bearing that the Deed of Sale was registered

only after the death of Mercedes. What is material is that the sale of the property to Delia and Jesus Basa was legal and binding at the time of its execution. Thus, the property in question belongs to Delia and Jesus Basa.

Finally, we note that the petitioners raised the issue of prescription and laches for the first time on appeal before this Court. It is sufficient for this Court to note that even if the present appeal had prospered, the Deed of Donation was still a voidable, not a void, contract. As such, it remained binding as it was not annulled in a proper action in court within four years.

VILLANUEVA v. CHIONG

Facts: Florentino and Elisera are separated in fact. Sometime in 1985, Florentino verbally sold their conjugal property to the spouses Chiong. Elisera however questioned the sale on July 5, 19991. The spouses Chiong on the other hand averred that the sale of the 1/2 portion of Florentino’s share in the land is valid. Moreover, they insist that the land is not the conjugal property of the spouses.

Issue: (1) Is the subject lot an exclusive property of Florentino or a conjugal property of respondents?

(2) Was its sale by Florentino without Elisera's consent valid?

Held: Anent the first issue, petitioners' contention that the lot belongs exclusively to Florentino because of his separation in fact from his wife, Elisera, at the time of sale dissolved their property relations, is bereft of merit. Respondents' separation in fact neither affected the conjugal nature of the lot nor prejudiced Elisera's interest over it. Under Article 17816 of the Civil Code, the separation in fact between husband and wife without judicial approval shall not affect the conjugal partnership. The lot retains its conjugal nature.

Likewise, under Article 16017 of the Civil Code, all property acquired by the spouses during the marriage is presumed to belong to the conjugal partnership of gains, unless it is proved that it pertains exclusively to the husband or to the wife. Petitioners' mere insistence as to the lot's supposed exclusive nature is insufficient to overcome such presumption when taken against all the evidence for respondents.

On the basis alone of the certificate of title, it cannot be presumed that the lot was acquired during the marriage and that it is conjugal property since it was registered "in the name of Florentino Chiong, Filipino, of legal age, married to Elisera Chiong… ."18 But Elisera also presented a real property tax declaration acknowledging her and Florentino as owners of the lot. In addition, Florentino and Elisera categorically declared in the Memorandum of Agreement they executed that the lot is a conjugal property.19 Moreover, the conjugal nature of the lot was admitted by Florentino in the Deed of Absolute Sale dated May 13, 1992, where he declared his capacity to sell as a co-owner of the subject lot.20

Anent the second issue, the sale by Florentino without Elisera's consent is not, however, void ab initio. In Vda. de Ramones v. Agbayani,21 citing Villaranda v. Villaranda,22 we held that without the wife's consent, the husband's alienation or encumbrance of conjugal property prior to the effectivity of the Family Code on August 3, 1988 is not void, but merely voidable. Articles 166 and 173 of the Civil Code 23 provide:

ART. 166. Unless the wife has been declared a non compos mentis or a spendthrift, or is under civil interdiction or is confined in a leprosarium, the husband cannot alienate or encumber any real property of the conjugal partnership without the wife's consent…

This article shall not apply to property acquired by the conjugal partnership before the effective date of this Code.

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

Applying Article 166, the consent of both Elisera and Florentino is necessary for the sale of a conjugal property to be valid. In this case, the requisite consent of Elisera was not obtained when

Florentino verbally sold the lot in 1985 and executed the Deed of Absolute Sale on May 13, 1992. Accordingly, the contract entered by Florentino is annullable at Elisera's instance, during the marriage and within ten years from the transaction questioned, conformably with Article 173. Fortunately, Elisera timely questioned the sale when she filed Civil Case No. 4383 on July 5, 1991, perfectly within ten years from the date of sale and execution of the deed.

Petitioners finally contend that, assuming arguendo the property is still conjugal, the transaction should not be entirely voided as Florentino had one-half share over the lot. Petitioners' stance lacks merit. In Heirs of Ignacia Aguilar-Reyes v. Mijares 24 citing Bucoy v. Paulino, et al.,25 a case involving the annulment of sale executed by the husband without the consent of the wife, it was held that the alienation must be annulled in its entirety and not only insofar as the share of the wife in the conjugal property is concerned. Although the transaction in the said case was declared void and not merely voidable, the rationale for the annulment of the whole transaction is the same. Thus:

The plain meaning attached to the plain language of the law is that the contract, in its entirety, executed by the husband without the wife's consent, may be annulled by the wife. Had Congress intended to limit such annulment in so far as the contract shall "prejudice" the wife, such limitation should have been spelled out in the statute. It is not the legitimate concern of this Court to recast the law. As Mr. Justice Jose B. L. Reyes of this Court and Judge Ricardo C. Puno of the Court of First Instance correctly stated, "[t]he rule (in the first sentence of Article 173) revokes Baello vs. Villanueva, 54 Phil. 213 and Coque vs. Navas Sioca, 45 Phil. 430," in which cases annulment was held to refer only to the extent of the one-half interest of the wife… .26

Now, if a voidable contract is annulled, the restoration of what has been given is proper.27 Article 1398 of the Civil Code provides:

An obligation having been annulled, the contracting parties shall restore to each other the things which have been the subject matter of the contract, with their fruits, and the price with its interest, except in cases provided by law.

In obligations to render service, the value thereof shall be the basis for damages.

The effect of annulment of the contract is to wipe it out of existence, and to restore the parties, insofar as legally and equitably possible, to their original situation before the contract was entered into.28

Strictly applying Article 1398 to the instant case, petitioners should return to respondents the land with its fruits29and respondent Florentino should return to petitioners the sum of P8,000, which he received as the price of the land, together with interest thereon.

On the matter of fruits and interests, we take into consideration that petitioners have been using the land and have derived benefit from it just as respondent Florentino has used the price of the land in the sum of P8,000. Hence, if, as ordered by the lower court, Florentino is to pay a reasonable amount or legal interest for the use of the money then petitioners should also be required to pay a reasonable amount for the use of the land.30 Under the particular circumstances of this case, however, it would be equitable to consider the two amounts as offsetting each other. Hence, the award of the trial court for the payment of interest should be deleted.

AYSON v. PARAGAS

Facts: An ejectment suit was filed against spouses Paragas by the successors-in-interest of Amado Ll. Ayson, particularly Amado Ayson. The Paragas spouses admitted that they stayed on the premises because of the tolerance of the Aysons. This reached up to the SC where the SC upheld the ejectment suit against the Paragas spouses. Meanwhile, during the pendency of the appeal with the RTC, respondent-spouses filed against petitioner a complaint[13] for declaration of nullity of deed of sale, transactions, documents and titles with a prayer for preliminary injunction and damages. The complaint alleged, inter alia, that respondent Maxima is a co-owner of a parcel of land. Sometime prior to April 13, 1955, respondent Felix, then an employee of the defunct Dagupan Colleges (now University of Pangasinan) failed to account for the amount of P3,000.00. It was agreed that respondent Felix would pay the said amount by installment to the Dagupan Colleges. Pursuant to that agreement, Blas F. Rayos and Amado Ll. Ayson, then both occupying

high positions in the said institution, required respondent-spouses to sign, without explaining to them, a Deed of Absolute Sale on April 13, 1955 over respondent Maxima’s real property under threat that respondent Felix would be incarcerated for misappropriation if they refused to do so. The complaint further alleged that later, respondent-spouses, true to their promise to reimburse the defalcated amount, took pains to pay their obligation in installments regularly deducted from the salaries received by respondent Felix from Dagupan Colleges; that the payments totaled P5,791.69; that notwithstanding the full payment of the obligation, Amado Ll. Ayson and Blas F. Rayos did nothing to cancel the purported Deed of Absolute Sale; and that they were shocked when they received a copy of the complaint for ejectment filed by petitioner.

Issue: W/N there was vitiation of consent on the part of Felix Paragas.

Held: First. With respect to the admissions made by respondent-spouses, through their counsel during the preliminary conference of the ejectment case, it is worthy to note that, as early as the submission of position papers before the MTCC, they already questioned the sale of the subject property to Amado Ll. Ayson and Blas F. Rayos for being fictitious and asserted their ownership over the land, pointing to the fact that respondent Maxima had been living on the land since her birth in 1913 and that they had been in continuous possession thereof since her marriage to respondent Felix in 1944. However, unfortunately for them, the MTCC held them bound by the admissions made by their counsel and decided that petitioner had a better right to possess the property.

Nevertheless, it must be remembered that in ejectment suits the issue to be resolved is merely the physical possession over the property, i.e., possession de factoand not possession de jure, independent of any claim of ownership set forth by the party-litigants.[19] Should the defendant in an ejectment case raise the defense of ownership in his pleadings and the question of possession cannot be resolved without deciding the issue of ownership, the issue of ownership shall be resolved only to determine the issue of possession.[20] The judgment rendered in such an action shall be conclusive only with respect to physical possession and shall in no wise bind the title to the realty or constitute a binding and conclusive adjudication of the merits on the issue of ownership. Therefore, such judgment shall not

bar an action between the same parties respecting the title or ownership over the property,[21] which action was precisely resorted to by respondent-spouses in this case.

Anent the claim that respondent-spouses admitted the series of TCTs issued by reason of the registration of the questioned Deed of Absolute Sale, suffice it to state that records show that they admitted only the existence thereof, not necessarily the validity of their issuance.

Second. The Deed of Absolute Sale is, in reality, an equitable mortgage or a contract of loan secured by a mortgage. The Civil Code enumerates the cases in which a contract, purporting to be a sale, is considered only as a contract of loan secured by a mortgage, viz.:

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:

(1) When the price of the sale with right to repurchase is unusually inadequate;

(2) When the vendor remains in possession as lessee or otherwise;

(3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed;

(4) When the purchaser retains for himself a part of the purchase price;

(5) When the vendor binds himself to pay the taxes on the thing sold;

(6) In any other case where it may be fairly inferred that the real intention of the parties

is that the transaction shall secure the payment of a debt or the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.[22]

Art. 1604. The provisions of article 1602 shall also apply to a contract purporting to be an absolute sale.

In such cases, parol evidence then becomes competent and admissible to prove that the instrument was in truth and in fact given merely as a security for the repayment of a loan; and upon adequate proof of the truth of such allegations, the courts will enforce the agreement or understanding in this regard, in accord with the true intent of the parties at the time the contract was executed, even if the conveyance was accompanied by registration in the name of the transferee and the issuance of a new certificate of title in his name.[23]

In this case, the evidence before the RTC, Branch 42, Dagupan City had established that the possession of the subject property remained with respondent-spouses despite the execution of the Deed of Absolute Sale on April 13, 1955. In fact, testimonies during the trial showed that petitioner and his predecessors never disturbed the possession of respondent-spouses until the filing of the ejectment case on April 12, 1992.[24]

Moreover, the evidence presented by respondent-spouses indubitably reveals that they signed the contract under threat of prosecution, with the view to secure the payment of the P3,000.00 defalcated by respondent Felix. Amado Ll. Ayson and Blas F. Rayos obviously exerted undue influence on Felix taking advantage of the latter’s lack of education and understanding of the legal effects of his signing the deed.

Respondent-spouses have clearly proven that they have already paid the aforesaid amount. That the obligation was paid in installments through salary

deduction over a period of 10 years from the signing of the Deed of Absolute Sale is of no moment. It is safe to assume that this repayment scheme was in the nature of an easy payment plan based on the respondent-spouses’ capacity to pay. Also noteworthy is that the deductions from respondent Felix’s salary amounted to a total of P5,791.69,[25] or almost double the obligation of P3,000.00. Furthermore, it cannot be denied that petitioner failed to adduce countervailing proof that the payments, as evidenced by the volume of receipts, were for some other obligation.

That the realty taxes paid by respondent-spouses was only for their house can be explained by the fact that, until the filing of the ejectment case, respondent Maxima was not aware that the land she co-owned was already partitioned, such that the payments of real estate taxes in her name were limited to the improvement on the land.

An equitable mortgage is a voidable contract. As such, it may be annulled within four (4) years from the time the cause of action accrues. This case, however, not only involves a contract resulting from fraud, but covers a transaction ridden with threat, intimidation, and continuing undue influence which started when petitioner’s adoptive father Amado Ll. Ayson and Blas F. Rayos, Felix’s superiors at Dagupan Colleges, practically bullied respondent-spouses into signing the Deed of Absolute Sale under threat of incarceration. Thus, the four-year period should start from the time the defect in the consent ceases.[26] While at first glance, it would seem that the defect in the consent of respondent-spouses ceased either from the payment of the obligation through salary deduction or from the death of Amado Ll. Ayson and Blas F. Rayos, it is apparent that such defect of consent never ceased up to the time of the signing of the Affidavit on April 8, 1992 when Zareno, acting on behalf of petitioner, caused respondent Felix to be brought to him, and taking advantage of the latter being unlettered, unduly influenced Felix into executing the said Affidavit for a fee of P10,000.00.[27] The complaint praying for the nullity of the Deed of Absolute Sale was filed on October 11, 1993, well within the four-year prescriptive period.

DESTREZA v. ALAROSFacts:

Issue: W/N sufficient evidence warranted the nullification of the deed of sale that the late Riñoza executed in favor of the Destrezas.

Held: At the outset, the ruling of the CA was correct. Indeed, the notarized deed of sale should be admitted as evidence despite the failure of the Notary Public in submitting his notarial report to the notarial section of the RTC Manila. It is the swearing of a person before the Notary Public and the latter’s act of signing and affixing his seal on the deed that is material and not the submission of the notarial report.

Parties who appear before a notary public to have their documents notarized should not be expected to follow up on the submission of the notarial reports. They should not be made to suffer the consequences of the negligence of the Notary Public in following the procedures prescribed by the Notarial Law. Thus, the notarized deed of sale executed by Riñoza is admissible as evidence of the sale of the Utod sugarland to the Destrezas. Furthermore, it will be shown later that the Destrezas did not fabricate the sale of the Utod sugarland as may be suggested by the failure of the Notary Public to submit his notarial report because there are evidence which show that Riñoza really consented to the sale.

The CA, however, made a mistake with regard to the assignment of the burden of proof. No rule requires a party, who relies on a notarized deed of sale for establishing his ownership, to present further evidence of such deed’s genuineness lest the presumption of its due execution be for naught. Under the rules of evidence, “Every instrument duly acknowledged or proved and certified as provided by law, may be presented in evidence without further proof, the certificate of acknowledgment being prima facie evidence of the execution of the instrument or document involved.”[32]

Here, Atty. Crispulo Ducusin notarized the deed of sale that Riñoza acknowledged as his free act and deed on June 17, 1989. By signing and affixing his notarial seal on the deed, Atty. Ducusin converted it from a private document to a public document.[33] As such, the deed of sale is entitled to full faith and credit upon its face. And since Riñoza, the executor of the deed, is already dead, the notarized deed of absolute sale is the best evidence of his consent to the sale of the Utod sugarland to the Destreza spouses. Parenthetically, it is not disputed that the Destrezas immediately

and openly occupied the land right after the sale and continuously cultivated it from then on.

The burden of proof is the duty of a party to present such amount of evidence on the facts in issue as the law deems necessary for the establishment of his claim.[34] Here, since respondents Plazo and Alaras claim, despite the Destrezas’ evidence of title over the property and open possession of it, that grave and serious doubts plague TCT 55396, the burden is on them to prove such claim. Only when they are successful in doing so will the court be justified in nullifying the notarized deed of sale that their father Riñoza executed in favor of the Destrezas.

But more than plausible evidence was required of Plazo and Alaras. An allegation of fraud with regard to the execution of a notarized deed of absolute sale is a grave allegation. It cannot be declared on mere speculations. In fact, to overcome the presumption of regularity and due execution of a notarized deed, there must be clear and convincing evidence showing otherwise. The burden of proof to overcome the presumption lies on the one contesting the same.[35] Without such evidence, the presumption remains undiminished.[36]

The Court’s present task, therefore, is to determine if respondents Plazo and Alaras’ evidence that their father did not sell the subject land to the Destrezas is clear and convincing.

1. Plazo and Alaras point out that Destreza’s acquisition of a copy of TCT 55396 is questionable. Destreza said that he got a copy of the TCT on July 15, 1989 but such TCT was entered into the registry of title only on July 18, 1989. Moreover, Bonuan, the Register of Deeds, testified that he had not yet issued that TCT to the Destrezas because of some lacking documents. He did, however, say that he released a copy of it to ex-mayor Riñoza upon the latter’s request.

These circumstances may appear perplexing but the problem is that they did not touch the validity of the deed of sale. And it does not help that the trial did not really address them. Plazo and Alaras did not confront petitioner Gregorio Destreza regarding these circumstances when he took the witness stand. It would be pure speculation to declare that the Destrezas defrauded Riñoza based solely on them.

At any rate, Section 57 of Presidential Decree No. 1529, the Property Registration Decree, provides that an owner who wants to convey his registered land shall execute and register a deed of conveyance in a form sufficient in law. The Register of Deeds shall then make out in the registration book a new certificate of title to the new owner and shall prepare and deliver to him an owner's duplicate certificate. The Register of Deeds shall note upon the original and duplicate certificate the date of transfer, the volume and page of the registration book in which the new certificate is registered and a reference by number to the last preceding certificate. The original and the owner's duplicate of the grantor's certificate shall be stamped “canceled.”

Here, the supposed irregularity lies in the release of a copy of the title to the Destrezas even before it had been entered into the books of the Register of Deeds. Furthermore, the Destrezas were able to acquire a copy of it when they still needed to submit some registration requirements. But the premature release of a copy of the registered title cannot affect the validity of the contract of sale between Riñoza and the Destrezas. Registration only serves as the operative act to convey or affect the land insofar as third persons are concerned. It does not add anything to the efficacy of the contract of sale between the buyer and the seller. In fact, if a deed is not registered, the deed will continue to operate as a contract between the parties.[37]

Furthermore, the declaration of Bonuan that he furnished ex-mayor Riñoza with a copy of TCT 55396 strengthens the case of the Destrezas. It shows that Riñoza knew of and gave consent to the sale of his Utod sugarland to them considering that he even helped facilitate the registration of the deed of sale. This negates any possible suggestion that the Destrezas merely fabricated the sale of the Utod sugarland on the evidence that the Notary Public failed to submit his notarial report. Whatever irregularity in registration may have been incurred, it did not affect the validity of the sale.

2. Alaras claims that on August 1, 1989, months after the sale of the Utod sugarland to the Destrezas, her father Riñoza asked her to mortgage some land. He gave Alaras the title to it, impressing on her that such title covered a land in Barangay Utod. But this does not prove that the sale of the Utod sugarland to the Destrezas is

void. Alaras admitted that she did not see the number of the title handed to her. Nor did she identify in court any specific title as the one she got. To be of value to her cause, Alaras needed to testify that TCT 40353 remained uncancelled in her father’s hands even after the supposed entry of TCT 55396 in the Registry of Deeds.[38] But she did not so testify.

3. Plazo and Alaras also question the testimony of Gregorio Destreza that he paid P100,000.00 to Riñoza when the figure appearing on the deed of sale was only P60,000.00. Again, this is not sufficient ground to nullify such deed. The fact remains that Riñoza sold his land to the Destrezas under that document and they paid for it. The explanation for the difference in the prices can be explained only by Riñoza and Gregorio Destreza. Unfortunately, Riñoza had died. On the other hand, Plazo and Alaras chose not to confront Destreza regarding that difference when the latter took the witness stand.

In sum, the Court finds the notarized deed of sale that the late Pedro Riñoza executed in favor of the Destrezas valid and binding upon them and their successors-in-interest. It served as authority to the Register of Deeds to register the conveyance of the property and issue a new title in favor of the Destrezas. That the Destrezas occupied and cultivated the land openly for seven years before and after Riñoza’s death negates any scheme to steal the land.

KINGS PROPERTIES INC. v. GALIDO

Facts:

Issue: W/N the DOS is valid.

Held: Validity of the deed of sale to respondent

The contract between the Eniceo heirs and respondent executed on 10 September 1973 was a perfected contract of sale. A contract is perfected once there is consent of the contracting parties on the object certain and on the cause of the obligation.[39] In the present case, the object of the sale is the Antipolo property and the price certain is P250,000.

The contract of sale has also been consummated because the vendors and vendee have performed their respective obligations under the contract. In a contract of sale, the seller obligates himself to transfer the ownership of the determinate thing sold, and to deliver the same to the buyer, who obligates himself to pay a price certain to the seller.[40] The execution of the notarized deed of sale and the delivery of the owner’s duplicate copy of OCT No. 535 to respondent is tantamount to a constructive delivery of the object of the sale. In Navera v. Court of Appeals, the Court ruled that since the sale was made in a public instrument, it was clearly tantamount to a delivery of the land resulting in the symbolic possession thereof being transferred to the buyer.[41]

Petitioner alleges that the deed of sale is a forgery. The Eniceo heirs also claimed in their answer that the deed of sale is fake and spurious.[42] However, as correctly held by the CA, forgery can never be presumed. The party alleging forgery is mandated to prove it with clear and convincing evidence.[43] Whoever alleges forgery has the burden of proving it. In this case, petitioner and the Eniceo heirs failed to discharge this burden.

Petitioner invokes the belated approval by the DENR Secretary, made within 25 years from the issuance of the homestead, to nullify the sale of the Antipolo property. The sale of the Antipolo property cannot be annulled on the ground that the DENR Secretary gave his approval after 21 years from the date the deed of sale in favor of respondent was executed. Section 118 of Commonwealth Act No. 141 or the Public Land Act (CA 141), as amended by Commonwealth Act No. 456,[44] reads:

SEC .118 .EXCEPT IN FAVOR OF THE GOVERNMENT OR

ANY OF ITS BRANCHES ,UNITS ,OR INSTITUTIONS ,

OR LEGALLY CONSTITUTED BANKING CORPORATIONS ,

LANDS ACQUIRED UNDER FREE PATENT OR HOMESTEAD PROVISIONS SHALL NOT BE SUBJECT TO ENCUMBRANCE OR ALIENATION FROM THE

DATE OF THE APPROVAL OF

THE APPLICATION AND FOR A TERM OF FIVE YEARS FROM AND AFTER THE DATE OF THE ISSUANCE OF THE PATENT OR GRANT X X X

No alienation, transfer, or conveyance of any homestead after five years and before twenty-five years after the issuance of title shall be valid without the approval of the Secretary of Agriculture and Natural Resources,[45] which approval shall not be denied except on constitutional and legal grounds.

In Spouses Alfredo v. Spouses Borras,[46] the Court explained the implications of Section 118 of CA 141. Thus:

A grantee or homesteader is prohibited from alienating to a private individual a

land grant within five years from the time that the patent or grant is issued .A

violation of this prohibition renders a sale void .This , however, expires on the

fifth year. From then on until the next 20 years, the land grant may be alienated

provided the Secretary of Agriculture and Natural Resources

approves the alienation. The Secretary is required to approve the

alienation unless there are “constitutional and legal grounds” to deny

the approval. In this case, there are no apparent or legal grounds for the Secretary to disapprove the sale of the Subject Land.

The failure to secure the approval of the Secretary does notipso facto make a sale void .

The absence of approval by the Secretary does nota sale made after the expiration of the

5-year period, for in such event the requirement of Section 118 of the Public Land Act becomes merely directory or a formality. The approval producing the effect of ,may be secured laterdopting the transaction as if the ratifying and a.sale had been previously authorized

VILORIA v. CONTINENTAL AIRLINES

Facts: In 1997, while the spouses Viloria were in the United States, they approached Holiday Travel, a travel agency working for ContinentalAirlines, to purchase tickets from Newark to San Diego. The travel agent, Margaret Mager, advised the couple that they cannot travel by train because it is fully booked; that they must purchase plane tickets forContinental Airlines; that if they won’t purchase plane tickets; they’ll never reach their destination in time. The couple believed Mager’s representations and so they purchased two plane tickets worth $800.00.

Later however, the spouses found out that the train trip isn’t fully booked and so they purchased train tickets and went to their destination by train instead. Then they called up Mager to request for a refund for the plane tickets. Mager referred the couple to ContinentalAirlines. As the couple are now in the Philippines, they filed their request with Continental Airline’s office in Ayala. The spouses Viloria alleged that Mager misled them into believing that the only way to travel was by plane and so they were fooled into buying expensive tickets.

Continental Airlines refused to refund the amount of the ticket and so the spouses sued the airline company. In its defense, ContinentalAirlines claimed that the ticket sold to them by Mager is non-refundable; that, if any, they are not bound by the misrepresentations of Mager because there’s no agency existing between Continental Airlines and Mager.

The trial court ruled in favor of spouses Viloria but the Court of Appeals reversed the ruling of the RTC

Issue:

Held:

I. Even on the assumption that CAI may be held liable for the acts of Mager, still, Spouses

Viloria are not entitled to a refund. Mager’s statement cannot be considered a causal fraudthat would justify the annulment of the subject

contracts that would oblige CAI to indemnify Spouses Viloria and return themoney they paid for the subject

tickets.

On the basis of the foregoing and given the allegation of Spouses Viloria that Fernando’s consent to the subject contracts was supposedly secured by Mager through fraudulent means, it is

plainly apparent that their demand for a refund is tantamount to seeking for an annulment of the subject contracts on the ground of vitiated consent.

Whether the subject contracts are annullable, this Court is required to determine whether Mager’s alleged misrepresentation constitutes causal fraud. Similar to the dispute on the existence of an agency, whether fraud attended the execution of a contract is factual in nature and this Court, as discussed above, may scrutinize the records if the findings of the CA are contrary to those of the RTC

Under Article 1338 of the Civil Code, there is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. In order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract.30 In Samson v. Court of Appeals,31 causal fraud was defined as “a deception employed by one party prior to or simultaneous to the contract in order to secure the consent of the other.”32

Also, fraud must be serious and its existence must be established by clear and convincing evidence. As ruled by this Court in Sierra v. Hon. Court of Appeals, et al.,33

Fraud must also be discounted, for according to the Civil Code:

Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting

parties, the other is induced to enter into a contract which without them, he would not have agreed to.

Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have been

employed by both contracting parties.

To quote Tolentino again, the “misrepresentation constituting the fraud must be established by full, clear, and convincing evidence, and not merely by a preponderance thereof. The deceit must be serious. The fraud is serious when it is sufficient to impress, or to lead an ordinarily prudent person into error; that which cannot deceive a prudent person cannot be a ground for nullity. The circumstances of each case should be considered, taking into account the personal conditions of the victim.”34

After meticulously poring over the records, this Court finds that the fraud alleged by Spouses Viloria has not been satisfactorily established as causal in nature to warrant the annulment of the subject contracts. In fact, Spouses Viloria failed to prove by clear and convincing evidence that Mager’s statement was fraudulent. Specifically, Spouses Viloria failed to prove that (a) there were indeed available seats at Amtrak for a trip to New Jersey on August 13, 1997 at the time they spoke with Mager on July 21, 1997; (b) Mager knew about this; and (c) that she purposely informed them otherwise.

This Court finds the only proof of Mager’s alleged fraud, which is Fernando’s testimony that an Amtrak had assured him of the perennial availability of seats at Amtrak, to be wanting. As CAI correctly pointed out and as Fernando admitted, it was possible that during the intervening period of three (3) weeks from the time Fernando purchased the subject tickets to the time he talked to said Amtrak employee, other passengers may have cancelled their bookings and reservations with Amtrak, making it possible for Amtrak to accommodate

them. Indeed, the existence of fraud cannot be proved by mere speculations and conjectures. Fraud is never lightly inferred; it is good faith that is. Under the Rules of Court, it is presumed that "a person is innocent of crime or wrong" and that "private transactions have been fair and regular."35 Spouses Viloria failed to overcome this presumption.

Even assuming that Mager’s representation is causal fraud, the subject contracts have been impliedly ratified when Spouses Viloria decided to exercise their right to use the subject tickets for the purchase of new ones. Under Article 1392 of the Civil Code, “ratification extinguishes the action to annul a voidable contract.”

Ratification of a voidable contract is defined under Article 1393 of the Civil Code as follows:

Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right.

Implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom.36

Simultaneous with their demand for a refund on the ground of Fernando’s vitiated consent, Spouses Viloria likewise asked for a refund based on CAI’s supposed bad faith in reneging on its undertaking to replace the subject tickets with a round trip ticket from Manila to Los Angeles.

In doing so, Spouses Viloria are actually asking for a rescission of the subject contracts based on contractual breach. Resolution, the action referred to in Article 1191, is based on the defendant’s breach of faith, a violation of the

reciprocity between the parties37 and in Solar Harvest, Inc. v. Davao Corrugated Carton Corporation,38this Court ruled that a claim for a reimbursement in view of the other party’s failure to comply with his obligations under the contract is one for rescission or resolution.

However, annulment under Article 1390 of the Civil Code and rescission under Article 1191 are two (2) inconsistent remedies. In resolution, all the elements to make the contract valid are present; in annulment, one of the essential elements to a formation of a contract, which is consent, is absent. In resolution, the defect is in the consummation stage of the contract when the parties are in the process of performing their respective obligations; in annulment, the defect is already present at the time of the negotiation and perfection stages of the contract. Accordingly, by pursuing the remedy of rescission under Article 1191, the Vilorias had impliedly admitted the validity of the subject contracts, forfeiting their right to demand their annulment. A party cannot rely on the contract and claim rights or obligations under it and at the same time impugn its existence or validity. Indeed, litigants are enjoined from taking inconsistent positions.39

Considering that the subject contracts are not annullable on the ground of vitiated consent, the next question is: “Do Spouses Viloria have the right to rescind the contract on the ground of CAI’s supposed breach of its undertaking to issue new tickets upon surrender of the subject tickets?”

Article 1191, as presently worded, states:

The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfilment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the

latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.

According to Spouses Viloria, CAI acted in bad faith and breached the subject contracts when it refused to apply the value of Lourdes’ ticket for Fernando’s purchase of a round trip ticket to Los Angeles and in requiring him to pay an amount higher than the price fixed by other airline companies.

In its March 24, 1998 letter, CAI stated that “non-refundable tickets may be used as a form of payment toward the purchase of another Continental ticket for $75.00, per ticket, reissue fee ($50.00, per ticket, for tickets purchased prior to October 30, 1997).”

Clearly, there is nothing in the above-quoted section of CAI’s letter from which the restriction on the non-transferability of the subject tickets can be inferred. In fact, the words used by CAI in its letter supports the position of Spouses Viloria, that each of them can use the ticket under their name for the purchase of new tickets whether for themselves or for some other person.

Moreover, as CAI admitted, it was only when Fernando had expressed his interest to use the subject tickets for the purchase of a round trip ticket between Manila and Los Angeles that he was informed that he cannot use the ticket in Lourdes’ name as payment.

Contrary to CAI’s claim, that the subject tickets are non-transferable cannot be implied from a plain reading of the provision printed on the subject tickets stating that “[t]o the extent not in conflict with the foregoing carriage and other services performed by each carrier are subject to:

(a) provisions contained in this ticket, x x x (iii) carrier’s conditions of carriage and related regulations which are made part hereof (and are available on application at the offices of carrier) x x x.” As a common carrier whose business is imbued with public interest, the exercise of extraordinary diligence requires CAI to inform Spouses Viloria, or all of its passengers for that matter, of all the terms and conditions governing their contract of carriage. CAI is proscribed from taking advantage of any ambiguity in the contract of carriage to impute knowledge on its passengers of and demand compliance with a certain condition or undertaking that is not clearly stipulated. Since the prohibition on transferability is not written on the face of the subject tickets and CAI failed to inform Spouses Viloria thereof, CAI cannotrefuse to apply the value of Lourdes’ ticket as payment for Fernando’s purchase of a new ticket.

Nonetheless, the right to rescind a contract for non-performance of its stipulations is not absolute. The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental violations as would defeat the very object of the parties in making the agreement.40Whether a breach is substantial is largely determined by the attendant circumstances.41

While CAI’s refusal to allow Fernando to use the value of Lourdes’ ticket as payment for the purchase of a new ticket is unjustified as the non-transferability of the subject tickets was not clearly stipulated, it cannot, however be considered substantial. The endorsability of the subject tickets is not an essential part of the underlying contracts and CAI’s failure to comply is not essential to its fulfillment of its undertaking to issue new tickets upon Spouses Viloria’s surrender of the subject tickets. This Court takes note of CAI’s willingness to perform its principal obligation and this is to apply the price of the ticket in Fernando’s name to the price of the round trip ticket between Manila and Los Angeles. CAI was likewise willing to accept the ticket in Lourdes’ name as full or partial payment as the case may be for the purchase of any ticket, albeit under her name and for her exclusive use. In other words, CAI’s willingness to comply with its undertaking under its March 24, 1998 cannot be doubted, albeit tainted with its erroneous insistence that Lourdes’ ticket is non-transferable.

Moreover, Spouses Viloria’s demand for rescission cannot prosper as CAI cannot be solely faulted for the fact that their agreement failed to consummate and no new ticket was issued to Fernando. Spouses Viloria have no right to insist that a single round trip ticket between Manila and Los Angeles should be priced at around $856.00 and refuse to pay the difference between the price of the subject tickets and the amount fixed by CAI. The petitioners failed to allege, much less prove, that CAI had obliged itself to issue to them tickets for any flight anywhere in the world upon their surrender of the subject tickets. In its March 24, 1998 letter, it was clearly stated that “[n]on-refundable tickets may be used as a form of payment toward the purchase of another Continental ticket”42 and there is nothing in it suggesting that CAI had obliged itself to protect Spouses Viloria from any fluctuation in the prices of tickets or that the surrender of the subject tickets will be considered as full payment for any ticket that the petitioners intend to buy regardless of actual price and destination. The CA was correct in holding that it is CAI’s right and exclusive prerogative to fix the prices for its services and it may not be compelled to observe and maintain the prices of other airline companies.43

The conflict as to the endorsability of the subject tickets is an altogether different matter, which does not preclude CAI from fixing the price of a round trip ticket between Manila and Los Angeles in an amount it deems proper and which does not provide Spouses Viloria an excuse not to pay such price, albeit subject to a reduction coming from the value of the subject tickets. It cannot be denied that Spouses Viloria had the concomitant obligation to pay whatever is not covered by the value of the subject tickets whether or not the subject tickets are transferable or not.

There is also no showing that Spouses Viloria were discriminated against in bad faith by being charged with a higher rate. The only evidence the petitioners presented to prove that the price of a round trip ticket between Manila and Los Angeles at that time was only $856.00 is a newspaper advertisement for another airline company, which is inadmissible for being “hearsay evidence, twice removed.” Newspaper clippings are hearsay if they were offered for the purpose of proving the truth of the matter alleged. As ruled in Feria v. Court of Appeals,:44

[N]ewspaper articles amount to “hearsay evidence, twice removed” and are therefore not only inadmissible but without any probative value at all whether objected to or not,unless offered for a purpose other than proving the truth of the matter asserted. In this case, the news article is admissible only as evidence that such publication does exist with the tenor of the news therein stated.45

The records of this case demonstrate that both parties were equally in default; hence, none of them can seek judicial redress for the cancellation or resolution of the subject contracts and they are therefore bound to their respective obligations thereunder. As the 1st sentence of Article 1192 provides:

Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages.

Therefore, CAI’s liability for damages for its refusal to accept Lourdes’ ticket for the purchase of Fernando’s round trip ticket is offset by Spouses Viloria’s liability for their refusal to pay the amount, which is not covered by the subject tickets. Moreover, the contract between them remains, hence, CAI is duty bound to issue new tickets for a destination chosen by Spouses Viloria upon their surrender of the subject tickets and Spouses Viloria are obliged to pay whatever amount is not covered by the value of the subject tickets.

This Court made a similar ruling in Central Bank of the Philippines v. Court of Appeals.46 Thus:

Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings Bank

failed to comply with its obligation to furnish the entire loan and Sulpicio M.

Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for damages.

Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not paying his overdue P17,000.00 debt. x x x.47

Another consideration that militates against the propriety of holding CAI liable for moral damages is the absence of a showing that the latter acted fraudulently and in bad faith. Article 2220 of the Civil Code requires evidence of bad faith and fraud and moral damages are generally not recoverable in culpa contractual except when bad faith had been proven.48 The award of exemplary damages is likewise not warranted. Apart from the requirement that the defendant acted in a wanton, oppressive and malevolent manner, the claimant must prove his entitlement to moral damages.49