Republic of the Philippines

SUPREME COURT
Manila

EN BANC

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

ARISTON ANDAYA, ET AL., plaintiffs-appellees,

vs.
DR. MELENCIO MANANSALA, defendant-appellant.

Constante R. Ayson for appellees.

Jose V. Manansala for appellant.

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

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

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

On June 13, 1934, one Isidro Fenis sold the land in question to Eustaquia Llanes, with right of repurchase within a period of
five years. After the expiry of said period, and without repurchasing the said property, Isidro Fenis sold it again to Maria Viloria
on January 13, 1944. Seven months later, or on August 21, 1914, Maria Viloria sold by way of sale with right to repurchase
within a period of one year, the said property together with another parcel of land to the herein defendant Melencio Manansala.
On August 1, 1946, upon the expiry of the said period, Manansala registered with the Register of Deeds an affidavit
consolidating his title on the property. A year later, or on September 28, 1947, Maria Viloria sold by way of absolute sale the
same property to Ciriaco Casiño, Fidela Valdez, and the plaintiff spouses Ariston Andaya and Micaela Cabrito, for P4,800.00,
which deed contained the following stipulation:

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

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

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

In the meantime, on September 28, 1948, Eustaquia Llanes, included as co-defendant in Civil Case No. 399, Melencio
Manansala (Annex C), and on September 2, 1950, as additional defendants, Fidela Valdez and the spouses Ariston Andaya
and Micaela Cabrito (Annex D). The said defendant filed a joint answer to the second amended complaint, claiming title on
said property on the basis of the conveyance made in favor of Manansala, and from the latter to the other defendants.
Judgment was rendered in that case in favor of Eustaquia Llanes, and on October 17, 1955, the said judgment having become
final, a writ of execution was issued against Ciriaco Casino, Fidela Valdez, Ariston Andaya and Micaela Cabrito. In the
enforcement of said writ, the properties of Fidela Valdez were attached and sold at public auction to cover the damages,
representing the value of the produce of the land, amounting to P676.00, costs of the suit in the amount of P33.20, or a total of
P709.20 (Annex H-1).

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

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

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

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

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

There is merit in the appeal.

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

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

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

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

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

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

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

Paras, C.J., Bengzon, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia and Gutierrez David, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-12973 April 25, 1960

VICENTE BARENG, petitioner,

vs.
THE HONORABLE COURT OF APPEALS, PATROCINIO ALEGRIA and AGUSTIN RUIZ, respondents.

Carlos P. Bareng for petitioner.

Ruiz, Ruiz, Ruiz and Ruiz for respondents.

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

Appeal by certiorari from that portion of the judgment of the Court of Appeals in C.A.-G.R. No. 12496-R sentencing petitioner Vicente
Bareng to pay respondent Patrocinio Alegria, in addition to the amount of P3,600 representing his indebtedness to the latter, "sus
intereses legales desde la presentacion de esta demanda".

The facts, insofar as material to this appeal, may be summarized as follows:

On November 29, 1951, petitioner Bareng purchased from respondent Alegria the cinematographic equipment installed at the Pioneer
(now Rosamil) Theater in Laoag, Ilocos Norte, for the sum of P15,000, P10,000 of which was paid, and for the balance, Bareng signed
four promissory notes falling due on the following dates: P1,000 on December 15, 1951; P1,500 on February 15, 1952; P1,500 on
March 15, 1952; and P1,000 on April, 1952.

The first promissory note was duly paid by petitioner. On February 12, 1952, shortly before the second note fell due, the other
respondent Agustin Ruiz informed petitioner that he was a co-owner of the equipment in question, and several days thereafter, Ruiz
sent petitioner a telegram instructing him to suspend payments to Alegria of the balance of the price as he was not agreeable to the
sale. On the same day, Alegria sought to collect upon the second note, but petitioner refused to pay on account of Ruiz's claims. Only
P400 was paid on the second note and thereafter, petitioner refused to make any more payments to Alegria until the latter had settled
his dispute with Ruiz.

On March 31, 1952, Ruiz filed suit against Alegria and petitioner Bareng (Civil Case No. 1527) for his share in the price of the cinema
equipment in question. On May 21, 1952, Alegria and Ruiz reached a compromise in the case, wherein the former recognized the latter
as co-owner of the equipment sold to petitioner, and promised to pay him 2/3 of whatever amount he could recover from the latter.
Whereupon, on May 28, 1952. Alegria sued Bareng for the amount of P13,500 allegedly representing the unpaid balance of the price of
said equipment. Bareng answered the complaint, alleging that only P3,600 had not been paid on the price of the equipment in question,
prayed for the rescission of the sale for supposed violation by Alegria of certain express warranties as to the quality of the equipment,
and asked for payment of damages for alleged violation of Alegria's warranty of title. After a joint trial of the two cases, the lower court,
rendered judgment declaring Alegria and Ruiz co-owners of the cinema equipment in question in Civil Case No. 1527; and dismissing
Civil Case No. 1554, without prejudice to the co-owners' filing another action against petitioner Bareng for the balance of the price of
said equipment. On appeal to the Court of Appeals by both parties, the decision of the court a quo was reversed and instead, Bareng
was ordered in Civil Case No. 1554 to pay Alegria the sum of P3,600 plus legal interest from the filing of the complaint; and in Civil
Case No. 1527, Alegria was ordered to pay Ruiz 2/3 of the total amount he would recover from Bareng in Civil Case No. 1554. Not
agreeable to that part of the decision making him liable for legal interests on the principal amount due to Alegria, Bareng, as already
stated, appealed to this Court.

Petitioner Bareng claims he is not liable to pay interests to Alegria because he was justified in suspending payment of the balance of
the price of the equipment in question from the time he learned of Ruiz' adverse claims over said equipment. In fact, Bareng adds, even
the Court of Appeals found that "bajo dichas circunstancias, la actitud del demandado Vicente Bareng de suspender el pago de aquel
saldo de P3,600.00 estuvo justificado".

The right of a vendee to suspend payment of the price of the thing sold in the face of any danger that he might be disturbed in its
possession of ownership is conferred by Article 1590, New Civil Code, to wit:

ART. 1590. Should the vendee he disturbed in the possession or ownership of the thing acquired, or should he have
reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may suspend the
payment of the price until the vendor has caused the disturbance or danger to cease, unless the latter gives security for the
return of the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee shall be
bound to make the payment. A mere act of trespass shall not authorize the suspension of the payment of the price.
There is no question that, as found by the Court of Appeals, petitioner Bareng had the right to suspend payment of the balance of the
price of the cinema equipment in question to his vendor, respondent Alegria, from the time he was informed by Ruiz of the latter's
claims of co-ownership thereof, especially upon his receipt of Ruiz' telegram wherein the latter asserted that he was not agreeable to
the sale. Nevertheless, said right of Bareng ended as soon as "the vendor has caused the disturbance or danger to cease". In this
case, respondent Alegria had caused the disturbance or danger to petitioner's ownership or possession to cease when he (Alegria)
reached a compromise with Ruiz in Civil Case No. 1527 whereby Ruiz expressed his conformity to the sale to Bareng, subject to the
payment of his share in the price by Alegria. Petitioner Bareng cannot claim that he was not aware of this compromise agreement
between the two owners, because he was a party-defendant in Civil Case No. 1527. From the time Alegria and Ruiz reached this
settlement, there was no longer any danger of threat to Bareng's ownership and full enjoyment of the equipment he bought from
Alegria. And it was by virtue of this settlement that Alegria, two days later, sued petitioner for the unpaid balance of the price of said
equipment. In his answer to Alegria's complaint, petitioner admitted his indebtedness to Alegria in the amount of P3,600, yet he did not
tender payment of said amount nor did he deposit the same in court, but instead sought to have the sale rescinded upon claims of
violations of warranties by Alegria, that the Court of Appeals found not to have been proved or established. It is clear, therefore, that
petitioner Bareng was in default on the unpaid balance of the price of the equipment in question from the date of the filing of the
complaint by Alegria, and under Article 2209 of the Civil Code, he must pay legal interests thereon from said date.

Petitioner also argues that his indebtedness to respondent Alegria was unliquidated until its amount was determined by the Court of
Appeals at P3,000.00, and that consequently, he cannot be made answerable for interests on the amount due before judgment in the
Court of Appeals. The argument is completely untenable. The price of the equipment in question under petitioner and Alegria's contract
of sale was determined and known, hence, liquidated; and the obligation to pay any unpaid balance thereof did not cease to be
liquidated and determined simply because vendor and vendee, in the suit for collection, disagreed as to its amount. If petitioner had
wanted to free himself from any responsibility for interests on the amount he had always acknowledged he still owed his vendor, he
should have deposited the same in Court at the very start of the action.

As for the other errors raised by petitioner in his brief, we need hot consider them because they were not raised in the petition for
review considered waived.

Wherefore, the decision appealed from is affirmed in toto, with costs against petitioner Vicente Bareng.

Paras, C. J., Bengzon, Padilla, Montemayor, Bautista, Angelo, Labrador, Concepcion and David, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-25885 January 31, 1972

LUZON BROKERAGE CO., INC., plaintiff-appellee,

vs.
MARITIME BUILDING CO., INC., and MYERS BUILDING CO., INC., defendants, MARITIME BUILDING CO., INC., defendant-
appellant.

Ross, Salcedo, Del Rosario, Bito and Misa for plaintiff-appellee.

C. R. Tiongson and L. V. Simbulan and Araneta, Mendoza and Papa for defendant Myers Building Co., Inc.

Ambrosio Padilla Law Offices for defendant-appellant Maritima Building Co., Inc.

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

Direct appeal (prior to the effectivity of Republic Act 5440) by Maritime Building Co., Inc. from a decision of the Court of First Instance of
Manila (in its Civil Case No. 47319), the dispositive part of which provides as follows:

FOR ALL THE FOREGOING CONSIDERATIONS, judgment is hereby rendered declaring that the Myers Building
Co., Inc. is entitled to receive the rentals which the plaintiff has been paying, including those already deposited in
Court, thereby relieving the plaintiff of any obligation to pay the same to any other party, and ordering the Maritime
Building Co., Inc. to pay the commission fees paid by the Myers Building Co., Inc. to the Clerk of this Court, plus the
sum of P3,000.00 as and for attorney's fees.

On the cross-claim by the Myers Building Co., Inc., the Maritima Building Co., Inc. is hereby ordered to pay the Myers
Building Co., Inc. the sum of P10,000.00 damages, plus the sum of P30,000.00, representing rentals wrongfully
collected by it from the plaintiff corresponding to the months of March, April and May, 1961 and the costs hereof.

The antecedents of the litigation are summarized in the appealed judgment thus:

This is an action for interpleading.

It appears that on April 30, 1949, in the City of Manila, the defendant Myers Building Co., Inc., owner of three parcels
of land in the City of Manila, together with the improvements thereon, entered into a contract entitled "Deed of
Conditional Sale" in favor of Bary Building Co., Inc., later known as Maritime Building Co., Inc., whereby the former
sold the same to the latter for P1,000,000.00, Philippine currency. P50,000.00 of this price was paid upon the
execution of the said contract and the parties agreed that the balance of P950,000.00 was to be paid in monthly
installments at the rate of P10,000.00 with interest of 5% per annum until the same was fully paid.

In Par. (O), they agreed that in case of failure on the part of the vendee to pay any of the installments due and
payable, the contract shall be annulled at the option of the vendor and all payments already made by vendee shall be
forfeited and the vendor shall have right to re-enter the property and take possession thereof.

Later, the monthly installment of P10,000.00 above-stipulated with 5% interest per annum was amended or
decreased to P5,000.00 per month and the interest was raised to 5-1/2% per annum. The monthly installments under
the contract was regularly paid by the Bary Building Co., Inc. and/or the Maritime Co., Inc. until the end of February,
1961. It failed to pay the monthly installment corresponding to the month of March 1961, for which the Vice-President,
George Schedler, of the Maritime Building Co., Inc., wrote a letter to the President of Myers, Mr. C. Parsons,
requesting for a moratorium on the monthly payment of the installments until the end of the year 1961, for the reason
that the said company was encountering difficulties in connection with the operation of the warehouse business.
However, Mr. C. Parsons, in behalf of the Myers Estate, answered that the monthly payments due were not payable
to the Myers Estate but to the Myers Building Co., Inc., and that the Board of Directors of the Myers Co., Inc. refused
to grant the request for moratorium for suspension of payments under any condition.
 Notwithstanding the denial of this request for moratorium by the Myers Board of Directors the Maritime Building Co.,
Inc. failed to pay the monthly installments corresponding to the months of March, April and May, 1961. Whereupon,
on May 16, 1961, the Myers Building Co., Inc. made a demand upon the Maritime Building Co., Inc., for the payment
of the installments that had become due and payable, which letter, however, was returned unclaimed.

Then, on June 5, 1961, the Myers Building Co., Inc. wrote the Maritime Building Co., Inc. another letter advising it of
the cancellation of the Deed of Conditional Sale entered into between them and demanding the return of the
possession of the properties and holding the Maritime Building Co., Inc. liable for use and occupation of the said
properties at P10,000.00 monthly.

In the meantime, the Myers Building Co., Inc. demanded upon the Luzon Brokerage Co., Inc. to whom the Maritime
Building Co., Inc. leased the properties, the payment of monthly rentals of P10,000.00 and the surrender of the same
to it. As a consequence, the Luzon Brokerage Co., Inc. found itself in a payment to the wrong party, filed this action
for interpleader against the Maritime Building Co., Inc.

After the filing of this action, the Myers Building Co., Inc. in its answer filed a cross-claim against the Maritime
Building Co., Inc. praying for the confirmation of its right to cancel the said contract. In the meantime, the contract
between the Maritime Building Co., Inc. and the Luzon Brokerage Co., Inc. was extended by mutual agreement for a
period of four (4) more years, from April, 1964 to March 31, 1968.

The Maritime Building Co., Inc. now contends (1) that the Myers Building Co., Inc. cannot cancel the contract entered
into by them for the conditional sale of the properties in question extrajudicially and (2) that it had not failed to pay the
monthly installments due under the contract and, therefore, is not guilty of having violated the same.

It should be further elucidated that the suspension by the appellant Maritime Building Co., Inc. (hereinafter called Maritime) of the
payment of installments due from it to appellee Myers Building Co., Inc. (hereinafter designated as Myers Corporation) arose from an
award of backwages made by the Court of Industrial Relations in favor of members of Luzon Labor Union who served the Fil-American
forces in Bataan in early 1942 at the instance of the employer Luzon Brokerage Co. and for which F. H. Myers, former majority
stockholder of the Luzon Brokerage Co., had allegedly promised to indemnify E. M. Schedler (who controlled Maritime) when the latter
purchased Myers' stock in the Brokerage Company. Schedler contended that he was being sued for the backpay award of some
P325,000, when it was a liability of Myers, or of the latter's estate upon his death. In his letter to Myers Corporation (Exhibit "11",
Maritime) dated 7 April 1961 (two months and ten days before the initial complaint in the case at bar), Schedler claimed the following:

At all times when the F. H. Myers Estate was open in the Philippine Islands and open in San Francisco, the Myers
Estate or heirs assumed the defense of the Labor Union claims and led us to believe that they would indemnify us
therefrom.

Recently, however, for the first time, and after both the Philippine and San Francisco F. H. Myers Estates were
closed, we have been notified that the F. H. Myers indemnity on the Labor Union case will not be honored, and in fact
Mrs. Schedler and I have been sued in the Philippines by my successor in interest, Mr. Wentholt, and have been put
to considerable expense.

You are advised that my wife and I, as the owners of the Maritime Building Company, intend to withhold any further
payments to Myers Building Company or Estate, in order that we can preserve those funds and assets to set off
against the potential liability to which I am now exposed by the failure of the Myers heirs to honor the indemnity
agreement pertaining to the Labor claims.

The trial court found the position of Schedler indefensible, and that Maritime, by its failure to pay, committed a breach of the sale
contract; that Myers Company, from and after the breach, became entitled to terminate the contract, to forfeit the installments paid, as
well as to repossess, and collect the rentals of, the building from its lessee, Luzon Brokerage Co., in view of the terms of the conditional
contract of sale stipulating that:

(d) It is hereby agreed, covenanted and stipulated by and between the parties hereto that the Vendor will execute and
deliver to the Vendee a definite or absolute deed of sale upon the full payment by the vendee of the unpaid balance
of the purchase price hereinabove stipulated; that should the Vendee fail to pay any of the monthly installments,
when due, or otherwise fail to comply with any of the terms and conditions herein stipulated, then this Deed of
Conditional Sale shall automatically and without any further formality, become null and void, and all sums so paid by
the Vendee by reason thereof, shall be considered as rentals and the Vendor shall then and there be free to enter
into the premises, take possession thereof or sell the properties to any other party.

xxx xxx xxx

(o) In case the Vendee fails to make payment or payments, or any part thereof, as herein provided, or fails to perform
any of the covenants or agreements hereof, this contract shall, at the option of the Vendor, be annulled and, in such
event, all payments made by the Vendee to the Vendor by virtue of this contract shall be forfeited and retained by the
 Vendor in full satisfaction of the liquidated damages by said Vendor sustained; and the said Vendor shall have the
right to forthwith re-enter, and take possession of, the premises subject-matter of this contract.

"The remedy of forfeiture stated in the next-preceding paragraph shall not be exclusive of any other remedy, but the
Vendor shall have every other remedy granted it by virtue of this contract, by law, and by equity."

From the judgment of the court below, the dispositive portion whereof has been transcribed at the start of this opinion, Myers duly
appealed to this Court.

The main issue posed by appellant is that there has been no breach of contract by Maritime; and assuming that there was one, that the
appellee Myers was not entitled to rescind or resolve the contract without recoursing to judicial process.

It is difficult to understand how appellant Maritime can seriously contend that its failure or refusal to pay the P5,000 monthly installments
corresponding to the months of March, April and May, 1961 did not constitute a breach of contract with Myers, when said agreement
(transcribed in the Record on Appeal, pages 59-71) expressly stipulated that the balance of the purchase price (P950,000) —

shall be paid at the rate of Ten Thousand Pesos (P10,000) monthly on or before the 10th day of each month with
interest at 5% per annum, this amount to be first applied on the interest, and the balance paid to the principal thereof;
and the failure to pay any installment or interest when due shall ipso facto cause the whole unpaid balance of the
principal and interest to be and become immediately due and payable. (Contract, paragraph b; Record on Appeal,
page 63)

Contrary to appellant Maritime's averments, the default was not made in good faith. The text of the letter to Myers (Exhibit "11",
Maritime), heretofore quoted, leaves no doubt that the non-payment of the installments was the result of a deliberate course of action
on the part of appellant, designed to coerce the appellee Myers Corporation into answering for an alleged promise of the late F. H.
MYERS to indemnify E. W. Schedler, the controlling stock-holder of appellant, for any payments to be made to the members of the
Luzon Labor Union. This is apparent also from appellant's letter to his counsel (Exhibit "12", Maritime):

... I do not wish to deposit pesos representing the months of March, April and May, since the Myers refusal to honor
the indemnity concerning the labor claims has caused me to disburse (sic) roughly $10,000.00 to date in fees, cost
and travel expenses. However, if the Myers people will deposit in trust with Mr. C. Parsons 25,000 pesos to cover my
costs to date, I will then deposit with Mr. Parsons, in trust, 15,000 pesos for March, April and May and will also post a
monthly deposit of 5,000 pesos until the dispute is settled. The dispute won't be settled in my mind, unless and until:

a) The Myers people indemnify me fully the labor cases;

b) The labor cases are terminated favorably to Luzon Brokerage and no liability exists;

c) The Myers people pay any judgment entered on the labor cases thereby releasing me; or

d) It is finally determined either in San Francisco or in the Philippines by a court that the Myers heirs must honor the
indemnity which Mr. F. H. Myers promised when I purchased Luzon Brokerage Company.

Yet appellant Maritime (assuming that it had validly acquired the claims of its president and controlling stockholder, E. M. Schedler)
could not ignore the fact that whatever obligation F. H. Myers or his estate had assumed in favor of Schedler with respect to the Luzon
Brokerage labor case was not, and could not have been, an obligation of appellee corporation (Myers Building Company). No proof
exists that the board of directors of the Myers Corporation had agreed to assume responsibility for the debts (if any) that the late Myers
or his heirs had incurred in favor of Schedler. Not only this, but it is apparent from the letters quoted heretofore that Schedler had
allowed the estate proceedings of the late F. M. Myers to close without providing for any contingent liability in Schedler's favor; so that
by offsetting the alleged debt of Myers to him, against the balance of the price due under the "Deed of Conditional Sale", appellant
Maritime was in fact attempting to burden the Myers Building Company with an uncollectible debt, since enforcement thereof against
the estate of F. H. Myers was already barred.

Under the circumstances, the action of Maritime in suspending payments to Myers Corporation was a breach of contract tainted with
fraud or malice (dolo), as distinguished from mere negligence (culpa), "dolo" being succinctly defined as a "conscious and intentional
design to evade the normal fulfillment of existing obligations" (Capistrano, Civil Code of the Philippines, Vol. 3, page 38), and therefore
incompatible with good faith (Castan, Derecho Civil, 7th Ed., Vol. 3, page 129; Diaz Pairo, Teoria de Obligaciones, Vol. 1, page 116).

Maritime having acted in bad faith, it was not entitled to ask the court to give it further time to make payment and thereby erase the
default or breach that it had deliberately incurred. Thus the lower court committed no error in refusing to extend the periods for
payment. To do otherwise would be to sanction a deliberate and reiterated infringement of the contractual obligations incurred by
Maritime, an attitude repugnant to the stability and obligatory force of contracts.
From another point of view, it is irrelevant whether appellant Maritime's infringement of its contract was casual or serious, for as pointed
out by this Court in Manuel vs. Rodriguez, 109 Phil. 1, at page 10 —

The contention of plaintiff-appellant that Payatas Subdivision Inc. had no right to cancel the contract as there was
only a "casual breach" is likewise untenable. In contracts to sell, where ownership is retained by the seller and is not
to pass until the full payment of the price, such payment, as we said, is a positive suspensive condition, the failure of
which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey
title from acquiring binding force, in accordance with Article 1117 of the Old Civil Code. To argue that there was only
a casual breach is to proceed from the assumption that the contract is one of absolute sale, where non-payment is a
resolutory condition, which is not the case.

But it is argued for Maritime that even if it had really violated the Contract of Conditional Sale with Myers, the latter could not
extrajudicially rescind or resolve the contract, but must first recourse to the courts. While recognizing that paragraph (d) of the deed of
conditional sale expressly provides inter alia —

that should the Vendee fail to pay any of the monthly installments when due, or otherwise fail to comply with any of
the terms and conditions herein stipulated, then this Deed of Conditional Sale shall automatically and without any
further formality, become null and void, and all sums so paid by the Vendee by reason thereof shall be considered as
rentals.. (Emphasis supplied)

herein appellant Maritime avers that paragraph (e) of the deed contemplates that a suit should be brought in court for a judicial
declaration of rescission. The paragraph relied upon by Maritime is couched in the following, terms:

(e) It is also hereby agreed, covenanted and stipulated by and between the parties hereto that should the Vendor
rescind this Deed of Conditional Sale, for any of the reasons stipulated in the preceding paragraph, the Vendee by
these presents obligates itself to peacefully deliver the properties subject of this contract to the Vendor, and in the
event that the Vendee refuses to peacefully deliver the possession of the properties subject of this contract to the
Vendor in case of rescission, and a suit should be brought in court by the Vendor to seek judicial declaration of
rescission and take possession of the properties subject of this contract, the Vendee hereby obligates itself to pay all
the expenses to be incurred by reason of such suit and in addition obligates itself to pay the sum of P10,000.00, in
concept of damages, penalty and attorney's fees.

Correlation of this paragraph (e) with the preceding paragraph (d) of the Deed of Conditional Sale (quoted in page 5 of this opinion)
reveals no incompatibility between the two; and the suit to "be brought in Court by the Vendor to seek judicial declaration of rescission"
is provided for by paragraph(e) only in the eventuality that, notwithstanding the automatic annulment of the deed under paragraph (d),
the Vendee "refuses to peacefully deliver the possession of the properties subject of this contract". The step contemplated is logical
since the Vendor can not, by himself, dispossess the Vendee manu militari, if the latter should refuse to vacate despite the violation of
the contract, since no party can take the law in his own hands. But the bringing of such an action in no way contradicts or restricts the
automatic termination of the contract in case the Vendee (i.e., appellant Maritime) should not comply with the agreement.

Anyway, this Court has repeatedly held that —

Well settled is, however, the rule that a judicial action for the rescission of a contract is not necessary where the
contract provides that it may be revoked and cancelled for violation of any of its terms and conditions" (Lopez vs.
Commissioner of Customs, L-28235, 30 January 1971, 37 SCRA 327, 334,, and cases cited therein). 1 (Emphasis
supplied.)

Resort to judicial action for rescission is obviously not contemplated.... The validity of the stipulation can not be
seriously disputed. It is in the nature of a facultative resolutory condition which in many cases has been upheld by this
Court. (Ponce Enrile vs. Court of Appeals, L-27549, 30 Sept. 1969; 29 SCRA 504).

The obvious remedy of the party opposing the rescission for any reason being to file the corresponding action to question the rescission
and enforce the agreement, as indicated in our decision in University of the Philippines vs. Walfrido de los Angeles,
L-28602, 29 September 1970, 35 SCRA 107.

Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account of
infractions by the other contracting party must be made known to the other and is always provisional, being ever
subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to
resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing,
decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in
the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.

In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly,
without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding
court that will conclusively and finally settle whether the action taken was or was not correct in law. But the law
 definitely does not require that the contracting party who believes itself injured must first file suit and wait for a
judgment before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will
have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of
rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages
(Civil Code, Article 2203).

Maritime likewise invokes Article 1592 of the Civil Code of the Philippines as entitling it to pay despite its default:

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 a notarial act. After the demand, the court may not grant him a new term.

Assuming arguendo that Article 1592 is applicable, the cross-claim filed by Myers against Maritime in the court below constituted a
judicial demand for rescission that satisfies the requirements of said article.

But even if it were not so, appellant overlooks that its contract with appellee Myers is not the ordinary sale envisaged by Article 1592,
transferring ownership simultaneously with the delivery of the real property sold, but one in which the vendor retained ownership of the
immovable object of the sale, merely undertaking to convey it provided the buyer strictly complied with the terms of the contract (see
paragraph [d], ante, page 5). In suing to recover possession of the building from Maritime, appellee Myers is not after the resolution or
setting aside of the contract and the restoration of the parties to the status quo ante, as contemplated by Article 1592, but precisely
enforcing the provisions of the agreement that it is no longer obligated to part with the ownership or possession of the property because
Maritime failed to comply with the specified condition precedent, which is to pay the installments as they fell due.

The distinction between contracts of sale and contract to sell with reserved title has been recognized by this Court in repeated
decisions2 upholding the power of promisors under contracts to sell in case of failure of the other party to complete payment, to
extrajudicially terminate the operation of the contract, refuse conveyance and retain the sums or installments already received, where
such rights are expressly provided for, as in the case at bar.

Maritime's appeal that it would be iniquituous that it should be compelled to forfeit the P973,000 already paid to Myers, as a result of its
failure to make good a balance of only P319,300.65, payable at P5,000 monthly, becomes unimpressive when it is considered that
while obligated to pay the price of one million pesos at P5,000 monthly, plus interest, Maritime, on the other hand, had leased the
building to Luzon Brokerage, Inc. since 1949; and Luzon paid P13,000 a month rent, from September, 1951 to August 1956, and
thereafter until 1961, at P10,000 a month, thus paying a total of around one and a half million pesos in rentals to Maritime. Even adding
to Maritime's losses of P973,000 the P10,000 damages and P3,000 attorneys' fees awarded by the trial court, it is undeniable that
appellant Maritime has come out of the entire transaction still at a profit to itself.

There remains the procedural objection raised by appellant Maritime to this interpleader action filed by the Luzon Brokerage Co., the
lessee of the building conditionally sold by Myers to Maritime. It should be recalled that when Maritime defaulted in its payments to
Myers, and the latter notified the former that it was cancelling the contract of conditional sale, Myers also notified Luzon Brokerage,
Maritime's lessee of the building, of the cancellation of the sale, and demanded that Luzon should pay to Myers the rentals of the
building beginning from June, 1961, under penalty of ejectment (Record on Appeal, pages 14-15). In doubt as to who was entitled to
the rentals, Luzon filed this action for interpleader against Myers and Maritime, and deposited the rentals in court as they fell due. The
appellant Maritime moved to dismiss on the ground that (a) Luzon could not entertain doubts as to whom the rentals should be paid
since Luzon had leased the building from Maritime since 1949, renewing the contract from time to time, and Myers had no right to
cancel the lease; and (b) that Luzon was not a disinterested party, since it tended to favor appellee Myers. The court below overruled
Maritime's objections and We see no plausible reason to overturn the order. While Myers was not a party to the lease, its cancellation of
the conditional sale of the premises to Maritime, Luzon's lessor, could not but raise reasonable doubts as to the continuation of the
lease, for the termination of the lessor's right of possession of the premises necessarily ended its right to the rentals falling due
thereafter. The preceding portion of our opinion is conclusive that Luzon's doubts were grounded under the law and the jurisprudence
of this Court.

No adequate proof exists that Luzon was favoring any one of the contending parties. It was interested in being protected against
prejudice deriving from the result of the controversy, regardless of who should win. For the purpose it was simpler for Luzon to compel
the disputants to litigate between themselves, rather than chance being sued by Myers, and later being compelled to proceed against
Maritime to recoup its losses. In any event, Maritime ultimately confirmed the act of Luzon in suing for interpleader, by agreeing to
renew Luzon's lease in 1963 during the pendency of the present action, and authorizing Luzon to continue depositing the rentals in
court "until otherwise directed by a court of competent jurisdiction" (Exhibit "18-Maritime"). The procedural objection has thus become
moot.

PREMISES CONSIDERED, the appealed decision should be, and hereby is, affirmed, and appellant Maritime Building Co., as well as
appellee Luzon Brokerage Co., are further ordered to surrender the premises to the appellee Myers Building Co. Costs against
appellant.

Concepcion, C.J., Makalintal, Zaldivar, Castro, Teehankee, Barredo, Villamor and Makasiar, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 119777 October 23, 1997

THE HEIRS OF PEDRO ESCANLAR, FRANCISCO HOLGADO and the SPOUSES DR. EDWIN A. JAYME and ELISA TAN-
JAYME, petitioners,
vs.
THE HON. COURT OF APPEALS, GENEROSA MARTINEZ, CARMEN CARI-AN, RODOLFO CARI-AN, NELLY CHUA CARI-AN, for
herself and as guardian ad litem of her minor son, LEONELL C. CARI-AN, FREDISMINDA CARI-AN, the SPOUSES PAQUITO
CHUA and NEY SARROSA-CHUA and THE REGISTER OF DEEDS OF NEGROS OCCIDENTAL, respondents.

G.R. No. 120690 October 23, 1997

FRANCISCO HOLGADO and HRS. OF PEDRO ESCANLAR, namely BERNARDO, FELY, SONIA, LILY, DYESEBEL and NOEMI all
surnamed ESCANLAR, petitioners,
vs.
HON. COURT OF APPEALS, GENEROSA MARTINEZ, CARMEN CARI-AN, RODOLFO CARI-AN, NELLY CHUA CARI-AN, for
herself and as guardian ad litem of her minor son, LEONELL C. CARI-AN, and SP. PAQUITO CHUA and NEY SARROSA CHUA
and REGISTER OF DEEDS OF NEGROS OCCIDENTAL, respondents.

ROMERO, J.:

Before us are consolidated petitions for review of the decision of the Court of Appeals in CA-G.R. CV No. 39975 which affirmed the trial
court's pronouncement that the deed of sale of rights, interests and participation in favor of petitioners is null and void.

The case arose from the following facts:

Spouses Guillermo Nombre and Victoriana Cari-an died without issue in 1924 and 1938, respectively. Nombre's heirs include his
nephews and grandnephews. Victoriana Cari-an was succeeded by her late brother's son, Gregorio Cari-an. The latter was declared as
Victoriana's heir in the estate proceedings for Nombre and his wife (Special Proceeding No. 7-7279).1 After Gregorio died in 1971, his
wife, Generosa Martinez, and children, Rodolfo, Carmen, Leonardo and Fredisminda, all surnamed Cari-an, were also adjudged as
heirs by representation to Victoriana's estate.2 Leonardo Cari-an passed away, leaving his widow, Nelly Chua vda. de Cari-an and
minor son Leonell, as his heirs.

Two parcels of land, denominated as Lot No. 1616 and 1617 of the Kabankalan Cadastre with an area of 29,350 square meters and
460,948 square meters, respectively, formed part of the estate of Nombre and Cari-an.

On September 15, 1978, Gregorio Cari-an's heirs, herein collectively referred to as private respondents Cari-an, executed the Deed of
Sale of Rights, Interests and Participation worded as follows:

NOW, THEREFORE, for and in consideration of the sum of TWO HUNDRED SEVENTY-FIVE THOUSAND (P275,000.00)
Pesos, Philippine Currency, to be paid by the VENDEES to the VENDORS, except the share of the minor child of Leonardo
Cari-an, which should be deposited with the Municipal Treasurer of Himamaylan, Province of Negros Occidental, by the order
of the Court of First Instance of Negros Occidental, Branch VI, Himamaylan, by those presents, do hereby SELL, CEDE,
TRANSFER and CONVEY by way of ABSOLUTE SALE, all the RIGHTS, INTERESTS and PARTICIPATION of the Vendors
as to the one-half (1/2) portion pro-indiviso of Lots Nos. 1616 and 1617 (Fishpond), of the Kabankalan Cadastre, pertaining to
the one-half (1/2) portion pro-indiviso of late Victoriana Cari-an unto and in favor of the Vendees, their heirs, successors and
assigns;

xxx xxx xxx

That this Contract of Sale of rights, interests and participations shall become effective only upon the approval by the
Honorable Court of First Instance of Negros Occidental, Branch VI- Himamayla. (Emphasis supplied.)
Pedro Escanlar and Francisco Holgado, the vendees, were concurrently the lessees of the lots referred to above.3 They stipulated that
the balance of the purchase price (P225,000.00) shall be paid on or before May 1979 in a Deed of Agreement executed by the parties
on the same day:

WHEREAS, at the time of the signing of the Contract, VENDEES has (sic) only FIFTY THOUSAND (P50,000.00) Pesos
available thereof, and was not able to secure the entire amount;

WHEREAS, the Vendors and one of the Vendees by the name of Pedro Escanlar are relatives, and absolute faith and trust
exist between them, wherein during economic crisis, has not failed to give monetary succor to the Vendors;

WHEREAS, Vendors herein understood the present scarcity of securing available each (sic) in the amount stated in the
contract;

NOW THEREFORE, for and in consideration of the sum of FIFTY THOUSAND (P50,000.00) Pesos, Philippine Currency, the
balance of TWO HUNDRED TWENTY FIVE THOUSAND (P25,000.00) Pesos to be paid by the Vendees on or before May,
1979, the Vendors herein, by these Presents, do hereby CONFIRM and AFFIRM the Deed of Sale of the Rights, Interests and
Participation dated September 15, 1978, over Lots Nos. 1616 and 1617 (fishpond) of the Kabankalan Cadastre in favor of the
VENDEES, their heirs and assigns.

That pending the complete payment thereof, Vendees shall not assign, sell, lease, nor mortgage the lights, interests and
participation thereof;

That in the event the Vendees fail and/or omit to pay the balance of said purchase price on May 31, 1979 and the cancellation
of said Contract of Sale is made thereby, the sum of FIFTY THOUSAND (P50,000.00) Pesos shall be deemed as damages
thereof to Vendors. (Emphasis supplied).4

Petitioners were unable to pay the Cari-an heirs' individual shares, amounting to P55,000.00 each, by the due date. However, said
heirs received at least 12 installments from petitioners after May 1979. 5 Rodolfo Cari-an was fully paid by June 21, 1979. Generosa
Martinez, Carmen Cari-an and Fredisminda Cari-an were likewise fully compensated for their individual shares, per receipts given in
evidence.6 The minor Leonell's share was deposited with the Regional Trial Court on September 7, 1982. 7

Being former lessees, petitioners continued in possession of Lot Nos. 1616 and 1617. Interestingly, they continued to pay rent based on
their lease contract. On September 10, 1981, petitioners moved to intervene in the probate proceedings of Nombre and Cari-an as the
buyers of private respondent Cari-an's share in Lot Nos. 1616 and 1617. Petitioners' motion for approval of the September 15, 1978
sale before the same court, filed on November 10, 1981, was opposed by private respondents Cari-an on January 5, 1982.8

On September 16, 1982, the probate court approved a motion filed by the heirs of Cari-an and Nombre to sell their respective shares in
the estate. On September 21, 1982, private respondents Cari-an, in addition to some heirs of Guillermo Nombre, 9 sold their shares in
eight parcels of land including Lot Nos. 1616 and 1617 to the spouses Ney Sarrosa Chua and Paquito Chua for P1,850,000.00. One
week later, the vendor-heirs, including private respondents Cari-an, filed a motion for approval of sale of hereditary rights, i.e. the sale
made on September 21, 1982 to the Chuas.

Private respondents Cari-an instituted this case for cancellation of sale against petitioners (Escanlar and Holgado) on November 3,
1982. 10 They complained of petitioners' failure to pay the balance of the purchase price by May 31, 1979 and alleged that they only
received a total of P132,551.00 in cash and goods. Petitioners replied that the Cari-ans, having been paid, had no right to resell the
subject lots; that the Chuas were purchasers in bad faith; and that the court approval of the sale to the Chuas was subject to their
existing claim over said properties.

On April 20, 1983, petitioners also sold their rights and interests in the subject parcels of land (Lot Nos. 1616 and 1617) to Edwin
Jayme for P735,000.0011 and turned over possession of both lots to the latter. The Jaymes in turn, were included in the civil case as
fourth-party defendants.

On December 3, 1984, the probate court approved the September 21, 1982 sale "without prejudice to whatever rights, claims and
interests over any of those properties of the estate which cannot be properly and legally ventilated and resolved by the court in the
same intestate proceedings."12 The certificates of title over the eight lots sold by the heirs of Nombre and Cari-an were later issued in
the name of respondents Ney Sarrosa Chua and Paquito Chua.

The trial court allowed a third-party complaint against the third-party defendants Paquito and Ney Chua on January 7, 1986 where
Escanlar and Holgado alleged that the Cari-ans conspired with the Chuas when they executed the second sale on September 21, 1982
and that the latter sale is illegal and of no effect. Respondents Chua countered that they did not know of the earlier sale of one-half
portion of the subject lots to Escanlar and Holgado. Both parties claimed damages. 13
On April 28, 1988, the trial court approved the Chuas' motion to file a fourth-party complaint against the spouses Jayme. Respondents
Chua alleged that the Jaymes refused to vacate said lots despite repeated demands; and that by reason of the illegal occupation of Lot
Nos. 1616 and 1617 by the Jaymes, they suffered materially from uncollected rentals.

Meanwhile, the Regional Trial Court of Himamaylan which took cognizance of Special Proceeding No. 7-7279 (Intestate Estate of
Guillermo Nombre and Victoriana Cari-an) had rendered its decision on October 30,
1987.14 The probate court concluded that since all the properties of the estate were disposed of or sold by the declared heirs of both
spouses, the case is considered terminated and the intestate estate of Guillermo Nombre and Victoriana Cari-an is closed. The court
held:

As regards the various incidents of this case, the Court finds no cogent reason to resolve them since the very object of the
various incidents in this case is no longer m existence, that is to say, the properties of the estate of Guillermo Nombre and
Victoriana Cari-an had long been disposed of by the rightful heirs of Guillermo Nombre and Victoriana Cari-an. In this respect,
there is no need to resolve the Motion for Subrogation of Movants Pedro Escanlar and Francisco Holgado to be subrogated to
the rights of the heirs of Victoriana Cari-an since all the properties of the estate had been transferred and titled to in the name
of spouses Ney S. Chua and Dr. Paquito Chua. Since the nature of the proceedings in this case is summary, this Court, being
a Probate Court, has no jurisdiction to pass upon the validity or invalidity of the sale of rights of the declared heirs of Guillermo
Nombre and Victoriana Cari-an to third Parties. This issue must be raised in another action where it can be properly ventilated
and resolved. . . . Having determined, after exhausted (sic) and lengthy hearings, the rightful heirs of Guillermo Nombre and
Victoriana Cari-an, the Court found out that the second issue has become moot and academic considering that there are no
more properties left to be partitioned among the declared heirs as that had long ago been disposed of by the declared heirs . .
. . (Emphasis supplied).

The seminal case at bar was resolved by the trial court on December 18, 1991 in favor of cancellation of the September 15, 1978 sale.
Said transaction was nullified because it was not approved by the probate court as required by the contested deed of sale of rights,
interests and participation and because the Cari-ans were not fully paid. Consequently, the Deed of Sale executed by the heirs of
Nombre and Cari-an in favor of Paquito and Ney Chua, which was approved by the probate court, was upheld. The dispositive portion
of the lower court's decision reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1) Declaring the following contracts null and void and of no effect:

a) The Deed of Sale, dated Sept. 15, 1978, executed by the plaintiffs in favor of the defendants Pedro
Escanlar and Francisco Holgado (Exh. "A," Plaintiffs)

b) The Deed of Agreement, dated Sept. 15, 1978, executed by the plaintiffs in favor of the defendants,
Pedro Escanlar and Francisco Holgado (Exh. "A," Plaintiffs)

c) The Deed of Sale, dated April 20, 1983, executed by the defendants in favor of the fourth-party
defendants, Dr. Edwin Jayme and Elisa Tan Jayme

d) The sale of leasehold rights executed by the defendants in favor of the fourth-party defendants

2) Declaring the amount of Fifty Thousand Pesos (P50,000.00) paid by the defendants to the plaintiffs in connection with the
Sept. 15, 1978 deed of sale, as forfeited in favor of the plaintiffs, but ordering the plaintiffs to return to the defendants whatever
amounts they have received from the latter after May 3, 1979 and the amount of Thirty Five Thousand Two Hundred Eighteen
& 75/100 (P35,218.75) 15 deposited with the Treasurer of Himamaylan, Negros Occidental, for the minor Leonell C. Cari-an —

3) Declaring the deed of sale, dated September 23, 1982, executed by Lasaro Nombre, Victorio Madalag, Domingo
Campillanos, Sofronio Campillanos, Generosa Vda. de Martinez, Carmen Cari-an, Rodolfo Cari-an, Nelly Chua Vda. de Cari-
an, for herself and as guardian ad litem of the minor Leonell C. Cari-an, and Fredisminda Cari-an in favor of the third-party
defendants and fourth-party plaintiffs, spouses Dr. Paquito Chua and Ney Sarrosa Chua (Exh. "2"-Chua) as legal, valid and
enforceable provided that the properties covered by the said deed of sale are subject of the burdens of the estate, if the same
have not been paid yet.

4) Ordering the defendants Francisco Holgado and Pedro Escanlar and the fourth-party defendants, spouses Dr. Edwin Jayme
and Elisa Tan Jayme, to pay jointly and severally the amount of One Hundred Thousand Pesos (P100,000.00 as moral
damages and the further sum of Thirty Thousand Pesos (P30,000.00) as attorney's fees to the third-party defendant spouses,
Dr. Paquito Chua and Ney Sarrosa-Chua.

5) Ordering the fourth-party defendant spouses, Dr. Edwin Jayme and Elisa Tan Jayme, to pay to the third-party defendants
and fourth-party plaintiffs, spouses Dr. Paquito Chua and Ney Sarrosa-Chua, the sum of One Hundred Fifty Seven Thousand
Pesos (P157,000.00) as rentals for the riceland and Three Million Two Hundred Thousand Pesos (P3,200,000.00) as rentals
 for the fishpond from October, 1985 to July 24, 1989 plus the rentals from the latter date until the property shall have been
delivered to the spouses Dr. Paquito Chua and Ney Sarrosa-Chua;

6) Ordering the defendants and the fourth-party defendants to immediately vacate Lots Nos. 1616 and 1617, Kabankalan
Cadastre;

7) Ordering the defendants and the fourth-party defendants to pay costs.

SO ORDERED.16

Petitioners raised the case to the Court of Appeals.17 Respondent court affirmed the decision of the trial court on February 17, 1995 and
held that the questioned deed of sale of rights, interests and participation is a contract to sell because it shall become effective only
upon approval by the probate court and upon full payment of the purchase price. 18

Petitioners' motion for reconsideration was denied by respondent court on April 3, 1995.19 Hence, these petitions.20

1. We disagree with the Court of Appeals' conclusion that the September 15, 1978 Deed of Sale of Rights, Interests and Participation is
a contract to sell and not one of sale.

The distinction between contracts of sale and contracts to sell with reserved title has been recognized by this Court in repeated
decisions, according to Justice J.B.L. Reyes in Luzon Brokerage Co. Inc. v. Maritime Building Co., Inc.,21 upholding the power of
promisors under contracts to sell in case of failure of the other party to complete payment, to extrajudicially terminate the operation of
the contract, refuse the conveyance, and retain the sums of installments already received where such rights are expressly provided for.

In contracts to sell, ownership is retained by the seller and is not to pass until the full payment of the price. Such payment is a positive
suspensive condition, the failure of which is not a breach of contract but simply an event that prevented the obligation of the vendor to
convey title from acquiring binding force.22 To illustrate, although a deed of conditional sale is denominated as such, absent a proviso
that title to the property sold is reserved in the vendor until full payment of the purchase price nor a stipulation giving the vendor the
right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period, by its nature, it shall be declared a
deed of absolute sale.23

The September 15, 1978 sale of rights, interests and participation as to 1/2 portion pro indiviso of the two subject lots is a contract of
sale for the following reasons: First, private respondents as sellers did not reserve unto themselves the ownership of the property until
full payment of the unpaid balance of P225,000.00. Second, there is no stipulation giving the sellers the right to unilaterally rescind the
contract the moment the buyer fails to pay within the fixed period. 24 Prior to the sale, petitioners were in possession of the subject
property as lessees. Upon sale to them of the rights, interests and participation as to the 1/2 portion pro indiviso, they remained in
possession, not in concept of lessees anymore but as owners now through symbolic delivery known as traditio brevi manu.25 Under
Article 1477 of the Civil Code, the ownership of the thing sold is acquired by the vendee upon actual or constructive delivery thereof.26

In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time, existed
and discharges the obligations created thereunder. The remedy of an unpaid seller in a contract of sale is to seek either specific
performance or rescission.27

2. Next to be discussed is the stipulation in the disputed September 15, 1978 Deed of Sale of Rights, Interests and Participation which
reads: "(t)his Contract of Sale of rights, interests and participations shall become effective only upon the approval by the Honorable
Court of First Instance of Negros Occidental, Branch VI-Himamaylan." Notably, the trial court and the Court of Appeals both held that
the deed of sale is null and void for not having been approved by the probate court.

There has arisen here a confusion in the concepts of validity and the efficacy of a contract. Under Art. 1318 of the Civil Code, the
essential requisites of a contract are: consent of the contracting parties; object certain which is the subject matter of the contract and
cause of the obligation which is established. Absent one of the above, no contract can arise. Conversely, where all are present, the
result is a valid contract. However, some parties introduce various kinds of restrictions or modalities, the lack of which will not, however,
affect the validity of the contract.

In the instant case, the Deed of Sale, complying as it does with the essential requisites, is a valid one. However, it did not bear the
stamp of approval of the court. This notwithstanding, the contract's validity was not affected for in the words of the stipulation, " . . . this
Contract of Sale of rights, interests and participations shall become effective only upon the approval by the Honorable Court . . ." In
other words, only the effectivity and not the validity of the contract is affected.

Then, too, petitioners are correct in saying that the need for approval by the probate court exists only where specific properties of the
estate are sold and not when only ideal and indivisible shares of an heir are disposed of.

In the case of Dillena v. Court of Appeals,28 the Court declared that it is within the jurisdiction of the probate court to approve the sale of
properties of a deceased person by his prospective heirs before final adjudication. 29 It is settled that court approval is necessary for the
validity of any disposition of the decedent's estate. However, reference to judicial approval cannot adversely affect the substantive
rights of the heirs to dispose of their ideal share in the co-heirship and/or co-ownership among the heirs.30 It must be recalled that
during the period of indivision of a decedent's estate, each heir, being a co-owner, has full ownership of his part and may therefore
alienate it.31 But the effect of the alienation with respect to the co-owners shall be limited to the portion which may be allotted to him in
the division upon the termination of the
co-ownership.32

From the foregoing, it is clear that hereditary rights in an estate can be validly sold without need of court approval and that when private
respondents Cari-an sold their rights, interests and participation in Lot Nos. 1616 and 1617, they could legally sell the same without the
approval of the probate court.

As a general rule, the pertinent contractual stipulation (requiring court approval) should be considered as the law between the parties.
However, the presence of two factors militate against this conclusion. First, the evident intention of the parties appears to be contrary to
the mandatory character of said stipulation.33 Whoever crafted the document of conveyance, must have been of the belief that the
controversial stipulation was a legal requirement for the validity of the sale. But the contemporaneous and subsequent acts of the
parties reveal that the original objective of the parties was to give effect to the deed of sale even without court approval. 34 Receipt and
acceptance of the numerous installments on the balance of the purchase price by the Cari-ans and leaving petitioners in possession of
Lot Nos. 1616 and 1617 reveal their intention to effect the mutual transmission of rights and obligations. It was only after private
respondents Cari-an sold their shares in the subject lots again to the spouses Chua, in September 1982, that these same heirs filed the
case at bar for the cancellation of the September 1978 conveyance. Worth considering too is the fact that although the period to pay the
balance of the purchase price expired in May 1979, the heirs continued to accept payments until late 1979 and did not seek judicial
relief until late 1982 or three years later.

Second, we hold that the requisite approval was virtually rendered impossible by the Cari-ans because they opposed the motion for
approval of the sale filed by petitioners35 and sued the latter for the cancellation of that sale. The probate court explained:

(e) While it is true that Escanlar and Holgado filed a similar motion for the approval of Deed of Sale executed by some of the
heirs in their favor concerning the one-half (1/2) portions of Lots 1616 and 1617 as early as November 10, 1981, yet the Court
could not have favorably acted upon it, because there exists a pending case for the rescission of that contract, instituted by the
vendors therein against Pedro Escanlar and Francisco Holgado and filed before another branch of this Court. Until now, this
case, which attacks the very source of whatever rights or interests Holgado and Escanlar may have acquired over one-half
(1/2) portions of Lots Nos. 1616 and 1617, is pending resolution by another court. Otherwise, if this Court meddles on these
issues raised in that ordinary civil action seeking for the rescission of an existing contract, then, the act of this Court would be
totally ineffective, as the same would be in excess of its jurisdiction.36

Having provided the obstacle and the justification for the stipulated approval not to be granted, private respondents Cari-an should not
be allowed to cancel their first transaction with petitioners because of lack of approval by the probate court, which lack is of their own
making.

3. With respect to rescission of a sale of real property, Article 1592 of the Civil Code governs:

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 a notarial act. After
the demand, the court may not grant him a new term. (Emphasis added)

In the instant case, the sellers gave the buyers until May 1979 to pay the balance of the purchase price. After the latter failed to pay
installments due, the former made no judicial demand for rescission of the contract nor did they execute any notarial act demanding the
same, as required under Article 1592. Consequently, the buyers could lawfully make payments even after the May 1979 deadline, as in
fact they paid several installments to the sellers which the latter accepted. Thus, upon the expiration of the period to pay, the sellers
made no move to rescind but continued accepting late payments, an act which cannot but be construed as a waiver of the right to
rescind. When the sellers, instead of availing of their right to rescind, accepted and received delayed payments of installments beyond
the period stipulated, and the buyers were in arrears, the sellers in effect waived and are now estopped from exercising said right to
rescind.37

4. The matter of full payment is another issue taken up by petitioners. An exhaustive review of the records of this case impels us to
arrive at a conclusion at variance with that of both the trial and the appellate courts.

The sole witness in the cancellation of sale case was private respondent herein Fredisminda Cari-an Bustamante. She initially testified
that after several installments, she signed a receipt for the full payment of her share in December 1979 but denied having actually
received the P5,000.00 intended to complete her share. She claims that Escanlar and Holgado made her sign the receipt late in the
afternoon and promised to give the money to her the following morning when the banks opened. She also claimed that while her
brother Rodolfo
Cari-an's share had already been fully paid, her mother Generosa Martinez only received P28,334.00 and her sister-in-law Nelly Chua
vda. de Cari-an received only P11,334.00. Fredisminda also summed up all the installments and came up with the total of P132,551.00
from the long list on a sheet of a calendar which was transferred from a small brown notebook. She later admitted that her list may not
have been complete for she gave the receipts for installments to petitioners Escanlar and Holgado. She thus claimed that they were
defrauded because petitioners are wealthy and private respondents are poor.

However, despite all her claims, Fredisminda's testimony fails to convince this Court that they were not fully compensated by
petitioners. Fredisminda admits that her mother and her sister signed their individual receipts of full payment on their own and not in her
presence. 38 The receipts presented in evidence show that Generosa Martinez was paid P45,625.00; Carmen Cari-an , P45,625.00;
Rodolfo Cari-an , P47,500.00 on June 21, 1979; Nelly Chua vda. de Cari-an, P11,334.00 and the sum of P34,218.00 was consigned in
court for the minor Leonell Cari-an.39 Fredisminda insists that she signed a receipt for full payment without receiving the money therefor
and admits that she did not object to the computation. We find it incredible that a mature woman like Fredisminda Cari-an, would sign a
receipt for money she did not receive. Furthermore, her claims regarding the actual amount of the installments paid to her and her kin
are quite vague and unsupported by competent evidence. She even admits that all the receipts were taken by petitioner
Escanlar.40 Worth noting too is the absence of supporting testimony from her co-heirs and siblings Carmen Cari-an, Rodolfo Cari-an
and Nelly Chua vda. de Cari-an.

The trial court reasoned out that petitioners, in continuing to pay the rent for the parcels of land they allegedly bought, admit not having
fully paid the Cari-ans. Petitioners' response, that they paid rent until 1986 in compliance with their lease contract, only proves that they
respected this contract and did not take undue advantage of the heirs of Nombre and Cari-an who benefited from the lease. Moreover,
it is to be stressed that petitioners purchased the hereditary shares solely of the Cari-ans and not the entire lot.

The foregoing discussion ineluctably leads us to conclude that the

Cari-ans were indeed paid the balance of the purchase price, despite having accepted installments therefor belatedly. There is thus no
ground to rescind the contract of sale because of non-payment.

5. Recapitulating, we have held that the September 15, 1978 deed of sale of rights, interests and participations is valid and that the
sellers-private respondents Cari-an were fully paid the contract price. However, it must be emphasized that what was sold only the Cari-
an's hereditary shares in Lot Nos. 1616 and 1617 being held pro indiviso by them and is thus a valid conveyance only of said ideal
shares. Specific or designated portions of land were not involved.

Consequently, the subsequent sale of 8 parcels of land, including Lot Nos. 1616 and 1617, to the spouses Chua is valid except to the
extent of what was sold to petitioners in the September 15, 1978 conveyance. It must be noted however, that the probate court in
Special Proceeding No. 7-7279 desisted from awarding the individual shares of each heir because all the properties belonging to the
estate had already been sold.41 Thus it is not certain how much private respondents Cari-an were entitled to with respect to the two lots,
or if they were even going to be awarded shares in said lots.

The proceedings surrounding the estate of Nombre and Cari-an having attained finality for nearly a decade now, the same cannot be
re-opened. The protracted proceedings which have undoubtedly left the property under a cloud and the parties involved in a state of
uncertainty compels us to resolve it definitively.

The decision of the probate court declares private respondents Cari-an as the sole heirs by representation of Victoriana Cari-an who
was indisputably entitled to half of the estate.42 There being no exact apportionment of the shares of each heir and no competent proof
that the heirs received unequal shares in the disposition of the estate, it can be assumed that the heirs of Victoriana Cari-an collectively
are entitled to half of each property in the estate. More particularly, private respondents Cari-an are entitled to half of Lot Nos. 1616 and
1617, i.e. 14,675 square meters of Lot No. 1616 and 230,474 square meters of Lot No. 1617. Consequently, petitioners, as their
successors-in-interest, own said half of the subject lots and ought to deliver the possession of the other half, as well as pay rents
thereon, to the private respondents Ney Sarrosa Chua and Paquito Chua but only if the former (petitioners) remained in possession
thereof.

The rate of rental payments to be made were given in evidence by Ney Sarrosa Chua in her unrebutted testimony on July 24, 1989: For
the fishpond (Lot No. 1617) — From 1982 up to 1986, rental payment of P3,000.00 per hectare; from 1986-1989 (and succeeding
years), rental payment of P10,000.00 per hectare. For the riceland (Lot No. 1616) — 15 cavans per hectare per year; from 1982 to
1986, P125.00 per cavan; 1987-1988, P175.00 per cavan; and 1989 and succeeding years, P200.00 per cavan. 43

WHEREFORE, the petitions are hereby GRANTED. The decision of the Court of Appeals under review is hereby REVERSED AND
SET ASIDE. The case is REMANDED to the Regional Trial Court of Negros Occidental, Branch 61 for petitioners and private
respondents Cari-an or their successors-in-interest to determine exactly which 1/2 portion of Lot Nos. 1616 and 1617 will be owned by
each party, at the option of petitioners. The trial court is DIRECTED to order the issuance of the corresponding certificates of title in the
name of the respective parties and to resolve the matter of rental payments of the land not delivered to the Chua spouses subject to the
rates specified above with legal interest from date of demand.

SO ORDERED.
 FIRST DIVISION

[G.R. No. 9785. September 24, 1915. ]

ISABELA BANDONG and JUAN FERRER, Plaintiffs-Appellants, v. ALEJANDRA

AUSTRIA, Defendant-Appellee.

Sisenando Palarca for Appellants.

Hilarion Magno for Appellee.

SYLLABUS

1. PACTO DE RETRO; CONSTRUCTION OF CONTRACT; REDEMPTION PERIOD. — A provision

in a written contract for the sale of land reserving a right. to repurchase, authorizing the
vendors to repurchase this land at a stipulated price "in the month of March of any year,
should they repurchase (en el mes de marzo de cualquier ano, si recompramos)," held to be
an express stipulation giving to the vendors the right to repurchase in the month of March of
any year after the date of the contract, which they might elect for that purpose.

2. ID.; ID.; ID.; ARTICLE 1508, CIVIL CODE. — Held: That the statutory limitation of the
exercise of the right of repurchase to a period of four years set forth in the first paragraph of
article 1508 of the Civil Code is not applicable to the right thus reserved by the vendors, that
limitation being applicable only in the absence of an express agreement" touching the time
within which a right; to repurchase may be exercised in such cases.

3. ID.; ID.; ID.; ID. — The only statutory limitation upon the vendors’ right to repurchase in
the case under consideration is that found in the second paragraph of article 1508, which
provides that "in case of stipulation, the period of redemption shall not exceed ten years."

DECISION

CARSON, J. :

On the 29th of April, 1905, the plaintiffs in this action sold to Antonio Ventenilla, since
deceased, a parcel of land for the sum of P350, expressly reserving a right to repurchase
under and in accordance with the terms of the deed of sale.

The written contract contained the following stipulation: "Tambien hacemos constar que una
de las promesas que tenemos a D. Antonio que recompraremos este terreno en el mismo
precio sin acordarse uno y otro del interes del dinero ni del producto del terreno, pero en el
mes de marzo de cualquier ano, si recompramos. (We also set forth that one of the promises
we have made to Don Antonio is that we will repurchase this land at the same price; neither
of us make any stipulation as to interest on the money or the products of the land, but in the
month of March of any year, if we repurchase.)"

The vendors offered to repurchase in the month of March, 1913, but this offer was declined
on the ground that the right to repurchase had prescribed: a contention which is renewed by
the defendant in this action, who is the widow of original vendee, deriving title through him.

The court below was of opinion that the right to repurchase expired at the end of four years
from the date of the contract, relying in support of this ruling on the provisions of article
1508 of the Civil Code, which are as follows:jgc:chanrobles.com.ph

"The right mentioned in the preceding article (right to repurchase), in the absence of an
express agreement, shall last four years counted from the date of the contract.

"In case of stipulation, the period of redemption shall not exceed ten years."cralaw virtua1aw
library

We are of opinion, however, that the above cited provision in the written contract was an
express agreement between the parties by the terms of which the vendors were given the
right to repurchase in the month of March of any year, after the date of the contract (1905),
which they might elect for that purpose. In the event that they should assert that right in the
month of March of any year after the date of the contract, it could not be said that there was
no express agreement between the parties authorizing them so to do. Manifestly, therefore,
the statutory limitation upon the right of repurchase to a period of four years is not
applicable to the contract under consideration, that limitation being applicable only to cases
wherein there is no express agreement touching the date of redemption.

The parties having expressly agreed that the vendors should have the right to repurchase in
the month of March of any year after the date of the contract, the only statutory limitation
placed upon them in the exercise of that right is the limitation found in the second paragraph
of article 1508 of the Civil Code cited above, which limits the power of the vendor even by
express agreement, to reserve a right to repurchase for a longer period than ten years. We
conclude, therefore, that the provisions of the contract of sale, whereby the parties
undertook by express agreement to cure to the vendors a right to repurchase in the month of
March of any year after the date of the contract, were valid and binding upon the parties for
a period of ten years from the date of the contract but wholly without force and effect
thereafter.

It is admitted that the vendors ordered to repurchase the land in question in the month of
March, 1913, less than eight years from the date of the contract. This they had a perfect
right to do, and the judgment of the trial court which denies their right to enforce the terms
of their contract on the ground that the period of redemption had expired by statutory
limitation cannot, therefore, be sustained.

The judgment entered in the court below should be and is hereby reversed, without special
condemnation of costs in this instance, and the record will be returned to the court below,
where judgment will be entered in accordance herewith. So ordered.

Arellano, C.J., Torres, Trent and Araullo, JJ., concur.

 FIRST DIVISION

[G.R. No. 8162. October 10, 1913. ]

FAUSTO ROSALES, Plaintiff-Appellant, v. VICENTE REYES and JUAN ORDOVEZA, Defendants-Appellees.

Ramon Diokno for Appellant.

Godofredo Reyes for Appellees.

SYLLABUS

1. PLEADING AND PRACTICE; COMPLAINT; PRAYER NO PART OF CAUSE OF ACTION. — The prayer for relief, although
part of the complaint, is no part of the cause of action, and does not give it character. The facts alleged do this, and
the plaintiff is entitled to as much relief as they warrant.

2. REALTY; SALE WITH PACTO DE RETRO; RIGHT TO REPURCHASE. — Where a sale is made with pacto de retro on
the condition that the redemption shall not be made within three years from the date of the sale, and nothing is said
as to how long the right to redeem shall continue, its duration is seven years from the date of the contract.

3. ID.; ID.; CHARACTER AND CONSTRUCTION OF DOUBTFUL CLAUSES. — There are many characteristics of sales
with pacto de retro which stamp them as being in the nature of usurious loans. Consequently, doubtful conditions in
such a contract should not be construed too harshly against the vendor.

4. ID.; ID.; OFFER OF REDEMPTION PRICE SUFFICIENT. — The case reviewed, and Held: That the settled rule in this
jurisdiction is that a bona fide offer of the redemption price, where that is fixed and certain, is sufficient to protect the
rights of the vendor in case the vendee refuses to deliver the property.

DECISION

TRENT, J. :

This is an appeal from a judgment sustaining a demurrer to the complaint on the ground that it does not state facts
sufficient to constitute a cause of action.

On July 29, 1902, Rivera sold a parcel of land to Reyes and Ordoveza for 800 pesos under pacto de recto, on the
condition, however, that the repurchase could not be made until after three years from the date of the contract of
sale. In this document Rivera states that he was of age. On May 29, 1903, Rivera sold his right to repurchase to
Rosales for 1,075 pesos. In the document evidencing this sale, Rivera states that he is 23 years of age. Rosales, who
is the plaintiff in this case, alleges that in January, 1908, he tendered 800 pesos to Reyes and Ordoveza with the
request that the land be surrendered to him in accordance with the contract entered into between them and Rivera in
1902, but that they refused to accept the money and comply with his request.

1. The first objection to the complaint is that is inconsistent because plaintiff asks that the contract in question be
annulled on the ground that Rivera was a minor when he entered into it in 1902, and then asks that the defendants
be required to deliver the land to him upon payment to them of 800 pesos, as per its terms. There is no basis for this
objection for the reason that the inconsistency alleged appears in the prayer for relief. As stated in 1 Sutherland on
Code Pleading (sec. 186):jgc:chanrobles.com.ph

"The demand in the complaint is no part of the statement of the cause of action, and does not give it character. The
facts alleged do this, and, the plaintiff is entitled to as much relief as they warrant."cralaw virtua1aw library

See also Philips on Code Pleading (sec. 205), where it is said: "The prayer for relief, though part of the complaint, is
no part of the cause of action. A single right of action may entitle the plaintiff to several kinds of relief, and several
rights of action may authorize but a single relief."cralaw virtua1aw library
The contract of 1902 cannot be annulled, however, for the reason that Rivera ratified it by entering into the contract
with Rosales in 1903, wherein he stated he was 23 years of age, thus making applicable the provisions of article 1311
(Civil Code), which provides: "It shall be understood that there is an implied confirmation when, being aware of the
cause of the nullity and such cause having ceased to exist, the person who may have a right to invoke should execute
an act which necessarily implies his wish to renounce such a right."cralaw virtua1aw library

2. The next objection to the complaint is that the right to repurchase had expired before Rosales attempted to
exercise it. This is based upon the first paragraph of article 1508 of the Civil Code, which reads: "The right (to
repurchase) . . . in the absence of an express agreement, shall last four years counted from the date of the
contract."cralaw virtua1aw library

The contract of 1902 provided that the right to repurchase could not be exercised within three years from the date of
the contract.

The second paragraph of article 1508 reads: "Should there be an agreement, the period shall not exceed ten
years."cralaw virtua1aw library

Under the Partidas, as under the Roman Law, no attempt was made to limit the duration of contracts with pacto de
retro. Unless limited by the contract of the parties, it was generally held that the right to repurchase was perpetual.
By its decision of May 12, 1875, the supreme court of Spain first attempted to place a restriction upon the length of
such contracts by holding that they gave rise to a personal prescription of actions. (23 Scaevola, 767.) In recent
times, however, practically all those countries where such sales are recognized have found it advisable to limit the
time within which the right of redemption can be exercised. (4 Bonel’s Com. on the Civil Code, 519.) As stated in
Yadao v. Yadao (20 Phil. Rep., 260): "A pacto de retro is, in a certain aspect, the suspension of the title to the land
involved. We are of the opinion that it was the intention of the legislature to limit the continuance of such a condition,
with the purpose that the title to the real estate in question should be definitely placed, it being, in the opinion of the
legislature, against public policy to permit such an uncertain condition relative to the title to real estate to continue for
more than ten years."cralaw virtua1aw library

It might be added that there are many characteristics of these sales with pacto de retro which stamp them as being in
the nature of usurious loans. The property is usually sold for a much smaller sum than it is actually worth, as witness
the present case, where Rivera sold the property to the defendants for eight hundred pesos, and then sold his right to
repurchase for a considerably larger amount. During the time the right to repurchase lasts the purchaser either takes
possession of the property and receives the fruits thereof, or the vendor becomes his tenant and pays him rent for the
use of the property. The chief inducement for purchasing property under such conditions is either the hope that the
vendor will not be able to raise the amount of the redemption price within the time allowed, or else the prospect of
enjoying the products of a property acquired at less than its market value. Doubtful conditions in such a contract
should not therefore be construed too harshly against the vendor.

A stipulation in the contract providing that the right to repurchase is suspended for a certain time is undoubtedly a
benefit to both the vendor and the purchaser. To the latter it affords a basis upon which he may plan his management
and use of the property with some accuracy during the time it is in his possession, as he is no danger of being
suddenly ousted by the vendor’s confronting him with the redemption price and demanding the surrender of the
property. And for the security thus afforded to the purchaser in the enjoyment of the property he will be more inclined
to pay a greater sum for it than he would in the absence of such a provision, thereby benefiting the vendor.

In the present case, the only stipulation of the parties with reference to the right to repurchase was that it could not
be exercised within three years from the date of the sale. Had it not been for this condition, it is evident that the right
would have expired four years from the date of the sale. But if it were held that, regardless of such a provision, the
redemption right expires within four years from the date of the contract unless there is a special provision as to how
long this right, once effective, shall continue, many otherwise perfectly valid contracts can be conceived in which the
redemption privilege would be unenforceable. For instance, if the stipulation in question had provided that the right to
redeem could not be exercised within five years from the date of the contract, it is quite apparent that, according to
the argument advanced by the defendants, the vendor could not have redeemed the property at all, for the right to do
so would have expired one year previously.

In such a case the question arises, Upon what basis must the duration of the right to repurchase be calculated? Any
such contract must necessarily be terminated ten years from the date of its execution, but should the vendor have the
privilege to exercise this right for the balance of the ten years, or should he be allowed only for years on the ground
that there was no express agreement of the parties upon this point? In all such case it would seem that the vendor
should be allowed four years from the expiration of the time within which the right to redeem could not be exercised,
or in the event that four years would extent the life of the contract beyond ten years, the balance of the ten year
period, on the ground that the vendors, where the right to redeem is not thus suspended and no express agreement
as to length of time during which it may be exercised is made, are also allowed four years. This construction, it must
be conceded, is the most logical and just.
"When a statute or instrument is equally susceptible of two interpretations, one in favor of natural right and the other
against it, the former is to be adopted." (Sec. 294, Code Civ. Proc.)

The provisions of article 1508 are strictly analogous to the statute of limitations upon actions. As the date on which a
right of action expires is determined by the date it accrues and not be some prior event which might be considered as
its inchoate beginning, so the right to repurchase is to be calculated from the day upon which that right may be freely
exercised by the vendor, subject, of course, to the ten-year limitation of the law. Manresa (vol. 10, p. 303) touches
upon this question:jgc:chanrobles.com.ph

"The starting point for calculating it (the redemption period) we understand is always the date of the contract, since,
although the Code only so states in the first of the two said cases, in the second it is expressly prohibited that the
period shall exist more than ten years, and it is clear that it would last longer if it were agreed, for example, that it
would not begin to run until a certain time had elapsed after the date of the contract. This agreement, in so far as it
might imply an extension of ten years, we believe would be null as being contrary to the manifest spirit of the
law."cralaw virtua1aw library

We are of the opinion that the effect of the express stipulation or agreement in the contract which we have been
discussing was to extend the life of the contract to seven years from the date of its execution.

3. The next point raised is that the complaint is defective in that it does not allege that the redemption price was
judicially deposited upon the refusal of the defendants to surrender the property. In support of this contention counsel
for the defendants rely upon the case of Angao v. Clavano (17 Phil. Rep., 152); 10 Manresa 337,338; and a decision
of the supreme court of Spain of October 16, 1906, cited by Manresa.

Manresa and the supreme court of Spain in its decision of October 16, 1906, rely chiefly upon the second paragraph of
article 1618 of the Spanish Code of Civil Procedure, wherein it is provided that in order to perfect a right of action for
the recovery of things sold with the right of redemption, the redemption price must be deposited or, in the event that
the price cannot be ascertained, a bond for its payment be executed. The is a matter of procedure only, and the
provisions of that code are no longer in effect in this country.

An analogy might be drawn from the provisions of section 465 of Act No. 190, which reads: "The judgment debtor, or
redemptioner, may redeem the property from the purchaser, at any time within twelve months after the sale, on
paying to the purchaser the amount of his purchase, . . ."cralaw virtua1aw library

This language is fully as strong as the language of article 1518 of the Civil Code, which provides that the "vendor
cannot exercise the right of redemption without returning to the vendee the price of the sale." Neither section 465 nor
article 1518 makes any provision for cases where the possessor of the property refuses to accept the redemption price
and surrender the property. This court, in Brusas v. Infante (13 Phil. Rep., 217), where a judgment debtor sought to
redeem property sold under execution and the purchaser refused to accept the price paid for it and surrender the
property, held that the offer having been proven, it was not necessary for the judgment debtor to deposit the
redemption price.

Again, in the Chattel Mortgage Law, Act No. 1508, a chattel mortgage is defined as a conditional sale, "the condition
being that the sale shall be void upon the seller paying to the purchase a sum of money or doing some other act
named. If the condition is performed according to its terms, the mortgage and sale immediately become void and the
mortgagee is thereby divested of his title." (Sec. 3.)

Section 8 provides: "If the mortgage . . . after performance of the condition before or after the breach thereof, or
after tender of the performance of the condition . . ."cralaw virtua1aw library

A chattel mortgage, it will be observed, is in many respects similar to a sale under pacto de retro, and under section 8
of the Chattel Mortgage Law, a tender of performance is sufficient.

But the settled rule in this jurisdiction upon the precise question involved in this case is that an offer of the money,
where the sum required is fixed and certain, is sufficient, and that it is unnecessary to deposit it.

In Lafont v. Pascasio (5 Phil. Rep., 391), the right to repurchase expired on April 30. On April 25 the vendor caused a
notary public to deliver a letter to his vendee requesting that she deliver the original document of sale to the notary in
order that he might draw up the contract of repurchase. This she refused to do, and the next day the vendor sent her
another letter by the same notary, advising her that the latter had in his possession the necessary money to redeem
the property, and requesting that she accept the same and execute the proper contract of repurchase. This
proposition was also refused, and on April 30, the vendor deposited the amount of the redemption price with the
Court of First Instance. This court said:jgc:chanrobles.com.ph
"The question remains whether the plaintiff did all that he was required by law to do in order to preserve the right
secured to him by the contract.

x x x

"In regard to the payment of the money, the plaintiff did all that the law required him to do. He offered to pay it to
the defendant and deposited it in the hands of a rotary for her.

x x x

"It is not necessary to decide the question as to whether the six months mentioned in the contract expired on the
30th day of April as claimed by the plaintiff or on the 28th day of April as claimed by the defendant, for the plaintiff,
on the 25th and 26th of April, did all that the law required him to do to preserve his right to repurchase the
property."cralaw virtua1aw library

In Villegas v. Capistrano (9 Phil. Rep., 416), the right to repurchase expired on May 13. The vendor, on that date,
sent an agent to the residence of the vendee with the necessary money, who found only his wife at home. She told
him that she had no authority to act for her husband, but that she would inform him on his return of what had taken
place. The money was offered to the defendant himself on May 15, but was refused on the ground that the agent had
no authority to act for the vendor. Between this time and June 25 various attempts were made to pay the money but
without but without avail, and on the latter day the agent deposited the redemption price with the Court of First
Instance. The court, after quoting extensively from Lafont v. Pascasio, supra, said:jgc:chanrobles.com.ph

"That case is decisive of this. When the plaintiff, on the 13th of May, by his duly authorized agent, presented himself
at the residence of the defendant and offered to deliver the money, he did all that the law required him to do to
preserve his rights to repurchase. The subsequent deposit of the amount with the clerk of the court was simply
additional security for the defendant, but was not a necessary act to be performed by the plaintiff."cralaw virtua1aw
library

In Fructo v. Fuentes (15 Phil. Rep., 362), the right to repurchase expired on September 16. On that day an agent of
the vendor called at the vendee’s residence and remained there all day awaiting the latter, who was not at home. The
agent offered the money to the vendee’s wife, but she refused to accept it, telling him to await her husband’s return.
On the following day, the agent again called at the vendee’s residence but could not find him at home. On the
following day the agent was successful in finding the vendee at home, but the latter refused to recognize him as an
agent of the vendor and declined to accept the money. On the 20th of September the vendor personally offered his
vendee the redemption price, but the latter refused to accept it. In disposing of this case it was
said:jgc:chanrobles.com.ph

"Under these findings of fact it is clearly shown that the plaintiff, not only on the day when the contract fell due made
an effort to pay the amount due for the purpose of repurchasing the land in question, but on several consecutive days
was this effort made. Without intending to hold that the vendor of land under a pacto de retro does not lose his right
to repurchase the same on the day of the maturity of the contract, yet where, as in the present case, at the time of
the maturity of the contract, he makes a diligent effort to repurchase, as was done in the present case, and fails by
reason of circumstances over which he has no control, we are of the opinion and so hold that he does not lose his
right to repurchase his land, by reason of his failure to repurchase on the day of maturity."cralaw virtua1aw library

In Retes v. Suelto (20 Phil. Rep., 394), the above three cases were cited and affirmed upon the following state of
facts. The right to redeem expired on March 16, and on February 24 the vendor tendered the amount due, but the
vendee refused to accept it. On March 5 the vendor cited his vendee to appear before a justice of the peace and made
a judicial offer to pay the amount of the redemption price, which the purchaser again refused to accept. The money
was then deposited to the credit of the purchaser with the municipal president. This court said:jgc:chanrobles.com.ph

"From the record it appears that the plaintiff had done all that he was required to do for the purpose of securing the
return of the possession of the land in question and was entitled to the possession of the same from and after the
date on which he made legal offer to pay the amount of the indebtedness due the defendant. (Lafont v. Pacasio, 5
Phil. Rep., 391.) When a person having the right under a contract of pacto de retro makes a bona fide offer to
repurchase, in accordance with the agreement and tenders the necessary amount of money, he has done all the law
requires of him to preserve his right and to entitle him to the possession of the property. (Villegas v. Capistrano, 9
Phil. Rep., 416; Fructo v. Fuentes, 15 Phil Rep., 362.)"

In the case of Angao v. Clavano (17 Phil. Rep., 152), the facts were these: Plaintiff entered into a contract with the
defendant on September 25, 1900, whereby a parcel of land owned by him was sold to Clavano with the right to
repurchase, to be exercised within one year after the marriage of the vendor. The vendor married on September 8,
1903, and did not offer to repurchase the property until August, 1906. In this case no motion was made for a new
trial under section 497 of the Code of Civil Procedure, so the findings of fact were not before this court. It was
said:jgc:chanrobles.com.ph

"On September 9, 1904, the year immediately following the date of defendant’s marriage had already fully elapsed
and, up to the 8th of September of the said year, that being the last day of the year following his marriage, he had
not yet repurchased the property, therefore, from the said date, September 9, defendant’s right had already lapsed,
for the year had passed and this last date arrived without his having repurchased the land."cralaw virtua1aw library

The further remarks of the court to the effect that if the vendee refuses to accept the amount of the price when
offered it must be placed on deposit in order to prevent title vesting absolutely in the vendee were purely obiter. Such
a rule has certainly never been adopted in this jurisdiction. On the contrary, the settled rule, as evidenced by the four
decisions discussed above is that a bona fide offer of the of the redemption price, where that is certain and fixed, is
sufficient to preserve the vendor’s right of action in cases where the offer is refused. These four decisions dealing, as
they do, with the rule of property, and extending over a period of years, cannot be lightly disregarded. They must be
held to have crystallized the rule which must obtain in this jurisdiction.

For the above reasons, we are of the opinion that the complaint alleges sufficient facts to constitute a cause of action.
The judgment appealed from is reversed, and the cause remanded, with instructions to require the defendants to
answer without costs.

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

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-27890 December 31, 1927

PONCIANO MEDEL, petitioner-appellant,

vs.
CARLOS N. FRANCISCO, opponent-appellee.

Modesto Reyes and Eliseo Yamson for appellant.

Ceferino Francisco for appellee.

AVANCENA, J.:

On May 16, 1917, Carlos N. Francisco sold the land belonging to him, described certificate of title No. 3598 to Telesforo Calasan with a
right of repurchase, which was noted on the back thereof on May 16, 1917. Telesforo Calasan, in turn, sold this land to Ponciano Medel
on December 4, 1926.

On January 17, 1927 Ponciano Medel brought this action in the Court of First Instance for the purpose of compelling the register of
deeds to cancel the notation of the right of repurchase on the title to this land on account of the time within which to exercise said the
right having expired. Ponciano Medel contends that the period within which to exercise this right is four years while Carlos N. Francisco,
on the other hand, contends that it is ten years. The trial court admitting that the period is ten years and it not having expired yet when
this action was filed, denied the petition.lawphi1.net

The only question involved in this appeal is whether the period of the repurchase of the land, which Carlos N. Francisco reserved the
right to do when the sale was made, in four or ten years. The stipulation is noted on the title in the following terms:

This sale is made with the condition that the vendor Carlos N. Francisco reserves the right to repurchase, at the cost price of
this sale, a fourth part of the land above described from which he can remove earth for the sole and exclusive use of his
earthen jar factory when the same is established.

According to article 1508 of the Civil Code, the right repurchase, in the absence of any express agreement, last four years and, in case
of stipulation, the period shall not exceed ten years.

A term means a period of time within which an act many, or must, be performed or a fact take place. Applied to the right of repurchase,
it is the time within which this right may be exercised. It necessarily involves a beginning and an end of time. The clause of the contract
quoted does not express, in this case, a stipulation of time. Accordingly to its terms, the vendor Carlos N. Francisco reserved the right
to redeem the land when he might have an earthen jar factory. This does not mean that he could repurchase the land any time before
he had the earthen jar factory, but when he had it. That is especially so when it is taken into consideration that there is a condition
imposed for the repurchase of the land, to wit that it is to be used solely and exclusively for the manufacture of earthen jars. According
to this clause of the contract, it is evident that the establishment of an earthen jar factory is the fact that would give birth to the right of
repurchase. In this sense, what is really stipulated in the clause is the suspension of the right of repurchase until the earthen jar factory
has been established. If this is all, the meaning of this clause is then clear that the parties did not stipulate any time for exercising the
right or repurchase; and, in accordance with the law, the right lasts no longer than four years from the date of the contract, which period
had already expired without having been made use of.

These four years must be counted from the date of the contract notwithstanding the suspension of the exercise of the right of
repurchase, because the stipulation of this suspension is null and void, it having exceeded four years, which constitutes the legal period
of this right. (Santos vs. Heirs of Crisostomo and Tiongson, 41 Phil., 342.)

The judgment appealed from is reversed and it is held that the right of repurchase reserved by the vendor Carlos N. Francisco has
expired, and the cancellation by the register of deeds of the notation of this right on the title must be, as it is hereby, ordered, without
special pronouncement as to costs. So ordered.

Johnson, Street, Malcolm, Villamor, Ostrand, Johns and Villa-Real JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-22968 January 31, 1968

BENEDICTO BALUYOT, ET AL., plaintiffs-appellees,

vs.
EULOGIO E. VENEGAS, defendant-appellant.

Vicente M. Magpoc for plaintiffs-appellees.

Filemon S. Trinidad for defendant-appellant.

MAKALINTAL, J.:

Plaintiffs are the heirs of Crisanto Baluyot, who in life sold a parcel of land to defendant Eulogio E. Venegas. The sale, executed on July
24, 1951, contains the following provision for repurchase:

3. That the parties hereto stipulated that at anytime after the expiration of the period of theft (10) years to be computed from
October 1, 1951, the Vendor, his heirs or successors-in-interest has the option and priority to purchase the aforedescribed
parcel of land for the same consideration of P4,000.00.

4. That the Vendee hereby accepts and agrees with the conditions and terms of this sale.

On July 18, 1963 plaintiffs commenced this action in the Court of First Instance of Bataan to compel defendant to reconvey the land to
them pursuant to the contractual provision aforequoted, alleging that previous offers on their part to exercise the right therein granted
had proven unavailing.

The court a quo, rendered judgment for plaintiffs and ordered defendant to execute the corresponding deed of conveyance upon
payment of P4,000. Defendant was further ordered to pay attorney's fees in the sum of P500.

In this appeal defendant stands squarely on the proposition that the stipulation in the contract giving the vendor the "option" to purchase
back the land is void and contrary to law, particularly Article 1606 of the Civil Code. This article reads:

Art. 1606. The right referred to in article 1601, in the absence of an express agreement, shall last four years from the date of
the contract.

Should there be an agreement, the period cannot exceed ten years.

However, the vendor may still exercise the right to repurchase within thirty days from the time final judgment was rendered in a
civil action on the basis that the contract was a true sale with right to repurchase.

The contract here was executed in July 1951. The option or right to repurchase was sought to be exercised twelve (12) years
thereafter, or in 1963. Indeed, by express agreement it could not have been exercised except "after the expiration of the period of ten
(10) years . . . from October 1, 1951." Such a stipulation is not legally feasible because it is prohibited by Article 1606, which limits the
period for repurchase, in case there be an agreement, to the maximum of ten years from the date of the contract. In other words, the
right to repurchase in the present case did not even arise, since by the time it was supposed to begin it was already interdicted by the
law.

A similar situation was presented in the case of Santos vs. Heirs of Crisostomo and Tiongson, 41 Phil. 342, where this Court said, at
pages 347-348:

When the stipulation in question is examined, it will be discovered that the intention of the parties was to suppress the exercise
of the right of repurchase for the full period of ten years from the date of the contract and, inferentially, to allow the exercise of
that right after the expiration of ten years. In the second paragraph of article 1508 (now 1606) of the Civil Code it is in effect
provided that if there should be an agreement with respect to the time of repurchase, the period shall not exceed ten years.
The stipulation under consideration offends against this provision in two particulars, namely (1) in providing that the right to
repurchase may be exercised after ten years shall elapse, and (2) in prohibiting the exercise of the same right during the
whole period when, according to the statute, it might be lawfully exercised.
 The stipulation is, therefore, illicit; and the result is that the right of repurchase could in fact, under the second paragraph of the
article 1508 of the Civil Code, have been exercised in this case at any time after the making of the contract and prior to the
expiration of ten years. The law must here control over the revised intention of the parties.

In what has been said, we do not mean to declare that the parties to a contract of sale with pacto de retro can not under any
conditions lawfully suspend the exercise of the right of repurchase. Doubtless they may do so, provided there remains an
appreciable space of time for the exercise of the right within the limitation allowed by law. For instance, if it were provided that
repurchase should not be effected before five nor after ten years from the date of the contract, we see no reason for supposing
the stipulation to be lawful. It is different where the parties attempt totally to suppress the right during the whole period when it
might lawfully be exercised.

Plaintiffs stress the obligatory force of obligation arising from contract (Art. 1159 Civil Code). But the same code provides in Article 1306
that while the contracting parties are free to establish any claims or conditions they may deem advisable, the same must not be
contrary to law, morals, good customs, public order or public policy.

It is suggested that the defense in this case is in the nature of prescription of action and consequently may not be pleaded for the first
time on appeal, as defendant does in this case. However, Article 1606 of the Civil Code concerning the period of repurchase is not a
statute of limitation. It is a rule of substantive law which goes into the validity of the period agreed upon, and requires no affirmative plea
in the answer to be applicable.1äwphï1.ñët

The judgment, appealed from is reversed and the complaint is dismissed, without pronouncement as to costs.

Concepcion, C.J., Reyes, J.B.L., Bengzon, J.P. Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Dizon, J., took no part.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 168332 June 19, 2009

ANA MARIA A. KORUGA, Petitioner,

vs.
TEODORO O. ARCENAS, JR., ALBERT C. AGUIRRE, CESAR S. PAGUIO, FRANCISCO A. RIVERA, and THE HONORABLE
COURT OF APPEALS, THIRD DIVISION, Respondents.

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

G.R. No. 169053 June 19, 2009

TEODORO O. ARCENAS, JR., ALBERT C. AGUIRRE, CESAR S. PAGUIO, and FRANCISCO A. RIVERA, Petitioners,
vs.
HON. SIXTO MARELLA, JR., Presiding Judge, Branch 138, Regional Trial Court of Makati City, and ANA MARIA A.
KORUGA, Respondents.

DECISION

NACHURA, J.:

Before this Court are two petitions that originated from a Complaint filed by Ana Maria A. Koruga (Koruga) before the Regional Trial
Court (RTC) of Makati City against the Board of Directors of Banco Filipino and the Members of the Monetary Board of the Bangko
Sentral ng Pilipinas (BSP) for violation of the Corporation Code, for inspection of records of a corporation by a stockholder, for
receivership, and for the creation of a management committee.

G.R. No. 168332

The first is a Petition for Certiorari under Rule 65 of the Rules of Court, docketed as G.R. No. 168332, praying for the annulment of the
Court of Appeals (CA) Resolution1 in CA-G.R. SP No. 88422 dated April 18, 2005 granting the prayer for a Writ of Preliminary Injunction
of therein petitioners Teodoro O. Arcenas, Jr., Albert C. Aguirre, Cesar S. Paguio, and Francisco A. Rivera (Arcenas, et al.).

Koruga is a minority stockholder of Banco Filipino Savings and Mortgage Bank. On August 20, 2003, she filed a complaint before the
Makati RTC which was raffled to Branch 138, presided over by Judge Sixto Marella, Jr. 2 Koruga’s complaint alleged:

10. 1 Violation of Sections 31 to 34 of the Corporation Code ("Code") which prohibit self-dealing and conflicts of interest of directors and
officers, thus:

(a) For engaging in unsafe, unsound, and fraudulent banking practices that have jeopardized the welfare of the Bank, its
shareholders, who includes among others, the Petitioner, and depositors. (sic)

(b) For granting and approving loans and/or "loaned" sums of money to six (6) "dummy" borrower corporations ("Borrower
Corporations") which, at the time of loan approval, had no financial capacity to justify the loans. (sic)

(c) For approving and accepting a dacion en pago, or payment of loans with property instead of cash, resulting to a diminished
future cumulative interest income by the Bank and a decline in its liquidity position. (sic)

(d) For knowingly giving "favorable treatment" to the Borrower Corporations in which some or most of them have interests, i.e.
interlocking directors/officers thereof, interlocking ownerships. (sic)

(e) For employing their respective offices and functions as the Bank’s officers and directors, or omitting to perform their
functions and duties, with negligence, unfaithfulness or abuse of confidence of fiduciary duty, misappropriated or misapplied or
ratified by inaction the misappropriation or misappropriations, of (sic) almost ₱1.6 Billion Pesos (sic) constituting the Bank’s
funds placed under their trust and administration, by unlawfully releasing loans to the Borrower Corporations or refusing or
failing to impugn these, knowing before the loans were released or thereafter that the Bank’s cash resources would be
dissipated thereby, to the prejudice of the Petitioner, other Banco Filipino depositors, and the public.
10.2 Right of a stockholder to inspect the records of a corporation (including financial statements) under Sections 74 and 75 of the
Code, as implemented by the Interim Rules;

(a) Unlawful refusal to allow the Petitioner from inspecting or otherwise accessing the corporate records of the bank despite repeated
demand in writing, where she is a stockholder. (sic)

10.3 Receivership and Creation of a Management Committee pursuant to:

(a) Rule 59 of the 1997 Rules of Civil Procedure ("Rules");

(b) Section 5.2 of R.A. No. 8799;

(c) Rule 1, Section 1(a)(1) of the Interim Rules;

(d) Rule 1, Section 1(a)(2) of the Interim Rules;

(e) Rule 7 of the Interim Rules;

(f) Rule 9 of the Interim Rules; and

(g) The General Banking Law of 2000 and the New Central Bank Act. 3

On September 12, 2003, Arcenas, et al. filed their Answer raising, among others, the trial court’s lack of jurisdiction to take cognizance
of the case. They also filed a Manifestation and Motion seeking the dismissal of the case on the following grounds: (a) lack of
jurisdiction over the subject matter; (b) lack of jurisdiction over the persons of the defendants; (c) forum-shopping; and (d) for being a
nuisance/harassment suit. They then moved that the trial court rule on their affirmative defenses, dismiss the intra-corporate case, and
set the case for preliminary hearing.

In an Order dated October 18, 2004, the trial court denied the Manifestation and Motion, ruling thus:

The result of the procedure sought by defendants Arcenas, et al. (sic) is for the Court to conduct a preliminary hearing on the affirmative
defenses raised by them in their Answer. This [is] proscribed by the Interim Rules of Procedure on Intracorporate (sic) Controversies
because when a preliminary hearing is conducted it is "as if a Motion to Dismiss was filed" (Rule 16, Section 6, 1997 Rules of Civil
Procedure). A Motion to Dismiss is a prohibited pleading under the Interim Rules, for which reason, no favorable consideration can be
given to the Manifestation and Motion of defendants, Arcenas, et al.

The Court finds no merit to (sic) the claim that the instant case is a nuisance or harassment suit.

WHEREFORE, the Court defers resolution of the affirmative defenses raised by the defendants Arcenas, et al.4

Arcenas, et al. moved for reconsideration5 but, on January 18, 2005, the RTC denied the motion.6 This prompted Arcenas, et al. to file
before the CA a Petition for Certiorari and Prohibition under Rule 65 of the Rules of Court with a prayer for the issuance of a writ of
preliminary injunction and a temporary retraining order (TRO). 7

On February 9, 2005, the CA issued a 60-day TRO enjoining Judge Marella from conducting further proceedings in the case. 8

On February 22, 2005, the RTC issued a Notice of Pre-trial9 setting the case for pre-trial on June 2 and 9, 2005. Arcenas, et al. filed a
Manifestation and Motion10 before the CA, reiterating their application for a writ of preliminary injunction. Thus, on April 18, 2005, the
CA issued the assailed Resolution, which reads in part:

(C)onsidering that the Temporary Restraining Order issued by this Court on February 9, 2005 expired on April 10, 2005, it is necessary
that a writ of preliminary injunction be issued in order not to render ineffectual whatever final resolution this Court may render in this
case, after the petitioners shall have posted a bond in the amount of FIVE HUNDRED THOUSAND (₱500,000.00) PESOS.

SO ORDERED.11

Dissatisfied, Koruga filed this Petition for Certiorari under Rule 65 of the Rules of Court. Koruga alleged that the CA effectively gave due
course to Arcenas, et al.’s petition when it issued a writ of preliminary injunction without factual or legal basis, either in the April 18,
2005 Resolution itself or in the records of the case. She prayed that this Court restrain the CA from implementing the writ of preliminary
injunction and, after due proceedings, make the injunction against the assailed CA Resolution permanent. 12
In their Comment, Arcenas, et al. raised several procedural and substantive issues. They alleged that the Verification and Certification
against Forum-Shopping attached to the Petition was not executed in the manner prescribed by Philippine law since, as admitted by
Koruga’s counsel himself, the same was only a facsimile.

They also averred that Koruga had admitted in the Petition that she never asked for reconsideration of the CA’s April 18, 2005
Resolution, contending that the Petition did not raise pure questions of law as to constitute an exception to the requirement of filing a
Motion for Reconsideration before a Petition for Certiorari is filed.

They, likewise, alleged that the Petition may have already been rendered moot and academic by the July 20, 2005 CA
Decision,13 which denied their Petition, and held that the RTC did not commit grave abuse of discretion in issuing the assailed orders,
and thus ordered the RTC to proceed with the trial of the case.

Meanwhile, on March 13, 2006, this Court issued a Resolution granting the prayer for a TRO and enjoining the Presiding Judge of
Makati RTC, Branch 138, from proceeding with the hearing of the case upon the filing by Arcenas, et al. of a ₱50,000.00 bond. Koruga
filed a motion to lift the TRO, which this Court denied on July 5, 2006.

On the other hand, respondents Dr. Conrado P. Banzon and Gen. Ramon Montaño also filed their Comment on Koruga’s Petition,
raising substantially the same arguments as Arcenas, et al.

G.R. No. 169053

G.R. No. 169053 is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, with prayer for the issuance of a TRO and a
writ of preliminary injunction filed by Arcenas, et al.

In their Petition, Arcenas, et al. asked the Court to set aside the Decision 14 dated July 20, 2005 of the CA in CA-G.R. SP No. 88422,
which denied their petition, having found no grave abuse of discretion on the part of the Makati RTC. The CA said that the RTC Orders
were interlocutory in nature and, thus, may be assailed by certiorari or prohibition only when it is shown that the court acted without or
in excess of jurisdiction or with grave abuse of discretion. It added that the Supreme Court frowns upon resort to remedial measures
against interlocutory orders.

Arcenas, et al. anchored their prayer on the following grounds: that, in their Answer before the RTC, they had raised the issue of failure
of the court to acquire jurisdiction over them due to improper service of summons; that the Koruga action is a nuisance or harassment
suit; that there is another case involving the same parties for the same cause pending before the Monetary Board of the BSP, and this
constituted forum-shopping; and that jurisdiction over the subject matter of the case is vested by law in the BSP. 15

Arcenas, et al. assign the following errors:

I. THE COURT OF APPEALS, IN "FINDING NO GRAVE ABUSE OF DISCRETION COMMITTED BY PUBLIC RESPONDENT
REGIONAL TRIAL COURT OF MAKATI, BRANCH 138, IN ISSUING THE ASSAILED ORDERS," FAILED TO CONSIDER AND
MERELY GLOSSED OVER THE MORE TRANSCENDENT ISSUES OF THE LACK OF JURISDICTION ON THE PART OF SAID
PUBLIC RESPONDENT OVER THE SUBJECT MATTER OF THE CASE BEFORE IT, LITIS PENDENTIA AND FORUM SHOPPING,
AND THE CASE BELOW BEING A NUISANCE OR HARASSMENT SUIT, EITHER ONE AND ALL OF WHICH GOES/GO TO
RENDER THE ISSUANCE BY PUBLIC RESPONDENT OF THE ASSAILED ORDERS A GRAVE ABUSE OF DISCRETION.

II. THE FINDING OF THE COURT OF APPEALS OF "NO GRAVE ABUSE OF DISCRETION COMMITTED BY PUBLIC
RESPONDENT REGIONAL TRIAL COURT OF MAKATI, BRANCH 138, IN ISSUING THE ASSAILED ORDERS," IS NOT IN ACCORD
WITH LAW OR WITH THE APPLICABLE DECISIONS OF THIS HONORABLE COURT.16

Meanwhile, in a Manifestation and Motion filed on August 31, 2005, Koruga prayed for, among others, the consolidation of her Petition
with the Petition for Review on Certiorari under Rule 45 filed by Arcenas, et al., docketed as G.R. No. 169053. The motion was granted
by this Court in a Resolution dated September 26, 2005.

Our Ruling

Initially, we will discuss the procedural issue.

Arcenas, et al. argue that Koruga’s petition should be dismissed for its defective Verification and Certification Against Forum-Shopping,
since only a facsimile of the same was attached to the Petition. They also claim that the Verification and Certification Against Forum-
Shopping, allegedly executed in Seattle, Washington, was not authenticated in the manner prescribed by Philippine law and not
certified by the Philippine Consulate in the United States.

This contention deserves scant consideration.

On the last page of the Petition in G.R. No. 168332, Koruga’s counsel executed an Undertaking, which reads as follows:

In view of that fact that the Petitioner is currently in the United States, undersigned counsel is attaching a facsimile copy of the
Verification and Certification Against Forum-Shopping duly signed by the Petitioner and notarized by Stephanie N. Goggin, a Notary
Public for the Sate (sic) of Washington. Upon arrival of the original copy of the Verification and Certification as certified by the Office of
the Philippine Consul, the undersigned counsel shall immediately provide duplicate copies thereof to the Honorable Court.17

Thus, in a Compliance18 filed with the Court on September 5, 2005, petitioner submitted the original copy of the duly notarized and
authenticated Verification and Certification Against Forum-Shopping she had executed.19 This Court noted and considered the
Compliance satisfactory in its Resolution dated November 16, 2005. There is, therefore, no need to further belabor this issue.

We now discuss the substantive issues in this case.

First, we resolve the prayer to nullify the CA’s April 18, 2005 Resolution.

We hold that the Petition in G.R. No. 168332 has become moot and academic. The writ of preliminary injunction being questioned had
effectively been dissolved by the CA’s July 20, 2005 Decision. The dispositive portion of the Decision reads in part:

The case is REMANDED to the court a quo for further proceedings and to resolve with deliberate dispatch the intra-corporate
controversies and determine whether there was actually a valid service of summons. If, after hearing, such service is found to have
been improper, then new summons should be served forthwith. 20

Accordingly, there is no necessity to restrain the implementation of the writ of preliminary injunction issued by the CA on April 18, 2005,
since it no longer exists.

However, this Court finds that the CA erred in upholding the jurisdiction of, and remanding the case to, the RTC.

The resolution of these petitions rests mainly on the determination of one fundamental issue: Which body has jurisdiction over the
Koruga Complaint, the RTC or the BSP?

We hold that it is the BSP that has jurisdiction over the case.

A reexamination of the Complaint is in order.

Koruga’s Complaint charged defendants with violation of Sections 31 to 34 of the Corporation Code, prohibiting self-dealing and conflict
of interest of directors and officers; invoked her right to inspect the corporation’s records under Sections 74 and 75 of the Corporation
Code; and prayed for Receivership and Creation of a Management Committee, pursuant to Rule 59 of the Rules of Civil Procedure, the
Securities Regulation Code, the Interim Rules of Procedure Governing Intra-Corporate Controversies, the General Banking Law of
2000, and the New Central Bank Act. She accused the directors and officers of Banco Filipino of engaging in unsafe, unsound, and
fraudulent banking practices, more particularly, acts that violate the prohibition on self-dealing.

It is clear that the acts complained of pertain to the conduct of Banco Filipino’s banking business. A bank, as defined in the General
Banking Law,21 refers to an entity engaged in the lending of funds obtained in the form of deposits. 22 The banking business is properly
subject to reasonable regulation under the police power of the state because of its nature and relation to the fiscal affairs of the people
and the revenues of the state. Banks are affected with public interest because they receive funds from the general public in the form of
deposits. It is the Government’s responsibility to see to it that the financial interests of those who deal with banks and banking
institutions, as depositors or otherwise, are protected. In this country, that task is delegated to the BSP, which pursuant to its Charter, is
authorized to administer the monetary, banking, and credit system of the Philippines. It is further authorized to take the necessary steps
against any banking institution if its continued operation would cause prejudice to its depositors, creditors and the general public as
well.23

The law vests in the BSP the supervision over operations and activities of banks. The New Central Bank Act provides:

Section 25. Supervision and Examination. - The Bangko Sentral shall have supervision over, and conduct periodic or special
examinations of, banking institutions and quasi-banks, including their subsidiaries and affiliates engaged in allied activities.24

Specifically, the BSP’s supervisory and regulatory powers include:

4.1 The issuance of rules of conduct or the establishment of standards of operation for uniform application to all institutions or
functions covered, taking into consideration the distinctive character of the operations of institutions and the substantive
similarities of specific functions to which such rules, modes or standards are to be applied;
 4.2 The conduct of examination to determine compliance with laws and regulations if the circumstances so warrant
as determined by the Monetary Board;

4.3 Overseeing to ascertain that laws and Regulations are complied with;

4.4 Regular investigation which shall not be oftener than once a year from the last date of examination to determine
whether an institution is conducting its business on a safe or sound basis: Provided, That the deficiencies/irregularities
found by or discovered by an audit shall be immediately addressed;

4.5 Inquiring into the solvency and liquidity of the institution (2-D); or

4.6 Enforcing prompt corrective action.25

Koruga alleges that "the dispute in the trial court involves the manner with which the Directors’ (sic) have handled the Bank’s affairs,
specifically the fraudulent loans and dacion en pago authorized by the Directors in favor of several dummy corporations known to have
close ties and are indirectly controlled by the Directors."26 Her allegations, then, call for the examination of the allegedly questionable
loans. Whether these loans are covered by the prohibition on self-dealing is a matter for the BSP to determine. These are not ordinary
intra-corporate matters; rather, they involve banking activities which are, by law, regulated and supervised by the BSP. As the Court
has previously held:

It is well-settled in both law and jurisprudence that the Central Monetary Authority, through the Monetary Board, is vested with exclusive
authority to assess, evaluate and determine the condition of any bank, and finding such condition to be one of insolvency, or that its
continuance in business would involve a probable loss to its depositors or creditors, forbid bank or non-bank financial institution to do
business in the Philippines; and shall designate an official of the BSP or other competent person as receiver to immediately take charge
of its assets and liabilities.27

Correlatively, the General Banking Law of 2000 specifically deals with loans contracted by bank directors or officers, thus:

SECTION 36. Restriction on Bank Exposure to Directors, Officers, Stockholders and Their Related Interests. — No director or
officer of any bank shall, directly or indirectly, for himself or as the representative or agent of others, borrow from such bank nor shall he
become a guarantor, indorser or surety for loans from such bank to others, or in any manner be an obligor or incur any contractual
liability to the bank except with the written approval of the majority of all the directors of the bank, excluding the director concerned:
Provided, That such written approval shall not be required for loans, other credit accommodations and advances granted to officers
under a fringe benefit plan approved by the Bangko Sentral. The required approval shall be entered upon the records of the bank and a
copy of such entry shall be transmitted forthwith to the appropriate supervising and examining department of the Bangko Sentral.

Dealings of a bank with any of its directors, officers or stockholders and their related interests shall be upon terms not less favorable to
the bank than those offered to others.

After due notice to the board of directors of the bank, the office of any bank director or officer who violates the provisions of this Section
may be declared vacant and the director or officer shall be subject to the penal provisions of the New Central Bank Act.

The Monetary Board may regulate the amount of loans, credit accommodations and guarantees that may be extended, directly or
indirectly, by a bank to its directors, officers, stockholders and their related interests, as well as investments of such bank in enterprises
owned or controlled by said directors, officers, stockholders and their related interests. However, the outstanding loans, credit
accommodations and guarantees which a bank may extend to each of its stockholders, directors, or officers and their related interests,
shall be limited to an amount equivalent to their respective unencumbered deposits and book value of their paid-in capital contribution
in the bank: Provided, however, That loans, credit accommodations and guarantees secured by assets considered as non-risk by the
Monetary Board shall be excluded from such limit: Provided, further, That loans, credit accommodations and advances to officers in the
form of fringe benefits granted in accordance with rules as may be prescribed by the Monetary Board shall not be subject to the
individual limit.

The Monetary Board shall define the term "related interests."

The limit on loans, credit accommodations and guarantees prescribed herein shall not apply to loans, credit accommodations and
guarantees extended by a cooperative bank to its cooperative shareholders. 28

Furthermore, the authority to determine whether a bank is conducting business in an unsafe or unsound manner is also vested in the
Monetary Board. The General Banking Law of 2000 provides:

SECTION 56. Conducting Business in an Unsafe or Unsound Manner. — In determining whether a particular act or omission, which
is not otherwise prohibited by any law, rule or regulation affecting banks, quasi-banks or trust entities, may be deemed as conducting
business in an unsafe or unsound manner for purposes of this Section, the Monetary Board shall consider any of the following
circumstances:
56.1. The act or omission has resulted or may result in material loss or damage, or abnormal risk or danger to the safety, stability,
liquidity or solvency of the institution;

56.2. The act or omission has resulted or may result in material loss or damage or abnormal risk to the institution's depositors, creditors,
investors, stockholders or to the Bangko Sentral or to the public in general;

56.3. The act or omission has caused any undue injury, or has given any unwarranted benefits, advantage or preference to the bank or
any party in the discharge by the director or officer of his duties and responsibilities through manifest partiality, evident bad faith or
gross inexcusable negligence; or

56.4. The act or omission involves entering into any contract or transaction manifestly and grossly disadvantageous to the bank, quasi-
bank or trust entity, whether or not the director or officer profited or will profit thereby.

Whenever a bank, quasi-bank or trust entity persists in conducting its business in an unsafe or unsound manner, the Monetary Board
may, without prejudice to the administrative sanctions provided in Section 37 of the New Central Bank Act, take action under Section 30
of the same Act and/or immediately exclude the erring bank from clearing, the provisions of law to the contrary notwithstanding.

Finally, the New Central Bank Act grants the Monetary Board the power to impose administrative sanctions on the erring bank:

Section 37. Administrative Sanctions on Banks and Quasi-banks. - Without prejudice to the criminal sanctions against the culpable
persons provided in Sections 34, 35, and 36 of this Act, the Monetary Board may, at its discretion, impose upon any bank or quasi-
bank, their directors and/or officers, for any willful violation of its charter or by-laws, willful delay in the submission of reports or
publications thereof as required by law, rules and regulations; any refusal to permit examination into the affairs of the institution; any
willful making of a false or misleading statement to the Board or the appropriate supervising and examining department or its
examiners; any willful failure or refusal to comply with, or violation of, any banking law or any order, instruction or regulation issued by
the Monetary Board, or any order, instruction or ruling by the Governor; or any commission of irregularities, and/or conducting business
in an unsafe or unsound manner as may be determined by the Monetary Board, the following administrative sanctions, whenever
applicable:

(a) fines in amounts as may be determined by the Monetary Board to be appropriate, but in no case to exceed Thirty thousand
pesos (₱30,000) a day for each violation, taking into consideration the attendant circumstances, such as the nature and gravity
of the violation or irregularity and the size of the bank or quasi-bank;

(b) suspension of rediscounting privileges or access to Bangko Sentral credit facilities;

(c) suspension of lending or foreign exchange operations or authority to accept new deposits or make new investments;

(d) suspension of interbank clearing privileges; and/or

(e) revocation of quasi-banking license.

Resignation or termination from office shall not exempt such director or officer from administrative or criminal sanctions.

The Monetary Board may, whenever warranted by circumstances, preventively suspend any director or officer of a bank or quasi-bank
pending an investigation: Provided, That should the case be not finally decided by the Bangko Sentral within a period of one hundred
twenty (120) days after the date of suspension, said director or officer shall be reinstated in his position: Provided, further, That when
the delay in the disposition of the case is due to the fault, negligence or petition of the director or officer, the period of delay shall not be
counted in computing the period of suspension herein provided.

The above administrative sanctions need not be applied in the order of their severity.

Whether or not there is an administrative proceeding, if the institution and/or the directors and/or officers concerned continue with or
otherwise persist in the commission of the indicated practice or violation, the Monetary Board may issue an order requiring the
institution and/or the directors and/or officers concerned to cease and desist from the indicated practice or violation, and may further
order that immediate action be taken to correct the conditions resulting from such practice or violation. The cease and desist order shall
be immediately effective upon service on the respondents.

The respondents shall be afforded an opportunity to defend their action in a hearing before the Monetary Board or any committee
chaired by any Monetary Board member created for the purpose, upon request made by the respondents within five (5) days from their
receipt of the order. If no such hearing is requested within said period, the order shall be final. If a hearing is conducted, all issues shall
be determined on the basis of records, after which the Monetary Board may either reconsider or make final its order.
The Governor is hereby authorized, at his discretion, to impose upon banking institutions, for any failure to comply with the
requirements of law, Monetary Board regulations and policies, and/or instructions issued by the Monetary Board or by the Governor,
fines not in excess of Ten thousand pesos (₱10,000) a day for each violation, the imposition of which shall be final and executory until
reversed, modified or lifted by the Monetary Board on appeal.29

Koruga also accused Arcenas, et al. of violation of the Corporation Code’s provisions on self-dealing and conflict of interest. She
invoked Section 31 of the Corporation Code, which defines the liability of directors, trustees, or officers of a corporation for, among
others, acquiring any personal or pecuniary interest in conflict with their duty as directors or trustees, and Section 32, which prescribes
the conditions under which a contract of the corporation with one or more of its directors or trustees – the so-called "self-dealing
directors"30 – would be valid. She also alleged that Banco Filipino’s directors violated Sections 33 and 34 in approving the loans of
corporations with interlocking ownerships, i.e., owned, directed, or managed by close associates of Albert C. Aguirre.

Sections 31 to 34 of the Corporation Code provide:

Section 31. Liability of directors, trustees or officers. - Directors or trustees who wilfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire
any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all
damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.

When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the corporation in
respect of any matter which has been reposed in him in confidence, as to which equity imposes a disability upon him to deal in his own
behalf, he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the
corporation.

Section 32. Dealings of directors, trustees or officers with the corporation. - A contract of the corporation with one or more of its
directors or trustees or officers is voidable, at the option of such corporation, unless all the following conditions are present:

1. That the presence of such director or trustee in the board meeting in which the contract was approved was not necessary to
constitute a quorum for such meeting;

2. That the vote of such director or trustee was not necessary for the approval of the contract;

3. That the contract is fair and reasonable under the circumstances; and

4. That in case of an officer, the contract has been previously authorized by the board of directors.

Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a contract with a director or trustee,
such contract may be ratified by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of
at least two-thirds (2/3) of the members in a meeting called for the purpose: Provided, That full disclosure of the adverse interest of the
directors or trustees involved is made at such meeting: Provided, however, That the contract is fair and reasonable under the
circumstances.

Section 33. Contracts between corporations with interlocking directors. - Except in cases of fraud, and provided the contract is fair and
reasonable under the circumstances, a contract between two or more corporations having interlocking directors shall not be invalidated
on that ground alone: Provided, That if the interest of the interlocking director in one corporation is substantial and his interest in the
other corporation or corporations is merely nominal, he shall be subject to the provisions of the preceding section insofar as the latter
corporation or corporations are concerned.

Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be considered substantial for purposes of
interlocking directors.

Section 34. Disloyalty of a director. - Where a director, by virtue of his office, acquires for himself a business opportunity which should
belong to the corporation, thereby obtaining profits to the prejudice of such corporation, he must account to the latter for all such profits
by refunding the same, unless his act has been ratified by a vote of the stockholders owning or representing at least two-thirds (2/3) of
the outstanding capital stock. This provision shall be applicable, notwithstanding the fact that the director risked his own funds in the
venture.

Koruga’s invocation of the provisions of the Corporation Code is misplaced. In an earlier case with similar antecedents, we ruled that:

The Corporation Code, however, is a general law applying to all types of corporations, while the New Central Bank Act regulates
specifically banks and other financial institutions, including the dissolution and liquidation thereof. As between a general and special
law, the latter shall prevail – generalia specialibus non derogant.31
Consequently, it is not the Interim Rules of Procedure on Intra-Corporate Controversies,32 or Rule 59 of the Rules of Civil Procedure on
Receivership, that would apply to this case. Instead, Sections 29 and 30 of the New Central Bank Act should be followed, viz.:

Section 29. Appointment of Conservator. - Whenever, on the basis of a report submitted by the appropriate supervising or examining
department, the Monetary Board finds that a bank or a quasi-bank is in a state of continuing inability or unwillingness to maintain a
condition of liquidity deemed adequate to protect the interest of depositors and creditors, the Monetary Board may appoint a
conservator with such powers as the Monetary Board shall deem necessary to take charge of the assets, liabilities, and the
management thereof, reorganize the management, collect all monies and debts due said institution, and exercise all powers necessary
to restore its viability. The conservator shall report and be responsible to the Monetary Board and shall have the power to overrule or
revoke the actions of the previous management and board of directors of the bank or quasi-bank.

xxxx

The Monetary Board shall terminate the conservatorship when it is satisfied that the institution can continue to operate on its own and
the conservatorship is no longer necessary. The conservatorship shall likewise be terminated should the Monetary Board, on the basis
of the report of the conservator or of its own findings, determine that the continuance in business of the institution would involve
probable loss to its depositors or creditors, in which case the provisions of Section 30 shall apply.

Section 30. Proceedings in Receivership and Liquidation. - Whenever, upon report of the head of the supervising or examining
department, the Monetary Board finds that a bank or quasi-bank:

(a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That this shall not include
inability to pay caused by extraordinary demands induced by financial panic in the banking community;

(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or

(c) cannot continue in business without involving probable losses to its depositors or creditors; or

(d) has willfully violated a cease and desist order under Section 37 that has become final, involving acts or transactions which
amount to fraud or a dissipation of the assets of the institution; in which cases, the Monetary Board may summarily and
without need for prior hearing forbid the institution from doing business in the Philippines and designate the Philippine Deposit
Insurance Corporation as receiver of the banking institution.

xxxx

The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be final and executory, and may not be
restrained or set aside by the court except on petition for certiorari on the ground that the action taken was in excess of jurisdiction or
with such grave abuse of discretion as to amount to lack or excess of jurisdiction. The petition for certiorari may only be filed by the
stockholders of record representing the majority of the capital stock within ten (10) days from receipt by the board of directors of the
institution of the order directing receivership, liquidation or conservatorship.

The designation of a conservator under Section 29 of this Act or the appointment of a receiver under this section shall be vested
exclusively with the Monetary Board. Furthermore, the designation of a conservator is not a precondition to the designation of a
receiver.33

On the strength of these provisions, it is the Monetary Board that exercises exclusive jurisdiction over proceedings for receivership of
banks.

Crystal clear in Section 30 is the provision that says the "appointment of a receiver under this section shall be vested exclusively with
the Monetary Board." The term "exclusively" connotes that only the Monetary Board can resolve the issue of whether a bank is to be
placed under receivership and, upon an affirmative finding, it also has authority to appoint a receiver. This is further affirmed by the fact
that the law allows the Monetary Board to take action "summarily and without need for prior hearing."

And, as a clincher, the law explicitly provides that "actions of the Monetary Board taken under this section or under Section 29 of this
Act shall be final and executory, and may not be restrained or set aside by the court except on a petition for certiorari on the ground that
the action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of
jurisdiction."1avvphi1

From the foregoing disquisition, there is no doubt that the RTC has no jurisdiction to hear and decide a suit that seeks to place Banco
Filipino under receivership.
Koruga herself recognizes the BSP’s power over the allegedly unlawful acts of Banco Filipino’s directors. The records of this case bear
out that Koruga, through her legal counsel, wrote the Monetary Board 34 on April 21, 2003 to bring to its attention the acts she had
enumerated in her complaint before the RTC. The letter reads in part:

Banco Filipino and the current members of its Board of Directors should be placed under investigation for violations of banking laws, the
commission of irregularities, and for conducting business in an unsafe or unsound manner. They should likewise be placed under
preventive suspension by virtue of the powers granted to the Monetary Board under Section 37 of the Central Bank Act. These blatant
violations of banking laws should not go by without penalty. They have put Banco Filipino, its depositors and stockholders, and the
entire banking system (sic) in jeopardy.

xxxx

We urge you to look into the matter in your capacity as regulators. Our clients, a minority stockholders, (sic) and many depositors of
Banco Filipino are prejudiced by a failure to regulate, and taxpayers are prejudiced by accommodations granted by the BSP to Banco
Filipino35

In a letter dated May 6, 2003, BSP Supervision and Examination Department III Director Candon B. Guerrero referred Koruga’s letter to
Arcenas for comment.36 On June 6, 2003, Banco Filipino’s then Executive Vice President and Corporate Secretary Francisco A. Rivera
submitted the bank’s comments essentially arguing that Koruga’s accusations lacked legal and factual bases. 37

On the other hand, the BSP, in its Answer before the RTC, said that it had been looking into Banco Filipino’s activities. An October
2002 Report of Examination (ROE) prepared by the Supervision and Examination Department (SED) noted certain dacion payments,
out-of-the-ordinary expenses, among other dealings. On July 24, 2003, the Monetary Board passed Resolution No. 1034 furnishing
Banco Filipino a copy of the ROE with instructions for the bank to file its comment or explanation within 30 to 90 days under threat of
being fined or of being subjected to other remedial actions. The ROE, the BSP said, covers substantially the same matters raised in
Koruga’s complaint. At the time of the filing of Koruga’s complaint on August 20, 2003, the period for Banco Filipino to submit its
explanation had not yet expired.38

Thus, the court’s jurisdiction could only have been invoked after the Monetary Board had taken action on the matter and only on the
ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of
jurisdiction.

Finally, there is one other reason why Koruga’s complaint before the RTC cannot prosper. Given her own admission – and the same is
likewise supported by evidence – that she is merely a minority stockholder of Banco Filipino, she would not have the standing to
question the Monetary Board’s action. Section 30 of the New Central Bank Act provides:

The petition for certiorari may only be filed by the stockholders of record representing the majority of the capital stock within ten (10)
days from receipt by the board of directors of the institution of the order directing receivership, liquidation or conservatorship.

All the foregoing discussion yields the inevitable conclusion that the CA erred in upholding the jurisdiction of, and remanding the case
to, the RTC. Given that the RTC does not have jurisdiction over the subject matter of the case, its refusal to dismiss the case on that
ground amounted to grave abuse of discretion.

WHEREFORE, the foregoing premises considered, the Petition in G.R. No. 168332 is DISMISSED, while the Petition in G.R. No.
169053 is GRANTED. The Decision of the Court of Appeals dated July 20, 2005 in CA-G.R. SP No. 88422 is hereby SET ASIDE. The
Temporary Restraining Order issued by this Court on March 13, 2006 is made PERMANENT. Consequently, Civil Case No. 03-985,
pending before the Regional Trial Court of Makati City, is DISMISSED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-20941 September 17, 1965

FELIX ONGOCO and BELEN CONSUNJI, petitioners,

vs.
THE HON. JUDGE OF THE COURT OF FIRST INSTANCE OF BATAAN, THE REGISTER OF DEEDS OF BATAAN, APOLONIO
SORIANO and CIRILA MINA, respondents.

Tañada, Teehankee & Carreon for petitioners.

Bienvenido L. Bascara for respondent Register of Deeds.
Filemon S. Trinidad for respondents Apolonio Soriano and Cirila Mina.

BENGZON,. J.P., J.:

Felix Ongoco and Belen Consunji, spouses, were owners of a parcel of land, 695 square meters in area, at Abucay, Bataan, covered by
Transfer Certificate of Title No. T-8185 in their names.

On May 2, 1959 the aforesaid spouses sold their land to Apolonio Soriano and Cirila Mina, for P1,500.00, with right to repurchase within
three years from said date.

No repurchase was made within the agreed period. On August 29, 1962, Apolonio Soriano and Cirila Mina filed in the Court of First
Instance of Bataan a "petition" for an order declaring them the absolute owners of the land and transferring the certificate of title to their
names.

Although the petition was docketed as "Special Civil Case No. 2827" the respondents-vendors were not served with summons but only
sent a copy of the petition by registered mail.

The petitioners asked that the case be set for hearing on September 11, 1962 at 8:00 a.m. On September 4, 1962, however,
respondents-vendors moved for postponement of the hearing.1awphîl.nèt

On September 11, 1962 , the date set for hearing, respondents-vendors were not present in court when the case was called. The Court
of First Instance denied their motion for postponement and thereupon rendered judgment declaring the petitioners-vendees absolute
owners of the land and ordering registration thereof in their names.

Respondents-vendors moved, on October 4, 1962, to set aside the judgment but on October 25, 1962 the motion was denied.
Subsequently, on February 26, 1963, the respondents-vendors in said case filed the present suit herein for certiorari.

Petitioners contend that respondent Judge gravely abused his discretion and/or acted without or in excess of jurisdiction in rendering
the judgment aforementioned.

Article 1607 of the New Civil Code provides:

ART. 1607. In case of real property, the consolidation of ownership in the vendee by virtue of the failure of the vendor to
comply with the provisions of article 1616 shall not be recorded in the Registry of Property without a judicial order, after the
vendor has been duly heard.

Speaking through Mr. Justice J.B.L. Reyes, this Court has already ruled that the foregoing article requires the filing of an ordinary civil
action and, consequently, service of summons on parties-defendants as well as opportunity to answer or move to dismiss within 15
days therefrom. We quote from Tacdoro vs. Arcenas, L-15812, November 29, 1960:

The code did not provide for any specific procedure to be observed in securing the judicial order above-mentioned.
Accordingly, we should fall back on the ordinary rules of procedure applicable. As correctly pointed out by the appellant, the
petition to consolidate ownership under the article aforequoted does not partake of the nature of a motion, it not being merely
an incident to an action or a special proceeding (see Sec. 1, Rule 26, Rules of Court; 60 C.J. S. 7), but is an ordinary civil
action cognizable by the Court of First Instance. As such ordinary action, it should be governed by the rules established for
 summons found in Rule 7 of the Rules of Court, stating, among other things, that upon the "filing of the complaint, the clerk of
court shall forthwith issue the corresponding summons to the defendant" (Sec. 1). The defendant would then be entitled to a
period of fifteen (15) days from service of such summons within which to file either a motion to dismiss the petition (See. 1,
Rule 8) or an answer (Sec. 1, Rule 9). The failure of the court to properly observe these rules is sufficient cause for validly
attacking its consequent judgments and/or orders even on jurisdictional grounds (See Salmon & Pacific Commercial Co. vs.
Tan Cueco, et al., 36 Phil. 556).

That the vendor a retro should be made a party-defendant to the proceedings and, therefore, be entitled to notice of the same,
is clearly inferable from the codal provision that the judicial order consolidating ownership in the vendee a retro shall not issue
unless "after the vendor has been duly heard" (Art. 1607, Civil Code, supra); which statement would also imply that the
proceedings therein to be taken are in no way to be construed as merely summary in nature. This conclusion is further fortified
by other provisions of the new Civil Code such as articles 1602, 1603, 1604, 1605 and 1606, which are all indicative of the
legislative intent to accord to the vendor a retro the maximum safeguards for the protection of his legal rights under the true
agreement of the parties. Experience has demonstrated too often that many sales with right of repurchase have been devised
only to circumvent or ignore our usury laws and for this reason, the law looks upon them with disfavor (Report of the Code
Commission, pp. 63-64). When, therefore, Article 1607 speaks of a judicial order after the vendor shall have been duly heard,
it contemplates none other than a regular court proceeding under the governing Rules of Court, wherein the parties are given
full opportunity to lay bare before the court their real covenant. Furthermore, the obvious intent of our Civil Code, in requiring a
judicial confirmation of the consolidation in the vendee a retro of the ownership over the property sold, is not only to have all
doubts over the true nature of the transaction speedily ascertained and decided, but also to prevent the interposition of buyers
in good faith while such determination is being made. Under the former method of consolidation by a mere extra-judicial
affidavit of the buyer a retro, the latter could easily cut off any claims of the seller by disposing of the property, after such
consolidation, to strangers in good faith and without notice. The chances of the seller a retro to recover his property would thus
be nullified, even if the transaction were really proved to be a mortgage and not a sale.

From the facts of this case it is clear that the requisite of an ordinary civil action has not been followed. For, as stated, no summons was
served on the respondents-vendors. Assuming that respondents-vendors' motion to postpone may be taken as voluntary submission to
the lower court's jurisdiction — producing the effect or service of summons — still, they should have been given 15 days therefrom to
file an answer. The Court of First Instance instead forthwith rendered judgment, so that respondents-vendors were deprived of their
right to be heard, in violation of Article 1607 of the New Civil Code.

WHEREFORE, the writ of certiorari is granted, the judgment in question is set aside, and respondent Judge is ordered to allow herein
petitioners to file, within 15 days from notice, their answer in Special Civil Case No. 2827. No costs. So ordered.

Bengzon, C.J., Bautista Angelo, Concepcion, Dizon, Makalintal and Zaldivar, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-27136 April 30, 1973

HEIRS OF JOSE A. ARCHES, plaintiffs-appellants,

vs.
MARIA B. VDA. DE DIAZ, defendant-appellee.

Ramon Quisumbing, Jr. and Claro A. Arches for plaintiffs-appellants.

Rafael Declare for defendant-appellee.

MAKALINTAL, Actg. C.J.:

This is an appeal from the order dated September 8, 1966 of the Court of First Instance of Capiz dismissing the complaint in its Civil
Case No. V-2903 and from the order dated October 3, 1966 denying the motion for reconsideration.
On July 6, 1966 the heirs of Jose A. Arches filed a complaint against Maria B. Vda. de Diaz in the court a quo, alleging inter alia: that on
January 21, 1954 the defendant executed in favor of the late Jose A. Arches a deed of sale with pacto de retro * over a parcel of land
known as Lot No. 2706 of the Cadastral Survey of Capiz for and in consideration of P12,500.00 that Jose A. Arches during his lifetime
filed a petition on November 20, 1958 in Cadastral Case No. 6, L.R.C. Record No. 338 of the Court of First Instance of Capiz, to
consolidate ownership over the lot; that the defendant opposed the petition alleging among other things that the said deed of sale
with pacto de retro did not express the true intention of the parties, which was merely to constitute a mortgage on the proper security for
a loan; that after hearing the case on the merit trial court, in its order dated March 8, 1960, denied the petition holding in effect that the
contract was an equitable mortgage; that Jose A. Arches appealed to the Court of Appeals, which on December 29, 1964 rendered
judgment affirming the order of the trial court; that Jose A. Arches filed in this Court a petition for certiorari to review the decision of the
appellate court, but in a resolution dated March 29, 1965, which became final and executory on May 29, 1965, this Court dismissed the
petition on the ground that the issues involved were factual; that in addition to the sum of P12,500.00, the consideration mentioned in
the deed of sale a retro, Jose A. Arches spent P1,543.70 in connection with the reconstitution of the title to Lot No. 2706 in the name of
the vendor and in paying the real estate taxes on said lot for the years 1951 to 1960; that Jose A. Arches died on August 18, 1965,
before he could file an action in court for the collection of the aforestated sums from the defendant; that on May 31, 1966, the
petitioners, as forced heirs of the deceased Jose A. Arches, demanded by registered letter from defendant the payment of the sum of
P12,500.00, the consideration mentioned in the sale a retro, and reimbursement of the sum of P1,543.70; and that the defendant failed
and refused to pay. They, therefore, prayed among things that the defendant be ordered to pay the aforementioned sums, plus
damages.

Instead of answering the complaint the defendant moved to dismiss it on the ground that the first cause of action recovery of the sum of
P12,500.00 was barred by the statute limitations and that the second cause of action for reimbursement of the sum of P1,543.70,
standing alone not within the jurisdiction of the trial court. The plaintiffs filed their opposition. The court overruled the plea of
prescription, stating that the ten-year prescriptive commenced on August 29, 1965, when the resolution of this Court dismissing the
petition for certiorari filed by the late Jose A. Arches became final and executory, and not from January 21, 1955, the date the one-year
period of repurchase expired, as claimed by the defendant. The defendant moved to reconsider, alleging res judicata and multiplicity of
suits as additional grounds for dismissal. In an order dated September 8, 1966, the trial court set aside its previous order and dismissed
the complaint. Said the court:

When an action is barred by a prior judgment, by res judicata and estoppel, such action in effect is devoid of cause.
Failure to specifically invoke it in the motion to dismiss does not operate as waiver or abandonment thereof. This
should be more so, inasmuch as the facts are apparent from the complaint itself.

For it appears that when the late Jose A. Arches, father and predecessor in interest of plaintiffs herein, petitioned this
Court on November 20, 1958, to consolidate in his name ownership and title over Lot 2706, Capiz Cadastre, by virtue
of the alleged sale a retro executed by defendant herein in his favor on January 21, 1954, with reservation of vendor's
right to repurchase in one year, said Jose A. Arches, had two remedies, inconsistent though they certainly were — (a)
to consolidate title and ownership, and (b) to foreclose in the event the deed of sale a retro be declared one of
equitable mortgage.

Said Jose A. Arches elected to consolidate without alternatively opting to foreclose. When he opted to consolidate
and prosecuted his option to a final determination he was thereby barred from pursuing the other alternative and
inconsistent remedy of foreclosure of mortgage or collection of debt.

Having failed to obtain a reconsideration of the order of dismissal, the plaintiffs instituted the instant appeal.

We find the appeal well taken. In the first place, res judicata as a ground to dismiss was waived by the appellee when she failed to
include it in her motion for that purpose. Rule 15, Section 8, of the Rules of Court provides that "(A) motion attacking a pleading or
proceeding shall include all objections then available, and all objections not so included shall be deemed waived." Secondly, the
decision of the cadastral court, holding in effect that the sale with pacto de retro was an equitable mortgage and consequently
dismissing the petition to consolidate ownership, did not constitute an adjudication of the right to foreclose the mortgage or to collect the
indebtedness. In the case of Correa vs. Mateo and Icasiano,1 wherein an unrecorded pacto de retro sale was construed as an equitable
mortgage, it was ruled that the plaintiff had the right "within sixty days after final judgment, for a failure to pay the amount due and owing
him, to foreclose his mortgage in a proper proceeding and sell all or any part of the ten parcels of land to satisfy his debt." In effect this
Court recognized the right of the plaintiff to enforce his lien in a separate proceeding notwithstanding the fact that he had failed to obtain
judgment declaring him the sole and absolute owner of the parcels of land in question.

The law abhors injustice. It would be unjust in this case to allow the defendant to escape payment of his debt and, worse still, to
rationalize such a result by his very claim that he is a debtor and not, as the plaintiff says, a vendor of property in favor of the latter.
Strictly speaking, where the petition of the vendee in a pacto de retro sale is for a judicial order pursuant to Article 1607 of the Civil
Code, so that consolidation of ownership by virtue of the failure of the vendor to redeem may be recorded in the Registry of Property,
the right of action to foreclose the mortgage or to collect the indebtedness arises from the judgment of the court declaring the contract
as equitable mortgage. Although an alternative prayer to this effect may be made in the petition, the same cannot but be conditional,
that is, only in the event such a declaration made, contrary to the plaintiff's claim and the principal relief he seeks. His failure to make
that alternative prayer, and the failure of the court to grant it in the judgment dismissing the petition, should not be considered as a bar
to collecting the indebtedness in a proper action for that purpose.
Wherefore, the orders appealed from are hereby reversed and the case remanded to the trial court for further proceedings. Costs
against defendant-appellee.

Zaldivar, Fernando, Teehankee, Makasiar, Antonio and Esguerra, JJ., concur.

Castro, J., took no part.

 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-25931 October 30, 1978

ROBERTO LABASAN, AVELINO LABASAN, JOSEFINA LABASAN, and MARCELA COLOMA, petitioners,
vs.
ADELA LACUESTA, DOMINGA LACUESTA and NORBERTO LACUESTA, respondents.

Tipon & Fernandez for petitioners.

Andres B. Plan for respondents.

MUÑOZ PALMA, J.:

Is the contract entered into between spouses Clemente and Hermenigilda Lacuesta on one hand and spouses Gelacio and Marcela
Labasan on the other a pacto de retro sale or an equitable mortgage? This is the lone question involved in this litigation.

Sometime in 1927, spouses Lacuesta were the owners of an unregistered, irrigated riceland located in the municipality of Badoc,
province of Ilocos Norte, and declared for taxation purposes under Tax Declaration No. 026181 in the name of Hermenigilda
Lacuesta. 1 On April 20, 1927, the spouses executed in favor of spouses Labasan a document written in the Ilocano dialect the English
translation of which marked as Exhibit "1-A" follows:

We, the spouses, Clemente Lacuesta and Hermenigilda Lacuesta, both of legal age, are residents of barrio
Salapasap No. 16, Badoc, Ilocos Norte. We declare the truth that in view of our urgent necessity for money, we
thought of selling one parcel of land owned by us situated in Sitio Mabusay No. 18 within the jurisdiction of said
municipality, to the spouses Gelacio Labasan and Marcela Coloma, residents of barrio Puzo of the municipality of
Pinili, Ilocos Norte, for the amount of TWO HUNDRED TWENTY-FIVE (P225.00) pesos, Philippine Currency, which
we have already received in lump sum.

The sale of this parcel of land owned by us to the said spouses can be reconveyed provided ten years shall not have
elapsed and we have the same amount of the money which we had taken from them, as agreed upon by us .

This parcel of land has a circumference of 240 square meters, yielding two 'uyones' and three baares of palay.
Bounded on the north by Fernando Lacuesta and Vicente Coloma; on the east by Matias Coloma, on the south by
Valeriana Lacuesta and on the west by Fernando Lacuesta.

We further agreed that during the period of their ownership of this parcel of land, I will be responsible for all tenancy
matters over this land.

For this reason this receipt is made as security to the spouses for all matters pertaining thereto. But in case there
shall arise adverse claims with respect to the ownership of the vendees over this parcel of land I and my wife shall
answer the same as well as defray all expenses of litigation an if we shall be adjudged otherwise, and, if the vendees
of this parcel of land shall be deprived of their ownership, we shall give another parcel of land with the same yield and
area so that our sacred agreement shall not be beclouded with bad faith.

In witness to the truth of what we have done, we sign our names for those who know how to write and affix the cross
for those who do not know how to write, together with the signatures of the witnesses.

Done this 20th of April, 1927. (pp. 8-10, Petitioner's brief)

On April 23, 1948 spouses Lacuesta filed with the Court of First Instance of Ilocos Norte a complaint against spouses Labasan, seeking
the reconveyance of the parcel of land subject of the above-quoted document. During the pendency of the case, the Lacuesta died and
were substituted by their children, all surnamed Lacuesta. In the meantime, defendant Gleacio Labasan also died and was substituted
by his children.

In the complaint, it was alleged that spouses Lacuesta secured a loan P225.00 from Gelacio Labasan and as security for the payment
of that loan, they offered their riceland; sometime in 1943, they tendered payment of the loan but Labasan refused to accept it; after
"liberation" they offered again to pay their loan and demanded the return of their land but they were once more refused because
defendants claimed that they were the owners of the property. 1-A

In the answer to the complaint only one special defense was raised — that the Lacuesta conveyed by means of a written document the
land with right to repurchase the same within the period of ten years, but because of plaintiff's failure to exercise that right within the
stipulated period, the vendees a retro have became the absolute owners of the land and the latter in fact donated the property to their
son Roberto Labasan who is now the owner of the property. 2

On the basis of the evidence adduced by the parties the trial court presided then by Judge Wenceslao M. Ortega rendered on May 11,
1959 a decision declaring that the document executed by the Lecuestas was a pacto de retro sale and that the latter lost their right to
redeem the land for not having taken any step within the agreed of ten years. 3

The plaintiffs elevated the case to the Court of Appeals on the sole issue of the nature of the document marked Exhibit "1-A".

The Court of Appeals, in its decision of February 18, 1966, set aside the judgment of the trial court and declared the contract an
equitable mortgage and ordered the defendants Labasan to reconvey the land to the Lacuestas without the latter paying the loan of
P225.00 inasmuch as the same was deemed paid from the fruits of the property which the Labasans had been receiving for the past
thirty-two years. 4

We affirm the decision of the appellate court under well-settled principles embodied in the law and existing jurisprudence.

1. It is a basic fundamental rule in the interpretation of a contract that if the terms thereof are clear and leave no doubt upon the
intention of the contracting parties the literal meaning of the stipulation shall control, 5 but when the words appear to be contrary to the
evident intention of the parties, the latter shall prevail over the former. 6

Examining Exhibit "1-A" in this case, it is evident that the terms of the document are not clear and explicit on the real intent of the
parties when they executed the aforesaid document. For instance, the words or clauses, vis: "urgent necessity for money," "selling the
land," ownership," I will be responsible for all tenancy matters," "This receipt is made as security," are sufficient to create a doubt as to
what the document truly purports to be. Under those terms is the contract one of loan with security or a pacto de retro sale?

2. In view of the ambiguity caused by conflicting terminologies in the document, it becomes necessary to inquire into the reason behind
the transaction and other circumstances accompanying it so as to determine the true intent of the parties. Once the intent becomes
clear then it shall be made to prevail over what on its face the document appears to be. Each case is to be resolved on the basis of the
circumstances attending the transaction.

Article 1371, New Civil Code: In order to judge the intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered. (same as Art. 1282, Old Civil Code)

In the case at bar, the collective weight of the following considerations lead Us to agree with the findings and conclusion of the
appellate court that Exhibit "1-A" is a mere loan with security and not a pacto de retro sale.

First, the reason behind the execution of Exhibit "1-A" was that the Lacuestas were in "urgent necessity for money" and had to secure a
loan of P225.00 from Gelacio Labasan for which the riceland was given as "security". In Jayme, et al. v. Salvador, et al., 1930, this
Court upheld a judgment of the Court of First Instance of Iloilo which found the transaction between the parties to be a loan instead of a
sale of real property notwithstanding the terminology used in the document, after taking into account the surrounding circumstances of
the transaction. The Court through Justice Norberto Romualdez stated that while it was true that plaintiffs were aware of the contents of
the contracts, the preponderance of the evidence showed however that they signed knowing that said contracts did not express their
real intention, and if they did so notwithstanding this, it was due to the urgent necessity of obtaining funds. 7 "Necessitous men are not,
truly speaking, free men; but to answer a present emergency, will submit to any terms that the crafty may impose upon them." 8

Second, the amount of P225.00, even in 1927, was too inadequate for a purchase price of an irrigated riceland with an alleged
"perimeter" of 240 meters and an "area of 1,269 square meters" yielding annually one "uyon" and five "baares" of palay, 9 the land
being valued at the time for no less than P1,000.00. 9-A In Quinga v. Court of Appeals, et al., 1961, although the contract between the
parties upon its face was one of sale, nevertheless, this Court upheld the findings of the Court of Appeals that the transaction was not a
sale but a loan secured by an equitable mortgage under the prevailing circumstances of the case, such as, that the price of the land
was grossly inadequate and the vendor remained in possession of the land and enjoyed the fruits. 10

In fact, Article 1602 paragraph 1 of the New Civil Code expressly provides that in case of doubt a contract purporting to be a sale with a
right to repurchase shall be construed as an equitable mortgage when the price or consideration of the sale is unusually inadequate.

Third, although symbolically the possession of the property was transferred to Gelacio Labasan, it was Lacuesta, the supposed vendor,
who continued to be in physical possession of the property, took charge of its cultivation, and all tenancy matters. The second
paragraph of Article 1602 of the New Civil Code provides that when the vendor remains in possession as lessee or otherwise, the
contract shall be construed as an equitable mortgage.
Fourth, Gelacio Labasan, the supposed vendee a retro never declared the property in his name for taxation purposes nor did he pay
the taxes thereon since the execution of the document in 1927. Roberto Labasan, now one of the petitioners and who claims to have
acquired the property from his father Gelacio by way of donation, declared the property in his name under Tax Declaration No. 55683-
C-1 only sometime in 1944. (p. 13, Respondents' brief; see also CFI decision, p. 18, Record on Appeal) In Santos v. Duata, this Court,
in affirming a decision of the Court of Appeals, considered the facts that the vendor remained in possession of the land and continued
paying the taxes thereon significant circumstances which justified a judgment holding the transaction between the parties as an
equitable mortgage and not a pacto de retro sale, thereby applying Article 1602 of the New Civil Code which the Court held to be a
remedial measure which may be applied retroactively to cases arising prior to the effectivity of the New Civil Code. 11

Fifth, as noted in the decision of the appellate court, the supposed vendees a retro, now the herein petitioners, failed to take any step
since 1927 to consolidate their alleged ownership over the land. Under Article 1509 of the Old or Spanish Civil Code, if the vendor failed
to redeem within the period agreed upon, the vendee's title became irrevocable by the mere registration of an affidavit of consolidation.
Thus, under the old law, a judicial order was not necessary as is required now under Article 1607 of the New Civil Code. The failure of
Gelacio Labasan or his heirs to carry out that act of consolidation strongly corroborates the claim of Lacuesta that there was no intent at
all on the part of the parties to transfer ownership of the riceland in question.

3. Finally, We have the rule that in case of any doubt concerning the surrounding circumstances in the execution of a contract, the least
transmission of rights and interests shall prevail if the contract is gratuitous, and, if onerous the doubt is to be settled in favor of the
greatest reciprocity of interest. 12

Thus, in the early case of Olino v. Medina 1909, Olino filed a complaint against Medina to recover a parcel of riceland which he alleged
to have mortgaged for P175.00 and which Medina refused to return on the ground that the latter allegedly bought the property. In
deciding the conflict of allegations between the parties, this Court, through Justice Florentino Torres, considered the transaction over
the property as a loan, reasoning that "such a contract involves a smaller transmission of rights and interests, and the debtor does not
surrender all rights to his property but simply confers upon the creditor the right to collect what is owing from the value of the thing given
as security, there existing between the parties a greater reciprocity of rights and obligations. 13

With the foregoing considerations, there is no further necessity for Us to dwell on the other reasons given by the Court of Appeals in
rendering judgment in favor of private respondents, which reasons We believe are not decisive of the issue posed in this case.

PREMISES CONSIDERED, We find no reversible error in the petition under review and We affirm the same. With costs against
petitioners.

So ordered.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-15499 February 28, 1962

ANGELA M. BUTTE, plaintiff-appellant,

vs.
MANUEL UY and SONS, INC., defendant-appellee.

Delgado, Flores and Macapagal for plaintiff-appellant.

Pelaez and Jalandoni for defendant-appellee.

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

Appeal from a decision of the Court of First instance of Manila dismissing the action for legal redemption filed by plaintiff-appellant.

It appears that Jose V. Ramirez, during his lifetime, was a co-owner of a house and lot located at Sta. Cruz, Manila, as shown by
Transfer Certificate of Title No. 52789, issued in the name of the following co-owners: Marie Garnier Vda. de Ramirez, 1/6; Jose V.
Ramirez, 1/6; Jose E. Ramirez, 1/6; Rita de Ramirez, 1/6; and Jose Ma. Ramirez, 1/6.

On October 20, 1951, Jose V. Ramirez died. Subsequently, Special Proceeding No. 15026 was instituted to settle his estate, that
included the one-sixth (1/6) undivided share in the aforementioned property. And although his last will and testament, wherein he
bequeathed his estate to his children and grandchildren and one-third (1/3) of the free portion to Mrs. Angela M. Butte, hereinafter
referred to as plaintiff-appellant, has been admitted to probate, the estate proceedings are still pending up to the present on account of
the claims of creditors which exceed the assets of the deceased. The Bank of the Philippine Islands was appointed judicial
administrator.

Meanwhile, on December 9, 1958, Mrs. Marie Garnier Vda. de Ramirez, one of the co-owners of the late Jose V. Ramirez in the Sta.
Cruz property, sold her undivided 1/6 share to Manuel Uy & Sons, Inc. defendant-appellant herein, for the sum of P500,000.00. After
the execution by her attorney-in-fact, Mrs. Elsa R. Chambers, of an affidavit to the effect that formal notices of the sale had been sent to
all possible redemptioners, the deed of sale was duly registered and Transfer Certificate of Title No. 52789 was cancelled in lieu of
which a new one was issued in the name of the vendee and the other-co-owners.

On the same day (December 9, 1958), Manuel Uy & Sons, Inc. sent a letter to the Bank of the Philippine Islands as judicial
administrator of the estate of the late Jose V. Ramirez informing it of the above-mentioned sale. This letter, together with that of the
bank, was forwarded by the latter to Mrs. Butte c/o her counsel Delgado, Flores & Macapagal, Escolta, Manila, and having received the
same on December 10, 1958, said law office delivered them to plaintiff-appellant's son, Mr. Miguel Papa, who in turn personally handed
the letters to his mother, Mrs. Butte, on December 11 and 12, 1958. Aside from this letter of defendant-appellant, the vendor, thru her
attorney-in-fact Mrs. Chambers, wrote said bank on December 11, 1958 confirming vendee's letter regarding the sale of her 1/6 share
in the Sta. Cruz property for the sum of P500,000.00. Said letter was received by the bank on December 15, 1958 and having endorsed
it to Mrs. Butte's counsel, the latter received the same on December 16, 1958. Appellant received the letter on December 19, 1958.

On January 15, 1959, Mrs. Angela M. Butte, thru Atty. Resplandor Sobretodo, sent a letter and a Philippine National Bank cashier's
check in the amount of P500,000.00 to Manuel Uy & Sons, Inc. offering to redeem the 1/6 share sold by Mrs. Marie Garnier Vda. de
Ramirez. This tender having been refused, plaintiff on the same day consigned the amount in court and filed the corresponding action
for legal redemption. Without prejudice to the determination by the court of the reasonable and fair market value of the property sold
which she alleged to be grossly excessive, plaintiff prayed for conveyance of the property, and for actual, moral and exemplary
damages.

After the filing by defendant of its answer containing a counterclaim, and plaintiff's reply thereto, trial was held, after which the court
rendered decision on May 13, 1959, dismissing plaintiff's complaint on the grounds that she has no right to redeem the property and
that, if ever she had any, she exercised the same beyond the statutory 30-day period for legal redemptions provided by the Civil Code.
The counterclaim of defendant for damages was likewise dismissed for not being sufficiently established. Both parties appealed directly
to this Court.

Based on the foregoing facts, the main issues posed in this appeal are: (1) whether or not plaintiff-appellant, having been bequeathed
1/3 of the free portion of the estate of Jose V. Ramirez, can exercise the right of legal redemption over the 1/6 share sold by Mrs. Marie
Garnier Vda. de Ramirez despite the presence of the judicial administrator and pending the final distribution of her share in the testate
proceedings; and (2) whether or not she exercised the right of legal redemption within the period prescribed by law.
The applicable law involved in the present case is contained in Articles 1620, p. 1, and 1623 of the Civil Code of the Philippines, which
read as follows:

ART. 1620. A co-owner of a thing may exercise the right of redemption in case the shares of all the other-co-owners or of any
of them, are sold to a third person. If the price of the alienation is grossly excessive, the redemptioner shall pay only a
reasonable one.

Should two or more co-owners desire to exercise the right of redemption, they may only do so in proportion to the share they
may respectively have in the thing owned in common. (1522a)

ART. 1623. The right of legal predemption or redemption shall not be exercised except within thirty days from the notice in
writing by the respective vendor, or by the vendor, as the case may be. The deed of sale shall not be accorded in the Registry
of Property, unless accompanied by an affidavit of the vendor that he has given written notice thereof at all possible
redemptioners.

The right of redemption of co-owners excludes that of adjoining owners. (1524a)

That the appellant Angela M. Butte is entitled to exercise the right of legal redemption is clear. As testamentary heir of the estate of J.V.
Ramirez, she and her co-heirs acquired an interest in the undivided one-sixth (1/6) share owned by her predecessor (causante) in the
Santa Cruz property, from the moment of the death of the aforesaid co-owner, J.V. Ramirez. By law, the rights to the succession of a
deceased persons are transmitted to his heirs from the moment of his death, and the right of succession includes all property rights and
obligations that survive the decedent.

ART. 776. The inheritance includes all the property, rights and obligations of a person which are not extinguished by his death.
(659)

ART. 777. The rights to the succession are transmitted from the moment of the death of the decedent. (657a)

ART. 947. The legatee or devisee acquires a right to the pure and simple legacies or devisees from the death of the testator,
and transmits it to his heirs. (881a)

The principle of transmission as of the time of the predecessor's death is basic in our Civil Code, and is supported by other related
articles. Thus, the capacity of the heir is determined as of the time the decedent died (Art. 1034); the legitime is to be computed as of
the same moment(Art. 908), and so is the in officiousness of the donation inter vivos (Art. 771). Similarly, the legacies of credit and
remission are valid only in the amount due and outstanding at the death of the testator (Art. 935),and the fruits accruing after that
instant are deemed to pertain to the legatee (Art. 948).

As a consequence of this fundamental rule of succession, the heirs of Jose V. Ramirez acquired his undivided share in the Sta. Cruz
property from the moment of his death, and from that instant, they became co-owners in the aforesaid property, together with the
original surviving co-owners of their decedent (causante). A co-owner of an undivided share is necessarily a co-owner of the whole.
Wherefore, any one of the Ramirez heirs, as such co-owner, became entitled to exercise the right of legal redemption (retracto de
comuneros) as soon as another co-owner (Maria Garnier Vda. de Ramirez) had sold her undivided share to a stranger, Manuel Uy &
Sons, Inc. This right of redemption vested exclusively in consideration of the redemptioner's share which the law nowhere takes into
account.

The situation is in no wise altered by the existence of a judicial administrator of the estate of Jose V. Ramirez while under the Rules of
Court the administrator has the right to the possession of the real and personal estate of the deceased, so far as needed for the
payment of the decedent's debts and the expenses of administration (sec. 3, Rule 85), and the administrator may bring or defend
actions for the recovery or protection of the property or rights of the deceased (sec. 2, Rule 88), such rights of possession and
administration do not include the right of legal redemption of the undivided share sold to Uy & Company by Mrs. Garnier Ramirez. The
reason is obvious: this right of legal redemption only came into existence when the sale to Uy & Sons, Inc. was perfected, eight (8)
years after the death of Jose V. Ramirez, and formed no part of his estate. The redemption right vested in the heirs originally, in their
individual capacity, they did not derivatively acquire it from their decedent, for when Jose V. Ramirez died, none of the other co-owners
of the Sta. Cruz property had as yet sold his undivided share to a stranger. Hence, there was nothing to redeem and no right of
redemption; and if the late Ramirez had no such right at his death, he could not transmit it to his own heirs. Much less could Ramirez
acquire such right of redemption eight years after his death, when the sale to Uy & Sons, Inc. was made; because death extinguishes
civil personality, and, therefore, all further juridical capacity to acquire or transmit rights and obligations of any kind (Civil Code of the
Phil., Art. 42).

It is argued that the actual share of appellant Mrs. Butte in the estate of Jose V. Ramirez has not been specifically determined as yet,
that it is still contingent; and that the liquidation of estate of Jose V. Ramirez may require the alienation of the decedent's undivided
portion in the Sta. Cruz property, in which event Mrs. Butte would have no interest in said undivided portion. Even if it were true, the fact
would remain that so long as that undivided share remains in the estate, the heirs of Jose V. Ramirez own it, as the deceased did own it
before his demise, so that his heirs are now as much co-owners of the Sta. Cruz property as Jose V. Ramirez was himself a co-owner
thereof during his lifetime. As co-owners of the property, the heirs of Jose V. Ramirez, or any one of them, became personally vested
with right of legal redemption as soon as Mrs. Garnier sold her own pro-indiviso interest to Uy & Sons. Even if subsequently, the
undivided share of Ramirez (and of his heirs) should eventually be sold to satisfy the creditors of the estate, it would not destroy their
ownership of it before the sale, but would only convey or transfer it as in turn sold (of it actually is sold) to pay his creditors. Hence, the
right of any of the Ramirez heirs to redeem the Garnier share will not be retroactively affected. All that the law requires is that the legal
redemptioner should be a co-owner at the time the undivided share of another co-owner is sold to a stranger. Whether or not the
redemptioner will continue being a co-owner after exercising the legal redemptioner is irrelevant for the purposes of law.

Nor it can be argued that if the original share of Ramirez is sold by the administrator, his heirs would stand in law as never having
acquired that share. This would only be true if the inheritance is repudiated or the heir's quality as such is voided. But where the
heirship is undisputed, the purchaser of hereditary property is not deemed to have acquired the title directly from the deceased
Ramirez, because a dead man can not convey title, nor from the administrator who owns no part of the estate; the purchaser can only
derive his title from the Ramirez heirs, represented by the administrator, as their trustee or legal representative.

The right of appellant Angela M. Butte to make the redemption being established, the next point of inquiry is whether she had made or
tendered the redemption price within the 30 days from notices as prescribed by law. This period, be it noted, is peremptory, because
the policy of the law is not to leave the purchaser's title in uncertainty beyond the established 30-day period. In considering whether or
not the offer to redeem was timely, we think that the notice given by the vendee (buyer) should not be taken into account. The text of
Article 1623 clearly and expressly prescribes that the thirty days for making the redemption are to be counted from notice in writing by
the vendor. Under the old law (Civ. Code of 1889, Art. 1524), it was immaterial who gave the notice; so long as the redeeming co-owner
learned of the alienation in favor of the stranger, the redemption period began to run. It is thus apparent that the Philippine legislature in
Article 1623 deliberately selected a particular method of giving notice, and that method must be deemed exclusive (39 Am. Jur., 237;
Payne vs. State, 12 S.W. [2d] 528). As ruled in Wampler vs. Lecompte, 150 Atl. 458 (affd. in 75 Law Ed. [U.S.] 275) —

Why these provisions were inserted in the statute we are not informed, but we may assume until the contrary is shown, that a
state of facts in respect thereto existed, which warranted the legislature in so legislating.

The reasons for requiring that the notice should be given by the seller, and not by the buyer, are easily divined. The seller of an
undivided interest is in the best position to know who are his co-owners that under the law must be notified of the sale. Also, the notice
by the seller removes all doubts as to the fact of the sale, its perfection; and its validity, the notice being a reaffirmation thereof, so that
the party need not entertain doubt that the seller may still contest the alienation. This assurance would not exist if the notice should be
given by the buyer.

The notice which became operative is that given by Mrs. Chambers, in her capacity as attorney-in-fact of the vendor Marie Garnier Vda.
de Ramirez. Under date of December 11, 1958, she wrote the Administrator Bank of the Philippine Islands that her principal's one-sixth
(1/6) share in the Sta. Cruz property had been sold to Manuel Uy & Sons, Inc. for P500,000.00. The Bank received this notice on
December 15, 1958, and on the same day endorsed it to Mrs. Butte, care of Delgado, Flores and Macapagal (her attorneys), who
received the same on December 16, 1958. Mrs. Butte tendered redemption and upon the vendee's refusal, judicially consigned the
price of P500,000.00 on January 15, 1959. The latter date was the last one of the thirty days allowed by the Code for the redemption,
counted by excluding December 16, 1958 and including January 15, 1959, pursuant to Article 13 of the Civil Code. Therefore, the
redemption was made in due time.

The date of receipt of the vendor's notice by the Administrator Bank (December 15) can not be counted as determining the start of thirty
days; for the Administrator of the estate was not a proper redemptioner, since, as previously shown, the right to redeem the share of
Marie Garnier did not form part of the estate of Jose V. Ramirez.

We find no jurisdiction for appellant's claim that the P500,000,00. paid by Uy & Sons, Inc. for the Garnier share is grossly excessive.
Gross excess cannot be predicated on mere individual estimates of market price by a single realtor.

The redemption and consignation having been properly made, the Uy counterclaim for damages and attorney's fees predicated on the
assumption that plaintiff's action was clearly unfounded, becomes untenable.

PREMISES CONSIDERED, the judgment appealed from is hereby reversed and set aside, and another one entered:

(a) Declaring the consignation of P500,000,00 made by appellant Angela M. Butte duly and properly made;

(b) Declaring that said appellant properly exercised in due time the legal redemption of the one-sixth (1/6) undivided portion of
the land covered by Certificate of Title No. 59363 of the Office of the Register of Deeds of the City of Manila, sold on
December 9, 1958 by Marie Garnier Vda. de Ramirez to appellant Manuel Uy & Sons, Inc.

(c) Ordering appellant Manuel Uy & Sons, Inc. to accept the consigned price and to convey to Angela M. Butte the undivided
portion above referred to, within 30 days from the time our decision becomes final, and subsequently to account for the rentals
and fruits of the redeemed share from and after January 15, 1958, until its conveyance; and.

(d) Ordering the return of the records to the court of origin for further proceedings conformable to this opinion.
Without finding as to costs.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Barrera and Dizon, JJ., concur.
Paredes and De Leon, JJ., took no part.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-27759 April 17, 1970

CRESENCIANO DE LA CRUZ, plaintiff-appellant,

vs.

JULIO CRUZ, ZENAIDA MONTES and ALFONSO MIRANDA, defendants-appellees.

Segundo C. Mastrille for plaintiff-appellant.

E. A. Bernabe for defendants-appellees.

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

Direct appeal from a summary judgment of the Court of First Instance of Rizal (Pasay City), in its Civil Case No. 2723-P, dismissing the
plaintiff's complaint against the defendants for the pre-emption and legal redemption of a portion of registered land and granting, in the
main, the latter's counterclaim for damages and attorneys' fees.

The undisputed facts are as follows.

The spouses Julio Cruz and Zenaida Montes were once the owners of a parcel of land covered by Transfer Certificate of Title No.
10680 of the Office of the Registry of Deeds for Pasay City, which parcel of land is more particularly described therein as follows:

A PARCEL OF LAND (Lot 10) of the subdivision plan Psd-790, being a portion of the land described on plan Psu-
2031-Amd. 2-A, LRC (G.L.R.O.) Record No. 2484, situated in the Barrio of Malibay, Municipality of Pasay, Province
of Rizal. Bounded on NE., by Lot 9 of the subdivision plan: containing an area of SIX HUNDRED SIXTY TWO (662)
SQUARE METERS.'" On 16 December 1965, Julio Cruz and Zenaida Montes sold a portion of the aforesaid parcel of
land to the plaintiff-appellant, Cresenciano de la Cruz. The deed of absolute sale described the portion sold as —

... a portion with an area of Three Hundred and Thirty-One Square Meters (331 sq. m.) on the northern part ...

Inserted in the deed was a stipulation, reading as follows:

It is hereby agreed that a plan will be made on the whole parcel of land above-described showing the portion with an
area of Three Hundred and Thirty-one Square Meters (331 sq. m), hereby conveyed, and the remaining portion with
an area of Three Hundred Thirty-One Square Meters (331 sq. m.), together with the technical description of each
portion, that is, the portion hereby conveyed, and the portion remaining.

On 28 February 1966, Julio Cruz and Zenaida Montes sold the remaining portion of the land to Alfonso Miranda. The deed of sale
described the portion sold as —

... that unsegregated portion with an area of THREE HUNDRED THIRTY ONE (331) SQUARE METERS bordering C.
Jose and F. Francisco Streets, Malibay, Pasay City, which is at the southern part of the parcel of land covered by
T.C.T. No. 10680 above-described.

Under date of 25 April 1966, Cresenciano de la Cruz, filed a complaint against Julio Cruz, Zenaida Montes and Alfonso Miranda,
praying the court to have himself (plaintiff-appellant Cresenciano de la Cruz) declared as entitled to purchase, by way of pre-emption
and legal redemption, the one-half (½) portion of the land that was sold to Miranda.

Upon joinder of issues, the parties agreed, during the pre-trial of the case, to submit the case for decision on the pleadings, and, on the
basis thereof, the court below rendered judgment, as stated at the beginning of this decision.
Not satisfied with the court's decision, plaintiff-appellant Cresenciano de la Cruz interposed the present direct appeal to the Supreme
Court and assigns the following errors as having been committed by the lower court;

1. The trial court erred in holding that plaintiff-appellant and defendants-appellees Julio Cruz and Zenaida Montes are
not co-owners of the parcel of land embraced in Transfer Certificate of Title No. 10680 of the Office of the Register of
Deeds for Pasay City.

2. The trial court erred in concluding that plaintiff is not entitled to the right of pre-emption or legal redemption.

3. The trial court erred in awarding damages in the amount of P2,000.00 in favor of defendants-appellees Julio Cruz
and Zenaida Montes, and another P2,000.00 in favor of their co-defendant-appellee Alfonso Miranda.

4. The trial court finally erred in ordering plaintiff-appellant to pay defendants-appellees the sum of P3,000.00 as
attorney's fees.

Appellant's theory, under his first two assignments of error, is that after he bought from the spouses Julio Cruz and Zenaida Montes the
northern half of the parcel of land embraced by Transfer Certificate of Title No. 10680, he and the spouses became co-owners of the
said parcel of land, "the plaintiff owning one-half (½) (northern part) and defendants Julio Cruz and Zenaida Montes owning the
remaining one-half (1/2) portion (southern part)"; or that, "considering the situation or location of the parts being owned by plaintiff and
defendants Julio Cruz and Zenaida Montes, respectively, ... the parts are adjacent to each other, and consequently, plaintiff and
defendants Julio Cruz and Zenaida Montes are adjacent owners", such that plaintiff has the right of pre-emption or legal redemption
over the portion that was subsequently sold to Alfonso Miranda (Quoted portions taken from appellant's brief, pages 3-4).

The foregoing theory is untenable. Tested against the concept of co-ownership, as authoritatively expressed by the commentators,
appellant is not a co-owner of the registered parcel of land, taken as a unit or subject of co-ownership, since he and the spouses do not
"have a spiritual part of a thing which is not physically divided" (3 Sanchez Roman 162), nor is each of them an "owner of the whole,
and over the whole he exercises the right of dominion, but he is at the same time the owner of a portion which is truly abstract ..." (3
Manresa 405). The portions of appellant-plaintiff and of the defendant spouses are concretely determined and identifiable, for to the
former belongs the northern half, and to the latter belongs the remaining southern half, of the land. That their respective portions are not
technically described, or that said portions are still embraced in one and the same certificate of title, does not make said portions less
determinable or identifiable or distinguishable, one from the other, nor that dominion over each portion less exclusive, in their respective
owners. Hence, no right of redemption among co-owners exists.

Nor is plaintiff-appellant entitled, as an adjoining owner, to the right of pre-emption or redemption over the southern portion of the parcel
of land because he had not alleged in his complaint and has not proved (since the case was submitted for decision on the pleadings)
that said portion is so small and so situated that a major portion thereof cannot be used for any practical purpose within a reasonable
time, having been bought merely for speculation (Article 1622, Civil Code; Soriente vs. CA, L-1734), 31 August 1963, 62 O.G. 7013, 8
SCRA 750).

The third assignment of error is concerned with the defendants' counterclaim. The court a quo awarded damages of P2,000.00 to the
spouses Cruz and another P2,000.00 to their co-defendant Alfonso Miranda because the court considered the allegations on two (2)
causes of action in the counterclaim as not specifically denied by the plaintiff-appellant and, therefore, deemed to have admitted said
allegations. The first cause of action, in brief, alleges that plaintiff had failed to cause the preparation and subdivision plan that would
serve as a basis for the issuance of separate titles for the northern and southern parts of the land, contrary to their agreement, and for
the inaction and delay on the part of plaintiff had caused damages in the amount of P5,000.00 to the counterclaimants. The second
cause of action, in turn, alleges that the plaintiff had refused to surrender the certificate of title, despite demands, to the Register of
Deeds, for annotation of a release of mortgage that said plaintiff had himself executed, thus preventing the dealing with the land, sans
the encumbrance, with third persons and prejudicing the counterclaimants in the sum of P5,000.00. Appellant's argument that the court
erred in awarding damages without proof of the amount of actual damage is well-taken, for even though the rule is that failure to deny
specifically the material allegations in the complaint (or counterclaim) is deemed an admission of the said allegations, an exception is
provided therefor, which is "other than those as to the amount of damage" (Section 1, Rule 9, Revised Rules of Court).

... Under Section 8, Rule 9 [Sec. 1, Rule 9 of the Revised Rules of Court], however, allegations regarding the amount
of damages are not deemed admitted even if not specifically denied, and so must be duly proved. Appellants did not
offer to present evidence to prove their damages but merely asked for judgment on the pleadings. Hence, they must
be considered to have waived or renounced their claim for damages ... (Rili, et al. vs. Chunaco, et al., L-6630, 29
February 1956, 98 Phil. 505, 507).

On his last assignment of error, appellant contests the award of attorney's fees on the ground that such fees do not accrue merely
because of an adverse decision. On the other hand, he does not claim that the court below had abused its discretion in giving the
award, which is a matter that is discretionary with it under Article 2208, Civil Code of the Philippines, specially since the action was
clearly unfounded (Heirs of Justiva, et al. vs. Gustilo, et al., L-16396, 31 January 1963, 7 SCRA 72; Lopez, et al. vs. Gonzaga, et al.,
L-18788, 31 January 1964, 10 SCRA 167).
FOR THE FOREGOING REASONS, the appealed decision is hereby affirmed, except insofar as it awarded damages to the appellees,
which is hereby reversed. No pronouncement as to costs.

Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee and Villamor, JJ., concur.

Barredo, J., took no part.