HEIRS OF GREGORIO LOPEZ, REPRESENTED BY ROGELIA LOPEZ, ET

AL., Petitioners, v. DEVELOPMENT BANK OF THE PHILIPPINES [NOW SUBSTITUTED BY

PHILIPPINE INVESTMENT TWO (SPV-AMC), INC.], Respondents.

DECISION

LEONEN, J.:

This case involves the application of the doctrine on innocent purchaser or mortgagee for
value. It also involves the application of the doctrines on sales by persons who are not owners
of the property.

This is a Rule 45 petition1 filed on October 15, 2010, assailing the Court of Appeals May 8, 2009
decision2 and August 16, 2010 resolution.3 The Court of Appeals reversed and set aside the
Regional Trial Court’s December 27, 2005 decision,4 which ordered the nullification of the
affidavit of self-adjudication executed by Enrique Lopez, and the documents relating to the sale
and mortgage of the property to respondent Development Bank of the Philippines.

Gregoria Lopez owned a 2,734-square-meter property in Bustos, Bulacan.5 She died on March
19, 19226 and was survived by her three sons: Teodoro Lopez, Francisco Lopez, and Carlos
Lopez.7 Tax Declaration No. 613 was issued under the names of Teodoro, Francisco, and
Carlos.8

Teodoro, Francisco, and Carlos died.9 Only Teodoro was survived by children: Gregorio,
Enrique, Simplicio, and Severino.10

Petitioners in this case are Simplicio substituted by his daughter Eliza Lopez, and the heirs of
Gregorio and Severino.11 Enrique is deceased.12

Petitioners discovered that on November 29, 1990, Enrique executed an affidavit of self-
adjudication declaring himself to be Gregoria Lopez’s only surviving heir, thereby adjudicating
upon himself the land in Bulacan.13 He sold the property to Marietta Yabut.14

Petitioners demanded from Marietta the nullification of Enrique’s affidavit of self-adjudication

and the deed of absolute sale.15 They also sought to redeem Enrique’s one-fourth
share.16 Marietta, who was already in possession of the property, refused.17

Sometime in 1993, Marietta obtained a loan from Development Bank of the Philippines (DBP)
and mortgaged the property to DBP as security.18 At the time of the loan, the property was
covered by Tax Declaration No. 18727, with the agreement that the land shall be brought under
the Torrens system.19 On July 26, 1993, an original certificate of title was issued in Marietta’s
name.20 Marietta and DBP “executed a supplemental document dated 28 February 1995
placing the subject [property] within the coverage of the mortgage.”21 The mortgage was
annotated to the title.22

Sometime between 1993 and 1994, petitioners filed a complaint23 and an amended
complaint24 with the Regional Trial Court for the annulment of document, recovery of
possession, and reconveyance of the property. They prayed that judgment be rendered,
ordering the annulment of Enrique’s affidavit of self-adjudication, the deed of sale executed by
Enrique and Marietta, and the deed of real estate mortgage executed by Marietta in favor of
DBP.25 Petitioners also prayed for the reconveyance of their three-fourth share in the property,
their exercise of their right of redemption of Enrique’s one-fourth share, as well as attorney’s
fees and costs of suit.26

Petitioners caused the annotation of a notice of lis pendens at the back of the original certificate
of title.27 The annotation was inscribed on June 27, 1994.28

Marietta failed to pay her loan to DBP.29 “DBP instituted foreclosure proceedings on the . . .
land.”30 It was “awarded the sale of the [property] as the highest bidder.”31 “The Certificate of
Sale was registered with the Register of Deeds . . . on 11 September 1996.”32 Marietta failed to
redeem the property.33 The title to the property was “consolidated in favor of DBP.”34

On December 27, 2005, the Regional Trial Court ruled in favor of petitioners. 35 The Regional
Trial Court found that the affidavit of self-adjudication and the deed of absolute sale did not
validly transfer to Marietta the title to the property.36 Enrique could not transfer three-fourths of
the property since this portion belonged to his co-heirs.37 The Regional Trial Court also found
that Marietta was not an innocent purchaser for value because when the deed of absolute sale
was executed, the property was only covered by a tax declaration in the name of the heirs of
Gregoria Lopez,38 thus:

[Marietta] should have looked further into the veracity of vendor Enrique Lopez’ claim of
ownership over the subject property considering that he has not presented her any other proof
of his ownership when the said Deed of Absolute Sale was executed other than his mere
allegation of ownership thereof.39

Hence, the issuance of the original certificate of title would not protect Marietta. Title is not
vested through a certificate.40 At best, Marietta’s ownership over the subject property would
cover only Enrique’s share.41

The Regional Trial Court also found that DBP was not a mortgagee in good faith because at the
time of the execution of the mortgage contract, a certificate of title was yet to be issued in favor
of Marietta.42 Marietta’s title at that time was still based on a tax declaration.43 Based on
jurisprudence, a tax declaration is not a conclusive proof of ownership. 44 The DBP should have
exerted due diligence in ascertaining Marietta’s title to the property.45

The Regional Trial Court ordered the nullification of Enrique’s affidavit of self-adjudication, the
sale of the three-fourth portion of the subject property in favor of Marietta, the reconveyance of
the three-fourth share of the property in favor of petitioners, the nullification of the real estate
mortgage executed in favor of DBP, and the surrender of possession of the property to
petitioners.46 The trial court also ordered DBP to pay attorney’s fees.

DBP, substituted by Philippine Investment Two (PI Two), appealed to the Court of Appeals. 47

The Court of Appeals reversed the decision of the Regional Trial Court in the
decision48 promulgated on May 8, 2009. It held that DBP was a mortgagee in good faith:

[W]ith the absence of any evidence to show that the DBP was ever privy to the fraudulent
execution of the late Enrique Lopez’ [sic] affidavit of Adjudication over the subject land, the right
of the former over the same must be protected and respected by reason of public policy. 49
The dispositive portion of the Court of Appeals’ decision reads:

WHEREFORE, the appeal is GRANTED. The 27 December 2005 Decision of the Regional Trial
Court is hereby REVERSED and SET ASIDE as to defendant-appellant Development Bank of
the Philippines and dismissing the complaint against the latter [now substituted by Philippine
Investment Two (SPV-AMC), Inc.]50

The Court of Appeals denied petitioners’ motion for reconsideration on August 16, 2010. 51

Petitioners filed a Rule 45 petition52 before this court on October 15, 2010.

The issue in this case is whether the property was validly transferred to Marietta and,
eventually, to DBP.

Petitioners argued that the Court of Appeals erred in its application of the doctrine on “innocent
purchaser for value.”53 DBP should have exercised diligence in ascertaining Marietta’s claim of
ownership since at the time of the mortgage, the property was only covered by a tax declaration
under Marietta’s name.54 As a financial institution of which “greater care and prudence”55 is
required, DBP should not have relied on the face of a certificate of title to the property.56

On the other hand, DBP’s position, citing Blanco v. Esquierdo,57 was that since its participation
in Enrique’s execution of the affidavit of self-adjudication was not shown on record, it could not
have been aware that there was any irregularity in the sale in favor of Marietta and in her title to
the property.58 Moreover, Marietta was in possession of the property at the time of the contract
with DBP.59 Therefore, DBP should enjoy the protection accorded to innocent purchasers for
value.60

We find merit in the petition.

I
Validity of Enrique’s affidavit and the sale to Marietta

We have consistently upheld the principle that “no one can give what one does not have.” 61 A
seller can only sell what he or she owns, or that which he or she does not own but has authority
to transfer, and a buyer can only acquire what the seller can legally transfer. 62

This principle is incorporated in our Civil Code. It provides that in a contract of sale, the seller
binds himself to transfer the ownership of the thing sold, thus:

Art. 1458. By the contract of sale, one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.

The seller cannot perform this obligation if he or she does not have a right to convey ownership
of the thing. Hence, Article 1459 of the Civil Code provides:

Art. 1459. The thing must be licit and the vendor must have a right to transfer the ownership
thereof at the time it is delivered.
Title or rights to a deceased person’s property are immediately passed to his or her heirs upon
death.63 The heirs’ rights become vested without need for them to be declared “heirs.” 64 Before
the property is partitioned, the heirs are co-owners of the property.65

In this case, the rights to Gregoria Lopez’s property were automatically passed to her sons —
Teodoro, Francisco, and Carlos — when she died in 1922.66 Since only Teodoro was survived
by children, the rights to the property ultimately passed to them when Gregoria Lopez’s sons
died.67 The children entitled to the property were Gregorio, Simplicio, Severino, and Enrique.

Gregorio, Simplicio, Severino, and Enrique became co-owners of the property, with each of
them entitled to an undivided portion of only a quarter of the property. Upon their deaths, their
children became the co-owners of the property, who were entitled to their respective shares,
such that the heirs of Gregorio became entitled to Gregorio’s one-fourth share, and Simplicio’s
and Severino’s respective heirs became entitled to their corresponding one-fourth shares in the
property.68

The heirs cannot alienate the shares that do not belong to them. Article 493 of the Civil Code
provides:

Art. 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits
pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute
another person in its enjoyment, except when personal rights are involved. But the effect of the
alienation or the mortgage, 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.

Since Enrique’s right to the property was limited to his one-fourth share, he had no right to sell
the undivided portions that belonged to his siblings or their respective heirs. Any sale by one
heir of the rest of the property will not affect the rights of the other heirs who did not consent to
the sale. Such sale is void with respect to the shares of the other heirs.

Regardless of their agreement, Enrique could only convey to Marietta his undivided one-fourth
share of the property, and Marietta could only acquire that share. This is because Marietta
obtained her rights from Enrique who, in the first place, had no title or interest over the rest of
the property that he could convey.

This is despite Enrique’s execution of the affidavit of self-adjudication wherein he declared

himself to be the only surviving heir of Gregoria Lopez. The affidavit of self-adjudication is
invalid for the simple reason that it was false. At the time of its execution, Enrique’s siblings
were still alive and entitled to the three-fourth undivided share of the property. The affidavit of
self-adjudication did not have the effect of vesting upon Enrique ownership or rights to the
property.

The issuance of the original certificate of title in favor of Marietta does not cure Enrique’s lack of
title or authority to convey his co-owners’ portions of the property. Issuance of a certificate of
title is not a grant of title over petitioners’ undivided portions of the property. 69 The physical
certificate of title does not vest in a person ownership or right over a property. 70 It is merely an
evidence of such ownership or right.71

Marietta could acquire valid title over the whole property if she were an innocent purchaser for
value. An innocent purchaser for value purchases a property without any notice of defect or
irregularity as to the right or interest of the seller.72 He or she is without notice that another
person holds claim to the property being purchased.73

As a rule, an ordinary buyer may rely on the certificate of title issued in the name of the
seller.74 He or she need not look “beyond what appears on the face [of the certificate of
title].”75 However, the ordinary buyer will not be considered an innocent purchaser for value if
there is anything on the certificate of title that arouses suspicion, and the buyer failed to inquire
or take steps to ensure that there is no cloud on the title, right, or ownership of the property
being sold.

Marietta cannot claim the protection accorded by law to innocent purchasers for value because
the circumstances do not make this available to her.

In this case, there was no certificate of title to rely on when she purchased the property from
Enrique. At the time of the sale, the property was still unregistered. What was available was
only a tax declaration issued under the name of “Heirs of Lopez.”

“The defense of having purchased the property in good faith may be availed of only where
registered land is involved and the buyer had relied in good faith on the clear title of the
registered owner.”76 It does not apply when the land is not yet registered with the Registry of
Deeds.

At the very least, the unregistered status of the property should have prompted Marietta to
inquire further as to Enrique’s right over the property. She did not. Hence, she was not an
innocent purchaser for value. She acquired no title over petitioners’ portions of the property.

II
Validity of the mortgage

One of the requisites of a valid mortgage contract is ownership of the property being
mortgaged.77 Article 2085 of the Civil Code enumerates the requisites of a mortgage contract:

Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:

(1) That they be constituted to secure the fulfilment of a principal obligation;

(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;

(3) That the persons constituting the pledge or mortgage have the free disposal of their
property, and in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by pledging or
mortgaging their own property.

Applying this provision and having established that Marietta acquired no valid title or ownership
from Enrique over the undivided portions of the property, this court finds that no valid mortgage
was executed over the same property in favor of DBP. Without a valid mortgage, there was
also no valid foreclosure sale and no transfer of ownership of petitioners’ undivided portions to
DBP.
In other words, DBP acquired no right over the undivided portions since its predecessor-in-
interest was not the owner and held no authority to convey the property.

As in sales, an exception to this rule is if the mortgagee is a “mortgagee in good faith.” 78 This
exception was explained in Torbela v. Rosario:

Under this doctrine, even if the mortgagor is not the owner of the mortgaged property, the
mortgage contract and any foreclosure sale arising therefrom are given effect by reason of
public policy. This principle is based on the rule that all persons dealing with property covered
by a Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what
appears on the face of the title. This is the same rule that underlies the principle of "innocent
purchasers for value." The prevailing jurisprudence is that a mortgagee has a right to rely in
good faith on the certificate of title of the mortgagor to the property given as security and in the
absence of any sign that might arouse suspicion, has no obligation to undertake further
investigation. Hence, even if the mortgagor is not the rightful owner of, or does not have a valid
title to, the mortgaged property, the mortgagee in good faith is, nonetheless, entitled to
protection.79

DBP claims that it is covered by this exception. DBP is mistaken. The exception applies when,
at the time of the mortgage, the mortgagor has already obtained a certificate of title under his or
her name.80 It does not apply when, as in this case, the mortgagor had yet to register the
property under her name.81

The facts show that DBP disregarded circumstances that should have aroused suspicion. For
instance, at the time of the mortgage with DBP, Marietta only had a tax declaration under her
name to show that she was the owner of the property. A tax declaration, by itself, neither
proves ownership of property nor grants title. Yet, DBP agreed to accept the property as
security even though Marietta’s claim was supported only by the tax declaration, and a
certificate of title was yet to be issued under her name.

Granting that Marietta was in possession of the property, DBP should have inquired further as to
Marietta’s rights over the property since no certificate of title was issued to her. DBP took the
risks attendant to the absence of a certificate of title. It should bear the burden of checking the
ownership as well as the validity of the deed of sale. This is despite the eventual issuance of a
certificate of title in favor of Marietta.

The rule on “innocent purchasers or [mortgagees] for value” is applied more strictly when the
purchaser or the mortgagee is a bank. Banks are expected to exercise higher degree of
diligence in their dealings, including those involving lands. Banks may not rely simply on the
face of the certificate of title.

Thus, in Cruz v. Bancom Finance Corporation,82 this court ruled that:

Respondent . . . is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private

individuals, it is expected to exercise greater care and prudence in its dealings, including those
involving registered lands. A banking institution is expected to exercise due diligence before
entering into a mortgage contract. The ascertainment of the status or condition of a property
offered to it as security for a loan must be a standard and indispensable part of its
operations.83 (Citations omitted)
DBP failed to exercise the degree of diligence required of banks when it accepted the
unregistered property as security for Marietta’s loan despite circumstances that should have
aroused its suspicion.

Citing Blanco v. Esquierdo, DBP argued that since it did not participate in the dealings between
Enrique and Marietta, it should be considered as an innocent mortgagee for value.

Blanco involves an alleged widow of the deceased who adjudicated to herself the deceased’s
property and thereafter mortgaged the property to DBP.84 The brothers and sisters of the
deceased filed an action for the annulment of the affidavit executed by the alleged widow and
the cancellation of the certificate of title under her name.85 The trial court ordered the
cancellation of the certificate of title issued to the alleged widow, including the registration of the
mortgage deed.86

In Blanco, this court declared that DBP was a mortgagee in good faith, thus:

The trial court, in the decision complained of, made no finding that the defendant mortgagee
bank was a party to the fraudulent transfer of the land to Fructuosa Esquierdo. Indeed, there is
nothing alleged in the complaint which may implicate said defendant mortgagee in the fraud, or
justify a finding that it acted in bad faith. On the other hand, the certificate of title was in the
name of the mortgagor Fructuosa Esquierdo when the land was mortgaged by her to the
defendant bank. Such being the case, the said defendant bank, as mortgagee, had the right to
rely on what appeared in the certificate and, in the absence of anything to excite suspicion, was
under no obligation to look beyond the certificate and investigate the title of the mortgagor
appearing on the face of said certificate. (De Lara, et al. vs. Ayroso, 95 Phil., 185; 50 Off.
Gaz., 10 4838; Joaquin vs. Madrid, et al., 106 Phil., 1060). Being thus an innocent mortgagee for
value, its right or lien upon the land mortgaged must be respected and protected, even if the
mortgagor obtained her title thereto thru fraud.87

DBP’s reliance on Blanco is misplaced. In Blanco, the certificate of title had already been
issued under the name of the mortgagor when the property was mortgaged to DBP. This is not
the situation in this case.

To reiterate, the protection accorded to mortgagees in good faith cannot be extended to

mortgagees of properties that are not yet registered or registered but not under the mortgagor’s
name.

Therefore, the Regional Trial Court did not err in ordering the nullification of the documents of
sale and mortgage. Contracts involving the sale or mortgage of unregistered property by a
person who was not the owner or by an unauthorized person are void.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated May 8,
2009 and its resolution dated August 16, 2010 are reversed and SET ASIDE. The December
27, 2005 decision of the Regional Trial Court is REINSTATED.

SO ORDERED.
MELECIO DOMINGO, Petitioner, v. SPOUSES GENARO MOLINA AND ELENA B. MOLINA,
SUBSTITUTED BY ESTER MOLINA, Respondents.

DECISION

BRION, J.:

We resolve the petition for review on certiorari1 filed by the petitioner Melecio Domingo
(Melecio) assailing the August 9, 2011 decision 2 and January 10, 2012 resolution3 of the Court
of Appeals (CA) in CA-G.R. CV No. 94160.

THE FACTS

In June 15, 1951, the spouses Anastacio and Flora Domingo bought a property in Camiling,
Tarlac, consisting of a one-half undivided portion over an 18,164 square meter parcel of land.
The sale was annotated on the Original Certificate of Title (OCT) No. 16354 covering the
subject property.

During his lifetime, Anastacio borrowed money from the respondent spouses Genaro and Elena
Molina (spouses Molina). On September 10, 1978 or 10 years after Flora's death4, Anastacio
sold his interest over the land to the spouses Molina to answer for his debts. The sale to the
spouses Molina was annotated at the OCT of the subject property.5 In 1986, Anastacio died.6

In May 19, 1995, the sale of Anastacio's interest was registered under Transfer Certificate of
Title (TCT) No. 2729677 and transferred the entire one-half undivided portion of the land to the
spouses Molina.

Melecio, one of the children of Anastacio and Flora, learned of the transfer and filed a Complaint
for Annulment of Title and Recovery of Ownership (Complaint) against the spouses Molina on
May 17, 1999.8

Melecio claims that Anastacio gave the subject property to the spouses Molina to serve as
collateral for the money that Anastacio borrowed. Anastacio could not have validly sold the
interest over the subject property without Flora's consent, as Flora was already dead at the time
of the sale.

Melecio also claims that Genaro Molina must have falsified the document transferring Anastacio
and Flora's one-half undivided interest over the land. Finally, Melecio asserts that he occupied
the subject property from the time of Anastacio's death up to the time he filed the Complaint.9

Melecio presented the testimonies of the Records Officer of the Register of Deeds of Tarlac,
and of Melecio's nephew, George Domingo (George).10

The Records Officer testified that he could not locate the instrument that documents the transfer
of the subject property ownership from Anastacio to the spouses Molina. The Records Officer
also testified that the alleged sale was annotated at the time when Genaro Molina's brother was
the Register of Deeds for Camiling, Tarlac.11

George, on the other hand, testified that he has been living on the subject property owned by
Anastacio since 1986. George testified, however, that aside from himself, there were also four
other occupants on the subject property, namely Jaime Garlitos, Linda Sicangco, Serafio
Sicangco and Manuel Ramos.12

The spouses Molina asserted that Anastacio surrendered the title to the subject property to
answer for his debts and told the spouses Molina that they already own half of the land. The
spouses Molina have been in possession of the subject property before the title was registered
under their names and have religiously paid the property's real estate taxes.

The spouses Molina also asserted that Melecio knew of the disputed sale since he
accompanied Anastacio several times to borrow money. The last loan was even used to pay for
Melecio's wedding. Finally, the spouses Molina asserted that Melecio built his nipa hut on the
subject property only in 1999, without their knowledge and consent.13

The spouses Molina presented Jaime Garlitos (Jaime) as their sole witness and who is one of
the occupants of the subject lot.

Jaime testified that Elena Molina permitted him to build a house on the subject property in 1993.
Jaime, together with the other tenants, planted fruit bearing trees on the subject property and
gave portions of their harvest to Elena Molina without any complaint from Melecio. Jaime further
testified that Melecio never lived on the subject property and that only George Domingo, as the
caretaker of the spouses Molina, has a hut on the property.

Meanwhile, the spouses Molina died during the pendency of the case and were substituted by
their adopted son, Cornelio Molina.14

THE RTC RULING

The Regional Trial Court (RTC) dismissed15 the case because Melecio failed to establish his
claim that Anastacio did not sell the property to the spouses Molina.

The RTC also held that Anastacio could dispose of conjugal property without Flora's consent
since the sale was necessary to answer for conjugal liabilities.

The RTC denied Melecio's motion for reconsideration of the RTC ruling. From this ruling,
Melecio proceeded with his appeal to the CA.

THE CA RULING

In a decision dated August 9, 2011, the CA affirmed the RTC ruling in toto.

The CA held that Melecio failed to prove by preponderant evidence that there was fraud in the
conveyance of the property to the spouses Molina. The CA gave credence to the OCT
annotation of the disputed property sale.

The CA also held that Flora's death is immaterial because Anastacio only sold his rights,
excluding Flora's interest, over the lot to the spouses Molina. The CA explained that "[t]here is
no prohibition against the sale by the widower of real property formerly belonging to the conjugal
partnership of gains"16.

Finally, the CA held that Melecio's action has prescribed. According to the CA, Melecio failed to
file the action within one year after entry of the decree of registration.
Melecio filed a motion for reconsideration of the CA Decision. The CA denied Melecio's motion
for reconsideration for lack of merit.17

THE PETITION

Melecio filed the present petition for review on certiorari to challenge the CA ruling.

Melecio principally argues that the sale of land belonging to the conjugal partnership without the
wife's consent is invalid.

Melecio also claims that fraud attended the conveyance of the subject property and the absence
of any document evidencing the alleged sale made the transfer null and void. Finally, Melecio
claims that the action has not yet prescribed.

The respondents, on the other hand, submitted and adopted their arguments in their Appeal
Brief18.

First, Melecio's counsel admitted that Anastacio had given the lot title in payment of the debt
amounting to Php30,000.00. The delivery of the title is constructive delivery of the lot itself
based on Article 1498, paragraph 2 of the Civil Code.

Second, the constructive delivery of the title coupled with the spouses Molina's exercise of
attributes of ownership over the subject property, perfected the sale and completed the transfer
of ownership.

THE ISSUES

The core issues of the petition are as follows: (1) whether the sale of a conjugal property to the
spouses Molina without Flora's consent is valid and legal; and (2) whether fraud attended the
transfer of the subject property to the spouses Molina.

OUR RULING

We deny the petition.

It is well settled that when the trial court's factual findings have been affirmed by the CA, the
findings are generally conclusive and binding upon the Court and may no longer be reviewed on
Rule 45 petitions.19 While mere are exceptions20 to this rule, the Court finds no applicable
exception with respect to the lower courts' finding that the subject property was Anastacio and
Flora's conjugal property. Records before the Court show that the parties did not dispute the
conjugal nature of the property.

Melecio argues that the sale of the disputed property to the spouses Molina is void without
Flora's consent.

We do not find Melecio's argument meritorious.

Anastacio and Flora's conjugal partnership was dissolved upon Flora's death.

There is no dispute that Anastacio and Flora Domingo married before the Family Code's
effectivity on August 3, 1988 and their property relation is a conjugal partnership.21

Conjugal partnership of gains established before and after the effectivity of the Family Code are
governed by the rules found in Chapter 4 (Conjugal Partnership of Gains) of Title IV (Property
Relations Between Husband and Wife) of the Family Code. This is clear from Article 105 of the
Family Code which states:
chanRoblesvirtualLawlibrary
x x x The provisions of this Chapter shall also apply to conjugal partnerships of gains already
established between spouses before the effectivity of this Code, without prejudice to vested
rights already acquired in accordance with the Civil Code or other laws, as provided in Article
256.
The conjugal partnership of Anastacio and Flora was dissolved when Flora died in 1968,
pursuant to Article 175 (1) of the Civil Code22 (now Article 126 (1) of the Family Code).

Article 130 of the Family Code requires the liquidation of the conjugal partnership upon death of
a spouse and prohibits any disposition or encumbrance of the conjugal property prior to the
conjugal partnership liquidation, to quote:
chanRoblesvirtualLawlibrary
Article 130. Upon the termination of the marriage by death, the conjugal partnership property
shall be liquidated in the same proceeding for the settlement of the estate of the
deceased.

If no judicial settlement proceeding is instituted, the surviving spouse shall liquidate the conjugal
partnership property either judicially or extra-judicially within one year from the death of the
deceased spouse. If upon the lapse of the six month period no liquidation is made, any
disposition or encumbrance involving the conjugal partnership property of the
terminated marriage shall be void. x x x (emphases supplied)
While Article 130 of the Family Code provides that any disposition involving the conjugal
property without prior liquidation of the partnership shall be void, this rule does not apply since
the provisions of the Family Code shall be "without prejudice to vested rights already acquired in
accordance with the Civil Code or other laws." 23

An implied co-ownership among Flora's heirs governed the conjugal properties pending
liquidation and partition.

In the case of Taningco v. Register of Deeds of Laguna,24 we held that the properties of a
dissolved conjugal partnership fall under the regime of co-ownership among the surviving
spouse and the heirs of the deceased spouse until final liquidation and partition. The surviving
spouse, however, has an actual and vested one-half undivided share of the properties, which
does not consist of determinate and segregated properties until liquidation and partition of the
conjugal partnership.

An implied ordinary co-ownership ensued among Flora's surviving heirs, including Anastacio,
with respect to Flora's share of the conjugal partnership until final liquidation and partition;
Anastacio, on the other hand, owns one-half of the original conjugal partnership properties as
his share, but this is an undivided interest.

Article 493 of the Civil Code on co-ownership provides:

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Article 493. Each co-owner shall have the full ownership of his part and of the fruits and
benefits pertaining thereto, and he may therefore alienate, assign or mortgage it, and even
substitute another person in its enjoyment, except when personal rights are involved. But
the effect of the alienation or the mortgage, 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. (399) (emphases supplied)
Thus, Anastacio, as co-owner, cannot claim title to any specific portion of the conjugal
properties without an actual partition being first done either by agreement or by judicial decree.
Nonetheless, Anastacio had the right to freely sell and dispose of his undivided interest in the
subject property.

The spouses Molina became co-owners of the subject property to the extent of
Anastacio's interest.

The OCT annotation of the sale to the spouses Molina reads that "[o]nly the rights, interests
and participation of Anastacio Domingo, married to Flora Dela Cruz, is hereby sold,
transferred, and conveyed unto the said vendees for the sum of ONE THOUSAND PESOS
(P1,000.00) which pertains to an undivided one-half (1/2) portion and subject to all other
conditions specified in the document x x x" 25 (emphases supplied). At the time of the sale,
Anastacio's undivided interest in the conjugal properties consisted of: (1) one-half of the entire
conjugal properties; and (2) his share as Flora's heir on the conjugal properties.

Anastacio, as a co-owner, had the right to freely sell and dispose of his undivided interest, but
not the interest of his co-owners. Consequently, Anastactio's sale to the spouses Molina without
the consent of the other co-owners was not totally void, for Anastacio's rights or a portion
thereof were thereby effectively transferred, making the spouses Molina a co-owner of the
subject property to the extent of Anastacio's interest. This result conforms with the well-
established principle that the binding force of a contract must be recognized as far as it is legally
possible to do so (quando res non valet ut ago, valeat quantum valere potest).26

The spouses Molina would be a trustee for the benefit of the co-heirs of Anastacio in respect of
any portion that might belong to the co-heirs after liquidation and partition. The observations of
Justice Paras cited in the case of Heirs of Protacio Go, Sr. V. Servacio27 are instructive:
chanRoblesvirtualLawlibrary
x x x [I]f it turns out that the property alienated or mortgaged really would pertain to the share of
the surviving spouse, then said transaction is valid. If it turns out that there really would be, after
liquidation, no more conjugal assets then the whole transaction is null and void. But if it turns out
that half of the property thus alienated or mortgaged belongs to the husband as his share in the
conjugal partnership, and half should go to the estate of the wife, then that corresponding to the
husband is valid, and that corresponding to the other is not. Since all these can be determined
only at the time the liquidation is over, it follows logically that a disposal made by the surviving
spouse is not void ab initio. Thus, it has been held that the sale of conjugal properties cannot be
made by the surviving spouse without the legal requirements. The sale is void as to the share of
the deceased spouse (except of course as to that portion of the husband's share inherited by
her as the surviving spouse). The buyers of the property that could not be validly sold become
trustees of said portion for the benefit of the husband's other heirs, the cestui que trust ent. Said
heirs shall not be barred by prescription or by laches.
Melecio's recourse as a co-owner of the conjugal properties, including the subject property, is
an action for partition under Rule 69 of the Revised Rules of Court. As held in the case of Heirs
of Protacio Go, Sr., "it is now settled that the appropriate recourse of co-owners in cases where
their consent were not secured in a sale of the entire property as well as in a sale merely of the
undivided shares of some of the co-owners is an action for PARTITION under Rule 69 of the
Revised Rules of Court."28

The sale of the subject property to the spouses Molina was not attended with fraud.

On the issue of fraud, the lower courts found that there was no fraud in the sale of the disputed
property to the spouses Molina.

The issue of fraud would require the Court to inquire into the weight of evidentiary matters to
determine the merits of the petition and is essentially factual in nature. It is basic that factual
questions cannot be cannot be entertained in a Rule 45 petition, unless it falls under any of the
recognized exceptions29 found in jurisprudence. The present petition does not show that it falls
under any of the exceptions allowing factual review.

The CA and RTC conclusion that there is no fraud in the sale is supported by the evidence on
record.

Melecio's argument that no document was executed for the sale is negated by the CA finding
that there was a notarized deed of conveyance executed between Anastacio and the spouses
Molina, as annotated on the OCT of the disputed property.

Furthermore, Melecio's belief that Anastacio could not have sold the property without his
knowledge cannot be considered as proof of fraud to invalidate the spouses Molina's registered
title over the subject property.30

Prevailing jurisprudence uniformly holds that findings of facts of the trial court, particularly when
affirmed by the Court of Appeals, are binding upon this Court.31

Considering these findings, we find no need to discuss the other issues raised by
Melecio.chanrobleslaw

WHEREFORE, we hereby DENY the petition for review on certiorari. The decision dated August
9, 2011 of the Court of Appeals in CA-G.R. CV No. 94160 is AFFIRMED.

SO ORDERED.cralawlawlibrary

TERESA R. IGNACIO, Petitioner, v. RAMON REYES, FLORENCIO REYES, JR., ROSARIO R.

DU AND CARMELITA R. PASTOR, Respondents.

DECISION

PERALTA, J.:

Before this Court is a petition for review on certiorari filed by petitioner Teresa R. Ignacio
(Teresa) challenging the Decision1 and Resolution,2 dated March 27, 2014 and June 27, 2014,
respectively, of the Court of Appeals (CA), which annulled and set aside the Orders dated April
13, 2004 and June 14, 2012 of the Regional Trial Court (RTC) of Pasig City, Branch 151.
The facts follow:

On July 11, 1967, Angel Reyes (Angel) and Oliva3 R. Arevalo (Oliva) filed before the then Court
of First Instance of Rizal (now RTC of Pasig City, Branch 151) (intestate court) a Petition4 for
Letters of Administration of the Estate of their father Florencio Reyes, Sr. (Florencio Sr.) who
died on June 23, 1967, and enumerated therein the surviving heirs, namely: Oliva, Francisca
Vda. de Justiniani (Francisca), Angel, Amparo R. Avecilla (Amparo), Ramon Reyes (Ramon),
Teresa, Rosario R. Du (Rosario), Jose Reyes (Reyes), Soledad Reyes (Soledad), Carmelita5 R.
Pastor (Carmelita), and Florencio Reyes, Jr. (Florencio Jr.). On July 15, 1967, the intestate
court appointed Oliva as the special administratrix of the estate of Florencio Sr. (Florencio Sr.
estate), and then as the regular administratrix in an Order dated November 23, 1967. 6 Florencio,
Jr. replaced Oliva in 1982. Thereafter, Teresa became the administratrix of the Florencio Sr.
estate on August 8, 1994.7

On December 5, 1994, Teresa executed a lease contract over a 398 square meters (sq. m.)
parcel of land located at Magsaysay Avenue, Baguio City covered by Transfer Certificate of Title
(TCT) No. T-59201 (Magsaysay property) in favor of Gonzalo Ong, Virginia Lim, Nino Yu,
Francisco Lim and Simona Go.8 In an Order9 dated July 15, 1996, the intestate court approved
the lease contract upon Teresa's motion dated June 4, 1996.

Likewise, on September 26, 1996, the intestate court allowed Teresa to enter into a lease
contract over the parcel of land located at Session Road, Baguio City with a total area of 646 sq.
m. covered by TCT No. T-26769 (Session Road property) to Famous Realty Corporation
(FRC).10 Thus, on October 29, 1996, Teresa leased the Session Road property to FRC for the
period of July 1, 1996 to June 30, 2003, with a monthly rental of P135,000.00.11

Sometime in January 1997, Teresa also leased the properties located at Loakan Road, Baguio
City covered by TCT Nos. T-26770 and T-26772 (Loakan and Military Cut-off properties), in
favor of ATC Wonderland, Inc. and, subsequently, to Gloria de Guzman and Sonshine Pre-
School for a period often years, effective September 1, 1996 to August 31, 2006.12

On September 25, 2001, herein respondents Ramon, Florencio Jr., Rosario and Carmelita, and
the Heirs of Amparo, Intestate Estate of Soledad, Jose and Intestate Estate of Angel (plaintiffs)
filed before the RTC of Baguio City, Branch 3 (Baguio RTC), three complaints for partition,
annulment of lease contract, accounting and damages with prayer for the issuance of a writ of
preliminary injunction against Teresa and the lessees of the subject Baguio properties.13

The plaintiffs alleged in their Complaints14 that, with the exception of the lessees, the parties
and the Florencio Sr. estate own one-tenth (1/10) of each of the Session Road, Loakan and
Military Cut-off, and Magsaysay properties. They claimed that Teresa misrepresented that the
Florencio Sr. estate is the sole owner of the properties and leased the same to the other parties
without their conformity. They also asserted in one of their complaints that the Florencio Sr.
estate is different from the Heirs of Florencio Sr. and Heirs of Salud.

They averred that, as co-owners, they have not received their share in the monthly rentals of the
properties aforementioned due to Teresa's failure to duly account for the same. Thus, they are
asking for the partition of the properties, for the accounting of all the rentals, income or profits
derived, and deliver the same to the plaintiffs, for the annulment of the lease contracts and order
the lessees to vacate the premises, and for the payment of damages.15
Thereafter, the Baguio RTC directed and commissioned a team of auditors with Leticia
Clemente as the head accountant to conduct an accounting of the properties. Based on the
Report,16 Teresa, as administratrix of the Florencio Sr. estate, had a total cash accountability
amounting to Fifteen Million Two Hundred Thirty-Eight Thousand Sixty-Six Pesos and Fifty-One
Centavos (P15,238,066.51). In an Order17 dated August 27, 2003, the Baguio RTC manifested
that it shall await a Request Order from the intestate court regarding the possible distribution of
the subject properties.18

Subsequently, on January 19, 2004, respondents and the others filed a motion 19 before the
intestate court praying for the issuance of an order allowing the distribution of the heirs' aliquot
shares in the co-owned properties' net income, and the partition of the said properties by the
Baguio RTC. However, the intestate court denied the motion in an Order20 dated April 13, 2004,
a portion of which reads:

x x x This Court cannot allow the Baguio Court to partition the property of the estate because
this Court already has jurisdiction over the matter. In fact, this Court is wondering why actions
for partition are being entertained in other jurisdictions when such can be readily addressed by
this Court as an estate court.

WHEREFORE, finding no merit in the instant motion, the Court hereby DENIES the same.

SO ORDERED.21

In an Order dated June 14, 2012, the intestate court denied respondents' motion for
reconsideration dated May 12, 2004, thus:

Thus finding no sufficient reasons to reverse and set aside this court's Order dated April 13,
2004 considering the pendency before this court of the other incidents involving the Baguio
properties including the sale of Session Road property covered by TCT No. 26769 and even the
distribution of the proceeds of the sale thereof with hearings conducted on the Financial Report
(Re: Proceeds of the Sale of the Property at Session Road in Baguio City), and recently with the
filing of the Proposed Project of Partition/ Amended Proposed Project of Partition, as such, the
Motion for Reconsideration dated May 12, 2004 is DENIED.

The continuation of presentation of evidence for the Heirs of Carmelita Clara Pastor et. (sic) al.
re: Removal of Adminstratix/ Motion to Liquidate and Reimburse Cash Advances is previously
set on August 15, 2012 at 1:30 in the afternoon.

SO ORDERED.22

Thereafter, the respondents filed before the CA a petition for certiorari assailing the Orders
dated April 13, 2004 and June 14, 2012 of the intestate court disallowing the partition of the
Baguio properties.

In a Decision dated March 27, 2014, the CA granted the petition and annulled and set aside the
assailed Orders of the intestate court. The dispositive portion of the Decision states:

WHEREFORE, the instant Petition is GRANTED. The Assailed Orders of the Regional Trial
Court of Pasig City, Branch 151, dated April 13, 2004 and June 14, 2012 are ANNULLED and
SET ASIDE. Petitioners' motion to allow partition and distribution of shares over properties Co-
Owned by the Estate and the Heirs [l]ocated in Baguio City, is GRANTED.

On the other hand, the Regional Trial Court of Baguio City, Branch 3, before which court Special
Civil Actions Nos. 5055-R, 5056-R, and 5057-R are pending, is DIRECTED to partition the
Baguio Properties among the registered co-owners thereof.

SO ORDERED.23

Upon denial of her motion for reconsideration, Teresa filed before this Court the instant petition
raising the following issues:

I. THERE IS AN APPEAL OR OTHER PLAIN, SPEEDY AND [ADEQUATE] REMEDY IN

THE ORDINARY COURSE OF LAW [AVAILABLE] TO THE RESPONDENTS.
II. RESPONDENTS ARE, IN EFFECT, ASKING THE TRIAL COURT TO VIOLATE THE
RULES OF COURT.
III. IN LEGAL CONTEMPLATION, THE CHALLENGED ORDERS WERE NOT ISSUED
WITH GRAVE ABUSE OF DISCRETION.

The Court finds the instant petition without merit.

Teresa argues that there is an appeal or other plain, speedy and adequate remedy in the
ordinary course of law available. She maintains that the intestate court asserted its jurisdiction
and authority over the subject properties and proceeded to conduct hearings to resolve the
issues of accounting, payment of advances, and distribution of assets and the proceeds of the
sale of the estate properties. The Baguio RTC opted to defer and not to proceed with the cases.
Thus, it is logical and proper that the respondents ask the Baguio RTC to proceed with the case
and then appeal the same if denied.24 Teresa further avers that it is not disputed that the
obligations enumerated in Section 1,25 Rule 90 of the Rules of Court has not yet been fully paid.
Thus, it would be premature for the trial court to allow the advance distribution of the estate. A
partial and premature distribution of the estate may only be done upon posting of a bond,
conditioned upon the full payment of the obligations, which was not done in the present case.

We note, however, that in her Partial Motion to Dismiss 26 dated July 1, 2016 before this Court,
Teresa now agrees with the findings of the CA that the Magsaysay property is co-owned by the
parties, and should not be covered by the estate proceedings.27

As a rule, a petition for certiorari under Rule 65 of the Rules of Court is valid only when the
question involved is an error of jurisdiction, or when there is grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the court or tribunals exercising quasi-
judicial functions.28 In this case, the propriety of the special civil action for certiorari as a remedy
depended on whether the assailed orders of the RTC were final or interlocutory in nature.29 This
Court has distinguished the interlocutory and final orders, as follows:

A "final" judgment or order is one that finally disposes of a case, leaving nothing more to
be done by the Court in respect thereto, e.g., an adjudication on the merits which, on the
basis of the evidence presented at the trial, declares categorically what the rights and
obligations of the parties are and which party is in the right; or a judgment or order that
dismisses an action on the ground, for instance, of res judicata or prescription. Once rendered,
the task of the Court is ended, as far as deciding the controversy or determining the rights and
liabilities of the litigants is concerned. Nothing more remains to be done by the Court except to
await the parties' next move (which among others, may consist of the filing of a motion for new
trial or reconsideration, or the taking of an appeal) and ultimately, of course, to cause the
execution of the judgment once it becomes "final" or, to use the established and more distinctive
term, "final and executory."

xxx xxx xxx

Conversely, an order that does not finally dispose of the case, and does not end the
Court's task of adjudicating the parties' contentions and determining their rights and
liabilities as regards each other, but obviously indicates that other things remain to be
done by the Court, is "interlocutory" e.g., an order denying a motion to dismiss under Rule
16 of the Rules, or granting a motion for extension of time to file a pleading, or authorizing
amendment thereof, or granting or denying applications for postponement, or production or
inspection of documents or things, etc. Unlike a "final" judgment or order, which is
appealable, as above pointed out, an "interlocutory" order may not be questioned on
appeal except only as part of an appeal that may eventually be taken from the final
judgment rendered in the case.30

The assailed April 13, 2004 and June 14, 2012 Orders denying respondents' motion to allow the
distribution of the estate's and co-owners' shares in the subject properties were interlocutory.
This is because such denial was not a final determination of their alleged co-ownership. In fact,
the intestate court merely asserted its jurisdiction over the properties which were allegedly co-
owned with the Florencio Sr. estate.

Jurisprudence teaches that jurisdiction of the trial court as an intestate court is special and
limited as it relates only to matters having to do with the probate of the will and/or settlement of
the estate of deceased persons, but does not extend to the determination of questions of
ownership that arise during the proceedings. This is true whether or not the property is alleged
to belong to the estate.31

Furthermore, the doctrine that "in a special proceeding for the probate of a will, the question of
ownership is an extraneous matter which the probate court cannot resolve with finality" applies
with equal force to an intestate proceeding as in the case at bar.32 Thus:

"[A] probate court or one in charge of proceedings whether testate or intestate cannot
adjudicate or determine title to properties claimed to be a part of the estate and which are
claimed to belong to outside parties. All that the said court could do as regards said properties is
to determine whether they should or should not be included in the inventory or list of properties
to be administered by the administrator. If there is not dispute, well and good, but if there is,
then the parties, the administrator, and the opposing parties have to resort to an ordinary action
for a final determination of the conflicting claims of title because the probate court cannot do
so."33

Corollarily, in the case of Agtarap v. Agtarap, et al.34 the Court enumerated the instances when
the intestate court may pass upon the issue of ownership, to wit:

However, this general rule is subject to exceptions as justified by expediency and convenience.
First, the probate court may provisionally pass upon in an intestate or a testate proceeding the
question of inclusion in, or exclusion from, the inventory of a piece of property without prejudice
to the final determination of ownership in a separate action. Second, if the interested parties are
all heirs to the estate, or the question is one of collation or advancement, or the parties consent
to the assumption of jurisdiction by the probate court and the rights of third parties are not
impaired, then the probate court is competent to resolve issues on ownership. Verily, its
jurisdiction extends to matters incidental or collateral to the settlement and distribution of the
estate, such as the determination of the status of each heir and whether the property in the
inventory is conjugal or exclusive property of the deceased spouse. 35

From the foregoing, this Court holds that the general rule on the limited jurisdiction of the RTC
as intestate court is applicable in Special Civil Action Nos. 5055-R and 5056-R. As to the
Magsaysay property in Special Civil Action No. 5057-R, it is evident from the certificate of title
that the rights of parties other than the heirs of Florencio Sr. will be impaired should the intestate
court decide on the ownership of the property.

We note that respondents presented certificates of title of the properties registered under their
names and the Florencio Sr. estate, and their respective shares.36 As pronounced in Bolisay v.
Judge Alcid:37

In regard to such incident of inclusion or exclusion, We hold that if a property covered by

Torrens Title is involved, the presumptive conclusiveness of such title should be given due
weight, and in the absence of strong compelling evidence to the contrary, the holder thereof
should be considered as the owner of the property in controversy until his title is nullified or
modified in an appropriate ordinary action, particularly, when as in the case at bar, possession
of the property itself is in the persons named in the title. 38

As such, they are considered the owners of the properties until their title is nullified or modified
in an appropriate ordinary action. The co-ownership of the said properties by virtue of the
certificates of title is a common issue in the complaints for partition filed before the Baguio RTC.
Thus, the intestate court committed grave abuse of discretion when it asserted jurisdiction over
the subject properties since its jurisdiction relates only to matters having to do with the
settlement of the estate of deceased persons. Any decision that the intestate court would render
on the title of the properties would at best be merely provisional in character, and would yield to
a final determination in a separate action.

An action for partition under Rule 69 of the Rules of Court is typically brought by a person
claiming to be the owner of a specified property against a defendant or defendants whom the
plaintiff recognizes to be his co-owners,39 and is premised on the existence or non-existence of
co-ownership between the parties.40 As discussed in Lim De Mesa v. Court of Appeals,41 the
determination of the existence of co-ownership is the first stage to accord with the remedy of
judicial partition, thus:

The first stage of an action for judicial partition and/or accounting is concerned with the
determination of whether or not a co-ownership in fact exists and a partition is proper, that is, it
is not otherwise legally proscribed and may be made by voluntary agreement of all the parties
interested in the property. This phase may end in a declaration that plaintiff is not entitled to the
desired partition either because a co-ownership does not exist or a partition is legally prohibited.
It may also end, on the other hand, with an adjudgment that a co-ownership does in truth exist,
that partition is proper in the premises, and that an accounting of rents and profits received by
the defendant from the real estate in question is in order. In the latter case, "the parties may, if
they are able to agree, make partition among themselves by proper instruments of conveyance,
and the court shall confirm the partition so agreed upon by all the parties." In either case,
whether the action is dismissed or partition and/or accounting is decreed, the order is a final one
and may be appealed by any party aggrieved thereby.

In this regard, the Baguio RTC shirked from its duty when it deferred the trial to await a request
order from the intestate court regarding the possible distribution. In fact, it has not yet made a
definite ruling on the existence of co-ownership. There was no declaration of entitlement to the
desired partition either because a co-ownership exists or a partition is not legally prohibited. As
this Court is not a trier of facts, it is for the trial court to proceed and determine once and for all if
there is co-ownership and to partition the subject properties if there is no legal prohibition. It is
also best for the Baguio RTC to settle whether the respondents are claiming ownership over the
properties by virtue of their title adverse to that of their late father and his estate and not by any
right of inheritance.

WHEREFORE, the petition for review on certiorari filed by petitioner Teresa R. Ignacio is
hereby DENIED. The Decision and Resolution, dated March 27, 2014 and June 27, 2014,
respectively, of the Court of Appeals in CA-G.R. SP No. 127151 are herebyAFFIRMED with
MODIFICATION, such that the Regional Trial Court of Baguio City, Branch 3
is DIRECTED to RESUME trial on the merits in Special Civil Action Nos. 5055-R, 5056-R, and
5057-R to determine the ownership of the subject properties and to partition as co-owners, if
proper.

SO ORDERED.
TWIN TOWERS CONDOMINIUM CORPORATION, Petitioner, v. THE COURT OF APPEALS,
ALS MANAGEMENT & DEVELOPMENT CORPORATION, ANTONIO LITONJUA and
SECURITIES AND EXCHANGE COMMISSION, Respondents.

DECISION

CARPIO, J.:

The Case

Before us is a petition for review on certiorari1 to nullify the Decision2 dated August 31, 1995 of
the Court of Appeals and its Resolution3 dated January 16, 1996 denying petitioners motion for
reconsideration. The Court of Appeals dismissed petitioners appeal from the Decision en
banc4 of the Securities and Exchange Commission, which reversed the order of the SEC
Hearing Officer.5 The Court of Appeals dismissed the appeal for lack of merit and for non-
compliance with the requirement on certification of non-forum shopping.6cräläwvirtualibräry

The Antecedent Facts

On June 30, 1988, petitioner Twin Towers Condominium Corporation ("petitioner" for brevity)
filed a complaint7 with the Securities and Exchange Commission ("SEC" for brevity) against
respondents ALS Management & Development Corporation ("ALS" for brevity) and Antonio
Litonjua ("Litonjua" for brevity). The complaint prayed that ALS and Litonjua be ordered to pay
solidarily the unpaid condominium assessments and dues with interests and penalties covering
the four quarters of 1986 and 1987 and the first quarter of 1988.

The complaint alleged, among others, that petitioner, a non-stock corporation, is organized for
the sole purpose of holding title to and managing the common areas of Twin Towers
Condominium ("Condominium" for brevity). Membership in petitioner corporation is compulsory
and limited to all registered owners of units in the Condominium. ALS, as registered owner of
Unit No. 4-A ("Unit" for brevity) of the Condominium, is a member of petitioner. Litonjua, who is
the corporate president of ALS, occupies the Unit.

Petitioner collects from all its members quarterly assessments and dues as authorized by its
Master Deed and Declaration of Restrictions ("Master Deed" for brevity) and its By-Laws. As of
the filing of the complaint with the SEC, petitioners records of account show that ALS failed to
pay assessments and dues starting 1986 up to the first quarter of 1988. Petitioner claimed
against both ALS and Litonjua P118,923.20 as unpaid assessments and dues. This amount
includes accrued interests of P30,808.33 and penalty charges of P7,793.34, plus P 1,500.00 as
unpaid contingency fund assessment for 1987.8cräläwvirtualibräry

In their joint Answer with Counterclaim, ALS and Litonjua asserted that petitioner failed to state
a cause of action against Litonjua. ALS and Litonjua argued that petitioners admission that ALS
and not Litonjua is the registered owner of the Unit and member of petitioner exonerates
Litonjua from any liability to petitioner. While ALS is a juridical person that cannot by itself
physically occupy the Unit, the natural person who physically occupies the Unit does not
assume the liability of ALS to petitioner. Neither does the agent who acts for the corporation
become personally liable for the corporations obligation.
As counterclaim, ALS claimed damages against petitioner arising from petitioners act of
repeatedly preventing ALS, its agents and guests from using the parking space, swimming pool,
gym, and other facilities of the Condominium. In addition, Litonjua claimed damages against
petitioner for the latters act of including Litonjuas name in the list of delinquent unit owners
which was posted on petitioners bulletin board.9cräläwvirtualibräry

On December 11, 1991, the SEC Hearing Officer ordered petitioner to pay Litonjua moral and
exemplary damages for maliciously including Litonjuas name in the list of delinquent unit owners
and for impleading him as a respondent. On the other hand, the SEC Hearing Officer ordered
ALS to pay the assessments and dues to petitioner.10 However, the Hearing Officer did not
determine the exact amount to be paid by ALS because petitioner failed to lay down the basis
for computing the unpaid assessments and dues.11 The dispositive portion of the decision reads
thus:

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

1. Ordering respondent ALS to pay the legal assessments/dues due the complainant within
thirty (30) days from finality of this Decision; and

2. Ordering the complainant to pay respondent Antonio Litonjua the sum of THREE HUNDRED
THOUSAND PESOS (P300,000.00) as moral damages, FIFTY THOUSAND PESOS
(P50,000.00) as exemplary damages, and TWO HUNDRED THOUSAND PESOS
(P200,000.00) as and by way of attorneys fees.

SO ORDERED."12cräläwvirtualibräry

Not satisfied with the SEC Hearing Officers decision, both parties filed their respective appeals
to the SEC en banc.13 Petitioner assailed the award of moral and exemplary damages as well
as attorneys fees in favor of Litonjua. On the other hand, ALS appealed that portion of the
decision ordering it to pay to petitioner the assessments and dues.

In a decision dated July 30, 1993, the SEC en banc nullified the award of damages and
attorneys fees to Litonjua on the ground that the SEC had no jurisdiction over Litonjua. The
SEC en banc held that there is no intra-corporate relationship between petitioner and Litonjua
who is not the registered owner of the Unit and thus, not a member of petitioner. The SEC en
banc stated that petitioner could not invoke the doctrine of piercing the veil of ALS corporate
fiction since disregarding the corporate entity is a function of the regular courts.

Furthermore, the SEC en banc remanded the case to the Hearing Officer to determine the value
of the services petitioner failed to render to ALS because of the latters non-use of the
Condominium facilities. The SEC en banc ruled that the value of these services could be
deducted from the unpaid assessments and dues that ALS owes petitioner.

Thus, the SEC en banc declared:

"WHEREFORE, in view of the foregoing, the order appealed from is hereby reversed insofar as
it awards moral and exemplary damages and attorneys fees to respondent Litonjua as the same
is null and void for lack of jurisdiction of this Commission over the said party. 14cräläwvirtualibräry
As regards that portion of the appealed Order directing respondent ALS to pay the legal
assessment/dues to the complainant TTC within thirty (30) [days] from finality of the said
decision, the same is hereby modified by remanding the case to the hearing officer
for determination of the value of the services withheld by the complainant TTC from
respondent ALS in order that the same may be deducted from the amount of legal assessments
and dues which the respondent corporation shall pay to the complainant.

SO ORDERED."15 (Emphasis supplied)

Petitioner appealed the SEC en banc Decision to the Court of Appeals contending grave error
or grave abuse of discretion by the SEC en banc.

The Ruling of the Court of Appeals

The Court of Appeals dismissed petitioners appeal on both procedural and substantive grounds.
Procedurally, the Court of Appeals found the petition defective for failure to contain a sworn
certification of non-forum shopping as required by Section 6 of Administrative Circular No. 1-95
and Section 2 of Revised Circular No. 28-91.

On the merits, the Court of Appeals substantially affirmed the decision of the SEC en banc that
there is no ground to pierce the veil of ALS corporate fiction. The Court of Appeals held that
there is nothing in the records to show that ALS is engaged in unlawful, business or that
Litonjua is using ALS to defraud third parties. The fact alone that ALS is in arrears in paying its
assessments and dues does not make ALS or Litonjua guilty of fraud which would warrant
piercing the corporate veil of ALS. Thus, it was improper for petitioner to post Litonjuas name
instead of ALS in the list of delinquent unit owners since Litonjua is not a member of petitioner.

The Court of Appeals also sustained the claim of petitioner against ALS for unpaid assessments
and dues but found that petitioner failed to substantiate by preponderance of evidence the basis
for computing the unpaid assessments and dues. Thus, the Court of Appeals remanded the
case to the SEC Hearing Officer for further reception of evidence and for determination of the
exact amount of ALS liability to petitioner. The Court of Appeals, however, directed the SEC
Hearing Officer to deduct from ALS unpaid assessments and dues the value of the services
denied to ALS because of the latters non-use of the Condominium facilities. In allowing the
deduction, the Court of Appeals declared the Condominiums House Rule 26.3 as ultra
vires. House Rule 26.3, which petitioner claims as its basis for denying the use of the
Condominium facilities to ALS, authorizes withholding of the use of the Condominium facilities
from delinquent unit owners. The Court of Appeals, however, ruled that petitioner is not
expressly authorized by its Master Deed and By-Laws to prohibit delinquent members from
using the facilities of the Condominium.

The Court of Appeals went further and declared the interest and penalty charges prescribed by
House Rule 26.516 on delinquent accounts as exorbitant or grossly excessive, although this was
not raised as an issue. While in its complaint, petitioner sought to recover P118,923.20 as
unpaid assessments and dues, in its amended petition for review, petitioner sought
P994,529.75, more than eight times the amount it originally claimed from
ALS.17cräläwvirtualibräry

In the dispositive portion of its assailed decision, the Court of Appeals declared:
"WHEREFORE, the instant petition is hereby DENIED and is accordingly
DISMISSED."18cräläwvirtualibräry

Hence, this petition.

The Issues

In its Memorandum, petitioner assigns the following errors in the decision of the Court of
Appeals:

1. "IN DISMISSING THE PETITION ALLEGEDLY BECAUSE OF PETITIONERS FAILURE TO

COMPLY WITH THE PERTINENT PROVISIONS OF SUPREME COURT CIRCULAR NOS. 1-
95 AND 28-91 ON THE CERTIFICATION AGAINST FORUM SHOPPING;"

2. "IN ORDERING A REMAND OF THE CASE BACK TO THE HEARING OFFICER FOR THE
RECEPTION OF EVIDENCE FOR SERVICES SUPPOSEDLY NOT RENDERED BY
PETITIONER;"

3. "IN DECLARING HOUSE RULE NO. 26.3 AS ULTRA VIRES;"

4. "IN FINDING THE PENALTIES AND INTERESTS PRESCRIBED IN HOUSE RULE

26.519 AS EXORBITANT AND GROSSLY EXCESSIVE;"

5. "IN REFUSING TO RECOGNIZE THE FACT THAT RESPONDENT LITONJUA AND NOT
ALS IS THE REAL OWNER OF APARTMENT UNIT 4-A;" and

6. "IN FAILING TO FIND THAT THERE IS ON RECORD OVERWHELMING EVIDENCE TO

SHOW THE BASIS OF THE DUES AND ASSESSMENTS BEING COLLECTED FROM THE
PRIVATE RESPONDENTS."20

The Ruling of the Court

The petition is partly meritorious.

A perusal of the foregoing issues readily reveals that petitioner raises two aspects of the case
for consideration - the procedural aspect and the substantive aspect.

We will discuss the procedural aspect first.

Non-compliance with Supreme Court Circular No. 1-95 and Revised Circular No. 28-91.

Petitioner submits that the Court of Appeals erred in dismissing its appeal for non-compliance
with Supreme Court Circular No. 1-95 and Revised Circular No. 28-91. Petitioner asserts that
when it filed its petition, both circulars were not yet in full force.

Petitioner filed its petition for review with the Court of Appeals on August 18, 1993 and its
amended petition on September 3, 1993. Both the original and amended petitions were filed
before the effectivity of Revised Administrative Circular No. 1-95 on June 1, 1995. However,
contrary to petitioners claim, before the issuance of Revised Administrative Circular No. 1-95,
there was already an existing circular requiring a sworn certification of non-forum shopping from
a party filing a petition for review with the Court of Appeals.

Circular No. 28-91, which took effect on January 1, 1992, required a sworn certification of non-
forum shopping in cases filed with the Court of Appeals and the Supreme Court. Circular No.
28-91 specifically provides for summary dismissal of petitions which do not contain a sworn
certification of non-forum shopping. Sections 2 and 3 of Circular No. 28-91 state:

"2. Certification - The party must certify under oath that he has not commenced any other action
or proceeding involving the same issues in the Supreme Court, the Court of Appeals, or
different Divisions thereof, or any other tribunal or agency, and that to the best of his knowledge,
no such action or proceeding is pending in the Supreme Court, the Court of Appeals, or different
Divisions thereof, or any other tribunal or agency. If there is any action pending, he must state
the status of the same. If he should learn that a similar action or proceeding has been filed or is
pending before the Supreme Court, the Court of Appeals, or different Divisions thereof, or any
other tribunal or agency, he should notify the court, tribunal or agency within five (5) days from
such notice.

3. Penalties -

a. Any violation of this Circular shall be a cause for the summary dismissal of the multiple
petition or complaint.

x x x."

Clearly, petitioner cannot claim that at the time of the filing of its petitions with the Court of
Appeals, it was not required under any existing Supreme Court Circular to include in its petitions
a sworn certification of non-forum shopping. Circular No. 28-91 applies in the instant case,
being the Circular in force at the time. Petitioner cannot even feign ignorance of Circular No. 28-
91 as its petitions were filed more than one year after the Circulars effectivity. The rule against
forum shopping has long been established and Circular No. 28-91 merely formalized the
prohibition and provided the appropriate penalties against violators. 21cräläwvirtualibräry

The Court of Appeals did not err in dismissing the petition for this procedural lapse. However,
special circumstances or compelling reasons may justify relaxing the rule requiring certification
on non-forum shopping.22 Technical rules of procedure should be used to promote, not frustrate
justice. While the swift unclogging of court dockets is a laudable objective, granting substantial
justice is an even more urgent ideal. 23 The certificate of non-forum shopping is a mandatory
requirement. Nonetheless, this requirement must not be interpreted too literally to defeat the
ends of justice.24cräläwvirtualibräry

In the instant case, the merits of petitioners case should be considered special circumstances or
compelling reasons that justify tempering the hard consequence of the procedural requirement
on non-forum shopping. In the interest of justice, we reinstate the petition.

Essentially, the substantive issues for resolution in the instant petition can be summarized into
four, as follows:

1. Whether petitioner can collect assessments and dues despite its denial to ALS of the use of
the Condominium facilities pursuant to House Rule 26.3;
2. Whether ALS can validly offset against its unpaid assessments and dues the value of the
services withheld by petitioner;

3. Whether a remand of the case to the proper trial court is necessary to determine the amounts
involved; and

4. Whether the penalties prescribed in House Rule 26.2 are grossly excessive and exorbitant.

First Issue: Payment of assessments and dues.

Petitioners authority to assess dues.

Petitioner was organized to hold title to the common areas of the Condominium and to act as its
management body. The Condominium Act, the law governing condominiums, states that:

"Title to the common areas, including the land, or the appurtenant interests in such areas, may
be held by a corporation specially formed for the purpose (hereinafter known as the
"condominium corporation") in which the holders of separate interests shall automatically be
members or shareholders, to the exclusion of others, in proportion to the appurtenant interest of
their respective units in the common areas. xxx"25cräläwvirtualibräry

The Condominium Act provides that the Master Deed may authorize the condominium
corporation to collect "reasonable assessments to meet authorized expenditures." 26 For this
purpose, each unit owner "may be assessed separately for its share of such expenditures in
proportion (unless otherwise provided) to its owners fractional interest in the common
areas."27 Also, Section 20 of the Condominium Act declares:

"Section 20. An assessment upon any condominium made in accordance with a duly
registered declaration of restrictions shall be an obligation of the owner thereof at the time
the assessment is made. xxx" (Emphasis supplied)

Petitioner is expressly authorized by its Master Deed to impose reasonable assessments on its
members to maintain the common areas and facilities of the Condominium. Section 4, Part II of
petitioners Master Deed provides:

"Section 4. ASSESSMENTS. From and after date Ayala Investment & Development Corporation
formally conveys the condominium project to the Condominium Corporation, the owner of each
unit shall be proportionately liable for the common expenses of the condominium
project, which shall be assessed against each unit owner in the project and paid to the
Condominium Corporation as provided in Part I Section 8 (b) hereof at such times and in such
manner as shall be provided in the By-Laws of the Condominium Corporation,

a.) Regular assessments for such amounts as shall be necessary to meet the operating
expenses of the Condominium Corporation as well as such amounts, determined in
accordance with the provisions of the By-Laws, to be made for the purpose of creating and
maintaining a special fund for capital expenditures on the common areas of the project;
including the cost of extraordinary repairs, reconstruction or restoration necessitated by
damage, depreciation, obsolescence, expropriation or condemnation of the common areas or
part thereof, as well as the cost of improvements or additions thereto authorized in accordance
with the provisions of the By-Laws;
b.) xxx

c.) There may be assessed against the unit owners, in the manner prescribed herein or in the
By-Laws of the Condominium Corporation, such other assessments as are not specifically
provided for herein;

d.) The amount of any such assessment, plus interest penalties, attorneys fees and other
charges incurred for the collection of such assessment, shall constitute a lien upon the unit and
on the appurtenant interest of the unit owner in the Condominium Corporation. Such lien shall
be constituted in the manner provided in the By-Laws of the Condominium Corporation. The
foreclosure, transfer of conveyance, as well as redemption of the unit shall include the unit
owners appurtenant interest in the Condominium Corporation. The Condominium Corporation
shall have the power to bid at the foreclosure sale." 28

Thus, petitioners right to collect assessments and dues from its members and the corollary
obligation of its members to pay are beyond dispute.

There is also no question that ALS is a member of petitioner considering that ALS is the
registered owner of the Unit. Under the automatic exclusive membership clause in the Master
Deed,29 ALS became a regular member of petitioner upon its acquisition of a unit in the
Condominium.

As a member of petitioner, ALS assumed the compulsory obligation to share in the common
expenses of the Condominium. This compulsory obligation is further emphasized in Section 8,
paragraph c, Part I of the Master Deed, to wit:

"Each member of the Condominium Corporation shall share in the common expenses of the
condominium project in the same sharing or percentage stated xxx" 30 (Emphasis supplied)

Undoubtedly, as a member of petitioner, ALS is legally bound to pay petitioner assessments

and dues LO maintain the common areas and facilities of the Condominium. ALS obligation
arises from both the law and its contract with the Condominium developer and other unit
owners.

Petitioners Master Deed provides that a member of the Condominium corporation shall share in
the common expenses of the condominium project.31 This obligation does not depend on the
use or non-use by the member of the common areas and facilities of the Condominium.
Whether or not a member uses the common areas or facilities, these areas and facilities will
have to be maintained. Expenditures must be made to maintain the common areas and facilities
whether a member uses them frequently, infrequently or never at all.

ALS asserts that the denial by petitioner to ALS and Litonjua of the use of the Condominium
facilities deprived petitioner of any right to demand from ALS payment of any condominium
assessments and dues. ALS contends that the right to demand payment of assessments and
dues carries with it the correlative obligation to allow the use of the Condominium facilities. ALS
is correct if it had not defaulted on its assessment and dues before the denial of the use of the
facilities. However, the records clearly show that petitioner denied ALS and Litonjua the use of
the facilities only after ALS had defaulted on its obligation to pay the assessments and dues.
The denial of the use of the facilities was the sanction for the prior default incurred by ALS.
In essence, what ALS wants is to use its own prior non-payment as a justification for its future
non-payment of its assessments and dues. Stated another way, ALS advances the argument
that a contracting party who is guilty of first breaching his obligation is excused from such
breach if the other party retaliates by refusing to comply with his own obligation.

This obviously is not the law. In reciprocal obligations, when one party fulfills his obligation, and
the other does not, delay by the other begins. Moreover, when one party does not comply with
his obligation, the other party does not incur delay if he does not perform his own reciprocal
obligation because of the first partys non-compliance. This is embodied in Article 1169 of the
Civil Code, the relevant provision of which reads:

"In reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the moment one of
the parties fulfills his obligation, delay by the other begins."

Thus, before ALS incurred its arrearages, petitioner allowed ALS to use the facilities. However,
ALS subsequently defaulted and thus incurred delay. It was only then that petitioner disallowed
ALS and Litonjua from using the facilities. Clearly, petitioners denial to ALS of the Condominium
facilities, after ALS had defaulted, does not constitute a valid ground on the part of ALS to
refuse paying its assessments and dues.

Validity of House Rule 26.3.

Petitioners House Rules and Regulations ("House Rules" for brevity) expressly authorize denial
of the use of condominium facilities to delinquent members. Specifically, House Rule 26.3
provides that:

"26. ASSESSMENTS:

xxx

26.3 Names of unit owners with delinquent accounts who fail to pay two consecutive quarters
shall be posted in the bulletin board. Unit owners with delinquent accounts, their tenants,
guests/visitors and relatives shall not be allowed the use of all facilities of the
condominium such as the swimming pool, gym, social hall, etc." (Emphasis supplied)

The issue on the validity of House Rule 26.3 was raised for the first time on appeal. It is settled
that an issue not raised during trial could not be raised for the first time on appeal as to do so
would be offensive to the basic rules of fair play, justice, and due process.32 Nonetheless, the
Court of Appeals opted to address this issue.

Petitioner justifies House Rule 26.3 by invoking Section 36, paragraph 11 of the Corporation
Code which grants every corporation the power "to exercise such powers as may be essential
or necessary to carry out its purpose or purposes as stated in its Articles of Incorporation."
Petitioner was organized for the main purpose of holding title to and managing the common
areas of the Condominium. Petitioner claims that there is here implied the power to enact such
measures as may be necessary to carry out the provisions of the Articles of Incorporation, By-
Laws and Master Deed to deal with delinquent members. This, asserts petitioner, includes the
power to enact House Rule 26.3 to protect and safeguard the interests not only of petitioner but
also of its members.
For their part, ALS and Litonjua assail the validity of House Rule 26.3 alleging that it is ultra
vires. ALS and Litonjua maintain that neither the Master Deed nor the By-Laws of petitioner
expressly authorizes petitioner to prohibit delinquent members from using the Condominium
facilities. Being ultra vires, House Rule 26.3 binds no one. Even assuming that House Rule 26.3
is intra vires, the same is iniquitous, unconscionable, and contrary to morals, good customs and
public policy. Thus, ALS claims it can validly deduct the value of the services withheld from the
assessments and dues since it was barred from using the Condominium facilities for which the
assessments and dues were being collected.

The Court of Appeals sustained respondents argument and declared House Rule 26.3 ultra
vires on the ground that petitioner is not expressly authorized by its Master Deed or its By-Laws
to promulgate House Rule 26.3.

House Rule 26.3 clearly restricts delinquent members from the use and enjoyment of the
Condominium facilities. The question is whether petitioner can validly adopt such a sanction to
enforce the collection of Condominium assessments and dues.

We rule that House Rule 26.3 is valid.

Section 45 of the Corporation Code provides:

"Sec. 45. Ultra vires acts of corporations. - No corporation under this code shall possess or
exercise any corporate powers except those conferred by this Code or by its articles of
incorporation and except such as are necessary or incidental to the exercise of the powers so
conferred."

The term ultra vires refers to an act outside or beyond corporate powers, including those that
may ostensibly be within such powers but are, by general or special laws, prohibited or declared
illegal.33 The Corporation Code defines an ultra vires act as one outside the powers conferred
by the Code or by the Articles of Incorporation, or beyond what is necessary or incidental to the
exercise of the powers so conferred. Moreover, special laws governing certain classes of
corporations, like the Condominium Act, also grant specific corporate powers to corporations
falling under such special laws.

The Condominium Act, petitioners By-Laws and the Master Deed expressly empower petitioner
to promulgate House Rule 26.3. Section 9 of the Condominium Act provides:

"Section 9. The owner of a project shall, prior to the conveyance of any condominium therein,
register a declaration of restrictions relating to such project, which restrictions xxx shall inure to
and bind all condominium owners in the project. xxx The Register of Deeds shall enter and
annotate the declaration of restrictions upon the certificate of title covering the land included
within the project, if the land is patented or registered under the Land Registration or Cadastral
acts.

xxx

Such declaration of restrictions, among other things, may also provide:

(a) As to any management body-

1. For the powers thereof, Including power to enforce the provisions of the declaration of
restrictions;

xxx

3. Provisions for maintenance xxx and other services benefiting the common areas, xxx"
(Emphasis supplied)

The Condominium Act clearly provides that the Master Deed may expressly empower the
management body, petitioner in the instant case, to enforce all provisions in the Master Deed
and Declaration of Restrictions.

Pursuant to Section 9 (a) (1) and (3) of the Condominium Act, the Master Deed expressly
authorizes petitioner to exercise all the powers granted to the management body by the
Condominium Act, petitioners Articles of Incorporation and By-Laws, the Master Deed, and the
Corporation Code. Section 3, Part II of the Master Deed reads:

"Section 3. MANAGEMENT BODY. - The Condominium Corporation to be formed and

organized pursuant to Section 7 of Part I, above, shall constitute the management body of the
project. As such management body, the powers of the Condominium Corporation shall be
such as are provided by the Condominium Act, by the Articles of Incorporation and the
By-Laws of the Corporation, by this instrument and by the applicable provisions of the
Corporation Code as are not inconsistent with the Condominium Act. Among such powers
but not by way of limitation, it shall have the power to enforce the provisions thereof in
accordance with the By-Laws of the corporation." (Emphasis supplied)

Thus, the Master Deed clearly empowers petitioner to enforce the provisions of the Master
Deed in accordance with petitioners By-Laws.

Petitioners By-Laws expressly authorize petitioners Board of Directors to promulgate rules and
regulations on the use and enjoyment of the common areas. Thus, paragraph 2, Section 2 of
petitioners By-Laws states:

"Without limiting the general nature of the foregoing powers, the Board of Directors shall have
the power to enforce the limitations, restrictions, and conditions contained in the Master Deed
and Declaration of Restrictions of the project; promulgate rules and regulations concerning
the use, enjoyment and occupancy of the units, common areas and other properties in
the condominium project, to make and collect assessments against members as unit owners
to defray the costs and expenses of the condominium project and the corporation and to secure
by legal means the observance of the provisions of the Condominium Act, the Master Deed, the
Articles of Incorporation, these By-Laws, and the rules and regulations promulgated by it in
accordance herewith. The members of the corporation bind themselves to comply faithfully with
all these provisions."34 (Emphasis supplied)

Evidently, the Condominium Act, the Master Deed and petitioners By-Laws grant petitioner the
express power to promulgate rules and regulations concerning the use, enjoyment and
occupancy of the common areas.

Moreover, House Rule 26.3, which prohibits delinquent members from using the common areas,
is necessary to ensure maintenance of the common areas. Petitioners purpose in enacting
House Rule 26.3 is to enforce effectively the provisions of the Master Deed. House Rule 26.3 is
well within the powers of petitioner to adopt as the same is reasonably necessary to attain the
purpose for which both petitioner and the Condominium project were created. Thus, Section 7 of
the Master Deed declares:

"Section 7. CONDOMINIUM CORPORATION. - A corporation to be known as THE TWIN

TOWERS CONDOMINIUM (hereinafter referred to as the "Condominium Corporation"), shall be
formed and organized pursuant to the Condominium Act and the Corporation Code to hold title
to all the aforestated common areas of the condominium project including the land, to manage
THE TWIN TOWERS CONDOMINIUM and to do such other things as may be necessary,
incidental and convenient to the accomplishment of said purposes xxx"35 (Emphasis
supplied)

Petitioner would be unable to carry out its main purpose of maintaining the Condominium
common areas and facilities if members refuse to pay their dues and yet continue to use these
areas and facilities. To impose a temporary ban on the use of the common areas and facilities
until the assessments and dues in arrears are paid is a reasonable measure that petitioner may
undertake to compel the prompt payment of assessments and dues.

Second Issue: Offsetting the value of services withheld against ALS unpaid assessments and
dues.

ALS claim for reduction of its assessments and dues because of its non-use of the
Condominium facilities.

We rule that ALS has no right to a reduction of its assessments and dues to the extent of its
non-use of the Condominium facilities. ALS also cannot offset damages against its assessments
and dues because ALS is not entitled to damages for alleged injury arising from its own violation
of its contract. Such a breach of contract cannot be the source of rights or the basis of a cause
of action.36 To recognize the validity of such claim would be to legalize ALS breach of its
contract.

ALS claim for unrendered repair services barred by estoppel.

ALS also justifies its non-payment of dues on the ground of the alleged failure of petitioner to
repair the defects in ALS Unit. However, this claim for unrendered repairs was never raised
before the SEC Hearing Officer or the SEC en banc. The issue on these alleged unrendered
repairs, which supposedly caused ALS Unit to deteriorate, was raised for the first time on
appeal. The Court of Appeals did not pass upon the same.

Neither in the proceedings in the SEC nor in the appellate court did ALS present evidence to
substantiate its allegation that petitioner failed to render the repair services. Also, ALS failed to
establish whether it claimed for the costs of the repair because ALS advanced these expenses,
or for the value of damages caused to the Unit by the water leakage.

ALS is therefore barred at this late stage to interpose this claim. In Del Rosario v. Bonga,37 the
Court held:

"As a rule, no question will be entertained on appeal unless it has been raised in the court
below. Points of law, theories, issues and arguments not brought to the attention of the lower
court need not be, and ordinarily will not be, considered by a reviewing court, as they cannot be
raised for the first time at that late stage. Basic considerations of due process impel this rule."

As this claim was a separate cause of action which should have been raised in ALS Answer
with Counterclaim, ALS failure to raise this claim is deemed a waiver of the claim.

Third Issue: Remand of the case to the proper trial court.

Question of fact.

The Court of Appeals ruled that there is a need to remand the case considering that there is no
sufficient evidence on record to establish the amount of petitioners claim against ALS for unpaid
assessments and dues.

The question of whether petitioners claim of P994,529.75 for unpaid assessments and dues
against ALS is supported by sufficient evidence is a purely factual issue and inevitably requires
the weighing of evidence. This Court is not a trier of facts, and it is not the function of this Court
to re-examine the evidence submitted by the parties.38 In cases brought before this Court from
the Court of Appeals under Rule 45 of the Rules of Court, this Courts jurisdiction is limited to
reviewing errors of law which must be distinctly set forth.39 In this mode of appeal, the findings
of fact of the Court of Appeals and other courts of origin are conclusive.40cräläwvirtualibräry

Jurisprudence is settled that:

"(a)s a rule, the jurisdiction of this Court in cases brought to it from the Court of Appeals xxx is
limited to the review and revision of errors of law allegedly committed by the appellate court, as
its findings of fact are deemed conclusive. As such this Court is not duty-bound to analyze and
weigh all over again the evidence already considered in the proceedings
below."41cräläwvirtualibräry

This rule admits of several exceptions. This Court may review the findings of fact of the Court of
Appeals:

"(a) where there is grave abuse of discretion; (b) when the finding is grounded entirely on
speculations, surmises or conjectures; (c) when the inference made is manifestly mistaken,
absurd or impossible; (d) when the judgment of the Court of Appeals was based on a
misapprehension of facts; (e) when the factual findings are conflicting; (F) when the Court of
Appeals, in making its findings, went beyond the issues of the case and the same are contrary
to the admissions of both appellant and appellee; (g) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties and which, if properly considered,
would justify a different conclusion; and, (h) where the findings of fact of the Court of Appeals
are contrary to those of the trial court, or are mere conclusions without citation of specific
evidence, or where the facts set forth by the petitioner are not disputed by the respondent, or
where the findings of fact of the Court of Appeals are premised on the absence of evidence and
are contradicted by the evidence on record." 42cräläwvirtualibräry

However, none of these exceptions exists in the instant case.

The SEC Hearing Officer found that, while petitioner is entitled to collect the unpaid
assessments and dues from ALS, petitioner has failed to establish clearly the basis for
computing the correct amount of the unpaid assessments and dues. Indeed, there is no
evidence laying down the basis of petitioners claim other than allegations of previous demands
and statements of accounts. Whether petitioner has sufficiently established its claim by
preponderance of evidence requires an examination of the probative weight of the evidence
presented by the parties. Evidently, this is a question of fact the resolution of which is beyond
the purview of the petition for review where only errors of law may be raised. On the other hand,
the decision of the Court of Appeals, finding insufficient evidence on record, was made under its
power to review both questions of fact and law.

Remand to the proper trial court.

While we sustain the ruling of the Court of Appeals, the case can no longer be remanded to the
SEC Hearing Officer. Republic Act No. 8799, which took effect on August 8, 2000, transferred
SECs jurisdiction over cases involving intra-corporate disputes to courts of general jurisdiction
or the appropriate regional trial courts. Section 5.2 of R.A. No. 8799 reads:

"5.2. The Commissions jurisdiction over all cases enumerated under Section 5 of Presidential
Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate
Regional Trial Court; Provided, That the Supreme Court in the exercise of its authority may
designate the Regional Trial Court branches that shall exercise jurisdiction over these cases.
The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes
submitted for final resolution which should be resolved within one (1) year from the enactment of
this Code. The Commission shall retain jurisdiction over pending suspension of
payments/rehabilitation cases filed as of 30 June 2000 until finally disposed."

Based on the Resolution issued by this Court in AM No. 00-8-10-SC,43 the Court Administrator
and the Securities and Exchange Commission should cause the transfer of the records of SEC-
AC Nos. 377 and 378 to the proper regional trial court for further reception of evidence and
computation of the correct amount of assessments and dues that ALS shall pay to petitioner.

Fourth Issue: Penalties prescribed in House Rule 26.2.

ALS and Litonjua did not question before either the SEC or the Court of Appeals the validity of
the penalties prescribed in the Condominiums House Rule 26.2. Nevertheless, the Court of
Appeals ruled that House Rule 26.2 prescribes grossly excessive penalties and interests. The
resolution of this issue is not necessary in arriving at a complete and just resolution of this case.
At any rate, we find the interest and penalties prescribed under House Rule 26.2 reasonable
considering the premier location of the Condominium at the heart of Makati City. It is inevitable
that ALS unpaid assessments and dues would escalate because ALS delinquency started since
1986.

House Rule 26.2 clearly provides for a 24% interest and an 8% penalty, both running annually,
on the total amount due in case of failure to pay, to wit:

"26.2. Late payment of accounts of members shall be charged an interest rate of 24% per
annum. In addition, a penalty at the rate of 8% per annum shall be charged on delinquent
accounts. The 24% interest shall be imposed on unpaid accounts starting with the 21st day of
the quarter until fully paid."
To reiterate, the Condominium Act expressly provides that the Master Deed may empower the
management body of the Condominium "to enforce the provisions of the declaration of
restrictions."44 The Master Deed authorizes petitioner, as the management body, to enforce the
provisions of the Master Deed in accordance with petitioners By-Laws. Thus, petitioners Board
of Directors is authorized to determine the reasonableness of the penalties and interests to be
imposed against those who violate the Master Deed. Petitioner has validly done this by adopting
the House Rules.

The Master Deed binds ALS since the Master Deed is annotated on the condominium certificate
of title of ALS Unit. The Master Deed is ALS contract with all Condominium members who are
all co-owners of the common areas and facilities of the Condominium. Contracts have the force
of law between the parties and are to be complied with in good faith.45 From the moment the
contract is perfected, the parties are bound to comply with what is expressly stipulated as well
as with what is required by the nature of the obligation in keeping with good faith, usage and the
law.46 Thus, when ALS purchased its Unit from petitioner, ALS was bound by the terms and
conditions set forth in the contract, including the stipulations in the House Rules of petitioner,
such as House Rule 26.2.

In sum, as a member of petitioner, ALS is indisputably bound by the Condominiums House

Rules which are authorized by the By-Laws, the Master Deed and the Condominium Act.

Award of attorneys fees.

The award of attorneys fees as damages is the exception rather than the rule. The general rule
is that attorneys fees cannot be recovered as part of damages because of the policy that no
premium should be placed on the right to litigate.47 Counsels fees are not awarded every time a
party prevails in a suit.48 An award of attorneys fees and expenses of litigation is proper under
the instances provided for in Article 2208 of the Civil Code, one of which is where the defendant
acted in gross and evident bad faith. In this case, however, we find no cogent reason to award
attorneys fees in the absence of showing of gross and evident bad faith on the part of ALS in
refusing to satisfy petitioners claim.

WHEREFORE, the petition is GRANTED and the assailed Decision of the Court of Appeals is
SET ASIDE. ALS Management & Development Corporation is ordered to pay Twin Towers
Condominium Corporation all overdue assessments and dues, including interest and penalties
from date of default, as shall be determined by the proper Regional Trial Court in accordance
with this Decision. The proper Regional Trial Court shall complete the computation within sixty
(60) days from its receipt of this Decision and the records of SEC-AC Nos. 377 and 378. Costs
of suit against ALS Management & Development Corporation.
G.R. No. L-18009 January 10, 1923

EMILIO PUNSALAN, ET AL., plaintiffs-appellants,

vs.
C. BOOT LIAT, ET AL., defendants-appellants.

Yeager and Armstrong, C. A. Sobral and Lorenzo and Mañalac for plaintiffs-appellants.
Kincaid, Perkins and Kincaid and P. J. Moore for defendants-appellants.

AVANCEÑA, J.:

On or about the 13th of July, 1920, a Moro by the name of Tamsi saw from the Cawit-Cawit
shores in the Province of Zamboanga, a big bulky object in the distance which attracted his
attention. Thereupon, together with another Moro named Bayrula, he went in a small boat to
investigation and found it to be a large fish. They then returned to shore, where they met other
Moros and requested their help to catch the fish. They went in three small boats, there being
then in one, seven in the other, and five in the third, twenty-two men, in all, twenty-one of whom
are plaintiffs herein, and the remaining one named Ahamad is defendant. After having arrived at
the place where the fish was, which was found to be a whale, they proceeded to pull it toward
the shore up to the mouth of the river, where they quartered it, having found in its abdomen a
great quantity of ambergris, which was placed in three sacks, two of which were full and the
other half full, and taken to the house of Maharaja Butu, where they left it to the care of
Ahamad. Then the contents of the two full sacks were placed in three trunks. All of these
twenty-two persons made an agreement that they were to be the sole owners of this ambergris
and that none of them could sell it without the consent of the rest. As to the half sack of amber
they agreed that some of them should take it to Zamboanga to sell for the purpose of
ascertaining the market price of the ambergris, in order that they might dispose of the rest
accordingly. Some of them, with Tamsi in charge, went to Zamboanga to sell the half sack of
amber where they did dispose of it to a Chinaman, Cheong Tong, for the sum of P2,700, which
amount was distributed among all the parties in interest. Then they offered to sell for the sum of
P12,000 to the Chinamen, Cheong Tong and Lim Chiat, the rest of the amber contained in the
two sacks which had been left in the house of Maharaja Butu, for safekeeping, and a document
(Exhibit A) to this effect was executed by Lim Chiat and Cheong Tong, on the one hand, and
Tamsi, Imam Lumuyod, and Imam Asakil, on the other. Thereupon they went to Cawit-Cawit on
board the launch Ching-kang to get the amber so sold.

It appears that there were other people in Zamboanga who knew of the existence of this
ambergris in the house of Maharaja Butu. While the above related events were taking place, Mr.
Henry E. Teck, who was one of those having knowledge of the existence of this amber in Cawit-
Cawit and of the fact that the launch Ching-kang had left for Cawit-Cawit, proposed to the
master of the revenue cutter Mindoro to go to Cawit-Cawit to seize some supposedly
contraband opium. After transmitting this information to the Collector of Customs, he, the master
of the Mindoro, immediately proceeded to Cawit-Cawit. There were on board the vessel Mr.
Teck, some Chinamen, among whom were C. Boon Liat, Ong Chua, and Go Tong, and some
Moros who, according to Mr. Teck, were to assist in the arrest of the smugglers. Upon the
arrival of the Mindoro at Cawit-Cawit, the master, accompanied by Mr. Teck and some Moros,
went to the house of Maharaja Butu. As is to be presumed, this information about the supposed
contraband opium was but a trick to have the Mindoro at their disposal. The master proceeded
to search the house, stating that he had information to the effect that there was contraband
opium and as a result of the search, he found three large trunks containing a black substance
which had a bad odor. He then asked the owner of the house to whom those three trunks
belonged, and the latter pointed to Ahamad who was present and who stated that the contents
came from the abdomen of a large fish. The master, however, said that it was opium and told
Ahamad that he would take the three trunks on board the ship. Then Ahamad and other Moros
asked permission of the master to accompany him on the voyage to Zamboanga, to which the
master consented. When already on board and during the voyage the master became
convinced that the contents of the three trunks were not opium.

During the voyage, Mr. Teck offered to purchase the amber contained in the three trunks, but
Ahamad refused to sell it for the reason that he was not the sole owner thereof, but owned it in
common with other persons who were in Zamboanga. However Mr. Teck, aided by his
companions who wielded some influence in Zamboanga, insisted that Ahamad should sell them
the amber, telling him not to be afraid of his companions, as he would answer for whatever
might happen. With this promise of protection, Ahamad decided to sell the amber for P7,500
and received P2,500 as part payment on account of this price, a bill of sale having been signed
by Ahamad, Maharaja Butu and three Moros more. The balance of this price was paid later.

When Cheong Tong, Lim Chiat, and the Moros who had gone to Cawit-Cawit on board the
launch Ching-kang arrived at the house of Maharaja Butu, they found that the amber they had
purchased from Tamsi and his companions was no longer there.

The plaintiffs are twenty-one of the twenty-two Moros who had caught the whale, and Lim Chiat
and Cheong Tong, who had purchased from Tamsi and his companions the amber contained in
the three trunks deposited in the house of Maharaja Butu for safekeeping. They claim the 80-½
kilos of ambergris contained in three trunks, or its value in the amount o P60,000, and damages
in the sum of P20,000. This action is brought against C. Boon Liat, Ong Chua, Go Tong, Henry
E. Teck, and the Moro, Ahamad, the first four being the persons who purchased this same
amber from the one last named while on board the revenue cutter Mindoro.

It appears from the foregoing that the amber in question was the undivided common property of
the plaintiffs (with the exception of Lim Chiat and Cheong Tong) and the defendant Ahamad.
This common ownership was acquired by occupancy (arts. 609 and 610 of the Civil Code), so
that neither Tamsi, Imam Lumuyod, or Imam Asakil had any right to sell it, as they did, to Lim
Chiat and Cheong Tong, nor had the Moro Ahamad any right to sell this same amber, as he did,
to C. Boon Liat, Ong Chua, Go Tong, and Henry E. Teck. There was an agreement between the
coowners not to sell this amber without the consent of all. Both sales having been made without
the consent of all the owners, the same have no effect, except as to the portion pertaining to
those who made them (art. 399, Civil Code).

Although the original complaint filed in this case was entitled as one for replevin, in reality, from
its allegations, the action herein brought is the ordinary one for the recovery of the title to, and
possession of, this amber. It is no bar to the bringing of this action that the defendant Ahamad is
one of the coowners. The action for recovery which each coowner has, derived from the right of
ownership inherent in the coownership, may be exercised not only against strangers but against
the coowners themselves, when the latter perform, with respect to the thing held in common,
acts for their exclusive benefit, or of exclusive ownership, or which are prejudicial to, and in
violation of, the right of the community. (Decision of the supreme court of Spain of June 22,
1892.) In this case the selling of the amber by the defendant Ahamad as his exclusive property
and his attitude in representing himself to be the sole owner thereof place him in the same
position as the stranger who violates any right of the community. He is not sued in this case as
a coowner, for the cause of action is predicated upon the fact that he has acted not as a
coowner, but as an exclusive owner of the amber sold by him.

As to the sale made by Ahamad, it is urged that the purchaser acted in good faith. It is
contended that the latter did not know that the amber belonged to some others besides
Ahamad. But the evidence shows otherwise. Henry E. Teck himself admitted that on the
occasion of the sale of the amber he really had promised Ahamad to protect him, and although
he said that the promise made by him had reference to the contingency of the amber proving to
be opium, as the master of the revenue cutter Mindoro believed, this is incredible, because he
could not make Ahamad such a promise, nor could such a promise, if made, have any influence
on the mind of Ahamad, inasmuch as the latter knew that the amber was not opium. If, as Henry
E. Teck admits, he made Ahamad this promise of protection, it should have been only on
account of Ahamad's refusal to sell the amber due to the fact that he was not the sole owner
thereof.

With regard to the action of the trial court in not admitting Exhibits 1 and 2 offered by the
defendants, we believed that it was no error. These documents are affidavits signed by
Paslangan, and the best evidence of their contents was the testimony of Paslangan himself
whom the plaintiffs had the right to cross-examine. Moreover, they are substantially the same as
the statements made by Paslangan at the trial when testifying as witness for the defendants,
and for this reason the ruling of the trial court excluding these documents would not, at all
events, affect the merits of the case.

In the complaint it is alleged that the value of the amber is P60,000. Upon the evidence adduced
on this point, and taking into account that the defendant, Henry E. Teck, himself, testifying as
witness, has stated that this amber was worth P1,200 per kilo, we accept this estimated value
set forth in the complaint.

The decision of the court below contains the following order for judgment:

Wherefore, it is the judgment and order of the court that the defendants C. Boon Liat,
Henry E. Teck, Ahamad Ong Chua, and Go Tong deliver to the plaintiffs, Emilio
Punsalan, Bayrula, Daring Gumuntol, Mohamad, Insael, Dunkaland, Tahil, Dambul,
Dagan, Sabay, Sahibul, Pingay, Mujahad, Amilol, Baraula, Saraban, Lim Chiat, and
Cheong Tong twenty-twenty-first (20/21) of the amber in question, or, in default thereof,
to pay them its value of twelve thousand pesos (P12,000), less one-twenty-first of said
amount.

Therefore, the judgment appealed from is affirmed, with the only modification that the value of
the amber which is the subject-matter of this action shall be P60,000, without special finding as
to the costs of this instance. So ordered.

Araullo, C. J., Malcolm, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.
Street, J., reserves his vote.
 GR No. L-47996 May 9, 1941

ENGRACIA LAVADIA AND OTHERS, plaintiffs and appeals, vs. ROSARIO COSME DE
MENDOZA AND OTHERS, defendants and appellants.

Messrs. L. Fernandez Lavadia and Aurelio Palileo representing the appeals.

Messrs. Ortega and Ortega on behalf of the appellants.

DIAZ, J .:

The object of litigation between the plaintiffs and the defendants in the Court of First Instance of
Laguna, were the possession and custody of certain jewels that some six pious ladies of the
municipality of Pagsanjan, Laguna, called Martina, Matea, Isabel, Paula, Pia and Engracia
surnamed all Lavadia, they had sent to make 1880, with their own money, to adorn and
decorate with them the Image of Our Lady of Guadalupe, patron of the mentioned municipality,
retaining them for themselves, their ownership not ceasing but only their use to the referred
Image, for the indicated purpose. The plaintiffs and the defendants, with the exception of
Engracia Lavadia, which was one of the six, are descendants of the other five primitive owners
of the jewels in question. Because the defendant Rosario Cosme de Mendoza who is one of the
descendants of Paula Lavadia, who ultimately had custody of those, wanted to hand over the
crown that was part of them, to the Catholic Bishop of Lipa, to have her in her possession but
subject to the use of the Image of Our Lady of Guadalupe, according to the will of their owners,
the descendants of the three, (Isabel Lavadia, Matea Lavadia and Martina Lavadia), Engracia
Lavadia who are the plaintiffs, promoted this cause in the Court of its origin, to claim the
possession and custody of all the aforementioned jewelry. These are none other than those
described in paragraph 3 of the lawsuit. chanroblesvirtualawlibrary chanrobles virtual law library

The Court decided the case against the defendants, declaring that the plaintiffs owning four
sixths were unimportant of the jewels subject to question, and the defendants, of two sixths
only, those had perfect right to determine who should take care of their custody; and that,
having decided to entrust this is to Engracia Lavadia, one of the primitive owners, ordered that
the defendant Rosario Cosme de Mendoza deliver all of them to said plaintiff. Against this
decision of the Court, the defendants filed an appeal, believing that the Court erred (1) in
declaring that the appellant Rosario Cosme de Mendoza, and his antigresors in the possession
of the aforementioned jewels, acted only as depositories, and not fiduciaries ; (2) by declaring
that the appellants own four-sixths of those, and that they are responsible for said reason to
exercise the right to designate the person to whom they entrust their custody; (3) by declaring
that the appellant Rosario Cosme de Mendoza, being a co-owner and fiduciary of said jewels,
cannot be deprived of her administration and custody, except for reasons that incapacitate her
to do so, which are to execute acts contrary to the willingness of its primitive owners, and to
dispose of the aforementioned jewelry at will; (4) by declaring that Pia Lavadia and his
descendants, until arriving at Rosario Cosme de Mendoza, who had had custody and
possession of the aforementioned jewels, have faithfully performed their duties; and finally (5)
by denying your request for a new hearing. chanroblesvirtualawlibrary chanrobles virtual law
library
To have a thorough idea of the facts, let us explain them below, following the story that the
Court makes of them in their decision appealed, since neither the appellants nor the appeals
discuss them:

The object of the cause are the jewels of the image of the Virgin of Our Lady of Guadalupe, in
the municipality of Pagsanjan, Laguna, and consist of a gold crown embedded with diamonds
and diamonds, a diamonds and diamonds choker, a belt also embedded with diamonds and
diamonds, a gold necklace also completely encrusted with diamonds, a gold bracelet embedded
with diamonds and diamonds, a golden silver plate where the above-mentioned jewels are
placed, and other various pieces of gold or of golden silver for the decoration of the clothing of
this image of Our Lady of Guadalupe. All of these jewels are currently locked up at the Bank of
the Philippine Islands because the defendant Rosario Cosme de Mendoza had deposited them
there. chanroblesvirtualawlibrary chanrobles virtual law library

The crown and the jewels described above were made around 1880 at the expense of six ladies
residents of the municipality of Pagsanjan, Laguna. They were the sisters Paula Lavadia and
Pia Lavadia, the sisters Martina Lavadia and Matea Lavadia, and the sisters Isabel Lavadia and
Engracia Lavadia. These ladies contributed jewelry that they had for the preparation of the
crown and with them the jewels described above were made, also contributing the money with
which they were made. All these ladies and they have passed away, with the exception of the
plaintiff Mrs. Engracia Lavadia Vda. Fernandez's The other plaintiffs are the legal heirs of Isabel
Lavadia, Matea Lavadia and Martina Lavadia, while the defendant Rosario Cosme de Mendoza
and her co-defendants are legitimate heirs and descendants of Paula
Lavadia. chanroblesvirtualawlibrary chanrobles virtual law library

The crown and jewels were ordered to be made for the use of the owner of the municipality of
Pagasanjan, Ntra.Sra. from Guadalupe. When they had finished making, their owners agreed
that these jewels would stay with the taxpayer Pia Lavadia. She had these jewels in her custody
until her death in 1882, when her sister Paula Lavadia succeeded her in their custody. On the
death of Paula Lavadia, of the care, preservation and custody of said jewels, Pedro Rosales,
and his son, Paz Rosales, died, in turn he succeeded in said custody, conservation and
care. Upon the death of Paz Rosales, the crown and jewels were taken to the custody of her
husband Baldomero Cosme. After Baldomero Cosme, these jewels passed to Manuel Soriano
who, in turn, was succeeded in custody, conservation and administration by the defendant
Rosario Cosme de Mendoza. Every year from 1880 to date, the jewels in question were used to
decorate the image of Our Lady of Guadalupe in Pagsanjan, and none of those who have been
keeping or guarding these jewels had intended to possess them as an exclusive owner. The
defendant Rosario Cosme de Mendoza and her co-defendants do not claim to own the
aforementioned jewelry. Indeed, in the intestate of the late Baldomero Cosme, special action
No. 5494 of this Court of First Instance, said defendant and his co-defendants have told the
Court that they have never had claims to claim the domain of said jewels or any part of the
same. ( See Exhibits B-2 by B-3.) Chanrobles virtual law library

On February 9, 1938, the defendant Rosario Cosme de Mendoza, in her capacity as

administrator of the intestate of the late Baldomero Cosme, notified all persons interested in
said jewels that she wanted to formally deliver said jewels to Mr. Bishop of Lina on Next
Saturday, that is, on February 12, 1938, informing them to witness the act of delivery
( See Exhibit 4). Indeed, on February 12, 1938, the defendant and her husband made formal
delivery of the jewels, granting the corresponding document for that purpose, a document that
was presented as Exhibit E of the plaintiffs and 2 of the defendants. Not being the plaintiffs
satisfied with this delivery, about six people and the plaintiffs in this case granted a document,
designating the plaintiff Engracia Lavadia as a collector, who would take care of the crown and
the jewelry in question ( See Exhibit 3). Having raised the question of who should have the
crown and jewels in question in their custody, and having come to the knowledge of the Bishop
of Lipa, this, in turn, on June 21, 1938, granted a deed waiving custody and administration of
said crown and jewelry ( See Exhibit D of the plaintiffs and 1 of the defendants).

Based on the facts reported, the Court declared that the contract between the primitive owners
of the jewels in dispute and the first of them that had custody of them, was the deposit, as this
contract is finalized in articles 1758 and following of the Civil Code. Pia Lavadia first, and then
Paula Lavadia and the descendants of the latter being one of them the appellant Rosario
Cosme Mendoza, received and possessed, one after the other, those referred, only for custody
purposes; Well, as the Court emphasizes in its decision, neither those nor the latter used them
for their own benefit. If it was by virtue of a deposit agreement that the jewels were received,
first by Pia and Paula, and then by the descendants of the latter including the appellant Rosario
Cosme de Mendoza, it is clear that there is an obligation on the part of this to return them to
their owners as soon as they claim them. This is stated in article 1766 of the Civil Code that
says:

The depositary is obliged to keep the thing and rescind it, when requested, to the depositor, or
to his or her causes, or to the person who had been designated in the contract. Your
responsibility regarding the guard and the loss of the thing, will be governed by the provisions of
the tit. I of this book.

The restitution must be made with all the fruits and accessions of the deposited thing, if it has
them, without being given to the depositary to retain it, as Sanchez Roman comments, (IV
Sanchez Roman, 885), even under the pretext of obtaining compensation of other credits or to
compensate for expenses made for their conservation. chanroblesvirtualawlibrary chanrobles
virtual law library

The primitavas owners of the jewels in question, agreed to entrust the custody of them to some
of them, reserving themselves for their property. This goes to show that the appellants' theory
that the contract they had is not a deposit because after all, as they say, the jewels cannot be
considered as belonging to others with respect to Rosario Cosme de Mendoza, because she
descends of one of its first owners, it has no strength, because even among commoners of one
thing, one of them can be a depositary, and when it is, it is subject to the same obligations
imposed by the law on any depositary, with respect to the conservation of the thing with the
care, diligence and interest of a good parent.

Joint owner The fact that the depositary is a joint owner of the res does not alter the degree of
diligence required of him. (18 CJ, 570).

The appeals are descendants and legal heirs of Isabel Lavadia, Matea Lavadia and Martina
Lavadia; and Engracia Lavadia, whom they appointed to take over the custody of the jewels
subject to question, is one of the primitive owners of them; and the appellants are in turn the
descendants and heirs of Pia Lavadia and PaulaLavadia. Not showing anywhere due to the six
primitive owners did not contribute to the making or acquisition of the jewelry so many times
mentioned, in the same proportion, the most reasonable conclusion is - and this is sustained by
a presumption of law, (Art, 393, Civil Code ) -, that all of them apportioned the coast of the same
paying each one, an equal fee. If this is true, then we must accept the Court's conclusion that
the appellants own four-sixths of said jewels, and that the appellants are not only the two-sixths
remaining. Therefore, having decided most of the appeals, entrust the custody and
administration of these jewels to be able to faithfully comply with the will of their primitive
owners, the appealed Engracia Lavadia, the only survivor of them, their decision must be
respected, because for the administration and better enjoyment of the common thing, according
to article 398 of the Civil Code, the agreements of the majority of the participants are
mandatory. chanroblesvirtualawlibrary chanrobles virtual law library

The argument that Rosario Cosme de Mendoza and his predecessors have been faithfully
performing their duties as depositaries, does not argue in favor of the proposition that the
deposit should not be withdrawn, because the deposit contract is such that it allows the
depositor to withdraw from the depositary the thing deposited, at any time you would like,
especially when the last one, as in the case of Rosario Cosme de Mendoza, has executed an
act contrary to the order received, entrusting or trying to entrust another, the custody and
administration of the deposited thing, on its own account and without the consent of the
depositors or their heirs. chanroblesvirtualawlibrary chanrobles virtual law library

Having not found any error in the decision appealed by the Court, we hereby confirm it,
condemning the appellants to pay the costs. That's how it is
ordered. chanroblesvirtualawlibrary chanrobles virtual law library

Imperial, Laurel, Moran and Horrilleno, MM., Are satisfied.

 MANUEL MELENCIO, MARIANO MELENCIO, PURA MELENCIO, and CARIDAD
MELENCIO, Plaintiffs-Appellants, v. DY TIAO LAY, Defendant-Appellee.

Jose V. Valladolid, Jose P. Melencio and Camus & Delgado for Appellants.

Araneta & Zaragoza for Appellee.

SYLLABUS

1. CIVIL CODE; COMMUNITY OF PROPERTY; ALTERNATIONS. — Article 397 of the Civil

Code provides: "None of the owners shall, without the consent of the others, make any
alternations in the common property even though such alterations might be advantageous to
all." While the property referred to in this case was leased, without the consent of all the
coowners, building thereon one house and three warehouse, it cannot be considered that the
alterations are of sufficient importance to nullify the lease, especially so since none of the
coowners objected to such alterations until over twenty years after the execution of the contract
of lease.

2. ID.; ID.; CONTRACT OF LEASE; RESCISSION. — The provision in the contract that the
lessee, at any time before he erected any building on the land, might rescind the lease, can
hardly be regarded as a violation of article 1256 of the Civil Code.

3. ID.; ID.; ID.; ANNULMENT. — In this case only a small majority of the coowners executed the
lease here in question, and according to the terms of the contract the lease might be given a
duration of sixty years. This is an open violation of article 1548 of the Civil Code and the
contract of the lease herein in question should therefore be declared null and void.

DECISION

OSTRAND, J.:

On August 1, 1927, the plaintiffs, Manuel, Mariano, Pura and Caridad Melencio, brought the
present action against the defendant-appellee, Dy Tiao Lay, for the recovery of the possession
of a parcel of land situated in the town of Cabanatuan, Nueva Ecija, and containing an area of
4,628.25 square meters. The plaintiffs further demand a monthly rental of P300 for the use and
occupation of the parcel from May, 1926, until the date of the surrender to them of the
possession thereof; and that if it is found that the said appellee was occupying the said parcel of
land by virtue of a contract of lease, such contract should be declared null and void for lack of
consent, concurrence, and ratification by the owners thereof.

In his answer, the defendant pleaded the general issue, and as special defenses, he alleged in
substance that he was occupying the said tract of land by virtue of a contract of lease executed
on July 24, 1905, in favor of his predecessor in interest, by Ruperta Garcia, Pedro Melencio,
Juliana Melencio, and Ruperto Melencio under the terms specified therein, and which contract is
still in force; that Liberata Macapagal, the mother of the plaintiffs, in her capacity as judicial
administratrix of the estate of Ramon Melencio, one of the original coowners of the parcel of
land in question, actually recognized and ratified the existence and validity of the contract
aforesaid by virtue of the execution of a public document by her on or about November 27,
1920, and by collecting from the assignees of the original lessee the monthly rent for the
premises until April 30, 1926; and that said defendant deposits with the clerk of court the sum of
P20.20 every month as rent thereof and that as a counterclaim, he seeks the recovery of P272
for goods and money delivered by him to the plaintiffs.

The plaintiffs filed a reply to the answer alleging, among other things, that Ruperta Garcia was
not one of the coowners of the land in question; that the persons who signed the alleged
contract of lease never represented themselves as being the sole and exclusive owners of the
land subject to the lease as alleged by the defendant in his answer; that the said contract of
lease of July 24, 1905, is null and void for being executed without the intervention and consent
of two coowners, Ramon Melencio and Jose P. Melencio, and without the marital consent of the
husbands of Juliana and Ruperta Melencio; that the lessee has repeatedly violated the terms
and conditions of the said contract; and that Liberata Macapagal, in her capacity as
administratrix of the property of her deceased husband, could not lawfully and legally execute a
contract of lease with the conditions and terms similar to that of the one under consideration,
and that from this it follows that she could not ratify the said lease as claimed by the defendant.

On January 21, 1928, Liberta Macapagal Viuda de Melencio, duly appointed and qualified as
administratrix of the estate of her deceased husbands, Ramon Melencio, filed a petition praying
to be allowed to join the plaintiffs as party to the present case, which petition was granted in
open court on January 31, 1928. Her amended complaint of intervention of February 14, 1928,
contains allegations similar to those alleged in the complaint of the original plaintiffs, and she
further alleges that the defendant-appellee has occupied the land in question ever since
November, 1920, under and by virtue of a verbal contract of lease for a term from month to
month. To this complaint of intervention, the defendant-appellee filed an answer reproducing the
allegations contained in his answer to the complaint of the original plaintiffs and setting up
prescription as a further special defense.

It appears from the evidence that the land in question was originally owned by one Julian
Melencio. He died prior to the year 1905 leaving his widow, Ruperta Garcia, and his five
children, Juliana, Ramon, Ruperta, Pedro R., and Emilio Melencio. Emilio Melencio also died
before ’905, his son Jose P. Melencio, then a minor, succeeding to his interest in the said parcel
of land by representation. A question has been raised as to whether the land was community
property of the marriage of Julian Melencio and Ruperta Garcia, but the evidence is practically
undisputed that Ruperta Garcia in reality held nothing but a widow’s usufruct in the land.

On July 24, 1905, Ruperta Garcia, Pedro R. Melencio, Juliana Melencio, and Ruperta Melencio
executed a contract of lease of the land in favor of one Yap Kui Chin, but neither Jose P.
Melencio nor Ramon Melencio were mentioned in the lease. The term of the lease was for
twenty years, extendible for a like period at the option of the lessee. The purpose of the lessee
was to establish a rice mill on the land, with the necessary buildings for warehouses and for
quarters for the employees, and it was further stipulated that at the termination of the original
period of the lease, or the extension thereof, the lessors might purchase all the buildings and
improvements on the land at a price to be fixed by experts appointed by the parties, but that if
the lessors should fail to take advantage of that privilege, the lease would continue for another
and further period of twenty years. The document was duly acknowledged but was never
recorded with the register of deeds. The original rent agreed upon was P25 per month, but by
reason of the construction of a street through the land, the monthly rent was reduced to P20.20.

Shortly after the execution of the lease, the lessee took possession of the parcel in question and
erected the mill as well as the necessary buildings, and it appears that in matters pertaining to
the lease, he dealt with Pedro R. Melencio, who from 1905 until his death in 1920, acted as
manager of the property held in common by the heirs of Julian Melencio and Ruperta Garcia.
The original lessee, Yap Kui Chin, died in 1912, and the lease, as well as the other property,
was transferred to Uy Eng Jui who again transferred it to Uy Eng Jui & Co., an unregistered
partnership. Finally the lease came into the hands of Dy Tiao Lay, the herein Defendant-
Appellee.

Ramon Melencio died in 1914, and his widow, Liberata Macapagal, was appointed
administratrix of his estate. In 1913 the land which includes the parcel in question was
registered under the Torrens system. The lease was not mentioned in the certificate of title, but
it was stated that one house and three warehouses on the land were the property of Yap Kui
Chin.

In 1920 the heirs of Julian Melencio made an extrajudicial partition of parts of the inheritance,
and among other things, the land here in question fell to the share of the children of Ramon
Melencio, who are the original plaintiffs in the present case. Their mother, Liberta Macapagal,
as administratrix of the estate of her deceased husband, Ramon, collected the rent for the lease
at the rate of P20.20 per month until the month of May, 1926, when she demanded of the lessee
that the rent should be increased to P300 per month, and she was then informed by the
defendant that a written lease existed and that according to the terms thereof, the defendant
was entitled to an extension of the lease at the original rental. The plaintiffs insisted that they
never had any knowledge of the existence of such a contract of lease and maintained that in
such case the lease was executed without their consent and was void. It may be noted that
upon careful search, a copy of the contract of lease was found among the papers of the
deceased Pedro R. Melencio. Thereafter the present action was brought to set aside the lease
and to recover possession of the land. Upon trial, the court below rendered judgment in favor of
the defendant declaring the lease valid and ordering the plaintiffs to pay the P272 demanded by
the defendant in his counterclaim. From this judgment the plaintiffs appealed.

The contention of the appellants is that the aforesaid contract of lease (Exhibit C) is null and
void for the following reasons:jgc:chanrobles.com.ph

"1. That Exhibit C calls for an alteration of the property in question and therefore ought to have
been signed by all the coowners as by law required in the premises.

"2. That the validity and fulfillment of the said agreement of lease were made to depend upon
the will of the lessee exclusively.

"3. That the said contract of lease being for a term of over six years, the same is null and void
pursuant to the provision of article 1548 of the Civil Code.

"4. That the duration of the same is unreasonably long, thus being against public policy.

"5. That the defendant-appellee and his predecessors in interest repeatedly violated the
provisions of the agreements."cralaw virtua1aw library

The first proposition is based on article 397 of the Civil Code which provides that "none of the
owners shall, without the consent of the others, make any alterations in the common property
even though such alterations might be advantageous to all." We do not think that the alterations
are of sufficient importance to nullify the lease, especially so since none of the coowners
objected to such alterations until over twenty years after the execution of the contract of lease.
The decision of this court in the case of Enriquez v. A. S. Watson & Co. (22 Phil., 623), contains
a full discussion of the effect of alterations of lease community property, and no further
discussion upon that point need here be considered.

The second proposition is likewise of little merit. Under the circumstances, the provision in the
contract that the lessee, at any time before he erected any building on the land, might rescind
the lease, can hardly be regarded as a violation of article 1256 of the Civil Code.

The third and fourth propositions are, in our opinion, determinative of the controversy. The court
below based its decision principally on the case of Enriquez v. A. S. Watson & Co. (22 Phil.,
623), and on the resolution of the Direccion General de los Registros dated April 26, 1907.
(Jurisprudecia Civil, vol. 107, p. 222.) An examination of the Enriquez case will show that it
differs materially from the present. In that case all of the coowners of a lot and building executed
a contract of lease of the property for the term of eighteen years in favor of A. S. Watson & Co.;
one of the owners was a minor, but he was represented by his legally appointed guardian, and
the action of the latter in signing the lease on behalf of the minor was formally approved by the
Court of First Instance. In the present case only a small majority of the coowners executed the
lease here in question, and according to the terms of the contract the lease might be given a
duration of sixty years; that is widely different from a lease granted by all of the coowners for a
term of only eighteen years.

The resolution of April 26, 1907, is more in point. It relates to the inscription or registration of a
contract of lease of some pasture grounds. The majority of the coowners of the property
executed the lease for the term of twelve years, but when the lessees presented the lease for
inscription in the registry of property, the registrar denied the inscription on the ground that the
term of the lease exceeded six years and that therefore the majority of the coowners lacked
authority to grant the lease. The Direccion General de los Registros held that the contract of
lease for a period exceeding six years, constitutes a real right subject to registry and that the
lease in question was valid.

The conclusions reached by the Direccion General led to considerable criticism and have been
overruled by a decision of the Supreme Court of Spain dated June 1, 1909. In that decision the
court made the following statement of the case (translation):jgc:chanrobles.com.ph

"The joint owners of 511 out of 1,000 parts of the realty denominated El Mortero, leased out the
whole property for twelve years to Doña Josefa de la Rosa; whereupon the Count and Countess
Trespalacios together with other coowners brought this suit to annul the lease and, in view of
the fact that the land was indivisible, prayed for its sale by public auction and the distribution of
the price so obtained; they alleged that they neither took part nor consented to the lease; that
the decision of the majority of part owners referred to in article 398 of the Code, implies a
common deliberation on the step to be taken, for to do without it, would, even more than to do
without the minority, be nothing less than plunder; and that, even if this deliberation were not
absolutely necessary, the power of the majority would still be confined to decisions touching the
management and enjoyment of the common property, and would not include acts of ownership,
such as a lease for twelve years, which according to the Mortgage Law gives rise to a real right,
which must be recorded, and which can be performed only by the owners of the property
leased.

"The part owners who had executed the contract prayed in reconvention that it be held valid for
all the owners in common, and if this could not be, then for all those who had signed it, and for
the rest, for the period of six years; and the Audiencia of Caceres having rendered judgment
holding the contract null and void, and ordering the sale of the realty and the distribution of the
price, the defendants appealed alleging under the third and fourth assignments of error, that the
judgment was a violation of article 398 of the Civil Code, which is absolute and sets no limit of
time for the efficacy of the decisions arrived at by the majority of the part owners for the
enjoyment of the common property, citing the decisions of June 30th, 1897, of July 8th, 1902,
and of October 30th, 1907; under the fifth assignment of error the appellants contended that in
including joint owners among those referred to in said article, which sets certain limits to the
power of leasing, in the course of the management of another’s property, the court applied
article 1548 unduly; and by the seventh assignment of error, they maintained the judgment
appealed from also violated article 1727, providing that the principal is not bound where his
agent has acted beyond his authority; whence it may be inferred, that if in order to hold the
contract null and void, the majority of the part owners are looked upon as managers or agents
exercising limited powers, it must at least be conceded that in so far as the act in question lies
within the scope of their powers, it is valid; the contract cannot be annulled in toto."cralaw
virtua1aw library

The Supreme Court held that the appeal from the decision of the Audiencia of Caceres was not
well taken and expressed the following consideranda:jgc:chanrobles.com.ph

"Considering that, although as a rule the contract of lease constitutes an act of management, as
this court has several times held, cases may yet arise, either owing to the nature of the subject
matter, or to the period of duration, which may render it imperative to record the contract in the
registry of property, in pursuance of the Mortgage Law, where the contract of lease may give
rise to a real right in favor of the lessee, and it would then constitute such a sundering of the
ownership as transcends mere management; in such cases it must of necessity be recognized
that the part owners representing the greater portion of the property held in common have no
power to lease said property for a longer period than six years without the consent of all the
coowners, whose proprietary rights, expressly recognized by the law, would by contracts of long
duration be restricted or annulled; and as under article 1548 of the Civil Code such contracts
cannot be entered into by the husband with respect to his wife’s property, by the parent or
guardian with respect to that of the child or ward, and by the manager in default of special
power, since the contract of lease only produces personal obligations, and cannot without the
consent of all persons interested or express authority from the owner, be extended to include
stipulations which may alter its character, changing it into a contract of partial alienation of the
property leased;

"Considering that, applying this doctrine to the case before us, one of the grounds upon which
the judgment appealed from, denying the validity of the lease made by the majority of the part
owners of the pasture land El Mortero is based, must be upheld; to wit, that the period of
duration is twelve years and the consent of all the coowners has not been obtained; hence, the
third, fourth, and fifth assignments of error are without merit; firstly, because article 398 of the
Civil Code, alleged to have been violated, refers to acts decided upon by the majority of the part
owners, touching the management and enjoyment of the common property, and does not
contradict what we have stated in the foregoing paragraph; secondly, because although the
cases cited were such as arose upon leases for more than sixty years, yet this point was not
raised on appeal, and could not therefore be passed upon; and thirdly, because it cannot be
denied that there is an analogy between a manager without special authority, who is forbidden
by article 1548 of the Code to give a lease for a period of over six years, and the joint owners
constituting a legal majority, who may decide to lease out the indivisible property, with respect to
the shares of the other coowners; and having come to the conclusion that the contract is null
and void, there is no need to discuss the first two assignments of error which refer to another of
the bases adopted, however erroneously, by the trial court;

"Considering that the sixth assignment of error is without merit, inasmuch as the joint ownership
of property is not a sort of agency and cannot be governed by the provisions relating to the latter
contract; whence, article 1727 of the Code alleged to have been violated, can no more be
applied, than, the question of the validity or nullity of the lease being raised, upon the contract
as celebrated, it would be allowable to modify a posteriori some one or other of the main
conditions stipulated, like that regarding the duration of the lease, for this would amount to a
novation; still less allowable would it be to authorize diverse periods for the different persons
unequally interested in the fulfillment."cralaw virtua1aw library

Taking into consideration articles 398, 1548, and 1713 of the Civil Code and following the
aforesaid decision of June 1,1909, we hold that the contract of lease here in question is null and
void.

It has been suggested that by reason of prescription and by acceptance of benefits under the
lease, the plaintiffs are estopped to question the authority for making the lease. To this we may
answer that the burden of proof of prescription devolved upon the defendant and that as far as
we can find, there is no proof that Ramon Melencio and his successor over had knowledge of
the existence of the lease in question prior to 1926. We cannot by mere suspicion conclude that
they were informed of the existence of the document and its terms; it must be remembered that
under a strict interpretation of the terms of the lease, the lessees could remain indefinitely in
their tenancy unless the lessors could purchase the mill and the buildings on the land. In such
circumstances, better evidence than that presented by the defendant in regard to the plaintiffs’
knowledge of the lease must be required.

The fact that Ramon during his lifetime received his share of the products of land owned in
common with his coheirs is not sufficient proof of knowledge of the existence of the contract of
lease when it is considered that the land in question was only a small portion of a large tract
which Pedro R. Melencio was administering in connection with other community property.

The appealed judgment as to the validity of the lease is therefore reversed, and it is ordered that
the possession of the land in controversy be delivered to the intervenor Liberata Macapagal in
her capacity as administratrix of the estate of the deceased Ramon Melencio. It is further
ordered that the defendant pay to said administratrix a monthly rent of P50 for the occupation of
the land from May 1st, 1926, until the land is delivered to the administratrix. The sum of P272
demanded by the defendant in his counterclaim may be deducted from the total amount of the
rent due and unpaid. The buildings erected on the land by the defendant and his predecessors
in interest may be removed by him, or otherwise disposed of, within six months from the
promulgation of this decision. Without costs. So ordered.

Avanceña, C.J., Malcolm, Johns, Romualdez and Villa-Real, JJ., concur.

Separate Opinions

JOHNSON, J.:

I reserve my vote.
STREET and VILLAMOR, JJ., dissenting:chanrob1es virtual 1aw library

Although the name of Ramon Melencio, father of the plaintiffs in this action, was not in fact
signed to the lease in question, and the lease did not even so much as mention him as one of
the coowners, the undersigned are nevertheless of the opinion that Ramon Melencio, and his
children after him, are estopped from questioning said lease, for the reason that, from 1905 to
the time of his death in 1914, Ramon Melencio enjoyed the benefits of the lease, as did his
widow and children after him, until May, 1926, when the widow repudiated the lease, as a
preliminary to the bringing of this action by the plaintiffs. By their acceptance of the benefits of
the lease over so long a period, the persons now questioning the lease and their father, their
predecessor in interest, are estopped to question the authority for making the lease. This
estoppel cures the want of the special power contemplated in article 1548 of the Civil Code.

In addition to the estoppel arising from the acceptance of benefits under the lease, an estoppel
further arises from the fact that Ramon Melencio, during the years following the execution of the
lease, stood and saw the lessees place upon the property improvements of a value of more
than P100,000, for which reason, also equity will not permit the lease to be disturbed to the
prejustice of the lessee.

To exhibit the foregoing proposition fully, it is necessary to understand the facts relative to the
controversy. These are substantially as follows:chanrob1es virtual 1aw library

The land covered by the original ease, having an area of some 6,000 square meters, is located
in the town of Cabanatuan and was formerly the property of one Julian Melencio, married to
Ruperta Garcia. After the death of Julian Melencio, his widow, Ruperta Garcia, united, in 1905,
with three of their children, namely, Pedro R., Juliana, and Ruperta, in executing, in favor of Yap
Kui Chin, as lessee, the lease which is the subject of this controversy. The consideration
mentioned in the lease was the sum of P25 per month. On August 2, 1907, at the request of
Pedro R. Melencio, another document was drawn changing the superficial configuration of the
leased land but preserving its original extension of 6,000 square meters. This change was made
for the purpose of giving Pedro R. Melencio space upon which to construct a house on the part
segregated from the original mass. In 1915 a new street, passing through the leased property,
was opened in Cabanatuan; and Pedro R. Melencio, acting for the lessors, reduced the monthly
rent from P25 to P20, to correspond with the reduction in the area of the leased land resulting
from the occupation of part of it by the street.

At the time the lease was made there was living one Ramon Melencio, son of Julian Melencio
and Ruperta Garcia and brother of the heirs who signed the lease. Also before this time there
had been another brother named Emilio Melencio. But Emilio was lead and his only surviving
son, Jose P. Melencio, was a mall boy then under the tutelage of his uncle Pedro R. Melencio.
The lease referred to is not and never has been questioned by any of the persons, or
descendants of the persons, who signed the instrument. Neither has it been questioned by Jose
P. Melencio, son of Emilio. Nor was the lease questioned in life by Ramon Melencio, who died
in 1914; and the only persons raising a question as to its validity are four of the five children of
Ramon, the same being the plaintiffs in this case.

By a series of changes not necessary to be here recounted, the rights of the original lessee
became vested in the defendant, Dy Tiao Lay. At the time of the institution of the present action
the defendant, Dy Tiao Lay, had a rice mill, consisting of valuable buildings and improvements,
constructed on the land, and valued, it is alleged, at P160,000; but during the time of the
pendency of this action a fire occurred which seems to have destroyed the mill and
improvements with the exception of a camarin valued at some P15,000.

In November, 1920, the children of Julian Melencio and Ruperta Garcia executed a partial extra-
judicial partition of the properties belonging to their father’s estate; and the land covered by this
lease was assigned to Liberata Macapagal, widow of Ramon Melencio, in right of her deceased
husband Ramon and as representative of the children. It will be noted that the land encumbered
by the lease was thus assigned precisely to the family of the deceased brother, Ramon
Melencio, who at the same time was the sole living brother whose name was not signed to the
lease.

At the time the lease was executed, Pedro R. Melencio was in fact the manager of the common
ancestral estate belonging to himself and his brothers and sisters; and he continued as such
until 1920. After the partition, or partial partition, of the fraternal estate in 1920, Liberata
Macapagal Viuda de Ramon Melencio succeeded to the office of manager, or guardian, of the
estate of her children, at least with respect to the parcel now in question.

It will be noted as an important fact that every dollar due as rent from the leased land was paid
by the lessee, from the time when rent first became due, and these payments were made first to
Pedro R. Melencio as manager of the common estate pertaining to himself and his brothers and
sisters, until 1920, when the rents began to be paid to Liberata Macapagal in the right of herself
and children. In April, 1926, Liberta ceased to collect the rent, and in May, thereafter, she
refused to accept payment of the monthly installment of rent then due. For this reason the
defendant has been making a consignation of the corresponding rent for the benefit of the
lessors in the office of the provincial treasurer. No question is made that during the life of
Ramon Melencio he received his share of the monthly rental from the property in question; nor
is there any question that thereafter his widow and children received their share of the same
until the property was assigned in partition to Liberata Macapagal and her children, after which
they received all of the rent, until Liberata refused longer to accept it.

The undersigned concur in the proposition that the lease signed in 1905 was not per se binding
on Ramon Melencio, first, because he was not a party to that lease; and, secondly, because the
making of a lease for twenty years, extendible under certain circumstances for a second and
third period of equal duration, was an act of rigorous alienation and not a mere act of
management and enjoyment such as is contemplated in article 398 of the Civil Code.
(Sentencia, June 1, 1909; Ruiz, Cod. Civ., vol. 4, p. 502.) Neither do we pause to argue that the
contract might have been considered valid under the doctrine of this court stated in Eleizequi v.
Manila Lawn Tennis Club (2 Phil., 309). At any rate the lease did not purport to bind Ramon,
and he was not even mentioned therein as one of the coowners.

But it is to be noted that none of the parties signatory to the lease have at any time sought to
abrogate the contract; and some of the children of Ramon Melencio only are before the court as
actors in this case seeking to set the contract aside. Under these circumstances the
undersigned are of the opinion that Ramon Melencio was at the time of his death bound by the
lease, from his having participated for years in the benefits derived from the contract, and that
his children, who derive their rights from him, are likewise bound.

It is well established that an estate in land may be virtually transferred from one man to another
without a writing, by the failure of the owner to give notice of his title to the purchaser under
circumstances where the omission to do so would operate as a fraud (Kirk v. Hamilton, 102 U.
S., 68, 77; 26 Law. ed., 79). This doctrine is so universally accepted that a bare reference to
general treatises on the subject of estoppel is necessary (10 R. C. L., p. 694; 21 C. J., pp. 1154,
1160, 1206, 1207, 1209); and the estoppel is as effective with respect to a lease as it is with
respect to a deed of absolute conveyance (21 C. J., 1213).

In the case before us Ramon Melencio lived in the town where the land covered by this lease
was located, and every time he went abroad he must have seen the valuable improvements
which the original lessee, or his successors in interest, were erecting and had erected upon part
of the common ancestral estate. But from the date the lease was executed until his death
Ramon Melencio did nothing except to receive such portion of the rent as pertained to him
Under these circumstances, even if his brother Pedro R. Melencio had conveyed the property
away by deed of absolute alienation, Ramon would have been legally bound. It is but natural
that so long as he lived after the lease was made, no complaint was ever registered by him
against its validity.

And if Ramon Melencio was estopped, of course his children are estopped, for their rights are of
a purely derivative character. In the case before us a period of more than twenty-one years
elapsed between the time of lease was made and the date when it was first called in question
by the widow.

But Manuel Melencio, the oldest of the heirs who are suing in this case, says that he did not
know the terms of the lease until a short while before this action was instituted, when he called
upon the widow of his uncle Pedro and found a copy of the lease after searching among his
uncle’s papers. It is not surprising that this plaintiff, who was hardly more than a baby when the
lease was made, should not have known about the terms of the contract. But it was all the time
safely kept among the papers of his uncle Pedro, who, as already stated, was manager of the
common estate of the brothers and sisters. Ramon Melencio is now dead and of course cannot
speak as to whether he knew the terms of the agreement. But he should be presumed to have
known its terms, because he was enjoying benefits from month to month under it, and he had
the means of knowledge immediately at hand, namely be recourse to a trusted brother in whose
custody the contract was preserved. In addition to this, we note that when property was
assigned to Liberta Macapagal and her children. The suggestion that the terms of the lease
were unknown to the plaintiffs is of little weight and of no legal merit. We note that the lease was
never registered, but this fact makes no difference in a lawsuit between the parties to the lease,
or their successors in interest.

We are of the opinion that the judgment should be affirmed.

G.R. No. L-3404 April 2, 1951

ANGELA I. TUASON, plaintiff-appellant,

vs.
ANTONIO TUASON, JR., and GREGORIO ARANETA, INC., defendants-appellees.

Alcuaz & Eiguren for appellant.

Araneta & Araneta for appellees.
MONTEMAYOR, J.:

In 1941 the sisters Angela I. Tuason and Nieves Tuason de Barreto and their brother Antonio
Tuason Jr., held a parcel of land with an area of 64,928.6 sq. m. covered by Certificate of Title
No. 60911 in Sampaloc, Manila, in common, each owning an undivided 1/3 portion. Nieves
wanted and asked for a partition of the common property, but failing in this, she offered to sell
her 1/3 portion. The share of Nieves was offered for sale to her sister and her brother but both
declined to buy it. The offer was later made to their mother but the old lady also declined to buy,
saying that if the property later increased in value, she might be suspected of having taken
advantage of her daughter. Finally, the share of Nieves was sold to Gregorio Araneta Inc., a
domestic corporation, and a new Certificate of Title No. 61721 was issued in lieu of the old title
No. 60911 covering the same property. The three co-owners agreed to have the whole parcel
subdivided into small lots and then sold, the proceeds of the sale to be later divided among
them. This agreement is embodied in a document (Exh. 6) entitled "Memorandum of
Agreement" consisting of ten pages, dated June 30, 1941.

Before, during and after the execution of this contract (Exh. 6), Atty. J. Antonio Araneta was
acting as the attorney-in-fact and lawyer of the two co-owners, Angela I. Tuason and her brother
Antonio Tuason Jr. At the same time he was a member of the Board of Director of the third co-
owner, Araneta, Inc.

The pertinent terms of the contract (Exh. 6) may be briefly stated as follows: The three co-
owners agreed to improve the property by filling it and constructing roads and curbs on the
same and then subdivide it into small lots for sale. Araneta Inc. was to finance the whole
development and subdivision; it was prepare a schedule of prices and conditions of sale,
subject to the subject to the approval of the two other co-owners; it was invested with authority
to sell the lots into which the property was to be subdivided, and execute the corresponding
contracts and deeds of sale; it was also to pay the real estate taxes due on the property or of
any portion thereof that remained unsold, the expenses of surveying, improvements, etc., all
advertising expenses, salaries of personnel, commissions, office and legal expenses, including
expenses in instituting all actions to eject all tenants or occupants on the property; and it
undertook the duty to furnish each of the two co-owners, Angela and Antonio Tuason, copies of
the subdivision plans and the monthly sales and rents and collections made thereon. In return
for all this undertaking and obligation assumed by Araneta Inc., particularly the financial burden,
it was to receive 50 per cent of the gross selling price of the lots, and any rents that may be
collected from the property, while in the process of sale, the remaining 50 per cent to be divided
in equal portions among the three co-owners so that each will receive 16.33 per cent of the
gross receipts.

Because of the importance of paragraphs 9, 11 and 15 of the contract (Exh. 6), for purposes of
reference we are reproducing them below:

(9) This contract shall remain in full force and effect during all the time that it may be
necessary for the PARTY OF THE SECOND PART to fully sell the said property in small
and subdivided lots and to fully collect the purchase prices due thereon; it being
understood and agreed that said lots may be rented while there are no purchasers
thereof;

(11) The PARTY OF THE SECOND PART (meaning Araneta Inc.) is hereby given full
power and authority to sign for and in behalf of all the said co-owners of said property all
 contracts of sale and deeds of sale of the lots into which this property might be
subdivided; the powers herein vested to the PARTY OF THE SECOND PART may,
under its own responsibility and risk, delegate any of its powers under this contract to
any of its officers, employees or to third persons;

(15) No co-owner of the property subject-matter of this contract shall sell, alienate or
dispose of his ownership, interest or participation therein without first giving preference
to the other co-owners to purchase and acquire the same under the same terms and
conditions as those offered by any other prospective purchaser. Should none of the co-
owners of the property subject-matter of this contract exercise the said preference to
acquire or purchase the same, then such sale to a third party shall be made subject to all
the conditions, terms, and dispositions of this contract; provided, the PARTIES OF THE
FIRST PART (meaning Angela and Antonio) shall be bound by this contract as long as
the PARTY OF THE SECOND PART, namely, the GREGORIO ARANETA, INC. is
controlled by the members of the Araneta family, who are stockholders of the said
corporation at the time of the signing of this contract and/or their lawful heirs;

On September 16, 1944, Angela I. Tuason revoked the powers conferred on her attorney-in-fact
and lawyer, J. Antonio Araneta. Then in a letter dated October 19, 1946, Angela notified
Araneta, Inc. that because of alleged breach of the terms of the "Memorandum of Agreement"
(Exh. 6) and abuse of powers granted to it in the document, she had decided to rescind said
contract and she asked that the property held in common be partitioned. Later, on November
20, 1946, Angela filed a complaint in the Court of First Instance of Manila asking the court to
order the partition of the property in question and that she be given 1/3 of the same including
rents collected during the time that the same including rents collected during the time that
Araneta Inc., administered said property.

The suit was administered principally against Araneta, Inc. Plaintiff's brother, Antonio Tuason
Jr., one of the co-owners evidently did not agree to the suit and its purpose, for he evidently did
not agree to the suit and its purpose, for he joined Araneta, Inc. as a co-defendant. After hearing
and after considering the extensive evidence introduce, oral and documentary, the trial court
presided over by Judge Emilio Peña in a long and considered decision dismissed the complaint
without pronouncement as to costs. The plaintiff appealed from that decision, and because the
property is valued at more than P50,000, the appeal came directly to this Court.

Some of the reasons advanced by appellant to have the memorandum contract (Exh. 6)
declared null and void or rescinded are that she had been tricked into signing it; that she was
given to understand by Antonio Araneta acting as her attorney-in-fact and legal adviser that said
contract would be similar to another contract of subdivision of a parcel into lots and the sale
thereof entered into by Gregorio Araneta Inc., and the heirs of D. Tuason, Exhibit "L", but it
turned out that the two contracts widely differed from each other, the terms of contract Exh. "L"
being relatively much more favorable to the owners therein the less favorable to Araneta Inc.;
that Atty. Antonio Araneta was more or less disqualified to act as her legal adviser as he did
because he was one of the officials of Araneta Inc., and finally, that the defendant company has
violated the terms of the contract (Exh. 6) by not previously showing her the plans of the
subdivision, the schedule of prices and conditions of the sale, in not introducing the necessary
improvements into the land and in not delivering to her her share of the proceeds of the rents
and sales.
We have examined Exh. "L" and compared the same with the contract (Exh. 6) and we agree
with the trial court that in the main the terms of both contracts are similar and practically the
same. Moreover, as correctly found by the trial court, the copies of both contracts were shown
to the plaintiff Angela and her husband, a broker, and both had every opportunity to go over and
compare them and decide on the advisability of or disadvantage in entering into the contract
(Exh. 6); that although Atty. Antonio Araneta was an official of the Araneta Inc.; being a member
of the Board of Directors of the Company at the time that Exhibit "6" was executed, he was not
the party with which Angela contracted, and that he committed no breach of trust. According to
the evidence Araneta, the pertinent papers, and sent to her checks covering her receive the
same; and that as a matter of fact, at the time of the trial, Araneta Inc., had spent about
P117,000 in improvement and had received as proceeds on the sale of the lots the respectable
sum of P1,265,538.48. We quote with approval that portion of the decision appealed from on
these points:

The evidence in this case points to the fact that the actuations of J. Antonio Araneta in
connection with the execution of exhibit 6 by the parties, are above board. He committed
nothing that is violative of the fiduciary relationship existing between him and the plaintiff.
The act of J. Antonio Araneta in giving the plaintiff a copy of exhibit 6 before the same
was executed, constitutes a full disclosure of the facts, for said copy contains all that
appears now in exhibit 6.

Plaintiff charges the defendant Gregorio Araneta, Inc. with infringing the terms of the
contract in that the defendant corporation has failed (1) to make the necessary
improvements on the property as required by paragraphs 1 and 3 of the contract; (2) to
submit to the plaintiff from time to time schedule of prices and conditions under which
the subdivided lots are to be sold; and to furnish the plaintiff a copy of the subdivision
plans, a copy of the monthly gross collections from the sale of the property.

The Court finds from the evidence that he defendant Gregorio Araneta, Incorporated has
substantially complied with obligation imposed by the contract exhibit 6 in its paragraph
1, and that for improvements alone, it has disbursed the amount of P117,167.09. It has
likewise paid taxes, commissions and other expenses incidental to its obligations as
denied in the agreement.

With respect to the charged that Gregorio Araneta, Incorporated has failed to submit to
plaintiff a copy of the subdivision plains, list of prices and the conditions governing the
sale of subdivided lots, and monthly statement of collections form the sale of the lots, the
Court is of the opinion that it has no basis. The evidence shows that the defendant
corporation submitted to the plaintiff periodically all the data relative to prices and
conditions of the sale of the subdivided lots, together with the amount corresponding to
her. But without any justifiable reason, she refused to accept them. With the indifferent
attitude adopted by the plaintiff, it was thought useless for Gregorio Araneta,
Incorporated to continue sending her statement of accounts, checks and other things.
She had shown on various occasions that she did not want to have any further dealings
with the said corporation. So, if the defendant corporation proceeded with the sale of the
subdivided lots without the approval of the plaintiff, it was because it was under the
correct impression that under the contract exhibit 6 the decision of the majority co-
owners is binding upon all the three.
 The Court feels that recission of the contract exhibit 6 is not minor violations of the terms
of the agreement, the general rule is that "recission will not be permitted for a slight or
casual breach of the contract, but only for such breaches as are so substantial and
fundamental as to defeat the object of the parties in making the agreement" (Song Fo &
Co. vs. Hawaiian-Philippine Co., 47 Phil. 821).

As regards improvements, the evidence shows that during the Japanese occupation from 1942
and up to 1946, the Araneta Inc. although willing to fill the land, was unable to obtain the
equipment and gasoline necessary for filling the low places within the parcel. As to sales, the
evidence shows that Araneta Inc. purposely stopped selling the lots during the Japanese
occupantion, knowing that the purchase price would be paid in Japanese military notes; and
Atty. Araneta claims that for this, plaintiff should be thankfull because otherwise she would have
received these notes as her share of the receipts, which currency later became valueles.

But the main contention of the appellant is that the contract (Exh. 6) should be declared null and
void because its terms, particularly paragraphs 9, 11 and 15 which we have reproduced, violate
the provisions of Art. 400 of the Civil Code, which for the purposes of reference we quote below:

ART. 400. No co-owner shall be obliged to remain a party to the community. Each may,
at any time, demand the partition of the thing held in common.

Nevertheless, an agreement to keep the thing undivided for a specified length of time,
not exceeding ten years, shall be valid. This period may be a new agreement.

We agree with the trial court that the provisions of Art. 400 of the Civil Code are not applicable.
The contract (Exh., 6) far from violating the legal provision that forbids a co-owner being obliged
to remain a party to the community, precisely has for its purpose and object the dissolution of
the co-ownership and of the community by selling the parcel held in common and dividing the
proceeds of the sale among the co-owners. The obligation imposed in the contract to preserve
the co-ownership until all the lots shall have been sold, is a mere incident to the main object of
dissolving the co-owners. By virtue of the document Exh. 6, the parties thereto practically and
substantially entered into a contract of partnership as the best and most expedient means of
eventually dissolving the co-ownership, the life of said partnership to end when the object of its
creation shall have been attained.

This aspect of the contract is very similar to and was perhaps based on the other agreement or
contract (Exh. "L") referred to by appellant where the parties thereto in express terms entered
into partnership, although this object is not expressed in so many words in Exh. 6. We repeat
that we see no violation of Art. 400 of the Civil Code in the parties entering into the contract
(Exh. 6) for the very reason that Art. 400 is not applicable.

Looking at the case from a practical standpoint as did the trial court, we find no valid ground for
the partition insisted upon the appellant. We find from the evidence as was done by the trial
court that of the 64,928.6 sq. m. which is the total area of the parcel held in common, only 1,600
sq. m. or 2.5 per cent of the entire area remained unsold at the time of the trial in the year 1947,
while the great bulk of 97.5 per cent had already been sold. As well observed by the court
below, the partnership is in the process of being dissolved and is about to be dissolved, and
even assuming that Art. 400 of the Civil Code were applicable, under which the parties by
agreement may agree to keep the thing undivided for a period not exceeding 10 years, there
should be no fear that the remaining 1,600 sq. m. could not be disposed of within the four years
left of the ten-years period fixed by Art. 400.

We deem it unnecessary to discuss and pass upon the other points raised in the appeal and
which counsel for appellant has extensively and ably discussed, citing numerous authorities. As
we have already said, we have viewed the case from a practical standpoint, brushing aside
technicalities and disregarding any minor violations of the contract, and in deciding the case as
we do, we are fully convinced that the trial court and this Tribunal are carrying out in a practical
and expeditious way the intentions and the agreement of the parties contained in the contract
(Exh. 6), namely, to dissolve the community and co-ownership, in a manner most profitable to
the said parties.

In view of the foregoing, the decision appealed from is hereby affirmed. There is no
pronouncement as to costs.

So ordered.
G.R. No. 156536 October 31, 2006

JOSEPH CUA, petitioner,

vs.
GLORIA A. VARGAS, AURORA VARGAS, RAMON VARGAS, MARITES VARGAS,
EDELINA VARGAS AND GEMMA VARGAS, respondents.

DECISION

AZCUNA, J.:

This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the
decision1 dated March 26, 2002, and the resolution2 dated December 17, 2002, of the Court of
Appeals in CA-G.R. SP No. 59869 entitled "Gloria A. Vargas, Aurora Vargas, Ramon Vargas,
Marites Vargas, Edelina Vargas and Gemma Vargas v. Joseph Cua."

The facts are as follows:

A parcel of residential land with an area of 99 square meters located in San Juan, Virac,
Catanduanes was left behind by the late Paulina Vargas. On February 4, 1994, a notarized
Extra Judicial Settlement Among Heirs was executed by and among Paulina Vargas' heirs,
namely Ester Vargas, Visitacion Vargas, Juan Vargas, Zenaida V. Matienzo, Rosario V.
Forteza, Andres Vargas, Gloria Vargas, Antonina Vargas and Florentino Vargas, partitioning
and adjudicating unto themselves the lot in question, each one of them getting a share of 11
square meters. Florentino, Andres, Antonina and Gloria, however, did not sign the document.
Only Ester, Visitacion, Juan, Zenaida and Rosario signed it. The Extra Judicial Settlement
Among Heirs was published in the Catanduanes Tribune for three consecutive weeks.3

On November 15, 1994, an Extra Judicial Settlement Among Heirs with Sale 4 was again
executed by and among the same heirs over the same property and also with the same
sharings. Once more, only Ester, Visitacion, Juan, Zenaida and Rosario signed the document
and their respective shares totaling 55 square meters were sold to Joseph Cua, petitioner
herein.

According to Gloria Vargas, the widow of Santiago Vargas and one of respondents herein, she
came to know of the Extra Judicial Settlement Among Heirs with Sale dated November 16, 1994
only when the original house built on the lot was being demolished sometime in May 1995. 5 She
likewise claimed she was unaware that an earlier Extra Judicial Settlement Among Heirs dated
February 4, 1994 involving the same property had been published in the Catanduanes Tribune. 6

After knowing of the sale of the 55 square meters to petitioner, Gloria Vargas tried to redeem
the property, with the following letter7 sent to petitioner on her behalf:
 29th June 1995

Mr. Joseph Cua

Capilihan, Virac, Catanduanes

Sir:

This is in behalf of my client, Ms. Aurora Vargas,8 (c/o Atty. Prospero V. Tablizo) one of
the lawful heirs of the late Paulina Vargas, original owner of Lot No. 214 of Virac,
Poblacion covered by ARP No. 031-0031 in her name.

I understand that a document "Extra Judicial Settlement Among Heirs with Sale" was
executed by some of my client's co-heirs and alleged representatives of other co-heirs,
by virtue of which document you acquired by purchase from the signatories to the said
document, five (5) shares with a total area of fifty-five square meters of the above-
described land.

This is to serve you notice that my client shall exercise her right of legal redemption of
said five (5) shares as well as other shares which you may likewise have acquired by
purchase. And you are hereby given an option to agree to legal redemption within a
period of fifteen (15) days from your receipt hereof.

Should you fail to convey to me your agreement within said 15-day-period, proper legal
action shall be taken by my client to redeem said shares.

Thank you.

Very truly yours,

(Sgd.)
JUAN G. ATENCIA

When the offer to redeem was refused and after having failed to reach an amicable settlement
at the barangay level,9 Gloria Vargas filed a case for annulment of Extra Judicial Settlement and
Legal Redemption of the lot with the Municipal Trial Court (MTC) of Virac, Catanduanes against
petitioner and consigned the amount of P100,000 which is the amount of the purchase with the
Clerk of Court on May 20, 1996.10 Joining her in the action were her children with Santiago,
namely, Aurora, Ramon, Marites, Edelina and Gemma, all surnamed Vargas.

Subsequently, Carlos Gianan, Jr. and Gloria Arcilla, heirs of the alleged primitive owner of the
lot in question, Pedro Lakandula, intervened in the case.11

Respondents claimed that as co-owners of the property, they may be subrogated to the rights of
the purchaser by reimbursing him the price of the sale. They likewise alleged that the 30-day
period following a written notice by the vendors to their co-owners for them to exercise the right
of redemption of the property had not yet set in as no written notice was sent to them. In effect,
they claimed that the Extra Judicial Settlement Among Heirs and the Extra Judicial Settlement
Among Heirs with Sale were null and void and had no legal and binding effect on them. 12
After trial on the merits, the MTC rendered a decision 13 in favor of petitioner, dismissing the
complaint as well as the complaint-in-intervention for lack of merit, and declaring the Deed of
Extra Judicial Settlement Among Heirs with Sale valid and binding. The MTC upheld the sale to
petitioner because the transaction purportedly occurred after the partition of the property among
the co-owner heirs. The MTC opined that the other heirs could validly dispose of their respective
shares. Moreover, the MTC found that although there was a failure to strictly comply with the
requirements under Article 1088 of the Civil Code14 for a written notice of sale to be served upon
respondents by the vendors prior to the exercise of the former's right of redemption, this
deficiency was cured by respondents' actual knowledge of the sale, which was more than 30
days before the filing of their complaint, and their consignation of the purchase price with the
Clerk of Court, so that the latter action came too late. Finally, the MTC ruled that respondents
failed to establish by competent proof petitioner's bad faith in purchasing the portion of the
property owned by respondents' co-heirs.15

On appeal, the Regional Trial Court (RTC), Branch 42, of Virac, Catanduanes affirmed the MTC
decision in a judgment dated November 25, 1999. The matter was thereafter raised to the Court
of Appeals (CA).

The CA reversed the ruling of both lower courts in the assailed decision dated March 26, 2002,
declaring that the Extra Judicial Settlement Among Heirs and the Extra Judicial Settlement
Among Heirs with Sale, dated February 4, 1994 and November 15, 1994, respectively, were
void and without any legal effect. The CA held that, pursuant to Section 1, Rule 74 of the Rules
of Court, 16 the extrajudicial settlement made by the other co-heirs is not binding upon
respondents considering the latter never participated in it nor did they ever signify their consent
to the same.

His motion for reconsideration having been denied, petitioner filed the present petition for
review.

The issues are:

Whether heirs are deemed constructively notified and bound, regardless of their failure
to participate therein, by an extrajudicial settlement and partition of estate when the
extrajudicial settlement and partition has been duly published; and,

Assuming a published extrajudicial settlement and partition does not bind persons who
did not participate therein, whether the written notice required to be served by an heir to
his co-heirs in connection with the sale of hereditary rights to a stranger before partition
under Article 1088 of the Civil Code17 can be dispensed with when such co-heirs have
actual knowledge of the sale such that the 30-day period within which a co-heir can
exercise the right to be subrogated to the rights of a purchaser shall commence from the
date of actual knowledge of the sale.

Petitioner argues, as follows:

Firstly, the acquisition by petitioner of the subject property subsequent to the extrajudicial
partition was valid because the partition was duly published. The publication of the same
constitutes due notice to respondents and signifies their implied acquiescence thereon.
Respondents are therefore estopped from denying the validity of the partition and sale at this
late stage. Considering that the partition was valid, respondents no longer have the right to
redeem the property.

Secondly, petitioner is a possessor and builder in good faith.

Thirdly, the MTC had no jurisdiction over the complaint because its subject matter was
incapable of pecuniary estimation. The complaint should have been filed with the RTC.

Fourthly, there was a non-joinder of indispensable parties, the co-heirs who sold their interest in
the subject property not having been impleaded by respondents.

Fifthly, the appeal to the CA should have been dismissed as it was not properly verified by
respondents. Gloria Vargas failed to indicate that she was authorized to represent the other
respondents (petitioners therein) to initiate the petition. Moreover, the verification was
inadequate because it did not state the basis of the alleged truth and/or correctness of the
material allegations in the petition.

The petition lacks merit.

The procedure outlined in Section 1 of Rule 74 is an ex parte proceeding. The rule plainly
states, however, that persons who do not participate or had no notice of an extrajudicial
settlement will not be bound thereby.18 It contemplates a notice that has been sent out or
issued before any deed of settlement and/or partition is agreed upon (i.e., a notice calling all
interested parties to participate in the said deed of extrajudicial settlement and partition), and
not after such an agreement has already been executed 19 as what happened in the instant case
with the publication of the first deed of extrajudicial settlement among heirs.

The publication of the settlement does not constitute constructive notice to the heirs who had no
knowledge or did not take part in it because the same was notice after the fact of execution. The
requirement of publication is geared for the protection of creditors and was never intended to
deprive heirs of their lawful participation in the decedent's estate. In this connection, the records
of the present case confirm that respondents never signed either of the settlement documents,
having discovered their existence only shortly before the filing of the present complaint.
Following Rule 74, these extrajudicial settlements do not bind respondents, and the partition
made without their knowledge and consent is invalid insofar as they are concerned.

This is not to say, though, that respondents' co-heirs cannot validly sell their hereditary rights to
third persons even before the partition of the estate. The heirs who actually participated in the
execution of the extrajudicial settlements, which included the sale to petitioner of their pro
indiviso shares in the subject property, are bound by the same. Nevertheless, respondents are
given the right to redeem these shares pursuant to Article 1088 of the Civil Code. The right to
redeem was never lost because respondents were never notified in writing of the actual sale by
their co-heirs. Based on the provision, there is a need for written notice to start the period of
redemption, thus:

Should any of the heirs sell his hereditary rights to a stranger before the partition, any or
all of the co-heirs may be subrogated to the rights of the purchaser by reimbursing him
for the price of the sale, provided they do so within the period of one month from
the time they were notified in writing of the sale by the vendor. (Emphasis
supplied.)
It bears emphasis that the period of one month shall be reckoned from the time that a co-heir is
notified in writing by the vendor of the actual sale. Written notice is indispensable and
mandatory,20 actual knowledge of the sale acquired in some other manner by the redemptioner
notwithstanding. It cannot be counted from the time advance notice is given of an impending or
contemplated sale. The law gives the co-heir thirty days from the time written notice of the
actual sale within which to make up his or her mind and decide to repurchase or effect the
redemption.21

Though the Code does not prescribe any particular form of written notice nor any distinctive
method for written notification of redemption, the method of notification remains exclusive, there
being no alternative provided by law.22 This proceeds from the very purpose of Article 1088,
which is to keep strangers to the family out of a joint ownership, if, as is often the case, the
presence of outsiders be undesirable and the other heir or heirs be willing and in a position to
repurchase the share sold.23

It should be kept in mind that the obligation to serve written notice devolves upon the vendor co-
heirs because the latter are in the best position to know the other co-owners who, under the law,
must be notified of the sale.24 This will remove all uncertainty as to the fact of the sale, its terms
and its perfection and validity, and quiet any doubt that the alienation is not definitive. 25 As a
result, the party notified need not entertain doubt that the seller may still contest the
alienation. 26

Considering, therefore, that respondents' co-heirs failed to comply with this requirement, there is
no legal impediment to allowing respondents to redeem the shares sold to petitioner given the
former's obvious willingness and capacity to do so.

Likewise untenable is petitioner's contention that he is a builder in good faith. Good faith
consists in the belief of the builder that the land the latter is building on is one's own without
knowledge of any defect or flaw in one's title.27 Petitioner derived his title from the Extra Judicial
Settlement Among Heirs With Sale dated November 15, 1994. He was very much aware that
not all of the heirs participated therein as it was evident on the face of the document itself.
Because the property had not yet been partitioned in accordance with the Rules of Court, no
particular portion of the property could have been identified as yet and delineated as the object
of the sale. This is because the alienation made by respondents' co-heirs was limited to the
portion which may be allotted to them in the division upon the termination of the co-ownership.
Despite this glaring fact, and over the protests of respondents, petitioner still constructed
improvements on the property. For this reason, his claim of good faith lacks credence.

As to the issue of lack of jurisdiction, petitioner is estopped from raising the same for the first
time on appeal. Petitioner actively participated in the proceedings below and sought affirmative
ruling from the lower courts to uphold the validity of the sale to him of a portion of the subject
property embodied in the extrajudicial settlement among heirs. Having failed to seasonably raise
this defense, he cannot, under the peculiar circumstances of this case, be permitted to
challenge the jurisdiction of the lower court at this late stage. While it is a rule that a
jurisdictional question may be raised at any time, an exception arises where estoppel has
already supervened.

Estoppel sets in when a party participates in all stages of a case before challenging the
jurisdiction of the lower court. One cannot belatedly reject or repudiate its decision after
voluntarily submitting to its jurisdiction, just to secure affirmative relief against one's opponent or
after failing to obtain such relief. The Court has, time and again, frowned upon the undesirable
practice of a party submitting a case for decision and then accepting the judgment, only if
favorable, and attacking it for lack of jurisdiction when adverse. 28

Petitioner's fourth argument, that there is a non-joinder of indispensable parties, similarly lacks
merit. An indispensable party is a party-in-interest without whom there can be no final
determination of an action and who is required to be joined as either plaintiff or defendant.29 The
party's interest in the subject matter of the suit and in the relief sought is so inextricably
intertwined with the other parties that the former's legal presence as a party to the proceeding is
an absolute necessity. Hence, an indispensable party is one whose interest will be directly
affected by the court's action in the litigation. In the absence of such indispensable party, there
cannot be a resolution of the controversy before the court which is effective, complete, or
equitable.30

In relation to this, it must be kept in mind that the complaint filed by respondents ultimately
prayed that they be allowed to redeem the shares in the property sold by their co-heirs.
Significantly, the right of the other heirs to sell their undivided share in the property to petitioner
is not in dispute. Respondents concede that the other heirs acted within their hereditary rights in
doing so to the effect that the latter completely and effectively relinquished their interests in the
property in favor of petitioner. Petitioner thus stepped into the shoes of the other heirs to
become a co-owner of the property with respondents. As a result, only petitioner's presence is
absolutely required for a complete and final determination of the controversy because what
respondents seek is to be subrogated to his rights as a purchaser.

Finally, petitioner contends that the petition filed by respondents with the CA should have been
dismissed because the verification and certificate of non-forum shopping appended to it were
defective, citing specifically the failure of respondent Gloria Vargas to: (1) indicate that she was
authorized to represent her co-respondents in the petition, and (2) state the basis of the alleged
truth of the allegations.

The general rule is that the certificate of non-forum shopping must be signed by all the plaintiffs
or petitioners in a case and the signature of only one of them is insufficient. 31 Nevertheless, the
rules on forum shopping, which were designed to promote and facilitate the orderly
administration of justice, should not be interpreted with such absolute literalness as to subvert
their own ultimate and legitimate objective. Strict compliance with the provisions regarding the
certificate of non-forum shopping merely underscores its mandatory nature in that the
certification cannot be altogether dispensed with or its requirements completely
disregarded.32 Under justifiable circumstances, the Court has relaxed the rule requiring the
submission of such certification considering that although it is obligatory, it is not jurisdictional. 33

Thus, when all the petitioners share a common interest and invoke a common cause of action or
defense, the signature of only one of them in the certification against forum shopping
substantially complies with the rules.34 The co-respondents of respondent Gloria Vargas in this
case were her children. In order not to defeat the ends of justice, the Court deems it sufficient
that she signed the petition on their behalf and as their representative.

WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioner.

SO ORDERED.
ROSARIO VICTORIA AND ELMA PIDLAOAN, Petitioners, v. NORMITA JACOB PIDLAOAN,
HERMINIGILDA PIDLAOAN AND EUFEMIA PIDLAOAN, Respondents.

DECISION

BRION, J.:

We resolve the petition for review on certiorari filed by petitioners to challenge the March 26,
2010 decision1 and March 15, 2011 resolution of the Court of Appeals (CA) in CA-G.R. CV No.
89235. The Regional Trial Court's (RTC) ruled that Elma Pidlaoan (Elma) donated only half of
the property to Normita Jacob Pidlaoan (Normita). The CA reversed the RTC's decision and
ruled that Elma donated her entire property to Normita. The Court is called upon to ascertain the
true nature of the agreement between Elma and Normita.

THE ANTECEDENTS

The petitioners Rosario Victoria (Rosario) and Elma lived together since 1978 until Rosario left
for Saudi Arabia.

In 1984, Elma bought a parcel of land with an area of 201 square meters in Lucena City and
was issued Transfer Certificate of Title (TCT) No. T-50282.2 When Rosario came home, she
caused the construction of a house on the lot but she left again after the house was built. 3

Elma allegedly mortgaged the house and lot to a certain Thi Hong Villanueva in 1989.4 When
the properties were about to be foreclosed, Elma allegedly asked for help from her sister-in-law,
Eufemia Pidlaoan (Eufemia), to redeem the property.5 On her part, Eufemia called her daughter
abroad, Normita, to lend money to Elma. Normita agreed to provide the funds. 6

Elma allegedly sought to sell the land.7 When she failed to find a buyer, she offered to sell it to
Eufemia or her daughter.8

On March 21, 1993, Elma executed a deed of sale entitled "Panananto ng Pagkatanggap ng
Kahustuhang Bayad" transferring the ownership of the lot to Normita.9 The last provision in the
deed of sale provides that Elma shall eject the person who erected the house and deliver the lot
to Normita.10 The document was signed by Elma, Normita, and two witnesses but it was not
notarized.

When Elma and Normita were about to have the document notarized, the notary public advised
them to donate the lot instead to avoid capital gains tax.11 On the next day, Elma executed
a deed of donation in Normita's favor and had it notarized. TCT No. T-50282 was cancelled
and TCT No. T-70990 was issued in Normita's name.12 Since then, Normita had been paying
the real property taxes over the lot but Elma continued to occupy the house.

Rosario found out about the donation when she returned to the country a year or two after the
transaction.13

In 1997, the petitioners filed a complaint for reformation of contract, cancellation of TCT No. T-
70990, and damages with prayer for preliminary injunction against Eufemia, Normita, and
Herminigilda Pidlaoan (respondents).
The petitioners argued that: first, they co-owned the lot because both of them contributed the
money used to purchase it; second, Elma and Normita entered into an equitable mortgage
because they intended to constitute a mortgage over the lot to secure Elma's loan but they
executed a deed of sale instead; and third, the deed of donation was simulated because Elma
executed it upon the notary public's advice to avoid capital gains tax.14

In their answer, the respondents admitted that the deed of donation was simulated and that the
original transaction was a sale.15 They argued, however, that there was no agreement to
constitute a real estate mortgage on the lot.16

The RTC ruled that Rosario and Elma co-owned the lot and the house.17 Thus, Elma could only
donate her one-half share in the lot.18

Hence, the respondents appealed to the CA.

THE CA RULING

The CA reversed the RTC's decision and dismissed the petitioners' complaint.

The CA held that Elma and Normita initially entered into two agreements: a loan and a sale.
They entered into a loan agreement when Elma had to pay Thi Hong Villanueva to redeem the
property. Thereafter, Elma sold the property to Normita. They subsequently superseded the
contract of sale with the assailed deed of donation.

The CA also held that the deed of donation was not simulated. It was voluntarily executed by
Elma out of gratitude to Normita who rescued her by preventing the foreclosure of the lot.
Moreover, the deed of donation, being a public document, enjoys the presumption of regularity.
Considering that no conclusive proof was presented to rebut this presumption, the deed of
donation is presumed valid.

The CA denied the petitioners' motion for reconsideration; hence, this petition.

THE PETITIONERS' ARGUMENTS

In their petition, the petitioners argue that: (1) Rosario is a co-owner because she caused the
construction of the house, which has a higher market value than the lot; (2) the deed of donation
is simulated; (3) the transaction was a mere equitable mortgage; and (4) the CA unduly
disturbed the RTC's factual findings. The petitioners emphasize that the respondents have
consistently admitted in their answer that the deed of donation was simulated; therefore, the CA
should not have reversed the RTC's decision on that point.

In their three-page comment, the respondents insist that the CA correctly dismissed the
complaint. They stressed that the petitioners were the ones who argued that the deed of
donation was simulated but the CA ruled otherwise. Furthermore, the petition involves questions
of facts and law outside the province of the Supreme Court. Hence, the petition must be
dismissed.

THE COURT'S RULING

We PARTIALLY GRANT the petition.

The issues before the Court are: (1) whether Rosario is a co-owner; (2) whether the deed of
donation was simulated; and (3) whether the transaction between Elma and Normita was a sale,
a donation, or an equitable mortgage. Considering that these issues are inter-related, we shall
jointly discuss and resolve them.

At the outset, we note that the issues raised by the petitioners in the present case require a
review of the factual circumstances. As a rule, only questions of law may be raised in a petition
for review on certiorari under Rule 45 of the Rules of Court.

The Court distinguished between a question of law and a question of fact in a number of cases.
A question of law arises when there is doubt on what the law is on a certain set of fact, while a
question of fact exists when there is doubt as to the truth or falsity of the alleged facts.19 For a
question to be one of law, it must not involve an examination of the probative value of the
evidence presented by the litigants.20 If the issue invites a review of the evidence on record, the
question posed is one of fact.21

The factual findings of the CA are conclusive and binding and are not reviewable by the Court,
unless the case falls under any of the recognized exceptions.22 One of these exceptions is when
the findings of the RTC and the CA are contradictory, as in the present case.

By granting the appeal and dismissing the petitioners' complaint, the CA effectively ruled that
the transfer of ownership involved the entire lot rather than only half of it as the RTC held. The
lower courts' differing findings provide us sufficient reason to proceed with the review of the
evidence on record.23

First, we rule that Elma transferred ownership of the entire lot to Normita.

One who deals with property registered under the Torrens system has a right to rely on what
appears on the face of the certificate of title and need not inquire further as to the property's
ownership.24 A buyer is charged with notice only of the claims annotated on the title. 25 The
Torrens system was adopted to best guarantee the integrity of land titles and to protect their
indefeasibility once the claim of ownership is established and recognized. 26

In the present case, the records of the case show that Elma alone purchased the lot in 1984
from its previous owners.27 Accordingly, TCT No. T-50282 was issued solely in her name. Thus,
Normita bought the lot relying on the face of the TCT that Elma and no other person owned it.

We acknowledge that registration under the Torrens system does not create or vest title. A
certificate of title merely serves as an evidence of ownership in the property. Therefore, the
issuance of a certificate of title does not preclude the possibility that persons not named in the
certificate may be co-owners of the real property, or that the registered owner is only holding the
property in trust for another person.28

In the present case, however, the petitioners failed to present proof of Rosario's contributions in
purchasing the lot from its previous owners. The execution of the transfer documents solely in
Elma's name alone militate against their claim of co-ownership. Thus, we find no merit in the
petitioners' claim of co-ownership over the lot.

At this point, we address the petitioners' claim that Rosario co-owned the lot with Elma because
the value of the house constructed by Rosario on it is higher than the lot's value. We find this
argument to be erroneous.
We hold that mere construction of a house on another's land does not create a co-ownership.
Article 484 of the Civil Code provides that co-ownership exists when the ownership of an
undivided thing or right belongs to different persons. Verily, a house and a lot are separately
identifiable properties and can pertain to different owners, as in this case: the house belongs to
Rosario and the lot to Elma.

Article 448 of the Civil Code provides that if a person builds on another's land in good faith, the
land owner may either: (a) appropriate the works as his own after paying indemnity; or (b) oblige
the builder to pay the price of the land. The law does not force the parties into a co-
ownership.29 A builder is in good faith if he builds on a land believing himself to be its owner and
is unaware of the defect in his title or mode of acquisition.30

As applied in the present case, Rosario's construction of a house on the lot did not create a co-
ownership, regardless of the value of the house. Rosario, however, is not without recourse in
retrieving the house or its value. The remedies available to her are set forth in Article 448 of the
Civil Code.

Second, on the nature of the transaction between Elma and Normita, we find that the deed
of donation was simulated and the parties' real intent was to enter into a sale.

The petitioners argue that the deed of donation was simulated and that the parties entered into
an equitable mortgage.31 On the other hand, the respondents deny the claim of equitable
mortgage32 and argue that they validly acquired the property via sale.33 The RTC ruled that
there was donation but only as to half of the property. The CA agreed with the respondents that
the deed of donation was not simulated, relying on the presumption of regularity of public
documents.

We first dwell on the genuineness of the deed of donation. There are two types of simulated
documents - absolute and relative. A document is absolutely simulated when the parties have
no intent to bind themselves at all, while it is relatively simulated when the parties concealed
their true agreement.34 The true nature of a contract is determined by the parties' intention,
which can be ascertained from their contemporaneous and subsequent acts. 35

In the present case, Elma and Normita's contemporaneous and subsequent acts show that they
were about to have the contract of sale notarized but the notary public ill-advised them to
execute a deed of donation instead. Following this advice, they returned the next day to have a
deed of donation notarized. Clearly, Elma and Normita intended to enter into a sale that would
transfer the ownership of the subject matter of their contract but disguised it as a donation.
Thus, the deed of donation subsequently executed by them was only relatively simulated.

The CA upheld the deed of donation's validity based on the principle that a notarized document
enjoys the presumption of regularity. This presumption, however, is overthrown in this case by
the respondents' own admission in their answer that the deed of donation was simulated.

Judicial admissions made by a party in the course of the proceedings are conclusive and do not
require proof.36 Notably, the respondents explicitly recognized in their answer that the deed of
donation was simulated upon the notary public's advice and that both parties intended a sale. 37

In paragraphs 5 and 6 of the answer,38 the respondents stated thus:

chanRoblesvirtualLawlibrary
5. That defendants admit the allegations in paragraph 9 which readily acknowledges that there
was indeed an agreement to sell the property of plaintiff, Elma Pidlaoan to defendant, Normita
Pidlaoan (Normita, for brevity) for which a Deed of Absolute Sale was drafted and executed;

6. That defendants admit the simulation of the Deed of Donation in paragraph 10 of the
Complaint, but deny the remainder, the truth being that Elma Pidlaoan herself offered her
property for sale in payment of her loans from Normita. (Emphasis supplied)
Having admitted the simulation, the respondents can no longer deny it at this stage. The CA
erred in disregarding this admission and upholding the validity of the deed of donation.

Considering that the deed of donation was relatively simulated, the parties are bound to their
real agreement.39 The records show that the parties intended to transfer the ownership of the
property to Normita by absolute sale. This intention is reflected in the unnotarized document
entitled "Panananto ng Pagkatanggap ng Kahustuhang Bayad."40cralawred

We have discussed that the transaction was definitely not one of donation. Next, we determine
whether the parties' real transaction was a sale or an equitable mortgage.

The petitioners insist that the deed of sale is an equitable mortgage because: (i) the
consideration for the sale was grossly inadequate; (ii) they remained in possession of the
property; (iii) they continuously paid the water and electric bills; (iv) the respondents allowed
Victoria to repay the "loan" within three months;41 (v) the respondents admitted that the deed of
donation was simulated; and (vi) the petitioners paid the taxes even after the sale.

Notably, neither the CA nor the RTC found merit in the petitioners' claim of equitable mortgage.
We find no reason to disagree with these conclusions.

An equitable mortgage is one which, although lacking in some formality or other requisites
demanded by statute, nevertheless reveals the intention of the parties to charge real property as
security for a debt, and contains nothing impossible or contrary to law.42 Articles 1602 and 1604
of the Civil Code provide that a contract of absolute sale shall be presumed an equitable
mortgage if any of the circumstances listed in Article 1602 is attendant.

Two requisites must concur for Articles 1602 and 1604 of the Civil Code to apply: one, the
parties entered into a contract denominated as a contract of sale; and two, their intention was to
secure an existing debt by way of mortgage.43

In the present case, the unnotarized contract of sale between Elma and Normita is denominated
as "Panananto ng Pagkatanggap ng Kahustuhang Bayad."44 Its contents show an unconditional
sale of property between Elma and Normita. The document shows no intention to secure a debt
or to grant a right to repurchase. Thus, there is no evidence that the parties agreed to mortgage
the property as contemplated in Article 1602 of the Civil Code. Clearly, the contract is not one of
equitable mortgage.

Even assuming that Article 1602 of the Civil Code applies in this case, none of the
circumstances are present to give rise to the presumption of equitable mortgage. One, the
petitioners failed to substantiate their claim that the sale price was unusually inadequate.45 In
fact, the sale price of P30,000.00 is not unusually inadequate compared with the lot's market
value of P32,160 as stated in the 1994 tax declaration. Two, the petitioners continued
occupation on the property was coupled with the respondents' continuous demand for them to
vacate it. Third, no other document was executed for the petitioners to repurchase the lot after
the sale contract was executed. Finally, the respondents paid the real property taxes on the
lot.46 These circumstances contradict the petitioners' claim of equitable mortgage.

A review of the sale contract or the "Panananto ng Pagkatanggap ng Kahustuhang Bayad"

shows that the parties intended no equitable mortgage. The contract even contains Elma's
undertaking to remove Rosario's house on the property.47 This undertaking supports the
conclusion that the parties executed the contract with the end view of transferring full ownership
over the lot to Normita.

In sum, we rule that based on the records of the case, Elma and Normita entered in a sale
contract, not a donation. Elma sold the entire property to Normita. Accordingly, TCT No. T-
70990 was validly issued in Normita's name.chanrobleslaw

WHEREFORE, we hereby PARTIALLY GRANT the petition. The March 26, 2010 decision and
March 15, 2011 resolution of the Court of Appeals in CA-G.R. CV No. 89235 are
hereby AFFIRMED with the MODIFICATION that the parties entered into a contract of sale, not
a donation, and that petitioner Elma Pidlaoan sold the whole disputed property to respondent
Normita Jacob Pidlaoan. Costs against the petitioners.

SO ORDERED.cralawlawlibrary

G.R. No. 176598 July 9, 2014

PETRONIO CLIDORO, DIONISIO CLIDORO, LOLITA CLIDORO, CALIXTO CARD ANO, JR.,
LOURDES CLIDORO-LARIN, MATEO CLIDORO and MARLIZA CLIDORO-DE
UNA, Petitioners,
vs.
AUGUSTO JALMANZAR, GREGORIO CLIDORO, JR., SENECA CLIDORO-CIOCSON,
MONSERAT CLIDORO-QUIDAY, CELESTIAL CLIDORO-BINASA, APOLLO CLIDORO,
ROSALIE CLIDORO-CATOLICO, SOPHIE CLIDORO, and JOSE CLIDORO,
JR., Respondents.

DECISION

PERALTA, J.:

This deals with the Petition for Review on Certiorari under Rule 45 of the Rules of Court praying
that the Decision1 of the Court of Appeals (CA), dated October 17, 2006, and its
Resolution2 dated February 6, 2007, denying herein petitioner's motion for reconsideration of
the Decision, be reversed and set aside.
The antecedent facts, as set forth in the CA Decision, are undisputed, to wit:

The instant appeal stemmed from a complaint, docketed as Civil Case No. T-2275 for revival of
judgment filed by Rizalina Clidoro, et al. against Onofre Clidoro, et al., praying that the
Decisiondated November 13, 1995 of the Court of Appeals (CA) in CA-G.R. CV No. 19831,
which affirmed with modification the RTC Decision dated March 10, 1988 in Civil Case No. T-98
for partition, berevived and that the corresponding writ of execution be issued. The dispositive
portion ofthe CA Decision reads:

The estate of the late Mateo Clidoro, excepting that described in paragraph (i) of the Complaint,
is hereby ordered partitioned in the following manner:

1. One-fifth portion to the Plaintiffs-Appellees, by right of representation to the hereditary share

of Gregorio Clidoro, Sr.;

2. One-fifth portion to Defendant-Appellant Antonio Clidoro or his legal heirs;

3. One-fifth portion to Appellant Josaphat Clidoro;

4. One-fifth portion to Appellant Aida Clidoro; 5. One-tenth portion to Gregoria Clidoro, as her
legitime in the hereditary share of Onofre Clidoro; and

6. One-tenth portion to Catalino Morate, as successor-ininterest to the legitime of Consorcia

Clidoro.

SO ORDERED.

On September 3, 2003, defendants-appellees except Gregoria Clidoro-Palanca, moved to

dismiss the said complaint on the following grounds: "1.) The petition, not being brought up
against the real partiesin-interest, is dismissible for lack of cause of action; 2.) The substitution
of the parties defendant is improper and is not in accordance with the rules; 3.) Even if the
decision is ordered revived, the same cannot be executed since the legal requirements of Rule
69, Section 3 of the 1997 Rules of Civil Procedure has not been complied with; and 4.) The
Judgment of the Honorable Court ordering partition is merely interlocutory as it leaves
something more to be done to complete the disposition of the case."

After the filing of plaintiffs-appellants' Comment/Opposition to the Motion to Dismiss,

defendants-appellees' Reply, plaintiffs-appellants' Rejoinder and defendants-interestedparties'
Sur-Rejoinder, the RTC issued the assailed Order dated December 8, 2003 dismissing the
instant complaint for lack of cause of action, the pertinent portion of which reads:

"xxx

The complaint shows that most of the parties-plaintiffs, partiesdefendants and interested parties
are already deceased and have no more natural or material existence. This is contrary to the
provision of the Rules (Sec. 1, Rule 3, 1997 Rules of Civil Procedure). They could no longer be
considered as the real parties-in-interest. Besides, pursuant to Sec. 3, Rule 3 (1997 Rules of
Civil Procedure), where the action is allowed to be prosecuted or defended by a representative
or someone acting in fiduciary capacity, the beneficiary shall be included in the title of the case.
In the instant case the beneficiaries are already deceased persons. Also, the Complaint states
thatthey were the original parties in Civil Case No. T-98 for Partition, but this is not so
(paragraph 2). Some of the parties are actually not parties to the original case, but representing
the original parties who are indicated as deceased.

From the foregoing, the Court finds the instant complaint to be flawed in form and substance.
The suit is not brought by the real parties-ininterest, thus a motion to dismiss on the ground that
the complaint states no cause of action is proper (Section 1(g), Rule 16).

WHEREFORE, the instant complaint is ordered DISMISSED for lack of cause of action.

SO ORDERED."

Plaintiffs-appellants moved for reconsideration of the foregoing Order with prayer to admit the
attached Amended Complaint impleading the additional heirs of the interested party Josaphat
Clidoro and the original plaintiffs Rizalina Clidoro-Jalmanzar, Cleneo Clidoro and Aristoteles
Clidoro. The same was,however, denied in the second assailed order. x x x 3

Respondents then appealed to the CA, and on October 17, 2006, the CA promulgated its
Decision reversing and setting aside the Orders of the RTC, and remanding the case to the
RTC for further proceedings. Petitioners’ motion for reconsideration of the Decision was denied
per Resolution dated February 6, 2007.

Hence, the present petition where the following issues are raised:

A. THE HONORABLE COURT OF APPEALS FAILED TO CONSIDER THAT THERE WAS NO

PROPER SUBSTITUTION OF PARTIES IN THE INSTANT ACTION FOR REVIVAL OF
JUDGMENT.

B. THE HONORABLE COURT OF APPEALS ERRED IN CONSIDERING THE

RESPONDENTS AS WELL AS THE PETITIONERS AS THE REAL PARTIES-IN-INTEREST.

C. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT AMENDMENT TO

PLEADINGS WAS PROPERLY MADE AND IS APPLICABLE TO THE INSTANT ACTION.

D. THE HONORABLE COURT OFAPPEALS ERRED IN RULING THAT THERE WAS MERE
MISJOINDER OF PARTIES IN THE INSTANT ACTION.4

The petition deserves scant consideration.

Reduced to its essence, the pivotal issue here is whether the complaint for revival of judgment
may be dismissed for lack of cause of action as it was not brought by or against the real parties-
in-interest.

First of all, the Court emphasizes that lack of cause of action is not enumerated under Rule 16
of the Rules of Court as one of the grounds for the dismissal of a complaint. As explained in
Vitangcol v. New Vista Properties, Inc.,5 to wit:
Lack of cause of action is, however, not a ground for a dismissal of the complaint through a
motion to dismiss under Rule 16 of the Rules of Court, for the determination of a lack of cause
of action can only be made during and/or after trial. What is dismissible via that mode is failure
of the complaint to state a cause of action. Sec. 1(g) of Rule 16 of the Rules of Court provides
that a motion may be made on the ground "that the pleading asserting the claim states no cause
of action."

The rule is that in a motion to dismiss, a defendant hypothetically admits the truth ofthe material
allegations of the ultimate facts contained in the plaintiff's complaint. When a motion to dismiss
is grounded on the failure tostate a cause of action, a ruling thereon should, as rule, be based
only on the facts alleged in the complaint.x x x

xxxx

In a motion to dismiss for failureto state a cause of action, the focus is on the sufficiency, not the
veracity, of the material allegations. The test of sufficiency of facts alleged in the complaint
constituting a cause of action lies on whether or not the court, admitting the facts alleged, could
render a valid verdict in accordance with the prayer of the complaint.x x x 6

Again, in Manaloto v. Veloso III,7 the Court reiterated as follows:

When the ground for dismissal is that the complaint states no cause of action, such fact can be
determined only from the facts alleged in the complaint and fromno other, and the court cannot
consider other matters aliunde. The test, therefore, is whether, assuming the allegations of fact
in the complaint to be true, a valid judgment could be rendered in accordance withthe prayer
stated therein.8

In this case, it was alleged in the complaint for revival of judgment that the parties therein were
also the parties inthe action for partition. Applying the foregoing test of hypothetically admitting
this allegation in the complaint, and not looking into the veracity of the same, it would then
appear that the complaint sufficiently stated a cause of action as the plaintiffs in the complaint
for revival of judgment (hereinafter respondents), as the prevailing parties in the action for
partition, had a right to seek enforcement of the decision in the partition case.

It should be borne in mind that the action for revival of judgment is a totally separate and distinct
case from the original Civil Case No. T-98 for Partition. As explained in Saligumba v.
Palanog,9 to wit:

An action for revival of judgment is no more than a procedural means of securing the execution
of a previous judgment which has become dormant after the passage of five years without it
being executed upon motion of the prevailing party. It isnot intended to re-open any issue
affecting the merits of the judgment debtor's case nor the propriety or correctness of the first
judgment. An action for revival of judgment is a new and independent action, different and
distinct fromeither the recovery of property case or the reconstitution case [in this case, the
original action for partition], wherein the cause of action is the decision itself and not the merits
of the action upon which the judgment sought to be enforced is rendered. x x x10

With the foregoing in mind, it is understandable that there would be instances where the parties
in the original case and in the subsequent action for revival of judgment would not be exactly the
same. The mere fact that the names appearing as parties in the the complaint for revival of
judgment are different from the names of the parties in the original case would not necessarily
mean that theyare not the real parties-in-interest. What is important is that, as provided in
Section 1, Rule 3 of the Rules of Court, they are "the party who stands to be benefited or injured
by the judgment in the suit, or the party entitled to the avails of the suit." Definitely, as the
prevailing parties in the previous case for partition, the plaintiffs in the case for revival of
judgment would be benefited by the enforcement of the decision in the partition case.

Moreover, it would appear that petitioners are mistaken in alleging that respondents are not the
real parties-in-interest. The complaint for revival of judgment impleaded the following parties:

[[reference
- http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/july2014/176598.pdf]]

PLAINTIFFS DEFENDANTS

1. Rizalina Clidoro (deceased) 1. Onofre Clidoro (deceased) rep.

rep. herein by Augusto Jalmanzar by Gregoria Clidoro-Palanca

(daughter)

2. Gregorio Clidoro, Jr. 2. Antonio Clidoro (deceased)

herein rep. by Petronio Clidoro,

3. Urbana Costales (deceased) 3. Carmen Clidoro-Cardano, rep.

by Calixto Cardano, Jr. (husband)

4. Cleneo Clidoro (deceased) 4. Dionisio Clidoro

5. Seneca Clidoro Ciocson 5. Lourdes Clidoro-Lari

6. Monserrat Clidoro 6. Lolita Clidoro

7. Celestial Clidoro 7. Mateo Clidoro

8. Aristoteles Clidoro (deceased) INTERESTED PARTIES

9. Apollo Clidoro 1. AidaClidoro (deceased)

10. Rosalie Clidoro 2. Josaphat Clidoro (deceased),

herein rep. by Marliza Clidoro-De

Una

11. Sophie Clidoro

12. Jose Clidoro, Jr.

On the other hand, the parties to the original case for partition are named as follows:

[[reference
- http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/july2014/176598.pdf]]

PLAINTIFFS DEFENDANTS

1. Rizalina Clidoro 1. Onofre Clidoro

2. Gregorio Clidoro, Jr. 2. Antonio Clidoro

3. Sofia Cerdena INTERESTED PARTIES

4. Urbana Costales 1. Aida Clidoro

5. Cleneo Seneca 2. Josaphat Clidoro

6. Monserrat Clidoro

7. Celestial Clidoro

8. Aristoteles Clidoro

9. Apollo Clidoro

10. Rosalie Clidoro

A comparison of the foregoing would show that almost all of the plaintiffs in the original case for
partition, in whose favor the court adjudged certain shares in the estate of deceased Mateo
Clidoro, are also the plaintiffs in the action for revival of judgment. Meanwhile, the defendants
impleaded in the action for revival are allegedly the representatives of the defendants in the
original case, and this appears to hold water, as Gregoria ClidoroPalanca, named as the
representative of defendant Onofre Clidoro in the complaint for revival of judgment, was also
mentioned and awarded a portion of the estate in the judgment in the original partition case. In
fact, the trial court itself stated in its Order 11 of dismissal dated December 8, 2003, that "[s]ome
of the parties are actually not parties to the original case, but representing the original parties
who are indicated as deceased."

In Basbas v. Sayson,12 the Court pointed out that even just one of the co-owners, by himself
alone, can bring an action for the recovery of the coowned property, even through an action for
revival of judgment, because the enforcement of the judgment would result in such recovery of
property. Thus, as in Basbas, it is not necessary in this case that all of the parties, in whose
favor the case for partition was adjudged, be made plaintiffs to the action for revival of judgment.
Any which one of said prevailing parties, who had an interest in the enforcement of the decision,
may file the complaint for revival of judgment, even just by himself.

Verily, the trial court erred in dismissing the complaint for revival of judgment on the ground of
lack of, or failure to state a cause of action. The allegations in the complaint, regarding the
parties' interest in having the decision in the partition case executed or implemented, sufficiently
state a cause of action. The question of whether respondents were the real partiesin-interest
who had the right to seek execution of the final and executory judgment in the partition case
should have been threshed out in a full-blown trial.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals, dated October 17,
2006, and its Resolution dated February 6, 2007 in CA-G.R. No. 82209, are hereby AFFIRMED
in toto.

G.R. No. 210252 June 16, 2014

VILMA QUINTOS, represented by her Attorney-in-Fact FIDEL I. QUINTOS, JR.;

FLORENCIA I. DANCEL, represented by her Attorney-in-Fact FLOVY I. DANCEL; and
CATALINO L. IBARRA, Petitioners,
vs.
PELAGIA I. NICOLAS, NOLI L. IBARRA, SANTIAGO L. IBARRA, PEDRO L. IBARRA,
DAVID L. IBARRA, GILBERTO L. IBARRA, HEIRS OF AUGUSTO L. IBARRA, namely
CONCHITA R., IBARRA, APOLONIO IBARRA, and NARCISO IBARRA, and the spouses
RECTO CANDELARIO and ROSEMARIE CANDELARIO, Respondents.

DECISION

VELASCO, JR., J.:

The Case

Before the Court is a Petition for Review on Certiorari filed under Rule 45 challenging the
Decision1 and Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 98919 dated July 8,
2013 and November 22, 2013, respectively. The challenged rulings affirmed the May 7, 2012
Decision3 of the Regional Trial Court (RTC), Branch 68 in Camiling, Tarlac that petitioners and
respondents are co-owners of the subject property, which should be partitioned as per the
subdivision plan submitted by respondent spouses Recto and Rosemarie Candelario.

The Facts

As culled from the records, the facts of the case are as follows:

Petitioners Vilma Quintos, Florencia Dancel, and Catalino Ibarra, and respondents Pelagia
Nicolas, Noli Ibarra, Santiago Ibarra, Pedro Ibarra, David Ibarra, Gilberto Ibarra, and the late
Augusto Ibarra are siblings. Their parents, Bienvenido and Escolastica Ibarra, were the owners
of the subject property, a 281 sqm. parcel of land situated along Quezon Ave., Poblacion C,
Camiling, Tarlac, covered by Transfer Certificate Title (TCT) No. 318717.

By 1999, both Bienvenido and Escolastica had already passed away, leaving to their ten (10)
children ownership over the subject property. Subsequently, sometime in 2002, respondent
siblings brought an action for partition against petitioners. The case was docketed as Civil Case
No. 02-52 and was raffled to the RTC, Branch 68, Camiling, Tarlac. However, in an
Order4 dated March 22, 2004, the trial court dismissed the case disposing as follows:

For failure of the parties, as well as their counsels, to appear despite due notice, this case is
hereby DISMISSED.
SO ORDERED.

As neither set of parties appealed, the ruling of the trial court became final, as evidenced by a
Certificate of Finality5 it eventually issued on August 22, 2008.

Having failed to secure a favorable decision for partition, respondent siblings instead resorted to
executing a Deed of Adjudication6 on September 21, 2004 to transfer the property in favor of the
ten (10) siblings. As a result, TCT No. 318717 was canceled and in lieu thereof, TCT No.
390484 was issued in its place by the Registry of Deeds of Tarlac in the names of the ten (10)
heirs of the Ibarra spouses.

Subsequently, respondent siblings sold their 7/10 undivided share over the property in favor of
their co-respondents, the spouses Recto and Rosemarie Candelario. By virtue of a Deed of
Absolute Sale7 dated April 17, 2007 executed in favor of the spouses Candelario and an
Agreement of Subdivision8 purportedly executed by them and petitioners, TCT No. 390484 was
partially canceled and TCT No. 434304 was issued in the name of the Candelarios, covering the
7/10portion.

On June 1, 2009, petitioners filed a complaint for Quieting of Title and Damages against
respondents wherein they alleged that during their parents’ lifetime, the couple distributed their
real and personal properties in favor of their ten (10) children. Upon distribution, petitioners
alleged that they received the subject property and the house constructed thereon as their
share. They likewise averred that they have been in adverse, open, continuous, and
uninterrupted possession of the property for over four (4) decades and are, thus, entitled to
equitable title thereto. They also deny any participation in the execution of the aforementioned
Deed of Adjudication dated September 21, 2004 and the Agreement of Subdivision.
Respondents countered that petitioners’ cause of action was already barred by estoppel when
sometime in 2006, one of petitioners offered to buy the 7/10 undivided share of the respondent
siblings. They point out that this is an admission on the part of petitioners that the property is not
entirely theirs. In addition, they claimed that Bienvenido and Escolastica Ibarra mortgaged the
property but because of financial constraints, respondent spouses Candelario had to redeem
the property in their behalf. Not having been repaid by Bienvenido and Escolastica, the
Candelarios accepted from their co-respondents their share in the subject property as payment.
Lastly, respondents sought, by way of counterclaim, the partition of the property.

Docketed as Civil Case No. 09-15 of the RTC of Camiling, Tarlac, the quieting of title case was
eventually raffled to Branch 68 of the court, the same trial court that dismissed Civil Case No.
02-52. During pre-trial, respondents, or defendants a quo, admitted having filed an action for
partition, that petitioners did not participate in the Deed of Adjudication that served as the basis
for the issuance of TCT No. 390484, and that the Agreement of Subdivision that led to the
issuance of TCT No. 434304 in favor of respondent spouses Candelario was falsified. 9 Despite
the admissions of respondents, however, the RTC, through its May 27, 2012 Decision,
dismissed petitioners’ complaint. The court did not find merit in petitioners’ asseverations that
they have acquired title over the property through acquisitive prescription and noted that there
was no document evidencing that their parents bequeathed to them the subject property.
Finding that respondent siblings were entitled to their respective shares in the property as
descendants of Bienvenido and Escolastica Ibarra and as co-heirs of petitioners, the
subsequent transfer of their interest in favor of respondent spouses Candelario was then upheld
by the trial court. The dispositive portion of the Decision reads:
WHEREFORE, premises considered, the above-entitled case is hereby Dismissed.

Also, defendants-spouses Rosemarie Candelario and Recto Candelario are hereby declared as
the absolute owners of the 7/10 portion of the subject lot.

Likewise, the court hereby orders the partition of the subject lots between the herein plaintiffs
and the defendants-spouses Candelarios.

SO ORDERED.

Aggrieved, petitioners appealed the trial court’s Decision to the CA, pleading the same
allegations they averred in their underlying complaint for quieting of title. However, they added
that the partition should no longer be allowed since it is already barred by res judicata,
respondent siblings having already filed a case for partition that was dismissed with finality, as
admitted by respondents themselves during pre-trial.

On July 8, 2013, the CA issued the assailed Decision denying the appeal. The fallo reads:
WHEREFORE, premises considered, the Decision dated May 7, 2012 of the Regional Trial
Court of Camiling, Tarlac, Branch 68, in Civil Case No. 09-15, is hereby AFFIRMED.

SO ORDERED.

Similar to the trial court, the court a quo found no evidence on record to support petitioners’
claim that the subject property was specifically bequeathed by Bienvenido and Escolastica
Ibarra in their favor as their share in their parents’ estate. It also did not consider petitioners’
possession of the property as one that is in the concept of an owner. Ultimately, the appellate
court upheld the finding that petitioners and respondent spouses Candelario co-own the
property, 30-70 in favor of the respondent spouses.

As regards the issue of partition, the CA added:

x x x Since it was conceded that the subject lot is now co-owned by the plaintiffs-appellants,
(with 3/10 undivided interest) and defendants-appellees Spouses Candelarios (with 7/10
undivided interest) and considering that plaintiffs-appellants had already constructed a 3-storey
building at the back portion of the property, then partition, in accordance with the subdivision
plan (records, p. 378) undertaken by defendants-appellants [sic] spouses, is in order.10

On November 22, 2013, petitioners’ Motion for Reconsideration was denied. Hence, the instant
petition.

Issues

In the present petition, the following errors were raised:

I. THE COURT OF APPEALS MANIFESTLY OVERLOOKED RELEVANT AND

UNDISPUTED FACTS WHICH, IF PROPERLY CONSIDERED, WOULD JUSTIFY
PETITIONERS’ CLAIM OF EQUITABLE TITLE.
 II. THE COURT OF APPEALS ERRED WHEN IT AFFIRMED THE ORDER OF
PARTITION DESPITE THE FACT THAT THE COUNTERCLAIM FOR PARTITION,
BASED ON THE DEED OF ABSOLUTE SALE EXECUTED IN 2007, IS BARRED BY
LACHES.

III. THE COURT OF APPEALS RENDERED A SUBSTANTIALLY FLAWED JUDGMENT

WHEN IT NEGLECTED TO RULE ON PETITIONERS’ CONTENTION THAT THE
COUNTERCLAIM FOR PARTITION IS ALSO BARRED BY PRIOR JUDGMENT,
DESPITE ITS HAVING BEEN SPECIFICALLY ASSIGNED AS ERROR AND
PROPERLY ARGUED IN THEIR BRIEF, AND WHICH, IF PROPERLY CONSIDERED,
WOULD JUSTIFY THE DISMISSAL OF THE COUNTERCLAIM.

IV. THE COURT OF APPEALS ERRED WHEN IT ORDERED PARTITION IN

ACCORDANCE WITH THE SUBDIVISION PLAN MENTIONED IN ITS DECISION, IN
CONTRAVENTION OF THE PROCEDURE ESTABLISHED IN RULE 69 OF THE
RULES OF CIVIL PROCEDURE.11

To simplify, the pertinent issues in this case are as follows:

1. Whether or not the petitioners were able to prove ownership over the property;

2. Whether or not the respondents’ counterclaim for partition is already barred by laches
or res judicata; and

3. Whether or not the CA was correct in approving the subdivision agreement as basis
for the partition of the property.

The Court’s Ruling

The petition is meritorious in part.

Petitioners were not able to prove equitable title or ownership over the property

Quieting of title is a common law remedy for the removal of any cloud, doubt, or uncertainty
affecting title to real property.12 For an action to quiet title to prosper, two indispensable
requisites must concur, namely: (1) the plaintiff or complainant has a legal or equitable title to or
interest in the real property subject of the action; and (2) the deed, claim, encumbrance, or
proceeding claimed to be casting cloud on the title must be shown to be in fact invalid or
inoperative despite its prima facie appearance of validity or efficacy.13 In the case at bar, the CA
correctly observed that petitioners’ cause of action must necessarily fail mainly in view of the
absence of the first requisite.

At the outset, it must be emphasized that the determination of whether or not petitioners
sufficiently proved their claim of ownership or equitable title is substantially a factual issue that is
generally improper for Us to delve into. Section 1, Rule 45 of the Rules of Court explicitly states
that the petition for review on certiorari "shall raise only questions of law, which must be
distinctly set forth." In appeals by certiorari, therefore, only questions of law may be raised,
because this Court is not a trier of facts and does not normally undertake the re-examination of
the evidence presented by the contending parties during the trial.14 Although there are
exceptions15 to this general rule as eloquently enunciated in jurisprudence, none of the
circumstances calling for their application obtains in the case at bar. Thus, We are constrained
to respect and uphold the findings of fact arrived at by both the RTC and the CA.

In any event, a perusal of the records would readily show that petitioners, as aptly observed by
the courts below, indeed, failed to substantiate their claim. Their alleged open, continuous,
exclusive, and uninterrupted possession of the subject property is belied by the fact that
respondent siblings, in 2005, entered into a Contract of Lease with the Avico Lending Investor
Co. over the subject lot without any objection from the petitioners.16 Petitioners’ inability to offer
evidence tending to prove that Bienvenido and Escolastica Ibarra transferred the ownership
over the property in favor of petitioners is likewise fatal to the latter’s claim. On the contrary, on
May 28, 1998, Escolastica Ibarra executed a Deed of Sale covering half of the subject property
in favor of all her 10 children, not in favor of petitioners alone.17

The cardinal rule is that bare allegation of title does not suffice. The burden of proof is on the
plaintiff to establish his or her case by preponderance of evidence. 18 Regrettably, petitioners, as
such plaintiff, in this case failed to discharge the said burden imposed upon them in proving
legal or equitable title over the parcel of land in issue. As such, there is no reason to disturb the
finding of the RTC that all 10 siblings inherited the subject property from Bienvenido and
Escolastica Ibarra, and after the respondent siblings sold their aliquot share to the spouses
Candelario, petitioners and respondent spouses became co-owners of the same.

The counterclaim for partition is not barred by prior judgment

This brings us to the issue of partition as raised by respondents in their counterclaim. In their
answer to the counterclaim, petitioners countered that the action for partition has already been
barred by res judicata.

The doctrine of res judicata provides that the judgment in a first case is final as to the claim or
demand in controversy, between the parties and those privy with them, not only as to every
matter which was offered and received to sustain or defeat the claim or demand, but as to any
other admissible matter which must have been offered for that purpose and all matters that
could have been adjudged in that case.19 It precludes parties from relitigating issues actually
litigated and determined by a prior and final judgment.20 As held in Yusingco v. Ong Hing Lian:21

It is a rule pervading every well-regulated system of jurisprudence, and is put upon two grounds
embodied in various maxims of the common law; the one, public policy and necessity, which
makes it to the interest of the state that there should be an end to litigation — republicae ut sit
finis litium; the other, the hardship on the individual that he should be vexed twice for the same
cause — nemo debet bis vexari et eadem causa. A contrary doctrine would subject the public
peace and quiet to the will and neglect of individuals and prefer the gratitude identification of a
litigious disposition on the part of suitors to the preservation of the public tranquility and
happiness.22

The rationale for this principle is that a party should not be vexed twice concerning the same
cause. Indeed, res judicata is a fundamental concept in the organization of every jural society,
for not only does it ward off endless litigation, it ensures the stability of judgment and guards
against inconsistent decisions on the same set of facts.23

There is res judicata when the following requisites are present: (1) the formal judgment or order
must be final; (2) it must be a judgment or order on the merits, that is, it was rendered after a
consideration of the evidence or stipulations submitted by the parties at the trial of the case; (3)
it must have been rendered by a court having jurisdiction over the subject matter and the
parties; and (4) there must be, between the first and second actions, identity of parties, of
subject matter and of cause of action.24

In the case at bar, respondent siblings admit that they filed an action for partition docketed as
Civil Case No. 02-52, which the RTC dismissed through an Order dated March 22, 2004 for the
failure of the parties to attend the scheduled hearings. Respondents likewise admitted that since
they no longer appealed the dismissal, the ruling attained finality. Moreover, it cannot be
disputed that the subject property in Civil Case No. 02-52 and in the present controversy are
one and the same, and that in both cases, respondents raise the same action for partition. And
lastly, although respondent spouses Candelario were not party-litigants in the earlier case for
partition, there is identity of parties not only when the parties in the case are the same, but also
between those in privity with them, such as between their successors-in-interest.25

With all the other elements present, what is left to be determined now is whether or not the
dismissal of Civil case No. 02-52 operated as a dismissal on the merits that would complete the
requirements of res judicata.

In advancing their claim, petitioners cite Rule 17, Sec. 3 of the Rules of Court, to wit:

Section 3. Dismissal due to fault of plaintiff. — If, for no justifiable cause, the plaintiff fails to
appear on the date of the presentation of his evidence in chief on the complaint, or to prosecute
his action for an unreasonable length of time, or to comply with these Rules or any order of the
court, the complaint may be dismissed upon motion of the defendant or upon the court’s own
motion, without prejudice to the right of the defendant to prosecute his counterclaim in the same
or in a separate action. This dismissal shall have the effect of an adjudication upon the merits,
unless otherwise declared by the court.

The afore-quoted provision enumerates the instances when a complaint may be dismissed due
to the plaintiff's fault: (1) if he fails to appear on the date for the presentation of his evidence in
chief on the complaint; (2) if he fails to prosecute his action for an unreasonable length of time;
or (3) if he fails to comply with the Rules or any order of the court. The dismissal of a case for
failure to prosecute has the effect of adjudication on the merits, and is necessarily understood to
be with prejudice to the filing of another action, unless otherwise provided in the order of
dismissal. Stated differently, the general rule is that dismissal of a case for failure to prosecute
is to be regarded as an adjudication on the merits and with prejudice to the filing of another
action, and the only exception is when the order of dismissal expressly contains a qualification
that the dismissal is without prejudice.26 In the case at bar, petitioners claim that the Order does
not in any language say that the dismissal is without prejudice and, thus, the requirement that
the dismissal be on the merits is present.

Truly, We have had the occasion to rule that dismissal with prejudice under the above-cited rule
amply satisfies one of the elements of res judicata.27 It is, thus, understandable why petitioners
would allege res judicata to bolster their claim. However, dismissal with prejudice under Rule
17, Sec. 3 of the Rules of Court cannot defeat the right of a co-owner to ask for partition at any
time, provided that there is no actual adjudication of ownership of shares yet. Pertinent hereto is
Article 494 of the Civil Code, which reads:
Article 494. No co-owner shall be obliged to remain in the co-ownership. Each co-owner may
demand at any time the partition of the thing owned in common, insofar as his share is
concerned.

Nevertheless, an agreement to keep the thing undivided for a certain period of time, not
exceeding ten years, shall be valid. This term may be extended by a new agreement.

A donor or testator may prohibit partition for a period which shall not exceed twenty years.
Neither shall there be any partition when it is prohibited by law. No prescription shall run in favor
of a co-owner or co-heir against his co-owners or co-heirs so long as he expressly or impliedly
recognizes the co-ownership. (emphasis supplied)

From the above-quoted provision, it can be gleaned that the law generally does not favor the
retention of co-ownership as a property relation, and is interested instead in ascertaining the co-
owners’ specific shares so as to prevent the allocation of portions to remain perpetually in limbo.
Thus, the law provides that each co-owner may demand at any time the partition of the thing
owned in common.

Between dismissal with prejudice under Rule 17, Sec. 3 and the right granted to co-owners
under Art. 494 of the Civil Code, the latter must prevail. To construe otherwise would diminish
the substantive right of a co-owner through the promulgation of procedural rules. Such a
construction is not sanctioned by the principle, which is too well settled to require citation, that a
substantive law cannot be amended by a procedural rule. 28 This further finds support in Art. 496
of the New Civil Code, viz:

Article 496.Partition may be made by agreement between the parties or by judicial

proceedings.1âwphi1 Partition shall be governed by the Rules of Court insofar as they are
consistent with this Code.

Thus, for the Rules to be consistent with statutory provisions, We hold that Art. 494, as cited, is
an exception to Rule 17, Sec. 3 of the Rules of Court to the effect that even if the order of
dismissal for failure to prosecute is silent on whether or not it is with prejudice, it shall be
deemed to be without prejudice.

This is not to say, however, that the action for partition will never be barred by res judicata.
There can still be res judicata in partition cases concerning the same parties and the same
subject matter once the respective shares of the co-owners have been determined with finality
by a competent court with jurisdiction or if the court determines that partition is improper for co-
ownership does not or no longer exists.

So it was that in Rizal v. Naredo,29 We ruled in the following wise:

Article 484 of the New Civil Code provides that there is co-ownership whenever the ownership
of an undivided thing or right belongs to different persons. Thus, on the one hand, a co-owner of
an undivided parcel of land is 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. On the
other hand, there is no co-ownership when the different portions owned by different people are
already concretely determined and separately identifiable, even if not yet technically described.
Pursuant to Article 494 of the Civil Code, no co-owner is obliged to remain in the co-ownership,
and his proper remedy is an action for partition under Rule 69 of the Rules of Court, which he
may bring at anytime in so far as his share is concerned. Article 1079 of the Civil Code defines
partition as the separation, division and assignment of a thing held in common among those to
whom it may belong. It has been held that the fact that the agreement of partition lacks the
technical description of the parties’ respective portions or that the subject property was then still
embraced by the same certificate of title could not legally prevent a partition, where the different
portions allotted to each were determined and became separately identifiable.

The partition of Lot No. 252 was the result of the approved Compromise Agreement in Civil
Case No. 36-C, which was immediately final and executory. Absent any showing that said
Compromise Agreement was vitiated by fraud, mistake or duress, the court cannot set aside a
judgment based on compromise. It is axiomatic that a compromise agreement once approved
by the court settles the rights of the parties and has the force of res judicata. It cannot be
disturbed except on the ground of vice of consent or forgery.

Of equal significance is the fact that the compromise judgment in Civil Case No. 36-C settled as
well the question of which specific portions of Lot No. 252 accrued to the parties separately as
their proportionate shares therein. Through their subdivision survey plan, marked as Annex "A"
of the Compromise Agreement and made an integral part thereof, the parties segregated and
separately assigned to themselves distinct portions of Lot No. 252. The partition was
immediately executory, having been accomplished and completed on December 1, 1971 when
judgment was rendered approving the same. The CA was correct when it stated that no co-
ownership exist when the different portions owned by different people are already concretely
determined and separately identifiable, even if not yet technically described. (emphasis
supplied)

In the quoted case, We have held that res judicata applied because after the parties executed a
compromise agreement that was duly approved by the court, the different portions of the owners
have already been ascertained. Thus, there was no longer a co-ownership and there was
nothing left to partition. This is in contrast with the case at bar wherein the co-ownership, as
determined by the trial court, is still subsisting 30-70 in favor of respondent spouses Candelario.
Consequently, there is no legal bar preventing herein respondents from praying for the partition
of the property through counterclaim.

The counterclaim for partition is not barred by laches

We now proceed to petitioners’ second line of attack. According to petitioners, the claim for
partition is already barred by laches since by 1999, both Bienvenido and Escolastica Ibarra had
already died and yet the respondent siblings only belatedly filed the action for partition, Civil
Case No. 02-52, in 2002. And since laches has allegedly already set in against respondent
siblings, so too should respondent spouses Candelario be barred from claiming the same for
they could not have acquired a better right than their predecessors-in-interest.

The argument fails to persuade.

Laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that
which––by the exercise of due diligence––could or should have been done earlier. It is the
negligence or omission to assert a right within a reasonable period, warranting the presumption
that the party entitled to assert it has either abandoned or declined to assert it.30 The principle is
a creation of equity which, as such, is applied not really to penalize neglect or sleeping upon
one’s right, but rather to avoid recognizing a right when to do so would result in a clearly
inequitable situation. As an equitable defense, laches does not concern itself with the character
of the petitioners’ title, but only with whether or not by reason of the respondents’ long inaction
or inexcusable neglect, they should be barred from asserting this claim at all, because to allow
them to do so would be inequitable and unjust to petitioners.31

As correctly appreciated by the lower courts, respondents cannot be said to have neglected to
assert their right over the subject property. They cannot be considered to have abandoned their
right given that they filed an action for partition sometime in 2002, even though it was later
dismissed. Furthermore, the fact that respondent siblings entered into a Contract of Lease with
Avico Lending Investor Co. over the subject property is evidence that they are exercising rights
of ownership over the same.

The CA erred in approving the Agreement for Subdivision

There is merit, however, in petitioners’ contention that the CA erred in approving the proposal
for partition submitted by respondent spouses. Art. 496, as earlier cited, provides that partition
shall either be by agreement of the parties or in accordance with the Rules of Court. In this
case, the Agreement of Subdivision allegedly executed by respondent spouses Candelario and
petitioners cannot serve as basis for partition, for, as stated in the pre-trial order, herein
respondents admitted that the agreement was a falsity and that petitioners never took part in
preparing the same. The "agreement" was crafted without any consultation whatsoever or any
attempt to arrive at mutually acceptable terms with petitioners. It, therefore, lacked the essential
requisite of consent. Thus, to approve the agreement in spite of this fact would be tantamount to
allowing respondent spouses to divide unilaterally the property among the co-owners based on
their own whims and caprices. Such a result could not be countenanced.

To rectify this with dispatch, the case must be remanded to the court of origin, which shall
proceed to partition the property in accordance with the procedure outlined in Rule 69 of the
Rules of Court.

WHEREFORE, premises considered, the petition is hereby PARTLY GRANTED. The assailed
Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 98919 dated July 8, 2013
and November 22, 2013, respectively, are hereby AFFIRMED with MODIFICATION. The case
is hereby REMANDED to the RTC, Branch 68 in Camiling, Tarlac for purposes of partitioning
the subject property in accordance with Rule 69 of the Rules of Court.

SO ORDERED.