G.R. No. 149756             February 11, 2005

MYRNA RAMOS, petitioner, vs.SUSANA S. SARAO and JONAS RAMOS, respondents.

Although the parties in the instant case denominated their contract as a "DEED OF SALE UNDER PACTO DE RETRO," the "sellers" have continued to possess and to reside at the subject house and lot up to the present. This evident factual circumstance was plainly overlooked by the trial and the appellate courts, thereby justifying a review of this case. This overlooked fact clearly shows that the petitioner intended merely to secure a loan, not to sell the property. Thus, the contract should be deemed an equitable mortgage.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the August 31, 2001 Decision2of the Court of Appeals (CA) in CA-GR CV No. 50095, which disposed as follows:

"WHEREFORE, the instant appeal is DISMISSED for lack of merit. The decision dated January 19, 1995 of the Regional Trial Court, Branch 145, Makati City is AFFIRMEDin toto."3

The Facts

On February 21, 1991, Spouses Jonas Ramos and Myrna Ramos executed a contract over their conjugal house and lot in favor of Susana S. Sarao for and in consideration of P1,310,430.4 Entitled "DEED OF SALE UNDER PACTO DE RETRO," the contract, inter alia, granted the Ramos spouses the option to repurchase the property within six months from February 21, 1991, for P1,310,430 plus an interest of 4.5 percent a month.5 It was further agreed that should the spouses fail to pay the monthly interest or to exercise the right to repurchase within the stipulated period, the conveyance would be deemed an absolute sale.6

On July 30, 1991, Myrna Ramos tendered to Sarao the amount of P1,633,034.20 in the form of two manager’s checks, which the latter refused to accept for being allegedly insufficient.7 On August 8, 1991, Myrna filed a Complaint for the redemption of the property and moral damages plus attorney’s fees.8 The suit was docketed as Civil Case No. 91-2188 and raffled to Branch 145 of the Regional Trial Court (RTC) of Makati City. On August 13, 1991, she deposited with the RTC two checks that Sarao refused to accept.9

On December 21, 1991, Sarao filed against the Ramos spouses a Petition "for consolidation of ownership in pacto de retro sale" docketed as Civil Case No. 91-3434 and raffled to Branch 61 of the RTC of Makati City.10 Civil Case Nos. 91-2188 and 91-3434 were later consolidated and jointly tried before Branch 145 of the said Makati RTC.11

The two lower courts narrated the trial in this manner:

"x x x Myrna [Ramos] testified as follows: On February 21, 1991, she and her husband borrowed from Sarao the amount of P1,234,000.00, payable within six (6) months, with an interest thereon at 4.5% compounded monthly from said date until August 21, 1991, in order for them to pay [the] mortgage on their house. For and in consideration of the said amount, they executed a deed of sale under a [pacto de retro] in favor of Sarao over their conjugal house and lot registered under TCT No. 151784 of the Registry of Deeds of Makati (Exhibit A). She further claimed that Sarao will keep the torrens title until the lapse of the 6-month period, in which case she will redeem [the] subject property and the torrens title covering it. When asked why it was the amount of P1,310,430 instead of the aforestated amount which appeared in the deed, she explained that upon signing of the deed in question, the sum of P20,000.00 representing attorney’s fees was added, and its total amount was multiplied with 4.5% interest rate, so that they could pay in advance the compounded interest. She also stated that although the market value of the subject property as of February 1991 [was] calculated to [be] more or less P10 million, it was offered [for] only P1,310,430.00 for the reason that they intended nothing but to redeem the same. In May 1991, she wrote a letter to Atty. Mario Aguinaldo requesting him to give a computation of the loan obligation, and [expressed] her intention to redeem the subject property, but she received no reply to her letter. Instead, she, through her husband, secured directly from Sarao a handwritten computation of their loan obligation, the total of which amount[ed] to P1,562,712.14. Later, she sent several letters to Sarao, [furnishing] Atty. Aguinaldo with copies, asking them for the updated computation of their loan obligation as of July 1991, but [no reply was again received]. During the hearing of February 17, 1992, she admitted receiving a letter dated July 23, 1991 from Atty. Aguinaldo which show[ed] the computation of their loan obligation [totaling] to P2,911,579.22 (Exhs. 6, 6-A). On July 30, 1991, she claimed that she offered the redemption price in the form of two (2) manager’s checks amounting to P1,633,034.20 (Exhs. H-1 & H-2) to Atty. Aguinaldo, but the latter refused to accept them because they [were] not enough to pay the loan obligation. Having refused acceptance of the said checks covering the redemption price, on August 13, 1991 she came to Court to consign the checks (Exhs. L-4 and L-5). Subsequently, she proceeded to the Register of Deeds to cause the annotation of  lis pendens on TCT No. 151784 (Exh. B-1-A). Hence, she filed the x x x civil case against Sarao.

"On the other hand, Sarao testified as follows: On February 21, 1991, spouses Ramos together with a certain Linda Tolentino and her husband, Nestor Tolentino approached her and offered transaction involv[ing a] sale of property[. S]he consulted her lawyer, Atty. Aguinaldo, and on the same date a corresponding deed of sale underpacto de retro was executed and signed (Exh. 1 ). Later on, she sent, through her lawyer, a demand letter dated June 10, 1991 (Exh. 6) in view of Myrna’s failure to pay the monthly interest of 4.5% as agreed upon under the deed[. O]n June 14, 1991 Jonas replied to said demand letter (Exh. 8); in the reply Jonas admitted that he no longer ha[d] the capacity to redeem the property and to pay the interest. In view of the said reply of Jonas, [Sarao] filed the corresponding consolidation proceedings. She [further claimed] that before filing said action she incurred expenses including payment of real estate taxes in arrears, x x x transfer tax and capital [gains] tax, and [expenses] for [the] consolidated proceedings, for which these expenses were accordingly receipted (Exhs. 6, 6-1 to 6-0). She also presented a modified computation of the expenses she had incurred in connection with the execution of the subject deed (Exh. 9). She also testified that Myrna did not tender payment of the correct and sufficient price for said real property within the 6-month period as stipulated in the contract, despite her having been shown the computation of the loan obligation, inclusive of capital gains tax, real estate tax, transfer tax and other expenses. She admitted though that Myrna has tendered payment amounting to P1,633,034.20 in the form of two manager’s checks, but these were refused acceptance for being insufficient. She also claimed that several letters (Exhs. 2, 4 and 5) were sent to Myrna and her lawyer, informing them of the computation of the loan obligation inclusive of said expenses. Finally, she denied the allegations made in the complaint that she allied herself with Jonas, and claimed that she ha[d] no knowledge about said allegation."12

After trial, the RTC dismissed the Complaint and granted the prayer of Sarao to consolidate the title of the property in her favor.13 Aggrieved, Myrna elevated the case to the CA.

Ruling of the Court of Appeals

The appellate court sustained the RTC’s finding that the disputed contract was a bonafide pacto de retro sale, not a mortgage to secure a loan.14 It ruled that Myrna Ramos had failed to exercise the right of repurchase, as the consignation of the two manager’s checks was deemed invalid. She allegedly failed (1) to deposit the correct repurchase price and (2) to comply with the required notice of consignation.15

Hence, this Petition.16

The Issues

Petitioner raises the following issues for our consideration:

"1. Whether or not the honorable appellate court erred in ruling the subject Deed of Sale under Pacto de Retro was, and is in reality and under the law an equitable mortgage;

"2. Whether or not the honorable appellate court erred in affirming the ruling of the court a quo that there was no valid tender of payment of the redemption price neither [sic] a valid consignation in the instant case; and

"3. Whether or not [the] honorable appellate court erred in affirming the ruling of the court a quo denying the claim of petitioner for damages and attorney’s fees."17

The Court’s Ruling

The Petition is meritorious in regard to Issues 1 and 2.

First Issue:

A Pacto de Retro Sale

or an Equitable Mortgage?

Respondent Sarao avers that the herein Petition should have been dismissed outright, because petitioner (1) failed to show proof that she had served a copy of it to the Court of Appeals and (2) raised questions of fact that were not proper issues in a petition under Rule 45 of the Rules of Court.18 This Court, however, disregarded the first ground; otherwise, substantial injustice would have been inflicted on petitioner. Since the Court of Appeals is not a party here, failure to serve it a copy of the Petition would not violate any right of respondent. Service to the CA is indeed mentioned in the Rules, but only to inform it of the pendency of the appeal before this Court.

As regards Item 2, there are exceptions to the general rule barring a review of questions of fact. 19 The Court reviewed the factual findings in the present case, because the CA had manifestly overlooked certain relevant and undisputed facts which, after being considered, justified a different conclusion.20

Pacto de Retro Sale Distinguished

from Equitable Mortgage

The pivotal issue in the instant case is whether the parties intended the contract to be a bona fide pacto de retrosale or an equitable mortgage.

In a pacto de retro, ownership of the property sold is immediately transferred to the vendee a retro, subject only to the repurchase by the vendor a retro within the stipulated period.21 The vendor a retro’s failure to exercise the right of repurchase within the agreed time vests upon the vendee a retro, by operation of law, absolute title to the property.22 Such title is not impaired even if the vendee a retro fails to consolidate title under Article 1607 of the Civil Code.23

On the other hand, an equitable mortgage is a contract that -- although lacking the formality, the form or words, or other requisites demanded by a statute -- nevertheless reveals the intention of the parties to burden a piece or pieces of real property as security for a debt.24 The essential requisites of such a contract are as follows: (1) the parties enter into what appears to be a contract of sale, but (2) their intention is to secure an existing debt by way of a mortgage.25 The nonpayment of the debt when due gives the mortgagee the right to foreclose the mortgage, sell the property, and apply the proceeds of the sale to the satisfaction of the loan obligation.26

This Court has consistently decreed that the nomenclature used by the contracting parties to describe a contract does not determine its nature.27 The decisive factor is their intention -- as shown by their conduct, words, actions and deeds -- prior to, during, and after executing the agreement.28 This juristic principle is supported by the following provision of law:

Article 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered.29

Even if a contract is denominated as a pacto de retro, the owner of the property may still disprove it by means of parol evidence,30 provided that the nature of the agreement is placed in issue by the pleadings filed with the trial court.31

There is no single conclusive test to determine whether a deed absolute on its face is really a simple loan accommodation secured by a mortgage.32 However, the law enumerates several instances that show when a contract is presumed to be an equitable mortgage, as follows:

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

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

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

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

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

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

(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.33

Furthermore, a contract purporting to be a pacto de retro is construed as an equitable mortgage when the terms of the document and the surrounding circumstances so require.34 The law discourages the use of a pacto de retro, because this scheme is frequently used to circumvent a contract known as a pactum commissorium. The Court has frequently noted that a pacto de

retro is used to conceal a contract of loan secured by a mortgage.35Such construction is consistent with the doctrine that the law favors the least transmission of rights.36

Equitable Mortgage Presumed

to be Favored by Law

Jurisprudence has consistently declared that the presence of even just one of the circumstances set forth in the forgoing Civil Code provision suffices to convert a contract to an equitable mortgage. 37 Article 1602 specifically states that the equitable presumption applies to any of the cases therein enumerated.

In the present factual milieu, the vendor retained possession of the property allegedly sold.38 Petitioner and her children continued to use it as their residence, even after Jonas Ramos had abandoned them. 39 In fact, it remained as her address for the service of court orders and copies of Respondent Sarao’s pleadings.40

The presumption of equitable mortgage imposes a burden on Sarao to present clear evidence to rebut it. Corollary to this principle, the favored party need not introduce proof to establish such presumption; the party challenging it must overthrow it, lest it persist.41 To overturn that prima facie fact that operated against her, Sarao needed to adduce substantial and credible evidence to prove that the contract was a bona fide pacto de retro. This evidentiary burden she miserably failed to discharge.

Contrary to Sarao’s bare assertions, a meticulous review of the evidence reveals that the alleged contract was executed merely as security for a loan.

The July 23, 1991 letter of Respondent Sarao’s lawyer had required petitioner to pay a computed amount -- under the heading "House and Lot Loan"42 -- to enable the latter to repurchase the property. In effect, respondent would resell the property to petitioner, once the latter’s loan obligation would have been paid. This explicit requirement was a clear indication that the property was to be used as security for a loan.

The loan obligation was clear from Sarao’s evidence as found by the trial court, which we quote:

"x x x [Sarao] also testified that Myrna did not tender payment of the correct and sufficient price for said real property within the 6-month period as stipulated in the contract, despite her having been shown the computation of the loan obligation, inclusive of capital gains tax, real estate tax, transfer tax and other expenses. She admitted though that Myrna has tendered payment amounting to P1,633,034.20 in the form of two manager’s checks, but these were refused acceptance for being insufficient. She also claimed that several letters (Exhs. 2, 4 and 5) were sent to Myrna and her lawyer, informing them of the computation of the loan obligation inclusive of said expenses. x x x."43

Respondent herself stressed that the pacto de retro had been entered into on the very same day that the property was to be foreclosed by a commercial bank.44 Such circumstance proves that the spouses direly needed funds to avert a foreclosure sale. Had they intended to sell the property just to realize some profit, as Sarao suggests,45 they would not have retained possession of the house and continued to live there. Clearly, the spouses had entered into the alleged pacto de retro sale to secure a loan obligation, not to transfer ownership of the property.

Sarao contends that Jonas Ramos admitted in his June 14, 1991 letter to her lawyer that the contract was a pacto de retro.46 That letter, however, cannot override the finding that the pacto de retro was executed merely as security for a loan obligation. Moreover, on May 17, 1991, prior to the transmittal of the letter, petitioner had already sent a letter to Sarao’s lawyer expressing the former’s desire to settle the mortgage on the property.47Considering that she had already denominated the transaction with Sarao as a mortgage, petitioner cannot be prejudiced by her husband’s alleged admission, especially at a time when they were already estranged.48

Inasmuch as the contract between the parties was an equitable mortgage, Respondent Sarao’s remedy was to recover the loan amount from petitioner by filing an action for the amount due or by foreclosing the property.49

Second Issue:

Propriety of Tender of

Payment and Consignation

Tender of payment is the manifestation by debtors of their desire to comply with or to pay their obligation. 50 If the creditor refuses the tender of payment without just cause, the debtors are discharged from the obligation by the consignation of the sum

due.51 Consignation is made by depositing the proper amount to the judicial authority, before whom the tender of payment and the announcement of the consignation shall be proved.52 All interested parties are to be notified of the consignation.53 Compliance with these requisites is mandatory.54

The trial and the appellate courts held that there was no valid consignation, because petitioner had failed to offer the correct amount and to provide ample consignation notice to Sarao.55 This conclusion is incorrect.

Note that the principal loan was P1,310,430 plus 4.5 per cent monthly interest compounded for six months. Expressing her desire to pay in the fifth month, petitioner averred that the total amount due was P1,633,034.19, based on the computation of Sarao herself.56 The amount of P2,911,579.22 that the latter demanded from her to settle the loan obligation was plainly exorbitant, since this sum included other items not covered by the agreement. The property had been used solely as secure ty for the P1,310,430 loan; it was therefore improper to include in that amount payments for gasoline and miscellaneous expenses, taxes, attorney’s fees, and other alleged loans. When Sarao unjustly refused the tender of payment in the amount of P1,633,034.20, petitioner correctly filed suit and consigned the amount in order to be released from the latter’s obligation.

The two lower courts cited Article 1257 of the Civil Code to justify their ruling that petitioner had failed to notify Respondent Sarao of the consignation. This provision of law states that the obligor may be released, provided the consignation is first announced to the parties interested in the fulfillment of the obligation.

The facts show that the notice requirement was complied with. In her August 1, 1991 letter, petitioner said that should the respondent fail to accept payment, the former would consign the amount.57 This statement was an unequivocal announcement of consignation. Concededly, sending to the creditor a tender of payment and notice of consignation -- which was precisely what petitioner did -- may be done in the same act.58

Because petitioners’ consignation of the amount of P1,633,034.20 was valid, it produced the effect of payment.59"The consignation, however, has a retroactive effect, and the payment is deemed to have been made at the time of the deposit of the thing in court or when it was placed at the disposal of the judicial authority."60 "The rationale for consignation is to avoid making the performance of an obligation more onerous to the debtor by reason of causes not imputable to him."61

Third Issue:

Moral Damages and Attorney’s Fees

Petitioner seeks moral damages in the amount of P500,000 for alleged sleepless nights and anxiety over being homeless.62 Her bare assertions are insufficient to prove the legal basis for granting any award under Article 2219 of the Civil Code. 63 Verily, an award of moral damages is uncalled for, considering that it was Respondent Sarao’s accommodation that settled the earlier obligation of the spouses with the commercial bank and allowed them to retain ownership of the property.

Neither have attorney’s fees been shown to be proper.64 As a general rule, in the absence of a contractual or statutory liability therefor, sound public policy frowns on penalizing the right to litigate.65 This policy applies especially to the present case, because there is a need to determine whether the disputed contract was a pacto de retro sale or an equitable mortgage.

Other Matters

In a belated Manifestation filed on October 19, 2004, Sarao declared that she was the "owner of the one-half share of Jonas Ramos in the conjugal property," because of his alleged failure to file a timely appeal with the CA.66 Such declaration of ownership has no basis in law, considering that the present suit being pursued by petitioner pertains to a mortgage covering the whole property.

Besides, it is basic that defenses and issues not raised below cannot be considered on appeal.67

The Court, however, observes that Respondent Sarao paid real property taxes amounting to P67,567.10 to halt the auction sale scheduled for October 8, 2004, by the City of Muntinlupa.68 Her payment was made in good faith and benefited petitioner. Accordingly, Sarao should be reimbursed; otherwise, petitioner would be unjustly enriched,69 under Article 2175 of the Civil Code which provides:

Art. 2175. Any person who is constrained to pay the taxes of another shall be entitled to reimbursement from the latter.

WHEREFORE, the Petition is partly GRANTED and the assailed Decision SET ASIDE. Judgment is hereby rendered:

(1) DECLARING (a) the disputed contract as an equitable mortgage, (b) petitioner’s loan to Respondent Sarao to be in the amount of P1,633,034.19 as of July 30, 1991; and (c) the mortgage on the property -- covered by TCT No. 151784 in the name of the Ramos spouses and issued by the Register of Deeds of Makati City --as discharged

(2) ORDERING the RTC to release to Sarao the consigned amount of P1,633,034.19

(3) COMMANDING Respondent Sarao to return to petitioner the owner’s copy of TCT No. 151784 in the name of the Ramos spouses and issued by the Register of Deeds of Makati City

(4) DIRECTING the Register of Deeds of Makati City to cancel Entry No. 24057, the annotation appearing on TCT No. 151784

(5) ORDERING petitioner to pay Sarao in the amount of P67,567.10 as reimbursement for real property taxes

No pronouncement as to costs.

SO ORDERED.

AMELIA S. ROBERTS, Petitioner, vs.MARTIN B. PAPIO, Respondent.

The Antecedents

The spouses Martin and Lucina Papio were the owners of a 274-square-meter residential lot located in Makati (now Makati City) and covered by Transfer Certificate of Title (TCT) No. S-44980.4 In order to secure aP59,000.00 loan from the Amparo Investments Corporation, they executed a real estate mortgage on the property. Upon Papio’s failure to pay the loan, the corporation filed a petition for the extrajudicial foreclosure of the mortgage.

Since the couple needed money to redeem the property and to prevent the foreclosure of the real estate mortgage, they executed a Deed of Absolute Sale over the property on April 13, 1982 in favor of Martin Papio’s cousin, Amelia Roberts. Of the P85,000.00 purchase price, P59,000.00 was paid to the Amparo Investments Corporation, while the P26,000.00 difference was retained by the spouses.5 As soon as the spouses had settled their obligation, the corporation returned the owner’s duplicate of TCT No. S-44980, which was then delivered to Amelia Roberts.

Thereafter, the parties (Amelia Roberts as lessor and Martin Papio as lessee) executed a two-year contract of lease dated April 15, 1982, effective May 1, 1982. The contract was subject to renewal or extension for a like period at the option of the lessor, the lessee waiving thereby the benefits of an implied new lease. The lessee was obliged to pay monthly rentals of  P800.00 to be deposited in the lessor’s account at the Bank of America, Makati City branch.6

On July 6, 1982, TCT No. S-44980 was cancelled, and TCT No. 114478 was issued in the name of Amelia Roberts as owner.7

Martin Papio paid the rentals from May 1, 1982 to May 1, 1984, and thereafter, for another year. 8 He then failed to pay rentals, but he and his family nevertheless remained in possession of the property for a period of almost thirteen (13) years.

In a letter dated June 3, 1998, Amelia Roberts, through counsel, reminded Papio that he failed to pay the monthly rental of P2,500.00 from January 1, 1986 to December 31, 1997, and P10,000.00 from January 1, 1998 to May 31, 1998; thus, his total liability was P410,000.00. She demanded that Papio vacate the property within 15 days from receipt of the letter in case he failed to settle the amount.9 Because he refused to pay, Papio received another letter from Roberts on April 22, 1999, demanding, for the last time, that he and his family vacate the property.10 Again, Papio refused to leave the premises.

On June 28, 1999, Amelia Roberts, through her attorney-in-fact, Matilde Aguilar, filed a Complaint11 for unlawful detainer and damages against Martin Papio before the MeTC, Branch 64, Makati City. She alleged the following in her complaint:

Sometime in 1982 she purchased from defendant a 274-sq-m residential house and lot situated at No. 1046 Teresa St., Brgy. Valenzuela, Makati City.12 Upon Papio’s pleas to continue staying in the property, they executed a two-year lease contract13 which commenced on May 1, 1982. The monthly rental was P800.00. Thereafter, TCT No. 11447814 was issued in her favor and she paid all the realty taxes due on the property. When the term of the lease expired, she still allowed Papio and his family to continue leasing the property. However, he took advantage of her absence and stopped payment beginning January 1986, and refused to pay despite repeated demands. In June 1998, she sent a demand letter 15 through counsel requiring Papio to pay rentals from January 1986 up to May 1998 and to vacate the leased property. The accumulated arrears in rental are as follows: (a)P360,000.00 from January 1, 1986 to December 31, 1997 at P2,500.00 per month; and (b) P50,000.00, from January 1, 1998 to May 31, 1998 at P10,000.00 per month.16 She came to the Philippines but all efforts at an amicable settlement proved futile. Thus, in April 1999, she sent the final demand letter to defendant directing him and his family to pay and immediately vacate the leased premises.17

Roberts appended to her complaint copies of the April 13, 1982 Deed of Absolute Sale, the April 15, 1982 Contract of Lease, and TCT No. 114478.

In his Answer with counterclaim, Papio alleged the following:

He executed the April 13, 1982 deed of absolute sale and the contract of lease. Roberts, his cousin who is a resident of California, United States of America (USA), arrived in the Philippines and offered to redeem the property. Believing that she had made the offer for the purpose of retaining his ownership over the property, he accepted. She then remitted P59,000.00 to the mortgagor for his account, after which the mortgagee cancelled the real estate mortgage. However, he was alarmed when the plaintiff had a deed of absolute sale over the property prepared (for P83,000.00 as consideration) and asked him to sign the same. She also demanded that the defendant turn over the owner’s duplicate of TCT No. S-44980. The defendant was in a quandary. He then believed that if he signed the deed of absolute sale, Roberts would acquire ownership over the property. He asked her to allow him to redeem or reacquire the property at any time for a reasonable amount. 18 When Roberts agreed, Papio signed the deed of absolute sale.

Pursuant to the right to redeem/repurchase given him by Roberts, Papio purchased the property for P250,000.00. In July 1985, since Roberts was by then already in the USA, he remitted to her authorized representative, Perlita Ventura, the amount of P150,000.00 as partial payment for the property.19 On June 16, 1986, she again remittedP100,000.00, through Ventura. Both payments were evidenced by receipts signed by Ventura.20 Roberts then declared that she would execute a deed of absolute sale and surrender the title to the property. However, Ventura had apparently misappropriated P39,000.00 out of the P250,000.00 that she had received; Roberts then demanded that she pay the amount misappropriated before executing the deed of absolute sale. Thus, the sole reason why Roberts refused to abide by her promise was the failure of her authorized representative to remit the full amount of P250,000.00. Despite Papio’s demands, Roberts refused to execute a deed of absolute sale. Accordingly, defendant posited that plaintiff had no cause of action to demand payment of rental and eject him from the property.

Papio appended to his Answer the following: (1) the letter dated July 18, 1986 of Perlita Ventura to the plaintiff wherein the former admitted having used the money of the plaintiff to defray the plane fares of Perlita’s parents to the USA, and pleaded that she be allowed to repay the amount within one year; (b) the letter of Eugene Roberts (plaintiff’s husband) to Perlita Ventura dated July 25, 1986 where he accused Ventura of stealing the money of plaintiff Amelia (thus preventing the latter from paying her loan on her house and effect the cancellation of the mortgage), and demanded that she deposit the balance; 21 and (c) plaintiff’s letter to defendant Papio dated July 25, 1986 requesting the latter to convince Ventura to remit the balance of P39,000.00 so that the plaintiff could transfer the title of the property to the defendant.22

Papio asserted that the letters of Roberts and her husband are in themselves admissions or declarations against interest, hence, admissible to prove that he had reacquired the property although the title was still in her possession.

In her Affidavit and Position Paper,23 Roberts averred that she had paid the real estate taxes on the property after she had purchased it; Papio’s initial right to occupy the property was terminated when the original lease period expired; and his continued possession was only by mere tolerance. She further alleged that the Deed of Sale states on its face that the conveyance of the property was absolute and unconditional. She also claimed that any right to repurchase the property must appear in a public document pursuant to Article 1358, Paragraph 1, of the Civil Code of the Phililppines.24 Since no such document exists, defendant’s supposed real interest over the property could not be enforced without violating the Statute of Frauds. 25 She stressed that her Torrens title to the property was an "absolute and indefeasible evidence of her ownership of the property which is binding and conclusive upon the whole world."

Roberts admitted that she demanded P39,000.00 from the defendant in her letter dated July 25, 1986. However, she averred that the amount represented his back rentals on the property.26 She declared that she neither authorized Ventura to sell the property nor to receive the purchase price therefor. She merely authorized her to receive the rentals from defendant and to deposit them in her account. She did not know that Ventura had received P250,000.00 from Papio in July 1985 and on June 16, 1986, and had signed receipts therefor. It was only on February 11, 1998 that she became aware of the receipts when she received defendant Papio’s letter to which were appended the said receipts. She and her husband offered to sell the property to the defendant in 1984 for US$15,000.00 on a "take it or leave it" basis when they arrived in the Philippines in May 1984.27However, defendant refused to accept the offer. The spouses then offered to sell the property anew on December 20, 1997, for P670,000.00 inclusive of back rentals.28 However, defendant offered to settle his account with the spouses.29 Again, the offer came on January 11, 1998, but it was rejected. The defendant insisted that he had already purchased the property in July 1985 for P250,000.00.

Roberts insisted that Papio’s claim of the right to repurchase the property, as well as his claim of payment therefor, is belied by his own letter in which he offered to settle plaintiff’s claim for back rentals. Even assuming that the purchase price of the property had been paid through Ventura, Papio did not adduce any proof to show that Ventura had been authorized to sell the property or to accept any payment thereon. Any payment to Ventura could have no binding effect on her since she was not privy to the transaction; if at all, such agreement would be binding only on Papio and Ventura.

She further alleged that defendant’s own inaction belies his claim of ownership over the property: first, he failed to cause any notice or annotation to be made on the Register of Deed’s copy of TCT No. 114478 in order to protect his supposed adverse claim; second, he did not institute any action against Roberts to compel the execution of the necessary deed of transfer of title in his favor; and third, the defense of ownership over the property was raised only after Roberts demanded him to vacate the property.

Based solely on the parties’ pleadings, the MeTC rendered its January 18, 2001 Decision30 in favor of Roberts. The fallo of the decision reads:

WHEREFORE, premises considered, finding this case for the plaintiff, the defendant is hereby ordered to:

1. Vacate the leased premises known as 1046 Teresa St., Valenzuela, Makati City;

2. Pay plaintiff the reasonable rentals accrual for the period January 1, 1996 to December 13, 1997 at the rate equivalent to Php2,500.00 per month and thereafter, Php10,000.00 from January 1998 until he actually vacates the premises;

3. Pay the plaintiff attorney’s fees as Php20,000.00; and

4. Pay the costs

SO ORDERED.31

The MeTC held that Roberts merely tolerated the stay of Papio in the property after the expiration of the contract of lease on May 1, 1984; hence, she had a cause of action against him since the only elements in an unlawful detainer action are the fact of lease and the expiration of its term. The defendant as tenant cannot controvert the title of the plaintiff or assert any right adverse thereto or set up any inconsistent right to change the existing relation between them. The plaintiff need not prove her ownership over the property inasmuch as evidence of ownership can be admitted only for the purpose of determining the character and extent of possession, and the amount of damages arising from the detention.

The court further ruled that Papio made no denials as to the existence and authenticity of Roberts’ title to the property. It declared that "the certificate of title is indefeasible in favor of the person whose name appears therein and incontrovertible upon the expiration of the one-year period from the date of issue," and that a Torrens title, "which enjoys a strong presumption of regularity and validity, is generally a conclusive evidence of ownership of the land referred to therein."

As to Papio’s claim that the transfer of the property was one with right of repurchase, the MeTC held it to be bereft of merit since the Deed of Sale is termed as "absolute and unconditional." The court ruled that the right to repurchase is not a right granted to the seller by the buyer in a subsequent instrument but rather, a right reserved in the same contract of sale. Once the deed of absolute sale is executed, the seller can no longer reserve the right to repurchase; any right thereafter granted in a separate document cannot be a right of repurchase but some other right.

As to the receipts of payment signed by Ventura, the court gave credence to Roberts’s declaration in her Affidavit that she authorized Ventura only to collect rentals from Papio, and not to receive the repurchase price. Papio’s letter of January 31, 1998, which called her attention to the fact that she had been sending people without written authority to collect money since 1985, bolstered the court’s finding that the payment, if at all intended for the supposed repurchase, never redounded to the benefit of the spouses Roberts.

Papio appealed the decision to the RTC, alleging the following:

I.THE LOWER COURT GRAVELY ERRED IN NOT DISMISSING THE CASE FOR EJECTMENT OUTRIGHT ON THE GROUND OF LACK OF CAUSE OF ACTION.

II.THE LOWER COURT GRAVELY ERRED IN NOT CONSIDERING THE DOCUMENTARY EVIDENCE ADDUCED BY DEFENDANT-APPELLANT WHICH ESTABLISHED THAT A REPURCHASE TRANSACTION EXISTED BETWEEN THE PARTIES ONLY THAT PLAINTIFF-APPELLEE WITHHELD THE EXECUTION OF THE ABSOLUTE DEED OF SALE AND THE TRANSFER OF TITLE OF THE SAME IN DEFENDANT-APPELLANT’S NAME.

III.THE LOWER COURT GRAVELY ERRED IN NOT CONSIDERING THAT THE LETTERS OF PLAINTIFF-[APPELLEE] AND OF HER HUSBAND ADDRESSED TO DEFENDANT-APPELLANT AND HIS WIFE ARE IN THEMSELVES ADMISSION AND/OR DECLARATION OF THE FACT THAT DEFENDANT-APPELLANT HAD DULY PAID PLAINTIFF-APPELLEE OF THE PURCHASE AMOUNT COVERING THE SUBJECT PROPERTY.

IV.THE LOWER COURT GRAVELY ERRED IN NOT DISMISSING THE CASE FOR EJECTMENT OUTRIGHT CONSIDERING THAT PLAINTIFF-APPELLEE WHO IS [AN] AMERICAN CITIZEN AND RESIDENT THEREIN HAD NOT APPEARED IN COURT ONCE, NEITHER WAS HER ALLEGED ATTORNEY-IN-FACT, MATILDE AGUILAR NOR [DID] THE LATTER EVER [FURNISH] THE LOWER COURT A SPECIAL POWER OF ATTORNEY AUTHORIZING HER TO APPEAR IN COURT IN BEHALF OF HER PRINCIPAL.32

Papio maintained that Roberts had no cause of action for eviction because she had already ceded her right thereto when she allowed him to redeem and reacquire the property upon payment of P250,000.00 to Ventura, her duly authorized representative. He also contended that Roberts’s claim that the authority of Ventura is limited only to the collection of the rentals and not of the purchase price was a mere afterthought, since her appended Affidavit was executed sometime in October 1999 when the proceedings in the MeTC had already started.

On March 26, 2001, Roberts filed a Motion for Issuance of Writ of Execution.33 The court granted the motion in an Order34 dated June 19, 2001. Subsequently, a Writ of Execution35 pending appeal was issued on September 28, 2001. On October 29, 2001, Sheriff Melvin M. Alidon enforced the writ and placed Roberts in possession of the property.

Meanwhile, Papio filed a complaint with the RTC of Makati City, for specific performance with damages against Roberts. Papio, as plaintiff, claimed that he entered into a contract of sale with pacto de retro with Roberts, and prayed that the latter be ordered to execute a Deed of Sale over `the property in his favor and transfer the title over the property to and in his name. The case was docketed as Civil Case No. 01-851.

On October 24, 2001, the RTC rendered judgment affirming the appealed decision of the MeTC. The fallo of the decision reads:36

Being in accordance with law and the circumstances attendant to the instant case, the court finds merit in plaintiff-appellee’s claim. Wherefore, the challenged decision dated January 18, 2001 is hereby affirmed in toto.

SO ORDERED.37

Both parties filed their respective motions for reconsideration.38 In an Order39 dated February 26, 2002, the court denied the motion of Papio but modified its decision declaring that the computation of the accrued rentals should commence from January 1986, not January 1996. The decretal portion of the decision reads:

Wherefore, the challenged decision dated January 18, 2001 is hereby affirmed with modification that defendant pay plaintiff the reasonable rentals accrued for the period January 1, 1986 to December [31, 1997] per month and thereafter and P10,000.00 [per month] from January 1998 to October 28, 2001 when defendant-appellant actually vacated the subject leased premises.

SO ORDERED.40

On February 28, 2002, Papio filed a petition for review41 in the CA, alleging that the RTC erred in not finding that he had reacquired the property from Roberts for P250,000.00, but the latter refused to execute a deed of absolute sale and transfer the title in his favor. He insisted that the MeTC and the RTC erred in giving credence to petitioner’s claim that she did not authorize Ventura to receive his payments for the purchase price of the property, citing Roberts’ letter dated July 25, 1986 and the letter of Eugene Roberts to Ventura of even date. He also averred that the MeTC and the RTC erred in not considering his documentary evidence in deciding the case.

On August 31, 2004, the CA rendered judgment granting the petition. The appellate court set aside the decision of the RTC and ordered the RTC to dismiss the complaint. The decretal portion of the Decision42 reads:

WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE and a new one entered: (1) rendering an initial determination that the "Deed of Absolute Sale" dated April 13, 1982 is in fact an equitable mortgage under Article 1603 of the New Civil Code; and (2) resolving therefore that petitioner Martin B. Papio is entitled to possession of the property subject of this action; (3) But such determination of ownership and equitable mortgage are not clothed with finality and will not constitute a binding and conclusive adjudication on the merits with respect to the issue of ownership and such judgment shall not bar an action between the same parties respecting title to the land, nor shall it be held conclusive of the facts therein found in the case between the same parties upon a different cause of action not involving possession. All other counterclaims for damages are hereby dismissed. Cost against the respondent.

SO ORDERED.43

According to the appellate court, although the MeTC and RTC were correct in holding that the MeTC had jurisdiction over the complaint for unlawful detainer, they erred in ignoring Papio’s defense of equitable mortgage, and in not finding that the transaction covered by the deed of absolute sale by and between the parties was one of equitable mortgage under Article 1602 of the New Civil Code. The appellate court ruled that Papio retained the ownership of the property and its peaceful possession; hence, the MeTC should have dismissed the complaint without prejudice to the outcome of Civil Case No. 01-851 relative to his claim of ownership over the property.

Roberts filed a motion for reconsideration of the decision on the following grounds:

I. Petitioner did not allege in his Answer the defense of equitable mortgage; hence, the lower courts [should] not have discussed the same;

II. Even assuming that Petitioner alleged the defense of equitable mortgage, the MeTC could not have ruled upon the said defense,

III. The M[e]TC and the RTC were not remiss in the exercise of their jurisdiction.44

The CA denied the motion.

In this petition for review, Amelia Salvador-Roberts, as petitioner, avers that:

I. THE HONORABLE COURT OF APPEALS GRIEVEOUSLY (SIC) ERRED IN DECLARING THAT THE M[e]TC AN(D) THE RTC WERE REMISS IN THE EXERCISE OF THAT JURISDICTION ACQUIRED BECAUSE IT DID NOT CONSIDER ALL PETITIONER’S DEFENSE OF EQUITABLE MORTGAGE.

II. THE HONORABLE COURT OF APPEALS GRIEVEOUSLY (SIC) ERRED IN REQUIRING THE M[e]TC AND RTC TO RULE ON A DEFENSE WHICH WAS NEVER AVAILED OF BY RESPONDENT.45

Petitioner argues that respondent is barred from raising the issue of equitable mortgage because his defense in the MeTC and RTC was that he had repurchased the property from the petitioner; by such representation, he had impliedly admitted the existence and validity of the deed of absolute sale whereby ownership of the property was transferred to petitioner but reverted to him upon the exercise of said right. The respondent even filed a complaint for specific performance with damages, which is now pending in the RTC of Makati City, docketed as Civil Case No. 01-851 entitled "Martin B. Papio vs. Amelia Salvador-Roberts." In that case, respondent claimed that his transaction with the petitioner was a sale with pacto de retro. Petitioner posits that Article 1602 of the Civil Code applies only when the defendant specifically alleges this defense. Consequently, the appellate court was proscribed from finding that petitioner and respondent had entered into an equitable mortgage under the deed of absolute sale.

Petitioner further avers that respondent was ably represented by counsel and was aware of the difference between a pacto de retro sale and an equitable mortgage; thus, he could not have been mistaken in declaring that he repurchased the property from her.

As to whether a sale is in fact an equitable mortgage, petitioner claims that the issue should be properly addressed and resolved by the RTC in an action to enforce ownership, not in an ejectment case before the MeTC where the main issue involved is possession de facto. According to her, the obvious import of the CA Decision is that, in resolving an ejectment case, the lower court must pass upon the issue of ownership (in this case, by applying the presumptions under Art. 1602) which, in effect, would use the same yardstick as though it is the main action. The procedure will not only promote multiplicity of suits but also place the new owner in the absurd position of having to first seek the declaration of ownership before filing an ejectment suit.

Respondent counters that the defense of equitable mortgage need not be particularly stated to apprise petitioner of the nature and character of the repurchase agreement. He contends that he had amply discussed in his pleadings before the trial and appellate courts all the surrounding circumstances of the case, such as the relative situation of the parties at the time; their attitude, acts, conduct, and declarations; and the negotiations between them that led to the repurchase agreement. Thus, he argues that the CA correctly ruled that the contract was one of equitable mortgage. He insists that petitioner allowed him to redeem and reacquire the property, and accepted his full payment of the property through Ventura, the authorized representative, as shown by the signed receipts.

The threshold issues are the following: (1) whether the MeTC had jurisdiction in an action for unlawful detainer to resolve the issue of who between petitioner and respondent is the owner of the property and entitled to the de facto possession thereof; (2) whether the transaction entered into between the parties under the Deed of Absolute Sale and the Contract of Lease is an equitable mortgage over the property; and (3) whether the petitioner is entitled to the material or de facto possession of the property.

The Ruling of the Court

On the first issue, the CA ruling (which upheld the jurisdiction of the MeTC to resolve the issue of who between petitioner or respondent is the lawful owner of the property, and is thus entitled to the material or de facto possession thereof) is correct. Section 18, Rule 70 of the Rules of Court provides that when the defendant raises the defense of ownership in his pleadings and the question of possession cannot be resolved without deciding the issue of ownership, the issue of ownership shall be resolved only to determine the issue of possession. The judgment rendered in an action for unlawful detainer shall be conclusive with respect to the possession only and shall in no wise bind the title or affect the ownership of the land or building. Such judgment would not bar an action between the same parties respecting title to the land or building.46

The summary nature of the action is not changed by the claim of ownership of the property of the defendant. 47The MeTC is not divested of its jurisdiction over the unlawful detainer action simply because the defendant asserts ownership over the property.

The sole issue for resolution in an action for unlawful detainer is material or de facto possession of the property. Even if the defendant claims juridical possession or ownership over the property based on a claim that his transaction with the plaintiff relative to the property is merely an equitable mortgage, or that he had repurchased the property from the plaintiff, the MeTC may still delve into and take cognizance of the case and make an initial or provisional determination of who between the plaintiff and the defendant is the owner and, in the process, resolve the issue of who is entitled to the possession. The MeTC, in unlawful detainer case, decides the question of ownership only if it is intertwined with and necessary to resolve the issue of possession.48 The resolution of the MeTC on the ownership of the property is merely provisional or interlocutory. Any question involving the issue of ownership should be raised and resolved in a separate action brought specifically to settle the question with finality, in this case, Civil Case No. 01-851 which respondent filed before the RTC.

The ruling of the CA, that the contract between petitioner and respondent was an equitable mortgage, is incorrect. The fact of the matter is that the respondent intransigently alleged in his answer, and even in his affidavit and position paper, that petitioner had granted him the right to redeem or repurchase the property at any time and for a reasonable amount; and that, he had, in fact, repurchased the property in July 1985 for P250,000.00 which he remitted to petitioner through an authorized representative who signed receipts therefor; he had reacquired ownership and juridical possession of the property after his repurchase thereof in 1985; and consequently, petitioner was obliged to execute a deed of absolute sale over the property in his favor.

Notably, respondent alleged that, as stated in his letter to petitioner, he was given the right to reacquire the property in 1982 within two years upon the payment of P53,000.00, plus petitioner’s airfare for her trip to the Philippines from the USA and back; petitioner promised to sign the deed of absolute sale. He even filed a complaint against the petitioner in the RTC, docketed as Civil Case No. 01-851, for specific performance with damages to compel petitioner to execute the said deed of absolute sale over the property presumably on the strength of Articles 1357 and 1358 of the New Civil Code. Certainly then, his claim that petitioner had given him the right to repurchase the property is antithetical to an equitable mortgage.

An equitable mortgage is one that, although lacking in some formality, form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to change a real property as security for a debt and contain nothing impossible or contrary to law.49 A contract between the parties is an equitable mortgage if the following requisites are present: (a) the parties entered into a contract denominated as a contract of sale; and (b) the intention was to secure an existing debt by way of mortgage.50 The decisive factor is the intention of the parties.

In an equitable mortgage, the mortgagor retains ownership over the property but subject to foreclosure and sale at public auction upon failure of the mortgagor to pay his obligation.51 In contrast, in a pacto de retro sale, ownership of the property sold is immediately transferred to the vendee a retro subject only to the right of the vendor a retro to repurchase the property upon compliance with legal requirements for the repurchase. The failure of the vendor a retro to exercise the right to repurchase within the agreed time vests upon the vendee a retro, by operation of law, absolute title over the property.52

One repurchases only what one has previously sold. The right to repurchase presupposes a valid contract of sale between the same parties.53 By insisting that he had repurchased the property, respondent thereby admitted that the deed of absolute sale executed by him and petitioner on April 13, 1982 was, in fact and in law, a deed of absolute sale and not an equitable mortgage; hence, he had acquired ownership over the property based on said deed. Respondent is, thus, estopped from asserting that the contract under the deed of absolute sale is an equitable mortgage unless there is allegation and evidence of palpable mistake on the part of respondent;54 or a fraud on the part of petitioner. Respondent made no such allegation in his pleadings and affidavit. On the contrary, he maintained that petitioner had sold the property to him in July 1985 and acknowledged receipt of the purchase price thereof except the amount of P39,000.00 retained by Perlita Ventura. Respondent is thus bound by his admission of petitioner’s ownership of the property and is barred from claiming otherwise.55

Respondent’s admission that petitioner acquired ownership over the property under the April 13, 1982 deed of absolute sale is buttressed by his admission in the Contract of Lease dated April 15, 1982 that petitioner was the owner of the property, and that he had paid the rentals for the duration of the contract of lease and even until 1985 upon its extension. Respondent was obliged to prove his defense that petitioner had given him the right to repurchase, and that petitioner obliged herself to resell the property for P250,000.00 when they executed the April 13, 1982 deed of absolute sale.

We have carefully reviewed the case and find that respondent failed to adduce competent and credible evidence to prove his claim.

As gleaned from the April 13, 1982 deed, the right of respondent to repurchase the property is not incorporated therein. The contract is one of absolute sale and not one with right to repurchase. The law states that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.56 When the language of the contract is explicit, leaving no doubt as to the intention of the drafters, the courts may not read into it any other

intention that would contradict its plain import.57 The clear terms of the contract should never be the subject matter of interpretation. Neither abstract justice nor the rule of liberal interpretation justifies the creation of a contract for the parties which they did not make themselves, or the imposition upon one party to a contract or obligation to assume simply or merely to avoid seeming hardships.58Their true meaning must be enforced, as it is to be presumed that the contracting parties know their scope and effects.59 As the Court held in Villarica, et al. v. Court of Appeals:60

The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument, but is a right reserved by the vendor in the same instrument of sale as one of the stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can no longer reserve the right to repurchase, and any right thereafter granted the vendor by the vendee in a separate instrument cannot be a right of repurchase but some other right like the option to buy in the instant case.61

In Ramos v. Icasiano,62 we also held that an agreement to repurchase becomes a promise to sell when made after the sale because when the sale is made without such agreement the purchaser acquires the thing sold absolutely; and, if he afterwards grants the vendor the right to repurchase, it is a new contract entered into by the purchaser as absolute owner. An option to buy or a promise to sell is different and distinct from the right of repurchase that must be reserved by means of stipulations to that effect in the contract of sale.63

There is no evidence on record that, on or before July 1985, petitioner agreed to sell her property to the respondent for P250,000.00. Neither is there any documentary evidence showing that Ventura was authorized to offer for sale or sell the property for and in behalf of petitioner for P250,000.00, or to receive the said amount from respondent as purchase price of the property. The rule is that when a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void64 and cannot produce any legal effect as to transfer the property from its lawful owner.65 Being inexistent and void from the very beginning, said contract cannot be ratified.66 Any contract entered into by Ventura for and in behalf of petitioner relative to the sale of the property is void and cannot be ratified by the latter. A void contract produces no effect either against or in favor of anyone.67

Respondent also failed to prove that the negotiations between him and petitioner has culminated in his offer to buy the property for P250,000.00, and that they later on agreed to the sale of the property for the same amount. He likewise failed to prove that he purchased and reacquired the property in July 1985. The evidence on record shows that petitioner had offered to sell the property for US$15,000 on a "take it or leave it" basis in May 1984 upon the expiration of the Contract of Lease68 —an offer that was rejected by respondent—which is why on December 30, 1997, petitioner and her husband offered again to sell the property to respondent for P670,000.00 inclusive of back rentals and the purchase price of the property under the April 13, 1982 Deed of absolute Sale.69The offer was again rejected by respondent. The final offer appears to have been made on January 11, 199870but again, like the previous negotiations, no contract was perfected between the parties.

A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.71 Under Article 1318 of the New Civil Code, there is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.

Contracts are perfected by mere consent manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.72 Once perfected, they bind the contracting parties and the obligations arising therefrom have the form of law between the parties which must be complied with in good faith. The parties are bound not only to the fulfillment of what has been expressly stipulated but also to the consequences which, according to their nature, may be in keeping with good faith, usage and law.73

There was no contract of sale entered into by the parties based on the Receipts dated July 1985 and June 16, 1986, signed by Perlita Ventura and the letter of petitioner to respondent dated July 25, 1986.

By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and deliver a determinate thing and the other, to pay therefor a price certain in money or its equivalent. 74 The absence of any of the essential elements will negate the existence of a perfected contract of sale. As the Court ruled in Boston Bank of the Philippines v. Manalo:75

A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation of a binding and enforceable contract of sale. The fixing of the price can never be left to the decision of one of the contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale.76

A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there is merely an offer by one party without acceptance of the other, there is no contract.77 When the contract of sale is not perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties.78

Respondent’s reliance on petitioner’s letter to him dated July 25, 1986 is misplaced. The letter reads in full:

Dear Martin & Ising,

Enclosed for your information is the letter written by my husband to Perlita. I hope that you will be able to convince your cousin that it’s to her best interest to deposit the balance of your payment to me of  P39,000.00 in my bank acct. per our agreement and send me my bank book right away so that we can transfer the title of the property.

Regards,

Amie 79

We have carefully considered the letter of Perlita Ventura, dated July 18, 1986, and the letter of Eugene Roberts, dated July 25, 1986, where Ventura admitted having used the money of petitioner amounting to P39,000.00 without the latter’s knowledge for the plane fare of Ventura’s parents. Ventura promised to refund the amount ofP39,000.00, inclusive of interests, within one year.80 Eugene Roberts berated Ventura and called her a thief for stealing his and petitioner’s money and that of respondent’s wife, Ising, who allegedly told petitioner that she, Ising, loaned the money to her parents for their plane fare to the USA. Neither Ventura nor Eugene Roberts declared in their letters that Ventura had used the P250,000.00 which respondent gave to her.

Petitioner in her letter to respondent did not admit, either expressly or impliedly, having received P211,000.00 from Ventura. Moreover, in her letter to petitioner, only a week earlier, or on July 18, 1986, Ventura admitted having spent the P39,000.00 and pleaded that she be allowed to refund the amount within one (1) year, including interests.

Naririto ang total ng pera mo sa bankbook mo, P55,000.00 pati na yong deposit na sarili mo at bale ang nagalaw ko diyan ay P39,000.00. Huwag kang mag-alala ibabalik ko rin sa iyo sa loob ng isang taon pati interest.

Ate Per81 1awphi1.net

It is incredible that Ventura was able to remit to petitioner P211,000.00 before July 25, 1986 when only a week earlier, she was pleading to petitioner for a period of one year within which to refund the P39,000.00 to petitioner.

It would have bolstered his cause if respondent had submitted an affidavit of Ventura stating that she had remittedP211,000.00 out of the P250,000.00 she received from respondent in July 1985 and June 20, 1986.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Decision of the Court of Appeals in CA-G.R. CV No. 69034 is REVERSED and SET ASIDE. The Decision of the Metropolitan Trial Court, affirmed with modification by the Regional Trial Court, is AFFIRMED.

SO ORDERED.

FRANCISCO G. CALMA, Petitioner, vs.ARSENIO SANTOS, et al Respondents.

NACHURA, J.:

This is a Petition1 for review on certiorari under Rule 45 of the Rules of Court of the Decision 2 dated November 28, 2003 of the Court of Appeals in CA-G.R. CV No. 57786.

The subject of this controversy is a property known as "Calangain Fishpond" (Fishpond), with a total area of 480,229 square meters, located in Calangain, Lubao, Pampanga. It is composed of Lot No. 1094, with an area of 297,605 square meters; Lot No. 7858, with an area of 7,952 square meters; Lot No. 7859, with an area of 6,011 square meters; and 135,350 square-meter portion of Lot No. 1093, with an area of 300,384 square meters; all of the Cadastral Survey of Lubao, and covered by Transfer Certificate of Title (TCT) No. 32391-R3 of the Registry of Deeds of the Province of Pampanga.4 The Fishpond also comprises Lot No. 7860, with an area of 19,681 square meters; and Lot No. 7862, with an area of 13,630 square meters, both of the Cadastral Survey of Lubao, and covered by TCT No. 32392-R,5 also of the Registry of Deeds of Pampanga. Both TCTs are registered in the names of CELESTINO Santos, a widower, with 1/2 share, and of his children, namely: JOSE, married to Felicidad Cruz; ENCARNACION, married to German Escueta; ARCADIO, married to Rosario Cruz; FELIZA, married to Bienvenido Garcia; LEONARDO, widower; ARSENIO, married to Apolonia dela Cruz; DOMINADOR, married to Marieta Suarez; LETICIA, married to Marcial Santos; NATIVIDAD, single; LIGAYA, married to Rogelio Martin; ALFREDO and ERLINDA, both single.

On April 11, 1975, Celestino Santos died. Aside from his heirs named in the two certificates of title, Celestino had two other children, RUBEN and FEDERICO, who are now both deceased.

On various dates, petitioner Francisco Calma purchased the following shares from the Fishpond,6 to wit:

1. The 1/12 share of Encarnacion Santos-Escueta, owned by her in her own right, to the 1/2 pro indiviso portion of the fishpond, and her 1/14 share, which she inherited from her deceased father, Celestino Santos, to the other 1/2 pro indiviso portion of the fishpond, with an aggregate area of 37,160.57 square meters;7

2. The 1/12 share of the deceased Arcadio Santos, owned by him in his own right, to the 1/2 pro-indiviso portion of the fishpond, and his 1/14 share, which he inherited from his deceased father, Celestino Santos, to the other one-half (1/2) pro-indiviso portion of the fishpond, with an aggregate area of 37,160.57 square meters;8

3. The 1/12 share of Feliza Santos, owned by her in her own right, to the 1/2 pro-indiviso portion of the fishpond, and her 1/14 share, which she inherited from her deceased father, Celestino Santos, to the other 1/2 pro-indiviso portion of the fishpond, minus a portion of 5,000 square meters, which was previously sold to a certain Orlando Yamat, with an aggregate area of 32,160.57 square meters;9

4. Ten Thousand (10,000) square meters (one (1) hectare) of the 1/14 share of the herein respondents heirs of the deceased Federico Santos, which they inherited from the deceased Celestino Santos, to the 1/2 pro-indiviso portion of the fishpond owned by the said deceased;10

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5. The 1/12 share of the respondent Leonardo Santos, owned by him in his own right, to the 1/2 pro-indiviso portion of the fishpond with an area of 20,009.54 square meters;11

6. The 1/12 share of the herein respondent Alfredo Santos, owned by him in his own right, to the 1/2 pro-indiviso portion of the portion of 135,350 square meters on the southeastern part of Lot 1093 of the Cadastral Survey of Lubao, which portion of 135,350 square meters is included in and forms part of the Calangain Fishpond, with an area of 5,639 square meters;12

7. The 1/12 of the herein respondent Dominador Santos (substituted by his heirs), owned by him in his own right, to the 1/2 pro-indiviso portion of the fishpond, and his 1/14 share, which he inherited from his deceased father, Celestino Santos, to the other 1/2 pro-indiviso portion of the fishpond with an aggregate area of 37,160.57 square meters;13

8. The 1/12 share of the herein respondent Leticia Santos, owned by her in her own right, to the 1/2 pro-indiviso portion of the fishpond, and her 1/14 share, which she inherited from her deceased father, Celestino Santos, to the other pro-indiviso portion of the fishpond, with an aggregate area of 37,160.57 square meters;14 and

9. The 1/14 share of the herein respondent Leonardo Santos, which he inherited from his deceased father, Celestino Santos, to the 1/2 pro-indiviso portion of the fishpond with an area of 17,151.03 square meters.15(Emphasis supplied.)

Petitioner then demanded from the other co-owners of the property the identification and segregation of the shares he purchased from the rest of the Fishpond. Due to the failure of respondents to cause the division as demanded, petitioner filed a complaint for specific performance and partition. The case was docketed as Special (SP) Civil Case No. G-63, and was raffled to Branch 50 of the Regional Trial Court of Guagua, Pampanga. Subsequently, the complaint was amended in order to identify the heirs of the deceased Jose, Ruben, and Federico.16

Respondents Arsenio, Leonardo, Dominador, Leticia, Natividad, Ligaya, Alfredo and Erlinda jointly filed an answer 17 with compulsory counterclaim. The respondent heirs of deceased Jose (Felicidad, Aurelia, Conrado, Lolita, Florida, and Danilo), the respondent heirs of deceased Federico (Zenaida, Romulo, Judy, and Ernesto), and the respondent heir of the deceased Ruben (Antonio) filed a separate answer with compulsory counterclaim.

In their answers, respondents, in effect, admitted the existence of the deeds of absolute sale and the other agreements covering the sale and transfer of the undivided shares to the Fishpond in favor of petitioner, but alleged as follows:

1. The said deeds of sale and agreements were all suffering from insidious, grave and vital defects, vitiating their validity and effectiveness;

2. The deceased Celestino Santos and the deceased Jose Santos have already sold during their lifetime, to the herein respondent Arsenio Santos their respective 1/2 and 1/12 of 1/2 undivided shares to the Calangain Fishpond, and upon their death their said undivided shares were not inherited and transmitted to their children and other heirs;

3. The herein petitioner as lessee of the Calangain Fishpond has been delinquent for many years in the payment of the lease rentals thereon;

4. The herein petitioner has abused his rights as lessee by subleasing portions of the Calangain Fishpond to other persons;

5. The herein petitioner’s rights as lessee over the Calangain Fishpond had already expired;

6. The herein petitioner has no cause of action for partition against the herein respondents, as not all the persons who have an interest in the Calangain Fishpond were impleaded as parties in this action;

7. With respect to the shares of Celestino Santos, Jose Santos and Leonardo Santos, the herein respondent Arsenio Santos has prior right thereto superior to that of the herein petitioner; and

8. The herein respondents Arsenio Santos, Natividad Santos, Ligaya Santos and Erlinda Santos have a right of legal redemption over the undivided shares of the Calangain Fishpond sold to the herein petitioner.18

Petitioner then filed his answer denying the compulsory counterclaims denying the same.

After pre-trial and trial on the merits, the RTC rendered a Decision 19 dated September 29, 1997 in favor of petitioner, disposing, as follows:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of the plaintiff and against the defendants as follows:

a.) Ordering the defendant Leonardo Santos to execute in favor of the plaintiff the corresponding deed of absolute sale and/or whatever other documents which may be necessary to properly transfer and vest title and ownership to the plaintiff over his one-fourteenth (1/14) share with a total area of 17,151.03 square meters pro-indiviso portion of the Calangain fishpond inherited from his deceased father, Celestino Santos, which he had sold to the plaintiff;

b.) Ordering the defendant Dominador Santos (now his substituted heirs) to execute in favor of the plaintiff the other corresponding deed of absolute sale and/or whatever other documents which may be necessary to properly transfer and vest title and ownership to the plaintiff over all his shares, consisting of his 1/12 share, belonging to him in his own right, to the ½ pro-indiviso portion, and his 1/14 share, inherited from his deceased father, Celestino Santos, to the other 1/2 pro-indiviso portion of the Calangain Fishpond, with a total area of 37, 160.57 square meters, more or less, which he had sold to the plaintiff;

c.) Ordering the defendant Leticia Santos to execute in favor of the plaintiff the corresponding deed of absolute sale and/or whatever other documents which may be necessary to properly transfer and vest title and ownership to the plaintiff over all her shares, consisting of her 1/12 share, belonging to her in her own right, to the 1/2 pro-indiviso

portion, and her 1/14 share, inherited from her deceased father, Celestino Santos, to the other, ½ pro-indiviso portion of the Calangain Fishpond, with a total area of 37,160.57 square meters, more or less, which she had sold to the plaintiff;

d.) Ordering the defendants who still own pro-indiviso shares to the Calangain Fishpond to partition and divide the said fishpond among themselves and the plaintiff and have all the portions thereof sold to and now owned by the plaintiff with a total area of 213,594.88 square meters, more or less, segregated and awarded to the plaintiff and to execute whatever document or documents as may be necessary to properly effect such partition, division and segregation and the issuance of the corresponding certificate of title in the name of the plaintiff over the said portion of 213,594.88 square meters, more or less;

e.) Ordering the defendants, jointly and severally to pay unto the plaintiff the amount of P30,000.00 for and as attorney’s fees;

f.) Ordering the defendants, jointly and severally, to pay unto the plaintiff the amount of P10,000.00 as litigation expenses;

g.) Ordering the defendants, jointly and severally to pay the costs of suit.

SO ORDERED.20

Respondents appealed the said RTC Decision to the Court of Appeals. In its assailed Decision dated November 28, 2003, the Court of Appeals reversed and set aside the RTC Decision. The dispositive portion of the CA decision reads:

WHEREFORE, the decision appealed from is REVERSED and SET ASIDE and another one entered as follows:

1. Declaring the deed of absolute sale dated March 11, 1975 executed by Celestino Santos in favor of defendant-appellant Arsenio Santos as valid;

2. Declaring that defendants-appellants Arsenio Santos, Natividad Santos, Erlinda Santos and Ligaya Santos are entitled to exercise their right of legal redemption under Article 1623 of the Civil Code with respect to the shares of Encarnacion Santos-Escueta, Arcadio Santos, Felisa Santos, Federico Santos, Leonardo Santos, Dominador Santos, Leticia Santos and Alfredo Santos in the Calangain fishpond which were sold by them to plaintiff-appellee, by returning to the latter the consideration stated in their respective deeds of sale within the period of thirty (30) days from the date of finality of this judgment;

3. Ordering plaintiff-appellee to execute the necessary deeds of reconveyance of the aforesaid shares sold to him in the Calangain fishpond, to and in favor of the defendants Arsenio Santos, Natividad Santos, Ligaya Santos and Erlinda Santos upon their exercise of their right of legal redemption; and

4. Ordering plaintiff-appellee to pay to defendant-appellant Arsenio Santos the amount of P420,000.00, representing the balance of the unpaid rentals due on the thirty (30) hectare undivided share of the latter in the Calangain fishpond, plus the legal rate of interest thereon from October 25, 1989, the date of the filing of the answer, until said amount shall have been fully paid.

SO ORDERED.21

Hence, this petition raising the following issues:

1. The due execution and validity of the deed of absolute sale dated March 11, 1975, executed by the deceased Celestino Santos over his one-half (1/2) pro-indiviso share to the Calangain Fishpond in favor of the herein respondent Arsenio Santos was upheld in the said decision solely for the reason that the said deed of absolute sale is a notarized document duly acknowledged before a notary public and the same has in its favor the presumption of regularity, despite the fact that sufficient proof has been adduced by the herein petitioner during the trial to overcome such presumption of regularity, and, other than the biased, flimsy, self-serving and incredible testimony of the herein respondent Arsenio Santos, no other evidence, oral or documentary, was presented by the herein respondents to sustain the validity and the genuineness and due execution of the said deed of absolute sale;

2. The herein respondents Arsenio Santos, Natividad Santos, Erlinda Santos and Ligaya Santos were declared entitled to exercise their right of legal redemption under Article 1623 of the Civil Code with respect to the shares of Encarnacion Santos-Escueta, Arcadio Santos, Feliza Santos, Federico Santos, Leonardo Santos, Leticia Santos and Alfredo Santos, in the Calangain Fishpond which were sold by them to the herein petitioner, and the latter was ordered to execute the

necessary deeds of reconveyance to the said respondents upon their exercise of their right to legal redemption, despite the fact that sufficient evidence exists on record conclusively showing that the said respondents and all the other respondents have actual notice of the said sales and they made the herein petitioner believe that they all approve of the said sales starting from the first sale up to the last sale, so much so, that their right to redeem the shares covered by the said sales is now barred by estoppel and or laches, because the said respondents slept on their right to redeem the said shares covered by the said sales for a long time, and it was only when they filed their answer to the amended complaint when the said respondents claimed their right of legal redemption;

3. The herein petitioner was ordered to pay the herein respondent Arsenio Santos the amount ofP420,000.00, representing the alleged balance of the unpaid rentals due on the alleged thirty (30) hectare undivided share of the said respondent in the Calangain Fishpond, plus interests thereon, at the legal rate from October 25, 1989, until the said amount is fully paid, despite the fact that it is very clear from the evidence on record that the said respondent does not own thirty (30) hectares pro-indiviso share to the Calangain Fishpond, but only a small portion thereof, as he has not validly acquired ownership of the one-half (1/2) pro-indiviso share of the deceased Celestino Santos to the said fishpond, and that the herein petitioner has already paid to the said respondent more rentals than what is actually due to the said respondents;

4. The reversal and setting aside of the decision dated September 29, 1997, rendered in favor of the herein petitioner by the trial court in SP. CIVIL CASE NO. G-63, and the entry of a new one in favor of the herein respondents, is contrary to applicable laws and the evidence adduced during the trial.22

While, admittedly, petitioner purchased several undivided shares to the Fishpond, as shown by the various deeds of sale and receipts of payments he presented in court, one critical question that we must resolve is whether or not these shares include that portion pertaining to the 1/2 share of Celestino Santos.

Respondent Arsenio claimed that the share of Celestino Santos, his father, was sold to him on March 11, 1975, one month before Celestino died. As proof, he presented before the court a Deed of Absolute Sale 23 of even date, with a consideration of P24,000.00. The Deed was duly notarized.

It is a settled rule that a notarial document is evidence of the facts in the clear unequivocal manner therein expressed; and has in its favor the presumption of regularity.24 Notarization converts a private document into a public document, thus making that document admissible in evidence without further proof of its authenticity.25 A notarial document is, by law, entitled to full faith and credit upon its face. Courts, administrative agencies, and the public at large must be able to rely upon the acknowledgment executed by a notary public and appended to a private instrument.26 Indeed, a notarized deed of absolute sale, being a public document, has in its favor the presumption of regularity, which may only be rebutted by evidence so clear, strong, and convincing as to exclude all controversy as to the falsity of the certificate. Thus, the burden of proof to overcome the presumption of due execution of a notarized document lies on the party contesting such execution.27

In this case, it is the petitioner who has the onus of overcoming the presumed regularity of the Deed of Absolute Sale, dated March 11, 1975, in favor of respondent Arsenio. Petitioner, in attempting to discharge this burden, cited the following circumstances:

1. The alleged deed of sale was executed on March 11, 1975, exactly one (1) month before the deceased Celestino Santos died on April 11, 1975, at the ripe age of more than 75 years;

2. The deceased Celestino Santos was bedridden for a number of weeks before he died;

3. The deceased Celestino could not read and write;

4. The respondent Arsenio Santos, who is a lawyer, was the one who prepared the deed of sale;

5. Despite the fact that the respondents, who are the children and grandchildren of the deceased Celestino Santos, claim in their answers to the amended complaint filed in this case that the sale made by the deceased Celestino Santos of his 1/2 pro-indiviso share to the Calangain Fishpond to the respondent Arsenio Santos, was duly executed and valid, with the exception of the respondent Arsenio Santos, none of them, including the respondent Alfredo Santos, who signed as witness to the deed of sale, and the respondent Natividad Santos, who, according to the testimony of respondent Arsenio Santos, accompanied the deceased Celestino Santos, were presented as witnesses in court to testify and confirm the said sale and the due execution and validity of the said deed of sale, when it could have been very easy for them to do so, if the said sale was indeed true and real;

6. In the meeting with regards to the said sale called at the residence of the counsel, Atty. Melquiades de Leon, of the respondents, where the respondents Arsenio Santos, Natividad Santos and Ligaya Santos, together with their said

counsel, and the petitioner and his counsel, Atty. Avelino Liangco, were present, the respondent Arsenio Santos, on one hand, and the respondents Natividad Santos and Ligaya Santos, on the other, quarreled, because the respondents Natividad Santos and Ligaya Santos were questioning the validity of the said sale, claiming that the same was not a true and real sale, but the respondent Arsenio Santos was insisting that the said sale was true and real;

7. Despite the fact that the alleged deed of sale (Exhibit "4") over the 1/2 pro-indiviso share of the deceased Celestino Santos to the Calangain Fishpond appears to have been executed as early as March 11, 1975, the same deed of sale was registered by the respondent Arsenio Santos with the Registry of Deeds for the Province of Pampanga only on September 4, 1989, or after more than fourteen (14) years from its execution, and barely a month before the filing of the complaint in this case on October 2, 1989, and only after a demand letter for the segregation of the shares to the Calangain Fishpond sold to the petitioner was sent to the said respondent; and

8. The insertion of the phrase "number of hectares to be determined" in the receipt marked as Exhibit "6", which was prepared by the respondent Arsenio Santos himself, indicating that he, himself, was not sure of the number of hectares he owns of the Calangain Fishpond, and this clearly shows that he was not yet certain at the time he prepared the said receipt that the 1/2 pro-indiviso share of his deceased father, Celestino Santos, to the Calangain Fishpond which was allegedly sold to him on March 11, 1975, could be included the share that he owns to the said fishpond.28

After evaluating the foregoing circumstances, we are of the opinion that they are not sufficient to overcome the presumption of regularity in favor of the validity of the questioned Deed. First, notwithstanding the first three circumstances mentioned, petitioner failed to clearly establish that, at the time the Deed was executed, Celestino was no longer capable of entering into any transaction regarding his share of the Fishpond. Even if it is true that Celestino did not personally appear before the notary public in Quezon City, as claimed by petitioner, this alone does not nullify or render the parties’ transaction void ab initio. It does not overcome the presumption of truthfulness of the statements contained in the notarized document. 29 Second, there was no need to present the testimonies of the other heirs of Celestino to confirm the sale, the Deed being a notarized document. Third, the fact that it was respondent Arsenio, a lawyer, who prepared the Deed does not affect the validity of the sale. Fourth, the fact that the siblings of Arsenio quarreled with him regarding the authenticity of the sale of their father’s share to him does not operate to invalidate the sale, especially because petitioner admitted on cross-examination that, in that same meeting, he already saw the assailed Deed.30 Fifth, respondent Arsenio was able to explain in court that the delay in registering the Deed was caused by his having to negotiate with the other heirs to buy their respective shares, and that he was still raising the money to pay for them. He testified that he wanted to register together the deeds of sale in his favor, but his siblings changed their minds. He further said that the deeds executed in his favor by Celestino and his brothers Jose and Leonardo were misplaced, and he was able to locate them only in August 1989.31 On the other hand, petitioner himself could not amply justify why he never registered the deeds of sale in his favor executed by some of the Santos siblings. And sixth, the inclusion in the receipt of the phrase "exact number of hectares still to be determined" notwithstanding, the fact remains that petitioner acknowledged in the said receipt32 the amount of rent that he was still obliged to pay respondent Arsenio covering the period up to April 30, 1989. Petitioner’s admission that he had to pay rentals up to April 30, 1989 strengthens our view that Celestino’s 1/2 share in the Fishpond could not have been validly sold to petitioner.

However, the other conveyances covered by the deeds of absolute sale and the receipts of payment in favor of petitioner involving the shares of the Santos siblings in their own right cannot be voided. Article 493 of the Civil Code provides that "(e)ach 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.…" Thus, the co-owners, being owners of their respective aliquots or undivided shares in the subject property, can validly and legally dispose of their shares even

without the consent of all the other co-heirs.33 Accordingly, the vendors, co-heirs of respondents, should return whatever amount they received from

petitioner corresponding to the 1/2 share of Celestino, which they were supposed to have inherited and sold to petitioner, had Celestino not disposed of this 1/2 share to respondent Arsenio. Moreover, Dominador and Leticia, who both have not yet executed the appropriate deeds of absolute sale despite receipt of the purchase price for their respective shares, must now execute the proper deeds of absolute sale, but only with respect to the shares they own in their own right.

With particular reference to the share of Leonardo, this Court notes that the Deed of Absolute Sale 34 in favor of respondent Arsenio was executed on May 10, 1977, while the Deeds of Absolute Sale35 in favor of petitioner were executed on December 29, 1977. All the deeds are notarized documents and, thus, are presumed valid and regular until the contrary is sufficiently and clearly shown. It appears that Leonardo sold the same property twice. The governing principle in cases of double sale is primus tempore, potior jure (first in time, stronger in right), as specifically provided in Article 154436 of the Civil Code. Thus, the one who acquires it and first records it, in good faith, in the Registry of Property shall be deemed the owner of the property subject of the controversy. In this case, the rightful owner is respondent Arsenio, because he registered the Deed of Absolute Sale in his favor with the Registry of Deeds of Pampanga on September 4, 1989, as evidenced by Entry No. 7587 found in both TCT Nos. 32391-R and 32392-R, while petitioner did not cause the registration of the deeds in his favor. However, Leonardo should reimburse the amount of P21,002.00 which he received from petitioner, as evidenced by the 12 receipts37 executed by him.

On the issue of legal redemption, Article 1623 of the Civil Code provides –

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

The right of redemption of co-owners excludes that of adjoining owners.

Interpreting this provision, we have enumerated the requisites for the exercise of legal redemption, as follows: (1) there must be co-ownership; (2) one of the co-owners sold his right to a stranger; (3) the sale was made before the partition of the co-owned property; (4) the right of redemption must be exercised by one or more co-owners within a period of thirty days to be counted from the time he or they were notified in writing by the co-owner vendor; and (5) the vendee must be reimbursed the price of the sale.38 With respect to the written notice, the exception is when a co-owner has actual notice of the sale.39

Petitioner argues that his situation falls within the exception; that respondents had actual notice of the sale of the several shares in the Fishpond, and that they are estopped from questioning the lack of written notice to them. We disagree.

We note that petitioner’s testimony that he verbally notified respondent Arsenio of the sale to him of some undivided portions of the Fishpond was corroborated by another witness, Atty. Avelino Liangco. Thus, petitioner claims that it should be given more weight than the uncorroborated and lone testimony of respondent Arsenio to the contrary. However, it should be remembered that Atty. Liangco is the counsel of petitioner and, being the agent of the latter, cannot really qualify as an independent witness. Accordingly, we are still confronted with the contradicting claims of petitioner and respondents. On this particular point, we rule in favor of respondents, because of petitioner’s admission of the existence of a lease, and of the admitted obligation to pay rent on the subject property.40 We find such an admission antithetical to the claim that petitioner notified respondents of his purchase of portions of the Fishpond. In this light, we must sustain respondents’ entitlement to redeem the portions sold to petitioner upon the finality of judgment in this case. As a necessary consequence, petitioner’s action for partition will not prosper, unless respondents fail to redeem the property sold.

Finally, there is the matter of petitioner’s acknowledgment of rentals due Arsenio up to April 30, 1989 for the latter’s share in the Fishpond, although the receipt stated that the exact number of hectares is still to be determined. By acknowledging his obligation to pay rentals, he also impliedly admitted the ownership of Arsenio over the 1/2 share of Celestino. Receipt of the two letters, dated July 18, 198841 and March 14, 1989,42 sent by respondent Arsenio to petitioner demanding the payment of his outstanding obligation in the amount ofP300,000.00 was admitted by petitioner. There is nothing on record showing that he ever replied to these letters, much less, question the amount being demanded therein. Not having sufficiently denied the existence of the lease, petitioner is, thus, bound to pay the proper rent in the amount that appears in the receipt and the demand letters. Furthermore, petitioner is still liable for the additional amount of P120,000.00, representing the unpaid rentals from April 30, 1989 to October 30, 1989, since it was only on November 1, 1989 that respondent Arsenio was able to take possession of the Fishpond upon the expiration of petitioner’s contract of sub-lease with a certain Buenaventura Bautista, 43 which fact was not rebutted by petitioner. In sum, the CA was correct in declaring petitioner liable to pay unpaid rentals on the Fishpond in the total amount of P420,000.00.

WHEREFORE, the assailed Decision dated November 28, 2003 of the Court of Appeals is AFFIRMED with the MODIFICATION that:

1. Dominador Santos and Leticia Santos, or their heirs, are ordered to execute the proper Deeds of Absolute Sale pertaining to their own shares in the Calangain Fishpond in favor of petitioner;

2. Encarnacion Santos-Escueta, Arcadio Santos, Feliza Santos, Federico Santos, Alfredo Santos, Dominador Santos, and Leticia Santos, or their heirs, are ordered to reimburse petitioner the purchase price pertaining to the share of Celestino Santos, with legal interest thereon from October 25, 1989, the date of the filing of the answer, until said amount shall have been fully paid;

3. Leonardo Santos, or his heirs, are ordered to reimburse petitioner the amount of P21,002.00 paid by the latter as purchase price for Leonardo’s share of the Calangain Fishpond, with legal interest thereon from October 25, 1989, the date of the filing of the answer, until the said amount shall have been fully paid.

G.R. No. 141613 December 16, 2005

SENEN B. AGUILAR, Petitioner, vs.VIRGILIO B. AGUILAR and ANGEL B. AGUILAR, Respondents,

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

ALEJANDRO C. SANGALANG,

Intervenor-Respondent.

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

Assailed in this petition for review on certiorari are the Decision1 and Resolution2 of the Court of Appeals, dated June 11, 1999 and January 11, 2000, respectively, in CA-G.R. CV No. 55750.

The parties in this case are brothers, except Alejandro Sangalang, herein intervenor-respondent. As will be subsequently discussed, this is the second time that the brothers Aguilar seek the intervention of this Court regarding the same facts and the same subject matter. The first was in Aguilar v. Court of Appeals, G.R. No. 76351 decided on October 29, 1993 against Senen B. Aguilar.3 It is time to writ finis to this family wrangling.

On October 28, 1993, Senen and Virgilio purchased a house and lot located in Parañaque City, Metro Manila for the benefit of their father, Maximiano Aguilar (now deceased). The brothers wanted their father to enjoy his retirement in a quiet neighborhood. On February 23, 1970, they executed a written agreement stipulating that their shares in the house and lot would be equal; and that Senen would live with their father on condition that he would pay the Social Security System (SSS) the remaining loan obligation of the former owners.

In 1974, their father died. Virgilio then demanded that Senen vacate the house and that the property be sold, the proceeds to be divided between them. Senen refused to comply with Virgilio’s demand.

On January 12, 1979, Virgilio filed a complaint with the Court of First Instance (now Regional Trial Court) of Rizal at Pasay City for specific performance. Virgilio prayed that Senen be compelled to sell the property so that the proceeds could be divided between them.

However, during the pre-trial, neither Senen nor his counsel appeared. Thus, Senen was declared as in default by the trial court and Virgilio was allowed to present his evidence ex-parte.

On July 26, 1979, the trial court rendered its Decision, declaring the brothers co-owners of the house and lot and are entitled to equal shares; and ordering that the property be sold, the proceeds to be divided equally between them. The trial court also ordered Senen to vacate the property and to pay Virgilio rentals with interests corresponding to the period from January 1975 until he leaves the premises.

On appeal, docketed as CA-G.R. CV No. 03933, the Court of Appeals reversed the trial court’s Decision.

Virgilio then filed with this Court a petition for review on certiorari, docketed as G.R. No. 76351.

On October 29, 1993, this Court rendered its Decision, the dispositive portion of which reads:

"WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals dated 16 October 1986 is REVERSED and SET ASIDE. The decision of the trial court in Civil Case No. 6912-P dated 26 July 1971 is REINSTATED, with the modification that respondent Senen B. Aguilar is ordered to vacate the premises in question within ninety (90) days from receipt of this decision, and to pay petitioner Virgilio B. Aguilar, a monthly rental of P1,200.00 with interest at the legal rate from the time he received the decision of the trial court directing him to vacate until he effectively leaves the premises.

The trial court is further directed to take immediate steps to implement this decision, conformably with Art. 498 of the Civil Code and the Rules of Court. This decision is final and executory.

SO ORDERED."

On March 27, 1995, Senen filed with the Regional Trial Court, Branch 260, Parañaque City, an action for legal redemption against Virgilio and another brother, Angel, docketed as Civil Case No. 95-039. In his complaint, Senen alleged that while he knows that Virgilio sold his ½ share of the property to Angel in January 1989, however, he (Senen) was not furnished any written notice of the sale. Consequently, as a co-owner, he has the right to redeem the property.

Meanwhile, on November 27, 1995, pursuant to this Court’s Decision in G.R. No. 76351, the property was sold at public auction to Alejandro C. Sangalang, intervenor-respondent herein. Virgilio then received his share of the proceeds as well as the rental payments due from Senen.

By then, Virgilio had moved to California, USA. It was only on January 25, 1997 that he was served, through the Philippine Consulate in San Francisco, a copy of Senen’s complaint in Civil Case No. 95-039.

On February 24, 1997, Virgilio filed a motion to dismiss the complaint for lack of cause of action and forum shopping.

In an Order dated June 27, 1997, the trial court dismissed Civil Case No. 05-039 on the ground of laches, holding that Senen incurred a delay of seven (7) years before asserting his right to redeem the property in question.

On appeal, the Court of Appeals affirmed the assailed Order of the trial court.

Hence, the instant petition for review on certiorari.

The sole issue for our resolution is whether the Court of Appeals erred in holding that Senen’s complaint for legal redemption in Civil Case No. 05-039 is barred by laches.

Legal redemption (retracto legal de comuneros) is a privilege created by law, partly by reason of public policy and partly for the benefit of the redemptioner to afford him a way out of a disagreeable or inconvenient association into which he has been thrust.4

With respect to redemption by co-owners, in case the share of a co-owner is sold to a third person, the governing law is Article 1620 of the Civil Code which provides:

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

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

The purpose behind Article 1620 is to provide a method for terminating the co-ownership and consolidating the dominion in one sole owner.5

Article 1623 of the same Code also provides:

"ART. 1623. The right of legal pre-emption or redemption shall not be exercised except within thirty days from the notice in writing by the prospective vendee, or by the vendor, as the case may be. The deed of sale shall not be recorded in the Registry of Property, unless accompanied by an affidavit of the vendee that he has given written notice thereof to all possible redemptioners.

The right of redemption of co-owners excludes that of adjoining owners."

From the above provisions, the following are the requisites for the exercise of legal redemption: (1) There must be a co-ownership; (2) one of the co-owners sold his right to a stranger; (3) the sale was made before the partition of the co-owned property; (4) the right of redemption must be exercised by one or more co-owners within a period of thirty days to be counted from the time that he or they were notified in writing by the vendee or by the co-owner vendor; and (5) the vendee must be reimbursed for the price of the sale.

In this case, the sale took place in January 1989. Petitioner admits that he has actual knowledge of the sale. However, he only asserted his right to redeem the property in March 1995 by filing the instant complaint. Both the trial court and the Appellate Court ruled that this was seven (7) years late.

Petitioner, however, now contends that there being no written notice to him of the sale by the vendee or vendor, the thirty-day redemption period has not prescribed.

Petitioner’s contention lacks merit. The old rule is that a written notice of the sale by the vendor to his co-owners is indispensable for the latter to exercise their retracto legal de comuneros.6 More recently, however, we have relaxed the written notice requirement. Thus, in Si v. Court of Appeals,7 we ruled that a co-owner with actual notice of the sale is not entitled to a written notice for such would be superfluous. The law does not demand what is unnecessary.

Laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which could or should have been done earlier through the exercise of due diligence.8 Otherwise stated, laches is the negligence or omission to assert a right within a reasonable time warranting a presumption that the party entitled to assert it has either abandoned or declined to assert it.9 Its elements are: (1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation for which the complaint seeks a remedy; (2) delay in asserting the complainant’s rights, the complainant having had knowledge or notice of the defendant’s conduct as having been afforded an opportunity to institute a suit; (3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right in which he bases his suit; and (4) injury or prejudice to the defendant in the event, relief is accorded to the complainant, or the suit is not held barred.10

Petitioner has actual knowledge of the sale of Virgilio’s share to Angel in 1989. As provided by Article 1623, he has thirty days from such actual knowledge within which to exercise his right to redeem the property. Inexplicably, petitioner did not take any action. He waited for seven (7) years before filing his complaint. Definitely, such an unexplained delay is tantamount to laches. To be sure, to uphold his right would unduly cause injury to respondent-intervenor, a purchaser in good faith and for value.

Moreover, by the time Senen filed Civil Case No. 95-039 for legal redemption, his right was no longer available to him. We have held that after a property has been subdivided and distributed among the co-owners, the community has terminated and there is no reason to sustain any right of pre-emption or redemption.11

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 55750 are AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. L-38120 June 27, 1988

FLAVIA SALATANDOL, , plaintiffs-appellees, vs.CATALINA RETES defendant-appellant.

This is an appeal interposed by the defendant from the decision * of the Court of First Instance of Negros Oriental, dated 31 May 1966, in Civil Case No. 4367, which allowed the plaintiffs, as co- owners, to exercise the right of legal pre-emption, provided for in Art. 1623 of the Civil Code, and ordered the defendant to accept the pre-emption price, plus expenses of sale, to execute the corresponding deed of conveyance or quitclaim in favor of the plaintiffs, to pay said plaintiffs the amount of P300.00 as attorney's fees, and to pay the costs of suit.

The decision is based upon facts stipulated by the parties, which are as follows:

1. That the parties have agreed or admitted that the late EUFEMIA OMOLE was the registered owner of one-third (1/3) share of Lot No. 513 of the Cadastral Survey of Ayuquitan as evidenced by Original Certificate of Title No. O-V 9307;

2. That plaintiffs are likewise the registered owners of one-third (1/3) share of Id Lot No. 513 of the Cadastral Survey of Ayuquitan and the co-owners of said Eufemia Omole;

3. That on January 17,1965, EUFEMIA OMOLE sold her one-third (1/3) share of said Lot No. 513 for P l,000.00 to defendant CATALINA RETES as evidenced by a Deed of Sale ratified by Notary Public Gumersindo B. Silorio and entered in his Notarial Register as Doc. No. 7; Page No. 49; Book No. II; Series of 1965 (Annex 'A' of the complaint);

4. That on January l8, 1965 theRegister of Deeds or the Province of Negros Oriental wrote to plaintiff Flavia Salatandol which letter was received on January 21, 1965 informing her about the document presented for registration affecting the one-third (1/3) share of Lot No. 513 in favor of Defendant Catalina Salatandol to surrender the owner's Duplicate Certificate of Title (bearing No. 0-V-9307 (Annex 'B');

5. That Plaintiffs were never notified by the late EUFEMIA OMOLE nor by Defendant Catalina Retes about the proposed sale;

6. That on January 30, 1965, Plaintiffs wrote to Defendant CATALINA RETES informing her of their desire to repurchase the said one-third (1/3) share of Lot No. 513 which the late Eufemia Omole sold to her and failing to get a favorable action from Defendant Catalina Retes, Plaintiffs on February 5, 1965 deposited the amount of Pl,000.00 with the Clerk of the Court of First Instance of Negros Oriental and who, on February 13, 1965 wrote Defendant Catalina Retes informing the latter about the deposit and of Plaintiffs' desire to exercise their right of pre-emption as co-owners of Eufemia Omole (See Annexes 'c,' and 'D');

7. That when Defendant Catalina Retes failed to get the deposit with the Clerk of Court, on February 16, 1965 (plaintiffs) filed the instant action for Legal Pre-emption;

8. That on February 22, 1965 while this case was still pending, Defendant Catalina Retes resold the said one-third (1/3) share of Lot No. 513 back to EUFEMIA OMOLE which sale is evidenced by a public instrument ratified by Notary Public Alfonso B. Arrieta and entered in his Notarial Register as Doc. No. 234; Page 60; Book No. VIII; Series of 1965;

9. That on March 11, 1965 Eufemia Omole donated the said one-third (1/3) share of Lot No. 513 to Defendant Catalina Retes as evidenced by a Deed of Donation ratified by Notary Public Alfonso B. Arrieta and entered in his Notarial Register as Doc. No. 258; Page No. 65; Book No. VIII; Series of 1965, a copy of which is hereto attached and made integral parts hereof;

10. That Plaintiffs incurred the amount of P 500.00 as attorney's fees by reason of this case and other legal expenses;

11. That both the Plaintiffs and Defendant have agreed that the foregoing facts are admitted and shall require no further evidence to prove the same;

12. That Plaintiffs and Defendant have agreed that the Court shall consider the foregoing facts in addition to the facts already admitted in the pleadings; and

13. That Plaintiffs and Defendant have agreed to submit this case for the decision of this Court with the admission of the foregoing stipulation of facts. 1

In certifying this case to the Court, the Court of Appeals, to which the appeal was originally addressed, found that the issue raised is one of law and is:

It is the posture of the appellant that under the provisions of Art. 1623 Civil Code 'the right of legal pre-emption or redemption shall not be exercised except within thirty days from the notice in writing by the prospective vendor, or by the vendor, as the case may be ... and since it is admitted that no notice was given to the appellees or by the vendor, Eufemia Omole, no right of legal preemption accrued in favor of the appellees. 2

The appeal is impressed with merit. In Butte vs. Manuel Uy and Sons, Inc., 3 the Court ruled that Art. 1623 of the Civil Code clearly and expressly prescribes that the thirty (30) days for making the pre-emption or redemption are to be counted from notice in writing by the vendor. The Court said:

... The text of Article 1623 clearly and expressly prescribes that the thirty days for making the redemption are to be counted from notice in writing by the vendor. Under the old law (Civil Code of 1889, Art. 1524), it was immaterial who gave the notice; so long as the redeeming co-owner leamed of the alienation in favor of the stranger, the redemption period began to run. It is thus apparent that the Philippine legislature in Article 1623 deliberately selected a particular method of giving notice, and that method must be deemed exclusive (39 Am. Jur., 237; Payne vs. State, 12 S.W. (2d) 528). As ruled in Wampler vs. Lecompte, 150 Atl. 458(aff'd in 76 Law Ed. [U.S.] 275) —

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

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

In the case at bar, the plaintiffs have not been furnished any written notice of sale or a copy thereof  4 by Eufemia Omole, the vendor. Said plaintiffs' right to exercise the legal right of preemption or redemption, given to a co-owner when any one of the other co-owners sells his share in the thing owned in common to a third person, as provided for in Article 1623 of the Civil Code, has not yet accrued. 5

But, even assuming ex gratia argurmenti, that the notice from the Register of Deeds of Negros Oriental to co-plaintiff Flavia Salatandol of the document transferring the one-third (1/3) share of Eufemia Omole to defendant, was equivalent to notice from the vendor, still, it appears that, while the disputed one-third (1/3) portion of Eufemia Omole and the one-third (1/3) share of the plaintiffs, (there is no mention of the other third portion) are embraced in one certificate of title, there had been an actual partition of the land described in the certificate of title and each co-owner is in possession of his respective share. This is deduced from the order of the trial court, dated 30 July 1966, where the court restrained the parties from harvesting the nuts on the "and in question," 6referring to the one-third (1/3) share of Eufemia Omole. As expressed in Article 484 of the Civil Code, a co-ownership exists whenever the ownership of an undivided thing or right belongs to different persons. Under such concept, a co-owner cannot point to a particular portion of the property owned in common as his own, because his portion thereof is intangible rather than identifiable. Here, the portion of Eufemia Omole as well as those of the plaintiffs had been identified and localized, so that co-ownership, in its real sense, no longer exists. Hence, the right of redemption or pre-emption under Article 1620 of the Civil Code can no longer be invoked by the plaintiffs over the portion appertaining to Eufemia Omole. 7

WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE and another one entered dismissing the complaint. Without costs. SO ORDERED.