Article 1469-1471, Sales

Article 1469- 1471

Development Bank of the Philippines vs. Moll

BARREDO, J.:p

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

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

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

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

In their answer, appellants admit the existence of their indebtedness to the appellee Bank under the loan contracts mentioned in the latter's complaint; but they deny and dispute, among others, the deficiency claims of the appellee Bank, contending at the same time, by way of affirmative and special defenses, that the extrajudicial foreclosure and public auction sales of the properties

mortgaged had been carried out by the sheriff irregularly and improperly in violation of the pertinent provisions of Rule 39 of the Rules of Court and had thus resulted in the sale for unconscionable prices of their mortgaged properties which, according to appellants' own estimate, have a total actual value of not less than P5,000,000.00.

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

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

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

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

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

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

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

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

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

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

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

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

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

At this juncture, it may not be amiss to make it clear that appellants' period to redeem the properties sold in the extrajudicial foreclosure sales in question is one year, "computed from the date of the registration of the certificates of sales of the mortgaged properties," since registered lands are involved in this case, and, as explained lately by this Court in Quimson, et al. vs. Philippine National Bank, 3 "this Court has uniformly ruled that redemption from execution sales under ordinary judgments pursuant to Section 30, Rule 39 of the Rules of Court should be made within twelve (12) months from the registration of the same and We have uniformly applied the same rule to sales upon extrajudicial foreclosure of registered lands.".

On the other hand, it may also be stressed that actions seeking to set aside auction sales do not toll the running of the period of redemption; and this We have to emphasize now, if only to forestall the possibility of the parties' coming up here in the future and praying for a definite ruling on the matter.

This question was resolved inSumerariz vs. Development Bank of the Philippines, L-23764, December 26, 1967, 21 SCRA 1374, thus: .

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

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

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

In the case at bar, the suit to recover deficiency claim was instituted on January 23, 1964, (page 1 Record on Appeal), but, the Certificate of Sale by the Provincial Sheriff of Camarines Sur in connection with the auction sale of the collateral securities on the industrial loans was registered in the Office of the Register of Deeds of said province on November 11, 1964, and, the Certificate of Sale of said provincial sheriff in connection with the auction sale of the collateral securities on the agricultural loans, was registered in the same office on December 7, 1964. Therefore, the present action for recovery of deficiency claim was filed even before the registration of both Certificates of Sale, as shown by Exhibit '2' for appellants (pp. 33-34, Record on Appeal). As the running of the period of one year of the right of redemption commenced from the date and/or dates of registration of the Certificate of Sale, it is too clear and unassailable that the filing of the case at bar on January 23, 1964, was improper and premature. For indeed, the filing of a suit for recovery of a deficiency claim before the commencement or, during the period of the right of redemption, constitutes a clever anticipation that the auction sale arising from the effects of extrajudicial foreclosure had been conducted with all the earmarks of validity, even if it were not. Suppose an auction sale were declared illegal due to irregularities and

violation of the mandate of the law, what would be the effect of such pronouncement in an action for deficiency claim when such action has no legal basis? If a suit for recovery of a deficiency judgment or deficiency claim is a legal consequence of an auction sale arising from judicial or extrajudicial foreclosure, then such suit should await for the expiration period of the right of redemption within which period, precisely, the redemptioner may ordinarily institute an action to assail the manner with which the auction sale was conducted. ... .

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

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

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

Under the provisions of section 6 of Rule 70 — now section 6 of Rule 68 of the revised Rules of Court — above-cited, it is expressly provided that "if there be a balance due to the plaintiff after applying the proceeds of the sale, the court, upon motion, shall render judgment against the defendant for any such balance for which, by the record of the case, he may be personally liable to the plaintiff, upon which execution may issue immediately if the balance is all due at the time of the rendition of the judgment." Said provisions are equivalent to those of section 260 of the old Code of Civil Procedure, under which it was held in a case, 6 "that in order that a decree for any balance for which the mortgagor may be personally liable to the mortgagee may be issued, it is necessary that the sale of the mortgaged real property has been made according to the decree for said sale to satisfy the judgment; that there has remained a balance due the mortgagee after applying the proceeds of the sale to the debt; (and) that the mortgagee presents a motion for the issuance of a decree for said balance", while in another case, 7 it was said that "Section 260 requires the rendition and entry of a judgment for the deficiency against the defendant, who shall be personally liable to the plaintiff, and execution may issue on said judgment at once." We believe it is apparent from the provisions and decisions above-quoted that once the auction sale of the mortgaged property is effected and the resulting deficiency in the mortgage debt is ascertained, the mortgagee-creditor is then and there entitled to secure a deficiency judgment which may immediately be executed, whether or not the mortgagor is still entitled to redeem the property sold. We hold then that appellants' right to redeem their auctioned properties could not be a bar to the present action of appellee to recover the deficiencies which it claims to have resulted after applying the proceeds of the foreclosure sales here involved in payment of appellants' mortgage debt. .

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

Topacio v CA

PARAS, J.:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ang gastos ay dapat bayaran ng ipinagsasakdal.

IPINAG-UUTOS. (Rollo, p. 24)

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

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

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

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

2. Execution of a Deed of Absolute Sale;

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

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

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

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

The petition is impressed with merit.

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

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

P375,000.00

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

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

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

Furthermore, Article 1475 of the Civil Code states:

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

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

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

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

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

Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the

contract has been made upon him either judicially or by notarial act. After the demand the court may not grant him a new term.

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

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

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

SO ORDERED.

Facts:

The spouses De Villa (parents-in-law of Topacio) were the former owners of a lot in QC. It was previously mortgaged to Ayala Investment and Development Corp to secure an obligation of P500k. For failure to pay, the mortgage was foreclosed and consequently, BPI acquired the property as highest bidder. – Topacio wanted to buy the property. He made an offer for P900k, but was asked to improve it. Together, they arrived at P1.25M as the purchase price, with 30% downpayment and the balance payable in cash upon execution of the Deed of Sale. – Topacio paid the initial payment of P375k. – BPI wrote to Topacio and informed him that he had until January 4, 1986 to pay the balance of P875k. He asked for extensions. BPI agreed to extend up to June 30. – Topacio was unable to meet the deadline, so BPI wrote a letter to Topacio, where BPI declared himself free to sell the property to other buyers and that Topacio could claim his initial payment of P375k. – Topacio merely asked for more extensions. While BPI kept telling Topacio that he couldclaim the P375k back (in the form of a cashier’s check), Topacio declined. But BPI mailed the check to him. The check remained with Topacio, uncashed. – BPI then told Topacio that the property would be sold for P1.6M instead, so Topacio reminded him of the original agreement (P1.25M), but BPI refused. – RTC: In favor of Topacio, finding that there is a perfected contract of sale which is still enforceable because BPI did not rescind either by judicial or notarial rescission.

– CA: Reversed. The contract is a contract to sell, not a contract of sale.Issue: Contract to sell or contract of sale? Held: Contract of sale. – The payment by Topacio of P375k was the operative act that gave rise to a perfect contract of sale. It is considered earnest money (something of value to show that the buyer was really in earnest, and given to the seller to bind the bargain). It is considered part of the purchase price and proof of the perfection of the contract. – The parties agreed on the object (house and lot in White Plains), and the price and the manner of payment. – Nowhere in the transaction indicates that BPI reserved its title on the property, nor did it provide for any automatic rescission in case of default. So whenTopacio failed to pay the balance of P875k despite several extensions, BPI could not validly rescind the contract w/o complying with the provision of Art 1592 or Art 1191 on notarial or judicial rescission respectively.

Labagala v. CA (see prior Digest)

Buenaventura v. CA

FACTS:

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

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

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

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

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

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

HELD: DEED OF SALE VALID.A contract of sale is not a real contract, but a consensual contract. As a consensual contract, a contract of sale becomes a binding and valid contract upon the meeting of the

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

Philippine Free Press, Inc. v.CA

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

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

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

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

Spouses Serrano and Herrera v. CA

Facts:

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

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

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

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

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

Ruling:

The transaction was a contract to sell.

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

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

MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE PRICE ON OR BEFORE MARCH 23, 1990, AND THAT WE WILL EXECUTE AND SIGN THE FINAL DEED OF SALE ON THIS DATE.” there can be no other interpretation than that they agreed to a conditional contract of sale, consummation of which is subject only to the full payment of the purchase price.

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

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

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

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

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

Ting Ho v. Teng Gui

                                                         PUNO, C.J.: 

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

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

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

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

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

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

persons and the second floor, Bonanza Hotel, operated by the defendant also located on the above described lot; and

d)   A sari-sari store (formerly a bakery) also located on the above described lot.[3]

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

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

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

subject lot was issued to him pursuant to a miscellaneous sales patent granted to him on January 3, 1978.[6]

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

appellate court (CA), are as follows: [T]he plaintiffs and the defendant are all brothers and sisters, the

defendant being the oldest.  They are the only legitimate children of the deceased Spouses Felix Ting Ho and Leonila Cabasal.  Felix Ting Ho died on June 26, 1970 while the wife Leonila Cabasal died on December 7, 1978.  The defendant Vicente Teng Gui is the oldest among the children as he was born onApril 5, 1943.  The father of the plaintiffs and the defendant was a Chinese citizen although their mother was Filipino.  That sometime in 1947, the father of the plaintiffs and defendant, Felix Ting Ho, who was already then married to their mother Leonila Cabasal, occupied a parcel of land identified to (sic) as Lot No. 18 Brill which was thereafter identified as Lot No. 16 situated at Afable Street, East Bajac-Bajac, Olongapo City, by virtue of the permission granted him by the then U.S. Naval Reservation Office, Olongapo, Zambales.  The couple thereafter introduced improvements on the land.  They built a house of strong material at 16 Afable Street which is a commercial and residential house and another building of strong material at 18 Afable Streetwhich was a residential house and a bakery.  The couple, as well as their children, lived and resided in the said properties until their death.  The father, Felix Ting Ho had managed the bakery while the mother managed the sari-sari store.  Long before the death of Felix Ting Ho, who died on June 26, 1970, he executed on October 11, 1958 a Deed of Absolute Sale of a house of strong material located at 16 Afable Street, Olongapo, Zambales, specifically described in Tax Dec. No. 5432, in favor of Victoria Cabasal his sister-in-law (Exh. C).This Deed of Sale cancelled the Tax Dec. of Felix Ting Ho over the said building (Exh. C-1) and the building was registered in the name of the buyer Victoria Cabasal, as per Tax Dec. No. 7579 (Exh. C-2).  On the same date, October 11, 1958 the said Felix Ting Ho also sold a building of strong material located at 18 Afable Street, described in Tax Dec. No. 5982, in favor of Gregorio Fontela, of legal age, an American citizen, married (Exh. D).  This Deed of Sale, in effect, cancelled Tax Dec. No. 5982 and the same was registered in the name of the buyer Gregorio Fontela, as per Tax Dec. No. 7580 (Exh. D-2).  In turn Victoria Cabasal and her husband Gregorio Fontela sold to Vicente Teng Gui on October 28, 1961 the

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

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

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

         After a serious consideration of the testimonies given by both one

of the plaintiffs and the defendant as well as the documentary exhibits presented in the case, the Court is inclined to believe that Felix Ting Ho, the father of the plaintiffs and the defendant, and the husband of Leonila Cabasal thought of preserving the properties in question by transferring the said properties to his eldest son as he thought that he cannot acquire the properties as he was a Chinese citizen.  To transfer the improvements on the land to his eldest son the defendant Vicente Teng Gui, he first

executed simulated Deeds of Sales in favor of the sister and brother-in-law of his wife in 1958 and after three (3) years it was made to appear that these vendees had sold the improvements to the defendant Vicente Teng Gui who was then 18 years old.  The Court finds that these transaction (sic) were simulated and that no consideration was ever paid by the vendees.

 x x x                             x x x                             x x x With regards (sic) to the transfer and relinquishment of Felix Ting

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

         Notwithstanding such findings, the RTC considered the Affidavit of

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

 WHEREFORE, judgment is hereby rendered in favor of the

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

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

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

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

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

 x x x                             x x x                             x x x Defendant Vicente Teng Gui acquired the subject land by

sales patent or purchase from the government and not from his

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

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

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

          WHEREFORE, premises considered, the decision appealed from is REVERSED and SET ASIDE and NEW JUDGMENT rendered:             1.  DISMISSING plaintiff-appellants’ complaint with respect to the subject parcel of land, identified as Lot No. 418, Ts-308, covered by OCT No. P-1064, in the name of plaintiff-appellants [should be defendant-appellant];           2.  DECLARING that the two-storey commercial building, the two-storey residential building and sari-sari store (formerly a bakery), all erected on the subject lot No. 418, Ts-308, form part of the estate of the deceased spouses Felix Ting Ho and Leonila Cabasal, and that plaintiff-appellants are entitled to four-fifths (4/5) thereof, the remaining one-fifth (1/5) being the share of the defendant-appellant;             3.  DIRECTING the court a quo to partition the said two-storey commercial building, two-storey residential building and sari-sari store (formerly a bakery) in accordance with Rule 69 of the Revised Rules of Court and pertinent provisions of the Civil Code; 

            4.  Let the records of this case be remanded to the court of origin for further proceedings;             5.  Let a copy of this decision be furnished the Office of the Solicitor General; and 

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

         Both petitioners and respondent filed their respective motions for

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

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

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

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

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

 Our fundamental law cannot be any clearer.  The right to acquire lands of the

public domain is reserved for Filipino citizens or corporations at least sixty percent of the capital of which is owned by Filipinos.  Thus, in Krivenko v. Register of Deeds,[14] the Court enunciated that:

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

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

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

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

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

             Sec. 103.  Certificate of title pursuant to patents.—Whenever public land is by the Government alienated, granted or conveyed to any person, the same shall be brought forthwith under the operation of this Decree.  It shall be the duty of the official issuing the instrument of alienation, grant, patent or conveyance in behalf of the Government to cause such instrument to be filed with the Register of Deeds of the province or city where the land lies, and to be there registered like other deeds and conveyance, whereupon a certificate of title shall be entered as in other cases of registered land, and an owner’s duplicate issued to the grantee.  The deeds, grant, patent or instrument of conveyance from the Government to the grantee shall not take effect as a conveyance or bind the land, but shall operate only as a contract between the Government and the grantee and as evidence of authority to the Register of Deeds to make registration.  It is the act of registration that shall be the operative act to affect and convey the land, and in all cases under this Decree registration shall be made in the office of the Register of Deeds of the province or city where the land lies.  The fees for registration shall be paid by the grantee.  After due registration and issuance of the certificate of title, such land shall be deemed to be registered land to all intents and purposes under this Decree.[16] (Emphasis supplied)

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

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

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

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

 The Court of Appeals erred in holding that an implied trust

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

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

also a court of equity, is likewise misplaced. It has been held that equity as a rule will follow the law and will not permit that to be done indirectly which, because of public policy, cannot be done directly...[19]

 Coming now to the issue of ownership of the properties erected on the

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

 However, the trial court concluded that:             In fairness to the defendant, although the Deeds of Sale executed by Felix Ting Ho regarding the improvements in favor of Victoria Cabasal and Gregorio Fontela and the subsequent transfer of the same by

Gregorio Fontela and Victoria Cabasal to the defendant are all simulated, yet, pursuant to Article 1471 of the New Civil Code it can be assumed that the intention of Felix Ting Ho in such transaction was to give and donate the improvements to his eldest son the defendant Vicente Teng Gui… [20]

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

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

 The Court holds that the reliance of the trial court on the provisions of

Article 1471 of the Civil Code to conclude that the simulated sales were a valid donation to the respondent is misplaced because its finding was based on a mere assumption when the law requires positive proof.  

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

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

 SO ORDERED.