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[G.R. No. 119857 : July 28, 2010]




This is a petition for review1 on certiorari under Rule 45 of the Rules of Court seeking to nullify and set aside the Decision2 of the Court of Appeals (CA) dated January 23, 1995 and the Resolution3 dated March 28, 1995 in CA-G.R. CV No. 40961.

The antecedent facts are the following:

On December 1, 1981, Hayari Trading Corporation (Hayari), through a Loan Agreement,4 borrowed from Manphil Investment Corporation (Manphil) the amount of Two Million Five Hundred Thousand Pesos (P2,500,000.00) for the benefit of Filipinas Textile Mills, Inc. (Filtex).

On the same date, Hayari President Yu Han Yat, Jr., his wife Terry Villanueva Yu and the latter's uncle, Bernardino Villanueva, executed an Assumption of Joint and Solidary Liability5 for and in consideration of the loan granted to Hayari, assuming joint and solidary liability with Hayari for the due and punctual payment of all and/or any amortizations on the loan, as well as all amounts payable to Manphil, in connection therewith and for the strict performance and fulfillment of the obligation of Hayari.

In connection therewith, Valiant Realty and Development Corporation, represented by its General Manager Bernardino Villanueva, and Sierra Grande Realty Corporation (Sierra Grande), represented by Terry Villanueva Yu, executed a Third Party Real Estate Mortgage6  in favor of Manphil over a parcel of land, otherwise known as the Roberts property.

Filtex also constituted a real estate mortgage over certain parcels of land that it owned and also constituted a chattel mortgage over the machinery of Hayari in order to secure payment of the loan.

Thereafter, Bernardino Villanueva suggested that the Roberts property be subdivided to make it easier for Sierra Grande to sell the same.  On    June 22, 1985, as suggested, the Board of Directors of Sierra Grande, composed of brothers and sisters Robert Villanueva, Daniel Villanueva, Terry Villanueva Yu, Susan Villanueva and Eden Villanueva, passed a resolution7 authorizing General Manager Bernardino Villanueva, brother of their deceased father, to hire a geodetic engineer and cause the subdivision plan to be approved by the Land Registration Commission, and to sell the subdivided lots after approval of the subdivision plan, if found to be necessary and for which the corporation may need to carry its purpose.

Eventually, on June 22, 1985, Bernardino Villanueva executed a Contract to Sell8 the Roberts property with Golden Apple Realty and Development, Inc. (Golden Apple), majority of its stocks are owned by Elmer Tan, a first cousin of the Villanueva brothers and sisters, and Rosvibon Realty Corporation (Rosvibon), majority of its stocks are owned by Rosita So, another sister of the father of the Villanueva brothers and sisters, for the amount of P441,032.00. The amount of P10,000.00 of the purchase price will have to be paid to the vendor upon the signing of the contract and the balance to be paid to the mortgagee Manphil, on or before October 31, 1987.

On June 29, 1985, the Roberts property was surveyed and subdivided into four lots,9 subject to the approval of the subdivision plan.

On July 26, 1985, Sierra Grande, through Bernardino Villanueva, finally executed a Deed of Sale10 of Lots 1, 2 and 3, with a total land area of 1,402 square meters, to Golden Apple, for P382,080.00 and another Deed of Sale11 of Lot 4, with a total land area of 499 sq. m., to Rosvibon for P119,760.00.

Meanwhile, Sierra Grande's Board, on August 29, 1985, passed a resolution12 revoking the authority of Bernardo Villanueva to sell the Roberts property.  Hayari President Yu Han Yat, Jr., husband of Sierra Grande director Terry Villanueva Yu, advised Manphil, through a letter13 dated August 30, 1985, that all dealings with respect to its loan or credit facility with Manphil shall be coursed through or effected with the express knowledge, representation or consent of the President of Hayari.  Thereafter, a resolution14 notarized on September 3, 1985 was passed by the directors of Sierra Grande revoking the authority previously granted to Bernardino Villanueva to negotiate and contract the sale of the Roberts property and any other property, in behalf of the corporation and place on notice all prospective buyers or vendees not to negotiate or contract with any party other than the duly authorized officer or officers of the corporation who are expressly empowered to enter into such transaction and who can exhibit a formal board resolution duly certified by the board secretary and signed by the majority of the board of directors who are also the majority stockholders representing at least 2/3 of the capital stock .

Nevertheless, on September 16, 1985, Elmer Tan, on behalf of the buyer corporations, paid to Manphil for Hayari's account an amortization of P57,819.72, for the principal sum due on July 27, 1985; P42,192.30, for Int.-CBP; P27,329.05, for interest; and P3,423.40, as penalties.15

Sometime in January 1986, Sierra Grande learned that Bernardino Villanueva16 tried to secure the duplicate original title17 of the subject parcel of land from Manphil claiming to be the President of Hayari.  As a result, on November 20, 1986, Sierra Grande, through Susan Villanueva Tan, the Corporate Secretary, wrote18 Manphil stating that Bernardino Villanueva was not in any way connected officially with Sierra Grande and was not authorized to deal in any way with the Roberts property nor borrow the transfer certificate title to the same property.  Susan Tan also wrote19 the Bangko Sentral ng Pilipinas (BSP), as the subject property was already on receivership, informing the latter of the following: that Hayari had not made any request to borrow any duplicate original title; that Bernardino Villanueva was not connected in any way with Hayari; that Bernardino Villanueva had no authority to borrow any duplicate original title; and that whatever authorization Bernardo Villanueva had in dealing with the Roberts property had been withdrawn and abrogated under a board resolution.  The letter also requested that even if payments were made on the loan of Hayari by a third party, the subject duplicate original title must not be released without the express consent of Hayari.

Later, on August 15, 1988, Terry Villanueva Yu, the President of Sierra Grande at that time, informed20 Manphil that Bernardino Villanueva and Elmer Tan had attempted to pre-terminate Hayari's loan in order to obtain the duplicate original title of the subject lot.  It was also mentioned in the letter that Hayari may opt to pre-terminate the loan itself and be subrogated in the right of action against Bernardino Villanueva.

However, on October 20, 1988, Manphil allowed Elmer Tan to pre-terminate Hayari's obligation after making total payments to Manphil in the amount of P3,134,921.00.21

Hence, Golden Apple and Rosvibon, on November 28, 1988, filed with the Regional Trial Court of Pasay City, a Complaint22 against Sierra Grande and Manphil for specific performance and damages.

On February 27, 1991, the trial court rendered its Decision,23 the dispositive portion of which reads:

WHEREFORE, the Court hereby renders judgment for the plaintiffs and against the defendants, ordering,

1) all defendants to surrender and deliver to plaintiffs corporations the owner's duplicate copy of TCT No. 19801 of the Registry of Deeds for Pasay City;

2) defendants Sierra Grande to pay plaintiffs the sums of P50,000.00 by way of  moral and exemplary damages, respectively;

3) defendant Sierra Grande to pay plaintiffs the sum of P50,000.00 as and for attorney's fees and costs of suit.

The Counterclaim is hereby DISMISSED.


On April 3, 1991, Sierra Grande filed a Motion for Reconsideration24 of the decision, which was eventually denied by the trial court.25

The respondents herein filed their appeal with the CA, which reversed the decision of the trial court in its Decision26 dated January 23, 1995.  The dispositive portion of the said Decision reads as follows:

WHEREFORE, the Court REVERSES the appealed decision. We DISMISS the plaintiffs' complaint and on defendant Sierra Grande's counterclaim, we SENTENCE plaintiffs to pay defendant Sierra Grande P20,000.00, as attorney's fees and costs.


The Motion for Reconsideration27 dated February 3, 1995 filed by herein petitioners was later on denied by the CA.28 Thus, the present petition.

Petitioners raised the following assignment of errors:


The respondent Court of Appeals grievously erred in:

4.1  invalidating the Deeds of Absolute Sale between "Golden Apple" and "Rosvibon," as vendees, and "Sierra Grande," as vendor, on the primordial premise that "badges of fraud" attended their execution;

4.2  applying Article 1602 of the Civil Code to the case at bar;

4.3  overextending Article 1602 of the Civil Code to include lack of capacity, notarial infirmity, and conflict of interest to the concept of "badges of fraud";

4.4  invalidating the contracts on the ground of insufficiency of consideration;

4.5  invalidating the contracts on the ground of lack of legal personality of vendee "Rosvibon Realty";

4.6  invalidating the contracts on the ground of irregularity in its execution and in concluding that the deeds of sale were ante-dated;

4.7  invalidating the contracts on the ground of conflict of interest; and finally

4.8 disallowing damages awarded by the trial court to the petitioners.

The petition is unmeritorious.

In reversing the decision of the trial court, the CA, in a short and succinct manner, made factual conclusions that necessitated its finding that the contracts in question were invalid.

The said ruling of the CA is contrary to the factual findings of the trial court.  In Guillang v. Bedania,29 this Court reiterated that it is not a trier of facts, but certain exceptions apply, thus:

The principle is well-established that this Court is not a trier of facts. Therefore, in an appeal by certiorari under Rule 45 of the Rules of Court,  only  questions  of  law  may  be  raised.  The resolution of factual issues is the function of the lower courts whose findings on these matters are received with respect and are, as a rule, binding on this Court.30

However, this rule is subject to certain exceptions. One of these is when the findings of the appellate court are contrary to those of the trial court.31 Findings of fact of the trial court and the Court of Appeals may also be set aside when such findings are not supported by the evidence or where the lower courts' conclusions are based on a misapprehension of facts.32

Obviously, the contrary findings of the trial court and the CA leave this Court with no other alternative but to re-examine some of the facts raised in the present petition.

Petitioners claim that the CA misused the term badges of fraud in reaching its decision.  According to them, Article 1602, upon which the term badges of fraud refers to, is not applicable, because the said article refers to a sale with a right to repurchase, whereas the subject invalidated contracts were absolute sales.  They cited a case33 where this Court pronounced that, badges of fraud is a circumstance in Article 1602 of the Civil Code, which, if present in any given transaction, gives rise to the presumption that it is not a sale but an equitable mortgage.  Thus, according to petitioners, the CA confused Article 1602 (1) with that of Article 1470,34 because both articles deal with sale in general and have inadequacy of price as subject matter. Either way, they argue, the inadequacy of the price does not result in the cancellation or invalidation of contracts.

However, the above argument of petitioners is speculative. A close reading of the CA Decision would reveal that the said court used the phrase badges of fraud to refer to certain fraudulent acts that attended the execution of the Contract to Sell and the Deeds of Absolute Sale which would eventually tend to prove that the same transactions were indeed suspicious as the said contracts were antedated, simulated and fraudulent.  The said findings were pointed out by the CA in this manner:

We declare the contracts invalid.

We find that there were badges of fraud showing that the contracts were simulated and fraudulent.

First, one of the vendees, Rosvibon, was incorporated only on July 8, 1985 (Exhibit "17-A").  Thus, at the time the Contract to Sell was executed, Rosvibon Realty Corporation had no legal personality to purchase the property.

Second, the deeds of absolute sale were executed irregularly.  The notarial acknowledgment did not indicate the residence certificates of the vendees which were in fact obtained subsequent to the date of notarization.  This is an anomaly which shows that the deeds of sale were ante-dated to beat the resolution revoking the vendor's authority to sell.

Third, there was no sufficient consideration paid for the property involved and, worse, was attended with fraudulent conflict of interest because the vendor, Bernardino Villanueva, was a stockholder of the buyer corporations.35

This then refutes the whole discussion of petitioners as to the misuse or misappreciation of the applicable laws by the CA in arriving at its judgment.  Again, an examination of the CA's Decision shows that the phrase did not refer to any particular provision of a law, hence, the general and ordinary meaning of the phrase prevails.  In the same manner, this Court, in numerous cases36 concerning various subjects, has used the same phrase in its rulings referring to the said phrase's general and ordinary meaning.

Petitioners also contend that whether or not one of the vendee corporations is not yet in existence at the time the Contract to Sell was executed cannot be directly questioned by any party to a suit as the existence of a corporation may only be attacked by the Government through the Solicitor General in a quo warranto proceeding called for the purpose and not by a collateral attack whereby the corporate existence is questioned in some incidental proceedings not provided by law for the express purpose of attacking the corporate existence.

That particular line of argument is an over-stretch. It is undisputed that petitioner Rosvibon had no legal personality at the time of the execution of the Contract to Sell.  As stated by the petitioners themselves in their petition:

x x x It is worthy to note at this juncture, that while it may be true that one of the vendees corporation, Rosvibon, does not have the personality to enter into a Contract to Sell on June 22, 1985, as it was only incorporated on July 8, 1985, it cannot be said that said corporation does not have the personality to enter into the Contract of Sale as the said contract was executed on 26 July 1985.37

It bears to stress, however, that the CA did not pass upon the corporate personality of Rosvibon nor did it declare the same corporation's franchise invalid.  Thus, there is no need for a quo warranto proceeding as claimed by petitioners.  The CA merely made the finding which is undisputed by the petitioners that Rosbivon had no legal personality at the time of the execution of the Contract to Sell. According to the CA, because of Rosbivon's lack of personality at the time of the execution of the Contract to Sell, its presence as a party to the same transaction is taken as another indication that fraud was indeed attendant.  This is one of the situations included, and comprising the phrase badges of fraud.

As to the contention of petitioners that the CA erred in invalidating the contracts on the ground of notarial infirmity and concluding that they were ante-dated, this Court finds the said argument devoid of any merit.

Petitioners claim that, since the representative of the corporation appeared before the Notary Public, the acknowledgment was complied with, even if they admitted that the representatives of the corporations which executed the Deeds of Absolute Sale did not present their residence certificates nor indicate the number, date and place of issue of the same residence certificates in the acknowledgment.  As shown in the records and in the testimony of the Notary Public, Atty. Melanio L. Zoreta, the requirement of the presentation of the residence certificate was missing. Thus, as testified:

On Cross-examination:
Atty. Alindato

But you are sure, of course, that this document was completed in its form without any additional data to be filled up, Mr. Witness, except your signature and the date and the document number, and the page number, etc.  And of course, the dry seal?
I could remember, sir, that it took upon me to see that the residence certificate of the corporation being represented by Mrs. Rosita So and Elmer Tan did not have the residence certificate.

But upon the assurance of Mr. Bernardino Villanueva that they will just put it afterwards, I notarized it because as far as I am concerned, as a notary public, as long as I know the persons who appeared before me and they have so identified themselves the company or entity that they are representing would be of legal ground already.

So you are changing your previous answer that this document was represented to you was already complete when you said that in your latest answer that there were numbers of residence certificate which are lacking?
Actually, I am changing my answer but you asked again for me for the second time.  That is why I took note that the residence certificate of the two corporations were not yet then typewritten or given by the parties involved.38

The CA then had a basis in concluding the defect in the notarial requirement of the transaction.  The pertinent provisions of the Notarial Law39 applicable at that time provides:

Sec. 251. Requirement as to notation of payment of cedula tax - Every contract, deed, or other document acknowledged before a notary public shall have certified thereon that the parties thereto have presented their proper cedula certificates or are exempt from the cedula tax, and these shall be entered by the notary public as a part of such certification, the number, the place of issues, and date of each cedula certificate as aforesaid.

Another issue raised by petitioners is that the CA erred in voiding the contracts on the ground of insufficiency of consideration or price, because the claim of inadequacy of price must be proven and that the respondents belatedly questioned the contracts' validity.  They further claim that the consideration was substantial and adequate.

It must be noted that the property in question, subject of the Contract to Sell for the sum of P441,032.00, is a land with a contained area of, more or less, One Thousand Nine Hundred and One (1,901) sq. m. with a two-storey residential building located in Pasay City.  In claiming that the said price of the property is not inadequate, petitioners stated that the payment of Elmer Tan to pre-terminate Hayari's obligation amounting to Three Million One Hundred Thirty-Four Thousand Nine Hundred Twenty-One Pesos (P3,134,921.00) as part of the consideration paid for the property should be included.  However, as correctly argued by respondent Sierra Grande, the amortizations paid by Elmer Tan to Manphil was for a loan incurred by Hayari and not by respondent Sierra Grande; thus, any payment of the amortizations on the loan of Hayari cannot be considered as part of the consideration for the sale of the land owned by respondent Sierra Grande.  It is then safe to declare that respondent Sierra Grande did not benefit from the loan or from its pre-termination.  Moreover, the records are bereft of any evidence to support the claim of petitioners that the sum of money paid by Elmer Tan, on behalf of Hayari, was part of the consideration for the same property.  What only appears is that the only consideration paid for the sale of the Roberts property was the sum contained in the Contract to Sell, which was P441,032.00 which, considering the size40 and location41 of the property, is inadequate.  What prompted Elmer Tan to pay the total amount of P3,134,921.00 cannot be gleaned from the records, except that it was for the loan incurred by Hayari, which is an independent juridical entity, separate and distinct from Sierra Grande.  Hence, the CA did not commit any error in declaring that there was an insufficiency of consideration or price as the same is shown on the very face of the Contract to Sell.

Anent the contention of petitioners that inadequacy of price does not invalidate a contract, the said rule is not without an exception.  As provided in the Civil Code:

Art. 1355.  Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence.

The CA was clear as to its main reason for invalidating the contracts in question - there was fraud.  The inadequacy of price was merely one of the circumstances upon which the CA was able to find the existence of fraud and not the main cause for the invalidation of the subject contracts.

All the other sub-issues raised by petitioners are rendered inconsequential by the above disquisitions of this Court.

WHEREFORE, the petition for review on certiorari dated May 3, 1995 is DENIED.  Consequently, the Decision dated January 23, 1995 and the Resolution dated March 28, 1995, of the Court of Appeals, are hereby AFFIRMED.


Nachura, Villarama, Jr.,**Abad, and Mendoza, JJ., concur.


* No part.

** Designated as an additional member in lieu of Senior Associate Justice Antonio T. Carpio per raffle dated July 12, 2010.

1 Rollo, pp. 2-65.

2 Penned by Associate Justice Bernardo P. Pardo, with Associate Justices Justo P. Torres, Jr. and B.A. Adefuin-de La Cruz, concurring; id. at 67-71.

3 Rollo, p. 73.

4 Records, pp. 1212-1216.

5 Id. at 1219.

6 Id. at 1220-1223.

7 Id. at 1177-1178.

8 Id. at 1185-1187.

9 Lot No. 889-B-1, Lot No. 889-B-2, Lot No. 889-B-3 and Lot No. 889-B-4; id. at 1297.

10 Records, pp. 1188-1190.

11 Id. at  1191-1192.

12 Id. at 1328.

13 Id. at 1329.

14 Id. at 1328.

15 Id. at 1194-1211.

16 Through a letter dated  January 23, 1986, requesting to borrow the title on the reason that such title will be transferred to a sister company, whose officers are also the officers of Hayari; id. at 1331.

17 TCT No. 19801; id. at 1179-1180.

18 Records, p. 1333.

19 Id. at 1334.

20 Id. at 1343-1345.

21 Id. at 1217.

22 Id. at 16-35.

23 Id. at 279-293.

24 Id. at 296-320.

25 Id. at 449.

26 CA rollo, pp. 288-292.

27 Id. at 295-306.

28 Id. at 327.

29 G.R. No. 162987, May 21, 2009.

30 McKee v. Intermediate Appellate Court, G.R. Nos. 68102-03, July 16, 1992, 211 SCRA 517.

31 Philippine Rabbit Bus Lines, Inc. v. Intermediate Appellate Court, G.R. Nos. 66102-04, August 30, 1990, 189 SCRA 158.

32 McKee v. Intermediate Appellate Court, supra note 30.

33 Romero v. Narciso, G..R. No. 43680, April 12, 1978. (Rollo, p. 23.)

34 Art. 1470.  Gross inadequacy of the price does not affect a contract of sale, except as it may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract.

35 Rollo, pp. 69-70.

36 Carlos v. Hon. Angeles, 400 Phil. 405 (2000); Cuenca v. Atas, G.R. No. 146214, October 5, 2007, 535 SCRA 48; Unionbank v. Ong, G..R. No. 152347, June 21, 2006, 491 SCRA 581; Concept Builders, Inc. v. National Labor Relations Commission, 326 Phil. 955 (1996); Banaga, Jr. v. Commission on Elections, 391 Phil. 596 (2000); Trust International Paper Corporation v. Pelaez, G.R. No. 164871, August 22, 2006, 499 SCRA 552; Pamplona Plantation Company, Inc.  v. Tinghil, G.R. No. 159121, February 3,  2005, 450 SCRA 421.

37 Rollo, p. 36.

38 TSN, September 7, 1989, p. 822.

39 Revised Administrative Code.

40 1,901 sq. m.

41 Robert St., Bo. San Rafael, Pasay City, Metro Manila.
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