Chong vs. De Guzman

A contract of sale of real property is valid between the parties even if the deed is defectively notarized or not in a public instrument, because the formalities required by Article 1358 of the Civil Code are not essential for the validity of the contract but are merely for its greater efficacy or convenience, or to bind third persons. A principal is bound by the acts of her agent performed within the scope of the agent's authority, and a party who, with knowledge of an unauthorized or fraudulent transfer, subsequently acts in a manner inconsistent with an assertion of ownership, impliedly ratifies the transfer.

Petitioner Loreta Agustin Chong was the common-law wife of Augusto Chong. On February 13, 1980, she bought a parcel of land from respondent Fortune Development Corporation under Contract to Sell No. 195. On April 18, 1983, she executed a Special Power of Attorney in favor of Augusto, granting him the power to "mortgage, encumber, sell and dispose the property (subject lot) under such terms and conditions which my said attorney (Augusto) may deem acceptable" and to "pay any/all my valid obligations to the proper person/s." Petitioner was working as a domestic helper in Hong Kong during the relevant period. Respondent-spouses Pedro and Rosita de Guzman were the parties who eventually acquired petitioner's rights over the subject lot and the house built thereon.

Petitioner Loreta Agustin Chong bought a parcel of land from respondent Fortune Development Corporation on February 13, 1980 under Contract to Sell No. 195 and began paying the stipulated monthly installments. On April 18, 1983, she executed a Special Power of Attorney in favor of Augusto Chong, her common-law husband, granting him the power to mortgage, encumber, sell, and dispose of the property and to pay her valid obligations. On July 1, 1983, Rosario Cabelin filed a complaint for sum of money against petitioner and Augusto with the Regional Trial Court of Pasay City, docketed as Civil Case No. 1102-P. Under threat of preliminary attachment, petitioner, then working in Hong Kong, sought the assistance of respondent-spouses to settle the case. A Compromise Agreement dated July 25, 1983 was entered into wherein petitioner and Augusto agreed to pay Rosario ₱55,000.00. To guarantee payment of the remaining balance of ₱105,000.00, Augusto, acting as petitioner's attorney-in-fact, executed a Deed of Sale with Right to Repurchase dated July 25, 1983 over the subject lot in favor of Rosario. Augusto, respondent-spouses, and Gualberto and Fe Arceta jointly and severally promised to pay the sum under a Promissory Note dated July 24, 1983.

Sometime in December 1983, Rosario demanded payment of the remaining balance. Respondent-spouses agreed to pay Rosario ₱105,000.00 provided petitioner would transfer her rights over the subject lot to them. After respondent-spouses paid Rosario, Augusto, acting under the Special Power of Attorney, executed a Transfer of Rights and Assumption of Obligation dated January 30, 1984 in favor of respondent-spouses, with the conformity of respondent corporation. Rosario executed a Quitclaim in favor of Augusto. Thereafter, respondent-spouses paid the remaining monthly installments and transferred the title over the subject lot in their names, as evidenced by Transfer Certificate of Title No. 1292 issued on January 21, 1988.

Petitioner alleged that the Transfer of Rights and Assumption of Obligation was null and void for lack of consideration, claiming that she executed the Special Power of Attorney with the understanding that the transfer to respondent-spouses would be merely simulated ("kunwarian"). She claimed that respondent-spouses and her nieces enticed her into executing the Special Power of Attorney because Augusto might sell the subject lot while she was abroad. However, when presented as a witness during rebuttal, petitioner claimed she executed the Special Power of Attorney to help her nieces secure a loan for the repair of their duplex house. Petitioner also denied selling the house constructed on the subject lot to respondent-spouses for ₱25,000.00, claiming she could not have executed the Deed of Sale because she was in Hong Kong when it was allegedly notarized on February 24, 1987. Respondent Pedro de Guzman testified that petitioner signed the Deed of Sale and received the ₱25,000.00 consideration on February 22, 1987, two days before she left for Hong Kong, and that the deed was notarized only on February 24, 1987. The Court of Appeals noted that a cursory examination of the signature on the Deed of Sale showed it was written by the same hand that signed the Contract to Sell, which petitioner admitted contained her signature. Augusto also admitted signing the deed where he gave his marital consent. Additionally, per petitioner's request in a Letter dated February 22, 1987, respondent-spouses gave petitioner's son and sister ₱122,000.00 as additional consideration for the house, and they signed an Annotation dated March 20, 1987 acknowledging receipt.

Petitioner also claimed ownership of a house at 1191 P. Zapanta, Singalong, Manila, which respondent-spouses allegedly rented to other persons and collected rent without her knowledge and consent. To prove ownership, she presented only a Metropolitan Waterworks and Sewerage System Official Water Receipt dated December 7, 1979, a water installation Receipt dated August 22, 1979, and a Manila Electric Company Warrant to purchase stock dated December 24, 1975, all in her name. Petitioner filed her complaint for annulment of contracts and recovery of possession on August 25, 1989, four years after she claimed to have learned of the transfer of the subject lot in May 1985.

• Admission of Amended Answer: Petitioner argued that the trial court erred in granting respondent-spouses' oral manifestation or motion for leave to file an amended answer, since Section 3, Rule 10 of the Rules of Court requires a written motion filed in court with notice to the adverse party and an opportunity to be heard, to allow the court to determine whether the amendments are substantial and whether the motion intends to delay proceedings.
• Due Process Violation: Petitioner argued that she was deprived of due process when respondent-spouses failed and refused to furnish her copies of the documents they intended to present during pre-trial, in violation of Section 6, Rule 18 of the Rules of Court, and that the trial court gave respondent-spouses undue advantage during trial.
• Nullity of Transfer: Petitioner argued that the Transfer of Rights and Assumption of Obligation dated January 30, 1984 was void or, in the alternative, unenforceable against her for lack of valuable consideration, claiming the transfer was merely simulated and that Augusto was not empowered to dispose of the subject lot to pay off her alleged debt to Rosario.
• Lack of Jurisdiction: Petitioner impugned the jurisdiction of the Pasay City RTC in Civil Case No. 1102-P, claiming summons were not properly served on her and that she never authorized Augusto to enter into the compromise agreement on her behalf, making the Compromise Agreement, Deed of Sale with Right to Repurchase, and Transfer of Rights and Assumption of Obligation unenforceable against her.
• Forgery of Deed of Sale: Petitioner alleged that the Deed of Sale dated February 24, 1987 was a forgery, denying that she signed it and claiming she was in Hong Kong on the date it was notarized.
• Ownership of Singalong House: Petitioner claimed she owned the house at 1191 P. Zapanta, Singalong, Manila, and that respondent-spouses rented it out and collected rent without her consent.

• Sufficient Consideration: Respondent-spouses asserted that the Transfer of Rights and Assumption of Obligation was supported by sufficient consideration, as they paid ₱125,000.00 for the house on the subject lot and paid petitioner's debts to Rosario Cabelin.
• Signing of Deed: Respondent-spouses claimed that petitioner signed the Deed of Sale over the house on February 22, 1987 while still in the country, and that it was notarized only on February 24, 1987 after she had left to work abroad.
• Ownership of Singalong House: Respondent-spouses asserted that the house located in Singalong is owned by them, not petitioner.
• Baseless Complaint: Respondent-spouses argued that petitioner's complaint was malicious and baseless, entitling them to actual, moral, exemplary, and nominal damages, as well as attorney's fees.

• Admission of Amended Answer: Whether the trial court erred in admitting respondent-spouses' amended answer in violation of Section 3, Rule 10 of the Rules of Court.
• Due Process: Whether petitioner was deprived of due process when respondent-spouses failed to furnish her copies of documents they intended to present, in violation of Section 6, Rule 18 of the Rules of Court.
• Validity of Transfer: Whether the trial court erred in not finding that the Transfer of Rights and Assumption of Obligation dated January 30, 1984 was void or, in the alternative, unenforceable as against petitioner.
• Jurisdiction of Pasay RTC: Whether the Pasay City RTC in Civil Case No. 1102-P acquired jurisdiction over petitioner's person, and whether the judgment based on the compromise agreement is valid and binding on her.
• Validity of Deed of Sale: Whether the Deed of Sale over the house on the subject lot was valid despite the defective notarization.
• Ownership of Singalong House: Whether petitioner proved her ownership of the house at 1191 P. Zapanta, Singalong, Manila.

• Admission of Amended Answer: No. The trial court acted within its discretion under Section 2, Rule 18 of the Rules of Court in allowing the amended answer, as the original answer contained only specific denials without setting forth the substance of the matters relied upon, and the amendment served to clarify the issues and expedite proceedings.
• Due Process: No. The records show that the documents were previously attached to respondent-spouses' Motion to Dismiss, Reply, and Amended Answer, all of which were copy furnished to petitioner, and petitioner was afforded every opportunity to examine and controvert the evidence, including cross-examining respondent-spouses on the documents.
• Validity of Transfer: No. The Transfer of Rights and Assumption of Obligation was valid and binding, as Augusto acted within his powers under the Special Power of Attorney, and the transfer was supported by valuable consideration — respondent-spouses' payment of petitioner's debts to Rosario.
• Jurisdiction of Pasay RTC: No. Petitioner failed to establish lack of jurisdiction, and the judgment based on the compromise agreement was not shown to be void upon its face; moreover, petitioner impliedly ratified the compromise agreement and related documents by her subsequent acts.
• Validity of Deed of Sale: Yes, the sale was valid. Although the notarization was defective because petitioner did not appear before the notary public, the defective notarization does not affect the validity of the sale between the parties, as the formalities of Article 1358 of the Civil Code are not essential for validity but merely for efficacy or to bind third persons.
• Ownership of Singalong House: No. Petitioner's evidence — water receipts, a water installation receipt, and a Meralco warrant — did not meet the quantum of proof necessary to establish ownership, proving at best that she resided there in the 1970s.

• Admission of Amended Answer: The trial court allowed respondent-spouses to amend their answer after observing that the original answer merely contained specific denials without clearly setting forth the truth of the matter upon which they relied, as required under Section 10, Rule 8 of the Rules of Court. The original answer merely reiterated arguments from the motion to dismiss as special and affirmative defenses. Under these conditions, the trial court justifiably deemed it necessary for respondent-spouses to amend their answer to sufficiently clarify the issues to be tried and expedite the proceedings. This was in consonance with the basic tenet that the Rules of Court shall be liberally construed to promote the just, speedy, and inexpensive disposition of every action, citing Shaffer vs. Palma, 131 Phil. 22, 34 (1968).
• Due Process: Respondent-spouses' Pre-Trial Brief dated April 10, 1990 enumerated the documents to be presented and their purposes. Although copies were not attached to the Pre-Trial Brief, they were previously attached to respondent-spouses' Motion to Dismiss dated September 8, 1989, Reply dated September 25, 1989, and Amended Answer With Counterclaim dated May 11, 1990, all of which were copy furnished to petitioner. During trial, petitioner was afforded every opportunity to examine the documentary evidence, cross-examined respondent-spouses on these documents at length, and challenged their validity during both her evidence-in-chief and rebuttal evidence. Consequently, petitioner could not claim denial of due process.
• Validity of Transfer: The evidence established that petitioner bought the subject lot on February 13, 1980, executed a Special Power of Attorney on April 18, 1983, and that Rosario Cabelin filed a collection suit on July 1, 1983. Under threat of preliminary attachment, petitioner sought respondent-spouses' assistance. A Compromise Agreement was entered into on July 25, 1983, and a Deed of Sale with Right to Repurchase was executed over the subject lot to guarantee payment. When Rosario demanded payment in December 1983, respondent-spouses agreed to pay ₱105,000.00 provided petitioner transferred her rights to them. Augusto executed the Transfer of Rights and Assumption of Obligation on January 30, 1984 under the Special Power of Attorney. The Court found petitioner's claims of simulation unpersuasive, noting inconsistencies in her testimony — she claimed the Special Power of Attorney was executed to prevent Augusto from selling the property, but later claimed it was to help her nieces secure a loan. The Special Power of Attorney, being a duly notarized document, is entitled to full faith and credit upon its face, and petitioner admitted signing it with full appreciation of its contents and without reservation. In a contract of agency, the agent acts in representation of another with the latter's consent, and the principal is bound by the acts of the agent acting within the scope of his authority, citing Civil Code Article 1910.
• Jurisdiction of Pasay RTC: A judgment based on a compromise agreement is a judgment on the merits, immediately executory and not appealable unless set aside on grounds of nullity under Article 2038 of the Civil Code. A party may attack the validity of a final and executory judgment through: (1) petition for relief from judgment under Rule 38; (2) direct action to annul and enjoin enforcement; or (3) direct action as certiorari or collateral attack against a judgment void upon its face. Petitioner failed to establish want of jurisdiction, as she presented no competent proof that summons were not properly served. Even if she were abroad, summons could still be served through extraterritorial service under Sections 15 and 16, Rule 14 of the Rules of Court. The Pasay City RTC enjoys the presumption of regularity in the conduct of official duties. Although the records of Civil Case No. 1102-P were destroyed by fire on January 18, 1992, petitioner could have filed a petition for reconstitution of records under Act No. 3110 or Section 5(h), Rule 135 of the Rules of Court, and then sought annulment of the judgment. At any rate, petitioner impliedly ratified the compromise agreement and related documents. She claimed to have learned of the transfer in May 1985 but waited four years until 1989 to file the complaint. More importantly, instead of asserting her rights after discovering the alleged fraudulent transfer, she subsequently sold the house on the subject lot to respondent-spouses on February 22, 1987 for ₱25,000.00 — an act that runs counter to the reaction of one who discovers that his or her property has been fraudulently conveyed. Implied ratification may take various forms: silence or acquiescence; acts showing approval or adoption of the contract; or acceptance and retention of benefits flowing therefrom.
• Validity of Deed of Sale: The trial court and Court of Appeals gave credence to respondent Pedro de Guzman's claim that petitioner signed the Deed of Sale and received ₱25,000.00 on February 22, 1987, two days before leaving for Hong Kong, with the deed notarized only on February 24, 1987. The Court of Appeals noted that even a cursory examination of the signature on the Deed of Sale showed it was written by the same hand that signed the Contract to Sell. Augusto admitted signing the deed where he gave his marital consent. Additionally, per petitioner's request, respondent-spouses gave petitioner's son and sister ₱122,000.00 as additional consideration, acknowledged in an Annotation dated March 20, 1987. Although the notarization was defective because petitioner did not appear before the notary public in violation of the Notarial Law, the defective notarization does not affect the validity of the sale. Article 1358 of the Civil Code requires that the sale of real property appear in a public instrument, but this formality is not essential for the validity of the contract — it is simply for greater efficacy or convenience, or to bind third persons, and is merely a coercive means to enable the contracting parties to reciprocally compel observance of the prescribed form. Consequently, the private conveyance of the house is valid between the parties.
• Ownership of Singalong House: Petitioner's evidence — a water receipt dated December 7, 1979, a water installation receipt dated August 22, 1979, and a Meralco warrant dated December 24, 1975 — did not meet the quantum of proof necessary to establish ownership. At best, they prove she resided in the house sometime in the 1970s. In civil cases, the burden of proof is on the plaintiff to establish her case by a preponderance of evidence; she must rely on the strength of her own evidence and not on the weakness of that of her opponent.

• Defective notarization does not invalidate a contract between the parties — The formalities required by Article 1358 of the Civil Code for the sale of real property to appear in a public instrument are not essential for the validity of the contract but are simply for its greater efficacy or convenience, or to bind third persons. The Court applied this doctrine to uphold the validity of the sale of the house despite the notary public having notarized the deed two days after petitioner signed it and after she had left the country.
• Principal bound by acts of agent within scope of authority — Under Article 1910 of the Civil Code, the principal must comply with all obligations which the agent may have contracted within the scope of his authority. The Court applied this doctrine to bind petitioner to the Transfer of Rights and Assumption of Obligation executed by Augusto under the Special Power of Attorney, which expressly authorized him to sell the subject lot and pay her obligations.
• Implied ratification — Implied ratification may take various forms: by silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom. The Court applied this doctrine to find that petitioner ratified the compromise agreement and related documents by waiting four years after discovering the alleged fraudulent transfer before filing her complaint, and by subsequently selling the house on the subject lot to respondent-spouses.
• Presumption of regularity of notarized documents — Notarization vests upon a document the presumption of regularity unless it is impugned by strong, complete, and conclusive proof. The Court applied this doctrine to the Special Power of Attorney, which petitioner admitted signing with full appreciation of its contents and without reservation.
• Judgment based on compromise agreement — A judgment based on a compromise agreement is a judgment on the merits, immediately executory and not appealable unless set aside on grounds of nullity under Article 2038 of the Civil Code, and has the effect of a judgment of the court. The Court applied this doctrine in declining to disturb the validity of the proceedings in Civil Case No. 1102-P.
• Modes of attacking a final and executory judgment — A party may attack the validity of a final and executory judgment through: (1) petition for relief from judgment under Rule 38 of the Revised Rules of Court; (2) direct action to annul and enjoin the enforcement of the judgment; or (3) direct action as certiorari or collateral attack against a judgment void upon its face. The Court applied this doctrine to hold that petitioner failed to avail of the proper remedies to challenge the Pasay City RTC judgment.

• "Although Article 1358 of the Civil Code states that the sale of real property must appear in a public instrument, the formalities required by this article is not essential for the validity of the contract but is simply for its greater efficacy or convenience, or to bind third persons, and is merely a coercive means granted to the contracting parties to enable them to reciprocally compel the observance of the prescribed form. Consequently, the private conveyance of the house is valid between the parties." — This passage states the ratio decidendi on the effect of defective notarization on the validity of a sale of real property, holding that the contract remains valid between the parties despite non-compliance with the public instrument requirement.
• "Implied ratification may take various forms such as by silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom." — This passage defines the doctrine of implied ratification and was applied to find that petitioner's four-year delay in filing her complaint and her subsequent sale of the house to respondent-spouses constituted ratification of the transfer.
• "In a contract of agency, the agent acts in representation or in behalf of another with the consent of the latter, and the principal is bound by the acts of his agent for as long as the latter acts within the scope of his authority." — This passage articulates the governing principle of agency applied to bind petitioner to the Transfer of Rights and Assumption of Obligation executed by Augusto under the Special Power of Attorney.
• "A judgment based on a compromise agreement is a judgment on the merits wherein the parties have validly entered into stipulations and the evidence was duly considered by the trial court that approved the agreement. It is immediately executory and not appealable unless set aside on grounds of nullity under Article 2038 of the Civil Code, and has the effect of a judgment of the court." — This passage defines the nature and effect of a judgment based on a compromise agreement, which the Court applied in declining to disturb the Pasay City RTC proceedings.

• Shaffer vs. Palma, 131 Phil. 22, 34 (1968) — Cited as authority for the liberality of the rules in allowing amendments to pleadings, supporting the trial court's discretion in admitting respondent-spouses' amended answer.
• Nunga vs. Viray, 366 Phil. 155, 160 (1999) — Cited for the proposition that a notarized document is entitled to full faith and credit upon its face.
• Sales vs. Court of Appeals, G.R. No. 40145, July 29, 1992, 211 SCRA 858, 865 — Cited for the proposition that notarization vests upon a document the presumption of regularity unless impugned by strong, complete, and conclusive proof.
• Shopper's Paradise Realty and Development Corp. vs. Roque, G.R. No. 148775, January 13, 2004, 419 SCRA 93, 99 — Cited for the definition of agency as a contract where the agent acts in representation of another with the latter's consent.
• Romero vs. Tan, G.R. No. 147570, February 27, 2004, 424 SCRA 108, 123 — Cited for the nature of a judgment based on a compromise agreement as a judgment on the merits, immediately executory and not appealable unless set aside on grounds of nullity under Article 2038 of the Civil Code.
• Lacson, Sr. vs. Delgado, 111 Phil. 952, 955 (1961) — Cited for the proposition that a judgment based on a compromise agreement has the effect of a judgment of the court.
• Feria vs. Court of Appeals, 382 Phil. 412, 425 (2000) — Cited for the inherent power of courts to reconstitute records of finished cases under Section 5(h), Rule 135 of the Rules of Court.
• Metropolitan Waterworks and Sewerage System vs. Court of Appeals, 357 Phil. 966, 985-986 (1998) — Cited for the forms of implied ratification.
• Gamido vs. New Bilibid Prisons Officials, 312 Phil. 100, 104-105 (1995) — Cited for the requirement under the Notarial Law that the party acknowledging must appear before the notary public.
• Cenido vs. Spouses Apacionado, 376 Phil. 801, 818 (1999) — Cited for the proposition that the formalities of Article 1358 of the Civil Code are not essential for the validity of a contract but are merely for its greater efficacy or convenience.
• Del Castillo vs. Escarella, 26 Phil. 409, 414 (1913) — Cited for the proposition that Article 1358 in relation to Article 1357 of the Civil Code is merely a coercive means to compel observance of the prescribed form.
• Umpoc vs. Mercado, G.R. No. 158166, January 21, 2005, 449 SCRA 220, 238 — Cited for the rule that in civil cases, the burden of proof is on the plaintiff to establish her case by a preponderance of evidence.

• Section 3, Rule 10, Rules of Court — Requires that substantial amendments to pleadings be made only upon leave of court, with orders made upon motion filed in court and after notice to the adverse party and an opportunity to be heard. The Court held that the trial court acted within its discretion in granting the oral motion for leave to amend.
• Section 2, Rule 18, Rules of Court — Provides that pre-trial is mandatory and that the court shall consider the necessity or desirability of amendments to the pleadings. The Court cited this provision to justify the trial court's allowance of the amended answer.
• Section 6, Rule 18, Rules of Court — Requires parties to file pre-trial briefs containing the documents or exhibits to be presented and their purposes. The Court found no violation because the documents were previously attached to other pleadings copy furnished to petitioner.
• Section 10, Rule 8, Rules of Court — Requires a defendant to specify each material allegation of fact the truth of which he does not admit and, whenever practicable, to set forth the substance of the matters upon which he relies to support his denial. The Court cited this to justify the amendment of respondent-spouses' original answer.
• Section 6, Rule 1, Rules of Court — Provides that the Rules of Court shall be liberally construed to promote the just, speedy, and inexpensive disposition of every action. The Court cited this as a basis for the liberality in allowing amendments.
• Article 1910, Civil Code — Provides that the principal must comply with all obligations which the agent may have contracted within the scope of his authority. The Court applied this to bind petitioner to the Transfer of Rights and Assumption of Obligation.
• Article 2038, Civil Code — Provides that a compromise in which there is mistake, fraud, violence, intimidation, undue influence, or falsity of documents is subject to the provisions of Article 1330. The Court cited this as a ground for setting aside a judgment based on a compromise agreement.
• Article 1358, Civil Code — Requires that acts and contracts which have for their object the creation, transmission, modification, or extinguishment of real rights over immovable property, and sales of real property, must appear in a public document. The Court held that this formality is not essential for the validity of the contract between the parties.
• Sections 15 and 16, Rule 14, Rules of Court — Provide for extraterritorial service of summons. The Court cited these provisions to show that summons could still be served on petitioner even if she were abroad when the collection suit was filed.
• Section 5(h), Rule 135, Rules of Court — Recognizes the inherent power of courts to authorize a copy of a lost or destroyed pleading to be filed and used instead of the original, and to restore and supply deficiencies in records and proceedings. The Court cited this as a remedy petitioner could have availed of to reconstitute the records of Civil Case No. 1102-P.
• Act No. 3110 — The general law governing the reconstitution of judicial records destroyed by fire or other public calamities. The Court cited this as an alternative remedy for petitioner to reconstitute the records of the Pasay City case.
• Section 1, Public Act No. 2103 (Notarial Law) — Requires that the acknowledgment be before a notary public or an officer duly authorized by law, and that the notary certify that the person acknowledging is known to him and is the same person who executed the instrument. The Court found this was violated because petitioner did not appear before the notary public.

• Ma. Alicia Austria-Martinez
• Minita V. Chico-Nazario
• Antonio Eduardo B. Nachura