Heirs of Reynaldo Dela Rosa vs. Batongbacal

A co-owner may validly sell, assign, or mortgage his pro-indiviso share in co-owned property without obtaining the consent of his co-owners or a special power of attorney to bind the entire property, as Article 493 of the New Civil Code grants each co-owner full ownership of his ideal share; consequently, a contractual condition requiring a co-owner to secure authority from his co-owners to alienate his portion is merely surplusage and does not affect the validity or enforceability of the contract.

Reynaldo Dela Rosa, together with his siblings Eduardo, Araceli, and Zenaida, held title to a 15,001-square meter parcel of land in Barrio Saog, Marilao, Bulacan under Transfer Certificate of Title No. T-107449. In 1984, Reynaldo negotiated with Guillermo and Mario Batongbacal for the disposition of his proportionate interest therein. The parties executed a document denominated "Resibo" dated February 18, 1987, acknowledging receipt of partial payment and stipulating terms for the transfer of Reynaldo's 3,750-square meter share (Lot No. 1) at P50.00 per square meter. Following non-compliance with the obligation to deliver a special power of attorney and subsequent refusal to execute the conveyance, the Batongbacals initiated judicial proceedings to enforce the agreement, precipitating a dispute over whether the transaction constituted an absolute sale, a contract to sell, or an equitable mortgage.

• Nature of the Property: The subject matter consists of a 3,750-square meter portion (Lot No. 1) of a 15,001-square meter parcel of land situated in Barrio Saog, Marilao, Bulacan, registered under Transfer Certificate of Title No. T-107449 in the names of Reynaldo Dela Rosa, Eduardo Dela Rosa, Araceli Dela Rosa, and Zenaida Dela Rosa as co-owners.
• The Contract to Sell: Sometime in 1984, Reynaldo offered to sell his share to Guillermo and Mario Batongbacal for P50.00 per square meter, totaling P187,500.00. Reynaldo received an advance payment of P31,500.00. On February 18, 1987, Reynaldo signed a document denominated "Resibo" acknowledging receipt of partial payment and stipulating that P20,000.00 would be paid upon delivery of a Special Power of Attorney (SPA) authorizing Reynaldo to alienate the property on behalf of his co-owners, with the remaining balance payable in P10,000.00 monthly installments. The document specifically described the subject as "Lote No. 1, may sukat na 3,750 sq.m."
• Subsequent Actions: Mario and Guillermo caused a survey to be conducted, resulting in a subdivision plan delineating the boundaries of the 3,750-square meter portion. They subsequently demanded delivery of the SPA, which Reynaldo failed to furnish.
• Judicial Proceedings: Mario and Guillermo filed a civil case for specific performance or rescission and damages, annotating a Notice of Lis Pendens on the title. Reynaldo countered that the transaction was an equitable mortgage securing a loan of P31,500.00, not a sale.
• Trial Court Findings: The RTC dismissed the complaint, finding the contract unenforceable under Article 1403 of the New Civil Code because Reynaldo lacked authority to bind his co-owners without an SPA, but ordered him to return P28,000.00 with 12% interest to prevent unjust enrichment.
• Appellate Proceedings: The Court of Appeals initially rescinded the contract and awarded damages, but upon reconsideration, directed Reynaldo to execute a deed of sale over his one-fourth undivided share and accept the balance of the purchase price, finding that no SPA was necessary for the alienation of his ideal share.

• Equitable Mortgage: Petitioners insisted that the contract was actually an equitable mortgage, not a contract of sale. They maintained that Reynaldo understood the transaction as a loan of P31,500.00 secured by the property, payable once he received his share in the proceeds of the sale of the entire land.
• Gross Inadequacy of Price: Petitioners argued that the consideration of P187,500.00 for the property (equivalent to P50.00 per square meter) was grossly inadequate because the land valuation in Barrio Saog, Marilao, Bulacan at the time of the transaction in 1984 was already P80.00 to P100.00 per square meter. This inadequacy, they contended, revealed the true intention to mortgage rather than sell, affording the mortgagor an opportunity to redeem.
• Unenforceability: Petitioners maintained that the contract was unenforceable under Article 1403 of the New Civil Code because Reynaldo could not bind his co-owners without an SPA, and the condition requiring such authority demonstrated that the parties contemplated a sale of the entire property, not merely Reynaldo's share.

• Nature of the Contract: Respondents countered that the "Resibo" constituted a valid contract to sell Reynaldo's undivided one-fourth share in the property, not an equitable mortgage. They argued that the document clearly manifested an intention to transfer ownership of Reynaldo's specific portion (Lot No. 1, 3,750 sq.m.) in exchange for the stipulated price.
• Compliance with Obligations: Respondents maintained that they had complied with their obligations under the contract and were ready and willing to pay the balance of the purchase price, but Reynaldo's refusal to execute the conveyance prevented completion of the sale.
• Right to Specific Performance: Respondents argued that under Article 493 of the New Civil Code, Reynaldo had the absolute right to sell his pro-indiviso share without the consent of his co-owners, and the condition requiring an SPA was merely a precautionary measure that did not affect the validity of the sale of his specific share.

• Nature of the Contract: Whether the contract between Reynaldo Dela Rosa and Guillermo Batongbacal constituted a contract of sale or an equitable mortgage.
• Validity of the Sale: Whether Reynaldo could validly sell his undivided share in the co-owned property without a special power of attorney from his co-owners.
• Compliance and Performance: Whether Guillermo Batongbacal complied with his obligations under the contract.
• Availability of Remedy: Whether respondents were entitled to specific performance compelling Reynaldo to execute the deed of sale over his undivided share.

• Nature of the Contract: The contract was a contract to sell, not an equitable mortgage. The document denominated "Resibo" clearly indicated the intention to transfer ownership of Reynaldo's share to the buyers in exchange for the price, with no indication that the transfer was intended merely to secure a debt. The primary consideration in determining the true nature of a contract is the intention of the parties as expressed in the instrument, and where terms are clear, the literal meaning controls.
• Gross Inadequacy of Price: Mere inadequacy of the price does not affect the validity of a contract when both parties are in a position to form an independent judgment, unless fraud, mistake, or undue influence indicative of vitiated consent is present. No evidence of vitiated consent was adduced. Furthermore, the subject was only Reynaldo's 3,750-square meter share, not the entire 15,001-square meter property.
• Validity of the Sale: Under Article 493 of the New Civil Code, each co-owner has full ownership of his pro-indiviso share and may alienate, assign, or mortgage it without the consent of his co-owners. The effect of such alienation is limited to the portion that may be allotted to him upon termination of the co-ownership.
• Availability of Remedy: The Court of Appeals correctly directed Reynaldo to execute the requisite Deed of Sale over his one-fourth undivided share and to accept the balance of the purchase price, as the sale was valid and enforceable. The condition requiring Reynaldo to secure an SPA from his co-owners was mere surplusage and did not affect the validity or enforceability of the contract to sell his own share.

• Equitable Mortgage (Article 1602, New Civil Code): A contract denominated as a sale is presumed to be an equitable mortgage when the price is unusually inadequate, the vendor remains in possession, or other circumstances indicate the real intention was to secure a debt. However, the presumption arises only where the parties entered into a contract denominated as a sale and the intention was to secure an existing debt by way of mortgage. The burden of proving the existence of an equitable mortgage rests upon the party asserting it.
• Rights of Co-owners (Article 493, New Civil Code): Each co-owner has full ownership of his pro-indiviso share and of the fruits and benefits pertaining thereto. He may therefore alienate, assign, or mortgage it, and even substitute another person in its enjoyment. The effect of the alienation or mortgage, with respect to the co-owners, is limited to the portion which may be allotted to him in the division upon the termination of the co-ownership. This right is absolute and does not require the consent of the other co-owners.
• Nemo Dat Quod Non Habet: No one can give what he does not have. A co-owner who has validly sold his undivided share cannot subsequently convey the same portion to another buyer, as the second sale is void for lack of title.
• Interpretation of Contracts (Article 1370, New Civil Code): If the terms of a contract are clear and leave no doubt upon the intention of the parties, the literal meaning of its stipulations shall control. The intention of the parties is determined not only from the express terms of their agreement, but also from the contemporaneous and subsequent acts of the parties.

• "The primary consideration in determining the true nature of a contract is the intention of the parties. If the words of a contract appear to contravene the evident intention of the parties, the latter shall prevail. Such intention is determined not only from the express terms of their agreement, but also from the contemporaneous and subsequent acts of the parties."
• "A perusal of the contract denominated as Resibo reveals the utter frailty of petitioners' position because nothing therein suggests, even remotely, that the subject property was given to secure a monetary obligation. The terms of the contract set forth in no uncertain terms that the instrument was executed with the intention of transferring the ownership of the subject property to the buyer in exchange for the price."
• "Pursuant to this law [Article 493], a co-owner has the right to alienate his pro-indiviso share in the co-owned property even without the consent of his co-owners. This right is absolute and in accordance with the well-settled doctrine that a co-owner has a full ownership of his pro-indiviso share and has the right to alienate, assign or mortgage it, and substitute another person for its enjoyment."
• "A condition set forth in a sale contract requiring a co-owner to secure an authority from his co-owners for the alienation of his share, as seemingly indicated in this case, should be considered mere surplusage and does not, in any way, affect the validity or the enforceability of the contract."

• Vaglidad v. Vaglidad, Jr., 537 Phil. 310 (2006) — Applied to affirm the absolute right of a co-owner to alienate his pro-indiviso share and to illustrate the application of the principle that a co-owner who has sold his share cannot validly sell the same portion again to another (nemo dat quod non habet).
• Arambulo v. Nolasco — Cited for the proposition that co-owners have the right of full and absolute ownership over their share, which may be disposed of as they please independent of the decision of their co-owners, and that courts cannot order co-owners to sell their portion.
• Spouses Alvaro v. Spouses Ternida, 515 Phil. 267 (2006) — Cited regarding the definition of equitable mortgage and the requisites for its existence.
• Mercado v. Court of Appeals, G.R. No. 108592, 240 SCRA 616 (1995) — Cited in support of the rule that a co-owner may alienate his pro-indiviso share without the consent of other co-owners.
• Acebedo v. Abesamis, G.R. No. 102380, 217 SCRA 186 (1993) — Cited to support the absolute right of co-owners to dispose of their ideal share.
• Heirs of Policronio M. Ureta, Sr. v. Heirs of Liberato M. Ureta, G.R. No. 165748, 657 SCRA 555 (2011) — Cited regarding the determination of contractual intention from express terms and contemporaneous acts.

• Article 493, New Civil Code — Defines the rights of co-owners to alienate, assign, or mortgage their pro-indiviso share in co-owned property; establishes that such alienation is limited to the portion allotted upon termination of co-ownership.
• Article 1602, New Civil Code — Enumerates instances when a contract shall be presumed to be an equitable mortgage, including gross inadequacy of price, vendor remaining in possession, and other circumstances indicating an intention to secure a debt.
• Article 1370, New Civil Code — Provides that if the terms of a contract are clear and leave no doubt upon the intention of the parties, the literal meaning of its stipulations shall control.
• Article 1403, New Civil Code — Enumerates unenforceable contracts, including those entered into without authority when such authority is required; invoked by the trial court but held inapplicable to the sale of a co-owner's specific share.

Antonio T. Carpio (Chairperson), Arturo D. Brion, Mariano C. Del Castillo, and Estela M. Perlas-Bernabe.