G.R. No. L-5295. September 29, 1954

The National Abaca and Other Fibers Corporation (NAFCO for short)
and the Philippine National Bank pray for the reversal of the decision
rendered by the Court of First Instance of Davao, in Civil Case No.
558, the dispositive part whereof reads as follows:

“In view of the foregoing considerations, judgment
is hereby rendered in favor of the plaintiffs declaring them owners of
the Bago Iñigo Estate, with full rights of possession from November 15,
1949, with the solidary obligation to pay the Philippine National Bank
the sum of P22,663.29 within 15 years in, equal annual installments,
with interest on the unpaid principal at the rate of 6 1/2 per cent per
annum from the date of the issuance of the Transfer Certificate of
Title in their names, and with the further solidary obligation to pay
the NAFCO the sum of P6.191.61, with interest at the rate of 6 per cent
per annum on the unpaid balance, payable in 9 equal installments from
November 15, 1951, and ordering the Register of Deeds of the City of
Davao to cancel Transfer Certificate of Title No. 1197, and to issue,
upon payment of his legal fees by the plaintiffs, a new Transfer
Certificate of Title in its stead, in the name of the plaintiffs, with
costs to both defendants. (Rec. on App. p. 238.)

Appeal is likewise interposed against the order of March 2, 1951,
for the immediate execution of the foregoing judgment (Rec. on App. pp.
242-246).

The following facts are clear from the record: that the father of
the plaintiffs, Feliciano Iñigo, was the original owner of the property
here in litigation, known as the Bago Iñigo Estate in Davao, now
covered by Certificate of Title No. 1197. Being indebted to the
Philippine National Bank, and unable to pay off the obligation,
Feliciano Iñigo and his wife conveyed the estate aforesaid to the Bank
in 1932, with right to repurchase, and remained in possession as
lessee. On January 3, 1934, the Bank resold the property to a Japanese
named Yoshizo Furukawa, for the price of P60,000, of which only P3,000
were paid in cash, the balance being payable in installments, secured
by a mortgage on the properties sold. The sale and mortgage were duly
recorded, and Furukawa obtained a transfer certificate in his name,
with No. 1197. The debt was still unpaid at the outbreak of the last
war, and when the Islands were reoccupied by the allied forces, the
property was confiscated by the United States Government. Subsequently,
it was conveyed to the Philippine Republic, in accordance with the
Philippine Property Act of 1946, subject to the Bank’s mortgage. By
Executive Order No. 29 series of 1946, the late President Roxas turned
over the property to the National Abaca and Other Fibers Corporation
(NAFCO), for administration and disposition in accordance with existing
laws.

The heirs of the original owner of the Bago Iñigo Estate, appellees
herein, sought to be allowed to reacquire the property, mainly on the
ground that neither they nor their father had been given adequate
opportunity to repurchase the property (as had been the Bank’s
practice), before it was sold to Furukawa; and in January 31, 1948,
they secured from the management of the NAFCO, after consulting its
counsel (Exhibits L-1 to L-3), a memorandum to the President of the
Philippines (Exhibit C), recommending that the estate be conveyed to
the Philippine National Bank, for the latter to retransfer to the heirs
of Feliciano Iñigo, subject to the payment of the Furukawa obligations.
Upon the death of President Roxas, the Iñigo heirs petitioned President
Quirino to the same effect; and their petition was endorsed to the
Bank’s president with the notation: “Mr. Carmona: Please see if you can
expedite this Q.” (Exhibit C-5).

On October 26, 1949, the Bank Directors passed Resolution No. 716 (Exhibit C-6), approving the management’s recommendation:

“(1) That we acquire the said property either by
cession or foreclosure of the mortgage whichever is safer to protect
the interests of the Bank;

(2) That in case the property is
reacquired by cession, the NAFCO shall not claim-to deduct any expenses
it might have incurred to date from the present claim of the Bank
against Yoshizo Furukawa;

(3) That the Bank sell the said
property to the heirs of Mr. Iñigo for the full amount of our claim of
P73,036.71 as of June 15, 1949 against Yoshizo Furukawa; and

(4)
That the property be sold ‘as is and that the heirs shall take care of
making the necessary arrangements with the tenants in connection with
their occupation of any portion or portions thereof,

subject to the following conditions:

(1) That full title to the property be first vested
in the Philippine National Bank by securing a Deed of Assignment from
the Republic of the Philippines;

(2) That reimbursement of
expenses incurred for improvements on the property which may be claimed
by the NAFCO, be made by the “heirs to the said corporation;

(3)
That the selling price of P73,036.71 be reduced to P60,000 upon the
execution of the contract, and the balance be paid in 15 equal annual
installments instead of 20 years as requested; and

(4) That
the sale be made to conform to the Administration’s policy and shall be
subject to the conditions customarily imposed by the Bank in
transactions of this kind.” (Exhibits on Appeal, Exhibit C-6, pp.
25-26.)

The conditions were embodied in a letter (Exhibit C-7) to the Iñigo
heirs, who transmitted it to the NAFCO on November 3, 1949. The NAFCO
directorate then approved a resolution (No. 150) on November 11
(Exhibit C-9), referring to Resoluti6n No. 716 of the Philippine
National Bank, and “resolved to recommend to His Excellency, the
President, the assignment of the Bago Iñigo Estate to the Philippine
National Bank so that the latter can legally execute a deed of sale
covering said property to the heirs of the late Feliciano Iñigo,
provided that the NAFCO be reimbursed of all its expenses incurred in
the way of new improvements, payment thereof to be made in annual
installments, not to exceed 10 years with interest at 6 per cent per
annum on the unpaid balance.”

On November 14, 1949, the appellees Iñigo heirs were notified by the
General Manager of the NAFCO of the tenor of the resolution adopted by
the latter and of the fact that the resolution had been forwarded to
Malacañang; and on the same date, Carlos Iñigo, for himself and his
co-heirs, signed an acceptance “of the terms of the NAFCO…obligating
ourselves to reimburse the NAFCO for all its expenses incurred in the
way of new improvements” as stipulated in the NAFCO resolution (Exhibit
C-9). On the same date, the bank received from Dr. Roque Monfort,
husband of Remedios Iñigo, one of the heirs, “for application to Iñigo
property” the sum of P13,036.71, the amount required to reduce the
outstanding balance of the Furukawa account to P60,000, as required by
the Resolution 712 of the Bank (Exhibit H-1).

The next day, November 15, the General Manager of the NAFCO executed
a notarial deed transferring and assigning the Bago Iñigo Estate to the
Philippine National Bank, for 1 peso and other good and valuable
consideration (Exhibit E). At the foot of the last page, the document
bears the notation:

“APPROVED:
By authority of the President:
Executive Secretary”

Attorney Juan B. Francisco, the notary before whom the NAFCO deed
(Exhibit E) was ratified, and concurrently Secretary and Officer in
charge of the NAFCO testified that the deed was approved by the
Directors and forwarded to Malacañang,

On November 16, the Iñigo heirs were placed by the NAFCO in
possession of the Estate; the NAFCO tractor and hemp stripper were
removed and new machinery was installed by the heirs; they also erected
buildings and made other improvements, and made contracts with the
guards and laborers. But, subsequently, some tenants signed complaints
at the instance of NAFCO officials; trouble arose and the Estate was
placed under receivership (Case No. 13, Davao Court of First Instance)
(Exhibit X). The case is still pending.

On May 25, 1950, Secretary of Justice Nepomuceno rendered an opinion
(No. 60, Ser. 1950) (Exhibit L-3) to the effect that the outright sale
of the Estate in favor of the Iñigo heirs, “may not be allowed under
existing law” because “the procedure prescribed by section 24 (of the
Public Land Law) must be followed in its alienation.”

On August 21, 1950, the Iñigo heirs petitioned the Bank to execute
the conveyance in their favor pursuant to Resolution No. 712; and such
step was favorably recommended by the Bank’s legal department (Exhibit
Y). However, on September 12, 1950, the adverse opinion of Secretary
Nepomuceno was sustained by the Cabinet; and it also resolved that in
the disposition of the property, preference be given to squatters who
are veterans or guerrillas, as provided in section B of Republic Act
No. 477. (Exhibit 8, NAFCO.)

This resolution of the Cabinet notwithstanding, the Iñigo heirs
offered to pay the Bank 1/15 of the outstanding balance (Exhibit K),
but the Bank declined, for the reason that the sale had not been
approved by the President. Thereupon this case was instituted on
October 30, 1950, to compel the Bank to execute conveyance of the
Estate, to obtain its delivery from the NAFCO, and for settlement of
accounts.

The Iñigo heirs, now appellees, further asked the Court below to
determine the correct amount owed by them to the NAFCO for “new
improvements” and that their obligation to the Bank for the purchase
price of the Estate be reduced by deducting therefrom the interests
accrued during the occupation on the Furukawa account, on the ground
that such interests had been condoned by Republic Act 401, enacted
August 28, 1949.

Appellants (defendants below) answered denying the validity and
operative effect of Resolution No. 712 of the Philippine National
Bank’s Board of Directors, claiming that the deed of assignment,
Exhibit D, was conditioned on the President’s approval of the same, and
that it was never given. After trial, the Court of First Instance of
Davao rendered judgment in favor of the plaintiff Iñigo, in the terms
previously quoted, and the case was regularly appealed to this Court.

A preliminary procedural question is raised by appellants that the
plaintiffs’ claim is virtually one against the Republic of the
Philippines, and hence that the latter should be made a party, as
demanded by counsel for appellants in their motion of December 28,1950,
after the trial had ended. Upon objection of plaintiffs, the trial
Court denied the motion and it is alleged that such denial constituted
error. The point thus raised is untenable because plaintiffs-appellees,
in their complaint, sought no remedy against the Republic of the
Philippines, their position, so disclosed by their pleading’s, is that
the Republic, through the NAFCO, had conveyed the Iñigo Estate to the
appellant Bank, and that the latter, having become its owner, was under
obligation to re-transfer the property to the appellees herein in
accordance with the trilateral agreement had between the Iñigos, the
NAFCO and the bank. Moreover, the two appellants being government
controlled corporations with interests identical to those of the
Republic, the latter’s side was adequately represented and its joinder
was not, therefore, indispensable.

The main issue is the effect of the deed of assignment executed by
the NAFCO in favor of the Philippine National Bank (Exhibit D). Both
appellant corporations contend that the deed was subject to the
suspensive condition that it should be approved by the President of the
Philippines; that it was not approved and, therefore, its execution did
not satisfy the condition set by the Bank for the conveyance of the
Bago Iñigo Estate to the plaintiffs-appellees, to wit: that the
Republic should first transfer the Estate to the National Bank
(Resolution No. 712).

We agree with the appellees that the circumstances surrounding the
transaction belie the claim that the assignment by the NAFCO was
conditional. While originally the resolution of the NAFCO directorate
had been only to “recommended the assignment of the estate to the Iñigo
heirs”, the Directors subsequently approved the direct assignment to
the Bank (Exhibit D) which contained in its text not mention of
previous Presidential approval; and the subsequent action of the NAFCO,
in transferring possession of the Estate to the Iñigo heirs, and
withdrawing its own hemp-stripping machinery from the land, and
requiring the Iñigo heirs to signify their assent to reimbursing NAFCO
for the expenses of new improvements (all of it done without waiting
for the Presidential approval), are proof that the NAFCO considered the
transfer to the National Bank actually in force and operative since its
execution. If any condition was attached at all, it must have been a
resolutory one, instead of suspensive: i.e., that the transaction would
be nullified if disapproved by the President. Considering the note of
President Quirino to President Carmona of the Bank to expedite the
transaction, none of the parties, the NAFCO, the Bank or the Iñigo
heirs, had reason to doubt that the president approved the transaction.

Although the assignment was executed by the NAFCO, it was in fact
one by the Republic of the Philippines, since by the Executive Order
No. 29 (1946), the NAFCO had been given authority both to administer the
estate and other properties transferred by the United States to the
Republic of the Philippines under the 1946 Property Act (sec. 1, Ex. O.
No. 29), as well as to dispose of them according to existing laws (Ex. O. cit., sec. 2).

The real defect that prevented the conveyance, Exhibit D, from
taking effect on the date of its execution lay in the failure to
observe the sales application, publication, and auction requirements of
the Public Lands Act (Comm. Act 141, as amended). In fact, the opinion
of Secretary of Justice Nepomuceno called attention to these
objections. But they were cured and the sale validated when Republic
Act 477 was approved, for its section 3 expressly stated the following:

“Provided, however, That sales of such
lands heretofore made by the National Abaca and Other Fibers
Corporation without the sales application, publication and public
auction as provided in the above mentioned sections of the Public Land
Law are hereby authorized, ratified and confirmed.”

The appellants aver that by the words “such lands” the Act referred
to lands subdivided for sale by the NAFCO. This position is
unwarranted, because the subdivision and sales referred to in the Act
are all designed for the future. Section 1 of Act 477 provided as
follows:

“SEC. 1. All lands which have been or may hereafter
be transferred to the Republic of the Philippines in accordance with
the Philippine Property Act of 1946 (Act of Congress of the United
States of July 3, 1946) and Republic Act Numbered Eight and all the
public lands and improvements thereon transferred from the Bureau of
Lands to the National Abaca and Other Fibers Corporation under the
provisions of Executive Order No. 29, dated October 25, 1946 and of
Executive Order No. 99, dated October 22, 1947 shall be subdivided by
the National Abaca and Other Fiber Corporation into convenient-sized
lots, except such portions thereof as the President of the Philippines
may reserve for the use of the National or local governments, or for
the use of corporations or entities owned or controlled by the
Government. Subdivision lots primarily intended for, or devoted to,
agricultural purposes shall not exceed an area of five hectares for
coconut lands, ten hectares for improved abaca lands, and twelve
hectares for unimprove lands, urban homesite or residential lots shall
not exceed an area of one thousand square meters nor less than one
hundred fifty square meters.”

Manifestly, the Act could not have intended to ratify and confirm a subdivision and sale in futuro.
And if the Legislature had intended to ratify only sales of subdivided
lands, it would have so stated. The generality of the terms of the
proviso appears to cover any and all sales by the NAFCO, including
Exhibit D and other sales of large tracts theretofore made, like the
Garcia estate (Exhibit M).

Hence, the objection raised by the Secretary of Justice in his
opinion of May 25, 1950, and which were correct as of that date, became
no longer tenable upon the approval of Republic Act No. 477 on June 9,
1950, and constituted thereafter no obstacle to the validity and
effectiveness of the conveyance. As of September 12, 1950, over ninety
days after its confirmation by said Act, the deed Exhibit D could no
longer be nullified and the Cabinet’s adverse resolution of said date
contains plain indications that the validating effect of Republic Act
477 was never called to its attention.

That the assignment has not been recorded does not militate against
the obligatory force between the parties to the transaction, including
the transferee, Philippine National Bank, which was at liberty to cause
the recording of the document. It is inequitable for a vendee to make
use of its own failure to record a conveyance in its favor as a pretext
to escape its obligations thereunder. Both article 1315 of the new
Civil Code, and article 1258 of the old one, prescribe that perfected
contracts bind the parties not only to the fulfillment of what has been
stipulated but also to all the consequences which are “in keeping with
good faith, usage and law.”

One of the conditions imposed by Resolution No. 150 of the NAFCO and
accepted by the Iñigos, was that “it be reimbursed of all its expenses
incurred in the way of new improvements, payment thereof to be made in
annual installments not to exceed 10 years with interest at 6 per
centum per annum on the unpaid balance” (Exhibit C-9; Exhibit E).
Accordingly, the NAFCO submitted two statements of such expenses, one
for P24,671.39 (Exhibit E-l), and another for additional expenses in
the sum of P1,282.22 (Exhibit E-2). The heirs of Iñigo objected, and
the Court below expressly found that several items totaling P14,757.00
did not represent expenses for new improvements but were ordinary
operating expenses incurred in the normal exploitation and offset by
the income derived from it; wherefore, the trial Court reduced the
Iñigos’ outstanding indebtedness to the NAFCO to P11,191.61 for new
improvements, less the P5,000 paid on account, leaving an actual
balance of P6,191.61.

The appellants nowhere question the correctness of the findings that
the items stricken out were not for new improvements; but aver in their
brief (eleventh assignment of error) that the Iñigos “expressly agreed
to pay to the NAFCO the sum of P16,929.61.” This averment is contrary
to the terms of the NAFCO resolution and the heirs acceptance, appended
to Exhibit E, “in so far as obligating ourselves to reimburse the NAFCO
for all its expenses incurred in the way of new improvements”, and is
further contradicted by the letters of protest of Carlos Iñigo, Exhibit
E-3 and E-4. Hence, the appellants’ stand on this point must be
overruled.

We must agree with appellants, though, in their stand that the Court
below erred in ruling that the amount to be paid by the
plaintiff—appellees to the National Bank as price for the Bago Iñigo
Estate should be limited to the unpaid balance of the principal owed by
Furukawa, on the ground that the accrued interest from January 1, 1942
to June 15, 1949, had been remitted by Republic Act No. 401. The
documents clearly prove that the Bank agreed to sell the Estate, and
the Iñigos agreed to purchase it, for the lump sum of P73,036.71. As
between the Bank and the Iñigos, there could be no question of
subdividing that amount into principal and interest, for the Iñigos
were buyers and not debtors of the Bank. The Iñigos were not at any
time subrogated in the place of Furukawa; they came in as independent
purchasers, and voluntarily agreed to pay the P73,036.71 stipulated.
How that amount was arrived at is immaterial; the Bank fixed the price
and it was unqualified accepted; hence the Iñigos were thereafter
bound to pay the price as agreed upon. Just as article 1315 of the new
Civil Code and article 1258 of the Code of 1889 bind the Bank to convey
the Estate to the Iñigos, so are the latter obligated to pay the Bank
the stipulated price. Obligations arising from contract have the force
of law between the parties.

Wherefore, the judgment appealed from is affirmed, with the sole
modification that the appellees shall pay the appellant Philippine
National Bank the sum of P60,000, in installments, and with the
interest adjudged in the decision of the Court below. Without costs in
this instance.

Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Jugo, Bautista Angelo, and Concepcion, JJ., concur.