PHILIPPINE NATIONAL BANK, PETITIONER, VS. THE HONORABLE COURT OF APPEALS (THIRD DIVISION) AND DELFIN PEREZ, SUBSTITUTED BY HIS HEIRS, RESPONDENTS. JOAQUIN DE CASTRO AND GRACIANA…

These two Petitions seek a review on certiorari of the same
Decision of the Court of Appeals promulgated on June 6, 1969 in CA-G.R. Non
32934-R, entitled “Delfin Perez vs. Philippine National Bank, et al.,
” which reversed the Decision dated March 20, 1963 of the Court of First
Instance of Davao, Branch II, in Civil Case No. 3064, with the same title.

There is no dispute as to
the following facts:

The spouses Leandro Solomon and Lepcadia Bustamante (Solomon
spouses, for short) were the registered owners of Lot No. 230 of the cadastral
survey of Davao, with an area of 126,497 square meters, situated in the
Municipality (now city) of Davao, and registered under Original Certificate of
Title No. 152 of the Registry of Deeds of Davao.^[1]

In 1932, the Solomon spouses mortgaged the land in favor of the
Banco Nacional Filipino, now the Philippine National Bank (briefly referred to
as the Bank), to secure a loan of five hundred pesos (P500.00). For failure to pay the loan on maturity, the
mortgage was foreclosed, the property was sold at public auction, and a
Certificate of Sale was executed in favor of the Bank on December 28, 1934.^[2]
It was not until “June 27, 1958, 4 P.M.”, however, that the
Certificate of Sale was registered, OCT No. 152 cancelled, and in its stead,
TCT No. 8042 issued in the name of the Bank.

The next day, after the execution of the Certificate of Sale, or
on December 29, 1934, the Solomon spouses and the Bank, represented by Amado F.
Cortes, Manager of the Davao Branch, entered into a contract denominated as
“Promesa de Venta” whereby the Bank, as the owner of the property,
bound itself to sell to the Solomon spouses for the consideration of P802.26,
all its rights, title and interest to said property, the said amount to be
payable in eight equal annual amortizations commencing on December 29, 1935;
and that upon full payment of the amortizations, the Bank would execute a final
deed of sale in favor of the Solomon spouses. Possession of the prop­erty was likewise turned over to said spouses
upon the execution of the contract. Further, it was stipulated that if the Solomon spouses should fail to
pay any of the amortizations or to comply with any provision, the contract
shall be automatically rescinded and cancelled and all payments made by
the spouses shall be considered as rentals for the use and occupation of the
property, and the Bank shall be free to take possession of the land and sell it
to a third person.^[3]

Payments were regularly made by the Solomon spouses under said
contract except for the seventh and eighth amorti­zations due on December 29,
1941 and on December 29, 1942, respectively, thus leaving an outstanding
balance of P217.23.

War broke out on December 8, 1941. Leandro Solomon died on January 8, 1943 and Leocadia Bustamante
died on March 20, 1943. Delfin Perez,
as sole heir of the deceased spouses (he being the son of Leocadia Bustamante
by her first husband Jose Perez, and the stepson of Leandro Solomon), succeeded
into the possession of the land in question.^[4]

On March 12, 1948, or approximately seven (7) years after
default, Delfin Perez offered to pay the last two amorti­zations plus accrued
interest, with the request that a Deed of Sale be executed in his favor, which
offer was rejected by the Bank Manager, Amado Lagdameo, on the ground that the
“Promesa de Venta” was executed by the Bank in favor of the Solomon
spouses. Upon suggestion of the Bank
Manager, Delfin Perez filed an action in Court for a declaration of
heirship. On September 25, 1956, the
Court of First Instance of Davao, in Special Case No. 441, declared him as the
sole and only heir of the Solomon spouses.^[5]

On May 9, 1957, Delfin Perez notified the Bank of the Court Order
declaring him as such heir and manifested his desire to pay off the remaining
obligation of his deceased par­ents. On
June 13, 1957, upon request of Delfin Perez, the Bank Manager, B. Maceda,
issued a statement of account on the loan of the deceased spouses showing that
the total amount due the Bank as of June 15, 1957 was P535.45, and informed
Delfin Perez that “as soon as (he) could cause full payment of the above
ac­count, (they) shall cause the release of the mortgage.”^[6]
Delfin Perez offered to pay the balance but the Bank Manager asked him to
increase the price.^[7]
On June 26, 1958, Delfin Perez wrote the Bank asking that he be allowed to
buy the land in question for P600.00. This was followed by another letter, dated July 22, 1958, wherein Perez
reiterated his offer, this time for P3,000.00, accompanied by a tender of
payment of P300.00. Perez at the same
time requested that the Bank per­mit him to pay the said sum of P3;000.00 in
ten (10) years, in ten (10) equal installments with interest at 8% per annum.^[8]

On August 8, 1958, the Bank, through its Manager, B. Maceda,
wrote Perez a letter informing him of the comment of the head office on his
“offer to purchase” the former property of the
deceased spouses to the effect that although the amount offered covers fully
the total claim of the Bank, yet it is too low compared to the market value of
the property; and of the suggestion of the head office that Perez should be
prevailed upon to improve his offer and reduce the term of payment from ten
(10) to five (5) years only. The
Manager also asked Perez to give his opinion on the matter.^[9]

On August 15, 1958, Perez wrote the Bank that he was raising his
“offer to buy” from P3,000.00 to P5,000.00 pay­able
in five (5) years or in five (5) equal yearly installments with 8% interest per
annum. The offer of P5,000.00 was later
increased to P7,000.00 and finally to P8,000.00. However, all these offers were turned down by the Bank.^[10]

On October 6, 1958, Perez had his adverse claim inscribed on the
Bank’s Certificate of Title.^[11]

On May 18, 1959, the Bank advised Perez that a third party was
offering to buy the property for P13,500.00 and asked him if he would equal the
offer. Delfin Perez failed to equal the
offer. On July 1, 1959, the Bank sold
the property to the spouses, Joa­quin de Castro and Graciana Pasia, and on July
2, 1959, Transfer Certificate of Title No. T-8583 was issued in the name of the
De Castro spouses.^[12]

Upon learning that the Bank had sold the property, Perez filed,
on July 7, 1959, a Complaint for Specific Performance and Damages against the
Bank, which was amended on July 21, 1959, to include the De Castro spouses as defendants (Civil Case No. 3064, CFI,
Davao, Branch II, “Delfin Perez vs. Philippine National Bank, et
al.”).^[13]
The Complaint, as amended, prayed that the Bank be ordered to accept from Perez
payment of the outstanding balance in the amount of P535.45 in accordance with
the document “Promesa de Venta” which alleg­edly is, in effect, a
perfected contract of sale; that the Register of Deeds of Davao be ordered to
cancel Transfer Certificate of Title No. 8042, and, in lieu thereof, to issue
another in the name of Perez; and that defendants be ordered to pay Perez,
jointly and severally, the amount of P1,000.00 as actual damages and P2,000.00
as attorney’s fees.^[14]

On July 9, 1959, the Bank
wrote Perez informing him of the disapproval of his offer to purchase
the property and returning to him, by way of a manager’s check, the amount of
P800.00 which represented the “earnest money” for said offer to buy.^[15]

The Bank filed an Answer on July 16, 1959, and an Amended Answer
on August 1, 1959, both with counterclaims. The Bank alleged principally that the “Promesa de Venta” had
been automatically rescinded and cancelled upon the failure of the Solomon
spouses to pay the last two installments; that it had afforded Perez all the
opportunity to reacquire the property but he failed to do so; that as
registered owner of the property, it had the perfect right to sell the same;
that it sold the land to the De Castro spouses after negotiations with Perez
for his repurchase of the property failed.

On August 4, 1959, the De Castro spouses presented their Answer
with counterclaim and a cross-claim against the Bank.^[16]
The spouses alleged that they were purchasers in good faith, for valuable
consideration, since Perez’s adverse claim was not even inscribed at the back
of the duplicate copy of TCT No. T­8042, which was in the possession of the
Bank at the time the property was sold. By way of counterclaim,
they prayed that Perez be ordered to vacate the land; to account for the
produce since July 1, 1959, and to pay reasonable rentals for the use and
occupation of the land at P400.00 per month. On their cross-claim, they prayed that the Bank be ordered to refund the
sum of P13,500.00 plus expenses and attorney’s fees in the event that the Bank
is declared without title to the property in question.

After due hearing, the Court of First Instance of Davao rendered
a Decision, dated March 20, 1963, dismissing Perez’s Complaint and resolving
the counterclaim of the De Castro spouses by ordering Perez to vacate the land
in litigation and to deliver possession thereof to the De Castro spouses.^[17]

Perez appealed to the Court of Appeals (CA-G.R. No. 32934-R),
which in a Decision*
promulgated on June 6, 1969, reversed the trial Court’s Decision; declared null
and void the sale of the property in question by the Bank in favor of the De Castro
spouses stating that they were not buyers in good faith since their title,
issued only on July 7, 1959, carried the annotation of adverse claim; ordered
the Bank to return to the De Castro spouses the price the latter paid for the
land, without any interest, “the latter being in possession of the
property;” and allowed Perez to redeem or purchase the said property, upon
payment of the last two installments due there­on, with interest at the rate
stipulated in the “Promesa de Venta.”^[18]

The Bank moved for reconsideration but this was denied by the
Court of Appeals in its Resolution of July 22, 1969.^[19]
The De Castro spouses also moved for reconsideration but their Motion was
likewise denied by the Court of Appeals in its Resolution of September 18,
1969.^[20]

Hence, these Petitions for Review on Certiorari separately
filed by the Bank and the De Castro spouses against the Court of Appeals and
Delfin Perez.

The De Castro spouses manifested in their Petition^[21]
that pursuant to their agreement with the Bank’s counsel, they were adopting
the same grounds relied upon by the Bank in its Petition in L-30831 due to the
unity and inseparability of their causes and defenses. The De Castro spouses reiterated in their Brief
(p. 2) that they were adopting the Brief filed by the Bank, although they added
two additional assignments of error (infra).

On February 3, 1977, this Court received a Manifestation from
Perez’s counsel that Perez had died. On
March 16, 1979, the Heirs of Perez also manifested that he died on July 1, 1976
and prayed that they be substituted in his stead.^[22]
That Motion is hereby granted and
Perez’s heirs hereby deemed substi­tuted for him, namely, Leona Vda. de Perez,
Lourdes P. Copas, Milagros P. Barrera, Trinidad P. Alberto, Sofio, Mercedes,
Carlito, Ricardo and Laurente, all surnamed Perez (p. 144, Rollo of L-30831),

The errors assigned by both sets of petitioners read:

I

“RESPONDENT COURT ERRED IN APPLYING ARTICLE 1191 OF THE NEW
CIVIL CODE TO THE CASE AT BAR.

II

“RESPONDENT COURT ERRED IN NOT FINDING OR DECLARING THAT THE
‘PROMESA DE VENTA’ WAS AUTOMATICALLY RESCINDED BY THE FAILURE OF THE VENDEES
THEREIN TO COMPLY WITH THE TERMS AND CONDITIONS THEREOF.

III

“RESPONDENT COURT ERRED IN NOT UPHOLDING PARAGRAPH 8 OF THE
‘PROMESA DE VENTA’.

IV

“RESPONDENT COURT ERRED IN HOLDING PETITIONER IN ESTOPPEL.

V

“RESPONDENT COURT ERRED IN HOLDING THAT THE BASIC ISSUE IN THE
PRESENT CASE IS WHETHER DELFIN PEREZ MAY STILL REDEEM THE PROPERTY SUBJECT OF
THE ‘PROMESA DE VENTA’.

VI

“RESPONDENT COURT ERRED IN APPLYING THE RULE REQUIRING
REGISTRATION OF CERTIFICATE OF SALE TO START RUNNING OF REDEMP­TION PERIOD.

VII

“RESPONDENT COURT ERRED IN ALLOWING RESPONDENT DELFIN PEREZ
THE RIGHT OF REDEMPTION OR OF PURCHASE.

VIII

“RESPONDENT COURT ERRED IN DECLARING NULL AND VOID THE SALE OF
THE PROPERTY IN QUESTION BY PETITIONER IN FAVOR OF SPOUSES DE CASTRO AND PASIA.

IX

“RESPONDENT COURT ERRED IN ORDERING THE RETURN OF THE PRICE
PAID BY THE SPOUSES DE CASTRO AND PASIA FOR THE LAND IN QUESTION.

X

“RESPONDENT COURT ERRED IN REVERSING THE DECISION OF THE TRIAL
COURT.”^[23]

The two additional Assignments of Error made by the De Castro
spouses read:

“FIRST ADDITIONAL ASSIGNMENT OF ERROR

“RESPONDENT COURT ERRED IN FINDING THAT SPOUSES DE CASTRO AND
PASIA HAD BEEN IN POSSESSION OF THE PROPERTY.

“SECOND ADDITIONAL ASSIGNMENT OF ERROR

“ASSUMING, WITHOUT ADMIT­TING THAT THE SALE OF THE PROP­ERTY
IN QUESTION BY THE PHILIP­PINE NATIONAL BANK IN FAVOR OF THE SPOUSES DE CASTRO
AND PASIA WAS NULL AND VOID AND, THERE­FORE, THE PRICE PAID FOR THE PROPERTY
SHOULD BE RETURNED, RESPONDENT COURT
ERRED IN ORDERING THE RETURN OF THE PRICE WITHOUT ANY INTEREST.”^[24]

On equitable principles, particularly on the ground of estoppel,
we must rule against petitioner Bank. “The doctrine of estoppel is based upon the grounds of public
policy, fair dealing, good faith and justice, and its purpose is to forbid one
to speak against his own act, representations, or commitments to the injury of
one to whom they were directed and who rea­sonably relied thereon. The doctrine of estoppel springs from
equitable principles and the equities in the case. It is designed to aid the law in the administration of justice
where without its aid injustice might result”.^[25]
It has been applied by this Court wherever and whenever special circumstances
of a case so demand.^[26]

Applied to the case at bar, these special circumstances may be
stated thus: Firstly, the clear intendment
of the Bank was to allow the Solomon spouses to reacquire ownership of the
property. Thus, the day after the
Certificate of Sale was issued in favor of the Bank, the latter executed the
“Promesa de Venta” in favor of the Solomon spouses giving the latter
eight years within which to reacquire their land. During those eight years, the spouses were allowed to remain in
continued possession of the subject property. Secondly, notwithstanding the sale in its favor in 1934, the Bank did
not register the same until June 27, 1958, or 24 years later. And from the death of his last surviving parent in 1943, the Bank
never disturbed Perez’s possession of the property. Thirdly, when on March 12, 1948, Perez offered to pay the last
two amortizations on the land, plus accrued interest, with the request that a
Deed of Sale be executed in his favor, his offer was rejected by the Bank
Manager, Amado Lagdameo, not on the ground that the “Promesa de
Venta” had been automatically rescinded and the right to redeem was lost,
as now alleged by petitioners, but on the ground that the “Promesa de
Venta” was executed by the Bank in favor of the Solomon spouses. It was, in fact, suggested by the Bank
Manager that Perez file an action in Court for declaration of heirship, which
the latter did, and on September 25, 1956, the Court of First Instance of Davao
in Special Case No. 441, declared him as the sole and only heir of the Solomon
spouses. Perez notified the Bank on May
9, 1957 of that Court Order and again manifested his desire to pay off the
remaining obligation of his deceased parents. Upon Perez re­quest, the Bank Manager, this time, B. Maceda, issued a state­ment of account on the loan showing that the total amount due as of
June 15, 1957 was P535.45, and informed Perez that “as soon as (he) could cause full payment of the above
account, (they) shall cause the release of the mortgage.” Perez relied on
this commitment, offered to pay the outstanding balance but the Bank Manager
asked him to increase the “price” offered. Perez made subsequent tenders until his offer reached the amount
of P8, 000.00 but the Bank still refused to allow him to redeem the same. In other words, during all the ten years of
negotiation the Bank led Perez to believe that he would be allowed to redeem
the property, only to renege on that com­mitment when it sold the property for
P13, 500.00 to the De Castro spouses.

Perez justifiably and reasonably relied upon the assurance of the
Bank’s Manager that he would be allowed to pay the re­maining obligation of his
deceased parents and he acted on that basis. Even fair dealing alone would have required the Bank to abide by its
representations, but it did not. Clearly, the equities of the case are with Perez.

The Bank’s argument that it is not bound by the acts of its
Branch Manager in Davao, is not well taken for well settled is the rule that if
a private corporation intentionally or neg­ligently clothes its officers or
agents with apparent power to perform acts for it, the corporation will be estopped
to deny that such apparent authority is real as to innocent third persons
dealing in good faith with such officers or agents.^[27]

The Bank’s reliance and insistence on the automatic rescis­sion
clause contained in the “Promesa de Venta” should not be controlling. In the first place, by allowing the Solomon
spouses and after them, their son Perez, to be in continued possession of the property and by not registering the
sale until years later, the Bank itself was not adhering strictly to its
terms. Secondly, our rulings upholding
the validity of automatic rescission clauses contained in contracts to sell
industrial and commercial real estate on installments upon failure to pay the
stipulated install­ments, and allowing the retention or forfeiture as rentals
of the installments previously paid, should not be made applicable to the
present case because the “Promesa de Venta” was not essentially a
contract to sell real estate on installments but was more of a contract for the
redemption of the mortgaged property of the Solomon spouses foreclosed by
petitioner Bank.^[28] Thirdly,
the record shows that the Solomon spouses religiously paid their annual
installments and it was only due to the out­break of the war and their untimely
deaths in 1941 and 1943, respectively, that they failed to make payments of the
last two amortizations which became due in December, 1941 and Decem­ber,
1942. The non-fulfillment of the
obligation was not of their own making, and they can be exempted from
responsibility there­for under Article 1174 of the Civil Code.^[29]
War, or its effects, or other factors which could not have been foreseen or
avoided by a party to a contract, such as uncertain conditions of peace and
order then prevailing which the Court may take judicial notice of, are deemed
sufficient causes that could justify the non-fulfillment of a contract and
exempt the party from responsibility.^[30]
Fourthly, the breach may be considered slight. The original loan secured by the subject property was P500.00; the
redemption price agreed upon in the “Promesa de Venta” was P802.26;
while the outstanding balance in December, 1941 was P217.23 only. The obligation may be said to have been
substantially performed. The original
loan was almost paid up by the Solomon spouses and could have been paid but for
the war and their supervening deaths during the Japanese occupation.

Worthy of note also is the fact that the Bank registered the
sheriff’s Certificate of Sale of the foreclosed property, which was issued on
December 28, 1934, only on “June 27, 1958, 4 P.M.” OCT No. 152 in the
name of the Solomon spouses was also cancelled only on said date and TCT No.
8042 issued in the name of the Bank. “The redemption period, for purposes of determining the time when a
final deed of sale may be executed or issued and the ownership of the
registered land consolidated in the purchaser at an extrajudicial foreclosure
sale under Act 3135, should be reckoned from the date of registration of the
certificate of sale in the office of the register of deeds concerned and not
from the date of the public auction sale.”^[31]
Consequently, the right of redemption
could still be validly exercised within one year from June 27, 1958, the date
of registration. From the facts before
us, Perez offered to redeem the property as early as March 12, 1948.

One last point. From
December 28, 1934, the date when the Bank acquired the subject property in an
extrajudicial fore­closure sale, up to July 1, 1959, the date when it sold the
same to the De Castro spouses, petitioner Bank held the property for more than
twenty-four (24) years, in violation of Section 39 of Act No. 2612, the law of
its creation, which provides:

“SEC. 39. The National
Bank is hereby authorized to purchase and own such real estate as may be
necessary for the purpose of carrying on its business. It is also authorized to hold such real
estate as it may find necessary to acquire in the collection of debts due to the said bank or to its branches; but real
estate acquired in the collection of debts shall be sold by the said bank
within three years after the date of its acquisition.”

and
the provision of the subsequent PNB Charter, RA 1300, which took effect on June
16, 1955 (as amended), whereby the period of disposal of real estate acquired
in the collection of debts is within 5 years after the date of its acquisition.

The subsequent sale of the property to the De Castro spouses
cannot prevail over the adverse claim of Perez, which was inscribed on the
Bank’s Certificate of Title on October 6, 1958. That should have put said spouses on notice and they can claim no
better legal right over and above that of Perez. The Transfer Certificate of Title issued in the spouses’ names on
July 7, 1959 (Exhs. V, V-1-a) also carried the said annotation of adverse
claim. Consequently, they are not
entitled to any interest on the price they paid for the property.

WHEREFORE, we hereby affirm the judgment of the Court
of Appeals with the following modifications:

a)   
The Philippine National Bank is ordered to accept from Delfin
Perez, or the heirs who have herein been substituted for him, the sum of
P535.45, the total amount due the Bank as of June 15, 1957, and, after receipt
thereof, to execute the corresponding Deed of Sale in favor of Perez;

b)    The Register of Deeds of Davao is ordered to
cancel Transfer Certificate of Title Nos.
8042 and T-8583 in the name of the Philippine National Bank and the De
Castro spouses, respectively, and to issue a new one in the name of Delfin
Perez; his heirs, who have been substituted for him, may pursue the necessary
legal steps for the transfer of the property in their names.

c)   
The Philippine National Bank is further ordered to
return to the De Castro spouses the price of P13,500.00, which they paid for
the property.

With costs against petitioners.

SO ORDERED.

Teehankee, (Chairman), Makasiar, Fernandez, Guerrero, and De Castro, JJ., concur.

^[1]
CA Decision, p. 40, Rollo of L- 31176

^[2]
ibid.

^[3]
Annex A, Complaint, p. 10, Record on Appeal.

^[4]
CA Decision, p. 41, Rollo of L-31176; see also CFI Decision, pp. 67 and
73, Record on Appeal.

^[5]
CA Decision, p. 42, Rollo of L-31176.

^[6]
Pp. 39-40, Record on Appeal.

^[7]
CFI Decision, p. 74, Record on Appeal.

^[8]
CA Decision, pp. 42-43, Rollo of L-31176; see also CFI Decision, p. 74,
Record on Appeal.

^[9]
CA Decision, p. 43, Rollo of
L-31176.

^[10]
CA Decision, pp. 43-44, Rollo of
L-31176.

^[11]
CA Decision, p. 45, Rollo of
L-31176.

^[12]
ibid.

^[13]
CFI Decision, p. 75, Record on Appeal.

^[14]
pp. 30-31, Record on Appeal.

^[15]
CA Decision, p. 45, Rollo of L-31176.

^[16]
pp. 18, 40 & 47, Record on Appeal.

^[17]
p. 82, Record on Appeal.

* Penned by Yatco, J., with Rodriguez, J., concurring and Alvendia, J.,
concurring in the result.

^[18]
p. 53, Rollo of L-31176.

^[19]
pp. 67 & 74, Rollo of
L-30831.

^[20]
p. 64, Rollo of L-31176.

^[21]
pp.10-11, Rollo of L-31176.

^[22]
p. 144, Rollo of L-30831.

^[23]
pp. 2-4, Brief for the petitioner Bank.

^[24]
pp. 52-53, Brief for petitioners, the
De Castro spouses.

^[25]
28 Am Jur 2d, Estoppel, § 28.

^[26]
See Castrillo vs. Court of
Appeals, 10 SCRA 549, 553-554 (1964).

^[27]
Francisco vs. GSIS, 7 SCRA 577
(1963).

^[28]
See Resolution on the Second Motion for
Reconsideration in Luzon Brokerage Co., Inc. vs. Maritime Building Co.,
Inc., 86 SCRA 305, per Teehankee, J.

^[29]
“ART. 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen, or which, though foreseen, were
inevitable.” (1105a)

^[30]
Castro vs. Longa, 89 Phil. 581
(1951).

^[31]
Reyes vs. Noblejas, 21 SCRA
1027, 1030 (1967) cited in Rosario vs. Tayug Rural Bank, 22 SCRA 1220
(1968). See also Garcia vs.
Ocampo, 105 Phil. 1102 (1959); Agbulos vs. Alberto, 5 SCRA 790 (1962);
Salazar vs. Flor de Lis Meneses, 8 SCRA 495 (1963).