MINDANAO ACADEMY, INC., ETC., ET AL., PLAINTIFFS AND APPELLEES VS. ILDEFONSO D. YAP, ET AL., DEFENDANTS; ROSENDA A. D. NUQUI, ET AL., PLAINTIFFS AND APPELLEES, VS. ILDEFONSO D. …

By deed entitled “Mutual
Agreement,” executed on May 10,
1964,
Rosenda A. de Nuqui (widow
of deceased Sotero Dionisio)
and her son Sotero Dionisio,
Jr. sold three Parcels of residential land in Oroquieta, Misamis Occidental, and
another parcel in Ozamis City in favor of Ildefonso D. Yap. Included in the
sale were certain buildings situated on said lands as well as laboratory
equipment, books, furniture and fixtures used by two schools established in the
respective properties: the Mindanao Academy in Oroquieta and the Misamis Academy in
Ozamis City. The aggregate price stated in
the deed was P100,700.00, to be paid according to the
terms and conditions specified in the contract.

Besides Rosenda and her son Sotero, Jr.,
both of whom signed the instrument, Adelaida Dionisio-Nuesa (a daughter of Rosenda) is also named therein as co-vendor, but actually
did not take part either personally or through her uncle and supposed
attorney-in-fact, Restituto Abuton.

These three-Rosenda and her two children above named are referred to in
the deed as the owners pro-indiviso of the properties
sold. The truth, however, was that there were other co-owners of the lands,
namely, Erlinda D. Diaz, Ester Aida D. Bas, Rosalinda
D. Belleza and Luz Minda D.
Dajao, children also of Rosenda by her deceased husband Sotero Dionisio, Sr., and that as
far as the school buildings, equipment, books, furniture and fixtures were
concerned, they were owned by the Mindanao Academy, Inc., a corporation
operating both the Mindanao Academy in Oroquieta and
the Misamis Academy in Ozamis City.

The buyer, Ildefonso D. Yap, obtained possession of the properties by
virtue of the sale, took over the operation of the two schools and even changed
their names to Harvardian Colleges. In view thereof
two actions were commenced in the Court of First Instance of Misamis Occidental. The first was for annulment of the sale
and recovery of rents and damages (Civil Case No. 1774, filed May 3, 1955) with
the Mindanao Academy, Inc., the five children of Rosenda Nuqui who did not take
part in the deed of sale, and several other persons who were stockholders of the
said corporation, as plaintiffs, and the parties who signed the deed of sale as
defendants. The second action was for rescission (Civil Case No. 1907, filed
July 17, 1956) with Rosenda Nuqui, Sotero Dionisio, Jr. and Erlinda D. Diaz
(and the latter’s husband Antolin Diaz) as plaintiffs,
and Ildefonso D. Yap as lone defendant. The other four
children of Rosenda did not join, having previously
ceded and quitclaimed their shares in the litigated properties in favor of their
sister Erlinda D. Diaz.

The two actions were tried
jointly and on March 31,
1960 the
court a quo rendered judgment as follows:

“In both
Cases;

(1) The Mutual Agreement is
hereby declared null and void ab initio;

(2) Defendant Ildefonso D. Yap is hereby ordered to pay the costs of the
proceedings in both cases;

In Civil Case No. 1907
only;

(1) Defendant Ildefonso D. Yap in hereby ordered to restore to the
plaintiffs in said case all the buildings and grounds described in the Mutual
Agreement together with all the permanent improvements
thereon;

(2) To pay to the plaintiffs
therein the amount of P300.00 monthly from July 31,
1956 up
to the time he shall have surrendered the properties in question to the
plaintiffs therein, plus P1,000.00 as attorney’s fees
to plaintiffs Antolin and Erlinda D. Diaz.

In Civil Case No. 1774
only;

(1) Defendant Ildefonso D. Yap is hereby ordered to restore to the
Mindanao Academy, Inc., all the books, laboratory apparatus, furniture and other
equipments described in the Mutual Agreement and specified in the Inventory
attached to the Records of this case; or in default thereof, their value in the
amount of P23.500.00;

(2) To return all the Records of
the Mindanao Academy and
Misamis Academy;

(3) To pay to the plaintiffs
stockholders of the Mindanao Academy, Inc., the amount of P10,000.00 as nominal
damages; P3.000.00 as exemplary damages; and P2.000.00 as attorney’s fees. There
damages shall be apportioned to each of the stockholders named as plaintiffs in
said case in proportion to their respective interests in the
corporation.”

Ildefonso D. Yap appealed from the
foregoing judgment and has assigned five errors therein.

1. He first contends that the
lower court erred “in clod siring that the mutual agreement dated
May 10,
1954. . .
is entirely void and legally non-existent in that the vendors therein ceded to
defendant-appellant not only their interest, rights, shares and participation in
the property sold but also those that belonged to persons who were not parties
thereto.”

The lower court did not rule
categorically on the question of rescission, considering it unnecessary to do so
in view of its conclusion that the contract of sale is null and void. This
conclusion is premised on two grounds: (a) the contract purported to sell
properties of which the sellers were not the only owners, since of the four
parcels of land mentioned in the deed their shares consisted only of 7/12, (6/12
for Rosenda Nuqui and 1/12
for Sotero, Jr.), while in the buildings, laboratory
equipment, books, furniture and fixtures they had no participation at all, the
owner being the Mindanao Academy, Inc.; and (b) the prestation involved in the sale was indivisible, and
therefore incapable of partial annulment, inasmuch as the buyer Yap, by his own
admission, would not have entered into the transaction except to acquire all of
the properties purchased by him.

These premises are not challenged
by appellant. But he calls attention to one point, namely, that the four
children of Rosenda Nuqui
who did not take part in the sale, besides Erlinda
Dionisio Diaz, quitclaimed in favor of the latter
their interests in the properties; and that the trial court held that Erlinda as well as her husband acted in bad faith, because
“having reasonable notice of defendants’ having unlawfully taken possession of
the property, they failed to make reasonable demands for (him) to vacate the
premises to respect their rights thereto.” It is argued that being herself
guilty of bad faith, Erlinda D. Diaz, as owner of 5/12
undivided interest in the properties (including the 4/12 ceded to her by her
four sisters), is in no position to ask for annulment of the sale. The argument
does not convince us. In the first place the quitclaim, in the form of an
extrajudicial partition, was made on May 6,
1956,
after the action for annulment was filed, wherein, the plaintiffs were not only
Erlinda but also the other co-owners who took no part
in the sale and to whom there has been no imputation of bad faith. Secondly the
trial courts’ finding of bad faith is an erroneous conclusion induced by a
manifest oversight of an undisputed fact, namely, that on June 10, 1954, just a
month after the deed of sale in question, Erlinda D.
Diaz did file an action against Ildefonso D. Yap and
Rosenda Nuqui, among others,
asserting her rights as co-owner of the properties (Case No. 1646). Finally, bad
faith on the part of Erlinda would not militate
against the nullity of the sale, considering that it included not only the lands
in common by Rosenda Nuqui
and her six children but also the buildings and school facilities owned by the
Mindanao Academy, Inc., an entity which had nothing to do with the transaction
and which could be represented solely by its Board of
Trustees.

The first assignment of error is
therefore without merit.

II. The second and third errors
are discussed jointly in appellant brief. They read as follows:

“THE
LOWER
COURT ERRED IN HOLDING
DEFENDANT-APPELLANT LIABLE FOR RENTS AND ATTORNEY’S FEES IN THE SUM OF P1,000.00 AFTER DECLARING THAT ALL THE PLAINTIFFS-APPELLEES IN
CIVIL CASE NO. 1907 ACTED IN BAD FAITH.

THE
LOWER
COURT ERRED IN HOLDING THAT PLAINTIFFS-APPELLEES IN SAID CIVIL CASE NO. 1907 ARE ENTITLED TO RECOVER ALL THE LANDS, BUILDINGS AND OTHER
PERMANENT IMPROVEMENTS DESCRIBED IN THE MUTUAL AGREEMENT DATED
MAY 10,
1954.”

The lower court correctly found
that both vendors and vendee in the sale acted in bad faith and therefore must
be treated, vis-a-vis each other, as having acted in
good faith. The return of the properties by the vendee is a necessary
consequence of the decree of annulment. No Part of the purchase price having
been paid, as far as the record shows, the trial court correctly made no
corresponding order for the restitution thereof.

In regard to the rents the trial
court found that prior to the sale the Mindanao Academy, Inc., was paying P300.00 monthly for its occupancy of the lands
on which the buildings are situated. This is the amount the defendant has been
ordered to pay to the plaintiffs in Civil Case No. 1907, beginning July 31,
1956, when he filed his “first pleading” in the case. There can be no doubt that
Erlinda D. Diaz is entitled to recover a share of the
said rents in proportion to her own interest in the lands and the interest of
her four co-owners which she had acquired. Rosenda
Nuqui and her son Sotero, it
is true, acted in bad faith when they sold the properties as theirs alone; but
so did the defendant Yap when he purchased them with knowledge of the fact that
there were other co-owners. Although the bad faith of one party neutralizes that
of the other and hence as between themselves their rights would be as if both of
them had acted in good faith at the time of the transaction, this legal fiction
of Yap’s good faith ceased when they sold the
properties as theirs alone; but so did the court’s declaration of liability for
the rents thereafter is correct and proper. A possessor in good faith is
entitled to the fruits only so long as his possession is not legally
interrupted, and such interruption takes place upon service of judicial summons
(Arts. 544 and 1123, Civil Code).

In our opinion the award of
attorney’s fees to Erlinda D. Diaz and her husband is
erroneous. Civil Case No. 1907, in which said fees have been adjudged, is for
rescission (more properly resolution) of the so-called “mutual agreement” on the
ground that the defendant Yap failed to comply with certain
undertakings specified therein relative to the payment of the purchase price.
Erlinda Diaz was not a party to that agreement and
hence had no cause of action for rescission. And as already stated, the trial
court did not decide the matter of rescission because of the decree of annulment
it rendered in the other case (Civil No. 1774), wherein the defendants are not
only Ildefonso D. Yap but also Rosenda Nuqui and her son Sotero. Erlinda D. Diaz could just
as well have refrained from joining as plaintiff in the action for rescission,
not being a part to the contract sought to be rescinded and being already one of
the plaintiffs in the other action. In other words, it cannot be said with
justification that she was constrained to litigate, in Civil Case No. 1907,
because of some cause attributable to the appellant.

The appellant claims
reimbursement for the value of the improvements he allegedly introduced in the
schools, consisting of new building worth P8.000.00 and a toilet costing
P800.00, besides laboratory equipment, furniture, fixtures and books for the
libraries. It should be noted that the judgment of the trial court specifies,
for delivery to the plaintiffs (in Civil Case No. 1907), only “the buildings and
grounds described in the mutual agreement
together with all the permanent improvements thereon.” If the
defendant constructed a new building, as he alleges, he cannot recover its value
because the construction was done after the filing of the action for annulment,
thus rendering him a builder in bad faith who is denied
by law any right of reimbursement.

In connection with the equipment,
books, furniture and fixtures brought in by him, he is not entitled to
reimbursement either, because the judgment does not award them to any of the
plaintiffs in these two actions. What is adjudged (in Civil Case No. 1774) is
for the defendant to restore to the Mindanao Academy, Inc. all the books,
laboratory apparatus, furniture and other equipment “described in the Mutual
Agreement and specified in the Inventory attached to the records of this case;
or in default thereof, their value in the amount of P23,500.00.” In other words,
“whatever has been brought in by the defendant is outside the scope of the
judgment and may be retained by him.

III. The appellant’s fourth
assignment of error refers to the nominal and exemplary damages, as well as the
attorney’s fees, granted to the stockholders of the Mindanao Academy, Inc. The
trial court awarded no compensatory damages because the Mindanao Academy, Inc.,
had been operating the two schools at a loss before the sale in question, and
the defendant himself was no more successful after lie took over. Are the
stockholders of the said corporation who joined as plaintiffs in Civil Case No.
1774 entitled to nominal and exemplary damages? We do not believe so. According
to their second amended complaint they were joined merely pro forma, and “for the sole purpose of
the moral damage which has
been all the time alleged in the original complaint.” Indeed the interests of
the said stockholders, if any, were already represented by the corporation
itself, which was the proper party plaintiff; and no cause of action accruing to
them separately from the corporation is alleged in the complaint, other than
that for moral damages due to “extreme mental anguish, serious anxiety and
wounded feelings.” The trial court, however, ruled out this claim for moral
damages and no appeal from such ruling has taken. The award for nominal and
exemplary damages should be eliminated in toto.

The award for attorney’s fees in
the amount of P2,000.00 should be upheld, although the same should be for the
account, not of the plaintiff stockholders of the Mindanao Academy, Inc., but of
the corporation itself, and payable to their common counsel as prayed for in the
complaint.

IV. Under the fifth and last
assignment of error the appellant insists on the warranty provided for in Clause
VI of the deed of sale in view of the claims of the co-owners who did not take
part therein. The said clause provides: “if any claim shall be filed against the
properties or any right, share or interest which are in the possession of the
party of the First Part (vendors) which had been hereby transferred, ceded and
conveyed unto the party of the Second Part (vendee) the party of the First Part
assumes as it hereby holds itself answerable.”

It is unnecessary to pass upon
the question posed in this assignment of error in view of the total annulment of
the sale on grounds concerning which both parties thereto were at fault. The
nullity of the contract precludes enforcement of any of its
stipulations.

WHEREFORE, the judgment appealed from is
modified by eliminating therefrom the award of
attorney’s fees of P1000.00 in favor of Erlinda D.
Diaz and her husband, plaintiffs in Civil Case No. 1907, and the award of
nominal and exemplary damages in Civil Case No. 1774; and making the award of
attorney’s fees in the sum of P2,000.00 payable to
counsel for the account of the Mindanao Academy, Inc. instead of the plaintiff
stockholders. In all other respects the judgment appealed from is affirmed. No
pronouncement as to costs.

Bengzon, C. J., Bauitista Angelo, Concepcion,
Reyes, J.B.L., Paredes and Bengzon, J.P., JJ.,
concur.