LAURETA TRINIDAD, PETITIONER, VS. INTERMEDIATE APPELLATE COURT AND VICENTE J. FRANCISCO, RESPONDENTS.

The house looked beautiful in summer but not when the waters
came.  Then it was flooded five feet deep
and less than prepossessing, let alone livable. 
Disenchanted, the buyer sued the seller for the annulment of the sale
and damages, alleging fraud.

The house was Bungalow No. 17, situated at Commonwealth Village
in Quezon City, and belonged to the late Vicente J. Francisco.  Sometime in early 1969, Laureta Trinidad, the
petitioner herein, approached him and offered to buy the property.  Francisco
was willing to sell.  Trinidad inspected
the house and lot and examined a vicinity map which indicated drainage
canals along the property.  The purchase
price was P70,000.00, with a down payment of P17,500.00.  The balance was to be paid in five equal annual installments not later than July 1 of
each year at 12% interest per
annum.

On March 29, 1969, Trinidad paid Francisco P5,000.00 as earnest
money and entered into the possession of the house.  However, as she relates it, she subsequently
heard from her new neighbors that two buyers had previously vacated the
property because it was subject to flooding. 
She says she talked to Francisco about this matter and that he told her
everything had been fixed and the house would never be flooded again.  Thus assured, she gave him P12,500.00 to
complete the down payment.  They signed
the Contract of Conditional Sale on August 8, 1969.^[1]

Trinidad paid the installment for 1970 and 1971 on time but asked
Francisco for an extension of 60 days to pay the third installment due on July
1, 1972.  However, she says she
eventually decided not to continue paying the amortizations because the house
was flooded again on July 18, 21, and 30, 1972, the waters rising to as high as
five feet on July 21.  Upon her return
from the United States on October 11, 1972, she wrote the City Engineer’s
Office of Quezon City and requested an inspection of the subject premises to
determine the cause of the flooding.

The finding of City Engineer Pantaleon P. Tabora was that
“the lot is low and is a narrowed portion of the creek.”

On January 10, 1973, the petitioner filed her complaint against
Francisco alleging that she was induced to enter into the contract of sale
because of his misrepresentations.  She
asked that the agreement be annulled and her payments refunded to her, together
with the actual expenses she had incurred for the “annexes and decorations” she had made on
the house.  She also demanded the actual
cost of the losses she had suffered as a result of the floods, moral and
exemplary damages in the sum of P200,000.00, and P10,000.00 attorney’s fees.^[2]

In his answer and amended answer, the defendant denied the charge
of misrepresentation and stressed that the plaintiff had thoroughly inspected
the property before she decided to buy it. 
The claimed creek was a drainage lot, and the floods complained of were
not uncommon in the village and indeed even in the Greater Manila area if not
the entire Luzon.  In any event, the
floods were fortuitous events not imputable to him.  He asked for the rescission of the contract
and the forfeiture of the payments made by the plaintiff plus monthly rentals
with interest of P700.00 for the
property from July 2, 1972, until the actual vacation of the property by the
plaintiff.  He also claimed litigation
expenses, including attorney’s fees.^[3]

In his decision dated June 17, 1975, Judge Sergio F. Apostol of
the then Court of First Instance of Rizal held in favor of the plaintiff and disposed as follows:

WHEREFORE, premises considered, judgment is hereby rendered:

a) ordering the
annulment of the contract of conditional sale entered into by the parties;

b) ordering
defendant’s representatives to pay to the plaintiff the amount of P49,840.00
with interest from the time of the 
filing of the complaint;

c) ordering the
defendant’s representatives to pay the amount of P39,800.00 representing the value
of the improvements and the losses  she
incurred by virtue of the
flood;

d) ordering
plaintiff to return to the defendant’s representatives the house and lot in
question;

e) ordering
defendant’s representatives to pay the amount of P5,000.00 as and by way of
attorney’s fees.

WITH COSTS AGAINST THE DEFENDANT.

Upon separate motions for reconsideration filed by both
parties.  Judge Apostol ordered and held
a new trial, resulting in a new
decision dated April 13, 1976, reiterating his original dispositions.

Both parties appealed to the respondent court, which reversed the
trial court in a decision promulgated on May 31, 1983.^[4]
The dispositive portion read as follows:

WHEREFORE, the appeal of plaintiff is hereby dismissed.  With respect to the appeal of defendant, the
decision of the lower court is hereby reversed and set aside and another one is
rendered dismissing the complaint and, upon the counterclaim, sustaining the
cancellation of the contract of
conditional sale (Exh. B) and the forfeiture of any and all sums of money paid
by plaintiff to the defendant on account of the contract to be treated as
rentals for the use and occupation of the property and ordering
the plaintiff to vacate the property.  No
special pronouncement as to costs.

This Court gave due course to the herein petition for review on certiorari of the said decision and required the
parties to submit their respective memoranda. 
Pendente lite, Vicente J. Francisco
died and was eventually substituted by his heirs,^[5]
two or whom, Trinidad J. Francisco
and Rosario F. Kelemen, filed their own joint memorandum.^[6]
The Court has deliberated on the issues and the arguments of the parties and is
now ready to act on the motions filed by the petitioner and the private
respondents for the resolution of this case.

The petitioner faults the respondent court on the following
grounds:

1.  The Intermediate Appellate Court palpably
erred in not finding that the lot on which the house in question stands is a
portion of a creek, hence outside the commerce of man.

2.  The Intermediate Appellate Court palpably
erred in finding that there was no fraud prior to the sale that induced
petitioner to enter into the said sale.

3.  The Intermediate Appellate Court palpably
erred in cancelling the complaint for non-payment of the installments and declaring the previous installments
forfeited.

4.  The Intermediate Appellate Court erred in not
granting moral damages and attorney’s fees to petitioner.

The basic issue in this controversy is whether or not, under the
established facts, there was misrepresentation on the part of Francisco to
justify the rescission of the sale and the award of damages to the petitioner.

The pertinent provisions of the Civil Code on fraud are the
following:

Art. 1338.  There is fraud
when, through insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which, without them, he
would not have agreed to.

Art. 1339.  Failure to
disclose facts, when there is a duty to reveal them, as when the parties are
bound by confidential relations, constitutes fraud.

Art. 1340.  The usual
exaggerations in trade, when the other party had an opportunity to know the
facts, are not in themselves fraudulent.

Fraud is never lightly inferred; it is good faith that is.  Under the Rules of Court, it is presumed that
“a person
is innocent of crime or wrong” ^[7]
and that “private transactions have been fair and regular.”^[8]
While disputable, these presumptions can be overcome only by clear and
preponderant evidence.

Our finding is that the fraud alleged by the petitioner has not
been satisfactorily established to call for the annulment of the contract.  This finding is based on the following
considerations.

First, it was the petitioner who admittedly approached the private respondent, who never
advertised the property nor offered it for sale to her.

Second, the petitioner had full opportunity to inspect the
premises, including the drainage canals indicated in the vicinity map that was
furnished her, before she entered into the contract of conditional sale.

Third, it is assumed that she made her appraisal of the property
not with the untrained eye of the ordinary prospective buyer but with the
experience and even expertise of the licensed real estate broker that she was.^[9]  If she minimized the presence of the drainage
canals, she has only her own negligence to blame.

Fourth, seeing that the lot was depressed and there
was a drainage lot abutting it,
she cannot say she was not forewarned of the possibility that the place might
be flooded.  Notwithstanding the obvious
condition of the property, she still decided to buy it.

Fifth, there is no evidence except her own testimony that two
previous owners of the property had vacated it because of the floods and that
Francisco assured her that the house would not be flooded again.  The supposed previous owners were not
presented as witnesses and neither were the neighbors.  Francisco himself denied having made the
alleged assurance.

Sixth, the petitioner paid the 1970 and 1971 amortizations even
if, according to her Complaint, “since 1969 said lot had been under floods
of about one (1) foot deep.”^[10]
and despite the floods of September and November 1970.

Seventh, it is also curious that notwithstanding the said floods,
the petitioner still “made annexes and decorations on the house,”^[11] all of a permanent nature, for which she now claims reimbursement
from the private respondent.

To repeat, it has not been satisfactorily established that the
private respondent inveigled the petitioner through false representation to buy
the subject property.  Assuming that he
did make such representations, as the petitioner contends, she is deemed to
have accepted them at her own risk and must therefore be responsible for the
consequences of her careless credulousness. 
In the case
of Songco v. Sellner,^[12]
the Court said:

The law allows considerable latitude to seller’s statements, or
dealer’s talk, and experience teaches that it is exceedingly risky to accept it
at its face value.  x x x

Assertions concerning the property which is the subject of a
contract of sale, or in regard to its qualities and characteristics, are the usual and ordinary means used
by sellers to obtain a high price and are always understood as affording to
buyers no ground for omitting to make inquiries.  A man who relies upon such an affirmation
made by a person whose interest might so readily prompt him to exaggerate the
value of his property does so at his
peril, and must take the consequences of his own imprudence.

We have also held that “one who contracts for the purchase
of real estate in reliance on the representations and statements of the vendor
as to its character and value, but after he has visited and examined it for
himself and has had the means and opportunity of verifying such statements,
cannot avoid the contract on the ground that they were false and
exaggerated.”^[13]

The Court must also reject the petitioner’s contention that the
lot on which the house stands is a portion of a creek and therefore outside the
commerce of man as
part of the public domain.

The said property is covered by TCT No. 102167 of the Registry
of Deeds of Quezon City.  Under the Land
Registration Act, title to the property covered by a Torrens certificate
becomes indefeasible after the expiration of one veer from the entry of the
decree of registration.  Such decree of registration is incontrovertible and is binding on
all persons whether or not they were notified of or participated in the registration proceedings.

If such title is to be challenged, it may not be done
collaterally, as in the present case, because the judicial action required is a
direct attack.  Section 48 of the
Property Registration Decree expressly provides that a certificate of title
cannot be subject to collateral attack and can be altered, modified or canceled
only in a direct proceeding in accordance with law.  This was the same rule under Act 496.^[14]
Moreover, the right of reversion belongs to the State and may be invoked on its
behalf only by the Solicitor General.^[15]

It is true, as the private
respondents have insisted and the respondent court has found, that the Contract
of Conditional Sale contains the following condition:

(d) That should the
SECOND PARTY fail to make any of the payments referred to in the aforesaid
paragraphs 2(a) and (b), of this contract
of conditional sale, shall be considered automatically rescinded and cancelled
without the necessity of notice to the SECOND PARTY, or of any judicial declaration to that effect, and any and all sums paid by the SECOND PARTY shall be considered rents and liquidated damages
for the breach of this contract, and the SECOND PARTY shall forthwith vacate
the foresaid property peacefully.

Nevertheless, we cannot say that the petitioner was, strictly
speaking, in default in the payment of the remaining amortizations in the sense
contemplated in that stipulation.  She
was not simply unable to make the required payments.  The fact is she refused to make such
payments.  If she suspended her payments,
it was because she felt she was justified in
doing so in view of the defects she found in the property.  It is noteworthy that it was she who sued the
private respondent, not the other way round, and that it was she who argued
that the seller was not entitled to the additional installments because of his
violation of the contract.  If she asked
for the annulment of the contract and the refund to her of the payments she had
already made, plus damages, it was because she felt she had the right to do so.

Given such circumstances, the Court feels and so holds that the
above-quoted stipulation should not be strictly enforced, to justify the
rescission of the contract.  To make her
forfeit the payments already made by her and at the same time return the
property to the private respondents for standing up to what she considered her
right would, in our view, be unfair and unconscionable.  Justice demands that we moderate the harsh
effects of the stipulation.  Accordingly,
in the exercise of our equity jurisdiction, we hereby rule that the Contract of
Conditional Sale shall be maintained between the parties except that the
petitioner shall not return the house to the private respondents.  However, she will have to pay them the
balance of the purchase price in the sum of P52,500.00,* with 12% annual interest from July 1, 1972, until
full payment.

Obviously, rejection of the petitioner’s claim for moral and
exemplary damages must also be sustained.

What we see here is a bad bargain, not an illegal transaction
vitiated by fraud.  While we may
commiserate with the petitioner for a purchase that has proved unwise, we can
only echo what Mr. Justice Moreland observed in Vales v. Villa,^[16]
thus:

x x x Courts cannot
follow one every step of his life and extricate him from bad bargains, protect
him from unwise investments, relieve him from one-sided contracts, or annul the effects of foolish acts.  Courts cannot constitute themselves guardians
of persons who are not legally incompetent. 
Courts operate not because one person has been defeated or overcome by
another, but because he has been defeated or overcome illegally.  Men
may do foolish things, make ridiculous contracts, use miserable judgment, and
lose money by them – indeed, all they have in the world; but not for that alone
can the law intervene and restore.  There
must be, in addition, a violation of law, the commission of what the law knows as an actionable wrong, before the courts are authorized to lay hold
of the situation and remedy it.

WHEREFORE, the appealed decision is AFFIRMED as above
modified, with no pronouncement as to costs. 
It is so ordered.

Narvasa, C.J., Feliciano, Griño-Aquino, and Medialdea, JJ., concur.

^[1]
Rollo, p. 16.

^[2]
Record on Appeal, pp. 6-12.

^[3]
Ibid., pp. 22-31.

^[4]
Rollo, pp. 42-47; Sison, J.,
ponente, with Bidin, Veloso and Jurado, JJ., concurring.

^[5]
Ibid., pp. 139-140.  Trinidad J. Francisco, Jose J. Francisco,
Salvacion F. Irinco, Rosario F. Kelemen, Rodolfo J. Francisco, Ricardo J. Francisco, Victor
O. Francisco and Gustavo Francisco. 
Substitution was delayed considerably because of the difficulty in
locating Atty. Rustico de los Reyes, Francisco’s counsel, who it turned out had
already migrated to the United States.

^[6]
Id., pp. 152-163, Another heir, Ricardo J. Francisco, asked for a
period of 45 days to file his memorandum but this has not been submitted to
date and is hereby dispensed with.

^[7]
Rule 131, Sec. 5(a).

^[8]
Rule 131, Sec. 5(p).

^[9]
Record on Appeal, p. 43.

^[10]
Ibid., p. 7.

^[11]
Id., p. 9.

^[12]
37 Phil. 254.

^[13]
Azarraga v. Gay, 52 Phil. 599.

^[14]
Cabrera v. Court of Appeals, 163 SCRA 214; Gonzales v. IAC, 157
SCRA 587.

^[15]
Sec. 101.  Public Land Act:  Republic v. Court of Appeals, 183 SCRA
620.

* Per the Contract of
Conditional Sale (Exh. B).  The amount
includes the stipulated 12% interest on the amortizations.

^[16]
35 Phil. 769.