G.R. No. 89139 - Posadas y Zamora vs. Court of Appeals

Case Summary (G.R. No. 89139)

Key Dates and Applicable Law

Applicable constitutional framework: the 1987 Philippine Constitution governs decisions rendered in and after 1990 and is the constitutional backdrop for the decision.
Governing statutory and doctrinal law invoked in the dispute: Civil Code provisions on contracts, ownership and co-ownership (including Article 428 on attributes of ownership and Article 484 on co-ownership), Article 1292 on novation, rules on admissibility of evidence (Sec. 34, Rule 130, Rules of Court, and the res inter alios acta doctrine and its exceptions), and established jurisprudence on registration and Torrens titles.

Factual Summary

Upon the death of Delfin I. Cruz, his surviving spouse and children executed a notarized Deed of Partial Partition (DPP) on August 22, 1977 allocating shares of several registered parcels among them. On August 23, 1977 they executed a Memorandum Agreement (MOA) — recorded and annotated on the titles — which recited the prior DPP, stated the properties had been partitioned and titled in individual names, and contained a covenant that the parties would “share alike and receive equal shares from the proceeds of the sale” of any lot adjudicated in individual names until all lots covered by the DPP had been disposed of and proceeds equally divided. Titles for seven parcels were subsequently registered in the name of Nerissa Cruz Tamayo; the MOA was annotated on those titles. The Malolos spouses obtained a money judgment against Nerissa and Nelson Tamayo; execution levied on the seven titles, which were sold at execution to the Malolos spouses. Nerissa failed to redeem; the execution sheriffs conveyed the properties to the Malolos spouses. Petitioners later brought an action for partition against the Malolos spouses, claiming co-ownership in the seven parcels by virtue of the MOA.

Procedural History

The trial court (RTC, Antipolo) rendered judgment ordering partition of the seven parcels among the petitioners and the Malolos spouses. On appeal, the Court of Appeals reversed, dismissed the partition complaint (while preserving petitioners’ claim to proceeds against Nerissa pursuant to the MOA), and found the DPP controlling. Petitioners’ motion for reconsideration before the Court of Appeals was denied. The petitioners sought review by certiorari to the Supreme Court.

Legal Issues Presented

The dispute distilled into four principal legal questions: (1) whether the MOA revoked, cancelled or novated the prior Deed of Partial Partition (DPP); (2) whether the MOA created bona fide co-ownership in the parcels among the petitioners and the Tamayo spouses; (3) whether petitioners are estopped from asserting co-ownership by their prior conduct and instruments (estoppel by deed); and (4) whether a prior RTC order in the execution proceedings had the preclusive effect of res judicata as to the existence of co-ownership.

Standard for Contractual Novation and Interpretation

Novation extinguishes a prior obligation only if the parties intend a new contract to substitute and expressly or impliedly discharge the old one. Article 1292 requires either an unequivocal declaration of substitution (express novation) or that the old and new obligations be incompatible on every point (implied novation). Interpretation of contracts is governed by the parties’ expressed intention as manifested in the contract language and their contemporaneous and subsequent acts; when language is clear, courts must give effect to it and avoid reading into the instrument an intention that contradicts its plain terms.

Court of Appeals’ Reasoning (as affirmed)

The Court of Appeals concluded that the DPP and the MOA were not materially or substantially incompatible. The DPP vested absolute title in the persons adjudicated specific lots; the MOA only created an obligation on the registered owner to share proceeds from any sale of such lot with the other parties. The Court of Appeals found no unequivocal intent in the MOA to extinguish the DPP and hold that registration of the DPP and the parties’ subsequent actions (including the petitioners’ treatment of other parcels as absolute owners when selling or mortgaging them) demonstrated the parties’ acceptance that the DPP remained effective. The appellate court also applied estoppel principles to bar petitioners from asserting co-ownership, and it found that the earlier money-collection proceedings did not produce a final adjudication on the merits of co-ownership suitable for res judicata.

Supreme Court’s Analysis on Novation and Contractual Effect

The Supreme Court affirmed the Court of Appeals. It held that the MOA did not novate or cancel the DPP because (a) the MOA did not manifest an unequivocal intent to dissolve the prior obligation or to substitute a new incompatible obligation as required by Article 1292; and (b) the DPP conferred title while the MOA merely imposed a contractual duty to share proceeds from any sale — an obligation that is compatible with, and does not impair, the registered owner’s dominion. The Court reiterated the rule that where contractual language is clear and unambiguous, the court must give effect to that language rather than to extrinsic or post-facto assertions inconsistent with it.

Co-ownership and the Effect of Registration

The Court found that the MOA’s terms retained the fact of partition and specifically vested in the registered owner the power to dispose of their adjudicated lot. Those features are inconsistent with true co-ownership, which is characterized by undivided ownership and absence of exclusive jus disponendi by any co-owner over a particular physically partitioned lot. The annotation of the MOA on the certificates of title did not convert separate titled ownership into co-ownership; registration confirms but does not create or enlarge ownership rights. Thus, the MOA did not transform the DPP’s separate titles into co-ownership and the petitioners’ reliance on annotation alone was insufficient.

Estoppel by Deed, Admissibility of Similar Acts, and the Res Inter Alios Acta Exception

The Court addressed the petitioners’ contention that their prior sales and mortgages of other parcels were inadmissible under the res inter alios acta rule. It held that those deeds were admissible under the recognized exceptions because evidence of similar acts

Case Syllabus (G.R. No. 89139)

Procedural Posture

Petition for review on certiorari filed in the Supreme Court seeking nullification of the Court of Appeals (CA) Decision in CA-G.R. CV No. 33566 promulgated July 15, 1996, and the CA Resolution of October 1, 1996 which denied petitioners' Motion for Reconsideration.
Trial court (Regional Trial Court (RTC), Antipolo, Rizal) rendered judgment on January 28, 1991 in favor of petitioners (Adoracion, Thelma, Gerry and Arnel Cruz) ordering partition of seven parcels of land among the four Cruzes and spouses Eliseo and Virginia Malolos, awarding each party a one-fifth share (382 sq. m.) and directing execution of a project of partition within 15 days; ordered defendants to pay P5,000 attorney’s fees and costs.
On appeal, the Court of Appeals reversed the RTC, dismissed the partition complaint without prejudice to petitioners’ claim for their shares in the proceeds of the auction sale of the seven parcels against Nerissa Cruz Tamayo pursuant to the Memorandum Agreement (MOA); cost against the plaintiff-appellees.
CA denied petitioners’ Motion for Reconsideration on October 1, 1996.
Supreme Court (Panganiban, J.) denied the petition and affirmed the CA decision; cost against petitioners. Davide, Jr., Bellosillo, Vitug and Quisumbing, JJ., concurred.

Core Factual Background

Delfin I. Cruz and Adoracion Cruz were spouses; their children included Thelma, Nerissa, Arnel and Gerry Cruz.
On August 22, 1977 the surviving spouse and children executed a notarized Deed of Partial Partition (DPP) (Exhibit 2) by which each received shares of several registered parcels in Taytay, Rizal.
On August 23, 1977 the same parties executed a Memorandum Agreement (MOA) (Exhibit H) which:
- Stated that the parties were “common co-owners pro-indiviso in equal shares” of the listed registered real properties.
- Recited that the Deed of Partial Partition was executed on August 22, 1977 and that as a result the properties were actually partitioned and respective shares adjudicated.
- Covenanted that despite the DPP and despite disposal or sale of individual shares, the contracting parties would “share alike and receive equal shares from the proceeds of the sale of any lot or lots allotted to and adjudicated in their individual names by virtue of this deed of partial partition.”
- Declared the MOA remained valid and enforceable until the last lot covered by the DPP had been disposed of or sold and proceeds equally divided.
The MOA was registered and its annotation placed on the titles derived from the DPP.
Consolidation, subdivision and registration followed; titles were issued in individual names.
Nerissa Cruz Tamayo received seven titles for the lands in question: TCT Nos. 502603, 502604, 502605, 502606, 502608, 502609, and 502610; the MOA annotation was carried on each of these seven titles.
Spouses Eliseo and Virginia Malolos instituted Civil Case No. 31231 against Nerissa Cruz-Tamayo and Nelson Tamayo for a sum of money; Court of First Instance of Rizal (Quezon City), Branch XVI rendered judgment June 1, 1981 in favor of the Malolos spouses for P126,529.00 with 12% interest per annum from filing plus P5,000 attorney’s fee.
Writ of execution issued November 20, 1981; sheriff levied upon the lands in question; properties sold in execution sale on June 29, 1983 to the highest bidders, spouses Eliseo and Virginia Malolos; sheriff executed Certificate of Sale (Exhibit K) conveying “all the rights, claims, interests, titles, shares, and participations of defendant spouses Nerissa Tamayo and Nelson Tamayo.”
Nerissa Cruz Tamayo did not redeem within the statutory period; final deed of sale executed by the sheriff conveying the lands to spouses Malolos.
Malolos demanded owner’s duplicate copies of the seven titles from Nerissa; she refused. Malolos moved to compel surrender to Register of Deeds for cancellation. On September 7, 1984 the court granted surrender for cancellation, but Nerissa did not comply.
Cruzes (Adoracion, Thelma, Gerry and Arnel) intervened, alleging they were co-owners of Nerissa over the lands in question. On January 18, 1985 the court modified the September 7, 1984 order: titles were to be surrendered to the Register of Deeds not for cancellation but for annotation of the rights acquired by the Malolos spouses.
On February 17, 1987 the Cruzes filed Civil Case No. 961-A for Partition of Real Estate against spouses Eliseo and Virginia Malolos over the lands in question.
Trial court entered judgment in favor of Cruzes (partition and allocation of 1/5 shares), from which Malolos appealed to the CA which reversed and dismissed the complaint.

Issues Presented to the Supreme Court

Whether the Deed of Partial Partition (DPP) was cancelled, novated or superseded by the Memorandum of Agreement (MOA).
Whether the MOA established co-ownership of the lots in question between petitioners and the judgment debtors (Tamayo spouses).
Whether petitioners are barred by estoppel (estoppel by deed) from claiming co-ownership of the seven parcels of land.
Whether res judicata operates in favor of petitioners, i.e., whether a prior order of the RTC of Quezon City (Branch LXXXVI/86) confirming co-ownership binds the present claim.

Petitioners’ Assignments of Error (as submitted)

A. CA erred in ruling that the MOA does not prevail over the DPP.
B. CA erred in ruling that petitioners can only claim their right to proceeds of the auction sale.
C. CA erred in ruling that petitioners are in estoppel by deed.
D. CA erred in ruling that registration of the DPP precluded petitioners from abrogating it.
E. CA erred by ignoring the finality of the order of the RTC of Quezon City, Branch LXXXVI, as embodied in the decision of the RTC of Antipolo, Branch 71.

Court of Appeals’ Ruling (as summarized in source)

Central question posed by CA: Did the MOA revoke, cancel or supersede the DPP?
CA held the DPP was not revoked, cancelled or superseded by the MOA. Key rationales:
- The DPP and MOA were not materially and substantially incompatible: DPP granted absolute ownership to persons adjudicated shares; MOA only created an obligation on the absolute owner to share proceeds from sale.
- The fact that Nerissa registered the DPP and acquired titles was inconsistent with any alleged intention to abandon the DPP; abandonment would have been evidenced by destruction or gathering up of copies, which did not occur.
- Peti