SALES CASE DIGEST A. BASIC CONCEPT I. DEFINITION OF CONTRACT 222 Acap v. CA [G.R. No. 118114. December 7, 1995.

] First Division, Padilla (J): 4 concur Facts: The title to Lot 1130 of the Cadastral Survey of Hinigaran, Negros Occidental was evidenced by OCT R-12179. The lot has an area of 13,720 sq. m. The title was issued and is registered in the name of spouses Santiago Vasquez and Lorenza Oruma. After both spouses died, their only son Felixberto inherited the lot. In 1975, Felixberto executed a duly notarized document entitled Declaration of Heirship and Deed of Absolute Sale in favor of Cosme Pido. Since 1960, Teodoro Acap had been the tenant of a portion of the said land, covering an area of 9,500 sq. m. When ownership was transferred in 1975 by Felixberto to Cosme Pido, Acap continued to be the registered tenant thereof and religiously paid his leasehold rentals to Pido and thereafter, upon Pidos death, to his widow Laurenciana. The controversy began when Pido died interstate and on 27 November 1981, his surviving heirs executed a notarized document denominated as Declaration of Heirship and Waiver of Rights of Lot 1130 Hinigaran Cadastre, wherein they declared to have adjudicated upon themselves the parcel of land in equal share, and that they waive, quitclaim all right, interests and participation over the parcel of land in favor of Edy de los Reyes. The document was signed by all of Pidos heirs. Edy de los Reyes did not sign said document. It will be noted that at the time of Cosme Pidos death, title to the property continued to be registered in the name of the Vasquez spouses. Upon obtaining the Declaration of Heirship with Waiver of Rights in his favor, de los Reyes filed the same with the Registry of Deeds as part of a notice of an adverse claim against the original certificate of title. Thereafter, delos Reyes sought for Acap to personally inform him that he had become the new owner of the land and that the lease rentals thereon should be paid to him. Delos Reyes alleged that he and Acap entered into an oral lease agreement wherein Acap agreed to pay 10 cavans of palay per annum as lease rental. In 1982, Acap allegedly complied with said obligation. In 1983, however, Acap refused to pay any further lease rentals on the land, prompting delos Reyes to seek the assistance of the then Ministry of Agrarian Reform (MAR) in Hinigaran, Negros Occidental. The MAR invited Acap, who sent his wife, to a conference scheduled on 13 October 1983. The wife stated that the she and her husband did not recognize delos Reyess claim of ownership over the land. On 28 April 1988, after the lapse of four (4) years, delos Reys field a complaint for recovery of possession and damages against Acap, alleging that as his leasehold tenant, Acap refused and failed to pay the agreed annual rental of 10 cavans of palay despite repeated demands. On 20 August 1991, the lower court rendered a decision in favor of delos Reyes, ordering the forfeiture of Acaps preferred right of a Certificae of Land Transfer under PD 27 and his farmholdings, the return of the farmland in Acaps possession to delos Reyes, and Acap to pay P5,000.00 as attorneys fees, the sum of P1,000.00 as expenses of litigation and the amount of P10,000.00 as actual damages. Aggrieved, petitioner appealed to the Court of Appeals. Subsequently, the CA affirmed the lower courts decision, holding that de los Reyes had acquired ownership of Lot No. 1130 of the Cadastral Survey of Hinigaran, Negros Occidental based on a document entitled Declaration of Heirship and Waiver of Rights, and ordering the dispossession of Acap as leasehold tenant of the land for failure to pay rentals. Hence, the petition for review on certiorari. The Supreme Court granted the petition, set aside the decision of the RTC Negros Occidental, dismissed the complaint for recovery of possession and damages against Acap for failure to properly state a cause of action, without prejudice to private respondent taking the proper legal steps to establish the legal mode by which he claims to have acquired ownership of the land in question. 1. Asserted right or claim to ownership not sufficient per se to give rise to ownership over the res An asserted right or claim to ownership or a real right over a thing arising from a juridical act, however justified, is not per se sufficient to give rise to ownership over the res. That right or title must be completed by fulfilling certain conditions imposed by law. Hence, ownership and real rights are acquired only pursuant to a legal mode or process. While title is the juridical justification, mode is the actual process of acquisition transfer of ownership over a thing in question. 2. Classes of modes of acquiring ownership Under Article 712 of the Civil Code, the modes of acquiring ownership are generally classified into two (2) classes, namely, the original mode (i.e, through occupation, acquisitive prescription, law or intellectual creation) and the derivative mode (i.e., through succession mortis causa or tradition as a result of certain contracts, such as sale, barter, donation, assignment or mutuum). 3. Contract of Sale; Declaration of Heirship and Waiver of Rights an extrajudicial settlement between heirs under Rule 74 of the Rules of Court In a Contract of Sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other party to pay a price certain in money or its equivalent. On the other hand, a declaration of heirship and waiver of rights operates as a public instrument when filed with the Registry of Deeds whereby the intestate heirs adjudicate and divide the estate left by the decedent among themselves as they see fit. It is in effect an extrajudicial settlement between the heirs under Rule 74 of the Rules of Court. In the present case, the trial court erred in equating the nature and effect of

the Declaration of Heirship and Waiver of Rights the same with a contract (deed) of sale. 4. Sale of hereditary rights and waiver of hereditary rights distinguished There is a marked difference between a sale of hereditary rights and a waiver of hereditary rights. The first presumes the existence of a contract or deed of sale between the parties. The second is, technically speaking, a mode of extinction of ownership where there is an abdication or intentional relinquishment of a known right with knowledge of its existence and intention to relinquish it, in favor of other persons who are co-heirs in the succession. In the present case, de los Reyes, being then a stranger to the succession of Cosme Pido, cannot conclusively claim ownership over the subject lot on the sole basis of the waiver document which neither recites the elements of either a sale, or a donation, or any other derivative mode of acquiring ownership. 5. Summon of Ministry of Agrarian Reform does not conclude actuality of sale nor notice of such sale The conclusion, made by the trial and appellate courts, that a sale transpired between Cosme Pidos heirs and de los Reyes and that Acap acquired actual knowledge of said sale when he was summoned by the Ministry of Agrarian Reform to discuss de los Reyes claim over the lot in question, has no basis both in fact and in law. 6. A notice of adverse claim does not prove ownership over the lot; Adverse claim not sufficient to cancel the certificate of tile and for another to be issued in his name A notice of adverse claim, by its nature, does not however prove private respondents ownership over the tenanted lot. A notice of adverse claim is nothing but a notice of a claim adverse to the registered owner, the validity of which is yet to be established in court at some future date, and is no better than a notice of lis pendens which is a notice of a case already pending in court. In the present case, while the existence of said adverse claim was duly proven (thus being filed with the Registry of Deeds which contained the Declaration of Heirship with Waiver of rights an was annotated at the back of the Original Certificate of Title to the land in question), there is no evidence whatsoever that a deed of sale was executed between Cosme Pidos heirs and de los Reyes transferring the rights of the heirs to the land in favor of de los Reyes. De los Reyes right or interest therefore in the tenanted lot remains an adverse claim which cannot by itself be sufficient to cancel the OCT to the land and title to be issued in de los Reyes name. 7. Transaction between heirs and de los Reyes binding between parties, but cannot affect right of Acap to tenanted land without corresponding proof thereof While the transaction between Pidos heirs and de los Reyes may be binding on both parties, the right of Acap as a registered tenant to the land cannot be perfunctorily forfeited on a mere allegation of de los Reyes ownership without the corresponding proof thereof. Acap had been a registered tenant in the subject land since 1960 and religiously paid lease rentals thereon. In his mind, he continued to be the registered tenant of Cosme Pido and his family (after Pidos death), even if in 1982, de los Reyes allegedly informed Acap that he had become the new owner of the land. 8. No unjustified or deliberate refusal to pay the lease rentals to the landowner / agricultural lessor De los Reyes never registered the Declaration of Heirship with Waiver of Rights with the Registry of Deeds or with the MAR, but instead, he filed a notice of adverse claim on the said lot to establish ownership thereof (which cannot be done). It stands to reason, therefore, to hold that there was no unjustified or deliberate refusal by Acap to pay the lease rentals or amortizations to the landowner/agricultural lessor which, in this case, de los Reyes failed to established in his favor by clear and convincing evidence. This notwithstanding the fact that initially, Acap may have, in good faith, assumed such statement of de los Reyes to be true and may have in fact delivered 10 cavans of palay as annual rental for 1982 to latter. For in 1983, it is clear that Acap had misgivings over de los Reyes claim of ownership over the said land because in the October 1983 MAR conference, his wife Laurenciana categorically denied all of de los Reyes allegations. In fact, Acap even secured a certificate from the MAR dated 9 May 1988 to the effect that he continued to be the registered tenant of Cosme Pido and not of delos Reyes. 9. Sanction of forfeiture of tenants preferred right and possession of farmholdings should not be applied The sanction of forfeiture of his preferred right to be issued a Certificate of Land Transfer under PD 27 and to the possession of his farmholdings should not be applied against Acap, since de los Reyes has not established a cause of action for recovery of possession against Acap. II. NO CONTRACT OF SALE Toyota Shaw v. CA [G.R. No. 116650. May 23, 1995.] First Division, Davide Jr (J): 3 concur, 1 on leave Facts: Sometime in June 1989, Luna L. Sosa wanted to purchase a Toyota Lite Ace. It was then a sellers market and Sosa had difficulty finding a dealer with an available unit for sale. But upon contracting Toyota Shaw, Inc., he was told that there was an available unit. So on 14 June 1989, Sosa and his son, Gilbert, went to the Toyota Shaw Boulevard, Pasig, Metro Manila. They met Popong Bernardo, a sales representative of Toyota. Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 because he, his family, and a balikbayan guest would use it on 18 June 1989 to go Marinduque, his home province, where he would celebrate his birthday on 19 June. He added that if he does not arrive in his hometown with the new car, he would become a laughing stock. Bernardo assured Sosa that a unit would be ready for pick up at 10:00 a.m. on 17 June 1989. Bernardo

then signed a document entitled Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc, stipulating that all necessary documents will be submitted to Toyota Shaw (Popong Bernardo) a week after, upon arrival of Mr. Sosa from the Province (Marinduque) where the unit will be used on the 19 June; that the downpayment of P100,000.00 will be paid by Mr. Sosa on 15 June 1989; and that the Toyota Shaw, Inc. will be released a yellow Lite Ace unit. It was also agreed upon by the parties that the balance of the purchase price would be paid by credit financing through B.A. Finance, and for this Gilbert, on behalf of his father, signed the documents of Toyota and B.A. Finance pertaining to the application for financing. The next day, Sosa and Gilbert went to Toyota to deliver the downpayment of P100,000.00. They met Bernardo who then accomplished a printed Vehicle Sales Proposal (VSP) 928, on which Gilbert signed under the subheading conforme. This document shows that the customers name is Mr. Luna Sosa with home address at 2316 Guijo Street, United Paraaque II; that the model series of the vehicle is a Lite Ace 1500 described as 4 Dr minibus; that payment is by installment, to be financed by B.A., with the initial cash outlay of P100,000.00 (downpayment: P53,148.00; insurance: P13,970.00; BLT registration fee: P1,067.00; CHMO fee: P2,715.00; Service fee: P500.00; and accessories: P29,000.00) and the balance to be financed is P274,137.00. The spaces provided for delivery terms were not filledup. It also contains conditions of sales providing that the sale is subject to the availability of the unit, and that the stated price is subject to change without prior notice, and that the price prevailing and in effect at time of selling will apply. Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the VSP. On 17 June (9:30 a.m.), Bernardo called Gilbert to inform him that the vehicle would not be ready for pick up at 10:00 a.m. as previously agreed upon but at 2:00 p.m. that same day. At 2:00 p.m., Sosa and Gilbert met Bernardo at the latters office. According to Sosa, Bernardo informed them that the Lite Ace was being readied for delivery. After waiting for about an hour, Bernardo told them that the car could not be delivered because it was acquired by a more influential person. Toyota contends, however, that the Lite Ace was not delivered to Sosa because of the disapproval of B.A. Finance of the credit financing application of Sosa. It further alleged that a particular unit had already been reversed and earmarked for Sosa but could not be released due to the uncertainty of payment of the balance of the purchase price. Toyota then gave Sosa the option to purchase the unit by paying the full purchase price in cash but Sosa refused. After it became clear that the Lite Ace would not be delivered to him, Sosa asked that his downpayment be refunded. Toyota did so on the very same day by issuing a Far East Bank check for the full amount of P100,000.00, the receipt of which was shown by a check voucher of Toyota, which Sosa signed with the reservation, without prejudice to our future claims for damages. Thereafter, Sosa sent two letters to Toyota: one on 27 June 1989 demanding the refund, within 5 days from receipt, of the downpayment of P100,000.00 plus interest from the time he paid it and the payment of damages with a warning that in case of Toyotas failure to do so he would be constrained to take legal action; and the other on 4 November 1989 (signed by M.O. Caballes, Sosas counsel) demanding P1M representing interest and damages, again, with a warning that legal action would be taken if payment was not made within 3 days. Toyotas counsel answered through as letter dated 27 November 1989 8 refusing to accede to the demands of Sosa. But even before the answer was made and received by Sosa, the latter filed on 20 November 1989 with the RTC Marinduque (Branch 38) a complaint against Toyota for damages under Articles 19 and 21 of the Civil Code in the total amount of P1,230,000.00. After trial on the issue agreed upon during the pre-trial session, the trial court rendered on 18 February 1992 a decision in favor of Sosa. It ruled that the Agreement between Mr. Sosa and Popong Bernardo, was a valid perfected and contract of sale between Sosa and Toyota which bound Toyota to deliver the vehicle to Sosa, and further agreed with Sosa that Toyota acted in bad faith in selling to another the unit already reserved for him; that Bernardo, as an authorized sales executive of Toyota Shaw, was the latters agent and thus bound Toyota Shaw; that Luna Sosa proved his social standing in the community and suffered besmirched reputation, wounded feelings and sleepless nights for which he ought to be compensated; and thus rendered judgment ordering Toyota Shaw to pay Sosa the sum of P75,000 as moral damages, P10,000 as exemplary damages, P30,000 as attorneys fees plus P2,000 lawyers transportation fare per trip in attending to the hearing of the case, P2,000 for Sosas transportation fare per trip in attending the hearing of the case, and to pay the cost of the suit. Dissatisfied with the trial courts judgment, Toyota appealed to the Court of Appeals (CA-GR CV 40043). In its decision promulgated on 29 July 1994, the Court of Appeals affirmed in toto the appealed decision. Hence the petition for review by certiorari by Toyota Shaw. The Supreme Court granted the petition, and dismissed the challenged decision of the Court of Appeals and that of Branch 38 of the Regional Trial Court of Marinduque, and the counterclaim therein; without pronouncement as to costs. 1. Contract of sale defined; Kinds Article 1458 of the Civil Code defines a contract of sale as By the contract of the sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. 2. Contract of sale, when perfected; Effect Article 1475 of the Civil Code specifically provides when the contract of sale is deemed perfected, i.e. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may

reciprocally demand performance, subject to the provisions of the law governing the form of contracts. 3. Agreement between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc. not a contract of sale The Agreements between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc. executed on 4 June 1989, is not a contract of sale. No obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative obligation on the part of the latter to pay therefor a price certain appears therein. The provision on the downpayment of P100,000.00 made no specific reference to a sale, it could only refer to a sale on installment basis, as the VSP executed the following day confirmed. But nothing was mentioned about the full purchase price and the manner the installments were to be paid. Neither logic nor recourse to ones imagination can lead to the conclusion that such agreement is a perfected contract of sale. 4. Definitive price is an essential element in the formation of a binding and enforceable contract of sale A definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of sale. This is so because the agreement as to the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. Definiteness as to the price is an essential element of a binding agreement to sell personal property. 5. No meeting of the minds The Agreements between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc. shows the absence of a meeting of minds between Toyota and Sosa. Sosa did not even sign it. Further, Sosa was well aware from its title, written in bold letters, and thus knew that he was not dealing with Toyota but with Popong Bernardo and that the latter did not misrepresent that he had the authority to sell any Toyota vehicle. 6. Prudence and reasonable diligence in inquiring authority of agent Sosa knew that Bernardo was only a sales representative of Toyota and hence a mere agent of the latter. It was incumbent upon Sosa to act with ordinary prudence and reasonable diligence to know the extent of Bernardos authority as an agent in respect of contracts to sell Toyotas vehicles. A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. 7. Three stages in the contract of sale There are three stages in the contract of sale, namely (a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties; (b) perfection of birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and (c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. In the present case, the Agreements between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc. may be considered as part of the initial phase of the generation of negotiation stage of a contract sale. The second phase of the generation or negotiation stage was the execution of the VSP (the downpayment of the purchase price was P53,148.00 while the balance to be paid on installment should be financed by B.A. Finance. It is assumed that B.A Finance was acceptable to Toyota). 8. Financing companies defined Financing companies are defined in Section 3(a) of RA 5980, as amended by PDs 1454 and 1793, as corporations or partnerships, except those regulated by the Central Bank of the Philippines, the Insurance Commission and the and the Cooperatives Administration Office, which are primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises, either by discounting or factoring commercial papers or accounts receivable, or by buying and selling contracts, leases, chattel mortgages, or other evidence of indebtedness, or by leasing of motor vehicles, heavy equipment and industrial machinery, business and office machines and equipment, appliances and other movable property. 9. Parties in a sale on installment basis financed by a financing company; No meeting of minds as financing application was disapproved In a sale on installment basis which is financed by a financing company, 3 parties are thus involved: (1) the buyer who executes a note or notes for the unpaid balance of the price of the thing purchased on installment, (2) the seller who assigns the notes or discounts them with a financing company, and (3) the financing company which is subrogated in the place of the seller, as the creditor of the installment buyer. Since B.A. Finance did not approve Sosas application, there was then no meeting of minds on the sale on installment basis. 10. Toyotas version of circumstances leading to non-release of vehicle more credible Toyotas version that B.A. Finance disapproved Sosas application for which reason it suggested to Sosa that he pay the full purchase price is more credible. When the latter refused, Toyota cancelled the VSP and returned to him his P100,000.00. Sosas version, that the VSP was cancelled because the vehicle was delivered to another because of a more influential client, is contradicted by paragraph 7 of his complaint which states that Bernardo for reasons known only to its representatives, refused and/or failed to release the vehicle to the plaintiff . Plaintiff demanded for an explanation, but nothing was given. 11. VSP mere proposal and did not create demandable right in favor of Sosa when it was aborted The VSP was a mere proposal which was aborted in lieu of subsequent events. Thus, the VSP created no demandable right in favor of Sosa for

the delivery of the vehicle to him, and its non-delivery did not cause any legally indemnifiable injury. 12. Award of moral damages without legal basis The award of moral damages is without legal basis. The only ground upon which Sosa claimed moral damages is that since it was known to his friends, townmates, and relatives that he was buying a Toyota Lite Ace which they expected to see on his birthday, he suffered humiliation, shame, and sleepless nights when the van was not delivered. The van became the subject matter of talks during his celebration that he may not have paid for it, and this created an impression against his business standing and reputation created an impression against his business standing and reputation. At the bottom of this claim is nothing but misplaced pride and ego. He should not have announced his plan to buy Toyota Lite Ace knowing that he might not be able to pay the full purchase price. It was he who brought embarrassment upon himself by bragging about a thing which he did not own yet. 13. Award of exemplary damages without basis; Purpose of exemplary damages Since Sosa is not entitled to moral damages and there being no award for temperate, liquidated, or compensatory damages, he is likewise not entitled to exemplary damages. Under Article 2229 of the Civil Code, exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages. 14. Award of attorneys fees without basis For attorneys fees to be granted the court must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the legal reason for the award of attorneys fees. No such explicit determination thereon was made in the body of the decision of the trial court. Thus, no reason exists for such award. B. ESSENTIAL CHARACTERISTICS OF CONTRACT OF SALE 1. NOMINATE AND PRINCIPAL Romero v. CA 250 SCRA 15 Facts: Virgilio Romero and his foreign partners decided to put up a central warehouse in Metro Manila. Alfonso Flores, in behalf of Enriqueta Chua vda. De Ongsiong, proposed the latters lot to Romero as the site for the said warehouse. A contract denominated as Deed of Conditional Sale was executed between Romero and Ongsiong where the amount of P50,000 was received from Romero for the purpose of taking up am ejectment case against the squatters found therein. Ongsiong sought to return the amount she received from Romero as she claimed she is unable to rid the land of squatters, notwithstanding the favorable judgment already promulgated by the court in the ejectment case. Romeros counsel refused the tender and expressed willingness to underwrite the expense of executing the judgment chargeable to the purchase price of the land. Ongsiong filed a case with the trial court for the rescission of the deed of conditional sale, and for the consignation of the amount of P50,000. The trial court rendered a decision in favor of Romero, which was reversed by the Court of Appeals. Issue: Whether the Deed of Conditional Sale is a perfected contract of sale Held: The deed of sale, even if denominated as a deed of conditional sale, may be treated as absolute in nature, especially if title to the property sold is not reserved in the vendor or if the vendor is not granted the right to unilaterally rescind the contract predicated on the fulfillment or non-fulfillment of the prescribed condition. In determining the real character of contract, the substance and not the title given by the party is more significant. Upon perfection, i.e. where the seller obligates himself, for a price certain, to deliver and to transfer ownership of a specific thing or right to the buyer over which the latter agrees, the parties are bound not only to the fulfillment of what was expressly stipulated but also the consequences which may be in keeping with good faith, usage and law. Being a perfected contract of sale, no rescission can be had. The proper action is an action for damages. Arguendo that rescission is available as a remedy, as provide by Article 1191 in reciprocal obligations, it may only be availed of by the injured party. 2.CONSENSUAL Quijada v. CA [G.R. No. 126444. December 4, 1998.] Second Division, Martinez (J): 3 concur Facts: Petitioners (Alfonso, Cresente, Reynalda, Demetrio, Eliuteria, Eulalio, and Warlito) are the children of the late Trinidad Corvera Vda. de Quijada. Trinidad was one of the heirs of the late Pedro Corvera and inherited from the latter the 2-hectare parcel of land subject of the case, situated in the barrio of San Agustin, Talacogon, Agusan del Sur. On 5 April 1956, Trinidad Quijada together with her sisters Leonila Corvera Vda. de Sequea and Paz Corvera Cabiltes and brother Epapiadito Corvera executed a conditional deed of donation of the 2-hectare parcel of land in favor of the Municipality of Talacogon, the condition being that the parcel of land shall be used solely and exclusively as part of the campus of the proposed provincial high school in Talacogon. Apparently, Trinidad remained in possession of the parcel of land despite the donation. On 29 July 1962, Trinidad sold 1 hectare of the subject parcel of land to Regalado Mondejar. Subsequently, Trinidad verbally sold the remaining 1 hectare to Mondejar without the benefit of a written deed of sale and evidenced solely by receipts of payment. In 1980, the heirs of Trinidad, who at that time was already dead, filed a complaint for forcible entry against Mondejar, which complaint was, however, dismissed for failure to prosecute. In 1987, the proposed provincial high

school having failed to materialize, the Sangguniang Bayan of the municipality of Talacogon enacted a resolution reverting the 2 hectares of land donated back to the donors. In the meantime, Mondejar sold portions of the land to Fernando Bautista, Rodolfo Goloran, Efren Guden, and Ernesto Goloran. On 5 July 1988, the petitioners filed a complaint against private respondents (Mondejar, Rodulfo and Ernesto Goloran, Asis, Ras, Abiso, Bautista, Macasero and Maguisay) for quieting of title, recovery of possession and ownership of parcels of land with claim for attorneys fees and damages. The trial court rendered judgment in favor of the petitioners, holding that Trinidad Quijada did not have legal title or right to sell the land to Mondejar as it belongs to the Municipality of Talacogon at that time, and that the deed of sale in favor of Mondejar did not carry the conformity and acquiescence of her children considering that Trinidad was already 63 years old and a widow. The trial court ordered the defendants (private respondents), and any person acting in defendants behalf to return and vacate the 2 hectares of land to the plaintiff, and to remove their improvements constructed on the lot; ordered the cancellation of the deed of sale executed by Trinidad to Mondejar, as well as the deeds of sale/relinquishments executed by Mondejar to the other defendants; and ordered the defendants to pay the plaintiffs, in solidum, the amount of P10,000, P8,000, and P30,000 as attorneys fees, expenses of litigation and moral damages, respectively. On appeal, the Court of Appeals reversed and set aside the judgment a quo ruling that the sale made by Trinidad Quijada to respondent Mondejar was valid as the former retained an inchoate interest on the lots by virtue of the automatic reversion clause in the deed of donation. Thereafter, petitioners filed a motion for reconsideration. When the CA denied their motion, petitioners instituted a petition for review to the Supreme Court. The Supreme Court affirmed the assailed decision of the Court of Appeals. 1. Condition valid in donation if not contrary to law, morals, good customs, public order or public policy The donation made on April 5, 1956 by Trinidad Quijada and her brother and sisters was subject to the condition that the donated property shall be used solely and exclusively as a part of the campus of the proposed Provincial High School in Talacogon. The donation further provides that should the proposed Provincial High School be discontinued or if the same shall be opened but for some reason or another, the same may in the future be closed the donated property shall automatically revert to the donor. Such condition, not being contrary to law, morals, good customs, public order or public policy was validly imposed in the donation. 2. Donation as mode of acquiring ownership When the Municipalitys acceptance of the donation was made known to the donor, the former became the new owner of the donated property, donation being a mode of acquiring and transmitting ownership, notwithstanding the condition imposed by the donee. The donation is perfected once the acceptance by the donee is made known to the donor. Accordingly, ownership is immediately transferred to the latter and that ownership will only revert to the donor if the resolutory condition is not fulfilled. 3. Condition to construct school is a resolutory condition The resolutory condition, in the present case, is the construction of the school. It has been ruled that when a person donates land to another on the condition that the latter would build upon the land a school, the condition imposed is not a condition precedent or a suspensive condition but a resolutory one. So long as the resolutory condition subsists and is capable of fulfillment, the donation remains effective and the donee continues to be the owner subject only to the rights of the donor or his successors-in-interest under the deed of donation. Since no period was imposed by the donor on when must the donee comply with the condition, the latter remains the owner so long as he has tried to comply with the condition within a reasonable period. Such period, however, became irrelevant herein when the donee manifested that it cannot comply with the condition and the same was made known to the donor. Only then, when the non-fulfillment of the resolutory condition was brought to the donors knowledge, that ownership of the donated property reverted to the donor as provided in the automatic reversion clause of the deed of donation. 4. Inchoate interest may be subject of contract including a contract of sale; Interest over property under conditional deed of donation, not the land itself The donor may have an inchoate interest in the donated property during the time that ownership of the land has not reverted to her. Such inchoate interest may be the subject of contracts including a contract of sale. In the present case, however, what the donor sold was the land itself which she no longer owns. It would have been different if the donor-seller sold her interests over the property under the deed of donation which is subject to the possibility of reversion of ownership arising from the non-fulfillment of the resolutory condition. 5. Laches, elements Laches presupposes failure or neglect for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, thus, giving rise to a presumption that the party entitled to assert it either has abandoned or declined to assert it. Its essential elements of (a) Conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation complained of; (b) Delay in asserting complainants right after he had knowledge of the defendants conduct and after he has an

opportunity to sue; (c) Lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and, (d) Injury or prejudice to the defendant in the event relief is accorded to the complainant are absent in this case. In the present case, petitioners cause of action to quiet title commenced only when the property reverted to the donor and/or his successors-ininterest in 1987, not in the 1960s when they had no interest over the property at that time except under the deed of donation to which private respondents were not privy. Moreover, petitioners had previously filed an ejectment suit against private respondents only that it did not prosper on a technicality. 6. Sale, being a consensual contract, is perfected by mere consent; Seller need not own property when sold but when delivered Sale, being a consensual contract, is perfected by mere consent, which is manifested the moment there is a meeting of the minds as to the offer and acceptance thereof on three (3) elements: subject matter, price and terms of payment of the price. Ownership by the seller on the thing sold at the time of the perfection of the contract of sale is not an element for its perfection. What the law requires is that the seller has the right to transfer ownership at the time the thing sold is delivered. Perfection per se does not transfer ownership which occurs upon the actual or constructive delivery of the thing sold. A perfected contract of sale cannot be challenged on the ground of non-ownership on the part of the seller at the time of its perfection; hence, the sale is still valid. 7. Sellers title passes by operation of law to the buyer The consummation of the perfected contract is another matter. It occurs upon the constructive or actual delivery of the subject matter to the buyer when the seller or her successors-in-interest subsequently acquires ownership thereof. In the present case, such circumstance happened in this case when petitioners (Trinidads heirs) became the owners of the subject property upon the reversion of the ownership of the land to them. Consequently, ownership is transferred to Mondejar and those who claim their right from him. Article 1434 of the New Civil Code supports the ruling that the sellers title passes by operation of law to the buyer. This rule applies not only when the subject matter of the contract of sale is goods, but also to other kinds of property, including real property. 8. Article 1409 (4) does not provide that the properties of a municipality are outside the commerce of man; Objects outside of the commerce of man are those which cannot be appropriated Nowhere in Article 1409 (4) is it provided that the properties of a municipality, whether it be those for public use or its patrimonial property, are outside the commerce of men; so as to render the contract involving the same inexistent and void from the beginning when sold. In the present case, the lots were conditionally owned by the municipality. To rule that the donated properties are outside the commerce of men would render nugatory the unchallenged reasonableness and justness of the condition which the donor has the right to impose as owner thereof. Moreover, the objects referred to as outside the commerce of man are those which cannot be appropriated, such as the open seas and the heavenly bodies. 9. No factual or legal basis for the award of fees and damages There is neither factual nor legal basis for the trial courts award of attorneys fees, litigation expenses and moral damages. Attorneys fees and expenses of litigation cannot, following the general rule in Article 2208 of the New Civil Code, be recovered in the present case, there being no stipulation to that effect and the case does not fall under any of the exceptions. It cannot be said that private respondents had compelled petitioners to litigate with third persons. Neither can it be ruled that the former acted in gross and evident bad faith in refusing to satisfy the latters claims considering that private respondents were under an honest belief that they have a legal right over the property by virtue of the deed of sale. Moral damages cannot likewise be justified as none of the circumstances enumerated under Articles 2219 27 and 2220 28 of the New Civil Code concur in this case. Fule v. CA [G.R. No. 112212. March 2, 1998.] Third division, Romero (J): 3 concur Facts: Fr. Antonio Jacobe initially mortgage a 10-hectare property in Tanay, Rizal (covered by TCT 320725) to the Rural Bank of Alaminos, Laguna to secure a loan in the amount of P10,000. Said mortgage was later foreclosed and the property offered for public auction upon his default. In June 1984, Gregorio Fule, as corporate secretary of the bank, asked Remelia Dichoso and Olivia Mendoza to look for a buyer who might be interested in the Tanay property. The two found one in the person of Ninevetch Cruz. It so happened that in January of said year, Gregorio Fule, also a jeweler, has shown interest in buying a pair of emerald-cut diamond earrings owned by Dr. Cruz. Dr. Cruz has declined Fules offer to buy said jewelry for P100,000; and a subsequent bid by Fule to buy them for US$6,000 at $1 to P25 while making a sketch of said jewelry during an inspection at the lobby of Prudential Bank (the latter instance was declined, since the exchange rate appreciated to P19 per dollar). Subsequently, however, negotiations for the barter of the jewelry and the Tanay property ensued. Atty. Belarmino was requested by Dr. Cruz to check the property and found out that no sale or barter was feasible as the 1-year period of redemption has not expired. In an effort to cut through any legal impediment, Fule executed on 19 October 1984, a deed of redemption on behalf of Fr. Jacobe purportedly in the amount of P15,987.78, and on even date, Fr. Jacobe sold the property to Fule for P75,000.00. The haste with which the two deeds were executed is shown by the fact that the deed of sale was notarized ahead of the deed of redemption. As Dr. Cruz had already agreed to the proposed barter, Fule went to Prudential Bank to take a look at the jewelry. On 23 October 1984, Fule met Atty. Belarmino at the latters residence to prepare the documents of sale. Atty. Belarmino accordingly caused

the preparation of a deed of absolute sale while Fule and Dr. Cruz attended to the safekeeping of the jewelry. The following day, Fule, together with Dichoso and Mendoza, arrived at the residence of Atty. Belarmino to finally execute a deed of absolute sale. Fule signed the deed and gave Atty. Belarmino the amount of P13,700.00 for necessary expenses in the transfer of title over the Tanay property; and issued a certification to the effect that the actual consideration of the sale was P200,000.00 and not P80,000.00 as indicated in the deed of absolute sale (the disparity purportedly aimed at minimizing the amount of the capital gains tax that Fule would have to shoulder). Since the jewelry was appraised only at P160,000.00, the parties agreed that the balance of P40,000.00 would just be paid later in cash. Thereafter, at the bank, as pre-arranged, Dr. Cruz and the cashier opened the safety deposit box, and delivered the contents thereof to Fule. Fule inspected the jewelry, near the electric light at the banks lobby, for 10-15 minutes. Fule expressed his satisfaction by nodding his head when asked by Dr. Cruz if the jewelry was okay. For services rendered, Fule paid the agents, Dichoso and Mendoza, the amount of US$300.00 and some pieces of jewelry. He did not, however, give them half of the pair of earrings in question, which he had earlier promised. Later in the evening, Fule arrived at the residence of Atty. Belarmino complaining that the jewelry given him was fake. Dichoso, who borrowed the car of Dr. Cruz, called up Atty. Belarmino. Informed that Fule was at the lawyers house, went there posthaste thinking that Fule had finally agreed to give them half of the pair of earrings, only to find Fule demonstrating with a tester that the earrings were fake. Fule then accused Dichoso and Mendoza of deceiving him which they, however, denied. They countered that Fule could not have been fooled because he had vast experience regarding jewelry. Fule nonetheless took back the US$300.00 and jewelry he had given them. Thereafter, the group decided to go to the house of a certain Macario Dimayuga, a jeweler, to have the earrings tested. Dimayuga, after taking one look at the earrings, immediately declared them counterfeit. At around 9:30 p.m., Fule went to one Atty. Reynaldo Alcantara residing at Lakeside Subdivision in San Pablo City, complaining about the fake jewelry. Upon being advised by the latter, Fule reported the matter to the police station where Dichoso and Mendoza likewise executed sworn statements. On 26 October 1984, Fule filed a complaint before the RTC San Pablo City against private respondents praying, among other things, that the contract of sale over the Tanay property be declared null and void on the ground of fraud and deceit. On 30 October 1984, the lower court issued a temporary restraining order directing the Register of Deeds of Rizal to refrain from acting on the pertinent documents involved in the transaction. On 20 November 1984, however, the same court lifted its previous order and denied the prayer for a writ of preliminary injunction. After trial, the lower court rendered its decision on 7 March 1989; holding that the genuine pair of earrings used as consideration for the sale was delivered by Dr. Cruz to Fule, that the contract was valid even if the agreement between the parties was principally a barter contract, that the agreement has been consummated at the time the principal parties parted ways at the bank, and that damages are due to the defendants. From the trial courts adverse decision, petitioner elevated the matter to the Court of Appeals. On 20 October 1992, the Court of Appeals, however, rendered a decision affirming in toto the lower courts decision. His motion for reconsideration having been denied on 19 October 1993. Hence, the petition for review on certiorari. The Supreme Court affirmed in toto the decision of the Court of Appeals, but ordered Dr. Cruz to pay Fule the balance of the purchase price of P40,000 within 10 days from the finality of the decision; with costs against petitioner. 1. New factual issues cannot be examined as it unduly transcends the limits of the Supreme Courts review power The Supreme Court cannot entertain a factual issue, and thus examine and weigh anew the facts regarding the genuineness of the earrings bartered in exchange for the Tanay property, as this would unduly transcend the limits of the Courts review power in petitions of this nature which are confined merely to pure questions of law. As a general rule, the Supreme Court accords conclusiveness to a lower courts findings of fact unless it is shown, inter alia, that: (1) the conclusion is a finding grounded on speculations, surmises or conjectures; (2) the inference is manifestly mistaken, absurd and impossible; (3) when there is a grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; and (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admission of both parties. To reiterate, the Supreme Courts jurisdiction is only limited to reviewing errors of law in the absence of any showing that the findings complained of are totally devoid of support in the record or that they are glaringly erroneous as to constitute serious abuse of discretion. 2. Immediate rendition of decision not anomalous No proof has been adduced that Judge Jaramillo was motivated by a malicious or sinister intent in disposing of the case with dispatch. Neither is there proof that someone else wrote the decision for him. The immediate rendition of the decision was no more than Judge Jaramillos compliance with his duty as a judge to dispose of the courts business promptly and decide cases within the required periods. The two-year period within which Judge Jaramillo handled the case provided him with all the time to study it and even write down its facts as soon as these were presented to court. In fact, the Supreme Court does not see anything wrong in the practice of writing a decision days before the scheduled promulgation of judgment and leaving the dispositive portion for typing at a time close to the date of promulgation, provided that no malice or any wrongful conduct attends its adoption. The practice serves the dual purposes of safeguarding the confidentiality of draft decisions and rendering decisions with promptness. Neither can Judge Jaramillo be made administratively answerable for the immediate rendition of the

decision. The acts of a judge which pertain to his judicial functions are not subject to disciplinary power unless they are committed with fraud, dishonesty, corruption or bad faith. Hence, in the absence of sufficient proof to the contrary, Judge Jaramillo is presumed to have performed his job in accordance with law and should instead be commended for his close attention to duty. 3. Contract perfected by mere consent, binds parties to stipulation and all the consequences; Contract of sale perfected upon meeting of minds upon the thing object of the contract and upon price; Embodiment of contract in public instrument only for convenience, and registration only to affect third parties; Lack of formal requirements does not invalidate the contract The Civil Code provides that contracts are perfected by mere consent. From this moment, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. Being consensual, a contract of sale has the force of law between the contracting parties and they are expected to abide in good faith by their respective contractual commitments. Article 1358 of the Civil Code which requires the embodiment of certain contracts in a public instrument, is only for convenience, and registration of the instrument only adversely affects third parties. Formal requirements are, therefore, for the benefit of third parties. Noncompliance therewith does not adversely affect the validity of the contract nor the contractual rights and obligations of the parties thereunder. 4. Voidable or annullable contracts Contracts that are voidable or annullable, even though there may have been no damage to the contracting parties are: (1) those where one of the parties is incapable of giving consent to a contract; and (2) those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. The contract can be voided in accordance with law so as to compel the parties to restore to each other the things that have been the subject of the contract with their fruits, and the price with interest. 5. Fraud; No inducement made by the private respondents There is fraud when, through the 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. In the present case, the records, are bare of any evidence manifesting that private respondents employed such insidious words or machinations to entice petitioner into entering the contract of barter. Neither is there any evidence showing that Dr. Cruz induced petitioner to sell his Tanay property or that she cajoled him to take the earrings in exchange for said property. On the contrary, Dr. Cruz did not initially accede to petitioners proposal to buy the said jewelry. Rather, it appears that it was petitioner, through his agents, who led Dr. Cruz to believe that the Tanay property was worth exchanging for her jewelry as he represented that its value was P400,000.00 or more than double that of the jewelry which was valued only at P160,000.00. If indeed petitioners property was truly worth that much, it was certainly contrary to the nature of a businessman-banker like him to have parted with his real estate for half its price. In short, it was in fact petitioner who resorted to machinations to convince Dr. Cruz to exchange her jewelry for the Tanay property. 7. Mistake; Mistake caused by manifest negligence cannot invalidate a judicial act To invalidate a contract, mistake must refer to the substance of the thing that is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract. An example of mistake as to the object of the contract is the substitution of a specific thing contemplated by the parties with another. In the present case, the petitioner failed to prove the fact that prior to the delivery of the jewelry to him, private respondents endeavored to make such substitution of an inferior one or one with Russian diamonds for the jewelry he wanted to exchange with his 10-hectare land. Further, on account of his work as a banker-jeweler, it can be rightfully assumed that he was an expert on matters regarding gems. He had the intellectual capacity and the business acumen as a banker to take precautionary measures to avert such a mistake, considering the value of both the jewelry and his land. A mistake caused by manifest negligence cannot invalidate a juridical act. As the Civil Code provides, (t)here is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract. 8. Contract of sale absolute if no stipulation that title to property is reserved to seller until full payment; Ownership transferred upon actual or constructive delivery A contract of sale being absolute in nature, title passed to the vendee upon delivery of the thing sold since there was no stipulation in the contract that title to the property sold has been reserved in the seller until full payment of the price or that the vendor has the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. Such stipulations are not manifest in the contract of sale. In the present case, both the trial and appellate courts, therefore, correctly ruled that there were no legal bases for the nullification of the contract of sale. Ownership over the parcel of land and the pair of emerald-cut diamond earrings had been transferred to Dr. Cruz and Fule, respectively, upon the actual and constructive delivery thereof. 9. Contract silent when balance is due and demandable; non-payment does not invalidate the contract While it is true that the amount of P40,000.00 forming part of the consideration was still payable to Fule, its nonpayment by Dr. Cruz is not a sufficient cause to invalidate the contract or bar the transfer of

ownership and possession of the things exchanged considering the fact that their contract is silent as to when it becomes due and demandable. 10 No interest due if it is not stipulated Failure to pay the balance of the purchase price does not result in the payment of interest thereon. Article 1589 of the Civil Code prescribes the payment of interest by the vendee for the period between the delivery of the thing and the payment of the price in cases (1) Should it have been so stipulated; (2) Should the thing sold and delivered produce fruits or income; (3) Should he be in default, from the time of judicial or extrajudicial demand for the payment of the price. 11. Case distinguished from de la Cruz v Legaspi The present case should be distinguished from De la Cruz v. Legaspi, where the court held that failure to pay the consideration after the notarization of the contract as previously promised resulted in the vendees liability for payment of interest. In the present, there is no stipulation for the payment of interest in the contract of sale nor proof that the Tanay property produced fruits or income. Neither did petitioner demand payment of the price as in fact he filed an action to nullify the contract of sale. 12 Award of moral and exemplary damages Moral and exemplary damages may be awarded without proof of pecuniary loss. In awarding such damages, the court shall take into account the circumstances obtaining in the case and assess damages according to its discretion. To warrant the award of damages, it must be shown that the person to whom these are awarded has sustained injury. He must likewise establish sufficient data upon which the court can properly base its estimate of the amount of damages. Statements of facts should establish such data rather than mere conclusions or opinions of witnesses. Thus, for moral damages to be awarded, it is essential that the claimant must have satisfactorily proved during the trial the existence of the factual basis of the damages and its causal connection with the adverse partys acts. If the court has no proof or evidence upon which the claim for moral damages could be based, such indemnity could not be outrightly awarded. The same holds true with respect to the award of exemplary damages where it must be shown that the party acted in a wanton, oppressive or malevolent manner. 13. Rule that moral damages cannot be recovered from person who filed a complaint does not apply in present case While, as a rule, moral damages cannot be recovered from a person who has filed a complaint against another in good faith because it is not sound policy to place a penalty on the right to litigate, the same, however, cannot apply in the present case. This is not a situation where petitioners complaint was simply found later to be based on an erroneous ground which, under settled jurisprudence, would not have been a reason for awarding moral and exemplary damages. Instead, the cause of action of the instant case appears to have been contrived by petitioner himself. The factual findings of the courts a quo to the effect that petitioner filed this case because he was the victim of fraud; that he could not have been such a victim because he should have examined the jewelry in question before accepting delivery thereof, considering his exposure to the banking and jewelry businesses; and that he filed the action for the nullification of the contract of sale with unclean hands, all deserve full faith and credit to support the conclusion that petitioner was motivated more by ill will than a sincere attempt to protect his rights in commencing suit against respondents. It must be noted that before petitioner was able to convince Dr. Cruz to exchange her jewelry for the Tanay property, petitioner took pains to thoroughly examine said jewelry, even going to the extent of sketching their appearance. Why at the precise moment when he was about to take physical possession thereof he failed to exert extra efforts to check their genuineness despite the large consideration involved has never been explained at all by petitioner. His acts thus failed to accord with what an ordinary prudent man would have done in the same situation. 4. ONEROUS Gaite v. Fonacier [G.R. No. L-11827. July 31, 1961.] En Banc, Reyes JBL (J): 9 concur Facts: Isabelo Fonacier was the owner and/or holder of 11 iron lode mineral claims (Dawahan Group), situated in Jose Panganiban, Camarines Norte. By a Deed of Assignment dated 29 September 1952, Fonacier constituted and appointed Fernando A. Gaite as his true and lawful attorney-in-fact to enter into a contract with any individual or juridical person for the exploration and development of the mining claims on a royalty basis of not less than P0.50 per ton of ore that might be extracted therefrom. On 19 March 1954, Gaite in turn executed a general assignment conveying the development and exploitation of said mining claims unto the Larap Iron Mines, owned solely by him. Thereafter Gaite embarked upon the development and exploitation of the mining claims, opening and paving roads within and outside their boundaries, making other improvements and installing facilities therein for use in the development of the mines, and in time extracted therefrom what he claimed and estimated to be approximately 24,000 metric tons of iron ore. For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to Gaite, and Gaite assented thereto subject to certain conditions. As a result, a document entitled Revocation of Power of Attorney and Contract was executed on 8 December 1954, wherein Gaite transferred to Fonacier, for the consideration of P20,000, plus 10% of the royalties that Fonacier would receive from the mining claims, all his rights and interests on all the roads, improvements, and facilities in or outside said claims, the right to use the business name Larap Iron Mines and its goodwill, and all the records and documents relative to the mines. In the same document, Gaite transferred to Fonacier all his rights and interests over the 24,000 tons of iron ore,

more or less that the former had already extracted from the mineral claims, in consideration of the sum of P75,000, P10,000, of which was paid upon the signing of the agreement, and the balance to be paid out of the first letter of credit covering the first shipment of iron ores or the first amount derived from the local sale of iron ore made by the Larap Mines & Smelting Co. To secure the payment of the balance, Fonacier promised to execute in favor of Gaite a surety bond; delivered on 8 December 1954 with Fonacier as principal and the Larap Mines and Smelting Co. and its stockholders as sureties. A second bond was executed by the parties to the first bond, on the same day, with the Far Eastern Surety and Insurance Co. as additional surety, but it provided that the liability of the surety company would attach only when there had been an actual sale of iron ore by the Larap Mines & Smelting Co. for an amount of not less than P65,000. Both bond were attached and made integral parts of the Revocation of Power of Attorney and Contract. On the same day that Fonacier revoked the power of attorney, Fonacier entered into a Contract of Mining Operation with Larap Mines and Smelting Co., Inc. to grant it the right to develop, exploit, and explore the mining claims, together with the improvements therein and the use of the name Larap Iron Mines and its goodwill, in consideration of certain royalties. Fonacier likewise transferred, in the same document, the complete title to the approximately 24,000 tons of iron ore which he acquired from Gaite, to the Larap Mines & Smelting Co., in consideration for the signing by the company and its stockholders of the surety bonds delivered by Fonacier to Gaite. On 8 December 1955, the bond with respect to the Far Eastern Surety and Insurance Company expired with no sale of the approximately 24,000 tons of iron ore, nor had the 65,000 balance of the price of said ore been paid to Gaite by Fonacier and his sureties. Whereupon, Gaite demanded from Fonacier and his sureties payment of said amount. When Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed a complaint against them in the CFI Manila (Civil Case 29310) for the payment of the P65,000 balance of the price of the ore, consequential damages, and attorneys fees. Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to pay him, jointly and severally, P65,000 with interest at 6% per annum from 9 December 1955 until full payment, plus costs. From this judgment, defendants jointly appealed to the Supreme Court as the claims involved aggregate to more than P200,000. The Supreme Court affirmed the decision appealed from, with costs against appellants. 1. Shipment or local sale of ore not a condition precedent but a suspensive period or term The shipment or local sale of the iron ore is not a condition precedent (or suspensive) to the payment of the balance of P65,000, but was only a suspensive period or term. What characterizes a conditional obligation is the fact that its efficacy or obligatory force (as distinguished from its demandability) is subordinated to the happening of a future and uncertain event; so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. 2. The words of the contract express no contingency in the buyers obligation to pay. The contract stipulates that the balance of Sixty-Five Thousand Pesos (P65,000) will be paid out of the first letter of credit covering the first shipment of iron ore . . . etc. There is no uncertainty that the payment will have to be made sooner or later; what is undetermined is merely the exact date at which it will be made. By the very terms of the contract, therefore, the existence of the obligation to pay is recognized; only its maturity or demandability is deferred. 3. Contract of sale commutative and onerous; Each party assume correlative obligation and anticipate performance from the other A contract of sale is normally commutative and onerous: not only does each one of the parties assume a correlative obligation (the seller to deliver and transfer ownership of the thing sold and the buyer to pay the price), but each party anticipates performance by the other from the very start. While in a sale the obligation of one party can be lawfully subordinated to an uncertain event, so that the other understands that he assumes the risk of receiving nothing for what he gives (as in the case of a sale of hopes or expectations, emptio spei), it is not in the usual course of business to do so; hence, the contingent character of the obligation must clearly appear. In the present case, nothing is found in the record to evidence that Gaite desired or assumed to run the risk of losing his rights over the ore without getting paid for it, or that Fonacier understood that Gaite assumed any such risk. The fact that appellants did put up such bonds indicates that they admitted the definite existence of their obligation to pay the balance of P65,000. 4. To consider sale as a condition precedent leaves the payment at the discretion o fthe debtor To subordinate the obligation to pay the remaining P65,000 to the sale or shipment of the ore as a condition precedent, would be tantamount to leaving the payment at the discretion of the debtor, for the sale or shipment could not be made unless the appellants took steps to sell the ore. Appellants would thus be able to postpone payment indefinitely. Such construction of the contract should be avoided. 5. Interpretation incline in favor of the greatest reciprocity of interests Assuming that there could be doubt whether by the wording of the contract the parties intended a suspensive condition or a suspensive period (dies ad quem) for the payment of the P65,000, the rules of interpretation would incline the scales in favor of the greatest reciprocity of interests, since sale is essentially onerous. The Civil Code of the Philippines, Article 1378, paragraph 1, in fine, provides if the contract is onerous, the doubt shall be settled in favor of the greatest

reciprocity of interests and there can be no question that greater reciprocity obtains if the buyers obligation is deemed to be actually existing, with only its maturity (due date) postponed or deferred, than if such obligation were viewed as non-existent or not binding until the ore was sold. 6. Sale of ore to Fonacier was a sale on credit, not an aleatory contract The sale of the ore to Fonacier was a sale on credit, and not an aleatory contract where the transferor, Gaite, would assume the risk of not being paid at all; and that the previous sale or shipment of the ore was not a suspensive condition for the payment of the balance of the agreed price, but was intended merely to fix the future date of the payment. 7. Non-renewal of bond impaired the securities given to the creditor Appellants have forfeited the right to compel Gaite to wait for the sale of the ore before receiving payment of the balance of P65,000, because of their failure to renew the bond of the Far Eastern Surety Company or else replace it with an equivalent guarantee. The expiration of the bonding companys undertaking on 8 December 1955 substantially reduced the security of the vendors rights as creditor for the unpaid P65,000, a security that Gaite considered essential and upon which he had insisted when he executed the deed of sale of the ore to Fonacier. The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines which provides (2) When he does not furnish to the creditor the guaranties or securities which he has promised. (3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through fortuitous event they disappear, unless he immediately gives new ones equally satisfactory. Appellants failure to renew or extend the surety companys bond upon its expiration plainly impaired the securities given to the creditor (appellee Gaite), unless immediately renewed or replaced. 8. No waiver intended by creditor Gaites acceptance of the surety companys bond with full knowledge that on its face it would automatically expire within one year was not a waiver of its renewal after the expiration date. No such waiver could have been intended, for Gaite stood to lose and had nothing to gain thereby; and if there was any, it could be rationally explained only if the appellants had agreed to sell the ore and pay Gaite before the surety companys bond expired on 8 December 1955. But in the latter case the defendants- appellants obligation to pay became absolute after 1 year from the transfer of the ore to Fonacier by virtue of the deed. 9. No short-delivery made by Gaite This is a case of a sale of a specific mass of fungible goods for a single price or a lump sum, the quantity of 24,000 tons of iron ore, more or less, stated in the contract, being a mere estimate by the parties of the total tonnage weight of the mass; and second, that the evidence shows that neither of the parties had actually measured or weighed the mass, so that they both tried to arrive at the total quantity by making an estimate of the volume thereof in cubic meters and then multiplying it by the estimated weight per ton of each cubic meter. The sale between the parties is a sale of a specific mass of iron ore because no provision was made in their contract for the measuring or weighing of the ore sold in order to complete or perfect the sale, nor was the price of P75,000 agreed upon by the parties based upon any such measurement (see Art. 1480, second par., New Civil Code). The subject-matter of the sale is, therefore, a determinate object, the mass, and not the actual number of units or tons contained therein, so that all that was required of the seller Gaite was to deliver in good faith to his buyer all of the ore found in the mass, notwithstanding that the quantity delivered is less than the amount estimated by them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield Salvage Co., Inc. 171 So. 872, applying art. 2459 of the Luisiana Civil Code). The contract expressly stated the amount to be 24,000 tons, more or less. Applying the tonnage factor provided by the chief of Mines and Metallurgical Division of the Bureau of Mines which was between 3 metric tons minimum to 5 metric tons maximum, which was near the 3.3 metric ton tonnage factor adopted by Engr. Gamatero (at the request of Krakower, a stockholder of Larap), and if appellants witness is correct in his estimate of 6,609 cubic meters of ore, the product is 21,809.7 tons which is not far from the 24,000 tons estimate. (cf. Pine River Logging & Improvement Co. vs. U. S., 186 U.S. 279, 46, L. Ed. 1164). Thus, there was no short-delivery as would entitle appellants to the payment of damages, nor could Gaite have been guilty of any fraud in making any misrepresentation to appellants as to the total quantity of ore in the stockpiles of the mining claims in question since Gaites estimate appears to be substantially correct. 6. SALES IS TITLE, NOT MODE Equatorial Realty vs. Mayfair Theater [G.R. No. 106063. November 21, 1996.] En Banc, Hermosisima Jr. (J): 13 concur, 1 took no part Facts: Carmelo & Bauermann Inc. (Carmelo) owned a parcel of land, together with two 2-storey buildings constructed thereon located at Claro M Recto Avenue, Manila (TCT 18529, Register of Deeds of Manila). On 1 June 1967, Carmelo entered into a contract of lease with Mayfair Theater for the latters lease of a portion of Carmelos property, i.e. a portion of the 2/F of the two-storey building with floor area of 1610 sq.ms. and the second floor and mezzanine of the two-storey building situated at CM Recto Avenue, Manila with a floor area of 150 sq.ms. for use by Mayfair as a motion picture theater and for a term of 20 years. Mayfair thereafter constructed on the leased property a movie house known as Maxim Theatre. On 31 March 1969, Mayfair entered into a second contract of lease with Carmelo for the lease of another portion of Carmelos property, i.e. a portion of the 2/F of the two-storey building with floor area of 1064 sq.ms. and two store spaces at the ground floor and mezzanine of the two-storey building situated at CM Recto Avenue, Manila with a floor area of 300 sq.ms. and bearing street numbers 1871

and 1875 for similar use as a movie theater and for a similar term of 20 years. Mayfair put up another movie house known as Miramar Theatre on this leased property. Both contracts of lease provide identically worded paragraph 8, which reads That if the LESSOR should desire to sell the leased premises, the lessee shall be given 30-days exclusive option to purchase the same. In the event, however, that the leased premises is sold to someone other than the Lessee, the lessor is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall recognize this lease and be bound by all the terms and conditions thereof. Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President of Mayfair, through a telephone conversation that Carmelo was desirous of selling the entire Claro M. Recto property. Mr. Pascal told Mr. Yang that a certain Jose Araneta was offering to buy the whole property for US$1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing to buy the property for P6 million to P7 million. Mr. Yang replied that he would let Mr. Pascal know of his decision. On 23 August 1974, Mayfair replied through a letter confirming the correspondence between Pascual and Yang and reiterating paragraph 8 of the two contracts of lease. Carmelo did no reply to this letter. On 18 September 1974, Mayfair sent another letter to Carmelo purporting to express interest in acquiring not only the leased premises but the entire building and other improvements if the price is reasonable. However, both Carmelo and Equatorial questioned the authenticity of the second letter. Four years later, on 30 July 1978, Carmelo sold its entire CM. Recto Avenue land and building, which included the leased premises housing the Maxim and Miramar theatres, to Equatorial by virtue of a Deed of Absolute Sale, for the total sum of P1,300,000. In September 1978, Mayfair instituted the action for specific performance and annulment of the sale of the leased premises to Equatorial. In its Answer, Carmelo alleged as special and affirmative defense that it had informed Mayfair of its desire to sell the entire CM. Recto Avenue property and offered the same to Mayfair, but the latter answered that it was interested only in buying the areas under lease, which was impossible since the property was not a condominium; and that the option to purchase invoked by Mayfair is null and void for lack of consideration. Equatorial, in its Answer, pleaded as special and affirmative defense that the option is void for lack of consideration and is unenforceable by reason of its impossibility of performance because the leased premises could not be sold separately from the other portions of the land and building. It counterclaimed for cancellation of the contracts of lease, and for increase of rentals in view of alleged supervening extraordinary devaluation of the currency. Equatorial likewise cross-claimed against codefendant Carmelo for indemnification in respect of Mayfairs claims. After assessing the evidence, the court rendered decision dismissing the complaint with costs against Mayfair; ordering Mayfair to pay Carmelo & Bauermann P40,000.00 by way of attorneyss fees on its counterclaim; and ordering Mayfair to pay Equatorial Realty P35,000.00 per month as reasonable compensation for the use of areas not covered by the contracts of lease from 31 July 1979 until Mayfair vacates said areas plus legal interest from 31 July 1978; P70,000.00 per month as reasonable compensation for the use of the premises covered by the contracts of lease dated (1 June 1967 from 1 June 1987 until Mayfair vacates the premises plus legal interest from 1 June 1987; P55,000.00 per month as reasonable compensation for the use of the premises covered by the contract of lease dated 31 March 1969 from 30 March 1989 until Mayfair vacates the premises plus legal interest from 30 March 1989; and P40,000.00 as attorneys fees; and dismissing Equatorials crossclaim against Carmelo & Bauermann. The trial court adjudged the identically worded paragraph 8 found in both lease contracts to be an option clause which however cannot be deemed to be binding on Carmelo because of lack of distinct consideration therefor. Mayfair taking exception to the decision of the trial court, appealed to the Court of Appeals. The appellate court reversed the trial court and rendered judgment reversing and setting aside the appealed Decision; directing Mayfair to pay and return to Equatorial the amount of P11,300,000.00 within 15 days from notice of this Decision, and ordering Equatorial to accept such payment; directing Equatorial, upon payment of the sum of P11,300,000, to execute the deeds and documents necessary for the issuance and transfer of ownership to Mayfair of the lot registered under TCT 17350, 118612, 60936, and 52571; and should Mayfair be unable to pay the amount as adjudged, declaring the Deed of Absolute Sale between Carmelo and Equatorial as valid and binding upon an the parties. Hence, the petition for review. The Supreme Court denied the petition for review of the decision of the Court of Appeals (23 June 1992, in CA-GR CV 32918), declaring the Deed of Absolute Sale between Equatorial and Carmelo as deemed rescinded; ordering Carmelo to return to Equatorial the purchase price; directing Equatorial to execute the deeds and documents necessary to return ownership to Carmelo of the disputed lots; and ordering Carmelo to allow Mayfair to buy the lots for P11,300,000. 1. Issue on irregularities in Court of Appeals passed upon so as not to preempt the administrative proceedings related thereto It was raised that the Court of Appeals violated its own internal rules in the assignment of appealed cases when it allowed the same Division XII, particularly Justice Manuel Herrera, to resolve all the motions in the Completion Process and to still resolve the merits of the case in the Decision Stage. This was related to letter complaint written by the counsel for Equatorial on 20 September 1992 to the Supreme Court alleging certain irregularities and infractions committed by certain lawyers, and Justices of the Court of Appeals and of the Supreme Court in connection with case CA-GR CV 32918 (GR 106063). This partakes of the nature of an administrative complaint for misconduct, against members of the judiciary. While the letter-complaint arose as an incident in said case, the disposition thereof should be separate and independent from case GR 106063. It would be correct, prudent and

consistent course of action not to pre-empt the administrative proceedings to be undertaken respecting the said irregularities. A discussion of such in the present case would entail a finding on the merits as to the real nature of the questioned procedures and the true intentions and motives of the players therein. 2. Paragraph 8 of lease contracts provides for a right of first refusal, and is not an option clause nor an option contract The contractual stipulation (Paragraph 8) provides for a right of first refusal in favor of Mayfair. It is not an option clause or an option contact. It is a contract of a right of first refusal. The true nature of the paragraph 8 is ascertained to be that of a contractual grant of the right of first refusal to Mayfair. 3. Option contract; Validity based on a separate and distinct consideration As early as 1916, in the case of Beaumont vs. Prieto, unequivocal was our characterization of an option contract as one necessarily invoking the choice granted to another for a distinct and separate consideration as to whether or not to purchase a determinate thing at a predetermined fixed price. T he deed of option or option clause in a contract, in order to be valid and enforceable, must, among other things, indicate the definite price at which the person granting the option, is willing to sell. 4. Option contract, according to Bouvier Law Dictionary Bouvier, in his Law Dictionary (edition of 1897) defines an option as a contract, a contract by virtue of which A, in consideration of the payment of a certain sum to B, acquires the privilege of buying from, or selling to B, certain securities or properties within a limited time at a specified price. (Story vs Salamon, 71 N.Y. 420.) 5. Option contract, according to Words and Phrases An agreement in writing to give a person the option to purchase lands within a given time at a named price is neither a sale nor an agreement to sell. It is simply a contract by which the owner of property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. He does not sell his land, he does not then agree to sell it; but he does sell something; that is, the right or privilege to buy at the election or option of the other party. The second party gets in praesenti, not lands, nor an agreement that he shall have lands, but he does get something of value, that is, the right to call for and receive lands if he elects The owner parts with his right to sell his lands, except to the second party, for a limited period The second party receives this right, or, rather, from his point of view, he receives the right to elect to buy. (Vol. 6, page 5001, of the work Words and Phrases, citing the case of Ide vs. Leiser [24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17]). 6. Cases involving option contracts In Tuason vs. de Asis (107 PHIL 131 [1960]), it was held that the lessee loses his right to buy the leased property for a named price per square meter upon failure to make the purchase within the time specified. In Mendoza vs. Comple (15 SCRA 162), the Court freed the landowner from her promise to sell her land if the prospective buyer could raise P4,500.00 in 3 weeks because such option was not supported by a distinct consideration. In the same vein, in Sanchez vs. Rigos (45 SCRA 368 [1972]), the Court also invalidated an instrument entitled, Option to Purchase a parcel of land for the sum of P1,510.00 because of lack of consideration. And as an exception to the doctrine enumerated in the two preceding cases, in Vda de Quirino vs. Palarca (29 SCRA 1 [1969]), it was ruled that the option to buy the leased premises for P12,000.00 as stipulated in the lease contract, is not without consideration for in reciprocal contracts, like lease, the obligation or promise of each party is the consideration for that of the other. In all these cases, the selling price of the object thereof is always predetermined and specified in the option clause in the contract or in the separate deed of option. Ang Yu Asuncion case: 7. Perfection of a contract of sale In sales, the contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil Code provides that By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. 8. Contract to sell is conditional; Effect of breach of condition When the sale is not absolute but conditional, such as in a Contract to Sell where invariably the ownership of the thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full payment of the purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an obligatory force. 9. Unconditional mutual promise to buy and sell obligatory on the parties An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted. 10. Perfected contract of option An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract of option. This contract is legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the Civil Code, which provides that An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor

if the promise is supported by a consideration distinct from the price. (1451a) 11. Option not the contract of sale itself The option is not the contract of sale itself. The optionee has the right, but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings. 12. Offer A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is merely an offer. Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or only as proposals. These relations, until a contract is perfected, are not considered binding commitments. Thus, at any time prior to the perfection of the contract, either negotiating party may stop the negotiation. The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). 13. Offer with a period; Effects of withdrawal (1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right to withdrawal the offer before its acceptance, or, if an acceptance has been made, before the offerors coming to know of such fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral promise to sell under Art. 1479, modifying the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Paraaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the Civil Code which ordains that every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. (2) If the period has a separate consideration, a contract of option is deemed perfected, and it would be a breach of that contract to withdraw the offer during the agreed period. The option, however, is an independent contract by itself, and it is to be distinguished from the projected main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance (exercise of the option) by the optionee-offeree, the latter may not sue for specific performance on the proposed contract (object of the option) since it has failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable for damages for breach of the option. In these cases, care should be taken of the real nature of the consideration given, for if, in fact, it has been intended to be part of the consideration for the main contract with a right of withdrawal on the part of the optionee, the main contract could be deemed perfected; a similar instance would be an earnest money in a contract of sale that can evidence its perfection (Art. 1482, Civil Code). 14. Requirement for separate consideration has no applicability as paragraph 8 is not an option contract but a right of first refusal No option to purchase in contemplation of the second paragraph of Article 1479 of the Civil Code, has been granted to Mayfair under the said lease contracts. Paragraph 8 grants the right of first refusal to Mayfair and is not an option contract. The requirement of a separate consideration for the option, thus, has no applicability in the case. There is nothing in paragraph 8 of the contracts which would bring them into the ambit of the usual offer or option requiring an independent consideration. 15. Option and Right of First Refusal distinguished An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. It is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. It must be supported by consideration. In the instant case, the right of first refusal is an integral part of the contracts of lease. The consideration is built into the reciprocal obligations of the parties. 16. Right of First Refusal inutile if governed by Article 1324 on withdrawal of the offer on Article 1479 on promise to buy and sell To rule that a contractual stipulation such as that found in paragraph 8 of the contracts is governed by Article 1324 on withdrawal of the offer on Article 1479 on promise to buy and sell would render ineffectual or inutile the provisions on right of first refusal so commonly inserted in leases of real estate nowadays. Paragraph 8 was incorporated into the contracts of lease for the benefit of Mayfair which wanted to be assured that it shall be given the first crack or the first option to buy the property at the price which Carmelo is willing to accept. 17. Consideration in an agreement of right of first refusal: Consideration for lease It is not correct to say that there is no consideration in an agreement of right of first refusal. The stipulation is part and parcel of the entire contract of lease. The consideration for the lease includes the consideration for the right of first refusal. 18. Consideration in an agreement of right of first refusal: Consideration is obligation or promise (reciprocal contract) Mayfair is in effect stating that it consents to lease the premises and to pay the price agreed upon provided the lessor also consents that, should it sell the leased property, then, Mayfair shall be given the right to match the offered purchase price and to buy the property at that price. As stated in Vda. De Quirino vs. Palarca, in reciprocal contract, the

obligation or promise of each party is the consideration for that of the other. 19. Difference to Ang Yu Asuncion case: Equatorial Realty and Carmelo acted in bad faith Carmelo and Equatorial Realty acted in bad faith to render Paragraph 8 inutile. What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair will have the right of first refusal in the event Carmelo sells the leased premises. It is undisputed that Carmelo did recognize this right of Mayfair, for it informed the latter of its intention to sell the said property in 1974. There was an exchange of letters evidencing the offer and counter-offers made by both parties. Carmelo, however, did not pursue the exercise to its logical end. While it initially recognized Mayfairs right of first refusal, Carmelo violated such right when without affording its negotiations with Mayfair the full process to ripen to at least an interface of a definite offer and a possible corresponding acceptance within the 30-day exclusive option time granted Mayfair, Carmelo abandoned negotiations, kept a low profile for some time, and then sold, without prior notice to Mayfair, the entire Claro M. Recto property to Equatorial. 20. Rescission lies when the purchase is in bad faith Equatorial (being aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts) is a buyer in bad faith, and thus renders the sale to it of the property in question rescissible. Guzman, Bocaling & Co. vs. Bonnevie case 21. Rescission as remedy Rescission is a remedy granted by law to the contracting parties and even to third persons, to secure reparation for damages caused to them by a contract, even if this should be valid, by means of the restoration of things to their condition at the moment prior to the celebration of said contract. It is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause, or to protect some incompatible and preferential right created by the contract. Rescission implies a contract which, even if initially valid, produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of equity. 22. Purchaser not considered a third party It is true that the acquisition by a third person of the property subject of the contract is an obstacle to the action for its rescission where it is shown that such third person is in lawful possession of the subject of the contract and that he did not act in bad faith. However, this rule is not applicable in the case before us because the petitoner is not considered a third party in relation to the Contract of Sale nor may its possession of the subject property be regarded as acquired lawfully and in good faith. 23. Purchaser in good faith defined A purchaser in good faith and for value who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same at the time of such purchase or before he has notice of the claim or interest of some other person in the property. Good faith connotes an honest intention to abstain from taking unconscientious advantage of another. Tested by these principles, the petitioner cannot tenably claim to be a buyer in good faith as it had notice of the lease of the property and such knowledge should have cautioned it to look deeper into the agreement to determine if it involved stipulations that would prejudice its own interests. 24. Purchaser required to know term of lease contract when buying property under lease Having known that the property it was buying was under lease, it behooved it as a prudent person to have required the owner of the property or the broker to show to it the Contract of Lease in which the right of first refusal is contained. 25. Indivisibility of the property Common sense and fairness dictate that instead of nullifying the agreement on the basis that the entire property is indivisible property, the stipulation should be given effect by including the indivisible appurtenances in the sale of the dominant portion under the right of first refusal. A valid and legal contract where the ascendant or the more important of the two parties is the landowner should be given effect, if possible, instead of being nullified on a selfish pretext posited by the owner. Following the arguments of petitioners and the participation of the owner in the attempt to strip Mayfair of its rights; the right of first refusal should include not only the property specified in the contracts but also the appurtenant portions sold to Equatorial which are claimed by petitioners to be indivisible. 26. Boundaries of the property sold Mayfair is authorized to exercise its right of first refusal under the contract to include the entirety of the indivisible property. The boundaries of the property sold should be the boundaries of the offer under the right of first refusal. 27. Doctrine in Ang Yu Asuncion deemed modified As to the remedy to enforce Mayfairs right, the Court disagrees to a certain extent with the concluding part of the dissenting opinion of Justice Vitug. The doctrine enunciated in Ang Yu Asuncion vs. Court of Appeals should be modified, it not amplified under the peculiar facts of the present case. 28. Multiplicity of suits frowned upon by Court; Relief: (1) Contract between Equatorial and Carmelo rescinded, (2) Price fixed

The Supreme Court has always been against multiplicity of suits where all remedies according to the facts and the law can be included. Since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent sale is first set aside or rescinded. All of these matters are now before us and so there should be no piecemeal determination of this case and leave festering sores to deteriorate into endless litigation. Since Carmelo sold the property for P11,300,000 to Equatorial, the price at which Mayfair could have purchased the property is, therefore, fixed. The damages which Mayfair suffered are in terms of actual injury and lost opportunities. The fairest solution would be to allow Mayfair to exercise its right of first refusal at the price which it was entitled to accept or reject which is P11,300,000. To follow an alternative solution that Carmelo and Mayfair may resume negotiations for the sale to the latter of the disputed property would be unjust and unkind to Mayfair because it is once more compelled to litigate to enforce its right. 29. Present case covered by law on contracts, not merely by codal provisions on human relations Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that there was nothing to execute because a contract over the right of first refusal belongs to a class of preparatory juridical relations governed not by the law on contracts but by the codal provisions on human relations. This may apply if the contract is limited to the buying and selling of the real property. However, the obligation of Carmelo to first offer the property to Mayfair is embodied in a contract. It is Paragraph 8 on the right of first refusal which created the obligation. It should be enforced according to the law on contracts instead of the panoramic and indefinite rule on human relations. The latter remedy encourages multiplicity of suits. There is something to execute and that is for Carmelo to comply with its obligation to the property under the right of the first refusal according to the terms at which they should have been offered then to Mayfair, at the price when that offer should have been made. Also, Mayfair has to accept the offer. This juridical relation is not amorphous nor is it merely preparatory. Paragraphs 8 of the two leases can be executed according to their terms. 30. No interest due Carmelo and Equatorial cannot avail of considerations based on equity which might warrant the grant of interests. The vendor received as payment from the vendee what, at the time, was a full and fair price for the property. It has used the P11,300,000.00 all these years earning income or interest from the amount. Equatorial, on the other hand, has received rents and otherwise profited from the use of the property turned over to it by Carmelo. In fact, during all the years that this controversy was being litigated, Mayfair paid rentals regularly to the buyer who had an inferior right to purchase the property. Mayfair is under no obligation to pay any interests arising from this judgment to either Carmelo or Equatorial. Aznar vs. Yapdiangco [G.R. No. L-18536. March 31, 1965.] En Banc, Regala (J): 10 concurring Facts: In May 1959, Teodoro Santos advertised in two metropolitan papers the sale of his Ford Fairlane 500. In the afternoon of 28 May 1959, a certain L. De Dios, claiming to be a nephew of Vicente Marella, went to the Santos residence to answer the ad. However, Teodoro was out during this call and only the latters son, Irineo received and talked with De Dios. The latter told the young Santos that he had come in behalf of his uncle, Marella, who was interested to buy the advertised car. On being informed of the above, Teodoro instructed his son to see Marella the following day at his given address: 1642 Crisostomo Street, Sampaloc, Manila. And so, in the morning of 29 May 1959, Irineo went to said address. At this meeting, Marella agreed to buy the car for P14,700.00 on the understanding that the price would be paid only after the car had been registered in his name. Irineo then fetched his father who, together with De Dios, went to the office of a certain Atty. Jose Padolina where the deed of sale for the car was executed in Marellas favor. The parties to the contract thereafter proceeded to the Motor Vehicles Office in Quezon City where the registration of the car in Marellas name was effected. Up to that stage of the transaction, the purchase price had not been paid. From the Motor Vehicles Office, Teodoro returned to his house. He gave the registration papers and a copy of the deed of sale to his son and instructed him not to part with them until Marella shall have given the full payment for the car. Irineo and De Dios then proceeded to 1642 Crisostomo Street, Sampaloc in Manila where the former demanded for the payment from Marella. Marella said that the amount he had on hand then was short by some P2,000.00 and begged off to be allowed to secure the shortage from a sister supposedly living somewhere in Azcarraga Street, also in Manila. Thereafter, he ordered De Dios to go to the said sister and suggested that Irineo to go with him. At the same time, he requested for the registration papers and the deed of sale from Ireneo on the pretext that he would like to show them to his lawyers. Trusting the good faith of Marella, Ireneo handed over the same to the latter and thereupon, in the company of De Dios and another unidentified person, proceeded to the alleged house of Marellas sister. At a place in Azcarraga, Irineo and De Dios alighted from the car and entered a house, while their unidentified companion remained in the car. Once inside, De Dios asked Irineo to wait at the sala while he went inside a room. That was the last that Ireneo saw of him. For, after a considerable length of time waiting in vain for De Dios to return, Ireneo went down to discover that neither the car nor their unidentified companion was there anymore. Going back to the house, he inquired from a woman he saw for De Dios and he was told that no such name lived or was even known therein. Whereupon, Ireneo rushed to 1642 Crisostomo to see Marella. He found the house closed and Marella gone. Finally, he reported the matter to his father who promptly advised the police authorities. That very same day, Marella was able to sell the car in question to Jose B. Aznar, for P15,000.00. Aznar acquired the said car from Marella in good faith, for a valuable consideration and without notice of the defect appertaining to the vendors title. While the car was thus in the possession of Aznar and

while he was attending to its registration in his name, agents of the Philippine Constabulary seized and confiscated the same in consequence of the report to them by Teodoro that the said car was unlawfully taken from him. Aznar filed a complaint for replevin before the CFI Quezon City (Branch IV) against Captain Rafael Yapdiangco, the head of the Philippine Constabulary unit which seized the car. Claiming ownership of the vehicle, he prayed for its delivery to him. In the course of the litigation, however, Teodoro Santos moved and was allowed to intervene by the lower court. At the end of the trial, the lower court rendered a decision awarding the disputed motor vehicle to Santos. From the decision, Aznar appealed. The Supreme Court dismissed the appeal and affirmed the decision of the lower court in full; with costs against Aznar. 1. Article 559 of the Civil Code; Santos entitled to recovery of personal property Santos had been unlawfully deprived of his personal property by Marella, from whom Aznar traces his right. Consequently, although Aznar acquired the car in good faith and for a valuable consideration from Marella, the said decision concluded, still Santos was entitled to its recovery on the mandate of Article 559 of the New Civil Code which provides: The possession of movable property acquired in good faith is equivalent to title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of the same. If the possessor of a movable lost or of which the owner has been unlawfully deprived, has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor. Under Article 559, the rule is to the effect that if the owner has lost the thing, or if he has been unlawfully deprived of it, he has a right to recover it, not only from the finder, thief or robber, but also from the third person who may have acquired it in good faith from such finder, thief or robber. 2. Sellers title, voidable at least, essential in Article 1506; Article 559 applies Article 1506 provides: Where the seller of goods has a voidable title thereto, but his title has not been voided at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith, for value, and without notice of the sellers defect of title. Under the provision, it is essential that the seller should have a voidable title at least. It is very clearly inapplicable where the seller had no title at all. 3. Ownership or title acquired only by tradition or delivery; Article 712 of the Civil Code Under Article 712 of the Civil Code, ownership and other real rights over property are acquired and transmitted by law, by donation, by testate and intestate succession, and in consequence of certain contracts, by tradition. As interpreted by this Court in a host of cases, by this provision, ownership is not transferred by contract merely but by tradition or delivery. Contracts only constitute titles or rights to the transfer or acquisition of ownership, while delivery or tradition is the mode of accomplishing the same. (Gonzales vs. Rojas, 16 Phil. 51; Ocejo, Perez and Co. vs. International Bank, 37 Phil. 631; Fidelity and Deposit Co. vs. Wilson, 8 Phil. 51; Kuenzle & Streiff vs. Wacke & Chandler, 14 Phil. 610; Easton vs. Diaz & Co., 32 Phil. 180). For the legal acquisition and transfer of ownership and other property rights, the thing transferred must be delivered, inasmuch as, according to settled jurisprudence the tradition of the thing is a necessary and indispensable requisite in the acquisition of said ownership by virtue of a contract. (Walter Easton vs. E. Diaz & Co. & the Provincial Sheriff of Albay, supra.) So long as property is not delivered, the ownership over it is not transferred by contract merely but by delivery. Contracts only constitute titles or rights to the transfer or acquisition of ownership, while delivery or tradition is the method of accomplishing the same, the title and the method of acquiring it being different in our law. (Gonzales vs. Rojas, 16 Phil. 51) In the present case, the car was never delivered to the vendee by the vendor as to complete or consummate the transfer of ownership by virtue of the contract. It should be recalled that while there was indeed a contract of sale between Vicente Marella and Teodoro Santos, the former, as vendee, took possession of the subject matter thereof by stealing the same while it was in the custody of the latters son. 4. Delivery of key not delivery contemplated by Article 712; Intent must be present There is no adequate evidence on record as to whether Irineo Santos voluntarily delivered the key to the car to the unidentified person who went with him and L. De Dios to the place in Azcarraga where a sister of Marella allegedly lived. But even if Irineo Santos did, it was not the delivery contemplated by Article 712 of the Civil Code. For then, it would be indisputable that he turned it over to the unidentified companion only so that he may drive Irineo Santos and De Dios to the said place in Azcarraga and not vest the title to the said vehicle to him as agent of Vicente Marella. Article 712 above contemplates that the act be coupled with the intent of delivering the thing. (10 Manresa 132) 5. Article 559 establishes exception to the general rule or irrevindicability Article 559 establishes two exceptions to the general rule of irrevindicability to wit: when the owner (1) has lost the thing, or (2) has been unlawfully deprived thereof. In these cases, the possessor cannot retain the thing as against the owner, who may recover it without paying any indemnity, except when the possessor acquired it in a public sale. (Del Rosario vs. Lucena, 8 Phil. 535; Varela vs. Finnick, 9 Phil. 482; Varela vs. Matute, 9 Phil. 479; Arenas vs. Raymundo, 19 Phil. 46. Tolentino, id., Vol II, p. 261.) 6. Cruz vs. Pahati on Article 559

In the case of Cruz vs. Pahati, et al., 52 OG 3053, the Court ruled that Under Article 559 of the new Civil Code, a Person illegally deprived of any movable may recover it from the person in possession of the same and the only defense the latter may have is if he has acquired it in good faith at a public sale, in which case, the owner cannot obtain its return without reimbursing the price paid therefor. In the present case, plaintiff has been illegally deprived of his car through the ingenious scheme of defendant B to enable the latter to dispose of it as if he were the owner thereof. Plaintiff, therefore, can still recover possession of the car even if it is in the possession of a third party who had acquired it in good faith from defendant B. The maxim that no man can transfer to another a better title than he has himself obtains in the civil as well as in the common law. (U.S. vs. Sootelo, 28 Phil. 147) 7. Common law principle yields to statutory provision The right of the owner to recover personal property acquired in good faith by another, is based on his being dispossessed without his consent. The common law principle that where one of two innocent persons must suffer by a fraud perpetrated by another, the law imposes the loss upon the party who, by his misplaced confidence, has enabled the fraud to be committed, cannot be applied in a case which is covered by an express provision of the new Civil Code, specifically Article 559. Between a common law principle and a statutory provision, the latter must prevail in this jurisdiction. (Cruz vs. Pahati, supra). C. DISTINGUISHED FROM OTHER TRANSACTIONAL CONTRACT 3. CONTRACT FOR PIECE OF WORK Celestino Co v. Collector of Internal Revenue [G.R. No. L-8506. August 31, 1956.] First Division, Bengzon (J): 7 concur Facts: Celestino Co & Company is a duly registered general copartnership doing business under the trade name of Oriental Sash Factory. From 1946 to 1951 it paid percentage taxes of 7% on the gross receipts of its sash, door and window factory, in accordance with section 186 of the National Revenue Code imposing taxes on sales of manufactured articles. However in 1952 it began to claim liability only to the contractors 3% tax (instead of 7%) under section 191 of the same Code; and having failed to convince the Bureau of Internal Revenue, it brought the matter to the Court of Tax Appeals, where it also failed. Hence, the appeal. The Supreme Court affirmed the appealed decision. 1. Business name and income militates against claim as ordinary contractor The company has taken all the trouble and expense of registering a special trade name for its sash business and has ordered company stationery carrying the bold print Oriental Sash Factory (Celestino Co & Company, Prop.) 926 Raon St. Quiapo, Manila, Tel. No. 33076, Manufacturers of all kinds of doors, windows, sashes, furnitures, etc. used season-dried and kiln-dried lumber, of the best quality workmanship. It is unlikely that these act were made solely for the purpose of supplying the needs for doors, windows and sash of its special and limited customers. Further, the Company has chosen for its tradename and has offered itself to the public as a Factory, which means it is out to do business, in its chosen lines on a big scale. Moreover, as shown from the investigation of the Companys books of accounts (for transactions covering the period of 1 January 1952 to 30 September 1952), it sold sash, doors and windows worth P188,754.69. It will be difficult to believe that such amount that ran to six figures was derived entirely from its few customers who made special orders. Thus, Celestino Co & Company habitually makes sash, windows and doors, as it has represented in its stationery and advertisements to the public, and it has admitted by the appellant itself that the company manufactures. 2. Construction work contractors defined Construction work contractors are those who alter or repair buildings, structures, streets, highways, sewers, street railways, railroads, logging roads, electric, steam or water plants telegraph and telephone plants and lines, electric lines or power lines, and includes any other work for the construction, altering or repairing for which machinery driven by mechanical power is used. (Payton vs. City of Anadardo 64 P. 2d 878, 880, 179 Okl. 68). 3. Nature of business does not fall in any of the occupation that may be classified as contractor within the purview of Section 191 of the National Internal Revenue Code Even if it were to believe that the company does not manufacture readymade sash, doors and windows for the public and that it makes these articles only upon special order of its customers, that does not make it a contractor within the purview of section 191 of the National Internal Revenue Code. There are no less than fifty occupations enumerated in the said section of the National Internal Revenue Code subject to percentage tax, not one under which the business enterprise of petitioner could appropriately fall. It would require a stretch of the law to make the business of manufacturing sash, doors and windows upon special order of customers fall under the category of road, building, navigation, artesian well, water works and other construction work contractors. 4. Percentage tax imposed under Section 191 of the Tax Code a tax on sales of service, while tax imposed by Section 186 a tax on original sales of articles The percentage tax imposed in section 191 of the Tax Code is generally a tax on the sales of services, in contradiction with the tax imposed in section 186 of the same Code which is a tax on the original sales of articles by the manufacturer, producer or importer. (Formillezas

Commentaries and Jurisprudence on the National Internal Revenue Code, Vol II, p. 744). The fact that the articles sold are manufactured by the seller does not exchange the contract from the purview of section 186 of the National Internal Revenue Code as a sale of articles. 5. Custom specifications required by customer does not alter character of business, the company does not become an employee or servant of the customer Nobody will say that when a sawmill cuts lumber in accordance with the peculiar specifications of a customer, sizes not previously held in stock for sale to the public, it thereby becomes an employee or servant of the customer, not the seller of lumber. The same consideration applies to this sash manufacturer. The Sash Factory does nothing more than sell the goods that it mass-produces or habitually makes; sash, panels, mouldings, frames, cutting them to such sizes and combining them in such forms as its customers may desire. 6. Installation of window panels not construction work in common parlance Petitioners idea of being a contractor doing construction jobs is untenable. Nobody would regard the doing of two window panels as construction work in common parlance. 7. Contract of sale distinguished from a contract for a piece of work Article 1467 of the New Civil Code provides that a contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is contract for a piece of work. In the present case, it is apparent that the Factory did not merely sell its services to Teodoro & Co. because it also sold the materials. When it sold materials ordinarily manufactured by it (sash, panels, mouldings), although in such form or combination as suited the fancy of the purchaser, such new form does not divest the Factory of its character as manufacturer. Neither does it take the transaction out of the category of sales under Article 1467 because although the Factory does not, in the ordinary course of its business, manufacture and keep on stock doors of the kind sold to Teodoro, it could stock and/or probably had in stock the sash, mouldings and panels it used therefor. 8. Contract for a piece of work in Factory happens if the use of extraordinary or additional equipment is required or if it involves services not generally performed by it When the Factory accepts a job that requires the use of extraordinary or additional equipment, or involves services not generally performed by it, it thereby contracts for a piece of work, i.e. filling special orders within the meaning of Article 1467. In the present case, however, the orders exhibited were not shown to be special. They were merely orders for work, regular work. 9. Transfers under Section 186 of the Tax Code If all the work of appellant is only to fill orders previously made, such orders should not be called special work, but regular work; and supposing for the moment that the transactions were not sales, they were neither lease of services nor contract jobs by a contractor. Still, as the doors and windows had been admittedly manufactured by the Sash Factory, such transactions could be, and should be taxed as transfers thereof under section 186 of the National Revenue Code. Engineering and Machinery Corp. v. CA [G.R. No. 52267. January 24, 1996.] Third Division, Panganiban (J): 3 concur Facts: Pursuant to the contract dated 10 September 1962 between the Engineering and Machinery Corporation (the Corporation) and Almeda, the former undertook to fabricate, furnish and install the air-conditioning system in the latters building along Buendia Avenue, Makati in consideration of P12,000.00. The Corporation was to furnish the materials, labor, tools and all services required in order to so fabricate and install said system. The system was completed in 1963 and accepted by Almeda, who paid in full the contract price. On 2 September 1965, Almeda sold the building to the National Investment and Development Corporation (NIDC). The latter took possession of the building but on account of NIDCs noncompliance with the terms and conditions of the deed of sale, Almeda was able to secure judicial rescission thereof. The ownership of the building having been decreed back to Almeda, he re-acquired possession sometime in 1971. It was then that he learned from some NIDC employees of the defects of the air-conditioning system of the building. Acting on this information, Almeda commissioned Engineer David R. Sapico to render a technical evaluation of the system in relation to the contract with the Corporation. In his report, Sapico enumerated the defects of the system and concluded that it was not capable of maintaining the desired room temperature of 76F 2F. On the basis of this report, Almeda filed on 8 May 1971 an action for damages against the Corporation with the then CFI Rizal (Civil Case 14712). The complaint alleged that the air-conditioning system installed by the Corporation did not comply with the agreed plans and specifications, hence, Almeda prayed for the amount of P210,000.00 representing the rectification cost, P100,000.00 as damages and P15,000.00 as attorneys fees. The Corporation moved to dismissed the case, alleging prescription, but which was denied by the Court. Thereafter, Almeda filed an ex-parte motion for preliminary attachment on the strength of the Corporations own statement to the effect that it had sold its business and was no longer doing business in Manila. The trial court granted the motion and, upon Almedas posting of a bond of P50,000.00, ordered the issuance of a writ of attachment.

In due course, and on 15 April 1974, the trial court rendered a decision, which ordered the Corporation to pay Almeda the amount needed to rectify the faults and deficiencies of the air-conditioning system installed by the Corporation in Almedas building, plus damages, attorneys fees and costs). Petitioner appealed to the Court of Appeals, which affirmed on 28 November 1978 the decision of the trial court. Hence, it instituted a petition for review on certiorari under Rule 45 of the Rules of Court. The Supreme Court denied the petition and affirmed the decision assailed; without costs. 1. The Courts power to review The Supreme Court reviews only errors of law in petitions for review on certiorari under Rule 45. It is not the function of this Court to re-examine the findings of fact of the appellate court unless said findings are not supported by the evidence on record or the judgment is based on a misapprehension of facts. The Court has consistently held that the factual findings of the trial court, as well as the Court of Appeals, are final and conclusive and may not be reviewed on appeal. Among the exceptional circumstances where a reassessment of facts found by the lower courts is allowed are when the conclusion is a finding grounded entirely on speculation, surmises or conjectures; when the inference made is manifestly absurd, mistaken or impossible; when there is grave abuse of discretion in the appreciation of facts; when the judgment is premised on a misapprehension of facts; when the findings went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee. After a careful study of the case at bench, we find none of the above grounds present to justify the re-evaluation of the findings of fact made by the courts below. 2. Contract of a piece of work defined Article 1713 of the Civil Code defines a contract for a piece of work as by the contract for a piece of work the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation. The contractor may either employ only his labor or skill, or also furnish the material. 3. Contract for a piece of work distinguished from a contract of sale A contract for a piece of work, labor and materials may be distinguished from a contract of sale by the inquiry as to whether the thing transferred is one not in existence and which would never have existed but for the order of the person desiring it . In such case, the contract is one for a piece of work, not a sale. On the other hand, if the thing subject of the contract would have existed and been the subject of a sale to some other person even if the order had not been given, then the contract is one of sale. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market whether the same is on hand at the time or not is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work (Art. 1467, Civil Code). The mere fact alone that certain articles are made upon previous orders of customers will not argue against the imposition of the sales tax if such articles are ordinarily manufactured by the taxpayer for sale to the public. (Celestino Co. vs. Collector, 99 Phil. 8411). To Tolentino, the distinction between the two contracts depends on the intention of the parties. Thus, if the parties intended that at some future date an object has to be delivered, without considering the work or labor of the party bound to deliver, the contract is one of sale. But if one of the parties accepts the undertaking on the basis of some plan, taking into account the work he will employ personally or through another, there is a contract for a piece of work. 4. Contract in question is one for a piece of work The contract in question is one for a piece of work. It is not the Corporations line of business to manufacture air-conditioning systems to be sold off-the-shelf. Its business and particular field of expertise is the fabrication and installation of such systems as ordered by customers and in accordance with the particular plans and specifications provided by the customers. Naturally, the price or compensation for the system manufactured and installed will depend greatly on the particular plans and specifications agreed upon with the customers. 5. Obligations of a contractor for a piece of work The obligations of a contractor for a piece of work are set forth in Articles 1714 and 1715 of the Civil Code. Article 1714 provides that if the contractor agrees to produce the work from material furnished by him, he shall deliver the thing produced to the employer and transfer dominion over the thing. This contract shall be governed by the following articles as well as by the pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale. Article 1715 provides that the contractor shall execute the work in such a manner that it has the qualities agreed upon and has no defects which destroy or lessen its value or fitness for its ordinary or stipulated use. Should the work be not of such quality, the employer may require that the contractor remove the defect or execute another work. If the contractor fails or refuses to comply with this obligation, the employer may have the defect removed or another work executed, at the contractors cost. 6. Provisions on warranty against hidden defects The provisions on warranty against hidden defects, referred to in Article 1714, are found in Articles 1561 and 1566. Article 1561 provides that the vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who,

by reason of his trade or profession, should have known them. Article 1566 provides that the vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware thereof, and provides further that the provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in the thing sold. 7. Remedy against violation of the warranty against hidden defects The remedy against violations of the warranty against hidden defects is either to withdraw from the contract (rehibitory action) or to demand a proportionate reduction of the price (accion quanti minoris), with damages in either case. 8. Prescriptive period as specified in express warranty, or in the absence of which, 4 years; Prescriptive period of 6 months for rehibitory action is applicable only in implied warranties While it is true that Article 1571 of the Civil Code provides for a prescriptive period of six months for a rehibitory action, a cursory reading of the ten preceding articles to which it refers will reveal that said rule may be applied only in case of implied warranties; and where there is an express warranty in the contract, the prescriptive period is the one specified in the express warranty, and in the absence of such period, the general rule on rescission of contract, which is four years (Article 1389, Civil Code) shall apply. (Villostas v. CA) 9. Original complaint is one for arising from breach of a written contact and not a suit to enforce warranty against hidden defects; Article 1715 in relation to Article 1144 apply, prescription in 10 years; Action not prescribed The lower courts opined and so held that the failure of the defendant to follow the contract specifications and said omissions and deviations having resulted in the operational ineffectiveness of the system installed makes the defendant liable to the plaintiff in the amount necessary to rectify to put the air conditioning system in its proper operational condition to make it serve the purpose for which the plaintiff entered into the contract with the defendant. Thus, having concluded that the original complaint is one for damages arising from breach of a written contract, and not a suit to enforce warranties against hidden defects, the governing law therefore is Article 1715. However, inasmuch as this provision does not contain a specific prescriptive period, the general law on prescription, which is Article 1144 of the Civil Code, will apply. Said provision states, inter alia, that actions upon a written contract prescribe in 10 years. Since the governing contract was executed on 10 September 1962 and the complaint was filed on 8 May 1971, it is clear that the action has not prescribed. 10. Acceptance of the work by the employer does not relieve the contractor of liability for any defect in the work The mere fact that Almeda accepted the work does not, ipso facto, relieve the Corporation from liability for deviations from and violations of the written contract, as the law gives him 10 years within which to file an action based on breach thereof. As held by the Court of Appeals, as the breach of contract consisted in appellants omission to install the equipment [sic], parts and accessories not in accordance with the plan and specifications provided for in the contract and the deviations made in putting into the air-conditioning system parts and accessories not in accordance with the contract specifications, it is evident that the defect in the installation was not apparent at the time of the delivery and acceptance of the work, considering further that Almeda is not an expert to recognize the same. From the very nature of things, it is impossible to determine by the simple inspection of air conditioning system installed in an 8-floor building whether it has been furnished and installed as per agreed specifications. 4. AGENCY TO SELL Quiroga v. CA 38 Phil 501 Facts: A contract was entered between Quiroga and Parsons for the exclusive sale of Quiroga beds in the Visayas Islands, specifically Iloilo. Quiroga furnishes the beds to Parson, who in turn pay the price in the manner stipulated. Quiroga provided a discount of 20 to 25% for the beds, depending on their class. Later, Quiroga filed a case against Parsons for violation of its obligation not to sell the beds at higher price than those of the invoices, etc. (which are not expressly stipulated in the contract, except for the manner the beds are ordered by the dozen). Quiroga maintains that Parson is his agent for the sale of his beds in Iloilo, and that the contract is that of commercial agency. Issue: Whether the contact is that of sale or of commercial agency. Held: The contract between the parties is a contract of purchase and sale as Parson, by receiving the bed, was necessarily obliged to pay their price within the term fixed, without any other consideration and regardless as to whether he had or had not sold the bed. The words commission on sales in the contract is nothing else than a mere discount on the invoice price. Further, the word agency used thereon only expresses that Parson was the sole seller of Quiroga beds in the Visayas. None of the other clauses of the contract are not incompatible with the contract of purchase and sale. Puyat & Sons v. Arco Amusement 72 Phil 402 Facts: Gonzalo Puyat & Sons is the exclusive agent of Starr Piano Company of Richmond, Indiana USA, in the Philippines. Teatro Arco, or Arco Amusement Company, desiring to equip its cinematograph with sound reproducing devices, approached Puyat. It was agreed by the parties that Puyat would in behalf of Arco order equipment from Starr Piano and that Arco would pay Puyat in addition to price of the

equipment, 10% commission plus all expenses such as freight, insurance, banking charges, cables, etc. Puyat informed Arco that the price of the equipment was $1,700, to which Arco agreed. Later, a similar arrangement was made by Arco for the purchase of similar equipment for $1,600 with 10% commission, with Puyat charging an additional flat charge of $160 for all expenses and charges. 3 years later, Arco learned that the price quoted by Puyat on the 2 orders were not the net price but the list price for the equipment. Arco filed a complaint with the trial court (CFI) demanding reimbursement from said overpriced sales. The trial court ruled in favor of Puyat, but the Court of Appeals reversed such decision and declared Puyat an agent of Arco Amusement in the purchase of said equipment. Issue: Whether the agreement made between Puyat Amusement is that of purchase and sale or that of agency. and Arco

deposit and rentals with legal interest thereon until the amount is fully restituted; annulling the real estate mortgage constituted over the properties of the spouses covered by TCTs T-32480 and T-5779 of the Registry of Deeds of Lucena City; and ordering the Filinvest to pay the spouses P30,000.00 as attorneys fees and the costs of the suit. Dissatisfied with the trial courts decision, Filinvest elevated the case to the Court of Appeals. On 17 March 1988, the appellate court, finding no error in the appealed judgment, affirmed the same in toto. Hence, the petition for review on certiorari by Filinvest. The Supreme Court granted the petition, reversed and set aside the 17 March 1988 Decision of the Court of Appeals, and rendered another one dismissing the complaint; with costs against the spouses. 1. Financial institution not immune from recourse of the spouses; Filinvest owns crusher While it is accepted that Filinvest Credit Corporation is a financing institution, it is not, however, immune from any recourse by the private respondents. Notwithstanding the testimony of Jose Sy Bang that he did not purchase the rock crusher from Filinvest, the fact that the rock crusher was purchased from Rizal Consolidated Corporation in the name and with the funds of Filinvest proves beyond doubt that the ownership thereof was effectively transferred to it. It is precisely this ownership which enabled Filinvest to enter into the Contract of Lease of Machinery and Equipment with the spouses 2. Nomenclature of agreement cannot change its true essence; sale on installment The real intention of the parties should prevail. The nomenclature of the agreement cannot change its true essence, i.e., a sale on installments. It is basic that a contract is what the law defines it and the parties intend it to be, not what it is called by the parties. It is apparent that the intent of the parties to the subject contract is for the so-called rentals to be the installment payments. Upon the completion of the payments, then the rock crusher, subject matter of the contract, would become the property of the spouses. This form of agreement has been criticized as a lease only in name. 3. Payment in contract of lease with option to buy are installment payments In Vda. de Jose v. Barrueco, it was stated that Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain in that form, for one reason or another, have frequently resorted to the device of making contracts in the form of leases either with options to the buyer to purchase for a small consideration at the end of term, provided the so-called rent has been duly paid, or with stipulations that if the rent throughout the term is paid, title shall thereupon vest in the lessee. It is obvious that such transactions are leases only in name. The so-called rent must necessarily be regarded as payment of the price in installments since the due payment of the agreed amount results, by the terms of bargain, in the transfer of title to the lessee. 4. Article 1484 Article 1484 of the new Civil Code, which provides for the remedies of an unpaid seller of movables in installment basis, states In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendees failure to pay cover two or more installments; (3) Foreclose the chattel mortgage or the thing sold, if one has been constituted, should the vendees failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void. 5. Remedies under Article 1484 alternative and not cumulative Under Article 1484, the seller of movables in installments, in case the buyer fails to pay two or more installments, may elect to pursue either of the following remedies: (1) exact fulfillment by the purchaser of the obligation; (2) cancel the sale; or (3) foreclose the mortgage on the purchased property if one was constituted thereon. It is now settled that the said remedies are alternative and not cumulative and therefore, the exercise of one bars the exercise of the others. 6. Contract of lease with option to buy a device to circumvent Article 1484 The device contract of lease with option to buy is at times resorted to as a means to circumvent Article 1484, particularly paragraph (3) thereof. Through the set-up, the vendor, by retaining ownership over the property in the guise of being the lessor, retains, likewise, the right to repossess the same, without going through the process of foreclosure, in the event the vendee-lessee defaults in the payment of the installments. There arises therefore no need to constitute a chattel mortgage over the movable sold. More important, the vendor, after repossessing the property and, in effect, canceling the contract of sale, gets to keep all the installments-cum-rentals already paid. 7. Article 1485 places contract of lease with option to buy within the applicability of Article 1484 Article 1485 of the new Civil Code provides that The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of possession or enjoyment of the thing. 8. No reason to hold Filinvest liable for failure of rock crusher to produce in accordance with its capacity The Court failed to find any reason to hold the petitioner liable for the rock crushers failure to produce in accordance with its described capacity. It was the spouses who chose, inspected, and tested the

Held: Gonzalo Puyat & Sons cannot be the agent of Arco Amusement in the purchase of equipment from Starr Piano Company as Puyat & Sons is already the exclusive agent of Starr Piano in the Philippines. Puyat cannot be the agent of both vendor and purchaser. The fact that a commission was offered to the other does not necessarily mean that the latter has become the agent of the former, as this was only an additional price which Arco bound itself to pay and which is not incompatible with the contract of purchase and sale. Puyat is not bound to reimburse the profit acquired in the transaction, as this is the very essence of commerce involving middlemen and merchants. The contract is the law between the parties. What does not appear on the face of the contract should be regarded as dealers or traders talk which cannot bind either party. Not every concealment is fraud, short of fraud, and such as that in this case, is considered as business acumen. 6. LEASE Filinvest Credit vs. CA [G.R. No. 82508. September 29, 1989.] Second Division, Sarmiento (J): 3 concur, 1 on leave Facts: The spouses Jose Sy Bang and Iluminada Tan were engaged in the sale of gravel produced from crushed rocks and used for construction purposes. In order to increase their production, they engaged the services of Mr. Ruben Mercurio, the proprietor of Gemini Motor Sales in Lucena City, to look for a rock crusher which they could buy. Mr. Mercurio referred the spouses to the Rizal Consolidated Corporation which then had for sale one such machinery (Lippman portable crushing plant, reconditioned; Jaw crusher, 10 x 16, Double roll crusher, 16 x 16; 3 units product conveyor, 75 HP electric motor, 8 pcs. Brand new tires; Chassis 19696, Good running condition). Oscar Sy Bang, a brother of Jose Sy Bang, went to inspect the machine at the Rizal Consolidateds plant site. Apparently satisfied with the machine, Sy Bang signified their intent to purchase the same. They were confronted with a problem, the rock crusher carried a cash price tag of P550,000.00. Bent on acquiring the machinery, the spouses applied for financial assistance from Filinvest Credit Corporation. Filinvest agreed to extend to the spouses financial aid on the following conditions: that the machinery be purchased in Filinvests name; that it be leased (with option to purchase upon the termination of the lease period) to the spouses; and that the spouses execute a real estate mortgage in favor of Filinvest as security for the amount advanced by the latter. Accordingly, on 18 May 1981, a contract of lease of machinery (with option to purchase) was entered into by the parties whereby the spouses agreed to lease from the petitioner the rock crusher for two years starting from 5 July 1981 payable at P10,000.00 for first 3 months, P23,000.00 for the next 6 months, and P24,800.00 for the next 15 months. The contract likewise stipulated that at the end of the two-year period, the machine would be owned by the spouses. Thus, the spouses issued in favor of Filinvest a check for P150,550.00, as initial rental (or guaranty deposit), and 24 postdated checks corresponding to the 24 monthly rentals. In addition, to guarantee their compliance with the lease contract, the spouses executed a real estate mortgage over two parcels of land in favor of Filinvest. The rock crusher was delivered to the spouses on 9 June 1981. Three months from the date of delivery, or on 7 September 1981, however, the spouses, claiming that they had only tested the machine that month, sent a letter-complaint to Filinvest, alleging that contrary to the 20 to 40 tons per hour capacity of the machine as stated in the lease contract, the machine could only process 5 tons of rocks and stones per hour. They then demanded that Filinvest make good the stipulation in the lease contract. They followed that up with similar written complaints to Filinvest, but the latter did not, however, act on them. Subsequently, the spouses stopped payment on the remaining checks they had issued to Filinvest. As a consequence of the nonpayment by the spouses of the rentals on the rock crusher as they fell due despite the repeated written demands, Filinvest extrajudicially foreclosed the real estate mortgage. On 18 April 1983, the spouses received a Sheriff a Notice of Auction Sale informing them that their mortgaged properties were going to be sold at a public auction on 25 May 1983, 10:00 a.m., at the Office of the Provincial Sheriff in Lucena City to satisfy their indebtedness to Filinvest. To thwart the impending auction of their properties, the spouses filed before the RTC Quezon (Branch LIX, Lucena City), on 4 May 1983, a complaint against Filinvest for the rescission of the contract of lease, annullment of the real estate mortgage, and for injunction and damages, with prayer for the issuance of a writ of preliminary injunction. On 23 May 1983, 3 days before the scheduled auction sale, the trial court issued a temporary restraining order commanding the Provincial Sheriff of Quezon, and Filinvest, to refrain and desist from proceeding with the public auction. Two years later, on 4 September 1985, the trial court rendered a decision in favor of the spouses, making the injunction permanent, rescinding the contract of lease of the machinery and equipment and ordering the spouses to return to the Filinvest the machinery subject of the lease contract, and Filinvest to return to the spouses the sum of P470,950.00 it received from the latter as guaranty

subject machinery. It was only after they had inspected and tested the machine, and found it to their satisfaction, that the spouses sought financial aid from Filinvest. These allegations of the petitioner had never been rebutted by the spouses, but in fact, even been admitted in the contract they signed (LESSEES SELECTION, INSPECTION AND VERIFICATION. The LESSEE hereby confirms and acknowledges that he has independently inspected and verified the leased property and has selected and received the same from the Dealer of his own choosing in good order and excellent running and operating condition and on the basis of such verification, etc. the LESSEE has agreed to enter into this Contract.) 9. Spouses presumed knowledgeable on machinery subject of the contract; Spouses negligent Considering that between the parties, it is the spouses, by reason of their business, who are presumed to be more knowledgeable, if not experts, on the machinery subject of the contract, they should not therefore be heard now to complain of any alleged deficiency of the said machinery. It is their failure or neglect to exercise the caution and prudence of an expert, or, at least, of a prudent man, in the selection, testing, and inspection of the rock crusher that gave rise to their difficulty and to this conflict. A well-established principle in law is that between two parties, he, who by his negligence caused the loss, shall bear the same. 10. Spouses precluded from imputing liability on Filinvest; Express waiver of warranties Even if the spouses could not be adjudged as negligent, they still are precluded from imputing any liability on Filinvest. One of the stipulations in the contract they entered into with Filinvest is an express waiver of warranties in favor of the latter. By so signing the agreement, the spouses absolved Filinvest from any liability arising from any defect or deficiency of the machinery they bought. The stipulation on the machines production capacity being typewritten and that of the waiver being printed does not militate against the latters effectivity. As such, whether a capacity of 20 to 40 tons per hour is a condition or a description is of no moment. What stands is that the spouses had expressly exemptd Filinvest from any warranty whatsoever. Their Contract of Lease Of Machinery And Equipment states WARRANTY LESSEE absolutely releases the lessor from any liability whatsoever as to any and all matters in relation to warranty in accordance with the provisions hereinafter stipulated. 11. Common sense dictates buyer inspects product before purchasing it; Caveat emptor Common sense dictates that a buyer inspects a product before purchasing it (under the principle of caveat emptor or buyer beware) and does not return it for defects discovered later on, particularly if the return of the product is not covered by or stipulated in a contract or warranty. 12. Declaration of waiver as non-effective would impair obligations of contracts Taking into account that due to the nature of its business and its mode of providing financial assistance to clients, Filinvest deals in goods over which it has no sufficient know-how or expertise, and the selection of a particular item is left to the client concerned, the latter, therefore, shoulders the responsibility of protecting himself against product defects. This is where the waiver of warranties is of paramount importance. In the present case, to declare the waiver as non-effective would impair the obligation of contracts. Certainly, the waiver in question could not be considered a mere surplusage in the contract between the parties. Moreover, nowhere is it shown in the records of the case that the spouses has argued for its nullity or illegality. 13. No ambiguity in the language of the waiver In any event, there is no ambiguity in the language of the waiver or the release of warranty. There is therefore no room for any interpretation as to its effect or applicability vis-a-vis the deficient output of the rock crusher. Suffice it to say that the spouses have validly excused Filinvest from any warranty on the rock crusher. Hence, they should bear the loss for any defect found therein.