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I.

Introduction

1. Coronel v. CA (GR 103577, 7 October 1996)

Coronel v. CA [G.R. No. 103577. October 7, 1996.] Third division, Melo (J): 3 concur, 1 took no part.

Facts: On 19 January 1985, Romulo Coronel, et al. executed a document entitled “Receipt of Down Payment” in favor of Ramona Patricia Alcaraz for P50,000 downpayment of the total amount of P1.24M as purchase price for an inherited house and lot (TCT 119627, Registry of Deeds of Quezon City), promising to execute a deed of absolute sale of said property as soon as such has been transferred in their name. The balance of P1.19M is due upon the execution of said deed. On the same date, Concepcion D. Alcaraz, mother of Ramona, paid the down payment of P50,000.00. On 6 February 1985, the property originally registered in the name of the Coronels’ father was transferred in their names (TCT 327043). However, on 18 February 1985, the Coronels sold the property to Catalina B. Mabanag for P1,580,000.00 after the latter has paid P300,000.00. For this reason, Coronels canceled and rescinded the contract with Alcaraz by depositing the down payment in the bank in trust for Alcaraz.

On 22 February 1985, Alcaraz filed a complaint for specific performance against the Coronels and caused the annotation of a notice of lis pendens at the back of TCT 327403. On 2 April 1985, Mabanag caused the annotation of a notice of adverse claim covering the same property with the Registry of Deeds of Quezon City. On 25 April 1985, the Coronels executed a Deed of Absolute Sale over the subject property in favor of Mabanag. On 5 June 1985, a new title over the subject property was issued in the name of Mabanag under TCT 351582.

In the course of the proceedings, the parties agreed to submit the case for decision solely on the basis of documentary exhibits. Upon submission of their respective memoranda and the corresponding comment or reply thereto, and on 1 March 1989, judgment was handed down in favor of the plaintiffs, ordering the defendant to execute a deed of absolute sale of the land covered by TCT 327403 and canceling TCT 331582 and declaring the latter without force and effect. Claims for damages by plaintiffs and counterclaims by the defendants and intervenors were dismissed. A motion for reconsideration was thereafter filed, which was denied.

Petitioners interposed an appeal, but on 16 December 1991, the CA rendered its decision fully agreeing with the trial court. Hence, the instant petition.

The Supreme Court dismissed the petition and affirmed the appealed judgment.

1. Receipt of downpayment a binding contract; Meeting of the minds

The document embodied the binding contract between Ramona Patricia Alcaraz and the heirs of Constancio P. Coronel, pertaining to a particular house and lot covered by TCT 119627, as defined in Article 1305 of the Civil Code of the Philippines.

2. Definition of contract of sale

The Civil Code defines a contract of sale, in Article 1458, as “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.” Sale, thus, by its very nature a consensual contract because it is perfected by mere consent.

3. Elements of contract of sale; Contract to sell not contract of sale due to the lack of first element; Distinction necessary

when property is sold to a third person

The essential elements of a contract of sale are (a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; (b) Determinate subject matter; and (c) Price certain in money or its equivalent. A Contract to Sell may not be considered as a Contract of Sale because the first essential element is lacking. It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases where the subject property is sold by the owner not to the party the seller contracted with, but to a third person.

4. Contract to sell: Seller agrees to sell property when purchase price is delivered to him; seller reserves transfer of title

until fulfillment of suspensive condition (payment)

In a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, which for present purposes taken to be the full payment of the purchase price. What the seller agrees or

obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer.

5. Contract to sell: failure to deliver payment is not a breach but event preventing vendor to convey title; obligation

demandable upon full payment of price; promise binding if supported by payment distinct from the price

When a contract is a contract to sell where the ownership or title is retained by the seller and is not to pass until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force (Roque v. Lapuz). Upon the fulfillment of the suspensive condition which is the full payment of the purchase price, the prospective seller’s obligation to sell the subject property by entering into a contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the Civil Code (“A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.”) 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.

6. Contract to sell defined

A contract to sell be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of

the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the

prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.

7. Contract to sell not a conditional contract of sale (existence of first element)

A contract to sell may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the

property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur.

8. Conditional contract of sale: if suspensive condition not fulfilled, pefection abated; if fulfilled, contract of sale perfected

and ownership automatically transfers to buyer

If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated (cf. Homesite and Housing

Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, if the suspensive condition is fulfilled, the contract of sale is thereby

perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller.

9. Contract to sell: if suspensive condition fulfilled, seller has still to convey title even if property is previously delivered

In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale.

10. Contract to sell: there is no double sale; if property sold to another, the seller may be sued for damages

In a contract to sell, there being no previous sale of the property, a third person buying such property despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property. There is no double sale in such case. Title to the property will transfer to the buyer after registration because there is no defect in the owner-seller’s title per se, but the latter, of course, may be sued for damages by the intending buyer.

11. Conditional contract of sale: sale becomes absolute upon fulfillment of condition; if property sold to another, first buyer

may seek reconveyance

In a conditional contract of sale, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely affect the seller’s title thereto. In fact, if there had been previous delivery of the subject property, the seller’s ownership or title to the property is automatically transferred to the buyer such that, the seller will no longer have any title to transfer to any third person. Applying Article 1544 of the Civil Code, such second buyer of the property who may have had actual or constructive knowledge of such defect in the seller’s title, or at least was charged with the obligation to discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first buyer’s title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale.

12.

Interpretation of contracts, natural and meaning of words unless technical meaning was intended

It is a canon in the interpretation of contracts that the words used therein should be given their natural and ordinary meaning unless a technical meaning was intended (Tan vs. Court of Appeals, 212 SCRA 586 [1992]).

13. Document entitled “Receipt of Down Payment” indicates Conditional Contract of Sale and not contract to sell

The agreement could not have been a contract to sell because the sellers made no express reservation of ownership or title to the subject parcel of land. Furthermore, the circumstance which prevented the parties from entering into an absolute contract of sale pertained to the sellers themselves (the certificate of title was not in their names) and not the full payment of the purchase price. Under the established facts and circumstances of the case, had the certificate of title been in the names of petitioners-sellers at that time, there would have been no reason why an absolute contract of sale could not have been executed and consummated right there and then. Moreover, unlike in a contract to sell, petitioners did not merely promise to sell the property to private respondent upon the fulfillment of the suspensive condition. On the contrary, having already agreed to sell the subject property, they undertook to have the certificate of title changed to their names and immediately thereafter, to execute the written deed of absolute sale. What is clearly established by the plain language of the subject document is that when the said “Receipt of Down Payment” was prepared and signed by petitioners, the parties had agreed to a conditional contract of sale, consummation of which is subject only to the successful transfer of the certificate of title from the name of petitioners’ father to their names. The suspensive condition was fulfilled on 6 February 1985 and thus, the conditional contract of sale between the parties became obligatory, the only act required for the consummation thereof being the delivery of the property by means of the execution of the deed of absolute sale in a public instrument, which petitioners unequivocally committed themselves to do as evidenced by the “Receipt of Down Payment.”

14. Article 1475 and 1181 applies to present case; Perfection of a contract of sale and Conditional obligation based on the

happening of the event

Article 1475 of the New Civil Code provides that “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. Article 1181 of the same code provides that “in conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition.” In the present case, since the condition contemplated by the parties which is the issuance of a certificate of title in petitioners’ names was fulfilled on 6 February 1985, the respective obligations of the parties under the contract of sale became mutually demandable, i.e. the sellers were obliged to present the TCT already in their names to he buyer, and to immediately execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith pay the balance of the purchase price amounting to P1,190,000.00.

15. Condition deemed fulfilled when obligor voluntary prevents its fulfillment; Condition fulfilled, such fact controlling over

hypothetical arguments

Article 1186 provides that “the condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.” Thus, in the present case, the petitioners having recognized that they entered into a contract of sale subject to a suspensive condition, as evidenced in the first paragraph in page 9 of their petition, cannot now contend that there could have been no perfected contract of sale had the petitioners not complied with the condition of first transferring the title of the property under their names. It should be stressed and emphasized that the condition was fulfilled on 6 February 1985, when TCT 327403 was issued in petitioners’ name, and such fact is more controlling than mere hypothetical arguments.

16. Retroactivity of conditional obligation to day of constitution of obligation

Article 1187 provides that “the effects of conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation.” In obligations to do or not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with. In the present case, the rights and obligations of the parties with respect to the perfected contract of sale became mutually due and demandable as of the time of fulfillment or occurrence of the suspensive condition on 6 February 1985. As of that point in time, reciprocal obligations of both seller and buyer arose.

17. Succession as a mode of transferring ownership

Article 774 of the Civil Code defines Succession as a mode of transferring ownership, providing “succession is a mode of acquisition by virtue of which the property, rights and obligations to the extent and value of the inheritance of a person are transmitted through his death to another or others by his will or by operation of law.” In the present case, petitioners-sellers being the sons and daughters of the decedent Constancio P. Coronel are compulsory heirs who were called to succession by operation of law. Thus, at the instance of their father’s death, petitioners stepped into his shoes insofar as the subject property is concerned, such that any rights or obligations pertaining thereto became binding and enforceable upon them. It is expressly

provided that rights to the succession are transmitted from the moment of death of the decedent (Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]).

18. Estoppel, as to lack of capacity

Article 1431 provides that “through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.” In the present case, the petitioners, having represented themselves as the true owners of the subject property at the time of sale, cannot claim now that they were not yet the absolute owners thereof at the time they entered into agreement.

19. Mere allegation is not evidence

The supposed grounds for petitioners’ rescission, are mere allegations found only in their responsive pleadings, which by express provision of the rules, are deemed controverted even if no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The records are absolutely bereft of any supporting evidence to substantiate petitioners’ allegations. We have stressed time and again that allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]). Mere allegation is not an evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).

20. No stipulation to authorize extrajudicial rescission of contract of sale

Even assuming arguendo that Ramona P. Alcaraz was in the United States of America on 6 February 1985, petitioners-sellers’ act of unilaterally and extrajudicially rescinding the contract of sale cannot be justified as there was no express stipulation authorizing the sellers to extrajudicially rescind the contract of sale. (cf Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. de Leon, 132 SCRA 722 [1984])

21. Estoppel, acceptance of check from buyer’s mother; buyer’s absence not a ground for rescission

Petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz because although the evidence on record shows that the sale was in the name of Ramona P. Alcaraz as the buyer, the sellers had been dealing with Concepcion D. Alcaraz, Ramona’s mother, who had acted for and in behalf of her daughter, if not also in her own behalf. Indeed, the down payment was made by Concepcion D. Alcaraz with her own personal check (Exh. “B”; Exh. “2) for and in behalf of Ramona P. Alcaraz. There is no evidence showing that petitioners ever questioned Concepcion’s authority to represent Ramona P. Alcaraz when they accepted her personal check. Neither did they raise any objection as regards payment being effected by a third person. Accordingly, as far as petitioners are concerned, the physical absence of Ramona P. Alcaraz is not a ground to rescind the contract of sale.

22. Buyer not in default as there is no proof that seller presented the TCT and signify their readiness to execute the deed of

absolute sale

Article 1169 of the Civil Code defines when a party in a contract involving reciprocal obligations may be considered in default. Said article provides that “those obliged to deliver or to do something, incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. xxx In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfill his obligation, delay by the other begins.” In the present case, there is no proof offered whatsoever to show that the seller actually presented the new transfer certificate of title in their names and signified their willingness and readiness to execute the deed of absolute sale in accordance with their agreement. Ramona’s corresponding obligation to pay the balance of the purchase price in the amount of P1,190,000.00 (as buyer) never became due and demandable and, therefore, she cannot be deemed to have been in default.

23. Double sale; Article 1544, paragraph 2 applies in the present case

Article 1544 of the Civil Code provides that “If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should if be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof to the person who presents the oldest title, provided there is good faith.” In the present case, the record of the case shows that the Deed of Absolute Sale dated 25 April 1985 as proof of the second contract of sale was registered with the Registry of Deeds of Quezon City giving rise to the issuance of a new certificate of title in the name of Catalina B. Mabanag on 5 June 1985. Thus, the second paragraph of Article 1544 shall apply.

24. Double sale presumes title to pass to first buyer, exceptions

Article 1544, the provision on double sale, presumes title or ownership to pass to the first buyer, the exceptions being: (a) when the second buyer, in good faith, registers the sale ahead of the first buyer, and (b) should there be no inscription by either of the two buyers, when the second buyer, in good faith, acquires possession of the property ahead of the first buyer. Unless, the second buyer satisfies these requirements, title or ownership will not transfer to him to the prejudice of the first buyer.

25. Prius tempore, potior jure (first in time, stronger in right); First to register in good faith

The governing principle is prius tempore, potior jure (first in time, stronger in right). Knowledge by the first buyer of the second sale cannot defeat the first buyer’s rights except when the second buyer first registers in good faith the second sale (Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, since knowledge taints his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No. 58530, 26 December 1984). It was further held that it is essential, to merit the protection of Article 1544, second paragraph, that the second realty buyer must act in good faith in registering his deed of sale (Cruz v. Cabana, 129 SCRA 656, citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02 September 1992).

26. Double sale; good faith in recording of second sale, not in buying

In a case of double sale, what finds relevance and materiality is not whether or not the second buyer was a buyer in good faith but whether or not said second buyer registers such second sale in good faith, that is, without knowledge of any defect in the title of the property sold. In the present case, Mabanag could not have in good faith registered the sale entered into on 18 February 1985 because as early as 22 February 1985, a notice of lis pendens had been annotated on the TCT in the names of petitioners, whereas Mabanag registered the said sale sometime in April 1985. At the time of registration, therefore, petitioner knew that the same property had already been previously sold to Coronel, or, at least, she was charged with knowledge that a previous buyer is claiming title to the same property. Mabanag thus cannot close her eyes to the defect in petitioners’ title to the property at the time of the registration of the property.

27. Double sale; Bad faith in registration does not confer registrant any right

If a vendee in a double sale registers the sale after he has acquired knowledge that there was a previous sale of the same property to a third party or that another person claims said property in a previous sale, the registration will constitute a registration in bad faith and will not confer upon him any right. (Salvoro vs. Tanega, 87 SCRA 349 [1981];citing Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.)

28. Agency; The issue whether Concepcion, mother of Ramona, is an agent or a co-buyer is undisturbed

Although there may be ample indications that there was in fact an agency between Ramona as principal and Concepcion, her mother, as agent insofar as the subject contract of sale is concerned, the issue of whether or not Concepcion was also acting in her own behalf as a co-buyer is not squarely raised in the instant petition, nor in such assumption disputed between mother and daughter. The Court did not touch this issue and did not disturb the lower courts’ ruling on this point.

2. Romero v. CA (GR 107207, 23 November 1995)

Romero v. CA [GR 107207, 23 November 1995] Third division, Vitug (J): 4 concur

Facts: Virgilio R. Romero, a civil engineer, was engaged in the business of production, manufacture and exportation of perlite filter aids, permalite insulation and process perlite ore. In 1988, Romero and his foreign partners decided to put up a central warehouse in Metro Manila on a land area of approximately 2,000 sq. m. The project was made known to several freelance real estate brokers. A day or so after the announcement, Alfonso Flores and his wife, accompanied by a broker, offered a parcel of land measuring 1,952 sq. m. Located in Barangay San Dionisio, Parañaque, Metro Manila, the lot was covered by TCT 361402 in the name of Enriqueta Chua Vda. de Ongsiong. Romero visited the property and, except for the presence of squatters in the area, he found the place suitable for a central warehouse. Later, the Flores spouses called on Romero with a proposal that should he advance the amount of P50,000.00 which could be used in taking up an ejectment case against the squatters, Ongsiong would agree to sell the property for only P800.00 per sq. m. Romero expressed his concurrence. On 09 June 1988, a contract, denominated “Deed of Conditional Sale,” was executed between Romero and Ongsiong. Flores, in behalf of Ongsiong, forthwith received and acknowledge a check for P50,000.00 from Romero.

Pursuant to this agreement, Ongsiong filed a complaint for ejectment (Civil Case 7579) against Melchor Musa and 29 other squatter families with the MTC Parañaque. A few months later, or on 21 February 1989, judgment was rendered ordering the

defendants to vacate the premises. The decision was handed down beyond the 60-day period (expiring 09 August 1988) stipulated in the contract. The writ of execution of the judgment was issued, still later, on 30 March 1989.

In a letter, dated 07 April 1989, Ongsiong sought to return the P50,000.00 she received from Romero since, she said, she could

not “get rid of the squatters” on the lot. Atty. Sergio A.F. Apostol, counsel for Romero, refused the tender, citing the favorable decision and the writ of execution issued pursuant thereto, and expressed Romero’s willingness to underwrite the expenses for the execution of the judgment and ejectment of the occupants chargeable to the purchase price of the land.

Meanwhile, the Presidential Commission for the Urban Poor (”PCUD”), through its Regional Director for Luzon (Viloria), asked the MTC Parañaque for a grace period of 45 days from 21 April 1989 within which to relocate and transfer the squatter families. Acting favorably on the request, the court suspended the enforcement of the writ of execution accordingly.

On 08 June 1989, Atty. Apostol reminded Ongsiong on the expiry of the 45-day grace period and reiterated his client’s willingness to underwrite the expenses for the execution of the judgment and ejectment of the occupants. On 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for Ongsion, advised Atty. Apostol that the Deed of Conditional Sale had been rendered null and void by virtue of his client’s failure to evict the squatters from the premises within the agreed 60-day period. He added that private respondent had “decided to retain the property.”

Meanwhile, on 25 August 1989, the MTC issued an alias writ of execution in Civil Case 7579 on motion of Ongsiong but the squatters apparently still stayed on.

On 27 June 1989, Ongsiong prompted by Romero’s continued refusal to accept the return of the P50,000.00 advance payment, filed with the RTC Makati (Branch 133, Civil Case 89-4394) for a rescission of the deed of “conditional” sale, plus damages, and for the consignation of P50,000.00 cash. On 26 June 1990, the RTC rendered decision holding that Ongsiong had no right to rescind the contract since it was she who “violated her obligation to eject the squatters from the subject property” and that Romero, being the injured party, was the party who could, under Article 1191 of the Civil Code, rescind the agreement. The lower court, thus dismissed the complaint and ordered Ongsiong to eject or cause the ejectment of the squatters from the property and to execute the absolute deed of conveyance upon payment of the full purchase price by Romero.

Ongsiong appealed to the Court of Appeals. On 29 May 1992, the appellate court rendered its decision, reversed and set aside the decision appealed from and entered another declaring he contract of conditional sale of 9 June 1988 cancelled and ordering Romero to accept the return of the downpayment in the amount of P50,000 deposited with the trial court; without pronouncement as to cost. Failing to obtain a reconsideration, Romero filed his petition for review on certiorari before the Supreme Court.

The Supreme Court reversed and set aside the questioned decision of the Court of Appeals, and entered another ordering Romero to pay Ongsiong the balance of the purchase price and the latter to execute the deed of absolute sale in favor of petitioner; without costs.

1. Perfected contract of sale, absolute or conditional

A perfected contract of sale may either be absolute or conditional depending on whether the agreement is devoid of, or subject

to, any condition imposed on the passing of title of the thing to be conveyed or on the obligation of party thereto. When ownership is retained until the fulfillment of a positive condition the breach of the condition will simply prevent the duty to convey title from acquiring an obligatory force. If the condition is imposed on an obligation of a party which is not complied with, the other party may either refuse to proceed or waive said condition (Art. 1545, Civil Code). Where, of course, the condition is imposed upon the perfection of the contract itself, the failure of such condition would prevent the juridical relation itself from coming into existence.

2.

Real character of a contract, substance more significant than title given to it by parties

In

determining the real character of the contract, the title given to it by the parties is not as much as significant as its substance.

For example, a deed of sale, although denominated as a deed of conditional sale, may be treated as absolute in nature, 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, as the case may be, of the prescribed condition.

3. Condition in the context of a perfected contract of sale

The term “condition” in the context of a perfected contract of sale pertains, in reality, to the compliance by one party of an undertaking the fulfillment of which would beckon, in turn, the demandability of the reciprocal prestation of the other party. The reciprocal obligations referred to would normally be, in the case of vendee, the payment of the agreed purchase price and,

in the case of the vendor, the fulfillment of certain express warranties (which, in the present case is the timely eviction of the

squatters on the property).

4. Perfection of a sale; Parties bound to fulfill what is expressly stipulated and all consequences in keeping with good faith,

usage and law

A sale is at once perfected where a person (the seller) obligates himself, for a price certain, to deliver and to transfer ownership

of a specified thing or right to another (the buyer) over which the latter agrees. From the moment the contract is perfected, 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. In the present cas, under the agreement, Ongsiong

is obligated to evict the squatters on the property. The ejectment of the squatters is a condition the operative act of which sets

into motion the period of compliance by Romero of his own obligation, i.e., to pay the balance of the purchase price.

5. Options available under Article 1545 belongs to injured party

Ongsiong’s failure to “remove the squatters from the property” within the stipulated period gives Romero the right to either refuse to proceed with the agreement or waive that condition in consonance with Article 1545 of the Civil Code. This option clearly belongs to petitioner (Romero) and not to private respondent (Ongsiong).

In contracts of sale particularly, Article 1545 of the Civil Code allows the obligee to choose between proceeding with the agreement or waiving the performance of the condition. Evidently, Romero has waived the performance of the condition imposed on Ongsiong to free the property from squatters.

6. Potestative condition is mixed, and not dependent on the sole will of the debtor; If condition is imposed on the

fulfillment of the obligation and not the birth thereof, only the condition is avoided and does not affect obligation itself

The undertaking required of private respondent does not constitute a “potestative condition dependent solely on his will” that might, otherwise, be void in accordance with Article 1182 of the Civil Code but a “mixed” condition “dependent not on the will of the vendor alone but also of third persons like the squatters and government agencies and personnel concerned.” However, where the so-called “potestative condition” is imposed not on the birth of the obligation but on its fulfillment, only the condition is avoided, leaving unaffected obligation itself.

7. Rescission by non-injured party not warranted; Article 1191

The right of resolution of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party violates the reciprocity between them. In the present case, Ongsiong’s action for rescission was not warranted as she was not the injured party. It was Ongsiong who has failed in her obligation under the contract. Romero did not breach the agreement. He has agreed, in fact, to shoulder the expenses of the execution of the judgment in the ejectment case and to make arrangement with the sheriff to effect such execution. Parenthetically, this offer to pay, hiring been made prior to the demand for rescission, assuming for the sake of argument that such a demand is proper under Article 1592 of the Civil Code, would likewise suffice to defeat Ongsiong’s prerogative to rescind thereunder.

8. Petitioner, opting to proceed with sale, may not demand the reimbursement of the advance payment

When petitioner having opted to proceed with the sale, neither may petitioner demand its reimbursement from private respondent. Further, private respondent may not subject it to forfeiture.

3. Fule v. CA (GR 112212, 2 March 1998)

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 Fule’s 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 latter’s 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 bank’s 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 lawyer’s 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 court’s 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 court’s 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 Court’s 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 Court’s 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 court’s 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 Court’s 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 Jaramillo’s compliance with his duty as a judge to “dispose of the court’s 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. Non-compliance 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 petitioner’s 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 petitioner’s 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 vendee’s 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 party’s 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 petitioner’s 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. Ong v. CA (GR 97347, 6 July 1999)

Ong v. CA [G.R. No. 97347. July 6, 1999.] First division, Ynares-Santiago (J): 4 concur

Facts: On 10 May 1983, Jaime Ong and spouses Miguel and Alejandra Robles executed an “Agreement of Purchase and Sale” respecting 2 parcels of land situated at Barrio Puri, San Antonio, Quezon (agricultural including rice mill, piggery) for P2M (initial

payment of P600,000 broken into P103,499.91 directly paid to seller on 22 March 1983 and P496,500.09 directly paid to BPI to answer for part of seller’s loan with the bank; and balance of 1.4M to be paid in 4 equal quarterly installments of P350,000 the first of which due and demandable on 15 June 1983); binding themselves that upon the payment of the total purchase price the seller delivers a good and sufficient deed of sale and conveyance for the parcels of land free and clear from liens and encumbrances, that seller delivers, surrenders and transfers the parcels of land including all improvements thereon and to transfer the operations of the piggery and rice mill to the buyer; and that all payments due and demandable under the contract effected in the residence of the seller unless otherwise designated by the parties in writing. On 15 May 1983, Ong took possession of the subject parcels of land together with the piggery, building, ricemill, residential house and other improvements thereon. Pursuant to the contract, Ong paid the spouses the sum of P103,499.91 2 by depositing it with the UUCPB. Subsequently, Ong deposited sums of money with the BPI, in accordance with their stipulation that petitioner pay the loan of the spouses with BPI. To answer for his balance of P 1.4M, Ong issued 4 post-dated Metro Bank checks payable to the spouses in the amount of P350,000.00 each (Check 137708-157711). When presented for payment, however, the checks were dishonored due to insufficient funds. Ong promised to replace the checks but failed to do so. To make matters worse, out of the P496,500.00 loan of the spouses with BPI, which ong, as per agreement, should have paid, Ong only managed to dole out no more than P393,679.60. When the bank threatened to foreclose the spouses’ mortgage, they sold 3 transformers of the rice mill worth P51,411.00 to pay off their outstanding obligation with said bank, with the knowledge and conformity of Ong. Ong, in return, voluntarily gave the spouses authority to operate the rice mill. He, however, continued to be in possession of the two parcels of land while the spouses were forced to use the rice mill for residential purposes.

On 2 August 1985, the spouses, through counsel, sent Ong a demand letter asking for the return of the properties. Their demand was left unheeded, so, on 2 September 1985, they filed with the RTC Lucena City, Branch 60, a complaint for rescission of contract and recovery of properties with damages. Later, while the case was still pending with the trial court, Ong introduced major improvements on the subject properties by constructing a complete fence made of hollow blocks and expanding the piggery. These prompted the spouses to ask for a writ of preliminary injunction; which the trial court granted, and thus enjoined Ong from introducing improvements on the properties except for repairs. On 1 June 1989, the trial court rendered a decision in favor of the spouses: ordering the contract entered into by the parties set aside, ordering the delivery of the parcels of land and the improvements thereon to the spouses, ordering the return of the sum of P497,179.51 to Ong by the spouses, ordering Ong to pay the spouses P100,000 for exemplary damages and P20,000 as attorney’s fees and litigation expenses. From this decision, petitioner appealed to the Court of Appeals, which affirmed the decision of the RTC but deleted the award of exemplary damages. In affirming the decision of the trial court, the Court of Appeals noted that the failure of petitioner to completely pay the purchase price is a substantial breach of his obligation which entitles the private respondents to rescind their contract under Article 1191 of the New Civil Code. Hence, the petition for review on certiorari.

The Supreme Court affirmed the decision rendered by the Court of Appeals with the modification that the spouses are ordered to return to Ong the sum P48,680.00 in addition to the amounts already awarded; with costs against petitioner Ong.

1. Reevaluation of evidence not the function of the Supreme Court

It is not the function of the Supreme Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties to an appeal, particularly where the findings of both the trial court and the appellate court on the matter coincide. There is no cogent reason shown that would justify the court to discard the factual findings of the two courts below and to superimpose its own.

2. Rescission as a remedy to secure the reparation of damages caused by a contract; Article 1380

Rescission, as contemplated in Articles 1380, et seq., of the New Civil Code, is a remedy granted by law to the contracting parties and even to third persons, to secure the reparation of damages caused to them by a contract, even if this should be valid, by restoration of things to their condition at the moment prior to the celebration of the contract. It implies a contract, which even if initially valid, produces a lesion or a pecuniary damage to someone.

3. Rescission applicable to reciprocal obligations under Article 1191

Article 1191 of the New Civil Code refers to rescission applicable to reciprocal obligations. Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one

is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other.

4. Rescission of reciprocal obligations under Article 1191 distinguished from rescission of contract under Article 1383

Rescission of reciprocal obligations under Article 1191 of the New Civil Code should be distinguished from rescission of contracts under Article 1383. Although both presuppose contracts validly entered into and subsisting and both require mutual restitution when proper, they are not entirely identical. While Article 1191 uses the term “rescission,” the original term which was used in the old Civil Code, from which the article was based, was “resolution.” Resolution is a principal action which is based on breach

of a party, while rescission under Article 1383 is a subsidiary action limited to cases of rescission for lesion under Article 1381 of the New Civil Code.

5. Rescissible contract under Article 1381

Article 1381 of the New Civil Code enumerates rescissible contracts as “(1) those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one fourth of the value of the things which are the object thereof; (2) those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number; (3) those undertaken in fraud of creditors when the latter cannot in any manner collect the claims due them; (4) those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority; (5) all other contracts specially declared by law to be subject to rescission.” In the present case, the contract entered into by the parties obviously does not fall under any of those mentioned by Article 1381. Consequently, Article 1383 is inapplicable.

6. Contract to sell distinguished from contract of sale

In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; while in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force.

7. “Agreement of Purchase and Sale” is in the nature of contract to sell

A careful reading of the parties’ “Agreement of Purchase and Sale” shows that it is in the nature of a contract to sell. The spouses bound themselves to deliver a deed of absolute sale and clean title covering the two parcels of land upon full payment by the buyer of the purchase price of P2M. This promise to sell was subject to the fulfillment of the suspensive condition of full payment of the purchase price by the Ong. The non-fulfillment of the condition of full payment rendered the contract to sell ineffective and without force and effect. It must be stressed that the breach contemplated in Article 1191 of the New Civil Code is the obligor’s failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation. Failure to pay, in this instance, is not even a breach but merely an event which prevents the vendor’s obligation to convey title from acquiring binding force. Hence, the agreement of the parties the present case may be set aside, but not because of a breach on the part of Ong for failure to complete payment of the purchase price. Rather, his failure to do so brought about a situation which prevented the obligation of the spouses to convey title from acquiring an obligatory force.

8. Contract was not novated as to the manner and time of payment; Novation not presumed

Article 1292 of the New Civil Code states that, “In order that an obligation may be extinguished by another which substitutes the

same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point

incompatible with each other.”

parties or by implication derived from an irreconcilable incompatibility between the old and the new obligation. In the present case, the parties never even intended to novate their previous agreement. It is true that Ong paid the spouses small sums of money amounting to P48,680.00, in contravention of the manner of payment stipulated in their contract. These installments were, however, objected to by the spouses, and ong replied that these represented the interest of the principal amount which he owed them. Records further show that Ong agreed to the sale of MERALCO transformers by the spousess to pay for the balance of their subsisting loan with BPI. Although the parties agreed to credit the proceeds from the sale of the transformers to petitioner’s obligation, he was supposed to reimburse the same later to respondent spouses. This can only mean that there was never an intention on the part of either of the parties to novate petitioner’s manner of payment.

9. Requisites of novation

In order for novation to take place, the concurrence of the following requisites is indispensable: (1) there must be a previous valid obligation; (2) there must be an agreement of the parties concerned to a new contract; (3) there must be the extinguishment of the old contract; and (4) there must be the validity of the new contract. In the present case, the requisites are

not found. The subsequent acts of the parties hardly demonstrate their intent to dissolve the old obligation as a consideration for the emergence of the new one. Novation is never presumed, there must be an express intention to novate.

10. Builder in bad faith

As regards the improvements introduced by Ong to the premises and for which he claims reimbursement, the Court found no reason to depart from the ruling of the trial court and the appellate court that petitioner is a builder in bad faith. He introduced

the improvements on the premises knowing fully well that he has not paid the consideration of the contract in full and over the vigorous objections of respondent spouses. Moreover, Ong introduced major improvements on the premises even while the case against him was pending before the trial court.

Novation is never presumed, it must be proven as a fact either by express stipulation of the

11.

Deletion of award of exemplary damages correct

The award of exemplary damages was correctly deleted by the Court of Appeals inasmuch as no moral, temperate, liquidated or compensatory damages in addition to exemplary damages were awarded.

5. Gaite v. Fonacier (GR L-11827, 31 July 1961)

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 attorney’s 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 buyer’s 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

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 buyer’s 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 company’s undertaking on 8 December 1955 substantially reduced the security of the vendor’s 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 company’s 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

Gaite’s acceptance of the surety company’s 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 company’s 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.

.” etc. There is no uncertainty that the payment will have to be made sooner or later;

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 appellant’s 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 Gaite’s estimate appears to be substantially correct.

6. Acap v. CA (GR 118114, 7 December 1995)

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 Pido’s 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 Pido’s heirs. Edy de los Reyes did not sign said document. It will be noted that at the time of Cosme Pido’s 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 Reyes’s 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 Acap’s preferred right of a Certificae of Land Transfer under PD 27 and his farmholdings, the return of the farmland in Acap’s possession to delos Reyes, and Acap to pay P5,000.00 as attorney’s 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 court’s 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 Pido’s 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 respondent’s 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 Pido’s 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 Pido’s 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 Pido’s 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 tenant’s 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.

7. Quijada v. CA (GR 126444, 4 December 1998)

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 Sequeña 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 attorney’s 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 attorney’s 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 Municipality’s 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 donor’s 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 complainant’s right after he had knowledge of the defendant’s 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-in-interest in 1987, not in the 1960’s 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. Seller’s 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 (Trinidad’s 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 seller’s “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 court’s award of attorney’s fees, litigation expenses and moral damages. Attorney’s 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 latter’s 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.

8. Celestino v. CIR (GR L-8506, 31 August 1956)

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 contractor’s 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 Company’s 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 ready-made 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. (Formilleza’s 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

Petitioner’s 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.

9. CIR v. Engineering Equipment (GR L-27044, 30 June 1975)

CIR v. Engineering Equipment and Supply [G.R. No. L-27044. June 30, 1975.] Engineering Equipment and Supply v. CIR [G.R. No. L-27452. June 30, 1975.] First Division, Esguerra (J): 4 concur

Facts: Engineering Equipment and Supply Co. is an engineering and machinery firm; and being an operator of an integrated engineering ship, is engaged in the design and installation of central type air conditioning system, pumping plants and steel fabrications. On 27 July 1956, one Juan de la Cruz, wrote the then Collector, now Commissioner, of Internal Revenue denouncing the Company for tax evasion by misdeclaring its imported articles and failing to pay the correct percentage taxes due thereon in connivance with its foreign suppliers. The Company was likewise denounced to the Central Bank for alleged fraud in obtaining its dollar allocations. Acting on these denunciations, a raid and search was conducted by a joint team of Central Bank, (CB), National Bureau of Investigation (NBI) and Bureau of Internal Revenue (BIR) agents on 27 September 1956, on which occasion voluminous records of the firm were seized and confiscated.

On 30 September 1957, revenue examiners reported and recommended to the then Collector, now Commissioner, of Internal Revenue that the Company be assessed for P480,912.01 as deficiency advance sales tax on the theory that it misdeclared its importation of air conditioning units and parts and accessories thereof which are subject to tax under Section 185(m) 1 of the Tax Code, instead of Section 186 of the same Code. This assessment was revised on 23 January 1959, in line with the observation of the Chief, BIR Law Division, and was raised to P916,362.56 representing deficiency advance sales tax and manufacturers sales tax, inclusive of the 25% and 50% surcharges. On 3 March 1959, the Commissioner assessed against, and demanded upon, the Company payment of the increased amount and suggested that P10,000 be paid as compromise in extrajudicial settlement of the Company’s penal liability for violation of the Tax Code. The firm, however, contested the tax assessment and requested that it be furnished with the details and particulars of the Commissioner’s assessment. The Commissioner replied that the assessment was in accordance with law and the facts of the case.

On 30 July 1959, the Company appealed the case to the Court of Tax Appeals (CTA) and during the pendency of the case the investigating revenue examiners reduced the Company’s deficiency tax liabilities from P916,362.65 to P740,587.86, based on findings after conferences had with the Company’s Accountant and Auditor. On 29 November 1966, the CTA rendered its decision, modifying the decision appealed from, declaring the Company as contractor exempt from the deficiency manufacturers sales tax covering the period from 1 June 1948 to 2 September 1956 but ordered said company to pay the Commissioner, or his collection agent, the sum of P174,141.62 as compensating tax and 25% surcharge for the period from 1953 to September 1956; With costs against the Company.

The Commissioner, not satisfied with the decision of the CTA, appealed to the Supreme Court on 18 January 1967, (GR L-27044). On the other hand, the Company, on 4 January 1967, filed with the CTA a motion for reconsideration; which was denied on 6 April 1967, prompting the Company to file also with the Supreme Court its appeal (GR L-27452). Since the two cases involve the same parties and issues, the Court decided to consolidate and jointly decide them.

The Supreme Court affirmed the decision appealed from with modification that the Company is also made liable to pay the 50% fraud surcharge.

1. Manufacturer defined

Section 194 of the Tax code provides that “’Manufacturer’ includes every person who by physical or chemical process alters the exterior texture or form or inner substance of any raw material or manufactured or partially manufactured products in such manner as to prepare it for a special use or uses to which it could not have been put in its original condition, or who by any such process alters the quality of any such material or manufactured or partially manufactured product so as to reduce it to marketable shape, or prepare it for any of the uses of industry, or who by any such process combines any such raw material or manufactured or partially manufactured products with other materials or products of the same or of different kinds and in such manner that the finished product of such process of manufacture can be put to special use or uses to which such raw material or manufactured or partially manufactured products in their original condition could not have been put, and who in addition alters such raw material or manufactured or partially manufactured products, or combines the same to produce such finished products for the purpose of their sale or distribution to others and not for his own use or consumption.”

2. Test to distinguish contract of sale and contract for work, labor and materials

The distinction between a contract of sale and one for work, labor and materials is tested by the inquiry whether the thing

transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed and has been the subject of sale to some other persons even if the order had not been given. If the article ordered by the purchaser is exactly such as the plaintiff makes and keeps on hand for sale to anyone, and no change or modification of it is made at defendant’s request, it is a contract of sale, even though it may be entirely made after, and in consequence of, the defendants order for it.

3. Contract of sale distinguished from a contract for a piece of work

The New Civil Code distinguishes a contract of sale from a contract for a piece of work. Article 1467 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 a contract for a piece of work.”

4. Contractor defined; Test to determine contractor

The word “contractor” has come to be used with special reference to a person who, in the pursuit of the independent business, undertakes to do a specific job or piece of work for other persons, using his own means and methods without submitting himself to control as to the petty details. (Arañas, Annotations and Jurisprudence on the National Internal Revenue Code, p. 318, par. 191(2), 1970 Ed.) The true test of a contractor as was held in the cases of Luzon Stevedoring Co., vs. Trinidad 43, Phil.

803, 807-808, and La Carlota Sugar Central vs. Trinidad 43, Phil. 816, 819, would seem to be that he renders service in the course of an independent occupation, representing the will of his employer only as to the result of his work, and not as to the means by which it is accomplished.

5. Engineering Equipment Co. is a contractor and not a manufacturer

The Company did not manufacture air conditioning units for sale to the general public, but imported some items (as refrigeration compressors in complete set, heat exchangers or coils), which were used in executing contracts entered into by it. The Company fabricates, assembles, supplies and installs in the buildings of its various customers the central type air conditioning system; prepares the plans and specifications therefor which are distinct and different from each other; the air conditioning units and spare parts or accessories thereof used are not the window type of air conditioner which are manufactured, assembled and produced locally for sale to the general market; and the imported air conditioning units and spare parts or accessories thereof are supplied and installed upon previous orders of its customers conformably with their

needs and requirements.” The facts and circumstances support the theory that the Company is a contractor rather than a manufacturer.

6. Engineering Equipment Co. subject to contractors tax (Section 191); As it imports goods not subject to sales tax, it also

liable to 30% compensation tax (Section 190 in relation to Section 18[m], but without the 50% mark up provided in Section

183[b]

The Company, being a contractor and not a manufacturer, is subject to the contractors tax prescribed by Section 191 of the Code and not to the advance sales tax imposed by Section 185(m) in relation to Section 194 of the same Code. Since it has been proved that the Company imported air conditioning units parts or accessories thereof for use in its construction business and these items were never sold resold bartered or exchanged the Company should be held liable to pay taxes prescribed under Section 190 of the Code. This compensating tax is not a tax on the importation of goods but a tax on the use of imported goods not subject to sales tax. The Company, therefore, should be held liable to the payment of 30% compensating tax in accordance with Section 190 of the Tax Code in relation to Section 185(m) of the same, but without the 50% mark up provided in Section

183(b).

7. Air conditioning equipment grouped into 2 classifications, unitary and central system

There is a great variety of equipment in use to do air conditioning. Some devices are designed to serve a specific type of space;

others to perform a specific function; and still others as components to be assembled into a tailor-made system to fit a particular building. Generally, however, they may be grouped into two classifications, unitary and central system. The unitary equipment classification includes those designs such as room air conditioner, where all of the functional components are included in one or two packages, and installation involves only making service connection such as electricity, water and drains. Central-station systems, often referred to as applied or built-up systems, require the installation of components at different points in a building and their interconnection. The room air conditioner is a unitary equipment designed specifically for a room or similar small space. It is unique among air conditioning equipment in two respects: It is in the electrical appliance classification, and it is made by a great number of manufacturers (Engineering handbook by LC Morrow). The central type air conditioning system is an engineering job that requires planning and meticulous layout due to the fact that usually architects assign definite space and usually the spaces they assign are very small and of various sizes, in buildings dissimilar to existing buildings. The window type air conditioner is a sort of compromise; it cannot control humidity to the desired level; rather the manufacturers, by hit and miss, were able to satisfy themselves that the desired comfort within a room could be made by a

definite setting of the machine as it comes from the factory; whereas the central type system definitely requires an intelligent operator.

8. Celestino Co v. CIR, Advertising Associates v. Collector of customs, Manila Trading v. City of Manila not applicable

The Company did not and was not engaged in the manufacture of air conditioning units but had its services contracted for the installation of a central system. The cases cited by the Commissioner (Advertising Associates, Inc. vs. Collector of Customs, 97, Phil. 636; Celestino Co & Co. vs. Collector of Internal Revenue, 99 Phil. 841 and Manila Trading & Supply Co. vs. City of Manila, 56 O.G. 3629), are not in point. Neither are they applicable because the facts in all the cases cited are entirely different. In Celestino Co, the Court held the taxpayer to be a manufacturer rather than a contractor of sash, doors and windows manufactured in its factory. From the very start, Celestino Co intended itself to be a manufacturer of doors, windows, sashes etc. as it did register a special trade name for its sash business and ordered company stationery carrying the bold print “ORIENTAL SASH FACTORY (CELESTINO CO AND COMPANY, PROP.) 926 Raon St., Quiapo, Manila, Tel. No. etc., Manufacturers of

All Kinds of Doors, Windows

Code. Also, as a general rule, sash factories receive orders for doors and windows of special design only in particular cases, but the bulk of their sales is derived from ready-made doors and windows of standard sizes for the average home, which “sales” were reflected in their books of accounts totalling P118,754.69 for the period of only nine (9) months. The Court found said sum difficult to have been derived from its few customers who placed special orders for these items. In the present case, the Company advertised itself as Engineering Equipment and Supply Company, Machinery Mechanical Supplies, Engineers, Contractors, 174 Marques de Comillas, Manila and not as manufacturers. It likewise paid the contractors tax on all the contracts for the design and construction of central system. Similarly, ot did not have ready-made air conditioning units for sale.

9. SM Lawrence Co. v. McFarland, CIR of the State of Tennessee and McCanless is on all fours with present case

The case of S.M. Lawrence Co. vs. McFarland, Commissioner of Internal Revenue of the State of Tennessee and McCanless, 355 SW 2d, 100, 101, is the one on all fours with the present case, “where the cause presents the question of whether one engaged in the business of contracting for the establishment of air conditioning system in buildings, which work requires, in addition to the furnishing of a cooling unit, the connection of such unit with electrical and plumbing facilities and the installation of ducts within and through walls, ceilings and floors to convey cool air to various parts of the building, is liable for sale or use tax as a contractor rather than a retailer of tangible personal property. Appellee took the position that appellant was not engaged in the business of selling air conditioning equipment as such but in the furnishing to its customers of completed air conditioning systems pursuant to contract, was a contractor engaged in the construction or improvement of real property, and as such was liable for sales or use tax as the consumer of materials and equipment used in the consummation of contracts, irrespective of the tax status of its contractors. To transmit the warm or cool air over the buildings, the appellant installed system of ducts

running from the basic units through walls, ceilings and floors to registers. The contract called for completed air conditioning systems which became permanent part of the buildings and improvements to the realty.” The Court held the appellant a contractor which used the materials and the equipment upon the value of which the tax herein imposed war levied in the performance of its contracts with its customers, and that the customers did not purchase the equipment and have the same installed.

10. Engineering Equipment had intent to misdeclare its importation as evidenced by its communications; Company liable to

50% fraud surcharge The communications (between the Company and various suppliers such as Trane Co., Acme Industries Inc., and Owens-Corning Fiberglass Corp.) presented as exhibits in the case were strongly indicative of the fraudulent intent of the Company to misdeclare its importation of air conditioning units and spare parts or accessories thereof to evade payment of the 30% tax. Since the commission of fraud is altogether too glaring, the Court cannot agree with the CTA in absolving the Company from the 50% fraud surcharge, otherwise it will be tantamount to giving premium to a plainly intolerable act of tax evasion.

11. Company liable to 25% compensation tax; Section 190 as amended

The original text of Section 190 of Commonwealth Act 466, otherwise know as the National Internal Revenue Code, as amended by CA 503, effective on 1 October 1939, does not provide for the filing of a compensating tax return and payment of the 25% surcharge for late payment thereof. Under the original text of Section 190 of the Tax Code, as amended by CA 503, the contention of the Company that it is not subject to the 25% surcharge appears to be legally tenable. However, Section 190 of the Tax Code was subsequently amended by RA 48, 253, 361, 1511 and 1612 effective 1 October 1946, 1 July 1948, 9 June 1949, 16 June 1956 and 24 August 1956 respectively, which invariably provides among others, that “if any article withdrawn from the customhouse or the post office without payment of the compensating tax is subsequently used by the importer for other purposes corresponding entry should be made in the looks of accounts if any are kept or a written notice thereof sent to the Collector of Internal Revenue and payment of the corresponding compensating tax made within 30 days from the date of such entry or notice and if tax is not paid within such period the amount of the tax shall be increased by 25% the increment to be a part of the tax,” and that “since the imported air conditioning units and spare parts or accessories thereof are subject to the

.” Likewise, Celestino Co never put up a contractor’s bond as required by Article 1729 of the Civil

compensating tax of 30% as the same were used in the construction business of Engineering, it is incumbent upon the latter to comply with the aforequoted requirement of Section 190 of the Code, by posting in its books of accounts or notifying the

Collector of Internal Revenue that the imported articles were used for other purposes within 30

30% compensating tax was not paid by petitioner within the time prescribed by Section 190 of the Tax Code as amended, it is

therefore subject to the 25% surcharge for delinquency in the payment of the said tax.”

12. Prescription not yet set in; Prescription of tax assessment is 10 years if based on false or fraudulent return to evade tax

A review of the record reveals that the Company filed a tax return or declaration with the Bureau of Customs before it paid the

advance sales tax of 7%, and the declaration filed reveals that it did in fact misdeclare its importations. Section 332 (a) of the Tax Code therefore is applicable. Section 332 (a) provides for the exceptions as to period of limitation of assessment and collection of taxes, providing that “(a) in the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment at any time within ten years after the discovery of the falsity, fraud or omission.” Thus, considering the preponderance of evidence of fraud with the intent to evade the higher rate of percentage tax due from the Company, the tax assessment was made within the period prescribed by law and prescription had not set in against the Government.

Consequently, as the

10. Engineering Machinery v. CA (GR 52267, 24 January 1996)

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 latter’s 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 NIDC’s 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 76ºF — 2ºF.”

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 attorney’s 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 Corporation’s 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 Almeda’s 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 Almeda’s building, plus damages, attorney’s 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 Court’s 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 Corporation’s 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 contractor’s 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 appellant’s 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.”

11. Puyat and Sons v. Arco Amusement (GR 47538, 20 June 1941)

Puyat & Sons v. Arco Amusement [G.R. No. 47538. June 20, 1941.] First Division, Laurel (J): 4 concur

Facts: In the year 1929, the ‘Teatro Arco’, was engaged in the business of operating cinematographs. In 1930, its name was changed to Arco Amusement Company. About the same time, Gonzalo Puyat & Sons, Inc., in addition to its other business, was acting as exclusive agents in the Philippines for the Starr Piano Company of Richmond, Indiana, USA, which dealt in cinematograph equipment and machinery. Arco, desiring to equip its cinematograph with sound reproducing devices, approached Puyat. After some negotiations, it was agreed between the parties, Puyat would, on behalf of Arco Amusement, order sound reproducing equipment from the Star Piano Company and that Arco Amusement would pay Puyat, in addition to the price of the equipment, 10% commission, plus all expenses, such as, freight, insurance, banking charges, cables, etc. At the expense of the Arco, Puyat sent a cable to the Starr Piano Company, inquiring about the equipment desired and making the said company to quote its price of $1,700 FOB factory Richmond, Indiana. Puyat informed the plaintiff of the price of $1,700, and being agreeable to the price, Arco, in a letter dated 19 November 1929, formally authorized the order. The equipment arrived about the end of the year 1929, and upon delivery of the same to Arco and the presentation of necessary papers, the price of $1,700, plus the 10% commission agreed upon the plus all the expenses and charges, was duly paid by the Arco to Puyat. he following year, another order for sound reproducing equipment was placed by Arco with Puyat, on the same terms as the first order. The equipment under the second order arrived in due time, and the defendant was duly paid the price of $1,600 with its 10 per cent commission, and $160, for all expenses and charges. This amount of $160 does not represent actual out-of-pocket expenses paid by Puyat, but a mere flat charge and rough estimate made by Puyat equivalent to 10% of the price of $1,600 of the equipment.

Three years later, in connection with a civil case in Vigan, filed by one Fidel Reyes against Puyat, the officials of the Arco discovered that the price quoted to them by Puyat with regard to their two orders was not the net price but rather the list price, and that the defendant had obtained a discount from the Starr Piano Company. Moreover, by reading reviews and literature on prices of machinery and cinematograph equipment, said officials of Arco were convinced that the prices charged them by the defendant were much too high including the charges for out-of-pocket expenses. For these reasons, they sought to obtain a reduction from Puyat or rather a reimbursement. Failing in this they brought an action with the CFI Manila.

The trial court held that the contract between the parties was one of the outright purchase and sale, and absolved Puyat from the complaint. The appellate court, however, held that the relation between the parties was that of agent and principal, Puyat acting as agent of Arco in the purchase of the equipment in question, and sentenced Puyat to pay Arco alleged overpayments in the total sum of $1,335.52 or P2,671.04, together with legal interest thereon from the date of the filing of the complaint until said amount is fully paid, as well as to pay the costs of the suit in both instances. Hence, the petition for the issuance of a writ of certiorari to the Court of Appeals for the purposed of reviewing its decision in civil case GR 1023.

The Supreme Court granted the writ of certiorari, reversed the decision of the appellate court, and absolved Puyat & Sons from the complaint in GR 1023, without pronouncement regarding costs.

1. Contract, and those agreed upon, is the law between the parties; What does not appear are regarded as dealer’s or

trader’s not binding the parties The contract is the law between the parties and should include all the things they are supposed to have been agreed upon. What does not appear on the face of the contract should be regarded merely as “dealer’s” or “trader’s talk”, which can not bind either party. (Nolbrook v. Conner, 56 So., 576, 11 Am. Rep., 212; Bank v. Brosscell, 120 Ill., 161; Bank v. Palmer, 47 Ill., 92; Hosser v. Copper, 8 Allen, 334; Doles v. Merrill, 173 Mass., 411.) The letters which Arco accepted the prices of $1,700 and $1,600, respectively, for the sound reproducing equipment subject of its contract with Puyat, are clear in their terms and admit of no other interpretation than that Arco agreed to purchase from Puyat the equipment in question at the prices indicated which are

fixed and determinate.

2. Agency; Agent exempt from all liability in discharge of commission if in accordance with instructions received from

principal In agency, the agent is exempted from all liability in the discharge of his commission provided he acts in accordance with the instructions received from his principal (section 254, Code of Commerce), and the principal must indemnify the agent for all damages which the latter may incur in carrying out the agency without fault or imprudence on his part (article 1729, Civil Code). The fact that “whatever unforseen events might have taken place unfavorable to the defendant (petitioner), such as change in prices, mistake in their quotation, loss of the goods not covered by insurance or failure of the Starr Piano Company to properly fill the orders as per specifications, the plaintiff (respondent) might still legally hold the defendant (petitioner) to the prices fixed of $1,700 and $1,600is incompatible with the pretended relation of agency between the parties.

3. Commission does not necessarily make one the agent of the other

While the letters state that Puyat was to receive 10% commission, this does not necessarily make the petitioner an agent of the respondent, as this provision is only an additional price which the respondent bound itself to pay, and which stipulation is not

incompatible with the contract of purchase and sale. (See Quiroga vs. Parsons Hardware Co., 38 Phil., 501.)

4. Puyat & Sons already the agent of Starr Piano Company of Richmond, Indiana, in the Philippines

To hold the petitioner an agent of Arco in the purchase of equipment and machinery from the Starr Piano Company of Richmond, Indiana, is incompatible with the admitted fact that Puyat is the exclusive agent of Starr Piano in the Philippines. It is out of the ordinary for one to be the agent of both the vendor and the purchaser. The facts and circumstances indicated to not point to anything but plain ordinary transaction where Arco enters into a contract transaction, a contract of purchase and sale,

with Puyat, the latter as exclusive agent of the Starr Piano Company in the United States.

5. Vendor not bound to reimburse difference of cost and sales price

A vendor is not bound to the vendee for any difference between the cost price and the sales price which represents the profit

realized by the vendor out of the transaction. This is the very essence of commerce without which merchants or middleman would not exist.

6. Not every concealment is fraud, maybe business acumen; Buyer estopped when it agreed to conditions and price

It is well known that local dealers acting as agents of foreign manufacturers, aside from obtaining a discount from the home office, sometimes add to the list price when they resell to local purchasers. It was apparently to guard against an exhorbitant additional price that Arco sought to limit it to 10%t. Arco is estopped from questioning that additional price. If the respondent later on discovers itself at the short end of a bad bargain. it alone must bear the blame, and it cannot rescind the contract, much less compel a reimbursement of the excess price, on that ground alone. The fact that Puyat obtained more or less profit than Arco calculated before entering into the contract of purchase and sale, is no ground for rescinding the contract of purchase and sale, is no ground for rescinding the contract or reducing the price agreed upon between the parties. Puyat was not duty bound to reveal the private arrangement it had with the Starr Piano Company relative to such discount to its prospective customers. Not every concealment is fraud; and short of fraud, it were better that, within certain limits, business acumen permit of the loosening of the sleeves and of the sharpening of the intellect of men and women in the business world.

12.

Quiroga v. Parsons (GR 11491, 23 August 1918)

Quiroga v. Parsons Hardware [G.R. No. 11491. August 23, 1918.] En Banc, Avancena (J): 5 concur

Facts: On 24 January 1911, in Manila, a contract was entered into by and between the Quiroga and J. Parsons (to whose rights and obligations Parsons Hardware later subrogated itself) for the exclusive sale of Quiroga Beds in the Visayan Islands. Quiroga was to furnish the Parson with the beds (which the latter might order, at the price stipulated) and that Parson was to pay the price in the manner stipulated. The price agreed upon was the one determined by Quiroga for the sale of these beds in Manila, with a discount of from 20 to 25 per cent, according to their class. Payment was to be made at the end of sixty days, or before, at Quiroga’s request, or in cash, if Parson so preferred, and in these last two cases an additional discount was to be allowed for prompt payment.

Quiroga alleges that Parson violated its obligation not to sell the beds at higher prices than those of the invoices; to have an open establishment in Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay for the advertisement expenses for the same; and to order the beds by the dozen and in no other manner. None of these, except the obligation to order the beds by the dozen and in no other manner, are expressly set forth in the contract. Quiroga maintains that Parsons is his agent for the sale of his bed in Iloilo, and such obligations implied in a contract of commercial agency.

The Supreme Court held that the contract by and between the plaintiff and the defendant was one of purchase and sale, and that the obligations the breach of which is alleged as a cause of action are not imposed upon the defendant, either by agreement or by law. The Court thus affirmed the judgment appealed from, with costs against the appellant.

1. Essential clauses given due regard to classify a contract; Contract of purchase and sale

In order to classify a contract, due regard must be given to its essential clauses. In the contract in question, the clauses, constituting its cause and subject matter, are precisely the essential features of a contract of purchase and sale. There was the obligation on the part of Quiroga to supply the beds, and, on the part of Parson, to pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. By virtue of the contract between Quiroga and Parson, the latter, on receiving the beds, 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 beds.

2. Commission on sale merely a discount, other clauses are not incompatible with contract of purchase and sale

The contract by and between the defendant and the plaintiff is one of purchase and sale. Besides the clause made in the basis of a commission on sales, none of the other clauses of the contract is found to substantially support Quiroga’s contention. None of these conveys the idea of an agency. The words commission on sales used in clause (A) of article 1 mean nothing else than a mere discount on the invoice price. The word agency, also used in articles 2 and 3, only expresses that the defendant was the only one that could sell Quiroga’s beds in the Visayan Islands. With regard to the remaining clauses, the least that can be said is that they are not incompatible with the contract of purchase and sale.

3. Classification of a contract defined by law, and not one called by the parties

The agreements contained in the document that has been drafted, constitute a contract of purchase and sale, and not one of commercial agency. In the classification of the contract, it must be understood that a contract is what the law defines it to be, and not what it is called by the contracting parties.

4. Acts subsequent to contract suppletory, not considered when essential agreements are set forth in the contract

The acts of the parties merely show that, on the part of each of them, there was mutual tolerance in the performance of the contract in disregard of its terms; and it gives no right to have the contract considered, not as the parties stipulated it, but as they performed it. Only the acts of the contracting parties, subsequent to, and in connection with, the execution of the contract, must be considered for the purpose interpreting the contract, when such interpretation is necessary, but not when, as in the instant case, its essential agreements are clearly set forth and plainly show that the contract belongs to a certain kind and not to another.

5. Effect of breach, and effect of subsequent consent to such breach

In respect to the defendant’s obligation to order by the dozen, the only one expressly imposed by the contract, the effect of its

breach would only entitle the plaintiff to disregard the orders which the defendant might place under other conditions; but if the plaintiff consents to fill them, he waives his right and cannot complain for having acted thus at his own free will.

II. Parties to a contract of sale

13.

Medina v. CIR (GR L-15113, 28 January 1961)

Medina v. Collector of Internal Revenue [G.R. No. L-15113. January 28, 1961.] En Banc, Reyes JBL (J): 6 concur

Facts: On 20 May 1944, Antonio Medina married Antonia Rodriguez. Before 1946, the spouses had neither property nor business of their own. Later, however, Antonio acquired forest concessions in the municipalities of San Mariano and Palanan, Isabela. From 1946 to 1948, the logs cut and removed by the Antonio from his concessions were sold to different persons in Manila through his agent, Mariano Osorio. In 1949, Antonia started to engage in business as a lumber dealer, and up to around 1952, Antonio sold to her almost all the logs produced in his San Mariano concession. Antonia, in turn, sold in Manila the logs bought from her husband through the same agent, Mariano Osorio. The proceeds were either received by Osorio for Antonio or deposited by said agent in Antonio’s current account with the PNB.

On the thesis that the sales made by Antonio to his wife were null and void pursuant to the provisions of Article 1490 of the Civil Code of the Philippines, the Collector considered the sales made by Antonia as Antonio’s original sales taxable under Section 186 of the National Internal Revenue Code and, therefore, imposed a tax assessment on Antonio. On 30 November 1963, Antonio protested the assessment; however, the Collector insisted on his demand. On 9 July 1954, Antonio filed a petition for reconsideration, revealing for the first time the existence of an alleged premarital agreement of complete separation of properties between him and his wife, and contending that the assessment for the years 1946 to 1952 had already prescribed. After one hearing, the Conference Staff of the Bureau of Internal Revenue eliminated the 50% fraud penalty and held that the taxes assessed against him before 1948 had already prescribed. Based on these findings, the Collector issued a modified assessment, demanding the payment of only P3,325.68. Antonio again requested for reconsideration, but the Collector, in his letter of 4 April 1955, denied the same.

Antonio appealed to the Court of Tax Appeals, which rendered judgment upholding a tax assessment of the Collector of Internal Revenue except with respect to the imposition of so-called compromise penalties, which were set aside. Hence a petition to review the decision of the CTA.

The Supreme Court affirmed the appealed decision with cost against the petitioner.

1. No evidence proving pre-marital agreement of absolute separation between the spouses

Aside from the material inconsistencies in the testimony of petitioner’s witnesses, the circumstantial evidence is against petitioner’s claim. (1) It appears that at the time of the marriage between the petitioner and his wife, they neither had any property nor business of their own, as to have really urged them to enter into the supposed property agreement. (2) The testimony that the separation of property agreement was recorded in the Registry of Property 3 months before the marriage, is patently absurd, since such a pre-nuptial agreement could not be effective before marriage is celebrated. (3) Despite their insistence on the existence of the ante-nuptial contract, the couple, strangely enough, did not act in accordance with its alleged covenants; but that even during their taxable years, the ownership, usufruct, and administration of their properties and business were in the husband. (4) Although petitioner already knew that Article 1490 prohibits sales between spouses married under a community system, it was not until July 1954 that the allege the existence of the alleged property separation agreement. (5) The Day Book of the Register of Deeds on which the agreement would have been entered, which was saved from the ravages of war, did not show that the document in question was among those recorded therein.

2. Trial court’s judgment on the degree of credence of witness considered seriously by the Supreme Court

When the credibility of witnesses is the one at issue, the trial court’s judgment as to their degree of credence deserves serious consideration by this Court (Collector vs. Bautista, et al., G. R. Nos. L-12250, L-12259, May 27, 1959). This is all the more true because not every copy of the supposed agreement, particularly the one that was said to have been filed with the Clerk of Court of Isabela, was accounted for as lost; so that, applying the “best evidence rule”, the court did right in giving little or no credence to the secondary evidence to prove the due execution and contents of the alleged document (see Comments on the Rules of

Court, Moran, 1957 Ed., Vol. 3, pp. 10-12).

3. Article 7 and 10 of Code of Commerce does not exempt from the prohibition of sale between spouses under Article 1490

of the Civil Code Article 7 and 10 of the Code of Commerce merely state, under certain conditions, a presumption that the wife is authorized to engage in business and for the incidents that flow therefrom when she so engages therein. The transactions permitted therein however are those entered into with strangers, and do not constitute exceptions to the prohibitory provisions of Article 1490 against sales between spouses.

4. Government always an interested party in taxable transactions

The government is always an interested party to all matters involving taxable transactions and qualified to question their

validity or legitimacy whenever necessary to block tax evasion. It cannot be contended thus that the Collector cannot assail the questioned sales, he being a stranger to said transactions.

5. Contracts violative of Article 1490 null and void

Contracts violative of the provisions of Article 1490 of the Civil Code are null and void (Uy Sui Pin vs. Cantollas, 70 Phil. 55; Uy Coque vs. Sioca, 45 Phil. 43). In the present case, being void transactions, the sales made by the petitioner to his wife were correctly disregarded by the Collector in his tax assessments that considered as the taxable sales those made by the wife through the spouses’ common agent, Mariano Osorio.

6. (?) Illegally obtained documents and papers admissible to evidence; Revenue officers can require production of books of

accounts and other records from taxpayers Illegally obtained documents and papers are admissible in evidence, if they are found to be competent and relevant to the case (see Wong & Lee vs. Collector of Internal Revenue, 104 Phil., 469). Petitioner’s imputation, that the documentary evidence is illegally seized, is vehemently denied by him, and relying on Sections 3, 9, 337 and 338 of the Tax Code and the pertinent portions of Revenue Regulations No. V-1 and citing this Court’s ruling in U.S. vs. Aviado 38 Phil., 10, the Collector maintains that he and other internal revenue officers and agents could require the production of books of accounts and other records from a taxpayer.

14. Calimlim-Canulas v. Fortun (GR 57499, 22 June 1984)

Calimlim-Canullas v. Fortun [G.R. No. 57499. June 22, 1984.] First Division, Melencio-Herrera (J): 5 concur

Facts: Mercedes Calimlim-Canullas and Fernando Canullas were married on 19 December 1962. They begot five children. They lived in a small house on the residential land in question with an area of approximately 891 sq. m., located at Bacabac, Bugallon, Pangasinan. After Canullas’ father died in 1965, he inherited the land. In 1978, Canullas abandoned his family and lived with Corazon Daguines. On 15 April 1980, Canullas sold the subject property with the house thereon to Daguines for the sum of P2,000.00. In the document of sale, Canullas described the house as “also inherited by me from my deceased parents.” Unable to take possession of the lot and house, Daguines initiated a complaint beore the CFI Pangasinan (Branch 1, Civil Case 15620) on 19 June 1980 for quieting of title and damages against Calimlim-Canullas. Calimlim-Canullas resisted and claimed that the house in dispute where she and her children were residing, including the coconut trees on the land, were built and planted with conjugal funds and through her industry; that the sale of the land together with the house and improvements to Daguines was null and void because they are conjugal properties and she had not given her consent to the sale. On 6 October 1980, the trial court ruled in favor of Daguines as the lawful owner of the land as well as ½ of the house erected on the land. Upon reconsideration and on 27 November 1980, however, the lower court modified the judgment by declaring Daguines as the lawful owner of the land and 10 coconut trees thereon but declaring the sale of the conjugal house including 3 coconuts and other crops during the conjugal relation of the spouses null and void. A petition for review on certiorari was filed with Supreme Court.

During the pendency of the appeal, however, Fernando Canullas and Corazon Daguines were convicted of concubinage in a judgment rendered on 27 October 1981 by the then CFI Pangasinan, Branch II, which judgment has become final.

The Supreme Court set aside the decision and resolution of the lower court, and declared the sale of the lot, house and improvements null and void; without costs.

1. Land and building belongs to the conjugal partnership, spouse owning the land becomes the creditor of the conjugal partnership Pursuant to the second paragraph of Article 158 of the Civil Code, which provides that “buildings constructed at the expense of the partnership during the marriage on land belonging to one of the spouses also pertain to the partnership, but the value of the land shall be reimbursed to the spouse who owns the same,” both the land and the building belong to the conjugal partnership but the conjugal partnership is indebted to the husband for the value of the land. The spouse owning the lot becomes a creditor of the conjugal partnership for the value of the lot, which value would be reimbursed at the liquidation of the conjugal partnership.

2. Padilla v. Paterno is better rule than Maramba v. Lozano; Spouse cannot alienate property without the consent of the other In the case of Maramba vs. Lozano, it was held that the land belonging to one of the spouses, upon which the spouses have built a house, becomes conjugal property only when the conjugal partnership is liquidated and indemnity paid to the owner of the land. The better rule, however, is that held in Padilla vs. Paterno, where the conversion of the properties from paraphernal to

conjugal assets should be deemed to retroact to the time the conjugal buildings were first constructed thereon or at the very latest, to the time immediately before the death of one spouse that ended the conjugal partnership. They can not be considered to have become conjugal property only as of the time their values were paid to the estate of the widow because by that time the conjugal partnership no longer existed and it could not acquire the ownership of said properties. The acquisition by the partnership of the properties was, under the 1943 decision, subject to the suspensive condition that their values would be reimbursed to the widow at the liquidation of the conjugal partnership; once paid, the effects of the fulfillment of the condition should be deemed to retroact to the date the obligation was constituted (Article 1187, New Civil Code). Thus, in the present case, considering the foregoing premises, Canullas cannot have alienated the house and lot to Daguines since the wife had not given her consent to the sale.

3. Contract of sale null and void for being contrary to morals and public policy

Article 1409 of the Civil Code provides “contracts whose cause, object, or purpose is contrary to law, morals, good customs, public order, or public policy are void and inexistent from the very beginning.” Article 1352 also provides that “contracts without cause, or with unlawful cause, produce no effect whatsoever. The cause is unlawful if it is contrary to law, morals, good customs, public order, or public policy.” In the present case, the contract of sale was null and void for being contrary to morals and public policy. The sale was made by a husband in favor of a concubine after he had abandoned his family and left the

conjugal home where his wife and children lived and from whence they derived their support. That sale was subversive of the stability of the family, a basic social institution which public policy cherishes and protects.

4. Law prohibits sale and donation between husband and wife, such applies even those living together without benefit of

marriage The law prohibits the spouses from selling property to each other subject to certain exceptions. Similarly, donations between spouses during marriage are prohibited. And this is so because if transfers or conveyances between spouses were allowed during marriage, that would destroy the system of conjugal partnership, a basic policy in civil law. It was also designed to prevent the exercise of undue influence by one spouse over the other, as well as to protect the institution of marriage, which is the cornerstone of family law. The prohibitions apply to a couple living as husband and wife without benefit of marriage, otherwise, “the condition of those who incurred guilt would turn out to be better than those in legal union.” Those provisions are dictated by public interest and their criterion must be imposed upon the will of the parties. (Buenaventura v. Bautista [CA])

5. Disabilities attached to marriage also applies to concubinage

The ruling in Buenaventura vs. Bautista [CA] was cited in Matabuena vs. Cervantes, reiterating that while Article 133 of the Civil Code considers as void a donation between the spouses during the marriage, policy considerations of the most exigent character as well as the dictates of morality require that the same prohibition should apply to a common-law relationship. If the

policy of the law is to prohibit donations in favor of the other consort and his descendants because of fear of undue influence and improper pressure upon the donor, a prejudice deeply rooted in our ancient law, then there is every reason to apply the same prohibitive policy to persons living together as husband and wife without benefit of nuptials. For it is not to be doubted that assent to such irregular connection for thirty years bespeaks greater influence of one party over the other, so that the danger that the law seeks to avoid is correspondingly increased. Moreover, as pointed out by Ulpian, it would not be just that such donations should subsist, lest the conditions of those who incurred guilt should turn out to be better. So long as marriage remains the cornerstone of our family law, reason and morality alike demand that the disabilities attached to marriage should likewise attach to concubinage.

15. Guiang v. CA (GR 125172, 26 June 1998)

Guiang v. CA [G.R. No. 125172. June 26, 1998.] First Division, Panganiban (J): 4 concur

Facts: Gilda and Judie Corpuz were married civilly on 24 December 1968 in Bacolod City. The couple have 3 children (Junie, Harriet, and Jodie or Joji. On 14 February 1983, the Corpuzes, with Gilda Corpuz as vendee, bought a 421 sq. m. lot (Lot 8, Block 9, (LRC) Psd-165409) located in Barangay Gen. Paulino Santos (Bo. 1), Koronadal, South Cotabato from Manuel Callejo who signed as vendor through a conditional deed of sale for a total consideration of P14,735.00. The consideration was payable in installment, with right of cancellation in favor of vendor should vendee fail to pay 3 successive installments. On 22 April 1988, the Corpuzes sold ½ portion of their lot to spouses Antonio and Luzviminda Guiang. The latter have since then occupied the ½ portion and built their house thereon. They are thus adjoining neighbors of the Corpuzes. On June 1989, Gilda Corpuz left for Manila, with the consent of her husband, to look for work abroad. Unfortunately, she became a victim of an unscrupulous illegal recruiter, was not able to go abroad, and stayed for sometime in Manila. Sometime in January 1990, Harriet Corpuz learned that her father intended to sell the remaining ½ portion including their house, of their homelot to the Guiangs. She wrote a letter to her mother informing her, who in turn replied that she was objecting to the sale. Harriet, however, did not inform her father

about this; but instead gave the letter to Mrs. Luzviminda Guiang so that Guiang would advise her father. However, in the absence of his wife Gilda Corpuz, and on 1 March 1990, Judie Corpuz sold the remaining ½ portion of the lot and the house thereon to Luzviminda Guiang thru a document known as ‘Deed of Transfer of Rights’ (Exh. ‘A’) for a total consideration of P30,000.00 of which P5,000.00 was to be paid in June 1990. Judie Corpuz’s children Junie and Harriet signed the document as witnesses. On 5 March 1990, obviously to cure whatever defect in Judie Corpuz’s title over the lot transferred, Luzviminda Guiang as vendee executed another agreement over the lot with Manuela Jimenez Callejo, widow of Manuel Callejo (the original registered owner), who signed as vendor for a consideration of P9,000.00. Judie Corpuz signed as a witness to the sale. The new sale describes the lot sold as Lot 8, Block 9, (LRC) Psd-165408. As a consequence of the sale, the Guiangs spent P600.00 for the preparation of the Deed of Transfer of Rights; P9,000.00 as the amount they paid to Mrs. Manuela Callejo, having assumed the remaining obligation of the Corpuzes to Mrs. Callejo; P100.00; a total of P759.62 basic tax and special educational fund on the lot; P127.50 as the total documentary stamp tax on the various documents; P535.72 for the capital gains tax; P22.50 as transfer tax; a standard fee of P17.00; certification fee of P5.00. These expenses particularly the taxes and other expenses towards the transfer of the title to the Guiangs were incurred for the whole Lot 9, Block 8, (LRC) Psd-165409.

On 11 March 1990, Gilda Corpuz returned home. She gathered her children, who were staying in different households, together and stayed at their house. Her husband was nowhere to be found. She was informed by her children that their father had a wife already. For staying in their house sold by her husband, Gilda was complained against by the Guiangs before the Barangay authorities of Barangay General Paulino Santos (Bo. 1), Koronadal, South Cotabato, for trespassing (Barangay Case 38). On 16 March 1990, the parties thereat signed a document known as ‘amicable settlement’ requiring the Corpuzes to leave the house voluntarily on or before 7 April 1990, without any charge. Believing that she had received the shorter end of the bargain, Gilda approached the Barangay Captain for the annulment of the settlement. Annulment not having been made, Gilda stayed put in her house and lot. The Guiangs followed thru the amicable settlement with a motion for the execution of the amicable settlement, filing the same with the MTC Koronadal, South Cotabato. The proceedings [are] still pending before the said court, with the filing of the instant suit.

On 28 May 1990, Gilda Corpuz filed an Amended Complaint against her husband Judie Corpuz and the Guiangs. The said Complaint sought the declaration of a certain deed of sale, which involved the conjugal property of private respondent and her husband, null and void. On 9 September 1992, The RTC Koronodal, South Cotabato (Branch 25) rendered a decision in favor of Gilda Corpuz, recognizing her lawful and valid ownership and possession over the remaining ½ portion of the lot, declaring the deed of transfer of rights and the amicable settlement null and void, and ordering Gilda Corpuz to reimburse the Guiangs the amount of P9,000 corresponding to the payment made by the Guiangs to Callejo for the unpaid balance and another P379.62 representing ½ of the amount of realty taxes paid by the Guiangs, both with legal interests thereon computed from the finality of the decision; without pronouncement as to costs. Dissatisfied, the Guiangs filed an appeal with the Court of Appeals. On 30 January 1996, the appellate court affirmed the decision of the lower court. Their motion for reconsideration was also denied. A petition for review was before the Supreme Court.

The Supreme Court denied the petition, and affirmed the challenged decision and resolution; with costs against the Guiangs.

1. Valid contract, elements

To constitute a valid contract, the Civil Code requires the concurrence of the following elements: (1) cause, (2) object, and (3)

consent. The last element is indubitably absent in the present case, thus the nullity of the contract of sale is premised on the absence of private respondent’s consent.

2. Contract void for lack of consent by the other spouse

The consent of one spouse to the contract of sale of the conjugal property was totally inexistent or absent. This being the case, said contract properly falls within the ambit of Article 124 of the Family Code. Article 124 of the Family Code provides that “the administration and enjoyment of the conjugal partnership property shall belong to both spouses jointly. In case of disagreement, the husband’s decision shall prevail, subject to recourse to the court by the wife for proper remedy, which must

be availed of within five years from the date of the contract implementing such decision” and that “in the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal properties, the other spouse may assume sole powers of administration. These powers do not include the powers of disposition or encumbrance which must have the authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors. (165a)”

3. Amendatory effect of Article 124 FC to Article 166 NCC in relation to Article 173 NCC

Under Article 166 of the Civil Code, the husband cannot generally alienate or encumber any real property of the conjugal partnership without the wife’s consent. The alienation or encumbrance if so made however is not null and void. It is merely voidable. The offended wife may bring an action to annul the said alienation or encumbrance. Thus, the provision of Article 173

of the Civil Code of the Philippines provides that “the wife may, during the marriage and within ten years from the transaction questioned, ask the courts for the annulment of any contract of the husband entered into without her consent, when such consent is required, or any act or contract of the husband which tends to defraud her or impair her interest in the conjugal partnership property. Should the wife fail to exercise this right, she or her heirs after the dissolution of the marriage, may demand the value of property fraudulently alienated by the husband.” The particular provision giving the wife 10 years during the marriage to annul the alienation or encumbrance was not carried over to the Family Code. It is thus clear that any alienation or encumbrance made after 3 August 1988 when the Family Code took effect by the husband of the conjugal partnership property without the consent of the wife is null and void.

4. Execution of document “amicable settlement” does not affect void character of deed of sale

The fraud and the intimidation referred to by petitioners were perpetrated in the execution of the document embodying the amicable settlement. Gilda Corpuz alleged during trial that barangay authorities made her sign said document through misrepresentation and coercion. In any event, its execution does not alter the void character of the deed of sale between the husband and the Guiangs. The fact remains that such contract was entered into without the wife’s consent.

5. Void contract cannot be ratified

By the specific provision of the law [Article 1390, Civil Code], the Deed of Transfer of Rights cannot be ratified, even by an ‘amicable settlement’. The participation by some barangay authorities in the ‘amicable settlement’ cannot otherwise validate an invalid act. Moreover, it cannot be denied that the ‘amicable settlement’ entered into by Gilda Corpuz and the Guiangs is a contract. It is a direct offshoot of the Deed of Transfer of Rights. By express provision of law (Article 1422), such a contract is also void. Article 1422 of the Civil Code provides that “a contract which is the direct result of a previous illegal contract, is also void and inexistent.”

6. Amicable settlement cannot be considered a continuing offer

Neither can the “amicable settlement” be considered a continuing offer that was accepted and perfected by the parties, following the last sentence of Article 124. The order of the pertinent events is clear: after the sale, the Guiangs filed a complaint for trespassing against Gilda Corpuz, after which the barangay authorities secured an “amicable settlement” and the Guiangs filed before the MTC a motion for its execution. The settlement, however, does not mention a continuing offer to sell the property or an acceptance of such a continuing offer. Its tenor was to the effect that the Guiangs would vacate the property. By no stretch of the imagination, can the Court interpret this document as the acceptance mentioned in Article 124.

16. Rubias v. Batiller (GR L-35702, 29 May 1973)

Rubias v. Batiller [G.R. No. L-35702. May 29, 1973.] First Division, Teehankee (J): 8 concur

Facts: Francisco Militante claimed ownership of a parcel of land located in the Barrio General Luna, Barotac Viejo, Iloilo, which he caused to be surveyed on 18-31 July 1934, whereby he was issued a plan Psu-99791 (containing an area of 171.3561 hectares.) Before the war with Japan, Militante filed with the CFI Iloilo an application for the registration of title of the land technically described in Psu-99791 opposed by the Director of Lands, the Director of Forestry and other oppositors. However, during the war with Japan, the record of the case was lost before it was heard, so after the war Militante petitioned the Court to reconstitute the record of the case. The record was reconstituted in the CFI Iloilo (Land Case R-695, GLRO Rec. 54852). The CFI heard the land registration case on 11 November 1952, and after trial the Court dismissed the application for registration. Militante appealed to the Court of Appeals (CA-GR 13497-R). Pending the disposal of the appeal or on 18 June 1956, Militante sold to Domingo Rubias, his son-in-law and a lawyer by profession, the land technically described in Psu-99791. The sale was duly recorded in the Office of the Register of Deeds for the Province of Iloilo (Entry 13609) on 14 July 1960. On 22 September 1958, the CA promulgated its judgment confirming the decision of the trial court dismissing the Application for Registration filed by Militante.

Domingo Rubias declared the land for taxation purposes under Tax Declaration (TD) 8585 for 1957; TD 9533 and TD 10019 for 1961; TD 9868 for 1964, paying the land taxes under TD 8585 and TD 9533. Militante has also declared the land for taxation purposes under TD 5172 in 1940, under TD T-86 for 1945, under TD 7122 for 1948, and paid the land taxes for 1940, for 1945- 46, for 1947, for 1947 & 1948, for 1948, and for 1948 and 1949. TD 2434 in the name of Liberato Demontaño for the land described therein was cancelled by TD 5172 of Militante. Demontaño paid the land tax under TD 2434 on 20 December 1939 for the years 1938 and 1959. Isaias Batiller had declared for taxation purposes Lot 2 of Psu-144241 under TD 8583 for 1957 and a portion of Lot 2 under TD 8584 for 1945. TD 8483 was revised by TD 9498 while TD 9584 was cancelled by TD 9584 both in the name of Batiller. Batiller paid the land taxes for Lot 2 on 9 November 1960 for the year 1945 and 1946, 1950 and 1960 as shown

by the certificate of the treasurer.The land claimed by Batiller as his own was surveyed on 6-7 June 1956, and a plan approved by Director of Lands on 15 November 1956 was issued, identified as Psu 155241.

On 22 April 1960, Rubias filed a forcible Entry and Detainer case against Batiller in the Justice of the Peace Court of Barotac Viejo, Iloilo. On May 1961 and after trial, the Municipal Court of Barotac Viejo decided the case in favor of the Batiller. Rubias appealed from the decision of the Municipal Court of Barotac Viejo to the CFI Iloilo. On 26 November 1964 and after the trial, the CFI decided the case likewise in favor of Batiller, holding that he has “better right to possess the land in question having been in the actual possession thereof under a claim of title many years before Militante sold the land to Rubias.

On 31 August 1964, Rubias filed a suit to recover the ownership and possession of certain portions of lot under Psu-99791, bought from his father-in-law, Francisco Militante in 1956, against its present occupant Batiller, who allegedly entered said portions of the lot in 1945 and in 1959. Rubias prayed also for damages and attorney’s fees. On 17 August 1965, the CFI dismissed the case, the court therein practically agreeing that the contract between Rubias and Militante was null and void. Rubias filed a motion for reconsideration, which was likewise denied by the lower court on 14 January 1966. Thereafter, Rubias filed an appeal before the Court of Appeals, which certified said appeal to the Supreme as involving purely legal questions.

The Supreme Court affirmed the order of dismissal appealed, with costs against Rubias.

1. Pre-trial practically amounted to a full dress trial when parties agreed and stipulated on facts and submitted their

respective documentary exhibits The pre-trial conference held by the trial court at which the parties with their counsel agreed and stipulated on the material and relevant facts and submitted their respective documentary exhibits as referred to in the pre-trial order, practically amounted to a full dress trial which placed on record all the facts and exhibits necessary for adjudication of the case. Rubias’ evidence dealing with the source of the alleged right and title of Militante’s predecessors are already made of record. The chain of Militante’s alleged title and right to the land allegedly tracing back to Demontano in the land registration case and was rejected by the Iloilo land registration court, the decision of which was affirmed by final judgment by the Court of Appeals. Batiller’s evidence dealing with his and his ancestors’ continuous, open, public and peaceful possession in the concept of owner of the land and the Director of Lands’ approval of his survey plan thereof, are likewise already duly established facts of record, in the land registration case as well as in the ejectment case wherein the Iloilo CFI recognized the superiority of Batiller’s right to the land as against Rubias. Therefore, the lower court did not err in dismissing Rubias’ complaint upon Batiller’s motion after the pre- trial.

2. Rubias had no cause of action

Rubias complaint, to be declared absolute owner of the land and to be restored to possession thereof with damages, was bereft of any factual or legal basis. The CA’s final judgment affirming the dismissal of Militante’s application of registration made it conclusive that Militante lack rightful claim or title to the land. There was no right or title to the land that could be transferred or sold by Militante’s purported sale in favor of Rubias in 1956.

3. Purchase of a lawyer of a property in litigation prohibited; Contract void and cannot be ratified

The purchase by a lawyer of the property in litigation from his client is categorically prohibited by Article 1491, paragraph (5) of

the Philippine Civil Code (“The following persons cannot acquire any purchase, even at a public or judicial auction, either in person or through the mediation of another xxx [5] Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory their exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession.”) and that consequently, Rubias’ purchase of the property in litigation from his client(and father-in-law) was void and could produce no legal effect, by virtue of Article 1409, paragraph (7) of our Civil Code which provides that contracts “expressly prohibited or declared void by law” are “inexistent and void from the beginning” and that “(T)hese contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.”

4. Wolfson v. Estate of Martinez superceded by case of Director of Lands v. Abagat

The 1911 case of Wolfson v. Estate of Martinez which held that a sale of property in litigation to the party litigant’s lawyer “its

not void but voidable at the election of the vendor” has been superseded by the 1929 case of Director of Lands vs. Abagat. In this later case of Abagat, the Court expressly cited two antecedent cases involving the same transaction of purchase of property in litigation by the lawyer which was expressly declared invalid under Article 1459 of the Civil Code of Spain (of which Article 1491 of our Civil Code of the Philippines is the counterpart) upon challenge thereof not by the vendor-client but by the adverse parties against whom the lawyer was seeking to enforce his rights as vendee thus acquired. Thus, the Court in Abagat affirmed the invalidity and nullity of the lawyer’s purchase of the land in litigation from his client, ordered the issuance of a writ of possession for the return of the land by the lawyer to the adverse parties without reimbursement of the price paid by him and

other expenses, and ruled that the purchaser-lawyer is a lawyer and is presumed to know the law. He must, therefore, from the beginning, have been well aware of the defect in his title and is, consequently, a possessor in bad faith.

5. Prohibitions under Article 1491 NCC (Article 1459 Spanish Civil Code)

Article 1491 of our Civil Code (like Article 1459 of the Spanish Civil Code) prohibits in its six paragraphs certain persons, by reason of the relation of trust or their peculiar control over the property, from acquiring such property in their trust or control either directly or indirectly and “even at a public or judicial auction,” as follows: (1) guardians; (2) agents; (3) administrators; (4) public officers and employees; judicial officers and employees, prosecuting attorneys, and lawyers; and (6) others especially disqualified by law.

6. Wolfson case decided in line with Manresa’s view

In Wolfson, the Court expressly reserved decision on “whether or not the judgment in question actually falls within the prohibition of the article” and held only that the sale’s “voidability can not be asserted by one not a property to the transaction or his representative,” citing from Manresa that “(C)onsidering the question from the point of view of the civil law, the view taken by the code, the Court must limit ourselves to classifying as void all acts done contrary to the express prohibition of the statute. Now then: As the code does not recognize such nullity by the mere operation of law, the nullity of the acts hereinbefore referred to must be asserted by the person having the necessary legal capacity to do so and decreed by a competent court.”

7. Manresa’s view not applicable under the NCC; Spanish Supreme Court and modern authors have veered away from

Manresa on this point The reason given by Manresa in considering such prohibited acquisitions under Article 1459 of the Spanish Civil Code as merely voidable at the instance and option of the vendor and not void is “that the Code does not recognize such nullity de pleno derecho.” This is no longer true and applicable to the Philippine Civil Code which does recognize the absolute nullity of contracts “whose cause, object, or purpose is contrary to law, morals, good customs, public order or public policy” or which are “expressly prohibited or declared void by law” and declares such contracts “inexistent and void from the beginning.” The Supreme Court of Spain and modern authors have likewise veered from Manresa’s view of the Spanish codal provision itself. In its sentencia of 11 June 1966, the Supreme Court of Spain ruled that the prohibition of Article 1459 of the Spanish Civil Code is based on public policy, that violation of the prohibition contract cannot be validated by confirmation or ratification. The criterion of nullity of such prohibited contracts under Article 1459 of the Spanish Civil Code (Article 1491 of our Civil Code) as a matter of public order and policy as applied by the Supreme Court of Spain to administrators and agents should certainly apply with greater reason to judges, judicial officers, fiscals and lawyers under paragraph 5 of the codal article. [also see viewpoints of Gullon Ballesteros in Curso de Derecho Civil (Contratos Especiales 1968), of Perez Gonzales, and of Castan]

8. Nullity of prohibited contracts definite and permanent and cannot be cured by ratification; If object has subsequently

become legal, such may be subject to second contract The nullity of prohibited contracts is definite and permanent and cannot be cured by ratification. The public interest and public policy remain paramount and do not permit of compromise or ratification. In this aspect, the permanent disqualification of public and judicial officers and lawyers grounded on public policy differs from the first three cases of guardians, agents and administrators (Article 1491, Civil Code), as to whose transactions, it has been opined that they may be “ratified” by means of and in “the form of a new contract, in which case its validity shall be determined only by the circumstances at the time of execution of such new contract. The causes of nullity which have ceased to exist cannot impair the validity of the new contract. Thus, the object which was illegal at the time of the first contract, may have already become lawful at the time of the ratification or second contract; or the service which was impossible may have become possible; or the intention which could not be ascertained may have been clarified by the parties. The ratification or second contract would then be valid from its execution; however, it does not retroact to the date of the first contract.

9. Who may invoke the inexistence of contract; Proper action to be filed

Tolentino, in his treaties on the Civil Code, stated that (as to persons affected) “any person may invoke the inexistence of the contract whenever juridical effects founded thereon are asserted against him. Thus, if there has been a void transfer of property, the transferor can recover it by the accion reivindicatoria; and any possessor may refuse to deliver it to the transferee, who cannot enforce the contract. Creditors may attach property of the debtor which has been alienated by the latter under a void contract; a mortgagee can allege the inexistence of a prior encumbrance; a debtor can assert the nullity of an assignment of credit as a defense to an action by the assignee.” He further stated that (as to action on contract) “even when the contract is void or inexistent, an action is necessary to declare its inexistence, when it has already been fulfilled. Nobody can take the law into his own hands; hence, the intervention of the competent court is necessary to declare the absolute nullity of the contract and to decree the restitution of what has been given under it. The judgment, however, will retroact to the very day when the contract was entered into. If the void contract is still fully executory, no party need bring an action to declare its nullity; but if any party should bring an action to enforce it, the other party can simply set up the nullity as a defense.”

17.

Philippine Trust Co. v. Roldan (GR L-8477, 31 May 1956)

Philippine Trust Co. v. Roldan [G.R. No. L-8477. May 31, 1956.] En Banc, Bengzon (J): 8 concur

Facts: 17 parcels located in Guiguinto, Bulacan, were part of the properties inherited by Mariano L. Bernardo from his father, the late Marcelo Bernardo. In view of his minority, guardianship proceedings were instituted, wherein Socorro Roldan, surviving spouse of Bernardo and stepmother to Mariano, was appointed his guardian. On 27 July 1947, Roldan filed in said guardianship proceedings (Special Proceeding 2485, Manila), a motion asking for authority to sell as guardian the 17 parcels for the sum of P14,700 to Dr. Fidel C. Ramos, her brother-in-law, the purpose of the sale being allegedly to invest the money in a residential house, which the minor desired to have on Tindalo Street, Manila. The motion was granted. On 5 August 1947, Roldan, as guardian, executed the proper deed of sale in favor of Ramos, and on 12 August 1947 obtained a judicial confirmation of the sale. On 13 August 1947, Ramos executed in favor of Roldan, a deed of conveyance covering the same 17 parcels, for the sum of P15,000. On 21 October 1947, Roldan sold 4 parcels out of the 17 to Emilio Cruz for P3,000, reserving to herself the right to repurchase.

The Philippine Trust Company replaced Roldan as guardian on 10 August 1948. Two months later, the Company, as guardian, filed before the CFI Manila a complaint against Roldan to annul 2 contracts regarding 17 parcels of land claiming that the step- mother in effect, sold to herself, the properties of her ward, and the sale should be annulled for violating Article 1459 of the Civil Code prohibiting the guardian from purchasing the property of her ward. The trial court upheld the contracts but allowing the minor to repurchase all the parcels by paying P15,000, within 1 year. The CA affirmed the judgment. Hence, the appeal.

The Supreme Court annulled the 3 contracts of sale in question; declared the minor as the owner of the 17 parcels of land, with the obligation to return to Roldan the price of P14,700 with legal interest from 12 August 1947; ordered Roldan and Emilio Cruz to deliver said parcels of land to the minor; required Roldan to pay him beginning with 1947 the fruits, which her attorney admits, amounted to P1,522 a year; authorized the minor to deliver directly to Emilio Cruz, out of the price of P14,700 above mentioned, the sum of P3,000; and charged appellees with the costs.

1. Guardianship is a trust of the highest order; Article 1459 applies

Remembering the general doctrine that guardianship is a trust of the highest order, and the trustee cannot be allowed to have any inducement to neglect his ward’s interest and in line with the court’s suspicion whenever the guardian acquires the ward’s property, the Court has no hesitation to declare that, in the eyes of the law, the guardian (Roldan) took by purchase her ward’s

parcels (thru Dr. Ramos), and that Article 1459 of the Civil Code applies.

2. Annulment of the transaction, even if no collusion is proved, would uphold equity and justice

The guardian may have acted without malice; there may have been no previous agreement between her and Dr. Ramos to the effect that the latter would buy the lands for her but the fact remains that she acquired her protege’s properties, through her brother-in-law. That she planned to get them for herself at the time of selling them to Dr. Ramos, may be deduced from the very short time between the two sales. The temptation which naturally besets a guardian so circumstanced, necessitates the annulment of the transaction, even if no actual collusion is proved (so hard to prove) between such guardian and the intermediate purchaser. This would uphold a sound principle of equity and justice.

3. Rodriguez v. Mactal does not apply; length of time different, sufficient to dispel suspicion

In Rodrigues v. Mactal, where the guardian Mactal sold in January 1926 the property of her ward to Silverio Chioco, and in March 1928 she bought it from Chioco, the Court declared the “in order to bring the sale in this case within the part of Article

1459, quoted above, it is essential that the proof submitted establish some agreement between Silverio Chioco and Trinidad Mactal to the effect that Chioco should buy the property for the benefit of Mactal. If there was no such agreement, either express or implied, then the sale cannot be set aside.” The subsequent purchase of Mactal, in said case, cannot be annulled as there was no proof of a previous agreement between Chioco and her. Two years had elapsed between the sales, and such period of time was sufficient to dispel the natural suspicion of the guardian’s motives or actions. In the present case, only 1 week had elapsed. And if we were technical, only 1 day had elapsed from the judicial approval of the sale (August 12), to the purchase by the guardian (August 13).

4. Minor on losing end in the transaction

The calculation, that the investment in the Tindalo Street house produces to the minor the rentals of P2,400 yearly while the parcels of land yield for the stepmother an average o P1,522 yearly, does not include the price of the lot on which the house was erected. Estimating such lot at P14,700 only, (ordinarily the city lot is more valuable than the building) the result is that the price paid for the 17 parcels gave the minor an income of only P1,200 a year, whereas the harvest from the seventeen parcels netted his step-mother a yearly profit of P1,522.00. The minor was on the losing end.

5.

Three Sales void

From both the legal and equitable standpoints these three sales should not be sustained: the first two for violation of article

1459

of the Civil Code; and the third because Roldan could pass no title to Emilio Cruz. The annulment carries with is (Article

1303

Civil Code) the obligation of Roldan to return the 17 parcels together with their fruits and the duty of the minor, through

his guardian to repay P14,700 with legal interest.

III. Subject Matter of Sale

18. Pichel v. Alonzo (GR L-36902, 30 January 1982)

Pichel v. Alonzo [G.R. No. L-36902. January 30, 1982.] First Division, Guerrero (J): 5 concur

Facts: Prudencio Alonzo was awarded by the Government that parcel of land designated as Lot 21 of Subdivision Plan Psd-32465 of Balactasan, Lamitan, Basilan City in accordance with RA 477. The award was cancelled by the Board of Liquidators on 27 January 1965 on the ground that, previous thereto, Alonzo was proved to have alienated the land to another, in violation of law. In 1972, Alonzo’s rights to the land were reinstated. On 14 August 1968, Alonzo and his wife sold to Pichel through a “deed of sale” all the fruits of the coconut trees which may be harvested in the land for the period, from 15 September 1968 to 1 January 1976, in consideration of P4,200.00. It was further stipulated that the vendor’s right, title, interest and participation herein conveyed is of his own exclusive and absolute property, free from any liens and encumbrances and he warrants to the Vendee good title thereto and to defend the same against any and all claims of all persons whomsoever. Even as of the date of sale, however, the land was still under lease to one Ramon Sua, and it was the agreement that part of the consideration of the sale, in the sum of P3,650.00, was to be paid by Pichel directly to Ramon Sua so as to release the land from the clutches of the latter. Pending said payment Alonzo refused to allow the Pichel to make any harvest. In July 1972, Pichel for the first time since the execution of the deed of sale in his favor, caused the harvest of the fruit of the coconut trees in the land.

Alonzo filed an action for the annulment of a “Deed of Sale” before the CFI Basilan City. On 5 January 1973, the lower court rendered its decision holding that although the agreement in question is denominated by the parties as a deed of sale of fruits of the coconut trees found in the vendor’s land, it actually is, for all legal intents and purposes, a contract of lease of the land itself; an encumbrance prohibited under RA 477. The court thus held that the deed of sale is null and void, and ordered Alonzo to pay back Pichel the consideration of the sale in the sum of P4,200 with interests from the date of the filing of the complaint until paid, and Pichel to pay the sum of P500.00 as attorney’s fees; with costs against Pichel. Hence, the petition to review on certiorari was raised before the Supreme Court.

The Supreme Court set aside the judgment of the lower court and entered another dismissing the complaint; without costs.

1. Vendor grantee under RA 477, and could exercise all the rights pertaining thereto, following ruling in Ras v. Sua

In Ras vs. Sua, it was categorically stated that a cancellation of an award granted pursuant to the provisions of RA 477 does not automatically divest the awardee of his rights to the land. Such cancellation does not result in the immediate reversion of the property subject of the award, to the State. Until and unless an appropriate proceeding for reversion is instituted by the State, and its reacquisition of the ownership and possession of the land decreed by a competent court, the grantee cannot be said to have been divested of whatever right that he may have over the same property. In the present case, there is nothing in the record to show that at any time after the supposed cancellation of the award on 27 January 1965, reversion proceedings against Lot 21 were instituted by the State. Instead, the admitted fact is that the award was reinstated in 1972. Applying the doctrine announced in the Ras case, therefore, Alonzo is not deemed to have lost any of his rights as grantee of Lot 21 under RA 477 during the period material to the present case, i.e., from the cancellation of the award in 1965 to its reinstatement in 1972. Within said period, Alonzo could exercise all the rights pertaining to a grantee with respect to Lot 21.

2. Court to apply the contract according to its express terms

The first and fundamental duty of the courts is the application of the contract according to its express terms, interpretation being resorted to only when such literal application is impossible.

3. Contract clear and unequivocal; Construction or interpretation of document not called for

Construction or interpretation of the document in question is not called for. A perusal of the deed fails to disclose any ambiguity or obscurity in its provisions, nor is there doubt as to the real intention of the contracting parties. The terms of the agreement are clear and unequivocal, hence the literal and plain meaning thereof should be observed. Such is the mandate of the Civil Code of the Philippines which provides that “if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control.” In the present case, the “Deed of Sale” dated 14 August

1968 is precisely what it purports to be. It is a document evidencing the agreement of herein parties for the sale of coconut

fruits of Lot 21, and not for the lease of the land itself. In clear and express terms, the document defines the object of the contract thus: “the herein sale of coconut fruits are for all the fruits on the aforementioned parcel of land during the years from 15 September 1968; up to 1 January 1976.”

4. Contract of sale valid, essential elements valid

The document in question expresses a valid contract of sale as it has the essential elements of a contract of sale as defined under Article 1458 of the New Civil Code. Article 1458 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,” and that “a contract of sale may be absolute or conditional.” The subject matter of the contract of sale are the fruits of the coconut trees on the land during the years from 15 September 1968 up to 1 January 1976, which subject

matter is a determinate thing.

5. Things having potential existence may be the object of the contract of sale

Under Article 1461 of the New Civil Code, things having a potential existence may be the object of the contract of sale. A valid sale may be made of a thing, which though not yet actually in existence, is reasonably certain to come into existence as the natural increment or usual incident of something already in existence, and then belonging to the vendor, and the title will vest in the buyer the moment the thing comes into existence (Emerson vs. European Railway Co., 67 Me., 387; Cutting vs. Packers Exchange, 21 Am. St. Rep., 63). Things of this nature are said to have a potential existence. A man may sell property of which he

is potentially and not actually possessed. He may make a valid sale of the wine that a vineyard is expected to produce; or the

grain a fieldmay grow in a given time; or the milk a cow may yield during the coming year; or the wool that shall thereafter grow upon sheep; or what may be taken at the next case of a fisherman’s net; or fruits to grow; or young animals not yet in existence; or the good will of a trade and the like. The thing sold, however, must be specific and identified. They must be also owned at the time by the vendor (Hull vs. Hull, 48 Conn., 250; 40 Am. Rep., 165)” pp. 522-523). Thus, pending crops which have potential existence may be the subject matter of sale (Sibal vs. Valdez, 50 Phil. 512).

6. Contract of sale and lease of things distinguished

The essential difference between a contract of sale and a lease of things is that the delivery of the thing sold transfers ownership, while in lease no such transfer of ownership results as the rights of the lessee are limited to the use and enjoyment of the thing leased. In the present case, the lower court’s holding that the contract in question fits the definition of a lease of things wherein one of the parties binds himself to give to another the enjoyment or use of a thing for a price certain and for a

period which may be definite or indefinite (Art. 1643, Civil Code of the Philippines) is erroneous.

7. Contract of lease, enjoyment of property

Article 1543 of the Civil Code defines the contract of lease as the giving or the concession of the enjoyment or use of a thing for

a specified time and fixed price, and since such contract is a form of enjoyment of the property, it is evident that it must be regarded as one of the means of enjoyment referred to in said Article 398, inasmuch as the terms enjoyment, use, and benefit involve the same and analogous meaning relative to the general utility of which a given thing is capable. (104 Jurisprudencia Civil, 443; Rodriguez vs. Borromeo, 43 Phil. 479, 490).

8. Transfer of accessory does not transfer principal

The possession and enjoyment of the coconut trees cannot be said to be the possession and enjoyment of the land itself because these rights are distinct and separate from each other, the first pertaining to the accessory or improvements (coconut

trees) while the second, to the principal (the land). A transfer of the accessory or improvement is not a transfer of the principal.

It is the other way around, the accessory follows the principal. In the present case, the sale of the nuts cannot be interpreted

nor construed to be a lease of the trees, much less extended further to include the lease of the land itself. In cannot be said that the possession and enjoyment of the coconut trees to be the possession and enjoyment of the land itself because the lessee in order to enjoy his right under the contract, he actually takes possession of the land, at least during harvest time, gathers all of the fruits of the coconut trees in the land, and gains exclusive use thereof without the interference or intervention of the lessor.

9. Grantee under RA 477 not prohibited to sell the natural/industrial fruits of the land awarded to him

The grantee of a parcel of land under RA 477 is not prohibited from alienating or disposing of the natural and/or industrial fruits

of the land awarded to him, pursuant to the terms of the first paragraph of Section 8. What the law expressly disallows is the encumbrance or alienation of the land itself or any of the permanent improvements thereon. Permanent improvements on a parcel of land are things incorporated or attached to the property in a fixed manner, naturally or artificially. They include whatever is built, planted or sown on the land which is characterized by fixity, immutability or immovability. Houses, buildings, machinery, animal houses, trees and plants would fall under the category of permanent improvements, the alienation or encumbrance of which is prohibited by RA 477. While coconut trees are permanent improvements of a land, their nuts are natural or industrial fruits which are meant to be gathered or severed from the trees, to be used, enjoyed, sold or otherwise disposed of by the owner of the land. Hence, the grantee of Lot 21 had the right and prerogative to sell the coconut fruits of the trees growing on the property.

10.

Purpose of RA 477, and Section 8 thereof

By virtue of RA 477, bona fide occupants, veterans, members of guerilla organizations and other qualified persons were given the opportunity to acquire government lands by purchase, taking into account their limited means. It was intended for these persons to make good and productive use of the lands awarded to them, not only to enable them to improve their standard of living, but likewise to help provide for the annual payments to the Government of the purchase price of the lots awarded to them. Section 8 was included to protect the grantees “from themselves and the incursions of opportunists who prey on their misery and poverty.” It is there to insure that the grantees themselves benefit from their respective lots, to the exclusion of other persons.

11. Legislature does not intend to prohibit the grantee from selling natural and industrial fruits of his land

The purpose of the law is not violated when a grantee sells the produce or fruits of his land. On the contrary, the aim of the law is thereby achieved, for the grantee is encouraged and induced to be more industrious and productive, thus making it possible for him and his family to be economically self-sufficient and to lead a respectable life. At the same time, the Government is assured of payment on the annual installments on the land. It could not have been the intention of the legislature to prohibit the grantee from selling the natural and industrial fruits of his land, for otherwise, it would lead to an absurd situation wherein the grantee would not be able to receive and enjoy the fruits of the property in the real and complete sense.

12. Party cannot impugn the validity of the contract after receiving the consideration for the sale

The vendor-grantee, after having received the consideration for the sale of his coconut fruits, cannot be allowed to impugn the validity of the contracts he entered into, to the prejudice of petitioner who contracted in good faith and for a consideration. The vendor cannot claim that he has the “privilege to change his mind and claim it as (an) implied lease,” and he has the “legitimate right” to file an action for annulment “which no law can stop” as there is a perfected and valid contract.

13. Grant of attorney’s fees not justified

Article 2208 of the Civil Code provides that “in the absence of stipulation, attorney’s fees and expenses of litigation, other than judicial costs, cannot be recovered, except (1) When exemplary damages are awarded; (2) When the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest; (3) In criminal cases of malicious prosecution against the plaintiff; (4) In case of a clearly unfounded civil action or proceeding against the plaintiff; (5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable claim; (6) In actions for legal support; (7) In actions for the recovery of wages of household helpers, laborers and

skilled workers; (8) In actions for indemnity under workmen’s compensation and employer’s liability laws; (9) In a separate civil action to recover civil liability arising from a crime; (10) When at least double judicial costs are awarded; (11) In any other case where the court deems it just and equitable that attorney’s fees and expenses of litigation should be recovered. In all cases, the attorney’s fees and expenses of litigation must be reasonable.” None of the legal grounds enumerated exists to justify or warrant the grant of attorney’s fees.

19. Melliza v. City of Iloilo (GR L-24732, 30 April 1968)

Melliza v. Iloilo City [G.R. No. L-24732. April 30, 1968.] En Banc, Bengzon JP (J): 8 concur, 1 on leave

Facts: Juliana Melliza during her lifetime owned, among other properties, 3 parcels of residential land in Iloilo City (OCT 3462). Said parcels of land were known as Lots Nos. 2, 5 and 1214. The total area of Lot 1214 was 29,073 sq. m. On 27 November 1931 she donated to the then Municipality of Iloilo, 9,000 sq. m. of Lot 1214, to serve as site for the municipal hall. The donation was however revoked by the parties for the reason that the area donated was found inadequate to meet the requirements of the development plan of the municipality, the so- called “Arellano Plan.” Subsequently, Lot 1214 was divided by Certeza Surveying Co., Inc. into Lots 1214-A and 1214-B. And still later, Lot 1214-B was further divided into Lots 1214-B-1, Lot 1214-B-2 and Lot 1214-B-3. As approved by the Bureau of Lands, Lot 1214-B-1, with 4,562 sq. m., became known as Lot 1214-B; Lot 1214-B-2, with 6,653 sq. m., was designated as Lot 1214-C; and Lot 1214-B-3, with 4,135 sq. m., became Lot 1214-D. On 15 November 1932, Juliana Melliza executed an instrument without any caption providing for the absolute sale involving all of lot 5, 7669 sq. m. of Lot 2 (sublots 2-B and 2-C), and a portion of 10,788 sq. m. of Lot 1214 (sublots 1214-B2 and 1214-B3) in favor of the Municipal Government of Iloilo for the sum of P6,422; these lots and portions being the ones needed by the municipal government for the construction of avenues, parks and City hall site according the “Arellano plan.” On 14 January 1938, Melliza sold her remaining interest in Lot 1214 to Remedios Sian Villanueva (thereafter TCT 18178). Remedios in turn on 4 November 1946 transferred her rights to said portion of land to Pio Sian Melliza (thereafter TCT 2492). Annotated at the back of Pio Sian Melliza’s title certificate was the following “that a portion of 10,788 sq. m. of Lot 1214 now designated as Lots 1412-B-2 and 1214-B-3 of the subdivision plan belongs to the Municipality of Iloilo as per instrument dated 15 November 1932.” On 24 August 1949 the City of Iloilo, which succeeded to the Municipality of Iloilo, donated the city hall site together with the building

thereon, to the University of the Philippines (Iloilo branch). The site donated consisted of Lots 1214-B, 1214-C and 1214-D, with a total area of 15,350 sq. m., more or less. Sometime in 1952, the University of the Philippines enclosed the site donated with a wire fence. Pio Sian Melliza thereupon made representations, thru his lawyer, with the city authorities for payment of the value of the lot (Lot 1214-B). No recovery was obtained, because as alleged by Pio Sian Melliza, the City did not have funds. The University of the Philippines, meanwhile, obtained Transfer Certificate of Title No. 7152 covering the three lots, Nos. 1214-B, 1214-C and 1214-D.

On 10 December 1955 Pio Sian Melizza filed an action in the CFI Iloilo against Iloilo City and the University of the Philippines for recovery of Lot 1214-B or of its value. After stipulation of facts and trial, the CFI rendered its decision on 15 August 1957, dismissing the complaint. Said court ruled that the instrument executed by Juliana Melliza in favor of Iloilo municipality included in the conveyance Lot 1214-B, and thus it held that Iloilo City had the right to donate Lot 1214-B to UP. Pio Sian Melliza appealed to the Court of Appeals. On 19 May 1965, the CA affirmed the interpretation of the CFI that the portion of Lot 1214 sold by Juliana Melliza was not limited to the 10,788 square meters specifically mentioned but included whatever was needed for the construction of avenues, parks and the city hall site. Nonetheless, it ordered the remand of the case for reception of evidence to determine the area actually taken by Iloilo City for the construction of avenues, parks and for city hall site. Hence, the appeal by Pio San Melliza to the Supreme Court.

The Supreme Court affirmed the decision appealed from insofar as it affirms that of the CFI, and dismissed the complaint; without costs.

1. Interpretation of contract involves question of law

The interpretation of the public instrument dated 15 November 1932 involves a question of law, since the contract is in the nature of law as between the parties and their successors in interest.

2. Intent of the parties as to the object of the public instrument

The paramount intention of the parties was to provide Iloilo municipality with lots sufficient or adequate in area for the construction of the Iloilo City hall site, with its avenues and parks. For this matter, a previous donation for this purpose between the same parties was revoked by them, because of inadequacy of the area of the lot donated. Said instrument described 4 parcels of land by their lot numbers and area; and then it goes on to further describe, not only those lots already mentioned, but the lots object of the sale, by stating that said lots were the ones needed for the construction of the city hall site, avenues

and parks according to the Arellano plan. If the parties intended merely to cover the specified lots (Lots 2, 5, 1214-C and 1214- D), there would scarcely have been any need for the next paragraph, since these lots were already plainly and very clearly described by their respective lot number and areas. Said next paragraph does not really add to the clear description that was already given to them in the previous one. It is therefore the more reasonable interpretation to view it as describing those other portions of land contiguous to the lots that, by reference to the Arellano plan, will be found needed for the purpose at hand, the construction of the city hall site.

3. Requirement, that sale must have a determinate thing as object, is fulfilled if object of sale is capable of being made

determinate at the time of the contract The requirement of the law that a sale must have for its object a determinate thing, is fulfilled as long as, at the time the contract is entered into, the object of the sale is capable of being made determinate without the necessity of a new or further agreement between the parties (Art. 1273, old Civil Code; Art. 1460, New Civil Code). The specific mention of some of the lots plus the statement that the lots object of the sale are the ones needed for city hall site; avenues and parks, according to the Arellano plan, sufficiently provides a basis, as of the time of the execution of the contract, for rendering determinate said lots without the need of a new and further agreement of the parties.

4. Arellano plan in existence since 1928; Area of land needed for the city hall site known

The Arellano plan was in existence as early as 1928. Tthe previous donation of land for city hall site on 27 November 1931 was revoked on 6 March 1932 for being inadequate in area under said Arellano plan. The area needed under that plan for city hall site was then already known; that the specific mention of some of the lots covered by the sale in effect fixed the corresponding location of the city hall site under the plan; that, therefore, considering the said lots specifically mentioned in the public instrument, and the projected city hall site, with its area, as then shown in the Arellano plan (Exhibit 2), it could be determined which, and how much of the portions of land contiguous to those specifically named, were needed for the construction of the city hall site.

5. Lot 1214-B is contiguous to Lot 1214-C and 1214-D, and is in the heart of the city hall site

Lot 1214-B is contiguous to Lots 1214-C and 1214-D, admittedly covered by the public instrument. It is stipulated that, after execution of the contract, the Municipality of Iloilo possessed it together with the other lots sold. It sits practically in the heart of the city hall site.

6.

Pio Sian Melliza a notary public and thus aware of the terms of the public instrument

Pio Sian Melliza, from the stipulation of facts, was the notary public of the public instrument. As such, he was aware of its terms. Said instrument was also registered with the Register of Deeds and such registration was annotated at the back of the corresponding title certificate of Juliana Melliza. From these stipulated facts, it can be inferred that Pio Sian Melliza knew of the aforesaid terms of the instrument or is chargeable with knowledge of them; that knowing so, he should have examined the Arellano plan in relation to the public instrument; that furthermore, he should have taken notice of the possession first by the Municipality of Iloilo, then by the City of Iloilo and later by the University of the Philippines of Lot 1214-B as part of the city hall site conveyed under that public instrument, and raised proper objections thereto if it was his position that the same was not included in the same.

7. Principles of civil law, as well as laches, estoppel and equity applied; Lot included in conveyance

For 20 long years, Pio Sian Melliza and his predecessors-in-interest, did not object to said possession, nor exercise any act of possession over Lot 1214-B. Applying, therefore, principles of civil law, as well as laches, estoppel, and equity, said lot must necessarily be deemed included in the conveyance in favor of Iloilo municipality, now Iloilo City.

20. Yutek v. Gonzales (GR 9935, 1 February 1915)

Yu Tek v. Gonzales [G.R. No. 9935. February 1, 1915.] First Division, Trent (J): 4 concur, 1 dissents

Facts: A written contract was executed between Basilio Gonzalez and Yu Tek and Co., where Gonzales was obligated to deliver 600 piculs of sugar of the 1st and 2nd grade to Yu Tek, within the period of 3 months (1 January-31 March 1912) at any place within the municipality of Sta. Rosa, which Yu Tek & Co. or its representative may designate; and in case, Gonnzales does not deliver, the contract will be rescinded and Gonzales shall be obligated to return the P3,000 received and also the sum of P1,200 by way of indemnity for loss and damages. No sugar had been delivered to Yu Tek & Co. under this contract nor had it been able to recover the P3,000. Yu Tek & Co. filed a complaint against Gonzales, and prayed for judgment for the P3,000 and the additional P1,200. Judgment was rendered for P3,000 only, and from this judgment both parties appealed.

The Supreme Court affirmed the judgment appealed from with the modification allowing the recovery of P1,200 under paragraph 4 of the contract, without costs.

1. Rights determined by the writing itself

Parties are presumed to have reduced to writing all the essential conditions of their contract. The rights of the parties must be determined by the writing itself.

2. Parol evidence not admissible as it should not serve to incorporate additional conditions into a contract

While parol evidence is admissible in a variety of ways to explain the meaning of written contracts, it cannot serve the purpose of incorporating into the contract additional contemporaneous conditions which are not mentioned at all in the writing, unless there has been fraud or mistake. In the present case, Gonzales alleged that the court erred in refusing to permit parol evidence showing that the parties intended that the sugar was to be secured from the crop which the defendant raised on his plantation, and that he was unable to fulfill the contract by reason of the almost total failure of his crop. The case appears to be one to which the rule which excludes parol evidence to add to or vary the terms of a written contract is decidedly applicable. There is not the slightest intimation in the contract that the sugar was to be raised by Gonzales. In the contract, Gonzales undertook to deliver a specified quantity of sugar within a specified time. The contract placed no restriction upon him in the matter of obtaining the sugar, as he was at liberty to purchase it on the market or raise it himself, notwithstanding that he owned a plantation himself.

3. Cases where parol evidence was denied by the Court

In Pastor v. Gaspar (2 Phil 592) the Court declined to allow parol evidence showing that a party to a written contract was to

become a partner in a firm instead of a creditor of the firm. In Eveland vs. Eastern Mining Co. (14 Phil 509) a contract of employment provided that the plaintiff should receive from the defendant a stipulated salary and expenses The defendant in said case sought to interpose as a defense to recovery that the payment of the salary was contingent upon the plaintiff’s employment redounding to the benefit of the defendant company. The contract contained no such condition and the court declined to receive parol evidence thereof.

4. Perfected contract of sale defined; Relief for non-delivery

Article 1450 defines a perfected sale as follows: “The sale shall be perfected between vendor and vendee and shall be binding on both of them, if they have agreed upon the thing which is the object of the contract and upon the price, even when neither has been delivered.” Article 1452 provides that “the injury to or the profit of the thing sold shall, after the contract has been

perfected, be governed by the provisions of articles 1096 and 1182.” There is a perfected sale with regard to the “thing” whenever the article of sale has been physically segregated from all other articles.

6. Perfected sale; Cases

In McCullough vs. Aenlle & Co. (3 Phil 285), a particular tobacco factory with its contents was held sold under a contract which did not provide for either delivery of the price or of the thing until a future time. In Barretto vs. Santa Marina (26 Phil 200), specified shares of stock in a tobacco factory were held sold by a contract which deferred delivery of both the price and the stock until the latter had been appraised by an inventory of the entire assets of the company. In Borromeo vs. Franco (5 Phil. Rep., 49) a sale of a specific house was held perfected between the vendor and vendee, although the delivery of the price was withheld until the necessary documents of ownership were prepared by the vendee. In Tan Leonco vs. Go Inqui (8 Phil. Rep., 531) the plaintiff had delivered a quantity of hemp into the warehouse of the defendant. The defendant drew a bill of exchange in the sum of P800, representing the price which had been agreed upon for the hemp thus delivered. Prior to the presentation of the bill for payment, in said case, the hemp was destroyed. Whereupon, the defendant suspended payment of the bill. It was held that the hemp having been already delivered, the title had passed and the loss was the vendee’s. It is our purpose to distinguish the case at bar from all these cases.

7. Contract in present case merely an executory agreement: a promise of sale and not a sale

The contract in the present case was merely an executory agreement; a promise of sale and not a sale. As there was no perfected sale, it is clear that articles 1452, 1096, and 1182 are not applicable. The agreement upon the “thing” which was the object of the contract was not within the meaning of article 1450. Sugar is one of the staple commodities of this country. For the purpose of sale its bulk is weighed, the customary unit of weight being denominated a ‘’picul.'’ There was no delivery under the contract. If called upon to designate the article sold, it is clear that Gonzales could only say that it was “sugar.” He could only use this generic name for the thing sold. There was no “appropriation” of any particular lot of sugar. Neither party could point to any specific quantity of sugar.

8. Present case different from cases cited with perfected contracts

The contract in the present case is different from the contracts discussed in the cases referred to. In the McCullough case, for instance, the tobacco factory which the parties dealt with was specifically pointed out and distinguished from all other tobacco factories. So, in the Barretto case, the particular shares of stock which the parties desired to transfer were capable of designation. In the Tan Leonco case, where a quantity of hemp was the subject of the contract, it was shown that quantity had

been deposited in a specific warehouse, and thus set apart and distinguished from all other hemp.

9. American jurisprudence; Executory contracts

In Witt Shoe Co. vs. Seegars & Co. (122 La., 145; 47 Sou., 444), a contract was entered into by a traveling salesman for a quantity of shoes, the sales having been made by sample. Since Mitchell was offering to sell by sample shoes, part of which had not been manufactured and the rest of which were incorporated in Witt Shoe Co.’s stock in Lynchburg, Va., it was impossible that he and Seegars & Co. should at that time have agreed upon the specific objects, the title to which was to pass, and hence there could have been no sale. In State vs. Shields, et al. (110 La., 547, 34 Sou., 673), it was held that in receiving an order for a quantity of goods, of a kind and at a price agreed on, to be supplied from a general stock, warehoused at another place, the agent receiving the order merely enters into an executory contract for the sale of the goods, which does not divest or transfer the title of any determinate object, and which becomes effective for that purpose only when specific goods are thereafter appropriated to the contract; and, in the absence of a more specific agreement on the subject, that such appropriation takes place only when the goods as ordered are delivered to the public carriers at the place from which they are to be shipped, consigned to the person by whom the order is given, at which time and place, therefore, the sale is perfected and the title passes.”

10. American jurisprudence: Recovery of payment; Applicability to present case

In Larue & Prevost vs. Rugely, Blair & Co. (10 La. Ann., 242), the defendants therein had made a contract for the sale, by weight, of a lot of cotton, had received $3,000 on account of the price, and had given an order for its delivery, which had been presented to the purchaser, and recognized by the press in which the cotton was stored, but that the cotton had been destroyed by fire before it was weighed. It was held that it was still at the risk of the seller, and that the buyer was entitled to recover the $3,000 paid on account of the price. Similarly, in the present case, Gonzales having defaulted in his engagement, Yu Tek & Co. is entitled to recover the P3,000 which it advanced to Gonzales.

11. Contracting parties free to stipulate; Stipulation clear, no room for interpretation; Liquidated damage

The contract plainly states that if Gonzales fails to deliver the 600 piculs of sugar within the time agreed on, the contract will be rescinded and he will be obliged to return the P3,000 and pay the sum of P1,200 by way of indemnity for loss and damages. There cannot be the slightest doubt about the meaning of this language or the intention of the parties. There is no room for either interpretation or construction. Under the provisions of article 1255 of the Civil Code contracting parties are free to execute the contracts that they may consider suitable, provided they are not in contravention of law, morals, or public order. In

our opinion there is nothing in the contract under consideration which is opposed to any of these principles. Thus, this is a clear case of liquidated damages.

21. National Grains Administration v. IAC (GR 74470, 8 March 1989)

National Grains Authority v. IAC [G.R. No. 74470. March 8, 1989.] Third Division, Medialdea (J): 4 concur

Facts: National Grains Authority (now National Food Authority, NFA) is a government agency created under PD 4. One of its incidental functions is the buying of palay grains from qualified farmers. On 23 August 1979, Leon Soriano offered to sell palay grains to the NFA, through the Provincial Manager (William Cabal) of NFA in Tuguegarao, Cagayan. He submitted the documents required by the NFA for pre-qualifying as a seller, which were processed and accordingly, he was given a quota of 2,640 cavans of palay. The quota noted in the Farmer’s Information Sheet represented the maximum number of cavans of palay that Soriano may sell to the NFA. On 23 and 24 August 1979, Soriano delivered 630 cavans of palay. The palay delivered were not rebagged, classified and weighed. When Soriano demanded payment of the 630 cavans of palay, he was informed that its payment will be held in abeyance since Mr. Cabal was still investigating on an information he received that Soriano was not a bona fide farmer and the palay delivered by him was not produced from his farmland but was taken from the warehouse of a rice trader, Ben de Guzman. On 28 August 1979, Cabal wrote Soriano advising him to withdraw from the NFA warehouse the 630 cavans stating that NFA cannot legally accept the said delivery on the basis of the subsequent certification of the BAEX technician (Napoleon Callangan) that Soriano is not a bona fide farmer.

Instead of withdrawing the 630 cavans of palay, Soriano insisted that the palay grains delivered be paid. He then filed a complaint for specific performance and/or collection of money with damages on 2 November 1979, against the NFA and William Cabal (Civil Case 2754). Meanwhile, by agreement of the parties and upon order of the trial court, the 630 cavans of palay in question were withdrawn from the warehouse of NFA. On 30 September 1982, the trial court found Soriano a bona fide farmer and rendered judgment ordering the NFA, its officers and agents to pay Soriano the amount of P47,250.00 representing the unpaid price of the 630 cavans of palay plus legal interest thereof (12% per annum, from the filing of complaint on 20 November 1979 until fully paid). NFA and Cabal filed a motion for reconsideration, which was denied by the court on 6 December 1982.

Appeal was filed with the Intermediate Appellate Court. On 23 December 1986, the then IACupheld the findings of the trial court and affirmed the decision ordering NFA and its officers to pay Soriano the price of the 630 cavans of rice plus interest. The motion for reconsideration of the appellate court’s decision was denied in a resolution dated 17 April 1986. Hence, the present petition for review with the sole issue of whether or not there was a contract of sale in the present case.

The Supreme Court dismissed the instant petition for review, and affirmed the assailed decision of the then IAC (now Court of Appeals) is affirmed; without costs.

1. Sale defined

Article 1458 of the Civil Code of the Philippines defines sale as a contract whereby one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other party to pay therefore a price certain in money or its equivalent.

2. Contract defined; requisites

A contract, on the other hand, is a meeting of minds between two (2) persons whereby one binds himself, with respect to the

other, to give something or to render some service (Art. 1305, Civil Code of the Philippines). The essential requisites of contracts are: (1) consent of the contracting parties, (2) object certain which is the subject matter of the contract, and (3) cause of the obligation which is established (Art. 1318, Civil Code of the Philippines.)

3.

Present case involves a perfected contract of sale

In

the present case, Soriano initially offered to sell palay grains produced in his farmland to NFA. When the latter accepted the

offer by noting in Soriano’s Farmer’s Information Sheet a quota of 2,640 cavans, there was already a meeting of the minds between the parties. The object of the contract, being the palay grains produced in Soriano’s farmland and the NFA was to pay the same depending upon its quality. The contention that since the delivery were not rebagged, classified and weighed in accordance with the palay procurement program of NFA, there was no acceptance of the offer thus this is a clear case of policitation or an unaccepted offer to sell, is untenable.

4. Quantity being indeterminate does not affect perfection of contract; No need to create new contract

The fact that the exact number of cavans of palay to be delivered has not been determined does not affect the perfection of the contract. Article 1349 of the New Civil Code provides that “the fact that the quantity is not determinate shall not be an obstacle

to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties.” In the present case, there was no need for NFA and Soriano to enter into a new contract to determine the exact number of cavans of palay to be sold. Soriano can deliver so much of his produce as long as it does not exceed 2,640 cavans.

5. Sale a consensual contract; Acceptance is on the offer and not the goods delivered

Sale is a consensual contract, “there is perfection when there is consent upon the subject matter and price, even if neither is delivered.” (Obana vs. C.A., L-36249, March 29, 1985, 135 SCRA 557, 560) Article 1475 of the Civil Code provides that “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.” The acceptance referred to which determines consent is the acceptance of the offer of one party by the other and not of the goods delivered.

6. Compliance of mutual obligations once a contract of sale is perfected

From the moment the contract of sale is perfected, it is incumbent upon the parties to comply with their mutual obligations or “the parties may reciprocally demand performance” thereof. (Article 1475, Civil Code, 2nd par.)

22. Johannes-Schuback v. CA (GR 105387, 11 November 1993)

Schuback & Sons v. CA [G.R. No. 105387. November 11, 1993.] Third Division, Romero (J): 4 concur

Facts: In 1981, Ramon San Jose (Philippine SJ Industrial Trading) established contact with Johannes Schuback & Sons Philippine Trading Corporation through the Philippine Consulate General in Hamburg, West Germany, because he wanted to purchase MAN bus spare parts from Germany. Schuback communicated with its trading partner, Johannes Schuback and Sohne Handelsgesellschaft m.b.n. & Co. (Schuback Hamburg) regarding the spare parts San Jose wanted to order. On 16 October 1981, San Jose submitted to Schuback a list of the parts he wanted to purchase with specific part numbers and description. Schuback referred the list to Schuback Hamburg for quotations. Upon receipt of the quotations, Schuback sent to San Jose a letter dated 25 November 1981 enclosing its offer on the items listed. On 4 December 1981, San Jose informed Schuback that he preferred genuine to replacement parts, and requested that he be given a 15% discount on all items. On 17 December 1981, Schuback submitted its formal offer containing the item number, quantity, part number, description, unit price and total to San Jose. On 24 December 1981, San Jose informed Schuback of his desire to avail of the prices of the parts at that time and enclosed its Purchase Order 0101 dated 14 December 1981. On 29 December 1981, San Jose personally submitted the quantities he wanted to Mr. Dieter Reichert, General Manager of Schuback, at the latter’s residence. The quantities were written in ink by San Jose in the same PO previously submitted. At the bottom of said PO, San Jose wrote in ink above his signature: “NOTE: Above PO will include a 3% discount. The above will serve as our initial PO.” Schuback immediately ordered the items needed by San Jose from Schuback Hamburg. Schuback Hamburg in turn ordered the items from NDK, a supplier of MAN spare parts in West Germany. On 4 January 1982, Schuback Hamburg sent Schuback a proforma invoice to be used by San Jose in applying for a letter of credit. Said invoice required that the letter of credit be opened in favor of Schuback Hamburg. San Jose acknowledged receipt of the invoice. An order confirmation was later sent by Schuback Hamburg to Schuback which was forwarded to and received by San Jose on 3 February 1981. On 16 February 1982, Schuback reminded San Jose to open the letter of credit to avoid delay in shipment and payment of interest. In the meantime, Schuback Hamburg received invoices from NDK for partial deliveries on Order 12204. On 16 February 1984, Schuback Hamburg paid NDK. On 18 October 1982, Schuback again reminded San Jose of his order and advised that the case may be endorsed to its lawyers. San Jose replied that he did not make any valid PO and that there was no definite contract between him and Schuback. Schuback sent a rejoinder explaining that there is a valid PO and suggesting that San Jose either proceed with the order and open a letter of credit or cancel the order and pay the cancellation fee of 30% F.O.B. value, or Schuback will endorse the case to its lawyers. Schuback Hamburg issued a Statement of Account to Schuback enclosing therewith Debit Note charging Schuback 30% cancellation fee, storage and interest charges in the total amount of DM 51,917.81. Said amount was deducted from Schuback’s account with Schuback Hamburg. Demand letters sent to San Jose by Schuback’s counsel dated 22 March 1983 and 9 June 1983 were to no avail.

Schuback filed a complaint for recovery of actual or compensatory damages, unearned profits, interest, attorney’s fees and costs against San Jose. In its decision dated 13 June 1988, the trial court ruled in favor of Schuback by ordering San Jose to pay it, among others, actual compensatory damages in the amount of DM 51,917.81, unearned profits in the amount of DM 14,061.07, or their peso equivalent. San Jose elevated his case before the Court of Appeals. On 18 February 1992, the appellate court reversed the decision of the trial court and dismissed Schuback’s complaint. It ruled that there was no perfection of contract since there was no meeting of the minds as to the price between the last week of December 1981 and the first week of January 1982. Hence, the petition for review on certiorari.

The Supreme Court granted the petition, and reinstated the decision of the trial court dated 13 June 1988 with modification.

1.

Perfection of a contract of sale

A “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.”

2. Consent manifested: Offer and acceptance

Article 1319 of the Civil Code provides that “consent is manifested by the meeting of the offer and acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter offer.” In the present case, the facts indicate that consent on both sides has been manifested. The offer was manifested on 17 December 1981 when Schuback submitted its proposal containing the item number, quantity, part number, description, the unit price and total to San Jose. On 24 December 1981, San Jose informed Schuback of his desire to avail of the prices of the parts at that time and simultaneously enclosed its PO 0101 dated 14 December 1981. At this stage, a meeting of the minds between vendor and vendee has occurred, the object of the contract being the spare parts and the consideration, the price stated in Schuback’s offer dated 17 December 1981 and accepted by San Jose on 24 December 1981.

3. Quantity is immaterial to the perfection of a sales contract

Although the quantity to be ordered was made determinate only on 29 December 1981, quantity is immaterial in the perfection of a sales contract. What is of importance is the meeting of the minds as to the object and cause, which from the facts disclosed, show that as of 24 December 1981, these essential elements had already concurred. Thus, perfection of the contract took place,

not on 29 December 1981, but rather on 24 December 1981.

4. Letter of credit only a mode of payment, not an essential requirement of sale

The opening of a letter of credit in favor of a vendor is only a mode of payment. It is not among the essential requirements of a contract of sale enumerated in Article 1305 and 1474 of the Civil Code, the absence of any of which will prevent the perfection of the contract from taking place. In the present case, when San Jose failed to open an irrevocable letter of credit without recourse in favor of Schuback Hamburg, such did not prevent the perfection of the contract between the parties, for the opening of a letter of credit is not to be deemed a suspensive condition. Schuback did not reserve title to the goods until San Juan had opened a letter of credit. Schuback did not incorporate any provision declaring their contract of sale without effect until after the fulfillment of the act of opening a letter of credit. To adopt the Court of Appeals’ ruling that the contract of sale was dependent on the opening of a letter of credit would be untenable from a pragmatic point of view because San Jose would not be able to avail of the old prices which were open to him only for a limited period of time.

23. Noel v. CA (GR 59550, 11 January 1995)

Noel v. CA [G.R. No. 59550. January 11, 1995.] Mercado v. CA [G.R. No. 60636. January 11, 1995.] First Division, Quiason (J): 4 concur

Facts: Gregorio Nanaman and Hilaria Tabuclin were a childless, legally-married couple. Gregorio, however, had a child named Virgilio Nanaman by another woman. Virgilio was reared by the Nanaman spouses since he was two years old. During their marriage, Gregorio and Hilaria acquired certain property including a 34.7-hectare land in Tambo, Iligan City on which they planted sugarcane, corn and bananas; where they lived with Virgilio and 15 tenants. On 2 October 1945, Gregorio died. Hilaria then administered the property with the help of Virgilio. Through their tenants, Hilaria and Virgilio enjoyed the produce of the land to the exclusion of Juan Nanaman, the brother of Gregorio, and Esperanza and Caridad Nanaman, Gregorio’s daughters by still another woman. In 1953, Virgilio declared the property in his name for taxation purposes under Tax Declaration 5534. On 1 November 1952, Hilaria and Virgilio, mortgaged the 34.7-hectare land in favor of Jose C. Deleste, in consideration of the amount of P4,800.00. On 16 February 1954, Hilaria and Virgilio executed a deed of sale over the same tract of land also in favor of Deleste in consideration of the sum of P16,000.00. Witnesses to the sale were the wife of Virgilio, Rosita S. Nanaman, Rufo C. Salas (Deleste’s driver), and Remedios Pilotan. The document was notarized on 17 February 1954 and was registered with the Register of Deeds of Iligan City on 2 March 1954. Having discovered that the property was in arrears in the payment of taxes from 1952, Deleste paid the taxes for 1952, 1953 and 1954. From then on, Deleste has paid the taxes on the property.

On 15 May 1954, Hilaria died. On 27 October 1954, Esperanza and Caridad Nanaman filed intestate estate proceedings concerning the estate of their father, Gregorio. As only Esperanza, Caridad and Virgilio Nanaman were named as heirs of Gregorio in the petition, Juan Nanaman opposed it. On 26 November 1954, the petition was amended to include the estate of Hilaria with Alejo Tabuclin, Hilaria’s brother, and Julio Tabuclin, a son of Hilaria’s deceased brother, Jose, as additional petitioners. Having been appointed special administrator of the estate of the Nanaman couple, Juan Nanaman included the 34.7-hectare land in the list of the assets of the estate. On 16 June 1956, when Edilberto Noel took over as regular administrator of the estate, he was not able to take possession of the land in question because it was in the possession of Deleste and some heirs of Hilaria. On 18 July 1957, Deleste and the heirs of the Nanaman spouses executed an amicable settlement of the

Nanaman estate. In the document, Deleste agreed “to relinquish his rights to ½ of the entire parcel of land in Tambo, Iligan City sold to him by Hilaria Tabuclin, in favor of all the heirs of the intestate estate for the reason that not all of the heirs of Gregorio Nanaman have signed and agreed. The court approved the amicable settlement but when it was questioned by some heirs, the court set aside its approval and declared it null and void.

The court thereafter ordered Noel, as regular administrator, to file an action to recover the 34.7-hectare land from Deleste. Consequently, on 30 April 1963, Noel filed an action against Deleste for the reversion of title over the 34.7-hectare land to the Nanaman estate and to order Deleste to pay the rentals and attorney’s fees to the estate. On 14 December 1973, the trial court rendered a decision, holding that the action for annulment of the deed of sale had prescribed in 1958 inasmuch as the sale was registered in 1954 and that Gregorio’s heirs had slept on their rights by allowing Hilaria to exercise rights of ownership over Gregorio’s share of the conjugal property after his death in 1945. Noel appealed to the Court of Appeals. On 18 February 1980, the appellate court ruled that the transaction between Hilaria and Virgilio, and Deleste, was indeed a sale. It found that no fraud, mistake or misrepresentation attended in the execution of the deed of sale and that no proof was shown that the contract was merely a mortgage. The appellate court, however, agreed with Noel that Hilaria could not validly sell the 37.7- hectare land because it was conjugal property, and Hilaria could sell only her ½ share thereof. The Court also ruled that the prescriptive period of 10 years had not yet elapsed when the action to recover the property was filed in 1963.; and held that in the absence of proof of adverse possession by Hilaria, she should be considered as holding the property pursuant to her usufructuary rights over the same under the provisions of the Spanish Civil Code of 1889, the law in force at the time of the death of Gregorio. The Court further ordered Deleste to return the land in question to the administrator of the estate, to pay the sum of P2,500 as rental of the ½ interest of the estate from 1957 until the land is returned, and to pay the expenses of litigation and the sum of P3,000 as attorney’s fees.

Deleste filed a motion for the reconsideration of said decision praying for the total affirmance of the decision of the trial court. On 14 May 1981, the Court of Appeals promulgated an amended decision. It affirmed its previous decision regarding the due execution of the deed of sale adding that since no fraud attended its execution, there was no basis for the action to annul the sale and therefore there was no starting point in reckoning the prescriptive period of four years. It reconsidered the Decision of 18 February 1980 insofar as it declared Deleste and the estate of Gregorio as co-owners of the 34.7-hectare land.

Pinito W. Mercado, as new administrator of the estate, appealed to the Supreme Court, questioning the Court of Appeals’ Amended Decision applying the doctrine of laches and equating the said doctrine with acquisitive prescription (GR 59550). Subsequently, another petition for certiorari to declare the sale to Deleste as an equitable mortgage, was filed by Atty. Bonifacio Legaspi, representing the heirs of Hilaria (GR 60636). The two cases, arising from the same decision of the Court of Appeals, were consolidated in the resolution of 2 September 1991 and were jointly considered.

The Supreme Court reversed and set aside the amended decision dated 14 May 1981 of the Court of Appeals, and reinstated and affirmed in toto the Decision dated 18 February 1980.

1. Seemingly inadequate consideration does not render a contract of sale as one of mortgage

The contract involving the 34.7-hectare property was one of sale and not of mortgage in the absence of a showing that the findings complained of are totally devoid of support in the record or that they are so glaringly erroneous as to constitute serious abuse of discretion (Andres v. Manufacturers Hanover & Trust Corporation, 177 SCRA 618 [1989]). It should be noted that two contracts had been executed involving said property (the 1 November 1952 mortgage and the 16 February 1954 sale). In the absence of proof of gross inadequacy of the price, that the sale was made with what might appear as an inadequate consideration does not make the contract one of mortgage (Askay v. Cosalan, 46 Phil. 179 [1924]).

2. Succession in the present case governed by the Civil Code of 1889

Gregorio died in 1945 long before the effectivity of the Civil Code of the Philippines on 30 August 1950. Under Article 2263 of the said Code, “rights to the inheritance of a person who died, with or without a will, before the effectivity of this Code, shall be governed by the Civil Code of 1889, by other previous laws, and by the Rules of Court.” Thus, succession to the estate of Gregorio was governed primarily by the provisions of the Spanish Civil Code of 1889.

3. 1889 Civil Code; Wife has full ownership of undivided half-interest and the usufruct over the other; Right to alienate half-

interest Under Article 953 thereof, a spouse like Hilaria, who is survived by brothers or sisters or children of brothers or sisters of the decedent was entitled to receive in usufruct the part of the inheritance pertaining to said heirs. Hilaria, however, had full ownership, not merely usufruct, over the undivided half of the estate (Spanish Civil Code of 1889, Art. 493). It is only this undivided half-interest that she could validly alienate. Under the law in force in 1945, the surviving spouse was given the management of the conjugal property until the affairs of the conjugal partnership were terminated. The surviving spouse became the owner of one-half interest of the conjugal estate in his own right. He also became a trustee with respect to the other half for the benefit of whoever may be legally entitled to inherit the said portion.

4.

1889 Civil Code; Virgilio is not a heir of Gregorio, being illegitimate; No right to transfer ownership

Virgilio was not an heir of Gregorio under the Spanish Civil Code of 1889. Although he was treated as a child by the Nanaman spouses, illegitimate children who were not natural were disqualified to inherit under the said Code (Cid v. Burnaman, 24 SCRA 434 [1968]). Article 998 of the Civil Code of the Philippines, which gave an illegitimate child certain hereditary rights, could not

benefit Virgilio because the right of ownership of the collateral heirs of Gregorio had become vested upon his death (Civil Code of the Philippines, Art. 2253; Uson v. Del Rosario, 92 Phil. 530 [1953]). Therefore, Virgilio had no right at all to transfer ownership over which he did not own.

5. Contract of sale; essential that seller is the owner of the property

In a contract of sale, it is essential that the seller is the owner of the property he is selling. The principal obligation of a seller is

“to transfer the ownership of” the property sold (Civil Code of the Philippines, Art. 1458). This law stems from the principle that nobody can dispose of that which does not belong to him (Azcona v. Reyes, 59 Phil. 446 [1934]; Coronel v. Ona, 33 Phil. 456 [1916]). NEMO DAT QUAD NON HABET .

6. Mistake attended sale of undivided interest in property belonging to the collateral heirs of Gregorio

While it cannot be said that fraud attended the sale to Deleste, clearly there was a mistake on the part of Hilaria and Virgilio in selling an undivided interest in the property which belonged to the collateral heirs of Gregorio.

7. Purchaser is a trustee of an implied trust if property is acquired by mistake or fraud

The sale, having been made in 1954, was governed by the Civil Code of the Philippines. Under Article 1456 of said Code, an implied trust was created on the one-half undivided interest over the 34.7-hectare land in favor of the real owners. Said Article provides that “if the property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.” In Diaz v. Gorricho, 103 Phil. 261 (1958), the Court said that Article 1456 merely expresses a rule recognized in Gayondato v. Insular Treasurer, 49 Phil. 244 (1926). Applying said rule, the Gayondato court held that the buyer of a parcel of land at a public auction to satisfy a judgment against a widow acquired only one-half interest on the land corresponding to the share of the widow and the other half belonging to the heirs of her husband became impressed with a constructive trust in behalf of said heirs.

8. Surviving spouse cannot acquire a title by prescription over said administered half

Being a trustee with respect to the other half for the benefit of whoever may be legally entitled to inherit the said portion, the

surviving spouse “could therefore no more acquire a title by prescription against those for whom he was administering the conjugal estate than could a guardian against his ward or a judicial administrator against the heirs of an estate. The surviving husband as the administrator and liquidator of the conjugal estate occupies the position of a trustee of the highest order and is not permitted by the law to hold that estate or any portion thereof adversely to those for whose benefit the law imposes upon him the duty of administration and liquidation” (Pamittan v. Lasam, 60 Phil. 908 *1934+).

9. Virgilio’s possession not under the claim of ownership

The possession of Virgilio, his registration of the land in his name for tax purposes, his hiring of tenants to till the land, and his enjoyment of the produce of the tenants, appear more as acts done to help Hilaria in managing the conjugal property. There is no evidence to prove indubitably that Virgilio asserted a claim of ownership over the property in his own right and adverse to all including Hilaria.

10. Laches do not apply; Doctrine cannot prejudice the rights of an owner or original transferee

The doctrine of laches does not apply. Upon orders of the court in the intestate proceedings, Noel, the administrator of the estate of the Nanaman spouses, immediately filed an action to recover possession and ownership of the property. There is no evidence showing any failure or neglect on his part, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier (Cristobal v. Melchor, 78 SCRA 175 [1977]). The doctrine of stale demands would apply only where by reason of the lapse of time, “*i+t would be inequitable to allow a party to enforce his legal rights” (Z.E. Lotho, Inc. v. Ice and Cold Storage Industries of the Philippines, Inc., 3 SCRA 744 *1961+). Moreover, this Court, except for very strong reasons, is not disposed to sanction the application of the doctrine of laches to prejudice or defeat the rights of an owner or original transferee (Raneses v. Intermediate Appellate Court, 187 SCRA 397 [1990]).

11. Prescription is ten years in an action to recover the undivided half-interest

The action to recover the undivided half-interest of the collateral heirs of Gregorio prescribes in 10 years. The cause of action is based on Article 1456 of the Civil Code of the Philippines, which made Deleste a trustee of an implied trust in favor of the said heirs. Under Article 1144 of the Civil Code of the Philippines, actions based upon an obligation created by law, can be brought within ten years from the time the right of action accrues (Rosario v. Auditor General, 103 Phil. 1132 [1958]). The 10-year prescriptive period within which the collateral heirs of Gregorio could file an action to recover their share in the property sold to Deleste (prescripcion extintiva) accrued only on 2 March 1954, when the deed of sale was registered with the Register of Deeds (Cf. Arradaza v. Court of Appeals, 170 SCRA 12 [1987]). From 2 March 1954 to 30 April 1963, when the complaint for the

recovery of the property was filed, less than 10 years had elapsed. Therefore, the action had not been barred by prescription. The 10-year prescriptive period before title to real estate shall vest by adverse possession (prescripcion adquisitiva) is also reckoned in the case of Deleste from 2 March 1954 (Corporacion de PP. Agustinos Recoletos v. Crisostomo, 32 Phil. 427 [1915]).

24. Nool v. CA (GR 116635, 24 July 1997)

Nool v. CA [G.R. No. 116635. July 24, 1997.] Third Division, Panganiban (J): 4 concur

Facts: One lot formerly owned by Victorio Nool (TCT T-74950) has an area of 1 hectare. Another lot previously owned by Francisco Nool (TCT T-100945) has an area of 3.0880 hectares. Both parcels are situated in San Manuel, Isabela. Spouses Conchita Nool and Gaudencio Almojera (plaintiffs) alleged that they are the owners of the subject land as they bought the same from Victorio and Francisco Nool, and that as they are in dire need of money, they obtained a loan from the Ilagan Branch of the DBP (Ilagan, Isabela), secured by a real estate mortgage on said parcels of land, which were still registered in the names of Victorino and Francisco Nool, at the time, and for the failure of the plaintiffs to pay the said loan, including interest and surcharges, totaling P56,000.00, the mortgage was foreclosed; that within the period of redemption, the plaintiffs contacted Anacleto Nool for the latter to redeem the foreclosed properties from DBP, which the latter did; and as a result, the titles of the 2 parcels of land in question were transferred to Anacleto; that as part of their arrangement or understanding, Anacleto agreed to buy from Conchita the 2 parcels of land under controversy, for a total price of P100,000.00, P30,000.00 of which price was paid to Conchita, and upon payment of the balance of P14,000.00, the plaintiffs were to regain possession of the 2 hectares of land, which amounts spouses Anacleto Nool and Emilia Nebre (defendants) failed to pay, and the same day the said arrangement was made; another covenant was entered into by the parties, whereby the defendants agreed to return to plaintiffs the lands in question, at anytime the latter have the necessary amount; that latter asked the defendants to return the same but despite the intervention of the Barangay Captain of their place, defendants refused to return the said parcels of land to plaintiffs; thereby impelling the plaintiffs to come to court for relief. On the other hand, defendants theorized that they acquired the lands in question from the DBP, through negotiated sale, and were misled by plaintiffs when defendant Anacleto Nool signed the private writing, agreeing to return subject lands when plaintiffs have the money to redeem the same; defendant Anacleto having been made to believe, then, that his sister, Conchita, still had the right to redeem the said properties.

It should be stressed that Manuel S. Mallorca, authorized officer of DBP, certified that the 1-year redemption period (from 16

March 1982 up to 15 March 1983) and that the mortgagors’ right of redemption was not exercised within this period. Hence, DBP became the absolute owner of said parcels of land for which it was issued new certificates of title, both entered on 23 May 1983 by the Registry of Deeds for the Province of Isabela. About 2 years thereafter, on 1 April 1985, DBP entered into a Deed of Conditional Sale involving the same parcels of land with Anacleto Nool as vendee. Subsequently, the latter was issued new certificates of title on 8 February 1988.

The trial court ruled in favor of the defendants, declaring the private writing to be an option to sell, not binding and considered validly withdrawn by the defendants for want of consideration; ordering the plaintiffs to return to the defendants the sum of P30,000.00 plus interest thereon at the legal rate, from the time of filing of defendants’ counterclaim until the same is fully paid; to deliver peaceful possession of the 2 hectares; and to pay reasonable rents on said 2 hectares at P5,000.00 per annum or at P2,500.00 per cropping from the time of judicial demand until the said lots shall have been delivered to the defendants; and to pay the costs. The plaintiffs appealed to the Court of Appeals (CA GR CV 36473), which affirmed the appealed judgment in toto on 20 January 1993. Hence, the petition before the Supreme Court.

The Supreme Court denied the petition, and affirmed the assailed decision of the Court of Appeals.

1. Contract of repurchase arising out of a contract of sale where the seller does not have title not valid

A contract of repurchase arising out of a contract of sale where the seller did not have any title to the property “sold” is not

valid. Since nothing was sold, then there is also nothing to repurchase.

2. Article 1370 NCC applicable only to valid and enforcement contracts

Article 1370 of the Civil Code, which provides that “if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control,” is applicable only to valid and enforceable contracts.

3. A void contract cannot give rise to a valid one

A void contract cannot give rise to a valid one. Article 1422 of the Civil Code provides that “a contract which is the direct result

of a previous illegal contract, is also void and inexistent.” In the present case. the alleged contract of repurchase being

dependent on the validity of the contract of sale, it is itself void. Thus, the principal contract of sale and the auxiliary contract of repurchase are both void.

4. Clarification of “sale of property, when seller is no longer the owner, null and void”; Sale possible even if owner is not

owner at time of sale, provided that he acquires title to the property at time of delivery In the case of Dignos v. CA, the Court did not cite its basis for ruling that a “sale is null and void” where the sellers “were no longer the owners” of the property. Such a situation (where the sellers were no longer owners) does not appear to be one of the void contracts enumerated in Article 1409 of the Civil Code. Moreover, the Civil Code itself recognizes a sale where the goods are to be “acquired by the seller after the perfection of the contract of sale,” clearly implying that a sale is possible even if the seller was not the owner at the time of sale, provided he acquires title to the property later on.

5. Void contracts (Article 1409 [5]); those which contemplates an impossible service

Article 1459 of the Civil Code provides that “the vendor must have a right to transfer the ownership thereof *object of the sale] at the time it is delivered.” Here, delivery of ownership is no longer possible. The sellers can no longer deliver the object of the sale to the buyers, as the buyers themselves have already acquired title and delivery thereof from the rightful owner, the DBP. Thus, such contract may be deemed to be inoperative and may thus fall, by analogy, under item 5 of Article 1409 of the Civil Code: “Those which contemplate an impossible service.”

6. Nono dat quod non habet, No one can give what he does not have; Contract of repurchase inoperative thus void

Article 1505 of the Civil Code provides that “where goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell.” Jurisprudence, on the other hand, teaches us that “a person can sell only what he owns or is authorized to sell; the buyer can as a consequence acquire no more than what the seller can legally transfer.” No one can give what he does not have — nono dat quod non habet. In the present case, there is no allegation at all that petitioners were authorized by DBP to sell the property to the private respondents. Further, the contract of repurchase that the parties entered into presupposes that petitioners could repurchase the property that they “sold” to private respondents. As petitioners “sold” nothing, it follows that they can also “repurchase” nothing. In this light, the contract of repurchase is also inoperative and by the same analogy, void.

7. Right to repurchase presupposes a valid contract of sale

One “repurchases” only what one has previously sold. In other words, the right to repurchase presupposes a valid contract of sale between the same parties. Undisputedly, private respondents acquired title to the property from DBP, and not from petitioners.

8. Arguendo, Scenario where the Contract of repurchase distinct from that of sale; Petitions still do not acquire a right to

repurchase the property; Unilateral promise to pay only binding if supported by consideration distinct from price Assuming arguendo that the contract of repurchase is separate and distinct from the contract of sale and is not affected by the nullity of the latter, still petitioners do not thereby acquire a right to repurchase the property. In that scenario, the contract of repurchase ceases to be a “right to repurchase” ancillary and incidental to the contract of sale; rather, it becomes an accepted unilateral promise to sell. Article 1479 of the Civil Code, however, provides that “an accepted unilateral promise to buy or 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.” In the present case, the alleged written contract of repurchase is bereft of any consideration distinct from the price. Accordingly, as an independent contract, it cannot bind private respondents.

9. Conventional redemption; Compliance with Article 1616 and other agreed stipulations

Article 1601 of the Civil Code provides that “conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provisions of Article 1616 and other stipulations which may

have been agreed upon.’”

10. Right of repurchase a right granted by vendor in the same instrument of sale, not in a subsequent instrument

In Villarica v. CA (29 November 1968), the Court ruled that the right of repurchase is not a right granted the vendor by the vendee is a subsequent instrument, but is a right reserved by the vendor in the same instrument of sale as one of the stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can no longer reserve the right to repurchase, and any right thereafter granted the vendor by the vendee in a separate instrument cannot be a right of repurchase but some other right (like the option to buy).

11. Sale, without agreement to repurchase, absolute

In Ramos, et al. vs. Icasiano, et al. (1927) the Court ruled that “an agreement to repurchase becomes a promise to sell when made after the sale, because when the sale is made without such an agreement, the purchaser acquires the thing sold

absolutely. and if he afterwards grants the vendor the right to repurchase, it is a new contract entered into by the purchaser, as absolute owner already of the object. In that case the vendor has not reserved to himself the right to repurchase.

12. Option to repurchase a promise to sell, governed by Article 1479

The Option to Repurchase executed by private respondent in the present case, was merely a promise to sell, which must be governed by Article 1479 of the Civil Code which provides that “a promise to buy and sell a determinate thing for a price certain is reciprocally demandable. 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.”

13. Arguendo, Section 119 of Public Land Act

The brothers Victorino and Francisco Noel, together with Conchita Nool and Anacleto Nool, were all siblings and heirs qualified to repurchase the two parcels of land under Section 119 of the Public Land Act which provides that “(e)very conveyance of land acquired under the free patent or homestead provisions, when proper, shall be subject to repurchase by the applicant, his widow or legal heirs, within a period of 5 years from the date of conveyance.” Assuming the applicability of this statutory provision to the present case, it is indisputable that Anacleto Nool already repurchased from DBP the contested properties. Hence, there was no more right of repurchase that his sister Conchita or brothers Victorino and Francisco could exercise. The properties were already owned by an heir of the homestead grantee and the rationale of the provision to keep homestead lands within the family of the grantee was thus fulfilled.

14. Action/Defense for the declaration of an inexistent contract does not prescribe; Validity of a contract cannot be

acquired through estoppel The private respondents cannot be estopped from raising the defense of nullity of contract, specially in this case where they acted in good faith, believing that indeed petitioners could sell the two parcels of land in question. Article 1410 of the Civil Code mandates that “the action or defense for the declaration of the inexistence of a contract does not prescribe.” It is a well-settled doctrine that “as between parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or it is against public policy. It is not within the competence of any citizen to barter away what public policy by law seeks to preserve.” Thus, it is immaterial that private respondents initially acted to implement the contract of sale, believing in good faith that the same was valid. A contract void at inception cannot be validated by ratification or prescription and certainly cannot be binding on or enforceable against private respondents.

15. Petitioners required to return sum of P30,000 with interest and to pay rent

The balance of P14,000.00 under the void contract of sale may not be enforced. Petitioners are the ones who have an obligation to return what they unduly and improperly received by reason of the invalid contract of sale. Since they cannot legally give title

to what they “sold,” they cannot keep the money paid for the object of the sale. It is basic that “every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same.” Thus, if a void contract has already “been performed, the restoration of what has been given is in order.”

16. Interest runs from the time tolerance ceased upon counterclaim

Interest to the amount will run only from the time of private respondents’ demand for the return of this amount in their counterclaim, for the petitioners’ possession and cultivation of the two hectares are anchored on private respondents’ tolerance. The latter’s tolerance ceased upon their counterclaim and demand on the former to vacate. Hence, their right to posses and cultivate the land ipso facto ceased.

25. Villaflor v. CA (GR 95694, 9 October 1997)

Villaflor v. CA [G.R. No. 95694. October 9, 1997.] Third Division, Panganiban (J): 3 concur, 1 took no part

Facts: On 16 January 1940, Cirilo Piencenaves, in a Deed of Absolute Sale, sold to Vicente Villafor, a parcel of agricultural land (planted to Abaca) containing an area of 50 hectares, more or less. The deed states that the land was sold to Villaflor on 22 June 1937, but no formal document was then executed, and since then until the present time, Villaflor has been in possession and occupation of the same. Before the sale of said property, Piencenaves inherited said property form his parents and was in adverse possession of such without interruption for more than 50 years. On the same day, Claudio Otero, in a Deed of Absolute Sale sold to Villaflor a parcel of agricultural land (planted to corn), containing an area of 24 hectares, more or less; Hermogenes Patete, in a Deed of Absolute Sale sold to Villaflor, a parcel of agricultural land (planted to abaca and corn), containing an area of 20 hectares, more or less. Both deed state the same details or circumstances as that of Piencenaves’. On 15 February 1940, Fermin Bocobo, in a Deed of Absolute Sale sold to Villaflor, a parcel of agricultural land (planted with abaca), containing an area of 18 hectares, more or less.

On 8 November 1946, Villaflor leased to Nasipit Lumber Co., Inc. a parcel of land, containing an area of 2 hectares, together with all the improvements existing thereon, for a period of 5 years (from 1 June 1946) at a rental of P200.00 per annum to cover the annual rental of house and building sites for 33 houses or buildings. The lease agreement allowed the lessee to sublease the premises to any person, firm or corporation; and to build and construct additional houses with the condition the lessee shall pay to the lessor the amount of 50 centavos per month for every house and building; provided that said constructions and improvements become the property of the lessor at the end of the lease without obligation on the part of the latter for expenses incurred in the construction of the same. On 7 July 1948, in an “Agreement to Sell” Villaflor conveyed to Nasipit Lumber, 2 parcels of land. Parcel 1 contains an area of 112,000 hectares more or less, divided into lots 5412, 5413, 5488, 5490, 5491, 5492, 5850, 5849, 5860, 5855, 5851, 5854, 5855, 5859, 5858, 5857, 5853, and 5852; and containing abaca, fruit trees, coconuts and thirty houses of mixed materials belonging to the Nasipit Lumber Company. Parcel 2 contains an area of 48,000 more or less, divided into lots 5411, 5410, 5409, and 5399, and containing 100 coconut trees, productive, and 300 cacao trees. From said day, the parties agreed that Nasipit Lumber shall continue to occupy the property not anymore in concept of lessee but as prospective owners.

On 2 December 1948, Villaflor filed Sales Application V-807 with the Bureau of Lands, Manila, to purchase under the provisions of Chapter V, XI or IX of CA 141 (The Public Lands Act), as amended, the tract of public lands. Paragraph 6 of the Application, states: ‘I understand that this application conveys no right to occupy the land prior to its approval, and I recognize that the land covered by the same is of public domain and any and all rights I may have with respect thereto by virtue of continuous occupation and cultivation are hereby relinquished to the Government. On 7 December 1948, Villaflor and Nasipit Lumber executed an “Agreement,” confirming the Agreement to Sell of 7 July 1948, but with reference to the Sales Application filed with the Bureau of Land. On 31 December 1949, the Report by the public land inspector (District Land Office, Bureau of Lands, in Butuan) contained an endorsement of the said officer recommending rejection of the Sales Application of Villaflor for having leased the property to another even before he had acquired transmissible rights thereto. In a letter of Villaflor dated 23 January 1950, addressed to the Bureau of Lands, he informed the Bureau Director that he was already occupying the property when the Bureau’s Agusan River Valley Subdivision Project was inaugurated, that the property was formerly claimed as private property, and that therefore, the property was segregated or excluded from disposition because of the claim of private ownership. Likewise, in a letter of Nasipit Lumber dated 22 February 1950 addressed to the Director of Lands, the corporation informed the Bureau that it recognized Villaflor as the real owner, claimant and occupant of the land; that since June 1946, Villaflor leased 2 hectares inside the land to the company; that it has no other interest on the land; and that the Sales Application of Villaflor should be given favorable consideration. On 24 July 1950, the scheduled date of auction of the property covered by the Sales Application, Nasipit Lumber offered the highest bid of P41.00 per hectare, but since an applicant under CA 141, is allowed to equal the bid of the highest bidder, Villaflor tendered an equal bid, deposited the equivalent of 10% of the bid price and then paid the assessment in full.

On 16 August 1950, Villaflor executed a document, denominated as a “Deed of Relinquishment of Rights,” in favor on Nasipit Lumber, in consideration of the amount of P5,000 that was to be reimbursed to the former representing part of the purchase price of the land, the value of the improvements Villaflor introduced thereon, and the expenses incurred in the publication of the Notice of Sale; in light of his difficulty to develop the same as Villaflor has moved to Manila. Pursuant thereto, on 16 August 1950, Nasipit Lumber filed a Sales Application over the 2 parcels of land, covering an area of 140 hectares, more or less. This application was also numbered V-807. On 17 August 1950 the Director of Lands issued an “Order of Award” in favor of Nasipit Lumber; and its application was entered in the record as Sales Entry V-407.

On 27 November 1973, Villafor wrote a letter to Nasipit Lumber, reminding the latter of their verbal agreement in 1955; but the new set of corporate officers refused to recognize Villaflor’s claim. In a formal protest dated 31 January 1974 which Villaflor filed with the Bureau of Lands, he protested the Sales Application of Nasipit Lumber, claiming that the company has not paid him P5,000.00 as provided in the Deed of Relinquishment of Rights dated 16 August 1950. On 8 August 1977, the Director of Lands found that the payment of the amount of P5,000.00 in the Deed and the consideration in the Agreement to Sell were duly proven, and ordered the dismissal of Villaflor’s protest.

On 6 July 1978, Villaflor filed a complaint in the trial court for “Declaration of Nullity of Contract (Deed of Relinquishment of Rights), Recovery of Possession (of two parcels of land subject of the contract), and Damages” at about the same time that he appealed the decision of the Minister of Natural Resources to the Office of the President. On 28 January 1983, he died. The trial court ordered his widow, Lourdes D. Villaflor, to be substituted as petitioner. After trial in due course, the then CFI Agusan del Norte and Butuan City, Branch III, dismissed the complaint on the grounds that: (1) petitioner admitted the due execution and genuineness of the contract and was estopped from proving its nullity, (2) the verbal lease agreements were unenforceable under Article 1403 (2)(e) of the Civil Code, and (3) his causes of action were barred by extinctive prescription and/or laches. It ruled that there was prescription and/or laches because the alleged verbal lease ended in 1966, but the action was filed only on 6 January 1978. The 6-year period within which to file an action on an oral contract per Article 1145 (1) of the Civil Code expired in 1972. Nasipit Lumber was declared the lawful owner and actual physical possessor of the 2 parcels of land (containing a total

area of 160 hectares). The Agreements to Sell Real Rights and the Deed of Relinquishment of Rights over the 2 parcels were likewise declared binding between the parties, their successors and assigns; with double costs against Villaflor.

The heirs of petitioner appealed to the Court of Appeals which, however, rendered judgment against them via the assailed Decision dated 27 September 1990 finding petitioner’s prayers — (1) for the declaration of nullity of the deed of relinquishment, (2) for the eviction of private respondent from the property and (3) for the declaration of petitioner’s heirs as owners — to be without basis. Not satisfied, petitioner’s heirs filed the petition for review dated 7 December 1990. In a Resolution dated 23 June 1991, the Court denied this petition “for being late.” On reconsideration, the Court reinstated the petition.

The Supreme Court dismissed the petition.

1. Doctrine of primary jurisdiction; Court does not interfere if question is within jurisdiction of an administrative tribunal

Underlying the rulings of the trial and appellate courts is the doctrine of primary jurisdiction; i.e., courts cannot and will not resolve a controversy involving a question which is within the jurisdiction of an administrative tribunal, especially where the question demands the exercise of sound administrative discretion requiring the special knowledge, experience and services of the administrative tribunal to determine technical and intricate matters of fact. In cases where the doctrine of primary jurisdiction is clearly applicable, the court cannot arrogate unto itself the authority to resolve a controversy, the jurisdiction over which is initially lodged with an administrative body of special competence.

2.

Doctrine of primary jurisdiction; may apply even to questions which are judicial character

It

has been the jurisprudential trend to apply the doctrine to cases involving matters that demand the special competence of

administrative agencies even if the question involved is also judicial in character. It applies “where a claim is originally

cognizable in the courts, and comes into play whenever enforcement of the claim requires the resolution of issues which, under

a regulatory scheme, have been placed within the special competence of an administrative body; in such case, the judicial process is suspended pending referral of such issues to the administrative body for its view.”

3. Doctrine of primary jurisdiction; cases

In Machete vs. Court of Appeals, the Court upheld the primary jurisdiction of the Department of Agrarian Reform Adjudicatory Board (DARAB) in an agrarian dispute over the payment of back rentals under a leasehold contract. In Concerned Officials of the

Metropolitan Waterworks and Sewerage System vs. Vasquez, the Court recognized that the MWSS was in the best position to evaluate and to decide which bid for a waterworks project was compatible with its development plan. In the present case, the questions on the identity of the land in dispute and the factual qualification of private respondent as an awardee of a sales application require a technical determination by the Bureau of Lands as the administrative agency with the expertise to determine such matters. Because these issues preclude prior judicial determination, it behooves the courts to stand aside even when they apparently have statutory power to proceed, in recognition of the primary jurisdiction of the administrative agency.

4. Interpretation of contracts and determination of private rights no longer uniquely judicial function

One thrust of the multiplication of administrative agencies is that the interpretation of contracts and the determination of

private rights thereunder is no longer a uniquely judicial function, exercisable only by our regular courts.

5. Primary jurisdiction of director of lands and minister or natural resources regarding identity of disputed land and

qualification of awardee of a sales patent The primary jurisdiction of the director of lands and the minister of natural resources over the issues regarding the identity of the disputed land and the qualification of an awardee of a sales patent is established by Sections 3 and 4 of CA 141, also known as the Public Land Act. Section 3 of said act provides that “the Secretary of Agriculture and Commerce (now Secretary of Natural Resources) shall be the executive officer charged with carrying out the provisions of this Act through the Director of Lands, who shall act under his immediate control.” Section 4 provides that “subject to said control, the Director of Lands shall have direct executive control of the survey, classification, lease, sale or any other form of concession or disposition and management of the lands of the public domain, and his decision as to questions of fact shall be conclusive when approved by the Secretary of Agriculture and Commerce.” Sections 3 and 4 of the Public Land Law mean that the Secretary of Agriculture and Natural Resources shall be the final arbiter on questions of fact in public land conflicts (Heirs of Varela vs. Aquino, 71 Phil 69; Julian vs. Apostol, 52 Phil 442). The Supreme Court has recognized that the Director of Lands is a quasi-judicial officer who passes on issues of mixed facts and law (Ortua vs. Bingson Encarnacion, 59 Phil 440).

6. Finding of fact by administrative agency accorded great respect

Reliance by the trial and the appellate courts on the factual findings of the Director of Lands and the Minister of Natural Resources is not misplaced. By reason of the special knowledge and expertise of said administrative agencies over matters falling under their jurisdiction, they are in a better position to pass judgment thereon; thus, their findings of fact in that regard are generally accorded great respect, if not finality, by the courts. The findings of fact of an administrative agency must be respected as long as they are supported by substantial evidence, even if such evidence might not be overwhelming or even

preponderant. It is not the task of an appellate court to weigh once more the evidence submitted before the administrative body and to substitute its own judgment for that of the administrative agency in respect of sufficiency of evidence.

7. Finding of fact by administrative agency accorded great respect ; Exception to the rule

The rule that factual findings of an administrative agency are accorded respect and even finality by courts admits of exceptions. This is true also in assessing factual findings of lower courts. It is incumbent on the petitioner to show that the resolution of the factual issues by the administrative agency and/or by the trial court falls under any of the exceptions. Otherwise, this Court will not disturb such findings.

8. Public land; Lack of Technical description does not prove that the findings lacked substantial evidence

The lack of technical description did not prove that the finding of the Director of Lands lacked substantial evidence. The evidence adduced by petitioner to establish his claim of ownership over the subject area consists of deeds of absolute sale executed in his favor. However, an examination of the technical descriptions of the tracts of land subject of the deeds of sale will disclose that said parcels are not identical to, and do not tally with, the area in controversy.

9. Public land; Property admitted to be public, cannot now be claimed otherwise

The provision of the law is specific that public lands can only be acquired in the manner provided for therein and not otherwise (Sec. 11, CA. No. 141, as amended). In his sales application, petitioner expressly admitted that said property was public land. This is formidable evidence as it amounts to an admission against interest. The records show that Villaflor had applied for the purchase of lands in question with this Office (Sales Application V-807) on 2 December 948. There is a condition in the sales application to the effect that he recognizes that the land covered by the same is of public domain and any and all rights he may have with respect thereto by virtue of continuous occupation and cultivation are relinquished to the Government of which Villaflor is very much aware. It also appears that Villaflor had paid for the publication fees appurtenant to the sale of the land. He participated in the public auction where he was declared the successful bidder. He had fully paid the purchase price thereof. It would be a height of absurdity for Villaflor to be buying that which is owned by him if his claim of private ownership thereof is to be believed. The area in dispute is not the private property of the petitioner.

10. Lands belong to the state, unless alienated

It is a basic assumption of public policy that lands of whatever classification belong to the state. Unless alienated in accordance with law, it retains its rights over the same as dominus. (Santiago vs. de los Santos, L-20241, November 22, 1974, 61 SCRA 152).

No public land can be acquired by private persons without any grant, express or implied from the government. It is indispensable then that there be showing of title from the state or any other mode of acquisition recognized by law. (Lee Hong Hok, et al. vs. David, et al., L-30389, December 27, 1972, 48 SCRA 379).

11. Filing of sales application acknowledges that the land is not the private property of the applicant

As such sales applicant manifestly acknowledged that he does not own the land and that the same is a public land under the administration of the Bureau of Lands, to which the application was submitted, all of its acts prior thereof, including its real estate tax declarations, characterized its possessions of the land as that of a “sales applicant”. And consequently, as one who expects to buy it, but has not as yet done so, and is not, therefore, its owner. (Palawan Agricultural and Industrial Co., Inc. vs. Director of Lands, L-25914, March 21, 1972, 44 SCRA 15).

12. Rule on the interpretation of contracts is used in affirming, not negating, their validity

The rule on the interpretation of contracts (Article 1371) is used in affirming, not negating, their validity. Article 1373, which is a

conjunct of Article 1371, provides that, if the instrument is susceptible of two or more interpretations, the interpretation which will make it valid and effectual should be adopted. In this light, it is not difficult to understand that the legal basis urged by petitioner does not support his allegation that the contracts to sell and the deed of relinquishment are simulated and fictitious.

13. Simulation not existing in the present case

Simulation occurs when an apparent contract is a declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce, for the purpose of deception, the appearance of a juridical act which does not exist or is different from that which was really executed. Such an intention is not apparent in the agreements. The intent to sell, on the other hand, is as clear as daylight. The fact, that the agreement to sell (7 December 1948) did not absolutely transfer ownership of the land to private respondent, does not show that the agreement was simulated. Petitioner’s delivery of the Certificate of Ownership and execution of the deed of absolute sale were suspensive conditions, which gave rise to a corresponding obligation on the part of the private respondent, i.e., the payment of the last installment of the consideration mentioned in the Agreement. Such conditions did not affect the perfection of the contract or prove simulation.

14. Nonpayment of the consideration does not prove simulation

Nonpayment, at most, gives the vendor only the right to sue for collection. Generally, in a contract of sale, payment of the price is a resolutory condition and the remedy of the seller is to exact fulfillment or, in case of a substantial breach, to rescind the

contract under Article 1191 of the Civil Code. However, failure to pay is not even a breach, but merely an event which prevents the vendor’s obligation to convey title from acquiring binding force.

15. Burden of proof rests upon the party who asserts the affirmative of an issue

Prior to the amendment of the rules on evidence on March 14, 1989, Section 1, Rule 131, states that each party must prove his or her own affirmative allegations. Thus, the burden of proof in any cause rested upon the party who, as determined by the pleadings or the nature of the case, asserts the affirmative of an issue and remains there until the termination of the action. Although nonpayment is a negative fact which need not be proved, the party seeking payment is still required to prove the

existence of the debt and the fact that it is already due. Petitioner showed the existence of the obligation with the presentation

of the contracts, but did not present any evidence that he demanded payment from private respondent. The demand letters

dated January 2 and 5, 1974, adduced in evidence by petitioner, were for the payment of back rentals, damages to improvements and reimbursement of acquisition costs and realty taxes, not payment arising from the contract to sell.

16. Lack of Notice of the Award not a suppression of evidence

The lack of notice for petitioner (not listed as one of the parties to furnished a copy by the Director of Lands) can be easily explained. Petitioner was not entitled to said notice of award from the Director of Lands, because by then, he had already relinquished his rights to the disputed land in favor of private respondent. In the heading of the order, he was referred to as sales applicant-assignor. In paragraph number 4, the order stated that, on 16 August 1950, he relinquished his rights to the land

subject of the award to private respondent. From such date, the sales application was considered to be a matter between the Bureau of Lands and private respondent only. Considering these facts, the failure to give petitioner a copy of the notice of the award cannot be considered as suppression of evidence. Furthermore, this order was in fact available to petitioner and had been referred to by him since 31 January 1974 when he filed his protest with the Bureau of Lands.

17. Requirement for a sales application under CA 141

The requirements for a sales application under the Public Land Act are: (1) the possession of the qualifications required by said

Act (under Section 29) and (2) the lack of the disqualifications mentioned therein (under Sections 121, 122, and 123). Section 121 of the Act pertains to acquisitions of public land by a corporation from a grantee: The private respondent, not the petitioner, was the direct grantee of the disputed land. Sections 122 and 123 disqualify corporations, which are not authorized by their charter, from acquiring public land; the records do not show that private respondent was not so authorized under its charter.

18. Determination of qualification of applicant included in the powers to dispose public lands

In Espinosa vs. Makalintal, the Court ruled that, by law, the powers of the Secretary of Agriculture and Natural Resources regarding the disposition of public lands including the approval, rejection, and reinstatement of applications are of executive and administrative nature. (Such powers, however, do not include the judicial power to decide controversies arising from disagreements in civil or contractual relations between the litigants.) Consequently, the determination of whether private respondent is qualified to become an awardee of public land under CA 141 by sales application is included therein.

19. Prohibition of 1973 Constitution against the holding of public alienable lands by corporation not retroactive

In Ayog vs. Cusi, Jr., the Court ruled that the constitutional prohibition of the 1973 Constitution against the holding of alienable

lands of the public domain by corporations had no retroactive effect and could not prevail over a vested right to the land. Vested rights have to be respected. It could not be abrogated by the new Constitution. Section 2, Article XIII of the 1935 Constitution allowed private corporations to purchase public agricultural lands not exceeding 1,024 hectares. Action for prohibition is barred by the doctrine of vested rights in constitutional law.

20. Vested right

A right is vested when the right to enjoyment has become the property of some particular person or persons as a present

interest. It is the privilege to enjoy property legally vested, to enforce contracts, and enjoy the rights of property conferred by existing law or some right or interest in property which has become fixed and established and is no longer open to doubt or controversy (Downs vs. Blount, 170 Fed. 15, 20, cited in Balboa vs. Farrales, 51 Phil, 498, 502). Generally, the term “vested right” expresses the concept of present fixed interest, which in right reason and natural justice should be protected against arbitrary State action, or an innately just and imperative right which an enlightened free society, sensitive to inherent and irrefragable individual rights, cannot deny (16 C.J.S. 1174, Note 71, No. 5, citing Pennsylvania Greyhound Lines, Inc. vs. Rosenthal, 192 At. 2nd 587).

21. Due process prohibits annihilation of vested rights

The due process clause prohibits the annihilation of vested rights. A state may not impair vested rights by legislative enactment,

by the enactment or by the subsequent repeal of a municipal ordinance, or by a change in the constitution of the State, except

in a legitimate exercise of the police power.

22.

Vested interest in sales application; Opinions of the Secretary of Justice

In Opinion 64, series of 1973, the Secretary of Justice held that where the applicant, before the Constitution took effect, had fully complied with all his obligations under the Public Land Act in order to entitle him to a sales patent, there would seem to be no legal or equitable justification for refusing to issue or release the sales patent. In Opinion 140, series of 1974, the Secretary of

Justice held that as soon as the applicant had fulfilled the construction or cultivation requirements and has fully paid the purchase price, he should be deemed to have acquired by purchase the particular tract of land and to him the area limitation in the new Constitution would not apply. In Opinion 185, series of 1976, the Secretary of Justice held that where the cultivation requirements were fulfilled before the new Constitution took effect but the full payment of the price was completed after 17 January 1973, the applicant was, nevertheless, entitled to a sales patent.

23. Executive construction given great respect

A contemporaneous construction of the constitutional prohibition by a high executive official carries great weight and should be

accorded much respect. It is a correct interpretation of section 11 of Article XIV.

24. Implementation of DOJ Opinion 64, s. 1973; Sales application for fishponds and for agricultural use

Implementing Opinion 64, the then Secretary of Agriculture and Natural Resources issued a memorandum, dated 18 February 1974, providing that sales application of private individuals covering areas in excess of 24 hectares and those of corporations, associations, or partnership which fall under any of the following categories shall be given due course and issued patents, to wit:

Sales application for fishponds and for agricultural purposes (SFA, SA and IGPSA) wherein prior to 17 January 1973, the land covered thereby was awarded; cultivation requirements of law were complied with as shown by investigation reports submitted prior to 17 January 1973; land was surveyed and survey returns already submitted to the Director of Lands for verification and approval; and purchase price was fully paid.

IV.

Price

26.

Loyola v. CA (GR 115734, 3 February 2000)

Loyola v. CA [G.R. No. 115734. February 23, 2000.] Second Division, Quisumbing (J): 3 concur, 1 on leave

Facts: A parcel of land (Lot 115-A-1 of subdivision plan [LRC] Psd-32117, a portion of Lot 115-A described on Plan Psd-55228, LRC [GLRO] Record 8374, located in Poblacion, Binan, Laguna, and containing 753 sq.m., TCT T-32007) was originally owned in common by the siblings Mariano and Gaudencia Zarraga, who inherited it from their father. Mariano predeceased his sister who died single, without offspring on 5 August 1983, at the age of 97. Victorina Zarraga vda. de Loyola and Cecilia Zarraga, are sisters of Gaudencia and Mariano.

The property was subject of Civil Case B-1094 before the then CFI Laguna (Branch 1, Spouses Romualdo Zarraga, et al. v. Gaudencia Zarraga, et al.). Romualdo Zarraga was the plaintiff in Civil Case B-1094. The defendants were his siblings: Nieves, Romana, Guillermo, Purificacion, Angeles, Roberto, Estrella, and Jose, all surnamed Zarraga, as well as his aunt, Gaudencia. The trial court decided Civil Case B-1094 in favor of the defendants. Gaudencia was adjudged owner of the 1/2 portion of Lot 115-A- 1. Romualdo elevated the decision to the Court of Appeals and later the Supreme Court. The petition (GR 59529) was denied by the Court on 17 March 1982.

On 24 August 1980, nearly 3 years before the death of Gaudencia while GR 59529 was still pending before the Supreme Court. On said date, Gaudencia allegedly sold to the children of Mariano Zarraga (Nieves, Romana, Romualdo, Guillermo, Lucia, Purificacion, Angeles, Roberto, Estrella Zarraga) and the heirs of Jose Zarraga Aurora, Marita, Jose, Ronaldo, Victor, Lauriano, and Ariel Zarraga; first cousins of the Loyolas) her share in Lot 115-A- 1 for P34,000.00. The sale was evidenced by a notarized document denominated as “Bilihang Tuluyan ng Kalahati (1/2) ng Isang Lagay na Lupa.” Romualdo, the petitioner in GR 59529, was among the vendees.

The decision in Civil Case B-1094 became final. The children of Mariano Zarraga and the heirs of Jose Zarraga (private respondents) filed a motion for execution. On 16 February 1984, the sheriff executed the corresponding deed of reconveyance to Gaudencia. On 23 July 1984, however, the Register of Deeds of Laguna, Calamba Branch, issued in favor of private respondents, TCT T-116067, on the basis of the sale on 24 August 1980 by Gaudencia to them.

On 31 January 1985, Victorina and Cecilia filed a complaint, docketed as Civil Case B-2194, with the RTC of Biñan, Laguna, for the purpose of annulling the sale and the TCT. Victorina died on 18 October 1989, while Civil Case B-2194 was pending with the trial court. Cecilia died on 4 August 1990, unmarried and childless. Victorina and Cecilia were substituted by Ruben, Candelaria, Lorenzo, Flora, Nicadro, Rosario, Teresita and Vicente Loyola as plaintiffs. The trial court rendered judgment in favor of

complainants; declaring the simulated deed of absolute sale as well as the issuance of the corresponding TCT null and void,

ordering the Register of Deeds of Laguna to cancel TCT T-116087 and to issue another one in favor of the plaintiffs and the defendants as co-owners and legal heirs of the late Gaudencia, ordering the defendants to reconvey and deliver the possession

of the shares of the plaintiff on the subject property, ordering the defendants to pay P20,000 as attorney’s fees and cost of suit,

dismissing the petitioner’s claim for moral and exemplary damages, and dismissing the defendants’ counterclaim for lack of merit.

On appeal, and on 31 August 1993, the appellate court reversed the trial court (CA-GR CV 36090). On September 15, 1993, the petitioners (as substitute parties for Victorina and Cecilia, the original plaintiffs) filed a motion for reconsideration, which was denied on 6 June 1994. Hence, the petition for review on certiorari.

The Supreme Court denied the petition, and affirmed the assailed decision of the Court of Appeals; with costs against petitioners.

1. Presumption of regularity of notarized document

A notarized document carries the evidentiary weight conferred upon it with respect to its due execution, and documents

acknowledged before a notary public have in their favor the presumption of regularity. In the present case, the petitioners allege that since the notary public who prepared and acknowledged the questioned Bilihan did not personally know Gaudencia, the execution of the deed was suspect. However, the notary public testified that he interviewed Gaudencia prior to preparing the deed of sale. By their failure to overcome this presumption, with clear and convincing evidence, petitioners are estopped from questioning the regularity of the execution of the deed.

2. Jose Zarraga alive when the sale took place

Petitioners charge that one of the vendees, Jose Zarraga, was already dead at the time of the sale. However, the records reveal

that Jose died on 29 July 1981. He was still alive on 24 August 1980, when the sale took place.

3. Simulation defined

Simulation is “the declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce, for the

purposes of deception, the appearances of a juridical act which does not exist or is different what that which was really

executed.” Characteristic of simulation is that the apparent contract is not really desired or intended to produce legal effect or

in any way alter the juridical situation of the parties. Further, in a simulated contract, the parties have no intention to be bound

by the contract. In the present case, perusal of the questioned deed shows that the sale of the property would convert the co- owners to vendors and vendees, a clear alteration of the juridical relationships. This is contrary to the requisite of simulation that the apparent contract was not really meant to produce any legal effect. The parties clearly intended to be bound by the contract of sale, an intention they did not deny.

4. Simulation, requisites

The requisites for simulation are: (a) an outward declaration of will different from the will of the parties; (b) the false appearance must have been intended by mutual agreement; and (c) the purpose is to deceive third persons. In the present case, none of these are present in the assailed transaction.

5. Contracts binding only upon parties executing them

Contracts are binding only upon the parties who execute them. Article 1311 of the Civil Code clearly covers this situation. In the

present case Romualdo had no knowledge of the sale, and thus, he was a stranger and not a party to it. Even if curiously Romualdo, one of those included as buyer in the deed of sale, was the one who questioned Gaudencia’s ownership in Civil Case B-1094, Romana testified that Romualdo really had no knowledge of the transaction and he was included as a buyer of the land only because he was a brother.

6. Fraud is never presumed

Fraud is never presumed, but must be both alleged and proved. For a contract to be annulled on the ground of fraud, it must be shown that the vendor never gave consent to its execution. If a competent person has assented to a contract freely and fairly, said person is bound. There also is a disputable presumption, that private transactions have been fair and regular. Applied to contracts, the presumption is in favor of validity and regularity. In the present case, the allegations of fraud was unsupported, and the presumption stands that the contract Gaudencia entered into was fair and regular.

7. Person not incapacitated to contract merely because of advanced age or due to physical infimities

A person is not incapacitated to contract merely because of advanced years or by reason of physical infirmities. Only when such

age or infirmities impair his mental faculties to such extent as to prevent him from properly, intelligently, and fairly protecting

his property rights, is he considered incapacitated. In the present case, petitioners show no proof that Gaudencia had lost control of her mental faculties at the time of the sale. The notary public who interviewed her, testified that when he talked to

Gaudencia before preparing the deed of sale, she answered correctly and he was convinced that Gaudencia was mentally fit and knew what she was doing.

8. Undue influence defined, circumstances considered; Article 1337

Article 1337 of the Civil Code provides that “there is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. The following circumstances shall be considered: confidential, family, spiritual, and other relations between the parties, or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in financial distress.”

9. Undue influence case-to-case basis; Elements

Undue influence depends upon the circumstances of each case and not on bare academic rules. For undue influence to be established to justify the cancellation of an instrument, three elements must be present: (a) a person who can be influenced; (b) the fact that improper influence was exerted; (c) submission to the overwhelming effect of such unlawful conduct.

10. Confidential or fiduciary relationship

In the absence of a confidential or fiduciary relationship between the parties, the law does not presume that one person exercised undue influence upon the other. A confidential or fiduciary relationship may include any relation between persons, which allows one to dominate the other, with the opportunity to use that superiority to the other’s disadvantage. Included are those of attorney and client, physician and patient, nurse and invalid, parent and child, guardian and ward, member of a church or sect and spiritual adviser, a person and his confidential adviser, or whenever a confidential relationship exists as a fact. To prove a confidential relationship from which undue influence may arise, the relationship must reflect a dominant, overmastering influence which controls over the dependent person. In the present case, that Gaudencia looked after Romana in her old age is not sufficient to show that the relationship was confidential. Petitioners failed to show that Romana used her aunt’s reliance upon her to take advantage or dominate her and dictate that she sell her land.

11. Undue influence cannot be inferred from age, sickness, or debility of body

Undue influence is not to be inferred from age, sickness, or debility of body, if sufficient intelligence remains. In the present case. petitioners never rebutted the testimony of the notary public that he observed Gaudencia still alert and sharp.

12. Solicitation, importunity, argument, and persuasion not undue influence

In Bañez v. Court of Appeals, (59 SCRA 15 [1974]), it was held that solicitation, importunity, argument, and persuasion are not undue influence. A contract is not to be set aside merely because one party used these means to obtain the consent of the other. In Martinez v. Hongkong and Shanghai Bank (15 Phil. 252 [1910]), that influence obtained by persuasion, argument, or by appeal to the affections is not prohibited either in law or morals, and is not obnoxious even in courts of equity. In the present case, absent any proof that Romana exerted undue influence, the presumption is that she did not.

13. Issue cannot be raised for the first time on appeal

Lesion was not an issue raised before the lower courts. An issue which was neither averred in the complaint nor raised in the

court below, cannot be raised for the first time on appeal. To do so would be offensive to the basic rules of fair play.

14. Grounds of simulated sale and inadequacy of the price not reconcilable

Petitioners seem to be unsure whether they are assailing the sale of Lot 115-A-1 for being absolutely simulated or for inadequacy of the price. These two grounds are irreconcilable. If there exists an actual consideration for transfer evidenced by the alleged act of sale, no matter how inadequate it be, the transaction could not be a “simulated sale.” No reversible error was thus committed by the Court of Appeals in refusing to annul the questioned sale for alleged inadequacy of the price.

27. Uy v. CA (GR 120465, 9 September 1999)

Uy v. CA [G.R. No. 120465. September 9, 1999.] First Division, Kapunan (J): 3 concur, 1 on leave

Facts: William Uy and Rodel Roxas are agents authorized to sell 8 parcels of land by the owners thereof. By virtue of such authority, they offered to sell the lands, located in Tuba, Tadiangan, Benguet to National Housing Authority (NHA) to be utilized and developed as a housing project. On 14 February 1989, the NHA Board passed Resolution 1632 approving the acquisition of said lands, with an area of 31.8231 hectares, at the cost of P23.867 million, pursuant to which the parties executed a series of Deeds of Absolute Sale covering the subject lands. Of the 8 parcels of land, however, only 5 were paid for by the NHA because of the report it received from the Land Geosciences Bureau of the Department of Environment and Natural Resources (DENR) that the remaining area is located at an active landslide area and therefore, not suitable for development into a housing project.

On 22 November 1991, the NHA issued Resolution 2352 cancelling the sale over the 3 parcels of land. The NHA, through Resolution 2394, subsequently offered the amount of P1.225 million to the landowners as daños perjuicios.

On 9 March 1992, petitioners Uy and Roxas filed before the RTC Quezon City a Complaint for Damages against NHA and its General Manager Robert Balao. After trial, the RTC rendered a decision declaring the cancellation of the contract to be justified. The trial court nevertheless awarded damages to plaintiffs in the sum of P1.255 million, the same amount initially offered by NHA to petitioners as damages.

Upon appeal by petitioners, the Court of Appeals reversed the decision of the trial court and entered a new one dismissing the complaint. It held that since there was “sufficient justifiable basis” in cancelling the sale, “it saw no reason” for the award of damages. The Court of Appeals also noted that petitioners were mere attorneys-in-fact and, therefore, not the real parties-in- interest in the action before the trial court. Their motion for reconsideration having been denied, petitioners seek relief from the Supreme Court.

The Supreme Court denied the petition.

1. Real party-in-interest defined; Action to be prosecuted in the name of a party whose right is sought to be enforced

Section 2, Rule 3 of the Rules of Court requires that every action must be prosecuted and defended in the name of the real party-in-interest. The real party-in-interest is the party who stands to be benefited or injured by the judgment or the party entitled to the avails of the suit. “Interest,” within the meaning of the rule, means material interest, an interest in the issue and to be affected by the decree, as distinguished from mere interest in the question involved, or a mere incidental interest. Cases construing the real party-in-interest provision can be more easily understood if it is borne in mind that the true meaning of real party-in-interest may be summarized as follows: An action shall be prosecuted in the name of the party who, by the substantive law, has the right sought to be enforced.

2. Action brought by an attorney-in-fact in his name and not in the name of his principal dismissed

Where the action is brought by an attorney-in-fact of a land owner in his name, (as in our present action) and not in the name of his principal, the action was properly dismissed (Ferrer vs. Villamor, 60 SCRA 406 [1974]; Marcelo vs. de Leon, 105 Phil. 1175) because the rule is that every action must be prosecuted in the name of the real parties-in-interest (Section 2, Rule 3, Rules of

Court).