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G.R. No.

118114 December 7, 1995

TEODORO ACAP, petitioner,
vs.
COURT OF APPEALS and EDY DE LOS REYES, respondents.

PADILLA, J.:

This is a petition for review on certiorari of the decision 1 of the Court of Appeals, 2nd
Division, in CA-G.R. No. 36177, which affirmed the decision 2 of the Regional Trial Court
of Himamaylan, Negros Occidental holding that private respondent Edy 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 petitioner as leasehold tenant of the land for failure
to pay rentals.

The facts of the case are as follows:

The title to Lot No. 1130 of the Cadastral Survey of Hinigaran, Negros Occidental was
evidenced by OCT No. R-12179. The lot has an area of 13,720 sq. meters. 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.

The evidence before the court a quo established that since 1960, petitioner Teodoro
Acap had been the tenant of a portion of the said land, covering an area of nine thousand
five hundred (9,500) meters. 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 intestate and on 27 November 1981, his surviving
heirs executed a notarized document denominated as "Declaration of Heirship and
Waiver of Rights of Lot No. 1130 Hinigaran Cadastre," wherein they declared; to quote
its pertinent portions, that:

. . . Cosme Pido died in the Municipality of Hinigaran, Negros Occidental,
he died intestate and without any known debts and obligations which the
said parcel of land is (sic) held liable.

That Cosme Pido was survived by his/her legitimate heirs, namely:
LAURENCIANA PIDO, wife, ELY, ERVIN, ELMER, and ELECHOR all
surnamed PIDO; children;

That invoking the provision of Section 1, Rule 74 of the Rules of Court,
the above-mentioned heirs do hereby declare unto [sic] ourselves the
only heirs of the late Cosme Pido and that we hereby adjudicate unto
ourselves the above-mentioned parcel of land in equal shares.

Now, therefore, We LAURENCIANA 3, ELY, ELMER, ERVIN and
ELECHOR all surnamed PIDO, do hereby waive, quitclaim all our rights,
interests and participation over the said parcel of land in favor of EDY
DE LOS REYES, of legal age, (f)ilipino, married to VIRGINIA DE LOS
REYES, and resident of Hinigaran, Negros Occidental, Philippines. . .
. 4 (Emphasis supplied)

The document was signed by all of Pido's heirs. Private respondent 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, private respondent Edy 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, private respondent sought for petitioner (Acap) to personally inform him
that he (Edy) had become the new owner of the land and that the lease rentals thereon
should be paid to him. Private respondent further alleged that he and petitioner entered
into an oral lease agreement wherein petitioner agreed to pay ten (10) cavans of
palay per annum as lease rental. In 1982, petitioner allegedly complied with said
obligation. In 1983, however, petitioner refused to pay any further lease rentals on the
land, prompting private respondent to seek the assistance of the then Ministry of
Agrarian Reform (MAR) in Hinigaran, Negros Occidental. The MAR invited petitioner to a
conference scheduled on 13 October 1983. Petitioner did not attend the conference but
sent his wife instead to the conference. During the meeting, an officer of the Ministry
informed Acap's wife about private respondent's ownership of the said land but she
stated that she and her husband (Teodoro) did not recognize private respondent's claim
of ownership over the land.

On 28 April 1988, after the lapse of four (4) years, private respondent filed a complaint
for recovery of possession and damages against petitioner, alleging in the main that as

his leasehold tenant, petitioner refused and failed to pay the agreed annual rental of ten
(10) cavans of palay despite repeated demands.

During the trial before the court a quo, petitioner reiterated his refusal to recognize
private respondent's ownership over the subject land. He averred that he continues to
recognize Cosme Pido as the owner of the said land, and having been a registered tenant
therein since 1960, he never reneged on his rental obligations. When Pido died, he
continued to pay rentals to Pido's widow. When the latter left for abroad, she instructed
him to stay in the landholding and to pay the accumulated rentals upon her demand or
return from abroad.

Petitioner further claimed before the trial court that he had no knowledge about any
transfer or sale of the lot to private respondent in 1981 and even the following year
after Laurenciana's departure for abroad. He denied having entered into a verbal lease
tenancy contract with private respondent and that assuming that the said lot was indeed
sold to private respondent without his knowledge, R.A. 3844, as amended, grants him the
right to redeem the same at a reasonable price. Petitioner also bewailed private
respondent's ejectment action as a violation of his right to security of tenure under P.D.
27.

On 20 August 1991, the lower court rendered a decision in favor of private respondent,
the dispositive part of which reads:

WHEREFORE, premises considered, the Court renders judgment in favor
of the plaintiff, Edy de los Reyes, and against the defendant, Teodoro
Acap, ordering the following, to wit:

1. Declaring forfeiture of defendant's preferred right to issuance of a
Certificate of Land Transfer under Presidential Decree No. 27 and his
farmholdings;

2. Ordering the defendant Teodoro Acap to deliver possession of said
farm to plaintiff, and;

3. Ordering the defendant 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. 5

In arriving at the above-mentioned judgment, the trial court stated that the evidence
had established that the subject land was "sold" by the heirs of Cosme Pido to private

respondent. This is clear from the following disquisitions contained in the trial court's
six (6) page decision:

There is no doubt that defendant is a registered tenant of Cosme Pido.
However, when the latter died their tenancy relations changed since
ownership of said land was passed on to his heirs who, by executing
a Deed of Sale, which defendant admitted in his affidavit, likewise
passed on their ownership of Lot 1130 to herein plaintiff (private
respondent). As owner hereof, plaintiff has the right to demand payment
of rental and the tenant is obligated to pay rentals due from the time
demand is made. . . . 6

xxx xxx xxx

Certainly, the sale of the Pido family of Lot 1130 to herein plaintiff does
not of itself extinguish the relationship. There was only a change of the
personality of the lessor in the person of herein plaintiff Edy de los
Reyes who being the purchaser or transferee, assumes the rights and
obligations of the former landowner to the tenant Teodoro Acap, herein
defendant. 7

Aggrieved, petitioner appealed to the Court of Appeals, imputing error to the lower
court when it ruled that private respondent acquired ownership of Lot No. 1130 and that
he, as tenant, should pay rentals to private respondent and that failing to pay the same
from 1983 to 1987, his right to a certificate of land transfer under P.D. 27 was deemed
forfeited.

The Court of Appeals brushed aside petitioner's argument that the Declaration of
Heirship and Waiver of Rights (Exhibit "D"), the document relied upon by private
respondent to prove his ownership to the lot, was excluded by the lower court in its
order dated 27 August 1990. The order indeed noted that the document was not
identified by Cosme Pido's heirs and was not registered with the Registry of Deeds of
Negros Occidental. According to respondent court, however, since the Declaration of
Heirship and Waiver of Rights appears to have been duly notarized, no further proof of
its due execution was necessary. Like the trial court, respondent court was also
convinced that the said document stands as prima facie proof of appellee's (private
respondent's) ownership of the land in dispute.

With respect to its non-registration, respondent court noted that petitioner had actual
knowledge of the subject sale of the land in dispute to private respondent because as
early as 1983, he (petitioner) already knew of private respondent's claim over the said

land but which he thereafter denied, and that in 1982, he (petitioner) actually paid rent
to private respondent. Otherwise stated, respondent court considered this fact of
rental payment in 1982 as estoppel on petitioner's part to thereafter refute private
respondent's claim of ownership over the said land. Under these circumstances,
respondent court ruled that indeed there was deliberate refusal by petitioner to pay
rent for a continued period of five years that merited forfeiture of his otherwise
preferred right to the issuance of a certificate of land transfer.

In the present petition, petitioner impugns the decision of the Court of Appeals as not in
accord with the law and evidence when it rules that private respondent acquired
ownership of Lot No. 1130 through the aforementioned Declaration of Heirship and
Waiver of Rights.

Hence, the issues to be resolved presently are the following:

1. WHETHER OR NOT THE SUBJECT DECLARATION OF HEIRSHIP
AND WAIVER OF RIGHTS IS A RECOGNIZED MODE OF ACQUIRING
OWNERSHIP BY PRIVATE RESPONDENT OVER THE LOT IN
QUESTION.

2. WHETHER OR NOT THE SAID DOCUMENT CAN BE CONSIDERED
A DEED OF SALE IN FAVOR OF PRIVATE RESPONDENT OF THE LOT
IN QUESTION.

Petitioner argues that the Regional Trial Court, in its order dated 7 August 1990,
explicitly excluded the document marked as Exhibit "D" (Declaration of Heirship, etc.) as
private respondent's evidence because it was not registered with the Registry of Deeds
and was not identified by anyone of the heirs of Cosme Pido. The Court of Appeals,
however, held the same to be admissible, it being a notarized document, hence, a prima
facie proof of private respondents' ownership of the lot to which it refers.

Petitioner points out that the Declaration of Heirship and Waiver of Rights is not one of
the recognized modes of acquiring ownership under Article 712 of the Civil Code.
Neither can the same be considered a deed of sale so as to transfer ownership of the
land to private respondent because no consideration is stated in the contract (assuming
it is a contract or deed of sale).

Private respondent defends the decision of respondent Court of Appeals as in accord
with the evidence and the law. He posits that while it may indeed be true that the trial
court excluded his Exhibit "D" which is the Declaration of Heirship and Waiver of Rights
as part of his evidence, the trial court declared him nonetheless owner of the subject

e. namely. the notice of adverse claim (Exhibit "E") duly registered by him with the Registry of Deeds. 8 Under Article 712 of the Civil Code. acquisitive prescription.lot based on other evidence adduced during the trial. technically speaking. 12 Private respondent. mode is the actual process of acquisition or transfer of ownership over a thing in question. They are not the same. is not per se sufficient to give rise to ownership over the res. In a Contract of Sale.. however justified. through occupation. an asserted right or claim to ownership or a real right over a thing arising from a juridical act. ownership and real rights are acquired only pursuant to a legal mode or process. In the case at bench. through succession mortis causa or tradition as a result of certain contracts. such as sale. 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. 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. barter. 9 Upon the other hand. and the other party to pay a price certain in money or its equivalent. the original mode (i. cannot conclusively claim ownership over the subject lot on the . While title is the juridical justification..e. the modes of acquiring ownership are generally classified into two (2) classes. 11 The second is. which contains the questioned Declaration of Heirship and Waiver of Rights as an integral part thereof. That right or title must be completed by fulfilling certain conditions imposed by law. donation. law or intellectual creation) and the derivative mode (i. in favor of other persons who are co-heirs in the succession. In the first place. namely. one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing. there is a marked difference between a sale of hereditary rights and a waiver of hereditary rights. It is in effect an extrajudicial settlement between the heirs under Rule 74 of the Rules of Court. Hence. assignment or mutuum). 10 Hence. equating the same with a contract (deed) of sale. being then a stranger to the succession of Cosme Pido. the trial court was obviously confused as to the nature and effect of the Declaration of Heirship and Waiver of Rights. We find the petition impressed with merit. The first presumes the existence of a contract or deed of sale between the parties.

Consequently. the validity of which is yet to be established in court at some future date. 14 or any other derivative mode of acquiring ownership. There is no showing that private respondent had the same document attached to or made part of the record. the right of petitioner as a registered tenant to the land cannot be perfunctorily forfeited on a mere allegation of private respondent's ownership without the corresponding proof thereof. he continued to be the registered tenant of Cosme Pido and his family (after Pido's death). Private respondent's 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 the same in private respondent's name. In his mind. and is no better than a notice of lis pendens which is a notice of a case already pending in court." 15 It is to be noted that while the existence of said adverse claim was duly proven. This conclusion has no basis both in fact and in law. 13 or a donation. .sole basis of the waiver document which neither recites the elements of either a sale. "A notice of adverse claim is nothing but a notice of a claim adverse to the registered owner. there is no evidence whatsoever that a deed of sale was executed between Cosme Pido's heirs and private respondent transferring the rights of Pido's heirs to the land in favor of private respondent. even if in 1982. What the trial court admitted was Annex "E". which is the "Declaration of Heirship and Waiver of Rights" was excluded by the trial court in its order dated 27 August 1990 because the document was neither registered with the Registry of Deeds nor identified by the heirs of Cosme Pido. does not however prove private respondent's ownership over the tenanted lot. private respondent allegedly informed petitioner that he had become the new owner of the land. On record. both the trial court and public respondent Court of Appeals concluded that a "sale" transpired between Cosme Pido's heirs and private respondent and that petitioner acquired actual knowledge of said sale when he was summoned by the Ministry of Agrarian Reform to discuss private respondent's claim over the lot in question. Petitioner had been a registered tenant in the subject land since 1960 and religiously paid lease rentals thereon. Exhibit "D". by its nature. while the transaction between Pido's heirs and private respondent may be binding on both parties. Quite surprisingly. A notice of adverse claim. a notice of adverse claim filed with the Registry of Deeds which contained the Declaration of Heirship with Waiver of rights and was annotated at the back of the Original Certificate of Title to the land in question.

respondents. SO ORDERED. petitioner. 1995 TOYOTA SHAW. file a notice of adverse claim on the said lot to establish ownership thereover. he (private respondent) sought to do indirectly what could not be done directly. 27 and to the possession of his farmholdings should not be applied against petitioners. COURT OF APPEALS and LUNA L.. 16 Consequently. vs. petitioner may have. The private respondent's complaint for recovery of possession and damages against petitioner Acap is hereby DISMISSED for failure to properly state a cause of action. i. The reason is that private respondent never registered the Declaration of Heirship with Waiver of Rights with the Registry of Deeds or with the MAR. SOSA. Negros Occidental dated 20 August 1991 is hereby SET ASIDE. in good faith. L-116650 May 23. WHEREFORE. his wife Laurenciana categorically denied all of private respondent's allegations. . No. premises considered. the Court hereby GRANTS the petition and the decision of the Court of Appeals dated 1 May 1994 which affirmed the decision of the RTC of Himamaylan.D. therefore. In fact. assumed such statement of private respondent to be true and may have in fact delivered 10 cavans of palay as annual rental for 1982 to private respondent.e.Under the circumstances. petitioner 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 private respondent. 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. It stands to reason. it is clear that petitioner had misgivings over private respondent's claim of ownership over the said land because in the October 1983 MAR conference. since private respondent has not established a cause of action for recovery of possession against petitioner. to hold that there was no unjustified or deliberate refusal by petitioner to pay the lease rentals or amortizations to the landowner/agricultural lessor which. Instead.R. But in 1983. G. in this case. the sanction of forfeiture of his preferred right to be issued a Certificate of Land Transfer under P. private respondent failed to establish in his favor by clear and convincing evidence. INC..

Sosa from the Province (Marinduque) where the unit will be used on the 19th of June. INC. The document reads as follows: AGREEMENTS BETWEEN MR.m. SOSA & POPONG BERNARDO OF TOYOTA SHAW. (POPONG BERNARDO) a week after. Sosa on June 15.000. 3.DAVIDE..00 will be paid by Mr. on the 17th of June at 10 a. 1. Inc. INC. INC. all necessary documents will be submitted to TOYOTA SHAW. will be pick-up [sic] and released by TOYOTA SHAW. the downpayment of P100. which was signed by a sales representative of Toyota Shaw. . the TOYOTA SHAW. 2.: At the heart of the present controversy is the document marked Exhibit "A" 1 for the private respondent. J. LITE ACE yellow. named Popong Bernardo. 1989. JR. INC. upon arrival of Mr.

There they met Popong Bernardo. The antecedents as disclosed in the decisions of both the trial court and the Court of Appeals. So on 14 June 1989. he was told that there was an available unit. ( S g d . ) P O P O N G B E R N A R D O . Gilbert. executed and signed by the petitioner's sales representative. a sales representative of Toyota. a perfected contract of sale.. The petitioner disagrees. Metro Manila. Sometime in June of 1989. breach of which would entitle the private respondent to damages and attorney's fees? The trial court and the Court of Appeals took the affirmative view. It was then a seller's market and Sosa had difficulty finding a dealer with an available unit for sale. (hereinafter Toyota) and respondent Luna L. Inc. Was this document. Hence. But upon contacting Toyota Shaw. went to the Toyota office at Shaw Boulevard. Sosa (hereinafter Sosa) are as follows. Pasig. Sosa wanted to purchase a Toyota Lite Ace. Sosa and his son. this petition for review on certiorari. . Luna L. Inc. as well as in the pleadings of petitioner Toyota Shaw. binding upon the petitioner.

2 on which Gilbert signed under the subheading CONFORME. Finance pertaining to the application for financing. .067. LUNA SOSA" with home address at No." It was also agreed upon by the parties that the balance of the purchase price would be paid by credit financing through B.A.00 accessories — P 29. his home province. 2316 Guijo Street. Sosa & Popong Bernardo of Toyota Shaw. Price prevailing and in effect at time of selling will apply.. where he would celebrate his birthday on the 19th of June. Stated Price is subject to change without prior notice. Rodrigo Quirante. Sosa and Gilbert went to Toyota to deliver the downpayment of P100.000. .000. on 17 June 1989. that payment is by "installment.137. Bernardo then signed the aforequoted "Agreements Between Mr. United Parañaque II. This sale is subject to availability of unit." 3 with the initial cash outlay of P100. and for this Gilbert.00 c) BLT registration fee — P 1.00 service fee — P 500.A.00 broken down as follows: a) downpayment — P 53. his family.00 CHMO fee — P 2. Inc. 15 June 1989. on behalf of his father.Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 because he. he would become a "laughing stock. signed the documents of Toyota and B.000. It also contains the following pertinent provisions: CONDITIONS OF SALES 1. and a balikbayan guest would use it on 18 June 1989 to go to Marinduque. that the model series of the vehicle is a "Lite Ace 1500" described as "4 Dr minibus".715.00. 2.m.970.A. This document shows that the customer's name is "MR. Finance. He added that if he does not arrive in his hometown with the new car." to be financed by "B." The spaces provided for "Delivery Terms" were not filled-up.00 b) insurance — P 13. checked and approved the VSP.00 and that the "BALANCE TO BE FINANCED" is "P274." Bernardo assured Sosa that a unit would be ready for pick up at 10:00 a. . . 928. the Sales Supervisor of Bernardo.148.00. The next day. They met Bernardo who then accomplished a printed Vehicle Sales Proposal (VSP) No.

neighbors and other provincemates." Toyota contends. 5 which Sosa signed with the reservation.m. humiliation. that the Lite Ace was not delivered to Sosa because of the disapproval by B.00. he demanded the refund.m. mental anguish and sleepless nights because: (i) he and his family were constrained to take the public transportation from Manila to Lucena City on their way to Marinduque. As a result of defendant's failure and/or refusal to deliver the vehicle to plaintiff. Finance of the credit financing application of Sosa. friends. At 2:00 p. at around 9:30 a. Sosa sent two letters to Toyota." Thereafter.000. Bernardo told them that the car could not be delivered because "nasulot ang unit ng ibang malakas. Toyota then gave Sosa the option to purchase the unit by paying the full purchase price in cash but Sosa refused.. "without prejudice to our future claims for damages. After it became clear that the Lite Ace would not be delivered to him. of the downpayment of P100. that same day. inter alia.A. again.000. dated 4 November 1989 and signed by M. that: 9. plaintiff suffered embarrassment. Bernardo informed them that the Lite Ace was being readied for delivery. In the first letter. demanded one million pesos representing interest and damages.00. After waiting for about an hour. Toyota did so on the very same day by issuing a Far East Bank check for the full amount of P100.On 17 June 1989.00 plus interest from the time he paid it and the payment of damages with a warning that in case of Toyota's failure to do so he would be constrained to take legal action. as previously agreed upon but at 2:00 p. within five days from receipt.. Caballes. Sosa's counsel. dated 27 June 1989 and signed by him. the latter filed on 20 November 1989 with Branch 38 of the Regional Trial Court (RTC) of Marinduque a complaint against Toyota for damages under Articles 19 and 21 of the Civil Code in the total amount of P1. Bernardo called Gilbert to inform him that the vehicle would not be ready for pick up at 10:00 a. But even before this answer was made and received by Sosa. Sosa and Gilbert met Bernardo at the latter's office.230. It further alleged that a particular unit had already been reserved and earmarked for Sosa but could not be released due to the uncertainty of payment of the balance of the purchase price.m. 9 He alleges. 7 Toyota's counsel answered through a letter dated 27 November 1989 8 refusing to accede to the demands of Sosa. Sosa asked that his downpayment be refunded. According to Sosa.m. (ii) his balikbayan-guest canceled his scheduled first visit to Marinduque in order to avoid the inconvenience of taking public transportation. ridicule. and (iii) his relatives. continuously irked him . however. with a warning that legal action would be taken if payment was not made within three days. 6 The second. O.000. 4 the receipt of which was shown by a check voucher of Toyota.

defendant should be made liable to the plaintiff for moral damages in the amount of One Million Pesos (P1. After trial on the issues agreed upon during the pre-trial session. Toyota alleged that no sale was entered into between it and Sosa." the "AGREEMENTS BETWEEN MR. that Bernardo had no authority to sign Exhibit "A" for and in its behalf. and that Bernardo signed Exhibit "A" in his personal capacity. viewed from the above findings. Inc. SOSA AND POPONG BERNARDO. and further agreed with Sosa that Toyota acted in bad faith in selling to another the unit already reserved for him. the venue was improperly laid. wounded feelings and sleepless nights for which he ought to be compensated." was a valid perfected contract of sale between Sosa and Toyota which bound Toyota to deliver the vehicle to Sosa. and execution of the sales agreement/invoice.000. "they do not volunteer any information as to the company's sales policy and guidelines because they are internal matters." the trial court held that the extent of Bernardo's authority "was not made known to plaintiff. the P100.00 was returned to and received by Sosa." for as testified to by Quirante. the vehicle could not and would not be released prior to full compliance with financing requirements. 11 the trial court rendered on 18 February 1992 a decision in favor of Sosa.00). the defendants had made known to the plaintiff the impression that Popong Bernardo is an authorized sales executive as it permitted the latter to do acts within the scope of an apparent authority holding him out to the public as possessing power to do these acts. judgment is hereby rendered in favor of the plaintiff and against the defendant: . and hence bound the defendants." 16 Accordingly. It also interposed compulsory counterclaims. As to Toyota's contention that Bernardo had no authority to bind it through Exhibit "A." Under the circumstances. Sosa had not completed the documents required by the financing company. it alleged that: the VSP did not state date of delivery. about "his Brand-New Toyota Lite Ace — that never was. it disposed as follows: WHEREFORE.000." 13 Moreover." 15 The court further declared that "Luna Sosa proved his social standing in the community and suffered besmirched reputation.000. As special and affirmative defenses. 12 It ruled that Exhibit "A. "[f]rom the beginning of the transaction up to its consummation when the downpayment was made by the plaintiff. and Sosa did not have a sufficient cause of action against it. 10 In its answer to the complaint. and as a matter of policy." 14 Bernardo then "was an agent of the defendant Toyota Shaw. submission of all documents.

A. and (d) whether or not Toyota may be held liable for damages.000.000. Toyota now comes before this Court via this petition and raises the core issue stated at the beginning of the ponencia and also the following related issues: (a) whether or not the standard VSP was the true and documented understanding of the parties which would have led to the ultimate contract of sale. We find merit in the petition. Dissatisfied with the trial court's judgment. Finance. ordering the defendant to pay to the plaintiff the sum of P75. 4.000. ordering the defendant to pay the plaintiff the sum of P2. and 5. The case was docketed as CA-G. 40043. Toyota appealed to the Court of Appeals. Neither logic nor recourse to one's imagination can lead to the conclusion that Exhibit "A" is a perfected contract of sale.00 attorney's fees plus P2.00 lawyer's transportation fare per trip in attending to the hearing of this case. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a .00 for exemplary damages.R.000.00 transportation fare per trip of the plaintiff in attending the hearing of this case. 1. 1458. In its decision promulgated on 29 July 1994. ordering the defendant to pay the cost of suit. (b) whether or not Sosa has any legal and demandable right to the delivery of the vehicle despite the non-payment of the consideration and the non-approval of his credit application by B. (c) whether or not Toyota acted in good faith when it did not release the vehicle to Sosa. ordering the defendant to pay the sum of P30. 3. CV No. 17 the Court of Appeals affirmed in toto the appealed decision.000. Article 1458 of the Civil Code defines a contract of sale as follows: Art.00 for moral damages. ordering the defendant to pay the plaintiff the sum of P10. SO ORDERED. 2.

Definiteness as to the price is an essential element of a binding agreement to sell personal property. viz. 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. Sosa did not even sign it. He knew that Bernardo was only a sales representative of Toyota and hence a mere agent of the latter. 19 Moreover.00 made no specific reference to a sale of a vehicle. The provision on the downpayment of P100. Exhibit "A" shows the absence of a meeting of minds between Toyota and Sosa. subject to the provisions of the law governing the form of contracts. It was incumbent upon Sosa to act with ordinary prudence and reasonable . and Article 1475 specifically provides when it is deemed perfected: Art. AGREEMENTS BETWEEN MR. What is clear from Exhibit "A" is not what the trial court and the Court of Appeals appear to see. For one thing. written in bold letters. the parties may reciprocally demand performance. determinate thing. It is not a contract of sale. and the other to pay therefor a price certain in money or its equivalent. SOSA & POPONG BERNARDO OF TOYOTA SHAW. 1475. For another. Sosa was well aware from its title. No obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative obligation on the part of the latter to pay therefor a price certain appears therein. as the VSP executed the following day confirmed. But nothing was mentioned about the full purchase price and the manner the installments were to be paid. This Court had already ruled that a definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of sale. it could only refer to a sale on installment basis.. 18 This is so because the agreement as to the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. INC.000. If it was intended for a contract of sale. that he was not dealing with Toyota but with Popong Bernardo and that the latter did not misrepresent that he had the authority to sell any Toyota vehicle. A contract of sale may be absolute or conditional.

Finance Corporation. of course.A. 1793. leases. conception. or other evidence of indebtedness. was acceptable to Toyota. Finance Corp. Finance in the VSP.148. A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent.00 while the balance to be paid on installment should be financed by B. which is the period of negotiation and bargaining. 5980. namely: (a) preparation.A. It must be emphasized that thereunder. which are primarily organized for the purpose of extending credit facilities to consumers and to industrial. as "corporations or partnerships. (b) perfection or birth of the contract.A. the downpayment of the purchase price was P53.D. as the creditor of the installment buyer. ending at the moment of agreement of the parties. chattel mortgages. as amended by P. either by discounting or factoring commercial papers or accounts receivables. 22 The second phase of the generation or negotiation stage in this case was the execution of the VSP.D. or by leasing of motor vehicles.A. business and office machines and equipment." 23 Accordingly. commercial. No. in a sale on installment basis which is financed by a financing company. or by buying and selling contracts. heavy equipment and industrial machinery. the Insurance Commission and the Cooperatives Administration Office. appliances and other movable property. except those regulated by the Central Bank of the Philippines. Finance did not approve Sosa's application. there was then no meeting of minds on the sale on installment basis. No. otherwise it should not have mentioned B.diligence to know the extent of Bernardo's authority as an agent 20 in respect of contracts to sell Toyota's vehicles. Exhibit "A" may be considered as part of the initial phase of the generation or negotiation stage of a contract of sale. There are three stages in the contract of sale. to be assumed that B. . the seller who assigns the notes or discounts them with a financing company. which is the fulfillment or performance of the terms agreed upon in the contract. three parties are thus involved: the buyer who executes a note or notes for the unpaid balance of the price of the thing purchased on installment. or agricultural enterprises. and (c) consummation or death. and the financing company which is subrogated in the place of the seller. which is the moment when the parties come to agree on the terms of the contract. 1454 and P. No.A. It is. 21 At the most. 24 Since B. Financing companies are defined in Section 3(a) of R. or generation.

At the bottom of this claim is nothing but misplaced pride and ego. Plaintiff and his son went to defendant's office on June 17 1989 at 2:00 p. 1989 but at 2:00 p. and sleepless nights when the van was not delivered. or compensatory damages. shame.m. in addition to moral. the only ground upon which Sosa claimed moral damages is that since it was known to his friends. Since Sosa is not entitled to moral damages and there being no award for temperate. 1989 at around 9:30 o'clock in the morning.00. "Pasensiya kayo. Besides. liquidated. he suffered humiliation. It is claimed that Bernardo said. temperate. in paragraph 7 of his complaint.m. of June 17. of that day instead. The van became the subject matter of talks during his celebration that he may not have paid for it. Popong Bernardo. Mr. refused and/or failed to release the vehicle to the plaintiff. liquidated. according to Bernardo. .m.A. exemplary or corrective damages are imposed by way of example or correction for the public good. called plaintiff's house and informed the plaintiff's son that the vehicle will not be ready for pick- up at 10:00 a. in order to pick-up the vehicle but the defendant for reasons known only to its representatives. he is likewise not entitled to exemplary damages. and its non-delivery did not cause any legally indemnifiable injury. (Emphasis supplied). Sosa solemnly states: On June 17. . It follows that the VSP created no demandable right in favor of Sosa for the delivery of the vehicle to him. nasulot ang unit ng ibang malakas. defendant's sales representative. or compensatory damages. He should not have announced his plan to buy a Toyota Lite Ace knowing that he might not be able to pay the full purchase price. townmates. . and this created an impression against his business standing and reputation. Finance disapproved Sosa's application for which reason it suggested to Sosa that he pay the full purchase price. However. When the latter refused. Sosa's version that the VSP was cancelled because. but nothing was given. 25 The VSP was a mere proposal which was aborted in lieu of subsequent events." while the Sosas had already been waiting for an hour for the delivery of the vehicle in the afternoon of 17 June 1989. and relatives that he was buying a Toyota Lite Ace which they expected to see on his birthday.000. The award then of moral and exemplary damages and attorney's fees and costs of suit is without legal basis. .We are inclined to believe Toyota's version that B. It was he who brought embarrassment upon himself by bragging about a thing which he did not own yet. Under Article 2229 of the Civil Code. Plaintiff demanded for an explanation. the vehicle was delivered to another who was "mas malakas" does not inspire belief and was obviously a delayed afterthought. Toyota cancelled the VSP and returned to him his P100.

it is feared.Also. BELLOSILLO. No pronouncement as to costs. FIRESTONE CERAMICS.R. The challenged decision of the Court of Appeals in CA-G. respondents. No.R. WHEREFORE. INC. 2001 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES.. COURT OF APPEALS and FIRESTONE CERAMICS.R. and not only in the dispositive portion thereof. more than that. society invests the judiciary with complete independence thereby insulating it from demands expressed through any medium. vs. the end result.: A litigation is not simply a contest of litigants before the bar of public opinion. the court must explicitly state in the body of the decision. 26 No such explicit determination thereon was made in the body of the decision of the trial court. petitioner. petitioner. 89-14 is DISMISSED. the press not excluded. The counterclaim therein is likewise DISMISSED. and worse. would be a travesty of justice. J. 143590 November 14. succumb to the great pressures of the day. G. it is settled that for attorney's fees to be granted. CV NO. . 143513 November 14. respondents. x---------------------------------------------------------x G. vs.. 40043 as well as that of Branch 38 of the Regional Trial Court of Marinduque in Civil Case No. No. Thus. it is a pursuit of justice through legal and equitable means. No reason thus exists for such an award. 2001 NATIONAL DEVELOPMENT CORPORATION. if the court would merely reflect. SO ORDERED. the instant petition is GRANTED. To prevent the search for justice from evolving into a competition for public approval. INC. 89-14 are REVERSED and SET ASIDE and the complaint in Civil Case No. the legal reason for the award of attorney's fees.

668. would expire on 2 December 1978. FIRESTONE agreed to ship the warehouse to Manila for eventual assembly within the NDC compound. decide to dispose and sell these properties including the lot..In the early sixties. in pursuance of the resolution. subject to several conditions among which was that in the event NDC "with the approval of higher authorities. expressly granting FIRESTONE the first option to purchase the leased premises in the event that it decided "to dispose and sell these properties including the lot . the parties entered into a new agreement for a ten-year lease of the property. Three and a half (3-1/2) years later. Sometime in May 1965 private respondent Firestone Ceramics Inc. FIRESTONE entered into a second contract of lease with NDC over the latter's four (4)-unit pre-fabricated reparation steel warehouse stored in Daliao."2 On 31 July 1974 the parties signed a similar contract concerning a six (6)-unit pre- fabricated steel warehouse which. 6 . The second contract. renewable for another ten (10) years under the same terms and conditions. C-26-68. 110301 and 145470. . Manila. had in its disposal a ten (10)-hectare property located along Pureza St. Consequently on 29 November 1978 the Board of Directors of NDC adopted Resolution No.3 Prior to the expiration of the aforementioned contract. " 5 The contracts of lease conspicuously contain an identically worded provision requiring FIRESTONE to construct buildings and other improvements within the leased premises worth several hundred thousands of pesos. C-30-65 covering a portion of the property measured at 2. FIRESTONE wrote NDC requesting for an extension of their lease agreement. priority should be given to the LESSEE"4 (underscoring supplied). renewable for another ten (10) years. as agreed upon by the parties. On 24 August 1965 NDC and FIRESTONE entered into a contract of lease denominated as Contract No. . (FIRESTONE) manifested its desire to lease a portion of the property for its ceramic manufacturing business. . 92885. On 22 December 1978. a government owned and controlled corporation created under CA 182 as amended by CA 311 and PD No. The estate was popularly known as the NDC compound and covered by Transfer Certificates of Title Nos. Davao. 11-78-117 extending the term of the lease.90118 hectares for use as a manufacturing plant for a term of ten (10) years.60 hectare-lot. or on 8 January 1969. FIRESTONE constructed on the leased premises several warehouses and other improvements needed for the fabrication of ceramic products. 1 In consequence of the agreement. denominated as Contract No. Mesa. petitioner National Development Corporation (NDC). was for similar use as a ceramic manufacturing plant and was agreed expressly to be "co-extensive with the lease of LESSEE with LESSOR on the 2. Sta.

The survey listed FIRESTONE as lessee of a portion of the property. The issuance was supposedly made in recognition of PUP's status as the "Poor Man's University" as well as its serious need to extend its campus in order to accommodate the growing student population. Forthwith. Jake C. 214 issued by then President Aquino ordering the transfer of the whole NDC compound to the National Government."12 Meanwhile. who promised immediate action on the matter.00010 square meters. cognizant of the impending expiration of their lease agreement with NDC. General Manager of NDC. FIRESTONE instituted an action for specific performance to compel NDC to sell the leased property in its favor. reviewing a proposed memorandum order submitted to then President Corazon C. FIRESTONE served notice on NDC conveying its desire to purchase the property in the exercise of its contractual right of first refusal.31-hectare property would automatically . 7 FIRESTONE's predicament worsened when rumors of NDC's supposed plans to dispose of the subject property in favor of petitioner Polytechnic University of the Philippines (PUP) came to its knowledge. FIRESTONE averred that it was pre-empting the impending sale of the NDC compound to petitioner PUP in violation of its leasehold rights over the 2. Director and Special Assistant to Executive Secretary Catalino Macaraeg. Lagonera. in favor of petitioner PUP. Henson dated 15 July 1988 addressed to Mr. While its letter of 17 March 1988 was answered by Antonio A.The parties' lessor-lessee relationship went smoothly until early 1988 when FIRESTONE. whose contract with NDC was set to expire on 31 December 198911 renewable for another ten (10) years at the option of the lessee. arguing that a "purchaser pendente lite of property which is subject of a litigation is entitled to intervene in the proceedings. The report expressly recognized FIRESTONE's right of first refusal to purchase the leased property "should the lessor decide to sell the same."13 PUP referred to Memorandum Order No. Aquino transferring the whole NDC compound. FIRESTONE adduced in evidence a letter of Antonio A. on 21 February 1989 PUP moved to intervene and asserted its interest in the subject property.60- hectare8 property and the warehouses thereon which would expire in 1999. Apprehensive that its interest in the property would be disregarded. the rest of its communications remained unacknowledged. which in turn would convey the aforementioned property in favor of PUP at acquisition cost. The order of conveyance of the 10. 9 In support of its complaint. placed at 29. including the leased property. Attached to the letter was a draft of the proposed memorandum order as well as a summary of existing leases on the subject property. informed the latter through several letters and telephone calls that it was renewing its lease over the property. Henson. FIRESTONE likewise prayed for the issuance of a writ of preliminary injunction to enjoin NDC from disposing of the property pending the settlement of the controversy.

and that further. as admitted by FIRESTONE. On certiorari.00 a month while demanding that it vacated the premises immediately." 16 It thus decreed that FIRESTONE could exercise its option to purchase the property until .423. The trial court ruled that the contracts of lease executed between FIRESTONE and NDC were interrelated and inseparable because "each of them forms part of the integral system of plaintiff's brick manufacturing plant x x x if one of the leased premises will be taken apart or otherwise detached from the two others.result in the cancellation of NDC's total obligation in favor of the National Government in the amount of P57. in its answer to the amended complaint." PUP disregarded and violated its existing lease by increasing the rental rate at P200. the trial court granted PUP's motion to intervene.500.00 per square meter considering that.201. as party-defendants.00. FIRESTONE amended its complaint to include PUP and Executive Secretary Catalino Macaraeg. the purpose of the lease as well as plaintiff's business operations would be rendered useless and inoperative.193. argued in essence that the lease contract covering the property had expired long before the institution of the complaint. judgment was rendered declaring the contracts of lease executed between FIRESTONE and NDC covering the 2.14 FIRESTONE prayed that in the event Memorandum Order No.60-hectare property and the warehouses constructed thereon valid and existing until 2 June 1999. FIRESTONE came to us on review but in a Resolution dated 11 July 1990 we upheld PUP's inclusion as party-defendant in the present controversy. the Court of Appeals affirmed the order of the trial court..000. such was the prevailing market price thereof. Jr. the property should be sold in its favor at the price for which it was sold to PUP . and sought the annulment of Memorandum Order No. After trial on the merits. 214 was issued "subject to such liens/leases existing [on the subject property]. 214. 214 was not declared unconstitutional. FIRESTONE moved for reconsideration but was denied. Following the denial of its petition. the right of first refusal invoked by FIRESTONE applied solely to the six-unit pre-fabricated warehouse and not the lot upon which it stood.P554. Convinced that PUP was a necessary party to the controversy that ought to be joined as party defendant in order to avoid multiplicity of suits.240.6 hectare leased premises or as may be determined by actual verification and survey of the actual size of the leased properties where plaintiff's fire brick factory is located" at P1.74 per square meter or for a total purchase price of P14. FIRESTONE alleged that although Memorandum Order No.64. PUP was ordered and directed to sell to FIRESTONE the "2.15 Petitioner PUP.

perhaps realizing the groundlessness and the futility of it all.00 per square meter. There is nothing therein that allows NDC to disavow or repudiate the solemn engagement that it freely and voluntarily undertook. PUP also advanced the theory that the enactment of Memorandum Order No. 20 Subsequently. The Court of Appeals held: "NDC cannot look to Memorandum Order No. but deplored as prejudicial thereto the "very manner with which defendants NDC and PUP interpreted and applied the same.000. vigorously contended that the contracts of lease .500.2 June 1999 inasmuch as the 22 December 1978 contract embodied a covenant to renew the lease for another ten (10) years at the option of the lessee as well as an agreement giving the lessee the right of first refusal."17 It further explained that the questioned memorandum was issued "subject to such liens/leases existing thereon"18 and petitioner PUP was under express instructions "to enter. NDC. or agreed to undertake. The Court of Appeals observed that as there was a sale of the subject property. It argued that the "court cannot substitute or decree its mind or consent for that of the parties in determining whether or not a contract (has been) perfected between PUP and NDC. 214 to excuse or shield it from its contractual obligations to FIRESTONE. occupy and take possession of the transferred property subject to such leases or liens and encumbrances that may be existing thereon"19 (italics supplied). or on 3 September 1996. NDC could not excuse itself from its obligation TO OFFER THE PROPERTY FOR SALE FIRST TO FIRESTONE BEFORE IT COULD TO OTHER PARTIES. Accordingly."21 PUP moved for reconsideration asserting that in ordering the sale of the property in favor of FIRESTONE the courts a quo unfairly created a contract to sell between the parties. The trial court also sustained the constitutionality of Memorandum Order No. NDC and the Executive Secretary separately filed their Notice of Appeal. for its part. ignoring in the process that plaintiff has existing contracts of lease protectable by express provisions in the Memorandum No.00). Mesa can readily command a sum of P10. 214 amounted to a withdrawal of the option to purchase the property granted to FIRESTONE. FIRESTONE was given a grace period of six (6) months from finality of the court's judgment within which to purchase the property in questioned in the exercise of its right of first refusal." the lower court gravely erred in ordering the sale of the property at only P1.00 per square (meter)."22 PUP further contended that since "a real property located in Sta.000. Petitioners PUP. the Executive Secretary withdrew his appeal. but a few days thereafter. the Court of Appeals affirmed the decision of the trial court ordering the sale of the property in favor of FIRESTONE but deleted the award of attorney's fees in the amount of Three Hundred Thousand Pesos (P300. 214 which was not per se hostile to FIRESTONE's property rights. 214 itself.

23 On 28 June 2000 PUP filed an urgent motion for an additional period of fifteen (15) days from 29 June 2000 or until 14 July 2000 within which to file a Petition for Review on Certiorari of the Decision of the Court of Appeals. FIRESTONE was no longer entitled to any preferential right in the sale or disposition of the leased property. PUP moved for reconsideration imploring a resolution or decision on the merits of its petition. "public welfare or specifically the constitutional priority accorded to education" would greatly be prejudiced. On the last day of the extended period PUP filed its Petition for Review on Certiorari assailing the Decision of the Court of Appeals of 6 December 1999 as well as the Resolution of 6 June 2000 denying reconsideration thereof. We do not see it the way PUP and NDC did. Education may be prioritized for legislative or budgetary purposes. to destroy the sanctity of binding obligations.000. 24 Paradoxically. or any party for that matter. Strangely. (b) whether FIRESTONE can rightfully invoke its right of first refusal. It is elementary that a party to a contract cannot unilaterally withdraw a right of first refusal that stands upon valuable consideration. That principle was clearly upheld by the Court of Appeals when it denied on 6 June 2000 the twin motions for reconsideration filed by PUP and NDC on the ground that the appellants failed to advance new arguments substantial enough to warrant a reversal of the Decision sought to be reconsidered. about the same time. PUP raised two issues: (a) whether the courts a quo erred when they "conjectured" that the transfer of the leased property from NDC to PUP amounted to a sale. as well as written explanation for not filing and serving the pleading personally. On 17 July 2000 we denied PUP's motion for extension of fifteen (15) days within which to appeal inasmuch as the aforesaid pleading lacked an affidavit of service of copies thereof on the Court of Appeals and the adverse party. Petitioner posited that if we were to place our imprimatur on the decisions of the courts a quo.000. consequently.00. and.26 Counsel for . The daily papers reported that we unreasonably dismissed PUP's petition on technical grounds.executed between the parties had expired without being renewed by FIRESTONE. but we doubt if such importance can be used to confiscate private property such as FIRESTONE's right of first refusal. on 26 July 2000 we issued a Resolution dismissing PUP's Petition for Review for having been filed out of time. our paramount interest in education does not license us. affirming in the process the decision of the trial court to sell the disputed property to the prejudice of the government in the amount of P1. several articles came out in the newspapers assailing the denial of the petition. 25 Accordingly.000.

is a contract where one of the parties obligates himself to transfer the ownership of and to deliver a determinate thing to the other or others who shall pay therefore a sum certain in money or its equivalent. From any angle. FIRESTONE's leased premises would therefore be worth only P14. Aside from the fact that the intention of NDC and PUP to enter into a contract of sale was clearly expressed in the Memorandum Order No.000.193.00." it concluded that it was error for the lower courts to have decreed the existence of a sale of the NDC compound thus allowing FIRESTONE to exercise its right of first refusal. thereby paving the way for a reinstatement of its Petition for Review. NDC separately filed its own Petition for Review and advanced arguments which."29 Petitioner NDC introduced the novel proposition that if the parties involved are both government entities the transaction cannot be legally called a sale.30 We believe that the courts a quo did not hypothesize. as defined in the Civil Code.000.64 which represents NDC's obligation to the national government that was.31 a close perusal of the circumstances of this case strengthens the theory that the conveyance of the property from NDC to PUP was one of absolute sale. A contract of sale. alleged that the trial court and the Court of Appeals "have decided a question of substance in a way definitely not in accord with law or jurisprudence. in exchange. and not a mere paper transfer as argued by petitioners.28 In its appeal.000.240.201. if not fantastic.00 as reported in the papers was way too exaggerated. much less conjure.petitioner PUP. centered on whether or not the transaction between petitioners NDC and PUP amounted to a sale considering that "ownership of the property remained with the government. written off. In due course both petitions were consolidated. let it be noted that the amount of P1. if any it still had in the leased premises. On the other hand.000. for a valuable consideration. The price offered per square meter of the property was pegged at P554.423. 214. PUP took to task the courts a quo for supposedly "substituting or decreeing its mind or consent for that of the parties (referring to NDC and PUP) in determining whether or not a contract of sale was perfected. the sale of the disputed property by NDC in favor of petitioner PUP. We stress that NDC itself sold the whole 10.00.000." 27 At the outset.000.74. On 4 October 2000 we granted PUP's Motion for Reconsideration to give it a chance to ventilate its right.31-hectare property to PUP at only P57. in fine.32 It is . this amount is certainly far below the ballyhooed price of P1." PUP also argued that inasmuch as "it is the parties alone whose minds must meet in reference to the subject matter and cause.

i.34 The intervention in the transaction of the Office of the President through the Executive Secretary did not change the independent existence of these entities. without the knowledge much less consent of private respondent FIRESTONE which had a valid and existing right of first refusal. Since the conduct of the parties to a contract may be sufficient to establish the existence of an agreement and the terms thereof. The involvement of the Office of the President was limited to brokering the consequent relationship between NDC and PUP.and consideration therefor. True that there may be instances when a particular deed does not disclose the real intentions of the parties. a "catch-all" provision which effectively brings within its grasp a whole gamut of transfers whereby ownership of a thing is ceded for a consideration. a government owned and controlled corporation has a personality of its own. Contrary to what petitioners PUP and NDC propose. including the leased premises. after a review of the records. The Civil Code provision is. Beyond cavil. particularly the priority to purchase the leased premises in favor of FIRESTONE. Consent to the sale is obvious from the prefatory clauses of Memorandum Order No.therefore a general requisite for the existence of a valid and enforceable contract of sale that it be mutually obligatory.consent of the parties. All three (3) essential elements of a valid sale. were attendant in the "disposition" and "transfer" of the property from NDC to PUP . Petitioners NDC and PUP have their respective charters and therefore each possesses a separate and distinct individual personality. but their action may nevertheless indicate that a binding obligation has been undertaken.e. Tersely put. The preponderance of evidence shows that NDC sold to PUP the whole NDC compound. there is not just one party involved in the questioned transaction. determinate subject matter.33 The inherent weakness of NDC's proposition that there was no sale as it was only the government which was involved in the transaction thus reveals itself. it is not necessary to write an extended dissertation on government owned and controlled corporations and their legal personalities. without which there can be no sale. that the transaction was subject to existing liens and encumbrances. there should be a concurrence of the promise of the vendor to sell a determinate thing and the promise of the vendee to receive and pay for the property so delivered and transferred. But the withdrawal of the appeal by the Executive Secretary is considered significant as he knew.. 214 which explicitly states the acquiescence of the parties to the sale of the property - . in effect. distinct and separate from that of the government. it becomes necessary for the courts to examine the contemporaneous behavior of the parties in establishing the existence of their contract.

therefore. the cancellation of NDC's liabilities in favor of the National Government in the amount of P57. the inescapable fact remains that all the requisites of a valid sale were attendant in the transaction between co- defendants-appellants NDC and PUP concerning the realities subject of the present suit. or any extension thereof. WHEREAS. Inc. RJL Martinez Fishing Corp. Schmid & Oberly. or promised to be paid. we now proceed to determine whether FIRESTONE should be allowed to exercise its right of first refusal over the property.. Such right was expressly stated by NDC and FIRESTONE in par. the conduct of petitioner PUP immediately after the transaction is in itself an admission that there was a sale of the NDC compound in its favor. v.35 Furthermore.. as found by the courts a quo. In light of the foregoing disquisition.37 In its Motion for Intervention petitioner PUP also admitted that its interest as a "purchaser pendente lite" would be better protected if it was joined as party-defendant in the controversy thereby confessing that it indeed purchased the property.201. For it is axiomatic that every sale imposes upon the vendor the obligation to transfer ownership as an essential element of the contract.64 constituted the "consideration" for the sale. is too strained and hairsplitting. As correctly observed by the Court of Appeals- The defendants-appellants' interpretation that there was a mere transfer. Lingad. is the very essence of sale (Kerr & Co. 166 SCRA 493). 214 petitioner PUP asserted its ownership over the property by posting notices within the compound advising residents and occupants to vacate the premises. which shall have the right of first option to purchase the leased premises subject to mutual agreement of both parties. and not a sale. v.38 . PUP has expressed its willingness to acquire said NDC properties and NDC has expressed its willingness to sell the properties to PUP (underscoring supplied). At whatever legal angle we view it. 38 SCRA 524. after the issuance of Memorandum Order No. Thus - Should the LESSOR desire to sell the leased premises during the term of this Agreement.193. the LESSOR shall first give to the LESSEE. XV of their third contract denominated as A-10-78 executed on 22 December 1978 which. Thus. Transfer of title or an agreement to transfer title for a price paid.36 What is more. was interrelated to and inseparable from their first contract denominated as C-30-65 executed on 24 August 1965 and their second contract denominated as C-26- 68 executed on 8 January 1969. apart from being specious sophistry and a mere play of words.

while on the other hand it admitted that the value of the property stood at P1. then we see no compelling reason to modify the holdings of the courts a quo that the leased premises be sold at that price. It is a settled principle in civil law that when a lease contract contains a right of first refusal. inasmuch as the stipulation is part and parcel of the contract of lease making the consideration for the lease the same as that for the option. However. Our attention is invited by petitioners to Ang Yu Asuncion v.74 per square meter. it was then implicit for NDC to have first offered the leased premises of 2. Only if FIRESTONE failed to exercise its right of first priority could NDC lawfully sell the property to petitioner PUP.39 The lessee has a right that the lessor's first offer shall be in his favor. if still subsisting. the right of first refusal is an integral and indivisible part of the contract of lease and is inseparable from the whole contract. it would have been more proper for the courts below to have ordered the sale of the property also at the same price. again. the basis of the right of first refusal must be the current offer of the seller to sell or the offer to purchase of the prospective buyer. It now becomes apropos to ask whether the courts a quo were correct in fixing the proper consideration of the sale at P1. Consistent with their agreement." the option being merely a preparatory contract which cannot be enforced. The consideration for the right is built into the reciprocal obligations of the parties.60 hectares to FIRESTONE prior to the sale in favor of PUP. in view of the total amount of its investments in the property.500. .In the instant case. the lessor is under a legal duty to the lessee not to sell to anybody at any price until after he has made an offer to sell to the latter at a certain price and the lessee has failed to accept it. CA41 in concluding that if our holding in Ang Yu would be applied to the facts of this case then FIRESTONE's "option.00 per square meter. The option in this case was incorporated in the contracts of lease by NDC for the benefit of FIRESTONE which. Thus. since FIRESTONE never raised this as an issue. In contracts of sale. it is not correct for petitioners to insist that there was no consideration paid by FIRESTONE to entitle it to the exercise of the right. under the same terms as offered to the grantee.00 per square meter. wanted to be assured that it would be given the first opportunity to buy the property at a price for which it would be offered. is not enforceable.40 It appearing that the whole NDC compound was sold to PUP for P554. Only after the lessee-grantee fails to exercise its right under the same terms and within the period contemplated can the owner validly offer to sell the property to a third person.500.

R. INC.42 where after much deliberation we declared. INC. No. and petitioner Polytechnic University of the Philippines is ordered to reconvey the property to FIRESTONE CERAMICS. let a ground survey of the leased premises be immediately conducted by a duly licensed.. Inc. and so we hold. PHILIPPINE NATIONAL BANK. Thus. intervenor. SO ORDERED. registered surveyor at the expense of private respondent FIRESTONE CERAMICS. that a right of first refusal is neither "amorphous nor merely preparatory" and can be enforced and executed according to its terms. INC. respondent. One final word. WHEREFORE. INC. No.90118 hectares while the second contract placed it at 2. we held that "(a right of first priority) should be enforced according to the law on contracts instead of the panoramic and indefinite rule on human relations.R. private respondent FIRESTONE CERAMICS. as grantee of the right. petitioner. No.R. 143513 and G. At the heels of Ang Yu came Equatorial Realty Development. Inc. Inasmuch as the first contract of lease fixed the area of the leased premises at 2.. Such advocacy is not likely to elicit the compassion of this Court or of any court for that matter.. shall have six (6) months from receipt of the approved survey within which to exercise its right to purchase the leased property at P1. 143590 are DENIED.500.The contention has no merit.. G. TOLENTINO... in Equatorial we ordered the rescission of the sale which was made in violation of the lessee's right of first refusal and further ordered the sale of the leased property in favor of Mayfair Theater. the petitions in G. in the exercise of its right of first refusal upon payment of the purchase price thereof. Mayfair Theater. within two (2) months from finality of the judgment in this case.00 per square meter. Thereafter. An entreaty for a favorable disposition of a case not made directly through pleadings and oral arguments before the courts do not persuade us. 166862 December 20. intervenor. 2006 MANILA METAL CONTAINER CORPORATION. for as judges." We then concluded that the execution of the right of first refusal consists in directing the grantor to comply with his obligation according to the terms at which he should have offered the property in favor of the grantee and at that price when the offer should have been made. Petitioner PUP should be cautioned against bidding for public sympathy by bewailing the dismissal of its petition before the press.60 hectares. v. vs. we are ruled only by our forsworn duty to give justice where justice is due. DMCI-PROJECT DEVELOPERS. REYNALDO C. Emphatically. .

The Antecedents Petitioner was the owner of a 8.R. the property was sold at public auction on September 28. 1982 where respondent PNB was declared the winning bidder for P1.21. After due notice and publication. on November 16. On March 31.00. respondent PNB filed a petition for extrajudicial foreclosure of the real estate mortgage and sought to have the property sold at public auction for P911. Respondent PNB later granted petitioner a new credit accommodation of P1.650. the period to redeem the property was to expire on February 17. 332098 of the Registry of Deeds of Rizal. petitioner executed a real estate mortgage over the lot.6 plus interests and attorney's fees. 1983 to respondent PNB.000.000. and was annotated at the dorsal portion of the title on February 17. J. 1982. Pasig City. payable in quarterly installments of P32. 1984. 1981.000. and. The property was covered by Transfer Certificate of Title (TCT) No. No. 1982. 58551. petitioner's outstanding obligation to respondent PNB as of June 30. in Civil Case No. To secure a P900. petitioner secured another loan of P653.00. 8 In its reply dated .00. The Certificate of Sale7 issued in its favor was registered with the Office of the Register of Deeds of Rizal.. Thus. 5 On August 5. plus interests and other charges. 1973. 1983.: Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-G. Petitioner sent a letter dated August 25. and its Resolution 3 denying the motion for reconsideration filed by petitioner Manila Metal Container Corporation (MMCC).000.000.015 square meter parcel of land located in Mandaluyong (now a City).00 from respondent PNB.00 loan it had obtained from respondent Philippine National Bank (PNB).532. Branch 71. Metro Manila.000. DECISION CALLEJO. requesting that it be granted an extension of time to redeem/repurchase the property. petitioner executed an Amendment4 of Real Estate Mortgage over its property. 46153 which affirmed the decision2 of the Regional Trial Court (RTC). SR.

1984 within which to redeem/repurchase the property on installment basis.000.000. 18 . 14 When apprised of the statement of account. respondent PNB informed petitioner that the request had been referred to its Pasay City Branch for appropriate action and recommendation. the bank does not accept "partial redemption. 1984. 32098 on June 1. 13 Petitioner's offers had not yet been acted upon by respondent PNB. some PNB Pasay City Branch personnel informed petitioner that as a matter of policy. Respondent PNB gave petitioner until December 15. it wrote another letter dated December 12.47. and as of June 25. PNB again informed petitioner that it would return the deposit should petitioner desire to withdraw its offer to purchase the property. miscellaneous expenses and publication cost. 1984.47.660. 1985. advances on realty taxes.000. petitioner reiterated its request for a one year extension from February 17.00 to respondent PNB as "deposit to repurchase. In a letter dated November 14. Meanwhile.00.560. however.560. through counsel.00.17 On February 25.50. advances of insurance premiums. wherein it reiterated its proposal that petitioner purchase the property for P2. its P725. registration expenses. and issued a new title in favor of respondent PNB.00. interest.660. 1984 to act on the proposal. otherwise. did not agree to respondent PNB's proposal. Petitioner warned respondent PNB that it would seek judicial recourse should PNB insist on the position.924. It was suggested that petitioner purchase the property for P2. Petitioner declared that it had already agreed to the SAMD's offer to purchase the property for P1.560. 1984. requested that PNB reconsider its letter dated December 28. its minimum market value. petitioner.574. This included the bid price of P1. and that was why it had paid P725. the PNB management informed petitioner that it was rejecting the offer and the recommendation of the SAMD.056.000. 9 In a letter10 dated February 10. 1984.August 30. petitioner remitted P725. 1984 petitioner's obligation amounted to P1.16 Petitioner. Respondent PNB replied in a letter dated December 28.000." 12 Since petitioner failed to redeem the property." and Official Receipt No.574. 1984 requesting for a reconsideration. It reiterated its request to repurchase the property on installment. 978191 was issued to it. the SAMD recommended to the management of respondent PNB that petitioner be allowed to repurchase the property for P1.11 Meanwhile. 1984.00 deposit would be returned and the property would be sold to other interested buyers.00. 1983. Instead. 15 In the meantime.574. the Special Assets Management Department (SAMD) had prepared a statement of account. the Register of Deeds cancelled TCT No.

22 On August 28. however. the approval of the higher management of the Bank to confirm the agreement of its SMAD is clearly a potestative condition which cannot legally prejudice Manila Metal which has acted and relied on the approval of SMAD. where he was to affix his signature.00 already deposited with it. 35. so PNB requested petitioner in a letter dated June 30.000. 1989. PNB approved the repurchase price of P1. 1988 to submit an amended offer to repurchase.452. 1985. plaintiff is constrained to engage the services of counsel at an agreed fee of P50.00 downpayment had been accepted.47.574.574. That in order to protect itself against the wrongful and malicious acts of the defendant Bank. Petitioner rejected respondent's proposal in a letter dated July 14.574. 19 On page two of the letter was a space above the typewritten name of petitioner's President. but for P1. 1984. PNB cannot take advantage of its own delay and long inaction in demanding a higher amount based on unilateral computation of interest rate without the consent of Manila Metal. 1989. respondent PNB informed petitioner that the PNB Board of Directors had accepted petitioner's offer to purchase the property.389. and that since its P725.931.47 for which it accepted P725.On June 4. Delivery of Title.00 for the redemption/repurchase price of P1. respondent PNB was proscribed from increasing the purchase price of the property. Petitioner later filed an amended complaint and supported its claim for damages with the following arguments: 36.00 and to incur litigation expenses of at . or Specific Performance with Damages. As early as June 25. it alleged the following: 34.560. 21 Petitioner averred that it had a net balance payable in the amount of P643. 20 Petitioner did not respond. Respondent PNB.560. Pablo Gabriel.000.53 in cash less the P725.00 from Manila Metal. PNB had accepted the down payment from Manila Metal in the substantial amount of P725.34.000.452. rejected petitioner's offer to pay the balance of P643. 1988.000. petitioner filed a complaint against respondent PNB for "Annulment of Mortgage and Mortgage Foreclosure.560.47 as approved by its SMAD and considering the reliance made by Manila Metal and the long time that has elapsed. It maintained that respondent PNB had agreed to sell the property for P1. The Bank cannot take advantage of a condition which is entirely dependent upon its own will after accepting and benefiting from the substantial payment made by Manila Metal.34 in a letter dated August 1. However.000. Pablo Gabriel did not conform to the letter but merely indicated therein that he had received it." To support its cause of action for specific performance.

plaintiff Manila Metal suffered besmirched reputation for which defendant PNB is liable for moral damages of at least P50. least P30.23 Petitioner prayed that. to reinstate TCT No. and attorney's fees of P50.000.000. which the defendant PNB should be condemned to pay the plaintiff Manila Metal. respondent PNB averred. b) Declaring defendant's acts of extra-judicially foreclosing the mortgage over plaintiff's property and setting it for auction sale null and void. 37025 in the name of Manila Metal and to cancel the annotation of the mortgage in question at the back of the TCT No. 37025 described in paragraph 4 of this Complaint. as a special and affirmative defense. exemplary damages should be awarded in favor of the plaintiff by way of example or correction for the public good of at least P30.00 as may be proved during the trial. after due proceedings. c) Ordering the defendant Register of Deeds to cancel the new title issued in the name of PNB (TCT NO. d) Ordering the defendant PNB to return and/or deliver physical possession of the TCT No. Plaintiff likewise prays for such further reliefs which may be deemed just and equitable in the premises. 37025described in paragraph 4 of this Complaint to the plaintiff Manila Metal.24 In its Answer to the complaint.00 and litigation expenses of at least P30. That for the wrongful and malicious act of defendant PNB which are highly reprehensible. 43792) covering the property described in paragraph 4 of the Complaint. e) Ordering the defendant PNB to pay the plaintiff Manila Metal's actual damages.00.000. that it had acquired ownership over the property after the period to redeem .00.000. and costs of suit. thus: a) Declaring the Amended Real Estate Mortgage (Annex "A") null and void and without any legal force and effect.000. moral and exemplary damages in the aggregate amount of not less than P80. judgment be rendered in its favor. 38. 37.00. That by reason of the wrongful and malicious actuations of defendant PNB.000.00 as may be warranted by the evidence and fixed by this Honorable Court in the exercise of its sound discretion.

1985. 2. 3. 1994. 32 The trial court ruled that there was no perfected contract of sale between the parties. Whether or not there is a perfected contract of sale between the parties. 1985 letter of the SAMD. that petitioner vacate the property within 15 days from notice. the amount of P643.000. based on their stipulation of facts.00 in cash. It claimed that no contract of sale was perfected between it and petitioner after the period to redeem the property had expired. hence.250. petitioner made the following allegations: . 29 On June 21.000.30The offer was again rejected by respondent PNB on September 13.000. the parties agreed to submit the case for decision. 1985 letter of the defendant approving/accepting plaintiff's offer to purchase the property is still valid and legally enforceable. Whether or not the plaintiff has waived its right to purchase the property when it failed to conform with the conditions set forth by the defendant in its letter dated June 4. petitioner offered to purchase the property for P4. the trial court rendered judgment dismissing the amended complaint and respondent PNB's counterclaim. On March 18. petitioner had no cause of action for specific performance against respondent. rejected the terms and conditions contained in the June 4.had elapsed.00. On appeal to the CA. the prevailing market value of the property was approximately P30. respondent PNB demanded. It further declared that the P725. in turn.00 remitted by petitioner to respondent PNB on June 4.000. it could not sell the property for less than its market value.31 On May 31. It ordered respondent PNB to refund the P725.500.28 The offer was however rejected by respondent PNB. According to it. on September 20. 1993.206. 27 but petitioners refused to do so.00. Whether or not the June 4. petitioner offered to repurchase the property for P3. Petitioner.25 The parties agreed to limit the issues to the following: 1. in a letter dated April 13. 26 While the case was pending.53 which respondent PNB had demanded. 1985 was a "deposit. The trial court declared that respondent had rejected petitioner's offer to repurchase the property. While petitioner had offered to repurchase the property per its letter of July 14.34 was way below the P1. 1989. and as a matter of policy.000.00 deposit petitioner had made. 1993." and not a downpayment or earnest money. 1988. During pre-trial.422. 1993.389.000. 1993.

VII . VI THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF FAILED AND REFUSED TO SUBMIT THE AMENDED REPURCHASE OFFER. IV THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT IT WAS THE DEFENDANT-APPELLEE WHICH RENDERED IT DIFFICULT IF NOT IMPOSSIBLE FOR PLAINTIFF-APPELLANT TO COMPLETE THE BALANCE OF THEIR PURCHASE PRICE. III THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLLANT WAIVED ITS RIGHT TO PURCHASE THE SUBJECT PROPERTY WHEN IT FAILED TO CONFORM WITH CONDITIONS SET FORTH BY DEFENDANT- APPELLEE IN ITS LETTER DATED 4 JUNE 1985. II THE LOWER COURT ERRED IN RULING THAT THERE WAS NO PERFECTED CONTRACT OF SALE BETWEEN PLAINTIFF-APPELLANT AND DEFENDANT- APPELLEE. I THE LOWER COURT ERRED IN RULING THAT DEFENDANT-APPELLEE'S LETTER DATED 4 JUNE 1985 APPROVING/ACCEPTING PLAINTIFF- APPELLANT'S OFFER TO PURCHASE THE SUBJECT PROPERTY IS NOT VALID AND ENFORCEABLE. V THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT THERE WAS NO VALID RESCISSION OR CANCELLATION OF SUBJECT CONTRACT OF REPURCHASE.

Respondent PNB merely asked petitioner to submit an amended offer to repurchase. 1985 letter of respondent PNB. there was no meeting of the minds between the parties as to the price or consideration of the sale. MORAL AND EXEMPLARY DAMAGES.574. and his motion to withdraw as intervenor.34 Thereafter. 1993. 33099 and TCT No. The CA ratiocinated that petitioner's original offer to purchase the subject property had not been accepted by respondent PNB. VIII THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-APPELLANT ACTUAL. where it waived. petitioner's Board of Directors approved Resolution No. In fact. who later moved for leave to intervene as plaintiff-appellant. Clearly therefore.35 and likewise granted the motion of Reynaldo Tolentino substituting petitioner MMCC. On July 14. 1989. there was no perfected contract of sale.33 Meanwhile. and as such. 3- 004.931. the CA issued a resolution granting the motion. it made a counter-offer through its June 4. and the negotiations did not prosper. 1985 letter specifically on the selling price. . 2000 affirming the decision of the RTC.36 The CA rendered judgment on May 11. While petitioner reiterated its request for a lower selling price and that the balance of the repurchase be reduced.560.389. Respondent PNB's letter dated June 30.47. According to the appellate court. respondent rejected the proposal in a letter dated August 1. petitioner did not pay the balance of the purchase price within the sixty-day period set in the June 4. one of its Directors. Consequently. assigned and transferred its rights over the property covered by TCT No. 37 It declared that petitioner obviously never agreed to the selling price proposed by respondent PNB (P1. 1988 cannot revive the failed negotiations between the parties.53) since petitioner had kept on insisting that the selling price should be lowered to P1. Bayani Gabriel executed a Deed of Assignment over 51% of the ownership and management of the property in favor of Reynaldo Tolentino. there was no contract to rescind. on June 17. however. 1993. as plaintiff-appellant. the claim for damages and the counterclaim were correctly dismissed by the court a quo for no evidence was presented to support it. Moreover. petitioner did not agree to the counter-offer. 37025 in favor of Bayani Gabriel. THE LOWER COURT ERRED IN DISMISSING THE AMENDED COMPLAINT OF PLAINTIFF-APPELLANT. ATTOTRNEY'S FEES AND LITIGATION EXPENSES.

It claims that this was the suspensive condition. alleging that: I.000. 1985. IV.560. OFFERING TO BUY THE SUBJECT PROPERTY AT DIFFERENT AMOUNT WERE PROOF THAT THERE IS NO PERFECTED CONTRACT OF SALE. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THERE IS NO PERFECTED CONTRACT OF SALE BETWEEN THE PETITIONER AND RESPONDENT. to sell the property for P1. When the acceptance was made in its letter dated June 25. Thus. which the CA likewise denied. as gleaned from the letter of SAMD dated June 4.574. Moreover. 1993. WITHIN SIXTY (60) DAYS FROM NOTICE OF APPROVAL CONSTITUTES NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE FAILURE OF THE PETITIONER-APPELLANT TO SIGNIFY ITS CONFORMITY TO THE TERMS CONTAINED IN PNB'S JUNE 4. 978194 which respondent had issued. the PNB Board of Directors had approved petitioner's offer to purchase the property. evidenced by Receipt No. 1984. petitioner filed the instant petition for review on certiorari. Petitioner avers that the SAMD's acceptance of the deposit amounted to an acceptance of its offer to repurchase. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE AMOUNT OF PHP725. Petitioner maintains that it had accepted respondent's offer made through the SAMD. it then deposited P725.000. .00. II. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW THAT NON- PAYMENT OF THE PETITIONER-APPELLANT OF THE BALANCE OF THE OFFERED PRICE IN THE LETTER OF PNB DATED JUNE 4. V.00 with the SAMD as partial payment. III.38 The threshold issue is whether or not petitioner and respondent PNB had entered into a perfected contract for petitioner to repurchase the property from respondent. 1985.00 PAID BY THE PETITIONER IS NOT AN EARNEST MONEY. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE LETTERS OF PETITIONER-APPELLANT DATED MARCH 18. 1993 AND JUNE 21.Petitioner filed a motion for reconsideration. 1985 LETTER MEANS THAT THERE WAS NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES. the fulfillment of which gave rise to the contract.

the amount constitutes earnest money as contemplated in Article 1482 of the New Civil Code. respondent could no longer validly make a counter-offer of P1. All that transpired was an exchange of proposals and counter-proposals.789.40 Petitioner avers that its failure to append its conformity to the June 4. since the acceptance of the offer resulted in a perfected contract of sale. respondent had the option either to accept the balance of the offered price or to cause the rescission of the contract. Petitioner cites the rulings of this Court in Villonco v. the effectivity of which is subordinated to its fulfillment.47. Court of Appeals. it was obliged to remit to respondent the balance of the original purchase price of P1. while respondent was obliged to transfer ownership and deliver the property to petitioner. respondent contends that the parties never graduated from the "negotiation stage" as they could not agree on the amount of the repurchase price of the property.931.560. Petitioner posits that respondent was proscribed from increasing the interest rate after it had accepted respondent's offer to sell the property for P1.00. Since there is no perfected contract in the first place. the concept of "suspensive condition" signifies a future and uncertain event upon the fulfillment of which the obligation becomes effective. It clearly presupposes the existence of a valid and binding agreement. 1993 to respondent during the pendency of the case in the RTC were merely to compromise the pending lawsuit. Such offer to compromise should not be taken against it. nothing more. It did not amount to a rejection of respondent's offer to sell the property since respondent was merely seeking to enforce its right to pay the balance of P1.560. Petitioner's letters dated March 18. In any event.564. they did not constitute separate offers to repurchase the property. It likewise maintains that.47. Bormaheco39 and Topacio v. although the P725.000. It insists that a definite agreement on the amount and manner of payment of the price are essential elements in the formation of a binding and enforceable contract of sale. Primarily. conformably with Article 1159 of the New Civil Code. 1993 and June 21.574. Rule 130 of the Revised Rules of Court. There was no such agreement in this case.574. For its part. there is no basis for the application of the principles governing "suspensive conditions.88 for the purchase of the property.47.00 was considered as "deposit for the repurchase of the property" in the receipt issued by the SAMD. Consequently.560.Respondent could no longer unilaterally withdraw its offer to sell the property for P1.570. 1984 letter of respondent and its failure to pay the balance of the price as fixed by respondent within the 60-day period from notice was to protest respondent's breach of its obligation to petitioner. in accordance with Section 27.574." .

encumber. the Statement of Account prepared by SAMD as of June 25. There is absolutely nothing on record that respondent authorized the SAMD. "that the selling price shall be the total bank's claim as of documentation date x x x payable in cash (P725. necessitating petitioner's acceptance in return.According to respondent. 1984 cannot be classified as a counter-offer. managing and preserving the properties and other special assets of PNB.000. Moreover. This qualified acceptance was in effect a counter-offer. since the power to do so must emanate from its Board of Directors. among others. it was only recommendation which was subject to approval of the PNB Board of Directors. Respondent maintains that its acceptance of the amount was qualified by that condition. or made it appear to petitioner that it represented itself as having such authority. Furthermore.53 less deposit of P725. the acceptance was qualified.00 as deposit to repurchase the property." A new Statement of Account was attached therein indicating the total bank's claim to be P1. Respondent reiterates that SAMD had informed petitioner that its offer to repurchase had been approved by the Board subject to the condition.000.000.206. or otherwise alienate the assets. thus not absolute. As gleaned from the parties' Stipulation of Facts during the proceedings in the court a quo. in that it required a higher sale price and subject to specified terms and conditions enumerated therein.389. the amount stated therein could not likewise be considered as the counter-offer since as admitted by petitioner. Pending such approval. or P1.00 already deposited) within 60 days from notice of approval.00 was accepted by respondent on the condition that the purchase price would still be approved by its Board of Directors. Neither can the receipt by the SAMD of P725. 1985 is correct.000. petitioner knew that the SAMD has no capacity to bind respondent and that its authority is limited to administering. the amount is merely an acknowledgment of the receipt of P725. .000.00. The SAMD does not have the power to sell. The SAMD was not authorized by respondent's Board to enter into contracts of sale with third persons involving corporate assets. while respondent's Board of Directors accepted petitioner's offer to repurchase the property. The deposit of P725.00. it is simply a recital of its total monetary claims against petitioner. dispose of. it cannot be legally claimed that respondent is already bound by any contract of sale with petitioner. According to respondent.389.00 be regarded as evidence of a perfected sale contract.931. The Ruling of the Court The ruling of the appellate court that there was no perfected contract of sale between the parties on June 4.

gives rise to a perfected sale. The parties are bound not only to the fulfillment of what has been expressly stipulated but also to the consequences which. v. they bind other contracting parties and the obligations arising therefrom have the form of law between the parties and should be complied with in good faith. When there is merely an offer by one party without acceptance of the other. to give something or to render some service. there is no contract.42 Once perfected. Contracts are perfected by mere consent which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. with respect to the other. 41 Under Article 1318 of the New Civil Code. there is no contract unless the following requisites concur: (1) Consent of the contracting parties. usage and law.A contract is a meeting of minds between two persons whereby one binds himself. it cannot. 43 By the contract of sale. The fixing of the price can never be left to the decision of one of the contracting parties. Manalo:45 A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation of a binding and enforceable contract of sale. (2) Object certain which is the subject matter of the contract. (3) Cause of the obligation which is established.46 A contract of sale is consensual in nature and is perfected upon mere meeting of the minds.44 The absence of any of the essential elements will negate the existence of a perfected contract of sale. if accepted by the other. may be in keeping with good faith. But a price fixed by one of the contracting parties. and the other to pay therefor a price certain in money or its equivalent. according to their nature. Huang. serve as a binding juridical relation between the parties.48 In San Miguel Properties Philippines. Inc.47 When the contract of sale is not perfected. one of the contracting parties obligates himself to transfer the ownership of and deliver a determinate thing.49 the Court ruled that the stages of a contract of sale are as follows: (1) negotiation. covering the period from the time the prospective contracting parties indicate interest in the contract to the time the . As the Court ruled in Boston Bank of the Philippines v. as an independent source of obligation.

A negotiation is formally initiated by an offer.55 The request. which begins when the parties perform their respective undertakings under the contract of sale. was referred to the respondent's main branch for appropriate action. . the offer may be withdrawn. However. the withdrawal is effective immediately after its manifestation. (2) perfection. which. although the acceptance must be affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror.53 Consequently. 52 A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a rejection of the original offer. 54 The acceptance must be identical in all respects with that of the offer so as to produce consent or meeting of the minds. To convert the offer into a contract. 1983. such acceptance is not sufficient to guarantee consent because any modification or variation from the terms of the offer annuls the offer. either negotiating party may stop the negotiation. A counter-offer is considered in law. 56 Before respondent could act on the request. In Adelfa Properties. conduct. Court of Appeals. however.000. Upon approval of our request. v.51 the Court ruled that: x x x The rule is that except where a formal acceptance is so required. it must be plain. At this stage. which was made through a letter dated August 25. the acceptance must be absolute and must not qualify the terms of the offer. petitioner had until February 17.contract is perfected. we will pay your goodselves ONE HUNDRED & FIFTY THOUSAND PESOS (P150.00). unconditional and without variance of any sort from the proposal. 1984 within which to redeem the property. acceptance may be shown by the acts. culminating in the extinguishment thereof. it may be shown by acts. conduct. when something is desired which is not exactly what is proposed in the offer. since it lacked the resources. it requested for more time to redeem/repurchase the property under such terms and conditions agreed upon by the parties. and (3) consummation. Thus. In this case. which takes place upon the concurrence of the essential elements of the sale which are the meeting of the minds of the parties as to the object of the contract and upon the price. petitioner again wrote respondent as follows: 1. or words of a party recognizing the existence of the contract of sale. a rejection of the original offer and an attempt to end the negotiation between the parties on a different basis. or words of the accepting party that clearly manifest a present intention or determination to accept the offer to buy or sell. must be certain. 50 At any time prior to the perfection of the contract. unequivocal. Inc.

Thus. vs.574.560.61 . Any acceptance by the SAMD of petitioner's offer would not bind respondent. or connected with the performance of authorized duties of such director. There is no evidence that the SAMD was authorized by respondent's Board of Directors to accept petitioner's offer and sell the property for P1. the rule is that the declarations of an individual director relating to the affairs of the corporation. The remaining balance together with the interest and other expenses that will be incurred will be paid within the last six months of the one year grave period requested for. Within six months from date of approval of our request. The statement is but a computation of the amount which petitioner was obliged to pay in case respondent would later agree to sell the property. a corporation can only execute its powers and transact its business through its Board of Directors and through its officers and agents when authorized by a board resolution or its by-laws.000. Just as a natural person may authorize another to do certain acts in his behalf. including interests. registration expenses and miscellaneous expenses. advances on insurance premium. are held not binding on the corporation.560. Inc. 2. Inc. and 3. Thus. contracts or acts of a corporation must be made either by the board of directors or by a corporate agent duly authorized by the board. As this Court ruled in AF Realty Development.574. but not in the course of. advances on realty taxes. Diesehuan Freight Services.59 There was no response to petitioner's letters dated February 10 and 15.47. The statement of account prepared by the SAMD stating that the net claim of respondent as of June 25. publication cost.00). so may the board of directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it. 1984 was P1.57 When the petitioner was told that respondent did not allow "partial redemption. 1984. Absent such valid delegation/authorization. we will pay another FOUR HUNDRED FIFTY THOUSAND PESOS (P450."58 it sent a letter to respondent's President reiterating its offer to purchase the property.:60 Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors.47 cannot be considered an unqualified acceptance to petitioner's offer to purchase the property.

however. This contention is likewise negated by the stipulation of facts which the parties entered into in the trial court: 8. petitioner merely sought to have the counter-offer reconsidered.000.000. this .53. per its letter to petitioner dated June 4.574. In fine.It appears that the SAMD had prepared a recommendation for respondent to accept petitioner's offer to repurchase the property even beyond the one-year period. respondent's acceptance of petitioner's offer was qualified. the P725. 1984 to be P1. However. as it turns out. in the event that respondent would approve the recommendation of SAMD for respondent to accept petitioner's offer to purchase the property for P1. Unless and until the respondent accepted the offer on these terms.560.000.560. it recommended that petitioner be allowed to redeem the property and pay P1. 9. hence can be at most considered as a counter-offer.560. 63 It appears that.660. Absent proof of the concurrence of all the essential elements of a contract of sale.574.000. On June 25. the respondent had decided to accept the offer to purchase the property for P1.00 it had remitted to respondent was "earnest money" which could be considered as proof of the perfection of a contract of sale under Article 1482 of the New Civil Code.000 was accepted by PNB on the condition that the purchase price is still subject to the approval of the PNB Board. 1984. a perfected contract of sale would have arisen. 1985. The provision reads: ART. 1482. the Special Assets Management Department (SAMD) of PNB prepared an updated Statement of Account showing MMCC's total liability to PNB as of June 25. We do not agree with petitioner's contention that the P725.00 to PNB as deposit to repurchase the property.47 recommended by the SAMD and to which petitioner had previously conformed.00.47. If petitioner had accepted this counter-offer. On June 8. The deposit of P725. 1984.47 and recommended this amount as the repurchase price of the subject property. Respondent later approved the recommendation that the property be sold to petitioner. no perfected contract of sale would arise. it shall be considered as part of the price and as proof of the perfection of the contract.574.931. MMCC paid P725.00 as the purchase price. respondent set the purchase price at P2. Whenever earnest money is given in a contract of sale. the giving of earnest money cannot establish the existence of a perfected contract of sale.00 was merely a deposit to be applied as part of the purchase price of the property. But instead of the P1.389.574.62 Thus. This request for reconsideration would later be rejected by respondent.560.

see attached statement of account as of 5-31-85). if there are any. That upon your failure to pay the balance of the purchase price within sixty (60) days from receipt of advice accepting your offer. 5. transfer fees. the petition is DENIED. interests and participation it may have in the property and you are charged with full knowledge of the nature and extent of said rights. it still declared that its acceptance was subject to the following terms and conditions: 1. your deposit shall be forfeited and the Bank is thenceforth authorized to sell the property to other interested parties.00 deposit. payable in cash (P725. .000. That the selling price shall be the total Bank's claim as of documentation date (pls. That you shall undertake at your own expense and account the ejectment of the occupants of the property subject of the sale.amounted to an amendment of respondent's qualified acceptance. interests and participation and waive your right to warranty against eviction. Costs against petitioner Manila Metal Container Corporation..000. to be incurred in connection with the execution and registration of all covering documents shall be borne by you. 6. 3. Petitioner's request was ultimately rejected and respondent offered to refund its P725. All taxes and other government imposts due or to become due on the property. That the sale shall be subject to such other terms and conditions that the Legal Department may impose to protect the interest of the Bank. petitioner refused and instead requested respondent to reconsider its amended counter-offer. 2.00 already deposited) within sixty (60) days from notice of approval. The assailed decision is AFFIRMED. or an amended counter-offer. there was no perfected contract of sale between petitioner and respondent over the subject property. 4. then. In sum. because while the respondent lowered the purchase price. The Bank sells only whatever rights. 64 It appears that although respondent requested petitioner to conform to its amended counter-offer. IN LIGHT OF ALL THE FOREGOING. as well as expenses including costs of documents and science stamps. etc.

4 The dispositive portion of the assailed Decision reads: "WHEREFORES the Order dated May 15. Defendant George Raymundo [herein private petitioners] is David's father who negotiated with plaintiffs Avelina and Mariano Velarde [herein petitioners] for the sale of said property. Record of Civil Case No. respondents. VELARDE. David Raymundo [herein private respondent] is the absolute and registered owner of a parcel of land. are as follows: "x x x. 2001 Spouses MARIANO Z. together with the house and other improvements thereon. p. petitioners. '6'. COURT OF APPEALS. VELARDE and AVELINA D. Makati and covered by TCT No. which was. G. 32991 dated October 9. as well as its Resolution3 dated December 29. 142177. like failure to pay the price in the manner prescribed by the contract.: A substantial breach of a reciprocal obligation. The bonds posted by plaintiffs-appellees and defendants- appellants are hereby RELEASED. however. 1990 dismissing the [C]omplaint is RESINSTATED.SO ORDERED. J. 232. PANGANIBAN. under lease (Exh. as found by the CA."5 The Facts The factual antecedents of the case. DAVID A. located at 1918 Kamias St. 108346 July 11. Dasmariñas Village.. No. entitled the injured party to rescind the obligation. Rescission abrogates the contract from its inception and requires a mutual restitution of benefits received. vs. 1992 denying petitioner's motion for reconsideration. 1991 is hereby ANNULLED and SET ASIDE and the Decision dated November 14. RAYMUNDO and GEORGE RAYMUNDO. 15952). 1992. The Case Before us is a Petition for Review on Certiorari1 questioning the Decision2 of the Court of Appeals (CA) in CA-GR CV No. .R.

00). Page No. in favor of plaintiff Avelina Velarde. Book No. together with the house and other improvements thereon. freely and voluntarily.800. _____. Philippine currency. receipt of which in full is hereby acknowledged by the VENDOR from the VENDEE. in favor of Bank of Philippine Islands. 'That as part of the consideration of this sale. the VENDEE hereby assumes to pay the mortgage obligations on the property herein sold in the amount of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1. No. as if the same were originally signed and executed by the VENDEE.000. TRANSFERS. 'It is further agreed and understood by the parties herein that the capital gains tax and documentary stamps on the sale shall be for the . in the name of the VENDOR.800. as Doc. and further agrees to strictly and faithfully comply with all the terms and conditions appearing in the Real Estate Mortgage signed and executed by the VENDOR in favor of BPI. by these presents the VENDOR hereby SELLS. 11-12. were mortgaged by the VENDOR to the BANK OF THE PHILIPPINE ISLANDS. on _____ and which Real Estate Mortgage was ratified before Notary Public for Makati. CONVEYS AND DELIVERS. Record) was executed by defendant David Raymundo. with the following terms and conditions: 'x x x xxx xxx 'That for and in consideration of the amount of EIGHT HUNDRED THOUSAND PESOS (P800. 'That the aforesaid parcel of land. the parcel of land mentioned and described above. 1986. Philippine currency. successors and assigns. unto the VENDEE. 'A'. _____. Philippine currency."On August 8. including interests and other charges for late payment levied by the Bank. with full warranty of a legal and valid title as provided by law.00).000. Makati. Series of 1986 of his Notarial Register. a Deed of Sale with Assumption of Mortgage (Exh. Metro Manila to secure the payment of a loan of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1. pp. to his entire and complete satisfaction. her heirs. together with the house and other improvements thereon. CEDES.00). '1'. ______. as vendor. as evidenced by a Real Estate Mortgage signed and executed by the VENDOR in favor of the said Bank of the Philippine Islands.000. as vendee. ___. Exh.

do hereby bind and obligate myself.00). Avelina D.800. pp. David A. signed and executed by Mr. including all interests and other charges for late payment. Philippine currency. with the bank of the Philippine Islands. in accordance with the terms and conditions of the said Deed of Real Estate Mortgage. and assume the mortgage obligations on the property with the Bank of the Philippine Islands in the amount of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1. 'WHEREAS. Page No.00).000. David A. _____. while my application for the assumption of the mortgage obligations on the property is not yet approved by the mortgagee Bank. for purposes of attesting and confirming our private understanding concerning the said mortgage obligations to be assumed. for and in consideration of the foregoing premises. 'WHEREAS. THEREFORE. Raymundo. as per deed of Sale with Assumption of Mortgage. Raymundo the sum of EIGHT HUNDRED THOUSAND PESOS (P800.' "On the same date. pp. 11-12. Philippine currency. Record). Philippine currency. Raymundo with the said Bank.000.800. 'C'. Book No. Mrs.00). executed an Undertaking (Exh. Velarde with the consent of my husband. Velardo. _____. Mariano Z. and as part of the above-document. my heirs. Mariano. 'A'. in accordance with the terms and conditions of the Deed of Real Estate Mortgage dated _____. David A. and the assumption of the mortgage obligations of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1. Raymundo.' 'x x x xxx xxx 'Whereas. as Doc. the registration fees and transfer tax thereon shall be the account of the VENDEE. successors and assigns. 13-14. 'NOW. I. David A.000. with the consent of her husband. I have agreed to pay the mortgage obligations on the property with the Bank in the name of Mr. Series of 1986 of his Notarial Register. this undertaking is being executed in favor of Mr. whereas. account of the VENDOR. _____. Record). I paid Mr.' (Exh. No. acknowledged before Notary Public for Makati. _____. plaintiff Avelina Velarde. to strictly and faithfully comply with the following terms and conditions: .

and Mr.00. the original Mortgagor. stipulations and provisions of this Undertaking. David A. Raymundo. The parties agreed to avail of this. That until such time as my assumption of the mortgage obligations on the property purchased is approved by the mortgagee bank. "It appears that the negotiated terms for the payment of the balance of P1. plus all payments made with the Bank of the Philippine Islands on the mortgage loan. That I am executing the Undertaking for purposes of binding myself. the Bank of the Philippine Islands. Raymundo. subject to BPI's approval of an application for assumption of mortgage by plaintiffs. Raymundo shall resume total and complete ownership and possession of the property sold by way of Deed of Sale with Assumption of Mortgage. successors and assigns. [does] hereby confirm and agree to the undertakings of the Vendee pertinent to the assumption of the mortgage obligations by the Vendee with the Bank of the Philippine Islands. 'C'.8 million was from the proceeds of a loan that plaintiffs were to secure from a bank with defendant's help.000. '3. I shall continue to pay the said loan in accordance with the terms and conditions of the Deed of Real Estate Mortgage in the name of Mr. my heirs.' "This undertaking was signed by Avelina and Mariano Velarde and David Raymundo. (Exh. plaintiffs were to continue paying the monthly interests of the loan secured by a real estate mortgage. the vendor of the property mentioned and identified above. '2. and the covenants. in the same manner as it (the) same had never been executed or entered into. 13- 14. Defendants had a standing approved credit line with the Bank of the Philippine Islands (BPI). in the event I violate any of the terms and conditions of the said Deed of Real Estate Mortgage. David A. David A. 'That. without necessity of notice or any judicial declaration to that effect. as and by way of liquidated damages. '1. Raymundo. That. pp. shall be forfeited in favor of Mr. Record). I hereby agree that my downpayment of P800. David A. and the same shall be deemed automatically cancelled and be of no further force or effect. . to strictly and faithfully comply with the terms and conditions of the mortgage obligations with the Bank of the Philippine Islands. Pending BPI's approval o[f] the application.

' (Exhs. 1987 defendants sent plaintiffs a notarial notice of cancellation/rescission of the intended sale of the subject property allegedly due to the latter's failure to comply with the terms and conditions of the Deed of Sale with Assumption of Mortgage and the Undertaking (Exh. and (c) you execute an absolute deed of sale in her favor free from any liens or encumbrances not later than January 21. thru counsel.9 Judge Abad Santos granted petitioner's Motion for . 225- 226. therefore.I. p.00 (Exh. then Judge Ynares-Santiago was promoted to the Court of Appeals and Judge Salvador S. Record). 223. Record). who dismissed the Complaint in a Decision dated November 14. (b) you cause the re. petitioners filed on February 9. 1986. and November 19."6 Consequently.8 Meanwhile. "Pursuant to said agreements. 1987. 15952 at the Regional Trial Court of Makati. was not approved (Exh. 1987. pp. 7 Thereafter.925. 1987 provided: (a) you deliver actual possession of the property to her not later than January 15. 'J'. petitioners filed a Motion for Reconsideration. Abad Santos was assigned to the sala she vacated. p. 1991. October 20. 15. Record). "On December 15. nullity of cancellation. and make the title available and free from any liens and encumbrances. This was docketed as Civil Case No.lease of title and mortgage from the Bank of P. "On January 5. The case was tried and heard by then Judge Consuelo Ynares- Santiago (now an associate justice of this Court). plaintiffs. p. 220. '3'. Branch 149. "On January 8. writ of possession and damages.00. thru counsel. 1986 at P23. 1987 for her immediate occupancy. that our client is willing to pay the balance in cash not later than January 21. 'E'. plaintiffs paid BPI the monthly interest on the loan secured by the aforementioned mortgage for three (3) months as follows: September 19. '4'. 1987 a Complaint against private respondents for specific performance.000.225. responded. A. defendants. 1990. 133. In an Order dated May 15. 'H' & 'J'. as follows: 'This is to advise you. 1987. 'k'. pp. This prompted plaintiffs not to make any further payment.00. wrote plaintiffs informing the latter that their non-payment to the mortgage bank constitute[d] non- performance of their obligation (Exh. 1986 at P27. plaintiffs were advised that the Application for Assumption of Mortgage with BPI. Record). '5'. Record). "In a Letter dated January 7. 1986 at P23. 17and 18.

"From these 2 documents. Since the price to be paid by the Vendee Velarde includes the downpayment of P800. Velarde further agreed 'to strictly and faithfully comply with all the terms and conditions appearing in the Real Estate Mortgage signed and executed by the VENDOR in favor of BPI x x x as if the same were originally signed and executed by the Vendee.000.8 million cannot be paid in cash.00 and the balance of Pl. 2 & 3. it was stipulated that in the event of violation by Velarde of any terms and conditions of said deed of real estate mortgage. He instructed petitioners to pay the balance of P1. the downpayment of P800. and the balance of Pl. Record). Record). p.00 plus all payments made with BPI or the mortgage loan would be forfeited and the [D]eed of [S]ale with [A]ssumption of [M]ortgage would thereby be Cancelled automatically and of no force and effect (pars. In other words. it is therefore clear that part of the consideration of the sale was the assumption by Velarde of the mortgage obligation of Raymundo in the amount of Pl. Private respondents appealed to the CA. This was reiterated by Velarde in the document entitled 'Undertaking' wherein the latter agreed to continue paying said loan in accordance with the terms and conditions of the Deed of Real Estate Mortgage in the name of Raymundo. thereof.8 million to private respondents who. Moreover. had to assume the mortgage obligation on the subject property. pp 13-14. under the contract. The application with BPI for the approval of the assumption of mortgage would mean that. in turn. in case of approval. the VENDEE (Velarde)' would assume to pay the mortgage obligation on the subject property in the amount of P 1. thereof.8 million. Ruling of the Court of Appeal The CA set aside the Order of Judge Abad Santos and reinstated then Judge Ynares- Santiago's earlier Decision dismissing petitioners' Complaint. 2. the CA explained its ruling in this wise: "In the Deed of Sale with Assumption of Mortgage. (p. the assumption of the mortgage obligation is part of the obligation of Velarde.Reconsideration and directed the parties to proceed with the sale. Upholding the validity of the rescission made by private respondents. as vendee. 12. as part of the consideration of the sale.8 million in favor of BPI in the name of the Vendor (Raymundo). This would mean that Velarde had to make payments to BPI under the [D]eed of [R]eal [E]state [M]ortgage the name of Raymundo. Vendee Velarde. payment of the mortgage obligation will now be in . were ordered to execute a deed of absolute sale and to surrender possession of the disputed property to petitioners.000.8 million. it was stipulated that 'as part of the consideration of this sale.

. As adverted to above. or (2) demand its rescission (Article 1191. the[n] Raymundo may choose either of two (2) actions . Civil Code).' While it is true that even if the contract expressly provided for automatic rescission upon failure to pay the price. he may do so only for as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act (Article 1592. These 3 conditions were not among those previously agreed upon by Velarde and Raymundo. 191 SCRA 493). 1987.. What Velarde should have done was to pay the balance of P1. And in the event said application is disapproved. Instead. 16-26. Jr. But then again. '4') which was strongly given weight by the lower court in reversing the decision rendered by then Judge Ynares- Santiago. 'K'. the Deed of Sale with Assumption of Mortgage would be deemed 'automatically cancelled and of no further force and effect.n. October 8. Court of Appeals. Civil Code).(1) demand fulfillment of the contract. as if the same had never been executed or entered into. "The disapproval by BPI of the application for assumption of mortgage cannot be used as an excuse for Velarde's non-payment of the balance of the purchase price. These are mere offers or. September 15. Velarde had to pay in full in case of BPI's disapproval of the application for assumption of mortgage.n. 1987 (Exh. at most. Velarde registered their willingness to pay the balance in cash but enumerated 3 new conditions which. see also pp. "It was likewise agreed that in case of violation of the mortgage obligation. And. there can be no novation because there was no agreement of all the parties to the new contract (Garcia.the name of Velarde. t. t. In said letter.8 million. 1997 (p. an attempt to novate. would constitute a new undertaking or new agreement which is subject to the consent or approval of Raymundo. 47. Velarde had to pay in full. 1989). the vendee may still pay. to the mind of this Court. 1987 of cancellation/rescission of the contract due to the latter's failure to comply with their obligation. In the case at bar. vs. Raymundo sent Velarde notarial notice dated January 8. the non-fulfillment of which entitles the other party to rescind the .s. Mariano Velarde likewise admitted this fact during the hearing on September 15. This being the case. As borne out by the evidence. This is alleged and admitted in Paragraph 5 of the Complaint.s. The rescission was justified in view of Velarde's failure to pay the price (balance) which is substantial and fundamental as to defeat the object of the parties in making the agreement. the agreement of the parties involved a reciprocal obligation wherein the obligation of one is a resolutory condition of the obligation of the other. Velarde sent Raymundo a letter dated January 7. the non-payment of the mortgage obligation would result in a violation of the contract. upon Velarde's failure to pay the agreed price.

or to criminal prosecution (Edca Publishing & Distribution Corporation vs. cannot avail of the action for specific performance (Voysaw vs. to pay the balance. "III The Court of Appeals erred in holding that petitioners' January 7. 184 SCRA 720).. The Court of Appeals erred in holding that the non-payment of the mortgage obligation resulted in a breach of the contract. the contract was properly rescinded (Ruiz vs. First Issue: Breach of Contract . the non-payment of the mortgage obligation by appellees Velarde would create a right to demand payment or to rescind the contract. Upon appellee's failure. they have lost their right to its enforcement and hence. therefore."10 11 Hence." The Court's Ruling The Petition is partially meritorious. appellees Velarde having violated the contract. "II The Court of Appeals erred in holding that the rescission (resolution) of the contract by private respondents was justified. in their Memorandum. Interphil Promotions.12 interpose the following assignment of errors: "I. Thus. this appeal. Santos. contract (Songcuan vs. 191 SCRA 28). 148 SCRA 635). Inc. IAC. IAC. 1987 letter gave three 'new conditions' constituting mere offers or an attempt to novate necessitating a new agreement between the parties. Consequently. 184 SCRA 614). The Issues Petitioners.

instead. when petitioners received notice of the bank's disapproval of their application to assume respondents' mortgage. on December 15. As admitted by both parties. 14 Petitioners.13 Private respondents had already performed their obligation through the execution of the Deed of Sale. their agreement mandated that petitioners should pay the purchase price balance of P1. In a contract of sale. petitioners did not merely stop paying the mortgage obligations. they also failed to pay the balance of the purchase price. Thus. it devolved upon private respondents again.8 million loan. payment of the monthly amortizations ceased to be their obligation and. and the execution of the Deed of Sale is deemed equivalent to delivery. on the other hand. Worse. Such conditional offer to pay cannot take the place of actual payment as would discharge the obligation of a buyer under a contract of sale. inasmuch as the former had signified their willingness to pay the balance of the purchase price only a little over a month from the time they were notified of the disapproval of their application for assumption of mortgage. Instead of doing so. petitioners sent a letter to private respondents offering to make such payment only upon the fulfillment of certain conditions not originally agreed upon in the contract of sale. Second Issue Validity of the Rescission Petitioners likewise claim that the rescission of the contract by private respondents was not justified. the seller obligates itself to transfer the ownership of and deliver a determinate things. and the buyer to pay therefor a price certain in money or its equivalent. 1986. However. Petitioners also aver that . they wanted private respondents to perform obligations beyond those stipulated in the contract before fulfilling their own obligation to pay the full purchase price.8 million to private respondents in case the request to assume the mortgage would be disapproved.Petitioner aver that their nonpayment of private respondents' mortgage obligation did not constitute a breach of contract. Prior physical delivery or possession is not legally required. did not perform their correlative obligation of paying the contract price in the manner agreed upon. they should have paid the balance of the P1. Accordingly. considering that their request to assume the obligation had been disapproved by the mortgagee bank. which effectively transferred ownership of the property to petitioner through constructive delivery.

they argue that they have substantially performed their obligation in good faith. Private respondents' right to rescind the contract finds basis in Article 1191 of the Civil Code. the court shall decree the rescission. They cite several cases15 in which this Court declared that rescission of a contract would not be permitted for a slight or casual breach. the obligee may seek rescission and. the latter violated the very essence of reciprocity in the contract of sale. 17 When the obligor cannot comply with what is incumbent upon it. as their nonperformance of their reciprocal obligation to pay the purchase price under the contract of sale. the breach committed by petitioners was not so much their nonpayment of the mortgage obligations. which explicitly provides as follows: "Art. if the latter should become impossible. in the absence of any just cause for the court to determine the period of compliance.the breach of the contract was not substantial as would warrant a rescission. this was not equivalent to actual payment as would constitute a faithful compliance of their reciprocal obligation. private respondents validly exercised their right to rescind the contract. Moreover. The injured party may choose between fulfillment and the rescission of the obligation. 18 In the present case.000 and three (3) monthly mortgage payments. considering that they have already made the initial payment of P800. True. Thus. As pointed out earlier." The right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party who violates the reciprocity between them.The power to rescind obligations is implied in reciprocal ones.16 The breach contemplated in the said provision is the obligor's failure to comply with an existing obligation. petitioners expressed their willingness to pay the balance of the purchase price one month after it became due. 1191. -. in case one of the obligors should not comply with what is incumbent upon him. however. it cannot be said that the breach committed by petitioners was merely slight or casual as would preclude the exercise of the right to rescind. Indubitably. with the payment of damages in either case. the offer to pay was conditioned on the performance by private respondents of additional burdens that had not been agreed upon in the original contract. because of the failure of petitioners to comply with their obligation to pay the balance of the purchase price. . Finally. a violation that consequently gave rise to private respondent's right to rescind the same in accordance with law. He may also seek rescission even after he has chosen fulfillment.

Therefore. the buyer's offer to pay was unconditional and was accepted by the seller. Moreover.000 and P23. the alleged breach was private respondent's delay of only a few days. the breach involved a mere one-week delay in paying the balance of 1. because the factual circumstances in those cases are not analogous to those in the present one. only a delay of twenty (20) days to pay for the goods delivered. Hence. mutual restitution is required to bring back the parties to their original situation prior to the inception of the contract. the automatic rescission and forfeiture of payment clauses stipulated in the contract does not apply. on the part of the buyer.150. private respondents were left with the legal option of seeking rescission to protect their own interest. there was no reference whatsoever to the nonpayment of the contract price. P23. In Tan. such breach would not normally defeat the intention of the parties to the contract.000 which was actually paid.Misplaced is petitioners' reliance on the cases19 they cited. which was for the purpose of clearing the title to the property. Mutual Restitution Required in Rescission As discussed earlier. It can be carried out only when the one who demands rescission can return whatever he may be obliged to . lest the latter unjustly enrich themselves at the expense of the former. Instead.8 million balance. Here. the breach committed by petitioners was the nonperformance of a reciprocal obligation. Accordingly. Civil Code provisions shall govern and regulate the resolution of this controversy. Rescission creates the obligation to return the object of the contract. but they also imposed upon private respondents new obligations as preconditions to the performance of their own obligation. the breach committed did not merely consist of a slight delay in payment or an irregularity. In the instant case.225. In effect. In Song Fo there was.000 and the corresponding mortgage payments in the amounts of P27. which was legally due and demandable under the contract of sale. In Zepeda. not a violation of the terms and conditions of the mortgage contract. the qualified offer to pay was a repudiation of an existing obligation. the initial payment of P800.925 (totaling P874. Considering that the rescission of the contract is based on Article 1191 of the Civil Code.00) advanced by petitioners should be returned by private respondents. petitioners not only failed to pay the P1.

nêt G. SPOUSES ALFREDO HUANG and GRACE HUANG.: This is a petition for review of the decision. vs. By that time. No. They had no right to demand preconditions to the fulfillment of their obligation. the date of rescission. it was already incumbent upon the former to pay the balance of the sale price.20 To rescind is to declare a contract void at its inception and to put an end to it as though it never was. Pasig City dismissing the complaint brought by respondents against petitioner for enforcement of a contract of sale.21 Third Issue Attempt to Novate In view of the foregoing discussion. INC.1âwphi1. 1997. J. respondents. 1987 letter of petitioners to private respondents were not part of the original contract.R. Suffice it to say that the three conditions appearing on the January 7. DECISION MENDOZA. but to abrogate it from the beginning and restore the parties to their relative positions as if no contract has been made. the assailed Decision is hereby AFFIRMED with the MODIFICATION that private respondents are ordered to return to petitioners the amount of P874. Branch 153. which the latter paid as a consequence of the rescinded contract.150. It is not merely to terminate it and release the parties from further obligations to each other. which had become due. 2000 SAN MIGUEL PROPERTIES PHILIPPINES.restore.1 dated April 8. of the Court of Appeals which reversed the decision of the Regional Trial Court. petitioner. 1987.. 137290 July 31. SO ORDERED. . with legal interest thereon from January 8. WHEREFORE. the Court finds it no longer necessary to discuss the third issue raised by petitioners. No pronouncement as to costs.

For this purpose. SMPPI will secure the necessary Management and Board approvals. indicated his conformity to the offer by affixing his signature to the letter and accepted the "earnest-deposit" of P1 million. Sobrecarey ordered the removal of the "FOR SALE" sign from the properties. In the event that we do not come to an agreement on this transaction. Part of its inventory are two parcels of land totalling 1. the properties were offered for sale for P52.000. 1. and we initiate the documentation if there is mutual agreement between us. Dauz who was acting for respondent spouses as undisclosed principals. However. Dauz signified her clients’ interest in purchasing the properties for the amount for which they were offered by petitioner. Dauz and Sobrecarey then commenced negotiations.000.000. 738 sq. we will negotiate on the terms and conditions of the purchase. . petitioner’s vice-president and operations manager for corporate real estate. is a domestic corporation engaged in the purchase and sale of real properties.00 shall be refundable to us in full upon demand. which are covered by TCT Nos.140. Inc. Atty. 1994. Sobrecarey. 2.The facts are not in dispute. On February 21. 738 square meters at the corner of Meralco Avenue and General Capinpin Street. Helena M. 1994. Atty.000. we are enclosing herewith the sum of P1. Dauz that petitioner was willing to sell the subject . The offer was made to Atty. . 1994. Upon request of respondent spouses. subject to the following conditions.00 representing earnest-deposit money. under the following terms: the sum of P500. the said amount of P1. We will be given the exclusive option to purchase the property within the 30 days from date of your acceptance of this offer.000. During their meeting on April 8. Sobrecarey informed Atty. . Dauz wrote another letter3 proposing the following terms for the purchase of the properties. During said period. Pasig City. viz: This is to express our interest to buy your-above-mentioned property with an area of 1. PT-82395 and PT- 82396 of the Register of Deeds of Pasig City. 1994. Atty. Barrio Oranbo. 1994. On March 29. In a letter2 dated March 24. meters. Isidro A. Petitioner San Miguel Properties Philippines.00 would be given as earnest money and the balance would be paid in eight equal monthly installments from May to December. petitioner refused the counter-offer.000.00 in cash. 3.

the latter was returning the amount of P1 million given as "earnest-deposit. but it was denied by the trial court. 1994 to June 13. 1994. On April 25. On December 12. This prompted Atty. adding that within that period. Respondents attempted to return the "earnest-deposit" but petitioner refused on the ground that respondents’ option to purchase had already expired. through counsel. Atty. 64660. rendered a decision6 reversing the judgment of the trial court. the trial court granted petitioner’s motion and dismissed the action. On July 7. 1994.properties on a 90-day term. 1994. Dauz countered with an offer of six months within which to pay. therefore. no perfected contract of sale. Within the period for filing a responsive pleading. 1994. Dauz to propose a four-month period of amortization. 1994. 1994 within which to exercise her option to purchase the property. in connection with which the earnest money in the amount of P1 million was tendered by respondents. petitioner. Branch 133. respondent spouses filed a complaint for specific performance against petitioner before the Regional Trial Court. Federico Gonzales. respondent spouses. On August 16. 1482 of the Civil Code which provides that "[w]henever earnest money is given in a . The appellate court held that all the requisites of a perfected contract of sale had been complied with as the offer made on March 29. petitioner filed a motion to dismiss the complaint alleging that (1) the alleged "exclusive option" of respondent spouses lacked a consideration separate and distinct from the purchase price and was thus unenforceable and (2) the complaint did not allege a cause of action because there was no "meeting of the minds" between the parties and. On April 14. They then appealed to the Court of Appeals which. through its president and chief executive officer. Respondents filed a motion for reconsideration. on April 8. wrote Atty. had already been accepted by petitioner."5 On July 20. the parties again met during which Sobrecarey informed Atty. Dauz informing her that because the parties failed to agree on the terms and conditions of the sale despite the extension granted by petitioner. "[we] hope to finalize [our] agreement on the matter. 1997. 1994. The court cited Art. The motion was opposed by respondents."4 Her request was granted. Dauz that petitioner had not yet acted on her counter-offer. Pasig City where it was docketed as Civil Case No. wrote petitioner demanding the execution within five days of a deed of sale covering the properties. Atty. 1994. Dauz asked for an extension of 45 days from April 29.

While the P5. . Isidro A. They were thus considered to have waived the filing of a comment. Petitioner also disputes the appellate court’s ruling that Isidro A. 8 Respondents were required to comment within ten (10) days from notice. it shall be considered as part of the price and as proof of the perfection of the contract. the Court holds that respondents did not give the P1 million as "earnest money" as provided by Art. . Court of Appeals. Hence.contract of sale. They presented the amount merely as a deposit of what would eventually become the earnest money or downpayment should a contract of sale be made by them. but its motion was denied. In addition. this petition. v. 1967. 1994 letter of respondents. and (2) the documentary evidence in the records show that there was a perfected contract of sale. However. Petitioner contends that the Court of Appeals erred in finding that there was a perfected contract of sale between the parties because the March 29.000 might have indeed been paid to Carlos in October. respondents failed to file their comment. The petition is meritorious. Sr." In Spouses Doromal. Petitioner argues that the absence of agreement as to the mode of payment was fatal to the perfection of the contract of sale. albeit it was unenforceable for lack of a distinct consideration. Sobrecarey. Sobrecarey had authority to sell the subject real properties." The fact the parties had not agreed on the mode of payment did not affect the contract as such is not an essential element for its validity. The amount was thus given not as a part of the purchase price and as proof of the perfection of the contract of sale but only as a guarantee that respondents would not back out of the sale. there is nothing to show that the same was in the concept of the earnest money contemplated in . the Court of Appeals relied on the following findings: (1) earnest money was allegedly given by respondents and accepted by petitioner through its vice-president and operations manager. which petitioner accepted. despite 13 extensions totalling 142 days which the Court had given to them. 7 Petitioner moved for reconsideration of the trial court’s decision. the court found that Sobrecarey had authority to act in behalf of petitioner for the sale of the properties. merely resulted in an option contract. With regard to the alleged payment and acceptance of earnest money.9it was held: . Respondents in fact described the amount as an "earnest- deposit. 1482 of the Civil Code. In holding that there is a perfected contract of sale.

and (3) petitioner would secure the necessary approvals while respondents would handle the documentation.00 were paid in the concept of earnest money as the term was understood under the Old Civil Code. The first condition for an option period of 30 days sufficiently shows that a sale was never perfected. Under the second paragraph of Art. the option is unenforceable. the parties would negotiate the terms and conditions of the purchase. at the time when petitioner accepted the terms of respondents’ offer of March 29. No contract of sale may thus be enforced by respondents. the parties would negotiate the terms and conditions of the purchase. Viewed in the backdrop of the factual milieu thereof extant in the record. the P1 million "earnest-deposit" could not have been given as earnest money as contemplated in Art. as signifying perfection of the sale. The stages of a contract of sale are as follows: (1) negotiation. We are more inclined to believe that the said P5. Equally compelling as proof of the absence of a perfected sale is the second condition that. 1479. unlike in sale where it must be the price certain in money or its equivalent. This is evident from the following conditions attached by respondents to their letter. as a guarantee that the buyer would not back out. 1482 of the Civil Code. covering the period from the time the prospective contracting parties indicate interest in the . however. 11 All that respondents had was just the option to buy the properties which privilege was not. during the option period. an accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promisor only if the promise is supported by a distinct consideration. (2) that during the option period. invoked by petitioner. that is. There is no showing here of any consideration for the option. to wit: (1) that they be given the exclusive option to purchase the property within 30 days from acceptance of the offer. Consideration in an option contract may be anything of value.1âwphi1 As petitioner correctly points out. 1994. acceptance of this condition did not give rise to a perfected sale but merely to an option or an accepted unilateral promise on the part of respondents to buy the subject properties within 30 days from the date of acceptance of the offer. even the option secured by respondents from petitioner was fatally defective. 1482 because. Such option giving respondents the exclusive right to buy the properties within the period agreed upon is separate and distinct from the contract of sale which the parties may enter.10 In the present case.Art. their contract had not yet been perfected. Furthermore. exercised by them because there was a failure to agree on the terms of payment. considering that it is not clear that there was already a definite agreement as to the price then and that petitioners were decided to buy 6/7 only of the property should respondent Javellana refuse to agree to part with her 1/7 share.000. Lacking any proof of such consideration.

Inc. the parties never got past the negotiation stage. culminating in the extinguishment thereof. therefore. . but the proof of the concurrence of all the essential elements of the contract of sale which establishes the existence of a perfected sale..15 agreement on the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. Such being the situation. v.the terms of the payment . therefore. Court of Appeals. . otherwise there is no sale.contract to the time the contract is perfected. The fact. as the petitioners themselves admit that some essential matter . 12 In the present case. (2) perfection. and (3) consummation. The appellate court opined that the failure to agree on the terms of payment was no bar to the perfection of the sale because Art.18 Thus. Indeed. In Navarro v.16 In Velasco v. The alleged "indubitable evidence"13 of a perfected sale cited by the appellate court was nothing more than offers and counter-offers which did not amount to any final arrangement containing the essential elements of a contract of sale. This is error. however. this Court has already ruled before that a definite agreement on the manner of payment of the purchase price is an essential element in the formation of a binding and enforceable contract of sale.17 the parties to a proposed sale had already agreed on the object of sale and on the purchase price. that the petitioners delivered to the respondent the sum of P10.still had to be mutually covenanted. which takes place upon the concurrence of the essential elements of the sale which are the meeting of the minds of the parties as to the object of the contract and upon the price. it can not. It was held: . While the parties already agreed on the real properties which were the objects of the sale and on the purchase price. be said that a definite and firm sales agreement between the parties had been perfected over the lot in question. By the buyer’s own admission.000 as part of the down-payment that they had to pay cannot be considered as sufficient proof of the perfection of any purchase and sale agreement between the parties herein under Art. As held in Toyota Shaw. the same is needed. .14 we laid down the rule that the manner of payment of the purchase price is an essential element before a valid and binding contract of sale can exist. the fact remains that they failed to arrive at mutually acceptable terms of payment. despite the 45-day extension given by petitioner. 1482 of the new Civil Code. it is not the giving of earnest money. 1475 only requires agreement by the parties as to the price of the object. Inc. Sugar Producers Cooperative Marketing Association. Court of Appeals. Although the Civil Code does not expressly state that the minds of the parties must also meet on the terms or manner of payment of the price. which begins when the parties perform their respective undertakings under the contract of sale. the parties still had to agree on how and when the downpayment and the installments were to be paid.

00. 154493 December 6. it is immaterial whether Isidro A. 2006 REYNALDO VILLANUEVA. respondent. covered by TCT No.R. 4553. consisting of 41.In the absence of a perfected contract of sale. 17. 2002 Resolution2 of the Court of Appeals (CA) in CA-G. therefore. needs no further discussion. 520083 which reversed and set aside the September 14. Sobrecarey had the authority to enter into a contract of sale in behalf of petitioner.R. WHEREFORE. G.00.5 Bidding was subject to the following conditions: 1) that cash bids be submitted not later than April 27. 1989. T-15036.000. 19. petitioner.000. This issue. with an advertised floor price of P1.780 square meters. 2002 Decision1 and June 27. J. Branch 22. General Santos City. consisting of 22. PHILIPPINE NATIONAL BANK (PNB). the facts are as follows: The Special Assets Management Department (SAMD) of the Philippine National Bank (PNB) issued an advertisement for the sale thru bidding of certain PNB properties in Calumpang. 1995 Decision4 of the Regional Trial Court. covered by TCT No.409. with an advertised floor price of P2. and Lot No. the decision of the Court of Appeals is REVERSED and respondents’ complaint is DISMISSED. DECISION AUSTRIA-MARTINEZ. including Lot No.: The Petition for Review on Certiorari under Rule 45 before this Court assails the January 29. 2) that said bids . vs.268. As culled from the records. CV No. SO ORDERED.190 square meters. T-15042. No. General Santos City (RTC) in Civil Case No.

00 (downpayment of P600. 1990. Sale shall be subject to our Board of Director’s approval and to other terms and conditions imposed by the Bank on sale of acquired assets.000. on July 24.000.9 Guevara further wrote: If our quoted price is acceptable to you. 8 On July 6.000. 16997. which reads: C O N F O R M E: PRICE OF P2.00 was debited from Villanueva’s Savings Account No.13 Also. Villanueva signed a typewritten note.R. SAMD. 1990. PNB-General Santos Branch.00 to show his good faith but with the understanding that said amount may be treated as part of the payment of the purchase price only when his offer is accepted by PNB. He also manifested that he was depositing P400.300. At the bottom of said letter there appears an unsigned marginal note stating that P400. and 3) that all acceptable bids be subject to approval by PNB authorities.300. 43612 and credited to SAMD. 1990 letter of Villanueva to Ramon Guevara (Guevara).00 and the balance payable in two (2) years at quarterly amortizations. stating: This is a deposit made to show the sincerity of my purchase offer with the understanding that it shall be returned without interest if my offer is not favorably considered or be forfeited if my offer is approved but I fail/refuse to push through the purchase." 12 On the dorsal portion of Official Receipt No. 1990 letter6 to the Manager. 19 is available and that the asking price therefor is P2. 10 (Emphasis ours) Instead of submitting a revised offer. please submit a revised offer to purchase.00. Reynaldo Villanueva (Villanueva) offered to purchase Lot Nos.000. 7 PNB-General Santos Branch forwarded the June 28. 43612) with PNB-General Santos Branch.677.883.00.883.) 11 Villanueva paid P200. 16997 to acknowledge receipt of the "partial payment deposit on offer to purchase. No.000.00 to PNB which issued O. In a June 28. Vice President.be accompanied by a 10% deposit in manager’s or cashier’s check. 1990 marginal note. Guevara informed Villanueva that only Lot No. P380. Villanueva merely inserted at the bottom of Guevara’s letter a July 11. 17 and 19 for P3.00 was deposited into Villanueva’s account (Savings Account No.000.14 .

was accepted by the defendant only insofar as Lot 19 is concerned as exemplified by its letter dated July 6. judgment is rendered in favor of the plaintiff and against the defendant directing it to do the following: 1.00 as moral damages.15 Undaunted.000.00 as attorney’s fees. SO ORDERED.17 The RTC anchored its judgment on the finding that there existed a perfected contract of sale between PNB and Villanueva.00 to complete the downpayment of P600.000.00. Hence.000.00. It found: The following facts are either admitted or undisputed: xxx The defendant through Vice-President Guevara negotiated with the plaintiff in connection with the offer of the plaintiff to buy Lots 17 & 19.300.000. To execute a deed of sale in favor of the plaintiff over Lot 19 comprising 41. In its September 14.00 (Exhibit "F" & Exhibit "I").000. General Santos City covered by TCT No. P500.300. With this development. 2.00. 1990 where the plaintiff signified his concurrence after conferring with the defendant’s vice-president. 1995 Decision. however.190 square meters situated at Calumpang. 1990. The defendant also issued a receipt to the plaintiff on the same day when the plaintiff paid the amount of P200. SAMD is deferring negotiations with him over said property and returning his deposit of P580. plus litigation expenses and costs of the suit. The conformity of the plaintiff was typewritten by the defendant’s own people where the plaintiff accepted the price of P2.On October 11. 19.883. T-15036 after payment of the balance in cash in the amount of P2. upon orders of the PNB Board of Directors to conduct another appraisal and public bidding of Lot No. the plaintiff was also given the go signal by the defendant to improve Lot 19 because it was already in effect sold . Villanueva attempted to deliver postdated checks covering the balance of the purchase price but PNB refused the same. To pay the plaintiff P1. thus: WHEREFORE. the RTC granted the Complaint. Villanueva filed with the RTC a Complaint16 for specific performance and damages against PNB. Guevara wrote Villanueva that.303. however. The offer of plaintiff to buy.000.

21 According to the CA.18 The RTC also pointed out that Villanueva’s P580. that is. it considered Lot 19 already sold. is lacking. The record shows that appellant. 1990 letter (Exh. 1990 with a modified offer.00 in cash for Lot 19. the appealed decision is REVERSED and SET ASIDE and another rendered DISMISSING the complaint.e. to him and because of that the defendant fenced the lot and completed his two houses on the property.19 The RTC further cited contemporaneous acts of PNB purportedly indicating that. to which appellee made a new proposal. cited in ABS-CBN Broadcasting Corporation v. 1990 letter. made a qualified acceptance of appellee’s letter-offer dated June 28. when something is desired which is not exactly what is proposed in the offer. as early as July 25. 1990 by imposing an asking price of P2. thru Guevara’s July 6. 1319. "H")20 to another interested buyer.000. Consequently. 6th ed. PNB appealed to the CA which reversed and set aside the September 14. id. Court of Appeals. and to which Villanueva replied on July 11. constitutes a counter-offer and a rejection of the original offer (Art. 1990. The CA held: In the case at bench. 450. . 1990 offer of Villanueva. P600. p. consent. 1319..). SO ORDERED. 1995 RTC Decision. 1990 constituted a counter-offer (Art. or one that involves a new proposal.883. such acceptance is not sufficient to generate consent because any modification or variation from the terms of the offer annuls the offer (Tolentino. thus: WHEREFORE. A qualified acceptance. there was no perfected contract of sale because the July 6. as shown by Guevara’s July 25. The letter dated July 6. 301 SCRA 572). in respect to the price and manner of its payment. to pay the amount of P2. i. Civil Code). 1990 letter of Guevara constituted a qualified acceptance of the June 28.00 in staggered amounts.883.000.00 downpayment was actually in the nature of earnest money acceptance of which by PNB signified that there was already a sale. Commentaries and Jurisprudence on the Civil Code of the Philippines. 1996.00 as downpayment and the balance within two years in quarterly amortizations.. et al.300.300..

it is necessary to retrace each offer and acceptance they made. and an acceptance of the offer which is absolute in that it refers to the exact object and consideration embodied in said offer.000. it is imperative that it assents to those points in the offer which. was not accepted by appellant. 2002 Decision and June 27. The Court sustains the CA on both issues. it was clearly stated in Guevara’s July 6. the offer and its acceptance must be unanimous both on the rate of the payment and on its term. 2002. Petitioner Villanueva now assails before this Court the January 29. He assigns five issues which may be condensed into two: first. which constitutes a counter-offer. General Santos City.26 More particularly on the matter of the consideration of the contract. Moreover. 19 for which the floor price was P2.268. whether a perfected contract of sale exists between petitioner and respondent PNB. its existence may only be inferred from the confluence of two acts of the parties: an offer certain as to the object of the contract and its consideration. 1990 letter that "the sale shall be subject to our Board of Director’s approval and to other terms and conditions imposed by the Bank on sale of acquired assets. and second. to deliver and transfer ownership of a specified thing or right to the buyer over which the latter agrees. for a price certain. ." 22 Villanueva’s Motion for Reconsideration23 was denied by the CA in its Resolution of June 27. are not only material but motivating as well. 27 To determine whether there was mutual consent between the parties herein. Appellee’s new proposal. under the operative facts of each contract. Contracts of sale are perfected by mutual consent whereby the seller obligates himself. whether the conduct and actuation of respondent constitutes bad faith as to entitle petitioner to moral and exemplary damages and attorney’s fees. An acceptance of an offer which agrees to the rate but varies the term is ineffective. 2002 Resolution of the CA.25 While it is impossible to expect the acceptance to echo every nuance of the offer. Anything short of that level of mutuality produces not a contract but a mere counter-offer awaiting acceptance. 24 Mutual consent being a state of mind. including Lot No.00. Respondent began with an invitation to bid issued in April 1989 covering several of its acquired assets in Calumpang. The offer was subject to the condition that sealed bids. its board having decided to have Lot 19 reappraised and sold thru public bidding.

this July 6." The CA viewed this July 11. Petitioner does not directly impugn such reasoning of the CA.accompanied by a 10% deposit in manager’s or cashier’s check.883. 19 rather than Lot Nos.300 for one lot rather than P3.883.300. by its express terms.00. 1990 offer with a July 6. he qualified his acceptance by proposing a two-year payment term.300. and two. this reply was certainly not an acceptance of the June 28. the consideration is P2. More important.300. 1990 conformity modified the July 6. the object of the proposed sale is now only Lot No. 28 More than that. m portion is now part of a public road. However. 1990 counter-offer as this was allegedly never raised during the trial nor on appeal.000. In reply to the July 6. petitioner signed his July 11. 17 and Lot No. On June 28.883. it cannot be said that the June 28. 1990 letter that only Lot No. that the sale of the property be approved by the Board of Directors and subjected to other terms and conditions imposed by the Bank on the sale of acquired assets. He merely questions it for taking up the issue of whether his July 11. 1990 offer but a mere counter-offer. the April 1989 invitation was subject to the condition that all sealed bids submitted and accepted be approved by respondent’s higher authorities. 1989. m but an 8.00. be submitted not later than 10 o’clock in the morning of April 27.677.00 for two lots. 1990.883. 17 and 19 matched the advertised floor prices for the same properties. the June 28. said invitation lapsed on April 27.00 and the balance payable in two years at quarterly amortization. and third. 1989. 1990 conformity to the quoted price of P2. 1990 counter-offer. However. It deviated from the original offer on three material points: first. 1990 letter of petitioner was an offer to buy independent of the April 1989 invitation to bid. petitioner made an offer to buy Lot No. It is noted that this offer exactly corresponded to the April 1989 invitation to bid issued by respondent in that the proposed aggregate purchase price for Lot Nos. that petitioner submit a revised offer to purchase based on the quoted price. 1990 counter- offer imposed two conditions: one. 19 for an aggregate price of P3. the area of the property to be sold is still 41. 1990 letter of petitioner was an effective acceptance of the April 1989 invitation to bid for.677.00 price for Lot No. 19. while petitioner accepted the P2.000.797-sq.000. 17 and 19. Thus.00 but inserted the term "downpayment of P600. second.190 sq. 1990 conformity not as an acceptance of the July 6. respondent replied to the June 28. 29 . It was a definite offer as it identified with certainty the properties sought to be purchased and fixed the contract price. 19 is available and that the price therefor is now P2. 1990 counter- offer but a further counter-offer for. As the CA pointed out.

000. He made a counter-offer that required acceptance by respondent. 1990 offer quoted the price of P3. specifically on whether it consented to the object of the sale and its consideration.31 Petitioner’s July 11.00. through its Board of Directors. 1990 counter-offer quoted the price of P2. he interjected into the negotiations a new substantial matter on which the parties had no prior discussion and over which they must yet agree. Petitioner’s own June 28. To begin with.000. 1990 offer to PNB-General Santos Branch. however. Not so. therefore. 1990 counter-offer.00 for two lots but was silent on the term of payment. As stated in its October 11. 1990 repudiation was belated as respondent had already agreed to his July 11.00 payment. respondent denied that a contract of sale with petitioner was ever perfected. Moreover. and PNB-SAMD. petitioner sent his June 28.000. Acceptance of petitioner’s payments did not amount to an implied acceptance of his last counter-offer. Petitioner insists. had no authority to bind respondent to a contract of sale with petitioner. Thus. did not accept this last counter- offer. which accepted petitioner’s P380. did not usher the parties beyond the negotiation stage of contract making towards its perfection. when petitioner suddenly introduced a term of payment in his July 11. 1990 letter to petitioner. Respondent’s July 6. Petitioner then cannot pretend that PNB-General . 30 Its defense was broad enough to encompass every issue relating to the concurrence of the elements of contract. respondent ordered the reappraisal of the property.00 and was also silent on the term of payment.833. There was nothing to prevent the CA from inquiring into the offers and counter-offers of the parties to determine whether there was indeed a perfected contract between them. Up to that point.Such argument is not well taken.32 He cites Article 1482 of the Civil Code where it says that acceptance of "downpayment" or "earnest money" presupposes the perfection of a contract. 1990 counter-offer when it accepted his "downpayment" or "earnest money" of P580. petitioner transacted directly with Guevarra. 1990 counter-offer. respondent. the term or schedule of payment was not on the negotiation table. As it were. From beginning to end.677.300. Thereafter. PNB-General Santos Branch. 1990 marginal note was a further counter-offer which did not lead to the perfection of a contract of sale between the parties. which accepted his P200. 33 Petitioner is well aware of this. that the October 11. To recall. there is merit in the ruling of the CA that the July 11.000.00 payment. Said branch did not act on his offer except to endorse it to Guevarra. in clear repudiation not only of the proposed price but also the term of payment thereof.

This is borne out by respondent’s Exhibits "2-a" and "2-b". 1990 counter-offer by merely accepting his P380.000. 1990 counter-offer was still subject to approval by respondent. .00 was with the clear understanding that his July 11.000. Acceptance of said amounts by respondent does not presuppose perfection of any contract. No. This is a reasonable disclaimer considering the corporate nature of respondent. his July 11. petitioner’s payment of P200.00 deposit from PNB-General Santos Branch. "2-a" as well as in his June 28.00 payment. 34 Moreover. In fine. PNB-General Santos Branch has no authority to bind respondent by its interpretation of the nature of the payment made by petitioner. Neither did SAMD have authority to bind PNB. 16997 that petitioner acceded that the amount he paid was a mere "x x x deposit made to show the sincerity of [his] purchase offer with the understanding that it shall be returned without interest if [his] offer is not favorably considered x x x. petitioner referred to his payments as mere "deposits.Santos Branch had authority to accept his July 11."35 This was a clear acknowledgment on his part that there was yet no perfected contract with respondent and that even with the payments he had advanced. 1990 counter-offer was still subject to consideration by respondent. No. Not only that.R. 1990 counter-offer. as we said.37 With the foregoing disquisition.36 It must be noted that petitioner has expressly admitted that he had withdrawn the entire amount of P580. 19." Even O. In sum.R. It is only in the debit notice issued by PNB-General Santos Branch where petitioner’s payment is referred to as "downpayment". where it appears on the dorsal portion of O. which petitioner never controverted. But then. the Court foregoes resolution of the second issue as it is evident that respondent acted well within its rights when it rejected the last counter- offer of petitioner.000. as well as its July 6. SAMD was always careful to emphasize that whatever offer is made and entertained will be subject to the approval of respondent’s higher authorities. 1990 offer. the amounts paid by petitioner were not in the nature of downpayment or earnest money but were mere deposits or proof of his interest in the purchase of Lot No. in the same Exh. petitioner’s petition lacks merit. 16997 refers to petitioner’s payment as mere deposit. In its April 1989 invitation to bid.

On July 29. MARTINEZ. 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. vs. recovery of possession and ownership of parcels of land with claim for attorney's fees and damages. Apparently. and WARLITO QUIJADA. situated in the barrio of San Agustin. .: Petitioners. 1956. SO ORDERED. 126444 December 4. Agusan del Sur. J. de Sequeña and Paz Corvera Cabiltes and brother Epapiadito Corvera executed a conditional deed of donation (Exh. C) of the two-hectare parcel of land subject of the case in favor of the Municipality of Talacogon. Trinidad was one of the heirs of the late Pedro Corvera and inherited from the latter the two-hectare parcel of land subject of the case. On April 5. ALBERTO ASIS. Talacogon. CRESENTE QUIJADA. REGALADO MONDEJAR. 2002 of the Court of Appeals are AFFIRMED. filed a complaint against private respondents for quieting of title. RODULFO GOLORAN. COURT OF APPEALS. FERNANDO BAUTISTA.R. SEGUNDINO RAS. Subsequently. ANTONIO MACASERO. de Quijada. the petition is DENIED. 2002 and Resolution dated June 27. G. 1). No costs. EULALIO QUIJADA. 1998 ALFONSO QUIJADA. and NESTOR MAGUINSAY. Trinidad remained in possession of the parcel of land despite the donation. REYNELDA QUIJADA. No. respondents. ELIUTERIA QUIJADA. The suit was premised on the following facts found by the court of Appeals which is materially the same as that found by the trial court: Plaintiffs-appellees (petitioners) are the children of the late Trinidad Corvera Vda. CELSO ABISO. DEMETRIO QUIJADA. 1962. as heirs of the late Trinidad Quijada. Trinidad Quijada together with her sisters Leonila Corvera Vda. Trinidad sold one (1) hectare of the subject parcel of land to defendant-appellant Regalado Mondejar (Exh. The Decision dated January 29. ERNESTO GOLORAN.WHEREFORE. petitioners.

on the other hand. E) against defendant-appellant (respondent) Regalado Mondejar. the one (1) hectare on July 29. p. and a widow (Decision. more so that she was already 63 years old at the time. 6). 1967 and 1968. p. In 1987. the heirs of Trinidad. Rodolfo Goloran (Exh. Efren Guden (Exh. which complaint was. 39) and. the proposed provincial high school having failed to materialize. dismissed for failure to prosecute (Exh. 6. plaintiffs-appellees (petitioners) filed this action against defendants-appellants (respondents). p. D). In the complaint. conveyed. filed a complaint for forcible entry (Exh. 41). In 1980. that the deed of sale executed by Trinidad Quijada in favor of Mondejar did not carry with it the conformity and acquiescence of her children. 5). 4. in their answer claimed that the land in dispute was sold to Regalado Mondejar. 1962. however. Rollo. the land still belongs to the Municipality of Talacogon. As affirmative and/or special defense. the Sangguniang Bayan of the municipality of Talacogon enacted a resolution reverting the two (2) hectares of land donated back to the donors (Exh. 7) and Ernesto Goloran (Exh. F). The court a quo rendered judgment in favor of plaintiffs-appellees (petitioners): firstly because "Trinidad Quijada had no legal title or right to sell the land to defendant Mondejar in 1962. hence. secondly. and the remaining one (1) hectare on installment basis until fully paid. On July 5. who at that time was already dead. transferred or disposed of the property in question to any person or entity much less to Regalado Mondejar save the donation made to the Municipality of Talacogon in 1956. defendant-appellant (respondent) Regalado Mondejar sold portions of the land to defendants-appellants (respondents) Fernando Bautista (Exh. In the meantime. 1988. the same not being hers to dispose of because ownership belongs to the Municipality of Talacogon (Decision. plaintiffs-appellees (petitioners) alleged that their deceased mother never sold. Rollo. 8). Defendants-appellants (respondents). the supposed sale is null and void. 1966. defendants-appellants (respondents) alleged that plaintiffs action is barred by laches or has prescribed." 1 . p. that at the time of the alleged sale to Regalado Mondejar by Trinidad Quijada.Trinidad verbally sold the remaining one (1) hectare to defendant- appellant (respondent) Regalado Mondejar without the benefit of a written deed of sale and evidenced solely by receipts of payment.

3) ordering the cancellation of the Deed of Sale executed by the late Trinidad Quijada in favor of Defendant Regalado Mondejar as well as the Deeds of Sale/Relinquishments executed by Mondejar in favor of the other Defendants. 6) ordering Defendants to pays the amount of P8. viewed from the above perceptions.000.00 representing moral damages. 2) ordering any person acting in Defendants' behalf to vacate and restore the peaceful possession of the land in question to Plaintiffs. as it is hereby rendered: 1) ordering the Defendants to return and vacate the two (2) hectares of land to Plaintiffs as described in Tax Declaration No. and 7) ordering Defendants to pay the sum of P30.000. jointly and severally.000.00 as expenses of litigation. 4) ordering Defendants to remove their improvements constructed on the questioned lot. 1209 in the name of Trinidad Quijada. judgment is. . the amount of P10. 5) ordering the Defendants to pay Plaintiffs. the scale of justice having tilted in favor of the plaintiffs.00 representing attorney's fees.The dispositive portion of the trial court's decision reads: WHEREFORE.

petitioners filed a motion for reconsideration. not being contrary to law. 2 SO ORDERED. 12 According. that resolutory condition is the construction of the school. and that petitioners' case is barred by laches. In this case. 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. 6 We affirm the decision of the respondent court. On the contrary. 1956 by Trinidad Quijada and her brother and sisters 7 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. morals. 5 petitioners instituted a petition for review to this Court arguing principally that the sale of the subject property made by Trinidad Quijada to respondent Mondejar is void. the latter . The donation is perfected once the acceptance by the donee is made known to the donor." 8 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. On appeal. the same may in the future be closed" the donated property shall automatically revert to the donor. at the time of the sales made in 1962 towards 1968. 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. considering that at that time. 13 Thus. So long as the resolutory condition subsists and is capable of fulfillment. 9 Such condition. public order or public policy was validly imposed in the donation. When the CA denied their motion. the condition imposed is not a condition precedent or a suspensive condition but a resolutory one. 10 When the Municipality's acceptance of the donation was made known to the donor. good customs. the Court of Appeals reversed and set aside the judgment a quo 3 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. private respondents contend that the sale was valid. The donation made on April 5. the former became the new owner of the donated property — donation being a mode of acquiring and transmitting ownership 11 — notwithstanding the condition imposed by the donee. that they are buyers in good faith. the alleged seller (Trinidad) could not have sold the lots since she had earlier transferred ownership thereof by virtue of the deed of donation. ownership is immediately transferred to the latter and that ownership will only revert to the donor if the resolutory condition is not fulfilled. 4 Thereafter. ownership was already transferred to the Municipality of Talacogon.

Such period. thus. 16 . by exercising due diligence. giving rise to the situation complained of. Laches presupposes failure or neglect for an unreasonable and unexplained length of time. 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. became irrelevant herein when the donee- Municipality manifested through a resolution that it cannot comply with the condition of building a school and the same was made known to the donor. or of one under whom he claims. d) Injury or prejudice to the defendant in the event relief is accorded to the complainant. In this case. to do that which." 15 Its essential elements of: a) Conduct on the part of the defendant. Such inchoate interest may be the subject of contracts including a contract of sale. however. b) Delay in asserting complainant's right after he had knowledge of the defendant's conduct and after he has an opportunity to sue. however. petitioners' action is not yet barred thereby. giving rise to a presumption that the party entitled to assert it either has abandoned or declined to assert it. and. 14 "it is negligence or omission to assert a right within a reasonable time.remains the owner so long as he has tried to comply with the condition within a reasonable period. As to laches. what the donor sold was the land itself which she no longer owns. The donor may have an inchoate interest in the donated property during the time that ownership of the land has not reverted to her. 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. could or should have been done earlier. 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.

the lots in this case were conditionally owned by the municipality. 23 There is also no merit in petitioners' contention that since the lots were owned by the municipality at the time of the sale. Such circumstance happened in this case when petitioners — who are Trinidad Quijada's heirs and successors-in-interest — became the owners of the subject property upon the reversion of the ownership of the land to them. being a consensual contract. there is one thing which militates against the claim of petitioners. 18Ownership 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. including real property. ownership is transferred to respondent Mondejar and those who claim their right from him. the contract involving the same is inexistent and void from the beginning. Petioners' cause of action to quiet title commenced only when the property reverted to the donor and/or his successors-in-interest in 1987. whether it be those for public use or its patrimonial property 25 are outside the commerce of men. To rule that the donated properties are outside the commerce of men would render nugatory the unchallenged reasonableness and . they were outside the commerce of men under Article 1409 (4) of the NCC. which is manifested the moment there is a meeting of the minds 17 as to the offer and acceptance thereof on three (3) elements: subject matter. 22 but also to other kinds of property. However. is perfected by mere consent. The consummation. They had no interest over the property at that time except under the deed of donation to which private respondents were not privy. petitioners had previously filed an ejectment suit against private respondents only that it did not prosper on a technicality. Consequently. are absent in this case. Besides. The 1960's sales made by Trinidad Quijada cannot be the reckoning point as to when petitioners' cause of action arose. Sale. the sale is still valid. 20A 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. 24 thus. Certainly. hence." 21 This rule applies not only when the subject matter of the contract of sale is goods. Be that at it may. 19 Perfection per se does not transfer ownership which occurs upon the actual or constructive delivery of the thing sold. when the suit was initiated the following year. nowhere in Article 1409 (4) is it provided that the properties of a municipality. 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. Article 1434 of the New Civil Code supports the ruling that the seller's "title passes by operation of law to the buyer. price and terms of payment of the price. it cannot be said that petioners had slept on their rights for a long time. Moreover. of the perfected contract is another matter. however. What the law requires is that the seller has the right to transfer ownership at the time the thing sold is delivered.

No." The pertinent facts are as follows: Cleopas Ape was the registered owner of a parcel of land particularly known as Lot No. such as the open seas and the heavenly bodies. 2319 of the Escalante Cadastre of Negros Occidental and covered by Original . there is neither factual nor legal basis thereof. Moral damages cannot likewise be justified as none of the circumstances enumerated under Articles 2219. Respondents. following the general rule in Article 2208 of the New Civil Code. With respect to the trial court's award of attorney's fees.justness of the condition which the donor has the right to impose as owner thereof. 133638 April 15. DE APE. CV No. the assailed decision of the Court of Appeals is AFFIRMED. Moreover. 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. including his wife Perpetua de Ape. Fortunato Ape.R. J.: Before Us is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G. vs. DE LUMAYNO. accompanied by her husband Braulio Lumayno v. Attorney's fees and expenses of litigation cannot. "Generosa Cawit de Lumayno. the objects referred to as outsides the commerce of man are those which cannot be appropriated. SO ORDERED G. Petitioner. THE HONORABLE COURT OF APPEALS and GENOROSA CAWIT VDA.R. DECISION CHICO-NAZARIO. 2005 PERPETUA VDA. litigation expenses and moral damages. 45886 entitled. 27 and 2220 28of the New Civil Code concur in this case WHEREFORE. there being no stipulation to that effect and the case does not fall under any of the exceptions. by virtue of the foregoing. be recovered in this case. 26 It cannot be said that private respondents had compelled petitioners to litigate with third persons.

2Upon Cleopas Ape's death sometime in 1950.Certificate of Title (OCT) No.00 in damages. 5 . and to pay the costs. 2319 to private respondent. Adela.00. P500. the property passed on to his wife. Felicidad. and Angelina. private respondent and Fortunato entered into a contract of sale of land under which for a consideration of P5.00 WITNESS: (Illegible)4 As private respondent wanted to register the claimed sale transaction. namely: Fortunato. Cornelio. Fortunato unjustifiably refused to heed her demands. Braulio. all surnamed Ape. for FIVE THOUSAND PESOS – LOT #2319. 2319 of the Escalante Cadastre. However. Maria Ondoy. The agreement was contained in a receipt prepared by private respondent's son-in-law. P2. On 15 March 1973. she supposedly demanded that Fortunato execute the corresponding deed of sale and to receive the balance of the consideration. Generosa Cawit de Lumayno the sum of THIRTY PESOS ONLY as Advance Payment of my share in Land Purchased.00 for attorney's fees. Dominador. Private respondent.000. joined by her husband. Encarnacion. Said receipt was attached to the complaint as Annex "A" thereof and later marked as Exhibit "G" for private respondent.000.00 reimbursement for litigation expenses as well as additional P500. Generosa Cawit de Lumayno (private respondent herein). 1971 TO WHOM IT MAY CONCERN: This date received from Mrs.00 for every appeal made. It was alleged in the complaint that on 11 April 1971. Bernalda. RP 1379 (RP-154 [300]). Andres Flores. Bienvenido. prayed that Fortunato be ordered to execute and deliver to her "a sufficient and registrable deed of sale involving his one-eleventh (1/11) share or participation in Lot No. Loreta.3instituted a case for "Specific Performance of a Deed of Sale with Damages" against Fortunato and his wife Perpetua (petitioner herein) before the then Court of First Instance of Negros Occidental.000. at her behest. Lourdes. (Signed) FORTUNATO APE P30. to pay P5. Fortunato agreed to sell his share in Lot No. therefore. The receipt states: April 11. and their eleven (11) children.

his right of redemption no longer existed. 2319 thus. private respondent testified that she and her husband acquired the various portions of Lot No. 123539 – Adverse claim filed by Braulio Lumayno.6 In their reply. and exemplary damages. 2319 alleging that in the event they had acquired the shares of Fortunato's co-owners by way of sale. 11 In addition. Finally. Fortunato and petitioner also assailed private respondent and her husband's continued possession of the rest of Lot No. they insisted that Fortunato was no longer a co-owner of Lot No. the aggregate area of shares sold to him on the basis of (alleged) sales in his possession. Series of 1967 of Alexander Cawit of Escalante. The annual lease rental was P100. By way of counterclaim. Marieta. Narciso. 1967 at 8:30 a. 2319 belonging to Fortunato's co-owners.00 which private respondent and her husband allegedly paid on installment basis. the defendants below maintained having entered into a contract of lease with respondent involving Fortunato's portion of Lot No. she and her husband had the whole Lot No. Occ.8 their respective portions of Lot No. 157. and that respondent be ordered to pay them attorney's fees. all surnamed Ape. Doc. Page No.Fortunato and petitioner denied the material allegations of the complaint and claimed that Fortunato never sold his share in Lot No. Clarita. Jr. Actg. private respondent claimed that after the acquisition of those shares.93 square meters.7 the private respondent and her husband alleged that they had purchased from Fortunato's co-owners. as evidenced by various written instruments. he was invoking his right to redeem the same. Romeo. 33. Rodrigo. Prior to the resolution of this case at the trial court level. Register of Deeds. 2319. moral damages. – Notice of adverse claim filed by Braulio Lumayno affecting the lot described in this title to the extent of 77511. Book No. Date of instrument.m. This purported lease contract commenced in 1960 and was supposed to last until 1965 with an option for another five (5) years. (SGD) FEDENCIORRAZ. Fortunato. 2319 surveyed by a certain Oscar Mascada who came up with a technical description of said piece of land. – June 22.10 The annotation states: Entry No. 2319. Neg. 2319. Thereafter. and Salvador. Fortunato and petitioner prayed that the lease contract between them and respondent be ordered annulled. her husband caused the annotation of an adverse claim on the certificate of title of Lot No. No. 13 . 2319 to private respondent and that his signature appearing on the purported receipt was forged. Fortunato died and was substituted in this action by his children named Salodada.. By virtue of these sales. 12 Significantly. private respondent alleged that Fortunato was present when the survey was conducted. 9 During the trial. more or less. XI.

Thereafter.18 She also stated in her testimony that her husband was an illiterate and only learned how to write his name in order to be employed in a sugar central. Fortunato then went on to affix his signature on the receipt. 2319.16 that private respondent made her (petitioner's) husband sign a receipt acknowledging the receipt of said amount of money.000. 2319 for P5.23 the trial court concluded that private respondent did not have the right to demand the delivery to her of the registrable deed of sale over Fortunato's portion of the Lot No. she asked her son-in-law Flores to prepare the aforementioned receipt. The trial court also rejected Fortunato and petitioner's claim that they had the right of redemption over the shares previously sold to private respondent and the latter's husband. they managed to collect only thirty pesos. the provision of Article 1350 of the Civil Code. According to the trial court. petitioner insisted that the entire Lot No. 2319. He allegedly demanded the rental payment for his land but as she was no longer interested in renewing their lease agreement. Applying. The trial court likewise ordered that deeds or documents representing the sales of the shares previously owned by Fortunato's co-owners be registered and annotated on the existing certificate of title of Lot No. 14 As regards the circumstances surrounding the sale of Fortunato's portion of the land. 2319 had not yet been formally subdivided.00. 17 and that the contents of said receipt were never explained to them. petitioner maintained that neither she nor her husband received any notice regarding those sales transactions. 2319 purportedly showing the land belonging to Fortunato being bounded by a row of banana plants thereby separating it from the rest of Lot No. the court a quo rendered a decision22 dismissing both the complaint and the counterclaim. private respondent testified that Fortunato went to her store at the time when their lease contract was about to expire. Marietta Ape Dino. 19 As for private respondent's purchase of the shares owned by Fortunato's co-owners. 2319.00 to Fortunato and petitioner. 20 The testimony of petitioner was later on corroborated by her daughter-in-law. reasoning as follows: .000.15 that on 11 April 1971 she and her husband went to private respondent's house to collect past rentals for their land then leased by the former. they agreed instead to enter into a contract of sale which Fortunato acceded to provided private respondent bought his portion of Lot No. Flores read the document to Fortunato and asked the latter whether he had any objection thereto.Also presented as evidence for private respondent were pictures taken of some parts of Lot No. therefore. 21 After due trial. For her part. private respondent failed to prove that she had actually paid the purchase price of P5. however.

Under Art. 26 The Court of Appeals. Defendant themselves presented as their very own exhibits copies of the respective deeds of sale or conveyance by their said co-heirs and co-owners in favor of the plaintiffs or their predecessors-in-interest way back on January 2. the decision dated March 11. 27 . they themselves acquired possession of said documentary exhibits even before they formally offered them in evidence.Defendants in their counterclaim invoke their right of legal redemption under Article 1623 of the New Civil Code in view of the alleged sale of the undivided portions of the lot in question by their co-heirs and co-owners as claimed by the plaintiffs in their complaint. defendants have only THIRTY (30) DAYS counted from their actual knowledge of the exact terms and conditions of the deeds of sale or conveyance of their co-heirs' and co-owners' share within which to exercise their right of legal redemption. both parties filed their respective notices of appeal before the trial court with petitioner and her children taking exception to the finding of the trial court that the period within which they could invoke their right of redemption had already lapsed. 2319. They have been informed by the plaintiff about said sales upon the filing of the complaint in the instant case as far back as March 14. and another one is entered ordering the defendant-appellant Fortunato Ape and/or his wife Perpetua de Ape and successors-in-interest to execute in favor of plaintiff-appellant Generosa Cawit de Lumayno a Deed of Absolute Sale involving the one-eleventh (1/11) share or participation of Fortunato Ape in Lot No.527. Without pronouncement as to costs. in the decision now assailed before us. The decision is AFFIRMED insofar as the dismissal of defendants-appellants' counterclaim is concerned. private respondent raised as errors the trial court's ruling that there was no contract of sale between herself and Fortunato and the dismissal of their complaint for specific performance. 1994. that the Clerk of Court of said court is ordered to execute the deed on behalf of the vendor. The dispositive portion of the appellate court's decision reads: WHEREFORE.24 Within the reglementary period. is hereby REVERSED and SET ASIDE insofar as the dismissal of plaintiffs-appellants' complaint is concerned. within (30) days from finality of this decision. meaning. containing an area of 12.19 square meters.25 For her part. 1992 when they formally offered their exhibits in the instant case. reversed and set aside the trial court's dismissal of the private respondent's complaint but upheld the portion of the court a quo's decision ordering the dismissal of petitioner and her children's counterclaim. 1623 of the New Civil Code. more or less. and in case of non- compliance with this Order. Escalante Cadastre. 1973.

29 SCRA 1). this Court appoints the Clerk of Court of the trial court to execute on behalf of the vendor the said document. and that as a consequence of the failure and refusal on the part of the vendor Fortunato Ape to live up to his contractual obligation. but afterwards failed to live up to his contractual obligation (TSN. or for her to deposit the equivalent amount in court in the form of consignation. 1971.00 representing the purchase price of the 1/11th share of Fortunato Ape was not paid by the vendee on April 11. pp. therefore. containing an area of 12. .The Court of Appeals upheld private respondent's position that Exhibit "G" had all the earmarks of a valid contract of sale. find and so hold that the trial court should have found that exhibit G bears all the earmarks of a private deed of sale which is valid. and to deliver to the vendee. We. binding and enforceable between the parties. but that does not affect the binding force and effect of the document.000. containing the adverse claim of private respondent and her husband.19 square meters. in case of non-compliance within said period. plaintiff-appellant Generosa Cawit de Lumayno does not fall within the purview of a debtor. Escalante Cadastre.. The vendee having paid the vendor an advance payment of the agreed purchase price of the property. N. the vendee precisely instituted this action to compel the vendor Fortunato Ape to execute the final document. constituted a sufficient compliance with the written notice requirement of Article 1623 of the Civil Code and the period of redemption under this provision had long lapsed. It is not right for the trial court to expect plaintiff-appellant to pay the balance of the purchase price before the final deed is executed. more or less. within 30 days from finality of this decision. 2319. 1256 and 1252. plaintiff-appellant Generosa Cawit de Lumayno a registerable deed of absolute sale involving his one-eleventh (1/11th) share or participation in Lot No. however. 11-13.C. after she was informed that he would execute the same upon arrival of his daughter "Bala" from Mindanao. what the vendor can exact from the vendee is full payment upon his execution of the final deed of sale.527. Consignation comes into fore in the case of a creditor to whom tender of payment has been made and refuses without just cause to accept it (Arts. and/or up to the present. affirmed the trial court's ruling on the issue of petitioner and her children's right of redemption. It ruled that Fortunato's receipt of the Second Owner's Duplicate of OCT (RP) 1379 (RP-154 ([300]). June 10. As vendee. thus: Exhibit G is the best proof that the P5.C. he and/or his heirs and successors-in-interest can be compelled to execute in favor of. Querino vs. and. As is shown.28 The Court of Appeals. Pelarca. 1992).

Private respondent also averred that "although (Lot No. when private respondent and her husband . at most. Finally. essentially. Exhibit "G" merely contained a unilateral promise to sell which private respondent could not enforce in the absence of a consideration distinct from the purchase price of the land. In addition. each heir limiting his/her improvement within the portion or premises which were his/her respective share. Each took and possessed specific portion or premises as his/her share in land. Petitioner is also of the view that. private respondent argued that the annotation on the second owner's certificate over Lot No. and whether the receipt signed by Fortunato proves the existence of a contract of sale between him and private respondent. a contract of sale between private respondent and Fortunato. petitioner pointed out that the Court of Appeals erred when it took into consideration the same exhibit despite the fact that only its photocopy was presented before the court. Villanueva. she argued that Exhibit "G" could not possibly be a contract of sale of Fortunato's share in Lot No. 2319. In her memorandum. petitioner reiterated her claim that due to the illiteracy of her husband. farmed their respective portion or premises. it was incumbent upon private respondent to show that the contents of Exhibit "G" were fully explained to him."31 Thus.30 private respondent insisted that when Fortunato received a copy of the second owner's certificate. Relying on our decision in the case of Cabrera v. and improved them. Further.Aggrieved by the decision of the appellate court. the following issues: whether Fortunato was furnished with a written notice of sale of the shares of his co-owners as required by Article 1623 of the Civil Code. 2319 as said document does not contain "(a) definite agreement on the manner of payment of the price. he became fully aware of the contracts of sale entered into between his co-owners on one hand and private respondent and her deceased husband on the other. 2319 constituted constructive notice to the whole world of private respondent's claim over the majority of said parcel of land. petitioner is now before us raising. the latter did not have the obligation to deliver to private respondent a registrable deed of sale in view of private respondent's own failure to pay the full purchase price of Fortunato's portion of Lot No. petitioner claimed that the Court of Appeals erred in sustaining the court a quo's pronouncement that she could no longer redeem the portion of Lot No. 2319) was not actually partitioned in a survey after the death of Cleopas Ape. On the other hand. According to her."29 Even assuming that Exhibit "G" is. indeed. 2319 already acquired by private respondent for no written notice of said sales was furnished them. the Court of Appeals unduly expanded the scope of the law by equating Fortunato's receipt of Second Owner's Duplicate of OCT (RP) 1379 (RP-154 ([300]) with the written notice requirement of Article 1623. the land was partitioned in a 'hantal-hantal' manner by the heirs.

. The deed of sale shall not be recorded in the Registry of Property. Art. been tasked to interpret the "written notice requirement" of the above-quoted provision. are easily divined. Inc.W. Despite the plain language of the law. Lecompte. this Court has. the notice being a reaffirmation thereof. 2(d) 528). In the case Butte v. it was no longer undivided as petitioner claims. The text of Article 1623 clearly and expressly prescribes that the thirty days for making the redemption are to be counted from notice in writing by the vendor. 2319. but we may assume until the contrary is shown. Manuel Uy & Sons. 237. This assurance would not exist if the notice should be given by the buyer. as the case may be. its perfection. The reasons for requiring that the notice should be given by the seller. it was immaterial who gave the notice. so that the party notified need not entertain doubt that the seller may still contest the alienation. Payne vs. and that method must be deemed exclusive. The seller of an undivided interest is in the best position to know who are his co-owners that under the law must be notified of the sale. Code of 1889. [U. the notice by the seller removes all doubts as to fact of the sale. 458 (affd. As ruled in Wampler vs. 12 S. It is thus apparent that the Philippine legislature in Article 1623 deliberately selected a particular method of giving notice. 150 Atl. and its validity. that a state of facts in respect thereto existed. Also. so long as the redeeming co-owner learned of the alienation in favor of the stranger. unless accompanied by an affidavit of the vendor that he has given written notice thereof to all possible redemptioners. 33 . Article 1623 of the Civil Code provides: The right of legal pre-emption or redemption shall not be exercised except within thirty days from the notice in writing by the prospective vendor. (39 Am. Under the old law (Civ. 1524). in 75 Law Ed. State.purchased the other parts of Lot No. we think that the notice given by the vendee (buyer) should not be taken into account.S. and not by the buyer. Jur. which warranted the legislature in so legislating. or by the vendor..32 we declared that – In considering whether or not the offer to redeem was timely. over the years. the redemption period began to run.] 275) – why these provisions were inserted in the statute we are not informed. The petition is partly meritorious.

a co-owner cannot point to specific portion of the property owned in common as his own because his share therein remains intangible. et al.39 However. 46 In this case. records reveal that although Lot No. nor any distinctive method for notifying the redemptioner" thus. This view was reiterated in Etcuban v. still. The Honorable Court of Appeals. 1623 of the present one is that the former did not specify who must give the notice. the records are bereft of any indication that Fortunato was given any written notice of prospective or consummated sale of the portions of Lot No. v. Court of Appeals. Court of Appeals. The Honorable Court of Appeals. the principal difference between Art. 1524 of the former Civil Code and Art. the community ceases to exist and there is no more reason to sustain any right of legal redemption. as long as the redemptioner was notified in writing of the sale and the particulars thereof. Hon. therefore. Effect must be given to this change in statutory language.34 wherein it was pointed out that Article 1623 "does not prescribe a particular form of notice. v. the particular portions belonging to the heirs of Cleopas Ape had . Despite this. There is. we still rule that petitioner could no longer invoke her right to redeem from private respondent for the exercise of this right "presupposes the existence of a co-ownership at the time the conveyance is made by a co-owner and when it is demanded by the other co-owner or co-owners. not from any other person.45 once the property is subdivided and distributed among the co-owners.38 and Mariano. thus: … Art."42 The regime of co-ownership exists when ownership of an undivided thing or right belongs to different persons. et al. Calaliman. et al. the redemption period starts to run. has not commenced to run.36 Garcia. The thirty (30)-day redemption period under the law. et al. this Court again referred to the principle enunciated in the case of Butte. whereas the present one expressly says the notice must be given by the vendor.35 Cabrera v. Retes.The interpretation was somehow modified in the case of De Conejero.. As observed by Justice Vicente Mendoza. 43 By the nature of a co-ownership.37 Distrito. in the case of Salatandol v.. 1623 of the Civil Code is clear in requiring that the written notification should come from the vendor or prospective vendor. v. no room for construction. et al. et al. v. et al.. such reversion is only sound. Villanueva. however. et al.41 In this case. Indeed. et al. therefore. 44 As legal redemption is intended to minimize co-ownership.40 wherein the plaintiffs were not furnished any written notice of sale or a copy thereof by the vendor. 2319 by the vendors or would-be vendors. 2319 has not yet been formally subdivided.

thus: Q When the plaintiffs leased the share of your husband. Q How about determining their respective boundaries? A It could be determined by stakes and partly a row of banana plantations planted by my son-in-law. Q Who is this son-in-law you mentioned? A Narciso Ape. this property in question is a common property. was it also separate and distinct from the hantal-hantal or the share of the brothers and sisters of your husband? A Well. were there any metes and bounds? A It was not formally subdivided.already been ascertained and they in fact took possession of their respective parts. whose share was that which is adjacent to your husband's assumed partition? A I do not know what [does] this "north" [mean]. We have only a definite portion. This can be deduced from the testimony of petitioner herself. Q To the north. Loreta. Q How could you determine their own shares? A They were residing in their respective assumed portions. whose share was that? A The shares of Cornelia. (hantal- hantal) Q This hantal-hantal of your husband. COURT (To Witness) Q To the place from where the sun rises. Encarnacion and Adela. .

did I get you right? ATTY. Cleopas Ape was already dead. when the Lumayno[s] returned your husband['s] share. in 1960. is this correct? A No. CAWIT Q Mrs. . Q For clarification. TAN Admitted. was leased to Generosa Lumayno. CAWIT (Continuing) Q You said that there were stakes to determine the hantal-hantal of your husband and the hantal-hantal of the other heirs.47 ATTY. Ape. was that the same premises that your husband leased to the Lumayno[s]? A The same. Your Honor. Q By the manifestation of your counsel that the entire land (13 hectares) of your father-in-law.ATTY. it was only the share of your husband [which] was leased to Generosa Cawit Lumayno? A Yes. it is only the assumed portion of my husband [which] was leased to Generosa Lumayno. Cleopas Ape. is that correct? A Certainly. CAWIT Q My question: is that portion which you said was leased by your husband to the Lumayno[s] and which was included to the lease by your mother-in-law to the Lumayno[s]. … ATTY. since he died in 1950.

51 Turning now to the second issue of the existence of a contract of sale. did your husband demand that they should re-possess the land from the Lumayno[s] or did the Lumayno[s] return them to your husband voluntarily? A They just returned to us without paying the rentals. the following elements must be present: consent. Q In re-possessing this portion of the land corresponding to the share of your husband. Although the partition might have been informal is of no moment for even an oral agreement of partition is valid and binding upon the parties. it is evident that the partition of Lot No. and they abandoned the area but my husband continued farming. sir. thus. diminish the dominion of their respective owners. we rule that the records of this case betray the stance of private respondent that Fortunato Ape entered into such an agreement with her. the parties may reciprocally demand performance. it is perfected by mere consent of the parties. It is born from the moment there is a meeting of minds upon the thing which is the object of the sale and upon the price. "Fortunato Ape had possessed a specific portion of the land ostensibly corresponding to his share. that is. object. 2319 had not been subdivided nevertheless. in any way.. et al.50 Likewise. 48 Similarly telling of the partition is the stipulation of the parties during the pre-trial wherein it was admitted that Lot No. to wit: .53For there to be a perfected contract of sale.54 we explained the element of consent. it was just returned voluntarily. the vendee may compel the transfer of the ownership and to deliver the object of the sale while the vendor may demand the vendee to pay the thing sold. COURT Q Was the return the result of your husband's request or just voluntarily they returned it to your husband? A No. the fact that the respective shares of Cleopas Ape's heirs are still embraced in one and the same certificate of title and have not been technically apportioned does not make said portions less determinable and identifiable from one another nor does it. and price in money or its equivalent. Court of Appeals."49 From the foregoing. In the case of Leonardo v. 2319 had already been effected by the heirs of Cleopas Ape. A contract of sale is a consensual contract.52 Upon its perfection. however.

56 The exception to this rule is provided for under Article 1332 of the Civil Code which provides that "[w]hen one of the parties is unable to read. The area of agreement must extend to all points that the parties deem material or there is no consent at all. you said you were present at the time of the signing of that alleged receipt of P30. Q When you prepared that receipt. she bears the burden of proving that the terms of the agreement were fully explained to Fortunato Ape who was an illiterate. is it not? A Yes. consent must meet the following requisites: (a) it should be intelligent. freedom by violence. the general rule is that he who alleges fraud or mistake in a transaction must substantiate his allegation as the presumption is that a person takes ordinary care for his concerns and that private dealings have been entered into fairly and regularly." In this case. or with an exact notion of the matter to which it refers. the acceptance by one of the offer made by the other. While she claimed in her testimony that the contents of the receipt were made clear to Fortunato. It is the concurrence of the minds of the parties on the object and the cause which constitutes the contract. and mistake or fraud is alleged. To be valid. Q Mr. or if the contract is in a language not understood by him. that receipt is in English. According to Flores: ATTY.55 In this jurisdiction. Witness. TAN Q Mr. intimidation or undue influence. spontaneity by fraud. Intelligence in consent is vitiated by error.00.The essence of consent is the agreement of the parties on the terms of the contract. sir. the person enforcing the contract must show that the terms thereof have been fully explained to the former. (b) it should be free and (c) it should be spontaneous. sir. were you aware that Fortunato Ape doesn't know how to read and write English? A Yes. I know. Witness. This she failed to do. correct? . as private respondent is the one seeking to enforce the claimed contract of sale. such allegation was debunked by Andres Flores himself when the latter took the witness stand.

sir. Q But you did not bother to request a person who is not related to your mother-in-law. under your previous statement. I signed it as a witness. yes. Q Did it not occur to you to ask other witness to act on the side of Fortunato Ape who did not know how to read and write English? A It occurred to me. I was the one who prepared that document. sir. Q You mentioned that there [was another] person inside the store. considering that Fortunato Ape did not know how to read and write English? A The one who represented Fortunato Ape doesn't know also how to read and write English. Q Without asking of (sic) your mother-in-law. there [was another] person in the store aside from you. your mother-in-law and Fortunato Ape. in what place was this receipt signed? A At the store. when the document was signed. you prepared that document or it was your mother-in-law who requested you to prepare that document and acted as witness? A She requested me to prepare but does not instructed (sic) me to act as witness. Q When you signed that document of course you acted as witness upon request of your mother-in-law? A No. is not true? . your mother-in-law and Fortunato Ape? A In the store. Q At the time of the signing of this receipt.A Yes. One a maid. were there other person[s] present aside from you. this portion. It was our opinion that whenever I prepared the document. Q Where.

it did not occur to Flores that the document he himself prepared pertains to the transfer altogether of Fortunato's property to his mother-in- law. is it not a fact that the Municipal Building is very near your house? A Quite (near).57 As can be gleaned from Flores's testimony. This Court likewise annuls the contract of sale between Fortunato and private respondent on the ground of vitiated consent. A That is true. Witness. but that person doesn't know how to read also. WHEREFORE. Q But you could readily proceed to the Municipal Building and request one who is knowledgeable in English to act as witness? A I think there is no need for that small receipt. we hold that petitioner is no longer entitled to the right of redemption under Article 1632 of the Civil Code as Lot No. . the decision dated 25 March 1998 of the Court of Appeals is hereby REVERSED and SET ASIDE and the decision dated 11 March 1994 of the Regional Trial Court. Q You did not consider that receipt very important because you said that small receipt? A Yes. No costs. San Carlos City. since it occurred to you that there was need for other witness to sign that document for Fortunato Ape. Evidently. premises considered. … Q Of course. Negros Occidental. he did not bother to fully explain to the latter the substance of the receipt (Exhibit "G"). dismissing both the complaint and the counterclaim. Branch 58. He even dismissed the idea of asking somebody else to assist Fortunato considering that a measly sum of thirty pesos was involved. I know. Mr." 58 In sum. 2319 had long been partitioned among its co- owners. ignorance. mental weakness or some other handicap. is hereby REINSTATED. It is precisely in situations such as this when the wisdom of Article 1332 of the Civil Code readily becomes apparent which is "to protect a party to a contract disadvantaged by illiteracy. while he was very much aware of Fortunato's inability to read and write in the English language. So I don't bother myself to go. there is one person.

pp. Parañaque. petitioners. record pp. 2000 ROBERTO Z. LAFORTEZA. 1988. Likewise on the same day.in-fact must be affixed. MICHAEL Z. LAFORTEZA. vs. although it is conjugal in nature (Exhibit "8". Laforteza and Gonzalo Laforteza. pp. Laforteza. granting the same authority (Exh.R. Jr. 326- 328) Both agency instruments contained a provision that in any document or paper to exercise authority granted. 1988. The subject property is registered in the name of the late Francisco Q.SO ORDERED.. MICHAEL Z. LAFORTEZA". G. Laforteza executed a Special Power of Attorney in favor of defendant Roberto Z. Laforteza and Gonzalo Z. defendant Dennis Z. CV No. Defendants. LEA ZULUETA-LAFORTEZA. and LEA Z. DENNIS Z. 147457 entitled "ALONZO MACHUCA versus ROBERTO Z. Laforteza executed a Special Power of Attorney in favor of defendants Roberto Z. "A". On August 2.. 7757 Sherwood Street. Laforteza for the purpose of . Marcelo Green Village. The following facts as found by the Court of Appeals are undisputed: The property involved consists of a house and lot located at No. LAFORTEZA. likewise. "B". LAFORTEZA. respondent. LAFORTEZA. defendant Michael Z. ALONZO MACHUCA. LAFORTEZA. 137552 June 16. 331-332).R. LAFORTEZA.: This Petition for Review on Certiorari seeks the reversal of the Decision of the Court of Appeals 1 in CA G. LAFORTEZA. Metro Manila. record. and DENNIS Z. (220656) 8941 of the Registered of Deeds of Parañaque (Exhibit "D". No. J. Plaintiff. pp. GONZAGA-REYES. record. Laforteza (Exh. GONZALO Z. appointing both as her Attorney-in-fact authorizing them jointly to sell the subject property and sign any document for the settlement of the estate of the late Francisco Q. 331-386). 323- 325). covered by Transfer Certificate of Title (TCT) No. defendant Lea Zulueta-Laforteza executed a Special Power of Attorney in favor of defendants Roberto Z. Jr. Plaintiff. On October 27. record. the signature of both attorneys. Laforteza. GONZALO Z.

pp. "E". Significantly. Plaintiff. (b) P600. p. "2". 370) to the plaintiff furnishing the latter a copy of the reconstituted title to the subject property. record. plaintiff paid the earnest money of THIRTY THOUSAND PESOS (P30. on October 30. On January 20. 329-330). The subsequent agency instrument (Exh. 1989. 339). Jr. 1989. "C". Laforteza represented by Roberto Z. naming both attorneys-in-fact for the purpose of selling the subject property and signing any document for the settlement of the estate of the late Francisco Q.000. Jr.00 upon issuance of the new certificate of title in the name of the late Francisco Q. Laforteza and upon execution of an extra- judicial settlement of the decedent's estate with sale in favor of the plaintiff (Par.00) payable as follows: (a) P30. record. record. A year later. 1. 335-336).selling the subject property (Exh. record. supra. . Upon issuance by the proper Court of the new title. Laforteza and Gonzalo Laforteza. 1998 3.00 as earnest money. "F". 371-373) contained similar provisions that both attorneys-in-fact should sign any document or paper executed in the exercise of their authority. Laforteza executed another Special Power of Attorney in favor of defendants Roberto Z. . Dennis Z. entered into a Memorandum of Agreement (Contract to Sell) with the plaintiff 2 over the subject property for the sum of SIX HUNDRED THIRTY THOUSAND PESOS (P630.1âwphi1. "E". Laforteza. Exh. On September 18. Laforteza and Gonzalo Z. Plaintiff.nêt In the exercise of the above authority. the heirs of the late Francisco Q.000. defendant heirs.00 which shall be paid to the SELLER-LESSORS upon the execution of the Extrajudicial Settlement with sale.000. 2. on January 20. the fourth paragraph of the Memorandum of Agreement (Contract to Sell) dated January 20. through their counsel wrote a letter (Exh. 1989. to be forfeited in favor of the defendants if the sale is not effected due to the fault of the plaintiff.00). Defendants.000.) contained a provision as follows: . Laforteza. the BUYER- LESSEE shall be notified in writing and said BUYER-LESSEE shall have thirty (30) days to produce the balance of P600. advising him that he had thirty (3) days to produce the balance of SIX HUNDRED PESOS (sic) . 1989 (Exh. pp. plus rentals for the subject property (Exh. . p. pp.000. record.

00) (Exh. ordering the said defendants. p. records p.(P600. the dispositive portion of which reads: WHEREFORE. Romeo L. 351). 1994 in favor of the plaintiff. 350. 347). 1989 within which to produce the balance of SIX HUNDRED THOUSAND PESOS (P600. "M". The extension. insisted on the rescission of the Memorandum of Agreement. On October 18. however. Laforteza. plaintiff sent the defendant heirs a letter requesting for an extension of the THIRTY (30) DAYS deadline up to November 15. "M-1". August 24. and "N". "G-1 and "G-2". 1989. Plaintiff. Laforteza. record. refused to accept the balance (TSN. Thereafter. 14. "G". plaintiff reiterated his request to tender payment of the balance of SIX HUNDRED THOUSAND PESOS (P600. record.000. Laforteza. p. record. On November 20. Gutierrez. 341-342). signed his conformity to the plaintiff's letter request (Exh. 351). Thereafter. does not appear to have been approved by Gonzalo Z. Laforteza had told him that the subject property was no longer for sale (TSN. pp. p.00 as full payment of the consideration for the purchase of the house and lot located at . 11. 1992. 1989 (TSN.00). p.000.00) covered by United Coconut Planters Bank Manager's Check No. through defendant Roberto Z. Defendant Roberto Z. 342). 1992. 1989. however. the second attorney-in-fact as his conformity does not appear to have been secured. 19. p. assisted by his counsel Atty. Plaintiff. p. plaintiff informed the defendant heirs. judgment is hereby rendered in favor of plaintiff Alonzo Machuca and against the defendant heirs of the late Francisco Q.000. Exhs. On November 15. 000814 dated November 15. 1992. record. Plaintiff. Plaintiff. The lower court rendered judgment on July 6. p. p. defendants informed plaintiff that they were canceling the Memorandum of Agreement (Contract to Sell) in view of the plaintiff's failure to comply with his contractual obligations (Exh. pp. Exhs. record. Defendant Roberto Z. record. the defendants. Defendants. and "N-1". record. Exh. However. Laforteza. 1998 4. that he already had the balance of SIX HUNDRED THOUSAND PESOS (P600.00) under the Memorandum of Agreement which plaintiff received on the same date. 343-344. (a) To accept the balance of P600. October 20. "H". "J".000.000. 350. plaintiff filed the instant action for specific performance. "3"). August 25.

74-75). . the questioned decision of the lower court is hereby AFFIRMED with the MODIFICATION that defendant heirs Lea Zulueta-Laforteza. Laforteza. 7757 Sherwood Street. Laforteza. Laforteza and Roberto Z. 6 SO ORDERED. II. the dispositive portion of the Decision reads: WHEREFORE. covered by Transfer Certificate of Title No. (c) Jointly and severally to pay the plaintiff the sum of P20. 7 Hence this petition wherein the petitioners raise the following issues: I. pp.000. Laforteza including Gonzalo Z. 5 SO ORDERED. Petitioners appealed to the Court of Appeals. Metro Manila. from liability for the payment of moral damages. (b) To execute a registrable deed of absolute sale over the subject property in favor of the plaintiff. which affirmed with modification the decision of the lower court. WHETHER THE COURTS A QUO CORRECTLY RULED THAT RESCISSION WILL NOT LIE IN THE INSTANT CASE. Michael Z.00 as attorney's fees plus cost of suit. Dennis Z. Jr. Branch. No. (220656) 8941 of the Registry of Deeds of Rizal Parañaque.00) as moral damages. WHETHER THE TRIAL AND APPELLATE COURTS CORRECTLY CONSTRUED THE MEMORANDUM OF AGREEMENT AS IMPOSING RECIPROCAL OBLIGATIONS.000. III. are hereby ordered to pay jointly and severally the sum of FIFTY THOUSAND PESOS (P50. Jr. WHETHER THE RESPONDENT IS UNDER ESTOPPEL FROM RAISING THE ALLEGED DEFECT IN THE SPECIAL POWER OF ATTORNEY DATED 30 OCTOBER 1989 EXECUTED BY DENNIS LAFORTEZA. (Rollo. Motion for Reconsideration was denied but the Decision was modified so as to absolve Gonzalo Z. Laforteza. Marcelo Green Village. Parañaque.

it only gave the respondent a right to purchase the subject property within a limited period without imposing upon them any obligation to purchase it. Petitioners also allege that assuming for the sake of argument that a contract of sale was indeed perfected.000. And the failure of the respondent to pay the purchase price in full prevented the petitioners' obligation to convey title from acquiring obligatory force. WHETHER THE PETITIONERS MAY BE COMPELLED TO SELL THE SUBJECT PROPERTY WHEN THE RESPONDENT FAILED TO MAKE A JUDICIAL CONSIGNATION OF THE PURCHASE PRICE? V. the Court of Appeals still erred in holding that respondent's failure to pay the purchase price of P600. This is why possession of the subject property was not delivered to the respondent as the owner of the property but only as the lessee thereof. WHETHER THE PETITIONERS ARE IN BAD FAITH SO TO AS MAKE THEM LIABLE FOR MORAL DAMAGES? 8 The petitioners contend that the Memorandum of Agreement is merely a lease agreement with "option to purchase". SUPPOSING EX GRATIA ARGUMENTI THE MEMORANDUM OF AGREEMENT IMPOSES RECIPROCAL OBLIGATIONS. The obligation of the petitioners to sell the property to the respondent was conditioned upon the issuance of a new certificate of title and the execution of the extrajudicial partition with sale and payment of the P600. as indicated in its title. his tender did not give rise to the perfection of a contract of sale. Rescission implies that a contract of sale was perfected unlike the Memorandum of Agreement in question which as previously stated is allegedly only an option contract. It is further maintained by the petitioners that the Court of Appeals erred in ruling that rescission of the contract was already out of the question. Laforteza was sufficient and necessarily included the power to execute an . the Memorandum of Agreement (Contract to Sell) is a mere contract to sell. The petitioners also claim that the Court of Appeals erred in ruling that they were not ready to comply with their obligation to execute the extrajudicial settlement.000. Petitioner adds that at most.00. IV. The Power of Attorney to execute a Deed of Sale made by Dennis Z.00 was only a "slight or casual breach". Since the respondent's tender of payment was made after the lapse of the option agreement. As it was merely an option.

A perusal of the Memorandum Agreement shows that the transaction between the petitioners and the respondent was one of sale and lease. Thus. SELLER-LESSOR hereby agree to sell unto BUYER-LESSEE the property described in the first WHEREAS of this Agreement within six (6) months from the execution date hereof. The above-mentioned sum of PESOS: SIX HUNDRED THIRTY THOUSAND (P630.000. or upon issuance by the Court of a new owner's certificate of title and the execution of extrajudicial partition with sale of the estate of Francisco Laforteza.00) shall be paid in the following manner: P30. P600. For and in consideration of the sum of PESOS: SIX HUNDRED THIRTY THOUSAND (P630. At any rate.00) payable in a manner herein below indicated. he would not have needed to ask for said extension. whichever is earlier.000. Finally.extrajudicial settlement. The terms of the agreement read: 1.000. the petitioners allege that the respondent's uncorroborated testimony that third persons offered a higher price for the property is hearsay and should not be given any evidentiary weight. . The appeal is bereft of merit. the respondent is estopped from claiming that the petitioners were not ready to comply with their obligation for he acknowledged the petitioners' ability to do so when he requested for an extension of time within which to pay the purchase price.00 — as earnest money and as consideration for this Agreement. the order of the lower court awarding moral damages was without any legal basis. Had he truly believed that the petitioners were not ready.000. which amount shall be forfeited in favor of SELLER- LESSORS if the sale is not effected because of the fault or option of BUYER-LESSEE. 2.00 — upon the issuance of the new certificate of title in the name of the late Francisco Laforteza and upon the execution of an Extrajudicial Settlement of his estate with sale in favor of BUYER-LESSEE free from lien or any encumbrances.

SELLER-LESSORS shall immediately file the corresponding petition for the issuance of a new title in lieu of the lost one in the proper Courts.000. Upon issuance by the proper Courts of the new title.000. 10 From that moment the parties may reciprocally demand performance subject to the provisions of the law governing the form of contracts.00 as herein above provided.000.00). provided further that if after the expiration of six (6) months. 12 In the case at bench. 3. there was a perfected agreement between the petitioners and the respondent whereby the petitioners obligated themselves to transfer the ownership of and deliver the house and lot located at 7757 Sherwood St.. 4. BUYER-LESSEE shall no longer be required to pay rentals and shall continue to occupy. the lost title is not yet replaced and the extra judicial partition is not executed. as well as the execution of extrajudicial settlement of estate with sale to herein BUYER-LESSEE will be completed within six (6) months from the execution of this Agreement. BUYER-LESSEE will be leasing the subject property for six months period at the monthly rate of PESOS: THREE THOUSAND FIVE HUNDRED (P3. (2) determinate subject matter and (3) price certain money or its equivalent. 11The elements of a valid contract of sale under Article 1458 of the Civil Code are (1) consent or meeting of the minds.00). Marcelo Green Village.00 which shall be paid to the SELLER-LESSORS upon the execution of the Extrajudicial Settlement with sale. It is hereby agreed that within reasonable time from the execution of this Agreement and the payment by BUYER-LESSEE of the amount of P30. 9 A contract of sale is a consensual contract and 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. All the elements of a contract of . Parañaque and the respondent to pay the price amounting to six hundred thousand pesos (P600. and use the premises until subject condition is complied by SELLER-LESSOR. Provided however. the BUYER-LESSEE shall have thirty (30) days to produce the balance of P600. that if the issuance of new title and the execution of Extrajudicial Partition is completed prior to the expiration of the six months period. Parties reasonably estimate that the issuance of a new title in place of the lost one.500. BUYER-LESSEE shall only be liable for rentals for the corresponding period commencing from his occupancy of the premises to the execution and completion of the Extrajudicial Settlement of the estate. It is therefore agreed that during the six months period.

In the present case. The six-month period during which the respondent would be in possession of the property as lessee. the respondent would no longer be required to pay rentals and would continue to occupy and use the premises until the subject condition was complied with the petitioners.500. It was also expressly stipulated that if after the expiration of the six month period. 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. the respondent was already placed in possession of the house and lot as lessee thereof for six months at a monthly rate of three thousand five hundred pesos (P3. The fact that after the expiration of the six- month period. However. . . both parties would be able to comply with what was reciprocally incumbent upon them. Prior to the issuance of the "reconstituted" title. 13 An option must be supported by consideration.sale were thus present. which reads: Art. the lost title was not yet replaced and the extrajudicial partition was not yet executed. was clearly not a period within which to exercise an option. there was an absolute obligation on the part of the petitioners and the respondent to comply with the terms of the sale. 14 An option contract is governed by the second paragraph of Article 1479 of the Civil Code 15. It was stipulated that should the issuance of the new title and the execution of the extrajudicial settlement be completed prior to expiration of the six-month period. 1479. the respondent would retain possession of the house and lot .00). . the six-month period merely delayed the demandability of the contract of sale and did not determine its perfection for after the expiration of the six-month period. the balance of the purchase price was to be paid only upon the issuance of the new certificate of title in lieu of the one in the name of the late Francisco Laforteza and upon the execution of an extrajudicial settlement of his estate. The parties made a "reasonable estimate" that the reconstitution the lost title of the house and lot would take approximately six months and thus presumed that after six months. An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. the respondent would be liable only for the rentals pertaining to the period commencing from the date of the execution of the agreement up to the execution of the extrajudicial settlement. An option contract is a separate and distinct contract from that which the parties may enter into upon the consummation of the option.

clearly indicated that the parties contemplated that ownership over the property would already be transferred by that time. Failure to comply with the first condition results in the failure of a contract. without need of paying rentals for the use therefor. the buyer may treat the fulfillment by the seller of his obligation to deliver the same as described and as warranted expressly or by implication in the contract of sale as a condition of the obligation of the buyer to perform his promise to accept and pay for the thing. If the other party has promised that the condition should happen or be performed. the respondent had a right to demand fulfillment of the petitioners' obligation to deliver and transfer ownership of the house and lot. The issuance of the new certificate of title in the name of the late Francisco Laforteza and the execution of an extrajudicial settlement of his estate was not a condition which determined the perfection of the contract of sale. they no longer had an obligation to proceed with the sale of the house and lot is unconvincing. 1545. 16 In the case at bar. The condition was imposed only on the performance of the obligations contained therein. Petitioners' contention that since the condition was not met. Art. Where the ownership in the things has not passed.00) as earnest money. Earnest money is something of value to show that the buyer was really in earnest. such first mentioned party may also treat the nonperformance of the condition as a breach of warranty. Where the obligation of either party to a contract of sale is subject to any condition which is not performed. and given to the seller to bind the bargain. 18 . while the failure to comply with the second condition only gives the other party the option either to refuse to proceed with the sale or to waive the condition. What further militates against petitioners' argument that they did not enter into a contract or sale is the fact that the respondent paid thirty thousand pesos (P30. 17 Whenever earnest money is given in a contract of sale. Considering however that the title was eventually "reconstituted" and that the petitioners admit their ability to execute the extrajudicial settlement of their father's estate. there was already a perfected contract. such party may refuse to proceed with the contract or he may waive performance of the condition. 1545 of the Civil Code states: Art.000. Thus. The petitioners fail to distinguish between a condition imposed upon the perfection of the contract and a condition imposed on the performance of an obligation. it is considered as part of the purchase price and proof of the perfection of the contract.

casual or serious. 1989 or nearly eight months after the execution of the Memorandum of Agreement when the petitioners informed the respondent that they already had a copy of the reconstituted title and demanded the payment of the balance of the purchase price. Laforteza did not appear thereon as required by the Special Powers of Attorney. one whereby the prospective seller would explicitly reserve the transfer of title to the prospective buyer.e. Although the memorandum agreement was also denominated as a "Contract to Sell". ownership of the thing sold passes to the vendee upon actual or constructive delivery thereof. or any provision which would impose non-payment of the price as a condition for the contract's entering into force. the delivery of the reconstituted title of the house and lot. The respondent could not therefore be considered in delay for in reciprocal obligations. but simply an event which prevented the obligation from acquiring any obligatory force. Admittedly. we hold that the parties contemplated a contract of sale. such payment being a positive suspensive condition.We do not subscribe to the petitioners' view that the Memorandum Agreement was a contract to sell. 20 In such cases. i. the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the full payment of the price. the evidence reveals that after the expiration of the six-month period provided for in the contract. There is nothing contained in the Memorandum Agreement from which it can reasonably be deduced that the parties intended to enter into a contract to sell. the petitioners were not ready to comply with what was incumbent upon them. i. We rule in the negative. neither party . the failure of the respondent to pay the balance of the purchase price was a breach of the contract and was a ground for rescission thereof. The extension of thirty (30) days allegedly granted to the respondent by Roberto Z. 22 The next issue to be addressed is whether the failure of the respondent to pay the balance of the purchase price within the period allowed is fatal to his right to enforce the agreement. Laforteza (assisted by his counsel Attorney Romeo Gutierrez) was correctly found by the Court of Appeals to be ineffective inasmuch as the signature of Gonzalo Z. A deed of sale is absolute in nature although denominated a conditional sale in the absence of a stipulation reserving title in the petitioners until full payment of the purchase price. It was only on September 18. 21 The mere fact that the obligation of the respondent to pay the balance of the purchase price was made subject to the condition that the petitioners first deliver the reconstituted title of the house and lot does not make the contract a contract to sell for such condition is not inconsistent with a contract of sale.e. 23 However. meaning. the failure of which is not considered a breach. 19 There is clearly no express reservation of title made by the petitioners over the property.

considering that the six-month period was merely an approximation of the time if would take to reconstitute the lost title and was not a condition imposed on the perfection of the contract and considering further that the delay in payment was only thirty days which was caused by the respondents justified but mistaken belief that an extension to pay was granted to him. we find that rescission of the contract will still not prosper. This offer to pay prior to the demand for rescission is sufficient to defeat the petitioners' right under article 1592 of the Civil Code. even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place.incurs in delay if the other party does not comply or is not ready to comply in a proper manner with what was incumbent upon him. 24 Even assuming for the sake of argument that the petitioners were ready to comply with their obligation. as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. 1989 letter of the petitioners informing the respondent of the automatic rescission of the agreement did not amount to a demand for rescission. when the respondent filed his complaint for specific performance. the Memorandum Agreement between the parties did not contain a clause expressly authorizing the automatic cancellation of the contract without court intervention in the event that the terms thereof were violated. which reads: In the sale of immovable property. At any rate. the vendee may pay. 28 Neither was there a judicial demand for the rescission thereof. 26 It was also made five days after the respondent's attempt to make the payment of the purchase price. we agree with the Court of Appeals that the delay of one month in payment was a mere casual breach that would not entitle the respondents to rescind the contract. A seller cannot unilaterally and extrajudicially rescind a contract or sale where there is no express stipulation authorizing him to extrajudicially rescind. Petitioners themselves point out that the effect of cansignation is to extinguish the . After the demand. The rescission of a sale of an immovable property is specifically governed by Article 1592 of the New Civil Code. 25 It is not disputed that the petitioners did not make a judicial or notarial demand for rescission. as it was not notarized. but only such substantial and fundamental breach as would defeat the very object of the parties in making the agreemant. Rescission of a contract will not be permitted for a slight or casual breach. Thus. even after the expiration of the period. 27 Besides. the agreement was still in force inasmuch as the contract was not yet rescinded. the court may not grant him a new term. 29 Petitioners' insistence that the respondent should have consignated the amount is not determinative of whether respondent's action for specific performance will lie.1avvphi1 The November 20.

47856.R. ACCORDINGLY. 2006 ANTONIO R. As found by the said Court.000. HON. CV No. No.00 is not tantamount to a breach of the contract for by the fact of tendering payment. The amount awarded depends on the discretion of the court based on the circumstances of each case. No pronouncement as to costs. The award of moral damages is in accordance with Article 1191 31 of the Civil Code pursuant to Article 2220 which provides that moral damages may be awarded in case of breach of contract where the defendant acted in bad faith.000.000. SO ORDERED. 126083 July 12.R. 32 Under the circumstances. It releases the debtor from responsibility therefor. he was willing and able to comply with his obligation.: The instant petition for review seeks the reversal of the June 13. DECISION YNARES-SANTIAGO. CV No. which rescinded the contract of sale .obligation. 30 The failure of the respondent to consignate the P600. 47457 is AFFIRMED and the instant petition is hereby DENIED. respondents. their obligation for the reason that they were offered a higher price therefor and the respondent was even offered P100. the petitioners refused to comply with. the decision of the Court of Appeals in CA G. Attorney Gutierrez. to relinquish his rights over the property. 1993 Decision2 of the Regional Trial Court of Makati. COURT OF APPEALS and VILLA ESPERANZA DEVELOPMENT CORPORATION. Cortes). petitioner. setting aside the June 24. The Court of Appeals correctly found the petitioners guilty of bad faith and awarded moral damages to the respondent. 1996 Decision 1 of the Court of Appeals in CA-G.00 by the petitioners' lawyer.R. the award given by the Court of Appeals amounting to P50. J. G. CORTES (in his capacity as Administrator of the estate of Claro S.00 appears to us to be fair and reasonable. vs. Branch 138.

entered into by petitioner Antonio Cortes (Cortes) and private respondent Villa Esperanza Development Corporation (Corporation). All expense for the registration of this document with the Register of Deeds concerned. In his Answer with counterclaim. the Corporation as buyer. shall be divided equally between the Vendor and the Vendee. xxxx 4. attorney's fees and litigation expenses arising from Cortes' refusal to deliver the same documents. Philippine Currency. Upon execution of this instrument. TCT No. the parties executed a deed of absolute sale containing the following terms: 3 1.000.700.000. entered into a contract of sale over the lots covered by Transfer Certificate of Title (TCT) No. payment of which shall be secured by an irrevocable standby letter of credit to be issued by any reputable local banking institution acceptable to the Vendor. 31913-A and TCT No. It thus prayed for the award of damages. On January 14. Payment of the capital gains shall be exclusively for the account of the Vendor.00. located at Baclaran. the Corporation advanced to Cortes the total sum of P1.4 Said Deed was retained by Cortes for notarization. Cortes refused delivery of the sought documents. On various dates in 1983. The balance of ONE MILLION AND FIVE HUNDRED THOUSAND [P1.00. He added that portion of the subject property is . The antecedents show that for the purchase price of P3. 31113-A. Phil.200.6 Cortes claimed that the owner's duplicate copy of the three TCTs were surrendered to the Corporation and it is the latter which refused to pay in full the agreed down payment. Sometime in September 1983. 5% commission of Marcosa Sanchez to be deducted upon signing of sale. and Cortes as seller. less all advances paid by the Vendee to the Vendor in connection with the sale. including the transfer tax. 1985.213. 2. despite its readiness and ability to pay the purchase price. Currency shall be payable within ONE (1) YEAR from date of execution of this instrument.000. the Corporation filed the instant case5 for specific performance seeking to compel Cortes to deliver the TCTs and the original copy of the Deed of Absolute Sale.500. 32013- A. Metro Manila.000.00) PESOS. Parañaque. the Vendee shall pay unto the Vendor sum of TWO MILLION AND TWO HUNDRED THOUSAND (P2. According to the Corporation.00] PESOS.

the trial court rendered a decision rescinding the sale and directed Cortes to return to the Corporation the amount of P1.00 partial down payment.000. the Corporation contended that the trial court failed to consider their agreement that it would pay the balance of the down payment when Cortes delivers the TCTs. The motion was. On June 24. 1993.00. to cancel the sale and forfeit the P1.occupied by his lessee who agreed to vacate the premises upon payment of disturbance fee.487.213. [Cortes'] counsel at the pre- trial of this case. However. He thus prayed that the Corporation be ordered to pay the outstanding balance plus interest and in the alternative. the Motion for Reconsideration is hereby DENIED.000. It found that the . [The Corporation] did nothing to comply with its undertaking under the agreement between the parties.200. however. the Court of Appeals reversed the decision of the trial court and directed Cortes to execute a Deed of Absolute Sale conveying the properties and to deliver the same to the Corporation together with the TCTs.00. In its motion for reconsideration.200.00.213.000. rescission of the contract is proper. the Corporation should have fully paid the amount of P2. And. It ruled that pursuant to the contract of the parties. in view of the foregoing considerations. having failed to pay in full the amount of P2. It stressed that such is the law between the parties because the Corporation failed to present evidence that there was another agreement that modified the terms of payment as stated in the contract. simultaneous with the Corporation's payment of the balance of the purchase price of P2.000.00 upon the execution of the contract. due to the Corporation's failure to pay in full the sum of P2. plus interest. SO ORDERED.000. he in turn failed to fully pay the disturbance fee of the lessee who now refused to pay monthly rentals. [Cortes] would sign the Deed of Sale and turn over the certificate of title to the [Corporation]. Thus: The Court finds no merit in the [Corporation's] Motion for Reconsideration.200. As stated in the decision sought to be reconsidered.000. WHEREFORE. with damages in either case. denied by the trial court holding that the rescission should stand because the Corporation did not act on the offer of Cortes' counsel to deliver the TCTs upon payment of the balance of the down payment.7 On appeal.00 despite Cortes' delivery of the Deed of Absolute Sale and the TCTs. proposed that if [the Corporation] completes the down payment agreed upon and make arrangement for the payment of the balances of the purchase price.

487. states: ART. District IV. "All expenses for the registration of this document (the deed of sale) with the Register of Deeds concerned." There is no pronouncement as to costs. 31113-A. Reciprocal obligations are those which arise from the same cause. 31931-A and 32013-A of the Registry of Deeds for the Province of Rizal. xxxx . Exhibit D. under terms and conditions. the Corporation was not remiss in the performance of its obligation and therefore justified in not paying the balance.parties agreed that the Corporation will fully pay the balance of the down payment upon Cortes' delivery of the three TCTs to the Corporation. so that the performance of one is conditioned upon the simultaneous fulfillment of the other. The power to rescind obligations is implied in reciprocal ones. There is no doubt that the contract of sale in question gave rise to a reciprocal obligation of the parties. hence. and which each party is a debtor and a creditor of the other. [the Corporation] shall pay [Cortes] the balance of the purchase price of P2. such that the obligation of one is dependent upon the obligation of the other. As agreed upon in paragraph 4 of the Deed of Absolute Sale. Exhibit D. shall be divided equally between [Cortes and the Corporation]. including the transfer tax. The decretal portion thereof. The decision appealed from is hereby REVERSED and SET ASIDE and a new judgment rendered ordering [Cortes] to execute a deed of absolute sale conveying to [the Corporation] the parcels of land subject of and described in the deed of absolute sale.8 Cortes filed the instant petition praying that the decision of the trial court rescinding the sale be reinstated.00. Metro Manila. The records show that no such delivery was made. Simultaneously with the execution of the deed of absolute sale and the delivery of the corresponding owner's duplicate copies of TCT Nos.000. SO ORDERED. 5% commission of Marcosa Sanchez to be deducted upon signing of sale. Payment of the capital gains shall be exclusively for the account of the Vendor. [the Corporation's] appeal is GRANTED. 1191. provides: WHEREFORE. in case one of the obligors should not comply with what is incumbent upon him. premises considered. They are to be performed simultaneously.9 Article 1191 of the Civil Code.

The settled rule is that the decisive factor in evaluating an agreement is the intention of the parties.As to when said failure or delay in performance arise.00 down payment upon execution of the contract.200. why did you deliver these three titles to the plaintiff despite the fact that it has not been paid in full the agreed down payment? A Well.000.000. 1169 xxxx In reciprocal obligations. As such.000.00 would depend upon his delivery of the TCTs of the three lots. 10 In the case at bar. as correctly noted by the Court of Appeals. documentary and parol evidence may be submitted and admitted to prove such intention. but the latter refused to pay in full the down payment. From the moment one of the parties fulfills his obligation. However. his main defense in the Answer is that. 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. delay by the other begins. To resolve this issue.00 provided you surrender or entrust to the plaintiff the titles? . reads: [Q] Now. Article 1169 of the same Code provides that – ART. therefore. (Emphasis supplied) The issue therefore is whether there is delay in the performance of the parties' obligation that would justify the rescission of the contract of sale. actions and deeds prior to. during and immediately after executing the agreement.200. words. he performed what is incumbent upon him by delivering to the Corporation the TCTs and the carbon duplicate of the Deed of Absolute Sale. In fact. the stipulation in the Deed of Absolute Sale was that the Corporation shall pay in full the P2.200. as shown not necessarily by the terminology used in the contract but by their conduct. the broker told me that the down payment will be given if I surrender the titles. we must first determine the true agreement of the parties. 11 Pertinent portion of the transcript. the transcript of stenographic notes reveal Cortes' admission that he agreed that the Corporation's full payment of the sum of P2. Q Do you mean to say that the plaintiff agreed to pay in full the down payment of P2.

the phrase "execution of this instrument" 14 as appearing in the Deed of Absolute Sale.00? A Yes. and that Manny told him that her mother. A Yes. SARTE Q When you said upon full payment. Hence. the Court must now determine whether Cortes delivered the TCTs and the original Deed to the Corporation.00. The Court of Appeals found that Cortes never surrendered said documents to the Corporation.15 With the transfer of titles as the corresponding reciprocal obligation of payment. ANTARAN Q Of course. are you referring to the agreed down payment of P2.000. .00 down payment. Having established the true agreement of the parties. Thus – ATTY. to have the Deed notarized and to surrender the original copy thereof to the Corporation together with the TCTs. the title? A Upon full payment. but to set into motion the process that would facilitate the transfer of title of the lots.e. sir. can not be construed as referring solely to the signing of the deed. i. Cortes' impliedly agreed to deliver the TCTs to the Corporation in order to effect said transfer. you have it transferred in the name of the plaintiff. Cortes testified that he delivered the same to Manny Sanchez.12 What further confirmed the agreement to deliver the TCTs is the testimony of Cortes that the title of the lots will be transferred in the name of the Corporation upon full payment of the P2. xxxx ATTY.000. Cortes' obligation is not only to affix his signature in the Deed. The meaning of "execution" in the instant case is not limited to the signing of a contract but includes as well the performance or implementation or accomplishment of the parties' agreement.200. and which event would give rise to the Corporation's obligation to pay in full the amount of P2.200. delivered the same to the Corporation.200.00. the son of the broker. sir.000..200.13 By agreeing to transfer title upon full payment of P2. Marcosa Sanchez.000.

Q Do you have any proof to show that you have indeed surrendered these titles
to the plaintiff?

A Yes, sir.

Q I am showing to you a receipt dated October 29, 1983, what relation has this
receipt with that receipt that you have mentioned?

A That is the receipt of the real estate broker when she received the titles.

Q On top of the printed name is Manny Sanchez, there is a signature, do you
know who is that Manny Sanchez?

A That is the son of the broker.

xxxx

Q May we know the full name of the real estate broker?

A Marcosa Sanchez

xxxx

Q Do you know if the broker or Marcosa Sanchez indeed delivered the titles to
the plaintiff?

A That is what [s]he told me. She gave them to the plaintiff.

x x x x.16

ATTY. ANTARAN

Q Are you really sure that the title is in the hands of the plaintiff?

xxxx

Q It is in the hands of the broker but there is no showing that it is in the hands
of the plaintiff?

A Yes, sir.

COURT

Q How do you know that it was delivered to the plaintiff by the son of the
broker?

A The broker told me that she delivered the title to the plaintiff.

ATTY. ANTARAN

Q Did she not show you any receipt that she delivered to [Mr.] Dragon 17 the title
without any receipt?

A I have not seen any receipt.

Q So, therefore, you are not sure whether the title has been delivered to the
plaintiff or not. It is only upon the allegation of the broker?

A Yes, sir.18

However, Marcosa Sanchez's unrebutted testimony is that, she did not receive the
TCTs. She also denied knowledge of delivery thereof to her son, Manny, thus:

Q The defendant, Antonio Cortes testified during the hearing on March 11, 1986
that he allegedly gave you the title to the property in question, is it true?

A I did not receive the title.

Q He likewise said that the title was delivered to your son, do you know about
that?

A I do not know anything about that.19

What further strengthened the findings of the Court of Appeals that Cortes did not
surrender the subject documents was the offer of Cortes' counsel at the pre-trial to
deliver the TCTs and the Deed of Absolute Sale if the Corporation will pay the balance
of the down payment. Indeed, if the said documents were already in the hands of the
Corporation, there was no need for Cortes' counsel to make such offer.

Since Cortes did not perform his obligation to have the Deed notarized and to surrender
the same together with the TCTs, the trial court erred in concluding that he performed
his part in the contract of sale and that it is the Corporation alone that was remiss in

the performance of its obligation. Actually, both parties were in delay. Considering that
their obligation was reciprocal, performance thereof must be simultaneous. The mutual
inaction of Cortes and the Corporation therefore gave rise to a compensation morae or
default on the part of both parties because neither has completed their part in their
reciprocal obligation.20 Cortes is yet to deliver the original copy of the notarized Deed
and the TCTs, while the Corporation is yet to pay in full the agreed down payment of
P2,200,000.00. This mutual delay of the parties cancels out the effects of
default,21 such that it is as if no one is guilty of delay. 22

We find no merit in Cortes' contention that the failure of the Corporation to act on the
proposed settlement at the pre-trial must be construed against the latter. Cortes
argued that with his counsel's offer to surrender the original Deed and the TCTs, the
Corporation should have consigned the balance of the down payment. This argument
would have been correct if Cortes actually surrendered the Deed and the TCTs to the
Corporation. With such delivery, the Corporation would have been placed in default if it
chose not to pay in full the required down payment. Under Article 1169 of the Civil Code,
from the moment one of the parties fulfills his obligation, delay by the other begins.
Since Cortes did not perform his part, the provision of the contract requiring the
Corporation to pay in full the down payment never acquired obligatory force. Moreover,
the Corporation could not be faulted for not automatically heeding to the offer of
Cortes. For one, its complaint has a prayer for damages which it may not want to waive
by agreeing to the offer of Cortes' counsel. For another, the previous representation of
Cortes that the TCTs were already delivered to the Corporation when no such delivery
was in fact made, is enough reason for the Corporation to be more cautious in dealing
with him.

The Court of Appeals therefore correctly ordered the parties to perform their
respective obligation in the contract of sale, i.e., for Cortes to, among others, deliver the
necessary documents to the Corporation and for the latter to pay in full, not only the
down payment, but the entire purchase price. And since the Corporation did not question
the Court of Appeal's decision and even prayed for its affirmance, its payment should
rightfully consist not only of the amount of P987,000.00, representing the balance of
the P2,200,000.00 down payment, but the total amount of P2,487,000.00, the remaining
balance in the P3,700,000.00 purchase price.

WHEREFORE, the petition is DENIED and the June 13, 1996 Decision of the Court of
Appeals in CA-G.R. CV No. 47856, is AFFIRMED.

SO ORDERED.

G.R. No. L-11827 July 31, 1961

FERNANDO A. GAITE, plaintiff-appellee,
vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO.,
INC., SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and
FERNANDO TY, defendants-appellants.

Alejo Mabanag for plaintiff-appellee.
Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants-appellants.

REYES, J.B.L., J.:

This appeal comes to us directly from the Court of First Instance because the claims
involved aggregate more than P200,000.00.

Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself or
in a representative capacity, of 11 iron lode mineral claims, known as the Dawahan Group,
situated in the municipality of Jose Panganiban, province of Camarines Norte.

By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier constituted
and appointed plaintiff-appellee 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 aforementioned on a royalty basis of not less than
P0.50 per ton of ore that might be extracted therefrom. On March 19, 1954, Gaite in
turn executed a general assignment (Record on Appeal, pp. 17-19) conveying the
development and exploitation of said mining claims into the Larap Iron Mines, a single
proprietorship owned solely by and belonging to him, on the same royalty basis provided
for in Exhibit "3". Thereafter, Gaite embarked upon the development and exploitation of
the mining claims in question, 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 claim 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 to exploit and develop the mining claims in question, and Gaite assented
thereto subject to certain conditions. As a result, a document entitled "Revocation of
Power of Attorney and Contract" was executed on December 8, 1954 (Exhibit
"A"),wherein Gaite transferred to Fonacier, for the consideration of P20,000.00, 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 P75,000.00, P10,000.00 of which was paid upon the signing of the agreement, and

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid
from and out of the first letter of credit covering the first shipment of iron
ores and of the first amount derived from the local sale of iron ore made by the
Larap Mines & Smelting Co. Inc., its assigns, administrators, or successors in
interests.

To secure the payment of the said balance of P65,000.00, Fonacier promised to execute
in favor of Gaite a surety bond, and pursuant to the promise, Fonacier delivered to Gaite
a surety bond dated December 8, 1954 with himself (Fonacier) as principal and the Larap
Mines and Smelting Co. and its stockholders George Krakower, Segundina Vivas, Pacifico
Escandor, Francisco Dante, and Fernando Ty as sureties (Exhibit "A-1"). Gaite testified,
however, that when this bond was presented to him by Fonacier together with the
"Revocation of Power of Attorney and Contract", Exhibit "A", on December 8, 1954, he
refused to sign said Exhibit "A" unless another bond under written by a bonding company
was put up by defendants to secure the payment of the P65,000.00 balance of their
price of the iron ore in the stockpiles in the mining claims. Hence, a second bond, also
dated December 8, 1954 (Exhibit "B"),was executed by the same parties to the first
bond Exhibit "A-1", 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 then P65,000.00, and that, furthermore, the liability of said surety company would
automatically expire on December 8, 1955. Both bonds were attached to the "Revocation
of Power of Attorney and Contract", Exhibit "A", and made integral parts thereof.

On the same day that Fonacier revoked the power of attorney he gave to Gaite and the
two executed and signed the "Revocation of Power of Attorney and Contract", Exhibit
"A", Fonacier entered into a "Contract of Mining Operation", ceding, transferring, and
conveying unto the Larap Mines and Smelting Co., Inc. the right to develop, exploit, and
explore the mining claims in question, together with the improvements therein and the
use of the name "Larap Iron Mines" and its good will, 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 &
Smelting Co., in consideration for the signing by the company and its stockholders of the
surety bonds delivered by Fonacier to Gaite (Record on Appeal, pp. 82-94).

Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far
Eastern Surety and Insurance Company, no sale of the approximately 24,000 tons of iron

ore had been made by the Larap Mines & Smelting Co., Inc., nor had the P65,000.00
balance of the price of said ore been paid to Gaite by Fonacier and his sureties payment
of said amount, on the theory that they had lost right to make use of the period given
them when their bond, Exhibit "B" automatically expired (Exhibits "C" to "C-24"). And
when Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed the
present complaint against them in the Court of First Instance of Manila (Civil Case No.
29310) for the payment of the P65,000.00 balance of the price of the ore, consequential
damages, and attorney's fees.

All the defendants except Francisco Dante set up the uniform defense that the
obligation sued upon by Gaite was subject to a condition that the amount of P65,000.00
would be payable out of the first letter of credit covering the first shipment of iron ore
and/or the first amount derived from the local sale of the iron ore by the Larap Mines &
Smelting Co., Inc.; that up to the time of the filing of the complaint, no sale of the iron
ore had been made, hence the condition had not yet been fulfilled; and that
consequently, the obligation was not yet due and demandable. Defendant Fonacier also
contended that only 7,573 tons of the estimated 24,000 tons of iron ore sold to him by
Gaite was actually delivered, and counterclaimed for more than P200,000.00 damages.

At the trial of the case, the parties agreed to limit the presentation of evidence to two
issues:

(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00
become due and demandable when the defendants failed to renew the surety bond
underwritten by the Far Eastern Surety and Insurance Co., Inc. (Exhibit "B"), which
expired on December 8, 1955; and

(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant
Fonacier were actually in existence in the mining claims when these parties executed the
"Revocation of Power of Attorney and Contract", Exhibit "A."

On the first question, the lower court held that the obligation of the defendants to pay
plaintiff the P65,000.00 balance of the price of the approximately 24,000 tons of iron
ore was one with a term: i.e., that it would be paid upon the sale of sufficient iron ore by
defendants, such sale to be effected within one year or before December 8, 1955; that
the giving of security was a condition precedent to Gait's giving of credit to defendants;
and that as the latter failed to put up a good and sufficient security in lieu of the Far
Eastern Surety bond (Exhibit "B") which expired on December 8, 1955, the obligation
became due and demandable under Article 1198 of the New Civil Code.

From this judgment. and even if true. The main issues presented by appellants in this appeal are: (1) that the lower court erred in holding that the obligation of appellant Fonacier to pay appellee Gaite the P65. and not the iron ore itself. During the pendency of this appeal. more or less.5 tons in the stockpiles of iron ore sold by appellee Gaite to appellant Fonacier. and George Krakower in contempt. above-referred to together with all his rights and interests to operate the mine in consideration of the sum of SEVENTY-FIVE THOUSAND PESOS (P75. 1955. plus costs. jointly and severally. does not make these appellants guilty of contempt.000 tons of iron ore at the mining claims in question at the time of the execution of the contract Exhibit "A. filed by appellant Fonacier.000. filed by appellee Gaite. Inc. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F. the lower court found that plaintiff Gaite did have approximately 24. rendered in favor of plaintiff Gaite ordering defendants to pay him. Inc.. which allegedly is "property in litigation". and Krakower had sold the iron ore here in question.000 tons of iron ore. and (2) that the lower court erred in not holding that there were only 10. which we shall hereafter discuss. because what is under litigation in this appeal is appellee Gaite's right to the payment of the balance of the price of the ore. several incidental motions were presented for resolution: a motion to declare the appellants Larap Mines & Smelting Co.954.00) which the latter binds to pay as follows: . 1955 until payment. has not been substantiated." Judgment was. and two motions to dismiss the appeal as having become academic and a motion for new trial and/or to take judicial notice of certain documents.000. Fonacier all his rights and interests over the 24.00 with interest at 6% per annum from December 9.As to the second question.00 (balance of the price of the iron ore in question)is one with a period or term and not one with a suspensive condition. As for the several motions presented by appellee Gaite. The first issue involves an interpretation of the following provision in the contract Exhibit "A": 7. P65. and that the term expired on December 8. accordingly. defendants jointly appealed to this Court. it is unnecessary to resolve these motions in view of the results that we have reached in this case. The motion for contempt is unmeritorious because the main allegation therein that the appellants Larap Mines & Smelting Co..000.

. . the existence of the obligation to pay is recognized. 2) 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).000. therefore. so that if the suspensive condition does not take place. and 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. . While in a sale the obligation of one party can be lawfully subordinated to an uncertain event.000. the contingent character of the obligation must clearly appear. The balance of SIXTY-FIVE THOUSAND PESOS (P65. b.00) will be paid out of the first letter of credit covering the first shipment of iron ores . That the parties to the contract Exhibit "A" did not intend any such state of things to prevail is supported by several circumstances: 1) The words of the contract express no contingency in the buyer's obligation to pay: "The balance of Sixty-Five Thousand Pesos (P65. the Larap Mines & Smelting Co.. and the company's stockholders. Inc. only its maturity or demandability is deferred. but was only a suspensive period or term. Nothing is found in the record to evidence that Gaite desired or assumed to run the risk of losing his right over the ore without getting paid for it. . We find the court below to be legally correct in holding that the shipment or local sale of the iron ore is not a condition precedent (or suspensive) to the payment of the balance of P65. what is undetermined is merely the exact date at which it will be made.00)will be paid from and out of the first letter of credit covering the first shipment of iron ore made by the Larap Mines & Smelting Co.00. This is proved by the fact that Gaite insisted on a bond a to guarantee payment of the P65. hence. its assigns. an not only upon a bond by Fonacier.but each party anticipates performance by the other from the very start.00.00) will be paid upon the signing of this agreement." etc.000.000. emptio spei). 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. administrators. or that Fonacier understood that Gaite assumed any such risk. a. but also on one by a surety company. or successors in interest. By the very terms of the contract. TEN THOUSAND PESOS (P10. There is no uncertainty that the payment will have to be made sooner or later.00.000.. it is not in the usual course of business to do so.000. 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. the parties would stand as if the conditional obligation had never existed.

Article 1378. Appellants would thus be able to postpone payment indefinitely. 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. Gaite. in fine. paragraph 1.00.3) To subordinate the obligation to pay the remaining P65. and there can be no question that greater reciprocity obtains if the buyer' obligation is deemed to be actually existing. the rules of interpretation would incline the scales in favor of "the greater reciprocity of interests". for the sale or shipment could not be made unless the appellants took steps to sell the ore. The Civil Code of the Philippines. the next point of inquiry is whether appellants.00.00.00 to the sale or shipment of the ore as a condition precedent. The desireability of avoiding such a construction of the contract Exhibit "A" needs no stressing. would assume the risk of not being paid at all.000. the doubt shall be settled in favor of the greatest reciprocity of interests. that if such obligation were viewed as non-existent or not binding until the ore was sold. We agree with the court below that the appellant have forfeited the right court below that the appellants have forfeited the right to compel Gaite to wait for the sale of the ore before receiving payment of the balance of P65. This issue settled. a security that Gaite considered essential and upon which he had insisted when he executed the deed of sale of the ore to Fonacier (Exhibit "A"). still have the right to insist that Gaite should wait for the sale or shipment of the ore before receiving payment. Fonacier and his sureties. 4) Assuming that there could be doubt whether by the wording of the contract the parties indented a suspensive condition or a suspensive period (dies ad quem) for the payment of the P65. whether or not they are entitled to take full advantage of the period granted them for making the payment. in other words. and not an aleatory contract where the transferor. provides: If the contract is onerous. The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines: . with only its maturity (due date) postponed or deferred. The only rational view that can be taken is that the sale of the ore to Fonacier was a sale on credit.000. since sale is essentially onerous. because of their failure to renew the bond of the Far Eastern Surety Company or else replace it with an equivalent guarantee.000. The expiration of the bonding company's undertaking on December 8. or. but was intended merely to fix the future date of the payment.000. 1955 substantially reduced the security of the vendor's rights as creditor for the unpaid P65. would be tantamount to leaving the payment at the discretion of the debtor.

"ART. 1198. The debtor shall lose every right to make use of the period:

(1) . . .

(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.

There is no merit in appellants' argument that Gaite's acceptance of the surety
company's bond with full knowledge that on its face it would automatically expire within
one year was 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 barely; 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 December 8, 1955. But in the
latter case the defendants-appellants' obligation to pay became absolute after one year
from the transfer of the ore to Fonacier by virtue of the deed Exhibit "A.".

All the alternatives, therefore, lead to the same result: that Gaite acted within his
rights in demanding payment and instituting this action one year from and after the
contract (Exhibit "A") was executed, either because the appellant debtors had impaired
the securities originally given and thereby forfeited any further time within which to
pay; or because the term of payment was originally of no more than one year, and the
balance of P65,000.00 became due and payable thereafter.

Coming now to the second issue in this appeal, which is whether there were really 24,000
tons of iron ore in the stockpiles sold by appellee Gaite to appellant Fonacier, and
whether, if there had been a short-delivery as claimed by appellants, they are entitled
to the payment of damages, we must, at the outset, stress two things: first, that 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 Exhibit "A,"
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
of 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 or 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 P75,000,00 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 Louisiana Civil Code). There is no charge in this case that Gaite
did not deliver to appellants all the ore found in the stockpiles in the mining claims in
questions; Gaite had, therefore, complied with his promise to deliver, and appellants in
turn are bound to pay the lump price.

But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy, not a
definite mass, but approximately 24,000 tons of ore, so that any substantial difference
in this quantity delivered would entitle the buyers to recover damages for the short-
delivery, was there really a short-delivery in this case?

We think not. As already stated, neither of the parties had actually measured or
weighed the whole mass of ore cubic meter by cubic meter, or ton by ton. Both parties
predicate their respective claims only upon an estimated number of cubic meters of ore
multiplied by the average tonnage factor per cubic meter.

Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the
stockpiles of ore that he sold to Fonacier, while appellants contend that by actual
measurement, their witness Cirpriano Manlañgit found the total volume of ore in the
stockpiles to be only 6.609 cubic meters. As to the average weight in tons per cubic
meter, the parties are again in disagreement, with appellants claiming the correct
tonnage factor to be 2.18 tons to a cubic meter, while appellee Gaite claims that the
correct tonnage factor is about 3.7.

In the face of the conflict of evidence, we take as the most reliable estimate of the
tonnage factor of iron ore in this case to be that made by Leopoldo F. Abad, chief of the
Mines and Metallurgical Division of the Bureau of Mines, a government pensionado to the
States and a mining engineering graduate of the Universities of Nevada and California,
with almost 22 years of experience in the Bureau of Mines. This witness placed the
tonnage factor of every cubic meter of iron ore at between 3 metric tons as minimum to

5 metric tons as maximum. This estimate, in turn, closely corresponds to the average
tonnage factor of 3.3 adopted in his corrected report (Exhibits "FF" and FF-1") by
engineer Nemesio Gamatero, who was sent by the Bureau of Mines to the mining claims
involved at the request of appellant Krakower, precisely to make an official estimate of
the amount of iron ore in Gaite's stockpiles after the dispute arose.

Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles
made by appellant's witness Cipriano Manlañgit is correct, if we multiply it by the
average tonnage factor of 3.3 tons to a cubic meter, the product is 21,809.7 tons, which
is not very far from the estimate of 24,000 tons made by appellee Gaite, considering
that actual weighing of each unit of the mass was practically impossible, so that a
reasonable percentage of error should be allowed anyone making an estimate of the
exact quantity in tons found in the mass. It must not be forgotten that the contract
Exhibit "A" expressly stated the amount to be 24,000 tons, more or less. (ch. Pine River
Logging & Improvement Co. vs U.S., 279, 46 L. Ed. 1164).

There was, consequently, no short-delivery in this case 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, as charged by appellants, since Gaite's estimate appears to be
substantially correct.

WHEREFORE, finding no error in the decision appealed from, we hereby affirm the
same, with costs against appellants.

G.R. No. L-11827 July 31, 1961

FERNANDO A. GAITE, plaintiff-appellee,
vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO.,
INC., SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and
FERNANDO TY, defendants-appellants.

Alejo Mabanag for plaintiff-appellee.
Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants-appellants.

REYES, J.B.L., J.:

This appeal comes to us directly from the Court of First Instance because the claims
involved aggregate more than P200,000.00.

Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself or
in a representative capacity, of 11 iron lode mineral claims, known as the Dawahan Group,
situated in the municipality of Jose Panganiban, province of Camarines Norte.

By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier constituted
and appointed plaintiff-appellee 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 aforementioned on a royalty basis of not less than
P0.50 per ton of ore that might be extracted therefrom. On March 19, 1954, Gaite in
turn executed a general assignment (Record on Appeal, pp. 17-19) conveying the
development and exploitation of said mining claims into the Larap Iron Mines, a single
proprietorship owned solely by and belonging to him, on the same royalty basis provided
for in Exhibit "3". Thereafter, Gaite embarked upon the development and exploitation of
the mining claims in question, 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 claim 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 to exploit and develop the mining claims in question, and Gaite assented
thereto subject to certain conditions. As a result, a document entitled "Revocation of
Power of Attorney and Contract" was executed on December 8, 1954 (Exhibit
"A"),wherein Gaite transferred to Fonacier, for the consideration of P20,000.00, 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 P75,000.00, P10,000.00 of which was paid upon the signing of the agreement, and

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid
from and out of the first letter of credit covering the first shipment of iron
ores and of the first amount derived from the local sale of iron ore made by the
Larap Mines & Smelting Co. Inc., its assigns, administrators, or successors in
interests.

To secure the payment of the said balance of P65,000.00, Fonacier promised to execute
in favor of Gaite a surety bond, and pursuant to the promise, Fonacier delivered to Gaite
a surety bond dated December 8, 1954 with himself (Fonacier) as principal and the Larap
Mines and Smelting Co. and its stockholders George Krakower, Segundina Vivas, Pacifico

Escandor, Francisco Dante, and Fernando Ty as sureties (Exhibit "A-1"). Gaite testified,
however, that when this bond was presented to him by Fonacier together with the
"Revocation of Power of Attorney and Contract", Exhibit "A", on December 8, 1954, he
refused to sign said Exhibit "A" unless another bond under written by a bonding company
was put up by defendants to secure the payment of the P65,000.00 balance of their
price of the iron ore in the stockpiles in the mining claims. Hence, a second bond, also
dated December 8, 1954 (Exhibit "B"),was executed by the same parties to the first
bond Exhibit "A-1", 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 then P65,000.00, and that, furthermore, the liability of said surety company would
automatically expire on December 8, 1955. Both bonds were attached to the "Revocation
of Power of Attorney and Contract", Exhibit "A", and made integral parts thereof.

On the same day that Fonacier revoked the power of attorney he gave to Gaite and the
two executed and signed the "Revocation of Power of Attorney and Contract", Exhibit
"A", Fonacier entered into a "Contract of Mining Operation", ceding, transferring, and
conveying unto the Larap Mines and Smelting Co., Inc. the right to develop, exploit, and
explore the mining claims in question, together with the improvements therein and the
use of the name "Larap Iron Mines" and its good will, 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 &
Smelting Co., in consideration for the signing by the company and its stockholders of the
surety bonds delivered by Fonacier to Gaite (Record on Appeal, pp. 82-94).

Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far
Eastern Surety and Insurance Company, no sale of the approximately 24,000 tons of iron
ore had been made by the Larap Mines & Smelting Co., Inc., nor had the P65,000.00
balance of the price of said ore been paid to Gaite by Fonacier and his sureties payment
of said amount, on the theory that they had lost right to make use of the period given
them when their bond, Exhibit "B" automatically expired (Exhibits "C" to "C-24"). And
when Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed the
present complaint against them in the Court of First Instance of Manila (Civil Case No.
29310) for the payment of the P65,000.00 balance of the price of the ore, consequential
damages, and attorney's fees.

All the defendants except Francisco Dante set up the uniform defense that the
obligation sued upon by Gaite was subject to a condition that the amount of P65,000.00
would be payable out of the first letter of credit covering the first shipment of iron ore
and/or the first amount derived from the local sale of the iron ore by the Larap Mines &
Smelting Co., Inc.; that up to the time of the filing of the complaint, no sale of the iron

1955. hence the condition had not yet been fulfilled. the parties agreed to limit the presentation of evidence to two issues: (1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65.. and that consequently.ore had been made. that it would be paid upon the sale of sufficient iron ore by defendants. At the trial of the case. rendered in favor of plaintiff Gaite ordering defendants to pay him. (Exhibit "B"). the obligation became due and demandable under Article 1198 of the New Civil Code. several incidental motions were presented for resolution: a motion to declare the appellants Larap Mines & Smelting Co. the lower court held that the obligation of the defendants to pay plaintiff the P65.00 become due and demandable when the defendants failed to renew the surety bond underwritten by the Far Eastern Surety and Insurance Co. and George Krakower in contempt. and two motions to dismiss the appeal as having become academic and a motion for new trial and/or to take judicial notice of certain documents. Defendant Fonacier also contended that only 7.573 tons of the estimated 24. Inc.000 tons of iron ore was one with a term: i. P65.000. filed by appellant Fonacier.000. As to the second question. defendants jointly appealed to this Court..000 tons of iron ore sold to him by Gaite was actually delivered. and that as the latter failed to put up a good and sufficient security in lieu of the Far Eastern Surety bond (Exhibit "B") which expired on December 8. Exhibit "A." Judgment was.. which expired on December 8. 1955. and counterclaimed for more than P200.000. The motion for contempt is unmeritorious because the main allegation therein that the appellants Larap Mines & .000 tons of iron ore at the mining claims in question at the time of the execution of the contract Exhibit "A. accordingly. the obligation was not yet due and demandable.000. such sale to be effected within one year or before December 8. that the giving of security was a condition precedent to Gait's giving of credit to defendants.00 damages. 1955. Inc. During the pendency of this appeal. the lower court found that plaintiff Gaite did have approximately 24. jointly and severally. filed by appellee Gaite.000 tons of iron ore sold by plaintiff Gaite to defendant Fonacier were actually in existence in the mining claims when these parties executed the "Revocation of Power of Attorney and Contract". plus costs. 1955 until payment. and (2) Whether the estimated 24.00 with interest at 6% per annum from December 9.00 balance of the price of the approximately 24.e." On the first question. From this judgment.

because what is under litigation in this appeal is appellee Gaite's right to the payment of the balance of the price of the ore. which allegedly is "property in litigation"..00)will be paid from and out of the first letter of credit covering the first shipment of iron ore made by the Larap Mines & Smelting Co. above-referred to together with all his rights and interests to operate the mine in consideration of the sum of SEVENTY-FIVE THOUSAND PESOS (P75. b. administrators. and that the term expired on December 8.00.954.000.00) which the latter binds to pay as follows: a. the parties would stand as .000. The first issue involves an interpretation of the following provision in the contract Exhibit "A": 7. or successors in interest.000 tons of iron ore. The main issues presented by appellants in this appeal are: (1) that the lower court erred in holding that the obligation of appellant Fonacier to pay appellee Gaite the P65.000. TEN THOUSAND PESOS (P10. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F. it is unnecessary to resolve these motions in view of the results that we have reached in this case. Inc. 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. has not been substantiated. Fonacier all his rights and interests over the 24. 1955. and (2) that the lower court erred in not holding that there were only 10. which we shall hereafter discuss. As for the several motions presented by appellee Gaite. We find the court below to be legally correct in holding that 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. does not make these appellants guilty of contempt. its assigns.00 (balance of the price of the iron ore in question)is one with a period or term and not one with a suspensive condition.. and Krakower had sold the iron ore here in question. and not the iron ore itself. but was only a suspensive period or term. and even if true.00) will be paid upon the signing of this agreement.5 tons in the stockpiles of iron ore sold by appellee Gaite to appellant Fonacier. The balance of SIXTY-FIVE THOUSAND PESOS (P65. more or less.000. so that if the suspensive condition does not take place. Inc.Smelting Co.

but also on one by a surety company. Nothing is found in the record to evidence that Gaite desired or assumed to run the risk of losing his right over the ore without getting paid for it. The desireability of avoiding such a construction of the contract Exhibit "A" needs no stressing. 3) To subordinate the obligation to pay the remaining P65.00. provides: .000. This is proved by the fact that Gaite insisted on a bond a to guarantee payment of the P65." etc. would be tantamount to leaving the payment at the discretion of the debtor.000.00. it is not in the usual course of business to do so.00. That the parties to the contract Exhibit "A" did not intend any such state of things to prevail is supported by several circumstances: 1) The words of the contract express no contingency in the buyer's obligation to pay: "The balance of Sixty-Five Thousand Pesos (P65. since sale is essentially onerous. in fine. 2) 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).000. or that Fonacier understood that Gaite assumed any such risk..000. Appellants would thus be able to postpone payment indefinitely. the Larap Mines & Smelting Co. and 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. 4) Assuming that there could be doubt whether by the wording of the contract the parties indented a suspensive condition or a suspensive period (dies ad quem) for the payment of the P65. only its maturity or demandability is deferred.if the conditional obligation had never existed. hence. therefore. the existence of the obligation to pay is recognized. There is no uncertainty that the payment will have to be made sooner or later. emptio spei).00 to the sale or shipment of the ore as a condition precedent. 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. paragraph 1. what is undetermined is merely the exact date at which it will be made.but each party anticipates performance by the other from the very start. the rules of interpretation would incline the scales in favor of "the greater reciprocity of interests". for the sale or shipment could not be made unless the appellants took steps to sell the ore. While in a sale the obligation of one party can be lawfully subordinated to an uncertain event. and the company's stockholders.00) will be paid out of the first letter of credit covering the first shipment of iron ores . the contingent character of the obligation must clearly appear. an not only upon a bond by Fonacier. Article 1378. By the very terms of the contract. .000. The Civil Code of the Philippines. .

00. in other words. still have the right to insist that Gaite should wait for the sale or shipment of the ore before receiving payment. that if such obligation were viewed as non-existent or not binding until the ore was sold. This issue settled. because of their failure to renew the bond of the Far Eastern Surety Company or else replace it with an equivalent guarantee. or. We agree with the court below that the appellant have forfeited the right court below that the appellants have forfeited the right to compel Gaite to wait for the sale of the ore before receiving payment of the balance of P65. a security that Gaite considered essential and upon which he had insisted when he executed the deed of sale of the ore to Fonacier (Exhibit "A"). and there can be no question that greater reciprocity obtains if the buyer' obligation is deemed to be actually existing. The expiration of the bonding company's undertaking on December 8. the next point of inquiry is whether appellants. 1955 substantially reduced the security of the vendor's rights as creditor for the unpaid P65. with only its maturity (due date) postponed or deferred. (2) When he does not furnish to the creditor the guaranties or securities which he has promised. The only rational view that can be taken is that the sale of the ore to Fonacier was a sale on credit.000. . . The debtor shall lose every right to make use of the period: (1) . 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. whether or not they are entitled to take full advantage of the period granted them for making the payment. unless he immediately gives new ones equally satisfactory. and not an aleatory contract where the transferor. (3) When by his own acts he has impaired said guaranties or securities after their establishment. The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines: "ART.000. 1198. Fonacier and his sureties. Gaite. but was intended merely to fix the future date of the payment. would assume the risk of not being paid at all. the doubt shall be settled in favor of the greatest reciprocity of interests.00. . and when through fortuitous event they disappear. If the contract is onerous.

unless immediately renewed or replaced." being a mere estimate by the parties of the total tonnage weight of the mass. Inc. more or less. stress two things: first. 171 So. 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 December 8.(see Art.Appellants' failure to renew or extend the surety company's bond upon its expiration plainly impaired the securities given to the creditor (appellee Gaite). we must. therefore. and whether.. vs.00 became due and payable thereafter. either because the appellant debtors had impaired the securities originally given and thereby forfeited any further time within which to pay. for Gaite stood to lose and had nothing to gain barely. There is no merit in appellants' argument that Gaite's acceptance of the surety company's bond with full knowledge that on its face it would automatically expire within one year was a waiver of its renewal after the expiration date. 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. . which is whether there were really 24. The sale between the parties is a sale of a specific mass or 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.000. All the alternatives. that this is a case of a sale of a specific mass of fungible goods for a single price or a lump sum. if there had been a short-delivery as claimed by appellants. and the balance of P65. and if there was any. and not the actual number of units or tons contained therein. the quantity of "24. 1955. second par. and second.". But in the latter case the defendants-appellants' obligation to pay became absolute after one year from the transfer of the ore to Fonacier by virtue of the deed Exhibit "A. they are entitled to the payment of damages. therefore. at the outset. nor was the price of P75. a determinate object. York Oilfield Salvage Co. lead to the same result: that Gaite acted within his rights in demanding payment and instituting this action one year from and after the contract (Exhibit "A") was executed. No such waiver could have been intended." stated in the contract Exhibit "A.. Inc. The subject matter of the sale is. 1480..000 tons of iron ore.000 tons of iron ore in the stockpiles sold by appellee Gaite to appellant Fonacier. New Civil Code).000. or because the term of payment was originally of no more than one year. that the evidence shows that neither of the parties had actually measured of 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 mass. 872. Coming now to the second issue in this appeal.00 agreed upon by the parties based upon any such measurement.

000 tons made by appellee Gaite. with almost 22 years of experience in the Bureau of Mines. the product is 21. or ton by ton.7. while appellants contend that by actual measurement. which is not very far from the estimate of 24.3 tons to a cubic meter. As to the average weight in tons per cubic meter.000 tons of ore. precisely to make an official estimate of the amount of iron ore in Gaite's stockpiles after the dispute arose.609 cubic meters of ore in the stockpiles made by appellant's witness Cipriano Manlañgit is correct. then. This estimate.7 tons.applying art. we take as the most reliable estimate of the tonnage factor of iron ore in this case to be that made by Leopoldo F. the parties are again in disagreement. but approximately 24. not a definite mass. and appellants in turn are bound to pay the lump price. In the face of the conflict of evidence. in turn. Even granting. As already stated. Gaite had.609 cubic meters. Abad.375 cubic meters in the stockpiles of ore that he sold to Fonacier.3 adopted in his corrected report (Exhibits "FF" and FF-1") by engineer Nemesio Gamatero. closely corresponds to the average tonnage factor of 3. complied with his promise to deliver. their witness Cirpriano Manlañgit found the total volume of ore in the stockpiles to be only 6. with appellants claiming the correct tonnage factor to be 2. appellee Gaite asserts that there was a total of 7.809. so that a reasonable percentage of error should be allowed anyone making an estimate of the . But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy. There is no charge in this case that Gaite did not deliver to appellants all the ore found in the stockpiles in the mining claims in questions. chief of the Mines and Metallurgical Division of the Bureau of Mines.18 tons to a cubic meter. 2459 of the Louisiana Civil Code). that the estimate of 6. Now. Both parties predicate their respective claims only upon an estimated number of cubic meters of ore multiplied by the average tonnage factor per cubic meter. neither of the parties had actually measured or weighed the whole mass of ore cubic meter by cubic meter. a government pensionado to the States and a mining engineering graduate of the Universities of Nevada and California. so that any substantial difference in this quantity delivered would entitle the buyers to recover damages for the short- delivery. if we multiply it by the average tonnage factor of 3. while appellee Gaite claims that the correct tonnage factor is about 3. who was sent by the Bureau of Mines to the mining claims involved at the request of appellant Krakower. was there really a short-delivery in this case? We think not. considering that actual weighing of each unit of the mass was practically impossible. This witness placed the tonnage factor of every cubic meter of iron ore at between 3 metric tons as minimum to 5 metric tons as maximum. therefore.

: The Case This is a petition for review on certiorari1 to annul the Decision2 dated 26 June 1996 of the Court of Appeals in CA-G. There was. vs. more or less. SPOUSES ALEXANDER MENDOZA and CLARITA JOAQUIN. 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. and NATIVIDAD JOAQUIN. consequently. CV No.R. as charged by appellants. since Gaite's estimate appears to be substantially correct.R. SPOUSES RUFINO VALDOZ and EMMA JOAQUIN. and SPOUSES GAVINO JOAQUIN and LEA ASIS. 89-5174.. Pine River Logging & Improvement Co. SPOUSES TELESFORO CARREON and FELICITAS JOAQUIN. The Facts . COURT OF APPEALS.S. G. vs U. with costs against appellants. J. It must not be forgotten that the contract Exhibit "A" expressly stated the amount to be 24.exact quantity in tons found in the mass. No. 46 L. The Court of Appeals affirmed the Decision3 dated 18 February 1993 rendered by Branch 65 of the Regional Trial Court of Makati ("trial court") in Civil Case No. SPOUSES DANILO VALDOZ and FE JOAQUIN.000 tons. we hereby affirm the same. SPOUSES FIDEL JOAQUIN and CONCHITA BERNARDO. Ed. 126376 November 20. SPOUSES ARTEMIO JOAQUIN and SOCORRO ANGELES. no short-delivery in this case as would entitle appellants to the payment of damages. SPOUSES LEONARDO JOAQUIN and FELICIANA LANDRITO. SPOUSES JUANITO EDRA and NORA JOAQUIN. finding no error in the decision appealed from. WHEREFORE. (ch. 2003 SPOUSES BERNARDO BUENAVENTURA and CONSOLACION JOAQUIN. 41996. 279. respondents. DECISION CARPIO. petitioners. SPOUSES TOMAS JOAQUIN and SOLEDAD ALCORAN. The trial court dismissed the case after it found that the parties executed the Deeds of Sale for valid consideration and that the plaintiffs did not have a cause of action against the defendants. 1164).

Deed of Absolute Sale covering Lot 168-C-7 of subdivision plan (LRC) Psd- 256395 executed on 11 July 1978. 155329 was issued to them (Exh. 157203 was issued in her name (Exh. Artemio. pursuant to which TCT No. Fe.000. Deed of Absolute Sale covering Lot 168-I-3 of subdivision plan (LRC) Psd- 256394 executed on 7 June 1979. all surnamed JOAQUIN. "K-1"). "D-1"). Nora.3]00. 6. pursuant to which TCT No.000. in favor of defendant Clarita Joaquin. S-109772 was issued in her name (Exh. "E"). pursuant to which TCT No. and 5. "C-1"). "G").000. in favor of defendant Felicitas Joaquin. in favor of defendant spouses Artemio Joaquin and Socorro Angeles. Deed of Absolute Sale covering Lot 168-I-2 of subdivision plan (LRC) Psd- 256394 executed on 12 May 1988. for a consideration of P25. Sought to be declared null and void ab initio are certain deeds of sale of real property executed by defendant parents Leonardo Joaquin and Feliciana Landrito in favor of their co-defendant children and the corresponding certificates of title issued in their names. for a consideration of P20.[3]00.] . "C"). 2. Tomas. Absolute Sale of Real Property covering Lot 168-C-4 of subdivision plan (LRC) Psd-256395 executed on 9 September 1988. in favor of Tomas Joaquin. pursuant to which TCT No.00 (Exh. 3 Deed of Absolute Sale covering Lot 168-I-1 of subdivision plan (LRC) Psd- 256394 executed on 12 May 1988. Felicitas. 157779 was issued in his name (Exh. pursuant to which TCT No. "D"). 155330 was issued to them (Exh. pursuant to which TCT No. "F-1"). "G-1").The Court of Appeals summarized the facts of the case as follows: Defendant spouses Leonardo Joaquin and Feliciana Landrito are the parents of plaintiffs Consolacion.00 (Exh. in favor of Gavino Joaquin. The married Joaquin children are joined in this action by their respective spouses. Emma and Natividad as well as of defendants Fidel. "E-1"). "K"). for a consideration of P1[2]. "F"). for a consideration of P54.00 (Exh. Deed of Absolute Sale covering Lot 168-C-1 of subdivision plan (LRC) Psd- 256395 executed on 7 October 1988.00 (Exh. for a consideration of P6.00 (Exh. [36113/T-172] was issued in her name (Exh. 4. Clarita.00 (Exh.000. and Gavino. for a consideration of P[54. in favor of defendant spouses Fidel Joaquin and Conchita Bernardo. to wit: 1.

and as an inevitable consequence. in their complaint. assuming that there was consideration in the sums reflected in the questioned deeds.XX- The deeds of sale. Gavino Joaquin and Lea Asis filed a Motion to Dismiss." [and "K"] are simulated as they are. 5 Instead of filing an Answer with their co- defendants. c) Thirdly.XXI - Necessarily. on the other hand aver (1) that plaintiffs do not have a cause of action against them as well as the requisite standing and interest to assail their titles over the properties in litis. 4 (Emphasis in the original) The Ruling of the Trial Court Before the trial." "F. 36113/T-172. the properties are more than three-fold times more valuable than the measly sums appearing therein. there was no actual valid consideration for the deeds of sale xxx over the properties in litis. 6 In granting the dismissal to Gavino Joaquin and Lea Asis. 155330. 155329. Defendants. and (3) that the certificates of title were issued with sufficient factual and legal basis. . and d) Fourthly." "E. aver: . are NULL AND VOID AB INITIO because – a) Firstly. 157203 [and 157779] issued by the Registrar of Deeds over the properties in litis xxx are NULL AND VOID AB INITIO. Annexes "C. Transfer Certificates of Title Nos. b) Secondly. and with full knowledge of the consequences of their deeds of sale.In seeking the declaration of nullity of the aforesaid deeds of sale and certificates of title. the trial court noted that "compulsory heirs . the purported sale of the properties in litis was the result of a deliberate conspiracy designed to unjustly deprive the rest of the compulsory heirs (plaintiffs herein) of their legitime." and "G. in good faith." "D. the deeds of sale do not reflect and express the true intent of the parties (vendors and vendees). plaintiffs. S-109772. the trial court ordered the dismissal of the case against defendant spouses Gavino Joaquin and Lea Asis. (2) that the sales were with sufficient considerations and made by defendants parents voluntarily.

this case is DISMISSED. In order to preserve whatever is left of the ties that should bind families together. as compulsory heirs. Hence. their right to the properties of their defendant parents. And then there is the argument that plaintiffs do not have a valid cause of action against defendants since there can be no legitime to speak of prior to the death of their parents. Plaintiffs therefore cannot claim an impairment of their legitime while their parents live. The trial court stated: In the first place. the testimony of the defendants. Leonardo Joaquin and Feliciana Landrito. are compulsory heirs of defendant spouses. is merely inchoate and vests only upon the . like their defendant brothers and sisters. No costs. Upon this point. the value of the property left at the death of the testator shall be considered (Art. In determining the legitime. All the foregoing considered. the legitime of a compulsory heir is computed as of the time of the death of the decedent. However. the trial court ruled in favor of the defendants and dismissed the complaint.have the right to a legitime but such right is contingent since said right commences only from the moment of death of the decedent pursuant to Article 777 of the Civil Code of the Philippines."7 After trial.1âwphi1 The appellate court ruled: To the mind of the Court. whether xxx they have a cause of action against appellees. particularly that of the xxx father will show that the Deeds of Sale were all executed for valuable consideration. who are their parents. SO ORDERED. 908 of the New Civil Code). This assertion must prevail over the negative allegation of plaintiffs.8 The Ruling of the Court of Appeals The Court of Appeals affirmed the decision of the trial court. the counterclaim is likewise DISMISSED. which is. there is no question that plaintiffs-appellants. The court finds this contention tenable. appellants are skirting the real and decisive issue in this case.

they have no legal capacity to challenge their validity. But. SO ORDERED. Plaintiffs-appellants are definitely not parties to the deeds of sale in question. they cannot be considered as real parties in interest to assail the validity of said deeds either for gross inadequacy or lack of consideration or for failure to express the true intent of the parties. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CONVEYANCE IN QUESTION HAD NO VALID CONSIDERATION. et al. While still alive.latter’s death. THE SAME IS GROSSLY INADEQUATE. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT EVEN ASSUMING THAT THERE WAS A CONSIDERATION. et al. 2. consideration of the errors assigned by plaintiffs- appellants is inconsequential. . Consequently. In point is the ruling of the Supreme Court in Velarde. thus: The plaintiffs are not parties to the alleged deed of sale and are not principally or subsidiarily bound thereby." With this posture taken by the Court. vs. the instant petition. defendant parents are free to dispose of their properties. Plaintiffs-appellants anchor their action on the supposed impairment of their legitime by the dispositions made by their defendant parents in favor of their defendant brothers and sisters. with costs against plaintiffs-appellants.9 Hence. WHEREFORE. Paez. "the legitime of a compulsory heir is computed as of the time of the death of the decedent.. hence. Neither do they claim to be creditors of their defendant parents. provided that such dispositions are not made in fraud of creditors. Plaintiffs therefore cannot claim an impairment of their legitime while their parents live. as correctly held by the court a quo. Issues Petitioners assign the following as errors of the Court of Appeals: 1. 101 SCRA 376. the decision appealed from is hereby AFFIRMED.

5. An action must be prosecuted in the name of the real party-in-interest. In their Complaint. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONERS HAVE A GOOD. 11 It is evident from the records that petitioners are interested in the properties subject of the Deeds of Sale." Petitioners’ strategy was to have the Deeds of Sale declared void so that ownership of the lots would eventually revert to their respondent parents. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE DEEDS OF SALE DO NOT EXPRESS THE TRUE INTENT OF THE PARTIES. Whether Petitioners have a legal interest over the properties subject of the Deeds of Sale Petitioners’ Complaint betrays their motive for filing this case. The trial and appellate courts should have dismissed the action for this reason alone.’" xxx . SUFFICIENT AND VALID CAUSE OF ACTION AGAINST THE PRIVATE RESPONDENTS.12 [T]he question as to "real party-in-interest" is whether he is "the party who would be benefitted or injured by the judgment. If their parents die still owning the lots.10 The Ruling of the Court We find the petition without merit. 3. We will discuss petitioners’ legal interest over the properties subject of the Deeds of Sale before discussing the issues on the purported lack of consideration and gross inadequacy of the prices of the Deeds of Sale. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CONVEYANCE WAS PART AND PARCEL OF A CONSPIRACY AIMED AT UNJUSTLY DEPRIVING THE REST OF THE CHILDREN OF THE SPOUSES LEONARDO JOAQUIN AND FELICIANA LANDRITO OF THEIR INTEREST OVER THE SUBJECT PROPERTIES. 4. or the ‘party entitled to the avails of the suit. petitioners asserted that the "purported sale of the properties in litis was the result of a deliberate conspiracy designed to unjustly deprive the rest of the compulsory heirs (plaintiffs herein) of their legitime. but they have failed to show any legal right to the properties. petitioners and their respondent siblings will then co-own their parents’ estate by hereditary succession.

as distinguished from a mere expectancy or future. If the real price is not stated in the contract. to recover if the evidence is sufficient. It is not the act of payment of price that determines the validity of a contract of sale. As the appellate court stated. the contract of sale is valid. petitioners forget that theoretically. such as this action.In actions for the annulment of contracts. Whether the Deeds of Sale are void for lack of consideration Petitioners assert that their respondent siblings did not actually pay the prices stated in the Deeds of Sale to their respondent father. If there is no meeting of the minds of the parties as to the price. Payment of the price goes into the performance of the contract. The phrase ‘present substantial interest’ more concretely is meant such interest of a party in the subject matter of the action as will entitle him. While the sale of the lots reduced the estate. If there is a meeting of the minds of the parties as to the price. Thus. under the substantive law. the parents of petitioners are free to dispose of their properties.14 Article 1471 of the Civil Code states that if the price in a contract of sale is simulated. or that he has the legal title to demand and the defendant will be protected in a payment to or recovery by him. As a consensual contract. the sale of the lots to their siblings does not affect the value of their parents’ estate. contingent. In their overzealousness to safeguard their future legitime. then the contract is void. Hongkong & Shanghai Bank. petitioners’ right to their parents’ properties is merely inchoate and vests only upon their parents’ death. or consequential interest…. because the price stipulated in the contract is simulated. or even the breach of that manner of payment. These are parties with "a present substantial interest. 22 Phil."13 Petitioners do not have any legal interest over the properties subject of the Deeds of Sale. 572 [1912]) xxx. subordinate. A contract of sale is not a real contract. Payment of the price has nothing to do with the perfection of the contract. While still living. cash of equivalent value replaced the lots taken from the estate. then the contract of sale is valid but subject to reformation. but a consensual contract. despite the manner of payment. the real parties are those who are parties to the agreement or are bound either principally or subsidiarily or are prejudiced in their rights with respect to one of the contracting parties and can show the detriment which would positively result to them from the contract even though they did not intervene in it (Ibañez v. a contract of sale becomes a binding and valid contract upon the meeting of the minds as to price. petitioners ask the court to declare the Deeds of Sale void. the sale is void. Failure to pay the consideration is .

As we stated in Vales v. Petitioners’ failure to prove absolute simulation of price is magnified by their lack of knowledge of their respondent siblings’ financial capacity to buy the questioned lots. there is no requirement that the price be equal to the exact value of the subject matter of sale.18 Whether the Deeds of Sale are void for gross inadequacy of price Petitioners ask that assuming that there is consideration. 1470.different from lack of consideration.16 The trial court did not find the allegation of absolute simulation of price credible. mistake or undue influence. unless there has been fraud. or even affect. the same is grossly inadequate as to invalidate the Deeds of Sale. Villa:19 . Not only did respondents’ minds meet as to the purchase price. respondent siblings have also fully paid the price to their respondent father. The former results in a right to demand the fulfillment or cancellation of the obligation under an existing valid contract while the latter prevents the existence of a valid contract. All the respondents believed that they received the commutative value of what they gave. 1355. but the real price was also stated in the Deeds of Sale. except as may indicate a defect in the consent. Articles 1355 of the Civil Code states: Art. the Deeds of Sale. Except in cases specified by law. (Emphasis supplied) Article 1470 of the Civil Code further provides: Art. 15 Petitioners failed to show that the prices in the Deeds of Sale were absolutely simulated. the Deeds of Sale which petitioners presented as evidence plainly showed the cost of each lot sold. To prove simulation.17 On the other hand. As of the filing of the complaint. petitioners presented Emma Joaquin Valdoz’s testimony stating that their father. told her that he would transfer a lot to her through a deed of sale without need for her payment of the purchase price. Indeed. respondent Leonardo Joaquin. lesion or inadequacy of cause shall not invalidate a contract. (Emphasis supplied) Petitioners failed to prove any of the instances mentioned in Articles 1355 and 1470 of the Civil Code which would invalidate. Gross inadequacy of price does not affect a contract of sale. or that the parties really intended a donation or some other act or contract.

protect him from unwise investments. relieve him from one-sided contracts. SO ORDERED. SPS. a violation of the law. 2005 SAN LORENZO DEVELOPMENT CORPORATION. all they have in the world. vs. MIGUEL LU and PACITA ZAVALLA LU. and lose money by them – indeed.: From a coaptation of the records of this case. we AFFIRM the decision of the Court of Appeals in toto. There must be. or annul the effects of foolish acts.Courts cannot follow one every step of his life and extricate him from bad bargains. Laguna covered by TCT No. petitioner. PABLO S. but not for that alone can the law intervene and restore. J.808 square meters or a total of 3. COURT OF APPEALS. Rosa. it appears that respondents Miguel Lu and Pacita Zavalla. DECISION TINGA. WHEREFORE. 124242 January 21. T-39023 both measuring 15. This Court will not weigh the evidence all over again unless there has been a showing that the findings of the lower court are totally devoid of support or are clearly erroneous so as to constitute serious abuse of discretion. (hereinafter. but because he has been defeated or overcome illegally. T-39022 and TCT No. before the courts are authorized to lay hold of the situation and remedy it. BABASANTA. and that the defendant children actually paid the purchase price stipulated in their respective Deeds of Sale. (Emphasis in the original) Moreover. the factual findings of the appellate court are conclusive on the parties and carry greater weight when they coincide with the factual findings of the trial court. the Spouses Lu) owned two (2) parcels of land situated in Sta. Courts cannot constitute themselves guardians of persons who are not legally incompetent. G. the trial court found that the lots were sold for a valid consideration. Courts operate not because one person has been defeated or overcome by another. the commission of what the law knows as an actionable wrong. No. in addition. Men may do foolish things. respondents. . make ridiculous contracts.R. use miserable judgment. 20 In the instant case. Actual payment of the purchase price by the buyer to the seller is a factual finding that is now conclusive upon us.1616 hectares.

She.00) per square meter and when the Spouses Lu refused to grant Babasanta’s request. reminded Babasanta that when the balance of the purchase price became due. Respondents Lu added that as of November 1987. the Spouses Lu purportedly sold the two parcels of land to respondent Pablo Babasanta.2 the Spouses Lu alleged that Pacita Lu obtained loans from Babasanta and when the total advances of Pacita reached fifty thousand pesos (P50.000.00) despite repeated demands. In the same letter. the latter and Babasanta. however.000. In response. respondent Babasanta.00) per square meter. the latter rescinded the contract to sell and declared that the original loan transaction just be carried out in .00) to twelve pesos (P12. Pacita Lu wrote a letter to Babasanta wherein she acknowledged having agreed to sell the property to him at fifteen pesos (P15.On 20 August 1986.00) per square meter. (hereinafter. Pacita added that she returned the sum of fifty thousand pesos (P50. Babasanta had purportedly asked Pacita for a reduction of the price from fifteen pesos (P15.00) were made by Babasanta. Several other payments totaling two hundred thousand pesos (P200. Babasanta notified the spouses about having received information that the spouses sold the same property to another without his knowledge and consent.00) as evidenced by a memorandum receipt issued by Pacita Lu of the same date. he requested for a reduction of the price and when she refused. Laguna. In their Answer. respondents allegedly refused.00). without the knowledge and consent of Miguel Lu. Babasanta) for the price of fifteen pesos (P15.00) per square meter. T. He demanded that the second sale be cancelled and that a final deed of sale be issued in his favor. a Complaint for Specific Performance and Damages1 against his co-respondents herein. total payments made by Babasanta amounted to only two hundred thousand pesos (P200.000. Sometime in May 1989. the Spouses Lu.000. as plaintiff.000. Babasanta wrote a letter to Pacita Lu to demand the execution of a final deed of sale in his favor so that he could effect full payment of the purchase price. of San Pedro.00) to be considered as the downpayment for the property and the balance to be paid on or before 31 December 1987.39022 and T-39023 had been sold to him by the spouses at fifteen pesos (P15. had verbally agreed to transform the transaction into a contract to sell the two parcels of land to Babasanta with the fifty thousand pesos (P50. Babasanta backed out of the sale. filed before the Regional Trial Court (RTC).000. Babasanta alleged that the lands covered by TCT No. Babasanta made a downpayment of fifty thousand pesos (P50. On 2 June 1989.00) and the latter allegedly failed to pay the balance of two hundred sixty thousand pesos (P260.00) to Babasanta through Eugenio Oya. Branch 31.000. Despite his repeated demands for the execution of a final deed of sale in his favor.

the vendors were without legal capacity to transfer or dispose of the two parcels of land to the intervenor. herein petitioner San Lorenzo Development Corporation (SLDC) filed a Motion for Intervention6 before the trial court. Babasanta later filed an Amended Complaint dated 17 January 19903 wherein he prayed for the issuance of a writ of preliminary injunction with temporary restraining order and the inclusion of the Register of Deeds of Calamba. namely Lot 1764-A and 1764-B. on 6 July 1989.640.that the spouses would be indebted to him in the amount of two hundred thousand pesos (P200. Accordingly. In his Opposition to SLDC’s motion for intervention.00) out of the total consideration for the purchase of the two lots of one million two hundred sixty-four thousand six hundred forty pesos (P1.000.000. had been sold to it in a Deed of Absolute Sale with Mortgage. Accordingly. 7 It alleged that it was a buyer in good faith and for value and therefore it had a better right over the property in litigation. However. 05020269 in the amount of two hundred thousand pesos (P200.160. Laguna as party defendant. .9 Respondent Babasanta’s motion for the issuance of a preliminary injunction was likewise granted by the trial court in its Order dated 11 January 199110 conditioned upon his filing of a bond in the amount of fifty thousand pesos (P50. Meanwhile. The Spouses Lu filed their Opposition4 to the amended complaint contending that it raised new matters which seriously affect their substantive rights under the original complaint. SLDC alleged that it had legal interest in the subject matter under litigation because on 3 May 1989.264.000. SLDC in its Complaint-in-Intervention alleged that on 11 February 1989.00) in the name of Babasanta to show that she was able and willing to pay the balance of her loan obligation.00). On 19 January 1990. the two parcels of land involved. SLDC filed its Complaint-in-Intervention on 19 April 1990. the Spouses Lu executed in its favor an Option to Buy the lots subject of the complaint. the trial court in its Order dated 17 January 1990 5 admitted the amended complaint. He contended that the issuance of a preliminary injunction was necessary to restrain the transfer or conveyance by the Spouses Lu of the subject property to other persons. the trial court in its Order dated 21 March 1990 allowed SLDC to intervene. it paid an option money in the amount of three hundred sixteen thousand one hundred sixty pesos (P316.00).00). they purchased Interbank Manager’s Check No.8 respondent Babasanta demurred and argued that the latter had no legal interest in the case because the two parcels of land involved herein had already been conveyed to him by the Spouses Lu and hence.

the trial court ordered the Register of Deeds of Laguna. ownership of the property should pertain to the buyer who first acquired possession of the property. They further averred that the trial court erred in not dismissing the complaint filed by Babasanta. SLDC further alleged that it only learned of the filing of the complaint sometime in the early part of January 1990 which prompted it to file the motion to intervene without delay.After the Spouses Lu received a total amount of six hundred thirty-two thousand three hundred twenty pesos (P632. T-39023 (T-7219). After a protracted trial.00) as and for attorney’s fees. SLDC argued that it had no obligation to look beyond the titles submitted to it by the Spouses Lu particularly because Babasanta’s claims were not annotated on the certificates of title at the time the lands were sold to it. It concluded that symbolic possession could be considered to have been first transferred to SLDC and consequently ownership of the property pertained to SLDC who purchased the property in good faith. in awarding damages in his favor and in refusing to grant the reliefs prayed for in their answer.00) with legal interest plus the further sum of fifty thousand pesos (P50. Respondent Babasanta appealed the trial court’s decision to the Court of Appeals alleging in the main that the trial court erred in concluding that SLDC is a purchaser in good faith and in upholding the validity of the sale made by the Spouses Lu in favor of SLDC. .00) they executed on 3 May 1989 a Deed of Absolute Sale with Mortgage in its favor. It ordered the Spouses Lu to pay Babasanta the sum of two hundred thousand pesos (P200. the RTC rendered its Decision on 30 July 1993 upholding the sale of the property to SLDC. On the complaint-in- intervention. Claiming that it was a buyer in good faith. They contended that the trial court erred in failing to consider that the contract to sell between them and Babasanta had been novated when the latter abandoned the verbal contract of sale and declared that the original loan transaction just be carried out.000.000. the trial court ruled that since both Babasanta and SLDC did not register the respective sales in their favor. T-39022 (T- 7218) and No. The Spouses Lu argued that since the properties involved were conjugal. Respondent spouses likewise filed an appeal to the Court of Appeals. the trial court should have declared the verbal contract to sell between Pacita Lu and Pablo Babasanta null and void ab initio for lack of knowledge and consent of Miguel Lu. The trial court equated the execution of a public instrument in favor of SLDC as sufficient delivery of the property to the latter. Applying Article 1544 of the Civil Code.320. Calamba Branch to cancel the notice of lis pendens annotated on the original of the TCT No. SLDC added that the certificates of title over the property were delivered to it by the spouses clean and free from any adverse claims and/or notice of lis pendens.

LIEN.000. and the latter to pay the balance of the purchase price in the amount of two hundred sixty thousand pesos (P260.12 However.14 the appellate court considered as withdrawn the motion for reconsideration filed by the Spouses Lu in view of their manifestation of 20 December 1995. the Court of Appeals rendered its Decision11 which set aside the judgment of the trial court. this petition. The appellate court ruled that the Absolute Deed of Sale with Mortgage in favor of SLDC was null and void on the ground that SLDC was a purchaser in bad faith. RESPONDENT BABASANTA. SAN LORENZO WAS PUT ON INQUIRY OF A PRIOR TRANSACTION ON THE PROPERTY. THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE ESTABLISHED FACT THAT THE ALLEGED FIRST BUYER.On 4 October 1995. WAS NOT IN POSSESSION OF THE DISPUTED PROPERTY WHEN SAN LORENZO BOUGHT AND TOOK POSSESSION OF THE PROPERTY AND NO ADVERSE CLAIM.000. SLDC assigns the following errors allegedly committed by the appellate court: THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A BUYER IN GOOD FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU OBTAINED FROM IT THE CASH ADVANCE OF P200. in a Manifestation dated 20 December 1995. It declared that the sale between Babasanta and the Spouses Lu was valid and subsisting and ordered the spouses to execute the necessary deed of conveyance in favor of Babasanta. The Spouses Lu were further ordered to return all payments made by SLDC with legal interest and to pay attorney’s fees to Babasanta.00). . Hence.00. SLDC and the Spouses Lu filed separate motions for reconsideration with the appellate court. The appellate court denied SLDC’s motion for reconsideration on the ground that no new or substantial arguments were raised therein which would warrant modification or reversal of the court’s decision dated 4 October 1995. In its Resolution dated 11 March 1996. ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED ON THE TITLES.13 the Spouses Lu informed the appellate court that they are no longer contesting the decision dated 4 October 1995. THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT RESPONDENT BABASANTA HAS SUBMITTED NO EVIDENCE SHOWING THAT SAN LORENZO WAS AWARE OF HIS RIGHTS OR INTERESTS IN THE DISPUTED PROPERTY.

IT REVERSED AND SET ASIDE THE DECISION OF THE TRIAL COURT UPHOLDING THE TITLE OF SAN LORENZO AS A BUYER AND FIRST POSSESSOR IN GOOD FAITH. SLDC averred that the amount of two hundred thousand pesos (P200. Babasanta further asserted that petitioner’s bad faith in the acquisition of the property is evident from .000. respondent Babasanta argued that SLDC could not have acquired ownership of the property because it failed to comply with the requirement of registration of the sale in good faith. It argued that it had no reason to suspect that Pacita was not telling the truth that the money would be used to pay her indebtedness to Babasanta. the Spouses Lu informed the Court that due to financial constraints they have no more interest to pursue their rights in the instant case and submit themselves to the decision of the Court of Appeals. petitioner’s registration of the sale did not confer upon it any right. At any rate.nét Meanwhile. there was already a notice of lis pendens annotated on the titles of the property made as early as 2 June 1989.00) which it advanced to Pacita Lu would be deducted from the balance of the purchase price still due from it and should not be construed as notice of the prior sale of the land to Babasanta. in an Urgent Ex-Parte Manifestation dated 27 August 1999. SLDC pointed out that the notice of lis pendens was annotated only on 2 June 1989 long after the sale of the property to it was consummated on 3 May 1989. It added that at no instance did Pacita Lu inform it that the lands had been previously sold to Babasanta. Hence. it added that the burden rests on Babasanta to prove that it was aware of the prior sale to him but the latter failed to do so.000. SLDC stressed that after the execution of the sale in its favor it immediately took possession of the property and asserted its rights as new owner as opposed to Babasanta who has never exercised acts of ownership. He emphasized that at the time SLDC registered the sale in its favor on 30 June 1990. Invoking the presumption of good faith.THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS FULL CONCURRENCE ON THE FINDINGS OF FACT OF THE TRIAL COURT. 15 SLDC contended that the appellate court erred in concluding that it had prior notice of Babasanta’s claim over the property merely on the basis of its having advanced the amount of two hundred thousand pesos (P200. or lien at the time it was sold to it. SLDC argued that it had every reason to rely on the correctness of the certificate of title and it was not obliged to go beyond the certificate to determine the condition of the property. encumbrance.16 On the other hand. Moreover. Since the titles bore no adverse claim.00) to Pacita Lu upon the latter’s representation that she needed the money to pay her obligation to Babasanta.1awphi1.

Babasanta himself recognized that ownership of the property would not be transferred to him until such time as he shall have effected full payment of the price.000.6 hectares of farm lot situated in Sta. Pacita Lu allegedly refused to do so. To prove the perfection of the contract of sale in his favor. The offer must be certain and the acceptance absolute. provided all the essential requisites for their validity are present. Sta. had the sellers intended to transfer title. Babasanta presented a document signed by Pacita Lu acknowledging receipt of the sum of fifty thousand pesos (P50. Laguna. they could have easily executed the document of sale in its required form simultaneously with their acceptance of the partial payment. Cruz. as well as the evidence presented by the parties. in general.00) per square meter. Rosa. While there is no stipulation that the seller reserves the ownership of the property until full payment of the price which is a distinguishing feature of a contract to sell. are perfected by mere consent. this deficiency was supplied by Pacita Lu’s letter dated 29 May 198918 wherein she admitted that she agreed to sell the 3. Babasanta’s letter dated 22 May 1989 was quite telling. Laguna. Moreover.000. 17 While the receipt signed by Pacita did not mention the price for which the property was being sold. 20 Moreover. 21 The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand pesos (P50. Rosa. He stated therein that despite his repeated requests for the execution of the final deed of sale in his favor so that he could effect full payment of the price. An analysis of the facts obtaining in this case.6 hectares of farm lot situated at Barangay Pulong.00) as partial payment for 3.the fact that it failed to make necessary inquiry regarding the purpose of the issuance of the two hundred thousand pesos (P200. contracts shall be obligatory in whatever form they may have been entered into. Sta. Contracts. The core issue presented for resolution in the instant petition is who between SLDC and Babasanta has a better right over the two parcels of land subject of the instant case in view of the successive transactions executed by the Spouses Lu.00) from Babasanta as partial payment of 3. . In effect.6 hectares of land to Babasanta for fifteen pesos (P15. the subsequent acts of the parties convince us that the Spouses Lu never intended to transfer ownership to Babasanta except upon full payment of the purchase price.00) manager’s check in his favor. irresistibly leads to the conclusion that the agreement between Babasanta and the Spouses Lu is a contract to sell and not a contract of sale.000.19 which is manifested by the meeting of the offer and the acceptance upon the thing which are to constitute the contract.

the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded. On the assumption that the transaction between the parties is a contract of sale and not a contract to sell. whereas in a contract to sell. the obligation on the part of the sellers to convey title never acquired obligatory force. There being an obligation to pay the price.22 In a contract of sale. Mere sending of a letter by the vendee expressing the intention to pay without the accompanying payment is not considered a valid tender of payment. Babasanta should have made the proper tender of payment and consignation of the price in court as required by law. In a contract of sale. that is. being a consensual contract. thus. (3) cause of the obligation which is established. the parties may reciprocally demand performance. by testate and intestate succession. it should be noted that sale is not a mode. A mode is the legal means by which dominion or ownership is created. to wit: (1) consent or meeting of the minds.but they did not. by agreement the ownership is reserved in the vendor and is not to pass until the full payment of the price. title passes to the vendee upon the delivery of the thing sold. but merely a title. to transfer ownership in exchange for the price. 28 Under Article 712 of the Civil Code." Contracts only constitute titles or rights to the transfer or acquisition of ownership. by donation. by tradition. Glaringly absent from the records is any indication that Babasanta even attempted to make the proper consignation of the amounts due. but title is only the legal basis by which to affect dominion or ownership. Doubtlessly.23 The perfected contract to sell imposed upon Babasanta the obligation to pay the balance of the purchase price. "ownership and other real rights over property are acquired and transmitted by law. 26 The essential elements of a contract of sale. 24 Consignation of the amounts due in court is essential in order to extinguish Babasanta’s obligation to pay the balance of the purchase price. is perfected by mere consent 25 and from that moment. Sale. title is retained by the vendor until the full payment of the price. In relation to the acquisition and transfer of ownership. (2) object certain which is the subject matter of the contract. however. be confused with its consummation. 27 The perfection of a contract of sale should not. whereas in a contract to sell. while delivery or tradition is the mode of accomplishing the . transferred or destroyed. Babasanta’s claim of ownership should nevertheless fail. such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. and in consequence of certain contracts. The distinction between a contract to sell and a contract of sale is quite germane. the receipt signed by Pacita Lu should legally be considered as a perfected contract to sell.

If the same thing should have been sold to different vendees. . 32 symbolical tradition such as the delivery of the keys of the place where the movable sold is being kept.29 Therefore. that actually transfers ownership. as a consequence of sale. Simply stated.31 Legal or constructive delivery.30 The word "delivered" should not be taken restrictively to mean transfer of actual physical possession of the property. where the seller remains in possession of the property in a different capacity. there was no delivery to Babasanta. respondent Babasanta did not acquire ownership by the mere execution of the receipt by Pacita Lu acknowledging receipt of partial payment for the property. may be had through any of the following ways: the execution of a public instrument evidencing the sale. It provides: Art. whether actual or constructive. was not embodied in a public instrument. 37 However. which is essential to transfer ownership of the property. on the other hand. no constructive delivery of the lands could have been effected.33 traditio longa manu or by mere consent or agreement if the movable sold cannot yet be transferred to the possession of the buyer at the time of the sale. the law provides that the ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Article 1497 to 1501.35 and traditio constitutum possessorium. since in a contract of sale ownership is transferred to the vendee only upon the delivery of the thing sold. and (2) legal or constructive delivery. it must be stressed that the juridical relationship between the parties in a double sale is primarily governed by Article 1544 which lays down the rules of preference between the two purchasers of the same property.same. even on the assumption that the perfected contract between the parties was a sale. Thus. Actual delivery consists in placing the thing sold in the control and possession of the vendee. Hence.36 Following the above disquisition.34 traditio brevi manu if the buyer already had possession of the object even before the sale. if it should be movable property. 1544. the agreement between Babasanta and the Spouses Lu. Babasanta had not taken possession of the property at any time after the perfection of the sale in his favor or exercised acts of dominion over it despite his assertions that he was the rightful owner of the lands. sale by itself does not transfer or affect ownership. For another. the ownership shall be transferred to the person who may have first taken possession thereof in good faith. though valid. ownership could not have passed to Babasanta in the absence of delivery. Explicitly. to wit: (1) actual delivery. The law recognizes two principal modes of delivery. It is tradition or delivery. the most that sale does is to create the obligation to transfer ownership. For one.

strongly argues that the registration of the sale by SLDC was not sufficient to confer upon the latter any title to the property since the registration was attended by bad faith. both made in good faith. the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. The principle of primus tempore.264. Specifically. the same having been filed one year before on 2 June 1989. stronger in right) gains greater significance in case of double sale of immovable property.00 as option money from SLDC. he points out that at the time SLDC registered the sale on 30 June 1990. 39 Admittedly.00. from the time of execution of the first deed up to the moment of transfer and delivery of possession of the lands to SLDC. . and. At the time both deeds were executed. the registrant must have no knowledge of the defect or lack of title of his vendor or must not have been aware of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor. SLDC registered the sale with the Registry of Deeds after it had acquired knowledge of Babasanta’s claim. shall be deemed the owner. Babasanta. Did the registration of the sale after the annotation of the notice of lis pendens obliterate the effects of delivery and possession in good faith which admittedly had occurred prior to SLDC’s knowledge of the transaction in favor of Babasanta? We do not hold so. there was already a notice of lis pendens on the file with the Register of Deeds. the ownership shall pertain to the person who in good faith was first in the possession. SLDC had no knowledge of the prior transaction of the Spouses Lu with Babasanta.Should it be immovable property. the Spouses Lu executed the Option to Buy in favor of SLDC upon receiving P316. Should there be no inscription. potior jure (first in time. to the person who presents the oldest title.640. 38 Verily. the Spouses Lu subsequently executed on 3 May 1989 a Deed of Absolute Sale in favor or SLDC. the one who acquires it and first records it in the Registry of Property. After SLDC had paid more than one half of the agreed purchase price of P1. provided there is good faith. in the absence thereof. It must be stressed that as early as 11 February 1989. the act of registration must be coupled with good faith— that is. however. it had acted in good faith and the subsequent annotation of lis pendens has no effect at all on the consummated sale between SLDC and the Spouses Lu. When the thing sold twice is an immovable.160. Simply stated.

or entered in the office of the Register of Deeds for the province or city where the land to which it relates lies. A notice of lis pendens. The Court of Appeals has made capital43 of SLDC’s averment in its Complaint-in- Intervention44 that at the instance of Pacita Lu it issued a check for P200. lease. Obviously. or beforehe has notice of the claim or interest of some other person in the property. or interest in. filed.A purchaser in good faith is one who buys property of another without notice that some other person has a right to. the vendors were still the registered owners of the property and were in fact in possession of the lands." Precisely.42serves as a warning to a prospective purchaser or incumbrancer that the particular property is in litigation. at which time the sale in favor of SLDC had long been consummated insofar as the obligation of the Spouses Lu to transfer ownership over the property to SLDC is concerned. order. thus: Sec. given the superiority of the right of SLDC to the claim of Babasanta the annotation of the notice of lis pendens cannot help Babasanta’s position a bit and it is irrelevant to the good or bad faith characterization of SLDC as a purchaser.D. 1529) which reads. 40 Following the foregoing definition. if registered. lien. instrument or entry affecting registered land shall. there is nothing in the said pleading and the testimony which . be constructive notice to all persons from the time of such registering.000. or entering. No. and that he should keep his hands off the same. attachment. we rule that SLDC qualifies as a buyer in good faith since there is no evidence extant in the records that it had knowledge of the prior transaction in favor of Babasanta. mortgage. this Court has ruled that a person dealing with the owner of registered land is not bound to go beyond the certificate of title as he is charged with notice of burdens on the property which are noted on the face of the register or on the certificate of title. unless he intends to gamble on the results of the litigation. as the Court held in Nataño v.00 payable to Babasanta and the confirmatory testimony of Pacita Lu herself on cross- examination.l^vvphi1. SLDC’s faith in the merit of its cause has been vindicated with the Court’s present decision which is the ultimate denouement on the controversy. 41 In assailing knowledge of the transaction between him and the Spouses Lu. in this case SLDC has intervened in the pending litigation to protect its rights.45 However. Esteban. More fundamentally. 52. judgment. such property and pays a full and fair price for the same at the time of such purchase. – Every conveyance. filing.net Time and again. the constructive notice operates as such¾by the express wording of Section 52¾from the time of the registration of the notice of lis pendens which in this case was effected only on 2 June 1989. Constructive notice upon registration. Babasanta apparently relies on the principle of constructive notice incorporated in Section 52 of the Property Registration Decree (P. However. At the time of the sale of the property to SLDC.

the registration constitutes a registration in bad faith and does not confer upon him any right.explicitly relates the amount to the transaction between the Spouses Lu and Babasanta for what they attest to is that the amount was supposed to pay off the advances made by Babasanta to Pacita Lu. At any rate. but the Israels were first in possession. it is as if there is no registration at all.46 this Court had the occasion to rule that if a vendee in a double sale registers the sale after he has acquired knowledge of a previous sale. in the absence of the two priorities. the above discussion on the rules on double sale would be purely academic for as earlier stated in this decision. the third priority is of the date of title. In any event. there being no priority of such entry. we would not hesitate to rule in favor of SLDC on the basis of its prior possession of the property in good faith. who neither registered nor possessed the property at any time. While the facts in the instant case substantially differ from that in Abarquez. the second is priority of possession. still Babasanta’s claim could not prevail over that of SLDC’s. SLDC’s right is definitely superior to that of Babasanta’s. with good faith as the common critical element. the incident took place after the Spouses Lu had already executed the Deed of Absolute Sale with Mortgage in favor of SLDC and therefore.1a\^/phi1. This Court awarded the property to the Israels because registration of the property by Abarquez lacked the element of good faith.net The law speaks not only of one criterion. If the registration is done in bad faith. as previously explained. In Abarquez. Since SLDC acquired possession of the property in good faith in contrast to Babasanta. Abarquez. In Abarquez v.47 we had the occasion to rule that Article 1544 does not apply to a case where there was a sale to one party of the land itself while the other contract was a mere promise to sell the land . Be it noted that delivery of the property to SLDC was immediately effected after the execution of the deed in its favor. the first sale to the spouses Israel was notarized and registered only after the second vendee. Assuming ex gratia argumenti that SLDC’s registration of the sale had been tainted by the prior notice of lis pendens and assuming further for the same nonce that this is a case of double sale. In Dichoso v. The first criterion is priority of entry in the registry of property. Roxas. and. at which time SLDC had no knowledge at all of the prior transaction by the Spouses Lu in favor of Babasanta. registered their deed of sale with the Registry of Deeds. the contract between Babasanta and the Spouses Lu is not a contract of sale but merely a contract to sell. and the buyer who has taken possession first of the property in good faith shall be preferred. it has no effect on the legal position of SLDC. Court of Appeals.

Irineo Santos. Teodoro Santos was out during this call and only the latter's son. De Dios. No. Accordingly.00 on the understanding that the price would be paid only after the car had been registered in his name. Marella agreed to buy the car for P14. declaring the intervenor-appellee. a certain L. defendant-appellee. 1959. there was no double sale of the same land in that case. Teodoro Santos instructed his son to see the said Vicente Marella the following day at his given address: 1642 Crisostomo Street. And so. from a decision of the Court of First Instance of Quezon City. However. entitled to the possession of the car in dispute. The decision of the Court of Appeals appealed from is REVERSED and SET ASIDE and the decision of the Regional Trial Court. WHEREFORE. .or at most an actual assignment of the right to repurchase the same land. Vicente Marella. Manila. Felipe for intervenor-appellee. went to the Santos residence to answer the ad. No costs. 1959. J. received and talked with De Dios. vs. The records before this Court disclose that sometime in May. The latter told the young Santos that he had come in behalf of his uncle. in the morning of May 29.: This is an appeal. Irineo Santos went to the above address. the instant petition is hereby GRANTED. 1959. RAFAEL YAPDIANGCO. intervenor-appellee. Laguna is REINSTATED. Florentino M. Rafael Yapdiangco in his own behalf as defendant-appellee. Teodoro Santos advertised in two metropolitan papers the sale of his FORD FAIRLANE 500. 1965 JOSE B. claiming to be a nephew of Vicente Marella. In the afternoon of May 28. on purely legal questions. TEODORO SANTOS. SO ORDERED. L-18536 March 31. R. Sampaloc. Teodoro Santos. On being informed of the above. B. plaintiff-appellant. Branch IV. At this meeting. REGALA. Lorenzo Sumulong. Guanlao for plaintiff-appellant. AZNAR. G. Hilao and B. S. Branch 31. of San Pedro. who was interested to buy the advertised car.700.R.

Going back to the house. went to the office of a certain Atty. That was the last that Irineo saw of him. together with L. For. he inquired from a woman he saw for L. De Dios and he was told that no such name lived or was even known therein. for P15. Irineo Santos rushed to 1642 Crisostomo to see Marella. Irineo Santos and L. and instructed him not to part with them until Marella shall have given the full payment for the car. Whereupon. Jose B. Teodoro Santos returned to his house. Irineo went down to discover that neither the car nor their unidentified companion was there anymore. Aznar and while he was attending to its registration in his name.000. De Dios to go to the said sister and suggested that Irineo Santos go with him. in the company of L. He gave the registration papers and a copy of the deed of sale to his son. Marella said that the amount he had on hand then was short by some P2. Once inside. De Dios asked Irineo Santos to wait at the sala while he went inside a room. Finally. Up to this stage of the transaction. or on the afternoon of May 29. The parties to the contract thereafter proceeded to the Motor Vehicles Office in Quezon City where the registration of the car in Marella's name was effected. 1959 Vicente Marella was able to sell the car in question to the plaintiff-appellant herein. the purchased price had not been paid. De Dios. De Dios alighted from the car and entered a house while their unidentified companion remained in the car. From the Motor Vehicles Office. we are bound by the factual finding of the trial court that Jose B. Sampaloc.000. Trusting the good faith of Marella. Manila where the former demanded the payment from Vicente Marella. At the same time. proceeded to the alleged house of Marella's sister.00 and begged off to be allowed to secure the shortage from a sister supposedly living somewhere on Azcarraga Street. for a valuable consideration and without notice of the defect appertaining to the vendor's title. Irineo. Aznar. also in Manila. he ordered L. agents of the Philippine Constabulary seized and . Insofar as the above incidents are concerned. Thereafter. De Dios and another unidentified person. De Dios then proceeded to 1642 Crisostomo Street. Jose Padolina where the deed of the sale for the car was executed in Marella's favor. he reported the matter to his father who promptly advised the police authorities. he requested the registration papers and the deed of sale from Irineo Santos on the pretext that he would like to show them to his lawyer. Aznar acquired the said car from Vicente Marella in good faith. While the car in question was thus in the possession of Jose B. Irineo Santos and L. Irineo handed over the same to the latter and thereupon. At a place on Azcarraga. He found the house closed and Marella gone. That very same day.00. after a considerable length of time waiting in vain for De Dios to return.Irineo Santos then fetched his father who. L.

In brief. the said decision concluded. Teodoro Santos moved and was allowed to intervene by the lower court. Jose B. one who lost any movable or has been unlawfully deprived thereof. although the plaintiff- appellant acquired the car in good faith and for a valuable consideration from Vicente Marella. The plaintiff-appellant accepts that the car in question originally belonged to and was owned by the intervenor-appellee. still the intervenor-appellee was entitled to its recovery on the mandate of Article 559 of the New Civil Code which provides: ART. Consequently. However. the lower court rendered a decision awarding the disputed motor vehicle to the intervenor-appellee. Teodoro Santos. Aznar appeals. he prayed for its delivery to him. and that the latter was unlawfully deprived of the same by Vicente Marella. Article 1506 provides: . the appellant contends that upon the facts of this case. the applicable provision of the Civil Code is Article 1506 and not Article 559 as was held by the decision under review. If the possessor of a movable lost or of which the owner has been unlawfully deprived. Teodoro Santos. Aznar. The issue at bar is one and simple. 559. In the course of the litigation. however. Nevertheless. Jose B. it ruled that Teodoro Santos had been unlawfully deprived of his personal property by Vicente Marella. the owner cannot obtain its return without reimbursing the price paid therefor. Jose B. may recover it from the person in possession of the same. From this decision. In due time. who has a better right to the possession of the disputed automobile? We find for the intervenor-appellee. Teodoro Santos. At the end of the trial. from whom the plaintiff-appellant traced his right. Aznar filed a complaint for replevin against Captain Rafael Yapdiangco. The possession of movable property acquired in good faith is equivalent to title. the head of the Philippine Constabulary unit which seized the car in question Claiming ownership of the vehicle.confiscated the same in consequence of the report to them by Teodoro Santos that the said car was unlawfully taken from him. has acquired it in good faith at a public sale. to wit: Between Teodoro Santos and the plaintiff- appellant.

" As interpreted by this Court in a host of cases. (Gonzales v. 51. by tradition. as in this case. ownership is not transferred by contract merely but by tradition or delivery. It is very clearly inapplicable where. by donation. Contracts only constitute titles or rights to the transfer or acquisition of ownership. 51. the car in question was never delivered to the vendee by the vendor as to complete or consummate the transfer of ownership by virtue of the contract. while delivery or tradition is the mode of accomplishing the same (Gonzales v. 631. supra. . but his. the ownership over it is not transferred by contract merely but by delivery. Where the seller of goods has a voidable title thereto. Under Article 712 of the Civil Code. (Walter Laston v. ART. Diaz & Co. Easton v. It should be recalled that while there was indeed a contract of sale between Vicente Marella and Teodoro Santos. 32 Phil. for value. Kuenzle & Streiff v. the thing transferred must be delivered. inasmuch as. v. 51) In the case on hand. title has not been voided at the time of the sale. Wilson. 16 Phil. Roxas. Diaz Co. 180). the seller had no title at all. and in consequence of certain contracts. 16 Phil. by testate and intestate succession. 8 Phil. provided he buys them in good faith. Vicente Marella did not have any title to the property under litigation because the same was never delivered to him. E. the title and the method of acquiring it being different in our law. it is essential that the seller should have a voidable title at least. v. the buyer acquires a good title to the goods. 14 Phil. Rojas. the tradition of the thing is a necessary and indispensable requisite in the acquisition of said ownership by virtue of contract. Perez and Co. "ownership and other real rights over property are acquired and transmitted by law. according to settled jurisprudence. and without notice of the seller's defect of title. & the Provincial Sheriff of Albay. Wacke & Chandler. Contracts only constitute titles or rights to the transfer or acquisition of ownership. by this provision. International Bank. 610..) So long as property is not delivered. Ocejo. 37 Phil. while delivery or tradition is the method of accomplishing the same. He sought ownership or acquisition of it by virtue of the contract. For the legal acquisition and transfer of ownership and other property rights. Fidelity and Deposit Co. 1506. as vendee. the former. took possession of the subject matter thereof by stealing the same while it was in the custody of the latter's son. Vicente Marella could have acquired ownership or title to the subject matter thereof only by the delivery or tradition of the car to him. The contention is clearly unmeritorious. Under the aforequoted provision.

Article 712 above contemplates that the act be coupled with the intent of delivering the thing. Suffice it to say in . not only from the finder. Arenas v. plaintiff has been illegally deprived of his car through the ingenious scheme of defendant B to enable the latter to dispose of it as if he were the owner thereof. The said article establishes two exceptions to the general rule of irrevindicability. the owner cannot obtain its return without reimbursing the price paid therefor. when the owner (1) has lost the thing. the rule is to the effect that if the owner has lost a thing. But even if Irineo Santos did. (10 Manresa 132) The lower court was correct in applying Article 559 of the Civil Code to the case at bar. 46. or if he has been unlawfully deprived of it. should be made to suffer the consequences arising therefrom. except when the possessor acquired it in a public sale. 8 Phil. it would be indisputable that he turned it over to the unidentified companion only so that he may drive Irineo Santos and De Dios to the said place on Azcarraga and not to vest the title to the said vehicle to him as agent of Vicente Marella. (Del Rosario v.G. Raymundo. Varela v. 9 Phil. in which case. id. In these cases. but also from third persons who may have acquired it in good faith from such finder. thief or robber. Pahati. 479. the plaintiff-appellant here contends that inasmuch as it was the intervenor- appellee who had caused the fraud to be perpetrated by his misplaced confidence on Vicente Marella.. can still recover possession of the car even if it is in the possession of a third party who had acquired it in good faith from defendant B. De Dios to the place on Azcarraga where a sister of Marella allegedly lived. thief or robber. The maxim that "no man can transfer to another a better title than he had himself" obtains in the civil as well as in the common law. Vol. or (2) has been unlawfully deprived thereof. Sotelo. following the equitable principle to that effect. the intervenor-appellee. In the present case. Varela v.S.There is no adequate evidence on record as to whether Irineo Santos voluntarily delivered the key to the car to the unidentified person who went with him and L. 9 Phil. v. et al. Lucena. p. who may recover it without paying any indemnity. therefore. it was not the delivery contemplated by Article 712 of the Civil Code. Tolentino. II. the possessor cannot retain the thing as against the owner. 3053 this Court has already ruled that — Under Article 559 of the new Civil Code. a person illegally deprived of any movable may recover it from the person in possession of the same and the only defense the latter may have is if he has acquired it in good faith at a public sale. to wit. 19 Phil. he has a right to recover it.) In the case of Cruz v. 482. Finnick. 28 Phil. For then. Matute. 52 O. 535. (U. 147) Finally. he.. 261. for under it. Plaintiff.

J. 09149. 1991 NORKIS DISTRIBUTORS. has enabled the fraud to be committed. cannot be applied in a case which is covered by an express provision of the new Civil Code. No. the instant appeal is hereby dismissed and the decision of the lower court affirmed in full. private respondent Alberto Nepales bought from the Norkis-Bacolod branch a brand new Yamaha Wonderbike motorcycle Model . Branch LVI. is the distributor of Yamaha motorcycles in Negros Occidental with office in Bacolod City with Avelino Labajo as its Branch Manager. respondents. INC. THE COURT OF APPEALS & ALBERTO NEPALES. The facts borne out by the record are as follows: Petitioner Norkis Distributors. (Norkis for brevity). No.this regard that the right of the owner to recover personal property acquired in good faith by another. Costs against the appellant. Jose D. Palma for petitioner. Public Attorney's Office for private respondent. G.R. 1272.: Subject of this petition for review is the decision of the Court of Appeals (Seventeenth Division) in CA-G.. 91029 February 7. by his misplaced confidence. Negros Occidental. vs. Pahati. 1979. Inc. specifically Article 559. is based on his being dispossessed without his consent. petitioner. the latter must prevail in this jurisdiction. in Civil Case No. Himamaylan. GRIÑO-AQUINO. Inc. the law imposes the loss upon the party who. Sixth (6th) Judicial Region. affirming with modification the judgment of the Regional Trial Court. which was private respondent Alberto Nepales' action for specific performance of a contract of sale with damages against petitioner Norkis Distributors. Between a common law principle and a statutory provision. (Cruz v. On September 20. supra) UPON ALL THE FOREGOING. The common law principle that where one of two innocent persons must suffer by a fraud perpetrated by another.R.

1) showing that the contract of sale of the motorcycle had been perfected. He alleged that Norkis failed to deliver the motorcycle which he purchased. Color Maroon. The unit was a total wreck (p. August 2. Nepales paid the difference of P328 (p. 1980. which Norkis' Branch Manager Labajo agreed to accept. On March 20. An investigation conducted by the DBP revealed that the unit was being driven by a certain Zacarias Payba at the time of the accident (p. then displayed in the Norkis showroom. however.s. 2) in his name was issued by the Land Transportation Commission on November 6.YL2DX with Engine No. As security for the loan. NL2-0329401. The motorcycle met an accident on February 3.s. 0120 (Exh. The record shows that Alberto and Julian Nepales presented the unit to DBP's Appraiser-Investigator Ernesto Arriesta at the DBP offices in Kabankalan. Negros Occidental. Negros Occidental Branch (p. Exhibit 3. Rollo). Rollo). the motorcycle was registered in the Land Transportation Commission in the name of Alberto Nepales. Negros Occidental. Kabankalan Branch. The registration fees were paid by him. 13. Branch LVI. On November 6. DBP released the proceeds of private respondent's motorcycle loan to Norkis in the total sum of P7. 1272.00 was payable by means of a Letter of Guaranty from the Development Bank of the Philippines (DBP). August 2. Hence. On January 22. he filed an action for specific performance with damages against Norkis in the Regional Trial Court of Himamaylan. 12. As the price of the motorcycle later increased to P7.500. where it was docketed as Civil Case No. t.. Rollo.n. Rollo) and demanded the delivery of the motorcycle. was returned. 1980. 13. thereby causing him damages. 15. After trial on the merits. the motorcycle remained in Norkis' possession. L2-329401K Frame No.1984. the lower court rendered a decision dated August 27. When Norkis could not deliver. Nepales would execute a chattel mortgage on the motorcycle in favor of DBP. 2-b). 1979 (Exh. 1980 at Binalbagan. 1979. Branch Manager Labajo issued Norkis Sales Invoice No. Norkis answered that the motorcycle had already been delivered to private respondent before the accident. A registration certificate (Exh. 36.) thus: . The price of P7.828 in March. the risk of loss or damage had to be borne by him as owner of the unit. 28. 1985 ruling in favor of private respondent (p. and stored inside Norkis' warehouse.500.. 33. Rollo). credit was extended to Nepales for the price of the motorcycle payable by DBP upon release of his motorcycle loan. 1984). hence. evidenced by an official receipt. 1980. Sixth (6th) Judicial Region. Nepales signed the sales invoice to signify his conformity with the terms of the sale. p. In the meantime. t.n. the motorcycle was delivered to a certain Julian Nepales who was allegedly the agent of Alberto Nepales but the latter denies it (p.

WHEREFORE. p. Ambrosio Padilla. the obligation of the vendor to deliver a determinate thing becomes extinguished if the thing is lost by fortuitous event (Art.1987 Ed. If the thing sold is generic. 1174). the vendor becomes released from his obligation to deliver the determinate thing sold while the vendee's obligation to pay the price subsists. 1263). (pp.. and costs of the litigation. After the contract of sale has been perfected (Art. (Civil Code of the Philippines. 1460). . the loss or destruction does not extinguish the obligation (Art. judgment is rendered in favor of the plaintiff and against the defendants. 1262) after the perfection of the contract to the time of delivery. but deleted the award of damages "in the amount of Fifty (P50. 1980 until full payment of the said present value of the motorcycle. The defendants are ordered to pay solidarity to the plaintiff the present value of the motorcycle which was totally destroyed. 3). 1262. 1980 until payment of the present value of the damaged vehicle" (p35.00 per day from February 3. plus interest equivalent to what the Kabankalan Sub-Branch of the Development Bank of the Philippines will have to charge the plaintiff on fits account. par.00) Pesos a day from February 3. Hence. Norkis' theory is that: . 28-29. kind. therefore. the Court of appeals affirmed the appealed judgment on August 21. the risk of loss is shifted from the vendor to the vendee.000. 1980. the defendants can deliver to the plaintiff a brand-new motorcycle of the same brand. this Petition for Review.) .00 as exemplary damages. is that the vendee assumes the risk of loss by fortuitous event (Art. 11 65. 5. Vol. The answer to this question would depend on whether there had already been a transfer of ownership of the motorcycle to private respondent at the time it was destroyed. that is. even before the ownership is transferred to the vendee. plus P1. The legal effect. The Court of Appeals denied Norkis' motion for reconsideration. without the fault or fraud of the vendor and before he has incurred in delay (Art. Under Art. . Rollo).) On appeal. and quality as the one which was totally destroyed in their possession last February 3. plus P50. that is. 87. In lieu of paying the present value of the motorcycle. A thing is determinate when it is particularly designated or physically segregated from all others of the same class (Art. Rollo. Thus. If the vendee had paid the price in advance the vendor may retain the same. 1989. 1475) and even before delivery. The principal issue in this case is who should bear the loss of the motorcycle.

Garcia. 1979 with the Land Transportation Commission in private respondent's name (Exh. consequently. As pointed out by the private respondent. 1) in the name of the private respondent and the affixing of his signature thereon. Norkis did not intend yet to transfer the title or ownership to Nepales. and its acceptance by the vendee. 1978 Ed. in order that this symbolic delivery may produce the effect of tradition. it is necessary that the vendor shall have had such control over the thing sold that. An invoice is nothing more than a detailed statement of the nature. Without that intention. it insists that there was constructive delivery of the unit upon: (1) the issuance of the Sales Invoice No. Comments and Cases on Sales. it is necessary that the act of delivery whether constructive or actual. this Court held: The Code imposes upon the vendor the obligation to deliver the thing sold. The Letter of Guarantee (Exh. 404. 2nd Ed.. In the case of Addison vs. is the actual intention of the vendor to deliver. but only to facilitate the execution of a chattel mortgage in favor of the DBP for the release of the buyer's motorcycle loan. 2). and (3) the issuance of official receipt (Exh. In all forms of delivery. its material delivery could have been made. 378). It is true that the same article declares that the execution of a public instrument is equivalent to the delivery of the thing which is the object of the contract. In other words. The thing is considered to be delivered when it is "placed in the hands and possession of the vendee. at the moment of the sale. Vol. The act. 408). DBP would not approve private respondent's loan application and. the critical factor in the different modes of effecting delivery. which gives legal effect to the act. (2) the registration of the vehicle on November 6. 94). 14 SCRA 759). Art. but. p. It is not enough to confer upon the . citing Manresa. That argument is not well taken. 67. the issuance of a sales invoice does not prove transfer of ownership of the thing sold to the buyer. is insufficient (De Leon. 1462). be coupled with the intention of delivering the thing. Jur. 0120 (Exh. Rollo). p.Norkis concedes that there was no "actual" delivery of the vehicle. quantity and cost of the thing sold and has been considered not a bill of sale (Am. there is no tradition (Abuan vs. there would be no sale. without the intention. 5) issued by the DBP. When the motorcycle was registered by Norkis in the name of private respondent. 3) for payment of registration fees (p. Felix and Tioco (38 Phil. 33. However." (Civil Code.. If Norkis would not accede to that arrangement. reveals that the execution in its favor of a chattel mortgage over the purchased vehicle is a pre- requisite for the approval of the buyer's loan.

for there was neither an actual nor constructive delivery of the thing sold. B) and the registration of the vehicle in the name of plaintiff-appellee (private respondent) with the Land Registration Commission (Exhibit C) was not to transfer to Nepales the ownership and dominion over the motorcycle. with costs against the petitioner.(Emphasis supplied. No. before private respondent's loan was released and before he even paid Norkis." is applicable to this case. February 6.. Appellants' Brief). On March 20. Norkis. SO ORDERED.R. Alberto denied having authorized Julian Nepales to get the motorcycle from Norkis Distributors or to enter into any transaction with Norkis relative to said motorcycle.) The Court of Appeals correctly ruled that the purpose of the execution of the sales invoice dated September 20. 09149.s.n. because such tenancy and enjoyment are opposed by the interposition of another will. Rollo). hence. who allegedly took possession of the vehicle from Norkis did not explain how Payba got hold of the vehicle on February 3. the motorcycle had already figured in an accident while driven by one Zacarias Payba. the risk of loss should be borne by the seller. 33-34. 20. The latter's supposed relative. 1979 (Exh. which was still the owner and possessor of the motorcycle when it was wrecked. But if notwithstanding the execution of the instrument. but only to comply with the requirements of the Development Bank of the Philippines for processing private respondent's motorcycle loan. When there is no impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor. the purchaser cannot have the enjoyment and material tenancy of the thing and make use of it himself or through another in his name. 1980. t. 1985). is controverted by the latter. WHEREFORE. Article 1496 of the Civil Code which provides that "in the absence of an express assumption of risk by the buyer. then fiction yields to reality-the delivery has riot been effects . 5. The thing sold must be placed in his control. Payba was not shown by Norkis to be a representative or relative of private respondent. (p. purchaser the ownership and the right of possession. This is in accordance with the well-known doctrine of res perit domino. This circumstances more than amply rebut the disputable presumption of delivery upon which Norkis anchors its defense to Nepales' action (pp. 1980. symbolic delivery through the execution of a public instrument is sufficient. . the things sold remain at seller's risk until the ownership thereof is transferred to the buyer. we deny the petition for review and hereby affirm the appealed decision. Norkis' claim that Julian Nepales was acting as Alberto's agent when he allegedly took delivery of the motorcycle (p. finding no reversible error in the decision of the Court of Appeals in CA- G.

INC. but by tradition or delivery. petitioner. respondent. The dispositive portion of the assailed Order reads as follows: "WHEREFORE. 133879 November 21. the motion to dismiss filed by defendant Mayfair is hereby GRANTED. in fact.."3 Also questioned is the May 29. 1998 RTC Order4 denying petitioner's Motion for Reconsideration. it was prevented by a legally effective impediment. Not having been the owner. . Otherwise. The peculiar facts of the present controversy as found by this Court in an earlier relevant Decision show that delivery was not actually effected. petitioner cannot be entitled to the civil fruits of ownership like rentals of the thing sold. it is equally true that ownership of the thing sold is not acquired by mere agreement. J. Rather. PANGANIBAN.. because it arose out of an earlier case decided by this Court on November 21. 1998 Order2 of the Regional Trial Court of Manila (RTC). petitioner's bad faith. Furthermore. 2001 EQUATORIAL REALTY DEVELOPMENT. The Facts The main factual antecedents of the present Petition are matters of record. vs.G. 97-85141. MAYFAIR THEATER. as again demonstrated by the specific factual milieu of said Decision. While we agree with the general proposition that a contract of sale is valid until rescinded.: General propositions do not decide specific cases. in Civil Case No. INC. bad faith would be rewarded instead of punished. Branch 8.R. laws are interpreted in the context of the peculiar factual situation of each proceeding. Each case has its own flesh and blood and cannot be ruled upon on the basis of isolated clinical classroom principles. 1996. No. and the complaint filed by plaintiff Equatorial is hereby DISMISSED. The Case Filed before this Court is a Petition for Review1 under Rule 45 of the Rules of Court. challenging the March 11. bars the grant of such benefits.

on July 30. Inc. Both leases contained a provision granting Mayfair a right of first refusal to purchase the subject properties. Carmelo entered into a Contract of Lease with Mayfair Theater Inc. In that space. The Contract of Lease was likewise for a period of 20 years. entitled "Mayfair" Theater..064 square meters.610 square meters of floor area. On appeal (docketed as CA-GR CV No. Mayfair entered into a second Contract of Lease with Carmelo for the lease of another portion of the latter's property — namely. The Deed of . This case. 1967.R No. and (c) damages. 118019. In this mother case. Two years later. with a floor area of about 1. without their first being offered to Mayfair. v. the petition for review of the decision of the Court of Appeals. As a result of the sale of the subject properties to Equatorial. CV No. Mayfair put up another movie house known as Miramar Theater. in CA-G. Mayfair Theater. ("Mayfair") for a period of 20 years. which respondent used as a movie house known as Maxim Theater. dated June 23. a part of the second floor of the two-storey building. on March 31. Inc. (b) specific performance." was docketed as Civil Case No. and two store spaces on the ground floor and the mezzanine.300. On June 1. Carmelo and Bauermann. Mayfair filed a Complaint before the Regional Trial Court of Manila (Branch 7) for (a) the annulment of the Deed of Absolute Sale between Carmelo and Equatorial. docketed as G. The controversy reached this Court via G. The lease covered a portion of the second floor and mezzanine of a two-storey building with about 1.5 (henceforth referred to as the "mother case"). Inc. and covered by TCT No. 32918. the lower court rendered a Decision in favor of Carmelo and Equatorial. 106063. However.entitled Equatorial Realty Development. 18529 issued in its name by the Register of Deeds of Manila. with a combined floor area of about 300 square meters. 106063.. Carmelo & Bauermann.000. is HEREBY DENIED. Inc. together with two 2- storey buildings constructed thereon. 32918). v. Manila. 1992. 1978 — within the 20-year-lease term — the subject properties were sold by Carmelo to Equatorial Realty Development. ("Camelo" ) used to own a parcel of land. it denied the Petition for Review in this wise: "WHEREFORE. the Court of Appeals (CA) completely reversed and set aside the judgment of the lower court.R No. ("Equatorial") for the total sum of P11.R. located at Claro M. Recto Avenue. 1969. Inc. After trial on the merits. Inc. et al.

which the trial court granted. the Registry of Deeds of Manila canceled Equatorial's titles and issued new Certificates of Title7 in the name of Mayfair.00.000.R No. and Carmelo & Bauermann. 1997. the CA in its Resolution of November 20.300. Carmelo & Bauermann is ordered to return to petitioner Equatorial Realty Development the purchase price. is imposed on the seller Carmelo and Bauermann.000 less. v.000 to be turned over to Equatorial. The duty to withhold taxes due. Inc. Manila. on September 18. Thus. However. is hereby deemed rescinded. the mother case. The latter is directed to execute the deeds and documents necessary to return ownership to Carmelo & Bauermann of the disputed lots.300. P847. Inc. the appellate court ordered Mayfair to deposit the said sum with the Office of the Clerk of Court. It explained its ruling in these words: "We agree that Carmelo and Bauermann is obliged to return the entire amount of eleven million three hundred thousand pesos (P11. Equatorial questioned the legality of the above CA ruling before this Court in G.00) as withholding tax.300.000."9 Meanwhile. Inc.000 as withholding tax. 136221 entitled "Equatorial Realty Development. No. to complete the full amount of P11. explained that Mayfair had no right to deduct the P847. to buy the aforesaid lots for P11.000. 1997. 1997 — barely five months after Mayfair had submitted its Motion for Execution before the RTC of Manila. On April 25. Mayfair filed a Motion for Execution. 2000. Branch 7 — Equatorial filed with the Regional Trial Court of Manila. Mayfair may not deduct from the purchase price the amount of eight hundred forty-seven thousand pesos (P847." In a Decision promulgated on May 12. Absolute Sale between petitioners Equatorial Realty Development. Carmelo could no longer be located. Inc. Carmelo & Bauermann is ordered to allow Mayfair Theater. On the basis of these documents. Ruling on Equatorial's Petition for Certiorari and Petition contesting the foregoing manner of execution."6 The foregoing Decision of this Court became final and executory on March 17. Mayfair deposited with the clerk of court a quo its payment to Carmelo in the sum of P11. Since Carmelo could no longer be located. Branch 8. Inc. 106063. 1998.300.000 as withholding tax. following the order of execution of the trial court. The lower court issued a Deed of Reconveyance in favor of Carmelo and a Deed of Sale in favor of Mayfair. Mayfair Theater. On the other hand.8 this Court directed the trial court to follow strictly the Decision in GR.00) to Equatorial. an action for the collection of a sum of money . Inc. if any.

11 The lower court debunked the claim of petitioner for unpaid back rentals. It declared the rescinded Deed of Absolute Sale as avoid at its inception as though it did not happen.against Mayfair. 1987. even in expectancy.10 Representing itself as the owner of the subject premises by reason of the Contract of Sale on July 30. No. while the Lease Contract covering the premises occupied by Miramar Theater lapsed on March 31. 1978. This action was the progenitor of the present case. the Deed of Absolute Sale between Equatorial and Carmelo dated July 31. the trial court dismissed the Complaint via the herein assailed Order and denied the Motion for Reconsideration filed by Equatorial. Ruling of the RTC Manila. June 30. "The argument of Equatorial that this complaint for back rentals as 'reasonable compensation for use of the subject property after expiration of the lease . Branch 8 As earlier stated." The trial court ratiocinated as follows: "The meaning of rescind in the aforequoted decision is to set aside. holding that the rescission of the Deed of Absolute Sale in the mother case did not confer on Equatorial any vested or residual proprietary rights. 1978 is void at its inception as though it did not happen. it claimed rentals arising from Mayfair's occupation thereof. the court a quo held that the critical issue was whether Equatorial was the owner of the subject property and could thus enjoy the fruits or rentals therefrom.' "Relative to the foregoing definition. the Supreme Court held that. Equatorial alleged among other things that the Lease Contract covering the premises occupied by Maxim Theater expired on May 31. 1989. 'to rescind is to declare a contract void in its inception and to put an end as though it never were. In granting the Motion to Dismiss. In the case of Ocampo v. claiming payment of rentals or reasonable compensation for the defendant's use of the subject premises after its lease contracts had expired. 97442. Court of Appeals. In its Complaint. 1994.R. It is not merely to terminate it and release parties from further obligations to each other but to abrogate it from the beginning and restore parties to relative positions which they would have occupied had no contract ever been made. G.

contracts presumes that the Deed of Absolute Sale dated July 30, 1978 from
whence the fountain of Equatorial's all rights flows is still valid and existing.

xxx xxx xxx

"The subject Deed of Absolute Sale having been rescinded by the Supreme
Court, Equatorial is not the owner and does not have any right to demand
backrentals from the subject property. . .12

The trial court added: "The Supreme Court in the Equatorial case, G.R No. 106063, has
categorically stated that the Deed of Absolute Sale dated July 31, 1978 has been
rescinded subjecting the present complaint to res judicata."13

Hence, the present recourse.14

Issues

Petitioner submits, for the consideration of this Court, the following issues: 15

"A

The basis of the dismissal of the Complaint by the Regional Trial Court not only
disregards basic concepts and principles in the law on contracts and in civil law,
especially those on rescission and its corresponding legal effects, but also
ignores the dispositive portion of the Decision of the Supreme Court in G.R. No.
106063 entitled 'Equatorial Realty Development, Inc. & Carmelo & Bauermann,
Inc. vs. Mayfair Theater, Inc.'

"B.

The Regional Trial Court erred in holding that the Deed of Absolute Sale in
favor of petitioner by Carmelo & Bauermann, Inc., dated July 31, 1978, over the
premises used and occupied by respondent, having been 'deemed rescinded' by
the Supreme Court in G.R. No. 106063, is 'void at its inception as though it did
not happen.'

"C.

The Regional Trial Court likewise erred in holding that the aforesaid Deed of
Absolute Sale, dated July 31, 1978, having been 'deemed rescinded' by the
Supreme Court in G.R. No. 106063, petitioner 'is not the owner and does not

have any right to demand backrentals from the subject property,' and that the
rescission of the Deed of Absolute Sale by the Supreme Court does not confer
to petitioner 'any vested right nor any residual proprietary rights even in
expectancy.'

"D.

The issue upon which the Regional Trial Court dismissed the civil case, as stated
in its Order of March 11, 1998, was not raised by respondent in its Motion to
Dismiss.

"E.

The sole ground upon which the Regional Trial Court dismissed Civil Case No. 97-
85141 is not one of the grounds of a Motion to Dismiss under Sec. 1 of Rule 16 of
the 1997 Rules of Civil Procedure."

Basically, the issues can be summarized into two: (1) the substantive issue of whether
Equatorial is entitled to back rentals; and (2) the procedural issue of whether the
court a quo's dismissal of Civil Case No. 97-85141 was based on one of the grounds
raised by respondent in its Motion to Dismiss and covered by Rule 16 of the Rules of
Court.

This Court's Ruling

The Petition is not meritorious.

First Issue:
Ownership of Subject Properties

We hold that under the peculiar facts and circumstances of the case at bar, as found by
this Court en banc in its Decision promulgated in 1996 in the mother case, no right of
ownership was transferred from Carmelo to Equatorial in view of a patent failure to
deliver the property to the buyer.

Rental — a Civil
Fruit of Ownership

To better understand the peculiarity of the instant case, let us begin with some basic
parameters. Rent is a civil fruit16 that belongs to the owner of the property producing
it17 by right of accession.18 Consequently and ordinarily, the rentals that fell due from

the time of the perfection of the sale to petitioner until its rescission by final judgment
should belong to the owner of the property during that period.

By a contract of sale, "one of the contracting parties obligates himself to transfer
ownership of and to deliver a determinate thing and the other to pay therefor a price
certain in money or its equivalent."19

Ownership of the thing sold is a real right,20 which the buyer acquires only upon delivery
of the thing to him "in any of the ways specified in articles 1497 to 1501, or in any other
manner signifying an agreement that the possession is transferred from the vendor to
the vendee."21 This right is transferred, not merely by contract, but also by tradition or
delivery.22 Non nudis pactis sed traditione dominia rerum transferantur. And there is
said to be delivery if and when the thing sold "is placed in the control and possession of
the vendee."23 Thus, it has been held that while the execution of a public instrument of
sale is recognized by law as equivalent to the delivery of the thing sold, 24 such
constructive or symbolic delivery, being merely presumptive, is deemed negated by the
failure of the vendee to take actual possession of the land sold.25

Delivery has been described as a composite act, a thing in which both parties must join
and the minds of both parties concur. It is an act by which one party parts with the title
to and the possession of the property, and the other acquires the right to and the
possession of the same. In its natural sense, delivery means something in addition to the
delivery of property or title; it means transfer of possession. 26 In the Law on Sales,
delivery may be either actual or constructive, but both forms of delivery contemplate
"the absolute giving up of the control and custody of the property on the part of the
vendor, and the assumption of the same by the vendee."27

Possession Never
Acquired by Petitioner

Let us now apply the foregoing discussion to the present issue. From the peculiar facts
of this case, it is clear that petitioner never took actual control and possession of the
property sold, in view of respondent's timely objection to the sale and the continued
actual possession of the property. The objection took the form of a court action
impugning the sale which, as we know, was rescinded by a judgment rendered by this
Court in the mother case. It has been held that the execution of a contract of sale as a
form of constructive delivery is a legal fiction. It holds true only when there is no
impediment that may prevent the passing of the property from the hands of the vendor
into those of the vendee.28 When there is such impediment, "fiction yields to reality —
the delivery has not been effected."29

Hence, respondent's opposition to the transfer of the property by way of sale to
Equatorial was a legally sufficient impediment that effectively prevented the passing of
the property into the latter's hands.

This was the same impediment contemplated in Vda. de Sarmiento v. Lesaca,30 in which
the Court held as follows:

"The question that now arises is: Is there any stipulation in the sale in question
from which we can infer that the vendor did not intend to deliver outright the
possession of the lands to the vendee? We find none. On the contrary, it can be
clearly seen therein that the vendor intended to place the vendee in actual
possession of the lands immediately as can be inferred from the stipulation that
the vendee 'takes actual possession thereof . . . with full rights to dispose, enjoy
and make use thereof in such manner and form as would be most advantageous to
herself.' The possession referred to in the contract evidently refers to actual
possession and not merely symbolical inferable from the mere execution of the
document.

"Has the vendor complied with this express commitment? she did not. As
provided in Article 1462, the thing sold shall be deemed delivered when the
vendee is placed in the control and possession thereof, which situation does not
here obtain because from the execution of the sale up to the present the
vendee was never able to take possession of the lands due to the insistent
refusal of Martin Deloso to surrender them claiming ownership thereof. And
although it is postulated in the same article that the execution of a public
document is equivalent to delivery, this legal fiction only holds true when there
is no impediment that may prevent the passing of the property from the hands
of the vendor into those of the vendee. x x x."31

The execution of a public instrument gives rise, therefore, only to a prima facie
presumption of delivery. Such presumption is destroyed when the instrument itself
expresses or implies that delivery was not intended; or when by other means it is shown
that such delivery was not effected, because a third person was actually in possession of
the thing. In the latter case, the sale cannot be considered consummated.

However, the point may be raised that under Article 1164 of the Civil Code, Equatorial as
buyer acquired a right to the fruits of the thing sold from the time the obligation to
deliver the property to petitioner arose.32 That time arose upon the perfection of the
Contract of Sale on July 30, 1978, from which moment the laws provide that the parties
to a sale may reciprocally demand performance. 33 Does this mean that despite the

judgment rescinding the sale, the right to the fruits34 belonged to, and remained
enforceable by, Equatorial?

Article 1385 of the Civil Code answers this question in the negative, because
"[r]escission creates the obligation to return the things which were the object of the
contract, together with their fruits, and the price with its interest; x x x" Not only the
land and building sold, but also the rental payments paid, if any, had to be returned by
the buyer.

Another point. The Decision in the mother case stated that "Equatorial x x x has
received rents" from Mayfair "during all the years that this controversy has been
litigated." The Separate Opinion of Justice Teodoro Padilla in the mother case also said
that Equatorial was "deriving rental income" from the disputed property. Even
herein ponente's Separate Concurring Opinion in the mother case recognized these
rentals. The question now is: Do all these statements concede actual delivery?

The answer is "No." The fact that Mayfair paid rentals to Equatorial during the litigation
should not be interpreted to mean either actual delivery or ipso facto recognition of
Equatorial's title.

The CA Records of the mother case 35 show that Equatorial — as alleged buyer of the
disputed properties and as alleged successor-in-interest of Carmelo's rights as lessor —
submitted two ejectment suits against Mayfair. Filed in the Metropolitan Trial Court of
Manila, the first was docketed as Civil Case No. 121570 on July 9, 1987; and the second,
as Civil Case No. 131944 on May 28, 1990. Mayfair eventually won them both. However, to
be able to maintain physical possession of the premises while awaiting the outcome of
the mother case, it had no choice but to pay the rentals.

The rental payments made by Mayfair should not be construed as a recognition of
Equatorial as the new owner. They were made merely to avoid imminent eviction. It is in
this context that one should understand the aforequoted factual statements in
the ponencia in the mother case, as well as the Separate Opinion of Mr. Justice Padilla
and the Separate Concurring Opinion of the herein ponente.

At bottom, it may be conceded that, theoretically, a rescissible contract is valid until
rescinded. However, this general principle is not decisive to the issue of whether
Equatorial ever acquired the right to collect rentals. What is decisive is the civil law rule
that ownership is acquired, not by mere agreement, but by tradition or delivery. Under
the factual environment of this controversy as found by this Court in the mother case,
Equatorial was never put in actual and effective control or possession of the property
because of Mayfair's timely objection.

Each case has its own flesh and blood and cannot be decided on the basis of isolated clinical classroom principles. rescission lies. since it was knowingly entered into in violation of the rights of and to the prejudice of Mayfair. assuming for the sake of argument that there was valid delivery. Petitioner's bad faith is set forth in the following pertinent portions of the mother case: "First and foremost is that the petitioners acted in bad faith to render Paragraph 8 'inutile. Equatorial cannot tenably claim to be a purchaser in good faith. Petitioner never acquired ownership. this finding renders the sale to it of the property in question rescissible. but because the sale was not consummated by a legally effective delivery of the property sold. Benefits Precluded by Petitioner's Bad Faith Furthermore. Equatorial admitted that its lawyers had studied the contract of lease prior to the sale. but it was judicially rescinded before it could be consummated. prior to the sale. therefore. not because the sale was void.' xxx xxx xxx "Since Equatorial is a buyer in bad faith. In fact. and. . the sale to Equatorial may have been valid from inception. as correctly observed by the Court of Appeals. This being the law of the mother case decided in 1996. "laws are interpreted in the context of the peculiar factual situation of each case. as erroneously claimed by the trial court.As pointed out by Justice Holmes. As such. Rather. petitioner is not entitled to any benefits from the "rescinded" Deed of Absolute Sale because of its bad faith. the contract of sale between Equatorial and Carmelo is characterized by bad faith. We agree with respondent Appellate Court that the records bear out the fact that Equatorial was aware of the lease contracts because its lawyers had. it may no longer be changed because it has long become final and executory." 36 In short. general propositions do not decide specific cases. Equatorial's knowledge of the stipulations therein should have cautioned it to look further into the agreement to determine if it involved stipulations that would prejudice its own interests. xxx xxx xxx "As also earlier emphasized. studied the said contracts.

"37 (Italics supplied) Thus. which has long become final. this Court categorically denied the payment of interest.@lawphil. rentals. petitioner must bear it in silence. This Court has firmly ruled in the mother case that neither of them is entitled to any consideration of equity. but for (a) the patent failure to deliver the property and (b) petitioner's bad faith. it cannot be a buyer in good faith because it bought the property with notice and full knowledge that Mayfair had a right to or interest in the property superior to its own. 97-85141 on a ground not raised in respondent's Motion to Dismiss. no less. a fruit of ownership. Otherwise. another fruit of ownership. bad faith would be rewarded instead of punished. Worse. it allegedly based its dismissal on a ground not provided for in a motion to dismiss as enunciated in the Rules of Court. Second Issue:itc-alf Ground in Motion to Dismiss Procedurally. petitioner was and still is entitled solely to he return of the purchase price it paid to Carmelo. Carmelo and Equatorial took unconscientious advantage of Mayfair. If it suffered any loss."38 In the mother case. xxx xxx xxx "On the part of Equatorial. cannot be granted without mocking this Court's en banc Decision. no more.net We are not convinced A review of respondent's Motion to Dismiss Civil Case No. By the same token. not for the reason it gave. as above discussed. as follows: "(A) Plaintiff is guilty of forum-shopping. 97- 85141 shows that there were two grounds invoked.@lawphil. since it had wrought that loss upon itself. petitioner claims that the trial court deviated from the accepted and usual course of judicial proceedings when it dismissed Civil Case No. as both "took unconscientious advantage of Mayfair.itc-alf "(B) .net We uphold the trial court's disposition. Petitioner's claim of reasonable compensation for respondent's use and occupation of the subject property from the time the lease expired cannot be countenanced.

that petitioner's cause of action is indeed barred by a prior judgment of this Court. demand. like interest and rentals."39 The court a quo ruled. that the cause of action of petitioner plaintiff in the case below) had been barred by a prior judgment of this Court in G. it stabilizes rights and promotes the rule of law. 42 It frees the parties from undergoing all over again the rigors of unnecessary suits and repetitive trials. our ruling in the mother case bars petitioner from claiming back rentals from respondent. Suffice it to say that. As already discussed. 40 Thus.R No. We quote the RTC: . our Decision in G. or cause of action." we hold. Although the court a quo erred when it declared "void from inception" the Deed of Absolute Sale between Carmelo and petitioner. 106063 has already resolved the issue of back rentals. 106063."41 Res judicata is based on the ground that the "party to be affected. Under the doctrine of res judicata or bar by prior judgment. has litigated the same matter in a former action in a court of competent jurisdiction.R No. On the basis of the evidence presented during the hearing of Mayfair's Motion to Dismiss.@lawphil. the mother case. nonetheless. it prevents the clogging of court dockets. because it never became the owner of the disputed properties due to a failure of delivery. At the same time. clearly. if any. a matter that has been adjudicated by a court of competent jurisdiction must be deemed to have been finally and conclusively settled if it arises in any subsequent litigation between the same parties and for the same cause. the trial court found that the issue of ownership of the subject property has been decided by this Court in favor of Mayfair. petitioner's bad faith negates its entitlement to the civil fruits of ownership. or some other with whom he is in privity. our foregoing discussion supports the grant of the Motion to Dismiss on the ground that our prior judgment in G. "[a] final judgment on the merits rendered by a court of competent jurisdiction is conclusive as to the rights of the parties and their privies and constitutes an absolute bar to subsequent actions involving the same claim. And even assuming arguendo that there was a valid delivery. Plaintiff's cause of action. is barred by prior judgment. inter alia. Although it erred in its interpretation of the said Decision when it argued that the rescinded Deed of Absolute Sale was avoid. and should not be permitted to litigate it again.net We find no need to repeat the foregoing disquisitions on the first issue to show satisfaction of the elements of res judicata. Equally important.R No. 106063 shows that petitioner is not entitled to back rentals.

itc-alf SO ORDERED G. vs. That it is customary to sell hemp in bales which are made by compressing the loose fiber by means of presses. in the following: III. consisting. L-6584 October 16. for appellant. J. By granting the Motion. even if its legal reason for nullifying the sale was wrong. even if it erred in interpreting the meaning of "rescinded" as equivalent to "void" In short. both for its own account and on commission. in so far as they are material to a decision of the case. the trial court decided the Motion to Dismiss on the basis of res judicata. The facts presented to this court are agreed upon by both parties. defendant-appellee. G. without costs. covering two sides of the bale with matting. Costs against petitioner. Simplicio del Rosario presiding."43(Emphasis in the original) Hence. for appellee. 1978 has been rescinded subjecting the present complaint to res judicata. 106063 has categorically stated that the Deed of Absolute Sale dated July 31. WHEREFORE. Collector of Internal Revenue. the Hon.. "The Supreme Court in the Equatorial case.: This is an appeal by the plaintiff from a judgment of the Court of First Instance of the city of Manila. MORELAND.R. That the plaintiff firm for many years past has been and now is engaged in the business of buying and selling at wholesale hemp.R. namely. IV. Haussermann. and . dismissing the complaint upon the merits after trial. Cohn & Fisher. the Petition is hereby DENIED. it ruled on the ground raised. bar by prior judgment. it disposed correctly. The correct reasons are given in this Decision. plaintiff-appellant. No. Acting Attorney-General Harvey. 1911 INCHAUSTI AND CO. No. ELLIS CROMWELL.

75 per bale. That in all sales of hemp by the plaintiff firm. sums aggregating P31. but with the tacit understanding.fastening it by means of strips of rattan. collected for the account of the owners of hemp sold by the plaintiff firm in Manila on commission. the amount of which depends upon the then prevailing rate.5 kilograms). under the denomination of "prensaje. X. no mention being made of bailing.080. a charge. is to be made against the buyer under the denomination of "prensaje. and between the 1st day of October. and the 31st day of March. That the average weight of a bale of hemp is two (2) piculs (126. IX. that the average cost of the rattan and matting used on each bale of hemp is fifteen (15) centavos and that the average total cost of bailing hemp is one (1) peso per bale. whether for its own account or on commission for others." in addition to the price expressly agreed upon the said hemp.124. in addition to the price expressly agreed upon for the said hemp. marked Exhibits A and B. that the operation of bailing hemp is designated among merchants by the word "prensaje. according to the custom prevailing among hemp merchants and dealers in the Philippine Islands." That this charge is made in the same manner in all cases. 1910. sums aggregating P380. the price is quoted to the buyer at so much per picul. 1908. and the 1st day of March. that the hemp will be delivered in bales and that. VI. VII. That the plaintiff firm in estimating the amount due it as commissions on sales of hemp made by it for its principals has always based the said amount on ." V. the plaintiff firm. That the amount of the charge made against hemp buyers by the plaintiff firm and other sellers of hemp under the denomination of "prensaje" during the period involved in this litigation was P1. 1905. Two specimens of the ordinary form of account used in these operations are hereunto appended. in accordance with the custom mentioned in paragraph V hereof. unless otherwise expressly agreed. That insurance companies in the Philippine Islands. 1910. respectively." VII." from purchasers of hemp sold by the said firm for its own account. and under the said denomination of "prensaje. collected and received. even when the operation of bailing was performed by the plaintiff or by its principal long before the contract of sale was made. That between the first day of January. and made a part hereof.35. in estimating the insurable value of hemp always add to the quoted price of same the charge made by the seller under the denomination of "prensaje.

68 or any part thereof. made demand in writing upon the plaintiff firm for the payment within the period of five (5) days of the sum of P1. Upon the facts above set forth t is contended by the plaintiff that the tax of P1.the total sum collected from the purchasers of the hemp. the plaintiff firm paid to the defendant under protest the said sum of P1. until compelled to do so as hereinafter stated.1awphil." XII." XIII. is illegal upon the ground that the said charge does not constitute a part of the selling price of the hemp. upon the said sums of money so collected from purchasers of hemp under the denomination of "prensaje. and that .204. under the provisions of the said section 139 of Act No. paid the said tax upon sums received from the purchaser of such hemp under the denomination of "prensaje. against the ruling by which the plaintiff firm was required to make said payment. but has not. 1910.68 as a tax of one third of one per cent on the sums of money mentioned in Paragraph IX hereof.68 paid to him under protest." XI.net XIV.370.370. and which the said defendant claimed to be entitled to receive.68 assessed by the defendant upon the aggregate sum of said charges made against said purchasers of hemp by the plaintiff during the period in question.370. and refused and still refuses to return to plaintiff the said sum of P1. but is a charge made for the service of baling the hemp. namely. including the charge made in each case under the denomination of "prensaje. Upon the facts above stated it is the contention of the defendant that the said charge made under the denomination of "prensaje" is in truth and in fact a part of the gross value of the hemp sold and of its actual selling price. together with all interest thereon at the legal rate since payment. the defendant. 1189. under the denomination of "prensaje" as aforesaid. That of the 29th day of April. and on the same date appealed to the defendant as Collector of Internal Revenue.35.370. acting in his official capacity as Collector of Internal Revenue of the Philippine Islands. 1910.69. That the plaintiff has always paid to the defendant or to his predecessor in the office of the Collector of Internal Revenue the tax collectible under the provisions of section 139 of Act No. P411. and that the plaintiff firm is therefore entitled to recover of the defendant the said sum of P1.370. That on the 4th day of May. and the costs of this action. 1189 upon the selling price expressly agreed upon for all hemp sold by the plaintiff firm both for its own account and on commission. but defendant overruled said protest and adversely decided said appeal.

it is the fact as stipulated. In other words. There was agreement that services should be performed. The fact is that among large dealers like the plaintiff in this case it is practically impossible to handle hemp without its being baled. In such case the plaintiff performed no service whatever for his vendee. and materials is tested by the inquiry whether the thing transferred is one no in existence and which never would have existed but for the order of the party desiring to acquire it. that such hemp would be delivered in bales. Under these facts we are of the opinion that the judgment of the court below was right. He did not ask the plaintiff to perform services for him. The distinction between a contract of sale and one for work. It is quite possible also that such vendor of the plaintiff may have received the same hemp from his vendor in baled form. that in all dealings in hemp in the general market the selling price consists of the value of the hemp loose plus the cost and expense of putting it into marketable form. The contract was single and consisted solely in the sale and purchase of hemp. In the sales made by the plaintiff. It is one of the stipulations in the statement of facts that it is customary to sell hemp in bales. that he paid the additions cost of baling as a part of the purchase price which he paid. as well as it would be the fact of necessity. put to the debit of the vendee and agreed to by him. nor did the plaintiff's vendor perform any service for him. that if the plaintiff sold a quality of hemp it would be the under standing. It is quite possible that the plaintiff. and that the purchase price would include the cost and expense of baling. without words. The word "price" signifies the sum stipulated as the equivalent of the thing sold and also every incident taken into consideration for the fixing of the price. and that the price quoted in the market for hemp per picul is the price for the hemp baled. 1189 lawfully accrued on said sums. All that he knew and all that concerned him was that the hemp should be delivered to him baled. therefore the tax imposed by section 139 of Act No. The purchaser contracted for nothing else and the vendor agreed to deliver nothing else. or a thing . and it is admitted by the statement of facts. which are the basis of the controversy here. and that the defendant should have judgment against plaintiff for his costs. in this case in connection with the hemp which he sold. that the collection thereof was lawfully and properly made and that therefore the plaintiff is not entitled to recover back said sum or any part thereof. Indeed. at the time of such sales it was not known by the vendee whether the hemp was then actually baled or not. nor did the plaintiff agree to do so. as well as demonstrated by the documentary proof introduced in the case. had himself already paid the additional expense of baling as a part of the purchase price which he paid and that he himself had received the hemp baled from his vendor. there were n services performed by him for his vendee. labor.

Waterman vs. 497. Clark vs.. 177. Ward. 94. and in consequence of. Osborne. 94.) It is also held in that state that a contract for the sale of an article which the vendor in the ordinary course of his business manufactures or procures for the general market. Joy.Y. it is essentially a contract of sale and not a contract for labor.. 4 Keyes. 38 Vt.. May vs.. Binney. Co. 90.. the case is not within the statute. 51 N. the baling. The hemp in question would not have been in that condition if it had not been baled. or. nevertheless.) If the article ordered by the purchaser is exactly such as the plaintiff makes and keeps on hand for sale to anyone... the defendant's order for it.) It is clear that in the case at bar the hemp was in existence in baled form before the agreements of sale were made. Crafts. (Garbutt s. 5 Barn. Ry. Lamb vs. & Ald. (Mixer vs. 38 Me. It is otherwise when the article is made pursuant to agreement. Nichols. at least. Crafts. it is customary to sell hemp in bales. even though it may be entirely made after.. 64. Meigs.H. 252. (Atkinson vs. 30 L. Noyes. 547. Howarth. 4 Cush. 107 Mass. 1 Strange. Lee vs.N.J. Buck.. 294. 12 Met. Locke. it is a contract of sale. 613. Prescott vs. Towers vs. Benjamin on Sales.C. 127. It was precisely the same contract that was made by every other seller of hemp. 178.. N. Bell. One whose exposes goods for sale in the market must have them in marketable form.. 12 Met. (Lamb vs.which would have existed and been the subject of sale to some other person. therefore... Gilchrist. Benjamin on Sales. 506.) It has been held in Massachusetts that a contract to make is a contract of sale if the article ordered is already substantially in existence at the time of the order and merely requires some alteration. Scribner. whether the same is on hand at the time or not. would have been in existence even if none of the individual sales here in question had been consummated. 3 Maule & S. 134 Mass. Pitkin vs. 277. 353. Prescott vs. This would be necessary. 205. Brigham. was nothing peculiar to the contract between the plaintiff and his vendee.. Gardner vs. 180. It would have been baled. 115 Mass. Abbott vs.. Locke.. Crocket vs.B. 21 Pick. 450. Griffin. Smith vs. modification.. 51 N. H. 353. 48 N. is a contract for the sale of goods to which the statute of frauds applies.. and which at the time are not made or finished. engaged as was the plaintiff. 8 Barn. & C. (Groves vs. even if the order had not been given. Ellison vs. When a person stipulates for the future sale of articles which he is habitually making.Q. since. according to the agreed statement of facts. 9 Met. and resulted simply in the transfer of title to goods already . 105. 98. But if the goods are to be manufactured especially for the purchaser and upon his special order.) It is clear to our minds that in the case at bar the baling was performed for the general market and was not something done by plaintiff which was a result of any peculiar wording of the particular contract between him and his vendee.. (Goddard vs. and no change or modification of it is made at the defendant's request. for sale to someone else. 64 Me. or adoption to the buyer's wishes or purposes. H. It is undoubted that the plaintiff prepared his hemp for the general market. Watson.. and not for the general market. S.) Where labor is employed on the materials of the seller he can not maintain an action for work and labor. 260.

admitted that in spite of that fact he would still have made the double entry in his invoice of sale to such vendee. 1189] of the Internal Revenue Law provides that: There shall be paid by each merchant and manufacturer a tax at the rate of one- third of one per centum on the gross value in money of all goods. that sum which the purchaser pays to the vendee. it has the same force. 75. as we have before stated. After such an agreement has once been made by the purchaser. then the plaintiff would have performed no service for his vendee and could not. Therefore. This indicates of necessity tat the mere fact of entering a separate item for the baling of the hemp is formal rather than essential and in no sense indicates in this case the real transaction between the parties. he considers the bale of hemp worth P21. It is conceded in the case tat a separate entry and charge would have been made for the baling even if the plaintiff had not been the one who baled the hemp but. as we have already said. The purchaser of hemp owes to the seller nothing whatever by reason of their contract except the value of the hemp delivered. had received it already baled from his vendor. It is undisputable that.75 for that bale.prepared for the general market. lawfully charge for the rendition of such service. in the sales referred to in the case at bar. if the plaintiff had brought the hemp in question already baled. express or implied. bartered or exchanged in the Philippine Islands. It is. if the value of the hemp were not augmented to the amount of P1. We agree that there can be no question that. This demonstrates the nature of the transaction and discloses. to pay an additional amount of P1. baling is performed before the sale. Section 139 [Act No. wares and merchandise sold. and every item which enters into such price is a part of such selling price. therefore. obligates himself to purchase and pay for baled hemp. The method of bookkeeping and form of the account rendered is not controlling as to the nature of the contract made. unless he expressly stipulates that it shall be delivered to him in loose form. well knowing that there is an agreement on his part. the purchaser would not pay that sum. that the entry of a separate charge for baling does not accurately describe the transaction between the parties. whether it is actual or tacit. and that this tax shall be assessed on the actual selling price at which every such merchant or manufacturer disposes of his commodities. a purchaser of hemp in the market. would have . It is undoubted that the vendees. instead. The operation of baling undoubtedly augments the value of the goods. Wheher or not such agreement is express or implied. If one buys a bale of hemp at a stipulated price of P20. that hemp is sold in bales. nevertheless. By force of the custom prevailing among hemp dealers in the Philippine Islands. That value. It is agreed. and that was the hemp the sale which formed the subject of this controversy.75 per bale by said operation. is the true selling price of the hemp. he has no right to insists thereafter that the seller shall furnish him with unbaled hemp.

that is. would have stood upon his original contract of sale. It is unquestioned that the seller. Celestino Co & Company is a duly registered general copartnership doing business under the trade name of "Oriental Sash Factory". L-8506 August 31. the obligation to deliver baled hemp. to insists on the delivery of loose hemp with the purpose in view themselves to perform the baling and thus save 75 centavos per bale. . . . 1956 CELESTINO CO & COMPANY. . respondent. However in 1952 it began to claim liability only to the contractor's 3 per cent tax (instead of 7 per cent) under section 191 of the same Code. .R. door and window factory.no right. in accordance with section one hundred eighty-six of the National Revenue Code imposing taxes on sale of manufactured articles.: Appeal from a decision of the Court of Tax Appeals. sketches of doors and windows and price quotations supposedly sent by the manager of the Oriental Sash Factory to four customers who allegedly made special orders to doors and window from the said factory. it brought the matter to the Court of Tax Appeals. duplicate copies of letters. he himself retaining among his own profits those which accrued from the proceed of baling. BENGZON. From 1946 to 1951 it paid percentage taxes of 7 per cent on the gross receipts of its sash. Torres and Solicitor Federico V. and would have forced his vendees to accept baled hemp. sash and windows for the public but only upon special order of its select customers. counsel presented . the plaintiff. We are of the opinion that the judgment appealed from must be affirmed. Office of the Solicitor General Ambrosio Padilla. and having failed to convince the Bureau of Internal Revenue. I cannot believe that petitioner company would take. Sian for respondent. after having made their contracts. Said the Court: To support his contention that his client is an ordinary contractor . where it also failed. as in fact it has taken. all the trouble and expense of registering a special trade name for its . COLLECTOR OF INTERNAL REVENUE. . without special finding as to costs. vs. and it is so ordered G. J. No. petitioner. . Fisrt Assistant Solicitor General Guillermo E. The conclusion that counsel would like us to deduce from these few exhibits is that the Oriental Sash Factory does not manufacture ready-made doors.

navigation. and includes any other work for the construction. 1952.69. streets. furniture. windows. during the period from January 1. Quiapo. sashes. doors and windows for the public and that it makes these articles only special order of its customers. electric lines or power lines. 68).sash business and then orders company stationery carrying the bold print "Oriental Sash Factory (Celestino Co & Company. 1952 to September 30. we cannot find under which the business of manufacturing sash. doors and windows worth P188. City of Anadardo 64 P. there are no less than fifty occupations enumerated in the aforesaid section of the national Internal Revenue Code subject to percentage tax and after reading carefully each and every one of them. One ill note that petitioner has chosen for its tradename and has offered itself to the public as a "Factory". 33076. As a general rule. doors and windows upon special order of customers fall under the category of "road. as shown from the investigation of petitioner's book of accounts. I find it difficult to believe that this amount which runs to six figures was derived by petitioner entirely from its few customers who made special orders for these items. windows and sash of its special and limited customers. altering or repairing for which machinery driven by mechanical power is used. highways. 880. of the best quality workmanships" solely for the purpose of supplying the needs for doors. water workers and other construction work contractors" are those who alter or repair buildings. sewers. Even if we were to believe petitioner's claim that it does not manufacture ready-made sash. Manila.) 926 Raon St. street railways railroads logging roads. Prop. in its chosen lines on a big scale. The percentage tax imposed in section 191 of our Tax Code is generally a tax on the sales of services. Tel. Manufacturers of all kinds of doors. this leaves us to decide the remaining issue whether or not petitioner could be taxed with lesser strain and more accuracy as seller of its manufactured articles under section 186 of the same code. which means it is out to do business. Having thus eliminated the feasibility off taxing petitioner as a contractor under 191 of the national Internal Revenue Code. No. structures. that does not make it a contractor within the purview of section 191 of the national Internal Revenue Code. building. artesian well. in contradiction with the tax imposed in section 186 of the . 179 Okl. sash factories receive orders for doors and windows of special design only in particular cases but the bulk of their sales is derived from a ready-made doors and windows of standard sizes for the average home. Moreover.754. it sold sash. used season-dried and kiln-dried lumber. (Payton vs. as the respondent Collector of Internal Revenue has in fact been doing the Oriental Sash Factory was established in 1946. 2d 878. etc.

for it is obvious that it only accepted such orders as called for the employment of such material-moulding. 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. That it "manufactures" the same is practically admitted by appellant itself. and since petitioner's contractual relation with his customers is that of a contract for a piece of work or since petitioner is engaged in the sale of services. the appellant will not refuse. The fact that windows and doors are made by it only when customers place their orders. Surely. the doors ordered by Don Toribio Teodoro & Sons Inc. producer or importer. Therefore it is not true that it serves special customers only or confines its services to them alone. windows and doors only for special customers and upon their special orders and in accordance with the desired specifications of the persons ordering the same and not for the general market: since the doors ordered by Don Toribio Teodoro & Sons. same Code which is a tax on the original sales of articles by the manufacturer. may order windows or doors of the kind manufactured by this appellant. p. by clear proof of facts not disputed by the respondent. does not alter the nature of the establishment. (Formilleza's Commentaries and Jurisprudence on the National Internal Revenue Code. panels-as it ordinarily manufactured or was in a position habitually to manufacture. Perhaps the following paragraph represents in brief the appellant's position in this Court: Since the petitioner. But the argument rests on a false foundation. Inc. for it can easily duplicate or even mass- produce the same doors-it is mechanically equipped to do so. II. are not in existence and which never would have existed but for the order of the party desiring it. it follows that the petitioner should be taxed under section 191 of the Tax Code and NOT under section 185 of the same Code. 744). The important thing to remember is that Celestino Co & Company habitually makes sash. but upon careful consideration of the whole matter are inclines to accept the above statement of the facts and the law. windows and doors. may purchase from appellant doors of the same kind. as it has represented in its stationery and advertisements to the public. with sufficient money. p. That the doors and windows must meet desired specifications is neither here nor there. If these specifications do not happen to be of the kind habitually manufactured by . provided he pays the price. and likes. manufacturers sash. 11-12). Any builder or homeowner. And anyone who sees. Vol. for instance." (Appellant's brief.. frames. There was a strong dissent.

panels. The Oriental Sash Factory does nothing more than sell the goods that it mass-produces or habitually makes. (To take one instance) because it also sold the materials. but merely contracted for particular pieces of work or "merely sold its services". panels. Such new form does not divest the Oriental Sash Factory of its character as manufacturer. mouldings and panels it used therefor (some of them at least). but if the goods are to be manufactured specially for the customer and upon his special order. because although the Factory does not. 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. The truth of the matter is that it sold materials ordinarily manufactured by it — sash.appellant — special forms for sash. sash.2 Appellant invokes Article 1467 of the New Civil Code to bolster its contention that in filing orders for windows and doors according to specifications. mouldings — to Teodoro & Co. Nobody would regard the doing of two window panels a construction work in common parlance. it could stock and/or probably had in stock the sash. The same consideration applies to this sash manufacturer. Neither does it take the transaction out of the category of sales under Article 1467 above quoted. in the ordinary course of its business. It is at once apparent that the Oriental Sash Factory did not merely sell its services to Don Toribio Teodoro & Co. . whether the same is on hand at the time or not.1 not the seller of lumber. On the other hand.. it did not sell. is a contract of sale. cutting them to such sizes and combining them in such forms as its customers may desire. it is contract for a piece of work. the transaction would be no different from a purchasers of manufactured goods held is stock for sale. mouldings. Said article reads as follows: 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. although in such form or combination as suited the fancy of the purchaser. and not for the general market. mouldings of panels — it would not accept the order — and no sale is made. petitioner's idea of being a contractor doing construction jobs is untenable. they are bought because they meet the specifications desired by the purchaser. If they do. manufacture and keep on stock doors of the kind sold to Teodoro. frames.

It has for its secondary purpose the "preparing.: Assailed in this petition is the decision of the Court of Tax Appeals in CTA case No. or involves services not generally performed by it-it thereby contracts for a piece of work — filing special orders within the meaning of Article 1467. COMMISSIONER OF INTERNAL REVENUE. and should be taxed as "transfers" thereof under section 186 of the National Revenue Code. The orders herein exhibited were not shown to be special.In our opinion when this Factory accepts a job that requires the use of extraordinary or additional equipment.R. and COURT OF TAX APPEALS." The facts are simple. petitioner. Arnoldus Carpentry Shop. (private respondent herein) is a domestic corporation which has been in existence since 1960. extraordinary or peculiar merchandise? Anyway. Inc. The appealed decision is consequently affirmed. such orders should not be called special work. They were merely orders for work — nothing is shown to call them special requiring extraordinary service of the factory. ARNOLDUS CARPENTRY SHOP. No. 1988 COMMISSIONER OF INTERNAL REVENUE. they were neither lease of services nor contract jobs by a contractor. v. G. . supposing for the moment that the transactions were not sales. J. The thought occurs to us that if. such transactions could be. The Solicitor General for petitioner. CORTES. Generoso Jacinto for respondents. But as the doors and windows had been admittedly "manufactured" by the Oriental Sash Factory. INC. 71122 March 25. but regular work. 3357 entitled "ARNOLDUS CARPENTRY SHOP. as alleged-all the work of appellant is only to fill orders previously made. So ordered. respondents. Would a factory do business performing only special. vs. INC.

160-161).59 (Rollo.97. (Luzon Stevedoring Co. importing. 43 Phil. Trinidad. 803). [Rollo. 12). The relevant portion of the report reads: Examination of the records show that per purchase orders. 60).) xxx xxx xxx As a result thereof. Hence. selling. on January 31. 169 (q)] of the Tax Code. 1978. The balance of P2.787. p. The corporation renders service in the course of an independent occupation representing the will of his employer only as to the result of his work.471. private respondent received a letter/notice of tax deficiency assessment inclusive of charges and interest for the year 1977 in the amount of ONE HUNDRED EIGHT THOUSAND . exporting. As per the examination. of any and all nature and description" (Rollo. These furniture. and not as to the means by which it is accomplished. wood and metal home and office furniture. manufacturing.162. 08307 NA dated November 23. which are hereby attached. windows. the total gross sales of private respondent for the year 1977 from both its local and foreign dealings amounted to P5. private respondent kept samples or models of its woodwork on display from where its customers may refer to when placing their orders. doors. 205 (16) [now Sec. Later. of the taxpayer's customers during the period under review.972. was considered as its gross export sales (CTA Decision. the examiners assessed private respondent for deficiency tax in the amount of EIGHTY EIGHT THOUSAND NINE HUNDRED SEVENTY TWO PESOS AND TWENTY THREE CENTAVOS ( P88. Vergel de Dios and Voltaire Trinidad made a report to the Commissioner classifying private respondent as an "other independent contractor" under Sec.690. trading and dealing in cabinet shop products.981. cabinets.. which is 52% of the total gross sales. the examiners of the petitioner Commissioner of Internal Revenue conducted an investigation of the business tax liabilities of private respondent pursuant to Letter of Authority No. private respondent reported in its quarterly percentage tax returns P2. etc. pp. v. cabinets and other woodwork were sold locally and exported abroad. subject corporation should be considered a contractor and not a manufacturer.805. 1981. buying. BIR examiners Honesto A. including their component parts and materials. p. Based on such an examination. From this amount. 591 (Emphasis supplied. Sometime in March 1979.processing. p.23 ).62 for its gross local sales. For this business venture. in the computation of the percentage tax. the 3% contractor's tax should be imposed instead of the 7% manufacturer's tax.

in turn. for the year 1977. inclusive of surcharge and interest. resulted from the examiners' finding that categorized private respondent as a contractor (CTA decision.) On July 22. etc.SEVEN HUNDRED TWENTY PESOS AND NINETY TWO CENTAVOS ( P 108. private respondent received the final decision of the petitioner stating: It is the stand of this Office that you are considered a contractor an not a manufacturer. The petition is without merit.92 ).2). 64] (Emphasis supplied. model number. 1981. Records show that you manufacture woodworks only upon previous order from supposed manufacturers and only in accordance with the latter's own design. color. On April 22. This tax deficiency was a consequence of the 3% tax imposed on private respondent's gross export sales which.92. p. Private respondent is a "manufacturer" as defined in the Tax Code and not a "contractor" under Section 205(e) of the Tax Code as petitioner would have this Court decide. respondent Court of Tax Appeals rendered the questioned decision holding that private respondent was a manufacturer thereby reversing the decision of the petitioner. 1981. 1213). 1985. private respondent filed on February 19.720. as deficiency contractor's tax. Whether or not the Court of Tax Appeals erred in holding that private respondent is a manufacturer and not a contractor and therefore not liable for the amount of P108. private respondent appealed to the Court of Tax Appeals alleging that the decision of the Commissioner was contrary to law and the facts of the case.720. private respondent's manager maintained that the carpentry shop is a manufacturer and therefor entitled to tax exemption on its gross export sales under Section 202 (e) of the National Internal Revenue Code. this petition for review wherein petitioner raises the sole issue of. 1. . Hence. Against this assessment. pp. In the protest letter. [Rollo p. He explained that it was the 7% tax exemption on export sales which prompted private respondent to exploit the foreign market which resulted in the increase of its foreign sales to at least 52% of its total gross sales in 1977 (CTA decision. 1981 a protest with the petitioner Commissioner of Internal Revenue. On June 23.

and the records bear petitioner out.. production manager and manager who testified that samples of television cabinets were designed and made by petitioner. the shop does not produce anything. persons (juridical and natural) not enumerated above (but not including individuals subject to the occupation tax under Section 12 of the Local Tax Code) whose activity consists essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or their employees. Even purchases by local buyers for television cabinets (Exhs. Petitioner contends that the fact that private respondent "designs and makes samples or models that are 'displayed' or presented or 'submitted' to prospective buyers who 'might choose' therefrom" signifies that what private respondent is selling is a kind of service its shop is capable of rendering in terms of woodwork skills and craftsmanship (Brief for Petitioner. the purchase orders from its foreign buyers showed that they ordered by referring to the models designated by petitioner. then specified whatever innovations . p. '2 to13'. petitioner presented three witnesses its bookkeeper. (a) Section 205 (16) [now Sec. from which models the television companies such as Hitachi National and others might choose. He further stresses the point that if there are no orders placed for goods as represented by the sample or model. As the respondent Tax Court had found: xxx xxx xxx Petitioner [private respondent herein] claims. the shop goes into fall production to fill up the quantity ordered (Petitioner's Brief. 1-13. BIR records) were by orders for existing models except only for some adjustments in sizes and accessories utilized. p. 170 (q)] of the Tax Code defines "independent contractors" as: . pp. 6). on the other hand. Petitioner is ignoring the fact that private respondent sells goods which it keeps in stock and not services.. With regard to the television cabinets. (Emphasis supplied. that it had a ready stock of its shop products for sale to its foreign and local buyers. if there are orders placed.) Private respondent's business does not fall under this definition. 7). As a matter of fact. The facts of the case do not support petitioner's claim.

etc. If found to be saleable. 3-6. Such testimony was not contradicted by respondent (petitioner herein). 1980. L-20569. p. were available for immediate sale to local and foreign customers. of the Phils. It ignores commonly accepted and recognized business practices that it is not the customer but the manufacturer who furnishes the samples or models from which the customers select when placing their orders.n. And in all the purchase orders presented as exhibits. knife racks. church furniture.1982. stated that petitioner manufactured only upon previous orders from customers and "only in accordance with the latter's own design.s. Industrial Textiles Manufacturing Co. pp..n. 1983. the former's finding of fact are entitled to the highest respect. reference was made to the model number of the product being ordered or to the sample submitted by petitioner. August 10. unaccompanied by adequate evidence. Samples were displayed. knock down chairs. L-12954.s. school furniture. February 28. These cabinets were not exported but only sold locally.] (Emphasis supplied) xxx xxx xxx This Court finds no reason to disagree with the Tax Court's finding of fact. It has been consistently held that while the decisions of the Court of Tax Appeals are appealable to the Supreme Court. Henderson. petitioner's above-mentioned witnesses testified that these were manufactured without previous orders. whether from foreign or local buyers.. The evidence adduced by petitioner to prove that the model numbers and designs were its own is more convincing [CTA decision. 27. al Revenue v. some television cabinets were manufactured for display and sold to the general public. pp." (Exh. 58 SCRA 519. L- 27733. 3.) Their bare statement that the model numbers and designs were the customers' own. 2235. Court of Tax Appeals. pp. model number. 1961. etc. . 7-10. 101 SCRA 495. in their memorandum to the Commissioner of Internal Revenue. Raymundo v.n. t.s. 6-8. is difficult to believe. they desired. Dec. Aug. 1 SCRA 649. 1982. March 25.) xxx xxx xxx In the case of petitioner's other woodwork products such as barometer cases. The factual findings can only be disturbed on the part of the tax court [Collector of Intern. de Joya. BIR records... color. t. (t. and if in stock. pp. 23. February 18. 1974. Aznar v. . Respondent's examiners. '1'.

G. the thing is manufactured or procured for the general market in the ordinary course of one's business. 114 SCRA 354. As can be clearly seen from the wordings of Art. nothing more. 59743." (Emphasis supplied. Ovejera. of . if not. this is a contract for a piece of work. This is not the test followed in this jurisdiction. Sec. 391. but if the goods are to be manufactured specially for the customer and upon his special order. 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. June 30. Engineering Equipment and Supply Co. what determines whether the contract is one of work or of sale is whether the thing has been manufactured specially for the customer and upon his special order. (L-27044 and L-27452. 597). Sierra Madre Trust v. "the distinction between a contract of sale and one for work. on the other hand. 1982. the contract is of sale.] (b) Neither can Article 1467 of the New Civil Code help petitioner's cause. Hon.] Petitioner wants to impress upon this Court that under Article 1467. is a contract of sale. Article 1467 states: 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 . if the thing is specially done at the order of another. 64 SCRA 590. Commissioner of Internal Revenue. May 27. it is a contract for a piece of work. 277) of the Tax Court the Commissioner has the power to make and which. the true test of whether or not the contract is a piece of work (and thus classifying private respondent as a contractor) or a contract of sale (which would classify private respondent as a manufacturer) is the mere existence of the product at the time of the perfection of the contract such that if the thing already exists. it is work.136 SCRA 549. 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. and not for the general market.1985. whether the same is on hand at the time or not. pp. it is a b contract of sale. v.general market. 326 (now Sec. 1467. 9-101.R. nothing less and the ordered quantity would never have come into existence but for the particular order as represented by the sample or model [Brief for Petitioner. Petitioner alleged that what exists prior to any order is but the sample model only. If. as per settled jurisprudence is entitled to the greatest weight as an administrative view [National Federation of Sugar Workers (NFSW) v. May 31. 1975." Thus. As held in Commissioner of Internal Revenue v.Inc. L-27718 and L-27768. Jurisprudence has followed this criterion.) And in a BIR ruling. which as per Sec. No.

and the mere fact that he did not have on hand a particular piece or pieces of furniture ordered does not make him a contractor only" (BIR Ruling No. 14-18)... Such articles fall within the meaning of "future goods" mentioned in Art. xxx xxx xxx When the vendor enters into a contract for the delivery of an article which in the ordinary course of his business he manufactures or procures for the general market at a price certain (Art.. 842 (1956)] which is not a case in point' 1 Brief for Petitioner. Veterans Administration. series of 1960). Nos. True. April 20. 137 SCRA 3141. par. Thus: xxx xxx xxx . (CTA Decision. [5 Padilla. 1462.) Petitioner alleges that the error of the respondent Tax Court was due to the 'heavy albeit misplaced and indiscriminate reliance on the case of Celestino Co and Co.' citing Celestino Co and Co. v.. Phil. Collector of Internal Revenue [99 Phil. 33-1. Chairman and Members of the Board of Administrators.Agriculture and Natural Resources. all the trouble and expense of registering a special trade name for its sash business and then orders company stationery carrying the . 1. 841. v. pp. as in fact it has taken. indicate that these products were for sale to the general public and not for special orders. The Commissioner of Internal Revenue made capital of the difference between the kinds of business establishments involved a FACTORY in the Celestino Co case and a CARPENTRY SHOP in this case (Brief for Petitioner. Likewise. 841 (1956)]. pp.121 SCRA 384. June 29. 32370 and 32767. the former case did mention the fact of the business concern being a FACTORY. pp. Espanol v. L-44616. 8-9. Collector of Internal Revenue [99 Phil. "one who has ready for the sale to the general public finished furniture is a manufacturer. 1983. 14-15). Civil Law: Civil Code Annotated 139 (1974) xxx xxx xxx These considerations were what precisely moved the respondent Court of Tax Appeals to rule that 'the fact that [private respondent] kept models of its products. 1985. 1458) such contract is one of sale even if at the time of contracting he may not have such article on hand. Petitioner seems to have missed the whole point in the former case. I cannot believe that petitioner company would take.

If found to be saleable. In this wise. But. used season dried and kiln-dried lumber.. Manila. and the records bear petitioner out. Quiapo. Manufacturers of all kinds of doors. etc. No.. 33076. these findings were merely attendant facts to show what the Court was really driving at — the habituality of the production of the goods involved for the general public. which means it is out to do business in its chosen lines on a big scale. that it had a ready stock of its shop products for sale to its foreign and local buyers. Even purchases by local buyers for television cabinets. . Prop. . windows. With regard to the television cabinets. As a matter of fact. from which models the television companies . Tel.) 926 Raon St.. were by orders for existing models. windows and sash of its special and limited customers.. there are also attendant facts herein to show habituality of the production for the general public. 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. who testified that samples of television cabinets were designed and made by petitioner. [Emphasis supplied. might choose.. then specified whatever innovations they desired... it is noteworthy to again cite the findings of fact of the respondent Tax Court: xxx xxx xxx Petitioner [private respondent herein] claims. One will note that petitioner has chosen for its trade name and has offered itself to the public as a FACTORY. sashes furniture. bold print "Oriental Sash Factory (Celestino Co and Company. As a general rule. it may be that what is involved is a CARPENTRY SHOP. some television cabinets were manufactured for display and sold to the general public. petitioner presented three witnesses. In the instant case. the purchase orders from its foreign buyers showed that they ordered by referring to the models designed by petitioner. of the best quality workmanship" solely for the purpose of supplying the need for doors.] xxx xxx xxx However.. in the same vein..

1980. 31. 7 SCRA 132]. Samples were displayed.. v. The term has been construed broadly to include such processes as buying and converting duck eggs to salted eggs ('balut") [Ngo Shiek v.] (c) The private respondent not being a "contractor" as defined by the Tax Code or of the New Civil Code. It is a basic rule in statutory construction that when the language of the law is clear and unequivocal. were available for immediate sale to local and foreign customers. The term "manufacturer" had been considered in its ordinary and general usage. 6-8.. 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 different kinds and in such manner that the finished product of such process or manufacture can be put to a special use or uses to which such raw material or manufactured or partially manufactured products in their original condition would not have been put. xxx xxx xxx In the case of petitioner's other woodwork products. May 16. Commissioner of Internal Revenue. the law must be taken to mean exactly what it says [Banawa et al. Jan.. is it a 'manufacturer' as countered by the carpentry shop? Sec. 157 (x)] of the Tax Code defines a manufacturer' as follows: "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 product in such manner as to prepare it for a special use or uses to which it could not have been in its original condition.1 [Emphasis supplied. Collector of Internal Revenue. L-24750. pp. 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. 97 SCRA 517. 1963. 100 Phil. Mirano et al. and if in stock. (CTA decision. or . these were manufactured without previous orders. and who in addition alters such raw material or manufactured or partially manufactured products. L-17837. 533]. or who by any such process alters the quality or any such raw 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. 187 (x) [now Sec. 60 (1956)1. the processing of unhusked kapok into clean kapok fiber [Oriental Kapok Industries v.

199. The following shall be exempt from the percentage taxes imposed in Sections 194. 39 SCRA 70. p. if there is an express mention or if the taxpayer falls within the purview of the exemption by clear legislative intent. L- 29772. Articles not subject to percentage tax on sales. which are considered as "export sales. 202. No. 16. v. Conversely therefore.. Commissioner Internal Revenue.. 196. 195. Commissioner of Customs. Light and Power Co.124 1211. It is conceded that as a rule. 61632. this Court affirms the holding of ." then private respondent is entitled to the tax exemption under See. Acetylene Co. 18. 96 (1950)]. the 'latter falls with the term 'manufacturer' mentioned in Art. As the only question raised by petitioner in relation to this tax exemption claim by private respondent is the classification of the latter as a manufacturer. irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the articles so exported. As the Court of Tax Appeals did not err in holding that private respondent is a "manufacturer. and 201: xxx xxx xxx (d) Articles shipped or exported by the manufacturer or producer. Aug. 167 (d) and (e)] of the Tax Code which states: Sec. 1980. They are held strictly against the taxpayer and if expressly mentioned in the law. 87 Phil. 44 SCRA 122]. Sept. 2. then the rule on strict construction will not apply. (e) Articles sold by "registered export producers" to (1) other" registered export producers" (2) "registered export traders' or (3) foreign tourists or travelers. Collector of Internal Revenue. must at least be within its purview by clear legislative intent [Commissioner of Customs v. G. 100 SCRA 1161." The law is clear on this point. 1972.making charcoal out of firewood Bermejo v. 202 (d) and (e) mow Sec. v. G. 1971. Tax exemptions are strictly construed against the grantee and generally in favor of the taxing authority [City of Baguio v. 202 (d) and (e) of the Tax Code.R. May 29. In the present case the respondent Tax Court did not err in classifying private respondent as a "manufacturer". L-22443. 198. they are looked upon with disfavor [Western Minolco Corp. Clearly. any claim for tax exemption from tax statutes is strictly construed against the taxpayer and it is contingent upon private respondent as taxpayer to establish a clear right to tax exemption [Brief for Petitioners. 197.R. Phil. March 29.1983. Busuego. 181. L-28739 and L-28902. as argued by petitioner.

No. which ordered petitioner to pay private respondent the amount needed to rectify the faults and deficiencies of the air-conditioning system installed by petitioner in private respondent's building. 1995. There is nothing illegal in taking advantage of tax exemptions. ALMEDA. petitioner did a turnabout and imposed the contractor's tax.R. By a resolution of the First Division of this Court dated November 13. in Civil Case No. petitioner. By classifying the private respondent as a contractor. to set aside the Decision1 of the Court of Appeals2 in CA-G. Petitioner's action finds no support in the applicable law. the petitioner did not question its classification as a manufacturer. DECISION PANGANIBAN. 52267 January 24.: Is a contract for the fabrication and installation of a central air-conditioning system in a building. petitioner would likewise take away the tax exemptions granted under Sec. one of "sale" or "for a piece of work"? What is the prescriptive period for filing actions for breach of the terms of such contract? These are the legal questions brought before this Court in this Petition for review on certiorari under Rule 45 of the Rules of Court. Branch II4 . 14712. 3357. 1996 ENGINEERING & MACHINERY CORPORATION. J. No. 202 for manufacturers. vs. WHEREFORE. respondent. attorney's fees and costs). When the private respondent was still exporting less and producing locally more. 58276-R promulgated on November 28.R.respondent Tax Court that private respondent is entitled to the percentage tax exemption on its export sales. plus damages. COURT OF APPEALS and PONCIANO L. the Court hereby DENIES the Petition for lack of merit and AFFIRMS the Court of Tax Appeals decision in CTA Case No. SO ORDERED G. After deliberating on the various submissions of the . But when in 1977 the private respondent produced locally less and exported more. this case was transferred to the Third. 1978 (affirming in toto the decision3 dated April 15. 1974 of the then Court of First Instance of Rizal.

regarding the responsibility of a vendor for any hidden faults or defects in the thing sold. in relation to Article 1571 of the Civil Code. Acting on this information. In his report. The complaint alleged that the air-conditioning system installed by petitioner did not comply with the agreed plans and specifications. The ownership of the building having been decreed back to private respondent. employees of the defects of the air-conditioning system of the building.00. Sapico to render a technical evaluation of the system in relation to the contract with petitioner. private respondent's comment and briefs for the petitioner and the private respondent. the Court assigned the writing of this Decision to the undersigned.2ºF (Exhibit C)"5 . alleging that the prescriptive period of six months had set in pursuant to Articles 1566 and 1567.000.00 as damages and P15. 1962 between petitioner and private respondent.000. 1995. 14712). P100. Petitioner was to furnish the materials. private respondent prayed for the amount of P210. who took his oath as a member of the Court on October 10. private respondent commissioned Engineer David R. furnish and install the air-conditioning system in the latter's building along Buendia Avenue. Makati in consideration of P210. 1965. Hence. The Facts Pursuant to the contract dated September 10. It was then that he learned from some NIDC. 1971 an action for damages against petitioner with the then Court of First Instance of Rizal (Civil Case No. Private respondent countered that the contract dated September 10. Petitioner moved to dismiss the complaint. On the basis of this report. record on appeal. On September 2. private respondent filed on May 8. tools and all services required in order to so fabricate and install said system. private respondent sold the building to the National Investment and Development Corporation (NIDC). he re-acquired possession sometime in 1971. . the former undertook to fabricate.000.parties. The system was completed in 1963 and accepted by private respondent.00 representing the rectification cost. including the petition.00 as attorney's fees. The latter took possession of the building but on account of NIDC's noncompliance with the terms and conditions of the deed of sale.000. Sapico enumerated the defects of the system and concluded that it was "not capable of maintaining the desired room temperature of 76ºF . private respondent was able to secure judicial rescission thereof. 1962 was not a contract for sale but a contract for a piece of work under Article 1713 of the Civil Code. labor. who paid in full the contract price.

which provides that such a contract shall be governed by the pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale6 . ordered the issuance of a writ of attachment. wherein private respondent was adjudged to pay petitioner the balance of the unpaid contract price for the air-conditioning system installed in another building of private respondent." Petitioner appealed to the Court of Appeals. The trial court granted the motion and. The Submissions of the Parties . Court of First Instance of Manila. In due course. It pointed out that during the one-year period that private respondent withheld final payment.25. in accordance with Article 1144 (1) of the same Code. In its answer to the complaint. petitioner reiterated its claim of prescription as an affirmative defense. and deviated from the plans of the system. because it involved the "installation of an air-conditioning system which the defendant itself manufactured. amounting to P138. the complaint was timely brought within the ten-year prescriptive period. Hence. fabricated. the trial court ruled that the complaint was filed within the ten-year court prescriptive period although the contract was one for a piece of work. Thereafter. which affirmed the decision of the trial court. the trial court rendered a decision finding that petitioner failed to install certain parts and accessories called for by the contract. 71494. including ordinary wear and tear and lack of proper and regular maintenance. petitioner argued that Article 1571 of the Civil Code providing for a six- month prescriptive period is applicable to a contract for a piece of work by virtue of Article 1714.482. designed and installed. The trial court denied the motion to dismiss. In its reply. private respondent filed an ex-parte motion for preliminary attachment on the strength of petitioner's own statement to the effect that it had sold its business and was no longer doing business in Manila. On the question of prescription. upon private respondent's posting of a bond of F'50.00. involving the same parties. thus reducing its operational effectiveness to the extent that 35 window- type units had to be installed in the building to achieve a fairly desirable room temperature. it instituted the instant petition. the system was subjected to "very rigid inspection and testing and corrections or modifications effected" by petitioner. It interposed a compulsory counterclaim suggesting that the complaint was filed "to offset the adverse effects" of the judgment in Civil Case No.Thus. It alleged that whatever defects might have been discovered in the air-conditioning system could have been caused by a variety of factors.000.

The Court's Ruling The Supreme Court reviews only errors of law in petitions for review on certiorari under Rule 45. averred that the issues raised by petitioner. First. on the other hand. it insisted that. Third. mistaken or impossible. are final and conclusive and may not be reviewed on appeal. like the question of whether there was an acceptance of the work by the owner and whether the hidden defects in the installation could have been discovered by simple inspection. assuming arguendo that there were indeed hidden defects. Third. which provides for a six-month prescriptive period. The Court has consistently held that the factual findings of the trial court. on the other hand. 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 facts7 of Appeals erred when it held that the defects in the installation were not apparent at the time of delivery and acceptance of the work considering that private respondent was not an expert who could recognize such defects. 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. Private respondent. involve questions of fact which have been passed upon by the appellate court. as well as the Court of Appeals. assuming arguendo that there were indeed hidden defects. petitioner raised three issues. it insisted that. private respondent's complaint was barred by prescription under Article 1571 of the Civil Code. which provides for a six-month prescriptive period. when the inference made is manifestly absurd. private respondent's complaint was barred by prescription under Article 1571 of the Civil Code.In the instant Petition. Private respondent. involve questions of fact which have been passed upon by the appellate court. when the findings went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee. it claimed that the Court of Appeals erred when it held that the defects in the installation were not apparent at the time of delivery and acceptance of the work considering that private respondent was not an expert who could recognize such defects. it contended that private respondent's acceptance of the work and his payment of the contract price extinguished any liability with respect to the defects in the air-conditioning system. when the judgment is premised on a misapprehension of facts. Second. like the question of whether here was an acceptance of the work by the owner and whether the hidden defects in the installation could have been discovered by simple inspection. when there is grave abuse of discretion in the appreciation of facts. . averred that the issues raised by petitioner.

In their submissions. Thus. it is a contract for a piece of work (Art. Thus. 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. .. adduced by the parties. . On the other hand. Civil Code). The contractor may either employ only his labor or skill. 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. Article 1713 of the Civil Code defines a contract for a piece of work thus: By the contract for a piece of work the contractor binds himself to execute a piece of work for the employer. Justice Vitug12 explains 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. or also furnish the material. whether the same is on hand at the time or not is a contract of sale. 1467. the only question left to be resolved is that of prescription. such as here. and not for the general market. the parties argued lengthily on the nature of the contract entered into by them. 841). After a careful study of the case at bench.9 (Emphasis supplied) Hence.8 We see no valid reason to discard the factual conclusions of the appellate court. . Collector. . vs. (I)t is not the function of this Court to assess and evaluate all over again the evidence. viz. we find none of the above grounds present to justify the re-evaluation of the findings of fact made by the courts below. not a sale. testimonial and documentary. in consideration of a certain price or compensation. 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. A contract for a piece of work. 99 Phil. particularly where. the contract is one for a piece of work. then the contract is one of sale 11 . In such case. the findings of both the trial court and the appellate court on the matter coincide. the first two issues will not be resolved as they raise questions of fact. but if the goods are to be manufactured specially for the customer and upon his special order. of the person desiring it10 . Mr. whether it was one of sale or for a piece of work.

the employer may have the defect removed or another work executed. or should they diminish its fitness for such use to such an extent that. there is a contract for a piece of work13 . or for those which . The provisions on warranty against hidden defects. Clearly. 1714. It is not petitioner's line of business to manufacture air-conditioning systems to be sold "off-the-shelf. 1714 above- quoted." 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. But if one of the parties accepts the undertaking on the basis of some plan. the price or compensation for the system manufactured and installed will depend greatly on the particular plans and specifications agreed upon with the customers. he would not have acquired it or would have given a lower price for it. are found in Articles 1561 and 1566. he shall deliver the thing produced to the employer and transfer dominion over the thing. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have.To Tolentino. but said vendor shall not be answerable for patent defects or those which may be visible. Art. The obligations of a contractor for a piece of work are set forth in Articles 1714 and 1715 of the Civil Code. Thus. at the contractor's cost. had the vendee been aware thereof. 1561. 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. If the contractor agrees to produce the work from material furnished by him. 1715. without considering the work or labor of the party bound to deliver. referred to in Art. which provide: Art. if the parties intended that at some future date an object has to be delivered. taking into account the work he will employ personally or through another. the contract in question is one for a piece of work. which read as follows: Art. 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. If the contractor fails or refuses to comply with this obligation. the contract is one of sale. the distinction between the two contracts depends on the intention of the parties. Should the work be not of such quality. should they render it unfit for the use for which it is intended. the employer may require that the contractor remove the defect or execute another work.

In Villostas vs. 3 phase. "and an evaluation of the air- conditioning system as installed by the defendant showed the following defects and violations of the specifications of the agreement. it would appear that this suit is barred by prescription because the complaint was filed more than four years after the execution of the contract and the completion of the air-conditioning system. 220 volts. we held that. with damages in either case14 . 60 cycles. 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. xxx xxx xxx Art. "the general rule on rescission of contract. to wit: GROUND FLOOR: "A. Court of Appeals15 . and in the absence of such period. and the vendor was not aware of the hidden faults or defects in the thing sold. are not visible if the vendee is an expert who. This provision shall not apply if the contrary has been stipulated. RIGHT WING: Equipped with Worthington Compressor. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold. as in the case at bench. which is four years (Article 1389. even though he was not aware thereof. should have known them. complete with . The remedy against violations of the warranty against hidden defects is either to withdraw from the contract (redhibitory action) or to demand a proportionate reduction of the price (accion quanti manoris). 1566. However. Model 2VC4 directly driven by an Hp Elin electric motor 1750 rmp. It alleged17 that the petitioner. by reason of his trade or profession. but one for breach of the contract itself. Civil Code) shall apply" 16 . the prescriptive period is the one specified in the express warranty. "while it is true that Article 1571 of the Civil Code provides for a prescriptive period of six months for a redhibitory action. "in the installation of the air conditioning system did not comply with the specifications provided" in the written agreement between the parties. a close scrutiny of the complaint filed in the trial court reveals that the original action is not really for enforcement of the warranties against hidden defects. Consistent with the above discussion.

Defective gauges of compressors. 3.. No belt guard on motor. 16. Suitable heat exchanger is not installed. B. No fresh air intake provision were provided which is very necessary for efficient comfort cooling. Modulating thermostat not provided. 8. sheets No. 2. 6. 5. Liquid receiver not provided by sight glass. coils are full of scales and heavy corrosion is very evident. Face by-pass damper of G. Water treatment device for evaporative condenser was not provided. Defects Noted: 1. Main switch has no cover. 2. No motor to regulate the face and by-pass damper. 5. 3. Liquid level indicator for refrigerant not provided. This is an important component to increase refrigeration efficiency. 4. Deteriorated evaporative condenser panels. This damper regulates the flow of cooled air depending on room condition. 4.starter evaporative condenser. Aside from the above defects. Desired room temperature not attained.I. air handling unit air ducts. circulating water pump. 7. LEFT WING: . 1. the following were noted not installed although provided in the specifications.

Design conditions of specification for air conditioning work. NINTH FLOOR: Two (2) Worthington 2VC4 driven by 15 Hp. and taking into account "A" & "B" same.5 Hp V-belt driven by 1800 RPM. 3 phase. Defects Noted are similar to ground floor. IV. 3 phase. Of the remaining six (6) units. Defects Noted: Same as right wing. 3. As stated in the specifications under. . Thrige electric motor with starters. Section No. 4. 3 phase. 1750 rpm. Not provided with oil pressure safety control.Worthington Compressor Model 2VC4 is installed complete with 15 Hp electric motor. only six (6) units are in operation and the rest were already replaced. Out of the total 15 MELCO compressors installed to serve the 2nd floor up to 8th floors. Higgs motors with starters. the present systems are not capable of maintaining the desired temperature of 76 = 2ºF (sic). 2. MELCO Compressors are not provided with automatic capacity unloader. GENERAL REMARKS: Under Section III. 60 cycles. 220 volts 60 cycles with starter. the MELCO compressors do not satisfy the conditions stated therein due to the following: 1. -220 volts. several of them have been replaced with bigger crankshafts. SECOND FLOOR: (Common up to EIGHT FLOORS) Compressors installed are MELCO with 7. Particular compressors do not have provision for renewal sleeves. 220 volts. All other defects on right wing are common to the left wing. 60 cycles. except No.

like face and by-pass dampers and modulating thermostat and many others. as well as the deviations made in putting into the air-conditioning system equipments. indeed. The present tenant have installed 35 window type air conditioning units distributed among the different floor levels. parts and accessories called for in the specifications of the contract. parts and accessories which were used and installed on the air- conditioning system which were not in full accord with contract specifications. will apply. However. the Court is persuaded to believe the plaintiff that not only had the defendant failed to install items and parts provided for in the specifications of the air-conditioning system be installed. Temperature measurements conducted on March 29. parts and accessories not in full accord with the contract specification naturally resulted to adversely affect the operational effectiveness of the air-conditioning system which necessitated the installation of thirty-five window type of air-conditioning units distributed among the different floor levels in order to be able to obtain a fairly desirable room temperature for the tenants and actual occupants of the building. 1971. Having concluded that the original complaint is one for damages arising from breach of a written contract .we here . inasmuch as this provision does not contain a specific prescriptive period. inter alia. the general law on prescription. petitioner failed to install items and parts required in the contract and substituted some other items which were not in accordance with the specifications18 . 1971. . The Court opines and so holds 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.with declare that the governing law is Article 1715 (supra). that actions "upon a written contract" prescribe in ten (10) years.and not a suit to enforce warranties against hidden defects . These omissions to install the equipments. which is Article 1144 of the Civil Code. but also that there are items. The respondent Court affirmed the trial court's decision thereby making the latter's findings also its own. Since the governing contract was executed on September 10. Said provision states. The trial court. held that. after evaluating the evidence presented. 1962 and the complaint was filed on May 8. thus: From all of the foregoing. revealed that 78ºF room (sic) is only maintained due to the additional window type units. it is clear that the action has not prescribed.

the law frowns upon those who assert their rights past the eleventh hour. No. This is a petition for review on certiorari to annul and set aside the amended decision of the respondent court dated January 24. respondents. relieve the petitioner from liability for deviations from and violations of the written contract. the petition is hereby DENIED and the assailed Decision is AFFIRMED. From the very nature of things. No costs. 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. PUNO. as the law gives him ten (10) years within which to file an action based on breach thereof. doing business under the name "UNIVERSAL TOY MASTER MANUFACTURING". 1994 reversing its April 30. petitioners. considering further that plaintiff is not an expert to recognize the same. 113564 June 20. it is evident that the defect in the installation was not apparent at the time of the delivery and acceptance of the work. "better late than never". G.: Though people say. WHEREFORE. SO ORDERED. vs. the mere fact that the private respondent accepted the work does not. For failing to timely institute their action.What about petitioner's contention that "acceptance of the work by the employer relieves the contractor of liability for any defect in the work"? This was answered by respondent Court19 as follows: As the breach of contract which gave rise to the instant case consisted in appellant's omission to install the equipments (sic). 1993 decision and .R. the petitioners are forever barred from claiming a sum of money from the respondent. 2001 INOCENCIA YU DINO and her HUSBAND doing business under the trade name "CANDY CLAIRE FASHION GARMENTS". 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. Verily. ipso facto. COURT OF APPEALS and ROMAN SIO. J.

00 per piece in accordance with the sample approved by the petitioners.000.7 and the last on January 17. Petitioner fully paid the agreed price. judgment is hereby rendered in favor of the plaintiffs Vicente and Inocencia Dino and against defendant Toy Master Manufacturing. and 2. 3 Respondent Sio delivered in several installments the 40.dismissing the plaintiff-petitioners' Complaint on the ground of prescription." 10 .4 Subsequently. 1 Respondent Sio is part owner and general manager of a manufacturing corporation doing business under the trade name "Universal Toy Master Manufacturing. 1989.000 pieces of vinyl frogs and 20. Inc. As respondent Sio refused to pay.00. 1988 consisting of 1. The counterclaim on the other hand is hereby dismissed for lack of merit. 1989 an action for collection of a sum of money in the Regional Trial Court of Manila.772 pieces of frogs and mooseheads for failing to comply with the approved sample. Branch 38.00) Pesos as attorney's fees and the costs of this suit. petitioners returned to respondent 29."2 Petitioners and respondent Sio entered into a contract whereby the latter would manufacture for the petitioners 20.404. 8 Petitioners then demanded from the respondent a refund of the purchase price of the returned goods in the amount of P208. until fully paid. The amount of Two Hundred Eight Thousand Four Hundred Four (P208.The following undisputed facts gave rise to the case at bar: Petitioners spouses Dino. 1989. 5 The return was made on different dates: the initial one on December 12. ordering the latter to pay the former: 1. 1989. These frogs and mooseheads were to be attached to the shirts petitioners would manufacture and sell. viz: "WHEREFORE.9 petitioners filed on July 24. The trial court ruled in favor of the petitioners.6 the second on January 11.404. 1988.000 pieces of vinyl mooseheads at P7.00) Pesos with legal interest thereon from July 5.720 pieces.000 pieces of frogs and mooseheads. doing business under the trade name "Candy Claire Fashion Garment" are engaged in the business of manufacturing and selling shirts. The last delivery was made on September 28. The amount of Twenty Thousand (P20.

No. still prescription. Bernad. 1988). 1993 decision. Petitioners claim that the Complaint they filed in the trial court on July 24. III. The rule in Gicano vs. Court of Appeals. etc. The respondent Court of Appeals seriously erred in holding that the defense of prescription would still be considered despite the fact that it was not raised in the answer.R. The judgment of this Court is set aside and judgment is hereby rendered REVERSING the judgment of the trial court and dismissing plaintiff's complaint. Hon. Respondent then filed a Motion for Reconsideration and a Supplemental Motion for Reconsideration alleging therein that the petitioners' action for collection of sum of money based on a breach of warranty had already prescribed. Aznar. this petition with the following assignment of errors: I. 84051. the appellate court affirmed the trial court decision. We first determine the nature of the action filed in the trial court to resolve the issue of prescription. if apparent on the face of the complaint. The amended decision read in part. amended or supplemental answer) and an amendment would no longer be feasible. et al."11 Hence. On January 24. 81190.Respondent Sio sought recourse in the Court of Appeals. In its April 30. G.. 1994. We uphold the respondent's contention. Respondent contends that it was an action for breach of warranty as the sum of money petitioners sought to collect was actually a refund of the purchase price they paid for the alleged defective goods they bought from the respondent.R. 1989 was one for the collection of a sum of money. Juanito A. 1989). (G. May 19. vs. if apparent on the face of the complaint may be favorably considered (Spouses Matias B. Gegato (supra) was reiterated in Severo v. The respondent Court of Appeals seriously erred in dismissing the complaint of the Petitioners on the ground that the action had prescribed. viz: "Even if there is failure to raise the affirmative defense of prescription in a motion to dismiss or in an appropriate pleading (answer. May 9. II. . the respondent court reversed its decision and dismissed petitioners' Complaint for having been filed beyond the prescriptive period. supra. WHEREFORE the Motion For Reconsideration is granted.

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. should they render it unfit for the use for which it is intended. 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. is a contract of sale. or should they diminish its fitness for such use to such an extent that. it is a contract for a piece of work.000 pieces of vinyl mooseheads according to the samples specified and approved by the petitioners. 1714. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have.." "Art. the provisions on warranty of title against hidden defects in a contract of sale apply to the case at bar. but only upon order of the petitioners and at the price agreed upon. 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. 1467. In such case.The following provisions of the New Civil Code are apropos: "Art. he would not have acquired .000 pieces of vinyl frogs and 20. he shall deliver the thing produced to the employer and transfer dominion over the thing. At any rate. but if the goods are to be manufactured specially for the customer and upon his special order. the contract is one for a piece of work." As this Court ruled in Engineering & Machinery Corporation v. had the vendee been aware thereof. viz: "Art. 1713. or also furnish the material. and not for the general market. 1561. the contract executed by and between the petitioners and the respondent was a contract for a piece of work. If the contractor agrees to produce the work from material furnished by him. in consideration of a certain price or compensation." "Art.12 "a contract for a piece of work. not a sale. Court of Appeals. 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."13 The contract between the petitioners and respondent stipulated that respondent would manufacture upon order of the petitioners 20. The contractor may either employ only his labor or skill. whether the agreement between the parties was one of a contract of sale or a piece of work. By the contract for a piece of work the contractor binds himself to execute a piece of work for the employer. et al. On the other hand. whether the same is on hand at the time or not. Respondent Sio did not ordinarily manufacture these products. 14Clearly.

772 defective pieces of vinyl products and demanded a refund of their purchase price in the amount of P208. Rule 9. Article 1567 provides for the remedies available to the vendee in case of hidden defects. The prescriptive period for this kind of action is provided in Art. 1565 and 1566. The law then applicable to the case at bar. should have known them." (Emphasis supplied) There is no dispute that respondent made the last delivery of the vinyl products to petitioners on September 28. viz: "Art. provides: . 1564. or for those which are not visible if the vendee is an expert who. 2 of the Rules of Court. the vendee may elect between withdrawing from the contract and demanding a proportionate reduction of the price." Petitioners aver that they discovered the defects in respondent's products when customers in their (petitioners') shirt business came back to them complaining that the frog and moosehead figures attached to the shirts they bought were torn.404. Actions arising from the provisions of the preceding ten articles shall be barred after six months from the delivery of the thing sold. Having failed to collect this amount. by reason of his trade or profession. they filed an action for collection of a sum of money. it or would have given a lower price for it. 1571. 1567. It is also settled that the action to recover the purchase price of the goods petitioners returned to the respondent was filed on July 24. 1989. Petitioners fault the ruling on the ground that it was too late in the day for respondent to raise the defense of prescription. Petitioners having filed the action three months after the six-month period for filing actions for breach of warranty against hidden defects stated in Art. 1571 of the New Civil Code. viz: "Art.17 the appellate court dismissed the action. A hidden defect is one which is unknown or could not have been known to the vendee. with damages in either case. Sec. In the cases of Articles 1561. 1567.00.15 Petitioners then returned to the respondent 29. 1571. but said vendor shall not be answerable for patent defects or those which may be visible. Petitioners allege that they did not readily see these hidden defects upon their acceptance. 1562. petitioners were in effect "withdrawing from the contract" as provided in Art." By returning the 29. 1988.16 more than nine months from the date of last delivery.772 pieces of vinyl products to respondent and asking for a return of their purchase price.

we held in Ramos v. this is not a hard and fast rule. or even if the ground is alleged after judgment on the merits. as in a motion for reconsideration (Ferrer v. and it may do so on the basis of a motion to dismiss (Sec. 27 SCRA 766.. or even if the defense has not been asserted at all. to repeat. "Defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived.20 the Court en banc reiterated the Garcia v. 84 SCRA 705). it is deemed waived and cannot be raised for the first time on appeal in a motion for reconsideration of the appellate court's decision. PNB v. the general rule being that the appellate court is not authorized to consider and resolve any question not properly raised in the lower court (Subido vs. either in the averments of the plaintiff's complaint. 1961. Mathis doctrine cited in the Gicano case that when the plaintiff's own complaint shows clearly that the action has prescribed. 28. v. 14. the action may be dismissed even if the defense of prescription was not invoked by the defendant. the defense of prescription cannot be raised for the first time on appeal. (Francisco v.G. 16 SCRA 270). p. Osorio. 1947 Edition). 1958. 1. Jan. 8285. . In Gicano v. as where no statement thereof is found in the pleadings (Garcia v. McQuaid. Chua Lamco v. 32 SCRA 529. Vol. 5. . 97. Feb.G. Lacson. is that the facts demonstrating the lapse of the prescriptive period be otherwise sufficiently and satisfactorily apparent on the record. 136 SCRA 408). Sinaon v. Bambao v. Mathis. 1954. et al. they claim that since the respondent failed to raise the defense of prescription in a motion to dismiss or in its answer. Cordova v. . 55 O. 28. Gegato. Robles. Lednicky. What is essential only. 1958." (emphasis supplied) In Aldovino. 821).(T)rial courts have authority and discretion to dimiss an action on the ground of prescription when the parties' pleadings or other facts on record show it to be indeed time-barred. Feb. . et al. or where a defendant has been declared in default (PNB v. " Thus. I. Ericta. or otherwise established by the evidence. Alunan. or an answer which sets up such ground as an affirmative defense (Sec. Sorongan. 100 SCRA 250. Jan. Comments on the Rules of Court. 8281.. Pacific Commission House. Sison v. Perez. 15.19 we held: ". As a rule. and that if it was not raised as a defense in the trial court. Convets.18 viz: "It is settled law in this jurisdiction that the defense of prescription is waivable.f. Rule 16). 97 Phil. except the failure to state a cause of action . it cannot be considered on appeal. Dioso. et al. Cordova. Rule 16." However. 784. Inc. NDC. . 50 O. Moran. Rules of Court). Thus. v.

Equally important." (Emphasis supplied) WHEREFORE. the petition is DENIED and the impugned decision of the Court of Appeals dated January 24. No costs. there was no new issue of fact that arose in connection with the question of prescription. The issue for resolution is whether or not the respondent Court of Appeals could dismiss the petitioners' action if the defense of prescription was raised for the first time on appeal but is apparent in the records. or that the action is barred by a prior judgment or by statute of limitations. this does not militate against the due process right of the petitioners. thus it cannot be said that petitioners were not given the opportunity to present evidence in the trial court to meet a factual issue. that there is another action pending between the same parties for the same cause. Petitioners admit this in their Memorandum submitted to the trial court and reiterate it in their Petition for Review. On appeal.It is apparent in the records that respondent made the last delivery of vinyl products to the petitioners on September 28. we rule that the action filed by the petitioners has prescribed. The dates of delivery and institution of the action are undisputed. This Court's application of the Osorio and Gicano doctrines to the case at bar is confirmed and now enshrined in Rule 9. 22 Even if the defense of prescription was raised for the first time on appeal in respondent's Supplemental Motion for Reconsideration of the appellate court's decision. petitioners had the opportunity to oppose the defense of prescription in their Opposition to the Supplemental Motion for Reconsideration filed in the appellate court and in their Petition for Review in this Court. the court shall dismiss the claim. 1 of the 1997 Rules of Civil Procedure. 1994 is AFFIRMED. 1988. viz: "Section 1. or even if the defense was not raised at all so long as the relevant dates are clear on the record.Defenses and objections not pleaded whether in a motion to dismiss or in the answer are deemed waived. There are no new issues of fact arising in connection with the question of prescription. Defense and objections not pleaded. 21 It is also apparent in the Complaint that petitioners instituted their action on July 24. . Sec. However. thus carving out the case at bar as an exception from the general rule that prescription if not impleaded in the answer is deemed waived. when it appears from the pleadings that the court has no jurisdiction over the subject matter. . 1989. Following the Gicano doctrine that allows dismissal of an action on the ground of prescription even after judgment on the merits. SO ORDERED.

private foundations and government agencies. which has no legal personality separate and distinct from that of private respondent.043.R. THE COURT OF TAX APPEALS and ATENEO DE MANILA UNIVERSITY. 1994 affirming that of the Court of Tax Appeals. J. 1983. is the Ateneo de Manila University performing the work of an independent contractor and thus taxable within the purview of then Section 205 of the National Internal Revenue Code levying a three percent contractor's tax? This question is answer by the Court in the negative as it resolves this petition assailing the Decision 1 of the Respondent Court of Appeals 2 in CA-G. vs. respondents. the same being largely undisputed by the parties. 1983. private . 1978. it accepts sponsorships for its research activities from international organizations. 115349 April 18. petitioner. PANGANIBAN. Occasionally. 1983 in the sum of P1. On July 8. One such auxiliary unit is the Institute of Philippine Culture (IPC). and an assessment dated June 27. 3 The Antecedent Facts The antecedents as found by the Court of Appeals are reproduced hereinbelow.141.837 for alleged deficiency income tax.: In conducting researches and studies of social organizations and cultural values thru its Institute of Philippine Culture. 1997 COMMISSIONER OF INTERNAL REVENUE.97 for alleged deficiency contractor's tax. No. 31790 promulgated on April 27. both for the fiscal year ended March 31. Private respondent is a non-stock. private respondent received from petitioner Commissioner of Internal Revenue a demand letter dated June 3.G. THE COURT OF APPEALS. SP No. Denying said tax liabilities. assessing private respondent the sum of P174. non-profit educational institution with auxiliary units and branches all over the Philippines. The IPC is a Philippine unit engaged in social science studies of Philippine society and culture.R.

the respondent court rendered the questioned decision which dispositively reads: WHEREFORE. The deficiency contractor's tax assessment in the amount of P46. respondent sent petitioner a letter-protest and subsequently filed with the latter a memorandum contesting the validity of the assessments. While the petition was pending before the respondent court. 1988.516.55. exclusive of surcharge and interest. it filed in the respondent court a petition for review of the said letter-decision of the petitioner. and 2) WHETHER OR NOT PRIVATE RESPONDENT IS SUBJECT TO 3% CONTRACTOR'S TAX UNDER SECTION 205 OF THE TAX CODE. 1978 is hereby CANCELED. 1988 reducing the assessment for deficiency contractor's tax from P193. On July 12. On March 17. private respondent requested for a reconsideration or reinvestigation of the modified assessment. petitioner issued a final decision dated August 3. petitioner has come to this Court via the present petition for review raising the following issues: 1) WHETHER OR NOT PRIVATE RESPONDENT FALLS UNDER THE PURVIEW OF INDEPENDENT CONTRACTOR PURSUANT TO SECTION 205 OF THE TAX CODE. in view of the foregoing. Not in accord with said decision.41.55 to P46. provide: .475. 1993. Unsatisfied.41 exclusive of surcharge and interest for the fiscal year ended March 31. respondent's decision is SET ASIDE. No pronouncement as to cost. SO ORDERED. as amended.516.475. petitioner rendered a letter-decision canceling the assessment for deficiency income tax but modifying the assessment for deficiency contractor's tax by increasing the amount due to P193. The pertinent portions of Section 205 of the National Internal Revenue Code. At the same time.

proprietors or operators of dockyards. and others. as defined by the Code. associations and corporations under contract for embroidery and apparel for export. No. 5186: xxx xxx xxx The term "independent contractors" include persons (juridical or natural) not enumerated above (but not including individuals subject to the occupation tax under Section 12 of the Local Tax Code) whose activity consists essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or their employees. Contractor. the term "independent contractor". 5186. association and corporations under contract for embroidery and apparel for export and gross receipts of or from pioneer industry registered with the Board of Investment under R. b. Individuals occupation tax under Section 12 of the Local Tax Code (under the old Section 182 [b] of the Tax Code).A.Sec. Persons. To petitioner. 205. xxx xxx xxx Petitioner contends that the respondent court erred in holding that private respondent is not an "independent contractor" within the purview of Section 205 of the Tax Code. encompasses all kinds of services rendered for a fee and that the only exceptions are the following: a. as well as their agents and contractors and except gross receipts of or from a pioneer industry registered with the Board of Investments under Republic Act No. and . — A contractor's tax of three per centum of the gross receipts is hereby imposed on the following: xxx xxx xxx (16) Business agents and other independent contractors except persons.

5 In fine. 2) Whether or not private respondent is subject to 3% contractor's tax under Section 205 of the Tax Code. including their alien executives. through its auxiliary unit or branch — the Institute of Philippine Culture — performing the work of an independent contractor and. private respondent is therefore subject to the 3% contractor's tax imposed under the same Code. Petitioner thus submits that since private respondent falls under the definition of an "independent contractor" and is not among the aforementioned exceptions. petitioner now asks us to reverse the CA through this petition for review. these may be reduced to a single issue: Is Ateneo de Manila University. thus. and which headquarters do not earn or derive income from the Philippines and which act as supervisory. The Issues Petitioner submits before us the following issues: 1) Whether or not private respondent falls under the purview of independent contractor pursuant to Section 205 of the Tax Code. Unfazed. Interpretation of Tax Laws The parts of then Section 205 of the National Internal Revenue Code germane to the case before us read: . c. Regional or area headquarters established in the Philippines by multinational corporations. 4 The Court of Appeals disagreed with the Petitioner Commissioner of Internal Revenue and affirmed the assailed decision of the Court of Tax Appeals. subsidiaries or branches in the Asia Pacific Region (Section 205 of the Tax Code). communication and coordinating centers for their affiliates. subject to the three percent contractor's tax levied by then Section 205 of the National Internal Revenue Code? The Court's Ruling The petition is unmeritorious.

is now indubitably considered an independent contractor liable to 3% . xxx xxx xxx The term "independent contractors" include persons (juridical or natural) not enumerated above (but not including individuals subject to the occupation tax under Section 12 of the Local Tax Code) whose activity consists essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or their employees. 6 Petitioner states that the "term 'independent contractor' is not specifically defined so as to delimit the scope thereof. shall be excluded from the taxable gross receipts of the subcontractor. Petitioner Commissioner of Internal Revenue contends that Private Respondent Ateneo de Manila University "falls within the definition" of an independent contractor and "is not one of those mentioned as excepted". including their alien executives. so much so that any person who . . communications and coordinating centers for their affiliates. — A contractor's tax of three per centum of the gross receipts is hereby imposed on the following: xxx xxx xxx (16) Business agents and other independent contractors. Sec. subsidiaries or branches in the Asia-Pacific Region. The term "gross receipts" means all amounts received by the prime or principal contractor as the total contract price. undiminished by amount paid to the subcontractor. associations and corporations under contract for embroidery and apparel for export. and which headquarters do not earn or derive income from the Philippines and which act as supervisory. . except persons. Contractors. hence. it is properly a subject of the three percent contractor's tax levied by the foregoing provision of law. as well as their agents and contractors. The term "independent contractor" shall not include regional or area headquarters established in the Philippines by multinational corporations. renders physical and mental service for a fee. 205. and except gross receipts of or from a pioneer industry registered with the Board of Investments under the provisions of Republic Act No. and others. 5186. proprietors or operators of dockyards.

the general rule of requiring adherence to the letter in construing statutes applies with peculiar strictness to tax laws and the provisions of a taxing act are not to be extended by implication. Section 205 of the National Internal Revenue Code requires that the independent contractor be engaged in the business of selling its services.contractor's tax. contrary to petitioner's position. applying the rule of strict interpretation of laws imposing taxes and other burdens on the populace. The Court takes this occasion to reiterate the hornbook doctrine in the interpretation of tax laws that "(a) statute will not be construed as imposing a tax unless it does so clearly. expressly." 9 To fall under its coverage. . It is obviously both illogical and impractical to determine who are exempted without first determining who are covered by the aforesaid provision. Only after such coverage is shown does the rule of construction — that tax exemptions are to be strictly construed against the taxpayer — come into play. Accordingly. . to impose the three percent contractor's tax on Ateneo's Institute of Philippine Culture. This is the main line of reasoning of the Court of Tax Appeals in its decision. and unambiguously . Petitioner Commissioner of Internal Revenue erred in applying the principles of tax exemption without first applying the well-settled doctrine of strict interpretation in the imposition of taxes. We disagree. such statutes are to be construed most strongly against the government and in favor of the subjects or citizens because burdens are not to be imposed nor presumed to be imposed beyond what statutes expressly and clearly import. 205 that the question of exemption therefrom would arise. it should be sufficiently proven that the private respondent is indeed selling its services for a fee in pursuit of an independent business. ." 8 Parenthetically. 10 which was affirmed by the CA. Hence. we find no evidence that Ateneo's Institute of Philippine Culture ever sold its services for a fee to anyone or was ever engaged in a business apart from and independently of the academic purposes of the university. Ateneo has the burden of proof to show its exemption from the coverage of the law. before asking Ateneo to prove its exemption therefrom. (A) tax cannot be imposed without clear and express words for that purpose. The Ateneo de Manila University Did Not Contract for the Sale of the Service of its Institute of Philippine Culture After reviewing the records of this case. The Commissioner should have determined first if private respondent was covered by Section 205. in answering the question of who is subject to tax statutes. it is basic that "in case of doubt. And it is only after private respondent has been found clearly to be subject to the provisions of Sec." 7 According to petitioner.

Tan Jr. . As appropriately pointed out by the latter: An examination of the Commissioner's Written Formal Offer of Evidence in the Court of Tax Appeals shows that only the following documentary evidence was presented: Exhibit 1 BIR letter of authority no. showing. [T]he sale of services of private respondent is made under a contract and the various contracts entered into between private respondent and its clients are almost of the same terms. among others." 11 (Emphasis supplied. . as found by the Court of Appeals and the Court of Tax Appeals. petitioner's theory is inapplicable to the established factual milieu obtaining in the instant case. 12 Moreover. 13 . Clearly then. the Court of Tax Appeals accurately and correctly declared that the " funds received by the Ateneo de Manila University are technically not a fee. the compensation and terms of payment.Stressing that "it is not the Ateneo de Manila University per se which is being taxed. The tax is imposed on the exercise of a taxable activity. However. the petitioner has presented no evidence to prove its bare contention that. the records do not show that Ateneo's IPC in fact contracted to sell its research services for a fee." Petitioner Commissioner of Internal Revenue contends that "the tax is due on its activity of conducting researches for a fee. In the first place. 331844 2 Examiner's Field Audit Report 3 Adjustments to Sales/Receipts 4 Letter-decision of BIR Commissioner Bienvenido A. None of the foregoing evidence even comes close to purport to be contracts between private respondent and third parties. the Commissioner of Internal Revenue may be correct. The tax is due on the gross receipts made in favor of IPC pursuant to the contracts the latter entered to conduct researches for the benefit primarily of its clients. They may however fall as gifts or donations which are tax-exempt" as shown by private respondent's compliance with the requirement of Section 123 of the National Internal Revenue Code providing for the exemption of such gifts to an educational institution.) In theory. contracts for sale of services were ever entered into by the private respondent. indeed. .

Moreover the records do not show that in accepting sponsorship of research work. which means that sponsored funds are less than actual expenses for its research projects. that no proprietary or commercial purpose research is done. it bears stressing that private respondent is a non-stock. the research activities being carried out by the IPC is focused not on business or profit but on social sciences studies of Philippine society and culture. On the contrary. and that private respondent retains not only the absolute right to publish but also the ownership of the results of the research conducted by the IPC. In fact. IPC had continuously operated at a loss. Undisputedly. such sponsorships are subject to private respondent's terms and conditions. is not engaged in business. the established facts show that IPC. For. Then.Respondent Court of Appeals elucidated on the ruling of the Court of Tax Appeals: To our mind. the main function of the IPC is to undertake research projects under the academic agenda of the private respondent. as a unit of the private respondent. However. the fact still remains that there is no proof that part of such earnings or profits was ever distributed as dividends to any stockholder. the aforementioned terms and conditions belie the allegation that private respondent is a contractor or is engaged in business. that the research is confined to topics consistent with the private respondent's academic agenda. among which are. For another. That IPC has been operating at a loss loudly bespeaks of the fact that education and not profit is the motive for undertaking the research projects. the evidence shows that for about 30 years. private respondent is mandated by law to undertake research activities to maintain its university status. private foundations and governmental agencies. For one. too. Since it can only finance a limited number of IPC's research projects. private respondent hardly fits into the definition of an "independent contractor". Quite clearly. IPC realized profits from such work. The fact that it accepted sponsorship for IPC's unfunded projects is merely incidental. as in fact none was so distributed because they accrued to . non-profit educational corporation. private respondent occasionally accepts sponsorship for unfunded IPC research projects from international organizations. granting arguendo that IPC made profits from the sponsored research projects.

however. 14 Therefore. such sponsorships are subject to IPC's terms and conditions. 15 The amounts given to IPC. most writers. but is a means of transmitting ownership. . . "the contractor binds himself to execute a piece of work for the employer. Thus. whether the contract be one of sale or one for a piece of work. it is clear from the evidence on record that there was no sale either of objects or services because. . a contract of sale requires a transfer of ownership. there was no transfer of ownership over the research data obtained or the results of research projects undertaken by the Institute of Philippine Culture. Article 1458 of the Civil Code "expressly makes the obligation to transfer ownership as an essential element of the contract of sale. It is also well to stress that the questioned transactions of Ateneo's Institute of Philippine Culture cannot be deemed either as a contract of sale or a contract of a piece of work. such as the German and the Swiss. stating that the delivery of the thing does not mean a mere physical transfer. Perez and Alguer follow the same view. may not be deemed. including Sanchez Roman. Gayoso. as adverted to earlier. no portion thereof may be reproduced without its permission. the benefit of the private respondent which is a non-profit educational institution. he shall deliver the thing produced to the employer and transfer dominion over the thing. it bears stressing as fees or gross receipts that can be subjected to the three percent contractor's tax. it is clear that the funds received by Ateneo's Institute of Philippine Culture are not given in the concept of a fee or price in exchange for the performance of a service or delivery of an object. Colin and Capitant. As found by the two courts below. have considered such transfer of ownership as the primary purpose of sale. Ruggiero. the amounts are in the nature of an endowment or donation given by IPC's benefactors solely for the purpose of sponsoring or funding the research with no strings attached." 16 By its very nature. If the contractor agrees to produce the work from materials furnished by him. consequently. and IPC retains the ownership of the results of the research. 19 In the case at bench. Even in the absence of this express requirement. Transfer of title or an agreement to transfer it for a price paid or promised to be paid is the essence of sale. . . therefore. in consideration of a certain price or compensation. Rather. No proprietary or commercial research is done. The copyrights over the results of the research are owned by Ateneo and. and the other to pay therefor a price certain in money or its equivalent." 17 In the case of a contract for a piece of work. one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing. including the absolute right to publish the same. following modern codes. Valverde. "By the contract of sale. a transfer of ownership is involved and a party necessarily walks away with an object. ." 18 Ineludably. .

Factual Findings and Conclusions of the Court of Tax Appeals Affirmed by the Court of Appeals Generally Conclusive In addition. among others. This is clear from a reading of the regulations governing universities: 31." Consequently. a reasonable portion of which should be devoted to institutional development and research. "as a matter of principle. it is undeniably competent to determine the issue of whether" 21 Ateneo de Manila University may be deemed a subject of the three percent contractor's tax "through the evidence presented before it. scholarly publications and research activities published in its school journal as well as their leadership activities in the profession. University status may be withdrawn. it is clear that the research activity of the Institute of Philippine Culture is done in pursuance of maintaining Ateneo's university status and not in the course of an independent business of selling such research with profit in mind. (emphasis supplied) xxx xxx xxx 32. Through its expertise. the following requirements before an application for university status shall be considered: xxx xxx xxx (e) The institution must undertake research and operate with a competent qualified staff at least three graduate departments in accordance with the rules and standards for graduate education. this Court will not set . One of the departments shall be science and technology. In addition to the legal requisites an institution must meet.Furthermore. The competence of the staff shall be judged by their effective teaching. for failure to maintain satisfactorily the standards and requirements therefor. (f) The institution must show evidence of adequate and stable financial resources and support. after due notice and hearing. we reiterate that the "Court of Tax Appeals is a highly specialized body specifically created for the purpose of reviewing tax cases. 20 Petitioner's contention that it is the Institute of Philippine Culture that is being taxed and not the Ateneo is patently erroneous because the former is not an independent juridical entity that is separate and distinct form the latter.

For the institute to have tenaciously continued operating for so long despite its accumulation of significant losses. Q Now. . . we can only agree with both the Court of Tax Appeals and the Court .014. 23 In fact.00 as shown in its statements of fund and disbursements for the period 1972 to 1985. 24 So. Leonor Wijangco. is the Motive The records show that the Institute of Philippine Culture conducted its research activities at a huge deficit of P1. Public Service. as follows: Q Now it was testified to earlier by Miss Thelma Padero (Office Manager of the Institute of Philippine Culture) that as far as grants from sponsored research it is possible that the grant sometimes is less than the actual cost. much less grave abuse of discretion. the Court of Tax Appeals which is. Not Profit. dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject unless there has been an abuse or improvident exercise of authority . provides significant insight on the academic and nonprofit nature of the institute's research activities done in furtherance of the university's purposes. because a university has to have its own research institute.aside the conclusion reached by . ultimately. to public service. Will you please tell us in this case when the actual cost is a lot less than the grant who shoulders the additional cost? A The University. The testimony of Ateneo's Director for Accounting Services." 22 This point becomes more evident in the case before us where the findings and conclusions of both the Court of Tax Appeals and the Court of Appeals appear untainted by any abuse of authority. .624. and it was only when Ateneo could no longer produce the needed funds that the institute sought funding from outside. why is it that Ateneo continues to operate and conduct researches through its Institute of Philippine Culture when it undisputedly loses not an insignificant amount in the process? The plain and simple answer is that private respondent is not a contractor selling its services for a fee but an academic institution conducting these researches pursuant to its commitments to education and. we find the decision of the latter affirming that of the former free from any palpable error. . Ms. by the very nature of its function. why is this done by the University? A Because of our faculty development program as a university. it was Ateneo de Manila University itself that had funded the research projects of the institute. Thus.

J. Parsons for the latter's establishment in Iloilo. a contract in the following tenor was entered into by and between the plaintiff. as party of the first part. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J. G. shall make and allowance of a discount of 25 per cent of the invoiced prices.R. whether of the same or of different styles.: On January 24. L-11491 August 23. in the invoices. BOTH MERCHANTS ESTABLISHED IN MANILA. (B) Mr. as party of the second part: CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. No. . Parsons binds himself to pay Mr. the petition is DENIED and the assailed Decision of the Court of Appeals is hereby AFFIRMED in full. Alfredo Chicote. Quiroga shall furnish beds of his manufacture to Mr. Jose Arnaiz and Pascual B. and shall invoice them at the same price he has fixed for sales. Azanza for appellant. in this city of manila. 1911." 25 WHEREFORE. and Mr. FOR THE EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS. AVANCEÑA.of Appeals that "education and not profit is [IPC's] motive for undertaking the research projects. Crossfield & O'Brien for appellee. premises considered. as commission on the sale.. Quiroga for the beds received. Parsons under the following conditions: (A) Mr. in Manila. PARSONS HARDWARE CO. within a period of sixty days from the date of their shipment. defendant-appellee. plaintiff-appellant. Parsons shall order the beds by the dozen. and. SO ORDERED. PARSONS. vs. 1918 ANDRES QUIROGA. ARTICLE 1. Parsons (to whose rights and obligations the present defendant later subrogated itself). and J.

and agrees that if on the date when such alteration takes effect he should have any order pending to be served to Mr. Parsons. Parsons binds himself not to sell any other kind except the "Quiroga" beds. The same discount shall be made on the amount of any invoice which Mr. Quiroga should request its payment. or establish branches of his agency for the sale of "Quiroga" beds in all the towns of the Archipelago where there are no exclusive agents. and the freight. This contract is made for an unlimited period. 3. and shall immediately report such action to Mr. and as such a deduction of 2 per cent shall be made from the amount of the invoice. Quiroga for his approval. Mr. Quiroga assumes the obligation to offer and give the preference to Mr. Parsons may sell. Of the three causes of action alleged by the plaintiff in his complaint. to have an open establishment in Iloilo. and cost of unloading from the vessel at the point where the beds are received. before an invoice falls due. such order shall enjoy the advantage of the alteration if the price thereby be lowered. in this latter case. (D) If. shall be paid by Mr. for. ART. Mr. itself to . Quiroga binds himself to give notice at least fifteen days before hand of any alteration in price which he may plan to make in respect to his beds. In compensation for the expenses of advertisement which. (F) Mr. 4. and may be terminated by either of the contracting parties on a previous notice of ninety days to the other party. Quiroga. Mr. (E) Mr. Mr. Parsons may find himself obliged to make. only two of them constitute the subject matter of this appeal and both substantially amount to the averment that the defendant violated the following obligations: not to sell the beds at higher prices than those of the invoices. Mr. Parsons. Parsons in case anyone should apply for the exclusive agency for any island not comprised with the Visayan group. insurance. (C) The expenses for transportation and shipment shall be borne by M. but shall not be affected by said alteration if the price thereby be increased. Parsons may deem convenient to pay in cash. ART. ART. said payment when made shall be considered as a prompt payment. 2. for the benefit of both contracting parties. Quiroga assumed the obligation to invoice the beds at the price at which the order was given.

none of them is found that substantially supports the plaintiff's contention. but delivers to the principal the price he obtains from the sale of the thing to a third person. By virtue of the contract between the plaintiff and the defendant. As may be seen. is that the plaintiff was to furnish the defendant with the beds which the latter might order. The words commission on sales used in clause (A) of article 1 mean nothing else. There was the obligation on the part of the plaintiff to supply the beds. as stated in the contract itself. as constituting its cause and subject matter. and that said obligations are implied in a contract of commercial agency. according to their class. and. the latter. on the part of the defendant. and to order the beds by the dozen and in no other manner. was necessarily obliged to pay their price within the term fixed. by reason of the contract hereinbefore transcribed. But. and that the defendant was to pay the price in the manner stipulated. With regard to the remaining clauses. therefore. without any other consideration and regardless as to whether he had or had not sold the beds. that the contract by and between the defendant and the plaintiff is one of purchase and sale. In the contract in question. or in cash. in order to show that it was not one made on the basis of a commission on sales. besides. The whole question. with the exception of the obligation on the part of the defendant to order the beds by the dozen and in no other manner. at the price stipulated.conduct the agency. was a purchaser or an agent of the plaintiff for the sale of his beds. at the plaintiff's request. These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it. to keep the beds on public exhibition. and if he does not succeed in selling it. The word agency. examining the clauses of this contract. also used in articles 2 and 3. It would be enough to hold. with a discount of from 20 to 25 per cent. as we do. and does not pay its price. than a mere discount on the invoice price. The price agreed upon was the one determined by the plaintiff for the sale of these beds in Manila. to pay their price. on receiving the beds. only expresses that the defendant was the only one that could sell the plaintiff's beds in the Visayan Islands. due regard must be given to its essential clauses. These are precisely the essential features of a contract of purchase and sale. In order to classify a contract. Not a single one of these clauses necessarily conveys the idea of an agency. as the plaintiff claims it was. none of the obligations imputed to the defendant in the two causes of action are expressly set forth in the contract. . and in these last two cases an additional discount was to be allowed for prompt payment. the least that can be said is that they are not incompatible with the contract of purchase and sale. and to pay for the advertisement expenses for the same. he returns it. But the plaintiff alleged that the defendant was his agent for the sale of his beds in Iloilo. for these contracts are incompatible with each other. reduced itself to a determination as to whether the defendant. or before. if the defendant so preferred. what was essential. Payment was to be made at the end of sixty days.

requested the plaintiff's prior consent with respect to said beds. inasmuch as the agreements contained in Exhibit A which he claims to have drafted. there was mutual tolerance in the performance of the contract in disregard of its terms. his statement as to what was his idea in contracting with the plaintiff is of no importance. but not when. the plaintiff agreed to their return. a former vice-president of the defendant corporation and who established and managed the latter's business in Iloilo. replied that it was to be an agent for his beds and to collect a commission on sales. He testified that it was he who drafted the contract Exhibit A. it forwarded to the defendant the beds that it wanted. for this very reason. of falsification. had serious trouble with the defendant. such sales were to be considered as a result of that advertisement. to make this return. And with respect to the so-called commissions. constitute. Only the acts of the contracting parties. It appears that this witness. even supposing that Ernesto Vidal has stated the truth. as we have said. However. when such interpretation is necessary. as in the instant case. on the part of both of them. and. but was for other beds of another kind. and had even accused one of its partners. and not one of commercial agency. a director of the corporation. when questioned as to what was his purpose in contracting with the plaintiff. and was not effected in exchange for the price paid for them. and that. prior to the time of his testimony. The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell. and for the letter Exhibit L-1. subsequent to. its essential agreements are clearly set forth and plainly show that the contract belongs to a certain kind and not to another. as the defendant obligated itself in the contract to incur the expenses of advertisement of the plaintiff's beds. But.The plaintiff calls attention to the testimony of Ernesto Vidal. But it must be understood that a contract is what the law defines it to be. Furthermore. This only means that Ernesto Vidal was mistaken in his classification of the contract. must be considered for the purpose of interpreting the contract. and in connection with. Guillermo Parsons. we have said that they merely constituted a discount on the invoice price. had maintained a civil suit against it. and it gives no right to have the contract considered. that. which shows that it was not considered that the defendant had a right. the execution of the contract. at the most only shows that. but as they performed it. the return made was of certain brass beds. by virtue of the contract. As regards the shipment of beds without previous notice. according to the defendant's evidence. . and not what it is called by the contracting parties. who prepared Exhibit A. not as the parties stipulated it. and the reason for applying this benefit to the beds sold directly by the plaintiff to persons in Iloilo was because. and that the defendant received its commission for the beds sold by the plaintiff directly to persons in Iloilo. without previous notice. it was Mariano Lopez Santos. But all this. it is insinuated in the record that these brass beds were precisely the ones so shipped. a contract of purchase and sale.

B.: This is a petition for the issuance of a writ of certiorari to the Court of Appeals for the purpose of reviewing its Amusement Company (formerly known as Teatro Arco). 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. G. ARCO AMUSEMENT COMPANY (formerly known as Teatro Arco). The facts of the case as found by the trial court and confirmed by the appellate court. No. either by agreement or by law. with its office in Manila. The judgment appealed from is affirmed. W. Gonzalo Puyat and Sons. we are of opinion that the contract by and between the plaintiff and the defendant was one of purchase and sale. he waives his right and cannot complain for having acted thus at his own free will. S... and that the obligations the breach of which is alleged as a cause of action are not imposed upon the defendant. So ordered. For the foregoing reasons.A.S. respondent. the "Teatro Arco". are as follows: In the year 1929. was engaged in the business of operating cinematographs. its name was changed to Arco Amusement Company. plaintiff- appellant. C. Feria & Lao for petitioner. while A.R. In 1930. Ferrier and Daniel Me. but if the plaintiff consents to fill them. U. Inc. petitioner. LAUREL." It appears that the respondent herein brought an action against the herein petitioner in the Court of First Instance of Manila to secure a reimbursement of certain amounts allegedly overpaid by it on account of the purchase price of sound reproducing equipment and machinery ordered by the petitioner from the Starr Piano Company of Richmond. 1941 GONZALO PUYAT & SONS. Salmon was the president. with costs against the appellant. vs. which are admitted by the respondent. L-47538 June 20. defendant-appellee. INC. Coulette was the business .In respect to the defendant's obligation to order by the dozen. vs. Gomez for respondent. J. J. Indiana. a corporation duly organized under the laws of the Philippine Islands.

This amount of $160 does not represent actual out-of-pocket expenses paid by the defendant. and Gil Puyat on the other. The equipment arrived about the end of the year 1929. but a mere flat charge and rough estimate made by the defendant equivalent to 10 per cent of the price of $1. on behalf of the plaintiff. Gonzalo Puyat & Sons. factory Richmond. At the expense of the plaintiff. The equipment under the second order arrived in due time.S.. Being agreeable to this price. plus the 10 per cent commission agreed upon and plus all the expenses and charges. 1929. which was supposed to be the price quoted by the Starr Piano Company. and after some negotiations between the same parties. plus all expenses. that is to say. . and the defendant was duly paid the price of $1. It would seem that this last company dealt in cinematographer equipment and machinery. to the Starr Piano Company. with office in Manila. A reply was received by Gonzalo Puyat & Sons. etc.b. another order for sound reproducing equipment was placed by the plaintiff with the defendant.. approached Gonzalo Puyat & Sons. a 10 per cent commission.600. representing the defendant.. the price of $1. in addition to its other business. Inc. Salmon dated November 19. order sound reproducing equipment from the Starr Piano Company and that the plaintiff would pay the defendant.o. Sometime the following year. banking charges. with the price. cables. that is to say. Indiana. About the same time. plus all expenses incurred. S. by means of Exhibit "1". freight. such as. The defendant did not show the plaintiff the cable of inquiry nor the reply but merely informed the plaintiff of the price of $1. and upon delivery of the same to the plaintiff and the presentation of necessary papers. thru its then president and acting manager. plus 10 per cent commission. was duly paid by the plaintiff to the defendant. inquiring about the equipment desired and making the said company to quote its price without discount. Exhibit "3". U. This agreement or order was confirmed by the plaintiff by its letter Exhibit "2". A. plaintiff and defendants. Inc. After some negotiations. it was agreed between the parties. the plaintiff. in addition to the price of the equipment. that the latter would. Gil Puyat. on the same terms as the first order. and the Arco Amusement Company desiring to equipt its cinematograph with sound reproducing devices. which is a letter signed by C. was acting as exclusive agents in the Philippines for the Starr Piano Company of Richmond. Inc.600 with its 10 per cent commission. Salmon and Coulette on one side.700 f. and an employee named Santos. formally authorized the order.700. Indiana.700. insurance.600 of the equipment. evidently the list price of $1. another corporation doing business in the Philippine Islands. without date.manager. and $160. for all expenses and charges. the defendant sent a cable. representing the plaintiff. that the plaintiff would pay for the equipment the amount of $1.

The petitioner now claims that the following errors have been incurred by the appellate court: I. with one justice dissenting — held that the relation between petitioner and respondent was that of agent and principal. y condenar a la recurrente ha obtenido de la Starr Piano Company of Richmond. the petitioner was guilty of fraud in concealing the true price and hence would still be liable to reimburse the respondent for the overpayments made by the latter. — by a division of four. The appellate court further argued that even if the contract between the petitioner and the respondent was one of purchase and sale. filed by one Fidel Reyes against the defendant herein Gonzalo Puyat & Sons. Inc.. said officials of the plaintiff were convinced that the prices charged them by the defendant were much too high including the charges for out-of-pocket expense. II. la recurrente obtuvo. presidido entonces por el hoy Magistrado Honorable Marcelino Montemayor. in connection with a civil case in Vigan. The trial court held that the contract between the petitioner and the respondent was one of outright purchase and sale.52 or P2. . mediante dolo.04. together with legal interest thereon from the date of the filing of the complaint until said amount is fully paid. segun hechos. and absolved that petitioner from the complaint. the officials of the Arco Amusement Company discovered that the price quoted to them by the defendant with regard to their two orders mentioned was not the net price but rather the list price. they sought to obtain a reduction from the defendant or rather a reimbursement.335. en vez de la de vendedora a compradora como ha declarado el Juzgado de Primera Instncia de Manila. as well as to pay the costs of the suit in both instances. by reading reviews and literature on prices of machinery and cinematograph equipment. the petitioner acting as agent of the respondent in the purchase of the equipment in question. suponiendo que dicha relacion fuerra de vendedora a compradora. el consentimiento de la recurrida en cuanto al precio de $1. Moreover. and that the defendants had obtained a discount from the Starr Piano Company. entre la recurrente y la recurrida existia una relacion implicita de mandataria a mandante en la transaccion de que se trata.700 y $1. The appellate court. Indiana. however. and sentenced the petitioner to pay the respondent alleged overpayments in the total sum of $1. For these reasons.600 de las maquinarias y equipos en cuestion. About three years later. El Tribunal de Apelaciones incurrio en error de derecho al declarar que. and failing in this they brought the present action.671. El Tribunal de Apelaciones incurrio en error de derecho al declarar que.

That on or about November 19. freight. Civil Code). 411. 1929. under and by virtue of which the herein defendant was to secure from the United States. and not one of agency. .600.We sustain the theory of the trial court that the contract between the petitioner and the respondent was one of purchase and sale.600. which can not bind either party. In the first place.) The letters.. for the sound reproducing equipment subject of its contract with the petitioner. 120 III.700 and $1. Bank v. 56 So. 8 Allen. The third paragraph of the respondent's cause of action states: 3. Palmer. under and by virtue of said agreement. 173 Mass. such as change in prices. the plaintiff (respondent) might still legally hold the defendant (petitioner) to the prices fixed of $1. and similar expenses. 334. Exhibits 1 and 2. Conner. the herein plaintiff (respondent) and defendant (petitioner) entered into an agreement. such as costs of telegrams. (Emphasis ours. for which the said defendant. loss of the goods not covered by insurance or failure of the Starr Piano Company to properly fill the orders as per specifications. by which the respondent accepted the prices of $1.700 and $1. (Nolbrook v. Brosscell..) We agree with the trial judge that "whatever unforseen events might have taken place unfavorable to the defendant (petitioner). because in agency.. mistake in their quotation. are clear in their terms and admit no other interpretation that the respondent in question at the prices indicated which are fixed and determinate. 161. Code of Commerce). and was also to be reimbursed for all out of pocket expenses in connection with the purchase and delivery of such equipment.. 47 III. Doles v. Hosser v. 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. and sell and deliver to the herein plaintiff. Copper. certain sound reproducing equipment and machinery. 11 Am.. Rep. 92. What does not appear on the face of the contract should be regarded merely as "dealer's" or "trader's talk". 212. the contract is the law between the parties and should include all the things they are supposed to have been agreed upon. was to receive the actual cost price plus ten per cent (10%). The respondent admitted in its complaint filed with the Court of First Instance of Manila that the petitioner agreed to sell to it the first sound reproducing equipment and machinery. Bank v." This is incompatible with the pretended relation of agency between the petitioner and the respondent. respectively. 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. Merrill. for the reasons now to be stated. 576.

The respondents contends that it merely agreed to pay the cost price as distinguished from the list price. If the respondent later on discovers itself at the short . to hold the petitioner an agent of the respondent in the purchase of equipment and machinery from the Starr Piano Company of Richmond.While the latters. sometimes add to the list price when they resell to local purchasers. could not have offered to pay a 10 per cent commission to the petitioner provided it was given the benefit of the 25 per cent discount enjoyed by the petitioner. as this provision is only an additional price which the respondent bound itself to pay. (See Quiroga vs. It was apparently to guard against an exhorbitant additional price that the respondent sought to limit it to 10 per cent. this does not necessarily make the petitioner an agent of the respondent. It is out of the ordinary for one to be the agent of both the vendor and the purchaser. is incompatible with the admitted fact that the petitioner is the exclusive agent of the same company in the Philippines. 501. The facts and circumstances indicated do not point to anything but plain ordinary transaction where the respondent enters into a contract of purchase and sale with the petitioner. It is well known that local dealers acting as agents of foreign manufacturers. Indiana. and the respondent was not even aware of such an arrangement.) In the second place. As a matter of fact. and which stipulation is not incompatible with the contract of purchase and sale. 38 Phil. the petitioner was not duty bound to reveal the private arrangement it had with the Starr Piano Company relative to such discount to its prospective customers. plus ten per cent (10%) commission and all out-of-pocket expenses incurred by the petitioner. aside from obtaining a discount from the home office. The respondent. Moreover. state that the petitioner was to receive ten per cent (10%) commission. no reason is advanced by the respondent why the petitioner should waive the 25 per cent discount granted it by the Starr Piano Company in exchange for the 10 percent commission offered by the respondent.. It is to be observed that the twenty-five per cent (25%) discount granted by the Starr piano Company to the petitioner is available only to the latter as the former's exclusive agent in the Philippines.. The respondent could not have secured this discount from the Starr Piano Company and neither was the petitioner willing to waive that discount in favor of the respondent. Exhibits 1 and 2. the latter as exclusive agent of the Starr Piano Company in the United States. therefore. It follows that the petitioner as vendor is not bound to reimburse the respondent as vendee for any difference between the cost price and the sales price which represents the profit realized by the vendor out of the transaction. The distinction which the respondents seeks to draw between the cost price and the list price we consider to be spacious. This is the very essence of commerce without which merchants or middleman would not exist. and the respondent is estopped from questioning that additional price. Parsons Hardware Co.

No. and it cannot rescind the contract. Constantino.. it willingly paid the price quoted. The fact that the petitioner obtained more or less profit than the respondent calculated before entering into the contract or reducing the price agreed upon between the petitioner and the respondent. within certain limits. No. respondent. J. Ltd. LINGAD. holding it liable as a commercial broker under Section 194 (t) of the National Internal Revenue Code.: Petitioner Ker & Co. on that ground alone. 1 The . plaintiff-appellant. Solicitor Alejandro B. would have us reverse a decision of the Court of Tax Appeals. entitled "Arco Amusement Company (formerly known as Teatro Arco). notwithstanding the vigorous effort of its counsel. An obstacle. R. Balbino Gatdula. Afurong and Special Atty. and short of fraud. much less compel a reimbursement of the excess price. 1023. as Acting Commissioner of Internal Revenue.R. it received the equipment and machinery as represented. The respondent could not secure equipment and machinery manufactured by the Starr Piano Company except from the petitioner alone. G. is not sufficiently persuasive. Gonzalo Puyat & Sons. petitioner. Inc. granted.end of a bad bargain.. L-20871 April 30. Not every concealment is fraud. vs. Selph and Carrascoso for petitioner. JOSE B. The writ of certiorari should be. The decision under review conforms to and is in accordance with the controlling doctrine announced in the recent case of Commissioner of Internal Revenue v. Jr. business acumen permit of the loosening of the sleeves and of the sharpening of the intellect of men and women in the business world. vs. defendants-appellee.. for respondent. The decision of the appellate court is accordingly reversed and the petitioner is absolved from the respondent's complaint in G. Alafriz. it were better that. Its plea. LTD." without pronouncement regarding costs.. Ross. as it is hereby. 1971 KER & CO. it alone must bear the blame. So ordered. FERNANDO. and that was the end of the matter as far as the respondent was concerned. well-nigh insuperable stands in the way. Office of the Solicitor General Arturo A.

as Distributor. Samar. Jolo. as Distributor. The facts. unmistakably indicate that such a situation does exist. is the retention of the ownership of the goods delivered to the possession of the dealer. The juridical consequences must inevitably follow. The contract was to apply to transactions between the former and petitioner. in which the sale price of all goods sold less the discount given to the Distributor by the Company in accordance with the provision of paragraph 13 of this agreement. 2 The shipments would cover products "for consumption in Cebu. from July 1. the former being referred to as the Distributor and the latter specifically designated as the Company. 1953. whether or not such . 3 Petitioner. accept and/or hold upon consignment the products specified under the terms of this agreement in such quantities as in the judgment of the Company may be necessary for the successful solicitation and maintenance of business in the territory. which request was turned down.772. Leyte. petitioner. Such liability arose from a contract of petitioner with the United States Rubber International. but all sales made by the Distributor shall be in his name.33. In its answer. the then Commissioner Domingo maintained his stand that petitioner should be taxed in such amount as a commercial broker. and compromise penalty for the period from July 1. and Mindanao except [the] province of Davao". and the Distributor agrees that responsibility for the final sole of all goods delivered shall rest with him. Negros Oriental. As a result. terms of delivery and other conditions of sale were subject to change in the discretion of the Company. being precluded from disposing such products elsewhere than in the above places unless written consent would first be obtained from the Company. 5 Then came this crucial stipulation: "The Company shall from time to time consign to the Distributor and the Distributor will receive. 1962. as Distributor. Domingo the sum of P20. is required to exert every effort to have the shipment of the products in the maximum quantity and to promote in every way the sale thereof.33 as the commercial broker's percentage tax.00. surcharge. the Court of Tax Appeals held petitioner taxable except as to the compromise penalty of P500. as found by respondent Court. like herein petitioner. the price and terms remaining subject to the control of the firm consigning such goods. terms of payment.272. 4 The prices. Bohol. In the decision now under review. discounts. We affirm. to which we defer. There was a request on the part of petitioner for the cancellation of such assessment. the amount due from it being fixed at P19. as therein set forth. It was shown that petitioner was assessed by the then Commissioner of Internal Revenue Melecio R. it filed a petition for review with the Court of Tax Appeals. for resale to customers.decisive test. promulgated on October 19. 1948 to continue in force until terminated by either party giving to the other sixty days' notice. All goods on consignment shall remain the property of the Company until sold by the Distributor to the purchaser or purchasers. 1949 to December 31.

petitioner had to make payment on such invoice or invoices on due date with the Company being privileged at its option to terminate and cancel the agreement forthwith upon the failure to comply with this obligation. 11 The Company. as Distributor. the petitioner. sizes and types together with such information as may be required for accounting purposes. It is further agreed that this agreement does not constitute Distributor the agent or legal representative 4 of the Company for any purpose whatsoever. for account of the Company. discounts and general terms and conditions of local resale were to be subject to the approval of the Company and to change from time to time in its discretion. shall immediately be paid and remitted by the Distributor to the Company. and upon request of the Company at any time. as Distributor. 9 The dealer. specifying therein the quantities. is whether the relationship thus created is one of vendor and vendee or of broker and principal. it was to render inventory of the existing stock which could be subject to change. as with us now. is allowed a discount of ten percent on the net amount of sales of merchandise made under such agreement. subsidiaries or other sources of Company's brands." 13 The issue with the Court of Tax Appeals. was required to report to it data showing in detail all sales during the month immediately preceding. as Distributor. at its own expense. Distributor is not granted any right or authority to assume or to create any obligation or responsibility. lists. was to keep the consigned stock fully insured against loss or damage by fire or as a result of fire. assumed full responsibility with reference to the stock and its safety at all times. as Distributor. with the Company rendering an invoice on sales as described to be dated as of the date of inventory and sales report. all resale prices. express or implied. 8 Moreover. without expense to the Company. with the customs duties being paid by petitioner." 6 All specifications for the goods ordered were subject to acceptance by the Company with petitioner. or to bind the Company in any manner or thing whatsoever. 12 There was furthermore this equally tell-tale covenant: "Upon the termination or any cancellation of this agreement all goods held on consignment shall be held by the Distributor for the account of the Company. Not that there would have been the slightest doubt were it not for the categorical denial in the contract that petitioner was not constituted as "the agent or legal representative of the Company for . orders are to be filled in whole or in part from the stocks carried by the Company's neighboring branches. until such time as provision can be made by the Company for disposition. the policy of such insurance to be payable to it in the event of loss. as Distributor. required to accept such goods shipped as well as to clear the same through customs and to arrange for delivery in its warehouse in Cebu City. Petitioner. Moreover. in behalf of or in the name of the Company.sale price shall have been collected by the Distributor from the purchaser or purchasers. 10 On a date to be determined by the Company. As Distributor. 7 Shipments were to be invoiced at prices to be agreed upon.

17 In the language of Justice J. that upon request of the rubber company at any time. 14). even as it delivered possession unto the dealer for resale to customers." 14 Hence its conclusion: "However. is. however. together with the actual conduct of the parties in respect thereto. B." 15 We find ourselves in agreement." 18 An excerpt from Salisbury . that sales made by petitioner are subject to approval by the company (Par. . that the rubber company agrees to keep the consigned goods fully insured under insurance policies payable to it in case of loss (Par. or bona fide employees. that every effort shall be made by petitioner to promote in every way the sale of the products (Par. unless excepted by the contract or by the Rubber Company (Par. L. 2). all goods held on consignment shall be held by petitioner for the account of the rubber company until their disposition is provided for by the latter (Par. the price and terms of which were subject to the company's control. that it merely receives. by contractual stipulation. who penned the opinion: "Since the company retained ownership of the goods. that the rubber company shall invoice the sales as of the dates of inventory and sales report (Par. or negotiate freights or other business for owners of vessels or other means of transportation. 15). producers. 15). 1. Rubber International is borne out by the facts that petitioner can dispose of the products of the Company only to certain persons or entities and within stipulated limits. as a whole. The Court of Tax Appeals was not misled in the language of the decision now on appeal: "That the petitioner Ker & Co." It would be. that on dates determined by the rubber company. upon analysis of the contract. 8). the relationship between the company and the dealer is one of agency. a commercial broker "includes all persons. The term includes commission merchants. an agent of U.. to impart to such an express disclaimer a meaning it should not possess to ignore what is manifestly the role assigned to petitioner considering the instrument as a whole. . accepts and/or holds upon consignment the products. Reyes. All these circumstances are irreconcilably antagonistic to the idea of an independent merchant. and that upon termination or cancellation of the Agreement. As noted at the outset.S. Ltd. 12). other than importers.. 19). 3). According to the National Internal Revenue Code. manufacturers. petitioner shall render an inventory of the existing stock which may be checked by an authorized representative of the former (Par. petitioner shall render a detailed report showing sales during the month (Par. That would be to lose sight altogether of what has been agreed upon. sell or bring about sales or purchases of merchandise for other persons or bring proposed buyers and sellers together. for compensation or profit. or consignors or consignees of freight carried by vessels or other means of transportation. 14).any purpose whatsoever." 16 The controlling decision as to the test to be followed as to who falls within the above definition of a commercial broker is that of Commissioner of Internal Revenue v. who. notwithstanding the able brief filed on behalf of petitioner by its counsel. or for the shippers. which remain properties of the latter company (Par. we have arrived at the conclusion that the relationship between them is one of brokerage or agency. Constantino.. we cannot heed petitioner's plea for reversal.

not as his property. were likewise referred to. They were placed there for some purpose. If it were thus intended. who remains the owner and has the right to control sales. Brooks was to furnish the funds necessary for that purpose. while the essence of an agency to sell is the delivery to an agent. If such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price. Equally relevant is this portion of the Salisbury opinion: "It is difficult to understand or appreciate the necessity or presence of these mutual requirements and obligations on any theory other than that of a contract of agency. as was contended in the second assignment of error." 21 Hence the Constantino opinion could categorically affirm that the mere disclaimer in a contract that an entity like petitioner is not "the agent or legal representative for any purpose whatsoever" does not suffice to yield the conclusion that it is an independent merchant if the control over the goods for resale of the goods consigned is pervasive in character. the transaction is a sale. If it constitutes an agreement to sell.v. and not merely as an agent who must account for the proceeds of a resale. The terms of the contract. less the compensation fixed by the parties in lieu of interest on the money advanced and for services as agent. Brooks 19 cited in support of such a view follows: " 'The difficulty in distinguishing between contracts of sale and the creation of an agency to sell has led to the establishment of rules by the application of which this difficulty may be solved. but as the property of the principal. fix the price. Salisbury was to furnish the mill and put the timber owned by him into a marketable condition in the form of lumber. doubtless as the result of definite antecedent negotiations therefore. A reading thereof discloses that the relationship arising therefrom was not one of seller and purchaser. These requirements and stipulations are in tent with any other conception of the contract. they are meaningless. But they cannot be ignored. Neither did such Court fail to appreciate in its true significance the act and conduct pursued in the implementation of the contract by both the United States Rubber International and petitioner. and terms. speak quite clearly. There is lacking that degree of ambiguity sufficient to give rise to serious doubt as to what was contemplated by the parties. and account therefor to Salisbury upon the specific terms of the agreement. Petitioner ought to have been aware that there was no need for such an inquiry. as noted. Williston and Tiedman both of whom wrote treatises on Sales. The decisions say the transfer of title or agreement to transfer it for a price paid or promised is the essence of sale. then it would not have included . No merit therefore attaches to the first error imputed by petitioner to the Court of Tax Appeals. demand and receive the proceeds less the agent's commission upon sales made.' " 20 The opinion relied on the work of Mechem on Sales as well as Mechem on Agency. 2. consummated by the final written expression of the agreement. sell the manufactured product. The Court of Tax Appeals decision now under review pays fealty to such an applicable doctrine.

RJL MARTINEZ FISHING CORPORATION. in the language of the Constantino opinion. "pervasive". Instead. Montecillo & Ongsiako Law Office for respondent. this Court is not prepared to substitute its own judgment unless a grave abuse of discretion is manifest. Instead. J. what cannot be denied is that the Court of Tax Appeals reached a result to which the Court in the recent Constantino decision gave the imprimatur of its approval. Sycip Salazar Hernandez & Gatmaitan Law Office for petitioner. it cannot be said that there was such a failure to apply what the law commands as to call for its reversal. With costs against petitioner G. The insistence on a relationship opposed to that apparent from the language employed might even yield the impression that such a mode of construction was resorted to in order that the applicability of a taxing statute might be rendered nugatory. respondent. is to ignore their appraisal on a matter that forms the staple of their specialized competence. (hereafter to be referred to simply as "SCHMID") to .: Petitioner seeks reversal of the decision and the resolution of the Court of Appeals.R. CORTES. WHEREFORE. Certainly.covenants which in their totality would negate the concept of a firm acquiring as vendee goods from another.. Siguion Reyna. ordering Schmid & Oberly Inc. While it is to be admitted that counsel for petitioner did scrutinize with care the decision under review with a view to exposing what was considered its flaws. the stipulations were so worded as to lead to no other conclusion than that the control by the United States Rubber International over the goods in question is. vs. 1988 SCHMID & OBERLY. It would be to frustrate the objective for which administrative tribunals are created if the judiciary. INC. 75198 October 18. 1962 is affirmed. petitioner. Nor is it to be lost sight of that on a matter left to the discretion of the Court of Tax Appeals which has developed an expertise in view of its function being limited solely to the interpretation of revenue laws. No. the Court of Tax Appeals decision of October 19. absent such a showing. such a result is to be avoided.

of Japan.. 34. Ltd.R. 1970. G. Ltd. L-27488. the Court will not disturb the findings of fact of the Court of Appeals in petitions to review the latter's decisions under Rule 45 of the Revised Rules of Court. advertised the 12 Nagata generators for sale. 62482. and attorneys fees. the Court of Appeals affirmed the decision of the trial court ordering petitioner to refund to private respondent the purchase price for the twelve (12) generators and to accept delivery of the same and to pay s and attorney's fees. June 30. The facts as found by the Court of Appeals. Nagata Co. No. G.. No. the D. that the 12 generators were found to be factory defective. L-24426. the scope of the Court's inquiry being limited to a review of the imputed errors of law [Chan v. of Japan (hereafter to be referred to simply as NAGATA CO. that the defendant be ordered to accept the generators and be ordered to pay back the purchase money. 21-28. when. Ltd.R. In its resolution of the motion for reconsideration. and the latter paid the amount of the purchase price. the D. July 25. the Court of Appeals further modified the trial courts decision as to the award of consequential damages. Rollo. 27-28) [CA Decision.R. Court of Appeals.refund the purchase price paid by RJL Martinez Fishing Corporation (hereafter to be referred to simply as "RJL MARTINEZ") to D.] However. Ordinarily.. G. Record on Appeal) shows: that the plaintiff RJL Martinez Fishing Corporation is engaged in deep-sea fishing. De la Merced. 1984. 58 SCRA 89. (Record on Appeal. January 30. 1983. 127 SCRA 596. and in the course of its business. L-47531. pp. are as follows: The findings of facts by the trial court (Decision. No. Nagata Co.R. Nagata Co. G.. April 28. asking for rescission of the contract. plus consequential damages. Corona v.] On the basis thereof. that the supplier is the manufacturer. Court of Appeals. 1974. shipped to the plaintiff 12 electric generators. needed electrical generators for the operation of its business. pp. 47-48. that the plaintiff purchased 12 brand new Nagata generators. as advertised by herein defendant. that through an irrevocable line of credit. pp. that the plaintiff informed the defendant herein that it shall return the 12 generators as in fact three of the 12 were actually returned to the defendant. a Japanese product. with a slight modification as to the amount to be refunded. that the defendant sells electrical generators with the brand of "Nagata". pp. Baniqued v. 33 SCRA 77. and that the plaintiff asked for damages. 121 SCRA 865. that the plaintiff sued the defendant on the warranty.") for twelve (12) defective "Nagata"-brand generators. that the defendant Schmid & Oberly Inc. it is the . Court of Appeals. as in this case. Tiongco v. No.

Sosing. whether or not the Court of Appeals indeed misapprehended the facts could not be determined without a thorough review of the records. after a careful scrutiny of the records..48290. No. specifying shipment from any Foreign port to Manila or any safe . rectifier type and radio suppressor.petitioner's position that the appealed judgment is premised on a misapprehension of facts. Furthermore. involves twelve (12) "Nagata"-brand generators. I. 26 (1953). 94 Phil. unity power factor. 60 cycles. September 29. the Court has found the appellate court's narration of facts incomplete. it is not disputed that SCHMID was the vendor of the generators. 124 SCRA 808. The first transaction was the sale of three (3) generators. G. Court of Appeals. it was also SCHMID which invoiced the sale. which gave rise to the present controversy. The parties had two separate transactions over "Nagata"-brand generators. promptly open irrevocable Letter of Credit in favor of seller. SC gave RJL MARTINEZ its Quotation dated August 19. The second transaction.] Considering the sketchiness of the respondent court's narration of facts.R. 'These are the facts surrounding this particular transaction: As RJL MARTINEZ was canvassing for generators. Castillo v. 110/220 V. 1983. among the General Conditions of Sale appearing on the dorsal side of the Quotation is the following: Buyer will. The company supplied the generators from its stockroom. negotiations between them for the acquisition thereof took place. As RJL MARTINEZ needed electric generators for some of its boats and SCHMIID sold electric generators of different brands. 1975 [Exhibit 'A"] for twelve (12) "Nagata'-brand generators with the following specifications: "NAGATA" Single phase AC Alternators.75 @ It was stipulated that payment would be made by confirming an irrevocable letter of credit in favor of NAGATA CO. in the amount stated on the face of this memorandum. 1800 rpm. It failed to include certain material facts. Thus. The facts are actually as follows: RJL MARTINEZ is engaged in the business of deep-sea fishing. * the Court is compelled to review the Court of Appeal's factual findings [De la Cruz v. In this transaction. upon request. 5KVA (5KW) $546.

As for the twelve (12) generators subject of the second transaction. an order [Exhibit "4"] for the twelve (12) generators to be shipped directly to RJL MARTINEZ. RJL MARTINEZ informed SCHMID about this development. lack of shipping space or other circumstances beyond their reasonable control. in accordance with the order. For its efforts. SCHMID received from NAGATA CO. SCHMID replaced the three (3) generators subject of the first sale with generators of a different brand. shipped the generators directly to RJL MARTINEZ. The Letter of Credit shall otherwise be subject to the conditions stated in this memorandum of contract. In July 1976. a commission of $1.00 for the sale of the twelve generators to RJL MARTINEZ. which by then had been delivered to the premises of SCHMID. However. SCHMID brought the matter to the attention of NAGATA CO.. NAGATA CO. Accordingly. wrote SCHMID suggesting that the latter check the generators.] Agreeing with the terms of the Quotation. "9-B" and "9-C". "9-A". NAGATA CO. Buyer agrees to extend the said Letter of Credit for later shipment.1975. [Exhibits "9".] All fifteen (15) generators subject of the two transactions burned out after continuous use. SCHMID's warranty claim including the labor cost for repairs [Exhibit . NAGATA CO. which the company did. thereafter sent RJL MARTINEZ the bill of lading and its own invoice (Exhibit "B") and. itself and thereafter returned to RJL MARTINEZ. permitting partial shipments and providing that in the event the shippers are unable to ship within the specified period due to strikes. SCHMID transmitted to NAGATA CO. it turned out that the actual capacity was only 4 KVA. request for spare parts for replacement free of charge. however. on November 20. the capacity of a generator was supposed to be 5 KVA (kilovolt amperes). In turn. RJL Martinez Fishing Corporation. RJL MARTINEZ opened a letter of credit in favor of NAGATA CO. These three (3) generators were repaired by NAGATA CO.752. The invoice states that "one (1) case of 'NAGATA' AC Generators" consisting of twelve sets was—bought by order and for account risk of Messrs. [Emphasis supplied. sent two technical representatives who made an ocular inspection and conducted tests on some of the burned out generators. As indicated both in the quotation and in the invoice. and send to NAGATA CO. the remaining nine (9) were neither repaired nor replaced. Philippine port. The tests revealed that the generators were overrated. the Japanese technicians advised RJL MARTINEZ to ship three (3) generators to Japan.

as such vendor. accordingly. RJL MARTINEZ claims that it was a sale. SCHMID maintains that it was the latter. SCHMID in its reply maintained that it was not the seller of the twelve (12) generators and thus refused to refund the purchase price therefor. conformably with Article 1563 of the Civil Code. on February 14. attorney's fees and costs. 1977. Schmid is not liable for the seller's implied warranty against hidden defects. is not liable for the reimbursement claimed by RJL Martinez nor for the latter's unsubstantiated claim of PI 10. RJL MARTINEZ formally demanded that it be refunded the cost of the generators and paid damages. [Petition. there was no implied warranty against hidden defects in the sale of these twelve (12) generators because these were sold under their trade name "Nagata". In this petition for review. . Schmid not having personally assumed any such warranty. and (iv) Schmid. SCHMID seeks reversal on the following grounds: (i) Schmid was merely the indentor in the sale [of the twelve (12) generators] between Nagata Co. (iii) in any event.. the basic issue confronting this Court is whether the second transaction between the parties was a sale or an indent transaction. (ii) as mere indentor.] 1. SCHMID indicated that it was not agreeable to these terms [Exhibit "10". Hence.33 operational losses a day nor for exemplary damages. Both the trial court and the Court of Appeals upheld the contention of RJL MARTINEZ that SCHMID was the vendor in the second transaction and was liable under its warranty. the courts a quo rendered judgment in favor of RJL MARTINEZ. 6. the exporter and RJL Martinez.] In its reply letter. As may be expected. p. the instant recourse to this Court. Accordingly. Hence. was liable under its warranty against hidden defects. RJL MARTINEZ brought suit against SCHMID on the theory that the latter was the vendor of the twelve (12) generators and."I".] As not all of the generators were replaced or repaired. the importer.

] "If such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price. (1 9 Cyc 186. Henderson vs. G. a look at the definition of those in his class may prove helpful. Constantino. The State. Section 1. and not what it is caged by the contracting parties [Quiroga v. considering its essential elements. such as indentors. an indentor is a middlemen in the same class as commercial brokers and commission merchants. thus: ART. 501 (1918)." [Ibid. it must be understood that a contract is what the law defines it to be. A broker is generally defined as one who is engaged. 50 Ind. 1970. However.At the outset. 1789 (the Omnibus Investments Code) lumps "indentors" together with "commercial brokers" and "commission merchants" in this manner: . there is no statutory definition of "indent" in this jurisdiction. 785. never acting in his own name but in the name of those who employed him. shall not be deemed doing business in the Philippines. the negotiator between other parties. 38 Phil. he is strictly a middleman and for some purpose the agent of both parties. and not merely as an agent who must account for the proceeds of a resale. for others. To get an Idea of what an indentor is.. and the other to pay therefor a price certain in money or its equivalent. 31 SCRA 779.] On the other hand. A foreign firm which does business through the middlemen acting in their own names. It has been said that the essence of the contract of sale is transfer of title or agreement to transfer it for a price paid or promised [Commissioner of Internal Revenue v. commercial brokers or commission merchants. negotiating contracts relative to property with the custody of which he has no concern. g (1).] The Civil Code defines a contract of sale.] Therefore. February 27. 458. No.118-19. the Rules and Regulations to Implement Presidential Decree No.R. commercial brokers or commission merchants shall be the ones deemed to be doing business in the Philippines [Part I. Brooks. citing Salisbury v. a sale. on a commission. Rule I. 94 SE 117.. Parsons Hardware Co. Black's Law . par. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing. But such indentors.. L-25926.. the transaction is. 234.

in matters of trade. or to bargain for them. Webster defines an indent as "a purchase order for goods especially when sent from a foreign country. for this purpose. Mechem on Agency. Nolting and Garcia. and shipped the generators directly to the former. RJL MARTINEZ admitted that the generators were purchased "through indent order" [Record on Appeal. the indentor. The only . sec. p. is placed in his possession and at his disposal. No. He maintains a relation not only with his principal and the purchasers or vendors. Coming now to the case at bar. (Storey on Agency. acts as a middleman in bringing about a purchase and sale of goods between a foreign supplier and a local purchaser. but also with the property which is subject matter of the transaction. In its complaint. for compensation commonly called brokerage.) Judge Storey.] In the same vein. 35 Phil.] The evidence also show that RJL MARTINEZ paid directly NAGATA CO. Dictionary. sec. v. namely. Wharton on Agency. 398. and that the latter company itself invoiced the sale [Exhibit "B"]. 274. for compensation. the admissions of the parties and the facts appearing on record more than suffice to warrant the conclusion that SCHMID was not a vendor." [Exhibit "D". for the generators. 68 Phil. v. Yatco. in his work on Agency. Ltd. by indent order and three (3) by direct purchase. and act in a certain sense as the agent of both parties to the transaction.] A commission merchant is one engaged in the purchase or sale for another of personal property which. 279-80 (1916). the chief feature of a commercial broker and a commercial merchant is that in effecting a sale. commerce or navigation. and the supplier who is usually a non-resident manufacturer residing in the country where the goods are to be bought [Commissioner of Internal Revenue v. the buyer. Cadwallader Pacific Company. but was merely an indentor. G. 13.R. 28. 73 SCRA 59. they are merely intermediaries or middle-men. [Pacific Commercial Co. in the second transaction. 1976. L-20343. in matters of trade.] An indentor may therefore be best described as one who. commerce or navigation.] It would appear that there are three parties to an indent transaction.] Thus.. defines a broker as an agent employed to make bargains and contracts between other persons. September 29. 401 (1939). it admitted in its demand letter previously sent to SCHMID that twelve (12) of en (15) Nagata-brand generators "were purchased through your company (SCHMID)." [Webster's Ninth New Collegiate Dictionary 612 (1986). 6.) A broker is one whose occupation it is to bring parties together to bargain. sec.) [Behn Meyer and Co. 695.

Attention is called to these facts: When RJL MARTINEZ complained to SCHMID that the generators were defective. p. as supplier).] The above transaction is significantly different from the first transaction wherein SCHMID delivered the goods from its own stock (which it had itself imported from NAGATA CO. "9-B" and "9-C". (ii) the qualification that the letter of credit shall be in favor of NAGATA CO. constituted simply the manner of payment requested by SCHMID (implying that SCHMID. RJL MARTINEZ insists that SCHMID was the vendor of the twelve generators on the following grounds: First. When the Japanese technicians arrived. and not SCHMID. merely chose to waive direct payment. These facts notwithstanding. as between the signatories thereto—i. SCHMID facilitated the shipment of three (3) generators to Japan and. after their repair.] . which was under SCHMID's letter-head. 8. and RJL MARTINEZ. it is asserted that the acts of SCHMID after it was informed of the defect in the generators were indicative of its awareness that it was the vendor and acknowledgment of its liability as such vendor. and collected payment directly from the purchaser. as seller.).. Second. perfected the contract of sale (impliedly. After the generators were found to have factory defects. "9-A". SCHMID immediately asked RJL MARTINEZ to send the defective generators to its shop to determine what was wrong. was the real seller in the case of the twelve (12) generators in that: (i) the signing of the quotation. about the complaint of RJL MARTINEZ. stipulating delivery of payment instead to NAGATA CO. back to the Philippines [Memorandum for the Respondent.participation of SCHMID was to act as an intermediary or middleman between NAGATA CO.e. SCHMID made available its technicians. RJL MARTINEZ and SCHMID). SCHMID likewise informed NAGATA CO.. [Exhibits "9". by procuring an order from RJL MARTINEZ and forwarding the same to NAGATA CO. issued its own invoice. its shop and its testing equipment. for which the company received a commission from NAGATA CO. it is contended that the Quotation and the General Conditions of Sale on the dorsal side thereof do not necessarily lead to the conclusion that NAGATA CO.

. so that the latter could repair the defective generators. in the discretion of the Court. with the former supplying the replacement parts free of charge and subsequently reimbursing the latter for labor costs [Exhibit "I"].. Neither does the solicitous manner by which SCHMID responded to RJL MARTINEZ's complaint prove that the former was the seller of the generators. . towards his clients. As aptly stated by counsel.] Fourth." [Ibid. Note that in contrast to its act of replacing the three (3) generators subject of the first transaction. as noted above. then the officers and employees of the former may be penalized for violation of the old Corporation Law which provided: Sec." Finally. 69 .. it is argued that if SCHMID is considered as a mere agent of NAGATA CO. it is argued that the contents of the letter from NAGATA CO. no indentor will just fold its hands when a client complains about the goods it has bought upon the indentor's mediation. a foreign corporation not licensed to do business in the Philippines. a prudent indentor desirous of maintaining his business would have to act considerably. but merely rendered assistance to both RJL TINES and NAGATA CO. The first contention disregards the circumstances surrounding the second transaction as distinguished from those surrounding the first transaction. cannot support the conclusion that SCHMID is vendor of the generators of the second transaction or was acting "within the purview of a seller. rejected by SCHMID that the latter undertake the repair of the nine (9) other defective generators. SCHMID did not replace any of the twelve (12) generators. The proposal of NAGATA CO. the afore-quoted penal provision in the Corporation Law finds no application to SCHMID and its officers and employees relative to the transactions in the instant case. to SCHMID regarding the repair of the generators indicated that the latter was "within the purview of a seller. The facts do not bear out these contentions. In its desire to promote the product of the seller and to retain the goodwill of the buyer. Any officer or agent of the corporation or any person transacting business for any foreign corporation not having the license prescribed shall be punished by imprisonment for not less than six months nor more than two years or by a fine 'of not less than two hundred pesos nor more than one thousand pesos or both such imprisonment and fine.Third.

recognizes the distinct role of an indentor. 5455. is the circumvention by foreign corporations of licensing requirements through the device of employing local representatives. is not. covered by the above-quoted provision. he may expressly obligate himself to undertake the obligations of his principal (See Art. shifts to a determination of whether or not SCHMID expressly bound itself to warrant that the twelve (12) generators are free of any hidden defects.) The Court's inquiry. such that when a foreign corporation does business through such indentor. Not being the vendor. 1897. Upon careful examination of Balagtas' testimony. the foreign corporation is not deemed doing business in the Philippines. 22. if indeed it had so bound itself. therefore.] 2. 1561. the provision of the Rules and Regulations implementing the Omnibus Investments Code quoted above. There being no allegation nor any proof that the Quotation does not express the true intent and agreement of the contracting parties. Again. what is at once apparent is that Balagtas failed to disclose the nature or terms and conditions of the warranty allegedly .] The trial court. however. which was copied from the Rules implementing Republic Act No. therefore. this Court rules that SCHMID was merely acting as an indentor in the purchase and sale of the twelve (12) generators subject of the second transaction. Notably. however. In other words. an indentor is to some extent an agent of both the vendor and the vendee.What the law seeks to prevent. SCHMID cannot be held liable for the implied warranty for hidden defects under the Civil Code [Art. to support the finding that SCHMID did warrant the twelve (12) generators against defects. However. the head of the Electrical Department of RJL MARTINEZ. et seq. nowhere is it stated therein that SCHMID did bind itself to answer for the defects of the things sold. An indentor. there was nothing to prevent it from voluntarily warranting that twelve (12) generators subject of the second transaction are free from any hidden defects. relied on the testimony of Patrocinio Balagtas. As stated above. In view of the above considerations. even as SCHMID was merely an indentor. As such agent. acting in his own name. Sec. In fact. The Quotation (Exhibit A is in writing. we consider the facts. It is the repository of the contract between RJL MARTINEZ and SCHMID. Civil Code. through said provision. SCHMID may be held answerable for some other contractual obligation. extrinsic parol evidence of warranty will be to no avail [See Rule 123.

unless the nature or terms and conditions of the warranty are known. that the only participation you had in the acquisition of those twelve (12) units [of] generators was your having issued a purchase order to your own company for the purchase of the units? ATTY. 1977. That is why I recommended that to the management. if I remember. Witness may answer. The representative of Schmid and Oberly said that Nagata is very good. a closer examination of the statements allegedly made by the representative of SCHMID reveals that they merely constituted an expression of opinion which cannot by any means be construed as a warranty [See Art. we negotiated with Schmid and Oberly the beat generators they can recommend because we are looking for generators. Moreover.n. [t. Mr. sir.] . Before I submitted that. Balagtas. Moreover.given by SC Was it a warranty that the generators would be fit for the fishing business of the buyer? Was it a warranty that the generators to be delivered would meet the specifications indicated in the Quotation? Considering the different kinds of warranties that may be contracted. CATRAL: Q Did you not say at the start of your cross examination. 1546. A Yes.] We quote from Balagtas' testimony: Atty. it would not be possible to determine whether there has been a breach thereof. October 14. he mentioned something like that. Civil Code. your Honor. Atty. 23-25. CATRAL: I am asking the witness.. AQUINO: Misleading. COURT: He has the right to ask that question because he is on cross.s. pp.

] But then again. 19- 22. December 19. and nowhere is it stated therein that SCHMID warranted the generators against defects. G. he again changed his mind and asserted that the warranty was given verbally [TSN.. DECISION QUISUMBING. 3. there is no way to determine whether there has been a breach thereof.R. No costs.: . 2000 VICTORIAS MILLING CO. the witness failed to disclose the nature or terms and conditions of the warranty allegedly given by SCHMID. finding the Court of Appeals to have committed a reversible error.) When confronted with a copy of the invoice issued by NAGATA CO.At any rate.] It must be recalled that SCHMID readily replaced the three generators from its own stock. On further examination. was categorical that the company does not warrant goods bought on indent and that the company warrants only the goods bought directly from it. October 14. vs. 63-64. he changed his assertion and claimed that what he meant was that the date of the commencement of the period of SCHMID's warranty would be based on the date of the invoice. On the other hand. petitioner. as stated earlier. INC. like the three generators earlier bought by RJL MARTINEZ itself [TSN. this Court is of the view that RJL has failed to prove that SCHMID had given a warranty on the twelve (12) generators subject of the second transaction. SO ORDERED. it may be stated that the invoice [Exhibit "B-l"] was issued by NAGATA CO. pp. COURT OF APPEALS and CONSOLIDATED SUGAR CORPORATION. The complaint of RJL Martinez Fishing Corporation is hereby DISMISSED. J.. Even assuming that a warranty was given. 1977. 1977. No. 117356 June 19. In view of the foregoing.. Balagtas testified initially that it was in the receipts covering the sale. (At this point. WHEREFORE. considering that its nature or terms and conditions have not been shown. pp. when asked where SCHMID's warranty was contained. it becomes unnecessary to pass upon the other issues. In the face of these conflicting testimonies. Hernan Adad SCHMID's General Manager. respondents. the petition is GRANTED and the appealed Decision and Resolution of the Court of Appeals are REVERSED.

which gave rise to the instant case. Branch 147. STM sold to private respondent Consolidated Sugar Corporation (CSC) its rights in SLDR No. petitioner issued several Shipping List/Delivery Receipts (SLDRs) to STM as proof of purchases. 1989. said checks also covered SLDR No.. in Civil Case No. 1989 in payment. Aside from SLDR No. 1989. The latter. 1991.000.5 CSC thus inquired when it would be allowed to withdraw the remaining 23. 1214M and a letter of authority from STM authorizing CSC "to withdraw for and in our behalf the refined sugar covered by Shipping List/Delivery Receipt-Refined Sugar (SDR) No. However. 1994 modifying said decision. The facts of this case as found by both the trial and appellate courts are as follows: St. 1989. Both decision and resolution amended the judgment dated February 13. Dated October 16. 1989 acknowledging receipt of the said checks in payment of 50. 1989 and three checks postdated November 13. (VMC). 1213."1 The transaction it covered was a "direct sale.00 with petitioner as payee. 1214M to the petitioner's NAWACO warehouse and was allowed to withdraw sugar. 1989 in the total quantity of 25.000 bags had been released.00 per bag as "per sales order VMC Marketing No. issued Official Receipt No. 042 dated October 16.000 bags. 1214M. petitioner refused to allow further withdrawals of sugar against SLDR No. 1989. 1214M for P 14. 31717. of the Regional Trial Court of Makati City. CSC then sent petitioner a letter dated January 23.Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision of the Court of Appeals dated February 24. 33743 dated October 27.750. in CA-G. Private respondent CSC surrendered SLDR No. 1990 informing it that SLDR No. 1214M had been "sold and endorsed" to it but that it had been refused further withdrawals of sugar from petitioner's warehouse despite the fact that only 2." 4 On October 27.000 bags had been withdrawn.. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner Victorias Milling Co. 1214M. STM issued 16 checks in the total amount of P31. Each bag contained 50 kilograms and priced at P638."2 The SLDR also contains an additional note which reads: "subject for (sic) availability of a (sic) stock at NAWACO (warehouse).R. as well as the respondent court's resolution of September 30. CSC wrote petitioner that it had been authorized by STM to withdraw the sugar covered by SLDR No."3 On October 25. Inc. Enclosed in the letter were a copy of SLDR No.000.000 bags. in turn. Among these was SLDR No.000 bags. 1214M. 1214 dated October 16. .000 bags of sugar.900. 1214M. That same day. 90-118. In the course of their dealings. after 2. CSC issued one check dated October 25. 1994.00. SLDR No. CV No. 1214M covers 25.

1214M and sought the award of P1.000 bags.000.00 as exemplary damages.On January 31. did not bother to pursue its case against her.200.00 as attorney's fees and litigation expenses. Since the former could not be served with summons. 6 On March 2. it could no longer authorize further delivery of sugar to CSC. CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by SLDR No.00 in unrealized profits. but instead used her as its witness. 1214M "for and in behalf" of STM.000.8 Since STM had already drawn in full all the sugar corresponding to the amount of its cleared checks. were not documents of title. On April 27. Petitioner then prayed that CSC be ordered to pay .000 bags. however. Petitioner also contended that it had no privity of contract with CSC. which it had issued. Petitioner's primary defense a quo was that it was an unpaid seller for the 23. P3.104. Seven days later.000 bags covered by SLDR No. CSC prayed that petitioner be ordered to deliver the 23.000. 7 CSC. but mere delivery receipts issued pursuant to a series of transactions entered into between it and STM. Petitioner also noted that CSC had represented itself to be STM's agent as it had withdrawn the 2. 1990.000. 1990. During the trial. CSC filed a complaint for specific performance. 90-1118. the latter had no justification for refusing delivery of the sugar. Therefore. 1214M.000 bags against SLDR No. Therese Merchandising) and herein petitioner. the case proceeded only against the latter. 1990. The SLDRs prescribed delivery of the sugar to the party specified therein and did not authorize the transfer of said party's rights and interests. CSC sent petitioner a letter demanding the release of the balance of 23. it was discovered that Teresita Ng Go who testified for CSC was the same Teresita Ng Sy who could not be reached through summons. Petitioner explained that the SLDRs. P2. Defendants were Teresita Ng Sy (doing business under the name of St. docketed as Civil Case No. Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's co- conspirator to defraud it through a misrepresentation that CSC was an innocent purchaser for value and in good faith. petitioner replied that it could not allow any further withdrawals of sugar against SLDR No. 1214M because STM had already dwithdrawn all the sugar covered by the cleared checks. there would be no more deliveries of the commodity to STM's account. petitioner reiterated that all the sugar corresponding to the amount of STM's cleared checks had been fully withdrawn and hence.

1213 and 1214.00 for the 25. 1989 (date of the two SLDRs) is duly supported by Exhibits C to C-15 inclusive which are post- dated checks dated October 27. P10.000.00 in exemplary damages.00 as attorney's fees.000 bags of sugar covered by SLDR No. and . the official reciept no. issued to cover the purchase. Since no settlement was reached at pre-trial.500. "2) Ordering defendant Victorias Milling Company to pay the amount of P920.000.500.00 as exemplary damages. in view of the foregoing.00 as unrealized profits.950.570. 34734 in favor of St. The testimony of Teresita Ng Go is further supported by Exhibit F.00 as exemplary damages and the amount of P1.000 bags of sugar bought by her covered by SLDR No. which is a computer printout of defendant Victorias Milling Company showing the quantity and value of the purchases made by St.000. Said checks appear to have been honored and duly credited to the account of Victorias Milling Company because on October 27.000.000. the trial court rendered its judgment favoring private respondent CSC.000.950. which is 10% of the acquisition value of the undelivered bags of refined sugar in the amount of P13.00 as attorney's fees. Petitioner also prayed that cross- defendant STM be ordered to pay it P10. and P1.00. "SO ORDERED. 1989 issued by St. 1989 Victorias Milling Company issued official receipt no.357.000. plus the costs. the trial court heard the case on the merits.00 as moral damages. As earlier stated. 1214 as well as the purchase price of P15. that she had fully paid the purchase price of P15.000.900.000. Therese Merchandising in favor of Victorias Milling Company at the time it purchased the 50. 1214. and P1. Therese Merchandising for the amount of P31. the amount of P800."9 It made the following observations: "[T]he testimony of plaintiff's witness Teresita Ng Go. Therese Merchandising.000.00 of the 25.000.000 bags of refined sugar due under SLDR No.000.000 bags of sugar bought by her covered by SLDR No.000. as follows: "WHEREFORE. the SLDR no. October 16.00 (Exhibits B and B-1).000.it the following sums: P10. the Court hereby renders judgment in favor of the plaintiff and against defendant Victorias Milling Company: "1) Ordering defendant Victorias Milling Company to deliver to the plaintiff 23.000. 1213 on the same date. as attorney's fees.00.

to wit: . 21214M was only one of 22 SLDRs issued to STM and since the latter had already withdrawn its full quota of sugar under the said SLDR. 1214M were separate and independent transactions and that the details of the series of purchases were contained in a single statement with a consolidated summary of cleared check payments and sugar stock withdrawals because this a more convenient system than issuing separate statements for each purchase. 1214M. the Court of Appeals rendered its decision modifying the trial court's judgment. said witness failed to present in Court any dishonored check or any replacement check.' "On the other hand. and (c) Whether or not CSC as buyer from STM of the rights to 25."10 Petitioner appealed the trial court’s decision to the Court of Appeals. Teresita Ng Go. 1214M could compel petitioner to deliver 23. (b) Whether or not CSC had the capacity to sue on its own on SLDR No. 1994. Said witness likewise failed to present any bank record showing that the checks issued by the buyer. The Court notes that the testimony of Arnulfo Caintic is merely a sweeping barren assertion that the purchase price has not been fully paid and is not corroborated by any positive evidence. Therese Merchandising covered by SLDR No. On February 24. 1214 the same has been fully paid as indicated by the word 'cleared' appearing under the column of 'status of payment.000 bags of sugar covered by SLDR No.000 bags of sugar purchased by St. Pursuant to this contract. Private respondent CSC countered that the sugar purchases involving SLDR No. There is an insinuation by Arnulfo Caintic in his testimony that the postdated checks issued by the buyer in payment of the purchased price were dishonored. witness for defendant Victorias Milling Company. petitioner averred that the dealings between it and STM were part of a series of transactions involving only one account or one general contract of sale. It is clear in Exhibit 'F' that with respect to the sugar covered by SLDR No.000 bagsallegedly unwithdrawn.000 bags of sugar. SLDR No. independent. CSC was already precluded from seeking delivery of the 23. 1214 were dishonored. the claim of defendant Victorias Milling Company that the purchase price of the 25.the status of payment. 1214 has not been fully paid is supported only by the testimony of Arnulfo Caintic. However. in payment of the purchase price of the sugar covered by SLDR No. 1214M was a separate. The appellate court considered the following issues: (a) Whether or not the transaction between petitioner and STM involving SLDR No. and single transaction. STM or any of its authorized agents could withdraw bags of sugar only against cleared checks of STM. On appeal.

950. . 1214M."12 The appellate court explained the rationale for the modification as follows: "There is merit in plaintiff-appellee's position."11 Both parties then seasonably filed separate motions for reconsideration. (Formal Offer of Evidence for Plaintiff. (People v.000 bags of refined sugar under SLDR No. "(2) Pay costs of suit. the appellate court modified its decision to read: "WHEREFORE. The rule is explicit that courts should consider the evidence only for the purpose for which it was offered. "SO ORDERED. Plaintiff-appellee is. therefore. 1 CA Rep 783). "2) Pay to plaintiff-appellee P792.586 bags of sugar remained undelivered.586 cannot be made the basis for such a finding. the Court hereby modifies the assailed judgment and orders defendant- appellant to: "(1) Deliver to plaintiff-appellee 23."WHEREFORE. Abalos. "Exhibit ‘F' We relied upon in fixing the number of bags of sugar which remained undelivered as 12. "3) Pay the costs of suit. 58) cannot be used to prove the proposition that 12.00 had been cleared.586 bags of sugar covered by SLDR No. et al.00 which is 10% of the value of the undelivered bags of refined sugar. 1214M. correct in its argument that Exhibit ‘F' which was offered to prove that checks in the total amount of P15. 1994.000. Records p.918. In its resolution dated September 30. the Court hereby MODIFIES the assailed judgment and orders defendant-appellant to: "1) Deliver to plaintiff-appellee 12. "SO ORDERED. as attorneys fees. The rationale for this is to afford the party against whom the evidence is presented to object thereto if he deems it necessary.

" (emphasis in the original) private respondent's withdrawing 2. p. precisely because of its theory that all sales in question were a series of one single transaction and withdrawal of sugar depended on the clearing of checks paid therefor. 2. Documentary evidence (Exhibit I. 1214M. 1285 and 1626 of the Civil Code when it ruled that compensation applied only to credits from one SLDR or contract and not to those from two or more distinct contracts between the same parties. 1214M. Defendant-appellant. 1431. Exhibit K. Civil Code). The Court of Appeals erred in manifestly and arbitrarily ignoring and disregarding certain relevant and undisputed facts which. Rule 131. rendered respondent like the other persons. Felix Go Chan & Realty Corp. It did not present evidence to show how many bags of sugar had been withdrawn against SLDR No. 1214M "for and in our (STM) behalf. on the other hand. Id. and which would justify review of its conclusion of facts by this Honorable Court. an agent of STM as held in Rallos v. except for 69 bags of sugar.000 bags of sugar from SLDR after which it was not allowed to withdraw anymore. and STM's empowering other persons as its agents to withdraw sugar against the same SLDR No. The Court of Appeals misapplied the law on compensation under Arts. pp. "3. Defendant-appellant did not rebut plaintiff-appellee's assertions. the instant petition. and 36]) presented by plaintiff- appellee was to the effect that it had withdrawn only 2. 1214M and from suing by itself for its enforcement because it was conclusively presumed to be an agent (Sec. The Court of Appeals erred in not holding that STM's and private respondent's specially informing petitioner that respondent was authorized by buyer STM to withdraw sugar against SLDR No. p. and that all sugar corresponded to cleared checks had been withdrawn..000 bags of sugar for STM. positing the following errors as grounds for review: "1. Id. (Art. would have shown that petitioner was not liable. had they been considered. 16. We see no reason to overturn the findings of the trial court on this point.. Santos [TSN. 10 October 1990. 78. alleged that sugar delivery to the STM corresponded only to the value of cleared checks. 17 October 1990. 1279.000 bags of sugar from SLDR 1214M. Rules of Court) and estopped from doing so. 18. 33] and Marianito L. p.."13 Hence. 80) show that plaintiff-appellee had sent demand letters to defendant-appellant asking the latter to allow it to withdraw the remaining 23."Testimonial evidence (Testimonies of Teresita Ng [TSN. "After a second look at the evidence. and erred in denying petitioner's right to . "2. 81 SCRA 252. and precluded it from subsequently claiming and proving being an assignee of SLDR No.

1avvphi1 It is settled that an issue which was not raised during the ..Whether or not the Court of Appeals erred in not ruling that the sale of sugar under SLDR No. 1214M as an assignee. ‘F’ between petitioner and STM. and (b) the sale of sugar being subject to its availability at the Nawaco warehouse.. namely. made the sale conditional and prevented STM or private respondent from acquiring title to the sugar. and the non-availability of sugar freed petitioner from further obligation.. "4. its only remedy being against its assignor.. The Court of Appeals erred in not holding that the conditions of the assigned SLDR No. (3).. "5.. so as to extinguish or reduce its liability to 69 bags.. the issues now to be resolved are: (1). The Court of Appeals erred in concluding that the settlement or liquidation of accounts in Exh..Whether or not the Court of Appeals committed an error of law in not applying the "clean hands doctrine" to preclude CSC from seeking judicial relief. we find from the records that petitioner raised this issue for the first time on appeal. The Court of Appeals erred in not holding that the "clean hands" doctrine precluded respondent from seeking judicial reliefs (sic) from petitioner. 1214M so as to preclude petitioner from offsetting its credits on the other SLDRs.. 1214M. setoff all its credits arising prior to notice of assignment from other sales or SLDRs against private respondent's claim as assignee under SLDR No. 1214."14 Simply stated. The issues will be discussed in seriatim. respondent's admission of its balance. Anent the first issue... 1214M was a conditional sale or a contract to sell and hence freed petitioner from further obligations. estopped to sue upon SLDR No. because the law on compensation applies precisely to two or more distinct contracts between the same parties (emphasis in the original).Whether or not the Court of Appeals erred in not ruling that CSC was an agent of STM and hence. and STM's acquiescence thereto by silence for almost one year did not render Exh. (4). (2). `F' an account stated and its balance binding..Whether or not the Court of Appeals erred in applying the law on compensation to the transaction under SLDR No. (a) its subject matter being generic. "6.

1214 dated October 16. one person . Although it would seem STM represented plaintiff-appellee as being its agent by the use of the phrase "for and in our (STM's) behalf" the matter was cleared when on 23 January 1990. Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw sugar against SLDR No. 1868.19 and on the part of the agent. to show not only the fact of its existence. and due process.. 22 The control factor. 3536]. but also its nature and extent (Antonio vs.the principal. 51 O. in finding that CSC. the very word "agency" has come to connote control by the principal.the agent . 000 bags. 1989 in the total quantity of 25. the Court of Appeals opted to address this issue. there must be an intention to accept the appointment and act on it. has caused the courts to put contracts between principal and agent in a separate category. By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another.21 One factor which most clearly distinguishes agency from other legal concepts is control. 17 On the part of the principal. with the burden of proof resting upon the persons alleging the agency. more than any other. and it is always a fact to be proved. 15 Nonetheless. the law makes no presumption of agency. Enriquez [CA]. there must be an actual intention to appoint18 or an intention naturally inferable from his words or actions. 1214M to show that the latter was STM's agent. justice.agrees to act under the control or direction of another . The fact alone that it (STM) had authorized withdrawal of sugar by plaintiff-appellee "for and in our (STM's) behalf" should not be eyed as pointing to the existence of an agency relation .G. was not an agent of STM. Here. defendant-appellant failed to sufficiently establish the existence of an agency relation between plaintiff-appellee and STM. Indeed.."16 The Civil Code defines a contract of agency as follows: "Art.20 and in the absence of such intent. there is generally no agency. hence.trial in the court below could not be raised for the first time on appeal as to do so would be offensive to the basic rules of fair play. with the consent or authority of the latter." It is clear from Article 1868 that the basis of agency is representation. now a matter for our consideration. The pertinent portion of said letter reads: "This is to authorize Consolidated Sugar Corporation or its representative to withdraw for and in our behalf (stress supplied) the refined sugar covered by Shipping List/Delivery Receipt = Refined Sugar (SDR) No. opined: "This Court has ruled that where the relation of agency is dependent upon the acts of the parties. plaintiff-appellee .It should be viewed in the context of all the circumstances obtaining. 23 The Court of Appeals.

The question of whether a contract is one of sale or agency depends on the intention of the parties as gathered from the whole scope and effect of the language employed. it was not a serial part of a single transaction or of one account contrary to petitioner's insistence. 1214M had been "sold and endorsed" to it by STM (Exhibit I. with title to the sugar still remaining with the vendor. that petitioner had been paid for the sugar purchased under SLDR No.25 That the authorization given to CSC contained the phrase "for and in our (STM's) behalf" did not establish an agency. Records. 1214M were sold and transferred by STM to it . Private respondent CSC was not subject to STM's control. Petitioner clearly had the obligation to deliver said commodity to STM or its assignee. that the purchase of sugar covered by SLDR No. no error was committed by the respondent appellate court when it held that CSC was not STM's agent and could independently sue petitioner. Regarding the third issue. petitioner and CSC. it refused to apply Article 1279 of the Civil Code to the present case.28 However. it appears plain to us that private respondent CSC was a buyer of the SLDFR form.26 That no agency was meant to be established by the CSC and STM is clearly shown by CSC's communication to petitioner that SLDR No. Further.. pursuant to Article 1279 of the Civil Code. proceeding from the theory that the transactions entered into between petitioner and STM are but serial parts of one account.. be made thus capacitating plaintiff-appellee to sue in its own name. Noteworthy. plaintiff-appellee has shown that the 25. 1214M contains the following terms and conditions: "It is understood and agreed that by payment by buyer/trader of refined sugar and/or receipt of this document by the buyer/trader personally or through a . 78). as assignee of STM. petitioner insists that its debt has been offset by its claim for STM's unpaid purchases. were not mutually creditors and debtors of each other. No reversible error could thereby be imputed to respondent appellate court when. On the second issue. and not an agent of STM. 1214M."24 In the instant case. petitioner contends that the sale of sugar under SLDR No. and the Court of Appeals concurred. the trial court found. Ultimately. 1214M was a separate and independent transaction. 000 bags of sugar covered by the SLDR No. what is decisive is the intention of the parties. 1214M had been "sold and endorsed" to it. on this score. 1214M is a conditional sale or a contract to sell. without being rebutted. Since said sugar had been fully paid for. therefore.A conclusion that there was a valid sale and transfer to plaintiff-appellee may. p.27 The use of the words "sold and endorsed" means that STM and CSC intended a contract of sale.informed defendant-appellant that SLDFR No. without need of joining its imputed principal STM as co-plaintiff. and not an agency. Hence. SLDR No. Evidence on record shows.

As to the fourth issue. This conspiracy is allegedly evidenced by: (a) the fact that STM's selling price to CSC was below its purchasing price. not a contract to sell. petitioner submits that STM and private respondent CSC have entered into a conspiracy to defraud it of its sugar. However.30 And where the terms and conditions so stipulated are not contrary to law. We are now constrained to deem this matter purely speculative. and (c) the authority given by the latter to other persons to withdraw sugar against SLDR No. the instant petition is DENIED for lack of merit. the contract is valid and must be upheld. Costs against petitioner. . Petitioner is now estopped from alleging the contrary. title to refined sugar is transferred to buyer/trader and delivery to him/it is deemed effected and completed (stress supplied) and buyer/trader assumes full responsibility therefore…"29 The aforequoted terms and conditions clearly show that petitioner transferred title to the sugar to the buyer or his assignee upon payment of the purchase price. Petitioner prays that the doctrine of "clean hands" should be applied to preclude CSC from seeking judicial relief. morals. (b) CSC's refusal to pursue its case against Teresita Ng Go. Said terms clearly establish a contract of sale. WHEREFORE. The contract is the law between the contracting parties.31 Having transferred title to the sugar in question. SO ORDERED. 1214M after she had sold her rights under said SLDR to CSC.representative. we find here the records bare of convincing evidence whatsoever to support the petitioner's allegations of fraud. good customs. petitioner is now obliged to deliver it to the purchaser or its assignee. despite careful scrutiny. public policy or public order. bereft of concrete proof.