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(1) (Onerous Sale) improvements, and facilities in or outside said claims, the right to use the

G.R. No. L-11827 July 31, 1961 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
FERNANDO A. GAITE, plaintiff-appellee, Fonacier all his rights and interests over the "24,000 tons of iron ore, more or
vs. less" that the former had already extracted from the mineral claims, in
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO., consideration of the sum of P75,000.00, P10,000.00 of which was paid upon the
INC., SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and signing of the agreement, and
FERNANDO TY, defendants-appellants.
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid from
Alejo Mabanag for plaintiff-appellee. and out of the first letter of credit covering the first shipment of iron ores and of
Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants- the first amount derived from the local sale of iron ore made by the Larap Mines
appellants. & Smelting Co. Inc., its assigns, administrators, or successors in interests.

REYES, J.B.L., J.: 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
This appeal comes to us directly from the Court of First Instance because the delivered to Gaite a surety bond dated December 8, 1954 with himself (Fonacier)
claims involved aggregate more than P200,000.00. as principal and the Larap Mines and Smelting Co. and its stockholders George
Krakower, Segundina Vivas, Pacifico Escandor, Francisco Dante, and Fernando
Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by Ty as sureties (Exhibit "A-1"). Gaite testified, however, that when this bond was
himself or in a representative capacity, of 11 iron lode mineral claims, known as presented to him by Fonacier together with the "Revocation of Power of Attorney
the Dawahan Group, situated in the municipality of Jose Panganiban, province and Contract", Exhibit "A", on December 8, 1954, he refused to sign said Exhibit
of Camarines Norte. "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
By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier iron ore in the stockpiles in the mining claims. Hence, a second bond, also dated
constituted and appointed plaintiff-appellee Fernando A. Gaite as his true and December 8, 1954 (Exhibit "B"),was executed by the same parties to the first
lawful attorney-in-fact to enter into a contract with any individual or juridical bond Exhibit "A-1", with the Far Eastern Surety and Insurance Co. as additional
person for the exploration and development of the mining claims aforementioned surety, but it provided that the liability of the surety company would attach only
on a royalty basis of not less than P0.50 per ton of ore that might be extracted when there had been an actual sale of iron ore by the Larap Mines & Smelting
therefrom. On March 19, 1954, Gaite in turn executed a general assignment Co. for an amount of not less then P65,000.00, and that, furthermore, the liability
(Record on Appeal, pp. 17-19) conveying the development and exploitation of said of said surety company would automatically expire on December 8, 1955. Both
mining claims into the Larap Iron Mines, a single proprietorship owned solely by bonds were attached to the "Revocation of Power of Attorney and Contract",
and belonging to him, on the same royalty basis provided for in Exhibit "3". Exhibit "A", and made integral parts thereof.
Thereafter, Gaite embarked upon the development and exploitation of the mining
claims in question, opening and paving roads within and outside their On the same day that Fonacier revoked the power of attorney he gave to Gaite
boundaries, making other improvements and installing facilities therein for use and the two executed and signed the "Revocation of Power of Attorney and
in the development of the mines, and in time extracted therefrom what he claim Contract", Exhibit "A", Fonacier entered into a "Contract of Mining Operation",
and estimated to be approximately 24,000 metric tons of iron ore. 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
For some reason or another, Isabelo Fonacier decided to revoke the authority with the improvements therein and the use of the name "Larap Iron Mines" and
granted by him to Gaite to exploit and develop the mining claims in question, its good will, in consideration of certain royalties. Fonacier likewise transferred,
and Gaite assented thereto subject to certain conditions. As a result, a document in the same document, the complete title to the approximately 24,000 tons of
entitled "Revocation of Power of Attorney and Contract" was executed on iron ore which he acquired from Gaite, to the Larap & Smelting Co., in
December 8, 1954 (Exhibit "A"),wherein Gaite transferred to Fonacier, for the consideration for the signing by the company and its stockholders of the surety
consideration of P20,000.00, plus 10% of the royalties that Fonacier would bonds delivered by Fonacier to Gaite (Record on Appeal, pp. 82-94).
receive from the mining claims, all his rights and interests on all the roads,
Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the As to the second question, the lower court found that plaintiff Gaite did have
Far Eastern Surety and Insurance Company, no sale of the approximately 24,000 approximately 24,000 tons of iron ore at the mining claims in question at the
tons of iron ore had been made by the Larap Mines & Smelting Co., Inc., nor had time of the execution of the contract Exhibit "A."
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 Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering
to make use of the period given them when their bond, Exhibit "B" automatically defendants to pay him, jointly and severally, P65,000.00 with interest at 6% per
expired (Exhibits "C" to "C-24"). And when Fonacier and his sureties failed to pay annum from December 9, 1955 until payment, plus costs. From this judgment,
as demanded by Gaite, the latter filed the present complaint against them in the defendants jointly appealed to this Court.
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 During the pendency of this appeal, several incidental motions were presented
attorney's fees. for resolution: a motion to declare the appellants Larap Mines & Smelting Co.,
Inc. and George Krakower in contempt, filed by appellant Fonacier, and two
All the defendants except Francisco Dante set up the uniform defense that the motions to dismiss the appeal as having become academic and a motion for new
obligation sued upon by Gaite was subject to a condition that the amount of trial and/or to take judicial notice of certain documents, filed by appellee Gaite.
P65,000.00 would be payable out of the first letter of credit covering the first The motion for contempt is unmeritorious because the main allegation therein
shipment of iron ore and/or the first amount derived from the local sale of the that the appellants Larap Mines & Smelting Co., Inc. and Krakower had sold the
iron ore by the Larap Mines & Smelting Co., Inc.; that up to the time of the filing iron ore here in question, which allegedly is "property in litigation", has not been
of the complaint, no sale of the iron ore had been made, hence the condition had substantiated; and even if true, does not make these appellants guilty of
not yet been fulfilled; and that consequently, the obligation was not yet due and contempt, because what is under litigation in this appeal is appellee Gaite's right
demandable. Defendant Fonacier also contended that only 7,573 tons of the to the payment of the balance of the price of the ore, and not the iron ore itself.
estimated 24,000 tons of iron ore sold to him by Gaite was actually delivered, As for the several motions presented by appellee Gaite, it is unnecessary to
and counterclaimed for more than P200,000.00 damages. resolve these motions in view of the results that we have reached in this case,
which we shall hereafter discuss.
At the trial of the case, the parties agreed to limit the presentation of evidence to
two issues: The main issues presented by appellants in this appeal are:

(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite (1) that the lower court erred in holding that the obligation of appellant Fonacier
P65,000.00 become due and demandable when the defendants failed to renew to pay appellee Gaite the P65,000.00 (balance of the price of the iron ore in
the surety bond underwritten by the Far Eastern Surety and Insurance Co., Inc. question)is one with a period or term and not one with a suspensive condition,
(Exhibit "B"), which expired on December 8, 1955; and and that the term expired on December 8, 1955; and

(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to (2) that the lower court erred in not holding that there were only 10,954.5 tons
defendant Fonacier were actually in existence in the mining claims when these in the stockpiles of iron ore sold by appellee Gaite to appellant Fonacier.
parties executed the "Revocation of Power of Attorney and Contract", Exhibit "A."
The first issue involves an interpretation of the following provision in the contract
On the first question, the lower court held that the obligation of the defendants Exhibit "A":
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 7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F.
sufficient iron ore by defendants, such sale to be effected within one year or Fonacier all his rights and interests over the 24,000 tons of iron ore, more or
before December 8, 1955; that the giving of security was a condition precedent less, above-referred to together with all his rights and interests to operate the
to Gait's giving of credit to defendants; and that as the latter failed to put up a mine in consideration of the sum of SEVENTY-FIVE THOUSAND PESOS
good and sufficient security in lieu of the Far Eastern Surety bond (Exhibit "B") (P75,000.00) which the latter binds to pay as follows:
which expired on December 8, 1955, the obligation became due and demandable
under Article 1198 of the New Civil Code. a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this
agreement.
made unless the appellants took steps to sell the ore. Appellants would thus be
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid from able to postpone payment indefinitely. The desireability of avoiding such a
and out of the first letter of credit covering the first shipment of iron ore made by construction of the contract Exhibit "A" needs no stressing.
the Larap Mines & Smelting Co., Inc., its assigns, administrators, or successors
in interest. 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)
We find the court below to be legally correct in holding that the shipment or local for the payment of the P65,000.00, the rules of interpretation would incline the
sale of the iron ore is not a condition precedent (or suspensive) to the payment scales in favor of "the greater reciprocity of interests", since sale is essentially
of the balance of P65,000.00, but was only a suspensive period or term. What onerous. The Civil Code of the Philippines, Article 1378, paragraph 1, in fine,
characterizes a conditional obligation is the fact that its efficacy or obligatory provides:
force (as distinguished from its demandability) is subordinated to the happening
of a future and uncertain event; so that if the suspensive condition does not take If the contract is onerous, the doubt shall be settled in favor of the greatest
place, the parties would stand as if the conditional obligation had never existed. reciprocity of interests.
That the parties to the contract Exhibit "A" did not intend any such state of things
to prevail is supported by several circumstances: and there can be no question that greater reciprocity obtains if the buyer'
obligation is deemed to be actually existing, with only its maturity (due date)
1) The words of the contract express no contingency in the buyer's obligation to postponed or deferred, that if such obligation were viewed as non-existent or not
pay: "The balance of Sixty-Five Thousand Pesos (P65,000.00) will be paid out of binding until the ore was sold.
the first letter of credit covering the first shipment of iron ores . . ." etc. There is
no uncertainty that the payment will have to be made sooner or later; what is The only rational view that can be taken is that the sale of the ore to Fonacier
undetermined is merely the exact date at which it will be made. By the very terms was a sale on credit, and not an aleatory contract where the transferor, Gaite,
of the contract, therefore, the existence of the obligation to pay is recognized; only would assume the risk of not being paid at all; and that the previous sale or
its maturity or demandability is deferred. shipment of the ore was not a suspensive condition for the payment of the
balance of the agreed price, but was intended merely to fix the future date of the
2) A contract of sale is normally commutative and onerous: not only does each payment.
one of the parties assume a correlative obligation (the seller to deliver and
transfer ownership of the thing sold and the buyer to pay the price),but each This issue settled, the next point of inquiry is whether appellants, Fonacier and
party anticipates performance by the other from the very start. While in a sale his sureties, still have the right to insist that Gaite should wait for the sale or
the obligation of one party can be lawfully subordinated to an uncertain event, shipment of the ore before receiving payment; or, in other words, whether or not
so that the other understands that he assumes the risk of receiving nothing for they are entitled to take full advantage of the period granted them for making the
what he gives (as in the case of a sale of hopes or expectations, emptio spei), it is payment.
not in the usual course of business to do so; hence, the contingent character of
the obligation must clearly appear. Nothing is found in the record to evidence We agree with the court below that the appellant have forfeited the right court
that Gaite desired or assumed to run the risk of losing his right over the ore below that the appellants have forfeited the right to compel Gaite to wait for the
without getting paid for it, or that Fonacier understood that Gaite assumed any sale of the ore before receiving payment of the balance of P65,000.00, because of
such risk. This is proved by the fact that Gaite insisted on a bond a to guarantee their failure to renew the bond of the Far Eastern Surety Company or else replace
payment of the P65,000.00, an not only upon a bond by Fonacier, the Larap it with an equivalent guarantee. The expiration of the bonding company's
Mines & Smelting Co., and the company's stockholders, but also on one by a undertaking on December 8, 1955 substantially reduced the security of the
surety company; and the fact that appellants did put up such bonds indicates vendor's rights as creditor for the unpaid P65,000.00, a security that Gaite
that they admitted the definite existence of their obligation to pay the balance of considered essential and upon which he had insisted when he executed the deed
P65,000.00. of sale of the ore to Fonacier (Exhibit "A"). The case squarely comes under
paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines:
3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or
shipment of the ore as a condition precedent, would be tantamount to leaving "ART. 1198. The debtor shall lose every right to make use of the period:
the payment at the discretion of the debtor, for the sale or shipment could not be
(1) . . . 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
(2) When he does not furnish to the creditor the guaranties or securities which sold in order to complete or perfect the sale, nor was the price of P75,000,00
he has promised. 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
(3) When by his own acts he has impaired said guaranties or securities after their determinate object, the mass, and not the actual number of units or tons
establishment, and when through fortuitous event they disappear, unless he contained therein, so that all that was required of the seller Gaite was to deliver
immediately gives new ones equally satisfactory. 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
Appellants' failure to renew or extend the surety company's bond upon its Machinery & Supply Co., Inc. vs. York Oilfield Salvage Co., Inc. 171 So. 872,
expiration plainly impaired the securities given to the creditor (appellee Gaite), applying art. 2459 of the Louisiana Civil Code). There is no charge in this case
unless immediately renewed or replaced. 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
There is no merit in appellants' argument that Gaite's acceptance of the surety deliver, and appellants in turn are bound to pay the lump price.
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 But assuming that plaintiff Gaite undertook to sell and appellants undertook to
waiver could have been intended, for Gaite stood to lose and had nothing to gain buy, not a definite mass, but approximately 24,000 tons of ore, so that any
barely; and if there was any, it could be rationally explained only if the appellants substantial difference in this quantity delivered would entitle the buyers to
had agreed to sell the ore and pay Gaite before the surety company's bond expired recover damages for the short-delivery, was there really a short-delivery in this
on December 8, 1955. But in the latter case the defendants-appellants' obligation case?
to pay became absolute after one year from the transfer of the ore to Fonacier by
virtue of the deed Exhibit "A.". 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
All the alternatives, therefore, lead to the same result: that Gaite acted within his parties predicate their respective claims only upon an estimated number of cubic
rights in demanding payment and instituting this action one year from and after meters of ore multiplied by the average tonnage factor per cubic meter.
the contract (Exhibit "A") was executed, either because the appellant debtors had
impaired the securities originally given and thereby forfeited any further time Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the
within which to pay; or because the term of payment was originally of no more stockpiles of ore that he sold to Fonacier, while appellants contend that by actual
than one year, and the balance of P65,000.00 became due and payable measurement, their witness Cirpriano Manlañgit found the total volume of ore in
thereafter. 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
Coming now to the second issue in this appeal, which is whether there were really correct tonnage factor to be 2.18 tons to a cubic meter, while appellee Gaite
24,000 tons of iron ore in the stockpiles sold by appellee Gaite to appellant claims that the correct tonnage factor is about 3.7.
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, In the face of the conflict of evidence, we take as the most reliable estimate of the
stress two things: first, that this is a case of a sale of a specific mass of fungible tonnage factor of iron ore in this case to be that made by Leopoldo F. Abad, chief
goods for a single price or a lump sum, the quantity of "24,000 tons of iron ore, of the Mines and Metallurgical Division of the Bureau of Mines, a government
more or less," stated in the contract Exhibit "A," being a mere estimate by the pensionado to the States and a mining engineering graduate of the Universities
parties of the total tonnage weight of the mass; and second, that the evidence of Nevada and California, with almost 22 years of experience in the Bureau of
shows that neither of the parties had actually measured of weighed the mass, so Mines. This witness placed the tonnage factor of every cubic meter of iron ore at
that they both tried to arrive at the total quantity by making an estimate of the between 3 metric tons as minimum to 5 metric tons as maximum. This estimate,
volume thereof in cubic meters and then multiplying it by the estimated weight in turn, closely corresponds to the average tonnage factor of 3.3 adopted in his
per ton of each cubic meter. 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.Republic of the Philippines
consideration of P6,000.00 (Exh. C), pursuant to which TCT No. [36113/T-172]
was issued in her name (Exh. C-1);
(2) Commutative Sale
[G.R. No. 126376. November 20, 2003] 2. Deed of Absolute Sale covering Lot 168-I-3 of subdivision plan (LRC) Psd-
256394 executed on 7 June 1979, in favor of defendant Clarita Joaquin, for a
SPOUSES BERNARDO BUENAVENTURA and CONSOLACION JOAQUIN, consideration of P1[2],000.00 (Exh. D), pursuant to which TCT No. S-109772 was
SPOUSES JUANITO EDRA and NORA JOAQUIN, SPOUSES RUFINO VALDOZ issued in her name (Exh. D-1);
and EMMA JOAQUIN, and NATIVIDAD JOAQUIN, petitioners, vs. COURT OF
APPEALS, SPOUSES LEONARDO JOAQUIN and FELICIANA LANDRITO, 3 Deed of Absolute Sale covering Lot 168-I-1 of subdivision plan (LRC) Psd-
SPOUSES FIDEL JOAQUIN and CONCHITA BERNARDO, SPOUSES TOMAS 256394 executed on 12 May 1988, in favor of defendant spouses Fidel Joaquin
JOAQUIN and SOLEDAD ALCORAN, SPOUSES ARTEMIO JOAQUIN and and Conchita Bernardo, for a consideration of P54,[3]00.00 (Exh. E), pursuant
SOCORRO ANGELES, SPOUSES ALEXANDER MENDOZA and CLARITA to which TCT No. 155329 was issued to them (Exh. E-1);
JOAQUIN, SPOUSES TELESFORO CARREON and FELICITAS JOAQUIN,
SPOUSES DANILO VALDOZ and FE JOAQUIN, and SPOUSES GAVINO JOAQUIN 4. Deed of Absolute Sale covering Lot 168-I-2 of subdivision plan (LRC) Psd-
and LEA ASIS, respondents. 256394 executed on 12 May 1988, in favor of defendant spouses Artemio Joaquin
DECISION and Socorro Angeles, for a consideration of P[54,3]00.00 (Exh. F), pursuant to
CARPIO, J.: which TCT No. 155330 was issued to them (Exh. F-1); and

The Case 5. 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, for a
This is a petition for review on certiorari[1] to annul the Decision[2] dated 26 consideration of P20,000.00 (Exh. G), pursuant to which TCT No. 157203 was
June 1996 of the Court of Appeals in CA-G.R. CV No. 41996. The Court of issued in her name (Exh. G-1).
Appeals affirmed the Decision[3] dated 18 February 1993 rendered by Branch 65
of the Regional Trial Court of Makati (trial court) in Civil Case No. 89-5174. The [6. Deed of Absolute Sale covering Lot 168-C-1 of subdivision plan (LRC) Psd-
trial court dismissed the case after it found that the parties executed the Deeds 256395 executed on 7 October 1988, in favor of Gavino Joaquin, for a
of Sale for valid consideration and that the plaintiffs did not have a cause of consideration of P25,000.00 (Exh. K), pursuant to which TCT No. 157779 was
action against the defendants. issued in his name (Exh. K-1).]

The Facts In seeking the declaration of nullity of the aforesaid deeds of sale and certificates
of title, plaintiffs, in their complaint, aver:
The Court of Appeals summarized the facts of the case as follows:
- XX-
Defendant spouses Leonardo Joaquin and Feliciana Landrito are the parents of
plaintiffs Consolacion, Nora, Emma and Natividad as well as of defendants Fidel, The deeds of sale, Annexes C, D, E, F, and G, [and K] are simulated as they are,
Tomas, Artemio, Clarita, Felicitas, Fe, and Gavino, all surnamed JOAQUIN. The are NULL AND VOID AB INITIO because
married Joaquin children are joined in this action by their respective spouses.
a) Firstly, there was no actual valid consideration for the deeds of sale xxx over
Sought to be declared null and void ab initio are certain deeds of sale of real the properties in litis;
property executed by defendant parents Leonardo Joaquin and Feliciana
Landrito in favor of their co-defendant children and the corresponding certificates b) Secondly, assuming that there was consideration in the sums reflected in the
of title issued in their names, to wit: questioned deeds, the properties are more than three-fold times more valuable
than the measly sums appearing therein;
1. Deed of Absolute Sale covering Lot 168-C-7 of subdivision plan (LRC) Psd-
256395 executed on 11 July 1978, in favor of defendant Felicitas Joaquin, for a c) Thirdly, the deeds of sale do not reflect and express the true intent of the
parties (vendors and vendees); and
All the foregoing considered, this case is DISMISSED.
d) Fourthly, the purported sale of the properties in litis was the result of a
deliberate conspiracy designed to unjustly deprive the rest of the compulsory In order to preserve whatever is left of the ties that should bind families together,
heirs (plaintiffs herein) of their legitime. the counterclaim is likewise DISMISSED.

- XXI - No costs.

Necessarily, and as an inevitable consequence, Transfer Certificates of Title Nos. SO ORDERED.[8]


36113/T-172, S-109772, 155329, 155330, 157203 [and 157779] issued by the
Registrar of Deeds over the properties in litis xxx are NULL AND VOID AB INITIO. The Ruling of the Court of Appeals

Defendants, on the other hand aver (1) that plaintiffs do not have a cause of The Court of Appeals affirmed the decision of the trial court. The appellate court
action against them as well as the requisite standing and interest to assail their ruled:
titles over the properties in litis; (2) that the sales were with sufficient
considerations and made by defendants parents voluntarily, in good faith, and To the mind of the Court, appellants are skirting the real and decisive issue in
with full knowledge of the consequences of their deeds of sale; and (3) that the this case, which is, whether xxx they have a cause of action against appellees.
certificates of title were issued with sufficient factual and legal basis.[4]
(Emphasis in the original) Upon this point, there is no question that plaintiffs-appellants, like their
defendant brothers and sisters, are compulsory heirs of defendant spouses,
The Ruling of the Trial Court Leonardo Joaquin and Feliciana Landrito, who are their parents. However, their
right to the properties of their defendant parents, as compulsory heirs, is merely
Before the trial, the trial court ordered the dismissal of the case against defendant inchoate and vests only upon the latters death. While still alive, defendant
spouses Gavino Joaquin and Lea Asis.[5] Instead of filing an Answer with their parents are free to dispose of their properties, provided that such dispositions
co-defendants, Gavino Joaquin and Lea Asis filed a Motion to Dismiss.[6] In are not made in fraud of creditors.
granting the dismissal to Gavino Joaquin and Lea Asis, the trial court noted that
compulsory heirs have the right to a legitime but such right is contingent since Plaintiffs-appellants are definitely not parties to the deeds of sale in question.
said right commences only from the moment of death of the decedent pursuant Neither do they claim to be creditors of their defendant parents. Consequently,
to Article 777 of the Civil Code of the Philippines.[7] 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
After trial, the trial court ruled in favor of the defendants and dismissed the the true intent of the parties. In point is the ruling of the Supreme Court in
complaint. The trial court stated: Velarde, et al. vs. Paez, et al., 101 SCRA 376, thus:

In the first place, the testimony of the defendants, particularly that of the xxx The plaintiffs are not parties to the alleged deed of sale and are not principally or
father will show that the Deeds of Sale were all executed for valuable subsidiarily bound thereby; hence, they have no legal capacity to challenge their
consideration. This assertion must prevail over the negative allegation of validity.
plaintiffs.
Plaintiffs-appellants anchor their action on the supposed impairment of their
And then there is the argument that plaintiffs do not have a valid cause of action legitime by the dispositions made by their defendant parents in favor of their
against defendants since there can be no legitime to speak of prior to the death defendant brothers and sisters. But, as correctly held by the court a quo, the
of their parents. The court finds this contention tenable. In determining the legitime of a compulsory heir is computed as of the time of the death of the
legitime, the value of the property left at the death of the testator shall be decedent. Plaintiffs therefore cannot claim an impairment of their legitime while
considered (Art. 908 of the New Civil Code). Hence, the legitime of a compulsory their parents live.
heir is computed as of the time of the death of the decedent. Plaintiffs therefore
cannot claim an impairment of their legitime while their parents live. With this posture taken by the Court, consideration of the errors assigned by
plaintiffs-appellants is inconsequential.
compulsory heirs (plaintiffs herein) of their legitime. Petitioners strategy was to
WHEREFORE, the decision appealed from is hereby AFFIRMED, with costs have the Deeds of Sale declared void so that ownership of the lots would
against plaintiffs-appellants. eventually revert to their respondent parents. If their parents die still owning the
lots, petitioners and their respondent siblings will then co-own their parents
SO ORDERED.[9] estate by hereditary succession.[11]

Hence, the instant petition. It is evident from the records that petitioners are interested in the properties
subject of the Deeds of Sale, but they have failed to show any legal right to the
Issues properties. The trial and appellate courts should have dismissed the action for
this reason alone. An action must be prosecuted in the name of the real party-
Petitioners assign the following as errors of the Court of Appeals: in-interest.[12]

1. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE [T]he question as to real party-in-interest is whether he is the party who would
CONVEYANCE IN QUESTION HAD NO VALID CONSIDERATION. be benefitted or injured by the judgment, or the party entitled to the avails of the
suit.
2. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT EVEN ASSUMING
THAT THERE WAS A CONSIDERATION, THE SAME IS GROSSLY INADEQUATE. xxx

3. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE DEEDS OF In actions for the annulment of contracts, such as this action, the real parties
SALE DO NOT EXPRESS THE TRUE INTENT OF THE 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
4. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE parties and can show the detriment which would positively result to them from
CONVEYANCE WAS PART AND PARCEL OF A CONSPIRACY AIMED AT the contract even though they did not intervene in it (Ibaez v. Hongkong &
UNJUSTLY DEPRIVING THE REST OF THE CHILDREN OF THE SPOUSES Shanghai Bank, 22 Phil. 572 [1912]) xxx.
LEONARDO JOAQUIN AND FELICIANA LANDRITO OF THEIR INTEREST OVER
THE SUBJECT PROPERTIES. These are parties with a present substantial interest, as distinguished from a
mere expectancy or future, contingent, subordinate, or consequential interest.
5. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONERS The phrase present substantial interest more concretely is meant such interest
HAVE A GOOD, SUFFICIENT AND VALID CAUSE OF ACTION AGAINST THE of a party in the subject matter of the action as will entitle him, under the
PRIVATE RESPONDENTS.[10] substantive law, to recover if the evidence is sufficient, or that he has the legal
title to demand and the defendant will be protected in a payment to or recovery
The Ruling of the Court by him.[13]

We find the petition without merit. Petitioners do not have any legal interest over the properties subject of the Deeds
of Sale. As the appellate court stated, petitioners right to their parents properties
We will discuss petitioners legal interest over the properties subject of the Deeds is merely inchoate and vests only upon their parents death. While still living, the
of Sale before discussing the issues on the purported lack of consideration and parents of petitioners are free to dispose of their properties. In their
gross inadequacy of the prices of the Deeds of Sale. overzealousness to safeguard their future legitime, petitioners forget that
theoretically, the sale of the lots to their siblings does not affect the value of their
Whether Petitioners have a legal interest parents estate. While the sale of the lots reduced the estate, cash of equivalent
over the properties subject of the Deeds of Sale value replaced the lots taken from the estate.

Petitioners Complaint betrays their motive for filing this case. In their Complaint, Whether the Deeds of Sale are void
petitioners asserted that the purported sale of the properties in litis was the for lack of consideration
result of a deliberate conspiracy designed to unjustly deprive the rest of the
Petitioners assert that their respondent siblings did not actually pay the prices Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall
stated in the Deeds of Sale to their respondent father. Thus, petitioners ask the not invalidate a contract, unless there has been fraud, mistake or undue
court to declare the Deeds of Sale void. influence. (Emphasis supplied)

A contract of sale is not a real contract, but a consensual contract. As a Article 1470 of the Civil Code further provides:
consensual contract, a contract of sale becomes a binding and valid contract
upon the meeting of the minds as to price. If there is a meeting of the minds of Art. 1470. Gross inadequacy of price does not affect a contract of sale, except as
the parties as to the price, the contract of sale is valid, despite the manner of may indicate a defect in the consent, or that the parties really intended a
payment, or even the breach of that manner of payment. If the real price is not donation or some other act or contract. (Emphasis supplied)
stated in the contract, then the contract of sale is valid but subject to
reformation. If there is no meeting of the minds of the parties as to the price, Petitioners failed to prove any of the instances mentioned in Articles 1355 and
because the price stipulated in the contract is simulated, then the contract is 1470 of the Civil Code which would invalidate, or even affect, the Deeds of Sale.
void.[14] Article 1471 of the Civil Code states that if the price in a contract of sale Indeed, there is no requirement that the price be equal to the exact value of the
is simulated, the sale is void. subject matter of sale. All the respondents believed that they received the
commutative value of what they gave. As we stated in Vales v. Villa:[19]
It is not the act of payment of price that determines the validity of a contract of
sale. Payment of the price has nothing to do with the perfection of the contract. Courts cannot follow one every step of his life and extricate him from bad
Payment of the price goes into the performance of the contract. Failure to pay the bargains, protect him from unwise investments, relieve him from one-sided
consideration is different from lack of consideration. The former results in a right contracts, or annul the effects of foolish acts. Courts cannot constitute
to demand the fulfillment or cancellation of the obligation under an existing valid themselves guardians of persons who are not legally incompetent. Courts operate
contract while the latter prevents the existence of a valid contract.[15] not because one person has been defeated or overcome by another, but because
he has been defeated or overcome illegally. Men may do foolish things, make
Petitioners failed to show that the prices in the Deeds of Sale were absolutely ridiculous contracts, use miserable judgment, and lose money by them indeed,
simulated. To prove simulation, petitioners presented Emma Joaquin Valdozs all they have in the world; but not for that alone can the law intervene and
testimony stating that their father, respondent Leonardo Joaquin, told her that restore. There must be, in addition, a violation of the law, the commission of what
he would transfer a lot to her through a deed of sale without need for her payment the law knows as an actionable wrong, before the courts are authorized to lay
of the purchase price.[16] The trial court did not find the allegation of absolute hold of the situation and remedy it. (Emphasis in the original)
simulation of price credible. Petitioners failure to prove absolute simulation of
price is magnified by their lack of knowledge of their respondent siblings financial Moreover, the factual findings of the appellate court are conclusive on the parties
capacity to buy the questioned lots.[17] On the other hand, the Deeds of Sale and carry greater weight when they coincide with the factual findings of the trial
which petitioners presented as evidence plainly showed the cost of each lot sold. court. This Court will not weigh the evidence all over again unless there has been
Not only did respondents minds meet as to the purchase price, but the real price a showing that the findings of the lower court are totally devoid of support or are
was also stated in the Deeds of Sale. As of the filing of the complaint, respondent clearly erroneous so as to constitute serious abuse of discretion.[20] In the
siblings have also fully paid the price to their respondent father.[18] instant case, the trial court found that the lots were sold for a valid consideration,
and that the defendant children actually paid the purchase price stipulated in
Whether the Deeds of Sale are void their respective Deeds of Sale. Actual payment of the purchase price by the buyer
for gross inadequacy of price to the seller is a factual finding that is now conclusive upon us.

Petitioners ask that assuming that there is consideration, the same is grossly WHEREFORE, we AFFIRM the decision of the Court of Appeals in toto.SUPREME
inadequate as to invalidate the Deeds of Sale.

Articles 1355 of the Civil Code states:


(3) Contract for Piece of Work P188,754.69. 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
CELESTINO CO & COMPANY, petitioner, special orders for these items.
vs.
COLLECTOR OF INTERNAL REVENUE, respondent. Even if we were to believe petitioner's claim that it does not manufacture ready-
made sash, doors and windows for the public and that it makes these articles
Office of the Solicitor General Ambrosio Padilla, Fisrt Assistant Solicitor General only special order of its customers, that does not make it a contractor within the
Guillermo E. Torres and Solicitor Federico V. Sian for respondent. purview of section 191 of the national Internal Revenue Code. there are no less
than fifty occupations enumerated in the aforesaid section of the national
BENGZON, J.: Internal Revenue Code subject to percentage tax and after reading carefully each
and every one of them, we cannot find under which the business of
Appeal from a decision of the Court of Tax Appeals. manufacturing sash, doors and windows upon special order of customers fall
under the category of "road, building, navigation, artesian well, water workers
Celestino Co & Company is a duly registered general copartnership doing and other construction work contractors" are those who alter or repair buildings,
business under the trade name of "Oriental Sash Factory". From 1946 to 1951 it structures, streets, highways, sewers, street railways railroads logging roads,
paid percentage taxes of 7 per cent on the gross receipts of its sash, door and electric lines or power lines, and includes any other work for the construction,
window factory, in accordance with section one hundred eighty-six of the altering or repairing for which machinery driven by mechanical power is used.
National Revenue Code imposing taxes on sale of manufactured articles. However (Payton vs. City of Anadardo 64 P. 2d 878, 880, 179 Okl. 68).
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; and having failed to convince Having thus eliminated the feasibility off taxing petitioner as a contractor under
the Bureau of Internal Revenue, it brought the matter to the Court of Tax 191 of the national Internal Revenue Code, this leaves us to decide the remaining
Appeals, where it also failed. Said the Court: 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
To support his contention that his client is an ordinary contractor . . . counsel code, as the respondent Collector of Internal Revenue has in fact been doing the
presented . . . duplicate copies of letters, sketches of doors and windows and Oriental Sash Factory was established in 1946.
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 The percentage tax imposed in section 191 of our Tax Code is generally a tax on
said factory. The conclusion that counsel would like us to deduce from these few the sales of services, in contradiction with the tax imposed in section 186 of the
exhibits is that the Oriental Sash Factory does not manufacture ready-made same Code which is a tax on the original sales of articles by the manufacturer,
doors, sash and windows for the public but only upon special order of its select producer or importer. (Formilleza's Commentaries and Jurisprudence on the
customers. . . . I cannot believe that petitioner company would take, as in fact it National Internal Revenue Code, Vol. II, p. 744). The fact that the articles sold
has taken, all the trouble and expense of registering a special trade name for its are manufactured by the seller does not exchange the contract from the purview
sash business and then orders company stationery carrying the bold print of section 186 of the National Internal Revenue Code as a sale of articles.
"Oriental Sash Factory (Celestino Co & Company, Prop.) 926 Raon St. Quiapo,
Manila, Tel. No. 33076, Manufacturers of all kinds of doors, windows, sashes, There was a strong dissent; but upon careful consideration of the whole matter
furniture, etc. used season-dried and kiln-dried lumber, of the best quality are inclines to accept the above statement of the facts and the law. The important
workmanships" solely for the purpose of supplying the needs for doors, windows thing to remember is that Celestino Co & Company habitually makes sash,
and sash of its special and limited customers. One ill note that petitioner has windows and doors, as it has represented in its stationery and advertisements to
chosen for its tradename and has offered itself to the public as a "Factory", which the public. That it "manufactures" the same is practically admitted by appellant
means it is out to do business, in its chosen lines on a big scale. As a general itself. The fact that windows and doors are made by it only when customers place
rule, sash factories receive orders for doors and windows of special design only their orders, does not alter the nature of the establishment, for it is obvious that
in particular cases but the bulk of their sales is derived from a ready-made doors it only accepted such orders as called for the employment of such material-
and windows of standard sizes for the average home. Moreover, as shown from moulding, frames, panels-as it ordinarily manufactured or was in a position
the investigation of petitioner's book of accounts, during the period from January habitually to manufacture.
1, 1952 to September 30, 1952, it sold sash, doors and windows worth
Perhaps the following paragraph represents in brief the appellant's position in Appellant invokes Article 1467 of the New Civil Code to bolster its contention that
this Court: in filing orders for windows and doors according to specifications, it did not sell,
but merely contracted for particular pieces of work or "merely sold its services".
Since the petitioner, by clear proof of facts not disputed by the respondent,
manufacturers sash, windows and doors only for special customers and upon Said article reads as follows:
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 A contract for the delivery at a certain price of an article which the vendor in the
ordered by Don Toribio Teodoro & Sons, Inc., for instance, are not in existence ordinary course of his business manufactures or procures for the general market,
and which never would have existed but for the order of the party desiring it; and whether the same is on hand at the time or not, is a contract of sale, but if the
since petitioner's contractual relation with his customers is that of a contract for goods are to be manufactured specially for the customer and upon his special
a piece of work or since petitioner is engaged in the sale of services, it follows that order, and not for the general market, it is contract for a piece of work.
the petitioner should be taxed under section 191 of the Tax Code and NOT under
section 185 of the same Code." (Appellant's brief, p. 11-12). It is at once apparent that the Oriental Sash Factory did not merely sell its
services to Don Toribio Teodoro & Co. (To take one instance) because it also sold
But the argument rests on a false foundation. Any builder or homeowner, with the materials. The truth of the matter is that it sold materials ordinarily
sufficient money, may order windows or doors of the kind manufactured by this manufactured by it — sash, panels, mouldings — to Teodoro & Co., although in
appellant. Therefore it is not true that it serves special customers only or confines such form or combination as suited the fancy of the purchaser. Such new form
its services to them alone. And anyone who sees, and likes, the doors ordered by does not divest the Oriental Sash Factory of its character as manufacturer.
Don Toribio Teodoro & Sons Inc. may purchase from appellant doors of the same Neither does it take the transaction out of the category of sales under Article
kind, provided he pays the price. Surely, the appellant will not refuse, for it can 1467 above quoted, because although the Factory does not, in the ordinary
easily duplicate or even mass-produce the same doors-it is mechanically course of its business, manufacture and keep on stock doors of the kind sold to
equipped to do so. Teodoro, it could stock and/or probably had in stock the sash, mouldings and
panels it used therefor (some of them at least).
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 In our opinion when this Factory accepts a job that requires the use of
manufactured by appellant — special forms for sash, mouldings of panels — it extraordinary or additional equipment, or involves services not generally
would not accept the order — and no sale is made. If they do, the transaction performed by it-it thereby contracts for a piece of work — filing special orders
would be no different from a purchasers of manufactured goods held is stock for within the meaning of Article 1467. The orders herein exhibited were not shown
sale; they are bought because they meet the specifications desired by the to be special. They were merely orders for work — nothing is shown to call them
purchaser. special requiring extraordinary service of the factory.

Nobody will say that when a sawmill cuts lumber in accordance with the peculiar The thought occurs to us that if, as alleged-all the work of appellant is only to fill
specifications of a customer-sizes not previously held in stock for sale to the orders previously made, such orders should not be called special work, but
public-it thereby becomes an employee or servant of the customer,1 not the seller regular work. Would a factory do business performing only special, extraordinary
of lumber. The same consideration applies to this sash manufacturer. or peculiar merchandise?

The Oriental Sash Factory does nothing more than sell the goods that it mass- Anyway, supposing for the moment that the transactions were not sales, they
produces or habitually makes; sash, panels, mouldings, frames, cutting them to were neither lease of services nor contract jobs by a contractor. But as the doors
such sizes and combining them in such forms as its customers may desire. and windows had been admittedly "manufactured" by the Oriental Sash Factory,
such transactions could be, and should be taxed as "transfers" thereof under
On the other hand, petitioner's idea of being a contractor doing construction jobs section 186 of the National Revenue Code.
is untenable. Nobody would regard the doing of two window panels a construction
work in common parlance.2 The appealed decision is consequently affirmed. So ordered.
(4) Contract for Piece of Work and search was conducted by a joint team of Central Bank, (CB), National Bureau
of Investigation (NBI) and Bureau of Internal Revenue (BIR) agents on September
G.R. No. L-27044 June 30, 1975 27, 1956, on which occasion voluminous records of the firm were seized and
confiscated. (pp. 173-177 T.S.N.)
THE COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs. On September 30, 1957, revenue examiners Quesada and Catudan reported and
ENGINEERING EQUIPMENT AND SUPPLY COMPANY AND THE COURT OF TAX recommended to the then Collector, now Commissioner, of Internal Revenue
APPEALS, respondents. (hereinafter referred to as Commissioner) that Engineering be assessed for
P480,912.01 as deficiency advance sales tax on the theory that it misdeclared its
G.R. No. L-27452 June 30, 1975 importation of air conditioning units and parts and accessories thereof which are
subject to tax under Section 185(m)1 of the Tax Code, instead of Section 186 of
ENGINEERING EQUIPMENT AND SUPPLY COMPANY, petitioner, the same Code. (Exh. "3" pp. 59-63 BIR rec. Vol. I) This assessment was revised
vs. on January 23, 1959, in line with the observation of the Chief, BIR Law Division,
THE COMMISSIONER OF INTERNAL REVENUE AND THE COURT OF TAX and was raised to P916,362.56 representing deficiency advance sales tax and
APPEALS, respondent. manufacturers sales tax, inclusive of the 25% and 50% surcharges. (pp. 72-80
BIR rec. Vol. I)
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General
Felicisimo R. Rosete, Solicitor Lolita O. Gal-lang, and Special Attorney Gemaliel On March 3, 1959. the Commissioner assessed against, and demanded upon,
H. Montalino for Commissioner of Internal Revenue, etc. Engineering payment of the increased amount and suggested that P10,000 be
paid as compromise in extrajudicial settlement of Engineering's penal liability for
Melquides C. Gutierrez, Jose U. Ong, Juan G. Collas, Jr., Luis Ma. Guerrero and violation of the Tax Code. The firm, however, contested the tax assessment and
J.R. Balonkita for Engineering and Supply Company. requested that it be furnished with the details and particulars of the
Commissioner's assessment. (Exh. "B" and "15", pp. 86-88 BIR rec. Vol. I) The
Commissioner replied that the assessment was in accordance with law and the
ESGUERRA, J.: facts of the case.

Petition for review on certiorari of the decision of the Court of Tax Appeals in CTA On July 30, 1959, Engineering appealed the case to the Court of Tax Appeals
Case No. 681, dated November 29, 1966, assessing a compensating tax of and during the pendency of the case the investigating revenue examiners reduced
P174,441.62 on the Engineering Equipment and Supply Company. Engineering's deficiency tax liabilities from P916,362.65 to P740,587.86 (Exhs.
"R" and "9" pp. 162-170, BIR rec.), based on findings after conferences had with
As found by the Court of Tax Appeals, and as established by the evidence on Engineering's Accountant and Auditor.
record, the facts of this case are as follows:
On November 29, 1966, the Court of Tax Appeals rendered its decision, the
Engineering Equipment and Supply Co. (Engineering for short), a domestic dispositive portion of which reads as follows:
corporation, is an engineering and machinery firm. As operator of an integrated
engineering shop, it is engaged, among others, in the design and installation of For ALL THE FOREGOING CONSIDERATIONS, the decision of respondent
central type air conditioning system, pumping plants and steel fabrications. (Vol. appealed from is hereby modified, and petitioner, as a contractor, is declared
I pp. 12-16 T.S.N. August 23, 1960) exempt from the deficiency manufacturers sales tax covering the period from
June 1, 1948. to September 2, 1956. However, petitioner is ordered to pay
On July 27, 1956, one Juan de la Cruz, wrote the then Collector, now respondent, or his duly authorized collection agent, the sum of P174,141.62 as
Commissioner, of Internal Revenue denouncing Engineering for tax evasion by compensating tax and 25% surcharge for the period from 1953 to September
misdeclaring its imported articles and failing to pay the correct percentage taxes 1956. With costs against petitioner.
due thereon in connivance with its foreign suppliers (Exh. "2" p. 1 BIR record
Vol. I). Engineering was likewise denounced to the Central Bank (CB) for alleged The Commissioner, not satisfied with the decision of the Court of Tax Appeals,
fraud in obtaining its dollar allocations. Acting on these denunciations, a raid appealed to this Court on January 18, 1967, (G.R. No. L-27044). On the other
hand, Engineering, on January 4, 1967, filed with the Court of Tax Appeals a 3. In holding that the respondent company is subject only to the 30%
motion for reconsideration of the decision abovementioned. This was denied on compensating tax under Section 190 of the Tax Code and not to the 30% advance
April 6, 1967, prompting Engineering to file also with this Court its appeal, sales tax imposed by section 183 (b), in relation to section 185(m) both of the
docketed as G.R. No. L-27452. same Code, on its importations of parts and accessories of air conditioning units;

Since the two cases, G.R. No. L-27044 and G.R. No. L-27452, involve the same 4. In not holding the company liable to the 50% fraud surcharge under
parties and issues, We have decided to consolidate and jointly decide them. Section 183 of the Tax Code on its importations of parts and accessories of air
conditioning units, notwithstanding the finding of said court that the respondent
Engineering in its Petition claims that the Court of Tax Appeals committed the company fraudulently misdeclared the said importations;
following errors:
5. In holding the respondent company liable for P174,141.62 as
1. That the Court of Tax Appeals erred in holding Engineering Equipment compensating tax and 25% surcharge instead of P740,587.86 as deficiency
& Supply Company liable to the 30% compensating tax on its importations of advance sales tax, deficiency manufacturers tax and 25% and 50% surcharge for
equipment and ordinary articles used in the central type air conditioning systems the period from June 1, 1948 to December 31, 1956.
it designed, fabricated, constructed and installed in the buildings and premises
of its customers, rather than to the compensating tax of only 7%; The main issue revolves on the question of whether or not Engineering is a
manufacturer of air conditioning units under Section 185(m), supra, in relation
2. That the Court of Tax Appeals erred in holding Engineering Equipment to Sections 183(b) and 194 of the Code, or a contractor under Section 191 of the
& Supply Company guilty of fraud in effecting the said importations on the basis same Code.
of incomplete quotations from the contents of alleged photostat copies of
documents seized illegally from Engineering Equipment and Supply Company The Commissioner contends that Engineering is a manufacturer and seller of air
which should not have been admitted in evidence; conditioning units and parts or accessories thereof and, therefore, it is subject to
the 30% advance sales tax prescribed by Section 185(m) of the Tax Code, in
3. That the Court of Tax Appeals erred in holding Engineering Equipment relation to Section 194 of the same, which defines a manufacturer as follows:
& Supply Company liable to the 25% surcharge prescribed in Section 190 of the
Tax Code; Section 194. — Words and Phrases Defined. — In applying the provisions of this
Title, words and phrases shall be taken in the sense and extension indicated
4. That the Court of Tax Appeals erred in holding the assessment as not below:
having prescribed;
xxx xxx xxx
5. That the Court of Tax Appeals erred in holding Engineering Equipment
& Supply Company liable for the sum of P174,141.62 as 30% compensating tax (x) "Manufacturer" includes every person who by physical or chemical
and 25% surcharge instead of completely absolving it from the deficiency process alters the exterior texture or form or inner substance of any raw material
assessment of the Commissioner. or manufactured or partially manufactured products in such manner as to
prepare it for a special use or uses to which it could not have been put in its
The Commissioner on the other hand claims that the Court of Tax Appeals erred: original condition, or who by any such process alters the quality of any such
material or manufactured or partially manufactured product so as to reduce it
1. In holding that the respondent company is a contractor and not a to marketable shape, or prepare it for any of the uses of industry, or who by any
manufacturer. such process combines any such raw material or manufactured or partially
manufactured products with other materials or products of the same or of
2. In holding respondent company liable to the 3% contractor's tax imposed different kinds and in such manner that the finished product of such process of
by Section 191 of the Tax Code instead of the 30% sales tax prescribed in Section manufacture can be put to special use or uses to which such raw material or
185(m) in relation to Section 194(x) both of the same Code; manufactured or partially manufactured products in their original condition
could not have been put, and who in addition alters such raw material or
manufactured or partially manufactured products, or combines the same to
produce such finished products for the purpose of their sale or distribution to
others and not for his own use or consumption. With the foregoing criteria as guideposts, We shall now examine whether
Engineering really did "manufacture" and sell, as alleged by the Commissioner to
In answer to the above contention, Engineering claims that it is not a hold it liable to the advance sales tax under Section 185(m), or it only had its
manufacturer and setter of air-conditioning units and spare parts or accessories services "contracted" for installation purposes to hold it liable under section 198
thereof subject to tax under Section 185(m) of the Tax Code, but a contractor of the Tax Code.
engaged in the design, supply and installation of the central type of air-
conditioning system subject to the 3% tax imposed by Section 191 of the same I
Code, which is essentially a tax on the sale of services or labor of a contractor
rather than on the sale of articles subject to the tax referred to in Sections 184, After going over the three volumes of stenographic notes and the voluminous
185 and 186 of the Code. record of the BIR and the CTA as well as the exhibits submitted by both parties,
We find that Engineering did not manufacture air conditioning units for sale to
The arguments of both the Engineering and the Commissioner call for a the general public, but imported some items (as refrigeration compressors in
clarification of the term contractor as well as the distinction between a contract complete set, heat exchangers or coils, t.s.n. p. 39) which were used in executing
of sale and contract for furnishing services, labor and materials. The distinction contracts entered into by it. Engineering, therefore, undertook negotiations and
between a contract of sale and one for work, labor and materials is tested by the execution of individual contracts for the design, supply and installation of air
inquiry whether the thing transferred is one not in existence and which never conditioning units of the central type (t.s.n. pp. 20-36; Exhs. "F", "G", "H", "I",
would have existed but for the order of the party desiring to acquire it, or a thing "J", "K", "L", and "M"), taking into consideration in the process such factors as
which would have existed and has been the subject of sale to some other persons the area of the space to be air conditioned; the number of persons occupying or
even if the order had not been given.2 If the article ordered by the purchaser is would be occupying the premises; the purpose for which the various air
exactly such as the plaintiff makes and keeps on hand for sale to anyone, and no conditioning areas are to be used; and the sources of heat gain or cooling load
change or modification of it is made at defendant's request, it is a contract of on the plant such as sun load, lighting, and other electrical appliances which are
sale, even though it may be entirely made after, and in consequence of, the or may be in the plan. (t.s.n. p. 34, Vol. I) Engineering also testified during the
defendants order for it.3 hearing in the Court of Tax Appeals that relative to the installation of air
conditioning system, Engineering designed and engineered complete each
Our New Civil Code, likewise distinguishes a contract of sale from a contract for particular plant and that no two plants were identical but each had to be
a piece of work thus: engineered separately.

Art. 1467. A contract for the delivery at a certain price of an article which As found by the lower court, which finding4 We adopt —
the vendor in the ordinary course of his business manufactures or procures for
the general market, whether the same is on hand at the time or not, is a contract Engineering, in a nutshell, fabricates, assembles, supplies and installs in the
of sale, but if the goods are to be manufactured specially for the customer and buildings of its various customers the central type air conditioning system;
upon his special order and not for the general market, it is a contract for a piece prepares the plans and specifications therefor which are distinct and different
of work. from each other; the air conditioning units and spare parts or accessories thereof
used by petitioner are not the window type of air conditioner which are
The word "contractor" has come to be used with special reference to a person manufactured, assembled and produced locally for sale to the general market;
who, in the pursuit of the independent business, undertakes to do a specific job and the imported air conditioning units and spare parts or accessories thereof
or piece of work for other persons, using his own means and methods without are supplied and installed by petitioner upon previous orders of its customers
submitting himself to control as to the petty details. (Arañas, Annotations and conformably with their needs and requirements.
Jurisprudence on the National Internal Revenue Code, p. 318, par. 191 (2), 1970
Ed.) The true test of a contractor as was held in the cases of Luzon Stevedoring The facts and circumstances aforequoted support the theory that Engineering is
Co., vs. Trinidad, 43, Phil. 803, 807-808, and La Carlota Sugar Central vs. a contractor rather than a manufacturer.
Trinidad, 43, Phil. 816, 819, would seem to be that he renders service in the
course of an independent occupation, representing the will of his employer only The Commissioner in his Brief argues that "it is more in accord with reason and
as to the result of his work, and not as to the means by which it is accomplished. sound business management to say that anyone who desires to have air
conditioning units installed in his premises and who is in a position and willing so that we have to design the different component parts of the air conditioning
to pay the price can order the same from the company (Engineering) and, system in such a way that will be accommodated in the space assigned and
therefore, Engineering could have mass produced and stockpiled air conditioning afterwards the system may be considered as a definite portion of the building. ...
units for sale to the public or to any customer with enough money to buy the
same." This is untenable in the light of the fact that air conditioning units, Definitely there is quite a big difference in the operation because the window type
packaged, or what we know as self-contained air conditioning units, are distinct air conditioner is a sort of compromise. In fact it cannot control humidity to the
from the central system which Engineering dealt in. To Our mind, the distinction desired level; rather the manufacturers, by hit and miss, were able to satisfy
as explained by Engineering, in its Brief, quoting from books, is not an idle play themselves that the desired comfort within a room could be made by a definite
of words as claimed by the Commissioner, but a significant fact which We just setting of the machine as it comes from the factory; whereas the central type
cannot ignore. As quoted by Engineering Equipment & Supply Co., from an system definitely requires an intelligent operator. (t.s.n. pp. 301-305, Vol. II)
Engineering handbook by L.C. Morrow, and which We reproduce hereunder for
easy reference: The point, therefore, is this — Engineering definitely did not and was not engaged
in the manufacture of air conditioning units but had its services contracted for
... there is a great variety of equipment in use to do this job (of air conditioning). the installation of a central system. The cases cited by the Commissioner
Some devices are designed to serve a specific type of space; others to perform a (Advertising Associates, Inc. vs. Collector of Customs, 97, Phil. 636; Celestino Co
specific function; and still others as components to be assembled into a tailor- & Co. vs. Collector of Internal Revenue, 99 Phil. 841 and Manila Trading & Supply
made system to fit a particular building. Generally, however, they may be Co. vs. City of Manila, 56 O.G. 3629), are not in point. Neither are they applicable
grouped into two classifications — unitary and central system. because the facts in all the cases cited are entirely different. Take for instance
the case of Celestino Co where this Court held the taxpayer to be a manufacturer
The unitary equipment classification includes those designs such as room air rather than a contractor of sash, doors and windows manufactured in its factory.
conditioner, where all of the functional components are included in one or two Indeed, from the very start, Celestino Co intended itself to be a manufacturer of
packages, and installation involves only making service connection such as doors, windows, sashes etc. as it did register a special trade name for its sash
electricity, water and drains. Central-station systems, often referred to as applied business and ordered company stationery carrying the bold print "ORIENTAL
or built-up systems, require the installation of components at different points in SASH FACTORY (CELESTINO CO AND COMPANY, PROP.) 926 Raon St., Quiapo,
a building and their interconnection. Manila, Tel. No. etc., Manufacturers of All Kinds of Doors, Windows ... ." Likewise,
Celestino Co never put up a contractor's bond as required by Article 1729 of the
The room air conditioner is a unitary equipment designed specifically for a room Civil Code. Also, as a general rule, sash factories receive orders for doors and
or similar small space. It is unique among air conditioning equipment in two windows of special design only in particular cases, but the bulk of their sales is
respects: It is in the electrical appliance classification, and it is made by a great derived from ready-made doors and windows of standard sizes for the average
number of manufacturers. home, which "sales" were reflected in their books of accounts totalling
P118,754.69 for the period from January, 1952 to September 30, 1952, or for a
There is also the testimony of one Carlos Navarro, a licensed Mechanical and period of only nine (9) months. This Court found said sum difficult to have been
Electrical Engineer, who was once the Chairman of the Board of Examiners for derived from its few customers who placed special orders for these items.
Mechanical Engineers and who was allegedly responsible for the preparation of Applying the abovestated facts to the case at bar, We found them to he
the refrigeration and air conditioning code of the City of Manila, who said that inapposite. Engineering advertised itself as Engineering Equipment and Supply
"the central type air conditioning system is an engineering job that requires Company, Machinery Mechanical Supplies, Engineers, Contractors, 174
planning and meticulous layout due to the fact that usually architects assign Marques de Comillas, Manila (Exh. "B" and "15" BIR rec. p. 186), and not as
definite space and usually the spaces they assign are very small and of various manufacturers. It likewise paid the contractors tax on all the contracts for the
sizes. Continuing further, he testified: design and construction of central system as testified to by Mr. Rey Parker, its
President and General Manager. (t.s.n. p. 102, 103) Similarly, Engineering did
I don't think I have seen central type of air conditioning machinery room that are not have ready-made air conditioning units for sale but as per testimony of Mr.
exactly alike because all our buildings here are designed by architects dissimilar Parker upon inquiry of Judge Luciano of the CTA —
to existing buildings, and usually they don't coordinate and get the advice of air
conditioning and refrigerating engineers so much so that when we come to Q — Aside from the general components, which go into air conditioning plant or
design, we have to make use of the available space that they are assigning to us system of the central type which your company undertakes, and the procedure
followed by you in obtaining and executing contracts which you have already to Section 194 of the same Code. Since it has been proved to Our satisfaction
testified to in previous hearing, would you say that the covering contracts for that Engineering imported air conditioning units, parts or accessories thereof for
these different projects listed ... referred to in the list, Exh. "F" are identical in use in its construction business and these items were never sold, resold, bartered
every respect? I mean every plan or system covered by these different contracts or exchanged, Engineering should be held liable to pay taxes prescribed under
are identical in standard in every respect, so that you can reproduce them? Section 1905 of the Code. This compensating tax is not a tax on the importation
of goods but a tax on the use of imported goods not subject to sales tax.
A — No, sir. They are not all standard. On the contrary, none of them are the Engineering, therefore, should be held liable to the payment of 30%
same. Each one must be designed and constructed to meet the particular compensating tax in accordance with Section 190 of the Tax Code in relation to
requirements, whether the application is to be operated. (t.s.n. pp. 101-102) Section 185(m) of the same, but without the 50% mark up provided in Section
183(b).
What We consider as on all fours with the case at bar is the case of S.M. Lawrence
Co. vs. McFarland, Commissioner of Internal Revenue of the State of Tennessee II
and McCanless, 355 SW 2d, 100, 101, "where the cause presents the question of
whether one engaged in the business of contracting for the establishment of air We take up next the issue of fraud. The Commissioner charged Engineering with
conditioning system in buildings, which work requires, in addition to the misdeclaration of the imported air conditioning units and parts or accessories
furnishing of a cooling unit, the connection of such unit with electrical and thereof so as to make them subject to a lower rate of percentage tax (7%) under
plumbing facilities and the installation of ducts within and through walls, Section 186 of the Tax Code, when they are allegedly subject to a higher rate of
ceilings and floors to convey cool air to various parts of the building, is liable for tax (30%) under its Section 185(m). This charge of fraud was denied by
sale or use tax as a contractor rather than a retailer of tangible personal property. Engineering but the Court of Tax Appeals in its decision found adversely and
Appellee took the Position that appellant was not engaged in the business of said"
selling air conditioning equipment as such but in the furnishing to its customers
of completed air conditioning systems pursuant to contract, was a contractor ... We are amply convinced from the evidence presented by respondent that
engaged in the construction or improvement of real property, and as such was petitioner deliberately and purposely misdeclared its importations. This evidence
liable for sales or use tax as the consumer of materials and equipment used in consists of letters written by petitioner to its foreign suppliers, instructing them
the consummation of contracts, irrespective of the tax status of its contractors. on how to invoice and describe the air conditioning units ordered by petitioner.
To transmit the warm or cool air over the buildings, the appellant installed ... (p. 218 CTA rec.)
system of ducts running from the basic units through walls, ceilings and floors
to registers. The contract called for completed air conditioning systems which Despite the above findings, however, the Court of Tax Appeals absolved
became permanent part of the buildings and improvements to the realty." The Engineering from paying the 50% surcharge prescribe by Section 183(a) of the
Court held the appellant a contractor which used the materials and the Tax Code by reasoning out as follows:
equipment upon the value of which the tax herein imposed was levied in the
performance of its contracts with its customers, and that the customers did not The imposition of the 50% surcharge prescribed by Section 183(a) of the Tax Code
purchase the equipment and have the same installed. is based on willful neglect to file the monthly return within 20 days after the end
of each month or in case a false or fraudulent return is willfully made, it can
Applying the facts of the aforementioned case to the present case, We see that readily be seen, that petitioner cannot legally be held subject to the 50%
the supply of air conditioning units to Engineer's various customers, whether the surcharge imposed by Section 183(a) of the Tax Code. Neither can petitioner be
said machineries were in hand or not, was especially made for each customer held subject to the 50% surcharge under Section 190 of the Tax Code dealing on
and installed in his building upon his special order. The air conditioning units compensating tax because the provisions thereof do not include the 50%
installed in a central type of air conditioning system would not have existed but surcharge. Where a particular provision of the Tax Code does not impose the 50%
for the order of the party desiring to acquire it and if it existed without the special surcharge as fraud penalty we cannot enforce a non-existing provision of law
order of Engineering's customer, the said air conditioning units were not notwithstanding the assessment of respondent to the contrary. Instances of the
intended for sale to the general public. Therefore, We have but to affirm the exclusion in the Tax Code of the 50% surcharge are those dealing on tax on
conclusion of the Court of Tax Appeals that Engineering is a contractor rather banks, taxes on receipts of insurance companies, and franchise tax. However, if
than a manufacturer, subject to the contractors tax prescribed by Section 191 of the Tax Code imposes the 50% surcharge as fraud penalty, it expressly so
the Code and not to the advance sales tax imposed by Section 185(m) in relation provides as in the cases of income tax, estate and inheritance taxes, gift taxes,
mining tax, amusement tax and the monthly percentage taxes. Accordingly, we thereafter be unable to utilize their forwarding service. Please inform them that
hold that petitioner is not subject to the 50% surcharge despite the existence of we will not tolerate another failure to follow our requirements.
fraud in the absence of legal basis to support the importation thereof. (p. 228
CTA rec.) And on July 17, 1953 (Exh- "3-g" p. 145, BIR rec.) Engineering wrote Trane Co.
another letter, viz:
We have gone over the exhibits submitted by the Commissioner evidencing fraud
committed by Engineering and We reproduce some of them hereunder for clarity. In the past, we have always paid the air conditioning tax on climate changers
and that mark is recognized in the Philippines, as air conditioning equipment.
As early as March 18, 1953, Engineering in a letter of even date wrote to Trane This matter of avoiding any tie-in on air conditioning is very important to us, and
Co. (Exh. "3-K" pp. 152-155, BIR rec.) viz: we are asking that from hereon that whoever takes care of the processing of our
orders be carefully instructed so as to avoid again using the term "Climate
Your invoices should be made in the name of Madrigal & Co., Inc., Manila, changers" or in any way referring to the equipment as "air conditioning."
Philippines, c/o Engineering Equipment & Supply Co., Manila, Philippines —
forwarding all correspondence and shipping papers concerning this order to us And in response to the aforequoted letter, Trane Co. wrote on July 30, 1953,
only and not to the customer. suggesting a solution, viz:

When invoicing, your invoices should be exactly as detailed in the customer's We feel that we can probably solve all the problems by following the procedure
Letter Order dated March 14th, 1953 attached. This is in accordance with the outlined in your letter of March 25, 1953 wherein you stated that in all future
Philippine import licenses granted to Madrigal & Co., Inc. and such details must jobs you would enclose photostatic copies of your import license so that we might
only be shown on all papers and shipping documents for this shipment. No make up two sets of invoices: one set describing equipment ordered simply
mention of words air conditioning equipment should be made on any shipping according to the way that they are listed on the import license and another
documents as well as on the cases. Please give this matter your careful attention, according to our ordinary regular methods of order write-up. We would then
otherwise great difficulties will be encountered with the Philippine Bureau of include the set made up according to the import license in the shipping boxes
Customs when clearing the shipment on its arrival in Manila. All invoices and themselves and use those items as our actual shipping documents and invoices,
cases should be marked "THIS EQUIPMENT FOR RIZAL CEMENT CO." and we will send the other regular invoice to you, by separate correspondence.
(Exh- No. "3-F-1", p. 144 BIR rec.)
The same instruction was made to Acme Industries, Inc., San Francisco,
California in a letter dated March 19, 1953 (Exh. "3-J-1" pp. 150-151, BIR rec.) Another interesting letter of Engineering is one dated August 27, 1955 (Exh. "3-
C" p. 141 BIR rec.)
On April 6, 1953, Engineering wrote to Owens-Corning Fiberglass Corp., New
York, U.S.A. (Exh. "3-1" pp. 147-149, BIR rec.) also enjoining the latter from In the process of clearing the shipment from the piers, one of the Customs
mentioning or referring to the term 'air conditioning' and to describe the goods inspectors requested to see the packing list. Upon presenting the packing list, it
on order as Fiberglass pipe and pipe fitting insulation instead. Likewise on April was discovered that the same was prepared on a copy of your letterhead which
30, 1953, Engineering threatened to discontinue the forwarding service of indicated that the Trane Co. manufactured air conditioning, heating and heat
Universal Transcontinental Corporation when it wrote Trane Co. (Exh. "3-H" p. transfer equipment. Accordingly, the inspectors insisted that this equipment was
146, BIR rec.): being imported for air conditioning purposes. To date, we have not been able to
clear the shipment and it is possible that we will be required to pay heavy taxes
It will be noted that the Universal Transcontinental Corporation is not following on equipment.
through on the instructions which have been covered by the above
correspondence, and which indicates the necessity of discontinuing the use of The purpose of this letter is to request that in the future, no documents of any
the term "Air conditioning Machinery or Air Coolers". Our instructions kind should be sent with the order that indicate in any way that the equipment
concerning this general situation have been sent to you in ample time to have could possibly be used for air conditioning.
avoided this error in terminology, and we will ask that on receipt of this letter
that you again write to Universal Transcontinental Corp. and inform them that, It is realized that this a broad request and fairly difficult to accomplish and
if in the future, they are unable to cooperate with us on this requirement, we will administer, but we believe with proper caution it can be executed. Your
cooperation and close supervision concerning these matters will be appreciated. date of such entry or notice and if tax is not paid within such period the amount
(Emphasis supplied) of the tax shall be increased by 25% the increment to be a part of the tax.

The aforequoted communications are strongly indicative of the fraudulent intent Since the imported air conditioning units-and spare parts or accessories thereof
of Engineering to misdeclare its importation of air conditioning units and spare are subject to the compensating tax of 30% as the same were used in the
parts or accessories thereof to evade payment of the 30% tax. And since the construction business of Engineering, it is incumbent upon the latter to comply
commission of fraud is altogether too glaring, We cannot agree with the Court of with the aforequoted requirement of Section 190 of the Code, by posting in its
Tax Appeals in absolving Engineering from the 50% fraud surcharge, otherwise books of accounts or notifying the Collector of Internal Revenue that the imported
We will be giving premium to a plainly intolerable act of tax evasion. As aptly articles were used for other purposes within 30 days. ... Consequently; as the
stated by then Solicitor General, now Justice, Antonio P. Barredo: 'this 30% compensating tax was not paid by petitioner within the time prescribed by
circumstance will not free it from the 50% surcharge because in any case whether Section 190 of the Tax Code as amended, it is therefore subject to the 25%
it is subject to advance sales tax or compensating tax, it is required by law to surcharge for delinquency in the payment of the said tax. (pp. 224-226 CTA rec.)
truly declare its importation in the import entries and internal revenue
declarations before the importations maybe released from customs custody. The III
said entries are the very documents where the nature, quantity and value of the
imported goods declared and where the customs duties, internal revenue taxes, Lastly the question of prescription of the tax assessment has been put in issue.
and other fees or charges incident to the importation are computed. These Engineering contends that it was not guilty of tax fraud in effecting the
entries, therefore, serve the same purpose as the returns required by Section importations and, therefore, Section 332(a) prescribing ten years is inapplicable,
183(a) of the Code.' claiming that the pertinent prescriptive period is five years from the date the
questioned importations were made. A review of the record however reveals that
Anent the 25% delinquency surcharge, We fully agree to the ruling made by the Engineering did file a tax return or declaration with the Bureau of Customs before
Court of Tax Appeals and hold Engineering liable for the same. As held by the it paid the advance sales tax of 7%. And the declaration filed reveals that it did
lower court: in fact misdeclare its importations. Section 332 of the Tax Code which provides:

At first blush it would seem that the contention of petitioner that it is not subject Section 332. — Exceptions as to period of limitation of assessment and collection
to the delinquency, surcharge of 25% is sound, valid and tenable. However, a of taxes. —
serious study and critical analysis of the historical provisions of Section 190 of
the Tax Code dealing on compensating tax in relation to Section 183(a) of the (a) In the case of a false or fraudulent return with intent to evade tax or of
same Code, will show that the contention of petitioner is without merit. The a failure to file a return, the tax may be assessed, or a proceeding in court for the
original text of Section 190 of Commonwealth Act 466, otherwise known as the collection of such tax may be begun without assessment at any time within ten
National Internal Revenue Code, as amended by Commonwealth Act No. 503, years after the discovery of the falsity, fraud or omission.
effective on October 1, 1939, does not provide for the filing of a compensation tax
return and payment of the 25 % surcharge for late payment thereof. Under the is applicable, considering the preponderance of evidence of fraud with the intent
original text of Section 190 of the Tax Code as amended by Commonwealth Act to evade the higher rate of percentage tax due from Engineering. The, tax
No. 503, the contention of the petitioner that it is not subject to the 25% assessment was made within the period prescribed by law and prescription had
surcharge appears to be legally tenable. However, Section 190 of the Tax Code not set in against the Government.
was subsequently amended by the Republic Acts Nos. 253, 361, 1511 and 1612
effective October 1, 1946, July 1, 1948, June 9, 1949, June 16, 1956 and August WHEREFORE, the decision appealed from is affirmed with the modification that
24, 1956 respectively, which invariably provides among others, the following: Engineering is hereby also made liable to pay the 50% fraud surcharge.

... If any article withdrawn from the customhouse or the post office without SO ORDERED.
payment of the compensating tax is subsequently used by the importer for other
purposes, corresponding entry should be made in the books of accounts if any
are kept or a written notice thereof sent to the Collector of Internal Revenue and
payment of the corresponding compensating tax made within 30 days from the
(5) Agency to Sell
(E) Mr. Quiroga binds himself to give notice at least fifteen days before hand
GR. No. L-11491 August 23, 1918 of any alteration in price which he may plan to make in respect to his beds, and
agrees that if on the date when such alteration takes effect he should have any
ANDRES QUIROGA, plaintiff-appellant, order pending to be served to Mr. Parsons, such order shall enjoy the advantage
vs. of the alteration if the price thereby be lowered, but shall not be affected by said
PARSONS HARDWARE CO., defendant-appellee. alteration if the price thereby be increased, for, in this latter case, Mr. Quiroga
assumed the obligation to invoice the beds at the price at which the order was
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant. given.
Crossfield & O'Brien for appellee.
(F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga"
AVANCEÑA, J.: beds.

On January 24, 1911, in this city of manila, a contract in the following tenor was ART. 2. In compensation for the expenses of advertisement which, for the benefit
entered into by and between the plaintiff, as party of the first part, and J. Parsons of both contracting parties, Mr. Parsons may find himself obliged to make, Mr.
(to whose rights and obligations the present defendant later subrogated itself), as Quiroga assumes the obligation to offer and give the preference to Mr. Parsons
party of the second part: in case anyone should apply for the exclusive agency for any island not comprised
with the Visayan group.
CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J.
PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of
EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS. "Quiroga" beds in all the towns of the Archipelago where there are no exclusive
agents, and shall immediately report such action to Mr. Quiroga for his approval.
ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in
the Visayan Islands to J. Parsons under the following conditions: ART. 4. This contract is made for an unlimited period, and may be terminated by
either of the contracting parties on a previous notice of ninety days to the other
(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the party.
latter's establishment in Iloilo, and shall invoice them at the same price he has
fixed for sales, in Manila, and, in the invoices, shall make and allowance of a Of the three causes of action alleged by the plaintiff in his complaint, only two of
discount of 25 per cent of the invoiced prices, as commission on the sale; and them constitute the subject matter of this appeal and both substantially amount
Mr. Parsons shall order the beds by the dozen, whether of the same or of different to the averment that the defendant violated the following obligations: not to sell
styles. the beds at higher prices than those of the invoices; to have an open
establishment in Iloilo; itself to conduct the agency; to keep the beds on public
(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, exhibition, and to pay for the advertisement expenses for the same; and to order
within a period of sixty days from the date of their shipment. the beds by the dozen and in no other manner. As may be seen, with the
exception of the obligation on the part of the defendant to order the beds by the
(C) The expenses for transportation and shipment shall be borne by M. dozen and in no other manner, none of the obligations imputed to the defendant
Quiroga, and the freight, insurance, and cost of unloading from the vessel at the in the two causes of action are expressly set forth in the contract. But the plaintiff
point where the beds are received, shall be paid by Mr. Parsons. alleged that the defendant was his agent for the sale of his beds in Iloilo, and that
said obligations are implied in a contract of commercial agency. The whole
(D) If, before an invoice falls due, Mr. Quiroga should request its payment, question, therefore, reduced itself to a determination as to whether the
said payment when made shall be considered as a prompt payment, and as such defendant, by reason of the contract hereinbefore transcribed, was a purchaser
a deduction of 2 per cent shall be made from the amount of the invoice. or an agent of the plaintiff for the sale of his beds.

The same discount shall be made on the amount of any invoice which Mr. In order to classify a contract, due regard must be given to its essential clauses.
Parsons may deem convenient to pay in cash. In the contract in question, what was essential, as constituting its cause and
subject matter, is that the plaintiff was to furnish the defendant with the beds as we have said, a contract of purchase and sale, and not one of commercial
which the latter might order, at the price stipulated, and that the defendant was agency. This only means that Ernesto Vidal was mistaken in his classification of
to pay the price in the manner stipulated. The price agreed upon was the one the contract. But it must be understood that a contract is what the law defines
determined by the plaintiff for the sale of these beds in Manila, with a discount it to be, and not what it is called by the contracting parties.
of from 20 to 25 per cent, according to their class. Payment was to be made at
the end of sixty days, or before, at the plaintiff's request, or in cash, if the The plaintiff also endeavored to prove that the defendant had returned beds that
defendant so preferred, and in these last two cases an additional discount was it could not sell; that, without previous notice, it forwarded to the defendant the
to be allowed for prompt payment. These are precisely the essential features of a beds that it wanted; and that the defendant received its commission for the beds
contract of purchase and sale. There was the obligation on the part of the plaintiff sold by the plaintiff directly to persons in Iloilo. But all this, at the most only
to supply the beds, and, on the part of the defendant, to pay their price. These shows that, on the part of both of them, there was mutual tolerance in the
features exclude the legal conception of an agency or order to sell whereby the performance of the contract in disregard of its terms; and it gives no right to have
mandatory or agent received the thing to sell it, and does not pay its price, but the contract considered, not as the parties stipulated it, but as they performed
delivers to the principal the price he obtains from the sale of the thing to a third it. Only the acts of the contracting parties, subsequent to, and in connection
person, and if he does not succeed in selling it, he returns it. By virtue of the with, the execution of the contract, must be considered for the purpose of
contract between the plaintiff and the defendant, the latter, on receiving the beds, interpreting the contract, when such interpretation is necessary, but not when,
was necessarily obliged to pay their price within the term fixed, without any other as in the instant case, its essential agreements are clearly set forth and plainly
consideration and regardless as to whether he had or had not sold the beds. show that the contract belongs to a certain kind and not to another. Furthermore,
the return made was of certain brass beds, and was not effected in exchange for
It would be enough to hold, as we do, that the contract by and between the the price paid for them, but was for other beds of another kind; and for the letter
defendant and the plaintiff is one of purchase and sale, in order to show that it Exhibit L-1, requested the plaintiff's prior consent with respect to said beds,
was not one made on the basis of a commission on sales, as the plaintiff claims which shows that it was not considered that the defendant had a right, by virtue
it was, for these contracts are incompatible with each other. But, besides, of the contract, to make this return. As regards the shipment of beds without
examining the clauses of this contract, none of them is found that substantially previous notice, it is insinuated in the record that these brass beds were precisely
supports the plaintiff's contention. Not a single one of these clauses necessarily the ones so shipped, and that, for this very reason, the plaintiff agreed to their
conveys the idea of an agency. The words commission on sales used in clause (A) return. And with respect to the so-called commissions, we have said that they
of article 1 mean nothing else, as stated in the contract itself, than a mere merely constituted a discount on the invoice price, and the reason for applying
discount on the invoice price. The word agency, also used in articles 2 and 3, this benefit to the beds sold directly by the plaintiff to persons in Iloilo was
only expresses that the defendant was the only one that could sell the plaintiff's because, as the defendant obligated itself in the contract to incur the expenses
beds in the Visayan Islands. With regard to the remaining clauses, the least that of advertisement of the plaintiff's beds, such sales were to be considered as a
can be said is that they are not incompatible with the contract of purchase and result of that advertisement.
sale.
In respect to the defendant's obligation to order by the dozen, the only one
The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice- expressly imposed by the contract, the effect of its breach would only entitle the
president of the defendant corporation and who established and managed the plaintiff to disregard the orders which the defendant might place under other
latter's business in Iloilo. It appears that this witness, prior to the time of his conditions; but if the plaintiff consents to fill them, he waives his right and cannot
testimony, had serious trouble with the defendant, had maintained a civil suit complain for having acted thus at his own free will.
against it, and had even accused one of its partners, Guillermo Parsons, of
falsification. He testified that it was he who drafted the contract Exhibit A, and, For the foregoing reasons, we are of opinion that the contract by and between the
when questioned as to what was his purpose in contracting with the plaintiff, plaintiff and the defendant was one of purchase and sale, and that the obligations
replied that it was to be an agent for his beds and to collect a commission on the breach of which is alleged as a cause of action are not imposed upon the
sales. However, according to the defendant's evidence, it was Mariano Lopez defendant, either by agreement or by law.
Santos, a director of the corporation, who prepared Exhibit A. But, even
supposing that Ernesto Vidal has stated the truth, his statement as to what was The judgment appealed from is affirmed, with costs against the appellant. So
his idea in contracting with the plaintiff is of no importance, inasmuch as the ordered.
agreements contained in Exhibit A which he claims to have drafted, constitute,
(6) Agency to Sell and making the said company to quote its price without discount. A reply was
received by Gonzalo Puyat & Sons, Inc., with the price, evidently the list price of
G.R. No. L-47538 June 20, 1941 $1,700 f.o.b. factory Richmond, Indiana. The defendant did not show the plaintiff
the cable of inquiry nor the reply but merely informed the plaintiff of the price of
GONZALO PUYAT & SONS, INC., petitioner, $1,700. Being agreeable to this price, the plaintiff, by means of Exhibit "1", which
vs. is a letter signed by C. S. Salmon dated November 19, 1929, formally authorized
ARCO AMUSEMENT COMPANY (formerly known as Teatro Arco), respondent. the order. The equipment arrived about the end of the year 1929, and upon
delivery of the same to the plaintiff and the presentation of necessary papers, the
Feria & Lao for petitioner. price of $1.700, plus the 10 per cent commission agreed upon and plus all the
J. W. Ferrier and Daniel Me. Gomez for respondent. expenses and charges, was duly paid by the plaintiff to the defendant.

LAUREL, J.: Sometime the following year, and after some negotiations between the same
parties, plaintiff and defendants, another order for sound reproducing equipment
This is a petition for the issuance of a writ of certiorari to the Court of Appeals was placed by the plaintiff with the defendant, on the same terms as the first
for the purpose of reviewing its Amusement Company (formerly known as Teatro order. This agreement or order was confirmed by the plaintiff by its letter Exhibit
Arco), plaintiff-appellant, vs. Gonzalo Puyat and Sons. Inc., defendant-appellee." "2", without date, that is to say, that the plaintiff would pay for the equipment
the amount of $1,600, which was supposed to be the price quoted by the Starr
It appears that the respondent herein brought an action against the herein Piano Company, plus 10 per cent commission, plus all expenses incurred. The
petitioner in the Court of First Instance of Manila to secure a reimbursement of equipment under the second order arrived in due time, and the defendant was
certain amounts allegedly overpaid by it on account of the purchase price of duly paid the price of $1,600 with its 10 per cent commission, and $160, for all
sound reproducing equipment and machinery ordered by the petitioner from the expenses and charges. This amount of $160 does not represent actual out-of-
Starr Piano Company of Richmond, Indiana, U.S.A. The facts of the case as found pocket expenses paid by the defendant, but a mere flat charge and rough
by the trial court and confirmed by the appellate court, which are admitted by estimate made by the defendant equivalent to 10 per cent of the price of $1,600
the respondent, are as follows: of the equipment.

In the year 1929, the "Teatro Arco", a corporation duly organized under the laws About three years later, in connection with a civil case in Vigan, filed by one Fidel
of the Philippine Islands, with its office in Manila, was engaged in the business Reyes against the defendant herein Gonzalo Puyat & Sons, Inc., the officials of
of operating cinematographs. In 1930, its name was changed to Arco Amusement the Arco Amusement Company discovered that the price quoted to them by the
Company. C. S. Salmon was the president, while A. B. Coulette was the business defendant with regard to their two orders mentioned was not the net price but
manager. About the same time, Gonzalo Puyat & Sons, Inc., another corporation rather the list price, and that the defendants had obtained a discount from the
doing business in the Philippine Islands, with office in Manila, in addition to its Starr Piano Company. Moreover, by reading reviews and literature on prices of
other business, was acting as exclusive agents in the Philippines for the Starr machinery and cinematograph equipment, said officials of the plaintiff were
Piano Company of Richmond, Indiana, U.S. A. It would seem that this last convinced that the prices charged them by the defendant were much too high
company dealt in cinematographer equipment and machinery, and the Arco including the charges for out-of-pocket expense. For these reasons, they sought
Amusement Company desiring to equipt its cinematograph with sound to obtain a reduction from the defendant or rather a reimbursement, and failing
reproducing devices, approached Gonzalo Puyat & Sons, Inc., thru its then in this they brought the present action.
president and acting manager, Gil Puyat, and an employee named Santos. After
some negotiations, it was agreed between the parties, that is to say, Salmon and The trial court held that the contract between the petitioner and the respondent
Coulette on one side, representing the plaintiff, and Gil Puyat on the other, was one of outright purchase and sale, and absolved that petitioner from the
representing the defendant, that the latter would, on behalf of the plaintiff, order complaint. The appellate court, however, — by a division of four, with one justice
sound reproducing equipment from the Starr Piano Company and that the dissenting — held that the relation between petitioner and respondent was that
plaintiff would pay the defendant, in addition to the price of the equipment, a 10 of agent and principal, the petitioner acting as agent of the respondent in the
per cent commission, plus all expenses, such as, freight, insurance, banking purchase of the equipment in question, and sentenced the petitioner to pay the
charges, cables, etc. At the expense of the plaintiff, the defendant sent a cable, respondent alleged overpayments in the total sum of $1,335.52 or P2,671.04,
Exhibit "3", to the Starr Piano Company, inquiring about the equipment desired together with legal interest thereon from the date of the filing of the complaint
until said amount is fully paid, as well as to pay the costs of the suit in both which the said defendant, under and by virtue of said agreement, was to receive
instances. The appellate court further argued that even if the contract between the actual cost price plus ten per cent (10%), and was also to be reimbursed for
the petitioner and the respondent was one of purchase and sale, the petitioner all out of pocket expenses in connection with the purchase and delivery of such
was guilty of fraud in concealing the true price and hence would still be liable to equipment, such as costs of telegrams, freight, and similar expenses. (Emphasis
reimburse the respondent for the overpayments made by the latter. ours.)

The petitioner now claims that the following errors have been incurred by the We agree with the trial judge that "whatever unforseen events might have taken
appellate court: place unfavorable to the defendant (petitioner), such as change in prices, mistake
in their quotation, loss of the goods not covered by insurance or failure of the
I. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, segun Starr Piano Company to properly fill the orders as per specifications, the plaintiff
hechos, entre la recurrente y la recurrida existia una relacion implicita de (respondent) might still legally hold the defendant (petitioner) to the prices fixed
mandataria a mandante en la transaccion de que se trata, en vez de la de of $1,700 and $1,600." This is incompatible with the pretended relation of agency
vendedora a compradora como ha declarado el Juzgado de Primera Instncia de between the petitioner and the respondent, because in agency, the agent is
Manila, presidido entonces por el hoy Magistrado Honorable Marcelino exempted from all liability in the discharge of his commission provided he acts
Montemayor. in accordance with the instructions received from his principal (section 254, Code
of Commerce), and the principal must indemnify the agent for all damages which
II. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, the latter may incur in carrying out the agency without fault or imprudence on
suponiendo que dicha relacion fuerra de vendedora a compradora, la recurrente his part (article 1729, Civil Code).
obtuvo, mediante dolo, el consentimiento de la recurrida en cuanto al precio de
$1,700 y $1,600 de las maquinarias y equipos en cuestion, y condenar a la While the latters, Exhibits 1 and 2, state that the petitioner was to receive ten
recurrente ha obtenido de la Starr Piano Company of Richmond, Indiana. per cent (10%) commission, this does not necessarily make the petitioner an
agent of the respondent, as this provision is only an additional price which the
We sustain the theory of the trial court that the contract between the petitioner respondent bound itself to pay, and which stipulation is not incompatible with
and the respondent was one of purchase and sale, and not one of agency, for the the contract of purchase and sale. (See Quiroga vs. Parsons Hardware Co., 38
reasons now to be stated. Phil., 501.)

In the first place, the contract is the law between the parties and should include In the second place, to hold the petitioner an agent of the respondent in the
all the things they are supposed to have been agreed upon. What does not appear purchase of equipment and machinery from the Starr Piano Company of
on the face of the contract should be regarded merely as "dealer's" or "trader's Richmond, Indiana, is incompatible with the admitted fact that the petitioner is
talk", which can not bind either party. (Nolbrook v. Conner, 56 So., 576, 11 Am. the exclusive agent of the same company in the Philippines. It is out of the
Rep., 212; Bank v. Brosscell, 120 III., 161; Bank v. Palmer, 47 III., 92; Hosser v. ordinary for one to be the agent of both the vendor and the purchaser. The facts
Copper, 8 Allen, 334; Doles v. Merrill, 173 Mass., 411.) The letters, Exhibits 1 and circumstances indicated do not point to anything but plain ordinary
and 2, by which the respondent accepted the prices of $1,700 and $1,600, transaction where the respondent enters into a contract of purchase and sale
respectively, for the sound reproducing equipment subject of its contract with with the petitioner, the latter as exclusive agent of the Starr Piano Company in
the petitioner, are clear in their terms and admit no other interpretation that the the United States.
respondent in question at the prices indicated which are fixed and determinate.
The respondent admitted in its complaint filed with the Court of First Instance of It follows that the petitioner as vendor is not bound to reimburse the respondent
Manila that the petitioner agreed to sell to it the first sound reproducing as vendee for any difference between the cost price and the sales price which
equipment and machinery. The third paragraph of the respondent's cause of represents the profit realized by the vendor out of the transaction. This is the
action states: very essence of commerce without which merchants or middleman would not
exist.
3. That on or about November 19, 1929, the herein plaintiff (respondent) and
defendant (petitioner) entered into an agreement, under and by virtue of which The respondents contends that it merely agreed to pay the cost price as
the herein defendant was to secure from the United States, and sell and deliver distinguished from the list price, plus ten per cent (10%) commission and all out-
to the herein plaintiff, certain sound reproducing equipment and machinery, for of-pocket expenses incurred by the petitioner. The distinction which the
respondents seeks to draw between the cost price and the list price we consider
to be spacious. 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. As a
matter of fact, 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. Moreover,
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,
and the respondent was not even aware of such an arrangement. The respondent,
therefore, 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. It is well known that local dealers acting as agents of foreign
manufacturers, aside from obtaining a discount from the home office, sometimes
add to the list price when they resell to local purchasers. It was apparently to
guard against an exhorbitant additional price that the respondent sought to limit
it to 10 per cent, and the respondent is estopped from questioning that additional
price. If the respondent later on discovers itself at the short end of a bad bargain,
it alone must bear the blame, and it cannot rescind the contract, much less
compel a reimbursement of the excess price, on that ground alone. The
respondent could not secure equipment and machinery manufactured by the
Starr Piano Company except from the petitioner alone; it willingly paid the price
quoted; it received the equipment and machinery as represented; and that was
the end of the matter as far as the respondent was concerned. 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. Not every concealment is fraud; and short of
fraud, it were better that, within certain limits, business acumen permit of the
loosening of the sleeves and of the sharpening of the intellect of men and women
in the business world.

The writ of certiorari should be, as it is hereby, granted. The decision of the
appellate court is accordingly reversed and the petitioner is absolved from the
respondent's complaint in G. R. No. 1023, entitled "Arco Amusement Company
(formerly known as Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat & Sons,
Inc., defendants-appellee," without pronouncement regarding costs. So ordered.
(7) Dacion En Pago
And the ASSIGNOR does hereby grant the ASSIGNEE, its successors and
[G.R. No. 149420. October 8, 2003] assigns, the full power and authority to demand, collect, receive, compound,
compromise and give acquittance for the same or any part thereof, and in the
SONNY LO, petitioner, vs. KJS ECO-FORMWORK SYSTEM PHIL., INC., name and stead of the said ASSIGNOR;
respondent.
DECISION And the ASSIGNOR does hereby agree and stipulate to and with said ASSIGNEE,
YNARES-SANTIAGO, J.: its successors and assigns that said debt is justly owing and due to the
ASSIGNOR for Jomero Realty Corporation and that said ASSIGNOR has not done
Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged and will not cause anything to be done to diminish or discharge said debt, or
in the sale of steel scaffoldings, while petitioner Sonny L. Lo, doing business delay or to prevent the ASSIGNEE, its successors or assigns, from collecting the
under the name and style Sans Enterprises, is a building contractor. On same;
February 22, 1990, petitioner ordered scaffolding equipments from respondent
worth P540,425.80.[1] He paid a downpayment in the amount of P150,000.00. And the ASSIGNOR further agrees and stipulates as aforesaid that the said
The balance was made payable in ten monthly installments. ASSIGNOR, his heirs, executors, administrators, or assigns, shall and will at
times hereafter, at the request of said ASSIGNEE, its successors or assigns, at
Respondent delivered the scaffoldings to petitioner.[2] Petitioner was able to pay his cost and expense, execute and do all such further acts and deeds as shall be
the first two monthly installments. His business, however, encountered financial reasonably necessary to effectually enable said ASSIGNEE to recover whatever
difficulties and he was unable to settle his obligation to respondent despite oral collectibles said ASSIGNOR has in accordance with the true intent and meaning
and written demands made against him.[3] of these presents. xxx[5] (Italics supplied)

On October 11, 1990, petitioner and respondent executed a Deed of However, when respondent tried to collect the said credit from Jomero Realty
Assignment,[4] whereby petitioner assigned to respondent his receivables in the Corporation, the latter refused to honor the Deed of Assignment because it
amount of P335,462.14 from Jomero Realty Corporation. Pertinent portions of claimed that petitioner was also indebted to it.[6] On November 26, 1990,
the Deed provide: respondent sent a letter[7] to petitioner demanding payment of his obligation,
but petitioner refused to pay claiming that his obligation had been extinguished
WHEREAS, the ASSIGNOR is the contractor for the construction of a residential when they executed the Deed of Assignment.
house located at Greenmeadow Avenue, Quezon City owned by Jomero Realty
Corporation; Consequently, on January 10, 1991, respondent filed an action for recovery of a
sum of money against the petitioner before the Regional Trial Court of Makati,
WHEREAS, in the construction of the aforementioned residential house, the Branch 147, which was docketed as Civil Case No. 91-074.[8]
ASSIGNOR purchased on account scaffolding equipments from the ASSIGNEE
payable to the latter; During the trial, petitioner argued that his obligation was extinguished with the
execution of the Deed of Assignment of credit. Respondent, for its part, presented
WHEREAS, up to the present the ASSIGNOR has an obligation to the ASSIGNEE the testimony of its employee, Almeda Baaga, who testified that Jomero Realty
for the purchase of the aforementioned scaffoldings now in the amount of Three refused to honor the assignment of credit because it claimed that petitioner had
Hundred Thirty Five Thousand Four Hundred Sixty Two and 14/100 Pesos an outstanding indebtedness to it.
(P335,462.14);
On August 25, 1994, the trial court rendered a decision[9] dismissing the
NOW, THEREFORE, for and in consideration of the sum of Three Hundred Thirty complaint on the ground that the assignment of credit extinguished the
Five Thousand Four Hundred Sixty Two and 14/100 Pesos (P335,462.14), obligation. The decretal portion thereof provides:
Philippine Currency which represents part of the ASSIGNORs collectible from
Jomero Realty Corp., said ASSIGNOR hereby assigns, transfers and sets over WHEREFORE, in view of the foregoing, the Court hereby renders judgment in
unto the ASSIGNEE all collectibles amounting to the said amount of P335, favor of the defendant and against the plaintiff, dismissing the complaint and
462.14;
ordering the plaintiff to pay the defendant attorneys fees in the amount of THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE DECISION
P25,000.00. OF THE TRIAL COURT AND IN ORDERING PAYMENT OF INTERESTS AND
ATTORNEYS FEES.[14]
Respondent appealed the decision to the Court of Appeals. On April 19, 2001,
the appellate court rendered a decision,[10] the dispositive portion of which The petition is without merit.
reads:
An assignment of credit is an agreement by virtue of which the owner of a credit,
WHEREFORE, finding merit in this appeal, the court REVERSES the appealed known as the assignor, by a legal cause, such as sale, dacion en pago, exchange
Decision and enters judgment ordering defendant-appellee Sonny Lo to pay the or donation, and without the consent of the debtor, transfers his credit and
plaintiff-appellant KJS ECO-FORMWORK SYSTEM PHILIPPINES, INC. Three accessory rights to another, known as the assignee, who acquires the power to
Hundred Thirty Five Thousand Four Hundred Sixty-Two and 14/100 enforce it to the same extent as the assignor could enforce it against the
(P335,462.14) with legal interest of 6% per annum from January 10, 1991 (filing debtor.[15]
of the Complaint) until fully paid and attorneys fees equivalent to 10% of the
amount due and costs of the suit. Corollary thereto, in dacion en pago, as a special mode of payment, the debtor
offers another thing to the creditor who accepts it as equivalent of payment of an
SO ORDERED.[11] outstanding debt.[16] In order that there be a valid dation in payment, the
following are the requisites: (1) There must be the performance of the prestation
In finding that the Deed of Assignment did not extinguish the obligation of the in lieu of payment (animo solvendi) which may consist in the delivery of a
petitioner to the respondent, the Court of Appeals held that (1) petitioner failed corporeal thing or a real right or a credit against the third person; (2) There must
to comply with his warranty under the Deed; (2) the object of the Deed did not be some difference between the prestation due and that which is given in
exist at the time of the transaction, rendering it void pursuant to Article 1409 of substitution (aliud pro alio); (3) There must be an agreement between the creditor
the Civil Code; and (3) petitioner violated the terms of the Deed of Assignment and debtor that the obligation is immediately extinguished by reason of the
when he failed to execute and do all acts and deeds as shall be necessary to performance of a prestation different from that due.[17] The undertaking really
effectually enable the respondent to recover the collectibles.[12] partakes in one sense of the nature of sale, that is, the creditor is really buying
the thing or property of the debtor, payment for which is to be charged against
Petitioner filed a motion for reconsideration of the said decision, which was the debtors debt. As such, the vendor in good faith shall be responsible, for the
denied by the Court of Appeals.[13] existence and legality of the credit at the time of the sale but not for the solvency
of the debtor, in specified circumstances.[18]
In this petition for review, petitioner assigns the following errors:
Hence, it may well be that the assignment of credit, which is in the nature of a
I sale of personal property,[19] produced the effects of a dation in payment which
may extinguish the obligation.[20] However, as in any other contract of sale, the
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR IN vendor or assignor is bound by certain warranties. More specifically, the first
DECLARING THE DEED OF ASSIGNMENT (EXH. 4) AS NULL AND VOID FOR paragraph of Article 1628 of the Civil Code provides:
LACK OF OBJECT ON THE BASIS OF A MERE HEARSAY CLAIM.
The vendor in good faith shall be responsible for the existence and legality of the
II credit at the time of the sale, unless it should have been sold as doubtful; but
not for the solvency of the debtor, unless it has been so expressly stipulated or
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED unless the insolvency was prior to the sale and of common knowledge.
OF ASSIGNMENT (EXH. 4) DID NOT EXTINGUISH PETITIONERS OBLIGATION
ON THE WRONG NOTION THAT PETITIONER FAILED TO COMPLY WITH HIS From the above provision, petitioner, as vendor or assignor, is bound to warrant
WARRANTY THEREUNDER. the existence and legality of the credit at the time of the sale or assignment. When
Jomero claimed that it was no longer indebted to petitioner since the latter also
III had an unpaid obligation to it, it essentially meant that its obligation to petitioner
has been extinguished by compensation.[21] In other words, respondent alleged
the non-existence of the credit and asserted its claim to petitioners warranty
under the assignment. Therefore, it behooved on petitioner to make good its
warranty and paid the obligation.

Furthermore, we find that petitioner breached his obligation under the Deed of
Assignment, to wit:

And the ASSIGNOR further agrees and stipulates as aforesaid that the said
ASSIGNOR, his heirs, executors, administrators, or assigns, shall and will at
times hereafter, at the request of said ASSIGNEE, its successors or assigns, at
his cost and expense, execute and do all such further acts and deeds as shall be
reasonably necessary to effectually enable said ASSIGNEE to recover whatever
collectibles said ASSIGNOR has in accordance with the true intent and meaning
of these presents.[22] (underscoring ours)

Indeed, by warranting the existence of the credit, petitioner should be deemed to


have ensured the performance thereof in case the same is later found to be
inexistent. He should be held liable to pay to respondent the amount of his
indebtedness.

Hence, we affirm the decision of the Court of Appeals ordering petitioner to pay
respondent the sum of P335,462.14 with legal interest thereon. However, we find
that the award by the Court of Appeals of attorneys fees is without factual basis.
No evidence or testimony was presented to substantiate this claim. Attorneys
fees, being in the nature of actual damages, must be duly substantiated by
competent proof.

WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals dated
April 19, 2001 in CA-G.R. CV No. 47713, ordering petitioner to pay respondent
the sum of P335,462.14 with legal interest of 6% per annum from January 10,
1991 until fully paid is AFFIRMED with MODIFICATION. Upon finality of this
Decision, the rate of legal interest shall be 12% per annum, inasmuch as the
obligation shall thereafter become equivalent to a forbearance of credit.[23] The
award of attorneys fees is DELETED for lack of evidentiary basis.

SO ORDERED.
(8) MIDD The Spouses Paragas then sold on October 17, 1996 a portion of Lot 1175-E
consisting of 6,416 square meters to Catalino for the total consideration of
[G.R. No. 168220. August 31, 2005] P60,000.00.

SPS. RUDY PARAGAS and CORAZON B. PARAGAS, petitioners, vs. HRS. OF Domingos children (Dominic, Rodolfo, Nanette and Cyric, all surnamed
DOMINADOR BALACANO, namely: DOMINIC, RODOLFO, NANETTE and CYRIC, Balacano;) filed on October 22, 1996 a complaint for annulment of sale and
all surnamed BALACANO, represented by NANETTE BALACANO and ALFREDO partition against Catalino and the Spouses Paragas. They essentially alleged in
BALACANO, respondents. asking for the nullification of the deed of sale that: (1) their grandfather Gregorio
RESOLUTION could not have appeared before the notary public on July 22, 1996 at Santiago
CHICO-NAZARIO, J.: City because he was then confined at the Veterans Memorial Hospital in Quezon
City; (2) at the time of the alleged execution of the deed of sale, Gregorio was
This petition for review seeks to annul the Decision[1] dated 15 February 2005 seriously ill, in fact dying at that time, which vitiated his consent to the disposal
of the Court of Appeals in CA-G.R. CV No. 64048, affirming with modification the of the property; and (3) Catalino manipulated the execution of the deed and
8 March 1999 Decision[2] of the Regional Trial Court (RTC), Branch 21, of prevailed upon the dying Gregorio to sign his name on a paper the contents of
Santiago City, Isabela, in Civil Case No. 21-2313. The petition likewise seeks to which he never understood because of his serious condition. Alternatively, they
annul the Resolution[3] dated 17 May 2005 denying petitioners motion for alleged that assuming Gregorio was of sound and disposing mind, he could only
reconsideration. transfer a half portion of Lots 1175-E and 1175-F as the other half belongs to
their grandmother Lorenza who predeceased Gregorio they claimed that Lots
The factual antecedents were synthesized by the Court of Appeals in its decision. 1175-E and 1175-F form part of the conjugal partnership properties of Gregorio
and Lorenza. Finally, they alleged that the sale to the Spouses Paragas covers
Gregorio Balacano, married to Lorenza Sumigcay, was the registered owner of only a 5-hectare portion of Lots 1175-E and 1175-F leaving a portion of 6,416
Lot 1175-E and Lot 1175-F of the Subd. Plan Psd-38042 [located at Baluarte, square meters that Catalino is threatening to dispose. They asked for the
Santiago City, Isabela] covered by TCT No. T-103297 and TCT No. T-103298 of nullification of the deed of sale executed by Gregorio and the partition of Lots
the Registry of Deeds of the Province of Isabela. 1175-E and 1175-F. They likewise asked for damages.

Gregorio and Lorenza had three children, namely: Domingo, Catalino and Instead of filing their Answer, the defendants Catalino and the Spouses Paragas
Alfredo, all surnamed Balacano. Lorenza died on December 11, 1991. Gregorio, moved to dismiss the complaint on the following grounds: (1) the plaintiffs have
on the other hand, died on July 28, 1996. no legal capacity - the Domingos children cannot file the case because Domingo
is still alive, although he has been absent for a long time; (2) an indispensable
Prior to his death, Gregorio was admitted at the Veterans General Hospital in party is not impleaded that Gregorios other son, Alfredo was not made a party to
Bayombong, Nueva Vizcaya on June 28, 1996 and stayed there until July 19, the suit; and (3) the complaint states no cause of action that Domingos children
1996. He was transferred in the afternoon of July 19, 1996 to the Veterans failed to allege a ground for the annulment of the deed of sale; they did not cite
Memorial Hospital in Quezon City where he was confined until his death. any mistake, violence, intimidation, undue influence or fraud, but merely alleged
that Gregorio was seriously ill. Domingos children opposed this motion.
Gregorio purportedly sold on July 22, 1996, or barely a week prior to his death,
a portion of Lot 1175-E (specifically consisting of 15,925 square meters from its The lower court denied the motion to dismiss, but directed the plaintiffs-appellees
total area of 22,341 square meters) and the whole Lot 1175-F to the Spouses to amend the complaint to include Alfredo as a party. Alfredo was subsequently
Rudy (Rudy) and Corazon Paragas (collectively, the Spouses Paragas) for the total declared as in default for his failure to file his Answer to the Complaint.
consideration of P500,000.00. This sale appeared in a deed of absolute sale
notarized by Atty. Alexander V. de Guzman, Notary Public for Santiago City, on The defendants-appellees filed their Answer with Counterclaim on May 7, 1997,
the same date July 22, 1996 and witnessed by Antonio Agcaoili (Antonio) and denying the material allegations of the complaint. Additionally, they claimed that:
Julia Garabiles (Julia). Gregorios certificates of title over Lots 1175-E and 1175- (1) the deed of sale was actually executed by Gregorio on July 19 (or 18), 1996
F were consequently cancelled and new certificates of title were issued in favor and not July 22, 1996; (2) the Notary Public personally went to the Hospital in
of the Spouses Paragas. Bayombong, Nueva Vizcaya on July 18, 1996 to notarize the deed of sale already
subject of a previously concluded covenant between Gregorio and the Spouses
Paragas; (3) at the time Gregorio signed the deed, he was strong and of sound the date when he signed; nor did he remember reading Santiago City as the place
and disposing mind; (4) Lots 1175-E and 1175-F were Gregorios separate capital of execution of the deed. He described Gregorio as still strong but sickly, who got
and the inscription of Lorenzas name in the titles was just a description of up from the bed with Julias help.
Gregorios marital status; (5) the entire area of Lots 1175-E and 1175-F were sold
to the Spouses Paragas. They interposed a counterclaim for damages. Witness for defendants-appellants Luisa Agsalda testified to prove that Lot 1175-
E was Gregorios separate property. She claimed that Gregorios father (Leon)
At the trial, the parties proceeded to prove their respective contentions. purchased a two-hectare lot from them in 1972 while the other lot was purchased
from her neighbor. She also declared that Gregorio inherited these lands from
Plaintiff-appellant Nanette Balacano testified to prove the material allegations of his father Leon; she does not know, however, Gregorios brothers share in the
their complaint. On Gregorios medical condition, she declared that: (1) Gregorio, inheritance. Defendant-appellant Catalino also testified to corroborate the
who was then 81 years old, weak and sick, was brought to the hospital in testimony of witness Luisa Agsalda; he said that Gregorio told him that he
Bayombong, Nueva Vizcaya on June 28, 1996 and stayed there until the (Gregorio) inherited Lots 1175-E and 1175-F from his father Leon. He also stated
afternoon on July 19, 1996; (2) thereafter, Gregorio, who by then was weak and that a portion of Lot 1175-E consisting of 6,416 square meters was sold to him
could no longer talk and whose condition had worsened, was transferred in the by the Spouses Paragas and that he will pay the Spouses Paragas P50,000.00,
afternoon of July 19, 1996 to the Veterans Memorial Hospital in Quezon City not as consideration for the return of the land but for the transfer of the title to
where Gregorio died. She claimed that Gregorio could not have signed a deed of his name.
sale on July 19, 1996 because she stayed at the hospital the whole of that day
and saw no visitors. She likewise testified on their agreement for attorneys fees Additionally, the defendants-appellants presented in evidence the pictures taken
with their counsel and the litigation expenses they incurred. by Antonio when Gregorio allegedly signed the deed.[4]

Additionally, the plaintiffs-appellees presented in evidence Gregorios medical The lower court, after trial, rendered the decision declaring null and void the deed
records and his death certificate. of sale purportedly executed by Gregorio Balacano in favor of the spouses Rudy
Paragas and Corazon Paragas. In nullifying the deed of sale executed by Gregorio,
Defendants-appellees, on the other hand, presented as witnesses Notary Public the lower court initially noted that at the time Gregorio executed the deed,
de Guzman and instrumental witness Antonio to prove Gregorios execution of Gregorio was ill. The lower courts reasoning in declaring the deed of sale null and
the sale and the circumstances under the deed was executed. They uniformly void and this reasonings premises may be summarized as follows: (1) the deed of
declared that: (1) on July 18, 1996, they went to the hospital in Bayombong, sale was improperly notarized; thus it cannot be considered a public document
Nueva Vizcaya where Gregorio was confined with Rudy; (2) Atty. De Guzman read that is usually accorded the presumption of regularity; (2) as a private document,
and explained the contents of the deed to Gregorio; (3) Gregorio signed the deed the deed of sales due execution must be proved in accordance with Section 20,
after receiving the money from Rudy; (4) Julia and Antonio signed the deed as Rule 132 of the Revised Rules on Evidence either: (a) by anyone who saw the
witnesses. Additionally, Atty. De Guzman explained that the execution of the document executed or written; or (b) by evidence of the genuineness of the
deed was merely a confirmation of a previous agreement between the Spouses signature or handwriting of the maker; and (3) it was incumbent upon the
Paragas and Gregorio that was concluded at least a month prior to Gregorios Spouses Paragas to prove the deed of sales due execution but failed to do so the
death; that, in fact, Gregorio had previously asked him to prepare a deed that lower court said that witness Antonio Agcaoili is not credible while Atty.
Gregorio eventually signed on July 18, 1996. He also explained that the deed, Alexander De Guzman is not reliable.[5]
which appeared to have been executed on July 22, 1996, was actually executed
on July 18, 1996; he notarized the deed and entered it in his register only on The lower court found the explanations of Atty. De Guzman regarding the
July 22, 1996. He claimed that he did not find it necessary to state the precise erroneous entries on the actual place and date of execution of the deed of sale as
date and place of execution (Bayombong, Nueva Vizcaya, instead of Santiago City) justifications for a lie. The lower court said
of the deed of sale because the deed is merely a confirmation of a previously
agreed contract between Gregorio and the Spouses Paragas. He likewise stated The Court cannot imagine an attorney to undertake to travel to another province
that of the stated P500,000.00 consideration in the deed, Rudy paid Gregorio to notarize a document when he must certainly know, being a lawyer and by all
P450,000.00 in the hospital because Rudy had previously paid Gregorio means, not stupid, that he has no authority to notarize a document in that
P50,000.00. For his part, Antonio added that he was asked by Rudy to take province. The only logical thing that happened was that Rudy Paragas brought
pictures of Gregorio signing the deed. He also claimed that there was no entry on the deed of sale to him on July 22, 1996 already signed and requested him to
notarize the same which he did, not knowing that at that time the vendor was were acquired during the marriage because the certificates of title of these lots
already in a hospital and [sic] Quezon City. Of course had he known, Atty. De clearly stated that the lots are registered in the name Gregorio, married to
Guzman would not have notarized the document. But he trusted Rudy Paragas Lorenza Sumigcay. Thus, the lower court concluded that the presumption of law
and moreover, Gregorio Balacano already informed him previously in June that (under Article 160 of the Civil Code of the Philippines) that property acquired
he will sell his lands to Paragas. In addition [sic, (,) was omitted] Rudy Paragas during the marriage is presumed to belong to the conjugal partnership fully
also told him that Balacano received an advance of P50,000.00. applies to Lots 1175-E and 1175-F.[9]

The intention to sell is not actual selling. From the first week of June when, Thus, on 8 March 1999, the RTC, Branch 21, of Santiago City, Isabela, rendered
according to Atty. De Guzman, Gregorio Balacano informed him that he will sell a Decision[10] in Civil Case No. 21-2313, the dispositive portion of which reads
his land to Rudy Paragas, enough time elapsed to the time he was brought to the as follows:
hospital on June 28, 1996. Had there been a meeting of the minds between
Gregorio Balacano and Rudy Paragas regarding the sale, surely Gregorio WHEREFORE in the light of the foregoing considerations judgment is hereby
Balacano would have immediately returned to the office of Atty. De Guzman to rendered:
execute the deed of sale. He did not until he was brought to the hospital and
diagnosed to have liver cirrhosis. Because of the seriousness of his illness, it is 1. DECLARING as NULL and VOID the deed of sale purportedly executed by
not expected that Gregorio Balacano would be negotiating a contract of sale. Gregorio Balacano in favor of the spouses Rudy Paragas and Corazon Paragas
Thus, Rudy Paragas negotiated with Catalino Balacano, the son of Gregorio over lots 1175-E and 1175-F covered by TCT Nos. T-103297 and T-103298,
Balacano with whom the latter was staying.[6] respectively;

The lower court also did not consider Antonio Agcaoili, petitioner Rudy Paragass 2. ORDERING the cancellation of TCT Nos. T-258042 and T-258041 issued in
driver, a convincing witness, concluding that he was telling a rehearsed story. the name of the spouses Rudy and Corazon Paragas by virtue of the deed of sale;
The lower court said and

The only portion of his testimony that is true is that he signed the document. DECLARING the parcel of lands, lots 1175-E and 1175-F as part of the estate of
How could the Court believe that he brought a camera with him just to take the deceased spouses Gregorio Balacano and Lorenza Balacano.[11]
pictures of the signing? If the purpose was to record the proceeding for posterity,
why did he not take the picture of Atty. De Guzman when the latter was reading In the assailed Decision dated 15 February 2005, the Court of Appeals affirmed
and explaining the document to Gregorio Balacano? Why did he not take the the Decision of the trial court, with the modification that Lots 1175-E and 1175-
picture of both Gregorio Balacano and Atty. de Guzman while the old man was F were adjudged as belonging to the estate of Gregorio Balacano. The appellate
signing the document instead of taking a picture of Gregorio Balacano alone court disposed as follows:
holding a ball pen without even showing the document being signed? Verily there
is a picture of a document but only a hand with a ball pen is shown with it. Why? WHEREFORE, premises considered, the appeal is hereby DISMISSED. We
Clearly the driver Antonio Agcaoili must have only been asked by Rudy Paragas AFFIRM the appealed Decision for the reasons discussed above, with the
to tell a concocted story which he himself would not dare tell in Court under MODIFICATION that Lots 1175-E and 1175-F belong to the estate of Gregorio
oath.[7] Balacano.

The lower court likewise noted that petitioner Rudy Paragas did not testify about Let a copy of this Decision be furnished the Office of the Bar Confidant for
the signing of the deed of sale. To the lower court, Rudys refusal or failure to whatever action her Office may take against Atty. De Guzman.[12] (Emphasis in
testify raises a lot of questions, such as: (1) was he (Rudy) afraid to divulge the the original.)
circumstances of how he obtained the signature of Gregorio Balacano, and (2)
was he (Rudy) afraid to admit that he did not actually pay the P500,000.00 Herein petitioners motion for reconsideration was met with similar lack of
indicated in the deed of sale as the price of the land?[8] success when it was denied for lack of merit by the Court of Appeals in its
Resolution[13] dated 17 May 2005.
The lower court also ruled that Lots 1175-E and 1175-F were Gregorios and
Lorenzas conjugal partnership properties. The lower court found that these lots
Hence, this appeal via a petition for review where petitioners assign the following
errors to the Court of Appeals, viz: Specifically, the Court of Appeals, in affirming the trial court, found that there
was no prior and perfected contract of sale that remained to be fully
A. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF consummated. The appellate court explained -
DISCRETION, SERIOUSLY ERRED IN FINDING THAT THERE WAS NO
PERFECTED AND PARTIALLY EXECUTED CONTRACT OF SALE OVER LOTS In support of their position, the defendants-appellants argue that at least a
1175-E AND 1175-F PRIOR TO THE SIGNING OF THE DEED OF SALE. month prior to Gregorios signing of the deed, Gregorio and the Spouses Paragas
already agreed on the sale of Lots 1175-E and 1175-F; and that, in fact, this
B. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF agreement was partially executed by Rudys payment to Gregorio of P50,000.00
DISCRETION, SERIOUSLY FAILED TO APPRECIATE THE SIGNIFICANCE OF before Gregorio signed the deed at the hospital. In line with this position,
THE JUDICIAL ADMISSION ON THE AUTHENTICITY AND DUE EXECUTION OF defendants-appellants posit that Gregorios consent to the sale should be
THE DEED OF SALE MADE BY THE RESPONDENTS DURING THE PRE-TRIAL determined, not at the time Gregorio signed the deed of sale on July 18, 1996,
CONFERENCE. but at the time when he agreed to sell the property in June 1996 or a month prior
to the deeds signing; and in June 1996, Gregorio was of sound and disposing
C. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF mind and his consent to the sale was in no wise vitiated at that time. The
DISCRETION, BASED ITS CONCLUSION THAT GREGORIOS CONSENT TO THE defendants-appellants further argue that the execution or signing of the deed of
SALE OF THE LOTS WAS ABSENT MERELY ON SPECULATIONS AND sale, however, irregular it might have been, does not affect the validity of the
SURMISES. previously agreed sale of the lots, as the execution or signing of the deed is merely
a formalization of a previously agreed oral contract.
D. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF
DISCRETION, SERIOUSLY ERRED IN NOT RULING ON THE ISSUE OF ...
RESPONDENTS LACK OF LEGAL CAPACITY TO SUE FOR NOT BEING THE
PROPER PARTIES IN INTEREST. In the absence of any note, memorandum or any other written instrument
evidencing the alleged perfected contract of sale, we have to rely on oral
E. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF testimonies, which in this case is that of Atty. de Guzman whose testimony on
DISCRETION, SERIOUSLY ERRED IN DISMISSING ATTY. ALEXANDER DE the alleged oral agreement may be summarized as follows: (1) that sometime in
GUZMAN AND ANTONIO AGCAOILI AS NOT CREDIBLE WITNESSES.[14] the first week of June 1996, Gregorio requested him (Atty. de Guzman) to prepare
a deed of sale of two lots; (2) Gregorio came to his firms office in the morning with
At bottom is the issue of whether or not the Court of Appeals committed reversible a certain Doming Balacano, then returned in the afternoon with Rudy; (3) he
error in upholding the findings and conclusions of the trial court on the nullity (Atty. de Guzman) asked Gregorio whether he really intends to sell the lots;
of the Deed of Sale purportedly executed between petitioners and the late Gregorio confirmed his intention; (4) Gregorio and Rudy left the law office at 5:00
Gregorio Balacano. p.m., leaving the certificates of title; (5) he prepared the deed a day after Rudy
and Gregorio came. With regard to the alleged partial execution of this agreement,
To start, we held in Blanco v. Quasha[15] that this Court is not a trier of facts. Atty. de Guzman said that he was told by Rudy that there was already a partial
As such, it is not its function to examine and determine the weight of the evidence payment of P50,000.00.
supporting the assailed decision. Factual findings of the Court of Appeals, which
are supported by substantial evidence, are binding, final and conclusive upon We do not consider Atty. de Guzmans testimony sufficient evidence to establish
the Supreme Court,[16] and carry even more weight when the said court affirms the fact that there was a prior agreement between Gregorio and the Spouses
the factual findings of the trial court. Moreover, well- entrenched is the prevailing Paragas on the sale of Lots 1175-E and 1175-F. This testimony does not
jurisprudence that only errors of law and not of facts are reviewable by this Court conclusively establish the meeting of the minds between Gregorio and the
in a petition for review on certiorari under Rule 45 of the Revised Rules of Court. Spouses Paragas on the price or consideration for the sale of Lots 1175-E and
1175-F Atty. de Guzman merely declared that he was asked by Gregorio to
The foregoing tenets in the case at bar apply with greater force to the petition prepare a deed; he did not clearly narrate the details of this agreement. We
under consideration because the factual findings by the Court of Appeals are in cannot assume that Gregorio and the Spouses Paragas agreed to a P500,000.00
full agreement with that of the trial court. consideration based on Atty. de Guzmans bare assertion that Gregorio asked him
to prepare a deed, as Atty. de Guzman was not personally aware of the agreed fully concur with the heretofore-quoted lower courts evaluation of the testimonies
consideration in the sale of the lots, not being privy to the parties agreement. To given by Atty. de Guzman and Antonio because this is an evaluation that the
us, Rudy could have been a competent witness to testify on the perfection of this lower court was in a better position to make.
prior contract; unfortunately, the defendants-appellants did not present Rudy as
their witness. Additionally, the irregular and invalid notarization of the deed is a falsity that
raises doubts on the regularity of the transaction itself. While the deed was
We seriously doubt too the credibility of Atty. de Guzman as a witness. We cannot indeed signed on July 18, 1996 at Bayombong, Nueva Vizcaya, the deed states
rely on his testimony because of his tendency to commit falsity. He admitted in otherwise, as it shows that the deed was executed on July 22, 1996 at Santiago
open court that while Gregorio signed the deed on July 18, 1996 at Bayombong, City. Why such falsity was committed, and the circumstances under which this
Nueva Vizcaya, he nevertheless did not reflect these matters when he notarized falsity was committed, speaks volume about the regularity and the validity of the
the deed; instead he entered Santiago City and July 22, 1996, as place and date sale. We cannot but consider the commission of this falsity, with the
of execution, respectively. To us, Atty. de Guzmans propensity to distort facts in indispensable aid of Atty. de Guzman, an orchestrated attempt to legitimize a
the performance of his public functions as a notary public, in utter disregard of transaction that Gregorio did not intend to be binding upon him nor on his
the significance of the act of notarization, seriously affects his credibility as a bounty.
witness in the present case. In fact, Atty. de Guzmans act in falsifying the entries
in his acknowledgment of the deed of sale could be the subject of administrative Article 24 of the Civil Code tells us that in all contractual, property or other
and disciplinary action, a matter that we however do not here decide. relations, when one of the parties is at a disadvantage on account of his moral
dependence, ignorance, indigence, mental weakness, tender age or other
Similarly, there is no conclusive proof of the partial execution of the contract handicap, the courts must be vigilant for his protection.[18]
because the only evidence the plaintiffs-appellants presented to prove this claim
was Atty. de Guzmans testimony, which is hearsay and thus, has no probative Based on the foregoing, the Court of Appeals concluded that Gregorios consent
value. Atty. de Guzman merely stated that Rudy told him that Rudy already gave to the sale of the lots was absent, making the contract null and void.
P50,000.00 to Gregorio as partial payment of the purchase price; Atty. de Consequently, the spouses Paragas could not have made a subsequent transfer
Guzman did not personally see the payment being made.[17] of the property to Catalino Balacano. Indeed, nemo dat quod non habet. Nobody
can dispose of that which does not belong to him.[19]
But, did Gregorio give an intelligent consent to the sale of Lots 1175-E and 1175-
F when he signed the deed of sale? The trial court as well as the appellate court We likewise find to be in accord with the evidence on record the ruling of the
found in the negative. In the Court of Appeals rationale- Court of Appeals declaring the properties in controversy as paraphernal
properties of Gregorio in the absence of competent evidence on the exact date of
It is not disputed that when Gregorio signed the deed of sale, Gregorio was Gregorios acquisition of ownership of these lots.
seriously ill, as he in fact died a week after the deeds signing. Gregorio died of
complications caused by cirrhosis of the liver. Gregorios death was neither On the credibility of witnesses, it is in rhyme with reason to believe the
sudden nor immediate; he fought at least a month-long battle against the disease testimonies of the witnesses for the complainants vis--vis those of the
until he succumbed to death on July 22, 1996. Given that Gregorio purportedly defendants. In the assessment of the credibility of witnesses, we are guided by
executed a deed during the last stages of his battle against his disease, we the following well-entrenched rules: (1) that evidence to be believed must not only
seriously doubt whether Gregorio could have read, or fully understood, the spring from the mouth of a credible witness but must itself be credible, and (2)
contents of the documents he signed or of the consequences of his act. We note findings of facts and assessment of credibility of witness are matters best left to
in this regard that Gregorio was brought to the Veterans Hospital at Quezon City the trial court who had the front-line opportunity to personally evaluate the
because his condition had worsened on or about the time the deed was allegedly witnesses demeanor, conduct, and behavior while testifying.[20]
signed. This transfer and fact of death not long after speak volumes about
Gregorios condition at that time. We likewise see no conclusive evidence that the In the case at bar, we agree in the trial courts conclusion that petitioners star
contents of the deed were sufficiently explained to Gregorio before he affixed his witness, Atty. De Guzman is far from being a credible witness. Unlike this Court,
signature. The evidence the defendants-appellants offered to prove Gregorios the trial court had the unique opportunity of observing the demeanor of said
consent to the sale consists of the testimonies of Atty. de Guzman and Antonio. witness. Thus, we affirm the trial court and the Court of Appeals uniform decision
As discussed above, we do not find Atty. de Guzman a credible witness. Thus, we
based on the whole evidence in record holding the Deed of Sale in question to be
null and void.

In Domingo v. Court of Appeals,[21] the Court declared as null and void the deed
of sale therein inasmuch as the seller, at the time of the execution of the alleged
contract, was already of advanced age and senile. We held

. . . She died an octogenarian on March 20, 1966, barely over a year when the
deed was allegedly executed on January 28, 1965, but before copies of the deed
were entered in the registry allegedly on May 16 and June 10, 1966. The general
rule is that a person is not incompetent to contract merely because of advanced
years or by reason of physical infirmities. However, when such age or infirmities
have impaired the mental faculties so as to prevent the person from properly,
intelligently, and firmly protecting her property rights then she is undeniably
incapacitated. The unrebutted testimony of Zosima Domingo shows that at the
time of the alleged execution of the deed, Paulina was already incapacitated
physically and mentally. She narrated that Paulina played with her waste and
urinated in bed. Given these circumstances, there is in our view sufficient reason
to seriously doubt that she consented to the sale of and the price for her parcels
of land. Moreover, there is no receipt to show that said price was paid to and
received by her. Thus, we are in agreement with the trial courts finding and
conclusion on the matter: . . .

In the case at bar, the Deed of Sale was allegedly signed by Gregorio on his death
bed in the hospital. Gregorio was an octogenarian at the time of the alleged
execution of the contract and suffering from liver cirrhosis at that circumstances
which raise grave doubts on his physical and mental capacity to freely consent
to the contract. Adding to the dubiety of the purported sale and further bolstering
respondents claim that their uncle Catalino, one of the children of the decedent,
had a hand in the execution of the deed is the fact that on 17 October 1996,
petitioners sold a portion of Lot 1175-E consisting of 6,416 square meters to
Catalino for P60,000.00.[22] One need not stretch his imagination to surmise
that Catalino was in cahoots with petitioners in maneuvering the alleged sale.

On the whole, we find no reversible error on the part of the appellate court in CA-
G.R. CV No. 64048 that would warrant the reversal thereof.

WHEREFORE, the present petition is hereby DENIED. Accordingly, the


Decision[23] and the Resolution,[24] dated 15 February 2005 and 17 May 2005,
respectively, of the Court of Appeals in CA-G.R. CV No. 64048 are hereby
AFFIRMED. No costs.

SO ORDERED.
with conjugal funds and through her industry; that the sale of the land together
(9) Sales by and between Spouses with the house and improvements to DAGUINES was null and void because they
are conjugal properties and she had not given her consent to the sale,
G.R. No. L-57499 June 22, 1984
In its original judgment, respondent Court principally declared DAGUINES "as
MERCEDES CALIMLIM- CANULLAS, petitioner, the lawful owner of the land in question as well as the one-half () of the house
vs. erected on said land." Upon reconsideration prayed for by MERCEDES, however,
HON. WILLELMO FORTUN, Judge, Court of First instance of Pangasinan, Branch respondent Court resolved:
I, and CORAZON DAGUINES, respondents.
WHEREFORE, the dispositive portion of the Decision of this Court, promulgated
Fernandez Law Offices for petitioner. on October 6, 1980, is hereby amended to read as follows:

Francisco Pulido for respondents. (1) Declaring plaintiff as the true and lawful owner of the land in question
and the 10 coconut trees;

MELENCIO-HERRERA, J.: (2) Declaring as null and void the sale of the conjugal house to plaintiff on
April 15, 1980 (Exhibit A) including the 3 coconut trees and other crops planted
Petition for Review on certiorari assailing the Decision, dated October 6, 1980, during the conjugal relation between Fernando Canullas (vendor) and his
and the Resolution on the Motion for Reconsideration, dated November 27, 1980, legitimate wife, herein defendant Mercedes Calimlim- Canullas;
of the then Court of First Instance of Pangasinan, Branch I, in Civil Case No.
15620 entitled "Corazon DAGUINES vs. MERCEDES Calimlim-Canullas," xxx xxx xxx
upholding the sale of a parcel of land in favor of DAGUINES but not of the
conjugal house thereon' The issues posed for resolution are (1) whether or not the construction of a
conjugal house on the exclusive property of the husband ipso facto gave the land
The background facts may be summarized as follows: Petitioner MERCEDES the character of conjugal property; and (2) whether or not the sale of the lot
Calimlim-Canullas and FERNANDO Canullas were married on December 19, together with the house and improvements thereon was valid under the
1962. They begot five children. They lived in a small house on the residential land circumstances surrounding the transaction.
in question with an area of approximately 891 square meters, located at Bacabac,
Bugallon, Pangasinan. After FERNANDO's father died in 1965, FERNANDO The determination of the first issue revolves around the interpretation to be given
inherited the land. to the second paragraph of Article 158 of the Civil Code, which reads:

In 1978, FERNANDO abandoned his family and was living with private xxx xxx xxx
respondent Corazon DAGUINES. During the pendency of this appeal, they were
convicted of concubinage in a judgment rendered on October 27, 1981 by the Buildings constructed at the expense of the partnership during the marriage on
then Court of First Instance of Pangasinan, Branch II, which judgment has land belonging to one of the spouses also pertain to the partnership, but the
become final. value of the land shall be reimbursed to the spouse who owns the same.

On April 15, 1980, FERNANDO sold the subject property with the house thereon We hold that pursuant to the foregoing provision both the land and the building
to DAGUINES for the sum of P2,000.00. In the document of sale, FERNANDO belong to the conjugal partnership but the conjugal partnership is indebted to
described the house as "also inherited by me from my deceased parents." the husband for the value of the land. The spouse owning the lot becomes a
creditor of the conjugal partnership for the value of the lot, 1 which value would
Unable to take possession of the lot and house, DAGUINES initiated a complaint be reimbursed at the liquidation of the conjugal partnership. 2
on June 19, 1980 for quieting of title and damages against MERCEDES. The
latter resisted and claimed that the house in dispute where she and her children In his commentary on the corresponding provision in the Spanish Civil Code (Art.
were residing, including the coconut trees on the land, were built and planted 1404), Manresa stated:
Additionally, the law emphatically prohibits the spouses from selling property to
El articulo cambia la doctrine; los edificios construidos durante el matrimonio en each other subject to certain exceptions.6 Similarly, donations between spouses
suelo propio de uno de los conjuges son gananciales, abonandose el valor del during marriage are prohibited. 7 And this is so because if transfers or con
suelo al conj uge a quien pertenezca. conveyances between spouses were allowed during marriage, that would destroy
the system of conjugal partnership, a basic policy in civil law. It was also designed
It is true that in the case of Maramba vs. Lozano, 3 relied upon by respondent to prevent the exercise of undue influence by one spouse over the other,8 as well
Judge, it was held that the land belonging to one of the spouses, upon which the as to protect the institution of marriage, which is the cornerstone of family law.
spouses have built a house, becomes conjugal property only when the conjugal The prohibitions apply to a couple living as husband and wife without benefit of
partnership is liquidated and indemnity paid to the owner of the land. We believe marriage, otherwise, "the condition of those who incurred guilt would turn out to
that the better rule is that enunciated by Mr. Justice J.B.L. Reyes in Padilla vs. be better than those in legal union." Those provisions are dictated by public
Paterno, 3 SCRA 678, 691 (1961), where the following was explained: interest and their criterion must be imposed upon the wig of the parties. That
was the ruling in Buenaventura vs. Bautista, also penned by Justice JBL Reyes
As to the above properties, their conversion from paraphernal to conjugal assets (CA) 50 O.G. 3679, and cited in Matabuena vs. Cervantes. 9 We quote hereunder
should be deemed to retroact to the time the conjugal buildings were first the pertinent dissertation on this point:
constructed thereon or at the very latest, to the time immediately before the death
of Narciso A. Padilla that ended the conjugal partnership. They can not be We reach a different conclusion. While Art. 133 of the Civil Code considers as
considered to have become conjugal property only as of the time their values were void a donation between the spouses during the marriage, policy considerations
paid to the estate of the widow Concepcion Paterno because by that time the of the most exigent character as wen as the dictates of morality require that the
conjugal partnership no longer existed and it could not acquire the ownership of same prohibition should apply to a common-law relationship.
said properties. The acquisition by the partnership of these properties was, under
the 1943 decision, subject to the suspensive condition that their values would be As announced in the outset of this opinion, a 1954 Court of Appeals decision,
reimbursed to the widow at the liquidation of the conjugal partnership; once paid, Buenaventura vs. Bautista, 50 OG 3679, interpreting a similar provision of the
the effects of the fulfillment of the condition should be deemed to retroact to the old Civil Code speaks unequivocally. If the policy of the law is, in the language of
date the obligation was constituted (Art. 1187, New Civil Code) ... the opinion of the then Justice J.B.L. Reyes of that Court, 'to prohibit donations
in favor of the other consort and his descendants because of fear of undue
The foregoing premises considered, it follows that FERNANDO could not have influence and improper pressure upon the donor, a prejudice deeply rooted in
alienated the house and lot to DAGUINES since MERCEDES had not given her our ancient law, ..., then there is every reason to apply the same prohibitive policy
consent to said sale. 4 to persons living together as husband and wife without benefit of nuptials. For it
is not to be doubted that assent to such irregular connection for thirty years
Anent the second issue, we find that the contract of sale was null and void for bespeaks greater influence of one party over the other, so that the danger that
being contrary to morals and public policy. The sale was made by a husband in the law seeks to avoid is correspondingly increased'. Moreover, as pointed out by
favor of a concubine after he had abandoned his family and left the conjugal Ulpian (in his lib 32 ad Sabinum, fr. 1), "It would not be just that such donations
home where his wife and children lived and from whence they derived their — should subsist, lest the conditions of those who incurred guilt should turn out
support. That sale was subversive of the stability of the family, a basic social to be better." So long as marriage remains the cornerstone of our family law,
institution which public policy cherishes and protects. 5 reason and morality alike demand that the disabilities attached to marriage
should likewise attach to concubinage (Emphasis supplied),
Article 1409 of the Civil Code states inter alia that: contracts whose cause, object,
or purpose is contrary to law, morals, good customs, public order, or public policy WHEREFORE, the Decision of respondent Judge, dated October 6, 1980, and his
are void and inexistent from the very beginning. Resolution of November 27, 1980 on petitioner's Motion for Reconsideration, are
hereby set aside and the sale of the lot, house and improvements in question, is
Article 1352 also provides that: "Contracts without cause, or with unlawful hereby declared null and void. No costs.
cause, produce no effect whatsoever. The cause is unlawful if it is contrary to
law, morals, good customs, public order, or public policy." SO ORDERED.
(10 and 12) Others Relatively Disqualified & Attorneys in Barrio General Luna, Barotac Viejo, Iloilo which he bought from his father-in-
law, Francisco Militante in 1956 against its present occupant defendant, Isaias
G.R. No. L-35702 May 29, 1973 Batiller, who illegally entered said portions of the lot on two occasions — in 1945
and in 1959. Plaintiff prayed also for damages and attorneys fees. (pp. 1-7,
DOMINGO D. RUBIAS, plaintiff-appellant, Record on Appeal). In his answer with counter-claim defendant claims the
vs. complaint of the plaintiff does not state a cause of action, the truth of the matter
ISAIAS BATILLER, defendant-appellee. being that he and his predecessors-in-interest have always been in actual, open
and continuous possession since time immemorial under claim of ownership of
Gregorio M. Rubias for plaintiff-appellant. the portions of the lot in question and for the alleged malicious institution of the
complaint he claims he has suffered moral damages in the amount of P 2,000.00,
Vicente R. Acsay for defendant-appellee. as well as the sum of P500.00 for attorney's fees. ...

On December 9, 1964, the trial court issued a pre-trial order, after a pre-trial
TEEHANKEE, J.: conference between the parties and their counsel which order reads as follows..

In this appeal certified by the Court of Appeals to this Court as involving purely 'When this case was called for a pre-trial conference today, the plaintiff appeared
legal questions, we affirm the dismissal order rendered by the Iloilo court of first assisted by himself and Atty. Gregorio M. Rubias. The defendant also appeared,
instance after pre-trial and submittal of the pertinent documentary exhibits. assisted by his counsel Atty. Vicente R. Acsay.

Such dismissal was proper, plaintiff having no cause of action, since it was duly A. During the pre-trial conference, the parties have agreed that the following facts
established in the record that the application for registration of the land in are attendant in this case and that they will no longer introduced any evidence,
question filed by Francisco Militante, plaintiff's vendor and predecessor interest, testimonial or documentary to prove them:
had been dismissed by decision of 1952 of the land registration court as affirmed
by final judgment in 1958 of the Court of Appeals and hence, there was no title 1. That Francisco Militante claimed ownership of a parcel of land located in
or right to the land that could be transmitted by the purported sale to plaintiff. the Barrio of General Luna, municipality of Barotac Viejo province of Iloilo, which
he caused to be surveyed on July 18-31, 1934, whereby he was issued a plan
As late as 1964, the Iloilo court of first instance had in another case of ejectment Psu-99791 (Exhibit "B"). (The land claimed contained an area of 171:3561
likewise upheld by final judgment defendant's "better right to possess the land hectares.)
in question . having been in the actual possession thereof under a claim of title
many years before Francisco Militante sold the land to the plaintiff." 2. Before the war with Japan, Francisco Militante filed with the Court of
First Instance of Iloilo an application for the registration of the title of the land
Furthermore, even assuming that Militante had anything to sell, the deed of sale technically described in psu-99791 (Exh. "B") opposed by the Director of Lands,
executed in 1956 by him in favor of plaintiff at a time when plaintiff was the Director of Forestry and other oppositors. However, during the war with
concededly his counsel of record in the land registration case involving the very Japan, the record of the case was lost before it was heard, so after the war
land in dispute (ultimately decided adversely against Militante by the Court of Francisco Militante petitioned this court to reconstitute the record of the case.
Appeals' 1958 judgment affirming the lower court's dismissal of Militante's The record was reconstituted on the Court of the First Instance of Iloilo and
application for registration) was properly declared inexistent and void by the docketed as Land Case No. R-695, GLRO Rec. No. 54852. The Court of First
lower court, as decreed by Article 1409 in relation to Article 1491 of the Civil Instance heard the land registration case on November 14, 1952, and after the
Code. trial this court dismissed the application for registration. The appellant,
Francisco Militante, appealed from the decision of this Court to the Court of
The appellate court, in its resolution of certification of 25 July 1972, gave the Appeals where the case was docketed as CA-GR No. 13497-R..
following backgrounder of the appeal at bar:
3. Pending the disposal of the appeal in CA-GR No. 13497-R and more
On August 31, 1964, plaintiff Domingo D. Rubias, a lawyer, filed a suit to recover particularly on June 18, 1956, Francisco Militante sold to the plaintiff, Domingo
the ownership and possession of certain portions of lot under Psu-99791 located Rubias the land technically described in psu-99791 (Exh. "A"). The sale was duly
recorded in the Office of the Register of Deeds for the province of Iloilo as Entry name of the defendant (Exh. "2-C"). The defendant paid the land taxes for Lot 2,
No. 13609 on July 11, 1960 (Exh. "A-1"). Psu-155241, on Nov. 9, 1960 for the years 1945 and 1946, for the year 1950,
and for the year 1960 as shown by the certificate of the treasurer (Exh. "3"). The
(NOTE: As per deed of sale, Exh. A, what Militante purportedly sold to plaintiff- defendant may present to the Court other land taxes receipts for the payment of
appellant, his son-in-law, for the sum of P2,000.00 was "a parcel of untitled land taxes for this lot.
having an area Of 144.9072 hectares ... surveyed under Psu 99791 ... (and)
subject to the exclusions made by me, under (case) CA-i3497, Land Registration 9. The land claimed by the defendant as his own was surveyed on June 6
Case No. R-695, G.L.R.O. No. 54852, Court of First Instance of the province of and 7,1956, and a plan approved by Director of Land on November 15, 1956 was
Iloilo. These exclusions referred to portions of the original area of over 171 issued, identified as Psu 155241 (Exh. "5").
hectares originally claimed by Militante as applicant, but which he expressly
recognized during the trial to pertain to some oppositors, such as the Bureau of 10. On April 22, 1960, the plaintiff filed forcible Entry and Detainer case
Public Works and Bureau of Forestry and several other individual occupants and against Isaias Batiller in the Justice of the Peace Court of Barotac Viejo Province
accordingly withdrew his application over the same. This is expressly made of of Iloilo (Exh. "4") to which the defendant Isaias Batiller riled his answer on
record in Exh. A, which is the Court of Appeals' decision of 22 September 1958 August 29, 1960 (Exh. "4-A"). The Municipal Court of Barotac Viejo after trial,
confirming the land registration court's dismissal of Militante's application for decided the case on May 10, 1961 in favor of the defendant and against the
registration.) plaintiff (Exh. "4-B"). The plaintiff appealed from the decision of the Municipal
Court of Barotac Viejo which was docketed in this Court as Civil Case No. 5750
4. On September 22,1958 the Court of appeals in CA-G.R. No. 13497-R on June 3, 1961, to which the defendant, Isaias Batiller, on June 13, 1961 filed
promulgated its judgment confirming the decision of this Court in Land Case No. his answer (Exh. "4-C"). And this Court after the trial. decided the case on
R-695, GLRO Rec. No. 54852 which dismissed the application for Registration November 26, 1964, in favor of the defendant, Isaias Batiller and against the
filed by Francisco Militante (Exh. "I"). plaintiff (Exh. "4-D").

5. Domingo Rubias declared the land described in Exh. 'B' for taxation (NOTE: As per Exh. 4-B, which is the Iloilo court of first instance decision of 26
purposes under Tax Dec. No. 8585 (Exh. "C") for 1957; Tax Dec. Nos. 9533 (Exh. November 1964 dismissing plaintiff's therein complaint for ejectment against
"C-1") and 10019 (Exh. "C-3")for the year 1961; Tax Dec. No. 9868 (Exh. "C-2") defendant, the iloilo court expressly found "that plaintiff's complaint is
for the year 1964, paying the land taxes under Tax Dec. No. 8585 and 9533 (Exh. unjustified, intended to harass the defendant" and "that the defendant, Isaias
"D", "D-1", "G-6"). Batiller, has a better right to possess the land in question described in Psu
155241 (Exh. "3"), Isaias Batiller having been in the actual physical possession
6. Francisco Militante immediate predecessor-in-interest of the plaintiff, thereof under a claim of title many years before Francisco Militante sold the land
has also declared the land for taxation purposes under Tax Dec. No. 5172 in to the plaintiff-hereby dismissing plaintiff's complaint and ordering the plaintiff
1940 (Exh. "E") for 1945; under Tax Dec. No. T-86 (Exh. "E-1") for 1948; under to pay the defendant attorney's fees ....")
Tax Dec. No. 7122 (Exh. "2"), and paid the land taxes for 1940 (Exhs. "G" and
"G-7"), for 1945 46 (Exh. "G-1") for 1947 (Exh. "G-2"), for 1947 & 1948 (Exh. "G- B. During the trial of this case on the merit, the plaintiff will prove by
3"), for 1948 (Exh. "G-4"), and for 1948 and 1949 (Exh. "G-5"). competent evidence the following:

7. Tax Declaration No. 2434 in the name of Liberato Demontaño for the 1. That the land he purchased from Francisco Militante under Exh. "A" was
land described therein (Exh. "F") was cancelled by Tax. Dec. No. 5172 of formerly owned and possessed by Liberato Demontaño but that on September 6,
Francisco Militante (Exh. "E"). Liberato Demontaño paid the land tax under Tax 1919 the land was sold at public auction by virtue of a judgment in a Civil Case
Dec. No. 2434 on Dec. 20, 1939 for the years 1938 (50%) and 1959 (Exh. "H"). entitled "Edw J. Pflieder plaintiff vs. Liberato Demontaño Francisco Balladeros
and Gregorio Yulo, defendants", of which Yap Pongco was the purchaser (Exh.
8. The defendant had declared for taxation purposes Lot No. 2 of the Psu- "1-3"). The sale was registered in the Office of the Register of Deeds of Iloilo on
155241 under Tax Dec. Not. 8583 for 1957 and a portion of Lot No. 2, Psu- August 4, 1920, under Primary Entry No. 69 (Exh. "1"), and a definite Deed of
155241, for 1945 under Tax Dec. No. 8584 (Exh. "2-A" Tax No. 8583 (Exh. "2") Sale was executed by Constantino A. Canto, provincial Sheriff of Iloilo, on Jan.
was revised by Tax Dec. No. 9498 in the name of the defendant (Exh. "2-B") and 19, 1934 in favor of Yap Pongco (Exh. "I"), the sale having been registered in the
Tax Dec. No. 8584 (Exh. "2-A") was cancelled by Tax Dec. No. 9584 also in the Office of the Register of Deeds of Iloilo on February 10, 1934 (Exh. "1-1").
2. On September 22, 1934, Yap Pongco sold this land to Francisco Militante 'ART. 1491. The following persons cannot acquire any purchase, even at a
as evidenced by a notarial deed (Exh. "J") which was registered in the Registry of public auction, either in person of through the mediation of another: .
Deeds on May 13, 1940 (Exh. "J-1").
xxx xxx xxx
3. That plaintiff suffered damages alleged in his complaint.
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior
C. Defendants, on the other hand will prove by competent evidence during courts, and other officers and employees connected with the administration of
the trial of this case the following facts: justice, the property and rights of in litigation or levied upon an execution before
the court within whose jurisdiction or territory they exercise their respective
1. That lot No. 2 of the Psu-1552 it (Exh. '5') was originally owned and functions; this prohibition includes the act of acquiring an assignment and shall
possessed by Felipe Batiller, grandfather of the defendant Basilio Batiller, on the apply to lawyers, with respect to the property and rights which may be the object
death of the former in 1920, as his sole heir. Isaias Batiller succeeded his father of any litigation in which they may take part by virtue of their profession.'
, Basilio Batiller, in the ownership and possession of the land in the year 1930,
and since then up to the present, the land remains in the possession of the defendant claims that plaintiff could not have acquired any interest in the
defendant, his possession being actual, open, public, peaceful and continuous in property in dispute as the contract he (plaintiff) had with Francisco Militante was
the concept of an owner, exclusive of any other rights and adverse to all other inexistent and void. (See pp. 22-31, Record on Appeal). Plaintiff strongly opposed
claimants. defendant's motion to dismiss claiming that defendant can not invoke Articles
1409 and 1491 of the Civil Code as Article 1422 of the same Code provides that
2. That the alleged predecessors in interest of the plaintiff have never been 'The defense of illegality of contracts is not available to third persons whose
in the actual possession of the land and that they never had any title thereto. interests are not directly affected' (See pp. 32-35 Record on Appeal).

3. That Lot No. 2, Psu 155241, the subject of Free Patent application of the On October 18, 1965, the lower court issued an order disclaiming plaintiffs
defendant has been approved. complaint (pp. 42-49, Record on Appeal.) In the aforesaid order of dismissal the
lower court practically agreed with defendant's contention that the contract (Exh.
4. The damages suffered by the defendant, as alleged in his A) between plaintiff and Francism Militante was null and void. In due season
counterclaim."'1 plaintiff filed a motion for reconsideration (pp. 50-56 Record on Appeal) which
was denied by the lower court on January 14, 1966 (p. 57, Record on Appeal).
The appellate court further related the developments of the case, as follows:
Hence, this appeal by plaintiff from the orders of October 18, 1965 and January
On August 17, 1965, defendant's counsel manifested in open court that before 14, 1966.
any trial on the merit of the case could proceed he would file a motion to dismiss
plaintiff's complaint which he did, alleging that plaintiff does not have cause of Plaintiff-appellant imputes to the lower court the following errors:
action against him because the property in dispute which he (plaintiff) allegedly
bought from his father-in-law, Francisco Militante was the subject matter of LRC '1. The lower court erred in holding that the contract of sale between the
No. 695 filed in the CFI of Iloilo, which case was brought on appeal to this Court plaintiff-appellant and his father-in-law, Francisco Militante, Sr., now deceased,
and docketed as CA-G.R. No. 13497-R in which aforesaid case plaintiff was the of the property covered by Plan Psu-99791, (Exh. "A") was void, not voidable
counsel on record of his father-in-law, Francisco Militante. Invoking Arts. 1409 because it was made when plaintiff-appellant was the counsel of the latter in the
and 1491 of the Civil Code which reads: Land Registration case.

'Art. 1409. The following contracts are inexistent and void from the beginning: '2. The lower court erred in holding that the defendant-appellee is an
interested person to question the validity of the contract of sale between plaintiff-
xxx xxx xxx appellant and the deceased, Francisco Militante, Sr.

(7) Those expressly prohibited by law.


'3. The lower court erred in entertaining the motion to dismiss of the No error was therefore committed by the lower court in dismissing plaintiff's
defendant-appellee after he had already filed his answer, and after the complaint upon defendant's motion after the pre-trial.
termination of the pre-trial, when the said motion to dismiss raised a collateral
question. 1. The stipulated facts and exhibits of record indisputably established
plaintiff's lack of cause of action and justified the outright dismissal of the
'4. The lower court erred in dismissing the complaint of the plaintiff- complaint. Plaintiff's claim of ownership to the land in question was predicated
appellant.' on the sale thereof for P2,000.00 made in 1956 by his father-in- law, Francisco
Militante, in his favor, at a time when Militante's application for registration
The appellate court concluded that plaintiffs "assignment of errors gives rise to thereof had already been dismissed by the Iloilo land registration court and was
two (2) legal posers — (1) whether or not the contract of sale between appellant pending appeal in the Court of Appeals.
and his father-in-law, the late Francisco Militante over the property subject of
Plan Psu-99791 was void because it was made when plaintiff was counsel of his With the Court of Appeals' 1958 final judgment affirming the dismissal of
father-in-law in a land registration case involving the property in dispute; and (2) Militante's application for registration, the lack of any rightful claim or title of
whether or not the lower court was correct in entertaining defendant-appellee's Militante to the land was conclusively and decisively judicially determined.
motion to dismiss after the latter had already filed his answer and after he Hence, there was no right or title to the land that could be transferred or sold by
(defendant) and plaintiff-appellant had agreed on some matters in a pre-trial Militante's purported sale in 1956 in favor of plaintiff.
conference. Hence, its elevation of the appeal to this Court as involving pure
questions of law. Manifestly, then plaintiff's complaint against defendant, to be declared absolute
owner of the land and to be restored to possession thereof with damages was
It is at once evident from the foregoing narration that the pre-trial conference bereft of any factual or legal basis.
held by the trial court at which the parties with their counsel agreed and
stipulated on the material and relevant facts and submitted their respective 2. No error could be attributed either to the lower court's holding that the
documentary exhibits as referred to in the pre-trial order, supra,2 practically purchase by a lawyer of the property in litigation from his client is categorically
amounted to a fulldress trial which placed on record all the facts and exhibits prohibited by Article 1491, paragraph (5) of the Philippine Civil Code, reproduced
necessary for adjudication of the case. supra;6 and that consequently, plaintiff's purchase of the property in litigation
from his client (assuming that his client could sell the same since as already
The three points on which plaintiff reserved the presentation of evidence at the- shown above, his client's claim to the property was defeated and rejected) was
trial dealing with the source of the alleged right and title of Francisco Militante's void and could produce no legal effect, by virtue of Article 1409, paragraph (7) of
predecessors, supra,3 actually are already made of record in the stipulated facts our Civil Code which provides that contracts "expressly prohibited or declared
and admitted exhibits. The chain of Militante's alleged title and right to the land void by law' are "inexistent and that "(T)hese contracts cannot be ratified. Neither
as supposedly traced back to Liberato Demontaño was actually asserted by can the right to set up the defense of illegality be waived."
Militante (and his vendee, lawyer and son-in-law, herein plaintiff) in the land
registration case and rejected by the Iloilo land registration court which The 1911 case of Wolfson vs. Estate of Martinez7 relied upon by plaintiff as
dismissed Militante's application for registration of the land. Such dismissal, as holding that a sale of property in litigation to the party litigant's lawyer "is not
already stated, was affirmed by the final judgment in 1958 of the Court of void but voidable at the election of the vendor" was correctly held by the lower
Appeals.4 court to have been superseded by the later 1929 case of Director of Lands vs.
Abagat.8 In this later case of Abagat, the Court expressly cited two antecedent
The four points on which defendant on his part reserved the presentation of cases involving the same transaction of purchase of property in litigation by the
evidence at the trial dealing with his and his ancestors' continuous, open, public lawyer which was expressly declared invalid under Article 1459 of the Civil Code
and peaceful possession in the concept of owner of the land and the Director of of Spain (of which Article 1491 of our Civil Code of the Philippines is the
Lands' approval of his survey plan thereof, supra,5 are likewise already duly counterpart) upon challenge thereof not by the vendor-client but by the adverse
established facts of record, in the land registration case as well as in the parties against whom the lawyer was to enforce his rights as vendee thus
ejectment case wherein the Iloilo court of first instance recognized the superiority acquired.
of defendant's right to the land as against plaintiff.
These two antecedent cases thus cited in Abagat clearly superseded (without so Article 1491 of our Civil Code (like Article 1459 of the Spanish Civil Code)
expressly stating the previous ruling in Wolfson: prohibits in its six paragraphs certain persons, by reason of the relation of trust
or their peculiar control over the property, from acquiring such property in their
The spouses, Juan Soriano and Vicente Macaraeg, were the owners of twelve trust or control either directly or indirectly and "even at a public or judicial
parcels of land. Vicenta Macaraeg died in November, 1909, leaving a large auction," as follows: (1) guardians; (2) agents; (3) administrators; (4) public
number of collateral heirs but no descendants. Litigation between the surviving officers and employees; judicial officers and employees, prosecuting attorneys,
husband, Juan Soriano, and the heirs of Vicenta immediately arose, and the and lawyers; and (6) others especially disqualified by law.
herein appellant Sisenando Palarca acted as Soriano's lawyer. On May 2, 1918,
Soriano executed a deed for the aforesaid twelve parcels of land in favor of In Wolfson which involved the sale and assignment of a money judgment by the
Sisenando Palarca and on the following day, May 3, 1918, Palarca filed an client to the lawyer, Wolfson, whose right to so purchase the judgment was being
application for the registration of the land in the deed. After hearing, the Court challenged by the judgment debtor, the Court, through Justice Moreland, then
of First Instance declared that the deed was invalid by virtue of the provisions of expressly reserved decision on "whether or not the judgment in question actually
article 1459 of the Civil Code, which prohibits lawyers and solicitors from falls within the prohibition of the article" and held only that the sale's "voidability
purchasing property rights involved in any litigation in which they take part by can not be asserted by one not a party to the transaction or his representative,"
virtue of their profession. The application for registration was consequently citing from Manresa 10 that "(C)onsidering the question from the point of view of
denied, and upon appeal by Palarca to the Supreme Court, the judgement of the the civil law, the view taken by the code, we must limit ourselves to classifying
lower court was affirmed by a decision promulgated November 16,1925. (G.R. No. as void all acts done contrary to the express prohibition of the statute. Now then:
24329, Palarca vs. Director of Lands, not reported.) As the code does not recognize such nullity by the mere operation of law, the
nullity of the acts hereinbefore referred to must be asserted by the person having
In the meantime cadastral case No. 30 of the Province of Tarlac was instituted, the necessary legal capacity to do so and decreed by a competent
and on August 21, 1923, Eleuteria Macaraeg, as administratrix of the estate of court." 11
Vicente Macaraeg, filed claims for the parcels in question. Buenaventura
Lavitoria administrator of the estate of Juan Soriano, did likewise and so did The reason thus given by Manresa in considering such prohibited acquisitions
Sisenando Palarca. In a decision dated June 21, 1927, the Court of First under Article 1459 of the Spanish Civil Code as merely voidable at the instance
Instance, Judge Carballo presiding, rendered judgment in favor of Palarea and and option of the vendor and not void — "that the Code does not recognize such
ordered the registration of the land in his name. Upon appeal to this court by the nullity de pleno derecho" — is no longer true and applicable to our own Philippine
administration of the estates of Juan Soriano and Vicente Macaraeg, the Civil Code which does recognize the absolute nullity of contracts "whose cause,
judgment of the court below was reversed and the land adjudicated to the two object, or purpose is contrary to law, morals, good customs, public order or
estates as conjugal property of the deceased spouses. (G.R. No. 28226, Director public policy" or which are "expressly prohibited or declared void by law" and
of Lands vs. Abagat, promulgated May 21, 1928, not reported.)9 declares such contracts "inexistent and void from the beginning." 12

In the very case of Abagat itself, the Court, again affirming the invalidity and The Supreme Court of Spain and modern authors have likewise veered from
nullity of the lawyer's purchase of the land in litigation from his client, ordered Manresa's view of the Spanish codal provision itself. In its sentencia of 11 June
the issuance of a writ of possession for the return of the land by the lawyer to the 1966, the Supreme Court of Spain ruled that the prohibition of Article 1459 of
adverse parties without reimbursement of the price paid by him and other the Spanish Civil Code is based on public policy, that violation of the prohibition
expenses, and ruled that "the appellant Palarca is a lawyer and is presumed to contract cannot be validated by confirmation or ratification, holding that:
know the law. He must, therefore, from the beginning, have been well aware of
the defect in his title and is, consequently, a possessor in bad faith." ... la prohibicion que el articulo 1459 del C.C. establece respecto a los
administradores y apoderados, la cual tiene conforme a la doctrina de esta Sala,
As already stated, Wolfson and Abagat were decided with relation to Article 1459 contendia entre otras, en S. de 27-5-1959, un fundamento de orden moral lugar
of the Civil Code of Spain then adopted here, until it was superseded on August la violacion de esta a la nulidad de pleno derecho del acto o negocio celebrado,
30, 1950 by the Civil Code of the Philippines whose counterpart provision is ... y prohibicion legal, afectante orden publico, no cabe con efecto alguno la
Article 1491. aludida retification ... 13
The criterion of nullity of such prohibited contracts under Article 1459 of the administrators (Article 1491, Civil Code), as to whose transactions it had been
Spanish Civil Code (Article 1491 of our Civil Code) as a matter of public order opined that they may be "ratified" by means of and in "the form of a new contact,
and policy as applied by the Supreme Court of Spain to administrators and in which cases its validity shall be determined only by the circumstances at the
agents in its above cited decision should certainly apply with greater reason to time the execution of such new contract. The causes of nullity which have ceased
judges, judicial officers, fiscals and lawyers under paragraph 5 of the codal to exist cannot impair the validity of the new contract. Thus, the object which
article. was illegal at the time of the first contract, may have already become lawful at
the time of the ratification or second contract; or the service which was
Citing the same decisions of the Supreme Court of Spain, Gullon Ballesteros, his impossible may have become possible; or the intention which could not be
"Curso de Derecho Civil, (Contratos Especiales)" (Madrid, 1968) p. 18, affirms ascertained may have been clarified by the parties. The ratification or second
that, with respect to Article 1459, Spanish Civil Code:. contract would then be valid from its execution; however, it does not retroact to
the date of the first contract." 19
Que caracter tendra la compra que se realice por estas personas? Porsupuesto
no cabe duda de que el caso (art.) 1459, 40 y 50, la nulidad esabsoluta porque As applied to the case at bar, the lower court therefore properly acted upon
el motivo de la prohibicion es de orden publico. 14 defendant-appellant's motion to dismiss on the ground of nullity of plaintiff's
alleged purchase of the land, since its juridical effects and plaintiff's alleged cause
Perez Gonzales in such view, stating that "Dado el caracter prohibitivo of action founded thereon were being asserted against defendant-appellant. The
delprecepto, la consequencia de la infraccion es la nulidad radical y ex lege." 15 principles governing the nullity of such prohibited contracts and judicial
declaration of their nullity have been well restated by Tolentino in his treatise on
Castan, quoting Manresa's own observation that. our Civil Code, as follows:

"El fundamento do esta prohibicion es clarisimo. No sa trata con este precepto Parties Affected. — Any person may invoke the in existence of the contract
tan solo de guitar la ocasion al fraude; persiguese, ademasel proposito de rodear whenever juridical effects founded thereon are asserted against him. Thus, if
a las personas que intervienen en la administrcionde justicia de todos los retigios there has been a void transfer of property, the transferor can recover it by the
que necesitan pora ejercer su ministerio librandolos de toda suspecha, que accion reinvindicatoria; and any prossessor may refuse to deliver it to the
aunque fuere in fundada, redundura endescredito de la institucion." 16 arrives transferee, who cannot enforce the contract. Creditors may attach property of the
at the contrary and now accepted view that "Puede considerace en nuestro debtor which has been alienated by the latter under a void contract; a mortgagee
derecho inexistente 'o radicalmente nulo el contrato en los siguentes cases: a) ...; can allege the inexistence of a prior encumbrance; a debtor can assert the nullity
b) cuando el contrato se ha celebrado en violacion de una prescripcion 'o of an assignment of credit as a defense to an action by the assignee.
prohibicion legal, fundada sobre motivos de orden publico (hipotesis del art. 4
del codigo) ..." 17 Action On Contract. — Even when the contract is void or inexistent, an action is
necessary to declare its inexistence, when it has already been fulfilled. Nobody
It is noteworthy that Caltan's rationale for his conclusion that fundamental can take the law into his own hands; hence, the intervention of the competent
consideration of public policy render void and inexistent such expressly court is necessary to declare the absolute nullity of the contract and to decree
prohibited purchase (e.g. by public officers and employees of government the restitution of what has been given under it. The judgment, however, will
property intrusted to them and by justices, judges, fiscals and lawyers of property retroact to the very day when the contract was entered into.
and rights in litigation and submitted to or handled by them, under Article 1491,
paragraphs (4) and (5) of our Civil Code) has been adopted in a new article of our If the void contract is still fully executory, no party need bring an action to declare
Civil Code, viz, Article 1409 declaring such prohibited contracts as "inexistent its nullity; but if any party should bring an action to enforce it, the other party
and void from the beginning." 18 can simply set up the nullity as a defense. 20

Indeed, the nullity of such prohibited contracts is definite and permanent and ACCORDINGLY, the order of dismissal appealed from is hereby affirmed, with
cannot be cured by ratification. The public interest and public policy remain costs in all instances against plaintiff-appellant. So ordered.
paramount and do not permit of compromise or ratification. In his aspect, the
permanent disqualification of public and judicial officers and lawyers grounded
on public policy differs from the first three cases of guardians, agents and
(11) Sales by Guardians, Agents and Administrators parcels out of the seventeen to Emilio Cruz for P3,000, reserving to herself the
right to repurchase (Exhibit A-3).
[G.R. No. L-8477. May 31, 1956.]
The Philippine Trust Company replaced Socorro Roldan as guardian, on August
THE PHILIPPINE TRUST COMPANY, as Guardian of the Property of the minor, 10, 1948. And this litigation, started two months later, seeks to undo what the
MARIANO L. BERNARDO, Petitioner, vs. SOCORRO ROLDAN, FRANCISCO previous guardian had done. The step-mother in effect, sold to herself, the
HERMOSO, FIDEL C. RAMOS and EMILIO CRUZ, Respondents. properties of her ward, contends the Plaintiff, and the sale should be annulled
because it violates Article 1459 of the Civil Code prohibiting the guardian from
purchasing “either in person or through the mediation of another” the property
of her ward.
DECISION
The court of first instance, following our decision in Rodriguez vs. Mactal, 60 Phil.
BENGZON, J.: 13 held the article was not controlling, because there was no proof that Fidel C.
Ramos was a mere intermediary or that the latter had previously agreed with
As guardian of the property of the minor Mariano L. Bernardo, the Philippine Socorro Roldan to buy the parcels for her benefit.
Trust Company filed in the Manila court of first instance a complaint to annul
two contracts regarding 17 parcels of land: (a) sale thereof by Socorro Roldan, as However, taking the former guardian at her word - she swore she had
guardian of said minor, to Fidel C. Ramos; (b) sale thereof by Fidel C. Ramos to repurchased the lands from Dr. Fidel C. Ramos to preserve it and to give her
Socorro Roldan personally. The complaint likewise sought to annul a conveyance protege opportunity to redeem — the court rendered judgment upholding the
of four out of the said seventeen parcels by Socorro Roldan to Emilio Cruz. contracts but allowing the minor to repurchase all the parcels by paying P15,000,
within one year.
The action rests on the proposition that the first two sales were in reality a sale
by the guardian to herself — therefore, null and void under Article 1459 of the The Court of Appeals affirmed the judgment, adding that the minor knew the
Civil Code. As to the third conveyance, it is also ineffective, because Socorro particulars of, and approved the transaction, and that “only clear and positive
Roldan had acquired no valid title to convey to Cruz. evidence of fraud or bad faith, and not mere insinuations and inferences will
overcome the presumptions that a sale was concluded in all good faith for value”.
The material facts of the case are not complicated. These 17 parcels located in
Guiguinto, Bulacan, were part of the properties inherited by Mariano L. Bernardo At first glance the resolutions of both courts accomplished substantial justice:
from his father, Marcelo Bernardo, deceased. In view of his minority, the minor recovers his properties. But if the conveyances are annulled as prayed
guardianship proceedings were instituted, wherein Socorro Roldan was for, the minor will obtain a better deal: he receives all the fruits of the lands from
appointed his guardian. She was the surviving spouse of Marcelo Bernardo, and the year 1947 (Article 1303 Civil Code) and will return P14,700, not P15,000.
the stepmother of said Mariano L. Bernardo.
To our minds the first two transactions herein described couldn’t be in a better
On July 27, 1947, Socorro Roldan filed in said guardianship proceedings (Special juridical situation than if this guardian had purchased the seventeen parcels on
Proceeding 2485, Manila), a motion asking for authority to sell as guardian the the day following the sale to Dr. Ramos. Now, if she was willing to pay P15,000
17 parcels for the sum of P14,700 to Dr. Fidel C. Ramos, the purpose of the sale why did she sell the parcels for less? In one day (or actually one week) the price
being allegedly to invest the money in a residential house, which the minor could not have risen so suddenly. Obviously when, seeking approval of the sale
desired to have on Tindalo Street, Manila. The motion was granted. she represented the price to be the best obtainable in the market, she was not
entirely truthful. This is one phase to consider.
On August 5, 1947 Socorro Roldan, as guardian, executed the proper deed of
sale in favor of her brother-in-law Dr. Fidel C. Ramos (Exhibit A-1), and on Again, supposing she knew the parcels were actually worth P17,000; then she
August 12, 1947 she asked for, and obtained, judicial confirmation of the sale. agreed to sell them to Dr. Ramos at P14,700and knowing the realty’s value she
On August 13, 1947, Dr. Fidel C. Ramos executed in favor of Socorro Roldan, offered him the next day P15,000 or P15,500, and got it. Will there be any doubt
personally, a deed of conveyance covering the same seventeen parcels, for the that she was recreant to her guardianship, and that her acquisition should be
sum of P15,000 (Exhibit A-2). And on October 21, 1947 Socorro Roldan sold four nullified? Even without proof that she had connived with Dr. Ramos.
Remembering the general doctrine that guardianship is a trust of the highest on which the house was erected. Estimating such lot at P14,700 only, (ordinarily
order, and the trustee cannot be allowed to have any inducement to neglect his the city lot is more valuable than the building) the result is that the price paid
ward’s interest and in line with the court’s suspicion whenever the guardian for the seventeen parcels gave the minor an income of only P1,200 a year,
acquires the ward’s property 1 we have no hesitation to declare that in this case, whereas the harvest from the seventeen parcels netted his step-mother a yearly
in the eyes of the law, Socorro Roldan took by purchase her ward’s parcels thru profit of P1,522.00. The minor was thus on the losing end.
Dr. Ramos, and that Article 1459 of the Civil Code applies.
Hence, from both the legal and equitable standpoints these three sales should
She acted it may be true without malice; there may have been no previous not be sustained the first two for violation of article 1459 of the Civil Code; Fand
agreement between her and Dr. Ramos to the effect that the latter would buy the the third because Socorro Roldan could pass no title to Emilio Cruz. The
lands for her. But the stubborn fact remains that she acquired her protege’s annulment carries with is (Article 1303 Civil Code) the obligation of Socorro
properties, through her brother-in-law. That she planned to get them for herself Roldan to return the 17 parcels together with their fruits and the duty of the
at the time of selling them to Dr. Ramos, may be deduced from the very short minor, through his guardian to repay P14,700 with legal interest.
time between the two sales (one week). The temptation which naturally besets a
guardian so circumstanced, necessitates the annulment of the transaction, even Judgment is therefore rendered:
if no actual collusion is proved (so hard to prove) between such guardian and the
intermediate purchaser. This would uphold a sound principle of equity and a. Annulling the three contracts of sale in question; yb. declaring the
justice. 2 minor as the owner of the seventeen parcels of land, with the
obligation to return to Socorro Roldan the price of P14,700 with legal
We are aware of course that in Rodriguez vs. Mactal, 60 Phil. p. 13 wherein the interest from August 12, 1947; c. Ordering Socorro Roldan and
guardian Mactal sold in January 1926 the property of her ward to Silverio Chioco, Emilio Cruz to deliver said parcels of land to the minor; chan d.
and in March 1928 she bought it from Chioco, this Court said: Requiring Socorro Roldan to pay him beginning with 1947 the fruits,
“In order to bring the sale in this case within the part of Article 1459, quoted which her attorney admits, amounted to P1,522 a year;. Authorizing
above, it is essential that the proof submitted establish some agreement between the minor to deliver directly to Emilio Cruz, out of the price of
Silverio Chioco and Trinidad Mactal to the effect that Chioco should buy the P14,700 above mentioned, the sum of P3,000; and f. charging
property for the benefit of Mactal. If there was no such agreement, either express Appellees with the costs. SO ORDERED.
or implied, then the sale cannot be set aside

However, the underlined portion was not intended to establish a general principle
of law applicable to all subsequent litigations. It merely meant that the
subsequent purchase by Mactal could not be annulled in that particular case
because there was no proof of a previous agreement between Chioco and her. The
court then considered such proof necessary to establish that the two sales were
actually part of one scheme — guardian getting the ward’s property through
another person — because two years had elapsed between the sales. Such period
of time was sufficient to dispel the natural suspicion of the guardian’s motives or
actions. In the case at bar, however, only one week had elapsed. And if we were
technical, we could say, only one day had elapsed from the judicial approval of
the sale (August 12), to the purchase by the guardian (Aug. 13).

Attempting to prove that the transaction was beneficial to the minor, Appellee’s
attorney alleges that the money (P14,700) invested in the house on Tindalo Street
produced for him rentals of P2,400 yearly; whereas the parcels of land yielded to
his step-mother only an average of P1,522 per year. 3 The argument would carry
some weight if that house had been built out of the purchase price of P14,700
only. 4 One thing is certain: the calculation does not include the price of the lot
(13) Attorneys Thank you.

G.R. No. L-68838 March 11, 1991 Cordially yours,


(Sgd.) Alfredo M. Murillo
FLORENCIO FABILLO and JOSEFA TANA (substituted by their heirs Gregorio Aug. 9, 19643
Fabillo, Roman Fabillo, Cristeta F. Maglinte and Antonio Fabillo), petitioners,
vs. Thirteen days later, Florencio and Murillo entered into the following contract:
THE HONORABLE INTERMEDIATE APPELLATE COURT (Third Civil Case
Division) and ALFREDO MURILLO (substituted by his heirs Fiamita M. Murillo, CONTRACT OF SERVICES
Flor M. Agcaoili and Charito M. Babol), respondents.
KNOW ALL MEN BY THESE PRESENTS:
Francisco A. Tan for petitioners.
Von Kaiser P. Soro for private respondent. That I, FLORENCIO FABILLO, married to JOSEFA TANA, of legal age, Filipino
citizen and with residence and postal address at Palo, Leyte, was the Petitioner
FERNAN, C.J.: in Special Proceedings No. 843, entitled "In the Matter of the Testate Estate of
the late Justina Fabillo, Florencio Fabillo, Petitioner" of the Court of First
In the instant petition for review on certiorari, petitioners seek the reversal of the Instance of Leyte;
appellate court's decision interpreting in favor of lawyer Alfredo M. Murillo the
contract of services entered into between him and his clients, spouses Florencio That by reason of the Order of the Court of First Instance of Leyte dated June 2,
Fabillo and Josefa Taña. 1962, my claim for the house and lot mentioned in paragraph one (1) of the last
will and testament of the late Justina Fabillo, was denied altho the will was
In her last will and testament dated August 16, 1957, Justina Fabillo bequeathed probated and allowed by the Court;
to her brother, Florencio, a house and lot in San Salvador Street, Palo, Leyte
which was covered by tax declaration No. 19335, and to her husband, Gregorio That acting upon the counsel of Atty. Alfredo M. Murillo, I have cause(d) the
D. Brioso, a piece of land in Pugahanay, Palo, Leyte.1 After Justina's death, preparation and filing of another case, entitled "Florencio Fabillo vs. Gregorio D.
Florencio filed a petition for the probate of said will. On June 2, 1962, the probate Brioso," which was docketed as Civil Case No. 3532 of the Court of First Instance
court approved the project of partition "with the reservation that the ownership of Leyte;
of the land declared under Tax Declaration No. 19335 and the house erected
thereon be litigated and determined in a separate proceedings."2 That I have retained and engaged the services of Atty. ALFREDO M. MURILLO,
married and of legal age, with residence and postal address at Santa Fe, Leyte to
Two years later, Florencio sought the assistance of lawyer Alfredo M. Murillo in be my lawyer not only in Social Proceedings No. 843 but also in Civil Case No.
recovering the San Salvador property. Acquiescing to render his services, Murillo 3532 under the following terms and conditions;
wrote Florencio the following handwritten letter:
That he will represent me and my heirs, in case of my demise in the two cases
Dear Mr. Fabillo: until their successful conclusion or until the case is settled to my entire
satisfaction;
I have instructed my stenographer to prepare the complaint and file the same on
Wednesday if you are ready with the filing fee and sheriffs fee of not less than That for and in consideration for his legal services, in the two cases, I hereby
P86.00 including transportation expenses. promise and bind myself to pay Atty. ALFREDO M. MURILLO, in case of success
in any or both cases the sum equivalent to FORTY PER CENTUM (40%) of
Considering that Atty. Montilla lost this case and the present action is a revival whatever benefit I may derive from such cases to be implemented as follows:
of a lost case, I trust that you will gladly give me 40% of the money value of the
house and lot as a contigent (sic) fee in case of a success. When I come back I If the house and lot in question is finally awarded to me or a part of the same by
shall prepare the contract of services for your signature. virtue of an amicable settlement, and the same is sold, Atty. Murillo, is hereby
constituted as Atty. in-fact to sell and convey the said house and lot and he shall
be given as his compensation for his services as counsel and as attorney-in-fact owner not only of the San Salvador property but also the Pugahanay parcel of
the sum equivalent to forty per centum of the purchase price of the house and land.
lot;
Consequently, Murillo proceeded to implement the contract of services between
If the same house and lot is just mortgage(d) to any person, Atty. Murillo shall him and Florencio Fabillo by taking possession and exercising rights of
be given the sum equivalent to forty per centum (40%) of the proceeds of the ownership over 40% of said properties. He installed a tenant in the Pugahanay
mortgage; property.

If the house and lot is leased to any person, Atty. Murillo shall be entitled to Sometime in 1966, Florencio Fabillo claimed exclusive right over the two
receive an amount equivalent to 40% (FORTY PER CENTUM) of the rentals of the properties and refused to give Murillo his share of their produce.5 Inasmuch as
house and lot, or a part thereof; his demands for his share of the produce of the Pugahanay property were
unheeded, Murillo filed on March 23, 1970 in the then Court of First Instance of
If the house and lot or a portion thereof is just occupied by the undersigned or Leyte a complaint captioned "ownership of a parcel of land, damages and
his heirs, Atty. Murillo shall have the option of either occupying or leasing to any appointment of a receiver" against Florencio Fabillo, his wife Josefa Taña, and
interested party FORTY PER CENT of the house and lot. their children Ramon (sic) Fabillo and Cristeta F. Maglinte.6

Atty. Alfredo M. Murillo shall also be given as part of his compensation for legal Murillo prayed that he be declared the lawful owner of forty per cent of the two
services in the two cases FORTY PER CENTUM of whatever damages, which the properties; that defendants be directed to pay him jointly and severally P900.00
undersigned can collect in either or both cases, provided, that in case I am per annum from 1966 until he would be given his share of the produce of the
awarded attorney's fees, the full amount of attorney's fees shall be given to the land plus P5,000 as consequential damages and P1,000 as attorney's fees, and
said Atty. ALFREDO M. MURILLO; that defendants be ordered to pay moral and exemplary damages in such
amounts as the court might deem just and reasonable.
That in the event the house and lot is (sic) not sold and the same is maintained
by the undersigned or his heirs, the costs of repairs, maintenance, taxes and In their answer, the defendants stated that the consent to the contract of services
insurance premiums shall be for the account of myself or my heirs and Attorney of the Fabillo spouses was vitiated by old age and ailment; that Murillo misled
Murillo, in proportion to our rights and interest thereunder that is forty per cent them into believing that Special Proceedings No. 843 on the probate of Justina's
shall be for the account of Atty. Murillo and sixty per cent shall be for my account will was already terminated when actually it was still pending resolution; and
or my heirs. that the contingent fee of 40% of the value of the San Salvador property was
excessive, unfair and unconscionable considering the nature of the case, the
IN WITNESS HEREOF, I hereby set unto my signature below this 22nd day of length of time spent for it, the efforts exerted by Murillo, and his professional
August 1964 at Tacloban City. standing.

(Sgd.) FLORENCIO FABILLO They prayed that the contract of services be declared null and void; that Murillo's
fee be fixed at 10% of the assessed value of P7,780 of the San Salvador property;
(Sgd.) JOSEFA T. FABILLO that Murillo be ordered to account for the P1,000 rental of the San Salvador
WITH MY CONFORMITY: property which he withdrew from the court and for the produce of the Pugahanay
property from 1965 to 1966; that Murillo be ordered to vacate the portion of the
(Sgd.) ALFREDO M. MURILLO San Salvador property which he had occupied; that the Pugahanay property
(Sgd.) ROMAN T. FABILLO which was not the subject of either Special Proceedings No. 843 or Civil Case No.
(Witness) (Sgd.) CRISTETA F. MAGLINTE 3532 be declared as the exclusive property of Florencio Fabillo, and that Murillo
(Witness)4 be ordered to pay moral damages and the total amount of P1,000 representing
Pursuant to said contract, Murillo filed for Florencio Fabillo Civil Case No. 3532 expenses of litigation and attorney's fees.
against Gregorio D. Brioso to recover the San Salvador property. The case was
terminated on October 29, 1964 when the court, upon the parties' joint motion In its decision of December 2, 1975,7 the lower court ruled that there was
in the nature of a compromise agreement, declared Florencio Fabillo as the lawful insufficient evidence to prove that the Fabillo spouses' consent to the contract
was vitiated. It noted that the contract was witnessed by two of their children In view of the death of both Florencio and Justina Fabillo during the pendency
who appeared to be highly educated. The spouses themselves were old but of the case in the lower court, their children, who substituted them as parties to
literate and physically fit. the case, appealed the decision of the lower court to the then Intermediate
Appellate Court. On March 27, 1984, said appellate court affirmed in toto the
In claiming jurisdiction over the case, the lower court ruled that the complaint decision of the lower court.8
being one "to recover real property from the defendant spouses and their heirs or
to enforce a lien thereon," the case could be decided independent of the probate The instant petition for review on certiorari which was interposed by the Fabillo
proceedings. Ruling that the contract of services did not violate Article 1491 of children, was filed shortly after Murillo himself died. His heirs likewise
the Civil Code as said contract stipulated a contingent fee, the court upheld substituted him in this case. The Fabillos herein question the appellate court's
Murillo's claim for "contingent attorney's fees of 40% of the value of recoverable interpretation of the contract of services and contend that it is in violation of
properties." However, the court declared Murillo to be the lawful owner of 40% of Article 1491 of the Civil Code.
both the San Salvador and Pugahanay properties and the improvements thereon.
It directed the defendants to pay jointly and severally to Murillo the amount of The contract of services did not violate said provision of law. Article 1491 of the
P1,200 representing 40% of the net produce of the Pugahanay property from Civil Code, specifically paragraph 5 thereof, prohibits lawyers from acquiring by
1967 to 1973; entitled Murillo to 40% of the 1974 and 1975 income of the purchase even at a public or judicial auction, properties and rights which are the
Pugahanay property which was on deposit with a bank, and ordered defendants objects of litigation in which they may take part by virtue of their profession. The
to pay the costs of the suit. said prohibition, however, applies only if the sale or assignment of the property
takes place during the pendency of the litigation involving the client's property.9
Both parties filed motions for the reconsideration of said decision: Fabillo, insofar
as the lower court awarded 40% of the properties to Murillo and the latter insofar Hence, a contract between a lawyer and his client stipulating a contingent fee is
as it granted only P1,200 for the produce of the properties from 1967 to 1973. not covered by said prohibition under Article 1491 (5) of the Civil Code because
On January 29, 1976, the lower court resolved the motions and modified its the payment of said fee is not made during the pendency of the litigation but only
decision thus: after judgment has been rendered in the case handled by the lawyer. In fact,
under the 1988 Code of Professional Responsibility, a lawyer may have a lien over
ACCORDINGLY, the judgment heretofore rendered is modified to read as follows: funds and property of his client and may apply so much thereof as may be
necessary to satisfy his lawful fees and disbursements.10
(a) Declaring the plaintiff as entitled to and the true and lawful owner of
forty percent (40%) of the parcels of land and improvements thereon covered by As long as the lawyer does not exert undue influence on his client, that no fraud
Tax Declaration Nos. 19335 and 6229 described in Paragraph 5 of the complaint; is committed or imposition applied, or that the compensation is clearly not
excessive as to amount to extortion, a contract for contingent fee is valid and
(b) Directing all the defendants to pay jointly and severally to the plaintiff enforceable.11 Moreover, contingent fees were impliedly sanctioned by No. 13 of
the sum of Two Thousand Four Hundred Fifty Pesos (P2,450.00) representing the Canons of Professional Ethics which governed lawyer-client relationships
40% of the net produce of the Pugahanay property from 1967 to 1973; when the contract of services was entered into between the Fabillo spouses and
Murillo.12
(c) Declaring the plaintiff entitled to 40% of the 1974 and 1975 income of
said riceland now on deposit with the Prudential Bank, Tacloban City, deposited However, we disagree with the courts below that the contingent fee stipulated
by Mr. Pedro Elona, designated receiver of the property; between the Fabillo spouses and Murillo is forty percent of the properties subject
of the litigation for which Murillo appeared for the Fabillos. A careful scrutiny of
(d) Ordering the defendants to pay the plaintiff the sum of Three Hundred the contract shows that the parties intended forty percent of the value of the
Pesos (P 300.00) as attorney's fees; and properties as Murillo's contingent fee. This is borne out by the stipulation that
"in case of success of any or both cases," Murillo shall be paid "the sum
(e) Ordering the defendants to pay the costs of this suit. equivalent to forty per centum of whatever benefit" Fabillo would derive from
favorable judgments. The same stipulation was earlier embodied by Murillo in
SO ORDERED. his letter of August 9, 1964 aforequoted.
Worth noting are the provisions of the contract which clearly states that in case
the properties are sold, mortgaged, or leased, Murillo shall be entitled
respectively to 40% of the "purchase price," "proceeds of the mortgage," or
"rentals." The contract is vague, however, with respect to a situation wherein the
properties are neither sold, mortgaged or leased because Murillo is allowed "to
have the option of occupying or leasing to any interested party forty per cent of
the house and lot." Had the parties intended that Murillo should become the
lawful owner of 40% of the properties, it would have been clearly and
unequivocally stipulated in the contract considering that the Fabillos would part
with actual portions of their properties and cede the same to Murillo.

The ambiguity of said provision, however, should be resolved against Murillo as


it was he himself who drafted the contract.13 This is in consonance with the rule
of interpretation that, in construing a contract of professional services between
a lawyer and his client, such construction as would be more favorable to the
client should be adopted even if it would work prejudice to the lawyer.14 Rightly
so because of the inequality in situation between an attorney who knows the
technicalities of the law on the one hand and a client who usually is ignorant of
the vagaries of the law on the other hand.15

Considering the nature of the case, the value of the properties subject matter
thereof, the length of time and effort exerted on it by Murillo, we hold that Murillo
is entitled to the amount of Three Thousand Pesos (P3,000.00) as reasonable
attorney's fees for services rendered in the case which ended on a compromise
agreement. In so ruling, we uphold "the time-honored legal maxim that a lawyer
shall at all times uphold the integrity and dignity of the legal profession so that
his basic ideal becomes one of rendering service and securing justice, not money-
making. For the worst scenario that can ever happen to a client is to lose the
litigated property to his lawyer in whom all trust and confidence were bestowed
at the very inception of the legal controversy."16

WHEREFORE, the decision of the then Intermediate Appellate Court is hereby


reversed and set aside and a new one entered (a) ordering the petitioners to pay
Atty. Alfredo M. Murillo or his heirs the amount of P3,000.00 as his contingent
fee with legal interest from October 29, 1964 when Civil Case No. 3532 was
terminated until the amount is fully paid less any and all amounts which Murillo
might have received out of the produce or rentals of the Pugahanay and San
Salvador properties, and (b) ordering the receiver of said properties to render a
complete report and accounting of his receivership to the court below within
fifteen (15) days from the finality of this decision. Costs against the private
respondent.

SO ORDERED.
This is proved by the fact that Gaite insisted on a bond a to guarantee payment
1. Gaite v. Fonacier of the P65,000.00, an not only upon a bond by Fonacier, the Larap Mines &
Facts: Smelting Co., and the company's stockholders, but also on one by a surety
company; and the fact that appellants did put up such bonds indicates that they
Gaite was appointed by Fonacier as attorney-in-fact to contract any party for the admitted the definite existence of their obligation to pay the balance of
exploration and development of mining claims. Gaite executed a deed of P65,000.00.
assignment in favor of a single proprietorship owned by him. For some reasons,
Fonacier revoked the agency, which was acceded to by Gaite, subject to certain The appellant have forfeited the right court below that the appellants have
conditions, one of which being the transfer of ores extracted from the mineral forfeited the right to compel Gaite to wait for the sale of the ore before receiving
claims for P75,000, of which P10,000 has already been paid upon signing of the payment of the balance of P65,000.00, because of their failure to renew the bond
agreement and the balance to be paid from the first letter of credit for the first of the Far Eastern Surety Company or else replace it with an equivalent
local sale of the iron ores. To secure payment, Fonacier delivered a surety guarantee. The expiration of the bonding company's undertaking on December
agreement with Larap Mines and some of its stockholders, and another one with 8, 1955 substantially reduced the security of the vendor's rights as creditor for
Far Eastern Insurance. When the second surety agreement expired with no sale the unpaid P65,000.00, a security that Gaite considered essential and upon
being made on the ores, Gaite demanded the P65,000 balance. Defendants which he had insisted when he executed the deed of sale of the ore to Fonacier.
contended that the payment was subject to the condition that the ores will be (2) The sale between the parties is a sale of a specific mass or iron ore because
sold. 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
Issue: 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
(1) Whether the sale is conditional or one with a period 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
(2) Whether there were insufficient tons of ores 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.
Held:
2. Buenaventura v. CA
(1) The shipment or local sale of the iron ore is not a condition precedent (or
suspensive) to the payment of the balance of P65,000.00, but was only a Facts: Sought to be declared null and void ab initio are certain deeds of sale of
suspensive period or term. What characterizes a conditional obligation is the fact real property executed by defendant parents Leonardo Joaquin and Feliciana
that its efficacy or obligatory force (as distinguished from its demandability) is Landrito in favor of their co-defendant children. The petitioners contend that
subordinated to the happening of a future and uncertain event; so that if the there was no actual valid consideration and that assuming that there was
suspensive condition does not take place, the parties would stand as if the consideration in the sums reflected the properties are more than three-fold times
conditional obligation had never existed. more valuable than the small sums appearing therein. The RTC ruled in favor of
the defendants and dismissed the case. RTC’s ruling was affirmed by CA. Hence
A contract of sale is normally commutative and onerous: not only does each one the appeal.
of the parties assume a correlative obligation (the seller to deliver and transfer
ownership of the thing sold and the buyer to pay the price),but each party Issue:Whether or not there was a valid consideration in the deeds of sale
anticipates performance by the other from the very start. While in a sale the
obligation of one party can be lawfully subordinated to an uncertain event, so Held: If there is a meeting of the minds of the parties as to the price, the contract
that the other understands that he assumes the risk of receiving nothing for what of sale is valid, despite the manner of payment, or even the breach of that manner
he gives (as in the case of a sale of hopes or expectations, emptio spei), it is not of payment. If the real price is not stated in the contract, then the contract of sale
in the usual course of business to do so; hence, the contingent character of the is valid but subject to reformation.
obligation must clearly appear. 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, or that Fonacier understood that Gaite assumed any such risk.
Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall distinctly. Each project requires careful planning and meticulous layout. Such
not invalidate a contract, unless there has been fraud, mistake or undue central air-conditioning systems and their designs would not have existed were
influence. it not for the special order of the party desiring to acquire it. EES is thus not
liable for the sales tax. In comparison with Celestino case: Engineering advertised
Article 1470 of the Civil Code further provides: Gross inadequacy of price does itself as Engineering Equipment and Supply Company, Machinery Mechanical
not affect a contract of sale, except as may indicate a defect in the consent, or Supplies, Engineers, Contractors while Orien
that the parties really intended a donation or some other act or contract. tal used “Oriental Sash Factory”. It also paid the contractors
tax on all the contracts for design and construction of central system unlike
Petitioners failed to prove any of the instances mentioned in Articles 1355 and Oriental who did not pay contractors tax. Engineering did not have ready-made
1470 of the Civil Code which would invalidate, or even affect, the Deeds of Sale. air conditioning units for sale unlike oriental whose bulk of their sale came from
Indeed, there is no requirement that the price be equal to the exact value of the ready-made doors and windows As for their liability for violation of Tax Code,
subject matter of sale. All the respondents believed that they received the they should pay the whole amount not the one suggested by the commissioner.
commutative value of what they gave.

3.Celestino & Co. v. Collector


5. Quiroga vs Parsons
4.CIR V ENGINEERING EQUIPMENT AND SUPPLY COMPANY G.R. No. L-11491

FACTS: Engineering Equipment & Supply (EES) was engaged in the business of Subject: Sales
designing and installing central air-conditioning systems. It was assessed by the Doctrine: Contract of Agency to Sell vs Contract of Sale
Commissioner of Internal Revenue for 30% advanced sales tax, among other
penalties pursuant to an anonymous complaint filed before the BIR. EES Facts: On Jan 24, 1911, plaintiff and the respondent entered into a contract
vehemently objected and argued that they are contractors and not manufacturers making the latter an “agent” of the former. The contract stipulates that Don
and should be liable only for the 3% tax on sales of services or pieces of work. Andres Quiroga, here in petitioner, grants exclusive rights to sell his beds in the
The commissioner demanded upon Engineering the payment of the assessed tax Visayan region to J. Parsons. The contract only stipulates that J.Parsons should
and suggested that pay Quiroga within 6 months upon the delivery of beds.
Engineering pay P10k as compromise for Engineering’s penal liability for Quiroga files a case against Parsons for allegedly violating the following
violation of the Tax Code. stipulations: not to sell the beds at higher prices than those of the invoices; to
ISSUE: W/N EES is a contractor for a piece of work thus only liable for 3% tax have an open establishment in Iloilo; itself to conduct the agency; to keep the
HELD: Contractor beds on public exhibition, and to pay for the advertisement expenses for the
– same; and to order the beds by the dozen and in no other manner. With the
a person who, in the pursuit of the independent business, undertakes to do a exception of the obligation on the part of the defendant to order the beds by the
specific job or piece of work for other persons, using his own means and methods dozen and in no other manner, none of the obligations imputed to the defendant
without submitting himself to control as to the petty details. True test of in the two causes of action are expressly set forth in the contract. But the plaintiff
contractor alleged that the defendant was his agent for the sale of his beds in Iloilo, and that
– said obligations are implied in a contract of commercial agency. The whole
he renders service in the course of an independent occupation representing the question, therefore, reduced itself to a determination as to whether the
will of his employer only as to the result of his work, and not as to the means by defendant, by reason of the contract hereinbefore transcribed, was a purchaser
which it is accomplished. The SC found that EES was not a manufacturer of air- or an agent of the plaintiff for the sale of his beds.
conditioning units. While it imported such items, they were not for sale to the
general public and were used as mere components for the design of the Issue: Whether the contract is a contract of agency or of sale.
centralized air-conditioning system, the designs and specifications of w/c are
different for every client. Various technical factors must be considered and it can Held: In order to classify a contract, due attention must be given to its essential
be argued that no two plants are the same; all are engineered separately and clauses. In the contract in question, what was essential, as constituting its cause
and subject matter, is that the plaintiff was to furnish the defendant with the The letters, by which the respondent accepted the prices for the sound
beds which the latter might order, at the price stipulated, and that the defendant reproducing equipment subject of its contract with the petitioner, are clear in
was to pay the price in the manner stipulated. Payment was to be made at the their terms and admit no other interpretation that the respondent in question at
end of sixty days, or before, at the plaintiff’s request, or in cash, if the defendant the prices indicated which are fixed and determinate. The respondent admitted
so preferred, and in these last two cases an additional discount was to be allowed in its complaint filed with the Court of First Instance of Manila that the petitioner
for prompt payment. These are precisely the essential features of a contract of agreed to sell to it the first sound reproducing equipment and machinery.
purchase and sale. There was the obligation on the part of the plaintiff to supply We agree with the trial judge that "whatever unforseen events might have taken
the beds, and, on the part of the defendant, to pay their price. These features place unfavorable to the defendant (petitioner), such as change in prices, mistake
exclude the legal conception of an agency or order to sell whereby the mandatory in their quotation, loss of the goods not covered by insurance or failure of the
or agent received the thing to sell it, and does not pay its price, but delivers to Starr Piano Company to properly fill the orders as per specifications, the plaintiff
the principal the price he obtains from the sale of the thing to a third person, and (respondent) might still legally hold the defendant (petitioner) to the prices fixed
if he does not succeed in selling it, he returns it. By virtue of the contract between of $1,700 and $1,600." This is incompatible with the pretended relation of agency
the plaintiff and the defendant, the latter, on receiving the beds, was necessarily between the petitioner and the respondent, because in agency, the agent is
obliged to pay their price within the term fixed, without any other consideration exempted from all liability in the discharge of his commission provided he acts
and regardless as to whether he had or had not sold the beds. in accordance with the instructions received from his principal (section 254, Code
In respect to the defendant’s obligation to order by the dozen, the only one of Commerce), and the principal must indemnify the agent for all damages which
expressly imposed by the contract, the effect of its breach would only entitle the the latter may incur in carrying out the agency without fault or imprudence on
plaintiff to disregard the orders which the defendant might place under other his part (article 1729, Civil Code).
conditions; but if the plaintiff consents to fill them, he waives his right and cannot While the letters state that the petitioner was to receive ten per cent (10%)
complain for having acted thus at his own free will. commission, this does not necessarily make the petitioner an agent of the
For the foregoing reasons, we are of opinion that the contract by and between the respondent, as this provision is only an additional price which the respondent
plaintiff and the defendant was one of purchase and sale, and that the obligations bound itself to pay, and which stipulation is not incompatible with the contract
the breach of which is alleged as a cause of action are not imposed upon the of purchase and sale.
defendant, either by agreement or by law. In the second place, to hold the petitioner an agent of the respondent in the
purchase of equipment and machinery from the Starr Piano Company of
6. Puyat and Sons Co. v. Arco Amusement Company Richmond, Indiana, is incompatible with the admitted fact that the petitioner is
the exclusive agent of the same company in the Philippines. It is out of the
Facts: ordinary for one to be the agent of both the vendor and the purchaser. The facts
and circumstances indicated do not point to anything but plain ordinary
Respondent is engaged in operating cinematographs, while petitioner is acting as transaction where the respondent enters into a contract of purchase and sale
an agent for Starr Piano Company of Richmond. Respondent negotiated with with the petitioner, the latter as exclusive agent of the Starr Piano Company in
petitioner and agreed that petitioner would order sound reproducing equipment the United States.
on its behalf, and respondent would pay 10% commission and out-of-pocket It follows that the petitioner as vendor is not bound to reimburse the respondent
expenses in addition to the selling price. Transactions for 2 orders transpired. as vendee for any difference between the cost price and the sales price which
After 3 years, respondent discovered that that price quoted to them by petitioner represents the profit realized by the vendor out of the transaction. This is the
was not the net price but the list price. They sought to obtain reimbursement very essence of commerce without which merchants or middleman would not
from the petitioner, and failing on this, filed the instant case. exist.

Issue: (7) LO V. KJS ECO-FRAMEWORK SYSTEM PHIL INC G.R. NO 149420 (2003)

Whether the contract between petitioner and respondent is that of agency where FACTS: Respondent KJS Eco-Framework System is a corporation engaged in the
agent is bound to indemnify the principal for damages, or a mere contract of sales sale of steel scaffoldings, while petitioner Sonny Lo, doing business under the
name of San’s Enterprises, is a building contractor.
Held:
1. In February 1990, petitioner ordered scaffolding equipments from the solvendi) which may consist in the delivery of a corporeal thing or a real right or
respondent amounting to P540, 425.80. He paid a down payment of P150,000 a credit against the third person; (2) There must be some difference between the
and the balance was to be paid in 10 monthly installments prestation due and that which is given in substitution (aliud pro alio); (3) There
2. However, Lo was only able to pay the first 2 monthly installments due to must be an agreement between the creditor and debtor that the obligation is
financial difficulties despite demands from the respondent immediately extinguished by reason of the performance of a prestation different
3. In October 1990, petitioner and respondent executed a deed of assignment from that due. The undertaking really partakes in one sense of the nature of sale,
whereby petitioner assigned to respondent his receivables of P335,462.14 from that is, the creditor is really buying the thing or property of the debtor, payment
Jomero Realty Corp for which is to be charged against the debtor’s debt. As such, the vendor in good
4. But when respondent tried to collect the said credit from Jomero Realty faith shall be responsible, for the existence and legality of the credit at the time
Corp, the latter refused to honor the deed of assignment because it claimed that of the sale but not for the solvency of the debtor, in specified circumstances.
the petitioner was also indebted to it. As such, KJS sent Lo a demand letter but
the latter refused to pay, claiming that his obligation had been extinguished when Hence, it may well be that the assignment of credit, which is in the nature of a
they executed the deed of assignment sale of personal property, produced the effects of a dation in payment which may
5. Subsequently, respondent filed an action for recovery of sum of money extinguish the obligation. However, as in any other contract of sale, the vendor
against petitioner. or assignor is bound by certain warranties. More specifically, the first paragraph
6. Petitioner argued that his obligation was extinguished with the execution of of Article 1628 of the Civil Code provides:
the deed of assignment of credit. Respondent alleged that Jomero Realty Corp The vendor in good faith shall be responsible for the existence and legality of the
refused to honor the deed of assignment because it claimed that the petitioner credit at the time of the sale, unless it should have been sold as doubtful; but
had outstanding indebtedness to it not for the solvency of the debtor, unless it has been so expressly stipulated or
7. The trial court dismissed the complaint on the ground that the assignment unless the insolvency was prior to the sale and of common knowledge.
of credit extinguished the bligation
8. Upon appeal, CA reversed the trial court decision and held in favor of KJS. From the above provision, petitioner, as vendor or assignor, is bound to warrant
CA held that the existence and legality of the credit at the time of the sale or assignment.
a. Petitioner failed to comply with his warranty under the deed When Jomero claimed that it was no longer indebted to petitioner since the latter
b. The object of the deed did not exist at the time of the transaction, rendering also had an unpaid obligation to it, it essentially meant that its obligation to
it void under Art 1409 NCC petitioner has been extinguished by compensation. In other words, respondent
c. Petitioner violated the terms of the deed of assignment when he failed to alleged the non-existence of the credit and asserted its claim to petitioner’s
execute and do all acts necessary to effectually enable the respondent to recover warranty under the assignment. Therefore, it necessary for the petitioner to
the collectibles make good its warranty and pay the obligation.

ISSUE: WON the deed of assignment extinguished the petitioner’s obligation Furthermore, the petitioner breached his obligation under the Deed of
Assignment, to execute and do all such further acts and deeds as shall be
HELD: No, the petitioner’s obligation was not extinguished with the execution of reasonably necessary to effectually enable said ASSIGNEE to recover whatever
the deed of assignment. collectibles said ASSIGNOR has in accordance with the true intent and meaning
of these presents.
An assignment of credit is an agreement by virtue of which the owner of a credit,
known as the assignor, by a legal cause, such as sale, dacion en pago, exchange Indeed, by warranting the existence of the credit, petitioner should be deemed to
or donation, and without the consent of the debtor, transfers his credit and have ensured the performance thereof in case the same is later found to be
accessory rights to another, known as the assignee, who acquires the power to inexistent. He should be held liable to pay to respondent the amount of his
enforce it to the same extent as the assignor could enforce it against the debtor. indebtedness.

In dacion en pago, as a special mode of payment, the debtor offers another thing
to the creditor who accepts it as equivalent of payment of an outstanding debt. 8. PARAGAS v. HEIRS OF DOMINADOR BALACANO
In order that there be a valid dation in payment, the following are the requisites:
(1) There must be the performance of the prestation in lieu of payment (animo
FACTS: Gregorio Balacano, married to Lorenza, owned 2 parcels of land. He was Oct 27, 1981 – Fernando & Daguines convicted of concubinage
already 81 years old, very weak, could barely talk, and had been battling w/ liver RTC of Pangasinan ruled in favor of the concubine granting lot and half of house
disease for over a month. On his deathbed, barely a week before he died, he to her. Real wife Mercedes appealed.
allegedly signed a Deed of Absolute Sale over the lots in favor of the Paragas
Spouses, accompanied by Atty. De Guzman who proceeded to notarize the same, Issues: 1) WON conjugal house on exclusive property of husband is ipso facto
alleging that it was a mere confirmation of a previous sale and that Gregorio had givencharacter of conjugal property2) WON sale of the house & lot to concubine
already paid a P 50,000.00 deposit. The was valid in this case
Paragas’ driver was also there to take a p
icture of Gregorio signing the said deed, w/ a ballpen in his hand. There was Held & Ratio: 1) Yes! Lot where conjugal home was built w/ conjugal funds
nothing to show that the contents of the deed were explained to Gregorio. Paragas becomesconjugal property subject to reimbursement from conjugal funds upon
then sold a portion of the disputed lot to Catalino. The grandson of Gregorio, liquidation(which should happen in normal cases upon death – till death do us
Domingo, sought to annul the sale and partition. There was no sufficient evidence part, correct?)2) Sale to the concubine is NULL & VOID! Art. 1409 & 1352 of the
to support any prior agreement or partial execution thereof. ISSUE: W/N civil code says so!Unlawful cause. Also, constitution protects the family.
Balacano is incapacitated to enter into a contract of sale HELD: A person is not Ruling: RTC decision set aside & sale of house & lot is declared null & void. No
rendered incompetent merely because of old age; however, when such age has
impaired the mental faculties as to prevent a person from protecting his rights, cost.
then he is undeniably incapacitated. He is clearly at a disadvantage, and the
courts must be vigilant for his protection. In this case, (10 and 12) Rubias vs Batiller (1973)
Gregorio’s consent was clearly absent – Facts:
hence the sale was null and void. The dubious circumstances raise serious -
doubts on his capacity to render consent. Considering that the Paragas Spouses Francisco Militante claimed that he owned a parcel of land located in Iloilo. He
are not owners of the said properties, it only follows that the subsequent sale filed with the CFI of Iloilo an application for the registration of title of the land.
thereof to Catalino This was opposed by the Director of Lands, the Director of Forestry, and other
– oppositors. The case was docked as a land case, and after trial the court
who was not in good faith dismissed the application for registration. Militante appealed to the Court of
– Appeals.
is likewise void. Further, the lots pertained to the conjugal partnership -
– Pending that appeal, he sold to Rubias (hisson-in-law and a lawyer) the land.
having been inherited by Gregorio during his marriage toLorenza. It cannot thus -
be sold w/o the latter’s consent The CA rendered a decision, dismissing the application for registration.
-
Rubias filed a Forcible Entry and Detainer case against Batiller.
9. Calimlim-Canullas v. Fortun -
In that case, the court held that Rubias has no cause of action because the
Concept: Between Spouses Sale property in dispute which Rubias allegedly bought from Militante was the subject
matter of a land case, in which case Rubias was the counsel on record of Militante
Facts: himself. It thus falls under Article1491 of the Civil Code. (Hence, this appeal.)
Issue: Whether the sale of the land is prohibited under Article 1491.Held: YES
Dec 19, 1962 – Fernando & Mercedes Calimlim-Canullas got married & had . Article 1491 says that “The following persons cannot acquire any purchase,
5kids. They built a conjugal home in fernando’s inherited property. even at a publicor judicial auction, either in person or through the
1978 – Fernando abandoned his home & lived with Corazon Daguines. mediation of another…. (5) Justices, judges, prosecuting attorneys, clerks of
April 15, 1980 – Fernando sold the house & lot to his concubine for only P2000 superior and inferior courts, and other officers and employees connected with
stating that house&lot were inherited by him. the administration of justice, the property and rights in litigation or levied upon
June 19, 1980 – Daguines claimed ownership but was unable so she filed case an execution before the court within whose jurisdiction or territory they exercise
against Mercedes their respective functions; this prohibition includes the act of acquiring by
assignment and shall apply to lawyesr, with respect to the property and rights
which may be the object of any litigation in which they may take part by virtue Held:
of theirprofession.” The present case clearly falls under this,especially since the
case was still pending appeal whenthe sale was made. Remembering the general doctrine that guardianship is a trust of the highest
order, and the trustee cannot be allowed to have any inducement to neglect his
Issue: Legal effect of a sale falling under Article1491?Held: NULL AND ward’s interest, and in line with the court’s suspicion whenever the guardian
VOID.CANNOT BE RATIFIED. acquires ward’s property we have no hesitation to declare that in this case, in the
eyes of the law, Socorro Roldan took by purchase her ward’s parcels thru Dr.
Manresa considered such prohibited acquisitions (which fell under the Spanish Ramos, and that Article 1459 of the Civil Code applies.
Civil Code)as merely voidable because the Spanish Code did not recognize nullity.
But our Civil Code does recognize the absolute nullity of contracts “whose cause,
object or purpose is contract to law, morals, good customs, public order or public
policy” or which are “expressly prohibited or declared void by law” and declares
such contracts “inexistent and void from the beginning.” The nullity of such
prohibited contracts is definite and permanent, and cannot be cured by
ratification. The public interest and public policy remain paramount and do not
permit of compromise or ratification. In this aspect, the permanent 13. FABILLO v. IAC
disqualification of public and judicial officers and lawyers grounded on public
policy differs from the first three cases of guardian’s agents and administrators FACTS:
(under Art 1491). As to their transactions, it has been
opined that they may be “ratified” by means of and in “the form of a new contract, Florencio Fabillo contracted the services of Atty. Murillo to revive a lost case over
in which case its validity shall be determined only by the circumstances at the his inheritance from his deceased sister Justinia. He sought to acquire the San
time of execution of such new contract.” In those cases, the object which was Salvador and Pugahanay Properties that his sister left behind, against the latter’s
illegal at the time of the first contract may have already become lawful at the time husband. They entered into a contract where a contingent fee in favor of Atty.
of the ratification or second contract, or the intent, or the service which was Murillo in case the case was won was agreed upon. The fee was for 40% of the
impossible. The ratification or second contract would then be valid from its value of whatever benefit Florencio may derive from the suit –such as if the
execution; however, it does not retroact to the date of the first contract. Decision properties were sold, rented, or mortgaged. It was vague, however, regarding the
affirmed. fee in case Florencio or his heirs decide to occupy the house – allowing Atty.
Murillo the option to occupy or lease 40% of the said house and lot. A compromise
11. Philippine Trust Co. v. Roldan agreement was entered into where Florencio acquired both the San Salvador and
Facts: Pugahanay Properties. Atty. Murillo installed a tenant in the Pugahanay
Property; later on Florencio claimed exclusive rights over the properties invoking
Mariano Bernardo, a minor, inherited 17 parcels of land from his deceased father. Art. 1491 of the Civil Code. Florencio and Atty. Murillo both died and were
Respondent, Mariano’s step-mother, was appointed his guardian. As guardian, succeeded by their respective heirs.
she sold the 17 parcels to Dr. Ramos, her brother-in-law, for P14,700. After a
week, Dr. Ramos sold the lands to her for P15,000. Subsequently, she sold 4 out ISSUE: W/N contingent fees agreed upon are valid
of 17 parcels to Emilio Cruz. Petitioner replaced Roldan as guardian, and two
months thereafter, this litigation sought to declare as null and void the sale to HELD: Contingent fees are not contemplated by the prohibition in Art. 1491
Dr. Ramos, and the sale to Emilio Cruz. disallowing lawyers to purchase properties of their clients under litigation. The
said prohibition applies only during the pendency of the litigation. Payment of
Issue: the contingent fee is made after the litigation, and is thus not covered by the
prohibition. For as long as there is no fraud or undue influence, or as long as the
Whether the sale of the land by the guardian is null and void for being violative fees are not exorbitant, the same is valid and enforceable. It is even recognized
of the prohibition for a guardian to purchase either in person or through the by the Cannons of Professional Ethics. However, considering that the contract is
mediation of another the property of her ward vague on the matter of division of the shares if Florencio occupies the property;
the ambiguity is to be construed against Atty. Murillo being the one who drafted
the contract and being a lawyer more knowledgeable about the law. The Court
thus, invoking the time-honored principle that a lawyer shall uphold the dignity
of the legal profession, ordered only a
contingent fee of P 3,000.00 as reasonable attorney’s fees.