G.R. No. 126083             July 12, 2006 Corporation should have fully paid the amount of P2,200,000.
have fully paid the amount of P2,200,000.00 upon the
ANTONIO R. CORTES (in his capacity as Administrator of the estate of Claro
S. Cortes), petitioner,
vs.
HON. COURT OF APPEALS and VILLA ESPERANZA DEVELOPMENT
CORPORATION, respondents.
DECISION
YNARES-SANTIAGO, J.:
The instant petition for review seeks the reversal of the June 13, 1996
Decision1 of the Court of Appeals in CA-G.R. CV No. 47856, setting aside the
June 24, 1993 Decision2 of the Regional Trial Court of Makati, Branch 138,
which rescinded the contract of sale entered into by petitioner Antonio
Cortes (Cortes) and private respondent Villa Esperanza Development
Corporation (Corporation).
The antecedents show that for the purchase price of P3,700,000.00, the
Corporation as buyer, and Cortes as seller, entered into a contract of sale
over the lots covered by Transfer Certificate of Title (TCT) No. 31113-A, TCT
No. 31913-A and TCT No. 32013-A, located at Baclaran, Parañaque, Metro
Manila. On various dates in 1983, the Corporation advanced to Cortes the
total sum of P1,213,000.00. Sometime in September 1983, the parties
executed a deed of absolute sale containing the following terms:3
1. Upon execution of this instrument, the Vendee shall pay unto the Vendor
sum of TWO MILLION AND TWO HUNDRED THOUSAND (P2,200,000.00)
PESOS, Philippine Currency, less all advances paid by the Vendee to the
Vendor in connection with the sale;
2. The balance of ONE MILLION AND FIVE HUNDRED THOUSAND
[P1,500,000.00] PESOS, Phil. Currency shall be payable within ONE (1) YEAR
from date of execution of this instrument, payment of which shall be secured
by an irrevocable standby letter of credit to be issued by any reputable local
banking institution acceptable to the Vendor.
xxxx
4. All expense for the registration of this document with the Register of
Deeds concerned, including the transfer tax, shall be divided equally between
the Vendor and the Vendee. Payment of the capital gains shall be exclusively
for the account of the Vendor; 5% commission of Marcosa Sanchez to be
deducted upon signing of sale.4
Said Deed was retained by Cortes for notarization.
On January 14, 1985, the Corporation filed the instant case5 for specific
performance seeking to compel Cortes to deliver the TCTs and the original
copy of the Deed of Absolute Sale. According to the Corporation, despite its
readiness and ability to pay the purchase price, Cortes refused delivery of the
sought documents. It thus prayed for the award of damages, attorney's fees
and litigation expenses arising from Cortes' refusal to deliver the same
documents.
In his Answer with counterclaim,6 Cortes claimed that the owner's duplicate
copy of the three TCTs were surrendered to the Corporation and it is the
latter which refused to pay in full the agreed down payment. He added that
portion of the subject property is occupied by his lessee who agreed to
vacate the premises upon payment of disturbance fee. However, due to the
Corporation's failure to pay in full the sum of P2,200,000.00, he in turn failed
to fully pay the disturbance fee of the lessee who now refused to pay
monthly rentals. He thus prayed that the Corporation be ordered to pay the
outstanding balance plus interest and in the alternative, to cancel the sale
and forfeit the P1,213,000.00 partial down payment, with damages in either
case.
On June 24, 1993, the trial court rendered a decision rescinding the sale and
directed Cortes to return to the Corporation the amount of P1,213,000.00,
plus interest. It ruled that pursuant to the contract of the parties, the
execution of the contract. It stressed that such is the law between the parties
because the Corporation failed to present evidence that there was another
agreement that modified the terms of payment as stated in the contract.
And, having failed to pay in full the amount of P2,200,000.00 despite Cortes'
delivery of the Deed of Absolute Sale and the TCTs, rescission of the contract
is proper.
In its motion for reconsideration, the Corporation contended that the trial
court failed to consider their agreement that it would pay the balance of the
down payment when Cortes delivers the TCTs. The motion was, however,
denied by the trial court holding that the rescission should stand because the
Corporation did not act on the offer of Cortes' counsel to deliver the TCTs
upon payment of the balance of the down payment. Thus:
The Court finds no merit in the [Corporation's] Motion for Reconsideration.
As stated in the decision sought to be reconsidered, [Cortes'] counsel at the
pre-trial of this case, proposed that if [the Corporation] completes the down
payment agreed upon and make arrangement for the payment of the
balances of the purchase price, [Cortes] would sign the Deed of Sale and turn
over the certificate of title to the [Corporation]. [The Corporation] did
nothing to comply with its undertaking under the agreement between the
parties.
WHEREFORE, in view of the foregoing considerations, the Motion for
Reconsideration is hereby DENIED.
SO ORDERED.7
On appeal, the Court of Appeals reversed the decision of the trial court and
directed Cortes to execute a Deed of Absolute Sale conveying the properties
and to deliver the same to the Corporation together with the TCTs,
simultaneous with the Corporation's payment of the balance of the purchase
price of P2,487,000.00. It found that the parties agreed that the Corporation
will fully pay the balance of the down payment upon Cortes' delivery of the
three TCTs to the Corporation. The records show that no such delivery was
made, hence, the Corporation was not remiss in the performance of its
obligation and therefore justified in not paying the balance. The decretal
portion thereof, provides:
WHEREFORE, premises considered, [the Corporation's] appeal is GRANTED.
The decision appealed from is hereby REVERSED and SET ASIDE and a new
judgment rendered ordering [Cortes] to execute a deed of absolute sale
conveying to [the Corporation] the parcels of land subject of and described in
the deed of absolute sale, Exhibit D. Simultaneously with the execution of the
deed of absolute sale and the delivery of the corresponding owner's
duplicate copies of TCT Nos. 31113-A, 31931-A and 32013-A of the Registry
of Deeds for the Province of Rizal, Metro Manila, District IV, [the
Corporation] shall pay [Cortes] the balance of the purchase price of
P2,487,000.00. As agreed upon in paragraph 4 of the Deed of Absolute Sale,
Exhibit D, under terms and conditions, "All expenses for the registration of
this document (the deed of sale) with the Register of Deeds concerned,
including the transfer tax, shall be divided equally between [Cortes and the
Corporation]. Payment of the capital gains shall be exclusively for the
account of the Vendor; 5% commission of Marcosa Sanchez to be deducted
upon signing of sale." There is no pronouncement as to costs.
SO ORDERED.8
Cortes filed the instant petition praying that the decision of the trial court
rescinding the sale be reinstated.
There is no doubt that the contract of sale in question gave rise to a
reciprocal obligation of the parties. Reciprocal obligations are those which
arise from the same cause, and which each party is a debtor and a creditor of
the other, such that the obligation of one is dependent upon the obligation
of the other. They are to be performed simultaneously, so that the
performance of one is conditioned upon the simultaneous fulfillment of the
other.9
Article 1191 of the Civil Code, states:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon
him.
xxxx
As to when said failure or delay in performance arise, Article 1169 of the
same Code provides that –
ART. 1169
xxxx
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent
upon him. From the moment one of the parties fulfills his obligation, delay
by the other begins. (Emphasis supplied)
The issue therefore is whether there is delay in the performance of the
parties' obligation that would justify the rescission of the contract of sale. To
resolve this issue, we must first determine the true agreement of the parties.
The settled rule is that the decisive factor in evaluating an agreement is the
intention of the parties, as shown not necessarily by the terminology used in
the contract but by their conduct, words, actions and deeds prior to, during
and immediately after executing the agreement. As such, therefore,
documentary and parol evidence may be submitted and admitted to prove
such intention.10
In the case at bar, the stipulation in the Deed of Absolute Sale was that the
Corporation shall pay in full the P2,200,000.00 down payment upon
execution of the contract. However, as correctly noted by the Court of
Appeals, the transcript of stenographic notes reveal Cortes' admission that
he agreed that the Corporation's full payment of the sum of P2,200,000.00
would depend upon his delivery of the TCTs of the three lots. In fact, his main
defense in the Answer is that, he performed what is incumbent upon him by
delivering to the Corporation the TCTs and the carbon duplicate of the Deed
of Absolute Sale, but the latter refused to pay in full the down
payment.11 Pertinent portion of the transcript, reads:
[Q] Now, why did you deliver these three titles to the plaintiff despite the
fact that it has not been paid in full the agreed down payment?
A Well, the broker told me that the down payment will be given if I surrender
the titles.
Q Do you mean to say that the plaintiff agreed to pay in full the down
payment of P2,200,000.00 provided you surrender or entrust to the plaintiff
the titles?
A Yes, sir.12
What further confirmed the agreement to deliver the TCTs is the testimony
of Cortes that the title of the lots will be transferred in the name of the
Corporation upon full payment of the P2,200,000.00 down payment. Thus –
ATTY. ANTARAN
Q Of course, you have it transferred in the name of the plaintiff, the title?
A Upon full payment.
xxxx
ATTY. SARTE
Q When you said upon full payment, are you referring to the agreed down
payment of P2,200,000.00?
13
A Yes, sir.
By agreeing to transfer title upon full payment of P2,200,000.00, Cortes'
impliedly agreed to deliver the TCTs to the Corporation in order to effect said
transfer. Hence, the phrase "execution of this instrument" 14 as appearing in
the Deed of Absolute Sale, and which event would give rise to the
Corporation's obligation to pay in full the amount of P2,200,000.00, can not
be construed as referring solely to the signing of the deed. The meaning of
"execution" in the instant case is not limited to the signing of a contract but
includes as well the performance or implementation or accomplishment of
the parties' agreement.15 With the transfer of titles as the corresponding
reciprocal obligation of payment, Cortes' obligation is not only to affix his
signature in the Deed, but to set into motion the process that would facilitate
the transfer of title of the lots, i.e., to have the Deed notarized and to
surrender the original copy thereof to the Corporation together with the
TCTs.
Having established the true agreement of the parties, the Court must now
determine whether Cortes delivered the TCTs and the original Deed to the
Corporation. The Court of Appeals found that Cortes never surrendered said
documents to the Corporation. Cortes testified that he delivered the same to
Manny Sanchez, the son of the broker, and that Manny told him that her
mother, Marcosa Sanchez, delivered the same to the Corporation.
Q Do you have any proof to show that you have indeed surrendered these
titles to the plaintiff?
A Yes, sir.
Q I am showing to you a receipt dated October 29, 1983, what relation has
this receipt with that receipt that you have mentioned?
A That is the receipt of the real estate broker when she received the titles.
Q On top of the printed name is Manny Sanchez, there is a signature, do you
know who is that Manny Sanchez?
A That is the son of the broker.
xxxx
Q May we know the full name of the real estate broker?
A Marcosa Sanchez
xxxx
Q Do you know if the broker or Marcosa Sanchez indeed delivered the titles
to the plaintiff?
A That is what [s]he told me. She gave them to the plaintiff.
x x x x.16
ATTY. ANTARAN
Q Are you really sure that the title is in the hands of the plaintiff?
xxxx
Q It is in the hands of the broker but there is no showing that it is in the
hands of the plaintiff?
A Yes, sir.
COURT
Q How do you know that it was delivered to the plaintiff by the son of the
broker?
A The broker told me that she delivered the title to the plaintiff.
ATTY. ANTARAN
Q Did she not show you any receipt that she delivered to [Mr.] Dragon17 the
title without any receipt?
A I have not seen any receipt.
Q So, therefore, you are not sure whether the title has been delivered to the WHEREFORE, the petition is DENIED and the June 13, 1996 Decision of the
plaintiff or not. It is only upon the allegation of the broker? Court of Appeals in CA-G.R. CV No. 47856, is AFFIRMED.

A Yes, sir.18 SO ORDERED.

However, Marcosa Sanchez's unrebutted testimony is that, she did not

receive the TCTs. She also denied knowledge of delivery thereof to her son,
Manny, thus:

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

A I did not receive the title.

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

A I do not know anything about that.19

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

Since Cortes did not perform his obligation to have the Deed notarized and
to surrender the same together with the TCTs, the trial court erred in
concluding that he performed his part in the contract of sale and that it is the
Corporation alone that was remiss in the performance of its obligation.
Actually, both parties were in delay. Considering that their obligation was
reciprocal, performance thereof must be simultaneous. The mutual inaction
of Cortes and the Corporation therefore gave rise to a compensation
morae or default on the part of both parties because neither has completed
their part in their reciprocal obligation.20 Cortes is yet to deliver the original
copy of the notarized Deed and the TCTs, while the Corporation is yet to pay
in full the agreed down payment of P2,200,000.00. This mutual delay of the
parties cancels out the effects of default,21 such that it is as if no one is guilty
of delay.22

We find no merit in Cortes' contention that the failure of the Corporation to

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

The Court of Appeals therefore correctly ordered the parties to perform their
respective obligation in the contract of sale, i.e., for Cortes to, among others,
deliver the necessary documents to the Corporation and for the latter to pay
in full, not only the down payment, but the entire purchase price. And since
the Corporation did not question the Court of Appeal's decision and even
prayed for its affirmance, its payment should rightfully consist not only of the
amount of P987,000.00, representing the balance of the P2,200,000.00 down
payment, but the total amount of P2,487,000.00, the remaining balance in
the P3,700,000.00 purchase price.
G.R. No. L-11827             July 31, 1961
FERNANDO A. GAITE, plaintiff-appellee,
vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO.,
INC., SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and
FERNANDO TY, defendants-appellants.
Alejo Mabanag for plaintiff-appellee.
Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants-
appellants.
REYES, J.B.L., J.:
This appeal comes to us directly from the Court of First Instance because the
claims involved aggregate more than P200,000.00.
Defendant-appellant Isabelo Fonacier was the owner and/or holder, either
by himself or in a representative capacity, of 11 iron lode mineral claims,
known as the Dawahan Group, situated in the municipality of Jose
Panganiban, province of Camarines Norte.
By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier
constituted and appointed plaintiff-appellee Fernando A. Gaite as his true
and lawful attorney-in-fact to enter into a contract with any individual or
juridical person for the exploration and development of the mining claims
aforementioned on a royalty basis of not less than P0.50 per ton of ore that
might be extracted therefrom. On March 19, 1954, Gaite in turn executed a
general assignment (Record on Appeal, pp. 17-19) conveying the
development and exploitation of said mining claims into the Larap Iron
Mines, a single proprietorship owned solely by and belonging to him, on the
same royalty basis provided for in Exhibit "3". Thereafter, Gaite embarked
upon the development and exploitation of the mining claims in question,
opening and paving roads within and outside their boundaries, making other
improvements and installing facilities therein for use in the development of
the mines, and in time extracted therefrom what he claim and estimated to
be approximately 24,000 metric tons of iron ore.
For some reason or another, Isabelo Fonacier decided to revoke the
authority granted by him to Gaite to exploit and develop the mining claims in
question, and Gaite assented thereto subject to certain conditions. As a
result, a document entitled "Revocation of Power of Attorney and Contract"
was executed on December 8, 1954 (Exhibit "A"),wherein Gaite transferred
to Fonacier, for the consideration of P20,000.00, plus 10% of the royalties
that Fonacier would receive from the mining claims, all his rights and
interests on all the roads, improvements, and facilities in or outside said
claims, the right to use the business name "Larap Iron Mines" and its
goodwill, and all the records and documents relative to the mines. In the
same document, Gaite transferred to Fonacier all his rights and interests over
the "24,000 tons of iron ore, more or less" that the former had already
extracted from the mineral claims, in consideration of the sum of P75,000.00,
P10,000.00 of which was paid upon the signing of the agreement, and
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid
from and out of the first letter of credit covering the first shipment of iron
ores and of the first amount derived from the local sale of iron ore made by
the Larap Mines & Smelting Co. Inc., its assigns, administrators, or successors
in interests.
To secure the payment of the said balance of P65,000.00, Fonacier promised
to execute in favor of Gaite a surety bond, and pursuant to the promise,
Fonacier delivered to Gaite a surety bond dated December 8, 1954 with
himself (Fonacier) as principal and the Larap Mines and Smelting Co. and its
stockholders George Krakower, Segundina Vivas, Pacifico Escandor, Francisco
Dante, and Fernando Ty as sureties (Exhibit "A-1"). Gaite testified, however,
that when this bond was presented to him by Fonacier together with the
"Revocation of Power of Attorney and Contract", Exhibit "A", on December 8,
1954, he refused to sign said Exhibit "A" unless another bond under written
by a bonding company was put up by defendants to secure the payment of
the P65,000.00 balance of their price of the iron ore in the stockpiles in the
mining claims. Hence, a second bond, also dated December 8, 1954 (Exhibit
"B"),was executed by the same parties to the first bond Exhibit "A-1", with
the Far Eastern Surety and Insurance Co. as additional surety, but it provided
that the liability of the surety company would attach only when there had
been an actual sale of iron ore by the Larap Mines & Smelting Co. for an
amount of not less then P65,000.00, and that, furthermore, the liability of
said surety company would automatically expire on December 8, 1955. Both
bonds were attached to the "Revocation of Power of Attorney and Contract",
Exhibit "A", and made integral parts thereof.
On the same day that Fonacier revoked the power of attorney he gave to
Gaite and the two executed and signed the "Revocation of Power of Attorney
and Contract", Exhibit "A", Fonacier entered into a "Contract of Mining
Operation", ceding, transferring, and conveying unto the Larap Mines and
Smelting Co., Inc. the right to develop, exploit, and explore the mining claims
in question, together with the improvements therein and the use of the
name "Larap Iron Mines" and its good will, in consideration of certain
royalties. Fonacier likewise transferred, in the same document, the complete
title to the approximately 24,000 tons of iron ore which he acquired from
Gaite, to the Larap & Smelting Co., in consideration for the signing by the
company and its stockholders of the surety bonds delivered by Fonacier to
Gaite (Record on Appeal, pp. 82-94).
Up to December 8, 1955, when the bond Exhibit "B" expired with respect to
the Far Eastern Surety and Insurance Company, no sale of the approximately
24,000 tons of iron ore had been made by the Larap Mines & Smelting Co.,
Inc., nor had the P65,000.00 balance of the price of said ore been paid to
Gaite by Fonacier and his sureties payment of said amount, on the theory
that they had lost right to make use of the period given them when their
bond, Exhibit "B" automatically expired (Exhibits "C" to "C-24"). And when
Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed
the present complaint against them in the Court of First Instance of Manila
(Civil Case No. 29310) for the payment of the P65,000.00 balance of the price
of the ore, consequential damages, and attorney's fees.
All the defendants except Francisco Dante set up the uniform defense that
the obligation sued upon by Gaite was subject to a condition that the amount
of P65,000.00 would be payable out of the first letter of credit covering the
first shipment of iron ore and/or the first amount derived from the local sale
of the iron ore by the Larap Mines & Smelting Co., Inc.; that up to the time of
the filing of the complaint, no sale of the iron ore had been made, hence the
condition had not yet been fulfilled; and that consequently, the obligation
was not yet due and demandable. Defendant Fonacier also contended that
only 7,573 tons of the estimated 24,000 tons of iron ore sold to him by Gaite
was actually delivered, and counterclaimed for more than P200,000.00
damages.
At the trial of the case, the parties agreed to limit the presentation of
evidence to two issues:
(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite
P65,000.00 become due and demandable when the defendants failed to
renew the surety bond underwritten by the Far Eastern Surety and Insurance
Co., Inc. (Exhibit "B"), which expired on December 8, 1955; and
(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to
defendant Fonacier were actually in existence in the mining claims when
these parties executed the "Revocation of Power of Attorney and Contract",
Exhibit "A."
On the first question, the lower court held that the obligation of the
defendants to pay plaintiff the P65,000.00 balance of the price of the
approximately 24,000 tons of iron ore was one with a term: i.e., that it would
be paid upon the sale of sufficient iron ore by defendants, such sale to be
effected within one year or before December 8, 1955; that the giving of
security was a condition precedent to Gait's giving of credit to defendants;
and that as the latter failed to put up a good and sufficient security in lieu of
the Far Eastern Surety bond (Exhibit "B") which expired on December 8,
1955, the obligation became due and demandable under Article 1198 of the
New Civil Code.
As to the second question, the lower court found that plaintiff Gaite did have
approximately 24,000 tons of iron ore at the mining claims in question at the
time of the execution of the contract Exhibit "A."
Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering
defendants to pay him, jointly and severally, P65,000.00 with interest at 6%
per annum from December 9, 1955 until payment, plus costs. From this
judgment, defendants jointly appealed to this Court.
During the pendency of this appeal, several incidental motions were
presented for resolution: a motion to declare the appellants Larap Mines &
Smelting Co., Inc. and George Krakower in contempt, filed by appellant
Fonacier, and two motions to dismiss the appeal as having become academic
and a motion for new trial and/or to take judicial notice of certain
documents, filed by appellee Gaite. The motion for contempt is
unmeritorious because the main allegation therein that the appellants Larap
Mines & Smelting Co., Inc. and Krakower had sold the iron ore here in
question, which allegedly is "property in litigation", has not been
substantiated; and even if true, does not make these appellants guilty of
contempt, because what is under litigation in this appeal is appellee Gaite's
right to the payment of the balance of the price of the ore, and not the iron
ore itself. As for the several motions presented by appellee Gaite, it is
unnecessary to resolve these motions in view of the results that we have
reached in this case, which we shall hereafter discuss.
The main issues presented by appellants in this appeal are:
(1) that the lower court erred in holding that the obligation of appellant
Fonacier to pay appellee Gaite the P65,000.00 (balance of the price of the
iron ore in question)is one with a period or term and not one with a
suspensive condition, and that the term expired on December 8, 1955; and
(2) that the lower court erred in not holding that there were only 10,954.5
tons in the stockpiles of iron ore sold by appellee Gaite to appellant Fonacier.
The first issue involves an interpretation of the following provision in the
contract Exhibit "A":
7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F.
Fonacier all his rights and interests over the 24,000 tons of iron ore, more or
less, above-referred to together with all his rights and interests to operate
the mine in consideration of the sum of SEVENTY-FIVE THOUSAND PESOS
(P75,000.00) which the latter binds to pay as follows:
a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this
agreement.
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid from
and out of the first letter of credit covering the first shipment of iron ore
made by the Larap Mines & Smelting Co., Inc., its assigns, administrators, or
successors in interest.
We find the court below to be legally correct in holding that the shipment or
local sale of the iron ore is not a condition precedent (or suspensive) to the
payment of the balance of P65,000.00, but was only a suspensive period or
term. What characterizes a conditional obligation is the fact that its efficacy
or obligatory force (as distinguished from its demandability) is subordinated
to the happening of a future and uncertain event; so that if the suspensive
condition does not take place, the parties would stand as if the conditional
obligation had never existed. That the parties to the contract Exhibit "A" did
not intend any such state of things to prevail is supported by several
circumstances:
1) The words of the contract express no contingency in the buyer's obligation
to pay: "The balance of Sixty-Five Thousand Pesos (P65,000.00) will be
paid out of 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 undetermined is merely the exact date at which it
will be made. By the very terms of the contract, therefore, the existence of
the obligation to pay is recognized; only its maturity or demandability is
deferred.
2) A contract of sale is normally commutative and onerous: not only does
each one of the parties assume a correlative obligation (the seller to deliver
and transfer ownership of the thing sold and the buyer to pay the price),but
each party anticipates performance by the other from the very start. While in
a sale the obligation of one party can be lawfully subordinated to an
uncertain event, so that the other understands that he assumes the risk of
receiving nothing for what he gives (as in the case of a sale of hopes or
expectations, emptio spei), it is not in the usual course of business to do so;
hence, the contingent character of the obligation must clearly appear.
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. This is proved by the
fact that Gaite insisted on a bond a to guarantee payment of the P65,000.00,
an not only upon a bond by Fonacier, the Larap Mines & 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 admitted the
definite existence of their obligation to pay the balance of P65,000.00.
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 the payment at the discretion of the debtor, for the sale or shipment
could not be made unless the appellants took steps to sell the ore.
Appellants would thus be able to postpone payment indefinitely. The
desireability of avoiding such a construction of the contract Exhibit "A" needs
no stressing.
4) Assuming that there could be doubt whether by the wording of the
contract the parties indented a suspensive condition or a suspensive period
(dies ad quem) for the payment of the P65,000.00, the rules of interpretation
would incline the scales in favor of "the greater reciprocity of interests",
since sale is essentially onerous. The Civil Code of the Philippines, Article
1378, paragraph 1, in fine, provides:
If the contract is onerous, the doubt shall be settled in favor of the greatest
reciprocity of interests.
and there can be no question that greater reciprocity obtains if the buyer'
obligation is deemed to be actually existing, with only its maturity (due date)
postponed or deferred, that if such obligation were viewed as non-existent
or not binding until the ore was sold.
The only rational view that can be taken is that the sale of the ore to Fonacier
was a sale on credit, and not an aleatory contract where the transferor,
Gaite, would assume the risk of not being paid at all; and that the previous
sale or shipment of the ore was not a suspensive condition for the payment
of the balance of the agreed price, but was intended merely to fix the future
date of the payment.
This issue settled, the next point of inquiry is whether appellants, Fonacier
and his sureties, still have the right to insist that Gaite should wait for the
sale or shipment of the ore before receiving payment; or, in other words,
whether or not they are entitled to take full advantage of the period granted
them for making the payment.
We agree with the court below that the appellant have forfeited the right
court below that the appellants have forfeited the right to compel Gaite to
wait for the sale of the ore before receiving payment of the balance of
P65,000.00, because of their failure to renew the bond of the Far Eastern
Surety Company or else replace it with an equivalent guarantee. The
expiration of the bonding company's undertaking on December 8, 1955
substantially reduced the security of the vendor's rights as creditor for the
unpaid P65,000.00, a security that Gaite considered essential and upon
which he had insisted when he executed the deed of sale of the ore to
Fonacier (Exhibit "A"). The case squarely comes under paragraphs 2 and 3 of
Article 1198 of the Civil Code of the Philippines:
"ART. 1198. The debtor shall lose every right to make use of the period:
(1) . . .
(2) When he does not furnish to the creditor the guaranties or securities
which he has promised.
(3) When by his own acts he has impaired said guaranties or securities after
their establishment, and when through fortuitous event they disappear,
unless he immediately gives new ones equally satisfactory.
Appellants' failure to renew or extend the surety company's bond upon its
expiration plainly impaired the securities given to the creditor (appellee
Gaite), unless immediately renewed or replaced.
There is no merit in appellants' argument that Gaite's acceptance of the
surety company's bond with full knowledge that on its face it would
automatically expire within one year was a waiver of its renewal after the
expiration date. No such waiver could have been intended, for Gaite stood to
lose and had nothing to gain barely; and if there was any, it could be
rationally explained only if the appellants had agreed to sell the ore and pay
Gaite before the surety company's bond expired on December 8, 1955. But in
the latter case the defendants-appellants' obligation to pay became absolute
after one year from the transfer of the ore to Fonacier by virtue of the deed
Exhibit "A.".
All the alternatives, therefore, lead to the same result: that Gaite acted
within his rights in demanding payment and instituting this action one year
from and after the contract (Exhibit "A") was executed, either because the
appellant debtors had impaired the securities originally given and thereby
forfeited any further time within which to pay; or because the term of
payment was originally of no more than one year, and the balance of
P65,000.00 became due and payable thereafter.
Coming now to the second issue in this appeal, which is whether there were
really 24,000 tons of iron ore in the stockpiles sold by appellee Gaite to
appellant Fonacier, and whether, if there had been a short-delivery as
claimed by appellants, they are entitled to the payment of damages, we
must, at the outset, stress two things: first, that this is a case of a sale of a
specific mass of fungible goods for a single price or a lump sum, the quantity
of "24,000 tons of iron ore, more or less," stated in the contract Exhibit "A,"
being a mere estimate by the parties of the total tonnage weight of the mass;
and second, that the evidence shows that neither of the parties had actually
measured of weighed the mass, so that they both tried to arrive at the total
quantity by making an estimate of the volume thereof in cubic meters and
then multiplying it by the estimated weight per ton of each cubic meter.
Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in
the stockpiles of ore that he sold to Fonacier, while appellants contend that
by actual measurement, their witness Cirpriano Manlañgit found the total
volume of ore in the stockpiles to be only 6.609 cubic meters. As to the
average weight in tons per cubic meter, the parties are again in
disagreement, with appellants claiming the correct tonnage factor to be 2.18
tons to a cubic meter, while appellee Gaite claims that the correct tonnage
factor is about 3.7.
In the face of the conflict of evidence, we take as the most reliable estimate
of the tonnage factor of iron ore in this case to be that made by Leopoldo F.
Abad, chief of the Mines and Metallurgical Division of the Bureau of Mines, a
government pensionado to the States and a mining engineering graduate of
the Universities of Nevada and California, with almost 22 years of experience
in the Bureau of Mines. This witness placed the tonnage factor of every cubic
meter of iron ore at between 3 metric tons as minimum to 5 metric tons as
maximum. This estimate, in turn, closely corresponds to the average tonnage
factor of 3.3 adopted in his corrected report (Exhibits "FF" and FF-1") by
engineer Nemesio Gamatero, who was sent by the Bureau of Mines to the
mining claims involved at the request of appellant Krakower, precisely to
make an official estimate of the amount of iron ore in Gaite's stockpiles after
the dispute arose.
Even granting, then, that the estimate of 6,609 cubic meters of ore in the
stockpiles made by appellant's witness Cipriano Manlañgit is correct, if we
multiply it by the average tonnage factor of 3.3 tons to a cubic meter, the
product is 21,809.7 tons, which is not very far from the estimate of 24,000
tons made by appellee Gaite, considering that actual weighing of each unit of
the mass was practically impossible, so that a reasonable percentage of error
should be allowed anyone making an estimate of the exact quantity in tons
found in the mass. It must not be forgotten that the contract Exhibit "A"
expressly stated the amount to be 24,000 tons, more or less. (ch. Pine River
Logging & Improvement Co. vs U.S., 279, 46 L. Ed. 1164).
There was, consequently, no short-delivery in this case as would entitle
appellants to the payment of damages, nor could Gaite have been guilty of
any fraud in making any misrepresentation to appellants as to the total
quantity of ore in the stockpiles of the mining claims in question, as charged
by appellants, since Gaite's estimate appears to be substantially correct.
WHEREFORE, finding no error in the decision appealed from, we hereby
affirm the same, with costs against appellants.

The sale between the parties is a sale of a specific mass or iron ore because
no provision was made in their contract for the measuring or weighing of the
ore sold in order to complete or perfect the sale, nor was the price of
P75,000,00 agreed upon by the parties based upon any such measurement.
(see Art. 1480, second par., New Civil Code). The subject matter of the sale is,
therefore, a determinate object, the mass, and not the actual number of
units or tons contained therein, so that all that was required of the seller
Gaite was to deliver in good faith to his buyer all of the ore found in the
mass, notwithstanding that the quantity delivered is less than the amount
estimated by them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield
Salvage Co., Inc. 171 So. 872, applying art. 2459 of the Louisiana Civil Code).
There is no charge in this case that Gaite did not deliver to appellants all the
ore found in the stockpiles in the mining claims in questions; Gaite had,
therefore, complied with his promise to deliver, and appellants in turn are
bound to pay the lump price.

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

We think not. As already stated, neither of the parties had actually measured
or weighed the whole mass of ore cubic meter by cubic meter, or ton by ton.
Both parties predicate their respective claims only upon an estimated
number of cubic meters of ore multiplied by the average tonnage factor per
cubic meter.
G.R. No. 126376               November 20, 2003
SPOUSES BERNARDO BUENAVENTURA and CONSOLACION JOAQUIN,
SPOUSES JUANITO EDRA and NORA JOAQUIN, SPOUSES RUFINO VALDOZ
and EMMA JOAQUIN, and NATIVIDAD JOAQUIN, petitioners,
vs.
COURT OF APPEALS, SPOUSES LEONARDO JOAQUIN and FELICIANA
LANDRITO, SPOUSES FIDEL JOAQUIN and CONCHITA BERNARDO, SPOUSES
TOMAS JOAQUIN and SOLEDAD ALCORAN, SPOUSES ARTEMIO JOAQUIN
and SOCORRO ANGELES, SPOUSES ALEXANDER MENDOZA and CLARITA
JOAQUIN, SPOUSES TELESFORO CARREON and FELICITAS JOAQUIN,
SPOUSES DANILO VALDOZ and FE JOAQUIN, and SPOUSES GAVINO
JOAQUIN and LEA ASIS, respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari1 to annul the Decision2 dated 26 June
1996 of the Court of Appeals in CA-G.R. CV No. 41996. The Court of Appeals
affirmed the Decision3 dated 18 February 1993 rendered by Branch 65 of the
Regional Trial Court of Makati ("trial court") in Civil Case No. 89-5174. The
trial court dismissed the case after it found that the parties executed the
Deeds of Sale for valid consideration and that the plaintiffs did not have a
cause of action against the defendants.
The Facts
The Court of Appeals summarized the facts of the case as follows:
Defendant spouses Leonardo Joaquin and Feliciana Landrito are the parents
of plaintiffs Consolacion, Nora, Emma and Natividad as well as of defendants
Fidel, Tomas, Artemio, Clarita, Felicitas, Fe, and Gavino, all surnamed
JOAQUIN. The married Joaquin children are joined in this action by their
respective spouses.
Sought to be declared null and void ab initio are certain deeds of sale of real
property executed by defendant parents Leonardo Joaquin and Feliciana
Landrito in favor of their co-defendant children and the corresponding
certificates of title issued in their names, to wit:
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 consideration of ₱6,000.00 (Exh. "C"), pursuant to which TCT No. [36113/T-
172] was issued in her name (Exh. "C-1");
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
consideration of ₱1[2],000.00 (Exh. "D"), pursuant to which TCT No. S-
109772 was issued in her name (Exh. "D-1");
3 Deed of Absolute Sale covering Lot 168-I-1 of subdivision plan (LRC) Psd-
256394 executed on 12 May 1988, in favor of defendant spouses Fidel
Joaquin and Conchita Bernardo, for a consideration of ₱54,[3]00.00 (Exh.
"E"), pursuant to which TCT No. 155329 was issued to them (Exh. "E-1");
4. Deed of Absolute Sale covering Lot 168-I-2 of subdivision plan (LRC) Psd-
256394 executed on 12 May 1988, in favor of defendant spouses Artemio
Joaquin and Socorro Angeles, for a consideration of ₱[54,3]00.00 (Exh. "F"),
pursuant to which TCT No. 155330 was issued to them (Exh. "F-1"); and
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 consideration of ₱20,000.00 (Exh. "G"), pursuant to which TCT No.
157203 was issued in her name (Exh. "G-1").
6. Deed of Absolute Sale covering Lot 168-C-1 of subdivision plan (LRC) Psd-
256395 executed on 7 October 1988, in favor of Gavino Joaquin, for a
consideration of ₱25,000.00 (Exh. "K"), pursuant to which TCT No. 157779
was issued in his name (Exh. "K-1").]
In seeking the declaration of nullity of the aforesaid deeds of sale and
certificates of title, plaintiffs, in their complaint, aver:
- XX-
The deeds of sale, Annexes "C," "D," "E," "F," and "G," [and "K"] are
simulated as they are, are NULL AND VOID AB INITIO because –
a) Firstly, there was no actual valid consideration for the deeds of sale xxx
over the properties in litis;
b) Secondly, assuming that there was consideration in the sums reflected in
the questioned deeds, the properties are more than three-fold times more
valuable than the measly sums appearing therein;
c) Thirdly, the deeds of sale do not reflect and express the true intent of the
parties (vendors and vendees); and
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
heirs (plaintiffs herein) of their legitime.
- XXI -
Necessarily, and as an inevitable consequence, Transfer Certificates of Title
Nos. 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.
Defendants, on the other hand aver (1) that plaintiffs do not have a cause of
action against them as well as the requisite standing and interest to assail
their titles over the properties in litis; (2) that the sales were with sufficient
considerations and made by defendants parents voluntarily, in good faith,
and with full knowledge of the consequences of their deeds of sale; and (3)
that the certificates of title were issued with sufficient factual and legal
basis.4 (Emphasis in the original)
The Ruling of the Trial Court
Before the trial, the trial court ordered the dismissal of the case against
defendant spouses Gavino Joaquin and Lea Asis.5 Instead of filing an Answer
with their co-defendants, Gavino Joaquin and Lea Asis filed a Motion to
Dismiss.6 In 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 said right commences only from the moment of death of
the decedent pursuant to Article 777 of the Civil Code of the Philippines."7
After trial, the trial court ruled in favor of the defendants and dismissed the
complaint. The trial court stated:
In the first place, the testimony of the defendants, particularly that of the xxx
father will show that the Deeds of Sale were all executed for valuable
consideration. This assertion must prevail over the negative allegation of
plaintiffs.
And then there is the argument that plaintiffs do not have a valid cause of
action against defendants since there can be no legitime to speak of prior to
the death of their parents. The court finds this contention tenable. In
determining the legitime, the value of the property left at the death of the
testator shall be considered (Art. 908 of the New Civil Code). Hence, the
legitime of a compulsory 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.
All the foregoing considered, this case is DISMISSED.
In order to preserve whatever is left of the ties that should bind families
together, the counterclaim is likewise DISMISSED.
No costs.
SO ORDERED.8
The Ruling of the Court of Appeals
The Court of Appeals affirmed the decision of the trial court.1âwphi1 The
appellate court ruled:
To the mind of the Court, appellants are skirting the real and decisive issue in
this case, which is, whether xxx they have a cause of action against appellees.
Upon this point, there is no question that plaintiffs-appellants, like their
defendant brothers and sisters, are compulsory heirs of defendant spouses,
Leonardo Joaquin and Feliciana Landrito, who are their parents. However,
their right to the properties of their defendant parents, as compulsory heirs,
is merely inchoate and vests only upon the latter’s death. While still alive,
defendant parents are free to dispose of their properties, provided that such
dispositions are not made in fraud of creditors.
Plaintiffs-appellants are definitely not parties to the deeds of sale in question.
Neither do they claim to be creditors of their defendant parents.
Consequently, they cannot be considered as real parties in interest to assail
the validity of said deeds either for gross inadequacy or lack of consideration
or for failure to express the true intent of the parties. In point is the ruling of
the Supreme Court in Velarde, et al. vs. Paez, et al., 101 SCRA 376, thus:
The plaintiffs are not parties to the alleged deed of sale and are not
principally or subsidiarily bound thereby; hence, they have no legal capacity
to challenge their validity.
Plaintiffs-appellants anchor their action on the supposed impairment of their
legitime by the dispositions made by their defendant parents in favor of their
defendant brothers and sisters. But, as correctly held by the court a quo, "the
legitime of a compulsory 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.
WHEREFORE, the decision appealed from is hereby AFFIRMED, with costs
against plaintiffs-appellants.
SO ORDERED.9
Hence, the instant petition.
Issues
Petitioners assign the following as errors of the Court of Appeals:
1. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CONVEYANCE
IN QUESTION HAD NO VALID CONSIDERATION.
2. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT EVEN ASSUMING
THAT THERE WAS A CONSIDERATION, THE SAME IS GROSSLY INADEQUATE.
3. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE DEEDS OF
SALE DO NOT EXPRESS THE TRUE INTENT OF THE PARTIES.
4. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CONVEYANCE
WAS PART AND PARCEL OF A CONSPIRACY AIMED AT UNJUSTLY DEPRIVING
THE REST OF THE CHILDREN OF THE SPOUSES LEONARDO JOAQUIN AND
FELICIANA LANDRITO OF THEIR INTEREST OVER THE SUBJECT PROPERTIES.
5. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONERS HAVE
A GOOD, SUFFICIENT AND VALID CAUSE OF ACTION AGAINST THE PRIVATE
RESPONDENTS.10
The Ruling of the Court
We find the petition without merit.
We will discuss petitioners’ legal interest over the properties subject of the
Deeds of Sale before discussing the issues on the purported lack of
consideration and gross inadequacy of the prices of the Deeds of Sale.
Whether Petitioners have a legal interest over the properties subject of the
Deeds of Sale
Petitioners’ Complaint betrays their motive for filing this case. In their
Complaint, petitioners asserted that the "purported sale of the properties in
litis was the result of a deliberate conspiracy designed to unjustly deprive the
rest of the compulsory heirs (plaintiffs herein) of their legitime." Petitioners’
strategy was to have the Deeds of Sale declared void so that ownership of
the lots would 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’ estate by hereditary succession.11
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 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-in-interest.12
[T]he question as to "real party-in-interest" is whether he is "the party who
would be benefitted or injured by the judgment, or the ‘party entitled to the
avails of the suit.’"
xxx
In actions for the annulment of contracts, such as this action, the real parties
are those who are parties to the agreement or are bound either principally or
subsidiarily or are prejudiced in their rights with respect to one of the
contracting parties and can show the detriment which would positively result
to them from the contract even though they did not intervene in it (Ibañez v.
Hongkong & Shanghai Bank, 22 Phil. 572 [1912]) xxx.
These are parties with "a present substantial interest, as distinguished from a
mere expectancy or future, contingent, subordinate, or consequential
interest…. The phrase ‘present substantial interest’ more concretely is meant
such interest of a party in the subject matter of the action as will entitle him,
under the 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 by him."13
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 is merely inchoate and vests only upon their parents’
death. While still living, the parents of petitioners are free to dispose of their
properties. In their 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 parents’ estate. While the sale of the lots
reduced the estate, cash of equivalent value replaced the lots taken from the
estate.
Whether the Deeds of Sale are void for lack of consideration
Petitioners assert that their respondent siblings did not actually pay the
prices stated in the Deeds of Sale to their respondent father. Thus,
petitioners ask the court to declare the Deeds of Sale void.
A contract of sale is not a real contract, but a consensual contract. As a
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 the parties as to the price, the contract of sale is valid, despite the manner
of payment, or even the breach of that manner of payment. If the real price
is not 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,
because the price stipulated in the contract is simulated, then the contract is
void.14 Article 1471 of the Civil Code states that if the price in a contract of
sale is simulated, the sale is void.
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. Payment of the price goes into the performance of the contract.
Failure to pay the consideration is different from lack of consideration. The
former results in a right to demand the fulfillment or cancellation of the
obligation under an existing valid contract while the latter prevents the
existence of a valid contract.15

Petitioners failed to show that the prices in the Deeds of Sale were absolutely
simulated. To prove simulation, petitioners presented Emma Joaquin
Valdoz’s testimony stating that their father, respondent Leonardo Joaquin,
told her that he would transfer a lot to her through a deed of sale without
need for her payment of the purchase price.16 The trial court did not find the
allegation of absolute simulation of price credible. Petitioners’ failure to
prove absolute simulation of price is magnified by their lack of knowledge of
their respondent siblings’ financial capacity to buy the questioned lots.17 On
the other hand, the Deeds of Sale which petitioners presented as evidence
plainly showed the cost of each lot sold. Not only did respondents’ minds
meet as to the purchase price, but the real price was also stated in the Deeds
of Sale. As of the filing of the complaint, respondent siblings have also fully
paid the price to their respondent father.18

Whether the Deeds of Sale are void for gross inadequacy of price

Petitioners ask that assuming that there is consideration, the same is grossly
inadequate as to invalidate the Deeds of Sale.

Articles 1355 of the Civil Code states:

Art. 1355. Except in cases specified by law, lesion or inadequacy of cause

shall not invalidate a contract, unless there has been fraud, mistake or undue
influence. (Emphasis supplied)

Article 1470 of the Civil Code further provides:

Art. 1470. Gross inadequacy of price does not affect a contract of sale, except
as may indicate a defect in the consent, or that the parties really intended a
donation or some other act or contract. (Emphasis supplied)

Petitioners failed to prove any of the instances mentioned in Articles 1355

and 1470 of the Civil Code which would invalidate, or even affect, the Deeds
of Sale. Indeed, there is no requirement that the price be equal to the exact
value of the 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

Courts cannot follow one every step of his life and extricate him from bad
bargains, protect him from unwise investments, relieve him from one-sided
contracts, or annul the effects of foolish acts. Courts cannot constitute
themselves guardians of persons who are not legally incompetent. Courts
operate 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 ridiculous contracts, use miserable judgment, and lose money
by them – indeed, all they have in the world; but not for that alone can the
law intervene and restore. There must be, in addition, a violation of the law,
the commission of what the law knows as an actionable wrong, before the
courts are authorized to lay hold of the situation and remedy it. (Emphasis in
the original)

Moreover, the factual findings of the appellate court are conclusive on the
parties and carry greater weight when they coincide with the factual findings
of the trial court. This Court will not weigh the evidence all over again unless
there has been a showing that the findings of the lower court are totally
devoid of support or are clearly erroneous so as to constitute serious abuse
of discretion.20 In the 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 their respective Deeds of Sale. Actual
payment of the purchase price by the buyer to the seller is a factual finding
that is now conclusive upon us.

WHEREFORE, we AFFIRM the decision of the Court of Appeals in toto.

SO ORDERED.
G.R. No. 124242             January 21, 2005
SAN LORENZO DEVELOPMENT CORPORATION, petitioner,
vs.
COURT OF APPEALS, PABLO S. BABASANTA, SPS. MIGUEL LU and PACITA
ZAVALLA LU, respondents.
DECISION
TINGA, J.:
From a coaptation of the records of this case, it appears that respondents
Miguel Lu and Pacita Zavalla, (hereinafter, the Spouses Lu) owned two (2)
parcels of land situated in Sta. Rosa, Laguna covered by TCT No. T-39022 and
TCT No. T-39023 both measuring 15,808 square meters or a total of 3.1616
hectares.
On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land
to respondent Pablo Babasanta, (hereinafter, Babasanta) for the price of
fifteen pesos (₱15.00) per square meter. Babasanta made a downpayment of
fifty thousand pesos (₱50,000.00) as evidenced by a memorandum receipt
issued by Pacita Lu of the same date. Several other payments totaling two
hundred thousand pesos (₱200,000.00) were made by Babasanta.
Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the
execution of a final deed of sale in his favor so that he could effect full
payment of the purchase price. In the same letter, Babasanta notified the
spouses about having received information that the spouses sold the same
property to another without his knowledge and consent. He demanded that
the second sale be cancelled and that a final deed of sale be issued in his
favor.
In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged
having agreed to sell the property to him at fifteen pesos (₱15.00) per square
meter. She, however, reminded Babasanta that when the balance of the
purchase price became due, he requested for a reduction of the price and
when she refused, Babasanta backed out of the sale. Pacita added that she
returned the sum of fifty thousand pesos (₱50,000.00) to Babasanta through
Eugenio Oya.
On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional
Trial Court (RTC), Branch 31, of San Pedro, Laguna, a Complaint for Specific
Performance and Damages1 against his co-respondents herein, the Spouses
Lu. Babasanta alleged that the lands covered by TCT No. T- 39022 and T-
39023 had been sold to him by the spouses at fifteen pesos (₱15.00) per
square meter. Despite his repeated demands for the execution of a final
deed of sale in his favor, respondents allegedly refused.
In their Answer,2 the Spouses Lu alleged that Pacita Lu obtained loans from
Babasanta and when the total advances of Pacita reached fifty thousand
pesos (₱50,000.00), the latter and Babasanta, without the knowledge and
consent of Miguel Lu, had verbally agreed to transform the transaction into a
contract to sell the two parcels of land to Babasanta with the fifty thousand
pesos (₱50,000.00) to be considered as the downpayment for the property
and the balance to be paid on or before 31 December 1987. Respondents Lu
added that as of November 1987, total payments made by Babasanta
amounted to only two hundred thousand pesos (₱200,000.00) and the latter
allegedly failed to pay the balance of two hundred sixty thousand pesos
(₱260,000.00) despite repeated demands. Babasanta had purportedly asked
Pacita for a reduction of the price from fifteen pesos (₱15.00) to twelve
pesos (₱12.00) per square meter and when the Spouses Lu refused to grant
Babasanta’s request, the latter rescinded the contract to sell and declared
that the original loan transaction just be carried out in that the spouses
would be indebted to him in the amount of two hundred thousand pesos
(₱200,000.00). Accordingly, on 6 July 1989, they purchased Interbank
Manager’s Check No. 05020269 in the amount of two hundred thousand
pesos (₱200,000.00) in the name of Babasanta to show that she was able and
willing to pay the balance of her loan obligation.
Babasanta later filed an Amended Complaint dated 17 January 19903 wherein
he prayed for the issuance of a writ of preliminary injunction with temporary
restraining order and the inclusion of the Register of Deeds of Calamba,
Laguna as party defendant. He contended that the issuance of a preliminary
injunction was necessary to restrain the transfer or conveyance by the
Spouses Lu of the subject property to other persons.
The Spouses Lu filed their Opposition4 to the amended complaint contending
that it raised new matters which seriously affect their substantive rights
under the original complaint. However, the trial court in its Order dated 17
January 19905 admitted the amended complaint.
On 19 January 1990, herein petitioner San Lorenzo Development Corporation
(SLDC) filed a Motion for Intervention6 before the trial court. SLDC alleged
that it had legal interest in the subject matter under litigation because on 3
May 1989, the two parcels of land involved, namely Lot 1764-A and 1764-B,
had been sold to it in a Deed of Absolute Sale with Mortgage.7 It alleged that
it was a buyer in good faith and for value and therefore it had a better right
over the property in litigation.
In his Opposition to SLDC’s motion for intervention,8 respondent Babasanta
demurred and argued that the latter had no legal interest in the case because
the two parcels of land involved herein had already been conveyed to him by
the Spouses Lu and hence, the vendors were without legal capacity to
transfer or dispose of the two parcels of land to the intervenor.
Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to
intervene. SLDC filed its Complaint-in-Intervention on 19 April
1990.9 Respondent Babasanta’s motion for the issuance of a preliminary
injunction was likewise granted by the trial court in its Order dated 11
January 199110 conditioned upon his filing of a bond in the amount of fifty
thousand pesos (₱50,000.00).
SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the
Spouses Lu executed in its favor an Option to Buy the lots subject of the
complaint. Accordingly, it paid an option money in the amount of three
hundred sixteen thousand one hundred sixty pesos (₱316,160.00) out of the
total consideration for the purchase of the two lots of one million two
hundred sixty-four thousand six hundred forty pesos (₱1,264,640.00). After
the Spouses Lu received a total amount of six hundred thirty-two thousand
three hundred twenty pesos (₱632,320.00) they executed on 3 May 1989
a Deed of Absolute Sale with Mortgage in its favor. SLDC added that the
certificates of title over the property were delivered to it by the spouses
clean and free from any adverse claims and/or notice of lis pendens. SLDC
further alleged that it only learned of the filing of the complaint sometime in
the early part of January 1990 which prompted it to file the motion to
intervene without delay. Claiming that it was a buyer in good faith, SLDC
argued that it had no obligation to look beyond the titles submitted to it by
the Spouses Lu particularly because Babasanta’s claims were not annotated
on the certificates of title at the time the lands were sold to it.
After a protracted trial, the RTC rendered its Decision on 30 July 1993
upholding the sale of the property to SLDC. It ordered the Spouses Lu to pay
Babasanta the sum of two hundred thousand pesos (₱200,000.00) with legal
interest plus the further sum of fifty thousand pesos (₱50,000.00) as and for
attorney’s fees. On the complaint-in-intervention, the trial court ordered the
Register of Deeds of Laguna, Calamba Branch to cancel the notice of lis
pendens annotated on the original of the TCT No. T-39022 (T-7218) and No.
T-39023 (T-7219).
Applying Article 1544 of the Civil Code, the trial court ruled that since both
Babasanta and SLDC did not register the respective sales in their favor,
ownership of the property should pertain to the buyer who first acquired
possession of the property. The trial court equated the execution of a public
instrument in favor of SLDC as sufficient delivery of the property to the latter.
It concluded that symbolic possession could be considered to have been first
transferred to SLDC and consequently ownership of the property pertained
to SLDC who purchased the property in good faith.
Respondent Babasanta appealed the trial court’s decision to the Court of
Appeals alleging in the main that the trial court erred in concluding that SLDC
is a purchaser in good faith and in upholding the validity of the sale made by
the Spouses Lu in favor of SLDC.
Respondent spouses likewise filed an appeal to the Court of Appeals. They
contended that the trial court erred in failing to consider that the contract to
sell between them and Babasanta had been novated when the latter
abandoned the verbal contract of sale and declared that the original loan
transaction just be carried out. The Spouses Lu argued that since the
properties involved were conjugal, the trial court should have declared the
verbal contract to sell between Pacita Lu and Pablo Babasanta null and
void ab initio for lack of knowledge and consent of Miguel Lu. They further
averred that the trial court erred in not dismissing the complaint filed by
Babasanta; in awarding damages in his favor and in refusing to grant the
reliefs prayed for in their answer.
On 4 October 1995, the Court of Appeals rendered its Decision11 which set
aside the judgment of the trial court. It declared that the sale between
Babasanta and the Spouses Lu was valid and subsisting and ordered the
spouses to execute the necessary deed of conveyance in favor of Babasanta,
and the latter to pay the balance of the purchase price in the amount of two
hundred sixty thousand pesos (₱260,000.00). The appellate court ruled that
the Absolute Deed of Sale with Mortgage in favor of SLDC was null and void
on the ground that SLDC was a purchaser in bad faith. The Spouses Lu were
further ordered to return all payments made by SLDC with legal interest and
to pay attorney’s fees to Babasanta.
SLDC and the Spouses Lu filed separate motions for reconsideration with the
appellate court.12 However, in a Manifestation dated 20 December
1995,13 the Spouses Lu informed the appellate court that they are no longer
contesting the decision dated 4 October 1995.
In its Resolution dated 11 March 1996,14 the appellate court considered as
withdrawn the motion for reconsideration filed by the Spouses Lu in view of
their manifestation of 20 December 1995. The appellate court denied SLDC’s
motion for reconsideration on the ground that no new or substantial
arguments were raised therein which would warrant modification or reversal
of the court’s decision dated 4 October 1995.
Hence, this petition.
SLDC assigns the following errors allegedly committed by the appellate court:
THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A
BUYER IN GOOD FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU
OBTAINED FROM IT THE CASH ADVANCE OF ₱200,000.00, SAN LORENZO
WAS PUT ON INQUIRY OF A PRIOR TRANSACTION ON THE PROPERTY.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE ESTABLISHED
FACT THAT THE ALLEGED FIRST BUYER, RESPONDENT BABASANTA, WAS NOT
IN POSSESSION OF THE DISPUTED PROPERTY WHEN SAN LORENZO BOUGHT
AND TOOK POSSESSION OF THE PROPERTY AND NO ADVERSE CLAIM, LIEN,
ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED ON THE TITLES.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT
RESPONDENT BABASANTA HAS SUBMITTED NO EVIDENCE SHOWING THAT
SAN LORENZO WAS AWARE OF HIS RIGHTS OR INTERESTS IN THE DISPUTED
PROPERTY.
THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS
FULL CONCURRENCE ON THE FINDINGS OF FACT OF THE TRIAL COURT, IT
REVERSED AND SET ASIDE THE DECISION OF THE TRIAL COURT UPHOLDING
THE TITLE OF SAN LORENZO AS A BUYER AND FIRST POSSESSOR IN GOOD
FAITH. 15
SLDC contended that the appellate court erred in concluding that it had prior
notice of Babasanta’s claim over the property merely on the basis of its
having advanced the amount of two hundred thousand pesos (₱200,000.00)
to Pacita Lu upon the latter’s representation that she needed the money to
pay her obligation to Babasanta. It argued that it had no reason to suspect
that Pacita was not telling the truth that the money would be used to pay her
indebtedness to Babasanta. At any rate, SLDC averred that the amount of
two hundred thousand pesos (₱200,000.00) which it advanced to Pacita Lu
would be deducted from the balance of the purchase price still due from it
and should not be construed as notice of the prior sale of the land to
Babasanta. It added that at no instance did Pacita Lu inform it that the lands
had been previously sold to Babasanta.
Moreover, SLDC stressed that after the execution of the sale in its favor it
immediately took possession of the property and asserted its rights as new
owner as opposed to Babasanta who has never exercised acts of ownership.
Since the titles bore no adverse claim, encumbrance, or lien at the time it
was sold to it, SLDC argued that it had every reason to rely on the correctness
of the certificate of title and it was not obliged to go beyond the certificate to
determine the condition of the property. Invoking the presumption of good
faith, it added that the burden rests on Babasanta to prove that it was aware
of the prior sale to him but the latter failed to do so. SLDC pointed out that
the notice of lis pendens was annotated only on 2 June 1989 long after the
sale of the property to it was consummated on 3 May 1989.1awphi1.nét
Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the
Spouses Lu informed the Court that due to financial constraints they have no
more interest to pursue their rights in the instant case and submit
themselves to the decision of the Court of Appeals.16
On the other hand, respondent Babasanta argued that SLDC could not have
acquired ownership of the property because it failed to comply with the
requirement of registration of the sale in good faith. He emphasized that at
the time SLDC registered the sale in its favor on 30 June 1990, there was
already a notice of lis pendens annotated on the titles of the property made
as early as 2 June 1989. Hence, petitioner’s registration of the sale did not
confer upon it any right. Babasanta further asserted that petitioner’s bad
faith in the acquisition of the property is evident from the fact that it failed to
make necessary inquiry regarding the purpose of the issuance of the two
hundred thousand pesos (₱200,000.00) manager’s check in his favor.
The core issue presented for resolution in the instant petition is who
between SLDC and Babasanta has a better right over the two parcels of land
subject of the instant case in view of the successive transactions executed by
the Spouses Lu.
To prove the perfection of the contract of sale in his favor, Babasanta
presented a document signed by Pacita Lu acknowledging receipt of the sum
of fifty thousand pesos (₱50,000.00) as partial payment for 3.6 hectares of
farm lot situated at Barangay Pulong, Sta. Cruz, Sta. Rosa, Laguna.17 While the
receipt signed by Pacita did not mention the price for which the property was
being sold, this deficiency was supplied by Pacita Lu’s letter dated 29 May
198918 wherein she admitted that she agreed to sell the 3.6 hectares of land
to Babasanta for fifteen pesos (₱15.00) per square meter.
An analysis of the facts obtaining in this case, as well as the evidence
presented by the parties, irresistibly leads to the conclusion that the
agreement between Babasanta and the Spouses Lu is a contract to sell and
not a contract of sale.
Contracts, in general, are perfected by mere consent,19 which is manifested
by the meeting of the offer and the acceptance upon the thing which are to
constitute the contract. The offer must be certain and the acceptance
absolute.20 Moreover, contracts shall be obligatory in whatever form they
may have been entered into, provided all the essential requisites for their
validity are present.21
The receipt signed by Pacita Lu merely states that she accepted the sum of
fifty thousand pesos (₱50,000.00) from Babasanta as partial payment of 3.6
hectares of farm lot situated in Sta. Rosa, Laguna. While there is no
stipulation that the seller reserves the ownership of the property until full
payment of the price which is a distinguishing feature of a contract to sell,
the subsequent acts of the parties convince us that the Spouses Lu never
intended to transfer ownership to Babasanta except upon full payment of
the purchase price.
Babasanta’s letter dated 22 May 1989 was quite telling. He stated therein
that despite his repeated requests for the execution of the final deed of sale
in his favor so that he could effect full payment of the price, Pacita Lu
allegedly refused to do so. In effect, Babasanta himself recognized that
ownership of the property would not be transferred to him until such time as
he shall have effected full payment of the price. Moreover, had the sellers
intended to transfer title, they could have easily executed the document of
sale in its required form simultaneously with their acceptance of the partial
payment, but they did not. Doubtlessly, the receipt signed by Pacita Lu
should legally be considered as a perfected contract to sell.
The distinction between a contract to sell and a contract of sale is quite
germane. In a contract of sale, title passes to the vendee upon the delivery of
the thing sold; whereas in a contract to sell, by agreement the ownership is
reserved in the vendor and is not to pass until the full payment of the
price.22 In a contract of sale, the vendor has lost and cannot recover
ownership until and unless the contract is resolved or rescinded; whereas in
a contract to sell, title is retained by the vendor until the full payment of the
price, such payment being a positive suspensive condition and failure of
which is not a breach but an event that prevents the obligation of the vendor
to convey title from becoming effective.23
The perfected contract to sell imposed upon Babasanta the obligation to pay
the balance of the purchase price. There being an obligation to pay the price,
Babasanta should have made the proper tender of payment and consignation
of the price in court as required by law. Mere sending of a letter by the
vendee expressing the intention to pay without the accompanying payment
is not considered a valid tender of payment.24 Consignation of the amounts
due in court is essential in order to extinguish Babasanta’s obligation to pay
the balance of the purchase price. Glaringly absent from the records is any
indication that Babasanta even attempted to make the proper consignation
of the amounts due, thus, the obligation on the part of the sellers to convey
title never acquired obligatory force.
On the assumption that the transaction between the parties is a contract of
sale and not a contract to sell, Babasanta’s claim of ownership should
nevertheless fail.
Sale, being a consensual contract, is perfected by mere consent25 and from
that moment, the parties may reciprocally demand performance.26 The
essential elements of a contract of sale, to wit: (1) consent or meeting of the
minds, that is, to transfer ownership in exchange for the price; (2) object
certain which is the subject matter of the contract; (3) cause of the obligation
which is established.27
The perfection of a contract of sale should not, however, be confused with its
consummation. In relation to the acquisition and transfer of ownership, it
should be noted that sale is not a mode, but merely a title. A mode is the
legal means by which dominion or ownership is created, transferred or
destroyed, but title is only the legal basis by which to affect dominion or
ownership.28 Under Article 712 of the Civil Code, "ownership and other real
rights over property are acquired and transmitted by law, by donation, by
testate and intestate succession, and in consequence of certain contracts, by
tradition." Contracts only constitute titles or rights to the transfer or
acquisition of ownership, while delivery or tradition is the mode of
accomplishing the same.29 Therefore, sale by itself does not transfer or affect
ownership; the most that sale does is to create the obligation to transfer
ownership. It is tradition or delivery, as a consequence of sale, that actually
transfers ownership.
Explicitly, the law provides that the ownership of the thing sold is acquired by
the vendee from the moment it is delivered to him in any of the ways
specified in Article 1497 to 1501.30 The word "delivered" should not be taken
restrictively to mean transfer of actual physical possession of the property.
The law recognizes two principal modes of delivery, to wit: (1) actual
delivery; and (2) legal or constructive delivery.
Actual delivery consists in placing the thing sold in the control and possession
of the vendee.31 Legal or constructive delivery, on the other hand, may be
had through any of the following ways: the execution of a public instrument
evidencing the sale;32 symbolical tradition such as the delivery of the keys of
the place where the movable sold is being kept;33 traditio longa manu or by
mere consent or agreement if the movable sold cannot yet be transferred to
the possession of the buyer at the time of the sale;34 traditio brevi manu if
the buyer already had possession of the object even before the
sale;35 and traditio constitutum possessorium, where the seller remains in
possession of the property in a different capacity.36
Following the above disquisition, respondent Babasanta did not acquire
ownership by the mere execution of the receipt by Pacita Lu acknowledging
receipt of partial payment for the property. For one, the agreement between
Babasanta and the Spouses Lu, though valid, was not embodied in a public
instrument. Hence, no constructive delivery of the lands could have been
effected. For another, Babasanta had not taken possession of the property at
any time after the perfection of the sale in his favor or exercised acts of
dominion over it despite his assertions that he was the rightful owner of the
lands. Simply stated, there was no delivery to Babasanta, whether actual or
constructive, which is essential to transfer ownership of the property. Thus,
even on the assumption that the perfected contract between the parties was
a sale, ownership could not have passed to Babasanta in the absence of
delivery, since in a contract of sale ownership is transferred to the vendee
only upon the delivery of the thing sold.37
However, it must be stressed that the juridical relationship between the
parties in a double sale is primarily governed by Article 1544 which lays down
the rules of preference between the two purchasers of the same property. It
provides:
Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person
who in good faith was first in the possession; and, in the absence thereof, to
the person who presents the oldest title, provided there is good faith.
The principle of primus tempore, potior jure (first in time, stronger in right)
gains greater significance in case of double sale of immovable property.
When the thing sold twice is an immovable, the one who acquires it and first
records it in the Registry of Property, both made in good faith, shall be
deemed the owner.38 Verily, the act of registration must be coupled with
good faith— that is, the registrant must have no knowledge of the defect or
lack of title of his vendor or must not have been aware of facts which should
have put him upon such inquiry and investigation as might be necessary to
acquaint him with the defects in the title of his vendor.39
Admittedly, SLDC registered the sale with the Registry of Deeds after it had
acquired knowledge of Babasanta’s claim. Babasanta, however, strongly
argues that the registration of the sale by SLDC was not sufficient to confer
upon the latter any title to the property since the registration was attended
by bad faith. Specifically, he points out that at the time SLDC registered the
sale on 30 June 1990, there was already a notice of lis pendens on the file
with the Register of Deeds, the same having been filed one year before on 2
June 1989.
Did the registration of the sale after the annotation of the notice of lis
pendens obliterate the effects of delivery and possession in good faith which
admittedly had occurred prior to SLDC’s knowledge of the transaction in
favor of Babasanta?
We do not hold so.
It must be stressed that as early as 11 February 1989, the Spouses Lu
executed the Option to Buy in favor of SLDC upon receiving ₱316,160.00 as
option money from SLDC. After SLDC had paid more than one half of the
agreed purchase price of ₱1,264,640.00, the Spouses Lu subsequently
executed on 3 May 1989 a Deed of Absolute Sale in favor or SLDC. At the time
both deeds were executed, SLDC had no knowledge of the prior transaction
of the Spouses Lu with Babasanta. Simply stated, from the time of execution
of the first deed up to the moment of transfer and delivery of possession of
the lands to SLDC, it had acted in good faith and the subsequent annotation
of lis pendens has no effect at all on the consummated sale between SLDC
and the Spouses Lu.
A purchaser in good faith is one who buys property of
another without notice that some other person has a right to, or interest in,
such property and pays a full and fair price for the same at the time of such
purchase, or before he has notice of the claim or interest of some other
person in the property.40 Following the foregoing definition, we rule that
SLDC qualifies as a buyer in good faith since there is no evidence extant in
the records that it had knowledge of the prior transaction in favor of
Babasanta. At the time of the sale of the property to SLDC, the vendors were
still the registered owners of the property and were in fact in possession of
the lands.l^vvphi1.net Time and again, this Court has ruled that a person
dealing with the owner of registered land is not bound to go beyond the
certificate of title as he is charged with notice of burdens on the property
which are noted on the face of the register or on the certificate of title.41 In
assailing knowledge of the transaction between him and the Spouses Lu,
Babasanta apparently relies on the principle of constructive notice
incorporated in Section 52 of the Property Registration Decree (P.D. No.
1529) which reads, thus:
Sec. 52. Constructive notice upon registration. – Every conveyance,
mortgage, lease, lien, attachment, order, judgment, instrument or entry
affecting registered land shall, if registered, filed, or entered in the office of
the Register of Deeds for the province or city where the land to which it
relates lies, be constructive notice to all persons from the time of such
registering, filing, or entering.
However, the constructive notice operates as such¾by the express wording
of Section 52¾from the time of the registration of the notice of lis
pendens which in this case was effected only on 2 June 1989, at which time
the sale in favor of SLDC had long been consummated insofar as the
obligation of the Spouses Lu to transfer ownership over the property to SLDC
is concerned.
More fundamentally, given the superiority of the right of SLDC to the claim of
Babasanta the annotation of the notice of lis pendens cannot help
Babasanta’s position a bit and it is irrelevant to the good or bad faith
characterization of SLDC as a purchaser. A notice of lis pendens, as the Court
held in Nataño v. Esteban,42 serves as a warning to a prospective purchaser
or incumbrancer that the particular property is in litigation; and that he
should keep his hands off the same, unless he intends to gamble on the
results of the litigation." Precisely, in this case SLDC has intervened in the
pending litigation to protect its rights. Obviously, SLDC’s faith in the merit of
its cause has been vindicated with the Court’s present decision which is the
ultimate denouement on the controversy.
the buyer who has taken possession first of the property in good faith shall
be preferred.
In Abarquez, the first sale to the spouses Israel was notarized and registered
only after the second vendee, Abarquez, registered their deed of sale with
the Registry of Deeds, but the Israels were first in possession. This Court
awarded the property to the Israels because registration of the property by
Abarquez lacked the element of good faith. While the facts in the instant
case substantially differ from that in Abarquez, we would not hesitate to rule
in favor of SLDC on the basis of its prior possession of the property in good
faith. Be it noted that delivery of the property to SLDC was immediately
effected after the execution of the deed in its favor, at which time SLDC had
no knowledge at all of the prior transaction by the Spouses Lu in favor of
Babasanta.1a\^/phi1.net
The law speaks not only of one criterion. The first criterion is priority of entry
in the registry of property; there being no priority of such entry, the second is
priority of possession; and, in the absence of the two priorities, the third
priority is of the date of title, with good faith as the common critical element.
Since SLDC acquired possession of the property in good faith in contrast to
Babasanta, who neither registered nor possessed the property at any time,
SLDC’s right is definitely superior to that of Babasanta’s.
At any rate, the above discussion on the rules on double sale would be purely
academic for as earlier stated in this decision, the contract between
Babasanta and the Spouses Lu is not a contract of sale but merely a contract
to sell. In Dichoso v. Roxas,47 we had the occasion to rule that Article 1544
does not apply to a case where there was a sale to one party of the land itself
while the other contract was a mere promise to sell the land or at most an
actual assignment of the right to repurchase the same land. Accordingly,
there was no double sale of the same land in that case.
WHEREFORE, the instant petition is hereby GRANTED. The decision of the
Court of Appeals appealed from is REVERSED and SET ASIDE and the decision
of the Regional Trial Court, Branch 31, of San Pedro, Laguna is REINSTATED.
No costs.
SO ORDERED.

The Court of Appeals has made capital43 of SLDC’s averment in its Complaint-

in-Intervention44 that at the instance of Pacita Lu it issued a check for
₱200,000.00 payable to Babasanta and the confirmatory testimony of Pacita
Lu herself on cross-examination.45 However, there is nothing in the said
pleading and the testimony which explicitly relates the amount to the
transaction between the Spouses Lu and Babasanta for what they attest to is
that the amount was supposed to pay off the advances made by Babasanta
to Pacita Lu. In any event, the incident took place after the Spouses Lu had
already executed the Deed of Absolute Sale with Mortgage in favor of SLDC
and therefore, as previously explained, it has no effect on the legal position
of SLDC.

Assuming ex gratia argumenti that SLDC’s registration of the sale had been

tainted by the prior notice of lis pendens and assuming further for the same
nonce that this is a case of double sale, still Babasanta’s claim could not
prevail over that of SLDC’s. In Abarquez v. Court of Appeals,46 this Court had
the occasion to rule that if a vendee in a double sale registers the sale after
he has acquired knowledge of a previous sale, the registration constitutes a
registration in bad faith and does not confer upon him any right. If the
registration is done in bad faith, it is as if there is no registration at all, and G.R. No. 133879            November 21, 2001
EQUATORIAL REALTY DEVELOPMENT, INC., petitioner,
vs.
MAYFAIR THEATER, INC., respondent.
PANGANIBAN, J.:
General propositions do not decide specific cases. Rather, laws are
interpreted in the context of the peculiar factual situation of each
proceeding. Each case has its own flesh and blood and cannot be ruled upon
on the basis of isolated clinical classroom principles.
While we agree with the general proposition that a contract of sale is valid
until rescinded, it is equally true that ownership of the thing sold is not
acquired by mere agreement, but by tradition or delivery. The peculiar facts
of the present controversy as found by this Court in an earlier relevant
Decision show that delivery was not actually effected; in fact, it was
prevented by a legally effective impediment. Not having been the owner,
petitioner cannot be entitled to the civil fruits of ownership like rentals of the
thing sold. Furthermore, petitioner's bad faith, as again demonstrated by the
specific factual milieu of said Decision, bars the grant of such benefits.
Otherwise, bad faith would be rewarded instead of punished.
The Case
Filed before this Court is a Petition for Review1 under Rule 45 of the Rules of
Court, challenging the March 11, 1998 Order2 of the Regional Trial Court of
Manila (RTC), Branch 8, in Civil Case No. 97-85141. The dispositive portion of
the assailed Order reads as follows:
"WHEREFORE, the motion to dismiss filed by defendant Mayfair is hereby
GRANTED, and the complaint filed by plaintiff Equatorial is hereby
DISMISSED."3
Also questioned is the May 29, 1998 RTC Order4 denying petitioner's Motion
for Reconsideration.
The Facts
The main factual antecedents of the present Petition are matters of record,
because it arose out of an earlier case decided by this Court on November
21, 1996, entitled Equatorial Realty Development, Inc. v. Mayfair Theater,
Inc.5 (henceforth referred to as the "mother case"), docketed as G.R No.
106063.
Carmelo & Bauermann, Inc. ("Camelo" ) used to own a parcel of land,
together with two 2-storey buildings constructed thereon, located at Claro
M. Recto Avenue, Manila, and covered by TCT No. 18529 issued in its name
by the Register of Deeds of Manila.
On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair
Theater Inc. ("Mayfair") for a period of 20 years. The lease covered a portion
of the second floor and mezzanine of a two-storey building with about 1,610
square meters of floor area, which respondent used as a movie house known
as Maxim Theater.
Two years later, on March 31, 1969, Mayfair entered into a second Contract
of Lease with Carmelo for the lease of another portion of the latter's
property — namely, a part of the second floor of the two-storey building,
with a floor area of about 1,064 square meters; and two store spaces on the
ground floor and the mezzanine, with a combined floor area of about 300
square meters. In that space, Mayfair put up another movie house known as
Miramar Theater. The Contract of Lease was likewise for a period of 20 years.
Both leases contained a provision granting Mayfair a right of first refusal to
purchase the subject properties. However, on July 30, 1978 — within the 20-
year-lease term — the subject properties were sold by Carmelo to Equatorial
Realty Development, Inc. ("Equatorial") for the total sum of P11,300,000,
without their first being offered to Mayfair.
As a result of the sale of the subject properties to Equatorial, Mayfair filed a
Complaint before the Regional Trial Court of Manila (Branch 7) for (a) the
annulment of the Deed of Absolute Sale between Carmelo and Equatorial, (b)
specific performance, and (c) damages. After trial on the merits, the lower
court rendered a Decision in favor of Carmelo and Equatorial. This case,
entitled "Mayfair" Theater, Inc. v. Carmelo and Bauermann, Inc., et al.," was
docketed as Civil Case No. 118019.
On appeal (docketed as CA-GR CV No. 32918), the Court of Appeals (CA)
completely reversed and set aside the judgment of the lower court.
The controversy reached this Court via G.R No. 106063. In this mother case,
it denied the Petition for Review in this wise:
"WHEREFORE, the petition for review of the decision of the Court of Appeals,
dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY DENIED. The Deed
of Absolute Sale between petitioners Equatorial Realty Development, Inc.
and Carmelo & Bauermann, Inc. is hereby deemed rescinded; Carmelo &
Bauermann is ordered to return to petitioner Equatorial Realty Development
the purchase price. The latter is directed to execute the deeds and
documents necessary to return ownership to Carmelo & Bauermann of the
disputed lots. Carmelo & Bauermann is ordered to allow Mayfair Theater,
Inc. to buy the aforesaid lots for P11,300,000.00."6
The foregoing Decision of this Court became final and executory on March
17, 1997. On April 25, 1997, Mayfair filed a Motion for Execution, which the
trial court granted.
However, Carmelo could no longer be located. Thus, following the order of
execution of the trial court, Mayfair deposited with the clerk of court a
quo its payment to Carmelo in the sum of P11,300,000 less; P847,000 as
withholding tax. The lower court issued a Deed of Reconveyance in favor of
Carmelo and a Deed of Sale in favor of Mayfair. On the basis of these
documents, the Registry of Deeds of Manila canceled Equatorial's titles and
issued new Certificates of Title7 in the name of Mayfair.
Ruling on Equatorial's Petition for Certiorari and Petition contesting the
foregoing manner of execution, the CA in its Resolution of November 20,
1998, explained that Mayfair had no right to deduct the P847,000 as
withholding tax. Since Carmelo could no longer be located, the appellate
court ordered Mayfair to deposit the said sum with the Office of the Clerk of
Court, Manila, to complete the full amount of P11,300,000 to be turned over
to Equatorial.
Equatorial questioned the legality of the above CA ruling before this Court in
G.R No. 136221 entitled "Equatorial Realty Development, Inc. v. Mayfair
Theater, Inc." In a Decision promulgated on May 12, 2000,8 this Court
directed the trial court to follow strictly the Decision in GR. No. 106063, the
mother case. It explained its ruling in these words:
"We agree that Carmelo and Bauermann is obliged to return the entire
amount of eleven million three hundred thousand pesos (P11,300,000.00) to
Equatorial. On the other hand, Mayfair may not deduct from the purchase
price the amount of eight hundred forty-seven thousand pesos (P847,000.00)
as withholding tax. The duty to withhold taxes due, if any, is imposed on the
seller Carmelo and Bauermann, Inc."9
Meanwhile, on September 18, 1997 — barely five months after Mayfair had
submitted its Motion for Execution before the RTC of Manila, Branch 7 —
Equatorial filed with the Regional Trial Court of Manila, Branch 8, an action
for the collection of a sum of money against Mayfair, claiming payment of
rentals or reasonable compensation for the defendant's use of the subject
premises after its lease contracts had expired. This action was the progenitor
of the present case.
In its Complaint, Equatorial alleged among other things that the Lease
Contract covering the premises occupied by Maxim Theater expired on May
31, 1987, while the Lease Contract covering the premises occupied by
Miramar Theater lapsed on March 31, 1989.10 Representing itself as the
owner of the subject premises by reason of the Contract of Sale on July 30,
1978, it claimed rentals arising from Mayfair's occupation thereof.
Ruling of the RTC Manila, Branch 8
As earlier stated, the trial court dismissed the Complaint via the herein
assailed Order and denied the Motion for Reconsideration filed by
Equatorial.11
The lower court debunked the claim of petitioner for unpaid back rentals,
holding that the rescission of the Deed of Absolute Sale in the mother case
did not confer on Equatorial any vested or residual proprietary rights, even in
expectancy.
In granting the Motion to Dismiss, the court a quo held that the critical issue
was whether Equatorial was the owner of the subject property and could
thus enjoy the fruits or rentals therefrom. It declared the rescinded Deed of
Absolute Sale as avoid at its inception as though it did not happen."
The trial court ratiocinated as follows:
"The meaning of rescind in the aforequoted decision is to set aside. In the
case of Ocampo v. Court of Appeals, G.R. No. 97442, June 30, 1994, the
Supreme Court held that, 'to rescind is to declare a contract void in its
inception and to put an end as though it never were. It is not merely to
terminate it and release parties from further obligations to each other but to
abrogate it from the beginning and restore parties to relative positions which
they would have occupied had no contract ever been made.'
"Relative to the foregoing definition, the Deed of Absolute Sale between
Equatorial and Carmelo dated July 31, 1978 is void at its inception as though
it did not happen.
"The argument of Equatorial that this complaint for back rentals as
'reasonable compensation for use of the subject property after expiration of
the lease contracts presumes that the Deed of Absolute Sale dated July 30,
1978 from whence the fountain of Equatorial's all rights flows is still valid and
existing.
xxx           xxx           xxx
"The subject Deed of Absolute Sale having been rescinded by the Supreme
Court, Equatorial is not the owner and does not have any right to demand
backrentals from the subject property. . .12
The trial court added: "The Supreme Court in the Equatorial case, G.R No.
106063, has categorically stated that the Deed of Absolute Sale dated July
31, 1978 has been rescinded subjecting the present complaint to res
judicata."13
Hence, the present recourse.14
Issues
Petitioner submits, for the consideration of this Court, the following issues:15
"A
The basis of the dismissal of the Complaint by the Regional Trial Court not
only disregards basic concepts and principles in the law on contracts and in
civil law, especially those on rescission and its corresponding legal effects,
but also ignores the dispositive portion of the Decision of the Supreme Court
in G.R. No. 106063 entitled 'Equatorial Realty Development, Inc. & Carmelo &
Bauermann, Inc. vs. Mayfair Theater, Inc.'
"B.
The Regional Trial Court erred in holding that the Deed of Absolute Sale in
favor of petitioner by Carmelo & Bauermann, Inc., dated July 31, 1978, over
the premises used and occupied by respondent, having been 'deemed
rescinded' by the Supreme Court in G.R. No. 106063, is 'void at its inception
as though it did not happen.'
"C.
The Regional Trial Court likewise erred in holding that the aforesaid Deed of
Absolute Sale, dated July 31, 1978, having been 'deemed rescinded' by the
Supreme Court in G.R. No. 106063, petitioner 'is not the owner and does not
have any right to demand backrentals from the subject property,' and that
the rescission of the Deed of Absolute Sale by the Supreme Court does not
confer to petitioner 'any vested right nor any residual proprietary rights even
in expectancy.'
"D.
The issue upon which the Regional Trial Court dismissed the civil case, as
stated in its Order of March 11, 1998, was not raised by respondent in its
Motion to Dismiss.
"E.
The sole ground upon which the Regional Trial Court dismissed Civil Case No.
97-85141 is not one of the grounds of a Motion to Dismiss under Sec. 1 of
Rule 16 of the 1997 Rules of Civil Procedure."
Basically, the issues can be summarized into two: (1) the substantive issue of
whether Equatorial is entitled to back rentals; and (2) the procedural issue of
whether the court a quo's dismissal of Civil Case No. 97-85141 was based on
one of the grounds raised by respondent in its Motion to Dismiss and
covered by Rule 16 of the Rules of Court.
This Court's Ruling
The Petition is not meritorious.
First Issue:
Ownership of Subject Properties
We hold that under the peculiar facts and circumstances of the case at bar, as
found by this Court en banc in its Decision promulgated in 1996 in the
mother case, no right of ownership was transferred from Carmelo to
Equatorial in view of a patent failure to deliver the property to the buyer.
Rental — a Civil
Fruit of Ownership
To better understand the peculiarity of the instant case, let us begin with
some basic parameters. Rent is a civil fruit16 that belongs to the owner of the
property producing it17 by right of accession.18 Consequently and ordinarily,
the rentals that fell due from the time of the perfection of the sale to
petitioner until its rescission by final judgment should belong to the owner of
the property during that period.
By a contract of sale, "one of the contracting parties obligates himself to
transfer ownership of and to deliver a determinate thing and the other to
pay therefor a price certain in money or its equivalent."19
Ownership of the thing sold is a real right,20 which the buyer acquires only
upon delivery of the thing to him "in any of the ways specified in articles
1497 to 1501, or in any other manner signifying an agreement that the
possession is transferred from the vendor to the vendee."21 This right is
transferred, not merely by contract, but also by tradition or delivery.22 Non
nudis pactis sed traditione dominia rerum transferantur. And there is said to
be delivery if and when the thing sold "is placed in the control and
possession of the vendee."23 Thus, it has been held that while the execution
of a public instrument of sale is recognized by law as equivalent to the
delivery of the thing sold,24 such constructive or symbolic delivery, being
merely presumptive, is deemed negated by the failure of the vendee to take
actual possession of the land sold.25
Delivery has been described as a composite act, a thing in which both parties
must join and the minds of both parties concur. It is an act by which one
party parts with the title to and the possession of the property, and the other
acquires the right to and the possession of the same. In its natural sense,
delivery means something in addition to the delivery of property or title; it
means transfer of possession.26 In the Law on Sales, delivery may be either
actual or constructive, but both forms of delivery contemplate "the absolute
giving up of the control and custody of the property on the part of the
vendor, and the assumption of the same by the vendee."27
Possession Never
Acquired by Petitioner
Let us now apply the foregoing discussion to the present issue. From the
peculiar facts of this case, it is clear that petitioner never took actual
control and possession of the property sold, in view of respondent's timely
objection to the sale and the continued actual possession of the property.
The objection took the form of a court action impugning the sale which, as
we know, was rescinded by a judgment rendered by this Court in the mother
case. It has been held that the execution of a contract of sale as a form of
constructive delivery is a legal fiction. It holds true only when there is no
impediment that may prevent the passing of the property from the hands of
the vendor into those of the vendee.28 When there is such impediment,
"fiction yields to reality — the delivery has not been effected."29
Hence, respondent's opposition to the transfer of the property by way of sale
to Equatorial was a legally sufficient impediment that effectively prevented
the passing of the property into the latter's hands.
This was the same impediment contemplated in Vda. de Sarmiento v.
Lesaca,30 in which the Court held as follows:
"The question that now arises is: Is there any stipulation in the sale in
question from which we can infer that the vendor did not intend to deliver
outright the possession of the lands to the vendee? We find none. On the
contrary, it can be clearly seen therein that the vendor intended to place the
vendee in actual possession of the lands immediately as can be inferred from
the stipulation that the vendee 'takes actual possession thereof . . . with full
rights to dispose, enjoy and make use thereof in such manner and form as
would be most advantageous to herself.' The possession referred to in the
contract evidently refers to actual possession and not merely symbolical
inferable from the mere execution of the document.
"Has the vendor complied with this express commitment? she did not. As
provided in Article 1462, the thing sold shall be deemed delivered when the
vendee is placed in the control and possession thereof, which situation does
not here obtain because from the execution of the sale up to the present the
vendee was never able to take possession of the lands due to the insistent
refusal of Martin Deloso to surrender them claiming ownership thereof. And
although it is postulated in the same article that the execution of a public
document is equivalent to delivery, this legal fiction only holds true when
there is no impediment that may prevent the passing of the property from
the hands of the vendor into those of the vendee. x x x."31
The execution of a public instrument gives rise, therefore, only to a prima
facie presumption of delivery. Such presumption is destroyed when the
instrument itself expresses or implies that delivery was not intended; or
when by other means it is shown that such delivery was not effected, because
a third person was actually in possession of the thing. In the latter case, the
sale cannot be considered consummated.
However, the point may be raised that under Article 1164 of the Civil Code,
Equatorial as buyer acquired a right to the fruits of the thing sold from the
time the obligation to deliver the property to petitioner arose.32 That time
arose upon the perfection of the Contract of Sale on July 30, 1978, from
which moment the laws provide that the parties to a sale may reciprocally
demand performance.33 Does this mean that despite the judgment rescinding
the sale, the right to the fruits34 belonged to, and remained enforceable by,
Equatorial?
Article 1385 of the Civil Code answers this question in the negative, because
"[r]escission creates the obligation to return the things which were the
object of the contract, together with their fruits, and the price with its
interest; x x x" Not only the land and building sold, but also the rental
payments paid, if any, had to be returned by the buyer.
Another point. The Decision in the mother case stated that "Equatorial x x x
has received rents" from Mayfair "during all the years that this controversy
has been litigated." The Separate Opinion of Justice Teodoro Padilla in the
mother case also said that Equatorial was "deriving rental income" from the
disputed property. Even herein ponente's Separate Concurring Opinion in the
mother case recognized these rentals. The question now is: Do all these
statements concede actual delivery?
The answer is "No." The fact that Mayfair paid rentals to Equatorial during
the litigation should not be interpreted to mean either actual delivery or ipso
facto recognition of Equatorial's title.
The CA Records of the mother case 35 show that Equatorial — as alleged
buyer of the disputed properties and as alleged successor-in-interest of
Carmelo's rights as lessor — submitted two ejectment suits against Mayfair.
Filed in the Metropolitan Trial Court of Manila, the first was docketed as Civil
Case No. 121570 on July 9, 1987; and the second, as Civil Case No. 131944 on
May 28, 1990. Mayfair eventually won them both. However, to be able to
maintain physical possession of the premises while awaiting the outcome of
the mother case, it had no choice but to pay the rentals.
The rental payments made by Mayfair should not be construed as a
recognition of Equatorial as the new owner. They were made merely to avoid
imminent eviction. It is in this context that one should understand the
aforequoted factual statements in the ponencia in the mother case, as well
as the Separate Opinion of Mr. Justice Padilla and the Separate Concurring
Opinion of the herein ponente.
At bottom, it may be conceded that, theoretically, a rescissible contract is
valid until rescinded. However, this general principle is not decisive to the
issue of whether Equatorial ever acquired the right to collect rentals. What is
decisive is the civil law rule that ownership is acquired, not by mere
agreement, but by tradition or delivery. Under the factual environment of
this controversy as found by this Court in the mother case, Equatorial was
never put in actual and effective control or possession of the property
because of Mayfair's timely objection.
As pointed out by Justice Holmes, general propositions do not decide specific
cases. Rather, "laws are interpreted in the context of the peculiar factual
situation of each case. Each case has its own flesh and blood and cannot be
decided on the basis of isolated clinical classroom principles."36
In short, the sale to Equatorial may have been valid from inception, but it
was judicially rescinded before it could be consummated. Petitioner never
acquired ownership, not because the sale was void, as erroneously claimed
by the trial court, but because the sale was not consummated by a legally
effective delivery of the property sold.
Benefits Precluded by
Petitioner's Bad Faith
Furthermore, assuming for the sake of argument that there was valid
delivery, petitioner is not entitled to any benefits from the "rescinded" Deed
of Absolute Sale because of its bad faith. This being the law of the mother
case decided in 1996, it may no longer be changed because it has long
become final and executory. Petitioner's bad faith is set forth in the following
pertinent portions of the mother case:
"First and foremost is that the petitioners acted in bad faith to render
Paragraph 8 'inutile.'
xxx           xxx           xxx
"Since Equatorial is a buyer in bad faith, this finding renders the sale to it of
the property in question rescissible. We agree with respondent Appellate
Court that the records bear out the fact that Equatorial was aware of the
lease contracts because its lawyers had, prior to the sale, studied the said
contracts. As such, Equatorial cannot tenably claim to be a purchaser in good
faith, and, therefore, rescission lies.
xxx           xxx           xxx
"As also earlier emphasized, the contract of sale between Equatorial and
Carmelo is characterized by bad faith, since it was knowingly entered into in
violation of the rights of and to the prejudice of Mayfair. In fact, as correctly
observed by the Court of Appeals, Equatorial admitted that its lawyers had
studied the contract of lease prior to the sale. Equatorial's knowledge of the
stipulations therein should have cautioned it to look further into the
agreement to determine if it involved stipulations that would prejudice its
own interests.
litigation between the same parties and for the same cause.40 Thus, "[a] final
judgment on the merits rendered by a court of competent jurisdiction is
conclusive as to the rights of the parties and their privies and constitutes an
absolute bar to subsequent actions involving the same claim, demand, or
cause of action."41 Res judicata is based on the ground that the "party to be
affected, or some other with whom he is in privity, has litigated the same
matter in a former action in a court of competent jurisdiction, and should not
be permitted to litigate it again.42

xxx           xxx           xxx
"On the part of Equatorial, it cannot be a buyer in good faith because it
bought the property with notice and full knowledge that Mayfair had a right
to or interest in the property superior to its own. Carmelo and Equatorial
took unconscientious advantage of Mayfair."37 (Italics supplied)
Thus, petitioner was and still is entitled solely to he return of the purchase
price it paid to Carmelo; no more, no less. This Court has firmly ruled in the
mother case that neither of them is entitled to any consideration of equity,
as both "took unconscientious advantage of Mayfair."38
In the mother case, this Court categorically denied the payment of interest, a
fruit of ownership. By the same token, rentals, another fruit of ownership,
cannot be granted without mocking this Court's en banc Decision, which has
long become final.
Petitioner's claim of reasonable compensation for respondent's use and
occupation of the subject property from the time the lease expired cannot be
countenanced. If it suffered any loss, petitioner must bear it in silence, since
it had wrought that loss upon itself. Otherwise, bad faith would be rewarded
instead of punished.@lawphil.net
It frees the parties from undergoing all over again the rigors of unnecessary
suits and repetitive trials. At the same time, it prevents the clogging of court
dockets. Equally important, it stabilizes rights and promotes the rule of
law.@lawphil.net
We find no need to repeat the foregoing disquisitions on the first issue to
show satisfaction of the elements of res judicata. Suffice it to say that,
clearly, our ruling in the mother case bars petitioner from claiming back
rentals from respondent. Although the court a quo erred when it declared
"void from inception" the Deed of Absolute Sale between Carmelo and
petitioner, our foregoing discussion supports the grant of the Motion to
Dismiss on the ground that our prior judgment in G.R No. 106063 has already
resolved the issue of back rentals.
On the basis of the evidence presented during the hearing of Mayfair's
Motion to Dismiss, the trial court found that the issue of ownership of the
subject property has been decided by this Court in favor of Mayfair. We
quote the RTC:
"The Supreme Court in the Equatorial case, G.R. No. 106063 has categorically
stated that the Deed of Absolute Sale dated July 31, 1978 has been rescinded
subjecting the present complaint to res judicata."43 (Emphasis in the original)

We uphold the trial court's disposition, not for the reason it gave, but for (a) Hence, the trial court decided the Motion to Dismiss on the basis of res
the patent failure to deliver the property and (b) petitioner's bad faith, as judicata, even if it erred in interpreting the meaning of "rescinded" as
above discussed. equivalent to "void" In short, it ruled on the ground raised; namely, bar by
prior judgment. By granting the Motion, it disposed correctly, even if its legal
Second Issue:itc-alf
reason for nullifying the sale was wrong. The correct reasons are given in this
Ground in Motion to Dismiss
Decision.
Procedurally, petitioner claims that the trial court deviated from the
WHEREFORE, the Petition is hereby DENIED. Costs against petitioner.itc-alf
accepted and usual course of judicial proceedings when it dismissed Civil
Case No. 97-85141 on a ground not raised in respondent's Motion to Dismiss. SO ORDERED.
Worse, it allegedly based its dismissal on a ground not provided for in a
motion to dismiss as enunciated in the Rules of Court.@lawphil.net

We are not convinced A review of respondent's Motion to Dismiss Civil Case

No. 97-85141 shows that there were two grounds invoked, as follows:

"(A)

Plaintiff is guilty of forum-shopping.itc-alf

"(B)

Plaintiff's cause of action, if any, is barred by prior judgment."39

The court a quo ruled, inter alia, that the cause of action of petitioner

plaintiff in the case below) had been barred by a prior judgment of this Court
in G.R No. 106063, the mother case.

Although it erred in its interpretation of the said Decision when it argued that

the rescinded Deed of Absolute Sale was avoid," we hold, nonetheless, that
petitioner's cause of action is indeed barred by a prior judgment of this
Court. As already discussed, our Decision in G.R No. 106063 shows that
petitioner is not entitled to back rentals, because it never became the owner
of the disputed properties due to a failure of delivery. And even assuming
arguendo that there was a valid delivery, petitioner's bad faith negates its
entitlement to the civil fruits of ownership, like interest and rentals.

Under the doctrine of res judicata or bar by prior judgment, a matter that has
been adjudicated by a court of competent jurisdiction must be deemed to
have been finally and conclusively settled if it arises in any subsequent G.R. No. L-6584             October 16, 1911
INCHAUSTI AND CO., plaintiff-appellant,
vs.
ELLIS CROMWELL, Collector of Internal Revenue, defendant-appellee.
Haussermann, Cohn & Fisher, for appellant.
Acting Attorney-General Harvey, for appellee.
MORELAND, J.:
This is an appeal by the plaintiff from a judgment of the Court of First
Instance of the city of Manila, the Hon. Simplicio del Rosario presiding,
dismissing the complaint upon the merits after trial, without costs.
The facts presented to this court are agreed upon by both parties, consisting,
in so far as they are material to a decision of the case, in the following:
III. That the plaintiff firm for many years past has been and now is engaged in
the business of buying and selling at wholesale hemp, both for its own
account and on commission.
IV. That it is customary to sell hemp in bales which are made by compressing
the loose fiber by means of presses, covering two sides of the bale with
matting, and fastening it by means of strips of rattan; that the operation of
bailing hemp is designated among merchants by the word "prensaje."
V. That in all sales of hemp by the plaintiff firm, whether for its own account
or on commission for others, the price is quoted to the buyer at so much per
picul, no mention being made of bailing; but with the tacit understanding,
unless otherwise expressly agreed, that the hemp will be delivered in bales
and that, according to the custom prevailing among hemp merchants and
dealers in the Philippine Islands, a charge, the amount of which depends
upon the then prevailing rate, is to be made against the buyer under the
denomination of "prensaje." That this charge is made in the same manner in
all cases, even when the operation of bailing was performed by the plaintiff
or by its principal long before the contract of sale was made. Two specimens
of the ordinary form of account used in these operations are hereunto
appended, marked Exhibits A and B, respectively, and made a part hereof.
VI. That the amount of the charge made against hemp buyers by the plaintiff
firm and other sellers of hemp under the denomination of "prensaje" during
the period involved in this litigation was P1.75 per bale; that the average cost
of the rattan and matting used on each bale of hemp is fifteen (15) centavos
and that the average total cost of bailing hemp is one (1) peso per bale.
VII. That insurance companies in the Philippine Islands, in estimating the
insurable value of hemp always add to the quoted price of same the charge
made by the seller under the denomination of "prensaje."
VII. That the average weight of a bale of hemp is two (2) piculs (126.5
kilograms).
IX. That between the first day of January, 1905, and the 31st day of March,
1910, the plaintiff firm, in accordance with the custom mentioned in
paragraph V hereof, collected and received, under the denomination of
"prensaje," from purchasers of hemp sold by the said firm for its own
account, in addition to the price expressly agreed upon for the said hemp,
sums aggregating P380,124.35; and between the 1st day of October, 1908,
and the 1st day of March, 1910, collected for the account of the owners of
hemp sold by the plaintiff firm in Manila on commission, and under the said
denomination of "prensaje," in addition to the price expressly agreed upon
the said hemp, sums aggregating P31,080.
X. That the plaintiff firm in estimating the amount due it as commissions on
sales of hemp made by it for its principals has always based the said amount
on the total sum collected from the purchasers of the hemp, including the
charge made in each case under the denomination of "prensaje."
XI. That the plaintiff has always paid to the defendant or to his predecessor in
the office of the Collector of Internal Revenue the tax collectible under the
provisions of section 139 of Act No. 1189 upon the selling price expressly
agreed upon for all hemp sold by the plaintiff firm both for its own account
and on commission, but has not, until compelled to do so as hereinafter
stated, paid the said tax upon sums received from the purchaser of such
hemp under the denomination of "prensaje."
XII. That of the 29th day of April, 1910, the defendant, acting in his official
capacity as Collector of Internal Revenue of the Philippine Islands, made
demand in writing upon the plaintiff firm for the payment within the period
of five (5) days of the sum of P1,370.68 as a tax of one third of one per cent
on the sums of money mentioned in Paragraph IX hereof, and which the said
defendant claimed to be entitled to receive, under the provisions of the said
section 139 of Act No. 1189, upon the said sums of money so collected from
purchasers of hemp under the denomination of "prensaje."
XIII. That on the 4th day of May, 1910, the plaintiff firm paid to the defendant
under protest the said sum of P1,370.69, and on the same date appealed to
the defendant as Collector of Internal Revenue, against the ruling by which
the plaintiff firm was required to make said payment, but defendant
overruled said protest and adversely decided said appeal, and refused and
still refuses to return to plaintiff the said sum of P1,370.68 or any part
thereof.1awphil.net
XIV. Upon the facts above set forth t is contended by the plaintiff that the tax
of P1,370.68 assessed by the defendant upon the aggregate sum of said
charges made against said purchasers of hemp by the plaintiff during the
period in question, under the denomination of "prensaje" as aforesaid,
namely, P411,204.35, is illegal upon the ground that the said charge does not
constitute a part of the selling price of the hemp, but is a charge made for
the service of baling the hemp, and that the plaintiff firm is therefore entitled
to recover of the defendant the said sum of P1,370.68 paid to him under
protest, together with all interest thereon at the legal rate since payment,
and the costs of this action.
Upon the facts above stated it is the contention of the defendant that the
said charge made under the denomination of "prensaje" is in truth and in
fact a part of the gross value of the hemp sold and of its actual selling price,
and that therefore the tax imposed by section 139 of Act No. 1189 lawfully
accrued on said sums, that the collection thereof was lawfully and properly
made and that therefore the plaintiff is not entitled to recover back said sum
or any part thereof; and that the defendant should have judgment against
plaintiff for his costs.
Under these facts we are of the opinion that the judgment of the court below
was right. It is one of the stipulations in the statement of facts that it is
customary to sell hemp in bales, and that the price quoted in the market for
hemp per picul is the price for the hemp baled. The fact is that among large
dealers like the plaintiff in this case it is practically impossible to handle hemp
without its being baled, and it is admitted by the statement of facts, as well
as demonstrated by the documentary proof introduced in the case, that if
the plaintiff sold a quality of hemp it would be the under standing, without
words, that such hemp would be delivered in bales, and that the purchase
price would include the cost and expense of baling. In other words, it is the
fact as stipulated, as well as it would be the fact of necessity, that in all
dealings in hemp in the general market the selling price consists of the value
of the hemp loose plus the cost and expense of putting it into marketable
form. In the sales made by the plaintiff, which are the basis of the
controversy here, there were n services performed by him for his vendee.
There was agreement that services should be performed. Indeed, at the time
of such sales it was not known by the vendee whether the hemp was then
actually baled or not. All that he knew and all that concerned him was that
the hemp should be delivered to him baled. He did not ask the plaintiff to
perform services for him, nor did the plaintiff agree to do so. The contract
was single and consisted solely in the sale and purchase of hemp. The
purchaser contracted for nothing else and the vendor agreed to deliver
nothing else.
The word "price" signifies the sum stipulated as the equivalent of the thing
sold and also every incident taken into consideration for the fixing of the
price, put to the debit of the vendee and agreed to by him. It is quite possible
that the plaintiff, in this case in connection with the hemp which he sold, had
himself already paid the additional expense of baling as a part of the
purchase price which he paid and that he himself had received the hemp
baled from his vendor. It is quite possible also that such vendor of the
plaintiff may have received the same hemp from his vendor in baled form,
that he paid the additions cost of baling as a part of the purchase price which
he paid. In such case the plaintiff performed no service whatever for his
vendee, nor did the plaintiff's vendor perform any service for him.
separate item for the baling of the hemp is formal rather than essential and
in no sense indicates in this case the real transaction between the parties. It
is undisputable that, if the plaintiff had brought the hemp in question already
baled, and that was the hemp the sale which formed the subject of this
controversy, then the plaintiff would have performed no service for his
vendee and could not, therefore, lawfully charge for the rendition of such
service. It is, nevertheless, admitted that in spite of that fact he would still
have made the double entry in his invoice of sale to such vendee. This
demonstrates the nature of the transaction and discloses, as we have already
said, that the entry of a separate charge for baling does not accurately
describe the transaction between the parties.

The distinction between a contract of sale and one for work, labor, and Section 139 [Act No. 1189] of the Internal Revenue Law provides that:
materials is tested by the inquiry whether the thing transferred is one no in
existence and which never would have existed but for the order of the party There shall be paid by each merchant and manufacturer a tax at the rate of
desiring to acquire it, or a thing which would have existed and been the one-third of one per centum on the gross value in money of all goods, wares
subject of sale to some other person, even if the order had not been given. and merchandise sold, bartered or exchanged in the Philippine Islands, and
(Groves vs. Buck, 3 Maule & S., 178; Towers vs. Osborne, 1 Strange, 506; that this tax shall be assessed on the actual selling price at which every such
Benjamin on Sales, 90.) It is clear that in the case at bar the hemp was in merchant or manufacturer disposes of his commodities.
existence in baled form before the agreements of sale were made, or, at
The operation of baling undoubtedly augments the value of the goods. We
least, would have been in existence even if none of the individual sales here
agree that there can be no question that, if the value of the hemp were not
in question had been consummated. It would have been baled, nevertheless,
augmented to the amount of P1.75 per bale by said operation, the purchaser
for sale to someone else, since, according to the agreed statement of facts, it
would not pay that sum. If one buys a bale of hemp at a stipulated price of
is customary to sell hemp in bales. When a person stipulates for the future
P20, well knowing that there is an agreement on his part, express or implied,
sale of articles which he is habitually making, and which at the time are not
to pay an additional amount of P1.75 for that bale, he considers the bale of
made or finished, it is essentially a contract of sale and not a contract for
hemp worth P21. 75. It is agreed, as we have before stated, that hemp is sold
labor. It is otherwise when the article is made pursuant to agreement.
in bales. Therefore, baling is performed before the sale. The purchaser of
(Lamb vs. Crafts, 12 Met., 353; Smith vs. N.Y.C. Ry. Co., 4 Keyes, 180;
hemp owes to the seller nothing whatever by reason of their contract except
Benjamin on Sales, 98.) Where labor is employed on the materials of the
the value of the hemp delivered. That value, that sum which the purchaser
seller he can not maintain an action for work and labor. (Atkinson vs. Bell, 8
pays to the vendee, is the true selling price of the hemp, and every item
Barn. & C., 277; Lee vs. Griffin, 30 L.J.N. S.Q.B., 252; Prescott vs. Locke, 51
which enters into such price is a part of such selling price. By force of the
N.H., 94.) If the article ordered by the purchaser is exactly such as the
custom prevailing among hemp dealers in the Philippine Islands, a purchaser
plaintiff makes and keeps on hand for sale to anyone, and no change or
of hemp in the market, unless he expressly stipulates that it shall be
modification of it is made at the defendant's request, it is a contract of sale,
delivered to him in loose form, obligates himself to purchase and pay for
even though it may be entirely made after, and in consequence of, the
baled hemp. Wheher or not such agreement is express or implied, whether it
defendant's order for it. (Garbutt s. Watson, 5 Barn. & Ald., 613;
is actual or tacit, it has the same force. After such an agreement has once
Gardner vs. Joy, 9 Met., 177; Lamb vs. Crafts, 12 Met., 353;
been made by the purchaser, he has no right to insists thereafter that the
Waterman vs. Meigs, 4 Cush., 497., Clark vs. Nichols, 107 Mass., 547;
seller shall furnish him with unbaled hemp. It is undoubted that the vendees,
May vs. Ward, 134 Mass., 127; Abbott vs. Gilchrist, 38 Me., 260;
in the sales referred to in the case at bar, would have no right, after having
Crocket vs. Scribner, 64 Me., 105; Pitkin vs. Noyes, 48 N. H., 294;
made their contracts, to insists on the delivery of loose hemp with the
Prescott vs. Locke, 51 N. H., 94; Ellison vs. Brigham, 38 Vt., 64.) It has been
purpose in view themselves to perform the baling and thus save 75 centavos
held in Massachusetts that a contract to make is a contract of sale if the
per bale. It is unquestioned that the seller, the plaintiff, would have stood
article ordered is already substantially in existence at the time of the order
upon his original contract of sale, that is, the obligation to deliver baled
and merely requires some alteration, modification, or adoption to the
hemp, and would have forced his vendees to accept baled hemp, he himself
buyer's wishes or purposes. (Mixer vs. Howarth, 21 Pick., 205.) It is also held
retaining among his own profits those which accrued from the proceed of
in that state that a contract for the sale of an article which the vendor in the
baling.
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 for the We are of the opinion that the judgment appealed from must be affirmed,
sale of goods to which the statute of frauds applies. But if the goods are to without special finding as to costs, and it is so ordered.
be manufactured especially for the purchaser and upon his special order, and
not for the general market, the case is not within the statute.
(Goddard vs. Binney, 115 Mass., 450.)

It is clear to our minds that in the case at bar the baling was performed for
the general market and was not something done by plaintiff which was a
result of any peculiar wording of the particular contract between him and his
vendee. It is undoubted that the plaintiff prepared his hemp for the general
market. This would be necessary. One whose exposes goods for sale in the
market must have them in marketable form. The hemp in question would not
have been in that condition if it had not been baled. the baling, therefore,
was nothing peculiar to the contract between the plaintiff and his vendee. It
was precisely the same contract that was made by every other seller of
hemp, engaged as was the plaintiff, and resulted simply in the transfer of title
to goods already prepared for the general market. The method of
bookkeeping and form of the account rendered is not controlling as to the
nature of the contract made. It is conceded in the case tat a separate entry
and charge would have been made for the baling even if the plaintiff had not
been the one who baled the hemp but, instead, had received it already baled
from his vendor. This indicates of necessity tat the mere fact of entering a G.R. No. L-8506             August 31, 1956
CELESTINO CO & COMPANY, petitioner,
vs.
COLLECTOR OF INTERNAL REVENUE, respondent.
Office of the Solicitor General Ambrosio Padilla, Fisrt Assistant Solicitor
General Guillermo E. Torres and Solicitor Federico V. Sian for respondent.
BENGZON, J.:
Appeal from a decision of the Court of Tax Appeals.
Celestino Co & Company is a duly registered general copartnership doing
business under the trade name of "Oriental Sash Factory". From 1946 to
1951 it paid percentage taxes of 7 per cent on the gross receipts of its sash,
door and window factory, in accordance with section one hundred eighty-six
of the National Revenue Code imposing taxes on sale of manufactured
articles. However in 1952 it began to claim liability only to the contractor's 3
per cent tax (instead of 7 per cent) under section 191 of the same Code; and
having failed to convince the Bureau of Internal Revenue, it brought the
matter to the Court of Tax Appeals, where it also failed. Said the Court:
To support his contention that his client is an ordinary contractor . . . counsel
presented . . . duplicate copies of letters, sketches of doors and windows and
price quotations supposedly sent by the manager of the Oriental Sash
Factory to four customers who allegedly made special orders to doors and
window from the said factory. The conclusion that counsel would like us to
deduce from these few exhibits is that the Oriental Sash Factory does not
manufacture ready-made doors, sash and windows for the public but only
upon special order of its select customers. . . . I cannot believe that petitioner
company would take, as in fact it has taken, all the trouble and expense of
registering a special trade name for its sash business and then orders
company stationery carrying the bold print "Oriental Sash Factory (Celestino
Co & Company, Prop.) 926 Raon St. Quiapo, Manila, Tel. No.
33076, Manufacturers of all kinds of doors, windows, sashes, furniture, etc.
used season-dried and kiln-dried lumber, of the best quality
workmanships" solely for the purpose of supplying the needs for doors,
windows and sash of its special and limited customers. One ill note that
petitioner has chosen for its tradename and has offered itself to the public as
a "Factory", which means it is out to do business, in its chosen lines on a big
scale. As a general rule, sash factories receive orders for doors and windows
of special design only in particular cases but the bulk of their sales is derived
from a ready-made doors and windows of standard sizes for the average
home. Moreover, as shown from the investigation of petitioner's book of
accounts, during the period from January 1, 1952 to September 30, 1952, it
sold sash, doors and windows worth 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 special orders for these items.
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 only special order of its customers, that does not make it a contractor
within the purview of section 191 of the national Internal Revenue Code.
there are no less than fifty occupations enumerated in the aforesaid section
of the national 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 manufacturing sash, doors and windows upon special order
of customers fall under the category of "road, building, navigation, artesian
well, water workers and other construction work contractors" are those who
alter or repair buildings, structures, streets, highways, sewers, street railways
railroads logging roads, electric lines or power lines, and includes any other
work for the construction, altering or repairing for which machinery driven
by mechanical power is used. (Payton vs. City of Anadardo 64 P. 2d 878, 880,
179 Okl. 68).
Having thus eliminated the feasibility off taxing petitioner as a contractor
under 191 of the national Internal Revenue Code, this leaves us to decide the
remaining issue whether or not petitioner could be taxed with lesser strain
and more accuracy as seller of its manufactured articles under section 186 of
the same code, as the respondent Collector of Internal Revenue has in fact
been doing the Oriental Sash Factory was established in 1946.
The percentage tax imposed in section 191 of our Tax Code is generally a tax
on the sales of services, in contradiction with the tax imposed in section 186
of the same Code which is a tax on the original sales of articles by the
manufacturer, producer or importer. (Formilleza's Commentaries and
Jurisprudence on the National Internal Revenue Code, Vol. II, p. 744). The
fact that the articles sold are manufactured by the seller does not exchange
the contract from the purview of section 186 of the National Internal
Revenue Code as a sale of articles.
There was a strong dissent; but upon careful consideration of the whole
matter are inclines to accept the above statement of the facts and the law.
The important thing to remember is that Celestino Co & Company habitually
makes sash, windows and doors, as it has represented in its stationery and
advertisements to the public. That it "manufactures" the same is practically
admitted by appellant itself. The fact that windows and doors are made by it
only when customers place their orders, does not alter the nature of the
establishment, for it is obvious that it only accepted such orders as called for
the employment of such material-moulding, frames, panels-as it ordinarily
manufactured or was in a position habitually to manufacture.
Perhaps the following paragraph represents in brief the appellant's position
in this Court:
Since the petitioner, by clear proof of facts not disputed by the respondent,
manufacturers sash, windows and doors only for special customers and upon
their special orders and in accordance with the desired specifications of the
persons ordering the same and not for the general market: since the doors
ordered by Don Toribio Teodoro & Sons, Inc., for instance, are not in
existence and which never would have existed but for the order of the party
desiring it; and since petitioner's contractual relation with his customers is
that of a contract for a piece of work or since petitioner is engaged in the sale
of services, it follows that 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).
But the argument rests on a false foundation. Any builder or homeowner,
with sufficient money, may order windows or doors of the kind
manufactured by this appellant. Therefore it is not true that it serves special
customers only or confines its services to them alone. And anyone who sees,
and likes, the doors ordered by Don Toribio Teodoro & Sons Inc. may
purchase from appellant doors of the same kind, provided he pays the price.
Surely, the appellant will not refuse, for it can easily duplicate or even mass-
produce the same doors-it is mechanically equipped to do so.
That the doors and windows must meet desired specifications is neither here
nor there. If these specifications do not happen to be of the kind habitually
manufactured by appellant — special forms for sash, mouldings of panels —
it would not accept the order — and no sale is made. If they do, the
transaction would be no different from a purchasers of manufactured goods
held is stock for sale; they are bought because they meet the specifications
desired by the purchaser.
Nobody will say that when a sawmill cuts lumber in accordance with the
peculiar specifications of a customer-sizes not previously held in stock for
sale to the public-it thereby becomes an employee or servant of the
customer,1 not the seller of lumber. The same consideration applies to this
sash manufacturer.
The Oriental Sash Factory does nothing more than sell the goods that it
mass-produces or habitually makes; sash, panels, mouldings, frames, cutting
them to such sizes and combining them in such forms as its customers may
desire.
On the other hand, petitioner's idea of being a contractor doing construction
jobs is untenable. Nobody would regard the doing of two window panels a
construction work in common parlance.2
Appellant invokes Article 1467 of the New Civil Code to bolster its contention
that in filing orders for windows and doors according to specifications, it did
not sell, but merely contracted for particular pieces of work or "merely sold
its services".

Said article reads as follows:

A contract for the delivery at a certain price of an article which the vendor in
the ordinary course of his business manufactures or procures for the general
market, whether the same is on hand at the time or not, is a contract of sale,
but if the goods are to be manufactured specially for the customer and upon
his special order, and not for the general market, it is contract for a piece of
work.

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 the materials. The truth of the matter is that it sold materials ordinarily
manufactured by it — sash, panels, mouldings — to Teodoro & Co., although
in such form or combination as suited the fancy of the purchaser. Such new
form does not divest the Oriental Sash Factory of its character as
manufacturer. Neither does it take the transaction out of the category of
sales under Article 1467 above quoted, because although the Factory does
not, in the ordinary course of its business, manufacture and keep on
stock doors of the kind sold to Teodoro, it could stock and/or probably had in
stock the sash, mouldings and panels it used therefor (some of them at
least).

In our opinion when this Factory accepts a job that requires the use of
extraordinary or additional equipment, or involves services not generally
performed by it-it thereby contracts for a piece of work — filing special
orders within the meaning of Article 1467. The orders herein exhibited were
not shown to be special. They were merely orders for work — nothing is
shown to call them special requiring extraordinary service of the factory.

The thought occurs to us that if, as alleged-all the work of appellant is only to
fill orders previously made, such orders should not be called special work,
but regular work. Would a factory do business performing only special,
extraordinary or peculiar merchandise?

Anyway, supposing for the moment that the transactions were not sales,
they were neither lease of services nor contract jobs by a contractor. But as
the doors and windows had been admittedly "manufactured" by the Oriental
Sash Factory, such transactions could be, and should be taxed as "transfers"
thereof under section 186 of the National Revenue Code.

The appealed decision is consequently affirmed. So ordered.

G.R. No. 52267             January 24, 1996

ENGINEERING & MACHINERY CORPORATION, petitioner,
vs.
COURT OF APPEALS and PONCIANO L. ALMEDA, respondent.
DECISION
PANGANIBAN, J.:
Is a contract for the fabrication and installation of a central air-conditioning
system in a building, one of "sale" or "for a piece of work"? What is the
prescriptive period for filing actions for breach of the terms of such contract?
These are the legal questions brought before this Court in this Petition for
review on certiorari under Rule 45 of the Rules of Court, to set aside the
Decision1 of the Court of Appeals2 in CA-G.R. No. 58276-R promulgated on
November 28, 1978 (affirming in toto the decision3 dated April 15, 1974 of
the then Court of First Instance of Rizal, Branch II4 , in Civil Case No. 14712,
which ordered petitioner to pay private respondent the amount needed to
rectify the faults and deficiencies of the air-conditioning system installed by
petitioner in private respondent's building, plus damages, attorney's fees and
costs).
By a resolution of the First Division of this Court dated November 13, 1995,
this case was transferred to the Third. After deliberating on the various
submissions of the parties, including the petition, record on appeal, private
respondent's comment and briefs for the petitioner and the private
respondent, the Court assigned the writing of this Decision to the
undersigned, who took his oath as a member of the Court on October 10,
1995.
The Facts
Pursuant to the contract dated September 10, 1962 between petitioner and
private respondent, the former undertook to fabricate, furnish and install the
air-conditioning system in the latter's building along Buendia Avenue, Makati
in consideration of P210,000.00. Petitioner was to furnish the materials,
labor, tools and all services required in order to so fabricate and install said
system. The system was completed in 1963 and accepted by private
respondent, who paid in full the contract price.
On September 2, 1965, private respondent sold the building to the National
Investment and Development Corporation (NIDC). The latter took possession
of the building but on account of NIDC's noncompliance with the terms and
conditions of the deed of sale, private respondent was able to secure judicial
rescission thereof. The ownership of the building having been decreed back
to private respondent, he re-acquired possession sometime in 1971. It was
then that he learned from some NIDC, employees of the defects of the air-
conditioning system of the building.
Acting on this information, private respondent commissioned Engineer David
R. Sapico to render a technical evaluation of the system in relation to the
contract with petitioner. In his report, Sapico enumerated the defects of the
system and concluded that it was "not capable of maintaining the desired
room temperature of 76ºF - 2ºF (Exhibit C)"5 .
On the basis of this report, private respondent filed on May 8, 1971 an action
for damages against petitioner with the then Court of First Instance of Rizal
(Civil Case No. 14712). The complaint alleged that the air-conditioning system
installed by petitioner did not comply with the agreed plans and
specifications. Hence, private respondent prayed for the amount of
P210,000.00 representing the rectification cost, P100,000.00 as damages and
P15,000.00 as attorney's fees.
Petitioner moved to dismiss the complaint, alleging that the prescriptive
period of six months had set in pursuant to Articles 1566 and 1567, in
relation to Article 1571 of the Civil Code, regarding the responsibility of a
vendor for any hidden faults or defects in the thing sold.
Private respondent countered that the contract dated September 10, 1962
was not a contract for sale but a contract for a piece of work under Article
1713 of the Civil Code. Thus, in accordance with Article 1144 (1) of the same
Code, the complaint was timely brought within the ten-year prescriptive
period.
In its reply, petitioner argued that Article 1571 of the Civil Code providing for
a six-month prescriptive period is applicable to a contract for a piece of work
by virtue of Article 1714, which provides that such a contract shall be
governed by the pertinent provisions on warranty of title and against hidden
defects and the payment of price in a contract of sale6 .
The trial court denied the motion to dismiss. In its answer to the complaint,
petitioner reiterated its claim of prescription as an affirmative defense. It
alleged that whatever defects might have been discovered in the air-
conditioning system could have been caused by a variety of factors, including
ordinary wear and tear and lack of proper and regular maintenance. It
pointed out that during the one-year period that private respondent
withheld final payment, the system was subjected to "very rigid inspection
and testing and corrections or modifications effected" by petitioner. It
interposed a compulsory counterclaim suggesting that the complaint was
filed "to offset the adverse effects" of the judgment in Civil Case No. 71494,
Court of First Instance of Manila, involving the same parties, wherein private
respondent was adjudged to pay petitioner the balance of the unpaid
contract price for the air-conditioning system installed in another building of
private respondent, amounting to P138,482.25.
Thereafter, private respondent filed an ex-parte motion for preliminary
attachment on the strength of petitioner's own statement to the effect that it
had sold its business and was no longer doing business in Manila. The trial
court granted the motion and, upon private respondent's posting of a bond
of F'50,000.00, ordered the issuance of a writ of attachment.
In due course, the trial court rendered a decision finding that petitioner
failed to install certain parts and accessories called for by the contract, and
deviated from the plans of the system, thus reducing its operational
effectiveness to the extent that 35 window-type units had to be installed in
the building to achieve a fairly desirable room temperature. On the question
of prescription, the trial court ruled that the complaint was filed within the
ten-year court prescriptive period although the contract was one for a piece
of work, because it involved the "installation of an air-conditioning system
which the defendant itself manufactured, fabricated, designed and installed."
Petitioner appealed to the Court of Appeals, which affirmed the decision of
the trial court. Hence, it instituted the instant petition.
The Submissions of the Parties
In the instant Petition, petitioner raised three issues. First, it contended that
private respondent's acceptance of the work and his payment of the contract
price extinguished any liability with respect to the defects in the air-
conditioning system. Second, it claimed that the Court of Appeals erred when
it held that the defects in the installation were not apparent at the time of
delivery and acceptance of the work considering that private respondent was
not an expert who could recognize such defects. Third, it insisted that,
assuming arguendo that there were indeed hidden defects, private
respondent's complaint was barred by prescription under Article 1571 of the
Civil Code, which provides for a six-month prescriptive period.
Private respondent, on the other hand, averred that the issues raised by
petitioner, like the question of whether there was an acceptance of the work
by the owner and whether the hidden defects in the installation could have
been discovered by simple inspection, involve questions of fact which have
been passed upon by the appellate court.
The Court's Ruling
The Supreme Court reviews only errors of law in petitions for review
on certiorari under Rule 45. It is not the function of this Court to re-examine
the findings of fact of the appellate court unless said findings are not
supported by the evidence on record or the judgment is based on a
misapprehension of facts7 of Appeals erred when it held that the defects in
the installation were not apparent at the time of delivery and acceptance of
the work considering that private respondent was not an expert who could
recognize such defects. Third. it insisted that, assuming arguendo that there
were indeed hidden defects, private respondent's complaint was barred by
prescription under Article 1571 of the Civil Code, which provides for a six-
month prescriptive period.
Private respondent, on the other hand, averred that the issues raised by
petitioner, like the question of whether here was an acceptance of the work
by the owner and whether the hidden defects in the installation could have
been discovered by simple inspection, involve questions of fact which have
been passed upon by the appellate court.
The Court has consistently held that the factual findings of the trial court, as
well as the Court of Appeals, are final and conclusive and may not be
reviewed on appeal. Among the exceptional circumstances where a
reassessment of facts found by the lower courts is allowed are when the
conclusion is a finding grounded entirely on speculation, surmises or
conjectures; when the inference made is manifestly absurd, mistaken or
impossible; when there is grave abuse of discretion in the appreciation of
facts; when the judgment is premised on a misapprehension of facts; when
the findings went beyond the issues of the case and the same are contrary to
the admissions of both appellant and appellee. After a careful study of the
case at bench, we find none of the above grounds present to justify the re-
evaluation of the findings of fact made by the courts below.8
We see no valid reason to discard the factual conclusions of the appellate
court. . . . (I)t is not the function of this Court to assess and evaluate all over
again the evidence, testimonial and documentary, adduced by the parties,
particularly where, such as here, the findings of both the trial court and the
appellate court on the matter coincide.9 (Emphasis supplied)
Hence, the first two issues will not be resolved as they raise questions of fact.
Thus, the only question left to be resolved is that of prescription. In their
submissions, the parties argued lengthily on the nature of the contract
entered into by them, viz., whether it was one of sale or for a piece of work.
Article 1713 of the Civil Code defines a contract for a piece of work thus:
By the contract for a piece of work the contractor binds himself to execute a
piece of work for the employer, in consideration of a certain price or
compensation. The contractor may either employ only his labor or skill, or
also furnish the material.
A contract for a piece of work, labor and materials may be distinguished from
a contract of sale by the inquiry as to whether the thing transferred is one
not in existence and which would never have existed but for the order, of the
person desiring it10 . In such case, the contract is one for a piece of work, not
a sale. On the other hand, if the thing subject of the contract would have
existed and been the subject of a sale to some other person even if the order
had not been given, then the contract is one of sale11 .
Thus, Mr. Justice Vitug12 explains that -
A contract for the delivery at a certain price of an article which the vendor in
the ordinary course of his business manufactures or procures for the general
market, whether the same is on hand at the time or not is a contract of sale,
but if the goods are to be manufactured specially for the customer and upon
his special order, and not for the general market, it is a contract for a piece of
work (Art. 1467, Civil Code). The mere fact alone that certain articles are
made upon previous orders of customers will not argue against the
imposition of the sales tax if such articles are ordinarily manufactured by the
taxpayer for sale to the public (Celestino Co. vs. Collector, 99 Phil. 841).
To Tolentino, the distinction between the two contracts depends on the
intention of the parties. Thus, if the parties intended that at some future
date an object has to be delivered, without considering the work or labor of
the party bound to deliver, the contract is one of sale. But if one of the
parties accepts the undertaking on the basis of some plan, taking into
account the work he will employ personally or through another, there is a
contract for a piece of work13 .
Clearly, the contract in question is one for a piece of work. It is not
petitioner's line of business to manufacture air-conditioning systems to be
sold "off-the-shelf." Its business and particular field of expertise is the
fabrication and installation of such systems as ordered by customers and in
accordance with the particular plans and specifications provided by the
customers. Naturally, the price or compensation for the system
manufactured and installed will depend greatly on the particular plans and
specifications agreed upon with the customers.
The obligations of a contractor for a piece of work are set forth in Articles
1714 and 1715 of the Civil Code, which provide:
Art. 1714. If the contractor agrees to produce the work from material
furnished by him, he shall deliver the thing produced to the employer and
transfer dominion over the thing. This contract shall be governed by the
following articles as well as by the pertinent provisions on warranty of title
and against hidden defects and the payment of price in a contract of sale.
Art. 1715. The contractor shall execute the work in such a manner that it has
the qualities agreed upon and has no defects which destroy or lessen its
value or fitness for its ordinary or stipulated use. Should the work be not of
such quality, the employer may require that the contractor remove the
defect or execute another work. If the contractor fails or refuses to comply
with this obligation, the employer may have the defect removed or another
work executed, at the contractor's cost.
The provisions on warranty against hidden defects, referred to in Art. 1714
above-quoted, are found in Articles 1561 and 1566, which read as follows:
Art. 1561. The vendor shall be responsible for warranty against the hidden
defects which the thing sold may have, should they render it unfit for the use
for which it is intended, or should they diminish its fitness for such use to
such an extent that, had the vendee been aware thereof, he would not have
acquired it or would have given a lower price for it; but said vendor shall not
be answerable for patent defects or those which may be visible, or for those
which are not visible if the vendee is an expert who, by reason of his trade or
profession, should have known them.
xxx       xxx       xxx
Art. 1566. The vendor is responsible to the vendee for any hidden faults or
defects in the thing sold, even though he was not aware thereof.
This provision shall not apply if the contrary has been stipulated, and the
vendor was not aware of the hidden faults or defects in the thing sold.
The remedy against violations of the warranty against hidden defects is
either to withdraw from the contract (redhibitory action) or to demand a
proportionate reduction of the price (accion quanti manoris), with damages
in either case14 .
In Villostas vs. Court of Appeals15 , we held that, "while it is true that Article
1571 of the Civil Code provides for a prescriptive period of six months for a
redhibitory action, a cursory reading of the ten preceding articles to which it
refers will reveal that said rule may be applied only in case of implied
warranties"; and where there is an express warranty in the contract, as in the
case at bench, the prescriptive period is the one specified in the express
warranty, and in the absence of such period, "the general rule on rescission
of contract, which is four years (Article 1389, Civil Code) shall apply"16 .
Consistent with the above discussion, it would appear that this suit is barred
by prescription because the complaint was filed more than four years after
the execution of the contract and the completion of the air-conditioning
system.
However, a close scrutiny of the complaint filed in the trial court reveals that
the original action is not really for enforcement of the warranties against
hidden defects, but one for breach of the contract itself. It alleged17 that the
petitioner, "in the installation of the air conditioning system did not comply
with the specifications provided" in the written agreement between the
parties, "and an evaluation of the air-conditioning system as installed by the
defendant showed the following defects and violations of the specifications
of the agreement, to wit:
GROUND FLOOR:
"A. RIGHT WING:
Equipped with Worthington Compressor, Model 2VC4 directly driven by an
Hp Elin electric motor 1750 rmp, 3 phase, 60 cycles, 220 volts, complete with
starter evaporative condenser, circulating water pump, air handling unit air
ducts.
Defects Noted:
1. Deteriorated evaporative condenser panels, coils are full of scales and
heavy corrosion is very evident.
2. Defective gauges of compressors;
3. No belt guard on motor;
4. Main switch has no cover;
5. Desired room temperature not attained;
Aside from the above defects, the following were noted not installed
although provided in the specifications.
1. Face by-pass damper of G.I. sheets No. 16. This damper regulates the flow
of cooled air depending on room condition.
2. No fresh air intake provision were provided which is very necessary for
efficient comfort cooling..
3. No motor to regulate the face and by-pass damper.
4. Liquid level indicator for refrigerant not provided.
5. Suitable heat exchanger is not installed. This is an important component to
increase refrigeration efficiency.
6. Modulating thermostat not provided.
7. Water treatment device for evaporative condenser was not provided.
8. Liquid receiver not provided by sight glass.
B. LEFT WING:
Worthington Compressor Model 2VC4 is installed complete with 15 Hp
electric motor, 3 phase, 220 volts 60 cycles with starter.
Defects Noted:
Same as right wing. except No. 4, All other defects on right wing are common
to the left wing.
SECOND FLOOR: (Common up to EIGHT FLOORS)
Compressors installed are MELCO with 7.5 Hp V-belt driven by 1800 RPM,
-220 volts, 60 cycles, 3 phase, Thrige electric motor with starters.
As stated in the specifications under, Section No. IV, the MELCO compressors
do not satisfy the conditions stated therein due to the following:
1. MELCO Compressors are not provided with automatic capacity unloader.
2. Not provided with oil pressure safety control.
3. Particular compressors do not have provision for renewal sleeves.
Out of the total 15 MELCO compressors installed to serve the 2nd floor up to
8th floors, only six (6) units are in operation and the rest were already
replaced. Of the remaining six (6) units, several of them have been replaced
with bigger crankshafts.
NINTH FLOOR:
Two (2) Worthington 2VC4 driven by 15 Hp, 3 phase, 220 volts, 60 cycles,
1750 rpm, Higgs motors with starters.
Defects Noted are similar to ground floor.
GENERAL REMARKS:
Under Section III, Design conditions of specification for air conditioning work,
and taking into account "A" & "B" same, the present systems are not capable
of maintaining the desired temperature of 76 = 2ºF (sic).
The present tenant have installed 35 window type air conditioning units
distributed among the different floor levels. Temperature measurements
conducted on March 29. 1971, revealed that 78ºF room (sic) is only
maintained due to the additional window type units.
The trial court, after evaluating the evidence presented, held that, indeed,
petitioner failed to install items and parts required in the contract and
substituted some other items which were not in accordance with the
specifications18 , thus:
From all of the foregoing, the Court is persuaded to believe the plaintiff that
not only had the defendant failed to install items and parts provided for in
the specifications of the air-conditioning system be installed, like face and by-
pass dampers and modulating thermostat and many others, but also that
there are items, parts and accessories which were used and installed on the
air-conditioning system which were not in full accord with contract
specifications. These omissions to install the equipments, parts and
accessories called for in the specifications of the contract, as well as the
deviations made in putting into the air-conditioning system equipments,
parts and accessories not in full accord with the contract specification
naturally resulted to adversely affect the operational effectiveness of the air-
conditioning system which necessitated the installation of thirty-five window
type of air-conditioning units distributed among the different floor levels in
order to be able to obtain a fairly desirable room temperature for the
tenants and actual occupants of the building. The Court opines and so holds
that the failure of the defendant to follow the contract specifications and
said omissions and deviations having resulted in the operational
ineffectiveness of the system installed makes the defendant liable to the
plaintiff in the amount necessary to rectify to put the air conditioning system
in its proper operational condition to make it serve the purpose for which the
plaintiff entered into the contract with the defendant.
The respondent Court affirmed the trial court's decision thereby making the
latter's findings also its own.
Having concluded that the original complaint is one for damages arising from
breach of a written contract - and not a suit to enforce warranties against
hidden defects - we here - with declare that the governing law is Article 1715
(supra). However, inasmuch as this provision does not contain a specific
prescriptive period, the general law on prescription, which is Article 1144 of
the Civil Code, will apply. Said provision states, inter alia, that actions "upon a
written contract" prescribe in ten (10) years. Since the governing contract
was executed on September 10, 1962 and the complaint was filed on May 8,
1971, it is clear that the action has not prescribed.
What about petitioner's contention that "acceptance of the work by the
employer relieves the contractor of liability for any defect in the work"? This
was answered by respondent Court19 as follows:
As the breach of contract which gave rise to the instant case consisted in
appellant's omission to install the equipments (sic), parts and accessories not
in accordance with the plan and specifications provided for in the contract
and the deviations made in putting into the air conditioning system parts and
accessories not in accordance with the contract specifications, it is evident
that the defect in the installation was not apparent at the time of the
delivery and acceptance of the work, considering further that plaintiff is not
an expert to recognize the same. From the very nature of things, it is
impossible to determine by the simple inspection of air conditioning system
installed in an 8-floor building whether it has been furnished and installed as
per agreed specifications.

Verily, the mere fact that the private respondent accepted the work does
not, ipso facto, relieve the petitioner from liability for deviations from and
violations of the written contract, as the law gives him ten (10) years within
which to file an action based on breach thereof.

WHEREFORE, the petition is hereby DENIED and the assailed Decision is

AFFIRMED. No costs.

SO ORDERED.

G.R. No. 113564            June 20, 2001

INOCENCIA YU DINO and her HUSBAND doing business under the trade
name "CANDY CLAIRE FASHION GARMENTS", petitioners,
vs.
COURT OF APPEALS and ROMAN SIO, doing business under the name
"UNIVERSAL TOY MASTER MANUFACTURING", respondents.
PUNO, J.:
Though people say, "better late than never", the law frowns upon those who
assert their rights past the eleventh hour. For failing to timely institute their
action, the petitioners are forever barred from claiming a sum of money from
the respondent.
This is a petition for review on certiorari to annul and set aside the amended
decision of the respondent court dated January 24, 1994 reversing its April
30, 1993 decision and dismissing the plaintiff-petitioners' Complaint on the
ground of prescription.The following undisputed facts gave rise to the case at
bar:
Petitioners spouses Dino, doing business under the trade name "Candy Claire
Fashion Garment" are engaged in the business of manufacturing and selling
shirts.1 Respondent Sio is part owner and general manager of a
manufacturing corporation doing business under the trade name "Universal
Toy Master Manufacturing."2
Petitioners and respondent Sio entered into a contract whereby the latter
would manufacture for the petitioners 20,000 pieces of vinyl frogs and
20,000 pieces of vinyl mooseheads at P7.00 per piece in accordance with the
sample approved by the petitioners. These frogs and mooseheads were to be
attached to the shirts petitioners would manufacture and sell.3
Respondent Sio delivered in several installments the 40,000 pieces of frogs
and mooseheads. The last delivery was made on September 28, 1988.
Petitioner fully paid the agreed price.4 Subsequently, petitioners returned to
respondent 29,772 pieces of frogs and mooseheads for failing to comply with
the approved sample.5 The return was made on different dates: the initial
one on December 12, 1988 consisting of 1,720 pieces,6 the second on January
11, 1989,7 and the last on January 17, 1989.8
Petitioners then demanded from the respondent a refund of the purchase
price of the returned goods in the amount of P208,404.00. As respondent Sio
refused to pay,9 petitioners filed on July 24, 1989 an action for collection of a
sum of money in the Regional Trial Court of Manila, Branch 38.
The trial court ruled in favor of the petitioners, viz:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs Vicente
and Inocencia Dino and against defendant Toy Master Manufacturing, Inc.
ordering the latter to pay the former:
1. The amount of Two Hundred Eight Thousand Four Hundred Four
(P208,404.00) Pesos with legal interest thereon from July 5, 1989, until fully
paid; and
2. The amount of Twenty Thousand (P20,000.00) Pesos as attorney's fees and
the costs of this suit.
The counterclaim on the other hand is hereby dismissed for lack of merit."10
Respondent Sio sought recourse in the Court of Appeals. In its April 30, 1993
decision, the appellate court affirmed the trial court decision. Respondent
then filed a Motion for Reconsideration and a Supplemental Motion for
Reconsideration alleging therein that the petitioners' action for collection of
sum of money based on a breach of warranty had already prescribed. On
January 24, 1994, the respondent court reversed its decision and dismissed
petitioners' Complaint for having been filed beyond the prescriptive period.
The amended decision read in part, viz:
"Even if there is failure to raise the affirmative defense of prescription in a
motion to dismiss or in an appropriate pleading (answer, amended or
supplemental answer) and an amendment would no longer be feasible, still
prescription, if apparent on the face of the complaint may be favorably
considered (Spouses Matias B. Aznar, III, et al. vs. Hon. Juanito A. Bernad,
etc., supra, G.R. 81190, May 9, 1988). The rule in Gicano vs. Gegato (supra)
was reiterated in Severo v. Court of Appeals, (G.R. No. 84051, May 19, 1989).
WHEREFORE the Motion For Reconsideration is granted. The judgment of
this Court is set aside and judgment is hereby rendered REVERSING the
judgment of the trial court and dismissing plaintiff's complaint."11
Hence, this petition with the following assignment of errors:
I.
The respondent Court of Appeals seriously erred in dismissing the complaint
of the Petitioners on the ground that the action had prescribed.
II.
The respondent Court of Appeals seriously erred in holding that the defense
of prescription would still be considered despite the fact that it was not
raised in the answer, if apparent on the face of the complaint.
We first determine the nature of the action filed in the trial court to resolve
the issue of prescription. Petitioners claim that the Complaint they filed in
the trial court on July 24, 1989 was one for the collection of a sum of money.
Respondent contends that it was an action for breach of warranty as the sum
of money petitioners sought to collect was actually a refund of the purchase
price they paid for the alleged defective goods they bought from the
respondent.
We uphold the respondent's contention.
The following provisions of the New Civil Code are apropos:
"Art. 1467. A contract for the delivery at a certain price of an article which
the vendor in the ordinary course of his business manufactures or procures
for the general market, whether the same is on hand at the time or not, is a
contract of sale, but if the goods are to be manufactured specially for the
customer and upon his special order, and not for the general market, it is a
contract for a piece of work."
"Art. 1713. By the contract for a piece of work the contractor binds himself to
execute a piece of work for the employer, in consideration of a certain price
or compensation. The contractor may either employ only his labor or skill, or
also furnish the material."
As this Court ruled in Engineering & Machinery Corporation v. Court of
Appeals, et al.,12 "a contract for a piece of work, labor and materials may be
distinguished from a contract of sale by the inquiry as to whether the thing
transferred is one not in existence and which would never have existed but
for the order of the person desiring it. In such case, the contract is one for a
piece of work, not a sale. On the other hand, if the thing subject of the
contract would have existed and been the subject of a sale to some other
person even if the order had not been given then the contract is one of
sale."13 The contract between the petitioners and respondent stipulated that
respondent would manufacture upon order of the petitioners 20,000 pieces
of vinyl frogs and 20,000 pieces of vinyl mooseheads according to the
samples specified and approved by the petitioners. Respondent Sio did not
ordinarily manufacture these products, but only upon order of the
petitioners and at the price agreed upon.14 Clearly, the contract executed by
and between the petitioners and the respondent was a contract for a piece
of work. At any rate, whether the agreement between the parties was one of
a contract of sale or a piece of work, the provisions on warranty of title
against hidden defects in a contract of sale apply to the case at bar, viz:
"Art. 1714. If the contractor agrees to produce the work from material
furnished by him, he shall deliver the thing produced to the employer and
transfer dominion over the thing. This contract shall be governed by the
following articles as well as by the pertinent provisions on warranty of title
and against hidden defects and the payment of price in a contract of sale."
"Art. 1561. The vendor shall be responsible for warranty against the hidden
defects which the thing sold may have, should they render it unfit for the use
for which it is intended, or should they diminish its fitness for such use to
such an extent that, had the vendee been aware thereof, he would not have
acquired it or would have given a lower price for it; but said vendor shall not
be answerable for patent defects or those which may be visible, or for those
which are not visible if the vendee is an expert who, by reason of his trade or
profession, should have known them."
Petitioners aver that they discovered the defects in respondent's products
when customers in their (petitioners') shirt business came back to them
complaining that the frog and moosehead figures attached to the shirts they
bought were torn. Petitioners allege that they did not readily see these
hidden defects upon their acceptance. A hidden defect is one which is
unknown or could not have been known to the vendee.15 Petitioners then
returned to the respondent 29,772 defective pieces of vinyl products and
demanded a refund of their purchase price in the amount of P208,404.00.
Having failed to collect this amount, they filed an action for collection of a
sum of money.
Article 1567 provides for the remedies available to the vendee in case of
hidden defects, viz:
"Art. 1567. In the cases of Articles 1561, 1562, 1564, 1565 and 1566, the
vendee may elect between withdrawing from the contract and demanding a
proportionate reduction of the price, with damages in either case."
By returning the 29,772 pieces of vinyl products to respondent and asking for
a return of their purchase price, petitioners were in effect "withdrawing from
the contract" as provided in Art. 1567. The prescriptive period for this kind of
action is provided in Art. 1571 of the New Civil Code, viz:
"Art. 1571. Actions arising from the provisions of the preceding ten articles
shall be barred after six months from the delivery of the thing sold."
(Emphasis supplied)
There is no dispute that respondent made the last delivery of the vinyl
products to petitioners on September 28, 1988. It is also settled that the
action to recover the purchase price of the goods petitioners returned to the
respondent was filed on July 24, 1989,16 more than nine months from the
date of last delivery. Petitioners having filed the action three months after
the six-month period for filing actions for breach of warranty against hidden
defects stated in Art. 1571,17 the appellate court dismissed the action.
Petitioners fault the ruling on the ground that it was too late in the day for
respondent to raise the defense of prescription. The law then applicable to
the case at bar, Rule 9, Sec. 2 of the Rules of Court, provides:
"Defenses and objections not pleaded either in a motion to dismiss or in the
answer are deemed waived; except the failure to state a cause of action . . . "
Thus, they claim that since the respondent failed to raise the defense of
prescription in a motion to dismiss or in its answer, it is deemed waived and
cannot be raised for the first time on appeal in a motion for reconsideration
of the appellate court's decision.
As a rule, the defense of prescription cannot be raised for the first time on
appeal. Thus, we held in Ramos v. Osorio,18 viz:
"It is settled law in this jurisdiction that the defense of prescription is
waivable, and that if it was not raised as a defense in the trial court, it cannot
be considered on appeal, the general rule being that the appellate court is
not authorized to consider and resolve any question not properly raised in
the lower court (Subido vs. Lacson, 55 O.G. 8281, 8285; Moran, Comments
on the Rules of Court, Vol. I, p. 784, 1947 Edition)."
However, this is not a hard and fast rule. In Gicano v. Gegato,19 we held:
". . .(T)rial courts have authority and discretion to dimiss an action on the
ground of prescription when the parties' pleadings or other facts on record
show it to be indeed time-barred; (Francisco v. Robles, Feb, 15, 1954; Sison v.
McQuaid, 50 O.G. 97; Bambao v. Lednicky, Jan. 28, 1961; Cordova v. Cordova,
Jan. 14, 1958; Convets, Inc. v. NDC, Feb. 28, 1958; 32 SCRA 529; Sinaon v.
Sorongan, 136 SCRA 408); and it may do so on the basis of a motion to
dismiss (Sec. 1,f, Rule 16, Rules of Court), or an answer which sets up such
ground as an affirmative defense (Sec. 5, Rule 16), or even if the ground is
alleged after judgment on the merits, as in a motion for
reconsideration (Ferrer v. Ericta, 84 SCRA 705); or even if the defense has not
been asserted at all, as where no statement thereof is found in the
pleadings (Garcia v. Mathis, 100 SCRA 250; PNB v. Pacific Commission House,
27 SCRA 766; Chua Lamco v. Dioso, et al., 97 Phil. 821); or where a defendant
has been declared in default (PNB v. Perez, 16 SCRA 270). What is essential
only, to repeat, is that the facts demonstrating the lapse of the prescriptive
period be otherwise sufficiently and satisfactorily apparent on the record;
either in the averments of the plaintiff's complaint, or otherwise established
by the evidence." (emphasis supplied)
In Aldovino, et al. v. Alunan, et al.,20 the Court en banc reiterated the Garcia
v. Mathis doctrine cited in the Gicano case that when the plaintiff's own
complaint shows clearly that the action has prescribed, the action may be
dismissed even if the defense of prescription was not invoked by the
defendant.
It is apparent in the records that respondent made the last delivery of vinyl
products to the petitioners on September 28, 1988. Petitioners admit this in
their Memorandum submitted to the trial court and reiterate it in their
Petition for Review.21 It is also apparent in the Complaint that petitioners
instituted their action on July 24, 1989. The issue for resolution is whether or
not the respondent Court of Appeals could dismiss the petitioners' action if
the defense of prescription was raised for the first time on appeal but is
apparent in the records.
Following the Gicano doctrine that allows dismissal of an action on the
ground of prescription even after judgment on the merits, or even if the
defense was not raised at all so long as the relevant dates are clear on the
record, we rule that the action filed by the petitioners has prescribed. The
dates of delivery and institution of the action are undisputed. There are no
new issues of fact arising in connection with the question of prescription,
thus carving out the case at bar as an exception from the general rule that
prescription if not impleaded in the answer is deemed waived.22
Even if the defense of prescription was raised for the first time on appeal in
respondent's Supplemental Motion for Reconsideration of the appellate
court's decision, this does not militate against the due process right of the
petitioners. On appeal, there was no new issue of fact that arose in
connection with the question of prescription, thus it cannot be said that
petitioners were not given the opportunity to present evidence in the trial
court to meet a factual issue. Equally important, petitioners had the
opportunity to oppose the defense of prescription in their Opposition to the
Supplemental Motion for Reconsideration filed in the appellate court and in
their Petition for Review in this Court.
This Court's application of the Osorio and Gicano doctrines to the case at bar
is confirmed and now enshrined in Rule 9, Sec. 1 of the 1997 Rules of Civil
Procedure, viz:
"Section 1. Defense and objections not pleaded. - Defenses and objections
not pleaded whether in a motion to dismiss or in the answer are deemed
waived. However, when it appears from the pleadings that the court has no
jurisdiction over the subject matter, that there is another action pending
between the same parties for the same cause, or that the action is barred by
a prior judgment or by statute of limitations, the court shall dismiss the
claim." (Emphasis supplied)
WHEREFORE, the petition is DENIED and the impugned decision of the Court
of Appeals dated January 24, 1994 is AFFIRMED. No costs.
SO ORDERED.
G.R. No. 115349 April 18, 1997
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
THE COURT OF APPEALS, THE COURT OF TAX APPEALS and ATENEO DE
MANILA UNIVERSITY, respondents.
PANGANIBAN, J.:
In conducting researches and studies of social organizations and cultural
values thru its Institute of Philippine Culture, is the Ateneo de Manila
University performing the work of an independent contractor and thus
taxable within the purview of then Section 205 of the National Internal
Revenue Code levying a three percent contractor's tax? This question is
answer by the Court in the negative as it resolves this petition assailing the
Decision 1 of the Respondent Court of Appeals 2 in CA-G.R. SP No. 31790
promulgated on April 27, 1994 affirming that of the Court of Tax Appeals. 3
The Antecedent Facts
The antecedents as found by the Court of Appeals are reproduced
hereinbelow, the same being largely undisputed by the parties.
Private respondent is a non-stock, non-profit educational institution with
auxiliary units and branches all over the Philippines. One such auxiliary unit is
the Institute of Philippine Culture (IPC), which has no legal personality
separate and distinct from that of private respondent. The IPC is a Philippine
unit engaged in social science studies of Philippine society and culture.
Occasionally, it accepts sponsorships for its research activities from
international organizations, private foundations and government agencies.
On July 8, 1983, private respondent received from petitioner Commissioner
of Internal Revenue a demand letter dated June 3, 1983, assessing private
respondent the sum of P174,043.97 for alleged deficiency contractor's tax,
and an assessment dated June 27, 1983 in the sum of P1,141,837 for alleged
deficiency income tax, both for the fiscal year ended March 31, 1978.
Denying said tax liabilities, private respondent sent petitioner a letter-protest
and subsequently filed with the latter a memorandum contesting the validity
of the assessments.
On March 17, 1988, petitioner rendered a letter-decision canceling the
assessment for deficiency income tax but modifying the assessment for
deficiency contractor's tax by increasing the amount due to P193,475.55.
Unsatisfied, private respondent requested for a reconsideration or
reinvestigation of the modified assessment. At the same time, it filed in the
respondent court a petition for review of the said letter-decision of the
petitioner. While the petition was pending before the respondent court,
petitioner issued a final decision dated August 3, 1988 reducing the
assessment for deficiency contractor's tax from P193,475.55 to P46,516.41,
exclusive of surcharge and interest.
On July 12, 1993, the respondent court rendered the questioned decision
which dispositively reads:
WHEREFORE, in view of the foregoing, respondent's decision is SET ASIDE.
The deficiency contractor's tax assessment in the amount of P46,516.41
exclusive of surcharge and interest for the fiscal year ended March 31, 1978
is hereby CANCELED. No pronouncement as to cost.
SO ORDERED.
Not in accord with said decision, petitioner has come to this Court via the
present petition for review raising the following issues:
1) WHETHER OR NOT PRIVATE RESPONDENT FALLS UNDER THE PURVIEW OF
INDEPENDENT CONTRACTOR PURSUANT TO SECTION 205 OF THE TAX CODE;
and
2) WHETHER OR NOT PRIVATE RESPONDENT IS SUBJECT TO 3%
CONTRACTOR'S TAX UNDER SECTION 205 OF THE TAX CODE.
The pertinent portions of Section 205 of the National Internal Revenue Code,
as amended, provide:
Sec. 205. Contractor, proprietors or operators of dockyards, and others. — A
contractor's tax of three per centum of the gross receipts is hereby imposed
on the following:
x x x           x x x          x x x
(16) Business agents and other independent contractors except persons,
associations and corporations under contract for embroidery and apparel for
export, as well as their agents and contractors and except gross receipts of or
from a pioneer industry registered with the Board of Investments under
Republic Act No. 5186:
x x x           x x x          x x x
The term "independent contractors" include persons (juridical or natural) not
enumerated above (but not including individuals subject to the occupation
tax under Section 12 of the Local Tax Code) whose activity consists essentially
of the sale of all kinds of services for a fee regardless of whether or not the
performance of the service calls for the exercise or use of the physical or
mental faculties of such contractors or their employees.
xxx xxx xxx
Petitioner contends that the respondent court erred in holding that private
respondent is not an "independent contractor" within the purview of Section
205 of the Tax Code. To petitioner, the term "independent contractor", as
defined by the Code, encompasses all kinds of services rendered for a fee
and that the only exceptions are the following:
a. Persons, association and corporations under contract for embroidery and
apparel for export and gross receipts of or from pioneer industry registered
with the Board of Investment under R.A. No. 5186;
b. Individuals occupation tax under Section 12 of the Local Tax Code (under
the old Section 182 [b] of the Tax Code); and
c. Regional or area headquarters established in the Philippines by
multinational corporations, including their alien executives, and which
headquarters do not earn or derive income from the Philippines and which
act as supervisory, communication and coordinating centers for their
affiliates, subsidiaries or branches in the Asia Pacific Region (Section 205 of
the Tax Code).
Petitioner thus submits that since private respondent falls under the
definition of an "independent contractor" and is not among the
aforementioned exceptions, private respondent is therefore subject to the
3% contractor's tax imposed under the same Code. 4
The Court of Appeals disagreed with the Petitioner Commissioner of Internal
Revenue and affirmed the assailed decision of the Court of Tax Appeals.
Unfazed, petitioner now asks us to reverse the CA through this petition for
review.
The Issues
Petitioner submits before us the following issues:
1) Whether or not private respondent falls under the purview of independent
contractor pursuant to Section 205 of the Tax Code.
2) Whether or not private respondent is subject to 3% contractor's tax under
Section 205 of the Tax Code. 5
In fine, these may be reduced to a single issue: Is Ateneo de Manila
University, through its auxiliary unit or branch — the Institute of Philippine
Culture — performing the work of an independent contractor and, thus,
subject to the three percent contractor's tax levied by then Section 205 of
the National Internal Revenue Code?
The Court's Ruling
The petition is unmeritorious.
Interpretation of Tax Laws
The parts of then Section 205 of the National Internal Revenue Code
germane to the case before us read:
Sec. 205. Contractors, proprietors or operators of dockyards, and others. — A
contractor's tax of three per centum of the gross receipts is hereby imposed
on the following:
xxx xxx xxx
(16) Business agents and other independent contractors, except persons,
associations and corporations under contract for embroidery and apparel for
export, as well as their agents and contractors, and except gross receipts of
or from a pioneer industry registered with the Board of Investments under
the provisions of Republic Act No. 5186;
xxx xxx xxx
The term "independent contractors" include persons (juridical or natural) not
enumerated above (but not including individuals subject to the occupation
tax under Section 12 of the Local Tax Code) whose activity consists essentially
of the sale of all kinds of services for a fee regardless of whether or not the
performance of the service calls for the exercise or use of the physical or
mental faculties of such contractors or their employees.
The term "independent contractor" shall not include regional or area
headquarters established in the Philippines by multinational corporations,
including their alien executives, and which headquarters do not earn or
derive income from the Philippines and which act as supervisory,
communications and coordinating centers for their affiliates, subsidiaries or
branches in the Asia-Pacific Region.
The term "gross receipts" means all amounts received by the prime or
principal contractor as the total contract price, undiminished by amount paid
to the subcontractor, shall be excluded from the taxable gross receipts of the
subcontractor.
Petitioner Commissioner of Internal Revenue contends that Private
Respondent Ateneo de Manila University "falls within the definition" of an
independent contractor and "is not one of those mentioned as excepted";
hence, it is properly a subject of the three percent contractor's tax levied by
the foregoing provision of law. 6 Petitioner states that the "term
'independent contractor' is not specifically defined so as to delimit the scope
thereof, so much so that any person who . . . renders physical and mental
service for a fee, is now indubitably considered an independent contractor
liable to 3% contractor's tax." 7 According to petitioner, Ateneo has the
burden of proof to show its exemption from the coverage of the law.
We disagree. Petitioner Commissioner of Internal Revenue erred in applying
the principles of tax exemption without first applying the well-settled
doctrine of strict interpretation in the imposition of taxes. It is obviously both
illogical and impractical to determine who are exempted without first
determining who are covered by the aforesaid provision. The Commissioner
should have determined first if private respondent was covered by Section
205, applying the rule of strict interpretation of laws imposing taxes and
other burdens on the populace, before asking Ateneo to prove its exemption
therefrom. The Court takes this occasion to reiterate the hornbook doctrine
in the interpretation of tax laws that "(a) statute will not be construed as
imposing a tax unless it does so clearly, expressly, and unambiguously . . . (A)
tax cannot be imposed without clear and express words for that purpose.
Accordingly, the general rule of requiring adherence to the letter in
construing statutes applies with peculiar strictness to tax laws and the
provisions of a taxing act are not to be extended by
implication." 8 Parenthetically, in answering the question of who is subject to
tax statutes, it is basic that "in case of doubt, such statutes are to be
construed most strongly against the government and in favor of the subjects
or citizens because burdens are not to be imposed nor presumed to be
imposed beyond what statutes expressly and clearly import." 9
To fall under its coverage, Section 205 of the National Internal Revenue Code
requires that the independent contractor be engaged in the business of
selling its services. Hence, to impose the three percent contractor's tax on
Ateneo's Institute of Philippine Culture, it should be sufficiently proven that
the private respondent is indeed selling its services for a fee in pursuit of an
independent business. And it is only after private respondent has been found
clearly to be subject to the provisions of Sec. 205 that the question of
exemption therefrom would arise. Only after such coverage is shown does
the rule of construction — that tax exemptions are to be strictly construed
against the taxpayer — come into play, contrary to petitioner's position. This
is the main line of reasoning of the Court of Tax Appeals in its
decision, 10 which was affirmed by the CA.
The Ateneo de Manila University Did Not Contract
for the Sale of the Service of its Institute of Philippine Culture
After reviewing the records of this case, we find no evidence that Ateneo's
Institute of Philippine Culture ever sold its services for a fee to anyone or was
ever engaged in a business apart from and independently of the academic
purposes of the university.
Stressing that "it is not the Ateneo de Manila University per se which is being
taxed," Petitioner Commissioner of Internal Revenue contends that "the tax
is due on its activity of conducting researches for a fee. The tax is due on the
gross receipts made in favor of IPC pursuant to the contracts the latter
entered to conduct researches for the benefit primarily of its clients. The tax is
imposed on the exercise of a taxable activity. . . . [T]he sale of services of
private respondent is made under a contract and the various contracts
entered into between private respondent and its clients are almost of the
same terms, showing, among others, the compensation and terms of
payment." 11 (Emphasis supplied.)
In theory, the Commissioner of Internal Revenue may be correct. However,
the records do not show that Ateneo's IPC in fact contracted to sell its
research services for a fee. Clearly then, as found by the Court of Appeals and
the Court of Tax Appeals, petitioner's theory is inapplicable to the
established factual milieu obtaining in the instant case.
In the first place, the petitioner has presented no evidence to prove its bare
contention that, indeed, contracts for sale of services were ever entered into
by the private respondent. As appropriately pointed out by the latter:
An examination of the Commissioner's Written Formal Offer of Evidence in
the Court of Tax Appeals shows that only the following documentary
evidence was presented:
Exhibit 1 BIR letter of authority no. 331844
2 Examiner's Field Audit Report
3 Adjustments to Sales/Receipts
4 Letter-decision of BIR Commissioner Bienvenido A. Tan Jr.
None of the foregoing evidence even comes close to purport to be contracts
between private respondent and third parties. 12
Moreover, the Court of Tax Appeals accurately and correctly declared that
the " funds received by the Ateneo de Manila University are technically not a
fee. They may however fall as gifts or donations which are tax-exempt" as
shown by private respondent's compliance with the requirement of Section
123 of the National Internal Revenue Code providing for the exemption of
such gifts to an educational institution. 13
Respondent Court of Appeals elucidated on the ruling of the Court of Tax
Appeals:
To our mind, private respondent hardly fits into the definition of an
"independent contractor".
For one, the established facts show that IPC, as a unit of the private
respondent, is not engaged in business. Undisputedly, private respondent is
mandated by law to undertake research activities to maintain its university
status. In fact, the research activities being carried out by the IPC is focused
not on business or profit but on social sciences studies of Philippine society
and culture. Since it can only finance a limited number of IPC's research
projects, private respondent occasionally accepts sponsorship for unfunded
IPC research projects from international organizations, private foundations
and governmental agencies. However, such sponsorships are subject to
private respondent's terms and conditions, among which are, that the
research is confined to topics consistent with the private respondent's
academic agenda; that no proprietary or commercial purpose research is
done; and that private respondent retains not only the absolute right to
publish but also the ownership of the results of the research conducted by the
IPC. Quite clearly, the aforementioned terms and conditions belie the
allegation that private respondent is a contractor or is engaged in business.
For another, it bears stressing that private respondent is a non-stock, non-
profit educational corporation. The fact that it accepted sponsorship for IPC's
unfunded projects is merely incidental. For, the main function of the IPC is to
undertake research projects under the academic agenda of the private
respondent. Moreover the records do not show that in accepting
sponsorship of research work, IPC realized profits from such work. On the
contrary, the evidence shows that for about 30 years, IPC had continuously
operated at a loss, which means that sponsored funds are less than actual
expenses for its research projects. That IPC has been operating at a loss
loudly bespeaks of the fact that education and not profit is the motive for
undertaking the research projects.
Then, too, granting arguendo that IPC made profits from the sponsored
research projects, the fact still remains that there is no proof that part of
such earnings or profits was ever distributed as dividends to any stockholder,
as in fact none was so distributed because they accrued to the benefit of the
private respondent which is a non-profit educational institution. 14
Therefore, it is clear that the funds received by Ateneo's Institute of
Philippine Culture are not given in the concept of a fee or price in exchange
for the performance of a service or delivery of an object. Rather, the
amounts are in the nature of an endowment or donation given by IPC's
benefactors solely for the purpose of sponsoring or funding the
research with no strings attached. As found by the two courts below, such
sponsorships are subject to IPC's terms and conditions. No proprietary or
commercial research is done, and IPC retains the ownership of the results of
the research, including the absolute right to publish the same. The copyrights
over the results of the research are owned by
Ateneo and, consequently, no portion thereof may be reproduced without its
permission. 15 The amounts given to IPC, therefore, may not be deemed, it
bears stressing as fees or gross receipts that can be subjected to the three
percent contractor's tax.
It is also well to stress that the questioned transactions of Ateneo's Institute
of Philippine Culture cannot be deemed either as a contract of sale or a
contract of a piece of work. "By the contract of sale, one of the contracting
parties obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in money or
its equivalent." 16 By its very nature, a contract of sale requires a transfer of
ownership. Thus, Article 1458 of the Civil Code "expressly makes the
obligation to transfer ownership as an essential element of the contract of
sale, following modern codes, such as the German and the Swiss. Even in the
absence of this express requirement, however, most writers, including
Sanchez Roman, Gayoso, Valverde, Ruggiero, Colin and Capitant, have
considered such transfer of ownership as the primary purpose of sale. Perez
and Alguer follow the same view, stating that the delivery of the thing does
not mean a mere physical transfer, but is a means of transmitting ownership.
Transfer of title or an agreement to transfer it for a price paid or promised to
be paid is the essence of sale." 17 In the case of a contract for a piece of work,
"the contractor binds himself to execute a piece of work for the employer, in
consideration of a certain price or compensation. . . . If the contractor agrees
to produce the work from materials furnished by him, he shall deliver the
thing produced to the employer and transfer dominion over the
thing, . . ." 18 Ineludably, whether the contract be one of sale or one for a
piece of work, a transfer of ownership is involved and a party necessarily
walks away with an object. 19 In the case at bench, it is clear from the
evidence on record that there was no sale either of objects or services
because, as adverted to earlier, there was no transfer of ownership over the
research data obtained or the results of research projects undertaken by the
Institute of Philippine Culture.
Furthermore, it is clear that the research activity of the Institute of Philippine
Culture is done in pursuance of maintaining Ateneo's university status and
not in the course of an independent business of selling such research with
profit in mind. This is clear from a reading of the regulations governing
universities:
31. In addition to the legal requisites an institution must meet, among
others, the following requirements before an application for university status
shall be considered:
xxx xxx xxx
(e) The institution must undertake research and operate with a competent
qualified staff at least three graduate departments in accordance with the
rules and standards for graduate education. One of the departments shall be
science and technology. The competence of the staff shall be judged by their
effective teaching, scholarly publications and research activities published in
its school journal as well as their leadership activities in the profession.
(f) The institution must show evidence of adequate and stable financial
resources and support, a reasonable portion of which should be devoted to
institutional development and research. (emphasis supplied)
xxx xxx xxx
32. University status may be withdrawn, after due notice and hearing, for
failure to maintain satisfactorily the standards and requirements therefor. 20
Petitioner's contention that it is the Institute of Philippine Culture that is
being taxed and not the Ateneo is patently erroneous because the former is
not an independent juridical entity that is separate and distinct form the
latter.
Factual Findings and Conclusions of the Court of Tax Appeals Affirmed by the
Court of Appeals Generally Conclusive
In addition, we reiterate that the "Court of Tax Appeals is a highly specialized
body specifically created for the purpose of reviewing tax cases. Through its
expertise, it is undeniably competent to determine the issue of
whether" 21 Ateneo de Manila University may be deemed a subject of the
three percent contractor's tax "through the evidence presented before it."
Consequently, "as a matter of principle, this Court will not set aside the
conclusion reached by . . . the Court of Tax Appeals which is, by the very
nature of its function, dedicated exclusively to the study and consideration of
tax problems and has necessarily developed an expertise on the subject
unless there has been an abuse or improvident exercise of
authority . . ." 22 This point becomes more evident in the case before us
where the findings and conclusions of both the Court of Tax Appeals and the
Court of Appeals appear untainted by any abuse of authority, much
less grave abuse of discretion. Thus, we find the decision of the latter
affirming that of the former free from any palpable error.
Public Service, Not Profit, is the Motive
The records show that the Institute of Philippine Culture conducted its
research activities at a huge deficit of P1,624,014.00 as shown in its
statements of fund and disbursements for the period 1972 to 1985. 23 In fact,
it was Ateneo de Manila University itself that had funded the research
projects of the institute, and it was only when Ateneo could no longer
produce the needed funds that the institute sought funding from outside.
The testimony of Ateneo's Director for Accounting Services, Ms. Leonor
Wijangco, provides significant insight on the academic and nonprofit nature
of the institute's research activities done in furtherance of the university's
purposes, as follows:

Q Now it was testified to earlier by Miss Thelma Padero (Office Manager of

the Institute of Philippine Culture) that as far as grants from sponsored
research it is possible that the grant sometimes is less than the actual cost.
Will you please tell us in this case when the actual cost is a lot less than the
grant who shoulders the additional cost?

A The University.

Q Now, why is this done by the University?

A Because of our faculty development program as a university, because a

university has to have its own research institute. 24

So, why is it that Ateneo continues to operate and conduct researches

through its Institute of Philippine Culture when it undisputedly loses not an
insignificant amount in the process? The plain and simple answer is that
private respondent is not a contractor selling its services for a fee but an
academic institution conducting these researches pursuant to its
commitments to education and, ultimately, to public service. For the institute
to have tenaciously continued operating for so long despite its accumulation
of significant losses, we can only agree with both the Court of Tax Appeals
and the Court of Appeals that "education and not profit is [IPC's] motive for
undertaking the research
projects." 25

WHEREFORE, premises considered, the petition is DENIED and the assailed

Decision of the Court of Appeals is hereby AFFIRMED in full.

SO ORDERED.