G.R. No.
122544 January 28, 1999
REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D.
BLAZA, ESTER ABAD DIZON and JOSEPH ANTHONY DIZON,
RAYMUND A. DIZON, GERARD A. DIZON, and JOSE A. DIZON,
JR., petitioners,
vs.
COURT OF APPEALS and OVERLAND EXPRESS LINES,
INC., respondents.
G.R. No. 124741 January 28, 1999
REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D.
BALZA, ESTER ABAD DIZON and JOSEPH ANTHONY DIZON,
RAYMUND A. DIZON, GERARD A. DIZON, and Jose A. DIZON,
JR., petitioners,
vs.
COURT OF APPEALS, HON. MAXIMIANO C. ASUNCION, and
OVERLAND EXPRESS LINES, INC., respondents.
MARTINEZ, J.:
Two consolidated petitions were filed before us seeking to set aside
and annul the decisions and resolutions of respondent Court of
Appeals. What seemed to be a simple ejectment suit was juxtaposed
with procedural intricacies which finally found its way to this Court.
G.R. No. 122544:
On May 23, 1974, private respondent Overland Express Lines, Inc.
(lessee) entered into a Contract of Lease with Option to Buy with
petitioners1 (lessors) involving a 1,755.80 square meter parcel of land
situated at corner MacArthur Highway and South "H" Street, Diliman,
Quezon City. The term of the lease was for one (1) year commencing
from May 16, 1974 up to May 15, 1975. During this period, private
respondent was granted an option to purchase for the amount of
P3,000.00 per square meter. Thereafter, the lease shall be on a per
month basis with a monthly rental of P3,000.00.
For failure of private respondent to pay the increased rental of
P8,000.00 per month effective June 1976, petitioners filed an action for
ejectment (Civil Case No. VIII-29155) on November 10, 1976 before
the then City Court (now Metropolitan Trial Court) of Quezon City,
Branch VIII. On November 22, 1982, the City Court rendered
judgment 2 ordering private respondent to vacate the leased premises
and to pay the sum of P624,000.00 representing rentals in arrears
and/or as damages in the form of reasonable compensation for the use
and occupation of the premises during the period of illegal detainer
from June 1976 to November 1982 at the monthly rental of P8,000.00,
less payments made, plus 12% interest per annum from November 18,
1976, the date of filing of the complaint, until fully paid, the sum of
P8,000.00 a month starting December 1982, until private respondent
fully vacates the premises, and to pay P20,000.00 as and by way of
attorney's fees.
Private respondent filed a certiorari petition praying for the issuance of
a restraining order enjoining the enforcement of said judgment and
dismissal of the case for lack of jurisdiction of the City Court.
On September 26, 1984, the then Intermidiate Appellate Court 3 (now
Court of Appeals) rendered a decision 4 stating that:
. . ., the alleged question of whether petitioner was
granted an extension of the option to buy the
property; whether such option, if any, extended the
lease or whether petitioner actually paid the
alleged P300,000.00 to Fidela Dizon, as
representative of private respondents in
consideration of the option and, whether petitioner
1
thereafter offered to pay the balance of the
supposed purchase price, are all merely incidental
and do not remove the unlawful detainer case from
the jurisdiction or respondent court. In consonance
with the ruling in the case of Teodoro, Jr. vs.
Mirasol (supra), the above matters may be raised
and decided in the unlawful detainer suit as, to rule
otherwise, would be a violation of the principle
prohibiting multiplicity of suits. (Original Records,
pp. 38-39).
The motion for reconsideration was denied. On review, this Court
dismissed the petition in a resolution dated June 19, 1985 and likewise
denied private respondent's subsequent motion for reconsideration in a
resolution dated September 9, 1985. 5
On October 7, 1985, private respondent filed before the Regional Trial
Court (RTC) of Quezon City (Civil Case No. Q-45541) an action for
Specific Performance and Fixing of Period for Obligation with prayer for
the issuance of a restraining order pending hearing on the prayer for a
writ of preliminary injunction. It sought to compel the execution of a
deed of sale pursuant to the option to purchase and the receipt of the
partial payment, and to fix the period to pay the balance. In an Order
dated October 25, 1985, the trial court denied the issuance of a writ of
preliminary injunction on the ground that the decision of the then City
Court for the ejectment of the private respondent, having been affirmed
by the then Intermediate Appellate Court and the Supreme Court, has
become final and executory.
Unable to secure an injunction, private respondent also filed before the
RTC of Quezon City, Branch 102 (Civil Case No. Q-46487) on
November 15, 1985 a complaint for Annulment of and Relief from
Judgment with injunction and damages. In its decision 6 dated May 12,
1986, the trial court dismissed the complaint for annulment on the
ground of res judicata, and the writ of preliminary injunction previously
issued was dissolved. It also ordered private respondent to pay
P3,000.00 as attorney's fees. As a consequence of private
respondent's motion for reconsideration, the preliminary injunction was
reinstated, thereby restraining the execution of the City Court's
judgment on the ejectment case.
The two cases were the after consolidated before the RTC of Quezon
City, Branch 77. On April 28, 1989, a decision 7 was rendered
dismissing private respondent's complaint in Civil Case No. Q-45541
(specific performance case) and denying its motion for reconsideration
in Civil Case No. 46487 (annulment of the ejectment case). The motion
for reconsideration of said decision was likewise denied.
On appeal, 8 respondent Court of Appeals rendered a
decision 9 upholding the jurisdiction of the City Court of Quezon City in
the ejectment case. It also concluded that there was a perfected
contract of sale between the parties on the leased premises and that
pursuant to the option to buy agreement, private respondent had
acquired the rights of a vendee in a contract of sale. It opined that the
payment by private respondent of P300,000.00 on June 20, 1975 as
partial payment for the leased property, which petitioners accepted
(through Alice A. Dizon) and for which an official receipt was issued,
was the operative act that gave rise to a perfected contract of sale, and
that for failure of petitioners to deny receipt thereof, private respondent
can therefore assume that Alice A. Dizon, acting as agent of
petitioners, was authorized by them to receive the money in their
behalf. The Court of Appeals went further by stating that in fact, what
was entered into was a "conditional contract of sale" wherein
ownership over the leased property shall not pass to the private
respondent until it has fully paid the purchase price. Since private
respondent did not consign to the court the balance of the purchase
price and continued to occupy the subject premises, it had the
obligation to pay the amount of P1,700.00 in monthly rentals until full
payment of the purchase price. The dispositive portion of said decision
reads:
WHEREFORE, the appealed decision in Case No.
46387 is AFFIRMED. The appealed decision in
Case No. 45541 is, on the other hand, ANNULLED
 and SET ASIDE. The defendants-appellees are
ordered to execute the deed of absolute sale of
the property in question, free from any lien or
encumbrance whatsoever, in favor of the plaintiff-
appellant, and to deliver to the latter the said deed
of sale, as well as the owner's duplicate of the
certificate of title to said property upon payment of
the balance of the purchase price by the plaintiff-
appellant. The plaintiff-appellant is ordered to pay
P1,700.00 per month from June 1976, plus 6%
interest per annum, until payment of the balance of
the purchase price, as previously agreed upon by
the parties.
SO ORDERED.
Upon denial of the motion for partil reconsideration (Civil Case No. Q-
45541) by respondent Court of Appeals, 10 petitioners elevated the
case via petition for certiorari questioning the authority of Alice A.
Dizon as agent of petitioners in receiving private respondent's partial
payment amounting to P300,000.00 pursuant to the Contract of Lease
with Option to Buy. Petitioner also assail the propriety of private
respondent's exercise of the option when it tendered the said amount
on June 20, 1975 which purportedly resulted in a perfected contract of
sale.
G.R. No. 124741:
Petitioners filed with respondent Court of Appeals a motion to remand
the records of Civil Case No. 38-29155 (ejectment case) to the
Metropolitan Trial Court (MTC), then City Court of Quezon City, Branch
38, for execution of the judgment 11 dated November 22, 1982 which
was granted in a resolution dated June 29, 1992. Private respondent
filed a motion to reconsider said resolution which was denied.
Aggrieved, private respondent filed a petition for certiorari, prohibition
with preliminary injunction and/or restraining order with this Court (G.R.
Nos. 106750-51) which was dismissed in a resolution dated September
16, 1992 on the ground that the same was a refiled case previously
dismissed for lack of merit. On November 26, 1992, entry of judgment
was issued by this Court.
On July 14, 1993, petitioners filed an urgent ex-parte motion for
execution of the decision in Civil Case No. 38-29155 with the MTC of
Quezon City, Branch 38. On September 13, 1993, the trial court
ordered the issuance of a third alias writ of execution. In denying
private respondent's motion for reconsideration, it ordered the
immediate implementation of the third writ of execution without delay.
On December 22, 1993, private respondent filed with the Regional Trial
Court (RTC) of Quezon City, Branch 104 a petition for certiorari and
prohibition with preliminary injunction/restraining order (SP. PROC. No.
93-18722) challenging the enforceability and validity of the MTC
judgment as well as the order for its execution.
On January 11, 1994, RTC of Quezon City, Branch 104 issued an
order12 granting the issuance of a writ of preliminary injunction upon
private respondent's' posting of an injunction bond of P50,000.00.
Assailing the aforequoted order after denial of their motion for partial
reconsideration, petitioners filed a petition 13 for certiorari and
prohibition with a prayer for a temporary restraining order and/or
preliminary injunction with the Court of Appeals. In its decision, 14 the
Court of Appeals dismissed the petition and ruled that:
The avowed purpose of this petition is to enjoin the
public respondent from restraining the ejectment of
the private respondent. To grant the petition would
be to allow the ejectment of the private
respondent. We cannot do that now in view of the
decision of this Court in CA-G.R. CV Nos. 25153-
54. Petitioners' alleged right to eject private
2
respondent has been demonstrated to be without
basis in the said civil case. The petitioners have
been shown, after all, to have no right to eject
private respondents.
WHEREFORE, the petition is DENIED due course
and is accordingly DISMISSED.
SO ORDERED. 15
Petitioners' motion for reconsideration was denied in a resolution 16 by
the Court of Appeals stating that:
This court in its decision in CA-G.R. CV Nos.
25153-54 declared that the plaintiff-appellant
(private respondent herein) acquired the rights of a
vendee in a contract of sale, in effect, recognizing
the right of the private respondent to possess the
subject premises. Considering said decision, we
should not allow ejectment; to do so would disturb
the status quo of the parties since the petitioners
are not in possession of the subject property. It
would be unfair and unjust to deprive the private
respondent of its possession of the subject
property after its rights have been established in a
subsequent ruling.
WHEREFORE, the motion for reconsideration is
DENIED for lack of merit.
SO ORDERED. 17
Hence, this instant petition.
We find both petitions impressed with merit.
First. Petitioners have established a right to evict private respondent
from the subject premises for non-payment of rentals. The term of the
Contract of Lease with Option to Buy was for a period of one (1) year
(May 16, 1974 to May 15, 1975) during which the private respondent
was given an option to purchase said property at P3,000.00 square
meter. After the expiration thereof, the lease was for P3,000.00 per
month.
Admittedly, no definite period beyond the one-year term of lease was
agreed upon by petitioners and private respondent. However, since the
rent was paid on a monthly basis, the period of lease is considered to
be from month to month in accordance with Article 1687 of the New
Civil Code.18 Where the rentals are paid monthly, the lease, even if
verbal may be deemed to be on a monthly basis, expiring at the end of
every month pursuant to Article 1687, in relation to Article 1673 of the
Civil Code. 19 In such case, a demand to vacate is not even necessary
for judicial action after the expiration of every month. 20
When private respondent failed to pay the increased rental of
P8,000.00 per month in June 1976, the petitioners had a cause of
action to institute an ejectment suit against the former with the then
City Court. In this regard, the City Court (now MTC) had exclusive
jurisdiction over the ejectment suit. The filing by private respondent of a
suit with the Regional Trial Court for specific performance to enforce
the option to purchase did not divest the then City Court of its
jurisdiction to take cognizance over the ejectment case. Of note is the
fact that the decision of the City Court was affirmed by both the
Intermediate Appellate Court and this Court.
Second. Having failed to exercise the option within the stipulated one-
year period, private respondent cannot enforce its option to purchase
anymore. Moreover, even assuming arguendo that the right to exercise
the option still subsists at the time private respondent tendered the
amount on June 20, 1975, the suit for specific performance to enforce
the option to purchase was filed only on October 7, 1985 or more than
ten (10) years after accrual of the cause of action as provided under should have done was to ascertain the extent of the authority of Alice
Article 1144 of the New Civil Code. 21 A. Dizon. Being negligent in this regard, private respondent cannot
seek relief on the basis of a supposed agency.
In this case, there was a contract of lease for one (1) year with option
to purchase. The contract of lease expired without the private In Bacaltos Coal Mines vs. Court of Appeals, 28 we explained the rule in
respondent, as lessee, purchasing the property but remained in dealing with an agent:
possession thereof. Hence, there was an implicit renewal of the
contract of lease on a monthly basis. The other terms of the original
Every person dealing with an agent is put upon
contract of lease which are revived in the implied new lease under
inquiry and must discover upon his peril the
Article 1670 of the New Civil Code 22 are only those terms which are
authority of the agent. If he does not make such
germane to the lessee's right of continued enjoyment of the property
inquiry, he is chargeable with knowledge of the
leased. 23 Therefore, an implied new lease does not ipso facto carry
agent's authority, and his ignorance of that
with it any implied revival of private respondent's option to purchase
authority will not be any excuse. Persons dealing
(as lessee thereof) the leased premises. The provision entitling the
with an assumed agency, whether the assumed
lessee the option to purchase the leased premises is not deemed
agency be a general or special one, are bound at
incorporated in the impliedly renewed contract because it is alien to the
their peril, if they would hold the principal, to
possession of the lessee. Private respondent's right to exercise the
ascertain not only the fact of the agency but also
option to purchase expired with the termination of the original contract
the nature and extent of the authority, and in case
of lease for one year. The rationale of this Court is that:
either is controverted, the burden of proof is upon
them to establish it.
This is a reasonable construction of the provision,
which is based on the presumption that when the
For the long years that private respondent was able to thwart the
lessor allows the lessee to continue enjoying
execution of the ejectment suit rendered in favor of petitioners, we now
possession of the property for fifteen days after the
write finis to this controversy and shun further delay so as to ensure
expiration of the contract he is willing that such
that this case would really attain finality.
enjoyment shall be for the entire period
corresponding to the rent which is customarily paid
— in this case up to the end of the month because WHEREFORE, in view of the foregoing, both petitions are GRANTED.
the rent was paid monthly. Necessarily, if the The decision dated March 29, 1994 and the resolution dated October
presumed will of the parties refers to the 19, 1995 in CA-G.R. CV No. 25153-54, as well as the decision dated
enjoyment of possession the presumption covers December 11, 1995 and the resolution dated April 23, 1997 in CA-G.R.
the other terms of the contract related to such SP No. 33113 of the Court of Appeals are hereby REVERSED and
possession, such as the amount of rental, the date SET ASIDE.
when it must be paid, the care of the property, the
responsibility for repairs, etc. But no such
Let the records of this case be remanded to the trial court for
presumption may be indulged in with respect to
immediate execution of the judgment dated November 22, 1982 in Civil
special agreements which by nature are foreign to
Case No. VIII-29155 of the then City Court (now Metropolitan Trial
the right of occupancy or enjoyment inherent in a
Court) of Quezon City, Branch VIII as affirmed in the decision dated
contract of lease. 24
September 26, 1984 of the then Intermediate Appellate Court (now
Court of Appeals) and in the resolution dated June 19, 1985 of this
Third. There was no perfected contract of sale between petitioners and Court.
private respondent. Private respondent argued that it delivered the
check of P300,000.00 to Alice A. Dizon who acted as agent of
However, petitioners are ordered to REFUND to private respondent the
petitioners pursuant to the supposed authority given by petitioner
amount of P300,000.00 which they received through Alice A. Dizon on
Fidela Dizon, the payee thereof. Private respondent further contended
June 20, 1975.1âwphi1.nêt
that petitioners' filing of the ejectment case against it based on the
contract of lease with option to buy holds petitioners in estoppel to
question the authority of petitioner Fidela Dizon. It insisted that the SO ORDERED.
payment of P300,000.00 as partial payment of the purchase price
constituted a valid exercise of the option to buy.

Under Article 1475 of the New Civil Code, "the contract of sale is
perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price. From that
moment, the parties may reciprocally demand performance, subject to
the provisions of the law governing the form of contracts." Thus, the
elements of a contract of sale are consent, object, and price in money
or its equivalent. It bears stressing that the absence of any of these
essential elements negates the existence of a perfected contract of
sale. Sale is a consensual contract and he who alleges it must show its
existence by competent proof. 25

In an attempt to resurrect the lapsed option, private respondent gave

P300,000.00 to petitioners (thru Alice A. Dizon) on the erroneous
presumption that the said amount tendered would constitute a
perfected contract of sale pursuant to the contract of lease with option
to buy. There was no valid consent by the petitioners (as co-owners of
the leased premises) on the supposed sale entered into by Alice A.
Dizon, as petitioners' alleged agent, and private respondent. The basis
for agency is representation and a person dealing with an agent is put
upon inquiry and must discover upon his peril the authority of the
agent. 26 As provided in Article 1868 of the New Civil Code, 27 there
was no showing that petitioners consented to the act of Alice A. Dizon
nor authorized her to act on their behalf with regard to her transaction
with private respondent. The most prudent thing private respondent
3
4

G.R. No. 186264               July 8, 2013
DR. LORNA C. FORMARAN, Petitioner,
vs.
DR. GLENDA B. ONG AND SOLOMON S. ONG, Respondents.
DECISION
PEREZ, J.:
This is an Appeal by certiorari under Rule 45 of the Revised Rules of
Court of the Decision1 of the Court of Appeals (CA) rendered on
August 30, 2007, the dispositive portion of which reads as follows:
"WHEREFORE, in the (sic) light of the foregoing, the assailed Decision
is REVERSED AND SET ASIDE. The Complaint of appellee Lorna C.
Formaran is DISMISSED. The appellee, her agents or representatives
are ORDERED to vacate the land in question and to restore the same
to appellants."
The facts adopted by both the trial court and the Court of Appeals are
summarized thus:
"According to plaintiff (Petitioner)'s complaint, she owns the afore-
described parcel of land which was donated to her intervivos by her
uncle and aunt, spouses Melquiades Barraca and Praxedes Casidsid
on June 25, 1967; that on August 12, 1967 upon the proddings and
representation of defendant (Respondent) Glenda, that she badly
needed a collateral for a loan which she was applying from a bank to
equip her dental clinic, plaintiff made it appear that she sold one-half of
the afore-described parcel of land to the defendant Glenda; that the
sale was totally without any consideration and fictitious; that contrary to
plaintiff’s agreement with defendant Glenda for the latter to return the
land, defendant Glenda filed a case for unlawful detainer against the
plaintiff who consequently suffered anxiety, sleepless nights and
besmirched reputation; and that to protect plaintiff’s rights and interest
over the land in question, she was constrained to file the instant case,
binding herself to pay ₱50,000.00 as and for attorney's fees.
In an answer filed on December 22, 1997, defendant Glenda insisted
on her ownership over the land in question on account of a Deed of
Absolute Sale executed by the plaintiff in her favor; and that plaintiff’s
claim of ownership therefore was virtually rejected by the Municipal
Circuit Trial Court of Ibaja-Nabas, Ibajay, Aklan, when it decided in her
favor the unlawful detainer case she filed against the plaintiff, docketed
therein as Civil Case No. 183. Defendants are also claiming moral
damages and attorney’s fees in view of the filing of the present case
against them.
Plaintiff’s testimony tends to show that the land in question is part of
the land donated to her on June 25, 1967 by spouses Melquiades
Barraca and Praxedes Casidsid, plaintiff’s uncle and aunt, respectively.
As owner thereof, she declared the land for taxation purposes (Exhibits
A-1 to A-5, inclusive). She religiously paid its realty taxes (Exhibit A-6).
She mortgaged the land to Aklan Development Bank to secure
payment of a loan.
In 1967, defendant Glenda and her father, Melquiades Barraca came
to her residence asking for help. They were borrowing one-half of land
donated to her so that defendant Glenda could obtain a loan from the
bank to buy a dental chair. They proposed that she signs an alleged
sale over the said portion of land.
5
Acceding to their request, she signed on August 12, 1967 a prepared
Deed of Absolute Sale (Exhibit C) which they brought along with them
(TSN, p. 22, Ibid), covering the land in question without any money
involved. There was no monetary consideration in exchange for
executing Exhibit C. She did not also appear before the Notary Public
Edilberto Miralles when Exhibit C was allegedly acknowledged by her
on November 9, 1967.
A month thereafter, plaintiff inquired from her uncle, Melquiades
Barracca if they have obtained the loan. The latter informed her that
they did not push through with the loan because the bank’s interest
therefore was high. With her uncle’s answer, plaintiff inquired about
Exhibit C. Her uncle replied that they crampled (kinumos) the Deed of
Absolute Sale (Exhibit C) and threw it away. Knowing that Exhibit C
was already thrown away, plaintiff did not bother anymore about the
document (TSN, p. 7, Ibid) she thought that there was no more
transaction. Besides, she is also in actual possession of the land and
have even mortgaged the same.
In 1974, plaintiff transferred her residence from Nabas, Aklan, to
Antipolo City where she has been residing up to the present time. From
the time she signed the Deed of Absolute Sale (Exhibit C) in August,
1967 up to the present time of her change of residence to Antipolo
City, defendant Glenda never demanded actual possession of the land
in question, except when the latter filed on May 30, 1996 a case for
unlawful detainer against her. Following the filing of the ejectment
case, she learned for the first time that the Deed of Absolute Sale was
registered on May 25, 1991 and was not thrown away contrary to what
Melquiades Barraca told her. Moreover, she and Melquiades Barraca
did not talk anymore about Exhibit C. That was also the first time she
learned that the land in question is now declared for taxation purposes
in the name of defendant Glenda.
In closing her direct testimony, plaintiff declared that the filing of the
unlawful detainer case against her, caused her some sleepless nights
and humiliation. She also suffered hypertension.
Upon the other hand, relevant matters that surfaced from the
testimonies of the defendants shows that on June 25, 1967,
Melquiades Barraca, father of the defendant Glenda, donated a parcel
of land to her niece, plaintiff Lorna C. Formaran (Exhibit 3). At the time
of the donation, plaintiff was still single. She married Atty. Formaran
only in September, 1967.
Subsequently, on August 12, 1967, Dr. Lorna B. Casidsid, herein
plaintiff, executed a Deed of Absolute Sale (Exhibit 1) over one-half
portion of the land donated to her, in favor of defendant Glenda. On
account of the Sale (Exhibit 1) defendant Glenda was able to declare in
her name the land in question for taxation purposes (Exhibit 4) and
paid the realty taxes (Exhibits 6, 6-A, 6-B and 6-C). She also was able
to possess the land in question.
Defendant Glenda maintained that there was money involved affecting
the sale of the land in her favor. The sale was not to enable her to buy
a dental chair for she had already one at the time. Besides, the cost of
a dental chair in 1967 was only ₱2,000.00 which she can readily afford.
The document of sale (Exhibit 1) affecting the land in question was not
immediately registered after its execution in 1967 but only on May 25,
1991 in order to accommodate the plaintiff who mortgaged the land to
Aklan Development Bank on May 18, 1978.
Based on the admissions of the parties in their pleadings, during the
pre-trial and evidence on record, there is no contention that on June
25, 1967, the afore-described parcel of land was donated intervivos
(Exhibit 3) by spouses Melquiades Barraca and Praxedes Casidsid to
therein plaintiff, Dr. Lorna Casidsid Formaran who was yet single. She
was married to Atty. Formaran in September 1967. Praxedes was the
aunt of Lorna as the latter’s father was the brother of Praxedes.
Following the donation, plaintiff immediately took possession of the
land wherein one-half (1/2) thereof is the land in question. Since then
up to the present time, is still in actual possession of the land, including
the land in question.
Indeed, on May 30, 1996, herein defendant Glenda filed a complaint
for unlawful detainer against the plaintiff before the 7th Municipal
Circuit Trial Court of Ibajay-Nabas, Ibajay, Aklan, docketed there in as
Civil Case No. 183. The case was decided on September 2, 1997,
(Exhibit 2) in favor of herein defendant Glenda; ordering the herein
plaintiff to vacate the land in question.
After the plaintiff acquired ownership by way of donation over the
afore-described parcel of land which includes the land in question, she
declared the same for taxation purposes under Tax Declaration No.
12533, effective 1969 (Exhibit A-1). Revision caused the subsequent
and successive cancellation of Exhibit A-1 by Tax Declaration No. 177,
effective 1974 (Exhibit A-2);
The Court believes and so holds that the subject Deed of Sale is
indeed simulated,2 as it is: (1) totally devoid of consideration; (2) it was
executed on August 12, 1967, less than two months from the time the
subject land was donated to petitioner on June 25, 1967 by no less
than the parents of respondent Glenda Ong; (3) on May 18, 1978,
petitioner mortgaged the land to the Aklan Development Bank for a
₱23,000.00 loan; (4) from the time of the alleged sale, petitioner has
been in actual possession of the subject land; (5) the alleged sale was
registered on May 25, 1991 or about twenty four (24) years after
execution; (6) respondent Glenda Ong never introduced any
improvement on the subject land; and (7) petitioner’s house stood on a
part of the subject land. These are facts and circumstances which may
be considered badges of bad faith that tip the balance in favor of
petitioner.
The Court is in accord with the observation and findings of the
(RTC,3 Kalibo, Aklan) thus:

Tax Declaration No. 183 effective 1980 (Exhibit A-3); Tax Declaration
No. 187, effective 1985 (Exhibit A-4); PIN-038-14-001-06-049, effective
1990 (Exhibit A-5); and APP/TD No. 93-001-330, effective 1994
(Exhibit A-6).
The last two Tax Declarations (Exhibits A-5 and A-6) no longer covered
the land in question which was segregated therefrom when the Deed of
Sale executed on August 12, 1967 (Exhibit C) was registered for the
first time on May 25, 1991.
Realty taxes of the afore-described parcel of land, including the land in
question, have been paid by the plaintiff since 1967 up to the present
time (Exhibit B). However, defendant Glenda paid for the first time the
realty taxes of the land in question on January 9, 1995 (Exhibit 6) and
up to the present time (Exhibit 6-A and 6-B).1âwphi1
On account of the Deed of Absolute Sale (Exhibit C or 1) signed by the
plaintiff, during the cadastral survey, the land in question was surveyed
in the name of defendant and designated as Lot No. 188 (Exhibit 5)
and the other half on the western side was designated as Lot No. 189.
The land in question is particularly described as follows:
A parcel of residential land (Lot No. 188, Cad. No. 758-D Nabas
Cadastre) located at Poblacion Nabas, Aklan, Bounded on North by
Lot No. 196; on the East by Lot No. 187; on the West by Lot No. 189 all
of Cad. No. 758-D; and on the South by Mabini St., containing an area
of THREE HUNDRED FIFTY SEVEN (357) SQUARE METERS, more
or less."
"The amplitude of foregoing undisputed facts and circumstances
clearly shows that the sale of the land in question was purely
simulated. It is void from the very beginning (Article 1346, New Civil
Code). If the sale was legitimate, defendant Glenda should have
immediately taken possession of the land, declared in her name for
taxation purposes, registered the sale, paid realty taxes, introduced
improvements therein and should not have allowed plaintiff to
mortgage the land. These omissions properly militated against
defendant Glenda’s submission that the sale was legitimate and the
consideration was paid.
While the Deed of Absolute Sale was notarized, it cannot justify the
conclusion that the sale is a true conveyance to which the parties are
irrevocably and undeniably bound. Although the notarization of Deed of
Absolute Sale, vests in its favor the presumption of regularity, it does
not validate nor make binding an instrument never intended, in the first
place, to have any binding legal effect upon the parties thereto (Suntay
vs. Court of Appeals, G.R. No. 114950, December 19, 1995; cited in
Ruperto Viloria vs. Court of Appeals, et al., G.R. No. 119974, June 30,
1999)."
WHEREFORE, the petition is GRANTED. The Decision of the Court of
Appeals rendered on August 30, 2007 in CA G.R. CV No. 66187 is
hereby REVERSED and SET ASIDE. The Decision of the Regional
Trial Court, Branch 5, Kalibo, Aklan in Civil Case No. 5398 dated
December 3, 1999 is REINSTATED.
SO ORDERED.

Petitioner filed on action for annulment of the Deed of Sale (Civil Case
No. 5398) against respondents before the Regional Trial Court (RTC),
of Kalibo, Aklan, Branch 5.

On December 3, 1999, the trial court rendered a Decision in favor of

petitioner and against the respondent by declaring the Deed of
Absolute Sale null and void for being an absolutely simulated contract
and for want of consideration; declaring the petitioner as the lawful
owner entitled to the possession of the land in question; as well as
ordering (a) the cancellation of respondent Glenda’s Tax Declaration
No. 1031, and (b) respondents to pay petitioner ₱25,000.00 for
attorney’s fees and litigation expenses.

Respondents coursed an appeal to the CA. The CA, on August 30,

2007, reversed and set aside the Decision of the trial court and ordered
petitioner to vacate the land in question and restore the same to
respondents.

Hence, the present petition.

The petition sufficiently shows with convincing arguments that the

decision of the CA is based on a misappreciation of facts.

6

G.R. No. L-25885 January 31, 1972
LUZON BROKERAGE CO., INC., plaintiff-appellee,
vs.
MARITIME BUILDING CO., INC., and MYERS BUILDING CO., INC.,
defendants, MARITIME BUILDING CO., INC., defendant-appellant.
Ross, Salcedo, Del Rosario, Bito and Misa for plaintiff-appellee.
C. R. Tiongson and L. V. Simbulan and Araneta, Mendoza and Papa
for defendant Myers Building Co., Inc.
Ambrosio Padilla Law Offices for defendant-appellant Maritima
Building Co., Inc.
REYES, J.B.L., J.:p
Direct appeal (prior to the effectivity of Republic Act 5440) by Maritime
Building Co., Inc. from a decision of the Court of First Instance of
Manila (in its Civil Case No. 47319), the dispositive part of which
provides as follows:
FOR ALL THE FOREGOING CONSIDERATIONS,
judgment is hereby rendered declaring that the
Myers Building Co., Inc. is entitled to receive the
rentals which the plaintiff has been paying,
including those already deposited in Court, thereby
relieving the plaintiff of any obligation to pay the
same to any other party, and ordering the Maritime
Building Co., Inc. to pay the commission fees paid
by the Myers Building Co., Inc. to the Clerk of this
Court, plus the sum of P3,000.00 as and for
attorney's fees.
On the cross-claim by the Myers Building Co., Inc.,
the Maritima Building Co., Inc. is hereby ordered to
pay the Myers Building Co., Inc. the sum of
P10,000.00 damages, plus the sum of P30,000.00,
representing rentals wrongfully collected by it from
the plaintiff corresponding to the months of March,
April and May, 1961 and the costs hereof.
The antecedents of the litigation are summarized in the appealed
judgment thus:
This is an action for interpleading.
It appears that on April 30, 1949, in the City of
Manila, the defendant Myers Building Co., Inc.,
owner of three parcels of land in the City of Manila,
together with the improvements thereon, entered
into a contract entitled "Deed of Conditional Sale"
in favor of Bary Building Co., Inc., later known as
Maritime Building Co., Inc., whereby the former
sold the same to the latter for P1,000,000.00,
Philippine currency. P50,000.00 of this price was
7
paid upon the execution of the said contract and
the parties agreed that the balance of P950,000.00
was to be paid in monthly installments at the rate
of P10,000.00 with interest of 5% per annum until
the same was fully paid.
In Par. (O), they agreed that in case of failure on
the part of the vendee to pay any of the
installments due and payable, the contract shall be
annulled at the option of the vendor and all
payments already made by vendee shall be
forfeited and the vendor shall have right to re-enter
the property and take possession thereof.
Later, the monthly installment of P10,000.00
above-stipulated with 5% interest per annum was
amended or decreased to P5,000.00 per month
and the interest was raised to 5-1/2% per annum.
The monthly installments under the contract was
regularly paid by the Bary Building Co., Inc. and/or
the Maritime Co., Inc. until the end of February,
1961. It failed to pay the monthly installment
corresponding to the month of March 1961, for
which the Vice-President, George Schedler, of the
Maritime Building Co., Inc., wrote a letter to the
President of Myers, Mr. C. Parsons, requesting for
a moratorium on the monthly payment of the
installments until the end of the year 1961, for the
reason that the said company was encountering
difficulties in connection with the operation of the
warehouse business. However, Mr. C. Parsons, in
behalf of the Myers Estate, answered that the
monthly payments due were not payable to the
Myers Estate but to the Myers Building Co., Inc.,
and that the Board of Directors of the Myers Co.,
Inc. refused to grant the request for moratorium for
suspension of payments under any condition.
Notwithstanding the denial of this request for
moratorium by the Myers Board of Directors the
Maritime Building Co., Inc. failed to pay the
monthly installments corresponding to the months
of March, April and May, 1961. Whereupon, on
May 16, 1961, the Myers Building Co., Inc. made a
demand upon the Maritime Building Co., Inc., for
the payment of the installments that had become
due and payable, which letter, however, was
returned unclaimed.
Then, on June 5, 1961, the Myers Building Co.,
Inc. wrote the Maritime Building Co., Inc. another
letter advising it of the cancellation of the Deed of
Conditional Sale entered into between them and
demanding the return of the possession of the
properties and holding the Maritime Building Co.,
Inc. liable for use and occupation of the said
properties at P10,000.00 monthly.
In the meantime, the Myers Building Co., Inc.
demanded upon the Luzon Brokerage Co., Inc. to
whom the Maritime Building Co., Inc. leased the
properties, the payment of monthly rentals of
P10,000.00 and the surrender of the same to it. As
a consequence, the Luzon Brokerage Co., Inc.
found itself in a payment to the wrong party, filed
this action for interpleader against the Maritime
Building Co., Inc.
After the filing of this action, the Myers Building
Co., Inc. in its answer filed a cross-claim against
the Maritime Building Co., Inc. praying for the
confirmation of its right to cancel the said contract.
In the meantime, the contract between the
Maritime Building Co., Inc. and the Luzon
 Brokerage Co., Inc. was extended by mutual
agreement for a period of four (4) more years,
from April, 1964 to March 31, 1968.
The Maritime Building Co., Inc. now contends (1)
that the Myers Building Co., Inc. cannot cancel the
contract entered into by them for the conditional
sale of the properties in question extrajudicially
and (2) that it had not failed to pay the monthly
installments due under the contract and, therefore,
is not guilty of having violated the same.
It should be further elucidated that the suspension by the appellant
Maritime Building Co., Inc. (hereinafter called Maritime) of the payment
of installments due from it to appellee Myers Building Co., Inc.
(hereinafter designated as Myers Corporation) arose from an award of
backwages made by the Court of Industrial Relations in favor of
members of Luzon Labor Union who served the Fil-American forces in
Bataan in early 1942 at the instance of the employer Luzon Brokerage
Co. and for which F. H. Myers, former majority stockholder of the
Luzon Brokerage Co., had allegedly promised to indemnify E. M.
Schedler (who controlled Maritime) when the latter purchased Myers'
stock in the Brokerage Company. Schedler contended that he was
being sued for the backpay award of some P325,000, when it was a
liability of Myers, or of the latter's estate upon his death. In his letter to
Myers Corporation (Exhibit "11", Maritime) dated 7 April 1961 (two
months and ten days before the initial complaint in the case at bar),
Schedler claimed the following:
At all times when the F. H. Myers Estate was open
in the Philippine Islands and open in San
Francisco, the Myers Estate or heirs assumed the
defense of the Labor Union claims and led us to
believe that they would indemnify us therefrom.
Recently, however, for the first time, and after both
the Philippine and San Francisco F. H. Myers
Estates were closed, we have been notified that
the F. H. Myers indemnity on the Labor Union
case will not be honored, and in fact Mrs. Schedler
and I have been sued in the Philippines by my
successor in interest, Mr. Wentholt, and have been
put to considerable expense.
You are advised that my wife and I, as the owners
of the Maritime Building Company, intend to
withhold any further payments to Myers Building
Company or Estate, in order that we can preserve
those funds and assets to set off against the
potential liability to which I am now exposed by the
failure of the Myers heirs to honor the indemnity
agreement pertaining to the Labor claims.
The trial court found the position of Schedler indefensible, and that
Maritime, by its failure to pay, committed a breach of the sale contract;
that Myers Company, from and after the breach, became entitled to
terminate the contract, to forfeit the installments paid, as well as to
repossess, and collect the rentals of, the building from its lessee,
Luzon Brokerage Co., in view of the terms of the conditional contract of
sale stipulating that:
(d) It is hereby agreed, covenanted and stipulated
by and between the parties hereto that the Vendor
will execute and deliver to the Vendee a definite or
absolute deed of sale upon the full payment by the
vendee of the unpaid balance of the purchase
price hereinabove stipulated; that should the
Vendee fail to pay any of the monthly installments,
when due, or otherwise fail to comply with any of
the terms and conditions herein stipulated, then
this Deed of Conditional Sale shall automatically
and without any further formality, become null and
void, and all sums so paid by the Vendee by
reason thereof, shall be considered as rentals and
8
the Vendor shall then and there be free to enter
into the premises, take possession thereof or sell
the properties to any other party.
xxx xxx xxx
(o) In case the Vendee fails to make payment or
payments, or any part thereof, as herein provided,
or fails to perform any of the covenants or
agreements hereof, this contract shall, at the
option of the Vendor, be annulled and, in such
event, all payments made by the Vendee to the
Vendor by virtue of this contract shall be forfeited
and retained by the Vendor in full satisfaction of
the liquidated damages by said Vendor sustained;
and the said Vendor shall have the right to
forthwith re-enter, and take possession of, the
premises subject-matter of this contract.
"The remedy of forfeiture stated in the next-
preceding paragraph shall not be exclusive of any
other remedy, but the Vendor shall have every
other remedy granted it by virtue of this contract,
by law, and by equity."
From the judgment of the court below, the dispositive portion whereof
has been transcribed at the start of this opinion, Myers duly appealed
to this Court.
The main issue posed by appellant is that there has been no breach of
contract by Maritime; and assuming that there was one, that the
appellee Myers was not entitled to rescind or resolve the contract
without recoursing to judicial process.
It is difficult to understand how appellant Maritime can seriously
contend that its failure or refusal to pay the P5,000 monthly
installments corresponding to the months of March, April and May,
1961 did not constitute a breach of contract with Myers, when said
agreement (transcribed in the Record on Appeal, pages 59-71)
expressly stipulated that the balance of the purchase price (P950,000)
—
shall be paid at the rate of Ten Thousand Pesos
(P10,000) monthly on or before the 10th day of
each month with interest at 5% per annum, this
amount to be first applied on the interest, and the
balance paid to the principal thereof; and the
failure to pay any installment or interest when due
shall ipso facto cause the whole unpaid balance of
the principal and interest to be and become
immediately due and payable. (Contract,
paragraph b; Record on Appeal, page 63)
Contrary to appellant Maritime's averments, the default was not made
in good faith. The text of the letter to Myers (Exhibit "11", Maritime),
heretofore quoted, leaves no doubt that the non-payment of the
installments was the result of a deliberate course of action on the part
of appellant, designed to coerce the appellee Myers Corporation into
answering for an alleged promise of the late F. H. MYERS to indemnify
E. W. Schedler, the controlling stock-holder of appellant, for any
payments to be made to the members of the Luzon Labor Union. This
is apparent also from appellant's letter to his counsel (Exhibit "12",
Maritime):
... I do not wish to deposit pesos representing the
months of March, April and May, since the Myers
refusal to honor the indemnity concerning the labor
claims has caused me to disburse (sic) roughly
$10,000.00 to date in fees, cost and travel
expenses. However, if the Myers people will
deposit in trust with Mr. C. Parsons 25,000 pesos
to cover my costs to date, I will then deposit with
Mr. Parsons, in trust, 15,000 pesos for March,
 April and May and will also post a monthly deposit
of 5,000 pesos until the dispute is settled. The
dispute won't be settled in my mind, unless and
until:
a) The Myers people indemnify me fully the labor
cases;
b) The labor cases are terminated favorably to
Luzon Brokerage and no liability exists;
c) The Myers people pay any judgment entered on
the labor cases thereby releasing me; or
d) It is finally determined either in San Francisco or
in the Philippines by a court that the Myers heirs
must honor the indemnity which Mr. F. H. Myers
promised when I purchased Luzon Brokerage
Company.
Yet appellant Maritime (assuming that it had validly acquired the claims
of its president and controlling stockholder, E. M. Schedler) could not
ignore the fact that whatever obligation F. H. Myers or his estate had
assumed in favor of Schedler with respect to the Luzon Brokerage
labor case was not, and could not have been, an obligation of appellee
corporation (Myers Building Company). No proof exists that the board
of directors of the Myers Corporation had agreed to assume
responsibility for the debts (if any) that the late Myers or his heirs had
incurred in favor of Schedler. Not only this, but it is apparent from the
letters quoted heretofore that Schedler had allowed the estate
proceedings of the late F. M. Myers to close without providing for any
contingent liability in Schedler's favor; so that by offsetting the alleged
debt of Myers to him, against the balance of the price due under the
"Deed of Conditional Sale", appellant Maritime was in fact attempting
to burden the Myers Building Company with an uncollectible debt,
since enforcement thereof against the estate of F. H. Myers was
already barred.
Under the circumstances, the action of Maritime in suspending
payments to Myers Corporation was a breach of contract tainted with
fraud or malice (dolo), as distinguished from mere negligence (culpa),
"dolo" being succinctly defined as a "conscious and intentional design
to evade the normal fulfillment of existing obligations" (Capistrano, Civil
Code of the Philippines, Vol. 3, page 38), and therefore incompatible
with good faith (Castan, Derecho Civil, 7th Ed., Vol. 3, page 129; Diaz
Pairo, Teoria de Obligaciones, Vol. 1, page 116).
Maritime having acted in bad faith, it was not entitled to ask the court to
give it further time to make payment and thereby erase the default or
breach that it had deliberately incurred. Thus the lower court committed
no error in refusing to extend the periods for payment. To do otherwise
would be to sanction a deliberate and reiterated infringement of the
contractual obligations incurred by Maritime, an attitude repugnant to
the stability and obligatory force of contracts.
From another point of view, it is irrelevant whether appellant Maritime's
infringement of its contract was casual or serious, for as pointed out by
this Court in Manuel vs. Rodriguez, 109 Phil. 1, at page 10 —
The contention of plaintiff-appellant that Payatas
Subdivision Inc. had no right to cancel the contract
as there was only a "casual breach" is likewise
untenable. In contracts to sell, where ownership is
retained by the seller and is not to pass until the
full payment of the price, such payment, as we
said, is a positive suspensive condition, the failure
of which is not a breach, casual or serious, but
simply an event that prevented the obligation of
the vendor to convey title from acquiring binding
force, in accordance with Article 1117 of the Old
Civil Code. To argue that there was only a casual
breach is to proceed from the assumption that the
contract is one of absolute sale, where non-
9
payment is a resolutory condition, which is not the
case.
But it is argued for Maritime that even if it had really violated the
Contract of Conditional Sale with Myers, the latter could not
extrajudicially rescind or resolve the contract, but must first recourse to
the courts. While recognizing that paragraph (d) of the deed of
conditional sale expressly provides inter alia —
that should the Vendee fail to pay any of the
monthly installments when due, or otherwise fail to
comply with any of the terms and conditions herein
stipulated, then this Deed of Conditional
Sale shall automatically and without any further
formality, become null and void, and all sums so
paid by the Vendee by reason thereof shall be
considered as rentals.. (Emphasis supplied)
herein appellant Maritime avers that paragraph (e) of the deed
contemplates that a suit should be brought in court for a judicial
declaration of rescission. The paragraph relied upon by Maritime is
couched in the following, terms:
(e) It is also hereby agreed, covenanted and
stipulated by and between the parties hereto that
should the Vendor rescind this Deed of Conditional
Sale, for any of the reasons stipulated in the
preceding paragraph, the Vendee by these
presents obligates itself to peacefully deliver the
properties subject of this contract to the Vendor,
and in the event that the Vendee refuses to
peacefully deliver the possession of the properties
subject of this contract to the Vendor in case of
rescission, and a suit should be brought in court by
the Vendor to seek judicial declaration of
rescission and take possession of the properties
subject of this contract, the Vendee hereby
obligates itself to pay all the expenses to be
incurred by reason of such suit and in addition
obligates itself to pay the sum of P10,000.00, in
concept of damages, penalty and attorney's fees.
Correlation of this paragraph (e) with the preceding paragraph (d) of
the Deed of Conditional Sale (quoted in page 5 of this opinion) reveals
no incompatibility between the two; and the suit to "be brought in Court
by the Vendor to seek judicial declaration of rescission" is provided for
by paragraph(e) only in the eventuality that, notwithstanding the
automatic annulment of the deed under paragraph (d), the Vendee
"refuses to peacefully deliver the possession of the properties subject
of this contract". The step contemplated is logical since the Vendor can
not, by himself, dispossess the Vendee manu militari, if the latter
should refuse to vacate despite the violation of the contract, since no
party can take the law in his own hands. But the bringing of such an
action in no way contradicts or restricts the automatic termination of the
contract in case the Vendee (i.e., appellant Maritime) should not
comply with the agreement.
Anyway, this Court has repeatedly held that —
Well settled is, however, the rule that a judicial
action for the rescission of a contract is not
necessary where the contract provides that it may
be revoked and cancelled for violation of any of its
terms and conditions" (Lopez vs. Commissioner of
Customs, L-28235, 30 January 1971, 37 SCRA
327, 334,, and cases cited therein). 1 (Emphasis
supplied.)
Resort to judicial action for rescission is obviously
not contemplated.... The validity of the stipulation
can not be seriously disputed. It is in the nature of
a facultative resolutory condition which in many
cases has been upheld by this Court. (Ponce
 Enrile vs. Court of Appeals, L-27549, 30 Sept.
1969; 29 SCRA 504).
The obvious remedy of the party opposing the rescission for any
reason being to file the corresponding action to question the rescission
and enforce the agreement, as indicated in our decision in University
of the Philippines vs. Walfrido de los Angeles,
L-28602, 29 September 1970, 35 SCRA 107.
Of course, it must be understood that the act of a
party in treating a contract as cancelled or
resolved on account of infractions by the other
contracting party must be made known to the other
and is always provisional, being ever subject to
scrutiny and review by the proper court. If the
other party denies that rescission is justified, it is
free to resort to judicial action in its own behalf,
and bring the matter to court. Then, should the
court, after due hearing, decide that the resolution
of the contract was not warranted, the responsible
party will be sentenced to damages; in the
contrary case, the resolution will be affirmed, and
the consequent indemnity awarded to the party
prejudiced.
In other words, the party who deems the contract
violated may consider it resolved or rescinded, and
act accordingly, without previous court action, but
it proceeds at its own risk. For it is only the final
judgment of the corresponding court that will
conclusively and finally settle whether the action
taken was or was not correct in law. But the law
definitely does not require that the contracting
party who believes itself injured must first file suit
and wait for a judgment before taking extrajudicial
steps to protect its interest. Otherwise, the party
injured by the other's breach will have to passively
sit and watch its damages accumulate during the
pendency of the suit until the final judgment of
rescission is rendered when the law itself requires
that he should exercise due diligence to minimize
its own damages (Civil Code, Article 2203).
Maritime likewise invokes Article 1592 of the Civil Code of the
Philippines as entitling it to pay despite its default:
ART. 1592. In the sale of immovable property,
even though it may have been stipulated that upon
failure to pay the price at the time agreed upon the
rescission of the contract shall of right take place,
the vendee may pay, even after the expiration of
the period, as long as no demand for rescission of
the contract has been made upon him either
judicially or by a notarial act. After the demand, the
court may not grant him a new term.
Assuming arguendo that Article 1592 is applicable, the cross-claim
filed by Myers against Maritime in the court below constituted a judicial
demand for rescission that satisfies the requirements of said article.
The distinction between contracts of sale and contract to sell with
reserved title has been recognized by this Court in repeated
decisions2 upholding the power of promisors under contracts to sell in
case of failure of the other party to complete payment, to extrajudicially
terminate the operation of the contract, refuse conveyance and retain
the sums or installments already received, where such rights are
expressly provided for, as in the case at bar.
Maritime's appeal that it would be iniquituous that it should be
compelled to forfeit the P973,000 already paid to Myers, as a result of
its failure to make good a balance of only P319,300.65, payable at
P5,000 monthly, becomes unimpressive when it is considered that
while obligated to pay the price of one million pesos at P5,000 monthly,
plus interest, Maritime, on the other hand, had leased the building to
Luzon Brokerage, Inc. since 1949; and Luzon paid P13,000 a month
rent, from September, 1951 to August 1956, and thereafter until 1961,
at P10,000 a month, thus paying a total of around one and a half
million pesos in rentals to Maritime. Even adding to Maritime's losses
of P973,000 the P10,000 damages and P3,000 attorneys' fees
awarded by the trial court, it is undeniable that appellant Maritime has
come out of the entire transaction still at a profit to itself.
There remains the procedural objection raised by appellant Maritime to
this interpleader action filed by the Luzon Brokerage Co., the lessee of
the building conditionally sold by Myers to Maritime. It should be
recalled that when Maritime defaulted in its payments to Myers, and
the latter notified the former that it was cancelling the contract of
conditional sale, Myers also notified Luzon Brokerage, Maritime's
lessee of the building, of the cancellation of the sale, and demanded
that Luzon should pay to Myers the rentals of the building beginning
from June, 1961, under penalty of ejectment (Record on Appeal, pages
14-15). In doubt as to who was entitled to the rentals, Luzon filed this
action for interpleader against Myers and Maritime, and deposited the
rentals in court as they fell due. The appellant Maritime moved to
dismiss on the ground that (a) Luzon could not entertain doubts as to
whom the rentals should be paid since Luzon had leased the building
from Maritime since 1949, renewing the contract from time to time, and
Myers had no right to cancel the lease; and (b) that Luzon was not a
disinterested party, since it tended to favor appellee Myers. The court
below overruled Maritime's objections and We see no plausible reason
to overturn the order. While Myers was not a party to the lease, its
cancellation of the conditional sale of the premises to Maritime,
Luzon's lessor, could not but raise reasonable doubts as to the
continuation of the lease, for the termination of the lessor's right of
possession of the premises necessarily ended its right to the rentals
falling due thereafter. The preceding portion of our opinion is
conclusive that Luzon's doubts were grounded under the law and the
jurisprudence of this Court.
No adequate proof exists that Luzon was favoring any one of the
contending parties. It was interested in being protected against
prejudice deriving from the result of the controversy, regardless of who
should win. For the purpose it was simpler for Luzon to compel the
disputants to litigate between themselves, rather than chance being
sued by Myers, and later being compelled to proceed against Maritime
to recoup its losses. In any event, Maritime ultimately confirmed the act
of Luzon in suing for interpleader, by agreeing to renew Luzon's lease
in 1963 during the pendency of the present action, and authorizing
Luzon to continue depositing the rentals in court "until otherwise
directed by a court of competent jurisdiction" (Exhibit "18-Maritime").
The procedural objection has thus become moot.

But even if it were not so, appellant overlooks that its contract with PREMISES CONSIDERED, the appealed decision should be, and
appellee Myers is not the ordinary sale envisaged by Article 1592, hereby is, affirmed, and appellant Maritime Building Co., as well as
transferring ownership simultaneously with the delivery of the real appellee Luzon Brokerage Co., are further ordered to surrender the
property sold, but one in which the vendor retained ownership of the premises to the appellee Myers Building Co. Costs against appellant.
immovable object of the sale, merely undertaking to convey it provided
the buyer strictly complied with the terms of the contract (see
paragraph [d], ante, page 5). In suing to recover possession of the
building from Maritime, appellee Myers is not after the resolution or
setting aside of the contract and the restoration of the parties to
the status quo ante, as contemplated by Article 1592, but precisely
enforcing the provisions of the agreement that it is no longer obligated
to part with the ownership or possession of the property because
Maritime failed to comply with the specified condition precedent, which
is to pay the installments as they fell due.
10

G.R. No. L-59266 February 29, 1988
SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners,
vs.
HON. COURT OF APPEALS and ATILANO G. JABIL, respondents.
BIDIN, J.:
This is a petition for review on certiorari seeking the reversal of the: (1)
Decision * of the 9th Division, Court of Appeals dated July 31,1981,
affirming with modification the Decision, dated August 25, 1972 of the
Court of First Instance ** of Cebu in civil Case No. 23-L entitled Atilano
G. Jabil vs. Silvestre T. Dignos and Isabela Lumungsod de Dignos and
Panfilo Jabalde, as Attorney-in-Fact of Luciano Cabigas and Jovita L.
de Cabigas; and (2) its Resolution dated December 16, 1981, denying
defendant-appellant's (Petitioner's) motion for reconsideration, for lack
of merit.
The undisputed facts as found by the Court of Appeals are as follows:
The Dignos spouses were owners of a parcel of
land, known as Lot No. 3453, of the cadastral
survey of Opon, Lapu-Lapu City. On June 7, 1965,
appellants (petitioners) Dignos spouses sold the
said parcel of land to plaintiff-appellant
(respondent Atilano J. Jabil) for the sum of
P28,000.00, payable in two installments, with an
assumption of indebtedness with the First Insular
Bank of Cebu in the sum of P12,000.00, which
was paid and acknowledged by the vendors in the
deed of sale (Exh. C) executed in favor of plaintiff-
appellant, and the next installment in the sum of
P4,000.00 to be paid on or before September 15,
1965.
On November 25, 1965, the Dignos spouses sold
the same land in favor of defendants spouses,
Luciano Cabigas and Jovita L. De Cabigas, who
were then U.S. citizens, for the price of
P35,000.00. A deed of absolute sale (Exh. J, also
marked Exh. 3) was executed by the Dignos
spouses in favor of the Cabigas spouses, and
which was registered in the Office of the Register
of Deeds pursuant to the provisions of Act No.
3344.
As the Dignos spouses refused to accept from
plaintiff-appellant the balance of the purchase
price of the land, and as plaintiff- appellant
discovered the second sale made by defendants-
appellants to the Cabigas spouses, plaintiff-
11
appellant brought the present suit. (Rollo, pp. 27-
28)
After due trial, the Court of first Instance of Cebu rendered its Decision
on August 25,1972, the decretal portion of which reads:
WHEREFORE, the Court hereby declares the
deed of sale executed on November 25, 1965 by
defendant Isabela L. de Dignos in favor of
defendant Luciano Cabigas, a citizen of the United
States of America, null and void ab initio, and the
deed of sale executed by defendants Silvestre T.
Dignos and Isabela Lumungsod de Dignos not
rescinded. Consequently, the plaintiff Atilano G.
Jabil is hereby ordered to pay the sum, of Sixteen
Thousand Pesos (P16,000.00) to the defendants-
spouses upon the execution of the Deed of
absolute Sale of Lot No. 3453, Opon Cadastre and
when the decision of this case becomes final and
executory.
The plaintiff Atilano G. Jabil is ordered to
reimburse the defendants Luciano Cabigas and
Jovita L. de Cabigas, through their attorney-in-fact,
Panfilo Jabalde, reasonable amount
corresponding to the expenses or costs of the
hollow block fence, so far constructed.
It is further ordered that defendants-spouses
Silvestre T. Dignos and Isabela Lumungsod de
Dignos should return to defendants-spouses
Luciano Cabigas and Jovita L. de Cabigas the
sum of P35,000.00, as equity demands that
nobody shall enrich himself at the expense of
another.
The writ of preliminary injunction issued on
September 23, 1966, automatically becomes
permanent in virtue of this decision.
With costs against the defendants.
From the foregoing, the plaintiff (respondent herein) and defendants-
spouss (petitioners herein) appealed to the Court of Appeals, which
appeal was docketed therein as CA-G.R. No. 54393-R, "Atilano G.
Jabil v. Silvestre T. Dignos, et al."
On July 31, 1981, the Court of Appeals affirmed the decision of the
lower court except as to the portion ordering Jabil to pay for the
expenses incurred by the Cabigas spouses for the building of a fence
upon the land in question. The disposive portion of said decision of the
Court of Appeals reads:
IN VIEW OF THE FOREGOING
CONSIDERATIONS, except as to the modification
of the judgment as pertains to plaintiff-appellant
above indicated, the judgment appealed from is
hereby AFFIRMED in all other respects.
With costs against defendants-appellants.
SO ORDERED.
Judgment MODIFIED.
A motion for reconsideration of said decision was filed by the
defendants- appellants (petitioners) Dignos spouses, but on December
16, 1981, a resolution was issued by the Court of Appeals denying the
motion for lack of merit.
Hence, this petition. II. Whether or not there was a valid rescission
thereof.
In the resolution of February 10, 1982, the Second Division of this
Court denied the petition for lack of merit. A motion for reconsideration There is no merit in this petition.
of said resolution was filed on March 16, 1982. In the resolution dated
April 26,1982, respondents were required to comment thereon, which
It is significant to note that this petition was denied by the Second
comment was filed on May 11, 1982 and a reply thereto was filed on
Division of this Court in its Resolution dated February 1 0, 1 982 for
July 26, 1982 in compliance with the resolution of June 16,1 982. On
lack of merit, but on motion for reconsideration and on the basis of all
August 9,1982, acting on the motion for reconsideration and on all
subsequent pleadings filed, the petition was given due course.
subsequent pleadings filed, this Court resolved to reconsider its
resolution of February 10, 1982 and to give due course to the instant
petition. On September 6, 1982, respondents filed a rejoinder to reply I.
of petitioners which was noted on the resolution of September 20,
1982.
The contract in question (Exhibit C) is a Deed of Sale, with the
following conditions:
Petitioners raised the following assignment of errors:
1. That Atilano G..Jabilis to pay the amount of
I Twelve Thousand Pesos P12,000.00) Phil.
Philippine Currency as advance payment;
THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW
IN GROSSLY, INCORRECTLY INTERPRETING THE TERMS OF 2. That Atilano G. Jabil is to assume the balance
THE CONTRACT, EXHIBIT C, HOLDING IT AS AN ABSOLUTE of Twelve Thousand Pesos (P12,000.00) Loan
SALE, EFFECTIVE TO TRANSFER OWNERSHIP OVER THE from the First Insular Bank of Cebu;
PROPERTY IN QUESTION TO THE RESPONDENT AND NOT
MERELY A CONTRACT TO SELL OR PROMISE TO SELL; THE
3. That Atilano G. Jabil is to pay the said spouses
COURT ALSO ERRED IN MISAPPLYING ARTICLE 1371 AS
the balance of Four. Thousand Pesos (P4,000.00)
WARRANTING READING OF THE AGREEMENT, EXHIBIT C, AS
on or before September 15,1965;
ONE OF ABSOLUTE SALE, DESPITE THE CLARITY OF THE
TERMS THEREOF SHOWING IT IS A CONTRACT OF PROMISE TO
SELL. 4. That the said spouses agrees to defend the said
Atilano G. Jabil from other claims on the said
property;
II

5. That the spouses agrees to sign a final deed of

THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN
INCORRECTLY APPLYING AND OR IN MISAPPLYING ARTICLE
1592 OF THE NEW CIVIL CODE AS WARRANTING THE
ERRONEOUS CONCLUSION THAT THE NOTICE OF RESCISSION,
EXHIBIT G, IS INEFFECTIVE SINCE IT HAS NOT BEEN JUDICIALLY
DEMANDED NOR IS IT A NOTARIAL ACT.
III
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN
REJECTING THE APPLICABILITY OF ARTICLES 2208,2217 and
2219 OF THE NEW CIVIL CODE AND ESTABLISHED
JURISPRUDENCE AS TO WARRANT THE AWARD OF DAMAGES
AND ATTORNEY'S FEES TO PETITIONERS.
IV
absolute sale in favor of Atilano G. Jabil over the
above-mentioned property upon the payment of
the balance of Four Thousand Pesos. (Original
Record, pp. 10-11)
In their motion for reconsideration, petitioners reiterated their
contention that the Deed of Sale (Exhibit "C") is a mere contract to sell
and not an absolute sale; that the same is subject to two (2) positive
suspensive conditions, namely: the payment of the balance of
P4,000.00 on or before September 15,1965 and the immediate
assumption of the mortgage of P12,000.00 with the First Insular Bank
of Cebu. It is further contended that in said contract, title or ownership
over the property was expressly reserved in the vendor, the Dignos
spouses until the suspensive condition of full and punctual payment of
the balance of the purchase price shall have been met. So that there is
no actual sale until full payment is made (Rollo, pp. 51-52).

In bolstering their contention that Exhibit "C" is merely a contract to

PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE
sell, petitioners aver that there is absolutely nothing in Exhibit "C" that
SHOULD HAVE BEEN DISMISSED, HE HAVING COME TO COURT
indicates that the vendors thereby sell, convey or transfer their
WITH UNCLEAN HANDS.
ownership to the alleged vendee. Petitioners insist that Exhibit "C" (or
6) is a private instrument and the absence of a formal deed of
V conveyance is a very strong indication that the parties did not intend
"transfer of ownership and title but only a transfer after full payment"
(Rollo, p. 52). Moreover, petitioners anchored their contention on the
BY AND LARGE, THE COURT OF APPEALS COMMITTED AN
very terms and conditions of the contract, more particularly paragraph
ERROR IN AFFIRMING WITH MODIFICATION THE DECISION OF
four which reads, "that said spouses has agreed to sell the herein
THE TRIAL COURT DUE TO GRAVE MISINTERPRETATION,
mentioned property to Atilano G. Jabil ..." and condition number five
MISAPPLICATION AND MISAPPREHENSION OF THE TERMS OF
which reads, "that the spouses agrees to sign a final deed of absolute
THE QUESTIONED CONTRACT AND THE LAW APPLICABLE
sale over the mentioned property upon the payment of the balance of
THERETO.
four thousand pesos."

The foregoing assignment of errors may be synthesized into two main

Such contention is untenable.
issues, to wit:

By and large, the issues in this case have already been settled by this
I. Whether or not subject contract is a deed of
Court in analogous cases.
absolute sale or a contract Lot sell.

12
Thus, it has been held that a deed of sale is absolute in nature
although denominated as a "Deed of Conditional Sale" where nowhere
in the contract in question is a proviso or stipulation to the effect that
title to the property sold is reserved in the vendor until full payment of
the purchase price, nor is there a stipulation giving the vendor the right
to unilaterally rescind the contract the moment the vendee fails to pay
within a fixed period Taguba v. Vda. de Leon, 132 SCRA 722; Luzon
Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA 305).
It has been ruled, however, that "where time is not of the essence of
the agreement, a slight delay on the part of one party in the
performance of his obligation is not a sufficient ground for the
rescission of the agreement" (Taguba v. Vda. de Leon, supra).
Considering that private respondent has only a balance of P4,000.00
and was delayed in payment only for one month, equity and justice
mandate as in the aforecited case that Jabil be given an additional
period within which to complete payment of the purchase price.

A careful examination of the contract shows that there is no such
stipulation reserving the title of the property on the vendors nor does it
give them the right to unilaterally rescind the contract upon non-
payment of the balance thereof within a fixed period.
WHEREFORE, the petition filed is hereby Dismissed for lack of merit
and the assailed decision of the Court of Appeals is Affirmed in toto.
SO ORDERED.

On the contrary, all the elements of a valid contract of sale under

Article 1458 of the Civil Code, are present, such as: (1) consent or
meeting of the minds; (2) determinate subject matter; and (3) price
certain in money or its equivalent. In addition, Article 1477 of the same
Code provides that "The ownership of the thing sold shall be
transferred to the vendee upon actual or constructive delivery thereof."
As applied in the case of Froilan v. Pan Oriental Shipping Co., et al.
(12 SCRA 276), this Court held that in the absence of stipulation to the
contrary, the ownership of the thing sold passes to the vendee upon
actual or constructive delivery thereof.

While it may be conceded that there was no constructive delivery of the

land sold in the case at bar, as subject Deed of Sale is a private
instrument, it is beyond question that there was actual delivery thereof.
As found by the trial court, the Dignos spouses delivered the
possession of the land in question to Jabil as early as March 27,1965
so that the latter constructed thereon Sally's Beach Resort also known
as Jabil's Beach Resort in March, 1965; Mactan White Beach Resort
on January 15,1966 and Bevirlyn's Beach Resort on September 1,
1965. Such facts were admitted by petitioner spouses (Decision, Civil
Case No. 23-L; Record on Appeal, p. 108).

Moreover, the Court of Appeals in its resolution dated December

16,1981 found that the acts of petitioners, contemporaneous with the
contract, clearly show that an absolute deed of sale was intended by
the parties and not a contract to sell.

Be that as it may, it is evident that when petitioners sold said land to

the Cabigas spouses, they were no longer owners of the same and the
sale is null and void.

II.

Petitioners claim that when they sold the land to the Cabigas spouses,
the contract of sale was already rescinded.

Applying the rationale of the case of Taguba v. Vda. de Leon (supra)

which is on all fours with the case at bar, the contract of sale being
absolute in nature is governed by Article 1592 of the Civil Code. It is
undisputed that petitioners never notified private respondents Jabil by
notarial act that they were rescinding the contract, and neither did they
file a suit in court to rescind the sale. The most that they were able to
show is a letter of Cipriano Amistad who, claiming to be an emissary of
Jabil, informed the Dignos spouses not to go to the house of Jabil
because the latter had no money and further advised petitioners to sell
the land in litigation to another party (Record on Appeal, p. 23). As
correctly found by the Court of Appeals, there is no showing that
Amistad was properly authorized by Jabil to make such extra-judicial
rescission for the latter who, on the contrary, vigorously denied having
sent Amistad to tell petitioners that he was already waiving his rights to
the land in question. Under Article 1358 of the Civil Code, it is required
that acts and contracts which have for their object the extinguishment
of real rights over immovable property must appear in a public
document.

Petitioners laid considerable emphasis on the fact that private

respondent Jabil had no money on the stipulated date of payment on
September 15,1965 and was able to raise the necessary amount only
by mid-October 1965.
13
14

G.R. No. 190016               October 2, 2013
FREDERICK VENTURA, MARITES VENTURA-ROXAS, and PHILIP
VENTURA (HEIRS OF DECEASED DOLORES C.
VENTURA), Petitioners,
vs.
HEIRS OF SPOUSES EUSTACIO T. ENDAYA and TRINIDAD L.
ENDAYA, namely, TITUS L. ENDAYA, ENRICO L. ENDAYA, and
JOSEPHINE ENDAYA-BANTUG,1 Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari 2 is the Decision3 dated
August 18, 2006 of the Court of Appeals (CA) in CA-G.R. CV No.68465
which reversed and set aside the Decision 4 dated August 7, 2000 of
the Regional Trial Court of Parañaque City, Branch 258 (RTC) in Civil
Case No. 96-0500, dismissing petitioners' complaint for specific
performance seeking to compel respondents to execute a deed of sale
over the properties subject of this case.
The facts
On June 29, 1981, Dolores Ventura (Dolores) entered into a Contract
to Sell5 (contract to sell) with spouses Eustacio and Trinidad Endaya
(Sps. Endaya) for the purchase of two parcels of land covered by
Transfer Certificates of Title (TCT) Nos. 392225 6 and (343392) S-
679757 (subject properties), denominated as Lots 8 and 9, Block 3,
situated in Marian Road II, Marian Park 8 (now Barangay San Martin de
Porres),9 Parañaque City, Metro Manila.
The contract to sell provides that the purchase price of
₱347,760.00shall be paid by Dolores in the following manner: (a) down
payment of ₱103,284.00 upon execution of the contract; and (b) the
balance of ₱244,476.00 within a 15-year period (payment period), plus
12% interest per annum (p.a.) on the outstanding balance and 12%
interest p.a. on arrearages. It further provides that all payments made
shall be applied in the following order: first, to the reimbursement of
real estate taxes and other charges; second, to the interest accrued to
the date of payment; third, to the amortization of the principal
obligation; and fourth, to the payment of any other accessory obligation
subsequently incurred by the owner in favor of the buyer. It likewise
imposed upon Dolores the obligation to pay the real property taxes
over the subject properties, or to reimburse Sps. Endaya for any tax
payments made by them, plus 1% interest per month. Upon full
15
payment of the stipulated consideration, Sps. Endaya undertook to
execute a final deed of sale and transfer ownership over the same in
favor of Dolores.10
Meanwhile, Dolores was placed in possession of the subject properties
and allowed to erect a building thereon.11 However, on April 10, 1992,
before the payment period expired, Dolores passed away.12
On November 28, 1996, Dolores’ children, Frederick Ventura, Marites
Ventura-Roxas, and Philip Ventura (petitioners), filed before the RTC a
Complaint13 and, thereafter, an Amended Complaint14 for specific
performance, seeking to compel Sps. Endaya to execute a deed of
sale over the subject properties. In this regard, they averred that due to
the close friendship between their parents and Sps. Endaya, the latter
did not require the then widowed Dolores to pay the down payment
stated in the contract to sell and, instead, allowed her to pay amounts
as her means would permit. The payments were made in cash as well
as in kind,15 and the same were recorded by respondent Trinidad
herself in a passbook 16 given to Dolores to evidence the receipt of said
payments. As of June 15, 1996, the total payments made by Dolores
and petitioners amounted to ₱952,152.00, which is more than the
agreed purchase price of ₱347,760.00, including the 12%interest p.a.
thereon computed on the outstanding balance. 17
However, when petitioners demanded 18 the execution of the
corresponding deed of sale, Sps. Endaya refused.
For their part, Sps. Endaya filed their Answer, 19 admitting the execution
and genuineness of the contract to sell and the passbook. However,
they countered that Dolores did not pay the stipulated down payment
and remitted only a total of 22 installments. After her death in1992,
petitioners no longer remitted any installment. Sps. Endaya also
averred that prior to Dolores' death, the parties agreed to a
restructuring of the contract to sell whereby Dolores agreed to give a
"bonus" of ₱265,673.93 and to pay interest at the increased rate of
24% p.a. on the outstanding balance. They further claimed that in April
1996, when the balance of the purchase price stood at ₱1,699,671.69,
a final restructuring of the contract to sell was agreed with petitioners,
fixing the obligation at ₱3,000,000.00. Thereafter, the latter paid a total
of ₱380,000.00 on two separate occasions, 20 leaving a balance of
₱2,620,000.00. In any event, Sps. Endaya pointed out that the
automatic cancellation clause under the foregoing contract rendered
the same cancelled as early as 1981 with Dolores’ failure to make a
down payment and to faithfully pay the installments; 21 hence,
petitioners’ complaint for specific performance must fail. In addition,
Sps. Endaya interposed a counterclaim for the alleged unpaid balance
of ₱2,620,000.00, plus damages, attorney's fees and costs of suit.22
In their Reply with Answer to Counterclaim, 23 petitioners denied the
existence of any restructuring of the contract to sell, invoking 24 the
Dead Man's Statute25 and the Statute of Frauds. 26 In turn, Sps. Endaya
filed a Rejoinder, 27 challenging the inapplicability of the foregoing
principles since the case was not filed against an estate or an
administrator of an estate, and in view of the partial performance of the
contract to sell.28
While the oral depositions of Sps. Endaya were taken at the 4th
Municipal Circuit Trial Court of Malvar-Balete, Batangas on account of
their frailty and old age, they, however, did not make a formal offer of
their depositions and documentary evidence. Hence, the case was
submitted for decision on the basis of the petitioners' evidence.29
The RTC Ruling
In a Decision30 dated August 7, 2000, the RTC found that petitioners
were able to prove by a preponderance of evidence the fact of full
payment of the purchase price for the subject properties. 31 As such, it
ordered Sps. Endaya to execute a deed of absolute sale covering the
sale of the subject properties in petitioners’ favor and to pay them
attorney's fees and costs of suit.32 Dissatisfied, Sps. Endaya elevated
the matter to the CA.
The CA Ruling and Subsequent Proceedings
In a Decision33 dated August 18, 2006 (August 18, 2006 Decision),the
CA reversed and set aside the RTC ruling. It found that petitioners
were not able to show that they fully complied with their obligations
under the contract to sell. It observed that aside from the payment of
the purchase price and 12% interest p.a. on the outstanding balance,
the contract to sell imposed upon petitioners the obligations to pay
12% interest p.a. on the arrears and to reimburse Sps. Endaya the
amount of the pertinent real estate taxes due on the subject properties,
which the former, however, totally disregarded as shown in their
summary of payments.34
Meanwhile, counsel for petitioners, Atty. German A. Gineta, passed
away on June 12, 2006, 35 hence, the notice of the August 18, 2006
Decision sent to him was returned unserved.36 On the other hand, the
notice sent to petitioners at No. 2, Barangay San Martin de Porres,
Parañaque City, was likewise returned unserved for the reason
"insufficient address."37 Nonetheless, the CA deemed the service of the
said notice to them as valid and complete as of March 9, 2007
pursuant to Section 8,38 Rule 13 of the Rules of Court (Rules).
Accordingly, it directed39 the Division Clerk of Court to issue the
corresponding Entry of Judgment. An Entry of Judgment40 was, thus,
made in the CA Book of Entries of Judgments certifying that the August
18, 2006 Decision became final and executory on March 25, 2007.The
records were thereafter remanded41 to the RTC.
In July 2009, respondent Titus Endaya, heir of Sps.
Endaya,42 demanded43 petitioners to vacate the subject properties,
which they refused.
On November 10, 2009, petitioners filed the instant petition invoking
the benevolence of the Court to set aside the CA’s August 18, 2006
Decision and, instead, reinstate the RTC Decision in the interest of
substantial justice. They claimed that they had no knowledge of the
demise of their counsel; therefore, they were unable to file a timely
motion for reconsideration before the CA or the proper petition before
the Court. Further, they contend that they have proven full payment of
the purchase price within the payment period as required by the
contract to sell.
For their part, the heirs of Sps. Endaya (respondents) objected 44 to the
belated filing of the petition long after the said CA Decision had lapsed
into finality, especially as the petition raised factual issues that are
improper in a petition for review on certiorari under Rule 45 of the
Rules. In any case, they countered that the CA correctly held that
petitioners failed to fully comply with their obligations under the
contract to sell; thus, respondents are under no obligation to execute
any deed of sale over the subject properties in favor of petitioners.
On September 22, 2010, the Court gave due course to the petition and
required the parties to file their respective memoranda, 45 which they
duly submitted.
The Issues Before the Court
The principal issues in this case are: (a) whether or not petitioners’
right to appeal before the Court should be upheld; and (b) whether or
not respondents should execute a deed of sale over the subject
properties in favor of petitioners.
The Court's Ruling
The petition is partly meritorious.
Anent the first issue, it is observed that the CA erroneously sent the
notice of the assailed August 18, 2006 Decision to petitioners at No. 2,
Barangay San Martin de Porres, Parañaque City, instead of their
address of record, i.e., Marian Road 2, Brgy. San Martin de Porres,
Parañaque, Metro Manila46 and thus, was returned unserved for the
reason "insufficient address."47
16
The notices of the Entry of Judgment 48 and the transmittal letter 49 to the
Clerk of Court of the RTC indicate this fact. As such, there was clearly
no proper and valid service of the said CA Decision which deprived
petitioners of the opportunity to file a motion for reconsideration before
the CA and/or further appeal to the Court. Verily, it would be unjust and
unfair to allow petitioners to suffer the adverse effects of the premature
entry of judgment made by the CA. Therefore, the Court deems it
prudent to set aside the foregoing entry and upholds petitioners' right
to appeal.
Nevertheless, with respect to the second issue, a thorough review of
the records reveals no sufficient reason to warrant the reversal of the
CA’s August 18, 2006 Decision dismissing petitioners' complaint for
specific performance which sought to enforce the contract to sell and to
compel respondents to execute a deed of sale over the subject
properties.1âwphi1
A contract to sell is defined as a bilateral contract whereby the
prospective seller, while expressly reserving the ownership of the
subject property despite delivery thereof to the prospective buyer,
binds himself to sell the said property exclusively to the latter upon his
fulfillment of the conditions agreed upon, i.e., the full payment of the
purchase price50 and/or compliance with the other obligations stated in
the contract to sell. Given its contingent nature, the failure of the
prospective buyer to make full payment 51 and/or abide by his
commitments stated in the contract to sell prevents the obligation of the
prospective seller to execute the corresponding deed of sale to effect
the transfer of ownership to the buyer from arising. As discussed in
Sps. Serrano and Herrera v. Caguiat:52
A contract to sell is akin to a conditional sale where the efficacy or
obligatory force of the vendor's obligation to transfer title 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. x x x.53
To note, while the quality of contingency inheres in a contract to sell,
the same should not be confused with a conditional contract of sale. In
a contract to sell, the fulfillment of the suspensive condition will not
automatically transfer ownership to the buyer although the property
may have been previously delivered to him. The prospective seller still
has to convey title to the prospective buyer by entering into a contract
of absolute sale.54 On the other hand, in a conditional contract of sale,
the fulfillment of the suspensive condition renders the sale absolute
and the previous delivery of the property has the effect of automatically
transferring the seller’s ownership or title to the property to the buyer. 55
Keeping with these principles, the Court finds that respondents had no
obligation to petitioners to execute a deed of sale over the subject
properties. As aptly pointed out by the CA, aside from the payment of
the purchase price and 12% interest p.a. on the outstanding balance,
the contract to sell likewise imposed upon petitioners the obligation to
pay the real property taxes over the subject properties as well as 12%
interest p.a. on the arrears. 56 However, the summary of payments 57 as
well as the statement of account58 submitted by petitioners clearly
show that only the payments corresponding to the principal obligation
and the 12% interest p.a. on the outstanding balance were considered
in arriving at the amount of ₱952,152.00. The Court has examined the
petition59 as well as petitioners' memorandum 60 and found no justifiable
reason for the said omission. Hence, the reasonable conclusion would
therefore be that petitioners indeed failed to comply with all their
obligations under the contract to sell and, as such, have no right to
enforce the same. Consequently, there lies no error on the part of the
CA in reversing the RTC Decision and dismissing petitioners’ complaint
for specific performance seeking to compel respondents to execute a
deed of sale over the subject properties.
WHEREFORE, the Entry of Judgment in CA-G.R. CV No. 68465 is
hereby LIFTED. The Decision dated August 18, 2006 of the Court of
Appeals in the said case is, however, AFFIRMED.
SO ORDERED.

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
17
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 to Teodoro, it could stock and/or probably had in stock the sash,
the respondent, manufacturers sash, windows and doors mouldings and panels it used therefor (some of them at least).
only for special customers and upon their special orders and
in accordance with the desired specifications of the persons
In our opinion when this Factory accepts a job that requires the use of
ordering the same and not for the general market: since the
extraordinary or additional equipment, or involves services not
doors ordered by Don Toribio Teodoro & Sons, Inc., for
generally performed by it-it thereby contracts for a piece of work —
instance, are not in existence and which never would have
filing special orders within the meaning of Article 1467. The orders
existed but for the order of the party desiring it; and since
herein exhibited were not shown to be special. They were merely
petitioner's contractual relation with his customers is that of a
orders for work — nothing is shown to call them special requiring
contract for a piece of work or since petitioner is engaged in
extraordinary service of the factory.
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). 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
But the argument rests on a false foundation. Any builder or
performing only special, extraordinary or peculiar merchandise?
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. Anyway, supposing for the moment that the transactions were not
And anyone who sees, and likes, the doors ordered by Don Toribio sales, they were neither lease of services nor contract jobs by a
Teodoro & Sons Inc. may purchase from appellant doors of the same contractor. But as the doors and windows had been admittedly
kind, provided he pays the price. Surely, the appellant will not refuse, "manufactured" by the Oriental Sash Factory, such transactions could
for it can easily duplicate or even mass-produce the same doors-it is be, and should be taxed as "transfers" thereof under section 186 of the
mechanically equipped to do so. National Revenue Code.

That the doors and windows must meet desired specifications is The appealed decision is consequently affirmed. So ordered.
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

18

G.R. No. L-27044 June 30, 1975
THE COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ENGINEERING EQUIPMENT AND SUPPLY COMPANY AND THE
COURT OF TAX APPEALS, respondents.
G.R. No. L-27452 June 30, 1975
ENGINEERING EQUIPMENT AND SUPPLY COMPANY, petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE AND THE COURT
OF TAX APPEALS, respondent.
Office of the Solicitor General Antonio P. Barredo, Assistant
Solicitor General Felicisimo R. Rosete, Solicitor Lolita O. Gal-
lang, and Special Attorney Gemaliel H. Montalino for
Commissioner of Internal Revenue, etc.
Melquides C. Gutierrez, Jose U. Ong, Juan G. Collas, Jr., Luis Ma.
Guerrero and J.R. Balonkita for Engineering and Supply
Company.
ESGUERRA, J.:
Petition for review on certiorari of the decision of the Court of Tax
Appeals in CTA Case No. 681, dated November 29, 1966,
assessing a compensating tax of P174,441.62 on the Engineering
Equipment and Supply Company.
As found by the Court of Tax Appeals, and as established by the
evidence on record, the facts of this case are as follows:
Engineering Equipment and Supply Co. (Engineering for short), a
domestic corporation, is an engineering and machinery firm. As
19
operator of an integrated engineering shop, it is engaged, among
others, in the design and installation of central type air
conditioning system, pumping plants and steel fabrications. (Vol.
I pp. 12-16 T.S.N. August 23, 1960)
On July 27, 1956, one Juan de la Cruz, wrote the then Collector,
now Commissioner, of Internal Revenue denouncing Engineering
for tax evasion by misdeclaring its imported articles and failing to
pay the correct percentage taxes due thereon in connivance with
its foreign suppliers (Exh. "2" p. 1 BIR record Vol. I). Engineering
was likewise denounced to the Central Bank (CB) for alleged
fraud in obtaining its dollar allocations. Acting on these
denunciations, a raid and search was conducted by a joint team
of Central Bank, (CB), National Bureau of Investigation (NBI) and
Bureau of Internal Revenue (BIR) agents on September 27, 1956,
on which occasion voluminous records of the firm were seized
and confiscated. (pp. 173-177 T.S.N.)
On September 30, 1957, revenue examiners Quesada and Catudan
reported and recommended to the then Collector, now
Commissioner, of Internal Revenue (hereinafter referred to as
Commissioner) that Engineering be assessed for P480,912.01 as
deficiency advance sales tax on the theory that it misdeclared its
importation of air conditioning units and parts and accessories
thereof which are subject to tax under Section 185(m) 1 of the Tax
Code, instead of Section 186 of the same Code. (Exh. "3" pp. 59-63
BIR rec. Vol. I) This assessment was revised on January 23, 1959, in
line with the observation of the Chief, BIR Law Division, and was raised
to P916,362.56 representing deficiency advance sales tax and
manufacturers sales tax, inclusive of the 25% and 50% surcharges.
(pp. 72-80 BIR rec. Vol. I)
On March 3, 1959. the Commissioner assessed against, and
demanded upon, Engineering payment of the increased amount and
suggested that P10,000 be paid as compromise in extrajudicial
settlement of Engineering's penal liability for violation of the Tax Code.
The firm, however, contested the tax assessment and requested that it
be furnished with the details and particulars of the Commissioner's
assessment. (Exh. "B" and "15", pp. 86-88 BIR rec. Vol. I) The
Commissioner replied that the assessment was in accordance with law
and the facts of the case.
On July 30, 1959, Engineering appealed the case to the Court of Tax
Appeals and during the pendency of the case the investigating revenue
examiners reduced Engineering's deficiency tax liabilities from
P916,362.65 to P740,587.86 (Exhs. "R" and "9" pp. 162-170, BIR rec.),
based on findings after conferences had with Engineering's Accountant
and Auditor.
On November 29, 1966, the Court of Tax Appeals rendered its
decision, the dispositive portion of which reads as follows:
For ALL THE FOREGOING CONSIDERATIONS,
the decision of respondent appealed from is
hereby modified, and petitioner, as a contractor, is
declared exempt from the deficiency
manufacturers sales tax covering the period from
June 1, 1948. to September 2, 1956. However,
petitioner is ordered to pay respondent, or his duly
authorized collection agent, the sum of
P174,141.62 as compensating tax and 25%
surcharge for the period from 1953 to September
1956. With costs against petitioner.
The Commissioner, not satisfied with the decision of the Court of Tax
Appeals, appealed to this Court on January 18, 1967, (G.R. No. L-
27044). On the other hand, Engineering, on January 4, 1967, filed with
the Court of Tax Appeals a motion for reconsideration of the decision
abovementioned. This was denied on April 6, 1967, prompting
Engineering to file also with this Court its appeal, docketed as G.R. No.
L-27452.
Since the two cases, G.R. No. L-27044 and G.R. No. L-27452, involve
the same parties and issues, We have decided to consolidate and
jointly decide them.
Engineering in its Petition claims that the Court of Tax Appeals
committed the following errors:
1. That the Court of Tax Appeals erred in holding
Engineering Equipment & Supply Company liable
to the 30% compensating tax on its importations of
equipment and ordinary articles used in the central
type air conditioning systems it designed,
fabricated, constructed and installed in the
buildings and premises of its customers, rather
than to the compensating tax of only 7%;
2. That the Court of Tax Appeals erred in holding
Engineering Equipment & Supply Company guilty
of fraud in effecting the said importations on the
basis of incomplete quotations from the contents
of alleged photostat copies of documents seized
illegally from Engineering Equipment and Supply
Company which should not have been admitted in
evidence;
3. That the Court of Tax Appeals erred in holding
Engineering Equipment & Supply Company liable
to the 25% surcharge prescribed in Section 190 of
the Tax Code;
4. That the Court of Tax Appeals erred in holding
the assessment as not having prescribed;
5. That the Court of Tax Appeals erred in holding
Engineering Equipment & Supply Company liable
for the sum of P174,141.62 as 30% compensating
tax and 25% surcharge instead of completely
absolving it from the deficiency assessment of the
Commissioner.
The Commissioner on the other hand claims that the Court of Tax
Appeals erred:
1. In holding that the respondent company is a
contractor and not a manufacturer.
2. In holding respondent company liable to the 3%
contractor's tax imposed by Section 191 of the Tax
Code instead of the 30% sales tax prescribed in
Section 185(m) in relation to Section 194(x) both
of the same Code;
3. In holding that the respondent company is
subject only to the 30% compensating tax under
Section 190 of the Tax Code and not to the 30%
advance sales tax imposed by section 183 (b), in
relation to section 185(m) both of the same Code,
on its importations of parts and accessories of air
conditioning units;
4. In not holding the company liable to the 50%
fraud surcharge under Section 183 of the Tax
Code on its importations of parts and accessories
of air conditioning units, notwithstanding the
finding of said court that the respondent company
fraudulently misdeclared the said importations;
5. In holding the respondent company liable for
P174,141.62 as compensating tax and 25%
surcharge instead of P740,587.86 as deficiency
advance sales tax, deficiency manufacturers tax
20
and 25% and 50% surcharge for the period from
June 1, 1948 to December 31, 1956.
The main issue revolves on the question of whether or not Engineering
is a manufacturer of air conditioning units under Section 185(m), supra,
in relation to Sections 183(b) and 194 of the Code, or a contractor
under Section 191 of the same Code.
The Commissioner contends that Engineering is a manufacturer and
seller of air conditioning units and parts or accessories thereof and,
therefore, it is subject to the 30% advance sales tax prescribed by
Section 185(m) of the Tax Code, in relation to Section 194 of the same,
which defines a manufacturer as follows:
Section 194. — Words and Phrases Defined. — In
applying the provisions of this Title, words and
phrases shall be taken in the sense and extension
indicated below:
xxx xxx xxx
(x) "Manufacturer" includes every person who by
physical or chemical process alters the exterior
texture or form or inner substance of any raw
material or manufactured or partially manufactured
products in such manner as to prepare it for a
special use or uses to which it could not have
been put in its original condition, or who by any
such process alters the quality of any such
material or manufactured or partially manufactured
product so as to reduce it to marketable shape, or
prepare it for any of the uses of industry, or who by
any such process combines any such raw material
or manufactured or partially manufactured
products with other materials or products of the
same or of different kinds and in such manner that
the finished product of such process of
manufacture can be put to special use or uses to
which such raw material or manufactured or
partially manufactured products in their original
condition could not have been put, and who in
addition alters such raw material or manufactured
or partially manufactured products, or combines
the same to produce such finished products for the
purpose of their sale or distribution to others and
not for his own use or consumption.
In answer to the above contention, Engineering claims that it is not a
manufacturer and setter of air-conditioning units and spare parts or
accessories thereof subject to tax under Section 185(m) of the Tax
Code, but a contractor engaged in the design, supply and installation of
the central type of air-conditioning system subject to the 3% tax
imposed by Section 191 of the same Code, which is essentially a tax
on the sale of services or labor of a contractor rather than on the sale
of articles subject to the tax referred to in Sections 184, 185 and 186 of
the Code.
The arguments of both the Engineering and the Commissioner call for
a clarification of the term contractor as well as the distinction between
a contract of sale and contract for furnishing services, labor and
materials. The distinction between a contract of sale and one for work,
labor and materials is tested by the inquiry whether the thing
transferred is one not in existence and which never would have existed
but for the order of the party desiring to acquire it, or a thing which
would have existed and has been the subject of sale to some other
persons even if the order had not been given. 2 If the article ordered by
the purchaser is exactly such as the plaintiff makes and keeps on hand
for sale to anyone, and no change or modification of it is made at
defendant's request, it is a contract of sale, even though it may be
entirely made after, and in consequence of, the defendants order for it.3
Our New Civil Code, likewise distinguishes a contract of sale from a
contract for a piece of work thus:
 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.
The word "contractor" has come to be used with special reference to a
person who, in the pursuit of the independent business, undertakes to
do a specific job or piece of work for other persons, using his own
means and methods without submitting himself to control as to the
petty details. (Arañas, Annotations and Jurisprudence on the National
Internal Revenue Code, p. 318, par. 191 (2), 1970 Ed.) The true test of
a contractor as was held in the cases of Luzon Stevedoring Co., vs.
Trinidad, 43, Phil. 803, 807-808, and La Carlota Sugar Central vs.
Trinidad, 43, Phil. 816, 819, would seem to be that he renders service
in the course of an independent occupation, representing the will of his
employer only as to the result of his work, and not as to the means by
which it is accomplished.
With the foregoing criteria as guideposts, We shall now examine
whether Engineering really did "manufacture" and sell, as alleged by
the Commissioner to hold it liable to the advance sales tax under
Section 185(m), or it only had its services "contracted" for installation
purposes to hold it liable under section 198 of the Tax Code.
I
After going over the three volumes of stenographic notes and the
voluminous record of the BIR and the CTA as well as the exhibits
submitted by both parties, We find that Engineering did not
manufacture air conditioning units for sale to the general public, but
imported some items (as refrigeration compressors in complete set,
heat exchangers or coils, t.s.n. p. 39) which were used in executing
contracts entered into by it. Engineering, therefore, undertook
negotiations and execution of individual contracts for the design,
supply and installation of air conditioning units of the central type (t.s.n.
pp. 20-36; Exhs. "F", "G", "H", "I", "J", "K", "L", and "M"), taking into
consideration in the process such factors as the area of the space to
be air conditioned; the number of persons occupying or would be
occupying the premises; the purpose for which the various air
conditioning areas are to be used; and the sources of heat gain or
cooling load on the plant such as sun load, lighting, and other electrical
appliances which are or may be in the plan. (t.s.n. p. 34, Vol. I)
Engineering also testified during the hearing in the Court of Tax
Appeals that relative to the installation of air conditioning system,
Engineering designed and engineered complete each particular plant
and that no two plants were identical but each had to be engineered
separately.
As found by the lower court, which finding 4 We adopt —
Engineering, in a nutshell, fabricates, assembles,
supplies and installs in the buildings of its various
customers the central type air conditioning system;
prepares the plans and specifications therefor
which are distinct and different from each other;
the air conditioning units and spare parts or
accessories thereof used by petitioner are not the
window type of air conditioner which are
manufactured, assembled and produced locally for
sale to the general market; and the imported air
conditioning units and spare parts or accessories
thereof are supplied and installed by petitioner
upon previous orders of its customers conformably
with their needs and requirements.
The facts and circumstances aforequoted support the theory that
Engineering is a contractor rather than a manufacturer.
21
The Commissioner in his Brief argues that "it is more in accord with
reason and sound business management to say that anyone who
desires to have air conditioning units installed in his premises and who
is in a position and willing to pay the price can order the same from the
company (Engineering) and, therefore, Engineering could have mass
produced and stockpiled air conditioning units for sale to the public or
to any customer with enough money to buy the same." This is
untenable in the light of the fact that air conditioning units, packaged,
or what we know as self-contained air conditioning units, are distinct
from the central system which Engineering dealt in. To Our mind, the
distinction as explained by Engineering, in its Brief, quoting from
books, is not an idle play of words as claimed by the Commissioner,
but a significant fact which We just cannot ignore. As quoted by
Engineering Equipment & Supply Co., from an Engineering handbook
by L.C. Morrow, and which We reproduce hereunder for easy
reference:
... there is a great variety of equipment in use to do
this job (of air conditioning). Some devices are
designed to serve a specific type of space; others
to perform a specific function; and still others as
components to be assembled into a tailor-made
system to fit a particular building. Generally,
however, they may be grouped into two
classifications — unitary and central system.
The unitary equipment classification includes
those designs such as room air conditioner, where
all of the functional components are included in
one or two packages, and installation involves only
making service connection such as electricity,
water and drains. Central-station systems, often
referred to as applied or built-up systems, require
the installation of components at different points in
a building and their interconnection.
The room air conditioner is a unitary equipment
designed specifically for a room or similar small
space. It is unique among air conditioning
equipment in two respects: It is in the electrical
appliance classification, and it is made by a great
number of manufacturers.
There is also the testimony of one Carlos Navarro, a licensed
Mechanical and Electrical Engineer, who was once the Chairman of
the Board of Examiners for Mechanical Engineers and who was
allegedly responsible for the preparation of the refrigeration and air
conditioning code of the City of Manila, who said that "the central type
air conditioning system is an engineering job that requires planning and
meticulous layout due to the fact that usually architects assign definite
space and usually the spaces they assign are very small and of various
sizes. Continuing further, he testified:
I don't think I have seen central type of air
conditioning machinery room that are exactly alike
because all our buildings here are designed by
architects dissimilar to existing buildings, and
usually they don't coordinate and get the advice of
air conditioning and refrigerating engineers so
much so that when we come to design, we have to
make use of the available space that they are
assigning to us so that we have to design the
different component parts of the air conditioning
system in such a way that will be accommodated
in the space assigned and afterwards the system
may be considered as a definite portion of the
building. ...
Definitely there is quite a big difference in the
operation because the window type air conditioner
is a sort of compromise. In fact it cannot control
humidity to the desired level; rather the
manufacturers, by hit and miss, were able to
satisfy themselves that the desired comfort within
 a room could be made by a definite setting of the
machine as it comes from the factory; whereas the
central type system definitely requires an
intelligent operator. (t.s.n. pp. 301-305, Vol. II)
The point, therefore, is this — Engineering definitely did not and was
not engaged in the manufacture of air conditioning units but had its
services contracted for the installation of a central system. The cases
cited by the Commissioner (Advertising Associates, Inc. vs. Collector of
Customs, 97, Phil. 636; Celestino Co & Co. vs. Collector of Internal
Revenue, 99 Phil. 841 and Manila Trading & Supply Co. vs. City of
Manila, 56 O.G. 3629), are not in point. Neither are they applicable
because the facts in all the cases cited are entirely different. Take for
instance the case of Celestino Co where this Court held the taxpayer to
be a manufacturer rather than a contractor of sash, doors and windows
manufactured in its factory. Indeed, from the very start, Celestino Co
intended itself to be a manufacturer of doors, windows, sashes etc. as
it did register a special trade name for its sash business and ordered
company stationery carrying the bold print "ORIENTAL SASH
FACTORY (CELESTINO CO AND COMPANY, PROP.) 926 Raon St.,
Quiapo, Manila, Tel. No. etc., Manufacturers of All Kinds of Doors,
Windows ... ." Likewise, Celestino Co never put up a contractor's bond
as required by Article 1729 of the Civil Code. Also, as a general rule,
sash factories receive orders for doors and windows of special design
only in particular cases, but the bulk of their sales is derived from
ready-made doors and windows of standard sizes for the average
home, which "sales" were reflected in their books of accounts totalling
P118,754.69 for the period from January, 1952 to September 30, 1952,
or for a period of only nine (9) months. This Court found said sum
difficult to have been derived from its few customers who placed
special orders for these items. Applying the abovestated facts to the
case at bar, We found them to he inapposite. Engineering advertised
itself as Engineering Equipment and Supply Company, Machinery
Mechanical Supplies, Engineers, Contractors, 174 Marques de
Comillas, Manila (Exh. "B" and "15" BIR rec. p. 186), and not as
manufacturers. It likewise paid the contractors tax on all the contracts
for the design and construction of central system as testified to by Mr.
Rey Parker, its President and General Manager. (t.s.n. p. 102, 103)
Similarly, Engineering did not have ready-made air conditioning units
for sale but as per testimony of Mr. Parker upon inquiry of Judge
Luciano of the CTA —
Q — Aside from the general
components, which go into air
conditioning plant or system of
the central type which your
company undertakes, and the
procedure followed by you in
obtaining and executing
contracts which you have
already testified to in previous
hearing, would you say that
the covering contracts for
these different projects
listed ... referred to in the list,
Exh. "F" are identical in every
respect? I mean every plan or
system covered by these
different contracts
identical in standard in every
respect, so that you can
reproduce them?
A — No, sir. They are not all
standard. On the contrary,
none of them are the same.
Each one must be designed
and constructed to meet the
particular requirements,
whether the application is to
be operated. (t.s.n. pp. 101-
102)
What We consider as on all fours with the case at bar is the case
of S.M. Lawrence Co. vs. McFarland, Commissioner of Internal
Revenue of the State of Tennessee and McCanless, 355 SW 2d, 100,
101, "where the cause presents the question of whether one engaged
in the business of contracting for the establishment of air conditioning
system in buildings, which work requires, in addition to the furnishing of
a cooling unit, the connection of such unit with electrical and plumbing
facilities and the installation of ducts within and through walls, ceilings
and floors to convey cool air to various parts of the building, is liable for
sale or use tax as a contractor rather than a retailer of tangible
personal property. Appellee took the Position that appellant was not
engaged in the business of selling air conditioning equipment as such
but in the furnishing to its customers of completed air conditioning
systems pursuant to contract, was a contractor engaged in the
construction or improvement of real property, and as such was liable
for sales or use tax as the consumer of materials and equipment used
in the consummation of contracts, irrespective of the tax status of its
contractors. To transmit the warm or cool air over the buildings, the
appellant installed system of ducts running from the basic units through
walls, ceilings and floors to registers. The contract called for completed
air conditioning systems which became permanent part of the buildings
and improvements to the realty." The Court held the appellant a
contractor which used the materials and the equipment upon the value
of which the tax herein imposed was levied in the performance of its
contracts with its customers, and that the customers did not purchase
the equipment and have the same installed.
Applying the facts of the aforementioned case to the present case, We
see that the supply of air conditioning units to Engineer's various
customers, whether the said machineries were in hand or not, was
especially made for each customer and installed in his building upon
his special order. The air conditioning units installed in a central type of
air conditioning system would not have existed but for the order of the
party desiring to acquire it and if it existed without the special order of
Engineering's customer, the said air conditioning units were not
intended for sale to the general public. Therefore, We have but to
affirm the conclusion of the Court of Tax Appeals that Engineering is a
contractor rather than a manufacturer, subject to the contractors tax
prescribed by Section 191 of the Code and not to the advance sales
tax imposed by Section 185(m) in relation to Section 194 of the same
Code. Since it has been proved to Our satisfaction that Engineering
imported air conditioning units, parts or accessories thereof for use in
its construction business and these items were never sold, resold,
bartered or exchanged, Engineering should be held liable to pay taxes
prescribed under Section 1905 of the Code. This compensating tax is
not a tax on the importation of goods but a tax on the use of imported
goods not subject to sales tax. Engineering, therefore, should be held
liable to the payment of 30% compensating tax in accordance with
Section 190 of the Tax Code in relation to Section 185(m) of the same,
but without the 50% mark up provided in Section 183(b).
II
We take up next the issue of fraud. The Commissioner charged
Engineering with misdeclaration of the imported air conditioning units
and parts or accessories thereof so as to make them subject to a lower
rate of percentage tax (7%) under Section 186 of the Tax Code, when
they are allegedly subject to a higher rate of tax (30%) under its
Section 185(m). This charge of fraud was denied by Engineering but
the Court of Tax Appeals in its decision found adversely and said"
are
... We are amply convinced from the evidence
presented by respondent that petitioner
deliberately and purposely misdeclared its
importations. This evidence consists of letters
written by petitioner to its foreign suppliers,
instructing them on how to invoice and describe
the air conditioning units ordered by petitioner. ...
(p. 218 CTA rec.)
Despite the above findings, however, the Court of Tax Appeals
absolved Engineering from paying the 50% surcharge prescribe by
Section 183(a) of the Tax Code by reasoning out as follows:
The imposition of the 50% surcharge prescribed
by Section 183(a) of the Tax Code is based on
22
 willful neglect to file the monthly return within 20
days after the end of each month or in case a false
or fraudulent return is willfully made, it can readily
be seen, that petitioner cannot legally be held
subject to the 50% surcharge imposed by Section
183(a) of the Tax Code. Neither can petitioner be
held subject to the 50% surcharge under Section
190 of the Tax Code dealing on compensating tax
because the provisions thereof do not include the
50% surcharge. Where a particular provision of the
Tax Code does not impose the 50% surcharge as
fraud penalty we cannot enforce a non-existing
provision of law notwithstanding the assessment of
respondent to the contrary. Instances of the
exclusion in the Tax Code of the 50% surcharge
are those dealing on tax on banks, taxes on
receipts of insurance companies, and franchise
tax. However, if the Tax Code imposes the 50%
surcharge as fraud penalty, it expressly so
provides as in the cases of income tax, estate and
inheritance taxes, gift taxes, mining tax,
amusement tax and the monthly percentage taxes.
Accordingly, we hold that petitioner is not subject
to the 50% surcharge despite the existence of
fraud in the absence of legal basis to support the
importation thereof. (p. 228 CTA rec.)
We have gone over the exhibits submitted by the Commissioner
evidencing fraud committed by Engineering and We reproduce some of
them hereunder for clarity.
As early as March 18, 1953, Engineering in a letter of even date wrote
to Trane Co. (Exh. "3-K" pp. 152-155, BIR rec.) viz:
Your invoices should be made in the name of
Madrigal & Co., Inc., Manila, Philippines, c/o
Engineering Equipment & Supply Co., Manila,
Philippines — forwarding all correspondence and
shipping papers concerning this order to us only
and not to the customer.
When invoicing, your invoices should be exactly as
detailed in the customer's Letter Order dated
March 14th, 1953 attached. This is in accordance
with the Philippine import licenses granted to
Madrigal & Co., Inc. and such details must only be
shown on all papers and shipping documents for
this shipment. No mention of words air
conditioning equipment should be made on any
shipping documents as well as on the
cases. Please give this matter your careful
attention, otherwise great difficulties will be
encountered with the Philippine Bureau of
Customs when clearing the shipment on its arrival
in Manila. All invoices and cases should be
marked "THIS EQUIPMENT FOR RIZAL CEMENT
CO."
The same instruction was made to Acme Industries, Inc., San
Francisco, California in a letter dated March 19, 1953 (Exh. "3-J-1" pp.
150-151, BIR rec.)
On April 6, 1953, Engineering wrote to Owens-Corning Fiberglass
Corp., New York, U.S.A. (Exh. "3-1" pp. 147-149, BIR rec.) also
enjoining the latter from mentioning or referring to the term 'air
conditioning' and to describe the goods on order as Fiberglass pipe
and pipe fitting insulation instead. Likewise on April 30, 1953,
Engineering threatened to discontinue the forwarding service of
Universal Transcontinental Corporation when it wrote Trane Co. (Exh.
"3-H" p. 146, BIR rec.):
It will be noted that the Universal Transcontinental
Corporation is not following through on the
instructions which have been covered by the
23
above correspondence, and which indicates the
necessity of discontinuing the use of the term "Air
conditioning Machinery or Air Coolers". Our
instructions concerning this general situation have
been sent to you in ample time to have avoided
this error in terminology, and we will ask that on
receipt of this letter that you again write to
Universal Transcontinental Corp. and inform them
that, if in the future, they are unable to cooperate
with us on this requirement, we will thereafter be
unable to utilize their forwarding service. Please
inform them that we will not tolerate another failure
to follow our requirements.
And on July 17, 1953 (Exh- "3-g" p. 145, BIR rec.) Engineering wrote
Trane Co. another letter, viz:
In the past, we have always paid the air
conditioning tax on climate changers and that
mark is recognized in the Philippines, as air
conditioning equipment. This matter of avoiding
any tie-in on air conditioning is very important to
us, and we are asking that from hereon that
whoever takes care of the processing of our orders
be carefully instructed so as to avoid again using
the term "Climate changers" or in any way
referring to the equipment as "air conditioning."
And in response to the aforequoted letter, Trane Co. wrote on July 30,
1953, suggesting a solution, viz:
We feel that we can probably solve all the
problems by following the procedure outlined in
your letter of March 25, 1953 wherein you stated
that in all future jobs you would enclose
photostatic copies of your import license so that
we might make up two sets of invoices: one set
describing equipment ordered simply according to
the way that they are listed on the import license
and another according to our ordinary regular
methods of order write-up. We would then include
the set made up according to the import license in
the shipping boxes themselves and use those
items as our actual shipping documents and
invoices, and we will send the other regular invoice
to you, by separate correspondence. (Exh- No. "3-
F-1", p. 144 BIR rec.)
Another interesting letter of Engineering is one dated August 27, 1955
(Exh. "3-C" p. 141 BIR rec.)
In the process of clearing the shipment from the
piers, one of the Customs inspectors requested to
see the packing list. Upon presenting the packing
list, it was discovered that the same was prepared
on a copy of your letterhead which indicated that
the Trane Co. manufactured air conditioning,
heating and heat transfer equipment. Accordingly,
the inspectors insisted that this equipment was
being imported for air conditioning purposes. To
date, we have not been able to clear the shipment
and it is possible that we will be required to pay
heavy taxes on equipment.
The purpose of this letter is to request that in the
future, no documents of any kind should be sent
with the order that indicate in any way that the
equipment could possibly be used for air
conditioning.
It is realized that this a broad request and fairly
difficult to accomplish and administer, but we
believe with proper caution it can be executed.
 Your cooperation and close supervision Since the imported air conditioning units-and spare parts or
concerning these matters will be appreciated. accessories thereof are subject to the compensating tax of 30% as the
(Emphasis supplied) same were used in the construction business of Engineering, it is
incumbent upon the latter to comply with the aforequoted requirement
of Section 190 of the Code, by posting in its books of accounts or
The aforequoted communications are strongly indicative of the
notifying the Collector of Internal Revenue that the imported articles
fraudulent intent of Engineering to misdeclare its importation of air
were used for other purposes within 30 days. ... Consequently; as the
conditioning units and spare parts or accessories thereof to evade
30% compensating tax was not paid by petitioner within the time
payment of the 30% tax. And since the commission of fraud is
prescribed by Section 190 of the Tax Code as amended, it is therefore
altogether too glaring, We cannot agree with the Court of Tax Appeals
subject to the 25% surcharge for delinquency in the payment of the
in absolving Engineering from the 50% fraud surcharge, otherwise We
said tax. (pp. 224-226 CTA rec.)
will be giving premium to a plainly intolerable act of tax evasion. As
aptly stated by then Solicitor General, now Justice, Antonio P. Barredo:
'this circumstance will not free it from the 50% surcharge because in III
any case whether it is subject to advance sales tax or compensating
tax, it is required by law to truly declare its importation in the import
Lastly the question of prescription of the tax assessment has been put
entries and internal revenue declarations before the importations
in issue. Engineering contends that it was not guilty of tax fraud in
maybe released from customs custody. The said entries are the very
effecting the importations and, therefore, Section 332(a) prescribing
documents where the nature, quantity and value of the imported goods
ten years is inapplicable, claiming that the pertinent prescriptive period
declared and where the customs duties, internal revenue taxes, and
is five years from the date the questioned importations were made. A
other fees or charges incident to the importation are computed. These
review of the record however reveals that Engineering did file a tax
entries, therefore, serve the same purpose as the returns required by
return or declaration with the Bureau of Customs before it paid the
Section 183(a) of the Code.'
advance sales tax of 7%. And the declaration filed reveals that it did in
fact misdeclare its importations. Section 332 of the Tax Code which
Anent the 25% delinquency surcharge, We fully agree to the ruling provides:
made by the Court of Tax Appeals and hold Engineering liable for the
same. As held by the lower court:
Section 332. — Exceptions as to period of
limitation of assessment and collection of taxes. —
At first blush it would seem that the contention of
petitioner that it is not subject to the delinquency,
(a) In the case of a false or fraudulent return with
surcharge of 25% is sound, valid and tenable.
intent to evade tax or of a failure to file a return,
However, a serious study and critical analysis of
the tax may be assessed, or a proceeding in court
the historical provisions of Section 190 of the Tax
for the collection of such tax may be begun without
Code dealing on compensating tax in relation to
assessment at any time within ten years after the
Section 183(a) of the same Code, will show that
discovery of the falsity, fraud or omission.
the contention of petitioner is without merit. The
original text of Section 190 of Commonwealth Act
466, otherwise known as the National Internal is applicable, considering the preponderance of evidence of fraud with
Revenue Code, as amended by Commonwealth the intent to evade the higher rate of percentage tax due from
Act No. 503, effective on October 1, 1939, does Engineering. The, tax assessment was made within the period
not provide for the filing of a compensation tax prescribed by law and prescription had not set in against the
return and payment of the 25 % surcharge for late Government.
payment thereof. Under the original text of Section
190 of the Tax Code as amended by
WHEREFORE, the decision appealed from is affirmed with the
Commonwealth Act No. 503, the contention of the
modification that Engineering is hereby also made liable to pay the
petitioner that it is not subject to the 25%
50% fraud surcharge.
surcharge appears to be legally tenable. However,
Section 190 of the Tax Code was subsequently
amended by the Republic Acts Nos. 253, 361, SO ORDERED.
1511 and 1612 effective October 1, 1946, July 1,
1948, June 9, 1949, June 16, 1956 and August 24,
1956 respectively, which invariably provides
among others, the following:

... If any article withdrawn

from the customhouse or the
post office without payment of
the compensating tax is
subsequently used by the
importer for other purposes,
corresponding entry should be
made in the books of
accounts if any are kept or a
written notice thereof sent to
the Collector of Internal
Revenue and payment of the
corresponding compensating
tax made within 30 days from
the date of such entry or
notice and if tax is not paid
within such period the amount
of the tax shall be increased
by 25% the increment to be a
part of the tax.

24
 (A) Mr. Quiroga shall furnish beds of his manufacture to Mr.
Parsons for the latter's establishment in Iloilo, and shall
invoice them at the same price he has fixed for sales, in
Manila, and, in the invoices, shall make and allowance of a
discount of 25 per cent of the invoiced prices, as commission
on the sale; and Mr. Parsons shall order the beds by the
dozen, whether of the same or of different styles.

(B) Mr. Parsons binds himself to pay Mr. Quiroga for the
beds received, within a period of sixty days from the date of
their shipment.

(C) The expenses for transportation and shipment shall be

borne by M. Quiroga, and the freight, insurance, and cost of
unloading from the vessel at the point where the beds are
received, shall be paid by Mr. Parsons.

(D) If, before an invoice falls due, Mr. Quiroga should

request its payment, said payment when made shall be
considered as a prompt payment, and as such a deduction
of 2 per cent shall be made from the amount of the invoice.

The same discount shall be made on the amount of any

invoice which Mr. Parsons may deem convenient to pay in
cash.

(E) Mr. Quiroga binds himself to give notice at least fifteen

days before hand of any alteration in price which he may
plan to make in respect to his beds, and agrees that if on the
date when such alteration takes effect he should have any
order pending to be served to Mr. Parsons, such order shall
enjoy the advantage of the alteration if the price thereby be
lowered, but shall not be affected by said alteration if the
price thereby be increased, for, in this latter case, Mr.
Quiroga assumed the obligation to invoice the beds at the
price at which the order was given.

(F) Mr. Parsons binds himself not to sell any other kind
except the "Quiroga" beds.

ART. 2. In compensation for the expenses of advertisement

which, for the benefit of both contracting parties, Mr. Parsons
may find himself obliged to make, Mr. Quiroga assumes the
obligation to offer and give the preference to Mr. Parsons in
G.R. No. L-11491            August 23, 1918 case anyone should apply for the exclusive agency for any
island not comprised with the Visayan group.

ANDRES QUIROGA, plaintiff-appellant,
vs. ART. 3. Mr. Parsons may sell, or establish branches of his
PARSONS HARDWARE CO., defendant-appellee. agency for the sale of "Quiroga" beds in all the towns of the
Archipelago where there are no exclusive agents, and shall
immediately report such action to Mr. Quiroga for his
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant. approval.
Crossfield & O'Brien for appellee.

ART. 4. This contract is made for an unlimited period, and

AVANCEÑA, J.:
On January 24, 1911, in this city of manila, a contract in the following
tenor was entered into by and between the plaintiff, as party of the first
part, and J. Parsons (to whose rights and obligations the present
defendant later subrogated itself), as party of the second part:
CONTRACT EXECUTED BY AND BETWEEN
ANDRES QUIROGA AND J. PARSONS, BOTH
MERCHANTS ESTABLISHED IN MANILA, FOR
THE EXCLUSIVE SALE OF "QUIROGA" BEDS IN
THE VISAYAN ISLANDS.
ARTICLE 1. Don Andres Quiroga grants the exclusive right
to sell his beds in the Visayan Islands to J. Parsons under
the following conditions:
may be terminated by either of the contracting parties on a
previous notice of ninety days to the other party.
Of the three causes of action alleged by the plaintiff in his complaint,
only two of them constitute the subject matter of this appeal and both
substantially amount to the averment that the defendant violated the
following obligations: not to sell the beds at higher prices than those of
the invoices; to have an open establishment in Iloilo; itself to conduct
the agency; to keep the beds on public exhibition, and to pay for the
advertisement expenses for the same; and to order the beds by the
dozen and in no other manner. As may be seen, with the exception of
the obligation on the part of the defendant to order the beds by the
dozen and in no other manner, none of the obligations imputed to the
defendant in the two causes of action are expressly set forth in the
contract. But the plaintiff alleged that the defendant was his agent for
the sale of his beds in Iloilo, and that said obligations are implied in a
contract of commercial agency. The whole question, therefore, reduced
itself to a determination as to whether the defendant, by reason of the

25
contract hereinbefore transcribed, was a purchaser or an agent of the made was of certain brass beds, and was not effected in exchange for
plaintiff for the sale of his beds. the price paid for them, but was for other beds of another kind; and for
the letter Exhibit L-1, requested the plaintiff's prior consent with respect
to said beds, which shows that it was not considered that the
In order to classify a contract, due regard must be given to its essential
defendant had a right, by virtue of the contract, to make this return. As
clauses. In the contract in question, what was essential, as constituting
regards the shipment of beds without previous notice, it is insinuated in
its cause and subject matter, is that the plaintiff was to furnish the
the record that these brass beds were precisely the ones so shipped,
defendant with the beds which the latter might order, at the price
and that, for this very reason, the plaintiff agreed to their return. And
stipulated, and that the defendant was to pay the price in the manner
with respect to the so-called commissions, we have said that they
stipulated. The price agreed upon was the one determined by the
merely constituted a discount on the invoice price, and the reason for
plaintiff for the sale of these beds in Manila, with a discount of from 20
applying this benefit to the beds sold directly by the plaintiff to persons
to 25 per cent, according to their class. Payment was to be made at the
in Iloilo was because, as the defendant obligated itself in the contract
end of sixty days, or before, at the plaintiff's request, or in cash, if the
to incur the expenses of advertisement of the plaintiff's beds, such
defendant so preferred, and in these last two cases an additional
sales were to be considered as a result of that advertisement.
discount was to be allowed for prompt payment. These are precisely
the essential features of a contract of purchase and sale. There was
the obligation on the part of the plaintiff to supply the beds, and, on the In respect to the defendant's obligation to order by the dozen, the only
part of the defendant, to pay their price. These features exclude the one expressly imposed by the contract, the effect of its breach would
legal conception of an agency or order to sell whereby the mandatory only entitle the plaintiff to disregard the orders which the defendant
or agent received the thing to sell it, and does not pay its price, but might place under other conditions; but if the plaintiff consents to fill
delivers to the principal the price he obtains from the sale of the thing them, he waives his right and cannot complain for having acted thus at
to a third person, and if he does not succeed in selling it, he returns it. his own free will.
By virtue of the contract between the plaintiff and the defendant, the
latter, on receiving the beds, was necessarily obliged to pay their price
For the foregoing reasons, we are of opinion that the contract by and
within the term fixed, without any other consideration and regardless as
between the plaintiff and the defendant was one of purchase and sale,
to whether he had or had not sold the beds.
and that the obligations the breach of which is alleged as a cause of
action are not imposed upon the defendant, either by agreement or by
It would be enough to hold, as we do, that the contract by and between law.
the defendant and the plaintiff is one of purchase and sale, in order to
show that it was not one made on the basis of a commission on sales,
The judgment appealed from is affirmed, with costs against the
as the plaintiff claims it was, for these contracts are incompatible with
appellant. So ordered.
each other. But, besides, examining the clauses of this contract, none
of them is found that substantially supports the plaintiff's contention.
Not a single one of these clauses necessarily conveys the idea of an
agency. The words commission on sales used in clause (A) of article 1
mean nothing else, as stated in the contract itself, than a mere
discount on the invoice price. The word agency, also used in articles 2
and 3, only expresses that the defendant was the only one that could
sell the plaintiff's beds in the Visayan Islands. With regard to the
remaining clauses, the least that can be said is that they are not
incompatible with the contract of purchase and sale.

The plaintiff calls attention to the testimony of Ernesto Vidal, a former

vice-president of the defendant corporation and who established and
managed the latter's business in Iloilo. It appears that this witness,
prior to the time of his testimony, had serious trouble with the
defendant, had maintained a civil suit against it, and had even accused
one of its partners, Guillermo Parsons, of falsification. He testified that
it was he who drafted the contract Exhibit A, and, when questioned as
to what was his purpose in contracting with the plaintiff, replied that it
was to be an agent for his beds and to collect a commission on sales.
However, according to the defendant's evidence, it was Mariano Lopez
Santos, a director of the corporation, who prepared Exhibit A. But,
even supposing that Ernesto Vidal has stated the truth, his statement
as to what was his idea in contracting with the plaintiff is of no
importance, inasmuch as the agreements contained in Exhibit A which
he claims to have drafted, constitute, as we have said, a contract of
purchase and sale, and not one of commercial agency. This only
means that Ernesto Vidal was mistaken in his classification of the
contract. But it must be understood that a contract is what the law
defines it to be, and not what it is called by the contracting parties.

The plaintiff also endeavored to prove that the defendant had returned
beds that it could not sell; that, without previous notice, it forwarded to
the defendant the beds that it wanted; and that the defendant received
its commission for the beds sold by the plaintiff directly to persons in
Iloilo. But all this, at the most only shows that, on the part of both of
them, there was mutual tolerance in the performance of the contract in
disregard of its terms; and it gives no right to have the contract
considered, not as the parties stipulated it, but as they performed it.
Only the acts of the contracting parties, subsequent to, and in
connection with, the execution of the contract, must be considered for
the purpose of interpreting the contract, when such interpretation is
necessary, but not when, as in the instant case, its essential
agreements are clearly set forth and plainly show that the contract
belongs to a certain kind and not to another. Furthermore, the return

26