G.R. No. 137552.
 June 16, 2000.* bargain, and whenever earnest money is given in a contract of sale, it is considered
ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, MICHAEL Z.
LAFORTEZA, DENNIS Z LAFORTEZA, and LEA Z. LAFORTEZA,
petitioners, vs. ALONZO MACHUCA, respondent.
Contracts; Sales; Words and Phrases; A contract of sale is a consensual
contract and is perfected at the moment there is a meeting of the minds upon the
thing which is the object of the contract and upon the price.—A contract of sale is a
consensual contract and is perfected at the moment there is a meeting of the minds
upon the thing which is the object of the contract and upon the price. From that
moment the parties may reciprocally demand performance subject to the provisions
of the law governing the form of contracts. The elements of a valid contract of sale
under Article 1458 of the Civil Code are (1) consent or meeting of the minds; (2)
determinate subject matter; and (3) price certain in money or its equivalent.
Same: Same; Same; Options; An option is a contract granting a privilege to
buy or sell within an agreed time and at a determined price.—The six-month period
during which the respondent would be in possession of the property as lessee, was
clearly not a period within which to exercise an option. An option is a contract
granting a privilege to buy or sell within an agreed time and at a determined price.
An option contract is a separate and distinct contract from that which the parties may
enter into upon the consummation of the option. An option must be supported by
consideration. An option contract is governed by the second paragraph of Article
1479 of the Civil Code.
Same; Same; Failure to comply with the condition imposed upon the
perfection of the contract results in the failure of a contract, while failure to comply
with a condition imposed on the performance of an obligation only gives the other
party the option either to refuse to proceed with the sale or to waive the condition.—
The issuance of the new certificate of title in the name of the late Francisco Laforteza
and the execution of an extrajudicial settlement of his estate was not a condition
which determined the perfection of the  tory force. There is clearly no express reservation of title made by the
_______________
*
 THIRD DIVISION.
644
644  SUPREME COURT REPORTS ANNOTATED  the buyer to pay the balance of the purchase price is made subject to the condition
Laforteza vs. Machuca
contract of sale. Petitioners’ contention that since the condition was not met,
they no longer had an obligation to proceed with the sale of the house and lot is
unconvincing. The petitioners fail to distinguish between a condition imposed upon
the perfection of the contract and a condition imposed on the performance of an
obligation. Failure to comply with the first condition results in the failure of a
contract, while the failure to comply with the second condition only gives the other
party the option either to refuse to proceed with the sale or to waive the condition.
Sales: Earnest Money; Words and Phrases; Earnest money is something of
value to show that the buyer was really in earnest, and given to the seller to bind the
as part of the purchase price and proof of the perfection of the contract.—What
further militates against petitioners’ argument that they did not enter into a contract
of sale is the fact that the respondent paid thirty thousand pesos (P30,000.00) as
earnest money. Earnest money is something of value to show that the buyer was
really in earnest, and given to the seller to bind the bargain. Whenever earnest money
is given in a contract of sale, it is considered as part of the purchase price and proof
of the perfection of the contract.
Same; Contract to Sell; Words and Phrases; A contract to sell, i.e. one
whereby the prospective seller would explicitly reserve the transfer of title to the
prospective buyer, meaning, the prospective seller does not as yet agree or consent
to transfer ownership of the property subject of the contract to sell until the full
payment of the price, such payment being a positive suspensive condition, the failure
of which is not considered a breach, casual or serious, but simply an event which
prevented the obligation from acquiring any obligatory force.—We do not subscribe
to the petitioners’ view that the Memorandum Agreement was a contract to sell.
There is nothing contained in the Memorandum Agreement from which it can
reasonably be deduced that the parties intended to enter into a contract to
sell, i.e. one whereby the prospective seller would explicitly reserve the transfer of
title to the prospective buyer, meaning, the prospective seller does not as yet agree or
consent to transfer ownership of the property subject of the contract to sell until the
full payment of the price, such payment being a positive suspensive condition, the
failure of which is not considered a breach, casual or serious, but simply an event
which prevented the obligation from acquiring any obliga-
645
VOL. 333, JUNE 16, 2000  645 
Laforteza vs. Machuca
petitioners over the property, or any provision which would impose non-payment of
the price as a condition for the contract’s entering into force.
Same; Words and Phrases; A deed of sale is absolute in nature although
denominated a conditional sale in the absence of a stipulation reserving title in the
seller until full payment of the purchase price; The mere fact that the obligation of
that the seller first deliver the reconstituted title of the house and lot does not make
the contract a contract to sell for such condition is not inconsistent with a contract of
sale.—Although the memorandum agreement was also denominated as a “Contract
to Sell,” we hold that the parties contemplated a contract of sale. A deed of sale is
absolute in nature although denominated a conditional sale in the absence of a
stipulation reserving title in the petitioners until full payment of the purchase price.
In such cases, ownership of the thing sold passes to the vendee upon actual or
constructive delivery thereof. The mere fact that the obligation of the respondent to
pay the balance of the purchase price was made subject to the condition that the
petitioners first deliver the reconstituted title of the house and lot does not make the
1
contract a contract to sell for such condition is not inconsistent with a contract of
sale.
Same; Obligations and Contracts; In reciprocal obligations, neither party
incurs in delay if the other party does not comply or is not ready to comply in a
proper manner with what was incumbent upon him.—Admittedly, the failure of the
respondent to pay the balance of the purchase price was a breach of the contract and
was a ground for rescission thereof. The extension of thirty (30) days allegedly
granted to the respondent by Roberto Z. Laforteza (assisted by his counsel Attorney
Romeo Gutierrez) was correctly found by the Court of Appeals to be ineffective
inasmuch as the signature of Gonzalo Z. Laforteza did not appear thereon as required
by the Special Powers of Attorney. However, the evidence reveals that after the
expiration of the six-month period provided for in the contract, the petitioners were
not ready to comply with what was incumbent upon them, i.e. the delivery of the
reconstituted title of the house and lot. It was only on September 18, 1989 or nearly
eight months after the execution of the Memorandum of Agreement when the
petitioners informed the respondent that they already had a copy of the reconsti-
646
646  SUPREME COURT REPORTS ANNOTATED  was caused by the respondents justified but mistaken belief that an extension to pay
Laforteza vs. Machuca
tuted title and demanded the payment of the balance of the purchase price. The
respondent could not therefore be considered in delay for in reciprocal obligations,
neither party incurs in delay if the other party does not comply or is not ready to
comply in a proper manner with what was incumbent upon him.
Same; Rescission; A letter informing the buyer of the automatic rescission of
an agreement does not amount to a demand for rescis-sion if it is not notarized; An
offer to pay prior to the demand for rescission is sufficient to defeat the seller’s right
under Article 1592 of the Civil Code.—Even assuming for the sake of argument that
the petitioners were ready to comply with their obligation, we find that rescission of
the contract will still not prosper. The rescission of a sale of an immovable property
is specifically governed by Article 1592 of the New Civil Code, which reads: “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.” It is
not disputed that the petitioners did not make a judicial or notar-ial demand for
rescission. The November 20, 1989 letter of the petitioners informing the respondent
of the automatic rescission of the agreement did not amount to a demand for
rescission, as it was not notarized. It was also made five days after the respondent’s
attempt to make the payment of the purchase price. This offer to pay prior to the
demand for rescission is sufficient to defeat the petitioners’ right under Article 1592
of the Civil Code.
Same; Same; A seller cannot unilaterally and extrajudicially rescind a
contract of sale where there is no express stipulation authorizing him to
extrajudicially rescind.—The Memorandum Agreement between the parties did not
contain a clause expressly authorizing the automatic cancellation of the contract
without court intervention in the event that the terms thereof were violated. A seller
cannot unilaterally and extrajudicially rescind a contract of sale where there is no
express stipulation authorizing him to extrajudicially rescind. Neither was there a
judicial demand for the rescission thereof. Thus, when the respondent filed his
complaint for specific performance, the agreement was still in force inasmuch as the
contract was not yet rescinded.
647
VOL. 333, JUNE 16, 2000  647 
Laforteza vs. Machuca
Same; Same; Rescission of a contract will not be permitted for a slight or
casual breach, but only such substantial and fundamental breach as would defeat the
very object of the parties in making the agreement.—At any rate, considering that the
six-month period was merely an approximation of the time it would take to
reconstitute the lost title and was not a condition imposed on the perfection of the
contract and considering further that the delay in payment was only thirty days which
was granted to him, we agree with the Court of Appeals that the delay of one month
in payment was a mere casual breach that would not entitle the respondents to
rescind the contract. Rescission of a contract will not be permitted for a slight or
casual breach, but only such substantial and fundamental breach as would defeat the
very object of the parties in making the agreement.
Same; Consignation; The failure of the buyer to consignate the balance of the
purchase price is not tantamount to a breach of the contract for by the fact of
tendering payment, he was willing and able to comply with his obligation.—
Petitioners’ insistence that the respondent should have consignated the amount is not
determinative of whether respondent’s action for specific performance will lie.
Petitioners themselves point out that the effect of consignation is to extinguish the
obligation. It releases the debtor from responsibility therefor. The failure of the
respondent to consignate the P600,000.00 is not tantamount to a breach of the
contract for by the fact of tendering payment, he was willing and able to comply with
his obligation.
Damages; Moral damages may be awarded in case of a breach of contract
where the defendant acted in bad faith.—The Court of Appeals correctly found the
petitioners guilty of bad faith and awarded moral damages to the respondent. As
found by the said Court, the petitioners refused to comply with their obligation for
the reason that they were offered a higher price therefor and the respondent was even
offered P100,000.00 by the petitioners’ lawyer, Attorney Gutierrez, to relinquish his
rights over the property. The award of moral damages is in accordance with Article
1191 of the Civil Code pursuant to Article 2220 which provides that moral damages
may be awarded in case of a breach of contract where the defendant acted in bad
faith. The amount awarded depends on the discretion of the court based on the
circumstances of each case. 
2
 648
648  SUPREME COURT REPORTS ANNOTATED  any document or paper to exercise authority granted, the signature of both
Laforteza vs. Machuca
Under the circumstances, the award given by the Court of Appeals amounting
to P50,000.00 appears to us to be fair and reasonable.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
     Gutierrez, Cortez & Partners for petitioners.
     Kapunan, Imperial, Panaguiton & Bongolancollaborating counsel
petitioners.
     Yulo, Aliling and Associates for respondent.
GONZAGA-REYES, J.:
This Petition for Review on Certiorari seeks the reversal of the Decision of the
Court of Appeals 1 in CA G.R. CV No. 147457 entitled "ALONZO MACHUCA
versus ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, LEA
ZULUETA-LAFORTEZA, MICHAEL Z. LAFORTEZA, and DENNIS Z.
LAFORTEZA".
The following facts as found by the Court of Appeals are undisputed:
The property involved consists of a house and lot located at No. 7757
Sherwood Street, Marcelo Green Village, Parañaque, Metro Manila,
covered by Transfer Certificate of Title (TCT) No. (220656) 8941 of the
Registered of Deeds of Parañaque (Exhibit "D", Plaintiff, record, pp. 331-
332). The subject property is registered in the name of the late Francisco Q.
Laforteza, although it is conjugal in nature (Exhibit "8", Defendants, record
pp. 331-386).
On August 2, 1988, defendant Lea Zulueta-Laforteza executed a Special
Power of Attorney in favor of defendants Roberto Z. Laforteza and Gonzalo
Z. Laforteza, Jr., appointing both as her Attorney-in-fact authorizing them
jointly to sell the subject property and sign any document for the settlement
of the estate of the late Francisco Q. Laforteza (Exh. "A", Plaintiff, record,
pp. 323-325).
Likewise on the same day, defendant Michael Z. Laforteza executed a
Special Power of Attorney in favor of defendants Roberto Z. Laforteza and
Gonzalo Laforteza, Jr., likewise, granting the same authority (Exh. "B",
record, pp. 326-328) Both agency instruments contained a provision that in
attorneys- in-fact must be affixed.
On October 27, 1988, defendant Dennis Z. Laforteza executed a Special
Power of Attorney in favor of defendant Roberto Z. Laforteza for the
purpose of selling the subject property (Exh. "C", Plaintiff, record, pp. 329-
330). A year later, on October 30, 1989, Dennis Z. Laforteza executed
another Special Power of Attorney in favor of defendants Roberto Z.
Laforteza and Gonzalo Laforteza, Jr. naming both attorneys-in-fact for the
purpose of selling the subject property and signing any document for the
for
settlement of the estate of the late Francisco Q. Laforteza. The subsequent
agency instrument (Exh, "2", record, pp. 371-373) contained similar
provisions that both attorneys-in-fact should sign any document or paper
executed in the exercise of their authority.1âwphi1.nêt
In the exercise of the above authority, on January 20, 1989, the heirs of the
late Francisco Q. Laforteza represented by Roberto Z. Laforteza and
Gonzalo Z. Laforteza, Jr. entered into a Memorandum of Agreement
(Contract to Sell) with the plaintiff 2 over the subject property for the sum of
SIX HUNDRED THIRTY THOUSAND PESOS (P630,000.00) payable as
follows:
(a) P30,000.00 as earnest money, to be forfeited in favor of the
defendants if the sale is not effected due to the fault of the plaintiff;
(b) P600,000.00 upon issuance of the new certificate of title in the
name of the late Francisco Q. Laforteza and upon execution of an
extra-judicial settlement of the decedent's estate with sale in favor
of the plaintiff (Par. 2, Exh. "E", record, pp. 335-336).
Significantly, the fourth paragraph of the Memorandum of Agreement
(Contract to Sell) dated January 20, 1989 (Exh. "E", supra.) contained a
provision as follows:
. . . . Upon issuance by the proper Court of the new title, the
BUYER-LESSEE shall be notified in writing and said BUYER-
LESSEE shall have thirty (30) days to produce the balance of
P600,000.00 which shall be paid to the SELLER-LESSORS upon
the execution of the Extrajudicial Settlement with sale.
On January 20, 1989, plaintiff paid the earnest money of THIRTY
THOUSAND PESOS (P30,000.00), plus rentals for the subject property
(Exh. "F", Plaintiff, record, p. 339).
3
On September 18, 1998 3 , defendant heirs, through their counsel wrote a
letter (Exh. 1, Defendants, record, p. 370) to the plaintiff furnishing the
latter a copy of the reconstituted title to the subject property, advising him
that he had thirty (3) days to produce the balance of SIX HUNDRED
PESOS (sic) (P600,000.00) under the Memorandum of Agreement which
plaintiff received on the same date.
On October 18, 1989, plaintiff sent the defendant heirs a letter requesting
for an extension of the THIRTY (30) DAYS deadline up to November 15,
1989 within which to produce the balance of SIX HUNDRED THOUSAND
PESOS (P600,000.00) (Exh. "G", Plaintiff, record, pp. 341-342). Defendant
Roberto Z. Laforteza, assisted by his counsel Atty. Romeo L. Gutierrez,
signed his conformity to the plaintiff's letter request (Exh. "G-1 and "G-2",
Plaintiff, record, p. 342). The extension, however, does not appear to have
been approved by Gonzalo Z. Laforteza, the second attorney-in-fact as his
conformity does not appear to have been secured.
On November 15, 1989, plaintiff informed the defendant heirs, through
defendant Roberto Z. Laforteza, that he already had the balance of SIX
HUNDRED THOUSAND PESOS (P600,000.00) covered by United
Coconut Planters Bank Manager's Check No. 000814 dated November 15,
1989 (TSN, August 25, 1992, p. 11; Exhs. "H", record, pp. 343-344; "M",
records p. 350; and "N", record, p. 351). However, the defendants, refused
to accept the balance (TSN, August 24, 1992, p. 14; Exhs. "M-1", Plaintiff,
record, p. 350; and "N-1", Plaintiff, record, p. 351). Defendant Roberto Z.
Laforteza had told him that the subject property was no longer for sale
(TSN, October 20, 1992, p. 19; Exh. "J", record, p. 347).
On November 20, 1998 4 , defendants informed plaintiff that they were
canceling the Memorandum of Agreement (Contract to Sell) in view of the
plaintiff's failure to comply with his contractual obligations (Exh. "3").
Thereafter, plaintiff reiterated his request to tender payment of the balance
of SIX HUNDRED THOUSAND PESOS (P600,000.00). Defendants,
however, insisted on the rescission of the Memorandum of Agreement.
Thereafter, plaintiff filed the instant action for specific performance. The
lower court rendered judgment on July 6, 1994 in favor of the plaintiff, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff
Alonzo Machuca and against the defendant heirs of the late
Francisco Q. Laforteza, ordering the said defendants.
(a) To accept the balance of P600,000.00 as full payment
of the consideration for the purchase of the house and lot
located at No. 7757 Sherwood Street, Marcelo Green
Village, Parañaque, Metro Manila, covered by Transfer
Certificate of Title No. (220656) 8941 of the Registry of
Deeds of Rizal Parañaque, Branch;
(b) To execute a registrable deed of absolute sale over the
subject property in favor of the plaintiff;
(c) Jointly and severally to pay the plaintiff the sum of
P20,000.00 as attorney's fees plus cost of suit.
SO ORDERED. (Rollo, pp. 74-75). 5 
Petitioners appealed to the Court of Appeals, which affirmed with
modification the decision of the lower court; the dispositive portion of the
Decision reads:
WHEREFORE, the questioned decision of the lower court is
hereby AFFIRMED with the MODIFICATION that defendant
heirs Lea Zulueta-Laforteza, Michael Z. Laforteza, Dennis Z.
Laforteza and Roberto Z. Laforteza including Gonzalo Z.
Laforteza, Jr. are hereby ordered to pay jointly and severally the
sum of FIFTY THOUSAND PESOS (P50,000.00) as moral
damages.
SO ORDERED. 6 
Motion for Reconsideration was denied but the Decision was modified so as
to absolve Gonzalo Z. Laforteza, Jr. from liability for the payment of moral
damages. 7 Hence this petition wherein the petitioners raise the following
issues:
I. WHETHER THE TRIAL AND APPELLATE COURTS
CORRECTLY CONSTRUED THE MEMORANDUM OF
AGREEMENT AS IMPOSING RECIPROCAL OBLIGATIONS.
II. WHETHER THE COURTS A QUO CORRECTLY RULED
THAT RESCISSION WILL NOT LIE IN THE INSTANT CASE.
III. WHETHER THE RESPONDENT IS UNDER ESTOPPEL
FROM RAISING THE ALLEGED DEFECT IN THE SPECIAL
4
 POWER OF ATTORNEY DATED 30 OCTOBER 1989
EXECUTED BY DENNIS LAFORTEZA.
IV. SUPPOSING EX GRATIA ARGUMENTI THE
MEMORANDUM OF AGREEMENT IMPOSES RECIPROCAL
OBLIGATIONS, WHETHER THE PETITIONERS MAY BE
COMPELLED TO SELL THE SUBJECT PROPERTY WHEN
THE RESPONDENT FAILED TO MAKE A JUDICIAL
CONSIGNATION OF THE PURCHASE PRICE?
V. WHETHER THE PETITIONERS ARE IN BAD FAITH SO
TO AS MAKE THEM LIABLE FOR MORAL DAMAGES? 8  hearsay and should not be given any evidentiary weight. Thus, the order of
The petitioners contend that the Memorandum of Agreement is merely a
lease agreement with "option to purchase". As it was merely an option, it
only gave the respondent a right to purchase the subject property within a
limited period without imposing upon them any obligation to purchase it.
Since the respondent's tender of payment was made after the lapse of the
option agreement, his tender did not give rise to the perfection of a contract
of sale.
It is further maintained by the petitioners that the Court of Appeals erred in
ruling that rescission of the contract was already out of the question.
Rescission implies that a contract of sale was perfected unlike the
Memorandum of Agreement in question which as previously stated is
allegedly only an option contract.
Petitioner adds that at most, the Memorandum of Agreement (Contract to
Sell) is a mere contract to sell, as indicated in its title. The obligation of the
petitioners to sell the property to the respondent was conditioned upon the
issuance of a new certificate of title and the execution of the extrajudicial
partition with sale and payment of the P600,000.00. This is why possession
of the subject property was not delivered to the respondent as the owner of
the property but only as the lessee thereof. And the failure of the respondent
to pay the purchase price in full prevented the petitioners' obligation to
convey title from acquiring obligatory force.
Petitioners also allege that assuming for the sake of argument that a contract
of sale was indeed perfected, the Court of Appeals still erred in holding that
respondent's failure to pay the purchase price of P600,000.00 was only a
"slight or casual breach".
The petitioners also claim that the Court of Appeals erred in ruling that they
were not ready to comply with their obligation to execute the extrajudicial
settlement. The Power of Attorney to execute a Deed of Sale made by
Dennis Z. Laforteza was sufficient and necessarily included the power to
execute an extrajudicial settlement. At any rate, the respondent is estopped
from claiming that the petitioners were not ready to comply with their
obligation for he acknowledged the petitioners' ability to do so when he
requested for an extension of time within which to pay the purchase price.
Had he truly believed that the petitioners were not ready, he would not have
needed to ask for said extension.
Finally, the petitioners allege that the respondent's uncorroborated
testimony that third persons offered a higher price for the property is
the lower court awarding moral damages was without any legal basis.
The appeal is bereft of merit.
A perusal of the Memorandum Agreement shows that the transaction
between the petitioners and the respondent was one of sale and lease. The
terms of the agreement read:
1. For and in consideration of the sum of PESOS: SIX HUNDRED
THIRTY THOUSAND (P630,000.00) payable in a manner herein
below indicated, SELLER-LESSOR hereby agree to sell unto
BUYER-LESSEE the property described in the first WHEREAS of
this Agreement within six (6) months from the execution date
hereof, or upon issuance by the Court of a new owner's certificate
of title and the execution of extrajudicial partition with sale of the
estate of Francisco Laforteza, whichever is earlier;
2. The above-mentioned sum of PESOS: SIX HUNDRED
THIRTY THOUSAND (P630,000.00) shall be paid in the
following manner:
P30,000.00 — as earnest money and as consideration for
this Agreement, which amount shall be forfeited in favor
of SELLER-LESSORS if the sale is not effected because
of the fault or option of BUYER-LESSEE;
P600,000.00 — upon the issuance of the new certificate
of title in the name of the late Francisco Laforteza and
upon the execution of an Extrajudicial Settlement of his
estate with sale in favor of BUYER-LESSEE free from
lien or any encumbrances.
5
 3. Parties reasonably estimate that the issuance of a new title in
place of the lost one, as well as the execution of extrajudicial
settlement of estate with sale to herein BUYER-LESSEE will be
completed within six (6) months from the execution of this
Agreement. It is therefore agreed that during the six months period,
BUYER-LESSEE will be leasing the subject property for six
months period at the monthly rate of PESOS: THREE
THOUSAND FIVE HUNDRED (P3,500.00). Provided however,
that if the issuance of new title and the execution of Extrajudicial
Partition is completed prior to the expiration of the six months
period, BUYER-LESSEE shall only be liable for rentals for the
corresponding period commencing from his occupancy of the
premises to the execution and completion of the Extrajudicial
Settlement of the estate, provided further that if after the expiration
of six (6) months, the lost title is not yet replaced and the extra
judicial partition is not executed, BUYER-LESSEE shall no longer
be required to pay rentals and shall continue to occupy, and use the
premises until subject condition is complied by SELLER-
LESSOR;
4. It is hereby agreed that within reasonable time from the
execution of this Agreement and the payment by BUYER-LESSEE
of the amount of P30,000.00 as herein above provided, SELLER-
LESSORS shall immediately file the corresponding petition for the
issuance of a new title in lieu of the lost one in the proper Courts.
Upon issuance by the proper Courts of the new title, the BUYER-
LESSEE shall have thirty (30) days to produce the balance of
P600,000.00 which shall be paid to the SELLER-LESSORS upon
the execution of the Extrajudicial Settlement with sale. 9 
A contract of sale is a consensual contract and is perfected at the moment
there is a meeting of the minds upon the thing which is the object of the
contract and upon the price. 10 From that moment the parties may
reciprocally demand performance subject to the provisions of the law
governing the form of contracts. 11 The elements of a valid contract of sale
under Article 1458 of the Civil Code are (1) consent or meeting of the
minds; (2) determinate subject matter and (3) price certain money or its
equivalent. 12  sale. The parties made a "reasonable estimate" that the reconstitution the
In the case at bench, there was a perfected agreement between the
petitioners and the respondent whereby the petitioners obligated themselves
to transfer the ownership of and deliver the house and lot located at 7757
Sherwood St., Marcelo Green Village, Parañaque and the respondent to pay
the price amounting to six hundred thousand pesos (P600,000.00). All the
elements of a contract of sale were thus present. However, the balance of
the purchase price was to be paid only upon the issuance of the new
certificate of title in lieu of the one in the name of the late Francisco
Laforteza and upon the execution of an extrajudicial settlement of his estate.
Prior to the issuance of the "reconstituted" title, the respondent was already
placed in possession of the house and lot as lessee thereof for six months at
a monthly rate of three thousand five hundred pesos (P3,500.00). It was
stipulated that should the issuance of the new title and the execution of the
extrajudicial settlement be completed prior to expiration of the six-month
period, the respondent would be liable only for the rentals pertaining to the
period commencing from the date of the execution of the agreement up to
the execution of the extrajudicial settlement. It was also expressly stipulated
that if after the expiration of the six month period, the lost title was not yet
replaced and the extrajudicial partition was not yet executed, the respondent
would no longer be required to pay rentals and would continue to occupy
and use the premises until the subject condition was complied with the
petitioners.
The six-month period during which the respondent would be in possession
of the property as lessee, was clearly not a period within which to exercise
an option. An option is a contract granting a privilege to buy or sell within
an agreed time and at a determined price. An option contract is a separate
and distinct contract from that which the parties may enter into upon the
consummation of the option. 13 An option must be supported by
consideration.14 An option contract is governed by the second paragraph of
Article 1479 of the Civil Code 15 , which reads:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate thing
for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price.
In the present case, the six-month period merely delayed the demandability
of the contract of sale and did not determine its perfection for after the
expiration of the six-month period, there was an absolute obligation on the
part of the petitioners and the respondent to comply with the terms of the
lost title of the house and lot would take approximately six months and thus
presumed that after six months, both parties would be able to comply with
what was reciprocally incumbent upon them. The fact that after the
expiration of the six-month period, the respondent would retain possession
of the house and lot without need of paying rentals for the use therefor,
6
 clearly indicated that the parties contemplated that ownership over the
property would already be transferred by that time.
The issuance of the new certificate of title in the name of the late Francisco Laforteza
and the execution of an extrajudicial settlement of his estate was not a condition
which determined the perfection of the contract of sale. Petitioners' contention that
since the condition was not met, they no longer had an obligation to proceed with the
sale of the house and lot is unconvincing. The petitioners fail to distinguish between
a condition imposed upon the perfection of the contract and a condition imposed on
the performance of an obligation. Failure to comply with the first condition results in
the failure of a contract, while the failure to comply with the second condition only
gives the other party the option either to refuse to proceed with the sale or to waive
the condition. Thus, Art. 1545 of the Civil Code states:
Art. 1545. Where the obligation of either party to a contract of sale is
subject to any condition which is not performed, such party may refuse to
proceed with the contract or he may waive performance of the condition. If
the other party has promised that the condition should happen or be
performed, such first mentioned party may also treat the nonperformance of
the condition as a breach of warranty.
Where the ownership in the things has not passed, the buyer may treat the
fulfillment by the seller of his obligation to deliver the same as described
and as warranted expressly or by implication in the contract of sale as a
condition of the obligation of the buyer to perform his promise to accept
and pay for the thing. 16  Admittedly, the failure of the respondent to pay the balance of the purchase price
In the case at bar, there was already a perfected contract. The condition was imposed
only on the performance of the obligations contained therein. Considering however
that the title was eventually "reconstituted" and that the petitioners admit their ability
to execute the extrajudicial settlement of their father's estate, the respondent had a
right to demand fulfillment of the petitioners' obligation to deliver and transfer
ownership of the house and lot.
What further militates against petitioners' argument that they did not enter into a
contract or sale is the fact that the respondent paid thirty thousand pesos
(P30,000.00) as earnest money. Earnest money is something of value to show that
the buyer was really in earnest, and given to the seller to bind the
bargain.17 Whenever earnest money is given in a contract of sale, it is considered as
part of the purchase price and proof of the perfection of the contract. 18  or is not ready to comply in a proper manner with what was incumbent upon him. 24
We do not subscribe to the petitioners' view that the Memorandum Agreement was a
contract to sell. There is nothing contained in the Memorandum Agreement from
which it can reasonably be deduced that the parties intended to enter into a contract
to sell, i.e. one whereby the prospective seller would explicitly reserve the transfer of
title to the prospective buyer, meaning, the prospective seller does not as yet agree or
consent to transfer ownership of the property subject of the contract to sell until the
full payment of the price, such payment being a positive suspensive condition, the
failure of which is not considered a breach, casual or serious, but simply an event
which prevented the obligation from acquiring any obligatory force. 19 There is
clearly no express reservation of title made by the petitioners over the property, or
any provision which would impose non-payment of the price as a condition for the
contract's entering into force. Although the memorandum agreement was also
denominated as a "Contract to Sell", we hold that the parties contemplated a contract
of sale. A deed of sale is absolute in nature although denominated a conditional sale
in the absence of a stipulation reserving title in the petitioners until full payment of
the purchase price. 20 In such cases, ownership of the thing sold passes to the vendee
upon actual or constructive delivery thereof. 21 The mere fact that the obligation of
the respondent to pay the balance of the purchase price was made subject to the
condition that the petitioners first deliver the reconstituted title of the house and lot
does not make the contract a contract to sell for such condition is not inconsistent
with a contract of sale. 22 
The next issue to be addressed is whether the failure of the respondent to pay the
balance of the purchase price within the period allowed is fatal to his right to enforce
the agreement.
We rule in the negative.
was a breach of the contract and was a ground for rescission thereof. The extension
of thirty (30) days allegedly granted to the respondent by Roberto Z. Laforteza
(assisted by his counsel Attorney Romeo Gutierrez) was correctly found by the Court
of Appeals to be ineffective inasmuch as the signature of Gonzalo Z. Laforteza did
not appear thereon as required by the Special Powers of Attorney.  23 However, the
evidence reveals that after the expiration of the six-month period provided for in the
contract, the petitioners were not ready to comply with what was incumbent upon
them, i.e. the delivery of the reconstituted title of the house and lot. It was only on
September 18, 1989 or nearly eight months after the execution of the Memorandum
of Agreement when the petitioners informed the respondent that they already had a
copy of the reconstituted title and demanded the payment of the balance of the
purchase price. The respondent could not therefore be considered in delay for in
reciprocal obligations, neither party incurs in delay if the other party does not comply
 
Even assuming for the sake of argument that the petitioners were ready to comply
with their obligation, we find that rescission of the contract will still not prosper. The
7
rescission of a sale of an immovable property is specifically governed by Article
1592 of the New Civil Code, which reads:
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. 25  case. 32 Under the circumstances, the award given by the Court of Appeals
It is not disputed that the petitioners did not make a judicial or notarial demand for
rescission.1avvphi1 The November 20, 1989 letter of the petitioners informing the
respondent of the automatic rescission of the agreement did not amount to a demand
for rescission, as it was not notarized. 26 It was also made five days after the
respondent's attempt to make the payment of the purchase price. This offer to pay
prior to the demand for rescission is sufficient to defeat the petitioners' right under
article 1592 of the Civil Code. 27 Besides, the Memorandum Agreement between the
parties did not contain a clause expressly authorizing the automatic cancellation of
the contract without court intervention in the event that the terms thereof were
violated. A seller cannot unilaterally and extrajudicially rescind a contract or sale
where there is no express stipulation authorizing him to extrajudicially
rescind. 28 Neither was there a judicial demand for the rescission thereof. Thus, when
the respondent filed his complaint for specific performance, the agreement was still
in force inasmuch as the contract was not yet rescinded. At any rate, considering that
the six-month period was merely an approximation of the time if would take to
reconstitute the lost title and was not a condition imposed on the perfection of the
contract and considering further that the delay in payment was only thirty days which
was caused by the respondents justified but mistaken belief that an extension to pay
was granted to him, we agree with the Court of Appeals that the delay of one month
in payment was a mere casual breach that would not entitle the respondents to
rescind the contract. Rescission of a contract will not be permitted for a slight or
casual breach, but only such substantial and fundamental breach as would defeat the
very object of the parties in making the agreemant. 29  the offense charged is to be ascertained by the facts alleged in the body of the
Petitioners' insistence that the respondent should have consignated the amount is not
determinative of whether respondent's action for specific performance will lie.
Petitioners themselves point out that the effect of cansignation is to extinguish the
obligation. It releases the debtor from responsibility therefor. 30 The failure of the
respondent to consignate the P600,000.00 is not tantamount to a breach of the
contract for by the fact of tendering payment, he was willing and able to comply with
his obligation.
The Court of Appeals correctly found the petitioners guilty of bad faith and
awarded moral damages to the respondent. As found by the said Court, the
petitioners refused to comply with, their obligation for the reason that they
were offered a higher price therefor and the respondent was even offered
P100,000.00 by the petitioners' lawyer, Attorney Gutierrez, to relinquish his
rights over the property. The award of moral damages is in accordance with
Article 1191 31 of the Civil Code pursuant to Article 2220 which provides
that moral damages may be awarded in case of breach of contract where the
defendant acted in bad faith. The amount awarded depends on the discretion
of the court based on the circumstances of each
amounting to P50,000.00 appears to us to be fair and reasonable.
ACCORDINGLY, the decision of the Court of Appeals in CA G.R. CV No. 47457 is
AFFIRMED and the instant petition is hereby DENIED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 162822. August 25, 2005.*
JAIME GUINHAWA, petitioner, vs. PEOPLE OF THE PHILIPPINES,
respondent.
Criminal Procedure; Information; Pleadings and Practice; The real nature of
information and punishment provided by
_______________
*
 SECOND DIVISION.
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VOL. 468, AUGUST 25, 2005  279 
Guinhawa vs. People
law, not by the title or caption given by the Prosecutor.—Section 6, Rule 110
of the Rules of Criminal Procedure requires that the Information must allege the acts
or omissions complained of as constituting the offense: SEC. 6. Sufficiency of
complaint or information.—A complaint or information is sufficient if it states the
8
name of the accused; the designation of the offense given by the statute; the acts or
omissions complained of as constituting the offense; the name of the offended party;
the approximate date of the commission of the offense; and the place where the
offense was committed. When an offense is committed by more than one person, all
of them shall be included in the complaint or information. The real nature of the
offense charged is to be ascertained by the facts alleged in the body of the
Information and the punishment provided by law, not by the designation or title or
caption given by the Prosecutor in the Information. The Information must allege
clearly and accurately the elements of the crime charged.
Criminal Law; Other Deceits; The false or fraudulent representation by a
seller that what he offers for sale is brand new, when in fact, it is not, is not one of
those deceitful acts envisaged under paragraph 1, Article 318 of the Revised Penal
Code.—As can be gleaned from its averments, the Information alleged the essential
elements of the crime under paragraph 1, Article 318 of the Revised Penal Code. The
false or fraudulent representation by a seller that what he offers for sale is brand new
(when, in fact, it is not) is one of those deceitful acts envisaged in paragraph 1,
Article 318 of the Revised Penal Code. The provision reads: Art. 318. Other deceits.
—The penalty of arresto mayor and a fine of not less than the amount of the damage
caused and not more than twice such amount shall be imposed upon any person who
shall defraud or damage another by any other deceit not mentioned in the preceding
articles of this chapter.
Same; Same; Elements; Article 318 of the Revised Penal Code includes any
kind of conceivable deceit other than those enumerated in Articles 315 to 317—it is
a catchall provision for that purpose with all its broad scope and intendment.—For
one to be liable for “other deceits” under the law, it is required that the prosecution
must prove the following essential elements: (a) false pretense, fraudulent act or
pretense other than those in the preceding articles; (b) such false pretense, fraudulent
act or pretense must be made or executed prior to or simultaneously with the
commission of the fraud; and (c) as a  exclusive jurisdiction over the offense lodged against the petitioner.
280
280  SUPREME COURT REPORTS ANNOTATED  merits of the petition, the Court agrees with the petitioner’s contention that there is
Guinhawa vs. People
result, the offended party suffered damage or prejudice. It is essential that such
false statement or fraudulent representation constitutes the very cause or the only
motive for the private complainant to part with her property. The provision includes
any kind of conceivable deceit other than those enumerated in Articles 315 to 317 of
the Revised Penal Code. It is intended as the catchall provision for that purpose with
its broad scope and intendment.
Same; Same; Estafa; Art. 315, par. 2(a), Revised Penal Code;Statutory
Construction; Ejusdem Generis; Under the principle of ejusdem generis, where a
statement ascribes things of a particular class or kind accompanied by words of a
generic character, the generic words will usually be limited to things of similar
nature.—The petitioner’s reliance on paragraph 2(a), Article 315 of the Revised
Penal Code is misplaced. The said provision reads: 2. By means of any of the
following false pretenses or fraudulent acts executed prior to or simultaneously with
the commission of the fraud: (a) By using fictitious name, or falsely pretending to
possess power, influence, qualifications, property, credit, agency, business or
imaginary transactions; or by means of other similar deceits. The fraudulent
representation of the seller, in this case, that the van to be sold is brand new, is not
the deceit contemplated in the law. Under the principle of ejusdem generis, where a
statement ascribes things of a particular class or kind accompanied by words of a
generic character, the generic words will usually be limited to things of a similar
nature with those particularly enumerated unless there be something in the context to
the contrary.
Same; Same; Jurisdictions; Batas Pambansa Bilang 129; Section 32 of BP
129 provides that the Municipal Trial Court has the exclusive jurisdiction over the
offenses punishable with imprisonment not exceeding six years, irrespective of the
amount of fine; The MTC has exclusive jurisdiction over the offense of other deceits
since it is punishable by arresto mayor.—Jurisdiction is conferred by the
Constitution or by law. It cannot be conferred by the will of the parties, nor
diminished or waived by them. The jurisdiction of the court is determined by the
averments of the complaint or Information, in relation to the law prevailing at the
time of the filing of the criminal complaint or Information, and the penalty provided
by law for the crime charged at the time of its commission. Section 32 of Batas
Pambansa Blg. 129, as amended by Republic Act No. 7691, provides 
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VOL. 468, AUGUST 25, 2005  281 
Guinhawa vs. People
that the MTC has exclusive jurisdiction over offenses punishable with
imprisonment not exceeding six years, irrespective of the amount of the fine. * * *
Since the felony of other deceits is punishable by arresto mayor, the MTC had
Same; Same; Words and Phrases; Representation may be in form of words, or
conduct resorted to by an individual to serve as an advantage over another.—On the
no evidence on record that he made direct and positive representations or assertions
to the private complainant that the van was brand new. The record shows that the
private complainant and her husband Ralph Silo were, in fact, attended to by Azotea.
However, it bears stressing that the representation may be in the form of words, or
conduct resorted to by an individual to serve as an advantage over another. Indeed, as
declared by the CA based on the evidence on record: Petitioner cannot barefacedly
claim that he made no personal representation that the herein subject van was brand
new for the simple reason that nowhere in the records did he ever refute the
allegation in the complaint, which held him out as a dealer of brand new cars. It has
thus become admitted that the petitioner was dealing with brand new vehicles—a
fact which, up to now, petitioner has not categorically denied. Therefore, when
private complainant went to petitioner’s showroom, the former had every right to
assume that she was being sold brand new vehicles there being nothing to indicate
9
otherwise. But as it turned out, not only did private complainant get a defective and
used van, the vehicle had also earlier figured in a road accident when driven by no
less than petitioner’s own driver.
Same; Same; Fraud or deceit may be committed by omission.—The CA is
correct in ruling that fraud or deceit may be committed by omission. As the Court
held in People v. Balasa: Fraud, in its general sense, is deemed to comprise anything
calculated to deceive, including all acts, omissions, and concealment involving a
breach of legal or equitable duty, trust, or confidence justly reposed, resulting in
damage to another, or by which an undue and unconscientious advantage is taken of
another. It is a generic term embracing all multifarious means which human
ingenuity can device, and which are resorted to by one individual to secure an
advantage over another by false suggestions or by suppression of truth and includes
all sur-
282
282  SUPREME COURT REPORTS ANNOTATED  material facts, even if the private complainant made a visual inspection of the van’s
Guinhawa vs. People
prise, trick, cunning, dissembling and any unfair way by which another is
cheated. On the other hand, deceit is the false representation of a matter of fact
whether by words or conduct, by false or misleading allegations, or by concealment
of that which should have been disclosed which deceives or is intended to deceive
another so that he shall act upon it to his legal injury.
Same; Same; Words and Phrases; Concealment; Mere silence is not in itself
concealment—the concealment which the law denounces as fraudulent implies a
purpose or design to hide facts which the other party sought to know; Fraudulent
non-disclosure and fraudulent concealment are of the same genre.—It is true that
mere silence is not in itself concealment. Concealment which the law denounces as
fraudulent implies a purpose or design to hide facts which the other party sought to
know. Failure to reveal a fact which the seller is, in good faith, bound to disclose
may generally be classified as a deceptive act due to its inherent capacity to deceive.
Suppression of a material fact which a party is bound in good faith to disclose is
equivalent to a false representation. Moreover, a representation is not confined to
words or positive assertions; it may consist as well of deeds, acts or artifacts of a
nature calculated to mislead another and thus allow the fraud-feasor to obtain an
undue advantage. Fraudulent nondisclosure and fraudulent concealment are of the
same genre. Fraudulent concealment presupposes a duty to disclose the truth and that
disclosure was not made when opportunity to speak and inform was presented, and
that the party to whom the duty of disclosure, as to a material fact was due, was
induced thereby to act to his injury.
Same; Same; Sales; If, in a contract of sale, the vendor knowingly allowed the
vendee to be deceived as to the thing sold in a material matter by failing to disclose
an intrinsic circumstance that is vital to the contract, deceit is accomplished by the
suppression of the truth.—Article 1389 of the New Civil Code provides that failure
to disclose facts when there is a duty to reveal them constitutes fraud. In a contract of
sale, a buyer and seller do not deal from equal bargaining positions when the latter
has knowledge, a material fact which, if communicated to the buyer, would render
the grounds unacceptable or, at least, substantially less desirable. If, in a contract of
sale, the vendor knowingly allowed the vendee to be deceived as to the thing sold in
a material matter by failing to disclose an 
283
VOL. 468, AUGUST 25, 2005  283 
Guinhawa vs. People
intrinsic circumstance that is vital to the contract, knowing that the vendee is
acting upon the presumption that no such fact exists, deceit is accomplished by the
suppression of the truth.
Same; Same; Same; Where a vendee only made a partial investigation and
relies in part upon the representation of the vendor, and is deceived by such
representation to his injury, he may maintain an action for such deceit.—The
petitioner is not relieved of his criminal liability for deceitful concealment of
interior and exterior before she agreed to buy it and failed to inspect its under
chassis. Case law has it that where the vendee made only a partial investigation and
relies, in part, upon the representation of the vendee, and is deceived by such
representation to his injury, he may maintain an action for such deceit. The seller
cannot be heard to say that the vendee should not have relied upon the fraudulent
concealment; that negligence, on the part of the vendee, should not be a defense in
order to prevent the vendor from unjustifiably escaping with the fruits of the fraud.
Same; Same; Same; Principle of Caveat Emptor; The principle of caveat
emptor only requires the purchaser to exercise care and attention ordinarily
exercised by prudent men in like business affairs, and only applies to defects which
are open and patent to the service of one exercising such care.—On the petitioner’s
insistence that the private complainant was proscribed from charging him
with estafa based on the principle of caveat emptor, case law has it that this rule only
requires the purchaser to exercise such care and attention as is usually exercised by
ordinarily prudent men in like business affairs, and only applies to defects which are
open and patent to the service of one exercising such care. In an avuncular case, it
was held that: . . . The rule of caveat emptor, like the rule of sweet charity, has often
been invoked to cover a multitude of sins; but we think its protecting mantle has
never been stretched to this extent. It can only be applied where it is shown or
conceded that the parties to the contract stand on equal footing and have equal
knowledge or equal means of knowledge and there is no relation of trust or
confidence between them. But, where one party undertakes to sell to another
property situated at a distance and of which he has or claims to have personal
knowledge and of which the buyer knows nothing except as he is informed by the
seller, the buyer may rightfully rely on the truth of 
284
284  SUPREME COURT REPORTS ANNOTATED 
Guinhawa vs. People
10
 the seller’s representations as to its kind, quality, and value made in the course
of negotiation for the purpose of inducing the purchase. If, in such case, the
representations prove to be false, neither law nor equity will permit the seller to
escape responsibility by the plea that the buyer ought not to have believed him or
ought to have applied to other sources to ascertain the facts. . . .
Same; Same; Same; Agency; Where the doing of a certain act or the
transaction of a given affair, of the performance of certain business is confided to an
agent, the authority to so act will carry with it by implication the authority to do all
the collateral acts which are natural and ordinary incidents of the main act or
business authorized.—The petitioner cannot pin criminal liability for his fraudulent
omission on his general manager, Azotea. The two are equally liable for their
collective fraudulent silence. Case law has it that wherever the doing of a certain act
or the transaction of a given affair, or the performance of certain business is confided
to an agent, the authority to so act will, in accordance with a general rule often
referred to, carry with it by implication the authority to do all of the collateral acts
which are the natural and ordinary incidents of the main act or business authorized.
Same; Same; Penalties; Indeterminate Sentence Law (Act 4103); The
Indeterminate Sentence Law does not apply if the maximum term of imprisonment
does not exceed one year—if the trial court opts to impose penalty of imprisonment
less than one year, it should not impose indeterminate penalty but straight penalty of
one year or less instead; An indeterminate sentence may be imposed if the minimum
of the penalty is one year or less, and the maximum exceeds one year.—The MTC
sentenced the petitioner to suffer imprisonment of from two months and one day, as
minimum, to four months of arresto mayor, as maximum. The CA affirmed the
penalty imposed by the trial court. This is erroneous. Section 2 of Act 4103, as
amended, otherwise known as the Indeterminate Sentence Law, provides that the law
will not apply if the maximum term of imprisonment does not exceed one year: * * *
In this case, the maximum term of imprisonment imposed on the petitioner was four
months and one day of arresto mayor. Hence, the MTC was proscribed from
imposing an indeterminate penalty on the petitioner. An indeterminate penalty may
be imposed if the minimum of the penalty is one year or less, and the maximum
exceeds one year. For example, the  which was on display. The couple inspected its interior portion and found it
285
VOL. 468, AUGUST 25, 2005  285  vehicle was brand new.5 Unaware that the van had been damaged and repaired on
Guinhawa vs. People
trial court may impose an indeterminate penalty of six months of arresto
mayor, as minimum, to two years and four months of prision correccional, as
maximum, since the maximum term of imprisonment it imposed exceeds one year. If
the trial court opts to impose a penalty of imprisonment of one year or less, it should
not impose an indeterminate penalty, but a straight penalty of one year or less
instead. Thus, the petitioner may be sentenced to a straight penalty of one year, or a
straight penalty of less than one year, i.e., ten months or eleven months. We believe
that considering the attendant circumstances, a straight penalty of imprisonment of
six months is reasonable.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
     Benjamin B. Bulalacao for petitioner.
     The Solicitor General for the People.
CALLEJO, SR., J.:
Jaime Guinhawa was engaged in the business of selling brand new motor vehicles,
including Mitsubishi vans, under the business name of Guinrox Motor Sales. His
office and display room for cars were located along Panganiban Avenue, Naga City.
He employed Gil Azotea as his sales manager.
On March 17, 1995, Guinhawa purchased a brand new Mitsubishi L-300 Versa Van
with Motor No. 4D56A-C8929 and Serial No. L069WQZJL-07970 from the Union
Motors Corporation (UMC) in Paco, Manila. The van bore Plate No. DLK 406.
Guinhawa’s driver, Leopoldo Olayan, drove the van from Manila to Naga City.
However, while the van was traveling along the highway in Labo, Daet, Camarines
Norte, Olayan suffered a heart attack. The van went out of control, traversed the
highway onto the opposite lane, and was ditched into the canal parallel to the
highway.1 The van was damaged, and the left front tire had to be replaced.
The incident was reported to the local police authorities and was recorded in the
police blotter.2 The van was repaired and later offered for sale in Guinhawa’s
showroom.3 
Sometime in October 1995, the spouses Ralph and Josephine Silo wanted to buy a
new van for their garment business; they purchased items in Manila and sold them in
Naga City.4 They went to Guinhawa’s office, and were shown the L-300 Versa Van
beautiful. They no longer inspected the under chassis since they presumed that the
account of the accident in Daet, the couple decided to purchase the van for
₱591,000.00. Azotea suggested that the couple make a downpayment of
₱118,200.00, and pay the balance of the purchase price by installments via a loan
from the United Coconut Planters Bank (UCPB), Naga Branch, with the L-300 Versa
Van as collateral. Azotea offered to make the necessary arrangements with the
UCPB for the consummation of the loan transaction. The couple agreed. On
November 10, 1995, the spouses executed a Promissory Note6 for the amount of
₱692,676.00 as payment of the balance on the purchase price, and as evidence of the
chattel mortgage over the van in favor of UCPB.
11
On October 11, 1995, the couple arrived in Guinhawa’s office to take delivery of the
van. Guinhawa executed the deed of sale, and the couple paid the ₱161,470.00
downpayment, for which they were issued Receipt No. 0309.7 They were furnished a
Service Manual8 which contained the warranty terms and conditions. Azotea
instructed the couple on how to start the van and to operate its radio. Ralph Silo no
longer conducted a test drive; he and his wife assumed that there were no defects in
the van as it was brand new.9  On February 14, 1996, Josephine Silo filed a criminal complaint for violation of
On October 12, 1995, Josephine Silo, accompanied by Glenda Pingol, went to
Manila on board the L-300 Versa Van, with Glenda’s husband, Bayani Pingol III, as
the driver. Their trip to Manila was uneventful. However, on the return trip to Naga
from Manila on October 15 or 16, 1995, Bayani Pingol heard a squeaking sound
which seemed to be coming from underneath the van. They were in Calauag,
Quezon, where there were no humps along the road.10 Pingol stopped the van in Daet,
Camarines Norte, and examined the van underneath, but found no abnormalities or
defects.11 But as he drove the van to Naga City, the squeaking sound persisted. 
Believing that the van merely needed grease, Pingol stopped at a Shell gasoline
station where it was examined. The mechanic discovered that some parts underneath
the van had been welded. When Pingol complained to Guinhawa, the latter told him
that the defects were mere factory defects. As the defects persisted, the spouses Silo
requested that Guinhawa change the van with two Charade-Daihatsu vehicles within
a week or two, with the additional costs to be taken from their downpayment.
Meanwhile, the couple stopped paying the monthly amortization on their loan,
pending the replacement of the van. Guinhawa initially agreed to the couple’s
proposal, but later changed his mind and told them that he had to sell the van first.
The spouses then brought the vehicle to the Rx Auto Clinic in Naga City for
examination. Jesus Rex Raquitico, Jr., the mechanic, examined the van and
discovered that it was the left front stabilizer that was producing the annoying sound,
and that it had been repaired.12 Raquitico prepared a Job Order containing the
following notations and recommendations:
1. CHECK UP SUSPENSION (FRONT)
2. REPLACE THE ROD END
3. REPLACE BUSHING
NOTE: FRONT STEP BOARD HAS BEEN ALREADY DAMAGED AND
REPAIRED.
NOTE: FRONT LEFT SUSPENSION MOUNTING IS NOT ON SPECIFIED
ALIGNMENT/MEASUREMENT13  delivery only after inspecting and taking it for a road tests.18 His sales manager,
Josephine Silo filed a complaint for the rescission of the sale and the refund of their
money before the Department of Trade and Industry (DTI). During the confrontation
between her and Guinhawa, Josephine learned that Guinhawa had bought the van
from UMC before it was sold to them, and after it was damaged in Daet.
Subsequently, the spouses Silo withdrew their complaint from the DTI.
paragraph 1, Article 318 of the Revised Penal Code against Guinhawa in the Office
of the City Prosecutor of Naga City. After the requisite investigation, an Information
was filed against Guinhawa in the Municipal Trial Court (MTC) of Naga City. The
inculpatory portion reads:
The undersigned Assistant Prosecutor of Naga City accuses Jaime Guinhawa of the
crime of OTHER DECEITS defined and penalized under Art. 318, par. 1 of the
Revised Penal Code, committed as follows:
"That on or about October 11, 1995, in the City of Naga, Philippines, and within the
jurisdiction of this Honorable Court, the said accused, being a motor vehicle dealer
using the trade name of Guinhawa Motor Sales at Panganiban Avenue, Naga City,
and a dealer of brand new cars, by means of false pretenses and fraudulent acts, did
then and there willfully, unlawfully and feloniously defraud private complainant,
JOSEPHINE P. SILO, as follows: said accused by means of false manifestations and
fraudulent representations, sold to said private complainant, as brand new, an
automobile with trade name L-300 Versa Van colored beige and the latter paid for
the same in the amount of ₱591,000.00, when, in truth and in fact, the same was not
brand new because it was discovered less than a month after it was sold to said
Josephine P. Silo that said L-300 Versa Van had defects in the underchassis and
stepboard and repairs had already been done thereat even before said sale, as was
found upon check-up by an auto mechanic; that private complainant returned said L-
300 Versa Van to the accused and demanded its replacement with a new one or the
return of its purchase price from said accused but despite follow-up demands no
replacement was made nor was the purchase price returned to private complainant up
to the present to her damage and prejudice in the amount of ₱591,000.00, Philippine
Currency, plus other damages that may be proven in court."14 
Guinhawa testified that he was a dealer of brand new Toyota, Mazda, Honda and
Mitsubishi cars, under the business name Guinrox Motor Sales. He purchased Toyota
cars from Toyota Philippines, and Mitsubishi cars from UMC in Paco, Manila. 15 He
bought the van from the UMC in March 1995, but did not use it; he merely had it
displayed in his showroom in Naga City.16 He insisted that the van was a brand new
unit when he sold it to the couple.17 The spouses Silo bought the van and took
Azotea, informed him sometime in November 1995 that the spouses Silo had
complained about the defects under the left front portion of the van. By then, the van
12
had a kilometer reading of 4,000 kilometers.19 He insisted that he did not make any
false statement or fraudulent misrepresentation to the couple about the van, either
before or simultaneous with its purchase. He posited that the defects noticed by the
couple were not major ones, and could be repaired. However, the couple refused to
have the van repaired and insisted on a refund of their payment for the van which he
could not allow. He then had the defects repaired by the UMC.20 He claimed that the
van was never involved in any accident, and denied that his driver, Olayan, met an
accident and sustained physical injuries when he drove the van from Manila to Naga
City.21 He even denied meeting Bayani Pingol.
The accused claimed that the couple filed a Complaint22 against him with the DTI on
January 25, 1996, only to withdraw it later.23 The couple then failed to pay the
amortizations for the van, which caused the UCPB to file a petition for the
foreclosure of the chattel mortgage and the sale of the van at public auction.24  (Php19,241.00) Pesos, representing the 1st installment payment made by the private
Azotea testified that he had been a car salesman for 16 years and that he sold brand
new vans.25 Before the couple took delivery of the vehicle, Pingol inspected its
exterior, interior, and underside, and even drove it for the couple.26 He was present
when the van was brought to the Rx Auto Clinic, where he noticed the dent on its
front side.27 He claimed that the van never figured in any vehicular accident in Labo,
Daet, Camarines Norte on March 17, 1995.28 In fact, he declared, he found no police
record of a vehicular accident involving the van on the said date.29 He admitted that
Olayan was their driver, and was in charge of taking delivery of cars purchased from
the manufacturer in Manila.30 
On November 6, 2001, the trial court rendered judgment convicting Guinhawa.
The fallo of the decision reads:
WHEREFORE, premises considered, judgment is hereby rendered declaring the
accused, JAIME GUINHAWA, guilty of the crime of Other Deceits defined and
penalized under Art. 318(1) of the Revised Penal Code, the prosecution having
proven the guilt of the accused beyond reasonable doubt and hereby imposes upon
him the penalty of imprisonment from 2 months and 1 day to 4 months of Arresto
Mayor and a fine of One Hundred Eighty Thousand Seven Hundred and Eleven
Pesos (₱180,711.00) the total amount of the actual damages caused to private
complainant.
As to the civil aspect of this case which have been deemed instituted with this
criminal case, Articles 2201 and 2202 of the Civil Code provides:
"Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who
acted in good faith is liable shall be those that are the natural and probable
consequences of the breach of the obligation, and which the parties have foreseen or
could have reasonably foreseen at the time the obligation was constituted.
"In case of fraud, malice or wanton attitude, the obligor shall be responsible for all
damages which may be reasonably attributed to the non-performance of the
obligation."
"Art. 2202. In crimes and quasi-delicts, the defendant shall be liable for all damages
which are the natural and probable consequences of the act or omission complained
of. It is not necessary that such damages have been foreseen or could have
reasonably been foreseen by the defendant."
Thus, accused is condemned to pay actual damages in the amount of One Hundred
Eighty Thousand Seven Hundred and Eleven Pesos (Php180,711.00), which
represents the 20% downpayment and other miscellaneous expenses paid by the
complainant plus the amount of Nineteen Thousand Two Hundred Forty-One
complainant to the bank. Accused is, likewise, ordered to pay moral damages in the
amount of One Hundred Thousand Pesos (Php100,000.00) in view of the moral pain
suffered by the complainant; for exemplary damages in the amount of Two Hundred
Thousand Pesos (Php200,000.00) to serve as deterrent for those businessmen
similarly inclined to take undue advantage over the public’s innocence. As for
attorney’s fees, the reasonable amount of One Hundred Thousand Pesos
(Php100,000.00) is hereby awarded.
SO ORDERED.31 
The trial court declared that the accused made false pretenses or misrepresentations
that the van was a brand new one when, in fact, it had figured in an accident in Labo,
Daet, Camarines Norte, and sustained serious damages before it was sold to the
private complainant.
Guinhawa appealed the decision to the Regional Trial Court (RTC) of Naga City,
Branch 19, in which he alleged that:
1. The lower court erred in its finding that the repair works on the left front portion
and underchassis of the van was the result of the accident in Labo, Camarines Norte,
where its driver suffered an attack of hypertension.
2. The lower court erred in its four (4) findings of fact that accused-appellant made
misrepresentation or false pretenses "that the van was a brand new car," which
constituted deceit as defined in Article 318, paragraph 1 of the Revised Penal Code.
3. The lower court erred in finding accused-appellant civilly liable to complainant
Josephine Silo. But, even if there be such liability, the action therefor has already
13
prescribed and the amount awarded was exhorbitant, excessive and
unconscionable.32  tantamount to deceit. Thus, in concealing the van’s true condition from the buyer,
Guinhawa insisted that he never talked to the couple about the sale of the van; hence,
could not have made any false pretense or misrepresentation.
On August 1, 2002, the RTC affirmed the appealed judgment.33 
Guinhawa filed a petition for review with the Court of Appeals (CA), where he
averred that:
I OF OTHER DECEITS.
THE COURT A QUO ERRED IN CONVICTING PETITIONER OF THE CRIME
OF OTHER DECEITS AND SENTENCING HIM TO SUFFER IMPRISONMENT
OF TWO MONTHS AND ONE DAY TO FOUR MONTHS OF ARRESTO
MAYOR AND TO PAY FINE IN THE AMOUNT OF ₱180,711.00.
II
THE COURT A QUO ERRED IN ORDERING PETITIONER TO PAY PRIVATE
COMPLAINANT ₱180,711.00 AS DOWNPAYMENT, ₱19,241.00 AS FIRST
INSTALLMENT WITH UCPB NAGA, ₱100,000.00 AS MORAL DAMAGES,
₱200,000.00 AS EXEMPLARY DAMAGES AND ₱100,000.00 AS ATTORNEY’S
FEES.34  The issues for resolution are (1) whether, under the Information, the petitioner was
On January 5, 2004, the CA rendered judgment affirming with modification the
decision of the RTC. The fallo of the decision reads:
WHEREFORE, premises considered, the instant petition is hereby partially granted
insofar as the following are concerned: a) the award of moral damages is
hereby REDUCED to ₱10,000.00 and b) the award of attorney’s fees and exemplary
damages are hereby DELETED for lack of factual basis. In all other respects, We
affirm the decision under review.
Costs against petitioner.
SO ORDERED.35  he was not charged; hence, he was deprived of his constitutional right to be informed
The CA ruled that the private complainant had the right to assume that the van was
brand new because Guinhawa held himself out as a dealer of brand new vans.
According to the appellate court, the act of displaying the van in the showroom
without notice to any would-be buyer that it was not a brand new unit was
Guinhawa committed deceit.
The appellate court denied Guinhawa’s motion for reconsideration, prompting him to
file the present petition for review on certiorari, where he contends:
I
THE COURT A QUO ERRED IN NOT HOLDING THAT THE INFORMATION
CHARGED AGAINST PETITIONER DID NOT INFORM HIM OF A CHARGE
II
THE COURT A QUO ERRED IN HOLDING THAT PETITIONER EMPLOYED
FRAUD OR DECEIT AS DEFINED UNDER ARTICLE 318, REVISED PENAL
CODE.
III
THE COURT A QUO ERRED IN NOT CONSIDERING THE CIRCUMSTANCES
POINTING TO THE INNOCENCE OF THE PETITIONER.36 
charged of other deceits under paragraph 1, Article 318 of the Revised Penal Code;
and (2) whether the respondent adduced proof beyond reasonable doubt of the
petitioner’s guilt for the crime charged.
The petitioner asserts that based on the allegations in the Information, he was
charged with estafa through false pretenses under paragraph 2, Article 315 of the
Revised Penal Code. Considering the allegation that the private complainant was
defrauded of ₱591,000.00, it is the RTC, not the MTC, which has exclusive
jurisdiction over the case. The petitioner maintains that he is not estopped from
assailing this matter because the trial court’s lack of jurisdiction can be assailed at
any time, even on appeal, which defect cannot even be cured by the evidence
adduced during the trial. The petitioner further avers that he was convicted of other
deceits under paragraph 1, Article 318 of the Revised Penal Code, a crime for which
of the nature of the charge against him. And in any case, even if he had been charged
of other deceits under paragraph 1 of Article 318, the CA erred in finding him guilty.
He insists that the private complainant merely assumed that the van was brand new,
and that he did not make any misrepresentation to that effect. He avers that deceit
14
cannot be committed by concealment, the absence of any notice to the public that the
van was not brand new does not amount to deceit. He posits that based on the
principle of caveat emptor, if the private complainant purchased the van without first
inspecting it, she must suffer the consequences. Moreover, he did not attend to the
private complainant when they examined the van; thus, he could not have deceived
them.
The petitioner maintains that, absent evidence of conspiracy, he is not criminally
liable for any representation Azotea may have made to the private complainant, that
the van was brand new. He insists that the respondent was estopped from adducing
evidence that the vehicle was involved in an accident in Daet, Camarines Norte on
March 17, 1995, because such fact was not alleged in the Information.
In its comment on the petition, the Office of the Solicitor General avers that, as
gleaned from the material averments of the Information, the petitioner was charged
with other deceits under paragraph 1, Article 318 of the Revised Penal Code, a
felony within the exclusive jurisdiction of the MTC. The petitioner was correctly
charged and convicted, since he falsely claimed that the vehicle was brand new when
he sold the same to the private complainant. The petitioner’s concealment of the fact
that the van sustained serious damages as an aftermath of the accident in Daet,
Camarines Norte constituted deceit within the meaning of paragraph 1 of Article
318.
The Information filed against the petitioner reads:
That on or about October 11, 1995, in the City of Naga, Philippines, and within the
jurisdiction of this Honorable Court, the said accused, being a motor vehicle dealer
using the trade name of Guinhawa Motor Sales at Panganiban Avenue, Naga City,
and dealer of brand new cars, by means of false pretenses and fraudulent acts, did
then and there, willfully, unlawfully and feloniously defraud private complainant,
JOSEPHINE P. SILO, as follows: said accused by means of false manifestations and
fraudulent representations, sold to said private complainant, as brand new, an
automobile with trade name L-300 Versa Van colored beige and the latter paid for
the same in the amount of ₱591,000.00, when, in truth and in fact, the same was not
brand new because it was discovered less than a month after it was sold to said
Josephine P. Silo that said L-300 Versa Van had defects in the underchassis and
stepboard and repairs have already been done thereat even before said sale, as was
found upon check-up by an auto mechanic; that private complainant returned said L-
300 Versa Van to the accused and demanded its replacement with a new one or the
return of its purchase price from said accused but despite follow-up demands no
replacement was made nor was the purchase price returned to private complainant up
to the present to her damage and prejudice in the amount of ₱591,000.00, Philippine
Currency, plus other damages that may be proven in court.
CONTRARY TO LAW.37 
Section 6, Rule 110 of the Rules of Criminal Procedure requires that the Information
must allege the acts or omissions complained of as constituting the offense:
SEC. 6. Sufficiency of complaint or information. – A complaint or information is
sufficient if it states the name of the accused; the designation of the offense given by
the statute; the acts or omissions complained of as constituting the offense; the name
of the offended party; the approximate date of the commission of the offense; and the
place where the offense was committed.
When an offense is committed by more than one person, all of them shall be included
in the complaint or information.
The real nature of the offense charged is to be ascertained by the facts alleged in the
body of the Information and the punishment provided by law, not by the designation
or title or caption given by the Prosecutor in the Information.38 The Information must
allege clearly and accurately the elements of the crime charged. 39 
As can be gleaned from its averments, the Information alleged the essential elements
of the crime under paragraph 1, Article 318 of the Revised Penal Code.
The false or fraudulent representation by a seller that what he offers for sale is brand
new (when, in fact, it is not) is one of those deceitful acts envisaged in paragraph 1,
Article 318 of the Revised Penal Code. The provision reads:
Art. 318. Other deceits. – The penalty of arresto mayor and a fine of not less than the
amount of the damage caused and not more than twice such amount shall be imposed
upon any person who shall defraud or damage another by any other deceit not
mentioned in the preceding articles of this chapter.
This provision was taken from Article 554 of the Spanish Penal Code which
provides:
El que defraudare o perjudicare a otro, usando de cualquier engaño que no se halle
expresado en los artículos anteriores de esta sección, será castigado con una multa
del tanto al duplo del perjuicio que irrogare; y en caso de reincidencia, con la del
duplo y arresto mayor en su grado medio al máximo.
For one to be liable for "other deceits" under the law, it is required that the
prosecution must prove the following essential elements: (a) false pretense,
fraudulent act or pretense other than those in the preceding articles; 
(b) such false pretense, fraudulent act or pretense must be made or executed prior to
15
or simultaneously with the commission of the fraud; and (c) as a result, the offended
party suffered damage or prejudice.40 It is essential that such false statement or
fraudulent representation constitutes the very cause or the only motive for the private
complainant to part with her property.
The provision includes any kind of conceivable deceit other than those enumerated in
Articles 315 to 317 of the Revised Penal Code.41 It is intended as the catchall
provision for that purpose with its broad scope and intendment.42  thereof: Provided, however, That in offenses involving damage to property through
Thus, the petitioner’s reliance on paragraph 2(a), Article 315 of the Revised Penal
Code is misplaced. The said provision reads:
2. By means of any of the following false pretenses or fraudulent acts executed prior
to or simultaneously with the commission of the fraud:
(a) By using fictitious name, or falsely pretending to possess power, influence,
qualifications, property, credit, agency, business or imaginary transactions; or by
means of other similar deceits.
The fraudulent representation of the seller, in this case, that the van to be sold is
brand new, is not the deceit contemplated in the law. Under the principle of ejusdem
generis, where a statement ascribes things of a particular class or kind accompanied
by words of a generic character, the generic words will usually be limited to things of
a similar nature with those particularly enumerated unless there be something in the
context to the contrary.43  brand new cars. It has thus become admitted that the petitioner was dealing with
Jurisdiction is conferred by the Constitution or by law. It cannot be conferred by the
will of the parties, nor diminished or waived by them. The jurisdiction of the court is
determined by the averments of the complaint or Information, in relation to the law
prevailing at the time of the filing of the criminal complaint or Information, and the
penalty provided by law for the crime charged at the time of its commission.
Section 32 of Batas Pambansa Blg. 129, as amended by Republic Act No. 7691,
provides that the MTC has exclusive jurisdiction over offenses punishable with
imprisonment not exceeding six years, irrespective of the amount of the fine:
Sec. 32. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts in Criminal Cases. – Except in cases falling within
the exclusive original jurisdiction of Regional Trial Courts and of the
Sandiganbayan, the Metropolitan Trial Courts, Municipal Trial Courts, and
Municipal Circuit Trial Courts shall exercise:
(1) Exclusive original jurisdiction over all violations of city or municipal ordinances
committed within their respective territorial jurisdiction; and
(2) Exclusive original jurisdiction over all offenses punishable with imprisonment
not exceeding six (6) years irrespective of the amount of fine, and regardless of other
imposable accessory or other penalties, including the civil liability arising from such
offenses or predicated thereon, irrespective of kind, nature, value or amount
criminal negligence, they shall have exclusive original jurisdiction thereof.
Since the felony of other deceits is punishable by arresto mayor, the MTC had
exclusive jurisdiction over the offense lodged against the petitioner.
On the merits of the petition, the Court agrees with the petitioner’s contention that
there is no evidence on record that he made direct and positive representations or
assertions to the private complainant that the van was brand new. The record shows
that the private complainant and her husband Ralph Silo were, in fact, attended to by
Azotea. However, it bears stressing that the representation may be in the form of
words, or conduct resorted to by an individual to serve as an advantage over another.
Indeed, as declared by the CA based on the evidence on record:
Petitioner cannot barefacedly claim that he made no personal representation that the
herein subject van was brand new for the simple reason that nowhere in the records
did he ever refute the allegation in the complaint, which held him out as a dealer of
brand new vehicles – a fact which, up to now, petitioner has not categorically denied.
Therefore, when private complainant went to petitioner’s showroom, the former had
every right to assume that she was being sold brand new vehicles there being nothing
to indicate otherwise. But as it turned out, not only did private complainant get a
defective and used van, the vehicle had also earlier figured in a road accident when
driven by no less than petitioner’s own driver.44 
Indeed, the petitioner and Azotea obdurately insisted in the trial court that the van
was brand new, and that it had never figured in vehicular accident. This
representation was accentuated by the fact that the petitioner gave the Service
Manual to the private complainant, which manual 
contained the warranty terms and conditions, signifying that the van was "brand
new." Believing this good faith, the private complainant decided to purchase the van
for her buy-and-sell and garment business, and even made a downpayment of the
purchase price.
As supported by the evidence on record, the van was defective when the petitioner
sold it to the private complainant. It had ditched onto the shoulder of the highway in
Daet, Camarines Norte on its way from Manila to Naga City. The van was damaged
16
and had to be repaired; the rod end and bushing had to be replaced, while the left
front stabilizer which gave out a persistent annoying sound was repaired. Some parts
underneath the van were even welded together. Azotea and the petitioner deliberately
concealed these facts from the private complainant when she bought the van,
obviously so as not to derail the sale and the profit from the transaction.
The CA is correct in ruling that fraud or deceit may be committed by omission. As
the Court held in People v. Balasa:45  petitioner was mandated to reveal the foregoing facts to the private complainant. But
Fraud, in its general sense, is deemed to comprise anything calculated to deceive,
including all acts, omissions, and concealment involving a breach of legal or
equitable duty, trust, or confidence justly reposed, resulting in damage to another, or
by which an undue and unconscientious advantage is taken of another. It is a generic
term embracing all multifarious means which human ingenuity can device, and
which are resorted to by one individual to secure an advantage over another by false
suggestions or by suppression of truth and includes all surprise, trick, cunning,
dissembling and any unfair way by which another is cheated. On the other hand,
deceit is the false representation of a matter of fact whether by words or conduct, by
false or misleading allegations, or by concealment of that which should have been
disclosed which deceives or is intended to deceive another so that he shall act upon
it to his legal injury.46  interior and exterior before she agreed to buy it and
It is true that mere silence is not in itself concealment. Concealment which the law
denounces as fraudulent implies a purpose or design to hide facts which the other
party sought to know.47 Failure to reveal a fact which the seller is, in good faith,
bound to disclose may generally be classified as a deceptive act due to its inherent
capacity to deceive.48 Suppression of a material fact which a party is bound in good
faith to disclose is equivalent to a false representation.49 Moreover, a representation is
not confined to words or positive assertions; it may consist as well of deeds, acts or
artifacts of a nature calculated to mislead another and thus allow the fraud-feasor to
obtain an undue advantage.50  a new one and delivered it to the plaintiff was found to have warranted and
Fraudulent nondisclosure and fraudulent concealment are of the same genre.
Fraudulent concealment presupposes a duty to disclose the truth and that disclosure
was not made when opportunity to speak and inform was presented, and that the
party to whom the duty of disclosure, as to a material fact was due, was induced
thereby to act to his injury.51 
Article 1389 of the New Civil Code provides that failure to disclose facts when there
is a duty to reveal them constitutes fraud. In a contract of sale, a buyer and seller do
not deal from equal bargaining positions when the latter has knowledge, a material
fact which, if communicated to the buyer, would render the grounds unacceptable or,
at least, substantially less desirable.52 If, in a contract of sale, the vendor knowingly
allowed the vendee to be deceived as to the thing sold in a material matter by failing
to disclose an intrinsic circumstance that is vital to the contract, knowing that the
vendee is acting upon the presumption that no such fact exists, deceit is
accomplished by the suppression of the truth.53 
In the present case, the petitioner and Azotea knew that the van had figured in an
accident, was damaged and had to be repaired. Nevertheless, the van was placed in
the showroom, thus making it appear to the public that it was a brand new unit. The
the petitioner and Azotea even obdurately declared when they testified in the court a
quo that the vehicle did not figure in an accident, nor had it been repaired; they
maintained that the van was brand new, knowing that the private complainant was
going to use it for her garment business. Thus, the private complainant bought the
van, believing it was brand new.
Significantly, even when the petitioner was apprised that the private complainant had
discovered the van’s defects, the petitioner agreed to replace the van, but changed his
mind and insisted that it must be first sold.
The petitioner is not relieved of his criminal liability for deceitful concealment of
material facts, even if the private complainant made a visual inspection of the van’s
 
failed to inspect its under chassis. Case law has it that where the vendee made only a
partial investigation and relies, in part, upon the representation of the vendee, and is
deceived by such representation to his injury, he may maintain an action for such
deceit.54 The seller cannot be heard to say that the vendee should not have relied upon
the fraudulent concealment; that negligence, on the part of the vendee, should not be
a defense in order to prevent the vendor from unjustifiably escaping with the fruits of
the fraud.
In one case,55 the defendant who repainted an automobile, worked it over to resemble
represented that the automobile being sold was new. This was found to be "a false
representation of an existing fact; and, if it was material and induced the plaintiff to
accept something entirely different from that which he had contracted for, it clearly
was a fraud which, upon its discovery and a tender of the property back to the seller,
[it] entitled the plaintiff to rescind the trade and recover the purchase money."56 
On the petitioner’s insistence that the private complainant was proscribed from
charging him with estafa based on the principle of caveat emptor, case law has it that
this rule only requires the purchaser to exercise such care and attention as is usually
exercised by ordinarily prudent men in like business affairs, and only applies to
defects which are open and patent to the service of one exercising such care.57 In an
avuncular case, it was held that:
17
… The rule of caveat emptor, like the rule of sweet charity, has often been invoked
to cover a multitude of sins; but we think its protecting mantle has never been
stretched to this extent. It can only be applied where it is shown or conceded that the
parties to the contract stand on equal footing and have equal knowledge or equal
means of knowledge and there is no relation of trust or confidence between them.
But, where one party undertakes to sell to another property situated at a distance and
of which he has or claims to have personal knowledge and of which the buyer knows
nothing except as he is informed by the seller, the buyer may rightfully rely on the
truth of the seller’s representations as to its kind, quality, and value made in the
course of negotiation for the purpose of inducing the purchase. If, in such case, the
representations prove to be false, neither law nor equity will permit the seller to
escape responsibility by the plea that the buyer ought not to have believed him or
ought to have applied to other sources to ascertain the facts. …58  to impose a penalty of imprisonment of one year or less, it should not impose an
It bears stressing that Azotea and the petitioner had every opportunity to reveal to the
private complainant that the van was defective. They resolved to maintain their
silence, to the prejudice of the private complainant, who was a garment merchant and
who had no special knowledge of parts of motor vehicles. Based on the surrounding
circumstances, she relied on her belief that the van was brand new. In fine, she was
the innocent victim of the petitioner’s fraudulent nondisclosure or concealment.
The petitioner cannot pin criminal liability for his fraudulent omission on his general
manager, Azotea. The two are equally liable for their collective fraudulent silence.
Case law has it that wherever the doing of a  IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed
certain act or the transaction of a given affair, or the performance of certain business
is confided to an agent, the authority to so act will, in accordance with a general rule
often referred to, carry with it by implication the authority to do all of the collateral
acts which are the natural and ordinary incidents of the main act or business
authorized.59 
The MTC sentenced the petitioner to suffer imprisonment of from two months and
one day, as minimum, to four months of arresto mayor, as maximum. The CA
affirmed the penalty imposed by the trial court. This is erroneous. Section 2 of Act
4103, as amended, otherwise known as the Indeterminate Sentence Law, provides
that the law will not apply if the maximum term of imprisonment does not exceed
one year:
not exceed one year, not to those already sentenced by final judgment at the time of
approval of this Act, except as provided in Section 5 hereof. (As amended by Act
No. 4225.)
In this case, the maximum term of imprisonment imposed on the petitioner was four
months and one day of arresto mayor. Hence, the MTC was proscribed from
imposing an indeterminate penalty on the petitioner. An indeterminate penalty may
be imposed if the minimum of the penalty is 
one year or less, and the maximum exceeds one year. For example, the trial court
may impose an indeterminate penalty of six months of arresto mayor, as minimum,
to two years and four months of prision correccional, as maximum, since the
maximum term of imprisonment it imposed exceeds one year. If the trial court opts
indeterminate penalty, but a straight penalty of one year or less instead. Thus, the
petitioner may be sentenced to a straight penalty of one year, or a straight penalty of
less than one year, i.e., ten months or eleven months. We believe that considering the
attendant circumstances, a straight penalty of imprisonment of six months is
reasonable.
Conformably with Article 39 in relation to paragraph 3, Article 38 of the Revised
Penal Code, the petitioner shall suffer subsidiary imprisonment if he has no property
with which to pay the penalty of fine.
Decision and Resolution are AFFIRMED WITH MODIFICATION. Considering
the surrounding circumstances of the case, the petitioner is hereby sentenced to
suffer a straight penalty of six (6) months imprisonment. The petitioner shall suffer
subsidiary imprisonment in case of insolvency.
Costs against the petitioner.
SO ORDERED.

SEC. 2. This Act shall not apply to persons convicted of offenses punished with
death penalty or life-imprisonment; to those convicted of treason, conspiracy or
proposal to commit treason; to those convicted of misprision of treason, rebellion,
sedition or espionage; to those convicted of piracy; to those who are habitual
delinquents; to those who shall have escaped from confinement or evaded sentence;
to those who having been granted conditional pardon by the Chief Executive shall
have violated the terms thereof; to those whose maximum term of imprisonment does

18
 However, this rule is not absolute. The Court may review the factual findings
of the CA should they be contrary to those of the trial court. Conformably, this Court
may review findings of facts when the judgment of the CA is premised on a
misapprehension of facts.
Civil Law; Contracts; Sales; Hidden Defects; A hidden defect is one which is
unknown or could not have been known to the vendee; Requisites to Recover on
Account of Hidden Defects.—A hidden defect is one which is unknown or could not
have been known to the vendee. Under the law, the requisites to recover on account
of hidden defects are as follows: (a) the defect must be hidden; (b) the defect must
exist at the time the sale was made; (c) the defect must ordinarily have been excluded
from the contract; (d) the defect, must be important (renders thing UNFIT or
considerably decreases FITNESS); (e) the action must be instituted within the statute
of limitations.
Same; Same; Same; Same; Things to be Established in Order to Prove
Liability on the Basis of Breach of Implied Warranty.—In the sale of animal feeds,
there is an implied warranty that it is reasonably fit and suitable to be used for the
purpose which both parties contemplated. To be able to prove liability on the basis of
breach of implied warranty, three things must be established by the respondents.
The first is that they sustained injury because of the product; the second is that the
injury occurred because the product was defective or unreasonably unsafe;
and finally, the defect existed when the product left the hands of the petitioner. A
manufacturer or seller of a product cannot be held liable for any damage allegedly
caused by the product in the absence of any proof that the product in question was
defective. The defect must be present upon the delivery or manufacture of the
product; or when the product left the seller’s or manufacturer’s control; or when the
product was sold to the purchaser; or the product must have reached the user or
consumer without substantial change in the condition it was sold.

PETITION for review on certiorari of a decision of the Court of Appeals.

G.R. No. 152219. October 25, 2004.* The facts are stated in the opinion of the Court.
NUTRIMIX FEEDS CORPORATION, petitioner, vs. COURT OF APPEALS      Cornelio C. Cruz for petitioner. 
and SPOUSES EFREN AND MAURA EVANGELISTA, respondents. 359
Remedial Law; Appeals; Court may review the factual findings of the Court of VOL. 441, OCTOBER 25, 2004  359 
Appeals should they be contrary to those of the trial court.—Oft repeated is the rule
that the Supreme Court reviews only errors of law in petitions for review on Nutrimix Feeds Corporation vs. Court of Appeals
certiorari under Rule 45.       Venustiano S. Roxas for private respondents.
_______________
42
 Fernandez v. Tan Tiong Tick, 1 SCRA 1138, 1143 (1961). CALLEJO, SR., J.:
*
 SECOND DIVISION.
358 For review on certiorari is the Decision1 of the Court of Appeals in CA-G.R. CV No.
358  SUPREME COURT REPORTS ANNOTATED  59615 modifying, on appeal, the Joint Decision2 of the Regional Trial Court of
Malolos, Bulacan, Branch 9, in Civil Case No. 1026-M-933 for sum of money and
Nutrimix Feeds Corporation vs. Court of Appeals
damages with prayer for issuance of writ of preliminary attachment, and Civil Case
19
No. 49-M-944 for damages. The trial court dismissed the complaint of the Check
respondents, ordering them to pay the petitioner the unpaid value of the assorted Bank Due Date Amount
Number
animal feeds delivered to the former by the latter, with legal interest thereon from the
filing of the complaint, including attorney’s fees. United Coconut
BTS052084 July 30, 1993 ₱ 47,760.00
Planters Bank
The Factual Antecedents
-do- BTS052087 July 30, 1993 131,340.00
On April 5, 1993, the Spouses Efren and Maura Evangelista, the respondents herein,
started to directly procure various kinds of animal feeds from petitioner Nutrimix -do- BTS052091 July 30, 1993 59,700.00
Feeds Corporation. The petitioner gave the respondents a credit period of thirty to
-do- BTS062721 August 4, 1993 47,860.00
forty-five days to postdate checks to be issued in payment for the delivery of the
feeds. The accommodation was made apparently because of the company president’s -do- BTS062720 August 5, 1993 43,780.00
close friendship with Eugenio Evangelista, the brother of respondent Efren
Evangelista. The various animal feeds were paid and covered by checks with due -do- BTS062774 August 6, 1993 15,000.00
dates from July 1993 to September 1993. Initially, the respondents were good paying
customers. In some instances, however, they failed to issue checks despite the September 11,
-do- BTS062748 47,180.00
deliveries of animal feeds which were appropriately covered by sales invoices. 1993
Consequently, the 
September 11,
-do- BTS062763 48,440.00
1993
Sales Invoice 
Date Amount
Number September 18,
-do- BTS062766 49,460.00
1993
21334 June 23, 1993 ₱ 7,260.00

21420 June 26, 1993 6,990.00 Total: ₱490,520.00

21437 June 28, 1993 41,510.00 ==========

21722 July 12, 1993 45,185.00

When the above-mentioned checks were deposited at the petitioner’s depository
22048 July 26, 1993 44,540.00 bank, the same were, consequently, dishonored because respondent Maura
Evangelista had already closed her account. The petitioner made several demands for
22054 July 27, 1993 45,246.00 the respondents to settle their unpaid obligation, but the latter failed and refused to
pay their remaining balance with the petitioner.
22186 August 2, 1993 84,900.00
On December 15, 1993, the petitioner filed with the Regional Trial Court of Malolos,
Bulacan, a complaint, docketed as Civil Case No. 1026-M-93, against the
Total: ₱275,631.00 respondents for sum of money and damages with a prayer for issuance of writ of
=========== preliminary attachment. In their answer with counterclaim, the respondents admitted
their unpaid obligation but impugned their liability to the petitioner. They asserted
that the nine checks issued by respondent Maura Evangelista were made to guarantee
respondents incurred an aggregate unsettled account with the petitioner in the the payment of the purchases, which was previously determined to be procured from
amount of ₱766,151.00. The breakdown of the unpaid obligation is as follows: the expected proceeds in the sale of their broilers and hogs. They contended that
inasmuch as the sudden and massive death of their animals was caused by the

20
contaminated products of the petitioner, the nonpayment of their obligation was
based on a just and legal ground.
On January 19, 1994, the respondents also lodged a complaint for damages against
the petitioner, docketed as Civil Case No. 49-M-94, for the untimely and unforeseen
death of their animals supposedly effected by the adulterated animal feeds the
petitioner sold to them. Within the period to file an answer, the petitioner moved to
dismiss the respondents’ complaint on the ground of litis pendentia. The trial court
denied the same in a Resolution5 dated April 26, 1994, and ordered the consolidation
of the case with Civil Case No. 1026-M-93. On May 13, 1994, the petitioner filed its
Answer with Counterclaim, alleging that the death of the respondents’ animals was
due to the widespread pestilence in their farm. The petitioner, likewise, maintained
that it received information that the respondents were in an unstable financial
condition and even sold their animals to settle their obligations from other enraged
and insistent creditors. It, moreover, theorized that it was the respondents who mixed
poison to its feeds to make it appear that the feeds were contaminated.
A joint trial thereafter ensued.
During the hearing, the petitioner presented Rufino Arenas, Nutrimix Assistant
Manager, as its lone witness. He testified that on the first week of August 1993,
Nutrimix President Efren Bartolome met the respondents to discuss the possible
settlement of their unpaid account. The said respondents still pleaded to the
petitioner to continue to supply them with animal feeds because their livestock were
supposedly suffering from a disease.6
For her part, respondent Maura Evangelista testified that as direct buyers of animal
feeds from the petitioner, Mr. Bartolome, the company president, gave them a
discount of ₱12.00 per bag and a credit term of forty-five to seventy-five days.7 For
the operation of the respondents’ poultry and piggery farm, the assorted animal feeds
sold by the petitioner were delivered in their residence and stored in an adjacent
bodega made of concrete wall and galvanized iron sheet roofing with monolithic
flooring.8
It appears that in the morning of July 26, 1993, three various kinds of animal feeds,
numbering 130 bags, were delivered to the residence of the respondents in Sta. Rosa,
Marilao, Bulacan. The deliveries came at about 10:00 a.m. and were fed to the
animals at approximately 1:30 p.m. at the respondents’ farm in Balasing, Sta. Maria,
Bulacan. At about 8:30 p.m., respondent Maura Evangelista received a radio
message from a worker in her farm, warning her that the chickens were dying at
rapid intervals. When the respondents arrived at their farm, they witnessed the death
of 18,000 broilers, averaging 1.7 kilos in weight, approximately forty-one to forty-
five days old. The broilers then had a prevailing market price of ₱46.00 per kilo.9
On July 27, 1993, the respondents received another delivery of 160 bags of animal
feeds from the petitioner, some of which were distributed to the contract growers of
the respondents. At that time, respondent Maura Evangelista requested the
representative of the petitioner to notify Mr. Bartolome of the fact that their broilers
died after having been fed with the animal feeds delivered by the petitioner the
previous day. She, likewise, asked that a technician or veterinarian be sent to oversee
the untoward occurrence. Nevertheless, the various feeds delivered on that day were
still fed to the animals. On July 27, 1993, the witness recounted that all of the
chickens and hogs died.10 Efren Evangelista suffered from a heart attack and was
hospitalized as a consequence of the massive death of their animals in the farm. On
August 2, 1993, another set of animal feeds were delivered to the respondents, but
the same were not returned as the latter were not yet cognizant of the fact that the
cause of the death of their animals was the polluted feeds of the petitioner.11
When respondent Maura Evangelista eventually met with Mr. Bartolome on an
undisclosed date, she attributed the improbable incident to the animal feeds supplied
by the petitioner, and asked Mr. Bartolome for indemnity for the massive death of
her livestock. Mr. Bartolome disavowed liability thereon and, thereafter, filed a case
against the respondents.12
After the meeting with Mr. Bartolome, respondent Maura Evangelista requested Dr.
Rolando Sanchez, a veterinarian, to conduct an inspection in the respondents’
poultry. On October 20, 1993, the respondents took ample amounts remaining from
the feeds sold by the petitioner and furnished the same to various government
agencies for laboratory examination.
Dr. Juliana G. Garcia, a doctor of veterinary medicine and the Supervising
Agriculturist of the Bureau of Animal Industry, testified that on October 20, 1993,
sample feeds for chickens contained in a pail were presented to her for examination
by respondent Efren Evangelista and a certain veterinarian.13 The Clinical Laboratory
Report revealed that the feeds were negative of salmonella14 and that the very high
aflatoxin level15 found therein would not cause instantaneous death if taken orally by
birds.
Dr. Rodrigo Diaz, the veterinarian who accompanied Efren at the Bureau of Animal
Industry, testified that sometime in October 1993, Efren sought for his advice
regarding the death of the respondents’ chickens. He suggested that the remaining
feeds from their warehouse be brought to a laboratory for examination. The witness
claimed that the feeds brought to the laboratory came from one bag of sealed
Nutrimix feeds which was covered with a sack.
Dr. Florencio Isagani S. Medina III, Chief Scientist Research Specialist of the
Philippine Nuclear Research Institute, informed the trial court that respondent Maura
Evangelista and Dr. Garcia brought sample feeds and four live and healthy chickens
21
to him for laboratory examination. In his Cytogenetic Analysis,16 Dr. Medina
reported that he divided the chickens into two categories, which he separately fed at
6:00 a.m. with the animal feeds of a different commercial brand and with the sample
feeds supposedly supplied by the petitioner. At noon of the same day, one of the
chickens which had been fed with the Nutrimix feeds died, and a second chicken
died at 5:45 p.m. of the same day. Samples of blood and bone marrow were taken for
chromosome analysis, which showed pulverized chromosomes both from bone
marrow and blood chromosomes. On cross-examination, the witness admitted that
the feeds brought to him were merely placed in a small unmarked plastic bag and
that he had no way of ascertaining whether the feeds were indeed manufactured by
the petitioner.
Another witness for the respondents, Aida Viloria Magsipoc, Forensic Chemist III of
the Forensic Chemist Division of the National Bureau of Investigation, affirmed that
she performed a chemical analysis17 of the animal feeds, submitted to her by
respondent Maura Evangelista and Dr. Garcia in a sealed plastic bag, to determine
the presence of poison in the said specimen. The witness verified that the sample
feeds yielded positive results to the tests for COUMATETRALYL Compound,18 the
active component of RACUMIN, a brand name for a commercially known rat
poison.19 According to the witness, the presence of the compound in the chicken
feeds would be fatal to internal organs of the chickens, as it would give a delayed
blood clotting effect and eventually lead to internal hemorrhage, culminating in their
inevitable death.
Paz Austria, the Chief of the Pesticide Analytical Section of the Bureau of Plants
Industry, conducted a laboratory examination to determine the presence of pesticide
residue in the animal feeds submitted by respondent Maura Evangelista and Dr.
Garcia. The tests disclosed that no pesticide residue was detected in the samples
received20but it was discovered that the animal feeds were positive for Warfarin, a
rodenticide (anticoagulant), which is the chemical family of Coumarin. 21
After due consideration of the evidence presented, the trial court ruled in favor of the
petitioner. The dispositive portion of the decision reads:
WHEREFORE, in light of the evidence on record and the
laws/jurisprudence applicable thereon, judgment is hereby rendered:
1) in Civil Case No. 1026-M-93, ordering defendant spouses Efren
and Maura Evangelista to pay unto plaintiff Nutrimix Feeds
Corporation the amount of ₱766,151.00 representing the unpaid
value of assorted animal feeds delivered by the latter to and
received by the former, with legal interest thereon from the filing
of the complaint on December 15, 1993 until the same shall have
been paid in full, and the amount of ₱50,000.00 as attorney’s fees.
Costs against the aforenamed defendants; and
2) dismissing the complaint as well as counterclaims in Civil Case
No. 49-M-94 for inadequacy of evidence to sustain the same. No
pronouncement as to costs.
SO ORDERED.22
In finding for the petitioner, the trial court ratiocinated as follows:
On the strength of the foregoing disquisition, the Court cannot sustain the
Evangelistas’ contention that Nutrimix is liable under Articles 1561 and
1566 of the Civil Code governing "hidden defects" of commodities sold. As
already explained, the Court is predisposed to believe that the subject feeds
were contaminated sometime between their storage at the bodega of the
Evangelistas and their consumption by the poultry and hogs fed therewith,
and that the contamination was perpetrated by unidentified or unidentifiable
ill-meaning mischief-maker(s) over whom Nutrimix had no control in
whichever way.
All told, the Court finds and so holds that for inadequacy of proof to the
contrary, Nutrimix was not responsible at all for the contamination or
poisoning of the feeds supplied by it to the Evangelistas which precipitated
the mass death of the latter’s chickens and hogs. By no means and under no
circumstance, therefore, may Nutrimix be held liable for the sundry
damages prayed for by the Evangelistas in their complaint in Civil Case No.
49-M-94 and answer in Civil Case No. 1026-M-93. In fine, Civil Case No.
49-M-94 deserves dismissal.
Parenthetically, vis-à-vis the fulminations of the Evangelistas in this
specific regard, the Court does not perceive any act or omission on the part
of Nutrimix constitutive of "abuse of rights" as would render said
corporation liable for damages under Arts. 19 and 21 of the Civil Code. The
alleged "callous attitude and lack of concern of Nutrimix" have not been
established with more definitiveness.
As regards Civil Case No. 1026-M-93, on the other hand, the Court is
perfectly convinced that the deliveries of animal feeds by Nutrimix to the
Evangelistas constituted a simple contract of sale, albeit on a continuing
basis and on terms or installment payments.23
22
Undaunted, the respondents sought a review of the trial court’s decision to the Court
of Appeals (CA), principally arguing that the trial court erred in holding that they
failed to prove that their broilers and hogs died as a result of consuming the
petitioner’s feeds.
On February 12, 2002, the CA modified the decision of the trial court. The fallo of
the decision reads:
WHEREFORE, premises considered, the appealed decision is hereby
MODIFIED such that the complaint in Civil Case No. 1026-M-93 is
dismissed for lack of merit.
So ordered.24
In dismissing the complaint in Civil Case No. 1026-M-93, the CA ruled that the
respondents were not obligated to pay their outstanding obligation to the petitioner in
view of its breach of warranty against hidden defects. The CA gave much credence
to the testimony of Dr. Rodrigo Diaz, who attested that the sample feeds distributed
to the various governmental agencies for laboratory examination were taken from a
sealed sack bearing the brand name Nutrimix. The CA further argued that the
declarations of Dr. Diaz were not effectively impugned during cross-examination,
nor was there any contrary evidence adduced to destroy his damning allegations.
On March 7, 2002, the petitioner filed with this Court the instant petition for review
on the sole ground that –
THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING
THAT THE CLAIMS OF HEREIN PETITIONER FOR COLLECTION OF
SUM OF MONEY AGAINST PRIVATE RESPONDENTS MUST BE
DENIED BECAUSE OF HIDDEN DEFECTS.
The Present Petition
The petitioner resolutely avers that the testimony of Dr. Diaz can hardly be
considered as conclusive evidence of hidden defects that can be attributed to the
petitioner. Parenthetically, the petitioner asserts, assuming that the sample feeds were
taken from a sealed sack bearing the brand name Nutrimix, it cannot decisively be
presumed that these were the same feeds brought to the respondents’ farm and given
to their chickens and hogs for consumption.
It is the contention of the respondents that the appellate court correctly ordered the
dismissal of the complaint in Civil Case No. 1026-M-93. They further add that there
was sufficient basis for the CA to hold the petitioner guilty of breach of warranty
thereby releasing the respondents from paying their outstanding obligation.
The Ruling of the Court
Oft repeated is the rule that the Supreme Court reviews only errors of law in petitions
for review on certiorari under Rule 45. However, this rule is not absolute. The Court
may review the factual findings of the CA should they be contrary to those of the
trial court. Conformably, this Court may review findings of facts when the judgment
of the CA is premised on a misapprehension of facts.25
The threshold issue is whether or not there is sufficient evidence to hold the
petitioner guilty of breach of warranty due to hidden defects.
The petition is meritorious.
The provisions on warranty against hidden defects are found in Articles 1561 and
1566 of the New Civil Code of the Philippines, which read as follows:
Art. 1561. The vendor shall be responsible for warranty against hidden
defects which the thing sold may have, should they render it unfit for the
use for which it is intended, or should they diminish its fitness for such use
to such an extent that, had the vendee been aware thereof, he would not
have acquired it or would have given a lower price for it; but said vendor
shall not be answerable for patent defects or those which may be visible, or
for those which are not visible if the vendee is an expert who, by reason of
his trade or profession, should have known them.
Art. 1566. The vendor is responsible to the vendee for any hidden faults or
defects in the thing sold, even though he was not aware thereof.
This provision shall not apply if the contrary has been stipulated, and the vendor was
not aware of the hidden faults or defects in the thing sold.
A hidden defect is one which is unknown or could not have been known to the
vendee.26 Under the law, the requisites to recover on account of hidden defects are as
follows:
(a) the defect must be hidden;
(b) the defect must exist at the time the sale was made;
23
 (c) the defect must ordinarily have been excluded from the contract;
(d) the defect, must be important (renders thing UNFIT or considerably
decreases FITNESS);
(e) the action must be instituted within the statute of limitations.
A We were able to feed (sic) some of those deliveries because we did not
know yet during that time that it is the cause of the death of our chicks (sic),
Sir.
Q But according to you, the previous deliveries were not used by you
27 because you believe (sic) that they were poison (sic)?

In the sale of animal feeds, there is an implied warranty that it is reasonably fit and A Which previous deliveries, Sir[?]
suitable to be used for the purpose which both parties contemplated.28 To be able to
prove liability on the basis of breach of implied warranty, three things must be Q Those delivered on July 26 and 22 (sic), 1993?
established by the respondents. The first is that they sustained injury because of the
product; the second is that the injury occurred because the product was defective or A Those were fed to the chickens, Sir. This is the cause of the death of the
unreasonably unsafe; and finally, the defect existed when the product left the hands chickens.
of the petitioner.29 A manufacturer or seller of a product cannot be held liable for any
damage allegedly caused by the product in the absence of any proof that the product Q And you stated that this last delivery on August 2 were poison (sic) also
in question was defective.30 The defect must be present upon the delivery or and you did not use them, is that right?
manufacture of the product;31 or when the product left the seller’s or manufacturer’s
control;32 or when the product was sold to the purchaser; 33 or the product must have
reached the user or consumer without substantial change in the condition it was sold. Atty. Roxas:
Tracing the defect to the petitioner requires some evidence that there was no
tampering with, or changing of the animal feeds. The nature of the animal feeds That is misleading.
makes it necessarily difficult for the respondents to prove that the defect was existing
when the product left the premises of the petitioner. Atty. Cruz:

A review of the facts of the case would reveal that the petitioner delivered the animal She stated that.
feeds, allegedly containing rat poison, on July 26, 1993; but it is astonishing that the
respondents had the animal feeds examined only on October 20, 1993, or barely Atty. Roxas:
three months after their broilers and hogs had died. On cross-examination,
respondent Maura Evangelista testified in this manner:
She said some were fed because they did not know yet of the poisoning.
Atty. Cruz:
Court:

Q Madam Witness, you said in the last hearing that believing that the 250
And when the chickens died, they stopped naturally feeding it to the
bags of feeds delivered to (sic) the Nutrimix Feeds Corporation on August
chickens.
2, 1993 were poison (sic), allegedly your husband Efren Evangelista burned
the same with the chicken[s], is that right?
Atty. Cruz:
A Yes, Sir. Some, Sir.
Q You mean to say, Madam Witness, that although you believe (sic) that
the chickens were allegedly poisoned, you used the same for feeding your
Q And is it not a fact, Madam Witness, that you did not, as according to
animals?
you, used (sic) any of these deliveries made on August 2, 1993?
A We did not know yet during that time that the feeds contained poison,
only during that time when we learned about the same after the analysis.
24
 Q Therefore you have known only of the alleged poison in the Nutrimix
Feeds only after you have caused the analysis of the same?
A Yes, Sir.
Q When was that, Madam Witness?
A I cannot be sure about the exact time but it is within the months of
October to November, Sir.
Q So, before this analysis of about October and November, you were not
aware that the feeds of Nutrimix Feeds Corporation were, according to you,
with poison?
A We did not know yet that it contained poison but we were sure that the
feeds were the cause of the death of our animals.34
We find it difficult to believe that the feeds delivered on July 26 and 27, 1993 and
fed to the broilers and hogs contained poison at the time they reached the
respondents. A difference of approximately three months enfeebles the respondents’
theory that the petitioner is guilty of breach of warranty by virtue of hidden defects.
In a span of three months, the feeds could have already been contaminated by outside
factors and subjected to many conditions unquestionably beyond the control of the
petitioner. In fact, Dr. Garcia, one of the witnesses for the respondents, testified that
the animal feeds submitted to her for laboratory examination contained very high
level of aflatoxin, possibly caused by mold (aspergillus flavus).35 We agree with the
contention of the petitioner that there is no evidence on record to prove that the
animal feeds taken to the various governmental agencies for laboratory examination
were the same animal feeds given to the respondents’ broilers and hogs for their
consumption. Moreover, Dr. Diaz even admitted that the feeds that were submitted
for analysis came from a sealed bag. There is simply no evidence to show that the
feeds given to the animals on July 26 and 27, 1993 were identical to those submitted
to the expert witnesses in October 1993.
It bears stressing, too, that the chickens brought to the Philippine Nuclear Research
Institute for laboratory tests were healthy animals, and were not the ones that were
ostensibly poisoned. There was even no attempt to have the dead fowls examined.
Neither was there any analysis of the stomach of the dead chickens to determine
whether the petitioner’s feeds really caused their sudden death. Mere sickness and
death of the chickens is not satisfactory evidence in itself to establish a prima facie
case of breach of warranty.36
Likewise, there was evidence tending to show that the respondents combined
different kinds of animal feeds and that the mixture was given to the animals.
Respondent Maura Evangelista testified that it was common practice among chicken
and hog raisers to mix animal feeds. The testimonies of respondent Maura
Evangelista may be thus summarized:
Cross-Examination
Atty. Cruz:
Q Because, Madam Witness, you ordered chicken booster mash from
Nutrimix Feeds Corporation because in July 1993 you were taking care of
many chickens, as a matter of fact, majority of the chickens you were taking
care [of] were chicks and not chickens which are marketable?
A What I can remember was that I ordered chicken booster mash on that
month of July 1993 because we have some chicks which have to be fed with
chicken booster mash and I now remember that on the particular month of
July 1993 we ordered several bags of chicken booster mash for the
consumption also of our chicken in our other poultry and at the same time
they were also used to be mixed with the feeds that were given to the hogs.
Q You mean to say [that], as a practice, you are mixing chicken booster
mash which is specifically made for chick feeds you are feeding the same to
the hogs, is that what you want the Court to believe?
A Yes, Sir, because when you mix chicken booster mash in the feeds of
hogs there is a better result, Sir, in raising hogs.37
…
Re-Direct Examination
Atty. Roxas:
Q Now, you mentioned that shortly before July 26 and 27, 1993, various
types of Nutrimix feeds were delivered to you like chicks booster mash,
broiler starter mash and hog finisher or hog grower mash. What is the
reason for simultaneous deliveries of various types of feeds?
A Because we used to mix all those together in one feeding, Sir.
25
 Q And what is the reason for mixing the chick booster mash with broiler conjecture, the court will not hesitate to strike down the evidence and rule in favor of
starter mash? the other party.41 This rule is both fair and sound. Any other interpretation of the law
would unloose the courts to meander aimlessly in the arena of speculation. 42
A So that the chickens will get fat, Sir.
It must be stressed, however, that the remedy against violations of warranty against
… hidden defects is either to withdraw from the contract (accion redhibitoria) or to
demand a proportionate reduction of the price (accion quanti minoris), with damages
Re-Cross Examination in either case.43 In any case, the respondents have already admitted, both in their
testimonies and pleadings submitted, that they are indeed indebted to the petitioner
for the unpaid animal feeds delivered to them. For this reason alone, they should be
Atty. Cruz: held liable for their unsettled obligations to the petitioner.

Q Madam Witness, is it not a fact that the mixing of these feeds by you is
your own concuction (sic) and without the advice of a veterinarian expert to
do so?
A That is common practice among raisers to mix two feeds, Sir.
Q By yourself, Madam Witness, who advised you to do the mixing of these
two types of feeds for feeding your chickens?
WHEREFORE, in light of all the foregoing, the petition is GRANTED. The
assailed Decision of the Court of Appeals, dated February 12, 2002,
is REVERSED and SET ASIDE. The Decision of the Regional Trial Court of
Malolos, Bulacan, Branch 9, dated January 12, 1998, is REINSTATED. No costs.
SO ORDERED.

A That is common practice of chicken raisers, Sir.38

Even more surprising is the fact that during the meeting with Nutrimix President Mr.
Bartolome, the respondents claimed that their animals were plagued by disease, and
that they needed more time to settle their obligations with the petitioner. It was only
after a few months that the respondents changed their justification for not paying
their unsettled accounts, claiming anew that their animals were poisoned with the
animal feeds supplied by the petitioner. The volte-face of the respondents deserves
scant consideration for having been conjured as a mere afterthought.

In essence, we hold that the respondents failed to prove that the petitioner is guilty of
breach of warranty due to hidden defects. It is, likewise, rudimentary that common
law places upon the buyer of the product the burden of proving that the seller of the
product breached its warranty.39 The bevy of expert evidence adduced by the
respondents is too shaky and utterly insufficient to prove that the Nutrimix feeds
caused the death of their animals. For these reasons, the expert testimonies lack
probative weight. The respondents’ case of breach of implied warranty was
fundamentally based upon the circumstantial evidence that the chickens and hogs
sickened, stunted, and died after eating Nutrimix feeds; but this was not enough to
raise a reasonable supposition that the unwholesome feeds were the proximate cause
of the death with that degree of certainty and probability required.40The rule is well-
settled that if there be no evidence, or if evidence be so slight as not reasonably to
warrant inference of the fact in issue or furnish more than materials for a mere
26

G.R. No. 166714. February 9, 2007.*
AMELIA S. ROBERTS, petitioner, vs. MARTIN B. PAPIO, respondent.
Ownership; Possession; Judgments; Unlawful Detainer; The judgment
rendered in an action for unlawful detainer shall be conclusive with respect to the
possession only and shall in no wise bind the title or affect the ownership of the land
or building—such judgment would not bar an action between the same parties
respecting the title to the land or building.—On the first issue, the CA ruling (which
upheld the jurisdiction of the MeTC to resolve the issue of who between petitioner or
respondent is the lawful owner of the property, and is thus entitled to the material
or de factopossession  the property upon compliance with legal requirements for the repurchase. The failure
_______________
*
 THIRD DIVISION.
347
VOL. 515, FEBRUARY 9, 2007  347  a valid contract of sale between the same parties. By insisting that he had
Roberts vs. Papio
thereof) is correct. Section 18, Rule 70 of the Rules of Court provides that
when the defendant raises the defense of ownership in his pleadings and the question
of possession cannot be resolved without deciding the issue of ownership, the issue
of ownership shall be resolved only to determine the issue of possession. The
judgment rendered in an action for unlawful detainer shall be conclusive with respect
to the possession only and shall in no wise bind the title or affect the ownership of
the land or building. Such judgment would not bar an action between the same
parties respecting title to the land or building.
Same; Same; Same; The summary nature of the action is not changed by the
claim of ownership of the property of the defendant. The MeTC is not divested of its
jurisdiction over the unlawful detainer action simply because the defendant asserts
ownership over the property.—The summary nature of the action is not changed by
the claim of ownership of the property of the defendant. The MeTC is not divested of
its jurisdiction over the unlawful detainer action simply because the defendant asserts
ownership over the property.
Equitable Mortgage; An equitable mortgage is one that, although lacking in
some formality, form or words, or other requisites demanded by a statute,
nevertheless reveals the intention of the parties to change a real property as security
for a debt and contain nothing impossible or contrary to law.—An equitable
mortgage is one that, although lacking in some formality, form or words, or other
requisites demanded by a statute, nevertheless reveals the intention of the parties to
change a real property as security for a debt and contain nothing impossible or
contrary to law. A contract between the parties is an equitable mortgage if the
following requisites are present: (a) the parties entered into a contract denominated
as a contract of sale; and (b) the intention was to secure an existing debt by way of
mortgage. The decisive factor is the intention of the parties.
Same; In an equitable mortgage, the mortgagor retains ownership over the
property but subject to foreclosure and sale at public auction upon failure of the
mortgagor to pay his obligation.—In an equitable mortgage, the mortgagor retains
ownership over the property but subject to foreclosure and sale at public auction
upon failure of the mortgagor to pay his obligation. In contrast, in a pacto de
retro sale, ownership of the property sold is immediately transferred to 
348
348  SUPREME COURT REPORTS ANNOTATED 
Roberts vs. Papio
the vendee a retro subject only to the right of the vendor a retro to repurchase
of the vendor a retro to exercise the right to repurchase within the agreed time vests
upon the vendee a retro, by operation of law, absolute title over the property.
Ownership; Sales; One repurchases only what he previously sold—the right to
repurchase presupposes a valid contract of sale between the same parties.—One
repurchases only what one has previously sold. The right to repurchase presupposes
repurchased the property, respondent thereby admitted that the deed of absolute sale
executed by him and petitioner on April 13, 1982 was, in fact and in law, a deed of
absolute sale and not an equitable mortgage; hence, he had acquired ownership over
the property based on said deed. Respondent is, thus, estopped from asserting that the
contract under the deed of absolute sale is an equitable mortgage unless there is
27
allegation and evidence of palpable mistake on the part of respondent; or a fraud on
the part of petitioner. Respondent made no such allegation in his pleadings and
affidavit. On the contrary, he maintained that petitioner had sold the property to him
in July 1985 and acknowledged receipt of the purchase price thereof except the
amount of P39,000.00 retained by Perlita Ventura. Respondent is thus bound by his
admission of petitioner’s ownership of the property and is barred from claiming
otherwise.
Same; Same; Contracts; The contract is one of absolute sale and not one with
right to repurchase—the law states that if the terms of a contract are clear and leave
no doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control.—As gleaned from the April 13, 1982 deed, the right of
respondent to repurchase the property is not incorporated therein. The contract is one
of absolute sale and not one with right to repurchase. The law states that if the terms
of a contract are clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall control. When the language of the
contract is explicit, leaving no doubt as to the intention of the drafters, the courts
may not read into it any other intention that would contradict its plain import. The
clear terms of the contract should never be the subject matter of interpretation.
Neither abstract justice nor the rule of liberal interpretation justifies the creation of a
contract for the  sale.—By the contract of sale, one of the contracting parties obligates himself to
349
VOL. 515, FEBRUARY 9, 2007  349  essential elements will negate the existence of a perfected contract of sale.
Roberts vs. Papio
parties which they did not make themselves, or the imposition upon one party
to a contract or obligation to assume simply or merely to avoid seeming hardships.
Their true meaning must be enforced, as it is to be presumed that the contracting
parties know their scope and effects. As the Court held in Villarica, et al. v. Court of
Appeals, 26 SCRA 189 (1968).
Same; Same; Contracts; An option to buy or a promise to sell is different and
distinct from the right of repurchase that must be reserved by means of stipulations
to that effect in the contract of sale.—In Ramos v. Icasiano, 51 Phil. 343 (1927), we
also held that an agreement to repurchase becomes a promise to sell when made after
the sale because when the sale is made without such agreement the purchaser
acquires the thing sold absolutely; and, if he afterwards grants the vendor the right to
repurchase, it is a new contract entered into by the purchaser as absolute owner. An
option to buy or a promise to sell is different and distinct from the right of repurchase
that must be reserved by means of stipulations to that effect in the contract of sale.
Contracts; Words and Phrases; A contract is a meeting of minds between two
persons whereby one binds himself, with respect to the other, to give something or to
render some service.—A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give something or to render
some service. Under Article 1318 of the New Civil Code, there is no contract unless
the following requisites concur: (1) Consent of the contracting parties; (2) Object
certain which is the subject matter of the contract; (3) Cause of the obligation which
is established.
Same; Contracts are perfected by mere consent manifested by the meeting of
the offer and the acceptance upon the thing and the cause which are to constitute the
contract.—Contracts are perfected by mere consent manifested by the meeting of the
offer and the acceptance upon the thing and the cause which are to constitute the
contract. Once perfected, they bind the contracting parties and the obligations arising
therefrom have the form of law between the parties which must be complied with in
good faith. The parties are bound not only to the fulfillment of what has been
expressly stipulated but also to the consequences which, according to their nature,
may be in keeping with good faith, usage and law.
350
350  SUPREME COURT REPORTS ANNOTATED 
Roberts vs. Papio
Sales; Words and Phrases; By the contract of sale, one of the contracting
parties obligates himself to transfer the ownership of and deliver a determinate thing
and the other, to pay therefor a price certain in money or its equivalent—the absence
of any of the essential elements will negate the existence of a perfected contract of
transfer the ownership of and deliver a determinate thing and the other, to pay
therefor a price certain in money or its equivalent. The absence of any of the
Same; A contract of sale is consensual in nature and is perfected upon mere
meeting of the minds—when there is merely an offer by one party without acceptance
of the other, there is no contract.—A contract of sale is consensual in nature and is
perfected upon mere meeting of the minds. When there is merely an offer by one
party without acceptance of the other, there is no contract. When the contract of sale
is not perfected, it cannot, as an independent source of obligation, serve as a binding
juridical relation between the parties.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
     Dencio B. Bargas for petitioner.
     Omar U. Obias for respondent.
CALLEJO, SR., J.:
Assailed in this petition for review on certiorari is the Decision 1 of the Court of
Appeals (CA), in CA-G.R. CV No. 69034 which reversed and set aside the
Decision2 of the Regional Trial Court (RTC), Branch 150, Makati City, in Civil Case
No. 01-431. The RTC ruling had affirmed with modification the Decision3 of the
Metropolitan Trial Court (MeTC), Branch 64, Makati City in Civil Case No. 66847.
The petition likewise assails the Resolution of the CA denying the motion for
reconsideration of its decision.
28
 The Antecedents
The spouses Martin and Lucina Papio were the owners of a 274-square-meter
residential lot located in Makati (now Makati City) and covered by Transfer
Certificate of Title (TCT) No. S-44980.4 In order to secure a ₱59,000.00 loan from
the Amparo Investments Corporation, they executed a real estate mortgage on the
property. Upon Papio’s failure to pay the loan, the corporation filed a petition for the
extrajudicial foreclosure of the mortgage.  absence and stopped payment beginning January 1986, and refused to pay despite
Since the couple needed money to redeem the property and to prevent the foreclosure
of the real estate mortgage, they executed a Deed of Absolute Sale over the property
on April 13, 1982 in favor of Martin Papio’s cousin, Amelia Roberts. Of the
₱85,000.00 purchase price, ₱59,000.00 was paid to the Amparo Investments
Corporation, while the ₱26,000.00 difference was retained by the spouses.5 As soon
as the spouses had settled their obligation, the corporation returned the owner’s
duplicate of TCT No. S-44980, which was then delivered to Amelia Roberts.
Thereafter, the parties (Amelia Roberts as lessor and Martin Papio as lessee)
executed a two-year contract of lease dated April 15, 1982, effective May 1, 1982.
The contract was subject to renewal or extension for a like period at the option of the
lessor, the lessee waiving thereby the benefits of an implied new lease. The lessee
was obliged to pay monthly rentals of ₱800.00 to be deposited in the lessor’s account
at the Bank of America, Makati City branch.6
On July 6, 1982, TCT No. S-44980 was cancelled, and TCT No. 114478 was issued
in the name of Amelia Roberts as owner.7
Martin Papio paid the rentals from May 1, 1982 to May 1, 1984, and thereafter, for
another year.8 He then failed to pay rentals, but he and his family nevertheless
remained in possession of the property for a period of almost thirteen (13) years.
In a letter dated June 3, 1998, Amelia Roberts, through counsel, reminded Papio that
he failed to pay the monthly rental of ₱2,500.00 from January 1, 1986 to December
31, 1997, and ₱10,000.00 from January 1, 1998 to May 31, 1998; thus, his total
liability was ₱410,000.00. She demanded that Papio vacate the property within 15
days from receipt of the letter in case he failed to settle the amount.9 Because he
refused to pay, Papio received another letter from Roberts on April 22, 1999,
demanding, for the last time, that he and his family vacate the property. 10 Again,
Papio refused to leave the premises.
On June 28, 1999, Amelia Roberts, through her attorney-in-fact, Matilde Aguilar,
filed a Complaint11 for unlawful detainer and damages against Martin Papio before
the MeTC, Branch 64, Makati City. She alleged the following in her complaint: 
Sometime in 1982 she purchased from defendant a 274-sq-m residential house and
lot situated at No. 1046 Teresa St., Brgy. Valenzuela, Makati City.12 Upon Papio’s
pleas to continue staying in the property, they executed a two-year lease
contract13 which commenced on May 1, 1982. The monthly rental was ₱800.00.
Thereafter, TCT No. 11447814 was issued in her favor and she paid all the realty
taxes due on the property. When the term of the lease expired, she still allowed Papio
and his family to continue leasing the property. However, he took advantage of her
repeated demands. In June 1998, she sent a demand letter15 through counsel requiring
Papio to pay rentals from January 1986 up to May 1998 and to vacate the leased
property. The accumulated arrears in rental are as follows: (a) ₱360,000.00 from
January 1, 1986 to December 31, 1997 at ₱2,500.00 per month; and (b) ₱50,000.00,
from January 1, 1998 to May 31, 1998 at ₱10,000.00 per month.16 She came to the
Philippines but all efforts at an amicable settlement proved futile. Thus, in April
1999, she sent the final demand letter to defendant directing him and his family to
pay and immediately vacate the leased premises.17
Roberts appended to her complaint copies of the April 13, 1982 Deed of Absolute
Sale, the April 15, 1982 Contract of Lease, and TCT No. 114478. 
In his Answer with counterclaim, Papio alleged the following: 
He executed the April 13, 1982 deed of absolute sale and the contract of lease.
Roberts, his cousin who is a resident of California, United States of America (USA),
arrived in the Philippines and offered to redeem the property. Believing that she had
made the offer for the purpose of retaining his ownership over the property, he
accepted. She then remitted ₱59,000.00 to the mortgagor for his account, after which
the mortgagee cancelled the real estate mortgage. However, he was alarmed when
the plaintiff had a deed of absolute sale over the property prepared (for ₱83,000.00 as
consideration) and asked him to sign the same. She also demanded that the defendant
turn over the owner’s duplicate of TCT No. S-44980. The defendant was in a
quandary. He then believed that if he signed the deed of absolute sale, Roberts would
acquire ownership over the property. He asked her to allow him to redeem or
reacquire the property at any time for a reasonable amount.18 When Roberts agreed,
Papio signed the deed of absolute sale.
Pursuant to the right to redeem/repurchase given him by Roberts, Papio purchased
the property for ₱250,000.00. In July 1985, since Roberts was by then already in the
USA, he remitted to her authorized representative, Perlita Ventura, the amount of
₱150,000.00 as partial payment for the property.19 On June 16, 1986, she again
remitted ₱100,000.00, through Ventura. Both payments were evidenced by receipts
signed by Ventura.20 Roberts then declared that she would execute a deed of absolute
sale and surrender the title to the property. However, Ventura had apparently
misappropriated ₱39,000.00 out of the ₱250,000.00 that she had received; Roberts
29
then demanded that she pay the amount misappropriated before executing the deed of
absolute sale. Thus, the sole reason why Roberts refused to abide by her promise was
the failure of her authorized representative to remit the full amount of ₱250,000.00.
Despite Papio’s demands, Roberts refused to execute a deed of absolute sale.
Accordingly, defendant posited that plaintiff had no cause of action to demand
payment of rental and eject him from the property.
Papio appended to his Answer the following: (1) the letter dated July 18, 1986 of
Perlita Ventura to the plaintiff wherein the former admitted having used the money
of the plaintiff to defray the plane fares of Perlita’s parents to the USA, and pleaded
that she be allowed to repay the amount within one year; (b) the letter of Eugene
Roberts (plaintiff’s husband) to Perlita Ventura dated July 25, 1986 where he
accused Ventura of stealing the money of plaintiff Amelia (thus preventing the latter
from paying her loan on her house and effect the cancellation of the mortgage), and
demanded that she deposit the balance;21 and (c) plaintiff’s letter to defendant Papio
dated July 25, 1986 requesting the latter to convince Ventura to remit the balance of
₱39,000.00 so that the plaintiff could transfer the title of the property to the
defendant.22
Papio asserted that the letters of Roberts and her husband are in themselves
admissions or declarations against interest, hence, admissible to prove that he had
reacquired the property although the title was still in her possession.  claim; second, he did not institute any action against Roberts to compel the execution
In her Affidavit and Position Paper,23 Roberts averred that she had paid the real estate
taxes on the property after she had purchased it; Papio’s initial right to occupy the
property was terminated when the original lease period expired; and his continued
possession was only by mere tolerance. She further alleged that the Deed of Sale
states on its face that the conveyance of the property was absolute and unconditional.
She also claimed that any right to repurchase the property must appear in a public
document pursuant to Article 1358, Paragraph 1, of the Civil Code of the
Phililppines.24 Since no such document exists, defendant’s supposed real interest
over the property could not be enforced without violating the Statute of Frauds. 25 She
stressed that her Torrens title to the property was an "absolute and indefeasible
evidence of her ownership of the property which is binding and conclusive upon the
whole world." 
Roberts admitted that she demanded ₱39,000.00 from the defendant in her letter
dated July 25, 1986. However, she averred that the amount represented his back
rentals on the property.26 She declared that she neither authorized Ventura to sell the
property nor to receive the purchase price therefor. She merely authorized her to
receive the rentals from defendant and to deposit them in her account. She did not
know that Ventura had received ₱250,000.00 from Papio in July 1985 and on June
16, 1986, and had signed receipts therefor. It was only on February 11, 1998 that she
became aware of the receipts when she received defendant Papio’s letter to which
were appended the said receipts. She and her husband offered to sell the property to
the defendant in 1984 for US$15,000.00 on a "take it or leave it" basis when they
arrived in the Philippines in May 1984.27 However, defendant refused to accept the
offer. The spouses then offered to sell the property anew on December 20, 1997, for
₱670,000.00 inclusive of back rentals.28 However, defendant offered to settle his
account with the spouses.29Again, the offer came on January 11, 1998, but it was
rejected. The defendant insisted that he had already purchased the property in July
1985 for ₱250,000.00.
Roberts insisted that Papio’s claim of the right to repurchase the property, as well as
his claim of payment therefor, is belied by his own letter in which he offered to settle
plaintiff’s claim for back rentals. Even assuming that the purchase price of the
property had been paid through Ventura, Papio did not adduce any proof to show that
Ventura had been authorized to sell the property or to accept any payment thereon.
Any payment to Ventura could have no binding effect on her since she was not privy
to the transaction; if at all, such agreement would be binding only on Papio and
Ventura.
She further alleged that defendant’s own inaction belies his claim of ownership over
the property: first, he failed to cause any notice or annotation to be made on the
Register of Deed’s copy of TCT No. 114478 in order to protect his supposed adverse
of the necessary deed of transfer of title in his favor; and third, the defense of
ownership over the property was raised only after Roberts demanded him to vacate
the property. 
Based solely on the parties’ pleadings, the MeTC rendered its January 18, 2001
Decision30 in favor of Roberts. The fallo of the decision reads:
WHEREFORE, premises considered, finding this case for the plaintiff, the defendant
is hereby ordered to:
1. Vacate the leased premises known as 1046 Teresa St., Valenzuela,
Makati City;
2. Pay plaintiff the reasonable rentals accrual for the period January 1, 1996
to December 13, 1997 at the rate equivalent to Php2,500.00 per month and
thereafter, Php10,000.00 from January 1998 until he actually vacates the
premises;
3. Pay the plaintiff attorney’s fees as Php20,000.00; and
4. Pay the costs
30
SO ORDERED.31
The MeTC held that Roberts merely tolerated the stay of Papio in the property after
the expiration of the contract of lease on May 1, 1984; hence, she had a cause of
action against him since the only elements in an unlawful detainer action are the fact
of lease and the expiration of its term. The defendant as tenant cannot controvert the
title of the plaintiff or assert any right adverse thereto or set up any inconsistent right
to change the existing relation between them. The plaintiff need not prove her
ownership over the property inasmuch as evidence of ownership can be admitted
only for the purpose of determining the character and extent of possession, and the
amount of damages arising from the detention.  III.
The court further ruled that Papio made no denials as to the existence and
authenticity of Roberts’ title to the property. It declared that "the certificate of title is
indefeasible in favor of the person whose name appears therein and incontrovertible
upon the expiration of the one-year period from the date of issue," and that a Torrens
title, "which enjoys a strong presumption of regularity and validity, is generally a
conclusive evidence of ownership of the land referred to therein."  THE PURCHASE AMOUNT COVERING THE SUBJECT PROPERTY.
As to Papio’s claim that the transfer of the property was one with right of repurchase,
the MeTC held it to be bereft of merit since the Deed of Sale is termed as "absolute
and unconditional." The court ruled that the right to repurchase is not a right granted
to the seller by the buyer in a subsequent instrument but rather, a right reserved in the
same contract of sale. Once the deed of absolute sale is executed, the seller can no
longer reserve the right to repurchase; any right thereafter granted in a separate
document cannot be a right of repurchase but some other right.
As to the receipts of payment signed by Ventura, the court gave credence to
Roberts’s declaration in her Affidavit that she authorized Ventura only to collect
rentals from Papio, and not to receive the repurchase price. Papio’s letter of January
31, 1998, which called her attention to the fact that she had been sending people
without written authority to collect money since 1985, bolstered the court’s finding
that the payment, if at all intended for the supposed repurchase, never redounded to
the benefit of the spouses Roberts. 
Papio appealed the decision to the RTC, alleging the following:
I.
THE LOWER COURT GRAVELY ERRED IN NOT DISMISSING THE CASE
FOR EJECTMENT OUTRIGHT ON THE GROUND OF LACK OF CAUSE OF
ACTION.
II.
THE LOWER COURT GRAVELY ERRED IN NOT CONSIDERING THE
DOCUMENTARY EVIDENCE ADDUCED BY DEFENDANT-APPELLANT
WHICH ESTABLISHED THAT A REPURCHASE TRANSACTION EXISTED
BETWEEN THE PARTIES ONLY THAT PLAINTIFF-APPELLEE WITHHELD
THE EXECUTION OF THE ABSOLUTE DEED OF SALE AND THE
TRANSFER OF TITLE OF THE SAME IN DEFENDANT-APPELLANT’S
NAME.
THE LOWER COURT GRAVELY ERRED IN NOT CONSIDERING THAT THE
LETTERS OF PLAINTIFF-[APPELLEE] AND OF HER HUSBAND
ADDRESSED TO DEFENDANT-APPELLANT AND HIS WIFE ARE IN
THEMSELVES ADMISSION AND/OR DECLARATION OF THE FACT THAT
DEFENDANT-APPELLANT HAD DULY PAID PLAINTIFF-APPELLEE OF
IV.
THE LOWER COURT GRAVELY ERRED IN NOT DISMISSING THE CASE
FOR EJECTMENT OUTRIGHT CONSIDERING THAT PLAINTIFF-APPELLEE
WHO IS [AN] AMERICAN CITIZEN AND RESIDENT THEREIN HAD NOT
APPEARED IN COURT ONCE, NEITHER WAS HER ALLEGED ATTORNEY-
IN-FACT, MATILDE AGUILAR NOR [DID] THE LATTER EVER [FURNISH]
THE LOWER COURT A SPECIAL POWER OF ATTORNEY AUTHORIZING
HER TO APPEAR IN COURT IN BEHALF OF HER PRINCIPAL.32
Papio maintained that Roberts had no cause of action for eviction because she had
already ceded her right thereto when she allowed him to redeem and reacquire the
property upon payment of ₱250,000.00 to Ventura, her duly authorized
representative. He also contended that Roberts’s claim that the authority of Ventura
is limited only to the collection of the rentals and not of the purchase price was a
mere afterthought, since her appended Affidavit was executed sometime in October
1999 when the proceedings in the MeTC had already started. 
On March 26, 2001, Roberts filed a Motion for Issuance of Writ of Execution.33 The
court granted the motion in an Order34 dated June 19, 2001. Subsequently, a Writ of
Execution35 pending appeal was issued on September 28, 2001. On October 29,
2001, Sheriff Melvin M. Alidon enforced the writ and placed Roberts in possession
of the property. 
31
Meanwhile, Papio filed a complaint with the RTC of Makati City, for specific
performance with damages against Roberts. Papio, as plaintiff, claimed that he
entered into a contract of sale with pacto de retro with Roberts, and prayed that the
latter be ordered to execute a Deed of Sale over `the property in his favor and
transfer the title over the property to and in his name. The case was docketed as Civil
Case No. 01-851.
On October 24, 2001, the RTC rendered judgment affirming the appealed decision of
the MeTC. The fallo of the decision reads:36
Being in accordance with law and the circumstances attendant to the instant case, the
court finds merit in plaintiff-appellee’s claim. Wherefore, the challenged decision
dated January 18, 2001 is hereby affirmed in toto.
SO ORDERED.37
Both parties filed their respective motions for reconsideration. 38 In an Order39 dated
February 26, 2002, the court denied the motion of Papio but modified its decision
declaring that the computation of the accrued rentals should commence from January
1986, not January 1996. The decretal portion of the decision reads:
Wherefore, the challenged decision dated January 18, 2001 is hereby affirmed with
modification that defendant pay plaintiff the reasonable rentals accrued for the period
January 1, 1986 to December [31, 1997] per month and thereafter and ₱10,000.00
[per month] from January 1998 to October 28, 2001 when defendant-appellant
actually vacated the subject leased premises.
SO ORDERED.40
On February 28, 2002, Papio filed a petition for review41 in the CA, alleging that the
RTC erred in not finding that he had reacquired the property from Roberts for
₱250,000.00, but the latter refused to execute a deed of absolute sale and transfer the
title in his favor. He insisted that the MeTC and the RTC erred in giving credence to
petitioner’s claim that she did not authorize Ventura to receive his payments for the
purchase price of the property, citing Roberts’ letter dated July 25, 1986 and the
letter of Eugene Roberts to Ventura of even date. He also averred that the MeTC and
the RTC erred in not considering his documentary evidence in deciding the case.
On August 31, 2004, the CA rendered judgment granting the petition. The appellate
court set aside the decision of the RTC and ordered the RTC to dismiss the
complaint. The decretal portion of the Decision42 reads:  I. THE HONORABLE COURT OF APPEALS GRIEVEOUSLY (SIC)
WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE
and a new one entered: (1) rendering an initial determination that the "Deed of
Absolute Sale" dated April 13, 1982 is in fact an equitable mortgage under Article
1603 of the New Civil Code; and (2) resolving therefore that petitioner Martin B.
Papio is entitled to possession of the property subject of this action; (3) But such
determination of ownership and equitable mortgage are not clothed with finality and
will not constitute a binding and conclusive adjudication on the merits with respect
to the issue of ownership and such judgment shall not bar an action between the
same parties respecting title to the land, nor shall it be held conclusive of the facts
therein found in the case between the same parties upon a different cause of action
not involving possession. All other counterclaims for damages are hereby dismissed.
Cost against the respondent.
SO ORDERED.43
According to the appellate court, although the MeTC and RTC were correct in
holding that the MeTC had jurisdiction over the complaint for unlawful detainer,
they erred in ignoring Papio’s defense of equitable mortgage, and in not finding that
the transaction covered by the deed of absolute sale by and between the parties was
one of equitable mortgage under Article 1602 of the New Civil Code. The appellate
court ruled that Papio retained the ownership of the property and its peaceful
possession; hence, the MeTC should have dismissed the complaint without prejudice
to the outcome of Civil Case No. 01-851 relative to his claim of ownership over the
property.
Roberts filed a motion for reconsideration of the decision on the following grounds:
I. Petitioner did not allege in his Answer the defense of equitable mortgage;
hence, the lower courts [should] not have discussed the same;
II. Even assuming that Petitioner alleged the defense of equitable mortgage,
the MeTC could not have ruled upon the said defense,
III. The M[e]TC and the RTC were not remiss in the exercise of their
jurisdiction.44
The CA denied the motion.
In this petition for review, Amelia Salvador-Roberts, as petitioner, avers that:
ERRED IN DECLARING THAT THE M[e]TC AN(D) THE RTC WERE
REMISS IN THE EXERCISE OF THAT JURISDICTION ACQUIRED
32
 BECAUSE IT DID NOT CONSIDER ALL PETITIONER’S DEFENSE OF
EQUITABLE MORTGAGE.
II. THE HONORABLE COURT OF APPEALS GRIEVEOUSLY (SIC)
ERRED IN REQUIRING THE M[e]TC AND RTC TO RULE ON A
DEFENSE WHICH WAS NEVER AVAILED OF BY RESPONDENT.45
Petitioner argues that respondent is barred from raising the issue of equitable
mortgage because his defense in the MeTC and RTC was that he had repurchased the
property from the petitioner; by such representation, he had impliedly admitted the
existence and validity of the deed of absolute sale whereby ownership of the property
was transferred to petitioner but reverted to him upon the exercise of said right. The
respondent even filed a complaint for specific performance with damages, which is
now pending in the RTC of Makati City, docketed as Civil Case No. 01-851
entitled "Martin B. Papio vs. Amelia Salvador-Roberts." In that case, respondent
claimed that his transaction with the petitioner was a sale with pacto de retro.
Petitioner posits that Article 1602 of the Civil Code applies only when the defendant
specifically alleges this defense. Consequently, the appellate court was proscribed
from finding that petitioner and respondent had entered into an equitable mortgage
under the deed of absolute sale.  resolved without deciding the issue of ownership, the issue of ownership shall be
Petitioner further avers that respondent was ably represented by counsel and was
aware of the difference between a pacto de retro sale and an equitable mortgage;
thus, he could not have been mistaken in declaring that he repurchased the property
from her.
As to whether a sale is in fact an equitable mortgage, petitioner claims that the issue
should be properly addressed and resolved by the RTC in an action to enforce
ownership, not in an ejectment case before the MeTC where the main issue involved
is possession de facto. According to her, the obvious import of the CA Decision is
that, in resolving an ejectment case, the lower court must pass upon the issue of
ownership (in this case, by applying the presumptions under Art. 1602) which, in
effect, would use the same yardstick as though it is the main action. The procedure
will not only promote multiplicity of suits but also place the new owner in the absurd
position of having to first seek the declaration of ownership before filing an
ejectment suit.
Respondent counters that the defense of equitable mortgage need not be particularly
stated to apprise petitioner of the nature and character of the repurchase agreement.
He contends that he had amply discussed in his pleadings before the trial and
appellate courts all the surrounding circumstances of the case, such as the relative
situation of the parties at the time; their attitude, acts, conduct, and declarations; and
the negotiations between them that led to the repurchase agreement. Thus, he argues
that the CA correctly ruled that the contract was one of equitable mortgage. He
insists that petitioner allowed him to redeem and reacquire the property, and
accepted his full payment of the property through Ventura, the authorized
representative, as shown by the signed receipts.
The threshold issues are the following: (1) whether the MeTC had jurisdiction in an
action for unlawful detainer to resolve the issue of who between petitioner and
respondent is the owner of the property and entitled to the de facto possession
thereof; (2) whether the transaction entered into between the parties under the Deed
of Absolute Sale and the Contract of Lease is an equitable mortgage over the
property; and (3) whether the petitioner is entitled to the material or de facto
possession of the property.
The Ruling of the Court
On the first issue, the CA ruling (which upheld the jurisdiction of the MeTC to
resolve the issue of who between petitioner or respondent is the lawful owner of the
property, and is thus entitled to the material or de facto possession thereof) is correct.
Section 18, Rule 70 of the Rules of Court provides that when the defendant raises the
defense of ownership in his pleadings and the question of possession cannot be
resolved only to determine the issue of possession. The judgment rendered in an
action for unlawful detainer shall be conclusive with respect to the possession only
and shall in no wise bind the title or affect the ownership of the land or building.
Such judgment would not bar an action between the same parties respecting title to
the land or building.46
The summary nature of the action is not changed by the claim of ownership of the
property of the defendant.47 The MeTC is not divested of its jurisdiction over the
unlawful detainer action simply because the defendant asserts ownership over the
property.
The sole issue for resolution in an action for unlawful detainer is material or de facto
possession of the property. Even if the defendant claims juridical possession or
ownership over the property based on a claim that his transaction with the plaintiff
relative to the property is merely an equitable mortgage, or that he had repurchased
the property from the plaintiff, the MeTC may still delve into and take cognizance of
the case and make an initial or provisional determination of who between the
plaintiff and the defendant is the owner and, in the process, resolve the issue of who
is entitled to the possession. The MeTC, in unlawful detainer case, decides the
question of ownership only if it is intertwined with and necessary to resolve the issue
of possession.48 The resolution of the MeTC on the ownership of the property is
merely provisional or interlocutory. Any question involving the issue of ownership
should be raised and resolved in a separate action brought specifically to settle the
33
question with finality, in this case, Civil Case No. 01-851 which respondent filed
before the RTC.
The ruling of the CA, that the contract between petitioner and respondent was an
equitable mortgage, is incorrect. The fact of the matter is that the respondent
intransigently alleged in his answer, and even in his affidavit and position paper, that
petitioner had granted him the right to redeem or repurchase the property at any time
and for a reasonable amount; and that, he had, in fact, repurchased the property in
July 1985 for ₱250,000.00 which he remitted to petitioner through an authorized
representative who signed receipts therefor; he had reacquired ownership and
juridical possession of the property after his repurchase thereof in 1985; and
consequently, petitioner was obliged to execute a deed of absolute sale over the
property in his favor. 
Notably, respondent alleged that, as stated in his letter to petitioner, he was given the
right to reacquire the property in 1982 within two years upon the payment of
₱53,000.00, plus petitioner’s airfare for her trip to the Philippines from the USA and
back; petitioner promised to sign the deed  1985 upon its extension. Respondent was obliged to prove his defense that petitioner
of absolute sale. He even filed a complaint against the petitioner in the RTC,
docketed as Civil Case No. 01-851, for specific performance with damages to
compel petitioner to execute the said deed of absolute sale over the property
presumably on the strength of Articles 1357 and 1358 of the New Civil Code.
Certainly then, his claim that petitioner had given him the right to repurchase the
property is antithetical to an equitable mortgage.  competent and credible evidence to prove his claim.
An equitable mortgage is one that, although lacking in some formality, form or
words, or other requisites demanded by a statute, nevertheless reveals the intention of
the parties to change a real property as security for a debt and contain nothing
impossible or contrary to law.49 A contract between the parties is an equitable
mortgage if the following requisites are present: (a) the parties entered into a contract
denominated as a contract of sale; and (b) the intention was to secure an existing debt
by way of mortgage.50 The decisive factor is the intention of the parties.
In an equitable mortgage, the mortgagor retains ownership over the property but
subject to foreclosure and sale at public auction upon failure of the mortgagor to pay
his obligation.51 In contrast, in a pacto de retro sale, ownership of the property sold is
immediately transferred to the vendee a retro subject only to the right of the vendor a
retro to repurchase the property upon compliance with legal requirements for the
repurchase. The failure of the vendor a retro to exercise the right to repurchase
within the agreed time vests upon the vendee a retro, by operation of law, absolute
title over the property.52
One repurchases only what one has previously sold. The right to repurchase
presupposes a valid contract of sale between the same parties.53 By insisting that he
had repurchased the property, respondent thereby admitted that the deed of absolute
sale executed by him and petitioner on April 13, 1982 was, in fact and in law, a deed
of absolute sale and not an equitable mortgage; hence, he had acquired ownership
over the property based on said deed. Respondent is, thus, estopped from asserting
that the contract under the deed of absolute sale is an equitable mortgage unless there
is allegation and evidence of palpable mistake on the part of respondent; 54 or a fraud
on the part of petitioner. Respondent made no such allegation in his pleadings and
affidavit. On the contrary, he maintained that petitioner had sold the property to him
in July 1985 and acknowledged receipt of the purchase price thereof except the
amount of ₱39,000.00 retained by Perlita Ventura. Respondent is thus bound by his
admission of petitioner’s ownership of the property and is barred from claiming
otherwise.55
Respondent’s admission that petitioner acquired ownership over the property under
the April 13, 1982 deed of absolute sale is buttressed by his admission in the
Contract of Lease dated April 15, 1982 that petitioner was the owner of the property,
and that he had paid the rentals for the duration of the contract of lease and even until
had given him the right to repurchase, and that petitioner obliged herself to resell the
property for ₱250,000.00 when they executed the April 13, 1982 deed of absolute
sale.
We have carefully reviewed the case and find that respondent failed to adduce
As gleaned from the April 13, 1982 deed, the right of respondent to repurchase the
property is not incorporated therein. The contract is one of absolute sale and not one
with right to repurchase. The law states that if the terms of a contract are clear and
leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control.56 When the language of the contract is explicit, leaving no
doubt as to the intention of the drafters, the courts may not read into it any other
intention that would contradict its plain import.57 The clear terms of the contract
should never be the subject matter of interpretation. Neither abstract justice nor the
rule of liberal interpretation justifies the creation of a contract for the parties which
they did not make themselves, or the imposition upon one party to a contract or
obligation to assume simply or merely to avoid seeming hardships. 58 Their true
meaning must be enforced, as it is to be presumed that the contracting parties know
their scope and effects.59 As the Court held in Villarica, et al. v. Court of Appeals:60
The right of repurchase is not a right granted the vendor by the vendee in a
subsequent instrument, but is a right reserved by the vendor in the same instrument
of sale as one of the stipulations of the contract. Once the instrument of absolute sale
is executed, the vendor can no longer reserve the right to repurchase, and any right
34
thereafter granted the vendor by the vendee in a separate instrument cannot be a right
of repurchase but some other right like the option to buy in the instant case. 61
In Ramos v. Icasiano,62 we also held that an agreement to repurchase becomes a
promise to sell when made after the sale because when the sale is made without such
agreement the purchaser acquires the thing sold absolutely; and, if he afterwards
grants the vendor the right to repurchase, it is a new contract entered into by the
purchaser as absolute owner. An option to buy or a promise to sell is different and
distinct from the right of repurchase that must be reserved by means of stipulations to
that effect in the contract of sale.63
There is no evidence on record that, on or before July 1985, petitioner agreed to sell
her property to the respondent for ₱250,000.00. Neither is there any documentary
evidence showing that Ventura was authorized to offer for sale or sell the property
for and in behalf of petitioner for ₱250,000.00, or to receive the said amount from
respondent as purchase price of the property. The rule is that when a sale of a piece
of land or any interest therein is through an agent, the authority of the latter shall be
in writing; otherwise, the sale shall be void64 and cannot produce any legal effect as
to transfer the property from its lawful owner.65 Being inexistent and void from the
very beginning, said contract cannot be ratified.66 Any contract entered into by
Ventura for and in behalf of petitioner relative to the sale of the property is void and
cannot be ratified by the latter. A void contract produces no effect either against or in
favor of anyone.67
Respondent also failed to prove that the negotiations between him and petitioner has
culminated in his offer to buy the property for ₱250,000.00, and that they later on
agreed to the sale of the property for the same amount. He likewise failed to prove
that he purchased and reacquired the property in July 1985. The evidence on record
shows that petitioner had offered to sell the property for US$15,000 on a "take it or
leave it" basis in May 1984 upon the expiration of the Contract of Lease 68 —an offer
that was rejected by respondent—which is why on December 30, 1997, petitioner
and her husband offered again to sell the property to respondent for ₱670,000.00
inclusive of back rentals and the purchase price of the property under the April 13,
1982 Deed of absolute Sale.69 The offer was again rejected by respondent. The final
offer appears to have been made on January 11, 199870 but again, like the previous
negotiations, no contract was perfected between the parties.
A contract is a meeting of minds between two persons whereby one binds himself,
with respect to the other, to give something or to render some service. 71 Under
Article 1318 of the New Civil Code, there is no contract unless the following
requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Contracts are perfected by mere consent manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to constitute the
contract.72 Once perfected, they bind the contracting parties and the obligations
arising therefrom have the form of law between the parties which must be complied
with in good faith. The parties are bound not only to the fulfillment of what has been
expressly stipulated but also to the consequences which, according to their nature,
may be in keeping with good faith, usage and law.73
There was no contract of sale entered into by the parties based on the Receipts dated
July 1985 and June 16, 1986, signed by Perlita Ventura and the letter of petitioner to
respondent dated July 25, 1986.
By the contract of sale, one of the contracting parties obligates himself to transfer the
ownership of and deliver a determinate thing and the other, to pay therefor a price
certain in money or its equivalent.74 The absence of any of the essential elements will
negate the existence of a perfected contract of sale. As the Court ruled in Boston
Bank of the Philippines v. Manalo:75
A definite agreement as to the price is an essential element of a binding agreement to
sell personal or real property because it seriously affects the rights and obligations of
the parties. Price is an essential element in the formation of a binding and
enforceable contract of sale. The fixing of the price can never be left to the decision
of one of the contracting parties. But a price fixed by one of the contracting parties, if
accepted by the other, gives rise to a perfected sale.76
A contract of sale is consensual in nature and is perfected upon mere meeting of the
minds. When there is merely an offer by one party without acceptance of the other,
there is no contract.77 When the contract of sale is not perfected, it cannot, as an
independent source of obligation, serve as a binding juridical relation between the
parties.78
Respondent’s reliance on petitioner’s letter to him dated July 25, 1986 is misplaced.
The letter reads in full:
7-25-86
Dear Martin & Ising,
35
Enclosed for your information is the letter written by my husband to Perlita. I hope
that you will be able to convince your cousin that it’s to her best interest to deposit
the balance of your payment to me of ₱39,000.00 in my bank acct. per our agreement
and send me my bank book right away so that we can transfer the title of the
property.
SET ASIDE. The Decision of the Metropolitan Trial Court, affirmed with
modification by the Regional Trial Court, is AFFIRMED.
SO ORDERED.

Regards, 

Amie 79

We have carefully considered the letter of Perlita Ventura, dated July 18, 1986, and
the letter of Eugene Roberts, dated July 25, 1986, where Ventura admitted having
used the money of petitioner amounting to ₱39,000.00 without the latter’s
knowledge for the plane fare of Ventura’s parents. Ventura promised to refund the
amount of ₱39,000.00, inclusive of interests, within one year.80 Eugene Roberts
berated Ventura and called her a thief for stealing his and petitioner’s money and that
of respondent’s wife, Ising, who allegedly told petitioner that she, Ising, loaned the
money to her parents for their plane fare to the USA. Neither Ventura nor Eugene
Roberts declared in their letters that Ventura had used the ₱250,000.00 which
respondent gave to her. 

Petitioner in her letter to respondent did not admit, either expressly or impliedly,
having received ₱211,000.00 from Ventura. Moreover, in her letter to petitioner,
only a week earlier, or on July 18, 1986, Ventura admitted having spent the
₱39,000.00 and pleaded that she be allowed to refund the amount within one (1)
year, including interests. 

Naririto ang total ng pera mo sa bankbook mo, ₱55,000.00 pati na yong deposit na
sarili mo at bale ang nagalaw ko diyan ay ₱39,000.00. Huwag kang mag-alala
ibabalik ko rin sa iyo sa loob ng isang taon pati interest.

Ate Per81 1awphi1.net

It is incredible that Ventura was able to remit to petitioner ₱211,000.00 before July
25, 1986 when only a week earlier, she was pleading to petitioner for a period of one
year within which to refund the ₱39,000.00 to petitioner.
It would have bolstered his cause if respondent had submitted an affidavit of Ventura
stating that she had remitted ₱211,000.00 out of the ₱250,000.00 she received from
respondent in July 1985 and June 20, 1986.  (CSCST), duly represented by its President, DR. JOSE SAL TAN, respondent.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed
Decision of the Court of Appeals in CA-G.R. CV No. 69034 is REVERSED and
G.R. No. 152199. June 23, 2005.*
LUIS S. MISTERIO, GABRIEL S. MISTERIO, FRANCIS S. MISTERIO,
THELMA S. MISTERIO and ESTELLA S. MISTERIO-TAGIMACRUZ,
petitioners, vs. CEBU STATE COLLEGE OF SCIENCE AND TECHNOLOGY
Sales; Pacto de Retro; Words and Phrases; The essence of a pacto de retro
sale is that title and ownership of the property sold is immediately vested in the
vendee a retro, subject to the restrictive
36
_______________
*
 SECOND DIVISION.
123
VOL. 461, JUNE 23, 2005  123  Same; Same; Same; The annotation of the vendor a retro’s right to
Misterio vs. Cebu State College of Science and Technology
condition of repurchase by the vendor a retro within the period provided in
Art. 1606 of the New Civil Code.—The essence of a pacto de retro sale is that title
and ownership of the property sold is immediately vested in the vendee a retro,
subject to the restrictive condition of repurchase by the vendor a retro within the
period provided in Article 1606 of the New Civil Code. Art. 1606. The right referred
to in Article 1601, in the absence of an express agreement, shall last four years from
the date of the contract. Should there be an agreement, the period cannot exceed ten
years. However, the vendor may still exercise the right to repurchase within thirty
days from the time final judgment was rendered in a civil action on the basis that the
contract was a true sale with right to repurchase. The failure of the vendor a retro to
repurchase the property vests upon the latter by operation of law the absolute title
and ownership over the property sold.
Same; Same; Pending the repurchase of the property, the vendee a retro may
alienate, mortgage or encumber the same, but such alienation or encumbrance is as
revocable as is his right.—Pending the repurchase of the property, the vendee a
retro may alienate, mortgage or encumber the same, but such alienation or
encumbrance is as revocable as is his right. If the vendor a retrorepurchases the
property, the right of the vendee a retro is resolved, because he has to return the
property free from all damages and encumbrances imposed by him. The vendor a
retro may also register his right to repurchase under the Land Registration Act and
may be enforced against any person deriving title from the vendee a retro.
Same; Same; Prescription; The four-year period for the vendee a retro to
repurchase the property was not suspended merely and solely because there was a
divergence of opinion between the vendors and the vendee as to the precise meaning
of the phrase “after the SAHS shall cease to exist” in the deed of sale.—It is true that
respondent CSCST, through counsel, was of the view that despite the effectivity
of B.P. Blg. 412, the structure and facilities of the SAHS remained in the property
and, as such, it cannot be said that the said school had ceased to exist. It argued that
the phrase “SAHS ceased to exist” in the deed meant that the structure and facilities
of the school would be destroyed or dismantled, and had no relation whatsoever to
the abolition of the school and its integration into the Cebu State College for Science
and Technology. However, the CA rejected the position of 
124
124  SUPREME COURT REPORTS ANNOTATED 
Misterio vs. Cebu State College of Science and Technology
the respondent CSCST, as well as that of the OSG, and affirmed that of the
petitioners. The four-year period for the petitioners to repurchase the property was
not suspended merely and solely because there was a divergence of opinion between
the petitioners, on the one hand, and the respondent, on the other, as to the precise
meaning of the phrase “after the SAHS shall cease to exist” in the deed of sale. The
existence of the petitioners’ right to repurchase the property was not dependent upon
the prior final interpretation by the court of the said phrase.
repurchase the property at the dorsal side of the certificate of title has no relation
whatsoever to the issue as to when such right had prescribed.—We agree with the
contention of the OSG that the annotation of the petitioners’ right to repurchase the
property at the dorsal side of TCT No. 15959 has no relation whatsoever to the issue
as to when such right had prescribed. The annotation was only for the purpose of
notifying third parties of the petitioners’ right to repurchase the property under the
terms of the deed of sale, and the law.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
     Magdalena M.R. Lepiten for petitioners.
     The Solicitor General for respondent.
CALLEJO, SR., J.:
This is a petition for review on certiorari to annul the Decision1 dated July 31, 2000
of the Court of Appeals (CA) in CA-G.R. CV No. 53592, as well as its
Resolution2 denying the motion for reconsideration. The CA reversed and set aside
the Decision3 of the Regional Trial Court (RTC) of Cebu City, Branch 18, in Civil
Case No. CEB-15267.
The Antecedents
Sudlon Agricultural High School (SAHS) was established in Cebu Province on
August 2, 1948. The administrative and supervisory control of the school was
handled by the Division of Schools of the same province. The original site of the
school was in Sudlon, about 33 kilometers from Cebu City via the Tabunak-Talisay
Highway.
In 1952, the Provincial Board of Cebu granted the usufruct of 41 parcels of land,
covering 104.5441 hectares of the Banilad Friar Lands Estate to the SAHS. Pursuant
to Republic Act No. 948, SAHS was nationalized on June 20, 1953.
On December 31, 1956, Asuncion Sadaya-Misterio executed a Deed of Sale of a
parcel of land denominated as Lot No. 1064 of the Banilad Friar Lands Estate, in
favor of the SAHS. The property had an area of 4,563 square meters and was situated
at Lahug, Cebu City, covered by Transfer Certificate of Title (TCT) No. 13086 of the
37
Registry of Deeds of the province of Cebu. The sale was subject to the right of the
vendor to repurchase the property after the high school shall have ceased to exist, or
shall have transferred its site elsewhere.
Consequently, on May 22, 1957, TCT No. 13086 was cancelled and in lieu thereof,
TCT No. 15959 was issued by the Registry of Deeds of Cebu City in the name of
SAHS.4 The right of the vendor to repurchase the property was annotated at the
dorsal portion thereof.
On March 18, 1960, the Provincial Board of Cebu, through Resolution No. 491,
donated the aforementioned 41 lots to SAHS, subject to two (2) conditions: (1) that if
the SAHS ceases to operate, the ownership of the lots would automatically revert to
the province, and (2) that the SAHS could not alienate, lease or encumber the
properties.
On June 10, 1983, Batas Pambansa (B.P.) Blg. 412, entitled "An Act Converting the
Cebu School of Arts and Trades in Cebu City into a Chartered College to be Known
as the Cebu State College of Science and Technology, Expanding its Jurisdiction and
Curricular Programs" took effect. The law incorporated and consolidated as one
school system certain vocational schools in the province of Cebu, including the
SAHS, and which became an extension of the Cebu State College of Science and
Technology (CSCST).
In the meantime, the province of Cebu decided to recover the 41 lots it had earlier
donated to SAHS on the ground that the said deed was void. The province of Cebu
opined that based on the initial report of its provincial attorney, the SAHS had no
personality to accept the donation.
In the meantime, Asuncion died intestate. When her heirs learned that the province
of Cebu was trying to recover the property it had earlier donated to SAHS, they went
to the province of Cebu on August 19, 1998, informing it of their intention to
exercise their right to repurchase the property as stipulated in the aforecited deed of
sale executed by their predecessor-in-interest.
On February 1, 1989, the province of Cebu (represented by then Governor Emilio M.
R. Osmeña), and the CSCST (represented by then DECS Secretary Lourdes R.
Quisumbing), entered into a Memorandum of Agreement over the 40 parcels of land,
allocating 53 hectares to the province of Cebu, and 51 hectares for the SAHS. The
agreement was ratified by the Sangguniang Panlalawigan and the SAHS Board of
Trustees.
In a Letter5 dated March 13, 1990, the heirs of the late Asuncion Sadaya-Misterio,
through their counsel, Atty. Ricardo G. Padilla, informed CSCST of the heirs’
intention to exercise the option to repurchase Lot No. 1064 granted to them under the
deed of sale, as the SAHS had ceased to exist.
In response thereto, Jesus T. Bonilla, as Vocational School Superintendent II of
CSCST, wrote Atty. Padilla on March 29, 1990, informing the latter that the SAHS
still existed and "[i]n fact, from a purely secondary school it is now offering
collegiate courses." He explained that "what has been changed is only the name of
the school [to CSCST] which does not imply the loss of its existence." 6
On December 23, 1993, Luis, Gabriel, Francis, Thelma, all surnamed Misterio, and
Estella S. Misterio-Tagimacruz, the legitimate heirs of the late Asuncion Sadaya-
Misterio and herein petitioners, filed a Complaint7 before the RTC of Cebu City,
Branch 18, for "Nullity of Sale and/or Redemption." Named party-defendants were
the CSCST, Armand Fabella as CSCST Chairman, and Dr. Mussolini C. Barillo as
CSCST President, herein respondents. Docketed as Civil Case No. 66-15267, the
complaint alleged in part as follows:
FIRST CAUSE OF ACTION
12. Sudlon Agricultural High School at the time of the execution of the
contract of sale with the late Asuncion Sadaya sometime on December 31,
1956 had no juridical personality of it’s (sic) own. Hence, it cannot acquire
and possess any property, including the parcel of land subject of this action.
13. The Contract of Sale executed was, therefore, null and void and
therefore non-existent. Thus, the land subject of the sale should be
reconveyed to the legitimate heirs of Asuncion Sadaya.
SECOND CAUSE OF ACTION
14. On June 10, 1983, Batas Pambansa Blg. 412 was enacted, abolishing the
then Sudlon Agricultural College and converting it to become part of the
Cebu State College for Science and Technology (CSCST).
15. The said law also transferred all the personnel, properties, including
buildings, sites, and improvements, records, obligations, monies and
appropriation of Sudlon to the CSCST.
16. The abolition of Sudhon and it’s (sic) merger or consolidation as part of
CSCST had rendered operative the condition in the Deed of Sale granting
the vendor and her heirs, Asuncion Sadaya, the right to redeem Lot No.
1064.
38
 17. By the legislative act of merging or consolidating Sudlon Agricultural
College with other colleges, the separate existence of the constituent
schools including Sudlon Agricultural College has ceased to exist as a legal
consequence of merger or consolidation.
18. CSCST, as transferee of the land subject of sale, is the actual possessor
of the land and is the proper party-defendant for redemption.8
The petitioners prayed that, after due proceeding, judgment be rendered in their
favor, thus –
WHEREFORE, the foregoing premises considered, it is most respectfully prayed of
this Honorable Court to render a decision in favor of the plaintiffs to the following
effect:
1. Declare the Contract of Sale between the late Asuncion Sadaya and
Sudlon Agricultural High School as null and void for the latter has no legal
personality and cannot own a real property.
As a consequence, to order the actual possessor of the land CSCST to
deliver and reconvey the land to plaintiffs and the latter is willing to return
the money received.
2. In the alternative, declare that Sudlon Agricultural High School has
ceased to exist and allow the plaintiffs to redeem Lot 1064 in the amount
stipulated in the contract.
3. Other reliefs just and equitable under the premises are prayed for.9
In their answer to the complaint, the respondents alleged that:
11. Complainants in their complaint failed to state sufficient cause of action
which may be considered enough ground to dismiss this instant case;
12. The complainants are estopped from contesting the juridical capacity of
Sudlon to own or acquire this property which is the subject of this case,
after a long period of silence or inaction from the transfer of the title in
favor of Sudlon Agricultural School;
13. The contract of sale having been mutually and freely entered into by the
parties is valid and binding between the vendor and the vendee, including
their successors-in-interest; hence, reconveyance is not proper;
14. The enactment of B.P. 412, which is the Charter of the College has not
caused the abolition of Sudlon Agricultural School. In fact, the school has
now grown into a higher status, because it has now admitted collegiate
students, in addition to its secondary students;
15. The instruction of the Sudlon Agricultural School is actually carried out
right on the same site which complainants claim have ceased to exist not the
site of the school transferred somewhere else. Therefore, the conditions in
the deed of sale have not rendered operative the right of the vendor to
exercise the same.10
After the preliminary conference on May 23, 1994, the trial court issued a pre-trial
order defining the issues as follows:
… (1) whether Sudlon Agricultural School has still retained its personality as such
school or it had ceased to exist, and (2) whether the plaintiffs have the right to
exercise the right of redemption over the property.
Upon the order of the RTC, the Clerk of Court conducted an ocular inspection on Lot
No. 1064. The court-appointed commissioner submitted his report 11 on June 10,
1994.
On November 29, 1995, the RTC rendered judgment, the dispositive portion of
which reads:
WHEREFORE, in view of all the foregoing considerations, JUDGMENT is hereby
rendered in favor of the plaintiffs and against the defendants declaring the Deed of
Sale entered into by and between Asuncion Sadaya and Sudlon Agricultural High
School as null and void for the latter’s lack of juridical personality to acquire real
property or to enter into such transaction or having ceased to exist and ordering the
Cebu State College of Science and Technology being the actual possessor of the
land, Lot 1064, to deliver and reconvey the same to plaintiffs upon payment of the
aforementioned purchased price.
No pronouncement as to costs.
SO ORDERED.12
The RTC ruled that the donation was void ab initio as the SAHS, in the first place,
did not have the personality to be a donee of real property. Moreover, with the
enactment of B.P. Blg. 412, the SAHS ceased to exist and to operate as such. The
RTC declared that, under the Corporation Code, the constituent corporations (SAHS
and CSCST) became one through the merger or consolidation, with CSCST as the
39
surviving entity. Whether Lot No. 1064 was still being used for school purposes was
of no moment, and to "say that [SAHS] still exists but is now forming part of CSCST
is stretching the interpretation of the contract too far." It concluded that no
prescription lay as against an inexistent contract.
The CSCST, through the Office of Solicitor General (OSG), appealed the decision to
the CA, and outlined the following assignment of errors:
I SCHOOL BUT MERELY SUBJECTED THE SAME TO THE SUPERVISION
THE TRIAL COURT ERRED IN NOT STICKING TO THE ISSUES DEFINED
BY THE PARTIES DURING PRE-TRIAL.
II
THE TRIAL COURT ERRED IN NOT HOLDING THAT APPELLEES ARE
ESTOPPED FROM QUESTIONING THE PERSONALITY OF THE SUDLON
AGRICULTURAL HIGH SCHOOL.
III
THE TRIAL COURT ERRED IN GIVING WEIGHT TO INADMISSIBLE AND
SELF-SERVING EVIDENCE.
IV
THE TRIAL COURT ERRED IN NOT HOLDING THAT APPELLEES’ ACTION
IS BARRED BY PRESCRIPTION.
V
THE TRIAL COURT ERRED IN NOT HOLDING THAT THE DEED OF SALE IS
A CONSENSUAL CONTRACT FREELY ENTERED INTO BY THE PARTIES
AND NOT A CONTRACT OF ADHESION.
VI
THE TRIAL COURT ERRED IN NOT HOLDING THAT THE DEED OF SALE IS
NOT AMBIGUOUS.
VII
THE TRIAL COURT ERRED IN NOT HOLDING THAT THE LOT SUBJECT OF
THE SALE IS STILL BEING USED FOR SCHOOL PURPOSES AS
ORIGINALLY INTENDED BY THE PARTIES.
VIII
THE TRIAL COURT ERRED IN NOT HOLDING THAT B.P. [BLG.] 412 DID
NOT DISSOLVE OR EXTINGUISH SUDLON AGRICULTURAL HIGH
AND ADMINISTRATION OF CSCST.
IX
THE TRIAL COURT ERRED IN NOT HOLDING THAT THE SUDLON
AGRICULTURAL HIGH SCHOOL AND/OR CSCST IS/ARE NOT
CORPORATIONS GOVERNED BY THE COPORATION CODE.
On October 3, 1997, the CSCST and the province of Cebu executed a Deed for
Reversion, in which the CSCST deeded to the province of Cebu the property covered
by TCT No. 15959. Based on the said deed, TCT No. 146351 was issued by the
Register of Deeds on November 12, 1997 in the name of the province of
Cebu.13 Annotated at the dorsal portion thereof was the notice of the pending cases
before the RTC and the CA.
On July 31, 2000, the CA rendered its decision reversing the RTC’s decision.
The fallo of the decision reads:
WHEREFORE, the appealed decision is REVERSED and SET ASIDE, and a new
one issued, DISMISSING the instant complaint for lack of merit.
SO ORDERED.14
The appellate court held that the lower court should have confined itself to the issues
defined by the parties during pre-trial, namely, (1) whether Sudlon Agricultural
School still retained its personality as such school or was still in existence; and (2)
whether the petitioners had the right to exercise the right to repurchase the property.
The CA declared that the trial of the case should have been limited to these two
issues.
While it affirmed the RTC ruling that the SAHS had ceased to exist when B.P. Blg.
412 took effect, the appellate court ruled that the period for the petitioners to
repurchase the property expired on June 1987, four years after the enactment of B.P.
Blg. 412. It held that the period within which the property was to be repurchased
40
must be restrictively applied in order to settle ownership and title at the soonest
possible time, and not to leave such title to the subject property uncertain.
The petitioners filed a motion for the reconsideration of the decision, which the CA
denied in a Resolution dated January 25, 2002.
The petitioners filed the present petition for review on certiorari, contending that the
CA erred in (a) resolving the appeal of the respondents based on prescription,
although the issue was never raised during the trial; and (b) resolving that their action
had already prescribed.
The petition is without merit.
The petitioners fault the CA for holding that their right to repurchase Lot No. 1064
had long since prescribed. Citing Article 1606(3) of the New Civil Code, they argue
that "[p]rescription should start to run from the time it is legally feasible for the party
to redeem the land, which is the time when the action to redeem has accrued." The
petitioners argue that this is so since the issue of whether the SAHS had ceased to
exist had still yet to be resolved. The petitioners posit that unless and until judgment
would be rendered stating that the SAHS has ceased to exist, the period to repurchase
the property would not start to run. It is only from the finality of the said judgment
that the right to repurchase the property may be exercised; hence, they still had thirty
(30) days from the date of the promulgation of the CA decision within which to
repurchase the property. The petitioners further aver that since the lien, their right to
repurchase the property, was annotated on the title of the land, the right to exercise
the same is imprescriptible. They argue that they had been vigilant of their right to
repurchase the property, as far back as 1973. In fact, they made tender of payment in
March 1990, well within the ten-year prescriptive period. They point out that the
CSCST had abandoned its defense of prescription by contending that the condition
for repurchase had not yet become operational.
The OSG, for its part, contends that the petitioners’ reliance on Article 1606(3) of the
New Civil Code is misplaced, because the law applies only to sales where the right to
repurchase is not expressly agreed upon by the parties. Here, the right to repurchase
is unquestionable. The OSG, likewise, argues that the annotation of the right of
redemption has no bearing on the issue of prescription. It posits that the "Torrens
System has absolutely nothing to do with the period of prescription of one’s right to
repurchase, as in the instant case." The OSG concludes that whatever right the
petitioners had on the property had already prescribed by the mere lapse of time, by
reason of negligence.1avvphi1.net
Central to the issue is the following provision in the deed of sale executed by
Asuncion Sadaya-Misterio in favor of the SAHS:
That the Vendee herein, the SUDLON AGRICULTURAL HIGH SCHOOL, hereby
obligates itself to use the aforementioned Lot No. 1064 for school purposes only, and
it is a condition attached to this contract that the aforementioned vendee obligates
itself to give the Vendor herein, the right to repurchase the said lot by paying to the
Vendee herein the aforementioned consideration of ₱9,130.00 only, after the
aforementioned SUDLON AGRICULTURAL HIGH SCHOOL shall ceased (sic) to
exist or shall have transferred its school site elsewhere. 15
The essence of a pacto de retro sale is that title and ownership of the property sold is
immediately rested in the vendee a retro, subject to the restrictive condition of
repurchase by the vendor a retro within the period provided in Article 1606 of the
New Civil Code, to wit:
Art. 1606. The right referred to in Article 1601, in the absence of an express
agreement, shall last four years from the date of the contract.
Should there be an agreement, the period cannot exceed ten years.lawphil.net
However, the vendor may still exercise the right to repurchase within thirty days
from the time final judgment was rendered in a civil action on the basis that the
contract was a true sale with right to repurchase.
The failure of the vendee a retro to repurchase the property vests upon the latter by
operation of law the absolute title and ownership over the property sold.16
Pending the repurchase of the property, the vendee a retro may alienate, mortgage or
encumber the same, but such alienation or encumbrance is as revocable as is his
right. If the vendor a retro repurchases the property, the right of the vendee a
retro is resolved, because he has to return the property free from all damages and
encumbrances imposed by him.17 The vendor a retro may also register his right to
repurchase under the Land Registration Act and may be enforced against any person
deriving title from the vendee a retro.18
In this case, the vendor a retro and the vendee a retro did not agree on any period
for the exercise of the right to repurchase the property. Hence, the vendor a
retro may extend the said right within four days from the happening of the allocated
condition contained in the deed: (a) the cessation of the existence of the SAHS, or (b)
the transfer of the school to other site.
We note that, as gleaned from the petitioners’ complaint before the trial court, they
alleged that the SAHS ceased to exist on June 10, 1983, when B.P. Blg. 412 took
effect, abolishing therein the SAHS which, in the meantime, had been converted into
the Sudlon Agricultural College. The CA found the position of the petitioners to be
41
correct, and declared that conformably to the condition in the deed of sale, and under
Article 1606 of the New Civil Code, the right of the petitioners as successors-in-
interest of the vendee a retro commenced to run on June 10, 1983. Hence, they had
until June 10, 1987 within which to repurchase the property; however, they failed to
do so.
It is true that respondent CSCST, through counsel, was of the view that despite the
effectivity of B.P. Blg. 412, the structure and facilities of the SAHS remained in the
property and, as such, it cannot be said that the said school had ceased to exist. It
argued that the phrase "SAHS ceased to exist" in the deed meant that the structure
and facilities of the school would be destroyed or dismantled, and had no relation
whatsoever to the abolition of the school and its integration into the Cebu State
College for Science and Technology. However, the CA rejected the position of the
respondent CSCST, as well as that of the OSG, and affirmed that of the petitioners.
The four-year period for the petitioners to repurchase the property was not suspended
merely and solely because there was a divergence of opinion between the petitioners,
on the one hand, and the respondent, on the other, as to the precise meaning of the
phrase "after the SAHS shall cease to exist" in the deed of sale. The existence of the
petitioners’ right to repurchase the property was not dependent upon the prior final
interpretation by the court of the said phrase. Indeed, the petitioners specifically
alleged in the complaint that:
FIRST CAUSE OF ACTION
16. The abolition of Sudlon and its merger or consolidation as part of
CSCST had rendered operative the condition in the Deed of Sale granting
the vendor and her heirs, Asuncion Sadaya, the right to redeem Lot No.
1064.
17. By the legislative act of merging or consolidating Sudlon Agricultural
College with other colleges, the separate existence of the constituent
schools including Sudlon Agricultural College has ceased to exist as a legal
consequence of merger or consolidation.
18. CSCST, as transferee of the land subject of sale, is the actual possessor
of the land and is the proper party defendant for redemption.19
The petitioners are estopped from changing on appeal their theory of the case in the
trial court and in the CA.20
We agree with the contention of the OSG that the annotation of the petitioners’ right
to repurchase the property at the dorsal side of TCT No. 15959 has no relation
whatsoever to the issue as to when such right had prescribed. The annotation was
only for the purpose of notifying third parties of the petitioners’ right to repurchase
the property under the terms of the deed of sale, and the law.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED DUE COURSE.
Costs against the petitioners.

12. Sudlon Agricultural High School at the time of the execution of the SO ORDERED.
contract of sale with the late Asuncion Sadaya sometime on December 31,
1956 had no juridical personality of its own. Hence, it cannot acquire and
possess any property, including the parcel of land subject of this action.

13. The Contract of Sale executed was therefore null and void and therefore
non-existent. Thus, the land subject of sale should be reconveyed to the
legitimate heirs of Asuncion Sadaya.

SECOND CAUSE OF ACTION

14. On June 10, 1983, Batas Pambansa Blg. 412 was enacted abolishing the
then Sudlon Agricultural College and converting it to become part of the
Cebu State College for Science and Technology (CSCST).

15. The said law also transferred all the personnel, properties, including
buildings, sites, and improvements, records, obligations, monies and
appropriations of Sudlon to the CSCST.

42

G.R. No. 117501. July 8, 1997.*
SOLID HOMES, INC., petitioner, vs. HON. COURT OF APPEALS, STATE
FINANCING CENTER, INC., and REGISTER OF DEEDS FOR RIZAL,
respondents.
Remedial Law; Civil Procedure; Appeals; Findings of fact of lower courts are
deemed conclusive and binding upon the Supreme Court, exceptions.—It is
elementary that in petitions for review on certiorari, only questions of law may be
brought by the parties and passed upon by this Court. Findings of fact of lower courts
are deemed conclusive and binding upon the Supreme Court except when the
findings are grounded on speculation, surmises or conjectures; when the inference
made is manifestly mistaken, absurd or impossible; when there is grave abuse of
discretion in the appreciation of facts; when the factual findings of the trial and
appellate courts are conflicting; when the Court of Appeals, in making its findings,
has gone beyond the issues of the case and such findings are contrary to the
admissions of both appellant and appellee; when the judgment of the appellate court
is premised on a misapprehension of facts or when it has failed to notice certain
relevant facts which, if properly considered, will justify a different conclusion; when
the findings of fact are conclusions without citation of specific evidence upon which
they are based; and when findings of fact of the Court of Appeals are premised on
the absence of evidence but are contradicted by the evidence on record.
Same; Same; Same; On appeal, only errors specifically assigned and properly
argued in the brief will be considered, with the exception of those affecting
jurisdiction over the subject matter as well as plain
_______________
*
 THIRD DIVISION.
268
268 SUPREME COURT REPORTS ANNOTATED
Solid Homes, Inc. vs. Court of Appeals
and clerical errors.—Another fundamental principle of procedural law
precludes higher courts from entertaining matters neither alleged in the pleadings nor
raised during the proceedings below, but ventilated for the first time only in a motion
for reconsideration or on appeal. On appeal, only errors specifically assigned and
properly argued in the brief will be considered, with the exception of those affecting
jurisdiction over the subject matter as well as plain and clerical errors.
Civil Law; Mortgages; Damages; It is basic that the claim for actual, moral
and punitive damages as well as exemplary damages and attorney’s fees must each
be independently identified and justified.—In fact, petitioner has not even bothered
to support with evidence its claim for “actual, moral and punitive/nominal damages”
as well as “exemplary damages and attorney’s fees.” It is basic that the claim for
these damages must each be independently identified and justified; such claims
cannot be dealt with in the aggregate, since they are neither kindred or analogous
terms nor governed by a coincident set of rules.
Same; Same; Same; A corporation being an artificial person which has no
feelings, emotions or senses, and which cannot experience physical suffering or
mental anguish, is not entitled to moral damages.—Neither can moral damages be
awarded to petitioner. Time and again, we have held that a corporation—being an
artificial person which has no feelings, emotions or senses, and which cannot
experience physical suffering or mental anguish—is not entitled to moral damages.
Same; Same; Sales; It is basic that in a pacto de retro sale, the title and
ownership of the property sold are immediately vested in the vendee a retro, subject
only to the resolutory condition of repurchase by the vendor a retro within the
stipulated period.—In a contract of sale with pacto de retro, the vendee has a right to
the immediate possession of the property sold, unless otherwise agreed upon. It is
basic that in a pacto de retro sale, the title and ownership of the property sold are
immediately vested in the vendee a retro, subject only to the resolutory condition of
repurchase by the vendor a retro within the stipulated period.
PETITION for review on certiorari of a decision of the Court of Appeals.
269
VOL. 275, JULY 8, 1997 269
Solid Homes, Inc. vs. Court of Appeals
The facts are stated in the opinion of the Court.
     Rene A. Diokno for petitioner.
     Padilla Law Office for private respondent.
PANGANIBAN, J.:
Is the failure to annotate the vendor a retro's right of repurchase in the certificates of
title of the real estate properties subject of dacion en pago conclusive evidence of the
vendee a retro's malice and bad faith, entitling the former to damages? In a sale
with pacto de retro, is the repurchase price limited by Article 1616 of the Civil
Code?
43
These are the basic questions raised in this petition for review on certiorari under
Rule 45 of the Rules of Court assailing the Court of Appeals1 Decision2 promulgated
on April 25, 1994 and Resolution3 of September 26, 1994 in CA-G.R. CV No.
39154, affirming the decision4 of the Regional Trial Court of Pasig, Branch 157 in
Civil Case No. 51214. The said RTC decision sustained the validity of the
subject dacion en pago agreement and declared the same as "a true sale with right of
repurchase."
The Facts
The facts of the case as narrated by the trial court and reproduced in the assailed
Decision of the Court of Appeals are undisputed by the parties. These are the
relevant portions:
It appears that on June 4, 1979, Solid Homes executed in favor of
State Financing (Center, Inc.) a Real Estate Mortgage (Exhibit "3")
on its properties embraced in Transfer Certificate of Title No. 9633
(Exhibit "9") and Transfer Certificate of Title No. (492194) —
11938 (Exhibit "8") of the Registry of Deeds in Pasig, Metro
Manila, in order to secure the payment of a loan of P10,000,000.00
which the former obtained from the latter. A year after, Solid
Homes applied for and was granted an additional loan of
P1,511,270.03 by State Financing, and to secure its payment, Solid
Homes executed the Amendment to Real Estate Mortgage dated
June 4, 1980 (Exhibit "4") whereby the credits secured by the first
mortgage on the abovementioned properties were increased from
P10,000,000.00 to P11,511,270.03. Sometime thereafter, Solid
Homes obtained additional credits and financing facilities from
State Financing in the sum of P1,499,811,97, and to secure its
payment, Solid Homes executed in favor of State Financing the
Amendment to Real Estate Mortgage dated March 5, 1982 (Exhibit
"5") whereby the mortgage executed on its properties on June 4,
1979 was again amended so that the loans or credits secured
thereby were further increased from P11,511,270.03 to
P13,011,082.00.
When the loan obligations abovementioned became due and
payable, State Financing made repeated demands upon Solid
Homes for the payment thereof, but the latter failed to do so. So,
on December 16, 1982, State Financing filed a petition for
extrajudicial foreclosure of the mortgages abovementioned with
the Provincial Sheriff of Rizal, who, in pursuance of the petition,
issued a Notice of Sheriff's Sale dated February 4, 1983 (Exhibit
"6"), whereby the mortgaged properties of Solid Homes and the
improvements existing thereon, including the V.V. Soliven Towers
II Building, were set for public auction sale on March 7, 1983 in
order to satisfy the full amount of Solid Homes' mortgage
indebtedness, the interest thereon, and the fees and expenses
incidental to the foreclosure proceedings.
Before the scheduled public auction sale . . . , the mortgagor Solid
Homes made representations and induced State Financing to
forego with the foreclosure of the real estate mortgages referred to
above. By reason thereof, State Financing agreed to suspend the
foreclosure of the mortgaged properties, subject to the terms and
conditions they agreed upon, and in pursuance of their said
agreement, they executed a document entitled MEMORANDUM
OF AGREEMENT/DACION EN PAGO("Memorandum") dated
February 28, 1983 (Exhibits "C" and "7") . . . . Among the terms
and conditions that said parties agreed upon were . . . :
1. (Solid Homes) acknowledges that it has an
outstanding obligation due and payable to (State
Financing) and binds and obligates to pay (State
Financing) the totality of its outstanding
obligation in the amount of P14,225,178.40,
within one hundred eighty (180) days from date
of signing of this instrument. However, it is
understood and agreed that the principal
obligation of P14,225,178.40 shall earn interest
at the rate of 14% per annumand penalty of
16% per annum counted from March 01, 1983
until fully paid.
2. The parties agree that should (Solid Homes)
be able to pay (State Financing) an amount
equivalent to sixty per centum (60%) of the
principal obligation, or the amount of
P8,535,107.04, within the first one hundred
eighty (180) days, (State Financing) shall allow
the remaining obligation of (Solid Homes) to be
restructured at a rate of interest to be mutually
agreed between the parties.
3. It is hereby understood and agreed that in the
event (Solid Homes) fails to comply with the
provisions of the preceding paragraphs, within
the said period of one hundred eighty (180) days,
44
 this document shall automatically operate to be
an instrument of dacion en pago without the need
of executing any document to such an effect and
(Solid Homes) hereby obligates and binds itself
to transfer, convey and assign to (State
Financing), by way of dacion en pago, its heirs,
successors and assigns, and (State Financing)
does hereby accept the conveyance and transfer
of the above-described real properties, including
all the improvements thereon, free from all liens
and encumbrances, in full payment of the
outstanding indebtedness of (Solid Homes) to
(State Financing) . . . .
x x x           x x x          x x x
6. (State Financing) hereby grants (Solid Homes)
the right to repurchase the aforesaid real
properties, including the condominium units and
other improvements thereon, within ten (10)
months counted from and after the one hundred
eighty (180) days from date of signing hereof at
an agreed price of P14,225,178.40, or as reduced
pursuant to par. 5 (d), plus all cost of money
equivalent to 30% per annum, registration fees,
real estate and documentary stamp taxes and
other incidental expenses incurred by (State
Financing) in the transfer and registration of its
ownership via dacion en pago . . . .
xxx xxx xxx
Subsequently, Solid Homes failed to pay State Financing an
amount equivalent to 60% (or P8,535,107.04) of the principal
obligation of P14,225,178.40 within 180 days from the signing of
the (Memorandum) on February 28, 1983, as provided under
paragraph 2 of the said document. Hence, and in pursuance of
paragraph 3 thereof which provided that "this document shall
automatically operate to be an instrument of dacion en pago
without the need of executing any document to such an effect . . .
(,)" State Financing registered the said (Memorandum) with the
Register of Deeds in Pasig, Metro Manila on September 15, 1983.
Consequently, the said Register of Deeds cancelled TCT No. 9633
and TCT No. (492194) 11938 in the name of Solid Homes which
were the subject matter of the (Memorandum) abovementioned,
and in lieu thereof, the said office issued Transfer Certificate of
Title No. 40534 (Exhibits "J" and "11") and Transfer Certificate of
Title No. 40534 (Exhibits "K" and "12") in the name of State
Financing . . . .
In a letter dated October 11, 1983 (Exhibit "16"), State Financing
informed Solid Homes of the transfer in its name of the titles to all
the properties subject matter of the (Memorandum) and demanded
among other things, the Solid Homes turn over to State Financing
the possession of the V.V. Soliven Towers II Building erected on
two of the said properties. Solid Homes replied with a letter dated
October 14, 1983, (Exhibit "20") asking for a period of ten (10)
days within which to categorize its position on the matter; and in a
subsequent letter dated October 24, 1983, Solid Homes made
known to State Financing its position that the (Memorandum) is
null and void because the essence thereof is that State Financing,
as mortgagee creditor, would be able to appropriate unto itself the
properties mortgaged by Solid Homes which is in contravention of
Article 2088 of the Civil Code. State Financing then sent to Solid
Homes another letter dated November 3, 1983 (Exhibit "17"),
whereby it pointed out that Art. 2088 of the Civil Code is not
applicable to the (Memorandum) they have executed, and also
reiterated its previous demand that Solid Homes turn over to it the
possession of the V.V. Soliven Towers II Building within five (5)
days, but Solid Homes did not comply with the said demand.
. . . and within that period of repurchase, Solid Homes wrote to
State Financing a letter dated April 30, 1984 containing its
proposal for repayment schemes under terms and conditions
indicated therein for the repurchase of the properties referred to. In
reply to said letter, State Financing sent a letter dated May 17,
1984 (Exhibit "18") advising Solid Homes that State Financing's
management was not amenable to its proposal, and that by way of
granting it some concessions, said management made a counter-
proposal requiring Solid Homes to make an initial payment of P10
million until 22 May 1984 and the balance payable within the
remaining period to repurchase the properties as provided for under
the (Memorandum) . . . . Thereafter, a number of conferences were
held among the corporate officers of both companies wherein they
discussed the payment arrangement of Solid Home's outstanding
obligation, . . . . In a letter dated June 7, 1984 (Exhibit "19"), State
Financing reiterated the counter-proposal in its previous letter
dated May 17, 1984 to Solid Homes as a way of making good its
account, and at the same time reminded Solid Homes that it has
45
 until 27 June 1984 to exercise its right to repurchase the properties
pursuant to the terms and conditions of the (Memorandum),
otherwise, it will have to vacate and turn over the possession of
said properties to State Financing. In return, Solid Homes sent to
State Financing a letter dated June 18, 1984 (Exhibits "N" and
"22") containing a copy of the written offer made by C.L. Alma
Jose & Sons, Inc. (Exhibits "M" and "22-A") to avail of Solid
Homes' right to repurchase the V.V. Soliven Towers II pursuant to
the terms of the Dacion En Pago. The letter also contained a
request that the repurchase period under said Dacion En Pago
which will expire on June 27, 1984 be extended by sixty (60) days
to enable Solid Homes to comply with the conditions in the offer
of Alma Jose & Sons, Inc. referred to, and thereafter, to avail of the
one year period to pay the balance based on the verbal commitment
of State Financing's President . . . .
However, on June 26, 1984, a day before the expiry date of its
right to repurchase the properties involved in the (Memorandum)
on June 27, 1984, Solid Homes filed the present action against
defendants State Financing and the Register of Deeds for Metro
Manila District II (Pasig), seeking the annulment of said
(Memorandum) and the consequent reinstatement of the mortgages
over the same properties; . . .5
As earlier stated, the trial court held that the Memorandum of Agreement/Dacion En
Pago executed by the parties was valid and binding, and that the registration of said
instrument in the Register of Deeds was in accordance with law and the agreement of
the parties. It disposed of the case thus:
WHEREFORE, this Court hereby renders judgment, as follows:
1. Declaring that the Memorandum of Agreement/Dacion En Pago
entered into by and between plaintiff Solid Homes and defendant
State Financing on February 28, 1983 is a valid and binding
document which does not violate the prohibition against pactum
commisorium under Art. 2088 of the Civil Code;
2. Declaring that the said Memorandum of Agreement/Dacion En
Pago is a true sale with right of repurchase, and not an equitable
mortgage;
3. Declaring that the registration of the said Memorandum of
Agreement/Dacion En Pago with the defendant Register of Deeds
in Pasig, Metro Manila by defendant State Financing on September
15, 1983 is in accordance with law and the agreement of the parties
in the said document; but the annotation of the said document by
the said Register of Deeds on the certificates of title over the
properties subject of the Memorandum of Agreement/Dacion En
Pago without any mention of the right of repurchase and the period
thereof, is improper, and said Register of Deeds' cancellation of the
certificates of title in the name of Solid Homes over the properties
referred to and issuance of new titles in lieu thereof in the name of
State Financing — during the period of repurchase and without any
judicial order — is in violation of Art. 1607 of the Civil Code,
which renders said titles null and void;
4. Ordering the defendant State Financing to surrender to the
defendant Register of Deeds in Pasig, Metro Manila for the
cancellation thereof, all the certificates of title issued in its name
over the properties subject of the Memorandum of
Agreement/Dacion En Pago, including those titles covering the
fully paid condominium units and the substitute collateral
submitted in exchange for said condominium units;
5. Ordering the said defendant Register of Deeds to cancel all the
titles in the name of State Financing referred to and to reinstate the
former titles over the same properties in the name of Solid Homes,
with the proper annotation thereon of the Memorandum of
Agreement/Dacion En Pago together with the right of repurchase
and the period thereof — as provided in said document — and to
return the said reinstated former titles (owner's copies) in the name
of Solid Homes to State Financing;
6. Ordering the defendant State Financing to release to plaintiff
Solid Homes all the certificates of title over the fully paid
condominium units in the name of Solid Homes, free from all liens
and encumbrances by releasing the mortgage thereon;
7. Granting the plaintiff Solid Homes the opportunity to exercise
its right to repurchase the properties subject of the Memorandum
of Agreement/Dacion En Pago within thirty (30) days from the
finality of this Decision, by paying to defendant State Financing
the agreed price of P14,225,178.40 plus all cost of money
equivalent to 30% (interest of 14% and penalty of 16% from
March 1, 1983) per annum, registration fees, real estate and
documentary stamp taxes and other incidental expenses incurred
by State Financing in the transfer and registration of its ownership
46
 via the Dacion En Pago, as provided in the said document and in
pursuance of Articles 1606 and 1616 of the Civil Code; and
8. Ordering the defendant Register of Deeds in Pasig, Metro
Manila — should plaintiff Solid Homes fail to exercise the
abovementioned right to repurchase within 30 days from the
finality of this judgment — to record the consolidation of
ownership in State Financing over the properties subject of the
Memorandum of Agreement/Dacion En Pago in the Registry of
Property, in pursuance of this Order, but excluding therefrom the
fully paid condominium units and their corresponding titles to be
released by State Financing.
For lack of merit, the respective claims of both parties for
damages, attorney's fees, expenses of litigation and costs of suit are
hereby denied. 6
Both parties appealed from the trial court's decision. Solid Homes raised a lone
question contesting the denial of its claim for damages. Such damages allegedly
resulted from the bad faith and malice of State Financing in deliberately failing to
annotate Solid Homes' right to repurchase the subject properties in the former's
consolidated titles thereto. As a result of the non-annotation, Solid Homes claimed to
have been prevented from generating funds from prospective buyers to enable it to
comply with the Agreement and to redeem the subject properties.
State Financing, on the other hand, assigned three errors against the RTC decision:
(1) granting Solid Homes a period of thirty (30) days from finality of the judgment
within which to exercise its right of repurchase; (2) ordering Solid Homes to pay
only 30% per annum as interest and penalty on the principal obligation, rather than
reasonable rental value from the time possession of the properties was illegally
withheld from State Financing; and (3) failing to order the immediate turnover of the
possession of the properties to State Financing as the purchaser a retro from whom
no repurchase has been made.
As to the lone issue raised by Solid Homes, the Court of Appeals agreed with the
trial court that the failure to annotate the right of repurchase of the vendor a retro is
not by itself an indication of bad faith or malice. State Financing was not legally
bound to cause its annotation, and Solid Homes could have taken steps to protect its
own interests. The evidence shows that after such registration and transfer of titles,
State Financing willingly negotiated with Solid Homes to enable the latter to exercise
its right to repurchase the subject properties,7 an act that negates bad faith.
Anent the first error assigned by State Financing, Respondent Court likewise upheld
the trial court in applying Article 1606, paragraph 38 of the Civil Code. Solid Homes
was not in bad faith in filing the complaint for the declaration of nullity of the
Memorandum of Agreement/Dacion En Pago. There is statutory basis for petitioner's
claim that an equitable mortgage existed since it believed that (1) the price of P14
million was grossly inadequate, considering that the building alone was allegedly
built at a cost of P60 million in 1979 and the lot was valued at P5,000.00 per square
meter and (2) it remained in possession of the subject properties. 9 Furthermore,
Article 1607 10 of the Civil Code abolished automatic consolidation of ownership in
the vendee a retro upon expiration of the redemption period by requiring the vendee
to institute an action for consolidation where the vendor a retro may be duly heard. If
the vendee succeeds in proving that the transaction was indeed a pacto de retro, the
vendor is still given a period of thirty days from the finality of the judgment within
which to repurchase the property. 11
Respondent Court also affirmed the trial court's imposition of the 30% interest per
annum on top of the redemption price in accordance with paragraph 6 of the parties'
Memorandum of Agreement. 12
However, Respondent Court of Appeals rules favorably on State Financing's last
assigned error by ordering Solid Homes to deliver possession of the subject
properties to the private respondent, citing jurisprudence that in a sale with pacto de
retro, the vendee shall immediately acquire title over and possession of the real
property sold, subject only to the vendor's right of redemption. 13 The full text of the
dispositive portion of the assailed Decision is as follows:
WHEREFORE, the judgment appealed from is affirmed with the
modification that plaintiff Solid Homes is further ordered to deliver
the possession of the subject property to State Financing. 14
The two opposing parties filed their respective motions for reconsideration of the
assailed Decision. Both were denied by said Court for lack of merit. Both parties
thereafter filed separate petitions for review before this Court. In a minute
Resolution 15 dated December 5, 1994, this Court (Third Division) denied State
Financing Center's petition because of its failure to show that a reversible error was
committed by the appellate court. Its motion for reconsideration of said resolution
was likewise denied for lack of merit. This case disposes only of the petition filed by
Solid Homes, Inc.
Issues
In its petition, Solid Homes repeats its arguments before the Court of Appeals. It
claims damages allegedly arising from the non-annotation of its right of repurchase
in the consolidated titles issued to private respondent. Petitioner reiterates its attack
against the inclusion of 30% interest per annum as part of the redemption price. It
asserts that Article 1616 of the Civil Code authorizes only the return of the (1) price
47
of the sale, (2) expenses of the contract and any other legitimate payments by reason
of the sale and (3) necessary and useful expenses made on the thing sold.
Considering that the transfer of titles was null and void, it was thus erroneous to
charge petitioner the registration fees, documentary stamp taxes and other incidental
expenses incurred by State Financing in the transfer and registration of the subject
properties via the dacion en pago. Lastly, petitioner argues that there is no need for
the immediate turnover of the properties to State Financing since the same was not
stipulated under their Agreement, and the latter's rights were amply protected by the
issuance of new certificates of title in its name.
The Court's Ruling
First Issue: Damages
To resolve the issue of damages, an examination of factual circumstances would be
necessary, a task that is clearly beyond this Court's dominion. It is elementary that in
petitions for review on certiorari, only questions of law may be brought by the
parties and passed upon by this Court. Findings of fact of lower courts are deemed
conclusive and binding upon the Supreme Court except when the findings are
grounded on speculation, surmises or conjectures; when the inference made is
manifestly mistaken, absurd or impossible; when there is grave abuse of discretion in
the appreciation of facts; when the factual findings of the trial and appellate courts
are conflicting; when the Court of Appeals, in making its findings, has gone beyond
the issues of the case and such findings are contrary to the admissions of both
appellant and appellee; 16 when the judgment of the appellate court is premised on a
misapprehension of facts or when it has failed to notice certain relevant facts which,
if properly considered, will justify a different conclusion; when the findings of fact
are conclusions without citation of specific evidence upon which they are based; and
when findings of fact of the Court of Appeals are premised on the absence of
evidence but are contradicted by the evidence on record. 17
The petitioner has not shown any — and indeed the Court finds none — of the
above-mentioned exceptions to warrant a departure from the general rule.
In fact, petitioner has not even bothered to support with evidence as claim for
"actual, moral and punitive/nominal damages" as well as "exemplary damages and
attorney's fees." It is basic that the claim for these damages must each be
independently identified and justified; such claims cannot be dealt with in the
aggregate, since they are neither kindred or analogous terms nor governed by a
coincident set of rules. 18
The trial court found, and the Court of Appeals affirmed, that petitioner's claim for
actual damages was baseless. Solid Homes utterly failed to prove that respondent
corporation had maliciously and in bad faith caused the non-annotation of petitioner's
right of repurchase so as to prevent the latter from exercising such right. On the
contrary, it is admitted by both parties that State Financing informed petitioner of the
registration with the Register of Deeds of Pasig of their Memorandum of
Agreement/Dacion en Pago and the issuance of new certificates of title in the name
of the respondent corporation. Petitioner exchanged communications and held
conferences with private respondent in order to draw a mutually acceptable payment
arrangement for the former's repurchase of the subject properties. A written offer
from another corporation alleging willingness to avail itself of petitioner's right of
repurchase was even attached to one of these communications. Clearly, petitioner
was not prejudiced by the non-annotation of such right in the certificates of titles
issued in the name of State Financing. Besides, as the Court of Appeals noted, it was
not the function of respondent corporation for cause said annotation. It was equally
the responsibility of petitioner to protect its own rights by making sure that its right
of repurchase was indeed annotated in the consolidated titles of private respondent.
The only legal transgression of State Financing was its failure to observe the proper
procedure in effecting the consolidation of the titles in its name. But this does not
automatically entitle the petitioner to damages absent convincing proof of malice and
bad faith 19 on the part of private respondent and actual damages suffered by
petitioner as a direct and probable consequence thereof. In fact, the evidence
proffered by petitioner consist of mere conjectures and speculations with no factual
moorings. Furthermore, such transgression was addressed by the lower courts when
they nullified the consolidated of ownership over the subject properties in the name
of respondent corporation, because it had been effected in contravention of the
provisions of Article 1607 20 of the Civil Code. Such rulings are consistent with law
and jurisprudence.
Neither can moral damages be awarded to petitioner. Time and again, we have held
that a corporation — being an artificial person which has no feelings, emotions or
senses, and which cannot experience physical suffering or mental anguish — is not
entitled to moral damages. 21
While the amount of exemplary damages need not be proved, petitioner must show
that he is entitled to moral or actual damages; 22 but the converse obtains in the
instant case. Award of attorney's fees is likewise not warranted when moral and
exemplary damages are eliminated and entitlement thereto is not demonstrated by the
claimant. 23
Lastly, "(n)ominal damages are adjudicated in order that a right of the plaintiff,
which has been violated or invaded by the defendant, may be vindicated or
recognized, and not for the purpose of indemnifying the plaintiff for any loss
suffered by him." 24 As elaborated above and in the decisions of the two lower courts,
no right of petitioner was violated or invaded by respondent corporation.
48
 Second Issue: Redemption Price
Another fundamental principle of procedural law precludes higher courts from
entertaining matters neither alleged in the pleadings nor raised during the
proceedings below, but ventilated for the first time only in a motion for
reconsideration or on appeal. 25 On appeal, only errors specifically assigned and
properly argued in the brief will be considered, with the exception of those affecting
jurisdiction over the subject matter as well as plain and clerical
errors. 26
As stated earlier, the single issue raised by petitioner in its appeal of the RTC
decision to the Court of Appeals concerned only the denial of its claim for damages.
Petitioner succinctly stated such issue in its brief as follows:
I. LONE ASSIGNMENT OF ERROR
The trial court erred in that after having found that the registration
of the Memorandum of Agreement/Dacion en Pago on September
15, 1983 [and the consequent cancellation of the titles of plaintiff-
appellant Solid Homes, Inc. and issuance in lieu thereof of titles to
defendant-appellant State Financing Center, Inc. (SFCI)] was null
and void because of failure to duly annotate the right to repurchase
granted to plaintiff-appellant Solid Homes, Inc. under par. 6
thereof still then subsisting up to June 28, 1984 and the failure to
comply with the provisions of Art. 1607, Civil Code . . .
I[t] nonetheless did not rule that such irregular registration unduly
deprived plaintiff-appellant Solid Homes, Inc. of its right of
repurchase and that it further erred in not having declared that
defendant-appellant SFCI liable in favor of said plaintiff-appellant
for damages. 27
Petitioner is thus barred from raising a new issue in its appeal before this Court.
Nevertheless, in the interest of substantial justice, we now resolve the additional
question posed with respect to the composition of the redemption price prescribed by
the trial court and affirmed by the Court of Appeals, as follows:
7. Granting the plaintiff Solid Homes the opportunity to exercise
its right to repurchase the properties . . . by paying to defendant
State Financing the agreed price of P14,225,178.40 plus all cost of
money equivalent to 30% (interest of 14% and penalty of 16%
from March 1, 1983) per annum, registration fees, real estate and
documentary stamp taxes and other incidental expenses incurred
by State Financing in the transfer and registration of its ownership
via the Dacion En Pago, as provided in the said document and in
pursuance of Articles 1606 and 1616 of the Civil Code; 28
Petitioner argues that such total redemption price is in contravention of Art. 1616 of
the Civil Code. We do not, however, find said legal provision to be restrictive or
exclusive, barring additional amounts that the parties may agree upon. Said provision
should be construed together with Art. 1601 of the same Code which provides as
follows:
Art. 1601. Conventional redemption shall take place when the
vendor reserves the right to repurchase the thing sold, with the
obligation to comply with the provisions of article 1616 and other
stipulations which may have been agreed upon. (emphasis
supplied)
It is clear, therefore, that the provisions of Art. 1601 require petitioner to "comply
with . . . the other stipulations" of the Memorandum of Agreement/Dacion en
Pago it freely entered into with private respondent. The said Memorandum's
provision on redemption states:
6. The FIRST PARTY (State Financing) hereby grants the
SECOND PARTY (Solid Homes) the right to repurchase the
aforesaid real properties, including the condominium units and
other improvements thereon, within ten (10) months counted from
and after the one hundred eighty (180) days from date of signing
hereof at an agreed price of P14,225,178.40, or as reduced
pursuant to par. 5 (d), plus all cost of money equivalent to 30% per
annum, registration fees, real estate and documentary stamp taxes
and the other incidental expenses incurred by the FIRST PARTY
(State Financing) in the transfer and registration of its ownership
via dacion en pago . . . 29 (emphasis supplied)
Contracts have the force of law between the contracting parties who may establish
such stipulations, clauses, terms and conditions as they may want subject only to the
limitation that their agreements are not contrary to law, morals, customs, public
policy or public order 30 — and the above-quoted provision of the Memorandum does
not appear to be so.
Petitioner, however, is right in its observation that the Court of Appeal's inclusion of
"registration fees, real estate and documentary stamp taxes and other incidental
expenses incurred by State Financing in the transfer and registration of its ownership
(of the subject properties) via dacion en pago" was vague, if not erroneous,
considering that such transfer and issuance of the new titles were null and void.
Thus, the redemption price shall include only those expenses relating to the
49
registration of the dacion en pago, but not the registration and other expenses
incurred in the issuance of new certificates of title in the name of State Financing.
Possession of the Subject Properties
During the Redemption Period
The Court of Appeals Decision modified that of the trial court only insofar as it
ordered petitioner to deliver possession of the subject properties to State Financing,
the vendee a retro. We find no legal error in this holding. In a contract of sale
with pacto de retro, the vendee has a right to the immediate possession of the
property sold, unless otherwise agreed upon. It is basic that in a pacto de retro sale,
the title and ownership of the property sold are immediately vested in the vendee a
retro, subject only to the resolutory condition of repurchase by the vendor a
retro within the stipulated period. 31
WHEREFORE, the assailed Decision of the Court of Appeals is hereby AFFIRMED
with the MODIFICATION that the redemption price shall not include the
registration and other expenses incurred by State Financing Center, Inc. in the
issuance of new certificates of title in its name, as this was done without the proper
judicial order required under Article 1607 of the Civil Code.
SO ORDERED.
G.R. No. 146651.  January 17, 2002.
RONALDO P. ABILLA and GERALDA A. DIZON, petitioners, vs. CARLOS
ANG GOBONSENG, JR. and THERESITA MIMIE ONG, respondents.
Sales; Equitable Mortgage; Pacto de Retro Sales; The vendor in a sale
judicially declared as a pacto de retro may not exercise the right of repurchase
under Article 1606, third paragraph of the Civil Code, after he has taken the
position that the same was an equitable mortgage—the application of said provision
is predicated upon the bona fides of the vendor a retro, i.e., it must appear that there
was a belief on his part, founded on facts attendant upon the execution of the sale
with pacto de retro, honestly and sincerely entertained, that the agreement was in
reality a mortgage, one not intended to affect the title to the property ostensibly sold,
but merely to give it as security for a loan or other obligation.—Following the
theory of the respondents which was sustained by the trial court, the scenario would
be that although respondents failed in their effort to prove that the contract was an
equitable mortgage, they could nonetheless still repurchase the property within 30
days from the finality of the judgment declaring the contract to be truly a pacto de
retro sale. However, under the undisputed facts of the case at bar, this cannot be
allowed. In the parallel case of Vda. de Macoy v. Court of Appeals, the petitioners
therein raised the defense that the contract was not a sale with right to repurchase but
an equitable mortgage. They further argued as an alternative defense that even
assuming the transaction to be a pacto de retro sale, they can nevertheless repurchase
the property by virtue of Article 1606, third paragraph of the Civil Code. It was held
that the said provision was inapplicable, thus: The application of the third paragraph
of Article 1606 is predicated upon the bona fides of the vendor a retro. It must
appear that there was a belief on his part, founded on facts attendant upon the
execution of the sale with pacto de retro, honestly and sincerely entertained, that the
agreement was in reality a mortgage, one not intended to affect the title to the
property ostensibly sold, but merely to give it as security for a loan or other
obligation. In that event, if the matter of the real nature of the contract is submitted
for judicial resolution, the application of the rule is meet and proper; that the
vendor a retro be allowed to repurchase the property sold within 30 days from
rendition of final judgment declaring the contract to be a true sale with right to
repurchase. Conversely, if it should appear that the parties’ agreement was really one
of sale—transferring ownership 
______________
*
 FIRST DIVISION.
52
52  SUPREME COURT REPORTS ANNOTATED 
Abilla vs. Gobonseng, Jr.
to the vendee, but accompanied by a reservation to the vendor of the right to
repurchase the property—and there are no circumstances that may reasonably be
accepted as generating some honest doubt as to the parties’ intention, the proviso is
inapplicable. The reason is quite obvious. If the rule were otherwise, it would be
within the power of every vendor a retro to set at naught a pacto de retro, or
resurrect an expired right of repurchase, by simply instituting an action to reform the
contract—known to him to be in truth a sale with pacto de retro—into an equitable
mortgage.
Same; Same; Same; The declaration of the transaction as a pacto de retro
sale will not, under the circumstances, entitle the vendor a retro to the right of
repurchase set forth under the third paragraph of Article 1606 of the Civil Code.—In
the case at bar, both the trial court and the Court of Appeals were of the view that the
subject transaction was truly a pacto de retro sale; and that none of the circumstances
under Article 1602 of the Civil Code exists to warrant a conclusion that the
transaction subject of the “Deed of Sale” and “Option to Buy” was an equitable
mortgage. The Court of Appeals correctly noted that if respondents really believed
that the transaction was indeed an equitable mortgage, as a sign of good faith, they
should have, at the very least, consigned with the trial court the amount of
P896,000.00, representing their alleged loan, on or before the expiration of the right
to repurchase on August 21, 1983. Clearly, therefore, the declaration of the
transaction as a pacto de retro sale will not, under the circumstances, entitle
respondents to the right of repurchase set forth under the third paragraph of Article
1606 of the Civil Code.
50
PETITION for review on certiorari of a decision of the Regional Trial Court of
Dumaguete City, Br. 41.
The facts are stated in the opinion of the Court.
     Romero, Arreza & Magtanong Law Offices for petitioners.
     Rotelio U. Lumjod for private respondents.
YNARES-SANTIAGO, J.:
May the vendors in a sale judicially declared as a pacto de retro exercise the right of
repurchase under Article 1606, third paragraph, of the Civil Code, after they have
taken the position that the same was an equitable mortgage?
This is the legal question raised in this petition for review assailing the January 14,
2001 Order1 of the Regional Trial Court of Dumaguete City, Branch 41, in Civil Case
No. 8148, which granted herein respondent spouses the right to repurchase the
seventeen lots2 subject of the pacto de retro sale within thirty (30) days from the
finality of the order.
The undisputed facts are as follows:
Petitioner spouses instituted against respondents an action for specific performance,
recovery of sum of money and damages, docketed as Civil Case No. 8148 of the
Regional Trial Court of Dumaguete City, Branch XLII, seeking the reimbursement
of the expenses they incurred in connection with the preparation and registration of
two public instruments, namely a "Deed of Sale"3 and an "Option to Buy."4 In their
answer, respondents raised the defense that the transaction covered by the "Deed of
Sale" and "Option to Buy," which appears to be a Deed of Sale with Right of
Repurchase, was in truth, in fact, in law, and in legal construction, a mortgage. 5  On November 10, 1997, the Court of Appeals denied the motion for reconsideration
On October 29, 1990, the trial court ruled in favor of petitioners and declared that the
transaction between the parties was not an equitable mortgage. Citing Villarica v.
Court of Appeals,6 it ratiocinated that neither was the said transaction embodied in
the "Deed of Sale" and "Option to Buy" a pacto de retro sale, but a sale giving
respondents until August 31, 1983 within which to buy back the seventeen lots
subject of the controversy. The dispositive portion thereof reads:
IN THE LIGHT OF THE FOREGOING, it is the considered opinion of this
Court that plaintiffs have proven by preponderance of evidence their case
and judgment is therefore rendered in their favor as follows:
1. Ordering defendants to pay plaintiffs the sum of P171,483.40
representing the total expenses incurred by plaintiffs in the
preparation and registration of the Deed of Sale, amount paid to the
Bank of Asia and America (IBAA) and capital gains tax with legal
rate of interest from the time the same was incurred by plaintiffs up
to the time payment is made by defendants; P10,000.00 as
attorney’s fees; P15,000.00 moral damages; P10,000.00 expenses
of litigation and to pay cost.
2. The Philippine National Bank, Dumaguete City Branch is
directed to release in favor of plaintiffs, the spouses Ronaldo P.
Abilla and Gerald A. Dizon all the money deposited with the said
bank, representing the rentals of a residential house erected inside
in one of the lots in question;
3. For insufficiency of evidence, defendants’ counterclaim is
ordered dismissed.
SO ORDERED.7 
On appeal by respondents, the Court of Appeals ruled that the transaction between
the parties was a pacto de retrosale, and not an equitable mortgage.8 The decretal
portion thereof states:
WHEREFORE, the decision appealed from is MODIFIED by deleting the
award of attorney’s fees. In other respects the decision of the lower court is
AFFIRMED. Costs against defendant-appellants.
SO ORDERED.9 
of the foregoing decision.
Respondents filed a petition for review with this Court which was docketed as G.R.
No. 131358; however, the same was dismissed on February 11, 1998, for having
been filed out of time.10 The motion for reconsideration thereof was denied with
finality on June 17, 1998.11 
Undaunted, respondents filed a second motion for reconsideration, claiming that
since the transaction subject of the controversy was declared a pacto de retro sale by
the Court of Appeals, they can therefore repurchase the property pursuant to the third
paragraph of Article 1606 of the Civil Code. The issue of the applicability of Article
1606 of the Civil Code was raised by the respondents only in their motion for
clarification with the Court of Appeals, and not before the trial court and on appeal to
51
the Court of Appeals. Thus, respondent’s second motion for reconsideration was
denied.12 The denial became final and executory on February 8, 1999.13  the bona fides of the vendor a retro. It must appear that there was a belief
On February 23, 1999, respondents filed with the trial court in Civil Case No. 8148
an urgent motion to repurchase the lots in question with tender of payment. The
motion was, however, denied on November 10, 199914 by Judge Ibarra B. Jaculbe,
Jr., who subsequently inhibited himself from the case.
On January 14, 2001, Branch 41 of the Regional Trial Court of Dumaguete City, to
which the case was reraffled, set aside the November 10, 1999 order and granted
respondents’ motion to repurchase.
Hence, the instant recourse.
At the outset, it must be stressed that it has been respondents’ consistent claim that
the transaction subject hereof was an equitable mortgage and not a pacto de
retro sale or a sale with option to buy. Even after the Court of Appeals declared the
transaction to be a pacto de retro sale, respondents maintained their view that the
transaction was an equitable mortgage. Seeing the chance to turn the decision in their
favor, however, respondents abandoned their theory that the transaction was an
equitable mortgage and adopted the finding of the Court of Appeals that it was in
fact a pacto de retro sale. Respondents now insist that they are entitled to exercise
the right to repurchase pursuant to the third paragraph of Article 1606 of the Civil
Code, which reads:
However, the vendor may still exercise the right to repurchase within thirty
days from the time final judgment was rendered in a civil action on the basis
that the contract was a true sale with right to repurchase.
The question now is, can respondents avail of the aforecited provision? Following
the theory of the respondents which was sustained by the trial court, the scenario
would be that although respondents failed in their effort to prove that the contract
was an equitable mortgage, they could nonetheless still repurchase the property
within 30 days from the finality of the judgment declaring the contract to be truly
a pacto de retro sale. However, under the undisputed facts of the case at bar, this
cannot be allowed.
In the parallel case of Vda. de Macoy v. Court of Appeals,15 the petitioners therein
raised the defense that the contract was not a sale with right to repurchase but an
equitable mortgage. They further argued as an alternative defense that even assuming
the transaction to be a pacto de retro sale, they can nevertheless repurchase the
property by virtue of Article 1606, third paragraph of the Civil Code. It was held that
the said provision was inapplicable, thus:
The application of the third paragraph of Article 1606 is predicated upon
on his part, founded on facts attendant upon the execution of the sale
with pacto de retro, honestly and sincerely entertained, that the agreement
was in reality a mortgage, one not intended to affect the title to the property
ostensibly sold, but merely to give it as security for a loan or other
obligation. In that event, if the matter of the real nature of the contract is
submitted for judicial resolution, the application of the rule is meet and
proper; that the vendor a retro be allowed to repurchase the property sold
within 30 days from rendition of final judgment declaring the contract to be
a true sale with right to repurchase. Conversely, if it should appear that the
parties’ agreement was really one of sale — transferring ownership to the
vendee, but accompanied by a reservation to the vendor of the right to
repurchase the property — and there are no circumstances that may
reasonably be accepted as generating some honest doubt as to the parties'
intention, the proviso is inapplicable. The reason is quite obvious. If the rule
were otherwise, it would be within the power of every vendor a retro to set
at naught a pacto de retro, or resurrect an expired right of repurchase, by
simply instituting an action to reform the contract — known to him to be in
truth a sale with pacto de retro — into an equitable mortgage. As postulated
by the petitioner, "to allow herein private respondents to repurchase the
property by applying said paragraph x x x to the case at bar despite the fact
that the stipulated redemption period had already long expired when they
instituted the present action, would in effect alter or modify the stipulation
in the contract as to the definite and specific limitation of the period for
repurchase (2 years from date of sale or only until June 25, 1958) thereby
not simply increasing but in reality resuscitating the expired right to
repurchase x x x and likewise the already terminated and extinguished
obligation to resell by herein petitioner." The rule would thus be made a tool
to spawn, protect and even reward fraud and bad faith, a situation surely
never contemplated or intended by the law.
This Court has already had occasion to rule on the proper interpretation of
the provision in question. In Adorable v. Inacala, where the proofs
established that there could be no honest doubt as to the parties’ intention,
that the transaction was clearly and definitely a sale with pacto de retro, the
Court adjudged the vendor a retro not to be entitled to the benefit of the
third paragraph of Article 1606.16 
In the case at bar, both the trial court and the Court of Appeals were of the view that
the subject transaction was truly a pacto de retro sale; and that none of the
circumstances under Article 1602 of the Civil Code exists to warrant a conclusion
that the transaction subject of the "Deed of Sale" and "Option to Buy" was an
equitable mortgage. The Court of Appeals correctly noted that if respondents really
believed that the transaction was indeed an equitable mortgage, as a sign of good
52
faith, they should have, at the very least, consigned with the trial court the amount of
P896,000.00, representing their alleged loan, on or before the expiration of the right
to repurchase on August 21, 1983.
Clearly, therefore, the declaration of the transaction as a pacto de retro sale will not,
under the circumstances, entitle respondents to the right of repurchase set forth under
the third paragraph of Article 1606 of the Civil Code.
WHEREFORE, in view of all the foregoing, the instant petition is GRANTED and
the January 14, 2001 Order of the Regional Trial Court of Dumaguete City, Branch
41, in Civil Case No. 8148, is REVERSED and SET ASIDE.
SO ORDERED.
G.R. No. 71694. August 16, 1991.*
NYCO SALES CORPORATION, petitioner, vs. BA FINANCE
CORPORATION, JUDGE ROSALIO A. DE LEON—REGIONAL TRIAL
COURT, BR. II, INTERMEDIATE APPELLATE COURT, FIRST CIVIL
CASES DIVISION, respondents.
Civil Law; Assignment; Case at bar; According to Art. 1628 of the Civil
Code, the assignor-vendor warrants both the credit itself and the person of the
debtor, if so stipulated, as in the case at bar.—An assignment of credit is the process
of transferring the right of the assignor to the assignee, who would then be allowed to
proceed against the debtor. It may be done either gratuitously or onerously, in which
case, the assignment has an effect similar to that of a sale. According to Article 1628
of the Civil Code, the assignor-vendor warrants both the credit itself (its existence
and legality) and the person of the debtor (his solvency), if so stipulated, as in the
case at bar. Consequently, if there be any breach of the above warranties, the
assignor-vendor should be held answerable therefor. There is no question then that
the assignor-vendor is indeed liable for the invalidity of whatever he assigned to the
assignee-vendee.
Same; Same; Negotiable Instruments Law; Notice of Dishonor;The dishonor
of an assigned check simply stresses its liability and the failure to give a notice of
dishonor will not discharge it from such liability.—Nyco’s pretension that it had not
been notified of the fact of dishonor is belied not only by the formal demand letter
but also by the findings of the trial court that Rufino Yao of Nyco and the Fernandez
Brothers of Sanshell had frequent contacts before, during and after the dishonor
(Rollo, p. 40). More importantly, it fails to realize that for as long as the credit
remains outstanding, it shall continue to be liable to BA Finance as its assignor. The
dishonor of an assigned check simply stresses its liability and the failure to give a
notice of dishonor will not discharge it from such liability. This is because the cause
of action stems from the breach of the warranties embodied in the Deed of
Assignment, and not from the dishonoring of the check alone (See Art. 1628, Civil
Code).
Same; Novation; In order to produce the effect of extinguishing obligation,
novation must (a) be explicitly stated and declared in un-
_______________
*
 SECOND DIVISION.
638
638  SUPREME COURT REPORTS ANNOTATED 
53
 Nyco Sales Corporation vs. BA Finance Corporation
equivocal terms, and (b) the old and the new obligations must be incompatible
on every point.—There are only two ways which indicate the presence of novation
and thereby produce the effect of extinguishing an obligation by another which
substitutes the same. First, novation must be explicitly stated and declared in
unequivocal terms as novation is never presumed (Mondragon v. Intermediate
Appellate Court, G.R. No. 71889, April 17, 1990; Caneda, Jr. v. Court of Appeals,
G.R. No. 81322, February 5, 1990). Secondly, the old and the new obligations must
be incompatible on every point. The test of incompatibility is whether or not the two
obligations can stand together, each one having its independent existence. If they
cannot, they are incompatible and the latter obligation novates the first (Mondragon
v. Intermediate Appellate Court, supra; Caneda, Jr. v. Court of Appeals, supra). In
the instant case, there was no express agreement that BA Finance’s acceptance of the
SBTC check will discharge Nyco from liability. Neither is there incompatibility
because both checks were given precisely to terminate a single obligation arising
from Nyco’s sale of credit to BA Finance. As novation speaks of two distinct
obligations, such is inapplicable to this case.
Same; Corporation Law; Estoppel in pais.—Nyco is estopped from denying
Rufino Yao’s authority as far as the latter’s transactions with BA Finance are
concerned.
PETITION for certiorari to review the decision of the then Intermediate Appellate
Court. Caquioa, J.
The facts are stated in the opinion of the Court.
     ABC Law Offices for petitioner.
     Valera, Urmeneta & Associates for private respondent.
PARAS, J.:
In this petition for review on certiorari, petitioner challenges the April 22, 1985
decision* and the July 16, 1985 resolution* of the then Intermediate Appellate Court
in AC-G.R. CV No. 02553 entitled "BA Finance Corporation v. Nyco Sales
Corporation, et al." which affirmed with modification the July 20, 1983 decision** of
the Regional Trial Court, National Capital Region, Manila, Branch II in the same
case docketed as Civil Case No. 125909 ordering petitioner to pay respondent the
amount of P60,000.00 as principal obligation plus corresponding interest, the sum of
P10,000.00 as and for, attomey's fees and 1/3 of the costs of suit.
It appears on record that petitioner Nyco Sales Corporation (hereinafter referred to as
Nyco) whose president and general manager is Rufino Yao, is engaged in the
business of selling construction materials with principal office in Davao City.
Sometime in 1978, the brothers Santiago and Renato Fernandez (hereinafter referred
to as the Fernandezes), both acting in behalf of Sanshell Corporation, approached
Rufino Yao for credit accommodation. They requested Nyco, thru Yao, to grant
Sanshell discounting privileges which Nyco had with BA Finance Corporation
(hereinafter referred to as BA Finance). Yao apparently acquiesced, hence on or
about November 15, 1978, the Fernandezes went to Yao for the purpose of
discounting Sanshell's post-dated check which was a BPI-Davao Branch Check No.
499648 dated February 17, 1979 for the amount of P60,000.00. The said check was
payable to Nyco. Following the discounting process agreed upon, Nyco, thru Yao,
endorsed the check in favor of BA Finance. Thereafter, BA Finance issued a check
payable to Nyco which endorsed it in favor of Sanshell. Sanshell then made use of
and/or negotiated the check. Accompanying the exchange of checks was a Deed of
Assignment executed by Nyco in favor of BA Finance with the conformity of
Sanshell. Nyco was represented by Rufino Yao, while Sanshell was represented by
the Fernandez brothers. Under the said Deed, the subject of the discounting was the
aforecited check (Rollo, pp- 26-28). At the back thereof and of every deed of
assignment was the Continuing Suretyship Agreement whereby the Fernandezes
unconditionally guaranteed to BA Finance the full, faithful and prompt payment and
discharge of any and all indebtedness of Nyco (Ibid., pp. 36, 46). The BPI check,
however, was dishonored by the drawee bank upon presentment for payment. BA
Finance immediately reported the matter to the Fernandezes who thereupon issued a
substitute check dated February 19,1979 for the same amount in favor of BA
Finance. It was a Security Bank and Trust Company check bearing the number
183157, which was again dishonored when it was presented for payment. Despite
repeated demands, Nyco and the Fernandezes failed to settle the obligation with BA
Finance, thus prompting the latter to institute an action in court (Ibid., p 28). Nyco
and the Fernandezes, despite having been served with summons and copies of the
complaint, failed to file their answer and were consequently declared in default. On
May 16, 1980, the lower court ruled in favor of BA Finance ordering them to pay the
former jointly and severally, the sum of P65,536.67 plus 14% interest per annum
from July 1, 1979 and attorney's fees in the amount of P3, 000. 00 as well as the
costs of suit (Rollo, pp. 51-52). Nyco, however, moved to set aside the order of
default, to have its answer admitted and to be able to implead Sanshell. The prayer
was granted through an order dated June 23, 1980, wherein the decision of the court
was set aside only as regards Nyco. Trial ensued once more until the court reached a
second decision which states:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendant Nyco Sales Corporation by ordering the latter to pay
the former the following:
1) P60,000.00 as principal obligation, plus interest thereon at the rate of
14% per annum from February 1, 1979 until fully paid;
2) The amount of P100,000.00 as and for attorney's fees; and
54
 3) One-third (1/3) of the costs of this suit.
With respect to defendants Santiago and Renato Fernandez, the decision of
May 16, 1980 stands.
The cross-claim of defendant Nyco Sales Corporation against codefendants
Santiago B. Fernandez and Renato B. Fernandez is hereby denied, as there
is no showing that Nyco's Answer with cross-claim dated May 29, 1980 was
ever received by said Fernandez brothers, even as it is noted that the latter
have not been declared in default with respect to said cross-claim, nor were
evidence adduced in connection therewith.
As to the would-be litigant Sanshell Construction and Development
Corporation, defendant Nyco Sales Corporation did not properly implead
said corporation which should have been by way of a third-party complaint
instead of a mere cross-claim. The same observations are noted as regard
this cross-claim against Sanshell as those made with respect to the
Fernandez brothers.
SO ORDERED.
On appeal, the appellate court also upheld BA Finance but modified the lower court's
decision by ordering that the interest should run from February 19, 1979 until paid
and not from February 1, 1979. Nyco's subsequent motion for reconsideration was
denied (Ibid., pp. 33, 62). Hence, the present recourse.
The crux of the controversy is whether or not the assignor is liable to its assignee for
its dishonored checks.
For its defense, Nyco anchors its arguments on the following premises: a) that the
appellate court erred in affirming its liability for the BPI check despite a similar
finding of liability for the SBTC check rendered by the same lower court; b) that it
was actually discharged of its liability over the SBTC check when BA Finance failed
to give it a notice of dishonor; c) that there was novation when BA Finance accepted
the SBTC check in replacement of the BPI check; and d) that it cannot be held liable
for its Presidents unauthorized acts.
The petition is devoid of merit.
An assignment of credit is the process of transferring the right of the assignor to the
assignee, who would then be allowed to proceed against the debtor. It may be done
either gratuitously or generously, in which case, the assignment has an effect similar
to that of a sale.
According to Article 1628 of the Civil Code, the assignor-vendor warrants both the
credit itself (its existence and legality) and the person of the debtor (his solvency), if
so stipulated, as in the case at bar. Consequently, if there be any breach of the above
warranties, the assignor-vendor should be held answerable therefor. There is no
question then that the assignor-vendor is indeed liable for the invalidity of whatever
he as signed to the assignee-vendee.
Considering now the facts of the case at bar, it is beyond dispute that Nyco executed
a deed of assignment in favor of BA Finance with Sanshell Corporation as the
debtor-obligor. BA Finance is actually enforcing said deed and the check covered
thereby is merely an incidental or collateral matter. This particular check merely
evidenced the credit which was actually assigned to BA Finance. Thus, the
designation is immaterial as it could be any other check. Both the lower and the
appellate courts recognized this and so it is utterly misplaced to say that Nyco is
being held liable for both the BPI and the SBTC checks. It is only what is
represented by the said checks that Nyco is being asked to pay. Indeed, nowhere in
the dispositive parts of the decisions of the courts can it be gleaned that BA Finance
may recover from the two checks.
Nyco's pretension that it had not been notified of the fact of dishonor is belied not
only by the formal demand letter but also by the findings of the trial court that
Rufino Yao of Nyco and the Fernandez Brothers of Sanshell had frequent contacts
before, during and after the dishonor (Rollo, p. 40). More importantly, it fails to
realize that for as long as the credit remains outstanding, it shall continue to be liable
to BA Finance as its assignor. The dishonor of an assigned check simply stresses its
liability and the failure to give a notice of dishonor will not discharge it from such
liability. This is because the cause of action stems from the breach of the warranties
embodied in the Deed of Assignment, and not from the dishonoring of the check
alone (See Art. 1628, Civil Code).
Novation is the third defense set up by petitioner Nyco.1âwphi1 It insists that
novation took place when BA Finance accepted the SBTC check in replacement of
the BPI cheek. Such is manifestly untenable.
There are only two ways which indicate the presence of novation and thereby
produce the effect of extinguishing an obligation by another which substitutes the
same. First, novation must be explicitly stated and declared in unequivocal terms as
novation is never presumed (Mondragon v. Intermediate Appellate Court, G.R. No.
71889, April 17, 1990; Caneda Jr. v. Court of Appeals, G.R. No. 81322, February 5,
1990). Secondly, the old and the new obligations must be incompatible on every
point. The test of incompatibility is whether or not the two obligations can stand
together, each one having its independent existence If they cannot, they are
incompatible and the latter obligation novates the first (Mondragon v. Intermediate
Appellate Court, supra; Caneda Jr. v. Court of Appeals, supra). In the instant case,
55
there was no express agreement that BA Finance's acceptance of the SBTC check
will discharge Nyco from liability. Neither is there incompatibility because both
checks were given precisely to terminate a single obligation arising from Nyco's sale
of credit to BA Finance. As novation speaks of two distinct obligations, such is
inapplicable to this case.

Finally, Nyco disowns its President's acts claiming that it never authorized Rufino
Yao (Nyco's President) to even apply to BA Finance for credit accommodation. It
supports its argument with the fact that it did not issue a Board resolution giving Yao
such authority. However, the very evidence on record readily belies Nyco's
contention. Its corporate By-Laws clearly provide for the powers of its President,
which include, inter alia, executing contracts and agreements, borrowing money,
signing, indorsing and delivering checks, all in behalf of the corporation.
Furthermore, the appellate court correctly adopted the lower court's observation that
there was already a previous transaction of discounting of checks involving the same
personalities wherein any enabling resolution from Nyco was dispensed with and yet
BA Finance was able to collect from Nyco and Sanshell was able to discharge its
own undertakings. Such effectively places Nyco under estoppel in pais which arises
when one, by his acts, representations or admissions, or by his silence when he ought
to speak out, intentionally or through culpable negligence, induces another to believe
certain facts to exist and such other rightfully relies and acts on such belief, so that
he will be prejudiced if the former is permitted to deny the existence of such facts
(Panay Electric Co., Inc. v. Court of Appeals, G.R. No. 81939, June 29,1989). Nyco
remained silent in the course of the transaction and spoke out only later to escape
liability. This cannot be countenanced. Nyco is estopped from denying Rufino Yao's
authority as far as the latter's transactions with BA Finance are concerned.

PREMISES CONSIDERED, the decision appealed from is AFFIRMED.

SO ORDERED.

56