Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-27289 April 15, 1985

JUAN AGUINALDO, Substituted by MARINA and PRIMITIVO AGUINALDO, plaintiffs-appellants, 

vs.
JOSE ESTEBAN and FRANCISCA SARMIENTO, defendants-appellees.

Crisostomo M. Diokno for plaintiff-appellants.

Andres Franco for defendants-appellees.

RELOVA, J.:

In Civil Case No. 6977, the Court of First Instance of Rizal declared the contract, entitled: "Sanglaan ng Isang Lupa na
Patuluyan Ipaaari," valid and binding contract of sale and dismissed the complaint as well as the counterclaim with costs
against the plaintiff. From said judgment of the lower court, appeal was taken to this Court, "the same involving, as it does,
a question of law." (p. 25, Rollo)

Plaintiff Juan Aguinaldo in his complaint alleged, among others, that on June 23, 1958, defendants, through fraud, deceit
and misrepresentations and exercising undue pressure, influence and advantage, procured the thumbmark of Jose
Aguinaldo, father of plaintiff, to be affixed on subject contract; that defendants caused the cancellation of Tax Declaration
No. 4004, Rizal (1948) in the name of Jose Aguinaldo and the issuance in lieu thereof of Tax Declaration No. 10725-Rizal
in the names of defendant spouses; that the document in question on which Jose Aguinaldo affixed his thumbmark is not
true and genuine, as the thumbmark appearing thereon is a forgery; that it contains terms and conditions which partake
the nature of "pacto comisario" which render same null and void; that it does not fix a period for the payment of the loan
nor does it state the duration of the mortgage; that plaintiff is the sole successor-in-interest and legal heir of Jose
Aguinaldo who died intestate in October 1960; that defendants having no right to win and possess the property in
question are withholding the possession thereof from plaintiff and consequently deprived plaintiff of the fruits of said
property; and that by reason of the willfull and malevolent acts of defendants, plaintiff suffered moral and actual damages
in the amount of P4,000.00.

In their answer, defendants claim absolute ownership of subject property upon the death of Jose Aguinaldo in October
1960 on the theory that the document in controversy is one of sale and not one of mortgage.

The parties, through their respective counsels, agreed to submit the case for decision solely on whether the contract in
question, Annex "A" of the complaint, is one of mortgage or of sale.

When plaintiff Juan Aguinaldo died intestate on August 6, 1965, his heirs, namely: Marina and Primitivo, both surnamed
Aguinaldo, petitioned the trial court that they be substituted as party plaintiffs in lieu of their deceased father.

It is the position of plaintiffs-appellants that the document in question, Annex "A" of the complaint, is null and void
because it contains stipulations which partake of the nature of "pacto comisario." On the other hand, the defendants
contend that the contract is a valid sale and, as such, it passed the title to them.

Hereunder is the contract in question:

SANGLAAN NG ISANG LUPA-CANAVERAL NA PATULOYAN IPAAARI

HAYAG SA SINO MAN MAKAKABASA:

1
 Na, ako JOSE AGUINALDO, Pilipino, balo, may karampatan gulang, tubo at naninirahan sa Bo. Bambang,
Tagig, Rizal, Kapuluan Pilipinas, sa pamamagitan nito ay

ISINASAYSAY KO AT PINAGTITIBAY:

1. Na, sarili at tunay kong pagaari dahil sa ipinagkaloob sa akin ng aking amain Martin Concepcion
(patay) ang isang parcelang lupa-canaveral, at ang lupang ito ay napagkikilala at nauligiran ng mga
pagaaring lupa ng mga kahangganan kagaya ng mga sumusunod:

Isang parcelang lupa-canaveral na nasa pook ng Bo. Bambang, Tagig, Rizal, at siyang
lupang nakatala sa Tax Declaration No. 4004-Rizal (1948), sa Tanggapan ng Tasador
ng lupa sa lalawigan ng RizaL Pasig, RizaL at valor ameliarado ng P70.00 at
napaloob sa mga pagaaring lupa ng mga kahangganan kagaya ng mga sumusunod:
Sa Norte, Antonio Silvestre at Pedro Sarmiento; sa Este, Don-lingo Luga; sa Sur,
Dionisio Dionisio at Pedro Sarmiento, at sa Weste, Tomas Cruz

2. Na, alang-alang sa halagang LIMANG DAAN AT APATNAPUNG PISO (P540.00), salaping Pilipino na sa
kasalukuyan ay ating ginagamit, ay natanggap ko na, sa hindi biglaan kung hindi LIMANGPUNG
SENTIMOS (P0.50) lamang araw-araw magbuhat pa nuong Marzo 26, 1955, at ang kabuuang halaga ng
halagang nabanggit sa itaas nito, sa oras na ito, ay kusang loob kong tinanggap sa magasawang JOSE
ESTEBAN at FRANCISCA SARMIENTO, mga Pilipino, may karampatan gulang, naninirahan at may
padalahan sulat sa Bo. Bambang, Tagig, Rizal, ay ISINASANGLA AT PATULOYAN IPAARI KO sa nasabing
magasawa ang lupang nobanggit ko sa itaas, sa aming mga kasunduan kagaya ng mga sumusunod:

NA AKO, JOSE AGUINALDO AY PAKAKANIN HABANG NABUBUHAY NG

MAGASAWANG JOSE ESTEBAN AT FRANCISCA SARMIENTO, 0 NG KANILANG
KAHALILI AT TAGAPAGMANA, AT BILANG KABAYARAN NAMAN SA HALAGANG
LIMANG DAAN AT APATNAPUNG PISO (P540.00) AT PAGPAPAKAIN SA AKIN NG
MAGASAWANG JOSE ESTEBAN AT FRANCISCA SARMIENTO, ORAS NA AKO AY
MAMATAY SILA (JOSE ESTEBAN AT FRANCISCA SARMIENTO) NA ANG LUBOSAN
MAGMAMAYARI NG AKING LUPANG ISINANGLANG ITO SA KANILA, SAPAGKAT
ANG LAHAT NG AKING KARAPATAN SA LUPA, NGAYON PA AY IPINAGKAKALOOB
KO SA KANILA SA ILALIM NG KASUNDUAN.

3. Na, ang lupa-canaveral na isinasangla ko sa pamamagitan ng kasulatan ito na ipaaring patuluyan ay

pinamomosiyonan ng mag-asawang Jose Esteban at Francisco Sarmiento, nuong pang Marzo 26, 1955.

4. Na, ang lupang akin binabanggit sa kasulatan ito, ay hindi ko ipinagkakautang sa kanino man tao, na
maliban sa magasawang Jose Esteban at Francisca Samiento.

5. Na, ang lupa kong ito na siyang nakatala sa Tax Declaration No. 4004-Rizal (1948), ay hindi nakatala
sa bisa ng Batas Blg. 496 o maging sa Hipotecaria Espanola, at napagkasunduan ang kasulatan ito, ay
nais ipatala sa bisa ng Batas Blg. 3344, at sinusugan.

SA KATUNAYAN NG LAHAT KONG IPINAHAYAG SA DOKUMENTONG ITO, ay inilagda ko ang aking

pangalan at apelyedo dito sa Lunsod ng Maynila, Pilipinas, ngayong ika ______ ng Hunyo 1958, sa harap
ng dalawang saksi.

(Thumbmark)
JOSE AGUINALDO 
Nagsangla

SUMASANGAYON SA MGA ALITUNTUNIN:

(Sgd.) JOSE ESTEBAN

Pinagsanglaan

2
 (Sgd.) FRANCISCA SARMIENTO 
Pinagsanglaan

MGA SAKSI:

(Sgd.) Illegible (Sgd.) Eugenia S. Relon

ACKNOWLEDGMENT

(pp. 7-1 0, Record on Appeal)

There is merit in the appeal.

On the issue as to whether or not the subject contract is one of sale or of mortgage, an inquiry into the surrounding facts
would disclose the intention of the parties and thereby determine the truth of plaintiff-appellant's allegation that his
father, Jose Aguinaldo, was misled into affixing his thumbmark on the said contract.

Plaintiff-appellant, Juan Aguinaldo, is the son of Jose and it is indeed intriguing why defendants-appellees, who are not
related at all to the old man, would give him fifty centavos (P0.50) everyday beginning May 26, 1955. The contract in
question was executed in June 1958, or after three (3) years from the time the daffy amount of half-a-peso was given the
old man. Thereafter, the defendants-appellees' saw to it that the recipient of the money would execute the contract,
entitled: ."Sanglaan ng isang lupang-canaveral na Patuluyang Ipaaari. "

It is significant to note that herein plaintiff-appellant was not even a witness in the document when his father who is of
low intelligence, illiterate and could not even sign his name, affixed his thumbmark in the document in question. It would
appear that the execution of the contract was made behind his back and/or without giving notice to him. Stated
differently, if the transaction was on the level, why was not plaintiff-appellant asked to sign as a witness to the document.
It may be true that the contract was read to the old man but it is doubtful if he understood the meaning of its contents.
The contract was so written that anyone could believe he was only giving his property by way of mortgage, not as a sale.
For instance, in paragraph 2 thereof, it reads "... ay isinasangla at patuloyan ipaaari ko sa nasabing magasawa ang lupang
nabanggit ko sa itaas, ... ." In some Tagalog provinces the word "Sangla" means "Bilihan Mabibiling Muli" or "Pacto de
Retro." By this contract, the vendee-a-retro takes possession of the property as owner until the same is repurchased or
redeemed. On the other hand, mortgage is understood as "Prenda."

In the case at bar, defendants-appellees took possession of the property on March 26, 1955 when they started giving Jose
Aguinaldo the fifty centavos (P0.50) a day. It would appear then that the money which he has been receiving from the
Estebans come from his own property. In effect, there was no consideration for the transfer of the property-be it sale,
mortgage or Pacto Comisario.

WHEREFORE, the decision of the trial court, dated August 16, 1966, is REVERSED and the contract "Sanglaan ng Isang
Lupa-Canaveral na Patuluyan Ipaaari" is declared null and void, and the deceased plaintiff Juan Aguinaldo is declared as
the true and lawful owner of subject property.

Further, defendants-appellees are hereby ordered to transfer and deliver the possession of subject property to the said
deceased plaintiff Juan Aguinaldo's heirs, Marina Aguinaldo and Primitive Aguinaldo, who substituted him as plaintiffs in
this case and/or their respective heirs and successors; and the Provincial Assessor of Rizal is directed to cancel Tax
Declaration No. 10725 (Rizal) in the name of defendants-appellees, Jose Esteban and Francisco Sarmiento, and in lieu
thereof issue another in the name of the deceased plaintiff Juan Aguinaldo's heirs, Marina Aguinaldo and Primitivo
Aguinaldo.

SO ORDERED.

Teehankee (Chairman), Plana, Gutierrez, Jr., De la Fuente and Alampay, JJ., concur.

3
 FIRST DIVISION

G.R. No. 156437             March 1, 2004

NATIONAL HOUSING AUTHORITY, petitioner,  vs. GRACE BAPTIST CHURCH and the COURT OF
APPEALS, respondents.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review under Rule 45 of the Rules of Court, seeking to reverse the Decision of the Court of Appeals
dated February 26, 2001,1 and its Resolution dated November 8, 2002,2 which modified the decision of the Regional Trial
Court of Quezon City, Branch 90, dated February 25, 1997. 3

On June 13, 1986, respondent Grace Baptist Church (hereinafter, the Church) wrote a letter to petitioner National Housing
Authority (NHA), manifesting its interest in acquiring Lots 4 and 17 of the General Mariano Alvarez Resettlement Project
in Cavite.4 In its letter-reply dated July 9, 1986, petitioner informed respondent:

In reference to your request letter dated 13 June 1986, regarding your application for Lots 4 and 17, Block C-3-
CL, we are glad to inform you that your request was granted and you may now visit our Project Office at General
Mariano Alvarez for processing of your application to purchase said lots.

We hereby advise you also that prior to approval of such application and in accordance with our existing policies and
guidelines, your other accounts with us shall be maintained in good standing. 5

Respondent entered into possession of the lots and introduced improvements thereon. 6

On February 22, 1991, the NHA’s Board of Directors passed Resolution No. 2126, approving the sale of the subject lots to
respondent Church at the price of P700.00 per square meter, or a total price of P430,500.00. 7 The Church was duly
informed of this Resolution through a letter sent by the NHA. 8

On April 8, 1991, the Church tendered to the NHA a manager’s check in the amount of P55,350.00, purportedly in full
payment of the subject properties.9 The Church insisted that this was the price quoted to them by the NHA Field Office, as
shown by an unsigned piece of paper with a handwritten computation scribbled thereon. 10 Petitioner NHA returned the
check, stating that the amount was insufficient considering that the price of the properties have changed. The Church
made several demands on the NHA to accept their tender of payment, but the latter refused. Thus, the Church instituted a
complaint for specific performance and damages against the NHA with the Regional Trial Court of Quezon City, 11 where it
was docketed as Civil Case No. Q-91-9148.

On February 25, 1997, the trial court rendered its decision, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering the defendant to reimburse to the plaintiff the amount of P4,290.00 representing the
overpayment made for Lots 1, 2, 3, 18, 19 and 20;

2. Declaring that there was no perfected contract of sale with respect to Lots 4 and 17 and ordering the
plaintiff to return possession of the property to the defendant and to pay the latter reasonable rental
for the use of the property at P200.00 per month computed from the time it took possession thereof
until finally vacated. Costs against defendant.

4
 SO ORDERED.12

On appeal, the Court of Appeals, affirmed the trial court’s finding that there was indeed no contract of sale between the
parties. However, petitioner was ordered to execute the sale of the lots to Grace Baptist Church at the price of P700.00 per
square meter, with 6% interest per annum from March 1991. The dispositive portion of the Court of Appeals’ decision,
dated February 26, 2001, reads:

WHEREFORE, the appealed Decision is hereby AFFIRMED with the MODIFICATION that defendant-appellee NHA
is hereby ordered to sell to plaintiff-appellant Grace Baptist Church Lots 4 and 17 at the price of P700.00 per
square meter, or a total cost P430,000.00 with 6% interest per annum from March, 1991 until full payment in
cash.

SO ORDERED.13

The appellate court ruled that the NHA’s Resolution No. 2126, which earlier approved the sale of the subject lots to Grace
Baptist Church at the price of P700.00 per square meter, has not been revoked at any time and was therefore still in effect.
As a result, the NHA was estopped from fixing a different price for the subject properties. Considering further that the
Church had been occupying the subject lots and even introduced improvements thereon, the Court of Appeals ruled that,
in the interest of equity, it should be allowed to purchase the subject properties. 14

Petitioner NHA filed a Motion for Reconsideration which was denied in a Resolution dated November 8, 2002. Hence, the
instant petition for review on the sole issue of: Can the NHA be compelled to sell the subject lots to Grace Baptist Church
in the absence of any perfected contract of sale between the parties?

Petitioner submits that the Court cannot compel it to sell the subject property to Grace Baptist Church without violating
its freedom to contract. 15 Moreover, it contends that equity should be applied only in the absence of any law governing the
relationship between the parties, and that the law on sales and the law on contracts in general apply to the present case. 16

We find merit in petitioner’s submission.

Petitioner NHA is not estopped from selling the subject lots at a price equal to their fair market value, even if it failed to
expressly revoke Resolution No. 2126. It is, after all, hornbook law that the principle of estoppel does not operate against
the Government for the act of its agents, 17 or, as in this case, their inaction.

On the application of equity, it appears that the crux of the controversy involves the characterization of equity in the
context of contract law. Preliminarily, we reiterate that this Court, while aware of its equity jurisdiction, is first and
foremost, a court of law. While equity might tilt on the side of one party, the same cannot be enforced so as to overrule
positive provisions of law in favor of the other. 18 Thus, before we can pass upon the propriety of an application of
equitable principles in the case at bar, we must first determine whether or not positive provisions of law govern.

It is a fundamental rule that contracts, once perfected, bind both contracting parties, and obligations arising therefrom
have the force of law between the parties and should be complied with in good faith. 19 However, it must be understood
that contracts are not the only source of law that govern the rights and obligations between the parties. More specifically,
no contractual stipulation may contradict law, morals, good customs, public order or public policy. 20 Verily, the
mere inexistence of a contract, which would ordinarily serve as the law between the parties, does not automatically
authorize disposing of a controversy based on equitable principles alone. Notwithstanding the absence of a perfected
contract between the parties, their relationship may be governed by other existing lawswhich provide for their reciprocal
rights and obligations.

It must be remembered that contracts in which the Government is a party are subject to the same rules of contract law
which govern the validity and sufficiency of contract between individuals. All the essential elements and characteristics of
a contract in general must be present in order to create a binding and enforceable Government contract. 21

It appearing that there is no dispute that this case involves an unperfected contract, the Civil Law principles governing
contracts should apply. In Vda. de Urbano v. Government Service Insurance System,22 it was ruled that a qualified
acceptance constitutes a counter-offer as expressly stated by Article 1319 of the Civil Code. In said case, petitioners
offered to redeem mortgaged property and requested for an extension of the period of redemption. However, the offer

5
was not accepted by the GSIS. Instead, it made a counter-offer, which petitioners did not accept. Petitioners again offer to
pay the redemption price on staggered basis. In deciding said case, it was held that when there is absolutely no
acceptance of an offer or if the offer is expressly rejected, there is no meeting of the minds. Since petitioners’ offer was
denied twice by GSIS, it was held that there was clearly no meeting of the minds and, thus, no perfected contract. All that
is established was a counter-offer.23

In the case at bar, the offer of the NHA to sell the subject property, as embodied in Resolution No. 2126, was similarly not
accepted by the respondent.24 Thus, the alleged contract involved in this case should be more accurately denominated
as inexistent. There being no concurrence of the offer and acceptance, it did not pass the stage of generation to the point of
perfection.25 As such, it is without force and effect from the very beginning or from its incipiency, as if it had never been
entered into, and hence, cannot be validated either by lapse of time or ratification. 26 Equity can not give validity to a void
contract,27 and this rule should apply with equal force to inexistent contracts.

We note from the records, however, that the Church, despite knowledge that its intended contract of sale with the NHA
had not been perfected, proceeded to introduce improvements on the disputed land. On the other hand, the NHA
knowingly granted the Church temporary use of the subject properties and did not prevent the Church from making
improvements thereon. Thus, the Church and the NHA, who both acted in bad faith, shall be treated as if they were both in
good faith.28 In this connection, Article 448 of the Civil Code provides:

The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to
appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in articles
546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the
proper rent. However, the builder or planter cannot be obliged to buy the land and if its value is considerably
more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does
not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of
the lease and in case of disagreement, the court shall fix the terms thereof.

Pursuant to our ruling in Depra v. Dumlao,29 there is a need to remand this case to the trial court, which shall conduct the
appropriate proceedings to assess the respective values of the improvements and of the land, as well as the amounts of
reasonable rentals and indemnity, fix the terms of the lease if the parties so agree, and to determine other matters
necessary for the proper application of Article 448, in relation to Articles 546 and 548, of the Civil Code.

WHEREFORE, in view of the foregoing, the petition is GRANTED. The Court of Appeals’ Decision dated February 26, 2001
and Resolution dated November 8, 2002 are REVERSED and SET ASIDE. The Decision of the Regional Trial Court of
Quezon City-Branch 90, dated February 25, 1997, is REINSTATED. This case is REMANDED to the Regional Trial Court of
Quezon City, Branch 90, for further proceedings consistent with Articles 448 and 546 of the Civil Code.

No costs.

SO ORDERED.

6
 SECOND DIVISION

G.R. No. 127540            October 17, 2001

EUGENIO DOMINGO, CRISPIN MANGABAT and SAMUEL CAPALUNGAN, petitioners, 

vs.
HON. COURT OF APPEALS, FELIPE C. RIGONAN and CONCEPCION R.
RIGONAN, respondents.

EUGENIO DOMINGO, CRISPIN MANGABAT and SAMUEL CAPALUNGAN, petitioners, 

vs.
HON. COURT OF APPEALS, THE DIRECTOR OF LANDS, and FELIPE C. RIGONAN and
CONCEPCION R. RIGONAN, respondents.

QUISUMBNG, J.:

This petition1 seeks to annul the decision of the Court of Appeals dated August 29, 1996, which set
aside the decision of the Regional Trial Court of Batac, Ilocos Norte, Branch 17, in Civil Case No.
582-17 for reinvindicacionconsolidated with Cadastral Case No. 1.2 The petition likewise seeks to
annul the resolution dated December 11, 1996, denying petitioners' motion for reconsideration.

The facts of this case, culled from the records, are as follows:

Paulina Rigonan owned three (3) parcels of land, located at Batac and Espiritu, Ilocos Norte,
including the house and warehouse on one parcel. She allegedly sold them to private respondents,
the spouses Felipe and Concepcion Rigonan, who claim to be her relatives. In 1966, herein
petitioners Eugenio Domingo, Crispin Mangabat and Samuel Capalungan, who claim to be her
closest surviving relatives, allegedly took possession of the properties by means of stealth, force and
intimidation, and refused to vacate the same. Consequently, on February 2, 1976, herein respondent
Felipe Rigonan filed a complaint for reinvindicacion against petitioners in the Regional Trial Court of
Batac, Ilocos Norte. On July 3, 1977, he amended the complaint and included his wife as co-plaintiff.
They alleged that they were the owners of the three parcels of land through the deed of sale
executed by Paulina Rigonan on January 28, 1965; that since then, they had been in continuous
possession of the subject properties and had introduced permanent improvements thereon; and that
defendants (now petitioners) entered the properties illegally, and they refused to leave them when
asked to do so.

Herein petitioners, as defendants below, contested plaintiffs' claims. According to defendants, the
alleged deed of absolute sale was void for being spurious as well as lacking consideration. They
said that Paulina Rigonan did not sell her properties to anyone. As her nearest surviving kin within
the fifth degree of consanguinity, they inherited the three lots and the permanent improvements
thereon when Paulina died in 1966. They said they had been in possession of the contested
properties for more than 10 years. Defendants asked for damages against plaintiffs.

During trial, Juan Franco, Notary Public Evaristo P. Tagatag 3 and plaintiff Felipe Rigonan testified for
plaintiffs (private respondents now).

Franco testified that he was a witness to the execution of the questioned deed of absolute sale.
However, when cross-examined and shown the deed he stated that the deed was not the document
he signed as a witness, but rather it was the will and testament made by Paulina Rigonan.

7
Atty. Tagatag testified that he personally prepared the deed, he saw Paulina Rigonan affix her
thumbprint on it and he signed it both as witness and notary public. He further testified that he also
notarized Paulina's last will and testament dated February 19, 1965. The will mentioned the same
lots sold to private respondents. When asked why the subject lots were still included in the last will
and testament, he could not explain. Atty. Tagatag also mentioned that he registered the original
deed of absolute sale with the Register of Deeds.

Plaintiff Felipe Rigonan claimed that he was Paulina's close relative. Their fathers were first cousins.
However, he could not recall the name of Paulina's grandfather. His claim was disputed by
defendants, who lived with Paulina as their close kin. He admitted the discrepancies between the
Register of Deeds' copy of the deed and the copy in his possession. But he attributed them to the
representative from the Office of the Register of Deeds who went to plaintiffs house after that Office
received a subpoena duces tecum. According to him, the representative showed him blanks in the
deed and then the representative filled in the blanks by copying from his (plaintiffs) copy.

Counsel for defendants (petitioners herein) presented as witnesses Jose Flores, the owner of the
adjacent lot; Ruben Blanco, then acting Registrar of Deeds in Ilocos Norte; and Zosima Domingo,
wife of defendant Eugenio Domingo.

Jose Flores testified that he knew defendants, herein petitioners, who had lived on the land with
Paulina Rigonan since he could remember and continued to live there even after Paulina's death. He
said he did not receive any notice nor any offer to sell the lots from Paulina, contrary to what was
indicated in the deed of sale that the vendor had notified all the adjacent owners of the sale. He
averred he had no knowledge of any sale between Paulina and private respondents.

Ruben Blanco, the acting Registrar of Deeds, testified that only the carbon copy, also called a
duplicate original, of the deed of sale was filed in his office, but he could not explain why this was so.

Zosima Domingo testified that her husband, Eugenio Domingo, was Paulina's nephew. Paulina was
a first cousin of Eugenio's father. She also said that they lived with Paulina and her husband, Jose
Guerson, since 1956. They took care of her, spent for her daily needs and medical expenses,
especially when she was hospitalized prior to her death. She stated that Paulina was never badly in
need of money during her lifetime.

On March 23, 1994, the trial court rendered judgment in favor of defendants (now the petitioners). It
disposed:

WHEREFORE, premises considered, judgment is hereby rendered in favor of defendants

and against the plaintiffs, and as prayed for, the Amended Complaint is hereby DISMISSED.

Defendants are hereby declared, by virtue of intestate succession, the lawful owners and
possessors of the house including the bodega and the three (3) parcels of land in suit and a
Decree of Registration adjudicating the ownership of the said properties to defendants is
hereby issued.

The alleged deed of sale ( Exhs. "A", "A-1", "1" and "1-a") is hereby declared null and void
and fake and the prayer for the issuance of a writ of preliminary injunction is hereby denied.

Plaintiffs are hereby ordered to pay defendants:

a) P20,000.00 as moral damages;

8
 b) P10,000.00 as exemplary damages;

c) P10,000.00 attorney's fees and other litigation expenses.

No pronouncement as to costs.4

Private respondents herein appealed to the Court of Appeals.

On August 29, 1996, the CA reversed the trial court's decision, thus:

WHEREFORE, the decision dated March 23, 1994 is hereby SET ASIDE. The plaintiffs-
appellants Felipe Rigonan and Concepcion Rigonan are declared the owners of the
properties under litigation and the defendants-appellees are hereby ordered to VACATE the
subject properties and SURRENDER the possession thereof to the heirs of the plaintiffs-
appellants.

Costs against the defendants-appellees.5

Hence, this petition assigning the following as errors:

THE RESPONDENT COURT OF APPEALS HAS DECIDED QUESTIONS OF LEGAL SUBSTANCE

AND SIGNIFICANCE NOT IN ACCORDANCE WITH THE EVIDENCE, LAW AND WITH THE
APPLICABLE DECISIONS OF THIS HONORABLE COURT.

II

THAT THE FINDINGS OF RESPONDENT COURT OF APPEALS ARE CONTRARY TO THOSE OF

THE TRIAL COURT AND CLEARLY VIOLATES THE RULE THAT THE FACTUAL FINDINGS OF
TRIAL COURTS ARE ENTITLED TO GREAT WEIGHT AND RESPECT ON APPEAL, ESPECIALLY
WHEN SAID FINDINGS ARE ESTABLISHED BY UNREBUTTED TESTIMONIAL AND
DOCUMENTARY EVIDENCE.

III

THAT THE FINDINGS AND CONCLUSIONS OF RESPONDENT COURT OF APPEALS ARE

GROUNDED ENTIRELY ON SPECULATIONS, SURMISES, CONJECTURES, OR ON
INFERENCES MANIFESTLY MISTAKEN.

IV

THAT THE RESPONDENT COURT OF APPEALS MANIFESTLY OVERLOOKED CERTAIN

RELEVANT FACTS NOT DISPUTED BY THE PARTIES AND WHICH, IF PROPERLY
CONSIDERED, WOULD JUSTIFY A DIFFERENT CONCLUSION.

9
THAT THE FINDINGS OF FACT OF RESPONDENT COURT OF APPEALS ARE PREMISED ON
SUPPOSED ABSENCE OF EVIDENCE BUT IS CONTRADICTED BY THE EVIDENCE ON
RECORD THUS CONSTITUTES GRAVE ABUSE OF DISCRETION.6

The basic issue for our consideration is, did private respondents sufficiently establish the existence
and due execution of the Deed of Absolute and Irrevocable Sale of Real Property? Marked as
Exhibits "A," "A-1," "1" and "1-a," this deed purportedly involved nine (9) parcels of land, inclusive of
the three (3) parcels in dispute, sold at the price of P850 by Paulina Rigonan to private respondents
on January 28, 1965, at Batac, Ilocos Norte.7 The trial court found the deed "fake," being a carbon
copy with no typewritten original presented; and the court concluded that the document's execution
"was tainted with alterations, defects, tamperings, and irregularities which render it null and void ab
initio".8

Petitioners argue that the Court of Appeals erred in not applying the doctrine that factual findings of
trial courts are entitled to great weight and respect on appeal, especially when said findings are
established by unrebutted testimonial and documentary evidence. They add that the Court of
Appeals, in reaching a different conclusion, had decided the case contrary to the evidence presented
and the law applicable to the case. Petitioners maintain that the due execution of the deed of sale
was not sufficiently established by private respondents, who as plaintiffs had the burden of proving
it. First, the testimonies of the two alleged instrumental witnesses of the sale, namely, Juan Franco
and Efren Sibucao, were dispensed with and discarded when Franco retracted his oral and written
testimony that he was a witness to the execution of the subject deed. As a consequence, the
appellate court merely relied on Atty. Tagatag's (the notary public) testimony, which was incredible
because aside from taking the double role of a witness and notary public, he was a paid witness.
Further his testimony, that the subject deed was executed in the house of Paulina Rigonan, was
rebutted by Zosima Domingo, Paulina's housekeeper, who said that she did not see Atty. Tagatag,
Juan Franco and Efren Sibucao in Paulina's house on the alleged date of the deed's execution.

Secondly, petitioners said that private respondents failed to account for the typewritten original of the
deed of sale and that the carbon copy filed with the Register of Deeds was only a duplicate which
contained insertions and erasures. Further, the carbon copy was without an affidavit of explanation,
in violation of the Administrative Code as amended, which requires that if the original deed of sale is
not presented or available upon registration of the deed, the carbon copy or so-called "duplicate
original" must be accompanied by an affidavit of explanation, otherwise, registration must be
denied.9

Thirdly, petitioners aver that the consideration of only P850 for the parcels of land sold, together with
a house and a warehouse, was another indication that the sale was fictitious because no person
who was financially stable would sell said property at such a grossly inadequate consideration.

Lastly, petitioners assert that there was abundant evidence that at the time of the execution of the
deed of sale, Paulina Rigonan was already senile. She could not have consented to the sale by
merely imprinting her thumbmark on the deed.

In their comment, private respondents counter that at the outset the petition must be dismissed for it
lacks a certification against forum shopping. Nonetheless, even disregarding this requirement, the
petition must still be denied in due course for it does not present any substantial legal issue, but
factual or evidentiary ones which were already firmly resolved by the Court of Appeals based on
records and the evidence presented by the parties. Private respondents' claim that the factual
determination by the trial court lacks credibility for it was made by the trial judge who presided only in
one hearing of the case. The trial judge could not validly say that the deed of absolute sale was

10
"fake" because no signature was forged, according to private respondents; and indeed a
thumbmark, said to be the seller's own, appears thereon.

In their reply, petitioners said that the copy of the petition filed with this Court was accompanied with
a certification against forum shopping. If private respondents' copy did not contain same certification,
this was only due to inadvertence. Petitioners ask for the Court's indulgence for anyway there was
substantial compliance with Revised Circular No. 28-91.

On the contention that here only factual issues had been raised, hence not the proper subject for
review by this Court, petitioners reply that this general rule admits of exceptions, as when the factual
findings of the Court of Appeals and the trial court are contradictory; when the findings are grounded
entirely on speculations, surmises or conjectures; and when the Court of Appeals overlooked certain
relevant facts not disputed by the parties which if properly considered would justify a different
conclusion. All these, according to petitioners, are present in this case.

Before proceeding to the main issue, we shall first settle procedural issues raised by private
respondents.

While the trial judge deciding the case presided over the hearings of the case only once, this
circumstance could not have an adverse effect on his decision. The continuity of a court and the
efficacy of its proceedings are not affected by the death, resignation or cessation from the service of
the presiding judge. A Judge may validly render a decision although he has only partly heard the
testimony of the witnesses.10 After all, he could utilize and rely on the records of the case, including
the transcripts of testimonies heard by the former presiding judge.

On the matter of the certification against forum-shopping, petitioners aver that they attached one in
the copy intended for this Court. This is substantial compliance. A deviation from a rigid enforcement
of the rules may be allowed to attain their prime objective for, after all, the dispensation of justice is
the core reason for the court's existence.11

While the issues raised in this petition might appear to be mainly factual, this petition is properly
given due course because of the contradictory findings of the trial court and the Court of Appeals.
Further, the later court apparently overlooked certain relevant facts which justify a different
conclusion.12 Moreover, a compelling sense to make sure that justice is done, and done rightly in the
light of the issues raised herein, constrains us from relying on technicalities alone to resolve this
petition.

Now, on the main issue. Did private respondents establish the existence and due execution of the
deed of sale? Our finding is in the negative. First, note that private respondents as plaintiffs below
presented only a carbon copy of this deed. When the Register of Deeds was subpoenaed to produce
the deed, no original typewritten deed but only a carbon copy was presented to the trial court.
Although the Court of Appeals calls it a "duplicate original," the deed contained filled in blanks and
alterations. None of the witnesses directly testified to prove positively and convincingly Paulina's
execution of the original deed of sale. The carbon copy did not bear her signature, but only her
alleged thumbprint. Juan Franco testified during the direct examination that he was an instrumental
witness to the deed. However, when cross-examined and shown a copy of the subject deed, he
retracted and said that said deed of sale was not the document he signed as witness. 13 He declared
categorically he knew nothing about it.14

We note that another witness, Efren Sibucao, whose testimony should have corroborated Atty.
Tagatag's, was not presented and his affidavit was withdrawn from the court, 15 leaving only Atty.
Tagatag's testimony, which aside from being uncorroborated, was self-serving.

11
Secondly, we agree with the trial court that irregularities abound regarding the execution and
registration of the alleged deed of sale. On record, Atty. Tagatag testified that he himself registered
the original deed with the Register of Deeds.16 Yet, the original was nowhere to be found and none
could be presented at the trial. Also, the carbon copy on file, which is allegedly a duplicate original,
shows intercalations and discrepancies when compared to purported copies in existence. The
intercalations were allegedly due to blanks left unfilled by Atty. Tagatag at the time of the deed's
registration. The blanks were allegedly filled in much later by a representative of the Register of
Deeds. In addition, the alleged other copies of the document bore different dates of entry: May 16,
1966, 10:20 A.M.17 and June 10, 1966, 3:16 P.M.,18 and different entry numbers: 66246, 74389 19
and 64369. 20 The deed was apparently registered long after its alleged date of execution and after
Paulina's death on March 20, 1966.21Admittedly, the alleged vendor Paulina Rigonan was not given a
copy.22

Furthermore, it appears that the alleged vendor was never asked to vacate the premises she had
purportedly sold. Felipe testified that he had agreed to let Paulina stay in the house until her
death.23 In Alcos v. IAC, 162 SCRA 823 (1988), the buyer's immediate possession and occupation of
the property was deemed corroborative of the truthfulness and authenticity of the deed of sale. The
alleged vendor's continued possession of the property in this case throws an inverse implication, a
serious doubt on the due execution of the deed of sale. Noteworthy, the same parcels of land
involved in the alleged sale were still included in the will subsequently executed by Paulina and
notarized by the same notary public, Atty. Tagatag.24 These circumstances, taken together, militate
against unguarded acceptance of the due execution and genuineness of the alleged deed of sale.

Thirdly, we have to take into account the element of consideration for the sale. The price allegedly
paid by private respondents for nine (9) parcels, including the three parcels in dispute, a house and
a warehouse, raises further questions. Consideration is the why of a contract, the essential reason
which moves the contracting parties to enter into the contract. 25 On record, there is unrebutted
testimony that Paulina as landowner was financially well off. She loaned money to several
people.26 We see no apparent and compelling reason for her to sell the subject parcels of land with a
house and warehouse at a meager price of P850 only.

In Rongavilla vs. CA, 294 SCRA 289 (1998), private respondents were in their advanced years, and
were not in dire need of money, except for a small amount of P2,000 which they said were loaned by
petitioners for the repair of their house's roof. We ruled against petitioners, and declared that there
was no valid sale because of lack of consideration.

In the present case, at the time of the execution of the alleged contract, Paulina Rigonan was
already of advanced age and senile. She died an octogenarian on March 20, 1966, barely over a
year when the deed was allegedly executed on January 28, 1965, but before copies of the deed
were entered in the registry allegedly on May 16 and June 10, 1966. The general rule is that a
person is not incompetent to contract merely because of advanced years or by reason of physical
infirmities.27 However, when such age or infirmities have impaired the mental faculties so as to
prevent the person from properly, intelligently, and firmly protecting her property rights then she is
undeniably incapacitated. The unrebutted testimony of Zosima Domingo shows that at the time of
the alleged execution of the deed, Paulina was already incapacitated physically and mentally. She
narrated that Paulina played with her waste and urinated in bed. Given these circumstances, there is
in our view sufficient reason to seriously doubt that she consented to the sale of and the price for her
parcels of land. Moreover, there is no receipt to show that said price was paid to and received by
her. Thus, we are in agreement with the trial court's finding and conclusion on the matter:

The whole evidence on record does not show clearly that the fictitious P850.00 consideration
was ever delivered to the vendor. Undisputably, the P850.00 consideration for the nine (9)

12
 parcels of land including the house and bodega is grossly and shockingly inadequate, and
the sale is null and void ab initio.28

WHEREFORE, the petition is GRANTED. The decision and resolution of the Court of Appeals dated
August 29, 1996 and December 11, 1996, respectively, are REVERSED and SET ASIDE. The
decision of the Regional Trial Court of Batac, Ilocos Norte, Branch 17, dated March 23, 1994, is
REINSTATED.

Costs against private respondents.

SO ORDERED.

Bellosillo, Mendoza, Buena, and De Leon Jr., JJ., concur.

13
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. L-59266 February 29, 1988

SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners, 

vs.
HON. COURT OF APPEALS and ATILANO G. JABIL, respondents.

BIDIN, J.:

This is a petition for review on certiorari seeking the reversal of the: (1) Decision * of the 9th Division, Court
of Appeals dated July 31,1981, affirming with modification the Decision, dated August 25, 1972 of the Court of
First Instance ** of Cebu in civil Case No. 23-L entitled Atilano G. Jabil vs. Silvestre T. Dignos and Isabela
Lumungsod de Dignos and Panfilo Jabalde, as Attorney-in-Fact of Luciano Cabigas and Jovita L. de Cabigas;
and (2) its Resolution dated December 16, 1981, denying defendant-appellant's (Petitioner's) motion for
reconsideration, for lack of merit.

The undisputed facts as found by the Court of Appeals are as follows:

The Dignos spouses were owners of a parcel of land, known as Lot No. 3453, of the cadastral
survey of Opon, Lapu-Lapu City. On June 7, 1965, appellants (petitioners) Dignos spouses
sold the said parcel of land to plaintiff-appellant (respondent Atilano J. Jabil) for the sum of
P28,000.00, payable in two installments, with an assumption of indebtedness with the First
Insular Bank of Cebu in the sum of P12,000.00, which was paid and acknowledged by the
vendors in the deed of sale (Exh. C) executed in favor of plaintiff-appellant, and the next
installment in the sum of P4,000.00 to be paid on or before September 15, 1965.

On November 25, 1965, the Dignos spouses sold the same land in favor of defendants
spouses, Luciano Cabigas and Jovita L. De Cabigas, who were then U.S. citizens, for the price
of P35,000.00. A deed of absolute sale (Exh. J, also marked Exh. 3) was executed by the
Dignos spouses in favor of the Cabigas spouses, and which was registered in the Office of the
Register of Deeds pursuant to the provisions of Act No. 3344.

As the Dignos spouses refused to accept from plaintiff-appellant the balance of the purchase
price of the land, and as plaintiff- appellant discovered the second sale made by defendants-
appellants to the Cabigas spouses, plaintiff-appellant brought the present suit. (Rollo, pp. 27-
28)

After due trial, the Court of first Instance of Cebu rendered its Decision on August 25,1972, the decretal
portion of which reads:

WHEREFORE, the Court hereby declares the deed of sale executed on November 25, 1965 by
defendant Isabela L. de Dignos in favor of defendant Luciano Cabigas, a citizen of the United
States of America, null and void ab initio, and the deed of sale executed by defendants
Silvestre T. Dignos and Isabela Lumungsod de Dignos not rescinded. Consequently, the

14
 plaintiff Atilano G. Jabil is hereby ordered to pay the sum, of Sixteen Thousand Pesos
(P16,000.00) to the defendants-spouses upon the execution of the Deed of absolute Sale of
Lot No. 3453, Opon Cadastre and when the decision of this case becomes final and executory.

The plaintiff Atilano G. Jabil is ordered to reimburse the defendants Luciano Cabigas and
Jovita L. de Cabigas, through their attorney-in-fact, Panfilo Jabalde, reasonable amount
corresponding to the expenses or costs of the hollow block fence, so far constructed.

It is further ordered that defendants-spouses Silvestre T. Dignos and Isabela Lumungsod de

Dignos should return to defendants-spouses Luciano Cabigas and Jovita L. de Cabigas the
sum of P35,000.00, as equity demands that nobody shall enrich himself at the expense of
another.

The writ of preliminary injunction issued on September 23, 1966, automatically becomes
permanent in virtue of this decision.

With costs against the defendants.

From the foregoing, the plaintiff (respondent herein) and defendants-spouss (petitioners herein) appealed to
the Court of Appeals, which appeal was docketed therein as CA-G.R. No. 54393-R, "Atilano G. Jabil v. Silvestre
T. Dignos, et al."

On July 31, 1981, the Court of Appeals affirmed the decision of the lower court except as to the portion
ordering Jabil to pay for the expenses incurred by the Cabigas spouses for the building of a fence upon the
land in question. The disposive portion of said decision of the Court of Appeals reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, except as to the modification of the

judgment as pertains to plaintiff-appellant above indicated, the judgment appealed from is
hereby AFFIRMED in all other respects.

With costs against defendants-appellants.

SO ORDERED.

Judgment MODIFIED.

A motion for reconsideration of said decision was filed by the defendants- appellants (petitioners) Dignos
spouses, but on December 16, 1981, a resolution was issued by the Court of Appeals denying the motion for
lack of merit.

Hence, this petition.

In the resolution of February 10, 1982, the Second Division of this Court denied the petition for lack of merit.
A motion for reconsideration of said resolution was filed on March 16, 1982. In the resolution dated April
26,1982, respondents were required to comment thereon, which comment was filed on May 11, 1982 and a
reply thereto was filed on July 26, 1982 in compliance with the resolution of June 16,1 982. On August 9,1982,
acting on the motion for reconsideration and on all subsequent pleadings filed, this Court resolved to
reconsider its resolution of February 10, 1982 and to give due course to the instant petition. On September 6,
1982, respondents filed a rejoinder to reply of petitioners which was noted on the resolution of September
20, 1982.

Petitioners raised the following assignment of errors:

15
I

THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN GROSSLY, INCORRECTLY

INTERPRETING THE TERMS OF THE CONTRACT, EXHIBIT C, HOLDING IT AS AN ABSOLUTE SALE,
EFFECTIVE TO TRANSFER OWNERSHIP OVER THE PROPERTY IN QUESTION TO THE RESPONDENT AND
NOT MERELY A CONTRACT TO SELL OR PROMISE TO SELL; THE COURT ALSO ERRED IN MISAPPLYING
ARTICLE 1371 AS WARRANTING READING OF THE AGREEMENT, EXHIBIT C, AS ONE OF ABSOLUTE SALE,
DESPITE THE CLARITY OF THE TERMS THEREOF SHOWING IT IS A CONTRACT OF PROMISE TO SELL.

II

THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN INCORRECTLY APPLYING AND OR IN

MISAPPLYING ARTICLE 1592 OF THE NEW CIVIL CODE AS WARRANTING THE ERRONEOUS CONCLUSION
THAT THE NOTICE OF RESCISSION, EXHIBIT G, IS INEFFECTIVE SINCE IT HAS NOT BEEN JUDICIALLY
DEMANDED NOR IS IT A NOTARIAL ACT.

III

THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN REJECTING THE APPLICABILITY OF ARTICLES
2208,2217 and 2219 OF THE NEW CIVIL CODE AND ESTABLISHED JURISPRUDENCE AS TO WARRANT THE
AWARD OF DAMAGES AND ATTORNEY'S FEES TO PETITIONERS.

IV

PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE SHOULD HAVE BEEN DISMISSED, HE HAVING
COME TO COURT WITH UNCLEAN HANDS.

BY AND LARGE, THE COURT OF APPEALS COMMITTED AN ERROR IN AFFIRMING WITH MODIFICATION THE
DECISION OF THE TRIAL COURT DUE TO GRAVE MISINTERPRETATION, MISAPPLICATION AND
MISAPPREHENSION OF THE TERMS OF THE QUESTIONED CONTRACT AND THE LAW APPLICABLE
THERETO.

The foregoing assignment of errors may be synthesized into two main issues, to wit:

I. Whether or not subject contract is a deed of absolute sale or a contract Lot sell.

II. Whether or not there was a valid rescission thereof.

There is no merit in this petition.

It is significant to note that this petition was denied by the Second Division of this Court in its Resolution
dated February 1 0, 1 982 for lack of merit, but on motion for reconsideration and on the basis of all
subsequent pleadings filed, the petition was given due course.

I.

The contract in question (Exhibit C) is a Deed of Sale, with the following conditions:

16
 1. That Atilano G..Jabilis to pay the amount of Twelve Thousand Pesos P12,000.00) Phil.
Philippine Currency as advance payment;

2. That Atilano G. Jabil is to assume the balance of Twelve Thousand Pesos (P12,000.00)
Loan from the First Insular Bank of Cebu;

3. That Atilano G. Jabil is to pay the said spouses the balance of Four. Thousand Pesos
(P4,000.00) on or before September 15,1965;

4. That the said spouses agrees to defend the said Atilano G. Jabil from other claims on the
said property;

5. That the spouses agrees to sign a final deed of absolute sale in favor of Atilano G. Jabil over
the above-mentioned property upon the payment of the balance of Four Thousand Pesos.
(Original Record, pp. 10-11)

In their motion for reconsideration, petitioners reiterated their contention that the Deed of Sale (Exhibit "C")
is a mere contract to sell and not an absolute sale; that the same is subject to two (2) positive suspensive
conditions, namely: the payment of the balance of P4,000.00 on or before September 15,1965 and the
immediate assumption of the mortgage of P12,000.00 with the First Insular Bank of Cebu. It is further
contended that in said contract, title or ownership over the property was expressly reserved in the vendor,
the Dignos spouses until the suspensive condition of full and punctual payment of the balance of the purchase
price shall have been met. So that there is no actual sale until full payment is made (Rollo, pp. 51-52).

In bolstering their contention that Exhibit "C" is merely a contract to sell, petitioners aver that there is
absolutely nothing in Exhibit "C" that indicates that the vendors thereby sell, convey or transfer their
ownership to the alleged vendee. Petitioners insist that Exhibit "C" (or 6) is a private instrument and the
absence of a formal deed of conveyance is a very strong indication that the parties did not intend "transfer of
ownership and title but only a transfer after full payment" (Rollo, p. 52). Moreover, petitioners anchored their
contention on the very terms and conditions of the contract, more particularly paragraph four which reads,
"that said spouses has agreed to sell the herein mentioned property to Atilano G. Jabil ..." and condition
number five which reads, "that the spouses agrees to sign a final deed of absolute sale over the mentioned
property upon the payment of the balance of four thousand pesos."

Such contention is untenable.

By and large, the issues in this case have already been settled by this Court in analogous cases.

Thus, it has been held that a deed of sale is absolute in nature although denominated as a "Deed of
Conditional Sale" where nowhere in the contract in question is a proviso or stipulation to the effect that title
to the property sold is reserved in the vendor until full payment of the purchase price, nor is there a
stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay
within a fixed period Taguba v. Vda. de Leon, 132 SCRA 722; Luzon Brokerage Co., Inc. v. Maritime Building
Co., Inc., 86 SCRA 305).

A careful examination of the contract shows that there is no such stipulation reserving the title of the
property on the vendors nor does it give them the right to unilaterally rescind the contract upon non-
payment of the balance thereof within a fixed period.

On the contrary, all the elements of a valid contract of sale under Article 1458 of the Civil Code, are present,
such as: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money
or its equivalent. In addition, Article 1477 of the same Code provides that "The ownership of the thing sold
shall be transferred to the vendee upon actual or constructive delivery thereof." As applied in the case of

17
Froilan v. Pan Oriental Shipping Co., et al. (12 SCRA 276), this Court held that in the absence of stipulation to
the contrary, the ownership of the thing sold passes to the vendee upon actual or constructive delivery
thereof.

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

Moreover, the Court of Appeals in its resolution dated December 16,1981 found that the acts of petitioners,
contemporaneous with the contract, clearly show that an absolute deed of sale was intended by the parties
and not a contract to sell.

Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they were no longer
owners of the same and the sale is null and void.

II.

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

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

Petitioners laid considerable emphasis on the fact that private respondent Jabil had no money on the
stipulated date of payment on September 15,1965 and was able to raise the necessary amount only by mid-
October 1965.

It has been ruled, however, that "where time is not of the essence of the agreement, a slight delay on the part
of one party in the performance of his obligation is not a sufficient ground for the rescission of the
agreement" (Taguba v. Vda. de Leon, supra). Considering that private respondent has only a balance of
P4,000.00 and was delayed in payment only for one month, equity and justice mandate as in the aforecited
case that Jabil be given an additional period within which to complete payment of the purchase price.

WHEREFORE, the petition filed is hereby Dismissed for lack of merit and the assailed decision of the Court of
Appeals is Affirmed in toto.

SO ORDERED.

Fernan (Chairman), Gutierrez, Jr., Feliciano and Cortes, JJ., concur.

18
  Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-11491            August 23, 1918

ANDRES QUIROGA, plaintiff-appellant, 
vs.
PARSONS HARDWARE CO., defendant-appellee.

Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant. 

Crossfield & O'Brien for appellee.

AVANCEÑA, J.:

On January 24, 1911, in this city of manila, a contract in the following tenor was entered into by and between
the plaintiff, as party of the first part, and J. Parsons (to whose rights and obligations the present defendant
later subrogated itself), as party of the second part:

CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. PARSONS, BOTH

MERCHANTS ESTABLISHED IN MANILA, FOR THE EXCLUSIVE SALE OF "QUIROGA" BEDS IN
THE VISAYAN ISLANDS.

ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J.
Parsons under the following conditions:

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

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

(C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight,
insurance, and cost of unloading from the vessel at the point where the beds are received, shall be
paid by Mr. Parsons.

(D) If, before an invoice falls due, Mr. Quiroga should request its payment, said payment when made
shall be considered as a prompt payment, and as such a deduction of 2 per cent shall be made from
the amount of the invoice.

The same discount shall be made on the amount of any invoice which Mr. Parsons may deem
convenient to pay in cash.

(E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in price
which he may plan to make in respect to his beds, and agrees that if on the date when such alteration
takes effect he should have any order pending to be served to Mr. Parsons, such order shall enjoy the
advantage of the alteration if the price thereby be lowered, but shall not be affected by said alteration

19
 if the price thereby be increased, for, in this latter case, Mr. Quiroga assumed the obligation to invoice
the beds at the price at which the order was given.

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

ART. 2. In compensation for the expenses of advertisement which, for the benefit of both contracting
parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga assumes the obligation to offer
and give the preference to Mr. Parsons in case anyone should apply for the exclusive agency for any
island not comprised with the Visayan group.

ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds in all
the towns of the Archipelago where there are no exclusive agents, and shall immediately report such
action to Mr. Quiroga for his approval.

ART. 4. This contract is made for an unlimited period, and may be terminated by either of the
contracting parties on a previous notice of ninety days to the other party.

Of the three causes of action alleged by the plaintiff in his complaint, only two of them constitute the subject
matter of this appeal and both substantially amount to the averment that the defendant violated the following
obligations: not to sell the beds at higher prices than those of the invoices; to have an open establishment in
Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay for the advertisement
expenses for the same; and to order the beds by the dozen and in no other manner. As may be seen, with the
exception of the obligation on the part of the defendant to order the beds by the dozen and in no other
manner, none of the obligations imputed to the defendant in the two causes of action are expressly set forth
in the contract. But the plaintiff alleged that the defendant was his agent for the sale of his beds in Iloilo, and
that said obligations are implied in a contract of commercial agency. The whole question, therefore, reduced
itself to a determination as to whether the defendant, by reason of the contract hereinbefore transcribed, was
a purchaser or an agent of the plaintiff for the sale of his beds.

In order to classify a contract, due regard must be given to its essential clauses. In the contract in question,
what was essential, as constituting its cause and subject matter, is that the plaintiff was to furnish the
defendant with the beds which the latter might order, at the price stipulated, and that the defendant was to
pay the price in the manner stipulated. The price agreed upon was the one determined by the plaintiff for the
sale of these beds in Manila, with a discount of from 20 to 25 per cent, according to their class. Payment was
to be made at the end of sixty days, or before, at the plaintiff's request, or in cash, if the defendant so
preferred, and in these last two cases an additional discount was to be allowed for prompt payment. These
are precisely the essential features of a contract of purchase and sale. There was the obligation on the part of
the plaintiff to supply the beds, and, on the part of the defendant, to pay their price. These features exclude
the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it,
and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a
third person, and if he does not succeed in selling it, he returns it. By virtue of the contract between the
plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within
the term fixed, without any other consideration and regardless as to whether he had or had not sold the beds.

It would be enough to hold, as we do, that the contract by and between the defendant and the plaintiff is one
of purchase and sale, in order to show that it was not one made on the basis of a commission on sales, as the
plaintiff claims it was, for these contracts are incompatible with each other. But, besides, examining the
clauses of this contract, none of them is found that substantially supports the plaintiff's contention. Not a
single one of these clauses necessarily conveys the idea of an agency. The words commission on sales used in
clause (A) of article 1 mean nothing else, as stated in the contract itself, than a mere discount on the invoice
price. The word agency, also used in articles 2 and 3, only expresses that the defendant was the only one that
could sell the plaintiff's beds in the Visayan Islands. With regard to the remaining clauses, the least that can be
said is that they are not incompatible with the contract of purchase and sale.

20
The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the defendant
corporation and who established and managed the latter's business in Iloilo. It appears that this witness,
prior to the time of his testimony, had serious trouble with the defendant, had maintained a civil suit against
it, and had even accused one of its partners, Guillermo Parsons, of falsification. He testified that it was he who
drafted the contract Exhibit A, and, when questioned as to what was his purpose in contracting with the
plaintiff, replied that it was to be an agent for his beds and to collect a commission on sales. However, according
to the defendant's evidence, it was Mariano Lopez Santos, a director of the corporation, who prepared Exhibit
A. But, even supposing that Ernesto Vidal has stated the truth, his statement as to what was his idea in
contracting with the plaintiff is of no importance, inasmuch as the agreements contained in Exhibit A which
he claims to have drafted, constitute, as we have said, a contract of purchase and sale, and not one of
commercial agency. This only means that Ernesto Vidal was mistaken in his classification of the contract. But
it must be understood that a contract is what the law defines it to be, and not what it is called by the
contracting parties.

The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell; that,
without previous notice, it forwarded to the defendant the beds that it wanted; and that the defendant
received its commission for the beds sold by the plaintiff directly to persons in Iloilo. But all this, at the most
only shows that, on the part of both of them, there was mutual tolerance in the performance of the contract in
disregard of its terms; and it gives no right to have the contract considered, not as the parties stipulated it, but
as they performed it. Only the acts of the contracting parties, subsequent to, and in connection with, the
execution of the contract, must be considered for the purpose of interpreting the contract, when such
interpretation is necessary, but not when, as in the instant case, its essential agreements are clearly set forth
and plainly show that the contract belongs to a certain kind and not to another. Furthermore, the return made
was of certain brass beds, and was not effected in exchange for the price paid for them, but was for other beds
of another kind; and for the letter Exhibit L-1, requested the plaintiff's prior consent with respect to said beds,
which shows that it was not considered that the defendant had a right, by virtue of the contract, to make this
return. As regards the shipment of beds without previous notice, it is insinuated in the record that these brass
beds were precisely the ones so shipped, and that, for this very reason, the plaintiff agreed to their return.
And with respect to the so-called commissions, we have said that they merely constituted a discount on the
invoice price, and the reason for applying this benefit to the beds sold directly by the plaintiff to persons in
Iloilo was because, as the defendant obligated itself in the contract to incur the expenses of advertisement of
the plaintiff's beds, such sales were to be considered as a result of that advertisement.

In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by the contract,
the effect of its breach would only entitle the plaintiff to disregard the orders which the defendant might place
under other conditions; but if the plaintiff consents to fill them, he waives his right and cannot complain for
having acted thus at his own free will.

For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the defendant
was one of purchase and sale, and that the obligations the breach of which is alleged as a cause of action are
not imposed upon the defendant, either by agreement or by law.

The judgment appealed from is affirmed, with costs against the appellant. So ordered.

Arellano, C.J., Torres, Johnson, Street and Malcolm, JJ., concur.

21
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-20871 April 30, 1971

KER & CO., LTD., petitioner, 

vs.
JOSE B. LINGAD, as Acting Commissioner of Internal Revenue, respondent.

Ross, Selph and Carrascoso for petitioner.

Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and Special Atty.
Balbino Gatdula, Jr. for respondent.

FERNANDO, J.:

Petitioner Ker & Co., Ltd. would have us reverse a decision of the Court of Tax Appeals, holding it
liable as a commercial broker under Section 194 (t) of the National Internal Revenue Code. Its plea,
notwithstanding the vigorous effort of its counsel, is not sufficiently persuasive. An obstacle, well-
nigh insuperable stands in the way. The decision under review conforms to and is in accordance
with the controlling doctrine announced in the recent case of Commissioner of Internal Revenue v.
Constantino.  The decisive test, as therein set forth, is the retention of the ownership of the goods
1

delivered to the possession of the dealer, like herein petitioner, for resale to customers, the price and
terms remaining subject to the control of the firm consigning such goods. The facts, as found by
respondent Court, to which we defer, unmistakably indicate that such a situation does exist. The
juridical consequences must inevitably follow. We affirm.

It was shown that petitioner was assessed by the then Commissioner of Internal Revenue Melecio
R. Domingo the sum of P20,272.33 as the commercial broker's percentage tax, surcharge, and
compromise penalty for the period from July 1, 1949 to December 31, 1953. There was a request on
the part of petitioner for the cancellation of such assessment, which request was turned down. As a
result, it filed a petition for review with the Court of Tax Appeals. In its answer, the then
Commissioner Domingo maintained his stand that petitioner should be taxed in such amount as a
commercial broker. In the decision now under review, promulgated on October 19, 1962, the Court
of Tax Appeals held petitioner taxable except as to the compromise penalty of P500.00, the amount
due from it being fixed at P19,772.33.

Such liability arose from a contract of petitioner with the United States Rubber International, the
former being referred to as the Distributor and the latter specifically designated as the Company.
The contract was to apply to transactions between the former and petitioner, as Distributor, from July
1, 1948 to continue in force until terminated by either party giving to the other sixty days' notice.  The
2

shipments would cover products "for consumption in Cebu, Bohol, Leyte, Samar, Jolo, Negros
Oriental, and Mindanao except [the] province of Davao", petitioner, as Distributor, being precluded

22
from disposing such products elsewhere than in the above places unless written consent would first
be obtained from the Company.  Petitioner, as Distributor, is required to exert every effort to have the
3

shipment of the products in the maximum quantity and to promote in every way the sale
thereof.  The prices, discounts, terms of payment, terms of delivery and other conditions of sale were
4

subject to change in the discretion of the Company. 5

Then came this crucial stipulation: "The Company shall from time to time consign to the Distributor
and the Distributor will receive, accept and/or hold upon consignment the products specified under
the terms of this agreement in such quantities as in the judgment of the Company may be necessary
for the successful solicitation and maintenance of business in the territory, and the Distributor agrees
that responsibility for the final sole of all goods delivered shall rest with him. All goods on
consignment shall remain the property of the Company until sold by the Distributor to the purchaser
or purchasers, but all sales made by the Distributor shall be in his name, in which the sale price of all
goods sold less the discount given to the Distributor by the Company in accordance with the
provision of paragraph 13 of this agreement, whether or not such sale price shall have been
collected by the Distributor from the purchaser or purchasers, shall immediately be paid and remitted
by the Distributor to the Company. It is further agreed that this agreement does not constitute
Distributor the agent or legal representative 4 of the Company for any purpose whatsoever.
Distributor is not granted any right or authority to assume or to create any obligation or responsibility,
express or implied, in behalf of or in the name of the Company, or to bind the Company in any
manner or thing whatsoever." 6

All specifications for the goods ordered were subject to acceptance by the Company with petitioner,
as Distributor, required to accept such goods shipped as well as to clear the same through customs
and to arrange for delivery in its warehouse in Cebu City. Moreover, orders are to be filled in whole
or in part from the stocks carried by the Company's neighboring branches, subsidiaries or other
sources of Company's brands.  Shipments were to be invoiced at prices to be agreed upon, with the
7

customs duties being paid by petitioner, as Distributor, for account of the Company.  Moreover, all
8

resale prices, lists, discounts and general terms and conditions of local resale were to be subject to
the approval of the Company and to change from time to time in its discretion.  The dealer, as
9

Distributor, is allowed a discount of ten percent on the net amount of sales of merchandise made
under such agreement.   On a date to be determined by the Company, the petitioner, as Distributor,
10

was required to report to it data showing in detail all sales during the month immediately preceding,
specifying therein the quantities, sizes and types together with such information as may be required
for accounting purposes, with the Company rendering an invoice on sales as described to be dated
as of the date of inventory and sales report. As Distributor, petitioner had to make payment on such
invoice or invoices on due date with the Company being privileged at its option to terminate and
cancel the agreement forthwith upon the failure to comply with this obligation.   The Company, at its
11

own expense, was to keep the consigned stock fully insured against loss or damage by fire or as a
result of fire, the policy of such insurance to be payable to it in the event of loss. Petitioner, as
Distributor, assumed full responsibility with reference to the stock and its safety at all times; and
upon request of the Company at any time, it was to render inventory of the existing stock which
could be subject to change.   There was furthermore this equally tell-tale covenant: "Upon the
12

termination or any cancellation of this agreement all goods held on consignment shall be held by the
Distributor for the account of the Company, without expense to the Company, until such time as
provision can be made by the Company for disposition."  13

The issue with the Court of Tax Appeals, as with us now, is whether the relationship thus created is
one of vendor and vendee or of broker and principal. Not that there would have been the slightest
doubt were it not for the categorical denial in the contract that petitioner was not constituted as "the
agent or legal representative of the Company for any purpose whatsoever." It would be, however, to
impart to such an express disclaimer a meaning it should not possess to ignore what is manifestly
the role assigned to petitioner considering the instrument as a whole. That would be to lose sight

23
altogether of what has been agreed upon. The Court of Tax Appeals was not misled in the language
of the decision now on appeal: "That the petitioner Ker & Co., Ltd. is, by contractual stipulation, an
agent of U.S. Rubber International is borne out by the facts that petitioner can dispose of the
products of the Company only to certain persons or entities and within stipulated limits, unless
excepted by the contract or by the Rubber Company (Par. 2); that it merely receives, accepts and/or
holds upon consignment the products, which remain properties of the latter company (Par. 8); that
every effort shall be made by petitioner to promote in every way the sale of the products (Par. 3);
that sales made by petitioner are subject to approval by the company (Par. 12); that on dates
determined by the rubber company, petitioner shall render a detailed report showing sales during the
month (Par. 14); that the rubber company shall invoice the sales as of the dates of inventory and
sales report (Par. 14); that the rubber company agrees to keep the consigned goods fully insured
under insurance policies payable to it in case of loss (Par. 15); that upon request of the rubber
company at any time, petitioner shall render an inventory of the existing stock which may be
checked by an authorized representative of the former (Par. 15); and that upon termination or
cancellation of the Agreement, all goods held on consignment shall be held by petitioner for the
account of the rubber company until their disposition is provided for by the latter (Par. 19). All these
circumstances are irreconcilably antagonistic to the idea of an independent merchant."   Hence its
14

conclusion: "However, upon analysis of the contract, as a whole, together with the actual conduct of
the parties in respect thereto, we have arrived at the conclusion that the relationship between them
is one of brokerage or agency."   We find ourselves in agreement, notwithstanding the able brief
15

filed on behalf of petitioner by its counsel. As noted at the outset, we cannot heed petitioner's plea
for reversal.

1. According to the National Internal Revenue Code, a commercial broker "includes all persons,
other than importers, manufacturers, producers, or bona fide employees, who, for compensation or
profit, sell or bring about sales or purchases of merchandise for other persons or bring proposed
buyers and sellers together, or negotiate freights or other business for owners of vessels or other
means of transportation, or for the shippers, or consignors or consignees of freight carried by
vessels or other means of transportation. The term includes commission merchants."   The 16

controlling decision as to the test to be followed as to who falls within the above definition of a
commercial broker is that of Commissioner of Internal Revenue v. Constantino.   In the language of
17

Justice J. B. L. Reyes, who penned the opinion: "Since the company retained ownership of the
goods, even as it delivered possession unto the dealer for resale to customers, the price and terms
of which were subject to the company's control, the relationship between the company and the
dealer is one of agency, ... ."   An excerpt from Salisbury v. Brooks   cited in support of such a view
18 19

follows: " 'The difficulty in distinguishing between contracts of sale and the creation of an agency to
sell has led to the establishment of rules by the application of which this difficulty may be solved. The
decisions say the transfer of title or agreement to transfer it for a price paid or promised is the
essence of sale. If such transfer puts the transferee in the attitude or position of an owner and
makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who
must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency
to sell is the delivery to an agent, not as his property, but as the property of the principal, who
remains the owner and has the right to control sales, fix the price, and terms, demand and receive
the proceeds less the agent's commission upon sales made.' "   The opinion relied on the work of
20

Mechem on Sales as well as Mechem on Agency. Williston and Tiedman both of whom wrote
treatises on Sales, were likewise referred to.

Equally relevant is this portion of the Salisbury opinion: "It is difficult to understand or appreciate the
necessity or presence of these mutual requirements and obligations on any theory other than that of
a contract of agency. Salisbury was to furnish the mill and put the timber owned by him into a
marketable condition in the form of lumber; Brooks was to furnish the funds necessary for that
purpose, sell the manufactured product, and account therefor to Salisbury upon the specific terms of
the agreement, less the compensation fixed by the parties in lieu of interest on the money advanced

24
and for services as agent. These requirements and stipulations are in tent with any other conception
of the contract. If it constitutes an agreement to sell, they are meaningless. But they cannot be
ignored. They were placed there for some purpose, doubtless as the result of definite antecedent
negotiations therefore, consummated by the final written expression of the agreement."   Hence the
21

Constantino opinion could categorically affirm that the mere disclaimer in a contract that an entity
like petitioner is not "the agent or legal representative for any purpose whatsoever" does not suffice
to yield the conclusion that it is an independent merchant if the control over the goods for resale of
the goods consigned is pervasive in character. The Court of Tax Appeals decision now under review
pays fealty to such an applicable doctrine.

2. No merit therefore attaches to the first error imputed by petitioner to the Court of Tax Appeals.
Neither did such Court fail to appreciate in its true significance the act and conduct pursued in the
implementation of the contract by both the United States Rubber International and petitioner, as was
contended in the second assignment of error. Petitioner ought to have been aware that there was no
need for such an inquiry. The terms of the contract, as noted, speak quite clearly. There is lacking
that degree of ambiguity sufficient to give rise to serious doubt as to what was contemplated by the
parties. A reading thereof discloses that the relationship arising therefrom was not one of seller and
purchaser. If it were thus intended, then it would not have included covenants which in their totality
would negate the concept of a firm acquiring as vendee goods from another. Instead, the stipulations
were so worded as to lead to no other conclusion than that the control by the United States Rubber
International over the goods in question is, in the language of the Constantino opinion, "pervasive".
The insistence on a relationship opposed to that apparent from the language employed might even
yield the impression that such a mode of construction was resorted to in order that the applicability of
a taxing statute might be rendered nugatory. Certainly, such a result is to be avoided.

Nor is it to be lost sight of that on a matter left to the discretion of the Court of Tax Appeals which
has developed an expertise in view of its function being limited solely to the interpretation of revenue
laws, this Court is not prepared to substitute its own judgment unless a grave abuse of discretion is
manifest. It would be to frustrate the objective for which administrative tribunals are created if the
judiciary, absent such a showing, is to ignore their appraisal on a matter that forms the staple of their
specialized competence. While it is to be admitted that counsel for petitioner did scrutinize with care
the decision under review with a view to exposing what was considered its flaws, it cannot be said
that there was such a failure to apply what the law commands as to call for its reversal. Instead,
what cannot be denied is that the Court of Tax Appeals reached a result to which the Court in the
recent Constantino decision gave the imprimatur of its approval.

WHEREFORE, the Court of Tax Appeals decision of October 19, 1962 is affirmed. With costs
against petitioner.

Concepcion C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Teehankee, Barredo, Villamor
and Makasiar, JJ., concur.

25
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-6584             October 16, 1911

INCHAUSTI AND CO., plaintiff-appellant, 

vs.
ELLIS CROMWELL, Collector of Internal Revenue, defendant-appellee.

Haussermann, Cohn & Fisher, for appellant.

Acting Attorney-General Harvey, for appellee.

MORELAND, J.:

This is an appeal by the plaintiff from a judgment of the Court of First Instance of the city of Manila, the Hon.
Simplicio del Rosario presiding, dismissing the complaint upon the merits after trial, without costs.

The facts presented to this court are agreed upon by both parties, consisting, in so far as they are material to a
decision of the case, in the following:

III. That the plaintiff firm for many years past has been and now is engaged in the business of buying
and selling at wholesale hemp, both for its own account and on commission.

IV. That it is customary to sell hemp in bales which are made by compressing the loose fiber by
means of presses, covering two sides of the bale with matting, and fastening it by means of strips of
rattan; that the operation of bailing hemp is designated among merchants by the word "prensaje."

V. That in all sales of hemp by the plaintiff firm, whether for its own account or on commission for
others, the price is quoted to the buyer at so much per picul, no mention being made of bailing; but
with the tacit understanding, unless otherwise expressly agreed, that the hemp will be delivered in
bales and that, according to the custom prevailing among hemp merchants and dealers in the
Philippine Islands, a charge, the amount of which depends upon the then prevailing rate, is to be
made against the buyer under the denomination of "prensaje." That this charge is made in the same
manner in all cases, even when the operation of bailing was performed by the plaintiff or by its
principal long before the contract of sale was made. Two specimens of the ordinary form of account
used in these operations are hereunto appended, marked Exhibits A and B, respectively, and made a
part hereof.

VI. That the amount of the charge made against hemp buyers by the plaintiff firm and other sellers of
hemp under the denomination of "prensaje" during the period involved in this litigation was P1.75
per bale; that the average cost of the rattan and matting used on each bale of hemp is fifteen (15)
centavos and that the average total cost of bailing hemp is one (1) peso per bale.

26
 VII. That insurance companies in the Philippine Islands, in estimating the insurable value of hemp
always add to the quoted price of same the charge made by the seller under the denomination of
"prensaje."

VII. That the average weight of a bale of hemp is two (2) piculs (126.5 kilograms).

IX. That between the first day of January, 1905, and the 31st day of March, 1910, the plaintiff firm, in
accordance with the custom mentioned in paragraph V hereof, collected and received, under the
denomination of "prensaje," from purchasers of hemp sold by the said firm for its own account, in
addition to the price expressly agreed upon for the said hemp, sums aggregating P380,124.35; and
between the 1st day of October, 1908, and the 1st day of March, 1910, collected for the account of the
owners of hemp sold by the plaintiff firm in Manila on commission, and under the said denomination
of "prensaje," in addition to the price expressly agreed upon the said hemp, sums aggregating
P31,080.

X. That the plaintiff firm in estimating the amount due it as commissions on sales of hemp made by it
for its principals has always based the said amount on the total sum collected from the purchasers of
the hemp, including the charge made in each case under the denomination of "prensaje."

XI. That the plaintiff has always paid to the defendant or to his predecessor in the office of the
Collector of Internal Revenue the tax collectible under the provisions of section 139 of Act No. 1189
upon the selling price expressly agreed upon for all hemp sold by the plaintiff firm both for its own
account and on commission, but has not, until compelled to do so as hereinafter stated, paid the said
tax upon sums received from the purchaser of such hemp under the denomination of "prensaje."

XII. That of the 29th day of April, 1910, the defendant, acting in his official capacity as Collector of
Internal Revenue of the Philippine Islands, made demand in writing upon the plaintiff firm for the
payment within the period of five (5) days of the sum of P1,370.68 as a tax of one third of one per
cent on the sums of money mentioned in Paragraph IX hereof, and which the said defendant claimed
to be entitled to receive, under the provisions of the said section 139 of Act No. 1189, upon the said
sums of money so collected from purchasers of hemp under the denomination of "prensaje."

XIII. That on the 4th day of May, 1910, the plaintiff firm paid to the defendant under protest the said
sum of P1,370.69, and on the same date appealed to the defendant as Collector of Internal Revenue,
against the ruling by which the plaintiff firm was required to make said payment, but defendant
overruled said protest and adversely decided said appeal, and refused and still refuses to return to
plaintiff the said sum of P1,370.68 or any part thereof.1awphil.net

XIV. Upon the facts above set forth t is contended by the plaintiff that the tax of P1,370.68 assessed by
the defendant upon the aggregate sum of said charges made against said purchasers of hemp by the
plaintiff during the period in question, under the denomination of "prensaje" as aforesaid, namely,
P411,204.35, is illegal upon the ground that the said charge does not constitute a part of the selling
price of the hemp, but is a charge made for the service of baling the hemp, and that the plaintiff firm
is therefore entitled to recover of the defendant the said sum of P1,370.68 paid to him under protest,
together with all interest thereon at the legal rate since payment, and the costs of this action.

Upon the facts above stated it is the contention of the defendant that the said charge made under the
denomination of "prensaje" is in truth and in fact a part of the gross value of the hemp sold and of its
actual selling price, and that therefore the tax imposed by section 139 of Act No. 1189 lawfully
accrued on said sums, that the collection thereof was lawfully and properly made and that therefore
the plaintiff is not entitled to recover back said sum or any part thereof; and that the defendant
should have judgment against plaintiff for his costs.

27
Under these facts we are of the opinion that the judgment of the court below was right. It is one of the
stipulations in the statement of facts that it is customary to sell hemp in bales, and that the price quoted in the
market for hemp per picul is the price for the hemp baled. The fact is that among large dealers like the
plaintiff in this case it is practically impossible to handle hemp without its being baled, and it is admitted by
the statement of facts, as well as demonstrated by the documentary proof introduced in the case, that if the
plaintiff sold a quality of hemp it would be the under standing, without words, that such hemp would be
delivered in bales, and that the purchase price would include the cost and expense of baling. In other words, it
is the fact as stipulated, as well as it would be the fact of necessity, that in all dealings in hemp in the general
market the selling price consists of the value of the hemp loose plus the cost and expense of putting it into
marketable form. In the sales made by the plaintiff, which are the basis of the controversy here, there were n
services performed by him for his vendee. There was agreement that services should be performed. Indeed, at
the time of such sales it was not known by the vendee whether the hemp was then actually baled or not. All
that he knew and all that concerned him was that the hemp should be delivered to him baled. He did not ask
the plaintiff to perform services for him, nor did the plaintiff agree to do so. The contract was single and
consisted solely in the sale and purchase of hemp. The purchaser contracted for nothing else and the vendor
agreed to deliver nothing else.

The word "price" signifies the sum stipulated as the equivalent of the thing sold and also every incident taken
into consideration for the fixing of the price, put to the debit of the vendee and agreed to by him. It is quite
possible that the plaintiff, in this case in connection with the hemp which he sold, had himself already paid
the additional expense of baling as a part of the purchase price which he paid and that he himself had
received the hemp baled from his vendor. It is quite possible also that such vendor of the plaintiff may have
received the same hemp from his vendor in baled form, that he paid the additions cost of baling as a part of
the purchase price which he paid. In such case the plaintiff performed no service whatever for his vendee, nor
did the plaintiff's vendor perform any service for him.

The distinction between a contract of sale and one for work, labor, and materials is tested by the inquiry
whether the thing transferred is one no in existence and which never would have existed but for the order of
the party desiring to acquire it, or a thing which would have existed and been the subject of sale to some
other person, even if the order had not been given. (Groves vs. Buck, 3 Maule & S., 178; Towers vs. Osborne, 1
Strange, 506; Benjamin on Sales, 90.) It is clear that in the case at bar the hemp was in existence in baled form
before the agreements of sale were made, or, at least, would have been in existence even if none of the
individual sales here in question had been consummated. It would have been baled, nevertheless, for sale to
someone else, since, according to the agreed statement of facts, it is customary to sell hemp in bales. When a
person stipulates for the future sale of articles which he is habitually making, and which at the time are not
made or finished, it is essentially a contract of sale and not a contract for labor. It is otherwise when the
article is made pursuant to agreement. (Lamb vs. Crafts, 12 Met., 353; Smith vs. N.Y.C. Ry. Co., 4 Keyes, 180;
Benjamin on Sales, 98.) Where labor is employed on the materials of the seller he can not maintain an action
for work and labor. (Atkinson vs. Bell, 8 Barn. & C., 277; Lee vs. Griffin, 30 L.J.N. S.Q.B., 252; Prescott vs. Locke,
51 N.H., 94.) If the article ordered by the purchaser is exactly such as the plaintiff makes and keeps on hand
for sale to anyone, and no change or modification of it is made at the defendant's request, it is a contract of
sale, even though it may be entirely made after, and in consequence of, the defendant's order for it. (Garbutt s.
Watson, 5 Barn. & Ald., 613; Gardner vs. Joy, 9 Met., 177; Lamb vs. Crafts, 12 Met., 353; Waterman vs. Meigs, 4
Cush., 497., Clark vs. Nichols, 107 Mass., 547; May vs. Ward, 134 Mass., 127; Abbott vs.Gilchrist, 38 Me., 260;
Crocket vs. Scribner, 64 Me., 105; Pitkin vs. Noyes, 48 N. H., 294; Prescott vs. Locke, 51 N. H., 94;
Ellison vs. Brigham, 38 Vt., 64.) It has been held in Massachusetts that a contract to make is a contract of sale if
the article ordered is already substantially in existence at the time of the order and merely requires some
alteration, modification, or adoption to the buyer's wishes or purposes. (Mixer vs. Howarth, 21 Pick., 205.) It
is also held in that state that a contract for the sale of an article which the vendor in the ordinary course of his
business manufactures or procures for the general market, whether the same is on hand at the time or not, is
a contract for the sale of goods to which the statute of frauds applies. But if the goods are to be manufactured
especially for the purchaser and upon his special order, and not for the general market, the case is not within
the statute. (Goddard vs. Binney, 115 Mass., 450.)

28
It is clear to our minds that in the case at bar the baling was performed for the general market and was not
something done by plaintiff which was a result of any peculiar wording of the particular contract between
him and his vendee. It is undoubted that the plaintiff prepared his hemp for the general market. This would
be necessary. One whose exposes goods for sale in the market must have them in marketable form. The hemp
in question would not have been in that condition if it had not been baled. the baling, therefore, was nothing
peculiar to the contract between the plaintiff and his vendee. It was precisely the same contract that was
made by every other seller of hemp, engaged as was the plaintiff, and resulted simply in the transfer of title to
goods already prepared for the general market. The method of bookkeeping and form of the account
rendered is not controlling as to the nature of the contract made. It is conceded in the case tat a separate
entry and charge would have been made for the baling even if the plaintiff had not been the one who baled
the hemp but, instead, had received it already baled from his vendor. This indicates of necessity tat the mere
fact of entering a separate item for the baling of the hemp is formal rather than essential and in no sense
indicates in this case the real transaction between the parties. It is undisputable that, if the plaintiff had
brought the hemp in question already baled, and that was the hemp the sale which formed the subject of this
controversy, then the plaintiff would have performed no service for his vendee and could not, therefore,
lawfully charge for the rendition of such service. It is, nevertheless, admitted that in spite of that fact he would
still have made the double entry in his invoice of sale to such vendee. This demonstrates the nature of the
transaction and discloses, as we have already said, that the entry of a separate charge for baling does not
accurately describe the transaction between the parties.

Section 139 [Act No. 1189] of the Internal Revenue Law provides that:

There shall be paid by each merchant and manufacturer a tax at the rate of one-third of one per
centum on the gross value in money of all goods, wares and merchandise sold, bartered or exchanged
in the Philippine Islands, and that this tax shall be assessed on the actual selling price at which every
such merchant or manufacturer disposes of his commodities.

The operation of baling undoubtedly augments the value of the goods. We agree that there can be no question
that, if the value of the hemp were not augmented to the amount of P1.75 per bale by said operation, the
purchaser would not pay that sum. If one buys a bale of hemp at a stipulated price of P20, well knowing that
there is an agreement on his part, express or implied, to pay an additional amount of P1.75 for that bale, he
considers the bale of hemp worth P21. 75. It is agreed, as we have before stated, that hemp is sold in bales.
Therefore, baling is performed before the sale. The purchaser of hemp owes to the seller nothing whatever by
reason of their contract except the value of the hemp delivered. That value, that sum which the purchaser
pays to the vendee, is the true selling price of the hemp, and every item which enters into such price is a part
of such selling price. By force of the custom prevailing among hemp dealers in the Philippine Islands, a
purchaser of hemp in the market, unless he expressly stipulates that it shall be delivered to him in loose form,
obligates himself to purchase and pay for baled hemp. Wheher or not such agreement is express or implied,
whether it is actual or tacit, it has the same force. After such an agreement has once been made by the
purchaser, he has no right to insists thereafter that the seller shall furnish him with unbaled hemp. It is
undoubted that the vendees, in the sales referred to in the case at bar, would have no right, after having made
their contracts, to insists on the delivery of loose hemp with the purpose in view themselves to perform the
baling and thus save 75 centavos per bale. It is unquestioned that the seller, the plaintiff, would have stood
upon his original contract of sale, that is, the obligation to deliver baled hemp, and would have forced his
vendees to accept baled hemp, he himself retaining among his own profits those which accrued from the
proceed of baling.

We are of the opinion that the judgment appealed from must be affirmed, without special finding as to costs,
and it is so ordered.

Torres, Mapa, Johnson and Carson, JJ., concur.

29
THIRD DIVISION

[G.R. No. 153033. June 23, 2005]

DEL MONTE PHILIPPINES, INC., petitioner, vs. NAPOLEON N. ARAGONES, respondent.

DECISION

CARPIO-MORALES, J.:

The decision in the present Petition for Review on Certiorari hinges on the nature of the contract denominated Supply
Agreement[1] which was forged between Dynablock Enterprises, represented by its Manager herein respondent
Napoleon N. Aragones (Aragones) and Mega-Engineering Services in joint venture with WAFF Construction System
Corporation (MEGA-WAFF) whether it was one of sale or for a piece of work.

On September 18, 1988, herein petitioner Del Monte Philippines Inc. (DMPI) entered into an Agreement[2] with MEGA-
WAFF, represented by Managing Principal Edilberto Garcia (Garcia), whereby the latter undertook the supply and
installation of modular pavement at DMPIs condiments warehouse at Cagayan de Oro City within 60 calendar days from
signing of the agreement.

To source its supply of concrete blocks to be installed on the pavement of the DMPI warehouse, MEGA-WAFF, as
CONTRACTOR represented by Garcia, entered into a Supply Agreement with Dynablock Enterprises, represented by
herein respondent Aragones, as SUPPLIER, under the following terms:

1. ITEMS TO BE SUPPLIED

The SUPPLIER at its own expense shall provide the CONTRACTOR with labor and all materials, equipment, tools and
supplies necessary and incident thereto, the required concrete blocks at the contractors specified casting site, all in
accordance with the terms and conditions of this agreement, as well as the requirements of the project specifications and
provisions with respect to the fabrication of concrete blocks.

2. PRICE

The CONTRACTOR will pay the supplier in consideration for the full and total performance of the above undertaking,
inclusive of all applicable taxes, the unit price of P7.00 per supplied and accepted piece. This price is based on the
assumption that the cost per bag of premium cement is P54.00 and aggregate at P95.00 per cu. m. Any increase of the
above raw materials shall be to the account of the contractor. All taxes shall be for the account of the contractor.

3. PLANT/EQUIPMENT

3.1 - The machines for the fabrication/casting of the concrete blocks, including all necessary equipment and accessories,
shall be provided by the SUPPLIER. The machines and equipment shall be mobilized and made operational at the
specified casting location/stockpiling yard designated and provided by the CONTRACTOR.

3.2 - The SUPPLIER shall ensure that all plant facilities/equipment must, at all times, be accessible for inspection by the
representatives of the CONTRACTOR.

3.3 - The SUPPLIER shall ensure that the plant/casting machines actual operating capacities shall not be lower than
75,000 pieces every month. If at any time within the life of this agreement the plant/casting machines are proven to be
operating below the required minimum capacity as aforesaid, the SUPPLIER shall be obliged to take the necessary actions
to upgrade the plant/casting machines and/or make the necessary rehabilitation to increase the capacity to the required
level.

30
4. QUALITY OF MATERIALS

4.1 The SUPPLIER guarantees that all materials supplied to the CONTRACTOR shall meet the approved specifications
(Attached Annex A) at 5,000 pci.

In this connection, the CONTRACTOR shall assign an inspector at the casting site to ensure that all items supplied shall
conform with the approved standards.

4.2 The CONTRACTOR may reject any finished product or materials which do not pass the approved standards.

4.3 There shall be a system of sampling the output of the plant and/or each casting machine for testing in accordance with
the quality standards specified. Result of such sampling tests shall be the basis for acceptance or rejection of the finished
materials.

4.4 Where the CONTRACTOR has provided materials to the SUPPLIER to be incorporated into the SUPPLIERs production,
as in the case of cement and aggregates, the cost of such materials which becomes part of the rejected products due to
faulty batching/mixing/curing shall be for the account of the SUPPLIER.

5. MATERIALS AND OTHER PROVISIONS SUPPLIED BY THE CONTRACTOR

5.1 - All the materials are for the account of the SUPPLIER. The CONTRACTOR shall, however, provide all the cement and
aggregates requirement for the fabrication of the concrete blocks, in which the corresponding cost shall be deducted from
the periodical proceeds due to the SUPPLIER.

5.2- The CONTRACTOR shall provide and make available to the SUPPLIER the following provisions/facilities free of
charge:

a) Casting/Fabrication Area

b) Stockpile Area

c) Warehouse for Cement

d) An all-weather working shed for workers

e) Night Watchers

5.3 The CONTRACTOR shall arrange for the installation of electrical and water facilities for the work in which the cost of
electricity and water actually consumed shall be borne by the SUPPLIER.

5.4 The SUPPLIER shall be responsible for all materials already turned over by the CONTRACTOR at the casting area. The
responsibility, however, of the SUPPLIER on the finished products ceases upon loading of the same to the CONTRACTORs
truck on way to the project site.

6. OBLIGATIONS OF SUPPLIER

6.1 To fabricate and provide the required block machines in such number adequate to cope up with time schedule.

6.2 To provide concrete mixers: one (1) unit of two-bagger, and two (2) units of one-bagger.

6.3 To provide drying racks, measuring boxes, wheel borrows and other necessary hand tools.

6.4 To supervise and provide the required manpower for the operation and production of concrete blocks.

6.5 To undertake the following:

a) mixing and formulation of proper mix.

b) to consolidate, form and compress the blocks.

c) to unload the formed blocks into the drying racks.

31
d) after initial setting of blocks, to unload and arrange them to wooden pallets.

e) curing of blocks as per approved standards.

7. OTHER OBLIGATIONS OF CONTRACTOR

7.1 - To provide tarpaulin or canvas or plastic sheets to cover blocks during the seasoning stage.

7.2 - To provide forklift and wooden pallets.

8. EXCLUSIVITY OF PRODUCTION

8.1 - Effective upon the execution of this agreement, the SUPPLIER binds itself to devote the entire plant/casting machines
and its accessories for the CONTRACTORs exclusive use and full operation and production of the required concrete blocks
for the intended project.

8.2 The SUPPLIER or his agents or representatives shall not, directly or indirectly, enter into any contract, agreement,
concessions or transactions of whatever nature or kind with the project owner or of its representative which will affect
the rights, interest or participation of the CONTRACTOR in regard to the execution and accomplishment of the project.

8.3 In case of violation of this exclusivity clause, utmost fidelity and good faith being of the essence, the CONTRACTOR
shall have the right to demand reasonable amount of damages or terminate this agreement upon due notice.

9. CONDITIONS OF PAYMENT

9.1 Upon mobilization of the casting machines, equipments accessories and making some operational at the casting area
by the SUPPLIER, the CONTRACTOR shall advance to the supplier a downpayment or mobilization fund of TEN
THOUSAND (P10,000.00) PESOS per machine. Said mobilization fee shall be deducted from the proceeds of the SUPPLIER
at two (2) equal installments beginning at the first billing.

9.2 - The SUPPLIER shall present its billing every fifteen days based on the below indicated payment schedule:

a) Billing from 1st/day/month to 15th day payable after fifteen days from the date the billing is submitted.

b) Billing from the 16th day of the month to the 31st day of the month, payable after fifteen days from the date the billing
is submitted.

10. EFFECTIVITY OF CONTRACT

This agreement shall be co-terminus with the terms of the contract for the project and/or upon completion of all
requirements therefor; PROVIDED, However, that if for some reason or another the production of the concrete blocks is
temporarily suspended, this agreement shall remain in force and effective for a period of fifteen (15) days from the date of
the cessation of production. In case the said grace period expires without the production having resumed, the
CONTRACTOR shall be obliged to pay reasonable compensation for the period of suspension counted from the expiration
of the said grace period.

11. PERFORMANCE BOND

The SUPPLIER shall post a SURETY/PERFORMANCE BOND in such sums which may be deemed adequate to secure its
faithful compliance of the terms and conditions of this agreement.

12. PENALTY CLAUSE

In the event the SUPPLIER fails to meet the requirements demanded in this agreement or when the SUPPLIER is in delay
in the performance of its obligation to the prejudice of the CONTRACTOR, the SUPPLIER shall answer for the
corresponding damages equivalent to one-tenth (1/10) of the rated monthly production capacity. (Emphasis and
underscoring supplied).[3]

32
Aragones thereupon started assembling the machines for the fabrication/casting of the concrete blocks which MEGA-
WAFF specified to be hexagonal shaped. MEGA-WAFF, through Garcia, later directed Aragones to instead fabricate
machines for S shaped blocks.

As stated in the Agreement between DMPI and MEGA-WAFF, the deadline for the installation of the pavement of the
warehouse was November 18, 1988, but it was not met. As extended, the installation was finished on or about February
28, 1989, but MEGA-WAFF was, in accordance with its agreement with DMPI, penalized for the delay, albeit at a reduced
amount.

Aragones, having in the meantime gotten wind of MEGA-WAFF & DMPIs Agreement, more particularly the imposition of a
penalty by DMPI for the delay in the completion of the installation of the warehouse pavement, appealed to DMPI, by
letter of March 4, 1989,[4] for leniency in the imposition of the penalty which would affect [him] also although [he] was
not a direct party to the contract, he inviting attention to the intricacy and enormity of the job involved.

Aragones later failed to collect from MEGA-WAFF the full payment of the concrete blocks. He thus sent DMPI a letter dated
March 10, 1989,[5] received by the latter on March 13, 1989,[6] advising it of MEGA-WAFFs unpaid obligation and
requesting it to earmark and withhold the amount of P188,652.65 from [MEGA-WAFFs] billing to be paid directly to him
[l]est Garcia collects and fails to pay [him].

DMPI, in the meantime, verbally advised Aragones to secure a court order directing it to withhold payment of the amount
due MEGA-WAFF for, in the absence of such court order, DMPI was under its agreement with MEGA-WAFF obliged to
release full payment within 30 days from acceptance of the completed work.

It appears that Aragones reiterated his request to DMPI for direct payment to him, by letter of March 28, 1989.[7] This
was followed by another letter dated April 6, 1989[8] which was received on April 8, 1989[9] by DMPI, copy of which it
referred to Garcia, by letter of April 27, 1989,[10] for his comment.

By letter of May 3, 1989[11] addressed to DMPI, Garcia, commenting on Aragones April 6, 1989 letter, stated:

xxx

If there is somebody who have (sic) justifiable ground to complain, it is MEGA-WAFF against Atty. Aragones for all the
miseries and embarrassment we had suffered due to the factors attributable to Atty. Aragones Dynablock Enterprises.

For proper evaluation of things and to give both parties a fair chance, we enclosed (sic) pertinent papers for your perusal.

As contractor and businessman, it is our firm policy not to take advantage of other people and definitely not to renegade
(sic) from commitments/obligations.

We are willing to pay Atty. Aragones but based on the actual accomplishment and amount only due to him as per
reconciliation furnished to him. (attached)

We sincerely hope that the facts we had presented will suffice, and please accept our apology for whatever inconvenience
it has caused you and we pray that this matter of payments be settled soon for the general benefit of all concerned.

x x x (Underscoring supplied).

It turned out that DMPI had, on or about April 6, 1989, released to MEGA-WAFF a check dated April 4, 1989 in the amount
of P157,863.77 representing DMPIs balance of its obligation to MEGA-WAFF.

Aragones was thus prompted to file on May 25, 1989 a complaint[12] for sum of money (P188,652.65) with damages
against Garcia and/or MEGA-WAFF and DMPI before the Regional Trial Court (RTC) of Lanao del Norte which was raffled
to Branch 5 thereof.

Aragones impleaded DMPI on the strength of Articles 1729 and 1467 of the Civil Code, he contending that it was liable to
him who put labor upon or furnished materials for a piece of work.

By his July 14, 1989 Answer,[13] Garcia, without disputing the amount being collected by Aragones, justified his refusal to
satisfy [Aragones] demand by claiming that Aragones defaulted in his obligation under the Supply Agreement.

33
DMPI, by its Answer[14] of June 25, 1989, pleaded that Aragones had no cause of action against it as it had no privity of
contract with him; that it had already paid MEGA-WAFF the full amount due it; and that it had not committed any
actionable wrong against Aragones.

Aragones later filed an Amended Complaint,[15] with leave of court, to cure certain formal defects in the original
complaint as to the designation of parties . . .

DMPI also later filed a Motion for Leave to File an Amended Answer with Cross-Claim against Garcia and WAFF President
Francisco Castro[16] which the trial court granted. In the Amended Answer with Cross Claim,[17] DMPI alleged, inter alia,
that [i]n the event [Aragones] succeeds in obtaining a judgment [against] DMPI, that said judgment should be charged to
and paid by the cross-defendants who have collected the full contract price of the Agreement wherein [Aragones] claims
the rights of a subcontractor, plus consequential damages (underscoring in the original).

The trial court, upon the following issues:

a. Whether or not [Aragones] has still a collectible amount of P188,652.65 from defendants Garcia and Castro;

b. Whether or not defendant DMPI may also be held accountable for this unpaid obligation of defendant Garcia/MEGA-
WAFF;

c. Whether or not the remaining balance of defendant DMPI account payable is P188,652.65 insisted by defendant
Garcia/MEGA-WAFF or only P157,863.77 insisted by defendant DMPI;

d. Whether or not the parties are entitled to damages pleaded;

e. Whether or not there was delay in the performance of the respective obligations of either party or both;

f. Assuming that defendant DMPI is liable to plaintiff, whether or not cross defendant Garcia/MEGA-WAFF shall be liable
to DMPI for reimbursement.[18],

found for the plaintiff Aragones in light of the following considerations:

Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor have an action
against the owner up to the amount owing from the latter to the contractor at the time the claim is made. However, the
following shall not prejudice the laborers, employees and furnishers of materials:

(1) Payments made by the owner of the contractor before they are due;

(2) Renunciation by the contractor of any amount due him from the owner.

This article is subject to the provisions of special laws (1597a)

(Article 1729, New Civil Code, [emphasis supplied]).

In interpreting the foregoing provision, the Supreme Court made the following pertinent pronouncement:

Article 1729 is promulgated to protect the laborers and the materialmen from being taken advantage of by unscrupulous
contractors and from possible connivance between owners and contractors. (Velasco vs. C.A. 95 Phils. (sic) (616-641).

The legal issue that arises is whether or not GSIS is liable to the petitioners for the cost of the materials and labor
furnished by them in construction of the 63 houses now owned by the GSIS and for the construction of which no payment
has been made on the balance due to petitioners. Our considered view is and we so hold that even in equity alone, GSIS
should pay the petitioners, without prejudice to its securing indemnity from Laigo Realty Corp. (Velaso vs. C.A., 95 Phils.
(sic) 616-641 [emphasis and underscoring supplied]).

Moreover, anent this matter another decisional rule, says:

Although there was no privity of contract between plaintiff and defendant Joven, Inc., there is sufficient evidence showing
that he had really supplied stones and sands to said defendant and also removed dirt and soil from its construction site.
And it is this main point which calls for resolution in the light of the provisions of Art. 1729 of the New Civil Code, to
determine whether or not defendant corporation is liable for materials supplied and services rendered by the plaintiff. It

34
is quite clear that the owner of the building, Joven Inc. is liable for materials and labor furnished to the contractor up to
the amount owing from the latter to the contractor and to enforce such liability, the law allows the person furnishing
labor or materials to bring his right of action directly against the owner. (Flores vs. Ruelo, CA 52 OG 850, [emphasis and
underscoring supplied]).

Of course, while defendant DMPI is indeed directly liable to pay plaintiff the cost of the construction material (modular
paving blocks) sought to be collected, this defendant has also a right of recourse against cross defendant Garcia/MEGA-
WAFF for reimbursement of whatever amount it will be required here to pay plaintiff, otherwise it would result in making
defendant Garcia/MEGA-WAFF enrich itself at the expense of defendant DMPI. Additionally since the evidence on record
shows that plaintiff was compelled to litigate this matter if only to collect a just and demandable obligation, the refusal of
these defendants to pay their obligation upon demand could not be justified in law, thus both defendants should be
condemned to pay exemplary damages in the amount of P20,000.00 each and attorneys fees in the amount of P10,000.00
each, including the cost of this suit. (Underscoring supplied)[19]

The trial court accordingly rendered judgment in favor of Aragones by decision[20] of September 11, 1992, the
dispositive portion of which reads:

WHEREFORE, the foregoing premises considered, the Court finds that there is ample reason in law and preponderant
evidence on record to sustain the cause of action of plaintiff asserted against both defendants, thus judgment is now
rendered granting the following relief:

a. That the defendants Garcia/MEGA-WAFF and DMPI shall be liable to jointly and severally pay plaintiff the unpaid cost
of the modular paving blocks construction material which he delivered to defendant DMPI priced at P188,652.65 and in
the event that defendant DMPI will be made to pay the full amount of this particular obligation, the defendant Garcia
MEGA-WAFF must reimburse said defendant such amount;

b. That this unpaid obligation sought to be collected must bear legal interest of 12% per annum from the time there was
an extrajudicial demand made by plaintiff last March 01, 1989; and

c. Lastly, these defendants are condemned that each pay plaintiff P20,000.00 for exemplary damages and P10,000.00 for
attorneys fees, including the cost of this suit.

SO ORDERED. (Emphasis and underscoring supplied).[21]

On appeal to the Court of Appeals (CA) by only DMPI, upon the following assigned errors:

THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFF DID NOT INCUR DELAY AND VIOLATE ITS SUPPLY
AGREEMENT WITH DEFENDANT MEGA-WAFF;

II

THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANT MEGA-WAFFS LIABILITY TO PLAINTIFF IS P188,652.65
BECAUSE AS STIPULATED IN THE SUPPLY AGREEMENT, THE CEMENT AND AGGREGATES USED IN THE MANUFACTURE
OF THE BLOCKS WERE ADVANCED BY MEGA-WAFF, THE COST OF WHICH WILL BE DEDUCED FROM PLAINTIFFS
BILLINGS;

III.

THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANT DMPI IS ALSO LIABLE TO PLAINTIFF FOR ANY LIABILITY OF
MEGA-WAFF UNDER THE SUPPLY AGREEMENT;

IV.

ASSUMING EX GRATIA ARGUMENTI THAT DMPI IS LIABLE TO PLAINTIFF'S AID LIABILITY CANNOT EXCEED THE SUM
OF P157,863.77 BALANCE OF THE CONTRACT PRICE BETWEEN DMPI AND MEGA-WAFF, LESS AGREED PENALTY FOR
LATE DELIVERY AS LIQUIDATED DAMAGES;

V.

35
THE TRIAL COURT ERRED IN HOLDING DEFENDANT DMPI LIABLE TO PLAINTIFF FOR ATTORNEYS FEES AND COSTS OF
COLLECTION CONSIDERING THAT IT HAD THE RIGHT TO RESIST PAYMENT BECAUSE IT HAS NO PRIVITY OF
CONTRACT BETWEEN PLAINTIFF AND DEFENDANT MEGA-WAFF, (Underscoring supplied),[22]

the CA, by decision of September 19, 2001[23] subject of the petition at bar, affirmed the trial courts decision in this wise:

At this juncture it is well to note that the Supply Agreement was in the nature of a contract for a piece of work. The
distinction between a contract of sale and one for work, labor and materials is tested by inquiry whether the thing
transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire
it, or a thing which would have existed but has been the subject of sale to some other persons even if the order had not
been given. If the article ordered by the purchaser is exactly such as the seller makes and keeps on hand for sale to
anyone, and no change or modification of it is made at purchasers request, it is a contract of sale even though it may be
entirely made after, and in consequence of the purchasers order for it. [Commissioner of Internal Revenue vs. Engineering
Equipment and Supply Company, G.R. No. L-27044, June 30, 1975]

In the case at bench, the modular paving blocks are not exactly what the plaintiff-appellee makes and keeps on hand for
sale to anyone, but with a modification that the same be S in shape. Hence, the agreement falls within the ambit of Article
1467 making Article 1729 likewise applicable in the instant case.

As regard the issue of privity of contracts, We need to add only that Article 1311 of the New Civil Code which DMPI
invokes is not applicable where the situation contemplated in Article 1729 obtains. The intention of the latter provision is
to protect the laborers and the materialmen from being taken advantage of by unscrupulous contractors and from
possible connivance between owners and contractors. Thus, a constructive vinculum or contractual privity is created by
this provision, by way of exception to the principle underlying Article 1311 between the owner, on the one hand, and
those who furnish labor and/or materials, on the other. [Velasco vs. Court of Appeals, G.R. No. L-47544, January 28, 1980]

As a matter of fact, insofar as the laborers are concerned, by a special law, Act no. 3959, otherwise known as An Act
making it obligatory for any person, company, firm or corporation owning any work of any kind executed by contract to
require the contractor to furnish a bond guaranteeing the payment of the laborers. they are given added protection by
requiring contractors to file bonds guaranteeing payment to them.

It is true that defendant-appellant had already fully paid its obligation to defendant Garcia however, the formers payment
to the latter does not extinguish its legal obligation to plaintiff-appellee because such payment was irregular. The former
should have taken care not to pay to such contractor the full amount which he is entitled to receive by virtue of the
contract, until he shall have shown that he first paid the wages of the laborer employed in said work, by means of an
affidavit made and subscribed by said contractor before a notary public or other officer authorized by law to administer
oaths. There is no showing that defendant appellant DMPI, as owner of the building, complied with this requirement paid
down in Act No. 3959. Hence, under Section 2 of said law, said defendant-appellant is responsible, jointly and severally
with the general contractor, for the payment to plaintiff-appellee as sub-contractor.

In this connection, while, indeed, Article 1729 refers to the laborers and materialmen themselves, under the peculiar
circumstances of this case, it is but fair and just that plaintiff-appellee be deemed as suing for the reimbursement of what
they have already paid the laborers and materialmen, as otherwise he would be unduly prejudiced while either
defendant-appellant DMPI or defendant Garcia would enrich themselves at plaintiff-appellees expense.

Be that as it may, We so hold that plaintiff-appellee has a lawful claim against defendant-appellant DMPI, owner of the
constructed warehouse since it disregarded the notice of claim of plaintiff-appellee, at a time when the amounts owing
from defendant-appellant DMPI to defendant GARCIA were more than sufficient to pay for plaintiff-appellees claim. The
least that defendant-appellant should have done was to withhold payment of the balance still owing to defendant Garcia
as until the claim of plaintiff-appellee was clarified. (Italics in the original; emphasis and underscoring supplied).[24]

Its Motion for Reconsideration having been denied by the CA, DMPI (hereinafter referred to as petitioner) lodged the
present Petition for Review on Certiorari, faulting the CA:

I.

. . . IN FINDING THAT DMPI WAS LIABLE TO RESPONDENT ARAGONES FOR THE UNPAID PRICE OF THE CONCRETE
PAVING BLOCKS OWED BY MEGA-WAFF TO THE LATTER.

A. IN FINDING THAT THE CONTRACT FOR THE SUPPLY OF THE CONCRETE PAVING BLOCKS WAS NOT A SALE BUT ONE
FOR A PIECE OF WORK.

36
B. IN HOLDING DMPI LIABLE BASED UPON THE PROVISIONS OF ARTICLE 1729 OF THE CIVIL CODE AND ACT 3959,
WHICH ARE INAPPLICABLE.

II.

. . . IN FAILING TO AWARD MORAL DAMAGES, ATTORNEYS FEES, AND LITIGATION EXPENSES TO DMPI ON ITS
COUNTERCLAIM.[25]

As reflected above, only petitioner appealed the trial courts decision. MEGA-WAFF did not appeal. The decision as to it
then is final and executory.

Petitioner, in the main, contends that while the CA correctly stated the test in determining whether a transfer is a sale or
one for a piece of work, it failed to properly apply the same.

Applying the nature of the object test, petitioner insists that the concrete block to be produced by Aragones under the
Supply Agreement represented by Garcia clearly shows that the contract was one of sale, advancing the following reasons:

1.4.1 First, the concrete paving blocks were . . . capable of being mass-produced

1.4.2 Second, save for the shape, there was here no consideration of any special needs or requirements of DMPI taken into
account in the design or manufacture of the concrete paving blocks.[26]

Petitioner cites the following ruling in Commissioner of Internal Revenue v. Arnoldus Carpentry Shop, Inc.:[27]

x x x As can be clearly seen from the wordings of Art. 1467, what determines whether the contract is one of work or of
sale is whether the thing has been manufactured specially for the customer and upon his special order. Thus, if the thing is
specially done on the order of another, this is a contract for a piece of work. If, on the other hand, the thing is
manufactured or procured for the general market in the ordinary course of ones business, it is a contract of sale. (Italics
and emphasis in the original; underscoring supplied),[28]

and argues that given habituality of business and the ability to mass-produce the article ordered, that customers requires
(sic) certain specifications is of no moment, the transaction remains one of sale.

Petitioner further cites, among other authorities, the following ruling in Celestino Co. v. Collector of Internal Revenue:[29]

x x x The important thing to remember is that Celestino & Co. habitually makes sash, windows and doors, as it has
represented in its stationery and advertisements to the public. That it manufactures the same is practically admitted by
appellant itself. The fact that windows and doors are made by it only when customers place their orders, does not alter
the nature of the establishment of such materials-moulding, frames, panels as it ordinarily manufactured or was in a
position habitually to manufacture.

xxx

That the doors and windows must meet desired specifications is neither here nor there. If these specifications do not
happen to be of the kind habitually manufactured by appellant special forms of sash, mouldings, panels it would not
accept the order and no sale is made. If they do, the transaction would be no different from purchaser of manufactured
goods held in stock for sale; they are bought because they meet specifications desired by the purchaser.

Nobody will say that when a sawmill cuts lumber in accordance with the peculiar specifications of a customer sizes not
previously held in stock for sale to the public it thereby becomes an employee or servant of the customer, not the seller of
lumber. The same consideration applies to this sash manufacturer.

The Oriental Sash Factory does nothing more than sell the goods that it mass-produces or habitually makes sash, panels,
mouldings, frames cutting them to such sizes and combining them in such forms as its customers may desire.

xxx

x x x Such new form does not divest the Oriental Sash Factory of its character as manufacturer. Neither does it take the
transaction out of the category of sales under Article 1467 above quoted, because although the Factory does not, in the
ordinary course of its business, manufacture and keep on stock doors of the kind sold to Teodoro, it could and/or

37
probably had in stock the sash, mouldings and panels it used therefor (some of them at least). (Emphasis in the original;
underscoring supplied).

Petitioner concludes that as the Supply Agreement between Aragones and MEGA-WAFF was one of sale to which it
(petitioner) was not privy, it cannot be held liable for any obligation arising therefrom.

Dodging liability for the damages (exemplary and . . . attorneys fees including the cost of this suit) awarded to Aragones,
petitioner claims that it was in fact the one which was injured by Aragones filing in bad faith of a complaint bereft of cause
of action and at best, [one] barred by full payment of the amount due to MEGA-WAFF, on account of which it is entitled to
moral damages in the amount of P50,000.00 pursuant to Article 2217 of the Civil Code, and to attorneys fees and expenses
of litigation in the amount of at least P30,000.00 plus P2,500.00 per hearing pursuant to Article 2208 of the Civil Code.

The petition fails.

The authorities petitioner cited in fact show that the nature of the Supply Agreement between Aragones and MEGA-WAFF
was one for a piece of work.

Contrary to petitioners claim that save for the shape, there was no consideration of any special needs or requirements of
DMPI taken into account in the design or manufacture of the concrete paving blocks, the Supply Agreement is replete with
specifications, terms or conditions showing that it was one for a piece of work.

As reflected in the highlighted and underscored above-quoted provisions of the Supply Agreement, as well as other
evidence on record, the machines Aragones was obliged to fabricate were those for casting the concrete blocks specified
by Garcia. Aragones did not have those kind of machines in his usual business, hence, the special order.

While initially Garcia specified that the machines to be fabricated should be for hexagon shaped blocks, he later asked
Aragones to instead fabricate machines for casting S shaped blocks.

In accordance with the Supply Agreement, Garcia furnished the cement and aggregates for the fabrication of the blocks
and Aragones fabricated three (3) machines for S shaped blocks which were delivered at the casting site on different
dates. And the entire plant/casting machines and . . . . accessories were, as dictated under the Supply Agreement, devoted
by Aragones for [MEGA-WAFF]s exclusive use.

There can be no gainsaying that the specifications/conditions in the Supply Agreement and the admitted subsequent
directive of Garcia for Aragones to fabricate machines for casting S shaped, instead of hexagon shaped blocks, show that
the concrete blocks were manufactured specifically for, and upon the special order of Garcia.

That Garcia supplied the cement and aggregates and that the entire made-to-order casting machines and accessories used
in the manufacture of those unusual shaped blocks were agreed upon to be devoted only for the exclusive use of MEGA-
WAFF should belie petitioners contention that the concrete blocks were mass-produced and catered to the general
market in the ordinary course of Aragones business.

Under Art. 1467 then of the Civil Code which provides:

ART. 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his
business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of
sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general
market, it is a contract for a piece of work. (Emphasis and underscoring supplied),

the Supply Agreement was decidedly a contract for a piece of work.

Following Art. 1729 of the Civil Code which provides:

ART. 1729. Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor have an
action against the owner up to the amount owing from the latter to the contractor at the time the claim is made. x x x

x x x (Underscoring supplied),

Aragones having specially fabricated three casting machines and furnished some materials for the production of the
concrete blocks specially ordered and specified by MEGA-WAFF which were to be and indeed they were for the exclusive

38
use of MEGA-WAFF, he has a cause of action upon petitioner up to the amount it owed MEGA-WAFF at the time Aragones
made his claim to petitioner.

As Velasco v. CA[30] explains, the intention of Art. 1729 is

to protect the laborers and materialmen from being taken advantage of by unscrupulous contractors and from possible
connivance between owners and contractors. Thus, a constructive vinculum or contractual privity is created by this
provision, by way of exception to the principle underlying Article 1311 between the owner, on the one hand, and those
who furnish labor and/or materials, on the other.

In fine, a constructive vinculum or contractual privity was created between petitioner and Aragones.

Respecting petitioners disclaimer of liability for damages and its claim for moral damages, attorneys fees and expenses of
litigation, the trial courts disposition thereof, to wit:

. . . since the evidence on record shows that [Aragones] was compelled to litigate this matter if only to collect a just and
demandable obligation, the refusal of [DMPI and MEGA-WAFF] to pay their obligation upon demand could not be justified
by law, thus both should be condemned to pay exemplary damages in the amount of P20,000.00 each and attorneys fees
in the amount of P10,000.00 each including costs of this suit (underscoring supplied),

merits this Courts approval.

Why should not petitioner be liable for damages. Aragones request, based on a provision of law, to petitioner for it to pay
directly to him his account receivable from MEGA-WAFF/Garcia out of petitioners account payable to MEGA-WAFF was
made before petitioners obligation to it was due. Yet petitioner settled such obligation to MEGA-WAFF on or about April 6,
1989 when it released to it its check-payment. For petitioner to harp on its undertaking under its Agreement with MEGA-
WAFF to pay its full obligation thereunder within 30 days from complete installation of the pavement by MEGA-WAFF
unless a court injunction could be produced by Aragones is too shallow, under the facts and circumstances surrounding
the case, to merit consideration.

Petitioners referral for comment of Garcia, by letter of April 27, 1989, on Aragones April 6, 1989 reiterative letter for the
withholding of the release of so much amount to MEGA-WAFF even after it (petitioner) had already released on or about
April 6, 1989 its check-full payment to MEGA-WAFF reflects a futile attempt to cover-up the apparent connivance
between it and contractor MEGA-WAFF to the prejudice of Aragones, leaving him no option but to litigate.

As for the assailed citation by the appellate court of Act No. 3959 (which requires a person or firm owning any work of
any kind executed by contract to put up a bond guaranteeing the payment of the laborers) as additional justification to
hold petitioner liable to Aragones, indeed, said Act had been repealed in 1974 by P.D. No. 442 (The Labor Code of the
Philippines).

WHEREFORE, in light of the foregoing discussions, the petition is hereby DENIED.

Costs against petitioner.

SO ORDERED.

Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Garcia, JJ., concur.

39
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-8506             August 31, 1956

CELESTINO CO & COMPANY, petitioner, 

vs.
COLLECTOR OF INTERNAL REVENUE, respondent.

Office of the Solicitor General Ambrosio Padilla, Fisrt Assistant Solicitor General Guillermo E. Torres and
Solicitor Federico V. Sian for respondent.

BENGZON, J.:

Appeal from a decision of the Court of Tax Appeals.

Celestino Co & Company is a duly registered general copartnership doing business under the trade name of
"Oriental Sash Factory". From 1946 to 1951 it paid percentage taxes of 7 per cent on the gross receipts of its
sash, door and window factory, in accordance with section one hundred eighty-six of the National Revenue
Code imposing taxes on sale of manufactured articles. However in 1952 it began to claim liability only to the
contractor's 3 per cent tax (instead of 7 per cent) under section 191 of the same Code; and having failed to
convince the Bureau of Internal Revenue, it brought the matter to the Court of Tax Appeals, where it also
failed. Said the Court:

To support his contention that his client is an ordinary contractor . . . counsel presented . . . duplicate
copies of letters, sketches of doors and windows and price quotations supposedly sent by the
manager of the Oriental Sash Factory to four customers who allegedly made special orders to doors
and window from the said factory. The conclusion that counsel would like us to deduce from these
few exhibits is that the Oriental Sash Factory does not manufacture ready-made doors, sash and
windows for the public but only upon special order of its select customers. . . . I cannot believe that
petitioner company would take, as in fact it has taken, all the trouble and expense of registering a
special trade name for its sash business and then orders company stationery carrying the bold
print "Oriental Sash Factory (Celestino Co & Company, Prop.) 926 Raon St. Quiapo, Manila, Tel. No.
33076, Manufacturers of all kinds of doors, windows, sashes, furniture, etc. used season-dried and kiln-
dried lumber, of the best quality workmanships" solely for the purpose of supplying the needs for
doors, windows and sash of its special and limited customers. One ill note that petitioner has chosen
for its tradename and has offered itself to the public as a "Factory", which means it is out to do
business, in its chosen lines on a big scale. As a general rule, sash factories receive orders for doors
and windows of special design only in particular cases but the bulk of their sales is derived from a
ready-made doors and windows of standard sizes for the average home. Moreover, as shown from
the investigation of petitioner's book of accounts, during the period from January 1, 1952 to
September 30, 1952, it sold sash, doors and windows worth P188,754.69. I find it difficult to believe
that this amount which runs to six figures was derived by petitioner entirely from its few customers
who made special orders for these items.

Even if we were to believe petitioner's claim that it does not manufacture ready-made sash, doors
and windows for the public and that it makes these articles only special order of its customers, that
does not make it a contractor within the purview of section 191 of the national Internal Revenue
Code. there are no less than fifty occupations enumerated in the aforesaid section of the national

40
 Internal Revenue Code subject to percentage tax and after reading carefully each and every one of
them, we cannot find under which the business of manufacturing sash, doors and windows upon
special order of customers fall under the category of "road, building, navigation, artesian well, water
workers and other construction work contractors" are those who alter or repair buildings,
structures, streets, highways, sewers, street railways railroads logging roads, electric lines or power
lines, and includes any other work for the construction, altering or repairing for which machinery
driven by mechanical power is used. (Payton vs. City of Anadardo 64 P. 2d 878, 880, 179 Okl. 68).

Having thus eliminated the feasibility off taxing petitioner as a contractor under 191 of the national
Internal Revenue Code, this leaves us to decide the remaining issue whether or not petitioner could
be taxed with lesser strain and more accuracy as seller of its manufactured articles under section 186
of the same code, as the respondent Collector of Internal Revenue has in fact been doing the Oriental
Sash Factory was established in 1946.

The percentage tax imposed in section 191 of our Tax Code is generally a tax on the sales of services,
in contradiction with the tax imposed in section 186 of the same Code which is a tax on the original
sales of articles by the manufacturer, producer or importer. (Formilleza's Commentaries and
Jurisprudence on the National Internal Revenue Code, Vol. II, p. 744). The fact that the articles sold
are manufactured by the seller does not exchange the contract from the purview of section 186 of the
National Internal Revenue Code as a sale of articles.

There was a strong dissent; but upon careful consideration of the whole matter are inclines to accept the
above statement of the facts and the law. The important thing to remember is that Celestino Co &
Company habitually makes sash, windows and doors, as it has represented in its stationery and
advertisements to the public. That it "manufactures" the same is practically admitted by appellant itself. The
fact that windows and doors are made by it only when customers place their orders, does not alter the nature
of the establishment, for it is obvious that it only accepted such orders as called for the employment of such
material-moulding, frames, panels-as it ordinarily manufactured or was in a position habitually to
manufacture.

Perhaps the following paragraph represents in brief the appellant's position in this Court:

Since the petitioner, by clear proof of facts not disputed by the respondent, manufacturers sash,
windows and doors only for special customers and upon their special orders and in accordance with
the desired specifications of the persons ordering the same and not for the general market: since the
doors ordered by Don Toribio Teodoro & Sons, Inc., for instance, are not in existence and which
never would have existed but for the order of the party desiring it; and since petitioner's contractual
relation with his customers is that of a contract for a piece of work or since petitioner is engaged in
the sale of services, it follows that the petitioner should be taxed under section 191 of the Tax Code
and NOT under section 185 of the same Code." (Appellant's brief, p. 11-12).

But the argument rests on a false foundation. Any builder or homeowner, with sufficient money, may order
windows or doors of the kind manufactured by this appellant. Therefore it is not true that it serves special
customers only or confines its services to them alone. And anyone who sees, and likes, the doors ordered by
Don Toribio Teodoro & Sons Inc. may purchase from appellant doors of the same kind, provided he pays the
price. Surely, the appellant will not refuse, for it can easily duplicate or even mass-produce the same doors-it
is mechanically equipped to do so.

That the doors and windows must meet desired specifications is neither here nor there. If these specifications
do not happen to be of the kind habitually manufactured by appellant — special forms for sash, mouldings of
panels — it would not accept the order — and no sale is made. If they do, the transaction would be no
different from a purchasers of manufactured goods held is stock for sale; they are bought because they meet
the specifications desired by the purchaser.

41
Nobody will say that when a sawmill cuts lumber in accordance with the peculiar specifications of a
customer-sizes not previously held in stock for sale to the public-it thereby becomes an employee or servant
of the customer,1 not the seller of lumber. The same consideration applies to this sash manufacturer.

The Oriental Sash Factory does nothing more than sell the goods that it mass-produces or habitually makes;
sash, panels, mouldings, frames, cutting them to such sizes and combining them in such forms as its
customers may desire.

On the other hand, petitioner's idea of being a contractor doing construction jobs is untenable. Nobody would
regard the doing of two window panels a construction work in common parlance. 2

Appellant invokes Article 1467 of the New Civil Code to bolster its contention that in filing orders for
windows and doors according to specifications, it did not sell, but merely contracted for particular pieces of
work or "merely sold its services".

Said article reads as follows:

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

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

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

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

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

The appealed decision is consequently affirmed. So ordered.

Paras, C. J., Padilla, Montemayor, Bautista Angelo, Concepcion, Reyes, J. B. L., and Felix, JJ., concur.

42
 THIRD DIVISION

[G.R. No. 112212. March 2, 1998]

GREGORIO FULE, petitioner, vs. COURT OF APPEALS,

NINEVETCH CRUZ and JUAN BELARMINO, respondents.

DECISION
ROMERO, J.:

This petition for review on certiorari questions the affirmance by the Court of

Appeals of the decision[1] of the Regional Trial Court of San Pablo City, Branch 30,
dismissing the complaint that prayed for the nullification of a contract of sale of a 10-
hectare property in Tanay, Rizal in consideration of the amount of P40,000.00 and a 2.5
carat emerald-cut diamond (Civil Case No. SP-2455). The lower courts decision
disposed of the case as follows:

WHEREFORE, premises considered, the Court hereby renders judgment

dismissing the complaint for lack of merit and ordering plaintiff to pay:

1. Defendant Dra. Ninevetch M. Cruz the sum of P300,000.00 as and for

moral damages and the sum of P100,000.00 as and for exemplary damages;

2. Defendant Atty. Juan Belarmino the sum of P250,000.00 as and for moral
damages and the sum of P150,000.00 as and for exemplary damages;

3. Defendant Dra. Cruz and Atty. Belarmino the sum of P25,000.00 each as
and for attorneys fees and litigation expenses; and

4. The costs of suit.

SO ORDERED.

As found by the Court of Appeals and the lower court, the antecedent facts of this
case are as follows:

Petitioner Gregorio Fule, a banker by profession and a jeweler at the same

time, acquired a 10-hectare property in Tanay, Rizal (hereinafter Tanay
property), covered by Transfer Certificate of Title No. 320725 which used to
be under the name of Fr. Antonio Jacobe. The latter had mortgaged it earlier
43
to the Rural Bank of Alaminos (the Bank), Laguna, Inc. to secure a loan in the
amount of P10,000.00, but the mortgage was later foreclosed and the
property offered for public auction upon his default.

In July 1984, petitioner, as corporate secretary of the bank, asked Remelia Dichoso
and Oliva Mendoza to look for a buyer who might be interested in the Tanay
property. The two found one in the person of herein private respondent Dr. Ninevetch
Cruz. It so happened that at the time, petitioner had shown interest in buying a pair of
emerald-cut diamond earrings owned by Dr. Cruz which he had seen in January of the
same year when his mother examined and appraised them as genuine. Dr. Cruz,
however, declined petitioners offer to buy the jewelry for P100,000.00. Petitioner then
made another bid to buy them for US$6,000.00 at the exchange rate of $1.00
to P25.00. At this point, petitioner inspected said jewelry at the lobby of the Prudential
Bank branch in San Pablo City and then made a sketch thereof. Having sketched the
jewelry for twenty to thirty minutes, petitioner gave them back to Dr. Cruz who again
refused to sell them since the exchange rate of the peso at the time appreciated
to P19.00 to a dollar.
Subsequently, however, negotiations for the barter of the jewelry and the Tanay
property ensued. Dr. Cruz requested herein private respondent Atty. Juan Belarmino to
check the property who, in turn, found out that no sale or barter was feasible because
the one-year period for redemption of the said property had not yet expired at the time.
In an effort to cut through any legal impediment, petitioner executed on October 19,
1984, a deed of redemption on behalf of Fr. Jacobe purportedly in the amount
of P15,987.78, and on even date, Fr. Jacobe sold the property to petitioner
for P75,000.00. The haste with which the two deeds were executed is shown by the fact
that the deed of sale was notarized ahead of the deed of redemption. As Dr. Cruz had
already agreed to the proposed barter, petitioner went to Prudential Bank once again to
take a look at the jewelry.
In the afternoon of October 23, 1984, petitioner met Atty. Belarmino at the latters
residence to prepare the documents of sale. [2] Dr. Cruz herself was not around but Atty.
Belarmino was aware that she and petitioner had previously agreed to exchange a pair
of emerald-cut diamond earrings for the Tanay property. Atty. Belarmino accordingly
caused the preparation of a deed of absolute sale while petitioner and Dr. Cruz
attended to the safekeeping of the jewelry.
The following day, petitioner, together with Dichoso and Mendoza, arrived at the
residence of Atty. Belarmino to finally execute a deed of absolute sale. Petitioner signed
the deed and gave Atty. Belarmino the amount of P13,700.00 for necessary expenses
in the transfer of title over the Tanay property. Petitioner also issued a certification to the
effect that the actual consideration of the sale was P200,000.00 and not P80,000.00 as
indicated in the deed of absolute sale. The disparity between the actual contract price
and the one indicated on the deed of absolute sale was purportedly aimed at minimizing
the amount of the capital gains tax that petitioner would have to shoulder. Since the
jewelry was appraised only at P160,000.00, the parties agreed that the balance
of P40,000.00 would just be paid later in cash.

44
 As pre-arranged, petitioner left Atty. Belarminos residence with Dichoso and
Mendoza and headed for the bank, arriving there at past 5:00 p.m. Dr. Cruz also arrived
shortly thereafter, but the cashier who kept the other key to the deposit box had already
left the bank. Dr. Cruz and Dichoso, therefore, looked for said cashier and found him
having a haircut. As soon as his haircut was finished, the cashier returned to the bank
and arrived there at 5:48 p.m., ahead of Dr. Cruz and Dichoso who arrived at 5:55
p.m. Dr. Cruz and the cashier then opened the safety deposit box, the former retrieving
a transparent plastic or cellophane bag with the jewelry inside and handing over the
same to petitioner. The latter took the jewelry from the bag, went near the electric light
at the banks lobby, held the jewelry against the light and examined it for ten to
fifteen minutes. After a while, Dr. Cruz asked, Okay na ba iyan?Petitioner expressed his
satisfaction by nodding his head.
For services rendered, petitioner paid the agents, Dichoso and Mendoza, the
amount of US$300.00 and some pieces of jewelry. He did not, however, give them half
of the pair of earrings in question which he had earlier promised.
Later, at about 8:00 oclock in the evening of the same day, petitioner arrived at the
residence of Atty. Belarmino complaining that the jewelry given to him was fake. He
then used a tester to prove the alleged fakery. Meanwhile, at 8:30 p.m., Dichoso and
Mendoza went to the residence of Dr. Cruz to borrow her car so that, with Atty.
Belarmino, they could register the Tanay property. After Dr. Cruz had agreed to lend her
car, Dichoso called up Atty. Belarmino. The latter, however, instructed Dichoso to
proceed immediately to his residence because petitioner was there. Believing that
petitioner had finally agreed to give them half of the pair of earrings, Dichoso went
posthaste to the residence of Atty. Belarmino only to find petitioner already
demonstrating with a tester that the earrings were fake. Petitioner then accused
Dichoso and Mendoza of deceiving him which they, however, denied. They countered
that petitioner could not have been fooled because he had vast experience regarding
jewelry. Petitioner nonetheless took back the US$300.00 and jewelry he had given
them.
Thereafter, the group decided to go to the house of a certain Macario Dimayuga, a
jeweler, to have the earrings tested. Dimayuga, after taking one look at the earrings,
immediately declared them counterfeit. At around 9:30 p.m., petitioner went to one Atty.
Reynaldo Alcantara residing at Lakeside Subdivision in San Pablo City, complaining
about the fake jewelry.Upon being advised by the latter, petitioner reported the matter to
the police station where Dichoso and Mendoza likewise executed sworn statements.
On October 26, 1984, petitioner filed a complaint before the Regional Trial Court of
San Pablo City against private respondents praying, among other things, that the
contract of sale over the Tanay property be declared null and void on the ground of
fraud and deceit.
On October 30, 1984, the lower court issued a temporary restraining order directing
the Register of Deeds of Rizal to refrain from acting on the pertinent documents
involved in the transaction. On November 20, 1984, however, the same court lifted its
previous order and denied the prayer for a writ of preliminary injunction.

45
 After trial, the lower court rendered its decision on March 7, 1989. Confronting the
issue of whether or not the genuine pair of earrings used as consideration for the sale
was delivered by Dr. Cruz to petitioner, the lower court said:

The Court finds that the answer is definitely in the affirmative. Indeed, Dra. Cruz
delivered (the) subject jewelries (sic) into the hands of plaintiff who even raised the
same nearer to the lights of the lobby of the bank near the door. When asked by Dra.
Cruz if everything was in order, plaintiff even nodded his satisfaction (Hearing of Feb.
24, 1988). At that instance, plaintiff did not protest, complain or beg for additional time to
examine further the jewelries (sic). Being a professional banker and engaged in the
jewelry business plaintiff is conversant and competent to detect a fake diamond from
the real thing. Plaintiff was accorded the reasonable time and opportunity to ascertain
and inspect the jewelries (sic) in accordance with Article 1584 of the Civil Code. Plaintiff
took delivery of the subject jewelries (sic) before 6:00 p.m. of October 24, 1984. When
he went at 8:00 p.m. that same day to the residence of Atty. Belarmino already with a
tester complaining about some fake jewelries (sic), there was already undue delay
because of the lapse of a considerable length of time since he got hold of subject
jewelries (sic). The lapse of two (2) hours more or less before plaintiff complained is
considered by the Court as unreasonable delay. [3]

The lower court further ruled that all the elements of a valid contract under Article
1458 of the Civil Code were present, namely: (a) consent or meeting of the minds; (b)
determinate subject matter, and (c) price certain in money or its equivalent. The same
elements, according to the lower court, were present despite the fact that the agreement
between petitioner and Dr. Cruz was principally a barter contract. The lower court
explained thus:

x x x. Plaintiffs ownership over the Tanay property passed unto Dra. Cruz
upon the constructive delivery thereof by virtue of the Deed of Absolute Sale
(Exh. D). On the other hand, the ownership of Dra. Cruz over the subject
jewelries (sic) transferred to the plaintiff upon her actual personal delivery to
him at the lobby of the Prudential Bank. It is expressly provided by law that the
thing sold shall be understood as delivered, when it is placed in the control
and possession of the vendee (Art. 1497, Civil Code; Kuenzle & Straff vs.
Watson & Co. 13 Phil. 26). The ownership and/or title over the jewelries (sic)
was transmitted immediately before 6:00 p.m. of October 24, 1984. Plaintiff
signified his approval by nodding his head. Delivery or tradition, is one of the
modes of acquiring ownership (Art. 712, Civil Code).

Similarly, when Exhibit D was executed, it was equivalent to the delivery of the
Tanay property in favor of Dra. Cruz. The execution of the public instrument (Exh. D)
operates as a formal or symbolic delivery of the Tanay property and authorizes the
buyer, Dra. Cruz to use the document as proof of ownership (Florendo v. Foz, 20 Phil.
399). More so, since Exhibit D does not contain any proviso or stipulation to the effect
that title to the property is reserved with the vendor until full payment of the purchase

46
price, nor is there a stipulation giving the vendor the right to unilaterally rescind the
contract the moment the vendee fails to pay within a fixed period (Taguba v. Vda. De
Leon, 132 SCRA 722; Luzon Brokerage Co. Inc. vs. Maritime Building Co. Inc. 86
SCRA 305; Froilan v. Pan Oriental Shipping Co. et al. 12 SCRA 276). [4]
Aside from concluding that the contract of barter or sale had in fact been
consummated when petitioner and Dr. Cruz parted ways at the bank, the trial court
likewise dwelt on the unexplained delay with which petitioner complained about the
alleged fakery. Thus:
x x x. Verily, plaintiff is already estopped to come back after the lapse of
considerable length of time to claim that what he got was fake. He is a Business
Management graduate of La Salle University, Class 1978-79, a professional banker as
well as a jeweler in his own right. Two hours is more than enough time to make a switch
of a Russian diamond with the real diamond. It must be remembered that in July 1984
plaintiff made a sketch of the subject jewelries (sic) at the Prudential Bank.  Plaintiff had
a tester at 8:00 p.m. at the residence of Atty. Belarmino. Why then did he not bring it out
when he was examining the subject jewelries (sic) at about 6:00 p.m. in the banks
lobby? Obviously, he had no need for it after being satisfied of the genuineness of the
subject jewelries (sic). When Dra. Cruz and plaintiff left the bank both of them had fully
performed their respective prestations. Once a contract is shown to have been
consummated or fully performed by the parties thereto, its existence and binding effect
can no longer be disputed. It is irrelevant and immaterial to dispute the due execution of
a contract if both of them have in fact performed their obligations thereunder and their
respective signatures and those of their witnesses appear upon the face of the
document (Weldon Construction v. CA G.R. No. L-35721, Oct. 12, 1987). [5]
Finally, in awarding damages to the defendants, the lower court remarked:

The Court finds that plaintiff acted in wanton bad faith. Exhibit 2-Belarmino
purports to show that the Tanay property is worth P25,000.00. However, also
on that same day it was executed, the propertys worth was magnified
at P75,000.00 (Exh. 3-Belarmino). How could in less than a day (Oct. 19,
1984) the value would (sic) triple under normal circumstances? Plaintiff, with
the assistance of his agents, was able to exchange the Tanay property which
his bank valued only at P25,000.00 in exchange for a genuine pair of emerald
cut diamond worth P200,000.00 belonging to Dra. Cruz. He also retrieved the
US$300.00 and jewelries (sic) from his agents. But he was not satisfied in
being able to get subject jewelries for a song.He had to file a malicious and
unfounded case against Dra. Cruz and Atty. Belarmino who are well known,
respected and held in high esteem in San Pablo City where everybody
practically knows everybody. Plaintiff came to Court with unclean hands
dragging the defendants and soiling their clean and good name in the
process. Both of them are near the twilight of their lives after maintaining and
nurturing their good reputation in the community only to be stunned with a
court case. Since the filing of this case on October 26, 1984 up to the present
47
they were living under a pall of doubt. Surely, this affected not only their
earning capacity in their practice of their respective professions, but also they
suffered besmirched reputations. Dra. Cruz runs her own hospital and
defendant Belarmino is a well respected legal practitioner.

The length of time this case dragged on during which period their reputation were
(sic) tarnished and their names maligned by the pendency of the case, the Court is of
the belief that some of the damages they prayed for in their answers to the complaint
are reasonably proportionate to the sufferings they underwent (Art. 2219, New Civil
Code). Moreover, because of the falsity, malice and baseless nature of the complaint
defendants were compelled to litigate. Hence, the award of attorneys fees is warranted
under the circumstances (Art. 2208, New Civil Code). [6]
From the trial courts adverse decision, petitioner elevated the matter to the Court of
Appeals. On October 20, 1992, the Court of Appeals, however, rendered a
decision[7]affirming in toto the lower courts decision. His motion for reconsideration
having been denied on October 19, 1993, petitioner now files the instant petition
alleging that:
I. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFFS COMPLAINT AND IN
HOLDING THAT THE PLAINTIFF ACTUALLY RECEIVED A GENUINE PAIR OF
EMERALD CUT DIAMOND EARRING(S) FROM DEFENDANT CRUZ x x x;
II. THE TRIAL COURT ERRED IN AWARDING MORAL AND EXEMPLARY
DAMAGES AND ATTORNEYS FEES IN FAVOR OF DEFENDANTS AND
AGAINST THE PLAINTIFF IN THIS CASE; and
III.THE TRIAL COURT ERRED IN NOT DECLARING THE DEED OF SALE OF
THE TANAY PROPERTY (EXH. `D) AS NULL AND VOID OR IN NOT
ANNULLING THE SAME, AND IN FAILING TO GRANT REASONABLE
DAMAGES IN FAVOR OF THE PLAINTIFF.[8]
As to the first allegation, the Court observes that petitioner is essentially raising a
factual issue as it invites us to examine and weigh anew the facts regarding the
genuineness of the earrings bartered in exchange for the Tanay property. This, of
course, we cannot do without unduly transcending the limits of our review power in
petitions of this nature which are confined merely to pure questions of law. We accord,
as a general rule, conclusiveness to a lower courts findings of fact unless it is
shown, inter alia, that: (1) the conclusion is a finding grounded on speculations,
surmises or conjectures; (2) the inference is manifestly mistaken, absurd and
impossible; (3) when there is a grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are conflicting; and
(6) when the Court of Appeals, in making its findings, went beyond the issues of the
case and the same is contrary to the admission of both parties. [9] We find nothing,
however, that warrants the application of any of these exceptions.
Consequently, this Court upholds the appellate courts findings of fact especially
because these concur with those of the trial court which, upon a thorough scrutiny of the
records, are firmly grounded on evidence presented at the trial. [10] To reiterate, this

48
Courts jurisdiction is only limited to reviewing errors of law in the absence of any
showing that the findings complained of are totally devoid of support in the record or
that they are glaringly erroneous as to constitute serious abuse of discretion. [11]
Nonetheless, this Court has to closely delve into petitioners allegation that the lower
courts decision of March 7, 1989 is a ready-made one because it was handed down a
day after the last date of the trial of the case. [12] Petitioner, in this
regard, finds it incredible that Judge J. Ausberto Jaramillo was able to write a 12-page
single-spaced decision, type it and release it on March 7, 1989, less than a day after the
last hearing on March 6, 1989. He stressed that Judge Jaramillo replaced Judge
Salvador de Guzman and heard only his rebuttal testimony.
This allegation is obviously no more than a desperate effort on the part of petitioner
to disparage the lower courts findings of fact in order to convince this Court to review
the same. It is noteworthy that Atty. Belarmino clarified that Judge Jaramillo had issued
the first order in the case as early as March 9, 1987 or two years before the rendition of
the decision. In fact, Atty. Belarmino terminated presentation of evidence on October
13, 1987, while Dr. Cruz finished hers on February 4, 1989, or more than a month prior
to the rendition of the judgment. The March 6, 1989 hearing was conducted solely for
the presentation of petitioner's rebuttal testimony. [13] In other words, Judge Jaramillo had
ample time to study the case and write the decision because the rebuttal evidence
would only serve to confirm or verify the facts already presented by the parties.
The Court finds nothing anomalous in the said situation. No proof has been
adduced that Judge Jaramillo was motivated by a malicious or sinister intent in
disposing of the case with dispatch. Neither is there proof that someone else wrote the
decision for him. The immediate rendition of the decision was no more than Judge
Jaramillos compliance with his duty as a judge to dispose of the courts business
promptly and decide cases within the required periods. [14] The two-year period within
which Judge Jaramillo handled the case provided him with all the time to study it and
even write down its facts as soon as these were presented to court. In fact, this Court
does not see anything wrong in the practice of writing a decision days before the
scheduled promulgation of judgment and leaving the dispositive portion for typing at a
time close to the date of promulgation, provided that no malice or any wrongful conduct
attends its adoption.[15] The practice serves the dual purposes of safeguarding the
confidentiality of draft decisions and rendering decisions with promptness. Neither can
Judge Jaramillo be made administratively answerable for the immediate rendition of the
decision. The acts of a judge which pertain to his judicial functions are not subject to
disciplinary power unless they are committed with fraud, dishonesty, corruption or bad
faith.[16] Hence, in the absence of sufficient proof to the contrary, Judge Jaramillo is
presumed to have performed his job in accordance with law and should instead be
commended for his close attention to duty.
Having disposed of petitioners first contention, we now come to the core issue of
this petition which is whether the Court of Appeals erred in upholding the validity of the
contract of barter or sale under the circumstances of this case.
The Civil Code provides that contracts are perfected by mere consent. From this
moment, the parties are bound not only to the fulfillment of what has been expressly

49
stipulated but also to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law. [17] A contract of sale 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.[18] Being consensual, a contract of sale has the force of law between the
contracting parties and they are expected to abide in good faith by their respective
contractual commitments. Article 1358 of the Civil Code which requires the embodiment
of certain contracts in a public instrument, is only for convenience, [19] and registration of
the instrument only adversely affects third parties. [20] Formal requirements are, therefore,
for the benefit of third parties. Non-compliance therewith does not adversely affect the
validity of the contract nor the contractual rights and obligations of the parties
thereunder.
It is evident from the facts of the case that there was a meeting of the minds
between petitioner and Dr. Cruz. As such, they are bound by the contract unless there
are reasons or circumstances that warrant its nullification. Hence, the problem that
should be addressed in this case is whether or not under the facts duly established
herein, the contract can be voided in accordance with law so as to compel the parties to
restore to each other the things that have been the subject of the contract with their
fruits, and the price with interest.[21]
Contracts that are voidable or annullable, even though there may have been no
damage to the contracting parties are: (1) those where one of the parties is incapable of
giving consent to a contract; and (2) those where the consent is vitiated by mistake,
violence, intimidation, undue influence or fraud. [22] Accordingly, petitioner now stresses
before this Court that he entered into the contract in the belief that the pair of emerald-
cut diamond earrings was genuine. On the pretext that those pieces of jewelry turned
out to be counterfeit, however, petitioner subsequently sought the nullification of said
contract on the ground that it was, in fact, tainted with fraud [23] such that his consent was
vitiated.
There is fraud when, through the insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without them, he
would not have agreed to. [24] The records, however, are bare of any evidence
manifesting that private respondents employed such insidious words or machinations to
entice petitioner into entering the contract of barter. Neither is there any evidence
showing that Dr. Cruz induced petitioner to sell his Tanay property or that she cajoled
him to take the earrings in exchange for said property. On the contrary, Dr. Cruz did not
initially accede to petitioners proposal to buy the said jewelry. Rather, it appears that it
was petitioner, through his agents, who led Dr. Cruz to believe that the Tanay property
was worth exchanging for her jewelry as he represented that its value was P400,000.00
or more than double that of the jewelry which was valued only at P160,000.00. If indeed
petitioners property was truly worth that much, it was certainly contrary to the nature of
a businessman-banker like him to have parted with his real estate for half its price. In
short, it was in fact petitioner who resorted to machinations to convince Dr. Cruz to
exchange her jewelry for the Tanay property.
Moreover, petitioner did not clearly allege mistake as a ground for nullification of the
contract of sale. Even assuming that he did, petitioner cannot successfully invoke the

50
same. To invalidate a contract, mistake must refer to the substance of the thing that is
the object of the contract, or to those conditions which have principally moved one or
both parties to enter into the contract. [25] An example of mistake as to the object of the
contract is the substitution of a specific thing contemplated by the parties with another.
[26]
 In his allegations in the complaint, petitioner insinuated that an inferior one or one
that had only Russian diamonds was substituted for the jewelry he wanted to exchange
with his 10-hectare land. He, however, failed to prove the fact that prior to the delivery of
the jewelry to him, private respondents endeavored to make such substitution.
Likewise, the facts as proven do not support the allegation that petitioner himself
could be excused for the mistake. On account of his work as a banker-jeweler, it can be
rightfully assumed that he was an expert on matters regarding gems. He had the
intellectual capacity and the business acumen as a banker to take precautionary
measures to avert such a mistake, considering the value of both the jewelry and his
land. The fact that he had seen the jewelry before October 24, 1984 should not have
precluded him from having its genuineness tested in the presence of Dr. Cruz. Had he
done so, he could have avoided the present situation that he himself brought
about. Indeed, the finger of suspicion of switching the genuine jewelry for a fake
inevitably points to him. Such a mistake caused by manifest negligence cannot
invalidate a juridical act.[27] As the Civil Code provides, (t)here is no mistake if the party
alleging it knew the doubt, contingency or risk affecting the object of the contract. [28]
Furthermore, petitioner was afforded the reasonable opportunity required in Article
1584 of the Civil Code within which to examine the jewelry as he in fact accepted them
when asked by Dr. Cruz if he was satisfied with the same. [29] By taking the jewelry
outside the bank, petitioner executed an act which was more consistent with his
exercise of ownership over it. This gains credence when it is borne in mind that he
himself had earlier delivered the Tanay property to Dr. Cruz by affixing his signature to
the contract of sale. That after two hours he later claimed that the jewelry was not the
one he intended in exchange for his Tanay property, could not sever the juridical tie that
now bound him and Dr. Cruz. The nature and value of the thing he had taken preclude
its return after that supervening period within which anything could have happened, not
excluding the alteration of the jewelry or its being switched with an inferior kind.
Both the trial and appellate courts, therefore, correctly ruled that there were no legal
bases for the nullification of the contract of sale. Ownership over the parcel of land and
the pair of emerald-cut diamond earrings had been transferred to Dr. Cruz and
petitioner, respectively, upon the actual and constructive delivery thereof. [30] Said
contract of sale being absolute in nature, title passed to the vendee upon delivery of the
thing sold since there was no stipulation in the contract that title to the property sold has
been reserved in the seller until full payment of the price or that the vendor has the right
to unilaterally resolve the contract the moment the buyer fails to pay within a fixed
period.[31] Such stipulations are not manifest in the contract of sale.
While it is true that the amount of P40,000.00 forming part of the consideration was
still payable to petitioner, its nonpayment by Dr. Cruz is not a sufficient cause to
invalidate the contract or bar the transfer of ownership and possession of the things

51
exchanged considering the fact that their contract is silent as to when it becomes due
and demandable.[32]
Neither may such failure to pay the balance of the purchase price result in the
payment of interest thereon. Article 1589 of the Civil Code prescribes the payment of
interest by the vendee for the period between the delivery of the thing and the payment
of the price in the following cases:
(1) Should it have been so stipulated;
(2) Should the thing sold and delivered produce fruits or income;
(3) Should he be in default, from the time of judicial or extrajudicial
demand for the payment of the price.
Not one of these cases obtains here. This case should, of course, be distinguished
from De la Cruz v. Legaspi,[33] where the court held that failure to pay the consideration
after the notarization of the contract as previously promised resulted in the vendees
liability for payment of interest. In the case at bar, there is no stipulation for the payment
of interest in the contract of sale nor proof that the Tanay property produced fruits or
income. Neither did petitioner demand payment of the price as in fact he filed an action
to nullify the contract of sale.
All told, petitioner appears to have elevated this case to this Court for the principal
reason of mitigating the amount of damages awarded to both private respondents which
petitioner considers as exorbitant. He contends that private respondents do not deserve
at all the award of damages. In fact, he pleads for the total deletion of the award as
regards private respondent Belarmino whom he considers a mere nominal party
because no specific claim for damages against him was alleged in the complaint. When
he filed the case, all that petitioner wanted was that Atty. Belarmino should return to him
the owners duplicate copy of TCT No. 320725, the deed of sale executed by Fr. Antonio
Jacobe, the deed of redemption and the check alloted for expenses. Petitioner alleges
further that Atty. Belarmino should not have delivered all those documents to Dr. Cruz
because as the lawyer for both the seller and the buyer in the sale contract, he should
have protected the rights of both parties. Moreover, petitioner asserts that there was no
firm basis for damages except for Atty. Belarminos uncorroborated testimony. [34]
Moral and exemplary damages may be awarded without proof of pecuniary loss. In
awarding such damages, the court shall take into account the circumstances obtaining
in the case and assess damages according to its discretion. [35] To warrant the award of
damages, it must be shown that the person to whom these are awarded has sustained
injury. He must likewise establish sufficient data upon which the court can properly base
its estimate of the amount of damages. [36] Statements of facts should establish such data
rather than mere conclusions or opinions of witnesses. [37] Thus:
x x x. For moral damages to be awarded, it is essential that the claimant must
have satisfactorily proved during the trial the existence of the factual basis of the
damages and its causal connection with the adverse partys acts. If the court has
no proof or evidence upon which the claim for moral damages could be based,
such indemnity could not be outrightly awarded. The same holds true with

52
 respect to the award of exemplary damages where it must be shown that the
party acted in a wanton, oppressive or malevolent manner. [38]
In this regard, the lower court appeared to have awarded damages on a ground
analogous to malicious prosecution under Article 2219(8) of the Civil Code [39] as shown
by (1) petitioners wanton bad faith in bloating the value of the Tanay property which he
exchanged for a genuine pair of emerald-cut diamond worth P200,000.00; and (2) his
filing of a malicious and unfounded case against private respondents who were well
known, respected and held in high esteem in San Pablo City where everybody
practically knows everybody and whose good names in the twilight of their lives were
soiled by petitioners coming to court with unclean hands, thereby affecting their earning
capacity in the exercise of their respective professions and besmirching their reputation.
For its part, the Court of Appeals affirmed the award of damages to private
respondents for these reasons:
The malice with which Fule filed this case is apparent. Having taken possession
of the genuine jewelry of Dra. Cruz, Fule now wishes to return a fake jewelry to
Dra. Cruz and, more than that, get back the real property, which his bank owns.
Fule has obtained a genuine jewelry which he could sell anytime, anywhere and
to anybody, without the same being traced to the original owner for practically
nothing. This is plain and simple, unjust enrichment. [40]
While, as a rule, moral damages cannot be recovered from a person who has filed a
complaint against another in good faith because it is not sound policy to place a penalty
on the right to litigate,[41] the same, however, cannot apply in the case at bar. The factual
findings of the courts a quo to the effect that petitioner filed this case because he was
the victim of fraud; that he could not have been such a victim because he should have
examined the jewelry in question before accepting delivery thereof, considering his
exposure to the banking and jewelry businesses; and that he filed the action for the
nullification of the contract of sale with unclean hands, all deserve full faith and credit to
support the conclusion that petitioner was motivated more by ill will than a sincere
attempt to protect his rights in commencing suit against respondents.
As pointed out earlier, a closer scrutiny of the chain of events immediately prior to
and on October 24, 1984 itself would amply demonstrate that petitioner was not simply
negligent in failing to exercise due diligence to assure himself that what he was taking in
exchange for his property were genuine diamonds. He had rather placed himself in a
situation from which it preponderantly appears that his seeming ignorance was actually
just a ruse. Indeed, he had unnecessarily dragged respondents to face the travails of
litigation in speculating at the possible favorable outcome of his complaint when he
should have realized that his supposed predicament was his own making. We,
therefore, see here no semblance of an honest and sincere belief on his part that he
was swindled by respondents which would entitle him to redress in court. It must be
noted that before petitioner was able to convince Dr. Cruz to exchange her jewelry for
the Tanay property, petitioner took pains to thoroughly examine said jewelry, even going
to the extent of sketching their appearance. Why at the precise moment when he was
about to take physical possession thereof he failed to exert extra efforts to check their
genuineness despite the large consideration involved has never been explained at all by

53
petitioner. His acts thus failed to accord with what an ordinary prudent man would have
done in the same situation. Being an experienced banker and a businessman himself
who deliberately skirted a legal impediment in the sale of the Tanay property and to
minimize the capital gains tax for its exchange, it was actually gross recklessness for
him to have merely conducted a cursory examination of the jewelry when every
opportunity for doing so was not denied him. Apparently, he carried on his person a
tester which he later used to prove the alleged fakery but which he did not use at the
time when it was most needed. Furthermore, it took him two more hours of unexplained
delay before he complained that the jewelry he received were counterfeit. Hence, we
stated earlier that anything could have happened during all the time that petitioner was
in complete possession and control of the jewelry, including the possibility of
substituting them with fake ones, against which respondents would have a great deal of
difficulty defending themselves. The truth is that petitioner even failed to successfully
prove during trial that the jewelry he received from Dr. Cruz were not genuine. Add to
that the fact that he had been shrewd enough to bloat the Tanay propertys price only a
few days after he purchased it at a much lower value. Thus, it is our considered view
that if this slew of circumstances were connected, like pieces of fabric sewn into a quilt,
they would sufficiently demonstrate that his acts were not merely negligent but rather
studied and deliberate.
We do not have here, therefore, a situation where petitioners complaint was simply
found later to be based on an erroneous ground which, under settled jurisprudence,
would not have been a reason for awarding moral and exemplary damages. [42] Instead,
the cause of action of the instant case appears to have been contrived by petitioner
himself. In other words, he was placed in a situation where he could not honestly
evaluate whether his cause of action has a semblance of merit, such that it would
require the expertise of the courts to put it to a test. His insistent pursuit of such case
then coupled with circumstances showing that he himself was guilty in bringing about
the supposed wrongdoing on which he anchored his cause of action would render him
answerable for all damages the defendant may suffer because of it. This is precisely
what took place in the petition at bar and we find no cogent reason to disturb the
findings of the courts below that respondents in this case suffered considerable
damages due to petitioners unwarranted action.
WHEREFORE, the decision of the Court of Appeals dated October 20, 1992 is
hereby AFFIRMED in toto. Dr. Cruz, however, is ordered to pay petitioner the balance
of the purchase price of P40,000.00 within ten (10) days from the finality of this
decision. Costs against petitioner.
SO ORDERED.
Narvasa, CJ. (Chairman), Kapunan and Purisima, JJ., concur.

54
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. L-69259 January 26, 1988

DELPHER TRADES CORPORATION, and DELPHIN PACHECO, petitioners, 

vs.
INTERMEDIATE APPELLATE COURT and HYDRO PIPES PHILIPPINES, INC., respondents.

GUTIERREZ, JR., J.:

The petitioners question the decision of the Intermediate Appellate Court which sustained the private respondent's contention that the deed of exchange whereby Delfin Pacheco and Pelagia Pacheco
conveyed a parcel of land to Delpher Trades Corporation in exchange for 2,500 shares of stock was actually a deed of sale which violated a right of first refusal under a lease contract.

Briefly, the facts of the case are summarized as follows:

In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square meters of
real estate Identified as Lot. No. 1095, Malinta Estate, in the Municipality of Polo (now Valenzuela),
Province of Bulacan (now Metro Manila) which is covered by Transfer Certificate of Title No. T-4240 of
the Bulacan land registry.

On April 3, 1974, the said co-owners leased to Construction Components International Inc. the same
property and providing that during the existence or after the term of this lease the lessor should he
decide to sell the property leased shall first offer the same to the lessee and the letter has the priority
to buy under similar conditions (Exhibits A to A-5)

On August 3, 1974, lessee Construction Components International, Inc. assigned its rights and
obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed
conformity and consent of lessors Delfin Pacheco and Pelagia Pacheco (Exhs. B to B-6 inclusive)

The contract of lease, as well as the assignment of lease were annotated at he back of the title, as per
stipulation of the parties (Exhs. A to D-3 inclusive)

On January 3, 1976, a deed of exchange was executed between lessors Delfin and Pelagia Pacheco and
defendant Delpher Trades Corporation whereby the former conveyed to the latter the leased property
(TCT No.T-4240) together with another parcel of land also located in Malinta Estate, Valenzuela, Metro
Manila (TCT No. 4273) for 2,500 shares of stock of defendant corporation with a total value of
P1,500,000.00 (Exhs. C to C-5, inclusive) (pp. 44-45, Rollo)

On the ground that it was not given the first option to buy the leased property pursuant to the proviso in the lease
agreement, respondent Hydro Pipes Philippines, Inc., filed an amended complaint for reconveyance of Lot. No. 1095 in its
favor under conditions similar to those whereby Delpher Trades Corporation acquired the property from Pelagia Pacheco
and Delphin Pacheco.

After trial, the Court of First Instance of Bulacan ruled in favor of the plaintiff. The dispositive portion of the decision
reads:

ACCORDINGLY, the judgment is hereby rendered declaring the valid existence of the plaintiffs
preferential right to acquire the subject property (right of first refusal) and ordering the defendants
and all persons deriving rights therefrom to convey the said property to plaintiff who may offer to

55
 acquire the same at the rate of P14.00 per square meter, more or less, for Lot 1095 whose area is
27,169 square meters only. Without pronouncement as to attorney's fees and costs. (Appendix I; Rec.,
pp. 246- 247). (Appellant's Brief, pp. 1-2; p. 134, Rollo)

The lower court's decision was affirmed on appeal by the Intermediate Appellate Court.

The defendants-appellants, now the petitioners, filed a petition for certiorari to review the appellate court's decision.

We initially denied the petition but upon motion for reconsideration, we set aside the resolution denying the petition and
gave it due course.

The petitioners allege that:

The denial of the petition will work great injustice to the petitioners, in that:

1. Respondent Hydro Pipes Philippines, Inc, ("private respondent") will acquire from petitioners a
parcel of industrial land consisting of 27,169 square meters or 2.7 hectares (located right after the
Valenzuela, Bulacan exit of the toll expressway) for only P14/sq. meter, or a total of P380,366, although
the prevailing value thereof is approximately P300/sq. meter or P8.1 Million;

2. Private respondent is allowed to exercise its right of first refusal even if there is no "sale" or transfer
of actual ownership interests by petitioners to third parties; and

3. Assuming arguendo that there has been a transfer of actual ownership interests, private respondent
will acquire the land  not under "similar conditions" by which it was transferred to petitioner Delpher
Trades Corporation, as provided in the same contractual provision invoked by private respondent. (pp.
251-252, Rollo)

The resolution of the case hinges on whether or not the "Deed of Exchange" of the properties executed by the Pachecos on
the one hand and the Delpher Trades Corporation on the other was meant to be a contract of sale which, in effect,
prejudiced the private respondent's right of first refusal over the leased property included in the "deed of exchange."

Eduardo Neria, a certified public accountant and son-in-law of the late Pelagia Pacheco testified that Delpher Trades
Corporation is a family corporation; that the corporation was organized by the children of the two spouses (spouses
Pelagia Pacheco and Benjamin Hernandez and spouses Delfin Pacheco and Pilar Angeles) who owned in common the
parcel of land leased to Hydro Pipes Philippines in order to perpetuate their control over the property through the
corporation and to avoid taxes; that in order to accomplish this end, two pieces of real estate, including Lot No. 1095
which had been leased to Hydro Pipes Philippines, were transferred to the corporation; that the leased property was
transferred to the corporation by virtue of a deed of exchange of property; that in exchange for these properties, Pelagia
and Delfin acquired 2,500 unissued no par value shares of stock which are equivalent to a 55% majority in the
corporation because the other owners only owned 2,000 shares; and that at the time of incorporation, he knew all about
the contract of lease of Lot. No. 1095 to Hydro Pipes Philippines. In the petitioners' motion for reconsideration, they refer
to this scheme as "estate planning." (p. 252, Rollo)

Under this factual backdrop, the petitioners contend that there was actually no transfer of ownership of the subject parcel
of land since the Pachecos remained in control of the property. Thus, the petitioners allege: "Considering that the
beneficial ownership and control of petitioner corporation remained in the hands of the original co-owners, there was no
transfer of actual ownership interests over the land when the same was transferred to petitioner corporation in exchange
for the latter's shares of stock. The transfer of ownership, if anything, was merely in form but not in substance. In reality,
petitioner corporation is a mere alter ego or conduit of the Pacheco co-owners; hence the corporation and the co-owners
should be deemed to be the same, there being in substance and in effect an Identity of interest." (p. 254, Rollo)

The petitioners maintain that the Pachecos did not sell the property. They argue that there was no sale and that they
exchanged the land for shares of stocks in their own corporation. "Hence, such transfer is not within the letter, or even
spirit of the contract. There is a sale when ownership is transferred for a price certain in money or its equivalent (Art.
1468, Civil Code) while there is a barter or exchange when one thing is given in consideration of another thing (Art. 1638,
Civil Code)." (pp. 254-255, Rollo)

56
On the other hand, the private respondent argues that Delpher Trades Corporation is a corporate entity separate and
distinct from the Pachecos. Thus, it contends that it cannot be said that Delpher Trades Corporation is the Pacheco's same
alter ego or conduit; that petitioner Delfin Pacheco, having treated Delpher Trades Corporation as such a separate and
distinct corporate entity, is not a party who may allege that this separate corporate existence should be disregarded. It
maintains that there was actual transfer of ownership interests over the leased property when the same was transferred
to Delpher Trades Corporation in exchange for the latter's shares of stock.

We rule for the petitioners.

After incorporation, one becomes a stockholder of a corporation by subscription or by purchasing stock directly from the
corporation or from individual owners thereof (Salmon, Dexter & Co. v. Unson, 47 Phil, 649, citing Bole v. Fulton [1912],
233 Pa., 609). In the case at bar, in exchange for their properties, the Pachecos acquired 2,500 original unissued no par
value shares of stocks of the Delpher Trades Corporation. Consequently, the Pachecos became stockholders of the
corporation by subscription "The essence of the stock subscription is an agreement to take and pay for original unissued
shares of a corporation, formed or to be formed." (Rohrlich 243, cited in Agbayani, Commentaries and Jurisprudence on
the Commercial Laws of the Philippines, Vol. III, 1980 Edition, p. 430) It is significant that the Pachecos took no par value
shares in exchange for their properties.

A no-par value share does not purport to represent any stated proportionate interest in the capital
stock measured by value, but only an aliquot part of the whole number of such shares of the issuing
corporation. The holder of no-par shares may see from the certificate itself that he is only an aliquot
sharer in the assets of the corporation. But this character of proportionate interest is not hidden
beneath a false appearance of a given sum in money, as in the case of par value shares. The capital
stock of a corporation issuing only no-par value shares is not set forth by a stated amount of money,
but instead is expressed to be divided into a stated number of shares, such as, 1,000 shares. This
indicates that a shareholder of 100 such shares is an aliquot sharer in the assets of the corporation, no
matter what value they may have, to the extent of 100/1,000 or 1/10. Thus, by removing the par value
of shares, the attention of persons interested in the financial condition of a corporation is focused upon
the value of assets and the amount of its debts. (Agbayani, Commentaries and Jurisprudence on the
Commercial Laws of the Philippines, Vol. III, 1980 Edition, p. 107).

Moreover, there was no attempt to state the true or current market value of the real estate. Land valued at P300.00 a
square meter was turned over to the family's corporation for only P14.00 a square meter.

It is to be stressed that by their ownership of the 2,500 no par shares of stock, the Pachecos have control of the
corporation. Their equity capital is 55% as against 45% of the other stockholders, who also belong to the same family
group.

In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was to invest their
properties and change the nature of their ownership from unincorporated to incorporated form by organizing Delpher
Trades Corporation to take control of their properties and at the same time save on inheritance taxes.

As explained by Eduardo Neria:

xxx xxx xxx

ATTY. LINSANGAN:

Q Mr. Neria, from the point of view of taxation, is there any benefit to the spouses
Hernandez and Pacheco in connection with their execution of a deed of exchange on
the properties for no par value shares of the defendant corporation?

A Yes, sir.

COURT:

Q What do you mean by "point of view"?

57
 A To take advantage for both spouses and corporation in entering in the deed of
exchange.

ATTY. LINSANGAN:

Q (What do you mean by "point of view"?) What are these benefits to the spouses of
this deed of exchange?

A Continuous control of the property, tax exemption benefits, and other inherent
benefits in a corporation.

Q What are these advantages to the said spouses from the point of view of taxation
in entering in the deed of exchange?

A Having fulfilled the conditions in the income tax law, providing for tax free
exchange of property, they were able to execute the deed of exchange free from
income tax and acquire a corporation.

Q What provision in the income tax law are you referring to?

A I refer to Section 35 of the National Internal Revenue Code under par. C-sub-par.
(2) Exceptions regarding the provision which I quote: "No gain or loss shall also be
recognized if a person exchanges his property for stock in a corporation of which as
a result of such exchange said person alone or together with others not exceeding
four persons gains control of said corporation."

Q Did you explain to the spouses this benefit at the time you executed the deed of
exchange?

A Yes, sir

Q You also, testified during the last hearing that the decision to have no par value
share in the defendant corporation was for the purpose of flexibility. Can you
explain flexibility in connection with the ownership of the property in question?

A There is flexibility in using no par value shares as the value is determined by the
board of directors in increasing capitalization. The board can fix the value of the
shares equivalent to the capital requirements of the corporation.

Q Now also from the point of taxation, is there any flexibility in the holding by the
corporation of the property in question?

A Yes, since a corporation does not die it can continue to hold on to the property
indefinitely for a period of at least 50 years. On the other hand, if the property is
held by the spouse the property will be tied up in succession proceedings and the
consequential payments of estate and inheritance taxes when an owner dies.

Q Now what advantage is this continuity in relation to ownership by a particular

person of certain properties in respect to taxation?

A The property is not subjected to taxes on succession as the corporation does not
die.

Q So the benefit you are talking about are inheritance taxes?

58
 A Yes, sir. (pp. 3-5, tsn., December 15, 1981)

The records do not point to anything wrong or objectionable about this "estate planning" scheme resorted to by the
Pachecos. "The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid
them, by means which the law permits, cannot be doubted." (Liddell & Co., Inc. v. The collector of Internal Revenue, 2
SCRA 632 citing Gregory v. Helvering, 293 U.S. 465, 7 L. ed. 596).

The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot be considered a
contract of sale. There was no transfer of actual ownership interests by the Pachecos to a third party. The Pacheco family
merely changed their ownership from one form to another. The ownership remained in the same hands. Hence, the
private respondent has no basis for its claim of a light of first refusal under the lease contract.

WHEREFORE, the instant petition is hereby GRANTED, The questioned decision and resolution of the then Intermediate
Appellate Court are REVERSED and SET ASIDE. The amended complaint in Civil Case No. 885-V-79 of the then Court of
First Instance of Bulacan is DISMISSED. No costs.

SO ORDERED.

Fernan (Chairman), Bidin and Cortes, JJ., concur.

Feliciano, J., took no part.

59
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 82508 September 29, 1989

FILINVEST CREDIT CORPORATION, petitioner, 

vs.
THE COURT OF APPEALS, JOSE SY BANG and ILUMINADA TAN SY BANG,*respondents.

Labaquis, Loyola, Angara and Associates for petitioner.

Alfredo 1. Raya for private respondents.

SARMIENTO, J.:

This is a petition for review on certiorari of the decision,   dated March 17, 1988, of the Court of
1

Appeals which affirmed with modification the decision   of the Regional Trial Court of Quezon,
2

Branch LIX, Lucena City. The controversy stemmed from the following facts: The private
respondents, the spouses Jose Sy Bang and Iluminada Tan, were engaged in the sale of gravel
produced from crushed rocks and used for construction purposes. In order to increase their
production, they engaged the services of Mr. Ruben Mercurio, the proprietor of Gemini Motor Sales
in Lucena City, to look for a rock crusher which they could buy. Mr. Mercurio referred the private
respondents to the Rizal Consolidated Corporation which then had for sale one such machinery
described as:

ONE UNIT LIPPMAN PORTABLE CRUSHING PLANT (RECONDITIONED) [sic]

JAW CRUSHER-10xl6 DOUBLE ROLL CRUSHER 16x16

3 UNITS PRODUCT CONVEYOR

75 HP ELECTRIC MOTOR

8 PCS. BRAND NEW TIRES CHASSIS NO. 19696 GOOD RUNNING CONDITION  3

Oscar Sy Bang, a brother of private respondent Jose Sy Bang, went to inspect the machine at the
Rizal Consolidated's plant site. Apparently satisfied with the machine, the private respondents
signified their intent to purchase the same. They were however confronted with a problem-the rock
crusher carried a cash price tag of P 550,000.00. Bent on acquiring the machinery, the private
respondents applied for financial assistance from the petitioner, Filinvest Credit Corporation. The
petitioner agreed to extend to the private respondents financial aid on the following conditions: that
the machinery be purchased in the petitioner's name; that it be leased (with option to purchase upon
the termination of the lease period) to the private respondents; and that the private respondents
execute a real estate mortgage in favor of the petitioner as security for the amount advanced by the
latter. Accordingly, on May 18,1981, a contract of lease of machinery (with option to purchase) was

60
entered into by the parties whereby the private respondents agreed to lease from the petitioner the
rock crusher for two years starting from July 5, 1 981 payable as follows:

P10,000.00 - first 3 months

23,000.00 - next 6 months

24,800.00 - next 15 months

The contract likewise stipulated that at the end of the two-year period, the machine would be owned
by the private respondents. Thus, the private respondents issued in favor of the petitioner a check
for P150,550.00, as initial rental (or guaranty deposit), and twenty-four (24) postdated checks
corresponding to the 24 monthly rentals. In addition, to guarantee their compliance with the lease
contract, the private respondents executed a real estate mortgage over two parcels of land in favor
of the petitioner. The rock crusher was delivered to the private respondents on June 9, 1981. Three
months from the date of delivery, or on September 7, 1981, however, the private respondents,
claiming that they had only tested the machine that month, sent a letter-complaint to the petitioner,
alleging that contrary to the 20 to 40 tons per hour capacity of the machine as stated in the lease
contract, the machine could only process 5 tons of rocks and stones per hour. They then demanded
that the petitioner make good the stipulation in the lease contract. They followed that up with similar
written complaints to the petitioner, but the latter did not, however, act on them. Subsequently, the
private respondents stopped payment on the remaining checks they had issued to the petitioner.  5

As a consequence of the non-payment by the private respondents of the rentals on the rock crusher
as they fell due despite the repeated written demands, the petitioner extrajudicially foreclosed the
real estate mortgage.   On April 18, 1983, the private respondents received a Sheriff s Notice of
6

Auction Sale informing them that their mortgaged properties were going to be sold at a public
auction on May 25, 1983 at 10:00 o'clock in the morning at the Office of the Provincial Sheriff in
Lucena City to satisfy their indebtedness to the petitioner.   To thwart the impending auction of their
7

properties, the private respondents filed before the Regional Trial Court of Quezon, on May 4,
1983,   a complaint against the petitioner, for the rescission of the contract of lease, annullment of
8

the real estate mortgage, and for injunction and damages, with prayer for the issuance of a writ of
preliminary injunction.  On May 23, 1983, three days before the scheduled auction sale, the trial
9

court issued a temporary restraining order commanding the Provincial Sheriff of Quezon, and the
petitioner, to refrain and desist from proceeding with the public auction.   Two years later, on
10

September 4, 1985, the trial court rendered a decision in favor of the private respondents, the
dispositive portion of which reads:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

1. making the injunction permanent;

2. rescinding the contract of lease of the machinery and equipment and ordering the
plaintiffs to return to the defendant corporation the machinery subject of the lease
contract, and the defendant corporation to return to plaintiffs the sum of P470,950.00
it received from the latter as guaranty deposit and rentals with legal interest thereon
until the amount is fully restituted;

3. annulling the real estate mortgage constituted over the properties of the plaintiffs
covered by Transfer Certificate of Title Nos. T32480 and T-5779 of the Registry of
Deeds of Lucena City;

61
 4. ordering the defendant corporation to pay plaintiffs P30,000.00 as attorney's fees
and the costs of the suit.

SO ORDERED.  11

Dissatisfied with the trial court's decision, the petitioner elevated the case to the respondent Court of
Appeals.

On March 17, 1988, the appellate court, finding no error in the appealed judgment, affirmed the
same in toto.  Hence, this petition.
12

Before us, the petitioner reasserts that the private respondents' cause of action is not against it (the
petitioner), but against either the Rizal Consolidated Corporation, the original owner-seller of the
subject rock crusher, or Gemini Motors Sales which served as a conduit facilitator of the purchase of
the said machine. The petitioner argues that it is a financing institution engaged in quasi-banking
activities, primarily the lending of money to entrepreneurs such as the private respondents and the
general public, but certainly not the leasing or selling of heavy machineries like the subject rock
crusher. The petitioner denies being the seller of the rock crusher and only admits having financed
its acquisition by the private respondents. Further, the petitioner absolves itself of any liability arising
out of the lease contract it signed with the private respondents due to the waiver of warranty made
by the latter. The petitioner likewise maintains that the private respondents being presumed to be
knowledgeable about machineries, should be held responsible for the detection of defects in the
machine they had acquired, and on account of that, they are estopped from claiming any breach of
warranty. Finally, the petitioner interposed the defense of prescription, invoking Article 1571 of the
Civil Code, which provides:

Art. 1571. Actions arising from the provisions of the preceding ten articles shall be barred after six
months, from the delivery of the thing sold.

We find the petitioner's first contention untenable. While it is accepted that the petitioner is a
financing institution, it is not, however, immune from any recourse by the private respondents.
Notwithstanding the testimony of private respondent Jose Sy Bang that he did not purchase the rock
crusher from the petitioner, the fact that the rock crusher was purchased from Rizal Consolidated
Corporation in the name and with the funds of the petitioner proves beyond doubt that the ownership
thereof was effectively transferred to it. It is precisely this ownership which enabled the petitioner to
enter into the "Contract of Lease of Machinery and Equipment" with the private respondents.

Be that as it may, the real intention of the parties should prevail. The nomenclature of the agreement
cannot change its true essence, i.e., a sale on installments. It is basic that a contract is what the law
defines it and the parties intend it to be, not what it is called by the parties.   It is apparent here
13

thatthe intent of the parties to the subject contract is for the so-called rentals to be the installment
payments. Upon the completion of the payments, then the rock crusher, subject matter of the
contract, would become the property of the private respondents. This form of agreement has been
criticized as a lease only in name. Thus in Vda. de Jose v. Barrueco   we stated:
14

Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a
bargain in that form, for one reason or another, have frequently resorted to the device of making
contracts in the form of leases either with options to the buyer to purchase for a small consideration
at the end of term, provided the so-called rent has been duly paid, or with stipulations that if the rent
throughout the term is paid, title shall thereupon vest in the lessee. It is obvious that such
transactions are leases only in name. The so-called rent must necessarily be regarded as payment

62
of the price in installments since the due payment of the agreed amount results, by the terms of
bargain, in the transfer of title to the lessee. 
15

The importance of the criticism is heightened in the light of Article 1484 of the new Civil Code which
provides for the remedies of an unpaid seller of movables on installment basis.

Article 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more
installments;

(3) Foreclose the chattel mortgage or the thing sold, if one has been constituted,
should the vendee's failure to pay cover two or more installments. In this case, he
shall have no further action against the purchaser to recover any unpaid balance of
the price. Any agreement to the contrary shall be void.

Under the aforequoted provision, the seller of movables in installments, in case the buyer fails to pay
two or more installments may elect to pursue either of the following remedies: (1) exact fulfillment by
the purchaser of the obligation; (2) cancel the sale; or (3) foreclose the mortgage on the purchased
property if one was constituted thereon. It is now settled that the said remedies are alternative and
not cumulative and therefore, the exercise of one bars the exercise of the others.

Indubitably, the device contract of lease with option to buy is at times resorted to as a means to
circumvent Article 1484, particularly paragraph (3) thereof.Through the set-up, the vendor, by
retaining ownership over the property in the guise of being the lessor, retains, likewise, the right to
repossess the same, without going through the process of foreclosure, in the event the vendee-
lessee defaults in the payment of the installments. There arises therefore no need to constitute a
chattel mortgage over the movable sold. More important, the vendor, after repossessing the property
and, in effect, canceling the contract of sale, gets to keep all the installments-cum-rentals already
paid. It is thus for these reasons that Article 1485 of the new Civil Code provides that:

Article 1485. The preceding article shall be applied to contracts purporting to be

leases of personal property with option to buy, when the lessor has deprived the
lessee of possession or enjoyment of the thing. (Emphasis ours.)

Unfortunately, even with the foregoing findings, we however fail to find any reason to hold the
petitioner liable for the rock crusher's failure to produce in accordance with its described capacity.
According to the petitioner, it was the private respondents who chose, inspected, and tested the
subject machinery. It was only after they had inspected and tested the machine, and found it to their
satisfaction, that the private respondents sought financial aid from the petitioner. These allegations
of the petitioner had never been rebutted by the private respondents. In fact, they were even
admitted by the private respondents in the contract they signed. Thus:

LESSEE'S SELECTION, INSPECTION AND VERIFICATION.-The LESSEE hereby confirms and

acknowledges that he has independently inspected and verified the leased property and has
selected and received the same from the Dealer of his own choosing in good order and excellent
running and operating condition and on the basis of such verification, etc. the LESSEE has agreed
to enter into this Contract." 
16

63
Moreover, considering that between the parties, it is the private respondents, by reason of their
business, who are presumed to be more knowledgeable, if not experts, on the machinery subject of
the contract, they should not therefore be heard now to complain of any alleged deficiency of the
said machinery. It is their failure or neglect to exercise the caution and prudence of an expert, or, at
least, of a prudent man, in the selection, testing, and inspection of the rock crusher that gave rise to
their difficulty and to this conflict. A well- established principle in law is that between two parties, he,
who by his negligence caused the loss, shall bear the same.

At any rate, even if the private respondents could not be adjudged as negligent, they still are
precluded from imputing any liability on the petitioner. One of the stipulations in the contract they
entered into with the petitioner is an express waiver of warranties in favor of the latter. By so signing
the agreement, the private respondents absolved the petitioner from any liability arising from any
defect or deficiency of the machinery they bought. The stipulation on the machine's production
capacity being "typewritten" and that of the waiver being "printed" does not militate against the
latter's effectivity. As such, whether "a capacity of 20 to 40 tons per hour" is a condition or a
description is of no moment. What stands is that the private respondents had expressly exempted
the petitioner from any warranty whatsoever. Their Contract of Lease Of Machinery And Equipment
states:

WARRANTY-LESSEE absolutely releases the lessor from any liability whatsoever as to any and all
matters in relation to warranty in accordance with the provisions hereinafter stipulated.  17

Taking into account that due to the nature of its business and its mode of providing financial
assistance to clients, the petitioner deals in goods over which it has no sufficient know-how or
expertise, and the selection of a particular item is left to the client concerned, the latter, therefore,
shoulders the responsibility of protecting himself against product defects. This is where the waiver of
warranties is of paramount importance. Common sense dictates that a buyer inspects a product
before purchasing it (under the principle of caveat emptor or "buyer beware") and does not return it
for defects discovered later on, particularly if the return of the product is not covered by or stipulated
in a contract or warranty. In the case at bar, to declare the waiver as non-effective, as the lower
courts did, would impair the obligation of contracts. Certainly, the waiver in question could not be
considered a mere surplusage in the contract between the parties. Moreover, nowhere is it shown in
the records of the case that the private respondent has argued for its nullity or illegality. In any event,
we find no ambiguity in the language of the waiver or the release of warranty. There is therefore no
room for any interpretation as to its effect or applicability vis-a- vis the deficient output of the rock
crusher. Suffice it to say that the private respondents have validly excused the petitioner from any
warranty on the rock crusher. Hence, they should bear the loss for any defect found therein.

WHEREFORE, the Petition is GRANTED; the Decision of the Court of Appeals dated March 17,
1988 is hereby REVERSED AND SET ASIDE, and another one rendered DISMISSING the
complaint. Costs against the private respondents.

SO ORDERED.

Melencio-Herrera (Chairperson), Paras and Regalado, ii., concur,

Padilla, J.,took no part

64
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. L-46658             May 13, 1991

PHILIPPINE NATIONAL BANK, petitioner, 

vs.
HON. GREGORIO G. PINEDA, in his capacity as Presiding Judge of the Court of First Instance of Rizal, Branch
XXI and TAYABAS CEMENT COMPANY, INC., respondents.

The Chief Legal Counsel for petitioner.

Ortille Law Office for private respondent.

FERNAN, C.J.:

In this petition for certiorari, petitioner Philippine National Bank (PNB) seeks to annul and set aside the orders
dated March 4, 1977 and May 31, 1977 rendered in Civil Case No. 24422 1 of the Court of First Instance of Rizal,
Branch XXI, respectively granting private respondent Tayabas Cement Company, Inc.'s application for a writ of
preliminary injunction to enjoin the foreclosure sale of certain properties in Quezon City and Negros Occidental and
denying petitioner's motion for reconsideration thereof.

In 1963, Ignacio Arroyo, married to Lourdes Tuason Arroyo (the Arroyo Spouses), obtained a loan of P580,000.00
from petitioner bank to purchase 60% of the subscribed capital stock, and thereby acquire the controlling interest
of private respondent Tayabas Cement Company, Inc. (TCC).2 As security for said loan, the spouses Arroyo executed
a real estate mortgage over a parcel of land covered by Transfer Certificate of Title No. 55323 of the Register of
Deeds of Quezon City known as the La Vista property.

Thereafter, TCC filed with petitioner bank an application and agreement for the establishment of an eight (8) year
deferred letter of credit (L/C) for $7,000,000.00 in favor of Toyo Menka Kaisha, Ltd. of Tokyo, Japan, to cover the
importation of a cement plant machinery and equipment.

Upon approval of said application and opening of an L/C by PNB in favor of Toyo Menka Kaisha, Ltd. for the account
of TCC, the Arroyo spouses executed the following documents to secure this loan accommodation: Surety
Agreement dated August 5, 19643 and Covenant dated August 6, 1964.4

The imported cement plant machinery and equipment arrived from Japan and were released to TCC under a trust
receipt agreement. Subsequently, Toyo Menka Kaisha, Ltd. made the corresponding drawings against the L/C as
scheduled. TCC, however, failed to remit and/or pay the corresponding amount covered by the drawings. Thus, on
May 19, 1968, pursuant to the trust receipt agreement, PNB notified TCC of its intention to repossess, as it later did,
the imported machinery and equipment for failure of TCC to settle its obligations under the L/C. 5

In the meantime, the personal accounts of the spouses Arroyo, which included another loan of P160,000.00 secured
by a real estate mortgage over parcels of agricultural land known as Hacienda Bacon located in Isabela, Negros
Occidental, had likewise become due. The spouses Arroyo having failed to satisfy their obligations with PNB, the
latter decided to foreclose the real estate mortgages executed by the spouses Arroyo in its favor.

65
On July 18, 1975, PNB filed with the City Sheriff of Quezon City a petition for extra-judicial foreclosure under Act
3138, as amended by Act 4118 and under Presidential Decree No. 385 of the real estate mortgage over the
properties known as the La Vista property covered by TCT No. 55323. 6 PNB likewise filed a similar petition with the
City Sheriff of Bacolod, Negros Occidental with respect to the mortgaged properties located at Isabela, Negros
Occidental and covered by OCT No. RT 1615.

The foreclosure sale of the La Vista property was scheduled on August 11, 1975. At the auction sale, PNB was the
highest bidder with a bid price of P1,000,001.00. However, when said property was about to be awarded to PNB,
the representative of the mortgagor-spouses objected and demanded from the PNB the difference between the bid
price of P1,000,001.00 and the indebtedness of P499,060.25 of the Arroyo spouses on their personal account. It
was the contention of the spouses Arroyo's representative that the foreclosure proceedings referred only to the
personal account of the mortgagor spouses without reference to the account of TCC.

To remedy the situation, PNB filed a supplemental petition on August 13, 1975 requesting the Sheriff's Office to
proceed with the sale of the subject real properties to satisfy not only the amount of P499,060.25 owed by the
spouses Arroyos on their personal account but also the amount of P35,019,901.49 exclusive of interest, commission
charges and other expenses owed by said spouses as sureties of TCC. 7 Said petition was opposed by the spouses
Arroyo and the other bidder, Jose L. Araneta.

On September 12, 1975, Acting Clerk of Court and Ex-Officio Sheriff Diana L. Dungca issued a resolution finding that
the questions raised by the parties required the reception and evaluation of evidence, hence, proper for
adjudication by the courts of law. Since said questions were prejudicial to the holding of the foreclosure sale, she
ruled that her "Office, therefore, cannot properly proceed with the foreclosure sale unless and until there be a court
ruling on the aforementioned issues."8

Thus, in May, 1976, PNB filed with the Court of First Instance of Quezon City, Branch V a petition
for mandamus9against said Diana Dungca in her capacity as City Sheriff of Quezon City to compel her to proceed
with the foreclosure sale of the mortgaged properties covered by TCT No. 55323 in order to satisfy both the
personal obligation of the spouses Arroyo as well as their liabilities as sureties of TCC. 10

On September 6, 1976, the petition was granted and Dungca was directed to proceed with the foreclosure sale of
the mortgaged properties covered by TCT No. 55323 pursuant to Act No. 3135 and to issue the corresponding
Sheriff's Certificate of Sale.11

Before the decision could attain finality, TCC filed on September 14, 1976 before the Court of First Instance of Rizal,
Pasig, Branch XXI a complaint12 against PNB, Dungca, and the Provincial Sheriff of Negros Occidental and Ex-Officio
Sheriff of Bacolod City seeking, inter alia, the issuance of a writ of preliminary injunction to restrain the foreclosure
of the mortgages over the La Vista property and Hacienda Bacon as well as a declaration that its obligation with
PNB had been fully paid by reason of the latter's repossession of the imported machinery and equipment. 13

On October 5, 1976, the CFI, thru respondent Judge Gregorio Pineda, issued a restraining order 14 and on March 4,
1977, granted a writ of preliminary injunction. 15 PNB's motion for reconsideration was denied, hence this petition.

Petitioner PNB advances four grounds for the setting aside of the writ of preliminary injunction, namely: a) that it
contravenes P.D. No. 385 which prohibits the issuance of a restraining order against a government financial
institution in any action taken by such institution in compliance with the mandatory foreclosure provided in
Section 1 thereof; b) that the writ countermands a final decision of a co-equal and coordinate court; c) that the writ
seeks to prohibit the performance of acts beyond the court's territorial jurisdiction; and, d) private respondent TCC
has not shown any clear legal right or necessity to the relief of preliminary injunction.

Private respondent TCC counters with the argument that P.D. No. 385 does not apply to the case at bar, firstly
because no foreclosure proceedings have been instituted against it by PNB and secondly, because its account under
the L/C has been fully satisfied with the repossession of the imported machinery and equipment by PNB.

66
The resolution of the instant controversy lies primarily on the question of whether or not TCC's liability has been
extinguished by the repossession of PNB of the imported cement plant machinery and equipment.

We rule for the petitioner PNB. It must be remembered that PNB took possession of the imported cement plant
machinery and equipment pursuant to the trust receipt agreement executed by and between PNB and TCC giving
the former the unqualified right to the possession and disposal of all property shipped under the Letter of Credit
until such time as all the liabilities and obligations under said letter had been discharged. 16 In the case of Vintola vs.
Insular Bank of Asia and America17 wherein the same argument was advanced by the Vintolas as entrustees of
imported seashells under a trust receipt transaction, we said:

Further, the VINTOLAS take the position that their obligation to IBAA has been extinguished inasmuch as,
through no fault of their own, they were unable to dispose of the seashells, and that they have relinquished
possession thereof to the IBAA, as owner of the goods, by depositing them with the Court.

The foregoing submission overlooks the nature and mercantile usage of the transaction involved. A letter
of credit-trust receipt arrangement is endowed with its own distinctive features and characteristics. Under
that set-up, a bank extends a loan covered by the Letter of Credit, with the trust receipt as a security for
the loan. In other words, the transaction involves a loan feature represented by the letter of credit, and a
security feature which is in the covering trust receipt.

x x x           x x x          x x x

A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a "security interest"
in the goods.1âwphi1 It secures an indebtedness and there can be no such thing as security interest that
secures no obligation. As defined in our laws:

(h) "Security interest" means a property interest in goods, documents or instruments to secure
performance of some obligations of the entrustee or of some third persons to the entruster and
includes title, whether or not expressed to be absolute, whenever such title is in substance taken
or retained for security only.

x x x           x x x          x x x

Contrary to the allegation of the VINTOLAS, IBAA did not become the real owner of the goods. It was
merely the holder of a security title for the advances it had made to the VINTOLAS. The goods the
VINTOLAS had purchased through IBAA financing remain their own property and they hold it at their own
risk. The trust receipt arrangement did not convert the IBAA into an investor; the latter remained a lender
and creditor.

x x x           x x x          x x x

Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably claim that because
they have surrendered the goods to IBAA and subsequently deposited them in the custody of the court,
they are absolutely relieved of their obligation to pay their loan because of their inability to dispose of the
goods. The fact that they were unable to sell the seashells in question does not affect IBAA's right to
recover the advances it had made under the Letter of Credit.

PNB's possession of the subject machinery and equipment being precisely as a form of security for the advances
given to TCC under the Letter of Credit, said possession by itself cannot be considered payment of the loan secured
thereby. Payment would legally result only after PNB had foreclosed on said securities, sold the same and applied
the proceeds thereof to TCC's loan obligation. Mere possession does not amount to foreclosure for foreclosure
denotes the procedure adopted by the mortgagee to terminate the rights of the mortgagor on the property and
includes the sale itself.18

67
Neither can said repossession amount to dacion en pago. Dation in payment takes place when property is alienated
to the creditor in satisfaction of a debt in money and the same is governed by sales. 19 Dation in payment is the
delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the
performance of the obligation.20 As aforesaid, the repossession of the machinery and equipment in question was
merely to secure the payment of TCC's loan obligation and not for the purpose of transferring ownership thereof to
PNB in satisfaction of said loan. Thus, no dacion en pago was ever accomplished.

Proceeding from this finding, PNB has the right to foreclose the mortgages executed by the spouses Arroyo as
sureties of TCC. A surety is considered in law as being the same party as the debtor in relation to whatever is
adjudged touching the obligation of the latter, and their liabilities are interwoven as to be inseparable. 21 As sureties,
the Arroyo spouses are primarily liable as original promissors and are bound immediately to pay the creditor the
amount outstanding.22

Under Presidential Decree No. 385 which took effect on January 31, 1974, government financial institutions like
herein petitioner PNB are required to foreclose on the collaterals and/or securities for any loan, credit or
accommodation whenever the arrearages on such account amount to at least twenty percent (20%) of the total
outstanding obligations, including interests and charges, as appearing in the books of account of the financial
institution concerned.23 It is further provided therein that "no restraining order, temporary or permanent
injunction shall be issued by the court against any government financial institution in any action taken by such
institution in compliance with the mandatory foreclosure provided in Section 1 hereof, whether such restraining
order, temporary or permanent injunction is sought by the borrower(s) or any third party or parties . . ." 24

It is not disputed that the foreclosure proceedings instituted by PNB against the Arroyo spouses were in
compliance with the mandate of P.D. 385. This being the case, the respondent judge acted in excess of his
jurisdiction in issuing the injunction specifically proscribed under said decree.

Another reason for striking down the writ of preliminary injunction complained of is that it interfered with the
order of a co-equal and coordinate court. Since Branch V of the CFI of Rizal had already acquired jurisdiction over
the question of foreclosure of mortgage over the La Vista property and rendered judgment in relation thereto, then
it retained jurisdiction to the exclusion of all other coordinate courts over its judgment, including all incidents
relative to the control and conduct of its ministerial officers, namely the sheriff thereof. 25 The foreclosure sale
having been ordered by Branch V of the CFI of Rizal, TCC should not have filed injunction proceedings with Branch
XXI of the same CFI, but instead should have first sought relief by proper motion and application from the former
court which had exclusive jurisdiction over the foreclosure proceeding. 26

This doctrine of non-interference is premised on the principle that a judgment of a court of competent jurisdiction
may not be opened, modified or vacated by any court of concurrent jurisdiction. 27

Furthermore, we find the issuance of the preliminary injunction directed against the Provincial Sheriff of Negros
Occidental and ex-officio Sheriff of Bacolod City a jurisdictional faux pas as the Courts of First Instance, now
Regional Trial Courts, can only enforce their writs of injunction within their respective designated territories. 28

WHEREFORE, the instant petition is hereby granted. The assailed orders are hereby set aside. Costs against private
respondent.

Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ., concur.

68
 FIRST DIVISION

[G. R. No. 130972. January 23, 2002]

PHILIPPINE LAWIN BUS, CO., MASTER TOURS & TRAVEL CORP., MARCIANO TAN,
ISIDRO TAN, ESTEBAN TAN and HENRY TAN, petitioners, vs. COURT OF
APPEALS and ADVANCE CAPITAL CORPORATION, respondents.

DECISION
PARDO, J.:

The Case

The case is a petition for review via certiorari of the decision of the Court of Appeals,
 reversing that of the trial court  and sentencing petitioners as follows:
[1] [2]

WHEREFORE, the appealed decision should be, as it is hereby REVERSED and SET
ASIDE. In lieu thereof, a new one is hereby rendered ordering the defendants-appellees to
pay, jointly and solidarily, in favor of plaintiff-appellant Advance Capital Corporation, the
following amounts:

1. P16,484,994.42, the principal obligation under the two promissory note Nos. 003 and
00037 plus interest and penalties;

2. P100,000.00 for loss of goodwill and good reputation;

3. An amount equivalent to 10% of the collectible amount, plus P50,000, as acceptance fee
and P500 per appearance, as and for attorneys fees: and

4. P100,000 as litigation expenses.

Costs shall be taxed against defendant-appellees.

SO ORDERED. [3]

The Facts

The facts, as found by the Court of Appeals, are as follows:

69
On 7 August 1990 plaintiff Advance Capital Corporation, a licensed lending investor,
extended a loan to defendant Philippine Lawin Bus Company (hereafter referred to as
LAWIN), in the amount of P8,000,000.00 payable within a period of one (1) year, as
evidenced by a Credit Agreement (Exhibits B to B-4-B). The defendant, through Marciano
Tan, its Executive Vice President, executed Promissory Note No. 003, for the amount of
P8,000,000.00 (Exhs. C to C-1).

To guarantee payment of the loan, defendant Lawin executed in favor of plaintiff the
following documents: (1) A Deed of Chattel Mortgage wherein 9 units of buses were
constituted as collaterals (Exhibits F to F-7): (2) A joint and several UNDERTAKING of
defendant Master Tours and Travel Corporation dated 07 August 1990, signed by Isidro
Tan and Marciano Tan (Exhs. H to H-1): and (3) A joint and several UNDERTAKING dated
21 August 1990, executed and signed by Esteban, Isidro, Marciano and Henry, all surnamed
Tan (Exhs. I to I-6).

Out of the P8,000,000.00 loan, P1,800,000.00 was paid. Thus, on 02 November 1990,

defendant Bus Company was able to avail an additional loan of P2,000,000.00 for one (1)
month under Promissory Note 00028 (Exhs. J-J-1).

Defendant LAWIN failed to pay the aforementioned promissory note and the same was
renewed on 03 December 1990 to become due on or before 01 February 1991, under
Promissory Note 00037 (Exh. K).

On 15 May 1991 for failure to pay the two promissory notes, defendant LAWIN was
granted a loan re-structuring for two (2) months to mature on 31 July 1991.

Despite the restructuring, defendant LAWIN failed to pay. Thus, plaintiff foreclosed the
mortgaged buses and as the sole bidder thereof, the amount of P2,000,000.00 was accepted
by the deputy sheriff conducting the sale and credited to the account of defendant LAWIN.

Thereafter, on 27 May 1992, identical demand letters were sent to the defendants to pay
their obligation (Exhs. X to CC). Despite repeated demands, the defendants failed to pay
their indebtedness which totaled of P16,484,992.42 as of 31 July 1992 (Exhs. DD-DD-1).

Thus, the suit for sum of money, wherein the plaintiff prays that defendants solidarily pay
plaintiff as of July 31, 1992 the sum of (a) P16,484,994.12 as principal obligation under the
two promissory notes Nos. 003 and 00037, plus interests and penalties: (b) P300,000.00
for loss of good will and good business reputation: (c) attorneys fees amounting to
P100,000.00 as acceptance fee and a sum equivalent to 10% of the collectible amount, and
P500.00 as appearance fee; (d) P200,000.00 as litigation expenses; (e) exemplary damages
in an amount to be awarded at the courts discretion; and (f) the costs.

On 04 September 1993, a writ of preliminary injunction was issued with respect to

movable and immovable properties of the defendants.

70
In answer to the complaint, defendants-appellees assert by way of special and affirmative
defense, that there was already an arrangement as to the full settlement of the loan
obligation by way of:

17.A. Sale of the nine (9) units passenger buses the proceeds of which will be credited
against the loan amount as full payment thereof; or in the alternative.

17.B. Plaintiff will shoulder and bear the cost of rehabilitating the buses, with the amount
thereof to be included in the total obligation of defendant Lawin and the bus operated, with
the earnings thereof to be applied to the loan obligation of defendant Lawin. (p. 4 Answer;
p. 166, rec.)

Defendants further assert that the foreclosure sale was in violation of the aforequoted
arrangement and prayed for the nullification of the same and the dismissal of the
complaint. [4]

On 28 June 1995, the trial court rendered a decision dismissing the complaint, as
follows:

WHEREFORE, judgment is rendered as follows:

1. Dismissing the complaint for lack of merit;

2. Declaring the foreclosure and auction sale null and void;

3. Declaring the obligation or indebtedness of defendants EXTINGUISHED;

4. Declaring the writ of attachment issued in this case null and void and, therefore, is
hereby declared dissolved; and

5. Ordering the Sheriff of this Branch or whoever is in possession, to return all the personal
properties attached in this case to the owner/s thereof within one (1) week from the
finality of this decision;

6. Dismissing defendants counterclaim for lack of sufficient merit.

No pronouncement as to costs.

SO ORDERED. [5]

In time, respondent Advance Capital Corporation appealed from the decision to the
Court of Appeals. [6]

On 30 September 1997, the Court of Appeals promulgated a decision reversing that of

the trial court, the dispositive portion of which is set out in the opening paragraph of this
decision.

71
 Hence, this appeal. [7]

The Issue

The issue raised is whether there was dacion en pago between the parties upon the
surrender or transfer of the mortgaged buses to the respondent. [8]

The Courts Ruling

We deny the petition, with modification.

The issue raised is factual. In an appeal via certiorari, we may not review the factual
findings of the Court of Appeals.  When supported by substantial evidence, the findings of
[9]

fact of the Court of Appeals are conclusive and binding on the parties and are not
reviewable by this Court,  unless the case falls under any of the recognized exceptions to
[10]

the rule. [11]

Petitioner failed to prove that the case falls within the exceptions.  The Supreme Court
[12]

is not a trier of facts.  It is not our function to review, examine and evaluate or weigh the
[13]

probative value of the evidence presented.  A question of fact would arise in such event.
[14] [15]

Nonetheless, we agree with the Court of Appeals that there was no dacion en pago that
took place between the parties.
In dacion en pago, property is alienated to the creditor in satisfaction of a debt in
money.  It is the delivery and transmission of ownership of a thing by the debtor to the
[16]

creditor as an accepted equivalent of the performance of the obligation.  It extinguishes

[17]

the obligation to the extent of the value of the thing delivered, either as agreed upon by the
parties or as may be proved, unless the parties by agreement, express or implied, or by
their silence, consider the thing as equivalent to the obligation, in which case the obligation
is totally extinguished." [18]

Article 1245 of the Civil Code provides that the law on sales shall govern an agreement
of dacion en pago. A contract of sale is perfected at the moment there is a meeting of the
minds of the parties thereto upon the thing which is the object of the contract and upon the
price.  In Filinvest Credit Corporation v. Philippine Acetylene Co., Inc., we said:
[19]

x x x. In dacion en pago, as a special mode of payment, the debtor offers another thing to the
creditor who accepts it as equivalent of payment of an outstanding obligation. The
undertaking really partakes in one sense of the nature of sale, that is, the creditor is really
buying the thing or property of the debtor, payment for which is to be charged against the
debtors debt. As such, the essential elements of a contract of sale, namely, consent, object
certain, and cause or consideration must be present. In its modern concept, what actually
takes place in dacion en pago is an objective novation of the obligationwhere the thing
offered as an accepted equivalent of the performance of an obligation is considered as the

72
object of the contract of sale, while the debt is considered as the purchase price. In any
case, common consent is an essential prerequisite, be it sale or novation, to have the effect
of totally extinguishing the debt or obligation.[20]

In this case, there was no meeting of the minds between the parties on whether the
loan of the petitioners would be extinguished by dacion en pago. The petitioners anchor
their claim solely on the testimony of Marciano Tan that he proposed to extinguish
petitioners obligation by the surrender of the nine buses to the respondent acceded to as
shown by receipts its representative made.  However, the receipts executed by
[21]

respondents representative as proof of an agreement of the parties that delivery of the

buses to private respondent would result in extinguishing petitioners obligation do not in
any way reflect the intention of the parties that ownership thereof by respondent would be
complete and absolute. The receipts show that the two buses were delivered to respondent
in order that it would take custody for the purpose of selling the same. The receipts
themselves in fact show that petitioners deemedrespondent as their agent in the sale of the
two vehicles whereby the proceeds thereof would be applied in payment of petitioners
indebtedness to respondent. Such an agreement negates transfer of absolute ownership
over the property to respondent, as in a sale. Thus, in Philippine National Bank v.
Pineda  we held that where machinery and equipment were repossessed to secure the
[22]

payment of a loan obligation and not for the purpose of transferring ownership thereof to
the creditor in satisfaction of said loan, no dacion en pago was ever accomplished.

The Fallo

IN VIEW WHEREOF, the Court DENIES the petition and AFFIRMS the decision of the
Court of Appeals  with MODIFICATION as follows:
[23]

WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE. In lieu thereof,

judgment is hereby rendered ordering defendants-appellees to pay, jointly and severally,
plaintiff-appellant Advance Capital Corp. the following amounts:

(1) P16,484,994.42, the principal obligation under the two promissory notes plus 12% per
annum from the finality of this decision until fully paid;

(2) P50,000.00 as attorneys fees;

(3) Costs of suit.

All other monetary awards are deleted.

SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Ynares-Santiago, JJ., concur.

73
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-11668            April 1, 1918

ANTONIO ENRIQUEZ DE LA CAVADA, plaintiff-appellee, 

vs.
ANTONIO DIAZ, defendant-appellant.

Ramon Diokno for appellant.

Alfredo Chicote and Jose Arnaiz for appellee.

JOHNSON, J.:

This action was instituted by the plaintiff for the purpose of requiring the defendant to comply with a
certain "contract of option" to purchase a certain piece or parcel of land described in said contract
and for damages for a noncompliance with said contract. After the close of the trial the Honorable
James A. Ostrand, judge, rendered a judgment the dispositive part of which is as follows:

Wherefore, it is hereby ordered and adjudged that the defendant, within the period of thirty
days from the date upon which this decision becomes final, convey to the plaintiff a good and
sufficient title in fee simple to the land described in decrees Nos. 13909 and 13919 of the
Court of Land Registration, upon payment or legal tender of payment by said plaintiff of the
sum of thirty thousand pesos (P30,000) in cash, and upon said plaintiff giving security
approved by this court for the payment within the term of 6 years from the date of the
conveyance for the additional sum of forty thousand pesos (P40,000) with interest at the rate
of 6 per cent per annum.

It is further ordered and adjudged that in the event of the failure of the defendant to execute
the conveyance as aforesaid, the plaintiff have and recover judgment against him, the said
defendant, for the sum of twenty thousand pesos (P20,000), with interest at the rate of six
per cent (6 per cent per annum from the date upon which the conveyance should have been
made). It is so ordered.

From that judgment the defendant appealed and made several assignment of error.

It appears from the record that on the 15th day of November, 1912, the defendant and the plaintiff
entered into the following "contract of option:"

(EXHIBIT A.)

CONTRACT OF OPTION.

I, the undersigned, Antonio Diaz, of legal age, with personal registration certificate Number
F-855949, issued at Pitogo, Tayabas, January 16, 1912, and temporarily residing in Manila,
P. I., do hereby grant an option to Antonio Enriquez to purchase my hacienda at Pitogo
consisting of 100 and odd hectares, within the period necessary for the approval and

74
 issuance of a Torrens title thereto by the Government for which he may pay me either the
sum of thirty thousand pesos (P30,000), Philippine currency, in cash, or within the period of
six (6) years, beginning with the date of the purchase, the sum of forty thousand pesos
(P40,000), Philippine currency, at six per cent interest per annum, with due security for the
payment of the said P40,000 in consideration of the sale to him of my property described as
follows, to wit:

About one hundred hectares of land in Pitogo, Tayabas, containing about 20,000 coconut
trees and 10,000 nipa-palm trees, all belonging to me, which I hereby sell to Antonio
Enriquez de la Cavada for seventy thousand pesos, under the conditions herein specified.

I declare that Antonio Enriquez is the sole person who has, and shall have, during the period
of this option, the right to purchase the property above-mentioned.

I likewise declare that Antonio Enriquez shall be free to resell the said property at whatever
price he may desire, provided that he should comply with the stipulations covenanted with
me.

In witness of my entire conformity with the foregoing, I hereunto affix my signature, in Manila,
P. I., this 15th day of November, 1912.

(Sgd.) Antonio Diaz.

Signed in the presence of:

(Sgd.) J. VALDS DIAZ.

(EXHIBIT B.)

P. I., November 15, 1912.

Sr. Don ANTONIO DIAZ,

Calle Victoria, No. 125, W. C., Manila, P. I.

DEAR SIR: I have the honor to inform you that, in conformity with the letter of option in my
favor of even date, I will buy your coconut plantation in Pitogo, containing one hundred
hectares, together with all the coconut and nipa-palm trees planted thereon, under the
following conditions:

1. I shall send a surveyor to survey the said property, and to apply to the Government for a
Torrens title therefore, and, if the expenses incurred for the same should not exceed P1,000,
I shall pay the P500 and you the other P500; Provided, however, that you shall give the
surveyor all necessary assistance during his stay at the hacienda.

2. I shall pay the purchase price to you in conformity with our letter of option of this date, and
after the Torrens title shall have been officially approved.

Yours respectfully,

(Sgd.) A. ENRIQUEZ

75
 I acknowledge receipt of, and conform with, the foregoing.

(Sgd.) ANTONIO DIAZ

It appears from the record that soon after the execution of said contract, and in part compliance with
the terms thereof, the defendant presented two petitions in the Court of Land Registration (Nos.
13909 and 13919), each for the purpose of obtaining the registration of a part of the "Hacienda de
Pitogo." Said petitions were granted, and each parcel as registered and a certificate of title was
issued for each part under the Torrens system to the defendant herein. Later, and pretending to
comply with the terms of said contract, the defendant offered to transfer to the plaintiff one of said
parcels only, which was a part of said "hacienda." The plaintiff refused to accept said certificate for a
part only of said "hacienda" upon the ground (a) that it was only a part of the "Hacienda de Pitogo,"
and (b) under the contract (Exhibits A and B) he was entitled to a transfer to him all said "hacienda."

The theory of the defendant is that the contract of sale of said "Hacienda de Pitogo" included only
100 hectares, more or less, of said "hacienda," and that by offering to convey to the plaintiff a portion
of said "hacienda" composed of "100 hectares, more or less," he thereby complied with the terms of
the contract. The theory of the plaintiff is that he had purchased all of said "hacienda," and that the
same contained, at least, 100 hectares, more or less. The lower court sustained the contention of
the plaintiff, to wit, that the sale was a sale of the "Hacienda de Pitogo" and not a sale of a part of it,
and rendered a judgment requiring the defendant to comply with the terms of the contract by
transferring to the plaintiff, by proper deeds of conveyance, all said "hacienda," or to pay in lieu
thereof the sum of P20,000 damages, together with 6 per cent interest from the date upon which
said conveyance should have been made.

After issue had been joined between the plaintiff and defendant upon their pleadings, they entered
into the following agreement with reference to the method of presenting their proof:

The attorneys for the parties in this case make the following stipulations:

1. Each of the litigating parties shall present his evidence before Don Felipe Canillas,
assistant clerk of the Court of First Instance of Manila, who, for such purpose, should be
appointed commissioner.

2. Said commissioner shall set a day and hour for the presentation of the evidence above-
mentioned, both oral and documentary, and in the stenographic notes shall have record
entered of all objections made to the evidence by either party, in order that they may
afterwards be decided by the court.

3. The transcription of the stenographic notes, containing the record of the evidence taken,
shall be paid for in equal shares by both parties.

4. At the close of the taking of the evidence, each of the parties shall file his brief in respect
to such evidence, whereupon the case as it then stands shall be submitted to the decision of
the court.

The parties request the court to approve this agreement in the part thereof which refers to
the proceedings in this case.

Manila, P. I., December 21, 1914.

76
 (Sgd.) ANTONIO V. HERRERO.                                   (Sgd.) ALFREDO CHICOTE.

Approved:

(Sgd.) GEO. R. HARVEY,

                 Judge.

Said agreement was approved by the lower court, and proof was taken in accordance therewith. The
defendant-appellant now alleges, giving several reasons therefor, that the proof was improperly
practiced, and that the judge was without authority o decide the cause upon proof taken in the
manner agreed upon by the respective parties. The defendant-appellant makes no contention that
he was not permitted to present all the proof he desired to present. He makes no contention that he
has been prejudiced in any manner whatsoever by virtue of the method agreed upon for taking the
testimony.

There is nothing in the law nor in public policy which prohibits the parties in a civil litigation from
making the agreement above quoted. While the law concedes to parties litigant, generally, the right
to have their proof taken in the presence of the judge, such right is a renounceable one. In a civil
action the parties litigant have a right to agree, outside of the court, upon the facts in litigation. Under
certain conditions the parties litigant have a right to take the depositions of witnesses and submit the
sworn statements in that form to the court. The proof, as it was submitted to the court in the present
case, by virtue of said agreement, was, in effect, in the form of a deposition of the various witnesses
presented. Having agreed to the method of taking the proof, and the same having been taking in
compliance with said agreement, it is now too late, there being no law to the contrary, for them to
deny and repudiate the effect of their agreement. (Biunas vs. Mora, R. G. No. 11464, March 11,
1918; Behr vs. Levy Hermanos, R. G. No 12211, March 19, 1918. 1)

Not only is there no law prohibiting the parties from entering into an agreement to submit their proof
to the court in civil actions as was done in the present case, but it may be a method highly
convenient, not only to the parties, but to busy courts. The judgment of the lower court, therefore,
should not be modified or reversed on account of the first assignment of error.

In the second assignment of error, the appellant alleges (a) that the lower court committed an error
in declaring the contract (Exhibits A and B) a valid obligation, for the reason that it not been admitted
in evidence, and (b) that the same was null for a failure of consideration. Upon the first question, an
examination of the proof shows that said contract (Exhibits A and B) was offered in evidence and
admitted as proof without objection. Said contract was, therefore, properly presented to the court as
proof. Not only was the contract before the court by reason of its having been presented in evidence,
but the defendant himself made said contract an integral part of his pleadings. The defendant
admitted the execution and delivery of the contract, and alleged that he made an effort to comply
with its terms. His only defense is that he sold to the plaintiff a part of the "hacienda" only and that he
offered, in compliance with the terms of the contract, to convey to the plaintiff all of the land which he
had promised to sell.

With reference to the second objection, to wit, that there was no consideration for said contract it
may be said (a) that the contract was for the sale of a definite parcel of land; (b) that it was reduced
to writing; (c) that the defendant promised to convey to the plaintiff said parcel of land; (d) that the
plaintiff promised to pay therefor the sum of P70,000 in the manner prescribed in said contract; (e)
that the defendant admitted the execution and delivery of the contract and alleged that he made an
effort to comply with the same (par. 3 of defendant's answer) and requested the plaintiff to comply

77
with his part of the contract; and (f) that no defense or pretension was made in the lower court that
there was no consideration for his contract. Having admitted the execution and delivery of the
contract, having admitted an attempt to comply with its terms, and having failed in the court below to
raise any question whatsoever concerning the inadequacy of consideration, it is rather late, in the
face of said admissions, to raise that question for the first time in this court. The only dispute
between the parties in the lower court was whether or not the defendant was obliged to convey to
the plaintiff all of said "hacienda." The plaintiff insisted that his contract entitled him to a conveyance
of all of said "hacienda." The defendant contended that he had complied with the terms of his
contract by offering to convey to the plaintiff a part of the said "hacienda" only. That was the only
question presented to the lower court and that was the only question decided.

A promise made by one party, if made in accordance with the forms required by the law, may be a
good consideration (causa) for a promise made by another party. (Art. 1274, Civil Code.) In other
words, the consideration (causa) need not pass from one to the other at the time the contract is
entered into. For example, A promises to sell a certain parcel of land to B for the sum of P70,000. A,
by virtue of the promise of B to pay P70,000, promises to sell said parcel of land to B for said sum,
then the contract is complete, provided they have complied with the forms required by the law. The
consideration need not be paid at the time of the promise. The one promise is a consideration for the
other. Of course, A cannot enforce a compliance with the contract and require B to pay said sum
until he has complied with his part of the contract. In the present case, the defendant promised to
convey the land in question to the plaintiff as soon as the same could be registered. The plaintiff
promised to pay to the defendant P70,000 therefor in accordance with the terms of their contract.
The plaintiff stood ready to comply with his part of the contract. The defendant, even though he had
obtained a registered title to said parcel of land, refused to comply with his promise. All of the
conditions of the contract on the part of the defendant had been concluded, except delivering the
deeds of transfer. Of course, if the defendant had been unable to obtain a registration of his title, or if
he had violated the terms of the alleged optional contract by selling the same to some other person
than the plaintiff, then he might have raised the objection that he had received nothing from the
plaintiff for the option which he had conceded. That condition, of course, would have presented a
different question from the one which we have before us. The said contract (Exhibits A and B) was
not, in fact, an "optional contract" as that phrase is generally used. Reading the said contract from its
four corners it is clearly as absolute promise to sell a definite parcel of land for a fixed price upon
definite conditions. The defendant promised to convey to the plaintiff the land in question as soon as
the same was registered under the Torrens system, and the plaintiff promised to pay to the
defendant the sum of P70,000, under the conditions named, upon the happening of that event. The
contract was not, in fact, what is generally known as a "contract of option." It differs very essentially
from a contract of option. An optional contract is a privilege existing in one person, for which he had
paid a consideration, which gives him the right to buy, for example, certain merchandise of certain
specified property, from another person, if he chooses, at any time within the agreed period, at a
fixed price. The contract of option is a separate and distinct contract from the contract which the
parties may enter into upon the consummation of the option. A consideration for an optional contract
is just as important as the consideration for any other kind of contract. If there was no consideration
for the contract of option, then it cannot be entered any more than any other contract where no
consideration exists. To illustrate, A offers B the sum of P100,000 for the option of buying his
property within the period of 30 days. While it is true that the conditions upon which A promises to
buy the property at the end of the period mentioned are usually fixed in the option, the consideration
for the option is an entirely different consideration from the consideration of the contract with
reference to which the option exists. A contract of option is a contract by virtue of the terms of which
the parties thereto promise and obligate themselves to enter into contract at a future time, upon the
happening of certain events, or the fulfillment of certain conditions.

Upon the other hand, suppose that the defendant had complied with his part of the contract and had
tendered the deeds of transfer of the "Hacienda de Pitogo" in accordance with its terms and had

78
demanded the payments specified in the contract, and the plaintiff refused to comply — what then
would have been the rights of the defendant? Might he not have successfully maintained an action
for the specific performance of the contract, or for the damages resulting from the breach of said
contract? When the defendant alleged that he had complied with his part of the contract (par. 3 of
defendant's answer) and demanded that the plaintiff should immediately comply with his part of the
same, he evidently was laying the foundation for an action for damages, the nullification or a specific
compliance with the contract.

The appellant contends that the contract which he made was not with the plaintiff but with
Rosenstock, Elser and Co. That question was not presented in the court below. The contract in
question shows, upon its face, that the defendant made the same with the plaintiff, Not having raised
the question in the court below, and having admitted the execution and delivery of the contract in
question with the plaintiff, we are of the opinion that his admission is conclusive upon that question
(par. 1 of special defense of defendant's answer) and need not be further discussed.

The appellant further contends that the action was premature, for the reason that the plaintiff had not
paid nor offered to pay the price agreed upon, under the conditions named, for the land in question.
That question was not raised in the court below, which fact, ordinarily, would be a sufficient answer
to the contention of the appellant. It may be added, however, that the defendant could not demand
the payment until he had offered the deeds of conveyance, in accordance with the terms of his
contract. He did not offer to comply with the terms of his contract. True it is that he offered to comply
partially with the terms of the contract, but not fully. While the payment must be simultaneous with
the delivery of the deeds of conveyance, the payment need not be made until the deed of
conveyance is offered. The plaintiff stood ready and willing to perform his part of the contract
immediately upon the performance on the part of the defendant. (Arts. 1258 and 1451 of Civil Code.)

In the fifth assignment of error the appellant contends that the lower court committed an error in not
declaring that the defendant was not obligated to sell the "Hacienda de Pitogo" to the plaintiff "por
incumplimiento, renuncia abandono y negligencia del mismo demandante, etc." (For nonfulfillment,
renunciation, abandonment and negligence of plaintiff himself, etc.) That question was not presented
to the court below. But even though it had been the record shows that the plaintiff, at all times,
insisted upon a compliance with the terms of the contract on the part of the defendant, standing
ready to comply with his part of the same.

The appellant contends in his sixth assignment of error that the plaintiff had not suffered the
damages complained of, to wit, in the sum of P20,000. The only proof upon the question of damages
suffered by the plaintiff for the noncompliance with the terms of the contract in question on the part
of the defendant is that the plaintiff, in contemplation of the compliance with the terms of the contract
on the part of the defendant, entered into a contract with a third party to sell the said "hacienda" at a
profit of P30,000. That proof is not disputed. No attempt was made in the lower court to deny that
fact. The proof shows that the person with whom the plaintiff had entered into a conditional sale of
the land in question had made a deposit for the purpose of guaranteeing the final consummation of
that contract. By reason of the failure of the defendant to comply with the contract here in question,
the plaintiff was obliged to return the sum deposited by said third party with a promise to pay
damages. The record does not show why the plaintiff did not ask for damages in the sum of
P30,000. He asked for a judgment only in the sum of P20,000. He now asks that the judgment of the
lower court be modified and that he be given a judgment for P30,000. Considering the fact that he
neither asked for a judgment for more than P20,000 nor appealed from the judgment of the lower
court, his request now cannot be granted. We find no reason for modifying the judgment of the lower
court by virtue of the sixth assignment of error.

79
In the seventh assignment of error the appellant contends that the contract of sale was not in effect a
contract of sale. He alleges that the contract was, in fact, a contract by virtue of which the plaintiff
promised to find a buyer for the parcel of land in question; that the plaintiff was not in fact the
purchaser; that the only obligation that the plaintiff assumed was to find some third person who
would purchase the land from the defendant. Again, it would be sufficient to say, in answer to that
assignment of error, that no contention of that nature was presented in the court below, and for that
reason it is improperly presented now for the first time. In addition, however, it may be added that
the defendant, in his answer, admitted that he not only sold the land in question, but offered to
transfer the same to the plaintiff, in compliance with the contract. (See answer of defendant.)

In the eighth assignment of error the appellant contends that the lower court committed an error in its
order requiring him to convey to the plaintiff the "Hacienda de Pitogo," for the reason that the plaintiff
had not demanded a transfer of said property, and for the additional reason that a portion of said
"hacienda" had already been sold to a third person. With reference to the first contention, the record
clearly shows that the plaintiff was constantly insisting upon a compliance with the terms of the
contract, to wit, a conveyance to him of the "Hacienda de Pitogo" by the defendant. Naturally, he
refused, under the contract, to accept a conveyance of a part only of said "hacienda." With reference
to the second contention, it may be said that the mere fact that the defendant had sold a part of the
"hacienda" to other persons, is no sufficient reason for not requiring a strict compliance with the
terms of his contract with the plaintiff, or to answer in damages for his failure. (Arts. 1101 and 1252
of the Civil Code.)

In view of the foregoing, and after a consideration of the facts and the law applicable thereto, we are
persuaded that there is no reason given in the record justifying a modification or reversal of the
judgment of the lower court. The same is, however, hereby affirmed, with costs. So ordered.

Arellano, C.J., Torres, Street, Malcolm and Fisher, JJ., concur.

80
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 103577 October 7, 1996

ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL, ANNABELLE C. GONZALES (for herself and on
behalf of Florida C. Tupper, as attorney-in-fact), CIELITO A. CORONEL, FLORAIDA A. ALMONTE, and CATALINA
BALAIS MABANAG, petitioners, 
vs.
THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and RAMONA PATRICIA ALCARAZ, assisted by GLORIA F.
NOEL as attorney-in-fact, respondents.

MELO, J.:p

The petition before us has its roots in a complaint for specific performance to compel herein petitioners (except the last named, Catalina Balais Mabanag) to consummate the sale of a parcel of land
with its improvements located along Roosevelt Avenue in Quezon City entered into by the parties sometime in January 1985 for the price of P1,240,000.00.

The undisputed facts of the case were summarized by respondent court in this wise:

On January 19, 1985, defendants-appellants Romulo Coronel, et al. (hereinafter referred to as

Coronels) executed a document entitled "Receipt of Down Payment" (Exh. "A") in favor of plaintiff
Ramona Patricia Alcaraz (hereinafter referred to as Ramona) which is reproduced hereunder:

RECEIPT OF DOWN PAYMENT

P1,240,000.00 — Total amount

50,000 — Down payment

———————————
P1,190,000.00 — Balance

Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand
Pesos purchase price of our inherited house and lot, covered by TCT No. 119627 of the Registry of
Deeds of Quezon City, in the total amount of P1,240,000.00.

We bind ourselves to effect the transfer in our names from our deceased father, Constancio P. Coronel,
the transfer certificate of title immediately upon receipt of the down payment above-stated.

On our presentation of the TCT already in or name, We will immediately execute the deed of absolute
sale of said property and Miss Ramona Patricia Alcaraz shall immediately pay the balance of the
P1,190,000.00.

Clearly, the conditions appurtenant to the sale are the following:

1. Ramona will make a down payment of Fifty Thousand (P50,000.00) Pesos upon execution of the
document aforestated;

2. The Coronels will cause the transfer in their names of the title of the property registered in the name
of their deceased father upon receipt of the Fifty Thousand (P50,000.00) Pesos down payment;

81
 3. Upon the transfer in their names of the subject property, the Coronels will execute the deed of
absolute sale in favor of Ramona and the latter will pay the former the whole balance of One Million
One Hundred Ninety Thousand (P1,190,000.00) Pesos.

On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz (hereinafter referred to
as Concepcion), mother of Ramona, paid the down payment of Fifty Thousand (P50,000.00) Pesos (Exh.
"B", Exh. "2").

On February 6, 1985, the property originally registered in the name of the Coronels' father was
transferred in their names under TCT 
No. 327043 (Exh. "D"; Exh. "4")

On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to intervenor-
appellant Catalina B. Mabanag (hereinafter referred to as Catalina) for One Million Five Hundred Eighty
Thousand (P1,580,000.00) Pesos after the latter has paid Three Hundred Thousand (P300,000.00)
Pesos (Exhs. "F-3"; Exh. "6-C")

For this reason, Coronels canceled and rescinded the contract (Exh. "A") with Ramona by depositing
the down payment paid by Concepcion in the bank in trust for Ramona Patricia Alcaraz.

On February 22, 1985, Concepcion, et al., filed a complaint for specific performance against the
Coronels and caused the annotation of a notice of lis pendens  at the back of TCT No. 327403 (Exh. "E";
Exh. "5").

On April 2, 1985, Catalina caused the annotation of a notice of adverse claim covering the same
property with the Registry of Deeds of Quezon City (Exh. "F"; Exh. "6").

On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject property in favor of
Catalina (Exh. "G"; Exh. "7").

On June 5, 1985, a new title over the subject property was issued in the name of Catalina under TCT No.
351582 (Exh. "H"; Exh. "8").

(Rollo, pp. 134-136)

In the course of the proceedings before the trial court (Branch 83, RTC, Quezon City) the parties agreed to submit the case
for decision solely on the basis of documentary exhibits. Thus, plaintiffs therein (now private respondents) proffered
their documentary evidence accordingly marked as Exhibits "A" through "J", inclusive of their corresponding
submarkings. Adopting these same exhibits as their own, then defendants (now petitioners) accordingly offered and
marked them as Exhibits "1" through "10", likewise inclusive of their corresponding submarkings. Upon motion of the
parties, the trial court gave them thirty (30) days within which to simultaneously submit their respective memoranda,
and an additional 15 days within which to submit their corresponding comment or reply thereof, after which, the case
would be deemed submitted for resolution.

On April 14, 1988, the case was submitted for resolution before Judge Reynaldo Roura, who was then temporarily
detailed to preside over Branch 82 of the RTC of Quezon City. On March 1, 1989, judgment was handed down by Judge
Roura from his regular bench at Macabebe, Pampanga for the Quezon City branch, disposing as follows:

WHEREFORE, judgment for specific performance is hereby rendered ordering defendant to execute in
favor of plaintiffs a deed of absolute sale covering that parcel of land embraced in and covered by
Transfer Certificate of Title No. 327403 (now TCT No. 331582) of the Registry of Deeds for Quezon
City, together with all the improvements existing thereon free from all liens and encumbrances, and
once accomplished, to immediately deliver the said document of sale to plaintiffs and upon receipt
thereof, the said document of sale to plaintiffs and upon receipt thereof, the plaintiffs are ordered to
pay defendants the whole balance of the purchase price amounting to P1,190,000.00 in cash. Transfer
Certificate of Title No. 331582 of the Registry of Deeds for Quezon City in the name of intervenor is
hereby canceled and declared to be without force and effect. Defendants and intervenor and all other

82
 persons claiming under them are hereby ordered to vacate the subject property and deliver possession
thereof to plaintiffs. Plaintiffs' claim for damages and attorney's fees, as well as the counterclaims of
defendants and intervenors are hereby dismissed.

No pronouncement as to costs.

So Ordered.

Macabebe, Pampanga for Quezon City, March 1, 1989.

(Rollo, p. 106)

A motion for reconsideration was filed by petitioner before the new presiding judge of the Quezon City RTC but the same
was denied by Judge Estrella T. Estrada, thusly:

The prayer contained in the instant motion, i.e., to annul the decision and to render anew decision by
the undersigned Presiding Judge should be denied for the following reasons: (1) The instant case
became submitted for decision as of April 14, 1988 when the parties terminated the presentation of
their respective documentary evidence and when the Presiding Judge at that time was Judge Reynaldo
Roura. The fact that they were allowed to file memoranda at some future date did not change the fact
that the hearing of the case was terminated before Judge Roura and therefore the same should be
submitted to him for decision; (2) When the defendants and intervenor did not object to the authority
of Judge Reynaldo Roura to decide the case prior to the rendition of the decision, when they met for the
first time before the undersigned Presiding Judge at the hearing of a pending incident in Civil Case No.
Q-46145 on November 11, 1988, they were deemed to have acquiesced thereto and they are now
estopped from questioning said authority of Judge Roura after they received the decision in question
which happens to be adverse to them; (3) While it is true that Judge Reynaldo Roura was merely a
Judge-on-detail at this Branch of the Court, he was in all respects the Presiding Judge with full authority
to act on any pending incident submitted before this Court during his incumbency. When he returned
to his Official Station at Macabebe, Pampanga, he did not lose his authority to decide or resolve such
cases submitted to him for decision or resolution because he continued as Judge of the Regional Trial
Court and is of co-equal rank with the undersigned Presiding Judge. The standing rule and supported
by jurisprudence is that a Judge to whom a case is submitted for decision has the authority to decide
the case notwithstanding his transfer to another branch or region of the same court (Sec. 9, Rule 135,
Rule of Court).

Coming now to the twin prayer for reconsideration of the Decision dated March 1, 1989 rendered in
the instant case, resolution of which now pertains to the undersigned Presiding Judge, after a
meticulous examination of the documentary evidence presented by the parties, she is convinced that
the Decision of March 1, 1989 is supported by evidence and, therefore, should not be disturbed.

IN VIEW OF THE FOREGOING, the "Motion for Reconsideration and/or to Annul Decision and Render
Anew Decision by the Incumbent Presiding Judge" dated March 20, 1989 is hereby DENIED.

SO ORDERED.

Quezon City, Philippines, July 12, 1989.

(Rollo, pp. 108-109)

Petitioners thereupon interposed an appeal, but on December 16, 1991, the Court of Appeals (Buena, Gonzaga-Reyes,
Abad Santos (P), JJ.) rendered its decision fully agreeing with the trial court.

Hence, the instant petition which was filed on March 5, 1992. The last pleading, private respondents' Reply Memorandum,
was filed on September 15, 1993. The case was, however, re-raffled to undersigned  ponente only on August 28, 1996, due
to the voluntary inhibition of the Justice to whom the case was last assigned.

83
While we deem it necessary to introduce certain refinements in the disquisition of respondent court in the affirmance of
the trial court's decision, we definitely find the instant petition bereft of merit.

The heart of the controversy which is the ultimate key in the resolution of the other issues in the case at bar is the precise
determination of the legal significance of the document entitled "Receipt of Down Payment" which was offered in
evidence by both parties. There is no dispute as to the fact that said document embodied the binding contract between
Ramona Patricia Alcaraz on the one hand, and the heirs of Constancio P. Coronel on the other, pertaining to a particular
house and lot covered by TCT No. 119627, as defined in Article 1305 of the Civil Code of the Philippines which reads as
follows:

Art. 1305. 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.

While, it is the position of private respondents that the "Receipt of Down Payment" embodied a perfected contract of sale,
which perforce, they seek to enforce by means of an action for specific performance, petitioners on their part insist that
what the document signified was a mere executory contract to sell, subject to certain suspensive conditions, and because
of the absence of Ramona P. Alcaraz, who left for the United States of America, said contract could not possibly ripen into
a contract absolute sale.

Plainly, such variance in the contending parties' contentions is brought about by the way each interprets the terms
and/or conditions set forth in said private instrument. Withal, based on whatever relevant and admissible evidence may
be available on record, this, Court, as were the courts below, is now called upon to adjudge what the real intent of the
parties was at the time the said document was executed.

The Civil Code defines a contract of sale, thus:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money
or its equivalent.

Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential elements of a
contract of sale are the following:

a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;

b) Determinate subject matter; and

c) Price certain in money or its equivalent.

Under this definition, a Contract to Sell may not be considered as a Contract of  Sale because the first essential element is
lacking. In a contract to sell, the prospective seller explicity reserves 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 happening of an event, which for present purposes we shall take as the full payment of the
purchase price. What the seller agrees or obliges himself to do is to fulfill is promise to sell the subject property when the
entire amount of the purchase price is delivered to him. In other words the full payment of the purchase price partakes of
a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is
retained by the prospective seller without further remedies by the prospective buyer. In Roque vs. Lapuz  (96 SCRA 741
[1980]), this Court had occasion to rule:

Hence, We hold that the contract between the petitioner and the respondent was a contract to sell
where the ownership or title is retained by the seller and is not to pass until the full payment of the
price, such payment being a positive suspensive condition and failure of which is not a breach, casual
or serious, but simply an event that prevented the obligation of the vendor to convey title from
acquiring binding force.

84
Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, the
prospective seller's obligation to sell the subject property by entering into a contract of sale with the prospective buyer
becomes demandable as provided in Article 1479 of the Civil Code which states:

Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

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.

A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said
property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the
purchase price.

A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale where the seller
may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a
conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a
contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of
sale is completely abated (cf.  Homesite and housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, if the
suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous
delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by
operation of law without any further act having to be performed by the seller.

In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price,
ownership will not automatically transfer to the buyer although the property may have been previously delivered to him.
The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale.

It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases where the
subject property is sold by the owner not to the party the seller contracted with, but to a third person, as in the case at
bench. In a contract to sell, there being no previous sale of the property, a third person buying such property despite the
fulfillment of the suspensive condition such as the full payment of the purchase price, for instance, cannot be deemed a
buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property. There is no double
sale in such case. Title to the property will transfer to the buyer after registration because there is no defect in the owner-
seller's title per se, but the latter, of course, may be used for damages by the intending buyer.

In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale becomes absolute and
this will definitely affect the seller's title thereto. In fact, if there had been previous delivery of the subject property, the
seller's ownership or title to the property is automatically transferred to the buyer such that, the seller will no longer have
any title to transfer to any third person. Applying Article 1544 of the Civil Code, such second buyer of the property who
may have had actual or constructive knowledge of such defect in the seller's title, or at least was charged with the
obligation to discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first buyer's
title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale.

With the above postulates as guidelines, we now proceed to the task of deciphering the real nature of the contract entered
into by petitioners and private respondents.

It is a canon in the interpretation of contracts that the words used therein should be given their natural and ordinary
meaning unless a technical meaning was intended (Tan vs. Court of Appeals,  212 SCRA 586 [1992]). Thus, when
petitioners declared in the said "Receipt of Down Payment" that they —

Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand
Pesos  purchase price of our inherited house and lot, covered by TCT No. 1199627 of the Registry of
Deeds of Quezon City, in the total amount of P1,240,000.00.

without any reservation of title until full payment of the entire purchase price, the natural and ordinary idea
conveyed is that they sold their property.

85
When the "Receipt of Down Payment" is considered in its entirety, it becomes more manifest that there was a clear intent
on the part of petitioners to transfer title to the buyer, but since the transfer certificate of title was still in the name of
petitioner's father, they could not fully effect such transfer although the buyer was then willing and able to immediately
pay the purchase price. Therefore, petitioners-sellers undertook upon receipt of the down payment from private
respondent Ramona P. Alcaraz, to cause the issuance of a new certificate of title in their names from that of their father,
after which, they promised to present said title, now in their names, to the latter and to execute the deed of absolute sale
whereupon, the latter shall, in turn, pay the entire balance of the purchase price.

The agreement could not have been a contract to sell because the sellers herein made no express reservation of ownership
or title to the subject parcel of land. Furthermore, the circumstance which prevented the parties from entering into an
absolute contract of sale pertained to the sellers themselves (the certificate of title was not in their names) and not the full
payment of the purchase price. Under the established facts and circumstances of the case, the Court may safely presume
that, had the certificate of title been in the names of petitioners-sellers at that time, there would have been no reason why
an absolute contract of sale could not have been executed and consummated right there and then.

Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely promise to sell the properly to private
respondent upon the fulfillment of the suspensive condition. On the contrary, having already agreed to sell the subject
property, they undertook to have the certificate of title changed to their names and immediately thereafter, to execute the
written deed of absolute sale.

Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance by the buyer with certain
terms and conditions, promised to sell the property to the latter. What may be perceived from the respective
undertakings of the parties to the contract is that petitioners had already agreed to sell the house and lot they inherited
from their father, completely willing to transfer full ownership of the subject house and lot to the buyer if the documents
were then in order. It just happened, however, that the transfer certificate of title was then still in the name of their father.
It was more expedient to first effect the change in the certificate of title so as to bear their names. That is why they
undertook to cause the issuance of a new transfer of the certificate of title in their names upon receipt of the down
payment in the amount of P50,000.00. As soon as the new certificate of title is issued in their names, petitioners were
committed to immediately execute the deed of absolute sale. Only then will the obligation of the buyer to pay the
remainder of the purchase price arise.

There is no doubt that unlike in a contract to sell which is most commonly entered into so as to protect the seller against a
buyer who intends to buy the property in installment by withholding ownership over the property until the buyer effects
full payment therefor, in the contract entered into in the case at bar, the sellers were the one who were unable to enter
into a contract of absolute sale by reason of the fact that the certificate of title to the property was still in the name of their
father. It was the sellers in this case who, as it were, had the impediment which prevented, so to speak, the execution of an
contract of absolute sale.

What is clearly established by the plain language of the subject document is that when the said "Receipt of Down
Payment" was prepared and signed by petitioners Romeo A. Coronel, et al., the parties had agreed to a conditional
contract of sale, consummation of which is subject only to the successful transfer of the certificate of title from the name
of petitioners' father, Constancio P. Coronel, to their names.

The Court significantly notes this suspensive condition was, in fact, fulfilled on February 6, 1985 (Exh. "D"; Exh. "4"). Thus,
on said date, the conditional contract of sale between petitioners and private respondent Ramona P. Alcaraz became
obligatory, the only act required for the consummation thereof being the delivery of the property by means of the
execution of the deed of absolute sale in a public instrument, which petitioners unequivocally committed themselves to do
as evidenced by the "Receipt of Down Payment."

Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the case at bench. Thus,

Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price.

From the moment, the parties may reciprocally demand performance, subject to the provisions of the
law governing the form of contracts.

86
 Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of
those already acquired, shall depend upon the happening of the event which constitutes the condition.

Since the condition contemplated by the parties which is the issuance of a certificate of title in petitioners' names was
fulfilled on February 6, 1985, the respective obligations of the parties under the contract of sale became mutually
demandable, that is, petitioners, as sellers, were obliged to present the transfer certificate of title already in their names
to private respondent Ramona P. Alcaraz, the buyer, and to immediately execute the deed of absolute sale, while the buyer
on her part, was obliged to forthwith pay the balance of the purchase price amounting to P1,190,000.00.

It is also significant to note that in the first paragraph in page 9 of their petition, petitioners conclusively admitted that:

3. The petitioners-sellers Coronel bound themselves "to effect the transfer in our names from our
deceased father Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the
downpayment above-stated". The sale was still subject to this suspensive condition. (Emphasis supplied.)

(Rollo, p. 16)

Petitioners themselves recognized that they entered into a contract of sale subject to a suspensive condition. Only, they
contend, continuing in the same paragraph, that:

. . . Had petitioners-sellers not complied with this condition of first transferring the title to the property
under their names, there could be no perfected contract of sale. (Emphasis supplied.)

(Ibid.)

not aware that they set their own trap for themselves, for Article 1186 of the Civil Code expressly provides that:

Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.

Besides, it should be stressed and emphasized that what is more controlling than these mere hypothetical arguments is
the fact that the condition herein referred to was actually and indisputably fulfilled on February 6, 1985, when a new title
was issued in the names of petitioners as evidenced by TCT No. 327403 (Exh. "D"; Exh. "4").

The inevitable conclusion is that on January 19, 1985, as evidenced by the document denominated as "Receipt of Down
Payment" (Exh. "A"; Exh. "1"), the parties entered into a contract of sale subject only to the suspensive condition that the
sellers shall effect the issuance of new certificate title from that of their father's name to their names and that, on
February 6, 1985, this condition was fulfilled (Exh. "D"; Exh. "4").

We, therefore, hold that, in accordance with Article 1187 which pertinently provides —

Art. 1187. The effects of conditional obligation to give, once the condition has been fulfilled, shall
retroact to the day of the constitution of the obligation . . .

In obligation to do or not to do, the courts shall determine, in each case, the retroactive effect of the
condition that has been complied with.

the rights and obligations of the parties with respect to the perfected contract of sale became mutually due and
demandable as of the time of fulfillment or occurrence of the suspensive condition on February 6, 1985. As of
that point in time, reciprocal obligations of both seller and buyer arose.

Petitioners also argue there could been no perfected contract on January 19, 1985 because they were then not yet the
absolute owners of the inherited property.

We cannot sustain this argument.

87
Article 774 of the Civil Code defines Succession as a mode of transferring ownership as follows:

Art. 774. Succession is a mode of acquisition by virtue of which the property, rights and obligations to
be extent and value of the inheritance of a person are transmitted through his death to another or
others by his will or by operation of law.

Petitioners-sellers in the case at bar being the sons and daughters of the decedent Constancio P. Coronel are
compulsory heirs who were called to succession by operation of law. Thus, at the point their father drew his last
breath, petitioners stepped into his shoes insofar as the subject property is concerned, such that any rights or
obligations pertaining thereto became binding and enforceable upon them. It is expressly provided that rights to
the succession are transmitted from the moment of death of the decedent (Article 777, Civil Code; Cuison vs.
Villanueva, 90 Phil. 850 [1952]).

Be it also noted that petitioners' claim that succession may not be declared unless the creditors have been paid is
rendered moot by the fact that they were able to effect the transfer of the title to the property from the decedent's name
to their names on February 6, 1985.

Aside from this, petitioners are precluded from raising their supposed lack of capacity to enter into an agreement at that
time and they cannot be allowed to now take a posture contrary to that which they took when they entered into the
agreement with private respondent Ramona P. Alcaraz. The Civil Code expressly states that:

Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon.

Having represented themselves as the true owners of the subject property at the time of sale, petitioners cannot
claim now that they were not yet the absolute owners thereof at that time.

Petitioners also contend that although there was in fact a perfected contract of sale between them and Ramona P. Alcaraz,
the latter breached her reciprocal obligation when she rendered impossible the consummation thereof by going to the
United States of America, without leaving her address, telephone number, and Special Power of Attorney (Paragraphs 14
and 15, Answer with Compulsory Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43), for which reason, so
petitioners conclude, they were correct in unilaterally rescinding rescinding the contract of sale.

We do not agree with petitioners that there was a valid rescission of the contract of sale in the instant case. We note that
these supposed grounds for petitioners' rescission, are mere allegations found only in their responsive pleadings, which
by express provision of the rules, are deemed controverted even if no reply is filed by the plaintiffs (Sec. 11, Rule 6,
Revised Rules of Court). The records are absolutely bereft of any supporting evidence to substantiate petitioners'
allegations. We have stressed time and again that allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng
Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]. Mere allegation is not an evidence (Lagasca vs. De
Vera, 79 Phil. 376 [1947]).

Even assuming arguendo  that Ramona P. Alcaraz was in the United States of America on February 6, 1985, we cannot
justify petitioner-sellers' act of unilaterally and extradicially rescinding the contract of sale, there being no express
stipulation authorizing the sellers to extarjudicially rescind the contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988];
Taguba vs. Vda. de Leon, 132 SCRA 722 [1984])

Moreover, petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz because although the evidence
on record shows that the sale was in the name of Ramona P. Alcaraz as the buyer, the sellers had been dealing with
Concepcion D. Alcaraz, Ramona's mother, who had acted for and in behalf of her daughter, if not also in her own behalf.
Indeed, the down payment was made by Concepcion D. Alcaraz with her own personal check (Exh. "B"; Exh. "2") for and in
behalf of Ramona P. Alcaraz. There is no evidence showing that petitioners ever questioned Concepcion's authority to
represent Ramona P. Alcaraz when they accepted her personal check. Neither did they raise any objection as regards
payment being effected by a third person. Accordingly, as far as petitioners are concerned, the physical absence of
Ramona P. Alcaraz is not a ground to rescind the contract of sale.

Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as her obligation to pay the full purchase
price is concerned. Petitioners who are precluded from setting up the defense of the physical absence of Ramona P.

88
Alcaraz as above-explained offered no proof whatsoever to show that they actually presented the new transfer certificate
of title in their names and signified their willingness and readiness to execute the deed of absolute sale in accordance with
their agreement. Ramona's corresponding obligation to pay the balance of the purchase price in the amount of
P1,190,000.00 (as buyer) never became due and demandable and, therefore, she cannot be deemed to have been in
default.

Article 1169 of the Civil Code defines when a party in a contract involving reciprocal obligations may be considered in
default, to wit:

Art. 1169. Those obliged to deliver or to do something, incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.

xxx xxx xxx

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfill
his obligation, delay by the other begins. (Emphasis supplied.)

There is thus neither factual nor legal basis to rescind the contract of sale between petitioners and respondents.

With the foregoing conclusions, the sale to the other petitioner, Catalina B. Mabanag, gave rise to a case of double sale
where Article 1544 of the Civil Code will apply, to wit:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.

Should if be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recorded it in Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in
the possession; and, in the absence thereof to the person who presents the oldest title, provided there
is good faith.

The record of the case shows that the Deed of Absolute Sale dated April 25, 1985 as proof of the second contract of sale
was registered with the Registry of Deeds of Quezon City giving rise to the issuance of a new certificate of title in the name
of Catalina B. Mabanag on June 5, 1985. Thus, the second paragraph of Article 1544 shall apply.

The above-cited provision on double sale presumes title or ownership to pass to the first buyer, the exceptions being: (a)
when the second buyer, in good faith, registers the sale ahead of the first buyer, and (b) should there be no inscription by
either of the two buyers, when the second buyer, in good faith, acquires possession of the property ahead of the first
buyer. Unless, the second buyer satisfies these requirements, title or ownership will not transfer to him to the prejudice of
the first buyer.

In his commentaries on the Civil Code, an accepted authority on the subject, now a distinguished member of the Court,
Justice Jose C. Vitug, explains:

The governing principle is prius tempore, potior jure (first in time, stronger in right). Knowledge by the
first buyer of the second sale cannot defeat the first buyer's rights except when the second buyer first
registers in good faith the second sale (Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge
gained by the second buyer of the first sale defeats his rights even if he is first to register, since
knowledge taints his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No. 58530,
26 December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984, 129 SCRA 656), it has held that
it is essential, to merit the protection of Art. 1544, second paragraph, that the second realty buyer must
act in good faith in registering his deed of sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99,
Crisostomo vs. CA, G.R. No. 95843, 02 September 1992).
(J. Vitug Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604).

89
Petitioner point out that the notice of lis pendens  in the case at bar was annoted on the title of the subject property only on
February 22, 1985, whereas, the second sale between petitioners Coronels and petitioner Mabanag was supposedly
perfected prior thereto or on February 18, 1985. The idea conveyed is that at the time petitioner Mabanag, the second
buyer, bought the property under a clean title, she was unaware of any adverse claim or previous sale, for which reason
she is buyer in good faith.

We are not persuaded by such argument.

In a case of double sale, what finds relevance and materiality is not whether or not the second buyer was a buyer in good
faith but whether or not said second buyer registers such second sale in good faith, that is, without knowledge of any
defect in the title of the property sold.

As clearly borne out by the evidence in this case, petitioner Mabanag could not have in good faith, registered the sale
entered into on February 18, 1985 because as early as February 22, 1985, a notice of lis pendens had been annotated on
the transfer certificate of title in the names of petitioners, whereas petitioner Mabanag registered the said sale sometime
in April, 1985. At the time of registration, therefore, petitioner Mabanag knew that the same property had already been
previously sold to private respondents, or, at least, she was charged with knowledge that a previous buyer is claiming title
to the same property. Petitioner Mabanag cannot close her eyes to the defect in petitioners' title to the property at the
time of the registration of the property.

This Court had occasions to rule that:

If a vendee in a double sale registers that sale after he has acquired knowledge that there was a
previous sale of the same property to a third party or that another person claims said property in a
pervious sale, the registration will constitute a registration in bad faith and will not confer upon him
any right. (Salvoro vs. Tanega, 87 SCRA 349 [1978]; citing Palarca vs. Director of Land, 43 Phil. 146;
Cagaoan vs. Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.)

Thus, the sale of the subject parcel of land between petitioners and Ramona P. Alcaraz, perfected on February 6, 1985,
prior to that between petitioners and Catalina B. Mabanag on February 18, 1985, was correctly upheld by both the courts
below.

Although there may be ample indications that there was in fact an agency between Ramona as principal and Concepcion,
her mother, as agent insofar as the subject contract of sale is concerned, the issue of whether or not Concepcion was also
acting in her own behalf as a co-buyer is not squarely raised in the instant petition, nor in such assumption disputed
between mother and daughter. Thus, We will not touch this issue and no longer disturb the lower courts' ruling on this
point.

WHEREFORE, premises considered, the instant petition is hereby DISMISSED and the appealed judgment AFFIRMED.

SO ORDERED.

Narvasa, C.J., Davide, Jr. and Francisco, JJ., concur.

Panganiban, J., took no part.

90
 Republic of the Philippines
Supreme Court
Manila
 
 
SECOND DIVISION
 
 
DELFIN TAN, G.R. No. 153820
Petitioner,  
  Present:
*
  QUISUMBING, J.,
  CARPIO-MORALES,
**
  NACHURA,
- versus -
    BRION, and
  ABAD, JJ.
   
   
   
ERLINDA C. BENOLIRAO,  
ANDREW C. BENOLIRAO,  
ROMANO C. BENOLIRAO,  
DION C. BENOLIRAO,  
SPS. REYNALDO TANINGCO Promulgated:
and NORMA D. BENOLIRAO,  
EVELYN T. MONREAL, and  
ANN KARINA TANINGCO, October 16, 2009
Respondents.  
 
x-------------------------------------------------------------------------------------- x
 
DECISION
 
BRION, J.:
 
Is an annotation made pursuant to Section 4, Rule 74 of the Rules of Court (Rules) on a certificate of
title covering real property considered an encumbrance on the property? We resolve this question in the
petition for review on certiorari[1] filed by Delfin Tan (Tan) to assail the decision of the Court of Appeals (CA)
in CA-G.R. CV No. 52033[2] and the decision of the Regional Trial Court (RTC)[3] that commonly declared the
forfeiture of his P200,000.00 down payment as proper, pursuant to the terms of his contract with the
respondents.
 
THE ANTECEDENTS
 
The facts are not disputed. Spouses Lamberto and Erlinda Benolirao and the Spouses Reynaldo and Norma
Taningco were the co-owners of a 689-square meter parcel of land (property) located in Tagaytay City and
covered by Transfer Certificate of Title (TCT) No. 26423. On October 6, 1992, the co-owners executed a Deed
of Conditional Sale over the property in favor of Tan for the price of P1,378,000.00. The deed stated:

91
 
a) An initial down-payment of TWO HUNDRED (P200,000.00) THOUSAND PESOS, Philippine
      

Currency, upon signing of this contract; then the remaining balance of ONE MILLION ONE
HUNDRED SEVENTY EIGHT THOUSAND (P1,178,000.00) PESOS, shall be payable within a period
of one hundred fifty (150) days from date hereof without interest;
 
b) That for any reason, BUYER fails to pay the remaining balance within above mentioned period,
      

the BUYER shall have a grace period of sixty (60) days within which to make the payment,
provided that there shall be an interest of 15% per annum on the balance amount due from the
SELLERS;
 
c) That should in case (sic) the BUYER fails to comply with the terms and conditions within the
      

above stated grace period, then the SELLERS shall have the right to forfeit the down payment,
and to rescind this conditional sale without need of judicial action;
 
d) That in case, BUYER have complied with the terms and conditions of this contract, then the
     

SELLERS shall execute and deliver to the BUYER the appropriate Deed of Absolute Sale;
 
 
Pursuant to the Deed of Conditional Sale, Tan issued and delivered to the co-owners/vendors
Metrobank Check No. 904407 for P200,000.00 as down payment for the property, for which the vendors
issued a corresponding receipt.
 
On November 6, 1992, Lamberto Benolirao died intestate. Erlinda Benolirao (his widow and one of
the vendors of the property) and her children, as heirs of the deceased, executed an extrajudicial settlement
of Lambertos estate on January 20, 1993. On the basis of the extrajudicial settlement, a new certificate of title
over the property, TCT No. 27335, was issued on March 26, 1993 in the names of the Spouses Reynaldo and
Norma Taningco and Erlinda Benolirao and her children. Pursuant to Section 4, Rule 74 of the Rules, the
following annotation was made on TCT No. 27335:
 
x x x any liability to credirots (sic), excluded heirs and other persons having right to
the property, for a period of two (2) years, with respect only to the share of Erlinda, Andrew,
Romano and Dion, all surnamed Benolirao
 
 
As stated in the Deed of Conditional Sale, Tan had until March 15, 1993 to pay the balance of the
purchase price. By agreement of the parties, this period was extended by two months, so Tan had until May
15, 1993 to pay the balance. Tan failed to pay and asked for another extension, which the vendors again
granted. Notwithstanding this second extension, Tan still failed to pay the remaining balance due on May 21,
1993. The vendors thus wrote him a letter demanding payment of the balance of the purchase price within
five (5) days from notice; otherwise, they would declare the rescission of the conditional sale and the
forfeiture of his down payment based on the terms of the contract.
 

92
 Tan refused to comply with the vendors demand and instead wrote them a letter (dated  May 28,
1993) claiming that the annotation on the title, made pursuant to Section 4, Rule 74 of the Rules, constituted
an encumbrance on the property that would prevent the vendors from delivering a clean title to him.  Thus, he
alleged that he could no longer be required to pay the balance of the purchase price and demanded the return
of his down payment.
 
When the vendors refused to refund the down payment, Tan, through counsel, sent another demand
letter to the vendors on June 18, 1993. The vendors still refused to heed Tans demand, prompting Tan to file
on June 19, 1993 a complaint with the RTC of Pasay City for specific performance against the vendors,
including Andrew Benolirao, Romano Benolirao, Dion Benolirao as heirs of Lamberto Benolirao, together
with Evelyn Monreal and Ann Karina Taningco (collectively, the respondents). In his complaint, Tan alleged
that there was a novation of the Deed of Conditional Sale done without his consent since the annotation on
the title created an encumbrance over the property. Tan prayed for the refund of the down payment and the
rescission of the contract.
 
On August 9, 1993, Tan amended his Complaint, contending that if the respondents insist on
forfeiting the down payment, he would be willing to pay the balance of the purchase price provided there is
reformation of the Deed of Conditional Sale. In the meantime, Tan caused the annotation on the title of a
notice of lis pendens.
 
On August 21, 1993, the respondents executed a Deed of Absolute Sale over the property in favor of
Hector de Guzman (de Guzman) for the price of P689,000.00.
 
Thereafter, the respondents moved for the cancellation of the notice of lis pendens on the ground that
it was inappropriate since the case that Tan filed was a personal action which did not involve either title to, or
possession of, real property. The RTC issued an order dated October 22, 1993 granting the respondents
motion to cancel the lis pendens annotation on the title.
 
Meanwhile, based on the Deed of Absolute Sale in his favor, de Guzman registered the property and
TCT No. 28104 was issued in his name. Tan then filed a motion to carry over the lis pendens annotation to TCT
No. 28104 registered in de Guzmans name, but the RTC denied the motion.
 
On September 8, 1995, after due proceedings, the RTC rendered judgment ruling that the respondents
forfeiture of Tans down payment was proper in accordance with the terms and conditions of the contract
between the parties.[4] The RTC ordered Tan to pay the respondents the amount of P30,000.00,
plus P1,000.00 per court appearance, as attorneys fees, and to pay the cost of suit.

93
 
On appeal, the CA dismissed the petition and affirmed the ruling of the trial court in toto. Hence, the present
petition.
 
THE ISSUES
 
Tan argues that the CA erred in affirming the RTCs ruling to cancel the  lis pendens annotation on TCT
No. 27335. Due to the unauthorized novation of the agreement, Tan presented before the trial court two
alternative remedies in his complaint either the rescission of the contract and the return of the down
payment, or the reformation of the contract to adjust the payment period, so that Tan will pay the remaining
balance of the purchase price only after the lapse of the required two-year encumbrance on the title. Tan
posits that the CA erroneously disregarded the alternative remedy of reformation of contract when it
affirmed the removal of the lis pendens annotation on the title.
 
Tan further contends that the CA erred when it recognized the validity of the forfeiture of the down
payment in favor of the vendors. While admitting that the Deed of Conditional Sale contained a forfeiture
clause, he insists that this clause applies only if the failure to pay the balance of the purchase price was
through his own fault or negligence. In the present case, Tan claims that he was justified in refusing to pay the
balance price since the vendors would not have been able to comply with their obligation to deliver a clean
title covering the property.
 
Lastly, Tan maintains that the CA erred in ordering him to pay the respondents P30,000.00,
plus P1,000.00 per court appearance as attorneys fees, since he filed the foregoing action in good faith,
believing that he is in the right.
 
The respondents, on the other hand, assert that the petition should be dismissed for raising pure questions of
fact, in contravention of the provisions of Rule 45 of the Rules which provides that only questions of law can
be raised in petitions for review on certiorari.
 
THE COURTS RULING
 
The petition is granted.
 
No new issues can be raised in the Memorandum
 
 

94
 At the onset, we note that Tan raised the following additional assignment of errors in his
Memorandum: (a) the CA erred in holding that the petitioner could seek reformation of the Deed of
Conditional Sale only if he paid the balance of the purchase price and if the vendors refused to execute the
deed of absolute sale; and (b) the CA erred in holding that the petitioner was estopped from asking for the
reformation of the contract or for specific performance.
 
The Courts September 27, 2004 Resolution expressly stated that No new issues may be raised by a
party in his/its Memorandum. Explaining the reason for this rule, we said that:
 
The raising of additional issues in a memorandum before the Supreme Court is
irregular, because said memorandum is supposed to be in support merely of the position
taken by the party concerned in his petition, and the raising of new issues amounts to the
filing of a petition beyond the reglementary period. The purpose of this rule is to provide all
parties to a case a fair opportunity to be heard. No new points of law, theories, issues or
arguments may be raised by a party in the Memorandum for the reason that to permit these
would be offensive to the basic rules of fair play, justice and due process. [5]
 
 
Tan contravened the Courts explicit instructions by raising these additional errors. Hence, we disregard them
and focus instead on the issues previously raised in the petition and properly included in the Memorandum.
 
Petition raises a question of law
 
Contrary to the respondents claim, the issue raised in the present petition defined in the opening paragraph
of this Decision is a pure question of law. Hence, the petition and the issue it presents are properly cognizable
by this Court.
 
Lis pendens annotation not proper in personal actions
 
Section 14, Rule 13 of the Rules enumerates the instances when a notice of lis pendens  can be validly
annotated on the title to real property:
 
Sec. 14. Notice of lis pendens.
In an action affecting the title or the right of possession of real property, the
plaintiff and the defendant, when affirmative relief is claimed in his answer, may record in
the office of the registry of deeds of the province in which the property is situated a notice of
the pendency of the action. Said notice shall contain the names of the parties and the object
of the action or defense, and a description of the property in that province affected thereby.
Only from the time of filing such notice for record shall a purchaser, or encumbrancer of the
property affected thereby, be deemed to have constructive notice of the pendency of the
action, and only of its pendency against the parties designated by their real names.
 

95
 The notice of lis pendens hereinabove mentioned may be cancelled only upon order
of the court, after proper showing that the notice is for the purpose of molesting the adverse
party, or that it is not necessary to protect the rights of the party who caused it to be
recorded.
 
The litigation subject of the notice of lis pendens must directly involve a specific property which is
necessarily affected by the judgment.[6] 
 
Tans complaint prayed for either the rescission or the reformation of the Deed of Conditional
Sale. While the Deed does have real property for its object, we find that Tans complaint is an  in
personam action, as Tan asked the court to compel the respondents to do something either to rescind the
contract and return the down payment, or to reform the contract by extending the period given to pay the
remaining balance of the purchase price. Either way, Tan wants to enforce his personal rights against the
respondents, not against the property subject of the Deed. As we explained in Domagas v. Jensen:[7]
 
The settled rule is that the aim and object of an action determine its character.
Whether a proceeding is in rem, or in personam, or quasi in rem for that matter, is
determined by its nature and purpose, and by these only. A proceeding in personam is a
proceeding to enforce personal rights and obligations brought against the person and is
based on the jurisdiction of the person, although it may involve his right to, or the exercise of
ownership of, specific property, or seek to compel him to control or dispose of it in
accordance with the mandate of the court. The purpose of a proceeding in personam is to
impose, through the judgment of a court, some responsibility or liability directly upon the
person of the defendant. Of this character are suits to compel a defendant to specifically
perform some act or actions to fasten a pecuniary liability on him.
 
 
Furthermore, as will be explained in detail below, the contract between the parties was merely a contract to
sell where the vendors retained title and ownership to the property until Tan had fully paid the purchase
price. Since Tan had no claim of ownership or title to the property yet, he obviously had no right to ask for the
annotation of a lis pendens notice on the title of the property.
 
Contract is a mere contract to sell
 
A contract is what the law defines it to be, taking into consideration its essential elements, and not
what the contracting parties call it.[8] Article 1485 of the Civil Code defines a contract of sale as follows:
 
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer
the ownership and to deliver a determinate thing, and the other to pay therefor a price
certain in money or its equivalent.
 
A contract of sale may be absolute or conditional.
 

96
The very essence of a contract of sale is the transfer of ownership in exchange for a price paid or promised.
[9]

 
In contrast, a contract to sell is defined as a bilateral contract whereby the prospective seller,
while expressly reserving the ownership of the property despite delivery thereof to the prospective
buyer, binds himself to sell the property exclusively to the prospective buyer upon fulfillment of the
condition agreed, i.e., full payment of the purchase price.[10] A contract to sell may not even be considered as
a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale
until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first
element of consent is present, although it is conditioned upon the happening of a contingent event which
may or may not occur.[11]
 
In the present case, the true nature of the contract is revealed by paragraph D thereof, which states:
x x x
d) That in case, BUYER has complied with the terms and conditions of this contract, then the
     

SELLERS shall execute and deliver to the BUYER the appropriate Deed of Absolute Sale;
 
x x x
 
 
Jurisprudence has established that where the seller promises to execute a deed of absolute sale upon
the completion by the buyer of the payment of the price, the contract is only a contract to sell. [12] Thus, while
the contract is denominated as a Deed of Conditional Sale, the presence of the above-quoted provision
identifies the contract as being a mere contract to sell.
 
A Section 4, Rule 74 annotation is an encumbrance on
the property

 
While Tan admits that he refused to pay the balance of the purchase price, he claims that he had valid
reason to do so the sudden appearance of an annotation on the title pursuant to Section 4, Rule 74 of the
Rules, which Tan considered an encumbrance on the property.
 
We find Tans argument meritorious.
 
The annotation placed on TCT No. 27335, the new title issued to reflect the extrajudicial partition of
Lamberto Benoliraos estate among his heirs, states:
 

97
 x x x any liability to credirots (sic), excluded heirs and other persons having right to
the property, for a period of two (2) years, with respect only to the share of Erlinda,
Andrew, Romano and Dion, all surnamed Benolirao [Emphasis supplied.]
 
This annotation was placed on the title pursuant to Section 4, Rule 74 of the Rules, which reads:
 
Sec. 4. Liability of distributees and estate. - If it shall appear at any time within two (2) years after the settlement and distribution of
an estate in accordance with the provisions of either of the first two sections of this rule, that an heir or other person has been
unduly deprived of his lawful participation in the estate, such heir or such other person may compel the settlement of the estate in
the courts in the manner hereinafter provided for the purpose of satisfying such lawful participation. And  if within the same time
of two (2) years, it shall appear that there are debts outstanding against the estate which have not been paid, or that an heir
or other person has been unduly deprived of his lawful participation payable in money, the court having jurisdiction of the
estate may, by order for that purpose, after hearing, settle the amount of such debts or lawful participation and order how
much and in what manner each distributee shall contribute in the payment thereof, and may issue execution,  if
circumstances require, against the bond provided in the preceding section or against the real estate belonging to the
deceased, or both. Such bond and such real estate shall remain charged with a liability to creditors, heirs, or other persons for the
full period of two (2) years after such distribution, notwithstanding any transfers of real estate that may have been made. [Emphasis
supplied.]
 
 

Senator Vicente Francisco discusses this provision in his book The Revised Rules of Court in the
Philippines,[13] where he states:
 
The provision of Section 4, Rule 74 prescribes the procedure to be followed if within
two years after an extrajudicial partition or summary distribution is made, an heir or other
person appears to have been deprived of his lawful participation in the estate, or some
outstanding debts which have not been paid are discovered. When the lawful participation
of the heir is not payable in money, because, for instance, he is entitled to a part of the
real property that has been partitioned, there can be no other procedure than to
cancel the partition so made and make a new division, unless, of course, the heir agrees
to be paid the value of his participation with interest. But in case the lawful participation
of the heir consists in his share in personal property of money left by the decedent, or in case
unpaid debts are discovered within the said period of two years, the procedure is not to
cancel the partition, nor to appoint an administrator to re-assemble the assets, as was
allowed under the old Code, but the court, after hearing, shall fix the amount of such debts or
lawful participation in proportion to or to the extent of the assets they have respectively
received and, if circumstances require, it may issue execution against the real estate
belonging to the decedent, or both. The present procedure is more expedient and less
expensive in that it dispenses with the appointment of an administrator and does not disturb
the possession enjoyed by the distributees.[14] [Emphasis supplied.]
 
 
An annotation is placed on new certificates of title issued pursuant to the distribution and partition
of a decedents real properties to warn third persons on the possible interests of excluded heirs or unpaid
creditors in these properties. The annotation, therefore, creates a legal encumbrance or lien on the real
property in favor of the excluded heirs or creditors. Where a buyer purchases the real property
despite the annotation, he must be ready for the possibility that the title could be subject to the rights
of excluded parties. The cancellation of the sale would be the logical consequence where: (a) the annotation
clearly appears on the title, warning all would-be buyers; (b) the sale unlawfully interferes with the rights of
heirs; and (c) the rightful heirs bring an action to question the transfer within the two-year period provided
by law.

98
  
As we held in Vda. de Francisco v. Carreon:[15]
 
And Section 4, Rule 74 xxx expressly authorizes the court to give to every heir his
lawful participation in the real estate notwithstanding any transfers of such real estate and
to issue execution thereon. All this implies that, when within the amendatory period the
realty has been alienated, the court in re-dividing it among the heirs has the authority
to direct cancellation of such alienation in the same estate proceedings, whenever it
becomes necessary to do so. To require the institution of a separate action for such
annulment would run counter to the letter of the above rule and the spirit of these summary
settlements. [Emphasis supplied.]
 
 
Similarly, in Sps. Domingo v. Roces,[16] we said:
 
The foregoing rule clearly covers transfers of real property to any person, as long as
the deprived heir or creditor vindicates his rights within two years from the date of the
settlement and distribution of estate.  Contrary to petitioners contention, the effects of this
provision are not limited to the heirs or original distributees of the estate properties,
but shall affect anytransferee of the properties. [Emphasis supplied.]
 
 
Indeed, in David v. Malay,[17] although the title of the property had already been registered in the
name of the third party buyers, we cancelled the sale and ordered the reconveyance of the property to the
estate of the deceased for proper disposal among his rightful heirs.
 
By the time Tans obligation to pay the balance of the purchase price arose on May 21, 1993 (on
account of the extensions granted by the respondents), a new certificate of title covering the property had
already been issued on March 26, 1993, which contained the encumbrance on the property; the encumbrance
would remain so attached until the expiration of the two-year period. Clearly, at this time, the vendors could
no longer compel Tan to pay the balance of the purchase since considering they themselves could not fulfill
their obligation to transfer a clean title over the property to Tan.

 
Contract to sell is not rescinded but terminated

What then happens to the contract?

We have held in numerous cases[18] that the remedy of rescission under Article 1191 cannot apply to

mere contracts to sell. We explained the reason for this in Santos v. Court of Appeals,[19] where we said:

[I]n a contract to sell, title remains with the vendor and does not pass on to the vendee until the
purchase price is paid in full. Thus, in a contract to sell, the payment of the purchase price is a positive

99
 suspensive condition. Failure to pay the price agreed upon is not a mere breach, casual or
serious, but a situation that prevents the obligation of the vendor to convey title from acquiring
an obligatory force. This is entirely different from the situation in a contract of sale, where non-
payment of the price is a negative resolutory condition. The effects in law are not identical. In a
contract of sale, the vendor has lost ownership of the thing sold and cannot recover it, unless the
contract of sale is rescinded and set aside. In a contract to sell, however, the vendor remains the
owner for as long as the vendee has not complied fully with the condition of paying the
purchase price. If the vendor should eject the vendee for failure to meet the condition precedent, he
is enforcing the contract and not rescinding it.  x x x  Article 1592 speaks of non-payment of the purchase
price as a resolutory condition. It does not apply to a contract to sell. As to Article 1191, it is
subordinated to the provisions of Article 1592 when applied to sales of immovable property. Neither
provision is applicable [to a contract to sell]. [Emphasis supplied.]
 
 
We, therefore, hold that the contract to sell was terminated when the vendors could no longer legally
compel Tan to pay the balance of the purchase price as a result of the legal encumbrance which attached to
the title of the property. Since Tans refusal to pay was due to the supervening event of a legal encumbrance
on the property and not through his own fault or negligence, we find and so hold that the forfeiture of Tans
down payment was clearly unwarranted.
 
Award of Attorneys fees
 
As evident from our previous discussion, Tan had a valid reason for refusing to pay the balance of the
purchase price for the property. Consequently, there is no basis for the award of attorneys fees in favor of the
respondents.
 
On the other hand, we award attorneys fees in favor of Tan, since he was compelled to litigate due to
the respondents refusal to return his down payment despite the fact that they could no longer comply with
their obligation under the contract to sell, i.e., to convey a clean title. Given the facts of this case, we find the
award of P50,000.00 as attorneys fees proper.
 
Monetary award is subject to legal interest
 
Undoubtedly, Tan made a clear and unequivocal demand on the vendors to return his down payment
as early as May 28, 1993. Pursuant to

our definitive ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,[20] we hold that the vendors should
return the P200,000.00 down payment to Tan, subject to the legal interest of 6% per annum computed
from May 28, 1993, the date of the first demand letter.
 
 
Furthermore, after a judgment has become final and executory, the rate of legal interest, whether the
obligation was in the form of a loan or forbearance of money or otherwise, shall be 12% per annum from such

100
finality until its satisfaction. Accordingly, the principal obligation of P200,000.00 shall bear 6% interest from
the date of first demand or from May 28, 1993. From the date the liability for the principal obligation and
attorneys fees has become final and executory, an annual interest of 12% shall be imposed on these
obligations until their final satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.
 
 
WHEREFORE, premises considered, we hereby GRANT the petition and,
accordingly, ANNUL and SET ASIDE the May 30, 2002 decision of the Court of Appeals in CA-G.R. CV No.
52033.  Another judgment is rendered declaring the Deed of Conditional Sale terminated and ordering the
respondents to return the P200,000.00 down payment to petitioner Delfin Tan, subject to legal interest of 6%
per annum, computed from May 28, 1993. The respondents are also ordered to pay, jointly and severally,
petitioner Delfin Tan the amount of P50,000.00 as and by way of attorneys fees. Once this decision becomes
final and executory, respondents are ordered to pay interest at 12% per annum on the principal obligation as
well as the attorneys fees, until full payment of these amounts. Costs against the respondents.
 
SO ORDERED.
 
ARTURO D. BRION
Associate Justice
 
WE CONCUR:
 
 
 
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
 
   
   
CONCHITA CARPIO MORALES ANTONIO EDUARDO B. NACHURA
Associate Justice Associate Justice
 
 
 
ROBERTO A. ABAD
Associate Justice
 
 
CERTIFICATION
 
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in
the above Decision were reached in consultation before the case was assigned to the writer of the opinion of
the Courts Division.
 

101
  
 
LEONARDO A. QUISUMBING
Acting Chief Justice

102
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 196251               July 9, 2014

OLIVAREZ REALTY CORPORATION and DR. PABLO R. OLIVAREZ, Petitioner, 

vs.
BENJAMIN CASTILLO, Respondent.

DECISION

LEONEN, J.:

Trial may be dispensed with and a summary judgment rendered if the case can be resolved judiciously by plain resort to
the pleadings, affidavits, depositions, and other papers filed by the parties.

This is a petition for review on certiorari 1 of the Court of Appeals' decision2 dated July 20, 2010 and resolution3dated
March 18, 2011 in CAG.R. CV No. 91244.

The facts as established from the pleadings of the parties are as follows:

Benjamin Castillo was the registered owner of a 346,918-squaremeter parcel of land located in Laurel, Batangas, covered
by Transfer Certificate of Title No. T-19972.4 The Philippine Tourism Authority allegedly claimed ownership of the
sameparcel of land based on Transfer Certificate of Title No. T-18493. 5 On April 5, 2000, Castillo and Olivarez Realty
Corporation, represented by Dr. Pablo R. Olivarez, entered into a contract of conditional sale 6 over the property. Under the
deed of conditional sale, Castillo agreed to sell his property to Olivarez Realty Corporation for ₱19,080,490.00. Olivarez
Realty Corporation agreed toa down payment of ₱5,000,000.00, to be paid according to the following schedule:

DATE AMOUNT

April 8, 2000 500,000.00

May 8, 2000 500,000.00

May 16, 2000 500,000.00

June 8, 2000 1,000,000.00

July 8, 2000 500,000.00

August 8, 2000 500,000.00

September 8, 2000 500,000.00

October 8, 2000 500,000.00

103
 7
November 8, 2000 500,000.00

As to the balance of ₱14,080,490.00, Olivarez Realty Corporation agreed to pay in 30 equal monthly installments every
eighth day of the month beginning in the month that the parties would receive a decision voiding the Philippine Tourism
Authority’s title to the property. 8 Under the deed of conditional sale, Olivarez RealtyCorporation shall file the action
against the Philippine Tourism Authority "with the full assistance of [Castillo]." 9 Paragraph C of the deed of conditional
sale provides:

C. [Olivarez Realty Corporation] assumes the responsibility of taking necessary legal action thru Court to have the
claim/title TCT T-18493 of Philippine Tourism Authority over the above-described property be nullified and voided; with
the full assistance of [Castillo][.]10

Should the action against the Philippine Tourism Authority be denied, Castillo agreed to reimburse all the amounts paid
by Olivarez Realty Corporation. Paragraph D of the deed of conditional sale provides:

D. In the event that the Court denie[s] the petition against the Philippine Tourism Authority, all sums received by
[Castillo] shall be reimbursed to [Olivarez Realty Corporation] without interest[.] 11

As to the "legitimate tenants" occupying the property, Olivarez Realty Corporation undertook to pay them "disturbance
compensation," while Castillo undertook to clear the land of the tenants within six months from the signing of the deed of
conditional sale. Should Castillo fail to clear the land within six months, Olivarez Realty Corporation may suspend its
monthly down payment until the tenants vacate the property. Paragraphs E and F of the deed of conditional sale provide:
E. That [Olivarez Realty Corporation] shall pay the disturbance compensation to legitimate agricultural tenants and
fishermen occupants which in no case shall exceed ONE MILLION FIVE HUNDRED THOUSAND (₱1,500,000.00) PESOS.
Said amountshall not form part of the purchase price. In excess of this amount, all claims shall be for the account of
[Castillo];

F. That [Castillo] shall clear the land of [the] legitimate tenants within a period of six (6) months upon signing of this
Contract, and in case [Castillo] fails, [Olivarez Realty Corporation] shall have the right to suspend the monthly down
payment until such time that the tenants [move] out of the land[.] 12

The parties agreed thatOlivarez Realty Corporation may immediately occupy the property upon signing of the deed of
conditional sale. Should the contract be cancelled, Olivarez RealtyCorporation agreed to return the property’s possession
to Castillo and forfeit all the improvements it may have introduced on the property. Paragraph I of the deed of conditional
sale states:

I. Immediately upon signing thisContract, [Olivarez Realty Corporation] shall be entitled to occupy, possess and develop
the subject property. In case this Contract is canceled [sic], any improvement introduced by [the corporation] on the
property shall be forfeited in favor of [Castillo][.] 13

On September 2, 2004, Castillo filed a complaint 14 against Olivarez Realty Corporation and Dr. Olivarez with the Regional
Trial Court of Tanauan City, Batangas.

Castillo alleged that Dr. Olivarez convinced him into selling his property to Olivarez Realty Corporation on the
representation that the corporation shall be responsible in clearing the property of the tenants and in paying them
disturbance compensation. He further alleged that Dr. Olivarez solely prepared the deed of conditional sale and that he
was made to sign the contract with its terms "not adequately explained [to him] in Tagalog." 15

After the parties had signed the deed of conditional sale, Olivarez Realty Corporation immediately took possession of the
property. However, the corporation only paid 2,500,000.00 ofthe purchase price. Contrary to the agreement, the
corporation did not file any action against the Philippine Tourism Authority to void the latter’s title to the property. The
corporation neither cleared the land of the tenants nor paid them disturbance compensation. Despite demand, Olivarez
Realty Corporation refused to fully pay the purchase price.16

Arguing that Olivarez Realty Corporation committed substantial breach of the contract of conditional sale and that the
deed of conditional sale was a contract of adhesion, Castillo prayed for rescission of contract under Article 1191 of the

104
Civil Code of the Philippines. He further prayed that Olivarez Realty Corporation and Dr. Olivarez be made solidarily liable
for moral damages, exemplary damages, attorney’s fees, and costs of suit. 17

In their answer,18 Olivarez Realty Corporation and Dr. Olivarez admitted that the corporation only paid ₱2,500,000.00
ofthe purchase price. In their defense, defendants alleged that Castillo failed to "fully assist" 19 the corporation in filing an
action against the Philippine Tourism Authority. Neither did Castillo clear the property of the tenants within six months
from the signing of the deed of conditional sale. Thus, according to defendants, the corporation had "all the legal right to
withhold the subsequent payments to [fully pay] the purchase price." 20

Olivarez Realty Corporation and Dr. Olivarez prayedthat Castillo’s complaint be dismissed. By way of compulsory
counterclaim, they prayed for ₱100,000.00 litigation expenses and ₱50,000.00 attorney’s fees. 21

Castillo replied to the counterclaim,22 arguing that Olivarez Realty Corporation and Dr. Olivarez had no right to litigation
expenses and attorney’s fees. According to Castillo, the deed of conditional sale clearly states that the corporation
"assume[d] the responsibility of taking necessary legal action" 23 against the Philippine Tourism Authority, yet the
corporation did not file any case. Also, the corporation did not pay the tenants disturbance compensation. For the
corporation’s failure to fully pay the purchase price, Castillo claimed that hehad "all the right to pray for the rescission of
the [contract],"24 and he "should not be held liable . . . for any alleged damages by way of litigation expenses and attorney’s
fees."25

On January 10, 2005, Castillo filed a request for admission, 26 requesting Dr. Olivarez to admit under oath the genuineness
of the deed of conditional sale and Transfer Certificate of Title No. T-19972. He likewise requested Dr. Olivarez to admit
the truth of the following factual allegations:

1. That Dr. Olivarez is the president of Olivarez Realty Corporation;

2. That Dr. Olivarez offered to purchase the parcel of land from Castillo and that he undertook to clear the
property of the tenants and file the court action to void the Philippine Tourism Authority’s title to the property;

3. That Dr. Olivarez caused the preparation of the deed of conditional sale;

4. That Dr. Olivarez signed the deed of conditional sale for and on behalf of Olivarez Realty Corporation;

5. That Dr. Olivarez and the corporation did not file any action against the Philippine Tourism Authority;

6. That Dr. Olivarez and the corporation did not pay the tenants disturbance compensation and failed to clear the
property of the tenants; and

7. That Dr. Olivarez and the corporation only paid ₱2,500,000.00 of the agreed purchase price. 27

On January 25, 2005, Dr. Olivarez and Olivarez Realty Corporation filed their objections to the request for
admission,28 stating that they "reiterate[d] the allegations [and denials] in their [answer]." 29

The trial court conducted pre-trial conference on December 17, 2005.

On March 8, 2006, Castillo filed a motion for summary judgment and/or judgment on the pleadings. 30 He argued that
Olivarez Realty Corporation and Dr. Olivarez "substantially admitted the material allegations of [his]
complaint,"31specifically:

1. That the corporation failed to fully pay the purchase price for his property; 32

2. That the corporation failed to file an action to void the Philippine Tourism Authority’s title to his
property;33and

3. That the corporation failed to clear the property of the tenants and pay them disturbance compensation. 34

105
Should judgment on the pleadings beimproper, Castillo argued that summary judgment may still be rendered asthere is
no genuine issue as to any material fact. 35 He cited Philippine National Bank v. Noah’s Ark Sugar Refinery 36 as authority.

Castillo attached to his motion for summary judgment and/or judgment on the pleadings his affidavit 37 and the affidavit of
a Marissa Magsino38 attesting to the truth of the material allegations of his complaint.

Olivarez Realty Corporation and Dr. Olivarez opposed 39 the motion for summary judgment and/or judgment on the
pleadings, arguing that the motion was "devoid of merit." 40 They reiterated their claim that the corporation withheld
further payments of the purchase price because "there ha[d] been no favorable decision voiding the title of the Philippine
Tourism Authority."41 They added that Castillo sold the property to another person and that the sale was allegedly
litigated in Quezon City.42

Considering that a title adverse to that of Castillo’s existed, Olivarez Realty Corporation and Dr. Olivarez argued that the
case should proceed to trial and Castillo be required to prove that his title to the property is "not spurious or fake and that
he had not sold his property to another person." 43

In reply to the opposition to the motion for summary judgment and/or judgment on the pleadings, 44 Castillo maintained
that Olivarez Realty Corporation was responsible for the filing of an action against the Philippine Tourism Authority.
Thus, the corporation could not fault Castillo for not suing the PhilippineTourism Authority. 45 The corporation illegally
withheld payments of the purchase price.

As to the claim that the case should proceed to trial because a title adverse to his title existed, Castillo argued that the
Philippine Tourism Authority’s title covered another lot, not his property. 46

During the hearing on August 3, 2006, Olivarez Realty Corporation and Dr. Olivarez prayed that they be given 30 days to
file a supplemental memorandum on Castillo’s motion for summary judgment and/or judgment on the pleadings. 47

The trial court granted the motion. Itgave Castillo 20 days to reply to the memorandum and the corporation and Dr.
Olivarez 15 days to respond to Castillo’s reply. 48

In their supplemental memorandum,49 Olivarez Realty Corporation and Dr. Olivarez argued that there was "an obvious
ambiguity"50 as to which should occur first — the payment of disturbance compensation to the tenants or the clearing of
the property of the tenants.51 This ambiguity, according to defendants, is a genuine issue and "oughtto be threshed out in a
full blown trial."52

Olivarez Realty Corporation and Dr. Olivarez added that Castillo prayed for irreconcilable reliefs of reformation of
instrument and rescission of contract. 53 Thus, Castillo’s complaint should be dismissed.

Castillo replied54 to the memorandum, arguing that there was no genuine issue requiring trial of the case. According to
Castillo, "common sense dictates . . . that the legitimate tenants of the [property] shall not vacate the premises without
being paid any disturbance compensation . . ." 55 Thus, the payment of disturbance compensation should occur first before
clearing the property of the tenants.

With respect to the other issuesraised in the supplemental memorandum, specifically, that Castillo sold the property to
another person, he argued that these issues should not be entertained for not having been presented during pre-trial. 56

In their comment on the reply memorandum, 57 Olivarez Realty Corporation and Dr. Olivarez reiterated their arguments
that certain provisions of the deed of conditional sale were ambiguous and that the complaint prayed for irreconcilable
reliefs.58

As to the additional issues raised in the supplemental memorandum, defendants argued that issues not raised and
evidence not identified and premarked during pre-trial may still be raised and presented during trial for good cause
shown. Olivarez Realty Corporation and Dr. Olivarez prayed that Castillo’s complaint be dismissed for lack of merit. 59

Ruling of the trial court

106
The trial court found that Olivarez Realty Corporation and Dr. Olivarez’s answer "substantially [admitted the material
allegations of Castillo’s] complaint and [did] not . . . raise any genuine issue [as to any material fact]." 60

Defendants admitted that Castillo owned the parcel of land covered by Transfer Certificate of Title No. T-19972. They
likewise admitted the genuineness of the deed of conditional sale and that the corporation only paid ₱2,500,000.00 of the
agreed purchase price.61

According to the trial court, the corporation was responsible for suing the Philippine Tourism Authority and for paying
the tenants disturbance compensation. Since defendant corporation neither filed any case nor paid the tenants
disturbance compensation, the trial court ruled that defendant corporation had no right to withhold payments from
Castillo.62

As to the alleged ambiguity of paragraphs E and F of the deed of conditional sale, the trial court ruled that Castillo and his
witness, Marissa Magsino, "clearly established" 63 in their affidavits that the deed of conditional sale was a contract of
adhesion. The true agreement between the parties was that the corporation would both clear the land of the tenants and
pay them disturbance compensation.

With these findings, the trial court ruled that Olivarez Realty Corporation breached the contract ofconditional
sale.1âwphi1 In its decision64 dated April 23, 2007, the trial court ordered the deed of conditional sale rescinded and the
₱2,500,000.00 forfeited in favor of Castillo "as damages under Article 1191 of the Civil Code." 65

The trial court declared Olivarez Realty Corporation and Dr. Olivarez solidarily liable to Castillo for 500,000.00 as moral
damages, ₱50,000.00 as exemplary damages, and ₱50,000.00 as costs of suit. 66

Ruling of the Court of Appeals

Olivarez Realty Corporation and Dr. Olivarez appealed to the Court of Appeals. 67

In its decision68 dated July 20, 2010, the Court of Appeals affirmed in totothe trial court’s decision. According to the
appellate court, the trial court "did not err in its finding that there is no genuine controversy as to the facts involved [in
this case]."69 The trial court, therefore, correctly rendered summary judgment. 70

As to the trial court’s award of damages, the appellatecourt ruled that a court may award damages through summary
judgment "if the parties’ contract categorically [stipulates] the respective obligations of the parties in case of default." 71 As
found by the trial court,paragraph I of the deed of conditional sale categorically states that "in case [the deed of
conditional sale] is cancelled, any improvementintroduced by [Olivarez Realty Corporation] on the property shall be
forfeited infavor of [Castillo]."72 Considering that Olivarez Realty Corporation illegally retained possession of the property,
Castillo forewent rentto the property and "lost business opportunities." 73 The ₱2,500,000.00 down payment, according to
the appellate court, shouldbe forfeited in favor of Castillo. Moral and exemplary damages and costs ofsuit were properly
awarded.

On August 11, 2010, Olivarez RealtyCorporation and Dr. Olivarez filed their motion for reconsideration, 74 arguing that the
trial court exceeded its authority in forfeiting the ₱2,500,000.00 down payment and awarding ₱500,000.00 in moral
damages to Castillo. They argued that Castillo only prayed for a total of ₱500,000.00 as actual and moral damages in his
complaint.75 Appellants prayed that the Court of Appeals "take a second hard look" 76 at the case and reconsider its
decision.

In the resolution77 dated March 18, 2011, the Court of Appeals denied the motion for reconsideration.

Proceedings before this court

Olivarez Realty Corporation and Dr. Olivarez filed their petition for review on certiorari 78 with this court. Petitionersargue
that the trial court and the Court of Appeals erred in awarding damages to Castillo. Under Section 3, Rule 35 of the 1997
Rules ofCivil Procedure, summary judgment may be rendered except as to the amountof damages. Thus, the Court of
Appeals "violated the procedural steps in rendering summary judgment." 79

107
Petitioners reiterate that there are genuine issues ofmaterial fact to be resolved in this case. Thus, a full-blown trial is
required, and the trial court prematurely decided the case through summary judgment. They cite Torres v. Olivarez Realty
Corporation and Dr. Pablo Olivarez,80 a case decided by the Ninth Division of the Court of Appeals.

In Torres, Rosario Torres was the registeredowner of a parcel of land covered by Transfer Certificate of Title No. T-19971.
Under a deed of conditional sale, she sold her property to OlivarezRealty Corporation for ₱17,345,900.00. When the
corporation failed to fully pay the purchase price, she sued for rescission of contractwith damages. In their answer, the
corporation and Dr. Olivarez argued thatthey discontinued payment because Rosario Torres failed to clear the land of the
tenants.

Similar to Castillo, Torres filed a motion for summary judgment, which the trial court granted. On appeal, the Court of
Appeals set aside the trial court’s summary judgment and remanded the case to the trial court for further
proceedings.81 The Court of Appeals ruled that the material allegations of the complaint "were directly disputed by [the
corporation and Dr. Olivarez] in their answer"82 when they argued that they refused to pay because Torres failed to clear
the land of the tenants.

With the Court of Appeals’ decision in Torres,Olivarez Realty Corporation and Dr. Olivarez argue that this case should
likewise be remanded to the trial court for further proceedings under the equipoise rule.

Petitioners maintain that Castillo availed himself of the irreconcilable reliefs of reformation of instrument and rescission
of contract.83 Thus, the trial court should have dismissed the case outright.

Petitioners likewise argue that the trial court had no jurisdiction to decide the case as Castillo failed topay the correct
docket fees.84 Petitioners argue that Castillo should have paid docket fees based on the property’s fair market value since
Castillo’s complaint is a real action. 85

In his comment,86 Castillo maintains that there are no genuine issues as to any material fact inthis case. The trial court,
therefore, correctly rendered summary judgment.

As to petitioners’ claim that the trial court had no jurisdiction to decide the case, Castillo argues that he prayed for
rescission of contract in his complaint. This action is incapable of pecuniary estimation, and the Clerk of Court properly
computed the docket fees based on this prayer. 87 Olivarez Realty Corporation and Dr. Olivarez replied, 88reiterating their
arguments in the petition for review on certiorari.

The issues for our resolution are the following:

I. Whether the trial court erred in rendering summary judgment;

II. Whether proper docket fees were paid in this case.

The petition lacks merit.

I
The trial court correctly rendered
summary judgment, as there were no

genuine issues of material fact in this case

Trial "is the judicial examination and determination of the issues between the parties to the action." 89 During trial, parties
"present their respective evidence of their claims and defenses." 90 Parties to an action have the right "to a plenary trial of
the case"91 to ensure that they were given a right to fully present evidence on their respective claims.

There are instances, however, whentrial may be dispensed with. Under Rule 35 of the 1997 Rules of Civil Procedure, a
trial court may dispense with trial and proceed to decide a case if from the pleadings, affidavits, depositions, and other
papers on file, there is no genuine issue as to any material fact. In such a case, the judgment issued is called a summary
judgment.

108
A motion for summary judgment is filed either by the claimant or the defending party. 92 The trial court then hears the
motion for summary judgment. If indeed there are no genuine issues of material fact, the trial court shall issue summary
judgment. Section 3, Rule 35 of the 1997 Rules of Civil Procedure provides:

SEC. 3. Motion and proceedings thereon. – The motion shall be served at least ten (10) days beforethe time specified for
the hearing. The adverse party may serve opposing affidavits, depositions, or admission at least three (3) days before the
hearing. After the hearing, the judgment sought shall be rendered forthwith ifthe pleadings, supporting affidavits,
depositions, and admissions on file, showthat, except as to the amount of damages, there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment as a matter of law.

An issue of material fact exists if the answer or responsive pleading filed specifically denies the material allegations of fact
set forth in the complaint or pleading. If the issue offact "requires the presentation of evidence, it is a genuine issue of
fact."93 However, if the issue "could be resolved judiciously by plain resort" 94 to the pleadings, affidavits, depositions, and
other paperson file, the issue of fact raised is sham, and the trial court may resolve the action through summary judgment.

A summary judgment is usually distinguished from a judgment on the pleadings. Under Rule 34 of the 1997 Rules of Civil
Procedure, trial may likewise be dispensed with and a case decided through judgment on the pleadings if the answer filed
fails to tender an issue or otherwise admits the material allegations of the claimant’s pleading. 95

Judgment on the pleadings is proper when the answer filed fails to tender any issue, or otherwise admitsthe material
allegations in the complaint.96 On the other hand, in a summary judgment, the answer filed tenders issues as specific
denials and affirmative defenses are pleaded, but the issues raised are sham, fictitious, or otherwise not genuine. 97

In this case, Olivarez Realty Corporation admitted that it did not fully pay the purchase price as agreed upon inthe deed of
conditional sale. As to why it withheld payments from Castillo, it set up the following affirmative defenses: First, Castillo
did not filea case to void the Philippine Tourism Authority’s title to the property; second,Castillo did not clear the land of
the tenants; third, Castillo allegedly sold the property to a third person, and the subsequent sale is currently being
litigated beforea Quezon City court.

Considering that Olivarez RealtyCorporation and Dr. Olivarez’s answer tendered an issue, Castillo properly availed
himself of a motion for summary judgment.

However, the issues tendered by Olivarez Realty Corporation and Dr. Olivarez’s answer are not genuine issues of material
fact. These are issues that can be resolved judiciously by plain resort to the pleadings, affidavits, depositions, and other
papers on file; otherwise, these issues are sham, fictitious, or patently unsubstantial.

Petitioner corporation refused to fully pay the purchase price because no court case was filed to void the Philippine
Tourism Authority’s title on the property. However, paragraph C of the deed of conditional sale is clear that petitioner
Olivarez Realty Corporation is responsible for initiating court action against the Philippine Tourism Authority:

C. [Olivarez Realty Corporation] assumes the responsibility of taking necessary legal action thru Court to have the
claim/title TCT T-18493 of Philippine Tourism Authority over the above-described property be nullified and voided; with
the full assistance of [Castillo].98

Castillo’s alleged failureto "fully assist" 99 the corporation in filing the case is not a defense. As the trial court said, "how can
[Castillo] assist [the corporation] when [the latter] did not file the action [in the first place?]" 100

Neither can Olivarez Realty Corporation argue that it refused to fully pay the purchase price due to the Philippine
Tourism Authority’s adverse claim on the property. The corporation knew of this adverse claim when it entered into a
contract of conditional sale. It even obligated itself under paragraph C of the deed of conditional sale to sue the Philippine
Tourism Authority. This defense, therefore, is sham.

Contrary to petitioners’ claim, there is no "obvious ambiguity" 101 as to which should occur first — the payment of the
disturbance compensation or the clearing of the land within six months from the signing of the deed of conditional sale.
The obligations must be performed simultaneously. In this case, the parties should have coordinated to ensure that
tenants on the property were paid disturbance compensation and were made to vacate the property six months after the
signingof the deed of conditional sale.

109
On one hand, pure obligations, or obligations whose performance do not depend upon a future or uncertainevent, or upon
a past event unknown to the parties, are demandable at once. 102 On the other hand, obligations with a resolutory period
also take effect at once but terminate upon arrival of the day certain. 103

Olivarez Realty Corporation’s obligation to pay disturbance compensation is a pure obligation. The performance of the
obligation to pay disturbance compensation did not depend on any condition. Moreover, the deed of conditional sale did
not give the corporation a period to perform the obligation. As such, the obligation to pay disturbance compensation was
demandable at once. Olivarez RealtyCorporation should have paid the tenants disturbance compensation upon execution
of the deed of conditional sale.

With respect to Castillo’s obligation to clear the land of the tenants within six months from the signing of the contract, his
obligation was an obligation with a resolutory period. The obligation to clear the land of the tenants took effect at once,
specifically, upon the parties’ signing of the deed of conditional sale. Castillo had until October 2, 2000, six months from
April 5, 2000 when the parties signed the deed of conditional sale, to clear the land of the tenants.

Olivarez Realty Corporation, therefore, had no right to withhold payments of the purchase price. As the trial court ruled,
Olivarez Realty Corporation "can only claim non-compliance [of the obligation to clear the land of the tenants in] October
2000."104 It said:

. . . it is clear that defendant [Olivarez Realty Corporation] should have paid the installments on the ₱5 million
downpayment up to October 8, 2000, or a total of ₱4,500,000.00. That is the agreement because the only time that
defendant [corporation] can claim non-compliance of the condition is after October, 2000 and so it has the clear
obligation topay up to the October 2000 the agreed installments. Since it paid only 2,500,000.00, then a violation of the
contract has already been committed. . . .105

The claim that Castillo sold the property to another is fictitious and was made in bad faith to prevent the trial court from
rendering summary judgment. Petitioners did not elaborate on this defense and insisted on revealing the identity of the
buyer only during trial.106 Even in their petition for review on certiorari, petitioners never disclosed the name of this
alleged buyer. Thus, as the trial court ruled, this defense did not tender a genuine issue of fact, with the defense "bereft of
details."107

Castillo’s alleged prayer for the irreconcilable reliefs of rescission of contract and reformation of instrument is not a
ground to dismiss his complaint. A plaintiff may allege two or more claims in the complaint alternatively or
hypothetically, either in one cause of action or in separate causes of action per Section 2, Rule 8 of the 1997 Rules of Civil
Procedure.108 It is the filing of two separatecases for each of the causes of action that is prohibited since the subsequently
filed case may be dismissed under Section 4, Rule 2 of the 1997 Rules of Civil Procedure 109 on splitting causes of action.

As demonstrated, there are no genuineissues of material fact in this case. These are issues that can be resolved judiciously
by plain resort to the pleadings, affidavits, depositions, and other papers on file. As the trial court found, Olivarez Realty
Corporation illegally withheld payments of the purchase price. The trial court did not err in rendering summary
judgment.

II
Castillo is entitled to cancel the contract
of conditional sale

Since Olivarez Realty Corporation illegally withheld payments of the purchase price, Castillo is entitled to cancel his
contract with petitioner corporation. However, we properly characterize the parties’ contract as a contract to sell, not a
contract of conditional sale.

In both contracts to sell and contracts of conditional sale, title to the property remains with the seller until the buyer fully
pays the purchase price.110 Both contracts are subject to the positive suspensive condition of the buyer’s full payment of
the purchase price.111

In a contract of conditional sale, the buyer automatically acquires title to the property upon full payment of the purchase
price.112 This transfer of title is "by operation of law without any further act having to be performed by the seller." 113 In a

110
contract to sell, transfer of title to the prospective buyer is not automatic. 114 "The prospective seller [must] convey title to
the property [through] a deed of conditional sale." 115

The distinction is important to determine the applicable laws and remedies in case a party does not fulfill his or her
obligations under the contract. In contracts of conditional sale, our laws on sales under the Civil Code of the Philippines
apply. On the other hand, contracts to sell are not governed by our law on sales 116 but by the Civil Code provisions on
conditional obligations.

Specifically, Article 1191 of the Civil Code on the right to rescind reciprocal obligations does not apply to contracts to
sell.117 As this court explained in Ong v. Court of Appeals,118 failure to fully pay the purchase price in contracts to sell is not
the breach of contract under Article 1191. 119 Failure to fully pay the purchase price is "merely an event which prevents the
[seller’s] obligation to convey title from acquiring binding force." 120 This is because "there can be no rescission of an
obligation that is still nonexistent, the suspensive condition not having [happened]." 121

In this case, Castillo reserved his title to the property and undertook to execute a deed of absolute sale upon Olivarez
Realty Corporation’s full payment of the purchase price.122 Since Castillo still has to execute a deed of absolute sale to
Olivarez RealtyCorporation upon full payment of the purchase price, the transfer of title is notautomatic. The contract in
this case is a contract to sell.

As this case involves a contract tosell, Article 1191 of the Civil Code of the Philippines does not apply. The contract to sell
is instead cancelled, and the parties shall stand as if the obligation to sell never existed. 123

Olivarez Realty Corporation shall return the possession of the property to Castillo. Any improvement that Olivarez Realty
Corporation may have introduced on the property shall be forfeited in favor of Castillo per paragraph I of the deed of
conditional sale:

I. Immediately upon signing thisContract, [Olivarez Realty Corporation] shall be entitled to occupy, possess and develop
the subject property. In case this Contract is cancelled, any improvement introduced by [Olivarez Realty Corporation] on
the property shall be forfeited in favor of [Castillo.] 124

As for prospective sellers, thiscourt generally orders the reimbursement of the installments paidfor the property when
setting aside contracts to sell.125 This is true especially ifthe property’s possession has not been delivered to the
prospective buyer prior to the transfer of title.

In this case, however, Castillo delivered the possession of the property to Olivarez Realty Corporation prior to the transfer
of title. We cannot order the reimbursement of the installments paid.

In Gomez v. Court of Appeals,126 the City of Manila and Luisa Gomez entered into a contract to sell over a parcel of land.
The city delivered the property’s possession to Gomez. She fully paid the purchase price for the property but violated the
terms of the contract to sell by renting out the property to other persons. This court set aside the contract to sell for her
violation of the terms of the contract to sell. It ordered the installments paid forfeited in favor of the City of Manila "as
reasonable compensation for [Gomez’s] use of the [property]" 127 for eight years.

In this case, Olivarez Realty Corporation failed to fully pay the purchase price for the property. It only paid ₱2,500,000.00
out of the ₱19,080,490.00 agreed purchase price. Worse, petitioner corporation has been in possession of Castillo’s
property for 14 years since May 5, 2000 and has not paid for its use of the property.

Similar to the ruling in Gomez, we order the ₱2,500,000.00 forfeited in favor of Castillo as reasonable compensation for
Olivarez Realty Corporation’s use of the property.

III
Olivarez Realty Corporation is liable for
moral and exemplary damages and
attorney’s fees

We note that the trial court erred in rendering summary judgment on the amount of damages. Under Section 3, Rule 35 of
the 1997 Rules of Civil Procedure, summary judgment may be rendered, except as to the amount of damages.

111
In this case, the trial court erred in forfeiting the ₱2,500,000.00 in favor of Castillo as damages under Article 1191 of the
Civil Code of the Philippines. As discussed, there is nobreach of contract under Article 1191 in this case.

The trial court likewise erred inrendering summary judgment on the amount of moral and exemplary damages and
attorney’s fees.

Nonetheless, we hold that Castillois entitled to moral damages, exemplary damages, and attorney’s fees.

Moral damages may be awarded in case the claimant experienced physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. 128

As for exemplary damages, they are awarded in addition to moral damages by way of example or correction for the public
good.129 Specifically in contracts, exemplary damages may be awarded if the defendant acted in a wanton,
fraudulent,reckless, oppressive, or malevolent manner. 130

Under the deed of conditional sale, Olivarez Realty Corporation may only suspend the monthly down payment in case
Castillo fails to clear the land of the tenants six months from the signing of the instrument. Yet, even before the sixth
month arrived, Olivarez Realty Corporation withheld payments for Castillo’s property. It evenused as a defense the fact
that no case was filed against the PhilippineTourism Authority when, under the deed of conditional sale, Olivarez Realty
Corporation was clearly responsible for initiating action against the Philippine Tourism Authority. These are oppressive
and malevolent acts, and we find Castillo entitled to ₱500,000.00 moral damages and ₱50,000.00 exemplary damages:

Plaintiff Castillo is entitled to moral damages because of the evident bad faith exhibited by defendants in dealing with him
regarding the sale of his lot to defendant [Olivarez Realty Corporation]. He suffered much prejudice due to the failure of
defendants to pay him the balance of purchase price which he expected touse for his needs which caused him wounded
feelings, sorrow, mental anxiety and sleepless nights for which defendants should pay ₱500,000.00 as moral damages
more than six (6) years had elapsed and defendants illegally and unfairly failed and refused to pay their legal obligations
to plaintiff, unjustly taking advantage of a poor uneducated man like plaintiff causing much sorrow and financial
difficulties. Moral damages in favor of plaintiff is clearly justified . . . [Castillo] is also entitled to ₱50,000.00 as exemplary
damages to serve as a deterrent to other parties to a contract to religiously comply with their prestations under the
contract.131

We likewise agree that Castillo is entitled to attorney’s fees in addition to the exemplary damages. 132 Considering that
Olivarez Realty Corporation refused to satisfy Castillo’splainly valid, just, and demandable claim, 133 the award of
₱50,000.00 as attorney’s fees is in order. However, we find that Dr. Pablo R.Olivarez is not solidarily liable with Olivarez
Realty Corporation for the amount of damages.

Under Article 1207 of the Civil Code of the Philippines, there is solidary liability only when the obligation states it or when
the law or the nature of the obligation requires solidarity. 134 In case of corporations, they are solely liable for their
obligations.135 The directors or trustees and officers are not liable with the corporation even if it is through their acts that
the corporation incurred the obligation. This is because a corporation is separate and distinct from the persons
comprising it.136

As an exception to the rule, directors or trustees and corporate officers may be solidarily liable with the corporation for
corporate obligations if they acted "in bad faith or with gross negligence in directing the corporate affairs." 137

In this case, we find that Castillo failed to prove with preponderant evidence that it was through Dr. Olivarez’s bad faith or
gross negligence that Olivarez Realty Corporation failed to fully pay the purchase price for the property. Dr. Olivarez’s
alleged act of making Castillo sign the deed of conditional sale without explaining to the latter the deed’s terms in Tagalog
is not reason to hold Dr. Olivarez solidarily liable with the corporation. Castillo had a choice not to sign the deed of
conditional sale. He could have asked that the deed of conditional sale be written in Tagalog. Thus, Olivarez Realty
Corporation issolely liable for the moral and exemplary damages and attorney’s fees to Castillo.

IV
The trial court acquired jurisdiction over
Castillo’s action as he paid the correct
docket fees

112
Olivarez Realty Corporation and Dr. Olivarez claimed that the trial court had no jurisdiction to take cognizance of the case.
In the reply/motion to dismiss the complaint 138 they filed with the Court of Appeals, petitioners argued that Castillo failed
to pay the correct amount of docket fees. Stating that this action is a real action, petitioners argued that the docket fee
Castillo paid should have been based on the fair market value of the property. In this case, Castillo only paid 4,297.00,
which is insufficient "if the real nature of the action was admitted and the fair market value of the property was disclosed
and made the basis of the amount of docket fees to be paid to the court." 139Thus, according to petitioners, the case should
be dismissed for lack of jurisdiction.

Castillo countered that his action for rescission is an action incapable of pecuniary estimation. Thus, the Clerk of Court of
the Regional Trial Court of Tanauan City did not err in assessing the docket fees based on his prayer.

We rule for Castillo. In De Leon v. Court of Appeals, 140 this court held that an action for rescission of contract of sale of real
property is an action incapable of pecuniary estimation. In De Leon, the action involved a real property. Nevertheless, this
court held that "it is the nature of the action as one for rescission of contract which is controlling." 141 Consequently, the
docket fees to be paid shall be for actions incapableof pecuniary estimation, regardless if the claimant may eventually
recover the real property. This court said:

. . . the Court in Bautista v.Lim, held that an action for rescission of contract is one which cannot be estimated and
therefore the docket fee for its filing should be the flat amount of ₱200.00 as then fixed in the former Rule 141, §141,
§5(10). Said this Court:

We hold that Judge Dalisay did not err in considering Civil Case No. V-144 as basically one for rescission or annulment of
contract which is not susceptible of pecuniary estimation (1 Moran's Comments on the Rules of Court, 1970 Ed, p. 55;
Lapitan vs. Scandia, Inc., L-24668, July 31, 1968, 24 SCRA 479, 781-483).

Consequently, the fee for docketing it is ₱200, an amount already paid by plaintiff, now respondent Matilda
Lim.1âwphi1(She should pay also the two pesos legal research fund fee, if she has not paid it, as required in Section 4 of
Republic Act No. 3870, the charter of the U.P. Law Center).

Thus, although eventually the result may be the recovery of land, it is the nature of the action as one for rescission of
contract which is controlling. The Court of Appeals correctly applied these cases to the present one. As it said:

We would like to add the observations that since the action of petitioners [private respondents] against private
respondents [petitioners] is solely for annulment or rescission which is not susceptible of pecuniary estimation, the
action should not be confused and equated with the "value of the property" subject of the transaction; that by the very
nature of the case, the allegations, and specific prayer in the complaint, sans any prayer for recovery of money and/or
value of the transaction, or for actual or compensatory damages, the assessment and collection of the legal fees should not
be intertwined with the merits of the case and/or what may be its end result; and that to sustain private respondents'
[petitioners'] position on what the respondent court may decide after all, then the assessment should be deferred and
finally assessed only after the court had finally decided the case, which cannot be done because the rules require that
filing fees should be based on what is alleged and prayed for in the face of the complaint and paid upon the filing of the
complaint.142

Although we discussed that there isno rescission of contract to speak of in contracts of conditional sale, we hold that an
action to cancel a contract to sell, similar to an action for rescission of contract of sale, is an action incapable of pecuniary
estimation. Like any action incapable of pecuniary estimation, an action to cancel a contract to sell "demands an inquiry
into other factors"143 aside from the amount of money to be awarded to the claimant. Specifically in this case, the trial
court principally determined whether Olivarez Realty Corporation failed to pay installments of the property’s purchase
price as the parties agreed upon in the deed of conditional sale. The principal natureof Castillo’s action, therefore, is
incapable of pecuniary estimation.

All told, there is no issue that the parties in this case entered into a contract to sell a parcel of land and that Olivarez
Realty Corporation failed to fully pay the installments agreed upon.Consequently, Castillo is entitled to cancel the contract
to sell.

WHEREFORE, the petition for review on certiorari is DENIED. The Court of Appeals’ decision dated July 20, 2010 and in
CA-G.R. CV No. 91244 is AFFIRMEDwith MODIFICATION.

113
The deed of conditional sale dated April 5, 2000 is declared CANCELLED. Petitioner Olivarez Realty Corporation shall
RETURN to respondent Benjamin Castillo the possession of the property covered by Transfer Certificate of Title No. T-
19972 together with all the improvements that petitioner corporation introduced on the property. The amount of
₱2,500,000.00 is FORFEITED in favor of respondent Benjamin Castillo as reasonable compensation for the use of
petitioner Olivarez Realty Corporation of the property.

Petitioner Olivarez Realty Corporation shall PAY respondent Benjamin Castillo ₱500,000.00 as moral damages,
₱50,000.00 as exemplary damages, and ₱50,000.00 as attorney's fees with interest at 6% per annum from the time this
decision becomes final and executory until petitioner

corporation fully pays the amount of damages. 144

SO ORDERED.

MARVIC MARIO VICTOR F. LEONEN

Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

DIOSDADO M. PERALTA MARTIN S. VILLARAMA, JR.*

Associate Justice Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the
writer of the opinion of the Court's Division.

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Court's Division.

MARIA LOURDES P. A. SERENO

Chief Justice

114
115