SALES: FIRST EXAM: FULL TEXT
G.R. No. 118114 December 7, 1995
TEODORO ACAP, petitioner,
vs.
COURT OF APPEALS and EDY DE LOS
REYES, respondents.
PADILLA, J.:
This is a petition for review on certiorari of the
decision1 of the Court of Appeals, 2nd Division,
in CA-G.R. No. 36177, which affirmed the
decision2 of the Regional Trial Court of
Himamaylan, Negros Occidental holding that
private respondent Edy de los Reyes had
acquired ownership of Lot No. 1130 of the
Cadastral Survey of Hinigaran, Negros
Occidental based on a document entitled
"Declaration of Heirship and Waiver of Rights",
and ordering the dispossession of petitioner as
leasehold tenant of the land for failure to pay
rentals.
The facts of the case are as follows:
The title to Lot No. 1130 of the Cadastral
Survey of Hinigaran, Negros Occidental
was evidenced by OCT No. R-12179. The lot
has an area of 13,720 sq. meters. The title
was issued and is registered in the name of
spouses Santiago Vasquez and Lorenza
Oruma. After both spouses died, their only
son Felixberto inherited the lot. In 1975,
Felixberto executed a duly notarized
document entitled "Declaration of Heirship
and Deed of Absolute Sale" in favor of
Cosme Pido.
The evidence before the court a
quo established that since 1960, petitioner
Teodoro Acap had been the tenant of a
portion of the said land, covering an area
of nine thousand five hundred (9,500)
meters. When ownership was transferred
in 1975 by Felixberto to Cosme Pido, Acap
continued to be the registered tenant
thereof and religiously paid his leasehold
rentals to Pido and thereafter, upon Pido's
death, to his widow Laurenciana.
The controversy began when Pido died
intestate and on 27 November 1981, his
surviving heirs executed a notarized
document denominated as "Declaration of
Heirship and Waiver of Rights of Lot No.
1130 Hinigaran Cadastre," wherein they
declared; to quote its pertinent portions,
that:
. . . Cosme Pido died in the Municipality of
Hinigaran, Negros Occidental, he died
1
intestate and without any known debts and
obligations which the said parcel of land is
(sic) held liable.
That Cosme Pido was survived by his/her
legitimate heirs, namely: LAURENCIANA
PIDO, wife, ELY, ERVIN, ELMER, and
ELECHOR all surnamed PIDO; children;
That invoking the provision of Section 1, Rule
74 of the Rules of Court, the above-mentioned
heirs do hereby declare unto [sic] ourselves
the only heirs of the late Cosme Pido and that
we hereby adjudicate unto ourselves the
above-mentioned parcel of land in equal
shares.
Now, therefore, We LAURENCIANA 3  , ELY,
ELMER, ERVIN and ELECHOR all
surnamed PIDO,  do hereby waive,
quitclaim all our rights, interests and
participation over the said parcel of land  in
favor of EDY DE LOS REYES, of legal age,
(f)ilipino, married to VIRGINIA DE LOS
REYES, and resident of Hinigaran, Negros
Occidental, Philippines. . . . 4 (Emphasis
supplied)
The document was signed by all of Pido's
heirs. Private respondent Edy de los Reyes
did not sign said document.
It will be noted that at the time of Cosme
Pido's death, title to the property continued
to be registered in the name of the Vasquez
spouses. Upon obtaining the Declaration of
Heirship with Waiver of Rights in his favor,
private respondent Edy de los Reyes filed
the same with the Registry of Deeds as
part of a  notice of an adverse claim  against
the original certificate of title.
Thereafter, private respondent sought for
petitioner (Acap) to personally inform him
that he (Edy) had become the new owner of
the land and that the lease rentals thereon
should be paid to him. Private respondent
further alleged that he and petitioner
entered into an oral lease agreement
wherein petitioner agreed to pay ten (10)
cavans of palay  per annum  as lease rental.
In 1982, petitioner allegedly complied with said
obligation. In 1983, however, petitioner refused
to pay any further lease rentals on the land,
prompting private respondent to seek the
assistance of the then Ministry of Agrarian
Reform (MAR) in Hinigaran, Negros
Occidental. The MAR invited petitioner to a
conference scheduled on 13 October 1983.
Petitioner did not attend the conference but
sent his wife instead to the conference.
During the meeting, an officer of the
 SALES: FIRST EXAM: FULL TEXT
Ministry informed Acap's wife about private
respondent's ownership of the said land
but she stated that she and her husband
(Teodoro) did not recognize private
respondent's claim of ownership over the
land.
On 28 April 1988, after the lapse of four (4)
years, private respondent filed a complaint
for recovery of possession and damages
against petitioner, alleging in the main that as
his leasehold tenant, petitioner refused and
failed to pay the agreed annual rental of ten
(10) cavans of palay despite repeated
demands.
During the trial before the court a quo,
petitioner reiterated his refusal to recognize
private respondent's ownership over the
subject land. He averred that he continues
to recognize Cosme Pido as the owner of
the said land, and having been a registered
tenant therein since 1960, he never reneged
on his rental obligations. When Pido died, he
continued to pay rentals to Pido's widow.
When the latter left for abroad, she instructed
him to stay in the landholding and to pay
the accumulated rentals upon her demand or
return from abroad.
Petitioner further claimed before the trial
court that he had no knowledge about any
transfer or sale of the lot to private
respondent in 1981 and even the following
year after Laurenciana's departure for
abroad. He denied having entered into a
verbal lease tenancy contract with private
respondent and that assuming that the
said lot was indeed sold to private
respondent without his knowledge, R.A.
3844, as amended, grants him the right to
redeem the same at a reasonable price.
Petitioner also bewailed private
respondent's ejectment action as a
violation of his right to security of tenure
under P.D. 27.
On 20 August 1991, the lower court
rendered a decision in favor of private
respondent, the dispositive part of which
reads:
WHEREFORE, premises considered, the
Court renders judgment in favor of the plaintiff,
Edy de los Reyes, and against the defendant,
Teodoro Acap, ordering the following, to wit:
1. Declaring forfeiture of defendant's preferred
right to issuance of a Certificate of Land
Transfer under Presidential Decree No. 27 and
his farmholdings;
2
2. Ordering the defendant Teodoro Acap to
deliver possession of said farm to plaintiff, and;
3. Ordering the defendant to pay P5,000.00 as
attorney's fees, the sum of P1,000.00 as
expenses of litigation and the amount of
P10,000.00 as actual damages.5
In arriving at the above-mentioned judgment,
the trial court stated that the evidence had
established that the subject land was
"sold" by the heirs of Cosme Pido to
private respondent. This is clear from the
following disquisitions contained in the trial
court's six (6) page decision:
There is no doubt that defendant is a
registered tenant of Cosme Pido. However,
when the latter died their tenancy relations
changed since ownership of said land was
passed on to his heirs who, by executing
a Deed of Sale, which defendant admitted in
his affidavit, likewise passed on their
ownership of Lot 1130 to herein plaintiff
(private respondent). As owner hereof,
plaintiff has the right to demand payment
of rental and the tenant is obligated to pay
rentals due from the time demand is
made. . . .6
xxx xxx xxx
Certainly, the sale of the Pido family of Lot
1130 to herein plaintiff does not of itself
extinguish the relationship. There was only a
change of the personality of the lessor in the
person of herein plaintiff Edy de los Reyes
who being the purchaser or transferee,
assumes the rights and obligations of the
former landowner to the tenant Teodoro Acap,
herein defendant.7
Aggrieved, petitioner appealed to the Court of
Appeals, imputing error to the lower court
when it ruled that private respondent acquired
ownership of Lot No. 1130 and that he, as
tenant, should pay rentals to private
respondent and that failing to pay the same
from 1983 to 1987, his right to a certificate of
land transfer under P.D. 27 was deemed
forfeited.
The Court of Appeals brushed aside
petitioner's argument that the Declaration of
Heirship and Waiver of Rights (Exhibit "D"),
the document relied upon by private
respondent to prove his ownership to the lot,
was excluded by the lower court in its order
dated 27 August 1990. The order indeed noted
that the document was not identified by Cosme
Pido's heirs and was not registered with the
Registry of Deeds of Negros Occidental.
 SALES: FIRST EXAM: FULL TEXT
According to respondent court, however, since
the Declaration of Heirship and Waiver of
Rights appears to have been duly notarized,
no further proof of its due execution was
necessary. Like the trial court, respondent
court was also convinced that the said
document stands as  prima facie  proof of
appellee's (private
respondent's)  ownership of the land in
dispute.
With respect to its non-registration,
respondent court noted that petitioner had
actual knowledge of the subject  sale  of the
land in dispute to private respondent
because as early as 1983, he (petitioner)
already knew of private respondent's claim
over the said land but which he thereafter
denied, and that in 1982, he (petitioner)
actually paid rent to private respondent.
Otherwise stated, respondent court
considered this fact of rental payment in
1982 as estoppel on petitioner's part to
thereafter refute private respondent's claim of
ownership over the said land. Under these
circumstances, respondent court ruled that
indeed there was deliberate refusal by
petitioner to pay rent for a continued period of
five years that merited forfeiture of his
otherwise preferred right to the issuance of a
certificate of land transfer.
In the present petition, petitioner impugns the
decision of the Court of Appeals as not in
accord with the law and evidence when it rules
that private respondent acquired ownership of
Lot No. 1130 through the aforementioned
Declaration of Heirship and Waiver of Rights.
Hence, the issues to be resolved presently are
the following:
1. WHETHER OR NOT THE SUBJECT
DECLARATION OF HEIRSHIP AND WAIVER
OF RIGHTS IS A RECOGNIZED MODE OF
ACQUIRING OWNERSHIP BY PRIVATE
RESPONDENT OVER THE LOT IN
QUESTION.
2. WHETHER OR NOT THE SAID
DOCUMENT CAN BE CONSIDERED A DEED
OF SALE IN FAVOR OF PRIVATE
RESPONDENT OF THE LOT IN QUESTION.
Petitioner argues that the Regional Trial Court,
in its order dated 7 August 1990, explicitly
excluded the document marked as Exhibit "D"
(Declaration of Heirship, etc.) as private
respondent's evidence because it was not
registered with the Registry of Deeds and
was not identified by anyone of the heirs of
Cosme Pido. The Court of Appeals,
3
however, held the same to be admissible, it
being a notarized document, hence, a prima
facie proof of private respondents'
ownership of the lot to which it refers.
Petitioner points out that the Declaration of
Heirship and Waiver of Rights is not one of the
recognized modes of acquiring ownership
under Article 712 of the Civil Code. Neither
can the same be considered a deed of sale
so as to transfer ownership of the land to
private respondent because no
consideration is stated in the contract
(assuming it is a contract or deed of sale).
Private respondent defends the decision of
respondent Court of Appeals as in accord with
the evidence and the law. He posits that while
it may indeed be true that the trial court
excluded his Exhibit "D" which is the
Declaration of Heirship and Waiver of Rights
as part of his evidence, the trial court declared
him nonetheless owner of the subject lot
based on other evidence adduced during the
trial, namely, the notice of adverse claim
(Exhibit "E") duly registered by him with
the Registry of Deeds, which contains the
questioned Declaration of Heirship and
Waiver of Rights as an integral part thereof.
We find the petition impressed with merit.
In the first place, an asserted right or claim
to ownership or a real right over a thing
arising from a juridical act, however
justified, is not per se sufficient to give rise
to ownership over the res. That right or title
must be completed by fulfilling certain
conditions imposed by law. Hence,
ownership and real rights are acquired only
pursuant to a legal mode or process. While
title is the juridical justification, mode is the
actual process of acquisition or transfer of
ownership over a thing in question.8
Under Article 712 of the Civil Code, the
modes of acquiring ownership are
generally classified into two (2) classes,
namely, the original mode (i.e., through
occupation, acquisitive prescription, law or
intellectual creation) and the derivative
mode (i.e., through succession mortis
causa or tradition as a result of certain
contracts, such as sale, barter, donation,
assignment or mutuum).
In the case at bench, the trial court was
obviously confused as to the nature and
effect of the Declaration of Heirship and
Waiver of Rights, equating the same with a
contract (deed) of sale. They are not the
same.
 SALES: FIRST EXAM: FULL TEXT
In a Contract of Sale, one of the contracting
parties obligates himself to transfer the
ownership of and to deliver a determinate
thing, and the other party to pay a price
certain in money or its equivalent.9
Upon the other hand, a declaration of
heirship and waiver of rights operates as a
public instrument when filed with the
Registry of Deeds whereby the intestate
heirs adjudicate and divide the estate left
by the decedent among themselves as they
see fit. It is in effect an extrajudicial
settlement between the heirs under Rule 74
of the Rules of Court.10
Hence, there is a marked difference
between a sale of hereditary rights and
a waiver of hereditary rights. The first
presumes the existence of a contract or
deed of sale between the parties. 11 The
second is, technically speaking, a mode of
extinction of ownership where there is an
abdication or intentional relinquishment of
a known right with knowledge of its
existence and intention to relinquish it, in
favor of other persons who are co-heirs in
the succession.12 Private respondent, being
then a stranger to the succession of Cosme
Pido, cannot conclusively claim ownership
over the subject lot on the sole basis of the
waiver document which neither recites the
elements of either a sale,13 or a
14
donation,  or any other derivative mode of
acquiring ownership.
Quite surprisingly, both the trial court and
public respondent Court of Appeals
concluded that a "sale" transpired between
Cosme Pido's heirs and private respondent
and that petitioner acquired actual
knowledge of said sale when he was
summoned by the Ministry of Agrarian
Reform to discuss private respondent's
claim over the lot in question. This
conclusion has no basis both in fact and in
law.
On record, Exhibit "D", which is the
"Declaration of Heirship and Waiver of
Rights" was excluded by the trial court in
its order dated 27 August 1990 because the
document was neither registered with the
Registry of Deeds nor identified by the
heirs of Cosme Pido. There is no showing
that private respondent had the same
document attached to or made part of the
record. What the trial court admitted was
Annex "E", a notice of adverse claim filed
with the Registry of Deeds which contained
the Declaration of Heirship with Waiver of
4
rights and was annotated at the back of the
Original Certificate of Title to the land in
question.
A notice of adverse claim, by its nature,
does not however prove private
respondent's ownership over the tenanted
lot. "A notice of adverse claim is nothing
but a notice of a claim adverse to the
registered owner, the validity of which is
yet to be established in court at some
future date, and is no better than a notice
of lis pendens which is a notice of a case
already pending in court."15
It is to be noted that while the existence of
said adverse claim was duly proven, there
is no evidence whatsoever that a deed of
sale was executed between Cosme Pido's
heirs and private respondent transferring
the rights of Pido's heirs to the land in
favor of private respondent. Private
respondent's right or interest therefore in
the tenanted lot remains an adverse claim
which cannot by itself be sufficient to
cancel the OCT to the land and title the
same in private respondent's name.
Consequently, while the transaction
between Pido's heirs and private
respondent may be binding on both
parties, the right of petitioner as a
registered tenant to the land cannot be
perfunctorily forfeited on a mere allegation
of private respondent's ownership without
the corresponding proof thereof.
Petitioner had been a registered tenant in the
subject land since 1960 and religiously paid
lease rentals thereon. In his mind, he
continued to be the registered tenant of
Cosme Pido and his family (after Pido's
death), even if in 1982, private respondent
allegedly informed petitioner that he had
become the new owner of the land.
Under the circumstances, petitioner may
have, in good faith, assumed such
statement of private respondent to be true
and may have in fact delivered 10 cavans of
palay as annual rental for 1982 to private
respondent. But in 1983, it is clear that
petitioner had misgivings over private
respondent's claim of ownership over the
said land because in the October 1983 MAR
conference, his wife Laurenciana
categorically denied all of private
respondent's allegations. In fact, petitioner
even secured a certificate from the MAR
dated 9 May 1988 to the effect that he
continued to be the registered tenant of
Cosme Pido and not of private respondent.
 SALES: FIRST EXAM: FULL TEXT

The reason is that private

respondent never registered the
Declaration of Heirship with Waiver of
Rights with the Registry of Deeds or with
the MAR. Instead, he (private respondent)
sought to do indirectly what could not be
done directly, i.e., file a notice of adverse
claim on the said lot to establish
ownership thereover.
It stands to reason, therefore, to hold that
there was no unjustified or deliberate
refusal  by petitioner to pay the lease
rentals or amortizations to the
landowner/agricultural lessor which, in this
case, private respondent failed to establish
in his favor by clear and convincing
evidence.16
Consequently, the sanction of forfeiture of his
preferred right to be issued a Certificate of
Land Transfer under P.D. 27 and to the
possession of his farmholdings should not be
applied against petitioners, since private
respondent has not established a cause of
action for recovery of possession against
petitioner.
WHEREFORE, premises considered, the
Court hereby GRANTS the petition and the
decision of the Court of Appeals dated 1 May
1994 which affirmed the decision of the RTC of
Himamaylan, Negros Occidental dated 20
August 1991 is hereby SET ASIDE. The
private respondent's complaint for recovery of
possession and damages against petitioner
Acap is hereby DISMISSED for failure to
properly state a cause of action, without
prejudice to private respondent taking the
proper legal steps to establish the legal mode
by which he claims to have acquired
ownership of the land in question.
SO ORDERED.

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 SALES: FIRST EXAM: FULL TEXT
G.R. No. L-116650 May 23, 1995
TOYOTA SHAW, INC., petitioner,
vs.
COURT OF APPEALS and LUNA L.
SOSA, respondents.
DAVIDE, JR., J.:
At the heart of the present controversy is
the document marked Exhibit "A"  1 for the
private respondent, which was signed by a
sales representative of Toyota Shaw, Inc.
named Popong Bernardo. The document
reads as follows:
4 June 1989
AGREEMENTS BETWEEN MR. SOSA
& POPONG BERNARDO OF TOYOTA
SHAW, INC.
1. all necessary documents will be submitted
to TOYOTA SHAW, INC. (POPONG
BERNARDO) a week after, upon arrival of Mr.
Sosa from the Province (Marinduque) where
the unit will be used on the 19th of June.
2. the downpayment of P100,000.00 will be
paid by Mr. Sosa on June 15, 1989.
3. the TOYOTA SHAW, INC. LITE ACE yellow,
will be pick-up [sic] and released by TOYOTA
SHAW, INC. on the 17th of June at 10 a.m.
Very truly yours,
(Sgd.) POPONG BERNARDO.
(ISSUE) Was this document, executed and
signed by the petitioner's sales
representative, a perfected contract of sale,
binding upon the petitioner, breach of
which would entitle the private respondent
to damages and attorney's fees? The trial
court and the Court of Appeals took the
affirmative view. The petitioner disagrees.
Hence, this petition for review on certiorari.
The antecedents as disclosed in the decisions
of both the trial court and the Court of Appeals,
as well as in the pleadings of petitioner Toyota
Shaw, Inc. (hereinafter Toyota) and
respondent Luna L. Sosa (hereinafter Sosa)
are as follows. Sometime in June of 1989,
Luna L. Sosa wanted to purchase a Toyota
Lite Ace. It was then a seller's market and
Sosa had difficulty finding a dealer with an
available unit for sale. But upon contacting
Toyota Shaw, Inc., he was told that there was
an available unit. So on 14 June 1989, Sosa
and his son, Gilbert, went to the Toyota office
at Shaw Boulevard, Pasig, Metro Manila.
There they met Popong Bernardo, a sales
representative of Toyota.
Sosa emphasized to Bernardo that he
needed the Lite Ace not later than 17 June
1989 because he, his family, and
a  balikbayan  guest would use it on 18 June
1989 to go to Marinduque, his home
province, where he would celebrate his
birthday on the 19th of June. He added that
if he does not arrive in his hometown with
the new car, he would become a "laughing
stock." Bernardo assured Sosa that a unit
would be ready for pick up at 10:00 a.m. on
17 June 1989. Bernardo then signed the
aforequoted "Agreements Between Mr.
Sosa & Popong Bernardo of Toyota Shaw,
Inc." It was also agreed upon by the parties
that the balance of the purchase price
would be paid by credit financing through
B.A. Finance, and for this Gilbert, on behalf
of his father, signed the documents of
Toyota and B.A. Finance pertaining to the
application for financing.
The next day, 15 June 1989, Sosa and Gilbert
went to Toyota to deliver the downpayment of
P100,000.00. They met Bernardo who then
accomplished a printed Vehicle Sales
Proposal (VSP) No. 928,2 on which Gilbert
signed under the subheading CONFORME.
This document shows that the customer's
name is "MR. LUNA SOSA" with home
address at No. 2316 Guijo Street, United
Parañaque II; that the model series of the
vehicle is a "Lite Ace 1500" described as "4 Dr
minibus"; that payment is by "installment," to
be financed by "B.A.," 3 with the initial cash
outlay of P100,000.00 broken down as follows:
a) downpayment — P 53,148.00
b) insurance — P 13,970.00
c) BLT registration fee — P 1,067.00
CHMO fee — P 2,715.00
6
 SALES: FIRST EXAM: FULL TEXT
service fee — P 500.00
accessories — P 29,000.00
 
and that the "BALANCE TO BE FINANCED" is
"P274,137.00." The spaces provided for
"Delivery Terms" were not filled-up. It also
contains the following pertinent provisions:
CONDITIONS OF SALES
1. This sale is subject to availability of unit.
2. Stated Price is subject to change without
prior notice, Price prevailing and in effect
at time of selling will apply. . . .
Rodrigo Quirante, the Sales Supervisor of
Bernardo, checked and approved the VSP.
On 17 June 1989, at around 9:30 a.m.,
Bernardo called Gilbert to inform him that
the vehicle would not be ready for pick up
at 10:00 a.m. as previously agreed upon
but at 2:00 p.m. that same day. At 2:00
p.m., Sosa and Gilbert met Bernardo at the
latter's office. According to Sosa, Bernardo
informed them that the Lite Ace was being
readied for delivery. After waiting for about
an hour, Bernardo told them that the car
could not be delivered because "nasulot
ang unit ng ibang malakas."
Toyota contends, however, that the Lite
Ace was not delivered to Sosa because of
the disapproval by B.A. Finance of the
credit financing application of Sosa. It
further alleged that a particular unit had
already been reserved and earmarked for
Sosa but could not be released due to the
uncertainty of payment of the balance of
the purchase price. Toyota then gave Sosa
the option to purchase the unit by paying
the full purchase price in cash but Sosa
refused.
After it became clear that the Lite Ace
would not be delivered to him, Sosa asked
that his downpayment be refunded. Toyota
did so on the very same day by issuing a
Far East Bank check for the full amount of
P100,000.00,  4 the receipt of which was
shown by a check voucher of
Toyota,5  which Sosa signed with the
reservation, "without prejudice to our
future claims for damages."
Thereafter, Sosa sent two letters to Toyota.
In the first letter, dated 27 June 1989 and
signed by him, he demanded the refund,
within five days from receipt, of the
7
downpayment of P100,000.00 plus interest
from the time he paid it and the payment of
damages with a warning that in case of
Toyota's failure to do so he would be
constrained to take legal action.  6 The
second, dated 4 November 1989 and
signed by M. O. Caballes, Sosa's counsel,
demanded one million pesos representing
interest and damages, again, with a
warning that legal action would be taken if
payment was not made within three
days.7 Toyota's counsel answered through a
letter dated 27 November 1989 8 refusing to
accede to the demands of Sosa. But even
before this answer was made and received by
Sosa, the latter filed on 20 November 1989
with Branch 38 of the Regional Trial Court
(RTC) of Marinduque a complaint against
Toyota for damages under Articles 19 and 21
of the Civil Code in the total amount of
P1,230,000.00.9 He alleges, inter alia, that:
9. As a result of defendant's failure and/or
refusal to deliver the vehicle to plaintiff,
plaintiff suffered embarrassment,
humiliation, ridicule, mental anguish and
sleepless nights because: (i) he and his
family were constrained to take the public
transportation from Manila to Lucena City
on their way to Marinduque; (ii) his
balikbayan-guest canceled his scheduled
first visit to Marinduque in order to avoid
the inconvenience of taking public
transportation; and (iii) his relatives,
friends, neighbors and other
provincemates, continuously irked him
about "his Brand-New Toyota Lite Ace —
that never was." Under the circumstances,
defendant should be made liable to the
plaintiff for moral damages in the amount
of One Million Pesos (P1,000,000.00).  10
In its answer to the complaint, Toyota
alleged that no sale was entered into
between it and Sosa, that Bernardo had no
authority to sign Exhibit "A" for and in its
behalf, and that Bernardo signed Exhibit
"A" in his personal capacity. As special and
affirmative defenses, it alleged that: the VSP
did not state date of delivery; Sosa had not
completed the documents required by the
financing company, and as a matter of policy,
the vehicle could not and would not be
released prior to full compliance with financing
requirements, submission of all documents,
and execution of the sales agreement/invoice;
the P100,000.00 was returned to and received
by Sosa; the venue was improperly laid; and
Sosa did not have a sufficient cause of action
against it. It also interposed compulsory
counterclaims.
 SALES: FIRST EXAM: FULL TEXT
After trial on the issues agreed upon during the
pre-trial session, 11 the trial court rendered on
18 February 1992 a decision in favor of
Sosa. 12 It ruled that Exhibit "A," the
"AGREEMENTS BETWEEN MR. SOSA AND
POPONG BERNARDO," was a valid
perfected contract of sale between Sosa
and Toyota which bound Toyota to deliver
the vehicle to Sosa, and further agreed
with Sosa that Toyota acted in bad faith in
selling to another the unit already reserved
for him.
As to Toyota's contention that Bernardo
had no authority to bind it through Exhibit
"A," the trial court held that the extent of
Bernardo's authority "was not made known
to plaintiff," for as testified to by Quirante,
"they do not volunteer any information as
to the company's sales policy and
guidelines because they are internal
matters."  13 Moreover, "[f]rom the
beginning of the transaction up to its
consummation when the downpayment
was made by the plaintiff, the defendants
had made known to the plaintiff the
impression that Popong Bernardo is an
authorized sales executive as it permitted
the latter to do acts within the scope of an
apparent authority holding him out to the
public as possessing power to do these
acts."  14 Bernardo then "was an agent of
the defendant Toyota Shaw, Inc. and hence
bound the defendants."  15
The court further declared that "Luna Sosa
proved his social standing in the
community and suffered besmirched
reputation, wounded feelings and
sleepless nights for which he ought to be
compensated." 16 Accordingly, it disposed as
follows:
WHEREFORE, viewed from the above
findings, judgment is hereby rendered in favor
of the plaintiff and against the defendant:
1. ordering the defendant to pay to the plaintiff
the sum of P75,000.00 for moral damages;
2. ordering the defendant to pay the plaintiff
the sum of P10,000.00 for exemplary
damages;
3. ordering the defendant to pay the sum of
P30,000.00 attorney's fees plus P2,000.00
lawyer's transportation fare per trip in
attending to the hearing of this case;
4. ordering the defendant to pay the plaintiff
the sum of P2,000.00 transportation fare per
8
trip of the plaintiff in attending the hearing of
this case; and
5. ordering the defendant to pay the cost of
suit.
SO ORDERED.
Dissatisfied with the trial court's judgment,
Toyota appealed to the Court of Appeals. The
case was docketed as CA-G.R. CV No. 40043.
In its decision promulgated on 29 July
1994,17 the Court of Appeals affirmed in
toto the appealed decision.
Toyota now comes before this Court via this
petition and raises the core issue stated at the
beginning of the  ponencia and also the
following related issues: (a) whether or not the
standard VSP was the true and documented
understanding of the parties which would have
led to the ultimate contract of sale, (b) whether
or not Sosa has any legal and demandable
right to the delivery of the vehicle despite the
non-payment of the consideration and the non-
approval of his credit application by B.A.
Finance, (c) whether or not Toyota acted in
good faith when it did not release the vehicle
to Sosa, and (d) whether or not Toyota may be
held liable for damages.
We find merit in the petition.
Neither logic nor recourse to one's
imagination can lead to the conclusion that
Exhibit "A" is a  perfected contract of sale.
Article 1458 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 of 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.
and Article 1475 specifically provides when
it is deemed perfected:
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 that moment, the parties may
reciprocally demand performance, subject
to the provisions of the law governing the
form of contracts.
 SALES: FIRST EXAM: FULL TEXT
What is clear from Exhibit "A" is not what
the trial court and the Court of Appeals
appear to see. It is not a contract of sale.
No obligation on the part of Toyota to
transfer ownership of a determinate thing
to Sosa and no correlative obligation on
the part of the latter to pay therefor a price
certain appears therein. The provision on
the downpayment of P100,000.00 made no
specific reference to a sale of a vehicle. If it
was intended for a contract of sale, it could
only refer to a sale on installment basis, as
the VSP executed the following day
confirmed. But nothing was mentioned
about the full purchase price and the
manner the installments were to be paid.
This Court had already ruled that a definite
agreement on the manner of payment of
the price is an essential element in the
formation of a binding and enforceable
contract of sale. 18 This is so because the
agreement as to the manner of payment
goes into the price such that a
disagreement on the manner of payment is
tantamount to a failure to agree on the
price. Definiteness as to the price is an
essential element of a binding agreement
to sell personal property. 19
Moreover, Exhibit "A" shows the absence
of a meeting of minds between Toyota and
Sosa. For one thing, Sosa did not even sign
it. For another, Sosa was well aware from
its title, written in bold letters, viz.,
AGREEMENTS BETWEEN MR. SOSA &
POPONG BERNARDO OF TOYOTA SHAW,
INC.
that he was not dealing with Toyota but
with Popong Bernardo and that the latter
did not misrepresent that he had the
authority to sell any Toyota vehicle. He
knew that Bernardo was only a  sales
representative  of Toyota and hence a mere
agent of the latter. It was incumbent upon
Sosa to act with ordinary prudence and
reasonable diligence to know the extent of
Bernardo's authority as an
agent20 in respect of contracts to sell
Toyota's vehicles. A person dealing with an
agent is put upon inquiry and must
discover upon his peril the authority of the
agent.21
At the most, Exhibit "A" may be considered as
part of the initial phase of the generation or
negotiation stage of a contract of sale. There
are three stages in the contract of sale,
namely:
9
(a) preparation, conception, or generation,
which is the period of negotiation and
bargaining, ending at the moment of
agreement of the parties;
(b) perfection or birth of the contract, which
is the moment when the parties come to
agree on the terms of the contract; and
(c) consummation or death, which is the
fulfillment or performance of the terms
agreed upon in the contract.22
The second phase of the generation or
negotiation stage in this case was the
execution of the VSP. It must be
emphasized that thereunder, the
downpayment of the purchase price was
P53,148.00 while the balance to be paid on
installment should be financed by B.A.
Finance Corporation. It is, of course, to be
assumed that B.A. Finance Corp. was
acceptable to Toyota, otherwise it should
not have mentioned B.A. Finance in the
VSP.
Financing companies are defined in Section
3(a) of R.A. No. 5980, as amended by P.D.
No. 1454 and P.D. No. 1793, as "corporations
or partnerships, except those regulated by the
Central Bank of the Philippines, the Insurance
Commission and the Cooperatives
Administration Office, which are primarily
organized for the purpose of extending credit
facilities to consumers and to industrial,
commercial, or agricultural enterprises, either
by discounting or factoring commercial papers
or accounts receivables, or by buying and
selling contracts, leases, chattel mortgages, or
other evidence of indebtedness, or by leasing
of motor vehicles, heavy equipment and
industrial machinery, business and office
machines and equipment, appliances and
other movable property." 23
Accordingly, in a sale on installment basis
which is financed by a financing company,
three parties are thus involved: the buyer
who executes a note or notes for the
unpaid balance of the price of the thing
purchased on installment, the seller who
assigns the notes or discounts them with a
financing company, and the financing
company which is subrogated in the place
of the seller, as the creditor of the
installment buyer. 24 Since B.A. Finance did
not approve Sosa's application, there was
then no meeting of minds on the sale on
installment basis.
We are inclined to believe Toyota's version
that B.A. Finance disapproved Sosa's
 SALES: FIRST EXAM: FULL TEXT

application for which reason it suggested himself by bragging about a thing which he
to Sosa that he pay the full purchase price. did not own yet.
When the latter refused, Toyota cancelled
the VSP and returned to him his Since Sosa is not entitled to moral
P100,000.00. Sosa's version that the VSP damages and there being no award for
was cancelled because, according to temperate, liquidated, or compensatory
Bernardo, the vehicle was delivered to damages, he is likewise not entitled to
another who was "mas malakas" does not exemplary damages. Under Article 2229 of
inspire belief and was obviously a delayed the Civil Code, exemplary or corrective
afterthought. It is claimed that Bernardo damages are imposed by way of example
said, "Pasensiya kayo, nasulot ang unit ng or correction for the public good, in
ibang malakas," while the Sosas had addition to moral, temperate, liquidated, or
already been waiting for an hour for the compensatory damages.
delivery of the vehicle in the afternoon of Also, it is settled that for attorney's fees to be
17 June 1989. However, in paragraph 7 of his granted, the court must explicitly state in the
complaint, Sosa solemnly states: body of the decision, and not only in the
On June 17, 1989 at around 9:30 o'clock in the dispositive portion thereof, the legal reason for
morning, defendant's sales representative, Mr. the award of attorney's fees. 26 No such explicit
Popong Bernardo, called plaintiff's house and determination thereon was made in the body
informed the plaintiff's son that the vehicle will of the decision of the trial court. No reason
not be ready for pick-up at 10:00 a.m. of June thus exists for such an award.
17, 1989 but at 2:00 p.m. of that day WHEREFORE, the instant petition is
instead. Plaintiff and his son went to GRANTED. The challenged decision of the
defendant's office on June 17 1989 at 2:00 Court of Appeals in CA-G.R. CV NO. 40043 as
p.m. in order to pick-up the vehicle but the well as that of Branch 38 of the Regional Trial
defendant for reasons known only to its Court of Marinduque in Civil Case No. 89-14
representatives, refused and/or failed to are REVERSED and SET ASIDE and the
release the vehicle to the plaintiff. Plaintiff complaint in Civil Case No. 89-14 is
demanded for an explanation, but nothing was DISMISSED. The counterclaim therein is
given; . . . (Emphasis supplied). 25 likewise DISMISSED.
The VSP was a mere  proposal  which was No pronouncement as to costs.
aborted in lieu of subsequent events. It
follows that the VSP created no SO ORDERED.
demandable right in favor of Sosa for the
delivery of the vehicle to him, and its non-
delivery did not cause any legally
indemnifiable injury.
The award then of moral and exemplary
damages and attorney's fees and costs of
suit is without legal basis. Besides, the
only ground upon which Sosa claimed
moral damages is that since it was known
to his friends, townmates, and relatives
that he was buying a Toyota Lite Ace which
they expected to see on his birthday, he
suffered humiliation, shame, and sleepless
nights when the van was not delivered. The
van became the subject matter of talks
during his celebration that he may not have
paid for it, and this created an impression
against his business standing and
reputation. At the bottom of this claim is
nothing but misplaced pride and ego. He
should not have announced his plan to buy
a Toyota Lite Ace knowing that he might
not be able to pay the full purchase price. It
was he who brought embarrassment upon

10
 SALES: FIRST EXAM: FULL TEXT

corporation created under CA 182 as

amended by CA 311 and PD No. 668, had in
its disposal a ten (10)-hectare property
located along Pureza St., Sta. Mesa, Manila.
The estate was popularly known as the
NDC compound and covered by Transfer
Certificates of Title Nos. 92885, 110301 and
145470.
Sometime in May 1965 private respondent
Firestone Ceramics Inc. (FIRESTONE)
manifested its desire to lease a portion of
the property for its ceramic manufacturing
business. On 24 August 1965 NDC and
FIRESTONE entered into a contract of
lease denominated as Contract No. C-30-65
covering a portion of the property
measured at 2.90118 hectares for use as a
manufacturing plant for a term of ten (10)
years, renewable for another ten (10) years
under the same terms and conditions. 1 In
consequence of the agreement,
FIRESTONE constructed on the leased
premises several warehouses and other
improvements needed for the fabrication of
ceramic products.
G.R. No. 143513            November 14, 2001
Three and a half (3-1/2) years later, or on 8
POLYTECHNIC UNIVERSITY OF THE January 1969, FIRESTONE entered into a
PHILIPPINES, petitioner, second contract of lease with NDC over the
vs. latter's four (4)-unit pre-fabricated
COURT OF APPEALS and FIRESTONE reparation steel warehouse stored in
CERAMICS, INC., respondents. Daliao, Davao. FIRESTONE agreed to ship
the warehouse to Manila for eventual
x---------------------------------------------------------x
assembly within the NDC compound. The
G.R. No. 143590                        November second contract, denominated as Contract
14, 2001 No. C-26-68, was for similar use as a
ceramic manufacturing plant and was
NATIONAL DEVELOPMENT agreed expressly to be "co-extensive with
CORPORATION, petitioner, the lease of LESSEE with LESSOR on the
vs. 2.60 hectare-lot."2
FIRESTONE CERAMICS, INC., respondents.
On 31 July 1974 the parties signed a
BELLOSILLO, J.: similar contract concerning a six (6)-unit
pre-fabricated steel warehouse which, as
A litigation is not simply a contest of litigants
agreed upon by the parties, would expire
before the bar of public opinion; more than
on 2 December 1978.3  Prior to the
that, it is a pursuit of justice through legal and
expiration of the aforementioned contract,
equitable means. To prevent the search for
FIRESTONE wrote NDC requesting for an
justice from evolving into a competition for
extension of their lease agreement.
public approval, society invests the judiciary
Consequently on 29 November 1978 the
with complete independence thereby insulating
Board of Directors of NDC adopted
it from demands expressed through any
Resolution No. 11-78-117 extending the
medium, the press not excluded. Thus, if the
term of the lease, subject to several
court would merely reflect, and worse,
conditions among which was that in the
succumb to the great pressures of the day, the
event NDC "with the approval of higher
end result, it is feared, would be a travesty of
authorities, decide to dispose and sell
justice.
these properties  including the lot, priority
In the early sixties, petitioner National should be given to the
Development Corporation (NDC), a LESSEE"4 (underscoring supplied). On 22
government owned and controlled December 1978, in pursuance of the

11
 SALES: FIRST EXAM: FULL TEXT
resolution, the parties entered into a new
agreement for a ten-year lease of the property,
renewable for another ten (10) years,
expressly granting FIRESTONE the first option
to purchase the leased premises in the event
that it decided "to dispose and sell these
properties including the lot . . . . "5
The contracts of lease conspicuously contain
an identically worded provision requiring
FIRESTONE to construct buildings and other
improvements within the leased premises
worth several hundred thousands of pesos.6
The parties' lessor-lessee relationship went
smoothly until early 1988 when
FIRESTONE, cognizant of the impending
expiration of their lease agreement with
NDC, informed the latter through several
letters and telephone calls that it was
renewing its lease over the property. While
its letter of 17 March 1988 was answered
by Antonio A. Henson, General Manager of
NDC, who promised immediate action on
the matter, the rest of its communications
remained unacknowledged.7 FIRESTONE's
predicament worsened when rumors of
NDC's supposed plans to dispose of the
subject property in favor of petitioner
Polytechnic University of the Philippines
(PUP) came to its knowledge. Forthwith,
FIRESTONE served notice on NDC
conveying its desire to purchase the
property in the exercise of its contractual
right of first refusal.
Apprehensive that its interest in the property
would be disregarded, FIRESTONE instituted
an action for specific performance to
compel NDC to sell the leased property in
its favor. FIRESTONE averred that it was pre-
empting the impending sale of the NDC
compound to petitioner PUP in violation of its
leasehold rights over the 2.60-
hectare8 property and the warehouses thereon
which would expire in 1999. FIRESTONE
likewise prayed for the issuance of a writ of
preliminary injunction to enjoin NDC from
disposing of the property pending the
settlement of the controversy.9
In support of its complaint, FIRESTONE
adduced in evidence a letter of Antonio A.
Henson dated 15 July 1988 addressed to
Mr. Jake C. Lagonera, Director and Special
Assistant to Executive Secretary Catalino
Macaraeg, reviewing a proposed
memorandum order submitted to then
President Corazon C. Aquino transferring
the whole NDC compound, including the
leased property, in favor of petitioner PUP.
12
Attached to the letter was a draft of the
proposed memorandum order as well as a
summary of existing leases on the subject
property. The survey listed FIRESTONE as
lessee of a portion of the property, placed
at 29,00010 square meters, whose contract
with NDC was set to expire on 31
December 198911  renewable for another ten
(10) years at the option of the lessee.  The
report expressly recognized FIRESTONE's
right of first refusal to purchase the leased
property "should the lessor decide to sell
the same."12
Meanwhile, on 21 February 1989 PUP moved
to intervene and asserted its interest in the
subject property, arguing that a
"purchaser pendente lite of property which is
subject of a litigation is entitled to intervene in
the proceedings."13 PUP referred
to  Memorandum Order No. 214  issued by
then President Aquino ordering the
transfer of the whole NDC compound to the
National Government, which in turn would
convey the aforementioned property in
favor of PUP at acquisition cost. The
issuance was supposedly made in
recognition of PUP's status as the "Poor
Man's University" as well as its serious
need to extend its campus in order to
accommodate the growing student
population. The order of conveyance of the
10.31-hectare property would automatically
result in the cancellation of NDC's total
obligation in favor of the National Government
in the amount of P57,193,201.64.
Convinced that PUP was a necessary party
to the controversy that ought to be joined
as party defendant in order to avoid
multiplicity of suits, the trial court granted
PUP's motion to intervene. FIRESTONE
moved for reconsideration but was denied. On
certiorari, the Court of Appeals affirmed the
order of the trial court. FIRESTONE came to
us on review but in a Resolution dated 11 July
1990 we upheld PUP's inclusion as party-
defendant in the present controversy.
Following the denial of its petition,
FIRESTONE amended its complaint to include
PUP and Executive Secretary Catalino
Macaraeg, Jr., as party-defendants, and
sought the annulment of Memorandum Order
No. 214. FIRESTONE alleged that
although Memorandum Order No. 214 was
issued "subject to such liens/leases existing
[on the subject property]," PUP disregarded
and violated its existing lease by increasing
the rental rate at P200,000.00 a month while
demanding that it vacated the premises
 SALES: FIRST EXAM: FULL TEXT
immediately.14 FIRESTONE prayed that in the
event Memorandum Order No. 214 was not
declared unconstitutional, the property should
be sold in its favor at the price for which it was
sold to PUP - P554.74 per square meter or for
a total purchase price of P14,423,240.00.15
Petitioner PUP, in its answer to the
amended complaint, argued in essence
that the lease contract covering the
property had expired long before the
institution of the complaint, and that
further, the right of first refusal invoked by
FIRESTONE applied solely to the six-unit
pre-fabricated warehouse and not the lot
upon which it stood.
After trial on the merits, judgment was
rendered declaring the contracts of lease
executed between FIRESTONE and NDC
covering the 2.60-hectare property and the
warehouses constructed thereon valid and
existing until 2 June 1999. PUP was ordered
and directed to sell to FIRESTONE the "2.6
hectare leased premises or as may be
determined by actual verification and survey of
the actual size of the leased properties where
plaintiff's fire brick factory is located"
at P1,500.00 per square meter considering
that, as admitted by FIRESTONE, such was
the prevailing market price thereof.
The trial court ruled that the contracts of
lease executed between FIRESTONE and
NDC were interrelated and inseparable
because "each of them forms part of the
integral system of plaintiff's brick
manufacturing plant x x x if one of the
leased premises will be taken apart or
otherwise detached from the two others,
the purpose of the lease as well as
plaintiff's business operations would be
rendered useless and inoperative."16 It thus
decreed that FIRESTONE could exercise its
option to purchase the property until 2
June 1999 inasmuch as the 22 December
1978 contract embodied a covenant to
renew the lease for another ten (10) years
at the option of the lessee as well as an
agreement giving the lessee the right of
first refusal.
The trial court also sustained the
constitutionality of  Memorandum Order
No. 214 which was not  per se  hostile to
FIRESTONE's property rights, but deplored
as prejudicial thereto the "very manner
with which defendants NDC and PUP
interpreted and applied the same, ignoring
in the process that plaintiff has existing
contracts of lease protectable by express
13
provisions in the Memorandum No. 214
itself."17 It further explained that the
questioned memorandum was issued
"subject to such liens/leases existing
thereon"18  and petitioner PUP was under
express instructions "to enter, occupy and
take possession of the transferred
property  subject to such leases or liens
and encumbrances that may be existing
thereon"19  (italics supplied).
Petitioners PUP, NDC and the Executive
Secretary separately filed their Notice of
Appeal, but a few days thereafter, or on 3
September 1996, perhaps realizing the
groundlessness and the futility of it all, the
Executive Secretary withdrew his appeal.20
Subsequently, the Court of Appeals affirmed
the decision of the trial court ordering the
sale of the property in favor of FIRESTONE
but deleted the award of attorney's fees in the
amount of Three Hundred Thousand Pesos
(P300,000.00). Accordingly, FIRESTONE was
given a grace period of six (6) months from
finality of the court's judgment within which to
purchase the property in questioned in the
exercise of its right of first refusal. The Court
of Appeals observed that as there was a
sale of the subject property, NDC could not
excuse itself from its obligation TO OFFER
THE PROPERTY FOR SALE FIRST TO
FIRESTONE BEFORE IT COULD TO OTHER
PARTIES. The Court of Appeals held: "NDC
cannot look to Memorandum Order No. 214 to
excuse or shield it from its contractual
obligations to FIRESTONE. There is nothing
therein that allows NDC to disavow or
repudiate the solemn engagement that it freely
and voluntarily undertook, or agreed to
undertake."21
PUP moved for reconsideration asserting that
in ordering the sale of the property in favor of
FIRESTONE the courts a quo  unfairly created
a contract to sell between the parties. It argued
that the "court cannot substitute or decree its
mind or consent for that of the parties in
determining whether or not a contract (has
been) perfected between PUP and
NDC."22 PUP further contended that since "a
real property located in Sta. Mesa can readily
command a sum of P10,000.00 per square
(meter)," the lower court gravely erred in
ordering the sale of the property at
only P1,500.00 per square meter. PUP also
advanced the theory that the enactment
of  Memorandum Order No. 214 amounted
to a withdrawal of the option to purchase
the property granted to FIRESTONE. NDC,
for its part, vigorously contended that the
 SALES: FIRST EXAM: FULL TEXT
contracts of lease executed between the
parties had expired without being renewed
by FIRESTONE; consequently, FIRESTONE
was no longer entitled to any preferential
right in the sale or disposition of the leased
property.
We do not see it the way PUP and NDC did.
It is elementary that a party to a contract
cannot unilaterally withdraw a right of first
refusal that stands upon valuable
consideration. That principle was clearly
upheld by the Court of Appeals when it denied
on 6 June 2000 the twin motions for
reconsideration filed by PUP and NDC on the
ground that the appellants failed to advance
new arguments substantial enough to warrant
a reversal of the Decision sought to be
reconsidered.23 On 28 June 2000 PUP filed an
urgent motion for an additional period of fifteen
(15) days from 29 June 2000 or until 14 July
2000 within which to file a Petition for Review
on Certiorari of the Decision of the Court of
Appeals.
On the last day of the extended period PUP
filed its Petition for Review on
Certiorari assailing the Decision of the Court of
Appeals of 6 December 1999 as well as
the Resolution of 6 June 2000 denying
reconsideration thereof. PUP raised two
issues: (a) whether the courts a quo erred
when they "conjectured" that the transfer
of the leased property from NDC to PUP
amounted to a sale; and, (b) whether
FIRESTONE can rightfully invoke its right
of first refusal. Petitioner posited that if we
were to place our imprimatur on the decisions
of the courts a quo, "public welfare or
specifically the constitutional priority accorded
to education" would greatly be prejudiced.24
Paradoxically, our paramount interest in
education does not license us, or any party
for that matter, to destroy the sanctity of
binding obligations. Education may be
prioritized for legislative or budgetary
purposes, but we doubt if such importance
can be used to confiscate private property
such as FIRESTONE's right of first refusal.
On 17 July 2000 we denied PUP's motion for
extension of fifteen (15) days within which to
appeal inasmuch as the aforesaid pleading
lacked an affidavit of service of copies thereof
on the Court of Appeals and the adverse party,
as well as written explanation for not filing and
serving the pleading personally.25
Accordingly, on 26 July 2000 we issued
a Resolution dismissing PUP's Petition for
Review for having been filed out of time. PUP
14
moved for reconsideration imploring a
resolution or decision on the merits of its
petition. Strangely, about the same time,
several articles came out in the newspapers
assailing the denial of the petition. The daily
papers reported that we unreasonably
dismissed PUP's petition on technical grounds,
affirming in the process the decision of the trial
court to sell the disputed property to the
prejudice of the government in the amount
of P1,000,000,000.00.26 Counsel for petitioner
PUP, alleged that the trial court and the Court
of Appeals "have decided a question of
substance in a way definitely not in accord with
law or jurisprudence."27
At the outset, let it be noted that the amount
of P1,000,000,000.00 as reported in the
papers was way too exaggerated, if not
fantastic. We stress that NDC itself sold the
whole 10.31-hectare property to PUP at
only P57,193,201.64 which represents NDC's
obligation to the national government that was,
in exchange, written off. The price offered per
square meter of the property was pegged
at P554.74. FIRESTONE's leased premises
would therefore be worth only P14,423,240.00.
From any angle, this amount is certainly far
below the ballyhooed price
of P1,000,000,000.00.
On 4 October 2000 we granted PUP's Motion
for Reconsideration to give it a chance to
ventilate its right, if any it still had in the leased
premises, thereby paving the way for a
reinstatement of its Petition for Review.28 In its
appeal, (ISSUE:) PUP took to task the
courts a quo for supposedly "substituting
or decreeing its mind or consent for that of
the parties (referring to NDC and PUP) in
determining whether or not a contract of
sale was perfected." PUP also argued that
inasmuch as "it is the parties alone whose
minds must meet in reference to the subject
matter and cause," it concluded that it was
error for the lower courts to have decreed the
existence of a sale of the NDC compound thus
allowing FIRESTONE to exercise its right of
first refusal.
On the other hand, NDC separately filed its
own Petition for Review and advanced
arguments which, in fine, centered on
(ISSUE:) whether or not the transaction
between petitioners NDC and PUP
amounted to a sale considering that
"ownership of the property remained with
the government."29 Petitioner NDC
introduced the novel proposition that if the
parties involved are both government
 SALES: FIRST EXAM: FULL TEXT
entities the transaction cannot be legally
called a sale.
In due course both petitions were
consolidated.30
We believe that the courts a quo did not
hypothesize, much less conjure, the sale of the
disputed property by NDC in favor of petitioner
PUP. Aside from the fact that the intention
of NDC and PUP to enter into a contract of
sale was clearly expressed in
the Memorandum Order No. 214,31 a close
perusal of the circumstances of this case
strengthens the theory that the conveyance
of the property from NDC to PUP was one
of absolute sale, for a valuable
consideration, and not a mere paper
transfer as argued by petitioners.
A contract of sale, as defined in the Civil
Code, is a contract where one of the parties
obligates himself to transfer the ownership
of and to deliver a determinate thing to the
other or others who shall pay therefore a
sum certain in money or its equivalent. 32 It
is therefore a general requisite for the
existence of a valid and enforceable
contract of sale that it be mutually
obligatory, i.e., there should be a
concurrence of the promise of the vendor
to sell a determinate thing and the promise
of the vendee to receive and pay for the
property so delivered and transferred. The
Civil Code provision is, in effect, a "catch-
all" provision which effectively brings
within its grasp a whole gamut of transfers
whereby ownership of a thing is ceded for
a consideration.
Contrary to what petitioners PUP and NDC
propose, there is not just one party involved in
the questioned transaction. Petitioners NDC
and PUP have their respective charters and
therefore each possesses a separate and
distinct individual personality.33 The inherent
weakness of NDC's proposition that there was
no sale as it was only the government which
was involved in the transaction thus reveals
itself. Tersely put, it is not necessary to write
an extended dissertation on government
owned and controlled corporations and their
legal personalities. Beyond cavil, a of P57,193,201.64
government owned and controlled
corporation has a personality of its own,
distinct and separate from that of the
government.34 The intervention in the
transaction of the Office of the President
through the Executive Secretary did not
change the independent existence of these
entities. The involvement of the Office of
15
the President was limited to brokering the
consequent relationship between NDC and
PUP. But the withdrawal of the appeal by
the Executive Secretary is considered
significant as he knew, after a review of the
records, that the transaction was subject to
existing liens and encumbrances,
particularly the priority to purchase the
leased premises in favor of FIRESTONE.
True that there may be instances when a
particular deed does not disclose the real
intentions of the parties, but their action
may nevertheless indicate that a binding
obligation has been undertaken. Since the
conduct of the parties to a contract may be
sufficient to establish the existence of an
agreement and the terms thereof, it
becomes necessary for the courts to
examine the contemporaneous behavior of
the parties in establishing the existence of
their contract.
The preponderance of evidence shows that
NDC sold to PUP the whole NDC
compound, including the leased premises,
without the knowledge much less consent
of private respondent FIRESTONE which
had a valid and existing right of first
refusal.
All three (3) essential elements of a valid
sale, without which there can be no sale,
were attendant in the "disposition" and
"transfer" of the property from NDC to PUP
- consent of the parties, determinate
subject matter,  and  consideration therefor.
Consent to the sale is obvious from the
prefatory clauses of Memorandum Order
No. 214 which explicitly states the
acquiescence of the parties to the sale of
the property -
WHEREAS, PUP has expressed its
willingness to acquire said NDC properties
and NDC has expressed its willingness to
sell the properties to PUP (underscoring
supplied).35
Furthermore, the cancellation of NDC's
liabilities in favor of the National
Government in the amount
constituted the
"consideration" for the sale. As correctly
observed by the Court of Appeals-
The defendants-appellants' interpretation that
there was a mere transfer, and not a sale,
apart from being specious sophistry and a
mere play of words, is too strained and
hairsplitting. For it is axiomatic that every sale
 SALES: FIRST EXAM: FULL TEXT
imposes upon the vendor the obligation to
transfer ownership as an essential element of
the contract. Transfer of title or an agreement
to transfer title for a price paid, or promised to
be paid, is the very essence of sale (Kerr &
Co. v. Lingad, 38 SCRA 524; Schmid &
Oberly, Inc., v. RJL Martinez Fishing Corp.,
166 SCRA 493). At whatever legal angle we
view it, therefore, the inescapable fact
remains that all the requisites of a valid
sale were attendant in the transaction
between co-defendants-appellants NDC
and PUP concerning the realities subject of
the present suit.36
What is more, the conduct of petitioner PUP
immediately after the transaction is in itself an
admission that there was a sale of the NDC
compound in its favor. Thus, after the issuance
of Memorandum Order No. 214 petitioner PUP
asserted its ownership over the property by
posting notices within the compound advising
residents and occupants to vacate the
premises.37 In its Motion for
Intervention petitioner PUP  also  admitted that
its interest as a "purchaser pendente lite"
would be better protected if it was joined as
party-defendant in the controversy thereby
confessing that it indeed purchased the
property.
(ISSUE:) In light of the foregoing
disquisition, we now proceed to determine
whether FIRESTONE should be allowed to
exercise its right of first refusal over the
property. Such right was expressly stated by
NDC and FIRESTONE in par. XV of their third
contract denominated as A-10-78 executed on
22 December 1978 which, as found by the
courts a quo, was interrelated to and
inseparable from their first contract
denominated as C-30-65 executed on 24
August 1965 and their second contract
denominated as C-26-68 executed on 8
January 1969. Thus -
Should the LESSOR desire to sell the
leased premises during the term of this
Agreement, or any extension thereof, the
LESSOR shall first give to the LESSEE,
which shall have the right of first option to
purchase the leased premises subject to
mutual agreement of both parties.38
In the instant case, the right of first refusal
is an integral and indivisible part of the
contract of lease and is inseparable from
the whole contract. The consideration for
the right is built into the reciprocal
obligations of the parties. Thus, it is not
correct for petitioners to insist that there was
16
no consideration paid by FIRESTONE to
entitle it to the exercise of the right, inasmuch
as the stipulation is part and parcel of the
contract of lease making the consideration for
the lease the same as that for the option.
It is a settled principle in civil law that when
a lease contract contains a right of first
refusal, the lessor is under a legal duty to
the lessee not to sell to anybody at any
price until after he has made an offer to sell
to the latter at a certain price and the
lessee has failed to accept it. 39 The lessee
has a right that the lessor's first offer shall
be in his favor.
The option in this case was incorporated in the
contracts of lease by NDC for the benefit of
FIRESTONE which, in view of the total amount
of its investments in the property, wanted to be
assured that it would be given the first
opportunity to buy the property at a price for
which it would be offered. Consistent with their
agreement, it was then implicit for NDC to
have first offered the leased premises of
2.60 hectares to FIRESTONE prior to the
sale in favor of PUP. Only if FIRESTONE
failed to exercise its right of first priority
could NDC lawfully sell the property to
petitioner PUP.
It now becomes apropos to ask whether the
courts a quo  were correct in fixing the proper
consideration of the sale at P1,500.00 per
square meter. In contracts of sale, the basis of
the right of first refusal must be the current
offer of the seller to sell or the offer to
purchase of the prospective buyer. Only after
the lessee-grantee fails to exercise its right
under the same terms and within the period
contemplated can the owner validly offer to
sell the property to a third person,
again, under the same terms as offered to
the grantee.40 It appearing that the whole
NDC compound was sold to PUP for P554.74
per square meter, it would have been more
proper for the courts below to have ordered
the sale of the property also at the same
price. However, since FIRESTONE never
raised this as an issue, while on the other
hand it admitted that the value of the
property stood at P1,500.00 per square
meter, then we see no compelling reason to
modify the holdings of the courts  a
quo that the leased premises be sold at
that price.
Our attention is invited by petitioners to Ang
Yu Asuncion v. CA41 in concluding that if our
holding in Ang Yu would be applied to the facts
of this case then FIRESTONE's "option, if still
 SALES: FIRST EXAM: FULL TEXT

subsisting, is not enforceable," the option of first refusal upon payment of the
being merely a preparatory contract which purchase price thereof.
cannot be enforced.
SO ORDERED.
The contention has no merit. At the heels
of Ang Yu  came Equatorial Realty
Development, Inc., v. Mayfair Theater,
Inc.,42 where after much deliberation we
declared, and so we hold, that a right of first
refusal is neither "amorphous nor merely
preparatory" and can be enforced and
executed according to its terms. Thus,
in Equatorial we ordered the rescission of the
sale which was made in violation of the
lessee's right of first refusal and further
ordered the sale of the leased property in favor
of Mayfair Theater, as grantee of the right.
Emphatically, we held that "(a right of first
priority) should be enforced according to the
law on contracts instead of the panoramic and
indefinite rule on human relations." We then
concluded that the execution of the right of first
refusal consists in directing the grantor to
comply with his obligation according to the
terms at which he should have offered the
property in favor of the grantee and at that
price when the offer should have been made.
One final word. Petitioner PUP should be
cautioned against bidding for public sympathy
by bewailing the dismissal of its petition before
the press. Such advocacy is not likely to elicit
the compassion of this Court or of any court for
that matter. An entreaty for a favorable
disposition of a case not made directly through
pleadings and oral arguments before the
courts do not persuade us, for as judges, we
are ruled only by our forsworn duty to give
justice where justice is due.
WHEREFORE, the petitions in G.R. No.
143513 and G.R. No. 143590 are DENIED.
Inasmuch as the first contract of lease
fixed the area of the leased premises at
2.90118 hectares while the second contract
placed it at 2.60 hectares, let a ground
survey of the leased premises be
immediately conducted by a duly licensed,
registered surveyor at the expense of
private respondent FIRESTONE
CERAMICS, INC., within two (2) months
from finality of the judgment in this case.
Thereafter, private respondent FIRESTONE
CERAMICS, INC., shall have six (6) months
from receipt of the approved survey within
which to exercise its right to purchase the
leased property at P1,500.00 per square
meter, and petitioner Polytechnic
University of the Philippines is ordered to
reconvey the property to FIRESTONE
CERAMICS, INC., in the exercise of its right

17
 SALES: FIRST EXAM: FULL TEXT

The facts are not in dispute.

Petitioner San Miguel Properties Philippines,
Inc. is a domestic corporation engaged in the
purchase and sale of real properties. Part of its
inventory are two parcels of land totalling 1,
738 square meters at the corner of Meralco
Avenue and General Capinpin Street, Barrio
Oranbo, Pasig City, which are covered by TCT
Nos. PT-82395 and PT-82396 of the Register
of Deeds of Pasig City.
On February 21, 1994, the properties were
offered for sale for ₱52,140,000.00 in cash.
The offer was made to Atty. Helena M. Dauz
who was acting for respondent spouses as
undisclosed principals. In a letter2 dated March
24, 1994, Atty. Dauz signified her clients’
interest in purchasing the properties for the
amount for which they were offered by
petitioner, under the following terms: the sum
of ₱500,000.00 would be given as earnest
money and the balance would be paid in eight
equal monthly installments from May to
December, 1994. However, petitioner refused
the counter-offer.
On March 29, 1994, Atty. Dauz wrote another
letter3 proposing the following terms for the
purchase of the properties, viz:
This is to express our interest to buy your-
above-mentioned property with an area of 1,
738 sq. meters. For this purpose, we are
enclosing herewith the sum of ₱1,000,000.00
representing earnest-deposit money, subject
to the following conditions.
1. We will be given the exclusive option to
purchase the property within the 30 days from
date of your acceptance of this offer.
2. During said period, we will negotiate on the
terms and conditions of the purchase; SMPPI
G.R. No. 137290               July 31, 2000 will secure the necessary Management and
Board approvals; and we initiate the
SAN MIGUEL PROPERTIES PHILIPPINES, documentation if there is mutual agreement
INC., petitioner, between us.
vs.
SPOUSES ALFREDO HUANG and GRACE 3. In the event that we do not come to an
HUANG, respondents. agreement on this transaction, the said
amount of ₱1,000,000.00 shall be refundable
DECISION to us in full upon demand. . . .
MENDOZA, J.: Isidro A. Sobrecarey, petitioner’s vice-
president and operations manager for
This is a petition for review of the corporate real estate, indicated his conformity
decision,1 dated April 8, 1997, of the Court of to the offer by affixing his signature to the letter
Appeals which reversed the decision of the and accepted the "earnest-deposit" of ₱1
Regional Trial Court, Branch 153, Pasig City million. Upon request of respondent spouses,
dismissing the complaint brought by Sobrecarey ordered the removal of the "FOR
respondents against petitioner for enforcement SALE" sign from the properties.
of a contract of sale.

18
 SALES: FIRST EXAM: FULL TEXT
Atty. Dauz and Sobrecarey then commenced
negotiations. During their meeting on April 8,
1994, Sobrecarey informed Atty. Dauz that
petitioner was willing to sell the subject
properties on a 90-day term. Atty. Dauz
countered with an offer of six months within
which to pay.
On April 14, 1994, the parties again met during
which Sobrecarey informed Atty. Dauz that
petitioner had not yet acted on her counter-
offer. This prompted Atty. Dauz to propose a
four-month period of amortization.
On April 25, 1994, Atty. Dauz asked for an
extension of 45 days from April 29, 1994 to
June 13, 1994 within which to exercise her
option to purchase the property, adding that
within that period, "[we] hope to finalize [our]
agreement on the matter."4 Her request was
granted.
On July 7, 1994, petitioner, through its
president and chief executive officer, Federico
Gonzales, wrote Atty. Dauz informing her that
because the parties failed to agree on the
terms and conditions of the sale despite the
extension granted by petitioner, the latter was
returning the amount of ₱1 million given as
"earnest-deposit."5
On July 20, 1994, respondent spouses,
through counsel, wrote petitioner demanding
the execution within five days of a deed of sale
covering the properties. Respondents
attempted to return the "earnest-deposit" but
petitioner refused on the ground that
respondents’ option to purchase had already
expired.
On August 16, 1994, respondent spouses filed
a complaint for specific performance against
petitioner before the Regional Trial Court,
Branch 133, Pasig City where it was docketed
as Civil Case No. 64660.
Within the period for filing a responsive
pleading, petitioner filed a motion to dismiss
the complaint alleging that (1) the alleged
"exclusive option" of respondent spouses
lacked a consideration separate and distinct
from the purchase price and was thus
unenforceable and (2) the complaint did not
allege a cause of action because there was no
"meeting of the minds" between the parties
and, therefore, no perfected contract of sale.
The motion was opposed by respondents.
On December 12, 1994, the trial court granted
petitioner’s motion and dismissed the action.
Respondents filed a motion for
reconsideration, but it was denied by the trial
19
court. They then appealed to the Court of
Appeals which, on April 8, 1997, rendered a
decision6 reversing the judgment of the trial
court. The appellate court held that all the
requisites of a perfected contract of sale had
been complied with as the offer made on
March 29, 1994, in connection with which the
earnest money in the amount of ₱1 million was
tendered by respondents, had already been
accepted by petitioner. The court cited Art.
1482 of the Civil Code which provides that
"[w]henever earnest money is given in a
contract of sale, it shall be considered as part
of the price and as proof of the perfection of
the contract." The fact the parties had not
agreed on the mode of payment did not affect
the contract as such is not an essential
element for its validity. In addition, the court
found that Sobrecarey had authority to act in
behalf of petitioner for the sale of the
properties.7
Petitioner moved for reconsideration of the trial
court’s decision, but its motion was denied.
Hence, this petition.
Petitioner contends that the Court of Appeals
erred in finding that there was a perfected
contract of sale between the parties because
the March 29, 1994 letter of respondents,
which petitioner accepted, merely resulted in
an option contract, albeit it was unenforceable
for lack of a distinct consideration. Petitioner
argues that the absence of agreement as to
the mode of payment was fatal to the
perfection of the contract of sale. Petitioner
also disputes the appellate court’s ruling that
Isidro A. Sobrecarey had authority to sell the
subject real properties.8
Respondents were required to comment within
ten (10) days from notice. However, despite 13
extensions totalling 142 days which the Court
had given to them, respondents failed to file
their comment. They were thus considered to
have waived the filing of a comment.
The petition is meritorious.
In holding that there is a perfected contract of
sale, the Court of Appeals relied on the
following findings: (1) earnest money was
allegedly given by respondents and accepted
by petitioner through its vice-president and
operations manager, Isidro A. Sobrecarey; and
(2) the documentary evidence in the records
show that there was a perfected contract of
sale.
With regard to the alleged payment and
acceptance of earnest money, the Court holds
that respondents did not give the ₱1 million as
 SALES: FIRST EXAM: FULL TEXT
"earnest money" as provided by Art. 1482 of
the Civil Code. They presented the amount
merely as a deposit of what would eventually
become the earnest money or downpayment
should a contract of sale be made by them.
The amount was thus given not as a part of
the purchase price and as proof of the
perfection of the contract of sale but only as a
guarantee that respondents would not back
out of the sale. Respondents in fact described
the amount as an "earnest-deposit."
In Spouses Doromal, Sr. v. Court of
Appeals,9 it was held:
. . . While the ₱5,000 might have indeed been
paid to Carlos in October, 1967, there is
nothing to show that the same was in the
concept of the earnest money contemplated in
Art. 1482 of the Civil Code, invoked by
petitioner, as signifying perfection of the
sale. Viewed in the backdrop of the factual
milieu thereof extant in the record, We are
more inclined to believe that the said
₱5,000.00 were paid in the concept of earnest
money as the term was understood under the
Old Civil Code, that is, as a guarantee that the
buyer would not back out, considering that it is
not clear that there was already a definite
agreement as to the price then and that
petitioners were decided to buy 6/7 only of the
property should respondent Javellana refuse
to agree to part with her 1/7 share.10
In the present case, the ₱1 million "earnest-
deposit" could not have been given as earnest
money as contemplated in Art. 1482 because,
at the time when petitioner accepted the terms
of respondents’ offer of March 29, 1994, their
contract had not yet been perfected. This is
evident from the following conditions attached
by respondents to their letter, to wit: (1) that
they be given the exclusive option to purchase
the property within 30 days from acceptance of
the offer; (2) that during the option period, the
parties would negotiate the terms and
conditions of the purchase; and (3) petitioner
would secure the necessary approvals while
respondents would handle the documentation.
The first condition for an option period of 30
days sufficiently shows that a sale was never
perfected.1âwphi1 As petitioner correctly
points out, acceptance of this condition did not
give rise to a perfected sale but merely to an
option or an accepted unilateral promise on
the part of respondents to buy the subject
properties within 30 days from the date of
acceptance of the offer. Such option giving
respondents the exclusive right to buy the
properties within the period agreed upon is
separate and distinct from the contract of sale
20
which the parties may enter. 11 All that
respondents had was just the option to buy the
properties which privilege was not, however,
exercised by them because there was a failure
to agree on the terms of payment. No contract
of sale may thus be enforced by respondents.
Furthermore, even the option secured by
respondents from petitioner was fatally
defective. Under the second paragraph of Art.
1479, an accepted unilateral promise to buy or
sell a determinate thing for a price certain is
binding upon the promisor only if the promise
is supported by a distinct consideration.
Consideration in an option contract may be
anything of value, unlike in sale where it must
be the price certain in money or its equivalent.
There is no showing here of any consideration
for the option. Lacking any proof of such
consideration, the option is unenforceable.
Equally compelling as proof of the absence of
a perfected sale is the second condition that,
during the option period, the parties would
negotiate the terms and conditions of the
purchase. The stages of a contract of sale are
as follows: (1) negotiation, covering the period
from the time the prospective contracting
parties indicate interest in the contract to the
time the contract is perfected; (2) perfection,
which takes place upon the concurrence of the
essential elements of the sale which are the
meeting of the minds of the parties as to the
object of the contract and upon the price; and
(3) consummation, which begins when the
parties perform their respective undertakings
under the contract of sale, culminating in the
extinguishment thereof.12 In the present case,
the parties never got past the negotiation
stage. The alleged "indubitable evidence" 13 of
a perfected sale cited by the appellate court
was nothing more than offers and counter-
offers which did not amount to any final
arrangement containing the essential elements
of a contract of sale. While the parties already
agreed on the real properties which were the
objects of the sale and on the purchase price,
the fact remains that they failed to arrive at
mutually acceptable terms of payment, despite
the 45-day extension given by petitioner.
The appellate court opined that the failure to
agree on the terms of payment was no bar to
the perfection of the sale because Art. 1475
only requires agreement by the parties as to
the price of the object. This is error. In Navarro
v. Sugar Producers Cooperative Marketing
Association, Inc.,14 we laid down the rule that
the manner of payment of the purchase price
is an essential element before a valid and
binding contract of sale can exist. Although the
 SALES: FIRST EXAM: FULL TEXT

Civil Code does not expressly state that the

minds of the parties must also meet on the
terms or manner of payment of the price, the
same is needed, otherwise there is no sale. As
held in Toyota Shaw, Inc. v. Court of
Appeals,15 agreement on the manner of
payment goes into the price such that a
disagreement on the manner of payment is
tantamount to a failure to agree on the
price.16 In Velasco v. Court of Appeals,17 the
parties to a proposed sale had already agreed
on the object of sale and on the purchase
price. By the buyer’s own admission, however,
the parties still had to agree on how and when
the downpayment and the installments were to
be paid. It was held:
. . . Such being the situation, it can not,
therefore, be said that a definite and firm sales
agreement between the parties had been
perfected over the lot in question. Indeed, this
Court has already ruled before that a definite
agreement on the manner of payment of the
purchase price is an essential element in the
formation of a binding and enforceable
contract of sale. The fact, therefore, that the
petitioners delivered to the respondent the
sum of P10,000 as part of the down-payment
that they had to pay cannot be considered as
sufficient proof of the perfection of any
purchase and sale agreement between the
parties herein under Art. 1482 of the new Civil
Code, as the petitioners themselves admit that
some essential matter - the terms of the
payment - still had to be mutually
covenanted.18
Thus, it is not the giving of earnest money, but
the proof of the concurrence of all the essential
elements of the contract of sale which
establishes the existence of a perfected sale.
In the absence of a perfected contract of sale,
it is immaterial whether Isidro A. Sobrecarey
had the authority to enter into a contract of
sale in behalf of petitioner. This issue,
therefore, needs no further discussion.
WHEREFORE, the decision of the Court of
Appeals is REVERSED and respondents’
complaint is DISMISSED.
SO ORDERED.

21
 SALES: FIRST EXAM: FULL TEXT

AUSTRIA-MARTINEZ, J.:
The Petition for Review on Certiorari under
Rule 45 before this Court assails the January
29, 2002 Decision1 and June 27, 2002
Resolution2 of the Court of Appeals (CA) in
CA-G.R. CV No. 520083 which reversed and
set aside the September 14, 1995 Decision4 of
the Regional Trial Court, Branch 22, General
Santos City (RTC) in Civil Case No. 4553.
As culled from the records, the facts are as
follows:
The Special Assets Management Department
(SAMD) of the Philippine National Bank (PNB)
issued an advertisement for the sale thru
bidding of certain PNB properties in
Calumpang, General Santos City, including Lot
No. 17, covered by TCT No. T-15042,
consisting of 22,780 square meters, with an
advertised floor price of P1,409,000.00, and
Lot No. 19, covered by TCT No. T-15036,
consisting of 41,190 square meters, with an
advertised floor price
of P2,268,000.00.5 Bidding was subject to the
following conditions: 1) that cash bids be
submitted not later than April 27, 1989; 2) that
said bids be accompanied by a 10% deposit in
manager’s or cashier’s check; and 3) that all
acceptable bids be subject to approval by PNB
authorities.
In a June 28, 1990 letter6 to the Manager,
PNB-General Santos Branch, Reynaldo
Villanueva (Villanueva) offered to purchase Lot
Nos. 17 and 19 for P3,677,000.00. He also
manifested that he was
depositing P400,000.00 to show his good faith
but with the understanding that said amount
may be treated as part of the payment of the
purchase price only when his offer is accepted
by PNB. At the bottom of said letter there
appears an unsigned marginal note stating
that P400,000.00 was deposited into
Villanueva’s account (Savings Account No.
43612) with PNB-General Santos Branch. 7
PNB-General Santos Branch forwarded the
G.R. No. 154493             December 6, 2006 June 28, 1990 letter of Villanueva to Ramon
Guevara (Guevara), Vice President,
REYNALDO VILLANUEVA, petitioner, SAMD.8 On July 6, 1990, Guevara informed
vs. Villanueva that only Lot No. 19 is available and
PHILIPPINE NATIONAL BANK that the asking price therefor
(PNB), respondent. is P2,883,300.00.9 Guevara further wrote:
If our quoted price is acceptable to you, please
submit a revised offer to purchase. Sale shall
be subject to our Board of Director’s approval
DECISION and to other terms and conditions imposed by
the Bank on sale of acquired
assets. 10 (Emphasis ours)

22
 SALES: FIRST EXAM: FULL TEXT
Instead of submitting a revised offer,
Villanueva merely inserted at the bottom of
Guevara’s letter a July 11, 1990 marginal note,
which reads:
C O N F O R M E:
PRICE OF P2,883,300.00 (downpayment
of P600,000.00 and the balance payable in
two (2) years at quarterly amortizations.) 11
Villanueva paid P200,000.00 to PNB which
issued O.R. No. 16997 to acknowledge receipt
of the "partial payment deposit on offer to
purchase."12 On the dorsal portion of Official
Receipt No. 16997, Villanueva signed a
typewritten note, stating:
This is a deposit made to show the sincerity of
my purchase offer with the understanding that
it shall be returned without interest if my offer
is not favorably considered or be forfeited if my
offer is approved but I fail/refuse to push
through the purchase.13
Also, on July 24, 1990, P380,000.00 was
debited from Villanueva’s Savings Account No.
43612 and credited to SAMD.14
On October 11, 1990, however, Guevara wrote
Villanueva that, upon orders of the PNB Board
of Directors to conduct another appraisal and
public bidding of Lot No. 19, SAMD is deferring
negotiations with him over said property and
returning his deposit
of P580,000.00.15 Undaunted, Villanueva
attempted to deliver postdated checks
covering the balance of the purchase price but
PNB refused the same.
Hence, Villanueva filed with the RTC a
Complaint16 for specific performance and
damages against PNB. In its September 14,
1995 Decision, the RTC granted the
Complaint, thus:
WHEREFORE, judgment is rendered in favor
of the plaintiff and against the defendant
directing it to do the following:
1. To execute a deed of sale in favor of the
plaintiff over Lot 19 comprising 41,190 square
meters situated at Calumpang, General
Santos City covered by TCT No. T-15036 after
payment of the balance in cash in the amount
of P2,303,300.00;
2. To pay the plaintiff P1,000,000.00 as moral
damages; P500,000.00 as attorney’s fees,
plus litigation expenses and costs of the suit.
SO ORDERED.17
23
The RTC anchored its judgment on the finding
that there existed a perfected contract of sale
between PNB and Villanueva. It found:
The following facts are either admitted or
undisputed:
xxx
The defendant through Vice-President
Guevara negotiated with the plaintiff in
connection with the offer of the plaintiff to buy
Lots 17 & 19. The offer of plaintiff to buy,
however, was accepted by the defendant only
insofar as Lot 19 is concerned as exemplified
by its letter dated July 6, 1990 where the
plaintiff signified his concurrence after
conferring with the defendant’s vice-president.
The conformity of the plaintiff was typewritten
by the defendant’s own people where the
plaintiff accepted the price of P2,883,300.00.
The defendant also issued a receipt to the
plaintiff on the same day when the plaintiff paid
the amount of P200,000.00 to complete the
downpayment of P600,000.00 (Exhibit "F" &
Exhibit "I"). With this development, the plaintiff
was also given the go signal by the defendant
to improve Lot 19 because it was already in
effect sold to him and because of that the
defendant fenced the lot and completed his
two houses on the property.18
The RTC also pointed out that
Villanueva’s P580,000.00 downpayment was
actually in the nature of earnest money
acceptance of which by PNB signified that
there was already a sale.19 The RTC further
cited contemporaneous acts of PNB
purportedly indicating that, as early as July 25,
1990, it considered Lot 19 already sold, as
shown by Guevara’s July 25, 1990 letter (Exh.
"H")20 to another interested buyer.
PNB appealed to the CA which reversed and
set aside the September 14, 1995 RTC
Decision, thus:
WHEREFORE, the appealed decision is
REVERSED and SET ASIDE and another
rendered DISMISSING the complaint.
SO ORDERED.21
According to the CA, there was no perfected
contract of sale because the July 6, 1990 letter
of Guevara constituted a qualified acceptance
of the June 28, 1990 offer of Villanueva, and to
which Villanueva replied on July 11, 1990 with
a modified offer. The CA held:
In the case at bench, consent, in respect to the
price and manner of its payment, is lacking.
The record shows that appellant, thru
 SALES: FIRST EXAM: FULL TEXT
Guevara’s July 6, 1990 letter, made a qualified
acceptance of appellee’s letter-offer dated
June 28, 1990 by imposing an asking price
of P2,883,300.00 in cash for Lot 19. The letter
dated July 6, 1990 constituted a counter-offer
(Art. 1319, Civil Code), to which appellee
made a new proposal, i.e., to pay the amount
of P2,883,300.00 in staggered amounts, that
is, P600,000.00 as downpayment and the
balance within two years in quarterly
amortizations.
A qualified acceptance, or one that involves a
new proposal, constitutes a counter-offer and
a rejection of the original offer (Art. 1319, id.).
Consequently, when something is desired
which is not exactly what is proposed in the
offer, such acceptance is not sufficient to
generate consent because any modification or
variation from the terms of the offer annuls the
offer (Tolentino, Commentaries and
Jurisprudence on the Civil Code of the
Philippines, 6th ed., 1996, p. 450, cited in ABS-
CBN Broadcasting Corporation v. Court of
Appeals, et al., 301 SCRA 572).
Appellee’s new proposal, which constitutes a
counter-offer, was not accepted by appellant,
its board having decided to have Lot 19
reappraised and sold thru public bidding.
Moreover, it was clearly stated in Guevara’s
July 6, 1990 letter that "the sale shall be
subject to our Board of Director’s approval and
to other terms and conditions imposed by the
Bank on sale of acquired assets."22
Villanueva’s Motion for Reconsideration23 was
denied by the CA in its Resolution of June 27,
2002.
Petitioner Villanueva now assails before this
Court the January 29, 2002 Decision and June
27, 2002 Resolution of the CA. He assigns five
issues which may be condensed into two: first,
whether a perfected contract of sale exists
between petitioner and respondent PNB; and
second, whether the conduct and actuation of
respondent constitutes bad faith as to entitle
petitioner to moral and exemplary damages
and attorney’s fees.
The Court sustains the CA on both issues.
Contracts of sale are perfected by mutual
consent whereby the seller obligates himself,
for a price certain, to deliver and transfer
ownership of a specified thing or right to the
buyer over which the latter agrees. 24 Mutual
consent being a state of mind, its existence
may only be inferred from the confluence of
two acts of the parties: an offer certain as to
24
the object of the contract and its consideration,
and an acceptance of the offer which is
absolute in that it refers to the exact object and
consideration embodied in said offer. 25 While it
is impossible to expect the acceptance to echo
every nuance of the offer, it is imperative that it
assents to those points in the offer which,
under the operative facts of each contract, are
not only material but motivating as well.
Anything short of that level of mutuality
produces not a contract but a mere counter-
offer awaiting acceptance.26 More particularly
on the matter of the consideration of the
contract, the offer and its acceptance must be
unanimous both on the rate of the payment
and on its term. An acceptance of an offer
which agrees to the rate but varies the term is
ineffective. 27
To determine whether there was mutual
consent between the parties herein, it is
necessary to retrace each offer and
acceptance they made.
Respondent began with an invitation to bid
issued in April 1989 covering several of its
acquired assets in Calumpang, General
Santos City, including Lot No. 19 for which the
floor price was P2,268,000.00. The offer was
subject to the condition that sealed bids,
accompanied by a 10% deposit in manager’s
or cashier’s check, be submitted not later than
10 o’clock in the morning of April 27, 1989.
On June 28, 1990, petitioner made an offer to
buy Lot No. 17 and Lot No. 19 for an
aggregate price of P3,677,000.00. It is noted
that this offer exactly corresponded to the April
1989 invitation to bid issued by respondent in
that the proposed aggregate purchase price
for Lot Nos. 17 and 19 matched the advertised
floor prices for the same properties. However,
it cannot be said that the June 28, 1990 letter
of petitioner was an effective acceptance of
the April 1989 invitation to bid for, by its
express terms, said invitation lapsed on April
27, 1989.28 More than that, the April 1989
invitation was subject to the condition that all
sealed bids submitted and accepted be
approved by respondent’s higher authorities.
Thus, the June 28, 1990 letter of petitioner
was an offer to buy independent of the April
1989 invitation to bid. It was a definite offer as
it identified with certainty the properties sought
to be purchased and fixed the contract price.
However, respondent replied to the June 28,
1990 offer with a July 6, 1990 letter that only
Lot No. 19 is available and that the price
therefor is now P2,883,300.00. As the CA
pointed out, this reply was certainly not an
 SALES: FIRST EXAM: FULL TEXT
acceptance of the June 28, 1990 offer but a
mere counter-offer. It deviated from the
original offer on three material points: first, the
object of the proposed sale is now only Lot No.
19 rather than Lot Nos. 17 and 19; second, the
area of the property to be sold is still 41,190
sq. m but an 8,797-sq. m portion is now part of
a public road; and third, the consideration
is P2,883,300 for one lot rather
than P3,677,000.00 for two lots. More
important, this July 6, 1990 counter-offer
imposed two conditions: one, that petitioner
submit a revised offer to purchase based on
the quoted price; and two, that the sale of the
property be approved by the Board of
Directors and subjected to other terms and
conditions imposed by the Bank on the sale of
acquired assets.
In reply to the July 6, 1990 counter-offer,
petitioner signed his July 11, 1990 conformity
to the quoted price of P2,883,300.00 but
inserted the term "downpayment
of P600,000.00 and the balance payable in
two years at quarterly amortization." The CA
viewed this July 11, 1990 conformity not as an
acceptance of the July 6, 1990 counter-offer
but a further counter-offer for, while petitioner
accepted the P2,883,300.00 price for Lot No.
19, he qualified his acceptance by proposing a
two-year payment term.
Petitioner does not directly impugn such
reasoning of the CA. He merely questions it for
taking up the issue of whether his July 11,
1990 conformity modified the July 6, 1990
counter-offer as this was allegedly never
raised during the trial nor on appeal.29
Such argument is not well taken. From
beginning to end, respondent denied that a
contract of sale with petitioner was ever
perfected.30 Its defense was broad enough to
encompass every issue relating to the
concurrence of the elements of contract,
specifically on whether it consented to the
object of the sale and its consideration. There
was nothing to prevent the CA from inquiring
into the offers and counter-offers of the parties
to determine whether there was indeed a
perfected contract between them.
Moreover, there is merit in the ruling of the CA
that the July 11, 1990 marginal note was a
further counter-offer which did not lead to the
perfection of a contract of sale between the
parties. Petitioner’s own June 28, 1990 offer
quoted the price of P3,677,000.00 for two lots
but was silent on the term of payment.
Respondent’s July 6, 1990 counter-offer
quoted the price of P2,833,300.00 and was
25
also silent on the term of payment. Up to that
point, the term or schedule of payment was not
on the negotiation table. Thus, when petitioner
suddenly introduced a term of payment in his
July 11, 1990 counter-offer, he interjected into
the negotiations a new substantial matter on
which the parties had no prior discussion and
over which they must yet agree. 31 Petitioner’s
July 11, 1990 counter-offer, therefore, did not
usher the parties beyond the negotiation stage
of contract making towards its perfection. He
made a counter-offer that required acceptance
by respondent.
As it were, respondent, through its Board of
Directors, did not accept this last counter-offer.
As stated in its October 11, 1990 letter to
petitioner, respondent ordered the reappraisal
of the property, in clear repudiation not only of
the proposed price but also the term of
payment thereof.
Petitioner insists, however, that the October
11, 1990 repudiation was belated as
respondent had already agreed to his July 11,
1990 counter-offer when it accepted his
"downpayment" or "earnest money"
of P580,000.00.32 He cites Article 1482 of the
Civil Code where it says that acceptance of
"downpayment" or "earnest money"
presupposes the perfection of a contract.
Not so. Acceptance of petitioner’s payments
did not amount to an implied acceptance of his
last counter-offer.
To begin with, PNB-General Santos Branch,
which accepted petitioner’s P380,000.00
payment, and PNB-SAMD, which accepted
his P200,000.00 payment, had no authority to
bind respondent to a contract of sale with
petitioner.33 Petitioner is well aware of this. To
recall, petitioner sent his June 28, 1990 offer to
PNB-General Santos Branch. Said branch did
not act on his offer except to endorse it to
Guevarra. Thereafter, petitioner transacted
directly with Guevarra. Petitioner then cannot
pretend that PNB-General Santos Branch had
authority to accept his July 11, 1990 counter-
offer by merely accepting his P380,000.00
payment.
Neither did SAMD have authority to bind PNB.
In its April 1989 invitation to bid, as well as its
July 6, 1990 counter-offer, SAMD was always
careful to emphasize that whatever offer is
made and entertained will be subject to the
approval of respondent’s higher authorities.
This is a reasonable disclaimer considering the
corporate nature of respondent. 34
 SALES: FIRST EXAM: FULL TEXT

Moreover, petitioner’s payment of P200,000.00

was with the clear understanding that his July
11, 1990 counter-offer was still subject to
approval by respondent. This is borne out by
respondent’s Exhibits "2-a" and "2-b", which
petitioner never controverted, where it appears
on the dorsal portion of O.R. No. 16997 that
petitioner acceded that the amount he paid
was a mere "x x x deposit made to show the
sincerity of [his] purchase offer with the
understanding that it shall be returned without
interest if [his] offer is not favorably considered
x x x."35 This was a clear acknowledgment on
his part that there was yet no perfected
contract with respondent and that even with
the payments he had advanced, his July 11,
1990 counter-offer was still subject to
consideration by respondent.
Not only that, in the same Exh. "2-a" as well as
in his June 28, 1990 offer, petitioner referred to
his payments as mere "deposits." Even O.R.
No. 16997 refers to petitioner’s payment as
mere deposit. It is only in the debit notice
issued by PNB-General Santos Branch where
petitioner’s payment is referred to as
"downpayment". But then, as we said, PNB-
General Santos Branch has no authority to
bind respondent by its interpretation of the
nature of the payment made by petitioner.
In sum, the amounts paid by petitioner were
not in the nature of downpayment or earnest
money but were mere deposits or proof of his
interest in the purchase of Lot No. 19.
Acceptance of said amounts by respondent
does not presuppose perfection of any
contract.36
It must be noted that petitioner has expressly
admitted that he had withdrawn the entire
amount of P580,000.00 deposit from PNB-
General Santos Branch.37
With the foregoing disquisition, the Court
foregoes resolution of the second issue as it is
evident that respondent acted well within its
rights when it rejected the last counter-offer of
petitioner.
In fine, petitioner’s petition lacks merit.
WHEREFORE, the petition is DENIED. The
Decision dated January 29, 2002 and G.R. No. 126444 December 4, 1998
Resolution dated June 27, 2002 of the Court of ALFONSO QUIJADA, CRESENTE QUIJADA,
Appeals are AFFIRMED. REYNELDA QUIJADA, DEMETRIO
No costs. QUIJADA, ELIUTERIA QUIJADA, EULALIO
QUIJADA, and WARLITO
SO ORDERED. QUIJADA, petitioners,
vs.
COURT OF APPEALS, REGALADO
MONDEJAR, RODULFO GOLORAN,

26
 SALES: FIRST EXAM: FULL TEXT
ALBERTO ASIS, SEGUNDINO RAS,
ERNESTO GOLORAN, CELSO ABISO,
FERNANDO BAUTISTA, ANTONIO
MACASERO, and NESTOR
MAGUINSAY, respondents.
MARTINEZ, J.:
Petitioners, as heirs of the late Trinidad
Quijada, filed a complaint against private
respondents for quieting of title, recovery of
possession and ownership of parcels of land
with claim for attorney's fees and damages.
The suit was premised on the following facts
found by the court of Appeals which is
materially the same as that found by the trial
court:
Plaintiffs-appellees (petitioners) are the
children of the late Trinidad Corvera Vda, de
Quijada. Trinidad was one of the heirs of the
late Pedro Corvera and inherited from the
latter the two-hectare parcel of land subject of
the case, situated in the barrio of San Agustin,
Talacogon, Agusan del Sur. On April 5, 1956,
Trinidad Quijada together with her sisters
Leonila Corvera Vda. de Sequeña and Paz
Corvera Cabiltes and brother Epapiadito
Corvera executed a conditional deed of
donation (Exh. C) of the two-hectare parcel of
land subject of the case in favor of the
Municipality of Talacogon, the condition being
that the parcel of land shall be used solely and
exclusively as part of the campus of the
proposed provincial high school in Talacogon.
Apparently, Trinidad remained in possession
of the parcel of land despite the donation. On
July 29, 1962, Trinidad sold one (1) hectare of
the subject parcel of land to defendant-
appellant Regalado Mondejar (Exh. 1).
Subsequently, Trinidad verbally sold the
remaining one (1) hectare to defendant-
appellant (respondent) Regalado Mondejar
without the benefit of a written deed of sale
and evidenced solely by receipts of payment.
In 1980, the heirs of Trinidad, who at that time
was already dead, filed a complaint for forcible
entry (Exh. E) against defendant-appellant
(respondent) Regalado Mondejar, which
complaint was, however, dismissed for failure
to prosecute (Exh. F). In 1987, the proposed
provincial high school having failed to
materialize, the Sangguniang Bayan of the
municipality of Talacogon enacted a resolution
reverting the two (2) hectares of land donated
back to the donors (Exh. D). In the meantime,
defendant-appellant (respondent) Regalado
Mondejar sold portions of the land to
defendants-appellants (respondents)
27
Fernando Bautista (Exh. 5), Rodolfo Goloran
(Exh. 6), Efren Guden (Exh. 7) and Ernesto
Goloran (Exh. 8).
On July 5, 1988, plaintiffs-appellees
(petitioners) filed this action against
defendants-appellants (respondents). In the
complaint, plaintiffs-appellees (petitioners)
alleged that their deceased mother never sold,
conveyed, transferred or disposed of the
property in question to any person or entity
much less to Regalado Mondejar save the
donation made to the Municipality of
Talacogon in 1956; that at the time of the
alleged sale to Regalado Mondejar by Trinidad
Quijada, the land still belongs to the
Municipality of Talacogon, hence, the
supposed sale is null and void.
Defendants-appellants (respondents), on the
other hand, in their answer claimed that the
land in dispute was sold to Regalado
Mondejar, the one (1) hectare on July 29,
1962, and the remaining one (1) hectare on
installment basis until fully paid. As affirmative
and/or special defense, defendants-appellants
(respondents) alleged that plaintiffs action is
barred by laches or has prescribed.
The court a quo rendered judgment in favor of
plaintiffs-appellees (petitioners): firstly because
"Trinidad Quijada had no legal title or right to
sell the land to defendant Mondejar in 1962,
1966, 1967 and 1968, the same not being hers
to dispose of because ownership belongs to
the Municipality of Talacogon (Decision, p.
4; Rollo, p. 39) and, secondly, that the deed of
sale executed by Trinidad Quijada in favor of
Mondejar did not carry with it the conformity
and acquiescence of her children, more so that
she was already 63 years old at the time, and
a widow (Decision, p. 6; Rollo, p. 41)."1
The dispositive portion of the trial court's
decision reads:
WHEREFORE, viewed from the above
perceptions, the scale of justice having tilted in
favor of the plaintiffs, judgment is, as it is
hereby rendered:
1) ordering the Defendants to return and
vacate the two (2) hectares of land to Plaintiffs
as described in Tax Declaration No. 1209 in
the name of Trinidad Quijada;
2) ordering any person acting in Defendants'
behalf to vacate and restore the peaceful
possession of the land in question to Plaintiffs;
3) ordering the cancellation of the Deed of
Sale executed by the late Trinidad Quijada in
favor of Defendant Regalado Mondejar as well
 SALES: FIRST EXAM: FULL TEXT
as the Deeds of Sale/Relinquishments
executed by Mondejar in favor of the other
Defendants;
4) ordering Defendants to remove their
improvements constructed on the questioned
lot;
5) ordering the Defendants to pay Plaintiffs,
jointly and severally, the amount of P10,000.00
representing attorney's fees;
6) ordering Defendants to pays the amount of
P8,000.00 as expenses of litigation; and
7) ordering Defendants to pay the sum of
P30,000.00 representing moral damages.
SO ORDERED.2
On appeal, the Court of Appeals reversed and
set aside the judgment a quo3 ruling that the
sale made by Trinidad Quijada to respondent
Mondejar was valid as the former retained an
inchoate interest on the lots by virtue of the
automatic reversion clause in the deed of
donation.4 Thereafter, petitioners filed a motion
for reconsideration. When the CA denied their
motion,5 petitioners instituted a petition for
review to this Court arguing principally that the
sale of the subject property made by Trinidad
Quijada to respondent Mondejar is void,
considering that at that time, ownership was
already transferred to the Municipality of
Talacogon. On the contrary, private
respondents contend that the sale was valid,
that they are buyers in good faith, and that
petitioners' case is barred by laches. 6
We affirm the decision of the respondent court.
The donation made on April 5, 1956 by
Trinidad Quijada and her brother and
sisters7 was subject to the condition that the
donated property shall be "used solely and
exclusively as a part of the campus of the
proposed Provincial High School in
Talacogon."8 The donation further provides
that should "the proposed Provincial High
School be discontinued or if the same shall be
opened but for some reason or another, the
same may in the future be closed" the donated
property shall automatically revert to the
donor.9 Such condition, not being contrary to
law, morals, good customs, public order or
public policy was validly imposed in the
donation. 10
When the Municipality's acceptance of the
donation was made known to the donor, the
former became the new owner of the donated
property — donation being a mode of
acquiring and transmitting ownership 11 —
28
notwithstanding the condition imposed by the
donee. The donation is perfected once the
acceptance by the donee is made known to
the donor.12 According, ownership is
immediately transferred to the latter and that
ownership will only revert to the donor if the
resolutory condition is not fulfilled.
In this case, that resolutory condition is the
construction of the school. It has been ruled
that when a person donates land to another on
the condition that the latter would build upon
the land a school, the condition imposed is not
a condition precedent or a suspensive
condition but a resolutory one. 13 Thus, at the
time of the sales made in 1962 towards 1968,
the alleged seller (Trinidad) could not have
sold the lots since she had earlier transferred
ownership thereof by virtue of the deed of
donation. So long as the resolutory condition
subsists and is capable of fulfillment, the
donation remains effective and the donee
continues to be the owner subject only to the
rights of the donor or his successors-in-interest
under the deed of donation. Since no period
was imposed by the donor on when must the
donee comply with the condition, the latter
remains the owner so long as he has tried to
comply with the condition within a reasonable
period. Such period, however, became
irrelevant herein when the donee-Municipality
manifested through a resolution that it cannot
comply with the condition of building a school
and the same was made known to the donor.
Only then — when the non-fulfillment of the
resolutory condition was brought to the donor's
knowledge — that ownership of the donated
property reverted to the donor as provided in
the automatic reversion clause of the deed of
donation.
The donor may have an inchoate interest in
the donated property during the time that
ownership of the land has not reverted to her.
Such inchoate interest may be the subject of
contracts including a contract of sale. In this
case, however, what the donor sold was the
land itself which she no longer owns. It would
have been different if the donor-seller sold her
interests over the property under the deed of
donation which is subject to the possibility of
reversion of ownership arising from the non-
fulfillment of the resolutory condition.
As to laches, petitioners' action is not yet
barred thereby. Laches presupposes failure or
neglect for an unreasonable and unexplained
length of time, to do that which, by exercising
due diligence, could or should have been done
earlier; 14 "it is negligence or omission to assert
a right within a reasonable time, thus, giving
 SALES: FIRST EXAM: FULL TEXT
rise to a presumption that the party entitled to
assert it either has abandoned or declined to
assert it." 15 Its essential elements of:
a) Conduct on the part of the defendant, or of
one under whom he claims, giving rise to the
situation complained of;
b) Delay in asserting complainant's right after
he had knowledge of the defendant's conduct
and after he has an opportunity to sue;
c) Lack of knowledge or notice on the part of
the defendant that the complainant would
assert the right on which he bases his suit;
and,
d) Injury or prejudice to the defendant in the
event relief is accorded to the complainant. 16
are absent in this case. Petioners' cause of
action to quiet title commenced only when the
property reverted to the donor and/or his
successors-in-interest in 1987. Certainly, when
the suit was initiated the following year, it
cannot be said that petioners had slept on their
rights for a long time. The 1960's sales made
by Trinidad Quijada cannot be the reckoning
point as to when petitioners' cause of action
arose. They had no interest over the property
at that time except under the deed of donation
to which private respondents were not privy.
Moreover, petitioners had previously filed an
ejectment suit against private respondents
only that it did not prosper on a technicality.
Be that at it may, there is one thing which
militates against the claim of petitioners. Sale,
being a consensual contract, is perfected by
mere consent, which is manifested the
moment there is a meeting of the minds 17 as to
the offer and acceptance thereof on three (3)
elements: subject matter, price and terms of
payment of the price. 18 Ownership by the
seller on the thing sold at the time of the
perfection of the contract of sale is not an
element for its perfection. What the law
requires is that the seller has the right to
transfer ownership at the time the thing sold is
delivered. 19 Perfection  per se does not
transfer ownership which occurs upon the
actual or constructive delivery of the thing
sold. 20 A perfected contract of sale cannot be
challenged on the ground of non-ownership on
the part of the seller at the time of its
perfection; hence, the sale is still valid.
The consummation, however, of the perfected
contract is another matter. It occurs upon the
constructive or actual delivery of the subject
matter to the buyer when the seller or her
successors-in-interest subsequently acquires
29
ownership thereof. Such circumstance
happened in this case when petitioners — who
are Trinidad Quijada's heirs and successors-
in-interest — became the owners of the
subject property upon the reversion of the
ownership of the land to them. Consequently,
ownership is transferred to respondent
Mondejar and those who claim their right from
him. Article 1434 of the New Civil Code
supports the ruling that the seller's "title
passes by operation of law to the
buyer." 21 This rule applies not only when the
subject matter of the contract of sale is
goods,22 but also to other kinds of property,
including real property. 23
There is also no merit in petitioners' contention
that since the lots were owned by the
municipality at the time of the sale, they were
outside the commerce of men under Article
1409 (4) of the NCC;24 thus, the contract
involving the same is inexistent and void from
the beginning. However, nowhere in Article
1409 (4) is it provided that the properties of a
municipality, whether it be those for public use
or its patrimonial property 25 are outside the
commerce of men. Besides, the lots in this
case were conditionally owned by the
municipality. To rule that the donated
properties are outside the commerce of men
would render nugatory the unchallenged
reasonableness and justness of the condition
which the donor has the right to impose as
owner thereof. Moreover, the objects referred
to as outsides the commerce of man are those
which cannot be appropriated, such as the
open seas and the heavenly bodies.
With respect to the trial court's award of
attorney's fees, litigation expenses and moral
damages, there is neither factual nor legal
basis thereof. Attorney's fees and expenses of
litigation cannot, following the general rule in
Article 2208 of the New Civil Code, be
recovered in this case, there being no
stipulation to that effect and the case does not
fall under any of the
exceptions. 26 It cannot be said that private
respondents had compelled petitioners to
litigate with third persons. Neither can it be
ruled that the former acted in "gross and
evident bad faith" in refusing to satisfy the
latter's claims considering that private
respondents were under an honest belief that
they have a legal right over the property by
virtue of the deed of sale. Moral damages
cannot likewise be justified as none of the
circumstances enumerated under Articles
2219. 27 and 2220 28 of the New Civil Code
concur in this case
 SALES: FIRST EXAM: FULL TEXT

WHEREFORE, by virtue of the foregoing, the
assailed decision of the Court of Appeals is
AFFIRMED.
SO ORDERED.
G.R. No. 133638             April 15, 2005
PERPETUA VDA. DE APE, Petitioner,
vs.
THE HONORABLE COURT OF APPEALS
and GENOROSA CAWIT VDA. DE
LUMAYNO, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a petition for review
on certiorari of the Decision1 of the Court of
Appeals in CA-G.R. CV No. 45886 entitled,
"Generosa Cawit de Lumayno, accompanied
by her husband Braulio Lumayno v. Fortunato
Ape, including his wife Perpetua de Ape."
The pertinent facts are as follows:
Cleopas Ape was the registered owner of a
parcel of land particularly known as Lot No.
2319 of the Escalante Cadastre of Negros
Occidental and covered by Original Certificate
of Title (OCT) No. RP 1379 (RP-154
[300]).2 Upon Cleopas Ape's death sometime
in 1950, the property passed on to his wife,
Maria Ondoy, and their eleven (11) children,
namely:  Fortunato, Cornelio, Bernalda,
Bienvenido, Encarnacion, Loreta, Lourdes,
Felicidad, Adela, Dominador, and Angelina, all
surnamed Ape.
On 15 March 1973, Generosa Cawit de
Lumayno (private respondent herein), joined
by her husband, Braulio,3 instituted a case for
"Specific Performance of a Deed of Sale with
Damages" against Fortunato and his wife
Perpetua (petitioner herein) before the then
Court of First Instance of Negros Occidental. 
It was alleged in the complaint that on 11 April
1971, private respondent and Fortunato
entered into a contract of sale of land under
which for a consideration of P5,000.00,
Fortunato agreed to sell his share in Lot No.
2319 to private respondent.  The agreement
was contained in a receipt prepared by private
respondent's son-in-law, Andres Flores, at her
behest.  Said receipt was attached to the
complaint as Annex "A" thereof and later
marked as Exhibit "G" for private respondent.
The receipt states:

April 11, 1971

TO WHOM IT MAY CONCERN:

This date received from Mrs. Generosa Cawit
de Lumayno the sum of THIRTY PESOS
ONLY as Advance Payment of my share in
Land Purchased, for FIVE THOUSAND
PESOS – LOT #2319.

30
 SALES: FIRST EXAM: FULL TEXT
(Signed)
FORTUNATO APE
P30.00 WITNESS:
          (Illegible)4
As private respondent wanted to register the
claimed sale transaction, she supposedly
demanded that Fortunato execute the
corresponding deed of sale and to receive the
balance of the consideration.  However,
Fortunato unjustifiably refused to heed her
demands.  Private respondent, therefore,
prayed that Fortunato be ordered to execute
and deliver to her "a sufficient and registrable
deed of sale involving his one-eleventh (1/11)
share or participation in Lot No. 2319 of the
Escalante Cadastre; to pay P5,000.00 in
damages; P500.00 reimbursement for litigation
expenses as well as additional P500.00 for
every appeal made; P2,000.00 for attorney's
fees; and to pay the costs.5
Fortunato and petitioner denied the material
allegations of the complaint and claimed that
Fortunato never sold his share in Lot No. 2319
to private respondent and that his signature
appearing on the purported receipt was
forged.  By way of counterclaim, the
defendants below maintained having entered
into a contract of lease with respondent
involving Fortunato's portion of Lot No. 2319.  piece
This purported lease contract commenced in
1960 and was supposed to last until 1965 with
an option for another five (5) years.  The
annual lease rental was P100.00 which private
respondent and her husband allegedly paid on
installment basis.  Fortunato and petitioner
also assailed private respondent and her
husband's continued possession of the rest of
Lot No. 2319 alleging that in the event they
had acquired the shares of Fortunato's co-
owners by way of sale, he was invoking his
right to redeem the same.  Finally, Fortunato
and petitioner prayed that the lease contract
between them and respondent be ordered
annulled; and that respondent be ordered to
pay them attorney's fees; moral damages; and
exemplary damages.6
In their reply,7 the private respondent and her
husband alleged that they had purchased from
Fortunato's co-owners, as evidenced by
various written instruments,8 their respective
portions of Lot No. 2319.  By virtue of these
sales, they insisted that Fortunato was no
longer a co-owner of Lot No. 2319 thus, his
right of redemption no longer existed.
Prior to the resolution of this case at the trial
court level, Fortunato died and was substituted
31
in this action by his children named Salodada,
Clarita, Narciso, Romeo, Rodrigo, Marieta,
Fortunato, Jr., and Salvador, all surnamed
Ape.9
During the trial, private respondent testified
that she and her husband acquired the various
portions of Lot No. 2319 belonging to
Fortunato's co-owners.  Thereafter, her
husband caused the annotation of an adverse
claim on the certificate of title of Lot No.
2319.10 The annotation states:
Entry No. 123539 – Adverse claim filed by
Braulio Lumayno. – Notice of adverse claim
filed by Braulio Lumayno affecting the lot
described in this title to the extent of 77511.93
square meters, more or less, the aggregate
area of shares sold to him on the basis of
(alleged) sales in his possession.  Doc. No.
157, Page No. 33, Book No. XI, Series of 1967
of Alexander Cawit of Escalante, Neg. Occ.
Date of instrument. – June 22, 1967 at 8:30
a.m. (SGD) FEDENCIORRAZ, Actg. Register
of Deeds.11
In addition, private respondent claimed that
after the acquisition of those shares, she and
her husband had the whole Lot No. 2319
surveyed by a certain Oscar Mascada who
came up with a technical description of said
of land.12 Significantly, private
respondent alleged that Fortunato was present
when the survey was conducted.13
Also presented as evidence for private
respondent were pictures taken of some parts
of Lot No. 2319 purportedly showing the land
belonging to Fortunato being bounded by a
row of banana plants thereby separating it
from the rest of Lot No. 2319.14
As regards the circumstances surrounding the
sale of Fortunato's portion of the land, private
respondent testified that Fortunato went to her
store at the time when their lease contract was
about to expire.  He allegedly demanded the
rental payment for his land but as she was no
longer interested in renewing their lease
agreement, they agreed instead to enter into a
contract of sale which Fortunato acceded to
provided private respondent bought his portion
of Lot No. 2319 for P5,000.00.  Thereafter, she
asked her son-in-law Flores to prepare the
aforementioned receipt.  Flores read the
document to Fortunato and asked the latter
whether he had any objection thereto. 
Fortunato then went on to affix his signature
on the receipt.
For her part, petitioner insisted that the entire
Lot No. 2319 had not yet been formally
 SALES: FIRST EXAM: FULL TEXT
subdivided;15 that on 11 April 1971 she and her
husband went to private respondent's house to
collect past rentals for their land then leased
by the former, however, they managed to
collect only thirty pesos;16 that private
respondent made her (petitioner's) husband
sign a receipt acknowledging the receipt of
said amount of money;17 and that the contents
of said receipt were never explained to
them.18 She also stated in her testimony that
her husband was an illiterate and only learned
how to write his name in order to be employed
in a sugar central.19 As for private respondent's
purchase of the shares owned by Fortunato's
co-owners, petitioner maintained that neither
she nor her husband received any notice
regarding those sales transactions.20 The
testimony of petitioner was later on
corroborated by her daughter-in-law, Marietta
Ape Dino.21
After due trial, the court a quo rendered a
decision22 dismissing both the complaint and
the counterclaim.  The trial court likewise
ordered that deeds or documents representing
the sales of the shares previously owned by
Fortunato's co-owners be registered and
annotated on the existing certificate of title of
Lot No. 2319.  According to the trial court,
private respondent failed to prove that she had
actually paid the purchase price of P5,000.00
to Fortunato and petitioner.  Applying,
therefore, the provision of Article 1350 of the
Civil Code,23 the trial court concluded that
private respondent did not have the right to
demand the delivery to her of the registrable
deed of sale over Fortunato's portion of the Lot
No. 2319.
The trial court also rejected Fortunato and
petitioner's claim that they had the right of
redemption over the shares previously sold to
private respondent and the latter's husband,
reasoning as follows:
Defendants in their counterclaim invoke their
right of legal redemption under Article 1623 of
the New Civil Code in view of the alleged sale
of the undivided portions of the lot in question
by their co-heirs and co-owners as claimed by
the plaintiffs in their complaint.  They have
been informed by the plaintiff about said sales
upon the filing of the complaint in the instant
case as far back as March 14, 1973.  Without pronouncement as to costs.27
Defendant themselves presented as their very
own exhibits copies of the respective deeds of
sale or conveyance by their said co-heirs and
co-owners in favor of the plaintiffs or their
predecessors-in-interest way back on January
2, 1992 when they formally offered their
exhibits in the instant case; meaning, they
32
themselves acquired possession of said
documentary exhibits even before they
formally offered them in evidence.  Under Art.
1623 of the New Civil Code, defendants have
only THIRTY (30) DAYS counted from their
actual knowledge of the exact terms and
conditions of the deeds of sale or conveyance
of their co-heirs' and co-owners' share within
which to exercise their right of legal
redemption.24
Within the reglementary period, both parties
filed their respective notices of appeal before
the trial court with petitioner and her children
taking exception to the finding of the trial court
that the period within which they could invoke
their right of redemption had already
lapsed.25 For her part, private respondent
raised as errors the trial court's ruling that
there was no contract of sale between herself
and Fortunato and the dismissal of their
complaint for specific performance.26
The Court of Appeals, in the decision now
assailed before us, reversed and set aside the
trial court's dismissal of the private
respondent's complaint but upheld the portion
of the court a quo's decision ordering the
dismissal of petitioner and her children's
counterclaim.  The dispositive portion of the
appellate court's decision reads:
WHEREFORE, the decision dated March 11,
1994, is hereby REVERSED and SET ASIDE
insofar as the dismissal of plaintiffs-appellants'
complaint is concerned, and another one is
entered ordering the defendant-appellant
Fortunato Ape and/or his wife Perpetua de
Ape and successors-in-interest to execute in
favor of plaintiff-appellant Generosa Cawit de
Lumayno a Deed of Absolute Sale involving
the one-eleventh (1/11) share or participation
of Fortunato Ape in Lot No. 2319, Escalante
Cadastre, containing an area of 12,527.19
square meters, more or less, within (30) days
from finality of this decision, and in case of
non-compliance with this Order, that the Clerk
of Court of said court is ordered to execute the
deed on behalf of the vendor.  The decision is
AFFIRMED insofar as the dismissal of
defendants-appellants' counterclaim is
concerned.
The Court of Appeals upheld private
respondent's position that Exhibit "G" had all
the earmarks of a valid contract of sale, thus:
Exhibit G is the best proof that the P5,000.00
representing the purchase price of the
1/11th share of Fortunato Ape was not paid by
 SALES: FIRST EXAM: FULL TEXT
the vendee on April 11, 1971, and/or up to the
present, but that does not affect the binding
force and effect of the document.  The vendee
having paid the vendor an advance payment of
the agreed purchase price of the property,
what the vendor can exact from the vendee is
full payment upon his execution of the final
deed of sale.  As is shown, the vendee
precisely instituted this action to compel the
vendor Fortunato Ape to execute the final
document, after she was informed that he
would execute the same upon arrival of his
daughter "Bala" from Mindanao, but afterwards
failed to live up to his contractual obligation
(TSN, pp. 11-13, June 10, 1992).
It is not right for the trial court to expect
plaintiff-appellant to pay the balance of the
purchase price before the final deed is
executed, or for her to deposit the equivalent
amount in court in the form of consignation.  unduly expanded the scope of the law by
Consignation comes into fore in the case of
a creditor to whom tender of payment has
been made and refuses without just cause to
accept it (Arts. 1256 and 1252, N.C.C.;
Querino vs. Pelarca, 29 SCRA 1).  As vendee,
plaintiff-appellant Generosa Cawit de Lumayno
does not fall within the purview of a debtor.
We, therefore, find and so hold that the trial
court should have found that exhibit G bears
all the earmarks of a private deed of sale
which is valid, binding and enforceable
between the parties, and that as a
consequence of the failure and refusal on the
part of the vendor Fortunato Ape to live up to
his contractual obligation, he and/or his heirs
and successors-in-interest can be compelled
to execute in favor of, and to deliver to the
vendee, plaintiff-appellant Generosa Cawit de
Lumayno a registerable deed of absolute sale
involving his one-eleventh (1/11th) share or
participation in Lot No. 2319, Escalante
Cadastre, containing an area of 12,527.19
square meters, more or less, within 30 days
from finality of this decision, and, in case of
non-compliance within said period, this Court
appoints the Clerk of Court of the trial court to
execute on behalf of the vendor the said
document.28
The Court of Appeals, however, affirmed the
trial court's ruling on the issue of petitioner and
her children's right of redemption.  It ruled that
Fortunato's receipt of the Second Owner's
Duplicate of OCT (RP) 1379 (RP-154 ([300]),
containing the adverse claim of private
respondent and her husband, constituted a
sufficient compliance with the written notice
requirement of Article 1623 of the Civil Code
33
and the period of redemption under this
provision had long lapsed.
Aggrieved by the decision of the appellate
court, petitioner is now before us raising,
essentially, the following issues: whether
Fortunato was furnished with a written notice
of sale of the shares of his co-owners as
required by Article 1623 of the Civil Code; and
whether the receipt signed by Fortunato
proves the existence of a contract of sale
between him and private respondent.
In her memorandum, petitioner claimed that
the Court of Appeals erred in sustaining the
court a quo's pronouncement that she could
no longer redeem the portion of Lot No. 2319
already acquired by private respondent for no
written notice of said sales was furnished
them.  According to her, the Court of Appeals
equating Fortunato's receipt of Second
Owner's Duplicate of OCT (RP) 1379 (RP-154
([300]) with the written notice requirement of
Article 1623.  In addition, she argued that
Exhibit "G" could not possibly be a contract of
sale of Fortunato's share in Lot No. 2319 as
said document does not contain "(a) definite
agreement on the manner of payment of the
price."29 Even assuming that Exhibit "G" is,
indeed, a contract of sale between private
respondent and Fortunato, the latter did not
have the obligation to deliver to private
respondent a registrable deed of sale in view
of private respondent's own failure to pay the
full purchase price of Fortunato's portion of Lot
No. 2319.  Petitioner is also of the view that, at
most, Exhibit "G" merely contained a unilateral
promise to sell which private respondent could
not enforce in the absence of a consideration
distinct from the purchase price of the land. 
Further, petitioner reiterated her claim that due
to the illiteracy of her husband, it was
incumbent upon private respondent to show
that the contents of Exhibit "G" were fully
explained to him.  Finally, petitioner pointed
out that the Court of Appeals erred when it
took into consideration the same exhibit
despite the fact that only its photocopy was
presented before the court.
On the other hand, private respondent argued
that the annotation on the second owner's
certificate over Lot No. 2319 constituted
constructive notice to the whole world of
private respondent's claim over the majority of
said parcel of land.  Relying on our decision in
the case of Cabrera v. Villanueva,30 private
respondent insisted that when Fortunato
received a copy of the second owner's
certificate, he became fully aware of the
 SALES: FIRST EXAM: FULL TEXT
contracts of sale entered into between his co-
owners on one hand and private respondent
and her deceased husband on the other.
Private respondent also averred that "although
(Lot No. 2319) was not actually partitioned in a
survey after the death of Cleopas Ape, the
land was partitioned in a 'hantal-hantal'
manner by the heirs.  Each took and
possessed specific portion or premises as
his/her share in land, farmed their respective
portion or premises, and improved them, each
heir limiting his/her improvement within the
portion or premises which were his/her
respective share."31 Thus, when private
respondent and her husband purchased the
other parts of Lot No. 2319, it was no longer
undivided as petitioner claims.
The petition is partly meritorious.
Article 1623 of the Civil Code provides:
The right of legal pre-emption or redemption
shall not be exercised except within thirty days
from the notice in writing by the prospective
vendor, or by the vendor, as the case may be.  redemption period starts to run.  This view was
The deed of sale shall not be recorded in the
Registry of Property, unless accompanied by
an affidavit of the vendor that he has given
written notice thereof to all possible
redemptioners.
Despite the plain language of the law, this
Court has, over the years, been tasked to
interpret the "written notice requirement" of the
above-quoted provision.  In the case Butte v.
Manuel Uy & Sons, Inc.,32 we declared that –
In considering whether or not the offer to
redeem was timely, we think that the notice
given by the vendee (buyer) should not be
taken into account.  The text of Article 1623
clearly and expressly prescribes that the thirty
days for making the redemption are to be
counted from notice in writing by the vendor.  not from any other person.  There is, therefore,
Under the old law (Civ. Code of 1889, Art.
1524), it was immaterial who gave the notice;
so long as the redeeming co-owner learned of
the alienation in favor of the stranger, the
redemption period began to run.  It is thus
apparent that the Philippine legislature in
Article 1623 deliberately selected a particular
method of giving notice, and that method must
be deemed exclusive. (39 Am. Jur., 237;
Payne vs. State, 12 S.W. 2(d) 528).  As ruled
in Wampler vs. Lecompte, 150 Atl. 458 (affd. in
75 Law Ed. [U.S.] 275) –
why these provisions were inserted in the
statute we are not informed, but we may
assume until the contrary is shown, that a
34
state of facts in respect thereto existed, which
warranted the legislature in so legislating.
The reasons for requiring that the notice
should be given by the seller, and not by the
buyer, are easily divined.  The seller of an
undivided interest is in the best position to
know who are his co-owners that under the
law must be notified of the sale.  Also, the
notice by the seller removes all doubts as to
fact of the sale, its perfection; and its validity,
the notice being a reaffirmation thereof, so that
the party notified need not entertain doubt that
the seller may still contest the alienation.  This
assurance would not exist if the notice should
be given by the buyer.33
The interpretation was somehow modified in
the case of De Conejero, et al. v. Court of
Appeals, et al.34 wherein it was pointed out that
Article 1623 "does not prescribe a particular
form of notice, nor any distinctive method for
notifying the redemptioner" thus, as long as
the redemptioner was notified in writing of the
sale and the particulars thereof, the
reiterated in Etcuban v. The Honorable Court
of Appeals, et al.,35 Cabrera v.
36 
Villanueva, Garcia, et al. v. Calaliman, et
al.,37 Distrito, et al. v. The Honorable Court of
Appeals, et al.,38 and Mariano, et al. v. Hon.
Court of Appeals, et al.39
However, in the case of Salatandol v.
Retes,40 wherein the plaintiffs were not
furnished any written notice of sale or a copy
thereof by the vendor, this Court again referred
to the principle enunciated in the case of
Butte.  As observed by Justice Vicente
Mendoza, such reversion is only sound, thus:
… Art. 1623 of the Civil Code is clear in
requiring that the written notification should
come from the vendor or prospective vendor,
no room for construction.  Indeed, the principal
difference between Art. 1524 of the former
Civil Code and Art. 1623 of the present one is
that the former did not specify who must give
the notice, whereas the present one expressly
says the notice must be given by the vendor. 
Effect must be given to this change in statutory
language.41
In this case, the records are bereft of any
indication that Fortunato was given any written
notice of prospective or consummated sale of
the portions of Lot No. 2319 by the vendors or
would-be vendors.  The thirty (30)-day
redemption period under the law, therefore,
has not commenced to run.
 SALES: FIRST EXAM: FULL TEXT
Despite this, however, we still rule that
petitioner could no longer invoke her right to
redeem from private respondent for the
exercise of this right "presupposes the
existence of a co-ownership at the time the
conveyance is made by a co-owner and when
it is demanded by the other co-owner or co-
owners."42 The regime of co-ownership exists
when ownership of an undivided thing or right
belongs to different persons. 43 By the nature of
a co-ownership, a co-owner cannot point to
specific portion of the property owned in
common as his own because his share therein
remains intangible.44 As legal redemption is
intended to minimize co-ownership,45 once the
property is subdivided and distributed among
the co-owners, the community ceases to exist
and there is no more reason to sustain any
right of legal redemption.46
In this case, records reveal that although Lot
No. 2319 has not yet been formally
subdivided, still, the particular portions
belonging to the heirs of Cleopas Ape had
already been ascertained and they in fact took
possession of their respective parts.  This can
be deduced from the testimony of petitioner
herself, thus:
Q         When the plaintiffs leased the share of
your husband, were there any metes and
bounds?
A         It was not formally subdivided.  We
have only a definite portion.  (hantal-hantal)
Q         This hantal-hantal of your husband,
was it also separate and distinct from
the hantal-hantal or the share of the brothers
and sisters of your husband?
A         Well, this property in question is a
common property.
Q         To the north, whose share was that
which is adjacent to your husband's assumed
partition?
A         I do not know what [does] this "north"
[mean].
COURT
(To Witness)
Q         To the place from where the sun rises,
whose share was that?
A         The shares of Cornelia, Loreta,
Encarnacion and Adela.
Q         How could you determine their own
shares?
35
A         They were residing in their respective
assumed portions.
Q         How about determining their respective
boundaries?
A         It could be determined by stakes and
partly a row of banana plantations planted by
my son-in-law.
Q         Who is this son-in-law you mentioned?
A         Narciso Ape.
ATTY. CAWIT
(Continuing)
Q         You said that there were stakes to
determine the hantal-hantal of your husband
and the hantal-hantal of the other heirs, did I
get you right?
ATTY. TAN
Admitted, Your Honor.
…
ATTY. CAWIT
Q         Mrs. Ape, in 1960, Cleopas Ape was
already dead, is that correct?
A         Certainly, since he died in 1950.
Q         By the manifestation of your counsel
that the entire land (13 hectares) of your
father-in-law, Cleopas Ape, was leased to
Generosa Lumayno, is this correct?
A         No, it is only the assumed portion of my
husband [which] was leased to Generosa
Lumayno.
Q         For clarification, it was only the share
of your husband [which] was leased to
Generosa Cawit Lumayno?
A         Yes.47
ATTY. CAWIT
Q         My question: is that portion which you
said was leased by your husband to the
Lumayno[s] and which was included to the
lease by your mother-in-law to the Lumayno[s],
when the Lumayno[s] returned your
husband['s] share, was that the same
premises that your husband leased to the
Lumayno[s]?
A         The same.
Q         In re-possessing this portion of the land
corresponding to the share of your husband,
did your husband demand that they should re-
 SALES: FIRST EXAM: FULL TEXT
possess the land from the Lumayno[s] or did
the Lumayno[s] return them to your husband
voluntarily?
A         They just returned to us without paying
the rentals.
COURT
Q        Was the return the result of your
husband's request or just voluntarily they
returned it to your husband?
A        No, sir, it was just returned voluntarily,
and they abandoned the area but my husband
continued farming.48
Similarly telling of the partition is the stipulation
of the parties during the pre-trial wherein it was
admitted that Lot No. 2319 had not been
subdivided nevertheless, "Fortunato Ape had
possessed a specific portion of the land
ostensibly corresponding to his share."49
From the foregoing, it is evident that the
partition of Lot No. 2319 had already been
effected by the heirs of Cleopas Ape.  regularly.56 The exception to this rule is
Although the partition might have been
informal is of no moment for even an oral
agreement of partition is valid and binding
upon the parties.50 Likewise, the fact that the
respective shares of Cleopas Ape's heirs are
still embraced in one and the same certificate
of title and have not been technically
apportioned does not make said portions less
determinable and identifiable from one another
nor does it, in any way, diminish the dominion
of their respective owners.51
Turning now to the second issue of the
existence of a contract of sale, we rule that the
records of this case betray the stance of
private respondent that Fortunato Ape entered
into such an agreement with her.
A contract of sale is a consensual contract,
thus, it is perfected by mere consent of the
parties.  It is born from the moment there is a
meeting of minds upon the thing which is the
object of the sale and upon the price. 52 Upon
its perfection, the parties may reciprocally
demand performance, that is, the vendee may
compel the transfer of the ownership and to
deliver the object of the sale while the vendor
may demand the vendee to pay the thing
sold.53 For there to be a perfected contract of
sale, however, the following elements must be
present: consent, object, and price in money or
its equivalent.  In the case of Leonardo v.
Court of Appeals, et al.,54 we explained the
element of consent, to wit:
36
The essence of consent is the agreement of
the parties on the terms of the contract, the
acceptance by one of the offer made by the
other.  It is the concurrence of the minds of the
parties on the object and the cause which
constitutes the contract.  The area of
agreement must extend to all points that the
parties deem material or there is no consent at
all.
To be valid, consent must meet the following
requisites: (a) it should be intelligent, or with
an exact notion of the matter to which it refers;
(b) it should be free and (c) it should be
spontaneous.  Intelligence in consent is
vitiated by error; freedom by violence,
intimidation or undue influence; spontaneity by
fraud.55
In this jurisdiction, the general rule is that he
who alleges fraud or mistake in a transaction
must substantiate his allegation as the
presumption is that a person takes ordinary
care for his concerns and that private dealings
have been entered into fairly and
provided for under Article 1332 of the Civil
Code which provides that "[w]hen one of the
parties is unable to read, or if the contract is in
a language not understood by him, and
mistake or fraud is alleged, the person
enforcing the contract must show that the
terms thereof have been fully explained to the
former."
In this case, as private respondent is the one
seeking to enforce the claimed contract of
sale, she bears the burden of proving that the
terms of the agreement were fully explained to
Fortunato Ape who was an illiterate.  This she
failed to do.  While she claimed in her
testimony that the contents of the receipt were
made clear to Fortunato, such allegation was
debunked by Andres Flores himself when the
latter took the witness stand.  According to
Flores:
ATTY. TAN
Q         Mr. Witness, that receipt is in English,
is it not?
A         Yes, sir.
Q         When you prepared that receipt, were
you aware that Fortunato Ape doesn't know
how to read and write English?
A         Yes, sir, I know.
Q         Mr. Witness, you said you were present
at the time of the signing of that alleged receipt
of P30.00, correct?
 SALES: FIRST EXAM: FULL TEXT
A         Yes, sir.
Q         Where, in what place was this receipt
signed?
A         At the store.
Q         At the time of the signing of this receipt,
were there other person[s] present aside from
you, your mother-in-law and Fortunato Ape?
A           In the store, yes, sir.
Q         When you signed that document of
course you acted as witness upon request of
your mother-in-law?
A         No, this portion, I was the one who
prepared that document.
Q         Without asking of (sic) your mother-in-
law, you prepared that document or it was your
mother-in-law who requested you to prepare
that document and acted as witness?
A         She requested me to prepare but does
not instructed (sic) me to act as witness.  It
was our opinion that whenever I prepared the
document, I signed it as a witness.
Q         Did it not occur to you to ask other
witness to act on the side of Fortunato Ape
who did not know how to read and write
English?
A         It occurred to me.
Q         But you did not bother to request a
person who is not related to your mother-in-
law, considering that Fortunato Ape did not
know how to read and write English?
A         The one who represented Fortunato
Ape doesn't know also how to read and write
English.  One a maid.
Q         You mentioned that there [was another]
person inside the store, under your previous
statement, when the document was signed,
there [was another] person in the store aside
from you, your mother-in-law and Fortunato
Ape, is not true?
A         That is true, there is one person, but
that person doesn't know how to read also.
…
Q         Of course, Mr. Witness, since it
occurred to you that there was need for other
witness to sign that document for Fortunato
Ape, is it not a fact that the Municipal Building
is very near your house?
A         Quite (near).
37
Q         But you could readily proceed to the
Municipal Building and request one who is
knowledgeable in English to act as witness?
A         I think there is no need for that small
receipt.  So I don't bother myself to go.
Q         You did not consider that receipt very
important because you said that small receipt?
A         Yes, I know.57
As can be gleaned from Flores's testimony,
while he was very much aware of Fortunato's
inability to read and write in the English
language, he did not bother to fully explain to
the latter the substance of the receipt (Exhibit
"G").  He even dismissed the idea of asking
somebody else to assist Fortunato considering
that a measly sum of thirty pesos was
involved.  Evidently, it did not occur to Flores
that the document he himself prepared
pertains to the transfer altogether of
Fortunato's property to his mother-in-law.  It is
precisely in situations such as this when the
wisdom of Article 1332 of the Civil Code
readily becomes apparent which is "to protect
a party to a contract disadvantaged by
illiteracy, ignorance, mental weakness or some
other handicap."58
In sum, we hold that petitioner is no longer
entitled to the right of redemption under Article
1632 of the Civil Code as Lot No. 2319 had
long been partitioned among its co-owners.
This Court likewise annuls the contract of sale
between Fortunato and private respondent on
the ground of vitiated consent.
WHEREFORE, premises considered, the
decision dated 25 March 1998 of the Court of
Appeals is hereby REVERSED and SET
ASIDE and the decision dated 11 March 1994
of the Regional Trial Court, Branch 58, San
Carlos City, Negros Occidental, dismissing
both the complaint and the counterclaim, is
hereby REINSTATED.  No costs.
SO ORDERED.
 SALES: FIRST EXAM: FULL TEXT
G.R. No. 137552               June 16, 2000
ROBERTO Z. LAFORTEZA, GONZALO Z.
LAFORTEZA, MICHAEL Z. LAFORTEZA,
DENNIS Z. LAFORTEZA, and LEA Z.
LAFORTEZA, petitioners,
vs.
ALONZO MACHUCA, respondent.
GONZAGA-REYES, J.:
This Petition for Review on Certiorari seeks
the reversal of the Decision of the Court of
Appeals 1 in CA G.R. CV No. 147457 entitled
"ALONZO MACHUCA versus ROBERTO Z.
LAFORTEZA, GONZALO Z. LAFORTEZA,
LEA ZULUETA-LAFORTEZA, MICHAEL Z.
LAFORTEZA, and DENNIS Z. LAFORTEZA".
The following facts as found by the Court of
Appeals are undisputed:
The property involved consists of a house and
lot located at No. 7757 Sherwood Street,
Marcelo Green Village, Parañaque, Metro
Manila, covered by Transfer Certificate of Title
(TCT) No. (220656) 8941 of the Registered of
Deeds of Parañaque (Exhibit "D", Plaintiff,
record, pp. 331-332). The subject property is
registered in the name of the late Francisco Q.
Laforteza, although it is conjugal in nature
(Exhibit "8", Defendants, record pp. 331-386).
On August 2, 1988, defendant Lea Zulueta-
Laforteza executed a Special Power of
Attorney in favor of defendants Roberto Z.
Laforteza and Gonzalo Z. Laforteza, Jr.,
appointing both as her Attorney-in-fact
authorizing them jointly to sell the subject
property and sign any document for the
settlement of the estate of the late Francisco
Q. Laforteza (Exh. "A", Plaintiff, record, pp.
323-325).
Likewise on the same day, defendant Michael
Z. Laforteza executed a Special Power of
Attorney in favor of defendants Roberto Z.
Laforteza and Gonzalo Laforteza, Jr., likewise,
granting the same authority (Exh. "B", record,
pp. 326-328) Both agency instruments
38
contained a provision that in any document or
paper to exercise authority granted, the
signature of both attorneys- in-fact must be
affixed.
On October 27, 1988, defendant Dennis Z.
Laforteza executed a Special Power of
Attorney in favor of defendant Roberto Z.
Laforteza for the purpose of selling the subject
property (Exh. "C", Plaintiff, record, pp. 329-
330). A year later, on October 30, 1989,
Dennis Z. Laforteza executed another Special
Power of Attorney in favor of defendants
Roberto Z. Laforteza and Gonzalo Laforteza,
Jr. naming both attorneys-in-fact for the
purpose of selling the subject property and
signing any document for the settlement of the
estate of the late Francisco Q. Laforteza. The
subsequent agency instrument (Exh, "2",
record, pp. 371-373) contained similar
provisions that both attorneys-in-fact should
sign any document or paper executed in the
exercise of their authority.1âwphi1.nêt
In the exercise of the above authority, on
January 20, 1989, the heirs of the late
Francisco Q. Laforteza represented by
Roberto Z. Laforteza and Gonzalo Z.
Laforteza, Jr. entered into a Memorandum of
Agreement (Contract to Sell) with the
plaintiff 2 over the subject property for the sum
of SIX HUNDRED THIRTY THOUSAND
PESOS (P630,000.00) payable as follows:
(a) P30,000.00 as earnest money, to be
forfeited in favor of the defendants if the sale is
not effected due to the fault of the plaintiff;
(b) P600,000.00 upon issuance of the new
certificate of title in the name of the late
Francisco Q. Laforteza and upon execution of
an extra-judicial settlement of the decedent's
estate with sale in favor of the plaintiff (Par. 2,
Exh. "E", record, pp. 335-336).
Significantly, the fourth paragraph of the
Memorandum of Agreement (Contract to Sell)
dated January 20, 1989 (Exh. "E", supra.)
contained a provision as follows:
. . . . Upon issuance by the proper Court of the
new title, the BUYER-LESSEE shall be notified
in writing and said BUYER-LESSEE shall have
thirty (30) days to produce the balance of
P600,000.00 which shall be paid to the
SELLER-LESSORS upon the execution of the
Extrajudicial Settlement with sale.
On January 20, 1989, plaintiff paid the earnest
money of THIRTY THOUSAND PESOS
(P30,000.00), plus rentals for the subject
property (Exh. "F", Plaintiff, record, p. 339).
 SALES: FIRST EXAM: FULL TEXT
On September 18, 1998 3 , defendant heirs,
through their counsel wrote a letter (Exh. 1,
Defendants, record, p. 370) to the plaintiff
furnishing the latter a copy of the reconstituted
title to the subject property, advising him that
he had thirty (3) days to produce the balance
of SIX HUNDRED PESOS (sic) (P600,000.00)
under the Memorandum of Agreement which
plaintiff received on the same date.
On October 18, 1989, plaintiff sent the
defendant heirs a letter requesting for an
extension of the THIRTY (30) DAYS deadline
up to November 15, 1989 within which to
produce the balance of SIX HUNDRED
THOUSAND PESOS (P600,000.00) (Exh. "G",
Plaintiff, record, pp. 341-342). Defendant
Roberto Z. Laforteza, assisted by his counsel
Atty. Romeo L. Gutierrez, signed his
conformity to the plaintiff's letter request (Exh.
"G-1 and "G-2", Plaintiff, record, p. 342). The
extension, however, does not appear to have
been approved by Gonzalo Z. Laforteza, the
second attorney-in-fact as his conformity does
not appear to have been secured.
On November 15, 1989, plaintiff informed the
defendant heirs, through defendant Roberto Z.
Laforteza, that he already had the balance of
SIX HUNDRED THOUSAND PESOS
(P600,000.00) covered by United Coconut
Planters Bank Manager's Check No. 000814
dated November 15, 1989 (TSN, August 25,
1992, p. 11; Exhs. "H", record, pp. 343-344;
"M", records p. 350; and "N", record, p. 351).
However, the defendants, refused to accept
the balance (TSN, August 24, 1992, p. 14;
Exhs. "M-1", Plaintiff, record, p. 350; and "N-
1", Plaintiff, record, p. 351). Defendant
Roberto Z. Laforteza had told him that the
subject property was no longer for sale (TSN,
October 20, 1992, p. 19; Exh. "J", record, p.
347).
On November 20, 1998 4 , defendants
informed plaintiff that they were canceling the
Memorandum of Agreement (Contract to Sell)
in view of the plaintiff's failure to comply with
his contractual obligations (Exh. "3").
Thereafter, plaintiff reiterated his request to
tender payment of the balance of SIX
HUNDRED THOUSAND PESOS
(P600,000.00). Defendants, however, insisted
on the rescission of the Memorandum of
Agreement. Thereafter, plaintiff filed the instant
action for specific performance. The lower
court rendered judgment on July 6, 1994 in
favor of the plaintiff, the dispositive portion of
which reads:
39
WHEREFORE, judgment is hereby rendered
in favor of plaintiff Alonzo Machuca and
against the defendant heirs of the late
Francisco Q. Laforteza, ordering the said
defendants.
(a) To accept the balance of P600,000.00 as
full payment of the consideration for the
purchase of the house and lot located at No.
7757 Sherwood Street, Marcelo Green Village,
Parañaque, Metro Manila, covered by Transfer
Certificate of Title No. (220656) 8941 of the
Registry of Deeds of Rizal Parañaque, Branch;
(b) To execute a registrable deed of absolute
sale over the subject property in favor of the
plaintiff;
(c) Jointly and severally to pay the plaintiff the
sum of P20,000.00 as attorney's fees plus cost
of suit.
SO ORDERED. (Rollo, pp. 74-75). 5
Petitioners appealed to the Court of Appeals,
which affirmed with modification the decision
of the lower court; the dispositive portion of the
Decision reads:
WHEREFORE, the questioned decision of the
lower court is hereby AFFIRMED with the
MODIFICATION that defendant heirs Lea
Zulueta-Laforteza, Michael Z. Laforteza,
Dennis Z. Laforteza and Roberto Z. Laforteza
including Gonzalo Z. Laforteza, Jr. are hereby
ordered to pay jointly and severally the sum of
FIFTY THOUSAND PESOS (P50,000.00) as
moral damages.
SO ORDERED. 6
Motion for Reconsideration was denied but the
Decision was modified so as to absolve
Gonzalo Z. Laforteza, Jr. from liability for the
payment of moral damages. 7 Hence this
petition wherein the petitioners raise the
following issues:
I. WHETHER THE TRIAL AND APPELLATE
COURTS CORRECTLY CONSTRUED THE
MEMORANDUM OF AGREEMENT AS
IMPOSING RECIPROCAL OBLIGATIONS.
II. WHETHER THE COURTS A
QUO CORRECTLY RULED THAT
RESCISSION WILL NOT LIE IN THE
INSTANT CASE.
III. WHETHER THE RESPONDENT IS
UNDER ESTOPPEL FROM RAISING THE
ALLEGED DEFECT IN THE SPECIAL
POWER OF ATTORNEY DATED 30
OCTOBER 1989 EXECUTED BY DENNIS
LAFORTEZA.
 SALES: FIRST EXAM: FULL TEXT
IV. SUPPOSING EX GRATIA
ARGUMENTI  THE MEMORANDUM OF
AGREEMENT IMPOSES RECIPROCAL
OBLIGATIONS, WHETHER THE
PETITIONERS MAY BE COMPELLED TO
SELL THE SUBJECT PROPERTY WHEN
THE RESPONDENT FAILED TO MAKE A
JUDICIAL CONSIGNATION OF THE
PURCHASE PRICE?
V. WHETHER THE PETITIONERS ARE IN
BAD FAITH SO TO AS MAKE THEM LIABLE
FOR MORAL DAMAGES? 8
The petitioners contend that the Memorandum
of Agreement is merely a lease agreement
with "option to purchase". As it was merely an
option, it only gave the respondent a right to
purchase the subject property within a limited
period without imposing upon them any
obligation to purchase it. Since the
respondent's tender of payment was made
after the lapse of the option agreement, his
tender did not give rise to the perfection of a
contract of sale.
It is further maintained by the petitioners that
the Court of Appeals erred in ruling that
rescission of the contract was already out of
the question. Rescission implies that a
contract of sale was perfected unlike the
Memorandum of Agreement in question which
as previously stated is allegedly only an option
contract.
Petitioner adds that at most, the Memorandum
of Agreement (Contract to Sell) is a mere
contract to sell, as indicated in its title. The
obligation of the petitioners to sell the property
to the respondent was conditioned upon the
issuance of a new certificate of title and the
execution of the extrajudicial partition with sale
and payment of the P600,000.00. This is why
possession of the subject property was not
delivered to the respondent as the owner of
the property but only as the lessee thereof.
And the failure of the respondent to pay the
purchase price in full prevented the petitioners'
obligation to convey title from acquiring
obligatory force.
Petitioners also allege that assuming for the
sake of argument that a contract of sale was
indeed perfected, the Court of Appeals still
erred in holding that respondent's failure to
pay the purchase price of P600,000.00 was
only a "slight or casual breach".
The petitioners also claim that the Court of
Appeals erred in ruling that they were not
ready to comply with their obligation to execute
the extrajudicial settlement. The Power of
40
Attorney to execute a Deed of Sale made by
Dennis Z. Laforteza was sufficient and
necessarily included the power to execute an
extrajudicial settlement. At any rate, the
respondent is estopped from claiming that the
petitioners were not ready to comply with their
obligation for he acknowledged the petitioners'
ability to do so when he requested for an
extension of time within which to pay the
purchase price. Had he truly believed that the
petitioners were not ready, he would not have
needed to ask for said extension.
Finally, the petitioners allege that the
respondent's uncorroborated testimony that
third persons offered a higher price for the
property is hearsay and should not be given
any evidentiary weight. Thus, the order of the
lower court awarding moral damages was
without any legal basis.
The appeal is bereft of merit.
A perusal of the Memorandum Agreement
shows that the transaction between the
petitioners and the respondent was one of sale
and lease. The terms of the agreement read:
1. For and in consideration of the sum of
PESOS: SIX HUNDRED THIRTY THOUSAND
(P630,000.00) payable in a manner herein
below indicated, SELLER-LESSOR hereby
agree to sell unto BUYER-LESSEE the
property described in the first WHEREAS of
this Agreement within six (6) months from the
execution date hereof, or upon issuance by the
Court of a new owner's certificate of title and
the execution of extrajudicial partition with sale
of the estate of Francisco Laforteza, whichever
is earlier;
2. The above-mentioned sum of PESOS: SIX
HUNDRED THIRTY THOUSAND
(P630,000.00) shall be paid in the following
manner:
P30,000.00 — as earnest money and as
consideration for this Agreement, which
amount shall be forfeited in favor of SELLER-
LESSORS if the sale is not effected because
of the fault or option of BUYER-LESSEE;
P600,000.00 — upon the issuance of the new
certificate of title in the name of the late
Francisco Laforteza and upon the execution of
an Extrajudicial Settlement of his estate with
sale in favor of BUYER-LESSEE free from lien
or any encumbrances.
3. Parties reasonably estimate that the
issuance of a new title in place of the lost one,
as well as the execution of extrajudicial
settlement of estate with sale to herein
 SALES: FIRST EXAM: FULL TEXT
BUYER-LESSEE will be completed within six
(6) months from the execution of this
Agreement. It is therefore agreed that during
the six months period, BUYER-LESSEE will be
leasing the subject property for six months
period at the monthly rate of PESOS: THREE
THOUSAND FIVE HUNDRED
(P3,500.00). Provided however, that if the
issuance of new title and the execution of
Extrajudicial Partition is completed prior to the
expiration of the six months period, BUYER-
LESSEE shall only be liable for rentals for the
corresponding period commencing from his
occupancy of the premises to the execution
and completion of the Extrajudicial Settlement
of the estate, provided further that if after the
expiration of six (6) months, the lost title is not
yet replaced and the extra judicial partition is
not executed, BUYER-LESSEE shall no longer
be required to pay rentals and shall continue to
occupy, and use the premises until subject
condition is complied by SELLER-LESSOR;
4. It is hereby agreed that within reasonable
time from the execution of this Agreement and
the payment by BUYER-LESSEE of the
amount of P30,000.00 as herein above
provided, SELLER-LESSORS shall
immediately file the corresponding petition for
the issuance of a new title in lieu of the lost
one in the proper Courts. Upon issuance by
the proper Courts of the new title, the BUYER-
LESSEE shall have thirty (30) days to produce
the balance of P600,000.00 which shall be
paid to the SELLER-LESSORS upon the
execution of the Extrajudicial Settlement with
sale. 9
A contract of sale is a consensual contract and
is perfected at the moment there is a meeting
of the minds upon the thing which is the object
of the contract and upon the price. 10 From that
moment the parties may reciprocally demand
performance subject to the provisions of the
law governing the form of contracts. 11 The
elements of a valid contract of sale under
Article 1458 of the Civil Code are (1) consent
or meeting of the minds; (2) determinate
subject matter and (3) price certain money or
its equivalent. 12
In the case at bench, there was a perfected
agreement between the petitioners and the
respondent whereby the petitioners obligated
themselves to transfer the ownership of and
deliver the house and lot located at 7757
Sherwood St., Marcelo Green Village,
Parañaque and the respondent to pay the
price amounting to six hundred thousand
pesos (P600,000.00). All the elements of a
contract of sale were thus present. However,
41
the balance of the purchase price was to be
paid only upon the issuance of the new
certificate of title in lieu of the one in the name
of the late Francisco Laforteza and upon the
execution of an extrajudicial settlement of his
estate. Prior to the issuance of the
"reconstituted" title, the respondent was
already placed in possession of the house and
lot as lessee thereof for six months at a
monthly rate of three thousand five hundred
pesos (P3,500.00). It was stipulated that
should the issuance of the new title and the
execution of the extrajudicial settlement be
completed prior to expiration of the six-month
period, the respondent would be liable only for
the rentals pertaining to the period
commencing from the date of the execution of
the agreement up to the execution of the
extrajudicial settlement. It was also expressly
stipulated that if after the expiration of the six
month period, the lost title was not yet
replaced and the extrajudicial partition was not
yet executed, the respondent would no longer
be required to pay rentals and would continue
to occupy and use the premises until the
subject condition was complied with the
petitioners.
The six-month period during which the
respondent would be in possession of the
property as lessee, was clearly not a period
within which to exercise an option. An option is
a contract granting a privilege to buy or sell
within an agreed time and at a determined
price. An option contract is a separate and
distinct contract from that which the parties
may enter into upon the consummation of the
option. 13 An option must be supported by
consideration.14 An option contract is governed
by the second paragraph of Article 1479 of the
Civil Code 15 , which reads:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell
a determinate thing for a price certain is
binding upon the promissor if the promise is
supported by a consideration distinct from the
price.
In the present case, the six-month period
merely delayed the demandability of the
contract of sale and did not determine its
perfection for after the expiration of the six-
month period, there was an absolute obligation
on the part of the petitioners and the
respondent to comply with the terms of the
sale. The parties made a "reasonable
estimate" that the reconstitution the lost title of
the house and lot would take approximately six
months and thus presumed that after six
 SALES: FIRST EXAM: FULL TEXT
months, both parties would be able to comply
with what was reciprocally incumbent upon
them. The fact that after the expiration of the
six-month period, the respondent would retain
possession of the house and lot without need
of paying rentals for the use therefor, clearly
indicated that the parties contemplated that
ownership over the property would already be
transferred by that time.
The issuance of the new certificate of title in
the name of the late Francisco Laforteza and
the execution of an extrajudicial settlement of
his estate was not a condition which
determined the perfection of the contract of
sale. Petitioners' contention that since the
condition was not met, they no longer had an
obligation to proceed with the sale of the
house and lot is unconvincing. The petitioners
fail to distinguish between a condition imposed
upon the perfection of the contract and a
condition imposed on the performance of an
obligation. Failure to comply with the first
condition results in the failure of a contract,
while the failure to comply with the second
condition only gives the other party the option
either to refuse to proceed with the sale or to
waive the condition. Thus, Art. 1545 of the
Civil Code states:
Art. 1545. Where the obligation of either party
to a contract of sale is subject to any condition
which is not performed, such party may refuse
to proceed with the contract or he may waive
performance of the condition. If the other party
has promised that the condition should happen
or be performed, such first mentioned party
may also treat the nonperformance of the
condition as a breach of warranty.
Where the ownership in the things has not
passed, the buyer may treat the fulfillment by
the seller of his obligation to deliver the same
as described and as warranted expressly or by
implication in the contract of sale as a
condition of the obligation of the buyer to
perform his promise to accept and pay for the
thing. 16
In the case at bar, there was already a
perfected contract. The condition was imposed
only on the performance of the obligations
contained therein. Considering however that
the title was eventually "reconstituted" and that
the petitioners admit their ability to execute the
extrajudicial settlement of their father's estate,
the respondent had a right to demand
fulfillment of the petitioners' obligation to
deliver and transfer ownership of the house
and lot.
42
What further militates against petitioners'
argument that they did not enter into a contract
or sale is the fact that the respondent paid
thirty thousand pesos (P30,000.00) as earnest
money. Earnest money is something of value
to show that the buyer was really in earnest,
and given to the seller to bind the
bargain.17 Whenever earnest money is given in
a contract of sale, it is considered as part of
the purchase price and proof of the perfection
of the contract. 18
We do not subscribe to the petitioners' view
that the Memorandum Agreement was a
contract to sell. There is nothing contained in
the Memorandum Agreement from which it can
reasonably be deduced that the parties
intended to enter into a contract to sell, i.e. one
whereby the prospective seller would explicitly
reserve the transfer of title to the prospective
buyer, meaning, the prospective seller does
not as yet agree or consent to transfer
ownership of the property subject of the
contract to sell until the full payment of the
price, such payment being a positive
suspensive condition, the failure of which is
not considered a breach, casual or serious, but
simply an event which prevented the obligation
from acquiring any obligatory force. 19 There is
clearly no express reservation of title made by
the petitioners over the property, or any
provision which would impose non-payment of
the price as a condition for the contract's
entering into force. Although the memorandum
agreement was also denominated as a
"Contract to Sell", we hold that the parties
contemplated a contract of sale. A deed of
sale is absolute in nature although
denominated a conditional sale in the absence
of a stipulation reserving title in the petitioners
until full payment of the purchase price. 20 In
such cases, ownership of the thing sold
passes to the vendee upon actual or
constructive delivery thereof. 21 The mere fact
that the obligation of the respondent to pay the
balance of the purchase price was made
subject to the condition that the petitioners first
deliver the reconstituted title of the house and
lot does not make the contract a contract to
sell for such condition is not inconsistent with a
contract of sale. 22
The next issue to be addressed is whether the
failure of the respondent to pay the balance of
the purchase price within the period allowed is
fatal to his right to enforce the agreement.
We rule in the negative.
Admittedly, the failure of the respondent to pay
the balance of the purchase price was a
 SALES: FIRST EXAM: FULL TEXT
breach of the contract and was a ground for
rescission thereof. The extension of thirty (30)
days allegedly granted to the respondent by
Roberto Z. Laforteza (assisted by his counsel
Attorney Romeo Gutierrez) was correctly
found by the Court of Appeals to be ineffective
inasmuch as the signature of Gonzalo Z.
Laforteza did not appear thereon as required
by the Special Powers of Attorney. 23 However,
the evidence reveals that after the expiration of
the six-month period provided for in the
contract, the petitioners were not ready to
comply with what was incumbent upon
them, i.e. the delivery of the reconstituted title
of the house and lot. It was only on September
18, 1989 or nearly eight months after the
execution of the Memorandum of Agreement
when the petitioners informed the respondent
that they already had a copy of the
reconstituted title and demanded the payment
of the balance of the purchase price. The
respondent could not therefore be considered
in delay for in reciprocal obligations, neither
party incurs in delay if the other party does not
comply or is not ready to comply in a proper
manner with what was incumbent upon him. 24
Even assuming for the sake of argument that
the petitioners were ready to comply with their
obligation, we find that rescission of the
contract will still not prosper. The rescission of
a sale of an immovable property is specifically
governed by Article 1592 of the New Civil
Code, which reads:
In the sale of immovable property, even
though it may have been stipulated that upon
failure to pay the price at the time agreed upon
the rescission of the contract shall of right take
place, the vendee may pay, even after the
expiration of the period, as long as no demand
for rescission of the contract has been made
upon him either judicially or by a notarial act.
After the demand, the court may not grant him
a new term. 25
It is not disputed that the petitioners did not
make a judicial or notarial demand for
rescission.1avvphi1 The November 20, 1989
letter of the petitioners informing the
respondent of the automatic rescission of the
agreement did not amount to a demand for
rescission, as it was not notarized. 26 It was
also made five days after the respondent's
attempt to make the payment of the purchase
price. This offer to pay prior to the demand for
rescission is sufficient to defeat the petitioners'
right under article 1592 of the Civil
Code. 27 Besides, the Memorandum
Agreement between the parties did not contain
a clause expressly authorizing the automatic
43
cancellation of the contract without court
intervention in the event that the terms thereof
were violated. A seller cannot unilaterally and
extrajudicially rescind a contract or sale where
there is no express stipulation authorizing him
to extrajudicially rescind. 28 Neither was there a
judicial demand for the rescission thereof.
Thus, when the respondent filed his complaint
for specific performance, the agreement was
still in force inasmuch as the contract was not
yet rescinded. At any rate, considering that the
six-month period was merely an approximation
of the time if would take to reconstitute the lost
title and was not a condition imposed on the
perfection of the contract and considering
further that the delay in payment was only
thirty days which was caused by the
respondents justified but mistaken belief that
an extension to pay was granted to him, we
agree with the Court of Appeals that the delay
of one month in payment was a mere casual
breach that would not entitle the respondents
to rescind the contract. Rescission of a
contract will not be permitted for a slight or
casual breach, but only such substantial and
fundamental breach as would defeat the very
object of the parties in making the
agreemant. 29
Petitioners' insistence that the respondent
should have consignated the amount is not
determinative of whether respondent's action
for specific performance will lie. Petitioners
themselves point out that the effect of
cansignation is to extinguish the obligation. It
releases the debtor from responsibility
therefor. 30 The failure of the respondent to
consignate the P600,000.00 is not tantamount
to a breach of the contract for by the fact of
tendering payment, he was willing and able to
comply with his obligation.
The Court of Appeals correctly found the
petitioners guilty of bad faith and awarded
moral damages to the respondent. As found by
the said Court, the petitioners refused to
comply with, their obligation for the reason that
they were offered a higher price therefor and
the respondent was even offered P100,000.00
by the petitioners' lawyer, Attorney Gutierrez,
to relinquish his rights over the property. The
award of moral damages is in accordance with
Article 1191 31 of the Civil Code pursuant to
Article 2220 which provides that moral
damages may be awarded in case of breach of
contract where the defendant acted in bad
faith. The amount awarded depends on the
discretion of the court based on the
circumstances of each
case. 32 Under the circumstances, the award
given by the Court of Appeals amounting to
 SALES: FIRST EXAM: FULL TEXT
P50,000.00 appears to us to be fair and
reasonable.
ACCORDINGLY, the decision of the Court of
Appeals in CA G.R. CV No. 47457 is
AFFIRMED and the instant petition is hereby
DENIED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 126083             July 12, 2006
ANTONIO R. CORTES (in his capacity as
Administrator of the estate of Claro S.
Cortes), petitioner,
vs.
HON. COURT OF APPEALS and VILLA
ESPERANZA DEVELOPMENT
CORPORATION, respondents.
DECISION
YNARES-SANTIAGO, J.:
The instant petition for review seeks the
reversal of the June 13, 1996 Decision1 of the
Court of Appeals in CA-G.R. CV No. 47856,
setting aside the June 24, 1993 Decision2 of
the Regional Trial Court of Makati, Branch
138, which rescinded the contract of sale
entered into by petitioner Antonio Cortes
(Cortes) and private respondent Villa
Esperanza Development Corporation
(Corporation).
The antecedents show that for the purchase
price of P3,700,000.00, the Corporation as
buyer, and Cortes as seller, entered into a
contract of sale over the lots covered by
44
Transfer Certificate of Title (TCT) No. 31113-
A, TCT No. 31913-A and TCT No. 32013-A,
located at Baclaran, Parañaque, Metro Manila.
On various dates in 1983, the Corporation
advanced to Cortes the total sum of
P1,213,000.00. Sometime in September 1983,
the parties executed a deed of absolute sale
containing the following terms:3
1. Upon execution of this instrument, the
Vendee shall pay unto the Vendor sum of
TWO MILLION AND TWO HUNDRED
THOUSAND (P2,200,000.00) PESOS,
Philippine Currency, less all advances paid by
the Vendee to the Vendor in connection with
the sale;
2. The balance of ONE MILLION AND FIVE
HUNDRED THOUSAND [P1,500,000.00]
PESOS, Phil. Currency shall be payable within
ONE (1) YEAR from date of execution of this
instrument, payment of which shall be secured
by an irrevocable standby letter of credit to be
issued by any reputable local banking
institution acceptable to the Vendor.
xxxx
4. All expense for the registration of this
document with the Register of Deeds
concerned, including the transfer tax, shall be
divided equally between the Vendor and the
Vendee. Payment of the capital gains shall be
exclusively for the account of the Vendor; 5%
commission of Marcosa Sanchez to be
deducted upon signing of sale.4
Said Deed was retained by Cortes for
notarization.
On January 14, 1985, the Corporation filed the
instant case5 for specific performance seeking
to compel Cortes to deliver the TCTs and the
original copy of the Deed of Absolute Sale.
According to the Corporation, despite its
readiness and ability to pay the purchase
price, Cortes refused delivery of the sought
documents. It thus prayed for the award of
damages, attorney's fees and litigation
expenses arising from Cortes' refusal to
deliver the same documents.
In his Answer with counterclaim, 6 Cortes
claimed that the owner's duplicate copy of the
three TCTs were surrendered to the
Corporation and it is the latter which refused to
pay in full the agreed down payment. He
added that portion of the subject property is
occupied by his lessee who agreed to vacate
the premises upon payment of disturbance
fee. However, due to the Corporation's failure
to pay in full the sum of P2,200,000.00, he in
 SALES: FIRST EXAM: FULL TEXT
turn failed to fully pay the disturbance fee of
the lessee who now refused to pay monthly
rentals. He thus prayed that the Corporation
be ordered to pay the outstanding balance
plus interest and in the alternative, to cancel
the sale and forfeit the P1,213,000.00 partial
down payment, with damages in either case.
On June 24, 1993, the trial court rendered a
decision rescinding the sale and directed
Cortes to return to the Corporation the amount
of P1,213,000.00, plus interest. It ruled that
pursuant to the contract of the parties, the
Corporation should have fully paid the amount
of P2,200,000.00 upon the execution of the
contract. It stressed that such is the law
between the parties because the Corporation
failed to present evidence that there was
another agreement that modified the terms of
payment as stated in the contract. And, having
failed to pay in full the amount of
P2,200,000.00 despite Cortes' delivery of the
Deed of Absolute Sale and the TCTs,
rescission of the contract is proper.
In its motion for reconsideration, the
Corporation contended that the trial court
failed to consider their agreement that it would
pay the balance of the down payment when
Cortes delivers the TCTs. The motion was,
however, denied by the trial court holding that
the rescission should stand because the
Corporation did not act on the offer of Cortes'
counsel to deliver the TCTs upon payment of
the balance of the down payment. Thus:
The Court finds no merit in the [Corporation's]
Motion for Reconsideration. As stated in the
decision sought to be reconsidered, [Cortes']
counsel at the pre-trial of this case, proposed
that if [the Corporation] completes the down
payment agreed upon and make arrangement
for the payment of the balances of the
purchase price, [Cortes] would sign the Deed
of Sale and turn over the certificate of title to
the [Corporation]. [The Corporation] did
nothing to comply with its undertaking under
the agreement between the parties.
WHEREFORE, in view of the foregoing
considerations, the Motion for Reconsideration
is hereby DENIED.
SO ORDERED.7
On appeal, the Court of Appeals reversed the
decision of the trial court and directed Cortes
to execute a Deed of Absolute Sale conveying
the properties and to deliver the same to the
Corporation together with the TCTs,
simultaneous with the Corporation's payment
of the balance of the purchase price of
45
P2,487,000.00. It found that the parties agreed
that the Corporation will fully pay the balance
of the down payment upon Cortes' delivery of
the three TCTs to the Corporation. The
records show that no such delivery was made,
hence, the Corporation was not remiss in the
performance of its obligation and therefore
justified in not paying the balance. The
decretal portion thereof, provides:
WHEREFORE, premises considered, [the
Corporation's] appeal is GRANTED. The
decision appealed from is hereby REVERSED
and SET ASIDE and a new judgment rendered
ordering [Cortes] to execute a deed of
absolute sale conveying to [the Corporation]
the parcels of land subject of and described in
the deed of absolute sale, Exhibit D.
Simultaneously with the execution of the deed
of absolute sale and the delivery of the
corresponding owner's duplicate copies of
TCT Nos. 31113-A, 31931-A and 32013-A of
the Registry of Deeds for the Province of Rizal,
Metro Manila, District IV, [the Corporation]
shall pay [Cortes] the balance of the purchase
price of P2,487,000.00. As agreed upon in
paragraph 4 of the Deed of Absolute Sale,
Exhibit D, under terms and conditions, "All
expenses for the registration of this document
(the deed of sale) with the Register of Deeds
concerned, including the transfer tax, shall be
divided equally between [Cortes and the
Corporation]. Payment of the capital gains
shall be exclusively for the account of the
Vendor; 5% commission of Marcosa Sanchez
to be deducted upon signing of sale." There is
no pronouncement as to costs.
SO ORDERED.8
Cortes filed the instant petition praying that the
decision of the trial court rescinding the sale
be reinstated.
There is no doubt that the contract of sale in
question gave rise to a reciprocal obligation of
the parties. Reciprocal obligations are those
which arise from the same cause, and which
each party is a debtor and a creditor of the
other, such that the obligation of one is
dependent upon the obligation of the other.
They are to be performed simultaneously, so
that the performance of one is conditioned
upon the simultaneous fulfillment of the other.9
Article 1191 of the Civil Code, states:
ART. 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the
obligors should not comply with what is
incumbent upon him.
 SALES: FIRST EXAM: FULL TEXT
xxxx
As to when said failure or delay in
performance arise, Article 1169 of the same
Code provides that –
ART. 1169
xxxx
In reciprocal obligations, neither party incurs in
delay if the other does not comply or is not
ready to comply in a proper manner with what
is incumbent upon him. From the moment
one of the parties fulfills his obligation,
delay by the other begins. (Emphasis
supplied)
The issue therefore is whether there is delay in
the performance of the parties' obligation that
would justify the rescission of the contract of
sale. To resolve this issue, we must first
determine the true agreement of the parties.
The settled rule is that the decisive factor in
evaluating an agreement is the intention of the
parties, as shown not necessarily by the
terminology used in the contract but by their
conduct, words, actions and deeds prior to,
during and immediately after executing the
agreement. As such, therefore, documentary
and parol evidence may be submitted and
admitted to prove such intention.10
In the case at bar, the stipulation in the Deed
of Absolute Sale was that the Corporation shall
pay in full the P2,200,000.00 down payment
upon execution of the contract. However, as
correctly noted by the Court of Appeals, the
transcript of stenographic notes reveal Cortes'
admission that he agreed that the
Corporation's full payment of the sum of
P2,200,000.00 would depend upon his delivery
of the TCTs of the three lots. In fact, his main
defense in the Answer is that, he performed
what is incumbent upon him by delivering to
the Corporation the TCTs and the carbon
duplicate of the Deed of Absolute Sale, but the
latter refused to pay in full the down
payment.11 Pertinent portion of the transcript,
reads:
[Q] Now, why did you deliver these three titles
to the plaintiff despite the fact that it has not
been paid in full the agreed down payment?
A Well, the broker told me that the down
payment will be given if I surrender the titles.
Q Do you mean to say that the plaintiff agreed
to pay in full the down payment of
P2,200,000.00 provided you surrender or
entrust to the plaintiff the titles?
46
A Yes, sir.12
What further confirmed the agreement to
deliver the TCTs is the testimony of Cortes
that the title of the lots will be transferred in the
name of the Corporation upon full payment of
the P2,200,000.00 down payment. Thus –
ATTY. ANTARAN
Q Of course, you have it transferred in the
name of the plaintiff, the title?
A Upon full payment.
xxxx
ATTY. SARTE
Q When you said upon full payment, are you
referring to the agreed down payment of
P2,200,000.00?
A Yes, sir.13
By agreeing to transfer title upon full payment
of P2,200,000.00, Cortes' impliedly agreed to
deliver the TCTs to the Corporation in order to
effect said transfer. Hence, the phrase
"execution of this instrument" 14 as appearing
in the Deed of Absolute Sale, and which event
would give rise to the Corporation's obligation
to pay in full the amount of P2,200,000.00, can
not be construed as referring solely to the
signing of the deed. The meaning of
"execution" in the instant case is not limited to
the signing of a contract but includes as well
the performance or implementation or
accomplishment of the parties'
agreement.15 With the transfer of titles as the
corresponding reciprocal obligation of
payment, Cortes' obligation is not only to affix
his signature in the Deed, but to set into
motion the process that would facilitate the
transfer of title of the lots, i.e., to have the
Deed notarized and to surrender the original
copy thereof to the Corporation together with
the TCTs.
Having established the true agreement of the
parties, the Court must now determine whether
Cortes delivered the TCTs and the original
Deed to the Corporation. The Court of Appeals
found that Cortes never surrendered said
documents to the Corporation. Cortes testified
that he delivered the same to Manny Sanchez,
the son of the broker, and that Manny told him
that her mother, Marcosa Sanchez, delivered
the same to the Corporation.
Q Do you have any proof to show that you
have indeed surrendered these titles to the
plaintiff?
 SALES: FIRST EXAM: FULL TEXT
A Yes, sir.
Q I am showing to you a receipt dated October
29, 1983, what relation has this receipt with
that receipt that you have mentioned?
A That is the receipt of the real estate broker
when she received the titles.
Q On top of the printed name is Manny
Sanchez, there is a signature, do you know
who is that Manny Sanchez?
A That is the son of the broker.
xxxx
Q May we know the full name of the real
estate broker?
A Marcosa Sanchez
xxxx
Q Do you know if the broker or Marcosa
Sanchez indeed delivered the titles to the
plaintiff?
A That is what [s]he told me. She gave them to
the plaintiff.
x x x x.16
ATTY. ANTARAN
Q Are you really sure that the title is in the
hands of the plaintiff?
xxxx
Q It is in the hands of the broker but there is
no showing that it is in the hands of the
plaintiff?
A Yes, sir.
COURT
Q How do you know that it was delivered to
the plaintiff by the son of the broker?
A The broker told me that she delivered the
title to the plaintiff.
ATTY. ANTARAN
Q Did she not show you any receipt that she
delivered to [Mr.] Dragon17 the title without any
receipt?
A I have not seen any receipt.
Q So, therefore, you are not sure whether the
title has been delivered to the plaintiff or not. It
is only upon the allegation of the broker?
A Yes, sir.18
47
However, Marcosa Sanchez's unrebutted
testimony is that, she did not receive the
TCTs. She also denied knowledge of delivery
thereof to her son, Manny, thus:
Q The defendant, Antonio Cortes testified
during the hearing on March 11, 1986 that he
allegedly gave you the title to the property in
question, is it true?
A I did not receive the title.
Q He likewise said that the title was delivered
to your son, do you know about that?
A I do not know anything about that.19
What further strengthened the findings of the
Court of Appeals that Cortes did not surrender
the subject documents was the offer of Cortes'
counsel at the pre-trial to deliver the TCTs and
the Deed of Absolute Sale if the Corporation
will pay the balance of the down payment.
Indeed, if the said documents were already in
the hands of the Corporation, there was no
need for Cortes' counsel to make such offer.
Since Cortes did not perform his obligation to
have the Deed notarized and to surrender the
same together with the TCTs, the trial court
erred in concluding that he performed his part
in the contract of sale and that it is the
Corporation alone that was remiss in the
performance of its obligation. Actually, both
parties were in delay. Considering that their
obligation was reciprocal, performance thereof
must be simultaneous. The mutual inaction of
Cortes and the Corporation therefore gave rise
to a compensation morae or default on the part
of both parties because neither has completed
their part in their reciprocal obligation. 20 Cortes
is yet to deliver the original copy of the
notarized Deed and the TCTs, while the
Corporation is yet to pay in full the agreed
down payment of P2,200,000.00. This mutual
delay of the parties cancels out the effects of
default,21 such that it is as if no one is guilty of
delay.22
We find no merit in Cortes' contention that the
failure of the Corporation to act on the
proposed settlement at the pre-trial must be
construed against the latter. Cortes argued
that with his counsel's offer to surrender the
original Deed and the TCTs, the Corporation
should have consigned the balance of the
down payment. This argument would have
been correct if Cortes actually surrendered the
Deed and the TCTs to the Corporation. With
such delivery, the Corporation would have
been placed in default if it chose not to pay in
full the required down payment. Under Article
 SALES: FIRST EXAM: FULL TEXT
1169 of the Civil Code, from the moment one
of the parties fulfills his obligation, delay by the
other begins. Since Cortes did not perform his
part, the provision of the contract requiring the
Corporation to pay in full the down payment
never acquired obligatory force. Moreover, the
Corporation could not be faulted for not
automatically heeding to the offer of Cortes.
For one, its complaint has a prayer for
damages which it may not want to waive by
agreeing to the offer of Cortes' counsel. For
another, the previous representation of Cortes
that the TCTs were already delivered to the
Corporation when no such delivery was in fact
made, is enough reason for the Corporation to
be more cautious in dealing with him.
The Court of Appeals therefore correctly
ordered the parties to perform their respective
obligation in the contract of sale, i.e., for
Cortes to, among others, deliver the necessary
documents to the Corporation and for the latter
to pay in full, not only the down payment, but
the entire purchase price. And since the
Corporation did not question the Court of
Appeal's decision and even prayed for its
affirmance, its payment should rightfully
consist not only of the amount of P987,000.00,
representing the balance of the P2,200,000.00
down payment, but the total amount of
P2,487,000.00, the remaining balance in the
P3,700,000.00 purchase price.
WHEREFORE, the petition is DENIED and the
June 13, 1996 Decision of the Court of
Appeals in CA-G.R. CV No. 47856,
is AFFIRMED.
SO ORDERED.
G.R. No. L-11827             July 31, 1961
FERNANDO A. GAITE, plaintiff-appellee,
vs.
ISABELO FONACIER, GEORGE
KRAKOWER, LARAP MINES & SMELTING
CO., INC., SEGUNDINA VIVAS, FRNACISCO
DANTE, PACIFICO ESCANDOR and
FERNANDO TY, defendants-appellants.
Alejo Mabanag for plaintiff-appellee.
Simplicio U. Tapia, Antonio Barredo and
Pedro Guevarra for defendants-appellants.
REYES, J.B.L., J.:
This appeal comes to us directly from the
Court of First Instance because the claims
involved aggregate more than P200,000.00.
48
Defendant-appellant Isabelo Fonacier was the
owner and/or holder, either by himself or in a
representative capacity, of 11 iron lode mineral
claims, known as the Dawahan Group,
situated in the municipality of Jose
Panganiban, province of Camarines Norte.
By a "Deed of Assignment" dated September
29, 1952(Exhibit "3"), Fonacier constituted and
appointed plaintiff-appellee Fernando A. Gaite
as his true and lawful attorney-in-fact to enter
into a contract with any individual or juridical
person for the exploration and development of
the mining claims aforementioned on a royalty
basis of not less than P0.50 per ton of ore that
might be extracted therefrom. On March 19,
1954, Gaite in turn executed a general
assignment (Record on Appeal, pp. 17-19)
conveying the development and exploitation of
said mining claims into the Larap Iron Mines, a
single proprietorship owned solely by and
belonging to him, on the same royalty basis
provided for in Exhibit "3". Thereafter, Gaite
embarked upon the development and
exploitation of the mining claims in question,
opening and paving roads within and outside
their boundaries, making other improvements
and installing facilities therein for use in the
development of the mines, and in time
extracted therefrom what he claim and
estimated to be approximately 24,000 metric
tons of iron ore.
For some reason or another, Isabelo Fonacier
decided to revoke the authority granted by him
to Gaite to exploit and develop the mining
claims in question, and Gaite assented thereto
subject to certain conditions. As a result, a
document entitled "Revocation of Power of
Attorney and Contract" was executed on
December 8, 1954 (Exhibit "A"),wherein Gaite
transferred to Fonacier, for the consideration
of P20,000.00, plus 10% of the royalties that
Fonacier would receive from the mining
claims, all his rights and interests on all the
roads, improvements, and facilities in or
outside said claims, the right to use the
business name "Larap Iron Mines" and its
goodwill, and all the records and documents
relative to the mines. In the same document,
Gaite transferred to Fonacier all his rights and
interests over the "24,000 tons of iron ore,
more or less" that the former had already
extracted from the mineral claims, in
consideration of the sum of P75,000.00,
P10,000.00 of which was paid upon the
signing of the agreement, and
b. The balance of SIXTY-FIVE THOUSAND
PESOS (P65,000.00) will be paid from and out
of the first letter of credit covering the first
 SALES: FIRST EXAM: FULL TEXT
shipment of iron ores and of the first amount
derived from the local sale of iron ore made by
the Larap Mines & Smelting Co. Inc., its
assigns, administrators, or successors in
interests.
To secure the payment of the said balance of
P65,000.00, Fonacier promised to execute in
favor of Gaite a surety bond, and pursuant to
the promise, Fonacier delivered to Gaite a
surety bond dated December 8, 1954 with
himself (Fonacier) as principal and the Larap
Mines and Smelting Co. and its stockholders
George Krakower, Segundina Vivas, Pacifico
Escandor, Francisco Dante, and Fernando Ty
as sureties (Exhibit "A-1"). Gaite testified,
however, that when this bond was presented
to him by Fonacier together with the
"Revocation of Power of Attorney and
Contract", Exhibit "A", on December 8, 1954,
he refused to sign said Exhibit "A" unless
another bond under written by a bonding
company was put up by defendants to secure
the payment of the P65,000.00 balance of their
price of the iron ore in the stockpiles in the
mining claims. Hence, a second bond, also
dated December 8, 1954 (Exhibit "B"),was
executed by the same parties to the first bond
Exhibit "A-1", with the Far Eastern Surety and
Insurance Co. as additional surety, but it
provided that the liability of the surety
company would attach only when there had
been an actual sale of iron ore by the Larap
Mines & Smelting Co. for an amount of not
less then P65,000.00, and that, furthermore,
the liability of said surety company would
automatically expire on December 8, 1955.
Both bonds were attached to the "Revocation
of Power of Attorney and Contract", Exhibit
"A", and made integral parts thereof.
On the same day that Fonacier revoked the
power of attorney he gave to Gaite and the two
executed and signed the "Revocation of Power
of Attorney and Contract", Exhibit "A",
Fonacier entered into a "Contract of Mining
Operation", ceding, transferring, and
conveying unto the Larap Mines and Smelting
Co., Inc. the right to develop, exploit, and
explore the mining claims in question, together
with the improvements therein and the use of
the name "Larap Iron Mines" and its good will,
in consideration of certain royalties. Fonacier
likewise transferred, in the same document,
the complete title to the approximately 24,000
tons of iron ore which he acquired from Gaite,
to the Larap & Smelting Co., in consideration
for the signing by the company and its
stockholders of the surety bonds delivered by
Fonacier to Gaite (Record on Appeal, pp. 82-
94).
49
Up to December 8, 1955, when the bond
Exhibit "B" expired with respect to the Far
Eastern Surety and Insurance Company, no
sale of the approximately 24,000 tons of iron
ore had been made by the Larap Mines &
Smelting Co., Inc., nor had the P65,000.00
balance of the price of said ore been paid to
Gaite by Fonacier and his sureties payment of
said amount, on the theory that they had lost
right to make use of the period given them
when their bond, Exhibit "B" automatically
expired (Exhibits "C" to "C-24"). And when
Fonacier and his sureties failed to pay as
demanded by Gaite, the latter filed the present
complaint against them in the Court of First
Instance of Manila (Civil Case No. 29310) for
the payment of the P65,000.00 balance of the
price of the ore, consequential damages, and
attorney's fees.
All the defendants except Francisco Dante set
up the uniform defense that the obligation
sued upon by Gaite was subject to a condition
that the amount of P65,000.00 would be
payable out of the first letter of credit covering
the first shipment of iron ore and/or the first
amount derived from the local sale of the iron
ore by the Larap Mines & Smelting Co., Inc.;
that up to the time of the filing of the complaint,
no sale of the iron ore had been made, hence
the condition had not yet been fulfilled; and
that consequently, the obligation was not yet
due and demandable. Defendant Fonacier
also contended that only 7,573 tons of the
estimated 24,000 tons of iron ore sold to him
by Gaite was actually delivered, and
counterclaimed for more than P200,000.00
damages.
At the trial of the case, the parties agreed to
limit the presentation of evidence to two
issues:
(1) Whether or not the obligation of Fonacier
and his sureties to pay Gaite P65,000.00
become due and demandable when the
defendants failed to renew the surety bond
underwritten by the Far Eastern Surety and
Insurance Co., Inc. (Exhibit "B"), which expired
on December 8, 1955; and
(2) Whether the estimated 24,000 tons of iron
ore sold by plaintiff Gaite to defendant
Fonacier were actually in existence in the
mining claims when these parties executed the
"Revocation of Power of Attorney and
Contract", Exhibit "A."
On the first question, the lower court held that
the obligation of the defendants to pay plaintiff
the P65,000.00 balance of the price of the
approximately 24,000 tons of iron ore was one
 SALES: FIRST EXAM: FULL TEXT
with a term: i.e., that it would be paid upon the
sale of sufficient iron ore by defendants, such
sale to be effected within one year or before
December 8, 1955; that the giving of security
was a condition precedent to Gait's giving of
credit to defendants; and that as the latter
failed to put up a good and sufficient security
in lieu of the Far Eastern Surety bond (Exhibit
"B") which expired on December 8, 1955, the
obligation became due and demandable under
Article 1198 of the New Civil Code.
As to the second question, the lower court
found that plaintiff Gaite did have
approximately 24,000 tons of iron ore at the
mining claims in question at the time of the
execution of the contract Exhibit "A."
Judgment was, accordingly, rendered in favor
of plaintiff Gaite ordering defendants to pay
him, jointly and severally, P65,000.00 with
interest at 6% per annum from December 9,
1955 until payment, plus costs. From this
judgment, defendants jointly appealed to this
Court.
During the pendency of this appeal, several
incidental motions were presented for
resolution: a motion to declare the appellants
Larap Mines & Smelting Co., Inc. and George
Krakower in contempt, filed by appellant
Fonacier, and two motions to dismiss the
appeal as having become academic and a
motion for new trial and/or to take judicial
notice of certain documents, filed by appellee
Gaite. The motion for contempt is
unmeritorious because the main allegation
therein that the appellants Larap Mines &
Smelting Co., Inc. and Krakower had sold the
iron ore here in question, which allegedly is
"property in litigation", has not been
substantiated; and even if true, does not make
these appellants guilty of contempt, because
what is under litigation in this appeal is
appellee Gaite's right to the payment of the
balance of the price of the ore, and not the iron
ore itself. As for the several motions presented
by appellee Gaite, it is unnecessary to resolve
these motions in view of the results that we
have reached in this case, which we shall
hereafter discuss.
The main issues presented by appellants in
this appeal are:
(1) that the lower court erred in holding that the
obligation of appellant Fonacier to pay
appellee Gaite the P65,000.00 (balance of the
price of the iron ore in question)is one with a
period or term and not one with a suspensive
condition, and that the term expired on
December 8, 1955; and
50
(2) that the lower court erred in not holding that
there were only 10,954.5 tons in the stockpiles
of iron ore sold by appellee Gaite to appellant
Fonacier.
The first issue involves an interpretation of the
following provision in the contract Exhibit "A":
7. That Fernando Gaite or Larap Iron Mines
hereby transfers to Isabelo F. Fonacier all his
rights and interests over the 24,000 tons of
iron ore, more or less, above-referred to
together with all his rights and interests to
operate the mine in consideration of the sum
of SEVENTY-FIVE THOUSAND PESOS
(P75,000.00) which the latter binds to pay as
follows:
a. TEN THOUSAND PESOS (P10,000.00) will
be paid upon the signing of this agreement.
b. The balance of SIXTY-FIVE THOUSAND
PESOS (P65,000.00)will be paid from and out
of the first letter of credit covering the first
shipment of iron ore made by the Larap Mines
& Smelting Co., Inc., its assigns,
administrators, or successors in interest.
We find the court below to be legally correct in
holding that the shipment or local sale of the
iron ore is not a condition precedent (or
suspensive) to the payment of the balance of
P65,000.00, but was only a suspensive period
or term. What characterizes a conditional
obligation is the fact that its efficacy or
obligatory force (as distinguished from its
demandability) is subordinated to the
happening of a future and uncertain event; so
that if the suspensive condition does not take
place, the parties would stand as if the
conditional obligation had never existed. That
the parties to the contract Exhibit "A" did not
intend any such state of things to prevail is
supported by several circumstances:
1) The words of the contract express no
contingency in the buyer's obligation to pay:
"The balance of Sixty-Five Thousand Pesos
(P65,000.00) will be paid out of the first letter
of credit covering the first shipment of iron ores
. . ." etc. There is no uncertainty that the
payment will have to be made sooner or later;
what is undetermined is merely the exact
date at which it will be made. By the very
terms of the contract, therefore, the existence
of the obligation to pay is recognized; only
its maturity or demandability is deferred.
2) A contract of sale is normally commutative
and onerous: not only does each one of the
parties assume a correlative obligation (the
seller to deliver and transfer ownership of the
 SALES: FIRST EXAM: FULL TEXT
thing sold and the buyer to pay the price),but
each party anticipates performance by the
other from the very start. While in a sale the
obligation of one party can be lawfully
subordinated to an uncertain event, so that the
other understands that he assumes the risk of
receiving nothing for what he gives (as in the
case of a sale of hopes or
expectations, emptio spei), it is not in the usual
course of business to do so; hence, the
contingent character of the obligation must
clearly appear. Nothing is found in the record
to evidence that Gaite desired or assumed to
run the risk of losing his right over the ore
without getting paid for it, or that Fonacier
understood that Gaite assumed any such risk.
This is proved by the fact that Gaite insisted on
a bond a to guarantee payment of the
P65,000.00, an not only upon a bond by
Fonacier, the Larap Mines & Smelting Co., and
the company's stockholders, but also on one
by a surety company; and the fact that
appellants did put up such bonds indicates that
they admitted the definite existence of their
obligation to pay the balance of P65,000.00.
3) To subordinate the obligation to pay the
remaining P65,000.00 to the sale or shipment
of the ore as a condition precedent, would be
tantamount to leaving the payment at the
discretion of the debtor, for the sale or
shipment could not be made unless the
appellants took steps to sell the ore.
Appellants would thus be able to postpone
payment indefinitely. The desireability of
avoiding such a construction of the contract
Exhibit "A" needs no stressing.
4) Assuming that there could be doubt whether
by the wording of the contract the parties
indented a suspensive condition or a
suspensive period (dies ad quem) for the
payment of the P65,000.00, the rules of
interpretation would incline the scales in favor
of "the greater reciprocity of interests", since
sale is essentially onerous. The Civil Code of
the Philippines, Article 1378, paragraph 1, in
fine, provides:
If the contract is onerous, the doubt shall be
settled in favor of the greatest reciprocity of
interests.
and there can be no question that greater
reciprocity obtains if the buyer' obligation is
deemed to be actually existing, with only its
maturity (due date) postponed or deferred, that
if such obligation were viewed as non-existent
or not binding until the ore was sold.
The only rational view that can be taken is that
the sale of the ore to Fonacier was a sale on
51
credit, and not an aleatory contract where the
transferor, Gaite, would assume the risk of not
being paid at all; and that the previous sale or
shipment of the ore was not a suspensive
condition for the payment of the balance of the
agreed price, but was intended merely to fix
the future date of the payment.
This issue settled, the next point of inquiry is
whether appellants, Fonacier and his sureties,
still have the right to insist that Gaite should
wait for the sale or shipment of the ore before
receiving payment; or, in other words, whether
or not they are entitled to take full advantage
of the period granted them for making the
payment.
We agree with the court below that the
appellant have forfeited the right court below
that the appellants have forfeited the right to
compel Gaite to wait for the sale of the ore
before receiving payment of the balance of
P65,000.00, because of their failure to renew
the bond of the Far Eastern Surety Company
or else replace it with an equivalent guarantee.
The expiration of the bonding company's
undertaking on December 8, 1955
substantially reduced the security of the
vendor's rights as creditor for the unpaid
P65,000.00, a security that Gaite considered
essential and upon which he had insisted
when he executed the deed of sale of the ore
to Fonacier (Exhibit "A"). The case squarely
comes under paragraphs 2 and 3 of Article
1198 of the Civil Code of the Philippines:
"ART. 1198. The debtor shall lose every right
to make use of the period:
(1) . . .
(2) When he does not furnish to the creditor
the guaranties or securities which he has
promised.
(3) When by his own acts he has impaired said
guaranties or securities after their
establishment, and when through fortuitous
event they disappear, unless he immediately
gives new ones equally satisfactory.
Appellants' failure to renew or extend the
surety company's bond upon its expiration
plainly impaired the securities given to the
creditor (appellee Gaite), unless immediately
renewed or replaced.
There is no merit in appellants' argument that
Gaite's acceptance of the surety company's
bond with full knowledge that on its face it
would automatically expire within one year was
a waiver of its renewal after the expiration
date. No such waiver could have been
 SALES: FIRST EXAM: FULL TEXT
intended, for Gaite stood to lose and had
nothing to gain barely; and if there was any, it
could be rationally explained only if the
appellants had agreed to sell the ore and pay
Gaite before the surety company's bond
expired on December 8, 1955. But in the latter
case the defendants-appellants' obligation to
pay became absolute after one year from the
transfer of the ore to Fonacier by virtue of the
deed Exhibit "A.".
All the alternatives, therefore, lead to the same
result: that Gaite acted within his rights in
demanding payment and instituting this action
one year from and after the contract (Exhibit
"A") was executed, either because the
appellant debtors had impaired the securities
originally given and thereby forfeited any
further time within which to pay; or because
the term of payment was originally of no more
than one year, and the balance of P65,000.00
became due and payable thereafter.
Coming now to the second issue in this
appeal, which is whether there were really
24,000 tons of iron ore in the stockpiles sold
by appellee Gaite to appellant Fonacier, and
whether, if there had been a short-delivery as
claimed by appellants, they are entitled to the
payment of damages, we must, at the outset,
stress two things: first, that this is a case of a
sale of a specific mass of fungible goods for a
single price or a lump sum, the quantity of
"24,000 tons of iron ore, more or less," stated
in the contract Exhibit "A," being a mere
estimate by the parties of the total tonnage
weight of the mass; and second, that the
evidence shows that neither of the parties had
actually measured of weighed the mass, so
that they both tried to arrive at the total
quantity by making an estimate of the volume
thereof in cubic meters and then multiplying it
by the estimated weight per ton of each cubic
meter.
The sale between the parties is a sale of a
specific mass or iron ore because no provision
was made in their contract for the measuring
or weighing of the ore sold in order to
complete or perfect the sale, nor was the price
of P75,000,00 agreed upon by the parties
based upon any such measurement.(see Art.
1480, second par., New Civil Code). The
subject matter of the sale is, therefore, a
determinate object, the mass, and not the
actual number of units or tons contained
therein, so that all that was required of the
seller Gaite was to deliver in good faith to his
buyer all of the ore found in the mass,
notwithstanding that the quantity delivered is
less than the amount estimated by them
52
(Mobile Machinery & Supply Co., Inc. vs. York
Oilfield Salvage Co., Inc. 171 So. 872,
applying art. 2459 of the Louisiana Civil Code).
There is no charge in this case that Gaite did
not deliver to appellants all the ore found in the
stockpiles in the mining claims in questions;
Gaite had, therefore, complied with his
promise to deliver, and appellants in turn are
bound to pay the lump price.
But assuming that plaintiff Gaite undertook to
sell and appellants undertook to buy, not a
definite mass, but approximately 24,000 tons
of ore, so that any substantial difference in this
quantity delivered would entitle the buyers to
recover damages for the short-delivery, was
there really a short-delivery in this case?
We think not. As already stated, neither of the
parties had actually measured or weighed the
whole mass of ore cubic meter by cubic meter,
or ton by ton. Both parties predicate their
respective claims only upon an estimated
number of cubic meters of ore multiplied by the
average tonnage factor per cubic meter.
Now, appellee Gaite asserts that there was a
total of 7,375 cubic meters in the stockpiles of
ore that he sold to Fonacier, while appellants
contend that by actual measurement, their
witness Cirpriano Manlañgit found the total
volume of ore in the stockpiles to be only
6.609 cubic meters. As to the average weight
in tons per cubic meter, the parties are again
in disagreement, with appellants claiming the
correct tonnage factor to be 2.18 tons to a
cubic meter, while appellee Gaite claims that
the correct tonnage factor is about 3.7.
In the face of the conflict of evidence, we take
as the most reliable estimate of the tonnage
factor of iron ore in this case to be that made
by Leopoldo F. Abad, chief of the Mines and
Metallurgical Division of the Bureau of Mines,
a government pensionado to the States and a
mining engineering graduate of the
Universities of Nevada and California, with
almost 22 years of experience in the Bureau of
Mines. This witness placed the tonnage factor
of every cubic meter of iron ore at between 3
metric tons as minimum to 5 metric tons as
maximum. This estimate, in turn, closely
corresponds to the average tonnage factor of
3.3 adopted in his corrected report (Exhibits
"FF" and FF-1") by engineer Nemesio
Gamatero, who was sent by the Bureau of
Mines to the mining claims involved at the
request of appellant Krakower, precisely to
make an official estimate of the amount of iron
ore in Gaite's stockpiles after the dispute
arose.
 SALES: FIRST EXAM: FULL TEXT
Even granting, then, that the estimate of 6,609
cubic meters of ore in the stockpiles made by
appellant's witness Cipriano Manlañgit is
correct, if we multiply it by the average
tonnage factor of 3.3 tons to a cubic meter, the
product is 21,809.7 tons, which is not very far
from the estimate of 24,000 tons made by
appellee Gaite, considering that actual
weighing of each unit of the mass was
practically impossible, so that a reasonable
percentage of error should be allowed anyone
making an estimate of the exact quantity in
tons found in the mass. It must not be
forgotten that the contract Exhibit "A"
expressly stated the amount to be 24,000
tons, more or less. (ch. Pine River Logging &
Improvement Co. vs U.S., 279, 46 L. Ed.
1164).
There was, consequently, no short-delivery in
this case as would entitle appellants to the
payment of damages, nor could Gaite have
been guilty of any fraud in making any
misrepresentation to appellants as to the total
quantity of ore in the stockpiles of the mining
claims in question, as charged by appellants,
since Gaite's estimate appears to be
substantially correct.
WHEREFORE, finding no error in the decision
appealed from, we hereby affirm the same,
with costs against appellants.
G.R. No. 126376               November 20,
2003
SPOUSES BERNARDO BUENAVENTURA
and CONSOLACION JOAQUIN, SPOUSES
JUANITO EDRA and NORA JOAQUIN,
53
SPOUSES RUFINO VALDOZ and EMMA
JOAQUIN, and NATIVIDAD
JOAQUIN, petitioners,
vs.
COURT OF APPEALS, SPOUSES
LEONARDO JOAQUIN and FELICIANA
LANDRITO, SPOUSES FIDEL JOAQUIN and
CONCHITA BERNARDO, SPOUSES TOMAS
JOAQUIN and SOLEDAD ALCORAN,
SPOUSES ARTEMIO JOAQUIN and
SOCORRO ANGELES, SPOUSES
ALEXANDER MENDOZA and CLARITA
JOAQUIN, SPOUSES TELESFORO
CARREON and FELICITAS JOAQUIN,
SPOUSES DANILO VALDOZ and FE
JOAQUIN, and SPOUSES GAVINO
JOAQUIN and LEA ASIS, respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari 1 to
annul the Decision2 dated 26 June 1996 of the
Court of Appeals in CA-G.R. CV No. 41996.
The Court of Appeals affirmed the
Decision3 dated 18 February 1993 rendered by
Branch 65 of the Regional Trial Court of
Makati ("trial court") in Civil Case No. 89-5174.
The trial court dismissed the case after it found
that the parties executed the Deeds of Sale for
valid consideration and that the plaintiffs did
not have a cause of action against the
defendants.
The Facts
The Court of Appeals summarized the facts of
the case as follows:
Defendant spouses Leonardo Joaquin and
Feliciana Landrito are the parents of plaintiffs
Consolacion, Nora, Emma and Natividad as
well as of defendants Fidel, Tomas, Artemio,
Clarita, Felicitas, Fe, and Gavino, all surnamed
JOAQUIN. The married Joaquin children are
joined in this action by their respective
spouses.
Sought to be declared null and void ab
initio are certain deeds of sale of real property
executed by defendant parents Leonardo
Joaquin and Feliciana Landrito in favor of their
co-defendant children and the corresponding
certificates of title issued in their names, to wit:
1. Deed of Absolute Sale covering Lot 168-C-7
of subdivision plan (LRC) Psd-256395
executed on 11 July 1978, in favor of
defendant Felicitas Joaquin, for a
consideration of ₱6,000.00 (Exh. "C"),
 SALES: FIRST EXAM: FULL TEXT
pursuant to which TCT No. [36113/T-172] was
issued in her name (Exh. "C-1");
2. Deed of Absolute Sale covering Lot 168-I-3
of subdivision plan (LRC) Psd-256394
executed on 7 June 1979, in favor of
defendant Clarita Joaquin, for a consideration
of ₱1[2],000.00 (Exh. "D"), pursuant to which
TCT No. S-109772 was issued in her name
(Exh. "D-1");
3 Deed of Absolute Sale covering Lot 168-I-1
of subdivision plan (LRC) Psd-256394
executed on 12 May 1988, in favor of
defendant spouses Fidel Joaquin and
Conchita Bernardo, for a consideration of ₱54,
[3]00.00 (Exh. "E"), pursuant to which TCT No.
155329 was issued to them (Exh. "E-1");
4. Deed of Absolute Sale covering Lot 168-I-2
of subdivision plan (LRC) Psd-256394
executed on 12 May 1988, in favor of
defendant spouses Artemio Joaquin and
Socorro Angeles, for a consideration of
₱[54,3]00.00 (Exh. "F"), pursuant to which
TCT No. 155330 was issued to them (Exh. "F-
1"); and
5. Absolute Sale of Real Property covering Lot
168-C-4 of subdivision plan (LRC) Psd-256395
executed on 9 September 1988, in favor of
Tomas Joaquin, for a consideration of
₱20,000.00 (Exh. "G"), pursuant to which TCT
No. 157203 was issued in her name (Exh. "G-
1").
6. Deed of Absolute Sale covering Lot 168-C-1
of subdivision plan (LRC) Psd-256395
executed on 7 October 1988, in favor of
Gavino Joaquin, for a consideration of
₱25,000.00 (Exh. "K"), pursuant to which TCT
No. 157779 was issued in his name (Exh. "K-
1").]
In seeking the declaration of nullity of the
aforesaid deeds of sale and certificates of title,
plaintiffs, in their complaint, aver:
- XX-
The deeds of sale, Annexes "C," "D," "E," "F,"
and "G," [and "K"] are simulated as they are,
are NULL AND VOID AB INITIO because –
a) Firstly, there was no actual valid
consideration for the deeds of sale xxx over
the properties in litis;
b) Secondly, assuming that there was
consideration in the sums reflected in the
questioned deeds, the properties are more
than three-fold times more valuable than the
measly sums appearing therein;
54
c) Thirdly, the deeds of sale do not reflect and
express the true intent of the parties (vendors
and vendees); and
d) Fourthly, the purported sale of the
properties in litis was the result of a deliberate
conspiracy designed to unjustly deprive the
rest of the compulsory heirs (plaintiffs herein)
of their legitime.
- XXI -
Necessarily, and as an inevitable
consequence, Transfer Certificates of Title
Nos. 36113/T-172, S-109772, 155329,
155330, 157203 [and 157779] issued by the
Registrar of Deeds over the properties
in litis xxx are NULL AND VOID AB INITIO.
Defendants, on the other hand aver (1) that
plaintiffs do not have a cause of action against
them as well as the requisite standing and
interest to assail their titles over the properties
in litis; (2) that the sales were with sufficient
considerations and made by defendants
parents voluntarily, in good faith, and with full
knowledge of the consequences of their deeds
of sale; and (3) that the certificates of title were
issued with sufficient factual and legal
basis.4 (Emphasis in the original)
The Ruling of the Trial Court
Before the trial, the trial court ordered the
dismissal of the case against defendant
spouses Gavino Joaquin and Lea
Asis.5 Instead of filing an Answer with their co-
defendants, Gavino Joaquin and Lea Asis filed
a Motion to Dismiss.6 In granting the dismissal
to Gavino Joaquin and Lea Asis, the trial court
noted that "compulsory heirs have the right to
a legitime but such right is contingent since
said right commences only from the moment of
death of the decedent pursuant to Article 777
of the Civil Code of the Philippines."7
After trial, the trial court ruled in favor of the
defendants and dismissed the complaint. The
trial court stated:
In the first place, the testimony of the
defendants, particularly that of the xxx father
will show that the Deeds of Sale were all
executed for valuable consideration. This
assertion must prevail over the negative
allegation of plaintiffs.
And then there is the argument that plaintiffs
do not have a valid cause of action against
defendants since there can be no legitime to
speak of prior to the death of their parents.
The court finds this contention tenable. In
determining the legitime, the value of the
 SALES: FIRST EXAM: FULL TEXT
property left at the death of the testator shall
be considered (Art. 908 of the New Civil
Code). Hence, the legitime of a compulsory
heir is computed as of the time of the death of
the decedent. Plaintiffs therefore cannot claim
an impairment of their legitime while their
parents live.
All the foregoing considered, this case is
DISMISSED.
In order to preserve whatever is left of the ties
that should bind families together, the
counterclaim is likewise DISMISSED.
No costs.
SO ORDERED.8
The Ruling of the Court of Appeals
The Court of Appeals affirmed the decision of
the trial court.1âwphi1 The appellate court
ruled:
To the mind of the Court, appellants are
skirting the real and decisive issue in this case,
which is, whether xxx they have a cause of
action against appellees.
Upon this point, there is no question that
plaintiffs-appellants, like their defendant
brothers and sisters, are compulsory heirs of
defendant spouses, Leonardo Joaquin and
Feliciana Landrito, who are their parents.
However, their right to the properties of their
defendant parents, as compulsory heirs, is
merely inchoate and vests only upon the
latter’s death. While still alive, defendant
parents are free to dispose of their properties,
provided that such dispositions are not made
in fraud of creditors.
Plaintiffs-appellants are definitely not parties to
the deeds of sale in question. Neither do they
claim to be creditors of their defendant
parents. Consequently, they cannot be
considered as real parties in interest to assail
the validity of said deeds either for gross
inadequacy or lack of consideration or for
failure to express the true intent of the parties.
In point is the ruling of the Supreme Court in
Velarde, et al. vs. Paez, et al., 101 SCRA 376,
thus:
The plaintiffs are not parties to the alleged
deed of sale and are not principally or
subsidiarily bound thereby; hence, they have
no legal capacity to challenge their validity.
Plaintiffs-appellants anchor their action on the
supposed impairment of their legitime by the
dispositions made by their defendant parents
in favor of their defendant brothers and sisters.
55
But, as correctly held by the court a quo, "the
legitime of a compulsory heir is computed as
of the time of the death of the decedent.
Plaintiffs therefore cannot claim an impairment
of their legitime while their parents live."
With this posture taken by the Court,
consideration of the errors assigned by
plaintiffs-appellants is inconsequential.
WHEREFORE, the decision appealed from is
hereby AFFIRMED, with costs against
plaintiffs-appellants.
SO ORDERED.9
Hence, the instant petition.
Issues
Petitioners assign the following as errors of the
Court of Appeals:
1. THE COURT OF APPEALS ERRED IN
NOT HOLDING THAT THE CONVEYANCE IN
QUESTION HAD NO VALID
CONSIDERATION.
2. THE COURT OF APPEALS ERRED IN
NOT HOLDING THAT EVEN ASSUMING
THAT THERE WAS A CONSIDERATION,
THE SAME IS GROSSLY INADEQUATE.
3. THE COURT OF APPEALS ERRED IN
NOT HOLDING THAT THE DEEDS OF SALE
DO NOT EXPRESS THE TRUE INTENT OF
THE PARTIES.
4. THE COURT OF APPEALS ERRED IN
NOT HOLDING THAT THE CONVEYANCE
WAS PART AND PARCEL OF A
CONSPIRACY AIMED AT UNJUSTLY
DEPRIVING THE REST OF THE CHILDREN
OF THE SPOUSES LEONARDO JOAQUIN
AND FELICIANA LANDRITO OF THEIR
INTEREST OVER THE SUBJECT
PROPERTIES.
5. THE COURT OF APPEALS ERRED IN
NOT HOLDING THAT PETITIONERS HAVE A
GOOD, SUFFICIENT AND VALID CAUSE OF
ACTION AGAINST THE PRIVATE
RESPONDENTS.10
The Ruling of the Court
We find the petition without merit.
We will discuss petitioners’ legal interest over
the properties subject of the Deeds of Sale
before discussing the issues on the purported
lack of consideration and gross inadequacy of
the prices of the Deeds of Sale.
 SALES: FIRST EXAM: FULL TEXT
Whether Petitioners have a legal interest over
the properties subject of the Deeds of Sale
Petitioners’ Complaint betrays their motive for
filing this case. In their Complaint, petitioners
asserted that the "purported sale of the
properties in litis was the result of a deliberate
conspiracy designed to unjustly deprive the
rest of the compulsory heirs (plaintiffs herein)
of their legitime." Petitioners’ strategy was to
have the Deeds of Sale declared void so that
ownership of the lots would eventually revert to
their respondent parents. If their parents die
still owning the lots, petitioners and their
respondent siblings will then co-own their
parents’ estate by hereditary succession.11
It is evident from the records that petitioners
are interested in the properties subject of the
Deeds of Sale, but they have failed to show
any legal right to the properties. The trial and
appellate courts should have dismissed the
action for this reason alone. An action must be
prosecuted in the name of the real party-in-
interest.12
[T]he question as to "real party-in-interest" is
whether he is "the party who would be
benefitted or injured by the judgment, or the
‘party entitled to the avails of the suit.’"
xxx
In actions for the annulment of contracts, such
as this action, the real parties are those who
are parties to the agreement or are bound
either principally or subsidiarily or are
prejudiced in their rights with respect to one of
the contracting parties and can show the
detriment which would positively result to them
from the contract even though they did not
intervene in it (Ibañez v. Hongkong &
Shanghai Bank, 22 Phil. 572 [1912]) xxx.
These are parties with "a present substantial
interest, as distinguished from a mere
expectancy or future, contingent, subordinate,
or consequential interest…. The phrase
‘present substantial interest’ more concretely is
meant such interest of a party in the subject
matter of the action as will entitle him, under
the substantive law, to recover if the evidence
is sufficient, or that he has the legal title to
demand and the defendant will be protected in
a payment to or recovery by him."13
Petitioners do not have any legal interest over
the properties subject of the Deeds of Sale. As
the appellate court stated, petitioners’ right to
their parents’ properties is merely inchoate and
vests only upon their parents’ death. While still
living, the parents of petitioners are free to
56
dispose of their properties. In their
overzealousness to safeguard their future
legitime, petitioners forget that theoretically,
the sale of the lots to their siblings does not
affect the value of their parents’ estate. While
the sale of the lots reduced the estate, cash of
equivalent value replaced the lots taken from
the estate.
Whether the Deeds of Sale are void for lack of
consideration
Petitioners assert that their respondent siblings
did not actually pay the prices stated in the
Deeds of Sale to their respondent father. Thus,
petitioners ask the court to declare the Deeds
of Sale void.
A contract of sale is not a real contract, but a
consensual contract. As a consensual
contract, a contract of sale becomes a binding
and valid contract upon the meeting of the
minds as to price. If there is a meeting of the
minds of the parties as to the price, the
contract of sale is valid, despite the manner of
payment, or even the breach of that manner of
payment. If the real price is not stated in the
contract, then the contract of sale is valid but
subject to reformation. If there is no meeting of
the minds of the parties as to the price,
because the price stipulated in the contract is
simulated, then the contract is void. 14 Article
1471 of the Civil Code states that if the price in
a contract of sale is simulated, the sale is void.
It is not the act of payment of price that
determines the validity of a contract of sale.
Payment of the price has nothing to do with
the perfection of the contract. Payment of the
price goes into the performance of the
contract. Failure to pay the consideration is
different from lack of consideration. The former
results in a right to demand the fulfillment or
cancellation of the obligation under an existing
valid contract while the latter prevents the
existence of a valid contract.15
Petitioners failed to show that the prices in the
Deeds of Sale were absolutely simulated. To
prove simulation, petitioners presented Emma
Joaquin Valdoz’s testimony stating that their
father, respondent Leonardo Joaquin, told her
that he would transfer a lot to her through a
deed of sale without need for her payment of
the purchase price.16 The trial court did not find
the allegation of absolute simulation of price
credible. Petitioners’ failure to prove absolute
simulation of price is magnified by their lack of
knowledge of their respondent siblings’
financial capacity to buy the questioned
lots.17 On the other hand, the Deeds of Sale
which petitioners presented as evidence
 SALES: FIRST EXAM: FULL TEXT

plainly showed the cost of each lot sold. Not
only did respondents’ minds meet as to the
purchase price, but the real price was also
stated in the Deeds of Sale. As of the filing of
the complaint, respondent siblings have also
fully paid the price to their respondent father.18
Whether the Deeds of Sale are void for gross
inadequacy of price
Petitioners ask that assuming that there is
consideration, the same is grossly inadequate
as to invalidate the Deeds of Sale.
Articles 1355 of the Civil Code states:
greater weight when they coincide with the
factual findings of the trial court. This Court will
not weigh the evidence all over again unless
there has been a showing that the findings of
the lower court are totally devoid of support or
are clearly erroneous so as to constitute
serious abuse of discretion.20 In the instant
case, the trial court found that the lots were
sold for a valid consideration, and that the
defendant children actually paid the purchase
price stipulated in their respective Deeds of
Sale. Actual payment of the purchase price by
the buyer to the seller is a factual finding that
is now conclusive upon us.

Art. 1355. Except in cases specified by law, WHEREFORE, we AFFIRM the decision of the
lesion or inadequacy of cause shall not Court of Appeals in toto.
invalidate a contract, unless there has been
fraud, mistake or undue influence. (Emphasis SO ORDERED.
supplied)
Article 1470 of the Civil Code further provides:
Art. 1470. Gross inadequacy of price does not
affect a contract of sale, except as may
indicate a defect in the consent, or that the
parties really intended a donation or some
other act or contract. (Emphasis supplied)
Petitioners failed to prove any of the instances
mentioned in Articles 1355 and 1470 of the
Civil Code which would invalidate, or even
affect, the Deeds of Sale. Indeed, there is no
requirement that the price be equal to the
exact value of the subject matter of sale. All
the respondents believed that they received
the commutative value of what they gave. As
we stated in Vales v. Villa:19
Courts cannot follow one every step of his life
and extricate him from bad bargains, protect
him from unwise investments, relieve him from
one-sided contracts, or annul the effects of
foolish acts. Courts cannot constitute
themselves guardians of persons who are not
legally incompetent. Courts operate not
because one person has been defeated or
overcome by another, but because he has
been defeated or overcome illegally. Men may
do foolish things, make ridiculous contracts,
use miserable judgment, and lose money by
them – indeed, all they have in the world; but
not for that alone can the law intervene and
restore. There must be, in addition, a violation
of the law, the commission of what the law
knows as an actionable wrong, before the
courts are authorized to lay hold of the
situation and remedy it. (Emphasis in the
original)
Moreover, the factual findings of the appellate
court are conclusive on the parties and carry

57
 SALES: FIRST EXAM: FULL TEXT
G.R. No. 124242             January 21, 2005
SAN LORENZO DEVELOPMENT
CORPORATION, petitioner,
vs.
COURT OF APPEALS, PABLO S.
BABASANTA, SPS. MIGUEL LU and
PACITA ZAVALLA LU, respondents.
DECISION
TINGA, J.:
From a coaptation of the records of this case,
it appears that respondents Miguel Lu and
Pacita Zavalla, (hereinafter, the Spouses Lu)
owned two (2) parcels of land situated in Sta.
Rosa, Laguna covered by TCT No. T-39022
and TCT No. T-39023 both measuring 15,808
square meters or a total of 3.1616 hectares.
On 20 August 1986, the Spouses Lu
purportedly sold the two parcels of land to
respondent Pablo Babasanta, (hereinafter,
Babasanta) for the price of fifteen pesos
(₱15.00) per square meter. Babasanta made a
downpayment of fifty thousand pesos
(₱50,000.00) as evidenced by a memorandum
receipt issued by Pacita Lu of the same date.
Several other payments totaling two hundred
thousand pesos (₱200,000.00) were made by
Babasanta.
Sometime in May 1989, Babasanta wrote a
letter to Pacita Lu to demand the execution of
a final deed of sale in his favor so that he
could effect full payment of the purchase price.
In the same letter, Babasanta notified the
spouses about having received information
that the spouses sold the same property to
another without his knowledge and consent.
He demanded that the second sale be
cancelled and that a final deed of sale be
issued in his favor.
In response, Pacita Lu wrote a letter to
Babasanta wherein she acknowledged having
agreed to sell the property to him at fifteen
pesos (₱15.00) per square meter. She,
however, reminded Babasanta that when the
balance of the purchase price became due, he
requested for a reduction of the price and
when she refused, Babasanta backed out of
the sale. Pacita added that she returned the
sum of fifty thousand pesos (₱50,000.00) to
Babasanta through Eugenio Oya.
On 2 June 1989, respondent Babasanta, as
plaintiff, filed before the Regional Trial Court
58
(RTC), Branch 31, of San Pedro, Laguna,
a Complaint for Specific Performance and
Damages1 against his co-respondents herein,
the Spouses Lu. Babasanta alleged that the
lands covered by TCT No. T- 39022 and T-
39023 had been sold to him by the spouses at
fifteen pesos (₱15.00) per square meter.
Despite his repeated demands for the
execution of a final deed of sale in his favor,
respondents allegedly refused.
In their Answer,2 the Spouses Lu alleged that
Pacita Lu obtained loans from Babasanta and
when the total advances of Pacita reached fifty
thousand pesos (₱50,000.00), the latter and
Babasanta, without the knowledge and
consent of Miguel Lu, had verbally agreed to
transform the transaction into a contract to sell
the two parcels of land to Babasanta with the
fifty thousand pesos (₱50,000.00) to be
considered as the downpayment for the
property and the balance to be paid on or
before 31 December 1987. Respondents Lu
added that as of November 1987, total
payments made by Babasanta amounted to
only two hundred thousand pesos
(₱200,000.00) and the latter allegedly failed to
pay the balance of two hundred sixty thousand
pesos (₱260,000.00) despite repeated
demands. Babasanta had purportedly asked
Pacita for a reduction of the price from fifteen
pesos (₱15.00) to twelve pesos (₱12.00) per
square meter and when the Spouses Lu
refused to grant Babasanta’s request, the
latter rescinded the contract to sell and
declared that the original loan transaction just
be carried out in that the spouses would be
indebted to him in the amount of two hundred
thousand pesos (₱200,000.00). Accordingly,
on 6 July 1989, they purchased Interbank
Manager’s Check No. 05020269 in the amount
of two hundred thousand pesos (₱200,000.00)
in the name of Babasanta to show that she
was able and willing to pay the balance of her
loan obligation.
Babasanta later filed an Amended
Complaint dated 17 January 19903 wherein he
prayed for the issuance of a writ of preliminary
injunction with temporary restraining order and
the inclusion of the Register of Deeds of
Calamba, Laguna as party defendant. He
contended that the issuance of a preliminary
injunction was necessary to restrain the
transfer or conveyance by the Spouses Lu of
the subject property to other persons.
The Spouses Lu filed their Opposition4 to the
amended complaint contending that it raised
new matters which seriously affect their
substantive rights under the original complaint.
 SALES: FIRST EXAM: FULL TEXT
However, the trial court in its Order dated 17
January 19905 admitted the amended
complaint.
On 19 January 1990, herein petitioner San
Lorenzo Development Corporation (SLDC)
filed a Motion for Intervention6 before the trial
court. SLDC alleged that it had legal interest in
the subject matter under litigation because on
3 May 1989, the two parcels of land involved,
namely Lot 1764-A and 1764-B, had been sold
to it in a Deed of Absolute Sale with
Mortgage.7 It alleged that it was a buyer in
good faith and for value and therefore it had a
better right over the property in litigation.
In his Opposition to SLDC’s motion for
intervention,8 respondent Babasanta demurred
and argued that the latter had no legal interest
in the case because the two parcels of land
involved herein had already been conveyed to
him by the Spouses Lu and hence, the
vendors were without legal capacity to transfer
or dispose of the two parcels of land to the
intervenor.
Meanwhile, the trial court in its Order dated 21
March 1990 allowed SLDC to intervene. SLDC
filed its Complaint-in-Intervention on 19 April
1990.9 Respondent Babasanta’s motion for the
issuance of a preliminary injunction was
likewise granted by the trial court in
its Order dated 11 January 199110 conditioned
upon his filing of a bond in the amount of fifty
thousand pesos (₱50,000.00).
SLDC in its Complaint-in-Intervention alleged
that on 11 February 1989, the Spouses Lu
executed in its favor an Option to Buy the lots
subject of the complaint. Accordingly, it paid
an option money in the amount of three
hundred sixteen thousand one hundred sixty
pesos (₱316,160.00) out of the total
consideration for the purchase of the two lots
of one million two hundred sixty-four thousand
six hundred forty pesos (₱1,264,640.00). After
the Spouses Lu received a total amount of six
hundred thirty-two thousand three hundred
twenty pesos (₱632,320.00) they executed on
3 May 1989 a Deed of Absolute Sale with
Mortgage in its favor. SLDC added that the
certificates of title over the property were
delivered to it by the spouses clean and free
from any adverse claims and/or notice of lis
pendens. SLDC further alleged that it only
learned of the filing of the complaint sometime
in the early part of January 1990 which
prompted it to file the motion to intervene
without delay. Claiming that it was a buyer in
good faith, SLDC argued that it had no
obligation to look beyond the titles submitted to
59
it by the Spouses Lu particularly because
Babasanta’s claims were not annotated on the
certificates of title at the time the lands were
sold to it.
After a protracted trial, the RTC rendered
its Decision on 30 July 1993 upholding the
sale of the property to SLDC. It ordered the
Spouses Lu to pay Babasanta the sum of two
hundred thousand pesos (₱200,000.00) with
legal interest plus the further sum of fifty
thousand pesos (₱50,000.00) as and for
attorney’s fees. On the complaint-in-
intervention, the trial court ordered the
Register of Deeds of Laguna, Calamba Branch
to cancel the notice of lis pendens annotated
on the original of the TCT No. T-39022 (T-
7218) and No. T-39023 (T-7219).
Applying Article 1544 of the Civil Code, the
trial court ruled that since both Babasanta and
SLDC did not register the respective sales in
their favor, ownership of the property should
pertain to the buyer who first acquired
possession of the property. The trial court
equated the execution of a public instrument in
favor of SLDC as sufficient delivery of the
property to the latter. It concluded that
symbolic possession could be considered to
have been first transferred to SLDC and
consequently ownership of the property
pertained to SLDC who purchased the
property in good faith.
Respondent Babasanta appealed the trial
court’s decision to the Court of Appeals
alleging in the main that the trial court erred in
concluding that SLDC is a purchaser in good
faith and in upholding the validity of the sale
made by the Spouses Lu in favor of SLDC.
Respondent spouses likewise filed an appeal
to the Court of Appeals. They contended that
the trial court erred in failing to consider that
the contract to sell between them and
Babasanta had been novated when the latter
abandoned the verbal contract of sale and
declared that the original loan transaction just
be carried out. The Spouses Lu argued that
since the properties involved were conjugal,
the trial court should have declared the verbal
contract to sell between Pacita Lu and Pablo
Babasanta null and void ab initio for lack of
knowledge and consent of Miguel Lu. They
further averred that the trial court erred in not
dismissing the complaint filed by Babasanta; in
awarding damages in his favor and in refusing
to grant the reliefs prayed for in their answer.
On 4 October 1995, the Court of Appeals
rendered its Decision11 which set aside the
judgment of the trial court. It declared that the
 SALES: FIRST EXAM: FULL TEXT
sale between Babasanta and the Spouses Lu
was valid and subsisting and ordered the
spouses to execute the necessary deed of
conveyance in favor of Babasanta, and the
latter to pay the balance of the purchase price
in the amount of two hundred sixty thousand
pesos (₱260,000.00). The appellate court
ruled that the Absolute Deed of Sale with
Mortgage in favor of SLDC was null and void
on the ground that SLDC was a purchaser in
bad faith. The Spouses Lu were further
ordered to return all payments made by SLDC
with legal interest and to pay attorney’s fees to
Babasanta.
SLDC and the Spouses Lu filed separate
motions for reconsideration with the appellate
court.12 However, in a Manifestation dated 20
December 1995,13 the Spouses Lu informed
the appellate court that they are no longer
contesting the decision dated 4 October 1995.
In its Resolution dated 11 March 1996,14 the
appellate court considered as withdrawn the
motion for reconsideration filed by the
Spouses Lu in view of their manifestation of 20
December 1995. The appellate court denied
SLDC’s motion for reconsideration on the
ground that no new or substantial arguments
were raised therein which would warrant
modification or reversal of the court’s decision
dated 4 October 1995.
Hence, this petition.
SLDC assigns the following errors allegedly
committed by the appellate court:
THE COURT OF APPEALS ERRED IN
HOLDING THAT SAN LORENZO WAS NOT A
BUYER IN GOOD FAITH BECAUSE WHEN
THE SELLER PACITA ZAVALLA LU
OBTAINED FROM IT THE CASH ADVANCE
OF ₱200,000.00, SAN LORENZO WAS PUT
ON INQUIRY OF A PRIOR TRANSACTION
ON THE PROPERTY.
THE COURT OF APPEALS ERRED IN
FAILING TO APPRECIATE THE
ESTABLISHED FACT THAT THE ALLEGED
FIRST BUYER, RESPONDENT BABASANTA,
WAS NOT IN POSSESSION OF THE
DISPUTED PROPERTY WHEN SAN
LORENZO BOUGHT AND TOOK
POSSESSION OF THE PROPERTY AND NO
ADVERSE CLAIM, LIEN, ENCUMBRANCE
OR LIS PENDENS WAS ANNOTATED ON
THE TITLES.
THE COURT OF APPEALS ERRED IN
FAILING TO APPRECIATE THE FACT THAT
RESPONDENT BABASANTA HAS
60
SUBMITTED NO EVIDENCE SHOWING
THAT SAN LORENZO WAS AWARE OF HIS
RIGHTS OR INTERESTS IN THE DISPUTED
PROPERTY.
THE COURT OF APPEALS ERRED IN
HOLDING THAT NOTWITHSTANDING ITS
FULL CONCURRENCE ON THE FINDINGS
OF FACT OF THE TRIAL COURT, IT
REVERSED AND SET ASIDE THE DECISION
OF THE TRIAL COURT UPHOLDING THE
TITLE OF SAN LORENZO AS A BUYER AND
FIRST POSSESSOR IN GOOD FAITH. 15
SLDC contended that the appellate court erred
in concluding that it had prior notice of
Babasanta’s claim over the property merely on
the basis of its having advanced the amount of
two hundred thousand pesos (₱200,000.00) to
Pacita Lu upon the latter’s representation that
she needed the money to pay her obligation to
Babasanta. It argued that it had no reason to
suspect that Pacita was not telling the truth
that the money would be used to pay her
indebtedness to Babasanta. At any rate, SLDC
averred that the amount of two hundred
thousand pesos (₱200,000.00) which it
advanced to Pacita Lu would be deducted
from the balance of the purchase price still due
from it and should not be construed as notice
of the prior sale of the land to Babasanta. It
added that at no instance did Pacita Lu inform
it that the lands had been previously sold to
Babasanta.
Moreover, SLDC stressed that after the
execution of the sale in its favor it immediately
took possession of the property and asserted
its rights as new owner as opposed to
Babasanta who has never exercised acts of
ownership. Since the titles bore no adverse
claim, encumbrance, or lien at the time it was
sold to it, SLDC argued that it had every
reason to rely on the correctness of the
certificate of title and it was not obliged to go
beyond the certificate to determine the
condition of the property. Invoking the
presumption of good faith, it added that the
burden rests on Babasanta to prove that it was
aware of the prior sale to him but the latter
failed to do so. SLDC pointed out that the
notice of lis pendens was annotated only on 2
June 1989 long after the sale of the property to
it was consummated on 3 May
1989.1awphi1.nét
Meanwhile, in an Urgent Ex-Parte
Manifestation dated 27 August 1999, the
Spouses Lu informed the Court that due to
financial constraints they have no more
interest to pursue their rights in the instant
 SALES: FIRST EXAM: FULL TEXT
case and submit themselves to the decision of
the Court of Appeals.16
On the other hand, respondent Babasanta
argued that SLDC could not have acquired
ownership of the property because it failed to
comply with the requirement of registration of
the sale in good faith. He emphasized that at
the time SLDC registered the sale in its favor
on 30 June 1990, there was already a notice
of lis pendens annotated on the titles of the
property made as early as 2 June 1989.
Hence, petitioner’s registration of the sale did
not confer upon it any right. Babasanta further
asserted that petitioner’s bad faith in the
acquisition of the property is evident from the
fact that it failed to make necessary inquiry
regarding the purpose of the issuance of the
two hundred thousand pesos (₱200,000.00)
manager’s check in his favor.
The core issue presented for resolution in the
instant petition is who between SLDC and
Babasanta has a better right over the two
parcels of land subject of the instant case in
view of the successive transactions executed
by the Spouses Lu.
To prove the perfection of the contract of sale
in his favor, Babasanta presented a document
signed by Pacita Lu acknowledging receipt of
the sum of fifty thousand pesos (₱50,000.00)
as partial payment for 3.6 hectares of farm lot
situated at Barangay Pulong, Sta. Cruz, Sta.
Rosa, Laguna.17 While the receipt signed by
Pacita did not mention the price for which the
property was being sold, this deficiency was
supplied by Pacita Lu’s letter dated 29 May
198918 wherein she admitted that she agreed
to sell the 3.6 hectares of land to Babasanta
for fifteen pesos (₱15.00) per square meter.
An analysis of the facts obtaining in this case,
as well as the evidence presented by the
parties, irresistibly leads to the conclusion that
the agreement between Babasanta and the
Spouses Lu is a contract to sell and not a
contract of sale.
Contracts, in general, are perfected by mere
consent,19 which is manifested by the meeting
of the offer and the acceptance upon the thing
which are to constitute the contract. The offer
must be certain and the acceptance
absolute.20 Moreover, contracts shall be
obligatory in whatever form they may have
been entered into, provided all the essential
requisites for their validity are present.21
The receipt signed by Pacita Lu merely states
that she accepted the sum of fifty thousand
pesos (₱50,000.00) from Babasanta as partial
61
payment of 3.6 hectares of farm lot situated in
Sta. Rosa, Laguna. While there is no
stipulation that the seller reserves the
ownership of the property until full payment of
the price which is a distinguishing feature of a
contract to sell, the subsequent acts of the
parties convince us that the Spouses Lu never
intended to transfer ownership to Babasanta
except upon full payment of the purchase
price.
Babasanta’s letter dated 22 May 1989 was
quite telling. He stated therein that despite his
repeated requests for the execution of the final
deed of sale in his favor so that he could effect
full payment of the price, Pacita Lu allegedly
refused to do so. In effect, Babasanta himself
recognized that ownership of the property
would not be transferred to him until such time
as he shall have effected full payment of the
price. Moreover, had the sellers intended to
transfer title, they could have easily executed
the document of sale in its required form
simultaneously with their acceptance of the
partial payment, but they did not. Doubtlessly,
the receipt signed by Pacita Lu should legally
be considered as a perfected contract to sell.
The distinction between a contract to sell and
a contract of sale is quite germane. In a
contract of sale, title passes to the vendee
upon the delivery of the thing sold; whereas in
a contract to sell, by agreement the ownership
is reserved in the vendor and is not to pass
until the full payment of the price.22 In a
contract of sale, the vendor has lost and
cannot recover ownership until and unless the
contract is resolved or rescinded; whereas in a
contract to sell, title is retained by the vendor
until the full payment of the price, such
payment being a positive suspensive condition
and failure of which is not a breach but an
event that prevents the obligation of the
vendor to convey title from becoming
effective.23
The perfected contract to sell imposed upon
Babasanta the obligation to pay the balance of
the purchase price. There being an obligation
to pay the price, Babasanta should have made
the proper tender of payment and consignation
of the price in court as required by law. Mere
sending of a letter by the vendee expressing
the intention to pay without the accompanying
payment is not considered a valid tender of
payment.24 Consignation of the amounts due in
court is essential in order to extinguish
Babasanta’s obligation to pay the balance of
the purchase price. Glaringly absent from the
records is any indication that Babasanta even
attempted to make the proper consignation of
 SALES: FIRST EXAM: FULL TEXT
the amounts due, thus, the obligation on the
part of the sellers to convey title never
acquired obligatory force.
On the assumption that the transaction
between the parties is a contract of sale and
not a contract to sell, Babasanta’s claim of
ownership should nevertheless fail.
Sale, being a consensual contract, is perfected
by mere consent25 and from that moment, the
parties may reciprocally demand
performance.26 The essential elements of a
contract of sale, to wit: (1) consent or meeting
of the minds, that is, to transfer ownership in
exchange for the price; (2) object certain which
is the subject matter of the contract; (3) cause
of the obligation which is established.27
The perfection of a contract of sale should not,
however, be confused with its consummation.
In relation to the acquisition and transfer of
ownership, it should be noted that sale is not a
mode, but merely a title. A mode is the legal
means by which dominion or ownership is
created, transferred or destroyed, but title is
only the legal basis by which to affect
dominion or ownership.28 Under Article 712 of
the Civil Code, "ownership and other real
rights over property are acquired and
transmitted by law, by donation, by testate and
intestate succession, and in consequence of
certain contracts, by tradition." Contracts only
constitute titles or rights to the transfer or
acquisition of ownership, while delivery or
tradition is the mode of accomplishing the
same.29 Therefore, sale by itself does not
transfer or affect ownership; the most that sale
does is to create the obligation to transfer
ownership. It is tradition or delivery, as a
consequence of sale, that actually transfers
ownership.
Explicitly, the law provides that the ownership
of the thing sold is acquired by the vendee
from the moment it is delivered to him in any of
the ways specified in Article 1497 to
1501.30 The word "delivered" should not be
taken restrictively to mean transfer of actual
physical possession of the property. The law
recognizes two principal modes of delivery, to
wit: (1) actual delivery; and (2) legal or
constructive delivery.
Actual delivery consists in placing the thing
sold in the control and possession of the
vendee.31 Legal or constructive delivery, on the
other hand, may be had through any of the
following ways: the execution of a public
instrument evidencing the sale;32 symbolical
tradition such as the delivery of the keys of the
place where the movable sold is being
62
kept;33 traditio longa manu or by mere consent
or agreement if the movable sold cannot yet
be transferred to the possession of the buyer
at the time of the sale;34 traditio brevi manu if
the buyer already had possession of the object
even before the sale;35 and traditio constitutum
possessorium, where the seller remains in
possession of the property in a different
capacity.36
Following the above disquisition, respondent
Babasanta did not acquire ownership by the
mere execution of the receipt by Pacita Lu
acknowledging receipt of partial payment for
the property. For one, the agreement between
Babasanta and the Spouses Lu, though valid,
was not embodied in a public instrument.
Hence, no constructive delivery of the lands
could have been effected. For another,
Babasanta had not taken possession of the
property at any time after the perfection of the
sale in his favor or exercised acts of dominion
over it despite his assertions that he was the
rightful owner of the lands. Simply stated,
there was no delivery to Babasanta, whether
actual or constructive, which is essential to
transfer ownership of the property. Thus, even
on the assumption that the perfected contract
between the parties was a sale, ownership
could not have passed to Babasanta in the
absence of delivery, since in a contract of sale
ownership is transferred to the vendee only
upon the delivery of the thing sold.37
However, it must be stressed that the juridical
relationship between the parties in a double
sale is primarily governed by Article 1544
which lays down the rules of preference
between the two purchasers of the same
property. It provides:
Art. 1544. If the same thing should have been
sold to different vendees, the ownership shall
be transferred to the person who may have
first taken possession thereof in good faith, if it
should be movable property.
Should it be immovable property, the
ownership shall belong to the person acquiring
it who in good faith first recorded it in the
Registry of Property.
Should there be no inscription, the ownership
shall pertain to the person who in good faith
was first in the possession; and, in the
absence thereof, to the person who presents
the oldest title, provided there is good faith.
The principle of primus tempore, potior
jure (first in time, stronger in right) gains
greater significance in case of double sale of
immovable property. When the thing sold twice
 SALES: FIRST EXAM: FULL TEXT
is an immovable, the one who acquires it and
first records it in the Registry of Property, both
made in good faith, shall be deemed the
owner.38 Verily, the act of registration must be
coupled with good faith— that is, the registrant
must have no knowledge of the defect or lack
of title of his vendor or must not have been
aware of facts which should have put him upon
such inquiry and investigation as might be
necessary to acquaint him with the defects in
the title of his vendor.39
Admittedly, SLDC registered the sale with the
Registry of Deeds after it had acquired
knowledge of Babasanta’s claim. Babasanta,
however, strongly argues that the registration
of the sale by SLDC was not sufficient to
confer upon the latter any title to the property
since the registration was attended by bad
faith. Specifically, he points out that at the time
SLDC registered the sale on 30 June 1990,
there was already a notice of lis pendens on
the file with the Register of Deeds, the same
having been filed one year before on 2 June
1989.
Did the registration of the sale after the
annotation of the notice of lis
pendens obliterate the effects of delivery and
possession in good faith which admittedly had
occurred prior to SLDC’s knowledge of the
transaction in favor of Babasanta?
We do not hold so.
It must be stressed that as early as 11
February 1989, the Spouses Lu executed
the Option to Buy  in favor of SLDC upon
receiving ₱316,160.00 as option money from
SLDC. After SLDC had paid more than one
half of the agreed purchase price of
₱1,264,640.00, the Spouses Lu subsequently
executed on 3 May 1989 a Deed of Absolute
Sale in favor or SLDC. At the time both deeds
were executed, SLDC had no knowledge of
the prior transaction of the Spouses Lu with
Babasanta. Simply stated, from the time of
execution of the first deed up to the moment of
transfer and delivery of possession of the
lands to SLDC, it had acted in good faith and
the subsequent annotation of lis pendens has
no effect at all on the consummated sale
between SLDC and the Spouses Lu.
A purchaser in good faith is one who buys
property of another without  notice that some
other person has a right to, or interest in, such
property and pays a full and fair price for the
same at the time of such purchase,
or before he has notice  of the claim or interest
of some other person in the
property.40 Following the foregoing definition,
63
we rule that SLDC qualifies as a buyer in good
faith since there is no evidence extant in the
records that it had knowledge of the prior
transaction in favor of Babasanta. At the time
of the sale of the property to SLDC, the
vendors were still the registered owners of the
property and were in fact in possession of the
lands.l^vvphi1.net Time and again, this Court
has ruled that a person dealing with the owner
of registered land is not bound to go beyond
the certificate of title as he is charged with
notice of burdens on the property which are
noted on the face of the register or on the
certificate of title.41 In assailing knowledge of
the transaction between him and the Spouses
Lu, Babasanta apparently relies on the
principle of constructive notice incorporated in
Section 52 of the Property Registration Decree
(P.D. No. 1529) which reads, thus:
Sec. 52. Constructive notice upon registration.
– Every conveyance, mortgage, lease, lien,
attachment, order, judgment, instrument or
entry affecting registered land shall, if
registered, filed, or entered in the office of the
Register of Deeds for the province or city
where the land to which it relates lies, be
constructive notice to all persons from the time
of such registering, filing, or entering.
However, the constructive notice operates as
such¾by the express wording of Section
52¾from the time of the registration of the
notice of lis pendens which in this case was
effected only on 2 June 1989, at which time
the sale in favor of SLDC had long been
consummated insofar as the obligation of the
Spouses Lu to transfer ownership over the
property to SLDC is concerned.
More fundamentally, given the superiority of
the right of SLDC to the claim of Babasanta
the annotation of the notice of lis
pendens cannot help Babasanta’s position a
bit and it is irrelevant to the good or bad faith
characterization of SLDC as a purchaser. A
notice of lis pendens, as the Court held
in Nataño v. Esteban,42 serves as a warning to
a prospective purchaser or incumbrancer that
the particular property is in litigation; and that
he should keep his hands off the same, unless
he intends to gamble on the results of the
litigation." Precisely, in this case SLDC has
intervened in the pending litigation to protect
its rights. Obviously, SLDC’s faith in the merit
of its cause has been vindicated with the
Court’s present decision which is the ultimate
denouement on the controversy.
The Court of Appeals has made capital 43 of
SLDC’s averment in its Complaint-in-
 SALES: FIRST EXAM: FULL TEXT

Intervention44 that at the instance of Pacita Lu faith in contrast to Babasanta, who neither

it issued a check for ₱200,000.00 payable to registered nor possessed the property at any
Babasanta and the confirmatory testimony of time, SLDC’s right is definitely superior to that
Pacita Lu herself on cross- of Babasanta’s.
examination.45 However, there is nothing in the
said pleading and the testimony which At any rate, the above discussion on the rules
explicitly relates the amount to the transaction on double sale would be purely academic for
between the Spouses Lu and Babasanta for as earlier stated in this decision, the contract
what they attest to is that the amount was between Babasanta and the Spouses Lu is not
supposed to pay off the advances made by a contract of sale but merely a contract to sell.
Babasanta to Pacita Lu. In any event, the In Dichoso v. Roxas,47 we had the occasion to
incident took place after the Spouses Lu had rule that Article 1544 does not apply to a case
already executed the Deed of Absolute Sale where there was a sale to one party of the land
with Mortgage in favor of SLDC and therefore, itself while the other contract was a mere
as previously explained, it has no effect on the promise to sell the land or at most an actual
legal position of SLDC. assignment of the right to repurchase the
same land. Accordingly, there was no double
Assuming ex gratia argumenti that SLDC’s sale of the same land in that case.
registration of the sale had been tainted by the
prior notice of lis pendens and assuming WHEREFORE, the instant petition is hereby
further for the same nonce that this is a case GRANTED. The decision of the Court of
of double sale, still Babasanta’s claim could Appeals appealed from is REVERSED and
not prevail over that of SLDC’s. In Abarquez v. SET ASIDE and the decision of the Regional
Court of Appeals,46 this Court had the occasion Trial Court, Branch 31, of San Pedro, Laguna
to rule that if a vendee in a double sale is REINSTATED. No costs.
registers the sale after he has acquired SO ORDERED.
knowledge of a previous sale, the registration
constitutes a registration in bad faith and does
not confer upon him any right. If the
registration is done in bad faith, it is as if there
is no registration at all, and the buyer who has
taken possession first of the property in good
faith shall be preferred.
In Abarquez, the first sale to the spouses
Israel was notarized and registered only after
the second vendee, Abarquez, registered their
deed of sale with the Registry of Deeds, but
the Israels were first in possession. This Court
awarded the property to the Israels because
registration of the property by Abarquez lacked
the element of good faith. While the facts in
the instant case substantially differ from that
in Abarquez, we would not hesitate to rule in
favor of SLDC on the basis of its prior
possession of the property in good faith. Be it
noted that delivery of the property to SLDC
was immediately effected after the execution
of the deed in its favor, at which time SLDC
had no knowledge at all of the prior transaction
by the Spouses Lu in favor of
Babasanta.1a\^/phi1.net
The law speaks not only of one criterion. The
first criterion is priority of entry in the registry of
property; there being no priority of such entry,
the second is priority of possession; and, in the
absence of the two priorities, the third priority
is of the date of title, with good faith as the
common critical element. Since SLDC
acquired possession of the property in good

64
 SALES: FIRST EXAM: FULL TEXT
G.R. No. 133879            November 21, 2001
EQUATORIAL REALTY DEVELOPMENT,
INC., petitioner,
vs.
MAYFAIR THEATER, INC., respondent.
PANGANIBAN, J.:
General propositions do not decide specific
cases. Rather, laws are interpreted in the
context of the peculiar factual situation of each
proceeding. Each case has its own flesh and
blood and cannot be ruled upon on the basis
of isolated clinical classroom principles.
While we agree with the general proposition
that a contract of sale is valid until rescinded, it
is equally true that ownership of the thing sold
is not acquired by mere agreement, but by
tradition or delivery. The peculiar facts of the
present controversy as found by this Court in
an earlier relevant Decision show that delivery
was not actually effected; in fact, it was
prevented by a legally effective impediment.
Not having been the owner, petitioner cannot
be entitled to the civil fruits of ownership like
rentals of the thing sold. Furthermore,
petitioner's bad faith, as again demonstrated
by the specific factual milieu of said Decision,
bars the grant of such benefits. Otherwise, bad
faith would be rewarded instead of punished.
The Case
Filed before this Court is a Petition for
Review1 under Rule 45 of the Rules of Court,
challenging the March 11, 1998 Order2 of the
Regional Trial Court of Manila (RTC), Branch
8, in Civil Case No. 97-85141. The dispositive
portion of the assailed Order reads as follows:
"WHEREFORE, the motion to dismiss filed by
defendant Mayfair is hereby GRANTED, and
the complaint filed by plaintiff Equatorial is
hereby DISMISSED."3
65
Also questioned is the May 29, 1998 RTC
Order4 denying petitioner's Motion for
Reconsideration.
The Facts
The main factual antecedents of the present
Petition are matters of record, because it arose
out of an earlier case decided by this Court on
November 21, 1996, entitled Equatorial Realty
Development, Inc. v. Mayfair Theater,
Inc.5 (henceforth referred to as the "mother
case"), docketed as G.R No. 106063.
Carmelo & Bauermann, Inc. ("Camelo" ) used
to own a parcel of land, together with two 2-
storey buildings constructed thereon, located
at Claro M. Recto Avenue, Manila, and
covered by TCT No. 18529 issued in its name
by the Register of Deeds of Manila.
On June 1, 1967, Carmelo entered into a
Contract of Lease with Mayfair Theater Inc.
("Mayfair") for a period of 20 years. The lease
covered a portion of the second floor and
mezzanine of a two-storey building with about
1,610 square meters of floor area, which
respondent used as a movie house known as
Maxim Theater.
Two years later, on March 31, 1969, Mayfair
entered into a second Contract of Lease with
Carmelo for the lease of another portion of the
latter's property — namely, a part of the
second floor of the two-storey building, with a
floor area of about 1,064 square meters; and
two store spaces on the ground floor and the
mezzanine, with a combined floor area of
about 300 square meters. In that space,
Mayfair put up another movie house known as
Miramar Theater. The Contract of Lease was
likewise for a period of 20 years.
Both leases contained a provision granting
Mayfair a right of first refusal to purchase the
subject properties. However, on July 30, 1978
— within the 20-year-lease term — the subject
properties were sold by Carmelo to Equatorial
Realty Development, Inc. ("Equatorial") for the
total sum of P11,300,000, without their first
being offered to Mayfair.
As a result of the sale of the subject properties
to Equatorial, Mayfair filed a Complaint before
the Regional Trial Court of Manila (Branch 7)
for (a) the annulment of the Deed of Absolute
Sale between Carmelo and Equatorial, (b)
specific performance, and (c) damages. After
trial on the merits, the lower court rendered a
Decision in favor of Carmelo and Equatorial.
This case, entitled "Mayfair" Theater, Inc. v.
 SALES: FIRST EXAM: FULL TEXT
Carmelo and Bauermann, Inc., et al.," was
docketed as Civil Case No. 118019.
On appeal (docketed as CA-GR CV No.
32918), the Court of Appeals (CA) completely
reversed and set aside the judgment of the
lower court.
The controversy reached this Court via G.R
No. 106063. In this mother case, it denied the
Petition for Review in this wise:
"WHEREFORE, the petition for review of the
decision of the Court of Appeals, dated June
23, 1992, in CA-G.R. CV No. 32918, is
HEREBY DENIED. The Deed of Absolute Sale
between petitioners Equatorial Realty
Development, Inc. and Carmelo & Bauermann,
Inc. is hereby deemed rescinded; Carmelo &
Bauermann is ordered to return to petitioner
Equatorial Realty Development the purchase
price. The latter is directed to execute the
deeds and documents necessary to return
ownership to Carmelo & Bauermann of the
disputed lots. Carmelo & Bauermann is
ordered to allow Mayfair Theater, Inc. to buy
the aforesaid lots for P11,300,000.00."6
The foregoing Decision of this Court became
final and executory on March 17, 1997. On
April 25, 1997, Mayfair filed a Motion for
Execution, which the trial court granted.
However, Carmelo could no longer be located.
Thus, following the order of execution of the
trial court, Mayfair deposited with the clerk of
court a quo its payment to Carmelo in the sum
of P11,300,000 less; P847,000 as withholding
tax. The lower court issued a Deed of
Reconveyance in favor of Carmelo and a Deed
of Sale in favor of Mayfair. On the basis of
these documents, the Registry of Deeds of
Manila canceled Equatorial's titles and issued
new Certificates of Title7 in the name of
Mayfair.
Ruling on Equatorial's Petition for Certiorari
and Petition contesting the foregoing manner
of execution, the CA in its Resolution of
November 20, 1998, explained that Mayfair
had no right to deduct the P847,000 as
withholding tax. Since Carmelo could no
longer be located, the appellate court ordered
Mayfair to deposit the said sum with the Office
of the Clerk of Court, Manila, to complete the
full amount of P11,300,000 to be turned over
to Equatorial.
Equatorial questioned the legality of the above
CA ruling before this Court in G.R No. 136221
entitled "Equatorial Realty Development, Inc.
v. Mayfair Theater, Inc." In a Decision
66
promulgated on May 12, 2000,8 this Court
directed the trial court to follow strictly the
Decision in GR. No. 106063, the mother case.
It explained its ruling in these words:
"We agree that Carmelo and Bauermann is
obliged to return the entire amount of eleven
million three hundred thousand pesos
(P11,300,000.00) to Equatorial. On the other
hand, Mayfair may not deduct from the
purchase price the amount of eight hundred
forty-seven thousand pesos (P847,000.00) as
withholding tax. The duty to withhold taxes
due, if any, is imposed on the seller Carmelo
and Bauermann, Inc."9
Meanwhile, on September 18, 1997 — barely
five months after Mayfair had submitted its
Motion for Execution before the RTC of
Manila, Branch 7 — Equatorial filed with the
Regional Trial Court of Manila, Branch 8, an
action for the collection of a sum of money
against Mayfair, claiming payment of rentals or
reasonable compensation for the defendant's
use of the subject premises after its lease
contracts had expired. This action was the
progenitor of the present case.
In its Complaint, Equatorial alleged among
other things that the Lease Contract covering
the premises occupied by Maxim Theater
expired on May 31, 1987, while the Lease
Contract covering the premises occupied by
Miramar Theater lapsed on March 31,
1989.10 Representing itself as the owner of the
subject premises by reason of the Contract of
Sale on July 30, 1978, it claimed rentals
arising from Mayfair's occupation thereof.
Ruling of the RTC Manila, Branch 8
As earlier stated, the trial court dismissed the
Complaint via the herein assailed Order and
denied the Motion for Reconsideration filed by
Equatorial.11
The lower court debunked the claim of
petitioner for unpaid back rentals, holding that
the rescission of the Deed of Absolute Sale in
the mother case did not confer on Equatorial
any vested or residual proprietary rights, even
in expectancy.
In granting the Motion to Dismiss, the court a
quo held that the critical issue was whether
Equatorial was the owner of the subject
property and could thus enjoy the fruits or
rentals therefrom. It declared the rescinded
Deed of Absolute Sale as avoid at its inception
as though it did not happen."
The trial court ratiocinated as follows:
 SALES: FIRST EXAM: FULL TEXT
"The meaning of rescind in the aforequoted
decision is to set aside. In the case of Ocampo
v. Court of Appeals, G.R. No. 97442, June 30,
1994, the Supreme Court held that, 'to rescind
is to declare a contract void in its inception and
to put an end as though it never were. It is not
merely to terminate it and release parties from
further obligations to each other but to
abrogate it from the beginning and restore
parties to relative positions which they would
have occupied had no contract ever been
made.'
"Relative to the foregoing definition, the Deed
of Absolute Sale between Equatorial and
Carmelo dated July 31, 1978 is void at its
inception as though it did not happen.
"The argument of Equatorial that this
complaint for back rentals as 'reasonable
compensation for use of the subject
property after expiration of the lease
contracts presumes that the Deed of Absolute
Sale dated July 30, 1978 from whence the
fountain of Equatorial's all rights flows is still
valid and existing.
xxx           xxx           xxx
"The subject Deed of Absolute Sale having
been rescinded by the Supreme Court,
Equatorial is not the owner and does not have
any right to demand backrentals from the
subject property. . .12
The trial court added: "The Supreme Court in
the Equatorial case, G.R No. 106063, has
categorically stated that the Deed of Absolute
Sale dated July 31, 1978 has been rescinded
subjecting the present complaint to res
judicata."13
Hence, the present recourse.14
Issues
Petitioner submits, for the consideration of this
Court, the following issues:15
"A
The basis of the dismissal of the Complaint by
the Regional Trial Court not only disregards
basic concepts and principles in the law on
contracts and in civil law, especially those on
rescission and its corresponding legal effects,
but also ignores the dispositive portion of the
Decision of the Supreme Court in G.R. No.
106063 entitled 'Equatorial Realty
Development, Inc. & Carmelo & Bauermann,
Inc. vs. Mayfair Theater, Inc.'
"B.
67
The Regional Trial Court erred in holding that
the Deed of Absolute Sale in favor of petitioner
by Carmelo & Bauermann, Inc., dated July 31,
1978, over the premises used and occupied by
respondent, having been 'deemed rescinded'
by the Supreme Court in G.R. No. 106063, is
'void at its inception as though it did not
happen.'
"C.
The Regional Trial Court likewise erred in
holding that the aforesaid Deed of Absolute
Sale, dated July 31, 1978, having been
'deemed rescinded' by the Supreme Court in
G.R. No. 106063, petitioner 'is not the owner
and does not have any right to demand
backrentals from the subject property,' and
that the rescission of the Deed of Absolute
Sale by the Supreme Court does not confer to
petitioner 'any vested right nor any residual
proprietary rights even in expectancy.'
"D.
The issue upon which the Regional Trial Court
dismissed the civil case, as stated in its Order
of March 11, 1998, was not raised by
respondent in its Motion to Dismiss.
"E.
The sole ground upon which the Regional Trial
Court dismissed Civil Case No. 97-85141 is
not one of the grounds of a Motion to Dismiss
under Sec. 1 of Rule 16 of the 1997 Rules of
Civil Procedure."
Basically, the issues can be summarized into
two: (1) the substantive issue of whether
Equatorial is entitled to back rentals; and (2)
the procedural issue of whether the court a
quo's dismissal of Civil Case No. 97-85141
was based on one of the grounds raised by
respondent in its Motion to Dismiss and
covered by Rule 16 of the Rules of Court.
This Court's Ruling
The Petition is not meritorious.
First Issue:
Ownership of Subject Properties
We hold that under the peculiar facts and
circumstances of the case at bar, as found by
this Court en banc in its Decision promulgated
in 1996 in the mother case, no right of
ownership was transferred from Carmelo to
Equatorial in view of a patent failure to deliver
the property to the buyer.
Rental — a Civil
Fruit of Ownership
 SALES: FIRST EXAM: FULL TEXT
To better understand the peculiarity of the
instant case, let us begin with some basic
parameters. Rent is a civil fruit 16 that belongs
to the owner of the property producing it 17 by
right of accession.18 Consequently and
ordinarily, the rentals that fell due from the
time of the perfection of the sale to petitioner
until its rescission by final judgment should
belong to the owner of the property during that
period.
By a contract of sale, "one of the contracting
parties obligates himself to transfer ownership
of and to deliver a determinate thing and the
other to pay therefor a price certain in money
or its equivalent."19
Ownership of the thing sold is a real
right,20 which the buyer acquires only upon
delivery of the thing  to him "in any of the ways
specified in articles 1497 to 1501, or in any
other manner signifying an agreement that the
possession is transferred from the vendor to
the vendee."21 This right is transferred, not
merely by contract, but also by tradition or
delivery.22 Non nudis pactis sed traditione
dominia rerum transferantur. And there is said
to be delivery if and when the thing sold "is
placed in the control and possession of the
vendee."23 Thus, it has been held that while
the execution of a public instrument of sale is
recognized by law as equivalent to the delivery
of the thing sold,24 such constructive or
symbolic delivery, being merely presumptive,
is deemed negated by the failure of the
vendee to take actual possession of the land
sold.25
Delivery has been described as a composite
act, a thing in which both parties must join and
the minds of both parties concur. It is an act by
which one party parts with the title to and the
possession of the property, and the other
acquires the right to and the possession of the
same. In its natural sense, delivery means
something in addition to the delivery of
property or title; it means transfer of
possession.26 In the Law on Sales, delivery
may be either actual or constructive, but both
forms of delivery contemplate "the absolute
giving up of the control and custody of the
property on the part of the vendor, and the
assumption of the same by the vendee."27
Possession Never
Acquired by Petitioner
Let us now apply the foregoing discussion to
the present issue. From the peculiar facts of
this case, it is clear that petitioner never
took actual control and possession of the
property sold, in view of respondent's timely
68
objection to the sale and the continued actual
possession of the property. The objection took
the form of a court action impugning the sale
which, as we know, was rescinded by a
judgment rendered by this Court in the mother
case. It has been held that the execution of a
contract of sale as a form of constructive
delivery is a legal fiction. It holds true only
when there is no impediment that may prevent
the passing of the property from the hands of
the vendor into those of the vendee.28 When
there is such impediment, "fiction yields to
reality — the delivery has not been effected."29
Hence, respondent's opposition to the transfer
of the property by way of sale to Equatorial
was a legally sufficient impediment that
effectively prevented the passing of the
property into the latter's hands.
This was the same impediment contemplated
in Vda. de Sarmiento v. Lesaca,30 in which the
Court held as follows:
"The question that now arises is: Is there any
stipulation in the sale in question from which
we can infer that the vendor did not intend to
deliver outright the possession of the lands to
the vendee? We find none. On the contrary, it
can be clearly seen therein that the vendor
intended to place the vendee in actual
possession of the lands immediately as can be
inferred from the stipulation that the vendee
'takes actual possession thereof . . . with full
rights to dispose, enjoy and make use thereof
in such manner and form as would be most
advantageous to herself.' The possession
referred to in the contract evidently refers to
actual possession and not merely symbolical
inferable from the mere execution of the
document.
"Has the vendor complied with this express
commitment? she did not. As provided in
Article 1462, the thing sold shall be deemed
delivered when the vendee is placed in
the control and possession thereof, which
situation does not here obtain because from
the execution of the sale up to the present the
vendee was never able to take possession of
the lands due to the insistent refusal of Martin
Deloso to surrender them claiming ownership
thereof. And although it is postulated in the
same article that the execution of a public
document is equivalent to delivery, this legal
fiction only holds true when there is no
impediment that may prevent the passing of
the property from the hands of the vendor into
those of the vendee. x x x."31
The execution of a public instrument gives
rise, therefore, only to a prima facie
 SALES: FIRST EXAM: FULL TEXT
presumption of delivery. Such presumption is
destroyed when the instrument itself
expresses or implies that delivery was not
intended; or when by other means it is shown
that such delivery was not effected, because a
third person was actually in possession of the
thing. In the latter case, the sale cannot be
considered consummated.
However, the point may be raised that under
Article 1164 of the Civil Code, Equatorial as
buyer acquired a right to the fruits of the thing
sold from the time the obligation to deliver the
property to petitioner arose.32 That time arose
upon the perfection of the Contract of Sale on
July 30, 1978, from which moment the laws
provide that the parties to a sale may
reciprocally demand performance.33 Does this
mean that despite the judgment rescinding the
sale, the right to the fruits34 belonged to, and
remained enforceable by, Equatorial?
Article 1385 of the Civil Code answers this
question in the negative, because "[r]escission
creates the obligation to return the things
which were the object of the contract, together
with their fruits, and the price with its interest; x
x x" Not only the land and building sold, but
also the rental payments paid, if any, had to
be returned by the buyer.
Another point. The Decision in the mother
case stated that "Equatorial x x x has received
rents" from Mayfair "during all the years that
this controversy has been litigated." The
Separate Opinion of Justice Teodoro Padilla in
the mother case also said that Equatorial was
"deriving rental income" from the disputed
property. Even herein ponente's Separate
Concurring Opinion in the mother case
recognized these rentals. The question now is:
Do all these statements concede actual
delivery?
The answer is "No." The fact that Mayfair paid
rentals to Equatorial during the litigation should
not be interpreted to mean either actual
delivery or ipso facto recognition of
Equatorial's title.
The CA Records of the mother case 35 show
that Equatorial — as alleged buyer of the
disputed properties and as alleged successor-
in-interest of Carmelo's rights as lessor —
submitted two ejectment suits against Mayfair.
Filed in the Metropolitan Trial Court of Manila,
the first was docketed as Civil Case No.
121570 on July 9, 1987; and the second, as
Civil Case No. 131944 on May 28, 1990.
Mayfair eventually won them both. However, to
be able to maintain physical possession of the
premises while awaiting the outcome of the
69
mother case, it had no choice but to pay the
rentals.
The rental payments made by Mayfair should
not be construed as a recognition of Equatorial
as the new owner. They were made merely to
avoid imminent eviction. It is in this context
that one should understand the aforequoted
factual statements in the ponencia in the
mother case, as well as the Separate Opinion
of Mr. Justice Padilla and the Separate
Concurring Opinion of the herein ponente.
At bottom, it may be conceded that,
theoretically, a rescissible contract is valid until
rescinded. However, this general principle is
not decisive to the issue of whether Equatorial
ever acquired the right to collect rentals. What
is decisive is the civil law rule that ownership is
acquired, not by mere agreement, but by
tradition or delivery. Under the factual
environment of this controversy as found by
this Court in the mother case, Equatorial was
never put in actual and effective control or
possession of the property because of
Mayfair's timely objection.
As pointed out by Justice Holmes, general
propositions do not decide specific cases.
Rather, "laws are interpreted in the context of
the peculiar factual situation of each case.
Each case has its own flesh and blood and
cannot be decided on the basis of isolated
clinical classroom principles."36
In short, the sale to Equatorial may have been
valid from inception, but it was judicially
rescinded before it could be consummated.
Petitioner never acquired ownership, not
because the sale was void, as erroneously
claimed by the trial court, but because the sale
was not consummated by a legally
effective delivery of the property sold.
Benefits Precluded by
Petitioner's Bad Faith
Furthermore, assuming for the sake of
argument that there was valid delivery,
petitioner is not entitled to any benefits from
the "rescinded" Deed of Absolute Sale
because of its bad faith. This being the law of
the mother case decided in 1996, it may no
longer be changed because it has long
become final and executory. Petitioner's bad
faith is set forth in the following pertinent
portions of the mother case:
"First and foremost is that the petitioners acted
in bad faith to render Paragraph 8 'inutile.'
xxx           xxx           xxx
 SALES: FIRST EXAM: FULL TEXT
"Since Equatorial is a buyer in bad faith, this
finding renders the sale to it of the property in
question rescissible. We agree with
respondent Appellate Court that the records
bear out the fact that Equatorial was aware of
the lease contracts because its lawyers had,
prior to the sale, studied the said contracts. As
such, Equatorial cannot tenably claim to be a
purchaser in good faith, and, therefore,
rescission lies.
xxx           xxx           xxx
"As also earlier emphasized, the contract of
sale between Equatorial and Carmelo is
characterized by bad faith, since it was
knowingly entered into in violation of the rights
of and to the prejudice of Mayfair. In fact, as
correctly observed by the Court of Appeals,
Equatorial admitted that its lawyers had
studied the contract of lease prior to the sale.
Equatorial's knowledge of the stipulations
therein should have cautioned it to look further
into the agreement to determine if it involved
stipulations that would prejudice its own
interests.
xxx           xxx           xxx
"On the part of Equatorial, it cannot be a buyer
in good faith because it bought the property
with notice and full knowledge that Mayfair had
a right to or interest in the property superior to
its own. Carmelo and Equatorial took
unconscientious advantage of
Mayfair."37 (Italics supplied)
Thus, petitioner was and still is
entitled solely to he return of the purchase
price it paid to Carmelo; no more, no less. This
Court has firmly ruled in the mother case that
neither of them is entitled to any consideration
of equity, as both "took unconscientious
advantage of Mayfair."38
In the mother case, this Court categorically
denied the payment of interest, a fruit of
ownership. By the same token, rentals,
another fruit of ownership, cannot be granted
without mocking this Court's en banc Decision,
which has long become final.
Petitioner's claim of reasonable compensation
for respondent's use and occupation of the
subject property from the time the lease
expired cannot be countenanced. If it suffered
any loss, petitioner must bear it in silence,
since it had wrought that loss upon
itself. Otherwise, bad faith would be rewarded
instead of punished.@lawphil.net
We uphold the trial court's disposition, not for
the reason it gave, but for (a) the patent failure
70
to deliver the property and (b) petitioner's bad
faith, as above discussed.
Second Issue:itc-alf
Ground in Motion to Dismiss
Procedurally, petitioner claims that the trial
court deviated from the accepted and usual
course of judicial proceedings when it
dismissed Civil Case No. 97-85141 on a
ground not raised in respondent's Motion to
Dismiss. Worse, it allegedly based its
dismissal on a ground not provided for in a
motion to dismiss as enunciated in the Rules
of Court.@lawphil.net
We are not convinced A review of
respondent's Motion to Dismiss Civil Case No.
97-85141 shows that there were two grounds
invoked, as follows:
"(A)
Plaintiff is guilty of forum-shopping.itc-alf
"(B)
Plaintiff's cause of action, if any, is barred by
prior judgment."39
The court a quo ruled, inter alia, that the cause
of action of petitioner plaintiff in the case
below) had been barred by a prior judgment of
this Court in G.R No. 106063, the mother
case.
Although it erred in its interpretation of the said
Decision when it argued that the rescinded
Deed of Absolute Sale was avoid," we hold,
nonetheless, that petitioner's cause of action is
indeed barred by a prior judgment of this
Court. As already discussed, our Decision in
G.R No. 106063 shows that petitioner is not
entitled to back rentals, because it never
became the owner of the disputed properties
due to a failure of delivery. And even assuming
arguendo that there was a valid delivery,
petitioner's bad faith negates its entitlement to
the civil fruits of ownership, like interest and
rentals.
Under the doctrine of res judicata or bar by
prior judgment, a matter that has been
adjudicated by a court of competent
jurisdiction must be deemed to have been
finally and conclusively settled if it arises in
any subsequent litigation between the same
parties and for the same cause.40 Thus, "[a]
final judgment on the merits rendered by a
court of competent jurisdiction is conclusive as
to the rights of the parties and their privies and
constitutes an absolute bar to subsequent
actions involving the same claim, demand, or
 SALES: FIRST EXAM: FULL TEXT

cause of action."41 Res judicata is based on

the ground that the "party to be affected, or
some other with whom he is in privity, has
litigated the same matter in a former action in
a court of competent jurisdiction, and should
not be permitted to litigate it again.42
It frees the parties from undergoing all over
again the rigors of unnecessary suits and
repetitive trials. At the same time, it prevents
the clogging of court dockets. Equally
important, it stabilizes rights and promotes the
rule of law.@lawphil.net
We find no need to repeat the foregoing
disquisitions on the first issue to show
satisfaction of the elements of res judicata.
Suffice it to say that, clearly, our ruling in the
mother case bars petitioner from claiming back
rentals from respondent. Although the court a
quo erred when it declared "void from
inception" the Deed of Absolute Sale between
Carmelo and petitioner, our foregoing
discussion supports the grant of the Motion to
Dismiss on the ground that our prior judgment
in G.R No. 106063 has already resolved the
issue of back rentals.
On the basis of the evidence presented during
the hearing of Mayfair's Motion to Dismiss, the
trial court found that the issue of ownership of
the subject property has been decided by this
Court in favor of Mayfair. We quote the RTC:
"The Supreme Court in the Equatorial case,
G.R. No. 106063 has categorically stated that
the Deed of Absolute Sale dated July 31, 1978
has been rescinded subjecting the present
complaint to res judicata."43 (Emphasis in the
original)
Hence, the trial court decided the Motion to
Dismiss on the basis of res judicata, even if it
erred in interpreting the meaning of
"rescinded" as equivalent to "void" In short, it
ruled on the ground raised; namely, bar by
prior judgment. By granting the Motion,
it disposed correctly, even if its legal reason for
nullifying the sale was wrong. The correct
reasons are given in this Decision.
WHEREFORE, the Petition is hereby DENIED.
Costs against petitioner.itc-alf
SO ORDERED.

71
 SALES: FIRST EXAM: FULL TEXT
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
72
means of strips of rattan; that the operation of
bailing hemp is designated among merchants
by the word "prensaje."
V. That in all sales of hemp by the plaintiff firm,
whether for its own account or on commission
for others, the price is quoted to the buyer at
so much per picul, no mention being made of
bailing; but with the tacit understanding, unless
otherwise expressly agreed, that the hemp will
be delivered in bales and that, according to the
custom prevailing among hemp merchants and
dealers in the Philippine Islands, a charge, the
amount of which depends upon the then
prevailing rate, is to be made against the buyer
under the denomination of "prensaje." That
this charge is made in the same manner in all
cases, even when the operation of bailing was
performed by the plaintiff or by its principal
long before the contract of sale was made.
Two specimens of the ordinary form of account
used in these operations are hereunto
appended, marked Exhibits A and B,
respectively, and made a part hereof.
VI. That the amount of the charge made
against hemp buyers by the plaintiff firm and
other sellers of hemp under the denomination
of "prensaje" during the period involved in this
litigation was P1.75 per bale; that the average
cost of the rattan and matting used on each
bale of hemp is fifteen (15) centavos and that
the average total cost of bailing hemp is one
(1) peso per bale.
VII. That insurance companies in the
Philippine Islands, in estimating the insurable
value of hemp always add to the quoted price
of same the charge made by the seller under
the denomination of "prensaje."
VII. That the average weight of a bale of hemp
is two (2) piculs (126.5 kilograms).
IX. That between the first day of January,
1905, and the 31st day of March, 1910, the
plaintiff firm, in accordance with the custom
mentioned in paragraph V hereof, collected
and received, under the denomination of
"prensaje," from purchasers of hemp sold by
the said firm for its own account, in addition to
the price expressly agreed upon for the said
hemp, sums aggregating P380,124.35; and
between the 1st day of October, 1908, and the
1st day of March, 1910, collected for the
account of the owners of hemp sold by the
plaintiff firm in Manila on commission, and
under the said denomination of "prensaje," in
addition to the price expressly agreed upon the
said hemp, sums aggregating P31,080.
 SALES: FIRST EXAM: FULL TEXT
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
73
legal rate since payment, and the costs of this
action.
Upon the facts above stated it is the contention
of the defendant that the said charge made
under the denomination of "prensaje" is in truth
and in fact a part of the gross value of the
hemp sold and of its actual selling price, and
that therefore the tax imposed by section 139
of Act No. 1189 lawfully accrued on said sums,
that the collection thereof was lawfully and
properly made and that therefore the plaintiff is
not entitled to recover back said sum or any
part thereof; and that the defendant should
have judgment against plaintiff for his costs.
Under these facts we are of the opinion that
the judgment of the court below was right. It is
one of the stipulations in the statement of facts
that it is customary to sell hemp in bales, and
that the price quoted in the market for hemp
per picul is the price for the hemp baled. The
fact is that among large dealers like the
plaintiff in this case it is practically impossible
to handle hemp without its being baled, and it
is admitted by the statement of facts, as well
as demonstrated by the documentary proof
introduced in the case, that if the plaintiff sold
a quality of hemp it would be the under
standing, without words, that such hemp would
be delivered in bales, and that the purchase
price would include the cost and expense of
baling. In other words, it is the fact as
stipulated, as well as it would be the fact of
necessity, that in all dealings in hemp in the
general market the selling price consists of the
value of the hemp loose plus the cost and
expense of putting it into marketable form. In
the sales made by the plaintiff, which are the
basis of the controversy here, there were n
services performed by him for his vendee.
There was agreement that services should be
performed. Indeed, at the time of such sales it
was not known by the vendee whether the
hemp was then actually baled or not. All that
he knew and all that concerned him was that
the hemp should be delivered to him baled. He
did not ask the plaintiff to perform services for
him, nor did the plaintiff agree to do so. The
contract was single and consisted solely in the
sale and purchase of hemp. The purchaser
contracted for nothing else and the vendor
agreed to deliver nothing else.
The word "price" signifies the sum stipulated
as the equivalent of the thing sold and also
every incident taken into consideration for the
fixing of the price, put to the debit of the
vendee and agreed to by him. It is quite
possible that the plaintiff, in this case in
connection with the hemp which he sold, had
 SALES: FIRST EXAM: FULL TEXT
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;
74
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.)
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
 SALES: FIRST EXAM: FULL TEXT

in spite of that fact he would still have made obligation to deliver baled hemp, and would
the double entry in his invoice of sale to such have forced his vendees to accept baled
vendee. This demonstrates the nature of the hemp, he himself retaining among his own
transaction and discloses, as we have already profits those which accrued from the proceed
said, that the entry of a separate charge for of baling.
baling does not accurately describe the
transaction between the parties. We are of the opinion that the judgment
appealed from must be affirmed, without
Section 139 [Act No. 1189] of the Internal special finding as to costs, and it is so ordered.
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

75
 SALES: FIRST EXAM: FULL TEXT
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
76
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
 SALES: FIRST EXAM: FULL TEXT
within the purview of section 191 of the
national Internal Revenue Code. there are no
less than fifty occupations enumerated in the
aforesaid section of the national Internal
Revenue Code subject to percentage tax and
after reading carefully each and every one of
them, we cannot find under which the business
of manufacturing sash, doors and windows
upon special order of customers fall under the
category of "road, building, navigation,
artesian well, water workers and other
construction work contractors" are those who
alter or repair buildings, structures, streets,
highways, sewers, street railways railroads
logging roads, electric lines or power lines, and
includes any other work for the construction,
altering or repairing for which machinery driven
by mechanical power is used. (Payton vs. City
of Anadardo 64 P. 2d 878, 880, 179 Okl. 68).
Having thus eliminated the feasibility off taxing
petitioner as a contractor under 191 of the
national Internal Revenue Code, this leaves us
to decide the remaining issue whether or not
petitioner could be taxed with lesser strain and
more accuracy as seller of its manufactured
articles under section 186 of the same code,
as the respondent Collector of Internal
Revenue has in fact been doing the Oriental
Sash Factory was established in 1946.
The percentage tax imposed in section 191 of
our Tax Code is generally a tax on the sales of
services, in contradiction with the tax imposed
in section 186 of the same Code which is a tax
on the original sales of articles by the
manufacturer, producer or importer.
(Formilleza's Commentaries and
Jurisprudence on the National Internal
Revenue Code, Vol. II, p. 744). The fact that
the articles sold are manufactured by the seller
does not exchange the contract from the
purview of section 186 of the National Internal
Revenue Code as a sale of articles.
There was a strong dissent; but upon careful
consideration of the whole matter are inclines
to accept the above statement of the facts and
the law. The important thing to remember is
that Celestino Co & Company habitually
makes sash, windows and doors, as it has
represented in its stationery and
advertisements to the public. That it
"manufactures" the same is practically
admitted by appellant itself. The fact that
windows and doors are made by it only when
customers place their orders, does not alter
the nature of the establishment, for it is
obvious that it only accepted such orders as
called for the employment of such material-
moulding, frames, panels-as it ordinarily
77
manufactured or was in a position habitually to
manufacture.
Perhaps the following paragraph represents in
brief the appellant's position in this Court:
Since the petitioner, by clear proof of facts not
disputed by the respondent, manufacturers
sash, windows and doors only for special
customers and upon their special orders and in
accordance with the desired specifications of
the persons ordering the same and not for the
general market: since the doors ordered by
Don Toribio Teodoro & Sons, Inc., for
instance, are not in existence and which never
would have existed but for the order of the
party desiring it; and since petitioner's
contractual relation with his customers is that
of a contract for a piece of work or since
petitioner is engaged in the sale of services, it
follows that the petitioner should be taxed
under section 191 of the Tax Code and NOT
under section 185 of the same Code."
(Appellant's brief, p. 11-12).
But the argument rests on a false foundation.
Any builder or homeowner, with sufficient
money, may order windows or doors of the
kind manufactured by this appellant. Therefore
it is not true that it serves special
customers only or confines its services to them
alone. And anyone who sees, and likes, the
doors ordered by Don Toribio Teodoro & Sons
Inc. may purchase from appellant doors of the
same kind, provided he pays the price. Surely,
the appellant will not refuse, for it can easily
duplicate or even mass-produce the same
doors-it is mechanically equipped to do so.
That the doors and windows must meet
desired specifications is neither here nor there.
If these specifications do not happen to be of
the kind habitually manufactured by appellant
— special forms for sash, mouldings of panels
— it would not accept the order — and no sale
is made. If they do, the transaction would be
no different from a purchasers of
manufactured goods held is stock for sale;
they are bought because they meet the
specifications desired by the purchaser.
Nobody will say that when a sawmill cuts
lumber in accordance with the peculiar
specifications of a customer-sizes not
previously held in stock for sale to the public-it
thereby becomes an employee or servant of
the customer,1 not the seller of lumber. The
same consideration applies to this sash
manufacturer.
The Oriental Sash Factory does nothing more
than sell the goods that it mass-produces or
 SALES: FIRST EXAM: FULL TEXT

habitually makes; sash, panels, mouldings, The thought occurs to us that if, as alleged-all
frames, cutting them to such sizes and the work of appellant is only to fill orders
combining them in such forms as its customers previously made, such orders should not be
may desire. called special work, but regular work. Would a
factory do business performing only special,
On the other hand, petitioner's idea of being a extraordinary or peculiar merchandise?
contractor doing construction jobs is
untenable. Nobody would regard the doing of Anyway, supposing for the moment that the
two window panels a construction work in transactions were not sales, they were neither
common parlance.2 lease of services nor contract jobs by a
contractor. But as the doors and windows had
Appellant invokes Article 1467 of the New Civil been admittedly "manufactured" by the
Code to bolster its contention that in filing Oriental Sash Factory, such transactions could
orders for windows and doors according to be, and should be taxed as "transfers" thereof
specifications, it did not sell, but merely under section 186 of the National Revenue
contracted for particular pieces of work or Code.
"merely sold its services".
The appealed decision is consequently
Said article reads as follows: affirmed. So ordered.
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.

78
 SALES: FIRST EXAM: FULL TEXT

What is the prescriptive period for filing actions

for breach of the terms of such contract?
These are the legal questions brought before
this Court in this Petition for review
on certiorari under Rule 45 of the Rules of
Court, to set aside the Decision1 of the Court of
Appeals2 in CA-G.R. No. 58276-R promulgated
on November 28, 1978 (affirming in toto the
decision3 dated April 15, 1974 of the then
Court of First Instance of Rizal, Branch II 4 , in
Civil Case No. 14712, which ordered petitioner
to pay private respondent the amount needed
to rectify the faults and deficiencies of the air-
conditioning system installed by petitioner in
private respondent's building, plus damages,
attorney's fees and costs).
By a resolution of the First Division of this
Court dated November 13, 1995, this case
was transferred to the Third. After deliberating
on the various submissions of the parties,
including the petition, record on appeal, private
respondent's comment and briefs for the
petitioner and the private respondent, the
Court assigned the writing of this Decision to
the undersigned, who took his oath as a
member of the Court on October 10, 1995.
The Facts
Pursuant to the contract dated September 10,
1962 between petitioner and private
respondent, the former undertook to fabricate,
furnish and install the air-conditioning system
in the latter's building along Buendia Avenue,
Makati in consideration of P210,000.00.
Petitioner was to furnish the materials, labor,
tools and all services required in order to so
fabricate and install said system. The system
was completed in 1963 and accepted by
private respondent, who paid in full the
contract price.
On September 2, 1965, private respondent
sold the building to the National Investment
and Development Corporation (NIDC). The
G.R. No. 52267             January 24, 1996 latter took possession of the building but on
account of NIDC's noncompliance with the
ENGINEERING & MACHINERY terms and conditions of the deed of sale,
CORPORATION, petitioner, private respondent was able to secure judicial
vs. rescission thereof. The ownership of the
COURT OF APPEALS and PONCIANO L. building having been decreed back to private
ALMEDA, respondent. respondent, he re-acquired possession
sometime in 1971. It was then that he learned
DECISION from some NIDC, employees of the defects of
PANGANIBAN, J.: the air-conditioning system of the building.

Is a contract for the fabrication and installation Acting on this information, private respondent
of a central air-conditioning system in a commissioned Engineer David R. Sapico to
building, one of "sale" or "for a piece of work"? render a technical evaluation of the system in
relation to the contract with petitioner. In his

79
 SALES: FIRST EXAM: FULL TEXT
report, Sapico enumerated the defects of the
system and concluded that it was "not capable
of maintaining the desired room temperature of
76ºF - 2ºF (Exhibit C)"5 .
On the basis of this report, private respondent
filed on May 8, 1971 an action for damages
against petitioner with the then Court of First
Instance of Rizal (Civil Case No. 14712). The
complaint alleged that the air-conditioning
system installed by petitioner did not comply
with the agreed plans and specifications.
Hence, private respondent prayed for the
amount of P210,000.00 representing the
rectification cost, P100,000.00 as damages
and P15,000.00 as attorney's fees.
Petitioner moved to dismiss the complaint,
alleging that the prescriptive period of six
months had set in pursuant to Articles 1566
and 1567, in relation to Article 1571 of the Civil
Code, regarding the responsibility of a vendor
for any hidden faults or defects in the thing
sold.
Private respondent countered that the contract
dated September 10, 1962 was not a contract
for sale but a contract for a piece of work
under Article 1713 of the Civil Code. Thus, in
accordance with Article 1144 (1) of the same
Code, the complaint was timely brought within
the ten-year prescriptive period.
In its reply, petitioner argued that Article 1571
of the Civil Code providing for a six-month
prescriptive period is applicable to a contract
for a piece of work by virtue of Article 1714,
which provides that such a contract shall be
governed by the pertinent provisions on
warranty of title and against hidden defects
and the payment of price in a contract of sale6 .
The trial court denied the motion to dismiss. In
its answer to the complaint, petitioner
reiterated its claim of prescription as an
affirmative defense. It alleged that whatever
defects might have been discovered in the air-
conditioning system could have been caused
by a variety of factors, including ordinary wear
and tear and lack of proper and regular
maintenance. It pointed out that during the
one-year period that private respondent
withheld final payment, the system was
subjected to "very rigid inspection and testing
and corrections or modifications effected" by
petitioner. It interposed a compulsory
counterclaim suggesting that the complaint
was filed "to offset the adverse effects" of the
judgment in Civil Case No. 71494, Court of
First Instance of Manila, involving the same
parties, wherein private respondent was
adjudged to pay petitioner the balance of the
80
unpaid contract price for the air-conditioning
system installed in another building of private
respondent, amounting to P138,482.25.
Thereafter, private respondent filed an ex-
parte motion for preliminary attachment on the
strength of petitioner's own statement to the
effect that it had sold its business and was no
longer doing business in Manila. The trial court
granted the motion and, upon private
respondent's posting of a bond of F'50,000.00,
ordered the issuance of a writ of attachment.
In due course, the trial court rendered a
decision finding that petitioner failed to install
certain parts and accessories called for by the
contract, and deviated from the plans of the
system, thus reducing its operational
effectiveness to the extent that 35 window-type
units had to be installed in the building to
achieve a fairly desirable room temperature.
On the question of prescription, the trial court
ruled that the complaint was filed within the
ten-year court prescriptive period although the
contract was one for a piece of work, because
it involved the "installation of an air-
conditioning system which the defendant itself
manufactured, fabricated, designed and
installed."
Petitioner appealed to the Court of Appeals,
which affirmed the decision of the trial court.
Hence, it instituted the instant petition.
The Submissions of the Parties
In the instant Petition, petitioner raised three
issues. First, it contended that private
respondent's acceptance of the work and his
payment of the contract price extinguished any
liability with respect to the defects in the air-
conditioning system. Second, it claimed that
the Court of Appeals erred when it held that
the defects in the installation were not
apparent at the time of delivery and
acceptance of the work considering that
private respondent was not an expert who
could recognize such defects. Third, it insisted
that, assuming arguendo that there were
indeed hidden defects, private respondent's
complaint was barred by prescription under
Article 1571 of the Civil Code, which provides
for a six-month prescriptive period.
Private respondent, on the other hand, averred
that the issues raised by petitioner, like the
question of whether there was an acceptance
of the work by the owner and whether the
hidden defects in the installation could have
been discovered by simple inspection, involve
questions of fact which have been passed
upon by the appellate court.
 SALES: FIRST EXAM: FULL TEXT
The Court's Ruling
The Supreme Court reviews only errors of law
in petitions for review on certiorari under Rule
45. It is not the function of this Court to re-
examine the findings of fact of the appellate
court unless said findings are not supported by
the evidence on record or the judgment is
based on a misapprehension of facts 7 of
Appeals erred when it held that the defects in
the installation were not apparent at the time of
delivery and acceptance of the work
considering that private respondent was not an
expert who could recognize such defects.
Third. it insisted that, assuming arguendo that
there were indeed hidden defects, private
respondent's complaint was barred by
prescription under Article 1571 of the Civil
Code, which provides for a six-month
prescriptive period.
Private respondent, on the other hand, averred
that the issues raised by petitioner, like the
question of whether here was an acceptance
of the work by the owner and whether the
hidden defects in the installation could have
been discovered by simple inspection, involve
questions of fact which have been passed
upon by the appellate court.
The Court has consistently held that the
factual findings of the trial court, as well as the
Court of Appeals, are final and conclusive and
may not be reviewed on appeal. Among the
exceptional circumstances where
reassessment of facts found by the lower
courts is allowed are when the conclusion is a
finding grounded entirely on speculation,
surmises or conjectures; when the inference
made is manifestly absurd, mistaken or
impossible; when there is grave abuse of
discretion in the appreciation of facts; when
the judgment is premised on
misapprehension of facts; when the findings
went beyond the issues of the case and the
same are contrary to the admissions of both
appellant and appellee. After a careful study of
the case at bench, we find none of the above
grounds present to justify the re-evaluation of
the findings of fact made by the courts below.8
We see no valid reason to discard the factual
conclusions of the appellate court. . . . (I)t is
not the function of this Court to assess and
evaluate all over again the evidence,
testimonial and documentary, adduced by the
parties, particularly where, such as here, the
findings of both the trial court and the
appellate court on the matter
coincide.9 (Emphasis supplied)
Hence, the first two issues will not be resolved
as they raise questions of fact.
Thus, the only question left to be resolved is
that of prescription. In their submissions, the
parties argued lengthily on the nature of the
contract entered into by them, viz., whether it
was one of sale or for a piece of work.
Article 1713 of the Civil Code defines a
contract for a piece of work thus:
By the contract for a piece of work the
contractor binds himself to execute a piece of
work for the employer, in consideration of a
certain price or compensation. The contractor
may either employ only his labor or skill, or
also furnish the material.
A contract for a piece of work, labor and
materials may be distinguished from a contract
of sale by the inquiry as to whether the thing
transferred is one not in existence and which
would never have existed but for the order, of
the person desiring it10 . In such case, the
contract is one for a piece of work, not a sale.
On the other hand, if the thing subject of the
contract would have existed and been the
subject of a sale to some other person even if
the order had not been given, then the contract
is one of sale11 .
Thus, Mr. Justice Vitug12 explains that -
A contract for the delivery at a certain price of
a an article which the vendor in the ordinary
course of his business manufactures or
procures for the general market, whether the
same is on hand at the time or not is a contract
of sale, but if the goods are to be
manufactured specially for the customer and
upon his special order, and not for the general
market, it is a contract for a piece of work (Art.
a 1467, Civil Code). The mere fact alone that
certain articles are made upon previous orders
of customers will not argue against the
imposition of the sales tax if such articles are
ordinarily manufactured by the taxpayer for
sale to the public (Celestino Co. vs. Collector,
99 Phil. 841).
To Tolentino, the distinction between the two
contracts depends on the intention of the
parties. Thus, if the parties intended that at
some future date an object has to be
delivered, without considering the work or
labor of the party bound to deliver, the contract
is one of sale. But if one of the parties accepts
the undertaking on the basis of some plan,
taking into account the work he will employ
personally or through another, there is a
contract for a piece of work13 .
81
 SALES: FIRST EXAM: FULL TEXT
Clearly, the contract in question is one for a
piece of work. It is not petitioner's line of
business to manufacture air-conditioning
systems to be sold "off-the-shelf." Its business
and particular field of expertise is the
fabrication and installation of such systems as
ordered by customers and in accordance with
the particular plans and specifications provided
by the customers. Naturally, the price or
compensation for the system manufactured
and installed will depend greatly on the
particular plans and specifications agreed
upon with the customers.
The obligations of a contractor for a piece of
work are set forth in Articles 1714 and 1715 of
the Civil Code, which provide:
Art. 1714. If the contractor agrees to produce
the work from material furnished by him, he
shall deliver the thing produced to the
employer and transfer dominion over the thing.
This contract shall be governed by the
following articles as well as by the pertinent
provisions on warranty of title and against
hidden defects and the payment of price in a
contract of sale.
Art. 1715. The contractor shall execute the
work in such a manner that it has the qualities
agreed upon and has no defects which destroy
or lessen its value or fitness for its ordinary or
stipulated use. Should the work be not of such
quality, the employer may require that the
contractor remove the defect or execute
another work. If the contractor fails or refuses
to comply with this obligation, the employer
may have the defect removed or another work
executed, at the contractor's cost.
The provisions on warranty against hidden
defects, referred to in Art. 1714 above-quoted,
are found in Articles 1561 and 1566, which
read as follows:
Art. 1561. The vendor shall be responsible for
warranty against the hidden defects which the
thing sold may have, should they render it unfit
for the use for which it is intended, or should
they diminish its fitness for such use to such
an extent that, had the vendee been aware
thereof, he would not have acquired it or would
have given a lower price for it; but said vendor
shall not be answerable for patent defects or
those which may be visible, or for those which
are not visible if the vendee is an expert who,
by reason of his trade or profession, should
have known them.
xxx       xxx       xxx
82
Art. 1566. The vendor is responsible to the
vendee for any hidden faults or defects in the
thing sold, even though he was not aware
thereof.
This provision shall not apply if the contrary
has been stipulated, and the vendor was not
aware of the hidden faults or defects in the
thing sold.
The remedy against violations of the warranty
against hidden defects is either to withdraw
from the contract (redhibitory action) or to
demand a proportionate reduction of the price
(accion quanti manoris), with damages in
either case14 .
In Villostas vs. Court of Appeals15 , we held
that, "while it is true that Article 1571 of the
Civil Code provides for a prescriptive period of
six months for a redhibitory action, a cursory
reading of the ten preceding articles to which it
refers will reveal that said rule may be applied
only in case of implied warranties"; and where
there is an express warranty in the contract, as
in the case at bench, the prescriptive period is
the one specified in the express warranty, and
in the absence of such period, "the general
rule on rescission of contract, which is four
years (Article 1389, Civil Code) shall apply"16 .
Consistent with the above discussion, it would
appear that this suit is barred by prescription
because the complaint was filed more than
four years after the execution of the contract
and the completion of the air-conditioning
system.
However, a close scrutiny of the complaint
filed in the trial court reveals that the original
action is not really for enforcement of the
warranties against hidden defects, but one for
breach of the contract itself. It alleged 17 that the
petitioner, "in the installation of the air
conditioning system did not comply with the
specifications provided" in the written
agreement between the parties, "and an
evaluation of the air-conditioning system as
installed by the defendant showed the
following defects and violations of the
specifications of the agreement, to wit:
GROUND FLOOR:
"A. RIGHT WING:
Equipped with Worthington Compressor,
Model 2VC4 directly driven by an Hp Elin
electric motor 1750 rmp, 3 phase, 60 cycles,
220 volts, complete with starter evaporative
condenser, circulating water pump, air
handling unit air ducts.
 SALES: FIRST EXAM: FULL TEXT
Defects Noted:
1. Deteriorated evaporative condenser panels,
coils are full of scales and heavy corrosion is
very evident.
2. Defective gauges of compressors;
3. No belt guard on motor;
4. Main switch has no cover;
5. Desired room temperature not attained;
Aside from the above defects, the following
were noted not installed although provided in
the specifications.
1. Face by-pass damper of G.I. sheets No. 16.
This damper regulates the flow of cooled air
depending on room condition.
2. No fresh air intake provision were provided
which is very necessary for efficient comfort
cooling..
3. No motor to regulate the face and by-pass
damper.
4. Liquid level indicator for refrigerant not
provided.
5. Suitable heat exchanger is not installed.
This is an important component to increase
refrigeration efficiency.
6. Modulating thermostat not provided.
7. Water treatment device for evaporative
condenser was not provided.
8. Liquid receiver not provided by sight glass.
B. LEFT WING:
Worthington Compressor Model 2VC4 is
installed complete with 15 Hp electric motor, 3
phase, 220 volts 60 cycles with starter.
Defects Noted:
Same as right wing. except No. 4, All other
defects on right wing are common to the left
wing.
SECOND FLOOR: (Common up to EIGHT
FLOORS)
Compressors installed are MELCO with 7.5 Hp
V-belt driven by 1800 RPM, -220 volts, 60
cycles, 3 phase, Thrige electric motor with
starters.
As stated in the specifications under, Section
No. IV, the MELCO compressors do not satisfy
the conditions stated therein due to the
following:
83
1. MELCO Compressors are not provided with
automatic capacity unloader.
2. Not provided with oil pressure safety control.
3. Particular compressors do not have
provision for renewal sleeves.
Out of the total 15 MELCO compressors
installed to serve the 2nd floor up to 8th floors,
only six (6) units are in operation and the rest
were already replaced. Of the remaining six (6)
units, several of them have been replaced with
bigger crankshafts.
NINTH FLOOR:
Two (2) Worthington 2VC4 driven by 15 Hp, 3
phase, 220 volts, 60 cycles, 1750 rpm, Higgs
motors with starters.
Defects Noted are similar to ground floor.
GENERAL REMARKS:
Under Section III, Design conditions of
specification for air conditioning work, and
taking into account "A" & "B" same, the
present systems are not capable of
maintaining the desired temperature of 76 =
2ºF (sic).
The present tenant have installed 35 window
type air conditioning units distributed among
the different floor levels. Temperature
measurements conducted on March 29. 1971,
revealed that 78ºF room (sic) is only
maintained due to the additional window type
units.
The trial court, after evaluating the evidence
presented, held that, indeed, petitioner failed
to install items and parts required in the
contract and substituted some other items
which were not in accordance with the
specifications18 , thus:
From all of the foregoing, the Court is
persuaded to believe the plaintiff that not only
had the defendant failed to install items and
parts provided for in the specifications of the
air-conditioning system be installed, like face
and by-pass dampers and modulating
thermostat and many others, but also that
there are items, parts and accessories which
were used and installed on the air-conditioning
system which were not in full accord with
contract specifications. These omissions to
install the equipments, parts and accessories
called for in the specifications of the contract,
as well as the deviations made in putting into
the air-conditioning system equipments, parts
and accessories not in full accord with the
contract specification naturally resulted to
 SALES: FIRST EXAM: FULL TEXT

adversely affect the operational effectiveness system installed in an 8-floor building whether
of the air-conditioning system which it has been furnished and installed as per
necessitated the installation of thirty-five agreed specifications.
window type of air-conditioning units
distributed among the different floor levels in Verily, the mere fact that the private
order to be able to obtain a fairly desirable respondent accepted the work does not, ipso
room temperature for the tenants and actual facto, relieve the petitioner from liability for
occupants of the building. The Court opines deviations from and violations of the written
and so holds that the failure of the defendant contract, as the law gives him ten (10) years
to follow the contract specifications and said within which to file an action based on breach
omissions and deviations having resulted in thereof.
the operational ineffectiveness of the system WHEREFORE, the petition is hereby DENIED
installed makes the defendant liable to the and the assailed Decision is AFFIRMED. No
plaintiff in the amount necessary to rectify to costs.
put the air conditioning system in its proper
operational condition to make it serve the SO ORDERED.
purpose for which the plaintiff entered into the
contract with the defendant.
The respondent Court affirmed the trial court's
decision thereby making the latter's findings
also its own.
Having concluded that the original complaint is
one for damages arising from breach of a
written contract - and not a suit to enforce
warranties against hidden defects - we here -
with declare that the governing law is Article
1715 (supra). However, inasmuch as this
provision does not contain a specific
prescriptive period, the general law on
prescription, which is Article 1144 of the Civil
Code, will apply. Said provision states, inter
alia, that actions "upon a written contract"
prescribe in ten (10) years. Since the
governing contract was executed on
September 10, 1962 and the complaint was
filed on May 8, 1971, it is clear that the action
has not prescribed.
What about petitioner's contention that
"acceptance of the work by the employer
relieves the contractor of liability for any defect
in the work"? This was answered by
respondent Court19 as follows:
As the breach of contract which gave rise to
the instant case consisted in appellant's
omission to install the equipments (sic), parts
and accessories not in accordance with the
plan and specifications provided for in the
contract and the deviations made in putting
into the air conditioning system parts and
accessories not in accordance with the
contract specifications, it is evident that the
defect in the installation was not apparent at
the time of the delivery and acceptance of the
work, considering further that plaintiff is not an
expert to recognize the same. From the very
nature of things, it is impossible to determine
by the simple inspection of air conditioning

84
SALES: FIRST EXAM: FULL TEXT

G.R. No. 113564            June 20, 2001

INOCENCIA YU DINO and her HUSBAND
doing business under the trade name
"CANDY CLAIRE FASHION
GARMENTS", petitioners,
vs.
COURT OF APPEALS and ROMAN SIO,
doing business under the name
"UNIVERSAL TOY MASTER
MANUFACTURING", respondents.
PUNO, J.:
Though people say, "better late than never",
the law frowns upon those who assert their
rights past the eleventh hour. For failing to
timely institute their action, the petitioners are
forever barred from claiming a sum of money
from the respondent.
This is a petition for review on certiorari to
annul and set aside the amended decision of
the respondent court dated January 24, 1994
reversing its April 30, 1993 decision and
dismissing the plaintiff-petitioners' Complaint
on the ground of prescription.The following
undisputed facts gave rise to the case at bar:
Petitioners spouses Dino, doing business
under the trade name "Candy Claire Fashion
Garment" are engaged in the business of
manufacturing and selling shirts.1 Respondent
Sio is part owner and general manager of a
manufacturing corporation doing business
under the trade name "Universal Toy Master
Manufacturing."2
Petitioners and respondent Sio entered into a
contract whereby the latter would manufacture
for the petitioners 20,000 pieces of vinyl frogs
and 20,000 pieces of vinyl mooseheads at
P7.00 per piece in accordance with the sample
approved by the petitioners. These frogs and
mooseheads were to be attached to the shirts
petitioners would manufacture and sell. 3
Respondent Sio delivered in several
installments the 40,000 pieces of frogs and
mooseheads. The last delivery was made on
September 28, 1988. Petitioner fully paid the
agreed price.4 Subsequently, petitioners
returned to respondent 29,772 pieces of frogs
and mooseheads for failing to comply with the
approved sample.5 The return was made on
different dates: the initial one on December 12,
1988 consisting of 1,720 pieces,6 the second
on January 11, 1989,7 and the last on January
17, 1989.8
Petitioners then demanded from the
respondent a refund of the purchase price of
the returned goods in the amount of

85
 SALES: FIRST EXAM: FULL TEXT
P208,404.00. As respondent Sio refused to
pay,9 petitioners filed on July 24, 1989 an
action for collection of a sum of money in the
Regional Trial Court of Manila, Branch 38.
The trial court ruled in favor of the
petitioners, viz:
"WHEREFORE, judgment is hereby rendered
in favor of the plaintiffs Vicente and Inocencia
Dino and against defendant Toy Master
Manufacturing, Inc. ordering the latter to pay
the former:
1. The amount of Two Hundred Eight
Thousand Four Hundred Four (P208,404.00)
Pesos with legal interest thereon from July 5,
1989, until fully paid; and
2. The amount of Twenty Thousand
(P20,000.00) Pesos as attorney's fees and the
costs of this suit.
The counterclaim on the other hand is hereby
dismissed for lack of merit."10
Respondent Sio sought recourse in the Court
of Appeals. In its April 30, 1993 decision, the
appellate court affirmed the trial court decision.
Respondent then filed a Motion for
Reconsideration and a Supplemental Motion
for Reconsideration alleging therein that the
petitioners' action for collection of sum of
money based on a breach of warranty had
already prescribed. On January 24, 1994, the
respondent court reversed its decision and
dismissed petitioners' Complaint for having
been filed beyond the prescriptive period. The
amended decision read in part, viz:
"Even if there is failure to raise the affirmative
defense of prescription in a motion to dismiss
or in an appropriate pleading (answer,
amended or supplemental answer) and an
amendment would no longer be feasible, still
prescription, if apparent on the face of the
complaint may be favorably considered
(Spouses Matias B. Aznar, III, et al. vs. Hon.
Juanito A. Bernad, etc., supra, G.R. 81190,
May 9, 1988). The rule in Gicano vs. Gegato
(supra) was reiterated in Severo v. Court of
Appeals, (G.R. No. 84051, May 19, 1989).
WHEREFORE the Motion For Reconsideration
is granted. The judgment of this Court is set
aside and judgment is hereby rendered
REVERSING the judgment of the trial court
and dismissing plaintiff's complaint."11
Hence, this petition with the following
assignment of errors:
I.
86
The respondent Court of Appeals seriously
erred in dismissing the complaint of the
Petitioners on the ground that the action had
prescribed.
II.
The respondent Court of Appeals seriously
erred in holding that the defense of
prescription would still be considered despite
the fact that it was not raised in the answer, if
apparent on the face of the complaint.
We first determine the nature of the action filed
in the trial court to resolve the issue of
prescription. Petitioners claim that the
Complaint they filed in the trial court on July
24, 1989 was one for the collection of a sum of
money. Respondent contends that it was an
action for breach of warranty as the sum of
money petitioners sought to collect was
actually a refund of the purchase price they
paid for the alleged defective goods they
bought from the respondent.
We uphold the respondent's contention.
The following provisions of the New Civil Code
are apropos:
"Art. 1467. A contract for the delivery at a
certain price of an article which the vendor in
the ordinary course of his business
manufactures or procures for the general
market, whether the same is on hand at the
time or not, is a contract of sale, but if the
goods are to be manufactured specially for the
customer and upon his special order, and not
for the general market, it is a contract for a
piece of work."
"Art. 1713. By the contract for a piece of work
the contractor binds himself to execute a piece
of work for the employer, in consideration of a
certain price or compensation. The contractor
may either employ only his labor or skill, or
also furnish the material."
As this Court ruled in Engineering &
Machinery Corporation v. Court of Appeals, et
al.,12 "a contract for a piece of work, labor and
materials may be distinguished from a contract
of sale by the inquiry as to whether the thing
transferred is one not in existence and which
would never have existed but for the order of
the person desiring it. In such case, the
contract is one for a piece of work, not a sale.
On the other hand, if the thing subject of the
contract would have existed and been the
subject of a sale to some other person even if
the order had not been given then the contract
is one of sale."13 The contract between the
petitioners and respondent stipulated that
 SALES: FIRST EXAM: FULL TEXT
respondent would manufacture upon order of
the petitioners 20,000 pieces of vinyl frogs and
20,000 pieces of vinyl mooseheads according
to the samples specified and approved by the
petitioners. Respondent Sio did not ordinarily
manufacture these products, but only upon
order of the petitioners and at the price agreed
upon.14 Clearly, the contract executed by and
between the petitioners and the respondent
was a contract for a piece of work. At any rate,
whether the agreement between the parties
was one of a contract of sale or a piece of
work, the provisions on warranty of title against
hidden defects in a contract of sale apply to
the case at bar, viz:
"Art. 1714. If the contractor agrees to produce
the work from material furnished by him, he
shall deliver the thing produced to the
employer and transfer dominion over the thing.
This contract shall be governed by the
following articles as well as by the pertinent
provisions on warranty of title and against
hidden defects and the payment of price in a
contract of sale."
"Art. 1561. The vendor shall be responsible for
warranty against the hidden defects which the
thing sold may have, should they render it unfit
for the use for which it is intended, or should
they diminish its fitness for such use to such
an extent that, had the vendee been aware
thereof, he would not have acquired it or would
have given a lower price for it; but said vendor
shall not be answerable for patent defects or
those which may be visible, or for those which
are not visible if the vendee is an expert who,
by reason of his trade or profession, should
have known them."
Petitioners aver that they discovered the
defects in respondent's products when
customers in their (petitioners') shirt business
came back to them complaining that the frog
and moosehead figures attached to the shirts
they bought were torn. Petitioners allege that
they did not readily see these hidden defects
upon their acceptance. A hidden defect is one
which is unknown or could not have been
known to the vendee.15 Petitioners then
returned to the respondent 29,772 defective
pieces of vinyl products and demanded a
refund of their purchase price in the amount of
P208,404.00. Having failed to collect this
amount, they filed an action for collection of a
sum of money.
Article 1567 provides for the remedies
available to the vendee in case of hidden
defects, viz:
87
"Art. 1567. In the cases of Articles 1561, 1562,
1564, 1565 and 1566, the vendee may elect
between withdrawing from the contract and
demanding a proportionate reduction of the
price, with damages in either case."
By returning the 29,772 pieces of vinyl
products to respondent and asking for a return
of their purchase price, petitioners were in
effect "withdrawing from the contract" as
provided in Art. 1567. The prescriptive period
for this kind of action is provided in Art. 1571 of
the New Civil Code, viz:
"Art. 1571. Actions arising from the provisions
of the preceding ten articles shall be barred
after six months from the delivery of the thing
sold." (Emphasis supplied)
There is no dispute that respondent made the
last delivery of the vinyl products to petitioners
on September 28, 1988. It is also settled that
the action to recover the purchase price of the
goods petitioners returned to the respondent
was filed on July 24, 1989, 16 more than nine
months from the date of last delivery.
Petitioners having filed the action three months
after the six-month period for filing actions for
breach of warranty against hidden defects
stated in Art. 1571,17 the appellate court
dismissed the action.
Petitioners fault the ruling on the ground that it
was too late in the day for respondent to raise
the defense of prescription. The law then
applicable to the case at bar, Rule 9, Sec. 2 of
the Rules of Court, provides:
"Defenses and objections not pleaded either in
a motion to dismiss or in the answer are
deemed waived; except the failure to state a
cause of action . . . "
Thus, they claim that since the respondent
failed to raise the defense of prescription in a
motion to dismiss or in its answer, it is deemed
waived and cannot be raised for the first time
on appeal in a motion for reconsideration of
the appellate court's decision.
As a rule, the defense of prescription cannot
be raised for the first time on appeal. Thus, we
held in Ramos v. Osorio,18 viz:
"It is settled law in this jurisdiction that the
defense of prescription is waivable, and that if
it was not raised as a defense in the trial court,
it cannot be considered on appeal, the general
rule being that the appellate court is not
authorized to consider and resolve any
question not properly raised in the lower court
(Subido vs. Lacson, 55 O.G. 8281, 8285;
 SALES: FIRST EXAM: FULL TEXT
Moran, Comments on the Rules of Court, Vol.
I, p. 784, 1947 Edition)."
However, this is not a hard and fast rule.
In Gicano v. Gegato,19 we held:
". . .(T)rial courts have authority and discretion
to dimiss an action on the ground of
prescription when the parties' pleadings or
other facts on record show it to be indeed
time-barred; (Francisco v. Robles, Feb, 15,
1954; Sison v. McQuaid, 50 O.G. 97; Bambao
v. Lednicky, Jan. 28, 1961; Cordova v.
Cordova, Jan. 14, 1958; Convets, Inc. v. NDC,
Feb. 28, 1958; 32 SCRA 529; Sinaon v.
Sorongan, 136 SCRA 408); and it may do so
on the basis of a motion to dismiss (Sec. 1,f,
Rule 16, Rules of Court), or an answer which
sets up such ground as an affirmative defense
(Sec. 5, Rule 16), or even if the ground is
alleged after judgment on the merits, as in a
motion for reconsideration (Ferrer v. Ericta, 84
SCRA 705); or even if the defense has not
been asserted at all, as where no statement
thereof is found in the pleadings (Garcia v.
Mathis, 100 SCRA 250; PNB v. Pacific
Commission House, 27 SCRA 766; Chua
Lamco v. Dioso, et al., 97 Phil. 821); or where
a defendant has been declared in default (PNB
v. Perez, 16 SCRA 270). What is essential
only, to repeat, is that the facts demonstrating
the lapse of the prescriptive period be
otherwise sufficiently and satisfactorily
apparent on the record; either in the
averments of the plaintiff's complaint, or
otherwise established by the evidence."
(emphasis supplied)
In Aldovino, et al. v. Alunan, et al.,20 the Court
en banc reiterated the Garcia v.
Mathis doctrine cited in the Gicano case that
when the plaintiff's own complaint shows
clearly that the action has prescribed, the
action may be dismissed even if the defense of
prescription was not invoked by the defendant.
It is apparent in the records that respondent
made the last delivery of vinyl products to the
petitioners on September 28, 1988. Petitioners
admit this in their Memorandum submitted to
the trial court and reiterate it in their Petition for
Review.21 It is also apparent in the Complaint
that petitioners instituted their action on July
24, 1989. The issue for resolution is whether
or not the respondent Court of Appeals could
dismiss the petitioners' action if the defense of
prescription was raised for the first time on
appeal but is apparent in the records.
Following the Gicano doctrine that allows
dismissal of an action on the ground of
prescription even after judgment on the merits,
88
or even if the defense was not raised at all so
long as the relevant dates are clear on the
record, we rule that the action filed by the
petitioners has prescribed. The dates of
delivery and institution of the action are
undisputed. There are no new issues of fact
arising in connection with the question of
prescription, thus carving out the case at bar
as an exception from the general rule that
prescription if not impleaded in the answer is
deemed waived.22
Even if the defense of prescription was raised
for the first time on appeal in respondent's
Supplemental Motion for Reconsideration of
the appellate court's decision, this does not
militate against the due process right of the
petitioners. On appeal, there was no new issue
of fact that arose in connection with the
question of prescription, thus it cannot be said
that petitioners were not given the opportunity
to present evidence in the trial court to meet a
factual issue. Equally important, petitioners
had the opportunity to oppose the defense of
prescription in their Opposition to the
Supplemental Motion for Reconsideration filed
in the appellate court and in their Petition for
Review in this Court.
This Court's application of
the Osorio and Gicano doctrines to the case at
bar is confirmed and now enshrined in Rule 9,
Sec. 1 of the 1997 Rules of Civil
Procedure, viz:
"Section 1. Defense and objections not
pleaded. - Defenses and objections not
pleaded whether in a motion to dismiss or in
the answer are deemed waived. However,
when it appears from the pleadings that the
court has no jurisdiction over the subject
matter, that there is another action pending
between the same parties for the same cause,
or that the action is barred by a prior judgment
or by statute of limitations, the court shall
dismiss the claim." (Emphasis supplied)
WHEREFORE, the petition is DENIED and the
impugned decision of the Court of Appeals
dated January 24, 1994 is AFFIRMED. No
costs.
SO ORDERED.
SALES: FIRST EXAM: FULL TEXT

G.R. No. 115349 April 18, 1997

COMMISSIONER OF INTERNAL
REVENUE, petitioner,
vs.
THE COURT OF APPEALS, THE COURT OF
TAX APPEALS and ATENEO DE MANILA
UNIVERSITY, respondents.

PANGANIBAN, J.:
In conducting researches and studies of social
organizations and cultural values thru its
Institute of Philippine Culture, is the Ateneo de
Manila University performing the work of an
independent contractor and thus taxable within
the purview of then Section 205 of the National
Internal Revenue Code levying a three percent
contractor's tax? This question is answer by
the Court in the negative as it resolves this
petition assailing the Decision 1 of the
Respondent Court of Appeals 2 in CA-G.R. SP
No. 31790 promulgated on April 27, 1994
affirming that of the Court of Tax Appeals. 3
The Antecedent Facts
The antecedents as found by the Court of
Appeals are reproduced hereinbelow, the
same being largely undisputed by the parties.
Private respondent is a non-stock, non-profit
educational institution with auxiliary units and
branches all over the Philippines. One such
auxiliary unit is the Institute of Philippine
Culture (IPC), which has no legal personality
separate and distinct from that of private
respondent. The IPC is a Philippine unit
engaged in social science studies of Philippine
society and culture. Occasionally, it accepts
sponsorships for its research activities from
international organizations, private foundations
and government agencies.
On July 8, 1983, private respondent received
from petitioner Commissioner of Internal
Revenue a demand letter dated June 3, 1983,
assessing private respondent the sum of
P174,043.97 for alleged deficiency contractor's
tax, and an assessment dated June 27, 1983
in the sum of P1,141,837 for alleged deficiency
income tax, both for the fiscal year ended
March 31, 1978. Denying said tax liabilities,
private respondent sent petitioner a letter-
protest and subsequently filed with the latter a
memorandum contesting the validity of the
assessments.

89
 SALES: FIRST EXAM: FULL TEXT
On March 17, 1988, petitioner rendered a
letter-decision canceling the assessment for
deficiency income tax but modifying the
assessment for deficiency contractor's tax by
increasing the amount due to P193,475.55.
Unsatisfied, private respondent requested for a
reconsideration or reinvestigation of the
modified assessment. At the same time, it filed
in the respondent court a petition for review of
the said letter-decision of the petitioner. While
the petition was pending before the
respondent court, petitioner issued a final
decision dated August 3, 1988 reducing the
assessment for deficiency contractor's tax
from P193,475.55 to P46,516.41, exclusive of
surcharge and interest.
On July 12, 1993, the respondent court
rendered the questioned decision which
dispositively reads:
WHEREFORE, in view of the foregoing,
respondent's decision is SET ASIDE. The
deficiency contractor's tax assessment in the
amount of P46,516.41 exclusive of surcharge
and interest for the fiscal year ended March
31, 1978 is hereby CANCELED. No
pronouncement as to cost.
SO ORDERED.
Not in accord with said decision, petitioner has
come to this Court via the present petition for
review raising the following issues:
1) WHETHER OR NOT PRIVATE
RESPONDENT FALLS UNDER THE
PURVIEW OF INDEPENDENT
CONTRACTOR PURSUANT TO SECTION
205 OF THE TAX CODE; and
2) WHETHER OR NOT PRIVATE
RESPONDENT IS SUBJECT TO 3%
CONTRACTOR'S TAX UNDER SECTION 205
OF THE TAX CODE.
The pertinent portions of Section 205 of the
National Internal Revenue Code, as amended,
provide:
Sec. 205. Contractor, proprietors or operators
of dockyards, and others. — A contractor's tax
of three  per centum of the gross receipts is
hereby imposed on the following:
x x x           x x x          x x x
(16) Business agents and other independent
contractors except persons, associations and
corporations under contract for embroidery
and apparel for export, as well as their agents
and contractors and except gross receipts of
or from a pioneer industry registered with the
90
Board of Investments under Republic Act No.
5186:
x x x           x x x          x x x
The term "independent contractors" include
persons (juridical or natural) not enumerated
above (but not including individuals subject to
the occupation tax under Section 12 of the
Local Tax Code) whose activity consists
essentially of the sale of all kinds of services
for a fee regardless of whether or not the
performance of the service calls for the
exercise or use of the physical or mental
faculties of such contractors or their
employees.
xxx xxx xxx
Petitioner contends that the respondent court
erred in holding that private respondent is not
an "independent contractor" within the purview
of Section 205 of the Tax Code. To petitioner,
the term "independent contractor", as defined
by the Code, encompasses all kinds of
services rendered for a fee and that the only
exceptions are the following:
a. Persons, association and corporations
under contract for embroidery and apparel for
export and gross receipts of or from pioneer
industry registered with the Board of
Investment under R.A. No. 5186;
b. Individuals occupation tax under Section 12
of the Local Tax Code (under the old Section
182 [b] of the Tax Code); and
c. Regional or area headquarters established
in the Philippines by multinational
corporations, including their alien executives,
and which headquarters do not earn or derive
income from the Philippines and which act as
supervisory, communication and coordinating
centers for their affiliates, subsidiaries or
branches in the Asia Pacific Region (Section
205 of the Tax Code).
Petitioner thus submits that since private
respondent falls under the definition of an
"independent contractor" and is not among the
aforementioned exceptions, private
respondent is therefore subject to the 3%
contractor's tax imposed under the same
Code. 4
The Court of Appeals disagreed with the
Petitioner Commissioner of Internal Revenue
and affirmed the assailed decision of the Court
of Tax Appeals. Unfazed, petitioner now asks
us to reverse the CA through this petition for
review.
 SALES: FIRST EXAM: FULL TEXT
The Issues
Petitioner submits before us the following
issues:
1) Whether or not private respondent falls
under the purview of independent contractor
pursuant to Section 205 of the Tax Code.
2) Whether or not private respondent is subject
to 3% contractor's tax under Section 205 of the
Tax Code. 5
In fine, these may be reduced to a single
issue: Is Ateneo de Manila University, through
its auxiliary unit or branch — the Institute of
Philippine Culture — performing the work of an
independent contractor and, thus, subject to
the three percent contractor's tax levied by
then Section 205 of the National Internal
Revenue Code?
The Court's Ruling
The petition is unmeritorious.
Interpretation of Tax Laws
The parts of then Section 205 of the National
Internal Revenue Code germane to the case
before us read:
Sec. 205. Contractors, proprietors or operators
of dockyards, and others. — A contractor's tax
of three  per centum of the gross receipts is
hereby imposed on the following:
xxx xxx xxx
(16) Business agents and other independent
contractors, except persons, associations and
corporations under contract for embroidery
and apparel for export, as well as their agents
and contractors, and except gross receipts of
or from a pioneer industry registered with the
Board of Investments under the provisions of
Republic Act No. 5186;
xxx xxx xxx
The term "independent contractors" include
persons (juridical or natural) not enumerated
above (but not including individuals subject to
the occupation tax under Section 12 of the
Local Tax Code) whose activity consists
essentially of the sale of all kinds of services
for a fee regardless of whether or not the
performance of the service calls for the
exercise or use of the physical or mental
faculties of such contractors or their
employees.
The term "independent contractor" shall not
include regional or area headquarters
91
established in the Philippines by multinational
corporations, including their alien executives,
and which headquarters do not earn or derive
income from the Philippines and which act as
supervisory, communications and coordinating
centers for their affiliates, subsidiaries or
branches in the Asia-Pacific Region.
The term "gross receipts" means all amounts
received by the prime or principal contractor as
the total contract price, undiminished by
amount paid to the subcontractor, shall be
excluded from the taxable gross receipts of the
subcontractor.
Petitioner Commissioner of Internal Revenue
contends that Private Respondent Ateneo de
Manila University "falls within the definition" of
an independent contractor and "is not one of
those mentioned as excepted"; hence, it is
properly a subject of the three percent
contractor's tax levied by the foregoing
provision of law. 6 Petitioner states that the
"term 'independent contractor' is not
specifically defined so as to delimit the scope
thereof, so much so that any person who . . .
renders physical and mental service for a fee,
is now indubitably considered an independent
contractor liable to 3% contractor's
tax." 7 According to petitioner, Ateneo has the
burden of proof to show its exemption from the
coverage of the law.
We disagree. Petitioner Commissioner of
Internal Revenue erred in applying the
principles of tax exemption without first
applying the well-settled doctrine of strict
interpretation in the imposition of taxes. It is
obviously both illogical and impractical to
determine who are exempted without first
determining who are covered by the aforesaid
provision. The Commissioner should have
determined first if private respondent was
covered by Section 205, applying the rule of
strict interpretation of laws imposing taxes and
other burdens on the populace, before asking
Ateneo to prove its exemption therefrom. The
Court takes this occasion to reiterate the
hornbook doctrine in the interpretation of tax
laws that "(a) statute will not be construed as
imposing a tax unless it does so clearly,
expressly, and unambiguously  . . .  (A) tax
cannot be imposed without clear and express
words for that purpose. Accordingly, the
general rule of requiring adherence to the
letter in construing statutes applies with
peculiar strictness to tax laws and the
provisions of a taxing act are not to
be extended by implication." 8 Parenthetically,
in answering the question of who is subject to
tax statutes, it is basic that "in case of doubt,
 SALES: FIRST EXAM: FULL TEXT
such statutes are to be construed most
strongly against the government and in favor
of the subjects or citizens because burdens
are not to be imposed nor presumed to be
imposed beyond what statutes expressly and
clearly import." 9
To fall under its coverage, Section 205 of the
National Internal Revenue Code requires that
the independent contractor be engaged in the
business of selling its services. Hence, to
impose the three percent contractor's tax on
Ateneo's Institute of Philippine Culture, it
should be sufficiently proven that the private
respondent is indeed selling its services for a
fee in pursuit of an independent business. And
it is only after private respondent has been
found clearly to be subject to the provisions of
Sec. 205 that the question of exemption
therefrom would arise. Only after such
coverage is shown does the rule of
construction — that tax exemptions are to be
strictly construed against the taxpayer — come
into play, contrary to petitioner's position. This
is the main line of reasoning of the Court of
Tax Appeals in its decision, 10 which was
affirmed by the CA.
The Ateneo de Manila University Did Not
Contract
for the Sale of the Service of its Institute of
Philippine Culture
After reviewing the records of this case, we
find no evidence that Ateneo's Institute of
Philippine Culture ever sold its services for a
fee to anyone or was ever engaged in a
business apart from and independently of the
academic purposes of the university.
Stressing that "it is not the Ateneo de Manila
University  per se which is being taxed,"
Petitioner Commissioner of Internal Revenue
contends that "the tax is due on its activity of
conducting researches for a fee. The tax is
due on the gross receipts made in favor of IPC
pursuant to the contracts the latter entered to
conduct researches for the benefit primarily of
its clients. The tax is imposed on the exercise
of a taxable activity. . . . [T]he sale of services
of private respondent is made under a contract
and the various contracts entered into between
private respondent and its clients are almost of
the same terms, showing, among others, the
compensation and terms of
payment." 11 (Emphasis supplied.)
In theory, the Commissioner of Internal
Revenue may be correct. However, the
records do not show that Ateneo's IPC in fact
contracted to sell its research services for a
fee. Clearly then, as found by the Court of
92
Appeals and the Court of Tax Appeals,
petitioner's theory is inapplicable to the
established factual milieu obtaining in the
instant case.
In the first place, the petitioner has presented
no evidence to prove its bare contention that,
indeed, contracts for sale of services were
ever entered into by the private respondent. As
appropriately pointed out by the latter:
An examination of the Commissioner's Written
Formal Offer of Evidence in the Court of Tax
Appeals shows that only the following
documentary evidence was presented:
Exhibit 1 BIR letter of authority no. 331844
2 Examiner's Field Audit Report
3 Adjustments to Sales/Receipts
4 Letter-decision of BIR Commissioner
Bienvenido A. Tan Jr.
None of the foregoing evidence even comes
close to purport to be contracts between
private respondent and third parties. 12
Moreover, the Court of Tax Appeals accurately
and correctly declared that the "  funds
received by the Ateneo de Manila University
are technically not a fee. They may however
fall as gifts or donations which are tax-exempt"
as shown by private respondent's compliance
with the requirement of Section 123 of the
National Internal Revenue Code providing for
the exemption of such gifts to an educational
institution. 13
Respondent Court of Appeals elucidated on
the ruling of the Court of Tax Appeals:
To our mind, private respondent hardly fits into
the definition of an "independent contractor".
For one, the established facts show that IPC,
as a unit of the private respondent, is not
engaged in business. Undisputedly, private
respondent is mandated by law to undertake
research activities to maintain its university
status. In fact, the research activities being
carried out by the IPC is focused not on
business or profit but on social sciences
studies of Philippine society and culture. Since
it can only finance a limited number of IPC's
research projects, private respondent
occasionally accepts sponsorship for
unfunded IPC research projects from
international organizations, private foundations
and governmental agencies. However, such
sponsorships are subject to private
respondent's terms and conditions, among
which are, that the research is confined to
 SALES: FIRST EXAM: FULL TEXT
topics consistent with the private respondent's
academic agenda;  that no proprietary or
commercial purpose research is done;  and
that private respondent retains not only the
absolute right to publish but also the
ownership of the results of the research
conducted by the IPC.  Quite clearly, the
aforementioned terms and conditions belie the
allegation that private respondent is a
contractor or is engaged in business.
For another, it bears stressing that private
respondent is a non-stock, non-profit
educational corporation. The fact that it
accepted sponsorship for IPC's unfunded
projects is merely incidental. For, the main
function of the IPC is to undertake research
projects under the academic agenda of the
private respondent. Moreover the records do
not show that in accepting sponsorship of
research work, IPC realized profits from such
work. On the contrary, the evidence shows
that for about 30 years, IPC had continuously
operated at a loss, which means that
sponsored funds are less than actual
expenses for its research projects. That IPC
has been operating at a loss loudly bespeaks
of the fact that education and not profit is the
motive for undertaking the research projects.
Then, too, granting arguendo that IPC made
profits from the sponsored research projects,
the fact still remains that there is no proof that
part of such earnings or profits was ever
distributed as dividends to any stockholder, as
in fact none was so distributed because they
accrued to the benefit of the private
respondent which is a non-profit educational
institution. 14
Therefore, it is clear that the funds received by
Ateneo's Institute of Philippine Culture are not
given in the concept of a fee or price in
exchange for the performance of a service or
delivery of an object. Rather, the amounts are
in the nature of an endowment or donation
given by IPC's benefactors solely for the
purpose of sponsoring or funding the
research with no strings attached. As found by
the two courts below, such sponsorships are
subject to IPC's terms and conditions. No
proprietary or commercial research is done,
and IPC retains the ownership of the results of
the research, including the absolute right to
publish the same. The copyrights over the
results of the research are owned by
Ateneo and, consequently, no portion thereof
may be reproduced without its
permission. 15 The amounts given to IPC,
therefore, may not be deemed, it bears
93
stressing as fees or gross receipts that can be
subjected to the three percent contractor's tax.
It is also well to stress that the questioned
transactions of Ateneo's Institute of Philippine
Culture cannot be deemed either as a contract
of sale or a contract of a piece of work. "By the
contract of sale, one of the contracting parties
obligates himself to transfer the ownership of
and to deliver a determinate thing, and the
other to pay therefor a price certain in money
or its equivalent." 16 By its very nature, a
contract of sale requires a transfer of
ownership. Thus, Article 1458 of the Civil Code
"expressly makes the obligation to transfer
ownership as an essential element of the
contract of sale, following modern codes, such
as the German and the Swiss. Even in the
absence of this express requirement, however,
most writers, including Sanchez Roman,
Gayoso, Valverde, Ruggiero, Colin and
Capitant, have considered such transfer of
ownership as the primary purpose of sale.
Perez and Alguer follow the same view, stating
that the delivery of the thing does not mean a
mere physical transfer, but is a means of
transmitting ownership. Transfer of title or an
agreement to transfer it for a price paid or
promised to be paid is the essence of
sale." 17 In the case of a contract for a piece of
work, "the contractor binds himself to execute
a piece of work for the employer, in
consideration of a certain price or
compensation. . . . If the contractor agrees to
produce the work from materials furnished by
him, he shall deliver the thing produced to the
employer and transfer dominion over the thing,
. . ." 18 Ineludably, whether the contract be one
of sale or one for a piece of work, a transfer of
ownership is involved and a party necessarily
walks away with an object. 19 In the case at
bench, it is clear from the evidence on record
that there was no sale either of objects or
services because, as adverted to earlier, there
was no transfer of ownership over the
research data obtained or the results of
research projects undertaken by the Institute
of Philippine Culture.
Furthermore, it is clear that the research
activity of the Institute of Philippine Culture is
done in pursuance of maintaining Ateneo's
university status and not in the course of an
independent business of selling such research
with profit in mind. This is clear from a reading
of the regulations governing universities:
31. In addition to the legal requisites an
institution must meet, among others, the
following requirements before an application
for university status shall be considered:
 SALES: FIRST EXAM: FULL TEXT
xxx xxx xxx
(e) The institution must undertake research
and operate with a competent qualified staff at
least three graduate departments in
accordance with the rules and standards for
graduate education. One of the departments
shall be science and technology. The
competence of the staff shall be judged by
their effective teaching, scholarly publications
and research activities published in its school
journal  as well as their leadership activities in
the profession.
(f) The institution must show evidence of
adequate and stable financial resources and
support, a reasonable portion of which should
be devoted to institutional development and
research. (emphasis supplied)
xxx xxx xxx
32. University status may be withdrawn, after
due notice and hearing, for failure to maintain
satisfactorily the standards and requirements
therefor. 20
Petitioner's contention that it is the Institute of
Philippine Culture that is being taxed and not
the Ateneo is patently erroneous because the
former is not an independent juridical entity
that is separate and distinct form the latter.
Factual Findings and Conclusions of the Court
of Tax Appeals Affirmed by the Court of
Appeals Generally Conclusive
In addition, we reiterate that the "Court of Tax
Appeals is a highly specialized body
specifically created for the purpose of
reviewing tax cases. Through its expertise, it is
undeniably competent to determine the issue
of whether" 21 Ateneo de Manila University
may be deemed a subject of the three percent
contractor's tax "through the evidence
presented before it." Consequently, "as a
matter of principle, this Court will not set aside
the conclusion reached by . . . the Court of Tax
Appeals which is, by the very nature of its
function, dedicated exclusively to the study
and consideration of tax problems and has
necessarily developed an expertise on the
subject unless there has been an abuse or
improvident exercise of authority . . ." 22 This
point becomes more evident in the case before
us where the findings and conclusions of both
the Court of Tax Appeals and the Court of
Appeals appear untainted by any abuse of
authority, much less grave abuse of discretion.
Thus, we find the decision of the latter
affirming that of the former free from any
palpable error.
94
Public Service, Not Profit, is the Motive
The records show that the Institute of
Philippine Culture conducted its research
activities at a huge deficit of P1,624,014.00 as
shown in its statements of fund and
disbursements for the period 1972 to
1985. 23 In fact, it was Ateneo de Manila
University itself that had funded the research
projects of the institute, and it was only when
Ateneo could no longer produce the needed
funds that the institute sought funding from
outside. The testimony of Ateneo's Director for
Accounting Services, Ms. Leonor Wijangco,
provides significant insight on the academic
and nonprofit nature of the institute's research
activities done in furtherance of the university's
purposes, as follows:
Q Now it was testified to earlier by Miss
Thelma Padero (Office Manager of the
Institute of Philippine Culture) that as far as
grants from sponsored research it is possible
that the grant sometimes is less than the
actual cost. Will you please tell us in this case
when the actual cost is a lot less than the grant
who shoulders the additional cost?
A The University.
Q Now, why is this done by the University?
A Because of our faculty development
program as a university, because a university
has to have its own research institute. 24
So, why is it that Ateneo continues to operate
and conduct researches through its Institute of
Philippine Culture when it undisputedly loses
not an insignificant amount in the process?
The plain and simple answer is that private
respondent is not a contractor selling its
services for a fee but an academic institution
conducting these researches pursuant to its
commitments to education and, ultimately, to
public service. For the institute to have
tenaciously continued operating for so long
despite its accumulation of significant losses,
we can only agree with both the Court of Tax
Appeals and the Court of Appeals that
"education and not profit is [IPC's] motive for
undertaking the research
projects." 25
WHEREFORE, premises considered, the
petition is DENIED and the assailed Decision
of the Court of Appeals is hereby AFFIRMED
in full.
SO ORDERED.
SALES: FIRST EXAM: FULL TEXT

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

95
 SALES: FIRST EXAM: FULL TEXT
the freight, insurance, and cost of unloading
from the vessel at the point where the beds
are received, shall be paid by Mr. Parsons.
(D) If, before an invoice falls due, Mr. Quiroga
should request its payment, said payment
when made shall be considered as a prompt
payment, and as such a deduction of 2 per
cent shall be made from the amount of the
invoice.
The same discount shall be made on the
amount of any invoice which Mr. Parsons may
deem convenient to pay in cash.
(E) Mr. Quiroga binds himself to give notice at
least fifteen days before hand of any alteration
in price which he may plan to make in respect
to his beds, and agrees that if on the date
when such alteration takes effect he should
have any order pending to be served to Mr.
Parsons, such order shall enjoy the advantage
of the alteration if the price thereby be
lowered, but shall not be affected by said
alteration if the price thereby be increased, for,
in this latter case, Mr. Quiroga assumed the
obligation to invoice the beds at the price at
which the order was given.
(F) Mr. Parsons binds himself not to sell any
other kind except the "Quiroga" beds.
ART. 2. In compensation for the expenses of
advertisement which, for the benefit of both
contracting parties, Mr. Parsons may find
himself obliged to make, Mr. Quiroga assumes
the obligation to offer and give the preference
to Mr. Parsons in 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
96
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
 SALES: FIRST EXAM: FULL TEXT
plaintiff's contention. Not a single one of these
clauses necessarily conveys the idea of an
agency. The words commission on sales used
in clause (A) of article 1 mean nothing else, as
stated in the contract itself, than a mere
discount on the invoice price. The
word agency, also used in articles 2 and 3,
only expresses that the defendant was the
only one that could sell the plaintiff's beds in
the Visayan Islands. With regard to the
remaining clauses, the least that can be said is
that they are not incompatible with the contract
of purchase and sale.
The plaintiff calls attention to the testimony of
Ernesto Vidal, a former vice-president of the
defendant corporation and who established
and managed the latter's business in Iloilo. It
appears that this witness, prior to the time of
his testimony, had serious trouble with the
defendant, had maintained a civil suit against
it, and had even accused one of its partners,
Guillermo Parsons, of falsification. He testified
that it was he who drafted the contract Exhibit
A, and, when questioned as to what was his
purpose in contracting with the plaintiff, replied
that it was to be an agent for his beds and to
collect a commission on sales. However,
according to the defendant's evidence, it was
Mariano Lopez Santos, a director of the
corporation, who prepared Exhibit A. But, even
supposing that Ernesto Vidal has stated the
truth, his statement as to what was his idea in
contracting with the plaintiff is of no
importance, inasmuch as the agreements
contained in Exhibit A which he claims to have
drafted, constitute, as we have said, a contract
of purchase and sale, and not one of
commercial agency. This only means that
Ernesto Vidal was mistaken in his
classification of the contract. But it must be
understood that a contract is what the law
defines it to be, and not what it is called by the
contracting parties.
The plaintiff also endeavored to prove that the
defendant had returned beds that it could not
sell; that, without previous notice, it forwarded
to the defendant the beds that it wanted; and
that the defendant received its commission for
the beds sold by the plaintiff directly to persons
in Iloilo. But all this, at the most only shows
that, on the part of both of them, there was
mutual tolerance in the performance of the
contract in disregard of its terms; and it gives
no right to have the contract considered, not
as the parties stipulated it, but as they
performed it. Only the acts of the contracting
parties, subsequent to, and in connection with,
the execution of the contract, must be
considered for the purpose of interpreting the
97
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.
SALES: FIRST EXAM: FULL TEXT

G.R. No. L-47538             June 20, 1941

GONZALO PUYAT & SONS, INC., petitioner,
vs.
ARCO AMUSEMENT COMPANY (formerly
known as Teatro Arco), respondent.
Feria & Lao for petitioner.
J. W. Ferrier and Daniel Me. Gomez for
respondent.
LAUREL, J.:
This is a petition for the issuance of a writ
of certiorari to the Court of Appeals for the
purpose of reviewing its Amusement Company
(formerly known as Teatro Arco), plaintiff-
appellant, vs. Gonzalo Puyat and Sons. Inc.,
defendant-appellee."
It appears that the respondent herein brought
an action against the herein petitioner in the
Court of First Instance of Manila to secure a
reimbursement of certain amounts allegedly
overpaid by it on account of the purchase price
of sound reproducing equipment and
machinery ordered by the petitioner from the
Starr Piano Company of Richmond, Indiana,
U.S.A. The facts of the case as found by the
trial court and confirmed by the appellate
court, which are admitted by the respondent,
are as follows:
In the year 1929, the "Teatro Arco", a
corporation duly organized under the laws of
the Philippine Islands, with its office in Manila,
was engaged in the business of operating
cinematographs. In 1930, its name was
changed to Arco Amusement Company. C. S.
Salmon was the president, while A. B. Coulette
was the business manager. About the same
time, Gonzalo Puyat & Sons, Inc., another

98
 SALES: FIRST EXAM: FULL TEXT
corporation doing business in the Philippine
Islands, with office in Manila, in addition to its
other business, was acting as exclusive agents
in the Philippines for the Starr Piano Company
of Richmond, Indiana, U.S. A. It would seem
that this last company dealt in
cinematographer equipment and machinery,
and the Arco Amusement Company desiring to
equipt its cinematograph with sound
reproducing devices, approached Gonzalo
Puyat & Sons, Inc., thru its then president and
acting manager, Gil Puyat, and an employee
named Santos. After some negotiations, it was
agreed between the parties, that is to say,
Salmon and Coulette on one side,
representing the plaintiff, and Gil Puyat on the
other, representing the defendant, that the
latter would, on behalf of the plaintiff, order
sound reproducing equipment from the Starr
Piano Company and that the plaintiff would
pay the defendant, in addition to the price of
the equipment, a 10 per cent commission, plus
all expenses, such as, freight, insurance,
banking charges, cables, etc. At the expense
of the plaintiff, the defendant sent a cable,
Exhibit "3", to the Starr Piano Company,
inquiring about the equipment desired and
making the said company to quote its price
without discount. A reply was received by
Gonzalo Puyat & Sons, Inc., with the price,
evidently the list price of $1,700 f.o.b. factory
Richmond, Indiana. The defendant did not
show the plaintiff the cable of inquiry nor the
reply but merely informed the plaintiff of the
price of $1,700. Being agreeable to this price,
the plaintiff, by means of Exhibit "1", which is a
letter signed by C. S. Salmon dated November
19, 1929, formally authorized the order. The
equipment arrived about the end of the year
1929, and upon delivery of the same to the
plaintiff and the presentation of necessary
papers, the price of $1.700, plus the 10 per
cent commission agreed upon and plus all the
expenses and charges, was duly paid by the
plaintiff to the defendant.
Sometime the following year, and after some
negotiations between the same parties,
plaintiff and defendants, another order for
sound reproducing equipment was placed by
the plaintiff with the defendant, on the same
terms as the first order. This agreement or
order was confirmed by the plaintiff by its letter
Exhibit "2", without date, that is to say, that the
plaintiff would pay for the equipment the
amount of $1,600, which was supposed to be
the price quoted by the Starr Piano Company,
plus 10 per cent commission, plus all
expenses incurred. The equipment under the
second order arrived in due time, and the
99
defendant was duly paid the price of $1,600
with its 10 per cent commission, and $160, for
all expenses and charges. This amount of
$160 does not represent actual out-of-pocket
expenses paid by the defendant, but a mere
flat charge and rough estimate made by the
defendant equivalent to 10 per cent of the
price of $1,600 of the equipment.
About three years later, in connection with a
civil case in Vigan, filed by one Fidel Reyes
against the defendant herein Gonzalo Puyat &
Sons, Inc., the officials of the Arco Amusement
Company discovered that the price quoted to
them by the defendant with regard to their two
orders mentioned was not the net price but
rather the list price, and that the defendants
had obtained a discount from the Starr Piano
Company. Moreover, by reading reviews and
literature on prices of machinery and
cinematograph equipment, said officials of the
plaintiff were convinced that the prices
charged them by the defendant were much too
high including the charges for out-of-pocket
expense. For these reasons, they sought to
obtain a reduction from the defendant or rather
a reimbursement, and failing in this they
brought the present action.
The trial court held that the contract between
the petitioner and the respondent was one of
outright purchase and sale, and absolved that
petitioner from the complaint. The appellate
court, however, — by a division of four, with
one justice dissenting — held that the relation
between petitioner and respondent was that of
agent and principal, the petitioner acting as
agent of the respondent in the purchase of the
equipment in question, and sentenced the
petitioner to pay the respondent alleged
overpayments in the total sum of $1,335.52 or
P2,671.04, together with legal interest thereon
from the date of the filing of the complaint until
said amount is fully paid, as well as to pay the
costs of the suit in both instances. The
appellate court further argued that even if the
contract between the petitioner and the
respondent was one of purchase and sale, the
petitioner was guilty of fraud in concealing the
true price and hence would still be liable to
reimburse the respondent for the
overpayments made by the latter.
The petitioner now claims that the following
errors have been incurred by the appellate
court:
I. El Tribunal de Apelaciones incurrio en error
de derecho al declarar que, segun hechos,
entre la recurrente y la recurrida existia una
relacion implicita de mandataria a mandante
 SALES: FIRST EXAM: FULL TEXT
en la transaccion de que se trata, en vez de la
de vendedora a compradora como ha
declarado el Juzgado de Primera Instncia de
Manila, presidido entonces por el hoy
Magistrado Honorable Marcelino Montemayor.
II. El Tribunal de Apelaciones incurrio en error
de derecho al declarar que, suponiendo que
dicha relacion fuerra de vendedora a
compradora, la recurrente obtuvo, mediante
dolo, el consentimiento de la recurrida en
cuanto al precio de $1,700 y $1,600 de las
maquinarias y equipos en cuestion, y
condenar a la recurrente ha obtenido de la
Starr Piano Company of Richmond, Indiana.
We sustain the theory of the trial court that the
contract between the petitioner and the
respondent was one of purchase and sale, and
not one of agency, for the reasons now to be
stated.
In the first place, the contract is the law
between the parties and should include all the
things they are supposed to have been agreed
upon. What does not appear on the face of the
contract should be regarded merely as
"dealer's" or "trader's talk", which can not bind
either party. (Nolbrook v. Conner, 56 So., 576,
11 Am. Rep., 212; Bank v. Brosscell, 120 III.,
161; Bank v. Palmer, 47 III., 92; Hosser v.
Copper, 8 Allen, 334; Doles v. Merrill, 173
Mass., 411.) The letters, Exhibits 1 and 2, by
which the respondent accepted the prices of
$1,700 and $1,600, respectively, for the sound
reproducing equipment subject of its contract
with the petitioner, are clear in their terms and
admit no other interpretation that the
respondent in question at the prices indicated
which are fixed and determinate. The
respondent admitted in its complaint filed with
the Court of First Instance of Manila that the
petitioner agreed to sell to it the first sound
reproducing equipment and machinery. The
third paragraph of the respondent's cause of
action states:
3. That on or about November 19, 1929, the
herein plaintiff (respondent) and defendant
(petitioner) entered into an agreement, under
and by virtue of which the herein defendant
was to secure from the United States,
and sell and deliver to the herein plaintiff,
certain sound reproducing equipment and
machinery, for which the said defendant, under
and by virtue of said agreement, was to
receive the actual cost price plus ten per cent
(10%), and was also to be reimbursed for all
out of pocket expenses in connection with the
purchase and delivery of such equipment,
100
such as costs of telegrams, freight, and similar
expenses. (Emphasis ours.)
We agree with the trial judge that "whatever
unforseen events might have taken place
unfavorable to the defendant (petitioner), such
as change in prices, mistake in their quotation,
loss of the goods not covered by insurance or
failure of the Starr Piano Company to properly
fill the orders as per specifications, the plaintiff
(respondent) might still legally hold the
defendant (petitioner) to the prices fixed of
$1,700 and $1,600." This is incompatible with
the pretended relation of agency between the
petitioner and the respondent, because in
agency, the agent is exempted from all liability
in the discharge of his commission provided he
acts in accordance with the instructions
received from his principal (section 254, Code
of Commerce), and the principal must
indemnify the agent for all damages which the
latter may incur in carrying out the agency
without fault or imprudence on his part (article
1729, Civil Code).
While the latters, Exhibits 1 and 2, state that
the petitioner was to receive ten per cent
(10%) commission, this does not necessarily
make the petitioner an agent of the
respondent, as this provision is only an
additional price which the respondent bound
itself to pay, and which stipulation is not
incompatible with the contract of purchase and
sale. (See Quiroga vs. Parsons Hardware Co.,
38 Phil., 501.)
In the second place, to hold the petitioner an
agent of the respondent in the purchase of
equipment and machinery from the Starr Piano
Company of Richmond, Indiana, is
incompatible with the admitted fact that the
petitioner is the exclusive agent of the same
company in the Philippines. It is out of the
ordinary for one to be the agent of both the
vendor and the purchaser. The facts and
circumstances indicated do not point to
anything but plain ordinary transaction where
the respondent enters into a contract of
purchase and sale with the petitioner, the latter
as exclusive agent of the Starr Piano
Company in the United States.
It follows that the petitioner as vendor is not
bound to reimburse the respondent as vendee
for any difference between the cost price and
the sales price which represents the profit
realized by the vendor out of the transaction.
This is the very essence of commerce without
which merchants or middleman would not
exist.
 SALES: FIRST EXAM: FULL TEXT

The respondents contends that it merely intellect of men and women in the business
agreed to pay the cost price as distinguished world.
from the list price, plus ten per cent (10%)
commission and all out-of-pocket expenses The writ of certiorari should be, as it is hereby,
incurred by the petitioner. The distinction granted. The decision of the appellate court is
which the respondents seeks to draw between accordingly reversed and the petitioner is
the cost price and the list price we consider to absolved from the respondent's complaint in
be spacious. It is to be observed that the G. R. No. 1023, entitled "Arco Amusement
twenty-five per cent (25%) discount granted by Company (formerly known as Teatro Arco),
the Starr piano Company to the petitioner is plaintiff-appellant, vs. Gonzalo Puyat & Sons,
available only to the latter as the former's Inc., defendants-appellee," without
exclusive agent in the Philippines. The pronouncement regarding costs. So ordered.
respondent could not have secured this
discount from the Starr Piano Company and
neither was the petitioner willing to waive that
discount in favor of the respondent. As a
matter of fact, no reason is advanced by the
respondent why the petitioner should waive
the 25 per cent discount granted it by the Starr
Piano Company in exchange for the 10
percent commission offered by the
respondent. Moreover, the petitioner was not
duty bound to reveal the private arrangement it
had with the Starr Piano Company relative to
such discount to its prospective customers,
and the respondent was not even aware of
such an arrangement. The respondent,
therefore, could not have offered to pay a 10
per cent commission to the petitioner provided
it was given the benefit of the 25 per cent
discount enjoyed by the petitioner. It is well
known that local dealers acting as agents of G.R. No. L-20871 April 30, 1971
foreign manufacturers, aside from obtaining a
discount from the home office, sometimes add KER & CO., LTD., petitioner,
to the list price when they resell to local vs.
purchasers. It was apparently to guard against JOSE B. LINGAD, as Acting Commissioner
an exhorbitant additional price that the of Internal Revenue, respondent.
respondent sought to limit it to 10 per cent, Ross, Selph and Carrascoso for petitioner.
and the respondent is estopped from
questioning that additional price. If the Office of the Solicitor General Arturo A. Alafriz,
respondent later on discovers itself at the short Solicitor Alejandro B. Afurong and Special
end of a bad bargain, it alone must bear the Atty. Balbino Gatdula, Jr. for respondent.
blame, and it cannot rescind the contract,
much less compel a reimbursement of the
excess price, on that ground alone. The
FERNANDO, J.:
respondent could not secure equipment and
machinery manufactured by the Starr Piano Petitioner Ker & Co., Ltd. would have us
Company except from the petitioner alone; it reverse a decision of the Court of Tax
willingly paid the price quoted; it received the Appeals, holding it liable as a commercial
equipment and machinery as represented; and broker under Section 194 (t) of the National
that was the end of the matter as far as the Internal Revenue Code. Its plea,
respondent was concerned. The fact that the notwithstanding the vigorous effort of its
petitioner obtained more or less profit than the counsel, is not sufficiently persuasive. An
respondent calculated before entering into the obstacle, well-nigh insuperable stands in the
contract or reducing the price agreed upon way. The decision under review conforms to
between the petitioner and the respondent. and is in accordance with the controlling
Not every concealment is fraud; and short of doctrine announced in the recent case
fraud, it were better that, within certain limits, of Commissioner of Internal Revenue v.
business acumen permit of the loosening of Constantino.1 The decisive test, as therein set
the sleeves and of the sharpening of the forth, is the retention of the ownership of the

101
 SALES: FIRST EXAM: FULL TEXT
goods 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.2 The 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 from disposing
such products elsewhere than in the above
places unless written consent would first be
obtained from the Company.3 Petitioner, as
Distributor, is required to exert every effort to
have the shipment of the products in the
maximum quantity and to promote in every
way the sale thereof.4 The prices, discounts,
terms of payment, terms of delivery and other
conditions of sale were 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
102
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.7 Shipments
were to be invoiced at prices to be agreed
upon, with the customs duties being paid by
petitioner, as Distributor, for account of the
Company.8 Moreover, all 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.9 The dealer, as
Distributor, is allowed a discount of ten percent
on the net amount of sales of merchandise
made under such agreement. 10 On a date to
be determined by the Company, the petitioner,
as Distributor, 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
 SALES: FIRST EXAM: FULL TEXT
terminate and cancel the agreement forthwith
upon the failure to comply with this
obligation. 11 The Company, at its 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. 12 There was furthermore
this equally tell-tale covenant: "Upon the
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 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
103
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." 14 Hence its 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." 15 We find
ourselves in agreement, notwithstanding the
able brief 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." 16 The
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. 17 In the language of 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, ... ." 18 An
excerpt from Salisbury v. Brooks 19 cited in
support of such a view 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
 SALES: FIRST EXAM: FULL TEXT
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.' " 20 The opinion relied on the
work of 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 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." 21 Hence the 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
104
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.
SALES: FIRST EXAM: FULL TEXT

G.R. No. 75198 October 18, 1988

SCHMID & OBERLY, INC., petitioner,
vs.
RJL MARTINEZ FISHING
CORPORATION, respondent.
Sycip Salazar Hernandez & Gatmaitan Law
Office for petitioner.
Siguion Reyna, Montecillo & Ongsiako Law
Office for respondent.

CORTES, J.:
Petitioner seeks reversal of the decision and
the resolution of the Court of Appeals, ordering
Schmid & Oberly Inc. (hereafter to be referred
to simply as "SCHMID") to refund the
purchase price paid by RJL Martinez Fishing
Corporation (hereafter to be referred to simply

105
 SALES: FIRST EXAM: FULL TEXT
as "RJL MARTINEZ") to D. Nagata Co., Ltd. of
Japan (hereafter to be referred to simply as
NAGATA CO.") for twelve (12) defective
"Nagata"-brand generators, plus consequential
damages, and attorneys fees.
The facts as found by the Court of Appeals,
are as follows:
The findings of facts by the trial court
(Decision, pp. 21-28, Record on Appeal)
shows: that the plaintiff RJL Martinez Fishing
Corporation is engaged in deep-sea fishing,
and in the course of its business, needed
electrical generators for the operation of its
business; that the defendant sells electrical
generators with the brand of "Nagata", a
Japanese product; that the supplier is the
manufacturer, the D. Nagata Co. Ltd., of
Japan, that the defendant Schmid & Oberly
Inc. advertised the 12 Nagata generators for
sale; that the plaintiff purchased 12 brand new
Nagata generators, as advertised by herein
defendant; that through an irrevocable line of
credit, the D. Nagata Co., Ltd., shipped to the
plaintiff 12 electric generators, and the latter
paid the amount of the purchase price; that the
12 generators were found to be factory
defective; that the plaintiff informed the
defendant herein that it shall return the 12
generators as in fact three of the 12 were
actually returned to the defendant; that the
plaintiff sued the defendant on the warranty;
asking for rescission of the contract; that the
defendant be ordered to accept the generators
and be ordered to pay back the purchase
money; and that the plaintiff asked for
damages. (Record on Appeal, pp. 27-28) [CA
Decision, pp. 34; Rollo, pp. 47-48.]
On the basis thereof, the Court of Appeals
affirmed the decision of the trial court ordering
petitioner to refund to private respondent the
purchase price for the twelve (12) generators
and to accept delivery of the same and to pay
s and attorney's fees, with a slight modification
as to the amount to be refunded. In its
resolution of the motion for reconsideration,
the Court of Appeals further modified the trial
courts decision as to the award of
consequential damages.
Ordinarily, the Court will not disturb the
findings of fact of the Court of Appeals in
petitions to review the latter's decisions under
Rule 45 of the Revised Rules of Court, the
scope of the Court's inquiry being limited to a
review of the imputed errors of law [Chan v.
Court of Appeals, G.R. No. L-27488, June 30,
1970, 33 SCRA 77; Tiongco v. De la Merced,
G.R. No. L-24426, July 25, 1974, 58 SCRA 89;
106
Corona v. Court of Appeals, G.R. No. 62482,
April 28, 1983, 121 SCRA 865; Baniqued v.
Court of Appeals, G.R. No.
L-47531, January 30, 1984, 127 SCRA 596.]
However, when, as in this case, it is the
petitioner's position that the appealed
judgment is premised on a misapprehension of
facts, * the Court is compelled to review the
Court of Appeal's factual findings [De la Cruz
v. Sosing, 94 Phil. 26 (1953); Castillo v. Court
of Appeals, G.R. No. I,48290, September 29,
1983, 124 SCRA 808.]
Considering the sketchiness of the respondent
court's narration of facts, whether or not the
Court of Appeals indeed misapprehended the
facts could not be determined without a
thorough review of the records.
Thus, after a careful scrutiny of the records,
the Court has found the appellate court's
narration of facts incomplete. It failed to
include certain material facts.
The facts are actually as follows:
RJL MARTINEZ is engaged in the business of
deep-sea fishing. As RJL MARTINEZ needed
electric generators for some of its boats and
SCHMIID sold electric generators of different
brands, negotiations between them for the
acquisition thereof took place. The parties had
two separate transactions over "Nagata"-brand
generators.
The first transaction was the sale of three (3)
generators. In this transaction, it is not
disputed that SCHMID was the vendor of the
generators. The company supplied the
generators from its stockroom; it was also
SCHMID which invoiced the sale.
The second transaction, which gave rise to the
present controversy, involves twelve (12)
"Nagata"-brand generators. 'These are the
facts surrounding this particular transaction:
As RJL MARTINEZ was canvassing for
generators, SC gave RJL MARTINEZ its
Quotation dated August 19, 1975 [Exhibit 'A"]
for twelve (12) "Nagata'-brand generators with
the following specifications:
"NAGATA" Single phase AC Alternators,
110/220 V, 60 cycles, 1800 rpm, unity power
factor, rectifier type and radio suppressor,,
5KVA (5KW) $546.75 @
It was stipulated that payment would be made
by confirming an irrevocable letter of credit in
favor of NAGATA CO. Furthermore, among
the General Conditions of Sale appearing on
 SALES: FIRST EXAM: FULL TEXT
the dorsal side of the Quotation is the
following:
Buyer will, upon request, promptly open
irrevocable Letter of Credit in favor of seller, in
the amount stated on the face of this
memorandum, specifying shipment from any
Foreign port to Manila or any safe Philippine
port, permitting partial shipments and providing
that in the event the shippers are unable to
ship within the specified period due to strikes,
lack of shipping space or other circumstances
beyond their reasonable control, Buyer agrees
to extend the said Letter of Credit for later
shipment. The Letter of Credit shall otherwise
be subject to the conditions stated in this
memorandum of contract. [Emphasis
supplied.]
Agreeing with the terms of the Quotation, RJL
MARTINEZ opened a letter of credit in favor of
NAGATA CO. Accordingly, on November
20,1975, SCHMID transmitted to NAGATA
CO. an order [Exhibit "4"] for the twelve (12)
generators to be shipped directly to RJL
MARTINEZ. NAGATA CO. thereafter sent RJL
MARTINEZ the bill of lading and its own
invoice (Exhibit "B") and, in accordance with
the order, shipped the generators directly to
RJL MARTINEZ. The invoice states that "one
(1) case of 'NAGATA' AC Generators"
consisting of twelve sets was—bought by
order and for account risk of Messrs. RJL
Martinez Fishing Corporation.
For its efforts, SCHMID received from
NAGATA CO. a commission of $1,752.00 for
the sale of the twelve generators to RJL
MARTINEZ. [Exhibits "9", "9-A", "9-B" and "9-
C".]
All fifteen (15) generators subject of the two
transactions burned out after continuous use.
RJL MARTINEZ informed SCHMID about this
development. In turn, SCHMID brought the
matter to the attention of NAGATA CO. In July
1976, NAGATA CO. sent two technical
representatives who made an ocular
inspection and conducted tests on some of the
burned out generators, which by then had
been delivered to the premises of SCHMID.
The tests revealed that the generators were
overrated. As indicated both in the quotation
and in the invoice, the capacity of a generator
was supposed to be 5 KVA (kilovolt amperes).
However, it turned out that the actual capacity
was only 4 KVA.
SCHMID replaced the three (3) generators
subject of the first sale with generators of a
different brand.
107
As for the twelve (12) generators subject of the
second transaction, the Japanese technicians
advised RJL MARTINEZ to ship three (3)
generators to Japan, which the company did.
These three (3) generators were repaired by
NAGATA CO. itself and thereafter returned to
RJL MARTINEZ; the remaining nine (9) were
neither repaired nor replaced. NAGATA CO.,
however, wrote SCHMID suggesting that the
latter check the generators, request for spare
parts for replacement free of charge, and send
to NAGATA CO. SCHMID's warranty claim
including the labor cost for repairs [Exhibit "I".]
In its reply letter, SCHMID indicated that it was
not agreeable to these terms [Exhibit "10".]
As not all of the generators were replaced or
repaired, RJL MARTINEZ formally demanded
that it be refunded the cost of the generators
and paid damages. SCHMID in its reply
maintained that it was not the seller of the
twelve (12) generators and thus refused to
refund the purchase price therefor. Hence, on
February 14, 1977, RJL MARTINEZ brought
suit against SCHMID on the theory that the
latter was the vendor of the twelve (12)
generators and, as such vendor, was liable
under its warranty against hidden defects.
Both the trial court and the Court of Appeals
upheld the contention of RJL MARTINEZ that
SCHMID was the vendor in the second
transaction and was liable under its warranty.
Accordingly, the courts a quo rendered
judgment in favor of RJL MARTINEZ. Hence,
the instant recourse to this Court.
In this petition for review, SCHMID seeks
reversal on the following grounds:
(i) Schmid was merely the indentor in the sale
[of the twelve (12) generators] between
Nagata Co., the exporter and RJL Martinez,
the importer;
(ii) as mere indentor, Schmid is not liable for
the seller's implied warranty against hidden
defects, Schmid not having personally
assumed any such warranty.
(iii) in any event, conformably with Article 1563
of the Civil Code, there was no implied
warranty against hidden defects in the sale of
these twelve (12) generators because these
were sold under their trade name "Nagata";
and
(iv) Schmid, accordingly, is not liable for the
reimbursement claimed by RJL Martinez nor
for the latter's unsubstantiated claim of PI
10.33 operational losses a day nor for
 SALES: FIRST EXAM: FULL TEXT
exemplary damages, attorney's fees and
costs. [Petition, p. 6.]
1. As may be expected, the basic issue
confronting this Court is whether the second
transaction between the parties was a sale or
an indent transaction. SCHMID maintains that
it was the latter; RJL MARTINEZ claims that it
was a sale.
At the outset, it must be understood that a
contract is what the law defines it to be,
considering its essential elements, and not
what it is caged by the contracting parties
[Quiroga v. Parsons Hardware Co., 38 Phil.
501 (1918).]
The Civil Code defines a contract of sale, thus:
ART. 458. 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.
It has been said that the essence of the
contract of sale is transfer of title or agreement
to transfer it for a price paid or promised
[Commissioner of Internal Revenue v.
Constantino, G.R. No. L-25926, February 27,
1970, 31 SCRA 779, 785, citing Salisbury v.
Brooks, 94 SE 117,118-19.] "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." [Ibid.]
On the other hand, there is no statutory
definition of "indent" in this jurisdiction.
However, the Rules and Regulations to
Implement Presidential Decree No. 1789 (the
Omnibus Investments Code) lumps "indentors"
together with "commercial brokers" and
"commission merchants" in this manner:
... A foreign firm which does business through
the middlemen acting in their own names,
such as indentors, commercial brokers or
commission merchants, shall not be deemed
doing business in the Philippines. But such
indentors, commercial brokers or commission
merchants shall be the ones deemed to be
doing business in the Philippines [Part I, Rule
I, Section 1, par. g (1).]
Therefore, an indentor is a middlemen in the
same class as commercial brokers and
commission merchants. To get an Idea of what
an indentor is, a look at the definition of those
in his class may prove helpful.
108
A broker is generally defined as one who is
engaged, for others, on a commission,
negotiating contracts relative to property with
the custody of which he has no concern; the
negotiator between other parties, never acting
in his own name but in the name of those who
employed him; he is strictly a middleman and
for some purpose the agent of both parties. (1
9 Cyc 186; Henderson vs. The State, 50 Ind.,
234; Black's Law Dictionary.) A broker is one
whose occupation it is to bring parties together
to bargain, or to bargain for them, in matters of
trade, commerce or navigation. Mechem on
Agency, sec. 13; Wharton on Agency, sec.
695.) Judge Storey, in his work on Agency,
defines a broker as an agent employed to
make bargains and contracts between other
persons, in matters of trade, commerce or
navigation, for compensation commonly called
brokerage. (Storey on Agency, sec. 28.) [Behn
Meyer and Co., Ltd. v. Nolting and Garcia, 35
Phil. 274, 279-80 (1916).]
A commission merchant is one engaged in the
purchase or sale for another of personal
property which, for this purpose, is placed in
his possession and at his disposal. He
maintains a relation not only with his principal
and the purchasers or vendors, but also with
the property which is subject matter of the
transaction. [Pacific Commercial Co. v. Yatco,
68 Phil. 398, 401 (1939).]
Thus, the chief feature of a commercial broker
and a commercial merchant is that in effecting
a sale, they are merely intermediaries or
middle-men, and act in a certain sense as the
agent of both parties to the transaction.
Webster defines an indent as "a purchase
order for goods especially when sent from a
foreign country." [Webster's Ninth New
Collegiate Dictionary 612 (1986).] It would
appear that there are three parties to an indent
transaction, namely, the buyer, the indentor,
and the supplier who is usually a non-resident
manufacturer residing in the country where the
goods are to be bought [Commissioner of
Internal Revenue v. Cadwallader Pacific
Company, G.R. No. L-20343, September 29,
1976, 73 SCRA 59.] An indentor may therefore
be best described as one who, for
compensation, acts as a middleman in
bringing about a purchase and sale of goods
between a foreign supplier and a local
purchaser.
Coming now to the case at bar, the admissions
of the parties and the facts appearing on
record more than suffice to warrant the
conclusion that SCHMID was not a vendor, but
 SALES: FIRST EXAM: FULL TEXT
was merely an indentor, in the second
transaction.
In its complaint, RJL MARTINEZ admitted that
the generators were purchased "through
indent order" [Record on Appeal, p. 6.] In the
same vein, it admitted in its demand letter
previously sent to SCHMID that twelve (12) of
en (15) Nagata-brand generators "were
purchased through your company (SCHMID),
by indent order and three (3) by direct
purchase." [Exhibit "D".] The evidence also
show that RJL MARTINEZ paid directly
NAGATA CO, for the generators, and that the
latter company itself invoiced the sale [Exhibit
"B"], and shipped the generators directly to the
former. The only participation of SCHMID was
to act as an intermediary or middleman
between NAGATA CO. and RJL MARTINEZ,
by procuring an order from RJL MARTINEZ
and forwarding the same to NAGATA CO. for
which the company received a commission
from NAGATA CO. [Exhibits "9", "9-A", "9-B"
and "9-C".]
The above transaction is significantly different
from the first transaction wherein SCHMID
delivered the goods from its own stock (which
it had itself imported from NAGATA CO.),
issued its own invoice, and collected payment
directly from the purchaser.
These facts notwithstanding, RJL MARTINEZ
insists that SCHMID was the vendor of the
twelve generators on the following grounds:
First, it is contended that the Quotation and the
General Conditions of Sale on the dorsal side
thereof do not necessarily lead to the
conclusion that NAGATA CO., and not
SCHMID, was the real seller in the case of the
twelve (12) generators in that:
(i) the signing of the quotation, which was
under SCHMID's letter-head, perfected the
contract of sale (impliedly, as between the
signatories thereto—i.e., RJL MARTINEZ and
SCHMID);
(ii) the qualification that the letter of credit shall
be in favor of NAGATA CO. constituted simply
the manner of payment requested by SCHMID
(implying that SCHMID, as seller, merely
chose to waive direct payment, stipulating
delivery of payment instead to NAGATA CO.
as supplier);
Second, it is asserted that the acts of SCHMID
after it was informed of the defect in the
generators were indicative of its awareness
that it was the vendor and acknowledgment of
its liability as such vendor. Attention is called
109
to these facts: When RJL MARTINEZ
complained to SCHMID that the generators
were defective, SCHMID immediately asked
RJL MARTINEZ to send the defective
generators to its shop to determine what was
wrong. SCHMID likewise informed NAGATA
CO. about the complaint of RJL MARTINEZ.
When the Japanese technicians arrived,
SCHMID made available its technicians, its
shop and its testing equipment. After the
generators were found to have factory defects,
SCHMID facilitated the shipment of three (3)
generators to Japan and, after their repair,
back to the Philippines [Memorandum for the
Respondent, p. 8.]
Third, it is argued that the contents of the letter
from NAGATA CO. to SCHMID regarding the
repair of the generators indicated that the latter
was "within the purview of a seller." [Ibid.]
Fourth, it is argued that if SCHMID is
considered as a mere agent of NAGATA CO.,
a foreign corporation not licensed to do
business in the Philippines, then the officers
and employees of the former may be
penalized for violation of the old Corporation
Law which provided:
Sec. 69 ... Any officer or agent of the
corporation or any person transacting business
for any foreign corporation not having the
license prescribed shall be punished by
imprisonment for not less than six months nor
more than two years or by a fine 'of not less
than two hundred pesos nor more than one
thousand pesos or both such imprisonment
and fine, in the discretion of the Court.
The facts do not bear out these contentions.
The first contention disregards the
circumstances surrounding the second
transaction as distinguished from those
surrounding the first transaction, as noted
above.
Neither does the solicitous manner by which
SCHMID responded to RJL MARTINEZ's
complaint prove that the former was the seller
of the generators. As aptly stated by counsel,
no indentor will just fold its hands when a client
complains about the goods it has bought upon
the indentor's mediation. In its desire to
promote the product of the seller and to retain
the goodwill of the buyer, a prudent indentor
desirous of maintaining his business would
have to act considerably. towards his clients.
Note that in contrast to its act of replacing the
three (3) generators subject of the first
transaction, SCHMID did not replace any of
 SALES: FIRST EXAM: FULL TEXT
the twelve (12) generators, but merely
rendered assistance to both RJL TINES and
NAGATA CO. so that the latter could repair the
defective generators.
The proposal of NAGATA CO. rejected by
SCHMID that the latter undertake the repair of
the nine (9) other defective generators, with
the former supplying the replacement parts
free of charge and subsequently reimbursing
the latter for labor costs [Exhibit "I"], cannot
support the conclusion that SCHMID is vendor
of the generators of the second transaction or
was acting "within the purview of a seller."
Finally, the afore-quoted penal provision in the
Corporation Law finds no application to
SCHMID and its officers and employees
relative to the transactions in the instant case.
What the law seeks to prevent, through said
provision, is the circumvention by foreign
corporations of licensing requirements through
the device of employing local representatives.
An indentor, acting in his own name, is not,
however, covered by the above-quoted
provision. In fact, the provision of the Rules
and Regulations implementing the Omnibus
Investments Code quoted above, which was
copied from the Rules implementing Republic
Act No. 5455, recognizes the distinct role of an
indentor, such that when a foreign corporation
does business through such indentor, the
foreign corporation is not deemed doing
business in the Philippines.
In view of the above considerations, this Court
rules that SCHMID was merely acting as an
indentor in the purchase and sale of the twelve
(12) generators subject of the second
transaction. Not being the vendor, SCHMID
cannot be held liable for the implied warranty
for hidden defects under the Civil Code [Art.
1561, et seq.]
2. However, even as SCHMID was merely an
indentor, there was nothing to prevent it from
voluntarily warranting that twelve (12)
generators subject of the second transaction
are free from any hidden defects. In other
words, SCHMID may be held answerable for
some other contractual obligation, if indeed it
had so bound itself. As stated above, an
indentor is to some extent an agent of both the
vendor and the vendee. As such agent,
therefore, he may expressly obligate himself to
undertake the obligations of his principal (See
Art. 1897, Civil Code.)
The Court's inquiry, therefore, shifts to a
determination of whether or not SCHMID
expressly bound itself to warrant that the
110
twelve (12) generators are free of any hidden
defects.
Again, we consider the facts.
The Quotation (Exhibit A is in writing. It is the
repository of the contract between RJL
MARTINEZ and SCHMID. Notably, nowhere is
it stated therein that SCHMID did bind itself to
answer for the defects of the things sold.
There being no allegation nor any proof that
the Quotation does not express the true intent
and agreement of the contracting parties,
extrinsic parol evidence of warranty will be to
no avail [See Rule 123, Sec. 22.]
The trial court, however, relied on the
testimony of Patrocinio Balagtas, the head of
the Electrical Department of RJL MARTINEZ,
to support the finding that SCHMID did warrant
the twelve (12) generators against defects.
Upon careful examination of Balagtas'
testimony, what is at once apparent is that
Balagtas failed to disclose the nature or terms
and conditions of the warranty allegedly given
by SC Was it a warranty that the generators
would be fit for the fishing business of the
buyer? Was it a warranty that the generators
to be delivered would meet the specifications
indicated in the Quotation? Considering the
different kinds of warranties that may be
contracted, unless the nature or terms and
conditions of the warranty are known, it would
not be possible to determine whether there
has been a breach thereof.
Moreover, a closer examination of the
statements allegedly made by the
representative of SCHMID reveals that they
merely constituted an expression of opinion
which cannot by any means be construed as a
warranty [See Art. 1546, Civil Code.]
We quote from Balagtas' testimony:
Atty. CATRAL:
Q Did you not say at the start of your cross
examination, Mr. Balagtas, that the only
participation you had in the acquisition of those
twelve (12) units [of] generators was your
having issued a purchase order to your own
company for the purchase of the units?
ATTY. AQUINO:
Misleading, your Honor.
Atty. CATRAL:
I am asking the witness.
COURT:
 SALES: FIRST EXAM: FULL TEXT

He has the right to ask that question because Fishing Corporation is hereby DISMISSED. No
he is on cross. Moreover, if I remember, he costs.
mentioned something like that. Witness may
answer. SO ORDERED.

A Yes, sir. Before I submitted that, we

negotiated with Schmid and Oberly the beat
generators they can recommend because we
are looking for generators. The representative
of Schmid and Oberly said that Nagata is very
good. That is why I recommended that to the
management. [t.s.n., October 14, 1977, pp. 23-
25.]
At any rate, when asked where SCHMID's
warranty was contained, Balagtas testified
initially that it was in the receipts covering the
sale. (At this point, it may be stated that the
invoice [Exhibit "B-l"] was issued by NAGATA
CO. and nowhere is it stated therein that
SCHMID warranted the generators against
defects.) When confronted with a copy of the
invoice issued by NAGATA CO., he changed
his assertion and claimed that what he meant
was that the date of the commencement of the
period of SCHMID's warranty would be based
on the date of the invoice. On further
examination, he again changed his mind and
asserted that the warranty was given verbally
[TSN, October 14, 1977, pp. 19-22.] But then
again, as stated earlier, the witness failed to
disclose the nature or terms and conditions of
the warranty allegedly given by SCHMID.
On the other hand, Hernan Adad SCHMID's
General Manager, was categorical that the
company does not warrant goods bought on
indent and that the company warrants only the
goods bought directly from it, like the three
generators earlier bought by RJL MARTINEZ
itself [TSN, December 19, 1977, pp. 63-64.] It
must be recalled that SCHMID readily
replaced the three generators from its own
stock. In the face of these conflicting
testimonies, this Court is of the view that RJL
has failed to prove that SCHMID had given a
warranty on the twelve (12) generators subject
of the second transaction. Even assuming that
a warranty was given, there is no way to
determine whether there has been a breach
thereof, considering that its nature or terms
and conditions have not been shown.
3. In view of the foregoing, it becomes
unnecessary to pass upon the other issues.
WHEREFORE, finding the Court of Appeals to
have committed a reversible error, the petition G.R. No. 117356               June 19, 2000
is GRANTED and the appealed Decision and
VICTORIAS MILLING CO., INC., petitioner,
Resolution of the Court of Appeals are
vs.
REVERSED. The complaint of RJL Martinez

111
 SALES: FIRST EXAM: FULL TEXT
COURT OF APPEALS and CONSOLIDATED
SUGAR CORPORATION, respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review
on certiorari under Rule 45 of the Rules of
Court assailing the decision of the Court of
Appeals dated February 24, 1994, in CA-G.R.
CV No. 31717, as well as the respondent
court's resolution of September 30, 1994
modifying said decision. Both decision and
resolution amended the judgment dated
February 13, 1991, of the Regional Trial Court
of Makati City, Branch 147, in Civil Case No.
90-118.
The facts of this case as found by both the trial
and appellate courts are as follows:
St. Therese Merchandising (hereafter STM)
regularly bought sugar from petitioner Victorias
Milling Co., Inc., (VMC). In the course of their
dealings, petitioner issued several Shipping
List/Delivery Receipts (SLDRs) to STM as
proof of purchases. Among these was SLDR
No. 1214M, which gave rise to the instant
case. Dated October 16, 1989, SLDR No.
1214M covers 25,000 bags of sugar. Each bag
contained 50 kilograms and priced at P638.00
per bag as "per sales order VMC Marketing
No. 042 dated October 16, 1989."1 The
transaction it covered was a "direct sale." 2 The
SLDR also contains an additional note which
reads: "subject for (sic) availability of a (sic)
stock at NAWACO (warehouse)."3
On October 25, 1989, STM sold to private
respondent Consolidated Sugar Corporation
(CSC) its rights in SLDR No. 1214M for P
14,750,000.00. CSC issued one check dated
October 25, 1989 and three checks postdated
November 13, 1989 in payment. That same
day, CSC wrote petitioner that it had been
authorized by STM to withdraw the sugar
covered by SLDR No. 1214M. Enclosed in the
letter were a copy of SLDR No. 1214M and a
letter of authority from STM authorizing CSC
"to withdraw for and in our behalf the refined
sugar covered by Shipping List/Delivery
Receipt-Refined Sugar (SDR) No. 1214 dated
October 16, 1989 in the total quantity of
25,000 bags."4
On October 27, 1989, STM issued 16 checks
in the total amount of P31,900,000.00 with
petitioner as payee. The latter, in turn, issued
Official Receipt No. 33743 dated October 27,
1989 acknowledging receipt of the said checks
in payment of 50,000 bags. Aside from SLDR
112
No. 1214M, said checks also covered SLDR
No. 1213.
Private respondent CSC surrendered SLDR
No. 1214M to the petitioner's NAWACO
warehouse and was allowed to withdraw
sugar. However, after 2,000 bags had been
released, petitioner refused to allow further
withdrawals of sugar against SLDR No.
1214M. CSC then sent petitioner a letter dated
January 23, 1990 informing it that SLDR No.
1214M had been "sold and endorsed" to it but
that it had been refused further withdrawals of
sugar from petitioner's warehouse despite the
fact that only 2,000 bags had been
withdrawn.5 CSC thus inquired when it would
be allowed to withdraw the remaining 23,000
bags.
On January 31, 1990, petitioner replied that it
could not allow any further withdrawals of
sugar against SLDR No. 1214M because STM
had already dwithdrawn all the sugar covered
by the cleared checks.6
On March 2, 1990, CSC sent petitioner a letter
demanding the release of the balance of
23,000 bags.
Seven days later, petitioner reiterated that all
the sugar corresponding to the amount of
STM's cleared checks had been fully
withdrawn and hence, there would be no more
deliveries of the commodity to STM's account.
Petitioner also noted that CSC had
represented itself to be STM's agent as it had
withdrawn the 2,000 bags against SLDR No.
1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for
specific performance, docketed as Civil Case
No. 90-1118. Defendants were Teresita Ng Sy
(doing business under the name of St.
Therese Merchandising) and herein petitioner.
Since the former could not be served with
summons, the case proceeded only against
the latter. During the trial, it was discovered
that Teresita Ng Go who testified for CSC was
the same Teresita Ng Sy who could not be
reached through summons.7 CSC, however,
did not bother to pursue its case against her,
but instead used her as its witness.
CSC's complaint alleged that STM had fully
paid petitioner for the sugar covered by SLDR
No. 1214M. Therefore, the latter had no
justification for refusing delivery of the sugar.
CSC prayed that petitioner be ordered to
deliver the 23,000 bags covered by SLDR No.
1214M and sought the award of
P1,104,000.00 in unrealized profits,
P3,000,000.00 as exemplary damages,
 SALES: FIRST EXAM: FULL TEXT
P2,200,000.00 as attorney's fees and litigation
expenses.
Petitioner's primary defense a quo was that it
was an unpaid seller for the 23,000
bags.8 Since STM had already drawn in full all
the sugar corresponding to the amount of its
cleared checks, it could no longer authorize
further delivery of sugar to CSC. Petitioner
also contended that it had no privity of contract
with CSC.
Petitioner explained that the SLDRs, which it
had issued, were not documents of title, but
mere delivery receipts issued pursuant to a
series of transactions entered into between it
and STM. The SLDRs prescribed delivery of
the sugar to the party specified therein and did
not authorize the transfer of said party's rights
and interests.
Petitioner also alleged that CSC did not pay for
the SLDR and was actually STM's co-
conspirator to defraud it through a
misrepresentation that CSC was an innocent
purchaser for value and in good faith.
Petitioner then prayed that CSC be ordered to
pay it the following sums: P10,000,000.00 as
moral damages; P10,000,000.00 as exemplary
damages; and P1,500,000.00 as attorney's
fees. Petitioner also prayed that cross-
defendant STM be ordered to pay it
P10,000,000.00 in exemplary damages, and
P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial,
the trial court heard the case on the merits.
As earlier stated, the trial court rendered its
judgment favoring private respondent CSC, as
follows:
"WHEREFORE, in view of the foregoing, the
Court hereby renders judgment in favor of the
plaintiff and against defendant Victorias Milling
Company:
"1) Ordering defendant Victorias Milling
Company to deliver to the plaintiff 23,000 bags
of refined sugar due under SLDR No. 1214;
"2) Ordering defendant Victorias Milling
Company to pay the amount of P920,000.00
as unrealized profits, the amount of
P800,000.00 as exemplary damages and the
amount of P1,357,000.00, which is 10% of the
acquisition value of the undelivered bags of
refined sugar in the amount of
P13,570,000.00, as attorney's fees, plus the
costs.
"SO ORDERED."9
113
It made the following observations:
"[T]he testimony of plaintiff's witness Teresita
Ng Go, that she had fully paid the purchase
price of P15,950,000.00 of the 25,000 bags of
sugar bought by her covered by SLDR No.
1214 as well as the purchase price of
P15,950,000.00 for the 25,000 bags of sugar
bought by her covered by SLDR No. 1213 on
the same date, October 16, 1989 (date of the
two SLDRs) is duly supported by Exhibits C to
C-15 inclusive which are post-dated checks
dated October 27, 1989 issued by St. Therese
Merchandising in favor of Victorias Milling
Company at the time it purchased the 50,000
bags of sugar covered by SLDR No. 1213 and
1214. Said checks appear to have been
honored and duly credited to the account of
Victorias Milling Company because on October
27, 1989 Victorias Milling Company issued
official receipt no. 34734 in favor of St.
Therese Merchandising for the amount of
P31,900,000.00 (Exhibits B and B-1). The
testimony of Teresita Ng Go is further
supported by Exhibit F, which is a computer
printout of defendant Victorias Milling
Company showing the quantity and value of
the purchases made by St. Therese
Merchandising, the SLDR no. issued to cover
the purchase, the official reciept no. and the
status of payment. It is clear in Exhibit 'F' that
with respect to the sugar covered by SLDR
No. 1214 the same has been fully paid as
indicated by the word 'cleared' appearing
under the column of 'status of payment.'
"On the other hand, the claim of defendant
Victorias Milling Company that the purchase
price of the 25,000 bags of sugar purchased
by St. Therese Merchandising covered by
SLDR No. 1214 has not been fully paid is
supported only by the testimony of Arnulfo
Caintic, witness for defendant Victorias Milling
Company. The Court notes that the testimony
of Arnulfo Caintic is merely a sweeping barren
assertion that the purchase price has not been
fully paid and is not corroborated by any
positive evidence. There is an insinuation by
Arnulfo Caintic in his testimony that the
postdated checks issued by the buyer in
payment of the purchased price were
dishonored. However, said witness failed to
present in Court any dishonored check or any
replacement check. Said witness likewise
failed to present any bank record showing that
the checks issued by the buyer, Teresita Ng
Go, in payment of the purchase price of the
sugar covered by SLDR No. 1214 were
dishonored."10
 SALES: FIRST EXAM: FULL TEXT
Petitioner appealed the trial court’s decision to
the Court of Appeals.
On appeal, petitioner averred that the dealings
between it and STM were part of a series of
transactions involving only one account or one
general contract of sale. Pursuant to this
contract, STM or any of its authorized agents
could withdraw bags of sugar only against
cleared checks of STM. SLDR No. 21214M
was only one of 22 SLDRs issued to STM
and since the latter had already withdrawn its
full quota of sugar under the said SLDR, CSC
was already precluded from seeking delivery
of the 23,000 bags of sugar.
Private respondent CSC countered that the
sugar purchases involving SLDR No. 1214M
were separate and independent transactions
and that the details of the series of purchases
were contained in a single statement with a
consolidated summary of cleared check
payments and sugar stock withdrawals
because this a more convenient system than
issuing separate statements for each
purchase.
The appellate court considered the following
issues: (a) Whether or not the transaction
between petitioner and STM involving SLDR
No. 1214M was a separate, independent, and
single transaction; (b) Whether or not CSC had
the capacity to sue on its own on SLDR No.
1214M; and (c) Whether or not CSC as buyer
from STM of the rights to 25,000 bags of sugar
covered by SLDR No. 1214M could compel
petitioner to deliver 23,000 bags allegedly
unwithdrawn.
On February 24, 1994, the Court of Appeals
rendered its decision modifying the trial court's
judgment, to wit:
"WHEREFORE, the Court
hereby MODIFIES  the assailed judgment and
orders defendant-appellant to:
"1) Deliver to plaintiff-appellee 12,586 bags of
sugar covered by SLDR No. 1214M;
"2) Pay to plaintiff-appellee P792,918.00 which
is 10% of the value of the undelivered bags of
refined sugar, as attorneys fees;
"3) Pay the costs of suit.
"SO ORDERED."11
Both parties then seasonably filed separate
motions for reconsideration.
In its resolution dated September 30, 1994, the
appellate court modified its decision to read:
114
"WHEREFORE, the Court hereby modifies the
assailed judgment and orders defendant-
appellant to:
"(1) Deliver to plaintiff-appellee 23,000 bags of
refined sugar under SLDR No. 1214M;
"(2) Pay costs of suit.
"SO ORDERED."12
The appellate court explained the rationale for
the modification as follows:
"There is merit in plaintiff-appellee's position.
"Exhibit ‘F' We relied upon in fixing the number
of bags of sugar which remained undelivered
as 12,586 cannot be made the basis for such a
finding. The rule is explicit that courts should
consider the evidence only for the purpose for
which it was offered. (People v. Abalos, et al,
1 CA Rep 783). The rationale for this is to
afford the party against whom the evidence is
presented to object thereto if he deems it
necessary. Plaintiff-appellee is, therefore,
correct in its argument that Exhibit ‘F' which
was offered to prove that checks in the total
amount of P15,950,000.00 had been
cleared. (Formal Offer of Evidence for Plaintiff,
Records p. 58)  cannot be used to prove the
proposition that 12,586 bags of sugar
remained undelivered.
"Testimonial evidence (Testimonies of
Teresita Ng [TSN, 10 October 1990, p. 33]
and Marianito L. Santos [TSN, 17 October
1990, pp. 16, 18, and 36]) presented by
plaintiff-appellee was to the effect that it had
withdrawn only 2,000 bags of sugar from
SLDR after which it was not allowed to
withdraw anymore. Documentary evidence
(Exhibit I, Id., p. 78, Exhibit K, Id., p. 80)  show
that plaintiff-appellee had sent demand letters
to defendant-appellant asking the latter to
allow it to withdraw the remaining 23,000 bags
of sugar from SLDR 1214M. Defendant-
appellant, on the other hand, alleged that
sugar delivery to the STM corresponded only
to the value of cleared checks; and that all
sugar corresponded to cleared checks had
been withdrawn. Defendant-appellant did not
rebut plaintiff-appellee's assertions. It did not
present evidence to show how many bags of
sugar had been withdrawn against SLDR No.
1214M, precisely because of its theory that all
sales in question were a series of one single
transaction and withdrawal of sugar depended
on the clearing of checks paid therefor.
"After a second look at the evidence, We see
no reason to overturn the findings of the trial
court on this point."13
 SALES: FIRST EXAM: FULL TEXT
Hence, the instant petition, positing the
following errors as grounds for review:
"1. The Court of Appeals erred in not holding
that STM's and private respondent's specially
informing petitioner that respondent was
authorized by buyer STM to withdraw sugar
against SLDR No. 1214M "for and in our
(STM) behalf," (emphasis in the original)
private respondent's withdrawing 2,000 bags
of sugar for STM, and STM's empowering
other persons as its agents to withdraw sugar
against the same SLDR No. 1214M, rendered
respondent like the other persons, an agent of
STM as held in Rallos v. Felix Go Chan &
Realty Corp.,  81 SCRA 252, and precluded it
from subsequently claiming and proving being
an assignee of SLDR No. 1214M and from
suing by itself for its enforcement because it
was conclusively presumed to be an agent
(Sec. 2, Rule 131, Rules of Court) and
estopped from doing so. (Art. 1431, Civil
Code).
"2. The Court of Appeals erred in manifestly
and arbitrarily ignoring and disregarding
certain relevant and undisputed facts which,
had they been considered, would have shown
that petitioner was not liable, except for 69
bags of sugar, and which would justify review
of its conclusion of facts by this Honorable
Court.
"3. The Court of Appeals misapplied the law
on compensation under Arts. 1279, 1285 and
1626 of the Civil Code when it ruled that
compensation applied only to credits from one
SLDR or contract and not to those from two or
more distinct contracts between the same
parties; and erred in denying petitioner's right
to setoff all its credits arising prior to notice of
assignment from other sales or SLDRs against
private respondent's claim as assignee under
SLDR No. 1214M, so as to extinguish or
reduce its liability to 69 bags, because the law
on compensation applies precisely to two or
more distinct contracts between the same
parties (emphasis in the original).
"4. The Court of Appeals erred in concluding
that the settlement or liquidation of accounts in
Exh. ‘F’ between petitioner and STM,
respondent's admission of its balance, and
STM's acquiescence thereto by silence for
almost one year did not render Exh. `F' an
account stated and its balance binding.
"5. The Court of Appeals erred in not holding
that the conditions of the assigned SLDR No.
1214, namely, (a) its subject matter being
generic, and (b) the sale of sugar being
subject to its availability at the Nawaco
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warehouse, made the sale conditional and
prevented STM or private respondent from
acquiring title to the sugar; and the non-
availability of sugar freed petitioner from
further obligation.
"6. The Court of Appeals erred in not holding
that the "clean hands" doctrine precluded
respondent from seeking judicial reliefs (sic)
from petitioner, its only remedy being against
its assignor."14
Simply stated, the issues now to be resolved
are:
(1)....Whether or not the Court of Appeals
erred in not ruling that CSC was an agent of
STM and hence, estopped to sue upon SLDR
No. 1214M as an assignee.
(2)....Whether or not the Court of Appeals
erred in applying the law on compensation to
the transaction under SLDR No. 1214M so as
to preclude petitioner from offsetting its credits
on the other SLDRs.
(3)....Whether or not the Court of Appeals
erred in not ruling that the sale of sugar under
SLDR No. 1214M was a conditional sale or a
contract to sell and hence freed petitioner from
further obligations.
(4)....Whether or not the Court of Appeals
committed an error of law in not applying the
"clean hands doctrine" to preclude CSC from
seeking judicial relief.
The issues will be discussed in seriatim.
Anent the first issue, we find from the records
that petitioner raised this issue for the first time
on appeal.1avvphi1 It is settled that an issue
which was not raised during the trial in the
court below could not be raised for the first
time on appeal as to do so would be offensive
to the basic rules of fair play, justice, and due
process.15 Nonetheless, the Court of Appeals
opted to address this issue, hence, now a
matter for our consideration.
Petitioner heavily relies upon STM's letter of
authority allowing CSC to withdraw sugar
against SLDR No. 1214M to show that the
latter was STM's agent. The pertinent portion
of said letter reads:
"This is to authorize Consolidated Sugar
Corporation or its representative to
withdraw for and in our behalf  (stress supplied)
the refined sugar covered by Shipping
List/Delivery Receipt = Refined Sugar (SDR)
No. 1214 dated October 16, 1989 in the total
quantity of 25, 000 bags."16
 SALES: FIRST EXAM: FULL TEXT
The Civil Code defines a contract of agency as
follows:
"Art. 1868. By the contract of agency a person
binds himself to render some service or to do
something in representation or on behalf of
another, with the consent or authority of the
latter."
It is clear from Article 1868 that the basis of
agency is representation.17 On the part of the
principal, there must be an actual intention to
appoint18 or an intention naturally inferable
from his words or actions;19 and on the part of
the agent, there must be an intention to accept
the appointment and act on it, 20 and in the
absence of such intent, there is generally no
agency.21 One factor which most clearly
distinguishes agency from other legal concepts
is control; one person - the agent - agrees to
act under the control or direction of another -
the principal. Indeed, the very word "agency"
has come to connote control by the
principal.22 The control factor, more than any
other, has caused the courts to put contracts
between principal and agent in a separate
category.23 The Court of Appeals, in finding
that CSC, was not an agent of STM, opined:
"This Court has ruled that where the relation of
agency is dependent upon the acts of the
parties, the law makes no presumption of
agency, and it is always a fact to be proved,
with the burden of proof resting upon the
persons alleging the agency, to show not only
the fact of its existence, but also its nature and
extent (Antonio vs. Enriquez [CA], 51 O.G.
3536]. Here, defendant-appellant failed to
sufficiently establish the existence of an
agency relation between plaintiff-appellee and
STM. The fact alone that it (STM) had
authorized withdrawal of sugar by plaintiff-
appellee "for and in our (STM's) behalf" should
not be eyed as pointing to the existence of an
agency relation ...It should be viewed in the
context of all the circumstances obtaining.
Although it would seem STM represented
plaintiff-appellee as being its agent by the use
of the phrase "for and in our (STM's) behalf"
the matter was cleared when on 23 January
1990, plaintiff-appellee informed defendant-
appellant that SLDFR No. 1214M had been
"sold and endorsed" to it by STM (Exhibit I,
Records, p. 78). Further, plaintiff-appellee has
shown that the 25, 000 bags of sugar covered
by the SLDR No. 1214M were sold and
transferred by STM to it ...A conclusion that
there was a valid sale and transfer to plaintiff-
appellee may, therefore, be made thus
capacitating plaintiff-appellee to sue in its own
116
name, without need of joining its imputed
principal STM as co-plaintiff."24
In the instant case, it appears plain to us that
private respondent CSC was a buyer of the
SLDFR form, and not an agent of STM. Private
respondent CSC was not subject to STM's
control. The question of whether a contract is
one of sale or agency depends on the intention
of the parties as gathered from the whole
scope and effect of the language
employed.25 That the authorization given to
CSC contained the phrase "for and in our
(STM's) behalf" did not establish an agency.
Ultimately, what is decisive is the intention of
the parties.26 That no agency was meant to be
established by the CSC and STM is clearly
shown by CSC's communication to petitioner
that SLDR No. 1214M had been "sold and
endorsed" to it.27 The use of the words "sold
and endorsed" means that STM and CSC
intended a contract of sale, and not an agency.
Hence, on this score, no error was committed
by the respondent appellate court when it held
that CSC was not STM's agent and could
independently sue petitioner.
On the second issue,  proceeding from the
theory that the transactions entered into
between petitioner and STM are but serial
parts of one account, petitioner insists that its
debt has been offset by its claim for STM's
unpaid purchases, pursuant to Article 1279 of
the Civil Code.28 However, the trial court found,
and the Court of Appeals concurred, that the
purchase of sugar covered by SLDR No.
1214M was a separate and independent
transaction; it was not a serial part of a single
transaction or of one account contrary to
petitioner's insistence. Evidence on record
shows, without being rebutted, that petitioner
had been paid for the sugar purchased under
SLDR No. 1214M. Petitioner clearly had the
obligation to deliver said commodity to STM or
its assignee. Since said sugar had been fully
paid for, petitioner and CSC, as assignee of
STM, were not mutually creditors and debtors
of each other. No reversible error could
thereby be imputed to respondent appellate
court when, it refused to apply Article 1279 of
the Civil Code to the present case.
Regarding the third issue,  petitioner contends
that the sale of sugar under SLDR No. 1214M
is a conditional sale or a contract to sell, with
title to the sugar still remaining with the
vendor. Noteworthy, SLDR No.
1214M contains the following terms and
conditions:
 SALES: FIRST EXAM: FULL TEXT

"It is understood and agreed that by payment

by buyer/trader of refined sugar and/or receipt
of this document by the buyer/trader
personally or through a representative, title to
refined sugar is transferred to buyer/trader and
delivery to him/it is deemed effected and
completed (stress supplied) and buyer/trader
assumes full responsibility therefore…"29
The aforequoted terms and conditions clearly
show that petitioner transferred title to the
sugar to the buyer or his assignee upon
payment of the purchase price. Said terms
clearly establish a contract of sale, not a
contract to sell. Petitioner is now estopped
from alleging the contrary. The contract is the
law between the contracting parties. 30 And
where the terms and conditions so stipulated
are not contrary to law, morals, good customs,
public policy or public order, the contract is
valid and must be upheld.31 Having transferred
title to the sugar in question, petitioner is now
obliged to deliver it to the purchaser or its
assignee.
As to the fourth issue, petitioner submits that
STM and private respondent CSC have
entered into a conspiracy to defraud it of its
sugar. This conspiracy is allegedly evidenced
by: (a) the fact that STM's selling price to CSC
was below its purchasing price; (b) CSC's
refusal to pursue its case against Teresita Ng
Go; and (c) the authority given by the latter to
other persons to withdraw sugar against SLDR
No. 1214M after she had sold her rights under
said SLDR to CSC. Petitioner prays that the
doctrine of "clean hands" should be applied to
preclude CSC from seeking judicial relief.
However, despite careful scrutiny, we find here
the records bare of convincing evidence
whatsoever to support the petitioner's
allegations of fraud. We are now constrained
to deem this matter purely speculative, bereft
of concrete proof.
WHEREFORE, the instant petition is DENIED
for lack of merit. Costs against petitioner.
SO ORDERED.

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