HARRISON MOTORS CORPORATION, petitioner, vs. RACHEL A. refused to comply.
A. refused to comply.[9] Private respondent then demanded from Claros that
NAVARRO, respondent.
This is a review on certiorari of the Decision of the Court of Appeals
affirming that of the Regional Trial Court of Makati which ordered
petitioner to pay private respondent P32,943.00 as reimbursement for
taxes paid, P7,500.00 as attorneys fees and the costs of suit.[1] Sl-xm-is
Sometime in June of 1987 Harrison Motors Corporation through its
president, Renato Claros, sold two (2) Isuzu Elf trucks to private
respondent Rachel Navarro, owner of RN Freight Lines, a franchise holder
operating and maintaining a fleet of cargo trucks all over Luzon.
Petitioner, a known importer, assembler and manufacturer, assembled the
two (2) trucks using imported component parts. [2] Prior to the sale, Renato
Claros represented to private respondent that all the BIR taxes and
customs duties for the parts used on the two (2) trucks had been paid for.[3]
On 10 September 1987 the Bureau of Internal Revenue (BIR) and the
Land Transportation Office (LTO) entered into a Memorandum of
Agreement (MOA) which provided that prior to registration in the LTO of
any assembled or re-assembled motor vehicle which used imported parts,
a Certificate of Payment should first be obtained from the BIR to prove
payment of all taxes required under existing laws.[4]
On 12 October 1987 the Bureau of Customs (BOC) issued Customs
Memorandum Order No. 44-87 promulgating rules, regulations and
procedure for the voluntary payment of duties and taxes on imported
motor vehicles assembled by non-assemblers.[5]
Pursuant to the 10 September 1987 MOA between the BIR and the LTO,
the BIR issued on 18 December 1987 Revenue Memorandum Order No.
44-87 which provided the procedure governing the processing and
issuance of the Certificate of Payment of internal revenue taxes for
purposes of registering motor vehicles.[6]
On 16 June 1988 the BIR, BOC and LTO entered into a tripartite MOA
which provided that prior to the registration in the LTO of any locally
assembled motor vehicle using imported component parts, a Certificate of
Payment should first be obtained from the BIR and the BOC to prove that
all existing taxes and customs duties have been paid.[7]
In December of 1988 government agents seized and detained the two (2)
Elf trucks of respondent after discovering that there were still unpaid BIR
taxes and customs duties thereon. The BIR and the BOC ordered private
respondent to pay the proper assessments or her trucks would be
impounded.[8] Private respondent went to Claros to ask for the receipts
evidencing payment of BIR taxes and customs duties; however, Claros
able to secure the release of such spare parts from the customs and to
he pay the assessed taxes and warned him that he would have to reimburse
her should she be forced to pay for the assessments herself. Her demands
were again ignored. M-issdaa
But wanting to secure the immediate release of the trucks to comply with
her business commitments, private respondent paid the assessed BIR taxes
and customs duties amounting to P32,943.00.[10] Consequently, she
returned to petitioners office to ask for reimbursement, but petitioner again
refused, prompting her to send a demand letter through her lawyer.
[11]
 When petitioner still ignored her letter, she filed a complaint for a sum
of money on 24 September 1990 with the Regional Trial Court of Makati.
[12]
On 24 May 1991 private respondent filed a Motion to Declare Defendant
in Default which was granted by the RTC on the same day.
On 18 November 1991 private respondent filed a Manifestation and
Motion praying for the scheduling of the reception of her evidence ex-
parte since petitioner had not as yet filed a Motion to Lift Order of
Default. Thus, on 22 November 1991 the trial court ordered the reception
of private respondent's evidence ex-parte.[13]
It was only on 2 December 1991 when petitioner finally filed a Motion to
Lift Order of Default. However, on 20 January 1992 the trial court denied
petitioners motion for its failure to attach an affidavit of merit showing
that it had a valid and meritorious defense.[14]
On 5 March 1992 the trial court rendered a decision ordering petitioner to
reimburse private respondent in the amount of P32,943.00 for the customs
duties and internal revenue taxes the latter had to pay to discharge her two
(2) Elf trucks from government custody. Petitioner was also required to
pay P7,500.00 for attorneys fees plus the costs.[15]
The Court of Appeals subsequently sustained the lower court, hence this
recourse of petitioner.[16]
Petitioner argues that it was no longer obliged to pay for the additional
taxes and customs duties imposed on the imported component parts by
the Memorandum Orders and the two (2) Memoranda of Agreement since
such administrative regulations only took effect after the execution of its
contract of sale with private respondent. Holding it liable for payment of
the taxes specified in the administrative regulations, which have the force
and effect of laws, would not only violate the non-impairment clause of
the Constitution but also the principle of non-retroactivity of laws
provided in Art. 4 of the Civil Code.[17] Furthermore, petitioner claims that
it did pay the assessed taxes and duties otherwise it would not have been
register the vehicles with the LTO under its name.
The records however reveal that the Memorandum
Orders and Memoranda of Agreement do not impose any additional BIR
taxes or customs duties.
Customs Memorandum Order No. 44-87 is concerned with the Rules,
Regulations and Procedures in the Payment of Duties and Taxes on
Imported Vehicles Locally Assembled by Non-Assemblers.[18] It does not
charge any new tax. It simply provides the procedure on how
owners/consignees or their purchasers could voluntarily initiate payment
for any unpaid customs duties on locally assembled vehicles using
imported component parts.
Neither does BIR Revenue Memorandum Order No. 44-87 [19] exact any
tax. It merely outlines the procedure which governs the processing and
issuance of the Certificate of Payment of internal revenue taxes for
purposes of registering motor vehicles with the LTO. It was passed
pursuant to the MOA entered into by the LTO and the BIR on 10
September 1987 implementing Secs. 135-A and 163 of the 1987 National
Internal Revenue Code (NIRC).[20]
It is likewise futile for petitioner to insist that the MOA executed by the
BIR and the LTO on 10 September 1987, and the tripartite MOA executed
by the BIR, LTO and BOC on 16 June 1988 are administrative regulations
prescribing additional taxes.
An examination of the 10 September 1987 MOA shows that it was
executed by the BIR and the LTO to curb the scheme employed by
unscrupulous importers who evade paying the correct taxes and customs
duties on imported vehicles by importing its parts, assembling them
locally, and subsequently selling the finished products to local buyers. The
aforementioned MOA mandated that prior to registration in the LTO of
any assembled automobile using imported parts, a Certificate of
Payment should first be obtained from the BIR which would then transmit
the Certificate to the LTO to prove that all the BIR taxes required under
existing laws have been paid.
The 16 June 1988 tripartite MOA among the BIR, LTO and the BOC
virtually contained the same provisions. The MOA provided that prior to
registration with the LTO of any assembled motor vehicle using imported
component parts, a Certificate of Payment should first be secured from the
BIR or the BOC which should then be duly forwarded to LTO.
The Certificate would serve as proof that all taxes and customs duties
required under existing laws, rules and regulations had already been
settled.
1
Clearly, petitioners contention is unmeritorious. What Sec. 10, Art. III, of
the Constitution prohibits is the passage of a law which enlarges, abridges
or in any manner changes the intention of the contracting parties.
[21]
 The Memorandum Orders and the two (2) Memoranda of
Agreement do not impose any additional taxes which would unduly impair
the contract of sale between petitioner and private respondent. Instead,
these administrative regulations were passed to enforce payment of
existing BIR taxes and customs duties at the time of importation.
But who should pay the BIR taxes and customs duties which the
administrative regulations sought to enforce?
Petitioner contends that private respondent should be the one to pay the
internal revenue taxes and customs duties. It claims that at the time
the Memorandum Orders and the two (2) Memoranda of Agreement  took
effect the two (2) Elf trucks were already sold to private respondent, thus,
it no longer owned the vehicles. Whatever payments private respondent
made to the government after the sale were solely her concern and such
burden should not be passed on to petitioner.[22] Petitioner further argues
that holding it liable for payment of BIR taxes and customs duties required
under the administrative regulations violates the principle of non-
retroactivity of laws under the Civil Code. Rtc-spped
Such contention deserves scant consideration. It is true that administrative
rulings and regulations are generally prospective in nature. [23] An
inspection of the two (2) Memoranda of Agreement however demonstrates
that their intent is to enforce payment of taxes on
assemblers/manufacturers who import component parts without paying the
correct assessments. The WHEREAS clause of the 10 September 1987
MOA clearly illustrates this -
WHEREAS, in order to avoid or evade the higher taxes on imported motor
vehicles, certain persons import parts and assemble and re-assemble them
into complete motor vehicles, or assemble or re-assemble motor vehicles
using imported parts;
While the WHEREAS clause of the 16 June 1988 MOA provides -
WHEREAS, in order to avoid or evade the higher taxes on imported motor
vehicles, certain persons, firms or corporations who are non-BOI licensed
assemblers of imported motor vehicle component parts would assemble or
re-assemble them into whole unit motor vehicles;
It is also apparent in Par. 9 of the 16 June 1988 MOA that the taxes to be
enforced are designated as assemblers/manufacturers tax. It states -
9. The BIR shall collect the assemblers/manufacturers tax, while the BOC While par. 1 of the 16 June 1988 MOA states - Scl-aw
shall collect the duties and taxes and ad valorem tax.
The LTO shall make as one of the requirements for the registration of
Thus, although private respondent is the one required by the administrative motor vehicles that were assembled or re-assembled by non-BOI licensed
regulations to secure the Certificate of Payment for the purpose of assemblers using imported component parts, the payment to the BIR and
registration, petitioner as the importer and the assembler/manufacturer of the BOC of taxes and duties required under existing laws, rules and
the two (2) Elf trucks is still the one liable for payment of revenue taxes regulations;
and customs duties. Petitioners obligation to pay does not arise from the
administrative regulations but from the tax laws existing at the time of
The same requirement shall be imposed with respect to the renewal of the
importation. Hence, even if private respondent already owned the two (2)
registration of such motor vehicles even if they were already
trucks when the Memorandum Orders and Memoranda of Agreement took
registered or their registration had been renewed in the past without
effect, the fact remains that petitioner was still the one duty-bound to pay
the payment of the required taxes.
for the BIR taxes and customs duties.
Obviously, the two (2) Memoranda of Agreement were executed to
It is also quite obvious that as between petitioner, who is the importer-
prevent the anomalous circumstance, as in the case at bar, where
assembler/manufacturer, and private respondent, who is merely the buyer,
assembled vehicles are registered with the LTO even if taxes and customs
it is petitioner which has the obligation to pay taxes to the BIR and the
duties remain unpaid.
BOC. Petitioner would be unjustly enriched if private respondent should
be denied reimbursement.[24] It would inequitably amass profits from
selling assembled trucks even if it did not pay the taxes due on its Besides, petitioners allegation that it already paid the BIR taxes and
imported spare parts. Imposing the tax burden on private respondent customs duties is highly doubtful. This entire controversy would have
would only encourage the proliferation of smugglers who scheme to evade been avoided had petitioner simply furnished private respondent with the
taxes by passing on their tax obligations to their unsuspecting buyers. receipts evidencing payment of BIR taxes and customs duties. If only
private respondent had the receipts to prove payment of such assessments
then she would have easily secured the release of her two (2) Elf trucks.
In a last ditch effort to exempt itself from liability, petitioner claims that it
But petitioner arbitrarily and unjustly denied private respondents demands.
had paid the taxes due on the imported parts otherwise it would not have
Instead, petitioner obstinately insisted that it was no longer concerned with
been able to obtain their release from the BOC and to register the vehicles
the problem involving the two (2) trucks since it no longer owned the
with the LTO.
vehicles after the consummation of the sale.
Non-sequitur. The fact that petitioner was able to secure the release of the
It is true that the ownership of the trucks shifted to private respondent after
parts from customs and to register the assembled trucks with the LTO does
the sale. But petitioner must remember that prior to its consummation it
not necessarily mean that all taxes and customs duties were legally settled.
expressly intimated to her that it had already paid the taxes and customs
As a matter of fact, the provisions of the two (2) Memoranda of
duties.[25] Such representation shall be considered as a sellers express
Agreement clearly establish that the government is aware of the
warranty under Art. 1546 of the Civil Code which covers any affirmation
widespread registration of assembled motor vehicles with the LTO even if
of fact or any promise by the seller which induces the buyer to purchase
the taxes due on their imported component parts remain unpaid. Paragraph
the thing and actually purchases it relying on such affirmation or promise.
1 of the 10 September 1987 MOA states - [26]
 It includes all warranties which are derived from express language,
whether the language is in the form of a promise or representation.
[27]
The LTO shall make as one of the requirements for the registration of  Presumably, therefore, private respondent would not have purchased
motor vehicles that were assembled or re-assembled using imported parts, the two (2) Elf trucks were it not for petitioners assertion and assurance
the payment to the BIR of the taxes required under existing laws. that all taxes on its imported parts were already settled.
The same requirement shall be imposed with respect to the renewal of the
registration of such motor vehicles had they been registered or their
registration been renewed in the past without the payment of the
required taxes,
2
This express warranty was breached the moment petitioner refused to
furnish private respondent with the corresponding receipts since such
documents were the best evidence she could present to the government to
prove that all BIR taxes and customs duties on the imported component
parts were fully paid. Without evidence of payment, she was powerless to
prevent the trucks from being impounded.

Under Art. 1599 of the Civil Code, once an express warranty is breached
the buyer can accept or keep the goods and maintain an action against the
seller for damages. This was what private respondent did. She opted to
keep the two (2) trucks which she apparently needed for her business and
filed a complaint for damages, particularly seeking the reimbursement of
the amount she paid to secure the release of her vehicles.

WHEREFORE, the Decision of the Court of Appeals dated 22 January

1998 ordering petitioner HARRISON MOTORS CORPORATION to
reimburse private respondent RACHEL A. NAVARRO for the taxes and
duties she paid in the amount of P32,943.00 and to pay her attorneys fees
in the amount of P7,500.00 is AFFIRMED. In addition, the amount
of P32,943.00 shall earn interest at the legal rate from 24 September 1990
when private respondent filed her complaint with the trial court until fully
paid. Costs against petitioner.

3
JERRY T. MOLES, petitioner, vs. INTERMEDIATE APPELLATE COURT and
MARIANO M. DIOLOSA, respondents.
This petition for review on certiorari assails the decision of the then
Intermediate Appellate Court 1 dismissing the complaint filed by herein
petitioner against the herein private respondent in the former Court of First
Instance of Negros Occidental in Civil Case No. 13821 thereof. 2
The factual backdrop of this controversy, as culled from the
records, 3 shows that on May 17, 1978, petitioner Jerry T. Moles
commenced a suit against private respondent Mariano M. Diolosa in the
aforesaid trial court, Branch IV in Bacolod City, for rescission of contract
with damages. Private respondent moved to dismiss on the ground of
improper venue, invoking therefor Sales Invoice No. 075A executed
between petitioner and private respondent on April 23, 1977 which
provides that all judicial actions arising from this contract shall be
instituted in the City of Iloilo. 4This was opposed by petitioner who
averred that there is no formal document evidencing the sale which is
substantially verbal in character. In an order dated June 23, 1978, the trial
court denied the motion to dismiss, holding that the question of venue
could not be resolved at said stage of the case. The subsequent motion for
reconsideration was likewise denied.
Consequently, private respondent, invoking the aforesaid venue
stipulation, preceeded to this Court on a petition for prohibition with
preliminary injunction in G.R. No. 49078, questioning the validity of the
order denying his aforesaid two motions and seeking to enjoin the trial
court from further proceeding with the case. This petition was dismissed
for lack of merit in a resolution of the Court, dated February 7, 1979, and
which became final on March 15, 1979. Thereafter, private respondent
filed his answer and proceeded to trial.
The aforecited records establish that sometime in 1977, petitioner needed a
linotype printing machine for his printing business, The LM Press at
Bacolod City, and applied for an industrial loan with the Development
Bank of the Philippines. (hereinafter, DBP) for the purchase thereof. An
agent of Smith, Bell and Co. who is a friend of petitioner introduced the
latter to private respondent, owner of the Diolosa Publishing House in
Iloilo City, who had two available machines. Thereafter, petitioner went to
Iloilo City to inspect the two machines offered for sale and was informed
that the same were secondhand but functional.
On his second visit to the Diolosa Publishing House, petitioner together
with Rogelio Yusay, a letter press machine operator, decided to buy the
linotype machine, Model 14. The transaction was basically verbal in
nature but to facilitate the loan application with the DBP, a pro forma
invoice, dated April 23, 1977 and reflecting the amount of P50,000.00 as
the consideration of the sale, was signed by petitioner with an addendum
that payment had not yet been made but that he promised to pay the full
amount upon the release of his loan from the aforementioned bank on or
before the end of the month. 5 Although the agreed selling price was only
P40,000.00, the amount on the invoice was increased by P10,000.00, said
increase being intended for the purchase of new matrices for said machine.
Sometime between April and May, 1977, the machine was delivered to
petitioner's publishing house at Tangub, Bacolod City where it was
installed by one Crispino Escurido, an employee of respondent Diolosa.
Another employee of the Diolosa Publishing House, Tomas Plondaya,
stayed at petitioners house for almost a month to train the latter's cousin in
operating the machine. 6
Under date of August 29, 1977, private respondent issued a certification
wherein he warranted that the machine sold was in A-1 condition, together
with other express warranties. 7
Prior to the release of the loan, a representative from the DBP, Bacolod,
supposedly inspected the machine but he merely looked at it to see that it
was there .8 The inspector's recommendation was favorable and, thereafter,
petitioner's loan of P50,000.00 was granted and released. However, before
payment was made to private respondent, petitioner required the former, in
a letter dated September 30, 1977, to accomplish the following, with the
explanations indicated by him:
1.) Crossed check for P15,407.10 representing.
a) P 10,000.00-Overprice in the machine:
b) P203.00-Freight and handling of the machine;
c) P203.00-Share in the electric repair; and
d) P5,000.00- Insurance that Crispin will come back and repair the
linotype machine at seller's account as provided in the contract; after
Crispin has put everything in order when he goes home on Sunday he will
return the check of P15,000.00.
2) Official receipt in the amount of P 50,000.00 as full payment of the
linotype machine.
These were immediately complied with by private respondent and on the
same day, September 30,1977, he received the DBP check for
P50,000.00. 9
It is to be noted that the aforesaid official receipt No. 0451, dated
September 30, 1977 and prepared and signed by private respondent,
expressly states that he received from the petitioner the DBP check for
P50,000.00 issued in our favor in full payment of one (1) Unit Model 14
Linotype Machine as per Pro forma Invoice dated April 23, 1977. 10
On November 29, 1977, petitioner wrote private respondent that the
machine was not functioning properly as it needed a new distributor bar.
In the same letter, petitioner unburdened himself of his grievances and
sentiments in this wise.
We bought this machine in good faith because we trusted you very much
being our elder brother in printing and publishing business. We did not
hire anybody to look over the machine, much more ask for a rebate in your
price of P40,000.00 and believed what your trusted two men, Tomas and
Crispin, said although they were hiding the real and actual condition of the
machine for your business protection.
Until last week, we found out the worst ever to happen to us. We have
been cheated because the expert of the Linotype machine from Manila
says, that the most he will buy your machine is at P5,000.00 only. ... 11
Private respondent made no reply to said letter, so petitioner engaged the
services of other technicians. Later, after several telephone calls regarding
the defects in the machine, private respondent sent two technicians to
make the necessary repairs but they failed to put the machine in running
condition. In fact, since then petitioner was never able to use the
machine.12
On February 18, 1978, not having received from private respondent the
action requested in his preceding letter as herein before stated, petitioner
again wrote private respondent, this time with the warning that he would
be forced to seek legal remedies to protect his interest. 13
Obviously in response to the foregoing letter, private respondent decided
to purchase a new distributor bar and, on March 16, 1978, private
respondent delivered this spare part to petitioner through one Pedro
Candido. However, when thereafter petitioner asked private respondent to
pay for the price of the distributor bar, the latter asked petitioner to share
the cost with him. Petitioner thus finally decided to indorse the matter to
his lawyer.
4
An expert witness for the petitioner, one Gil Legaspina, declared that he
inspected the linotype machine involved in this case at the instance of
petitioner. In his inspection thereof, he found the following defects: (1) the
vertical automatic stop lever in the casting division was worn out; (2) the
justification lever had a slight breach (balana in the dialect); (3) the
distributor bar was worn out; (4) the partition at the entrance channel had a
tear; (5) there was no "pie stacker" tube entrance; and (6) the slouch arm
lever in the driving division was worn out.
It turned out that the said linotype machine was the same machine that
witness Legaspina had previously inspected for Sy Brothers, a firm which
also wanted to buy a linotype machine for their printing establishment.
Having found defects in said machine, the witness informed Sy Brother
about his findings, hence the purchase was aborted. In his opinion, major
repairs were needed to put the machine back in good running condition.14
After trial, the court a quo rendered a decision the dispositive portion of
which reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is
hereby rendered as follows:
(1) Decreeing the rescission of the contract of sale involving one linotype
machine No. 14 between the defendant as seller and the plaintiff as buyer;
(2) Ordering the plaintiff to return to the defendant at the latter's place of
business in Iloilo City the linotype machine aforementioned together with
all accessories that originally were delivered to the plaintiff;
(3) Ordering the defendant to return to the plaintiff the sum of Forty
Thousand Pesos (P40,000.00) representing the price of the linotype
machine, plus interest at the legal rate counted from May 17, 1978 when
this action was instituted, until fully paid;
(4) Ordering the defendant to indemnify the plaintiff the sum of Four
Thousand Five Hundred Pesos (P4,500.00) representing unearned income
or actual damages;
(5) Ordering the defendant to pay the plaintiff the sum of One Thousand
Pesos (Pl,000.00) for attorney's fees. Costs against the defendant.15
From this decision, private respondent appealed to the Intermediate
Appellate Court which reversed the judgment of the lower court and
dismissed petitioner's complaint, hence the present petition.
We find merit in petitioner's cause.
On the matter of venue, private respondent relies on the aforementioned
Sales Invoice No. 076A which allegedly requires that the proper venue
should be Iloilo City and not Bacolod City. We agree with petitioner that
said document is not the contract evidencing the sale of the linotype
machine, it being merely a preliminary memorandum of a proposal to buy
one linotype machine, using for such purpose a printed form used for
printing job orders in private respondent's printing business. As
hereinbefore explained, this issue on venue was brought to Us by private
respondent in a special civil action for prohibition with preliminary
injunction in G.R. No. 49078. After considering the allegations contained,
the issues raised and the arguments adduced in said petition, as well as the
comments thereto, the Court dismissed the petition for lack of merit.
Respondent court erred in reopening the same issue on appeal, with a
contrary ruling.
Furthermore, it was error for the respondent court, after adopting the
factual findings of the lower court, to reverse the latter's holding that the
sales invoice is merely a pro forma memorandum. The records do not
show that this finding is grounded entirely on speculation, surmises or
conjectures as to warrant a reversal thereof. 16 In fact, as hereinbefore
stated, private respondent expressly admitted in his official receipt No.
0451, dated September 30, 1977, that the said sales invoice was merely
a pro forma invoice. Consequently, the printed provisions therein,
especially since the printed form used was for purposes of other types of
transactions, could not have been intended by the parties to govern their
transaction on the printing machine. It is obvious that a venue stipulation,
in order to bind the parties, must have been intelligently and deliberately
intended by them to exclude their case from the reglementary rules on
venue. Yet, even such intended variance may not necessarily be given
judicial approval, as, for instance, where there are no restrictive or
qualifying words in the agreement indicating that venue cannot be laid in
any place other than that agreed upon by the parties, 17 and in contracts of
adhesion. 18
Now, when an article is sold as a secondhand item, a question arises as to
whether there is an implied warranty of its quality or fitness. It is generally
held that in the sale of a designated and specific article sold as
secondhand, there is no implied warranty as to its quality or fitness for the
purpose intended, at least where it is subject to inspection at the time of
the sale. On the other hand, there is also authority to the effect that in a
sale of a secondhand articles there may be, under some circumstances, an
implied warranty of fitness for the ordinary purpose of the article sold or
for the particular purpose of the buyer. 19
In a line of decisions rendered by the United States Supreme Court, it had
theretofore been held that there is no implied warranty as to the condition,
adaptation, fitness, or suitability for the purpose for which made, or the
quality, of an article sold as and for a secondhand article. 20
Thus, in finding for private respondent, the respondent court cited the
ruling in Sison vs. Ago, et al. 21 to the effect that unless goods are sold as to
raise an implied warranty, as a general rule there is no implied warranty in
the sale of secondhand articles.22
Said general rule, however, is not without exceptions. Article 1562 of our
Civil Code, which was taken from the Uniform Sales Act, provides:
Art. 1562. In a sale of goods, there is an implied warranty or condition as
to the quality or fitness of the goods, as follows:
(1) Where the buyer, expressly or by implication, makes known to the
seller the particular purpose for which the goods are acquired, and it
appears that the buyer relies on the seller's skill or judgment (whether he
be the grower or manufacturer or not), there is an implied warranty that the
goods shall be reasonably fit for such purpose;
xxx
In Drumar Mining Co. vs. Morris Ravine Mining Co., 23 the District Court
of Appeals, 3rd District, California, in applying a similar provision of law,
ruled:
'There is nothing in the Uniform Sales Act declaring there is no implied
warranty in the sale of secondhand goods. Section 1735 of the Civil Code
declares there is no implied warranty or condition as to the quality or
fitness for any particular purpose, of goods supplied under a contract to
sell or a sale, except (this general statement is followed by an enumeration
of several exceptions). It would seem that the legislature intended this
section to apply to all sales of goods, whether new or secondhand. In
subdivision 1 of this section, this language is used: where the buyer ...
makes known to the seller the particular purpose for which the goods are
required, and it appears that the buyer relies on the seller's skill or
judgment ... there is an implied warranty that the goods shall be reasonably
fit for such purpose.'
Furthermore, and of a more determinative role in this case, a perusal of
past American decisions 24 likewise reveals a uniform pattern of rulings to
the effect that an express warranty can be made by and also be binding on
the seller even in the sale of a secondhand article.
In the aforecited case of Markman vs. Hallbeck, while holding that there
was an express warranty in the sale of a secondhand engine, the court said
5
that it was not error to refuse an instruction that upon the sale of
secondhand goods no warranty was implied, since secondhand goods
might be sold under such circumstances as to raise an implied warranty.
To repeat, in the case before Us, a certification to the effect that the
linotype machine bought by petitioner was in A-1 condition was issued by
private respondent in favor of the former. This cannot but be considered as
an express warranty. However, it is private respondent's submission, that
the same is not binding on him, not being a part of the contract of sale
between them. This contention is bereft of substance.
It must be remembered that the certification was a condition sine qua
non for the release of petitioner's loan which was to be used as payment
for the purchase price of the machine. Private respondent failed to refute
this material fact. Neither does he explain why he made that express
warranty on the condition of the machine if he had not intended to be
bound by it. In fact, the respondent court, in declaring that petitioner
should have availed of the remedy of requiring repairs as provided for in
said certification, thereby considered the same as part and parcel of the
verbal contract between the parties.
used. This, plus the fact that petitioner never made appropriate use of the
machine from the time of purchase until an action was filed, attest to the
major defects in said machine, by reason of which the rescission of the
contract of sale is sought. The factual finding, therefore, of the trial court
that the machine is not reasonably fit for the particular purpose for which
it was intended must be upheld, there being ample evidence to sustain the
same.
At a belated stage of this appeal, private respondent came up for the first
time with the contention that the action for rescission is barred by
prescription. 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. The present case
involves one with and express warranty. Consequently, the general rule on
rescission of contract, which is four years 27 shall apply. Considering that
the original case for rescission was filed only one year after the delivery of
the subject machine, the same is well within the prescriptive period. This
is aside from the doctrinal rule that the defense of prescription is waived
and cannot be considered on appeal if not raised in the trial court, 28 and
this case does not have the features for an exception to said rule.

On the basis of the foregoing circumstances, the inescapable conclusion is

WHEREFORE, the judgment of dismissal of the respondent court is
that private respondent is indeed bound by the express warranty he
hereby REVERSED and SET ASIDE, and the decision of the court a quo is
executed in favor of herein petitioner.
hereby REINSTATED.

We disagree with respondent court that private respondents express

warranty as to the A-1 condition of the machine was merely dealer's talk.
Private respondent was not a dealer of printing or linotype machines to
whom could be ascribed the supposed resort to the usual exaggerations of
trade in said items. His certification as to the condition of the machine was
not made to induce petitioner to purchase it but to confirm in writing for
purposes of the financing aspect of the transaction his representations
thereon. Ordinarily, what does not appear on the face of the written
instrument should be regarded as dealer's or trader's talk; 25 conversely,
what is specifically represented as true in said document, as in the instant
case, cannot be considered as mere dealer's talk.

On the question as to whether the hidden defects in the machine is

sufficient to warrant a rescission of the contract between the parties, we
have to consider the rule on redhibitory defects contemplated in Article
1561 of the Civil Code. A redhibitory defect must be an imperfection or
defect of such nature as to engender a certain degree of importance. An
imperfection or defect of little consequence does not come within the
category of being redhibitory.26

As already narrated, an expert witness for the petitioner categorically

established that the machine required major repairs before it could be

6
POWER COMMERCIAL AND INDUSTRIAL CORPORATION, petitioner, vs.
COURT OF APPEALS, SPOUSES REYNALDO and ANGELITA R. QUIAMBAO
and PHILIPPINE NATIONAL BANK, respondents.
Is the sellers failure to eject the lessees from a lot that is the subject
of a contract of sale with assumption of mortgage a ground (1) for
rescission of such contract and (2) for a return by the mortgagee of the
amortization payments made by the buyer who assumed such mortgage?
Petitioner posits an affirmative answer to such question in this
petition for review on certiorari of the March 27, 1995 Decision[1] of the
Court of Appeals, Eighth Division, in CA-G.R. CV Case No. 32298
upholding the validity of the contract of sale with assumption of mortgage
and absolving the mortgagee from the liability of returning the mortgage
payments already made.[2]
The Facts
Petitioner Power Commercial & Industrial Development
Corporation, an industrial asbestos manufacturer, needed a bigger office
space and warehouse for its products.For this purpose, on January 31,
1979, it entered into a contract of sale with the spouses Reynaldo and
Angelita R. Quiambao, herein private respondents. The contractinvolved a
612-sq. m. parcel of land covered by Transfer Certificate of Title No. S-
6686 located at the corner of Bagtican and St. Paul Streets, San Antonio
Village, Makati City.The parties agreed that petitioner would pay private
respondents P108,000.00 as down payment, and the balance
of P295,000.00 upon the execution of the deed of transfer of the title over
the property. Further, petitioner assumed, as part of the purchase price, the
existing mortgage on the land. In full satisfaction thereof, he
paid P79,145.77 to Respondent Philippine National Bank (PNB for
brevity).
On June 1, 1979, respondent spouses mortgaged again said land to
PNB to guarantee a loan of P145,000.00, P80,000.00 of which was paid to
respondent spouses.Petitioner agreed to assume payment of the loan.
On June 26, 1979, the parties executed a Deed of Absolute Sale
With Assumption of Mortgage which contained the following terms and
conditions:[3]
That for and in consideration of the sum of Two Hundred Ninety-Five
Thousand Pesos (P295,000.00) Philippine Currency, to us in hand paid in
cash, and which we hereby acknowledge to be payment in full and
received to our entire satisfaction, by POWER COMMERCIAL AND
INDUSTRIAL DEVELOPMENT CORPORATION, a 100% Filipino
Corporation, organized and existing under and by virtue of Philippine
Laws with offices located at 252-C Vito Cruz Extension, we hereby by
these presents SELL, TRANSFER and CONVEY by way of absolute sale
the above described property with all the improvements existing thereon
unto the said Power Commercial and Industrial Development Corporation,
its successors and assigns, free from all liens and encumbrances.
We hereby certify that the aforesaid property is not subject to nor covered
by the provisions of the Land Reform Code -- the same having no
agricultural lessee and/or tenant.
We hereby also warrant that we are the lawful and absolute owners of the
above described property, free from any lien and/or encumbrance, and we
hereby agree and warrant to defend its title and peaceful possession
thereof in favor of the said Power Commercial and Industrial
Development Corporation, its successors and assigns, against any claims
whatsoever of any and all third persons; subject, however, to the
provisions hereunder provided to wit:
That the above described property is mortgaged to the Philippine National
Bank, Cubao, Branch, Quezon City for the amount of one hundred forty-
five thousand pesos, Philippine, evidenced by document No. 163, found
on page No. 34 of Book No. XV, Series of 1979 of Notary Public Herita
L. Altamirano registered with the Register of Deeds of Pasig (Makati),
Rizal xxx;
That the said Power Commercial and Industrial Development Corporation
assumes to pay in full the entire amount of the said mortgage above
described plus interest and bank charges, to the said mortgagee bank, thus
holding the herein vendor free from all claims by the said bank;
That both parties herein agree to seek and secure the agreement and
approval of the said Philippine National Bank to the herein sale of this
property, hereby agreeing to abide by any and all requirements of the said
bank, agreeing that failure to do so shall give to the bank first lieu (sic)
over the herein described property.
On the same date, Mrs. C.D. Constantino, then General
Manager of petitioner-corporation, submitted to PNB said deed with
a formal application for assumption of mortgage. [4]
On February 15, 1980, PNB informed respondent spouses
that, for petitioners failure to submit the papers necessary for
approval pursuant to the formers letter dated January 15, 1980, the
application for assumption of mortgage was considered withdrawn;
that the outstanding balance of P145,000.00 was deemed fully due
and demandable; and that said loan was to be paid in full within
fifteen (15) days from notice.[5]
Petitioner paid PNB P41,880.45 on June 24, 1980
and P20,283.14 on December 23, 1980, payments which were to
be applied to the outstanding loan. On December 23, 1980, PNB
received a letter from petitioner which reads: [6]
With regard to the presence of the people who are currently in physical
occupancy of the (l)ot xxx it is our desire as buyers and new owners of this
lot to make use of this lot for our own purpose, which is why it is our
desire and intention that all the people who are currently physically
present and in occupation of said lot should be removed immediately.
For this purpose we respectfully request that xxx our assumption of
mortgage be given favorable consideration, and that the mortgage and title
be transferred to our name so that we may undertake the necessary
procedures to make use of this lot ourselves.
It was our understanding that this lot was free and clear of problems of this
nature, and that the previous owner would be responsible for the removal
of the people who were there. Inasmuch as the previous owner has not
been able to keep his commitment, it will be necessary for us to take legal
possession of this lot inorder (sic) to take physical possession.
On February 19, 1982, PNB sent petitioner a letter as follows:
[7]
(T)his refers to the loan granted to Mr. Reynaldo Quiambao which was
assumed by you on June 4, 1979 for P101,500.00. It was last renewed on
December 24, 1980 to mature on June 4, 1981.
A review of our records show that it has been past due from last maturity
with interest arrearages amounting to P25,826.08 as of February 19,
1982. The last payment received by us was on December 24, 1980
for P20,283.14. In order to place your account in current form, we request
you to remit payments to cover interest, charges, and at least part of the
principal.
7
 On March 17, 1982, petitioner filed Civil Case No. 45217
against respondent spouses for rescission and damages before the
Regional Trial Court of Pasig, Branch 159.Then, in its reply to PNBs
letter of February 19, 1982, petitioner demanded the return of the
payments it made on the ground that its assumption of mortgage
was never approved. On May 31, 1983,[8] while this case was
pending, the mortgage was foreclosed. The property was
subsequently bought by PNB during the public auction. Thus, an
amended complaint was filed impleading PNB as party defendant.
On July 12, 1990, the trial court [9] ruled that the failure of
respondent spouses to deliver actual possession to petitioner
entitled the latter to rescind the sale, and in view of such failure and
of the denial of the latters assumption of mortgage, PNB was
obliged to return the payments made by the latter. The dispositive
portion of said decision states: [10]
IN VIEW OF ALL THE FOREGOING, the Court hereby renders
judgment in favor of plaintiff and against defendants:
(1) Declaring the rescission of the Deed of Sale with Assumption of
Mortgage executed between plaintiff and defendants Spouses Quiambao,
dated June 26, 1979;
(2) Ordering defendants Spouses Quiambao to return to plaintiff the
amount of P187,144.77 (P108,000.00 plus P79,145.77) with legal interest
of 12% per annum from date of filing of herein complaint, that is, March
17, 1982 until the same is fully paid;
(3) Ordering defendant PNB to return to plaintiff the amount
of P62,163.59 (P41,880.45 and P20,283.14) with 12% interest thereon
from date of herein judgment until the same is fully paid.
No award of other damages and attorneys fees, the same not being
warranted under the facts and circumstances of the case.
The counterclaim of both defendants spouses Quiambao and PNB are
dismissed for lack of merit. No pronouncement as to costs. SO
ORDERED.
On appeal by respondent-spouses and PNB, Respondent
Court of Appeals reversed the trial court. In the assailed Decision, it
held that the deed of sale between respondent spouses and
petitioner did not obligate the former to eject the lessees from the
land in question as a condition of the sale, nor was the occupation
thereof by said lessees a violation of the warranty against
eviction. Hence, there was no substantial breach to justify the
rescission of said contract or the return of the payments made. The
dispositive portion of said Decision reads:[11]
WHEREFORE, the Decision appealed from is hereby REVERSED and
the complaint filed by Power Commercial and Industrial Development
Corporation against the spouses Reynaldo and Angelita Quiambao and the
Philippine National Bank is DISMISSED. No costs.
Hence, the recourse to this Court .
Issues
Petitioner contends that: (1) there was a substantial breach of the
contract between the parties warranting rescission; and (2) there was a
mistake in payment made by petitioner, obligating PNB to return such
payments. In its Memorandum, it specifically assigns the following errors
of law on the part of Respondent Court:[12]
A. Respondent Court of Appeals gravely erred in failing to consider in its
decision that a breach of implied warranty under Article 1547 in relation
to Article 1545 of the Civil Code applies in the case-at-bar.
B. Respondent Court of Appeals gravely erred in failing to consider in its
decision that a mistake in payment giving rise to a situation where the
principle of solutio indebiti applies is obtaining in the case-at-bar.
The Courts Ruling
The petition is devoid of merit. It fails to appreciate the
difference between a condition and a warranty and the
consequences of such distinction.
Conspicuous Absence of an Imposed Condition
The alleged failure of respondent spouses to eject the
lessees from the lot in question and to deliver actual and physical
possession thereof cannot be considered a substantial breach of a
condition for two reasons: first, such failure was not stipulated as a
condition -- whether resolutory or suspensive -- in the contract; and
second, its effects and consequences were not specified either. [13]
The provision adverted to by petitioner does not impose a condition
or an obligation to eject the lessees from the lot. The deed of sale provides
in part:[14]
We hereby also warrant that we are the lawful and absolute owners of the
above described property, free from any lien and/or encumbrance, and we
hereby agree and warrant to defend its title and peaceful possession
thereof in favor of the said Power Commercial and Industrial
Development Corporation, its successors and assigns, against any claims
whatsoever of any and all third persons; subject, however, to the
provisions hereunder provided to wit:
By his own admission, Anthony Powers, General Manager of
petitioner-corporation, did not ask the corporations lawyers to stipulate in
the contract that Respondent Reynaldo was guaranteeing the ejectment of
the occupants, because there was already a proviso in said deed of sale that
the sellers were guaranteeing the peaceful possession by the buyer of the
land in question.[15] Any obscurity in a contract, if the above-quoted
provision can be so described, must be construed against the party who
caused it.[16] Petitioner itself caused the obscurity because it omitted this
alleged condition when its lawyer drafted said contract.
If the parties intended to impose on respondent spouses the
obligation to eject the tenants from the lot sold, it should have included in
the contract a provision similar to that referred to in Romero vs. Court of
Appeals,[17] where the ejectment of the occupants of the lot sold by private
respondent was the operative act which set into motion the period of
petitioners compliance with his own obligation, i.e., to pay the balance of
the purchase price. Failure to remove the squatters within the stipulated
period gave the other party the right to either refuse to proceed with the
agreement or to waive that condition of ejectment in consonance with
Article 1545 of the Civil Code. In the case cited, the contract specifically
stipulated that the ejectment was a condition to be fulfilled; otherwise, the
obligation to pay the balance would not arise. This is not so in the case at
bar.
Absent a stipulation therefor, we cannot say that the parties
intended to make its nonfulfillment a ground for rescission. If they did
intend this, their contract should have expressly stipulated so. In Ang vs.
C.A.,[18] rescission was sought on the ground that the petitioners had failed
to fulfill their obligation to remove and clear the lot sold, the performance
of which would have given rise to the payment of the consideration by
private respondent. Rescission was not allowed, however, because the
breach was not substantial and fundamental to the fulfillment by the
petitioners of the obligation to sell.
8
 As stated, the provision adverted to in the contract pertains to the
usual warranty against eviction, and not to a condition that was not
met. The terms of the contract are so clear as to leave no room for any
other interpretation.[19]
Futhermore, petitioner was well aware of the presence of the
tenants at the time it entered into the sales transaction. As testified to by
Reynaldo,[20] petitioners counsel during the sales negotiation even
undertook the job of ejecting the squatters. In fact, petitioner actually filed
suit to eject the occupants. Finally, petitioner in its letter to PNB of
December 23, 1980 admitted that it was the buyer(s) and new owner(s) of
this lot.
Effective Symbolic Delivery
The Court disagrees with petitioners allegation that the respondent
spouses failed to deliver the lot sold. Petitioner asserts that the legal fiction
of symbolic delivery yielded to the truth that, at the execution of the deed
of sale, transfer of possession of said lot was impossible due to the
presence of occupants on the lot sold. We find this misleading.
Although most authorities consider transfer of ownership as the
primary purpose of sale, delivery remains an indispensable requisite as our
law does not admit the doctrine of transfer of property by mere consent.
[21]
 The Civil Code provides that delivery can either be (1) actual (Article
1497) or (2) constructive (Articles 1498-1501).Symbolic delivery (Article
1498), as a species of constructive delivery, effects the transfer of
ownership through the execution of a public document. Its efficacy can,
however, be prevented if the vendor does not possess control over the
thing sold,[22] in which case this legal fiction must yield to reality.
The key word is control, not possession, of the land as petitioner
would like us to believe. The Court has consistently held that:[23]
x x x (I)n order that this symbolic delivery may produce the effect of
tradition, it is necessary that the vendor shall have had such control over
the thing sold that xxx its material delivery could have been made. It is not
enough to confer upon the purchaser the ownership and the right of
possession. The thing sold must be placed in his control. When there is no
impediment whatever to prevent the thing sold passing into the tenancy of
the purchaser by the sole will of the vendor, symbolic delivery through the
execution of a public instrument is sufficient. But if, notwithstanding the
execution of the instrument, the purchaser cannot have the enjoyment and
material tenancy of the thing and make use of it himself or through another
in his name, because such tenancy and enjoyment are opposed by the
interposition of another will, then fiction yields to reality -- the delivery
has not been effected.
Considering that the deed of sale between the parties did not
stipulate or infer otherwise, delivery was effected through the execution of
said deed. The lot sold had been placed under the control of petitioner;
thus, the filing of the ejectment suit was subsequently done. It signified
that its new owner intended to obtain for itself and to terminate said
occupants actual possession thereof. Prior physical delivery or possession
is not legally required and the execution of the deed of sale is deemed
equivalent to delivery.[24]This deed operates as a formal or symbolic
delivery of the property sold and authorizes the buyer to use the document
as proof of ownership. Nothing more is required.
Requisites of Breach of Warranty Against Eviction
Obvious to us in the ambivalent stance of petitioner is its failure to
establish any breach of the warranty against eviction. Despite its
protestation that its acquisition of the lot was to enable it to set up a
warehouse for its asbestos products and that failure to deliver actual
possession thereof defeated this purpose, still no breach of warranty
against eviction can be appreciated because the facts of the case do not
show that the requisites for such breach have been satisfied. A breach of
this warranty requires the concurrence of the following circumstances:
(1) The purchaser has been deprived of the whole or part of
the thing sold;
(2) This eviction is by a final judgment;
(3) The basis thereof is by virtue of a right prior to the sale
made by the vendor; and
(4) The vendor has been summoned and made co-defendant
in the suit for eviction at the instance of the vendee.[25]
In the absence of these requisites, a breach of the warranty against eviction
under Article 1547 cannot be declared.
Petitioner argues in its memorandum that it has not yet ejected the
occupants of said lot, and not that it has been evicted therefrom. As
correctly pointed out by Respondent Court, the presence of lessees does
not constitute an encumbrance of the land,[26] nor does it deprive petitioner
of its control thereof.
We note, however, that petitioners deprivation of ownership
and control finally occurred when it failed and/or discontinued
paying the amortizations on the mortgage, causing the lot to be
foreclosed and sold at public auction. But this deprivation is due to
petitioners fault, and not to any act attributable to the vendor-
spouses.
Because petitioner failed to impugn its integrity, the contract
is presumed, under the law, to be valid and subsisting.
Absence of Mistake In Payment
Contrary to the contention of petitioner that a return of the
payments it made to PNB is warranted under Article 2154 of the
Code, solutio indebiti does not apply in this case. This doctrine applies
where: (1) a payment is made when there exists no binding relation
between the payor, who has no duty to pay, and the person who received
the payment, and (2) the payment is made through mistake, and not
through liberality or some other cause.[27]
In this case, petitioner was under obligation to pay the
amortizations on the mortgage under the contract of sale and the deed of
real estate mortgage. Under the deed of sale (Exh. 2),[28] both parties
agreed to abide by any and all the requirements of PNB in connection with
the real estate mortgage. Petitioner was aware that the deed of mortgage
(Exh. C) made it solidarily and, therefore, primarily [29] liable for the
mortgage obligation:[30]
(e) The Mortgagor shall neither lease the mortgaged property xxx nor sell
or dispose of the same in any manner, without the written consent of the
Mortgagee. However, if not withstanding this stipulation and during the
existence of this mortgage, the property herein mortgaged, or any portion
thereof, is xxx sold, it shall be the obligation of the Mortgagor to impose
as a condition of the sale, alienation or encumbrance that the vendee, or
the party in whose favor the alienation or encumbrance is to be made,
should take the property subject to the obligation of this mortgage in the
same terms and condition under which it is constituted, it being
understood that the Mortgagor is not in any manner relieved of his
obligation to the Mortgagee under this mortgage by such sale, alienation
or encumbrance; on the contrary both the vendor and the vendee, or the
party in whose favor the alienation or encumbrance is made shall be
jointly and severally liable for said mortgage obligations. xxx.
Therefore, it cannot be said that it did not have a duty to pay to PNB the
amortization on the mortgage.
Also, petitioner insists that its payment of the amortization was a
mistake because PNB disapproved its assumption of mortgage after it
failed to submit the necessary papers for the approval of such assumption.
But even if petitioner was a third party in regard to the mortgage of
the land purchased, the payment of the loan by petitioner was a condition
clearly imposed by the contract of sale. This fact alone disproves
petitioners insistence that there was a mistake in payment. On the contrary,
9
such payments were necessary to protect its interest as a the buyer(s) and
new owner(s) of the lot.

The quasi-contract of solutio indebiti is one of the concrete

manifestations of the ancient principle that no one shall enrich himself
unjustly at the expense of another.[31] But as shown earlier, the payment of
the mortgage was an obligation petitioner assumed under the contract of
sale. There is no unjust enrichment where the transaction, as in this case,
is quid pro quo, value for value. All told, respondent Court did not commit
any reversible error which would warrant the reversal of the assailed
Decision. WHEREFORE, the petition is hereby DENIED, and the
assailed Decision is AFFIRMED.

10
MARIA LUISA DE LEON ESCALER and ERNESTO ESCALER, CECILIA J.
ROXAS and PEDRO ROXAS, petitioners, vs. COURT OF APPEALS, JOSE L.
REYNOSO, now deceased, to be substituted by his heirs or legal
representatives and AFRICA V. REYNOSO, respondents.
This is a Petition for Review on certiorari of the Decision of the then
Court of Appeals (now the Intermediate Appellate Court) and of its
Resolution denying petitioners' Motion for Reconsideration, in CA G.R.
No. 41953-R, which was an appeal from the judgment of the Court of First
Instance of Rizal in Civil Case No. 9014 entitled "Maria Luisa de Leon
Escaler, et al vs. Jose L. Reynoso and Africa Reynoso."
The following are the pertinent background facts:
On March 7, 1958, the spouses Africa V. Reynoso and Jose L, Reynoso
sold to petitioners several others, a parcel of land, situated in Antipolo,
Rizal with an area of 239,479 square meters and covered by TCT No.
57400 of the Register of Deeds of the Province of Rizal. The Deed of
Sale 1 contained the following covenant against eviction, to wit:
That the VENDOR is the absolute owner of a parcel of land ... the
ownership thereof being evidenced by an absolute deed of sale executed in
her favor by registered owner ANGELINA C. REYNOSO, ...;
That the VENDOR warrants valid title to and ownership of said parcel of
land and further, warrant to defend the property herein sold and conveyed,
unto the VENDEES, their heirs, and assignees, from any and all claims of
any persons whatsoever.
On April 21, 1961, the Register of Deeds of Rizal and A. Doronilla
Resources Development, Inc. filed Case No. 4252 before the Court of First
Instance of Rizal for the cancellation of OCT No. 1526 issued in the name
of Angelina C. Reynoso (predecessor-in-interest of private respondents-
vendors) on February 26, 1958 under Decree No. 62373, LRC Record No.
N-13783, on the ground that the property covered by said title is already
previously registered under Transfer Certificate of Title No. 42999 issued
in the name of A. Doronilla Development, Inc. Petitioners as vendees filed
their opposition to the said petition.
On June 10, 1964, an Order 2 was issued in the said case, the dispositive
portion of which reads:
IN VIEW OF THE ABOVE CONSIDERATIONS, this Court is
constrained to set aside Decree No. 62373 issued in LRC. Rec. No. N-
13783 and the Register of Deeds of Rizal is directed to cancel OCT No.
1526 of his office and all Transfer Certificates of Title issued subsequently
thereafter to purchaser of said property or portions thereof, the same being
null and void, the expenses for such cancellation to be charged to spouses
Angelina Reynoso and Floro Reynoso. The owner's duplicates in the
possession of the transferees of the property covered by OCT No. 1526 are
declared null and void and said transferees are directed to surrender to the
Register of Deeds of Rizal, said owner's duplicates for cancellation.
The other reliefs sought for by the party oppositors are denied the same
not falling within the jurisdiction of this Court under this proceeding. SO
ORDERED.
On August 31, 1965, herein petitioners, spouses Maria de Leon Escaler
and Ernesto Escaler and spouses Cecilia J. Roxas and Pedro Roxas, filed
Civil Case No. 9014 before the Court of First Instance of Rizal against
their vendors, herein private respondents, spouses Jose L. Reynoso and
Africa Reynoso for the recovery of the value of the property sold to them
plus damages on the ground that the latter have violated the vendors'
"warranty against eviction."
The complaint among others, alleged that the Order issued in Case No.
4252 which cancelled the title of Angelina C. Reynoso and all subsequent
Transfer Certificates of Title derived and/or emanating therefrom and
which includes the titles of petitioners, is now final, and by reason thereof
petitioners lost their right over the property sold; and that in said Case No.
4252, the respondents were summoned and/or given their day in court at
the instance of the petitioners. 3
The respondents, as defendants, filed their answer alleging, among others,
by way of affirmative defenses that "the cause of action, if any, of
plaintiffs against defendants have been fully adjudicated in Case No. 4252
when plaintiffs failed to file a third-party complaint against defendants." 4
On August 18, 1967, petitioners, as plaintiffs, filed a Motion for Summary
Judgment, alleging the facts already averred in the complaint, and further
alleging that the defendants were summoned and were given their day in
court at the instance of plaintiffs in Case No. 4252. In support of their said
motion, the plaintiffs attached the affidavit of Atty. Alberto R. Avanceña
who had represented the plaintiffs in Case No. 4252 and had filed a joint
opposition in behalf of all the vendees. The pertinent portion of that
affidavit, states—
4. That he has furnished a copy of said joint
opposition to Africa Reynoso, wife of Jose L.
Reynoso, at her given address at c/o Antipolo
Enterprises, Antipolo, Rizal and the latter had
received the same, as evidenced by the photostatic
copy of the Registry Return Receipt thereto affixed
as Annex "C-l";
xxx xxx xxx
6. That he hereby executed this Affidavit to prove that said defendants
Africa Reynoso and Jose L. Reynoso were given their day in Court and/or
were afforded their opportunity to be heard in Case No. 4252 aforecited.
On September 27, 1967, judgment was rendered by the trial court, the
pertinent portion of which reads—
Considering the foregoing motion for summary judgment and it appearing
that the defendants under a Deed of Absolute Sale (Annex "C") have
expressly warranted their valid title and ownership of the said parcel of
land and further warranted to defend said property from any and all claims
of any persons whomever in favor of plaintiffs; that the said warranties
were violated when on June 10, 1964, an Order was promulgated by the
Court of First Instance of Rizal in Case No. 4252 (Related to LRC Case
No. 1559, LRC Record No. N13293). In Re: Petition for Cancellation of
Original Registration, etc., covering the parcel of land in question; that
said order of June 10, 1964 has become final and executory there being no
appeal interposed thereto and defendants were summoned and were given
a day in court at the instance of the plaintiffs in Case No. 4252, the Court
hereby grants the motion for summary judgment, and hereby orders the
defendants to jointly and severally return to the plaintiffs Maria Luisa de
Leon Escaler and Ernesto Escaler, Cecilia J. Roxas and Pedro Roxas, the
value of the property sold to them at the time of eviction which is not to be
less than P5,500.00 to reimburse to each one of the plaintiffs the expenses
of contract and litigation and the amount of P2,250.00 to pay the attorney's
fees of P1,000.00 plus the costs of suit. SO ORDERED.
Private respondents appealed the aforesaid decision to the then Court of
Appeals 5 assigning as sole error—that the lower court erred in finding that
they were summoned and were given their day in court at the instance of
petitioners-plaintiffs in Case No. 4252.
In reversing the decision of the trial court and dismissing the case, the then
Court of Appeals found and so ruled that petitioners as vendees had not
given private respondents-vendors, formal notice of the eviction case as
mandated by Arts. 1558 and 1559 of the New Civil Code.
Hence, the instant recourse, petitioners contending —
11
1) that the Court of Appeals erred in applying strictly to the instant case
the provisions of Articles 1558 and 1559 of the new Civil Code; and
2) that the decision of the Court of First Instance of Rizal should have
been affirmed by the Court of Appeals or at least, the, Court of Appeals
should have remanded the case to the trial court, for hearing on the merits.
The petition is devoid of merit. Consequently, it must be dismissed.
made parties to the suit at the instance of petitioners-vendees, either by
way of asking that the former be made a co-defendant or by the filing of a
third-party complaint against said vendors. Nothing of that sort appeared
to have been done by the petitioners in the instant case.
IN VIEW OF THE FOREGOING CONSIDERATIONS, the petition is DISMISSED
and the appealed decision of the then Court of Appeals is AFFIRMED.

Article 1548, in relation to Articles 1558. and 1559 of the New Civil Code
reads as follows:

Art. 1548, Eviction shall take place whenever by a final judgment based
on a right prior to the sale or an act imputable to the vendor, the vendee is
deprived of the whole or of a part of the thing purchased.

The vendor shall answer for the eviction even though nothing has been
said in the contract on the subject.

The contracting parties, however, may increase, diminish, or suppress this

legal obligation of the vendor.

Art. 1558. The vendor shall not be obliged to make good the proper
warranty, unless he is summoned in the suit for eviction at the instance of
the vendee. (emphasis supplied)

Art. 1559. The defendant vendee shall ask, within the time fixed in the
Rules of Court for answering the complaint that the vendor be made as co-
defendant.

In order that a vendor's liability for eviction may be enforced, the

following requisites must concur—a) there must be a final judgment; b)
the purchaser has been deprived of the whole or part of the thing sold; c)
said deprivation was by virtue of a right prior to the sale made by the
vendor; and d) the vendor has been summoned and made co-defendant in
the suit for eviction at the instance of the vendee. 6

In the case at bar, the fourth requisite—that of being summoned in the suit
for eviction (Case No. 4252) at the instance of the vendee—is not present.
All that the petitioners did, per their very admission, was to furnish
respondents, by registered mail, with a copy of the opposition they
(petitioners filed in the eviction suit. Decidedly, this is not the kind of
notice prescribed by the aforequoted Articles 1558 and 1559 of the New
Civil Code. The term "unless he is summoned in the suit for eviction at the
instance of the vendee" means that the respondents as vendor/s should be

12
NUTRIMIX FEEDS CORPORATION, petitioner, vs. COURT OF APPEALS and
SPOUSES EFREN AND MAURA EVANGELISTA, respondents.
The Factual Antecedents
On April 5, 1993, the Spouses Efren and Maura Evangelista, the
respondents herein, started to directly procure various kinds of animal
feeds from petitioner Nutrimix Feeds Corporation. The petitioner gave the
respondents a credit period of thirty to forty-five days to postdate checks
to be issued in payment for the delivery of the feeds. The accommodation
was made apparently because of the company presidents close friendship
with Eugenio Evangelista, the brother of respondent Efren Evangelista.
The various animal feeds were paid and covered by checks with due dates
from July 1993 to September 1993. Initially, the respondents were good
paying customers. In some instances, however, they failed to issue checks
despite the deliveries of animal feeds which were appropriately covered by
sales invoices. Consequently, the respondents incurred an aggregate
unsettled account with the petitioner in the amount of P766,151.00. The
breakdown of the unpaid obligation is as follows:
Sales Invoice Number Date Amount
21334 June 23, 1993 P 7,260.00
21420 June 26, 1993 6,990.00
21437 June 28, 1993 41,510.00
21722 July 12, 1993 45,185.00
22048 July 26, 1993 44,540.00
22054 July 27, 1993 45,246.00
22186 August 2, 1993 84,900.00
Total: P275,631.00
Bank Check Number Due Date Amount
United Coconut
Planters Bank BTS052084 July 30, 1993 P 47,760.00
-do- BTS052087 July 30, 1993 131,340.00
-do- BTS052091 July 30, 1993 59,700.00
-do- BTS062721 August 4, 1993 47,860.00
-do- BTS062720 August 5, 1993 43,780.00
-do- BTS062774 August 6, 1993 15,000.00
-do- BTS062748 September 11, 1993 47,180.00
-do- BTS062763 September 11, 1993 48,440.00
-do- BTS062766 September 18, 1993 49,460.00
Total: P490,520.00
When the above-mentioned checks were deposited at the petitioners
depository bank, the same were, consequently, dishonored because
respondent Maura Evangelista had already closed her account. The
petitioner made several demands for the respondents to settle their
unpaid obligation, but the latter failed and refused to pay their
remaining balance with the petitioner.
On December 15, 1993, the petitioner filed with the Regional Trial
Court of Malolos, Bulacan, a complaint, docketed as Civil Case No. 1026-
M-93, against the respondents for sum of money and damages with a
prayer for issuance of writ of preliminary attachment. In their answer with
counterclaim, the respondents admitted their unpaid obligation but
impugned their liability to the petitioner. They asserted that the nine
checks issued by respondent Maura Evangelista were made to guarantee
the payment of the purchases, which was previously determined to be
procured from the expected proceeds in the sale of their broilers and hogs.
They contended that inasmuch as the sudden and massive death of their
animals was caused by the contaminated products of the petitioner, the
nonpayment of their obligation was based on a just and legal ground.
On January 19, 1994, the respondents also lodged a complaint for
damages against the petitioner, docketed as Civil Case No. 49-M-94, for
the untimely and unforeseen death of their animals supposedly effected by
the adulterated animal feeds the petitioner sold to them. Within the period
to file an answer, the petitioner moved to dismiss the respondents
complaint on the ground of litis pendentia. The trial court denied the same
in a Resolution[5] dated April 26, 1994, and ordered the consolidation of
the case with Civil Case No. 1026-M-93. On May 13, 1994, the petitioner
filed its Answer with Counterclaim, alleging that the death of the
respondents animals was due to the widespread pestilence in their farm.
The petitioner, likewise, maintained that it received information that the
respondents were in an unstable financial condition and even sold their
animals to settle their obligations from other enraged and insistent
creditors. It, moreover, theorized that it was the respondents who mixed
poison to its feeds to make it appear that the feeds were contaminated.
A joint trial thereafter ensued.
During the hearing, the petitioner presented Rufino Arenas,
Nutrimix Assistant Manager, as its lone witness. He testified that on the
first week of August 1993, Nutrimix President Efren Bartolome met the
respondents to discuss the possible settlement of their unpaid account. The
said respondents still pleaded to the petitioner to continue to supply them
with animal feeds because their livestock were supposedly suffering from
a disease.[6]
For her part, respondent Maura Evangelista testified that as direct
buyers of animal feeds from the petitioner, Mr. Bartolome, the company
president, gave them a discount of P12.00 per bag and a credit term of
forty-five to seventy-five days.[7] For the operation of the respondents
poultry and piggery farm, the assorted animal feeds sold by the petitioner
were delivered in their residence and stored in an adjacent bodega made of
concrete wall and galvanized iron sheet roofing with monolithic flooring. [8]
It appears that in the morning of July 26, 1993, three various kinds
of animal feeds, numbering 130 bags, were delivered to the residence of
the respondents in Sta. Rosa, Marilao, Bulacan. The deliveries came at
about 10:00 a.m. and were fed to the animals at approximately 1:30 p.m. at
the respondents farm in Balasing, Sta. Maria, Bulacan. At about 8:30 p.m.,
respondent Maura Evangelista received a radio message from a worker in
her farm, warning her that the chickens were dying at rapid intervals.
When the respondents arrived at their farm, they witnessed the death of
18,000 broilers, averaging 1.7 kilos in weight, approximately forty-one to
forty-five days old. The broilers then had a prevailing market price
of P46.00 per kilo.[9]
On July 27, 1993, the respondents received another delivery of 160
bags of animal feeds from the petitioner, some of which were distributed
to the contract growers of the respondents. At that time, respondent Maura
Evangelista requested the representative of the petitioner to notify Mr.
Bartolome of the fact that their broilers died after having been fed with the
animal feeds delivered by the petitioner the previous day. She, likewise,
asked that a technician or veterinarian be sent to oversee the untoward
occurrence. Nevertheless, the various feeds delivered on that day were still
fed to the animals. On July 27, 1993, the witness recounted that all of the
chickens and hogs died.[10] Efren Evangelista suffered from a heart attack
and was hospitalized as a consequence of the massive death of their
animals in the farm. On August 2, 1993, another set of animal feeds were
delivered to the respondents, but the same were not returned as the latter
were not yet cognizant of the fact that the cause of the death of their
animals was the polluted feeds of the petitioner.[11]
When respondent Maura Evangelista eventually met with Mr.
Bartolome on an undisclosed date, she attributed the improbable incident
to the animal feeds supplied by the petitioner, and asked Mr. Bartolome
for indemnity for the massive death of her livestock. Mr. Bartolome
disavowed liability thereon and, thereafter, filed a case against the
respondents.[12]
After the meeting with Mr. Bartolome, respondent Maura
Evangelista requested Dr. Rolando Sanchez, a veterinarian, to conduct an
inspection in the respondents poultry. On October 20, 1993, the
respondents took ample amounts remaining from the feeds sold by the
petitioner and furnished the same to various government agencies for
laboratory examination.
Dr. Juliana G. Garcia, a doctor of veterinary medicine and the
Supervising Agriculturist of the Bureau of Animal Industry, testified that
on October 20, 1993, sample feeds for chickens contained in a pail were
presented to her for examination by respondent Efren Evangelista and a
certain veterinarian.[13] The Clinical Laboratory Report revealed that the
feeds were negative of salmonella[14] and that the very high aflatoxin
level[15] found therein would not cause instantaneous death if taken orally
by birds.
Dr. Rodrigo Diaz, the veterinarian who accompanied Efren at the
Bureau of Animal Industry, testified that sometime in October 1993, Efren
sought for his advice regarding the death of the respondents chickens. He
suggested that the remaining feeds from their warehouse be brought to a
13
laboratory for examination. The witness claimed that the feeds brought to
the laboratory came from one bag of sealed Nutrimix feeds which was
covered with a sack.
Dr. Florencio Isagani S. Medina III, Chief Scientist Research
Specialist of the Philippine Nuclear Research Institute, informed the trial
court that respondent Maura Evangelista and Dr. Garcia brought sample
feeds and four live and healthy chickens to him for laboratory
examination. In his Cytogenetic Analysis, [16] Dr. Medina reported that he
divided the chickens into two categories, which he separately fed at 6:00
a.m. with the animal feeds of a different commercial brand and with the
sample feeds supposedly supplied by the petitioner. At noon of the same
day, one of the chickens which had been fed with the Nutrimix feeds died,
and a second chicken died at 5:45 p.m. of the same day. Samples of blood
and bone marrow were taken for chromosome analysis, which showed
pulverized chromosomes both from bone marrow and blood
chromosomes. On cross-examination, the witness admitted that the feeds
brought to him were merely placed in a small unmarked plastic bag and
that he had no way of ascertaining whether the feeds were indeed
manufactured by the petitioner.
Another witness for the respondents, Aida Viloria Magsipoc,
Forensic Chemist III of the Forensic Chemist Division of the National
Bureau of Investigation, affirmed that she performed a chemical
analysis[17] of the animal feeds, submitted to her by respondent Maura
Evangelista and Dr. Garcia in a sealed plastic bag, to determine the
presence of poison in the said specimen. The witness verified that the
sample feeds yielded positive results to the tests for COUMATETRALYL
Compound,[18] the active component of RACUMIN, a brand name for a
commercially known rat poison.[19] According to the witness, the presence
of the compound in the chicken feeds would be fatal to internal organs of
the chickens, as it would give a delayed blood clotting effect and
eventually lead to internal hemorrhage, culminating in their inevitable
death.
Paz Austria, the Chief of the Pesticide Analytical Section of the
Bureau of Plants Industry, conducted a laboratory examination to
determine the presence of pesticide residue in the animal feeds submitted
by respondent Maura Evangelista and Dr. Garcia. The tests disclosed that
no pesticide residue was detected in the samples received [20] but it was
discovered that the animal feeds were positive for Warfarin, a rodenticide
(anticoagulant), which is the chemical family of Coumarin.[21]
After due consideration of the evidence presented, the trial court
ruled in favor of the petitioner. The dispositive portion of the decision
reads:
WHEREFORE, in light of the evidence on record and the
laws/jurisprudence applicable thereon, judgment is hereby rendered:
1) in Civil Case No. 1026-M-93, ordering defendant spouses
Efren and Maura Evangelista to pay unto plaintiff
Nutrimix Feeds Corporation the amount of P766,151.00
representing the unpaid value of assorted animal feeds
delivered by the latter to and received by the former,
with legal interest thereon from the filing of the
complaint on December 15, 1993 until the same shall
have been paid in full, and the amount of P50,000.00 as
attorneys fees. Costs against the aforenamed defendants;
and
2) dismissing the complaint as well as counterclaims in Civil
Case No. 49-M-94 for inadequacy of evidence to sustain
the same. No pronouncement as to costs.
SO ORDERED.[22]
In finding for the petitioner, the trial court ratiocinated as follows:
On the strength of the foregoing disquisition, the Court cannot sustain the
Evangelistas contention that Nutrimix is liable under Articles 1561 and
1566 of the Civil Code governing hidden defects of commodities sold. As
already explained, the Court is predisposed to believe that the subject
feeds were contaminated sometime between their storage at the bodega of
the Evangelistas and their consumption by the poultry and hogs fed
therewith, and that the contamination was perpetrated by unidentified or
unidentifiable ill-meaning mischief-maker(s) over whom Nutrimix had no
control in whichever way.
All told, the Court finds and so holds that for inadequacy of proof to the
contrary, Nutrimix was not responsible at all for the contamination or
poisoning of the feeds supplied by it to the Evangelistas which precipitated
the mass death of the latters chickens and hogs. By no means and under no
circumstance, therefore, may Nutrimix be held liable for the sundry
damages prayed for by the Evangelistas in their complaint in Civil Case
No. 49-M-94 and answer in Civil Case No. 1026-M-93. In fine, Civil Case
No. 49-M-94 deserves dismissal.
Parenthetically, vis--vis the fulminations of the Evangelistas in this
specific regard, the Court does not perceive any act or omission on the part
of Nutrimix constitutive of abuse of rights as would render said
corporation liable for damages under Arts. 19 and 21 of the Civil Code.
The alleged callous attitude and lack of concern of Nutrimix have not been
established with more definitiveness.
As regards Civil Case No. 1026-M-93, on the other hand, the Court is
perfectly convinced that the deliveries of animal feeds by Nutrimix to the
Evangelistas constituted a simple contract of sale, albeit on a continuing
basis and on terms or installment payments.[23]
Undaunted, the respondents sought a review of the trial courts
decision to the Court of Appeals (CA), principally arguing that the trial
court erred in holding that they failed to prove that their broilers and hogs
died as a result of consuming the petitioners feeds.
On February 12, 2002, the CA modified the decision of the trial
court. The fallo of the decision reads:
WHEREFORE, premises considered, the appealed decision is hereby
MODIFIED such that the complaint in Civil Case No. 1026-M-93
is DISMISSED for lack of merit.
SO ORDERED.[24]
In dismissing the complaint in Civil Case No. 1026-M-93, the CA
ruled that the respondents were not obligated to pay their outstanding
obligation to the petitioner in view of its breach of warranty against hidden
defects. The CA gave much credence to the testimony of Dr. Rodrigo
Diaz, who attested that the sample feeds distributed to the various
governmental agencies for laboratory examination were taken from a
sealed sack bearing the brand name Nutrimix. The CA further argued that
the declarations of Dr. Diaz were not effectively impugned during cross-
examination, nor was there any contrary evidence adduced to destroy his
damning allegations.
On March 7, 2002, the petitioner filed with this Court the instant
petition for review on the sole ground that
THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING
THAT THE CLAIMS OF HEREIN PETITIONER FOR COLLECTION
OF SUM OF MONEY AGAINST PRIVATE RESPONDENTS MUST
BE DENIED BECAUSE OF HIDDEN DEFECTS.
The Present Petition
The petitioner resolutely avers that the testimony of Dr. Diaz can
hardly be considered as conclusive evidence of hidden defects that can be
attributed to the petitioner. Parenthetically, the petitioner asserts, assuming
that the sample feeds were taken from a sealed sack bearing the brand
name Nutrimix, it cannot decisively be presumed that these were the same
feeds brought to the respondents farm and given to their chickens and hogs
for consumption.
14
 It is the contention of the respondents that the appellate court
correctly ordered the dismissal of the complaint in Civil Case No. 1026-
M-93. They further add that there was sufficient basis for the CA to hold
the petitioner guilty of breach of warranty thereby releasing the
respondents from paying their outstanding obligation.
The Ruling of the Court
Oft repeated is the rule that the Supreme Court reviews only errors
of law in petitions for review on certiorari under Rule 45. However, this
rule is not absolute. The Court may review the factual findings of the CA
should they be contrary to those of the trial court. Conformably, this Court
may review findings of facts when the judgment of the CA is premised on
a misapprehension of facts.[25]
The threshold issue is whether or not there is sufficient evidence to
hold the petitioner guilty of breach of warranty due to hidden defects.
The petition is meritorious.
The provisions on warranty against hidden defects are found in
Articles 1561 and 1566 of the New Civil Code of the Philippines, which
read as follows:
Art. 1561. The vendor shall be responsible for warranty against hidden
defects which the thing sold may have, should they render it unfit for the
use for which it is intended, or should they diminish its fitness for such use
to such an extent that, had the vendee been aware thereof, he would not
have acquired it or would have given a lower price for it; but said vendor
shall not be answerable for patent defects or those which may be visible,
or for those which are not visible if the vendee is an expert who, by reason
of his trade or profession, should have known them.
Art. 1566. The vendor is responsible to the vendee for any hidden faults or
defects in the thing sold, even though he was not aware thereof.
This provision shall not apply if the contrary has been stipulated, and the
vendor was not aware of the hidden faults or defects in the thing sold.
A hidden defect is one which is unknown or could not have been
known to the vendee.[26] Under the law, the requisites to recover on
account of hidden defects are as follows:
(a) the defect must be hidden;
(b) the defect must exist at the time the sale was made;
(c) the defect must ordinarily have been excluded from the Q But according to you, the previous deliveries were not
contract; used by you because you believe (sic) that they were
(d) the defect, must be important (renders thing UNFIT or poison (sic)?
considerably decreases FITNESS);
(e) the action must be instituted within the statute of A Which previous deliveries, Sir[?]
limitations.[27]
Q Those delivered on July 26 and 22 (sic), 1993?
In the sale of animal feeds, there is an implied warranty that it is
A Those were fed to the chickens, Sir. This is the cause of
reasonably fit and suitable to be used for the purpose which both parties
the death of the chickens.
contemplated.[28] To be able to prove liability on the basis of breach of
implied warranty, three things must be established by the respondents. Q And you stated that this last delivery on August 2 were
The first is that they sustained injury because of the product; the second is poison (sic) also and you did not use them, is that
that the injury occurred because the product was defective or unreasonably
right?
unsafe; and finally, the defect existed when the product left the hands of
the petitioner.[29] A manufacturer or seller of a product cannot be held Atty. Roxas:
liable for any damage allegedly caused by the product in the absence of
any proof that the product in question was defective. [30] The defect must be That is misleading.
present upon the delivery or manufacture of the product; [31] or when the
product left the sellers or manufacturers control; [32]or when the product Atty. Cruz:
was sold to the purchaser;[33] or the product must have reached the user or
She stated that.
consumer without substantial change in the condition it was sold. Tracing
the defect to the petitioner requires some evidence that there was no Atty. Roxas:
tampering with, or changing of the animal feeds. The nature of the animal
feeds makes it necessarily difficult for the respondents to prove that the She said some were fed because they did not know yet
defect was existing when the product left the premises of the petitioner. of the poisoning.
A review of the facts of the case would reveal that the petitioner Court:
delivered the animal feeds, allegedly containing rat poison, on July 26,
1993; but it is astonishing that the respondents had the animal feeds And when the chickens died, they stopped naturally
examined only on October 20, 1993, or barely three months after their feeding it to the chickens.
broilers and hogs had died. On cross-examination, respondent Maura
Evangelista testified in this manner: Atty. Cruz:
Atty. Cruz: Q You mean to say, Madam Witness, that although you
believe (sic) that the chickens were allegedly
Q Madam Witness, you said in the last hearing that believing poisoned, you used the same for feeding your
that the 250 bags of feeds delivered to (sic) the animals?
Nutrimix Feeds Corporation on August 2, 1993 were
poison (sic), allegedly your husband Efren Evangelista A We did not know yet during that time that the feeds
burned the same with the chicken[s], is that right? contained poison, only during that time when we
learned about the same after the analysis.
A Yes, Sir. Some, Sir.
Q Therefore you have known only of the alleged poison in
Q And is it not a fact, Madam Witness, that you did not, as the Nutrimix Feeds only after you have caused the
according to you, used (sic) any of these deliveries analysis of the same?
made on August 2, 1993?
A Yes, Sir.
A We were able to feed (sic) some of those deliveries
Q When was that, Madam Witness?
because we did not know yet during that time that it is
the cause of the death of our chicks (sic), Sir. A I cannot be sure about the exact time but it is within
the months of October to November, Sir.
15
 Q So, before this analysis of about October and November,
you were not aware that the feeds of Nutrimix Feeds
Corporation were, according to you, with poison?
A We did not know yet that it contained poison but we were
sure that the feeds were the cause of the death of our
animals.[34]
We find it difficult to believe that the feeds delivered on July 26
and 27, 1993 and fed to the broilers and hogs contained poison at the time
they reached the respondents. A difference of approximately three months
enfeebles the respondents theory that the petitioner is guilty of breach of
warranty by virtue of hidden defects. In a span of three months, the feeds
could have already been contaminated by outside factors and subjected to
many conditions unquestionably beyond the control of the petitioner. In
fact, Dr. Garcia, one of the witnesses for the respondents, testified that the
animal feeds submitted to her for laboratory examination contained very
high level of aflatoxin, possibly caused by mold (aspergillus flavus).
[35]
 We agree with the contention of the petitioner that there is no evidence
on record to prove that the animal feeds taken to the various governmental
agencies for laboratory examination were the same animal feeds given to
the respondents broilers and hogs for their consumption. Moreover, Dr.
Diaz even admitted that the feeds that were submitted for analysis came
from a sealed bag. There is simply no evidence to show that the feeds
given to the animals on July 26 and 27, 1993 were identical to those
submitted to the expert witnesses in October 1993.
It bears stressing, too, that the chickens brought to the Philippine
Nuclear Research Institute for laboratory tests were healthy animals, and
were not the ones that were ostensibly poisoned. There was even no
attempt to have the dead fowls examined. Neither was there any analysis
of the stomach of the dead chickens to determine whether the petitioners
feeds really caused their sudden death. Mere sickness and death of the
chickens is not satisfactory evidence in itself to establish a prima
facie case of breach of warranty.[36]
Likewise, there was evidence tending to show that the respondents
combined different kinds of animal feeds and that the mixture was given
to the animals. Respondent Maura Evangelista testified that it was
common practice among chicken and hog raisers to mix animal feeds. The
testimonies of respondent Maura Evangelista may be thus summarized:
Cross-Examination
Atty. Cruz:
Q Because, Madam Witness, you ordered chicken booster
mash from Nutrimix Feeds Corporation because in
July 1993 you were taking care of many chickens, as a
matter of fact, majority of the chickens you were
taking care [of] were chicks and not chickens which
are marketable?
A What I can remember was that I ordered chicken booster
mash on that month of July 1993 because we have
some chicks which have to be fed with chicken
booster mash and I now remember that on the
particular month of July 1993 we ordered several bags
of chicken booster mash for the consumption also of
our chicken in our other poultry and at the same time
they were also used to be mixed with the feeds that
were given to the hogs.
Q You mean to say [that], as a practice, you are mixing
chicken booster mash which is specifically made for
chick feeds you are feeding the same to the hogs, is
that what you want the Court to believe?
A Yes, Sir, because when you mix chicken booster mash
in the feeds of hogs there is a better result, Sir, in
raising hogs.[37]
Re-Direct Examination
Atty. Roxas:
Q Now, you mentioned that shortly before July 26 and 27,
1993, various types of Nutrimix feeds were delivered
to you like chicks booster mash, broiler starter mash
and hog finisher or hog grower mash. What is the
reason for simultaneous deliveries of various types of
feeds?
A Because we used to mix all those together in one feeding,
Sir.
Q And what is the reason for mixing the chick booster mash
with broiler starter mash?
A So that the chickens will get fat, Sir.
Re-Cross Examination
Atty. Cruz:
Q Madam Witness, is it not a fact that the mixing of these
feeds by you is your own concuction (sic) and without
the advice of a veterinarian expert to do so?
A That is common practice among raisers to mix two feeds,
Sir.
Q By yourself, Madam Witness, who advised you to do the
mixing of these two types of feeds for feeding your
chickens?
A That is common practice of chicken raisers, Sir.[38]
Even more surprising is the fact that during the meeting with
Nutrimix President Mr. Bartolome, the respondents claimed that their
animals were plagued by disease, and that they needed more time to settle
their obligations with the petitioner. It was only after a few months that the
respondents changed their justification for not paying their unsettled
accounts, claiming anew that their animals were poisoned with the animal
feeds supplied by the petitioner. The volte-face of the respondents
deserves scant consideration for having been conjured as a mere
afterthought.
In essence, we hold that the respondents failed to prove that the
petitioner is guilty of breach of warranty due to hidden defects. It is,
likewise, rudimentary that common law places upon the buyer of the
product the burden of proving that the seller of the product breached its
warranty.[39] The bevy of expert evidence adduced by the respondents is
too shaky and utterly insufficient to prove that the Nutrimix feeds caused
the death of their animals. For these reasons, the expert testimonies lack
probative weight. The respondents case of breach of implied warranty was
fundamentally based upon the circumstantial evidence that the chickens
and hogs sickened, stunted, and died after eating Nutrimix feeds; but this
was not enough to raise a reasonable supposition that the unwholesome
feeds were the proximate cause of the death with that degree of certainty
and probability required.[40] The rule is well-settled that if there be no
evidence, or if evidence be so slight as not reasonably to warrant inference
of the fact in issue or furnish more than materials for a mere conjecture,
the court will not hesitate to strike down the evidence and rule in favor of
the other party.[41] This rule is both fair and sound. Any other interpretation
of the law would unloose the courts to meander aimlessly in the arena of
speculation.[42]
It must be stressed, however, that the remedy against violations of
warranty against hidden defects is either to withdraw from the contract
(accion redhibitoria) or to demand a proportionate reduction of the price
(accion quanti minoris), with damages in either case.[43] In any case, the
respondents have already admitted, both in their testimonies and pleadings
submitted, that they are indeed indebted to the petitioner for the unpaid
animal feeds delivered to them. For this reason alone, they should be held
liable for their unsettled obligations to the petitioner. WHEREFORE, in light
of all the foregoing, the petition is GRANTED. The assailed Decision of the
Court of Appeals, dated February 12, 2002, is REVERSED and SET ASIDE.
The Decision of the Regional Trial Court of Malolos, Bulacan, Branch 9,
dated January 12, 1998, is REINSTATED.
16
SUPERCARS MANAGEMENT & DEVELOPMENT
CORPORATION, represented by its President BENIGNO
CHAN, petitioner, vs. THE LATE FILEMON FLORES, substituted by his
surviving spouse, NORA C. FLORES, respondent.
Before us is a petition for review on certiorari assailing the
Decision[2] dated November 29, 2000 and Resolution[3] dated April 26,
2001, both issued by the Court of Appeals in CA-G.R. CV No. 40419,
entitled Filemon Flores vs. Supercars Management & Development
Corporation, Mamerto Catley, Pablito Marquez, and Rizal Commercial
Banking Corporation.
In the second week of December 1988, Filemon Flores, respondent,
purchased from Supercars Management and Development Corporation,
petitioner, an Isuzu Carter Crew Cab for P212,000.00 payable monthly
with a down payment equivalent to 30% of the price or P63,600.00. The
balance was to be financed by the Rizal Commercial Banking Corporation
(RCBC). The sale was coursed through Pablito Marquez, petitioners
salesman.
Upon delivery of the vehicle on December 27, 1988, respondent
paid petitioner the 30% down payment, plus premium for the vehicles
comprehensive insurance policy amounting to P7,374.80. The RCBC
financed the balance of the purchase price. Its payment was secured by a
chattel mortgage of the same vehicle.
A day after the vehicle was delivered, respondent used it for his
familys trip to Bauang, La Union. While traversing the national highway
in Tarlac, Tarlac, the fan belt of the vehicle snapped. Then its brakes
hardened after several stops and did not function properly; the heater plug
did not also function; the engine could not start; and the fuel consumption
increased.[4]
Upon their return to Manila in the first week of January 1989,
respondent complained to petitioner about the defects of the vehicle.
Marquez then had the vehicle repaired and returned it to respondent that
same day, assuring the latter that it was already in good condition.
But after driving the vehicle for a few days, the same defects
resurfaced, prompting respondent to send petitioner a letter dated January
30, 1989 rescinding the contract of sale and returning the vehicle due to
breach of warranty against hidden defects. A copy of the letter was
furnished RCBC.
In response to respondents letter, petitioner directed Marquez to
have the vehicle fixed. Thereafter, he returned the vehicle to respondent
with the assurance that it has no more defects. However, when respondent
drove it for a few days, he found that the vehicle was still defective.
Hence, on February 7, 1989, respondent sent petitioner another
letter restating that he is rescinding the contract of sale, a copy of which
was furnished RCBC. On February 9, 1989, he returned the vehicle to
petitioner. Later, Marquez and Mamerto Catley, petitioners salesman, tried
to convince respondent to accept the vehicle as it had been completely
repaired. But respondent refused.
On March 1, 1989, respondent sent petitioner a letter demanding the
refund of his down payment, plus the premium he paid for the vehicles
insurance.
Petitioner failed to comply with petitioners demand. Consequently,
respondent stopped paying the monthly amortization for the vehicle.
On March 21, 1989, RCBC sent respondent a letter demanding that
he settle his past overdue accounts for February 15 and March 15, 1989. In
reply, respondent, through a letter dated March 31, 1989, informed RCBC
that he had rescinded the contract of sale and had returned the vehicle to
petitioner. This prompted RCBC to file with the Office of the Clerk of
Court and Ex-Officio Sheriff, Regional Trial Court, Quezon City,
a Petition for Extra-judicial Foreclosure of Chattel Mortgage.
On June 2, 1989, a Notice of Sheriffs Sale of the vehicle was set.
On June 1, 1989, respondent filed with the same Office
a Manifestation/Motion asking for the postponement of the scheduled
auction sale until such time that petitioner and/or RCBC shall have
reimbursed him of the amount he paid for the vehicle; and that should the
auction sale be conducted, the proceeds thereof equivalent to the amount
he spent be withheld and turned over to him.
The auction sale proceeded as scheduled. RCBC, being the highest
bidder, purchased the vehicle. Subsequently, RCBC sold the vehicle to a
third party.
On November 3, 1989, respondent filed with the Regional Trial
Court (RTC), Branch 150, Makati City a complaint [5] for rescission of
contract with damages against petitioner, Marquez, Catley and RCBC,
docketed as Civil Case No. 89-5566.
In their separate answers, petitioner, Marquez and Catley denied
having committed any breach of warranty against hidden defects, claiming
that the vehicle had only minor and inconsequential defects which were
promptly and satisfactorily repaired by petitioner Supercars pursuant to its
warranty as the seller.[6] For its part, RCBC claimed that it has no liability
whatsoever against respondent because it merely enforced its right under
the chattel mortgage law. All the defendants prayed for the dismissal of
the complaint.
On April 13, 1992, the RTC rendered its Decision in favor of
respondent and against the defendants, thus:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendants, ordering the latter to jointly and severally pay the
plaintiff as follows:
1. the amount of P70,974.80 representing the 30% down payment and
premium paid for one year comprehensive motor vehicle insurance plus
interests at the rate of 14% per annum from date of filing of this complaint
on October 30, 1989 until fully paid;
2. the sum of P50,000.00 as moral damages;
3. the sum of P25,000.00 as exemplary damages;
4. the sum of P20,000.00 as attorneys fees; and
5. the costs of suit. SO ORDERED.[7]
Upon motion for reconsideration by RCBC, the RTC, in an Order
dated December 21, 1992, modified its Decision by absolving RCBC from
any liability and dismissing the complaint against it, thus:
xxx
Going into the merits of defendant banks contention that it has valid and
meritorious defense which should ultimately exculpate it from any
liability, jointly and severally, with the other defendants, the Court, after a
careful review of the evidence on hand, reconsiders its Decision insofar as
the said bank is concerned. The valid exercise by the plaintiff of its right to
rescind the contract of sale for the purchase of the motor vehicle in
question does not apply to defendant bank. Said contract is effective only
as against defendant Supercars Management and Development
Corporation, which must principally suffer the consequence of its breach
of the contract.
This Court likewise takes notice of the fact that since the motor vehicle
was voluntarily surrendered by the plaintiff and that defendant bank
merely exercised its right under the chattel mortgage law, no fault can be
attributed to the latter. The fact that the plaintiff sent a letter to the Office
of the City Sheriff of Quezon City, copy furnished the bank, seeking the
postponement of the auction sale of the subject motor vehicle, will not and
cannot be considered as a valid ground to hold said bank liable for only
exercising its rights under the law. At most, the liability must really be
imputed only against defendants Supercars Management and Development
Corporation, Mamerto Catley and Pablito Marquez.
17
WHEREFORE, considering the foregoing premises, the Decision of this
Court dated April 13, 1992, insofar as it holds defendant Rizal
Commercial Banking Corporation jointly and severally liable to the
plaintiff, is hereby MODIFIED and the case against said bank
DISMISSED. Similarly, the compulsory counterclaim against the plaintiff
is likewise dismissed.
The dispositive portion of the same Decision insofar as the rest of the
defendants are concerned is hereby maintained and affirmed in toto.
[8]
SO ORDERED.
From the above Decision and Order, petitioner, Marquez and Catley
interposed an appeal to the Court of Appeals, docketed as CA-G.R. CV
No. 40419. In a Decision dated November 29, 2000, the Appellate Court
affirmed the RTC Decision with modification in the sense that the
complaint against Marquez and Catley was dismissed, thus:
xxx
It is with respect to appellants Catley and Marquez liability that we are
minded to modify the (appealed) Decision. The two being mere employees
(of appellant Supercars Management and Development Corporation), they
cannot be held liable to refund the amount claimed by Flores. Nor can they
be made liable for damages and attorneys fees, there being no clear
evidence that they had a hand in giving rise thereto.
WHEREFORE, the appealed Amended Decision is AFFIRMED, with the
MODIFICATION that the complaint insofar as defendants-appellants
Mamerto Catley and Pablito Marquez is hereby DISMISSED.
SO ORDERED.[9]
Petitioner filed a motion for reconsideration but denied in a
Resolution dated April 26, 2001.[10]
Hence, the instant petition.
Petitioner contends that respondent has no right to rescind the
contract of sale[11] because the motor vehicle in question, as found by the
RTC and the Court of Appeals, is already in the hands of a third party, one
Mr. Lim an innocent purchaser for value. [12] Thus, both courts erred in
ordering petitioner to refund respondent of the amounts he paid for the
vehicle.
The issue here is whether respondent has the right to rescind the
contract of sale and to claim damages as a result thereof.
We rule for respondent.
Respondents complaint filed with the RTC seeks to recover from
petitioner the money he paid for the vehicle due to the latters breach of his
warranty against hidden defects under Articles 1547,[13] 1561,[14] and
1566[15] of the Civil Code. The vehicle, after it was delivered to
respondent, malfunctioned despite repeated repairs by petitioner.
Obviously, the vehicle has hidden defects. A hidden defect is one which is
unknown or could not have been known to the vendee.[16]
The findings of both the RTC and Court of Appeals that petitioner
committed a breach of warranty against hidden defects are fully supported
by the records. The Appellate Court correctly ruled:
The evidence clearly shows that Flores [now respondent] was justified in
opting to rescind the sale given the hidden defects of the vehicle,
allowance for the repair of which he patiently extended, but which repair
did not turn out to be satisfactory.
xxx
For when by letters of January 30, 1989 and February 7, 1989, which were
followed up by another dated March 1, 1989, Flores declared his
rescission of the sale, which rescission was not impugned or opposed by
appellants as in fact they accepted the return of the vehicle on February 9,
1989, such extra-judicial rescission x x x produced legal effect (UP vs. de
los Angeles, 35 SCRA 102 [1970]; Tolentino Commentaries and
Jurisprudence on the Civil Code, citing Magdalena Estate v. Myrick, 71
Phil. 344 [1940-1941]).
[17]
xxx
It is well within respondents right to recover damages from
petitioner who committed a breach of warranty against hidden defects.
Article 1599 of the Civil Code partly provides:
Article 1599. Where there is a breach of warranty by the seller, the buyer
may, at his election:
xxx
(4) Rescind the contract of sale and refuse to receive the goods, or if the
goods have already been received, return them or offer to return them to
the seller and recover the price or any part thereof which has been paid.
When the buyer has claimed and been granted a remedy in anyone of these
ways, no other remedy can thereafter be granted, without prejudice to the
provisions of the second paragraph of Article 1191.
x x x. (Underscoring supplied)
Petitioners contention that under Article 1191 of the Civil Code,
rescission can no longer be availed of as the vehicle was already in the
hands of an innocent purchaser for value lacks merit. Rescission is proper
if one of the parties to a contract commits a substantial breach of its
provisions. It creates an obligation to return the object of the contract. It
can be carried out only when the one who demands rescission can return
whatever he may be obliged to restore. Rescission abrogates the contract
from its inception and requires a mutual restitution of the benefits
received.[18] Petitioner is thus mandated by law to give back to respondent
the purchase price upon his return of the vehicle. Records show that at the
time respondent opted to rescind the contract, the vehicle was still in his
possession. He returned it to petitioner who, without objection, accepted it.
Accordingly, the 30% down payment equivalent to P63,600.00, plus the
premium for the comprehensive insurance amounting to P7,374.80 paid by
respondent should be returned by petitioner.
As further stated by the Court of Appeals:
Appellants invocation of Article 1191 of the Civil Code in support of his
argument that as the vehicle had been sold to a third party, rescission can
no longer ensue is misplaced.
For, Flores is asking for the refund of the downpayment and payment for
insurance premiums. This brings us to appellants final argument.
Appellants professed excuse from their inability to give refund that refund
would necessitate the return of the subject motor vehicle which is
impossible because it is now in the hands of an innocent purchaser for
value miserably fails.
x x x appellant Supercars was paid the balance of the purchase price by
RCBC and, therefore, in addition to the downpayment given by Flores, it
had been fully paid for the vehicle.
Ergo, Supercars had nothing more to do with the vehicle.[19]
However, the lower courts award of P50,000.00 as moral damages
and P25,000.00 as exemplary damages to respondent is erroneous. While
no proof of pecuniary loss is necessary in order that moral damages may
be awarded, the amount of indemnity being left to the discretion of the
18
court, it is nevertheless essential that the claimant satisfactorily prove the
existence of the factual basis of the damage and its causal relation to
defendants acts. Moral damages are in the category of an award designed
to compensate the claimant for actual injury suffered and not to impose a
penalty to the wrongdoer. This has not been proved by respondent.

In contracts and quasi-contracts, the court may award exemplary

damages if the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner.[20]Likewise, respondent failed to
establish that petitioner acted in such manner.

As to the award of attorneys fees, the same must be deleted since

the award of moral and exemplary damages are eliminated. [21] Moreover,
the trial court did not give any justification for granting it in its decision. It
is now settled that awards of attorneys fees must be based on findings of
fact and law, stated in the decision of the trial court.[22]

WHEREFORE, the petition is DENIED. The assailed Decision dated

September 20, 1999 and Resolution dated February 1, 2000 of the Court
of Appeals in CA-G.R. CV No. 52177 are AFFIRMED with MODIFICATION.
The award of moral and exemplary damages and attorneys fees are
DELETED. 

19
ROBERTO R. DAVID, Petitioner, vs. EDUARDO C. DAVID, Respondent.
In a sale with right to repurchase, title and ownership of the property sold
are immediately vested in the vendee, subject to the resolutory condition
of repurchase by the vendor within the stipulated period.
The Case
Under review at the defendant's instance is the decision promulgated on
October 10, 2003,1 whereby the Court of Appeals (CA) affirmed the
judgment rendered on December 5, 2001 by the Regional Trial Court
(RTC), Branch 61, in Baguio City ordering him to return to the plaintiff
the motor vehicle and trailer subject of the complaint, or to pay their value
of ₱500,000.00 should the return not be effected, and to pay the plaintiff
₱20,000.00 as litigation expenses, ₱50,000.00 as attorney's fees, and the
costs of suit.2
Antecedents
Respondent Eduardo C. David (Eduardo) initiated this replevin suit
against Roberto R. David (Roberto), his first cousin and former business
partner, to recover the possession of one unit of International CO 9670
Truck Tractor and Mi-Bed Trailer.
It appears that on July 7, 1995, Eduardo and his brother Edwin C. David
(Edwin), acting on their own and in behalf of their co-heirs, sold their
inherited properties to Roberto, specifically: (a) a parcel of land with an
area of 1,231 square meters, together with all the improvements existing
thereon, located in Baguio City and covered by Transfer Certificate of
Title No. T-22983 of the Registry of Deeds of Baguio City (Baguio City
lot); and (b) two units International CO 9670 Truck Tractor with two Mi-
Bed Trailers.3 A deed of sale with assumption of mortgage (deed of
sale)4 embodied the terms of their agreement, stipulating that the
consideration for the sale was ₱6,000,000.00, of which ₱2,000,000 was to
be paid to Eduardo and Edwin, and the remaining ₱4,000,000.00 to be
paid to Development Bank of the Philippines (DBP) in Baguio City to
settle the outstanding obligation secured by a mortgage on such properties.
The parties further agreed to give Eduardo and Edwin the right to
repurchase the properties within a period of three years from the execution
of the deed of sale based on the purchase price agreed upon, plus 12%
interest per annum.
In April 1997, Roberto and Edwin executed a memorandum of agreement
(MOA)5 with the Spouses Marquez and Soledad Go (Spouses Go), by
which they agreed to sell the Baguio City lot to the latter for a
consideration of ₱10,000,000.00. The MOA stipulated that "in order to
save payment of high and multiple taxes considering that the x x x subject
matter of this sale is mortgaged with DBP, Baguio City, and sold [to
Roberto], Edwin will execute the necessary Deed of Absolute Sale in favor
of [the Spouses Go], in lieu of [Roberto]."6 The Spouses Go then deposited
the amount of ₱10,000,000.00 to Roberto’s account.7
After the execution of the MOA, Roberto gave Eduardo ₱2,800,000.00
and returned to him one of the truck tractors and trailers subject of the
deed of sale. Eduardo demanded for the return of the other truck tractor
and trailer, but Roberto refused to heed the demand.
Thus, Eduardo initiated this replevin suit against Roberto, alleging that he
was exercising the right to repurchase under the deed of sale; and that he
was entitled to the possession of the other motor vehicle and trailer.
In his answer, Roberto denied that Eduardo could repurchase the
properties in question; and insisted that the MOA had extinguished their
deed of sale by novation.
Judgment of the RTC
8
On December 5, 2001,  the RTC rendered judgment in favor of Eduardo,
holding that the stipulation giving Eduardo the right to repurchase had
made the deed of sale a conditional sale; that Eduardo had fulfilled the
conditions for the exercise of the right to repurchase; that the ownership of
the properties in question had reverted to Eduardo; that Roberto’s defense
of novation had no merit; and that due to Roberto’s bad faith in refusing to
satisfy Eduardo’s claim, Eduardo should be awarded litigation expenses
and attorney’s fees. The dispositive portion of the judgment reads:
WHEREFORE, premises considered, judgment is hereby rendered for the
plaintiff and against the defendant ORDERING the latter to return to the
former the motor vehicle and trailer subject matter of the case or to pay its
value in the amount of ₱500,000 in case manual delivery can not be
effected; to pay plaintiff the amount of ₱20,000 as litigation expenses; the
amount of ₱50,000 as attorney's fees and the costs of this suit.
SO ORDERED.9
Roberto appealed to the CA.
Ruling of the CA
On October 10, 2003,10 the CA promulgated its decision affirming the
RTC. It opined that although there was no express exercise of the right to
repurchase, the sum of all the relevant circumstances indicated that there
was an exercise of the right to repurchase pursuant to the deed of sale, that
the findings of the RTC to the effect that the conditions for the exercise of
the right to repurchase had been adequately satisfied by Eduardo, and that
no novation as claimed by Roberto had intervened.
On February 16, 2004,11 the CA denied Roberto’s motion for
reconsideration.12
Hence, this petition for review on certiorari.
Issues
Roberto seeks a reversal, claiming that the CA erred:
x x x IN HOLDING THAT THE RESPONDENT HAS EXERCISED
THEIR RIGHT TO REPURCHASE;
x x x IN HOLDING THAT THERE WAS NO NOVATION OF THE
DEED OF SALE WITH ASSUMPTION OF MORTGAGE WHEN THE
PARTIES EXECUTED A MEMORANDUM OF AGREEMENT FOR
THE SALE OF THE SUBJECT HOUSE AND LOT AND,
THEREAFTER SOLD THE SAID PROPERTY TO THIRD PERSONS;
x x x IN RESOLVING THE INSTANT CASE IN FAVOR OF
RESPO[N]DENT.13
Ruling of the Court
The petition for review has no merit.
A sale with right to repurchase is governed by Article 1601 of the Civil
Code, which provides that: "Conventional redemption shall take place
when the vendor reserves the right to repurchase the thing sold, with the
obligation to comply with the provisions of Article 1616 and other
stipulations which may have been agreed upon." Conformably with Article
1616,14 the seller given the right to repurchase may exercise his right of
redemption by paying the buyer: (a) the price of the sale, (b) the expenses
of the contract, (c) legitimate payments made by reason of the sale, and (d)
the necessary and useful expenses made on the thing sold.
20
The deed of sale entered into by Eduardo and Roberto contained the
following stipulation on the right to repurchase, to wit:
x x x the Vendors are given the right to repurchase the aforesaid described
real property, together with the improvements thereon, and the two (2)
motor vehicles, together with their respective trailers from the Vendee
within a period of three (3) years from the execution of this document on
the purchase price agreed upon by the parties after considering the amount
previously paid to the Vendors in the amount of TWO MILLION PESOS
(₱2,000,000.00), Philippine Currency, with an interest of twelve percent
(12%) per annum and the amount paid with the Development Bank of the
Philippines with an interest of twelve percent (12%) per annum.15
The CA and the RTC both found and held that Eduardo had complied with
the conditions stipulated in the deed of sale and prescribed by Article 1616
of the Civil Code. Pertinently, the CA stated:
It should be noted that the alleged repurchase was exercised within the
stipulated period of three (3) years from the time the Deed of Sale with
Assumption of Mortgage was executed. The only question now, therefore,
which remains to be resolved is whether or not the conditions set forth in
the Deed of Sale with Assumption of Mortgage, i.e. the tender of the
purchase price previously agreed upon, which is Php2.0 Million, plus 12%
interest per annum, and the amount paid by the defendant to DBP, had
been satisfied.
From the testimony of the defendant himself, these preconditions for the
exercise of plaintiff's right to repurchase were adequately satisfied by the
latter. Thus, as stated, from the Php10 Million purchase price which was
directly paid to the defendant, the latter deducted his expenses plus
interests and the loan, and the remaining amount he turned over to the
plaintiff. This testimony is an unequivocal acknowledgement from
defendant that plaintiff and his co-heirs exercised their right to repurchase
the property within the agreed period by satisfying all the conditions
stipulated in the Deed of Sale with Assumption of Mortgage. Moreover,
defendant returned to plaintiff the amount of Php2.8 Million from the total
purchase price of Php10.0 Million. This only means that this is the excess
amount pertaining to plaintiff and co-heirs after the defendant deducted the
repurchase price of Php2.0 Million plus interests and his expenses. Add to
that is the fact that defendant returned one of the trucks and trailers subject
of the Deed of Sale with Assumption of Mortgage to the plaintiff. This is,
at best, a tacit acknowledgement of the defendant that plaintiff and his co-
heirs had in fact exercised their right to repurchase.16 x x x
Considering that the factual findings of the trial court, when affirmed by
the CA, are binding on the Court,17 the Court affirms the judgment of the
CA upholding Eduardo’s exercise of the right of repurchase. Roberto
could no longer assail the factual findings because his petition for review
on certiorari was limited to the review and determination of questions of
law only. A question of law exists when the doubt centers on what the law
is on a certain set of undisputed facts, while a question of fact exists when
the doubt centers on the truth or falsity of the alleged facts. 18Whether the
conditions for the right to repurchase were complied with, or whether
there was a tender of payment, is a question of fact. With both the RTC
and the CA finding and holding that Eduardo had fulfilled the conditions
for the exercise of the right to repurchase, therefore, we conclude that
Eduardo had effectively repurchased the properties subject of the deed of
sale.
In Metropolitan Bank and Trust Company v. Tan, 19 the Court ruled that a
redemption within the period allowed by law is not a matter of intent but
of payment or valid tender of the full redemption price within the period.
Verily, the tender of payment is the seller’s manifestation of his desire to
repurchase the property with the offer of immediate performance. 20 As we
stated in Legaspi v. Court of Appeals, 21 a sincere tender of payment is
sufficient to show the exercise of the right to repurchase. Here, Eduardo
paid the repurchase price to Roberto by depositing the proceeds of the sale
of the Baguio City lot in the latter’s account. Such payment was an
effective exercise of the right to repurchase.
On the other hand, the Court dismisses as devoid of merit Roberto’s
insistence that the MOA had extinguished the obligations established
under the deed of sale by novation.
The issue of novation involves a question of fact, as it necessarily requires
the factual determination of the existence of the various requisites of
novation, namely: (a) there must be a previous valid obligation; (b) the
parties concerned must agree to a new contract; (c) the old contract must
be extinguished; and (d) there must be a valid new contract. 22 With both
the RTC and the CA concluding that the MOA was consistent with the
deed of sale, novation whereby the deed of sale was extinguished did not
occur. In that regard, it is worth repeating that the factual findings of the
lower courts are binding on the Court.
In sales with the right to repurchase, the title and ownership of the
property sold are immediately vested in the vendee, subject to the
resolutory condition of repurchase by the vendor within the stipulated
period.23 Accordingly, the ownership of the affected properties reverted to
Eduardo once he complied with the condition for the repurchase, thereby
entitling him to the possession of the other motor vehicle with trailer.
WHEREFORE, the Court AFFIRMS the decision promulgated on October
10, 2003; and ORDERS the petitioner to pay the costs of suit.
21
VICENCIO T. TORRES and SOCORRO S. TORRES, petitioners, vs. COURT
OF APPEALS, CEFERINO ILLUSCUPIDES, ARACELI ILLUSCUPIDES and
EMILIO OLORES, respondents.
CEFERINO ILLUSCUPIDES and ARACELI CAMACHO-
ILLUSCUPIDES, petitioners, vs. COURT OF APPEALS, VICENCIO T. TORRES
and SOCORRO S. TORRES, respondents.
Before Us is the petition for review on certiorari of petitioners Ceferino
Illuscupides and Araceli Camacho-Illuscupides in G.R. No. 93390 from
the decision of the Court of Appeals dated January 18, 1990. The petition
for review on certiorari in G.R. No. 92248, Vivencio T. Torres, et al. vs.
Court of Appeals, et al., was dismissed by the Court on June 18, 1990 1 for
failure to show that a reversible error was committed by the Court of
Appeals, and no motion for reconsideration was taken therefrom.
The facts are undisputed: the Illuscupideses are the owners of two (2)
adjoining parcels of lands located in the Tapuac District, Dagupan City.
The parcels are covered by TCT Nos. 14874 and 15167, and have a
combined area of 465 square meters. The said properties were mortgaged
to the Government Service Insurance System (GSIS).
Sometime in 1965, the Illuscupideses contracted Emilio Olores for the
construction of a nine (9) door apartment on the parcels of land for the
sum of P79,400.00. While construction was going on, another door was
added, thereby increasing the cost of the construction to P97,000.00.
However, the Illuscupideses could only pay Olores P54,390.51, thus
compelling the latter to sue them for the balance before the Court of First
Instance of Pangasinan in Civil Case No. D-1955. On November 1969,
judgment was rendered in favor of Olores for the unpaid balance with
interests and costs. The Illuscupideses then appealed the decision to the
Court of Appeals.
Meanwhile, the Illuscupideses received a notice from the GSIS that it was
going to foreclosure the mortgage for their failure to pay the loan when the
same became due. To stave off the foreclosure, the Illuscupideses sold the
properties to Vivencio Torres and Socorro Torres (petitioners in G.R. No.
92248), as evidenced by the Deed of Sale dated October 19, 1973 2 for
P130,000.00, of which the vendees paid the vendors P10,000.00,
P6,000.00 and P3,000.00. The vendees likewise paid P51,498.97 to the
GSIS. The aforesaid payments were in accordance to the schedule found in
the promissory note executed by the parties on October 19, 1973, 3 which
provided —
Downpayment (paid on October 1973) .......... P10,000.00
Payment to the GSIS (assumption of mortgage) .......... 51,000.00 2. Ordering the dismissal of the cross-claim and counterclaims of
defendants Illuscupides against defendants Torres and plaintiff;
Cash payment upon issuance of title in the name of vendee .........
25,000.00 3. Ordering defendants Illuscupides and/or Torres to deliver the
P41,000.00 withheld by them as part of the purchase price of the lots and
apartments for the satisfaction of the claim of plaintiff;
Balance payable as follows:
4. Ordering defendants Illuscupides to pay plaintiff and defendants Torres
Dec. 30, 1974 .................... 11,000.00
the sum of P5,000.00 as attorney's fees each; (and)
Dec. 30, 1975 .................... 11,000.00
Dec. 30, 1976 .................... 11,000.00
Dec. 30, 1977 .................... 11,000.00 5. Ordering the defendants Illuscupides to pay the costs.
Provided that no installment shall be paid until after the final adjudication Olores and the Illuscupides then appealed to the Court of Appeals, where
of claim of Engr. E. Olores against vendor .................... 44,000.00 the case was docketed as CA-G.R. CV No. 14779. On January 18, 1990,
the appellate court rendered a decision, 6 the dispositive portion of which
reads as follows:
—————
P130,000.00
WHEREFORE, the decision dated October 7, 1986 is hereby AFFIRMED
insofar as the dismissal of the complaint of plaintiff-appellant Olores, the
The parties also executed on the same day an agreement 4 whereby the
cross-claim and counter-claim of defendants-appellants Illuscupides, and
Torreses would "RESELL, RETRANSFER, and RECONVEY" to the
the counter-claim of defendant-appellees Torres; REVERSED insofar as
Illuscupideses "that certain building, more particularly designated as a ten-
Nos. 3, 4 and 5 of the dispositve portion of the Decision are concerned;
door concrete apartment."
and the defendants-appellees spouses Vivencio Torres and Socorro Torres
are ordered to reconvey in favor of the defendants-cross-claimants spouses
Olores found out about the transaction and, fearing that he would not be Ceferino Illuscupides and Socorro Illuscupides "that certain building more
able to collect from the Illuscupideses, in case the Court of Appeals would particularly designated as a ten-door apartment in the Deed of Sale
uphold the decision of the trial court in his favor, filed a new case for executed by and between the above-named parties on October 19, 1973."
rescission of the sale against the Illuscupideses and the Torreses. The Without pronouncement as to costs.
Illuscupideses filed a counter-claim against Olores, and a cross-claim
against the Torreses, alleging that the Deed of Sale was a pacto de
With regard to the appeal of the Illuscupideses, the Court of Appeals did
retro  sale.
not agree with their contention that the sale of the properties to the
Torreses was actually a pacto de retro sale, since the terms of the Deed of
In 1977, the Court of Appeals upheld the decision in the collection case Sale did not provide for the redemption of the property by the vendors.
for the unpaid balance of the construction costs in favor of Olores. When However, the appellate court discovered that the land and the apartment
said judgment became final and executory. Olores tried to execute the were sold separately, and only the land appears to have been fully paid.
same but was unable to do so. And since the Agreement (Annex "F") provided that the apartment should
be resold to the Illuscupideses, the appellate court held that the Torreses
should reconvey the apartment to the Illuscupideses.
Meanwhile, trial in the rescission case continued until judgment was
rendered on October 7, 1986, 5 the dispositive portion of which provided:
The Illuscupideses filed a motion asking that the Court of Appeals rule
upon the apartment rentals collected by Torreses, since it had ruled that the
WHEREFORE, premises considered, by preponderance of evidence,
apartment be reconveyed to them. The appellate court denied the motion
judgment is hereby rendered: on the ground that the matter of the rentals was not raised as assignment of
error in their brief.
1. Dismissing the complaint for rescission filed by plaintiff;
22
From said resolution, the Illuscupideses elevated the case to this Court on
a petition for review for certiorari. The Torreses filed a separate petition
for review on certiorari, but the same was dismissed by this Court on June
18, 1990. The dismissal of the Torreses' petition is now final in view of
their failure to file a timely motion for reconsideration.

In their petition, the Illuscupideses allege that the Court of Appeals erred
in (1) not construing the Deed of Sale of October 19, 1973 to be a pacto
de retro sale; and (2) in not ruling upon the rentals collected by the
Torreses from the apartment after it had ordered the reconveyance of the
apartment to the Illuscupides.

The petition is totally devoid of merit.

The Court of Appeals was correct in construing the Deed of Sale as an

absolute sale inasmuch as the terms thereof are clear on the matter. The
Illuscupideses argue, however, that the appellate court should have taken
into account the circumstances surrounding the execution of the deed,
particularly the fact that an Agreement to resell the apartment was
executed on the very same day as the deed of sale.

The argument is unavailing. Even if this Court were to agree with the
Illuscupideses that parole evidence may be allowed to add to the terms of
the deed of sale, this Court has held in the case of Villarica, et
al. vs. Court of Appeals, et al., 7 that —

the right of repurchase is not a right granted the vendor by the vendee in a
subsequent instrument, but is a right reserved by the vendor in the same
instrument of sale as one of the stipulations of the contract. Once the
instrument of absolute sale is executed, the vendor can no longer reserve
the right to repurchase, and any right thereafter granted the vendor by the
vendee in a separate instrument cannot be a right to repurchase but some
other right like an option to buy in the instant case. 8

As with regard to the Illuscupideses' second contention, the Court of

Appeals acted correctly in not passing upon the rentals collected by the
Torreses since the Illuscupideses did not ask for the same in their original
cross-claim.

WHEREFORE, the decision appealed from is hereby AFFIRMED in toto.

23
SPS. CARLOS AND EULALIA RAYMUNDO and SPS. 4. AWARDING moral damages in the amount of P50,000.00; exemplary Spouses Buenaobrawhich, on appeal, was affirmed in toto by the
ANGELITO AND JOCELYN BUENAOBRA, Petitioners, vs. SPS. damages of P20,000.00; and attorneys fees and expenses of litigation RTC[7] and subsequently, by the Court of Appeals.[8] Finally, when the case
DOMINADOR and ROSALIA BANDONG, of P20,000.00, plus P500.00 per proven appearance of the plaintiffs- was raised on appeal before us in G.R. No. 109422, we issued a
Respondents. appellants counsel in court all solidarily payable by the spouses Carlos Resolution[9] dated 12 July 1993, finding that no substantial arguments
and Eulalia Raymundo and the spouses Angelito and Jocelyn Buenaobra, were raised therein to warrant the reversal of the appealed decision.
to the spouses Dominador and Rosalia Bandong.  
This is a Petition for Review on Certiorari under Rule 45 of the Revised   To assert their right to the subject property, the
Rules of Court, filed by petitioners Spouses Carlos 5. ORDERING the payment of the costs of the suit, payable by the Spouses Bandong instituted an action for annulment of sale before the
and Eulalia Raymundo and Spouses Angelito and spouses Carlos and Eulalia Raymundo and the spouses Angelito and RTC against Eulalia and Jocelyn on the ground that their consent to the
Jocelyn Buenaobra seeking the reversal and setting aside of the Decision Jocelyn Buenaobra.[4] sale of the subject property was vitiated by Eulalia after they were served
of the Court of Appeals dated 26 September 2005 and its   by Jocelyns counsel with the demand to vacate. This was docketed
Resolution[2]dated 24 January 2006 in CA-G.R. CV No. 59557. The Court   as Civil Case No. C-14980. The Spouses Bandong alleged that there was
of Appeals, in its assailed Decision and Resolution, reversed the Decision The factual and procedural backdrop of this case are as follows: no sale intended but only equitable mortgage for the purpose of securing
of the Regional Trial Court (RTC) dated 28 January 1998, in Civil Case   the shortage incurred by Dominador in the amount of P70,000 while
No. C-14980, declaring the Deed of Sale executed by Eulalia was engaged in the business of buying and selling large employed as biyahero by Eulalia.
respondent Dominador Bandong (Dominador) in favor of cattle from different provinces within the Philippines. For this purpose,  
petitioner Eulalia Raymundo (Eulalia) as valid and she employed biyaheros whose primary task involved the procuring of Eulalia countered that Dominador received from her a
binding. The dispositive portion of the asailed Court of Appeals Decision large cattle with the financial capital provided by Eulalia and delivering significant sum of money, either as cash advances for the purpose of
reads: the procured cattle to her for further disposal. In order to secure the procuring large cattle or as personal loan, and when he could no longer
  financial capital she advanced for the biyaheros,  Eulalia required them to pay his obligations, the Spouses Bandong voluntarily ceded the subject
WHEREFORE, premises considered, we hereby GRANT the surrender the Transfer Certificates of Title (TCTs) of their properties and property to her by executing the corresponding deed of sale in her
appeal. The January 28, 1998 decision of the RTC, Branch to execute the corresponding Deeds of Sale in her favor. favor. Indeed, the Spouses Bandong personally appeared before the Notary
126, Caloocan City is hereby REVERSED and SET ASIDE and a new one   Public and manifested that the deed was their own voluntary act and deed.
entered: Dominador had been working for Eulalia as one of  
  her biyaheros for three decades. Considering his long years of service For her part, Jocelyn maintained that she was a buyer in good
1. ANNULLING the Deed of Absolute Sale dated February 3, 1989 as a without any previous derogatory record, Eulalia no longer faith and for value for she personally inquired from the Register of Deeds
deed of sale, and considering it instead as a real estate mortgage of the required Dominador to post any security in the performance of his duties. of the presence of any liens and encumbrances on the TCT of the subject
disputed property to secure the payment of the P70,000.00 the plaintiffs-
[5] property and found that the same was completely free therefrom. While
appellants spouses Bandong owe the defendants-   she admitted that she had previous notice that Dominador and a certain
appellees spouses Raymundo. The spouses Bandong are given one (1) year However, in 1989, Eulalia found that Dominador incurred Lourdes Santos (Lourdes) were in possession of the subject property,
from the finality of this Decision within which to pay the P70,000.00 owed shortage in his cattle procurement operation in the amount Jocelyn claimed that the said possessors already acknowledged her
to the spouses Raymundo, at 12% interest per annum computed from July of P70,000.00. Dominador and his wife Rosalia Bandong (Rosalia) then ownership thereof and even asked for time to vacate. In the end, though,
17, 1991 until its full payment. executed a Deed of Sale [6] in favor of Eulalia on 3 February 1989, covering they refused to leave the premises.
  a parcel of land with an area of 96 square meters, more or less, located  
2. ANNULLING the Deed of Absolute Sale dated September 25, 1990, at Caloocan City and registered under TCT No. 1421 (subject property), in On 28 June 1998, the RTC rendered a Decision [10] in Civil Case
between the spouses Raymundo as vendors and the spouses Buenaobra as the name of the Spouses Bandong. On the strength of the aforesaid deed, No. C-14980 in favor of Eulalia and Jocelyn by declaring that the Deed of
vendees. the subject property was registered in the names of Eulalia and her Sale between Dominador and Eulalia was valid and binding and,
  husband Carlos Raymundo (Carlos). The subject property was thereafter consequently, the subsequent sale between Eulalia and Jocelyn was also
3. ORDERING the Register of Deeds of Caloocan City to issue a new sold by the Spouses Raymundo to Eulalias grandniece and herein co- lawful absent any showing that Jocelyn was a buyer in bad
Transfer Certificate of Title covering Lot 18, Block 2 of the subdivision petitioner, Jocelyn Buenaobra (Jocelyn). Thus, the subject property came faith. The dispositive portion of the said decision reads:
plan PSD 16599, a portion of Lot 1073 of the Cadastral Survey to be registered in the name of Jocelyn and her  
of Caloocan, in the names of the husband Angelito Buenaobra (Angelito). WHEREFORE, judgment is hereby rendered DISMISSING the complaint
spouses Dominador and Rosalia Bandong, after the cancellation pursuant   filed by the [Spouses Bandong] and ordering said [Spouses Bandong] to
to this Decision of TCT No. 222871 currently in the names of the After the TCT of the subject property was transferred to their pay [herein petitioners] spouses Raymundo and Buenaobra the amount
spouses Angelito and Jocelyn Buenaobra; and FURTHER names, the Spouses Buenaobra instituted before the Metropolitan Trial of P50,000 and P30,000, respectively, as attorneys fees and costs of the
ORDERING the said Register of Deeds to annotate in the new Transfer Court (MeTC) of Caloocan City, an action for ejectment against the suit.
Certificate of Title in the names of the spouses Bandong a real estate Spouses Bandong, docketed as Civil Case No. 20053, seeking the eviction  
mortgage in favor of the spouses Carlos and Eulalia Raymundo reflecting of the latter from the subject property, which the  
the terms of this Decision. Spouses Bandong opposed on the ground that they are the rightful owners On appeal in CA-G.R. SP No. 59557, the Court of Appeals
  and possessors thereof. The MeTC ruled in favor of the reversed the RTC Decision and found that the transaction entered into

24
by Dominador and Eulaliawas not one of sale but an equitable mortgage
considering that the purchase price was grossly inadequate and the
Spouses Bandong remained as possessors of the subject property
after Eulalias alleged purchase thereof. The appellate court likewise
charged Jocelyn with knowledge that the Spouses Raymundo were not the
absolute owners of the subject property negating the presumption that she
was an innocent purchaser for value.
 
The Court of Appeals found the Motion for Reconsideration
filed by petitioners unmeritorious and denied the same in its
Resolution[11] dated 24 January 2006.
 
Hence, this instant Petition for Review on Certiorari filed by
the petitioners assailing the Decision dated 26 September 2005 and the
Resolution dated 24 January 2006 rendered by the Court of Appeals. For
the resolution of this Court are the following issues:
 
I WHETHER OR NOT THE DEED OF SALE BETWEEN
DOMINADOR AND EULALIA IS VALID AND BINDING.
I WHETHER OR NOT JOCELYN IS A BUYER IN GOOD
FAITH.
 
 
In arguing that the sale between Dominador and Eulalia is
valid, petitioners posit that gross inadequacy of the price is not sufficient
to invalidate the sale, and granting arguendo that insufficient
consideration may void a sale, it has not been proven that the
consideration of sale between Dominador and Eulalia was grossly
inadequate.
 
Elaborating, petitioners maintain that the amount
of P110,000.00 (which they claimed they have given to Dominador), or
even the sum of P70,000.00 (which respondents admitted receiving), was a
substantial consideration, sufficient to support a sale contract. Mere
inadequacy of the price is not sufficient to invalidate a sale; the price must
be grossly inadequate or utterly shocking to the conscience in order to
avoid a contract of sale.
 
Petitioners further aver that the alleged market value of the
subject property as submitted by the appraiser, one of respondents
witnesses, would not serve as an objective basis in determining the actual
value of the subject property, much less the supposed amount of its
purchase price, in the absence of any logical and valid basis for its
determination.
 
Finally, petitioners contend that so long as the contract was
voluntarily entered into by the parties and in the absence of a clear
showing that their consent thereto was vitiated by fraud, mistake, violence
or undue influence, such as in the case at bar, the said contract should be
upheld.
 
We do not agree.
An equitable mortgage is one that - although lacking in some
formality, forms and words, or other requisites demanded by a statute -
nevertheless reveals the intention of the parties to charge a real property as
security for a debt and contains nothing impossible or contrary to law.[12]
 
The instances when a contract - regardless of its nomenclature -
may be presumed to be an equitable mortgage are enumerated in the Civil
Code as follows:
 
Art. 1602. The contract shall be presumed to be an equitable mortgage, in
any of the following cases:
 
(1) When the price of a sale with right to repurchase is unusually
inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
 
(3) When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period is
executed;
 
(4)   When the purchaser retains for himself a part of the purchase price;
 
(5) When the vendor binds himself to pay the taxes on the thing sold.
 
(6) In any other case where it may be fairly inferred that the real intention
of the parties is that the transaction shall secure the payment of a debt or
the performance of any other obligation.
 
 
Art. 1604. The provisions of Article 1602 shall also apply to a contract
purporting to be an absolute sale.
 
 
For Articles 1602 and 1604 to apply, two requisites must
concur: one, the parties entered into a contract denominated as a contract
of sale; and two, their intention was to secure an existing debt by way of
an equitable mortgage.[13]
 
There is no question that Dominador and Eulalia entered into a
contract of sale as evidenced by the document denominated as Deed of
[14]
Sale  signed by them. As to whether the parties intended to transfer
ownership of the subject property or merely to constitute a security for an
existing debt is an issue that needs to be addressed by this Court.
In resolving this kind of controversy, the doctrine in Reyes v.
Court of Appeals[15] directs us to give utmost consideration to the intention
of the parties in light of the relative situation of each and the
circumstances surrounding the execution of the contract, thus:
In determining whether a deed absolute
in form is a mortgage, the court is not limited to the
written memorials of the transaction. The decisive
factor in evaluating such agreement is the
intention of the parties, as shown not necessarily
by the terminology used in the contract but by all
the surrounding circumstances, such as the
relative situation of the parties at that time, the
attitude acts, conduct, declarations of the parties, the
negotiations between them leading to the deed, and
generally, all pertinent facts having a tendency to
fix and determine the real nature of their design and
understanding. x x x[16] (Emphasis supplied.)
 
By applying the aforestated principle to the case at bar, we are
constrained to rule that in executing the said Deed of
Sale, Dominador and Eulalia never intended the transfer of ownership of
the subject property but to burden the same with an encumbrance to secure
the indebtedness incurred by Dominador on the occasion of his
employment with Eulalia.
 
By Eulalias own admission,[17] it was her customary business
practice to require her biyaheros to deliver to her the titles to their real
properties and to execute in her favor the corresponding deeds of sale over
the said properties as security for the money she provided for their cattle
procurement task, and since Dominadorworked for Eulalias business for
years, he was allowed to advance the money without any
security. Significantly, it was only after he incurred a shortage that the sale
contract was executed.
 
We are not inclined to believe the contention of the petitioners
that Dominador ceded his property to Eulalia as payment for his obligation
for it is contrary to human experience that a person would easily part with
his property after sustaining a debt. Rather, he would first look for means
to settle his obligation, and the selling of a property on which the house
that shelters him and his family stands, would be his last resort. The only
reasonable conclusion that may be derived from Dominadors act of
executing a Deed of Sale in favor of Eulalia is that the latter required him
to do so in order to ensure that he will subsequently pay his obligation to
her.
 
This conclusion is in accord with the doctrine we enunciated
in Aguirre v. Court of Appeals,[18] that:
25
The explicit provision of Article 1602 that any of those circumstances
would suffice to construe a contract of sale to be one of equitable
mortgage is in consonance with the rule that the law favors the least
transmission of property rights. To stress, the existence of any one of the
conditions under Article 1602, not a concurrence, or an overwhelming
number of such circumstances, suffices to give rise to the presumption that
the contract is an equitable mortgage.
 
 
While we agree in the petitioners insistence that inadequacy of
the price is not sufficient to nullify the contract of sale, their persistence is,
however, misplaced.It is worthy to note that the factual circumstances
attendant in the case at bar call not for the application of the legal and
jurisprudential principles on annulment of contract per se,  but more aptly,
of the provisions of Articles 1602 and 1604 of the Civil Code on the
construction of the contract of sale as an equitable mortgage.
 
Consequently, the agreement between Dominador and Eulalia was not
avoided in its entirety so as to prevent it from producing any legal effect at
all. Instead, we construe that said transaction is an equitable mortgage,
thereby merely altering the relationship of the parties from seller and
buyer, to mortgagor and mortgagee, while the subject property is not
transferred but subjected to a lien in favor of the latter.
 
Moreover, granting that the purchase price is adequate, the fact
that respondents remain in possession of the subject property after its
supposed sale is sufficient to support our finding that the contract is one of
equitable mortgage and not of sale. To reiterate, the existence of any one
of the conditions under Article 1602, not a concurrence, or an
overwhelming number of such circumstances, suffices to give rise to
the presumption that the contract is an equitable mortgage.[19]
 
Having threshed the issue that there was no sale in favor
of Eulalia but an equitable mortgage leads us to an inevitable conclusion
that she has no right to subsequently transfer ownership of the subject
property, in consonance with the principle that nobody can dispose of
what he does not have.[20] One of the exceptions[21] to this rule, however,
can be found in Article 1506 of the Civil Code, wherein the seller
has voidable title to a property but his title has not yet been nullified at the
time of the sale, and the subsequent buyer of the property was in good
faith.
 
An innocent purchaser for value is one who buys the property of another,
without notice that some other person has a right or interest in the
property, for which a full and fair price is paid by the buyer at the time of
the purchase or before receipt of any notice of claims or interest of some
other person in the property.[22]
Petitioners are harping on the contention that Jocelyn was an
innocent purchaser for value. Invoking the indefeasibility of
a Torrens title, they assert that there is nothing in the subject propertys
TCT that should arouse Jocelyns suspicion as to put her on guard that
there is a defect in Eulalias title.
 
Again, we are not persuaded. The burden of proving the
purchasers good faith lies in the one who asserts the same. In discharging
the burden, it is not enough to invoke the ordinary presumption of good
faith.[23] In Arrofo  v.  Quio,[24]  we have elucidated that:
 
A person dealing with registered land, [is not required] to inquire further
that what the Torrens title on its face indicates. This rule, however, is not
absolute but admits of exceptions.
 
Thus, while it is true x x x that a person dealing with registered lands
need not go beyond the certificate of title, it is likewise a well-settled
rule that a purchaser or mortgagee cannot close his eyes to facts which
should put a reasonable man on his guard, and then claim that he
acted in good faith under the belief that there was no defect in the title
of the vendor or mortgagor. His mere refusal to face up to the fact that
such defect exists, or his willful closing of his eyes to the possibility of the
existence of a defect in the vendors or mortgagors title, will not make him
an innocent purchaser for value, if it afterwards develops that the title was
in fact defective, and it appears that he had such notice of the defect as
would have led to its discovery had he acted with the measure of
precaution which may be required of a prudent man in a like situation.
 
 
In the present case, we are not convinced by the petitioners
incessant assertion that Jocelyn is an innocent purchaser for value. To
begin with, she is a grandniece of Eulalia and resides in the same locality
where the latter lives and conducts her principal business. It is therefore
impossible for her not to acquire knowledge of her grand aunts business
practice of requiring her biyaheros to surrender the titles to their properties
and to sign the corresponding deeds of sale over said properties in her
favor, as security. This alone should have put Jocelyn on guard for any
possible abuses that Eulalia may commit with the titles and the deeds of
sale in her possession.
 
The glaring lack of good faith of Jocelyn is more apparent in
her own admission that she was aware that Dominador and a
certain Lourdes were in possession of the subject property. A buyer of real
property that is in the possession of a person other than the seller must be
wary. A buyer who does not investigate the rights of the one in possession
can hardly be regarded as a buyer in good faith.[25] Jocelyns self-serving
statement that she personally talked to Dominador and Lourdes about her
acquisition of the subject property and intention to take possession of the
same, and that Dominador and Lourdes even pleaded for time to vacate the
subject property cannot be given credence in light of the prompt filing by
the Spouses Bandong of an action for the annulment of the sale contract
between Dominador and Eulalia after they received the demand to vacate
from Jocelyns lawyer.
 
In the last analysis, good faith, or the lack of it, is a question of
intention. But in ascertaining the intention that impels one on a given
occasion, the courts are necessarily controlled by the evidence as to the
conduct and other outward acts by which the motive may be safely
determined.[26]
 
Petitioners question further the belated filing by the
Spouses Bandong of an action for the annulment of sale, since the
Spouses Bandong filed the same only after they received the notice to
vacate, and not immediately after the execution of the assailed Deed of
Sale. We have repeatedly held that the one who is in actual possession of a
piece of land claiming to be the owner thereof may await to vindicate his
right. His undisturbed possession gives him a continuing right to seek the
aid of a court of equity to ascertain and determine the nature of the adverse
claim of a third party and its effect on his own title, which right can be
claimed only by one who is in possession.[27]
 
Finally, we agree with the Court of Appeals that
the ejectment case which had been litigated to finality by the
Spouses Buenaobra and the respondents need not alter our conclusion in
the present case. Well entrenched is the doctrine that in ejectment cases,
the sole question for resolution is the physical or material possession of
the property in question, so that neither the claim of juridical possession
nor an averment of ownership can outrightly prevent the court from taking
cognizance of the case.[28] In ejectment cases, all the court may do is to
resolve who is entitled to its possession although, in doing so, it may make
a determination of who is the owner of the property in order to resolve the
issue of possession. But such determination of ownership is not clothed
with finality. Neither will it affect ownership of the property or constitute
a binding and conclusive adjudication on the merits with respect to the
issue of ownership.[29]
 
WHEREFORE, IN VIEW OF THE FOREGOING, the
instant Petition is DENIED. The Decision dated 26 September 2005, and
the Resolution dated 24 January 2006, rendered by the Court of Appeals in
CA-G.R. SP No. 59957, are hereby AFFIRMED. Costs against petitioner.
 
26
HEIRS OF JOSE REYES, JR., namely: MAGDALENA C. REYES, OSCAR C.
REYES, GAMALIEL C. REYES, NENITA R. DELA CRUZ, RODOLFO C. REYES,
and RODRIGO C. REYES, Petitioners, vs. AMANDA S. REYES,
CONSOLACION S. REYES, EUGENIA R. ELVAMBUENA, LUCINA R.
MENDOZA, PEDRITO S. REYES, MERLINDA R. FAMODULAN, EDUARDO S.
REYES, and JUNE S. REYES,
Respondents.
Antecedents
Antonio Reyes and his wife, Leoncia Mag-isa Reyes (Leoncia),
were owners of a parcel of residential land with an area of 442 square
meters, more or less, located in Pulilan, Bulacan and covered by Tax
Declaration No. 7590. On that land they constructed their dwelling. The
couple had four children, namely: Jose Reyes, Sr. (Jose, Sr.), Teofilo
Reyes (Teofilo), Jose Reyes, Jr. (Jose, Jr.) and Potenciana Reyes-
Valenzuela (Potenciana). Antonio Reyes died intestate, and was survived
by Leoncia and their three sons, Potenciana having predeceased her father.
Potenciana also died intestate, survived by her children, namely: Gloria
ReyesValenzuela, Maria Reyes Valenzuela, and Alfredo Reyes
Valenzuela. Jose, Jr., and his family resided in the house of the parents,
but Teofilo constructed on the property his own house, where he and his
family resided.
On July 9, 1955, Leoncia and her three sons executed a deed
denominated Kasulatan ng Biling Mabibiling Muli,[4] whereby they sold
the land and its existing improvements to the Spouses Benedicto Francia
and Monica Ajoco (Spouses Francia) for P500.00, subject to the vendors
right to repurchase for the same amount sa oras na sila'y
makinabang. Potencianas heirs did not assent to that deed. Nonetheless,
Teofilo and Jose, Jr. and their respective families remained in possession
of the property and paid the realty taxes thereon.
of P235.00. Thus, on August 11, 1970, the heirs of Spouses Francia
executed a deed entitled Pagsasa-ayos ng Pag-aari at Pagsasalin,
[5]
 whereby they transferred and conveyed to Alejandro all their rights and
interests in the property for P500.00.
On August 21, 1970, Alejandro executed a Kasulatan ng Pagmeme-
ari,[6]  wherein he declared that he had acquired all the rights and interests
of the heirs of the Spouses Francia, including the ownership of the
property, after the vendors had failed to repurchase within the given
period. On the basis of the Kasulatan ng Pagmeme-ari, Tax Declaration
No. 3703 covering the property[7] was canceled by Tax Declaration No.
8715,[8] effective 1971, issued to Alejandro. From then on, he had paid the
realty taxes for the property.
Nevertheless, on October 17, 1970, Alejandro, his grandmother
(Leoncia), and his father (Jose, Sr.) executed a Magkakalakip na Salaysay,
[9]
 by which Alejandro acknowledged the right of Leoncia, Jose, Jr., and
Jose, Sr. to repurchase the property at any time for the same amount
of P500.00.
On October 22, 1970, Leoncia died intestate.[10] She was survived
by Jose, Sr., Teofilo, Jose, Jr. and the heirs of Potenciana. Even after
Leonicas death, Teofilo and Jose, Jr., with their respective families,
continued to reside in the property.
Subsequently, Tax Declaration 1228,[11] under the name of
Alejandro, was issued effective 1980. All of Leoncias sons eventually died
intestate, survived by their respective heirs, namely:
 
Name of Decedent Surviving Heirs
Teofilo Romeo Reyes, Leonardo Reyes,
Mendoza, Pedrito S. Reyes, Merlinda Reyes-Famodulan, Eduardo Reyes
and June S. Reyes (respondents herein).
 
In 1994, respondent Amanda Reyes asked the heirs of Teofilo and
Jose, Jr., to vacate the property because she and her children already
needed it. After the petitioners refused to comply, she filed a complaint
against the petitioners in the barangay, seeking their eviction from the
property. When no amicable settlement was reached, the Barangay Lupon
issued a certification to file action to the respondents on September 26,
1994.[14]
 
In the interim, petitioner Nenita R. de la Cruz and her brother
Romeo Reyes also constructed their respective houses on the property.[15]
 
RTC Proceedings and Ruling
On September 28, 1994, the respondents initiated this suit for
quieting of title and reconveyance in the RTC. [16] The complaint, docketed
as Civil Case No. 817-M-94 and entitled Amanda Reyes, et al. v. Heirs of
Jose Reyes, Jr., et al., was later amended.[17] They alleged that their
predecessor Alejandro had acquired ownership of the property by virtue of
the deed Pagsasa-ayos ng Pag-aari at Pagsasalin executed on August 11,
1970 by the heirs of the Spouses Francia; that on the basis of such deed of
assignment, Alejandro had consolidated his ownership of the
property via his Kasulatan ng Pagmeme-ari; and that under
the Magkasanib na Salaysay,Alejandro had granted to Leoncia, his father
Jose, Sr., and his uncles, Teofilo and Jose, Jr. the right to repurchase the
property, but they had failed to do so.
 

  and Leonora C. Reyes The respondents prayed for judgment in their favor, as follows:

Leoncia and her children did not repay the amount of P500.00.    

 
The Spouses Francia both died intestate (i.e., Monica Ajoco
on September 16, 1963, and Benedicto Francia on January 13, 1964).
 
Alejandro Reyes (Alejandro), the son of Jose, Sr., first partially paid
to the Spouses Francia the amount of P265.00 for the obligation of
Leoncia, his uncles and his father. Alejandro later paid the balance
Jose, Jr. Rodrigo Reyes, Nenita Reyes- dela Cruz, Rodolfo WHEREFORE, it is respectfully prayed that judgment be rendered:
Reyes, Oscar Reyes, Gamaliel Reyes, Magdalena Reyes (petitioners
herein), Efren Reyes and Amado Reyes dela  
Cruz 1. Quieting the title to the property by declaring the plaintiffs
(respondents herein) as the rightful and lawful owners thereof;
Jose, Sr. Alejandro Reyes (respondents predecessor)[12]
 
On September 2, 1993, Alejandro also died intestate. [13] Surviving
him were his wife, Amanda Reyes, and their children, namely:
Consolacion Reyes, Eugenia Reyes-Elvambuena, Luciana Reyes-

27
 2. Ordering the defendants (petitioners herein) to vacate subject
premises and reconvey and or surrender possession thereof to the
plaintiffs;
 
3. Ordering the defendants to recognize the right of the plaintiffs as
the lawful owners of subject property;
 
4. Ordering the defendants to pay plaintiffs the following:
a.       Moral damages in the amount of P50,000.00;
b.      Exemplary damages in the amount of P20,000.00;
 
c.       Attorney's fees of P20,000.00, acceptance fee of P10,000.00
and P500.00 per recorded Court appearance of counsel;
d. The costs of this suit.
 
Plaintiffs further pray for such other relief which the Honorable
Court may deem just and equitable under the premises.[18]  c) confirming the consolidation of ownership, by operation of law,
In their answer,[19] the petitioners averred  that the  Kasulatan ng
Biling Mabibiling Muli was an equitable mortgage, not a pacto de
retro  sale; that the mortgagors had retained ownership of the property; that
the heirs of the Spouses Francia could not have validly sold the property to
Alejandro through the Pagsasaayos ng Pag-aari at
Pagsasalin; that Alejandros right was only to seek reimbursement of
the P500.00 he had paid from the co-owners, namely: Leoncia, Teofilo,
Jose, Jr. and Jose, Sr. and the heirs of Potenciana; and that Alejandro could
not have also validly consolidated ownership through the Kasulatan ng
Pagmeme-ari, because a consolidation of ownership could only be
effected via a court order.
 
The petitioners interposed a counterclaim for the declaration of the
transaction as an equitable mortgage, and of their property as owned in
common by all the heirs of Leoncia, Teofilo, Jose, Jr. and Jose, Sr.
On May 21, 1996, the RTC ruled in favor of the respondents,
declaring that Alejandro had acquired ownership of the property in 1965
by operation of law upon the failure of the petitioners predecessors to
repurchase the property; that the joint affidavit executed by Alejandro,
Leoncia and Jose, Jr. and Jose, Sr., to extend the period of redemption was
inefficacious, because there was no more period to extend due to the
redemption period having long lapsed by the time of its execution; and
that the action should be dismissed insofar as the heirs of Potenciana were
concerned, considering that Potenciana, who had predeceased her parents,
had no successional rights in the property.
Accordingly, the RTC decreed as follows:
WHEREFORE, on the basis of the evidence adduced and the
law/jurisprudence applicable thereon, judgment is hereby rendered:
a) sustaining the validity of the Kasulatan ng Biling Mabibiling
Muli (Exh. B/Exh. 1) executed on July 9, 1955 by Leoncia Mag-isa and
her sons Teofilo, Jose, Sr. and Jose, Jr., all surnamed Reyes, in favor of
Spouses Benedicto Francia and Monica Ajoco as well as the Pagsasa-ayos
ng Pag-aari at Pagsasalin (Settlement of Estate and Assignment) [Exh.
C/Exh. 4] executed on August 11, 1970 by the heirs of spouses Benedicto
Francia and Monica Ajoco in favor of the spouses Alejandro Reyes and
Amanda Salonga;
b) declaring the aforementioned Kasulatan Ng Biling Mabibili Muli
(Exh. B/ Exh. 1) to be a contract of sale with right to repurchase and not an
equitable mortgage;
of spouses Alejandro M. Reyes and Amanda Salonga over the residential
lot mentioned and referred to in Exhibit B/Exhibit 1 and Exhibit C/Exhibit
4;
d) allowing the registration with the Registry of Deeds for
the Province of Bulacan of the Kasulatan ng Pagmeme-ari (Document of
Ownership) [Exh. E/Exh. 5] executed by Alejandro M. Reyes on August
21, 1970 or of any appropriate deed of consolidation of ownership over the
residential lot covered by Exhibit E/Exhibit 5 which the plaintiffs, as
eventual owners by succession of the aforementioned proeprty, may deem
proper to execute;
e) ordering the defendants and all persons claiming rights under
them to vacate the residential lot subject of the above-entitled case and to
restore possession thereof unto the plaintiffs;
f) directing the defendants (except the heirs of Potenciana Reyes-
Valenzuela) to pay unto the plaintiffs the amount of P20,000.00 as
attorney's fees; and
g) dismissing the complaint in so far as the defendant heirs of
Potenciana Reyes-Valenzuela are concerned as well as their counterclaim
for damages and attorney's fees. No pronouncement as to costs. SO
ORDERED. [20]
Aggrieved, the petitioners appealed to the CA.
CA Ruling
In the CA, the petitioners assailed the RTCs dispositions, except the
dismissal of the complaint as against Potencianas heirs.
 
In its decision dated July 31, 2002, the CA ruled that the transaction
covered by the Kasulatan ng Biling Mabibiling Muli was not a pacto de
retro sale but an equitable mortgage under Article 1602 of the Civil Code;
that even after the deeds execution, Leoncia, Teofilo, Jose, Jr. and their
families had remained in possession of the property and continued paying
realty taxes for the property; that the purported vendees had not declared
the property for taxation purposes under their own names; and that such
circumstances proved that the parties envisaged an equitable mortgage in
the Kasulatan ng Biling Mabibiling Muli.
The CA observed that the heirs of the Spouses Francia had
themselves admitted in paragraph 5 of the Pagsasa-ayos ng Pag-aari at
Pagsasalin that the property had been mortgaged to their predecessors-in-
interest, viz:
Na, sa oras ng kamatayan ay nakaiwan sila ng isang lagay na
lupang nakasanla sa kanila na makikilala sa kasulatang kalakip nito sa
halagang LIMANG DAANG PISO (P500.00). Ngunit nuong nabubuhay
pa ang magasawang Benedicto Francia at Monica Ajoco ay nakatanggap
na ng halagang P265.00 kay Alejandro Reyes - Filipino, kasal kay
Amanda Salonga, may sapat na gulang at naninirahan sa Pulilan, Bulacan.
[21]
However, the CA held that the appellants (petitioners herein) failure
to file an action for the reformation of the Kasulatan ng Biling Mabibiling
Muli to reflect the true intention of the parties within ten years from the
deeds execution on July 9, 1955, pursuant to Article 1144 of the Civil
Code,[22] already barred them from claiming that the transaction executed
between Leoncia and her children, on one hand, and the Spouses Francia,
on the other hand, was an equitable mortgage. The CA agreed with the
RTC that the Magkakalakip na Salaysay did not effectively extend the
period for Leoncia and her children to repurchase the property,
28
considering that the period to repurchase had long lapsed by the time the
agreement to extend it was executed on October 17, 1970.
 
Issues
 
In this appeal, therefore, the petitioners insist that:[23]  sons Jose, Sr., Jose Jr., and Teofilo. As an assignee of the mortgage and
I The Honorable Court of Appeals erred in finding that respondents (were)
already barred from claiming that the transaction entered into by their
predecessors-in-interest was an equitable mortgage and not a pacto de
retro sale;
 
II The Honorable Court of Appeals erred in affirming the findings of the
court a quo that the Magkasanib na Salaysay (Joint Affidavit), executed
by Alejandro, Leoncia and Jose, Jr., wherein Leoncia and her children
were granted by Alejandro the right to repurchase the property at anytime
for the amount of P500.00, was of no legal significance.
 
Ruling of the Court
The petition is meritorious.
A The CA correctly concluded that the true agreement of the parties vis--
vis the Kasulatan ng Biling Mabibiling Muli was an equitable mortgage,
not a pacto de retrosale. There was no dispute that the purported vendors
had continued in the possession of the property even after the execution of
the agreement; and that the property had remained declared for taxation
purposes under Leoncias name, with the realty taxes due being paid by
Leoncia, despite the execution of the agreement. Such established
circumstances are among the badges of an equitable mortgage enumerated
in Article 1602, paragraphs 2 and 5 of the Civil Code, to wit:
 
Art. 1602. The contract shall be presumed to be an equitable
mortgage, in any of the following cases:
xxx
(2) When the vendor remains in possession as lessee or otherwise;
xxx
(5) When the vendor binds himself to pay the taxes on the thing
sold;
xxx
The existence of any one of the conditions enumerated under
Article 1602 of the Civil Code, not a concurrence of all or of a majority
thereof, suffices to give rise to the presumption that the contract is an
equitable mortgage.[24] Consequently, the contract between the vendors and
vendees (Spouses Francia) was an equitable mortgage.
 
B. Are the petitioners now barred from claiming that the transaction
under the  Kasulatan ng Biling Mabibiling Muli  was an equitable mortgage
by their failure to redeem the property for a long period of time?
 
The petitioners contend that prescription, if it must apply to them,
should as well be applied to the respondents, who had similarly failed to
enforce their right under the equitable mortgage within ten years from its
execution on July 9, 1955. Consequently, they urge the upholding of the
original intention of the parties to the Kasulatan ng Biling Mabibiling
Muli, without taking prescription into account, because both parties did
not enforce their respective rights within the ten-year prescriptive period,
is more in keeping with fairness and equity.
We agree with the petitioners.
Considering that  sa oras na silay makinabang, the period of
redemption stated in the Kasulatan ng Biling Mabibiling Muli, signified
that no definite period had been stated, the period to redeem should be ten
years from the execution of the contract, pursuant to Articles 1142 and
1144 of the Civil Code.[25] Thus, the full redemption price should have
been paid by July 9, 1955; and upon the expiration of said 10-year period,
mortgagees Spouses Francia or their heirs should haveforeclosed the
mortgage, but they did not do so. Instead, they accepted Alejandros
payments, until the debt was fully satisfied by August 11, 1970.
The acceptance of the payments even beyond the 10-year period of
redemption estopped the mortgagees heirs from insisting that the period to
redeem the property had already expired. Their actions impliedly
recognized the continued existence of the equitable mortgage. The conduct
of the original parties as well as of their successors-in-interest manifested
that the parties to the Kasulatan ng Biling Mabibiling Muli really intended
their transaction to be an equitable mortgage, not a pacto de retro sale.
In Cuyugan v. Santos,[26]  the purported buyer under a so-called
contract to sell with right to repurchase also accepted partial payments
from the purported seller. We held that the acceptance of partial payments
was absolutely incompatible with the idea of irrevocability of the title of
ownership of the purchaser upon the expiration of the term stipulated in
the original contract for the exercise of the right of redemption. Thereby,
the conduct of the parties manifested that they had intended the contract to
be a mortgage, not a pacto de retro sale.
 
C When Alejandro redeemed the property on August 11, 1970, he
did not thereby become a co-owner thereof, because his father Jose, Sr.
was then still alive. Alejandro merely became the assignee of the
mortgage, and the property continued to be co-owned by Leoncia and her
the mortgage credit, Alejandro acquired only the rights of his assignors,
nothing more. He himself confirmed so in the Magkasanib na
Salaysay, whereby he acknowledged the co-owners right to redeem the
property from him at any time (sa ano mang oras) for the
same redemption price of P500.00.
 
It is worthy to note that Alejandros confirmation in the Magkasanib
na Salaysay of the co-owners right to redeem was made despite 15 years
having meanwhile elapsed from the execution of the original Kasulatan ng
Biling Mabibiling Muli (July 9, 1955) until the execution of
the Magkasanib na Salaysay (August 21, 1970).
D Neither did the petitioners failure to initiate an action for reformation
within ten years from the execution of the Kasulatan ng Biling Mabibiling
Muli bar them from insisting on their rights in the property. The records
show that the parties in the Kasulatan ng Biling Mabibiling Muli had
abided by their true agreement under the deed, to the extent that they and
their successors-in-interest still deemed the agreement as an equitable
mortgage despite the lapse of 15 years from the execution of the
purported pacto de retro sale. Hence, an action for reformation of
the Kasulatan ng Biling Mabibiling Muli was unnecessary, if not
superfluous, considering that the reason underlying the requirement for an
action for reformation of instrument has been to ensure that the parties to a
contract abide by their true intended agreement.
The Kasulatan ng Pagmeme-ari executed by Alejandro on August
21, 1970 was ineffectual to predicate the exclusion of the petitioners and
their predecessors in interest from insisting on their claim to the property.
Alejandros being an assignee of the mortgage did not authorize him or his
heirs to appropriate the mortgaged property for himself without violating
the prohibition against pactum commissorium contained in Article 2088 of
the Civil Code, to the effect that [t]he creditor cannot appropriate the
things given by way of pledge or mortgage, or dispose of them[;] [a]ny
stipulation to the contrary is null and void. Aptly did the Court hold
in Montevirgen v. Court of Appeals:[27]
29
 The declaration, therefore, in the decision of July 1, 1971 to the
effect that absolute ownership over the subject premises has become
consolidated in the respondents upon failure of the petitioners to pay their
obligation within the specified period, is a nullity, for consolidation of
ownership is an improper and inappropriate remedy to enforce a
transaction declared to be one of mortgage. It is the duty of respondents, as
mortgagees, to foreclose the mortgage if he wishes to secure a perfect title
to the mortgaged property if he buys it in the foreclosure sale.
Moreover, the respondents, as Alejandros heirs, were entirely
bound by his previous acts as their predecessors-in-interest. Thus,
Alejandros acknowledgment of the effectivity of the equitable mortgage
agreement precluded the respondents from claiming that the property had
been sold to him with right to repurchase.[28]
 
E What was the effect of the Magkasanib na Salaysay?
Both the trial court and the CA declared that the Magkasanib na
Salaysay, which extended the redemption period of the mortgaged
property, was inefficacious, because the period to redeem could no longer
be extended after the original redemption period had already expired.  xxx
In contrast, the petitioners submit that disregarding the Magkasanib
na Salaysay made no sense, considering that the respondents predecessors-
in-interest admitted therein that the petitioners had a right to redeem the
property.
 
The respondents counter, however, that the Magkasanib na
Salaysay, which acknowledged the other co-owners right to redeem the
property, was void; that the petitioners could no longer claim to be co-
owners entitled to redeem the property, because the co-ownership had
come to an end by Alejandro having openly repudiated the co-ownership;
that Alejandros acts of repudiation had consisted of: (a) redeeming the
property from the Spouses Francia; (b) acquiring the property from the
heirs of Spouses Francia by virtue of a deed of assignment denominated
as Pag-aayos ng Pag-aari at Pagsasalin; (c) executing an affidavit of
consolidation of ownership over the property (Kasulatan ng Pagmeme-
ari); (d) applying for the cancellation of the tax declaration of property in
the name of Leoncia, and the subsequent issuance of a new tax declaration
in his name; (e) his continuous possession of the property from 1955,
which possession the respondents as his heirs had continued up to the
present time, or for a period of almost 50 years already; and (f) the
payment of the taxes by Alejandro and the respondents for more than 30
years without any contribution from the petitioners; and that such
repudiation established that Alejandro and his successors-in-interest had
already acquired sole title over the property through acquisitive
prescription.
The respondents and the lower courts positions cannot be sustained.
The provisions of the Civil Code governing equitable mortgages
disguised as sale contracts, like the one herein, are primarily designed to
curtail the evils brought about by contracts of sale with right to repurchase,
particularly the circumvention of the usury law and pactum
commissorium.[29] Courts have taken judicial notice of the well-known fact
that contracts of sale with right to repurchase have been frequently
resorted to in order to conceal the true nature of a contract, that is, a loan
secured by a mortgage. It is a reality that grave financial distress renders
persons hard-pressed to meet even their basic needs or to respond to an
emergency, leaving no choice to them but to sign deeds of absolute sale of
property or deeds of sale with pacto de retro if only to obtain the much-
needed loan from unscrupulous money lenders. [30] This reality precisely
explains why the pertinent provision of the Civil Code includes a peculiar
rule concerning the period of redemption, to wit:
 
Art. 1602. The contract shall be presumed to be an equitable
mortgage, in any of the following cases:
(3)When upon or after the expiration of the right to repurchase
another instrument extending the period of redemption or granting a
new period is executed;
x x  x  with Alejandro and his heirs occupying only a portion of it. Neither did the
Ostensibly, the law allows a new period of redemption to be agreed
upon or granted even after the expiration of the equitable mortgagors right
to repurchase, and treats such extension as one of the indicators that the
true agreement between the parties is an equitable mortgage, not a sale
with right to repurchase. It was indubitable, therefore, that
the Magkasanib na Salaysay effectively afforded to Leoncia, Teofilo,
Jose, Sr. and Jose, Jr. a fresh period within which to pay to Alejandro the
redemption price of P500.00.
 
F Did Alejandro and his heirs (respondents herein) acquire the
mortgaged property through prescription?
It is true that Alejandro became a co-owner of the property by right
of representation upon the death of his father, Jose Sr. [31] As a co-owner,
however, his possession was like that of a trustee and was not regarded as
adverse to his co-owners but in fact beneficial to all of them.[32]
 
Yet, the respondents except to the general rule, asserting that
Alejandro, having earlier repudiated the co-ownership, acquired ownership
of the property through prescription.
The Court cannot accept the respondents posture.
 
In order that a co-owners possession may be deemed adverse to that
of the cestui que trust or the other co-owners, the following elements must
concur:
 
1.     The co-owner has performed unequivocal acts of repudiation
of the co-ownership amounting to an ouster of the cestui que trust or the
other co-owners;
2.     Such positive acts of repudiation have been made known to
the cestui que trust or the other co-owners;
3.     The evidence on the repudiation is clear and conclusive; and
4.     His possession is open, continuous, exclusive, and notorious.
[33]
The concurrence of the foregoing elements was not established
herein. For one, Alejandro did not have adverse and exclusive possession
of the property, as, in fact, the other co-owners had continued to possess it,
cancellation of the previous tax declarations in the name of Leoncia, the
previous co-owner, and the issuance of a new one in Alejandros name, and
Alejandros payment of the realty taxes constitute repudiation of the co-
ownership. The sole fact of a co-owner declaring the land in question in
his name for taxation purposes and paying the land taxes did not constitute
an unequivocal act of repudiation amounting to an ouster of the other co-
owner and could not constitute adverse possession as basis for title by
prescription.[34] Moreover, according to Blatero v. Intermediate Appellate
Court,[35] if a sale a retro is construed as an equitable mortgage, then the
execution of an affidavit of consolidation by the purported buyer to
consolidate ownership of the parcel of land is of no consequence and the
constructive possession of the parcel of land will not ripen into ownership,
because only possession acquired and enjoyed in the concept of owner can
serve as title for acquiring dominion.[36]
In fine, the respondents did not present proof showing that
Alejandro had effectively repudiated the co-ownership. Their bare claim
that Alejandro had made oral demands to vacate to his co-owners was self-
serving and insufficient. Alejandros execution of the affidavit of
consolidation of ownership on August 21, 1970[37]and his subsequent
execution on October 17, 1970 of the joint affidavit[38] were really
equivocal and ambivalent acts that did not manifest his desire to repudiate
the co-ownership. 
30
 The only unequivocal act of repudiation was done by the
respondents when they filed the instant action for quieting of title
on September 28, 1994, nearly a year after Alejandros death on September
2, 1993. However, their possession could not ripen into ownership
considering that their act of repudiation was not coupled with
their exclusive possession of the property.
 
c) Finding the Magkakalakip na Salaysay executed on October 17,
1970 by and among Leoncia Mag-isa Reyes, Jose Reyes, Sr. and
Alejandro Reyes valid and effective;
 
c) Nullifying the Kasulatan ng Pagmeme-ari executed by Alejandro
M. Reyes on August 21, 1970; and

G The respondents can only demand from the petitioners the  

partition of the co-owned property and the reimbursement from their co-
d) Dismissing the petitioners counterclaim.
owners of the amount advanced by Alejandro to repay the obligation. They
may also seek from their co-owners the proportional reimbursement of the
realty taxes paid for the property, pursuant to Article 488 of
the Civil Code.[39] In the alternative, they may opt to foreclose the
equitable mortgage, considering that the petitioners period to redeem the
mortgaged property, which was ten years from the execution on October
17, 1970 of the Magkakasanib na Salaysay, had already long lapsed. We
clarify, however, that the respondents may take these recourses only
through the appropriate actions commenced in court.

H The petitioners counterclaim for damages is dismissed for their

failure to prove their entitlement to it.[40]

WHEREFORE, we grant the petition for review on certiorari.

The decision dated July 31, 2002 rendered by the Court of Appeals

is reversed and set aside, and another judgment is rendered:

a) Upholding the validity of the Kasulatan ng Biling Mabibiling

Muli (Deed of Sale with Right of Repurchase) executed on July 9, 1955 by
Leoncia Mag-isa Reyes and her sons Teofilo, Jose, Sr. and Jose, Jr., all
surnamed Reyes, in favor of the late Spouses Benedicto Francia and
Monica Ajoco as well as the Pagsasa-ayos ng Pag-aari at
Pagsasalin (Settlement of Estate and Assignment) executed on August 11,
1970 by the heirs of the late Spouses Benedicto Francia and Monica Ajoco
in favor of the spouses Alejandro Reyes and Amanda Salonga;

b) Declaring the Kasulatan ng Biling Mabibili Muli to be an

equitable mortgage, not a contract of sale with right to repurchase;

31
HEIRS OF THE LATE SPOUSES AURELIO AND ESPERANZA BALITE; Namely,
ANTONIO T. BALITE, FLOR T. BALITE-ZAMAR, VISITACION T. BALITE-
DIFUNTORUM, PEDRO T. BALITE, PABLO T. BALITE, GASPAR T. BALITE,
CRISTETA T. BALITE and AURELIO T. BALITE JR., All Represented by
GASPAR T. BALITE, petitioners, vs. RODRIGO N. LIM, respondent.
A deed of sale that allegedly states a price lower than the true
consideration is nonetheless binding between the parties and their
successors in interest. Furthermore, a deed of sale in which the parties
clearly intended to transfer ownership of the property cannot be presumed
to be an equitable mortgage under Article 1602 of the Civil Code. Finally,
an agreement that purports to sell in metes and bounds a specific portion
of an unpartitioned co-owned property is not void; it shall effectively
transfer the sellers ideal share in the co-ownership.
The Case
Before us is a Petition for Review [1] under Rule 45 of the Rules of
Court, assailing the February 11, 2002 Decision [2] of the Court of Appeals
(CA) in CA-GR CV No. 65395. The decretal portion of the Decision reads
as follows:
IN THE LIGHT OF ALL THE FOREGOING, the Decision of the
Court a quo subject of the appeal is hereby SET ASIDE AND
REVERSED and another Decision is hereby rendered as follows:
1. The Deed of Absolute Sale (Exhibit A) is valid only insofar as the pro
indiviso share of Esperanza Balite over the property covered by Original
Certificate of Title No. 10824 is concerned;
2. The Register of Deeds is hereby ordered to cancel Transfer Certificate
of Title No. 6683 and to issue another over the entirety of the property
covered by Original Certificate of Title No. 10824, upon the payment of
the capital gains tax due, as provided for by law, (based on the purchase
price of the property in the amount of P1,000,000.00), with the following
as co-owners, over the property described therein:
a) Each of the [petitioners] over an undivided portion of 975 square
meters;
b) The [respondent], with an undivided portion of 9,751 square meters.
3. The [respondent] is hereby ordered to pay to the [petitioners] the 2. P170,000.00 payable upon completion of the actual relocation survey of
amount of P120,000.00, within a period of five (5) months from the the land sold by a Geodetic Engineer.
finality of the Decision of this Court;
3. P200,000.00 payable on or before May 15, 1996.
4. In the event that the [respondent] refuses or fails to remit the said
amount to the [petitioner] within the period therefor, the rights and
4. P200,000.00 payable on or before July 15, 1996.
obligations of the parties shall be governed by Republic 6552 (Maceda
Law).[3]
5. P200,000.00 payable on or before September 15, 1996.
6. P200,000.00 payable on or before December 15, 1996.
The Facts
Only Esperanza and two of her children, namely, Antonio x x x and
Cristeta x x x, knew about the said transaction. x x x Geodetic Engineer
The CA summarized the facts in this manner:
Bonifacio G. Tasic conducted a subdivision survey of the property and
prepared a Sketch Plan showing a portion of the property, identified as Lot
The spouses Aurelio x x x and Esperanza Balite were the owners of a 243 with an area of 10,000 square meters, under the name Rodrigo N.
parcel of land, located [at] Poblacion (Barangay Molave), Catarman, Lim.
Northern Samar, with an area of seventeen thousand five hundred fifty-one
(17,551) square meters, [and] covered by Original Certificate of Title
The Sketch Plan was signed by Rodrigo x x x and Esperanza. Thereafter,
[OCT] No. 10824. When Aurelio died intestate [in 1985, his wife],
Rodrigo x x x took actual possession of the property and introduced
Esperanza Balite, and their children, x x x [petitioners] Antonio Balite,
improvements thereon. He remitted to Esperanza x x x and Cristeta x x x
Flor Balite-Zamar, Visitacion Balite-Difuntorum, Pedro Balite, Pablo
sums of money in partial payments of the x x x property for which he
Balite, Gaspar Balite, Cristeta (Tita) Balite and Aurelio Balite, Jr.,
signed Receipts.
inherited the [subject] property and became co-owners thereof, with
Esperanza x x x inheriting an undivided [share] of [9,751] square meters.
Gaspar, Visitacion, Flor, Pedro and Aurelio, Jr. x x x learned of the sale,
and on August 21, 1996, they wrote a letter to the Register of Deeds [RD]
In the meantime, Esperanza x x x [became] ill and was in dire need of
of Northern Samar, [saying] that they [were] not x x x informed of the sale
money for her hospital expenses x x x. She, through her daughter, Cristeta,
of a portion of the said property by their mother x x x nor did they give
offered to sell to Rodrigo Lim, [her] undivided share x x x for the price
their consent thereto, and requested the [RD] to:
of P1,000,000.00. x x x Esperanza x x x and Rodrigo x x x agreed that,
under the Deed of Absolute Sale, to be executed by Esperanza x x x over
the property, it will be made to appear that the purchase price of the x x x hold in abeyance any processal or approval of any application for
property would be P150,000.00, although the actual price agreed upon by registration of title of ownership in the name of the buyer of said lot,
them for the property was P1,000,000.00. which has not yet been partitioned judicially or extrajudicially, until the
issue of the legality/validity of the above sale has been cleared.
On April 16, 1996, Esperanza x x x executed a Deed of Absolute Sale in
favor of Rodrigo N. Lim over a portion of the property, covered by [OCT] On August 24, 1996, Antonio x x x received from Rodrigo x x x, the
No. 10824, with an area of 10,000 square meters, for the price amount of P30,000.00 in partial payment of [the] property and signed
of P150,000.00 x x x. a Receipt for the said amount, declaring therein that the remaining balance
of P350,000.00 shall personally and directly be released to my mother,
Esperanza Balite, only. However, Rodrigo x x x drew and issued RCBC
[They] also executed, on the same day, a Joint Affidavit under which they
Check No. 309171, dated August 26, 1996, [payable] to the order of
declared that the real price of the property was P1,000,000.00, payable to
Antonio Balite in the amount of P30,000.00 in partial payment of the
Esperanza x x x, by installments, as follows:
property.
1. P30,000.00 upon signing today of the document of sale.
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On October 1, 1996, Esperanza x x x executed a Special Power of
Attorney appointing her son, Antonio, to collect and receive, from
Rodrigo, the balance of the purchase price of the x x x property and to sign
the appropriate documents therefor.
On October 23, 1996, Esperanza signed a letter addressed to Rodrigo
informing the latter that her children did not agree to the sale of the
property to him and that she was withdrawing all her commitments until
the validity of the sale is finally resolved:
xxxxxxxxx
On October 31, 1996, Esperanza died intestate and was survived by her
aforenamed children.
[Meanwhile], Rodrigo caused to be published, in the Samar Reporter, on
November 14, 21 and 28, 1996, the aforesaid Deed of Absolute Sale.
Earlier, on November 21, 1996, Antonio received the amount
of P10,000.00 from Rodrigo for the payment of the estate tax due from the
estate of Esperanza.
Also, the capital gains tax, in the amount of P14,506.25, based on the
purchase price of P150,000.00 appearing on the Deed of Absolute Sale,
was paid to the Bureau of Internal Revenue which issued a Certification of
said payments, on March 5, 1997, authorizing the registration of the Deed
of Absolute Sale x x x. However, the [RD] refused to issue a title over the
property to and under the name of Rodrigo unless and until the owners
duplicate of OCT No. 10824 was presented to [it]. Rodrigo filed a Petition
for Mandamus against the RD with the Regional Trial Court of Northern
Samar (Rodrigo Lim versus Fernando Abella, Special Civil Case No. 48).
x x x. On June 13, 1997, the court issued an Order to the RD to cancel
OCT No. 10824 and to issue a certificate of title over Lot 243 under the
name of Rodrigo.
On June 27, 1997, [petitioners] filed a complaint against Rodrigo with the
Regional Trial Court of Northern Samar, entitled and docketed as Heirs of
the Spouses Aurelio Balite, et al. versus Rodrigo Lim,  Civil Case No.
920, for Annulment of Sale, Quieting of Title, Injunction and
Damages x x x, [the origin of the instant case.]
xxxxxxxxx
The [petitioners] had a Notice of Lis Pendens, dated June 23, 1997,
annotated, on June 27, 1997, at the dorsal portion of OCT No. 10824.
In the meantime, the RD cancelled, on July 10, 1997, OCT No. 10824 and
issued Transfer Certificate of Title [TCT] No. 6683 to and under the name
of Rodrigo over Lot 243. The Notice of Lis Pendens x x x was carried over
in TCT No. 6683.
Subsequently, Rodrigo secured a loan from the Rizal Commercial Banking
Corporation in the amount of P2,000,000.00 and executed a Real Estate
Mortgage over the [subject] property as security therefor.
On motion of the [petitioners], they were granted x x x leave to file an
Amended Complaint impleading the bank as [additional] party-defendant.
On November 26, 1997, [petitioners] filed their "Amended Complaint.
The [respondent] opposed the Amended Complaint x x x contending that it
was improper for [petitioners] to join, in their complaint, an ordinary civil
action for the nullification of the Real Estate Mortgage executed by the
respondent in favor of the Bank as the action of the petitioners before the
court was a special civil action.
On March 30, 1998, the court issued an Order rejecting the Amended
Complaint of the petitioners on the grounds that: (a) the Bank cannot be
impleaded as party-defendant under Rule 63, Section 1 of the 1997 Rules
of Civil Procedure; (b) the Amended Complaint constituted a collateral
attack on TCT No. 6683. The [petitioners] did not file any motion for the
reconsideration of the order of the court.[4]
The trial court dismissed the Complaint and ordered the
cancellation of the lis pendens annotated at the back of TCT No. 6683. It
held that, pursuant to Article 493 of the Civil Code, a co-owner has the
right to sell his/her undivided share. The sale made by a co-owner is not
invalidated by the absence of the consent of the other co-owners. Hence,
the sale by Esperanza of the 10,000-square-meter portion of the property
was valid; the excess from her undivided share should be taken from the
undivided shares of Cristeta and Antonio, who expressly agreed to and
benefited from the sale.
Ruling of the Court of Appeals
The CA held that the sale was valid and binding insofar as
Esperanza Balites undivided share of the property was concerned. It
affirmed the trial courts ruling that the lack of consent of the co-owners
did not nullify the sale. The buyer, respondent herein, became a co-owner
of the property to the extent of the pro indiviso share of the vendor, subject
to the portion that may be allotted to him upon the termination of the co-
ownership. The appellate court disagreed with the averment of petitioners
that the registration of the sale and the issuance of TCT No. 6683 was
ineffective and that they became the owners of the share of Esperanza
upon the latters death.
The CA likewise rejected petitioners claim that the sale was void
allegedly because the actual purchase price of the property was not stated
in the Deed of Absolute Sale. It found that the true and correct
consideration for the sale was P1,000,000 as declared by Esperanza and
respondent in their Joint Affidavit. Applying Article 1353[5] of the Civil
Code, it held that the falsity of the price or consideration stated in the
Deed did not render it void. The CA pointed out, however, that the State
retained the right to recover the capital gains tax based on the true price
of P1,000,000.
The appellate court rejected petitioners contention that, because of
the allegedly unconscionably low and inadequate consideration involved,
the transaction covered by the Deed was an equitable mortgage under
Article 1602 of the Civil Code. Observing that the argument had never
been raised in the court a quo, it ruled that petitioners were proscribed
from making this claim, for the first time, on appeal.
The CA further held that the remaining liability of respondent
was P120,000. It relied on the Receipt dated August 24, 1996, which
stated that his outstanding balance for the consideration was P350,000. It
deducted therefrom the amounts of P30,000 received by Antonio on
August 27, 1996; and P200,000, which was the amount of the check dated
September 15, 1996, issued by respondent payable to Esperanza.
Finally, the appellate court noted that the mortgage over the
property had been executed after the filing of the Complaint. What
petitioners should have filed was a supplemental complaint instead of an
amended complaint. Contrary to respondents argument, it also held that
the bank was not an indispensable party to the case; but was merely
a proper party. Thus, there is no necessity to implead it as party-defendant,
although the court a quo had the option to do so. And even if it were not
impleaded, the appellate court ruled that the bank would still have been
bound by the outcome of the case, as the latter was a mortgagee pendente
lite over real estate that was covered by a certificate of title with an
annotated lis pendens.
Hence, this Petition.[6]
Issues
In their Memorandum, petitioners present the following issues:
33
A Whether or not the [CA] seriously erred in not deciding that the Deed of
Absolute Sale dated April 16, 1996 is null and void on the grounds that it
is falsified; it has an unlawful cause; and it is contrary to law and/or public
policy.
B Whether or not the [CA] gravely erred in not finding that the amount
paid by [respondent] is only three hundred twenty thousand (P320,000.00)
pesos and that respondents claim that he has paid one million pesos
except P44,000.00 as balance, is fraudulent and false.
C Whether or not the [CA] seriously erred in not deciding that at the time
the Deed of Sale was registered x x x on May 30, 1997, said Deed of Sale
can no longer bind the property covered by OCT No. 10824 because said
land had already become the property of all the petitioners upon the death
of their mother on October 31, 1996 and therefore such registration
is functus of[f]icioinvolving a null and void document.
D Whether or not the [CA] seriously erred in not ruling that petitioners
amended complaint dated November 27, 1997 was proper and admissible
and deemed admitted to conform to evidence presented.
E Whether or not the [CA] seriously erred in not declaring that TCT No.
T-6683 in the name of Respondent Rodrigo N. Lim is null and void and all
dealings involving the same are likewise null and void and/or subject to
the decision of the case at bar in view of the notice of lis pendens
annotated therein.
F Even assuming but without admitting that the Deed of Sale is
enforceable, the respondent court seriously erred in not deciding that the
consideration is unconscionably low and inadequate and therefore the
transaction between the executing parties constitutes an equitable
mortgage.
G The [CA] greatly erred in not rendering judgment awarding damages
and attorneys fee[s] in favor of petitioners among others.[7]
In sum, the issues raised by petitioners center on the following: 1)
whether the Deed of Absolute Sale is valid, and 2) whether there is still
any sum for which respondent is liable.
The Courts Ruling
The Petition has no merit.
First Issue:
Validity of the  Sale
Petitioners contend that the Deed of Absolute Sale is null and void,
because the undervalued consideration indicated therein was intended for
an unlawful purpose -- to avoid the payment of higher capital gains taxes
on the transaction. According to them, the appellate courts reliance on
Article 1353 of the Civil Code was erroneous. They further contend that
the Joint Affidavit is not proof of a true and lawful cause, but an integral
part of a scheme to evade paying lawful taxes and registration fees to the
government.
We have before us an example of a simulated contract. Article 1345
of the Civil Code provides that the simulation of a contract may either be
absolute or relative. In absolute simulation, there is a colorable contract
but without any substance, because the parties have no intention to be
bound by it. An absolutely simulated contract is void, and the parties may
recover from each other what they may have given under the contract.
[8]
 On the other hand, if the parties state a false cause in the contract to
conceal their real agreement, such a contract is relatively simulated. Here,
the parties real agreement binds them.[9]
In the present case, the parties intended to be bound by the
Contract, even if it did not reflect the actual purchase price of the property.
That the parties intended the agreement to produce legal effect is revealed
by the letter of Esperanza Balite to respondent dated October 23,
1996[10] and petitioners admission that there was a partial payment
of P320,000 made on the basis of the Deed of Absolute Sale. There was an
intention to transfer the ownership of over 10,000 square meters of the
property . Clear from the letter is the fact that the objections of her
children prompted Esperanza to unilaterally withdraw from the
transaction.
Since the Deed of Absolute Sale was merely relatively simulated, it
remains valid and enforceable. All the essential requisites prescribed by
law for the validity and perfection of contracts are present. However, the
parties shall be bound by their real agreement for a consideration
of P1,000,000 as reflected in their Joint Affidavit.[11]
The juridical nature of the Contract remained the same. What was
concealed was merely the actual price. Where the essential requisites are
present and the simulation refers only to the content or terms of the
contract, the agreement is absolutely binding and enforceable [12] between
the parties and their successors in interest.
Petitioners cannot be permitted to unmake the Contract voluntarily
entered into by their predecessor, even if the stated consideration was
included therein for an unlawful purpose. The binding force of a contract
must be recognized as far as it is legally possible to do so. [13] However, as
properly held by the appellate court, the government has the right to
collect the proper taxes based on the correct purchase price.
Being onerous, the Contract had for its cause or consideration the
price of P1,000,000. Both this consideration as well as the subject matter
of the contract -- Esperanzas share in the property covered by OCT No.
10824 -- are lawful. The motives of the contracting parties for lowering
the price of the sale -- in the present case, the reduction of capital gains tax
liability -- should not be confused with the consideration. [14] Although
illegal, the motives neither determine nor take the place of the
consideration. [15]
Deed of Sale not an Equitable Mortgage
Petitioner further posits that even assuming that the deed of sale is
valid it should only be deemed an equitable mortgage pursuant to Articles
1602 and 1604 of the Civil Code, because the price was clearly
inadequate. They add that the presence of only one of the circumstances
enumerated under Article 1602 would be sufficient to consider the
Contract an equitable mortgage. We disagree.
For Articles 1602 and 1604 to apply, two requisites must
concur: one, the parties entered into a contract denominated as a contract
of sale; and, two, their intention was to secure an existing debt by way of
mortgage.[16]
Indeed, the existence of any of the circumstances enumerated in
Article 1602, not a concurrence or an overwhelming number thereof,
suffices to give rise to the presumption that a contract purporting to be an
absolute sale is actually an equitable mortgage. [17] In the present case,
however, the Contract does not merely purport to be an absolute sale. The
records and the documentary evidence introduced by the parties
indubitably show that the Contract is, indeed, one of absolute sale. There
is no clear and convincing evidence that the parties agreed upon a
mortgage of the subject property.
Furthermore, the voluntary, written and unconditional acceptance of
contractual commitments negates the theory of equitable mortgage. There
is nothing doubtful about the terms of, or the circumstances surrounding,
the Deed of Sale that would call for the application of Article 1602. The
Joint Affidavit indisputably confirmed that the transaction between the
parties was a sale.
When the words of a contract are clear and readily understandable,
there is no room for construction. Contracts are to be interpreted according
to their literal meaning and should not be interpreted beyond their obvious
intendment.[18] The contract is the law between the parties.
Notably, petitioners never raised as an issue before the trial court
the fact that the document did not express the true intent and agreement of
the contracting parties. They raised mere suppositions on the inadequacy
of the price, in support of their argument that the Contract should be
considered as an equitable mortgage.
We find no basis to conclude that the purchase price of the property
was grossly inadequate. Petitioners did not present any witness to testify
34
as to the market values of real estate in the subjects locale. They made
their claim on the basis alone of the P2,000,000 loan that respondent had
been able to obtain from the Rizal Commercial Banking Corporation. This
move did not sufficiently show the alleged inadequacy of the purchase
price. A mortgage is a mere security for a loan. There was no showing that
the property was the only security relied upon by the bank; or that the
borrowers had no credit worthiness, other than the property offered as
collateral.
Co-Ownership
The appellate court was correct in affirming the validity of the sale
of the property insofar as the pro indiviso share of Esperanza Balite was
concerned.
Article 493 of the Civil Code [19] gives the owner of an undivided
interest in the property the right to freely sell and dispose of such interest.
The co-owner, however, has no right to sell or alienate a specific or
determinate part of the thing owned in common, because such right over
the thing is represented by an aliquot or ideal portion without any physical
division. Nonetheless, the mere fact that the deed purports to transfer a
concrete portion does not per se render the sale void. [20] The sale is valid,
but only with respect to the aliquot share of the selling co-owner.
Furthermore, the sale is subject to the results of the partition upon the
termination of the co-ownership.
Hence, the transaction between Esperanza Balite and respondent
could be legally recognized only in respect to the formers pro
indiviso share in the co-ownership. As a matter of fact, the Deed of
Absolute Sale executed between the parties expressly referred to the
10,000-square-meter portion of the land sold to respondent as the share of
Esperanza in the conjugal property. Her clear intention was to sell merely
her ideal or undivided share in it. No valid objection can be made against
that intent. Clearly then, the sale can be given effect to the extent of 9,751
square meters, her ideal share in the property as found by both the trial and
the appellate courts.
Transfer of Property
During her lifetime, Esperanza had already sold to respondent her
share in the subject parcel; hence her heirs could no longer inherit it. The
property she had transferred or conveyed no longer formed part of her
estate to which her heirs may lay claim at the time of her death. The
transfer took effect on April 16, 1996 (the date the Deed of Absolute Sale
was executed), and not on May 30, 1997, when the Deed of Absolute Sale
was registered. Thus, petitioners claim that the property became theirs
upon the death of their mother is untenable.
Second Issue:
Respondents Liability
Petitioners insist that the appellate court erred in holding that
respondents outstanding liability on the Deed of Sale was P120,000, when
the Receipts on record show payments in the total amount of P320,000
only. They argue that the August 24, 1996 Receipt, on which the appellate
court based its conclusion, was unreliable.
To begin with, this Court is not a trier of facts.  [21] It is not its
function to examine and determine the weight of the evidence. Well-
entrenched is the doctrine that only errors of law, [22] and not of facts, are
reviewable by this Court in a petition for review on certiorari under Rule
45 of the Revised Rules of Court. Philippine Airlines, Inc.  v.  Court of
Appeals[23] has held that factual findings of the Court of Appeals are
binding and conclusive upon the Supreme Court. These findings may be
reviewed[24] only under exceptional circumstances such as, among others,
when the inference is manifestly mistaken;[25] the judgment is based on a
misapprehension of facts;[26] findings of the trial court contradict those of
the CA;[27] or the CA manifestly overlooked certain relevant and
undisputed facts that, if properly considered, would justify a different
conclusion.[28]
Although the factual findings of the two lower courts were not
identical, we hold that in the present case, the findings of the CA are in
accord with the documents on record. The trial court admitted in evidence
the August 24, 1996 Receipt signed by Antonio Balite. Interestingly, he
was never presented in the lower court to dispute the veracity of the
contents of that Receipt, particularly the second paragraph that had
categorically stated the outstanding balance of respondent as of August 24,
1996, to be P350,000. Furthermore, the evidence shows that subsequent
payments of P30,000 and P200,000 were made by the latter. Thus,
we affirm the CAs Decision holding that the remaining unpaid
balance of the price was P120,000.
WHEREFORE, the Petition is DENIED and the assailed
Decision AFFIRMED.
35