THIRD DIVISION

[G.R. No. 103577. October 7, 1996]

ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A.

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

DECISION
MELO, J.:

The petition before us has its roots in a complaint for specific performance to
compel herein petitioners (except the last named, Catalina Balais Mabanag) to
consummate the sale of a parcel of land with its improvements located along Roosevelt
Avenue in Quezon City entered into by the parties sometime in January 1985 for the
price of P1,240,000.00.
The undisputed facts of the case were summarized by respondent court in this wise:
On January 19, 1985, defendants-appellants Romulo Coronel, et. al. (hereinafter
referred to as Coronels) executed a document entitled “Receipt of Down Payment”
(Exh. “A”) in favor of plaintiff Ramona Patricia Alcaraz (hereinafter referred to as
Ramona) which is reproduced hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 - Total amount
50,000.00 - Down payment
------------------------------------------
P1,190,000.00 - Balance
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum
of Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT
No. 119627 of the Registry of Deeds of Quezon City, in the total amount of
P1,240,000.00.
We bind ourselves to effect the transfer in our names from our deceased father,
Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the
down payment above-stated.
 On our presentation of the TCT already in or name, We will immediately execute
the deed of absolute sale of said property and Miss Ramona Patricia Alcaraz shall
immediately pay the balance of the P1,190,000.00.
Clearly, the conditions appurtenant to the sale are the following:
1. Ramona will make a down payment of Fifty Thousand (P50,000.00) pesos
upon execution of the document aforestated;
2. The Coronels will cause the transfer in their names of the title of the property
registered in the name of their deceased father upon receipt of the Fifty Thousand
(P50,000.00) Pesos down payment;
3. Upon the transfer in their names of the subject property, the Coronels will
execute the deed of absolute sale in favor of Ramona and the latter will pay the former
the whole balance of One Million One Hundred Ninety Thousand (P1,190,000.00)
Pesos.
On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz
(hereinafter referred to as Concepcion), mother of Ramona, paid the down payment of
Fifty Thousand (P50,000.00) Pesos (Exh. “B”, Exh. “2”).
On February 6, 1985, the property originally registered in the name of the
Coronel’s father was transferred in their names under TCT No. 327043 (Exh. “D”; Exh
“4”)
On February 18, 1985, the Coronels sold the property covered by TCT No. 327043
to intervenor-appellant Catalina B. Mabanag (hereinafter referred to as Catalina) for
One Million Five Hundred Eighty Thousand (P1,580,000.00) Pesos after the latter has
paid Three Hundred Thousand (P300,000.00) Pesos (Exhs. “F-3”; Exh. “6-C”)
For this reason, Coronels canceled and rescinded the contract (Exh. “A”) with
Ramona by depositing the down payment paid by Concepcion in the bank in trust for
Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et. al., filed a complaint for a specific
performance against the Coronels and caused the annotation of a notice of lis pendens
at the back of TCT No. 327403 (Exh. “E”; Exh. “5”).
On April 2, 1985, Catalina caused the annotation of a notice of adverse claim
covering the same property with the Registry of Deeds of Quezon City (Exh. “F”; Exh.
“6”).
On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the
subject property in favor of Catalina (Exh. “G”; Exh. “7”).
On June 5, 1985, a new title over the subject property was issued in the name of
Catalina under TCT No. 351582 (Exh. “H”; Exh. “8”).
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court (Branch 83, RTC, Quezon
City) the parties agreed to submit the case for decision solely on the basis of
documentary exhibits. Thus, plaintiffs therein (now private respondents) proffered their
documentary evidence accordingly marked as Exhibits “A” through “J”, inclusive of their
corresponding submarkings. Adopting these same exhibits as their own, then
defendants (now petitioners) accordingly offered and marked them as Exhibits “1”
through “10”, likewise inclusive of their corresponding submarkings. Upon motion of the
parties, the trial court gave them thirty (30) days within which to simultaneously submit
their respective memoranda, and an additional 15 days within which to submit their
corresponding comment or reply thereto, after which, the case would be deemed
submitted for resolution.
On April 14, 1988, the case was submitted for resolution before Judge Reynaldo
Roura, who was then temporarily detailed to preside over Branch 82 of the RTC of
Quezon City. On March 1, 1989, judgment was handed down by Judge Roura from his
regular bench at Macabebe, Pampanga for the Quezon City branch, disposing as
follows:
WHEREFORE, judgment for specific performance is hereby rendered ordering
defendant to execute in favor of plaintiffs a deed of absolute sale covering that parcel
of land embraced in and covered by Transfer Certificate of Title No. 327403 (now TCT
No. 331582) of the Registry of Deeds for Quezon City, together with all the
improvements existing thereon free from all liens and encumbrances, and once
accomplished, to immediately deliver the said document of sale to plaintiffs and upon
receipt thereof, the plaintiffs are ordered to pay defendants the whole balance of the
purchase price amounting to P1,190,000.00 in cash. Transfer Certificate of Title No.
331582 of the Registry of Deeds for Quezon City in the name of intervenor is hereby
canceled and declared to be without force and effect. Defendants and intervenor and
all other persons claiming under them are hereby ordered to vacate the subject
property and deliver possession thereof to plaintiffs. Plaintiffs’ claim for damages and
attorney’s fees, as well as the counterclaims of defendants and intervenors are hereby
dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City, March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioners before the new presiding judge
of the Quezon City RTC but the same was denied by Judge Estrella T. Estrada, thusly:
The prayer contained in the instant motion, i.e., to annul the decision and to render
anew decision by the undersigned Presiding Judge should be denied for the following
reasons: (1) The instant case became submitted for decision as of April 14, 1988
when the parties terminated the presentation of their respective documentary evidence
and when the Presiding Judge at that time was Judge Reynaldo Roura. The fact that
they were allowed to file memoranda at some future date did not change the fact that
the hearing of the case was terminated before Judge Roura and therefore the same
should be submitted to him for decision; (2) When the defendants and intervenor did
not object to the authority of Judge Reynaldo Roura to decide the case prior to the
rendition of the decision, when they met for the first time before the undersigned
Presiding Judge at the hearing of a pending incident in Civil Case No. Q-46145 on
November 11, 1988, they were deemed to have acquiesced thereto and they are now
estopped from questioning said authority of Judge Roura after they received the
decision in question which happens to be adverse to them; (3) While it is true that
 Judge Reynaldo Roura was merely a Judge-on-detail at this Branch of the Court, he
was in all respects the Presiding Judge with full authority to act on any pending incident
submitted before this Court during his incumbency. When he returned to his Official
Station at Macabebe, Pampanga, he did not lose his authority to decide or resolve
cases submitted to him for decision or resolution because he continued as Judge of the
Regional Trial Court and is of co-equal rank with the undersigned Presiding Judge.
The standing rule and supported by jurisprudence is that a Judge to whom a case is
submitted for decision has the authority to decide the case notwithstanding his transfer
to another branch or region of the same court (Sec. 9, Rule 135, Rule of Court).
Coming now to the twin prayer for reconsideration of the Decision dated March 1,
1989 rendered in the instant case, resolution of which now pertains to the undersigned
Presiding Judge, after a meticulous examination of the documentary evidence
presented by the parties, she is convinced that the Decision of March 1, 1989 is
supported by evidence and, therefore, should not be disturbed.
IN VIEW OF THE FOREGOING, the “Motion for Reconsideration and/or to Annul
Decision and Render Anew Decision by the Incumbent Presiding Judge” dated March
20, 1989 is hereby DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December 16, 1991, the Court
of Appeals (Buena, Gonzaga-Reyes, Abad-Santos (P), JJ.) rendered its decision fully
agreeing with the trial court.
Hence, the instant petition which was filed on March 5, 1992. The last pleading,
private respondents’ Reply Memorandum, was filed on September 15, 1993. The case
was, however, re-raffled to undersigned ponente only on August 28, 1996, due to the
voluntary inhibition of the Justice to whom the case was last assigned.
While we deem it necessary to introduce certain refinements in the disquisition of
respondent court in the affirmance of the trial court’s decision, we definitely find the
instant petition bereft of merit.
The heart of the controversy which is the ultimate key in the resolution of the other
issues in the case at bar is the precise determination of the legal significance of the
document entitled “Receipt of Down Payment” which was offered in evidence by both
parties. There is no dispute as to the fact that the said document embodied the binding
contract between Ramona Patricia Alcaraz on the one hand, and the heirs of
Constancio P. Coronel on the other, pertaining to a particular house and lot covered by
TCT No. 119627, as defined in Article 1305 of the Civil Code of the Philippines which
reads as follows:
Art. 1305. A contract is a meeting of minds between two persons whereby one
binds himself, with respect to the other, to give something or to render some service.
While, it is the position of private respondents that the “Receipt of Down Payment”
embodied a perfected contract of sale, which perforce, they seek to enforce by means
of an action for specific performance, petitioners on their part insist that what the
document signified was a mere executory contract to sell, subject to certain suspensive
conditions, and because of the absence of Ramona P. Alcaraz, who left for the United
States of America, said contract could not possibly ripen into a contract of absolute sale.
Plainly, such variance in the contending parties’ contention is brought about by the
way each interprets the terms and/or conditions set forth in said private instrument.
Withal, based on whatever relevant and admissible evidence may be available on
record, this Court, as were the courts below, is now called upon to adjudge what the
real intent of the parties was at the time the said document was executed.
The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.
Sale, by its very nature, is a consensual contract because it is perfected by mere
consent. The essential elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in
exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a Contract of Sale
because the first essential element is lacking. In a contract to sell, the prospective
seller explicitly reserves the transfer of title to the prospective buyer, meaning, the
prospective seller does not as yet agree or consent to transfer ownership of the property
subject of the contract to sell until the happening of an event, which for present
purposes we shall take as the full payment of the purchase price. What the seller
agrees or obliges himself to do is to fulfill his promise to sell the subject property when
the entire amount of the purchase price is delivered to him. In other words the full
payment of the purchase price partakes of a suspensive condition, the non-fulfillment of
which prevents the obligation to sell from arising and thus, ownership is retained by the
prospective seller without further remedies by the prospective buyer. In Roque vs.
Lapuz (96 SCRA 741 [1980]), this Court had occasion to rule:
Hence, We hold that the contract between the petitioner and the respondent was a
contract to sell where the ownership or title is retained by the seller and is not to pass
until the full payment of the price, such payment being a positive suspensive condition
and failure of which is not a breach, casual or serious, but simply an event that
prevented the obligation of the vendor to convey title from acquiring binding force.
Stated positively, upon the fulfillment of the suspensive condition which is the full
payment of the purchase price, the prospective seller’s obligation to sell the subject
property by entering into a contract of sale with the prospective buyer becomes
demandable as provided in Article 1479 of the Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
 An accepted unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promissor of the promise is supported by a consideration
distinct from the price.
A contract to sell may thus be defined as a bilateral contract whereby the
prospective seller, while expressly reserving the ownership of the subject property
despite delivery thereof to the prospective buyer, binds himself to sell the said property
exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that
is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be considered as a
conditional contract of sale where the seller may likewise reserve title to the property
subject of the sale until the fulfillment of a suspensive condition, because in a
conditional contract of sale, the first element of consent is present, although it is
conditioned upon the happening of a contingent event which may or may not occur. If
the suspensive condition is not fulfilled, the perfection of the contract of sale is
completely abated (cf. Homesite and Housing Corp. vs. Court of Appeals, 133 SCRA
777 [1984]). However, if the suspensive condition is fulfilled, the contract of sale is
thereby perfected, such that if there had already been previous delivery of the property
subject of the sale to the buyer, ownership thereto automatically transfers to the buyer
by operation of law without any further act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which is the full
payment of the purchase price, ownership will not automatically transfer to the buyer
although the property may have been previously delivered to him. The prospective
seller still has to convey title to the prospective buyer by entering into a contract of
absolute sale.
It is essential to distinguish between a contract to sell and a conditional contract of
sale specially in cases where the subject property is sold by the owner not to the party
the seller contracted with, but to a third person, as in the case at bench. In a contract to
sell, there being no previous sale of the property, a third person buying such property
despite the fulfillment of the suspensive condition such as the full payment of the
purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective
buyer cannot seek the relief of reconveyance of the property. There is no double sale in
such case. Title to the property will transfer to the buyer after registration because there
is no defect in the owner-seller’s title per se, but the latter, of course, may be sued for
damages by the intending buyer.
In a conditional contract of sale, however, upon the fulfillment of the suspensive
condition, the sale becomes absolute and this will definitely affect the seller’s title
thereto. In fact, if there had been previous delivery of the subject property, the seller’s
ownership or title to the property is automatically transferred to the buyer such that, the
seller will no longer have any title to transfer to any third person. Applying Article 1544
of the Civil Code, such second buyer of the property who may have had actual or
constructive knowledge of such defect in the seller’s title, or at least was charged with
the obligation to discover such defect, cannot be a registrant in good faith. Such
second buyer cannot defeat the first buyer’s title. In case a title is issued to the second
buyer, the first buyer may seek reconveyance of the property subject of the sale.
 With the above postulates as guidelines, we now proceed to the task of deciphering
the real nature of the contract entered into by petitioners and private respondents.
It is a canon in the interpretation of contracts that the words used therein should be
given their natural and ordinary meaning unless a technical meaning was intended (Tan
vs. Court of Appeals, 212 SCRA 586 [1992]). Thus, when petitioners declared in the
said “Receipt of Down Payment” that they --
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum
of Fifty Thousand Pesos purchase price of our inherited house and lot, covered by
TCT No. 1199627 of the Registry of Deeds of Quezon City, in the total amount of
P1,240,000.00.
without any reservation of title until full payment of the entire purchase price, the natural
and ordinary idea conveyed is that they sold their property.
When the “Receipt of Down payment” is considered in its entirety, it becomes more
manifest that there was a clear intent on the part of petitioners to transfer title to the
buyer, but since the transfer certificate of title was still in the name of petitioner’s father,
they could not fully effect such transfer although the buyer was then willing and able to
immediately pay the purchase price. Therefore, petitioners-sellers undertook upon
receipt of the down payment from private respondent Ramona P. Alcaraz, to cause the
issuance of a new certificate of title in their names from that of their father, after which,
they promised to present said title, now in their names, to the latter and to execute the
deed of absolute sale whereupon, the latter shall, in turn, pay the entire balance of the
purchase price.
The agreement could not have been a contract to sell because the sellers herein
made no express reservation of ownership or title to the subject parcel of land.
Furthermore, the circumstance which prevented the parties from entering into an
absolute contract of sale pertained to the sellers themselves (the certificate of title was
not in their names) and not the full payment of the purchase price. Under the
established facts and circumstances of the case, the Court may safely presume that,
had the certificate of title been in the names of petitioners-sellers at that time, there
would have been no reason why an absolute contract of sale could not have been
executed and consummated right there and then.
Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely
promise to sell the property to private respondent upon the fulfillment of the suspensive
condition. On the contrary, having already agreed to sell the subject property, they
undertook to have the certificate of title change to their names and immediately
thereafter, to execute the written deed of absolute sale.
Thus, the parties did not merely enter into a contract to sell where the sellers, after
compliance by the buyer with certain terms and conditions, promised to sell the property
to the latter. What may be perceived from the respective undertakings of the parties to
the contract is that petitioners had already agreed to sell the house and lot they
inherited from their father, completely willing to transfer ownership of the subject house
and lot to the buyer if the documents were then in order. It just so happened, however,
that the transfer certificate of title was then still in the name of their father. It was more
expedient to first effect the change in the certificate of title so as to bear their names.
That is why they undertook to cause the issuance of a new transfer of the certificate of
title in their names upon receipt of the down payment in the amount of P50,000.00. As
soon as the new certificate of title is issued in their names, petitioners were committed
to immediately execute the deed of absolute sale. Only then will the obligation of the
buyer to pay the remainder of the purchase price arise.
There is no doubt that unlike in a contract to sell which is most commonly entered
into so as to protect the seller against a buyer who intends to buy the property in
installment by withholding ownership over the property until the buyer effects full
payment therefor, in the contract entered into in the case at bar, the sellers were the
ones who were unable to enter into a contract of absolute sale by reason of the fact that
the certificate of title to the property was still in the name of their father. It was the
sellers in this case who, as it were, had the impediment which prevented, so to speak,
the execution of an contract of absolute sale.
What is clearly established by the plain language of the subject document is that
when the said “Receipt of Down Payment” was prepared and signed by petitioners
Romulo A. Coronel, et. al., the parties had agreed to a conditional contract of sale,
consummation of which is subject only to the successful transfer of the certificate of title
from the name of petitioners’ father, Constancio P. Coronel, to their names.
The Court significantly notes that this suspensive condition was, in fact, fulfilled on
February 6, 1985 (Exh. “D”; Exh. “4”). Thus, on said date, the conditional contract of
sale between petitioners and private respondent Ramona P. Alcaraz became obligatory,
the only act required for the consummation thereof being the delivery of the property by
means of the execution of the deed of absolute sale in a public instrument, which
petitioners unequivocally committed themselves to do as evidenced by the “Receipt of
Down Payment.”
Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies
to the case at bench. Thus,
Art. 1475. The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to
the provisions of the law governing the form of contracts.
Art. 1181. In conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend upon the happening of
the event which constitutes the condition.
Since the condition contemplated by the parties which is the issuance of a
certificate of title in petitioner’s names was fulfilled on February 6, 1985, the respective
obligations of the parties under the contract of sale became mutually demandable, that
is, petitioners, as sellers, were obliged to present the transfer certificate of title already
in their names to private respondent Ramona P. Alcaraz, the buyer, and to immediately
execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith
pay the balance of the purchase price amounting to P1,190,000.00.
 It is also significant to note that in the first paragraph in page 9 of their petition,
petitioners conclusively admitted that:
3. The petitioners-sellers Coronel bound themselves “to effect the transfer in our
names from our deceased father Constancio P. Coronel, the transfer certificate of
title immediately upon receipt of the downpayment above-stated". The sale was
still subject to this suspensive condition. (Emphasis supplied.)
(Rollo, p. 16)
Petitioners themselves recognized that they entered into a contract of sale subject
to a suspensive condition. Only, they contend, continuing in the same paragraph, that:
. . . Had petitioners-sellers not complied with this condition of first transferring the
title to the property under their names, there could be no perfected contract of sale.
(Emphasis supplied.)
(Ibid.)
not aware that they have set their own trap for themselves, for Article 1186 of the Civil
Code expressly provides that:
Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment.
Besides, it should be stressed and emphasized that what is more controlling than
these mere hypothetical arguments is the fact that the condition herein referred to
was actually and indisputably fulfilled on February 6, 1985, when a new title was
issued in the names of petitioners as evidenced by TCT No. 327403 (Exh. “D”; Exh.
“4”).
The inevitable conclusion is that on January 19, 1985, as evidenced by the
document denominated as “Receipt of Down Payment” (Exh. “A”; Exh. “1”), the parties
entered into a contract of sale subject to the suspensive condition that the sellers shall
effect the issuance of new certificate title from that of their father’s name to their names
and that, on February 6, 1985, this condition was fulfilled (Exh. “D”; Exh. “4”).
We, therefore, hold that, in accordance with Article 1187 which pertinently provides
-
Art. 1187. The effects of conditional obligation to give, once the condition has
been fulfilled, shall retroact to the day of the constitution of the obligation . . .
In obligations to do or not to do, the courts shall determine, in each case, the
retroactive effect of the condition that has been complied with.
the rights and obligations of the parties with respect to the perfected contract of sale
became mutually due and demandable as of the time of fulfillment or occurrence of the
suspensive condition on February 6, 1985. As of that point in time, reciprocal
obligations of both seller and buyer arose.
Petitioners also argue there could been no perfected contract on January 19, 1985
because they were then not yet the absolute owners of the inherited property.
We cannot sustain this argument.
 Article 774 of the Civil Code defines Succession as a mode of transferring
ownership as follows:
Art. 774. Succession is a mode of acquisition by virtue of which the property,
rights and obligations to the extent and value of the inheritance of a person are
transmitted through his death to another or others by his will or by operation of law.
Petitioners-sellers in the case at bar being the sons and daughters of the decedent
Constancio P. Coronel are compulsory heirs who were called to succession by
operation of law. Thus, at the point their father drew his last breath, petitioners stepped
into his shoes insofar as the subject property is concerned, such that any rights or
obligations pertaining thereto became binding and enforceable upon them. It is
expressly provided that rights to the succession are transmitted from the moment of
death of the decedent (Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850
[1952]).
Be it also noted that petitioners’ claim that succession may not be declared unless
the creditors have been paid is rendered moot by the fact that they were able to effect
the transfer of the title to the property from the decedent’s name to their names on
February 6, 1985.
Aside from this, petitioners are precluded from raising their supposed lack of
capacity to enter into an agreement at that time and they cannot be allowed to now take
a posture contrary to that which they took when they entered into the agreement with
private respondent Ramona P. Alcaraz. The Civil Code expressly states that:
Art. 1431. Through estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as against
the person relying thereon.
Having represented themselves as the true owners of the subject property at the time of
sale, petitioners cannot claim now that they were not yet the absolute owners thereof at
that time.
Petitioners also contend that although there was in fact a perfected contract of sale
between them and Ramona P. Alcaraz, the latter breach her reciprocal obligation when
she rendered impossible the consummation thereof by going to the United States of
America, without leaving her address, telephone number, and Special Power of
Attorney (Paragraphs 14 and 15, Answer with Compulsory Counterclaim to the
Amended Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners conclude, they
were correct in unilaterally rescinding the contract of sale.
We do not agree with petitioners that there was a valid rescission of the contract of
sale in the instant case. We note that these supposed grounds for petitioner’s
rescission, are mere allegations found only in their responsive pleadings, which by
express provision of the rules, are deemed controverted even if no reply is filed by the
plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The records are absolutely bereft of
any supporting evidence to substantiate petitioners’ allegations. We have stressed time
and again that allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng
Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]). Mere allegation
is not an evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).
 Even assuming arguendo that Ramona P. Alcaraz was in the United States of
America on February 6, 1985, we cannot justify petitioners-sellers’ act of unilaterally and
extrajudicially rescinding the contract of sale, there being no express stipulation
authorizing the sellers to extrajudicially rescind the contract of sale. (cf. Dignos vs. CA,
158 SCRA 375 [1988]; Taguba vs. Vda. De Leon, 132 SCRA 722 [1984])
Moreover, petitioners are estopped from raising the alleged absence of Ramona P.
Alcaraz because although the evidence on record shows that the sale was in the name
of Ramona P. Alcaraz as the buyer, the sellers had been dealing with Concepcion D.
Alcaraz, Ramona’s mother, who had acted for and in behalf of her daughter, if not also
in her own behalf. Indeed, the down payment was made by Concepcion D. Alcaraz with
her own personal Check (Exh. “B”; Exh. “2”) for and in behalf of Ramona P. Alcaraz.
There is no evidence showing that petitioners ever questioned Concepcion’s authority to
represent Ramona P. Alcaraz when they accepted her personal check. Neither did they
raise any objection as regards payment being effected by a third person. Accordingly,
as far as petitioners are concerned, the physical absence of Ramona P. Alcaraz is not a
ground to rescind the contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as
her obligation to pay the full purchase price is concerned. Petitioners who are
precluded from setting up the defense of the physical absence of Ramona P. Alcaraz as
above-explained offered no proof whatsoever to show that they actually presented the
new transfer certificate of title in their names and signified their willingness and
readiness to execute the deed of absolute sale in accordance with their agreement.
Ramona’s corresponding obligation to pay the balance of the purchase price in the
amount of P1,190,000.00 (as buyer) never became due and demandable and,
therefore, she cannot be deemed to have been in default.
Article 1169 of the Civil Code defines when a party in a contract involving reciprocal
obligations may be considered in default, to wit:
Art. 1169. Those obliged to deliver or to do something, incur in delay from the
time the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.
xxx
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent
upon him. From the moment one of the parties fulfill his obligation, delay by the other
begins. (Emphasis supplied.)
There is thus neither factual nor legal basis to rescind the contract of sale between
petitioners and respondents.
With the foregoing conclusions, the sale to the other petitioner, Catalina B.
Mabanag, gave rise to a case of double sale where Article 1544 of the Civil Code will
apply, to wit:
Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.
 Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in
good faith was first in the possession; and, in the absence thereof to the person who
presents the oldest title, provided there is good faith.
The record of the case shows that the Deed of Absolute Sale dated April 25, 1985
as proof of the second contract of sale was registered with the Registry of Deeds of
Quezon City giving rise to the issuance of a new certificate of title in the name of
Catalina B. Mabanag on June 5, 1985. Thus, the second paragraph of Article 1544
shall apply.
The above-cited provision on double sale presumes title or ownership to pass to the
buyer, the exceptions being: (a) when the second buyer, in good faith, registers the
sale ahead of the first buyer, and (b) should there be no inscription by either of the two
buyers, when the second buyer, in good faith, acquires possession of the property
ahead of the first buyer. Unless, the second buyer satisfies these requirements, title or
ownership will not transfer to him to the prejudice of the first buyer.
In his commentaries on the Civil Code, an accepted authority on the subject, now a
distinguished member of the Court, Justice Jose C. Vitug, explains:
The governing principle is prius tempore, potior jure (first in time, stronger in right).
Knowledge by the first buyer of the second sale cannot defeat the first buyer’s rights
except when the second buyer first registers in good faith the second sale (Olivares vs.
Gonzales, 159 SCRA 33). Conversely, knowledge gained by the second buyer of the
first sale defeats his rights even if he is first to register, since knowledge taints his
registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No. 58530, 26
December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984, 129 SCRA
656), it was held that it is essential, to merit the protection of Art. 1544, second
paragraph, that the second realty buyer must act in good faith in registering his deed of
sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No.
95843, 02 September 1992).
(J. Vitug, Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604).
Petitioners point out that the notice of lis pendens in the case at bar was annotated
on the title of the subject property only on February 22, 1985, whereas, the second sale
between petitioners Coronels and petitioner Mabanag was supposedly perfected prior
thereto or on February 18, 1985. The idea conveyed is that at the time petitioner
Mabanag, the second buyer, bought the property under a clean title, she was unaware
of any adverse claim or previous sale, for which reason she is a buyer in good faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality is not whether or not
the second buyer in good faith but whether or not said second buyer registers such
second sale in good faith, that is, without knowledge of any defect in the title of the
property sold.
As clearly borne out by the evidence in this case, petitioner Mabanag could not
have in good faith, registered the sale entered into on February 18, 1985 because as
early as February 22, 1985, a notice of lis pendens had been annotated on the transfer
certificate of title in the names of petitioners, whereas petitioner Mabanag registered the
said sale sometime in April, 1985. At the time of registration, therefore, petitioner
Mabanag knew that the same property had already been previously sold to private
respondents, or, at least, she was charged with knowledge that a previous buyer is
claiming title to the same property. Petitioner Mabanag cannot close her eyes to the
defect in petitioners’ title to the property at the time of the registration of the property.
This Court had occasions to rule that:
If a vendee in a double sale registers the sale after he has acquired knowledge
that there was a previous sale of the same property to a third party or that another
person claims said property in a previous sale, the registration will constitute a
registration in bad faith and will not confer upon him any right. (Salvoro vs. Tanega, 87
SCRA 349 [1978]; citing Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs.
Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.)
Thus, the sale of the subject parcel of land between petitioners and Ramona P.
Alcaraz, perfected on February 6, 1985, prior to that between petitioners and Catalina
B. Mabanag on February 18, 1985, was correctly upheld by both the courts below.
Although there may be ample indications that there was in fact an agency between
Ramona as principal and Concepcion, her mother, as agent insofar as the subject
contract of sale is concerned, the issue of whether or not Concepcion was also acting in
her own behalf as a co-buyer is not squarely raised in the instant petition, nor in such
assumption disputed between mother and daughter. Thus, We will not touch this issue
and no longer disturb the lower courts’ ruling on this point.
WHEREFORE, premises considered, the instant petition is hereby DISMISSED and
the appealed judgment AFFIRMED.
SO ORDERED.
Narvasa, C.J. (Chairman), Davide, Jr., and Francisco, JJ., concur.
Panganiban, J., no part.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 107207 November 23, 1995

VIRGILIO R. ROMERO, petitioner,

vs.
HON. COURT OF APPEALS and ENRIQUETA CHUA VDA. DE ONGSIONG, respondents.
VITUG, J.:

The parties pose this question: May the vendor demand the rescission of a contract for the sale of a parcel of land for a
cause traceable to his own failure to have the squatters on the subject property evicted within the contractually-stipulated
period?

Petitioner Virgilio R. Romero, a civil engineer, was engaged in the business of production, manufacture and exportation of
perlite filter aids, permalite insulation and processed perlite ore. In 1988, petitioner and his foreign partners decided to put up
a central warehouse in Metro Manila on a land area of approximately 2,000 square meters. The project was made known to
several freelance real estate brokers.

A day or so after the announcement, Alfonso Flores and his wife, accompanied by a broker, offered a parcel of land
measuring 1,952 square meters. Located in Barangay San Dionisio, Parañaque, Metro Manila, the lot was covered by TCT
No. 361402 in the name of private respondent Enriqueta Chua vda. de Ongsiong. Petitioner visited the property and, except
for the presence of squatters in the area, he found the place suitable for a central warehouse.

Later, the Flores spouses called on petitioner with a proposal that should he advance the amount of P50,000.00 which could
be used in taking up an ejectment case against the squatters, private respondent would agree to sell the property for only
P800.00 per square meter. Petitioner expressed his concurrence. On 09 June 1988, a contract, denominated "Deed of
Conditional Sale," was executed between petitioner and private respondent. The simply-drawn contract read:

DEED OF CONDITIONAL SALE

KNOW ALL MEN BY THESE PRESENTS:

This Contract, made and executed in the Municipality of Makati, Philippines this 9th day of June, 1988 by
and between:

ENRIQUETA CHUA VDA. DE ONGSIONG, of legal age, widow, Filipino and residing
at 105 Simoun St., Quezon City, Metro Manila, hereinafter referred to as the
VENDOR;

-and-

VIRGILIO R. ROMERO, married to Severina L. Lat, of Legal age, Filipino, and

residing at 110 San Miguel St., Plainview Subd., Mandaluyong Metro Manila,
hereinafter referred to as the VENDEE:

W I T N E S S E T H : That

WHEREAS, the VENDOR is the owner of One (1) parcel of land with a total area of ONE THOUSAND
NINE HUNDRED FIFTY TWO (1,952) SQUARE METERS, more or less, located in Barrio San Dionisio,
Municipality of Parañaque, Province of Rizal, covered by TCT No. 361402 issued by the Registry of
Deeds of Pasig and more particularly described as follows:

xxx xxx xxx

WHEREAS, the VENDEE, for (sic) has offered to buy a parcel of land and the VENDOR has accepted
the offer, subject to the terms and conditions hereinafter stipulated:

NOW, THEREFORE, for and in consideration of the sum of ONE MILLION FIVE HUNDRED SIXTY ONE
THOUSAND SIX HUNDRED PESOS (P1,561,600.00) ONLY, Philippine Currency, payable by VENDEE
to in to (sic) manner set forth, the VENDOR agrees to sell to the VENDEE, their heirs, successors,
administrators, executors, assign, all her rights, titles and interest in and to the property mentioned in the
FIRST WHEREAS CLAUSE, subject to the following terms and conditions:

1. That the sum of FIFTY THOUSAND PESOS (P50,000.00) ONLY Philippine

Currency, is to be paid upon signing and execution of this instrument.
 2. The balance of the purchase price in the amount of ONE MILLION FIVE
HUNDRED ELEVEN THOUSAND SIX HUNDRED PESOS (P1,511,600.00) ONLY
shall be paid 45 days after the removal of all squatters from the above described
property.

3. Upon full payment of the overall purchase price as aforesaid, VENDOR without
necessity of demand shall immediately sign, execute, acknowledged (sic) and deliver
the corresponding deed of absolute sale in favor of the VENDEE free from all liens
and encumbrances and all Real Estate taxes are all paid and updated.

It is hereby agreed, covenanted and stipulated by and between the parties hereto that if after 60 days
from the date of the signing of this contract the VENDOR shall not be able to remove the squatters from
the property being purchased, the downpayment made by the buyer shall be returned/reimbursed by the
VENDOR to the VENDEE.

That in the event that the VENDEE shall not be able to pay the VENDOR the balance of the purchase
price of ONE MILLION FIVE HUNDRED ELEVEN THOUSAND SIX HUNDRED PESOS (P1,511,600.00)
ONLY after 45 days from written notification to the VENDEE of the removal of the squatters from the
property being purchased, the FIFTY THOUSAND PESOS (P50,000.00) previously paid as
downpayment shall be forfeited in favor of the VENDOR.

Expenses for the registration such as registration fees, documentary stamp, transfer fee, assurances and
such other fees and expenses as may be necessary to transfer the title to the name of the VENDEE shall
be for the account of the VENDEE while capital gains tax shall be paid by the VENDOR.

IN WITNESS WHEREOF, the parties hereunto signed those (sic) presents in the City of Makati MM,
Philippines on this 9th day of June, 1988.

(Sgd.) (Sgd.)

VIRGILIO R. ROMERO ENRIQUETA CHUA VDA.

DE ONGSIONG

Vendee Vendor

SIGNED IN THE PRESENCE OF:

(Sgd.) (Sgd.)

Rowena C. Ongsiong Jack M. Cruz 1

Alfonso Flores, in behalf of private respondent, forthwith received and acknowledged a check for P50,000.00 2 from
petitioner. 3

Pursuant to the agreement, private respondent filed a complaint for ejectment (Civil Case No. 7579) against Melchor Musa
and 29 other squatter families with the Metropolitan Trial Court of Parañaque. A few months later, or on 21 February 1989,
judgment was rendered ordering the defendants to vacate the premises. The decision was handed down beyond the 60-day
period (expiring 09 August 1988) stipulated in the contract. The writ of execution of the judgment was issued, still later, on
30 March 1989.

In a letter, dated 07 April 1989, private respondent sought to return the P50,000.00 she received from petitioner since, she
said, she could not "get rid of the squatters" on the lot. Atty. Sergio A.F. Apostol, counsel for petitioner, in his reply of 17 April
1989, refused the tender and stated:.

Our client believes that with the exercise of reasonable diligence considering the favorable decision
rendered by the Court and the writ of execution issued pursuant thereto, it is now possible to eject the
squatters from the premises of the subject property, for which reason, he proposes that he shall take it
 upon himself to eject the squatters, provided, that expenses which shall be incurred by reason thereof
shall be chargeable to the purchase price of the land. 4

Meanwhile, the Presidential Commission for the Urban Poor ("PCUD"), through its Regional Director for Luzon, Farley O.
Viloria, asked the Metropolitan Trial Court of Parañaque for a grace period of 45 days from 21 April 1989 within which to
relocate and transfer the squatter families. Acting favorably on the request, the court suspended the enforcement of the writ
of execution accordingly.

On 08 June 1989, Atty. Apostol reminded private respondent on the expiry of the 45-day grace period and his client's
willingness to "underwrite the expenses for the execution of the judgment and ejectment of the occupants." 5

In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for private respondent, advised Atty. Apostol that the Deed
of Conditional Sale had been rendered null and void by virtue of his client's failure to evict the squatters from the premises
within the agreed 60-day period. He added that private respondent had "decided to retain the property." 6

On 23 June 1989, Atty. Apostol wrote back to explain:

The contract of sale between the parties was perfected from the very moment that there was a meeting
of the minds of the parties upon the subject lot and the price in the amount of P1,561,600.00. Moreover,
the contract had already been partially fulfilled and executed upon receipt of the downpayment of your
client. Ms. Ongsiong is precluded from rejecting its binding effects relying upon her inability to eject the
squatters from the premises of subject property during the agreed period. Suffice it to state that, the
provision of the Deed of Conditional Sale do not grant her the option or prerogative to rescind the
contract and to retain the property should she fail to comply with the obligation she has assumed under
the contract. In fact, a perusal of the terms and conditions of the contract clearly shows that the right to
rescind the contract and to demand the return/reimbursement of the downpayment is granted to our client
for his protection.

Instead, however, of availing himself of the power to rescind the contract and demand the return,
reimbursement of the downpayment, our client had opted to take it upon himself to eject the squatters
from the premises. Precisely, we refer you to our letters addressed to your client dated April 17, 1989 and
June 8, 1989.

Moreover, it is basic under the law on contracts that the power to rescind is given to the injured party.
Undoubtedly, under the circumstances, our client is the injured party.

Furthermore, your client has not complied with her obligation under their contract in good faith. It is
undeniable that Ms. Ongsiong deliberately refused to exert efforts to eject the squatters from the
premises of the subject property and her decision to retain the property was brought about by the sudden
increase in the value of realties in the surrounding areas.

Please consider this letter as a tender of payment to your client and a demand to execute the absolute
Deed of Sale. 7

A few days later (or on 27 June 1989), private respondent, prompted by petitioner's continued refusal to accept the return of
the P50,000.00 advance payment, filed with the Regional Trial Court of Makati, Branch 133, Civil Case No. 89-4394 for
rescission of the deed of "conditional" sale, plus damages, and for the consignation of P50,000.00 cash.

Meanwhile, on 25 August 1989, the Metropolitan Trial Court issued an alias writ of execution in Civil Case No. 7579 on
motion of private respondent but the squatters apparently still stayed on.

Back to Civil Case No. 89-4394, on 26 June 1990, the Regional Trial Court of Makati 8 rendered decision holding that private
respondent had no right to rescind the contract since it was she who "violated her obligation to eject the squatters from the
subject property" and that petitioner, being the injured party, was the party who could, under Article 1191 of the Civil Code,
rescind the agreement. The court ruled that the provisions in the contract relating to (a) the return/reimbursement of the
P50,000.00 if the vendor were to fail in her obligation to free the property from squatters within the stipulated period or (b),
upon the other hand, the sum's forfeiture by the vendor if the vendee were to fail in paying the agreed purchase price,
amounted to "penalty clauses". The court added:
 This Court is not convinced of the ground relied upon by the plaintiff in seeking the rescission, namely:
(1) he (sic) is afraid of the squatters; and (2) she has spent so much to eject them from the premises (p.
6, tsn, ses. Jan. 3, 1990). Militating against her profession of good faith is plaintiffs conduct which is not
in accord with the rules of fair play and justice. Notably, she caused the issuance of an alias writ of
execution on August 25, 1989 (Exh. 6) in the ejectment suit which was almost two months after she filed
the complaint before this Court on June 27, 1989. If she were really afraid of the squatters, then she
should not have pursued the issuance of an alias writ of execution. Besides, she did not even report to
the police the alleged phone threats from the squatters. To the mind of the Court, the so-called squatter
factor is simply factuitous (sic). 9

The lower court, accordingly, dismissed the complaint and ordered, instead, private respondent to eject or cause
the ejectment of the squatters from the property and to execute the absolute deed of conveyance upon payment of
the full purchase price by petitioner.

Private respondent appealed to the Court of Appeals. On 29 May 1992, the appellate court rendered its decision. 10 It opined
that the contract entered into by the parties was subject to a resolutory condition, i.e., the ejectment of the squatters from the
land, the non-occurrence of which resulted in the failure of the object of the contract; that private respondent substantially
complied with her obligation to evict the squatters; that it was petitioner who was not ready to pay the purchase price and
fulfill his part of the contract, and that the provision requiring a mandatory return/reimbursement of the P50,000.00 in case
private respondent would fail to eject the squatters within the 60-day period was not a penal clause. Thus, it concluded.

WHEREFORE, the decision appealed from is REVERSED and SET ASIDE, and a new one entered
declaring the contract of conditional sale dated June 9, 1988 cancelled and ordering the defendant-
appellee to accept the return of the downpayment in the amount of P50,000.00 which was deposited in
the court below. No pronouncement as to costs. 11

Failing to obtain a reconsideration, petitioner filed this petition for review on certiorari raising issues that, in fine, center on
the nature of the contract adverted to and the P50,000.00 remittance made by petitioner.

A perfected contract of sale may either be absolute or conditional 12 depending on whether the agreement is devoid of, or
subject to, any condition imposed on the passing of title of the thing to be conveyed or on the obligation of a party thereto.
When ownership is retained until the fulfillment of a positive condition the breach of the condition will simply prevent the duty
to convey title from acquiring an obligatory force. If the condition is imposed on an obligation of a party which is not complied
with, the other party may either refuse to proceed or waive said condition (Art. 1545, Civil Code). Where, of course, the
condition is imposed upon the perfection of the contract itself, the failure of such condition would prevent the juridical relation
itself from coming into existence. 13

In determining the real character of the contract, the title given to it by the parties is not as much significant as its substance.
For example, a deed of sale, although denominated as a deed of conditional sale, may be treated as absolute in nature, if
title to the property sold is not reserved in the vendor or if the vendor is not granted the right to unilaterally rescind the
contract predicated
on the fulfillment or non-fulfillment, as the case may be, of the prescribed condition. 14

The term "condition" in the context of a perfected contract of sale pertains, in reality, to the compliance by one party of an
undertaking the fulfillment of which would beckon, in turn, the demandability of the reciprocal prestation of the other party.
The reciprocal obligations referred to would normally be, in the case of vendee, the payment of the agreed purchase price
and, in the case of the vendor, the fulfillment of certain express warranties (which, in the case at bench is the timely eviction
of the squatters on the property).

It would be futile to challenge the agreement here in question as not being a duly perfected contract. A sale is at once
perfected when a person (the seller) obligates himself, for a price certain, to deliver and to transfer ownership of a specified
thing or right to another (the buyer) over which the latter agrees. 15

The object of the sale, in the case before us, was specifically identified to be a 1,952-square meter lot in San Dionisio,
Parañaque, Rizal, covered by Transfer Certificate of Title No. 361402 of the Registry of Deeds for Pasig and therein
technically described. The purchase price was fixed at P1,561,600.00, of which P50,000.00 was to be paid upon the
execution of the document of sale and the balance of P1,511,600.00 payable "45 days after the removal of all squatters from
the above described property."

From the moment the contract is perfected, the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and
law. Under the agreement, private respondent is obligated to evict the squatters on the property. The ejectment of the
squatters is a condition the operative act of which sets into motion the period of compliance by petitioner of his own
obligation, i.e., to pay the balance of the purchase price. Private respondent's failure "to remove the squatters from the
property" within the stipulated period gives petitioner the right to either refuse to proceed with the agreement or waive that
condition in consonance with Article 1545 of the Civil Code. 16 This option clearly belongs to petitioner and not to private
respondent.

We share the opinion of the appellate court that the undertaking required of private respondent does not constitute a
"potestative condition dependent solely on his will" that might, otherwise, be void in accordance with Article 1182 of the Civil
Code 17 but a "mixed" condition "dependent not on the will of the vendor alone but also of third persons like the squatters and
government agencies and personnel concerned." 18 We must hasten to add, however, that where the so-called "potestative
condition" is imposed not on the birth of the obligation but on its fulfillment, only the obligation is avoided, leaving unaffected
the obligation itself. 19

In contracts of sale particularly, Article 1545 of the Civil Code, aforementioned, allows the obligee to choose between
proceeding with the agreement or waiving the performance of the condition. It is this provision which is the pertinent rule in
the case at bench. Here, evidently, petitioner has waived the performance of the condition imposed on private respondent to
free the property from squatters. 20

In any case, private respondent's action for rescission is not warranted. She is not the injured party. 21 The right of resolution
of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party that
violates the reciprocity between them. 22 It is private respondent who has failed in her obligation under the contract. Petitioner
did not breach the agreement. He has agreed, in fact, to shoulder the expenses of the execution of the judgment in the
ejectment case and to make arrangements with the sheriff to effect such execution. In his letter of 23 June 1989, counsel for
petitioner has tendered payment and demanded forthwith the execution of the deed of absolute sale. Parenthetically, this
offer to pay, having been made prior to the demand for rescission, assuming for the sake of argument that such a demand is
proper under Article 1592 23 of the Civil Code, would likewise suffice to defeat private respondent's prerogative to rescind
thereunder.

There is no need to still belabor the question of whether the P50,000.00 advance payment is reimbursable to petitioner or
forfeitable by private respondent, since, on the basis of our foregoing conclusions, the matter has ceased to be an issue.
Suffice it to say that petitioner having opted to proceed with the sale, neither may petitioner demand its reimbursement from
private respondent nor may private respondent subject it to forfeiture.

WHEREFORE, the questioned decision of the Court of Appeals is hereby REVERSED AND SET ASIDE, and another is
entered ordering petitioner to pay private respondent the balance of the purchase price and the latter to execute the deed of
absolute sale in favor of petitioner. No costs.

SO ORDERED.

Feliciano, Romero, Melo and Panganiban, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 112212 March 2, 1998

GREGORIO FULE, petitioner,

vs.
COURT OF APPEALS, NINEVETCH CRUZ and JUAN BELARMINO, respondents.

ROMERO, J.:
This petition for review on certiorari questions the affirmance by the Court of Appeals of the decision 1 of the Regional Trial
Court of San Pablo City, Branch 30, dismissing the complaint that prayed for the nullification of a contract of sale of a 10-
hectare property in Tanay, Rizal in consideration of the amount of P40,000.00 and a 2.5 carat emerald-cut diamond (Civil
Case No. SP-2455). The lower court's decision disposed of the case as follows:

WHEREFORE, premises considered, the Court hereby renders judgment dismissing the complaint for
lack of merit and ordering plaintiff to pay:

1. Defendant Dra. Ninevetch M. Cruz the sum of P300,000.00 as and for moral damages and the sum of
P100,000.00 as and for exemplary damages;

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

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

4. The costs of suit.

SO ORDERED.

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

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

In July 1984, petitioner, as corporate secretary of the bank, asked Remelia Dichoso and Oliva Mendoza to look for a buyer
who might be interested in the Tanay property. The two found one in the person of herein private respondent Dr. Ninevetch
Cruz. It so happened that at the time, petitioner had shown interest in buying a pair of emerald-cut diamond earrings owned
by Dr. Cruz which he had seen in January of the same year when his mother examined and appraised them as genuine. Dr.
Cruz, however, declined petitioner's offer to buy the jewelry for P100,000.00. Petitioner then made another bid to buy them
for US$6,000.00 at the exchange rate of $1.00 to P25.00. At this point, petitioner inspected said jewelry at the lobby of the
Prudential Bank branch in San Pablo City and then made a sketch thereof. Having sketched the jewelry for twenty to thirty
minutes, petitioner gave them back to Dr. Cruz who again refused to sell them since the exchange rate of the peso at the
time appreciated to P19.00 to a dollar.

Subsequently, however, negotiations for the barter of the jewelry and the Tanay property ensued. Dr. Cruz requested herein
private respondent Atty. Juan Belarmino to check the property who, in turn, found out that no sale or barter was feasible
because the one-year period for redemption of the said property had not yet expired at the time.

In an effort to cut through any legal impediment, petitioner executed on October 19, 1984, a deed of redemption on behalf of
Fr. Jacobe purportedly in the amount of P15,987.78, and on even date, Fr. Jacobe sold the property to petitioner for
P75,000.00. The haste with which the two deeds were executed is shown by the fact that the deed of sale was notarized
ahead of the deed of redemption. As Dr. Cruz had already agreed to the proposed barter, petitioner went to Prudential Bank
once again to take a look at the jewelry.

In the afternoon of October 23, 1984, petitioner met Atty. Belarmino at the latter's residence to prepare the documents of
sale. 2 Dr. Cruz herself was not around but Atty. Belarmino was aware that she and petitioner had previously agreed to
exchange a pair of emerald-cut diamond earrings for the Tanay property. Atty. Belarmino accordingly caused the
preparation of a deed of absolute sale while petitioner and Dr. Cruz attended to the safekeeping of the jewelry.

The following day, petitioner, together with Dichoso and Mendoza, arrived at the residence of Atty. Belarmino to finally
execute a deed of absolute sale. Petitioner signed the deed and gave Atty. Belarmino the amount of P13,700.00 for
necessary expenses in the transfer of title over the Tanay property. Petitioner also issued a certification to the effect that the
actual consideration of the sale was P200,000.00 and not P80,000.00 as indicated in the deed of absolute sale. The
disparity between the actual contract price and the one indicated on the deed of absolute sale was purportedly aimed at
minimizing the amount of the capital gains tax that petitioner would have to shoulder. Since the jewelry was appraised only
at P160,000.00, the parties agreed that the balance of P40,000.00 would just be paid later in cash.

As pre-arranged, petitioner left Atty. Belarmino's residence with Dichoso and Mendoza and headed for the bank, arriving
there at past 5:00 p.m. Dr. Cruz also arrived shortly thereafter, but the cashier who kept the other key to the deposit box had
already left the bank. Dr. Cruz and Dichoso, therefore, looked for said cashier and found him having a haircut. As soon as
his haircut was finished, the cashier returned to the bank and arrived there at 5:48 p.m., ahead of Dr. Cruz and Dichoso who
arrived at 5:55 p.m. Dr. Cruz and the cashier then opened the safety deposit box, the former retrieving a transparent plastic
or cellophane bag with the jewelry inside and handing over the same to petitioner. The latter took the jewelry from the bag,
went near the electric light at the bank's lobby, held the jewelry against the light and examined it for ten to fifteen minutes.
After a while, Dr. Cruz asked, "Okay na ba iyan?" Petitioner expressed his satisfaction by nodding his head.

For services rendered, petitioner paid the agents, Dichoso and Mendoza, the amount of US$300.00 and some pieces of
jewelry. He did not, however, give them half of the pair of earrings in question which he had earlier promised.

Later, at about 8:00 o'clock in the evening of the same day, petitioner arrived at the residence of Atty. Belarmino complaining
that the jewelry given to him was fake. He then used a tester to prove the alleged fakery. Meanwhile, at 8:30 p.m., Dichoso
and Mendoza went to the residence of Dr. Cruz to borrow her car so that, with Atty. Belarmino, they could register the Tanay
property. After Dr. Cruz had agreed to lend her car, Dichoso called up Atty. Belarmino. The latter, however, instructed
Dichoso to proceed immediately to his residence because petitioner was there. Believing that petitioner had finally agreed to
give them half of the pair of earrings, Dichoso went posthaste to the residence of Atty. Belarmino only to find petitioner
already demonstrating with a tester that the earrings were fake. Petitioner then accused Dichoso and Mendoza of deceiving
him which they, however, denied. They countered that petitioner could not have been fooled because he had vast
experience regarding jewelry. Petitioner nonetheless took back the US$300.00 and jewelry he had given them.

Thereafter, the group decided to go to the house of a certain Macario Dimayuga, a jeweler, to have the earrings tested.
Dimayuga, after taking one look at the earrings, immediately declared them counterfeit. At around 9:30 p.m., petitioner went
to one Atty. Reynaldo Alcantara residing at Lakeside Subdivision in San Pablo City, complaining about the fake jewelry.
Upon being advised by the latter, petitioner reported the matter to the police station where Dichoso and Mendoza likewise
executed sworn statements.

On October 26, 1984, petitioner filed a complaint before the Regional Trial Court of San Pablo City against private
respondents praying, among other things, that the contract of sale over the Tanay property be declared null and void on the
ground of fraud and deceit.

On October 30, 1984, the lower court issued a temporary restraining order directing the Register of Deeds of Rizal to refrain
from acting on the pertinent documents involved in the transaction. On November 20, 1984, however, the same court lifted
its previous order and denied the prayer for a writ of preliminary injunction.

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

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

The lower court further ruled that all the elements of a valid contract under Article 1458 of the Civil Code were present,
namely: (a) consent or meeting of the minds; (b) determinate subject matter, and (c) price certain in money or its equivalent.
The same elements, according to the lower court, were present despite the fact that the agreement between petitioner and
Dr. Cruz was principally a barter contract. The lower court explained thus:
 . . . . Plaintiff's ownership over the Tanay property passed unto Dra. Cruz upon the constructive delivery
thereof by virtue of the Deed of Absolute Sale (Exh. D). On the other hand, the ownership of Dra. Cruz
over the subject jewelries (sic) transferred to the plaintiff upon her actual personal delivery to him at the
lobby of the Prudential Bank. It is expressly provided by law that the thing sold shall be understood as
delivered, when it is placed in the control and possession of the vendee (Art. 1497, Civil Code; Kuenzle &
Straff vs. Watson & Co. 13 Phil. 26). The ownership and/or title over the jewelries (sic) was transmitted
immediately before 6:00 p.m. of October 24, 1984. Plaintiff signified his approval by nodding his head.
Delivery or tradition, is one of the modes of acquiring ownership (Art. 712, Civil Code).

Similarly, when Exhibit D was executed, it was equivalent to the delivery of the Tanay property in favor of
Dra. Cruz. The execution of the public instrument (Exh. D) operates as a formal or symbolic delivery of
the Tanay property and authorizes the buyer, Dra. Cruz to use the document as proof of ownership
(Florendo v. Foz, 20 Phil. 399). More so, since Exhibit D does not contain any proviso or stipulation to the
effect that title to the property is reserved with the vendor until full payment of the purchase price, nor is
there a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee
fails to pay within a fixed period (Taguba v. Vda. De Leon, 132 SCRA 722; Luzon Brokerage Co. Inc. vs.
Maritime Building Co. Inc. 86 SCRA 305; Froilan v. Pan Oriental Shipping Co. et al. 12 SCRA 276). 4

Aside from concluding that the contract of barter or sale had in fact been consummated when petitioner and Dr. Cruz parted
ways at the bank, the trial court likewise dwelt on the unexplained delay with which petitioner complained about the alleged
fakery. Thus:

. . . . Verily, plaintiff is already estopped to come back after the lapse of considerable length of time to
claim that what he got was fake. He is a Business Management graduate of La Salle University, Class
1978-79, a professional banker as well as a jeweler in his own right. Two hours is more than enough time
to make a switch of a Russian diamond with the real diamond. It must be remembered that in July 1984
plaintiff made a sketch of the subject jewelries (sic) at the Prudential Bank. Plaintiff had a tester at 8:00
p.m. at the residence of Atty. Belarmino. Why then did he not bring it out when he was examining the
subject jewelries (sic) at about 6:00 p.m. in the bank's lobby? Obviously, he had no need for it after being
satisfied of the genuineness of the subject jewelries (sic). When Dra. Cruz and plaintiff left the bank both
of them had fully performed their respective prestations. Once a contract is shown to have been
consummated or fully performed by the parties thereto, its existence and binding effect can no longer be
disputed. It is irrelevant and immaterial to dispute the due execution of a contract if both of them have in
fact performed their obligations thereunder and their respective signatures and those of their witnesses
appear upon the face of the document (Weldon Construction v. CA G.R. No. L-35721, Oct. 12, 1987). 5

Finally, in awarding damages to the defendants, the lower court remarked:

The Court finds that plaintiff acted in wanton bad faith. Exhibit 2-Belarmino purports to show that the
Tanay property is worth P25,000.00. However, also on that same day it was executed, the property's
worth was magnified at P75,000.00 (Exh. 3-Belarmino). How could in less than a day (Oct. 19, 1984) the
value would (sic) triple under normal circumstances? Plaintiff, with the assistance of his agents, was able
to exchange the Tanay property which his bank valued only at P25,000.00 in exchange for a genuine pair
of emerald cut diamond worth P200,000.00 belonging to Dra. Cruz. He also retrieved the US$300.00 and
jewelries (sic) from his agents. But he was not satisfied in being able to get subject jewelries for a song.
He had to file a malicious and unfounded case against Dra. Cruz and Atty. Belarmino who are well
known, respected and held in high esteem in San Pablo City where everybody practically knows
everybody. Plaintiff came to Court with unclean hands dragging the defendants and soiling their clean
and good name in the process. Both of them are near the twilight of their lives after maintaining and
nurturing their good reputation in the community only to be stunned with a court case. Since the filing of
this case on October 26, 1984 up to the present they were living under a pall of doubt. Surely, this
affected not only their earning capacity in their practice of their respective professions, but also they
suffered besmirched reputations. Dra. Cruz runs her own hospital and defendant Belarmino is a well
respected legal practitioner. The length of time this case dragged on during which period their reputation
were (sic) tarnished and their names maligned by the pendency of the case, the Court is of the belief that
some of the damages they prayed for in their answers to the complaint are reasonably proportionate to
the sufferings they underwent (Art. 2219, New Civil Code). Moreover, because of the falsity, malice and
baseless nature of the complaint defendants were compelled to litigate. Hence, the award of attorney's
fees is warranted under the circumstances (Art. 2208, New Civil Code). 6

From the trial court's adverse decision, petitioner elevated the matter to the Court of Appeals. On October 20, 1992, the
Court of Appeals, however, rendered a decision 7 affirming in toto the lower court's decision. His motion for reconsideration
having been denied on October 19, 1993, petitioner now files the instant petition alleging that:
 I. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFF'S COMPLAINT AND IN HOLDING THAT
THE PLAINTIFF ACTUALLY RECEIVED A GENUINE PAIR OF EMERALD CUT DIAMOND
EARRING(S) FROM DEFENDANT CRUZ . . . ;

II. THE TRIAL COURT ERRED IN AWARDING MORAL AND EXEMPLARY DAMAGES AND
ATTORNEY'S FEES IN FAVOR OF DEFENDANTS AND AGAINST THE PLAINTIFF IN THIS CASE; and

III. THE TRIAL, COURT ERRED IN NOT DECLARING THE DEED OF SALE OF THE TANAY
PROPERTY (EXH. "D") AS NULL AND VOID OR IN NOT ANNULLING THE SAME, AND IN FAILING
TO GRANT REASONABLE DAMAGES IN FAVOR OF THE PLAINTIFF. 8

As to the first allegation, the Court observes that petitioner is essentially raising a factual issue as it invites us to examine
and weigh anew the facts regarding the genuineness of the earrings bartered in exchange for the Tanay property. This, of
course, we cannot do without unduly transcending the limits of our review power in petitions of this nature which are
confined merely to pure questions of law. We accord, as a general rule, conclusiveness to a lower court's findings of fact
unless it is shown, inter alia, that: (1) the conclusion is a finding grounded on speculations, surmises or conjectures; (2) the
inference is manifestly mistaken, absurd and impossible; (3) when there is a grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; and (6) when the Court of
Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admission of both
parties. 9 We find nothing, however, that warrants the application of any of these exceptions.

Consequently, this Court upholds the appellate court's findings of fact especially because these concur with those of the trial
court which, upon a thorough scrutiny of the records, are firmly grounded on evidence presented at the trial. 10 To reiterate,
this Court's jurisdiction is only limited to reviewing errors of law in the absence of any showing that the findings complained
of are totally devoid of support in the record or that they are glaringly erroneous as to constitute serious abuse of discretion.
11

Nonetheless, this Court has to closely delve into petitioner's allegation that the lower court's decision of March 7, 1989 is a
"ready-made" one because it was handed down a day after the last date of the trial of the case. 12 Petitioner, in this regard,
finds it incredible that Judge J. Ausberto Jaramillo was able to write a 12-page single-spaced decision, type it and release it
on March 7, 1989, less than a day after the last hearing on March 6, 1989. He stressed that Judge Jaramillo replaced Judge
Salvador de Guzman and heard only his rebuttal testimony.

This allegation is obviously no more than a desperate effort on the part of petitioner to disparage the lower court's findings of
fact in order to convince this Court to review the same. It is noteworthy that Atty. Belarmino clarified that Judge Jaramillo had
issued the first order in the case as early as March 9, 1987 or two years before the rendition of the decision. In fact, Atty.
Belarmino terminated presentation of evidence on October 13, 1987, while Dr. Cruz finished hers on February 4, 1989, or
more than a month prior to the rendition of the judgment. The March 6, 1989 hearing was conducted solely for the
presentation of petitioner's rebuttal testimony. 13 In other words, Judge Jaramillo had ample time to study the case and write
the decision because the rebuttal evidence would only serve to confirm or verify the facts already presented by the parties.

The Court finds nothing anomalous in the said situation. No proof has been adduced that Judge Jaramillo was motivated by
a malicious or sinister intent in disposing of the case with dispatch. Neither is there proof that someone else wrote the
decision for him. The immediate rendition of the decision was no more than Judge Jaramillo's compliance with his duty as a
judge to "dispose of the court's business promptly and decide cases within the required periods." 14 The two-year period
within which Judge Jaramillo handled the case provided him with all the time to study it and even write down its facts as
soon as these were presented to court. In fact, this Court does not see anything wrong in the practice of writing a decision
days before the scheduled promulgation of judgment and leaving the dispositive portion for typing at a time close to the date
of promulgation, provided that no malice or any wrongful conduct attends its adoption. 15 The practice serves the dual
purposes of safeguarding the confidentiality of draft decisions and rendering decisions with promptness. Neither can Judge
Jaramillo be made administratively answerable for the immediate rendition of the decision. The acts of a judge which pertain
to his judicial functions are not subject to disciplinary power unless they are committed with fraud, dishonesty, corruption or
bad faith. 16 Hence, in the absence of sufficient proof to the contrary, Judge Jaramillo is presumed to have performed his job
in accordance with law and should instead be commended for his close attention to duty.

Having disposed of petitioner's first contention, we now come to the core issue of this petition which is whether the Court of
Appeals erred in upholding the validity of the contract of barter or sale under the circumstances of this case.

The Civil Code provides that contracts are perfected by mere consent. From this moment, the parties are bound not only to
the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may
be in keeping with good faith, usage and law. 17 A contract of sale is perfected at the moment there is a meeting of the minds
upon the thing which is the object of the contract and upon the price. 18 Being consensual, a contract of sale has the force of
law between the contracting parties and they are expected to abide in good faith by their respective contractual
commitments. Article 1358 of the Civil Code which requires the embodiment of certain contracts in a public instrument, is
only for convenience, 19 and registration of the instrument only adversely affects third parties. 20 Formal requirements are,
therefore, for the benefit of third parties. Non-compliance therewith does not adversely affect the validity of the contract nor
the contractual rights and obligations of the parties thereunder.

It is evident from the facts of the case that there was a meeting of the minds between petitioner and Dr. Cruz. As such, they
are bound by the contract unless there are reasons or circumstances that warrant its nullification. Hence, the problem that
should be addressed in this case is whether or not under the facts duly established herein, the contract can be voided in
accordance with law so as to compel the parties to restore to each other the things that have been the subject of the
contract with their fruits, and the price with interest. 21

Contracts that are voidable or annullable, even though there may have been no damage to the contracting parties are: (1)
those where one of the parties is incapable of giving consent to a contract; and (2) those where the consent is vitiated by
mistake, violence, intimidation, undue influence or fraud. 22 Accordingly, petitioner now stresses before this Court that he
entered into the contract in the belief that the pair of emerald-cut diamond earrings was genuine. On the pretext that those
pieces of jewelry turned out to be counterfeit, however, petitioner subsequently sought the nullification of said contract on
the ground that it was, in fact, "tainted with fraud" 23 such that his consent was vitiated.

There is fraud when, through the insidious words or machinations of one of the contracting parties, the other is induced to
enter into a contract which, without them, he would not have agreed to. 24 The records, however, are bare of any evidence
manifesting that private respondents employed such insidious words or machinations to entice petitioner into entering the
contract of barter. Neither is there any evidence showing that Dr. Cruz induced petitioner to sell his Tanay property or that
she cajoled him to take the earrings in exchange for said property. On the contrary, Dr. Cruz did not initially accede to
petitioner's proposal to buy the said jewelry. Rather, it appears that it was petitioner, through his agents, who led Dr. Cruz to
believe that the Tanay property was worth exchanging for her jewelry as he represented that its value was P400,000.00 or
more than double that of the jewelry which was valued only at P160,000.00. If indeed petitioner's property was truly worth
that much, it was certainly contrary to the nature of a businessman-banker like him to have parted with his real estate for half
its price. In short, it was in fact petitioner who resorted to machinations to convince Dr. Cruz to exchange her jewelry for the
Tanay property.

Moreover, petitioner did not clearly allege mistake as a ground for nullification of the contract of sale. Even assuming that he
did, petitioner cannot successfully invoke the same. To invalidate a contract, mistake must "refer to the substance of the
thing that is the object of the contract, or to those conditions which have principally moved one or both parties to enter into
the contract." 25 An example of mistake as to the object of the contract is the substitution of a specific thing contemplated by
the parties with another. 26 In his allegations in the complaint, petitioner insinuated that an inferior one or one that had only
Russian diamonds was substituted for the jewelry he wanted to exchange with his 10-hectare land. He, however, failed to
prove the fact that prior to the delivery of the jewelry to him, private respondents endeavored to make such substitution.

Likewise, the facts as proven do not support the allegation that petitioner himself could be excused for the "mistake." On
account of his work as a banker-jeweler, it can be rightfully assumed that he was an expert on matters regarding gems. He
had the intellectual capacity and the business acumen as a banker to take precautionary measures to avert such a mistake,
considering the value of both the jewelry and his land. The fact that he had seen the jewelry before October 24, 1984 should
not have precluded him from having its genuineness tested in the presence of Dr. Cruz. Had he done so, he could have
avoided the present situation that he himself brought about. Indeed, the finger of suspicion of switching the genuine jewelry
for a fake inevitably points to him. Such a mistake caused by manifest negligence cannot invalidate a juridical act. 27 As the
Civil Code provides, "(t)here is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of
the contract." 28

Furthermore, petitioner was afforded the reasonable opportunity required in Article 1584 of the Civil Code within which to
examine the jewelry as he in fact accepted them when asked by Dr. Cruz if he was satisfied with the same. 29 By taking the
jewelry outside the bank, petitioner executed an act which was more consistent with his exercise of ownership over it. This
gains credence when it is borne in mind that he himself had earlier delivered the Tanay property to Dr. Cruz by affixing his
signature to the contract of sale. That after two hours he later claimed that the jewelry was not the one he intended in
exchange for his Tanay property, could not sever the juridical tie that now bound him and Dr. Cruz. The nature and value of
the thing he had taken preclude its return after that supervening period within which anything could have happened, not
excluding the alteration of the jewelry or its being switched with an inferior kind.

Both the trial and appellate courts, therefore, correctly ruled that there were no legal bases for the nullification of the contract
of sale. Ownership over the parcel of land and the pair of emerald-cut diamond earrings had been transferred to Dr. Cruz
and petitioner, respectively, upon the actual and constructive delivery thereof. 30 Said contract of sale being absolute in
nature, title passed to the vendee upon delivery of the thing sold since there was no stipulation in the contract that title to the
property sold has been reserved in the seller until full payment of the price or that the vendor has the right to unilaterally
resolve the contract the moment the buyer fails to pay within a fixed period. 31 Such stipulations are not manifest in the
contract of sale.

While it is true that the amount of P40,000.00 forming part of the consideration was still payable to petitioner, its nonpayment
by Dr. Cruz is not a sufficient cause to invalidate the contract or bar the transfer of ownership and possession of the things
exchanged considering the fact that their contract is silent as to when it becomes due and demandable. 32

Neither may such failure to pay the balance of the purchase price result in the payment of interest thereon. Article 1589 of
the Civil Code prescribes the payment of interest by the vendee "for the period between the delivery of the thing and the
payment of the price" in the following cases:

(1) Should it have been so stipulated;

(2) Should the thing sold and delivered produce fruits or income;

(3) Should he be in default, from the time of judicial or extrajudicial demand for the payment of the price.

Not one of these cases obtains here. This case should, of course, be distinguished from De la Cruz v. Legaspi, 33
where the court held that failure to pay the consideration after the notarization of the contract as previously
promised resulted in the vendee's liability for payment of interest. In the case at bar, there is no stipulation for the
payment of interest in the contract of sale nor proof that the Tanay property produced fruits or income. Neither did
petitioner demand payment of the price as in fact he filed an action to nullify the contract of sale.

All told, petitioner appears to have elevated this case to this Court for the principal reason of mitigating the amount of
damages awarded to both private respondents which petitioner considers as "exorbitant." He contends that private
respondents do not deserve at all the award of damages. In fact, he pleads for the total deletion of the award as regards
private respondent Belarmino whom he considers a mere "nominal party" because "no specific claim for damages against
him" was alleged in the complaint. When he filed the case, all that petitioner wanted was that Atty. Belarmino should return
to him the owner's duplicate copy of TCT No. 320725, the deed of sale executed by Fr. Antonio Jacobe, the deed of
redemption and the check alloted for expenses. Petitioner alleges further that Atty. Belarmino should not have delivered all
those documents to Dr. Cruz because as the "lawyer for both the seller and the buyer in the sale contract, he should have
protected the rights of both parties." Moreover, petitioner asserts that there was no firm basis for damages except for Atty.
Belarmino's uncorroborated testimony. 34

Moral and exemplary damages may be awarded without proof of pecuniary loss. In awarding such damages, the court shall
take into account the circumstances obtaining in the case said assess damages according to its discretion. 35 To warrant the
award of damages, it must be shown that the person to whom these are awarded has sustained injury. He must likewise
establish sufficient data upon which the court can properly base its estimate of the amount of damages. 36 Statements of
facts should establish such data rather than mere conclusions or opinions of witnesses. 37 Thus:

. . . . For moral damages to be awarded, it is essential that the claimant must have satisfactorily proved
during the trial the existence of the factual basis of the damages and its causal connection with the
adverse party's acts. If the court has no proof or evidence upon which the claim for moral damages could
be based, such indemnity could not be outrightly awarded. The same holds true with respect to the award
of exemplary damages where it must be shown that the party acted in a wanton, oppressive or
malevolent manner. 38

In this regard, the lower court appeared to have awarded damages on a ground analogous to malicious prosecution under
Article 2219 (8) of the Civil Code 39 as shown by (1) petitioner's "wanton bad faith" in bloating the value of the Tanay property
which he exchanged for "a genuine pair of emerald-cut diamond worth P200,00.00;" and (2) his filing of a "malicious and
unfounded case" against private respondents who were "well known, respected and held in high esteem in San Pablo City
where everybody practically knows everybody" and whose good names in the "twilight of their lives" were soiled by
petitioner's coming to court with "unclean hands," thereby affecting their earning capacity in the exercise of their respective
professions and besmirching their reputation.

For its part, the Court of Appeals affirmed the award of damages to private respondents for these reasons:

The malice with which Fule filed this case is apparent. Having taken possession of the genuine jewelry of
Dra. Cruz, Fule now wishes to return a fake jewelry to Dra. Cruz and, more than that, get back the real
property, which his bank owns. Fule has obtained a genuine jewelry which he could sell anytime,
 anywhere and to anybody, without the same being traced to the original owner for practically nothing.
This is plain and simple, unjust enrichment. 40

While, as a rule, moral damages cannot be recovered from a person who has filed a complaint against another in good faith
because it is not sound policy to place a penalty on the right to litigate, 41 the same, however, cannot apply in the case at bar.
The factual findings of the courts a quo to the effect that petitioner filed this case because he was the victim of fraud; that he
could not have been such a victim because he should have examined the jewelry in question before accepting delivery
thereof, considering his exposure to the banking and jewelry businesses; and that he filed the action for the nullification of
the contract of sale with unclean hands, all deserve full faith and credit to support the conclusion that petitioner was
motivated more by ill will than a sincere attempt to protect his rights in commencing suit against respondents.

As pointed out earlier, a closer scrutiny of the chain of events immediately prior to and on October 24, 1984 itself would
amply demonstrate that petitioner was not simply negligent in failing to exercise due diligence to assure himself that what he
was taking in exchange for his property were genuine diamonds. He had rather placed himself in a situation from which it
preponderantly appears that his seeming ignorance was actually just a ruse. Indeed, he had unnecessarily dragged
respondents to face the travails of litigation in speculating at the possible favorable outcome of his complaint when he
should have realized that his supposed predicament was his own making. We, therefore, see here no semblance of an
honest and sincere belief on his part that he was swindled by respondents which would entitle him to redress in court. It
must be noted that before petitioner was able to convince Dr. Cruz to exchange her jewelry for the Tanay property, petitioner
took pains to thoroughly examine said jewelry, even going to the extent of sketching their appearance. Why at the precise
moment when he was about to take physical possession thereof he failed to exert extra efforts to check their genuineness
despite the large consideration involved has never been explained at all by petitioner. His acts thus failed to accord with
what an ordinary prudent man would have done in the same situation. Being an experienced banker and a businessman
himself who deliberately skirted a legal impediment in the sale of the Tanay property and to minimize the capital gains tax for
its exchange, it was actually gross recklessness for him to have merely conducted a cursory examination of the jewelry
when every opportunity for doing so was not denied him. Apparently, he carried on his person a tester which he later used to
prove the alleged fakery but which he did not use at the time when it was most needed. Furthermore, it took him two more
hours of unexplained delay before he complained that the jewelry he received were counterfeit. Hence, we stated earlier that
anything could have happened during all the time that petitioner was in complete possession and control of the jewelry,
including the possibility of substituting them with fake ones, against which respondents would have a great deal of difficulty
defending themselves. The truth is that petitioner even failed to successfully prove during trial that the jewelry he received
from Dr. Cruz were not genuine. Add to that the fact that he had been shrewd enough to bloat the Tanay property's price
only a few days after he purchased it at a much lower value. Thus, it is our considered view that if this slew of circumstances
were connected, like pieces of fabric sewn into a quilt, they would sufficiently demonstrate that his acts were not merely
negligent but rather studied and deliberate.

We do not have here, therefore, a situation where petitioner's complaint was simply found later to be based on an erroneous
ground which, under settled jurisprudence, would not have been a reason for awarding moral and exemplary damages. 42
Instead, the cause of action of the instant case appears to have been contrived by petitioner himself. In other words, he was
placed in a situation where he could not honestly evaluate whether his cause of action has a semblance of merit, such that it
would require the expertise of the courts to put it to a test. His insistent pursuit of such case then coupled with circumstances
showing that he himself was guilty in bringing about the supposed wrongdoing on which he anchored his cause of action
would render him answerable for all damages the defendant may suffer because of it. This is precisely what took place in
the petition at bar and we find no cogent reason to disturb the findings of the courts below that respondents in this case
suffered considerable damages due to petitioner's unwarranted action.

WHEREFORE, the decision of the Court of Appeals dated October 20, 1992 is hereby AFFIRMED in toto. Dr. Cruz,
however, is ordered to pay petitioner the balance of the purchase price of P40,000.00 within ten (10) days from the finality of
this decision. Costs against petitioner.

SO ORDERED.

Narvasa, C.J., Kapunan and Purisima, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION
G.R. No. 97347 July 6, 1999

JAIME G. ONG, petitioner,

vs.
THE HONORABLE COURT OF APPEALS, SPOUSES MIGUEL K. ROBLES and ALEJANDRO M. ROBLES,
respondents.

YNARES-SANTIAGO, J.:

Before us is a petition for review on certiorari from the judgment rendered by the Court of Appeals which, except as to the
award of exemplary damages, affirmed the decision of the Regional Trial Court of Lucena City, Branch 60, setting aside the
"Agreement of Purchase and Sale" entered into by herein petitioner and private respondent spouses in Civil Case No. 85-
85.1âwphi1.nêt

On May 10, 1983, petitioner Jaime Ong, on the one hand, and respondent spouses Miguel K. Robles and Alejandra Robles,
on the other hand, executed an "Agreement of Purchase and Sale" respecting two parcels of land situated at Barrio Puri,
San Antonio, Quezon. The terms and conditions of the contract read:"

1. That for and in consideration of the agreed purchase price of TWO MILLION PESOS (P2,000,000.00),
Philippine currency, the mode and manner of payment is as follows:

A. The initial payment of SIX HUNDRED THOUSAND PESOS (P600,000.00) as

verbally agreed by the parties, shall be broken down as follows:

1. P103,499.91 shall be paid, and as already paid by the BUYER

to the SELLERS on March 22, 1983, as stipulated under the
Certification of undertaking dated March 22, 1983 and covered by
a check of even date.

2. That the sum of P496,500.09 shall be paid directly by the

BUYER to the Bank of Philippine Islands to answer for the loan of
the SELLERS which as of March 15, 1983 amounted to
P537,310.10, and for the interest that may accrued (sic) from
March 15, 1983, up to the time said obligation of the SELLERS
with the said bank has been settled, provided however that the
amount in excess of P496,500.09, shall be chargeable from the
time deposit of the SELLERS with the aforesaid bank.

B. That the balance of ONE MILLION FOUR HUNDRED THOUSAND

(P1,400,000.00) PESOS shall be paid by the BUYER to the SELLERS in four (4)
equal quarterly installments of THREE HUNDRED FIFTY THOUSAND PESOS
(P350,000.00), the first to be due and payable on June 15, 1983, and every quarter
thereafter, until the whole amount is fully paid, by these presents promise to sell to
said BUYER the two (2) parcels of agricultural land including the rice mill and the
piggery which are the most notable improvements thereon, situated at Barangay Puri,
San Antonio Quezon, . . .

2. That upon the payment of the total purchase price by the BUYER the SELLERS bind themselves to
deliver to the former a good and sufficient deed of sale and conveyance for the described two (2) parcels
of land, free and clear from all liens and encumbrances.

3. That immediately upon the execution of this document, the SELLERS shall deliver, surrender and
transfer possession of the said parcels of land including all the improvements that may be found thereon,
to the BUYER, and the latter shall take over from the SELLER the possession, operation, control and
management of the RICEMILL and PIGGERY found on the aforesaid parcels of land.
 4. That all payments due and payable under this contract shall be effected in the residence of the
SELLERS located at Barangay Puri, San Antonio, Quezon unless another place shall have been
subsequently designated by both parties in writing.

xxx xxx xxx 1

On May 15, 1983, petitioner Ong took possession of the subject parcels of land together with the piggery, building, ricemill,
residential house and other improvements thereon.

Pursuant to the contract they executed, petitioner paid respondent spouses the sum of P103,499.91 2 by depositing it with
the United Coconut Planters Bank. Subsequently, petitioner deposited sums of money with the Bank of Philippine Islands
(BPI), 3 in accordance with their stipulation that petitioner pay the loan of respondents with BPI.

To answer for his balance of P1,400,000.00 petitioner issued four (4) post-dated Metro Bank checks payable to respondent
spouses in the amount of P350,0000.00 each, namely: Check No. 157708 dated June 15, 1983, 4 Check No. 157709 dated
September 15, 1983, 5 Check No. 157710 dated December 15, 1983 6 and Check No. 157711 dated March 15, 1984. 7 When
presented for payment, however, the checks were dishonored due to insufficient funds. Petitioner promised to replace the
checks but failed to do so. To make matters worse, out of the P496,500.00 loan of respondent spouses with the Bank of the
Philippine Islands, which petitioner, as per agreement, should have paid, petitioner only managed to dole out no more than
P393,679.60. When the bank threatened to foreclose the respondent spouses' mortgage, they sold three transformers of the
rice mill worth P51,411.00 to pay off their outstanding obligation with said bank, with the knowledge and conformity of
petitioner. 8 Petitioner, in return, voluntarily gave the spouses authority to operate the rice mill. 9 He, however, continued to
be in possession of the two parcels of land while private respondents were forced to use the rice mill for residential
purposes.

On August 2, 1985, respondent spouses, through counsel, sent petitioner a demand letter asking for the return of the
properties. Their demand was left unheeded, so, on September 2, 1985, they filed with the Regional Trial Court of Lucena
City, Branch 60, a complaint for rescission of contract and recovery of properties with damages. Later, while the case was
still pending with the trial court, petitioner introduced major improvements on the subject properties by constructing a
complete fence made of hollow blocks and expanding the piggery. These prompted the respondent spouses to ask for a writ
of preliminary injunction. 10 The trial court granted the application and enjoined petitioner from introducing improvements on
the properties except for repairs. 11

On June 1, 1989 the trial court rendered a decision, the dispositive portion of which reads as follows:

IN VIEW OF THE FOREGOING, judgment is hereby rendered:

a) Ordering that the contract entered into by plaintiff spouses Miguel K. Robles and Alejandra M. Robles
and the defendant, Jaime Ong captioned "Agreement of Purchase and Sale," marked as Exhibit "A" set
aside;

b) Ordering defendant, Jaime Ong to deliver the two (2) parcels of land which are the subject matter of
Exhibit "A" together with the improvements thereon to the spouses Miguel K. Robles and Alejandro M.
Robles;

c) Ordering plaintiff spouses, Miguel Robles and Alejandra Robles to return to Jaime Ong the sum of
P497,179.51;

d) Ordering defendant Jaime Ong to pay the plaintiffs the sum of P100,000.00 as exemplary damages;
and

e) Ordering defendant Jaime Ong to pay the plaintiffs spouses Miguel K. Robles and Alejandra Robles
the sum of P20,000.00 as attorney's fees and litigation expenses.

The motion of the plaintiff spouses Miguel K. Roles and Alejandra Robles for the appointment of
receivership is rendered moot and academic.

SO ORDERED. 12
From this decision, petitioner appealed to the Court of Appeals, which affirmed the decision of the Regional Trial Court but
deleted the award of exemplary damages. In affirming the decision of the trial court, the Court of Appeals noted that the
failure of petitioner to completely pay the purchase price is a substantial breach of his obligation which entitles the private
respondents to rescind their contract under Article 1191 of the New Civil Code. Hence, the instant petition.

At the outset, it must be stated that the issues raised by the petitioner are generally factual in nature and were already
passed upon by the Court of Appeals and the trial court. Time and again, we have stated that it is not the function of the
Supreme Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties to
an appeal, particularly where, such as in the case at bench, the findings of both the trial court and the appellate court on the
matter coincide. There is no cogent reason shown that would justify the court to discard the factual findings of the two courts
below and to superimpose its own. 13

The only pertinent legal issues raised which are worthy of discussion are (1) whether the contract entered into by the parties
may be validly rescinded under Article 1191 of the New Civil Code; and (2) whether the parties had novated their original
contract as to the time and manner of payment.

Petitioner contends that Article 1191 of the New Civil Code is not applicable since he has already paid respondent spouses
a considerable sum and has therefore substantially complied with his obligation. He cites Article 1383 instead, to the effect
that where specific performance is available as a remedy, rescission may not be resorted to.

A discussion of the aforesaid articles is in order.

Rescission, as contemplated in Articles 1380, et seq., of the New Civil Code, is a remedy granted by law to the contracting
parties and even to third persons, to secure the reparation of damages caused to them by a contract, even if this should be
valid, by restoration of things to their condition at the moment prior to the celebration of the contract. 14 It implies a contract,
which even if initially valid, produces a lesion or a pecuniary damage to someone. 15

On the other hand, Article 1191 of the New Civil Code refers to rescission applicable to reciprocal obligations. Reciprocal
obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such
that the obligation of one is dependent upon the obligation of the other. 16 They are to be performed simultaneously such that
the performance of one is conditioned upon the simultaneous fulfillment of the other. Rescission of reciprocal obligations
under Article 1191 of the New Civil Code should be distinguished from rescission of contracts under Article 1383. Although
both presuppose contracts validly entered into and subsisting and both require mutual restitution when proper, they are not
entirely identical.

While Article 1191 uses the term "rescission," the original term which was used in the old Civil Code, from which the article
was based, was "resolution. 17" Resolution is a principal action which is based on breach of a party, while rescission under
Article 1383 is a subsidiary action limited to cases of rescission for lesion under Article 1381 of the New Civil Code, which
expressly enumerates the following rescissible contracts:

1. Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one fourth of the value of the things which are
the object thereof;

2. Those agreed upon in representation of absentees, if the latter suffer the lesion
stated in the preceding number;

3. Those undertaken in fraud of creditors when the latter cannot in any manner collect
the claims due them;

4. Those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent judicial
authority;

5. All other contracts specially declared by law to be subject to rescission.

Obviously, the contract entered into by the parties in the case at bar does not fall under any of those
mentioned by Article 1381. Consequently, Article 1383 is inapplicable.

May the contract entered into between the parties, however, be rescinded based on Article 1191?
A careful reading of the parties' "Agreement of Purchase and Sale" shows that it is in the nature of a
contract to sell, as distinguished from a contract of sale. In a contract of sale, the title to the property
passes to the vendee upon the delivery of the thing sold; while in a contract to sell, ownership is, by
agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase
price. 18 In a contract to sell, the payment of the purchase price is a positive suspensive condition, the
failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the
vendor to convey title from acquiring an obligatory force. 19

Respondents in the case at bar bound themselves to deliver a deed of absolute sale and clean title
covering the two parcels of land upon full payment by the buyer of the purchase price of P2,000,000.00.
This promise to sell was subject to the fulfillment of the suspensive condition of full payment of the
purchase price by the petitioner. Petitioner, however, failed to complete payment of the purchase price.
The non-fulfillment of the condition of full payment rendered the contract to sell ineffective and without
force and effect. It must be stressed that the breach contemplated in Article 1191 of the New Civil Code
is the obligor's failure to comply with an obligation. 20 Failure to pay, in this instance, is not even a breach
but merely an event which prevents the vendor's obligation to convey title from acquiring binding force. 21
Hence, the agreement of the parties in the case at bench may be set aside, but not because of a breach
on the part of petitioner for failure to complete payment of the purchase price. Rather, his failure to do so
brought about a situation which prevented the obligation of respondent spouses to convey title from
acquiring an obligatory force.

Petitioner insists, however, that the contract was novated as to the manner and time of payment.

We are not persuaded. Article 1292 of the New Civil Code states that, "In order that an obligation may be
extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal
terms, or that the old and the new obligations be on every point incompatible with each other."

Novation is never presumed, it must be proven as a fact either by express stipulation of the parties or by
implication derived from an irreconcilable incompatibility between the old and the new obligation. 22
Petitioner cites the following instances as proof that the contract was novated: the retrieval of the
transformers from petitioner's custody and their sale by the respondents to MERALCO on the condition
that the proceeds thereof be accounted for by the respondents and deducted from the price of the
contract; the take-over by the respondents of the custody and operation of the rice mill; and the
continuous and regular withdrawals by respondent Miguel Robles of installment sums per vouchers
(Exhs. "8" to "47") on the condition that these installments be credited to petitioner's account and
deducted from the balance of the purchase price.

Contrary to petitioner's claim, records show that the parties never even intended to novate their previous
agreement. It is true that petitioner paid respondents small sums of money amounting to P48,680.00, in
contravention of the manner of payment stipulated in their contract. These installments were, however,
objected to by respondent spouses, and petitioner replied that these represented the interest of the
principal amount which he owed them. 23 Records further show that petitioner agreed to the sale of
MERALCO transformers by private respondents to pay for the balance of their subsisting loan with the
Bank of Philippine Islands. Petitioner's letter of authorization reads:

xxx xxx xxx

Under this authority, it is mutually understood that whatever payment received from MERALCO as
payment to the transfromers will be considered as partial payment of the undersigned's obligation to Mr.
and Mrs. Miguel K. Robles.

The same will be utilized as partial payment to existing loan with the Bank of Philippine Islands.

It is also mutually understood that this payment to the Bank of Philippine Islands will be reimbursed to Mr.
and Mrs. Miguel K. Robles by the undersigned. [Emphasis supplied] 24

It should be noted that while it was. agreed that part of the purchase price in the sum of P496,500.00
would be directly deposited by petitioner to the Bank of Philippine Islands to answer for the loan of
respondent spouses, petitioner only managed to deposit P393,679.60. When the bank threatened to
foreclose the properties, petitioner apparently could not even raise the sum needed to forestall any action
on the part of the bank. Consequently, he authorized respondent spouses to sell the three (3)
 transformers. However, although the parties agreed to credit the proceeds from the sale of the
transformers to petitioner's obligation, he was supposed to reimburse the same later to respondent
spouses. This can only mean that there was never an intention on the part of either of the parties to
novate petitioner's manner of payment.

Petitioner contends that the parties verbally agreed to novate the manner of payment when respondent
spouses proposed to operate the rice mill on the condition that they will account for its earnings. We find
that this is unsubstantiated by the evidenced on the record. The tenor of his letter dated August 12, 1984
to respondent spouses, in fact, shows that petitioner had a "little misunderstanding" with respondent
spouses whom he was evidently trying to appease by authorizing them to continue temporarily with the
operation of the rice mill. Clearly, while petitioner might have wanted to novate the original agreement as
to his manner of payment, the records are bereft of evidence that respondent spouses willingly agreed to
modify their previous arrangement.

In order for novation to take place, the concurrence of the following requisites is indispensable: (1) there
must be a previous valid obligation; (2) there must be an agreement of the parties concerned to a new
contract; (3) there must be the extinguishment of the old contract; and (4) there must be the validity of the
new contract. 25 The aforesaid requisites are not found in the case at bench. The subsequent acts of the
parties hardly demonstrate their intent to dissolve the old obligation as a consideration for the emergence
of the new one. We repeat to the point of triteness, novation is never presumed, there must be an
express intention to novate.

As regards the improvements introduced by petitioner to the premises and for which he claims
reimbursement, we see no reason to depart from the ruling of the trial court and the appellate court that
petitioner is a builder in bad faith. He introduced the improvements on the premises knowing fully well
that he has not paid the consideration of the contract in full and over the vigorous objections of
respondent spouses. Moreover, petitioner introduced major improvements on the premises even while
the case against him was pending before the trial court.

The award of exemplary damages was correctly deleted by the Court of Appeals in as much as no moral,
temperate, liquidated or compensatory damages in addition to exemplary damages were awarded.

WHEREFORE, the decision rendered by the Court of Appeals is hereby AFFIRMED with the
MODIFICATION that respondent spouses are ordered to return to petitioner the sum of P48,680.00 in
addition to the amounts already awarded. Costs against petitioner. 1âwphi1.nêt

SO ORDERED.

Davide, Jr., C.J., Melo, Kapunan and Pardo, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-11827 July 31, 1961

FERNANDO A. GAITE, plaintiff-appellee,

vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO., INC., SEGUNDINA VIVAS,
FRNACISCO DANTE, PACIFICO ESCANDOR and FERNANDO TY, defendants-appellants.

Alejo Mabanag for plaintiff-appellee.

Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants-appellants.

REYES, J.B.L., J.:

This appeal comes to us directly from the Court of First Instance because the claims involved aggregate more than
P200,000.00.

Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself or in a representative capacity, of 11
iron lode mineral claims, known as the Dawahan Group, situated in the municipality of Jose Panganiban, province of
Camarines Norte.

By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier constituted and appointed plaintiff-appellee
Fernando A. Gaite as his true and lawful attorney-in-fact to enter into a contract with any individual or juridical person for the
exploration and development of the mining claims aforementioned on a royalty basis of not less than P0.50 per ton of ore
that might be extracted therefrom. On March 19, 1954, Gaite in turn executed a general assignment (Record on Appeal, pp.
17-19) conveying the development and exploitation of said mining claims into the Larap Iron Mines, a single proprietorship
owned solely by and belonging to him, on the same royalty basis provided for in Exhibit "3". Thereafter, Gaite embarked
upon the development and exploitation of the mining claims in question, opening and paving roads within and outside their
boundaries, making other improvements and installing facilities therein for use in the development of the mines, and in time
extracted therefrom what he claim and estimated to be approximately 24,000 metric tons of iron ore.

For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to Gaite to exploit and develop
the mining claims in question, and Gaite assented thereto subject to certain conditions. As a result, a document entitled
"Revocation of Power of Attorney and Contract" was executed on December 8, 1954 (Exhibit "A"),wherein Gaite transferred
to Fonacier, for the consideration of P20,000.00, plus 10% of the royalties that Fonacier would receive from the mining
claims, all his rights and interests on all the roads, improvements, and facilities in or outside said claims, the right to use the
business name "Larap Iron Mines" and its goodwill, and all the records and documents relative to the mines. In the same
document, Gaite transferred to Fonacier all his rights and interests over the "24,000 tons of iron ore, more or less" that the
former had already extracted from the mineral claims, in consideration of the sum of P75,000.00, P10,000.00 of which was
paid upon the signing of the agreement, and

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid from and out of the first letter of
credit covering the first shipment of iron ores and of the first amount derived from the local sale of iron ore made by
the Larap Mines & Smelting Co. Inc., its assigns, administrators, or successors in interests.

To secure the payment of the said balance of P65,000.00, Fonacier promised to execute in favor of Gaite a surety bond, and
pursuant to the promise, Fonacier delivered to Gaite a surety bond dated December 8, 1954 with himself (Fonacier) as
principal and the Larap Mines and Smelting Co. and its stockholders George Krakower, Segundina Vivas, Pacifico
Escandor, Francisco Dante, and Fernando Ty as sureties (Exhibit "A-1"). Gaite testified, however, that when this bond was
presented to him by Fonacier together with the "Revocation of Power of Attorney and Contract", Exhibit "A", on December 8,
1954, he refused to sign said Exhibit "A" unless another bond under written by a bonding company was put up by
defendants to secure the payment of the P65,000.00 balance of their price of the iron ore in the stockpiles in the mining
claims. Hence, a second bond, also dated December 8, 1954 (Exhibit "B"),was executed by the same parties to the first
bond Exhibit "A-1", with the Far Eastern Surety and Insurance Co. as additional surety, but it provided that the liability of the
surety company would attach only when there had been an actual sale of iron ore by the Larap Mines & Smelting Co. for an
amount of not less then P65,000.00, and that, furthermore, the liability of said surety company would automatically expire on
December 8, 1955. Both bonds were attached to the "Revocation of Power of Attorney and Contract", Exhibit "A", and made
integral parts thereof.

On the same day that Fonacier revoked the power of attorney he gave to Gaite and the two executed and signed the
"Revocation of Power of Attorney and Contract", Exhibit "A", Fonacier entered into a "Contract of Mining Operation", ceding,
transferring, and conveying unto the Larap Mines and Smelting Co., Inc. the right to develop, exploit, and explore the mining
claims in question, together with the improvements therein and the use of the name "Larap Iron Mines" and its good will, in
consideration of certain royalties. Fonacier likewise transferred, in the same document, the complete title to the
approximately 24,000 tons of iron ore which he acquired from Gaite, to the Larap & Smelting Co., in consideration for the
signing by the company and its stockholders of the surety bonds delivered by Fonacier to Gaite (Record on Appeal, pp. 82-
94).

Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far Eastern Surety and Insurance Company,
no sale of the approximately 24,000 tons of iron ore had been made by the Larap Mines & Smelting Co., Inc., nor had the
P65,000.00 balance of the price of said ore been paid to Gaite by Fonacier and his sureties payment of said amount, on the
theory that they had lost right to make use of the period given them when their bond, Exhibit "B" automatically expired
(Exhibits "C" to "C-24"). And when Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed the present
complaint against them in the Court of First Instance of Manila (Civil Case No. 29310) for the payment of the P65,000.00
balance of the price of the ore, consequential damages, and attorney's fees.
All the defendants except Francisco Dante set up the uniform defense that the obligation sued upon by Gaite was subject to
a condition that the amount of P65,000.00 would be payable out of the first letter of credit covering the first shipment of iron
ore and/or the first amount derived from the local sale of the iron ore by the Larap Mines & Smelting Co., Inc.; that up to the
time of the filing of the complaint, no sale of the iron ore had been made, hence the condition had not yet been fulfilled; and
that consequently, the obligation was not yet due and demandable. Defendant Fonacier also contended that only 7,573 tons
of the estimated 24,000 tons of iron ore sold to him by Gaite was actually delivered, and counterclaimed for more than
P200,000.00 damages.

At the trial of the case, the parties agreed to limit the presentation of evidence to two issues:

(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00 become due and demandable when
the defendants failed to renew the surety bond underwritten by the Far Eastern Surety and Insurance Co., Inc. (Exhibit "B"),
which expired on December 8, 1955; and

(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant Fonacier were actually in existence in
the mining claims when these parties executed the "Revocation of Power of Attorney and Contract", Exhibit "A."

On the first question, the lower court held that the obligation of the defendants to pay plaintiff the P65,000.00 balance of the
price of the approximately 24,000 tons of iron ore was one with a term: i.e., that it would be paid upon the sale of sufficient
iron ore by defendants, such sale to be effected within one year or before December 8, 1955; that the giving of security was
a condition precedent to Gait's giving of credit to defendants; and that as the latter failed to put up a good and sufficient
security in lieu of the Far Eastern Surety bond (Exhibit "B") which expired on December 8, 1955, the obligation became due
and demandable under Article 1198 of the New Civil Code.

As to the second question, the lower court found that plaintiff Gaite did have approximately 24,000 tons of iron ore at the
mining claims in question at the time of the execution of the contract Exhibit "A."

Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to pay him, jointly and severally,
P65,000.00 with interest at 6% per annum from December 9, 1955 until payment, plus costs. From this judgment,
defendants jointly appealed to this Court.

During the pendency of this appeal, several incidental motions were presented for resolution: a motion to declare the
appellants Larap Mines & Smelting Co., Inc. and George Krakower in contempt, filed by appellant Fonacier, and two motions
to dismiss the appeal as having become academic and a motion for new trial and/or to take judicial notice of certain
documents, filed by appellee Gaite. The motion for contempt is unmeritorious because the main allegation therein that the
appellants Larap Mines & Smelting Co., Inc. and Krakower had sold the iron ore here in question, which allegedly is
"property in litigation", has not been substantiated; and even if true, does not make these appellants guilty of contempt,
because what is under litigation in this appeal is appellee Gaite's right to the payment of the balance of the price of the ore,
and not the iron ore itself. As for the several motions presented by appellee Gaite, it is unnecessary to resolve these motions
in view of the results that we have reached in this case, which we shall hereafter discuss.

The main issues presented by appellants in this appeal are:

(1) that the lower court erred in holding that the obligation of appellant Fonacier to pay appellee Gaite the P65,000.00
(balance of the price of the iron ore in question)is one with a period or term and not one with a suspensive condition, and
that the term expired on December 8, 1955; and

(2) that the lower court erred in not holding that there were only 10,954.5 tons in the stockpiles of iron ore sold by appellee
Gaite to appellant Fonacier.

The first issue involves an interpretation of the following provision in the contract Exhibit "A":

7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F. Fonacier all his rights and interests over
the 24,000 tons of iron ore, more or less, above-referred to together with all his rights and interests to operate the
mine in consideration of the sum of SEVENTY-FIVE THOUSAND PESOS (P75,000.00) which the latter binds to
pay as follows:

a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this agreement.
 b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid from and out of the first letter of
credit covering the first shipment of iron ore made by the Larap Mines & Smelting Co., Inc., its assigns,
administrators, or successors in interest.

We find the court below to be legally correct in holding that the shipment or local sale of the iron ore is not a condition
precedent (or suspensive) to the payment of the balance of P65,000.00, but was only a suspensive period or term. What
characterizes a conditional obligation is the fact that its efficacy or obligatory force (as distinguished from its demandability)
is subordinated to the happening of a future and uncertain event; so that if the suspensive condition does not take place, the
parties would stand as if the conditional obligation had never existed. That the parties to the contract Exhibit "A" did not
intend any such state of things to prevail is supported by several circumstances:

1) The words of the contract express no contingency in the buyer's obligation to pay: "The balance of Sixty-Five Thousand
Pesos (P65,000.00) will be paid out of the first letter of credit covering the first shipment of iron ores . . ." etc. There is no
uncertainty that the payment will have to be made sooner or later; what is undetermined is merely the exact date at which it
will be made. By the very terms of the contract, therefore, the existence of the obligation to pay is recognized; only its
maturity or demandability is deferred.

2) A contract of sale is normally commutative and onerous: not only does each one of the parties assume a correlative
obligation (the seller to deliver and transfer ownership of the thing sold and the buyer to pay the price),but each party
anticipates performance by the other from the very start. While in a sale the obligation of one party can be lawfully
subordinated to an uncertain event, so that the other understands that he assumes the risk of receiving nothing for what he
gives (as in the case of a sale of hopes or expectations, emptio spei), it is not in the usual course of business to do so;
hence, the contingent character of the obligation must clearly appear. Nothing is found in the record to evidence that Gaite
desired or assumed to run the risk of losing his right over the ore without getting paid for it, or that Fonacier understood that
Gaite assumed any such risk. This is proved by the fact that Gaite insisted on a bond a to guarantee payment of the
P65,000.00, an not only upon a bond by Fonacier, the Larap Mines & Smelting Co., and the company's stockholders, but
also on one by a surety company; and the fact that appellants did put up such bonds indicates that they admitted the definite
existence of their obligation to pay the balance of P65,000.00.

3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or shipment of the ore as a condition
precedent, would be tantamount to leaving the payment at the discretion of the debtor, for the sale or shipment could not be
made unless the appellants took steps to sell the ore. Appellants would thus be able to postpone payment indefinitely. The
desireability of avoiding such a construction of the contract Exhibit "A" needs no stressing.

4) Assuming that there could be doubt whether by the wording of the contract the parties indented a suspensive condition or
a suspensive period (dies ad quem) for the payment of the P65,000.00, the rules of interpretation would incline the scales in
favor of "the greater reciprocity of interests", since sale is essentially onerous. The Civil Code of the Philippines, Article
1378, paragraph 1, in fine, provides:

If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests.

and there can be no question that greater reciprocity obtains if the buyer' obligation is deemed to be actually existing, with
only its maturity (due date) postponed or deferred, that if such obligation were viewed as non-existent or not binding until the
ore was sold.

The only rational view that can be taken is that the sale of the ore to Fonacier was a sale on credit, and not an aleatory
contract where the transferor, Gaite, would assume the risk of not being paid at all; and that the previous sale or shipment of
the ore was not a suspensive condition for the payment of the balance of the agreed price, but was intended merely to fix
the future date of the payment.

This issue settled, the next point of inquiry is whether appellants, Fonacier and his sureties, still have the right to insist that
Gaite should wait for the sale or shipment of the ore before receiving payment; or, in other words, whether or not they are
entitled to take full advantage of the period granted them for making the payment.

We agree with the court below that the appellant have forfeited the right court below that the appellants have forfeited the
right to compel Gaite to wait for the sale of the ore before receiving payment of the balance of P65,000.00, because of their
failure to renew the bond of the Far Eastern Surety Company or else replace it with an equivalent guarantee. The expiration
of the bonding company's undertaking on December 8, 1955 substantially reduced the security of the vendor's rights as
creditor for the unpaid P65,000.00, a security that Gaite considered essential and upon which he had insisted when he
executed the deed of sale of the ore to Fonacier (Exhibit "A"). The case squarely comes under paragraphs 2 and 3 of Article
1198 of the Civil Code of the Philippines:
 "ART. 1198. The debtor shall lose every right to make use of the period:

(1) . . .

(2) When he does not furnish to the creditor the guaranties or securities which he has promised.

(3) When by his own acts he has impaired said guaranties or securities after their establishment, and when
through fortuitous event they disappear, unless he immediately gives new ones equally satisfactory.

Appellants' failure to renew or extend the surety company's bond upon its expiration plainly impaired the securities given to
the creditor (appellee Gaite), unless immediately renewed or replaced.

There is no merit in appellants' argument that Gaite's acceptance of the surety company's bond with full knowledge that on
its face it would automatically expire within one year was a waiver of its renewal after the expiration date. No such waiver
could have been intended, for Gaite stood to lose and had nothing to gain barely; and if there was any, it could be rationally
explained only if the appellants had agreed to sell the ore and pay Gaite before the surety company's bond expired on
December 8, 1955. But in the latter case the defendants-appellants' obligation to pay became absolute after one year from
the transfer of the ore to Fonacier by virtue of the deed Exhibit "A.".

All the alternatives, therefore, lead to the same result: that Gaite acted within his rights in demanding payment and instituting
this action one year from and after the contract (Exhibit "A") was executed, either because the appellant debtors had
impaired the securities originally given and thereby forfeited any further time within which to pay; or because the term of
payment was originally of no more than one year, and the balance of P65,000.00 became due and payable thereafter.

Coming now to the second issue in this appeal, which is whether there were really 24,000 tons of iron ore in the stockpiles
sold by appellee Gaite to appellant Fonacier, and whether, if there had been a short-delivery as claimed by appellants, they
are entitled to the payment of damages, we must, at the outset, stress two things: first, that this is a case of a sale of a
specific mass of fungible goods for a single price or a lump sum, the quantity of "24,000 tons of iron ore, more or less,"
stated in the contract Exhibit "A," being a mere estimate by the parties of the total tonnage weight of the mass; and second,
that the evidence shows that neither of the parties had actually measured of weighed the mass, so that they both tried to
arrive at the total quantity by making an estimate of the volume thereof in cubic meters and then multiplying it by the
estimated weight per ton of each cubic meter.

The sale between the parties is a sale of a specific mass or iron ore because no provision was made in their contract for the
measuring or weighing of the ore sold in order to complete or perfect the sale, nor was the price of P75,000,00 agreed upon
by the parties based upon any such measurement.(see Art. 1480, second par., New Civil Code). The subject matter of the
sale is, therefore, a determinate object, the mass, and not the actual number of units or tons contained therein, so that all
that was required of the seller Gaite was to deliver in good faith to his buyer all of the ore found in the mass, notwithstanding
that the quantity delivered is less than the amount estimated by them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield
Salvage Co., Inc. 171 So. 872, applying art. 2459 of the Louisiana Civil Code). There is no charge in this case that Gaite did
not deliver to appellants all the ore found in the stockpiles in the mining claims in questions; Gaite had, therefore, complied
with his promise to deliver, and appellants in turn are bound to pay the lump price.

But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy, not a definite mass, but approximately
24,000 tons of ore, so that any substantial difference in this quantity delivered would entitle the buyers to recover damages
for the short-delivery, was there really a short-delivery in this case?

We think not. As already stated, neither of the parties had actually measured or weighed the whole mass of ore cubic meter
by cubic meter, or ton by ton. Both parties predicate their respective claims only upon an estimated number of cubic meters
of ore multiplied by the average tonnage factor per cubic meter.

Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the stockpiles of ore that he sold to Fonacier,
while appellants contend that by actual measurement, their witness Cirpriano Manlañgit found the total volume of ore in the
stockpiles to be only 6.609 cubic meters. As to the average weight in tons per cubic meter, the parties are again in
disagreement, with appellants claiming the correct tonnage factor to be 2.18 tons to a cubic meter, while appellee Gaite
claims that the correct tonnage factor is about 3.7.

In the face of the conflict of evidence, we take as the most reliable estimate of the tonnage factor of iron ore in this case to
be that made by Leopoldo F. Abad, chief of the Mines and Metallurgical Division of the Bureau of Mines, a government
pensionado to the States and a mining engineering graduate of the Universities of Nevada and California, with almost 22
years of experience in the Bureau of Mines. This witness placed the tonnage factor of every cubic meter of iron ore at
between 3 metric tons as minimum to 5 metric tons as maximum. This estimate, in turn, closely corresponds to the average
tonnage factor of 3.3 adopted in his corrected report (Exhibits "FF" and FF-1") by engineer Nemesio Gamatero, who was
sent by the Bureau of Mines to the mining claims involved at the request of appellant Krakower, precisely to make an official
estimate of the amount of iron ore in Gaite's stockpiles after the dispute arose.

Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles made by appellant's witness Cipriano
Manlañgit is correct, if we multiply it by the average tonnage factor of 3.3 tons to a cubic meter, the product is 21,809.7 tons,
which is not very far from the estimate of 24,000 tons made by appellee Gaite, considering that actual weighing of each unit
of the mass was practically impossible, so that a reasonable percentage of error should be allowed anyone making an
estimate of the exact quantity in tons found in the mass. It must not be forgotten that the contract Exhibit "A" expressly
stated the amount to be 24,000 tons, more or less. (ch. Pine River Logging & Improvement Co. vs U.S., 279, 46 L. Ed.
1164).

There was, consequently, no short-delivery in this case as would entitle appellants to the payment of damages, nor could
Gaite have been guilty of any fraud in making any misrepresentation to appellants as to the total quantity of ore in the
stockpiles of the mining claims in question, as charged by appellants, since Gaite's estimate appears to be substantially
correct.

WHEREFORE, finding no error in the decision appealed from, we hereby affirm the same, with costs against appellants.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 118114 December 7, 1995

TEODORO ACAP, petitioner,

vs.
COURT OF APPEALS and EDY DE LOS REYES, respondents.

PADILLA, J.:

This is a petition for review on certiorari of the decision 1 of the Court of Appeals, 2nd Division, in CA-G.R. No. 36177, which
affirmed the decision 2 of the Regional Trial Court of Himamaylan, Negros Occidental holding that private respondent Edy de
los Reyes had acquired ownership of Lot No. 1130 of the Cadastral Survey of Hinigaran, Negros Occidental based on a
document entitled "Declaration of Heirship and Waiver of Rights", and ordering the dispossession of petitioner as leasehold
tenant of the land for failure to pay rentals.

The facts of the case are as follows:

The title to Lot No. 1130 of the Cadastral Survey of Hinigaran, Negros Occidental was evidenced by OCT No. R-12179. The
lot has an area of 13,720 sq. meters. The title was issued and is registered in the name of spouses Santiago Vasquez and
Lorenza Oruma. After both spouses died, their only son Felixberto inherited the lot. In 1975, Felixberto executed a duly
notarized document entitled "Declaration of Heirship and Deed of Absolute Sale" in favor of Cosme Pido.

The evidence before the court a quo established that since 1960, petitioner Teodoro Acap had been the tenant of a portion
of the said land, covering an area of nine thousand five hundred (9,500) meters. When ownership was transferred in 1975
by Felixberto to Cosme Pido, Acap continued to be the registered tenant thereof and religiously paid his leasehold rentals to
Pido and thereafter, upon Pido's death, to his widow Laurenciana.
The controversy began when Pido died intestate and on 27 November 1981, his surviving heirs executed a notarized
document denominated as "Declaration of Heirship and Waiver of Rights of Lot No. 1130 Hinigaran Cadastre," wherein they
declared; to quote its pertinent portions, that:

. . . Cosme Pido died in the Municipality of Hinigaran, Negros Occidental, he died intestate and without
any known debts and obligations which the said parcel of land is (sic) held liable.

That Cosme Pido was survived by his/her legitimate heirs, namely: LAURENCIANA PIDO, wife, ELY,
ERVIN, ELMER, and ELECHOR all surnamed PIDO; children;

That invoking the provision of Section 1, Rule 74 of the Rules of Court, the above-mentioned heirs do
hereby declare unto [sic] ourselves the only heirs of the late Cosme Pido and that we hereby adjudicate
unto ourselves the above-mentioned parcel of land in equal shares.

Now, therefore, We LAURENCIANA 3, ELY, ELMER, ERVIN and ELECHOR all surnamed
PIDO, do hereby waive, quitclaim all our rights, interests and participation over the said
parcel of land in favor of EDY DE LOS REYES, of legal age, (f)ilipino, married to
VIRGINIA DE LOS REYES, and resident of Hinigaran, Negros Occidental,
Philippines. . . . 4 (Emphasis supplied)

The document was signed by all of Pido's heirs. Private respondent Edy de los Reyes did not sign said document.

It will be noted that at the time of Cosme Pido's death, title to the property continued to be registered in the name of the
Vasquez spouses. Upon obtaining the Declaration of Heirship with Waiver of Rights in his favor, private respondent Edy de
los Reyes filed the same with the Registry of Deeds as part of a notice of an adverse claim against the original certificate of
title.

Thereafter, private respondent sought for petitioner (Acap) to personally inform him that he (Edy) had become the new
owner of the land and that the lease rentals thereon should be paid to him. Private respondent further alleged that he and
petitioner entered into an oral lease agreement wherein petitioner agreed to pay ten (10) cavans of palay per annum as
lease rental. In 1982, petitioner allegedly complied with said obligation. In 1983, however, petitioner refused to pay any
further lease rentals on the land, prompting private respondent to seek the assistance of the then Ministry of Agrarian
Reform (MAR) in Hinigaran, Negros Occidental. The MAR invited petitioner to a conference scheduled on 13 October 1983.
Petitioner did not attend the conference but sent his wife instead to the conference. During the meeting, an officer of the
Ministry informed Acap's wife about private respondent's ownership of the said land but she stated that she and her husband
(Teodoro) did not recognize private respondent's claim of ownership over the land.

On 28 April 1988, after the lapse of four (4) years, private respondent filed a complaint for recovery of possession and
damages against petitioner, alleging in the main that as his leasehold tenant, petitioner refused and failed to pay the agreed
annual rental of ten (10) cavans of palay despite repeated demands.

During the trial before the court a quo, petitioner reiterated his refusal to recognize private respondent's ownership over the
subject land. He averred that he continues to recognize Cosme Pido as the owner of the said land, and having been a
registered tenant therein since 1960, he never reneged on his rental obligations. When Pido died, he continued to pay
rentals to Pido's widow. When the latter left for abroad, she instructed him to stay in the landholding and to pay the
accumulated rentals upon her demand or return from abroad.

Petitioner further claimed before the trial court that he had no knowledge about any transfer or sale of the lot to private
respondent in 1981 and even the following year after Laurenciana's departure for abroad. He denied having entered into a
verbal lease tenancy contract with private respondent and that assuming that the said lot was indeed sold to private
respondent without his knowledge, R.A. 3844, as amended, grants him the right to redeem the same at a reasonable price.
Petitioner also bewailed private respondent's ejectment action as a violation of his right to security of tenure under P.D. 27.

On 20 August 1991, the lower court rendered a decision in favor of private respondent, the dispositive part of which reads:

WHEREFORE, premises considered, the Court renders judgment in favor of the plaintiff, Edy de los
Reyes, and against the defendant, Teodoro Acap, ordering the following, to wit:
 1. Declaring forfeiture of defendant's preferred right to issuance of a Certificate of Land Transfer under
Presidential Decree No. 27 and his farmholdings;

2. Ordering the defendant Teodoro Acap to deliver possession of said farm to plaintiff, and;

3. Ordering the defendant to pay P5,000.00 as attorney's fees, the sum of P1,000.00 as expenses of
litigation and the amount of P10,000.00 as actual damages. 5

In arriving at the above-mentioned judgment, the trial court stated that the evidence had established that the subject land
was "sold" by the heirs of Cosme Pido to private respondent. This is clear from the following disquisitions contained in the
trial court's six (6) page decision:

There is no doubt that defendant is a registered tenant of Cosme Pido. However, when the latter died
their tenancy relations changed since ownership of said land was passed on to his heirs who, by
executing a Deed of Sale, which defendant admitted in his affidavit, likewise passed on their ownership of
Lot 1130 to herein plaintiff (private respondent). As owner hereof, plaintiff has the right to demand
payment of rental and the tenant is obligated to pay rentals due from the time demand is made. . . . 6

xxx xxx xxx

Certainly, the sale of the Pido family of Lot 1130 to herein plaintiff does not of itself extinguish the
relationship. There was only a change of the personality of the lessor in the person of herein plaintiff Edy
de los Reyes who being the purchaser or transferee, assumes the rights and obligations of the former
landowner to the tenant Teodoro Acap, herein defendant. 7

Aggrieved, petitioner appealed to the Court of Appeals, imputing error to the lower court when it ruled that private
respondent acquired ownership of Lot No. 1130 and that he, as tenant, should pay rentals to private respondent and that
failing to pay the same from 1983 to 1987, his right to a certificate of land transfer under P.D. 27 was deemed forfeited.

The Court of Appeals brushed aside petitioner's argument that the Declaration of Heirship and Waiver of Rights (Exhibit
"D"), the document relied upon by private respondent to prove his ownership to the lot, was excluded by the lower court in its
order dated 27 August 1990. The order indeed noted that the document was not identified by Cosme Pido's heirs and was
not registered with the Registry of Deeds of Negros Occidental. According to respondent court, however, since the
Declaration of Heirship and Waiver of Rights appears to have been duly notarized, no further proof of its due execution was
necessary. Like the trial court, respondent court was also convinced that the said document stands as prima facie proof of
appellee's (private respondent's) ownership of the land in dispute.

With respect to its non-registration, respondent court noted that petitioner had actual knowledge of the subject sale of the
land in dispute to private respondent because as early as 1983, he (petitioner) already knew of private respondent's claim
over the said land but which he thereafter denied, and that in 1982, he (petitioner) actually paid rent to private respondent.
Otherwise stated, respondent court considered this fact of rental payment in 1982 as estoppel on petitioner's part to
thereafter refute private respondent's claim of ownership over the said land. Under these circumstances, respondent court
ruled that indeed there was deliberate refusal by petitioner to pay rent for a continued period of five years that merited
forfeiture of his otherwise preferred right to the issuance of a certificate of land transfer.

In the present petition, petitioner impugns the decision of the Court of Appeals as not in accord with the law and evidence
when it rules that private respondent acquired ownership of Lot No. 1130 through the aforementioned Declaration of
Heirship and Waiver of Rights.

Hence, the issues to be resolved presently are the following:

1. WHETHER OR NOT THE SUBJECT DECLARATION OF HEIRSHIP AND WAIVER OF RIGHTS IS A

RECOGNIZED MODE OF ACQUIRING OWNERSHIP BY PRIVATE RESPONDENT OVER THE LOT IN
QUESTION.

2. WHETHER OR NOT THE SAID DOCUMENT CAN BE CONSIDERED A DEED OF SALE IN FAVOR
OF PRIVATE RESPONDENT OF THE LOT IN QUESTION.

Petitioner argues that the Regional Trial Court, in its order dated 7 August 1990, explicitly excluded the document marked as
Exhibit "D" (Declaration of Heirship, etc.) as private respondent's evidence because it was not registered with the Registry of
Deeds and was not identified by anyone of the heirs of Cosme Pido. The Court of Appeals, however, held the same to be
admissible, it being a notarized document, hence, a prima facie proof of private respondents' ownership of the lot to which it
refers.

Petitioner points out that the Declaration of Heirship and Waiver of Rights is not one of the recognized modes of acquiring
ownership under Article 712 of the Civil Code. Neither can the same be considered a deed of sale so as to transfer
ownership of the land to private respondent because no consideration is stated in the contract (assuming it is a contract or
deed of sale).

Private respondent defends the decision of respondent Court of Appeals as in accord with the evidence and the law. He
posits that while it may indeed be true that the trial court excluded his Exhibit "D" which is the Declaration of Heirship and
Waiver of Rights as part of his evidence, the trial court declared him nonetheless owner of the subject lot based on other
evidence adduced during the trial, namely, the notice of adverse claim (Exhibit "E") duly registered by him with the Registry
of Deeds, which contains the questioned Declaration of Heirship and Waiver of Rights as an integral part thereof.

We find the petition impressed with merit.

In the first place, an asserted right or claim to ownership or a real right over a thing arising from a juridical act, however
justified, is not per se sufficient to give rise to ownership over the res. That right or title must be completed by fulfilling certain
conditions imposed by law. Hence, ownership and real rights are acquired only pursuant to a legal mode or process. While
title is the juridical justification, mode is the actual process of acquisition or transfer of ownership over a thing in question. 8

Under Article 712 of the Civil Code, the modes of acquiring ownership are generally classified into two (2) classes, namely,
the original mode (i.e., through occupation, acquisitive prescription, law or intellectual creation) and the derivative mode (i.e.,
through succession mortis causa or tradition as a result of certain contracts, such as sale, barter, donation, assignment or
mutuum).

In the case at bench, the trial court was obviously confused as to the nature and effect of the Declaration of Heirship and
Waiver of Rights, equating the same with a contract (deed) of sale. They are not the same.

In a Contract of Sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other party to pay a price certain in money or its equivalent. 9

Upon the other hand, a declaration of heirship and waiver of rights operates as a public instrument when filed with the
Registry of Deeds whereby the intestate heirs adjudicate and divide the estate left by the decedent among themselves as
they see fit. It is in effect an extrajudicial settlement between the heirs under Rule 74 of the Rules of Court. 10

Hence, there is a marked difference between a sale of hereditary rights and a waiver of hereditary rights. The first presumes
the existence of a contract or deed of sale between the parties. 11 The second is, technically speaking, a mode of extinction
of ownership where there is an abdication or intentional relinquishment of a known right with knowledge of its existence and
intention to relinquish it, in favor of other persons who are co-heirs in the succession. 12 Private respondent, being then a
stranger to the succession of Cosme Pido, cannot conclusively claim ownership over the subject lot on the sole basis of the
waiver document which neither recites the elements of either a sale, 13 or a donation, 14 or any other derivative mode of
acquiring ownership.

Quite surprisingly, both the trial court and public respondent Court of Appeals concluded that a "sale" transpired between
Cosme Pido's heirs and private respondent and that petitioner acquired actual knowledge of said sale when he was
summoned by the Ministry of Agrarian Reform to discuss private respondent's claim over the lot in question. This conclusion
has no basis both in fact and in law.

On record, Exhibit "D", which is the "Declaration of Heirship and Waiver of Rights" was excluded by the trial court in its order
dated 27 August 1990 because the document was neither registered with the Registry of Deeds nor identified by the heirs of
Cosme Pido. There is no showing that private respondent had the same document attached to or made part of the record.
What the trial court admitted was Annex "E", a notice of adverse claim filed with the Registry of Deeds which contained the
Declaration of Heirship with Waiver of rights and was annotated at the back of the Original Certificate of Title to the land in
question.

A notice of adverse claim, by its nature, does not however prove private respondent's ownership over the tenanted lot. "A
notice of adverse claim is nothing but a notice of a claim adverse to the registered owner, the validity of which is yet to be
established in court at some future date, and is no better than a notice of lis pendens which is a notice of a case already
pending in court." 15

It is to be noted that while the existence of said adverse claim was duly proven, there is no evidence whatsoever that a deed
of sale was executed between Cosme Pido's heirs and private respondent transferring the rights of Pido's heirs to the land in
favor of private respondent. Private respondent's right or interest therefore in the tenanted lot remains an adverse claim
which cannot by itself be sufficient to cancel the OCT to the land and title the same in private respondent's name.

Consequently, while the transaction between Pido's heirs and private respondent may be binding on both parties,
the right of petitioner as a registered tenant to the land cannot be perfunctorily forfeited on a mere allegation of
private respondent's ownership without the corresponding proof thereof.

Petitioner had been a registered tenant in the subject land since 1960 and religiously paid lease rentals thereon. In his mind,
he continued to be the registered tenant of Cosme Pido and his family (after Pido's death), even if in 1982, private
respondent allegedly informed petitioner that he had become the new owner of the land.

Under the circumstances, petitioner may have, in good faith, assumed such statement of private respondent to be true and
may have in fact delivered 10 cavans of palay as annual rental for 1982 to private respondent. But in 1983, it is clear that
petitioner had misgivings over private respondent's claim of ownership over the said land because in the October 1983 MAR
conference, his wife Laurenciana categorically denied all of private respondent's allegations. In fact, petitioner even secured
a certificate from the MAR dated 9 May 1988 to the effect that he continued to be the registered tenant of Cosme Pido and
not of private respondent. The reason is that private respondent never registered the Declaration of Heirship with Waiver of
Rights with the Registry of Deeds or with the MAR. Instead, he (private respondent) sought to do indirectly what could not be
done directly, i.e., file a notice of adverse claim on the said lot to establish ownership thereover.

It stands to reason, therefore, to hold that there was no unjustified or deliberate refusal by petitioner to pay the lease rentals
or amortizations to the landowner/agricultural lessor which, in this case, private respondent failed to establish in his favor by
clear and convincing evidence. 16

Consequently, the sanction of forfeiture of his preferred right to be issued a Certificate of Land Transfer under P.D. 27 and to
the possession of his farmholdings should not be applied against petitioners, since private respondent has not established a
cause of action for recovery of possession against petitioner.

WHEREFORE, premises considered, the Court hereby GRANTS the petition and the decision of the Court of Appeals dated
1 May 1994 which affirmed the decision of the RTC of Himamaylan, Negros Occidental dated 20 August 1991 is hereby SET
ASIDE. The private respondent's complaint for recovery of possession and damages against petitioner Acap is hereby
DISMISSED for failure to properly state a cause of action, without prejudice to private respondent taking the proper legal
steps to establish the legal mode by which he claims to have acquired ownership of the land in question.

SO ORDERED.

Davide, Jr., Bellosillo, Kapunan and Hermosisima, Jr., JJ., concur.

[G.R. No. 126444. December 4, 1998]

ALFONSO QUIJADA, CRESENTE QUIJADA, REYNELDA QUIJADA,

DEMETRIO QUIJADA, ELIUTERIA QUIJADA, EULALIO
QUIJADA, and WARLITO QUIJADA, petitioners, vs. COURT OF
APPEALS, REGALADO MONDEJAR, RODULFO GOLORAN,
ALBERTO ASIS, SEGUNDINO RAS, ERNESTO GOLORAN, CELSO
ABISO, FERNANDO BAUTISTA, ANTONIO MACASERO, and
 NESTOR MAGUINSAY, respondents.

DECISION
MARTINEZ, J.:

Petitioners, as heirs of the late Trinidad Quijada, filed a complaint against private
respondents for quieting of title, recovery of possession and ownership of parcels of land with
claim for attorney's fees and damages. The suit was premised on the following facts found by
the Court of Appeals, which is materially the same as that found by the trial court:
"Plaintiffs-appellees (petitioners) are the children of the late Trinidad Corvera Vda. de
Quijada. Trinidad was one of the heirs of the late Pedro Corvera and inherited from the latter
the two-hectare parcel of land subject of the case, situated in the barrio of San Agustin,
Talacogon, Agusan del Sur. On April 5, 1956, Trinidad Quijada together with her sisters
Leonila Corvera Vda. de Sequeña and Paz Corvera Cabiltes and brother Epapiadito Corvera
executed a conditional deed of donation (Exh. C) of the two-hectare parcel of land subject of the
case in favor of the Municipality of Talacogon, the condition being that the parcel of land shall
be used solely and exclusively as part of the campus of the proposed provincial high school in
Talacogon. Apparently, Trinidad remained in possession of the parcel of land despite the
donation. On July 29, 1962, Trinidad sold one (1) hectare of the subject parcel of land to
defendant-appellant Regalado Mondejar (Exh. 1). Subsequently, Trinidad verbally sold the
remaining one (1) hectare to defendant-appellant (respondent) Regalado Mondejar without the
benefit of a written deed of sale and evidenced solely by receipts of payment. In 1980, the heirs
of Trinidad, who at that time was already dead, filed a complaint for forcible entry (Exh. E)
against defendant-appellant (respondent) Regalado Mondejar, which complaint was, however,
dismissed for failure to prosecute (Exh. F). In 1987, the proposed provincial high school having
failed to materialize, the Sangguniang Bayan of the municipality of Talacogon enacted a
resolution reverting the two (2) hectares of land donated back to the donors (Exh. D). In the
meantime, defendant-appellant (respondent) Regalado Mondejar sold portions of the land to
defendants-appellants (respondents) Fernando Bautista (Exh. 5), Rodolfo Goloran (Exh. 6),
Efren Guden (Exh. 7) and Ernesto Goloran (Exh. 8).
"On July 5, 1988, plaintiffs-appellees (petitioners) filed this action against defendants-
appellants (respondents). In the complaint, plaintiffs-appellees (petitioners) alleged that their
deceased mother never sold, conveyed, transferred or disposed of the property in question to
any person or entity much less to Regalado Mondejar save the donation made to the
Municipality of Talacogon in 1956; that at the time of the alleged sale to Regalado Mondejar by
Trinidad Quijada, the land still belongs to the Municipality of Talacogon, hence, the supposed
sale is null and void.
"Defendants-appellants (respondents), on the other hand, in their answer claimed that the
land in dispute was sold to Regalado Mondejar, the one (1) hectare on July 29, 1962, and the
remaining one (1) hectare on installment basis until fully paid. As affirmative and/or special
defense, defendants-appellants (respondents) alleged that plaintiffs' action is barred by laches or
has prescribed.
"The court a quo rendered judgment in favor of plaintiffs-appellees (petitioners):
firstly because 'Trinidad Quijada had no legal title or right to sell the land to defendant
Mondejar in 1962, 1966, 1967 and 1968, the same not being hers to dispose of because
ownership belongs to the Municipality of Talacogon' (Decision, p. 4; Rollo, p. 39) and,
 secondly, that the deed of sale executed by Trinidad Quijada in favor of Mondejar did
not carry with it the conformity and acquiescence of her children, more so that she was
already 63 years old at the time, and a widow (Decision, p. 6; Rollo, p. 41)."i[1]
The dispositive portion of the trial court's decision reads:
"WHEREFORE, viewed from the above perceptions, the scale of justice having tilted in
favor of the plaintiffs, judgment is, as it is hereby rendered:
1) ordering the Defendants to return and vacate the two (2) hectares of land to Plaintiffs as
described in Tax Declaration No. 1209 in the name of Trinidad Quijada;
2) ordering any person acting in Defendants' behalf to vacate and restore the peaceful
possession of the land in question to Plaintiffs;
3) ordering the cancellation of the Deed of Sale executed by the late Trinidad Quijada in favor
of Defendant Regalado Mondejar as well as the Deeds of Sale/Relinquishments executed by
Mondejar in favor of the other Defendants;
4) ordering Defendants to remove their improvements constructed on the questioned lot;
5) ordering the Defendants to pay Plaintiffs, jointly and severally, the amount of P10,000.00
representing attorney's fees;
6) ordering Defendants to pays the amount of P8,000.00 as expenses of litigation; and
7) ordering Defendants to pay the sum of P30,000.00 representing moral damages.
SO ORDERED."ii[2]
On appeal, the Court of Appeals reversed and set aside the judgment a quoiii[3] ruling that the
sale made by Trinidad Quijada to respondent Mondejar was valid as the4 former retained an
inchoate interest on the lots by virtue of the automatic reversion clause in the deed of donation. iv[4]
Thereafter, petitioners filed a motion for reconsideration. When the CA denied their motion,v[5]
petitioners instituted a petition for review to this Court arguing principally that the sale of the
subject property made by Trinidad Quijada to respondent Mondejar is void, considering that at
that time, ownership was already transferred to the Municipality of Talacogon. On the contrary,
private respondents contend that the sale was valid, that they are buyers in good faith, and that
petitioners' case is barred by laches.vi[6]
We affirm the decision of the respondent court.
The donation made on April 5, 1956 by Trinidad Quijada and her brother and sistersvii[7] was
subject to the condition that the donated property shall be "used solely and exclusively as a part
of the campus of the proposed Provincial High School in Talacogon." viii[8] The donation further
provides that should "the proposed Provincial High School be discontinued or if the same shall
be opened but for some reason or another, the same may in the future be closed" the donated
property shall automatically revert to the donor.ix[9] Such condition, not being contrary to law,
morals, good customs, public order or public policy was validly imposed in the donation.x[10]
When the Municipality's acceptance of the donation was made known to the donor, the
former became the new owner of the donated property -- donation being a mode of acquiring and
transmitting ownershipxi[11] - notwithstanding the condition imposed by the donee. The donation
is perfected once the acceptance by the donee is made known to the donor. xii[12] Accordingly,
ownership is immediately transferred to the latter and that ownership will only revert to the
donor if the resolutory condition is not fulfilled.
In this case, that resolutory condition is the construction of the school. It has been ruled that
when a person donates land to another on the condition that the latter would build upon the land
a school, the condition imposed is not a condition precedent or a suspensive condition but a
resolutory one.xiii[13] Thus, at the time of the sales made in 1962 towards 1968, the alleged seller
(Trinidad) could not have sold the lots since she had earlier transferred ownership thereof by
virtue of the deed of donation. So long as the resolutory condition subsists and is capable of
fulfillment, the donation remains effective and the donee continues to be the owner subject only
to the rights of the donor or his successors-in-interest under the deed of donation. Since no
period was imposed by the donor on when must the donee comply with the condition, the latter
remains the owner so long as he has tried to comply with the condition within a reasonable
period. Such period, however, became irrelevant herein when the donee-Municipality
manifested through a resolution that it cannot comply with the condition of building a school and
the same was made known to the donor. Only then - when the non-fulfillment of the resolutory
condition was brought to the donor's knowledge - that ownership of the donated property
reverted to the donor as provided in the automatic reversion clause of the deed of donation.
The donor may have an inchoate interest in the donated property during the time that
ownership of the land has not reverted to her. Such inchoate interest may be the subject of
contracts including a contract of sale. In this case, however, what the donor sold was the land
itself which she no longer owns. It would have been different if the donor-seller sold her
interests over the property under the deed of donation which is subject to the possibility of
reversion of ownership arising from the non-fulfillment of the resolutory condition.
As to laches, petitioners' action is not yet barred thereby. Laches presupposes failure or
neglect for an unreasonable and unexplained length of time, to do that which, by exercising due
diligence, could or should have been done earlier;xiv[14] "it is negligence or omission to assert a
right within a reasonable time, thus, giving rise to a presumption that the party entitled to assert it
either has abandoned or declined to assert it."xv[15] Its essential elements of:
a) Conduct on the part of the defendant, or of one under whom he claims, giving rise to the
situation complained of;
b) Delay in asserting complainant's right after he had knowledge of the defendant's conduct and
after he has an opportunity to sue;
c) Lack of knowledge or notice on the part of the defendant that the complainant would assert
the right on which he bases his suit; and,
d) Injury or prejudice to the defendant in the event relief is accorded to the complainant."xvi[16]
are absent in this case. Petitioners' cause of action to quiet title commenced only when the
property reverted to the donor and/or his successors-in-interest in 1987. Certainly, when the suit
was initiated the following year, it cannot be said that petitioners had slept on their rights for a
long time. The 1960's sales made by Trinidad Quijada cannot be the reckoning point as to when
petitioners' cause of action arose. They had no interest over the property at that time except
under the deed of donation to which private respondents were not privy. Moreover, petitioners
had previously filed an ejectment suit against private respondents only that it did not prosper on a
technicality.
 Be that at it may, there is one thing which militates against the claim of petitioners. Sale,
being a consensual contract, is perfected by mere consent, which is manifested the moment there
is a meeting of the mindsxvii[17] as to the offer and acceptance thereof on three (3) elements: subject
matter, price and terms of payment of the price. xviii[18] ownership by the seller on the thing sold at
the time of the perfection of the contract of sale is not an element for its perfection. What the
law requires is that the seller has the right to transfer ownership at the time the thing sold is
delivered.xix[19] Perfection per se does not transfer ownership which occurs upon the actual or
constructive delivery of the thing sold.xx[20] A perfected contract of sale cannot be challenged on
the ground of non-ownership on the part of the seller at the time of its perfection; hence, the sale
is still valid.
The consummation, however, of the perfected contract is another matter. It occurs upon the
constructive or actual delivery of the subject matter to the buyer when the seller or her
successors-in-interest subsequently acquires ownership thereof. Such circumstance happened in
this case when petitioners -- who are Trinidad Quijada's heirs and successors-in-interest --
became the owners of the subject property upon the reversion of the ownership of the land to
them. Consequently, ownership is transferred to respondent Mondejar ands those who claim
their right from him. Article 1434 of the New Civil Code supports the ruling that the seller's
"title passes by operation of law to the buyer."xxi[21] This rule applies not only when the subject
matter of the contract of sale is goods,xxii[22] but also to other kinds of property, including real
property.xxiii[23]
There is also no merit in petitioners' contention that since the lots were owned by the
municipality at the time of the sale, they were outside the commerce of men under Article 1409
(4) of the NCC;xxiv[24] thus, the contract involving the same is inexistent and void from the
beginning. However, nowhere in Article 1409 (4) is it provided that the properties of a
municipality, whether it be those for public use or its patrimonial propertyxxv[25] are outside the
commerce of men. Besides, the lots in this case were conditionally owned by the municipality.
To rule that the donated properties are outside the commerce of men would render nugatory the
unchallenged reasonableness and justness of the condition which the donor has the right to
impose as owner thereof. Moreover, the objects referred to as outsides the commerce of man are
those which cannot be appropriated, such as the open seas and the heavenly bodies.
With respect to the trial court’s award of attorney’s fees, litigation expenses and moral
damages, there is neither factual nor legal basis thereof. Attorney’s fees and expenses of
litigation cannot, following the general rule in Article 2208 of the New Civil Code, be recovered
in this case, there being no stipulation to that effect and the case does not fall under any of the
exceptions.xxvi[26] It cannot be said that private respondents had compelled petitioners to litigate
with third persons. Neither can it be ruled that the former acted in “gross and evident bad faith”
in refusing to satisfy the latter’s claims considering that private respondents were under an
honest belief that they have a legal right over the property by virtue of the deed of sale. Moral
damages cannot likewise be justified as none of the circumstances enumerated under Articles
2219xxvii[27] and 2220xxviii[28] of the New Civil Code concur in this case.
WHEREFORE, by virtue of the foregoing, the assailed decision of the Court of Appeals is
AFFIRMED.
SO ORDERED.
Melo (Acting Chairman), Puno, and Mendoza, JJ., concur.
i

ii

iii
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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

CELESTINO CO & COMPANY, petitioner,

vs.
COLLECTOR OF INTERNAL REVENUE, respondent.

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

BENGZON, J.:

Appeal from a decision of the Court of Tax Appeals.

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

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

Even if we were to believe petitioner's claim that it does not manufacture ready-made sash, doors and windows for the
public and that it makes these articles only special order of its customers, that does not make it a contractor within the
purview of section 191 of the national Internal Revenue Code. there are no less than fifty occupations enumerated in the
aforesaid section of the national Internal Revenue Code subject to percentage tax and after reading carefully each and
every one of them, we cannot find under which the business of manufacturing sash, doors and windows upon special order
of customers fall under the category of "road, building, navigation, artesian well, water workers and other construction work
contractors" are those who alter or repair buildings, structures, streets, highways, sewers, street railways railroads logging
roads, electric lines or power lines, and includes any other work for the construction, altering or repairing for which
machinery driven by mechanical power is used. (Payton vs. City of Anadardo 64 P. 2d 878, 880, 179 Okl. 68).

Having thus eliminated the feasibility off taxing petitioner as a contractor under 191 of the national Internal Revenue Code,
this leaves us to decide the remaining issue whether or not petitioner could be taxed with lesser strain and more accuracy
as seller of its manufactured articles under section 186 of the same code, as the respondent Collector of Internal Revenue
has in fact been doing the Oriental Sash Factory was established in 1946.
 The percentage tax imposed in section 191 of our Tax Code is generally a tax on the sales of services, in contradiction with
the tax imposed in section 186 of the same Code which is a tax on the original sales of articles by the manufacturer,
producer or importer. (Formilleza's Commentaries and Jurisprudence on the National Internal Revenue Code, Vol. II, p.
744). The fact that the articles sold are manufactured by the seller does not exchange the contract from the purview of
section 186 of the National Internal Revenue Code as a sale of articles.

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

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

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

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

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

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

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

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

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

Said article reads as follows:

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

It is at once apparent that the Oriental Sash Factory did not merely sell its services to Don Toribio Teodoro & Co. (To take one
instance) because it also sold the materials. The truth of the matter is that it sold materials ordinarily manufactured by it — sash,
panels, mouldings — to Teodoro & Co., although in such form or combination as suited the fancy of the purchaser. Such new form
does not divest the Oriental Sash Factory of its character as manufacturer. Neither does it take the transaction out of the category of
sales under Article 1467 above quoted, because although the Factory does not, in the ordinary course of its business, manufacture
and keep on stock doors of the kind sold to Teodoro, it could stock and/or probably had in stock the sash, mouldings and panels it
used therefor (some of them at least).
In our opinion when this Factory accepts a job that requires the use of extraordinary or additional equipment, or involves services not
generally performed by it-it thereby contracts for a piece of work — filing special orders within the meaning of Article 1467. The
orders herein exhibited were not shown to be special. They were merely orders for work — nothing is shown to call them special
requiring extraordinary service of the factory.

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

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

The appealed decision is consequently affirmed. So ordered.

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

iv

vi

vii

viii

ix

xi

xii

xiii

xiv

xv

xvi

xvii

xviii

xix

xx

xxi

xxii
xxiii

xxiv

xxv

xxvi

xxvii

xxviii
Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 52267 January 24, 1996

ENGINEERING & MACHINERY CORPORATION, petitioner,

vs.
COURT OF APPEALS and PONCIANO L. ALMEDA, respondent.

DECISION

PANGANIBAN, J.:

Is a contract for the fabrication and installation of a central air-conditioning system in a building, one of "sale" or "for a piece of
work"? What is the prescriptive period for filing actions for breach of the terms of such contract?

These are the legal questions brought before this Court in this Petition for review on certiorari under Rule 45 of the Rules of Court, to
set aside the Decision1 of the Court of Appeals2 in CA-G.R. No. 58276-R promulgated on November 28, 1978 (affirming in toto the
decision3 dated April 15, 1974 of the then Court of First Instance of Rizal, Branch II4 , in Civil Case No. 14712, which ordered
petitioner to pay private respondent the amount needed to rectify the faults and deficiencies of the air-conditioning system installed
by petitioner in private respondent's building, plus damages, attorney's fees and costs).

By a resolution of the First Division of this Court dated November 13, 1995, this case was transferred to the Third. After deliberating
on the various submissions of the parties, including the petition, record on appeal, private respondent's comment and briefs for the
petitioner and the private respondent, the Court assigned the writing of this Decision to the undersigned, who took his oath as a
member of the Court on October 10, 1995.

The Facts

Pursuant to the contract dated September 10, 1962 between petitioner and private respondent, the former undertook to fabricate,
furnish and install the air-conditioning system in the latter's building along Buendia Avenue, Makati in consideration of P210,000.00.
Petitioner was to furnish the materials, labor, tools and all services required in order to so fabricate and install said system. The
system was completed in 1963 and accepted by private respondent, who paid in full the contract price.

On September 2, 1965, private respondent sold the building to the National Investment and Development Corporation (NIDC). The
latter took possession of the building but on account of NIDC's noncompliance with the terms and conditions of the deed of sale,
private respondent was able to secure judicial rescission thereof. The ownership of the building having been decreed back to private
respondent, he re-acquired possession sometime in 1971. It was then that he learned from some NIDC, employees of the defects of
the air-conditioning system of the building.

Acting on this information, private respondent commissioned Engineer David R. Sapico to render a technical evaluation of the
system in relation to the contract with petitioner. In his report, Sapico enumerated the defects of the system and concluded that it
was "not capable of maintaining the desired room temperature of 76ºF - 2ºF (Exhibit C)"5 .

On the basis of this report, private respondent filed on May 8, 1971 an action for damages against petitioner with the then Court of
First Instance of Rizal (Civil Case No. 14712). The complaint alleged that the air-conditioning system installed by petitioner did not
comply with the agreed plans and specifications. Hence, private respondent prayed for the amount of P210,000.00 representing the
rectification cost, P100,000.00 as damages and P15,000.00 as attorney's fees.
Petitioner moved to dismiss the complaint, alleging that the prescriptive period of six months had set in pursuant to Articles 1566 and
1567, in relation to Article 1571 of the Civil Code, regarding the responsibility of a vendor for any hidden faults or defects in the thing
sold.

Private respondent countered that the contract dated September 10, 1962 was not a contract for sale but a contract for a piece of
work under Article 1713 of the Civil Code. Thus, in accordance with Article 1144 (1) of the same Code, the complaint was timely
brought within the ten-year prescriptive period.

In its reply, petitioner argued that Article 1571 of the Civil Code providing for a six-month prescriptive period is applicable to a
contract for a piece of work by virtue of Article 1714, which provides that such a contract shall be governed by the pertinent
provisions on warranty of title and against hidden defects and the payment of price in a contract of sale6 .

The trial court denied the motion to dismiss. In its answer to the complaint, petitioner reiterated its claim of prescription as an
affirmative defense. It alleged that whatever defects might have been discovered in the air-conditioning system could have been
caused by a variety of factors, including ordinary wear and tear and lack of proper and regular maintenance. It pointed out that
during the one-year period that private respondent withheld final payment, the system was subjected to "very rigid inspection and
testing and corrections or modifications effected" by petitioner. It interposed a compulsory counterclaim suggesting that the
complaint was filed "to offset the adverse effects" of the judgment in Civil Case No. 71494, Court of First Instance of Manila,
involving the same parties, wherein private respondent was adjudged to pay petitioner the balance of the unpaid contract price for
the air-conditioning system installed in another building of private respondent, amounting to P138,482.25.

Thereafter, private respondent filed an ex-parte motion for preliminary attachment on the strength of petitioner's own statement to
the effect that it had sold its business and was no longer doing business in Manila. The trial court granted the motion and, upon
private respondent's posting of a bond of F'50,000.00, ordered the issuance of a writ of attachment.

In due course, the trial court rendered a decision finding that petitioner failed to install certain parts and accessories called for by the
contract, and deviated from the plans of the system, thus reducing its operational effectiveness to the extent that 35 window-type
units had to be installed in the building to achieve a fairly desirable room temperature. On the question of prescription, the trial court
ruled that the complaint was filed within the ten-year court prescriptive period although the contract was one for a piece of work,
because it involved the "installation of an air-conditioning system which the defendant itself manufactured, fabricated, designed and
installed."

Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial court. Hence, it instituted the instant petition.

The Submissions of the Parties

In the instant Petition, petitioner raised three issues. First, it contended that private respondent's acceptance of the work and his
payment of the contract price extinguished any liability with respect to the defects in the air-conditioning system. Second, it claimed
that the Court of Appeals erred when it held that the defects in the installation were not apparent at the time of delivery and
acceptance of the work considering that private respondent was not an expert who could recognize such defects. Third, it insisted
that, assuming arguendo that there were indeed hidden defects, private respondent's complaint was barred by prescription under
Article 1571 of the Civil Code, which provides for a six-month prescriptive period.

Private respondent, on the other hand, averred that the issues raised by petitioner, like the question of whether there was an
acceptance of the work by the owner and whether the hidden defects in the installation could have been discovered by simple
inspection, involve questions of fact which have been passed upon by the appellate court.

The Court's Ruling

The Supreme Court reviews only errors of law in petitions for review on certiorari under Rule 45. It is not the function of this Court to
re-examine the findings of fact of the appellate court unless said findings are not supported by the evidence on record or the
judgment is based on a misapprehension of facts7 of Appeals erred when it held that the defects in the installation were not apparent
at the time of delivery and acceptance of the work considering that private respondent was not an expert who could recognize such
defects. Third. it insisted that, assuming arguendo that there were indeed hidden defects, private respondent's complaint was barred
by prescription under Article 1571 of the Civil Code, which provides for a six-month prescriptive period.

Private respondent, on the other hand, averred that the issues raised by petitioner, like the question of whether here was an
acceptance of the work by the owner and whether the hidden defects in the installation could have been discovered by simple
inspection, involve questions of fact which have been passed upon by the appellate court.

The Court has consistently held that the factual findings of the trial court, as well as the Court of Appeals, are final and
conclusive and may not be reviewed on appeal. Among the exceptional circumstances where a reassessment of facts
 found by the lower courts is allowed are when the conclusion is a finding grounded entirely on speculation, surmises or
conjectures; when the inference made is manifestly absurd, mistaken or impossible; when there is grave abuse of
discretion in the appreciation of facts; when the judgment is premised on a misapprehension of facts; when the findings
went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee. After a
careful study of the case at bench, we find none of the above grounds present to justify the re-evaluation of the findings of
fact made by the courts below.8

We see no valid reason to discard the factual conclusions of the appellate court. . . . (I)t is not the function of this Court to
assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties, particularly where,
such as here, the findings of both the trial court and the appellate court on the matter coincide.9 (Emphasis supplied)

Hence, the first two issues will not be resolved as they raise questions of fact.

Thus, the only question left to be resolved is that of prescription. In their submissions, the parties argued lengthily on the nature of
the contract entered into by them, viz., whether it was one of sale or for a piece of work.

Article 1713 of the Civil Code defines a contract for a piece of work thus:

By the contract for a piece of work the contractor binds himself to execute a piece of work for the employer, in
consideration of a certain price or compensation. The contractor may either employ only his labor or skill, or also furnish
the material.

A contract for a piece of work, labor and materials may be distinguished from a contract of sale by the inquiry as to whether the thing
transferred is one not in existence and which would never have existed but for the order, of the person desiring it10 . In such case, the
contract is one for a piece of work, not a sale. On the other hand, if the thing subject of the contract would have existed and been the
subject of a sale to some other person even if the order had not been given, then the contract is one of sale11 .

Thus, Mr. Justice Vitug12 explains that -

A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business
manufactures or procures for the general market, whether the same is on hand at the time or not is a contract of sale, but if
the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it
is a contract for a piece of work (Art. 1467, Civil Code). The mere fact alone that certain articles are made upon previous
orders of customers will not argue against the imposition of the sales tax if such articles are ordinarily manufactured by the
taxpayer for sale to the public (Celestino Co. vs. Collector, 99 Phil. 841).

To Tolentino, the distinction between the two contracts depends on the intention of the parties. Thus, if the parties intended that at
some future date an object has to be delivered, without considering the work or labor of the party bound to deliver, the contract is
one of sale. But if one of the parties accepts the undertaking on the basis of some plan, taking into account the work he will employ
personally or through another, there is a contract for a piece of work13 .

Clearly, the contract in question is one for a piece of work. It is not petitioner's line of business to manufacture air-conditioning
systems to be sold "off-the-shelf." Its business and particular field of expertise is the fabrication and installation of such systems as
ordered by customers and in accordance with the particular plans and specifications provided by the customers. Naturally, the price
or compensation for the system manufactured and installed will depend greatly on the particular plans and specifications agreed
upon with the customers.

The obligations of a contractor for a piece of work are set forth in Articles 1714 and 1715 of the Civil Code, which provide:

Art. 1714. If the contractor agrees to produce the work from material furnished by him, he shall deliver the thing produced
to the employer and transfer dominion over the thing. This contract shall be governed by the following articles as well as by
the pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale.

Art. 1715. The contractor shall execute the work in such a manner that it has the qualities agreed upon and has no defects
which destroy or lessen its value or fitness for its ordinary or stipulated use. Should the work be not of such quality, the
employer may require that the contractor remove the defect or execute another work. If the contractor fails or refuses to
comply with this obligation, the employer may have the defect removed or another work executed, at the contractor's cost.

The provisions on warranty against hidden defects, referred to in Art. 1714 above-quoted, are found in Articles 1561 and 1566,
which read as follows:
 Art. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should
they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that,
had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor
shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is
an expert who, by reason of his trade or profession, should have known them.

xxx xxx xxx

Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was
not aware thereof.

This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden faults or
defects in the thing sold.

The remedy against violations of the warranty against hidden defects is either to withdraw from the contract (redhibitory action) or to
demand a proportionate reduction of the price (accion quanti manoris), with damages in either case14 .

In Villostas vs. Court of Appeals15 , we held that, "while it is true that Article 1571 of the Civil Code provides for a prescriptive period
of six months for a redhibitory action, a cursory reading of the ten preceding articles to which it refers will reveal that said rule may
be applied only in case of implied warranties"; and where there is an express warranty in the contract, as in the case at bench, the
prescriptive period is the one specified in the express warranty, and in the absence of such period, "the general rule on rescission of
contract, which is four years (Article 1389, Civil Code) shall apply"16 .

Consistent with the above discussion, it would appear that this suit is barred by prescription because the complaint was filed more
than four years after the execution of the contract and the completion of the air-conditioning system.

However, a close scrutiny of the complaint filed in the trial court reveals that the original action is not really for enforcement of the
warranties against hidden defects, but one for breach of the contract itself. It alleged17 that the petitioner, "in the installation of the air
conditioning system did not comply with the specifications provided" in the written agreement between the parties, "and an
evaluation of the air-conditioning system as installed by the defendant showed the following defects and violations of the
specifications of the agreement, to wit:

GROUND FLOOR:

"A. RIGHT WING:

Equipped with Worthington Compressor, Model 2VC4 directly driven by an Hp Elin electric motor 1750 rmp, 3 phase, 60
cycles, 220 volts, complete with starter evaporative condenser, circulating water pump, air handling unit air ducts.

Defects Noted:

1. Deteriorated evaporative condenser panels, coils are full of scales and heavy corrosion is very evident.

2. Defective gauges of compressors;

3. No belt guard on motor;

4. Main switch has no cover;

5. Desired room temperature not attained;

Aside from the above defects, the following were noted not installed although provided in the specifications.

1. Face by-pass damper of G.I. sheets No. 16. This damper regulates the flow of cooled air depending on room condition.

2. No fresh air intake provision were provided which is very necessary for efficient comfort cooling..

3. No motor to regulate the face and by-pass damper.

 4. Liquid level indicator for refrigerant not provided.

5. Suitable heat exchanger is not installed. This is an important component to increase refrigeration efficiency.

6. Modulating thermostat not provided.

7. Water treatment device for evaporative condenser was not provided.

8. Liquid receiver not provided by sight glass.

B. LEFT WING:

Worthington Compressor Model 2VC4 is installed complete with 15 Hp electric motor, 3 phase, 220 volts 60 cycles with
starter.

Defects Noted:

Same as right wing. except No. 4, All other defects on right wing are common to the left wing.

SECOND FLOOR: (Common up to EIGHT FLOORS)

Compressors installed are MELCO with 7.5 Hp V-belt driven by 1800 RPM, -220 volts, 60 cycles, 3 phase, Thrige electric
motor with starters.

As stated in the specifications under, Section No. IV, the MELCO compressors do not satisfy the conditions stated therein
due to the following:

1. MELCO Compressors are not provided with automatic capacity unloader.

2. Not provided with oil pressure safety control.

3. Particular compressors do not have provision for renewal sleeves.

Out of the total 15 MELCO compressors installed to serve the 2nd floor up to 8th floors, only six (6) units are in operation
and the rest were already replaced. Of the remaining six (6) units, several of them have been replaced with bigger
crankshafts.

NINTH FLOOR:

Two (2) Worthington 2VC4 driven by 15 Hp, 3 phase, 220 volts, 60 cycles, 1750 rpm, Higgs motors with starters.

Defects Noted are similar to ground floor.

GENERAL REMARKS:

Under Section III, Design conditions of specification for air conditioning work, and taking into account "A" & "B" same, the
present systems are not capable of maintaining the desired temperature of 76 = 2ºF (sic).

The present tenant have installed 35 window type air conditioning units distributed among the different floor levels.
Temperature measurements conducted on March 29. 1971, revealed that 78ºF room (sic) is only maintained due to the
additional window type units.

The trial court, after evaluating the evidence presented, held that, indeed, petitioner failed to install items and parts required in the
contract and substituted some other items which were not in accordance with the specifications18 , thus:

From all of the foregoing, the Court is persuaded to believe the plaintiff that not only had the defendant failed to install
items and parts provided for in the specifications of the air-conditioning system be installed, like face and by-pass dampers
 and modulating thermostat and many others, but also that there are items, parts and accessories which were used and
installed on the air-conditioning system which were not in full accord with contract specifications. These omissions to install
the equipments, parts and accessories called for in the specifications of the contract, as well as the deviations made in
putting into the air-conditioning system equipments, parts and accessories not in full accord with the contract specification
naturally resulted to adversely affect the operational effectiveness of the air-conditioning system which necessitated the
installation of thirty-five window type of air-conditioning units distributed among the different floor levels in order to be able
to obtain a fairly desirable room temperature for the tenants and actual occupants of the building. The Court opines and so
holds that the failure of the defendant to follow the contract specifications and said omissions and deviations having
resulted in the operational ineffectiveness of the system installed makes the defendant liable to the plaintiff in the amount
necessary to rectify to put the air conditioning system in its proper operational condition to make it serve the purpose for
which the plaintiff entered into the contract with the defendant.

The respondent Court affirmed the trial court's decision thereby making the latter's findings also its own.

Having concluded that the original complaint is one for damages arising from breach of a written contract - and not a suit to enforce
warranties against hidden defects - we here - with declare that the governing law is Article 1715 (supra). However, inasmuch as this
provision does not contain a specific prescriptive period, the general law on prescription, which is Article 1144 of the Civil Code, will
apply. Said provision states, inter alia, that actions "upon a written contract" prescribe in ten (10) years. Since the governing contract
was executed on September 10, 1962 and the complaint was filed on May 8, 1971, it is clear that the action has not prescribed.

What about petitioner's contention that "acceptance of the work by the employer relieves the contractor of liability for any defect in
the work"? This was answered by respondent Court19 as follows:

As the breach of contract which gave rise to the instant case consisted in appellant's omission to install the equipments
(sic), parts and accessories not in accordance with the plan and specifications provided for in the contract and the
deviations made in putting into the air conditioning system parts and accessories not in accordance with the contract
specifications, it is evident that the defect in the installation was not apparent at the time of the delivery and acceptance of
the work, considering further that plaintiff is not an expert to recognize the same. From the very nature of things, it is
impossible to determine by the simple inspection of air conditioning system installed in an 8-floor building whether it has
been furnished and installed as per agreed specifications.

Verily, the mere fact that the private respondent accepted the work does not, ipso facto, relieve the petitioner from liability for
deviations from and violations of the written contract, as the law gives him ten (10) years within which to file an action based on
breach thereof.

WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED. No costs.

SO ORDERED.

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

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

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

ANDRES QUIROGA, plaintiff-appellant,

vs.
PARSONS HARDWARE CO., defendant-appellee.

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

Crossfield & O'Brien for appellee.

AVANCEÑA, J.:

On January 24, 1911, in this city of manila, a contract in the following tenor was entered into by and between the plaintiff, as party of
the first part, and J. Parsons (to whose rights and obligations the present defendant later subrogated itself), as party of the second
part:
 CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. PARSONS, BOTH MERCHANTS
ESTABLISHED IN MANILA, FOR THE EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS.

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

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

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

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

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

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

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

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

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

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

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

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

In order to classify a contract, due regard must be given to its essential clauses. In the contract in question, what was essential, as
constituting its cause and subject matter, is that the plaintiff was to furnish the defendant with the beds which the latter might order,
at the price stipulated, and that the defendant was to pay the price in the manner stipulated. The price agreed upon was the one
determined by the plaintiff for the sale of these beds in Manila, with a discount of from 20 to 25 per cent, according to their class.
Payment was to be made at the end of sixty days, or before, at the plaintiff's request, or in cash, if the defendant so preferred, and in
these last two cases an additional discount was to be allowed for prompt payment. These are precisely the essential features of a
contract of purchase and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on the part of the
defendant, to pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or
agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the
thing to a third person, and if he does not succeed in selling it, he returns it. By virtue of the contract between the plaintiff and the
defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within the term fixed, without any other
consideration and regardless as to whether he had or had not sold the beds.
It would be enough to hold, as we do, that the contract by and between the defendant and the plaintiff is one of purchase and sale, in
order to show that it was not one made on the basis of a commission on sales, as the plaintiff claims it was, for these contracts are
incompatible with each other. But, besides, examining the clauses of this contract, none of them is found that substantially supports
the plaintiff's contention. Not a single one of these clauses necessarily conveys the idea of an agency. The words commission on
sales used in clause (A) of article 1 mean nothing else, as stated in the contract itself, than a mere discount on the invoice price. The
word agency, also used in articles 2 and 3, only expresses that the defendant was the only one that could sell the plaintiff's beds in
the Visayan Islands. With regard to the remaining clauses, the least that can be said is that they are not incompatible with the
contract of purchase and sale.

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

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

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

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

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

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

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

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

GONZALO PUYAT & SONS, INC., petitioner,

vs.
ARCO AMUSEMENT COMPANY (formerly known as Teatro Arco), respondent.
Feria & Lao for petitioner.
J. W. Ferrier and Daniel Me. Gomez for respondent.

LAUREL, J.:

This is a petition for the issuance of a writ of certiorari to the Court of Appeals for the purpose of reviewing its Amusement Company
(formerly known as Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat and Sons. Inc., defendant-appellee."

It appears that the respondent herein brought an action against the herein petitioner in the Court of First Instance of Manila to secure
a reimbursement of certain amounts allegedly overpaid by it on account of the purchase price of sound reproducing equipment and
machinery ordered by the petitioner from the Starr Piano Company of Richmond, Indiana, U.S.A. The facts of the case as found by
the trial court and confirmed by the appellate court, which are admitted by the respondent, are as follows:

In the year 1929, the "Teatro Arco", a corporation duly organized under the laws of the Philippine Islands, with its office in
Manila, was engaged in the business of operating cinematographs. In 1930, its name was changed to Arco Amusement
Company. C. S. Salmon was the president, while A. B. Coulette was the business manager. About the same time, Gonzalo
Puyat & Sons, Inc., another corporation doing business in the Philippine Islands, with office in Manila, in addition to its
other business, was acting as exclusive agents in the Philippines for the Starr Piano Company of Richmond, Indiana, U.S.
A. It would seem that this last company dealt in cinematographer equipment and machinery, and the Arco Amusement
Company desiring to equipt its cinematograph with sound reproducing devices, approached Gonzalo Puyat & Sons, Inc.,
thru its then president and acting manager, Gil Puyat, and an employee named Santos. After some negotiations, it was
agreed between the parties, that is to say, Salmon and Coulette on one side, representing the plaintiff, and Gil Puyat on
the other, representing the defendant, that the latter would, on behalf of the plaintiff, order sound reproducing equipment
from the Starr Piano Company and that the plaintiff would pay the defendant, in addition to the price of the equipment, a 10
per cent commission, plus all expenses, such as, freight, insurance, banking charges, cables, etc. At the expense of the
plaintiff, the defendant sent a cable, Exhibit "3", to the Starr Piano Company, inquiring about the equipment desired and
making the said company to quote its price without discount. A reply was received by Gonzalo Puyat & Sons, Inc., with the
price, evidently the list price of $1,700 f.o.b. factory Richmond, Indiana. The defendant did not show the plaintiff the cable
of inquiry nor the reply but merely informed the plaintiff of the price of $1,700. Being agreeable to this price, the plaintiff, by
means of Exhibit "1", which is a letter signed by C. S. Salmon dated November 19, 1929, formally authorized the order.
The equipment arrived about the end of the year 1929, and upon delivery of the same to the plaintiff and the presentation
of necessary papers, the price of $1.700, plus the 10 per cent commission agreed upon and plus all the expenses and
charges, was duly paid by the plaintiff to the defendant.

Sometime the following year, and after some negotiations between the same parties, plaintiff and defendants, another
order for sound reproducing equipment was placed by the plaintiff with the defendant, on the same terms as the first order.
This agreement or order was confirmed by the plaintiff by its letter Exhibit "2", without date, that is to say, that the plaintiff
would pay for the equipment the amount of $1,600, which was supposed to be the price quoted by the Starr Piano
Company, plus 10 per cent commission, plus all expenses incurred. The equipment under the second order arrived in due
time, and the defendant was duly paid the price of $1,600 with its 10 per cent commission, and $160, for all expenses and
charges. This amount of $160 does not represent actual out-of-pocket expenses paid by the defendant, but a mere flat
charge and rough estimate made by the defendant equivalent to 10 per cent of the price of $1,600 of the equipment.

About three years later, in connection with a civil case in Vigan, filed by one Fidel Reyes against the defendant herein
Gonzalo Puyat & Sons, Inc., the officials of the Arco Amusement Company discovered that the price quoted to them by the
defendant with regard to their two orders mentioned was not the net price but rather the list price, and that the defendants
had obtained a discount from the Starr Piano Company. Moreover, by reading reviews and literature on prices of
machinery and cinematograph equipment, said officials of the plaintiff were convinced that the prices charged them by the
defendant were much too high including the charges for out-of-pocket expense. For these reasons, they sought to obtain a
reduction from the defendant or rather a reimbursement, and failing in this they brought the present action.

The trial court held that the contract between the petitioner and the respondent was one of outright purchase and sale, and absolved
that petitioner from the complaint. The appellate court, however, — by a division of four, with one justice dissenting — held that the
relation between petitioner and respondent was that of agent and principal, the petitioner acting as agent of the respondent in the
purchase of the equipment in question, and sentenced the petitioner to pay the respondent alleged overpayments in the total sum of
$1,335.52 or P2,671.04, together with legal interest thereon from the date of the filing of the complaint until said amount is fully paid,
as well as to pay the costs of the suit in both instances. The appellate court further argued that even if the contract between the
petitioner and the respondent was one of purchase and sale, the petitioner was guilty of fraud in concealing the true price and hence
would still be liable to reimburse the respondent for the overpayments made by the latter.

The petitioner now claims that the following errors have been incurred by the appellate court:
 I. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, segun hechos, entre la recurrente y la recurrida
existia una relacion implicita de mandataria a mandante en la transaccion de que se trata, en vez de la de vendedora a
compradora como ha declarado el Juzgado de Primera Instncia de Manila, presidido entonces por el hoy Magistrado
Honorable Marcelino Montemayor.

II. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, suponiendo que dicha relacion fuerra de
vendedora a compradora, la recurrente obtuvo, mediante dolo, el consentimiento de la recurrida en cuanto al precio de
$1,700 y $1,600 de las maquinarias y equipos en cuestion, y condenar a la recurrente ha obtenido de la Starr Piano
Company of Richmond, Indiana.

We sustain the theory of the trial court that the contract between the petitioner and the respondent was one of purchase and sale,
and not one of agency, for the reasons now to be stated.

In the first place, the contract is the law between the parties and should include all the things they are supposed to have been
agreed upon. What does not appear on the face of the contract should be regarded merely as "dealer's" or "trader's talk", which can
not bind either party. (Nolbrook v. Conner, 56 So., 576, 11 Am. Rep., 212; Bank v. Brosscell, 120 III., 161; Bank v. Palmer, 47 III.,
92; Hosser v. Copper, 8 Allen, 334; Doles v. Merrill, 173 Mass., 411.) The letters, Exhibits 1 and 2, by which the respondent
accepted the prices of $1,700 and $1,600, respectively, for the sound reproducing equipment subject of its contract with the
petitioner, are clear in their terms and admit no other interpretation that the respondent in question at the prices indicated which are
fixed and determinate. The respondent admitted in its complaint filed with the Court of First Instance of Manila that the petitioner
agreed to sell to it the first sound reproducing equipment and machinery. The third paragraph of the respondent's cause of action
states:

3. That on or about November 19, 1929, the herein plaintiff (respondent) and defendant (petitioner) entered into an
agreement, under and by virtue of which the herein defendant was to secure from the United States, and sell and deliver to
the herein plaintiff, certain sound reproducing equipment and machinery, for which the said defendant, under and by virtue
of said agreement, was to receive the actual cost price plus ten per cent (10%), and was also to be reimbursed for all out of
pocket expenses in connection with the purchase and delivery of such equipment, such as costs of telegrams, freight, and
similar expenses. (Emphasis ours.)

We agree with the trial judge that "whatever unforseen events might have taken place unfavorable to the defendant (petitioner), such
as change in prices, mistake in their quotation, loss of the goods not covered by insurance or failure of the Starr Piano Company to
properly fill the orders as per specifications, the plaintiff (respondent) might still legally hold the defendant (petitioner) to the prices
fixed of $1,700 and $1,600." This is incompatible with the pretended relation of agency between the petitioner and the respondent,
because in agency, the agent is exempted from all liability in the discharge of his commission provided he acts in accordance with
the instructions received from his principal (section 254, Code of Commerce), and the principal must indemnify the agent for all
damages which the latter may incur in carrying out the agency without fault or imprudence on his part (article 1729, Civil Code).

While the latters, Exhibits 1 and 2, state that the petitioner was to receive ten per cent (10%) commission, this does not necessarily
make the petitioner an agent of the respondent, as this provision is only an additional price which the respondent bound itself to pay,
and which stipulation is not incompatible with the contract of purchase and sale. (See Quiroga vs. Parsons Hardware Co., 38 Phil.,
501.)

In the second place, to hold the petitioner an agent of the respondent in the purchase of equipment and machinery from the Starr
Piano Company of Richmond, Indiana, is incompatible with the admitted fact that the petitioner is the exclusive agent of the same
company in the Philippines. It is out of the ordinary for one to be the agent of both the vendor and the purchaser. The facts and
circumstances indicated do not point to anything but plain ordinary transaction where the respondent enters into a contract of
purchase and sale with the petitioner, the latter as exclusive agent of the Starr Piano Company in the United States.

It follows that the petitioner as vendor is not bound to reimburse the respondent as vendee for any difference between the cost price
and the sales price which represents the profit realized by the vendor out of the transaction. This is the very essence of commerce
without which merchants or middleman would not exist.

The respondents contends that it merely agreed to pay the cost price as distinguished from the list price, plus ten per cent (10%)
commission and all out-of-pocket expenses incurred by the petitioner. The distinction which the respondents seeks to draw between
the cost price and the list price we consider to be spacious. It is to be observed that the twenty-five per cent (25%) discount granted
by the Starr piano Company to the petitioner is available only to the latter as the former's exclusive agent in the Philippines. The
respondent could not have secured this discount from the Starr Piano Company and neither was the petitioner willing to waive that
discount in favor of the respondent. As a matter of fact, no reason is advanced by the respondent why the petitioner should waive
the 25 per cent discount granted it by the Starr Piano Company in exchange for the 10 percent commission offered by the
respondent. Moreover, the petitioner was not duty bound to reveal the private arrangement it had with the Starr Piano Company
relative to such discount to its prospective customers, and the respondent was not even aware of such an arrangement. The
respondent, therefore, could not have offered to pay a 10 per cent commission to the petitioner provided it was given the benefit of
the 25 per cent discount enjoyed by the petitioner. It is well known that local dealers acting as agents of foreign manufacturers, aside
from obtaining a discount from the home office, sometimes add to the list price when they resell to local purchasers. It was
apparently to guard against an exhorbitant additional price that the respondent sought to limit it to 10 per cent, and the respondent is
estopped from questioning that additional price. If the respondent later on discovers itself at the short end of a bad bargain, it alone
must bear the blame, and it cannot rescind the contract, much less compel a reimbursement of the excess price, on that ground
alone. The respondent could not secure equipment and machinery manufactured by the Starr Piano Company except from the
petitioner alone; it willingly paid the price quoted; it received the equipment and machinery as represented; and that was the end of
the matter as far as the respondent was concerned. The fact that the petitioner obtained more or less profit than the respondent
calculated before entering into the contract or reducing the price agreed upon between the petitioner and the respondent. Not every
concealment is fraud; and short of fraud, it were better that, within certain limits, business acumen permit of the loosening of the
sleeves and of the sharpening of the intellect of men and women in the business world.

The writ of certiorari should be, as it is hereby, granted. The decision of the appellate court is accordingly reversed and the petitioner
is absolved from the respondent's complaint in G. R. No. 1023, entitled "Arco Amusement Company (formerly known as Teatro
Arco), plaintiff-appellant, vs. Gonzalo Puyat & Sons, Inc., defendants-appellee," without pronouncement regarding costs. So ordered.