[G.R. No. 149420.

 October 8, 2003]

SONNY LO, petitioner, vs.  KJS ECO-FORMWORK SYSTEM PHIL.,

INC., respondent.

DECISION
YNARES-SANTIAGO, J.:

Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged in the

sale of steel scaffoldings, while petitioner Sonny L. Lo, doing business under the name
and style Sans Enterprises, is a building contractor. On February 22, 1990, petitioner
ordered scaffolding equipments from respondent worth P540,425.80. [1] He paid
a downpayment in the amount of P150,000.00. The balance was made payable in ten
monthly installments.
Respondent delivered the scaffoldings to petitioner. [2] Petitioner was able to pay the
first two monthly installments. His business, however, encountered financial difficulties
and he was unable to settle his obligation to respondent despite oral and written
demands made against him.[3]
On October 11, 1990, petitioner and respondent executed a Deed of Assignment,
[4] whereby petitioner assigned to respondent his receivables in the amount of
P335,462.14 from Jomero Realty Corporation. Pertinent portions of the Deed provide:

WHEREAS, the ASSIGNOR is the contractor for the construction of a residential house
located at Greenmeadow Avenue, Quezon City owned by Jomero Realty Corporation;

WHEREAS, in the construction of the aforementioned residential house, the ASSIGNOR

purchased on account scaffolding equipments from the ASSIGNEE payable to the latter;

WHEREAS, up to the present the ASSIGNOR has an obligation to the ASSIGNEE for the
purchase of the aforementioned scaffoldings now in the amount of Three Hundred Thirty
Five Thousand Four Hundred Sixty Two and 14/100 Pesos (P335,462.14);

NOW, THEREFORE, for and in consideration of the sum of Three Hundred Thirty Five
Thousand Four Hundred Sixty Two and 14/100 Pesos (P335,462.14), Philippine Currency
which represents part of the ASSIGNORs collectible from Jomero Realty Corp., said
ASSIGNOR hereby assigns, transfers and sets over unto the ASSIGNEE all collectibles
amounting to the said amount of P335, 462.14;

And the ASSIGNOR does hereby grant the ASSIGNEE, its successors and assigns, the full
power and authority to demand, collect, receive, compound, compromise and give
acquittance for the same or any part thereof, and in the name and stead of the said
ASSIGNOR;

And the ASSIGNOR does hereby agree and stipulate to and with said ASSIGNEE, its
successors and assigns that said debt is justly owing and due to the ASSIGNOR for
Jomero Realty Corporation and that said ASSIGNOR has not done and will not cause
anything to be done to diminish or discharge said debt, or delay or to prevent the
ASSIGNEE, its successors or assigns, from collecting the same;

And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR,
his heirs, executors, administrators, or assigns, shall and will at times hereafter, at the
request of said ASSIGNEE, its successors or assigns, at his cost and expense, execute
and do all such further acts and deeds as shall be reasonably necessary to effectually
enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR has in
accordance with the true intent and meaning of these presents. xxx[5] (Italics supplied)
 However, when respondent tried to collect the said credit from Jomero Realty
Corporation, the latter refused to honor the Deed of Assignment because it claimed that
petitioner was also indebted to it. [6] On November 26, 1990, respondent sent a
letter[7] to petitioner demanding payment of his obligation, but petitioner refused to pay
claiming that his obligation had been extinguished when they executed the Deed of
Assignment.
Consequently, on January 10, 1991, respondent filed an action for recovery of a sum
of money against the petitioner before the Regional Trial Court of Makati, Branch 147,
which was docketed as Civil Case No. 91-074.[8]
During the trial, petitioner argued that his obligation was extinguished with the
execution of the Deed of Assignment of credit. Respondent, for its part, presented the
testimony of its employee, Almeda Baaga, who testified that Jomero Realty refused to
honor the assignment of credit because it claimed that petitioner had an outstanding
indebtedness to it.
On August 25, 1994, the trial court rendered a decision [9] dismissing the complaint
on the ground that the assignment of credit extinguished the obligation. The decretal
portion thereof provides:

WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of
the defendant and against the plaintiff, dismissing the complaint and ordering the
plaintiff to pay the defendant attorneys fees in the amount of P25,000.00.

Respondent appealed the decision to the Court of Appeals. On April 19, 2001, the
appellate court rendered a decision,[10] the dispositive portion of which reads:

WHEREFORE, finding merit in this appeal, the court REVERSES the appealed Decision
and enters judgment ordering defendant-appellee Sonny Lo to pay the plaintiff-appellant
KJS ECO-FORMWORK SYSTEM PHILIPPINES, INC. Three Hundred Thirty Five Thousand
Four Hundred Sixty-Two and 14/100 (P335,462.14) with legal interest of 6% per annum
from January 10, 1991 (filing of the Complaint) until fully paid and attorneys fees
equivalent to 10% of the amount due and costs of the suit.

SO ORDERED.[11]

In finding that the Deed of Assignment did not extinguish the obligation of the
petitioner to the respondent, the Court of Appeals held that (1) petitioner failed to
comply with his warranty under the Deed; (2) the object of the Deed did not exist at the
time of the transaction, rendering it void pursuant to Article 1409 of the Civil Code; and
(3) petitioner violated the terms of the Deed of Assignment when he failed to execute
and do all acts and deeds as shall be necessary to effectually enable the respondent to
recover the collectibles.[12]
Petitioner filed a motion for reconsideration of the said decision, which was denied by
the Court of Appeals.[13]
In this petition for review, petitioner assigns the following errors:
I

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR IN DECLARING

THE DEED OF ASSIGNMENT (EXH. 4) AS NULL AND VOID FOR LACK OF OBJECT ON
THE BASIS OF A MERE HEARSAY CLAIM.

II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF
ASSIGNMENT (EXH. 4) DID NOT EXTINGUISH PETITIONERS OBLIGATION ON THE
WRONG NOTION THAT PETITIONER FAILED TO COMPLY WITH HIS WARRANTY
THEREUNDER.
 III
THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF
THE TRIAL COURT AND IN ORDERING PAYMENT OF INTERESTS AND ATTORNEYS
FEES.[14]
The petition is without merit.
An assignment of credit is an agreement by virtue of which the owner of a credit,
known as the assignor, by a legal cause, such as sale, dacion en pago, exchange or
donation, and without the consent of the debtor, transfers his credit and accessory
rights to another, known as the assignee, who acquires the power to enforce it to the
same extent as the assignor could enforce it against the debtor. [15]
Corollary thereto, in dacion en pago, as a special mode of payment, the debtor
offers another thing to the creditor who accepts it as equivalent of payment of an
outstanding debt.[16] In order that there be a valid dation in payment, the following are
the requisites: (1) There must be the performance of the prestation in lieu of payment
(animo solvendi) which may consist in the delivery of a corporeal thing or a real right or
a credit against the third person; (2) There must be some difference between
the prestation due and that which is given in substitution (aliud pro alio); (3) There
must be an agreement between the creditor and debtor that the obligation is
immediately extinguished by reason of the performance of a prestation different from
that due.[17] The undertaking really partakes in one sense of the nature of sale, that is,
the creditor is really buying the thing or property of the debtor, payment for which is to
be charged against the debtors debt. As such, the vendor in good faith shall be
responsible, for the existence and legality of the credit at the time of the sale but not for
the solvency of the debtor, in specified circumstances. [18]
Hence, it may well be that the assignment of credit, which is in the nature of a sale
of personal property,[19] produced the effects of a dation in payment which may
extinguish the obligation.[20] However, as in any other contract of sale, the vendor or
assignor is bound by certain warranties. More specifically, the first paragraph of Article
1628 of the Civil Code provides:

The vendor in good faith shall be responsible for the existence and legality of the credit
at the time of the sale, unless it should have been sold as doubtful; but not for the
solvency of the debtor, unless it has been so expressly stipulated or unless the
insolvency was prior to the sale and of common knowledge.

From the above provision, petitioner, as vendor or assignor, is bound to warrant the
existence and legality of the credit at the time of the sale or
assignment. When Jomero claimed that it was no longer indebted to petitioner since the
latter also had an unpaid obligation to it, it essentially meant that its obligation to
petitioner has been extinguished by compensation. [21] In other words, respondent
alleged the non-existence of the credit and asserted its claim to petitioners warranty
under the assignment. Therefore, it behooved on petitioner to make good its warranty
and paid the obligation.
Furthermore, we find that petitioner breached his obligation under the Deed of
Assignment, to wit:

And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR,
his heirs, executors, administrators, or assigns, shall and will at times hereafter, at the
request of said ASSIGNEE, its successors or assigns, at his cost and expense, execute
and do all such further acts and deeds as shall be reasonably necessary to effectually
enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR has in
accordance with the true intent and meaning of these presents.[22] (underscoring ours)

Indeed, by warranting the existence of the credit, petitioner should be deemed to

have ensured the performance thereof in case the same is later found to be
inexistent. He should be held liable to pay to respondent the amount of his
indebtedness.
 Hence, we affirm the decision of the Court of Appeals ordering petitioner to pay
respondent the sum of P335,462.14 with legal interest thereon. However, we find that
the award by the Court of Appeals of attorneys fees is without factual basis. No evidence
or testimony was presented to substantiate this claim. Attorneys fees, being in the
nature of actual damages, must be duly substantiated by competent proof.
WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals
dated April 19, 2001 in CA-G.R. CV No. 47713, ordering petitioner to pay respondent the
sum of P335,462.14 with legal interest of 6% per annum from January 10, 1991 until
fully paid is AFFIRMED with MODIFICATION. Upon finality of this Decision, the rate of
legal interest shall be 12% per annum, inasmuch as the obligation shall thereafter
become equivalent to a forbearance of credit. [23] The award of attorneys fees is DELETED
for lack of evidentiary basis. SO ORDERED.
 [G.R. No. 115349. April 18, 1997]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE COURT OF

APPEALS, THE COURT OF TAX APPEALS and ATENEO DE MANILA
UNIVERSITY, respondents.

DECISION
PANGANIBAN, J.:

In conducting researches and studies of social organizations and cultural values thru
its Institute of Philippine Culture, is the Ateneo de Manila University performing the work
of an independent contractor and thus taxable within the purview of then Section 205 of
the National Internal Revenue Code levying a three percent contractors tax? This
question is answered by the Court in the negative as it resolves this petition assailing
the Decision[1] of the Respondent Court of Appeals[2] in CA-G.R. SP No. 31790
promulgated on April 27, 1994 affirming that of the Court of Tax Appeals. [3]

The Antecedent Facts

The antecedents as found by the Court of Appeals are reproduced hereinbelow, the
same being largely undisputed by the parties.
Private respondent is a non-stock, non-profit educational institution with auxiliary
units and branches all over the Philippines. One such auxiliary unit is the Institute
of Philippine Culture (IPC), which has no legal personality separate and distinct
from that of private respondent. The IPC is a Philippine unit engaged in social
science studies of Philippine society and culture. Occasionally, it accepts
sponsorships for its research activities from international organizations, private
foundations and government agencies.
On July 8, 1983, private respondent received from petitioner Commissioner of
Internal Revenue a demand letter dated June 3, 1983, assessing private
respondent the sum of P174,043.97 for alleged deficiency contractors tax, and an
assessment dated June 27, 1983 in the sum of P1,141,837 for alleged deficiency
income tax, both for the fiscal year ended March 31, 1978. Denying said tax
liabilities, private respondent sent petitioner a letter-protest and subsequently
filed with the latter a memorandum contesting the validity of the assessments.
On March 17, 1988, petitioner rendered a letter-decision canceling the
assessment for deficiency income tax but modifying the assessment for deficiency
contractors tax by increasing the amount due to P193,475.55. Unsatisfied, private
respondent requested for a reconsideration or reinvestigation of the modified
assessment. At the same time, it filed in the respondent court a petition for
review of the said letter-decision of the petitioner. While the petition was pending
before the respondent court, petitioner issued a final decision dated August 3,
1988 reducing the assessment for deficiency contractors tax from P193,475.55
to P46,516.41, exclusive of surcharge and interest.
On July 12, 1993, the respondent court rendered the questioned decision which
dispositively reads:
WHEREFORE, in view of the foregoing, respondents decision is SET
ASIDE. The deficiency contractors tax assessment in the amount
of P46,516.41 exclusive of surcharge and interest for the fiscal year ended
March 31, 1978 is hereby CANCELED. No pronouncement as to cost.
SO ORDERED.
 Not in accord with said decision, petitioner has come to this Court via the present
petition for review raising the following issues:
1)WHETHER OR NOT PRIVATE RESPONDENT FALLS UNDER THE
PURVIEW OF INDEPENDENT CONTRACTOR PURSUANT TO SECTION
205 OF THE TAX CODE; and
2) WHETHER OR NOT PRIVATE RESPONDENT IS SUBJECT TO 3%
CONTRACTORS TAX UNDER SECTION 205 OF THE TAX CODE.
The pertinent portions of Section 205 of the National Internal Revenue Code, as
amended, provide:
Sec. 205. Contractor, proprietors or operators of dockyards, and others. -
A contractors tax of three per centum of the gross receipts is hereby
imposed on the following:
x x x x x x x x x

(16) Business agents and other independent contractors except persons,

associations and corporations under contract for embroidery and apparel for
export, as well as their agents and contractors and except gross receipts of or
from a pioneer industry registered with the Board of Investments under Republic
Act No. 5186:

x x x x x x x x x

The term independent contractors include persons (juridical or natural) not

enumerated above (but not including individuals subject to the occupation tax
under Section 12 of the Local Tax Code) whose activity consists essentially of the
sale of all kinds of services for a fee regardless of whether or not the
performance of the service calls for the exercise or use of the physical or mental
faculties of such contractors or their employees.

x x x x x x x x x
Petitioner contends that the respondent court erred in holding that private
respondent is not an independent contractor within the purview of Section 205 of
the Tax Code. To petitioner, the term independent contractor, as defined by the
Code, encompasses all kinds of services rendered for a fee and that the only
exceptions are the following:
a. Persons, association and corporations under contract for embroidery
and apparel for export and gross receipts of or from pioneer industry
registered with the Board of Investment under R.A. No. 5186;
b. Individuals occupation tax under Section 12 of the Local Tax Code
(under the old Section 182 [b] of the Tax Code); and
c. Regional or area headquarters established in the Philippines by
multinational corporations, including their alien executives, and which
headquarters do not earn or derive income from the Philippines and which
act as supervisory, communication and coordinating centers for their
affiliates, subsidiaries or branches in the Asia Pacific Region (Section 205
of the Tax Code).
Petitioner thus submits that since private respondent falls under the definition of
an independent contractor and is not among the aforementioned exceptions,
private respondent is therefore subject to the 3% contractors tax imposed under
the same Code.[4]
The Court of Appeals disagreed with the Petitioner Commissioner of Internal Revenue
and affirmed the assailed decision of the Court of Tax Appeals. Unfazed, petitioner now
asks us to reverse the CA through this petition for review.
 The Issues

Petitioner submits before us the following issues:

1) Whether or not private respondent falls under the purview of independent
contractor pursuant to Section 205 of the Tax Code
2) Whether or not private respondent is subject to 3% contractors tax under
Section 205 of the Tax Code.[5]
In fine, these may be reduced to a single issue: Is Ateneo de Manila University,
through its auxiliary unit or branch -- the Institute of Philippine Culture -- performing
the work of an independent contractor and, thus, subject to the three percent
contractors tax levied by then Section 205 of the National Internal Revenue Code?

The Courts Ruling

The petition is unmeritorious.

Interpretation of Tax Laws

The parts of then Section 205 of the National Internal Revenue Code germane to the
case before us read:
SEC. 205. Contractors, proprietors or operators of dockyards, and others. -- A
contractors tax of three per centum of the gross receipts is hereby imposed on
the following:
x x x x x x x x x
(16) Business agents and other independent contractors, except persons,
associations and corporations under contract for embroidery and apparel
for export, as well as their agents and contractors, and except gross
receipts of or from a pioneer industry registered with the Board of
Investments under the provisions of Republic Act No. 5186;
x x x x x x x x x
The term independent contractors include persons (juridical or natural)
not enumerated above (but not including individuals subject to the
occupation tax under Section 12 of the Local Tax Code) whose activity
consists essentially of the sale of all kinds of services for a fee regardless
of whether or not the performance of the service calls for the exercise or
use of the physical or mental faculties of such contractors or their
employees.
The term independent contractor shall not include regional or area
headquarters established in the Philippines by multinational corporations,
including their alien executives, and which headquarters do not earn or
derive income from the Philippines and which act as supervisory,
communications and coordinating centers for their affiliates, subsidiaries
or branches in the Asia-Pacific Region.
The term gross receipts means all amounts received by the prime or
principal contractor as the total contract price, undiminished by amount
paid to the subcontractor, shall be excluded from the taxable gross
receipts of the subcontractor.
Petitioner Commissioner of Internal Revenue contends that Private Respondent
Ateneo de Manila University falls within the definition of an independent contractor and
is not one of those mentioned as excepted; hence, it is properly a subject of the three
percent contractors tax levied by the foregoing provision of law. [6] Petitioner states that
the term independent contractor is not specifically defined so as to delimit the scope
thereof, so much so that any person who x x x renders physical and mental service for a
fee, is now indubitably considered an independent contractor liable to 3% contractors
tax.[7] according to petitioner, Ateneo has the burden of proof to show its exemption
from the coverage of the law.
We disagree. Petitioner Commissioner of Internal Revenue erred in applying the
principles of tax exemption without first applying the well-settled doctrine of strict
interpretation in the imposition of taxes. It is obviously both illogical and impractical to
determine who are exempted without first determining who are covered by the aforesaid
provision. The Commissioner should have determined first if private respondent was
covered by Section 205, applying the rule of strict interpretation of laws imposing taxes
and other burdens on the populace, before asking Ateneo to prove its exemption
therefrom. The Court takes this occasion to reiterate the hornbook doctrine in the
interpretation of tax laws that (a) statute will not be construed as imposing a tax unless
it does so clearly, expressly, and unambiguously. x x x (A) tax cannot be imposed
without clear and express words for that purpose. Accordingly, the general rule of
requiring adherence to the letter in construing statutes applies with peculiar strictness to
tax laws and the provisions of a taxing act are not to be extended by implication.
[8]
 Parenthetically, in answering the question of who is subject to tax statutes, it is basic
that in case of doubt, such statutes are to be construed most strongly against the
government and in favor of the subjects or citizens because burdens are not to be
imposed nor presumed to be imposed beyond what statutes expressly and clearly
import.[9]
To fall under its coverage, Section 205 of the National Internal Revenue Code
requires that the independent contractor be engaged in the business of selling its
services. Hence, to impose the three percent contractors tax on Ateneos Institute of
Philippine Culture, it should be sufficiently proven that the private respondent is indeed
selling its services for a fee in pursuit of an independent business. And it is only after
private respondent has been found clearly to be subject to the provisions of Sec. 205
that the question of exemption therefrom would arise. Only after such coverage is
shown does the rule of construction -- that tax exemptions are to be strictly construed
against the taxpayer -- come into play, contrary to petitioners position. This is the main
line of reasoning of the Court of Tax Appeals in its decision, [10] which was affirmed by the
CA.

The Ateneo de Manila University Did Not Contract

for the Sale of the Services of its Institute of Philippine Culture

After reviewing the records of this case, we find no evidence that Ateneos Institute of
Philippine Culture ever sold its services for a fee to anyone or was ever engaged in a
business apart from and independently of the academic purposes of the university.
Stressing that it is not the Ateneo de Manila University per se which is being taxed,
Petitioner Commissioner of Internal Revenue contends that the tax is due on its activity
of conducting researches for a fee. The tax is due on the gross receipts made in favor of
IPC pursuant to the contracts the latter entered to conduct researches for the benefit
primarily of its clients. The tax is imposed on the exercise of a taxable activity. x x x
[T]he sale of services of private respondent is made under a contract and the various
contracts entered into between private respondent and its clients are almost of the same
terms, showing, among others, the compensation and terms of payment.
[11]
 (Underscoring supplied.)
In theory, the Commissioner of Internal Revenue may be correct. However, the
records do not show that Ateneos IPC in fact contracted to sell its research services for a
fee. Clearly then, as found by the Court of Appeals and the Court of Tax
Appeals, petitioners theory is inapplicable to the established factual milieu obtaining in
the instant case.
 In the first place, the petitioner has presented no evidence to prove its bare
contention that, indeed, contracts for sale of services were ever entered into by the
private respondent. As appropriately pointed out by the latter:
An examination of the Commissioners Written Formal Offer of Evidence in the
Court of Tax Appeals shows that only the following documentary evidence was
presented:
Exhibit 1 BIR letter of authority no. 331844
2 Examiners Field Audit Report
3 Adjustments to Sales/Receipts
4 Letter-decision of BIR Commissioner
Bienvenido A. Tan Jr.

None of the foregoing evidence even comes close to purport to be contracts between
private respondent and third parties.[12]

Moreover, the Court of Tax Appeals accurately and correctly declared that the funds
received by the Ateneo de Manila University are technically not a fee. They may however
fall as gifts or donations which are tax-exempt as shown by private respondents
compliance with the requirement of Section 123 of the National Internal Revenue Code
providing for the exemption of such gifts to an educational institution. [13]
Respondent Court of Appeals elucidated on the ruling of the Court of Tax Appeals:
To our mind, private respondent hardly fits into the definition of an independent
contractor.
For one, the established facts show that IPC, as a unit of the private respondent,
is not engaged in business. Undisputedly, private respondent is mandated by law
to undertake research activities to maintain its university status. In fact, the
research activities being carried out by the IPC is focused not on business or
profit but on social sciences studies of Philippine society and culture. Since it can
only finance a limited number of IPCs research projects, private respondent
occasionally accepts sponsorship for unfunded IPC research projects from
international organizations, private foundations and governmental
agencies. However, such sponsorships are subject to private respondents terms
and conditions, among which are, that the research is confined to topics
consistent with the private respondents academic agenda; that no proprietary or
commercial purpose research is done; and that private respondent retains not
only the absolute right to publish but also the ownership of the results of the
research conducted by the IPC.  Quite clearly, the aforementioned terms and
conditions belie the allegation that private respondent is a contractor or is
engaged in business.
For another, it bears stressing that private respondent is a non-stock, non-profit
educational corporation. The fact that it accepted sponsorship for IPCs unfunded
projects is merely incidental. For, the main function of the IPC is to undertake
research projects under the academic agenda of the private
respondent. Moreover, the records do not show that in accepting sponsorship of
research work, IPC realized profits from such work. On the contrary, the evidence
shows that for about 30 years, IPC had continuously operated at a loss, which
means that sponsored funds are less than actual expenses for its research
projects. That IPC has been operating at a loss loudly bespeaks of the fact that
education and not profit is the motive for undertaking the research projects.
Then, too, granting arguendo that IPC made profits from the sponsored research
projects, the fact still remains that there is no proof that part of such earnings or
profits was ever distributed as dividends to any stockholder, as in fact none was
so distributed because they accrued to the benefit of the private respondent
which is a non-profit educational institution. [14]
Therefore, it is clear that the funds received by Ateneos Institute of Philippine
Culture are not given in the concept of a fee or price in exchange for the performance of
a service or delivery of an object. Rather, the amounts are in the nature of an
endowment or donation given by IPCs benefactors solely for the purpose of sponsoring
or funding the research with no strings attached. As found by the two courts below, such
sponsorships are subject to IPCs terms and conditions. No proprietary or commercial
research is done,and IPC retains the ownership of the results of the research, including
the absolute right to publish the same. The copyrights over the results of the research
are owned by Ateneo and, consequently, no portion thereof may be reproduced without
its permission.[15] The amounts given to IPC, therefore, may not be deemed, it bears
stressing, as fees or gross receipts that can be subjected to the three percent
contractors tax.
It is also well to stress that the questioned transactions of Ateneos Institute of
Philippine Culture cannot be deemed either as a contract of sale or a contract for a piece
of work. By the contract of sale, one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent. [16] By its very nature, a contract of
sale requires a transfer of ownership. Thus, Article 1458 of the Civil Code expressly
makes the obligation to transfer ownership as an essential element of the contract of
sale, following modern codes, such as the German and the Swiss. Even in the absence of
this express requirement, however, most writers, including Sanchez Roman, Gayoso,
Valverde, Ruggiero, Colin and Capitant, have considered such transfer of ownership as
the primary purpose of sale. Perez and Alguer follow the same view, stating that the
delivery of the thing does not mean a mere physical transfer, but is a means of
transmitting ownership. Transfer of title or an agreement to transfer it for a price paid or
promised to be paid is the essence of sale. [17] In the case of a contract for a piece of
work, the contractor binds himself to execute a piece of work for the employer, in
consideration of a certain price or compensation. x x x If the contractor agrees to
produce the work from materials furnished by him, he shall deliver the thing produced to
the employer and transfer dominion over the thing. x x x. [18] Ineludably, whether the
contract be one of sale or one for a piece of work, a transfer of ownership is involved
and a party necessarily walks away with an object. [19] In the case at bench, it is clear
from the evidence on record that there was no sale either of objects or services because,
as adverted to earlier, there was no transfer of ownership over the research data
obtained or the results of research projects undertaken by the Institute of Philippine
Culture.
Furthermore, it is clear that the research activity of the Institute of Philippine Culture
is done in pursuance of maintaining Ateneos university status and not in the course of
an independent business of selling such research with profit in mind. This is clear from a
reading of the regulations governing universities:
31.In addition to the legal requisites an institution must meet, among others, the
following requirements before an application for university status shall be
considered:
x x x x x x x x x
(e) The institution must undertake research and operate with a competent
qualified staff at least three graduate departments in accordance with the
rules and standards for graduate education.  One of the departments shall
be science and technology. The competence of the staff shall be judged by
their effective teaching, scholarly publications and research activities
published in its school journal as well as their leadership activities in the
profession.
(f) The institution must show evidence of adequate and stable financial
resources and support, a reasonable portion of which should be devoted to
institutional development and research. (underscoring supplied)
x x x x x x x x x
32. University status may be withdrawn, after due notice and hearing, for failure
to maintain satisfactorily the standards and requirements therefor. [20]
 Petitioners contention that it is the Institute of Philippine Culture that is being taxed
and not the Ateneo is patently erroneous because the former is not an independent
juridical entity that is separate and distinct from the latter.

Factual Findings and Conclusions of the Court of Tax Appeals

Affirmed by the Court of Appeals Generally Conclusive

In addition, we reiterate that the Court of Tax Appeals is a highly specialized body
specifically created for the purpose of reviewing tax cases. Through its expertise, it is
undeniably competent to determine the issue of whether [21] Ateneo de Manila University
may be deemed a subject of the three percent contractors tax through the evidence
presented before it. Consequently, as a matter of principle, this Court will not set aside
the conclusion reached by x x x the Court of Tax Appeals which is, by the very nature of
its function, dedicated exclusively to the study and consideration of tax problems and
has necessarily developed an expertise on the subject unless there has been an abuse or
improvident exercise of authority x x x. [22] This point becomes more evident in the case
before us where the findings and conclusions of both the Court of Tax Appeals and the
Court of Appeals appear untainted by any abuse of authority, much less grave abuse of
discretion. Thus, we find the decision of the latter affirming that of the former free from
any palpable error.

Public Service,  Not Profit, is the Motive

The records show that the Institute of Philippine Culture conducted its research
activities at a huge deficit of P1,624,014.00 as shown in its statements of fund and
disbursements for the period 1972 to 1985. [23] In fact, it was Ateneo de Manila University
itself that had funded the research projects of the institute, and it was only when Ateneo
could no longer produce the needed funds that the institute sought funding from
outside. The testimony of Ateneos Director for Accounting Services, Ms. Leonor
Wijangco, provides significant insight on the academic and nonprofit nature of the
institutes research activities done in furtherance of the universitys purposes, as follows:
Q Now it was testified to earlier by Miss Thelma Padero (Office Manager of the
Institute of Philippine Culture) that as far as grants from sponsored research
it is possible that the grant sometimes is less than the actual cost. Will you
please tell us in this case when the actual cost is a lot less than the grant who
shoulders the additional cost?
A The University.
Q Now, why is this done by the University?
A Because of our faculty development program as a university, because a
university has to have its own research institute. [24]
So, why is it that Ateneo continues to operate and conduct researches through its
Institute of Philippine Culture when it undisputedly loses not an insignificant amount in
the process? The plain and simple answer is that private respondent is not a contractor
selling its services for a fee but an academic institution conducting these researches
pursuant to its commitments to education and, ultimately, to public service. For the
institute to have tenaciously continued operating for so long despite its accumulation of
significant losses,we can only agree with both the Court of Tax Appeals and the Court of
Appeals that education and not profit is [IPCs] motive for undertaking the research
projects.[25]
WHEREFORE, premises considered, the petition is DENIED and the assailed Decision
of the Court of Appeals is hereby AFFIRMED in full. SO ORDERED.
 [G.R. No. 52267. January 24, 1996]

ENGINEERING & MACHINERY CORPORATION, petitioner, vs.  COURT OF

APPEALS and PONCIANO L. ALMEDA, respondents.

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 Decision [1] of the Court of
Appeals[2] in CA-G.R. No. 58276-R promulgated on November 28, 1978 (affirming in
toto the decision[3] dated April 15, 1974 of the then Court of First Instance of Rizal,
Branch II,[4] in Civil Case No. 14712, which ordered petitioner to pay private respondent
the amount needed to rectify the faults and deficiencies of the air-conditioning system
installed by petitioner in private respondents building, plus damages, attorneys 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 respondents 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 latters 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 NIDCs 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 76F - 2F (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 P2 10,000.00 representing the rectification cost, P100,000.00
as damages and P15,000.00 as attorneys 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 of 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 sale.[6]
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 petitioners 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 respondents posting of a bond of P50,000.00, 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 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
respondents 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 respondents
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 Courts Ruling

The Supreme Court reviews only errors of law in petitions for review on certiorari
under Rule 45. It is not the function of this Court to re-examine the findings of fact of
the appellate court unless said findings are not supported by the evidence on record or
the judgment is based on a misapprehension of facts.[7]

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. x x x
(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]
 (Italics 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 it. [10] In
such case, the contract is one for a piece of work, not a sale. On the other hand, if the
thing subject of the contract would have existed and been the subject of a sale to some
other person even if the order had not been given, then the contract is one of sale. [11]
Thus, Mr. Justice Vitug[12] 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 work.[13]
Clearly, the contract in question is one for a piece of work. It is not petitioners 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 contractors 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 minoris), with damages in either case.[14]
 In Villostas vs. Court of Appeals,[15] we held that, while it is true that Article 1571 of
the Civil Code provides for a prescriptive period of six months for a redhibitory action, a
cursory reading of the ten preceding articles to which it refers will reveal that said rule
may be applied only in case of implied warranties; and where there is an express
warranty in the contract, as in the case at bench, the prescriptive period is the one
specified in the express warranty, and in the absence of such period, the general rule on
rescission of contract, which is four years (Article 1389, Civil Code) shall apply. [16]
Consistent with the above discussion, it would appear that this suit is barred by
prescription because the complaint was filed more than four years after the execution of
the contract and the completion of the air-conditioning system.
However, a close scrutiny of the complaint filed in the trial court reveals that the
original action is not really for enforcement of the warranties against hidden defects, but
one for breach of the contract itself. It alleged[17] that the petitioner, in the installation of
the air-conditioning system did not comply with the specifications provided in the written
agreement between the parties, and an evaluation of the air-conditioning system as
installed by the defendant showed the following defects and violations of the
specifications of the agreement, to wit:

GROUND FLOOR:

A. RIGHT WING:

Equipped with Worthington Compressor, Model 2VC4 directly driven by an Hp

Elm 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 and 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
cranks hafts.

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 room temperature of 76 = 2F (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 78F 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 specifications, [18] 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 courts decision thereby making the latters
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
herewith 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 petitioners 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 Court[19] as follows:

As the breach of contract which gave rise to the instant case consisted in appellants
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.
 [G.R. No. 137290. July 31, 2000]

SAN MIGUEL PROPERTIES PHILIPPINES, INC., petitioner, vs. SPOUSES

ALFREDO HUANG and GRACE HUANG, respondents.

DECISION

MENDOZA, J.:

This is a petition for review of the decision, [1] dated April 8, 1997, of the Court of
Appeals which reversed the decision of the Regional Trial Court, Branch 153, Pasig City
dismissing the complaint brought by respondents against petitioner for enforcement of a
contract of sale.

The facts are not in dispute.

Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation engaged in

the purchase and sale of real properties. Part of its inventory are two parcels of land
totalling 1, 738 square meters at the corner of Meralco Avenue and General Capinpin
Street, Barrio Oranbo, Pasig City, which are covered by TCT Nos. PT-82395 and PT-
82396 of the Register of Deeds of Pasig City.

On February 21, 1994, the properties were offered for sale for P52,140,000.00 in cash.
The offer was made to Atty. Helena M. Dauz who was acting for respondent spouses as
undisclosed principals. In a letter [2] dated March 24, 1994, Atty. Dauz signified her
clients interest in purchasing the properties for the amount for which they were offered
by petitioner, under the following terms: the sum of P500,000.00 would be given as
earnest money and the balance would be paid in eight equal monthly installments from
May to December, 1994. However, petitioner refused the counter-offer.

On March 29, 1994, Atty. Dauz wrote another letter [3] proposing the following terms for
the purchase of the properties, viz:

This is to express our interest to buy your-above-mentioned property with

an area of 1, 738 sq. meters. For this purpose, we are enclosing herewith
the sum of P1,000,000.00 representing earnest-deposit money, subject to
the following conditions.

1. We will be given the exclusive option to purchase the property within the
30 days from date of your acceptance of this offer.

2. During said period, we will negotiate on the terms and conditions of the
purchase; SMPPI will secure the necessary Management and Board
approvals; and we initiate the documentation if there is mutual agreement
between us.
 3. In the event that we do not come to an agreement on this transaction,
the said amount of P1,000,000.00 shall be refundable to us in full upon
demand. . . .

Isidro A. Sobrecarey, petitioners vice-president and operations manager for corporate

real estate, indicated his conformity to the offer by affixing his signature to the letter
and accepted the "earnest-deposit" of P1 million. Upon request of respondent spouses,
Sobrecarey ordered the removal of the "FOR SALE" sign from the properties.

Atty. Dauz and Sobrecarey then commenced negotiations. During their meeting on April
8, 1994, Sobrecarey informed Atty. Dauz that petitioner was willing to sell the subject
properties on a 90-day term. Atty. Dauz countered with an offer of six months within
which to pay.

On April 14, 1994, the parties again met during which Sobrecarey informed Atty. Dauz
that petitioner had not yet acted on her counter-offer. This prompted Atty. Dauz to
propose a four-month period of amortization.

On April 25, 1994, Atty. Dauz asked for an extension of 45 days from April 29, 1994 to
June 13, 1994 within which to exercise her option to purchase the property, adding that
within that period, "[we] hope to finalize [our] agreement on the matter." [4] Her request
was granted.

On July 7, 1994, petitioner, through its president and chief executive officer, Federico
Gonzales, wrote Atty. Dauz informing her that because the parties failed to agree on the
terms and conditions of the sale despite the extension granted by petitioner, the latter
was returning the amount of P1 million given as "earnest-deposit."[5]

On July 20, 1994, respondent spouses, through counsel, wrote petitioner demanding the
execution within five days of a deed of sale covering the properties. Respondents
attempted to return the "earnest-deposit" but petitioner refused on the ground that
respondents option to purchase had already expired.

On August 16, 1994, respondent spouses filed a complaint for specific performance
against petitioner before the Regional Trial Court, Branch 133, Pasig City where it was
docketed as Civil Case No. 64660.

Within the period for filing a responsive pleading, petitioner filed a motion to dismiss the
complaint alleging that (1) the alleged "exclusive option" of respondent spouses lacked a
consideration separate and distinct from the purchase price and was thus unenforceable
and (2) the complaint did not allege a cause of action because there was no "meeting of
the minds" between the parties and, therefore, no perfected contract of sale. The motion
was opposed by respondents.

On December 12, 1994, the trial court granted petitioners motion and dismissed the
action. Respondents filed a motion for reconsideration, but it was denied by the trial
court. They then appealed to the Court of Appeals which, on April 8, 1997, rendered a
decision[6]reversing the judgment of the trial court. The appellate court held that all the
requisites of a perfected contract of sale had been complied with as the offer made on
March 29, 1994, in connection with which the earnest money in the amount of P1 million
was tendered by respondents, had already been accepted by petitioner. The court cited
Art. 1482 of the Civil Code which provides that "[w]henever earnest money is given in a
contract of sale, it shall be considered as part of the price and as proof of the perfection
of the contract." The fact the parties had not agreed on the mode of payment did not
affect the contract as such is not an essential element for its validity. In addition, the
court found that Sobrecarey had authority to act in behalf of petitioner for the sale of
the properties.[7]

Petitioner moved for reconsideration of the trial courts decision, but its motion was
denied. Hence, this petition.
Petitioner contends that the Court of Appeals erred in finding that there was a perfected
contract of sale between the parties because the March 29, 1994 letter of respondents,
which petitioner accepted, merely resulted in an option contract, albeit it was
unenforceable for lack of a distinct consideration. Petitioner argues that the absence of
agreement as to the mode of payment was fatal to the perfection of the contract of sale.
Petitioner also disputes the appellate courts ruling that Isidro A. Sobrecarey had
authority to sell the subject real properties. [8]

Respondents were required to comment within ten (10) days from notice. However,
despite 13 extensions totalling 142 days which the Court had given to them,
respondents failed to file their comment. They were thus considered to have waived the
filing of a comment.

The petition is meritorious.

In holding that there is a perfected contract of sale, the Court of Appeals relied on the
following findings: (1) earnest money was allegedly given by respondents and accepted
by petitioner through its vice-president and operations manager, Isidro A. Sobrecarey;
and (2) the documentary evidence in the records show that there was a perfected
contract of sale.

With regard to the alleged payment and acceptance of earnest money, the Court holds
that respondents did not give the P1 million as "earnest money" as provided by Art.
1482 of the Civil Code. They presented the amount merely as a deposit of what would
eventually become the earnest money or downpayment should a contract of sale be
made by them. The amount was thus given not as a part of the purchase price and as
proof of the perfection of the contract of sale but only as a guarantee that respondents
would not back out of the sale. Respondents in fact described the amount as an
"earnest-deposit." In Spouses Doromal, Sr. v. Court of Appeals,[9] it was held:

. . . While the P5,000 might have indeed been paid to Carlos in October,

1967, there is nothing to show that the same was in the concept of the
earnest money contemplated in Art. 1482 of the Civil Code, invoked by
petitioner, as signifying perfection of the sale. Viewed in the backdrop of the
factual milieu thereof extant in the record, We are more inclined to believe
that the said P5,000.00 were paid in the concept of earnest money as the
term was understood under the Old Civil Code, that is, as a guarantee that
the buyer would not back out, considering that it is not clear that there was
already a definite agreement as to the price then and that petitioners were
decided to buy 6/7 only of the property should respondent Javellana refuse
to agree to part with her 1/7 share.[10]

In the present case, the P1 million "earnest-deposit" could not have been given as
earnest money as contemplated in Art. 1482 because, at the time when petitioner
accepted the terms of respondents offer of March 29, 1994, their contract had not yet
been perfected. This is evident from the following conditions attached by respondents to
their letter, to wit: (1) that they be given the exclusive option to purchase the property
within 30 days from acceptance of the offer; (2) that during the option period, the
parties would negotiate the terms and conditions of the purchase; and (3) petitioner
would secure the necessary approvals while respondents would handle the
documentation.

The first condition for an option period of 30 days sufficiently shows that a sale was
never perfected. As petitioner correctly points out, acceptance of this condition did not
give rise to a perfected sale but merely to an option or an accepted unilateral promise
on the part of respondents to buy the subject properties within 30 days from the date of
acceptance of the offer. Such option giving respondents the exclusive right to buy the
properties within the period agreed upon is separate and distinct from the contract of
sale which the parties may enter.[11] All that respondents had was just the option to buy
the properties which privilege was not, however, exercised by them because there was a
failure to agree on the terms of payment. No contract of sale may thus be enforced by
respondents.

Furthermore, even the option secured by respondents from petitioner was fatally
defective. Under the second paragraph of Art. 1479, an accepted unilateral promise to
buy or sell a determinate thing for a price certain is binding upon the promisor only if
the promise is supported by a distinct consideration. Consideration in an option contract
may be anything of value, unlike in sale where it must be the price certain in money or
its equivalent. There is no showing here of any consideration for the option. Lacking any
proof of such consideration, the option is unenforceable.

Equally compelling as proof of the absence of a perfected sale is the second condition
that, during the option period, the parties would negotiate the terms and conditions of
the purchase. The stages of a contract of sale are as follows: (1) negotiation, covering
the period from the time the prospective contracting parties indicate interest in the
contract to the time the contract is perfected; (2) perfection, which takes place upon the
concurrence of the essential elements of the sale which are the meeting of the minds of
the parties as to the object of the contract and upon the price; and (3) consummation,
which begins when the parties perform their respective undertakings under the contract
of sale, culminating in the extinguishment thereof. [12] In the present case, the parties
never got past the negotiation stage. The alleged "indubitable evidence" [13] of a
perfected sale cited by the appellate court was nothing more than offers and counter-
offers which did not amount to any final arrangement containing the essential elements
of a contract of sale. While the parties already agreed on the real properties which were
the objects of the sale and on the purchase price, the fact remains that they failed to
arrive at mutually acceptable terms of payment, despite the 45-day extension given by
petitioner.

The appellate court opined that the failure to agree on the terms of payment was no bar
to the perfection of the sale because Art. 1475 only requires agreement by the parties
as to the price of the object. This is error. In Navarro v. Sugar Producers Cooperative
Marketing Association, Inc.,[14] we laid down the rule that the manner of payment of the
purchase price is an essential element before a valid and binding contract of sale can
exist. Although the Civil Code does not expressly state that the minds of the parties
must also meet on the terms or manner of payment of the price, the same is needed,
otherwise there is no sale. As held in Toyota Shaw, Inc. v. Court of Appeals,
[15]
 agreement on the manner of payment goes into the price such that a disagreement
on the manner of payment is tantamount to a failure to agree on the price. [16] In Velasco
v. Court of Appeals,[17] the parties to a proposed sale had already agreed on the object
of sale and on the purchase price. By the buyers own admission, however, the parties
still had to agree on how and when the downpayment and the installments were to be
paid. It was held:

. . . Such being the situation, it can not, therefore, be said that a definite
and firm sales agreement between the parties had been perfected over the
lot in question. Indeed, this Court has already ruled before that a definite
agreement on the manner of payment of the purchase price is an essential
element in the formation of a binding and enforceable contract of sale. The
fact, therefore, that the petitioners delivered to the respondent the sum of
P10,000 as part of the down-payment that they had to pay cannot be
considered as sufficient proof of the perfection of any purchase and sale
agreement between the parties herein under Art. 1482 of the new Civil
Code, as the petitioners themselves admit that some essential matter - the
terms of the payment - still had to be mutually covenanted.[18]

Thus, it is not the giving of earnest money, but the proof of the concurrence of all the
essential elements of the contract of sale which establishes the existence of a perfected
sale.
In the absence of a perfected contract of sale, it is immaterial whether Isidro A.
Sobrecarey had the authority to enter into a contract of sale in behalf of petitioner. This
issue, therefore, needs no further discussion.

WHEREFORE, the decision of the Court of Appeals is REVERSED and respondents

complaint is DISMISSED. SO ORDERED.

G.R. No. L-25494 June 14, 1972

NICOLAS SANCHEZ, plaintiff-appellee, 
vs.
SEVERINA RIGOS, defendant-appellant.

Santiago F. Bautista for plaintiff-appellee.

Jesus G. Villamar for defendant-appellant.

CONCEPCION, C.J.:p

Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of
Appeals, which certified the case to Us, upon the ground that it involves a question
purely of law.

The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant
Severina Rigos executed an instrument entitled "Option to Purchase," whereby Mrs.
Rigos "agreed, promised and committed ... to sell" to Sanchez the sum of P1,510.00, a
parcel of land situated in the barrios of Abar and Sibot, municipality of San Jose,
province of Nueva Ecija, and more particularly described in Transfer Certificate of Title
No. NT-12528 of said province, within two (2) years from said date with the
understanding that said option shall be deemed "terminated and elapsed," if "Sanchez
shall fail to exercise his right to buy the property" within the stipulated period. Inasmuch
as several tenders of payment of the sum of Pl,510.00, made by Sanchez within said
period, were rejected by Mrs. Rigos, on March 12, 1963, the former deposited said
amount with the Court of First Instance of Nueva Ecija and commenced against the
latter the present action, for specific performance and damages.

After the filing of defendant's answer — admitting some allegations of the complaint,
denying other allegations thereof, and alleging, as special defense, that the contract
between the parties "is a unilateral promise to sell, and the same being unsupported by
any valuable consideration, by force of the New Civil Code, is null and void" — on
February 11, 1964, both parties, assisted by their respective counsel, jointly moved for
a judgment on the pleadings. Accordingly, on February 28, 1964, the lower court
rendered judgment for Sanchez, ordering Mrs. Rigos to accept the sum judicially
consigned by him and to execute, in his favor, the requisite deed of conveyance. Mrs.
Rigos was, likewise, sentenced to pay P200.00, as attorney's fees, and other costs.
Hence, this appeal by Mrs. Rigos.

This case admittedly hinges on the proper application of Article 1479 of our Civil Code,
which provides:

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

An accepted unilateral promise to buy or to sell a determinate thing for a

price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.

In his complaint, plaintiff alleges that, by virtue of the option under consideration,
"defendant agreed and committed to sell" and "the plaintiff agreed and committed to
buy" the land described in the option, copy of which was annexed to said pleading as
Annex A thereof and is quoted on the margin. 1 Hence, plaintiff maintains that the
promise contained in the contract is "reciprocally demandable," pursuant to the first
paragraph of said Article 1479. Although defendant had really "agreed, promised and
committed" herself to sell the land to the plaintiff, it is not true that the latter had, in
turn, "agreed and committed himself " to buy said property. Said Annex A does not bear
out plaintiff's allegation to this effect. What is more, since Annex A has been made "an
integral part" of his complaint, the provisions of said instrument form part "and
parcel"2 of said pleading.

The option did not impose upon plaintiff the obligation to purchase defendant's property.
Annex A is not a "contract to buy and sell." It merely granted plaintiff an "option" to
buy. And both parties so understood it, as indicated by the caption, "Option to
Purchase," given by them to said instrument. Under the provisions thereof, the
defendant "agreed, promised and committed" herself to sell the land therein described
to the plaintiff for P1,510.00, but there is nothing in the contract to indicate that her
aforementioned agreement, promise and undertaking is supported by a consideration
"distinct from the price" stipulated for the sale of the land.

Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of
said consideration, and this would seem to be the main factor that influenced its decision
in plaintiff's favor. It should be noted, however, that:

(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article
1479 refers to "sales" in particular, and, more specifically, to "an accepted unilateral
promise to buy or to sell." In other words, Article 1479 is controlling in the case at bar.

(2) In order that said unilateral promise may be "binding upon the promisor, Article
1479 requires the concurrence of a condition, namely, that the promise be "supported
by a consideration distinct from the price." Accordingly, the promisee can not compel the
promisor to comply with the promise, unless the former establishes the existence of said
distinct consideration. In other words, the promisee has the burden of proving such
consideration. Plaintiff herein has not even alleged the existence thereof in his
complaint.

(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a
special defense, the absence of said consideration for her promise to sell and, by joining
in the petition for a judgment on the pleadings, plaintiff has impliedly admitted the truth
of said averment in defendant's answer. Indeed as early as March 14, 1908, it had been
held, in Bauermann v. Casas,3 that:

One who prays for judgment on the pleadings without offering proof as to
the truth of his own allegations, and without giving the opposing party an
opportunity to introduce evidence, must be understood to admit the truth of
all the material and relevant allegations of the opposing party, and to rest
his motion for judgment on those allegations taken together with such of his
 own as are admitted in the pleadings. (La Yebana Company vs. Sevilla, 9
Phil. 210). (Emphasis supplied.)

This view was reiterated in Evangelista v. De la Rosa4 and Mercy's Incorporated v.

Herminia Verde.5

Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific
Co.,6 from which We quote:

The main contention of appellant is that the option granted to appellee to

sell to it barge No. 10 for the sum of P30,000 under the terms stated above
has no legal effect because it is not supported by any consideration and in
support thereof it invokes article 1479 of the new Civil Code. The article
provides:

"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 sell a determinate thing

for a price certain is binding upon the promisor if the promise is
supported by a consideration distinct from the price."

On the other hand, Appellee contends that, even granting that the "offer of
option" is not supported by any consideration, that option became binding
on appellant when the appellee gave notice to it of its acceptance, and that
having accepted it within the period of option, the offer can no longer be
withdrawn and in any event such withdrawal is ineffective. In support this
contention, appellee invokes article 1324 of the Civil Code which provides:

"ART. 1324. When the offerer has allowed the offeree a certain
period to accept, the offer may be withdrawn any time before
acceptance by communicating such withdrawal, except when the
option is founded upon consideration as something paid or
promised."

There is no question that under article 1479 of the new Civil Code "an option
to sell," or "a promise to buy or to sell," as used in said article, to be valid
must be "supported by a consideration distinct from the price." This is clearly
inferred from the context of said article that a unilateral promise to buy or to
sell, even if accepted, is only binding if supported by consideration. In other
words, "an accepted unilateral promise can only have a binding effect if
supported by a consideration which means that the option can still be
withdrawn, even if accepted, if the same is not supported by any
consideration. It is not disputed that the option is without consideration. It
can therefore be withdrawn notwithstanding the acceptance of it by appellee.

It is true that under article 1324 of the new Civil Code, the general rule
regarding offer and acceptance is that, when the offerer gives to the offeree
a certain period to accept, "the offer may be withdrawn at any time before
acceptance" except when the option is founded upon consideration, but this
general rule must be interpreted as modified by the provision of article 1479
above referred to, which applies to "a promise to buy and sell" specifically.
As already stated, this rule requires that a promise to sell to be valid must
be supported by a consideration distinct from the price.

We are not oblivious of the existence of American authorities which hold that
an offer, once accepted, cannot be withdrawn, regardless of whether it is
supported or not by a consideration (12 Am. Jur. 528). These authorities, we
note, uphold the general rule applicable to offer and acceptance as contained
in our new Civil Code. But we are prevented from applying them in view of
the specific provision embodied in article 1479. While under the "offer of
 option" in question appellant has assumed a clear obligation to sell its barge
to appellee and the option has been exercised in accordance with its terms,
and there appears to be no valid or justifiable reason for appellant to
withdraw its offer, this Court cannot adopt a different attitude because the
law on the matter is clear. Our imperative duty is to apply it unless modified
by Congress.

However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian
Tek,8 decided later that Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific
Co.,9 saw no distinction between Articles 1324 and 1479 of the Civil Code and applied
the former where a unilateral promise to sell similar to the one sued upon here was
involved, treating such promise as an option which, although not binding as a contract in
itself for lack of a separate consideration, nevertheless generated a bilateral contract of
purchase and sale upon acceptance. Speaking through Associate Justice, later Chief
Justice, Cesar Bengzon, this Court said:

Furthermore, an option is unilateral: a promise to sell at the price fixed

whenever the offeree should decide to exercise his option within the
specified time. After accepting the promise and before he exercises his
option, the holder of the option is not bound to buy. He is free either to buy
or not to buy later. In this case, however, upon accepting herein petitioner's
offer a bilateral promise to sell and to buy ensued, and the respondent ipso
facto assumed the obligation of a purchaser. He did not just get the right
subsequently to buy or not to buy. It was not a mere option then; it was a
bilateral contract of sale.

Lastly, even supposing that Exh. A granted an option which is not binding for
lack of consideration, the authorities hold that:

"If the option is given without a consideration, it is a mere offer

of a contract of sale, which is not binding until accepted. If,
however, acceptance is made before a withdrawal, it constitutes
a binding contract of sale, even though the option was not
supported by a sufficient consideration. ... . (77 Corpus Juris
Secundum, p. 652. See also 27 Ruling Case Law 339 and cases
cited.)

"It can be taken for granted, as contended by the defendant,

that the option contract was not valid for lack of consideration.
But it was, at least, an offer to sell, which was accepted by
letter, and of the acceptance the offerer had knowledge before
said offer was withdrawn. The concurrence of both acts — the
offer and the acceptance — could at all events have generated a
contract, if none there was before (arts. 1254 and 1262 of the
Civil Code)." (Zayco vs. Serra, 44 Phil. 331.)

In other words, since there may be no valid contract without a cause or consideration,
the promisor is not bound by his promise and may, accordingly, withdraw it. Pending
notice of its withdrawal, his accepted promise partakes, however, of the nature of an
offer to sell which, if accepted, results in a perfected contract of sale.

This view has the advantage of avoiding a conflict between Articles 1324 — on the
general principles on contracts — and 1479 — on sales — of the Civil Code, in line with
the cardinal rule of statutory construction that, in construing different provisions of one
and the same law or code, such interpretation should be favored as will reconcile or
harmonize said provisions and avoid a conflict between the same. Indeed, the
presumption is that, in the process of drafting the Code, its author has maintained a
consistent philosophy or position. Moreover, the decision in Southwestern Sugar &
Molasses Co. v. Atlantic Gulf & Pacific Co., 10 holding that Art. 1324 is modified by Art.
1479 of the Civil Code, in effect, considers the latter as an exception to the former, and
exceptions are not favored, unless the intention to the contrary is clear, and it is not so,
insofar as said two (2) articles are concerned. What is more, the reference, in both the
second paragraph of Art. 1479 and Art. 1324, to an option or promise supported by or
founded upon a consideration, strongly suggests that the two (2) provisions intended to
enforce or implement the same principle.

Upon mature deliberation, the Court is of the considered opinion that it should, as it
hereby reiterates the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar
as inconsistent therewith, the view adhered to in the Southwestern Sugar & Molasses
Co. case should be deemed abandoned or modified.

WHEREFORE, the decision appealed from is hereby affirmed, with costs against
defendant-appellant Severina Rigos. It is so ordered.

G.R. No. 109125 December 2, 1994

ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners, 

vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT
CORPORATION, respondents.

Antonio M. Albano for petitioners.

Umali, Soriano & Associates for private respondent.

VITUG, J.:

Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04
December 1991, in CA-G.R. SP No. 26345 setting aside and declaring without force and
effect the orders of execution of the trial court, dated 30 August 1991 and 27 September
1991, in Civil Case No. 87-41058.

The antecedents are recited in good detail by the appellate court thusly:

On July 29, 1987 a Second Amended Complaint for Specific Performance was
filed by Ang Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng,
Rose Cu Unjieng and Jose Tan before the Regional Trial Court, Branch 31,
Manila in Civil Case No. 87-41058, alleging, among others, that plaintiffs are
tenants or lessees of residential and commercial spaces owned by
defendants described as Nos. 630-638 Ongpin Street, Binondo, Manila; that
they have occupied said spaces since 1935 and have been religiously paying
the rental and complying with all the conditions of the lease contract; that
on several occasions before October 9, 1986, defendants informed plaintiffs
that they are offering to sell the premises and are giving them priority to
acquire the same; that during the negotiations, Bobby Cu Unjieng offered a
price of P6-million while plaintiffs made a counter offer of P5-million; that
plaintiffs thereafter asked the defendants to put their offer in writing to
which request defendants acceded; that in reply to defendant's letter,
plaintiffs wrote them on October 24, 1986 asking that they specify the terms
and conditions of the offer to sell; that when plaintiffs did not receive any
reply, they sent another letter dated January 28, 1987 with the same
request; that since defendants failed to specify the terms and conditions of
the offer to sell and because of information received that defendants were
about to sell the property, plaintiffs were compelled to file the complaint to
compel defendants to sell the property to them.

Defendants filed their answer denying the material allegations of the

complaint and interposing a special defense of lack of cause of action.

After the issues were joined, defendants filed a motion for summary
judgment which was granted by the lower court. The trial court found that
defendants' offer to sell was never accepted by the plaintiffs for the reason
that the parties did not agree upon the terms and conditions of the proposed
sale, hence, there was no contract of sale at all. Nonetheless, the lower
court ruled that should the defendants subsequently offer their property for
sale at a price of P11-million or below, plaintiffs will have the right of first
refusal. Thus the dispositive portion of the decision states:

WHEREFORE, judgment is hereby rendered in favor of the

defendants and against the plaintiffs summarily dismissing the
complaint subject to the aforementioned condition that if the
defendants subsequently decide to offer their property for sale
for a purchase price of Eleven Million Pesos or lower, then the
plaintiffs has the option to purchase the property or of first
refusal, otherwise, defendants need not offer the property to the
plaintiffs if the purchase price is higher than Eleven Million
Pesos.

SO ORDERED.

Aggrieved by the decision, plaintiffs appealed to this Court in

CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990
(penned by Justice Segundino G. Chua and concurred in by Justices Vicente
V. Mendoza and Fernando A. Santiago), this Court affirmed with modification
the lower court's judgment, holding:

In resume, there was no meeting of the minds between the

parties concerning the sale of the property. Absent such
requirement, the claim for specific performance will not lie.
Appellants' demand for actual, moral and exemplary damages
will likewise fail as there exists no justifiable ground for its
award. Summary judgment for defendants was properly granted.
Courts may render summary judgment when there is no genuine
issue as to any material fact and the moving party is entitled to
a judgment as a matter of law (Garcia vs. Court of Appeals, 176
SCRA 815). All requisites obtaining, the decision of the court a
quo is legally justifiable.

WHEREFORE, finding the appeal unmeritorious, the judgment

appealed from is hereby AFFIRMED, but subject to the following
modification: The court a quo in the aforestated decision gave
the plaintiffs-appellants the right of first refusal only if the
property is sold for a purchase price of Eleven Million pesos or
lower; however, considering the mercurial and uncertain forces
in our market economy today. We find no reason not to grant
 the same right of first refusal to herein appellants in the event
that the subject property is sold for a price in excess of Eleven
Million pesos. No pronouncement as to costs.

SO ORDERED.

The decision of this Court was brought to the Supreme Court by petition for
review on certiorari. The Supreme Court denied the appeal on May 6, 1991
"for insufficiency in form and substances" (Annex H, Petition).

On November 15, 1990, while CA-G.R. CV No. 21123 was pending

consideration by this Court, the Cu Unjieng spouses executed a Deed of Sale
(Annex D, Petition) transferring the property in question to herein petitioner
Buen Realty and Development Corporation, subject to the following terms
and conditions:

1. That for and in consideration of the sum of FIFTEEN MILLION

PESOS (P15,000,000.00), receipt of which in full is hereby
acknowledged, the VENDORS hereby sells, transfers and conveys
for and in favor of the VENDEE, his heirs, executors,
administrators or assigns, the above-described property with all
the improvements found therein including all the rights and
interest in the said property free from all liens and
encumbrances of whatever nature, except the pending ejectment
proceeding;

2. That the VENDEE shall pay the Documentary Stamp Tax,

registration fees for the transfer of title in his favor and other
expenses incidental to the sale of above-described property
including capital gains tax and accrued real estate taxes.

As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu

Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816 was
issued in the name of petitioner on December 3, 1990.

On July 1, 1991, petitioner as the new owner of the subject property wrote a
letter to the lessees demanding that the latter vacate the premises.

On July 16, 1991, the lessees wrote a reply to petitioner stating that
petitioner brought the property subject to the notice of lis pendens regarding
Civil Case No. 87-41058 annotated on TCT No. 105254/T-881 in the name of
the Cu Unjiengs.

The lessees filed a Motion for Execution dated August 27, 1991 of the
Decision in Civil Case No. 87-41058 as modified by the Court of Appeals in
CA-G.R. CV No. 21123.

On August 30, 1991, respondent Judge issued an order (Annex A, Petition)

quoted as follows:

Presented before the Court is a Motion for Execution filed by

plaintiff represented by Atty. Antonio Albano. Both defendants
Bobby Cu Unjieng and Rose Cu Unjieng represented by Atty.
Vicente Sison and Atty. Anacleto Magno respectively were duly
notified in today's consideration of the motion as evidenced by
the rubber stamp and signatures upon the copy of the Motion for
Execution.

The gist of the motion is that the Decision of the Court dated
September 21, 1990 as modified by the Court of Appeals in its
decision in CA G.R. CV-21123, and elevated to the Supreme
 Court upon the petition for review and that the same was denied
by the highest tribunal in its resolution dated May 6, 1991 in
G.R. No.
L-97276, had now become final and executory. As a
consequence, there was an Entry of Judgment by the Supreme
Court as of June 6, 1991, stating that the aforesaid modified
decision had already become final and executory.

It is the observation of the Court that this property in dispute

was the subject of the Notice of Lis Pendens and that the
modified decision of this Court promulgated by the Court of
Appeals which had become final to the effect that should the
defendants decide to offer the property for sale for a price of P11
Million or lower, and considering the mercurial and uncertain
forces in our market economy today, the same right of first
refusal to herein plaintiffs/appellants in the event that the
subject property is sold for a price in excess of Eleven Million
pesos or more.

WHEREFORE, defendants are hereby ordered to execute the

necessary Deed of Sale of the property in litigation in favor of
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15 Million pesos in recognition of plaintiffs'
right of first refusal and that a new Transfer Certificate of Title
be issued in favor of the buyer.

All previous transactions involving the same property

notwithstanding the issuance of another title to Buen Realty
Corporation, is hereby set aside as having been executed in bad
faith.

SO ORDERED.

On September 22, 1991 respondent Judge issued another order, the

dispositive portion of which reads:

WHEREFORE, let there be Writ of Execution issue in the above-

entitled case directing the Deputy Sheriff Ramon Enriquez of this
Court to implement said Writ of Execution ordering the
defendants among others to comply with the aforesaid Order of
this Court within a period of one (1) week from receipt of this
Order and for defendants to execute the necessary Deed of Sale
of the property in litigation in favor of the plaintiffs Ang Yu
Asuncion, Keh Tiong and Arthur Go for the consideration of
P15,000,000.00 and ordering the Register of Deeds of the City of
Manila, to cancel and set aside the title already issued in favor of
Buen Realty Corporation which was previously executed between
the latter and defendants and to register the new title in favor of
the aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur
Go.

SO ORDERED.

On the same day, September 27, 1991 the corresponding writ of execution
(Annex C, Petition) was issued.1

On 04 December 1991, the appellate court, on appeal to it by private respondent, set

aside and declared without force and effect the above questioned orders of the court a
quo.
In this petition for review on certiorari, petitioners contend that Buen Realty can be held
bound by the writ of execution by virtue of the notice of lis pendens, carried over on TCT
No. 195816 issued in the name of Buen Realty, at the time of the latter's purchase of
the property on 15 November 1991 from the Cu Unjiengs.

We affirm the decision of the appellate court.

A not too recent development in real estate transactions is the adoption of such
arrangements as the right of first refusal, a purchase option and a contract to sell. For
ready reference, we might point out some fundamental precepts that may find some
relevance to this discussion.

An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code).

The obligation is constituted upon the concurrence of the essential elements thereof, viz:
(a) The vinculum juris or juridical tie which is the efficient cause established by the
various sources of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts);
(b) the object which is the prestation or conduct; required to be observed (to give, to do
or not to do); and (c) the subject-persons who, viewed from the demandability of the
obligation, are the active (obligee) and the passive (obligor) subjects.

Among the sources of an obligation is a contract (Art. 1157, Civil Code), which 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 (Art. 1305, Civil Code). A contract
undergoes various stages that include its negotiation or preparation, its perfection and,
finally, its consummation. Negotiation covers the period from the time the prospective
contracting parties indicate interest in the contract to the time the contract is concluded
(perfected). The perfection of the contract takes place upon the concurrence of the
essential elements thereof. A contract which is consensual as to perfection is so
established upon a mere meeting of minds, i.e., the concurrence of offer and
acceptance, on the object and on the cause thereof. A contract which requires, in
addition to the above, the delivery of the object of the agreement, as in a pledge
or commodatum, is commonly referred to as a real contract. In a solemn contract,
compliance with certain formalities prescribed by law, such as in a donation of real
property, is essential in order to make the act valid, the prescribed form being thereby
an essential element thereof. The stage of consummation begins when the parties
perform their respective undertakings under the contract culminating in the
extinguishment thereof.

Until the contract is perfected, it cannot, as an independent source of obligation, serve

as a binding juridical relation. In sales, particularly, to which the topic for discussion
about the case at bench belongs, the contract is perfected when a person, called the
seller, obligates himself, for a price certain, to deliver and to transfer ownership of a
thing or right to another, called the buyer, over which the latter agrees. Article 1458 of
the Civil Code provides:

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

A contract of sale may be absolute or conditional.

When the sale is not absolute but conditional, such as in a "Contract to Sell" where

invariably the ownership of the thing sold is retained until the fulfillment of a positive
suspensive condition (normally, the full payment of the purchase price), the breach of
the condition will prevent the obligation to convey title from acquiring an obligatory
force.2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that, although
denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is
devoid of any proviso that title is reserved or the right to unilaterally rescind is
stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to
the buyer upon actual or constructive delivery (e.g., by the execution of a public
document) of the property sold. Where the condition is imposed upon the perfection of
the contract itself, the failure of the condition would prevent such perfection. 3 If the
condition is imposed on the obligation of a party which is not fulfilled, the other party
may either waive the condition or refuse to proceed with the sale (Art. 1545, Civil
Code).4

An unconditional mutual promise to buy and sell, as long as the object is made

determinate and the price is fixed, can be obligatory on the parties, and compliance
therewith may accordingly be exacted.5

An accepted unilateral promise which specifies the thing to be sold and the price to

be paid, when coupled with a valuable consideration distinct and separate from the
price, is what may properly be termed a perfected contract of option. This contract is
legally binding, and in sales, it conforms with the second paragraph of Article 1479 of
the Civil Code, viz:

Art. 1479. . . .

An accepted unilateral promise to buy or to sell a determinate thing for a

price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price. (1451a) 6

Observe, however, that the option is not the contract of sale itself. 7 The optionee has the
right, but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is
accepted before a breach of the option, a bilateral promise to sell and to buy ensues and
both parties are then reciprocally bound to comply with their respective undertakings. 8

Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect

promise (policitacion) is merely an offer. Public advertisements or solicitations and the
like are ordinarily construed as mere invitations to make offers or only as proposals.
These relations, until a contract is perfected, are not considered binding commitments.
Thus, at any time prior to the perfection of the contract, either negotiating party may
stop the negotiation. The offer, at this stage, may be withdrawn; the withdrawal is
effective immediately after its manifestation, such as by its mailing and not necessarily
when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a
period is given to the offeree within which to accept the offer, the following rules
generally govern:

(1) If the period is not itself founded upon or supported by a consideration, the offeror is
still free and has the right to withdraw the offer before its acceptance, or, if an
acceptance has been made, before the offeror's coming to know of such fact, by
communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also
Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a
unilateral promise to sell under Art. 1479, modifying the previous decision in South
Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank
of Parañaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368).
The right to withdraw, however, must not be exercised whimsically or arbitrarily;
otherwise, it could give rise to a damage claim under Article 19 of the Civil Code which
ordains that "every person must, in the exercise of his rights and in the performance of
his duties, act with justice, give everyone his due, and observe honesty and good faith."

(2) If the period has a separate consideration, a contract of "option" is

deemed perfected, and it would be a breach of that contract to withdraw the offer during
the agreed period. The option, however, is an independent contract by itself, and it is to
be distinguished from the projected main agreement (subject matter of the option)
which is obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the
offer before its acceptance (exercise of the option) by the optionee-offeree, the latter
may not sue for specific performance on the proposed contract ("object" of the option)
since it has failed to reach its own stage of perfection. The optioner-offeror, however,
renders himself liable for damages for breach of the option. In these cases, care should
be taken of the real nature of the consideration given, for if, in fact, it has been intended
to be part of the consideration for the main contract with a right of withdrawal on the
part of the optionee, the main contract could be deemed perfected; a similar instance
would be an "earnest money" in a contract of sale that can evidence its perfection (Art.
1482, Civil Code).

In the law on sales, the so-called "right of first refusal" is an innovative juridical relation.
Needless to point out, it cannot be deemed a perfected contract of sale under Article
1458 of the Civil Code. Neither can the right of first refusal, understood in its normal
concept, per se be brought within the purview of an option under the second paragraph
of Article 1479, aforequoted, or possibly of an offer under Article 1319 9 of the same
Code. An option or an offer would require, among other things, 10 a clear certainty on
both the object and the cause or consideration of the envisioned contract. In a right of
first refusal, while the object might be made determinate, the exercise of the right,
however, would be dependent not only on the grantor's eventual intention to enter into
a binding juridical relation with another but also on terms, including the price, that
obviously are yet to be later firmed up. Prior thereto, it can at best be so described as
merely belonging to a class of preparatory juridical relations governed not by contracts
(since the essential elements to establish the vinculum juris would still be indefinite and
inconclusive) but by, among other laws of general application, the pertinent scattered
provisions of the Civil Code on human conduct.

Even on the premise that such right of first refusal has been decreed under a final
judgment, like here, its breach cannot justify correspondingly an issuance of a writ of
execution under a judgment that merely recognizes its existence, nor would it sanction
an action for specific performance without thereby negating the indispensable element of
consensuality in the perfection of contracts. 11 It is not to say, however, that the right of
first refusal would be inconsequential for, such as already intimated above, an
unjustified disregard thereof, given, for instance, the circumstances expressed in Article
1912 of the Civil Code, can warrant a recovery for damages.

The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded
a "right of first refusal" in favor of petitioners. The consequence of such a declaration
entails no more than what has heretofore been said. In fine, if, as it is here so conveyed
to us, petitioners are aggrieved by the failure of private respondents to honor the right
of first refusal, the remedy is not a writ of execution on the judgment, since there is
none to execute, but an action for damages in a proper forum for the purpose.

Furthermore, whether private respondent Buen Realty Development Corporation, the

alleged purchaser of the property, has acted in good faith or bad faith and whether or
not it should, in any case, be considered bound to respect the registration of the lis
pendens in Civil Case No. 87-41058 are matters that must be independently addressed
in appropriate proceedings. Buen Realty, not having been impleaded in Civil Case No.
87-41058, cannot be held subject to the writ of execution issued by respondent Judge,
let alone ousted from the ownership and possession of the property, without first being
duly afforded its day in court.

We are also unable to agree with petitioners that the Court of Appeals has erred in
holding that the writ of execution varies the terms of the judgment in Civil Case No. 87-
41058, later affirmed in CA-G.R. CV-21123. The Court of Appeals, in this regard, has
observed:

Finally, the questioned writ of execution is in variance with the decision of

the trial court as modified by this Court. As already stated, there was
nothing in said decision 13 that decreed the execution of a deed of sale
between the Cu Unjiengs and respondent lessees, or the fixing of the price
of the sale, or the cancellation of title in the name of petitioner (Limpin vs.
IAC, 147 SCRA 516; Pamantasan ng Lungsod ng Maynila vs. IAC, 143 SCRA
311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA 885).

It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not
have decreed at the time the execution of any deed of sale between the Cu Unjiengs and
petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned
Orders, dated 30 August 1991 and 27 September 1991, of the court a quo. Costs
against petitioners.

SO ORDERED.

G.R. No. 106063 November 21, 1996

EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN,

INC., petitioners, 
vs.
MAYFAIR THEATER, INC., respondent. 

HERMOSISIMA, JR., J.:

Before us is a petition for review of the decision 1 of the Court of

Appeals2 involving questions in the resolution of which the respondent appellate
court analyzed and interpreted particular provisions of our laws on contracts and
sales. In its assailed decision, the respondent court reversed the trial court 3 which,
in dismissing the complaint for specific performance with damages and annulment
of contract,4 found the option clause in the lease contracts entered into by private
respondent Mayfair Theater, Inc. (hereafter, Mayfair) and petitioner Carmelo &
Bauermann, Inc. (hereafter, Carmelo) to be impossible of performance and
unsupported by a consideration and the subsequent sale of the subject property to
petitioner Equatorial Realty Development, Inc. (hereafter, Equatorial) to have been
made without any breach of or prejudice to, the said lease contracts. 5
We reproduce below the facts as narrated by the respondent court, which
narration, we note, is almost verbatim the basis of the statement of facts as
rendered by the petitioners in their pleadings:

Carmelo owned a parcel of land, together with two 2-storey buildings

constructed thereon located at Claro M Recto Avenue, Manila, and covered
by TCT No. 18529 issued in its name by the Register of Deeds of Manila.

On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for
the latter's lease of a portion of Carmelo's property particularly described, to
wit:

A PORTION OF THE SECOND FLOOR of the two-storey building,

situated at C.M. Recto Avenue, Manila, with a floor area of 1,610
square meters.

THE SECOND FLOOR AND MEZZANINE of the two-storey

building, situated at C.M. Recto Avenue, Manila, with a floor area
of 150 square meters.

for use by Mayfair as a motion picture theater and for a term of twenty (20)
years. Mayfair thereafter constructed on the leased property a movie house
known as "Maxim Theatre."

Two years later, on March 31, 1969, Mayfair entered into a second contract
of lease with Carmelo for the lease of another portion of Carmelo's property,
to wit:

A PORTION OF THE SECOND FLOOR of the two-storey building,

situated at C.M. Recto Avenue, Manila, with a floor area of 1,064
square meters.

THE TWO (2) STORE SPACES AT THE GROUND FLOOR and

MEZZANINE of the two-storey building situated at C.M. Recto
Avenue, Manila, with a floor area of 300 square meters and
bearing street numbers 1871 and 1875,

for similar use as a movie theater and for a similar term of twenty (20)
years. Mayfair put up another movie house known as "Miramar Theatre" on
this leased property.

Both contracts of lease provides (sic) identically worded paragraph 8, which

reads:

That if the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase the
same.

In the event, however, that the leased premises is sold to

someone other than the LESSEE, the LESSOR is bound and
obligated, as it hereby binds and obligates itself, to stipulate in
the Deed of Sale hereof that the purchaser shall recognize this
lease and be bound by all the terms and conditions thereof.

Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr. Henry
Yang, President of Mayfair, through a telephone conversation that Carmelo
was desirous of selling the entire Claro M. Recto property. Mr. Pascal told Mr.
Yang that a certain Jose Araneta was offering to buy the whole property for
US Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing
to buy the property for Six to Seven Million Pesos.
Mr. Yang replied that he would let Mr. Pascal know of his decision. On
August 23, 1974, Mayfair replied through a letter stating as follows:

It appears that on August 19, 1974 your Mr. Henry Pascal

informed our client's Mr. Henry Yang through the telephone that
your company desires to sell your above-mentioned C.M. Recto
Avenue property.

Under your company's two lease contracts with our client, it is

uniformly provided:

8. That if the LESSOR should desire to sell the leased premises

the LESSEE shall be given 30-days exclusive option to purchase
the same. In the event, however, that the leased premises is
sold to someone other than the LESSEE, the LESSOR is bound
and obligated, as it is (sic) herebinds (sic) and obligates itself, to
stipulate in the Deed of Sale thereof that the purchaser shall
recognize this lease and be bound by all the terms and
conditions hereof (sic).

Carmelo did not reply to this letter.

On September 18, 1974, Mayfair sent another letter to Carmelo purporting

to express interest in acquiring not only the leased premises but "the entire
building and other improvements if the price is reasonable. However, both
Carmelo and Equatorial questioned the authenticity of the second letter.

Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto
Avenue land and building, which included the leased premises housing the
"Maxim" and "Miramar" theatres, to Equatorial by virtue of a Deed of
Absolute Sale, for the total sum of P11,300,000.00.

In September 1978, Mayfair instituted the action a quo for specific

performance and annulment of the sale of the leased premises to Equatorial.
In its Answer, Carmelo alleged as special and affirmative defense (a) that it
had informed Mayfair of its desire to sell the entire C.M. Recto Avenue
property and offered the same to Mayfair, but the latter answered that it
was interested only in buying the areas under lease, which was impossible
since the property was not a condominium; and (b) that the option to
purchase invoked by Mayfair is null and void for lack of consideration.
Equatorial, in its Answer, pleaded as special and affirmative defense that the
option is void for lack of consideration (sic) and is unenforceable by reason
of its impossibility of performance because the leased premises could not be
sold separately from the other portions of the land and building. It
counterclaimed for cancellation of the contracts of lease, and for increase of
rentals in view of alleged supervening extraordinary devaluation of the
currency. Equatorial likewise cross-claimed against co-defendant Carmelo for
indemnification in respect of Mayfair's claims.

During the pre-trial conference held on January 23, 1979, the parties
stipulated on the following:

1. That there was a deed of sale of the contested premises by

the defendant Carmelo . . . in favor of defendant Equatorial . . .;

2. That in both contracts of lease there appear (sic) the

stipulation granting the plaintiff exclusive option to purchase the
leased premises should the lessor desire to sell the same
(admitted subject to the contention that the stipulation is null
and void);
 3. That the two buildings erected on this land are not of the
condominium plan;

4. That the amounts stipulated and mentioned in paragraphs 3

(a) and (b) of the contracts of lease constitute the consideration
for the plaintiff's occupancy of the leased premises, subject of
the same contracts of lease, Exhibits A and B;

xxx xxx xxx

6. That there was no consideration specified in the option to buy

embodied in the contract;

7. That Carmelo & Bauermann owned the land and the two
buildings erected thereon;

8. That the leased premises constitute only the portions actually

occupied by the theaters; and

9. That what was sold by Carmelo & Bauermann to defendant

Equatorial Realty is the land and the two buildings erected
thereon.

xxx xxx xxx

After assessing the evidence, the court a quo rendered the appealed

decision, the decretal portion of which reads as follows:

WHEREFORE, judgment is hereby rendered:

(1) Dismissing the complaint with costs against the plaintiff;

(2) Ordering plaintiff to pay defendant Carmelo & Bauermann

P40,000.00 by way of attorney's fees on its counterclaim;

(3) Ordering plaintiff to pay defendant Equatorial Realty

P35,000.00 per month as reasonable compensation for the use
of areas not covered by the contract (sic) of lease from July 31,
1979 until plaintiff vacates said area (sic) plus legal interest from
July 31, 1978; P70,000 00 per month as reasonable
compensation for the use of the premises covered by the
contracts (sic) of lease dated (June 1, 1967 from June 1, 1987
until plaintiff vacates the premises plus legal interest from June
1, 1987; P55,000.00 per month as reasonable compensation for
the use of the premises covered by the contract of lease dated
March 31, 1969 from March 30, 1989 until plaintiff vacates the
premises plus legal interest from March 30, 1989; and
P40,000.00 as attorney's fees;

(4) Dismissing defendant Equatorial's crossclaim against

defendant Carmelo & Bauermann.

The contracts of lease dated June 1, 1967 and March 31, 1969
are declared expired and all persons claiming rights under these
contracts are directed to vacate the premises.6

The trial court adjudged the identically worded paragraph 8 found in both
aforecited lease contracts to be an option clause which however cannot be deemed
to be binding on Carmelo because of lack of distinct consideration therefor.

The court a quo ratiocinated:

Significantly, during the pre-trial, it was admitted by the parties that the
option in the contract of lease is not supported by a separate consideration.
Without a consideration, the option is therefore not binding on defendant
Carmelo & Bauermann to sell the C.M. Recto property to the former. The
option invoked by the plaintiff appears in the contracts of lease . . . in effect
there is no option, on the ground that there is no consideration. Article 1352
of the Civil Code, provides:

Contracts without cause or with unlawful cause, produce no

effect whatever. The cause is unlawful if it is contrary to law,
morals, good custom, public order or public policy.

Contracts therefore without consideration produce no effect whatsoever.

Article 1324 provides:

When the offeror has allowed the offeree a certain period to

accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when the
option is founded upon consideration, as something paid or
promised.

in relation with Article 1479 of the same Code:

A promise to buy and sell a determine thing for a price certain is

reciprocally demandable.

An accepted unilateral promise to buy or to sell a determine

thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from the price.

The plaintiff cannot compel defendant Carmelo to comply with the promise
unless the former establishes the existence of a distinct consideration. In
other words, the promisee has the burden of proving the consideration. The
consideration cannot be presumed as in Article 1354:

Although the cause is not stated in the contract, it is presumed

that it exists and is lawful unless the debtor proves the contrary.

where consideration is legally presumed to exists. Article 1354 applies to

contracts in general, whereas when it comes to an option it is governed
particularly and more specifically by Article 1479 whereby the promisee has
the burden of proving the existence of consideration distinct from the price.
Thus, in the case of Sanchez vs. Rigor, 45 SCRA 368, 372-373, the Court
said:

(1) Article 1354 applies to contracts in general, whereas the

second paragraph of Article 1479 refers to sales in particular,
and, more specifically, to an accepted unilateral promise to buy
or to sell. In other words, Article 1479 is controlling in the case
at bar.

(2) In order that said unilateral promise may be binding upon

the promissor, Article 1479 requires the concurrence of a
condition, namely, that the promise be supported by a
consideration distinct from the price.

Accordingly, the promisee cannot compel the promissor to

comply with the promise, unless the former establishes the
existence of said distinct consideration. In other words, the
promisee has the burden of proving such consideration. Plaintiff
 herein has not even alleged the existence thereof in his
complaint. 7

It follows that plaintiff cannot compel defendant Carmelo & Bauermann to

sell the C.M. Recto property to the former.

Mayfair taking exception to the decision of the trial court, the battleground shifted
to the respondent Court of Appeals. Respondent appellate court reversed the
court a quo and rendered judgment:

1. Reversing and setting aside the appealed Decision;

2. Directing the plaintiff-appellant Mayfair Theater Inc. to pay and return to

Equatorial the amount of P11,300,000.00 within fifteen (15) days from
notice of this Decision, and ordering Equatorial Realty Development, Inc. to
accept such payment;

3. Upon payment of the sum of P11,300,000, directing Equatorial Realty

Development, Inc. to execute the deeds and documents necessary for the
issuance and transfer of ownership to Mayfair of the lot registered under TCT
Nos. 17350, 118612, 60936, and 52571; and

4. Should plaintiff-appellant Mayfair Theater, Inc. be unable to pay the

amount as adjudged, declaring the Deed of Absolute Sale between the
defendants-appellants Carmelo & Bauermann, Inc. and Equatorial Realty
Development, Inc. as valid and binding upon all the parties. 8

Rereading the law on the matter of sales and option contracts, respondent Court
of Appeals differentiated between Article 1324 and Article 1479 of the Civil Code,
analyzed their application to the facts of this case, and concluded that since
paragraph 8 of the two lease contracts does not state a fixed price for the
purchase of the leased premises, which is an essential element for a contract of
sale to be perfected, what paragraph 8 is, must be a right of first refusal and not
an option contract. It explicated:

Firstly, the court a quo misapplied the provisions of Articles 1324 and 1479,
second paragraph, of the Civil Code.

Article 1324 speaks of an "offer" made by an offeror which the offeree may
or may not accept within a certain period. Under this article, the offer may
be withdrawn by the offeror before the expiration of the period and while the
offeree has not yet accepted the offer. However, the offer cannot be
withdrawn by the offeror within the period if a consideration has been
promised or given by the offeree in exchange for the privilege of being given
that period within which to accept the offer. The consideration is distinct
from the price which is part of the offer. The contract that arises is known as
option. In the case of Beaumont vs. Prieto, 41 Phil. 670, the Supreme court,
citing Bouvier, defined an option as follows: "A contract by virtue of which A,
in consideration of the payment of a certain sum to B, acquires the privilege
of buying from or selling to B, certain securities or properties within a limited
time at a specified price," (pp. 686-7).

Article 1479, second paragraph, on the other hand, contemplates of an

"accepted unilateral promise to buy or to sell a determinate thing for a price
within (which) is binding upon the promisee if the promise is supported by a
consideration distinct from the price." That "unilateral promise to buy or to
sell a determinate thing for a price certain" is called an offer. An "offer", in
laws, is a proposal to enter into a contract (Rosenstock vs. Burke, 46 Phil.
217). To constitute a legal offer, the proposal must be certain as to the
object, the price and other essential terms of the contract (Art. 1319, Civil
Code).
Based on the foregoing discussion, it is evident that the provision granting
Mayfair "30-days exclusive option to purchase" the leased premises is NOT
AN OPTION in the context of Arts. 1324 and 1479, second paragraph, of the
Civil Code. Although the provision is certain as to the object (the sale of the
leased premises) the price for which the object is to be sold is not stated in
the provision Otherwise stated, the questioned stipulation is not by itself, an
"option" or the "offer to sell" because the clause does not specify the price
for the subject property.

Although the provision giving Mayfair "30-days exclusive option to purchase"

cannot be legally categorized as an option, it is, nevertheless, a valid and
binding stipulation. What the trial court failed to appreciate was the intention
of the parties behind the questioned proviso.

xxx xxx xxx

The provision in question is not of the pro-forma type customarily found in a

contract of lease. Even appellees have recognized that the stipulation was
incorporated in the two Contracts of Lease at the initiative and behest of
Mayfair. Evidently, the stipulation was intended to benefit and protect
Mayfair in its rights as lessee in case Carmelo should decide, during the term
of the lease, to sell the leased property. This intention of the parties is
achieved in two ways in accordance with the stipulation. The first is by giving
Mayfair "30-days exclusive option to purchase" the leased property. The
second is, in case Mayfair would opt not to purchase the leased property,
"that the purchaser (the new owner of the leased property) shall recognize
the lease and be bound by all the terms and conditions thereof."

In other words, paragraph 8 of the two Contracts of lease, particularly the

stipulation giving Mayfair "30-days exclusive option to purchase the (leased
premises)," was meant to provide Mayfair the opportunity to purchase and
acquire the leased property in the event that Carmelo should decide to
dispose of the property. In order to realize this intention, the implicit
obligation of Carmelo once it had decided to sell the leased property, was
not only to notify Mayfair of such decision to sell the property, but, more
importantly, to make an offer to sell the leased premises to Mayfair, giving
the latter a fair and reasonable opportunity to accept or reject the offer,
before offering to sell or selling the leased property to third parties. The right
vested in Mayfair is analogous to the right of first refusal, which means that
Carmelo should have offered the sale of the leased premises to Mayfair
before offering it to other parties, or, if Carmelo should receive any offer
from third parties to purchase the leased premises, then Carmelo must first
give Mayfair the opportunity to match that offer.

In fact, Mr. Pascal understood the provision as giving Mayfair a right of first
refusal when he made the telephone call to Mr. Yang in 1974. Mr. Pascal
thus testified:

Q Can you tell this Honorable Court how you made

the offer to Mr. Henry Yang by telephone?

A I have an offer from another party to buy the

property and having the offer we decided to make an
offer to Henry Yang on a first-refusal basis. (TSN
November 8, 1983, p. 12.).

and on cross-examination:

Q When you called Mr. Yang on August 1974 can you

remember exactly what you have told him in
connection with that matter, Mr. Pascal?
 A More or less, I told him that I received an offer
from another party to buy the property and I was
offering him first choice of the enter property. (TSN,
November 29, 1983, p. 18).

We rule, therefore, that the foregoing interpretation best renders effectual

the intention of the parties.9

Besides the ruling that paragraph 8 vests in Mayfair the right of first refusal as to
which the requirement of distinct consideration indispensable in an option
contract, has no application, respondent appellate court also addressed the claim
of Carmelo and Equatorial that assuming arguendo that the option is valid and
effective, it is impossible of performance because it covered only the leased
premises and not the entire Claro M. Recto property, while Carmelo's offer to sell
pertained to the entire property in question. The Court of Appeals ruled as to this
issue in this wise:

We are not persuaded by the contentions of the defendants-appellees. It is

to be noted that the Deed of Absolute Sale between Carmelo and Equatorial
covering the whole Claro M. Recto property, made reference to four titles:
TCT Nos. 17350, 118612, 60936 and 52571. Based on the information
submitted by Mayfair in its appellant's Brief (pp. 5 and 46) which has not
been controverted by the appellees, and which We, therefore, take judicial
notice of the two theaters stand on the parcels of land covered by TCT No.
17350 with an area of 622.10 sq. m and TCT No. 118612 with an area of
2,100.10 sq. m. The existence of four separate parcels of land covering the
whole Recto property demonstrates the legal and physical possibility that
each parcel of land, together with the buildings and improvements thereof,
could have been sold independently of the other parcels.

At the time both parties executed the contracts, they were aware of the
physical and structural conditions of the buildings on which the theaters
were to be constructed in relation to the remainder of the whole Recto
property. The peculiar language of the stipulation would tend to limit
Mayfair's right under paragraph 8 of the Contract of Lease to the acquisition
of the leased areas only. Indeed, what is being contemplated by the
questioned stipulation is a departure from the customary situation wherein
the buildings and improvements are included in and form part of the sale of
the subjacent land. Although this situation is not common, especially
considering the non-condominium nature of the buildings, the sale would be
valid and capable of being performed. A sale limited to the leased premises
only, if hypothetically assumed, would have brought into operation the
provisions of co-ownership under which Mayfair would have become the
exclusive owner of the leased premises and at the same time a co-owner
with Carmelo of the subjacent land in proportion to Mayfair's interest over
the premises sold to it.10

Carmelo and Equatorial now comes before us questioning the correctness and
legal basis for the decision of respondent Court of Appeals on the basis of the
following assigned errors:

THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT THE

OPTION CLAUSE IN THE CONTRACTS OF LEASE IS ACTUALLY A RIGHT OF
FIRST REFUSAL PROVISO. IN DOING SO THE COURT OF APPEALS
DISREGARDED THE CONTRACTS OF LEASE WHICH CLEARLY AND
UNEQUIVOCALLY PROVIDE FOR AN OPTION, AND THE ADMISSION OF THE
PARTIES OF SUCH OPTION IN THEIR STIPULATION OF FACTS.

II
 WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE COURT OF
APPEALS ERRED IN DIRECTING EQUATORIAL TO EXECUTE A DEED OF SALE
EIGHTEEN (18) YEARS AFTER MAYFAIR FAILED TO EXERCISE ITS OPTION
(OR, EVEN ITS RIGHT OF FIRST REFUSAL ASSUMING IT WAS ONE) WHEN
THE CONTRACTS LIMITED THE EXERCISE OF SUCH OPTION TO 30 DAYS
FROM NOTICE.

III

THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DIRECTED

IMPLEMENTATION OF ITS DECISION EVEN BEFORE ITS FINALITY, AND
WHEN IT GRANTED MAYFAIR A RELIEF THAT WAS NOT EVEN PRAYED FOR
IN THE COMPLAINT.

IV

THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES IN THE

ASSIGNMENT OF APPEALED CASES WHEN IT ALLOWED THE SAME DIVISION
XII, PARTICULARLY JUSTICE MANUEL HERRERA, TO RESOLVE ALL THE
MOTIONS IN THE "COMPLETION PROCESS" AND TO STILL RESOLVE THE
MERITS OF THE CASE IN THE "DECISION STAGE".11 

We shall first dispose of the fourth assigned error respecting alleged irregularities
in the raffle of this case in the Court of Appeals. Suffice it to say that in our
Resolution,12 dated December 9, 1992, we already took note of this matter and set
out the proper applicable procedure to be the following:

On September 20, 1992, counsel for petitioner Equatorial Realty

Development, Inc. wrote a letter-complaint to this Court alleging certain
irregularities and infractions committed by certain lawyers, and Justices of
the Court of Appeals and of this Court in connection with case CA-G.R. CV
No. 32918 (now G.R. No. 106063). This partakes of the nature of an
administrative complaint for misconduct against members of the judiciary.
While the letter-complaint arose as an incident in case CA-G.R. CV No.
32918 (now G.R. No. 106063), the disposition thereof should be separate
and independent from Case G.R. No. 106063. However, for purposes of
receiving the requisite pleadings necessary in disposing of the administrative
complaint, this Division shall continue to have control of the case. Upon
completion thereof, the same shall be referred to the Court En Banc for
proper disposition.13

This court having ruled the procedural irregularities raised in the fourth assigned
error of Carmelo and Equatorial, to be an independent and separate subject for an
administrative complaint based on misconduct by the lawyers and justices
implicated therein, it is the correct, prudent and consistent course of action not to
pre-empt the administrative proceedings to be undertaken respecting the said
irregularities. Certainly, a discussion thereupon by us in this case would entail a
finding on the merits as to the real nature of the questioned procedures and the
true intentions and motives of the players therein.

In essence, our task is two-fold: (1) to define the true nature, scope and efficacy
of paragraph 8 stipulated in the two contracts of lease between Carmelo and
Mayfair in the face of conflicting findings by the trial court and the Court of
Appeals; and (2) to determine the rights and obligations of Carmelo and Mayfair,
as well as Equatorial, in the aftermath of the sale by Carmelo of the entire Claro
M. Recto property to Equatorial.

Both contracts of lease in question provide the identically worded paragraph 8,

which reads:
 That if the LESSOR should desire to sell the leased premises, the LESSEE
shall be given 30-days exclusive option to purchase the same.

In the event, however, that the leased premises is sold to someone other
than the LESSEE, the LESSOR is bound and obligated, as it hereby binds and
obligates itself, to stipulate in the Deed of Sale thereof that the purchaser
shall recognize this lease and be bound by all the terms and conditions
thereof.14

We agree with the respondent Court of Appeals that the aforecited contractual
stipulation provides for a right of first refusal in favor of Mayfair. It is not an option
clause or an option contract. It is a contract of a right of first refusal.

As early as 1916, in the case of Beaumont vs. Prieto,15 unequivocal was our

characterization of an option contract as one necessarily involving the choice
granted to another for a distinct and separate consideration as to whether or not
to purchase a determinate thing at a predetermined fixed price.

It is unquestionable that, by means of the document Exhibit E, to wit, the

letter of December 4, 1911, quoted at the beginning of this decision, the
defendant Valdes granted to the plaintiff Borck the right to purchase the
Nagtajan Hacienda belonging to Benito Legarda, during the period of three
months and for its assessed valuation, a grant which necessarily implied the
offer or obligation on the part of the defendant Valdes to sell to Borck the
said hacienda during the period and for the price mentioned . . . There was,
therefore, a meeting of minds on the part of the one and the other, with
regard to the stipulations made in the said document. But it is not shown
that there was any cause or consideration for that agreement, and this
omission is a bar which precludes our holding that the stipulations contained
in Exhibit E is a contract of option, for, . . . there can be no contract without
the requisite, among others, of the cause for the obligation to be
established.

In his Law Dictionary, edition of 1897, Bouvier defines an option as a

contract, in the following language:

A contract by virtue of which A, in consideration of the payment

of a certain sum to B, acquires the privilege of buying from, or
selling to B, certain securities or properties within a limited time
at a specified price. (Story vs. Salamon, 71 N.Y., 420.)

From vol. 6, page 5001, of the work "Words and Phrases," citing the case
of Ide vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17) the
following quotation has been taken:

An agreement in writing to give a person the option to purchase

lands within a given time at a named price is neither a sale nor
an agreement to sell. It is simply a contract by which the owner
of property agrees with another person that he shall have the
right to buy his property at a fixed price within a certain time. He
does not sell his land; he does not then agree to sell it; but he
does sell something; that is, the right or privilege to buy at the
election or option of the other party. The second party gets in
praesenti, not lands, nor an agreement that he shall have lands,
but he does get something of value; that is, the right to call for
and receive lands if he elects. The owner parts with his right to
sell his lands, except to the second party, for a limited period.
The second party receives this right, or, rather, from his point of
view, he receives the right to elect to buy.
 But the two definitions above cited refer to the contract of option, or, what
amounts to the same thing, to the case where there was cause or
consideration for the obligation, the subject of the agreement made by the
parties; while in the case at bar there was no such cause or
consideration. 16 (Emphasis ours.)

The rule so early established in this jurisdiction is that the deed of option or the
option clause in a contract, in order to be valid and enforceable, must, among
other things, indicate the definite price at which the person granting the option, is
willing to sell.

Notably, in one case we held that the lessee loses his right to buy the leased property
for a named price per square meter upon failure to make the purchase within the time
specified;17 in one other case we freed the landowner from her promise to sell her land if
the prospective buyer could raise P4,500.00 in three weeks because such option was not
supported by a distinct consideration; 18 in the same vein in yet one other case, we also
invalidated an instrument entitled, "Option to Purchase" a parcel of land for the sum of
P1,510.00 because of lack of consideration; 19 and as an exception to the doctrine
enumerated in the two preceding cases, in another case, we ruled that the option to buy
the leased premises for P12,000.00 as stipulated in the lease contract, is not without
consideration for in reciprocal contracts, like lease, the obligation or promise of each
party is the consideration for that of the other. 20 In all these cases, the selling price of
the object thereof is always predetermined and specified in the option clause in the
contract or in the separate deed of option. We elucidated, thus, in the very recent case
of Ang Yu Asuncion vs. Court of Appeals21 that:

. . . In sales, particularly, to which the topic for discussion about the case at
bench belongs, the contract is perfected when a person, called the seller,
obligates himself, for a price certain, to deliver and to transfer ownership of
a thing or right to another, called the buyer, over which the latter agrees.
Article 1458 of the Civil Code provides:

Art. 1458. By the contract of sale one of the contracting parties

obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain
in money or its equivalent.

A contract of sale may be absolute or conditional.

When the sale is not absolute but conditional, such as in a "Contract to Sell"
where invariably the ownership of the thing sold in retained until the
fulfillment of a positive suspensive condition (normally, the full payment of
the purchase price), the breach of the condition will prevent the obligation to
convey title from acquiring an obligatory force. . . .

An unconditional mutual promise to buy and sell, as long as the object is

made determinate and the price is fixed, can be obligatory on the parties,
and compliance therewith may accordingly be exacted.

An accepted unilateral promise which specifies the thing to be sold and the
price to be paid, when coupled with a valuable consideration distinct and
separate from the price, is what may properly be termed a perfected
contract of option. This contract is legally binding, and in sales, it conforms
with the second paragraph of Article 1479 of the Civil Code, viz:

Art. 1479. . . .

An accepted unilateral promise to buy or to sell a determinate

thing for a price certain is binding upon the promisor if the
promise is supported by a consideration distinct from the price.
(1451a).
 Observe, however, that the option is not the contract of sale itself. The
optionee has the right, but not the obligation, to buy. Once the option is
exercised timely, i.e., the offer is accepted before a breach of the option, a
bilateral promise to sell and to buy ensues and both parties are then
reciprocally bound to comply with their respective undertakings.

Let us elucidate a little. A negotiation is formally initiated by an offer. An

imperfect promise (policitacion) is merely an offer. Public advertisements or
solicitations and the like are ordinarily construed as mere invitations to make
offers or only as proposals. These relations, until a contract is perfected, are
not considered binding commitments. Thus, at any time prior to the
perfection of the contract, either negotiating party may stop the negotiation.
The offer, at this stage, may be withdrawn; the withdrawal is effective
immediately after its manifestation, such as by its mailing and not
necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43
Phil. 270). Where a period is given to the offeree within which to accept the
offer, the following rules generally govern:

(1) If the period is not itself founded upon or supported by a consideration,

the offeror is still free and has the right to withdraw the offer before its
acceptance, or if an acceptance has been made, before the offeror's coming
to know of such fact, by communicating that withdrawal to the offeree (see
Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948,
holding that this rule is applicable to a unilateral promise to sell under Art.
1479, modifying the previous decision in South Western Sugar vs. Atlantic
Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Parañaque,
Inc. vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The
right to withdraw, however, must not be exercised whimsically or arbitrarily;
otherwise, it could give rise to a damage claim under Article 19 of the Civil
Code which ordains that "every person must, in the exercise of his rights and
in the performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith."

(2) If the period has a separate consideration, a contract of "option" deemed

perfected, and it would be a breach of that contract to withdraw the offer
during the agreed period. The option, however, is an independent contract
by itself; and it is to be distinguished from the projected main agreement
(subject matter of the option) which is obviously yet to be concluded. If, in
fact, the optioner-offeror withdraws the offer before its acceptance (exercise
of the option) by the optionee-offeree, the latter may not sue for specific
performance on the proposed contract ("object" of the option) since it has
failed to reach its own stage of perfection. The optioner-offeror, however,
renders himself liable for damages for breach of the opinion. . .

In the light of the foregoing disquisition and in view of the wording of the
questioned provision in the two lease contracts involved in the instant case, we so
hold that no option to purchase in contemplation of the second paragraph of
Article 1479 of the Civil Code, has been granted to Mayfair under the said lease
contracts.

Respondent Court of Appeals correctly ruled that the said paragraph 8 grants the
right of first refusal to Mayfair and is not an option contract. It also correctly
reasoned that as such, the requirement of a separate consideration for the option,
has no applicability in the instant case.

There is nothing in the identical Paragraphs "8" of the June 1, 1967 and March 31,
1969 contracts which would bring them into the ambit of the usual offer or option
requiring an independent consideration.

An option is a contract granting a privilege to buy or sell within an agreed time

and at a determined price. It is a separate and distinct contract from that which
the parties may enter into upon the consummation of the option. It must be
supported by consideration.22 In the instant case, the right of first refusal is an
integral part of the contracts of lease. The consideration is built into the reciprocal
obligations of the parties.

To rule that a contractual stipulation such as that found in paragraph 8 of the

contracts is governed by Article 1324 on withdrawal of the offer or Article 1479 on
promise to buy and sell would render in effectual or "inutile" the provisions on
right of first refusal so commonly inserted in leases of real estate nowadays. The
Court of Appeals is correct in stating that Paragraph 8 was incorporated into the
contracts of lease for the benefit of Mayfair which wanted to be assured that it
shall be given the first crack or the first option to buy the property at the price
which Carmelo is willing to accept. It is not also correct to say that there is no
consideration in an agreement of right of first refusal. The stipulation is part and
parcel of the entire contract of lease. The consideration for the lease includes the
consideration for the right of first refusal. Thus, Mayfair is in effect stating that it
consents to lease the premises and to pay the price agreed upon provided the
lessor also consents that, should it sell the leased property, then, Mayfair shall be
given the right to match the offered purchase price and to buy the property at that
price. As stated in Vda. De Quirino vs. Palarca,23 in reciprocal contract, the
obligation or promise of each party is the consideration for that of the other.

The respondent Court of Appeals was correct in ascertaining the true nature of the
aforecited paragraph 8 to be that of a contractual grant of the right of first refusal
to Mayfair.

We shall now determine the consequential rights, obligations and liabilities of

Carmelo, Mayfair and Equatorial.

The different facts and circumstances in this case call for an amplification of the
precedent in Ang Yu Asuncion vs. Court of Appeals.24

First and foremost is that the petitioners acted in bad faith to render Paragraph 8
"inutile".

What Carmelo and Mayfair agreed to, by executing the two lease contracts, was
that Mayfair will have the right of first refusal in the event Carmelo sells the leased
premises. It is undisputed that Carmelo did recognize this right of Mayfair, for it
informed the latter of its intention to sell the said property in 1974. There was an
exchange of letters evidencing the offer and counter-offers made by both parties.
Carmelo, however, did not pursue the exercise to its logical end. While it initially
recognized Mayfair's right of first refusal, Carmelo violated such right when
without affording its negotiations with Mayfair the full process to ripen to at least
an interface of a definite offer and a possible corresponding acceptance within the
"30-day exclusive option" time granted Mayfair, Carmelo abandoned negotiations,
kept a low profile for some time, and then sold, without prior notice to Mayfair, the
entire Claro M Recto property to Equatorial.

Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the
property in question rescissible. We agree with respondent Appellate Court that
the records bear out the fact that Equatorial was aware of the lease contracts
because its lawyers had, prior to the sale, studied the said contracts. As such,
Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore,
rescission lies.

. . . Contract of Sale was not voidable but rescissible. Under Article 1380 to
1381(3) of the Civil Code, a contract otherwise valid may nonetheless be
subsequently rescinded by reason of injury to third persons, like creditors.
The status of creditors could be validly accorded the Bonnevies for they had
substantial interests that were prejudiced by the sale of the subject property
 to the petitioner without recognizing their right of first priority under the
Contract of Lease.

According to Tolentino, rescission is a remedy granted by law to the

contracting parties and even to third persons, to secure reparation for
damages caused to them by a contract, even if this should be valid, by
means of the restoration of things to their condition at the moment prior to
the celebration of said contract. It is a relief allowed for the protection of one
of the contracting parties and even third persons from all injury and damage
the contract may cause, or to protect some incompatible and preferent right
created by the contract. Rescission implies a contract which, even if initially
valid, produces a lesion or pecuniary damage to someone that justifies its
invalidation for reasons of equity.

It is true that the acquisition by a third person of the property subject of the
contract is an obstacle to the action for its rescission where it is shown that
such third person is in lawful possession of the subject of the contract and
that he did not act in bad faith. However, this rule is not applicable in the
case before us because the petitioner is not considered a third party in
relation to the Contract of Sale nor may its possession of the subject
property be regarded as acquired lawfully and in good faith.

Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale.
Moreover, the petitioner cannot be deemed a purchaser in good faith for the
record shows that it categorically admitted it was aware of the lease in favor
of the Bonnevies, who were actually occupying the subject property at the
time it was sold to it. Although the Contract of Lease was not annotated on
the transfer certificate of title in the name of the late Jose Reynoso and
Africa Reynoso, the petitioner cannot deny actual knowledge of such lease
which was equivalent to and indeed more binding than presumed notice by
registration.

A purchaser in good faith and for value is one who buys the property of
another without notice that some other person has a right to or interest in
such property and pays a full and fair price for the same at the time of such
purchase or before he has notice of the claim or interest of some other
person in the property. Good faith connotes an honest intention to abstain
from taking unconscientious advantage of another. Tested by these
principles, the petitioner cannot tenably claim to be a buyer in good faith as
it had notice of the lease of the property by the Bonnevies and such
knowledge should have cautioned it to look deeper into the agreement to
determine if it involved stipulations that would prejudice its own interests.

The petitioner insists that it was not aware of the right of first priority
granted by the Contract of Lease. Assuming this to be true, we nevertheless
agree with the observation of the respondent court that:

If Guzman-Bocaling failed to inquire about the terms of the

Lease Contract, which includes Par. 20 on priority right given to
the Bonnevies, it had only itself to blame. Having known that the
property it was buying was under lease, it behooved it as a
prudent person to have required Reynoso or the broker to show
to it the Contract of Lease in which Par. 20 is contained. 25

Petitioners assert the alleged impossibility of performance because the entire

property is indivisible property. It was petitioner Carmelo which fixed the limits of
the property it was leasing out. Common sense and fairness dictate that instead of
nullifying the agreement on that basis, the stipulation should be given effect by
including the indivisible appurtenances in the sale of the dominant portion under
the right of first refusal. A valid and legal contract where the ascendant or the
more important of the two parties is the landowner should be given effect, if
possible, instead of being nullified on a selfish pretext posited by the owner.
Following the arguments of petitioners and the participation of the owner in the
attempt to strip Mayfair of its rights, the right of first refusal should include not
only the property specified in the contracts of lease but also the appurtenant
portions sold to Equatorial which are claimed by petitioners to be indivisible.
Carmelo acted in bad faith when it sold the entire property to Equatorial without
informing Mayfair, a clear violation of Mayfair's rights. While there was a series of
exchanges of letters evidencing the offer and counter-offers between the parties,
Carmelo abandoned the negotiations without giving Mayfair full opportunity to
negotiate within the 30-day period.

Accordingly, even as it recognizes the right of first refusal, this Court should also
order that Mayfair be authorized to exercise its right of first refusal under the
contract to include the entirety of the indivisible property. The boundaries of the
property sold should be the boundaries of the offer under the right of first refusal.
As to the remedy to enforce Mayfair's right, the Court disagrees to a certain extent
with the concluding part of the dissenting opinion of Justice Vitug. The doctrine
enunciated in Ang Yu Asuncion vs.Court of Appeals should be modified, if not
amplified under the peculiar facts of this case.

As also earlier emphasized, the contract of sale between Equatorial and Carmelo is
characterized by bad faith, since it was knowingly entered into in violation of the
rights of and to the prejudice of Mayfair. In fact, as correctly observed by the
Court of Appeals, Equatorial admitted that its lawyers had studied the contract of
lease prior to the sale. Equatorial's knowledge of the stipulations therein should
have cautioned it to look further into the agreement to determine if it involved
stipulations that would prejudice its own interests.

Since Mayfair has a right of first refusal, it can exercise the right only if the
fraudulent sale is first set aside or rescinded. All of these matters are now before
us and so there should be no piecemeal determination of this case and leave
festering sores to deteriorate into endless litigation. The facts of the case and
considerations of justice and equity require that we order rescission here and now.
Rescission is a relief allowed for the protection of one of the contracting parties
and even third persons from all injury and damage the contract may cause or to
protect some incompatible and preferred right by the contract. 26 The sale of the
subject real property by Carmelo to Equatorial should now be rescinded
considering that Mayfair, which had substantial interest over the subject property,
was prejudiced by the sale of the subject property to Equatorial without Carmelo
conferring to Mayfair every opportunity to negotiate within the 30-day stipulated
period.27

This Court has always been against multiplicity of suits where all remedies
according to the facts and the law can be included. Since Carmelo sold the
property for P11,300,000.00 to Equatorial, the price at which Mayfair could have
purchased the property is, therefore, fixed. It can neither be more nor less. There
is no dispute over it. The damages which Mayfair suffered are in terms of actual
injury and lost opportunities. The fairest solution would be to allow Mayfair to
exercise its right of first refusal at the price which it was entitled to accept or
reject which is P11,300,000.00. This is clear from the records.

To follow an alternative solution that Carmelo and Mayfair may resume

negotiations for the sale to the latter of the disputed property would be unjust and
unkind to Mayfair because it is once more compelled to litigate to enforce its right.
It is not proper to give it an empty or vacuous victory in this case. From the
viewpoint of Carmelo, it is like asking a fish if it would accept the choice of being
thrown back into the river. Why should Carmelo be rewarded for and allowed to
profit from, its wrongdoing? Prices of real estate have skyrocketed. After having
sold the property for P11,300,000.00, why should it be given another chance to
sell it at an increased price?
Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that
there was nothing to execute because a contract over the right of first refusal
belongs to a class of preparatory juridical relations governed not by the law on
contracts but by the codal provisions on human relations. This may apply here if
the contract is limited to the buying and selling of the real property. However, the
obligation of Carmelo to first offer the property to Mayfair is embodied in a
contract. It is Paragraph 8 on the right of first refusal which created the
obligation. It should be enforced according to the law on contracts instead of the
panoramic and indefinite rule on human relations. The latter remedy encourages
multiplicity of suits. There is something to execute and that is for Carmelo to
comply with its obligation to the property under the right of the first refusal
according to the terms at which they should have been offered then to Mayfair, at
the price when that offer should have been made. Also, Mayfair has to accept the
offer. This juridical relation is not amorphous nor is it merely preparatory.
Paragraphs 8 of the two leases can be executed according to their terms.

On the question of interest payments on the principal amount of P11,300,000.00,

it must be borne in mind that both Carmelo and Equatorial acted in bad faith.
Carmelo knowingly and deliberately broke a contract entered into with Mayfair. It
sold the property to Equatorial with purpose and intend to withhold any notice or
knowledge of the sale coming to the attention of Mayfair. All the circumstances
point to a calculated and contrived plan of non-compliance with the agreement of
first refusal.

On the part of Equatorial, it cannot be a buyer in good faith because it bought the
property with notice and full knowledge that Mayfair had a right to or interest in
the property superior to its own. Carmelo and Equatorial took unconscientious
advantage of Mayfair.

Neither may Carmelo and Equatorial avail of considerations based on equity which
might warrant the grant of interests. The vendor received as payment from the
vendee what, at the time, was a full and fair price for the property. It has used the
P11,300,000.00 all these years earning income or interest from the amount.
Equatorial, on the other hand, has received rents and otherwise profited from the
use of the property turned over to it by Carmelo. In fact, during all the years that
this controversy was being litigated, Mayfair paid rentals regularly to the buyer
who had an inferior right to purchase the property. Mayfair is under no obligation
to pay any interests arising from this judgment to either Carmelo or Equatorial.

WHEREFORE, the petition for review of the decision of the Court of Appeals, dated
June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY DENIED. The Deed of
Absolute Sale between petitioners Equatorial Realty Development, Inc. and
Carmelo & Bauermann, Inc. is hereby deemed rescinded; petitioner Carmelo &
Bauermann is ordered to return to petitioner Equatorial Realty Development the
purchase price. The latter is directed to execute the deeds and documents
necessary to return ownership to Carmelo and Bauermann of the disputed lots.
Carmelo & Bauermann is ordered to allow Mayfair Theater, Inc. to buy the
aforesaid lots for P11,300,000.00. SO ORDERED.

[G.R. No. 111538. February 26, 1997]

PARAñAQUE KINGS ENTERPRISES, INCORPORATED,  petitioner, vs. COURT OF
APPEALS, CATALINA L. SANTOS, represented by her attorney-in-fact, LUZ
B. PROTACIO, and DAVID A. RAYMUNDO,  respondents.

DECISION
PANGANIBAN, J.:

Do allegations in a complaint showing violation of a contractual right of first option or

priority to buy the properties subject of the lease constitute a valid cause of action? Is
the grantee of such right entitled to be offered the same terms and conditions as those
given to a third party who eventually bought such properties? In short, is such right of
first refusal enforceable by an action for specific performance?
These questions are answered in the affirmative by this Court in resolving this
petition for review under Rule 45 of the Rules of Court challenging the Decision [1] of the
Court of Appeals[2] promulgated on March 29, 1993, in CA-G.R. CV No. 34987
entitled Paraaque Kings Enterprises, Inc. vs. Catalina L. Santos, et al., which affirmed
the order[3] of September 2, 1991, of the Regional Trial Court of Makati, Branch 57,
[4]
 dismissing Civil Case No. 91-786 for lack of a valid cause of action.

Facts of the Case

On March 19, 1991, herein petitioner filed before the Regional Trial Court of Makati a
complaint,[5] which is reproduced in full below:

Plaintiff, by counsel, respectfully states that:

1. Plaintiff is a private corporation organized and existing under and by virtue of

the laws of the Philippines, with principal place of business of (sic) Dr. A. Santos
Avenue, Paraaque, Metro Manila, while defendant Catalina L. Santos, is of legal
age, widow, with residence and postal address at 444 Plato Street, Ct., Stockton,
California, USA, represented in this action by her attorney-in-fact, Luz B.
Protacio, with residence and postal address at No, 12, San Antonio Street,
Magallanes Village, Makati, Metro Manila, by virtue of a general power of
attorney.Defendant David A. Raymundo, is of legal age, single, with residence
and postal address at 1918 Kamias Street, Damarias Village, Makati, Metro
Manila, where they (sic) may be served with summons and other court
processes. Xerox copy of the general power of attorney is hereto attached as
Annex A.

2. Defendant Catalina L. Santos is the owner of eight (8) parcels of land located
at (sic) Paraaque, Metro Manila with transfer certificate of title nos. S-19637, S-
19638 and S-19643 to S-19648. Xerox copies of the said title (sic) are hereto
attached as Annexes B to I, respectively.

3. On November 28, 1977, a certain Frederick Chua leased the above-described
property from defendant Catalina L. Santos, the said lease was registered in the
Register of Deeds. Xerox copy of the lease is hereto attached as Annex J.

4. On February 12, 1979, Frederick Chua assigned all his rights and interest and
participation in the leased property to Lee Ching Bing, by virtue of a deed of
assignment and with the conformity of defendant Santos, the said assignment
was also registered. Xerox copy of the deed of assignment is hereto attached as
Annex K.

5. On August 6, 1979, Lee Ching Bing also assigned all his rights and interest in
the leased property to Paraaque Kings Enterprises, Incorporated by virtue of a
deed of assignment and with the conformity of defendant Santos, the same was
 duly registered, Xerox copy of the deed of assignment is hereto attached as
Annex L.

6. Paragraph 9 of the assigned leased (sic) contract provides among others that:

9. That in case the properties subject of the lease agreement are sold or
encumbered, Lessors shall impose as a condition that the buyer or mortgagee
thereof shall recognize and be bound by all the terms and conditions of this
lease agreement and shall respect this Contract of Lease as if they are the
LESSORS thereof and in case of sale, LESSEE shall have the first option or
priority to buy the properties subject of the lease;

7. On September 21, 1988, defendant Santos sold the eight parcels of land
subject of the lease to defendant David Raymundo for a consideration of FIVE
MILLION (P5,000,000.00) PESOS. The said sale was in contravention of the
contract of lease, for the first option or priority to buy was not offered by
defendant Santos to the plaintiff. Xerox copy of the deed of sale is hereto
attached as Annex M.

8. On March 5, 1989, defendant Santos wrote a letter to the plaintiff informing
the same of the sale of the properties to defendant Raymundo, the said letter
was personally handed by the attorney-in-fact of defendant Santos, Xerox copy
of the letter is hereto attached as Annex N.

9. Upon learning of this fact plaintiffs representative wrote a letter to defendant

Santos, requesting her to rectify the error and consequently realizing the error,
she had it reconveyed to her for the same consideration of FIVE MILLION
(P5,000,000.00) PESOS. Xerox copies of the letter and the deed of reconveyance
are hereto attached as Annexes O and P.

10. Subsequently the property was offered for sale to plaintiff by the defendant
for the sum of FIFTEEN MILLION (P15,000,000.00) PESOS. Plaintiff was given ten
(10) days to make good of the offer, but therefore (sic) the said period expired
another letter came from the counsel of defendant Santos, containing the same
tenor of (sic) the former letter. Xerox copies of the letters are hereto attached as
Annexes Q and R.

11. On May 8, 1989, before the period given in the letter offering the properties
for sale expired, plaintiffs counsel wrote counsel of defendant Santos offering to
buy the properties for FIVE MILLION (P5,000,000.00) PESOS. Xerox copy of the
letter is hereto attached as Annex S.

12. On May 15, 1989, before they replied to the offer to purchase, another deed
of sale was executed by defendant Santos (in favor of) defendant Raymundo for
a consideration of NINE MILLION (P9,000,000.00) PESOS. Xerox copy of the
second deed of sale is hereto attached as Annex T.

13. Defendant Santos violated again paragraph 9 of the contract of lease by

executing a second deed of sale to defendant Raymundo.

14. It was only on May 17, 1989, that defendant Santos replied to the letter of
the plaintiffs offer to buy or two days after she sold her properties. In her reply
she stated among others that the period has lapsed and the plaintiff is not a
privy (sic) to the contract. Xerox copy of the letter is hereto attached as Annex
U.

15. On June 28, 1989, counsel for plaintiff informed counsel of defendant Santos
of the fact that plaintiff is the assignee of all rights and interest of the former
lessor. Xerox copy of the letter is hereto attached as Annex V.
 16. On July 6, 1989, counsel for defendant Santos informed the plaintiff that the
new owner is defendant Raymundo. Xerox copy of the letter is hereto attached
as Annex W.

17. From the preceding facts it is clear that the sale was simulated and that there
was a collusion between the defendants in the sales of the leased properties, on
the ground that when plaintiff wrote a letter to defendant Santos to rectify the
error, she immediately have (sic) the property reconveyed it (sic) to her in a
matter of twelve (12) days.

18. Defendants have the same counsel who represented both of them in their
exchange of communication with plaintiffs counsel, a fact that led to the
conclusion that a collusion exist (sic) between the defendants.

19. When the property was still registered in the name of defendant Santos, her
collector of the rental of the leased properties was her brother-in-law David
Santos and when it was transferred to defendant Raymundo the collector was
still David Santos up to the month of June, 1990.Xerox copies of cash vouchers
are hereto attached as Annexes X to HH, respectively.

20. The purpose of this unholy alliance between defendants Santos and

Raymundo is to mislead the plaintiff and make it appear that the price of the
leased property is much higher than its actual value of FIVE MILLION
(P5,000,000.00) PESOS, so that plaintiff would purchase the properties at a
higher price.

21. Plaintiff has made considerable investments in the said leased property by

erecting a two (2) storey, six (6) doors commercial building amounting to THREE
MILLION (P3,000,000.00) PESOS. This considerable improvement was made on
the belief that eventually the said premises shall be sold to the plaintiff.

22. As a consequence of this unlawful act of the defendants, plaintiff will incurr
(sic) total loss of THREE MILLION (P3,000,000.00) PESOS as the actual cost of
the building and as such defendants should be charged of the same amount for
actual damages.

23. As a consequence of the collusion, evil design and illegal acts of the
defendants, plaintiff in the process suffered mental anguish, sleepless nights,
bismirched (sic) reputation which entitles plaintiff to moral damages in the
amount of FIVE MILLION (P5,000,000.00) PESOS.

24. The defendants acted in a wanton, fraudulent, reckless, oppressive or

malevolent manner and as a deterrent to the commission of similar acts, they
should be made to answer for exemplary damages, the amount left to the
discretion of the Court.

25. Plaintiff demanded from the defendants to rectify their unlawful acts that they
committed, but defendants refused and failed to comply with plaintiffs just and
valid and (sic) demands. Xerox copies of the demand letters are hereto attached
as Annexes KK to LL, respectively.

26. Despite repeated demands, defendants failed and refused without justifiable

cause to satisfy plaintiffs claim, and was constrained to engaged (sic) the
services of undersigned counsel to institute this action at a contract fee
of P200,000.00, as and for attorneys fees, exclusive of cost and expenses of
litigation.

PRAYER

WHEREFORE, it is respectfully prayed, that judgment be rendered in favor of the

plaintiff and against defendants and ordering that:
 a. The Deed of Sale between defendants dated May 15, 1989, be annulled and
the leased properties be sold to the plaintiff in the amount of P5,000,000.00;

b. Dependants (sic) pay plaintiff the sum of P3,000,000.00 as actual damages;

c. Defendants pay the sum of P5,000,000.00 as moral damages;

d. Defendants pay exemplary damages left to the discretion of the Court;

e. Defendants pay the sum of not less than P200,000.00 as attorneys fees.

Plaintiff further prays for other just and equitable reliefs plus cost of suit.

Instead of filing their respective answers, respondents filed motions to dismiss

anchored on the grounds of lack of cause of action, estoppel and laches.
On September 2, 1991, the trial court issued the order dismissing the complaint for
lack of a valid cause of action. It ratiocinated thus:

Upon the very face of the plaintiffs Complaint itself, it therefore indubitably appears that
the defendant Santos had verily complied with paragraph 9 of the Lease Agreement by
twice offering the properties for sale to the plaintiff for P15 M. The said offers, however,
were plainly rejected by the plaintiff which scorned the said offer as RIDICULOUS. There
was therefore a definite refusal on the part of the plaintiff to accept the offer of
defendant Santos. For in acquiring the said properties back to her name, and in so
making the offers to sell both by herself (attorney-in-fact) and through her counsel,
defendant Santos was indeed conscientiously complying with her obligation under
paragraph 9 of the Lease Agreement. x x x

x x x x x x x x x

This is indeed one instance where a Complaint, after barely commencing to create a
cause of action, neutralized itself by its subsequent averments which erased or
extinguished its earlier allegations of an impending wrong. Consequently, absent any
actionable wrong in the very face of the Complaint itself, the plaintiffs subsequent
protestations of collusion is bereft or devoid of any meaning or purpose. x x x

The inescapable result of the foregoing considerations point to no other conclusion than
that the Complaint actually does not contain any valid cause of action and should
therefore be as it is hereby ordered DISMISSED. The Court finds no further need to
consider the other grounds of estoppel and laches inasmuch as this resolution is
sufficient to dispose the matter.[6]

Petitioners appealed to the Court of Appeals which affirmed in toto the ruling of the
trial court, and further reasoned that:

x x x Appellants protestations that the P15 million price quoted by appellee Santos was
reduced to P9 million when she later resold the leased properties to Raymundo has no
valid legal moorings because appellant, as a prospective buyer, cannot dictate its own
price and forcibly ram it against appellee Santos, as owner, to buy off her leased
properties considering the total absence of any stipulation or agreement as to the price
or as to how the price should be computed under paragraph 9 of the lease contract, x x
x[7]

Petitioner moved for reconsideration but was denied in an order dated August 20,
1993.[8]
Hence this petition. Subsequently, petitioner filed an Urgent Motion for the Issuance
of Restraining Order and/or Writ of Preliminary Injunction and to Hold Respondent David
A. Raymundo in Contempt of Court.[9] The motion sought to enjoin respondent
Raymundo and his counsel from pursuing the ejectment complaint filed before the
barangay captain of San Isidro, Paraaque, Metro Manila; to direct the dismissal of said
ejectment complaint or of any similar action that may have been filed; and to require
respondent Raymundo to explain why he should not be held in contempt of court for
forum-shopping. The ejectment suit initiated by respondent Raymundo against petitioner
arose from the expiration of the lease contract covering the property subject of this
case. The ejectment suit was decided in favor of Raymundo, and the entry of final
judgment in respect thereof renders the said motion moot and academic.

Issue

The principal legal issue presented before us for resolution is whether the
aforequoted complaint alleging breach of the contractual right of first option or priority
to buy states a valid cause of action.
Petitioner contends that the trial court as well as the appellate tribunal erred in
dismissing the complaint because it in fact had not just one but at least three (3) valid
causes of action, to wit: (1) breach of contract, (2) its right of first refusal founded in
law, and (3) damages.
Respondents Santos and Raymundo, in their separate comments, aver that the
petition should be denied for not raising a question of law as the issue involved is purely
factual -- whether respondent Santos complied with paragraph 9 of the lease agreement
-- and for not having complied with Section 2, Rule 45 of the Rules of Court, requiring
the filing of twelve (12) copies of the petitioners brief. Both maintain that the complaint
filed by petitioner before the Regional Trial Court of Makati stated no valid cause of
action and that petitioner failed to substantiate its claim that the lower courts decided
the same in a way not in accord with law and applicable decisions of the Supreme Court;
or that the Court of Appeals has sanctioned departure by a trial court from the accepted
and usual course of judicial proceedings so as to merit the exercise by this Court of the
power of review under Rule 45 of the Rules of Court. Furthermore, they reiterate
estoppel and laches as grounds for dismissal, claiming that petitioners payment of
rentals of the leased property to respondent Raymundo from June 15, 1989, to June 30,
1990, was an acknowledgment of the latters status as new owner-lessor of said
property, by virtue of which petitioner is deemed to have waived or abandoned its first
option to purchase.
Private respondents likewise contend that the deed of assignment of the lease
agreement did not include the assignment of the option to purchase. Respondent
Raymundo further avers that he was not privy to the contract of lease, being neither the
lessor nor lessee adverted to therein, hence he could not be held liable for violation
thereof.

The Courts Ruling

Preliminary Issue: Failure to File Sufficient Copies of Brief

We first dispose of the procedural issue raised by respondents, particularly

petitioners failure to file twelve (12) copies of its brief. We have ruled that when non-
compliance with the Rules was not intended for delay or did not result in prejudice to the
adverse party, dismissal of appeal on mere technicalities in cases where appeal is a
matter of right -- may be stayed, in the exercise of the courts equity jurisdiction. [10] It
does not appear that respondents were unduly prejudiced by petitioners
nonfeasance. Neither has it been shown that such failure was intentional.

Main Issue: Validity of Cause of Action

We do not agree with respondents contention that the issue involved

is purely factual. The principal legal question, as stated earlier, is whether the complaint
filed by herein petitioner in the lower court states a valid cause of action. Since such
question assumes the facts alleged in the complaint as true, it follows that the
determination thereof is one of law, and not of facts. There is a question of law in a
given case when the doubt or difference arises as to what the law is on a certain state of
facts, and there is a question of fact when the doubt or difference arises as to the truth
or the falsehood of alleged facts.[11]
At the outset, petitioner concedes that when the ground for a motion to dismiss is
lack of cause of action, such ground must appear on the face of the complaint; that to
determine the sufficiency of a cause of action, only the facts alleged in the complaint
and no others should be considered; and that the test of sufficiency of the facts alleged
in a petition or complaint to constitute a cause of action is whether, admitting the facts
alleged, the court could render a valid judgment upon the same in accordance with the
prayer of the petition or complaint.
A cause of action exists if the following elements are present: (1) a right in favor of
the plaintiff by whatever means and under whatever law it arises or is created; (2) an
obligation on the part of the named defendant to respect or not to violate such right,
and (3) an act or omission on the part of such defendant violative of the right of plaintiff
or constituting a breach of the obligation of defendant to the plaintiff for which the latter
may maintain an action for recovery of damages.[12]
In determining whether allegations of a complaint are sufficient to support a cause of
action, it must be borne in mind that the complaint does not have to establish or allege
facts proving the existence of a cause of action at the outset; this will have to be done
at the trial on the merits of the case. To sustain a motion to dismiss for lack of cause of
action, the complaint must show that the claim for relief does not exist, rather than that
a claim has been defectively stated, or is ambiguous, indefinite or uncertain. [13]
Equally important, a defendant moving to dismiss a complaint on the ground of lack
of cause of action is regarded as having hypothetically admitted all the averments
thereof.[14]
A careful examination of the complaint reveals that it sufficiently alleges an
actionable contractual breach on the part of private respondents. Under paragraph 9 of
the contract of lease between respondent Santos and petitioner, the latter was granted
the first option or priority to purchase the leased properties in case Santos decided to
sell. If Santos never decided to sell at all, there can never be a breach, much less an
enforcement of such right. But on September 21, 1988, Santos sold said properties to
Respondent Raymundo without first offering these to petitioner. Santos indeed realized
her error, since she repurchased the properties after petitioner complained. Thereafter,
she offered to sell the properties to petitioner for P15 million, which petitioner, however,
rejected because of the ridiculous price. But Santos again appeared to have violated the
same provision of the lease contract when she finally resold the properties to respondent
Raymundo for only P9 million without first offering them to petitioner at such
price. Whether there was actual breach which entitled petitioner to damages and/or
other just or equitable relief, is a question which can better be resolved after trial on the
merits where each party can present evidence to prove their respective allegations and
defenses.[15]
The trial and appellate courts based their decision to sustain respondents motion to
dismiss on the allegations of Paraaque Kings Enterprises that Santos had actually offered
the subject properties for sale to it prior to the final sale in favor of Raymundo, but that
the offer was rejected. According to said courts, with such offer, Santos had verily
complied with her obligation to grant the right of first refusal to petitioner.
We hold, however, that in order to have full compliance with the contractual right
granting petitioner the first option to purchase, the sale of the properties for the amount
of P9 million, the price for which they were finally sold to respondent Raymundo, should
have likewise been first offered to petitioner.
The Court has made an extensive and lengthy discourse on the concept of, and
obligations under, a right of first refusal in the case of Guzman, Bocaling & Co. vs.
Bonnevie.[16] In that case, under a contract of lease, the lessees (Raul and Christopher
Bonnevie) were given a right of first priority to purchase the leased property in case the
lessor (Reynoso) decided to sell. The selling price quoted to the Bonnevies
was P600,000.00 to be fully paid in cash, less a mortgage lien of P100,000.00. On the
other hand, the selling price offered by Reynoso to and accepted by Guzman was
only P400,000.00 of which P137,500.00 was to be paid in cash while the balance was to
be paid only when the property was cleared of occupants. We held that even if the
Bonnevies could not buy it at the price quoted (P600,000.00), nonetheless, Reynoso
could not sell it to another for a lower price and under more favorable terms and
conditions without first offering said favorable terms and price to the Bonnevies as
well. Only if the Bonnevies failed to exercise their right of first priority could Reynoso
thereafter lawfully sell the subject property to others, and only under the same terms
and conditions previously offered to the Bonnevies.
Of course, under their contract, they specifically stipulated that the Bonnevies could
exercise the right of first priority, all things and conditions being equal. This Court
interpreted this proviso to mean that there should be identity of terms and conditions to
be offered to the Bonnevies and all other prospective buyers, with the Bonnevies to
enjoy the right of first priority. We hold that the same rule applies even without the
same proviso if the right of first refusal (or the first option to buy) is not to be rendered
illusory.
From the foregoing, the basis of the right of the first refusal * must be the current
offer to sell of the seller or offer to purchase of any prospective buyer. Only after the
grantee** fails to exercise its right of first priority under the same terms and within the
period contemplated, could the owner validly offer to sell the property to a third person,
again, under the same terms as offered to the grantee***.
This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair
Theater, Inc.[17] which was decided en banc. This Court upheld the right of first refusal of
the lessee Mayfair, and rescinded the sale of the property by the lessor Carmelo to
Equatorial Realty considering that Mayfair, which had substantial interest over the
subject property, was prejudiced by its sale to Equatorial without Carmelo conferring to
Mayfair every opportunity to negotiate within the 30-day stipulated period (underscoring
supplied).
In that case, two contracts of lease between Carmelo and Mayfair provided that if the
LESSOR should desire to sell the leased premises, the LESSEE shall be given 30 days
exclusive option to purchase the same. Carmelo initially offered to sell the leased
property to Mayfair for six to seven million pesos. Mayfair indicated interest in
purchasing the property though it invoked the 30-day period. Nothing was heard
thereafter from Carmelo. Four years later, the latter sold its entire Recto Avenue
property, including the leased premises, to Equatorial for P11,300,000.00 without priorly
informing Mayfair. The Court held that both Carmelo and Equatorial acted in bad faith:
Carmelo for knowingly violating the right of first refusal * of Mayfair, and Equatorial for
purchasing the property despite being aware of the contract stipulation. In addition to
rescission of the contract of sale, the Court ordered Carmelo to allow Mayfair to buy the
subject property at the same price of P11,300,000.00.

No cause of action under P.D. 1517

Petitioner also invokes Presidential Decree No. 1517, or the Urban Land Reform Law,
as another source of its right of first refusal. It claims to be covered under said law,
being the rightful occupant of the land and its structures since it is the lawful lessee
thereof by reason of contract. Under the lease contract, petitioner would have occupied
the property for fourteen (14) years at the end of the contractual period.
Without probing into whether petitioner is rightfully a beneficiary under said law,
suffice it to say that this Court has previously ruled that under Section 6 [18] of P.D. 1517,
the terms and conditions of the sale in the exercise of the lessees right of first refusal to
purchase shall be determined by the Urban Zone Expropriation and Land Management
Committee. Hence, x x x certain prerequisites must be complied with by anyone who
wishes to avail himself of the benefits of the decree. [19] There being no allegation in its
complaint that the prerequisites were complied with, it is clear that the complaint did fail
to state a cause of action on this ground.

Deed of Assignment included the option to purchase

Neither do we find merit in the contention of respondent Santos that the assignment
of the lease contract to petitioner did not include the option to purchase.  The provisions
of the deeds of assignment with regard to matters assigned were very clear. Under the
first assignment between Frederick Chua as assignor and Lee Ching Bing as assignee, it
was expressly stated that:

x x x the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein

ASSIGNEE, all his rights, interest and participation over said premises afore-described, x
x x[20] (underscoring supplied)

And under the subsequent assignment executed between Lee Ching Bing as assignor
and the petitioner, represented by its Vice President Vicenta Lo Chiong, as assignee, it
was likewise expressly stipulated that:

x x x the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and
participation over said leased premises, x x x[21] (underscoring supplied)

One of such rights included in the contract of lease and, therefore, in the
assignments of rights was the lessees right of first option or priority to buy the
properties subject of the lease, as provided in paragraph 9 of the assigned lease
contract. The deed of assignment need not be very specific as to which rights and
obligations were passed on to the assignee. It is understood in the general provision
aforequoted that all specific rights and obligations contained in the contract of lease are
those referred to as being assigned. Needless to state, respondent Santos gave her
unqualified conformity to both assignments of rights.

Respondent Raymundo privy to the Contract of Lease

With respect to the contention of respondent Raymundo that he is not privy to the
lease contract, not being the lessor nor the lessee referred to therein, he could thus not
have violated its provisions, but he is nevertheless a proper party. Clearly, he stepped
into the shoes of the owner-lessor of the land as, by virtue of his purchase, he assumed
all the obligations of the lessor under the lease contract. Moreover, he received benefits
in the form of rental payments. Furthermore, the complaint, as well as the petition,
prayed for the annulment of the sale of the properties to him. Both pleadings also
alleged collusion between him and respondent Santos which defeated the exercise by
petitioner of its right of first refusal.
In order then to accord complete relief to petitioner, respondent Raymundo was a
necessary, if not indispensable, party to the case. [22] A favorable judgment for the
petitioner will necessarily affect the rights of respondent Raymundo as the buyer of the
property over which petitioner would like to assert its right of first option to buy.
Having come to the conclusion that the complaint states a valid cause of action for
breach of the right of first refusal and that the trial court should thus not have dismissed
the complaint, we find no more need to pass upon the question of whether the complaint
states a cause of action for damages or whether the complaint is barred by estoppel or
laches. As these matters require presentation and/or determination of facts, they can be
best resolved after trial on the merits.
While the lower courts erred in dismissing the complaint, private respondents,
however, cannot be denied their day in court. While, in the resolution of a motion to
dismiss, the truth of the facts alleged in the complaint are theoretically admitted, such
admission is merely hypothetical and only for the purpose of resolving the motion.  In
case of denial, the movant is not to be deprived of the right to submit its own case and
to submit evidence to rebut the allegations in the complaint. Neither will the grant of the
motion by a trial court and the ultimate reversal thereof by an appellate court have the
effect of stifling such right.[23] So too, the trial court should be given the opportunity to
evaluate the evidence, apply the law and decree the proper remedy. Hence, we remand
the instant case to the trial court to allow private respondents to have their day in court.
WHEREFORE, the petition is GRANTED. The assailed decisions of the trial court and
Court of Appeals are hereby REVERSED and SET ASIDE. The case is REMANDED to the
Regional Trial Court of Makati for further proceedings. SO ORDERED.
G.R. No. 74470 March 8, 1989

NATIONAL GRAINS AUTHORITY and WILLLAM CABAL, petitioners 

vs.
THE INTERMEDIATE APPELLATE COURT and LEON SORIANO, respondents.

Cordoba, Zapanta, Rola & Garcia for petitioner National Grains Authority.

Plaridel Mar Israel for respondent Leon Soriano.

MEDIALDEA,  J.:

This is a petition for review of the decision (pp. 9-21, Rollo) of the Intermediate
Appellate Court (now Court of Appeals) dated December 23, 1985 in A.C. G.R. CV No.
03812 entitled, "Leon Soriano, Plaintiff- Appellee versus National Grains Authority and
William Cabal, Defendants Appellants", which affirmed the decision of the Court of First
Instance of Cagayan, in Civil Case No. 2754 and its resolution (p. 28, Rollo) dated April
17, 1986 which denied the Motion for Reconsideration filed therein.

The antecedent facts of the instant case are as follows:

Petitioner National Grains Authority (now National Food Authority, NFA for short) is a
government agency created under Presidential Decree No. 4. One of its incidental
functions is the buying of palay grains from qualified farmers.

On August 23, 1979, private respondent Leon Soriano offered to sell palay grains to the
NFA, through William Cabal, the Provincial Manager of NFA stationed at Tuguegarao,
Cagayan. He submitted the documents required by the NFA for pre-qualifying as a seller,
namely: (1) Farmer's Information Sheet accomplished by Soriano and certified by a
Bureau of Agricultural Extension (BAEX) technician, Napoleon Callangan, (2) Xerox
copies of four (4) tax declarations of the riceland leased to him and copies of the lease
contract between him and Judge Concepcion Salud, and (3) his Residence Tax
Certificate. Private respondent Soriano's documents were processed and accordingly, he
was given a quota of 2,640 cavans of palay. The quota noted in the Farmer's
Information Sheet represented the maximum number of cavans of palay that Soriano
may sell to the NFA.

In the afternoon of August 23, 1979 and on the following day, August 24, 1979, Soriano
delivered 630 cavans of palay. The palay delivered during these two days were not
rebagged, classified and weighed. when Soriano demanded payment of the 630 cavans
of palay, he was informed that its payment will be held in abeyance since Mr. Cabal was
still investigating on an information he received that Soriano was not a bona tide farmer
and the palay delivered by him was not produced from his farmland but was taken from
the warehouse of a rice trader, Ben de Guzman. On August 28, 1979, Cabal wrote
Soriano advising him to withdraw from the NFA warehouse the 630 cavans Soriano
delivered stating that NFA cannot legally accept the said delivery on the basis of the
subsequent certification of the BAEX technician, Napoleon Callangan that Soriano is not
a bona fide farmer.

Instead of withdrawing the 630 cavans of palay, private respondent Soriano insisted that
the palay grains delivered be paid. He then filed a complaint for specific performance
and/or collection of money with damages on November 2, 1979, against the National
Food Authority and Mr. William Cabal, Provincial Manager of NFA with the Court of First
Instance of Tuguegarao, and docketed as Civil Case No. 2754.
Meanwhile, by agreement of the parties and upon order of the trial court, the 630
cavans of palay in question were withdrawn from the warehouse of NFA. An inventory
was made by the sheriff as representative of the Court, a representative of Soriano and
a representative of NFA (p. 13, Rollo).

On September 30, 1982, the trial court rendered judgment ordering petitioner National
Food Authority, its officers and agents to pay respondent Soriano (as plaintiff in Civil
Case No. 2754) the amount of P 47,250.00 representing the unpaid price of the 630
cavans of palay plus legal interest thereof (p. 1-2, CA Decision). The dispositive portion
reads as follows:

WHEREFORE, the Court renders judgment in favor of the plaintiff and against
the defendants National Grains Authority, and William Cabal and hereby
orders:

1. The National Grains Authority, now the National Food Authority, its
officers and agents, and Mr. William Cabal, the Provincial Manager of the
National Grains Authority at the time of the filing of this case, assigned at
Tuguegarao, Cagayan, whomsoever is his successors, to pay to the plaintiff
Leon T. Soriano, the amount of P47,250.00, representing the unpaid price of
the palay deliveries made by the plaintiff to the defendants consisting of 630
cavans at the rate Pl.50 per kilo of 50 kilos per cavan of palay;

2. That the defendants National Grains Authority, now National Food

Authority, its officer and/or agents, and Mr. William Cabal, the Provincial
Manager of the National Grains Authority, at the time of the filing of this
case assigned at Tuguegarao, Cagayan or whomsoever is his successors, are
likewise ordered to pay the plaintiff Leon T. Soriano, the legal interest at the
rate of TWELVE (12%) percent per annum, of the amount of P 47,250.00
from the filing of the complaint on November 20, 1979, up to the final
payment of the price of P 47,250.00;

3. That the defendants National Grains Authority, now National Food

Authority, or their agents and duly authorized representatives can now
withdraw the total number of bags (630 bags with an excess of 13 bags)
now on deposit in the bonded warehouse of Eng. Ben de Guzman at
Tuguegarao, Cagayan pursuant to the order of this court, and as appearing
in the written inventory dated October 10, 1980, (Exhibit F for the plaintiff
and Exhibit 20 for the defendants) upon payment of the price of P 47,250.00
and TWELVE PERCENT (12%) legal interest to the plaintiff,

4. That the counterclaim of the defendants is hereby dismissed;

5. That there is no pronouncement as to the award of moral and exemplary

damages and attorney's fees; and

6. That there is no pronouncement as to costs.

SO ORDERED (pp. 9-10, Rollo)

Petitioners' motion for reconsideration of the decision was denied on December 6, 1982.

Petitioners' appealed the trial court's decision to the Intermediate Appellate Court. In a
decision promulgated on December 23, 1986 (pp. 9-21, Rollo) the then Intermediate
Appellate Court upheld the findings of the trial court and affirmed the decision ordering
NFA and its officers to pay Soriano the price of the 630 cavans of rice plus interest.
Petitioners' motion for reconsideration of the appellate court's decision was denied in a
resolution dated April 17, 1986 (p. 28, Rollo).
Hence, this petition for review filed by the National Food Authority and Mr. William Cabal
on May 15, 1986 assailing the decision of the Intermediate Appellate Court on the sole
issue of whether or not there was a contract of sale in the case at bar.

Petitioners contend that the 630 cavans of palay delivered by Soriano on August 23,
1979 was made only for purposes of having it offered for sale. Further, petitioners
stated that the procedure then prevailing in matters of palay procurement from qualified
farmers were: firstly, there is a rebagging wherein the palay is transferred from a
private sack of a farmer to the NFA sack; secondly, after the rebagging has been
undertaken, classification of the palay is made to determine its variety; thirdly, after the
determination of its variety and convinced that it passed the quality standard, the same
will be weighed to determine the number of kilos; and finally, it will be piled inside the
warehouse after the preparation of the Warehouse Stock Receipt (WSP) indicating
therein the number of kilos, the variety and the number of bags. Under this procedure,
rebagging is the initial operative act signifying acceptance, and acceptance will be
considered complete only after the preparation of the Warehouse Stock Receipt (WSR).
When the 630 cavans of palay were brought by Soriano to the Carig warehouse of NFA
they were only offered for sale. Since the same were not rebagged, classified and
weighed in accordance with the palay procurement program of NFA, there was no
acceptance of the offer which, to petitioners' mind is a clear case of solicitation or an
unaccepted offer to sell.

The petition is not impressed with merit.

Article 1458 of the Civil Code of the Philippines defines sale as a contract whereby one of
the contracting parties obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other party to pay therefore a price certain in money or its
equivalent. A contract, on the other hand, is a meeting of minds between two (2)
persons whereby one binds himself, with respect to the other, to give something or to
render some service (Art. 1305, Civil Code of the Philippines). The essential requisites of
contracts are: (1) consent of the contracting parties, (2) object certain which is the
subject matter of the contract, and (3) cause of the obligation which is established (Art.
1318, Civil Code of the Philippines.

In the case at bar, Soriano initially offered to sell palay grains produced in his farmland
to NFA. When the latter accepted the offer by noting in Soriano's Farmer's Information
Sheet a quota of 2,640 cavans, there was already a meeting of the minds between the
parties. The object of the contract, being the palay grains produced in Soriano's
farmland and the NFA was to pay the same depending upon its quality. The fact that the
exact number of cavans of palay to be delivered has not been determined does not
affect the perfection of the contract. Article 1349 of the New Civil Code provides: ". . ..
The fact that the quantity is not determinate shall not be an obstacle to the existence of
the contract, provided it is possible to determine the same, without the need of a new
contract between the parties." In this case, there was no need for NFA and Soriano to
enter into a new contract to determine the exact number of cavans of palay to be sold.
Soriano can deliver so much of his produce as long as it does not exceed 2,640 cavans.

In its memorandum (pp. 66-71, Rollo) dated December 4, 1986, petitioners further
contend that there was no contract of sale because of the absence of an essential
requisite in contracts, namely, consent. It cited Section 1319 of the Civil Code which
states: "Consent is manifested by the meeting of the offer and the acceptance of the
thing and the cause which are to constitute the contract. ... " Following this line,
petitioners contend that there was no consent because there was no acceptance of the
630 cavans of palay in question.

The above contention of petitioner is not correct Sale is a consensual contract, " ... ,
there is perfection when there is consent upon the subject matter and price, even if
neither is delivered." (Obana vs. C.A., L-36249, March 29, 1985, 135 SCRA 557, 560)
This is provided by Article 1475 of the Civil Code which states:
 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.

xxx

The acceptance referred to which determines consent is the acceptance of the offer of
one party by the other and not of the goods delivered as contended by petitioners.

From the moment the contract of sale is perfected, it is incumbent upon the parties to
comply with their mutual obligations or "the parties may reciprocally demand
performance" thereof. (Article 1475, Civil Code, 2nd par.).

The reason why NFA initially refused acceptance of the 630 cavans of palay delivered by
Soriano is that it (NFA) cannot legally accept the said delivery because Soriano is
allegedly not a bona fide farmer. The trial court and the appellate court found that
Soriano was a bona fide farmer and therefore, he was qualified to sell palay grains to
NFA.

Both courts likewise agree that NFA's refusal to accept was without just cause. The
above factual findings which are supported by the record should not be disturbed on
appeal.

ACCORDINGLY, the instant petition for review is DISMISSED. The assailed decision of
the then Intermediate Appellate Court (now Court of Appeals) is affirmed. No costs. SO
ORDERED.
G.R. No. 105387 November 11, 1993

JOHANNES SCHUBACK & SONS PHILIPPINE TRADING

CORPORATION, petitioner, 
vs.
THE HON. COURT OF APPEALS, RAMON SAN JOSE, JR., doing business under the
name and style "PHILIPPINE SJ INDUSTRIAL TRADING," respondents.

Hernandez, Velicaria, Vibar & Santiago for petitioner.

Ernesto M. Tomaneng for private respondent.

ROMERO, J.:

In this petition for review on certiorari, petitioner questions the reversal by the Court of
Appeals 1 of the trial court's ruling that a contract of sale had been perfected between
petitioner and private respondent over bus spare parts.

The facts as quoted from the decision of the Court of Appeals are as follows:

Sometime in 1981, defendant 2 established contact with plaintiff 3 through

the Philippine Consulate General in Hamburg, West Germany, because he
wanted to purchase MAN bus spare parts from Germany. Plaintiff
communicated with its trading partner. Johannes Schuback and Sohne
Handelsgesellschaft m.b.n. & Co. (Schuback Hamburg) regarding the spare
parts defendant wanted to order.

On October 16, 1981, defendant submitted to plaintiff a list of the parts

(Exhibit B) he wanted to purchase with specific part numbers and
description. Plaintiff referred the list to Schuback Hamburg for quotations.
Upon receipt of the quotations, plaintiff sent to defendant a letter dated 25
November, 1981 (Exh. C) enclosing its offer on the items listed by
defendant.

On December 4, 1981, defendant informed plaintiff that he preferred

genuine to replacement parts, and requested that he be given 15% on all
items (Exh. D).

On December 17, 1981, plaintiff submitted its formal offer (Exh. E)

containing the item number, quantity, part number, description, unit price
and total to defendant. On December, 24, 1981, defendant informed plaintiff
of his desire to avail of the prices of the parts at that time and enclosed
Purchase Order No. 0101 dated 14 December 1981 (Exh. F to F-4). Said
Purchase Order contained the item number, part number and description.
Defendant promised to submit the quantity per unit he wanted to order on
December 28 or 29 (Exh. F).
 On December 29, 1981, defendant personally submitted the quantities he
wanted to Mr. Dieter Reichert, General Manager of plaintiff, at the latter's
residence (t.s.n., 13 December, 1984, p. 36). The quantities were written in
ink by defendant in the same Purchase Order previously submitted. At the
bottom of said Purchase Order, defendant wrote in ink above his signature:
"NOTE: Above P.O. will include a 3% discount. The above will serve as our
initial P.O." (Exhs. G to G-3-a).

Plaintiff immediately ordered the items needed by defendant from Schuback

Hamburg to enable defendant to avail of the old prices. Schuback Hamburg
in turn ordered (Order No. 12204) the items from NDK, a supplier of MAN
spare parts in West Germany. On January 4, 1982, Schuback Hamburg sent
plaintiff a proforma invoice (Exhs. N-1 to N-3) to be used by defendant in
applying for a letter of credit. Said invoice required that the letter of credit
be opened in favor of Schuback Hamburg. Defendant acknowledged receipt
of the invoice (t.s.n., 19 December 1984, p. 40).

An order confirmation (Exhs. I, I-1) was later sent by Schuback Hamburg to

plaintiff which was forwarded to and received by defendant on February 3,
1981 (t.s.n., 13 Dec. 1984, p. 42).

On February 16, 1982, plaintiff reminded defendant to open the letter of

credit to avoid delay in shipment and payment of interest (Exh. J).
Defendant replied, mentioning, among others, the difficulty he was
encountering in securing: the required dollar allocations and applying for the
letter of credit, procuring a loan and looking for a partner-financier, and of
finding ways 'to proceed with our orders" (Exh. K).

In the meantime, Schuback Hamburg received invoices from, NDK for partial
deliveries on Order No.12204 (Direct Interrogatories., 07 Oct, 1985, p. 3).
Schuback Hamburg paid NDK. The latter confirmed receipt of payments
made on February 16, 1984 (Exh.C-Deposition).

On October 18, 1982, Plaintiff again reminded defendant of his order and
advised that the case may be endorsed to its lawyers (Exh. L). Defendant
replied that he did not make any valid Purchase Order and that there was no
definite contract between him and plaintiff (Exh. M). Plaintiff sent a rejoinder
explaining that there is a valid Purchase Order and suggesting that
defendant either proceed with the order and open a letter of credit or cancel
the order and pay the cancellation fee of 30% of F.O.B. value, or plaintiff will
endorse the case to its lawyers (Exh. N).

Schuback Hamburg issued a Statement of Account (Exh. P) to plaintiff

enclosing therewith Debit Note (Exh. O) charging plaintiff 30% cancellation
fee, storage and interest charges in the total amount of DM 51,917.81. Said
amount was deducted from plaintiff's account with Schuback Hamburg
(Direct Interrogatories, 07 October, 1985).

Demand letters sent to defendant by plaintiff's counsel dated March 22,

1983 and June 9, 1983 were to no avail (Exhs R and S).

Consequently, petitioner filed a complaint for recovery of actual or compensatory

damages, unearned profits, interest, attorney's fees and costs against private
respondent.

In its decision dated June 13, 1988, the trial court 4 ruled in favor of petitioner by
ordering private respondent to pay petitioner, among others, actual compensatory
damages in the amount of DM 51,917.81, unearned profits in the amount of DM
14,061.07, or their peso equivalent.
Thereafter, private respondent elevated his case before the Court of Appeals. On
February 18, 1992, the appellate court reversed the decision of the trial court and
dismissed the complaint of petitioner. It ruled that there was no perfection of contract
since there was no meeting of the minds as to the price between the last week of
December 1981 and the first week of January 1982.

The issue posed for resolution is whether or not a contract of sale has been perfected
between the parties.

We reverse the decision of the Court of Appeals and reinstate the decision of the trial
court. It bears emphasizing that a "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. .
. . " 5

Article 1319 of the Civil Code states: "Consent is manifested by the meeting of the offer
and acceptance upon the thing and the cause which are to constitute the contract. The
offer must be certain and the acceptance absolute. A qualified acceptance constitutes a
counter offer." The facts presented to us indicate that consent on both sides has been
manifested.

The offer by petitioner was manifested on December 17, 1981 when petitioner submitted
its proposal containing the item number, quantity, part number, description, the unit
price and total to private respondent. On December 24, 1981, private respondent
informed petitioner of his desire to avail of the prices of the parts at that time and
simultaneously enclosed its Purchase Order No. 0l01 dated December 14, 1981. At this
stage, a meeting of the minds between vendor and vendee has occurred, the object of
the contract: being the spare parts and the consideration, the price stated in petitioner's
offer dated December 17, 1981 and accepted by the respondent on December 24,1981.

Although said purchase order did not contain the quantity he wanted to order, private
respondent made good, his promise to communicate the same on December 29, 1981.
At this juncture, it should be pointed out that private respondent was already in the
process of executing the agreement previously reached between the parties.

Below Exh. G-3, marked as Exhibit G-3-A, there appears this statement made by private
respondent: "Note. above P.O. will include a 3% discount. The above will serve as our
initial P.O." This notation on the purchase order was another indication of acceptance on
the part of the vendee, for by requesting a 3% discount, he implicitly accepted the price
as first offered by the vendor. The immediate acceptance by the vendee of the offer was
impelled by the fact that on January 1, 1982, prices would go up, as in fact, the
petitioner informed him that there would be a 7% increase, effective January 1982. On
the other hand, concurrence by the vendor with the said discount requested by the
vendee was manifested when petitioner immediately ordered the items needed by
private respondent from Schuback Hamburg which in turn ordered from NDK, a supplier
of MAN spare parts in West Germany.

When petitioner forwarded its purchase order to NDK, the price was still pegged at the
old one. Thus, the pronouncement of the Court Appeals that there as no confirmed price
on or about the last week of December 1981 and/or the first week of January 1982 was
erroneous.

While we agree with the trial court's conclusion that indeed a perfection of contract was
reached between the parties, we differ as to the exact date when it occurred, for
perfection took place, not on December 29, 1981. Although the quantity to be ordered
was made determinate only on December 29, 1981, quantity is immaterial in the
perfection of a sales contract. What is of importance is the meeting of the minds as to
the object and cause, which from the facts disclosed, show that as of December 24,
1981, these essential elements had already occurred.

On the part of the buyer, the situation reveals that private respondent failed to open an
irrevocable letter of credit without recourse in favor of Johannes Schuback of Hamburg,
Germany. This omission, however. does not prevent the perfection of the contract
between the parties, for the opening of the letter of credit is not to be deemed a
suspensive condition. The facts herein do not show that petitioner reserved title to the
goods until private respondent had opened a letter of credit. Petitioner, in the course of
its dealings with private respondent, did not incorporate any provision declaring their
contract of sale without effect until after the fulfillment of the act of opening a letter of
credit.

The opening of a etter of credit in favor of a vendor is only a mode of payment. It is not
among the essential requirements of a contract of sale enumerated in Article 1305 and
1474 of the Civil Code, the absence of any of which will prevent the perfection of the
contract from taking place.

To adopt the Court of Appeals' ruling that the contract of sale was dependent on the
opening of a letter of credit would be untenable from a pragmatic point of view because
private respondent would not be able to avail of the old prices which were open to him
only for a limited period of time. This explains why private respondent immediately
placed the order with petitioner which, in turn promptly contacted its trading partner in
Germany. As succinctly stated by petitioner, "it would have been impossible for
respondent to avail of the said old prices since the perfection of the contract would arise
much later, or after the end of the year 1981, or when he finally opens the letter of
credit." 6

WHEREFORE, the petition is GRANTED and the decision of the trial court dated June 13,
1988 is REINSTATED with modification. SO ORDERED.
G.R. No. 129760 December 29, 1998

RICARDO CHENG, petitioner, 
vs.
RAMON B. GENATO and ERNESTO R. DA JOSE & SOCORRO DA JOSE, respondents.

MARTINEZ, J.:

This petition for review on certiorari seeks to annul and set aside the Decision of the
Court of Appeals (CA) 1 dated July 7, 1997 in CA-G.R. No. CV No. 44706 entitled
"Ricardo Cheng, plaintiff-appellee vs. Ramon B. Genato, defendant-appellant, Ernesto R.
Da Jose & Socorro B. Da Jose, Intervenors-Appellants" which reversed the ruling of the
Regional Trial Court, Branch 96 of Quezon City dated January 18, 1994. The dispositive
portion of the CA Decision reads:

WHEREFORE, based on the foregoing, appealed decision is hereby

REVERSED and SET ASIDE and judgment is rendered ordering;

1. The dismissal of the complaint;

2. The cancellation of the annotations of the defendant-appellant's Affidavit

to Annul Contract to Sell and plaintiff-appellee's Notice of Adverse Claim in
the subject TCT's, namely, TCT No. T-76.196 (M) and TCT No. T-76.197 (M);

3. Payment by the intervenors-appellants of the remaining balance of the

purchase price pursuant to their agreement with the defendant-appellant to
suspend encashment of the three post-dated checks issued since 1989.

4. Ordering the execution by the defendant-appellant Genato of the Deed of

Absolute Sale over the subject two lots covered by TCT No. T-76.196 (M)
and TCT No. T-76.197 (M) in favor of intervenors-appellants Spouses Da
Jose;

5. The return by defendant-appellant Genato of the P50,000.00 paid to him

by the plaintiff-appellee Cheng, and

6. Payment by plaintiff-appellee Cheng of moral damages to herein

intervenors-appellants Da Jose of P100,000.00, exemplary damages of
P50,000.00, attorney's fees of P50,000.00, and costs of suit; and to
defendant-appellant, of P100,000.00 in exemplary damages, P50,000.00 in
attorney's fees. The amounts payable to the defendant-appellant may be
compensated by plaintiff appellee with the amount ordered under the
immediately foregoing paragraph which defendant-appellant has to pay the
plaintiff-appellee.
 SO ORDERED. 2

The antecedents of the case are as follows:

Respondent Ramon B. Genato (Genato) is the owner of two parcels of land located at
Paradise Farms, San Jose del Monte, Bulacan covered by TCT No. T-76.196 (M) 3 and
TCT No. T-76.197 (M) 4 with an aggregate area of 35,821square meters, more or less.

On September 6, 1989, respondent Genato entered into an agreement with respondent-

spouses Ernesto R. Da Jose and Socorro B. Da Jose (Da Jose spouses) over the above-
mentioned two parcels of land. The agreement culminated in the execution of a contract
to sell for which the purchase price was P80.00 per square meter. The contract was in a
public instrument and was duly annotated at the back of the two certificates of title on
the same day. Clauses 1and 3 thereof provide:

1. That the purchase price shall be EIGHTY (P80.00) PESOS, Philippine

Currency per square meter, of which the amount of FIFTY THOUSAND
(P50,000.00) PESOS shall be paid by the VENDEE to the VENDOR as partial
down payment at the time of execution of this Contract to Sell.

x x x           x x x          x x x

3. That the VENDEE, Thirty (30) DAYS after the execution of this contract,
and only after having satisfactorily verified and confirmed the truth and
authenticity of documents, and that no restrictions, limitations, and
developments imposed on and/or affecting the property subject of this
contract shall be detrimental to his interest, the VENDEE shall pay to the
VENDOR, NINE HUNDRED FIFTY THOUSAND (P950,00.00) PESOS. Philippine
Currency, representing the full payment of the agreed Down Payment, after
which complete possession of the property shall be given to the VENDEE to
enable him to prepare the premises and any development therein.

On October 4, 1989, the Da Jose spouses, not having finished verifying the titles
mentioned in clause 3 as aforequoted, asked for and was granted by respondent Genato
an extension of another 30 days — or until November 5, 1989. However, according to
Genato, the extension was granted on condition that a new set of documents is made
seven (7) days from October 4, 1989. 6 This was denied by the Da Jose spouses.

Pending the effectivity of the aforesaid extension period, and without due notice to the
Da Jose spouses, Genato executed an Affidavit to Annul the Contract to Sell, 7 on
October 13, 1989. Moreover, no annotation of the said affidavit at the back of his titles
was made right away. The affidavit contained, inter alia, the following paragraphs;

x x x           x x x          x x x

That it was agreed between the parties that the agreed downpayment of
P950,000.00 shall be paid thirty (30) days after the execution of the
Contract, that is on or before October 6, 1989;

The supposed VENDEES failed to pay the said full downpayment even up to
this writing, a breach of contract;

That this affidavit is being executed to Annul the aforesaid Contract to Sell
for the vendee having committed a breach of contract for not having
complied with the obligation as provided in the Contract to Sell; 8

On October 24, 1989, herein petitioner Ricardo Cheng (Cheng) went to Genato's
residence and expressed interest in buying the subject properties. On that occasion,
Genato showed to Ricardo Cheng copies of his transfer certificates of title and the
annotations at the back thereof of his contract to sell with the Da Jose spouses. Genato
also showed him the aforementioned Affidavit to Annul the Contract to Sell which has
not been annotated at the back of the titles.

Despite these, Cheng went ahead and issued a check for P50,000.00 upon the assurance
by Genato that the previous contract with the Da Jose spouses will be annulled for which
Genato issued a handwritten receipt (Exh. "D"), written in this wise:

10/24/89

Received from Ricardo Cheng

the Sum of Fifty Thousand Only (P50.000-)

as partial for T-76196 (M)

T-76197 (M) area 35.821 Sq.m.

Paradise Farm, Gaya-Gaya, San Jose Del Monte

P70/m2 Bulacan

plus C. G. T. etc.

Check # 470393 (SGD.) Ramon B. Genato

10/24/89 9

On October 25, 1989, Genato deposited Cheng's check. On the same day, Cheng called
up Genato reminding him to register the affidavit to annul the contract to sell. 10

The following day, or on October 26, 1989, acting on Cheng's request, Genato caused
the registration of the Affidavit to Annul the Contract to Sell in the Registry of Deeds,
Meycauayan, Bulacan as primary entry No. 262702. 11

While the Da Jose spouses were at the Office of the Registry of Deeds of Meycauayan,
Bulacan on October 27, 1989, they met Genato by coincidence. It was only then that the
Da Jose spouses discovered about the affidavit to annul their contract. The latter were
shocked at the disclosure and protested against the rescission of their contract. After
being reminded that he (Genato) had given them (Da Jose spouses) an additional 30-
day period to finish their verification of his titles, that the period was still in effect, and
that they were willing and able to pay the balance of the agreed down payment, later on
in the day, Genato decided to continue the Contract he had with them. The agreement
to continue with their contract was formalized in a conforme letter dated October 27,
1989.

Thereafter, Ramon Genato advised Ricardo Cheng of his decision to continue his contract
with the Da Jose spouses and the return of Cheng's P50,000.00 check. Consequently, on
October 30, 1989, Cheng's lawyer sent a letter 12 to Genato demanding compliance with
their agreement to sell the property to him stating that the contract to sell between him
and Genato was already perfected and threatening legal action.

On November 2, 1989, Genato sent a letter 13 to Cheng (Exh. "6") enclosing a BPI
Cashier's Check for P50,000.00 and expressed regret for his inability to "consummate
his transaction" with him. After having received the letter of Genato on November 4,
1989, Cheng, however, returned the said check to the former via RCPI telegram 14 dated
November 6, 1989, reiterating that "our contract to sell your property had already been
perfected."

Meanwhile, also on November 2, 1989, Cheng executed an affidavit of adverse

claim 15 and had it annotated on the subject TCT's.
On the same day, consistent with the decision of Genato and the Da Jose spouses to
continue with their Contract to Sell of September 6, 1989, the Da Jose spouses paid
Genato the complete down payment of P950,000.00 and delivered to him three (3)
postdated checks (all dated May 6, 1990, the stipulated due date) in the total amount of
P1,865,680.00 to cover full payment of the balance of the agreed purchase price.
However, due to the filing of the pendency of this case, the three (3) postdated checks
have not been encashed.

On December 8, 1989, Cheng instituted a complaint 16 for specific performance to

compel Genato to execute a deed of sale to him of the subject properties plus damages
and prayer for preliminary attachment. In his complaint, Cheng averred that the
P50,000.00 check he gave was a partial payment to the total agreed purchase price of
the subject properties and considered as an earnest money for which Genato acceded.
Thus, their contract was already perfected.

In Answer 17 thereto, Genato alleged that the agreement was only a simple receipt of an
option-bid deposit, and never stated that it was a partial payment, nor is it an earnest
money and that it was subject to condition that the prior contract with the Da Jose
spouses be first cancelled.

The Da Jose spouses, in their Answer in Intervention, 18 asserted that they have a

superior right to the property as first buyers. They alleged that the unilateral
cancellation of the Contract to Sell was without effect and void. They also cited Cheng's
bad faith as a buyer being duly informed by Genato of the existing annotated Contract to
Sell on the titles.

After trial on the merits, the lower court ruled that the receipt issued by Genato to
Cheng unerringly meant a sale and not just a priority or an option to buy. It cannot be
true that the transaction was subjected to some condition or reservation, like the priority
in favor of the Da Jose spouses as first buyer because, if it were otherwise, the receipt
would have provided such material condition or reservation, especially as it was Genato
himself who had made the receipt in his own hand. It also opined that there was a valid
rescission of the Contract to Sell by virtue of the Affidavit to Annul the Contract to Sell.
Time was of the essence in the execution of the agreement between Genato and Cheng,
under this circumstance demand, extrajudicial or judicial, is not necessary. It falls under
the exception to the rule provided in Article 1169 19 of the Civil Code. The right of
Genato to unilaterally rescind the contract is said to be under Article 1191 20 of the Civil
Code. Additionally, after reference was made to the substance of the agreement
between Genato and the Da Jose spouses, the lower court also concluded that Cheng
should be preferred over the intervenors-Da Jose spouses in the purchase of the subject
properties. Thus, on January 18, 1994 the trial court rendered its decision the decretal
portion of which reads:

WHEREFORE, judgment is hereby rendered:

1. Declaring the contract to sell dated September 6, 1989 executed between

defendant Ramon Genato, as vendor, and intervenors Spouses Ernesto and
Socorro Da Jose, as vendees, resolved and rescinded in accordance with Art.
1191, Civil Code, by virtue of defendant's affidavit to annul contract to sell
dated October 13, 1989 and as the consequence of intervenors' failure to
execute within seven (7) days from October 4, 1989 another contract to sell
pursuant to their mutual agreement with defendant;

2. Ordering defendant to return to the intervenors the sum of

P1,000,000.00, plus interest at the legal rate from November 2, 1989 until
full payment;

3. Directing defendant to return to the intervenors the three (3) postdated

checks immediately upon finality of this judgment;
 4. Commanding defendant to execute with and in favor of the plaintiff
Ricardo Cheng, as vendee, a deed of conveyance and sale of the real
properties described and covered in Transfer Certificates of Title No. T-76-
196 (M) and T-76.197 (M) of the Registry of Deeds of Bulacan, Meycauayan
Branch, at the rate of P70.000/square meter, less the amount of P50,000.00
alreaddy paid to defendant, which is considered as part of the purchase
price, with the plaintiff being liable for payment of the capital gains taxes
and other expenses of the transfer pursuant to the agreement to sell dated
October 24, 1989; and

5 Ordering defendant to pay the plaintiff and the intervenors as follows:

a/ P50,000.00, as nominal damages, to plaintiff;

b/ P50,000.00, as nominal damages, to intervenors;

c/ P20,000.00, as and for attorney's fees, to plaintiff;

d/ P20,000.00, as and for attorney's fees, to

intervenors; and

e/ Cost of the suit.

x x x           x x x          x x x

Not satisfied with the aforesaid decision, herein respondents Ramon Genato and Da Jose
spouses appealed to the court a quo which reversed such judgment and ruled that the
prior contract to sell in favor of the Da Jose spouses was not validly rescinded; that the
subsequent contract to sell between Genato and Cheng, embodied in the handwritten
receipt, was without force and effect due to the failure to rescind the prior contract; and
that Cheng should pay damages to the respondents herein being found to be in bad
faith.

Hence this petition.21

This petition for review, assails the Court of Appeals' Decision on the following grounds:
(1) that the Da Jose spouses' Contract to Sell has been validly rescinded or resolved; (2)
that Ricardo Cheng's own contract with Genato was not just a contract to sell but one of
conditional contract of sale which gave him better rights, thus precluding the application
of the rule on double sales under Article 1544, Civil Code; and (3) that, in any case, it
was error to hold him liable for damages.

The petition must be denied for failure to show that the Court of Appeals committed a
reversible error which would warrant a contrary ruling.

No reversible error can be ascribed to the ruling of the Court of Appeals that there was
no valid and effective rescission or resolution of the Da Jose spouses Contract to Sell,
contrary to petitioner's contentions and the trial court's erroneous ruling.

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.22 It is one where the happening of the event gives rise to an obligation. Thus, for
its non-fulfillment there will be no contract to speak of, the obligor having failed to
perform the suspensive condition which enforces a juridical relation. In fact with this
circumstance, there can be no rescission of an obligation that is still non-existent, the
suspensive condition not having occurred as yet. 23 Emphasis should be made that the
breach contemplated in Article 1191 of the New Civil Code is the obligor's failure to
comply with an obligation already extant, not a failure of a condition to render binding
that obligation.24
Obviously, the foregoing jurisprudence cannot be made to apply to the situation in the
instant case because no default can be ascribed to the Da Jose spouses since the 30-day
extension period has not yet expired. The Da Jose spouses' contention that no further
condition was agreed when they were granted the 30-days extension period from
October 7, 1989 in connection with clause 3 of their contract to sell dated September 6,
1989 should be upheld for the following reason, to wit; firstly, If this were not true,
Genato could not have been persuaded to continue his contract with them and later on
agree to accept the full settlement of the purchase price knowing fully well that he
himself imposed such sine qua non condition in order for the extension to be
valid; secondly, Genato could have immediately annotated his affidavit to annul the
contract to sell on his title when it was executed on October 13, 1989 and not only on
October 26, 1989 after Cheng reminded him of the annotation; thirdly, Genato could
have sent at least a notice of such fact, there being no stipulation authorizing him for
automatic rescission, so as to finally clear the encumbrance on his titles and make it
available to other would be buyers. It likewise settles the holding of the trial court that
Genato "needed money urgently."

Even assuming in gratia argumenti that the Da Jose spouses defaulted, as claimed by

Genato, in their Contract to Sell, the execution by Genato of the affidavit to annul the
contract is not even called for. For with or without the aforesaid affidavit their non-
payment to complete the full downpayment of the purchase price ipso facto avoids their
contract to sell, it being subjected to a suspensive condition. When a contract is subject
to a suspensive condition, its birth or effectivity can take place only if and when the
event which constitutes the condition happens or is fulfilled. 25 If the suspensive condition
does not take place, the parties would stand as if the conditional obligation had never
existed. 26

Nevertheless, this being so Genato is not relieved from the giving of a notice, verbal or
written, to the Da Jose spouses for his decision to rescind their contract. In many
cases,27 even though we upheld the validity of a stipulation in a contract to sell
authorizing automatic rescission for a violation of its terms and conditions, at least a
written notice must be sent to the defaulter informing him of the same. The act of a
party in treating a contract as cancelled should be made known to the other. 28 For such
act is always provisional. It is always subject to scrutiny and review by the courts in
case the alleged defaulter brings the matter to the proper courts. In University of the
Philippines vs. De Los Angeles,29 this Court stressed and we quote:

In other words, the party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court action,
but it proceeds at its own risk. For it is only the final judgment of the
corresponding court that will conclusively and finally settle whether the
action taken was or was not correct in law. But the law definitely does not
require that the contracting party who believes itself injured must first file
suit and wait for a judgment before taking extrajudicial steps to protect its
interest. Otherwise, the party injured by the other's breach will have to
passively sit and watch its damages accumulate during the pendency of the
suit until the final judgment of rescission is rendered when the law itself
requires that he should exercise due diligence to minimize its own damages
(Civil Code, Article 2203).

This rule validates, both in equity and justice, contracts such as the one at bat, in order
to avoid and prevent the defaulting party from assuming the offer as still in effect due to
the obligee's tolerance for such non-fulfillment. Resultantly, litigations of this sort shall
be prevented and the relations among would-be parties may be preserved. Thus,
Ricardo Cheng's contention that the Contract to Sell between Genato and the Da Jose
spouses was rescinded or resolved due to Genato's unilateral rescission finds no support
in this case.

Anent the issue on the nature of the agreement between Cheng and Genato, the records
of this case are replete with admissions 30 that Cheng believed it to be one of a Contract
to Sell and not one of Conditional Contract of Sale which he, in a transparent turn-
around, now pleads in this Petition. This ambivalent stance of Cheng is even noted by
the appellate court, thus:

At the outset, this Court notes that plaintiff-appellee was inconsistent in

characterizing the contract he allegedly entered into. In his
complaint.31 Cheng alleged that the P50,000.00 down payment was earnest
money. And next, his testimony32 was offered to prove that the transaction
between him and Genato on October 24, 1989 was actually a perfected
contract to sell.33

Settled is the rule that an issue which was not raised during the trial in the court below
cannot be raised for the first time on appeal. 34 Issues of fact and arguments not
adequately brought to the attention of the trial court need not be and ordinarily will not
be considered by a reviewing court as they cannot be raised for the first time on
appeal.35 In fact, both courts below correctly held that the receipt which was the result
of their agreement, is a contract to sell. This was, in fact Cheng's contention in his
pleadings before said courts. This patent twist only operates against Cheng's posture
which is indicative of the weakness of his claim.

But even if we are to assume that the receipt, Exh. "D," is to be treated as a conditional
contract of sale, it did not acquire any obligatory force since it was subject to suspensive
condition that the earlier contract to sell between Genato and the Da Jose spouses
should first be cancelled or rescinded — a condition never met, as Genato, to his credit,
upon realizing his error, redeemed himself by respecting and maintaining his earlier
contract with the Da Jose spouses. In fact, a careful reading of the receipt, Exh. "D,"
alone would not even show that a conditional contract of sale has been entered by
Genato and Cheng. When the requisites of a valid contract of sale are lacking in said
receipt, therefore the "sale" is neither valid or enfoceable. 36

To support his now new theory that the transaction was a conditional contract of sale,
petitioner invokes the case of Coronel vs. Court of Appeals 37 as the law that should
govern their Petition. We do not agree. Apparently, the factual milieu in Coronel is not
on all fours with those in the case at bar.

In Coronel, this Court found that the petitioners therein clearly intended to transfer title
to the buyer which petitioner themselves admitted in their pleading. The agreement of
the parties therein was definitively outlined in the "Receipt of Down Payment" both as to
property, the purchase price, the delivery of the seller of the property and the manner of
the transfer of title subject to the specific condition that upon the transfer in their names
of the subject property the Coronels will execute the deed of absolute sale.

Whereas, in the instant case, even by a careful perusal of the receipt, Exh. "D," alone
such kind of circumstances cannot be ascertained without however resorting to the
exceptions of the Rule on Parol Evidence.

To our mind, the trial court and the appellate court correctly held that the agreement
between Genato and Cheng is a contract to sell, which was, in fact, petitioner connection
in his pleadings before the said courts. Consequently, both to mind, which read:

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 possession; and in the absence thereof, to the
person who presents he oldest title, provided there is good faith.
However, a meticulous reading of the aforequoted provision shows that said law is not
apropos to the instant case. This provision connotes that the following circumstances
must concur:

(a) The two (or more) sales transactions in issue must pertain to exactly the
same subject matter, and must be valid sales transactions.

(b) The two (or more) buyers at odds over the rightful ownership of the
subject matter must each represent conflicting interests; and

(c) The two (or more) buyers at odds over the rightful ownership of the
subject matter must each have bought from the very same seller.

These situations obviously are lacking in a contract to sell for neither a transfer of
ownership nor a sales transaction has been consummated. The contract to be binding
upon the obligee or the vendor depends upon the fulfillment or non-fulfillment of an
event.

Notwithstanding this contrary finding with the appellate court, we are of the view that
the governing principle of Article 1544, Civil Code, should apply in this situation.
Jurisprudence38 teaches us that the governing principle is PRIMUS TEMPORE, PORTIOR
JURE (first in time, stronger in right). For not only was the contract between herein
respondents first in time; it was also registered long before petitioner's intrusion as a
second buyer. This principle only applies when the special rules provided in the aforcited
article of the Civil Code do not apply or fit the specific circumstances mandated under
said law or by jurisprudence interpreting the article.

The rule exacted by Article 1544 of the Civil Code for the second buyer to be able to
displace the first buyer are:

(1) that the second buyer must show that he acted in good faith (i.e. in ignorance of the
first sale and of the first buyer's rights) from the time of acquisition until title is
transferred to him by registration or failing registration, by delivery of possession; 39

(2) the second buyer must show continuing good faith and innocence or lack of
knowledge of the first sale until his contract ripens into full ownership through prior
registration as provided by law.40

Thus, in the case at bar, the knowledge gained by the Da Jose spouses, as first buyers,
of the new agreement between Cheng and Genato will not defeat their rights as first
buyers except where Cheng, as second buyer, registers or annotates his transaction or
agreement on the title of the subject properties in good faith ahead of the Da Jose
spouses. Moreover, although the Da Jose spouses, as first buyers, knew of the second
transaction it will not bar them from availing of their rights granted by law, among
them, to register first their agreement as against the second buyer.

In contrast, knowledge gained by Cheng of the first transaction between the Da Jose
spouses and Genato defeats his rights even if he is first to register the second
transaction, since such knowledge taints his prior registration with bad faith.

"Registration", as defined by Soler and Castillo, means any entry made in the books of
the registry, including both registration in its ordinary and strict sense, and cancellation,
annotation, and even marginal notes. 41 In its strict acceptation, it is the entry made in
the registry which records solemnly and permanently the right of ownership and other
real rights.42 We have ruled43 before that when a Deed of Sale is inscribed in the registry
of property on the original document itself, what was done with respect to said entries or
annotations and marginal notes amounted to a registration of the sale. In this light, we
see no reason why we should not give priority in right the annotation made by the Da
Jose spouses with respect to their Contract to Sell dated September 6, 1989.
Moreover, registration alone in such cases without good faith is not sufficient. Good faith
must concur with registration for such prior right to be enforceable. In the instant case,
the annotation made by the Da Jose spouses on the titles of Genato of their "Contract To
Sell" more than satisfies this requirement. Whereas in the case of Genato's agreement
with Cheng such is unavailing. For even before the receipt, Exh. "D," was issued to
Cheng information of such pre-existing agreement has been brought to his knowledge
which did not deter him from pursuing his agreement with Genato. We give credence to
the factual finding of the appellate court that "Cheng himself admitted that it was he
who sought Genato in order to inquire about the property and offered to buy the
same.44 And since Cheng was fully aware, or could have been if he had chosen to
inquire, of the rights of the Da Jose spouses under the Contract to Sell duly annotated
on the transfer certificates of titles of Genato, it now becomes unnecessary to further
elaborate in detail the fact that he is indeed in bad faith in entering into such agreement.
As we have held in Leung Yee vs. F.L. Strong Machinery Co.:45

One who purchases real estate with knowledge of a defect . . . of title in his
vendor cannot claim that he has acquired title thereto in good faith as
against . . . . an interest therein; and the same rule must be applied to one
who has knowledge of facts which should have put him upon such inquiry
and investigation as might be necessary to acquaint him with the defects in
the title of his vendor. A purchaser cannot close his eyes to facts which
should put a reasonable man upon his guard, and then claim that he acted in
good faith under the belief that there was no defect in the title of the
vendor. His mere refusal to believe that such defect exists, or his willful
closing of his eyes to the possibility of the existence of a defect in his
vendor's title, will not make him an innocent purchaser for value, if it
afterwards develops that the title was in fact defective, and it appears that
he had such notice of the defect as would have led to its discovery had he
acted with that measure of precaution which may reasonably be required of
a prudent man in a like situation. Good faith, or lack of it, is in its last
analysis a question of intention; but in ascertaining the intention by which
one is actuated on a given occasion, we are necessarily controlled by the
evidence as to the conduct and outward acts by which alone the inward
motive may with safety, be determined. So it is that "the honesty of
intention," "the honest lawful intent," which constitutes good faith implies a
"freedom from knowledge and circumstances which ought to put a person on
inquiry," and so it is that proof of such knowledge overcomes the
presumption of good faith in which the courts always indulge in the absence
of the proof to the contrary. "Good faith, or the want of it, is not a visible,
tangible fact that can be seen or touched, but rather a state or condition of
mind which can only be judge of by actual or fancied tokens or signs."
(Wilder vs. Gilman, 55 Vt. 504, 505; Cf. Cardenas vs. Miller, 108 Cal., 250;
Breaux-Renoudet, Cypress Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098;
Pinkerton Bros. Co. vs. Bromely, 119 Mich., 8, 10, 17.) (Emphasis ours)

Damages were awarded by the appellate court on the basis of its finding that petitioner
"was in bad faith when he filed the suit for specific performance knowing fully well that
his agreement with Genato did not push through. 46 Such bad faith, coupled with his
wrongful interference with the contractual relations between Genato and the Da Jose
spouses, which culminated in his filing of the present suit and thereby creating what the
counsel for the respondents describes as "a prolonged and economically unhealthy
gridlock47 on both the land itself and the respondents' rights provides ample basis for the
damages awarded. Based on these overwhelming evidence of bad faith on the part of
herein petitioner Ricardo Cheng, we find that the award of damages made by the
appellate court is in order.

WHEREFORE, premises considered, the instant petition for review is DENIED and the
assailed decision is hereby AFFIRMED EN TOTO. SO ORDERED.
 [G.R. No. 132161. January 17, 2005]

CONSOLIDATED RURAL BANK (CAGAYAN VALLEY), INC., petitioner, vs. THE

HONORABLE COURT OF APPEALS and HEIRS OF TEODORO DELA
CRUZ, respondents.

DECISION
TINGA, J.:

Petitioner Consolidated Rural Bank, Inc. of Cagayan Valley filed the instant Petition
for Certiorari[1] under Rule 45 of the Revised Rules of Court, seeking the review of
the Decision[2] of the Court of Appeals Twelfth Division in CA-G.R. CV No. 33662,
promulgated on 27 May 1997, which reversed the judgment [3] of the lower court in favor
of petitioner; and the Resolution[4] of the Court of Appeals, promulgated on 5 January
1998, which reiterated its Decision insofar as respondents Heirs of Teodoro dela Cruz
(the Heirs) are concerned.
From the record, the following are the established facts:
Rizal, Anselmo, Gregorio, Filomeno and Domingo, all surnamed Madrid (hereafter the
Madrid brothers), were the registered owners of Lot No. 7036-A of plan Psd-10188,
Cadastral Survey 211, situated in San Mateo, Isabela per Transfer Certificate of Title
(TCT) No. T-8121 issued by the Register of Deeds of Isabela in September 1956. [5]
On 23 and 24 October 1956, Lot No. 7036-A was subdivided into several lots under
subdivision plan Psd- 50390. One of the resulting subdivision lots was Lot No. 7036-A-7
with an area of Five Thousand Nine Hundred Fifty-Eight (5,958) square meters. [6]
 On 15 August 1957, Rizal Madrid sold part of his share identified as Lot No. 7036-A-
7, to Aleja Gamiao (hereafter Gamiao) and Felisa Dayag (hereafter, Dayag) by virtue of
a Deed of Sale,[7] to which his brothers Anselmo, Gregorio, Filomeno and Domingo
offered no objection as evidenced by their Joint Affidavit dated 14 August 1957.[8] The
deed of sale was not registered with the Office of the Register of Deeds of Isabela.
However, Gamiao and Dayag declared the property for taxation purposes in their names
on March 1964 under Tax Declaration No. 7981. [9]
On 28 May 1964, Gamiao and Dayag sold the southern half of Lot No. 7036-A-7,
denominated as Lot No. 7036-A-7-B, to Teodoro dela Cruz, [10] and the northern half,
identified as Lot No. 7036-A-7-A,[11] to Restituto Hernandez.[12] Thereupon, Teodoro dela
Cruz and Restituto Hernandez took possession of and cultivated the portions of the
property respectively sold to them.[13]
Later, on 28 December 1986, Restituto Hernandez donated the northern half to his
daughter, Evangeline Hernandez-del Rosario. [14] The children of Teodoro dela Cruz
continued possession of the southern half after their fathers death on 7 June 1970.
In a Deed of Sale[15] dated 15 June 1976, the Madrid brothers conveyed all their
rights and interests over Lot No. 7036-A-7 to Pacifico Marquez (hereafter, Marquez),
which the former confirmed[16] on 28 February 1983.[17] The deed of sale was registered
with the Office of the Register of Deeds of Isabela on 2 March 1982.[18]
Subsequently, Marquez subdivided Lot No. 7036-A-7 into eight (8) lots, namely: Lot
Nos. 7036-A-7-A to 7036-A-7-H, for which TCT Nos. T-149375 to T-149382 were issued
to him on 29 March 1984. [19] On the same date, Marquez and his spouse, Mercedita
Mariana, mortgaged Lots Nos. 7036-A-7-A to 7036-A-7-D to the Consolidated Rural
Bank, Inc. of Cagayan Valley (hereafter, CRB) to secure a loan of One Hundred
Thousand Pesos (P100,000.00).[20] These deeds of real estate mortgage were registered
with the Office of the Register of Deeds on 2 April 1984.
On 6 February 1985, Marquez mortgaged Lot No. 7036-A-7-E likewise to the Rural
Bank of Cauayan (RBC) to secure a loan of Ten Thousand Pesos (P10,000.00).[21]
As Marquez defaulted in the payment of his loan, CRB caused the foreclosure of the
mortgages in its favor and the lots were sold to it as the highest bidder on 25 April
1986.[22]
On 31 October 1985, Marquez sold Lot No. 7036-A-7-G to Romeo Calixto (Calixto).
[23]

Claiming to be null and void the issuance of TCT Nos. T-149375 to T-149382; the
foreclosure sale of Lot Nos. 7036-A-7-A to 7036-A-7-D; the mortgage to RBC; and the
sale to Calixto, the Heirs-now respondents herein-represented by Edronel dela Cruz,
filed a case[24] for reconveyance and damages the southern portion of Lot No. 7036-A
(hereafter, the subject property) against Marquez, Calixto, RBC and CRB in December
1986.
Evangeline del Rosario, the successor-in-interest of Restituto Hernandez, filed with
leave of court a Complaint in Intervention[25] wherein she claimed the northern portion of
Lot No. 7036-A-7.
In the Answer to the Amended Complaint,[26] Marquez, as defendant, alleged that
apart from being the first registrant, he was a buyer in good faith and for value. He also
argued that the sale executed by Rizal Madrid to Gamiao and Dayag was not binding
upon him, it being unregistered. For his part, Calixto manifested that he had no interest
in the subject property as he ceased to be the owner thereof, the same having been
reacquired by defendant Marquez.[27]
CRB, as defendant, and co-defendant RBC insisted that they were mortgagees in
good faith and that they had the right to rely on the titles of Marquez which were free
from any lien or encumbrance.[28]
After trial, the Regional Trial Court, Branch 19 of Cauayan, Isabela (hereafter, RTC)
handed down a decision in favor of the defendants, disposing as follows:

WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered:

1. Dismissing the amended complaint and the complaint in intervention;

2. Declaring Pacifico V. Marquez the lawful owner of Lots 7036-A-7 now Lots 7036-A-7-A
to 7036-A-7-H, inclusive, covered by TCT Nos. T-149375 to T-149382, inclusive;

3. Declaring the mortgage of Lots 7036-A-7-A, 7036-A-7-B, 7036-A-7-C and 7036-A-7-

D in favor of the defendant Consolidated Rural Bank (Cagayan Valley) and of Lot 7036-
A-7-E in favor of defendant Rural Bank of Cauayan by Pacifico V. Marquez valid;

4. Dismissing the counterclaim of Pacifico V. Marquez; and

5. Declaring the Heirs of Teodoro dela Cruz the lawful owners of the lots covered by TCT
Nos. T-33119, T-33220 and T-7583.

No pronouncement as to costs.

SO ORDERED.[29]

In support of its decision, the RTC made the following findings:

With respect to issues numbers 1-3, the Court therefore holds that the sale of Lot 7036-
A-7 made by Rizal Madrid to Aleja Gamiao and Felisa Dayag and the subsequent
conveyances to the plaintiffs and intervenors are all valid and the Madrid brothers are
bound by said contracts by virtue of the confirmation made by them on August 14, 1957
(Exh. B).

Are the defendants Pacifico V. Marquez and Romeo B. Calixto buyers in good faith and
for value of Lot 7036-A-7?

It must be borne in mind that good faith is always presumed and he who imputes bad
faith has the burden of proving the same (Art. 527, Civil Code). The Court has carefully
scrutinized the evidence presented but finds nothing to show that Marquez was aware of
the plaintiffs and intervenors claim of ownership over this lot. TCT No. T-8121 covering
said property, before the issuance of Marquez title, reveals nothing about the plaintiffs
and intervenors right thereto for it is an admitted fact that the conveyances in their
favor are not registered.

The Court is therefore confronted with two sales over the same property. Article 1544 of
the Civil Code provides:

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

Should it be immovable property, the ownership shall belong to the person acquiring it
who in good faith first recorded it in the Registry of Property. x x x (Underscoring
supplied).

From the foregoing provisions and in the absence of proof that Marquez has actual or
constructive knowledge of plaintiffs and intervenors claim, the Court has to rule that as
the vendee who first registered his sale, Marquez ownership over Lot 7036-A-7 must be
upheld.[30]

The Heirs interposed an appeal with the Court of Appeals. In their Appellants Brief,
[31]
 they ascribed the following errors to the RTC: (1) it erred in finding that Marquez was
a buyer in good faith; (2) it erred in validating the mortgage of the properties to RBC
and CRB; and (3) it erred in not reconveying Lot No. 7036-A-7-B to them. [32]
Intervenor Evangeline del Rosario filed a separate appeal with the Court of Appeals.
It was, however, dismissed in a Resolution dated 20 September 1993 for her failure to
pay docket fees. Thus, she lost her standing as an appellant. [33]
 On 27 May 1997, the Court of Appeals rendered its assailed Decision [34] reversing the
RTCs judgment. The dispositive portion reads:

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE.
Accordingly, judgment is hereby rendered as follows:

1. Declaring the heirs of Teodoro dela Cruz the lawful owners of the southern half
portion and Evangeline Hernandez-del Rosario the northern half portion of Lot No. 7036-
A-7, now covered by TCT Nos. T-149375 to T-149382, inclusive;

2. Declaring null and void the deed of sale dated June 15, 1976 between Pacifico V.
Marquez and the Madrid brothers covering said Lot 7036-A-7;

3. Declaring null and void the mortgage made by defendant Pacifico V. Marquez of Lot
Nos. 7036-A-7-A, 7036-A-7-B, 7036-A-7-C and 7036-A-7-D in favor of the defendant
Consolidated Rural Bank and of Lot 7036-A-7-E in favor of defendant Rural Bank of
Cauayan; and

4. Ordering Pacifico V. Marquez to reconvey Lot 7036-A-7 to the heirs of Teodoro dela
Cruz and Evangeline Hernandez-del Rosario.

No pronouncement as to costs.

SO ORDERED.[35]

In upholding the claim of the Heirs, the Court of Appeals held that Marquez failed to
prove that he was a purchaser in good faith and for value. It noted that while Marquez
was the first registrant, there was no showing that the registration of the deed of sale in
his favor was coupled with good faith. Marquez admitted having knowledge that the
subject property was being taken by the Heirs at the time of the sale. [36] The Heirs were
also in possession of the land at the time. According to the Decision, these
circumstances along with the subject propertys attractive locationit was situated along
the National Highway and was across a gasoline stationshould have put Marquez on
inquiry as to its status. Instead, Marquez closed his eyes to these matters and failed to
exercise the ordinary care expected of a buyer of real estate.[37]
Anent the mortgagees RBC and CRB, the Court of Appeals found that they merely
relied on the certificates of title of the mortgaged properties. They did not ascertain the
status and condition thereof according to standard banking practice. For failure to
observe the ordinary banking procedure, the Court of Appeals considered them to have
acted in bad faith and on that basis declared null and void the mortgages made by
Marquez in their favor.[38]
Dissatisfied, CRB filed a Motion for Reconsideration[39] pointing out, among others,
that the Decision promulgated on 27 May 1997 failed to establish good faith on the part
of the Heirs. Absent proof of possession in good faith, CRB avers, the Heirs cannot claim
ownership over the subject property.
In a Resolution[40] dated 5 January 1998, the Court of Appeals stressed its disbelief in
CRBs allegation that it did not merely rely on the certificates of title of the properties
and that it conducted credit investigation and standard ocular inspection. But recalling
that intervenor Evangeline del Rosario had lost her standing as an appellant, the Court
of Appeals accordingly modified its previous Decision, as follows:

WHEREFORE, the decision dated May 27, 1997, is hereby MODIFIED to read as follows:

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE insofar as
plaintiffs-appellants are concerned. Accordingly, judgment is hereby rendered as follows:

1. Declaring the Heirs of Teodoro dela Cruz the lawful owners of the southern half
portion of Lot No. 7036-A-7;
2. Declaring null and void the deed of sale dated June 15, 1976 between Pacifico V.
Marquez and the Madrid brothers insofar as the southern half portion of Lot NO. (sic)
7036-A-7 is concerned;

3. Declaring the mortgage made by defendant Pacifico V. Marquez in favor of defendant

Consolidated Rural Bank (Cagayan Valley) and defendant Rural Bank of Cauayan as null
and void insofar as the southern half portion of Lot No. 7036-A-7 is concerned;

4. Ordering defendant Pacifico V. Marquez to reconvey the southern portion of Lot No.
7036-A-7 to the Heirs of Teodoro dela Cruz.

No pronouncement as to costs.

SO ORDERED.[41]

Hence, the instant CRB petition. However, both Marquez and RBC elected not to
challenge the Decision of the appellate court.
Petitioner CRB, in essence, alleges that the Court of Appeals committed serious error
of law in upholding the Heirs ownership claim over the subject property considering that
there was no finding that they acted in good faith in taking possession thereof nor was
there proof that the first buyers, Gamiao and Dayag, ever took possession of the subject
property. CRB also makes issue of the fact that the sale to Gamiao and Dayag was
confirmed a day ahead of the actual sale, clearly evincing bad faith, it adds. Further,
CRB asserts Marquezs right over the property being its registered owner.
The petition is devoid of merit. However, the dismissal of the petition is justified by
reasons different from those employed by the Court of Appeals.
Like the lower court, the appellate court resolved the present controversy by
applying the rule on double sale provided in Article 1544 of the Civil Code. They,
however, arrived at different conclusions. The RTC made CRB and the other defendants
win, while the Court of Appeals decided the case in favor of the Heirs.
Article 1544 of the Civil Code reads, thus:

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 possession; and, in the absence thereof, to the person who presents
the oldest title, provided there is good faith.

The provision is not applicable in the present case. It contemplates a case of double
or multiple sales by a single vendor. More specifically, it covers a situation where a
single vendor sold one and the same immovable property to two or more buyers.
[42]
 According to a noted civil law author, it is necessary that the conveyance must have
been made by a party who has an existing right in the thing and the power to dispose of
it.[43] It cannot be invoked where the two different contracts of sale are made by two
different persons, one of them not being the owner of the property sold. [44] And even if
the sale was made by the same person, if the second sale was made when such person
was no longer the owner of the property, because it had been acquired by the first
purchaser in full dominion, the second purchaser cannot acquire any right. [45]
In the case at bar, the subject property was not transferred to several purchasers by
a single vendor. In the first deed of sale, the vendors were Gamiao and Dayag whose
right to the subject property originated from their acquisition thereof from Rizal Madrid
with the conformity of all the other Madrid brothers in 1957, followed by their
declaration of the property in its entirety for taxation purposes in their names. On the
other hand, the vendors in the other or later deed were the Madrid brothers but at that
time they were no longer the owners since they had long before disposed of the property
in favor of Gamiao and Dayag.
Citing Manresa, the Court of Appeals in 1936 had occasion to explain the proper
application of Article 1473 of the Old Civil Code (now Article 1544 of the New Civil Code)
in the case of Carpio v. Exevea,[46] thus:

In order that tradition may be considered performed, it is necessary that the requisites
which it implies must have been fulfilled, and one of the indispensable requisites,
according to the most exact Roman concept, is that the conveyor had the right and the
will to convey the thing. The intention to transfer is not sufficient; it only constitutes the
will. It is, furthermore, necessary that the conveyor could juridically perform that act;
that he had the right to do so, since a right which he did not possess could not be vested
by him in the transferee.

This is what Article 1473 has failed to express: the necessity for the preexistence of the
right on the part of the conveyor. But even if the article does not express it, it would be
understood, in our opinion, that that circumstance constitutes one of the assumptions
upon which the article is based.

This construction is not repugnant to the text of Article 1473, and not only is it not
contrary to it, but it explains and justifies the same. (Vol. 10, 4 th ed., p. 159)[47]

In that case, the property was transferred to the first purchaser in 1908 by its
original owner, Juan Millante. Thereafter, it was sold to plaintiff Carpio in June 1929.
Both conveyances were unregistered. On the same date that the property was sold to
the plaintiff, Juan Millante sold the same to defendant Exevea. This time, the sale was
registered in the Registry of Deeds. But despite the fact of registration in defendants
favor, the Court of Appeals found for the plaintiff and refused to apply the provisions of
Art. 1473 of the Old Civil Code, reasoning that on the date of the execution of the
document, Exhibit 1, Juan Millante did not and could not have any right whatsoever to
the parcel of land in question.[48]
Citing a portion of a judgment dated 24 November 1894 of the Supreme Court of
Spain, the Court of Appeals elucidated further:

Article 1473 of the Civil Code presupposes the right of the vendor to dispose of the thing
sold, and does not limit or alter in this respect the provisions of the Mortgage Law in
force, which upholds the principle that registration does not validate acts or contracts
which are void, and that although acts and contracts executed by persons who, in the
Registry, appear to be entitled to do so are not invalidated once recorded, even if
afterwards the right of such vendor is annulled or resolved by virtue of a previous
unrecorded title, nevertheless this refers only to third parties. [49]

In a situation where not all the requisites are present which would warrant the
application of Art. 1544, the principle of prior tempore, potior jure or simply he who is
first in time is preferred in right,[50] should apply.[51] The only essential requisite of this
rule is priority in time; in other words, the only one who can invoke this is the first
vendee. Undisputedly, he is a purchaser in good faith because at the time he bought the
real property, there was still no sale to a second vendee. [52] In the instant case, the sale
to the Heirs by Gamiao and Dayag, who first bought it from Rizal Madrid, was anterior to
the sale by the Madrid brothers to Marquez. The Heirs also had possessed the subject
property first in time. Thus, applying the principle, the Heirs, without a scintilla of doubt,
have a superior right to the subject property.
Moreover, it is an established principle that no one can give what one does not
havenemo dat quod non habet. Accordingly, one can sell only what one owns or is
authorized to sell, and the buyer can acquire no more than what the seller can transfer
legally.[53] In this case, since the Madrid brothers were no longer the owners of the
subject property at the time of the sale to Marquez, the latter did not acquire any right
to it.
 In any event, assuming arguendo that Article 1544 applies to the present case, the
claim of Marquez still cannot prevail over the right of the Heirs since according to the
evidence he was not a purchaser and registrant in good faith.
Following Article 1544, in the double sale of an immovable, the rules of preference
are:
(a) the first registrant in good faith;
(b) should there be no entry, the first in possession in good faith; and
(c) in the absence thereof, the buyer who presents the oldest title in good faith.  [54]
Prior registration of the subject property does not by itself confer ownership or a
better right over the property. Article 1544 requires that before the second buyer can
obtain priority over the first, he must show that he acted in good faith throughout (i.e.,
in ignorance of the first sale and of the first buyers rights)from the time of acquisition
until the title is transferred to him by registration or failing registration, by delivery of
possession.[55]
In the instant case, the actions of Marquez have not satisfied the requirement of
good faith from the time of the purchase of the subject property to the time of
registration. Found by the Court of Appeals, Marquez knew at the time of the sale that
the subject property was being claimed or taken by the Heirs. This was a detail which
could indicate a defect in the vendors title which he failed to inquire into. Marquez also
admitted that he did not take possession of the property and at the time he testified he
did not even know who was in possession. Thus, he testified on direct examination in the
RTC as follows:

ATTY. CALIXTO

Q Can you tell us the circumstances to your buying the land in question?

A In 1976 the Madrid brothers confessed to me their problems about their lots in
San Mateo that they were being taken by Teodoro dela Cruz and Atty.
Teofilo A. Leonin; that they have to pay the lawyers fee of P10,000.00
otherwise Atty. Leonin will confiscate the land. So they begged me to buy
their properties, some of it. So that on June 3, 1976, they came to Cabagan
where I was and gave them P14,000.00, I think. We have talked that they
will execute the deed of sale.

Q Why is it, doctor, that you have already this deed of sale, Exh. 14, why did you
find it necessary to have this Deed of Confirmation of a Prior Sale, Exh. 15?

A Because as I said a while ago that the first deed of sale was submitted to the
Register of Deeds by Romeo Badua so that I said that because when I
became a Municipal Health Officer in San Mateo, Isabela, I heard so many
rumors, so many things about the land and so I requested them to execute a
deed of confirmation.[56]

...

ATTY. CALIXTO-

Q At present, who is in possession on the Riceland portion of the lot in question?

A I can not say because the people working on that are changing from time to
time.

Q Why, have you not taken over the cultivation of the land in question?

A Well, the Dela Cruzes are prohibiting that we will occupy the place.

Q So, you do not have any possession?

A None, sir.[57]

One who purchases real property which is in actual possession of others should, at
least, make some inquiry concerning the rights of those in possession. The actual
possession by people other than the vendor should, at least, put the purchaser upon
inquiry. He can scarcely, in the absence of such inquiry, be regarded as a bona
fide purchaser as against such possessions.[58] The rule of caveat emptor requires the
purchaser to be aware of the supposed title of the vendor and one who buys without
checking the vendors title takes all the risks and losses consequent to such failure. [59]
It is further perplexing that Marquez did not fight for the possession of the property
if it were true that he had a better right to it. In our opinion, there were circumstances
at the time of the sale, and even at the time of registration, which would reasonably
require a purchaser of real property to investigate to determine whether defects existed
in his vendors title. Instead, Marquez willfully closed his eyes to the possibility of the
existence of these flaws. For failure to exercise the measure of precaution which may be
required of a prudent man in a like situation, he cannot be called a purchaser in good
faith.[60]
As this Court explained in the case of Spouses Mathay v. Court of Appeals:[61]

Although it is a recognized principle that a person dealing on a registered land need not
go beyond its certificate of title, it is also a firmly settled rule that where there are
circumstances which would put a party on guard and prompt him to investigate or
inspect the property being sold to him, such as the presence of occupants/tenants
thereon, it is, of course, expected from the purchaser of a valued piece of land to inquire
first into the status or nature of possession of the occupants, i.e., whether or not the
occupants possess the land en concepto de dueo, in concept of owner. As is the common
practice in the real estate industry, an ocular inspection of the premises involved is a
safeguard a cautious and prudent purchaser usually takes. Should he find out that the
land he intends to buy is occupied by anybody else other than the seller who, as in this
case, is not in actual possession, it would then be incumbent upon the purchaser to
verify the extent of the occupants possessory rights. The failure of a prospective buyer
to take such precautionary steps would mean negligence on his part and would thereby
preclude him from claiming or invoking the rights of a purchaser in good faith. [62]

This rule equally applies to mortgagees of real property. In the case of Crisostomo v.
Court of Appeals,[63] the Court held:

It is a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts
which should put a reasonable man upon his guard, and then claim that he acted in
good faith under the belief that there was no defect in the title of the vendor or
mortgagor. His mere refusal to believe that such defect exists, or his willful closing of his
eyes to the possibility of the existence of a defect in the vendors or mortgagors title, will
not make him an innocent purchaser or mortgagee for value, if it afterwards develops
that the title was in fact defective, and it appears that he had such notice of the defects
as would have led to its discovery had he acted with the measure of a prudent man in a
like situation.[64]

Banks, their business being impressed with public interest, are expected to exercise
more care and prudence than private individuals in their dealings, even those involving
registered lands. Hence, for merely relying on the certificates of title and for its failure to
ascertain the status of the mortgaged properties as is the standard procedure in its
operations, we agree with the Court of Appeals that CRB is a mortgagee in bad faith.
In this connection, Marquezs obstention of title to the property and the subsequent
transfer thereof to CRB cannot help the latters cause. In a situation where a party has
actual knowledge of the claimants actual, open and notorious possession of the disputed
property at the time of registration, as in this case, the actual notice and knowledge are
equivalent to registration, because to hold otherwise would be to tolerate fraud and the
Torrens system cannot be used to shield fraud. [65]
 While certificates of title are indefeasible, unassailable and binding against the whole
world, they merely confirm or record title already existing and vested. They cannot be
used to protect a usurper from the true owner, nor can they be used for the perpetration
of fraud; neither do they permit one to enrich himself at the expense of others. [66]
We also find that the Court of Appeals did not err in awarding the subject property to
the Heirs absent proof of good faith in their possession of the subject property and
without any showing of possession thereof by Gamiao and Dayag.
As correctly argued by the Heirs in their Comment,[67] the requirement of good faith
in the possession of the property finds no application in cases where there is no second
sale.[68] In the case at bar, Teodoro dela Cruz took possession of the property in 1964
long before the sale to Marquez transpired in 1976 and a considerable length of
timeeighteen (18) years in factbefore the Heirs had knowledge of the registration of said
sale in 1982. As Article 526 of the Civil Code aptly provides, (H)e is deemed a possessor
in good faith who is not aware that there exists in his title or mode of acquisition any
flaw which invalidates it. Thus, there was no need for the appellate court to consider the
issue of good faith or bad faith with regard to Teodoro dela Cruzs possession of the
subject property.
Likewise, we are of the opinion that it is not necessary that there should be any
finding of possession by Gamiao and Dayag of the subject property. It should be recalled
that the regularity of the sale to Gamiao and Dayag was never contested by Marquez.
[69]
 In fact the RTC upheld the validity of this sale, holding that the Madrid brothers are
bound by the sale by virtue of their confirmation thereof in the Joint Affidavit dated 14
August 1957. That this was executed a day ahead of the actual sale on 15 August 1957
does not diminish its integrity as it was made before there was even any shadow of
controversy regarding the ownership of the subject property.
Moreover, as this Court declared in the case of Heirs of Simplicio Santiago v. Heirs of
Mariano E. Santiago,[70] tax declarations are good indicia of possession in the concept of
an owner, for no one in his right mind would be paying taxes for a property that is not in
his actual or constructive possession.[71]
WHEREFORE, the Petition is DENIED. The dispositive portion of the Court of Appeals
Decision, as modified by its Resolution dated 5 January 1998, is AFFIRMED. Costs
against petitioner. SO ORDERED.

G.R. No. L-29972 January 26, 1976

ROSARIO CARBONELL, petitioner, 
vs.
HONORABLE COURT OF APPEALS, JOSE PONCIO, EMMA INFANTE and RAMON
INFANTE, respondents.

MAKASIAR, J.

Petitioner seeks a review of the resolution of the Court of Appeals (Special Division of
Five) dated October 30, 1968, reversing its decision of November 2, 1967 (Fifth
Division), and its resolution of December 6, 1968 denying petitioner's motion for
reconsideration.

The dispositive part of the challenged resolution reads:

Wherefore, the motion for reconsideration filed on behalf of appellee Emma

Infante, is hereby granted and the decision of November 2, 1967, is hereby
annulled and set aside. Another judgement shall be entered affirming in
toto that of the court a quo, dated January 20, 1965, which dismisses the
plaintiff's complaint and defendant's counterclaim.
 Without costs.

The facts of the case as follows:

Prior to January 27, 1955, respondent Jose Poncio, a native of the Batanes Islands, was
the owner of the parcel of land herein involve with improvements situated at 179 V.
Agan St., San Juan, Rizal, having an area of some one hundred ninety-five (195) square
meters, more or less, covered by TCT No. 5040 and subject to mortgage in favor of the
Republic Savings Bank for the sum of P1,500.00. Petitioner Rosario Carbonell, a cousin
and adjacent neighbor of respondent Poncio, and also from the Batanes Islands, lived in
the adjoining lot at 177 V. Agan Street.

Both petitioners Rosario Carbonell and respondent Emma Infante offered to buy the said
lot from Poncio (Poncio's Answer, p. 38, rec. on appeal).

Respondent Poncio, unable to keep up with the installments due on the mortgage,
approached petitioner one day and offered to sell to the latter the said lot, excluding the
house wherein respondent lived. Petitioner accepted the offer and proposed the price of
P9.50 per square meter. Respondent Poncio, after having secured the consent of his wife
and parents, accepted the price proposed by petitioner, on the condition that from the
purchase price would come the money to be paid to the bank.

Petitioner and respondent Jose Poncio then went to the Republic Savings Bank and
secured the consent of the President thereof for her to pay the arrears on the mortgage
and to continue the payment of the installments as they fall due. The amount in arrears
reached a total sum of P247.26. But because respondent Poncio had previously told her
that the money, needed was only P200.00, only the latter amount was brought by
petitioner constraining respondent Jose Poncio to withdraw the sum of P47.00 from his
bank deposit with Republic Savings Bank. But the next day, petitioner refunded to
Poncio the sum of P47.00.

On January 27, 1955, petitioner and respondent Poncio, in the presence of a witness,
made and executed a document in the Batanes dialect, which, translated into English,
reads:

CONTRACT FOR ONE HALF LOT WHICH I BOUGHT FROM

JOSE PONCIO

Beginning today January 27, 1955, Jose Poncio can start living on the lot
sold by him to me, Rosario Carbonell, until after one year during which time
he will not pa anything. Then if after said one can he could not find an place
where to move his house, he could still continue occupying the site but he
should pay a rent that man, be agreed.

(Sgd) JOSE
PONCIO 
(Sgd.) ROSARIO
CARBONELL 
(Sgd)
CONSTANCIO
MEONADA 
Witness

(Pp. 6-7 rec. on appeal).

Thereafter, petitioner asked Atty. Salvador Reyes, also from the Batanes Islands, to
prepare the formal deed of sale, which she brought to respondent Poncio together with
the amount of some P400.00, the balance she still had to pay in addition to her
assuming the mortgaged obligation to Republic Savings Bank.
Upon arriving at respondent Jose Poncio's house, however, the latter told petitioner that
he could not proceed any more with the sale, because he had already given the lot to
respondent Emma Infants; and that he could not withdraw from his deal with
respondent Mrs. Infante, even if he were to go to jail. Petitioner then sought to contact
respondent Mrs. Infante but the latter refused to see her.

On February 5, 1955, petitioner saw Emma Infante erecting a all around the lot with a
gate.

Petitioner then consulted Atty. Jose Garcia, who advised her to present an adverse claim
over the land in question with the Office of the Register of Deeds of Rizal. Atty. Garcia
actually sent a letter of inquiry to the Register of Deeds and demand letters to private
respondents Jose Poncio and Emma Infante.

In his answer to the complaint Poncio admitted "that on January 30, 1955, Mrs. Infante
improved her offer and he agreed to sell the land and its improvements to her for
P3,535.00" (pp. 38-40, ROA).

In a private memorandum agreement dated January 31, 1955, respondent Poncio

indeed bound himself to sell to his corespondent Emma Infante, the property for the
sum of P2,357.52, with respondent Emma Infante still assuming the existing mortgage
debt in favor of Republic Savings Bank in the amount of P1,177.48. Emma Infante lives
just behind the houses of Poncio and Rosario Carbonell.

On February 2, 1955, respondent Jose Poncio executed the formal deed of sale in favor
of respondent Mrs. Infante in the total sum of P3,554.00 and on the same date, the
latter paid Republic Savings Bank the mortgage indebtedness of P1,500.00. The
mortgage on the lot was eventually discharged.

Informed that the sale in favor of respondent Emma Infante had not yet been
registered, Atty. Garcia prepared an adverse claim for petitioner, who signed and swore
to an registered the same on February 8, 1955.

The deed of sale in favor of respondent Mrs. Infante was registered only on February 12,
1955. As a consequence thereof, a Transfer Certificate of Title was issued to her but with
the annotation of the adverse claim of petitioner Rosario Carbonell.

Respondent Emma Infante took immediate possession of the lot involved, covered the
same with 500 cubic meters of garden soil and built therein a wall and gate, spending
the sum of P1,500.00. She further contracted the services of an architect to build a
house; but the construction of the same started only in 1959 — years after the litigation
actually began and during its pendency. Respondent Mrs. Infante spent for the house
the total amount of P11,929.00.

On June 1, 1955, petitioner Rosario Carbonell, thru counsel, filed a second amended
complaint against private respondents, praying that she be declared the lawful owner of
the questioned parcel of land; that the subsequent sale to respondents Ramon R.
Infante and Emma L. Infante be declared null and void, and that respondent Jose Poncio
be ordered to execute the corresponding deed of conveyance of said land in her favor
and for damages and attorney's fees (pp. 1-7, rec. on appeal in the C.A.).

Respondents first moved to dismiss the complaint on the ground, among others, that
petitioner's claim is unenforceable under the Statute of Frauds, the alleged sale in her
favor not being evidenced by a written document (pp. 7-13, rec. on appeal in the C.A.);
and when said motion was denied without prejudice to passing on the question raised
therein when the case would be tried on the merits (p. 17, ROA in the C.A.),
respondents filed separate answers, reiterating the grounds of their motion to dismiss
(pp. 18-23, ROA in the C.A.).

During the trial, when petitioner started presenting evidence of the sale of the land in
question to her by respondent Poncio, part of which evidence was the agreement written
in the Batanes dialect aforementioned, respondent Infantes objected to the presentation
by petitioner of parole evidence to prove the alleged sale between her and respondent
Poncio. In its order of April 26, 1966, the trial court sustained the objection and
dismissed the complaint on the ground that the memorandum presented by petitioner to
prove said sale does not satisfy the requirements of the law (pp. 31-35, ROA in the
C.A.).

From the above order of dismissal, petitioner appealed to the Supreme Court (G.R. No.
L-11231) which ruled in a decision dated May 12, 1958, that the Statute of Frauds,
being applicable only to executory contracts, does not apply to the alleged sale between
petitioner and respondent Poncio, which petitioner claimed to have been partially
performed, so that petitioner is entitled to establish by parole evidence "the truth of this
allegation, as well as the contract itself." The order appealed from was thus reversed,
and the case remanded to the court a quo for further proceedings (pp. 26-49, ROA in
the C.A.).

After trial in the court a quo; a decision was, rendered on December 5, 1962, declaring
the second sale by respondent Jose Poncio to his co-respondents Ramon Infante and
Emma Infante of the land in question null and void and ordering respondent Poncio to
execute the proper deed of conveyance of said land in favor of petitioner after
compliance by the latter of her covenants under her agreement with respondent Poncio
(pp. 5056, ROA in the C.A.).

On January 23, 1963, respondent Infantes, through another counsel, filed a motion for
re-trial to adduce evidence for the proper implementation of the court's decision in case
it would be affirmed on appeal (pp. 56-60, ROA in the C.A.), which motion was opposed
by petitioner for being premature (pp. 61-64, ROA in the C.A.). Before their motion for
re-trial could be resolved, respondent Infantes, this time through their former counsel,
filed another motion for new trial, claiming that the decision of the trial court is contrary
to the evidence and the law (pp. 64-78, ROA in the C.A.), which motion was also
opposed by petitioner (pp. 78-89, ROA in the C.A.).

The trial court granted a new trial (pp. 89-90, ROA in the C.A.), at which re-hearing only
the respondents introduced additional evidence consisting principally of the cost of
improvements they introduced on the land in question (p. 9, ROA in the C.A.).

After the re-hearing, the trial court rendered a decision, reversing its decision of
December 5, 1962 on the ground that the claim of the respondents was superior to the
claim of petitioner, and dismissing the complaint (pp. 91-95, ROA in the C.A.), From this
decision, petitioner Rosario Carbonell appealed to the respondent Court of Appeals (p.
96, ROA in the C.A.).

On November 2, 1967, the Court of Appeals (Fifth Division composed of Justices Magno
Gatmaitan, Salvador V. Esguerra and Angle H. Mojica, speaking through Justice Magno
Gatmaitan), rendered judgment reversing the decision of the trial court, declaring
petitioner therein, to have a superior right to the land in question, and condemning the
defendant Infantes to reconvey to petitioner after her reimbursement to them of the
sum of P3,000.00 plus legal interest, the land in question and all its improvements
(Appendix "A" of Petition).

Respondent Infantes sought reconsideration of said decision and acting on the motion
for reconsideration, the Appellate Court, three Justices (Villamor, Esguerra and Nolasco)
of Special Division of Five, granted said motion, annulled and set aside its decision of
November 2, 1967, and entered another judgment affirming in toto the decision of the
court a quo, with Justices Gatmaitan and Rodriguez dissenting (Appendix "B" of
Petition).

Petitioner Rosario Carbonell moved to reconsider the Resolution of the Special Division
of Five, which motion was denied by Minute Resolution of December 6, 1968 (but with
Justices Rodriguez and Gatmaitan voting for reconsideration) [Appendix "C" of Petition].
Hence, this appeal by certiorari.

Article 1544, New Civil Code, which is decisive of this case, recites:

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 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 (emphasis supplied).

It is essential that the buyer of realty must act in good faith in registering his deed of
sale to merit the protection of the second paragraph of said Article 1544.

Unlike the first and third paragraphs of said Article 1544, which accord preference to the
one who first takes possession in good faith of personal or real property, the second
paragraph directs that ownership of immovable property should be recognized in favor
of one "who in good faith first recorded" his right. Under the first and third
paragraph, good faith must characterize the act of anterior registration (DBP vs.
Mangawang, et al., 11 SCRA 405; Soriano, et al. vs. Magale, et al., 8 SCRA 489).

If there is no inscription, what is decisive is prior possession in good faith. If there is

inscription, as in the case at bar, prior registration in good faith is a pre-condition to
superior title.

When Carbonell bought the lot from Poncio on January 27, 1955, she was the only buyer
thereof and the title of Poncio was still in his name solely encumbered by bank mortgage
duly annotated thereon. Carbonell was not aware — and she could not have been aware
— of any sale of Infante as there was no such sale to Infante then. Hence, Carbonell's
prior purchase of the land was made in good faith. Her good faith subsisted and
continued to exist when she recorded her adverse claim four (4) days prior to the
registration of Infantes's deed of sale. Carbonell's good faith did not cease after Poncio
told her on January 31, 1955 of his second sale of the same lot to Infante. Because of
that information, Carbonell wanted an audience with Infante, which desire underscores
Carbonell's good faith. With an aristocratic disdain unworthy of the good breeding of a
good Christian and good neighbor, Infante snubbed Carbonell like a leper and refused to
see her. So Carbonell did the next best thing to protect her right — she registered her
adversed claim on February 8, 1955. Under the circumstances, this recording of her
adverse claim should be deemed to have been done in good faith and should emphasize
Infante's bad faith when she registered her deed of sale four (4) days later on February
12, 1955.

Bad faith arising from previous knowledge by Infante of the prior sale to Carbonell is
shown by the following facts, the vital significance and evidenciary effect of which the
respondent Court of Appeals either overlooked of failed to appreciate:

(1) Mrs. Infante refused to see Carbonell, who wanted to see Infante after she was
informed by Poncio that he sold the lot to Infante but several days before Infante
registered her deed of sale. This indicates that Infante knew — from Poncio and from the
bank — of the prior sale of the lot by Poncio to Carbonell. Ordinarily, one will not refuse
to see a neighbor. Infante lives just behind the house of Carbonell. Her refusal to talk to
Carbonell could only mean that she did not want to listen to Carbonell's story that she
(Carbonell) had previously bought the lot from Poncio.

(2) Carbonell was already in possession of the mortgage passbook [not Poncio's saving
deposit passbook — Exhibit "1" — Infantes] and Poncio's copy of the mortgage contract,
when Poncio sold the lot Carbonell who, after paying the arrearages of Poncio, assumed
the balance of his mortgaged indebtedness to the bank, which in the normal course of
business must have necessarily informed Infante about the said assumption by
Carbonell of the mortgage indebtedness of Poncio. Before or upon paying in full the
mortgage indebtedness of Poncio to the Bank. Infante naturally must have demanded
from Poncio the delivery to her of his mortgage passbook as well as Poncio's mortgage
contract so that the fact of full payment of his bank mortgage will be entered therein;
and Poncio, as well as the bank, must have inevitably informed her that said mortgage
passbook could not be given to her because it was already delivered to Carbonell.

If Poncio was still in possession of the mortgage passbook and his copy of the mortgage
contract at the time he executed a deed of sale in favor of the Infantes and when the
Infantes redeemed his mortgage indebtedness from the bank, Poncio would have
surrendered his mortgage passbook and his copy of the mortgage contract to the
Infantes, who could have presented the same as exhibits during the trial, in much the
same way that the Infantes were able to present as evidence Exhibit "1" — Infantes,
Poncio's savings deposit passbook, of which Poncio necessarily remained in possession
as the said deposit passbook was never involved in the contract of sale with assumption
of mortgage. Said savings deposit passbook merely proves that Poncio had to withdraw
P47.26, which amount was tided to the sum of P200.00 paid by Carbonell for Poncio's
amortization arrearages in favor of the bank on January 27, 1955; because Carbonell on
that day brought with her only P200.00, as Poncio told her that was the amount of his
arrearages to the bank. But the next day Carbonell refunded to Poncio the sum of
P47.26.

(3) The fact that Poncio was no longer in possession of his mortgage passbook and that
the said mortgage passbook was already in possession of Carbonell, should have
compelled Infante to inquire from Poncio why he was no longer in possession of the
mortgage passbook and from Carbonell why she was in possession of the same
(Paglago, et. al vs. Jara et al 22 SCRA 1247, 1252-1253). The only plausible and logical
reason why Infante did not bother anymore to make such injury , w because in the
ordinary course of business the bank must have told her that Poncio already sold the lot
to Carbonell who thereby assumed the mortgage indebtedness of Poncio and to whom
Poncio delivered his mortgage passbook. Hoping to give a semblance of truth to her
pretended good faith, Infante snubbed Carbonell's request to talk to her about the prior
sale to her b Poncio of the lot. As aforestated, this is not the attitude expected of a good
neighbor imbued with Christian charity and good will as well as a clear conscience.

(4) Carbonell registered on February 8, 1955 her adverse claim, which was accordingly
annotated on Poncio's title, four [4] days before Infante registered on February 12, 1955
her deed of sale executed on February 2, 1955. Here she was again on notice of the
prior sale to Carbonell. Such registration of adverse claim is valid and effective
(Jovellanos vs. Dimalanta, L-11736-37, Jan. 30, 1959, 105 Phil. 1250-51).

(5) In his answer to the complaint filed by Poncio, as defendant in the Court of First
Instance, he alleged that both Mrs. Infante and Mrs. Carbonell offered to buy the lot at
P15.00 per square meter, which offers he rejected as he believed that his lot is worth at
least P20.00 per square meter. It is therefore logical to presume that Infante was told
by Poncio and consequently knew of the offer of Carbonell which fact likewise should
have put her on her guard and should have compelled her to inquire from Poncio
whether or not he had already sold the property to Carbonell.

As recounted by Chief Justice Roberto Concepcion, then Associate Justice, in the

preceding case of Rosario Carbonell vs. Jose Poncio, Ramon Infante and Emma Infante
(1-11231, May 12, 1958), Poncio alleged in his answer:

... that he had consistently turned down several offers, made by plaintiff, to
buy the land in question, at P15 a square meter, for he believes that it is
worth not less than P20 a square meter; that Mrs. Infante, likewise, tried to
buy the land at P15 a square meter; that, on or about January 27, 1955,
Poncio was advised by plaintiff that should she decide to buy the property at
 P20 a square meter, she would allow him to remain in the property for one
year; that plaintiff then induced Poncio to sign a document, copy of which if
probably the one appended to the second amended complaint; that Poncio
signed it 'relying upon the statement of the plaintiff that the document was
a permit for him to remain in the premises in the event defendant decided to
sell the property to the plaintiff at P20.00 a square meter'; that on January
30, 1955, Mrs. Infante improved her offer and agreed to sell the land and its
improvement to her for P3,535.00; that Poncio has not lost 'his mind,' to sell
his property, worth at least P4,000, for the paltry sum P1,177.48, the
amount of his obligation to the Republic Saving s Bank; and that plaintiff's
action is barred by the Statute of Frauds. ... (pp. 38-40, ROA, emphasis
supplied).

II

EXISTENCE OF THE PRIOR SALE TO CARBONELL

DULY ESTABLISHED

(1) In his order dated April 26, 1956 dismissing the complaint on the ground that the
private document Exhibit "A" executed by Poncio and Carbonell and witnessed by
Constancio Meonada captioned "Contract for One-half Lot which I Bought from Jose
Poncio," was not such a memorandum in writing within the purview of the Statute of
Frauds, the trial judge himself recognized the fact of the prior sale to Carbonell when he
stated that "the memorandum in question merely states that Poncio is allowed to stay in
the property which he had sold to the plaintiff. There is no mention of the
reconsideration, a description of the property and such other essential elements of the
contract of sale. There is nothing in the memorandum which would tend to show even in
the slightest manner that it was intended to be an evidence of contract sale. On the
contrary, from the terms of the memorandum, it tends to show that the sale of the
property in favor of the plaintiff is already an accomplished act. By the very contents of
the memorandum itself, it cannot therefore, be considered to be the memorandum
which would show that a sale has been made by Poncio in favor of the plaintiff" (p. 33,
ROA, emphasis supplied). As found by the trial court, to repeat the said memorandum
states "that Poncio is allowed to stay in the property which he had sold to the
plaintiff ..., it tends to show that the sale of the property in favor of the plaintiff is
already an accomplished act..."

(2) When the said order was appealed to the Supreme Court by Carbonell in the
previous case of Rosario Carbonell vs. Jose Poncio, Ramon Infante and Emma Infante  
(L-11231, supra), Chief Justice Roberto Concepcion, then Associate Justice, speaking for
a unanimous Court, reversed the aforesaid order of the trial court dismissing the
complaint, holding that because the complaint alleges and the plaintiff claims that the
contract of sale was partly performed, the same is removed from the application of the
Statute of Frauds and Carbonell should be allowed to establish by parol evidence the
truth of her allegation of partial performance of the contract of sale, and further stated:

Apart from the foregoing, there are in the case at bar several circumstances

indicating that plaintiff's claim might not be entirely devoid of factual basis.
Thus, for instance, Poncio admitted in his answer that plaintiff had offered
several times to purchase his land.

Again, there is Exhibit A, a document signed by the defendant. It is in the

Batanes dialect, which, according to plaintiff's uncontradicted evidence, is
the one spoken by Poncio, he being a native of said region. Exhibit A states
that Poncio would stay in the land sold by him to plaintiff for one year, from
January 27, 1955, free of charge, and that, if he cannot find a place where
to transfer his house thereon, he may remain upon. Incidentally, the
allegation in Poncio's answer to the effect that he signed Exhibit A under the
belief that it "was a permit for him to remain in the premises in the" that "he
decided to sell the property" to the plaintiff at P20 a sq. m." is, on its face,
somewhat difficult to believe. Indeed, if he had not decided as yet to sell the
 land to plaintiff, who had never increased her offer of P15 a square meter,
there was no reason for Poncio to get said permit from her. Upon the other
hand, if plaintiff intended to mislead Poncio, she would have caused Exhibit
A to be drafted, probably, in English , instead of taking the trouble of seeing
to it that it was written precisely in his native dialect, the Batanes.
Moreover, Poncio's signature on Exhibit A suggests that he is neither
illiterate nor so ignorant as to sign document without reading its contents,
apart from the fact that Meonada had read Exhibit A to him and given him a
copy thereof, before he signed thereon, according to Meonada's
uncontradicted testimony.

Then, also, defendants say in their brief:

The only allegation in plaintiff's complaint that bears any relation

to her claim that there has been partial performance of the
supposed contract of sale, is the notation of the sum of P247.26
in the bank book of defendant Jose Poncio. The noting or jotting
down of the sum of P247.26 in the bank book of Jose Poncio
does not prove the fact that the said amount was the purchase
price of the property in question. For all we knew, the sum of
P247.26 which plaintiff claims to have paid to the Republic
Savings Bank for the account of the defendant, assuming that
the money paid to the Republic Savings Bank came from the
plaintiff, was the result of some usurious loan or accomodation,
rather than earnest money or part payment of the land. Neither
is it competent or satisfactory evidence to prove the conveyance
of the land in question the fact that the bank book account of
Jose Poncio happens to be in the possession of the plaintiff.
(Defendants-Appellees' brief, pp. 25-26).

How shall We know why Poncio's bank deposit book is in plaintiffs

possession, or whether there is any relation between the P247.26 entry
therein and the partial payment of P247.26 allegedly made by plaintiff to
Poncio on account of the price of his land, if we do not allow the plaintiff to
explain it on the witness stand? Without expressing any opinion on the
merits of plaintiff's claim, it is clear, therefore, that she is entitled , legally
as well as from the viewpoint of equity, to an opportunity to introduce parol
evidence in support of the allegations of her second amended
complaint. (pp. 46-49, ROA, emphasis supplied).

(3) In his first decision of December 5, 1962 declaring null and void the sale in favor of
the Infantes and ordering Poncio to execute a deed of conveyance in favor of Carbonell,
the trial judge found:

... A careful consideration of the contents of Exh. 'A' show to the satisfaction
of the court that the sale of the parcel of land in question by the defendant
Poncio in favor of the plaintiff was covered therein and that the said Exh. "a'
was also executed to allow the defendant to continue staying in the
premises for the stated period. It will be noted that Exh. 'A' refers to a lot
'sold by him to me' and having been written originally in a dialect well
understood by the defendant Poncio, he signed the said Exh. 'A' with a full
knowledge and consciousness of the terms and consequences thereof. This
therefore, corroborates the testimony of the plaintiff Carbonell that the sale
of the land was made by Poncio. It is further pointed out that there was a
partial performance of the verbal sale executed by Poncio in favor of the
plaintiff, when the latter paid P247.26 to the Republic Savings Bank on
account of Poncio's mortgage indebtedness. Finally, the possession by the
plaintiff of the defendant Poncio's passbook of the Republic Savings Bank
also adds credibility to her testimony. The defendant contends on the other
hand that the testimony of the plaintiff, as well as her witnesses, regarding
the sale of the land made by Poncio in favor of the plaintiff is inadmissible
 under the provision of the Statute of Fraud based on the argument that the
note Exh. "A" is not the note or memorandum referred to in the to in the
Statute of Fraud. The defendants argue that Exh. "A" fails to comply with the
requirements of the Statute of Fraud to qualify it as the note or
memorandum referred to therein and open the way for the presentation of
parole evidence to prove the fact contained in the note or
memorandum. The defendant argues that there is even no description of the
lot referred to in the note, especially when the note refers to only one half
lot. With respect to the latter argument of the Exhibit 'A', the court has
arrived at the conclusion that there is a sufficient description of the lot
referred to in Exh. 'A' as none other than the parcel of land occupied by the
defendant Poncio and where he has his improvements erected. The Identity
of the parcel of land involved herein is sufficiently established by the
contents of the note Exh. "A". For a while, this court had that similar
impression but after a more and thorough consideration of the context in
Exh. 'A' and for the reasons stated above, the Court has arrived at the
conclusion stated earlier (pp. 52-54, ROA, emphasis supplied).

(4) After re-trial on motion of the Infantes, the trial Judge rendered on January 20, 1965
another decision dismissing the complaint, although he found

1. That on January 27, 1955, the plaintiff purchased from the defendant
Poncio a parcel of land with an area of 195 square meters, more or less,
covered by TCT No. 5040 of the Province of Rizal, located at San Juan del
Monte, Rizal, for the price of P6.50 per square meter;

2. That the purchase made by the plaintiff was not reduced to writing except
for a short note or memorandum Exh. A, which also recited that the
defendant Poncio would be allowed to continue his stay in the premises,
among other things, ... (pp. 91-92, ROA, emphasis supplied).

From such factual findings, the trial Judge confirms the due execution of Exhibit "A",
only that his legal conclusion is that it is not sufficient to transfer ownership (pp. 93-94,
ROA).

(5) In the first decision of November 2, 1967 of the Fifth Division of the Court of Appeals
composed of Justices Esguerra (now Associate Justice of the Supreme Court), Gatmaitan
and Mojica, penned by Justice Gatmaitan, the Court of Appeals found that:

... the testimony of Rosario Carbonell not having at all been attempted to be
disproved by defendants, particularly Jose Poncio, and corroborated as it is
by the private document in Batanes dialect, Exhibit A, the testimony being
to the effect that between herself and Jose there had been celebrated a sale
of the property excluding the house for the price of P9.50 per square meter,
so much so that on faith of that, Rosario had advanced the sum of P247.26
and binding herself to pay unto Jose the balance of the purchase price after
deducting the indebtedness to the Bank and since the wording of Exhibit
A, the private document goes so far as to describe their transaction as one
of sale, already consummated between them, note the part tense used in
the phrase, "the lot sold by him to me" and going so far even as to state
that from that day onwards, vendor would continue to live therein, for one
year, 'during which time he will not pay anything' this can only mean that
between Rosario and Jose, there had been a true contract of sale,
consummated by delivery constitutum possession, Art. 1500, New Civil
Code;vendor's possession having become converted from then on, as a
mere tenant of vendee, with the special privilege of not paying rental for one
year, — it is true that the sale by Jose Poncio to Rosario Carbonell
corroborated documentarily only by Exhibit A could not have been registered
at all, but it was a valid contract nonetheless, since under our law, a
contract sale is consensual, perfected by mere consent, Couto v. Cortes, 8
Phil 459, so much so that under the New Civil Code, while a sale of an
 immovable is ordered to be reduced to a public document, Art. 1358, that
mandate does not render an oral sale of realty invalid, but merely incapable
of proof, where still executory and action is brought and resisted for its
performance, 1403, par. 2, 3; but where already wholly or partly executed
or where even if not yet, it is evidenced by a memorandum, in any case
where evidence to further demonstrate is presented and admitted as the
case was here, then the oral sale becomes perfectly good, and becomes a
good cause of action not only to reduce it to the form of a public document,
but even to enforce the contract in its entirety, Art. 1357; and thus it is that
what we now have is a case wherein on the one hand Rosario Carbonell has
proved that she had an anterior sale, celebrated in her favor on 27 January,
1955, Exhibit A, annotated as an adverse claim on 8 February, 1955, and on
other, a sale is due form in favor of Emma L. Infante on 2 February, 1955,
Exhibit 3-Infante, and registered in due form with title unto her issued on 12
February, 1955; the vital question must now come on which of these two
sales should prevail; ... (pp. 74-76, rec., emphasis supplied).

(6) In the resolution dated October 30, 1968 penned by then Court of Appeals Justice
Esguerra (now a member of this Court), concurred in by Justices Villamor and Nolasco,
constituting the majority of a Special Division of Five, the Court of Appeals, upon motion
of the Infantes, while reversing the decision of November 2, 1967 and affirming the
decision of the trial court of January 20, 1965 dismissing plaintiff's complaint, admitted
the existence and genuineness of Exhibit "A", the private memorandum dated January
27, 1955, although it did not consider the same as satisfying "the essential elements of
a contract of sale," because it "neither specifically describes the property and its
boundaries, nor mention its certificate of title number, nor states the price certain to be
paid, or contrary to the express mandate of Articles 1458 and 1475 of the Civil Code.

(7) In his dissent concurred in by Justice Rodriguez, Justice Gatmaitan maintains his
decision of November 2, 1967 as well as his findings of facts therein, and reiterated that
the private memorandum Exhibit "A", is a perfected sale, as a sale is consensual and
consummated by mere consent, and is binding on and effective between the parties.
This statement of the principle is correct [pp. 89-92, rec.].

III

ADEQUATE CONSIDERATION OR PRICE FOR THE SALE 

IN FAVOR OF CARBONELL

It should be emphasized that the mortgage on the lot was about to be foreclosed by the
bank for failure on the part of Poncio to pay the amortizations thereon. To forestall the
foreclosure and at the same time to realize some money from his mortgaged lot, Poncio
agreed to sell the same to Carbonell at P9.50 per square meter, on condition that
Carbonell [1] should pay (a) the amount of P400.00 to Poncio and 9b) the arrears in the
amount of P247.26 to the bank; and [2] should assume his mortgage indebtedness. The
bank president agreed to the said sale with assumption of mortgage in favor of
Carbonell an Carbonell accordingly paid the arrears of P247.26. On January 27, 1955,
she paid the amount of P200.00 to the bank because that was the amount that Poncio
told her as his arrearages and Poncio advanced the sum of P47.26, which amount was
refunded to him by Carbonell the following day. This conveyance was confirmed that
same day, January 27, 1955, by the private document, Exhibit "A", which was prepared
in the Batanes dialect by the witness Constancio Meonada, who is also from Batanes like
Poncio and Carbonell.

The sale did not include Poncio's house on the lot. And Poncio was given the right to
continue staying on the land without paying any rental for one year, after which he
should pay rent if he could not still find a place to transfer his house. All these terms are
part of the consideration of the sale to Carbonell.

It is evident therefore that there was ample consideration, and not merely the sum of
P200.00, for the sale of Poncio to Carbonell of the lot in question.
But Poncio, induced by the higher price offered to him by Infante, reneged on his
commitment to Carbonell and told Carbonell, who confronted him about it, that he would
not withdraw from his deal with Infante even if he is sent to jail The victim, therefore,
"of injustice and outrage is the widow Carbonell and not the Infantes, who without moral
compunction exploited the greed and treacherous nature of Poncio, who, for love of
money and without remorse of conscience, dishonored his own plighted word to
Carbonell, his own cousin.

Inevitably evident therefore from the foregoing discussion, is the bad faith of Emma
Infante from the time she enticed Poncio to dishonor his contract with Carbonell, and
instead to sell the lot to her (Infante) by offering Poncio a much higher price than the
price for which he sold the same to Carbonell. Being guilty of bad faith, both in taking
physical possession of the lot and in recording their deed of sale, the Infantes cannot
recover the value of the improvements they introduced in the lot. And after the filing by
Carbonell of the complaint in June, 1955, the Infantes had less justification to erect a
building thereon since their title to said lot is seriously disputed by Carbonell on the
basis of a prior sale to her.

With respect to the claim of Poncio that he signed the document Exhibit "A" under the
belief that it was a permit for him to remain in the premises in ease he decides to sell
the property to Carbonell at P20.00 per square meter, the observation of the Supreme
Court through Mr. Chief Justice Concepcion in G.R. No. L-11231, supra, bears repeating:

... Incidentally, the allegation in Poncio's answer to the effect that he signed
Exhibit A under the belief that it 'was a permit for him to remain in the
premises in the event that 'he decided to sell the property' to the plaintiff at
P20.00 a sq. m is, on its face, somewhat difficult to believe. Indeed, if he
had not decided as yet to sell that land to plaintiff, who had never increased
her offer of P15 a square meter, there as no reason for Poncio to get said
permit from her. Upon the they if plaintiff intended to mislead Poncio, she
would have Exhibit A to be drafted, probably, in English, instead of taking
the trouble of seeing to it that it was written precisely in his native dialect,
the Batanes. Moreover, Poncio's signature on Exhibit A suggests that he is
neither illiterate nor so ignorant as to sign a document without reading its
contents, apart from the fact that Meonada had read Exhibit A to him-and
given him a copy thereof, before he signed thereon, according to Meonada's
uncontradicted testimony. (pp. 46-47, ROA).

As stressed by Justice Gatmaitan in his first decision of November 2, 1965, which he

reiterated in his dissent from the resolution of the majority of the Special Division. of
Five on October 30, 1968, Exhibit A, the private document in the Batanes dialect, is a
valid contract of sale between the parties, since sale is a consensual contract and is
perfected by mere consent (Couto vs. Cortes, 8 Phil. 459). Even an oral contract of
realty is all between the parties and accords to the vendee the right to compel the
vendor to execute the proper public document As a matter of fact, Exhibit A, while
merely a private document, can be fully or partially performed, to it from the operation
of the statute of frauds. Being a all consensual contract, Exhibit A effectively transferred
the possession of the lot to the vendee Carbonell by constitutum possessorium (Article
1500, New Civil Code); because thereunder the vendor Poncio continued to retain
physical possession of the lot as tenant of the vendee and no longer as knew thereof.
More than just the signing of Exhibit A by Poncio and Carbonell with Constancio Meonada
as witness to fact the contract of sale, the transition was further confirmed when Poncio
agreed to the actual payment by at Carbonell of his mortgage arrearages to the bank on
January 27, 1955 and by his consequent delivery of his own mortgage passbook to
Carbonell. If he remained owner and mortgagor, Poncio would not have surrendered his
mortgage passbook to' Carbonell.

IV

IDENTIFICATION AND DESCRIPTION OF THE DISPUTED LOT IN THE MEMORANDUM

EXHIBIT "A"
The claim that the memorandum Exhibit "A" does not sufficiently describe the disputed
lot as the subject matter of the sale, was correctly disposed of in the first decision of the
trial court of December 5, 1962, thus: "The defendant argues that there is even no
description of the lot referred to in the note (or memorandum), especially when the note
refers to only one-half lot. With respect to the latter argument of the defendant, plaintiff
points out that one- half lot was mentioned in Exhibit 'A' because the original description
carried in the title states that it was formerly part of a bigger lot and only segregated
later. The explanation is tenable, in (sic) considering the time value of the contents of
Exh. 'A', the court has arrived at the conclusion that there is sufficient description of the
lot referred to in Exh. As none other than the parcel of lot occupied by the defendant
Poncio and where he has his improvements erected. The Identity of the parcel of land
involved herein is sufficiently established by the contents of the note Exh. 'A'. For a
while, this court had that similar impression but after a more and through consideration
of the context in Exh. 'A' and for the reasons stated above, the court has arrived to (sic)
the conclusion stated earlier" (pp. 53-54, ROA).

Moreover, it is not shown that Poncio owns another parcel with the same area, adjacent
to the lot of his cousin Carbonell and likewise mortgaged by him to the Republic Savings
Bank. The transaction therefore between Poncio and Carbonell can only refer and does
refer to the lot involved herein. If Poncio had another lot to remove his house, Exhibit A
would not have stipulated to allow him to stay in the sold lot without paying any rent for
one year and thereafter to pay rental in case he cannot find another place to transfer his
house.

While petitioner Carbonell has the superior title to the lot, she must however refund to
respondents Infantes the amount of P1,500.00, which the Infantes paid to the Republic
Savings Bank to redeem the mortgage.

It appearing that the Infantes are possessors in bad faith, their rights to the
improvements they introduced op the disputed lot are governed by Articles 546 and 547
of the New Civil Code. Their expenses consisting of P1,500.00 for draining the property,
filling it with 500 cubic meters of garden soil, building a wall around it and installing a
gate and P11,929.00 for erecting a b ' bungalow thereon, are useful expenditures, for
they add to the value of the property (Aringo vs. Arenas, 14 Phil. 263; Alburo vs.
Villanueva, 7 Phil. 277; Valencia vs. Ayala de Roxas, 13 Phil. 45).

Under the second paragraph of Article 546, the possessor in good faith can retain the
useful improvements unless the person who defeated him in his possession refunds him
the amount of such useful expenses or pay him the increased value the land may have
acquired by reason thereof. Under Article 547, the possessor in good faith has also the
right to remove the useful improvements if such removal can be done without damage
to the land, unless the person with the superior right elects to pay for the useful
improvements or reimburse the expenses therefor under paragraph 2 of Article 546.
These provisions seem to imply that the possessor in bad faith has neither the right of
retention of useful improvements nor the right to a refund for useful expenses.

But, if the lawful possessor can retain the improvements introduced by the possessor in
bad faith for pure luxury or mere pleasure only by paying the value thereof at the time
he enters into possession (Article 549 NCC), as a matter of equity, the Infantes,
although possessors in bad faith, should be allowed to remove the aforesaid
improvements, unless petitioner Carbonell chooses to pay for their value at the time the
Infantes introduced said useful improvements in 1955 and 1959. The Infantes cannot
claim reimbursement for the current value of the said useful improvements; because
they have been enjoying such improvements for about two decades without paying any
rent on the land and during which period herein petitioner Carbonell was deprived of its
possession and use.

WHEREFORE, THE DECISION OF THE SPECIAL DIVISION OF FIVE OF THE COURT OF

APPEALS OF OCTOBER 30, 1968 IS HEREBY REVERSED; PETITIONER ROSARIO
CARBONELL IS HEREBY DECLARED TO HAVE THE SUPERIOR RIGHT TO THE LAND IN
QUESTION AND IS HEREBY DIRECTED TO REIMBURSE TO PRIVATE RESPONDENTS
INFANTES THE SUM OF ONE THOUSAND FIVE HUNDRED PESOS (P1,500.00) WITHIN
THREE (3) MONTHS FROM THE FINALITY OF THIS DECISION; AND THE REGISTER OF
DEEDS OF RIZAL IS HEREBY DIRECTED TO CANCEL TRANSFER CERTIFICATE OF TITLE
NO. 37842 ISSUED IN FAVOR OF PRIVATE RESPONDENTS INFANTES COVERING THE
DISPUTED LOT, WHICH CANCELLED TRANSFER CERTIFICATE OF TITLE NO. 5040 IN THE
NAME OF JOSE PONCIO, AND TO ISSUE A NEW TRANSFER CERTIFICATE OF TITLE IN
FAVOR OF PETITIONER ROSARIO CARBONELL UPON PRESENTATION OF PROOF OF
PAYMENT BY HER TO THE INFANTES OF THE AFORESAID AMOUNT OF ONE THOUSAND
FIVE HUNDRED PESOS (P1,500.00).

PRIVATE RESPONDENTS INFANTES MAY REMOVE THEIR AFOREMENTIONED USEFUL

IMPROVEMENTS FROM THE LOT WITHIN THREE (3) MONTHS FROM THE FINALITY OF
THIS DECISION, UNLESS THE PETITIONER ROSARIO CARBONELL ELECTS TO ACQUIRE
THE SAME AND PAYS THE INFANTES THE AMOUNT OF THIRTEEN THOUSAND FOUR
HUNDRED TWENTY-NINE PESOS (P13,429.00) WITHIN THREE (3) MONTHS FROM THE
FINALITY OF THIS DECISION. SHOULD PETITIONER CARBONELL FAIL TO PAY THE SAID
AMOUNT WITHIN THE AFORESTATED PERIOD OF THREE (3) MONTHS FROM THE
FINALITY OF THIS DECISION, THE PERIOD OF THREE (3) MONTHS WITHIN WHICH THE
RESPONDENTS INFANTES MAY REMOVE THEIR AFOREMENTIONED USEFUL
IMPROVEMENTS SHALL COMMENCE FROM THE EXPIRATION OF THE THREE (3) MONTHS
GIVEN PETITIONER CARBONELL TO PAY FOR THE SAID USEFUL IMPROVEMENTS.

WITH COSTS AGAINST PRIVATE RESPONDENTS.

[G.R. No. 115158. September 5, 1997]

EMILIA M. URACA, CONCORDIA D. CHING and ONG SENG, represented by

ENEDINO H. FERRER, petitioners, vs. COURT OF APPEALS, JACINTO VELEZ,
JR., CARMEN VELEZ TING, AVENUE MERCHANDISING, INC., FELIX TING
AND ALFREDO GO, respondents.

DECISION
PANGANIBAN, J.:

Novation is never presumed; it must be sufficiently established that a valid new

agreement or obligation has extinguished or changed an existing one. The registration of
a later sale must be done in good faith to entitle the registrant to priority in ownership
over the vendee in an earlier sale.

Statement of the Case

These doctrines are stressed by this Court as it resolves the instant petition
challenging the December 28, 1993 Decision[1] of Respondent Court of Appeals[2] in CA-
G.R. SP No. 33307, which reversed and set aside the judgment of the Regional Trial
Court of Cebu City, Branch 19, and entered a new one dismissing the petitioners
complaint. The dispositive portion of the RTC decision reads: [3]

WHEREFORE, judgment is hereby rendered:

1) declaring as null and void the three (3) deeds of sale executed by the Velezes to Felix
C. Ting, Manuel Ting and Alfredo Go;

2) ordering Carmen Velez Ting and Jacinto M. Velez, Jr. to execute a deed of absolute
sale in favor of Concordia D. Ching and Emilia M. Uraca for the properties in question
for P1,400,000.00, which sum must be delivered by the plaintiffs to the Velezes
immediately after the execution of said contract;

3) ordering Carmen Velez Ting and Jacinto M. Velez, Jr. to reimburse Felix C. Ting,
Manuel C. Ting and Alfredo Go whatever amount the latter had paid to the former;

4) ordering Felix C. Ting, Manuel C. Ting and Alfredo Go to deliver the properties in
question to the plaintiffs within fifteen (15) days from receipt of a copy of this decision;

5) ordering all the defendants to pay, jointly and severally, the plaintiffs the sum
of P20,000.00 as attorneys fees.

SO ORDERED.

The Antecedent Facts

The facts narrated by the Court of Appeals are as follows:[4]

The Velezes (herein private respondents) were the owners of the lot and commercial
building in question located at Progreso and M.C. Briones Streets in Cebu City.

Herein (petitioners) were the lessees of said commercial building. [5]

On July 8, 1985, the Velezes through Carmen Velez Ting wrote a letter to herein
(petitioners) offering to sell the subject property for P1,050,000.00 and at the same
time requesting (herein petitioners) to reply in three days.

On July 10, 1985, (herein petitioners) through Atty. Escolastico Daitol sent a reply-letter
to the Velezes accepting the aforesaid offer to sell.

On July 11, 1985, (herein petitioner) Emilia Uraca went to see Carmen Ting about the
offer to sell but she was told by the latter that the price was P1,400,000.00 in cash or
managers check and not P1,050,000.00 as erroneously stated in their letter-offer after
some haggling. Emilia Uraca agreed to the price of P1,400,000.00 but counter-proposed
that payment be paid in installments with a down payment of P1,000,000.00 and the
balance of P400,000 to be paid in 30 days. Carmen Velez Ting did not accept the said
counter-offer of Emilia Uraca although this fact is disputed by Uraca.

No payment was made by (herein petitioners) to the Velezes on July 12, 1985 and July
13, 1985.
On July 13, 1985, the Velezes sold the subject lot and commercial building to the
Avenue Group (Private Respondent Avenue Merchandising Inc.) for P1,050,000.00 net of
taxes, registration fees, and expenses of the sale.

At the time the Avenue Group purchased the subject property on July 13, 1985 from the
Velezes, the certificate of title of the said property was clean and free of any annotation
of adverse claims or lis pendens.

On July 31, 1985 as aforestated, herein (petitioners) filed the instant complaint against
the Velezes.

On August 1, 1985, (herein petitioners) registered a notice of lis pendens over the

property in question with the Office of the Register of Deeds. [6]

On October 30, 1985, the Avenue Group filed an ejectment case against (herein
petitioners) ordering the latter to vacate the commercial building standing on the lot in
question.

Thereafter, herein (petitioners) filed an amended complaint impleading the Avenue

Group as new defendants (after about 4 years after the filing of the original complaint).

The trial court found two perfected contracts of sale between the Velezes and the
petitioners, involving the real property in question. The first sale was for P1,050,000.00
and the second was for P1,400,000.00. In respect to the first sale, the trial court held
that [d]ue to the unqualified acceptance by the plaintiffs within the period set by the
Velezes, there consequently came about a meeting of the minds of the parties not only
as to the object certain but also as to the definite consideration or cause of the contract.
[7]
 And even assuming arguendo that the second sale was not perfected, the trial court
ruled that the same still constituted a mere modificatory novation which did not
extinguish the first sale. Hence, the trial court held that the Velezes were not free to sell
the properties to the Avenue Group.[8] It also found that the Avenue Group purchased
the property in bad faith.[9]
Private respondents appealed to the Court of Appeals. As noted earlier, the CA found
the appeal meritorious. Like the trial court, the public respondent held that there was a
perfected contract of sale of the property for P1,050,000.00 between the Velezes and
herein petitioners. It added, however, that such perfected contract of sale was
subsequently novated. Thus, it ruled: Evidence shows that that was the original
contract. However, the same was mutually withdrawn, cancelled and rescinded by
novation, and was therefore abandoned by the parties when Carmen Velez Ting raised
the consideration of the contract [by] P350,000.00, thus making the
price P1,400,000.00 instead of the original price of P1,050,000.00. Since there was no
agreement as to the second price offered, there was likewise no meeting of minds
between the parties, hence, no contract of sale was perfected. [10] The Court of Appeals
added that, assuming there was agreement as to the price and a second contract was
perfected, the later contract would be unenforceable under the Statute of Frauds. It
further held that such second agreement, if there was one, constituted a mere promise
to sell which was not binding for lack of acceptance or a separate consideration. [11]

The Issues

Petitioners allege the following errors in the Decision of Respondent Court:

I

Since it ruled in its decision that there was no meeting of the minds on the second price
offered (P1,400,000.00), hence no contract of sale was perfected, the Court of Appeals
erred in not holding that the original written contract to buy and sell for P1,050,000.00
the Velezes property continued to be valid and enforceable pursuant to Art. 1279 in
relation with Art. 1479, first paragraph, and Art. 1403, subparagraph 2 (e) of the Civil
Code.
 II

The Court of Appeals erred in not ruling that petitioners have better rights to buy and
own the Velezes property for registering their notice of lis pendens ahead of the Avenue
Groups registration of their deeds of sale taking into account Art. 1544, 2nd paragraph,
of the Civil Code.[12]

The Courts Ruling

The petition is meritorious.

First Issue: No Extinctive Novation

The lynchpin of the assailed Decision is the public respondents conclusion that the
sale of the real property in controversy, by the Velezes to petitioners for P1,050,000.00,
was extinguished by novation after the said parties negotiated to increase the price
to P1,400,000.00. Since there was no agreement on the sale at the increased price, then
there was no perfected contract to enforce. We disagree.
The Court notes that the petitioners accepted in writing and without qualification the
Velezes written offer to sell at P1,050,000.00 within the three-day period stipulated
therein. Hence, from the moment of acceptance on July 10, 1985, a contract of sale was
perfected since undisputedly the contractual elements of consent, object certain and
cause concurred.[13] Thus, this question is posed for our resolution: Was there a novation
of this perfected contract?
Article 1600 of the Civil Code provides that (s)ales are extinguished by the same
causes as all other obligations, x x x. Article 1231 of the same Code states that novation
is one of the ways to wipe out an obligation. Extinctive novation requires: (1) the
existence of a previous valid obligation; (2) the agreement of all the parties to the new
contract; (3) the extinguishment of the old obligation or contract; and (4) the validity of
the new one.[14] The foregoing clearly show that novation is effected only when a new
contract has extinguished an earlier contract between the same parties. In this light,
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 old
and new obligations or contracts.[15] After a thorough review of the records, we find this
element lacking in the case at bar.
As aptly found by the Court of Appeals, the petitioners and the Velezes did not reach
an agreement on the new price of P1,400,000.00 demanded by the latter. In this case,
the petitioners and the Velezes clearly did not perfect a new contract because the
essential requisite of consent was absent, the parties having failed to agree on the terms
of the payment. True, petitioners made a qualified acceptance of this offer by proposing
that the payment of this higher sale price be made by installment, with P1,000,000.00
as down payment and the balance of P400,000.00 payable thirty days thereafter. Under
Article 1319 of the Civil Code, [16] such qualified acceptance constitutes a counter-offer
and has the ineludible effect of rejecting the Velezes offer. [17] Indeed, petitioners
counter-offer was not accepted by the Velezes. It is well-settled that (a)n offer must be
clear and definite, while an acceptance must be unconditional and unbounded, in order
that their concurrence can give rise to a perfected contract. [18] In line with this basic
postulate of contract law, a definite agreement on the manner of payment of the price is
an essential element in the formation of a binding and enforceable contract of sale.
[19]
 Since the parties failed to enter into a new contract that could have extinguished
their previously perfected contract of sale, there can be no novation of the
latter. Consequently, the first sale of the property in controversy, by the Velezes to
petitioners for P1,050,000.00, remained valid and existing.
In view of the validity and subsistence of their original contract of sale as previously
discussed, it is unnecessary to discuss public respondents theses that the second
agreement is unenforceable under the Statute of Frauds and that the agreement
constitutes a mere promise to sell.

Second Issue: Double Sale of an Immovable

The foregoing holding would have been simple and straightforward. But Respondent
Velezes complicated the matter by selling the same property to the other private
respondents who were referred to in the assailed Decision as the Avenue Group.
Before us therefore is a classic case of a double sale -- first, to the petitioner;
second, to the Avenue Group. Thus, the Court is now called upon to determine which of
the two groups of buyers has a better right to said property.
Article 1544 of the Civil Code provides the statutory solution:
xxx xxx xxx

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.

Under the foregoing, the prior registration of the disputed property by the second
buyer does not by itself confer ownership or a better right over the property. Article
1544 requires that such registration must be coupled with good faith. Jurisprudence
teaches us that (t)he governing principle is primus tempore, potior jure (first in time,
stronger in right). Knowledge gained by the first buyer of the second sale cannot defeat
the first buyers rights except where the second buyer registers in good faith the second
sale ahead of the first, as provided by the Civil Code. Such knowledge of the first buyer
does not bar her from availing of her rights under the law, among them, to
register first her purchase as against the second buyer. But in converso knowledge
gained by the second buyer of the first sale defeats his rights even if he is first to
register the second sale, since such knowledge taints his prior registration with bad
faith This is the price exacted by Article 1544 of the Civil Code for the second buyer
being able to displace the first buyer; that before the second buyer can obtain priority
over the first, he must show that he acted in good faith throughout (i.e. in ignorance of
the first sale and of the first buyers rights) ---- from the time of acquisition until the title
is transferred to him by registration or failing registration, by delivery of possession.
[20]
 (Emphasis supplied)
After a thorough scrutiny of the records of the instant case, the Court finds that bad
faith tainted the Avenue Groups purchase on July 13, 1985 of the Velezes real property
subject of this case, and the subsequent registration thereof on August 1, 1995. The
Avenue Group had actual knowledge of the Velezes prior sale of the same property to
the petitioners, a fact antithetical to good faith. For a second buyer like the Avenue
Group to successfully invoke the second paragraph, Article 1544 of the Civil Code, it
must possess good faith from the time of the sale in its favor until the registration of the
same. This requirement of good faith the Avenue Group sorely failed to meet. That it
had knowledge of the prior sale, a fact undisputed by the Court of Appeals, is explained
by the trial court thus:

The Avenue Group, whose store is close to the properties in question, had known the
plaintiffs to be the lessee-occupants thereof for quite a time. Felix Ting admitted to have
a talk with Ong Seng in 1983 or 1984 about the properties. In the cross-examination,
Manuel Ting also admitted that about a month after Ester Borromeo allegedly offered the
sale of the properties Felix Ting went to see Ong Seng again. If these were so, it can be
safely assumed that Ong Seng had consequently told Felix about plaintiffs offer on
January 11, 1985 to buy the properties for P1,000,000.00 and of their timely acceptance
on July 10, 1985 to buy the same at P1,050,000.00.
The two aforesaid admissions by the Tings, considered together with Uracas positive
assertion that Felix Ting met with her on July 11th and who was told by her that the
plaintiffs had transmitted already to the Velezes their decision to buy the properties
at P1,050,000.00, clinches the proof that the Avenue Group had prior knowledge of
plaintiffs interest. Hence, the Avenue Group defendants, earlier forewarned of the
plaintiffs prior contract with the Velezes, were guilty of bad faith when they proceeded to
buy the properties to the prejudice of the plaintiffs. [21]

The testimony of Petitioner Emilia Uraca supports this finding of the trial court. The
salient portions of her testimony follow:
BY ATTY. BORROMEO: (To witness)
Q According to Manuel Ting in his testimony, even if they know, referring to the
Avenue Group, that you were tenants of the property in question and they
were neighbors to you, he did not inquire from you whether you were
interested in buying the property, what can you say about that?
A It was Felix Ting who approached me and asked whether I will buy the
property, both the house and the land and that was on July 10, 1985.
ATTY BORROMEO: (To witness)
Q What was your reply, if any?
A Yes, sir, I said we are going to buy this property because we have stayed for a
long time there already and we have a letter from Carmen Ting asking us
whether we are going to buy the property and we have already given our
answer that we are willing to buy.
COURT: (To witness)
Q What do you mean by that, you mean you told Felix Ting and you showed him
that letter of Carmen Ting?
WITNESS:
A We have a letter of Carmen Ting where she offered to us for sale the house and
lot and I told him that I have already agreed with Concordia Ching, Ong Seng
and my self that we buy the land. We want to buy the land and the building.
[22]

We see no reason to disturb the factual finding of the trial court that the Avenue
Group, prior to the registration of the property in the Registry of Property, already knew
of the first sale to petitioners. It is hornbook doctrine that findings of facts of the trial
court, particularly when affirmed by the Court of Appeals, are binding upon this
Court[23] save for exceptional circumstances[24] which we do not find in the factual milieu
of the present case. True, this doctrine does not apply where there is a variance in the
factual findings of the trial court and the Court of Appeals. In the present case, the Court
of Appeals did not explicitly sustain this particular holding of the trial court, but neither
did it controvert the same. Therefore, because the registration by the Avenue Group was
in bad faith, it amounted to no inscription at all. Hence, the third and not the second
paragraph of Article 1544 should be applied to this case. Under this provision,
petitioners are entitled to the ownership of the property because they were first in actual
possession, having been the propertys lessees and possessors for decades prior to the
sale.
Having already ruled that petitioners actual knowledge of the first sale tainted their
registration, we find no more reason to pass upon the issue of whether the annotation
of lis pendens automatically negated good faith in such registration.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of
Appeals is hereby SET ASIDE and the dispositive portion of the trial courts decision
dated October 19, 1990 is REVIVED with the following MODIFICATION -- the
consideration to be paid under par. 2 of the disposition is P1,050,000.00 and
not P1,400,000.00. No Costs. SO ORDERED.
G.R. No. 104482             January 22, 1996

BELINDA TAÑEDO, for herself and in representation of her brothers and sisters,
and TEOFILA CORPUZ TAÑEDO, representing her minor daughter VERNA
TAÑEDO, petitioners, 
vs.
THE COURT OF APPEALS, SPOUSES RICARDO M. TAÑEDO AND TERESITA
BARERA TAÑEDO,respondents.

DECISION
PANGANIBAN, J.:

Is a sale of future inheritance valid? In multiple sales of the same real property, who has
preference in ownership? What is the probative value of the lower court's finding of good
faith in registration of such sales in the registry of property? These are the main
questions raised in this Petition for review on certiorari under Rule 45 of the Rules of
Court to set aside and reverse the Decision 1 of the Court of Appeals2 in CA-G.R. CV NO.
24987 promulgated on September 26, 1991 affirming the decision of the Regional Trial
Court, Branch 63, Third Judicial Region, Tarlac, Tarlac in Civil Case No. 6328, and its
Resolution denying reconsideration thereof, promulgated on May 27, 1992.

By the Court's Resolution on October 25, 1995, this case (along with several others) was
transferred from the First to the Third Division and after due deliberation, the Court
assigned it to the undersigned ponente for the writing of this Decision.

The Facts

On October 20, 1962, Lazardo Tañedo executed a notarized deed of absolute sale in
favor of his eldest brother, Ricardo Tañedo, and the latter's wife, Teresita Barera, private
respondents herein, whereby he conveyed to the latter in consideration of P1,500.00,
"one hectare of whatever share I shall have over Lot No. 191 of the cadastral survey of
Gerona, Province of Tarlac and covered by Title T-13829 of the Register of Deeds of
Tarlac", the said property being his "future inheritance" from his parents (Exh. 1). Upon
the death of his father Matias, Lazaro executed an "Affidavit of Conformity" dated
February 28, 1980 (Exh. 3) to "re-affirm, respect, acknowledge and validate the sale I
made in 1962." On January 13, 1981, Lazaro executed another notarized deed of sale in
favor of private respondents covering his "undivided ONE TWELVE (1/12) of a parcel of
land known as Lot 191 . . . " (Exh. 4). He acknowledged therein his receipt of
P10,000.00 as consideration therefor. In February 1981, Ricardo learned that Lazaro
sold the same property to his children, petitioners herein, through a deed of sale dated
December 29, 1980 (Exh. E). On June 7, 1982, private respondents recorded the Deed
of Sale (Exh. 4) in their favor in the Registry of Deeds and the corresponding entry was
made in Transfer Certificate of Title No. 166451 (Exh. 5).

Petitioners on July 16, 1982 filed a complaint for rescission (plus damages) of the deeds
of sale executed by Lazaro in favor of private respondents covering the property
inherited by Lazaro from his father.

Petitioners claimed that their father, Lazaro, executed an "Absolute Deed of Sale" dated
December 29, 1980 (Exit. E). Conveying to his ten children his allotted portion tinder the
extrajudicial partition executed by the heirs of Matias, which deed included the land in
litigation (Lot 191).

Petitioners also presented in evidence: (1) a private writing purportedly prepared and
signed by Matias dated December 28, 1978, stating that it was his desire that whatever
inheritance Lazaro would receive from him should be given to his (Lazaro's) children
(Exh. A); (2) a typewritten document dated March 10, 1979 signed by Lazaro in the
presence of two witnesses, wherein he confirmed that he would voluntarily abide by the
wishes of his father, Matias, to give to his (Lazaro's) children all the property he would
inherit from the latter (Exh. B); and (3) a letter dated January 1, 1980 of Lazaro to his
daughter, Carmela, stating that his share in the extrajudicial settlement of the estate of
his father was intended for his children, petitioners herein (Exh. C).

Private respondents, however presented in evidence a "Deed of Revocation of a Deed of

Sale" dated March 12, 1981 (Exh. 6), wherein Lazaro revoked the sale in favor of
petitioners for the reason that it was "simulated or fictitious without any consideration
whatsoever".

Shortly after the case a quo was filed, Lazaro executed a sworn statement (Exh. G)
which virtually repudiated the contents of the Deed of Revocation of a Deed of Sale
(Exh. 6) and the Deed of Sale (Exh. 4) in favor of private respondents. However, Lazaro
testified that he sold the property to Ricardo, and that it was a lawyer who induced him
to execute a deed of sale in favor of his children after giving him five pesos (P5.00) to
buy a "drink" (TSN September 18, 1985, pp. 204-205).

The trial court decided in favor of private respondents, holding that petitioners failed "to
adduce a proponderance of evidence to support (their) claim." On appeal, the Court of
Appeals affirmed the decision of the trial court, ruling that the Deed of Sale dated
January 13, 1981 (Exh. 9) was valid and that its registration in good faith vested title in
said respondents.

The Issues

Petitioners raised the following "errors" in the respondent Court, which they also now
allege in the instant Petition:

I. The trial court erred in concluding that the Contract of Sale of October 20, 1962
(Exhibit 7, Answer) is merely voidable or annulable and not void ab initio pursuant
to paragraph 2 of Article 1347 of the New Civil Code involving as it does a "future
inheritance".

II. The trial court erred in holding that defendants-appellees acted in good faith in
registering the deed of sale of January 13, 1981 (Exhibit 9) with the Register of
Deeds of Tarlac and therefore ownership of the land in question passed on to
defendants-appellees.

III. The trial court erred in ignoring and failing to consider the testimonial and
documentary evidence of plaintiffs-appellants which clearly established by
preponderance of evidence that they are indeed the legitimate and lawful owners
of the property in question.

IV. The decision is contrary to law and the facts of the case and the conclusions
drawn from the established facts are illogical and off-tangent.

From the foregoing, the issues may be restated as follows:

1. Is the sale of a future inheritance valid?

2. Was the subsequent execution on January 13, 1981 (and registration with the
Registry of Property) of a deed of sale covering the same property to the same
buyers valid?

3. May this Court review the findings of the respondent Court (a) holding that the
buyers acted in good faith in registering the said subsequent deed of sale and (b)
in "failing to consider petitioners' evidence"? Are the conclusions of the respondent
Court "illogical and off-tangent"?

The Court's Ruling

At the outset, let it be clear that the "errors" which are reviewable by this Court in this
petition for review on certiorari are only those allegedly committed by the respondent
Court of Appeals and not directly those of the trial court, which is not a party here. The
"assignment of errors" in the petition quoted above are therefore totally misplaced, and
for that reason, the petition should be dismissed. But in order to give the parties
substantial justice we have decided to delve into the issues as above re-stated. The
errors attributed by petitioners to the latter (trial) court will be discussed only insofar as
they are relevant to the appellate court's assailed Decision and Resolution.

The sale made in 1962 involving future inheritance is not really at issue here. In context,
the assailed Decision conceded "it may be legally correct that a contract of sale of
anticipated future inheritance is null and void."3
But to remove all doubts, we hereby categorically rule that, pursuant to Article 1347 of
the Civil Code, "(n)o contract may be entered into upon a future inheritance except in
cases expressly authorized by law."

Consequently, said contract made in 1962 is not valid and cannot be the source of any
right nor the creator of any obligation between the parties.

Hence, the "affidavit of conformity" dated February 28, 1980, insofar as it sought to
validate or ratify the 1962 sale, is also useless and, in the words of the respondent
Court, "suffers from the same infirmity." Even private respondents in their
memorandum4 concede this.

However, the documents that are critical to the resolution of this case are: (a) the deed
of sale of January 13, 1981 in favor of private respondents covering Lazaro's undivided
inheritance of one-twelfth (1/12) share in Lot No. 191, which was subsequently
registered on June 7, 1982; and (b) the deed of sale dated December 29, 1980 in favor
of petitioners covering the same property. These two documents were executed after
the death of Matias (and his spouse) and after a deed of extra-judicial settlement of his
(Matias') estate was executed, thus vesting in Lazaro actual title over said property. In
other words, these dispositions, though conflicting, were no longer infected with the
infirmities of the 1962 sale.

Petitioners contend that what was sold on January 13, 1981 was only one-half hectare
out of Lot No. 191, citing as authority the trial court's decision. As earlier pointed out,
what is on review in these proceedings by this Court is the Court of Appeals' decision —
which correctly identified the subject matter of the January 13, 1981 sale to be the
entire undivided 1/12 share of Lazaro in Lot No. 191 and which is the same property
disposed of on December 29, 1980 in favor of petitioners.

Critical in determining which of these two deeds should be given effect is the registration
of the sale in favor of private respondents with the register of deeds on June 7, 1982.

Article 1544 of the Civil Code governs the preferential rights of vendees in cases of
multiple sales, as follows:

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 property in question is land, an immovable, and following the above-quoted law,
ownership shall belong to the buyer who in good faith registers it first in the registry of
property. Thus, although the deed of sale in favor of private respondents was later than
the one in favor of petitioners, ownership would vest in the former because of the
undisputed fact of registration. On the other hand, petitioners have not registered the
sale to them at all.

Petitioners contend that they were in possession of the property and that private
respondents never took possession thereof. As between two purchasers, the one who
registered the sale in his favor has a preferred right over the other who has not
registered his title, even if the latter is in actual possession of the immovable property. 5

As to third issue, while petitioners conceded the fact of registration, they nevertheless
contended that it was done in bad faith. On this issue, the respondent Court ruled;
 Under the second assignment of error, plaintiffs-appellants contend that
defendants-appellees acted in bad faith when they registered the Deed of Sale in
their favor as appellee Ricardo already knew of the execution of the deed of sale in
favor of the plaintiffs; appellants cite the testimony of plaintiff Belinda Tañedo to
the effect that defendant Ricardo Tañedo called her up on January 4 or 5, 1981 to
tell her that he was already the owner of the land in question "but the contract of
sale between our father and us were (sic) already consumated" (pp. 9-10, tsn,
January 6, 1984). This testimony is obviously self-serving, and because it was a
telephone conversation, the deed of sale dated December 29, 1980 was not
shown; Belinda merely told her uncle that there was already a document showing
that plaintiffs are the owners (p. 80). Ricardo Tañedo controverted this and
testified that he learned for the first time of the deed of sale executed by Lazaro in
favor of his children "about a month or sometime in February 1981" (p. 111, tsn,
Nov. 28, 1984). . . .6

The respondent Court, reviewing the trial court's findings, refused to overturn the
latter's assessment of the testimonial evidence, as follows;

We are not prepared to set aside the finding of the lower court upholding Ricardo
Tañedo's testimony, as it involves a matter of credibility of witnesses which the
trial judge, who presided at the hearing, was in a better position to resolve. (Court
of Appeals' Decision, p. 6.)

In this connection, we note the tenacious allegations made by petitioners, both in their
basic petition and in their memorandum, as follows:

1. The respondent Court allegedly ignored the claimed fact that respondent
Ricardo "by fraud and deceit and with foreknowledge" that the property in
question had already been sold to petitioners, made Lazaro execute the deed of
January 13, 1981;

2. There is allegedly adequate evidence to show that only 1/2 of the purchase
price of P10,000.00 was paid at the time of the execution of the deed of sale,
contrary to the written acknowledgment, thus showing bad faith;

3. There is allegedly sufficient evidence showing that the deed of revocation of the
sale in favor of petitioners "was tainted with fraud or deceit."

4. There is allegedly enough evidence to show that private respondents "took

undue advantage over the weakness and unschooled and pitiful situation of Lazaro
Tañedo . . ." and that respondent Ricardo Tañedo "exercised moral ascendancy
over his younger brother he being the eldest brother and who reached fourth year
college of law and at one time a former Vice-Governor of Tarlac, while his younger
brother only attained first year high school . . . ;

5. The respondent Court erred in not giving credence to petitioners' evidence,

especially Lazaro Tañedo's Sinumpaang Salaysay dated July 27, 1982 stating that
Ricardo Tañedo deceived the former in executing the deed of sale in favor of
private respondents.

To be sure, there are indeed many conflicting documents and testimonies as well as
arguments over their probative value and significance. Suffice it to say, however, that all
the above contentions involve questions of fact, appreciation of evidence and credibility
of witnesses, which are not proper in this review. It is well-settled that the Supreme
Court is not a trier of facts. In petitions for review under Rule 45 of the Revised Rules of
Court, only questions of law may be raised and passed upon. Absent any whimsical or
capricious exercise of judgment, and unless the lack of any basis for the conclusions
made by the lower courts be amply demonstrated, the Supreme Court will not disturb
their findings. At most, it appears that petitioners have shown that their evidence was
not believed by both the trial and the appellate courts, and that the said courts tended
to give more credence to the evidence presented by private respondents. But this in
itself is not a reason for setting aside such findings. We are far from convinced that both
courts gravely abused their respective authorities and judicial prerogatives.

As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock
Construction and Development Corp.7

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.

In the same vein, the ruling in the recent case of South Sea Surety and Insurance
Company, Inc. vs. Hon. Court of Appeals, et al.8 is equally applicable to the present
case:

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. (emphasis supplied)

WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals is
AFFIRMED. No Costs. SO ORDERED.

G.R. No. L-56232 June 22, 1984

ABELARDO CRUZ (deceased) substituted by Heirs Consuelo C. Cruz, Claro C.

Cruz and Stephen C. Cruz, per Resolution, petitioners, 
vs.
LEODEGARIA CABANA, TEOFILO LEGASPI , ILUMINADA CABANA and THE
HONOR- ABLE COURT OF APPEALS,* respondents.

Nazareno, Azada, Sabado & Dizon for petitioners.

Felixberto N. Boquiren for respondents.

TEEHANKEE, J.:

The Court affirms the questioned decision of the now defunct Court of Appeals which
affirmed that of the Court of First Instance of Quezon Province, but directs that the
seller, respondent Leodegaria Cabana who sold the property in question twice, first to
her co-respondents Teofilo Legaspi and Iluminada Cabana and later to petitioner
Abelardo Cruz (now deceased), should reimburse to petitioner's heirs the amounts of
P2,352.50, which the late petitioner Abelardo Cruz paid to the Philippine National Bank
to discharge the mortgage obligation of said respondent Leodegaria Cabana in favor of
said bank, and of P3,397.50, representing the amount paid by said Abelardo Cruz to her
as consideration of the sale with pacto de retro of the subject property.

This is a simple case of double sale of real property. Respondent appellate court in its
decision of August 13, 1980 stated the background facts and resolved the issue in favor
of defendants- appellees, first buyers- respondents herein, and against plaintiff-
appellant Abelardo Cruz, petitioner herein (substituted by his heirs), as follows:

Defendants' evidence shows that on October 21, 1968, defendant Leodegaria

Cabana sold the land in question to defendants-spouses Teofilo Legaspi and
Iluminada Cabana (Exh. 1). The said defendants-spouses attempted to
register the deed of sale but said registration was not accomplished because
they could not present the owner's duplicate of title which was at that time
in the possession of the PNB as mortgage.

Likewise, when plaintiff tried to register the deed of sale executed by

Leodegaria Cabana on September 3, 1970, said plaintiff was informed that
the owner thereof had sold the land to defendants-spouses on October 21,
1968. Plaintiff was able to register the land in his name on February 9, 1971
(Exh. A). With the admission of both parties that the land in question was
sold to two persons, the main issue to be resolved in this appeal is as to who
of said vendees has a better title to said land.

There is no dispute that the land in question was sold with right of
repurchase on June 1, 1965 to defendants- spouses Teofilo Legaspi and
Iluminada Cabana (Exh. 1). The said document 'Bilihang Muling Mabibili'
stipulated that the land can be repurchased by the vendor within one year
from December 31, 1966 (see par. 5, Exh. 1).lwphl@itç Said land was not
repurchased and in the meantime, however, said defendants-spouses took
possession of the land.

Upon request of Leodegaria Cabana, the title of the land was lent to her in
order to mortgage the property to the Philippine National Bank. Said title
was, forthwith, deposited with the PNB. On October 21, 1968, defendant
Leodegaria Cabana sold the land by way of absolute sale to the defendants-
spouses (Exh. 2). However, on November 29, 1968 defendant sold the same
property to herein plaintiff and the latter was able to register it in his name.

The transaction in question is governed by Article 1544 of the Civil Code.

True it is that the plaintiff was able to register the sale in his name but was
he in good faith in doing so?

While the title was registered in plaintiff- appellant's name on February 9,

1971 (Exh. A), it appears that he knew of the sale of the land to defendants-
spouses Legaspi as he was informed in the Office of the Register of Deeds of
Quezon. It appears that the defendants-spouses registered their document
of sale on May 13, 1965 under Primary Entry No. 210113 of the Register of
Deeds (Exh. 2).
 Under the foregoing circumstances, the right of ownership and title to the
land must be resolved in favor of the defendants- spouses Legaspi on three
counts. First, the plaintiff-appellant was not in good faith in registering the
title in his name. Consistent is the jurisprudence in this jurisdiction that in
order that the provisions of Article 1544 of the new Civil Code may be
invoked, it is necessary that the conveyance must have been made by a
party who has an existing right in the thing and the power to dispose of it
(10 Manresa 170, 171). It cannot be set up by a second purchaser who
comes into possession of the property that has already been acquired by the
first purchaser in full dominion (Bautista vs. Sison, 39 Phil. 615), this not
withstanding that the second purchaser records his title in the public
registry, if the registration be done in bad faith, the philosophy underlying
this rule being that the public records cannot be covered into instruments of
fraud and oppression by one who secures an inscription therein in bad faith
(Chupinghong vs. Borreros, 7 CA Rep. 699).

A purchaser who has knowledge of fact which would put him upon inquiry
and investigation as to possible defects of the title of the vendor and fails to
make such inquiry and investigation, cannot claim that he is a purchaser in
good faith. Knowledge of a prior transfer of a registered property by a
subsequent purchaser makes him a purchaser in bad faith and his
knowledge of such transfer vitiates his title acquired by virtue of the latter
instrument of conveyance which creates no right as against the first
purchaser (Reylago vs. Jarabe, L-20046, March 27, 1968, 22 SCRA 1247).

In the second place, the defendants-spouses registered the deed of absolute

sale ahead of plaintiff- appellant. Said spouses were not only able to obtain
the title because at that time, the owner's duplicate certificate was still with
the Philippine National Bank.

In the third place, defendants-spouses have been in possession all along of

the land in question. If immovable property is sold to different vendees, the
ownership shall belong to the person acquiring it who in good faith first
recorded it in the registry of property; and should there be no inscription,
the ownership shall pertain to the person who in good faith was first in the
possession (Soriano, et al. vs. The Heirs of Domingo Magali et al., L-15133 ,
July 31, 1963, 8 SCRA 489). Priority of possession stands good in favor of
herein defendants-spouses (Evangelista vs. Abad, [CA] 36 O.G. 2913;
Sanchez vs. Ramos, 40 Phil. 614, Quimson vs, Rosete, 87 Phil. 159).

The Court finds that in this case of double sale of real property, respondent appellate
court, on the basis of the undisputed facts, correctly applied the provisions of Article
1544 of the Civil Code that

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.

There is no question that respondents-spouses Teofilo Legaspi and Iluminada Cabana

were the first buyers, first on June 1, 1965 under a sale with right of repurchase and
later on October 21, 1968 under a deed of absolute sale and that they had taken
possession of the land sold to them; that petitioner was the second buyer under a deed
of sale dated November 29, 1968, which to all indications, contrary to the text, was a
sale with right of repurchase for ninety (90) days. 1 There is no question either that
respondents legaspi spouses were the first and the only ones to be in possession of the
subject property.

Said respondents spouses were likewise the first to register the sale with right of
repurchase in their favor on May 13, 1965 under Primary Entry No. 210113 of the
Register of Deeds. They could not register the absolute deed of sale in their favor and
obtain the corresponding transfer certificate of title because at that time the seller's
duplicate certificate was still with the bank. But there is no question, and the lower
courts so found conclusively as a matter of fact, that when petitioner Cruz succeeded in
registering the later sale in his favor, he knew and he was informed of the prior sale in
favor of respondents-spouses. Respondent appellate court correctly held that such
"knowledge of a prior transfer of a registered property by a subsequent purchaser
makes him a purchaser in bad faith and his knowledge of such transfer vitiates his title
acquired by virtue of the latter instrument of conveyance which creates no right as
against the first purchaser."

As the Court held in Carbonell vs. Court of Appeals  2 "it is essential that the buyer of
realty must act in good faith in registering his deed of sale to merit the protection of the
second paragraph of [the above quoted] Article 1544." As the writer stressed in his
concurring opinion therein, "(T)he governing principle here is prius tempore, potior
jure(first in time, stronger in right). Knowledge gained by the first buyer of the second
sale cannot defeat the first buyer's rights except only as provided by the Civil Code and
that is where the second buyer first registers in good faith the second sale ahead of the
first. Such knowledge of the first buyer does not bar her from availing of her rights
under the law, among them, to register first her purchase as against the second buyer.
But in converso knowledge gained by the second buyer of the first sale defeats his rights
even if he is first to register the second sale, since such knowledge taints his prior
registration with bad faith. This is the price exacted by Article 1544 of the Civil Code for
the second buyer being able to displace the first buyer; that before the second buyer
can obtain priority over the first, he must show that he acted in good faith throughout
(i.e. in ignorance of the first sale and of the first buyer's rights) — from the time of
acquisition until the title is transferred to him by registration or failing registration, by
delivery of possession. The second buyer must show continuing good faith and
innocence or lack of knowledge of the first sale until his contract ripens into full
ownership through prior registration as provided by law."

Petitioner's prayer for alternative relief for reimbursement of the amount of P2,352.50
paid by him to the bank to discharge the existing mortgage on the property and of the
amount of P3,397.50 representing the price of the second sale are well taken insofar as
the seller Leodegaria Cabana is concerned. These amounts have been received by the
said seller Leodegaria Cabana on account of a void second sale and must be duly
reimbursed by her to petitioner's heirs, but the Legaspi spouses cannot be held liable
therefor since they had nothing to do with the said second sale nor did they receive any
benefit therefrom. Petitioner's claim for reimbursement of the amount of P102.58 as real
estate taxes paid on the property is not well taken because the respondents Legaspi
spouses had been paying the real estate taxes on the same property since June 1,
1969. 4

ACCORDINGLY, the appealed judgment of respondent appellate court, upholding

respondents-spouses Teofilo Legaspi and Iluminada Cabana as the true and rightful
owners of the property in litigation and ordering the issuance of a new title with the
cancellation as null and void of Title No. T- 99140 obtained by petitioner Abelardo C.
Cruz, is hereby affirmed in toto. In accordance with the partial grant of petitioner's
prayer for alternative relief as stated in the preceding paragraph hereof, the Court
hereby orders and sentences respondent Leodegaria Cabana to reimburse and pay to
petitioner's heirs the total sum of P5,750.00.
G.R. No. 143826               August 28, 2003
HEIRS OF IGNACIA AGUILAR-REYES, Petitioners, 
vs.
Spouses CIPRIANO MIJARES and FLORENTINA MIJARES, Respondents.

DECISION

YNARES-SANTIAGO, J.:

Under the regime of the Civil Code, the alienation or encumbrance of a conjugal real
property requires the consent of the wife. The absence of such consent renders the
entire transaction1 merely voidable and not void.2 The wife may, during the marriage and
within ten years from the transaction questioned, bring an action for the annulment of
the contract entered into by her husband without her consent. 3

Assailed in this petition for review on certiorari are the January 26, 2000 Decision 4 and
June 19, 2000, Resolution5 of the Court of Appeals in CA-G.R. No. 28464 which declared
respondents as purchasers in good faith and set aside the May 31, 1990 and June 29,
1990 Orders of the Regional Trial Court of Quezon City, Branch 101, in Civil Case No. Q-
48018.

The controversy stemmed from a dispute over Lot No. 4349-B-2, 6 approximately 396
square meters, previously covered by Transfer Certificate of Title (TCT) No. 205445,
located in Balintawak, Quezon City and registered in the name of Spouses Vicente Reyes
and Ignacia Aguilar-Reyes.7 Said lot and the apartments built thereon were part of the
spouses’ conjugal properties having been purchased using conjugal funds from their
garments business.8

Vicente and Ignacia were married in 1960, but had been separated de facto since
1974.9 Sometime in 1984, Ignacia learned that on March 1, 1983, Vicente sold Lot No.
4349-B-2 to respondent spouses Cipriano and Florentina Mijares for P40,000.00. 10 As a
consequence thereof, TCT No. 205445 was cancelled and TCT No. 306087 was issued on
April 19, 1983 in the name of respondent spouses. 11 She likewise found out that Vicente
filed a petition for administration and appointment of guardian with the Metropolitan
Trial Court of Quezon City, Branch XXI. Vicente misrepresented therein that his wife,
Ignacia, died on March 22, 1982, and that he and their 5 minor children were her only
heirs.12 On September 29, 1983, the court appointed Vicente as the guardian of their
minor children.13Subsequently, in its Order dated October 14, 1983, the court authorized
Vicente to sell the estate of Ignacia.14

On August 9, 1984, Ignacia, through her counsel, sent a letter to respondent spouses
demanding the return of her ½ share in the lot. Failing to settle the matter amicably,
Ignacia filed on June 4, 1996 a complaint 15 for annulment of sale against respondent
spouses. The complaint was thereafter amended to include Vicente Reyes as one of the
defendants.16

In their answer, respondent spouses claimed that they are purchasers in good faith and
that the sale was valid because it was duly approved by the court. 17 Vicente Reyes, on
the other hand, contended that what he sold to the spouses was only his share in Lot
No. 4349-B-2, excluding the share of his wife, and that he never represented that the
latter was already dead.18 He likewise testified that respondent spouses, through the
counsel they provided him, took advantage of his illiteracy by filing a petition for the
issuance of letters of administration and appointment of guardian without his
knowledge.19

On February 15, 1990, the court a quo rendered a decision declaring the sale of Lot No.
4349-B-2 void with respect to the share of Ignacia. It held that the purchase price of the
lot was P110,000.00 and ordered Vicente to return ½ thereof or P55,000.00 to
respondent spouses. The dispositive portion of the said decision, reads-

WHEREFORE, premises above considered, judgment is hereby rendered declaring the

subject Deed of Absolute Sale, dated March [1,] 1983 signed by and between
defendants Vicente Reyes and defendant Cipriano Mijares NULL AND VOID WITH
RESPECT TO ONE-HALF (1/2) OF THE SAID PROPERTY;

The Register of Deeds of Quezon City is hereby ordered to cancel TCT No. 306083 (sic)
in the names of defendant spouses Cipriano Mijares and Florentina Mijares and to issue
a new TCT in the name of the plaintiff Ignacia Aguilar-Reyes as owner in fee simple of
one-half (1/2) of said property and the other half in the names of defendant spouses
Cipriano Mijares and Florentin[a] Mijares, upon payment of the required fees therefore;

Said defendant spouses Mijares are also ordered to allow plaintiff the use and exercise of
rights, as well as obligations, pertinent to her one-half (1/2) ownership of the subject
property;

Defendant Vicente Reyes is hereby ordered to reimburse P55,000.00 with legal rate of
interest from the execution of the subject Deed of Absolute Sale on March 1, 1983, to
the defendant spouses Cipriano Mijares and Florentina Mijares which corresponds to the
one-half (1/2) of the actual purchase price by the said Mijares but is annulled in this
decision (sic);

Defendant Vicente Reyes is hereby further ordered to pay plaintiff the amount of
P50,000.00 by way of moral and exemplary damages, plus costs of this suit.

SO ORDERED.20

Ignacia filed a motion for modification of the decision praying that the sale be declared
void in its entirety and that the respondents be ordered to reimburse to her the rentals
they collected on the apartments built on Lot No. 4349-B-2 computed from March 1,
1983.1âwphi1

On May 31, 1990, the trial court modified its decision by declaring the sale void in its
entirety and ordering Vicente Reyes to reimburse respondent spouses the purchase price
of P110,000, thus –

WHEREFORE, premises considered, judgment is hereby rendered declaring the subject

Deed of Absolute Sale, dated March 1, 1983 signed by and between defendants Vicente
Reyes and defendant Cipriano Mijares as null and void ab initio, in view of the absence
of the wife’s conformity to said transaction.

Consequent thereto, the Register of Deeds for Quezon City is hereby ordered to cancel
TCT No. 306083 (sic) in the name of Cipriano Mijares and Florentin[a] Mijares and issue
a new TCT in the name of the plaintiff and defendant Ignacia Aguilar-Reyes and Vicente
Reyes as owners in fee simple, upon payment of required fees therefore.

Defendant Vicente Reyes is hereby ordered to pay the amount of one hundred ten
thousand pesos (P110,000.00) with legal rate of interest at 12% per annum from the
execution of the subject Deed of Absolute Sale on March 1, 1983.

Further, defendant Vicente Reyes is ordered to pay the amount of P50,000.00 by way of
moral and exemplary damages, plus costs of this suit.

SO ORDERED.21

On motion22 of Ignacia, the court issued an Order dated June 29, 1990 amending the
dispositive portion of the May 31, 1990 decision by correcting the Transfer Certificate of
Title of Lot No. 4349-B-2, in the name of Cipriano Mijares and Florentina Mijares, from
TCT No. 306083 to TCT No. 306087; and directing the Register of Deeds of Quezon City
to issue a new title in the name of Ignacia Aguilar-Reyes and Vicente Reyes. The Order
likewise specified that Vicente Reyes should pay Ignacia Aguilar-Reyes the amount of
P50,000.00 as moral and exemplary damages.23
Both Ignacia Aguilar-Reyes and respondent spouses appealed the decision to the Court
of Appeals.24 Pending the appeal, Ignacia died and she was substituted by her
compulsory heirs.25

Petitioners contended that they are entitled to reimbursement of the rentals collected on
the apartment built on Lot No. 4349-B-2, while respondent spouses claimed that they
are buyers in good faith. On January 26, 2000, the Court of Appeals reversed and set
aside the decision of the trial court. It ruled that notwithstanding the absence of
Ignacia’s consent to the sale, the same must be held valid in favor of respondents
because they were innocent purchasers for value. 26 The decretal potion of the appellate
court’s decision states –

WHEREFORE, premises considered, the Decision appealed from and the Orders dated
May 31, 1990 and June 29, 1990, are SET ASIDE and in lieu thereof a new one is
rendered –

1. Declaring the Deed of Absolute Sale dated March 1, 1983 executed by Vicente Reyes
in favor of spouses Cipriano and [Florentina] Mijares valid and lawful;

2. Ordering Vicente Reyes to pay spouses Mijares the amount of P30,000.00 as

attorney’s fees and legal expenses; and

3. Ordering Vicente Reyes to pay spouses Mijares P50,000.00 as moral damages.

No pronouncement as to costs.

SO ORDERED.27

Undaunted by the denial of their motion for reconsideration, 28 petitioners filed the instant
petition contending that the assailed sale of Lot No. 4392-B-2 should be annulled
because respondent spouses were not purchasers in good faith.

The issues for resolution are as follows: (1) What is the status of the sale of Lot No.
4349-B-2 to respondent spouses? (2) Assuming that the sale is annullable, should it be
annulled in its entirety or only with respect to the share of Ignacia? (3) Are respondent
spouses purchasers in good faith?

Articles 166 and 173 of the Civil Code, 29 the governing laws at the time the assailed sale
was contracted, provide:

Art.166. Unless the wife has been declared a non compos mentis or a spendthrift, or is
under civil interdiction or is confined in a leprosarium, the husband cannot alienate or
encumber any real property of the conjugal partnership without the wife’s consent. If
she refuses unreasonably to give her consent, the court may compel her to grant the
same…

Art. 173. The wife may, during the marriage and within ten years from the transaction
questioned, ask the courts for the annulment of any contract of the husband entered
into without her consent, when such consent is required, or any act or contract of the
husband which tends to defraud her or impair her interest in the conjugal partnership
property. Should the wife fail to exercise this right, she or her heirs after the dissolution
of the marriage, may demand the value of property fraudulently alienated by the
husband.

Pursuant to the foregoing provisions, the husband could not alienate or encumber any
conjugal real property without the consent, express or implied, of the wife otherwise,
the contract is voidable. Indeed, in several cases 30 the Court had ruled that such
alienation or encumbrance by the husband is void. The better view, however, is to
consider the transaction as merely voidable and not void. 31 This is consistent with Article
173 of the Civil Code pursuant to which the wife could, during the marriage and within
10 years from the questioned transaction, seek its annulment. 32
In the case of Heirs of Christina Ayuste v. Court of Appeals, 33 it was categorically held
that –

There is no ambiguity in the wording of the law. A sale of real property of the conjugal
partnership made by the husband without the consent of his wife is voidable. The action
for annulment must be brought during the marriage and within ten years from the
questioned transaction by the wife. Where the law speaks in clear and categorical
language, there is no room for interpretation — there is room only for application. 34

Likewise, in Spouses Guiang v. Court of Appeals,35 the Court quoted with approval the
ruling of the trial court that under the Civil Code, the encumbrance or alienation of a
conjugal real property by the husband absent the wife’s consent, is voidable and not
void. Thus –

…Under Article 166 of the Civil Code, the husband cannot generally alienate or encumber
any real property of the conjugal partnership without the wife’s consent. The alienation
or encumbrance if so made however is not null and void. It is merely voidable. The
offended wife may bring an action to annul the said alienation or encumbrance. Thus,
the provision of Article 173 of the Civil Code of the Philippines, to wit:

Art. 173. The wife may, during the marriage and within ten years from the transaction
questioned, ask the courts for the annulment of any contract of the husband entered
into without her consent, when such consent is required, or any act or contract of the
husband which tends to defraud her or impair her interest in the conjugal partnership
property. Should the wife fail to exercise this right, she or her heirs after the dissolution
of the marriage, may demand the value of property fraudulently alienated by the
husband.

This particular provision giving the wife ten (10) years x x x during [the] marriage to
annul the alienation or encumbrance was not carried over to the Family Code. It is thus
clear that any alienation or encumbrance made after August 3, 1988 when the Family
Code took effect by the husband of the conjugal partnership property without the
consent of the wife is null and void…

In the case at bar, there is no dispute that Lot No. 4349-B-2, is a conjugal property
having been purchased using the conjugal funds of the spouses during the subsistence
of their marriage. It is beyond cavil therefore that the sale of said lot to respondent
spouses without the knowledge and consent of Ignacia is voidable. Her action to annul
the March 1, 1983 sale which was filed on June 4, 1986, before her demise is perfectly
within the 10 year prescriptive period under Article 173 of the Civil Code. Even if we
reckon the period from November 25, 1978 which was the date when Vicente and the
respondent spouses entered into a contract concerning Lot No. 4349-B-2, Ignacia’s
action would still be within the prescribed period.

Anent the second issue, the trial court correctly annulled the voidable sale of Lot No.
4349-B-2 in its entirety. In Bucoy v. Paulino,36 a case involving the annulment of sale
with assumption of mortgages executed by the husband without the consent of the wife,
it was held that the alienation or encumbrance must be annulled in its entirety and not
only insofar as the share of the wife in the conjugal property is concerned. Although the
transaction in the said case was declared void and not merely voidable, the rationale for
the annulment of the whole transaction is the same thus –

The plain meaning attached to the plain language of the law is that the contract, in its
entirety, executed by the husband without the wife's consent, may be annulled by the
wife. Had Congress intended to limit such annulment in so far as the contract shall
"prejudice" the wife, such limitation should have been spelled out in the statute. It is not
the legitimate concern of this Court to recast the law. As Mr. Justice Jose B. L. Reyes of
this Court and Judge Ricardo C. Puno of the Court of First Instance correctly stated,
"[t]he rule (in the first sentence of Article 173) revokes Baello vs. Villanueva, 54 Phil.
213 and Coque vs. Navas Sioca, 45 Phil. 430," in which cases annulment was held to
refer only to the extent of the one-half interest of the wife…
The necessity to strike down the contract of July 5, 1963 as a whole, not merely as to
the share of the wife, is not without its basis in the common-sense rule. To be
underscored here is that upon the provisions of Articles 161, 162 and 163 of the Civil
Code, the conjugal partnership is liable for many obligations while the conjugal
partnership exists. Not only that. The conjugal property is even subject to the payment
of debts contracted by either spouse before the marriage, as those for the payment of
fines and indemnities imposed upon them after the responsibilities in Article 161 have
been covered (Article 163, par. 3), if it turns out that the spouse who is bound thereby,
"should have no exclusive property or if it should be insufficient." These are
considerations that go beyond the mere equitable share of the wife in the property.
These are reasons enough for the husband to be stopped from disposing of the conjugal
property without the consent of the wife. Even more fundamental is the fact that the
nullity is decreed by the Code not on the basis of prejudice but lack of consent of an
indispensable party to the contract under Article 166.37

With respect to the third issue, the Court finds that respondent spouses are not
purchasers in good faith. A purchaser in good faith is one who buys property of another,
without notice that some other person has a right to, or interest in, such property and
pays full and fair price for the same, at the time of such purchase, or before he has
notice of the claim or interest of some other persons in the property. He buys the
property with the belief that the person from whom he receives the thing was the owner
and could convey title to the property. A purchaser cannot close his eyes to facts which
should put a reasonable man on his guard and still claim he acted in good faith. 38

In the instant case, there existed circumstances that should have placed respondent
spouses on guard. The death certificate of Ignacia, shows that she died on March 22,
1982. The same death certificate, however, reveals that – (1) it was issued by the
Office of the Civil Registrar of Lubao Pampanga on March 10, 1982; (2) the alleged
death of Ignacia was reported to the Office of the Civil Registrar on March 4, 1982; and
(3) her burial or cremation would be on March 8, 1982.39 These obvious flaws in the
death certificate should have prompted respondents to investigate further, especially so
that respondent Florentina Mijares admitted on cross examination that she asked for the
death certificate of Ignacia because she was suspicious that Ignacia was still
alive.40 Moreover, respondent spouses had all the opportunity to verify the claim of
Vicente that he is a widower because it was their lawyer, Atty. Rodriguito S. Saet, who
represented Vicente in the special proceedings before the Metropolitan Trial Court.

Neither can respondent spouses rely on the alleged court approval of the sale. Note that
the Order issued by the Metropolitan Trial Court of Quezon City, Branch XXXI, appointing
Vicente as guardian of his 5 minor children, as well as the Order authorizing him to sell
the estate of Ignacia were issued only on September 29, 1983 and October 14, 1983,
respectively. On the other hand, the sale of the entire Lot No. 4349-B-2 to respondent
spouses appears to have been made not on March 1, 1983, but even as early as
November 25, 1978. In the "Agreement" dated November 25, 1978, Vicente in
consideration of the amount of P110,000.00, sold to Cipriano Mijares Lot No. 4349-B-2
on installment basis, with the first installment due on or before July 31, 1979. 41 This was
followed by a "Memorandum of Understanding" executed on July 30, 1979, by Vicente
and Cipriano – (1) acknowledging Cipriano’s receipt of Vicente’s down payment in the
amount of P50,000.00; and (2) authorizing Florentina Mijares to collect rentals. 42 On July
14, 1981, Vicente and Cipriano executed another "Memorandum of Agreement," stating,
among other, that out of the purchase price of P110,000.00 Vicente had remaining
balance of P19,000.00. 43 Clearly therefore, the special proceedings before the
Metropolitan Trial Court of Quezon City, Branch XXXI, could not have been the basis of
respondent spouses’ claim of good faith because the sale of Lot No. 4349-B-2 occurred
prior thereto.

Respondent spouses cannot deny knowledge that at the time of the sale in 1978,
Vicente was married to Ignacia and that the latter did not give her conformity to the
sale. This is so because the 1978 "Agreement" described Vicente as "married" but the
conformity of his wife to the sale did not appear in the deed. Obviously, the execution of
another deed of sale in 1983 over the same Lot No. 4349-B-2, after the alleged death of
Ignacia on March 22, 1982, as well as the institution of the special proceedings were,
intended to correct the absence of Ignacia’s consent to the sale. Even assuming that
respondent spouses believed in good faith that Ignacia really died on March 22, 1982,
after they purchased the lot, the fact remains that the sale of Lot No. 4349-B-2 prior to
Ignacia’s alleged demise was without her consent and therefore subject to annulment.
The October 14, 1983 order authorizing the sale of the estate of Ignacia, could not have
validated the sale of Lot No. 4349-B-2 because said order was issued on the assumption
that Ignacia was already dead and that the sale dated March 1, 1983 was never
categorically approved in the said order.

The fact that the 5 minor children44 of Vicente represented by the latter, signed the
March 1, 1983 deed of sale of Lot No. 4349-B-2 will not estop them from assailing the
validity thereof. Not only were they too young at that time to understand the
repercussions of the sale, they likewise had no right to sell the property of their mother
who, when they signed the deed, was very much alive.

If a voidable contract is annulled, the restoration of what has been given is proper. The
relationship between parties in any contract even if subsequently annulled must always
be characterized and punctuated by good faith and fair dealing. Hence, for the sake of
justice and equity, and in consonance with the salutary principle of non-enrichment at
another’s expense, the Court sustains the trial court’s order directing Vicente to refund
to respondent spouses the amount of P110,000.00 which they have paid as purchase
price of Lot No. 4349-B-2.45 The court a quo correctly found that the subject of the sale
was the entire Lot No. 4349-B-2 and that the consideration thereof is not P40,000.00 as
stated in the March 1, 1983 deed of sale, but P110,000.00 as evidenced by the – (1)
"Agreement" dated November 25, 1978 as well as the July 30, 1979 "Memorandum of
Understanding" and the July 14, 1981 "Memorandum of Agreement" which served as
receipts of the installment payments made by respondent Cipriano Mijares; and (2) the
receipt duly signed by Vicente Reyes acknowledging receipt of the amount of
P110,000.00 from respondent spouses as payment of the sale of the controverted lot. 46

The trial court, however, erred in imposing 12% interest per annum on the amount due
the respondents. In Eastern Shipping Lines, Inc. v. Court of Appeals,47 it was held that
interest on obligations not constituting a loan or forbearance of money is six percent
(6%) annually. If the purchase price could be established with certainty at the time of
the filing of the complaint, the six percent (6%) interest should be computed from the
date the complaint was filed until finality of the decision. In Lui v. Loy,48 involving a suit
for reconveyance and annulment of title filed by the first buyer against the seller and the
second buyer, the Court, ruling in favor of the first buyer and annulling the second sale,
ordered the seller to refund to the second buyer (who was not a purchaser in good faith)
the purchase price of the lots. It was held therein that the 6% interest should be
computed from the date of the filing of the complaint by the first buyer. After the
judgment becomes final and executory until the obligation is satisfied, the amount due
shall earn interest at 12% per year, the interim period being deemed equivalent to a
forbearance of credit.49

Accordingly, the amount of P110,000.00 due the respondent spouses which could be
determined with certainty at the time of the filing of the complaint shall earn 6%
interest per annum from June 4, 1986 until the finality of this decision. If the adjudged
principal and the interest (or any part thereof) remain unpaid thereafter, the interest
rate shall be twelve percent (12%) per annum computed from the time the judgment
becomes final and executory until it is fully satisfied.

Petitioner’s prayer for payment of rentals should be denied. Other than the allegation of
Ignacia in her Sinumpaang Salaysay that the apartments could be rented at P1,000.00 a
month, no other evidence was presented to substantiate her claim. In awarding rentals
which are in the nature of actual damages, the Court cannot rely on mere assertions,
speculations, conjectures or guesswork but must depend on competent proof and on the
best evidence obtainable regarding the actual amount of loss. 50 None, having been
presented in the case at bar, petitioner’s claim for rentals must be denied.
While as a general rule, a party who has not appealed is not entitled to affirmative relief
other than the ones granted in the decision of the court below, law and jurisprudence
authorize a tribunal to consider errors, although unassigned, if they involve (1) errors
affecting the lower court’s jurisdiction over the subject matter, (2) plain errors not
specified, and (3) clerical errors.51 In this case, though defendant Vicente Reyes did not
appeal, the "plain error" committed by the court a quo as to the award of moral and
exemplary damages must be corrected. These awards cannot be lumped together as
was done by the trial court. 52 Moral and exemplary damages are different in nature, and
require separate determination. Moral damages are awarded where the claimant
experienced physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury as a
result of the act complained of.53 The award of exemplary damages, on the other hand,
is warranted when moral, temperate, liquidated, or compensatory damages were
likewise awarded by the court.54

Hence, the trial court’s award of "P50,000.00 by way of moral and exemplary damages"
should be modified. Vicente Reyes should be ordered to pay the amounts of P25,000.00
as moral damages and P25,000.00 as exemplary damages. Since Vicente Reyes was
among the heirs substituted to the late Ignacia Aguilar-Reyes, payment of moral and
exemplary damages must be made by Vicente to his children, petitioners in this case.

WHEREFORE, in view of all the foregoing, the petition is PARTIALLY GRANTED. The
January 26, 2000 Decision and June 19, 2002, Resolution of the Court of Appeals in CA-
G.R. No. 28464 are REVERSED and SET ASIDE. The May 31, 1990 Order of the Regional
Trial Court of Quezon City, Branch 101, in Civil Case No. Q-48018, which annulled the
March 1, 1983 Deed of Absolute Sale over Lot No. 4349-B-2, and ordered the Register of
Deeds of Quezon City to cancel TCT No. 306087 in the name of respondent spouses
Cipriano Mijares and Florentina Mijares covering the same property; as well as the June
29, 1990 Order correcting the typographical errors in the order dated March 1, 1983, are
REINSTATED, with the following modifications –

(1) The Register of Deeds of Quezon City is ordered to issue a new certificate of
title over Lot No. 4349-B-2, in the name of petitioners as co-owners thereof;

(2) Vicente Reyes is ordered to reimburse the respondent spouses the amount of
P110,000.00 as purchase price of Lot No. 4349-B-2, with interest at 6% per
annum from June 4, 1986, until finality of this decision. After this decision
becomes final, interest at the rate of 12% per annum on the principal and interest
(or any part thereof) shall be imposed until full payment.

(3) Defendant Vicente Reyes is ordered to pay the heirs of the late Ignacia
Aguilar-Reyes, the amounts of P25,000.00 as moral damages and P25,000.00 as
exemplary damages.

SO ORDERED.
G.R. No. 140889            May 9, 2002

DOROTEA TANONGON,1 petitioner, 
vs.
FELICIDAD SAMSON, CASINO OSIN, ALBERTO BERBES and LUISITO
VENUS, respondents.

PANGANIBAN, J.:

The Labor Code grants the National Labor Relations Commission (NLRC) sufficient
authority and power to execute final judgments and awards. Thus, a third-party claim of
ownership on a levied property should not necessarily prevent execution, particularly
where -- as in the present case -- the surrounding circumstances point to a fraudulent
claim. In fact, the disputed contract of sale here is not merely rescissible; it is simulated
or fictitious and, hence, void ab initio.

The Case

Before us is a Petition for Review on Certiorari challenging the August 31, 1999
Decision2 and the November 19, 1999 Resolution3 of the Court of Appeals4 (CA) in CA-GR
No. 51128. The assailed Decision disposed as follows:

"WHEREFORE, the petition is GRANTED. The decision dated March 9, 1998 of the
NLRC, including its resolution dated March 31, 1998 and May 18, 1998 are
hereby REVERSED and SET ASIDE. No pronouncement as to costs."5

The challenged Resolution denied the Motion for Reconsideration.

The Facts

The facts of this case are summarized by the CA in this wise:

"Cayco Marine Service ["CAYCO" hereafter] is engaged in the business of hauling

oil. It is owned and operated by Iluminada Cayco Olizon (Olizon). Both are
[respondents in the NLRC case]. [Respondents] Felicidad Samson, Casiano A.
Osin, Alberto Belbes and Luisito Venus were among the employees of [CAYCO
and/or Olizon].

"On March 9, 1994, [respondents] filed a complaint against [CAYCO and Olizon]
for illegal dismissal, [underpayment] of wages, non-payment of holiday pay, rest
day pay and leave pay. The labor arbiter dismissed the complaint for lack of merit.
On appeal, it was reversed by the NLRC. It ruled:

'PREMISES CONSIDERED, the appeal is hereby GRANTED and the decision of

the labor arbiter dated 17 April 1995 is hereby SET ASIDE.

'Accordingly, [CAYCO and Olizon are] directed to pay the complainants the
following:

(a) Separation pay equivalent to one (1) month salary for every year of
service computed from the dates of hiring of complainants Luisito Venus,
Felicidad Samson, Alberto Belbes and Casiano Osin on the various dates of
01 June 1989, 10 March 1962, 01 January 1982, and 01 February 1980,
respectively, up to the date of this Decision;
 (b) Backwages from the dates of dismissal of complainants Luisito Venus,
Felicidad Samson, Alberto Belbes and Casiano Osin on 23 June 1991, 31
March 1992, 20 September 1991 and 20 September 1991, respectively, up
to the date of this Decision, less earnings elsewhere;

(c) Five (5) days service incentive leave pay limited to the three (3) years
back from the filing of the complaint.

SO RESOLVED.'

"[CAYCO and Olizon] sought reconsideration of the NLRC's decision but it proved
futile. On appeal to the Supreme Court, via a petition for certiorari under Rule 65
of the Rules of Court, the Court resolved to deny the petition for non-compliance
with par. 4, Supreme Court Circular 1-88, x x x and also for the failure of [CAYCO
and Olizon] to establish grave abuse of discretion on the part of the NLRC.
Accordingly, the decision of the NLRC became final and executory on April 29,
1997.

"On June 25, 1997, the NLRC Research and Investigation Unit submitted to the
labor arbiter the judgment award for each [respondent], computed as follows:

1. F. - P 401,931.41
Samson
2. L. Venus - P 259,912.80
3. A. Belbes - P 258,854.17
4. C. Osin - P 271,724.17
P1,192,422.55

"On June 24, a writ of execution was issued directing the NLRC sheriff to collect
from [CAYCO and Olizon] the aforementioned amount.

"On August 8, 1997, after the notice of levy/sale on execution of personal property
was issued, [CAYCO and/or Olizon's] motor tanker was [seized], to be sold at
public auction on August 19, 1997.

"However, on August 15, 1997, a certain Dorotea Tanongon (Tanongon), x x x

[petitioner] herein, filed a third party claim before the labor arbiter, alleging that
she was the owner of the subject motor tanker, having acquired the same from
Olizon on July 29, 1997, for and in consideration of P1,100,000.00.

"On October 15, 1997, the labor arbiter issued an order dismissing the third party
claim for lack of merit. Tanongon, in collaboration with Olizon, appealed to the
NLRC. In a decision dated March 9, 1998, the NLRC reversed that of the labor
arbiter. The NLRC ruled:

'WHEREFORE, the order appealed from is hereby REVERSED. Let the execution of
the third party claimant's subject property be lifted and its sale restrained.

SO ORDERED.'"6

Ruling of the Labor Arbiter

In his October 15, 1997 Order,7 the labor arbiter dismissed petitioner's third-party claim,
because the Deed of Absolute Sale between Olizon and Tanongon had been executed
only on July 29, 1997, after the NLRC Decision became final and executory on April 29,
1997. The labor arbiter agreed with private respondents that the sale had been entered
into to defraud them as judgment creditors of the Cayco Marine Service (CAYCO).
Hence, he directed the sheriff to proceed with the execution and the sale of the subject
property.
 Ruling of the NLRC

Upon appeal by petitioner, the NLRC reversed the labor arbiter on two grounds. First,
the power of the NLRC sheriff to execute judgments extended only to properties
unquestionably belonging to the judgment debtor. Here, the Certificate of Ownership
over the subject vessel was in petitioner's name. Hence, the vessel was not
unquestionably the property of CAYCO. Second, under Article 1387 of the Civil Code,
alienations of property in the fraud of creditors would give rise only to rescissible
contracts. Thus, judicial rescission was required before the third-party claim could be
disregarded. Thus, in its March 9, 1998 Decision, 8 the NLRC lifted the Writ of Execution
previously imposed on the subject vessel and restrained its sale.

Ruling of the Court of Appeals

The CA ruled that a judicial rescission was not necessary to determine the legitimacy of
the sale between Olizon and Tanongon. It opined that the Deed of Sale was evidently
conceived and executed for the purpose of placing the subject motor tanker beyond the
reach of the Writ of Execution. Based on the circumstances surrounding the sale and
considering Olizon's financial difficulties, the purported transfer of ownership was
dubious. It was akin to a simulated or fictitious transfer, in which no independent judicial
action was necessary to invalidate the sale.9

The claim of petitioner that she was a buyer in good faith was debunked by the CA on
the ground that purchasers could not close their eyes to facts that should put reasonable
persons on guard. The records show that the sale was hastily concluded; the tanker and
the necessary documents were immediately delivered to the new owner. These facts
confirmed respondents' suspicion that Olizon had intended to overcome the enforcement
of the Writ of Execution. They also revealed that she slowed down, if not stopped, the
operation of her business. This fact should have moved Tanongon to ascertain, before
acquiring the property, if the seller had no unsettled obligations.

The power of the NLRC to enforce its final judgment, order or award under Article 224 (a
& b) of the Labor Code, as amended, is not a "knight without might." Paragraph b of the
same provision authorizes the NLRC to take such measures under extant laws as may be
necessary to ensure compliance with its decision.

Hence, this Petition.10

The Issues

In her Memorandum,11 petitioner raises the following issues:

"(1) Whether or not Petitioner Dorotea M. Tanongon is a buyer in good faith and
for value[;]

"(2) Whether or not the Court of Appeals acted with grave abuse of discretion
amounting to lack or in excess of jurisdiction in deciding against the herein
petitioner as per its decision dated August 31, 1999[; and]

"(3) Whether or not [p]etitioner is entitled to equal protection under the

Constitution and the law."12

This Court's Ruling

The Petition has no merit.

First Issue:
Good Faith of Petitioner

There is sufficient basis to affirm the CA finding that petitioner was a buyer in bad faith.
The judgment favoring respondents against CAYCO and Olizon (for back wages,
separation pay and service incentive leave pay) was rendered on July 18, 1996, and
affirmed by the Second Division of this Court via its January 15, 1997 Resolution. The
Writ of Execution was issued by the labor arbiter on July 24, 1997. The sale of the levied
tanker, however, was made only on July 29, 1997.

Hence, the CA correctly ruled that the act of Olizon was a "cavalier attempt to evade
payment of the judgment debt." She obviously got word of the issuance of the Writ and
disposed of the tanker to prevent its sale on execution. Despite knowledge of these
antecedents, petitioner bought the tanker barely ten days before it was levied upon on
August 8, 1997.

It is not only the proximity in time that supports this finding. Under Article 1387 of the
Civil Code, alienations by onerous title are presumed to be fraudulent when done by
persons against whom some judgment has been rendered or some writ of attachment
issued in any instance.13 We stress that in the present case, the Writ of Attachment has
been issued, the levy already made and, as will later be discussed, the property still in
the name of Olizon and CAYCO.

It is also more than coincidental that the purchase price for the tanker was
P1,100,000.00, while Olizon's judgment debt to respondents amounted to
P1,192,422.55.

A purchaser in good faith or an innocent purchaser for value is one who buys property
and pays a full and fair price for it at the time of the purchase or before any notice of
some other person's claim on or interest in it. 14 We emphasize that one cannot close
one's eyes to facts that should put a reasonable person on guard and still claim to have
acted in good faith. Petitioner should have inquired whether Olizon had other unsettled
obligations and encumbrances that could burden the subject property. Any person
engaged in business would be wary of buying from a company that is closing shop,
because it may be dissipating its assets to defraud its creditors.

Equally important, factual findings of the CA are given much weight when supported by
substantial evidence.15Petitioner has not given us any sufficient or cogent reason to
reverse the appellate court.

Second Issue:
Necessity of Judicial Rescission

The NLRC ruled that the subject tanker could not be levied upon and sold on execution
for two reasons: (1) the sheriff was acting outside his authority when he levied on
properties that were not unquestionably owned by the judgment debtor; and (2) the
sale of the tanker appeared to have been made to defraud creditors and, therefore,
judicial rescission was required.

The CA held, in overruling the NLRC, that the Commission possessed, under Article 224
(a and b),16 powers necessary to implement and enforce the latter's final judgments,
decisions, orders and awards. The appellate court ruled further that the disputed
contract was not merely rescissible; it was simulated or fictitious and, thus, void ab
initio.

We agree with the Court of Appeals. A third-party claim on a levied property does not
automatically prevent execution. Under Rule 39 of the Revised Rules of Court, execution
is a remedy afforded by law for the enforcement of a judgment, its object being to
obtain satisfaction of the decision on which the writ is issued. 17 In executing a money
judgment against the property of the obligor, the sheriff shall levy on all properties
belonging to the judgment debtor as is amply sufficient to satisfy the decision and the
costs; and shall sell the same, paying to the judgment creditor as much of the proceeds
as will satisfy the amount of the debt and costs. 18 Sheriffs who levy upon properties
other than those of the judgment debtors are acting beyond the limits of their
authority.19
When a third-party claim is filed, the sheriff is not bound to proceed with the levy of the
property unless the judgment creditor or the latter's agent posts an indemnity bond
against the claim.20 Where the bond is filed, the remedy of the third-party claimant is to
file an independent reivindicatory action against the judgment creditor or the purchaser
of the property at public auction.21 The NLRC should not have automatically lifted the
levy and restrained execution, just because a third-party claim had been filed.

Further, judicial rescission is not necessary in the case at bar. The NLRC lifted the levy
on the subject property, ruling that its sheriff could execute its judgments only on
properties "unquestionably belonging to the judgment debtor." It observed that the
Certificate of Ownership over the disputed vessel was in the name of the third-party
claimant, herein petitioner.

Petitioner's claim of ownership over the disputed tanker is not supported by the evidence
on record. The Maritime Industry Authority (Marina) administrator wrote the parties in
two separate letters, which said that the registration of the disputed vessel under
petitioner's name had not been effected, and that the Certificates of Ownership and
Vessel Registry covering the motor tanker M/T Petron 7-C had not been released. The
reasons were Marina's receipt of the Entry of Judgment issued by the Supreme Court on
April 29, 1997, and the Notice of Levy/Sale on Execution of Personal Property covering
the subject vessel.22 Under Article 573 of the Code of Commerce, the acquisition of a
vessel must appear on a written instrument, which shall not produce any effect with
respect to third persons if not inscribed in the Registry of Vessels. Insofar as third
persons like herein respondents were concerned, the ownership of the disputed vessel
remained with Olizon and CAYCO; thus, the CA correctly held that the NLRC could
proceed with the levy and the sale on execution.

Third Issue:
Equal Protection of the Law

Petitioner protests that the CA gave undue importance to respondent laborers by

invoking the protection of labor mandated by Article II, Section 18 of the 1987
Constitution, and Articles 4 and 221 of the Labor Code. Claiming violation of her right to
equal protection of the law, she argues that she deserves social justice, as held by this
Court in Guido v. Rural Progress Administration 23 and Cabatan v. Court of
Appeals24 which ruled that capital, too, was entitled to protection.

The contention of petitioner is untenable. She cannot be given the mantle granted to
capital or management, because she does not appear to be connected in any way to the
ownership or the management of CAYCO or Olizon. She is impleaded here merely as the
alleged buyer of the M/T Petron 7-C. If this contention is an admission that she is a
dummy for CAYCO or Olizon, then the charge of a fictitious sale to defraud judgment
creditors becomes even more evident and credible. WHEREFORE, the Petition
is DENIED and the assailed Decision AFFIRMED. Costs against petitioner. SO
ORDERED.
G.R. No. 109410 August 28, 1996

CLARA M. BALATBAT, petitioner, 
vs.
COURT OF APPEALS and Spouses JOSE REPUYAN and AURORA
REPUYAN, respondents. 

TORRES, JR. , J.:p

Petitioner Clara M. Balatbat instituted this petition for review pursuant to Rule 45 of the
Revised Rules of Court seeking to set aside the decision dated August 12, 1992 of the
respondent Court of Appeals in CA-GR. CV No. 29994 entitled "Alexandra Balatbat and
Clara Balatbat, plaintiffs-appellants versus Jose Repuyan and Aurora Repuyan,
defendants-appellees", the dispositive portion of which reads: 1

WHEREFORE, the judgment appealed from is affirmed with the modification

that the awards of P10,000.00 for attorney's fees and P5,000.00 as costs of
litigation are deleted.

SO ORDERED.

The records show the following factual antecedents:

It appears that on June 15, 1977, Aurelio A. Roque filed a complaint for partition
docketed as Civil Case No. 109032 against Corazon Roque, Alberto de los Santos,
Feliciano Roque, Severa Roque and Osmundo Roque before the then Court of First
Instance of Manila, Branch IX. 2 Defendants therein were declared in default and plaintiff
presented evidence ex-parte. On March 29, 1979, the trial court rendered a decision in
favor of plaintiff Aurelio A. Roque, the pertinent portion of which reads: 3

From the evidence, it has been clearly established that the lot in question
covered by Transfer Certificate of Title No. 51330 was acquired by plaintiff
Aurelio Rogue and Maria Mesina during their conjugal union and the house
constructed thereon was likewise built during their marital union. Out of
their union, plaintiff and Maria Mesina had four children, who are the
defendants in this case. When Maria Mesina died on August 28, 1966, the
only conjugal properties left are the house and lot above stated of which
plaintiff herein, as the legal spouse, is entitled to one-half share pro-
indiviso thereof. With respect to the one-half share pro-indiviso now forming
the estate of Maria Mesina, plaintiff and the four children, the defendants
here, are each entitled to one-fifth (1/5) share pro-indiviso. The deceased
wife left no debt.

Wherefore, judgment is hereby rendered ordering the partition of the

properties, subject matter of this case consisting of the house and lot, in the
following manner:
 1. Of the house and lot forming the conjugal properties, plaintiff is entitled to
one-half share pro-indiviso thereof while the other half forms the estate of
the deceased Maria Mesina;

2. Of the Estate of deceased Maria Mesina, the same is to be divided into

five (5) shares and plaintiff and his four children are entitled each to one-
fifth share thereof pro-indiviso.

Plaintiff claim for moral, exemplary and actual damages and attorney's fees
not having been established to the satisfaction of the Court, the same is
hereby denied.

Without pronouncement as to costs.

SO ORDERED

On June 2, 1979, the decision became final and executory. The corresponding entry of
judgment was made on March 29, 1979. 4

On October 5, 1979, the Register of Deeds of Manila issued a Transfer Certificate of Title
No. 135671 in the name of the following persons in the following proportions: 5

Aurelio A. Roque 6/10 share

Severina M. Roque 1/10 share
Osmundo M. Roque 1/10 share
Feliciano M. Roque 1/10 share
Corazon M. Roque 1/10 share

On April 1, 1980, Aurelio A. Rogue sold his 6/10 share in T.C.T. No. 135671 to spouses
Aurora Tuazon-Repuyan and Jose Repuyan as evidenced by ."Deed of Absolute Sale." 6

On July 21, 1980, Aurora Tuazon Repuyan caused the annotation of her affidavit of
adverse claim 7 on the Transfer Certificate of Title No. 135671, 8 to wit:

Entry No. 5627/T-135671 — NOTICE OF ADVERSE CLAIM — Filed by Aurora

Tuazon Repuyan, married, claiming among others that she bought 6/10
portion of the property herein described from Aurelio Roque for the amount
of P50,000.00 with a down payment of P5,000.00 and the balance of
P45,000.00 to be paid after the partition and subdivision of the property
herein described, other claims set forth in Doc. No. 954, page 18, Book 94 of
________________ 64 _______ PEDRO DE CASTRO, Notary Public of
Manila.

Date of instrument — July 21, 1980

Date of inscription — July 21, 1980 at 3:35 p.m.

TERESITA H.
NOBLEJAS
Acting Register of
Deeds

By:

RAMON D.
MACARICAN
Acting Second
Deputy

On August 20, 1980, Aurelio A. Roque filed a complaint for "Rescission of Contract"
docketed as Civil Case No. 134131 against spouses Aurora Tuazon-Repuyan and Jose
Repuyan before Branch IV of the then Court of First Instance of Manila. The complaint is
grounded on spouses Repuyan's failure to pay the balance of P45,000.00 of the
purchase price. 9 On September 5, 1980, spouses Repuyan filed their answer with
counterclaim. 10

In the meantime, the trial court issued an order in Civil Case No. 109032 (Partition case)
dated February 2, 1982, to wit: 11

In view of all the foregoing and finding that the amount of P100,000.00 as
purchase price for the sale of the parcel of land covered by TCT No. 51330 of
the Registry of Deeds of Manila consisting of 84 square meters situated in
Callejon Sulu, District of Santa Cruz, Manila, to be reasonable and fair, and
considering the opportunities given defendants to sign the deed of absolute
sale voluntarily, the Court has no alternative but to order, as it hereby
orders, the Deputy Clerk of this Court to sign the deed of absolute sale for
and in behalf of defendants pursuant to Sec. 10, Rule 39 of the Rules of
Court, in order to effect the partition of the property involved in this case.

SO ORDERED.

A deed of absolute sale was executed on February 4, 1982 between Aurelio S.

Roque, Corazon Roque, Feliciano Roque, Severa Roque and Osmundo Roque and
Clara Balatbat, married to Alejandro Balatbat. 12On April 14, 1982, Clara Balatbat
filed a motion for the issuance of a writ of possession which was granted by the
trial court on September 14, 1982 "subject, however, to valid rights and interest
of third persons over the same portion thereof, other than vendor or any other
person or persons privy to or claiming any rights or interests under it." The
corresponding writ of possession was issued on September 20, 1982. 13

On May 20, 1982, petitioner Clara Balatbat filed a motion to intervene in Civil Case No.
134131 14 which was granted as per court's resolution of October 21, 1982. 15 However,
Clara Balatbat failed to file her complaint in intervention. 16 On April 15, 1986, the trial
court rendered a decision dismissing the complaint, the pertinent portion of which
reads: 17

The rescission of contracts are provided for in the laws and nowhere in the
provision of the Civil Code under the title Rescissible Contracts does the
circumstances in the case at bar appear to have occurred, hence, the prayer
for rescission is outside the ambit for which rescissible [sic] could be
granted.

The Intervenor — Plaintiff, Clara Balatbat, although allowed to intervene, did

not file her complaint in intervention.

Consequently, the plaintiff having failed to prove with sufficient

preponderance his action, the relief prayed for had to be denied. The
contract of sale denominated as "Deed of Absolute Sale" (Exh. 7 and sub-
markings) being valid and enforceable, the same pursuant to the provisions
of Art. 1159 of the Civil Code which says:

Obligations arising from contracts have the force of law between

the contracting parties and should be complied with in good
faith.

has the effect of being the law between the parties and should be complied
with. The obligation of the plaintiff under the contract being to have the land
covered by TCT No. 135671 partitioned and subdivided, and title issued in
the name of the defendant buyer (see page 2 par. C of Exh. 7-A) plaintiff
had to comply thereto to give effect to the contract.

WHEREFORE, judgment is rendered against the plaintiff, Aurelio A. Roque,

and the plaintiff in intervention, Clara Balatbat, and in favor of the
 defendants, dismissing the complaint for lack of merit, and declaring the
Deed of Absolute Sale dated April 1, 1980 as valid and enforceable and the
plaintiff is, as he is hereby ordered, to partition and subdivide the land
covered by T.C.T. No. 135671, and to aggregate therefrom a portion
equivalent to 6/10 thereof, and cause the same to be titled in the name of
the defendants, and after which, the defendants, and after which, the
defendants, and after which, the defendants, and after which, the
defendants to pay the plaintiff the sum of P45,000.00. Considering further
that the defendants suffered damages since they were forced to litigate
unnecessarily, by way of their counterclaim, plaintiff is hereby ordered to
pay defendants the sum of P15,000.00 as moral damages, attorney's fees in
the amount of P5,000.00.

Costs against plaintiff.

SO ORDERED.

On March 3, 1987, petitioner Balatbat filed a notice of lis pendens in Civil Case No.
109032 before the Register of Deeds of Manila. 18

On December 9, 1988, petitioner Clara Balatbat and her husband, Alejandro Balatbat
filed the instant complaint for delivery of the owners duplicate copy of T.C.T. No. 135671
docketed as Civil Case No. 88-47176 before Branch 24 of the Regional Trial Court of
Manila against private respondents Jose Repuyan and Aurora Repuyan. 19

On January 27, 1989, private respondents filed their answer with affirmative defenses
and compulsory counterclaim. 20

On November 13, 1989, private respondents filed their memorandum 21 while petitioners

filed their memorandum on November 23, 1989. 22

On August 2, 1990, the Regional Trial Court of Manila, Branch 24, rendered a decision
dismissing the complaint, the dispositive portion of which reads : 23

Considering all the foregoing, this Court finds that the plaintiffs have not
been able to establish their cause of action against the defendants and have
no right to the reliefs demanded in the complaint and the complaint of the
plaintiff against the defendants is hereby DISMISSED. On the counterclaim,
the plaintiff are ordered to pay defendants the amount of Ten Thousand
Pesos by way of attorney's fees, Five Thousand Pesos as costs of litigation
and further to pay the costs of the suit.

SO ORDERED.

Dissatisfied, petitioner Balatbat filed an appeal before the respondent Court of Appeals
which rendered the assailed decision on August 12, 1992, to wit: 24

WHEREFORE, the judgment appealed from is affirmed with the modification

that the awards of P10,000.00 for attorney's fees and P5,000.00 as costs of
litigation are deleted.

SO ORDERED.

On March 22, 1993, the respondent Court of Appeals denied petitioner's motion for
reconsideration. 25

Hence, this petition for review.

Petitioner raised the following issues for this Court's resolution:

I
 WHETHER OR NOT THE ALLEGED SALE TO THE PRIVATE RESPONDENTS
WAS MERELY EXECUTORY AND NOT A CONSUMMATED TRANSACTION?

II

WHETHER OR NOT THERE WAS A DOUBLE SALE AS CONTEMPLATED UNDER

ART. 1544 OF THE CIVIL CODE?

III

WHETHER OR NOT PETITIONER WAS A BUYER IN GOOD FAITH AND FOR

VALUE?

IV

WHETHER OR NOT THE COURT OF APPEALS ERRED IN GIVING WEIGHT AND

CONSIDERATION TO THE EVIDENCE OF THE PRIVATE RESPONDENTS
WHICH WERE NOT OFFERED?

Petitioner asseverates that the respondent Court of Appeals committed grave abuse of
discretion tantamount to lack or excess of jurisdiction in affirming the appealed
judgment considering (1) that the alleged sale in favor of the private respondents
Repuyan was merely executory; (2) that there is no double sale; (3) that petitioner is a
buyer in good faith and for value; and (4) that private respondents did not offer their
evidence during the trial.

Contrary to petitioner's contention that the sale dated April 1, 1980 in favor of private
respondents Repuyan was merely executory for the reason that there was no delivery of
the subject property and that consideration/price was not fully paid, we find the sale as
consummated, hence, valid and enforceable. In a decision dated April 15, 1986 of the
Regional Trial Court of Manila Branch IV in Civil Case No. 134131, the Court dismissed
vendor's Aurelio Roque complaint for rescission of the deed of sale and declared that the
Sale dated April 1, 1980, as valid and enforceable. No appeal having been made, the
decision became final and executory. It must be noted that herein petitioner Balatbat
filed a motion for intervention in that case but did not file her complaint in intervention.
In that case wherein Aurelio Roque sought to rescind the April 1, 1980 deed of sale in
favor of the private respondents for non-payment of the P45,000.00 balance, the trial
court dismissed the complaint for rescission. Examining the terms and conditions of the
"Deed of Sale" dated April 1, 1980, the P45,000.00 balance is payable only "after the
property covered by T.C.T. No. 135671 has been partitioned and subdivided, and title
issued in the name of the BUYER" hence, vendor Roque cannot demand payment of the
balance unless and until the property has been subdivided and titled in the name of
private respondents. Devoid of any stipulation that "ownership in the thing shall not pass
to the purchaser until he has fully paid the price" 26, ownership in thing shall pass from
the vendor to the vendee upon actual or constructive delivery of the thing sold even if
the purchase price has not yet been fully paid. The failure of the buyer has not yet been
fully paid. The failure of the buyer to make good the price does not, in law, cause the
ownership to revest to the seller unless the bilateral contract of sale is first rescinded or
resolved pursuant to Article 1191 of the New Civil Code. 27 Non-payment only creates a
right to demand the fulfillment of the obligation or to rescind the contract.

With respect to the non-delivery of the possession of the subject property to the private
respondent, suffice it to say that ownership of the thing sold is acquired only from the
time of delivery thereof, either actual or constructive. 28Article 1498 of the Civil Code
provides that — when the sale is made through a public instrument, the execution
thereof shall be equivalent to the delivery of the thing which is the object of the
contract, if from the deed the contrary does not appear or cannot be inferred. 29 The
execution of the public instrument, without actual delivery of the thing, transfers the
ownership from the vendor to the vendee, who may thereafter exercise the rights of an
owner over the same. 30 In the instant case, vendor Roque delivered the owner's
certificate of title to herein private respondent. It is not necessary that vendee be
physically present at every square inch of the land bought by him, possession of the
public instrument of the land is sufficient to accord him the rights of ownership. Thus,
delivery of a parcel of land may be done by placing the vendee in control and possession
of the land (real) or by embodying the sale in a public instrument (constructive). The
provision of Article 1358 on the necessity of a public document is only for convenience,
not for validity or enforceability. It is not a requirement for the validity of a contract of
sale of a parcel of land that this be embodied in a public instrument. 31

A contract of sale being consensual, it is perfected by the mere consent of the

parties. 32 Delivery of the thing bought or payment of the price is not necessary for the
perfection of the contract; and failure of the vendee to pay the price after the execution
of the contract does not make the sale null and void for lack of consideration but results
at most in default on the part of the vendee, for which the vendor may exercise his legal
remedies. 33

Article 1544 of the New Civil Code provides:

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 movable 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 present the oldest title, provided there is good faith.

Article 1544 of the Civil Code provides that in case of double sale of an immovable
property, ownership shall be transferred (1) to the person acquiring it who in good faith
first recorded it in the Registry of Property; (2) in default thereof, to the person who in
good faith was first in possession; and (3) in default thereof, to the person who presents
the oldest title, provided there is good faith. 34

In the case at bar, vendor Aurelio Roque sold 6/10 portion of his share in TCT No.
135671 to private respondents Repuyan on April 1, 1980. Subsequently, the same lot
was sold again by vendor Aurelio Roque (6/10) and his children (4/10), represented by
the Clerk of Court pursuant to Section 10, Rule 39 of the Rules of Court, on February 4,
1982. Undoubtedly, this is a case of double sale contemplated under Article 1544 of the
New Civil Code.

This is an instance of a double sale of an immovable property hence, the ownership shall
vests in the person acquiring it who in good faith first recorded it in the Registry of
Property. Evidently, private respondents Repuyan's caused the annotation of an adverse
claim on the title of the subject property denominated as Entry No. 5627/T-135671 on
July 21, 1980. 35 The annotation of the adverse claim on TCT No. 135671 in the Registry
of Property is sufficient compliance as mandated by law and serves notice to the whole
world.

On the other hand, petitioner filed a notice of lis pendens only on February 2, 1982.
Accordingly, private respondents who first caused the annotation of the adverse claim in
good faith shall have a better right over herein petitioner. Moreover, the physical
possession of herein petitioners by virtue of a writ of possession issued by the trial court
on September 20, 1982 is "subject to the valid rights and interest of third persons over
the same portion thereof, other than vendor or any other person or persons privy to or
claiming any rights to interest under it." 36 As between two purchasers, the one who has
registered the sale in his favor, has a preferred right over the other who has not
registered his title even if the latter is in actual possession of the immovable
property. 3 7 Further, even in default of the first registrant or first in possession, private
respondents have presented the oldest title. 38 Thus, private respondents who acquired
the subject property in good faith and for valuable consideration established a superior
right as against the petitioner.

Evidently, petitioner cannot be considered as a buyer in good faith. In the complaint for
rescission filed by vendor Aurelio Roque on August 20, 1980, herein petitioner filed a
motion for intervention on May 20, 1982 but did not file her complaint in intervention,
hence, the decision was rendered adversely against her. If petitioner did investigate
before buying the land on February 4, 1982, she should have known that there was a
pending case and an annotation of adverse claim was made in the title of the property
before the Register of Deeds and she could have discovered that the subject property
was already sold to the private respondents. It is incumbent upon the vendee of the
property to ask for the delivery of the owner's duplicate copy of the title from the
vendor. A purchaser of a valued piece of property cannot just close his eyes to facts
which should put a reasonable man upon his guard and then claim that he acted in good
faith and under the belief that there were no defect in the title of the vendor. 39 One who
purchases real estate with knowledge of a defect or lack of title in his vendor cannot
claim that he has acquired title thereto in good faith as against the true owner of the
land or of an interest therein; and the same rule must be applied to one who has
knowledge of facts which should have put him upon such inquiry and investigation as
might be necessary to acquaint him with the defects in the title of his vendor. Good
faith, or the want of it is not a visible, tangible fact that can be seen or touched, but
rather a state or condition of mind which can only be judged of by actual or fancied
tokens or signs. 40

In fine, petitioner had nobody to blame but herself in dealing with the disputed property
for failure to inquire or discover a flaw in the title to the property, thus, it is axiomatic
that — culpa lata dolo aequiparatur — gross negligence is equivalent to intentional
wrong.

IN VIEW OF THE FOREGOING PREMISES, this petition for review is hereby DISMISSED
for lack of merit. No pronouncement as to costs. IT IS SO ORDERED.
 [G.R. No. 92310. September 3, 1992.]

AGRICULTURAL AND HOME EXTENSION DEVELOPMENT GROUP, represented by

Nicasio D. Sanchez, Sr., substituted by Milagros S. Bucu, Petitioner, v. COURT
OF APPEALS, and LIBRADO CABAUTAN, Respondents.

Gideon C. Bondoc for Petitioner.

Balgos & Perez for Private Respondent.

SYLLABUS

1. CIVIL LAW; SPECIAL CONTRACTS; SALE; RULE IN CASE OF DOUBLE SALE;

APPLICATION IN CASE AT BAR. — Under Article 1544 of the Civil Code of the Philippines:
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. It is not disputed that the first
sale to Gundran was not registered while the second sale to Cabautan was registered.
Following the above-quoted provision, the courts below were justified in according
preferential rights to the private respondent, who had registered the sale in his favor, as
against the petitioner’s co-venturer whose right to the same property had not been
recorded.

2. ID.; ID.; ID.; PURCHASER IN GOOD FAITH; DEFINED. — A purchaser in good faith is
defined as "one who buys the property of another without notice that some other person
has a right to or interest in such property and pays a full and fair price for the same at
the time of such purchase or before he has notice of the claim or interest of some other
person in the property."cralaw virtua1aw library

3. ID.; ID.; ID.; ID.; SALE OF PROPERTY REGISTERED UNDER THE TORRENS SYSTEM;
EFFECT OF NOTICE OF LIS PENDENS ANNOTATED ON THE CERTIFICATE. — The
petitioner claims, however, that Cabautan was a purchaser in bad faith because he was
fully aware of the notices of lis pendens at the back of TCT No. 287416 and of the earlier
sale of the land to Gundran. An examination of TCT No. 287416 discloses no annotation
of any sale, lien, encumbrance or adverse claim in favor of Gundran or the petitioner.
Well-settled is the rule that when the property sold is registered under the Torrens
system, registration is the operative act to convey or affect the land insofar as third
persons are concerned. Thus, a person dealing with registered land is only charged with
notice of the burdens on the property which are noted on the register or certificate of
title. While it is true that notices of lis pendens in favor of other persons were earlier
inscribed on the title, these did not have the effect of establishing a lien or encumbrance
on the property affected. Their only purpose was to give notice to third persons and to
the whole world that any interest they might acquire in the property pending litigation
would be subject to the result of the suit.

DECISION

CRUZ, J.:

We are asked again to determine who as between two successive purchasers of the
same land should be recognized as its owner. The answer is simple enough. But we
must first, as usual, plow through some alleged complications.

The pertinent background facts are as follows:

On March 29, 1972, the spouses Andres Diaz and Josefa Mia sold to Bruno Gundran a
19-hectare parcel of land in Las Piñas, Rizal, covered by TCT No. 287416. The owner’s
duplicate copy of the title was turned over to Gundran. However, he did not register the
Deed of Absolute Sale because he said he was advised in the Office of the Register of
Deeds of Pasig of the existence of notices of lis pendens on the title.chanrobles law
library

On November 20, 1972, Gundran and the herein petitioner, Agricultural and Home
Development Group, entered into a Joint Venture Agreement for the improvement and
subdivision of the land. This agreement was also not annotated on the title.

On August 30, 1976, the spouses Andres Diaz and Josefa Mia again entered into another
contract of sale of the same property with Librado Cabautan, the herein
private Respondent.

On September 3, 1976, by virtue of an order of the Court of First Instance of Rizal, a

new owner’s copy of the certificate of title was issued to the Diaz spouses, who had
alleged the loss of their copy. On that same date, the notices of lis pendens annotated
on TCT No. 287416 were canceled and the Deed of Sale in favor of private respondent
Cabautan was recorded. A new TCT No. S-33850/T-172 was thereupon issued in his
name in lieu of the canceled TCT No. 287416.

On March 14, 1977, Gundran instituted an action for reconveyance before the Court of
First Instance of Pasay City * against Librado Cabautan and Josefa Mia seeking, among
others, the cancellation of TCT No. 33850/T-172 and the issuance of a new certificate of
title in his name.

On August 31, 1977, the petitioner, represented by Nicasio D. Sanchez, Sr., filed a
complaint in intervention with substantially the same allegations and prayers as that in
Gundran’s complaint.

In a decision dated January 12, 1987, 1 Gundran’s complaint and petitioner’s complaint
in intervention were dismissed for lack of merit. So was the private respondent’s
counterclaims, for insufficiency of evidence.

Upon appeal, this decision was affirmed by the respondent Court of Appeals, with the
modification that Josefa Mia was ordered to pay Gundran the sum of P90,000.00, with
legal interest from September 3, 1976, plus the costs of suit. 2 

Under Article 1544 of the Civil Code of the Philippines:

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.chanrobles virtual lawlibrary

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.

It is not disputed that the first sale to Gundran was not registered while the second sale
to Cabautan was registered.

Following the above-quoted provision, the courts below were justified in according
preferential rights to the private respondent, who had registered the sale in his favor, as
against the petitioner’s co-venturer whose right to the same property had not been
recorded.

The petitioner claims, however, that Cabautan was a purchaser in bad faith because he
was fully aware of the notices of lis pendens at the back of TCT No. 287416 and of the
earlier sale of the land to Gundran.chanrobles virtual lawlibrary

A purchaser in good faith is defined as "one who buys the property of another without
notice that some other person has a right to or interest in such property and pays a full
and fair price for the same at the time of such purchase or before he has notice of the
claim or interest of some other person in the property." 3 

An examination of TCT No. 287416 discloses no annotation of any sale, lien,

encumbrance or adverse claim in favor of Gundran or the petitioner. Well-settled is the
rule that when the property sold is registered under the Torrens system, registration is
the operative act to convey or affect the land insofar as third persons are concerned. 4
Thus, a person dealing with registered land is only charged with notice of the burdens on
the property which are noted on the register or certificate of title. 5 

While it is true that notices of lis pendens in favor of other persons were earlier inscribed
on the title, these did not have the effect of establishing a lien or encumbrance on the
property affected. Their only purpose was to give notice to third persons and to the
whole world that any interest they might acquire in the property pending litigation would
be subject to the result of the suit.

Cabautan took this risk. Significantly, three days after the execution of the deed of sale
in his favor, the notices of lis pendens were canceled by virtue of the orders of the Court
of First Instance of Rizal, Branch 23, dated April 1, 1974, and April 4, 1974. Cabautan
therefore acquired the land free of any liens or encumbrances and so could claim to be a
purchaser in good faith and for value.

The petitioner insists that it was already in possession of the disputed property when
Cabautan purchased it and that he could not have not known of that possession. Such
knowledge should belie his claim that he was an innocent purchaser for value. However,
the courts below found no evidence of the alleged possession, which we must also reject
in deference to this factual finding.chanrobles virtual lawlibrary
The petitioner’s reliance on Casis v. Court of Appeals 6 is misplaced.

The issue at bar is whether private respondent Cabautan is an innocent purchaser for
value and so entitled to the priority granted under Article 1544 of the Civil Code. The
Casis case, on the other hand, involved the issues of whether or not: 1) certiorari was
the proper remedy of the petitioner: 2) the previous petition for certiorari which
originated from the quieting of title case was similar to and, hence, a bar to the petition
for certiorari arising from the forcible entry case; and 3) the court a quo committed
grave abuse of discretion amounting to lack or excess of jurisdiction in issuing the order
which dissolved the restraining order issued in connection with the ejectment case. The
Court was not called upon in that case to determine who as between the two purchasers
of the subject property should be preferred.

The petitioner invokes the ruling of the lower court in that case to the effect that the
registration of the sale in favor of the second purchaser and the issuance of a new
certificate of title in his favor did not in any manner vest in him any right of possession
and ownership over the subject property because the seller, by reason of their prior
sale, had already lost whatever right or interest she might have had in the property at
the time the second sale was made.

This excerpt was included in the ponencia only as part of the narration of the
background facts and was not thereby adopted as a doctrine of the Court. It was
considered only for the purpose of ascertaining if the court below had determined the
issue of the possession of the subject property pending resolution of the question of
ownership. Obviously, the Court could not have adopted that questionable ruling as it
would clearly militate against the provision of Article 1544.chanrobles.com:cralaw:red

Worthy of note at this juncture is the observation of Justice Edgardo L. Paras, to wit:

True, no one can sell what he does not own, but this is merely the general rule. Is Art.
1544 then an exception to the general rule? In a sense, yes, by reason of public
convenience (See Aitken v. Lao, 36 Phil. 510); in still another sense, it really reiterates
the general rule in that insofar as innocent third persons are concerned, the registered
owner (in the case of real property) is still the owner, with power of disposition. 7 

The language of Article 1544 is clear and unequivocal. In light of its mandate and of the
facts established in this case, we hold that ownership must be recognized in the private
respondent, who bought the property in good faith and, as an innocent purchaser for
value, duly and promptly registered the sale in his favor.

WHEREFORE, the petition is DENIED and the questioned decision AFFIRMED in toto, with
costs against the petitioner. SO ORDERED.
G.R. No. L-2412            April 11, 1906

PEDRO ROMAN, plaintiff-appellant, 
vs.
ANDRES GRIMALT, defendant-appellee.

Alberto Barretto, for appellant.

Chicote, Miranda and Sierra, for appellee.

TORRES, J.:

On July 2, 1904, counsel for Pedro Roman filed a complaint in the Court of First Instance
of this city against Andres Grimalt, praying that judgment be entered in his favor and
against the defendant (1) for the purchase price of the schooner Santa Marina, to wit,
1,500 pesos or its equivalent in Philippine currency, payable by installments in the
manner stipulated; (2) for legal interest on the installments due on the dates set forth in
the complaint; (3) for costs of proceedings; and (4) for such other and further remedy
as might be considered just and equitable.

On October 24 of the same year the court made an order sustaining the demurer filed by
defendant to the complaint and allowing plaintiff ten days within which to amend his
complaint. To this order the plaintiff duly excepted.

Counsel for plaintiff on November 5 amended his complaint and alleged that between
the 13th and the 23rd day of June, 1904, both parties, through one Fernando Agustin
Pastor, verbally agreed upon the sale of the said schooner; that the defendant in a letter
dated June 23 had agreed to purchase the said schooner and of offered to pay therefor
in three installment of 500 pesos each, to wit, on July 15, September 15, and November
15, adding in his letter that if the plaintiff accepted the plan of payment suggested by
him the sale would become effective on the following day; that plaintiff on or about the
24th of the same month had notified the defendant through Agustin Pastor that he
accepted the plan of payment suggested by him and that from that date the vessel was
at his disposal, and offered to deliver the same at once to defendant if he so desired;
that the contract having been closed and the vessel being ready for delivery to the
purchaser, it was sunk about 3 o'clock p. m., June 25, in the harbor of Manila and is a
total loss, as a result of a severe storm; and that on the 30th of the same month
demand was made upon the defendant for the payment of the purchase price of the
vessel in the manner stipulated and defendant failed to pay. Plaintiff finally prayed that
judgment be rendered in accordance with the prayer of his previous complaint.

Defendant in his answer asked that the complaint be dismissed with costs to the
plaintiff, alleging that on or about June 13 both parties met in a public establishment of
this city and the plaintiff personally proposed to the defendant the sale of the said
vessel, the plaintiff stating that the vessel belonged to him and that it was then in a sea
worthy condition; that defendant accepted the offer of sale on condition that the title
papers were found to be satisfactory, also that the vessel was in a seaworthy condition;
that both parties then called on Calixto Reyes, a notary public, who, after examining the
documents, informed them that they were insufficient to show the ownership of the
vessel and to transfer title thereto; that plaintiff then promised to perfect his title and
about June 23 called on defendant to close the sale, and the defendant believing that
plaintiff had perfected his title, wrote to him on the 23d of June and set the following
day for the execution of the contract, but, upon being informed that plaintiff had done
nothing to perfect his title, he insisted that he would buy the vessel only when the title
papers were perfected and the vessel duly inspected.

Defendant also denied the other allegations of the complaint inconsistent with his own
allegations and further denied the statement contained in paragraph 4 of the complaint
to the effect that the contract was completed as to the vessel; that the purchase price
and method of payment had been agreed upon; that the vessel was ready for delivery to
the purchaser and that an attempt had been made to deliver the same, but admitted,
however, the allegations contained in the last part of the said paragraph.

The court below found that the parties had not arrived at a definite understanding. We
think that this finding is supported by the evidence introduced at the trial.

A sale shall be considered perfected and binding as between vendor and vendee when
they have agreed as to the thing which is the object of the contract and as to the price,
even though neither has been actually delivered. (Art. 1450 of the Civil Code.)

Ownership is not considered transmitted until the property is actually delivered and the
purchaser has taken possession of the value and paid the price agreed upon, in which
case the sale is considered perfected.

When the sale is made by means of a public instrument the execution thereof shall be
equivalent to the delivery of the thing which is the object of the contract. (Art. 1462 of
the Civil Code.)

Pedro Roman, the owner, and Andres Grimalt, the purchaser, had been for several days
negotiating for the purchase of the schooner Santa Marina — from the 13th to the 23d
of June, 1904. They agreed upon the sale of the vessel for the sum of 1,500 pesos,
payable in three installments, provided the title papers to the vessel were in proper
form. It is so stated in the letter written by the purchaser to the owner on the 23rd of
June.

The sale of the schooner was not perfected and the purchaser did not consent to the
execution of the deed of transfer for the reason that the title of the vessel was in the
name of one Paulina Giron and not in the name of Pedro Roman, the alleged owner.
Roman promised, however, to perfect his title to the vessel, but he failed to do so. The
papers presented by him did not show that he was the owner of the vessel.

If no contract of sale was actually executed by the parties the loss of the vessel must be
borne by its owner and not by a party who only intended to purchase it and who was
unable to do so on account of failure on the part of the owner to show proper title to the
vessel and thus enable them to draw up the contract of sale.
The vessel was sunk in the bay on the afternoon of the 25th of June, 1904, during a
severe storm and before the owner had complied with the condition exacted by the
proposed purchaser, to wit, the production of the proper papers showing that the
plaintiff was in fact the owner of the vessel in question.

The defendant was under no obligation to pay the price of the vessel, the purchase of
which had not been concluded. The conversations had between the parties and the letter
written by defendant to plaintiff did not establish a contract sufficient in itself to create
reciprocal rights between the parties.

It follows, therefore, that article 1452 of the Civil Code relative to the injury or benefit of
the thing sold after a contract has been perfected and articles 1096 and 1182 of the
same code relative to the obligation to deliver a specified thing and the extinction of
such obligation when the thing is either lost or destroyed, are not applicable to the case
at bar.

The first paragraph of article 1460 of the Civil Code and section 335 of the Code of Civil
Procedure are not applicable. These provisions contemplate the existence of a perfected
contract which can not, however, be enforced on account of the entire loss of the thing
or made the basis of an action in court through failure to conform to the requisites
provided by law.

The judgment of the court below is affirmed and the complaint is dismissed with costs
against the plaintiff. After the expiration of twenty days from the date hereof let
judgment be entered in accordance herewith and ten days thereafter let the case be
remanded to the Court of First Instance for proper action. So ordered.

G.R. No. L-55684 December 19, 1984

CHRYSLER PHILIPPINES CORPORATION, petitioner, 

vs.
THE HONORABLE COURT OF APPEALS and SAMBOK MOTORS CO.
(BACOLOD), respondents,

Reyes, Santayana, Tayao & Picazo Law Office for petitioner.

Alampay, Alvero & Alampay Law Office for private respondent.

MELENCIO-HERRERA, J:

Subject of this Petition for Review is the Decision of the then Court of Appeals in CA-G.R.
No. 65328-R reversing the judgment of the then Court of First Instance of Rizal, Branch
XX, in Civil Case No. 16624, and dismissing petitioner Chrysler Philippines Corporation's
suit for Damages against private respondent Sambok Motors Company (Bacolod) arising
from breach of contract.

Petitioner is a domestic corporation engaged in the assembling and sale of motor

vehicles and other automotive products. Respondent Sambok Motors Co., a general
partnership, during the period relevant to these proceedings, was its dealer for
automotive products with offices at Bacolod (Sambok, Bacolod) and Iloilo (Sambok,
Iloilo). The two offices were run by relatives. Miguel Ng was Assistant Manager for
Sambok, Bacolod, while an elder brother, Pepito Ng, was the President. 1

On September 7, 1972, petitioner filed with the Court of First Instance of Rizal, Branch
XX, Pasig, Rizal, a Complaint for Damages against Allied Brokerage Corporation, Negros
Navigation Company and Sambok, Bacolod, alleging that on October 2, 1970, Sambok,
Bacolod, ordered from petitioner various automotive products worth P30,909.61,
payable in 45 days; that on November 25, 1970, petitioner delivered said products to its
forwarding agent, Allied Brokerage Corporation, for shipment; that Allied Brokerage
loaded the goods on board the M/S Doña Florentina, a vessel owned and operated by
Negros Navigation Company, for delivery to Sambok, Bacolod; that when petitioner tried
to collect from the latter the amount of P31,037.56, representing the price of the spare
parts plus handling charges, Sambok, Bacolod, refused to pay claiming that it had not
received the merchandise; that petitioner also demanded the return of the merchandise
or their value from Allied Brokerage and Negros Navigation, but both denied any liability.

In its Answer, Sambok, Bacolod, denied having received from petitioner or from any of
its co-defendants, the automotive products referred to in the Complaint, and professed
no knowledge of having ordered from petitioner said articles.

Upon a Joint Motion to Dismiss filed by petitioner and Allied Brokerage, the Trial Court.
on October 23, 1975, dismissed the case with prejudice against Allied Brokerage for lack
of cause of action, and also dismissed the latter's counterclaim against petitioner.

On July 31, 1978, the Trial Court rendered its Decision dismissing the Complaint against
Negros Navigation for lack of cause of action, but finding Sambok, Bacolod, liable for the
claim of petitioner, thus:

PREMISES CONSIDERED, the Court renders judgment as follows:

(1) The complaint against defendant Negros Navigation is dismissed for lack
of cause of action.

(2) Defendant Sambok Motors Co. (Bacolod) is ordered to pay plaintiff

Chrysler Philippines Corporation:

(a) The sum of Thirty-One Thousand Thirty Seven Pesos and

Fifty Six Centavos (P31,037.56) with interest at the rate of
twelve percent (12) per annum from January 1, 1971 until fully
paid;

(b) The sum of Five Thousand Pesos as and for attorney's fees
and expenses of litigation;

(c) The costs of the suit.

(3) The counterclaim of defendant Negros Navigation and Sambok Motors

Co. (Bacolod) are dismissed for lack of merit.

The case against Negros Navigation was dismissed for failure of petitioner and Sambok,
Bacolod, to file the necessary notices and claims as conditions precedent for a judicial
action. 2

On the other hand, the Trial Court found that the act of Sambok, Bacolod, "in refusing to
take delivery of the shipment for no justifiable reason from Negros Navigation despite
having received the Bill of Lading constituted wrongful neglect or refusal to accept and
pay for the subject shipment, by reason of which defendant Sambok Motors may be held
liable for damages."

Sambok, Bacolod, appealed. On November 26, 1980, respondent Appellate Court set
aside the appealed judgment and dismissed petitioner's Complaint, after finding that the
latter had not performed its part of the obligation under the contract by not delivering
the goods at Sambok, Iloilo, the place designated in the Parts Order Form (Exhibits "A",
"A-1" to "A-6"), and must, therefore, suffer the loss. In other words, respondent
Appellate Court found. that there was misdelivery.
Hence, this Petition for Review on Certiorari, with the following errors assigned to
respondent Court:

The Respondent Court of Appeals erred in finding that the issue of

misshipment or misdelivery of the automotive spare parts involved in the
litigation was raised by the private respondent Sambok Motors Co. (Bacolod)
in the Trial Court.

II

The Respondent Court of Appeals erred in refusing to apply the provisions of

Section 18, Rule 46 of the Revised Rules of Court quoted below, that since
the question of misshipment or misdelivery was not raised by the private
respondent in the Trial Court, this issue cannot for the first time be raised on
appeal.

Section 18. Questions that may be raised on appeal. Whether or

not the appellant has filed a motion for new trial in the court
below, he may include in his assignment of errors any question
of law or fact that has been raised in the court below and which
is within the issues framed by the parties.

III

The Respondent Court of Appeals erred in finding that the private

respondent gave the alleged instruction to the petitioner to ship the
automotive spare parts to Iloilo City and not to Bacolod City.

IV

The Respondent Court of Appeals erred in finding that the defendant Negros
Navigation notified the private respondent of the arrival of the shipment at
Bacolod City.

The Respondent Court of Appeals erred in reversing the decision of the Trial
Court that the act of the private respondent in refusing to take delivery of
the automotive spare parts that it purchased from the petitioner after having
been notified of the shipment constitutes wrongful neglect resulting in the
loss of the cargo for which it should be liable in damages to the petitioner.

To our minds, the matter of misdelivery is not the decisive factor for relieving Sambok,
Bacolod, of liability herein. While it may be that the Parts Order Form (E exhibits "A", "A-
1" to "A-6") specifically indicated Iloilo as the destination, as testified to by Ernesto
Ordonez, Parts Sales Representative of petitioner, 3 Sambok, Bacolod, and Sambok,
Iloilo, are actually one. In fact, admittedly, the order for spare parts was made by the
President of Sambok, Pepito Ng, through its marketing consultant. Notwithstanding,
upon receipt of the Bill of Lading, Sambok, Bacolod, initiated, but did not pursue, steps
to take delivery as they were advised by Negros Navigation that because some parts
were missing. they would just be informed as soon as the missing parts were located. 4

It was only four years later, however, or in 1974, when a warehouseman of Negros
Navigation, Severino Aguarte, found in their off-shore bodega, parts of the shipment.- in
question, but already deteriorated and valueless. 5
Under the circumstances, Sambok, Bacolod, cannot be faulted for not accepting or
refusing to accept the shipment from Negros Navigation four years after shipment. The
evidence is clear that Negros Navigation could not produce the merchandise nor
ascertain its whereabouts at the time Sambok, Bacolod, was ready to take delivery.
Where the seller delivers to the buyer a quantity of goods less than he contracted to sell,
the buyer may reject them. 6

From the evidentiary record, Negros Navigation was the party negligent in failing to
deliver the complete shipment either to Sambok, Bacolod, or to Sambok, Iloilo, but as
the Trial Court found, petitioner failed to comply with the conditions precedent to the
filing of a judicial action. Thus, in the last analysis, it is petitioner that must shoulder the
resulting loss. The general rule that before, delivery, the risk of loss is home by the
seller who is still the owner, under the principle of "res petit domino", 7 is applicable in
petitioner's case.

In sum, the judgment of respondent Appellate Court, will have to be sustained not on
the basis of misdelivery but on non-delivery since the merchandise was never placed in
the control and possession of Sambok, Bacolod, the vendee. 8

WHEREFORE, we hereby affirm the Decision of the then Court of Appeals in CA-G.R. No.
65328-R, without pronouncement as to costs.

SO ORDERED.

G.R. No. 117187       July 20, 2001

UNION MOTOR CORPORATION, petitioner-appellant, 

vs.
THE COURT OF APPEALS, JARDINE-MANILA FINANCE, INC., SPOUSES ALBIATO
BERNAL and MILAGROS BERNAL, respondents-appellees.

DE LEON, JR., J.:

Before us on appeal, by way of a petition for review on certiorari, is the Decision 1 dated
March 30,1994 and Resolution2 dated September 14, 1994 of the Court of
Appeals3 Which affirmed the Decision dated March 6, 1989 of the Regional Trial Court of
Makati, Metro Manila, Branch 150, in Civil Case No. 920 as well as its Resolution dated
September 14, 1994 which denied the Motion for Reconsideration of the petitioner.

The facts are as follows:

On September 14, 1979, the respondent Bernal spouses purchased from petitioner
Union Motor Corporation one Cimarron Jeepney for Thirty Seven Thousand Seven
Hundred Fifty Eight Pesos and Sixty Centavos (P37,758.60) to be paid in installments.
For this purpose, the respondent spouses executed a promissory note and a deed of
chattel mortgage in favor of the petitioner. Meanwhile, the petitioner entered into a
contract of assignment of the promissory note and chattel mortgage with Jardine-Manila
Finance, Inc. Through Manuel Sosmeña, an agent of the petitioner, the parties agreed
that the respondent spouses would pay the amount of the promissory note to Jardine-
Manila Finance, Inc., the latter being the assignee of the petitioner. To effectuate the
sale as well as the assignment of the promissory note and chattel mortgage, the
respondent spouses were required to sign a notice of assignment, a deed of assignment,
a sales invoice, a registration certificate, an affidavit, and a disclosure statement. The
respondent spouses were obliged to sign all these documents for the reason that,
according to Sosmeña, it was a requirement of petitioner Union Motor Corporation and
Jardine-Manila Finance, Inc. for the respondent spouses to accomplish all the said
documents in order to have their application approved. Upon the respondent spouses'
tender of the downpayment worth Ten Thousand Thirty-Seven Pesos (P10,037.00), and
the petitioner's acceptance of the same, the latter approved the sale. Although the
respondent spouses have not yet physically possessed the vehicle, Sosmeña required
them to sign the receipt as a condition for the delivery of the vehicle.

The respondent spouses continued paying the agreed installments even if the subject
motor vehicle remained undelivered inasmuch as Jardine-Manila Finance, Inc. promised
to deliver the subject jeepney. The respondent spouses have paid a total of Seven
Thousand Five Hundred Seven Pesos (P7,507.00) worth of installments before they
discontinued paying on account of non-delivery of the subject motor vehicle. According
to the respondent spouses, the reason why the vehicle was not delivered was due to the
fact that Sosmeña allegedly took the subject motor vehicle in his personal capacity.

On September 11, 1981, Jardine-Manila Finance, Inc., filed a complaint for a sum of
money, docketed as Civil Case No. 42849, against the respondent Bernal spouses before
the then Court of First Instance of Manila. This case was later on transferred to the
Regional Trial Court of Makati, Branch 150. On November 10, 1981, the complaint was
amended to include petitioner Union Motor Corporation as alternative defendant, the
reason being that if the respondent spouses' refusal to pay Jardine-Manila Finance, Inc.
was due to petitioner's non-delivery of the unit, the latter should pay Jardine-Manila
Finance, Inc. what has been advanced to the petitioner. After the petitioner filed its
answer, the respondent spouses filed their amended answer with cross-claim against the
former and counterclaim against Jardine-Manila Finance, Inc. Following the presentation
of evidence of Jardine-Manila Finance, Inc., the respondent spouses presented as
witnesses Albiato Bernal and Pacifico Tacub in support of their defense and counterclaim
against the plaintiff and cross-claim against the petitioner. The petitioner did not present
any evidence in asmuch as the testimony of the witness it presented was ordered
stricken off the record for his repeated failure to appear for cross-examination on the
scheduled hearings. The trial court deemed the presentation of the said witness as
having been waived by the petitioner.

On March 6, 1989, the trial court rendered a decision, the dispositive portion of which
reads:

WHEREFORE,judgment is hereby rendered ordering:

1. Plaintiff to pay spouses Bernals the sum of P7,507.15 plus legal interest until
fully paid;

2. Union Motor Corporation to pay defendants spouses Bernals the downpayment

in the amount of P10,037.00, plus legal interest until fully paid;

3. Union Motor Corporation to pay plaintiff P23,268.29, plus legal interest until
fully paid, and attorney's fees equivalent to 20% of the amount due to plaintiff.

Union Motor Corporation shall further pay defendants spouses Bernals the sum of
P20,000.00 as moral damages, P10,000.00 as attorney's fees and costs of suit.

The petitioner interposed an appeal before the Court of Appeals while the respondent
spouses appealed to hold the petitioner solidarily liable with Jardine-Manila Finance, Inc.
The appellate court denied both appeals and affirmed the trial court's decision by holding
that:

Now, as to the appeal of defendant Union Motors, it must be noted that said
defendant had failed to adduce evidence in court to support its claim of non-
 liability. We cannot see how the absence of any evidence in favor of said
defendant can result in favorable reliefs to its side on appeal. There is simply no
evidence to speak of in appellant Union Motor's favor to cause a reversal of the
lower court's decision. In the case of Tongson v. C.A. G.R No. 77104, November 6,
1992, the Supreme Court reiterated that:

"As mandated by the Rules of Court, each party must prove his own
affirmative allegation, i.e., one who asserts the affirmative of the issue has
the burden of presenting at the trial such amount of evidence required by
law to obtain a favorable judgment: by preponderance of evidence in civil
cases, and by proof beyond reasonable doubt in criminal cases. x x x".

Hence, the instant petition anchored on the following assigned errors:

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) GRAVELY ERRED AND

ABUSED ITS DISCRETION IN NOT FINDING THAT THE LOWER COURT A QUO'S
DECISION OF MARCH 6, 1989 IS CONTRARY TO LAW AND THE EVIDENCE ON
RECORD;

II

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) GRAVELY ERRED AND

ABUSED ITS DISCRETION IN NOT FINDING THAT THE APPEALED DECISION WAS
RENDERED IN DEPRlVATION AND IN DENIAL OF HEREIN PETITIONER-
APPELLANT'S RIGHT TO DUE PROCESS.

The first issue to be resolved in the instant case is whether there has been a delivery,
physical or constructive, of the subject motor vehicle.

On this score, petitioner Union Motor Corporation maintains that the respondent spouses
are not entitled to a return of the downpayment for the reason that there was a delivery
of the subject motor vehicle. According to the petitioner, the appellate court erred in
holding that no delivery was made by relying exclusively on the testimonial evidence of
respondent Albiato Bernal without considering the other evidence on record, like the
sales invoice and delivery receipt which constitute an admission that there was indeed
delivery of the subject motor vehicle. Also, there was a constructive delivery of the
vehicle when respondent Albiato Bernal signed the registration certificate of the subject
vehicle. Inasmuch as there was already delivery of the subject motor vehicle, ownership
has been transferred to the respondent spouses. The Chattel Mortgage Contract signed
by the respondent Bernal spouses in favor of the petitioner likewise proves that
ownership has already been transferred to them for the reason that, under Article 2085
of the New Civil Code, the mortgagor must be the owner of the property. 5 As owners of
the jeepney, the respondent Bernal spouses should bear the loss thereof in accordance
with Article 1504 of the New Civil Code which provides that when the ownership of
goods is transferred to the buyer, the goods are at the buyer's risk whether actual
delivery has been made or not. These, then, are the contentions of the petitioner.

The main allegation of the respondent Bernal spouses, on the other hand, is that they
never came into possession of the subject motor vehicle. Thus, it is but appropriate that
they be reimbursed by the petitioner of the initial payment which they made. They also
claim that Jardine-Manila Finance, Inc., and the petitioner conspired to defraud and
deprive them of the subject motor vehicle for which they suffered damages.

We rule in favor of the respondent Bernal spouses.

Undisputed is the fact that the respondent Bernal spouses did not come into possession
of the subject Cimarron jeepney that was supposed to be delivered to them by the
petitioner. The registration certificate, receipt and sales invoice that the respondent
Bernal spouses signed were explained during the hearing without any opposition by the
petitioner. According to testimonial evidence adduced by the respondent spouses during
the trial of the case, the said documents were signed as a part of the processing and for
the approval of their application to buy the subject motor vehicle. Without such signed
documents, no sale, much less delivery, of the subject jeepney could be made. The
documents were not therefore an acknowledgment by respondent spouses of the
physical acquisition of the subject motor vehicle but merely a requirement of petitioner
so that the said subject motor vehicle would be delivered to them.

We have ruled that the issuance of a sales invoice does not prove transfer of ownership
of the thing sold to the buyer; an invoice is nothing more than a detailed statement of
the nature, quantity and cost of the thing sold and has been considered not a bill of
sale. 6

The registration certificate signed by the respondent spouses does not conclusively
prove that constructive delivery was made nor that ownership has been transferred to
the respondent spouses. Like the receipt and the invoice, the signing of the said
documents was qualified by the fact that it was a requirement of petitioner for the sale
and financing contract to be approved. In all forms of delivery, it is necessary that the
act of delivery, whether constructive or actual, should be coupled with the intention of
delivering the thing. The act, without the intention, is insufficient. 7 The critical factor in
the different modes of effecting delivery which gives legal effect to the act, is the actual
intention of the vendor to deliver, and its acceptance by the vendee. Without that
intention, there is no tradition. 8 Enlightening is Addison v. Felix and Tioco9 wherein we
ruled that:

The Code imposes upon the vendor the obligation to deliver the thing sold. The
thing is considered to be delivered when it is placed in the hands and possession
of the vendee. (Civil Code, Art. 1462). It is true that the same article declares that
the execution of a public instrument is equivalent to the delivery of the thing which
is the object of the contract, but, in order that this symbolic delivery may produce
the effect of tradition, it is necessary that the vendor shall have had control over
the thing sold that, at the moment of the sale, its material delivery could have
been made. It is not enough to confer upon the purchaser the ownership and the
right of possession. The thing sold must be placed in his control. When there is no
impediment whatever to prevent the thing sold passing into the tenancy of the
purchaser by the sole will of the vendor; symbolic delivery through the execution
of a public instrument is sufficient. But if notwithstanding the execution of the
instrument, the purchaser cannot have the enjoyment and material tenancy of the
thing and make use of it himself or through another in his name, because such
tenancy and enjoyment are opposed by the interposition of another will, then
fiction yields to reality the delivery has not been effected. (Italics supplied)

The act of signing the registration certificate was not intended to transfer the ownership
of the subject motor vehicle to respondent Bernal spouses inasmuch as the petitioner
still needed the same for the approval of the financing contract with Jardine-Manila
Finance, Inc. The record shows that the registration certificate was submitted to Jardine-
Manila Finance, Inc., which took possession thereof until Sosmeña requested the latter
to hand over the said document to him. The fact that the registration certificate was still
kept by Jardine-Manila Finance, Inc. and its unhesitating move to give the same to
Sosmeña just goes to show that the respondent spouses still had no complete control
over the subject motor vehicle as they did not even possess the said certificate of
registration nor was their consent sought when Jardine-Manila Finance, Inc. handed over
the said document to Sosmeña.

Inasmuch as there was neither physical nor constructive delivery of a determinate thing
(in this case, the subject motor vehicle), the thing sold remained at the seller's
risk.10 The petitioner should therefore bear the loss of the subject motor vehicle after
Sosmeña allegedly stole the same.

Petitioner's reliance on the Chattel Mortgage Contract executed by the respondent

spouses does not help its assertion that ownership has been transferred to the latter
since there was neither delivery nor transfer of possession of the subject motor vehicle
to respondent spouses. Consequently, the said accessory contract of chattel mortgage
has no legal effect whatsoever inasmuch as the respondent spouses are not the absolute
owners thereof, ownership of the mortgagor being an essential requirement of a valid
mortgage contract. The Carlos case11cited by the petitioner is not applicable to the case
at bar for the reason that in the said case, apart from the fact that it has a different
issue, the buyer took possession of the personal property and was able to sell the same
to a third party. In the instant case, however, the respondent spouses never acquired
possession of the subject motor vehicle. The manifestations of ownership are control and
enjoyment over the thing owned. The respondent spouses never became the actual
owners of the subject motor vehicle in as much as they never had dominion over the
same.

The petitioner also disputes the finding of the appellate court that there was no delivery
it did not consider, according to the petitioner, the fact that the circumstance of non-
delivery was not shown and that the respondent spouses never made any demand for
the possession of the vehicle. Contrary to the petitioner's allegation, the respondent
spouses presented sufficient evidence to prove that Sosmeña took delivery and
possession of that subject motor vehicle in his personal capacity as shown by a
document12 on which he (Sosmeña) personally acknowledged receipt of the registration
certificate from Jardine-Manila Finance, Inc. Also, respondent Albiato Bernal testified to
the effect that they went several times to the office of the petitioner to demand the
delivery of the subject motor vehicle. The petitioner failed to refute that testimonial
evidence considering that it waived its right to present evidence.

Anent the second issue, the petitioner claims that the trial court committed a violation of
due process when it ordered the striking off of the testimony of the petitioner's witness
as well as the declaration that petitioner has abandoned its right to present evidence.
According to the petitioner, the delays in the hearing of the case were neither unjust nor
deliberate. It just so happened that from August 5, 1986 up to June 1987, the
designated counsel for the petitioner was either appointed to the government or was
short of time to go over the records of the case inasmuch as he was a new substitute
counsel. During the last time the petitioner's counsel moved for the postponement of the
case, witness Ambrosio Balones was not available due to gastroentiritis as shown by a
medical certificate.

Well-settled is the rule that "factual findings of the Court of Appeals are conclusive on
the parties and not reviewable by the Supreme Court and they carry even more weight
when the Court of Appeals affirms the factual findings of the trial Court." 13 In the present
case, the trial court found that after the direct testimony of petitioner's witness,
Ambrosio Balones, the continuation of the cross-examination was postponed and re-
scheduled for four (4) times from November 21, 1986 up to June 19, 1987, all at the
instance of petitioner Union Motor Corporation. For three (3) times, the witness did not
appear whenever the case was called for hearing. On June 19, 1987, when asked by the
trial court why the witness was not present, the petitioner's counsel could not give any
good reason for his absence. Neither did the petitioner offer to present any other
witness to testify on that day. The appellate court assented to these findings by quoting
the decision of the trial court, to wit:

Defendant Union Motors Corporation has no evidence as the testimony of its only
witness, Arnbrosio Balones, was ordered stricken off the record in the hearing of June
19, 1987, for his continuous failure to appear on scheduled hearings. The Court further
considered said defendant to have waived further presentation of evidence. 14

The petitioner attempts to shift the blame on the respondents for the failure of its
witness, Balones, to finish his testimony. It was at the instance of Atty. Tacub, counsel
for the respondents, that the testimony of petitioner 's witness, Balones, was
discontinued after Atty. Tacub asked for a recess and later on for the postponement of
the cross-examination of the said witness. The petitioner had the duty to produce its
witness when he was called to finish his testimony. To place the blame on the
respondent spouses is to put a premium on the negligence of the petitioner to require its
own witness to testify on cross-examination. By presenting witness Balones on direct-
examination, the petitioner had the corresponding duty to make him available for cross-
examination in accordance with fair play and due process. The respondents should not
be prejudiced by the repeated failure of the petitioner to present its said witness for
cross-examination. Hence, the trial court ordered that the unfinished testimony of said
witness be stricken off the record.

However, we cannot affirm that part of the ruling of the courts a quo awarding moral
damages to the respondents. For moral damages to be awarded in cases of breach of
contract, the plaintiff must prove bad faith or fraudulent act on the part of the
defendant.15 In the instant case, the allegations about connivance and fraudulent
schemes by the petitioner and Manuel Sosmeña were merely general allegations and
without any specific evidence to sustain the said claims. In fact, Exhibit "1" which bears
the name and signature of Sosmeña as the person who received the registration
certificate militates against the respondent spouses' claim that the petitioner connived
with its agent to deprive them of the possession of the subject motor vehicle. The said
document shows that Sosmeña acted only in his personal and private capacity, thereby
effectively excluding any alleged participation of the petitioner in depriving them of the
possession of the subject motor vehicle. The petitioner should not be held liable for the
acts of its agent which were done by the latter in his personal capacity,

However, we affirm the award of attorney's fees, When a party is compelled to litigate
with third persons or to incur expenses to protect his interest, attorney's fees should be
awarded,16 In the present case, the respondent spouses were forced to implead the
petitioner Union Motor Corporation on account of the collection suit filed against them by
Jardine Manila Finance, Inc., a case which was eventually won by the respondent
spouses.

WHEREFORE, the appealed Decision dated March 30, 1994 of the Court of Appeals is
hereby AFFIRMED with the MODIFICATION that the award of moral damages is
deleted. With costs against the petitioner. 1âwphi1.nêt SO ORDERED.

G.R. No. L-10056 December 24, 1915

SONG FO & CO., plaintiff-appellant, 

vs.
MANUEL ORIA, defendant-appellant.

Gutierrez Repide and Socias for plaintiff.

Sanz, Opisso and Luzuriaga for defendant.

CARSON, J.:

Song Fo & Co., the original plaintiff in this action, sold a launch to Oria, the defendant,
for P16,500, payable in quarterly installments of P1,000, together with interest at the
rate of ten per centum per annum. The launch was delivered to Oria in Manila, but was
shipwrecked and became a total loss while en route to Oria's place of business in Samar.
No part of the purchase price has ever been paid and this action was instituted for the
recovery of the total amount of the purchase price with interest thereon until paid. The
trial court gave judgment in favor of the plaintiff for P6,000 and interest, that being the
amount of the unpaid installments due under the express terms of the contract at the
date of the institution of the action; but declined to enter judgment for the balance of
the indebtedness on the ground that, under the express terms of the contract, it was not
due and payable when the complaint was filed.
From this judgment both parties appealed, and the record is now before us on their duly
perfected bills of exceptions.

The defendant's contentions on this appeal are substantially limited to his claim that
under the terms of the deed of sale of the launch, Song Fo & Co. had obligated
themselves to insure the launch, and since they had failed and neglected to do so, they
themselves should suffer the loss resulting from the shipwreck of the launch without
insurance.1awphil.net

It cannot be denied that if the contract of sale did in fact impose on Song Fo & Co. an
imperative obligation to insure the launch, which under the terms of the contract was
mortgaged to secure the payment of the purchase price, and if Song Fo & Co. did in fact
fail and neglect to insure the launch in compliance with the terms of the contract, Oria
would be entitled to have the amount of his indebtedness reduced by the amount of the
insurance which he would have been entitled to have applied to the payment of the
purchase price had Song Fo & Co. faithfully complied with the terms of the contract.

But an examination of the terms of the deed of sale of the launch discloses that Song Fo
& Co. did not expressly obligated themselves to insure and keep the launch insured,
although it is true that the contract expressly authorized them to insure it in their own
name.

Counsel for Oria contend, however, that although the language of the contract did not in
express terms obligate Song Fo & Co. to insure the launch, it was their duty so to do
under all the circumstances, and it is insisted that they should not be permitted to evade
the loss resulting from their negligence in the performance of that duty.

The contract expressly authorized Song Fo & Co. to insure the launch in their own name
and to charge the estimated cost of the premiums with interest at the rate of ten per
centum to Oria, and there is much force in the contention of counsel for Oria at least to
extent that under all the circumstances, it was the duty of Song Fo & Co. to insure the
vessel if they could. But there is nothing in the record which would justify a holding that
Song Fo & Co. obligated themselves to insure the launch at all events. There is nothing
in the written contract, examined in the light of all the surrounding circumstances, which
justifies an inference that there was any thought in the mind of either of the parties that
the vendor of the launch would himself insure her against loss or damage during the
long period allowed for the payment of the purchase price; yet that substantially would
be the effect of the effect of the assumption of an obligation of an obligation to insure
and keep her insured at all events. On the contrary, the language of the contract, which
authorized Song Fo & Co. to take out insurance in their own name and to charge the
amount of the premium to Oria, when read in the light of the transaction of which it was
a part, imposed at most, a duty upon Song Fo & Co. to take such reasonable measures
looking to the insurance of the vessel as might be required of a prudent man in
connection with the insurance of his own property.

The undisputed evidence of record shows that Song Fo & Co. did in fact make a bona
fide attempt to insure the launch, and to that end did all in their power and adopted all
available means which could reasonably be required of them. It appears, however, that
partly due to the dangerous nature of the coast of Samar along which Oria desired to
operate the launch, and partly due to the some lack of confidence in the character and
reputation of the owner of the property for which application for insurance was made,
the local agents of the marine insurance companies declined to accept the risk without
previous communication within their foreign principals: and the launch was lost before
they could ascertain the wishes of these principals as to the execution of an insurance
contract. It appears also that Oria, who had exclusive control of the operation of the
vessel, sent her from Manila to Samar on the trip in the course of which she was
shipwrecked, well knowing that she had not yet been insured: and that Song Fo & Co.
had no power to interfere, or to keep her in port pending their application for insurance.
Indeed it is evident that under the terms of the deed of sale, they would not have had
the right to detain the vessel in a place of safety, against the wishes of Oria, had the
insurance agents definitely declined their insurance proposals.
Under these circumstances we are of opinion and so hold that Song Fo & Co. were in no
wise responsible under the contract for the loss of the launch without insurance and that
the contentions of the defendant in this regard furnish no defense to the action against
him for the purchase agreed upon in the deed of sale.

Coming now to examine the contentions of the plaintiffs on their appeal, we think that
the trial judge erred in declining to render judgment in their favor for the total amount
of the purchase price of the launch. He appears to have relied upon the provisions of
article 1125 of the Civil Code but to have overlooked the co-related provisions of article
1129 of the same code.

These articles are as follows:itc-a1f

1125. Obligations, the fulfillment of which has been fixed for a certain day, are
exigible only when such day arrives.

By a certain day is understood one which shall necessarily arrive, even when the
date of arrival is unknown.

When the uncertainty consists in the arrival or non-arrival of the day, then the
obligations is conditional and shall be controlled by the proceeding section.

1129. The debtor shall lose all right to profit by the term:

1. When, after the obligation has been contracted, it appears that he is insolvent,
unless he gives security for the debt.

2. When he does not give to the creditor the security he is bound to give.

3. When by his own acts, he acts, he has reduced such security after giving it, or
when it disappears through an unforeseen event (vis major), unless it is
immediately substituted by a new one equally safe.

The security for the payment of the purchase price of the launch itself having
disappeared as a result of an unforeseen event (vis major), and no other security having
been substituted therefor, the plaintiffs were clearly entitled to recover judgment not
only for the installments of the indebtedness due under the terms of the contract at the
time when the instituted their action, but also for all installments which, but for the loss
of the vessel had not matured at that time.

The judgment entered in the court below should be modified by substituting for so much
thereof as provides for the recovery by the plaintiff of P6,000 together with interest of
November 1911, a provision for the recovery of P16,500 together with interest at the
rate of ten per centum per annum, from the 15th day of November, 1911, and thus
modified, the judgment appealed from should be affirmed with the costs of this instance
against the appellant. So ordered.
G.R. No. L-21263             April 30, 1965

LAWYERS COOPERATIVE PUBLISHING COMPANY, plaintiff-appellee, 

vs.
PERFECTO A. TABORA, defendant-appellant.

Paredes, Poblador, Cruz and Nazareno for plaintiff-appellee.

Tabora and Concon for defendant-appellant.

BAUTISTA ANGELO, J.:

On May 3, 1955, Perfecto A. Tabora bought from the Lawyers Cooperative Publishing
Company one complete set of American Jurisprudence consisting of 48 volumes with
1954 pocket parts, plus one set of American Jurisprudence, General Index, consisting of
4 volumes, for a total price of P1,675.50 which, in addition to the cost of freight of
P6.90, makes a total of P1,682.40. Tabora made a partial payment of P300.00, leaving a
balance of P1,382.40. The books were duly delivered and receipted for by Tabora on
May 15, 1955 in his law office Ignacio Building, Naga City.

In the midnight of the same date, however, a big fire broke out in that locality which
destroyed and burned all the buildings standing on one whole block including at the law
office and library of Tabora As a result, the books bought from the company as above
stated, together with Tabora's important documents and papers, were burned during the
conflagration. This unfortunate event was immediately reported by Tabora to the
company in a letter he sent on May 20, 1955. On May 23, the company replied and as a
token of goodwill it sent to Tabora free of charge volumes 75, 76, 77 and 78 of the
Philippine Reports. As Tabora failed to pay he monthly installments agreed upon on the
balance of the purchase price notwithstanding the long time that had elapsed, the
company demanded payment of the installments due, and having failed, to pay the
same, it commenced the present action before the Court of First Instance of Manila for
the recovery of the balance of the obligation. Plaintiff also prayed that defendant be
ordered to pay 25% of the amount due as liquidated damages, and the cost of action.

Defendant, in his answer, pleaded force majeure as a defense. He alleged that the

books bought from the plaintiff were burned during the fire that broke out in Naga City
on May 15, 1955, and since the loss was due to force majeure he cannot be held
responsible for the loss. He prayed that the complaint be dismissed and that he be
awarded moral damages in the amount of P15,000.00.

After due hearing, the court a quo rendered judgment for the plaintiff. It ordered the
defendant to pay the sum of P1,382.40, with legal interest thereon from the filing of the
complaint, plus a sum equivalent to 25% of the total amount due as liquidated
damages, and the cost of action.

Defendant took the case to the Court of Appeals, but the same is now before us by
virtue of a certification issued by that Court that the case involves only questions of law.

Appellant bought from appellee one set of American Jurisprudence, including one set of
general index, payable on installment plan. It was provided in the contract that "title to
and ownership of the books shall remain with the seller until the purchase price shall
have been fully paid. Loss or damage to the books after delivery to the buyer shall be
borne by the buyer." The total price of the books, including the cost of freight, amounts
to P1,682.40. Appellant only made a down payment of P300.00 thereby leaving a
balance of P1,382.40. This is now the import of the present action aside from liquidated
damages.

Appellant now contends that since it was agreed that the title to and the ownership of
the books shall remain with the seller until the purchase price shall have been fully paid,
and the books were burned or destroyed immediately after the transaction, appellee
should be the one to bear the loss for, as a result, the loss is always borne by the
owner. Moreover, even assuming that the ownership of the books were transferred to
the buyer after the perfection of the contract the latter should not answer for the loss
since the same occurred through force majeure. Here, there is no evidence that
appellant has contributed in any way to the occurrence of the conflagration.1äwphï1.ñët

This contention cannot be sustained. While as a rule the loss of the object of the
contract of sale is borne by the owner or in case of force majeure the one under
obligation to deliver the object is exempt from liability, the application of that rule does
not here obtain because the law on the contract entered into on the matter argues
against it. It is true that in the contract entered into between the parties the seller
agreed that the ownership of the books shall remain with it until the purchase price shall
have been fully paid, but such stipulation cannot make the seller liable in case of loss
not only because such was agreed merely to secure the performance by the buyer of his
obligation but in the very contract it was expressly agreed that the "loss or damage to
the books after delivery to the buyer shall be borne by the buyer." Any such stipulation
is sanctioned by Article 1504 of our Civil Code, which in part provides:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the
buyer, in pursuance of the contract and the ownership in the goods has been
retained by the seller merely to secure performance by the buyer of his obligations
under the contract, the goods are at the buyer's risk from the time of such
delivery.

Neither can appellant find comfort in the claim that since the books were destroyed by
fire without any fault on his part he should be relieved from the resultant obligation
under the rule that an obligor should be held exempt from liability when the loss occurs
thru a fortuitous event. This is because this rule only holds true when the obligation
consists in the delivery of a determinate thing and there is no stipulation holding him
liable even in case of fortuitous event. Here these qualifications are not present. The
obligation does not refer to a determinate thing, but is pecuniary in nature, and the
obligor bound himself to assume the loss after the delivery of the goods to him. In other
words, the obligor agreed to assume any risk concerning the goods from the time of
their delivery, which is an exception to the rule provided for in Article 1262 of our Civil
Code.

Appellant likewise contends that the court a quo erred in sentencing him to pay
attorney's fees. This is merely the result of a misapprehension for what the court a
quo ordered appellant to pay is not 25% of the amount due as attorney's fees, but as
liquidated damages, which is in line with an express stipulation of the contract. We
believe, however, that the appellant should not be made to pay any damages because
his denial to pay the balance of the account is not due to bad faith.

WHEREFORE, the decision appealed from is modified by eliminating that portion which
refers to liquidated damages. No costs.

G.R. No. L-46306             October 27, 1939

LEVY HERMANOS, INC., plaintiff-appellant, 

vs.
LAZARO BLAS GERVACIO, defendant-appellee.

Felipe Caniblas for appellant.

Abreu, Lichaucco and Picazo for appellee.

MORAN, J.:

On February 9-4, 1938, plaintiff filed a complaint in the Court of First Instance of Manila,
which substantially recites the following facts:

On March 10, 1937, plaintiff Levy Hermanos, Inc., sold to defendant Lazaro Blas
Gervacio, a Packard car. Defendant, after making the initial payment, executed a
promissory note for the balance of P2,400, payable on or before June 15, 1937, with
interest at 12 per cent per annum, to secure the payment of the note, he mortgaged the
car to the plaintiff. Defendant failed to pay the note it its maturity. Wherefore, plaintiff
foreclosed the mortgage and the car was sold at public auction, at which plaintiff was
the highest bidder for P1,800. The present action is for the collection of the balance of
P1,600 and interest.
Defendant admitted the allegations of the complaint, and with this admission, the parties
submitted the case for decision. The lower court applied, the provisions of Act No. 4122,
inserted as articles 1454-A of the Civil Code, and rendered judgment in favor of the
defendant. Plaintiff appealed.

Article 1454-A of the Civil Code reads as follows:

In a contract for the sale of personal property payable in installments shall confer
upon the vendor the right to cancel the sale or foreclose the mortgage if one has
been given on the property, without reimbursement to the purchaser of the
installments already paid, if there be an agreement to this effect.

However, if the vendor has chosen to foreclose the mortgage he shall have no
further action against the purchaser for the recovery of any unpaid balance owing
by the same and any agreement to the contrary shall be null and void.

In Macondray and Co. vs. De Santos (33 Off. Gaz., 2170), we held that "in order to
apply the provisions of article 1454-A of the Civil Code it must appear that there was a
contract for the sale of personal property payable in installments and that there has
been a failure to pay two or more installments." The contract, in the instant case, while
a sale of personal property, is not, however, one on installments, but on straight term,
in which the balance, after payment of the initial sum, should be paid in its totality at
the time specified in the promissory note. The transaction is not is not, therefore, the
one contemplated in Act No. 4122 and accordingly the mortgagee is not bound by the
prohibition therein contained as to the right to the recovery of the unpaid balance.

Undoubtedly, the law is aimed at those sales where the price is payable in several
installments, for, generally, it is in these cases that partial payments consist in relatively
small amounts, constituting thus a great temptation for improvident purchasers to buy
beyond their means. There is no such temptation where the price is to be paid in cash,
or, as in the instant case, partly in cash and partly in one term, for, in the latter case,
the partial payments are not so small as to place purchasers off their guard and delude
them to a miscalculation of their ability to pay. The oretically, perhaps, there is no
difference between paying the price in tow installments, in so far as the size of each
partial payment is concerned; but in actual practice the difference exists, for, according
to the regular course of business, in contracts providing for payment of the price in two
installments, there is generally a provision for initial payment. But all these
considerations are immaterial, the language of the law being so clear as to require no
construction at all.lâwphi1.nêt

The suggestion that the cash payment made in this case should be considered as an
installment in order to bring the contract sued upon under the operation of the law, is
completely untenable. A cash payment cannot be considered as a payment by
installment, and even if it can be so considered, still the law does not apply, for it
requires non-payment of two or more installments in order that its provisions may be
invoked. Here, only one installment was unpaid.

Judgment is reversed, and the defendant-appellee is hereby sentenced to pay plaintiff-

appellant the sum of P1,600 with interest at the rate of 12 per cent per annum from
June 15, 1937, and the sum of P52.08 with interest at the rate of 6 per cent from the
date of the filing of the complaint, with costs in both instances against the appellee.
G.R. No. 83851. March 3, 1993.

VISAYAN SAWMILL COMPANY, INC., and ANG TAY, petitioners, vs. THE
HONORABLE COURT OF APPEALS and RJH TRADING, represented by RAMON J.
HIBIONADA, proprietor, respondents.

Saleto J. Erames and Edilberto V. Logronio for petitioners.

Eugenio O. Original for private respondent.

SYLLABUS

1. CIVIL LAW; CONTRACT TO SELL; EFFECT OF VENDEE'S FAILURE TO COMPLY WITH

POSITIVE SUSPENSIVE CONDITION; CASE AT BAR. — The petitioner corporation's
obligation to sell is unequivocally subject to a positive suspensive condition, i.e., the
private respondent's opening, making or indorsing of an irrevocable and unconditional
letter of credit. The former agreed to deliver the scrap iron only upon payment of the
purchase price by means of an irrevocable and unconditional letter of credit. Otherwise
stated, the contract is not one of sale where the buyer acquired ownership over the
property subject to the resolutory condition that the purchase price would be paid after
delivery. Thus, there was to be no actual sale until the opening, making or indorsing of
the irrevocable and unconditional letter of credit. Since what obtains in the case at bar is
a mere promise to sell, the failure of the private respondent to comply with the positive
suspensive condition cannot even be considered a breach — casual or serious — but
simply an event that prevented the obligation of petitioner corporation to convey title
from acquiring binding force. In Luzon Brokerage Co., Inc. vs. Maritime Building Co.,
Inc., this Court stated: ". . . The upshot of all these stipulations is that in seeking the
ouster of Maritime for failure to pay the price as agreed upon, Myers was not rescinding
(or more properly, resolving) the contract, but precisely enforcing it according to its
express terms. In its suit Myers was not seeking restitution to it of the ownership of the
thing sold (since it was never disposed of), such restoration being the logical
consequence of the fulfillment of a resolutory condition, express or implied (Article
1190); neither was it seeking a declaration that its obligation to sell was extinguished.
What it sought was a judicial declaration that because the suspensive condition (full and
punctual payment) had not been fulfilled, its obligation to sell to Maritime never arose or
never became effective and, therefore, it (Myers) was entitled to repossess the property
object of the contract, possession being a mere incident to its right of ownership. It is
elementary that, as stated by Castan, -- 'b) Si la condicion suspensiva llega a faltar, la
obligacion se tiene por no existente, y el acreedor pierde todo derecho, incluso el de
utilizar las medidas conservativas.'(3 Castan, Derecho Civil, 7a Ed., p. 107). (Also Puig
Peña, Der. Civ., T. IV (1), p. 113).'"

2. ID.; ID.; ID.; RESCISSION. — The obligation of the petitioner corporation to sell did
not arise; it therefore cannot be compelled by specific performance to comply with its
prestation. In short, Article 1191 of the Civil Code does not apply; on the contrary,
pursuant to Article 1597 of the Civil Code, the petitioner corporation may totally rescind,
as it did in this case, the contract. Said Article provides: "ART. 1597. Where the goods
have not been delivered to the buyer, and the buyer has repudiated the contract of sale,
or has manifested his inability to perform his obligations, thereunder, or has committed
a breach thereof, the seller may totally rescind the contract of sale by giving notice of
his election so to do to the buyer."

3. ID.; ID.; IN CASE AT BAR, VENDOR'S CONSENT TO DIGGING UP AND GATHERING OF

SCRAP IRON NOT CONSTRUED AS DELIVERY THEREOF; REASONS THEREFOR. —
Paragraph 6 of the Complaint reads: "6. That on May 17, 1983 Plaintiff with the consent
of defendant Ang Tay sent his men to the stockyard of Visayan Sawmill Co., Inc. at
Cawitan, Sta. Catalina, Negros Oriental to dig and gather the scrap iron and stock the
same for weighing." This permission or consent can, by no stretch of the imagination, be
construed as delivery of the scrap iron in the sense that, as held by the public
respondent, citing Article 1497 of the Civil Code, petitioners placed the private
respondent in control and possession thereof. In the first place, said Article 1497 falls
under the Chapter Obligations of the Vendor, which is found in Title VI (Sales), Book IV
of the Civil Code. As such, therefore, the obligation imposed therein is premised on an
existing obligation to deliver the subject of the contract. In the instant case, in view of
the private respondent's failure to comply with the positive suspensive condition earlier
discussed, such an obligation had not yet arisen. In the second place, it was a mere
accommodation to expedite the weighing and hauling of the iron in the event that the
sale would materialize. The private respondent was not thereby placed in possession of
and control over the scrap iron. Thirdly, We cannot even assume the conversion of the
initial contract or promise to sell into a contract of sale by the petitioner corporation's
alleged implied delivery of the scrap iron because its action and conduct in the premises
do not support this conclusion. Indeed, petitioners demanded the fulfillment of the
suspensive condition and eventually cancelled the contract.

4. ID.; CONTRACTS; DAMAGES; MORAL DAMAGES; PURPOSE OF AWARD THEREOF;

EXEMPLARY DAMAGES. — In contracts, such as in the instant case, moral damages may
be recovered if defendants acted fraudulently and in bad faith, while exemplary
damages may only be awarded if defendants acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner. In the instant case, the refusal of the petitioners to
deliver the scrap iron was founded on the non-fulfillment by the private respondent of a
suspensive condition. It cannot, therefore, be said that the herein petitioners had acted
fraudulently and in bad faith or in a wanton, reckless, oppressive or malevolent manner.
What this Court stated in Inhelder Corp. vs. Court of Appeals needs to be stressed
anew: "At this juncture, it may not be amiss to remind Trial Courts to guard against the
award of exhorbitant (sic) damages that are way out of proportion to the environmental
circumstances of a case and which, time and again, this Court has reduced or
eliminated. Judicial discretion granted to the Courts in the assessment of damages must
always be exercised with balanced restraint and measured objectivity." For, indeed,
moral damages are emphatically not intended to enrich a complainant at the expense of
the defendant. They are awarded only to enable the injured party to obtain means,
diversion or amusements that will serve to obviate the moral suffering he has
undergone, by reason of the defendant's culpable action. Its award is aimed at the
restoration, within the limits of the possible, of the spiritual status quo ante, and it must
be proportional to the suffering inflicted.

ROMERO, J., dissenting:

1. CIVIL LAW; CONTRACT OF SALE; DEFINED; WHEN PERFECTED; CASE AT BAR. —

Article 1458 of the Civil Code has this definition: "By 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 to pay therefor a price certain in money or its
equivalent." Article 1475 gives the significance of this mutual undertaking of the parties,
thus: "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." Thus, when the parties entered into the contract
entitled "Purchase and Sale of Scrap Iron" on May 1, 1983, the contract reached the
stage of perfection, there being a meeting of the' minds upon the object which is the
subject matter of the contract and the price which is the consideration. Applying Article
1475 of the Civil Code, from that moment, the parties may reciprocally demand
performance of the obligations incumbent upon them, i.e., delivery by the vendor and
payment by the vendee.

2. ID.; ID.; DELIVERY; HOW ACCOMPLISHED; CASE AT BAR. — From the time the seller
gave access to the buyer to enter his premises, manifesting no objection thereto but
even sending 18 or 20 people to start the operation, he has placed the goods in the
control and possession of the vendee and delivery is effected. For according to Article
1497, "The thing sold shall be understood as delivered when it is placed in the control
and possession of the vendee." Such action or real delivery (traditio) is the act that
transfers ownership. Under Article 1496 of the Civil Code, "The ownership of the thing
sold is acquired by the vendee from the moment it is delivered to him in any of the ways
specified in Articles 1497 to 1501, or in any other manner signifying an agreement that
the possession is transferred from the vendor to the vendee."

3. ID.; ID.; PROVISION IN CONTRACT REGARDING MODE OF PAYMENT NOT ESSENTIAL

REQUISITE THEREOF; WHEN PROVISION CONSIDERED A SUSPENSIVE CONDITION. — a
provision in the contract regarding the mode of payment, like the requirement for the
opening of the Letter of Credit in this case, is not among the essential requirements of a
contract of sale enumerated in Articles 1305 and 1474, the absence of any of which will
prevent the perfection of the contract from happening. Likewise, it must be emphasized
that not every provision regarding payment should automatically be classified as a
suspensive condition. To do so would change the nature of most contracts of sale into
contracts to sell. For a provision in the contract regarding the payment of the price to be
considered a suspensive condition, the parties must have made this clear in certain and
unambiguous terms, such as for instance, by reserving or withholding title to the goods
until full payment by the buyer. This was a pivotal circumstance in the Luzon Brokerage
case where the contract in question was replete with very explicit provisions such as the
following: "Title to the properties subject of this contract remains with the Vendor and
shall pass to, and be transferred in the name of the Vendee only upon complete
payment of the full price . . .;" 10 the Vendor (Myers) will execute and deliver to the
Vendee a definite and absolute Deed of Sale upon full payment of the Vendee . . .; and
"should the Vendee fail to pay any of the monthly installments, when due, or otherwise
fail to comply with any of the terms and conditions herein stipulated, then this Deed of
Conditional Sale shall automatically and without any further formality, become null and
void." It is apparent from a careful reading of Luzon Brokerage, as well as the cases
which preceded it and the subsequent ones applying its doctrines, that the mere
insertion of the price and the mode of payment among the terms and conditions of the
agreement will not necessarily make it a contract to sell. The phrase in the contract "on
the following terms and conditions" is standard form which is not to be construed as
imposing a condition, whether suspensive or resolutory, in the sense of the happening of
a future and uncertain event upon which an obligation is made to depend. There must
be a manifest understanding that the agreement is in what may be referred to as
"suspended animation" pending compliance with provisions regarding payment. The
reservation of title to the object of the contract in the seller is one such manifestation.
Hence, it has been decided in the case of Dignos v. Court of Appeals that, absent a
proviso in the contract that the title to the property is reserved in the vendor until full
payment of the purchase price or a stipulation giving the vendor the right to unilaterally
rescind the contract the moment the vendee fails to pay within the fixed period, the
transaction is an absolute contract of sale and not a contract to sell.

4. ID.; ID.; CONTRACT OF SALE DISTINGUISHED FROM CONTRACT TO SELL; EFFECT OF

NON-PAYMENT OF PURCHASE PRICE; EFFECT OF DELIVERY ON OWNERSHIP OF OBJECT
OF CONTRACT. — In a contract of sale, the non-payment of the price is a resolutory
condition which extinguishes the transaction that, for a time, existed and discharges the
obligations created thereunder. On the other hand, "the parties may stipulate that
ownership in the thing shall not pass to the purchaser until he has fully paid the price."
In such a contract to sell, the full payment of the price is a positive suspensive
condition, such that in the event of non-payment, the obligation of the seller to deliver
and transfer ownership never arises. Stated differently, in a contract to sell, ownership is
not transferred upon delivery of property but upon full payment of the purchase price.
Consequently, in a contract of sale, after delivery of the object of the contract has been
made, the seller loses ownership and cannot recover the same unless the contract is
rescinded. But in the contract to sell, the seller retains ownership and the buyer's failure
to pay cannot even be considered a breach, whether casual or substantial, but an event
that prevented the seller's duty to transfer title to the object of the contract.

5. ID.; ID.; CASE OF SYCIP V. NATIONAL COCONUT CORPORATION, ET AL., G.R. NO. L-
6618, APRIL 28, 1956, DISTINGUISHED FROM CASE AT BAR. — Worthy of mention
before concluding is Sycip v. National Coconut Corporation, et al. since, like this case, it
involves a failure to open on time the Letter of Credit required by the seller. In Sycip,
after the buyer offered to buy 2,000 tons of copra, the seller sent a telegram dated
December 19, 1946 to the buyer accepting the offer but on condition that the latter
opens a Letter of Credit within 48 hours. It was not until December 26, 1946, however,
that the Letter of Credit was opened. The Court, speaking through Justice Bengzon, held
that because of the delay in the opening of the Letter of Credit; the seller was not
obliged to deliver the goods. Two factors distinguish Sycip from the case at bar. First,
while there has already been a perfected contract of sale in the instant case, the parties
in Sycip were still undergoing the negotiation process. The seller's qualified acceptance
in Sycip served as a counter offer which prevented the contract from being perfected.
Only an absolute and unqualified acceptance of a definite offer manifests the consent
necessary to perfect a contract. Second, the Court found in Sycip that time was of the
essence for the seller who was anxious to sell to other buyers should the offeror fail to
open the Letter of Credit within the stipulated time. In contrast, there are no indicia in
this case that can lead one to conclude that time was of the essence for petitioner as
would make the eleven-day delay a fundamental breach of the contract.

6. ID.; OBLIGATIONS AND CONTRACTS; RESCISSION UNDER ARTICLE 1191 OF THE

CIVIL CODE; WHEN PROPER; DELAY IN PAYMENT FOR TWENTY DAYS NOT CONSIDERED
A SUBSTANTIAL BREACH OF CONTRACT; CASE AT BAR. — The right to rescind pursuant
to Article 1191 is not absolute. Rescission will not be permitted for slight or casual
breach of the contract. Here, petitioners claim that the breach is so substantial as to
justify rescission . . . I am not convinced that the circumstances may be characterized
as so substantial and fundamental as to defeat the object of the parties in making the
agreement. None of the alleged defects in the Letter of Credit would serve to defeat the
object of the parties. It is to be stressed that the purpose of the opening of a Letter of
Credit is to effect payment. The above-mentioned factors could not have prevented such
payment. It is also significant to note that petitioners sent a telegram to private
respondents on May 23, 1983 cancelling the contract. This was before they had even
received on May 26, 1983 the notice from the bank about the opening of the Letter of
Credit. How could they have made a judgment on the materiality of the provisions of the
Letter of Credit for purposes of rescinding the contract even before setting eyes on said
document? To be sure, in the contract, the private respondents were supposed to open
the Letter of Credit on May 15, 1983 but, it was not until May 26, 1983 or eleven (11)
days later that they did so. Is the eleven-day delay a substantial breach of the contract
as could justify the rescission of the contract? In Song Fo and Co. v. Hawaiian-Philippine
Co., it was held that a delay in payment for twenty (20) days was not a violation of an
essential condition of the contract which would warrant rescission for non-performance.
In the instant case, the contract is bereft of any suggestion that time was of the
essence. On the contrary, it is noted that petitioners allowed private respondents' men
to dig and remove the scrap iron located in petitioners' premises between May 17, 1983
until May 30, 1983 or beyond the May 15, 1983 deadline for the opening of the Letter of
Credit. Hence, in the absence of any indication that the time was of the essence, the
eleven-day delay must be deemed a casual breach which cannot justify a rescission.

DECISION

DAVIDE, JR., J p:

By this petition for review under Rule 45 of the Rules of Court, petitioners urge this
Court to set aside the decision of public respondent Court of Appeals in C.A.-G.R. CV No.
08807, 1 promulgated on 16 March 1988, which affirmed with modification, in respect to
the moral damages, the decision of the Regional Trial Court (RTC) of Iloilo in Civil Case
No. 15128, an action for specific performance and damages, filed by the herein private
respondent against the petitioners. The dispositive portion of the trial court's decision
reads as follows:

"IN VIEW OF THE ABOVE FINDINGS, judgment is hereby rendered in favor of plaintiff
and against the defendants ordering the latter to pay jointly and severally plaintiff, to
wit:

1) The sum of Thirty-Four Thousand Five Hundred Eighty Three and 16/100
(P34,583.16), as actual damages;

2) The sum of One Hundred Thousand (P100,000.00) Pesos, as moral damages;

3) The sum of Ten Thousand (P10,000.00) Pesos, as exemplary damages;

4) The sum of TWENTY Five Thousand (P25,000.00) Pesos, as attorney's fees; and

5) The sum of Five Thousand (P5,000.00) Pesos as actual litis expenses." 2

The public respondent reduced the amount of moral damages to P25,000.00.

The antecedent facts, summarized by the public respondent, are as follows:

"On May 1, 1983, herein plaintiff-appellee and defendants-appellants entered into a sale
involving scrap iron located at the stockyard of defendant-appellant corporation at
Cawitan, Sta. Catalina, Negros Oriental, subject to the condition that plaintiff-appellee
will open a letter of credit in the amount of P250,000.00 in favor of defendant-appellant
corporation on or before May 15, 1983. This is evidenced by a contract entitled
`Purchase and Sale of Scrap Iron' duly signed by both parties.

On May 17, 1983, plaintiff-appellee through his man (sic), started to dig and gather and
(sic) scrap iron at the defendant-appellant's (sic) premises, proceeding with such
endeavor until May 30 when defendants-appellants allegedly directed plaintiff-appellee's
men to desist from pursuing the work in view of an alleged case filed against plaintiff-
appellee by a certain Alberto Pursuelo. This, however, is denied by defendants-
appellants who allege that on May 23, 1983, they sent a telegram to plaintiff-appellee
cancelling the contract of sale because of failure of the latter to comply with the
conditions thereof.

On May 24, 1983, plaintiff-appellee informed defendants-appellants by telegram that the

letter of credit was opened May 12, 1983 at the Bank of the Philippine Islands main
office in Ayala, but then (sic) the transmittal was delayed.

On May 26, 1983, defendants-appellants received a letter advice from the Dumaguete
City Branch of the Bank of the Philippine Islands dated May 26, 1983, the content of
which is quited (sic) as follows:

'Please be advised that we have received today cable advise from our Head Office which
reads as follows:

'Open today our irrevocable Domestic Letter of Credit No. 01456-d fot (sic) P250,000.00
favor ANG TAY c/o Visayan Sawmill Co., Inc. Dumaguete City, Negros Oriental Account
of ARMACO-MARSTEEL ALLOY CORPORATION 2nd Floor Alpap 1 Bldg., 140 Alfaro stp
(sic) Salcedo Village, Makati, Metro Manila Shipments of about 500 MT of assorted steel
scrap marine/heavy equipment expiring on July 24, 1983 without recourse at sight draft
drawn on Armaco Marsteel Alloy Corporation accompanied by the following documents:
Certificate of Acceptance by Armaco-Marsteel Alloy Corporation shipment from
Dumaguete City to buyer's warehouse partial shipment allowed/transhipment (sic) not
allowed'.

For your information'.

On July 19, 1983, plaintiff-appellee sent a series of telegrams stating that the case filed
against him by Pursuelo had been dismissed and demanding that defendants-appellants
comply with the deed of sale, otherwise a case will be filed against them.

In reply to those telegrams, defendants-appellants' lawyer, on July 20, 1983 informed

plaintiff-appellee's lawyer that defendant-appellant corporation is unwilling to continue
with the sale due to plaintiff-appellee's failure to comply with essential pre-conditions of
the contract.

On July 29, 1983, plaintiff-appellee filed the complaint below with a petition for
preliminary attachment. The writ of attachment was returned unserved because the
defendant-appellant corporation was no longer in operation and also because the scrap
iron as well as other pieces of machinery can no longer be found on the premises of the
corporation." 3

In his complaint, private respondent prayed for judgment ordering the petitioner
corporation to comply with the contract by delivering to him the scrap iron subject
thereof; he further sought an award of actual, moral and exemplary damages, attorney's
fees and the costs of the suit. 4

In their Answer with Counterclaim, 5 petitioners insisted that the cancellation of the
contract was justified because of private respondent's non-compliance with essential
pre-conditions, among which is the opening of an irrevocable and unconditional letter of
credit not later than 15 May 1983.

During the pre-trial of the case on 30 April 1984, the parties defined the issues to be
resolved; these issues were subsequently embodied in the pre-trial order, to wit:

"1. Was the contract entitled Purchase and Sale of Scrap Iron, dated May 1, 1983
executed by the parties cancelled and terminated before the Complaint was filed by
anyone of the parties; if so, what are the grounds and reasons relied upon by the
cancelling parties; and were the reasons or grounds for cancelling valid and justified?
2. Are the parties entitled to damages they respectively claim under the pleadings?" 6

On 29 November 1985, the trial court rendered its judgment, the dispositive portion of
which was quoted earlier.

Petitioners appealed from said decision to the Court of Appeals which docketed the same
as C.A.-G.R. CV No. 08807. In their Brief, petitioners, by way of assigned errors, alleged
that the trial court erred:

"1. In finding that there was delivery of the scrap iron subject of the sale;

2. In not finding that plaintiff had not complied with the conditions in the contract of
sale;

3. In finding that defendants-appellants were not justified in cancelling the sale;

4. In awarding damages to the plaintiff as against the defendants-appellants;

5. In not awarding damages to defendants-appellants." 7

Public respondent disposed of these assigned errors in this wise:

"On the first error assigned, defendants-appellants argue that there was no delivery
because the purchase document states that the seller agreed to sell and the buyer
agreed to buy 'an undetermined quantity of scrap iron and junk which the seller will
identify and designate.' Thus, it is contended, since no identification and designation was
made, there could be no delivery. In addition, defendants-appellants maintain that their
obligation to deliver cannot be completed until they furnish the cargo trucks to haul the
weighed materials to the wharf.

The arguments are untenable. Article 1497 of the Civil Code states:

'The thing sold shall be understood as delivered when it is placed in the control and
possession of the vendee.'

In the case at bar, control and possession over the subject matter of the contract was
given to plaintiff-appellee, the buyer, when the defendants-appellants as the sellers
allowed the buyer and his men to enter the corporation's premises and to dig-up the
scrap iron. The pieces of scrap iron then (sic) placed at the disposal of the buyer.
Delivery was therefore complete. The identification and designation by the seller does
not complete delivery.

On the second and third assignments of error, defendants-appellants argue that under
Articles 1593 and 1597 of the Civil Code, automatic rescission may take place by a mere
notice to the buyer if the latter committed a breach of the contract of sale.

Even if one were to grant that there was a breach of the contract by the buyer,
automatic rescission cannot take place because, as already (sic) stated, delivery had
already been made. And, in cases where there has already been delivery, the
intervention of the court is necessary to annul the contract.

As the lower court aptly stated:

'Respecting these allegations of the contending parties, while it is true that Article 1593
of the New Civil Code provides that with respect to movable property, the rescission of
the sale shall of right take place in the interest of the vendor, if the vendee fails to
tender the price at the time or period fixed or agreed, however, automatic rescission is
not allowed if the object sold has been delivered to the buyer (Guevarra vs. Pascual, 13
Phil. 311; Escueta vs. Pando, 76 Phil 256), the action being one to rescind judicially and
where (sic) Article 1191, supra, thereby applies. There being already an implied delivery
of the items, subject matter of the contract between the parties in this case, the
defendant having surrendered the premises where the scraps (sic) were found for
plaintiff's men to dig and gather, as in fact they had dug and gathered, this Court finds
the mere notice of resolution by the defendants untenable and not conclusive on the
rights of the plaintiff (Ocejo Perez vs. Int. Bank, 37 Phi. 631). Likewise, as early as in
the case of Song Fo vs. Hawaiian Philippine Company, it has been ruled that rescission
cannot be sanctioned for a slight or casual breach (47 Phil. 821).'

In the case of Angeles vs. Calasanz (135 (1935) SCRA 323), the Supreme Court ruled:

'Article 1191 is explicit. In reciprocal obligations, either party has the right to rescind the
contract upon failure of the other to perform the obligation assumed thereunder.

Of course, it must be understood that the right of a party in treating a contract as

cancelled or resolved on account of infractions by the other contracting party must be
made known to the other and is always provisional, being ever subject to scrutiny and
review by the proper court.'

Thus, rescission in cases falling under Article 1191 of the Civil Code is always subject to
review by the courts and cannot be considered final.

In the case at bar, the trial court ruled that rescission is improper because the breach
was very slight and the delay in opening the letter of credit was only 11 days.

'Where time is not of the essence of the agreement, a slight delay by one party in the
performance of his obligation is not a sufficient ground for rescission of the agreement.
Equity and justice mandates (sic) that the vendor be given additional (sic) period to
complete payment of the purchase price.' (Taguda vs. Vda. de Leon, 132 SCRA (1984),
722).'

There is no need to discuss the fourth and fifth assigned errors since these are merely
corollary to the first three assigned errors." 8

Their motion to reconsider the said decision having been denied by public respondent in
its Resolution of 4 May 1988, 9 petitioners filed this petition reiterating the
abovementioned assignment of errors.

There is merit in the instant petition.

Both the trial court and the public respondent erred in the appreciation of the nature of
the transaction between the petitioner corporation and the private respondent. To this
Court's mind, what obtains in the case at bar is a mere contract to sell or promise to
sell, and not a contract of sale.

The trial court assumed that the transaction is a contract of sale and, influenced by its
view that there was an "implied delivery" of the object of the agreement, concluded that
Article 1593 of the Civil Code was inapplicable; citing Guevarra vs. Pascual 10 and
Escueta vs. Pando, 11 it ruled that rescission under Article 1191 of the Civil Code could
only be done judicially. The trial court further classified the breach committed by the
private respondent as slight or casual, foreclosing, thereby, petitioners' right to rescind
the agreement.

Article 1593 of the Civil Code provides:

"ARTICLE 1593. With respect to movable property, the rescission of the sale shall of
right take place in the interest of the vendor, if the vendee, upon the expiration of the
period fixed for the delivery of the thing, should not have appeared to receive it, or,
having appeared, he should not have tendered the price at the same time, unless a
longer period has been stipulated for its payment."

Article 1191 provides:

"ARTICLE 1191. The power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period."

xxx xxx xxx

Sustaining the trial court on the issue of delivery, public respondent cites Article 1497 of
the Civil Code which provides:

"ARTICLE 1497. The thing sold shall be understood as delivered, when it is placed in the
control and possession of the vendee."

In the agreement in question, entitled PURCHASE AND SALE OF SCRAP IRON, 12 the
seller bound and promised itself to sell the scrap iron upon the fulfillment by the private
respondent of his obligation to make or indorse an irrevocable and unconditional letter of
credit in payment of the purchase price. Its principal stipulation reads, to wit:

xxx xxx xxx

"Witnesseth:

That the SELLER agrees to sell, and the BUYER agrees to buy, an undetermined quantity
of scrap iron and junk which the SELLER will identify and designate now at Cawitan, Sta.
Catalina, Negros Oriental, at the price of FIFTY CENTAVOS (P0.50) per kilo on the
following terms and conditions:

1. Weighing shall be done in the premises of the SELLER at Cawitan, Sta. Catalina, Neg.
Oriental.

2. To cover payment of the purchase price, BUYER will open, make or indorse an
irrevocable and unconditional letter of credit not later than May 15, 1983 at the
Consolidated Bank and Trust Company, Dumaguete City, Branch, in favor of the SELLER
in the sum of TWO HUNDRED AND FIFTY THOUSAND PESOS (P250,000.00), Philippine
Currency.

3. The SELLER will furnish the BUYER free of charge at least three (3) cargo trucks with
drivers, to haul the weighed materials from Cawitan to the TSMC wharf at Sta. Catalina
for loading on BUYER's barge. All expenses for labor, loading and unloading shall be for
the account of the BUYER.

4. SELLER shall be entitled to a deduction of three percent (3%) per ton as rust
allowance." (Emphasis supplied).

The petitioner corporation's obligation to sell is unequivocally subject to a positive

suspensive condition, i.e., the private respondent's opening, making or indorsing of an
irrevocable and unconditional letter of credit. The former agreed to deliver the scrap iron
only upon payment of the purchase price by means of an irrevocable and unconditional
letter of credit. Otherwise stated, the contract is not one of sale where the buyer
acquired ownership over the property subject to the resolutory condition that the
purchase price would be paid after delivery. Thus, there was to be no actual sale until
the opening, making or indorsing of the irrevocable and unconditional letter of credit.
Since what obtains in the case at bar is a mere promise to sell, the failure of the private
respondent to comply with the positive suspensive condition cannot even be considered
a breach — casual or serious — but simply an event that prevented the obligation of
petitioner corporation to convey title from acquiring binding force. In Luzon Brokerage
Co., Inc. vs. Maritime Building Co., Inc., 13 this Court stated:

" . . . The upshot of all these stipulations is that in seeking the ouster of Maritime for
failure to pay the price as agreed upon, Myers was not rescinding (or more properly,
resolving) the contract, but precisely enforcing it according to its express terms. In its
suit Myers was not seeking restitution to it of the ownership of the thing sold (since it
was never disposed of), such restoration being the logical consequence of the fulfillment
of a resolutory condition, express or implied (article 1190); neither was it seeking a
declaration that its obligation to sell was extinguished. What it sought was a judicial
declaration that because the suspensive condition (full and punctual payment) had not
been fulfilled, its obligation to sell to Maritime never arose or never became effective
and, therefore, it (Myers) was entitled to repossess the property object of the contract,
possession being a mere incident to its right of ownership. It is elementary that, as
stated by Castan, —

'b) Si la condicion suspensiva llega a faltar, la obligacion se tiene por no existente, y el

acreedor pierde todo derecho, incluso el de utilizar las medidas conservativas.' (3 Cast
n, Derecho Civil, 7a Ed., p. 107). (Also Puig Peña, Der. Civ., T. IV (1), p. 113)'."

In the instant case, not only did the private respondent fail to open, make or indorse an
irrevocable and unconditional letter of credit on or before 15 May 1983 despite his
earlier representation in his 24 May 1983 telegram that he had opened one on 12 May
1983, the letter of advice received by the petitioner corporation on 26 May 1983 from
the Bank of the Philippine Islands Dumaguete City branch explicitly makes reference to
the opening on that date of a letter of credit in favor of petitioner Ang Tay c/o Visayan
Sawmill Co. Inc., drawn without recourse on ARMACO-MARSTEEL ALLOY CORPORATION
and set to expire on 24 July 1983, which is indisputably not in accordance with the
stipulation in the contract signed by the parties on at least three (3) counts: (1) it was
not opened, made or indorsed by the private respondent, but by a corporation which is
not a party to the contract; (2) it was not opened with the bank agreed upon; and (3) it
is not irrevocable and unconditional, for it is without recourse, it is set to expire on a
specific date and it stipulates certain conditions with respect to shipment. In all
probability, private respondent may have sold the subject scrap iron to ARMACO-
MARSTEEL ALLOY CORPORATION, or otherwise assigned to it the contract with the
petitioners. Private respondent's complaint fails to disclose the sudden entry into the
picture of this corporation.

Consequently, the obligation of the petitioner corporation to sell did not arise; it
therefore cannot be compelled by specific performance to comply with its prestation. In
short, Article 1191 of the Civil Code does not apply; on the contrary, pursuant to Article
1597 of the Civil Code, the petitioner corporation may totally rescind, as it did in this
case, the contract. Said Article provides:

"ARTICLE 1597. Where the goods have not been delivered to the buyer, and the buyer
has repudiated the contract of sale, or has manifested his inability to perform his
obligations, thereunder, or has committed a breach thereof, the seller may totally
rescind the contract of sale by giving notice of his election so to do to the buyer."

The trial court ruled, however, and the public respondent was in agreement, that there
had been an implied delivery in this case of the subject scrap iron because on 17 May
1983, private respondent's men started digging up and gathering scrap iron within the
petitioner's premises. The entry of these men was upon the private respondent's
request. Paragraph 6 of the Complaint reads:

"6. That on May 17, 1983 Plaintiff with the consent of defendant Ang Tay sent his men
to the stockyard of Visayan Sawmill Co., Inc. at Cawitan, Sta. Catalina, Negros Oriental
to dig and gather the scrap iron and stock the same for weighing." 14

This permission or consent can, by no stretch of the imagination, be construed as

delivery of the scrap iron in the sense that, as held by the public respondent, citing
Article 1497 of the Civil Code, petitioners placed the private respondent in control and
possession thereof. In the first place, said Article 1497 falls under the Chapter 15
Obligations of the Vendor, which is found in Title VI (Sales), Book IV of the Civil Code.
As such, therefore, the obligation imposed therein is premised on an existing obligation
to deliver the subject of the contract. In the instant case, in view of the private
respondent's failure to comply with the positive suspensive condition earlier discussed,
such an obligation had not yet arisen. In the second place, it was a mere
accommodation to expedite the weighing and hauling of the iron in the event that the
sale would materialize. The private respondent was not thereby placed in possession of
and control over the scrap iron. Thirdly, We cannot even assume the conversion of the
initial contract or promise to sell into a contract of sale by the petitioner corporation's
alleged implied delivery of the scrap iron because its action and conduct in the premises
do not support this conclusion. Indeed, petitioners demanded the fulfillment of the
suspensive condition and eventually cancelled the contract.

All told, Civil Case No. 15128 filed before the trial court was nothing more than the
private respondent's preemptive action to beat the petitioners to the draw.

One last point. This Court notes the palpably excessive and unconscionable moral and
exemplary damages awarded by the trial court to the private respondent despite a clear
absence of any legal and factual basis therefor. In contracts, such as in the instant case,
moral damages may be recovered if defendants acted fraudulently and in bad faith, 16
while exemplary damages may only be awarded if defendants acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner. 17 In the instant case, the
refusal of the petitioners to deliver the scrap iron was founded on the non-fulfillment by
the private respondent of a suspensive condition. It cannot, therefore, be said that the
herein petitioners had acted fraudulently and in bad faith or in a wanton, reckless,
oppressive or malevolent manner. What this Court stated in Inhelder Corp. vs. Court of
Appeals 18 needs to be stressed anew:

"At this juncture, it may not be amiss to remind Trial Courts to guard against the award
of exhorbitant (sic) damages that are way out of proportion to the environmental
circumstances of a case and which, time and again, this Court has reduced or
eliminated. Judicial discretion granted to the Courts in the assessment of damages must
always be exercised with balanced restraint and measured objectivity."

For, indeed, moral damages are emphatically not intended to enrich a complainant at
the expense of the defendant. They are awarded only to enable the injured party to
obtain means, diversion or amusements that will serve to obviate the moral suffering he
has undergone, by reason of the defendant's culpable action. Its award is aimed at the
restoration, within the limits of the possible, of the spiritual status quo ante, and it must
be proportional to the suffering inflicted. 19

WHEREFORE, the instant petition is GRANTED. The decision of public respondent Court
of Appeals in C.A.-G.R. CV No. 08807 is REVERSED and Civil Case No. 15128 of the
Regional Trial Court of Iloilo is ordered DISMISSED.

Costs against the private respondent.

SO ORDERED.

Narvasa, C .J ., Cruz, Feliciano, Padilla, Bidin and Bellosillo, JJ ., concur.

Gutierrez, Jr., J ., On terminal leave.

Melo and Quiason, JJ ., No part.

Separate Opinions

ROMERO, J., dissenting:

I vote to dismiss the petition.

Petitioner corporation, Visayan Sawmill Co., Inc., entered into a contract on May 1, 1983
with private respondent RJH Trading Co. represented by private respondent Ramon J.
Hibionada. The contract, entitled "PURCHASE AND SALE OF SCRAP IRON," stated:

This contract for the Purchase and Sale of Scrap Iron, made and executed at Dumaguete
City, Phil., this 1st day of May, 1983 by and between:

VISAYAN SAWMILL CO., INC., . . . hereinafter called the SELLER, and

RAMON J. HIBIONADA, . . . hereinafter called the BUYER,

witnesseth:

That the SELLER agrees to sell, and the BUYER agrees to buy, an undetermined quantity
of scrap iron and junk which the SELLER will identify and designate now at Cawitan, Sta.
Catalina, Negros Oriental, at the price of FIFTY CENTAVOS (P.50) per kilo on the
following terms and conditions:

1. Weighing shall be done in the premises of the SELLER at Cawitan, Sta. Catalina,
Negros Oriental.

2. To cover payment of the purchase price BUYER will open, make or indorse an
irrevocable and unconditional letter of credit not later than May 15, 1983 at the
Consolidated Bank and Trust Company, Dumaguete City Branch, in favor of the SELLER
in the sum of TWO HUNDRED AND FIFTY THOUSAND PESOS (P250,000.00), Philippine
currency.

3. The SELLER will furnish the BUYER free of charge at least three (3) cargo trucks with
drivers, to haul the weighed materials from Cawitan to the TSMC wharf at Sta. Catalina
for loading on BUYER'S barge. All expenses for labor, loading and unloading shall be for
the account of the BUYER.

4. SELLER shall be entitled to a deduction of three percent (3%) per ton as rust
allowance.

xxx xxx xxx

On May 17, 1983, the workers of private respondents were allowed inside petitioner
company's premises in order to gather the scrap iron. However, on May 23, 1983,
petitioner company sent a telegram which stated:

"RAMON HIBIONADA

RJH TRADING

286 QUEZON STREET

ILOILO CITY

DUE YOUR FAILURE TO COMPLY WITH CONDITIONS BEFORE DEADLINE OUR CONTRACT
FOR PURCHASE SCRAP IRON CANCELLED

VISAYAN SAWMILL CO., INC."

Hibionada wired back on May 24, 1983 the following:

"ANG TAY VISAYAN SAWMILL

DUMAGUETE CITY
LETTER OF CREDIT AMOUNTING P250,000.00 OPENED MAY 12, 1983 BANK OF PI MAIN
OFFICE AYALA AVENUE MAKATI METRO MANILA BUT TRANSMITTAL IS DELAYED PLEASE
CONSIDER REASON WILL PERSONALLY FOLLOW-UP IN MANILA THANKS REGARDS.

RAMON HIBIONADA"

On May 26, 1983, petitioner company received the following advice from the Dumaguete
City Branch of The Bank of Philippine Islands: cdll

"Opened today our Irrevocable Domestic Letter of Credit 2-01456-4 for P250,000.00 in
favor ANG TAY c/o Visayan Sawmill Co., Inc. Dumaguete City Negros Oriental Account of
ARMACO-MARSTEEL ALLOW (sic) CORPORATION 2nd Floor Alpap 1 Bldg., 140 Alfaro st.
Salcedo Village Makati Metro Manila Shipments of about 500 MT of assorted steel scrap
marine/heavy equipment expiring on July 23, 1983 without recourse at slight draft
drawn on Armaco-Marsteel Alloy Corporation accompanied by the following documents:
Certificate of acceptance by Armaco-Marsteel Allow (sic) Corporation shipment from
Dumaguete City to buyer's warehouse partial shipment allowed/transhipment not
allowed."

Subsequently, petitioners' counsel sent another telegram to private respondents stating

that:

"VISAYAN SAWMILL COMPANY UNWILLING TO CONTINUE SALE OF SCRAP IRON TO

HIBIONADA DUE TO NON COMPLIANCE WITH ESSENTIAL PRE CONDITIONS"

Consequently, private respondents filed a complaint for specific performance and

damages with the Regional Trial Court (RTC) of Iloilo (Branch XXXV) which decided in
favor of private respondents. The RTC decision having been affirmed by the Court of
Appeals, the present petition was filed.

Finding the petition meritorious, the ponencia reversed the decision of the Court of
Appeals. Based on its appreciation of the contract in question, it has arrived at the
conclusion that herein contract is not a contract of sale but a contract to sell which is
subject to a positive suspensive condition, i.e., the opening of a letter of credit by
private respondents. Since the condition was not fulfilled, the obligation of petitioners to
convey title did not arise. The lengthy decision of Luzon Brokerage Co., Inc. v. Maritime
Co. Inc. 1 penned by Justice J.B.L. Reyes, was cited as authority on the assumption that
subject contract is indeed a contract to sell but which will be shown herein as not quite
accurate.

Evidently, the distinction between a contract to sell and a contract of sale is crucial in
this case. Article 1458 of the Civil Code has this definition: "By 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 to pay therefor a price certain in money or its
equivalent."

Article 1475 gives the significance of this mutual undertaking of the parties, thus: "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."

Thus, when the parties entered into the contract entitled "Purchase and Sale of Scrap
Iron" on May 1, 1983, the contract reached the stage of perfection, there being a
meeting of the' minds upon the object which is the subject matter of the contract and
the price which is the consideration. Applying Article 1475 of the Civil Code, from that
moment, the parties may reciprocally demand performance of the obligations incumbent
upon them, i.e., delivery by the vendor and payment by the vendee.

Petitioner, in its petition, admits that "[b]efore the opening of the letter of credit, buyer
Ramon Hibionada went to Mr. Ang Tay and informed him that the letter of credit was
forthcoming and if it was possible for him (buyer) to start cutting and digging the scrap
iron before the letter of credit arrives and the former (seller) manifested no objection,
and he immediately sent 18 or 20 people to start the operation." 2

From the time the seller gave access to the buyer to enter his premises, manifesting no
objection thereto but even sending 18 or 20 people to start the operation, he has placed
the goods in the control and possession of the vendee and delivery is effected. For
according to Article 1497, "The thing sold shall be understood as delivered when it is
placed in the control and possession of the vendee." 3

Such action or real delivery (traditio) is the act that transfers ownership. Under Article
1496 of the Civil Code, "The ownership of the thing sold is acquired by the vendee from
the moment it is delivered to him in any of the ways specified in Articles 1497 to 1501,
or in any other manner signifying an agreement that the possession is transferred from
the vendor to the vendee."

That payment of the price in any form was not yet effected is immaterial to the transfer
of the right of ownership. In a contract of sale, the non-payment of the price is a
resolutory condition which extinguishes the transaction that, for a time, existed and
discharges the obligations created thereunder. 4

On the other hand, "the parties may stipulate that ownership in the thing shall not pass
to the purchaser until he has fully paid the price." 5 In such a contract to sell, the full
payment of the price is a positive suspensive condition, such that in the event of non-
payment, the obligation of the seller to deliver and transfer ownership never arises.
Stated differently, in a contract to sell, ownership is not transferred upon delivery of
property but upon full payment of the purchase price. 6

Consequently, in a contract of sale, after delivery of the object of the contract has been
made, the seller loses ownership and cannot recover the same unless the contract is
rescinded. But in the contract to sell, the seller retains ownership and the buyer's failure
to pay cannot even be considered a breach, whether casual or substantial, but an event
that prevented the seller's duty to transfer title to the object of the contract.

At the outset, it must be borne in mind that a provision in the contract regarding the
mode of payment, like the requirement for the opening of the Letter of Credit in this
case, is not among the essential requirements of a contract of sale enumerated in
Articles 1305 7 and 1474, 8 the absence of any of which will prevent the perfection of
the contract from happening. Likewise, it must be emphasized that not every provision
regarding payment should automatically be classified as a suspensive condition. To do so
would change the nature of most contracts of sale into contracts to sell. For a provision
in the contract regarding the payment of the price to be considered a suspensive
condition, the parties must have made this clear in certain and unambiguous terms,
such as for instance, by reserving or withholding title to the goods until full payment by
the buyer. 9 This was a pivotal circumstance in the Luzon Brokerage case where the
contract in question was replete with very explicit provisions such as the following: "Title
to the properties subject of this contract remains with the Vendor and shall pass to, and
be transferred in the name of the Vendee only upon complete payment of the full
price . . .;" 10 the Vendor (Myers) will execute and deliver to the Vendee a definite and
absolute Deed of Sale upon full payment of the Vendee . . .; 11 and "should the Vendee
fail to pay any of the monthly installments, when due, or otherwise fail to comply with
any of the terms and conditions herein stipulated, then this Deed of Conditional Sale
shall automatically and without any further formality, become null and void." 12

It is apparent from a careful reading of Luzon Brokerage, as well as the cases which
preceded it 13 and the subsequent ones applying its doctrines, 14 that the mere
insertion of the price and the mode of payment among the terms and conditions of the
agreement will not necessarily make it a contract to sell. The phrase in the contract "on
the following terms and conditions" is standard form which is not to be construed as
imposing a condition, whether suspensive or resolutory, in the sense of the happening of
a future and uncertain event upon which an obligation is made to depend. There must
be a manifest understanding that the agreement is in what may be referred to as
"suspended animation" pending compliance with provisions regarding payment. The
reservation of title to the object of the contract in the seller is one such manifestation.
Hence, it has been decided in the case of Dignos v. Court of Appeals 15 that, absent a
proviso in the contract that the title to the property is reserved in the vendor until full
payment of the purchase price or a stipulation giving the vendor the right to unilaterally
rescind the contract the moment the vendee fails to pay within the fixed period, the
transaction is an absolute contract of sale and not a contract to sell. 16

In the instant case, nowhere in the contract did it state that the petitioners reserve title
to the goods until private respondents have opened a letter of credit. Nor is there any
provision declaring the contract as without effect until after the fulfillment of the
condition regarding the opening of the letter of credit.

Examining the contemporaneous and subsequent conduct of the parties, which may be
relevant in the determination of the nature and meaning of the contract, 17 it is
significant that in the telegram sent by petitioners to Hibionada on May 23, 1983, it
stated that "DUE [TO] YOUR FAILURE TO COMPLY WITH CONDITIONS BEFORE
DEADLINE OUR CONTRACT FOR PURCHASE SCRAP IRON CANCELLED." And in some of
the pleadings in the course of this litigation, petitioners referred to the transaction as a
contract of sale. 18

In light of the provisions of the contract, contemporaneous and subsequent acts of the
parties and the other relevant circumstances surrounding the case, it is evident that the
stipulation for the buyer to open a Letter of Credit in order to cover the payment of the
purchase price does not bear the marks of a suspensive condition. The agreement
between the parties was a contract of sale and the "terms and conditions" embodied
therein which are standard form, are clearly resolutory in nature, the breach of which
may give either party the option to bring an action to rescind and/or seek damages.
Contrary to the conclusions arrived at in the ponencia, the transaction is not a contract
to sell but a contract of sale.

However, the determination of the nature of the contract does not settle the
controversy. A breach of the contract was committed and the rights and liabilities of the
parties must be established. The ponencia, notwithstanding its conclusion that no
contract of sale existed, proceeded to state that petitioner company may rescind the
contract based on Article 1597 of the Civil Code which expressly applies only to a
contract of sale. It provides:

"ARTICLE 1597. Where the goods have not been delivered to the buyer, and the buyer
has repudiated the contract of sale, or has manifested his inability to perform his
obligations, thereunder, or has committed a breach thereof, the seller may totally
rescind the contract of sale by giving notice of his election so to do to the buyer."
(Emhasis supplied).

The ponencia was then confronted with the issue of delivery since Article 1597 applies
only "[w]here the goods have not yet been delivered." In this case, as aforestated, the
workers of private respondents were actually allowed to enter the petitioners' premises,
thus, giving them control and possession of the goods. At this juncture, it is even
unnecessary to discuss the issue of delivery in relation to the right of rescission nor to
rely on Article 1597. In every contract which contains reciprocal obligations, the right to
rescind is always implied under Article 1191 of the Civil Code in case one of the parties
fails to comply with his obligations. 19

The right to rescind pursuant to Article 1191 is not absolute. Rescission will not be
permitted for slight or casual breach of the contract. 20 Here, petitioners claim that the
breach is so substantial as to justify rescission, not only because the Letter of Credit was
not opened on May 15, 1983 as stipulated in the contract but also because of the
following factors: (1) the Letter of Credit, although opened in favor of petitioners was
made against the account of a certain Marsteel Alloy Corporation, instead of private
respondent's account; (2) the Letter of Credit referred to "assorted steel scrap" instead
of "scrap iron and junk" as provided in the contract; (3) the Letter of Credit placed the
quantity of the goods at "500 MT" while the contract mentioned "an undetermined
quantity of scrap iron and junk"; (4) no amount from the Letter of Credit will be released
unless accompanied by a Certificate of Acceptance; and (5) the Letter of Credit had an
expiry date.

I am not convinced that the above circumstances may be characterized as so substantial

and fundamental as to defeat the object of the parties in making the agreement. 21
None of the alleged defects in the Letter of Credit would serve to defeat the object of the
parties. It is to be stressed that the purpose of the opening of a Letter of Credit is to
effect payment. The above-mentioned factors could not have prevented such payment.
It is also significant to note that petitioners sent a telegram to private respondents on
May 23, 1983 cancelling the contract. This was before they had even received on May
26, 1983 the notice from the bank about the opening of the Letter of Credit. How could
they have made a judgment on the materiality of the provisions of the Letter of Credit
for purposes of rescinding the contract even before setting eyes on said document?

To be sure, in the contract, the private respondents were supposed to open the Letter of
Credit on May 15, 1983 but, it was not until May 26, 1983 or eleven (11) days later that
they did so. Is the eleven-day delay a substantial breach of the contract as could justify
the rescission of the contract?

In Song Fo and Co. v. Hawaiian-Philippine Co. 22 it was held that a delay in payment for
twenty (20) days was not a violation of an essential condition of the contract which
would warrant rescission for non-performance. In the instant case, the contract is bereft
of any suggestion that time was of the essence. On the contrary, it is noted that
petitioners allowed private respondents' men to dig and remove the scrap iron located in
petitioners' premises between May 17, 1983 until May 30, 1983 or beyond the May 15,
1983 deadline for the opening of the Letter of Credit. Hence, in the absence of any
indication that the time was of the essence, the eleven-day delay must be deemed a
casual breach which cannot justify a rescission.

Worthy of mention before concluding is Sycip v. National Coconut Corporation, et al. 23

since, like this case, it involves a failure to open on time the Letter of Credit required by
the seller. In Sycip, after the buyer offered to buy 2,000 tons of copra, the seller sent a
telegram dated December 19, 1946 to the buyer accepting the offer but on condition
that the latter opens a Letter of Credit within 48 hours. It was not until December 26,
1946, however, that the Letter of Credit was opened. The Court, speaking through
Justice Bengzon, held that because of the delay in the opening of the Letter of Credit;
the seller was not obliged to deliver the goods.

Two factors distinguish Sycip from the case at bar. First, while there has already been a
perfected contract of sale in the instant case, the parties in Sycip were still undergoing
the negotiation process. The seller's qualified acceptance in Sycip served as a counter
offer which prevented the contract from being perfected. Only an absolute and
unqualified acceptance of a definite offer manifests the consent necessary to perfect a
contract. 24 Second, the Court found in Sycip that time was of the essence for the seller
who was anxious to sell to other buyers should the offeror fail to open the Letter of
Credit within the stipulated time. In contrast, there are no indicia in this case that can
lead one to conclude that time was of the essence for petitioner as would make the
eleven-day delay a fundamental breach of the contract.

In sum, to my mind, both the trial court and the respondent Court of Appeals committed
no reversible error in their appreciation of the agreement in question as a contract of
sale and not a contract to sell, as well as holding that the breach of the contract was not
substantial and, therefore, petitioners were not justified in law in rescinding the
agreement.

PREMISES CONSIDERED, the Petition must be DISMISSED and the decision of the Court
of Appeals AFFIRMED.
G.R. No. 106418 July 11, 1996

DANIEL L. BORBON II AND FRANCISCO L. BORBON, petitioners, 

vs.
SERVICEWIDE SPECIALISTS, INC. & HON. COURT OF APPEALS, respondents. 

VITUG, J.:p
From the decision of the Court of Appeals in CA-G.R. CV No. 30693 which affirmed
that of the Regional Trial Court, NCJR, Branch 39, Manila, in Civil Case No. 85-
29954, confirming the disputed possession of a motor vehicle in favor of private
respondent and ordering the payment to it by petitioners of liquidated damages
and attorney's fees, the instant appeal was interposed.

The appellate court adopted the factual findings of the court a quo, to wit:

The plaintiff's evidence shows among others that on December 7, 1984,

defendants Daniel L. Borbon and Francisco Borbon signed a promissory note
(Exh. A) which states among others as follows:

PROMISSORY NOTE

Acct. No. 115008276

Makati, Metro Manila,
Philippines
December 7, 1984

"P122,856.00

"For value received (installment price of the chattel/s purchased), I/We

jointly and severally promised to pay Pangasinan Auto Mart, Inc. or order, at
its office at NMI Bldg., Buendia Avenue, Makati, MM the sum of One Hundred
Twenty Two Thousand Eight Hundred Fifty Six only (P122,856.00), Philippine
Currency, to be payable without need or notice or demand, in installments of
the amounts following and at the dates hereinafter set forth, to wit:
P10,238.00 monthly for Twelve (12) months due and payable on the 7th day
of each month starting January, 1985, provided that at a late payment
charge of 3% per month shall be added on each unpaid installment from due
date thereof until fully paid.

xxx xxx xxx

"It is further agreed that if upon such default, attorney's services are availed
of, an additional sum, equal to twenty five percent (25%) of the total sum
due thereon, which shall not be less than five hundred pesos, shall be paid
to the holder hereof for attorney's fees plus an additional sum equivalent to
twenty five percent (25%) of the total sum due which likewise shall not be
less than five hundred pesos for liquidated damages, aside from expenses of
collection and the legal costs provided for in the Rules of Court.

"It is expressly agreed that all legal actions arising out of this note or in
connection with the chattel(s) subject hereof shall only be brought in or
submitted to the jurisdiction of the proper court either in the City of Manila
or in the province, municipality or city where the branch of the holder hereof
is located.

"Acceptance by the holder thereof of payment of any installment or any part

hereof of payment of any installment or any part thereof after due dated
(sic) shall not be considered as extending the time for the payment or any of
the conditions hereof. Nor shall the failure of the holder hereof to exercise
any of its right under this note constitute or be deemed as a waiver of such
rights.

"Maker:

(S/t) DANIEL L. BORBON, II

Address: 14 Colt St., Rancho Estate I,

Concepcion Dos, Marikina, MM
 (S/t) FRANCISCO BORBON

Address: 73 Sterling Life Home

Pamplona, Las Piñas, MM

WITNESSES

(illegible) (illegible)

———————— ————————

"PAY TO THE ORDER OF

FILINVEST CREDIT CORPORATION

without recourse, notice, presentment and

demand waived

PANGASINAN AUTO MART, INC.

BY:

(S/T) K.N. DULCE
Dealer"

To secure the Promissory Note, the defendants executed a Chattel mortgage

(Exh. B) on

"One (1) Brand new 1984 Isuzu

KCD 20 Crew Cab (Conv.)
Serial No. KCD20D0F 207685
Key No. 5509

(Exhs. A and B, p. 2 tsn, September 10, 1985)

The rights of Pangasinan Auto mart, Inc. was later assigned to Filinvest
Credit Corporation on December 10, 1984, with notice to the defendants
(Exh. C, p. 10, Record).

On March 21, 1985, Filinvest Credit Corporation assigned all its rights,
interest and title over the Promissory Note and the chattel mortgage to the
plaintiff (Exh. D; p. 3, tsn, Sept. 30, 1985).

The promissory note stipulates that the installment of P10,238.00 monthly

should be paid on the 7th day of each month starting January 1985, but the
defendants failed to comply with their obligation (p. 3, tsn, Sept. 30, 1985).

Because the defendants did not pay their monthly installments, Filinvest
demanded from the defendants the payment of their installments due in
January 29, 1985 by telegram (Exh. E; pp. 3-4, tsn, Sept. 30, 1985).

After the accounts were assigned to the plaintiff, the plaintiff attempted to
collect by sending a demand letter to the defendants for them to pay their
entire obligation which, as of March 12, 1985, totaled P185,257.80 (Exh. H;
pp. 3-4, tsn, Sept. 30, 1985).

For their defense, the defendants claim that what they intended to buy from
Pangasinan Auto mart was a jeepney type Isuzu K. C. Cab. The vehicle they
bought was not delivered (pp. 11-12, tsn, Oct. 17, 1985). Instead, through
misinterpretation and machination, the Pangasinan Motor Inc. delivered an
Isuzu crew cab, as this is the unit available at their warehouse. Later the
representative of Pangasinan Auto mart, Inc. (assignor) told the defendants
 that their available stock is an Isuzu Cab but minus the rear body, which the
defendants agreed to deliver with the understanding that the Pangasinan
Auto Mart, Inc. will refund the defendants the amount of P10,000.00 to have
the rear body completed (pp. 12-34, Exhs. 2 to 3-3A).

Despite communications with the Pangasinan Auto Mart, Inc. the latter was
not able to replace the vehicle until the vehicle delivered was seized by order
of this court. the defendants argue that an asignee stands in the place of an
assignor which, to the mind of the court, is correct. The asignee exercise all
the rights of the assignor (Gonzales vs. Rama Plantation Co., C.V. 08630,
Dec. 2, 1986).

The defendants further claim that they are not in default of their obligation
because the Pangasinan Auto Mart was first guilty of not fulfilling its
obligation in the contract. the defendants claim that neither party incurs
delay if the other does not comply with his obligation. (citing Art. 1169,
N.C.C.)1

In sustaining the decision of the court a quo, the appellate court ruled that the
petitioners could avoid liability under the promissory note and the chattel
mortgage that secured it since private respondent took the note for value and in
good faith.

In their appeal to this Court, petitioners merely seek a modification of the decision
of the appellate court insofar as it has upheld the court a quo in the award of
liquidated damages and attorney's fees in favor of private respondent. Petitioners
invoke the provisions of Article 1484 of the Civil Code which reads:

Art. 1484. In a contract of sale of personal property the price of which is

payable in installments, the vendor may exercise any of the following
remedies:

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

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

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

The remedies under Article 1484 of the Civil Code are not cumulative but
alternative and exclusive,2 which means, as so held in Nonato vs. Intermediate
Appellate Court and Investor's Finance Corporation, 3 that —

. . . Should the vendee or purchaser of a personal property default in the

payment of two or more of the agreed installments, the vendor or seller has
the option to avail of any of these three remedies — either to exact
fulfillment by the purchaser of the obligation, or to cancel the sale, or to
foreclose the mortgage on the purchased personal property, if one was
constituted. These remedies have been recognized as alternative, not
cumulative, that the exercise of on e would bar the exercise of the others. 4

When the seller assigns his credit to another person, the latter is likewise bound
by the same law. Accordingly, when the assignee forecloses on the mortgage,
there can be no further recovery of the deficiency, 5 and the seller-mortgagee is
deemed to have renounced any right thereto. 6 A contrario, in the event of the
seller-mortgagee first seeks, instead, the enforcement of the additional
mortgages, guarantees or other security arrangements, he must be then be held
to have lost by waiver or non-choice his lien on the chattel mortgage of the
personal property sold by and mortgaged back to him, although, similar to an
action for specific performance, he may still levy on it.

In ordinary alternative obligations, a mere choice categorically an unequivocally

made and then communicated by the person entitled to exercise the option
concludes the parties. The creditor may not thereafter exercise any other option,
unless the chosen alternative proves to be innefectual or unavailing due to no fault
on his part. This rule, in essence, is the difference between alternative obligations,
on the one hand, and alternative remedies, upon the other hand, where, in the
latter case, the choice generally becomes conclusive only upon the exercise of the
remedy. For instance, in one of the remedies expressed in Article 1484 of the Civil
Code, it is only when there has been a foreclosure of the chattel mortgage that the
vendee-mortgagor would be permitted to escape from a deficiency liability. Thus,
if the case is one for specific performance, even when this action is selected after
the vendee has refused to surrender the mortgaged property to permit an
extrajudicial foreclosure, that property may still be levied on execution and
an alias writ may be issued if the proceeds thereof are insufficient to satisfy the
judgment
credit.7 So, also, a mere demand to surrender the object which is not heeded by
the mortgagor will not amount to a foreclosure, 8 but the repossession thereof by
the vendor-mortgagee would have the effect of a foreclosure.

The parties here concede that the action for replevin has been instituted for the
foreclosure of the vehicle in question (now in the possession of private
respondent). The sole issue raised before us in this appeal is focused on the legal
propriety of the affirmance by the appellate court of the awards made by the
court a quoof liquidated damages and attorney's fees to private respondent.
Petitioners hold that under Article 1484 of the Civil Code, aforequoted, the vendor-
mortgagee or its assignees loses any right "to recover any unpaid balance of the
price" and any "agreement to the contrary (would be) void.

The argument is aptly made. In Macondray & Co. vs. Eustaquio, 9 we have said that
the phrase "any unpaid balance" can only mean the deficiency judgment to which
the mortgagee may be entitled to when the proceeds from the auction sale are
insufficient to cover the "full amount of the secured obligations which . . . include
interest on the principal, attorney's fees, expenses of collection, and the costs." In
sum, we have observed that the legislative intent is not to merely limit the
proscription of any further action to the "unpaid balance of the principal" but, as
so later ruled in Luneta Motor Co. vs. Salvador,  10 to all other claims that may be
likewise be called in for in the accompanying promissory note against the buyer-
mortgagor or his guarantor, including costs and attorney's fees.

In Filipinas Investment & Finance Corporation vs. Ridad  11 while we reiterated and
expressed our agreement on the basic philosophy behind Article 1484, we
stressed, nevertheless, that the protection given to the buyer-mortgagor should
not be considered to be without circumscription or as being preclusive of all other
laws or legal principles. Hence, borrowing from the examples made in Filipinas
Investment, where the mortgagor unjustifiably refused to surrender the chattel
subject of the mortgage upon failure of two or more installments, or if he
concealed the chattel to place it beyond the reach of the mortgagee, that thereby
constrained the latter to seek court relief, the expenses incurred for the
prosecution of the case, such as attorney's fees, could rightly be awarded.

Private respondent bewails the instant petition in that petitioners have failed to
specifically raise the issue on liquidated damages and attorney's fees stipulated in
the actionable documents. In several cases, we have ruled that as long as the
questioned items bear relevance and close relation to those specifically raised, the
interest of justice would dictate that they, too, must be considered and resolved
and that the rule that only theories raised in the initial proceedings may be taken
 up by a party thereto on appeal should only refer to independent, not concomitant
matters, to support or oppose the cause of action.12

Given the circumstances, we must strike down the award for liquidated damages
made by the court a quo but we uphold the grant of attorney's fees which we, like
the appellate court, find it to be reasonable. Parenthetically, while the promissory
note may appear to have been a negotiable instrument, private respondent,
however, clearly cannot claim unawareness of its accompanying documents so as
to thereby gain a right greater than that of the assignor.

WHEREFORE, the appealed decision is MODIFIED by deleting therefrom the award

for liquidated damages; in all other respects, the judgment of the appellate court
is AFFIRMED. No costs.

G.R. No. L-43683             July 16, 1937

MACONDRAY AND CO., INC., plaintiff-appellant, 
vs.
URBANO EUSTAQUIO, defendant-appellee.

Jose Agbulos for appellant.

Urbano Eustaquio in his own behalf.

IMPERIAL, J.:

This is an appeal taken by the plaintiff corporation from the judgment of the Court of
First Instance of Manila dismissing its complaint, without costs.

The plaintiff brought the action against the defendant to obtain the possession of an
automobile mortgaged by the latter, and to recover the balance owing upon a note
executed by him, the interest thereon, attorney's fees, expenses of collection, and the
costs. The defendant was duly summoned, but he failed to appear or file his answer,
wherefore he was declared in default and the appealed judgment was rendered
accordingly.

The plaintiff sold the defendant a De Soto car, Sedan, for the price of which, P595, he
executed in its favor the note of May 22, 1934. Under this note, the defendant
undertook to pay the car in twelve monthly installments, with 12 percent interest per
annum, and likewise agreed that, should he fail to pay any monthly installment together
with interest, the remaining installment would become due and payable, and the
defendant shall pay 20 per cent upon the principal owning as attorney's fees, expenses
of collection which the plaintiff might incur, and the costs. To guarantee the performance
of his obligation under the note, the defendant on the same date mortgaged the
purchased car in favor of the plaintiff, and bound himself under the same conditions
stipulated in the note relative to the monthly installments, interest, attorney's fees,
expenses of collection, and costs. The mortgage deed was registered on June 11, 1934,
in the office of the register of deeds of the Province of Rizal. On the 22d of the same
month, the defendant paid P43.75 upon the first installment, and thereafter failed to pay
any of the remaining installments. In accordance with the terms of the mortgage, the
plaintiff called upon the sheriff to take possession of the car, but the defendant refused
to yield possession thereof, whereupon, the plaintiff brought the replevin sought and
thereby succeeded in getting possession of the car. The car was sold at public auction to
the plaintiff for P250, the latter incurring legal expenses in the amount of P10.68,
According to the liquidation filed by the plaintiff, the defendant was still indebted in the
amount of P342.20, interest at 12 per cent from November 20, 1934, P110.25 as
attorney's fees, and the costs.

I. The plaintiff's first assignment of error is addressed to the appealed judgment in so far
as it applied Act No. 4122 and dismissed the complaint, notwithstanding the fact that
the defendant waived his rights under said law by not making any appearance, by
having been declared in default, by not interposing any special defense, and not asking
for any positive relief.

Under section 128 of our Civil Procedure, the judgment by default against a defendant
who has neither appeared nor filed his answer does not imply a waiver of right except
that of being heard and of presenting evidence in his favor. It does not imply admission
by the defendant of the facts and causes of action of the plaintiff, because the codal
section requires the latter to adduce his evidence in support of his allegation as an
indispensable condition before final judgment could be given in his favor. Nor could it be
interpreted as an admission by the defendant that the plaintiff's causes of action find
support in the law or that latter is entitled to the relief prayed for. (Chaffin vs. Mac
Fadden, 41 Ark., 42; Johnson vs. Peirce, 12 Ark., 599; Mayden vs. Johnson, 59 Ga.,
105; Peo. vs. Rust, 292 Ill., 412; Madison County vs. Smith, 95 Ill., 328; Keen vs.
Krempel, 166 Ill. A., 253.) For these reason, we hold that the defendant did not waive
the applicant by the court of Act No. 4122, and that the first assignment of error is
untenable.
II. The plaintiff contends in its second assignment of error that Act No. 4122 is invalid
because it takes property without due process of law, denies the equal protection of the
laws, and impairs the obligations of contract, thereby violating the provisions of section
3 of the Act of the United States Congress of August 29, 1916, known as the Jones Law.
This is not the first time that the constitutionality of the said law has been impugned for
like reasons. In Manila Trading and Supply Co. vs. Reyes (64 Phil. 461), the validity of
the said law was already passed upon when it was questioned for the same reason here
advanced. In resolving the question in favor of the validity of the law, we then held:
"2. Liberty of contract, class legislation, and equal protection of the laws. — The
question of the validity of an act is solely one of constitutional power. Questions of
expediency, of motive or of results are irrelevant. Nevertheless it is not improper to
inquire as to the occasion for the enactment of a law. The legislative purpose thus
disclosed can then serve as a fit background for constitution inquiry.

Judge Moran in fact instances had the following to say relative to the reason for
the enactment of Act No. 4122:

"Act No. 4122 aims to correct a social and economic evil, the inordinate love
for luxury of those who, without sufficient means, purchase personal effects,
and the ruinous practice of some commercial houses of purchasing back the
goods sold for a nominal price besides keeping a part of the price already
paid and collecting the balance, with stipulated interest, costs, and
attorney's fees. For instance, a company sells a truck for P6,500. The
purchaser makes a down payment of P500, the balance to be paid in twenty-
four equal installments of P250 each. Pursuant to the practice before the
enactment of Act No. 4122, if the purchaser fails to pay the first two
installments, the company takes possession of the truck and has it sold at
public auction at which sale it purchases the truck for a nominal price, at
most P500, without prejudice to its right to collect the balance of P5,500,
plus interest, costs. and attorney's fees. As a consequence, the vendor does
not only recover the goods sold, used hardly two months perhaps with only
slight wear and tear, but also collects the entire stipulated purchase price,
probably swelled up fifty per cent including interest, costs, and attorney's
fees. This practice is worse than usurious in many instances. And although,
of course, the purchaser must suffer the consequences of his imprudence
and lack of foresight, the chastisement must not be to the extent of ruining
him completely and, on the other hand, enriching the vendor in a manner
which shocks the conscience. The object of the law is highly commendable.
As to whether or not the means employed to do away with the evil above
mentioned are arbitrary will be presently set out."

In a case which reached this court, Mr. Justice Goddard, interpreting Act No. 4122,
made the following observations:

"Undoubtedly the principal object of the above amendment was to remedy

the abuses committed in connection with the foreclosure of chattel
mortgages. This amendment prevents mortgagees from seizing the
mortgaged property, buying it at foreclosure sale for a low price and then
bringing suit against the mortgagor for a deficiency judgment. The almost
invariable result of this procedure was that the mortgagor found himself
minus the property and still owing practically the full amount of his original
indebtedness. Under this amendment the vendor of personal property, the
purchase price of which is payable in installments, has the right to cancel the
sale or foreclose the mortgage if one has been given on the property.
Whichever right the vendor elects he need not return to the purchaser the
amount of the full installment already paid, "if there be an agreement to that
effect." Furthermore, if the vendor avails himself of the right from foreclose
the mortgage this amendment prohibits him from bringing an action against
the purchaser for the unpaid balance."
 "In other words, under this amendment, in all proceedings for the
foreclosure of chattel mortgages, executed on chattels which have been sold
on the installment plan, the mortgagee is limited to the property included in
the mortgage" (Bachrach Motor Co. vs. Millan [1935]. 61 Phil., 409.).

Public policy having thus had in view the objects just outlined, we should next
examine the law to determine if notwithstanding that policy, it violates any of the
constitutional principles dealing with the three general subjects here to be
considered.

In an effort to enlighten us, our attention has been directed to certain authorities,
principally one coming from the state of Washington and another from the State of
Oregon. For reason which will soon appear we do not think that either decision is
controlling.

In 1897, an Act was passed in the State of Washington which provided "that in all
proceedings for the foreclosure of mortgages hereafter executed or on judgments
rendered upon the debt thereby secured the mortgagee or assignee shall be
limited to the property included in the mortgage." It was held by a divided court of
three to two that the statute since limiting the right to enforce a debt secured by
mortgage to the property mortgaged whether realty or chattles, was an undue
restraint upon the liberty of a citizen to contract with respect to his property right.
But as is readily apparent, the Washington law and the Philippine law are radically
different in phraseology and in effect. (Dennis vs. Moses [1898], 40 L. R. A., 302.)

In Oregon, in a decision of a later date, an Act abolishing deficiency judgment

upon the foreclosure of mortgages to secure the unpaid balance of the purchase
price of real property was unanimously sustained by the Supreme Court of that
State. The importance of the subject matter in that jurisdiction was revealed by
the fact that four separate opinions were prepared by the justices participating, in
one of which Mr. Justice Johns, shortly thereafter to become a member of this
court, concurred. However, it is but fair state that one of the reasons prompting
the court to uphold the law was the financial depression which had prevailed in
that State. While in the Philippines the court take judicial notice of the stringency
of finance that presses upon the people we have no reason to believe that this was
the reason which motivated the enactment of Act 4122. (Wright vs. Wimberley
[1919], 184 Pac., 740.)

While we are on the subject of the authority, we may state that we have examined
all of those obtainable, including some of recent date but have not been
enlightened very much because as just indicated, they concerned different state of
facts and different laws. We gain the most help from the case of Bronzon vs.
Kinzie ([1843], 1 How., 311), decided by the Supreme Court of the United State.
It had under consideration a law passed in the State of Illinois, which provide that
the equitable estate of the mortgagor should not be extinguished for twelve
months after sale on decree, and which prevented any sale of the mortgaged
property unless two-thirds of the amount at which the property had been valued
by appraisers should be bid therefor. The court, by Mr. Chief Justice Taney
declared: "Mortgages made since the passage of these laws must undoubtedly be
governed by them; for every State has power to describe the legal and equitable
obligation of a contract to be made and executed within it jurisdiction. It may
exempt any property it thinks proper from sale for the payment of a debt; and
may imposed such conditions and restriction upon the creditor as its judgment and
policy may dictate. And all future contracts would be subject to such provisions;
and they would be obligatory upon the parties in the provisions; and they would
be obligatory upon the parties in the courts of the United States, as well as in
those of the state."

As we understand it, parties have no vested right in particular remedies or modes

of procedure, and the legislature may change existing remedies or modes of
procedure without impairing the obligation of contracts, provided an efficacious
 remedy for enforcement. But changes in the remedies available for the
enforcement of a mortgage may not, even when public policy is invoked as an
excuse, be pressed so far as to cut down the security of a mortgage without
moderation or reason or in a spirit of oppression. (Brotherhood of American
Yeoman vs. Manz [1922], 206 Pac., 403; Oshkosh Waterworks Co. vs. Oshkosh
[1908], 187 U. S., 437; W. B. Worthen Co. vs. Kavanaugh [1935], 79 U. S.
Supreme Court Advance Opinions, 638.)

In the Philippines, the Chattel Mortgage Law did not expressly provide for a
deficiency judgment upon the foreclosure of a mortgage. Indeed, it required
decisions of this court to authorize such a procedure. (Bank of the Philippine Island
vs. Olutanga Lumber Co., [1924], 47 Phil., 20; Manila Trading and Supply Co. vs.
Tamaraw Plantation Co., supra.) But the practice became universal enactment
regarding procedure. To a certain extent the Legislature has now disauthorized
this practice, but has left a sufficient remedy remaining.

Three remedies are available to the vendor who has sold personal property on the
installment plan. (1) He may elect to exact the fulfillment of the obligation.
(Bachrach Motor Co. vs. Milan, supra.) (2) If the vendee shall have failed to pay
two or more installments, the vendor may cancel the sale. (3) If the vendee shall
have failed to pay two or more installments, the vendor may foreclose the
mortgage, if one has been given on the property. The basis of the first option is
the Civil Code. The basis of the last two option is Act No. 4122, amendatory of the
Civil Code. And the proviso to the right to foreclose is, that if the vendor has
chosen this remedy, he shall have no further action against the purchaser for the
recovery of any unpaid balance owing by the same. In other words, as we see it,
the Act does no more than qualify the remedy.

Most constitutional issues are determined by the court's approach to them. The
proper approach in cases of this character should be to resolve all presumptions in
favor of the validity of an act in the absence of a clear conflict between it and the
constitution. All doubts should be resolved in its favor.

The controlling purpose of Act No. 4122 is revealed to be to close the door to
abuses committed in connection with the foreclosure of chattel mortgages when
sales were payable in installments. The public policy, obvious from the statute,
was defined and established by legislative authority. It is for the courts to
perpetuate it.

We are of the opinion that the Legislative may change judicial methods and
remedies for the enforcement of contracts, as it has done by the enactment of Act
No. 4122, without unduly interfering with the obligation of the contract, without
sanctioning class legislation, and without a denial of the equal protection of the
laws. We rule that Act No. 4122 is valid and enforceable. As a consequence, the
errors assigned by the appellant are overruled, and the judgment affirmed, the
costs of this instance to be taxed against the losing party.

In his brief counsel for the plaintiff advances no new arguments which have not already
been considered in the Reyes case, and we see no reason for reaching a different
conclusion now. The law seeks to remedy an evil which the Legislature wished to
suppress; this legislative body has power to promulgate the law; the law does not
completely deprive vendors on the installment basis of a remedy, but requires them to
elect among three alternative remedies; the law, on the other hand, does not completely
exonerate the purchasers, but only limits their liabilities and, finally, there is no vested
right when a procedural law is involved, wherefore the Legislature could enact Act No.
4122 without violating the aforesaid organic law.

III. In its last assignment of error plaintiff contends that, even granting that Act No.
4122 is valid, the court should have ordered the defendant to pay at least the stipulated
interest, attorney's fees, and the costs. This question involves the interpretation of the
pertinent portion of the law, reading: "However, if the vendor has chosen to foreclose
the mortgage he shall have no further action against the purchaser for the recovery of
any unpaid balance owing by the same, and any agreement to the contrary shall be null
and void." This paragraph, as its language shows, refers to the mortgage contract
executed by the parties, whereby the purchaser mortgages the chattel sold to him on
the installment basis in order to guarantee the payment of its price, and the words "any
unpaid balance" should be interpreted as having reference to the deficiency judgment to
which the mortgagee may be entitled where, after the mortgaged chattel is sold at
public auction, the proceeds obtained therefrom are insufficient to cover the full amount
of the secured obligations which, in the case at bar as shown by the note and by the
mortgage deed, include interest on the principal, attorney's fees, expenses of collection,
and the costs. The fundamental rule which should govern the interpretation of laws is to
ascertain the intention and meaning of the Legislature and to give effect thereto. (Sec.
288, Code of Civil Procedure; U. S. vs. Toribio, 15 Phil., 85; U. S. vs. Navarro, 19 Phil.,
134; De Jesus vs. City of Manila, 29 Phil., 73; Borromeo vs. Mariano, 41 Phil., 322;
People vs. Concepcion, 44 Phil., 126.) Were it the intention of the Legislature to limit its
meaning to the unpaid balance of the principal, it would have so stated. We hold,
therefore, that the assignment of error is untenable.

In view of the foregoing, the appealed judgment is affirmed, with the costs of this
instance to the plaintiff and appellant. So ordered.

G.R. No. L-27645      November 28, 1969

FILIPINAS INVESTMENT & FINANCE CORPORATION, plaintiff-appellee, 

vs.
LOURDES V. RIDAD and LUIS RIDAD, defendants-appellants.

Osmundo R. Victoriano for defendants-appellants.

Emilio B. Saunar for plaintiff-appellee.

CASTRO, J.:

Appeal by the spouses Lourdes V. Ridad and Luis Ridad from the decision of the Court of
First Instance of Manila in civil case 64288, a replevin suit, awarding to the appellee
Filipinas Investment and Finance Corporation the amount of P163.65 representing actual
expenses and P300 as attorney's fees.

The spouses Ridad bought from the Supreme Sales & Development Corporation, the
appellee's assignor-in-interest, a Ford Consul sedan for the total price of P13,371.40.
The sum of P1,160 was paid on delivery, the balance of P12,211.50 being payable in
twenty-four equal monthly installments, with interest at 12% per annum, secured by a
promissory note and a chattel mortgage on the car executed on March 19, 1964. The
spouses thereafter failed to pay five consecutive installments on a remaining balance of
P5,274.53. On October 13, 1965 the appellee instituted a replevin suit in the city court
of Manila for the seizure of the car (par. 7 of the complaint alleged "unjustifiable failure
and refusal of the defendants . . . to surrender possession of the . . . motor vehicle for
the purpose of foreclosure"), or the recovery of the unpaid balance in case delivery could
not be effected. The car was then seized by the sheriff of Manila and possession thereof
was awarded to the appellee. During the progress of the case, the appellee instituted
extrajudicial foreclosure proceedings, as a result of which, on December 22, 1965, the
car was sold at public auction with the appellee as the highest bidder and purchaser.

Meanwhile, in view of the failure of the defendants-spouses to appear at the scheduled

hearing of the case, allegedly due to non-receipt of the summons, they were declared in
default. The default judgment ordered them to pay to the appellee the sum of P500 as
attorney's fees, and P163.65 representing actual expenses relative to the seizure of the
car, plus costs.

Their motion to set aside his order of default and the decision having been denied, they
appealed to the Court of First Instance of Manila.

When the case was called for pre-trial, the CFI advanced the opinion that there was no
need for the parties to adduce evidence and that the case could be decided on the basis
of the pleadings submitted by the parties.

The trial court on September 5, 1966, rendered judgment for the appellee, as follows:

As stated in the pre-trial order of this Court dated May 27, 1966, the only issue
remaining to be resolved is whether the plaintiff is entitled to receive P500.00 as
attorney's fees and P163.65 for expenses incurred by the plaintiff in the seizure of
the car which was the object of the chattel mortgage executed by the defendants
in favor of the plaintiff.

Upon consideration of the circumstances of the case, the court holds that the
plaintiff is entitled to recover the amount of P163.65 which represents the
expenses incurred by the plaintiff in the seizure of the car involved in this case.

Considering that the plaintiff had recovered the car involved in the case while it is
still in the lower court, and considering further that the defendants did not resist
the case and the only question said defendants raised before this court is the
amount of attorney's fees, the court in the exercise of its equitable jurisdiction
reduces the attorney's fees granted to the plaintiff by the lower court to P300.00.

In this appeal, the appellants contend that the trial court erred: (1) in rendering a
decision which does not state the facts and the law on which it is based; (2) in
condemning the appellants to pay P300 for attorney's fees and P163.65 for expenses
incurred in the seizure of the car which was the object of the chattel mortgage executed
by them in favor of the appellee; and (3) in not dismissing the appellee's complaint.

1. We uphold the appellee's contention that the disputed decision of the lower court
complies substantially with the requirements of law because it referred to the pre-trial
order it issued on May 27, 1966 which contains substantial findings of facts. For
although settled is the doctrine that a decree with absolutely nothing to support it is a
nullity, the law, however, merely requires that a decision state the "essential ultimate
facts upon which the court's conclusion is drawn."1 There being an express reference to
the pre-trial order, the latter must be considered and taken as forming part of the
decision. The claim, therefore, that the judgment clearly transgresses the legal
precept2 because it does not state the facts of the case and the law on which it is based
and hence, is a nullity, finds no justification here.

2. The appellants theorize that the action of the appellee is for the payment of the
unpaid balance of the purchase price with a prayer for replevin. When, therefore, the
appellee seized the car, extrajudicially foreclosed the mortgage, had the vehicle sold,
and bought the same at public auction as the highest bidder, it thereby renounced any
and all rights which it might have under the promissory note as well as the payment of
the unpaid balance, and, consequently, what it would otherwise be entitled under and by
virtue of the present action, including attorney's fees and costs of suit, pursuant to
article 1484 of the new Civil Code.

On the other hand, the appellee maintains that it is entitled to an award of attorney's
fees and actual expenses and costs of suit by virtue of the unjustifiable failure and
refusal of the appellants to comply with their obligations (one of which is the surrender
of the chattel to the mortgagee upon the latter's demand), contending that what is
prohibited in art. 1484, par. 3 of the new Civil Code relied upon by the appellants is the
recovery of the unpaid balance of the purchase price by means of an action other than a
suit for replevin; that Luneta Motor Co. vs. Salvador, et al., (L-13373, July 26, 1960) is
inapplicable to the present case because the remedy sought in that case was in the
conjunctive and not in the alternative, such that, necessarily, when the appellee therein
foreclosed the mortgage on the motor vehicle during the progress of the action, the
other action for a sum of money had to be dismissed since the same could not prosper
as it would constitute a separate action for the recovery of the unpaid balance
contemplated in article 1484; and that in the present case, however, the court awarded
attorney's fees, costs of suit and expenses incurred in relation to the seizure of the
motor vehicle by virtue of the writ of replevin in the same action because the appellee
was compelled to institute the same on account of the appellants' unjustifiable failure
and refusal to comply with the former's demands.

The appellee further argues that the award of attorney's fees and the costs of suit
together with expenses incurred, was stipulated both in the promissory note and chattel
mortgage contract; that even in the absence of such stipulation, the award of attorney's
fees is discretionary on the part of the court pursuant to par. 2, art. 2208, new Civil
Code; and that the said award could likewise be made by the lower court on the basis of
the general prayer in the complaint for the award of whatever relief that the lower court
may deem just and equitable in the premises.

It is true that the present action is one for replevin, but because it culminated in the
foreclosure of the chattel mortgage and the sale of the car at public auction, it is our
view that the provisions of art. 1484 of the Civil Code (Recto Law) must govern the
resolution of the issue here presented.

This article recites that

In a contract of sale of personal property the price of which is payable in

installments, the vendor may exercise any of the following remedies:

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

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

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

This article was reproduced from the old art. 1454-A, which in turn was inserted by Act
4122 (Recto Law). "Three remedies are available to the vendor who has sold personal
property on the installment plan: (1) He may elect to exact the fulfillment of the
obligation. (Bachrach Motor Co. vs. Millan, 61 Phil. 409) (2) If the vendee shall have
failed to pay two or more installments, the vendor may cancel the sale. (3) If the
vendee shall have failed to pay two or more installments, the vendor may foreclose the
mortgage, if one has been given on the property. The basis of the first option is the Civil
Code. The basis of the last two options is Act 4122 (inserted in the Spanish Civil Code as
art. 4154-A and now reproduced in arts. 1484 and 1485), amendatory of the Civil Code.
And the proviso to the right to foreclose is that if the vendor has chosen this remedy, he
shall have no further action against the purchaser for the recovery of any unpaid
balance owing by the same. In other words, as we see it, the Act does no more than
qualify the remedy."3

The legal issue which is the core of the controversy in the case at bar was resolved
in Macondray & Co. vs. Eustaquio,4 as follows:

The plaintiff brought the action against the defendant to obtain the possession of
an automobile mortgaged by the latter, and to recover the balance owing upon a
note executed by him, the interest thereon, attorney's fees, expenses of collection,
and the costs. The defendant was duly summoned, but he failed to appear or file
 his answer, wherefore, he was declared in default and the appealed judgment was
rendered accordingly.

The plaintiff sold to the defendant a De Soto car, Sedan, for the price of which,
P595, he executed in its favor the note of May 22, 1934. Under this note, the
defendant undertook to pay the car in twelve monthly installments, with 12 per
cent interests per annum, and likewise agreed that, should he fail to pay any
monthly installment together with interest, the remaining installments would
become due and payable, and the defendant shall pay 20 per cent upon the
principal owing as attorney's fees, expenses of collection which the plaintiff might
incur, and the costs. To guarantee the performance of his obligations under the
note, the defendant on the same date mortgaged the purchased car in favor of the
plaintiff, and bound himself under the same conditions stipulated in the note
relative to the monthly installments, interest, attorney's fees, expenses of
collection, and costs. The mortgage deed was registered on June 11, 1934, in the
office of the register of deeds of the Province of Rizal. On the 22nd of the same
month, the defendant paid P43.75 upon the first installment, and thereafter failed
to pay any of the remaining installments. In accordance with the terms of the
mortgage, the plaintiff called upon the sheriff to take possession of the car, but
the defendant refused to yield possession thereof, whereupon, the plaintiff brought
the replevin sought and thereby succeeded in getting possession of the car. The
car was sold at public auction to the plaintiff for P250, the latter incurring legal
expenses in the amount of P10.68. According to the liquidation filed by the
plaintiff, the defendant was still indebted in the amount of P342.20, interest at 12
per cent from November 20, 1934, P110.25 as attorney's fees, and the costs.

xxx      xxx      xxx

In its last assignment of error plaintiff contends that even granting that Act No.
4122 is valid, the court should have ordered the defendant to pay at least the
stipulated interest, Attorney's fees and the costs. This question involves the
interpretation of the pertinent portion of the law, reading: "However, if the vendor
has chosen to foreclose the mortgage he shall have no further action against the
purchaser for the recovery of any unpaid balance owing by the same, and any
agreement to the contrary shall be null and void." This paragraph, as its language
shows, refers to the mortgage contract executed by the parties, whereby the
purchaser mortgages the chattel sold to him on the installment basis in order to
guarantee the payment of its price, and the words "any unpaid balance" should be
interpreted as having reference to the deficiency judgment to which the
mortgagee may be entitled where, after the mortgaged chattel is sold at public
auction, the proceeds obtained therefrom are insufficient to cover the full amount
of the secured obligations which, in the case at bar as shown by the note and by
the mortgage deed, include interest on the principal, attorney's fees, expenses of
collection, and the costs. The fundamental rule which should govern the
interpretation of laws is to ascertain the intention and meaning of the Legislature
and to give effect thereto. (Sec. 288, Code of Civil Procedure; U.S. vs. Toribio, 15
Phil. 85; U.S. vs. Navarro, 19 Phil. 134; De Jesus vs. City of Manila, 29 Phil. 73;
Borromeo vs. Mariano, 41 Phil. 322; People vs. Concepcion, 44 Phil. 126.) Were it
the intention of the Legislature to limit its meaning to the unpaid balance of the
principal, it would have so stated. We hold, therefore, that the assignment of error
is untenable. (emphasis supplied)

In other words, under this amendment as above interpreted, in all proceedings for the
foreclosure of a chattel mortgage, executed on chattels which have been sold on the
installment plan, the mortgagee is limited to the property mortgaged 5 and is not entitled
to attorney's fees and costs of suit.

In a subsequent case6 where the vendor in a sale of personal property in installments,

upon failure of the vendee to pay his obligations, the vendor commenced, through court
action, to recover the unpaid balance of the purchase price, but later, during the
progress of the action, foreclosed the chattel mortgage constituted on the property,
attorney's fees and costs of suit were denied to the vendor. There the Supreme Court
held:

Paragraph 3 of the above-quoted provision (article 1484, new Civil Code) is clear
that foreclosure of the chattel mortgage and recovery of the unpaid balance of the
price are alternative remedies and may not be pursued conjunctively. It appearing
in the case at bar that the vendor had already foreclosed the chattel mortgage
constituted on the property and had taken possession thereof, the lower court
acted rightly in dismissing the complaint filed for the purpose of recovering the
unpaid balance of the purchase price. By seizing the truck and foreclosing the
mortgage at the progress of the suit, the plaintiff renounced whatever claim it may
have had under the promissory note, and consequently, he has no more cause of
action against the promisor and the guarantor. And he has no more right either to
the costs and the attorney's fees that would go with the suit.

This might be considered a reiteration of the ruling in Macondray.

A scrutiny of the doctrine enunciated in the above-cited cases will reveal that its ultimate
and salutary purpose is to prevent the vendor from circumventing the Recto Law.
Congress sought to protect the buyers on installment who more often than not have
been victimized by sellers who, before the enactment of this law, succeeded in unjustly
enriching themselves at the expense of the buyers, because aside from recovering the
goods sold, upon default of the buyer in the payment of two installments, still retained
for themselves all amounts already paid, and in addition, were adjudged entitled to
damages, such as attorney's fees, expenses of litigation and costs. Congress could not
have intended to impair much less do away with, the right of the seller to make
commercial use of his credit against the buyer, provided the buyer is not burdened
beyond what this law allows.7

It would appear from the emphasis and precision of the language employed in the
decisions already adverted to that in no instance whatsoever may the mortgagee
recover from the mortgagor any amount or sum after the foreclosure of the mortgage,
for, as we understand it, the philosophy of the Recto Law is that the underprivileged
mortgagors must be afforded full protection against the rapacity of the mortgagees.

But while we unconditionally concur in, and give our approval to, the basic philosophy of
the Recto Law, we view with no small amount of circumspection the implication,
necessarily drawn from the above discussion, that the mortgagee is not entitled to
protection against perverse mortgagors. Where the mortgagor plainly refuses to deliver
the chattel subject of the mortgage upon his failure to pay two or more installments, or
if he conceals the chattel to place it beyond the reach of the mortgagee, what then is the
mortgagee expected to do? It is part of conventional wisdom and the rule of law that no
man can take the law into his own hands; so it is not to be supposed that the Legislature
intended that the mortgagee should wrest or seize the chattel forcibly from the control
and possession of the mortgagor, even to the extent of using violence which is
unwarranted in law. Since the mortgagee would enforce his rights through the means
and within the limits delineated by law, the next step in such situations being the filing
of an action for replevin to the end that he may recover immediate possession of the
chattel and, thereafter, enforce his rights in accordance with the contractual relationship
between him and the mortgagor as embodied in their agreement, then it logically follows
as a matter of common sense, that the necessary expenses incurred in the prosecution
by the mortgagee of the action for replevin so that he can regain possession of the
chattel, should be borne by the mortgagor. Recoverable expenses would, in our view,
include expenses properly incurred in effecting seizure of the chattel and reasonable
attorney's fees in prosecuting the action for replevin. And we declare that in this case
before us, the amounts awarded by the court a quo to the mortgagee (appellee) are
reasonable.

To the extent that our pronouncement here conflicts with the ruling announced and
followed in the cases hereinbefore discussed, the latter must be considered pro
tanto qualified.
ACCORDINGLY, the judgment a quo is affirmed. No costs.

G.R. No. L-23788               May 16, 1969

UNIVERSAL MOTORS CORPORATION, plaintiff-appellee, 

vs.
DY HIAN TAT, ET AL., defendants, 
DY HIAN TAT, defendant-appellant.

Teehankee and Carreon for plaintiff-appellee.

Camacho and Bañez for defendant-appellant.

BARREDO, J.:

Appeal from the decision of the Court of First Instance of Manila in an action of replevin,
Civil Case No. 55211 of said court, the dispositive part of which reads thus:

IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is hereby rendered

adjudging that the plaintiff has the right of possession of the Mercedes-Benz Diesel
Truck in question and confirming its title thereto, and ordering the defendant, Dy
Hian Tat, to pay to the plaintiff the sum of P9,305.30 as and for attorney's fees
and costs of collection.

With costs against the defendant.

SO ORDERED.

In brief, the cause of action alleged in appellee's complaint is to the effect that
appellant-defendant had bought a Mercedes-Benz Diesel truck from it on installments
and defaulted in the payment thereof, in consequence of which, it was entitled, by virtue
of the mortgage contract in its favor, to the possession of the said truck or, in case said
truck could not be recovered, to the payment of the amount of P37,221.22, plus
attorney's fees in the amount of P9,305.30 and the costs of the suit.

As further prayed for in the complaint, the court a quo issued a writ of replevin and
eventually possession of the truck was delivered to appellee by virtue of said writ.

In due time, defendant filed an answer the statement here of the details of which is not
indispensable in the determination of this case. Suffice it to say that subsequent to the
filing of said answer, the parties submitted the case for decision, and the court a
quo decided the same without presentation and reception of any evidence and solely on
the basis of the following stipulation of facts:

COME NOW the parties in the above entitled case, assisted by their respective
counsel, and to this Honorable Court respectfully submit the following stipulation
of facts:

1. Defendant Dy Hian Tat admits the material allegations of pars. 5 1 and 92 of the
Complaint and the fact that plaintiff is entitled to the possession of the chattel
described in par. 2 of the Complaint;

2. That the following stipulation appears in the Chattel Mortgage executed by the
defendant in favor of the plaintiff and attached to the Complaint as Annex 'A' of
said Complaint:
 14. That in case of non-compliance or violation or default by the
mortgagor(s), and foreclosure or any other legal remedy is undertaken by
the mortgagee to compel payment of his (their) obligation, the mortgagee
shall be entitled to a reasonable compensation in the concept of attorney's
fees and costs of collection in the sum equal to twenty-five per cent (25%)
of the total amount of the indebtedness then outstanding and unpaid by the
mortgagor(s), but in no case less than Fifty Pesos (P50.00) as well as
payment of the replevin premium bonds and costs of suit in case of court
action, which amounts said mortgagor(s) agree(s) to pay and for such
payment a first lien is hereby implied in favor of the mortgagee upon the
property mortgaged.

3. Plaintiff admits that the chattel subject of the mortgage was sold by plaintiff to
defendant on installment basis;

4. That the parties submit this case on the question of law of whether or not the
plaintiff is entitled to the 25% attorney's fees and costs of collection as above
stipulated.

WHEREFORE, it is respectfully prayed of this Honorable Court that the parties be given
twenty (20) days from the submission hereof within which to file their respective
memorandum.

Without filing any motion for reconsideration, appellant has come to this Court with a
lone assignment of error as follows:

THE TRIAL COURT ERRED IN ADJUDGING ATTORNEY'S FEES IN FAVOR OF

PLAINTIFF AND AGAINST DEFENDANT, IT BEING CONTRARY TO THE PROVISIONS
OF ARTICLE 1484 OF THE NEW CIVIL CODE OF THE PHILIPPINES AND THE
JURISPRUDENCE DECIDED UNDER IT.

Succinctly stated, the whole pose of appellant's case is that under the above-related
circumstances of this case, the lower court erred in further sentencing him to pay the
P9,305.30 of attorney's fees, after the said court had already confirmed the possession
and title of the truck in favor of appellee, considering the provisions of Article 1484 of
the Civil Code, which provides:

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

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

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

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

In support of his position, appellant cites, in his brief, the following authorities:

The settled jurisprudence under the aforequoted law is —

The three remedies under this article, available to the vendor who has sold
personal property on the installment plan, are alternative, not cumulative. In other
words, if the vendor has elected to avail himself of any of the remedies, he is
deemed to have renounced the others. (Tolentino, Civil Code of the Philippines,
Vol. V, 1959 ed., p. 27 citing the case of Pacific Commercial vs. de la Rama, O. G.
August 9, 1941, p. 1224)
 In case the vendor elects to foreclose the mortgage, if one has been given on the
property, he is not obliged to return to the purchaser the amount of the
installment already paid should there be an agreement to that effect, and it is not
unconscionable. In all proceedings for the foreclosure of chattel mortgages,
executed on the chattels, which have been sold on the installment plan, the
mortgagee is limited to the property only in the mortgage. (Tolentino, supra, citing
the cases of Macondray & Co. vs. Tan, 38 O.G. 2606; Macondray & Co. vs. Ruiz,
38 O.G. 2168; Bachrach Motors Co. vs. Millan, 61 Phil. 409; Macondary vs. Benito,
et al., 62 Phil. 137; Pacific Commercial vs. De la Rama, O.G. August 9, 1941, p.
1224, Emphasis supplied.)

Undoubtedly the principal object of article 1454-A was to remedy the abuses
committed in connection with the foreclosure of chattel mortgages. This
amendment prevents mortgagees from seizing the engaged property, buying it at
foreclosure for a low price and then bringing suit against the mortgagor for the
deficiency judgment. The almost invariable result of this procedure was that the
mortgagor found himself minus the property and still owing practically the full
amount of the original indebtedness. Under this amendment the vendor of
personal property, the purchase price of which is payable on installments, has the
right to cancel the sale or foreclose the mortgage if one has been given on the
property, whichever right the vendor elects, he need not return to the purchaser
the amount of the installments already paid, "if there is an agreement to that
effect." Furthermore, if the vendor avails himself of the right to foreclose the
mortgage, this amendment prohibits him from bringing an action against the
purchaser for the unpaid balance.lawphi1.ñet

In other words, under this amendment, in all proceedings for the foreclosure of
the mortgage executed on the chattels which have been sold on installment plan,
the mortgagee is limited to take property included in the mortgage. (Bachrach
Motors Co. vs. Millan, 61 Phil. 409) [Emphasis supplied]

and pursues as his main argument that:

For a proper resolution of the case, the relevant query is: What remedy is elected
by the plaintiff in the instant case?

Defendant respectfully submits that the present case is an election of the third
remedy provided in Article 1484 of the new Civil Code of the Philippines, i.e., the
judicial foreclosure of the subject chattel mortgage.

Speaking of foreclosure of a chattel mortgage, former Justice Moran says: "Of course a
chattel mortgage may be foreclosed judicially following substantially the same procedure
provided in this Rule (Rule 70, Rules of Court), ... When the mortgagor refuses to
surrender possession of the mortgaged chattel an action of judicial foreclosure
necessarily arises, or one of replevin to secure possession as a preliminary to the sale
contemplated in Section 14 of Act No. 1508." (Moran's Comment, Vol. II, 1947 ed., pp.
250-251) And in a similar case, this Court said, "Where ... the debtor refuses to yield
the property, the creditor must institute an action, either to effect a judicial foreclosure
directly or to secure possession as a preliminary to the sale above quoted." (Bachrach
Motors vs. Summers, 42 Phil. 6) Leno vs. Pestolante, et al., G.R. L-11755, April 23,
1958; 103 Phil. 414."

This may be clearly gleaned from the allegations of the complaint as well as the
prayer and that of the Stipulation of Facts submitted with the trial court. (Record
on Appeal, pp. 1-5 and 28-31)

Thus, when the trial court besides confirming possession and title of the chattel in
favor of the plaintiff awarded attorney's fees and costs of collection in an amount
equal to 25% of the claims, it in effect rendered judgment against defendant
beyond and over that of the chattel of the mortgage in palpable violation of the
 provisions of Article 1484 of the new Civil Code of the Philippines and the
authorities already decided under it. (pp. 11-12, Appellant's Brief.)

We do not agree with the appellant that Article 1484 applies to the case at bar. As aptly
held by His Honor, this case is for delivery of personal property under the provisions of
Rule 60 of the Rules of Court. Nowhere in the stipulation of facts or even in the
pleadings does it appear that appellee has foreclosed its mortgage. Merely because a
copy of the mortgage has been attached to the complaint does not make this action one
of foreclosure of a chattel mortgage. (Manila Motor Co. vs. Fernandez, 99 Phil. 782.)
True, appellee succeeded in recovering the truck in question, precisely by means of the
present action of replevin, but surely, this case is far from being the action of foreclosure
of chattel mortgage governed by Section 8 of Rule 68.

We are not unmindful of the laudable purposes of Act No. 4122 which became Article
1454-A of the former Civil Code. The same have been well elucidated in many previous
cases by this Court. And it is evident to Us that Article 1484 of the new Civil Code is just
an amendment of said Article 1454-A, more popularly known as the Recto Law. It would
not only be erroneous but highly unjust for Us, however, to apply such provision the
case at bar, which in no way comes within its contemplation. The mere fact that appellee
has secured possession of the truck in question does not necessarily mean that it will
foreclose its mortgage. Indeed, there is no showing at all that appellee is causing the
sale thereof at public auction or in even preparing to do so. It is quite possible that
appellee wanted merely to be sure that the truck is not lost or rendered valueless,
preparatory to having it levied upon under a writ of attachment, as sanctioned by this
Court in the case cited by appellant of Southern Motors, Inc. vs. Magbanua, 100 Phil.
155:

By praying that the defendant be ordered to pay it the sum of P4,690.00 together
with the stipulated interest at 12 per cent per annum from 17 March until fully
paid, plus ten per cent of the total amount due as attorney's fees and cost of
collection, the plaintiff elected to exact the fulfillment of the obligation and not
foreclose the mortgage of the truck. Otherwise, it would not have gone to court to
collect the amount as prayed for in the complaint. Had it elected to foreclose the
mortgage on the truck, all that the plaintiff had to do was to cause the truck to be
sold at public auction pursuant to section 14 of the Chattel Mortgage Law. The fact
that aside from the mortgaged truck another Chevrolet truck and two parcels of
land belonging to the defendant were attached shows that the plaintiff did not
intend to foreclose the mortgage.

As the plaintiff has chosen to exact the fulfillment of the defendant's obligation,
the former may enforce execution of the judgment rendered in its favor on the
personal and real properties of the latter not exempt from execution sufficient to
satisfy the judgment. That part of the judgment depriving the plaintiff of its right
to enforce judgment against the properties of the defendant except the mortgaged
truck and discharging the writ of attachment on his other properties is erroneous.

The same doctrine was reiterated in Tajanlangit, et al., vs. Southern Motors, Inc., et al.,
101 Phil. 606, also cited by appellant. There it was held:

Discussion. Appellants' brief elaborately explains in the nine errors assigned, their
original two theories, although their "settlement" idea appears to be somewhat
modified.

What is being sought in this present action" say appellants "is to prohibit and
forbid the appellee Sheriff of Iloilo from attaching and selling at public auction sale
the real properties of appellants because that is now forbidden by our law after the
chattels that have been purchased and duly mortgaged to the vendor-mortgagee
had already been repossessed by the same vendor-mortgagee and later on hold at
public auction sale and purchased by the same at such meager sum of
P10,000.00.
 "Our law" provides,

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

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

(2) Cancel the sale, should the vendee's failure to pay cover two or more
installments;lawphi1.ñet

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

Appellants would invoke the last paragraph. But there has been no foreclosure of
the chattel mortgage nor a foreclosure sale. Therefore the prohibition against
further collection does not apply.

At any rate it is the actual sale of the mortgaged chattel in accordance with
section 14 Act No. 1508 that would bar the creditor (who chooses to
foreclose) from recovering any unpaid balance. (Pacific Com. Co. vs. De la
Rama, 72 Phil. 380; Manila Motor Co. vs. Fernandez, 99 Phil. 782.)

It is true that there was a chattel mortgage on the goods sold. But the Southern
Motors elected to sue on the note exclusively, i.e., to exact fulfillment of the
obligation to pay. It had a right to select among the three remedies established in
Article 1484. In choosing to sue on the note, it was not thereby limited to the
proceeds of the sale, on execution of the mortgaged good. (Manila Trading &
Supply Co. vs. Reyes, 62 Phil. 461; Macondray & Co. vs. Eustaquio, 64 Phil. 446;
Manila Motor Co. vs. Fernandez, supra.)

An earlier per curiam decision of this Court is even more controlling and practically

devastates appellants posture. In the case of Pacific Commercial Co. vs. Graciano de la
Rama, 72 Phil. 380, the defendant which had bought a car from plaintiff on installments
failed to pay, by reason of which, plaintiff took steps and actually started to
extrajudicially foreclose the chattel mortgage thereon by having the sheriff take
possession of the property and proceed to sell the same. The sheriff found the car in a
repair shop, so he then and there designated the owner of the shop as his deputy-in-
charge thereof; but when the plaintiff came to know that the car was in the shop
because it had met an accident, it requested the sheriff to desist from continuing with
the foreclosure. Instead, plaintiff brought an action to recover the price, plus interests
and costs. The defendant invoked Art. 1454-A of the old Civil Code. The per
curiam decision held:

... El demandado no discute los hechos probados. Sostiene, sin embargo, que el
Juzgado erro al no declarar que la demandante habia optado ya por ejecutar la
hipoteca del automovil y por cancelar la venta a plazos y que, consiguientemente,
el Juzgado erro al no declarar que la demandante habia perdido ya su derecho a
reclamar el saldo no pagado del importe del pagare. El demandado funda su teoria
en lo que dispone el articulo 1454-A del Codigo Civil, que ha sido introducido por
la Ley No. 4122, que se lee como sigue:

ART. 1454-A. En un contrato de venta de cosa mueble pagadera a plazos, la

falta de pago de dos o mas plazos confiere al vendedor derecho a la
resolucion de la venta o la ejucucion de la hipoteca, caso de haberse esta
constituido sobre la cosa, sin reembolso al comprador de los plazos ya
pagados, si asi se hubiere pactado.

El vendedor, sin embargo, que hubiere optado por la ejecucion de la

hipoteca no podra repetir contra el comprador para el cobro de cualquier
 saldo que hubiese resultado contra este, siendo nulo todo pacto en
contrario.

Igual regia regira en los casos de arrendamientos de cosa mueble con opcion
de compra, cuando el arrendador hubiere optado por quitar al arrendatario
el disfrute de dicha cosa mueble.

De este articulo se infiere que el vendedor, despues que el comprador haya dejado
de pagar dos o mas plazos y en el caso de que hublera otorgado hipoteca de la
cosa vendida, puede optar (1) por resolver la venta recobrando la cosa vendida,
en cuyo caso el comprador no tendra derecho al reembolso de los plazos pagados,
si asi se hubiese estipulado; (2) o por ejecutar la hipoteca en las formas
autorizadas por la Ley de Hipoteca de Bienes Muebles, en cuyo caso el vendedor
no tendra derecho a repetir contra el comprador por el cobro de cualquier saldo
que hubiese resultado en contra de este, siendo nulo todo pacto en contrario; y
(3) o por cobrar simplemente el resto de la deuda. Los remedios que confiere el
articulo son alternativos y no acumulativos, de modo que si se opta por uno de
ellos se entiende que se ha renunciado a los demas.

El demandado pretende que por haberse incautado el Sheriff del automovil

siguiendo instrucciones de la demandante y encomendado su custodia a un
depositario, la demandante opto ya por ejecutar la hipoteca y, consiguientemente,
perdio su derecho a cobrar el saldo deudor del importe del pagare. Opinamos, y
asi declaramos, que la teoria es insostenible. Cuando la ley alude a la ejecucion de
la hipoteca, como remedio que produce la renuncia a los demas, quiere decir la
ejecucion de la hipoteca con tados sus incidencias y tramites hasta su
terminacion, incluyendo, naturalmente, la venta en publica subasta de la cosa
pignorada. En el presente caso el ultimo tramite que traspara a un tercero el titulo
de la cosa hipotecada, no se ha verificado ni cumplido aun porque el Sheriff
levanto el deposito del automovil y no lo vendio en subasta publica con forme lo
requiere el articulo 14 de la Ley No. 1508. Por esta razone el error que el
demandado atribuye a la sentencia recurida no existe. [Emphasis supplied].

This doctrine was reiterated in Manila Motor Co. vs. Fernandez, supra, this wise:

The lower court likewise committed a mistake in assuming that the suit in 1940
was on of foreclosure. The allegations with reference the said suit and the
corresponding judgment of 1941 do not contain any suggestion in support of the
assumption. Upon the other hand, in appellee's motion to dismiss, it was stated
that the car in question was commandeered from him by the Japanese occupation
forces, thereby indicating that, even during the war period, the property was in
appellee's possession and had not been sold at public auction. At any rate, it is the
actual sale of the mortgaged chattel in accordance with section 14 of Act No. 1508
that would bar the creditor (who chooses to foreclose) from recovering any unpaid
balance (Pacific Commercial Company vs. De la Rama, 72 Phil. 380.) [Emphasis
Supplied.].

We hold, therefore, that the lower court did not err in declaring, in effect, that Article
1484 of the Civil Code does not apply to this case because this is an action of replevin
under Rule 60 and not a foreclosure of mortgage under Rule 68.

Appellant raises for the first time in this appeal the issue that appellee did not present
any evidence to prove that it actually incurred expenses by way of attorney's fees. Apart
from the fact that it is too late in the day for appellant to bring up this point, it appears
that what has been awarded to appellee is in the nature of liquidated damages. (Art.
2226, Civil Code) As these is no claim that they are iniquitous or unconscionable, (Art.
2227, Id.) the law does not require any proof thereof. (Civil Code of the Phil. Annotated
by Paras, Vol. V., p. 754, citing Lambert vs. Fox, 26 Phil. 588.)

Judgment affirmed, with costs against appellant.

G.R. No. L-10789             May 28, 1957

AMADOR TAJANLANGIT, ET AL., plaintiff-appellants, 

vs.
SOUTHERN MOTORS, INC., ET AL., defendants-appellees.

Almacen and Almacen for appellants.

Diosdado Garingalao for appellees.

BENGZON, J.:

The case. Appellants seek to reverse the order of Hon. Pantaleon Pelayo, Judge of the
Iloilo court of first instance refusing to interfere with the alias writ of execution issued in
Civil Case No. 2942 pending in another sala of the same court.

The facts. In April 1953 Amador Tajanlangit and his wife Angeles, residents of Iloilo,
bought, from the Southern Motors Inc. of Iloilo two tractors and a thresher. In payment
for the same, they executed the promissory note Annex A whereby they undertook to
satisfy the total purchase price of P24,755.75 in several installments (with interest)
payable on stated dates from May 18, 1953 December 10, 1955. The note stipulated
that if default be made in the payment of interest or of any installment, then the total
principal sum still unpaid with interest shall at once become demandable etc. The spouse
failed to meet any installment. Wherefore, they were sued, in the above Civil Case No.
2942, for the amount of the promissory note. 1 The spouses defaulted, and the court,
after listening to the Southern Motors' evidence entered Judgment for it in the total sum
of P24,755.75 together with interest at 12 per cent, plus 10 per cent of the total amount
due as attorney's fees and costs of collection.

Carrying out the order of execution, the sheriff levied on the same machineries and farm
implements which had been bought by the spouses; and later sold them at public
auction to the highest bidder — which turned out to be the Southern Motors itself — for
the total sum of P10,000.

As its judgment called for much more, the Southern Motors subsequently asked and
obtained, an alias writ of execution; and pursuant thereto, the provincial sheriff levied
attachment on the Tajanlangits' rights and interests in certain real properties — with a
view to another sale on execution.

To prevent such sale, the Tajanlangits instituted this action in the Iloilo court of first
instance for the purpose among others, of annulling the alias writ of execution and all
proceedings subsequent thereto. Their two main theories: (1) They had returned the
machineries and farm implements to the Southern Motors Inc., the latter accepted them,
and had thereby settled their accounts; for that reason, said spouses did not contest the
action in Civil Case No. 2942; and (2) as the Southern Motors Inc. had repossessed the
machines purchased on installment (and mortgaged) the buyers were thereby relieved
from further responsibility, in view of the Recto Law, now article 1484 of the New Civil
Code.

For answer, the company denied the alleged "settlement and understanding" during the
pendency of civil case No. 2949. It also denied having repossessed the machineries, the
truth being that they were attached by the sheriff and then deposited by the latter in its
shop for safekeeping, before the sale at public auction.

The case was submitted for decision mostly upon a stipulation of facts. Additional
testimony was offered together with documentary evidence. Everything considered the
court entered judgment, saying in part;

The proceedings in Civil Case No. 2942 above referred to, were had in the Court of
First Instance (Branch 1) of the Province and of the City of Iloilo. While this court
(Branch IV) sympathizes with plaintiffs, it cannot grant, in this action, the relief
prayed for the complaint because courts of similar jurisdiction cannot invalidate
the judgments and orders of each other. Plaintiffs have not pursued the proper
remedy. This court is without authority and jurisdiction to declare null and void the
order directing the issuance of alias writ of execution because it was made by
another court of equal rank and category (see Cabiao and Izquierdo vs. Del
Rosario and Lim, 44 Phil., 82-186).

WHEREFORE, judgement is hereby rendered dismissing the complaint with costs

against plaintiffs costs against plaintiffs. Let the writ of preliminiary injunction
issued on August 26, 1954, be lifted.

The plaintiffs reasonably brought the matter to the Court of Appeals, but the latter
forwarded the expediente, being of the opinion that the appeal involved questions of
jurisdiction and/or law

Discussion. Appellants' brief elaborately explains in the nine errors assigned, their
original two theories although their "settlement" idea appears to be somewhat modified.

"What is being sought in this present action" say appellants "is to prohibit and forbid the
appellee Sheriff of Iloilo from attaching and selling at public auction sale the real
properties of appellants because that is now forbidden by our law after the chattels that
have been purchased and duly mortgagee had already been repossessed by the same
vendor-mortgagee and later on sold at public auction sale and purchased by the same at
such meager sum of P10,000."

"Our law" provides,

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

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

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

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

Appellants would invoke the last paragraph. But there has been no foreclosure of the
chattel mortgage nor a foreclosure sale. Therefore the prohibition against further
collection does not apply.

At any rate it is the actual sale of the mortgaged chattel in accordance with section
14 Act No. 1508 that would bar the creditor (who chooses to foreclose) from
 recovering any unpaid balance. (Pacific Com. Co. vs.De la Rama, 72 Phil. 380.)
(Manila Motor Co. vs. Fernandez, 99 Phil., 782.).

It is true that there was a chattel mortgage on the goods sold. But the Southern Motors
elected to sue on the note exclusively, i.e. to exact fulfillment of the obligation to pay. It
had a right to select among the three remedies established in Article 1484. In choosing
to sue on the note, it was not thereby limited to the proceeds of the sale, on execution,
of the mortgaged good.2

In Southern Motors Inc. vs. Magbanua, (100 Phil., 155) a similar situation arose in
connection with the purchase on installment of a Chevrolet truck by Magbanua. Upon the
latter's default, suit on the note was filed, and the truck levied on together with other
properties of the debtor. Contending that the seller was limited to the truck, the debtor
obtained a discharge of the other properties. This court said:

By praying that the defendant be ordered to pay the sum of P4,690 together with
the stipulated interest at 12% per annum from 17 March 1954 until fully paid, plus
10 per cent of the total amount due as attorney's fees and cost of collection,  the
plaintiff acted to exact the fulfillment of the obligation and not to foreclose the
mortgage on the truck. . . .

As the plaintiff has chosen to exact the fulfillment of the defendant's obligation,
the former may enforce execution of the judgement rendered in its favor on the
personal and real properties of the latter not exempt from execution sufficient to
satisfy the judgment. That part of the judgement depriving the plaintiff of its right
to enforce judgment against the properties of the defendant except the mortgaged
truck and discharging the writ of attachment on his other properties is erroneous.
(Emphasis ours.)

Concerning their second theory, — settlement or cancellation — appellants allege that

the very implements sold "were duly returned" by them, and "were duly received and
accepted by the said vendor-mortgagee". Therefore they argue, "upon the return of the
same chattels and due acceptance of the same by the vendor-mortgagee, the
conditional sale is ipso facto cancelled, with the right of the vendor-mortgagee to
appropriate whatever downpayment and posterior monthly installments made by the
purchaser as it did happen in the present case at bar."

The trouble with the argument is that it assumes that acceptance of the goods by the
Southern Motors Co, with a view to "cancellation" of the sale. The company denies such
acceptance and cancellation, asserting the goods, were deposited in its shop when the
sheriff attached them in pursuance of the execution. Its assertion is backed up by the
sheriff, of whose credibility there is no reason to doubt. Anyway this cancellation or
settlement theory may not be heeded now, because it would contravene the decision in
Civil Case No. 2942 above-mentioned — it would show the Tajanlangits owned nothing
to Southern Motors Inc. Such decision is binding upon them, unless and until they
manage to set it aside in a proper proceeding — and this is not it.

There are other points involved in the case, such as the authority of the judge of one
branch of a court of first instance to enjoin proceedings in another branch of the same
court. As stated, Judge Pelayo refused to interfere on that ground. Appellants insist this
was error on several counts. We deem it unnecessary to deal with this procedural
aspect, inasmuch as we find that, on the merits, plaintiffs are not entitled to the relief
demanded.

Judgment. The decision dismissing the complaint, is affirmed, with costs against
appellants. So ordered.
G.R. No. L-14475             May 30, 1961

SOUTHERN MOTORS, INC., plaintiff-appellee, 

vs.
ANGELO MOSCOSO, defendant-appellant.

Diosdado Garingalao for plaintiff-appellee.

Calixto Zaldivar for defendant-appellant.

PAREDES, J.:

The case was submitted on agreed statement of facts.

On June 6, 1957, plaintiff-appellee Southern Motors, Inc. sold to defendant-appellant

Angel Moscoso one Chevrolet truck, on installment basis, for P6,445.00. Upon making a
down payment, the defendant executed a promissory note for the sum of P4,915.00,
representing the unpaid balance of the purchase price (Annex A, complaint), to secure
the payment of which, a chattel mortgage was constituted on the truck in favor of the
plaintiff (Annex B). Of said account of P4,915.00, the defendant had paid a total of
P550.00, of which P110.00 was applied to the interest up to August 15, 1957, and
P400.00 to the principal, thus leaving an unpaid balance of P4,475.00. The defendant
failed to pay 3 installments on the balance of the purchase price.

On November 4, 1957, the plaintiff filed a complaint against the defendant, to recover
the unpaid balance of the promissory note. Upon plaintiff's petition, embodied in the
complaint, a writ of attachment was issued by the lower court on the properties Of the
defendant. Pursuant thereto, the said Chevrolet truck, and a house and lot belonging to
defendant, were attached by the Sheriff of San Jose, Antique, where defendant was
residing on November 25, 1957, and said truck was brought to the plaintiff's compound
in Iloilo City, for safe keeping.

After attachment and before the trial of the case on the merits, acting upon the
plaintiff's motion dated December 23, 1957, for the immediate sale of the mortgaged
truck, the Provincial Sheriff of Iloilo on January 2, 1958, sold the truck at public auction
in which plaintiff itself was the only bidder for P1,000.00. The case had not been set for
hearing, then.

The trial court on March 27, 1958, condemned the defendant to pay the plaintiff the
amount of P4,475.00 with interest at the rate of 12% per annum from August 16, 1957,
until fully paid, plus 10% thereof as attorneys fees and costs against which defendant
interposed the present appeal, contending that the trial court erred —

(1) In not finding that the attachment caused to be levied on the truck and its
immediate sale at public auction, was tantamount to the foreclosure of the chattel
mortgage on said truck; and
 (2) In rendering judgment in favor of the plaintiff-appellee.

Both parties agreed that the case is governed by Article 1484 of the new Civil Case,
which provides: —

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

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

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

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

While the appellee claims that in filing the complaint, demanding payment of the unpaid
balance of the purchase price, it has availed of the first remedy provided in said
article i.e. to exact fulfillment of the obligation (specific performance); the appellant, on
the other hand, contends that appellee had availed itself of the third remedy viz, the
foreclosure of the chattel mortgage on the truck.

The appellant argues that considering history of the law, the circumstances leading to its
enactment, the evil that the law was intended to correct and the remedy afforded (Art.
1454-A of the old Civil Code; Act No. 4122; Bachrach Motor Co. vs. Reyes, 62 Phil. 461,
466-469); that the appellee did not content itself by waiting for the judgment on the
complaint and then executed the judgment which might be rendered in its favor, against
the properties of the appellant; that the appellee obtained a preliminary attachment on
the subject of the chattel mortgage itself and caused said truck to be sold at public
auction petition, in which he was bidder for P1,000.00; the result of which, was similar
to what would have happened, had it foreclosed the mortgage pursuant to the provisions
of Sec. 14 of Act No. 1508 (Chattel Mortgage Law) the said appellee had availed itself of
the third remedy aforequoted. In other words, appellant submits that the matter should
be looked at, not by the allegations in the complaint, but by the very effect and result of
the procedural steps taken and that appellee tried to camouflage its acts by filing a
complaint purportedly to exact the fulfillment of an obligation petition, in an attempt to
circumvent the provisions of Article 1484 of the new Civil Code. Appellant concludes that
under his theory, a deficiency judgment would be without legal basis.

We do not share the views of the appellant on this matter. Manifestly, the appellee had
chosen the first remedy. The complaint is an ordinary civil action for recovery of the
remaining unpaid balance due on the promissory note. The plaintiff had not adopted the
procedure or methods outlined by Sec. 14 of the Chattel Mortgage Law but those
prescribed for ordinary civil actions, under the Rules of Court. Had appellee elected the
foreclosure, it would not have instituted this case in court; it would not have caused the
chattel to be attached under Rule 59, and had it sold at public auction, in the manner
prescribed by Rule 39. That the herein appellee did not intend to foreclose the mortgage
truck, is further evinced by the fact that it had also attached the house and lot of the
appellant at San Jose, Antique. In the case of Southern Motors, Inc. vs. Magbanua, G.R.
No. L-8578, Oct. 29, 1956, we held:

By praying that the defendant be ordered to pay it the sum of P4,690.00 together
with the stipulated interest of 12% per annum from 17 March 1954 until fully paid,
plus 10% of the total amount due as attorney's fees and cost of collection, the
plaintiff elected to exact the fulfillment of the obligation, and not to foreclose the
mortgage on the truck. Otherwise, it would not have gone to court to collect the
amount as prayed for in the complaint. Had it elected to foreclose the mortgage on
the truck, all the plaintiff had to do was to cause the truck to be sold at public
auction pursuant to section 14 of the Chattel Mortgage Law. The fact that aside
 from the mortgaged truck, another Chevrolet truck and two parcels of land
belonging to the defendant were attached, shows that the plaintiff did not intend
to foreclose the mortgage.

As the plaintiff has chosen to exact the fulfillment of the defendant's obligation,
the former may enforce execution of the judgment rendered in its favor on the
personal and real property of the latter not exempt from execution sufficient to
satisfy the judgment. That part of the judgment against the properties of the
defendant except the mortgaged truck and discharging the writ of attachment on
his other properties is erroneous.

We perceive nothing unlawful or irregular in appellee's act of attaching the mortgaged

truck itself. Since herein appellee has chosen to exact the fulfillment of the appellant's
obligation, it may enforce execution of the judgment that may be favorably rendered
hereon, on all personal and real properties of the latter not exempt from execution
sufficient to satisfy such judgment. It should be noted that a house and lot at San Jose,
Antique were also attached. No one can successfully contest that the attachment was
merely an incident to an ordinary civil action. (Sections 1 & 11, Rule 59; Sec. 16, Rule
39). The mortgage creditor may recover judgment on the mortgage debt and cause an
execution on the mortgaged property and may cause an attachment to be issued and
levied on such property, upon beginning his civil action (Tizon vs. Valdez, 48 Phil. 910-
911).

IN VIEW HEREOF, the judgment appealed from hereby is affirmed, with costs against
the defendant-appellant.

G.R. No. L-43821 May 26, 1977

INDUSTRIAL FINANCE CORPORATION, petitioner, 

vs.
HON. PEDRO A. RAMIREZ, Judge of the Court of First instance of Manila, and
CONSUELO ALCOBA, respondents.

C. R. Sanchez Law Office for petitioner.

Salva, Carballo & Associates for respondent Consuelo Alcoba.

AQUINO, J.:

On December 4, 1970 Arnaldo Dizon sold to Consuelo Alcoba his 1966 model Chevrolet
car for P13,157.89, payable in eighteen monthly installments, which were secured by a
chattel mortgage on the car.

On that same date, Dizon assigned for ten thousand pesos to Industrial Finance
Corporation all his rights and interest in the chattel mortgage. Consuelo Alcoba defaulted
in the payment of the first four installments. Because of that default and by virtue of the
acceleration clause in the promissory note forming part of the mortgage, the whole
obligation became due and demandable.

As of February 27, 1972 Consuelo Alcoba owed Industrial Finance Corporation the sum
of P7,678.05 computed as follows (Exh. D):

Princi P13,1
 
pal 57.89
obliga
tion
------
--

Add:    
Inter
est
on
overd
ue

install 285.4
 
ments 7
------
-

Premi 656.4
 
um 0
on
car
insur
ance
--

Total P14,0
 
amou 99.76
nt
due --

Dedu    
ct
paym
ents:

March P  
 1, 731.
1971 06
-

March 730.  
29,19 99
71 -

July, 716.  
1, 39
1971
-

Insur    
ance
proce
eds,

1-12- 4,02  
71 3.51

Inter 219. 6,
ests- 76 4
2
1.
7
1

Balan
  P
ce 7,
still 6
due -- 7
8.
0
5

vvvvvvvvv

On November 20, 1971, or less than a year after Industrial Finance Corporation had
discounted Consuelo Alcoba's promissory, note to Dizon, the corporation sued her in the
Court of First Instance of Manila (Civil Case No. 85583). The complaint, a printed form
used by the corporation in collection cases, is denominated "replevin with damages".

It is necessary to scrutinize the allegations of the complaint because of the controversy

between the parties as to whether, by means of that complaint, Industrial Finance
Corporation sought to foreclose the chattel mortgage as contemplated in article 1484 of
the Civil Code, formerly Act No. 4122, otherwise known as the Recto Installment Sales
Law.

It is necessary to scrutinize the allegations of the complaint because of the controversy

between the parties whether, by means of that complaint, Industrial Finance Corporation
sought to foreclose the chattel mortgage as contemplated in article 1484 of the Civil
Code, formerly Act No. 4122, otherwise known as the Recto Installment Sale Law.

In its complaint Industrial Finance Corporation prayed for alternative reliefs. The main

objective of its complaint was recovery of the mortgaged car by means of a writ of
replevin. It submitted a redelivery bond. Undoubtedly, the mortgagee-assignee wanted
to foreclose extrajudicially the chattel mortgage but, before it could do so, the sheriff
had to seize the car by means of the provisional remedy of an order for the delivery of
personal property.
Industrial Finance Corporation prayed that, if the car could not be recovered by means
of replevin, then Consuelo Alcoba should be ordered to pay the corporation the sum of
P11,083.38, plus twelve percent interest per annum, damages, and attorney's fees in
the sum of P2,770.85. There was no prayer for the foreclosure of the mortgage, a relief
that should be invoked if the complaint had been filed under section 8, Rule 68 of the
Rules of Court.

Consuelo Alcoba in her answer merely pleaded that Industrial Finance Corporation
"waived the recovery" of the car by accepting the sum of P4,228.67. She did not state
what that amount represented. It was the amount paid on January 12, 1972 by the
Malayan Insurance Co., Inc., as insurer of the mortgaged car, to Industrial Finance
Corporation. As indicated in the computation set forth above, the corporation applied
that amount to the partial payment of Consuelo Alcoba's obligation. The record does not
show why the insurance company paid that amount to Industrial Finance Corporation.

Consuelo Alcoba's lawyer, after making reference to the corporation's acceptance of the
sum of P4.228.68, incoherently pleaded that the corporation chose to "pursue the
remaining balance of the loan extrajudicially".

The lower court issued the writ of replevin. But the sheriff was not able to seize the
mortgaged car. Consequently, there was no extrajudicial foreclosure of the mortgage
since, for that purpose, possession of the car by the sheriff is necessary (Bachrach Motor
Co. vs. Summers, 42 Phil. 3).

Consuelo Alcoba did not appear at the pre-trial. She was declared in default. On the
basis of the corporation's evidence, the trial court rendered judgment, ordering her to
pay the corporation the sum of P7,678.05, plus twelve percent interest per annum from
the filing of the complaint. No attorney's fees were awarded by the trial court maybe
because the corporation paid only ten thousand pesos for a vote valued at P13,157.89.

Consuelo Alcoba did not appeal. That judgment became final and executory. On
September 27, 1973, or long after the judgment had become final, she paid Industrial
Finance Corporation the sum of P2,000. The lower court issued writs of execution. The
writs were returned unsatisfied.

A second alias writ of execution was issued. The sheriff was able to levy upon the
mortgaged car which was then in the possession of the Aco Motor Service of Dagupan
City. At the execution sale held on April 25, 1974 Industrial Finance Corporation bought
the mortgaged car for P4,000 (Exh. 3-A, p. 72, Expedients).

However, in order to take possession of the car, the corporation had to pay P4,250 to
the Aco Motor Service to satisfy its lien for the repair and storage of the car.

The corporation contended that, because of that payment, it sustained a loss of P250 in
the execution sale. It asked for a third alias writ of execution in order to satisfy the
balance of Consuelo Alcoba's obligation which, together with the 12% interest, it
computed at P11,300.92 as of September 26, 1975.

Consuelo Alcoba opposed the motion for a third alias writ of execution. The lower court
in its order of March 2, 1976 denied the motion for a third alias writ of execution. It
treated the execution sale as a "virtual foreclosure of the chattel mortgage" which,
although not beneficial to the mortgagee, Industrial Finance Corporation, barred it from
recovering the deficiency under article 1484.

That order of denial is assailed by the corporation in the instant certiorari case. The
lower court relied on Filipinos Investment & Finance Corporation vs. Ridad, L- 27645,
November 28, 1969, 30 SCRA 564. In the Ridad case, the mortgagee of a car, the price
of which was payable in installments, filed a replevin suit against the mortgagor with an
alternative prayer for the recovery of the unpaid price in case the car could not be
seized. The car was actually seized. The mortgage was extrajudicially foreclosed. The
trial court rendered judgment against the mortgagor only for P300 as attorney's fees
and P163.65 as expenses of foreclosure. There was no judgment for the balance of the
mortgage debt.

The mortgagors in the Ridad case appealed to this Court. They contested the

correctness of the judgment for P463.65 as attorney's fees and expenses for foreclosure.

This Court held that the mortgagors should pay the mortgagee attorney's fees and
expenses of foreclosure because while the mortgagors should be protected against the
capacity of the mortgagees, the law should not be construed as depriving the mortgagee
of "protection against perverse mortgagors" (Castro, J, in Ridad case).

It is obvious that the facts of the Ridad case are materially different from the facts of
the instant case. Here, there was no extrajudicial foreclosure of the mortgage. Consuelo
Alcoba, the mortgagee, acted perversely in not surrendering the mortgaged car to the
corporation and in preventing extrajudicial foreclosure. Had she complied with the writ of
replevin, then the corporation could have foreclosed the mortgage and, in that event,
she would not be liable for any deficiency.

But she violated the mortgage by removing the car from her residence at 3 Gladiola
Street, Roxas District, Quezon City. She did not comply with the stipulation that, upon
her default, the car should be delivered, on demand, to the mortgagee in Manila.

The corporation's action was for specific performance or fulfillment of the obligation and
not for judicial foreclosure Consuelo Alcoba's payment of P2,000 on account of the
money judgment against her signified that she acquiesced in the action for specific
performance. She cannot now be heard to say that the judgment resulting from that
action could not be enforced because the mortgagees had opted for foreclosure of the
mortgage. The Civil Code provides.

ART. 1484. In a contract of sale of personal property the price of which is

payable in installments, the vendor may exercise any of the following
remedies:

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

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

(3) Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee's failure to pay cover two or more
installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void. (1454-A-a).

According to article 1484, it is only when there has been a foreclosure that the
mortgagor is not liable for any deficiency.

In this case, there was no foreclosure. The mortgagee evidently chose the remedy of
specific performance. It levied upon the car by virtue of an execution and not as an
incident of a foreclosure proceeding. It is entitled to an alias writ of execution for the
portion of the judgment that has not been satisfied.

The rule is that in installment sales, if the action instituted is for specific performance
and the mortgaged property is subsequently attached and sold, the sale thereof does
not amount to a foreclosure of the mortgage. Hence, the seller-creditor is entitled to a
deficiency judgment (Southern Motors, Inc. vs. Moscoso, 112 Phil. 94).

WHEREFORE, the trial court's order denying the motion for a third writ of execution is
reversed and set aside. Costs against respondent Consuelo Alcoba. SO ORDERED.
G.R. No. L-17384            October 31, 1961

NESTOR RIGOR VDA. DE QUIAMBAO, ET AL., petitioners, 

vs.
MANILA MOTOR COMPANY, INC., and the HON. COURT OF APPEALS, respondents.
Manuel Y. Macias for petitioners.
Ozaeta, Gibbs and Ozaeta for respondents.

REYES, J.B.L., J.:

This petition for certiorari brings to this Court for review the decision of the Court of
Appeals in its CA-G.R. No. 17031-R, reversing that of the Court of First Instance of
Manila and dismissing petitioners' complaint.

The facts are not in dispute. On March 7, 1940, Gaudencio R. Quiambao, deceased
husband of petitioner Nestora Rigor Vda. de Quiambao and father of the other
petitioners, bought from respondent Manila Motor Company, Inc. one (1) Studebaker car
on the installment plan. Upon default in the payment of a number of installments,
respondent company sued Gaudencio Quiambao in Civil Case No. 58084 of the Court of
First Instance of Manila. On December 4, 1940, judgment was entered in said case,
awarding in favor of the plaintiff the sum of P3,054.32, with interest thereon at 12% per
annum, and P300.00 attorney's fees.

On July 14, 1941, the court issued a writ of execution directed to the Provincial Sheriff of
Tarlac, who thereupon levied on and attached two parcels of land covered by Transfer
Certificate of Title No. 18390 of the Office of the Register of Deeds for Tarlac. On August
27, 1941, Attorney Felix P. David, then counsel for the Manila Motor Company,
accompanied by the sheriff, personally apprised Gaudencio Quiambao of the levy. The
latter pleaded to have the execution sale suspended and begged for time within which to
satisfy the judgment debt, proposing that in the meanwhile, he would surrender to the
company the Studebaker car. This proposition was accepted, accordingly, Gaudencio
Quiambao delivered the car to the company, and Attorney David issued a receipt
therefor that reads:

August 27, 1941

Received from Mr. Gaudencio Quiambao, Studebaker President Sedan License No.
45-368 pending settlement of the judgment in Civil Case No. 58043 CFI Manila
rendered in favor of Manila Motor Company.

DAVID AND ANGELES

by (Sgd.) Felix P. David.
Attorneys for Manila Motor
Company

On October 16, 1941, Gaudencio Quiambao remitted to the company, on account of the
judgment, the sum of P500.00; he, however, failed to make further payments, thus
leaving a balance still unsettled of P1,952.47, with interest thereon at 12% per
annum from March 6, 1940.

In the meantime, the Pacific war broke out, and when the Japanese forces occupied the
country shortly thereafter, the invaders seized all the assets of the Manila Motor
Company, Inc., as enemy property.

After the war, the company filed with the Philippine War Damage Commission, among
other things, a claim for its mortgage lien on the car of Gaudencio Quiambao and was
awarded the sum of P780.47, P409.75 of which amount had already been paid.

On October 12, 1949, the company addressed a letter to Gaudencio Quiambao asking
him to fill a blank form relative to the lost car. Quiambao having since died, his widow,
Nestora Rigor Vda. de Quiambao, returned the form with the statement that the
questioned car was surrendered to the company for storage. On May 18, 1953, a
demand was made on the widow to settle the deceased's unpaid accounts, but in view of
her refusal, the company urged the Provincial Sheriff of Tarlac to carry out the pre-war
writ of execution issued in Civil Case No. 58043. Although the records of that case had
been lost during the war, and have not been reconstituted, a copy of said writ of
execution kept on file by the provincial sheriff was saved. Accordingly, the latter
advertised for sale at public auction the properties levied upon. Notified of the sheriff's
action, the heirs of the deceased Quiambao filed this suit to annul and set aside the writ
of execution and to recover damages. Judgment was rendered by the Court of First
Instance of Manila in favor of plaintiffs-petitioners, but on appeal to the Court of
Appeals, the decision was reversed and another entered dismissing the complaint.
Hence, this appeal by writ of certiorari.

Briefly, the issues are:

(a) Did the delivery of the Studebaker car to respondent company produce the effect of
rescinding or annulling the contract of sale between the company and the deceased
Gaudencio Quiambao and of barring the former from executing its pre-war judgment in
Civil Case No. 58043?

(b) Did the payment to respondent company and the latter's acceptance of war damage
compensation for the lost car amount to a foreclosure of the mortgage covenated in its
favor? and

(c) Was the pre-war judgment already prescribed taking into account the moratorium
laws?

Anent the first issue, petitioners, citing the case of H.E. Heacock Company vs. Buntal
Manufacturing Company, et al., 66 Phil. 245-246, maintain that the "taking of the
automobile by respondent company from Gaudencio Quiambao ... amounted to a waiver
of said company's right to execute its judgment in Civil Case No. 58043 and clearly
constituted a cancellation or rescission of the sale," which, under the first paragraph of
Article 1454-A of the old Civil Code 1, then applicable, bars any further claim for unpaid
installments. There is no merit in this claim. Unlike situation that arose in the H.E.
Heacock Company case wherein the vendor demanded the return of the thing sold and
thereby indicated an unequivocal desire on its part to rescind its contract with the
vendee, here it was the buyer (deceased Gaudencio Quiambao) who offered, indeed
pleaded, to surrender his car only in order that he might given more time within which
to satisfy the judgment debt, and suspend the impending execution sale of the
properties levied upon. The very receipt issued then by the company, and accepted
without objection by the deceased (Gaudencio Quiambao), indicated that the car was
received "pending settlement of the judgment in Civil Case No. 58043." Other
circumstances that militate against petitioners' theory of rescission or annulment of the
contract of sale and waiver of the judgment of debt and, conversely, strengthen the
proposition that the delivery of the car to respondent company was merely to postpone
the satisfaction of the judgment amount, are that the deceased still paid the further sum
of P500.00 on account of his indebtedness about two months after the car was
surrendered, and that despite respondent company's acceptance of the car, the
company made repeated demands against the petitioners to settle the deceased's
unpaid accounts.

Since respondent company did not receive the car for the purpose of appropriating the
same, but merely as security for the ultimate satisfaction of its judgment credit, the
situation under consideration could not have amounted to a foreclosure of the chattel
mortgage as petitioners imply.

Petitioners next argue that "the payment of war damage compensation to respondent
company . . . produced the same and equal legal effect as formal foreclosure," and in
view of the second paragraph of Article 1454-A 2 of the Spanish Civil Code, the latter is
now precluded from claiming unpaid installments. We do not agree. Having been the
party who was last in possession of the lost car, the company was well within its rights,
or better still, under obligation, to protect the interest of the car owner, as well as its
own, by claiming, as it did, the corresponding war damage compensation for the car.
Such action of the company can not reasonably be construed as a constriction of its
rights under the pre-war judgment.
Furthermore, in Manila Motor Company, Inc. vs. Fernandez, 52 Off. Gaz. No. 16, 6883,
6885, we held:

. . . At any rate, it is the actual sale of the mortgaged chattel in accordance with
section 14 of Act No. 1508 that would bar the creditor (who chooses to foreclose)
from recovering any unpaid balance (Pacific Commercial Company vs. De la Rama,
72 Phil. 380).

But perhaps the best reason why respondent company may not be construed as having
rescinded or cancelled the contract of sale or foreclosed the mortgage on the automobile
in question is precisely because it brought suit for specific performance, and won, in the
pre-war Civil Case No. 58043.

There is likewise no merit in the contention that the pre-war judgment had already
prescribed. Said judgment was entered on December 4, 1940, and on July 14, 1941, a
writ of execution was issued. Respondent company took no further step to enforce the
judgment until May 19, 1954, on which date, respondent scheduled two (2) parcels of
land owned by the petitioners for sale at public auction pursuant to the writ of July 14,
1941. From the entry of the judgment to May 19, 1954, a period of 13 years, 5 months
and 15 days had elapsed. From this term we must deduct the period covered by the
debt moratorium under Executive Order No. 32 (which applied to all debts payable
within the Philippines), from the time the order took effect on March 10, 1945, until it
was partially lifted by Republic Act No. 342 on July 26, 1948.

Deducting the period during which Executive Order No. 32 was in force, which is 3
years, 4 months and 16 days, from 13 years, 5 months and 15 days, the period covered
from the entry of the pre-war judgment to the time respondent company attempted to
sell the levied properties at auction, there is still left a period of 10 years and 29 days.
But as held in Talens vs. Chuakay & Co., G.R. No. L-10127, June 30, 1958, this Court
may take judicial notice of the fact that regular courts in Luzon were closed for months
during the early part of the Japanese occupation until they were reconstituted by order
of the Chairman of the Executive Commission on January 30, 1942. 3 This interruption in
the functions of the courts has also been held to interrupt the running of the prescriptive
period (see also Palma vs. Celda, 81 Phil. 416). That being the case, respondent
company could not be barred by prescription from proceeding with the execution sale
pursuant to the levy and writ of execution issued under the pre-war judgment,
considering that even the minimum period of from December 8, 1941, the outbreak of
the Pacific War to January 30, 1942 is already a term of one (1) month and 23 days.

Petitioners raised the issue whether or not the pre-war writ of execution and levy may
still be enforced by sale of the levied property after the lapse of the five-year period
within which a judgment may be executed by motion. On this point, this Court has held:

We are of the opinion that a valid execution issued and levy made within the
period provided by law may be enforced by a sale thereafter. . . . The sale of the
property by the sheriff and the application of the proceeds are simply the carrying
out of the writ of execution and levy which when issued were valid. This rests upon
the principle that the levy is the essential act by which the property is set apart for
the satisfaction of the judgment and taken into custody of the law, and that after
it has been taken from the defendant, his interest is limited to its application to
the judgment, irrespective of the time when it may be sold (Southern Cal. L. Co.
vs. Hotel Co., 94 Cal. 217, 222). (Government of P.I. vs. Echaus, 71 Phil. 318)..

The case of Ansaldo vs. Fidelity and Surety Company of the Philippine Islands, G.R. No.
L-2378, April 27, 1951, invoked by the petitioners, is not in point, for there the
judgment creditor attempted to carry out the writ of execution 10 years after entry of
judgment. As correctly observed by the appellate court below, both cited cases —

. . . affirm the fundamental principles that a valid judgment may be enforced by

motion within five years after its entry, and by action after the lapse of said period
but before the same shall have been barred by any statute of limitations, and that
 a valid execution issued and levy made within the five-year period after entry of
the judgment may be enforced by sale of the property levied upon thereafter,
provided the sale is made within ten years after the entry of the judgment.

The petitioners should, however, be credited the amount of P409.75 which the
respondent Manila Motor Company actually received from the Philippine War Damage
Commission on account of the car of Gaudencio Quiambao that had been seized from it
by the enemy occupant during the war. This should reduce the principal amount still due
the respondent from the petitioners to the sum of P1,542.72.

IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Appeals appealed from
is affirmed, with costs against petitioners.

[ GR No. 61043, Sep 02, 1992 ]

DELTA MOTOR SALES CORPORATION v. NIU KIM DUAN +

 DECISION G.R. No. 61043

NOCON, J.:
Elevated to this Court by the Court of Appeals, in its Resolution of May 20, 1982, on a
pure question of law,[1] is the appeal therein by defendants-appellants, Niu Kim Duan
and Chan Fue Eng assailing the trial court's decision promulgated on October 11, 1977,
[2]
 which ordered them to pay plaintiff-appellee, Delta Motor Sales Corporation, the
amount of P6,188.29 with a 14% per annum interest which was due on the three (3)
"Daikin" air-conditioners defendants-appellants purchased from plaintiff-appellee under
a Deed of Conditional Sale, after the same was declared rescinded by the trial court.
They were likewise ordered to pay plaintiff-appellee P1,000.00 for and as attorney's
fees.
The events which led to the filing of the case in the lower court were summarized by the
Court of Appeals, as follows:
"'On July 5, 1975, the defendants purchased from the plaintiff three (3) units of 'DAIKIN'
air-conditioner all valued at P19,350.00 as evidenced by the Deed of Conditional Sale,
Exhibit A; that the aforesaid deed of sale had the following terms and conditions:
'(a) the defendants shall pay a down payment of P774.00 and the balance of P18,576.00
shall [be] paid by them in twenty four (24) installments; (b) the title to the properties
purchased shall remain with the plaintiff until the purchase price thereof is fully paid; (c)
if any two installments are not paid by the defendants on their due dates, the whole of
the principal sum remaining unpaid shall become due, with interest at the rate of 14%
per annum; and (d) in case of a suit, the defendants shall pay an amount equivalent to
25% of the remaining unpaid obligation as damages, penalty and attorney's fees; that to
secure the payment of the balance of P18,576.00 the defendants jointly and severally
executed in favor of the plaintiff a promissory note, Exhibit C; that the three (3) air-
conditioners were delivered to and received by the defendants as shown by the delivery
receipt, Exhibit B; that after paying the amount of P6,966.00, the defendants failed to
pay at least two (2) monthly installments; that as of January 6, 1977, the remaining
unpaid obligation of the defendants amounted to P12,920.08; that statements of
accounts were sent to the defendants and the plaintiff's collectors personally went to the
former to effect collections but they failed to do so; that because of the unjustified
refusal of the defendants to pay their outstanding account and their wrongful detention
of the properties in question, the plaintiff tried to recover the said properties extra-
judicially but it failed to do so; that the matter was later referred by the plaintiff to its
legal counsel for legal action; that in its verified complaint dated January 28, 1977, the
plaintiff prayed for the issuance of a writ of replevin, which the Court granted in its
Order dated February 28, 1977, after the plaintiff posted the requisite bond; that on
April 11, 1977, the plaintiff, by virtue of the aforesaid writ, succeeded in retrieving the
properties in question; that as of October 3, 1977, the outstanding account of the
defendants is only in the amount of P6,188.29 as shown by the computation, Exhibit F,
after deducting the interests in arrears, cover charges, replevin bond premiums, the
value of the units repossessed and the like; and, that in view of the failure of the
defendants to pay their obligations, the amount of P6,966.00 which had been paid by
way of installments were treated as rentals for the units in question for two (2) years
pursuant to the provisions of paragraph 5 of the Deed of Conditional Sale, Exhibit A.'
(pp. 5-7, Record; pp. 4-6, Appellant's Brief)."
As above-stated, the trial court ruled in favor of plaintiff-appellee.
Defendants-appellants assail the Deed of Conditional Sale under which they purchased
the three (3) Daikin air-conditioners from plaintiff-appellee as being contrary to law,
morals, good custom, public order or public policy. In particular, they point to the
contract's paragraphs 5 and 7 as iniquitous, which paragraphs state that:
"5. Should BUYER fail to pay any of the monthly installments when due, or otherwise fail
to comply with any of the terms and conditions herein stipulated, this contract shall
automatically become null and void; and all sums so paid by BUYER by reason thereof
shall be considered as rental and the SELLER shall then and there be free to take
possession thereof without liability for trespass or responsibility for any article left in or
attached to the PROPERTY;
x x x  x x x
"7. Should SELLER rescind this contract for any of the reasons stipulated in the
preceding paragraph, the BUYER, by these presents obligates himself to peacefully
deliver the PROPERTY to the SELLER in case of rescission, and should a suit be brought
in court by the SELLER to seek judicial declaration of rescissions and take possession of
the PROPERTY, the BUYER hereby obligates himself to pay all the expenses to be
incurred by reason of such suit and in addition to pay the sum equivalent to 25% of the
remaining unpaid obligation as damages, penalty and attorney's fees;" [3]
Defendants-appellants claim that for the use of the plaintiff-appellee's three air-
conditioners, from July 5, 1975 [4] to April 11,1977,[5] or for a period of about 22 months,
they, in effect, paid rentals in the amount of P6,429.92, [6] or roughly one-third (1/3) of
the entire price of said air-conditioners which was P19,350.00. They also complain that
for the said period the trial court is ordering them to pay P6,188.29 as the balance due
for the three air-conditioners repossessed. Defendants-appellants were likewise ordered
to pay P1,000.00 as attorney's fees when plaintiff-appellee never sought for attorney's
fees in its complaint. They satirically pointed out that by putting "a few touches here and
there, the same units can be sold again to the next imprudent customer" [7] by plaintiff-
appellee. Thus, enforcement of the Deed of Conditional Sale will unjustly enrich plaintiff-
appellee at the expense of defendants-appellants.
I
Defendants-appellants cannot complain that their downpayment of P774.00 and
installment payments of P5,655.92 [8] were treated as rentals -- even though the total
amount of P6,429.92 which they had paid, approximates one-third (1/3) of the cost of
the three (3) air-conditioners. A stipulation in a contract that the installments paid shall
not be returned to the vendee is valid insofar as the same may not be unconscionable
under the circumstances is sanctioned by Article 1486 of the New Civil Code. [9] The
monthly installment payable by defendants-appellants was P774.00. [10] The P5,655.92
installment payments correspond only to seven (7) monthly installments. Since they
admit having used the air-conditioners for twenty-two (22) months, this means that
they did not pay fifteen (15) monthly installments on the said air-conditioners and were
thus using the same FREE for said period -- to the prejudice of plaintiff-appellee. Under
the circumstances, the treatment of the installment payments as rentals cannot be said
to be unconscionable.
II
The vendor in a sale of personal property payable in installments may exercise one of
three remedies, namely, (1) exact the fulfillment of the obligation, should the vendee
fail to pay; (2) cancel the sale upon the vendee's failure to pay two or more
installments; (3) foreclose the chattel mortgage, if one has been constituted on the
property sold, upon the vendee's failure to pay two or more installments. The third
option or remedy, however, is subject to the limitation that the vendor cannot recover
any unpaid balance of the price and any agreement to the contrary is void (Art. 1484) [11]
The three (3) remedies are alternative and NOT cumulative. If the creditor chooses one
remedy, he cannot avail himself of the other two.
It is not disputed that the plaintiff-appellee had taken possession of the three air-
conditioners, through a writ of replevin when defendants-appellants refused to extra-
judicially surrender the same. This was done pursuant to paragraphs 5 and 7 of its Deed
of Conditional Sale when defendants-appellants failed to pay at least two (2) monthly
installments, so much so that as of January 6, 1977, the total amount they owed
plaintiff-appellee, inclusive of interest, was P12,920,08. [12] The case plaintiff-appellee
filed was to seek a judicial declaration that it had validly rescinded the Deed of
Conditional Sale.[13]
Clearly, plaintiff-appellee chose the second remedy of Article 1484 in seeking
enforcement of its contract with defendants-appellants. This is shown from the fact that
its Exhibit "F" which showed the computation of the outstanding account of defendants-
appellants as of October 3, 1977 took into account "the value of the units
repossessed."[14] Having done so, it is barred from exacting payment from defendants-
appellants of the balance of the price of the three air-conditioning units which it had
already repossessed. It cannot have its cake and eat it too.[15]
WHEREFORE, the judgment of the trial court in Civil Case No. 25578 is hereby SET
ASIDE and the complaint filed by plaintiff-appellee Delta Motor Sales Corporation is
hereby DISMISSED. No costs. SO ORDERED.
G.R. No. L-39806 January 27, 1983

LUIS RIDAD and LOURDES RIDAD, plaintiffs-appellees, 

vs.
FILIPINAS INVESTMENT and FINANCE CORPORATION, JOSE D. SEBASTIAN and
JOSE SAN AGUSTIN, in his capacity as Sheriff, defendants-appellants.

Osmundo Victoriano for plaintiffs-appellees.

Wilhelmina V. Joven for defendant-appellants.

DE CASTRO, J:

Appeal from the decision of the Court of First Instance of Rizal, Branch I, in Civil Case
No. 9140 for annulment of contract, originally filed with the Court of Appeals but was
subsequently certified to this Court pursuant to Section 3 of Rule 50 of the Rules of
Court, there being no issue of fact involved in this appeal.

The materials facts of the case appearing on record may be stated as follows: On April
14, 1964, plaintiffs purchased from the Supreme Sales arid Development Corporation
two (2) brand new Ford Consul Sedans complete with accessories, for P26,887 payable
in 24 monthly installments. To secure payment thereof, plaintiffs executed on the same
date a promissory note covering the purchase price and a deed of chattel mortgage not
only on the two vehicles purchased but also on another car (Chevrolet) and plaintiffs'
franchise or certificate of public convenience granted by the defunct Public Service
Commission for the operation of a taxi fleet. Then, with the conformity of the plaintiffs,
the vendor assigned its rights, title and interest to the above-mentioned promissory note
and chattel mortgage to defendant Filipinas Investment and Finance Corporation.

Due to the failure of the plaintiffs to pay their monthly installments as per promissory
note, the defendant corporation foreclosed the chattel mortgage extra-judicially, and at
the public auction sale of the two Ford Consul cars, of which the plaintiffs were not
notified, the defendant corporation was the highest bidder and purchaser. Another
auction sale was held on November 16, 1965, involving the remaining properties subject
of the deed of chattel mortgage since plaintiffs' obligation was not fully satisfied by the
sale of the aforesaid vehicles, and at the public auction sale, the franchise of plaintiffs to
operate five units of taxicab service was sold for P8,000 to the highest bidder, herein
defendant corporation, which subsequently sold and conveyed the same to herein
defendant Jose D. Sebastian, who then filed with the Public Service Commission an
application for approval of said sale in his favor.

On February 21, 1966, plaintiffs filed an action for annulment of contract before the
Court of First Instance of Rizal, Branch I, with Filipinas Investment and Finance
Corporation, Jose D. Sebastian and Sheriff Jose San Agustin, as party-defendants. By
agreement of the parties, the case was submitted for decision in the lower court on the
basis of the documentary evidence adduced by the parties during the pre-trial
conference. Thereafter, the lower court rendered judgment as follows:

IN VIEW OF THE ABOVE CONSIDERATIONS, this Court declares the chattel

mortgage, Exhibit "C", to be null and void in so far as the taxicab franchise
and the used Chevrolet car of plaintiffs are concerned, and the sale at public
auction conducted by the City Sheriff of Manila concerning said taxicab
franchise, to be of no legal effect.1äwphï1.ñët The certificate of sale issued
by the City Sheriff of Manila in favor of Filipinas Investment and Finance
Corporation concerning plaintiffs' taxicab franchise for P8,000 is accordingly
cancelled and set aside, and the assignment thereof made by Filipinas
Investment in favor of defendant Jose Sebastian is declared void and of no
legal effect. (Record on Appeal, p. 128).
From the foregoing judgment, defendants appealed to the Court of Appeals which, as
earlier stated, certified the appeal to this Court, appellants imputing to the lower court
five alleged errors, as follows:

THE LOWER COURT ERRED IN DECLARING THE CHATTEL MORTGAGE,

EXHIBIT "C", NULL AND VOID.

II

THE LOWER COURT ERRED IN HOLDING THAT THE SALE AT PUBLIC

AUCTION CONDUCTED BY THE CITY SHERIFF OF MANILA CONCERNING THE
TAXICAB FRANCHISE IS OF NO LEGAL EFFECT.

III

THE LOWER COURT ERRED IN SETTING ASIDE THE CERTIFICATE OF SALE

ISSUED BY THE CITY SHERIFF OF MANILA IN FAVOR OF FILIPINAS
INVESTMENT AND FINANCE CORPORATION COVERING PLAINTIFFS'
TAXICAB FRANCHISE.

IV

THE LOWER COURT ERRED IN DECLARING VOID AND OF NO LEGAL EFFECT

THE ASSIGNMENT OF THE TAXICAB FRANCHISE MADE BY FILIPINAS
INVESTMENT AND FINANCE CORPORATION IN FAVOR OF DEFENDANT.

THE LOWER COURT (sic) IN NOT DECIDING THE CASE IN FAVOR OF THE
DEFENDANTS. Appellants' Brief, pp. 9 & 10)

From the aforequoted assignment of errors, the decisive issue for consideration is the
validity of the chattel mortgage in so far as the franchise and the subsequent sale
thereof are concerned.

The resolution of said issue is unquestionably governed by the provisions of Article 1484
of the Civil Code which states:

Art. 1484. In a contract of sale of personal property the price of which is

payable in installments, the vendor may exercise y of the following
remedies:

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

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

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

Under the above-quoted article of the Civil Code, the vendor of personal property the
purchase price of which is payable in installments, has the right, should the vendee
default in the payment of two or more of the agreed installments, to exact fulfillment by
the purchaser of the obligation, or to cancel the sale, or to foreclose the mortgage on
the purchased personal property, if one was constituted. 1 Whichever right the vendor
elects, he cannot avail of the other, these remedies being alternative, not
cumulative. 2 Furthermore, if the vendor avails himself of the right to foreclose his
mortgage, the law prohibits him from further bringing an action against the vendee for
the purpose of recovering whatever balance of the debt secured not satisfied by the
foreclosure sale. 3 The precise purpose of the law is to prevent mortgagees from seizing
the mortgaged property, buying it at foreclosure sale for a low price and then bringing
suit against the mortgagor for a deficiency judgment, otherwise, the mortgagor-buyer
would find himself without the property and still owing practically the full amount of his
original indebtedness. 4

In the instant case, defendant corporation elected to foreclose its mortgage upon default
by the plaintiffs in the payment of the agreed installments. Having chosen to foreclose
the chattel mortgage, and bought the purchased vehicles at the public auction as the
highest bidder, it submitted itself to the consequences of the law as specifically
mentioned, by which it is deemed to have renounced any and all rights which it might
otherwise have under the promissory note and the chattel mortgage as well as the
payment of the unpaid balance.

Consequently, the lower court rightly declared the nullity of the chattel mortgage in
question in so far as the taxicab franchise and the used Chevrolet car of plaintiffs are
concerned, under the authority of the ruling in the case of Levy Hermanos, Inc. vs.
Pacific Commercial Co., et al., 71 Phil. 587, the facts of which are similar to those in the
case at bar. There, we have the same situation wherein the vendees offered as security
for the payment of the purchase price not only the motor vehicles which were bought on
installment, but also a residential lot and a house of strong materials. This Court
sustained the pronouncement made by the lower court on the nullity of the mortgage in
so far as it included the house and lot of the vendees, holding that under the law, should
the vendor choose to foreclose the mortgage, he has to content himself with the
proceeds of the sale at the public auction of the chattels which were sold on installment
and mortgaged to him and having chosen the remedy of foreclosure, he cannot nor
should he be allowed to insist on the sale of the house and lot of the vendees, for to do
so would be equivalent to obtaining a writ of execution against them concerning other
properties which are separate and distinct from those which were sold on installment.
This would indeed be contrary to public policy and the very spirit and purpose of the law,
limiting the vendor's right to foreclose the chattel mortgage only on the thing sold.

In the case of Cruz v. Filipinos Investment & Finance Corporation, 23 SCRA 791, this
Court ruled that the vendor of personal property sold on the installment basis is
precluded, after foreclosing the chattel mortgage on the thing sold from having a
recourse against the additional security put up by a third party to guarantee the
purchaser's performance of his obligation on the theory that to sustain the same would
overlook the fact that if the guarantor should be compelled to pay the balance of the
purchase price, said guarantor will in turn be entitled to recover what he has paid from
the debtor-vendee, and ultimately it will be the latter who will be made to bear the
payment of the of the balance of the price, despite the earlier foreclosure of the chattel
mortgage given by him, thereby indirectly subverting the protection given the latter.
Consequently, the additional mortgage was ordered cancelled. Said ruling was reiterated
in the case of Pascual v. Universal Motors Corporation, 61 SCRA 121. If the vendor
under such circumstance is prohibited from having a recourse against the additional
security for reasons therein stated, there is no ground why such vendor should not
likewise be precluded from further extrajudicially foreclosing the additional security put
up by the vendees themselves, as in the instant case, it being tantamount to a further
action 5 that would violate Article 1484 of the Civil Code, for then is actually no between
an additional security put up by the vendee himself and such security put up by a third
party insofar as how the burden would ultimately fall on the vendee himself is
concerned.

Reliance on the ruling in Southern Motors, inc. v. Moscoso, 2 SCRA 168, that in sales on
installments, where the action instituted is for and the mortgaged property is
subsequently attached and sold, the sales thereof does not amount to a foreclosure of
the mortgage, hence, the seller creditor is entitled to a deficiency judgment, does not for
the stand of the appellants for that case is entirely different from the case at bar. In that
case, the vendor has availed of the first remedy provided by Article 1484 of the Civil
Code, i.e., to exact fulfillment of the obligation whereas in the present case, the remedy
availed of was foreclosure of the chattel mortgage.

The foregoing disposition renders superfluous a determination of the other issue raised
by the parties as to the validity of the auction sale, in so far as the franchise of plaintiffs
is concerned, which sale had been admittedly held without any notice to the plaintiffs.

IN VIEW HEREOF, the judgment appealed from is hereby affirmed, with costs against
the appellants.

SO ORDERED.
G.R. No. L-30583 October 23, 1982

EUTROPIO ZAYAS, JR., petitioner, 

vs.
LUNETA MOTOR COMPANY and HONORABLE JUAN O. REYES, Presiding Judge of
the Court of First Instance of Manila, Branch XXI, respondents.

Pantaleon Z. Salcedo for petitioner.

Leandro B. Fernandez for respondents.

GUTIERREZ, JR., J.:

Eutropio Zayas, Jr., filed this petition for review by certiorari to secure a reversal of the
respondent court's orders which remanded Civil Case No. 74381 for further proceedings
instead of affirming the city court's order of dismissal,

The petitioner Eutropio Zayas, Jr, purchased on installment basis a motor vehicle
described as ONE (1) UNIT FORD THAMES FREIGHTER W/PUJ BODY with Engine No.
400E-127738 and Chassis No. 400E-127738 from Mr. Roque Escaño of the Escaño
Enterprises in Cagayan de Oro City, dealer of respondent Luneta Motor Company, under
the following terms and conditions:

Selling P7,500.00
price

Financing P1,426.82
charge

Total P8,926.82
Selling
Price

Payable P1,006.82
on
Delivery

Payable P7,920.00
in 24
months
at 12%
interest
per
annum

The motor vehicle was delivered to the petitioner who 1) paid the initial payment in the
amount of P1,006.82; and 2) executed a promissory note in the amount of P7,920.00,
the balance of the total selling price, in favor of respondent Luneta Motor Company. The
promissory note stated the amounts and dates of payment of twenty-six installments
covering the P7,920.00 debt. Simultaneously with the execution of the promissory note
and to secure its payment, the petitioner executed a chattel mortgage on the subject
motor vehicle in favor of the respondent. After paying a total amount of P3,148.00, the
petitioner was unable to pay further monthly installments prompting the respondent
Luneta Motor Company to extra-judicially foreclose the chattel mortgage (Annex "A" to
Answer, Original Record, p. 10, supra). The motor vehicle was sold at public auction with
the respondent Luneta Motor Company represented by Atty. Leandro B. Fernandez as
the highest bidder in the amount of P5,000.00 (Annex "B" to Answer, Original Record, p.
11, supra). Since the payments made by petitioner Eutropio Zayas, Jr. plus the
P5,000.00 realized from the foreclosure of the chattel mortgage could not cover the total
amount of the promissory note executed by the petitioner in favor of the respondent
Luneta Motor Company, the latter filed Civil Case No. 165263 with the City Court of
Manila for the recovery of the balance of P1,551.74 plus interests.

Luneta Motor Company alleged in its complaint that defendant Eutropio Zayas, Jr.
executed a promissory note in the amount of P7,920.00 in its favor; that out of the
P7,920.00, Eutropio Zayas, Jr. had paid only P6,368.26 plus interest up to the date of
the sale at public auction of the motor vehicle; that the balance of P1,551.74 plus
interest of 12% thereon from that date had already become due and payable but despite
repeated demands to pay the same, Eutropio Zayas, Jr., refused and failed to pay.

In his answer with affirmative defenses and counterclaim, Eutropio Zayas, Jr. admitted
having executed the promissory note for the monthly payments, on a Ford Thames
vehicle bearing Engine No. 400E-127738 which he purchased from the Luneta Motor
Company but he denied his alleged outstanding liability of P1,551.74 plus interest
thereon ... the said obligation if there was any, had already been discharged either by
payment or by sale in public auction of the said motor vehicle as evidenced by a Notice
of Sale marked as Annex "A" and Certificate of Sale marked as Annex "B"; (Answer, p.
7, Original Record). He alleged as affirmative defenses, among others: 1) that the
plaintiff has no cause of action against him; and 2) that pursuant to Article 1484 of the
New Civil Code and the case of Pacific Commercial Co. v. De La Rama, (72 Phil. 380) his
obligation per the promissory note was extinguished by the sale at public auction of the
motor vehicle, the subject of the chattel mortgage which was executed by him in favor
of the plaintiff as security for the payment of said promissory note. (Answer, p. 8,
Original Record)

In its Reply, Luneta Motor Company denied the applicability of Article 1484 of the Civil
Code ... for the simple reason that the contract involved between the parties is not one
for a sale on installment" (Reply, p. 13, Original Record).

After several postponements, the case was set for hearing. As a result of the non-
appearance of the plaintiff and its counsel on the date set for hearing, defendant Zayas,
Jr. moved to have the case dismissed for lack of interest on the part of the plaintiff. He
also asked the court to allow him to discuss the merits of his affirmative defense as if a
motion to dismiss had been filed. The issue raised and argued by the defendant was
whether or not a deficiency amount after the motor vehicle, subject of the chattel
mortgage, has been sold at public auction could still be recovered. Zayas cited the case
of Ruperto Cruz v. Filipinas Investment (23 SCRA 791).<äre||anº•1àw>

Acting on the motion, the city court issued an Order:

On Petition of counsel for the defendant for the dismissal of this case on the
ground that the defendant is no longer liable for the deficiency judgment
inas much as the chattel mortgage has been foreclosed, with the plaintiff as
the highest bidder thereof, citing the case of Ruperto G. Cruz v. Filipinas
Investment decided on May 27, 1968, G.R. No. L-24772 in connection with
Article 1484 of the Civil Code, and finding the same well taken.

Let this case be dismissed without pronouncement as to costs.

Luneta Motor Company filed an "Urgent Motion for Reconsideration" reiterating its stand
that Article 1484 of the New Civil Code on sale of personal property by installment was
not applicable and that the contract involving the parties was a mere case of an ordinary
loan secured by chattel mortgage. According to the plaintiff, the defendant executed the
promissory note and chattel mortgage to secure the plaintiff's interest for having
financed the purchase of the motor vehicle by the defendant from the Escaño
Enterprises of Cagayan de Oro City, an entity entirely different and distinct from the
plaintiff corporation (p. 33, Original Record).

The court denied the motion for reconsideration for lack of merit.
Luneta Motor Company appealed the case to the Court of First Instance of Manila where
it was docketed as Civil Case No. 74381.

After various incidents, the respondent court issued an order which, in part, reads:

This is an appeal taken by plaintiff from the order of the City Court of Manila,
dismissing its complaint on the ground that the defendant is no longer liable
for the deficiency judgment inasmuch as the chattel mortgage has been
foreclosed, with the plaintiff as the highest bidder thereof, in line with the
ruling of the Supreme Court in the case of Ruperto G. Cruz v. Filipinas
Investment (G.R. No. L24772) in connection with Article 1484 of the Civil
Code.

xxx xxx xxx

After going over the pleadings in this case, more particularly the complaint
and the answer to the complaint filed with the City Court of Manila, this
Court is of the impression that the case at bar may not be decided merely,
as the City Court had done, on the question of law since the presentation of
evidence is necessary to adjudicate the questions involved. WHEREFORE,
this case is hereby remanded to the court of origin for further proceedings.
(pp. 82-83, Original Record)

Hence, this petition.

Petitioner Eutropio Zayas, Jr. now maintains::

That Respondent Court of First Instance erred:

1. IN HOLDING THAT THE QUESTION OF LAW CANNOT BE DECIDED SINCE

PRESENTATION OF EVIDENCE IS NECESSARY- REGARDING THE QUESTION
OF RECOVERY OF THE DEFICIENCY AMOUNT IN A CHATTEL MORTGAGE
AFTER SELLING IT IN A PUBLIC AUCTION;

2. IN ORDERING THE REMAND OF THE CASE TO THE CITY COURT FOR

FURTHER PROCEEDINGS TAKEN BY THE RESPONDENT FROM THE CITY
COURT TO THE COURT OF FIRST INSTANCE, BRANCH XXI, MANILA; and

3. IN NOT DISMISSING THE APPEAL TAKEN BY THE PRIVATE RESPONDENT

FROM THE CITY COURT TO THE COURT OF FIRST INSTANCE.

The main defense of respondent Luneta Motor Company is that Escano Enterprises,
Cagayan de Oro City from which petitioner Eutropio Zayas, Jr. purchased the subject
motor vehicle was a distinct and different entity; that the role of Luneta Motor Company
in the said transaction was only to finance the purchase price of the motor vehicle; and
that in order to protect its interest as regards the promissory note executed in its favor,
a chattel mortgage covering the same motor vehicle was also executed by petitioner
Eutropio Zayas, Jr. In short, respondent Luneta Motor Company maintains that the
contract between the company and the petitioner was only an ordinary loan removed
from the coverage of Article 1484 of the New Civil Code.

The respondent's arguments have no merit.

The Escaño Enterprises of Cagayan de Oro City was an agent of Luneta Motor Company.
A very significant evidence which proves the nature of the relationship between Luneta
Motor Company and Escaño Enterprises is Annex "A. of the petitioner's OPPOSITION TO
URGENT MOTION FOR RECONSIDERATION. (Original Record, p. 36) Annex "A" is a
Certification from the cashier of Escano Enterprises on the monthly installments paid by
Mr. Eutropio Zayas, Jr. In the certification, the promissory note in favor of Luneta Motor
Company was specifically mentioned. There was only one promissory note executed by
Eutropio Zayas, Jr. in connection with the purchase of the motor vehicle. The promissory
note mentioned in the certification refers to the promissory note executed by Eutropio
Zayas, Jr. in favor of respondent Luneta Motor Company. Thus:

CERTIFICATION

This is to certify that Mr. EUTROPIO ZAYAS, JR. has paid from us the
following, of his FORD THAMES BEARING Engine No. 400E-127738,
promissory note dated October 6, 1966. Viz:

ESCAÑ DATE AMOU

O O.R RECEI NT
VED

NUMBE
   
R

09998 Octob P1,00

er 5, 0.00
1966

10064 Octob 242.0

er 20, 0
1966

10188 Nove 166.0

mber 0
8,
1966

10355 Dece 400.0

mber 0
12,19
66

LMC Janua 270.0

C.R. ry 19, 0
#4003 1967
1

10536 Febru 60.00

ary 1,
1967

10645 Febru 100.0

ary 0
27,
1967

10704 March 100.0

13,19 0
67

10749 March 60.00

22,
1967

10132 March 100.0

30,19 0
67

10788 April 100.0

8, 0
1967
 10795 April 100.0
11, 0
1967

10827 April 100.0

18, 0
1967

10934 May 100.0

10, 0
1967

10991 May 100.0

26,19 0
67

11105 June 150.0

19,19 0
67

  P3,14
 
8.00

ESCAÑO ENTERPRISES

(SGD.) EMELITA H. BACULIO

Cash
er

Escano Enterprises, a dealer of respondent Luneta Motor Company, was merely a

collecting-agent as far as the purchase of the subject motor vehicle was concerned. The
principal and agent relationship is clear.

But even assuming that the "distinct and independent entity" theory of the private
respondent is valid, the nature of the transaction as a sale of personal property on
installment basis remains. When, therefore, Escaño Enterprises, assigned its rights vis-
a-vis the sale to respondent Luneta Motor Company, the nature of the transaction
involving Escano Enterprises and Eutropio Zayas, Jr. did not change at all. As assignee,
respondent Luneta Motor Company had no better rights than assignor Escaño
Enterprises under the same transaction. The transaction would still be a sale of personal
property in installments covered by Article 1484 of the New Civil Code. To rule otherwise
would pave the way for subverting the policy underlying Article 1484 of the New Civil
Code, on the foreclosure of chattel mortgages over personal property sold on installment
basis.

ART. 1484. In a contract of sale of personal property the price of which is

payable in installments, the vendor may exercise any of the following
remedies:

xxx xxx xxx

xxx xxx xxx

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

xxx xxx xxx

... the established rule is to the effect that the foreclosure and actual sale of a
mortgaged chattel bars further recovery by the vendor of any balance on the
purchaser's outstanding obligation not so satisfied by the sale. And the reason for this
doctrine was aptly stated in the case of Bachrach Motor Co. vs. Millan, supra, thus:

Undoubtedly the principal object of the above amendment was

to remedy the abuses committed in connection with the
foreclosure of chattel mortgages. This amendment prevents
mortgagees from seizing the mortgaged property, buying it at
foreclosure sale for a low price and then bringing suit against the
mortgagor for a deficiency judgment. The almost invariable
result of this procedure was that the mortgagor found himself
minus the property and still owing practically the full amount of
his original indebtedness. Under this amendment the vendor of
personal property, the purchase price of which is payable in
installments, has the right to cancel the sale or foreclose the
mortgage if one has been given on the property. Whichever right
the vendor elects he need not return to the purchaser the
amount of the installments already paid, "if there be an
agreement to that effect". Furthermore, if the vendor avails
himself of the right to foreclose the mortgage this amendment
prohibits him from bringing an action against the purchaser for
the unpaid balance. (Cruz v. Filipinas Investment & Finance
Corporation, 23 SCRA 791)

Our findings and conclusions are borne out by the records available to the respondent
court. There was no necessity for the remand of records to the city court for the
presentation of evidence on the issue raised in the case.

WHEREFORE, the instant petition is hereby granted. The orders remanding the case to
the court of origin and denying the motion for reconsideration of the Court of First
Instance of Manila, Branch XXI issued in Civil Case No. 74381 are annulled. Accordingly,
the Court of First Instance of Manila, Branch XXI is directed to dismiss the appeal in Civil
Case No. 74381. The Order of the City Court of Manila dismissing the complaint in Civil
Case No. 165263 is affirmed. SO ORDERED.

G.R. No. L-24772           May 27, 1968

RUPERTO G. CRUZ, ET AL., plaintiffs-appellees, 

vs.
FILIPINAS INVESTMENT and FINANCE CORPORATION, defendant-appellant.

Villareal, Almacen, Navarra and Associates for plaintiffs-appellees.

Sycip, Salazar, Luna, Manalo and Feliciano for defendant-appellant.

REYES, J.B.L., J.:

Appeal interposed by Filipinas Investment & Finance Corporation from the decision of the
Court of First Instance of Rizal (Quezon City) in Civil Case No. Q-7949.1ªvvphi1.nêt

In the action commenced by Ruperto G. Cruz and Felicidad V. Vda. de Reyes in the
Court of First Instance of Rizal (Civil Case No. Q-7949), for cancellation of the real
estate mortgage constituted on the land of the latter 1 in favor of defendant Filipinas
Investment & Finance Corporation (as assignee of the Far East Motor Corporation), the
parties submitted the case for decision on the following stipulation of facts:

1. Their personal circumstances and legal capacities to sue and be sued;

2. That on July 15, 1963, plaintiff Ruperto G. Cruz purchased on installments, from
the Far East Motor Corporation, one (1) unit of Isuzu Diesel Bus, described in the
complaint, for P44,616.24, Philippine Currency, payable in installments of
P1,487.20 per month for thirty (30) months, beginning October 22, 1963, with 12
% interest per annum, until fully paid. As evidence of said indebtedness, plaintiff
Cruz executed and delivered to the Far East Motor Corporation a negotiable
promissory note in the sum of P44,616.24, ...;

3. That to secure the payment of the promissory note, Annex "A", Cruz executed
in favor of the seller, Far East Motor Corporation, a chattel mortgage over the
aforesaid motor vehicle...;

4. That as no down payment was made by Cruz, the seller, Far East Motor
Corporation, on the very improvements thereon, in San Miguel, Bulacan...; same
date, July 15, 1963, required and Cruz agreed to give, additional security for his
obligation besides the chattel mortgage, Annex "B"; that said additional security
was given by plaintiff Felicidad Vda. de Reyes in the form of SECOND MORTGAGE
on a parcel of land owned by her, together with the building and

5. That said land has an area of 68,902 square meters, more or less, and covered
by Transfer Certificate of Title No. 36480 of the Registry of Deeds of Bulacan in the
name of plaintiff Mrs. Reyes; and that it was at the time mortgaged to the
Development Bank of the Philippines to secure a loan of P2,600.00 obtained by
Mrs. Reyes from that bank;

6. That also on July 15, 1963, the Far East Motor Corporation for value received
indorsed the promissory note and assigned all its rights and interest in the Deeds
of Chattel Mortgage and in the Deed of Real Estate Mortgage (Annexes "A", "B"
and "B-l") to the defendant, Filipinas Investment & Finance Corporation, with due
notice of such assignment to the plaintiffs...;

7. That plaintiff Cruz defaulted in the payment of the promisory note (Annex "A") ;
that the only sum ever paid to the defendant was Five Hundred Pesos (P500.00)
on October 2, 1963, which was applied as partial payment of interests on his
principal obligation; that, notwithstanding defendant's demands, Cruz made no
payment on any of the installments stipulated in the promissory note;

8. That by reason of Cruz's default, defendant took steps to foreclose the chattel
mortgage on the bus; that said vehicle had been damaged in an accident while in
the possession of plaintiff Cruz;

9. That at the foreclosure sale held on January 31, 1964 by the Sheriff of Manila,
the defendant was the highest bidder, defendant's bid being for Fifteen Thousand
Pesos (P15,000.00)...;

10. That the proceeds of the sale of the bus were not sufficient to cover the
expenses of sale, the principal obligation, interests, and attorney's fees, i.e., they
were not sufficient to discharge fully the indebtedness of plaintiff Cruz to the
defendant;

11. That on February 12, 1964, preparatory to foreclosing its real estate mortgage
on Mrs. Reyes' land, defendant paid the mortgage indebtedness of Mrs. Reyes to
the Development Bank of the Philippines, in the sum of P2,148.07, the unpaid
balance of said obligation...;

12. That pursuant to a provision in the real estate mortgage contract, authorizing
the mortgagee to foreclose the mortgage judicially or extra-judicially, defendant
on February 29, 1964 requested the Provincial Sheriff of Bulacan to take
possession of, and sell, the land subject of the Real Estate Mortgage, Annex "B-1",
to satisfy the sum of P43,318.92, the total outstanding obligation of the plaintiffs
 to the defendant, as itemized in the Statement of Account, which is made a part
hereof as Annex "F"...;

13. That notices of sale were duly posted and served to the Mortgagor, Mrs.
Reyes, pursuant to and in compliance with the requirements of Act 3135...;

14. That on March 20, 1964, plaintiff Reyes through counsel, wrote a letter to the
defendant asking for the cancellation of the real estate mortgage on her land, but
defendant did not comply with such demand as it was of the belief that plaintiff's
request was without any legal basis;

15. That at the request of the plaintiffs, the provincial Sheriff of Bulacan held in
abeyance the sale of the mortgaged real estate pending the result of this action.

Passing upon the issues which, by agreement of the parties, were limited to — (1)
"Whether defendant, which has already extrajudicially foreclosed the chattel mortgage
executed by the buyer, plaintiff Cruz, on the bus sold to him on installments, may also
extrajudicially foreclose the real estate mortgage constituted by plaintiff Mrs. Reyes on
her own land, as additional security, for the payment of the balance of Cruz' Obligation,
still remaining unpaid"; and (2) whether or not the contending parties are entitled to
attorney's fees — the court below, in its decision of April 21, 1965, sustained the
plaintiffs' stand and declared that the extrajudicial foreclosure of the chattel mortgage
on the bus barred further action against the additional security put up by plaintiff Reyes.
Consequently, the real estate mortgage constituted on the land of said plaintiff was
ordered cancelled and defendant was directed to pay the plaintiffs attorney's fees in the
sum of P200.00. Defendant filed the present appeal raising the same questions
presented in the lower court.

There is no controversy that, involving as it does a sale of personal property on

installments, the pertinent legal provision in this case is Article 1484 of the Civil Code of
the Philippines, 2 which reads:

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

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

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

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

The aforequoted provision is clear and simple: should the vendee or purchaser of a
personal property default in the payment of two or more of the agreed installments, the
vendor or seller has the option to avail of any one of these three remedies — either to
exact fulfillment by the purchaser of the obligation, or to cancel the sale, or to foreclose
the mortgage on the purchased personal property, if one was constituted. These
remedies have been recognized as alternative, not cumulative, 3 that the exercise of one
would bar the exercise of the others. 4 It may also be stated that the established rule is
to the effect that the foreclosure and actual sale of a mortgaged chattel bars further
recovery by the vendor of any balance on the purchaser's outstanding obligation not so
satisfied by the sale. 5 And the reason for this doctrine was aptly stated in the case
of Bachrach Motor Co. vs. Millan, supra, thus:

Undoubtedly the principal object of the above amendment 6 was to remedy the

abuses committed in connection with the foreclosure of chattel mortgages. This
amendment prevents mortgagees from seizing the mortgaged property, buying it
at foreclosure sale for a low price and then bringing suit against the mortgagor for
 a deficiency judgment. The almost invariable result of this procedure was that the
mortgagor found himself minus the property and still owing practically the full
amount of his original indebtedness. Under this amendment the vendor of personal
property, the purchase price of which is payable in installments, has the right to
cancel the sale or foreclose the mortgage if one has been given on the property.
Whichever right the vendor elects he need not return to the purchaser the amount
of the installments already paid, "if there be in agreement to that effect".
Furthermore, if the vendor avails himself of the right to foreclose the mortgage the
amendment prohibits him from bringing an action against the purchaser for the
unpaid balance.

It is here agreed that plaintiff Cruz failed to pay several installments as provided in the
contract; that there was extrajudicial foreclosure of the chattel mortgage on the said
motor vehicle; and that defendant-appellant itself bought it at the public auction duly
held thereafter, for a sum less than the purchaser's outstanding obligation. Defendant-
appellant, however, sought to collect the supported deficiency by going against the real
estate mortgage which was admittedly constituted on the land of plaintiff Reyes as
additional security to guarantee the performance of Cruz' obligation, claiming that what
is being withheld from the vendor, by the proviso of Article 1484 of the Civil Code, is
only the right to recover "against the purchaser", and not a recourse to the additional
security put up, not by the purchaser himself, but by a third person.

There is no merit in this contention. To sustain appellant's argument is to overlook the

fact that if the guarantor should be compelled to pay the balance of the purchase price,
the guarantor will in turn be entitled to recover what she has paid from the debtor
vendee (Art. 2066, Civil Code) ; so that ultimately, it will be the vendee who will be
made to bear the payment of the balance of the price, despite the earlier foreclosure of
the chattel mortgage given by him. Thus, the protection given by Article 1484 would be
indirectly subverted, and public policy overturned.

Neither is there validity to appellant's allegation that, since the law speaks of "action",
the restriction should be confined only to the bringing of judicial suits or proceedings in
court.

The word "action" is without a definite or exclusive meaning. It has been invariably
defined as —

... the legal demand of one's right, or rights; the lawful demand of one's rights in
the form given by law; a demand of a right in a court of justice; the lawful demand
of one's right in a court of justice; the legal and formal demand of ones rights
from another person or party, made and insisted on in a court of justice; a claim
made before a tribunal; an assertion in a court of justice of a right given by law; a
demand or legal proceeding in a court of justice to secure one's rights; the
prosecution of some demand in a court of justice; the means by which men litigate
with each other; the means that the law has provided to put the cause of action
into effect;.... (Gutierrez Hermanos vs. De la Riva, 46 Phil. 827, 834-835).

Considering the purpose for which the prohibition contained in Article 1484 was
intended, the word "action" used therein may be construed as referring to any judicial or
extrajudicial proceeding by virtue of which the vendor may lawfully be enabled to exact
recovery of the supposed unsatisfied balance of the purchase price from the purchaser
or his privy. Certainly, an extrajudicial foreclosure of a real estate mortgage is one such
proceeding.

The provision of law and jurisprudence on the matter being explicit, so that this litigation
could have been avoided, the award by the lower court of attorney's fees to the
plaintiff's in the sum of P200.00 is reasonable and in order.

However, we find merit in appellant's complaint against the trial court's failure to order
the reimbursement by appellee Vda. de Reyes of the amount which the former paid to
the Development Bank of the Philippines, for the release of the first mortgage on the
land of said appellee. To the extent that she was benefited by such payment, plaintiff-
appellee Vda. de Reyes should have been required to reimburse the appellant.

WHEREFORE, the decision appealed from is modified, by ordering plaintiff-appellee

Felicidad Vda. de Reyes to reimburse to defendant-appellant Filipinas Investment &
Finance Corporation the sum of P2,148.07, with legal interest thereon from the finality
of this decision until it is fully paid. In all other respects, the judgment of the court
below is affirmed, with costs against the defendant-appellant.

G.R. No. L-45955             April 5, 1939

TEODORICA R. VIUDA DE JOSE, petitioner, 

vs.
JULIO VELOSO BARRUECO, respondent.

Ramon Diokno for petitioner.

Ignacio B. Alcuaz for respondent.

LAUREL, J.:

The petitioner-appellant brought this case before this court thru petition for a writ
of certiorari to review the decision of the Court of Appeals promulgated on October 30,
1937.

Mary Ando leased from Julio Barrueco a China cabinet valued T P70. She undertook,
under the lease, to pay P14 upon signing the contract and P5 monthly thereafter for a
period not specified but extendible at the owner's pleasure. The contract of lease further
provided that upon leasee's default, the contract would be rescinded; that the leasee
was not liberty to remove said cabinet from house No 1030 Misericordia Street where
she lived, and that upon failure to comply with the terms of the lease, the owner could
immediately take possession of the property leased. Under similar terms and conditions,
Mary Ando also leased from said store a narra wardrobe valued at P120, paying P24
cash and P10 monthly.

Unable to pay the rent of the house, Mary Ando attempted to move therefrom, taking
with her the cabinet and the wardrobe. She was presented from doing so by Teodorica
R. Viuda de Jose, the owner of the house, who claimed to be entitled to said personal
properties in lieu of rents due.

Upon a complaint filed by Julio Veloso Barrueco to recover the properties in question
from Teodorica R. Viuda de Jose, the Court of First Instance of Manila held that the
contracts of lease (Exhibits A and B) were fictitious, and that the real contract between
the plaintiff and Mary Ando was one of sale on the installment basis, wherefore, the
complaint was dismissed and defendant declared entitled to the properties in litigation.
Brought to the Court of Appeals, the judgment was reversed, and the contracts between
plaintiff and Mary Ando held to be those of lease.

The case is here on petition, by defendant Teodorica R. Viuda de Jose, now petitioner,
contending that the decision of the Court of Appeals is erroneous for the following
reasons:

(a) Resumiendo las condiciones de ambas escrituras de "arrendamiento," Exhibits

A y B, extractadas en la parte de la decision recurrida arriba acotada, se destacan
estos datos:

Valor del Primer Precio Alquiler Periodo necesario

Exhibit
mueble pago restante mensual de pago
A ............
P70.00 P14.00 P56.00 P5.00 Once meses
.
B ............
120.00 24.00 96.00 10.00 Diez meses
.

(b) Al otorgarse la escritura hay inmediatamente pagos de P14 y P24, que no son

alquileres, y que no tienen otro significado sino pagos a cuenta del precio de los
muebles. Estas candidades representan exactamente el pago anticipado del 20 por
ciento, o una quinta parte del valor.

(c) Los cuatro quintos restantes del valor son pagaderos en forma de
mensualidades dentro de un periodo de 10 a 11 meses. Si este alquiler no es a
cuenta del importe del mueble, el contrato sera escandalosamente inmoral, por
usurario y opresivo.

(d) Es indudable que estos pagos son para cubrir el precio estipulado, pues el
recurrido admite que la consideracion de la venta ulterior son las mismas
mensualidades, y la "arrendataria" dice que "los alquileres . . . eran a cuenta del
importe total," "como pago a plazos".

(e) Los precios de los muebles fijados en las escrituras guardan armonia con la
indole de venta a plazos, pues esta aumentado considerablemente. En el mismo
dia en que el asunto se vio en el Juzgado Municipal de Manila, la apelada-
recurrente tomo precious en los establecimientos de muebles identicos, y hallo que
solo valen P61 en total, en vez de P190 (n. t., p. 21). Esta prueba no ha sido
contradicha.

(f ) Las partes no solo se han obligado, el uno a entregar los muebles, y la otra, a
pagarlos. En efecto, la cosa ha sido entregada, y parte del precio fue pagado.
 (g) La decision dice que no es venta a plazos, sino arrendamiento con opcion de
compra, pero si la consideracion del arrendamiento y la de la compra es una y la
misma, como ocurre en el presente caso, segun la misma decision recurrida,
entonces no existe contrato doble, sino uno y simple, de venta condicional o a
plazos. Para que sea arrendamiento con opcion de compra debe haber un precio
para la compra distinta del precio de arrendamiento, que no occurre en el presente
caso.

A perusal of the record of this case shows that in Exhibit A, the amount of P70 was fixed
as the cost price for the cupboard, P14 as the down payment made at the signing of the
contract and P5 as the monthly rentals of said furniture. In Exhibit B the amount of P120
was also fixed as the cost price of the modern narra wardrobe, the down payment made
as P24 and the monthly rental at P10. These Exhibits A and B are
denominated CONTRACTS OF LEASE, the monthly payments for both pieces of
furniture are called rentals, and Mary Ando is mentioned as "leasee." What is the nature
of these contracts? The answer to this question is not to be found in any denomination
which the parties may have given to the instruments, and not alone in any particular
provision it contains, disconnected from all others, but in the ruling intention of the
parties, gathered from the language they have used. It is the legal effect of the whole
which is to be sought for. The form of the instrument is of little account.
(See Herryford vs. Davis, 26 Law. ed. [ U. S.], pp. 160, 162.).

We find that the parties intended to have the ownership of the furniture transferred to
Mary Ando upon the latter complying with the conditions of the contract. (Testimony of
plaintiff, p. 9, s. n.; and Mary Ando, p. 17, s. n.) Cf. Valdez vs. Sibal 1.º, 46 Phil., 930.)

In H. E. Heacock Co. vs. Buntal Manufacturing Co. (G. R. No. 44471, promulgated

September 26, 1938), we said:

A mayor abundamiento debemos decir que el hecho de haberse fijado el precio de

la maquina en el contrato, hace que este no sea de arrendamiento sino de
compraventa, porque en los contratos de arrendamiento, a diferencia de los
contratos de compraventa, es redunduncia injustifiable, fijar o hacer mencion
siguiera del precio de la cosa que se da en arrendamiento. (Arts. 1445, 1543,
Codigo Civil.) Cuando los terminos de un contrato no son claros o son
contradictorios entre si, como lo son los del Exhibit A, debe darse efecto a la
intencion de las partes (art 1281 del Codigo Civil), y la intencion de la demandante
y de los demandados en esta causa segun la vemos impresa en el contrato Exhibit
A, considerando en conjunto todos sus terminos y clausulas es que el contrato por
ellos celebrado fue el de compraventa a plazos, y no de arrendamiento.

In Manila Gas Corporation vs. Calupitan (G.R. No. 46378, promulgated December 17,
1938), we also observed:

Por las consideraciones arriba expuestas, somos de opinion, y asi declaramos, que
cuando en un contrato que se titula de arrendamiento de cosa mueble se estipula
que el supuesto arrendatario pagara cierta cantidad al firmarse el contrato, y en o
antes del dia 5 de cada mes, otra cantidad determinada, en concepto de alguiler,
dando al supuesto arrendatario derecho de opcion para comprar la citada cosa
mueble antes de expirar el plazo del arrendamiento, que es el tiempo que se
necesita para pagar dicho importe a razon de un tanto al mes, descontando los
pagos hechos en concepto de adelanto y de supuestos alquileres mensuales, y
dicho supuesto arrendatario hace el adelanto y paga varias mensualidades,
haciendose constar en su cuenta y en los recibos que se le expiden que dichos
pagos son a cuenta del importe de la cosa mueble supuestamente arrendada,
dicho contrato tiene el concepto de venta a plazo y no de arrendamiento.

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

The writ of certiorari is granted, and the judgement of the Court of Appeals is reserved
and that of the Court of First Instance of Manila declared in full force and effect. With out
costs. So ordered.

G.R. No. 82508 September 29, 1989

FILINVEST CREDIT CORPORATION, petitioner, 

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

Labaquis, Loyola, Angara and Associates for petitioner.

Alfredo 1. Raya for private respondents.

SARMIENTO, J.:
This is a petition for review on certiorari of the decision, 1 dated March 17, 1988, of the
Court of Appeals which affirmed with modification the decision 2 of the Regional Trial
Court of Quezon, Branch LIX, Lucena City. The controversy stemmed from the following
facts: The private respondents, the spouses Jose Sy Bang and Iluminada Tan, were
engaged in the sale of gravel produced from crushed rocks and used for construction
purposes. In order to increase their production, they engaged the services of Mr. Ruben
Mercurio, the proprietor of Gemini Motor Sales in Lucena City, to look for a rock crusher
which they could buy. Mr. Mercurio referred the private respondents to the Rizal
Consolidated Corporation which then had for sale one such machinery described as:

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

JAW CRUSHER-10xl6 DOUBLE ROLL CRUSHER 16x16

3 UNITS PRODUCT CONVEYOR

75 HP ELECTRIC MOTOR

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

CONDITION 3

Oscar Sy Bang, a brother of private respondent Jose Sy Bang, went to inspect the
machine at the Rizal Consolidated's plant site. Apparently satisfied with the machine, the
private respondents signified their intent to purchase the same. They were however
confronted with a problem-the rock crusher carried a cash price tag of P 550,000.00.
Bent on acquiring the machinery, the private respondents applied for financial assistance
from the petitioner, Filinvest Credit Corporation. The petitioner agreed to extend to the
private respondents financial aid on the following conditions: that the machinery be
purchased in the petitioner's name; that it be leased (with option to purchase upon the
termination of the lease period) to the private respondents; and that the private
respondents execute a real estate mortgage in favor of the petitioner as security for the
amount advanced by the latter. Accordingly, on May 18,1981, a contract of lease of
machinery (with option to purchase) was entered into by the parties whereby the private
respondents agreed to lease from the petitioner the rock crusher for two years starting
from July 5, 1 981 payable as follows:

P10,000.00 - first 3 months

23,000.00 - next 6 months

24,800.00 - next 15 months

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

As a consequence of the non-payment by the private respondents of the rentals on the

rock crusher as they fell due despite the repeated written demands, the petitioner
extrajudicially foreclosed the real estate mortgage. 6 On April 18, 1983, the private
respondents received a Sheriff s Notice of Auction Sale informing them that their
mortgaged properties were going to be sold at a public auction on May 25, 1983 at
10:00 o'clock in the morning at the Office of the Provincial Sheriff in Lucena City to
satisfy their indebtedness to the petitioner. 7 To thwart the impending auction of their
properties, the private respondents filed before the Regional Trial Court of Quezon, on
May 4, 1983, 8 a complaint against the petitioner, for the rescission of the contract of
lease, annullment of the real estate mortgage, and for injunction and damages, with
prayer for the issuance of a writ of preliminary injunction. 9 On May 23, 1983, three days
before the scheduled auction sale, the trial court issued a temporary restraining order
commanding the Provincial Sheriff of Quezon, and the petitioner, to refrain and desist
from proceeding with the public auction. 10 Two years later, on September 4, 1985, the
trial court rendered a decision in favor of the private respondents, the dispositive portion
of which reads:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

1. making the injunction permanent;

2. rescinding the contract of lease of the machinery and equipment and

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

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

4. ordering the defendant corporation to pay plaintiffs P30,000.00 as

attorney's fees and the costs of the suit.

SO ORDERED. 11

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

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

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

Art. 1571. Actions arising from the provisions of the preceding ten articles shall be
barred after six months, from the delivery of the thing sold.
We find the petitioner's first contention untenable. While it is accepted that the
petitioner is a financing institution, it is not, however, immune from any recourse by the
private respondents. Notwithstanding the testimony of private respondent Jose Sy Bang
that he did not purchase the rock crusher from the petitioner, the fact that the rock
crusher was purchased from Rizal Consolidated Corporation in the name and with the
funds of the petitioner proves beyond doubt that the ownership thereof was effectively
transferred to it. It is precisely this ownership which enabled the petitioner to enter into
the "Contract of Lease of Machinery and Equipment" with the private respondents.

Be that as it may, the real intention of the parties should prevail. The nomenclature of
the agreement cannot change its true essence, i.e., a sale on installments. It is basic
that a contract is what the law defines it and the parties intend it to be, not what it is
called by the parties. 13 It is apparent here thatthe intent of the parties to the subject
contract is for the so-called rentals to be the installment payments. Upon the completion
of the payments, then the rock crusher, subject matter of the contract, would become
the property of the private respondents. This form of agreement has been criticized as a
lease only in name. Thus in Vda. de Jose v. Barrueco  14 we stated:

Sellers desirous of making conditional sales of their goods, but who do not wish openly
to make a bargain in that form, for one reason or another, have frequently resorted to
the device of making contracts in the form of leases either with options to the buyer to
purchase for a small consideration at the end of term, provided the so-called rent has
been duly paid, or with stipulations that if the rent throughout the term is paid, title
shall thereupon vest in the lessee. It is obvious that such transactions are leases only in
name. The so-called rent must necessarily be regarded as payment of the price in
installments since the due payment of the agreed amount results, by the terms of
bargain, in the transfer of title to the lessee. 15

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

Article 1484. In a contract of sale of personal property the price of which is

payable in installments, the vendor may exercise any of the following
remedies:

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

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

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

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

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

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

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

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

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

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

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

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

WARRANTY-LESSEE absolutely releases the lessor from any liability whatsoever as to

any and all matters in relation to warranty in accordance with the provisions hereinafter
stipulated. 17

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

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

SO ORDERED.

G.R. No. L-5535             May 29, 1953

U. S. COMMERCIAL CO., plaintiff-appellant, 
vs.
FORTUNATO F. HALILI, defendant-appellee.
Jose G. Macatangay for appellant.
Arnaldo J. Guzman for appellee.

REYES, J.:

This an action to recover unpaid rentals on used army vehicles alleged to have been
leased by plaintiff by the defendants.

The case was submitted in the court below on a stipulation of facts from which it
appears that on December 22, 1945, plaintiff, as representative of the U. S.
Government, entered into a contract with the defendant leasing to the latter for a term
of one year two used army vehicles, and on February 18, 1946, plaintiff again entered
into a contract with the same defendant leasing to the latter for the same term six use
army vehicles; that under the terms of both contracts the value of the vehicles was fixed
and then after deducting therefrom a substantial initial payment made by the lessee, the
balance was divided into twelve equal parts and each part was made the monthly rental
or payment which the lessee was to make to the lessor together with 6 per cent interest
"on the unpaid balance of the value of the lease equipment;" that the contracts provided
that the title to the vehicles was to remain in the lessor during the term of the lease
until all the rentals or payment collected from the lessee should equal the total value
fixed for them, on which event the lease would terminate and payment of any further
rental would cease and the lessor would then transfer to the lessee title to the vehicles,
provided the lessee had complained with the other conditions of the contracts; that the
lessor would have the right to terminate the contracts and repossess the trucks should
the lessee fail to make payment on the dates specified or fulfill any of the obligations
under the contracts, but that failure to exercise the right of repossession on any default
would not be a waiver of such right upon any subsequent default; that in the event the
contracts were terminated on account of the lessee's default in the performance of his
obligations then all the payment theretofore made should remain the property of the
lessor and not be recoverable by the lessee, the latter also waiving "the benefit of
section 145-A, Philippine Civil Code;" that after paying several installments or rentals
under the two contracts, the lessee defaulted in the payment of subsequent rents and
that one year after such default the lessor requested the lessee to return all the eight
vehicles and the lessee voluntarily complied with said request, but there after refused to
pay all rentals in areas. Hence the present action.

Holding that the contracts in question were leases of personal property with option to
purchase and come within the purview of article 145-A of the old Civil Code, the trial
court, ruled that plaintiff's possessions of the vehicles precluded it from the bringing an
action to recover the unpaid rents, the notwithstanding the fact that the lessee had
waived the benefit of said article, the court declaring said waiver to be null and void. The
Court, therefore, rendered judgment, dismissing the plaintiff's complaint with costs.
From this judgment plaintiff has appealed to this court, contending that (1) defendant's
voluntary surrender of the vehicles to the plaintiff took the case out of the operation of
article 1454-A of the old Civil code, and (2) defendant's waiver of the benefit of said
article was valid.

The article in question reads:

ART. 1454-A. In a contract for the sale of personal property payable installments,
failure to pay two or more installments shall confer upon the vendor the right to
cancel the sale or foreclose the mortgage if one has been given in the property,
without reinbursement to the purchaser to the installments already paid, if there
an agreement to this effect.

However, if the vendor has choosen to foreclose the mortgage he shall have no
further action against the purchaser for the recovery of any unpaid balance owing
by the same, and any agreement to the contrary shall be null and void.
 The same rule shall apply to the leases of personal property with option to
purchase, when the lessor has chosen to deprived the lessee of the enjoyment of
such personal property. (Old Civil Code.)

There can be hardly be any question that the so-called contracts of lease on which the
present action is based were varitable lease of personal property with option to
purchase, and as much come within the purview of the above article. In fact the
instruments (exhibit "A" and "B") embodying the contracts bear the heading or title
"Lease-Sale (Lease-Sale of Transportation and/or Mechanical Equipment)." The contracts
fixed the value of the vehicles conveyed to the lessee and expressly refer to the
remainder of said value after deduction of the down payment made by the lessee as "the
unpaid balance of the purchase price of the leased equipment." The contracts also
provided that upon the full value (plus stipulated interest) being paid, the lease would
terminate and title to the leased property would be transferred to the lessee. Indeed, as
the defendant-appellee points out, the inclusion of a clause waiving benefit of article
1454-A of the old Civil Code is conclusive proof of the parties' understanding that they
were entering into a lease contract with option to purchase which come within the
purview of said article.

Being leases of personal property with option to purchase as contemplated in the above
article, the contracts in question are subject to the provision that when the lessor in
such case "has chosen to deprive the lessee of the enjoyment of such personal
property," "he shall have no further action" against the lessee "for the recovery of any
unpaid balance" owing by the latter, "any agreement to the contrary being null and
void."

Plaintiff and appellant, however, contents that defend- ant and appellee's voluntary
surrender to the property taken the case out of the purview of the article. But it appears
from the stipulation of facts that the voluntary delivery of the vehicles was made in
obedience to plaintiff's demands so that there is no escaping the conclusion that plaintiff
has in facts choosen to deprive the lessee of the enjoyment of the property leased. The
article does not require that the privation of the enjoyment of the property be brought
about thru court action. And in the present case court action for such purpose was not
essential because the contracts specifically authorized the lessor to repossess the vehicle
whenever the lessee de- faulted in the payment of rent and the lessee could not in that
event refuse to demand for the delivery of the vehicles without violating the terms of her
undertaking.

As to the second ground of appeal, not much need be said, for the article itself seeks to
forestall waiver of its benefits by providing that "any agreement to the contrary shall be
null and void." The waiver inserted in the contracts in this case being contrary to both
the letter and the policy of the law, the same cannot be given effect.

Plaitiff could recovered all the rentals due by suing for them in the courts. In choosing
the alternative remedy of depriving the defendant of the enjoyment of the vehicles
leased with option to purchase, plaintiff waived its right to bring such action.

Wherefore, the judgment appealed from is affirmed, with costs against the appellant.

G.R. No. 44471           September 26, 1938

 H. E. HEACOCK COMPANY, Plaintiff-Appellee, vs. BUNTAL MANUFACTURING
COMPANY, GREGORIO NIEVA, and MARIA A. DE NIEVA Defendants-Appellant.

Crispin Oben for appellants.

Eulalio Chavez for appellee.

DIAZ, J.:

The main, if not the sole, question raised by the appeal taken by defendants from the
judgment of the lower court is the following:

Is the document Exhibit A which plaintiff and the first two defendants executed on May
12, 1931 a contract for the lease of an adding and calculating machine therein
described, with option to purchase by defendants; or is it, on the contrary, a contract of
purchase and sale on installments in which said defendants were vendees and plaintiff,
vendor?

The lower court held that it was one of lease and thereafter decided that since
defendants failed to pay plaintiff the rents which they had bound themselves to pay it, at
the rate of P35 a month from August, 1931, and which then amounted to P555, they
should deliver to plaintiff the aforesaid sum with costs. This it resolved notwithstanding
that it had been shown at the trial that upon plaintiff's demand in its complaint for
preliminary attachment, defendants had to return to it the said machine which it
accepted to its satisfaction, without the necessity of making use of the writ of
attachment. Said acts of defendants constituted compliance with the prayer in plaintiff's
complaint that one of these things, and not both at the same time, be done: "The
delivery of said personal property, and if delivery cannot be effected then judgment for
the rents in arrears." 

Defendants chose to make delivery so as to dispose of the question in this manner.

Defendants maintain that in deciding the case in the way it has done, the lower court
erred in the following respects:

I. In granting plaintiff's petition that it be allowed to file an amended complaint after

defendants had been declared in default with respect to the original complaint.

II. In granting plaintiff the two alternative remedies for which it had prayed in its original
complaint upon its asking for both in the amended complaint.

III. In not holding that the contract entered into between the parties was one of
purchase and sale on installments and that once the same was rescinded by plaintiff
upon its taking the machine which is the subject matter thereof, it lost all right to
recover from them the balance of its price.

1. Two hearings were held in the case: The first took place in the absence and default of
defendants, and the second after the original complaint had been amended and the
answer of defendants filed. Upon the objection of the latter's attorney, who appeared in
the first trial, upon the ground that plaintiff could have no other relief than the
confirmation of its possession of the machine in question after it had taken and received
the same from defendants for the reason that the prayer for relief in the complaint did
not ask for more than "the delivery of said personal property" (referring to the machine
in question), or for "judgment for the rents in arrears," "if delivery cannot be effected
then," plaintiff decided to ask for, which it did and obtained, leave from the lower court
to amend its complaint in the sense of eliminating from the prayer thereof the phrase "if
delivery cannot be effected then." This it did, no doubt, so as to be able to secure two
things at the same time: The return of its machine and the amount it claimed as rents.
After amendment of the complaint a second hearing was held in which the lower court
rendered the judgment appealed from. We find no error in the act of the lower court
granting leave to plaintiff to amend its complaint, which error may be considered
prejudicial to defendants. There was no attempt to amend an essential part of the
complaint, but only a part of its prayer for relief; and it is known that the prayer for
relief is not the complaint itself nor is it a part of the allegations which state the cause or
causes of action submitted to the consideration of the court for its resolution.
(Aguilar vs. Rubiato and Gonzalez Vila, 40 Phil., 570; Campomanes vs. Bartolome and
German and Co., 38 Phil., 808; Rosales vs.Reyes and Ordoveza, 25 Phil., 495.)
Moreover, the amendment was made substantially in accordance with the provisions of
sections 109 and 110 of Act No. 190. The first error attributed to the lower court, is
therefore, without merit.

2. The determination of the other error alleged to have been committed by the lower
court depends upon our consideration of the nature of the contract Exhibit A and upon
the conclusion which we may reach with respect thereto. If it is a lease, then said errors
can not exist.

Among the clauses appearing in the contract in question, there are several showing that
it is not really a contract of lease but of purchase and sale on installments. Said clauses
are the following:

That the owner hereby leases unto the hirer and P860.00
the hirer hereby hires from the owner one
Dalton adding, calculating and posting machine,
Multiplex Model 490-180 Serial No. 4-103493

To credit one Dalton adding machine S. H. 160.00

Serial No. 116182 for P110 and by cash P50.
Initial payment

                       Balance due 700.00

which the hirer acknowledges having received in good state and condition, for the term
of 20 calendar months from the date hereof at the rental of P35 per calendar month,
and . . . calendar months at the rental . . . subject to the following terms and conditions:

1. The hirer agrees with the owner as follows:

( a) To pay the owner at its office at 122 Escolta, the said hire monthly on the 12th day
of every month within three days thereafter.

6. In consideration of the sum of P160 to it in hand paid by the hirer, the owner hereby
grants to the hirer the option to purchase, while the present lease is in force and effect,
the property made the subject of this agreement, at the purchase price of P860. In the
event of the exercise of said option, the hirer shall be entitled to a credit on the
purchase price for an amount equal to the rentals actually paid hereunder and the
payment made under this paragraph; it being expressly understood and agreed,
however, that the said chattel shall remain the property of the owner until after the
complete exercise of such option, and the payment in full of the purchase price agreed
upon, and, until such time the hirer shall not have any property right in said chattel or
be deemed to have purchased or obligated to purchase the same. Should the hirer not
exercise the option herein granted, the amount paid by him for said option under this
paragraph shall become forfeited to the owner.

In the first clause above-quoted it appears that defendants paid the amount of P160 on
account of the price of the machine which was fixed at P860. It is therein stated that
said amount was delivered to plaintiff as "initial payment." It was for this reason that
upon the signing of the contract care was taken to express therein that the balance
which defendants were bound to pay to plaintiff for the machine was only P700. So as to
facilitate the payment of this amount by defendants, it was agreed between them and
plaintiff that the former would complete the same in twenty monthly installments of P35.
Dividing P700 by 20, the resulting amount is exactly P35.
It is true that in the contract it is often stated that plaintiff leased the machine to
defendants, giving them the option to buy it upon their paying it the sum of P860 and
crediting them with so much as they might be able to pay as rents at the above rate of
P35 a month. It should be noted, however, that in the clause aforementioned, it is
clearly stated that defendant paid the sum of P160 on account of the price of the
machine. This payment shows that the real contract between the parties was that of
purchase and sale on installments and not a lease. In spite of any effort to prove the
contrary, the aforesaid amount of P160 can not be understood to constitute payment in
advance of the rents agreed upon for there is nothing in the contract to indicate that it
was and because, according to the contract itself, the rents could not be more nor less
than P35 a month, payable monthly. Following the theory of plaintiff and in accordance
with the sound principles of accounting, the amount of P160 can not be considered as
payment of rents in advance; otherwise we would reach the conclusion that defendants,
without being bound to do so and in violation of the terms of the contract, paid plaintiff
rents not monthly but from day to day inasmuch as said sum corresponds to four
months and twenty days. Furthermore, it must be borne in mind that the mention in the
aforesaid contract of the fact that the sum of P160 constituted an "initial payment" on
account of the price of the machine in question can have no other effect than to
contradict and nullify that stated in clause 6, which is one of those above-quoted, to the
effect that the same is the consideration by virtue of which plaintiff granted defendants
the option to buy the machine. Defendants did not have to pay anything for the option
for the reason that they made the payment of P160 to buy the machine on installments,
binding themselves to pay the balance by delivering to plaintiff the sum of P35 a month.
It should be stated, moreover, that the fact that the price of the machine was fixed in
the contract makes the latter not a lease but a purchase and sale because in contracts of
lease, as distinguished from those of purchase and sale, it is plain redundancy to fix or
make any mention of the price of the thing given in lease (article 1445, 1543, Civil
Code). When the terms of a contract are not clear or conflict with each other, as those
appearing in Exhibit A, effect must be given to the intention of the parties (article 1281,
Civil Code); and the intention of plaintiff and defendants in this case as we gather it
from Exhibit A, considered in connection with all its terms and clauses, is that the
contract entered into between them is one of purchase and sale on installments and not
a lease.

Accordingly, the act of plaintiff in requiring, as it did, the return of the machine in
question, receiving and accepting the same thereafter from defendants when the latter
voluntarily returned it, shows that plaintiff not only consented to, but desired the
rescission of the contract it had entered with defendants, specially when it is taken into
consideration that it thus expressed itself in its original complaint wherein it prayed not
for the return of the machine and payment of supposed rents due at the same time, but
only for one of these things. Upon taking the machine under such circumstances plaintiff
performed a positive act indicating its intention to rescind the contract, and having done
so and retained what defendants had up to then paid to it, amounting to P305 without
any objection on their part, it can not and must not have any right to anything more. Its
right was reduced to demanding compliance with the terms of Exhibit A as contract of
purchase and sale or to rescind the same, and it chose the latter alternative and to
retain the aforesaid sum of P305 (articles 1506 and 1124, Civil Code).

In conclusion we hold that the contract Exhibit A is that of purchase and sale on
installments; that said contract was rescinded without objection on the part of
defendants; and that the appeal of the latter is well taken.

Wherefore, declaring Exhibit A rescinded, the judgment appealed from is reversed,

absolving defendants from the complaint and sentencing plaintiff to pay the costs in both
instances. So ordered
G.R. No. L-46378 December 17, 1938

MANILA GAS CORPORATION, plaintiff-appellee, 

vs.
ALFREDO B. CALUPITAN, defendant-appellant.

Alfredo B. Calupitan in his own behalf.

DeWitt, Perkins and Ponce Enrile for appellee.

VILLA-REAL, J.:

The defendant, Alfredo B. Calupitan, appeals to this court from the decision of the Court
of First Instance of Manila, the dispositive part of which reads:

Judgment is therefore rendered, sentencing the defendant to return the stove and
the gas water heater described in the complaint, and to pay for the use of the gas
water heater the sum of P5 a month from June, 1934, and for the use of the Krefft
Stove the sum of P4 a month from January, 1934, until they are returned, with
costs of suit.

In support of his appeal the appellant assigns six errors allegedly committed by the trial
court in its decision, on which we shall dwell in the course of this decision.

From the evidence of record are gathered the following facts:

On May 3, 1933, the Manila Corporation and the defendant-appellant, Alfredo B.

Calupitan, entered into a contract (Exhibit A), containing the following pertinent recitals:

LEASE AGREEMENT

This agreement, made in the City of Manila, P. I., this 3rd day of May, 1933,
between the Manila Gas Corporation, a domestic corporation duly organized and
existing under and by virtue of the laws of the Philippine Islands, and having its
principal place of business therein in the City of Manila, with its main office at Calle
Otis, Paco, in said City of Manila, hereinafter called the "OWNER", and Alfredo B.
Calupitan, of age and a resident of No. 9 Baldwin, Sta. Cruz, P. I., hereinafter
called the "LESSEE".

WITNESSETH: That

1. The Owner hereby leases unto the Lessee and the Lessee hereby hires from the
Owner, for a term of . . . months, which term may be extended at the will of the
Owner, the following described personal property, to wit:

1. No. 234 Krefft stove of 4 brs. S. H. which the Lessee acknowledges having
received in good state and condition, and the value of which is hereby mutually
agreed to be P60, subject to and under the terms and conditions hereinafter
specified.

2. The Lessee hereby agrees —

(a) To pay to the Owner, at its office above stated, for the use of the above
described property, the sum of P5, upon the signing of this agreement, and a
monthly rental of P4, on or before the 5th day of each succeeding month,
beginning with the month next ensuing the date thereof.

x x x           x x x          x x x
 4. The Owner agrees that at any time before the expiration of the terms of this
lease, the Lessee may purchase the said property by paying to the owner, in cash,
the full value under as above fixed, less all payments theretofore made under this
agreement, for the use of said property.

On March 3, 1934, that is, ten months after the execution of the contract Exhibit A,
above-quoted, the same parties entered into another contract (Exhibit B) of the same
tenor, except with respect to the article and the terms of payment, which are as follows:

1. No. 400 Piccolo Inst. Water Heater which the Lessee acknowledges having
received in good state and condition, and the value of which is hereby mutually
agreed to be P95, subject to and under the terms and conditions hereinafter
specified.

2. Lessee hereby agrees —

(1) to pay to the Owner, at its office above stated, for the use of the above
described property, the sum of P5 upon the signing of this agreement, and a
monthly rental of P5, on or before the 5th day of each succeeding month,
beginning with the month next ensuing the date thereof.

In accordance with the terms of both contracts, the said defendant paid to the plaintiff,
when the latter delivered to him the stove, the sum of P5, and another sum of P5 when
the water heater "Piccolo Inst. Water Heater" was delivered to him, and monthly
thereafter, the total of said payments amounting to P42: P27 by virtue of the contract
Exhibit A and P15 by virtue of the contract Exhibit B, for which receipts were issued in
the following form (Exhibit 1):lawphil.net

Received from Mr. Alfredo Calupitan .......... pesos (P.........) as partial payment on
Gas appliance Bill No. ......... leaving a balance thereon of P......

MANILA GAS CORPORATION

Cashier

Collector

Notwithstanding repeated demands to pay alleged rentals, due and unpaid for months,
or to return the stove and the water heater, the said defendant paid no heed to said
demands and continued to make use of the said articles for more than five years without
compensation of any kind.

Inasmuch as the said defendant neither paid what he owed to the plaintiff for the stove
and the water heater nor returned them to the latter, the said plaintiff filed the re-
amended complaint found in the bill of exceptions, with the following prayer:

Wherefore, the plaintiff demands judgment against the defendant for the delivery
to the plaintiff of said stove and Piccolo Water Heater above described and for the
sum of P267 as rentals for the use of the same by the plaintiff, or for their values
in the total sum of P155 in case delivery cannot be made, and for costs of this suit
and for such further and other relief as this court may deem just and
equitable.lawphil.net

Being one of procedure, we shall first consider the question raised in the fourth
assignment of error, wherein it is alleged that the trial court erred in taking cognizance
of the present case and in not dismissing the same despite the fact that the amount
involved in each contract is within the exclusive jurisdiction of the municipal court of
Manila.
Upon the said ground the defendant interposed a demur which was overruled by the
lower court, this action of the court being the subject matter of the assignment of error
under consideration.

By the filing of the said demurrer the defendant admitted hypothetically that the
contract entered into between him and the plaintiff is one of lease of personal property;
that the kitchen stove and the water heater belong to the said plaintiff; and that he has
neither paid the stipulated rentals nor returned the said goods.

The complaint has to do not only with the collection of rentals, but also, implicitly, with
the rescission of the two contracts of lease of personal property for non-compliance with
the obligation to pay rentals (art. 1124, Civil Code),and the personal delivery thereof
(sec. 262, Act No. 190). With respect to the complaint for the rescission of the contract
of lease of personal property and the personal delivery thereof, the Court of First
Instance of Manila has original exclusive jurisdiction to take cognizance thereof
irrespective of the amount of the due and unpaid rentals.

The trial court, therefore, had original jurisdiction to take cognizance of the complaint.

As to the first assignment of error, wherein it is alleged that the trial court erred in
holding that the two contracts Exhibits A and B are contracts of lease and not of sale of
personal property on installment, we have seen above that in both contracts the
defendant, Alfredo B. Calupitan, paid in advance P5 for the kitchen stove (Exhibit A) and
another P5 for the water heater (Exhibit B), plus P4 and P5 every month for said stove
and water heater, respectively. The price of the stove is P60 and that of the water
heater, P95, the said defendant being able to purchase said goods at said price
respectively, before the expiration of the period of the alleged lease, deducting in each
case the amounts, already paid therefor. The periods of the alleged leases have not
been fixed in the contracts; but considering the prices of the goods and monthly
payments to be made, said periods are the number of months which would result by
dividing P60 by P4, which is the supposed monthly rental of the stove, and P95 by P5,
which is supposed to be the monthly rental of the water heater, that is, 15 and 18
months, respectively. In the accounts Exhibit A-1 and B-1 of the said defendant, which
the plaintiff carries, the monthly payments made by the former to the latter for said
goods were made to appear as paid upon the account of their value and were deducted
therefrom, stating the balances after each monthly payment; and in the receipt issued
to the said defendant on March 8, 1935 (Exhibit 1) there was noted the payment of P3
made by him as "partial payment on Gas Appliance Bill No. 63781 leaving a balance of
P33." None of the advance and monthly payments made by Alfredo B. Calupitan has
been stated as having been made by way of advance payment of rentals, or of deposit
to secure said payment, or of monthly rentals. The P5 which the plaintiff demanded of
the defendant to pay upon signing the contract Exhibit A could not be by way of advance
payment of rentals, inasmuch as the rental for the use of the stove was P4. Neither
could it be by way of deposit to secure the payment of rental, as it does not appear that
such was the intention of the parties. Moreover, according to the contracts, in case the
defendant should elect to purchase the goods, the said amount of P5 would be deducted
from the cost of the stove and that of the water heater, together with the alleged
monthly rentals which had been paid for each of them. The P4 which the defendant
should pay on or before the 5th of each month for the stove and the P5 for the water
heater, while they are said to be for rentals in the respective contracts, are in reality
part payments of the prices of the respective kitchen and bathroom articles, as shown
by the lists of payment Exhibit A-1 and B-1 and the receipt Exhibit 1 which we have
above described.

What has gone before shows that the contracts entered into between the plaintiff and
the defendant with respect to the kitchen stove and the water heater are those of sale
on installment rather than of lease. The first assignment of alleged error is, therefore,
well- founded.

Having reached this conclusion, we do not find it necessary to discuss the remaining
assignments of error which have been impliedly resolved.
For the foregoing considerations, we are of the opinion and so hold, that when in a so-
called contract of lease of personal property it is stipulated that the alleged lessee shall
pay a certain amount upon signing the contract, and on or before the 5th of every
month, another specific amount, by way of rental, giving the alleged lessee the right of
option to buy the said personal property before the expiration of the period of lease,
which is the period necessary for the payment of the said amount at the rate of so much
a month, deducting the payments made by way of advance and alleged monthly rentals,
and the said alleged lessee makes the advance payment and other monthly installments,
noting in his account and in the receipts issued to him that said payments are on
account of the price of the personal property allegedly leased, said contract is one of
sale on installment and not of lease.

Wherefore, the appealed decision is reversed and it is held that the contracts Exhibits A
and B, entered into between the plaintiff Manila Gas Corporation, and the defendant,
Alfredo B. Calupitan, are those of sale on installment; and the said defendant having
failed to comply with the terms of payment, the plaintiff may elect between compliance
with or rescission of the obligation, with indemnity for damages and interest in either
case, without special pronouncement as to the costs. So ordered.
G.R. Nos. 102526-31 May 21, 1998

Sps. LORENZO V. LAGANDAON and CECILIA T. LAGANDAON and OVERSEAS

AGRICULTURAL DEVELOPMENT CORPORATION, petitioners, 
vs.
COURT OF APPEALS, Sps. MELITON BANOYO and ASUNCION P. BANOYO, Sps.
DEMETRIO B. BATAYOLA and ANITA A. BATAYOLA, BONIFACIO VASQUEZ, Sps.
ROMEO M. GOMEZ and ESTER M. GOMEZ, AURORA GOMEZ, Sps. CARLOS V.
DAVID and MANUELA C. DAVID, Sps. LEONIDO D. BONGCO and FE V. BONGCO,
Sps. RAFAEL S. SOLIDUM and LUCENDA M. SOLIDUM, Sps. RAYMUNDO SITJAR
and LUCIA SITJAR AND Sps. BENJAMIN V. VIVA and GILDA VIVA, respondents.

PANGANIBAN, J.:

Questions of fact, as a general rule, may not be raised in a petition for review under
Rule 45. This is especially true where — as in this case — such questions have already
been disposed of by the trial court and affirmed by the appellate court. The failure of the
petitioner to justify a departure from this rule warrants the dismissal of the petition.

The Case

This doctrine is used by the Court in denying this petition for review on certiorari under
Rule 45 of the Rules of Court assailing the Decision 1 of the Court of
Appeals 2 promulgated on August 30, 1991 in CA-G.R. Nos. 26671-26676, which
disposed as follows:

PREMISES CONSIDERED, the decision appealed from is hereby

modified by deleting the award of attorney's fees in favor of the
defendant[s]-appellees.

The Court of Appeals actually affirmed, with the slight modification of deleting
the award of attorney's fees, the decision of the Regional Trial Court of
Valenzuela, Metro Manila, Branch 172, 3 in Civil Case Nos. 3188-V-89 to 3192-
V-89, the dispositive portion of which reads: 4

WHEREFORE, in view of the foregoing the Complaints have to be as

they are hereby ordered DISMISSED, including their claims for
attorney's fees and costs of litigation.

On defendants/purchasers' counterclaims, defendant Spouses

Demetrio Batayola et al. in Civil Case No. 3188-V-89 are awarded
P10,000.00 attorney's fees in resisting this case; and all defendants
in the rest of the cases are awarded P10,000.00 in each case as
attorney's fees, likewise for resisting these claims.

Hence, this petition for review.5

The Facts

The uncontested facts6 are narrated by Respondent Court of Appeals, as follows:7

On different dates specified herein below, Pacweld Steel Corporation

(Pacweld) a now defunct domestic corporation executed in favor of present
defendants herein a Contract to Sell pieces of lots payable in installment
[for] which payments started to be made. For a better perspective, the
following are herein reflected:

Defendants/Purchasers Dates of Contracts

Meliton Banoyo Feb. 6, 1967

Batayola Spouses Nov. 25, 1967
 Romeo M. Gomez Feb. 27, 1968
Carlos V. David March 4, 1968
Leonido Bongco March 15, 1968
Bonifacio Vasquez May 31, 1967

Purchasers/ Total Total Payments Last

Defendants Consideration Payments
Dates

Banoyo P10,000.00 P4,303.43 Nov. 23, 1971

Batayola 7,271.92 7,232.24
Romeo Gomez 6,945.68 8,669.55 April 24, 1972
David 11,430.00 7,221.13 Nov. 22, 1972
Bongco 11,700.00 8,855.18 Jan. 22, 1974
+ 303.20
Vasquez 8,730.00 7,505.37 Aug. 9, 1972

On or about the year 1972[,] the above-mentioned defendant[s]-purchasers

deferred/refused further payments on their amortization to Pacweld because
of [the] refusal of Lorenzo V. Lagandaon, then President of Pacweld officials
[sic] to undertake the development of the areas bought.
Defendants/Purchasers, together with other lot buyers filed an action for
Specific Performance with the then Court of First Instance of Manila, Branch
XXVII, docketed as Civil Case No. 87763 entitled Rolando Fadul et
al., Plaintiffs vs. Pacweld Steel Corporation et al.

On October 12, 1976 the said Court promulgated its decision stating therein the
following.

From all the foregoing evidence introduced by the plaintiffs, as well as the
stipulation of facts entered into by the defendants with the former, the Court
is fully convinced that defendants indeed have not lived up to the conditions
of its [sic] contract particularly paragraph 6-A thereof. The roads which were
supposed to be cemented in fact, had been constructed as clearly shown in
Exhibits B, B-1, B-2 and B-3. So also, with the big holes existing on the
roads. For this reason, the Court further concludes that plaintiffs have
adequately proven their cause of action by clear preponderance of evidence.

The dispositive portion of the said decision reads as follows:

Wherefore, judgment is hereby rendered in favor of the plaintiffs and against

the defendants, as follows:

1. Ordering the defendants to strictly comply with their obligations under the
contract to sell (par. 6-a) within sixty (60) days from receipt hereof, in the
event of defendants' failure to comply with said undertakings, the plaintiffs
are authorized to avail of the services of a contractor to undertake the
cementing of the roads, gutters and concrete curbs including the drainage
system, all at the expense of the defendants;

2. Ordering the defendants jointly and severally to pay plaintiffs the sum of
P35,000.00 as and by way of moral damages, which amount is considered
just and reasonable considering the sufferings of the plaintiffs;

3. Ordering the defendants jointly and severally to pay plaintiffs the sum of
P10,000.00 as and by way of exemplary damages;

4. Ordering the plaintiffs who have not up-dated their accounts and/or have
not complied with their undertakings in the contract to sell to comply with
same also within sixty days from receipt of this decision;
 5. Ordering the defendants jointly and severally to pay plaintiffs attorney's
fees in the sum of P4,000.00 with costs against the defendants.

SO ORDERED.

To be mentioned in connection with this case are the following separate facts and
incidents.

Pursuant to real estate mortgages constituted on the entire Pacweld

[s]ubdivision lots by Pacweld Steel Corporation (Pacweld) in favor of the
Development Bank of the Philippines to secure a loan of P1.5 million, the
said DBP foreclosed the mortgaged properties including the properties sold
to defendants/purchasers at public auction on June 2, 1975 due to the
failure of Pacweld to pay its loan at maturity. As there were no bidders, the
DBP as creditor participated in the bidding and thereafter, owing to the non-
redemption of the properties, titles to the Pacweld Subdivision lots were
consolidated in the name of DBP.

On May 12, 1980, a Deed of Absolute Sale was executed by DBP in favor of
herein plaintiffs [now petitioners] covering 69 parcels of land known as
Pacweld Village located at Marulas. Plaintiffs became the registered owners
by virtue of said Deed of Absolute Sale, under TCT No. B-42988.

Although no copy of the said Deed of Absolute Sale was furnished this Court,
it appears in one of the pleadings submitted to Court that in said Deed of
Absolute Sale is a typewritten condition to which plaintiffs are now bound
and which is below quoted:

It is hereby understood that any and all claims, liens,

assessments, liabilities and/or damages whatsoever arising from
any case or litigation involving the above, properties shall wholly
be assumed and borne by the vendees to the exclusion of the
vendor.

In the similarly worded complaints in all these civil cases, plaintiffs allege
that by virtue of the acquisition of ownership by DBP over the entire Pacweld
[s]ubdivision lots including the lots in question and under the authority of
the above-mentioned Deed of Absolute Sale executed by DBP in favor of
plaintiffs, the unregistered Contract to Sell executed by Pacweld and herein
defendants were rendered stale and/or inoperative and consequently,
defendants lost their rights and interests over the parcels of land agreed to
be sold to them by Pacweld under their respective Contract to Sell; that
without necessarily recognizing the defendants' rights under the Contract to
Sell, but out of pure liberality and Christian compassion, the plaintiffs agreed
to continue with the sale on installment of the above-mentioned parcels of
land, pursuant to the Contract to Sell in favor of the defendants provided
that they would update their account consistent with the provisions of the
said Contract to Sell and provided further that plaintiffs have the right of
forfeiture and would not be bound or liable to comply with the obligation of
the developer under the Contract to Sell.

In all these civil cases, plaintiffs have one common prayer, which is, that
defendants be declared to have unjustifiably failed to comply with their
obligations under the Modified Contract to Sell, and pronouncing that said
Contract to Sell over the said parcels of land and the rights and obligations
arising therefrom as rescinded and/or cancelled; that plaintiffs be declared
as legally entitled to the possession of the above-described parcels of land,
ordering defendants and all persons acting under them to vacate the said
parcels of land and surrender them to plaintiffs; that defendants be ordered
to pay damages and attorney's fees which amount they specified in each of
the cases. (Decision, pp. 1-5)
For the sake of clarity, we stress that there were three undisputed transactions involving
the property subject of this controversy:

1. The contract to sell executed by Pacweld, then headed by Petitioner Lorenzo

Lagandaon, in favor of herein private respondents;

2. The foreclosure sale by which DBP acquired ownership of the property from Pacweld;
and

3. The contract of sale executed by DBP in favor of herein petitioners, the Lagandaon
spouses.

This case began when petitioners filed several identical complaints before the CFI to
rescind the first item, i.e., the contracts to sell executed by Pacweld in favor of private
respondents. In their aforesaid complaint, petitioners alleged that the contract to sell
had become "stale and/or inoperative" "by virtue of the acquisition of ownership by the
DBP over the entire Pacweld Subdivision . . . ." 8 Petitioners also averred that the
relationship of petitioners and private respondents was governed by an alleged
"modified agreement to sell," which provided that private respondents "would update
their account consistent with the provisions of said [original] Contract to Sell"; while
petitioners "have the right of forfeiture and would not be bound nor liable to comply with
the obligation of the developer under the [original Contract to Sell." 9 Petitioners justified
the filing of the complaints for rescission on the ground that private respondents failed
to pay their outstanding account.

In their answer, private respondents denied the existence of a modified contract to

sell. 10 They also argued that petitioners, as successors-in-interest of Pacweld, had no
right to demand rescission or payment of the unpaid balance, "until such time that they
have completed the development of the subdivision pursuant to the provisions of
the . . . Contract to Sell and the Decision of the CFI of Manila." 11

In its decision, the trial court held that petitioners "cannot base their acts on [an]
alleged modified contract to sell, which this Court believes to be non-existent not only
physically but also legally." 12

Respondents Court's Ruling

Although the petitioners' cause of action was premised on the existence of an

alleged modified contract to sell, the Court of Appeals 13 (CA) observed that petitioners
did not challenge the trial court's finding that no such contract existed. The CA further
ruled that petitioners could no longer raise on appeal their alleged ownership rights over
the lots in litigation arising from the May 12, 1980 sale by the Development Bank of the
Philippines (DBP) and from the execution sale. To do so would change their theory
before the trial court that herein private respondents defaulted their obligation under the
alleged modified contract to sell.

Thus, the CA held that petitioners had no right to demand the rescission of the various
contracts to sell on the basis of the alleged modified contracts to sell which were
existent. Hence, it affirmed the trial court's decision dismissing the complaint, but
deleted the award of attorney's fees.

The Issues

In their Memorandum, petitioners present the following issues: 14

1. Whether the Honorable Court of Appeals erred in finding that there was
no modified Contract (verbal) to Sell between petitioners and respondents;

2. Whether the Honorable Court of Appeals erred in finding that there was a
change of theory on appeal of petitioners;
 3. Whether the Honorable Court of Appeals erred in finding that petitioners
have no right to ask for rescission of the various contracts to sell on the
basis of the modified contract (verbal) to sell; and consequently, in
dismissing to [sic] complaints.

In the main, two principal issues are raised: (1) whether there were modified contracts
to sell and (2) whether petitioners assumed the obligations of Pacweld.

The Court's Ruling

The appeal has no merit.

First Issue: No Modified Contracts to Sell

Petitioners contend that there were modified contracts to sell between them and private
respondents. Maintaining that the original contract to sell between Pacweld and private
respondents became "stale" or "inoperative" when DBP acquired the disputed parcels of
land, petitioners argue that they and the private respondents subsequently entered into
oral modified contracts to sell. In their complaint before the RTC, they aver: 15

7. By virtue of the acquisition of ownership by the DBP over the entire

Pacweld Subdivision lots including the lot in question and under the authority
of the above-mentioned Deed of Absolute Sale executed by DBP in favor of
the plaintiffs, the unregistered Contract to Sell (Annex "A") executed by and
between Pacweld and the herein defendants, was rendered stale and/or
inoperative; that consequently, defendants lost their rights and interests
over the parcel of land agreed to be sold them by Pacweld under the
Contract to Sell (Annex "A").

8. Without necessarily recognizing defendants' rights under their respective

Contracts to Sell (Annex "A", Complaint), but out of pure liberality and
Christian compassion, the herein plaintiffs agreed to continue with the sales
on installment in favor of the defendants, provided they would update their
accounts consistent with the provisions of the Contract to Sell and provided
further that plaintiffs have the right of forfeiture and would not be bound nor
be liable to comply with the obligation of the previous owner-developer
(Pacweld) under their respective Contract to Sell. (Emphasis supplied.)

Petitioners' theory rests on the existence of modified contracts to sell. Taking the place
of Pacweld, petitioners seek to collect the unpaid accounts of private respondents under
the original contracts to sell, but they want exemption from the concomitant obligations
of Pacweld under the same contracts. Hence, they insist on a modification of these
contracts.

We cannot sustain petitioners. That the contracts to sell had indeed been rendered stale
because of the foreclosure sale does not necessarily imply that orally modified contracts
to sell were subsequently entered into between petitioners as buyers of the foreclosed
property, on the one hand, and private respondents as purchasers from Pacweld
Corporation, on the other.

Furthermore, the trial court, as observed earlier, found that the modified contracts to
sell were non-existent physically and legally. It also stated that "plaintiff spouses did not
execute a contract with defendants different from the existing Contract to Sell between
Pacweld Steel Corporation and defendant purchasers herein." 16 The Court of Appeals
also held that "the trial court had not erred in dismissing the complaints filed by
plaintiffs-appellants." 17

Well-settled is the rule that the factual findings of the trial court, especially when
affirmed by the Court of Appeals, are binding and conclusive on the Supreme
Court. 18 Moreover, the existence of modified contracts to sell is a question of fact which
may not be raised in a petition for review under Rule 45. 19 Verily, petitioners have not
given us a valid reason to depart from this rule. Indeed, the self-serving and
unsubstantiated allegation in the petitioners' complaint that there was an oral
modification of the contracts to sell does not justify a reversal of the factual findings of
the trial and appellate courts. As held in Engineering & Machinery Corporation vs. Court
of Appeals: 20

The Supreme Court reviews only errors of law in petitions for review
on certiorari under Rule 45. It is not the function of this Court to re-examine
the findings of fact of the appellate court unless said findings are not
supported by the evidence on record or the judgment is based on a
misapprehension of facts.

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 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.

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. (emphasis supplied).

Second Issue: Petitioners Assumed Pacweld's Obligations

Petitioners contend that they could not have assumed the obligations of Pacweld
because they were buyers in good faith and for value. When the deed of absolute sale in
favor of DBP was signed, the title to the foreclosed property was clean;  i.e., the "subject
contracts to sell were not duly annotated at the back of Pacweld's certificate of
title." 21 Hence, petitioners insist that they likewise acquired from DBP a clean title free
from any encumbrance. Petitioners' liability, if at all, is limited to their unpaid
subscriptions to Pacweld Steel Corporation as stockholders thereof. Petitioners add that
Republic Act No. 6652, otherwise known as the Maceda Law, should have been applied
by Respondent Court.

As a general rule, every buyer of a registered land who takes a certificate of title for
value and in good faith shall hold the same free of all encumbrances except those noted
on said certificate. 22 It has been held, however, that "where the party has knowledge of
a prior existing interest which is unregistered at the time he acquired a right to the same
land, his knowledge of that prior unregistered interest has the effect of registration as to
him. The torrens system cannot be used as a shield for the commission of fraud." 23 In
this case, Petitioner Lorenzo Lagandaon had actual knowledge of the contracts to sell
made by Pacweld in favor of herein private respondents. He was not only the president
of Pacweld at the time; he himself signed those contracts. 24 Hence, when he acquired
the title of DBP, he was aware of the preexisting contracts to sell between Pacweld and
private respondents. More significantly, petitioners also assumed all liens and liabilities
arising from any case involving the said properties.

Even assuming arguendo that petitioners were buyers in good faith and for value, their
subsequent actions indisputably show that they assumed the obligations of Pacweld
under the original contracts to sell. When they acquired title over the property on May
12, 1980, they sought to collect payment from private respondents under the said
contracts. In their demand letter dated April 28, 1989, petitioners through counsel
required Private Respondents Rafael Solidum and Leonido Bongco to settle with them
the latter's unpaid accounts under the original contracts to sell. 25 Likewise, the
subsequent letter of Lagandaon's counsel to Private Respondent Raymundo Sitjar
unequivocally declared that the demand was made pursuant to the original contract to
sell between Pacweld and private respondents. 26 In these demand letters, petitioners
made no mention of any alleged modified contracts to sell; rather, they referred to the
original contracts to sell without invoking any qualification or modification of the terms
and conditions thereof. In fact, the notion of a "modified contract to sell" was a mere
afterthought which surfaced for the first time in the petitioners' complaint before the
RTC.

Because petitioners assumed the obligations of Pacweld when they purchased the
disputed properties on May 12, 1980, they should be liable for all the undertakings of
Pacweld with respect to private respondents under the contracts to sell, as clearly
provided under such deed.

The Maceda Law has no application to the present case. The policy of that law, as
embodied in its title, is "to provide protection to buyers of real estate on installment
payments." As clearly specified in Section 3, the declared public policy espoused by
Republic Act No. 6552 is "to protect buyers of real estate on installment payments
against onerous and oppressive conditions." In this case, petitioners did nor buy the
property on installment; private respondents did. And thus, if the Maceda Law has any
relevance at all, it is to protect the said respondents, not the petitioners. Furthermore,
Section 3(b) 27 of the same law does nor grant petitioners any legal ground to cancel the
contracts to sell; rather, it prescribes the responsibility of the seller in case the
"contract[s are] cancelled." Clearly, Respondent Court was correct in refusing to apply
the Maceda Law and in not cancelling the contracts to sell.

As held by the trial court:

Plaintiffs' prayer that defendant/purchasers be made to vacate the lots and

surrender to plaintiffs cannot be granted, not only because of the foregoing
reasons but also because to do so would be contrary to other existing laws,
specifically Republic Act 6552 (Maceda Law) which is an Act To Provide
Protect[ion] to Buyers of Real Estate on Installment Payments, which took
effect on August 6, 1972. By virtue thereof, considering that all
defendants/purchasers appear to have complied with Section 3 thereof, this
second remedy applied for by plaintiff is not legally feasible. Neither can
plaintiff exercise the right under said law because it is not the subdivision
owner or developer envisioned in said law.

The Alleged Dormant Judgment:

Petitioners as Developers

Petitioners argue that they cannot be compelled "to assume the obligations of [Pacweld]
corporation as . . . real estate developers," because the CFI's decision dated October 1,
1976 was "already dormant, more than ten (10) years having elapsed after the finality
of judgment." 28 Further, petitioners "are not licensed and qualified real estate
developers. Hence, petitioners could not have assumed the obligations of Pacweld to
develop the subject subdivision." 29

These arguments are bereft of merit. It is irrelevant whether the CFI Decision — which
ordered Pacweld to perform its obligations under the contracts to sell — has become
dormant. As discussed above, petitioners themselves assumed the said obligations of
Pacweld.
That petitioners were not qualified or licensed as developers does not justify their failure
to comply with the obligations under the contracts to sell which they assumed. Whether
a license is necessary is likewise irrelevant. In any event, their obligations were personal
to them and were not undertaken in pursuance of any real estate business.

We also hold that the express condition in the deed of absolute sale, which petitioners as
buyers accepted as part of the consideration of the sale, cannot be considered mere
"surplusage" with "no legal significance." 30Petitioners themselves contradicted this by
their admission "that it was placed there, as a safety valve, to protect DBP from
legitimate third party claims." 31

Attorney's Fees Deleted

Private respondents pray that the trial court's award of attorney's fees, which
the Court of Appeals deleted, be restored. They contend that, to resist
petitioners' claims, they had to retain a lawyer and pay for his fees. In any
event, they plead that the amount of P10,000 as attorney's fees was only
"minimal or nominal" 32 and should thus be restored.

We are not persuaded. Parties who have not appealed cannot obtain from the
appellate court any affirmative reliefs other than those granted, if any, in the
decision of the lower court. Appellees can advance only such arguments as may
be necessary to defeat the appellants' claims or to uphold the appealed
decision. They can assign errors on appeal if such are required to strengthen
the views expressed by the court a quo. Such assigned errors, in turn, may be
considered by the appellate court solely to maintain the appealed decision. But
appellees cannot ask for modification of the judgment in their favor in order to
obtain other affirmative reliefs. 33 Since herein private respondents did not
appeal from the assailed Decision, they are not entitled to any award of
affirmative relief. Besides, the award is addressed to the sound discretion of
courts. 34 And absent any showing of abuse or palpable error, as in this
instance, such discretion will not be disturbed on appeal.

Epilogue

In the main, the Lagandaon Spouses have consistently maintained in their various
pleadings that they agreed to continue with the sale on installment of the disputed
parcels of land under a "modified" contract "without necessarily recognizing defendants'
rights under the [original] Contract to Sell, but our of pure liberality and Christian
compassion." The difficulty with this contention is that it has no factual leg to stand on.
The Lagandaon Spouses did not even inform the private respondents of this alleged
modification when they attempted to collect the installment payments. Instead, they
merely insisted on collecting under the original contracts. It was only after they filed
their complaint in the RTC that they alleged "modifications" in the contracts, the
modifications being that they were not bound by Pacweld's obligations to develop the
subdivision over which they wanted to collect installments from the buyers (private
respondents). They insist only on exercising Pacweld's rights to collect installments due
but deny the obligations to build roads, water system, etc. Aside from the basic
unfairness of this stance, it is not supported by any evidence as found by both lower
courts.

To reiterate, the petition of the Lagandaon Spouses assails the findings of the trial and
the appellate courts on the aforesaid two principal issues. The Lagandaon Spouses,
however, presented no substantial argument or evidence to warrant a reversal or
modification of these factual findings. In this light, the remand of this case, as prayed
for by petitioners, is unnecessary. After all, a re-trial is needed only where some factual
issues are unresolved. And there are none in this case.

WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED.
Costs against petitioners. SO ORDERED.