G.R. No.

L-22358 January 29, 1975

PIO BARRETTO SONS, INC., petitioner,

vs.
COMPAÑIA MARITIMA, respondent.

Vicente del Rosario, E. V. Navarro and E. I. Perez for petitioner.

Rafael Dinglasan for respondent.

ESGUERRA, J.:

Petition for review on certiorari of the decision of the Court of Appeals in its CA-G.R. No. 23367-R
which reverses the judgment of the Court of First Instance of Manila, including its resolution denying
the petitioner's motion for reconsideration of the decision.

The factual background of the case is as follows:

Petitioner as plaintiff filed a complaint for collection of a sum of money against herein respondent,
alleging that during the months of October and November, 1941, the defendant (now respondent)
purchased on credit and received from the plaintiff (now petitioner), lumber worth P5,300.55; and on
December 4, 1941, the defendant-respondent again purchased on credit and received from the
plaintiff-petitioner, lumber worth P453.81, thereby incurring a total indebtedness of P6,054.36 with
stipulated interest of 12% per annum, plus attorney's fees.

Respondent as defendant filed its answer denying all the material allegations of the complaint and,
by way of counterclaim, prayed that plaintiff-petitioner be ordered to pay the sums of P500.00 as
expenses of litigation and P1,500.90 as Attorney's fees, plus costs.

Plaintiff-petitioner having filed its answer to the counterclaim of defendant-respondent, the case was
heard and the trial court rendered judgment in favor of the plaintiff-petitioner, the dispositive portion
of which reads as follows:

WHEREFORE, judgment is hereby rendered ordering defendant to pay to plaintiff the

sum of P6,054.36, with legal interest thereon from the filing of the complaint until fully
paid, plus attorney's fees in the amount of P500.00, together with the costs.

Both parties appealed to the Court of Appeals, the plaintiff PIO BARRETTO SONS, INC. assigning
the following error:

The Lower Court erred in holding that the moratorium orders and laws condoned the
stipulated interest of 12% per annum on defendant's prewar indebtedness, and in
awarding to plaintiff only the legal interest from the filing of the complaint. (pp. 4-5,
Brief for the Plaintiff-Appellant)

and defendant COMPAÑIA MARITIMA making four assignment of errors, to wit:

I. The Lower Court erred in holding that plaintiff had proven its alleged claims of
P5,600.55 and P453.81.
 II. The Lower Court erred in holding that defendant had not paid plaintiff's alleged
claim in the amount of P5,600.55.

III. The Lower Court erred in not holding that the complaint states no cause of action
against defendant, and that the alleged cause of action, if any at all, is already barred
by the statute of limitation of actions.

IV. The Lower Court erred in ordering defendant to pay to plaintiff the sum of
P6,054.36 plus legal interest thereon from the filing of the complaint until fully paid,
plus attorney's fees in the amount of P500.00 together with the costs. (pp. 1-2, Brief
for the Defendant-Appellant)

The Court of Appeals reversed the judgment of the trial court and ordered the dismissal of the case
on the ground that delivery of the lumber by plaintiff-petitioner to defendant-respondent was not duly
proved.

Petitioner's motion for reconsideration of the decision of the Court of Appeals was denied again on
the ground of lack of sufficient showing of a valid delivery of the lumber in question by the Barretto
Sons, Inc. to the Compañia Maritima.

Hence this petition for review on certiorari.

Petitioner maintains that:

I. The Court of Appeals erred in creating and raising, motu propio, for the first time a
new issue, that of the question of delivery, upon which the Court of Appeals based its
decision reversing the judgment of the trial Court.

II. The Court of Appeals erred in its conclusion drawn from proven facts, and has
decided the case in a way not in accordance with law or with the applicable decisions
of this Court, and

III. The Court of Appeals erred in that it has so far departed from the accepted and
usual course of judicial proceedings. (pp. 1-2, Brief for Petitioner).

Petitioner further asserts that the case having been tried and decided by the trial court on the issue
of whether or not there was payment made by respondent Compañia Maritima of the lumber
covered by Exhs. "A-1" to "A-6" (invoices of petitioner) and Exh. "B", "B-1 " to "B-4 (the counter-
receipts issued by the respondent), it is alone on this issue that the Court of Appeals should have
decided the case and not on the issue of whether or not there was delivery of the lumber in question.

The principal issue, therefore, before Us is whether or not the Court of Appeals decided the case on
a new issue not raised in the pleadings before the lower courts.

We rule that the issue of delivery on which the Court of Appeals based its decision reversing that of
the trial court is no new issue at all. For delivery and payment in a contract of sale, or for that matter
in quasi-contracts, are so interrelated and intertwined with each other that without delivery of the
goods there is no corresponding obligation to pay. The two complement each other. Thus, "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."
(Art. 1458, 1st par., new Civil Code). The source of this provision of law is Article 1445 of the old
Code, which provides:

By the contract of purchase and sale one of the contracting parties obligates himself
to deliver a determinate thing and the other to pay a certain price therefor in money
or in something representing the same.

It is clear that the two elements cannot be dissociated, for "the contract of purchase and sale is,
essentially, a bilateral contract, as it gives rise to reciprocal obligations; to wit, on the part of the
seller, "to deliver a determinate thing, and on the part of the buyer, "to pay a certain price therefor in
money or in something representing it." " (p. 1, Capistrano, The Law of Purchase and Sale).

The finding of the Court of Appeals that there was no delivery of the lumber is well founded. As
succinctly ruled by said Court:

That this is basically an action for lumber allegedly bought, received, and not paid
for; now just as a seller, in order to recover, must prove not only that he has sold and
delivered and has not been paid, so a buyer in order to be condemned to pay must
be shown to have bought, received, and not paid. Of course, it is correct to say as
plaintiff says that even if there had been no purchase, provided there had been a
delivery, it could recover, not on the sale but on the quasi-contract against unjust
enrichment, but whether on sale or on quasi contract, the vital element is delivery; ...
nor should it be said that there was no issue at all between the parties as to the fact
of delivery; because that issue was present in the pleadings, not only as can be seen
in par. 2 of the answer, but also as can be seen from the fact that plaintiff itself on p.
20 of the tsn. Vol. I, asked its own witness, Roman Legarda So, this question:

"Q. — Was that lumber covered by that invoice duly received and
acknowledged by the Compañia Maritima?"

and defendant on the other hand spent a good part of its proofs in demonstrating that
there had been no delivery, e.g., Vol. II, pp. 132-134; now on the vital point of
delivery, it must be remembered that the procedure between the parties as sought to
be proved by plaintiff itself thru its witness, Juanito G. Perez, had been as follows:

"A. — Whenever the Compañia Maritima orders lumber from our

company, the Compañia Maritima issues a purchase order to the Pio
Barretto Sons, Inc. When this purchase order is received by the Pio
Barretto Sons, Inc., the Pio Barretto Sons, Inc. delivers the lumber, as
specified in the purchase order. Upon delivery of this lumber, the
lumber is covered by invoice of the Pio Barretto, together with the
purchase order of the Compañia Maritima. Now, when the lumber is
received by the Compañia Maritima, the Compañia Maritima stamps
our invoice for the lumber delivered, and the receiving clerk signs the
said invoice for the Compañia Maritima. Now, after the lumber has
been delivered, our delivery man brings back to our office and gives
the invoice to me, together with the purchase order. Now, at the end
of each week, I prepare the Statement of Accounts to be sent the
Compañia Maritima, through our collector, and, in turn, the
Accounting Department of the Compañia Maritima issues as the
kinds of receipts for the invoices, purchase orders, and statements of
accounts surrendered to them." tsn. 76-77, Vol. I;
stated otherwise, first, there was a purchase order by Maritima; 2ndly, there was an
invoice by Barretto; 3rdly, there was a delivery unto Maritima; 4thly, there was a
delivery of the purchase order and delivery receipt unto Maritima for checking or
revision; and since Maritima would because of that retain the purchase orders and
delivery receipts, it would issue in exchange its own counter receipt of said
documents; and 5thly, after due verification had been made, Maritima would then
pay; this procedure should now be correlated to the evidence herein presented; now
plaintiff has here presented two sets of documents, A to A-6 and B to B-4; the first
set consists of a purchase order, together with the invoices or delivery receipts, At to
A-6; and the second set consists of counter-receipts evidencing the fact that Maritima
had received, with the exception of that in B-4, certain documents, i.e., purchase
orders and delivery receipts from Barretto, "para su revision"; if then the documents
would be correlated with the testimonies and the procedure outlined by witness
Perez, it will result that as to A to A-6, plaintiff, according to it, had already complied
with the purchase order, the sale, and delivery, but that it had not submitted all these
to Maritima "para su revision" while as to B to B-4, it had according to it, complied
with purchase order (except as to B-4), sale, delivery, and submission "para su
revision", but the same had not been as yet checked and verified by Maritima; the
question is, has this proof demonstrated plaintiff's cause of action, pursuant to the
very procedure by it outlined in its evidence to have been followed between the
parties in the course of their commercial transactions but how could that be when
precisely because of that practice, it gave unto Maritima the right to first verify; and
there is no showing that had been verified; but let it not be here said that just
because Maritima had not yet verified, plaintiff should not be permitted to recover, for
that practice must give way to the truth, — as plaintiff contends, — that if it had after
all proved delivery, defendant must pay; but has plaintiff proved delivery under the
evidence? According to what has been paid, plaintiff had, according to it, submitted
its documents in B to B-4 for revision; this means to say that it had in its possession
and given unto Maritima purchase orders, and delivery receipts, but does this mean
that it had proved delivery? Can delivery be proved by the fact that one had in his
possession what one had believed to be a delivery receipt and submitted that for
verification, without any actual proof of delivery of the article? If that were the case, a
litigant would be excused from proving the element most vital to show his cause of
action; and a Court of Justice must have to rely on the presumption that just because
one had in his possession a "delivery receipt", one had already delivered; but the
vice of this argument is that it altogether parts from the basis that the "delivery
receipt" thus possessed and surrendered was a genuine delivery receipt, evidencing
the fact that buyer had indeed received; but here, there absolutely is no proof of that;
what this Court has only seen in the evidence nearest to the required proof is the
stamp of Maritima on A-1 to A-6; for as this Court has said, the supposed admission
by defendant witness Narvaez that the lumber therein annotated had been
"delivered" was clearly and unfortunately, one that could not, — to be fair to the
witness, — have been correctly meant to have by him been made, for he was
"purchasing agent" only and could not be qualified at all to declare if what he had
authorized to be purchased had been thereafter delivered, and the witness had in
fact insisted against such alleged delivery to "Posadas", and witness had all the time
insisted that only one "J. Leoncio", could receive, and this clarification is indisputably
fortified by the very evidence of plaintiff, consisting in the purchase order Exh. A,
wherein is annotated:

"Not valid unless invoices are receipted

and signed by: J. LEONCIO";
which name, "J. Leoncio" had been written precisely by said witness and this must
mean that the signature of "Posadas" in A-1 to A-6 by the evidence of plaintiff itself,
has been shown to have been unauthorized; and going to the stamp of Maritima on
A-1 to A-6, this had to be correlated to the fact that Narvaez has testified that:

This is our own stamp, but we did not authorize Mr. Posadas to sign
for any lumber received. tsn. 134, Vol. II;

nor has in fact, in any part of the evidence been shown any proof as even to show
the authenticity of said signature "Posadas"; or that said "Posadas" had actually
received said lumber; to prove at least that the lumber had been deposited in the
compound of Maritima by that "Posadas", for if there had been such proof in the
record, if plaintiff had shown evidence of that actual delivery of the lumber into the
possession of Maritima, then it would have been the obligation of this Court under
the law of quasi-contracts, to grant Barretto its prayer for the value of that; but no,
what Barrette has here presented as witnesses were first Roman Legarda So,
manager of Barretto, who admitted in cross that:

Q. — With respect to Exhibits A-1 to A-5, you did not have any
personal intervention or participation in the preparation of these
documents?

A. — No, sir, I did not have any participation or intervention.

Q. — You did not have any personal intervention in the alleged

deliveries of these number to the Compañia Maritima? A. - No, sir, I
did not have.

A. — As a matter of fact, you do not know who put these rubber

stamps here and signed at the bottom of these Exhibits A, A-1 to A-
5?

Q. — No, sir, I do not know. tsn. 57-58, Vol. I;

and then Juanita G. Perez, assistant cashier of Barretto who admitted in cross that:

Q. — So, you do not know of your own personal knowledge the

circumstances or the manner in which these Exhibits A-1 to A-5 were
stamped. You do not know of your own personal knowledge?

A. — Well, when it comes to stamping, I do not have any knowledge,"

tsn. 35, Vol. I;

under such a status of plaintiffs own proofs, how could it be said that plaintiff had
proved its case? And how would it be correctly insisted against this Court that it had
disregarded Lower Court's findings contrary to the existing jurisprudence when there
was no issue of credibility presented to this Court on which it indeed would have
been bound to rely as a rule upon Lower Court's determination; but what had been
before this Court was a simple issue of preponderance and it had to make its
conclusions based on the documents themselves presented by plaintiff it is because
of these that this Court is impelled to reiterate that it should rule as it had ruled
 previously, for litigations can not be determined by possibly correct suppositions,
deductions or even presumptions, with no basis in the evidence, for the truth must
have to be determined by the hard rules of proof. (pp. 1-7, CA Resolution dated
January 8, 1964).

"An examination of said receipts would reveal that they were counter-receipts issued by Cia.
Maritima unto Pio Barretto certifying to the fact of having received from Pio Barretto, certain
statements, "para su revision", which can only mean not an admission of having received the lumber
but only an admission of having received certain statements on claims for lumber allegedly
delivered; ... that plaintiff has the duty to prove its affirmative allegations here of delivery to and
failure of defendant to pay, ... otherwise, the meaning would be that the sending of a statement of
account would be an evidence of the admission thereof which it surely is not. (p. 6, CA Decision
dated November 18, 1963; p. 27, ROA).

We concur in the foregoing observations and find that the conclusion of the Court of Appeals that
plaintiff did not satisfactorily prove delivery of the lumber in question is in accordance with the facts
and the law.

WHEREFORE, the judgment appealed from is hereby affirmed without pronouncement as to costs.

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

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

Alejo Mabanag for plaintiff-appellee.

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

REYES, J.B.L., J.:

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

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

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

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

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

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

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

Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far Eastern Surety
and Insurance Company, no sale of the approximately 24,000 tons of iron ore had been made by the
Larap Mines & Smelting Co., Inc., nor had the P65,000.00 balance of the price of said ore been paid
to Gaite by Fonacier and his sureties payment of said amount, on the theory that they had lost right
to make use of the period given them when their bond, Exhibit "B" automatically expired (Exhibits "C"
to "C-24"). And when Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed
the present complaint against them in the Court of First Instance of Manila (Civil Case No. 29310) for
the payment of the P65,000.00 balance of the price of the ore, consequential damages, and
attorney's fees.

All the defendants except Francisco Dante set up the uniform defense that the obligation sued upon
by Gaite was subject to a condition that the amount of P65,000.00 would be payable out of the first
letter of credit covering the first shipment of iron ore and/or the first amount derived from the local
sale of the iron ore by the Larap Mines & Smelting Co., Inc.; that up to the time of the filing of the
complaint, no sale of the iron ore had been made, hence the condition had not yet been fulfilled; and
that consequently, the obligation was not yet due and demandable. Defendant Fonacier also
contended that only 7,573 tons of the estimated 24,000 tons of iron ore sold to him by Gaite was
actually delivered, and counterclaimed for more than P200,000.00 damages.

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

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

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

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

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

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

The main issues presented by appellants in this appeal are:

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

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

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

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

a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this agreement.

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid from and out of
the first letter of credit covering the first shipment of iron ore made by the Larap Mines &
Smelting Co., Inc., its assigns, administrators, or successors in interest.
We find the court below to be legally correct in holding that the shipment or local sale of the iron ore
is not a condition precedent (or suspensive) to the payment of the balance of P65,000.00, but was
only a suspensive period or term. What characterizes a conditional obligation is the fact that its
efficacy or obligatory force (as distinguished from its demandability) is subordinated to the
happening of a future and uncertain event; so that if the suspensive condition does not take place,
the parties would stand as if the conditional obligation had never existed. That the parties to the
contract Exhibit "A" did not intend any such state of things to prevail is supported by several
circumstances:

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

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

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

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

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

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

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

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

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

"ART. 1198. The debtor shall lose every right to make use of the period:

(1) . . .

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

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

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

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

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

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

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

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

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

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

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

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

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

WHEREFORE, finding no error in the decision appealed from, we hereby affirm the same, with costs
against appellants.
G.R. No. L-41847 December 12, 1986

CATALINO LEABRES, petitioner,
vs.
COURT OF APPEALS and MANOTOK REALTY, INC., respondents.

Magtanggol C. Gunigundo for petitioner.

Marcelo de Guzman for respondents.

PARAS, J.:

Before Us is a Petition for certiorari to review the decision of the Court of Appeals which is quoted
hereunder:

In Civil Case No. 64434, the Court of First Instance of Manila made the following quoted decision:

(1) Upon defendant's counterclaim, ordering plaintiff Catalino Leabres to vacate and/or
surrender possession to defendant Manotok Realty, Inc. the parcel of land subject matter of
the complaint described in paragraph 3 thereof and described in the Bill of Particulars dated
March 4, 1966;

(2) To pay defendant the sum of P81.00 per month from March 20, 1959, up to the time he
actually vacates and/or surrenders possession of the said parcel of land to the defendant
Manotok Realty, Inc., and

(3) To pay attorney's fees to the defendant in the amount of P700.00 and pay the costs.
(Decision, R.A., pp. 54-55).

The facts of this case may be briefly stated as follows:

Clara Tambunting de Legarda died testate on April 22, 1950. Among the properties left by the
deceased is the "Legarda Tambunting Subdivision" located on Rizal Avenue Extension, City of
Manila, containing an area of 80,238.90 sq. m., covered by Transfer Certificates of Title No. 62042;
45142; 45149; 49578; 40957 and 59585. Shortly after the death of said deceased, plaintiff Catalino
Leabres bought, on a partial payment of Pl,000.00 a portion (No. VIII, Lot No. 1) of the Subdivision
from surviving husband Vicente J. Legarda who acted as special administrator, the deed or receipt
of said sale appearing to be dated May 2, 1950 (Annex "A"). Upon petition of Vicente L. Legarda,
who later was appointed a regular administrator together with Pacifica Price and Augusto
Tambunting on August 28, 1950, the Probate Court of Manila in the Special Proceedings No. 10808)
over the testate estate of said Clara Tambunting, authorized through its order of November 21, 1951
the sale of the property.

In the meantime, Vicente L. Legarda was relieved as a regular Administrator and the Philippine Trust
Co. which took over as such administrator advertised the sale of the subdivision which includes the
lot subject matter herein, in the issues of August 26 and 27, September 2 and 3, and 15 and 17,
1956 of the Manila Times and Daily Mirror. In the aforesaid Special Proceedings No. 10808, no
adverse claim or interest over the subdivision or any portion thereof was ever presented by any
person, and in the sale that followed, the Manotok Realty, Inc. emerged the successful bidder at the
price of P840,000.00. By order of the Probate Court, the Philippine Trust Co. executed the Deed of
Absolute Sale of the subdivision dated January 7, 1959 in favor of the Manotok Realty, Inc. which
deed was judicially approved on March 20, 1959, and recorded immediately in the proper Register of
Deeds which issued the corresponding Certificates of Title to the Manotok Realty, Inc., the
defendant appellee herein.

A complaint dated February 8, 1966, was filed by herein plaintiff, which seeks, among other things,
for the quieting of title over the lot subject matter herein, for continuing possession thereof, and for
damages. In the scheduled hearing of the case, plaintiff Catalino Leabres failed to appear although
he was duly notified, and so the trial Court, in its order dated September 14, 1967, dismissed the
complaint (Annex "E").<äre||anº•1àw> In another order of dismissal was amended as to make the
same refer only to plaintiff's complaint and the counter claim of the defendant was reinstated and as
the evidence thereof was already adduced when defendant presented its evidence in three other
cases pending in the same Court, said counterclaim was also considered submitted for resolution.
The motion for reconsideration dated January 22, 1968 (Annex " I "), was filed by plaintiff, and an
opposition thereto dated January 25, 1968, was likewise filed by defendant but the Court a
quo dismissed said motion in its order dated January 12, 1970 (Annex "K"), "for lack of merits" (pp.
71-72, Record on Appeal).

Appealing the decision of the lower Court, plaintiff-appellant advances the following assignment of
errors:

THE LOWER COURT ERRED IN DENYING THE MOTION FOR RECONSIDERATION,

DATED OCTOBER 9, 1967, THUS DEPRIVING THE PLAINTIFF-APPELLANT HIS DAY IN
COURT.

II

THE LOWER COURT ERRED IN ORDERING THE PLAINTIFF-APPELLANT CATALINO

LEABRES TO VACATE AND/OR SURRENDER THE POSSESSION OF THE LOT
SUBJECT MATTER OF THE COMPLAINT TO DEFENDANT-APPELLEE.

III

THE LOWER COURT ERRED IN ORDERING THE PLAINTIFF-APPELLANT TO PAY

DEFENDANT-APPELLEE THE SUM OF P 81.00 PER MONTH FROM MARCH 20, 1969,
UP TO THE TIME HE ACTUALLY VACATE THE PARCEL OF LAND. (Appellant's Brief, p.
7)

In the First Assigned Error, it is contended that the denial of his Motion for Reconsideration dated
October 9, 1967, the plaintiff-appellant was not accorded his day in Court.

The rule governing dismissal of actions for failure to prosecute is provided for in Section 3, Rule 17
of the Rules of Court, as follows:

If the plaintiff fails to appear at the time of the trial, or to prosecute his action for an unreasonable
length of time, or to comply with these rules or any order of the Court, the action may be dismissed
upon motion of the defendant or upon the Court's own motion. This dismissal shall have the effect of
an adjudication upon the merits, unless otherwise provided by the Court.
Under the afore-cited section, it is discretionary on the part of the Court to dismiss an action for
failure to prosecute, and its action will not be reversed upon appeal in the absence of abuse. The
burden of showing abuse of this discretion is upon the appellant since every presumption is toward
the correctness of the Court's action (Smith, Bell & Co., et al vs. American Pres. Lines, Ltd., and
Manila Terminal Co., No. L-5304, April 30, 1954; Adorable vs. Bonifacio, G. R. No. L-0698, April 22,
1959); Flores vs. Phil. Alien Property Administration, G.R. No. L-12741, April 27, 1960). By the
doctrine laid down in these cases, and by the provisions of Section 5, Rules 131 of the Rules of
Court, particularly paragraphs (m) and (o) which respectively presume the regularity of official
performance and the passing upon by the Court over all issues within a case, it matters not if the
Court dismissing the action for failure to prosecute assigns any special reason for its action or not.
We take note of the fact that the Order declaring appellant in default was handed down on
September 14, 1967. Appellant took no steps to have this Order set aside. It was only on January
22, 1968, after he was furnished a copy of the Court's decision dated December 9, 1967 or about
four months later that he attached this Order and the decision of the Court. Appellant slept on his
rights-if he had any. He had a chance to have his day in Court but he passed it off. Four months later
he alleges that sudden illness had prevented him. We feel appellant took a long time too-long in fact-
to inform the Court of his sudden illness. This sudden illness that according to him prevented him
from coming to Court, and the time it took him to tell the Court about it, is familiar to the forum as an
oft repeated excuse to justify indifference on the part of litigants or outright negligence of those who
represent them which subserves the interests of justice. In the instant case, not only did the
appellant wantonly pass off his chance to have a day in Court but he has also failed to give a
convincing, just and valid reason for the new hearing he seeks. The trial court found it so; We find it
so. The trial Court in refusing to give appellant a new trial does not appear to have abused his
discretion as to justify our intervention.

The Second and Third Assignments of Error are hereby jointly treated in our discussion since the
third is but a consequence of the second.

It is argued that had the trial Court reconsidered its order dated September 14, 1967 dismissing the
complaint for failure to prosecute, plaintiff-appellant might have proved that he owns the lot
subjectmatter of the case, citing the receipt (Annex A) in his favor; that he has introduced
improvements and erected a house thereon made of strong materials; that appellee's adverse
interest over the property was secured in bad faith since he had prior knowledge and notice of
appellant's physical possession or acquisition of the same; that due to said bad faith appellant has
suffered damages, and that for all the foregoing, the judgment should be reversed and equitable
relief be given in his favor.

As above stated, the Legarda-Tambunting Subdivision which includes the lot subject matter of the
instant case, is covered by Torrens Certificates of Title. Appellant anchors his claim on the receipt
(Annex "A") dated May 2, 1950, which he claims as evidence of the sale of said lot in his favor.
Admittedly, however, Catalino Leabres has not registered his supposed interest over the lot in the
records of the Register of Deeds, nor did he present his claim for probate in the testate proceedings
over the estate of the owner of said subdivision, in spite of the notices advertised in the papers.
(Saldana vs. Phil. Trust Co., et al.; Manotok Realty, Inc., supra).

On the other hand, defendant-appellee, Manotok Realty, Inc., bought the whole subdivision which
includes the subject matter herein by order and with approval of the Probate Court and upon said
approval, the Deed of Absolute Sale in favor of appellee was immediately registered with the proper
Register of Deeds. Manotok Realty, Inc. has therefore the better right over the lot in question
because in cases of lands registered under the Torrens Law, adverse interests not therein annotated
which are without the previous knowledge by third parties do not bind the latter. As to the
improvement which appellant claims to have introduced on the lot, purchase of registered lands for
value and in good faith hold the same free from all liens and encumbrances except those noted on
the titles of said land and those burdens imposed by law. (Sec. 39, Act. 496).<äre||anº•1àw> An
occupant of a land, or a purchaser thereof from a person other than the registered owner, cannot
claim good faith so as to be entitled to retention of the parcels occupied by him until reimbursement
of the value of the improvements he introduced thereon, because he is charged with notice of the
existence of the owner's certificate of title (J.M. Tuason & Co. vs. Lecardo, et al., CA-G.R. No.
25477-R, July 24, 1962; J.M. Tuason & Co., Inc. vs. Manuel Abundo, CA-G.R. No. 29701-R,
November 18, 1968).

Appellant has not convinced the trial Court that appellee acted in bad faith in the acquisition of the
property due to the latter's knowledge of a previous acquisition by the former, and neither are we
impressed by the claim. The purchaser of a registered land has to rely on the certificate of title
thereof. The good faith of appellee coming from the knowledge that the certificate of title covering
the entire subdivision contain no notation as to appellant's interest, and the fact that the records of
these eases like Probate Proceedings Case No. 10808, do not show the existence of appellant's
claim, strongly support the correctness of the lower Court's decision

WHEREFORE, in view of the foregoing, we find no reason to amend or set aside the decision
appealed from, as regards to plaintiff-appellant Catalino Leabres. We therefore affirm the same, with
costs against appellant. (pp. 33-38, Rollo)

Petitioner now comes to us with the following issues:

(1) Whether or not the petitioner was denied his day in court and deprived of due process of
law.

(2) Whether or not the petitioner had to submit his receipt to the probate court in order that
his right over the parcel of land in dispute could be recognized valid and binding and
conclusive against the Manotok Realty, Inc.

(3) Whether or not the petitioner could be considered as a possessor in good faith and in the
concept of owner. (p. 11, Rollo)

Petitioner's contention that he was denied his day in court holds no water. Petitioner does not deny
the fact that he failed to appear on the date set for hearing on September 14, 1967 and as a
consequence of his non-appearance, the order of dismissal was issued, as provided for by Section
3, Rule 17 of the Revised Rules of Court.

Moreover, as pointed out by private respondent in its brief, the hearing on June 11, 1967 was not ex
parte. Petitioner was represented by his counsel on said date, and therefore, petitioner was given his
day in Court.

The main objection of the petition in the lower court's proceeding is the reception of respondent's
evidence without declaring petitioner in default. We find that there was no necessity to declare
petitioner in default since he had filed his answer to the counterclaim of respondent.

Petitioner anchors his main arguments on the receipt (Exh. 1) dated May 2, 1950, as a basis of a
valid sale. An examination of the receipt reveals that the same can neither be regarded as a contract
of sale or a promise to sell. There was merely an acknowledgment of the sum of One Thousand
Pesos (P1,000.00). There was no agreement as to the total purchase price of the land nor to the
monthly installment to be paid by the petitioner. The requisites of a valid Contract of Sale namely 1)
consent or meeting of the minds of the parties; 2) determinate subject matter; 3) price certain in
money or its equivalent-are lacking in said receipt and therefore the "sale" is not valid nor
enforceable. Furthermore, it is a fact that Dona Clara Tambunting died on April 22, 1950. Her estate
was thereafter under custodia legis of the Probate Court which appointed Don Vicente Legarda as
Special Administrator on August 28, 1950. Don Vicente Legarda entered into said sale in his own
personal-capacity and without court approval, consequently, said sale cannot bind the estate of
Clara Tambunting. Petitioner should have submitted the receipt of alleged sale to the Probate Court
for its approval of the transactions. Thus, the respondent Court did not err in holding that the
petitioner should have submitted his receipt to the probate court in order that his right over the
subject land could be recognized-assuming of course that the receipt could be regarded as sufficient
proof.

Anent his possession of the land, petitioner cannot be deemed a possessor in good faith in view of
the registration of the ownership of the land. To consider petitioner in good faith would be to put a
premium on his own gross negligence. The Court resolved to DENY the petition for lack of merit and
to AFFIRM the assailed judgment.

Feria (Chairman), Fernan, Alampay and Gutierrez, Jr., JJ., concur.

G.R. No. 112733 October 24, 1997

PEOPLE'S INDUSTRIAL AND COMMERCIAL CORPORATION, petitioner,

vs.
COURT OF APPEALS and MAR-ICK INVESTMENT CORPORATION, respondents.

ROMERO, J.:

This petition for review on certiorari of the Decision1 of the Court of Appeals arose from the
complaint for accion publiciana de posesion over several subdivision lots that was premised on the
automatic cancellation of the contracts to sell those lots.

Private respondent Mar-ick Investment Corporation is the exclusive and registered owner of Mar-ick
Subdivision in Barrio Buli, Cainta, Rizal. On May 29, 1961, private respondent entered into six (6)
agreements with petitioner People's Industrial and Commercial Corporation whereby it agreed to sell
to petitioner six (6) subdivision lots.2 Except for Lot No. 8 that has an area of 253 square meters, all
the lots measure 240 square meters each. Five of the agreements, involving Lots Nos. 3, 4, 5, 6 and
7, similarly stipulate that the petitioner agreed to pay private respondent for each lot, the amount of
P7,333.20 with a down payment of P480.00. The balance of P6,853.20 shall be payable in 120
equal monthly installments of P57.11 every 30th of the month, for a period of ten years. With respect
to Lot No. 8, the parties agreed to the purchase price of P7,730.00 with a down payment of P506.00
and equal monthly installments of P60.20.

All the agreements have the following provisions:

9. Should the PURCHASER fail to make the payment of any of the monthly installments as
agreed herein, within One Hundred Twenty (120) days from its due date, this contract shall,
by the mere fact of nonpayment, expire by itself and become null and void without necessity
of notice to the PURCHASER or of any judicial declaration to the effect, and any and all
sums of money paid under this contract shall be considered and become rentals on the
property, and in this event, the PURCHASER should he/she be in possession of the property
shall become a mere intruder or unlawful detainer of the same and may be ejected therefrom
by the means provided by law for trespassers or unlawful detainers. Immediately after the
expiration of the 120 days provided for in this clause, the OWNER shall be at liberty to
dispose of and sell said parcel of land to any other person in the same manner as if this
contract had never been executed or entered into.

The breach by the PURCHASER of any of the conditions considered herein shall have the
same effect as non-payment of the installments of the purchase price.

In any of the above cases the PURCHASER authorizes the OWNER or her representatives
to enter into the property to take possession of the same and take whatever action is
necessary or advisable to protect its rights and interests in the property, and nothing that
may be done or made by the PURCHASER shall be considered as revoking this authority or
a denial thereof.3
After the lapse of ten years, however, petitioner still had not fully paid for the six lots; it had paid only
the down payment and eight (8) installments, even after private respondent had given petitioner a
grace period of four months to pay the arrears.4 As of May 1, 1980, the total amount due to private
respondent under the contract was P214,418.00. 5

In his letter of March 30, 1980 to Mr. Tomas Siatianum (Siatianun) who signed the agreements for
petitioner, private respondent's counsel protested petitioner's encroachment upon a portion of its
subdivision particularly Lots Nos. 2, 3, 4, 5, 6, 7 and 8. A portion of the letter reads:

Examinations conducted on the records of said lots revealed that you once contracted to
purchase said lots but your contracts were cancelled for non-payment of the stipulated
installments.

Desirous of maintaining good and neighborly relations with you, we caused to send you this
formal demand for you to remove your said wall within fifteen (15) days from your receipt
hereof, otherwise, much to our regret, we shall be constrained to seek redress before the
Courts and at the same time charge you with reasonable rentals for the use of said lots at
the rate of One (P1.00) Peso per square meter per month until you shall have finally
removed said wall.6

Private respondent reiterated its protest against the encroachment in a letter dated February 16,
1981.7 It added that petitioner had failed to abide by its promise to remove the encroachment, or to
purchase the lots involved "at the current price or pay the rentals on the basis of the total area
occupied, all within a short period of time." It also demanded the removal of the illegal constructions
on the property that had prejudiced the subdivision and its neighbors.

After a series of negotiations between the parties, they agreed to enter into a new contract to
sell8 involving seven (7) lots, namely, Lots Nos. 2, 3, 4, 5, 6, 7 and 8, with a total area of 1,693
square meters. The contract stipulates that the previous contracts involving the same lots (actually
minus Lot No. 2) "have been cancelled due to the failure of the PURCHASER to pay the stipulated
installments." It states further that the new contract was entered into "to avoid litigation, considering
that the PURCHASER has already made use of the premises since 1981 to the present without
paying the stipulated installments." The parties agreed that the contract price would be P423,250.00
with a down payment of P42,325.00 payable upon the signing of the contract and the balance of
P380,925.00 payable in forty-eight (48) equal monthly amortization payments of P7,935.94.

The new contract bears the date of October 11, 1983 but neither of the parties signed it. Thereafter,
Tomas Siatianum issued the following checks in the total amount of P37,642.72 to private
respondent: (a) dated March 4, 1984 for P10,000.00; (b) dated March 31, 1984 for P10,000.00; (c)
dated April 30, 1984 for P10,000.00; (d) dated May 31, 1984 for P7,079.00, and (e) dated May 31,
1984 for P563.72.9

Private respondent received but did not encash those checks. Instead, on July 12, 1984 it filed in the
Regional Trial Court of Antipolo, Rizal, a complaint for accion publiciana de posesion against
petitioner and Tomas Siatianum, as president and majority stockholder of petitioner. 10 It prayed that
petitioner be ordered to remove the wall on the premises and to surrender possession of Lots Nos. 2
to 8 of Block 11 of the Mar-ick Subdivision, and that petitioner and Tomas Siatianum be ordered to
pay: (a) P259,074.00 as reasonable rentals for the use of the lots from 1961, "plus P1,680.00 per
month from July 1, 1984 up to and until the premises shall have been vacated and the wall
demolished"; (b) P10,000.00 as attorney's fees; (c) moral and exemplary damages, and (d) costs of
suit. In the alternative, the complaint prayed that should the agreements be deemed not
automatically cancelled, the same agreements should be declared null and void.
In due course, the lower court11 rendered a decision finding that the original agreements of the
parties were validly cancelled in accordance with provision No. 9 of each agreement. The parties did
not enter into a new contract in accordance with Art. 1403 (2) of the Civil Code as the parties did not
sign the draft contract. Receipt by private respondent of the five checks could not amount to
perfection of the contract because private respondent never encashed and benefited from those
checks. Furthermore, there was no meeting of the minds between the parties because Art. 475 of
the Civil Code should be read with the Statute of Frauds that requires the embodiment of the
contract in a note or memorandum.

The lower court opined that the checks represented the deposit under the new contract because
petitioner failed to prove that those were monthly installments that private respondent refused to
accept. What petitioner proved instead was the fact that it was not able to pay the rest of the
installments because of a strike, fire and storm that affected its operations. Be that as it may, what
was clearly proven was that both parties negotiated a new contract after the termination of the first.
Thus, the fact that the parties tried to negotiate a new contract indicated that they considered the
first contract as "already cancelled."

With respect to petitioner's allegation on a "free right-of-way" constituted on Lot No. 2, the lower
court found that the agreement thereon was oral and not in writing. As such, it was not in
accordance with Art. 749 of the Civil Code requiring that, to be valid, a donation must be in a public
document. Consequently, because of the principle against unjust enrichment, petitioner must pay
rentals for the occupancy of the property. The lower court disposed of the case as follows:

IN VIEW OF ALL THE FOREGOING, defendant corporation is hereby directed to return

subject Lots Nos. 2, 3, 4, 5, 6, 7 and 8 to plaintiff corporation, and to pay to the latter the
following amounts:

1. reasonable rental of P1.00 per square meter per month

from May 29, 1961, for Lots Nos. 3, 4, 5, 6, 7 and 8, and from
July 12, 1984, for Lot No. 2, up to the date they will vacate
said lots. The amount of P4,735.12 (Exhibit "R") already paid
by defendant corporation to plaintiff corporation for the six (6)
lots under the original contracts shall be deducted from the
said rental;

2. attorney's fees in the amount of P10,000.00; and

3. costs of the suit.

SO ORDERED.

Petitioner elevated the case to the Court of Appeals. However, on October 16, 1992, the Court of
Appeals affirmed in toto the lower court's decision. Petitioner's motion for reconsideration having
been denied, it instituted the instant petition for review on certiorari raising the following issues for
resolution:

(1) whether or not the lower court had jurisdiction over the subject matter of
the case in view of the provisions of Republic Act No. 6552 and Presidential
Decree No. 1344;
 (2) whether or not there was a perfected and enforceable contract of sale
(sic) on October 11, 1983 which modified the earlier contracts to sell which
had not been validly rescinded;

(3) whether or not there was a valid grant of right of way involving Lot No. 2
in favor of petitioner; and

(4) whether or not there was a justification for the grant of rentals and the
award of attorney's fees in favor of private respondent. 12

The issue of jurisdiction has been precluded by the principle of estoppel. It is settled that lack of
jurisdiction may be assailed at any stage of the proceedings. However, a party's participation therein
estops such party from raising the issue.13 Petitioner undoubtedly has actively participated in the
proceedings from its inception to date. In its answer to the complaint, petitioner did not assail the
lower court's jurisdiction; instead, it prayed for "affirmative relief. 14 Even after the lower court had
decided against it, petitioner continued to affirm the lower court's jurisdiction by elevating the
decision to the appellate court,15 hoping to obtain a favorable decision but the Court of Appeals
affirmed the court a quo's ruling. Then and only then did petitioner raise the issue of jurisdiction — in
its motion for reconsideration of the appellate court's decision. Such a practice, according to Tijam
v. Sibonghanoy,16 cannot be countenanced for reasons of public policy.

Granting, however, that the issue was raised seasonably at the first opportunity, still, petitioner has
incorrectly considered as legal bases for its position on the issue of jurisdiction the provisions of P.D.
Nos. 957 and 1344 and Republic Act No. 6552. P.D. No. 957, the "Subdivision and Condominium
Buyers' Protective Decree" which took effect upon its approval on July 12, 1976, vests upon the
National Housing Authority (NHA) "exclusive jurisdiction to regulate the real estate trade and
business" in accordance with the provisions of the same decree. 17 P.D. No. 1344, issued on April 2,
1978, empowered the National Housing Authority to issue a writ of execution in the enforcement of
its decisions under P.D. No. 957.

These decrees, however, were not yet in existence when private respondent invoked provision No. 9
of the agreements or contracts to sell and cancelled these in October 1971. 18 Article 4 of the Civil
Code provides that laws shall have no retroactive effect unless the contrary is provided. Thus, it is
necessary that an express provision for its retroactive application must be made in the law. 19 There
being no such provision in both P.D. Nos. 957 and 1344, these decrees cannot be applied to a
situation that occurred years before their promulgation. Moreover, granting that said decrees indeed
provide for a retroactive application, still, these may not be applied in this case.

The contracts to sell of 1961 were cancelled in virtue of provision No. 9 thereof to which the parties
voluntarily bound themselves. In Manila Bay Club Corp. v. Court of Appeals,20 this Court interpreted
as requiring mandatory compliance by the parties, a provision in a lease contract that failure or
neglect to perform or comply with any of the covenants, conditions, agreements or restrictions
stipulated shall result in the automatic termination and cancellation of the lease. The Court added:

. . . . Certainly, there is nothing wrong if the parties to the lease contract agreed on certain
mandatory provisions concerning their respective rights and obligations, such as the
procurement of insurance and the rescission clause. For it is well to recall that contracts are
respected as the law between the contracting parties, and they may establish such
stipulations, clauses, terms and conditions as they may want to include. As long as such
agreements are not contrary to law, morals, good customs, public policy or public order they
shall have the force of law between them.
Consequently, when petitioner failed to abide by its obligation to pay the installments in accordance
with the contracts to sell, provision No. 9 automatically took effect. That private respondent failed to
observe Section 4 of Republic Act No. 6552, the "Realty Installment Buyer Protection Act," is of no
moment. That section provides that "(I)f the buyer fails to pay the installments due at the expiration
of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of
the notice of cancellation or the demand for rescission of the contract by a notarial act. Private
respondent's cancellation of the agreements without a duly notarized demand for rescission did not
mean that it violated said provision of law. Republic Act No. 6552 was approved on August 26, 1972,
long after provision No. 9 of the contracts to sell had become automatically operational. As with P.D.
Nos. 957 and 1344, Republic Act No. 6552 does not expressly provide for its retroactive application
and, therefore, it could not have encompassed the cancellation of the contracts to sell in this case.

At this juncture, it is apropos to stress that the 1961 agreements are contracts to sell and not
contracts of sale. The distinction between these contracts is graphically depicted in Adelfa
Properties, Inc. v. Court of
Appeals,21 as follows:

. . . . The distinction between the two is important for in a contract of sale, the title passes to
the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement
the ownership is reserved in the vendor and is not to pass until the full payment of the price.
In a contract of sale, the vendor has lost and cannot recover ownership until and unless the
contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor
until the full payment of the price, such payment being a positive suspensive condition and
failure of which is not a breach but an event that prevents the obligation of the vendor to
convey title from becoming effective. Thus, a deed of sale is considered absolute in nature
where there is neither a stipulation in the deed that title to the property sold is reserved in the
seller until the full payment of the price, nor one giving the vendor the right to unilaterally
resolve the contract the moment the buyer fails to pay within a fixed period.

That the agreements of 1961 are contracts to sell is clear from the following provisions thereof:

3. Title to said parcel of land shall remain in the name of the OWNER until complete payment
by the PURCHASER of all obligations herein stipulated, at which time the OWNER agrees to
execute a final deed of sale in favor of the PURCHASER and cause the issuance of a
certificate of title in the name of the latter, free from liens and encumbrances except those
provided in the Land Registration Act, those imposed by the authorities, and those contained
in Clauses Nos. Five (5) and Six (6) of this agreement.

xxx xxx xxx

4. The PURCHASER shall be deemed for all legal purposes to take possession of the parcel
of land upon payment of the down or first payment; provided, however, that his/her
possession under this section shall be only that of a tenant or lessee and subject to
ejectment proceedings during all the period of this agreement.

5. The parcel of land subject of this agreement shall be used by the PURCHASER
exclusively for legal purposes, and he shall not be entitled to take or remove soil, stones, or
gravel from it or any other lots belonging to the OWNER.

Hence, being contracts to sell, Article 1592 of the Civil Code which requires rescission either by
judicial action or notarial act is not applicable. 22
Neither may petitioner claim ignorance of the cancellation of the contracts. Aside from his letters of
March 30, 1980 and February 16, 1981, private respondent's counsel, Atty. Manuel Villamayor, had
sent petitioner other formal protests and demands.23 These letters adequately satisfied the notice
requirement stipulated in provision No. 9 of the contracts to sell. If petitioner had not agreed to the
automatic and extrajudicial cancellation of the contracts, it could have gone to court to impugn the
same but it did not. Instead, it sought to enter into a new contract to sell, thereby confirming its
veracity and validity of the extrajudicial rescission. 24 Had not private respondent filed the accion
publiciana de posesion, petitioner would have remained silent about the whole situation. It is now
estopped from questioning the validity of the cancellation of the contracts. An unopposed rescission
of a contract has legal effects.25

Petitioner's reliance on the portion of the Court of Appeals' Decision stating that private respondent
had not made known to petitioner its supposed rescission of the contract, 26 is misplaced. Moreover, it
quoted only the portion that appears favorable to its case. To be sure, the Court of Appeals quoted
provision No. 9 which requires that "actual cancellation shall take place thirty days from receipt by
the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act
and upon full payment of the cash surrender value," and added that "R.A. 6552 even more
underscored the indispensability of such notice to the defaulting buyer." However, the same
appellate court continued:

The absence of the aforesaid notice in the case at bar in the forms respectively deemed
efficacious before and after the passage of R.A. 6552 does not, however, necessarily
impress merit in the appellant's position. Extrajudicial rescission, after all, has legal effect
where the other party does not oppose it (Zulueta vs. Mariano, 111 SCRA 206; Nera vs.
Vacante, 3 SCRA 505; Magdalena Estate vs. Myrick, 71 Phil. 344). Where it is objected to, a
judicial determination of the issue is still necessary. In other words, resolution of reciprocal
contracts may be made extrajudicially unless successfully impugned in Court. If the debtor
impugns the declaration, it shall be subject to judicial determination (Jison vs. Court of
Appeals, 164 SCRA 339, citing Palay Inc. vs. Clave, supra; Univ. of the Philippines vs.
Angeles, supra). In its July 5, 1984 complaint, the appellee had, in fact, significantly prayed
for the cancellation of the said sales agreement in the alternative (p. 4, orig.
rec.).27 (Emphasis supplied.)

Moreover, private respondent's act of cancelling the contracts to sell was not done arbitrarily. The
record shows that private respondent dealt with petitioner with admirable patience, probably in view
of the strike, the fire in 1968 that burned petitioner's factory, and the typhoon in 1970. 28 If exercised
its contractual authority to cancel the agreements only after petitioner had reneged in its obligation
after paying only eight (8) installments. When the contracts matured, it still gave petitioner a grace
period of four (4) months within which to comply with its obligations. It considered the contracts
cancelled only as of October 1971 or several years after petitioner's last installment payment 29 and
definitely more than ten years after the agreements were entered into.

Because the contracts to sell had long been cancelled when private respondent filed the accion
publiciana de posesion on July 12, 1984, it was the proper Regional Trial Court that had jurisdiction
over the case. By then, there was no more installment buyer and seller relationship to speak of. It
had been recuded to a mere case of an owner claiming possession of its property that had long
been illegally withheld from it by another.

Petitioner alleges that there was a "new perfected and enforceable contract of sale" between the
parties in October 1983 for two reasons. First, it paid private respondent the down payment or
"deposit of Contract"30 through the five checks. Second, the receipt signed by private respondent's
representative satisfies the requirement of a "note or memorandum" under Article 1403 (2) of the
Civil Code because it states the object of the contract (six lots of Mar-Ick Subdivision measuring
1,453 square meters), the price (P250.00 per square meter with a down payment of 10% or
P37,542.72), and the receipt itself opens with a statement referring to the "purchase" of the six lots
of Mar-Ick Subdivision.31

The contract of October 1983 which private respondent offered in evidence as Exhibit S, is entitled
"CONTRACT TO SELL." While the title of a contract is not controlling, its stipulations confirm the
nature of that contract. Thus, it provides:

5. Title to said parcels of land shall remain in the name of the OWNER until complete
payment by the PURCHASER of all obligations herein stipulated, at which time, the OWNER
agrees to execute a final deed of sale in favor of the PURCHASER and cause the issuance
of certificates of title in the name of the latter, free from all liens and encumbrances except
those provided in the Land Registration Act, those imposed by the authorities, and those
contained in the stipulations that follow.

Under the law, there is a binding contract between the parties whose minds have met on a certain
matter notwithstanding that they did not affix their signatures to its written form.

In the case at bar, it was private respondent's company lawyer and sole witness, Atty. Manuel
Villamayor, who volunteered that after the cancellation of the 1961 agreements, the parties should
negotiate and enter into "a new agreement based on the current price" or at P400.00 per square
meter. However, there was a hitch in the negotiations because after he had drafted the contract and
sent it to petitioner, the latter "deposited a check for downpayment" but its representative refused to
sign the prepared contract.32 Private respondent even offered the contract to sell as its Exhibit S.33 In
the absence of proof to the contrary, this draft contract may be deemed to embody the agreement of
the parties. Moreover, when Tomas Siatianun, petitioner's president, testified, private respondent
cross-examined him as regards the October 1983 contract. 34 Private respondent did not and has not
denied the existence of that contract.

Under these facts, therefore, the parties may ideally be considered as having perfected the contract
of October 1983. Again in Adelfa Properties, Inc. v. Court of Appeals, the Court said that

. . . a contract, like a contract to sell, involves a meeting of the minds between two persons
whereby one binds himself, with respect to the other, to give something or to render some
service. Contracts, in general, are perfected by mere consent, which is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to constitute
the contract. The offer must be certain and the acceptance absolute. 35

Moreover, private respondent's offer to sell and petitioner's acceptance thereof are manifest in the
documentary evidence presented by the parties. Thus, private respondent presented the five (5)
checks36 that, through Atty. Villamayor, it admitted as the down payment under the October 1983
contract. Private respondent's intentional non-encashment of the check cannot serve to belie the fact
of its tender as down payment. For its part, petitioner presented Exhibit 10, a receipt dated February
28, 1984, showing that private respondent's authorized representative received the total amount of
P37,642.72 represented by said five checks as "deposit of Contract (sic)." As this Court also held in
the Adelfa Properties case, acceptance may be evidenced by some acts or conduct communicated
to the offeror, either in a formal or an informal manner, that clearly manifest the intention or
determination to accept the offer to buy or
sell.37
Justice and equity, however, will not be served by a positive ruling on the perfection and
performance of the contract to sell. There are facts on record proving that, after all, the parties had
not arrived at a definite agreement. By Atty. Villamayor's admission, the checks were not encashed
because Tomas Siatianun did not sign the draft contract that he had prepared. 38 On his part, Tomas
Siatianun explained that he did not sign the contract because it covered seven (7) lots while their
agreement was only for six (6) lots. According to him, private respondent had conceded that Lot No.
2 was meant for petitioner's right of way39 and, therefore, it could not have been part of the
properties it wanted to buy. It is on record, moreover, that the only agreement that the parties arrived
at in a conference at the Silahis Hotel was the price indicated in the draft contract. 40

The number of lots to be sold is a material component of the contract to sell. Without an agreement
on the matter, the parties may not in any way be considered as having arrived at a contract under
the law. The parties' failure to agree on a fundamental provision of the contract was aggravated by
petitioner's failure to deposit the installments agreed upon. Neither did it attempt to make a
consignation of the installments. This Court's disquisition on the matter in the Adelfa Properties case
is relevant. Thus:

The mere sending of a letter by the vendee expressing the intention to pay, without the
accompanying payment, is not considered a valid tender of payment. Besides, a mere tender
of payment is not sufficient to compel private respondents to deliver the property and
execute the deed of absolute sale. It is consignation which is essential in order to extinguish
petitioner's obligation to pay the balance of the purchase price. The rule is different in case of
an option contract or in legal redemption or in a sale with right to repurchase, wherein
consignation is not necessary because these cases involve an exercise of a right or privilege
(to buy, redeem or repurchase) rather than the discharge of an obligation, hence tender of
payment would be sufficient to preserve the right or privilege. This is because the provisions
on consignation are not applicable when there is no obligation to pay. A contract to sell, as in
the case before us, involves the performance of an obligation, not merely the exercise of a
privilege or a right. Consequently, performance or payment may be effected not by tender of
payment alone but by both tender and consignation.41 (Emphasis supplied.)

As earlier noted, petitioner did not lift a finger towards the performance of the contract other than the
tender of down payment. There is no record that it even bothered to tender payment of the
installments or to amend the contract to reflect the true intention of the parties as regards the
number of lots to be sold. Indeed, by petitioner's inaction, private respondent may not be judicially
enjoined to validate a contract that the former appeared to have taken for granted. As in the earlier
agreements, petitioner ignored opportunities to resuscitate a contract to sell that was rendered
moribund and inoperative by its inaction.

In view of the foregoing, there is no need to discuss the issue of whether or not there was a valid
grant of right of way in favor of petitioners. Suffice it to say that the documentary evidence offered by
petitioner on the matter manifests that that right of way on an unidentified property was granted in
April 1961 by private respondent's board of directors to W. Ick & Sons, Inc. and Julian Martinez. 42 On
May 12, 1961, Fritz Ick, the president of W. Ick & Sons, Inc., in turn indorsed the unidentified
property to petitioner.43

What needs stressing is that the installments paid by the petitioner on the land should be deemed
rentals in accordance with provision No. 9, as well as by law. Article 1486 of the Civil Code provides
that a stipulation that the installments or rents paid shall not be returned to the vendee or lessee
shall be valid insofar as the same may not be unconscionable under the circumstances. 44 The down
payment and the eight (8) installments paid by petitioner on the six lots under the 1961 agreements
amounted to P5,672.00. The lots, including Lot No. 2, adjoins petitioner's Vetsin and oil factories
constructed on a 20,000-square-meter land that petitioner likewise bought from private respondent.
Obviously, petitioner made use of the lots not only during the construction of the factories but also
during its operations as an oil factory. Petitioner enclosed the area with a fence and made
constructions thereon. It is, therefore, not unconscionable to allow respondent rentals on the lots as
correctly decreed by the lower court.

As to attorney's fees, Article 2208 of the Civil Code allows the award of such fees when its claimant
is compelled to litigate with third persons or to incur expenses to protect its just and valid claim. In
view of petitioner's rejection of private respondent's demands for rentals 45 and its unjustified refusal
to settle private respondent's claims,46 the award of attorney's fees of P10,000.00 is more than just
and reasonable.47

WHEREFORE, the instant petition for review on certiorari is hereby denied and the questioned
Decision of the Court of Appeals is AFFIRMED. This Decision is immediately executory. Costs
against petitioner.

Melo, Francisco and Panganiban, JJ., concur.

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

DELPHER TRADES CORPORATION, and DELPHIN PACHECO, petitioners,

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

GUTIERREZ, JR., J.:

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

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

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

On April 3, 1974, the said co-owners leased to Construction Components

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

On August 3, 1974, lessee Construction Components International, Inc. assigned its

rights and obligations under the contract of lease in favor of Hydro Pipes Philippines,
Inc. with the signed conformity and consent of lessors Delfin Pacheco and Pelagia
Pacheco (Exhs. B to B-6 inclusive)

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

On January 3, 1976, a deed of exchange was executed between lessors Delfin and
Pelagia Pacheco and defendant Delpher Trades Corporation whereby the former
conveyed to the latter the leased property (TCT No.T-4240) together with another
parcel of land also located in Malinta Estate, Valenzuela, Metro Manila (TCT No.
4273) for 2,500 shares of stock of defendant corporation with a total value of
P1,500,000.00 (Exhs. C to C-5, inclusive) (pp. 44-45, Rollo)
On the ground that it was not given the first option to buy the leased property pursuant to the proviso
in the lease agreement, respondent Hydro Pipes Philippines, Inc., filed an amended complaint for
reconveyance of Lot. No. 1095 in its favor under conditions similar to those whereby Delpher Trades
Corporation acquired the property from Pelagia Pacheco and Delphin Pacheco.

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

ACCORDINGLY, the judgment is hereby rendered declaring the valid existence of

the plaintiffs preferential right to acquire the subject property (right of first refusal) and
ordering the defendants and all persons deriving rights therefrom to convey the said
property to plaintiff who may offer to acquire the same at the rate of P14.00 per
square meter, more or less, for Lot 1095 whose area is 27,169 square meters only.
Without pronouncement as to attorney's fees and costs. (Appendix I; Rec., pp. 246-
247). (Appellant's Brief, pp. 1-2; p. 134, Rollo)

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

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

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

The petitioners allege that:

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

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

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

3. Assuming arguendo that there has been a transfer of actual ownership interests,

private respondent will acquire the land not under "similar conditions" by which it was
transferred to petitioner Delpher Trades Corporation, as provided in the same
contractual provision invoked by private respondent. (pp. 251-252, Rollo)

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

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

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

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

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

We rule for the petitioners.

After incorporation, one becomes a stockholder of a corporation by subscription or by purchasing

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

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

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

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

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

As explained by Eduardo Neria:

xxx xxx xxx

ATTY. LINSANGAN:

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

A Yes, sir.

COURT:

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

A To take advantage for both spouses and corporation in entering in

the deed of exchange.

ATTY. LINSANGAN:

Q (What do you mean by "point of view"?) What are these benefits to

the spouses of this deed of exchange?

A Continuous control of the property, tax exemption benefits, and

other inherent benefits in a corporation.
Q What are these advantages to the said spouses from the point of
view of taxation in entering in the deed of exchange?

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

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

A I refer to Section 35 of the National Internal Revenue Code under

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

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

A Yes, sir

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

A There is flexibility in using no par value shares as the value is

determined by the board of directors in increasing capitalization. The
board can fix the value of the shares equivalent to the capital
requirements of the corporation.

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

A Yes, since a corporation does not die it can continue to hold on to

the property indefinitely for a period of at least 50 years. On the other
hand, if the property is held by the spouse the property will be tied up
in succession proceedings and the consequential payments of estate
and inheritance taxes when an owner dies.

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

particular person of certain properties in respect to taxation?

A The property is not subjected to taxes on succession as the

corporation does not die.

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

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

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

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

WHEREFORE, the instant petition is hereby GRANTED, The questioned decision and resolution of
the then Intermediate Appellate Court are REVERSED and SET ASIDE. The amended complaint in
Civil

Case No. 885-V-79 of the then Court of First Instance of Bulacan is DISMISSED. No costs.

SO ORDERED.
G.R. No. L-67115 January 20, 1989

FILOIL MARKETING CORPORATION (now Petrophil Corporation), petitioner,

vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT and JOSEFINA ALBERTO DE
PABALAN, respondents.

Juan T. David for respondent.

Josefina Alberto de Pabalan.

CRUZ, J.:

There were three principal defendants in the original action for rescission and damages filed by the
herein private respondent. They were all held solidarily liable. Only the petitioner herein has
appealed from the decision of the respondent court sustaining the trial court. The other defendant
has not done so and so is bound by the decision no before us.

This case arose from a sale of a piece of land belonging to Josefina Alberto de Pabalan in favor of
Villa Rey Transit on December 22, 1971. 1 The purchase price was P140,000.00, payable in
installments. On the day of the sale, TCT No. 87322 covering the land was delivered by Pabalan to
Jose M. Villarama, President of Villa Rey Transit, 2 who on February 2,5, 1972, caused its
cancellation and the issuance of TCT No. 94229 in his own name. 3 The new certificate of title was
clean; no conditions were annotated thereon; and the transfer appeared to have been made by
virtue of an absolute deed of sale.

On that very same date, Villarama mortgaged the land on behalf of Villa Rey Transit to the herein
petitioner as security for a loan of P350,000. 00. 4 Filoil Marketing Corporation was at the time
already occupying the land by virtue of a contract of lease earlier entered into with Pabalan. In the
deed of mortgage, Villarama warranted that this was the only encumbrance on the land, which was
otherwise free from all liens and encumbrances. On January 25, 1974, the mortgagor having
defaulted in the payment of the debt, the mortgage was extrajudicially foreclosed and the land was
sold at public auction.5

Filoil was the highest bidder.6 The certificate of sale was duly annotated on the certificate of
title.7 However, before the petitioner could consolidate its ownership over the property, Pabalan,
having learned of these developments, filed a complaint in the Court of First Instance of Pangasinan,
principally against Villa Rey Transit, Villarama and Filoil. 8
The complainant alleged that her contract of sale with Villa Rey Transit was conditional and did not
transfer title to the latter pending full payment to her of the purchase price. Villarama acted
fraudulently when without her knowledge he caused the cancellation of TCT No. 87322 and its
replacement with TCT No. 94229 and thereafter mortgaged the land to Filoil. Filoil, for its part, acted
in bad faith if not in complicity with the other defendants when it purchased the land at the
foreclosure sale knowing the property belonged not to Villa Rey Transit but to her, from whom it had
earlier leased the land. Pabalan asked for the rescission of the contract and for damages. 9

In their answer, Villa Rey Transit and Villarama contended that by its terms the contract of sale
effected immediate transfer of ownership over the land to them although payment was to be made in
installments. The transaction was. not a mere contract to sell. Hence, they had the right to mortgage
it after securing a new certificate of title over it in the name of Villarama. 10

Filoil's defense was that of an innocent purchaser for value. It argued that it bad a right to rely on
TCT No. 94229 and the warranties of the mortgagor and could not be held liable for the acts of the
other defendants. Neither should it be prejudiced by a rescission of the contract. 11

The trial court 12 held in favor of the complainant. It declared the contract of sale rescinded for
violation of its conditions by the vendee; annulled TCT No. 94229, the deed of mortgage, and the
auction sale of the land to Filoil; and reinstated TCT No. 87322 in the complainant's name. Filoil was
required to pay the rentals on the land. The defendants were also held solidarity liable to the plaintiff
in the amounts of P100,000.00 as moral damages; P25,000.00 as exemplary damages, and
P45,000.00 as attorney's fees plus the costs of the suit.13

Villa Rey Transit and Filoil appealed to the then Intermediate Appellate Court, 14 which affirmed the
decision of the trial court in toto. 15 In due time, the petitioner came to this Court to challenge this
affirmance. Its claim is that the respondent court erred in imputing bad faith to Filoil and in canceling
the questioned transactions notwithstanding the protection extended to it by law and jurisprudence
as an innocent purchaser for value of the disputed property.

The contract of sale reads as follows:

DEED OF SALE OF REAL PROPERTY

KNOW ALL MEN BY THESE PRESENTS:

This contract entered into by and between

JOSEFINA ALBERTO DE PABALAN, of legal age, married to Javier Pabalan,

residing at 1812 Singalong Street, Malate, Manila, hereinafter called the VENDOR

-and-

VILLA REY TRANSIT, INC. a domestic corporation duly organized and existing
according to the laws of the Philippines, represented in this act by its President,
JOSE M. VILLARAMA, of legal age, with principal office at 942 Gov. Forbes,
Sampaloc, Manila, hereinafter called the VENDEE,

WITNESSETH
1. WHEREAS, the VENDOR is the owner in fee simple of certain parcel of land
covered by TCT No. 87322 of the Registry of Deeds of Pangasinan, located at
Carmen Resales, Pangasinan, may be specifically described as follows:

A parcel of land (Lot 2-A-4-B-2-B-3 of the subdivision plan, [LRC] psd- 131340, being
a portion of Lot 2-A-4-B-2-B, described on plan [LRC] psd-89635, LRC Record No.
5463), situated in the Barrio of Carmen, Municipality of Resales, Province of
Pangasinan, Island of Luzon. Bounded on the NE., points 2 to 3, by Provincial Road;
on the SE., points 3 to 4, Lot 2-A-4-B-2-B-2 of the subdivision plan; on the SW.,
points 4 to 1, Lot 2-A-4-B-2-A, [LRC] psd-89635; and on the NW., points 1 to 2, by
Lot 2-A-4-A, [LRC] psd-38571. Beginning at a point marked 1 on plan, being N. 72
deg. 44' E., 1664.57 m. from B.L.L.M. 1, Mp. of Sto. Tomas, Pangasinan; thence N.
65 deg. 2T E., 35.00 m. to point 2; thence S. 27 deg. 5 1'E., 40.20 m. to point 3;
thence S. 65 deg. 40 W., 32.02 m. to point 4; thence N. 27 dog. 61'W., 40.00 m. to
the point of beginning; containing an area of one thousand three hundred and ninety-
eight (1,398) square meters, more or less. All points referred to are indicated on the
plan and are marked on the ground as follows; point 3, by P.S. cyl. conc., mon., 15 x
60 cine., and the rest, by old P.S. cyl. conc. mons. 15 x 60 cms.; bearings true;
declination 0 deg. 44'E.; date of the original survey, July 1924-June, 1925, and that
of the Subdivision Survey, November 3, 1970.

2. WHEREAS, the VENDOR is fully authorized to SELL, among others, the

aforementioned parcel of land by her spouse Javier Pabalan, as described in the
General Absolute and Irreparable Power of Attorney executed by the latter in favor of
the former in Document No. 269, Page No. 97, Book No. 4, Series of 1958 rectified
before Notary Public, Atty. Antonio R. Ramaat;

3. 'WHEREAS, all real estate taxes on the aforementioned parcel of land are correct
and paid as evidenced by Official Receipt No. 2975212, of the Treasurer's Office of
Pangasinan;

4. WHEREAS, the aforementioned parcel of land is free from all liens and
encumbrances except for the Lease Agreement between the Vendor and Filoil
Marketing Corporation, dated January 25, 1960, as described in Document No. 8,
Page No. 5, Book No. 1, Series of 1960, of Notary Public Cesar Generosa for the
City of Manila;

5. WHEREAS, the VENDOR is willing to sell and the VENDEE is willing to buy the
aforementioned parcel of land and for the following terns and conditions:

That the total consideration shall be in the sum of ONE HUNDRED FORTY
THOUSAND (P140,000.00) PESOS, payable annually at TEN THOUSAND
(P10,000.00) PESOS, commencing from 1972 to 1975 inclusive, provided that the
payments corresponding to the first four (4) years (1972, 1973, 1974, 1975) shall be
advanced as follows: TEN THOUSAND (P10,000.00) PESOS upon the signing of
this Deed, FIFTEEN THOUSAND (Pl5,000.00) PESOS on or before January 5, 1972
and FIFTEEN THOUSAND (Pl5,000.00) PESOS on or before March 31, 1972,
provided, that the VENDOR may request advance payments not exceeding the
equivalent of four (4) years at a discounted rate according to prevalent rates charged
by financing institutions; provided further that the VENDEE shall honor and respect
the lease contract entered into between the VENDOR and FILOIL MARKETING
CORPORATION, as described in the Document aforementioned provided finally that
 should the VENDEE, prior to full payment of all the amounts aforementioned, shall
decide to sell or to assign part or all of the aforementioned parcel of land the
VENDOR shall be informed by writing and shall have the option to repurchase the
property at the same price and or the same terms and conditions as may be offered
to this person. Upon receipt of each written offer from any third person, the VENDEE
shall submit the same to the VENDOR who shall be entitled to thirty (30) days to
decide whether or not to repurchase. Should the VENDOR herein decide to
repurchase and the property is sold or transferred to a third person, the balance of
the consideration herein still due to the vendor shall constitute automatically a prior
lien on the consideration to be paid by the third person to herein VENDEE.

NOW, therefore, for and in consideration of the sum of ONE HUNDRED FORTY
THOUSAND (P140,000.00) PESOS, payable under the terms and conditions stated
in the foregoing premises, the VENDOR sells, transfer , and conveys unto the
VENDEE its successors or assigns the above-described parcel of land, free from all
liens and encumbrances except for the lease contract by the VENDOR and FILOIL
MARKETING CORPORATION, the terms of which shall be respected by the
VENDEE.

IN WITNESS HEREOF, the parties are hereunto set forth their signature in the City
of Manila, this 22nd day of December, 1971.

VILLA REY TRANSIT, INC.

(Vendee)

By:

(Sgd.) JOSE M. VILLARAMA (T) JOSE M. VILLARAMA President

(Sgd.) JOSEFINA ALBERTO (T) JOSEFINA ALBERTO

Vendor **

It is obvious that the above instrument is not a contract to sell as contended by the private
respondent. We read it as a deed of sale in which title to the subject land was transferred to the
vendee as of the date of the transaction notwithstanding that the purchase price had not yet been
fully paid at that time.

In the first place, the dispositive part of the deed states that "for and in consideration of the sum of
ONE HUNDRED FORTY THOUSAND (Pl40,000.00) PESOS, payable under the terms and
conditions stated in the foregoing premises, the VENDOR sells, transfers and conveys unto the
VENDEE ... the property in question as of December 22, 1971, the date of the said document.

Secondly, and more importantly, it is provided in paragraph 5 thereof that "should the VENDEE, prior
to full payment of all the amounts aforementioned, decide to sell or to assign part or all of the
aforementioned parcel of land, the VENDOR shall be informed in writing and shall have the option to
repurchase the property ... Should the VENDOR herein decide to repurchase and the property is
sold or transferred to a third person, the balance of the consideration herein still due to the VENDOR
shall constitute automatically a prior lien on the consideration to be paid by the third person to herein
VENDEE.'
Under the first-cited stipulation, what is deferred is not the transfer of ownership but the full payment
of the purchase price, which is to be made in installments, on the dates indicated. Under the second
stipulation, it is recognized that the vendee may sell the property even "prior to full payment of all the
amounts aforementioned," which simply means that although the purchase price had not yet been
completely paid, the vendee had already become the owner of the land. As such, he could sell the
same, subject to the right of repurchase reserved to the vendor. In fact, the contract also provides for
the possibility of the vendee selling the property to a third person, in which case the vendor, if she
wishes to repurchase the land, shall have a lien on any balance of the consideration to be paid by
the third person to the vendee.

But all this notwithstanding, we agree with the trial court, as sustained by the respondent court, that
Villarama acted with less than good faith and candor when he secured the cancellation of the
vendor's certificate of title and replaced it with one in his name without even informing the
complainant about it. Worse, he thereafter mortgaged the property, also without her knowledge, and
then, to add insult to injury, also omitted to advice her that it had been sold at public auction because
he had defaulted in the payment of his mortgage debt. He did not even share the P350,000.00 loan
with her and pay her therefrom the P100,000.00 balance of the purchase price.

All the while, the plaintiff had thought Villarama had taken TCT No. 87322 from her only for the
purpose of having the deed of sale annotated thereon. 16 She believed, not being a lawyer, that title
to the property would not pass to the vendee until the purchase price had been paid in full. The deed
of sale, as the plaintiff testified, bad been drawn up by the legal staff of Villa Rey Transit. 17 As far as
she understood it, the land she was selling would pass to Villa Rey Transit only after the purchase
price had been paid in full. 18

It is true that she should have consulted a lawyer of her own to advice her and protect her interests,
but the fact is she did not. She just left the drafting of the deed to Villarama, whom she trusted. This
circumstance alone imposed upon Villarama the moral if not legal responsibility to explain the
meaning and consequences of the contract she was signing. But he did not discharge this
responsibility. On the contrary, what he did was take advantage of the private respondent's
confidence and use the subject property to enable him to secure the loan he did not repay.

The fact that he mortgaged the property the very day he secured the transfer certificate in his name
is meaningful, if not suspicious. It suggests that he had meant all the while to use the transaction
with the complainant to support the loan he was then negotiating with Filoil, and that his purpose
was not only not to inform the plaintiff about it but indeed to conceal it from her to prevent her from
obstructing his plan. While, in the strict legal sense, Villarama had the right as owner to mortgage
the property to Filoil, we feel he did so with demonstrated bad faith toward the private respondent,
who had placed her confidence in him.

At any rate, Villarama has not appealed the decision of the trial court and is now deemed to have
accepted it, including the imputation to him of malice and deceit, as affirmed by the Court of
Appeals.

What we are concerned with in this petition is the appeal of Filoil, the other defendant which has
been held solidarity liable with Villarama and Villa Rey Transit. Filoil, the herein petitioner, claims the
status of an innocent purchaser for value and insists that the deed of sale is not subject to rescission
as far as it is concerned. Moreover, even assuming that the contract is rescissible as between
Pabalan and Villa Rey transit, it cannot now be canceled as to the petitioner because it had no
participation therein.
Legally speaking, except only for the circumstance that Villarama and Villa Rey Transit have not
appealed to this Court, the rescission could not have been valid even as to them under the Civil
Code. The Court of Appeals erred in holding that the contract of sale was subject to rescission on
the ground of non-compliance with one of its conditions, presumably the payment of the purchase
price, under Article 1191 of the said Code. That ground was merely assumed and not established. In
fact, it did not exist at the time of the filing of the complaint.

Under the provisions of the deed, the purchase price of P100,000.00 was to be paid in annual
installments of P10,000.00, beginning 1972, except that there was to be an advance payment of
P40,000.00 covering the installments for 1972 until 1975. It is not denied by Pabalan that she
received this advance payment, Payment in installments of the balance of P100,000.00 would thus
begin only in 1976. Hence, when Pabalan filed her complaint for rescission in 1974, the contract
could not yet be faulted for non-performance by the vendee of its obligation to pay the balance of the
purchase price.

It follows that if the contract was not rescissible as to the other defendants (who are nevertheless
bound by the decision of the respondent court), much less would it be rescissible as to the petitioner,
which was not even a party to that contract.

We nevertheless must examine Filoil's defense of an innocent purchaser for value, as the private
respondent contends that it was privy to the plans of Villarama and Villa Rey Transit and so equally
liable with them to her in damages.

It is noted that at the time the contract of sale between Pabalan and Villa Rey was concluded on
December 22, 1971, the subject property was under lease to and occupied by Filoil. Filoil had earlier
recognized that the owner of the land was Pabalan, who had been its lessor since 1960. However,
when that same land (which it continued to occupy by virtue of the lease) was later mortgaged to it,
the registered owner thereof had been changed and now appeared to be Villarama, who had TCT
No. 94229 to prove it. Filoil seems to have accepted this change without question.

It is curious that despite this important development which directly affected its lease, Filoil appears to
have done nothing at all to verify it. Filoil could have at least checked with Pabalan about the matter
if only because of their existing contract of lease. It is also strange that Villarama's deed of mortgage
over the property was executed, as if by pre- arrangement with Filoil, on the very day be obtained
the transfer certificate in his own name. The decision to extend the not inconsiderable loan of
P350,000.00 to Villarama seems to have been readily made by Filoil, on the spur of the moment as it
were.

Somehow Filoil's claim that it was ignorant of Villarama's acts vis-a-vis Pabalan does not ring true.
We are not convinced when it insists it had a right to rely alone on the assurances of the mortgagor
and its own examination of the transfer certificate of title that the subject land was unencumbered
save for the lease in its favor. The doctrine it invokes, 19 while normally acceptable, is not exactly
applicable in this case. We feel that more vigilance was required of Filoil under the circumstances.
As a business corporation with its own legal staff, and in view of its direct involvement as the actual
occupant and lessee of the disputed land, it was bound to inquire more closely into the antecedents
of its transfer to Villarama. Filoil had the legal staff to do this but it did not see fit to prove further.
This omission might fuel the suspicion that Filoil already knew about Villarama's plans and was in
effect going along with him as its new landlord and prospective borrower.

Given this situation, the Court hesitates to fully accept Filoil's wounded claim of innocence. At the
same time, however, we are also not certain it was deliberately involved in the scheme of the other
defendants to take advantage of the private respondent. In fine, while we are not prepared to
acknowledge its claimed neivete, neither are we disposed, in fairness, to denounce its alleged
malice.

But one thing is certain in this maze of surmises and suspicions. We find that the petitioner, if not
knowingly involved in the scheme to deceive Pabalan, was at least negligent in not closely
examining the facts before accepting the land as security for the loan to Villa Rey Transit. Filoil must
bear the consequences of its own omission. But more than this, it must also share the blame for the
injury suffered by the private respondent, who now finds herself with neither the disputed property
nor the balance of the purchase price. Whether or not it acted in good faith, Filoil must also be held
liable to Pabalan, albeit not in equal degree with Villarama and Villa Rey Transit, for its part in her
deception.

On page 33 of its brief, 20 the petitioner makes the following statement:

Be this as it may, the circumstance that the lawyers of Filoil could have discovered
that the sale is on installment basis, would, given the most favorable implication in
favor of the vendor, at most render Filoil liable for the unpaid balance of the purchase
price in the amount of P100,000.00.

Considering the antecedents of this case as above discussed, the Court will accept this expressed
willingness of Filoil to make amends, to the extent indicated and offered. Accordingly we hereby
order the petitioner to pay the private respondent, in atonement for its part in the impairment of her
interests, the balance of the purchase price in the sum of P100,000.00 plus interest. Its payment was
not decreed by the Court of Appeals because it had rescinded the contract instead; hence, it is not
recoverable from Villarama and Villa Rey Transit under the challenged decision. As it does not
appear in the record that this amount has been received by Pabalan from them, it is only fair that
Filoil pay her this balance now, subject to its right to demand reimbursement from Villarama and Villa
Rey Transit in a separate appropriate action. What is important is that, in justice to the private
respondent, she should not be left holding the bag, so to speak, and without recourse to collect this
amount.

Filoil's obligation includes the payment of interest at 6% per annum beginning 1976 and until the
balance of P100,000.00 is fully settled, to be compounded yearly, on the annual installments of
P10,000.00 stipulated in the contract of sale. As of December 31, 1988, the total amount due to
Pabalan from Filoil on the balance plus interest is P166,404.63.

For the reasons already given, Filoil is absolved from all other liabilities under the challenged
decision. The award of moral and exemplary damages and attorney's fees shall be enforceable only
on the other defendants pursuant to the said decision. TCT No. 94229 is declared valid as to Filoil.
The deed of mortgage and the auction sale of the disputed land in its favor are also recognized as
lawful and entitle Filoil now, in view of the lapse of the redemption period, to register the property in
its name.

Corporations and businessmen should exercise more fairness in dealing with ordinary persons,
especially if they do not have the assistance and advice of counsel. Such persons are not likely to
read the fine print in a contract or to understand the instruments they are signing unless they are
properly informed of the implications of their unsuspecting and headless acts. This is not to say that
such instruments are per se invalid without such explanation. What it simply means is that in proper
cases, like the one at bar, contracts should be read in the light of the layman's understanding of their
esoteric legal language, that they may not ensnare him, because of his trusting lack of caution, in
their intricate stipulations.
WHEREFORE, the challenged decision is modified as applied to the petitioner in the sense that:

(1) TCT No. 94229, the deed of mortgage and the foreclosure sale in its favor over
the subject land are declared valid.

(2) The petitioner shall pay the private respondent the sum of P166,404.63,
representing the balance of the purchase price and 6% interest thereon as of
December 31, 1988, plus 6% interest from that date until full payment is made.

(3) The award against it of moral and exemplary damages and the attorney's fees is
disallowed. This decision is immediately executory. SO ORDERED.

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. 8238. December 2, 1913. ]

ANTONIO M. BARRETTO, Plaintiff-Appellee, v. JOSE SANTA MARINA, Defendant-Appellant.

William A. Kincaid and Thomas L. Hartigan, for Appellant.

Haussermann, Cohn & Fisher, for Appellee.

SYLLABUS

1. CONTRACTS; INTERPRETATION. — The whole contract must be interpreted or read together in order to
arrive at its true meaning. Certain stipulations cannot be segregated and then made to control, neither do
particular words and phrases necessarily determine the character of the contract. The legal effect of the
contract is not to be determined alone by any particular provision disconnected from all other, but in the ruling
intention of the parties as gathered from all the language they have used and from their contemporaneous and
subsequent acts.

2. SALES; REQUISITES OF PERFECTED SALE. — It is necessary to a perfected sale that the parties agree
upon the thing sold and that the price be fixed, it being sufficient for the latter purpose that the price be left to
the judgment of a specified person. (Articles 1450 and 1447, Civil Code.)

3. ID.; ID.; FACTS IN THIS CASE. — Plaintiff executed a document whereby he agreed to transfer to the
defendant "the whole of the right, title, and interest" he had in a joint stock association, at the same time
agreeing that the ascertainment of the price of his share should depend unreservedly upon the appraisement
made by three appraisers of the total value of the association’s property. The appraisers occupied about six
months in making the appraisement and in their report there was no indication that any attempt had been made
to segregate accumulated profits from other assets of the association. Plaintiff had participated in the last
distribution of profits made by the association prior to the time he accepted payment for his share. Upon the
completion of the defendant’s report plaintiff executed a document whereby he acknowledged receipt of the
price arrived at by the appraisers, and further stated that he relinquished from that date all intervention, claim,
right or action that he had in said business. Held, That plaintiff sold his share of the accumulated profits.

DECISION

TRENT, J. :

The La Insular cigar and cigarette factory is a joint account association with a nominal
capital of P865,000, the plaintiff’s share being P20,000, or 4/173 of the whole. On
March 14, 1910, the plaintiff’s attorneys wrote the defendant’s local representative a
letter offering to sell to the defendant plaintiff’s participation in the factory. The result
of the correspondence between the parties and their representatives was that Exhibit G
was duly executed on May 3, 1910. In accordance with the terms of this exhibit a
committee of appraisers was appointed to ascertain and fix the actual value of La
Insular. The committee rendered its report on November 14, 1910, fixing the net value
at P4,428,194.44. Of this amount 4/173 part represented the plaintiff’s share on his
P20,000 of the nominal capital. In Exhibit J which was executed on November 22, 1910,
the plaintiff acknowledged to have received from the defendant that amount.

Subsequently to the execution of Exhibit J, demand was made by the plaintiff upon the
defendant for his share of the profits from June 30, 1909, to November 22, 1910. This
demand was refused and thereupon this action was instituted to recover said profits.
Upon the evidence submitted at the hearing, the court below held: (1) That the
agreement of May 3, 1910, was by its terms a contract to sell in the future and did not
pass title and (2) that the sale of plaintiff’s interests did not include the profits in
question. Judgment was rendered accordingly, with interest and costs. The defendant
appealed.

The important issue in this case is whether the sale in question included that
proportionate share of the profits due the plaintiff by reason of his investment in the
concern. It is admitted that no distribution of profits had taken place during the period
from June 30, 1909, to November 22, 1910. We will inquire (1) into the nature and
character of the agreement of May 3, 1910, and (2) whether the appraisers included in
their appraisement the accumulated profits since June 30, 1909.

The plaintiff admits that if the agreement of May 3, 1910, was a perfected sale he
cannot recover any profits after that date; while on the other hand the defendant
concedes that if said agreement was only a promise to sell in the future it, standing
alone, would not prevent recovery in this action.

The plaintiff and defendant were both interested in La Insular. The plaintiff was the
local general manager from November 14, 1906, to January 8, 1910. The plaintiff’s
attorneys wrote the defendant’s representative a letter on January 14, 1910,
saying:jgc:chanrobles.com.ph
"On behalf of Sr. D. Antonio M. Barretto, we beg leave to offer for sale to your principal,
at their actual market value, the participation of Sr. Barretto in the joint venture known
as La Insular and the one-half interest of the letter in the participation therein which
stands in the name of Messrs. Barreto & Co. As you are doubtless aware these
participations represent nominal values of P20,000 and P69,400, making a total
nominal value of P54,700 which is hereby offered."cralaw virtua1aw library

Again, the plaintiff’s attorneys after acknowledging the receipt of the balance sheet of
the profits for the year ending June 30, 1909, stated in their letter to the defendant’s
representative, dated March 2, 1910, that, "Now that the accord between the interested
parties no longer exists we do not deem it feasible to subscribe a balance of this nature,
unless . . ."cralaw virtua1aw library

And again, the plaintiff himself, in his letter of April 7, 1910, addressed to the
defendant’s representative, said: "In view of the relations that have come about
between Mr. Santa Marina and myself, I believe it would suit both of us that our
interest in the La Insular business should be separated, and that the only point to be
discussed is that of the amount that should be paid me for my share."cralaw virtua1aw
library

From the correspondence above mentioned it appears that the plaintiff offered to sell
the defendant his participation in La Insular. This offer was made on account of the
strained relations existing between the parties at that time and the desire on the part of
the plaintiff to separate himself from that business. In the offer the plaintiff’s interest or
participation was definitely defined and stated to be P20,000 in the nominal capital of
P865,000. (We are not now dealing with the plaintiff’s interest in the P69,400 of
Barretto & Company.)

Article 1450 of the Civil Code reads: "The sale shall be perfected between vendor and
vendee and shall be binding on both of them, if they have agreed upon the thing which
is the object of the contract and upon the price, even when neither has been
delivered."cralaw virtua1aw library

This is supplemented by article 1447 of the Code which reads as follows: "In order that
the price may be considered fixed, it shall be sufficient that it be fixed with regard to
another determine thing also specific, or that the determination of the same be left to
the judgment of a specified person."cralaw virtua1aw library

The contract of May 3, 1910, after reciting the fact that each of the contracting parties
is a participant in the joint account association known as La Insular, provides
that:jgc:chanrobles.com.ph

"Whereas the respective contracting parties have agreed, the one to sell and the other
to buy the whole of the right, title and interest of the said Antonio Maria Barretto in and
to the said joint account association, including not only the individual participation of
the said party of the second part standing on the books of the association in the name
of Antonio M. Barretto, but also one-half of the share in the business which stands on
the books in the name of Barretto & Company constituting a total nominal share of
P54,700 Philippine currency in the total nominal capital of P865,000 Philippine
currency; and

"Whereas the respective contracting parties have been unable to agree as to the true
present value of the said interest of the party of the second part, but have agreed upon
the method of fixing and determining the said value for which the party of the first part
is to buy and the party of the second part is to sell that interest;

"Wherefore, by reason and in consideration of the foregoing and of the mutual promises
and agreements hereinafter set forth, the respective parties herein contracting do
hereby mutually stipulate, agree, and provide the following:jgc:chanrobles.com.ph

"(1) That a board of assessors, composed of Enrique Barrera y Caldes, D. M. Fleming, J.

H. Gibson, all of the city of Manila, Philippine Islands, by mutual agreement is hereby
appointed, commissioned, and designated for the purpose of hearing the respective
claims of the one and the other party relative to the value of the business known and
designated by the name of La Insular tobacco factory, and the respective assets of said
business; and in accordance with the proof adduced relative to said values to fix and
determine the same for the purposes of the purchase and sale above mentioned.

x           x          x

"(5) That the decision and conclusion of said board with reference to the total value of
the business known and designated by the name of La Insular Cigar Factory shall be
conclusive, final, and binding upon each of the contracting parties herein; and the party
of the first part will immediately buy for cash and the party of the second part will
immediately sell to the party of the first part all the right, title and interest of the party
of the second part in and to the said business; and the party of the first part will pay
therefor such proportional part of the total net value of said business as equals the
proportion that the sum of fifty-four thousand seven hundred peso (P54,700) Philippine
currency bears to the sum of eight hundred and sixty-five thousand pesos (P865,000),
Philippine currency."cralaw virtua1aw library

The following appears in the contract of November 22, 1910: "Antonio M. Barretto
hereby declares to have received from John D. MacGavin as legal representative of Jose
Santa Marina as the price of the cession and transfer of the said shares, the sum of
P280,025.70 Philippine currency by check No. 528525 drawn by the said MacGavin in
his above-stated capacity upon the Hongkong & Shanghai Bank of this city, for which
sum the first named issues to him a mist legal bill of sale. Antonio M. Barretto also
acknowledges by virtue of the present sale, cession, and transfer that he has from this
date relinquished (separado) all intervention, claim, right, or action that he has in said
factory by reason of the shares under consideration."cralaw virtua1aw library

Under article 1450, supra there are two indispensable requisites in a perfected sale: (1)
There must be an agreement upon the thins which is the object of the contract; and (2)
the contracting parties must agree upon the price. The object of the contract in the
case at bar was the whole of the plaintiff’s right, title, and interest in La Insular. This
whole was 4/173 of the entire net value of the business. The parties agreed that the
price should be 4/173 of the total net value. The fixing of such net value was
unreservedly left to the judgment of the appraisers. As to the thing and the price the
minds of the contracting parties met, and all questions relating thereto were settled.
Nothing was left unfinished in so far as the contracting parties were concerned. Neither
party could withdraw from the contract without the consent of the other. The result is
that the two essential requisites necessary to constitute a perfected sale were present.

But the plaintiff strongly insists that the language used in the contracts of May 3, and
November 22 and the fact that the appraisers did not take into consideration in fixing
the value of the business the profits accruing after June 30, 1909, show beyond a doubt
that the first named contract constitutes an agreement to sell in the future and not a
perfected sale and that this is clearly in harmony with the intention of the parties.

In support of the above proposition the plaintiff calls our attention to the recital in the
first paragraph of the excerpt from the contract of May 3, 1910, to the effect that the
parties "have agreed, the one to sell and the other to buy" and the words of the fifth
paragraph where it is stated that "the party of the first part of the second part (the
plaintiff) will immediately sell" the plaintiff’s entire interest in the business; cites
Alcantara v. Alinea Et. Al. (8 Phil. Rep., 112); and quotes the following from the report
of the appraisers:jgc:chanrobles.com.ph

". . . proceed to make a valuation of the property, stock, securities, and credits which
compose the assets of the said business known and designated as the Insular Cigar
Factory, taking as a basis therefor the assets of the said business on June 30, 1909,
and in order to act with greater certainly in the discharge of their duties have had the
real estate in Manila appraised by a civil engineer, Mr. Irureta Goyena, the machinery
by an engineer, Mr. Loader, and the stocks of tobacco by tobacco experts
recommended by the managers of the cigar factories called Flor de la Isabela, La
Commercial, and Maria Cristina, and these experts have discharged the duties imposed
upon them in the manner shown in the respective reports filed by them. With respect to
the real estate in the Provinces of Cagayan and Isabela, and the steam launch Santa
Marina, the undersigned, after hearing evidence of persons whom they deem to be
competent, have fixed the valuation of those properties in a manner deemed by them
to be fair and equitable. with regard to the ’Sundry Debtors’ account, they have
proceeded to make an examination of the same and have disregarded the accounts
which in their judgment may be regarded as uncollectible and deducted 25 per cent
from those which in their opinion are doubtful. In view of the difference between the
value placed by the parties on the furniture and fixtures, they have taken the average
of those valuations so as to avoid the expense of an expert appraisal. And, finally, with
respect to the rest of the items which make up the assets of the said business, they
have accepted the figures at which they stand in the said inventory as these have been
accepted by both parties."cralaw virtua1aw library

For the purposes of determining the soundness of the plaintiff’s position with reference
to the intention of the parties, we will examine (1) the contract of May 3, and (2) the
report of the appraisers.

1. The recitals in the first and fifth paragraphs relied upon by the plaintiff standing
alone indicate that it was the intention of the parties to make a contract to sell in the
future, but it must be remembered that the whole contract must be interpreted or read
together in order to arrive at its true meaning. Certain stipulations cannot be
segregated and then made to control, neither do particular words and phrases
necessarily determine the character of the contract. As to whether or not the parties,
when they executed the contract of May 3, made a perfected sale or only an agreement
to sell in the future is not to be determined alone by any particular provision the said
contract contains, disconnected from all others, but in the ruling intention of the parties
as gathered from all the language they have used and from their contemporaneous and
subsequent acts.

In the contract of May 3, we find that the parties did not only agree "the one to sell and
the other to buy" and that "one will immediately sell and the other will immediately
buy" the whole of the plaintiff’s interest but that they were unable to agree "as to the
true present value of the said interest;" they did agree, however, upon the method of
fixing and determining such value by appointing appraisers for this purpose. It was the
duty of the appraisers to hear the respective claims of the one and the other party
relative to the value and assets of the business, "and in accordance with the proof
adduced relative to said values to fix and determine the same for the purposes of the
purchase and sale above mentioned." They did not say for the purpose of a sale to be
made in the future. Is the language, "for the purposes of the purchase and sale above
mentioned" any the less significant or controlling than that relied upon by the plaintiff
found in the first and fifth paragraph? When the parties used this language they had in
mind the purchase and sale which they had just made. According to the ordinary and
well-understood use of the words "purchase" and "sale" they mean, in the absence of
any expression to limit their significance, a transmutation of property from one party to
another in consideration of some price or recompense in value; a transmission of
property by a voluntary act or agreement, founded on a valuable consideration;
divesting the title out of the vendor and vesting it in the vendee. Again, not only was
the title of the plaintiff’s interest vested in the defendant on the execution of the
contract of May 3 but the possession of that interest was also then transferred to the
defendant. (Art. 1462, Civil Code; Uy Piaoco v. McMicking, 10 Phil. Rep., 286.)

The total value of the business as fixed by the appraisers was final and conclusive and
binding upon each of the parties. Neither could question the correctness of such value
when once thus fixed. The only thing which either could then do was the one to tender
and the other accept the cash. The one could not "immediately sell" and the other could
not "immediately buy" because the purchase and sale had already taken place. If they
could have done this then the plaintiff could have sold his interest to any other person
at any time after the execution of the contract of May 3 and before November 22 for
the reason that by a contract to sell only a jus in personam is created; while, by a sale
a jus in rem is transferred.

Now, did the parties intend to include the profits in question in the purchase and sale,
and did the appraisers include said profits when they fixed the total net value of La
Insular?

In the second paragraph of the contract of May 3 this language was used: "Whereas the
respective contracting parties have been made to agree as to the true present value of
said interest of the party of the second part, . . ."cralaw virtua1aw library

The "said interest" was the whole of the right, title, and interest of the plaintiff in the
factory. The "true present value" was the actual value of the plaintiff’s entire interest on
that date, May 3. The appraisers were appointed to ascertain and fix the total net value
so that the true present value, 4/173 of the whole net value, of the plaintiff’s interest
might be segregated and paid for.

The plaintiff delivered to the defendant or his predecessor in interest a sum of money in
order to participate in the profits and losses that might accrue from the business
denominated La Insular. An obligation was thereby created between the parties by
virtue of which the plaintiff because the creditor and the defendant the debtor. The
plaintiff was a creditor in a double sense, to wit: (a) For the capital invested, and (b)
for the profits which that capital might produce.

This juridical relation existed on May 3, 1910, when that contract was executed and
signed by the parties. On this date the plaintiff had:jgc:chanrobles.com.ph

"1. Right to and right of action for his capital invested in the business of La Insular.

"2. Right to participate, in proportion to his investment, in the expansion and increase
of the company’s capital.

"3. Right in proportion to his capital in all the trademarks, credit, and good will of the
business.

"4. Right to a proportional share in the annual dividends of the business on his capital
invested, after deduction of the 20 per cent of said dividends to which Santa Marina is
entitled in his capacity of managing partner.

"5. Right to revise, approve or impugn the annual statements rendered by the
managing partner, Santa Marina."cralaw virtua1aw library

The sum total of these constituted on May 3, 1910, the whole of the plaintiff’s right,
title, and interest in the "La Insular." In the absence of something in the contract
showing that the word "whole" (totalidad) was not used in its ordinary sense it must be
understood so to have been used, and we find nothing of that kind. All the authorities
agree that when the word "whole" is thus used it means the entire thing; the entire
assemblage of parts; totality; all of a thing without defect or exception; comprising all
the parts; complete; entire. Exclude one part, the remainder would not be the whole.
"The whole of the right, title, and interest of the said Antonio Maria Barretto in and to
said joint account association" means what it says if it means anything at all. Language
will not admit of a clearer and more expressive statement of what was sold. Exclude the
profits sought to be recovered then the plaintiff did not sell the whole of his right, title,
and interest, he only sold a part, and a part is never equal to the whole. That the
profits were a part of the plaintiff’s interest is self-evident.

In the case of Alcantara v. Alinea Et. Al. (supra), the defendants borrowed P480 from
the plaintiff to be returned at the expiration of an agreed period, at the same time
promised that in the event of their failure to pay the borrowed money within that time
they would sell him certain property for the amount of the loan, the court holding that it
was a contract of loan and a promise of sale of a house and lot. In this case, however,
the consummation of the contract of sale depended upon the failure to pay the loan. If
the loan was repaid the sale did not take place. It was uncertain whether the sale of the
house and lot would be consummated until after the loan was due. In the case at bar
was there any such uncertainly as to the sale of the property? The one agreed to sell
and the other agreed to buy a certain specified interest in La Insular. This agreement
was carried into effect. No subsequent contingency could affect the sale. The distinction
between the two cases is apparent. It is therefore clear that the recitals from the
contract and the case cited do not support the contention of the plaintiff.

2. The appraisers were appointed, as we have said, to ascertain and fix the total net
value of the factory for the purpose of determining the true present value of the
plaintiff’s entire interest therein. The profits for the year ending June 30, 1910, were
not ascertained until some twelve days after the appraisers submitted their report.
Such profits were in the possession of the association during the entire period from May
3 to November 22, and had not been segregated from the general mass of property up
to the latter date. It is true that the appraisers said that they made a valuation of the
assets of the business, "taking as a basis therefor the assets of said business on June
30, 1909." The appraisers could not have based their valuation exclusively upon the
assets of that date for the reason that the books of the concern had not been balanced
when they concluded their work. In fact, we find the appraisers saying in the very same
paragraph in which the above quotation appears that "in order to act with greater
certainty in the discharge of their duties they had the real estate and the machinery
appraised by civil engineers and the stock of tobacco by tobacco experts."cralaw
virtua1aw library

The value of the real estate in the provinces and a certain small launch was fixed by the
appraisers upon the testimony of competent witnesses. The appraisers disposed of the
accounts of various debtors not in accordance with the inventory or the books of the
company but according to their own judgment, excluding those which they found were
uncollectible and deducting 25 per cent from the doubtful ones. So it is clear from the
quotation relied upon by the plaintiff that the appraisers paid very little attention to the
assets of the business on June 30, 1909, in fixing the valuation of the property. The
stock of tobacco which was appraised by tobacco expert was not that on hand on June
30, 1909, but was the amount belonging to the association at the time the
appraisement was made. This item alone was fixed at P1,140,259.77. Another item of
assets was the cash on hand of P323,235.20. This was the actual amount of cash in the
possession of the association at the time the appraisement was made and was
considered as part of the assets. In fact, according to the report of the appraisers the
books of the concern showed that the total assets, not including the trade-mark and
good will, amounted to P2,505,767.83 while the appraisers fixed the value at
P3,049,394.07 a difference of a little over a half million pesos. That the appraisers in
fixing the total the value included the accumulated profits we think there can be no
question. These profits formed for that purpose a part of the assets. The appraisers
could not distinguish the profits from the other personal property as such profits had
not at that time been set aside and the appraisers were instructed to ascertain and fix
the total net value so that the entire present value of the plaintiff’s interest might be
ascertained.

The contracts and the report of the appraisers are so clear and cover the entire subject
matter so fully that we are convinced that the subsequent demand for the profits in
question was an afterthought. If there had been any doubt in the mind of the plaintiff
about the inclusion of the accrued profits in the sale of May 3 or that the appraisers
were authorized to take into consideration such profits in fixing the total net value of
the business so that the entire present value of the plaintiff’s interest might be
ascertained, the plaintiff would certainly have raised the question at the time. He
remained perfectly quiet until after he had received the full value for the whole of his
right, title, and interest in the factory and had solemnly declared that he "relinquished
all intervention, claim, right, or action in said factory by reason of the shares under
consideration." After this he came forward for the first time and demanded his share of
the profits which he had sold and received payment therefor. Surely he does not expect
to be paid twice for the same thing.

For the foregoing reasons the judgment appealed from is reversed upon the merits and
the complaint dismissed without costs in either instance.

Arellano, C.J., Torres, Johnson, and Moreland, JJ., concur.