[G.R. No. 1300. February 3, 1904.

E. C. McCULLOUGH, Plaintiff-Appellee, v. R. AENLLE & Co., Defendants-Appellants.

SYLLABUS

1. SALE; CERTAINTY OF CONSIDERATION. — A written agreement by which one party buys

and the other sells at a price which, although not specified in dollars and cents, can be made
certain by reference to certain invoices then in existence and clearly identified by the
agreement, is a completed contract of sale.

2. ID.; QUALITY. — Where the agreement between the parties is that the buyer is to take all the
tobacco in a certain building and to pay therefor the price named, the obligation resulting is
absolute, and in no wise depends upon the quality of the tobacco or its value, and statements in
an inventory subsequently drawn as to the quality of the tobacco do not affect the rights and
obligations of the parties.

3. PLEADING AND PRACTICE; MOTION FOR A NEW TRIAL; GROUNDS OF MOTION. — It is

not necessary for the moving party to state at length and in detail his reasons for thinking he is
entitled to a new trial.

Per McDONOUGH, J., dissenting:chanrob1es virtual 1aw library

4. SALE; CONSTRUCTION OF CONTRACT. — A contract for the sale of tobacco "as shown in
the inventory to be drawn up" makes the inventory, when drawn, an integral part of the
agreement, though not made or delivered until a subsequent day, and the description in such
inventory of the quality of the tobacco imposes upon the vendor the obligation to deliver tobacco
of the quality so indicated.

5. ID.; SAMPLE; WARRANTY. — Where the vendee, prior to accepting a delivery, examines
samples of tobacco in bales furnished by the vendor, and pays the consideration on the strength
of the representations that the bulk of the tobacco sold is similar to the samples examined, there
is an express warranty that the tobacco is of the same quality as the samples.

6. ID.; WARRANTY; DESCRIPTION. — When an article is sold by a particular description in

terms known to the trade, the words of description are part of the contract and imply a warranty
that the article corresponds to its description.

7. ID.; HIDDEN DEFECTS; WARRANTY. — Defects in goods sold in bales or packages are
hidden defects against which the vendor warrants the vendee.

Per COOPER, J., dissenting:chanrob1es virtual 1aw library

8. SALE; WARRANTY. — In the case of the sale of merchandise, even in the absence of any
stipulation as to quality, the vendor impliedly warrants the article sold against hidden defects
which make it unfit for the use for which it is intended.

9. ID.; ID.; HIDDEN DEFECTS. — Defects in leaf tobacco sold in bales are hidden defects
against which the vendor impliedly warrants the vendee.
DECISION

WILLARD, J. :

On August 27, 1901, the parties to this action made a written contract which contained among
other things the following clause:jgc:chanrobles.com.ph

"For the purpose of carrying into effect the said contract of sale entered into with the other party
hereto, said Francisco Gonzalez y de la Fuente and Don Antonio la Puente y Arce, in the name
and on behalf of th mercantile partnership denominated R. Aenlle & Co., by virtue of the powers
conferred upon them and in compliance with the instructions given them by Don Matias Saenz
de Vizmanos y Lecaroz, the manager of the said partnership, solemnly declare that they sell,
absolutely and in fee simple, to E.C. McCullough, the tobacco and cigarette factory known as
’La Maria Cristina,’ located at No. 36 Calle Echague, Plaza de Goiti, Santa Cruz district, this
city, said sale including the trade-mark ’La Maria Cristina,’ which has been duly registered, three
stock of tobacco in leaf and manufactured, machinery, labels, wrappers, furniture, fixtures, and
everything else belonging to the said factory, as known in the inventory to be drawn up for the
purpose of making formal delivery of the said property; all of the same for the following
sums:jgc:chanrobles.com.ph

"(a) For the transfer of the ownership of the trade-mark ’La Maria Cristina,’ 20,000 pesos;

"(b) For the machinery installed in the factory, together with tools and other equipment and cost
of installation, approximately 30,000 pesos;

"(c) For the furniture, approximately, 4,500 pesos;

"(d) For the leaf tobacco on hand, approximately, 71,000 pesos;

"(e) For the boxes on hand, approximately, 1,500 pesos;

"(f) For the manufactured tobacco on hand, approximately, 12,500 pesos;

"(g) For cigar and cigarette wrappers and labels at present on hand, 10,000 pesos;

"(h) And for the stock of cigarette paper on hand, approximately, 4,000 pesos; which said sums
make in all 153,500 pesos.

"This sum is subject to modification, in accordance with the result shown by the inventory to be
drawn up. In this inventory the value of each individual piece of furniture will be fixed at 10 per
cent below the price shown in the partnership inventory. The machinery and cost of installating
the same will also be fixed at 10 per cent below its invoice price. The value of the tobacco, both
in leaf and in process of manufacture, boxes, labels, wrappers, cigars, cigarettes, and paper
mouthpieces for cigarettes will be fixed at the invoice price. The value of the tobacco made up
into cigars will be fixed in accordance with the price list of the partnership, less 20 per cent
discount. The cigars will be inventoried at the prices in the same lists, less a discount of 35 per
cent. The $20,000 mentioned as the value of the trade-mark will, however, remain
unchanged."cralaw virtua1aw library
The inventory mentioned in this contract was afterwards made by the defendant and delivered
to the plaintiff, who, prior to September 26, through an expert selected by him, examined bales
of the tobacco selected by the defendant and which its agents said were sample bales of the
different lots of tobacco mentioned in the inventory. Tyhese sample bales corresponded as to
quality with the lots described in the inventory, and on September 26 the parties executed a
second instrument, which in addition to a recital of substance of the contract of August 27,
contained the following clauses:jgc:chanrobles.com.ph

"Second. That the parties hereto have completed the before mentioned inventory of machinery,
furniture, stock of tobacco in leaf and manufactured, boxes, labels, wrappers, and the other
appurtenances of the said tobacco factory, representing a total and effective value of 131,000
pesos, after deducting the discount agreed upon for each article, and including the value of the
trade-mark, which as stated, was fixed at 20,000 pesos; and that E. C. McCullough, the
purchaser, remained in the possession of the above-mentioned tobacco factory, and of all its
appurtenances and the stock on hand to his entire and complete satisfaction.

"Third. That by virtue of the conditions set forth, the parties hereto fix the selling price of the
above-mentioned tobacco factory called ’La Maria Cristina,’ together with its trade-mark of the
same name, and all its appurtenances, at said sum of $131,000, on account of which the
vendee, Mr. McCullough, authorizes the vendors, Don Francisco Gonzalez y de la Fuente and
Don Antonio la Puente y Arce, to collect and receive the 20,000 pesos deposited in the
Spanish-Philippine Bank for that purpose and binds himself to pay the said vendees the
$111,000 remaining for the complete and total payment of the said purchase price by the 30th
day of September, instant, on which date said sum must be paid, and in case said payment
shall not be made by Mr. Cullough on said date, the said contract of sale of the said factory will
be rescinded, the said sum of 20,000 pesos before mentioned accruing to the benefit of the
representatives of R. Aenlle & Co."cralaw virtua1aw library

On September 30 they executed a third contract, in which the defendant acknowledged the
receipt at that time of the full purchase price of the sale.

Among other items of leaf tobacco in the inventory were the two
following:jgc:chanrobles.com.ph

"1. Y. P. I. 4. S. — Angadanan — 99 — 221 bales , net weight qqs. 571.35 at 40. $22,854.

"2. Isabela, 99 loose leaves. 1. 2. 3. 76 bales re-baled, net weight, qqs. 130.32 at 42.
$5,473.44."cralaw virtua1aw library

It is admitted that the first item means that the 221 bales were of the fourth-class superior, from
Angadanan and of the crop of 1899, and that the 76 bales in the second item were from Isabela
of the crop 1899 and of the first, second, and third class.

In December, 1901, the plaintiff, with others, organized a company, to which the plaintiff sold all
the tobacco bought by him from the defendant. The purchaser, the new company, on examining
these two lots, rejected them because the tobacco was not of the quality indicated in the
inventory. Thereupon the plaintiff, claiming that the tobacco i these two lots was worthless,
brought this action against the defendant to recover what he paid therefor, namely, the two
sums of $22,854 and $5,473.44.
The court below found that the first lot was worth at the time of the sale only 8 pesos a quintal
instead of 40, the price paid by the plaintiff; that the second lot was worth 11 pesos instead of
42, and ordered against the defendant for the difference, which amounted to 24,109.24 pesos.
The defendant excepted to the judgment, moved for a new trial on the ground that the evidence
was insufficient to support the judgment, and excepted to the judgment, and excepted to the
order denying this motion.

It was proved by the defendant at the trial, by means of the original invoices, that the prices
stated in the inventory were the prices which it paid for the tobacco, and the plaintiff makes no
claim to the contrary.

At the time in question the plaintiff was the owner of a printing establishment and he testified
that he desired to move it to the building in which the defendant had its cigar factory; that it was
impossible for him to get the building without buying the tobacco factory, and for that reason he
bought it, intending to sell it as soon as he could without loss. The said contract of August 27
contained provisions for the leasing and ultimate purchase of the building by the plaintiff.

The document of August 27 was a completed contract of sale. (Art. 1450, Civil Code.) The
articles which were the subject of the sale were definitely and finally agreed upon. The appellee
agreed to buy, among other things, all of the leaf tobacco then in the factory. This was sufficient
description of the thing sold. The price of each article was fixed. It is true that the price of this
tobacco, for example , was not stated in dollars and cents in the contract. But by its terms the
appellee agreed to pay therefor the amount named in the invoices then in existence. The price
could be made certain by a mere reference to those invoices. In this respect the contract is
covered by article 1447 of the Civil Code. By the instrument of August 27 the contract was
perfected and thereafter each party could compel the other to fulfill it. (Art. 1258, Civil Code.) By
its term the appellee was bound to take all the leaf tobacco then belonging to the factory and to
pay therefor the prices named in the invoices. This obligation was absolute and did not depend
at all upon the quality of the tobacco or its value. The appellee did not, in this contract, reserve
the right to reject the tobacco if it were not of a specified crop. He did not buy tobacco of a
particular kind, class, or quality. He bought all the tobacco which the appellant owned and
agreed to pay for it what the defendant had paid for it. The plaintiff testified that this was the
express agreement (p.16).

There is nothing in this contract to show that he bought 221 bales of fourth-class superior
Anganadan of the crop of 1899. The fact that in the inventory subsequently made that particular
lot of tobacco is mentioned can not in any respect change the rights of the parties which had
already been fixed by the contract. The purpose of this inventory was not to make a new
contract for the parties. It could not add anything to nor take anything from the rights and
obligations of the parties already stated in the existing contract. Its sole purpose was to
ascertain what the total purchase price was. If it correctly gave the number of bales and the
price paid therefor by the appellant, according to the invoices, it was sufficient compliance with
the contract. The fact that the tobacco was described as of one class instead of another would
be unimportant. The appellee did not purchase by class or quality, but by quantity.

There was evidence tending to show that the first lot instead of being fourth-class superior of
1899 was fourth-class inferior of 1898; and the second lot instead of being of the first, second,
and third class of 1899 was "particular" of 1898. The case is perhaps made more plain by
supposing that when he inventory was presented to the plaintiff these two lots were described
as "Y. P. I. fourth-class inferior Angadanan, 1898" and as "Isabela hojas sueltas particular
1898." It seems clear that if the inventory had been so written the plaintiff could not have
maintained this action under those circumstances he can not under th existing circumstances.

There is no evidence to show that any representations as to the quality of the tobacco were
made to the plaintiff by the defendant prior to that time as to an exhibition of samples nor that
there was any agreement prior to that time as to an exhibition of samples nor that the plaintiff
prior to that time made any examination or inquiry as to the quality of the tobacco. The fact is
that the plaintiff in order to get the building had to buy the factory and everything that went with
it. He saw himself obliged to take all the tobacco which the defendant had, no matter what its
quality was. The defendant was not willing to sell him the building and the good tobacco which it
had on hand, retaining itself that of poorer quality. He had to take it all or not get the building. He
probably thought that he was safe in agreeing to pay no more than the defendant had paid. But,
however this may be and whatever may have been his reasons therefor, it is certain that the
plaintiff bound himself by the contract of August 27 to take all the tobacco which the defendant
then had and pay therefor the prices that the company had paid. He could relieve himself from
this obligation only by showing either that the tobacco in the inventory was not owned by the
defendant on August 27 or that the prices stated therein were not the prices which the
defendant paid for it. He undertook to do neither of these things, and his action must fail. The
right to rescind a contract for lesion when the value is less than half of the purchase price, given
by Law 56, title 5. partida 5, has been expressly taken away by article 1293 of the Civil Code.
Article 1474 of the Civil Code has no application in this case. The fact that an article is of one
grade or quality instead of another does not constitute a hidden defect within the meaning of
that article.

It is claimed by the plaintiff, the appellee, that the motion for anew trial below should have
specified more in detail, the grounds of the motion. This contention can not be sustained. There
is nothing in sections 145, 146, or 497 which requires the party to state at length and in detail
his reasons for thinking that he is entitled to a new trial.

In view of the result thus arrived at it is not necessary to consider the other questions argued by
the parties.

By section 497, Code of Civil Procedure, we are authorized in cases of this kind to find the facts
from the evidence and "render such final judgment as justice and equity require." (Benedicto v.
de la Rama, December 8, 1903. 1)

The judgment below is reversed. We find the facts to be as herein before stated and upon such
facts we hold as a conclusion of law that the plaintiff can not recover. Judgment will be entered
that the plaintiff take nothing by the action and that th defendant recover the costs of both
instances, and after the expiration of twenty days the cause shall be returned to the lower court
for execution.

Arellano, C.J., Torres and Mapa, JJ., concur.

Separate Opinions

McDONOUGH, J., dissenting:chanrob1es virtual 1aw library

Th plaintiff and defendant entered into an agreement August 27, 1901, for the purchase by the
plaintiff and sale by the defendant of certain real property (a tobacco factory) and a stock of
tobacco, cigars, cigarettes, furniture, etc., contained in the factory.
By this contract it was agreed, among other things, that the defendant sold to the plaintiff the
tobacco and cigarette factory known as" ’Maria Cristina,’ . . . the stock of tobacco in leaf and
manufactured . . ." as shown in the inventory to be drawn up for the purpose of making formal
delivery of the saids property.

The contract contains estimate or approximate sums to be paid for the several items of property,
including an item marked "d", as follows" "For leaf tobacco on hand, approximately, 71,000
pesos."cralaw virtua1aw library

It was further set forth that the various proximate sum, including the 20,000 pesos for the good
will, "make in all 153,500 pesos," which "sum is subject to modification in accordance with the
result shown by the inventory to be drawn up, and in which inventory the value of the tobacco in
leaf and in process of manufacture . . . will be fixed at the invoice price." In second agreement
made September 26, after the inventory had been made, the value of the personal property and
good will was agreed to be 131,000 pesos.

By the eight paragraph of the contract the plaintiff is obligated to pay the balance of the
purchase price (he had deposited in bank 20,000 pesos to bind the bargain) "as soon as the
inventory . . . shall have been completed and it shall be possible to fix the exactness of the
amount thereof." It was agreed that the defendant was to have until the 30th day of September,
or before if possible, to complete the inventory; and the plaintiff was to have possession of the
property on the payment of the purchase price.

This inventory was subsequently made and delivered and contained not only a description of
each item of tobacco but also the exact price thereof.

The plaintiff contends that the leaf tobacco which he purchased was to be such "as shown in the
inventory," and that its value was to be such as shown in the invoice, the former referring to
articles, the latter to their price, because the parties referred not only to an inventory but to an
invoice.

This action of the parties shows that when they provided for an "inventory" they knew the
meaning of the word, and that they did not intend by it a mere statement of prices. An inventory
is a list or schedule or enumeration in writing, containing, article by article, the goods and
chattels of a person. (17 Am. and Eng. Enc. of Law, 419.) To the same effect is the definition of
Escriche, in his dictionary, under the title "Inventory," viz: "The instrument in which is set down
the property of a person or firm because it contains a list, article by article, of the belongings of a
person or firm . . . The making of an inventory is a preservative act, the purpose of which is to
show the condition . . . of the effects of a merchant or commercial partnership . . . to the end that
the rights of the interested party . . . may be fully protected."cralaw virtua1aw library

The inventory provided for in this contract is an essential part of the contract, and, though not
made and delivered until a subsequent day, it is to be read and weighed as if it is were annexed
to the contract, for when made it retroacted to the date of the contract. (Civil Code, 1420.) This
is not only a rule of the civil law (Civil Code, 1285, but also of the common law, where it is held
that if there be two instruments embodying a contract between the parties they must be
construed together, although they bear different dates. (Dorthy v. Stranchen, 20 App. Div. N. Y.,
89.)

It follows, therefore, that this contract is to be construed as if the goods were sold "as shown" in
an inventory or schedule annexed to the contract and made part of the contract.

In this inventory the bales of tobacco in question were described by certain marks, letters,
words, and figures, known to the trade, and which, it was agreed, meant this: "221 bales of
fourth-class superior leaf tobacco, from Angadanan, of the crop of 1899" and "76 bales of leaf
tobacco of the first, second, and third class, from Isabela, of the crop of 1899."cralaw virtua1aw
library

The price of the former lot was set down at $40 per quintal, amounting $22,854, and the price of
the latter at $42 per quintal, amounting to $5,473.44. When the plaintiff received the inventory,
he requested that an expert, to be selected by him, he permitted to examine the tobacco. The
defendant consented, and, through its agents, selected what they represented to be samples of
all the tobacco. The expert examined these samples and found that they corresponded with the
tobacco mentioned in the inventory. The plaintiff thereupon, and on the 30th day of September,
paid to the defendant the balance of the purchase price, and on the 1st day of October, 1901,
the defendant delivered to the plaintiff the property purchased by him.

After such delivery the plaintiff discovered that the two lots of tobacco mentioned were faulty
and defective, in that the tobacco was bad, was not of the quality described in the inventory,
was not of the crop of 1899, but rather of 1898, and did not correspond with the samples shown
to the plaintiff by the defendant. He therefore sued the defendant for damages and recovered
judgment for the sum of 24,109.29 pesos. From this judgment the defendant appealed and it is
now contended that this judgment should be reversed because there was no warranty of the
quality of the tobacco, express or implied. It is claimed that the plaintiff bought all the tobacco in
the factory, no matter what its condition or quality was, and that he must pay full price for it even
if a large part of it turned out, as it did, to be worthless, even though it did not correspond with
the samples and even though it was not of the crop or quality described in the inventory.

The construction of the contract which would lead to this conclusion means that the plaintiff
intended, when he executed the document dated August 27, to shut this eyes, to accept
tobacco costing thousands of dollars without warranty, without examination, and without giving
any weight or effect to the inventory to be made; and that the defendant intended that the
plaintiff would do all this, notwithstanding the fact that the parties themselves, by their own acts,
showed that neither of them had any such intention, for the plaintiff, long after August 27,
desired to examine the tobacco, and the defendant not only consented but furnished samples
bales to plaintiff for that purpose, which were examined.

In order to judge of the intention of parties to a contract, attention must principally be paid to
their acts contemporaneous and subsequent to the contracts. (Art. 1282, Civil Code.) And if it be
contended that the contract does not clearly show that the parties intended by the words "as
show in the inventory" to refer to the quality or kind of tobacco to be described, the answer is
that those words if obscure or ambiguous must be construed against the seller most strongly.
(Corwin v. Hawkins, 42 App. Div. N.Y., 571; art. 1288, Civil Code.)

At the trial the plaintiff testified (pp. 16 and 17) that the defendants told him that all the tobacco
in the factory was good tobacco; that he had heard that the ’98 tobacco was not considered
good by buyers and was told not to buy any of it; that he mentioned this fact to the defendant,
and was told by the defendant that it was all ’99 tobacco.

He further testified that after the inventory was completed and checked off to his satisfaction he
went to the place where the tobacco was to confirm the inventory and to see if the tobacco was
as represented. He got an expert to examine the tobacco and when they arrived the vendors
had prepared samples of all the tobacco, as mentioned in the inventory, and these samples
were opened and examined. While this was being done the plaintiff examined the inventory and
compared the marks to see if the tobacco was that mentioned in the inventory.

The expert told the plaintiff that everything was alright and in accordance with the inventory. The
expert who examined these samples for the plaintiff testified that the examination was made at
the lower warehouse, that he compared the marks on the bales with those which appeared on
the inventory, and that he examined the samples of the tobacco and was satisfied that it was
good useful leaf.

Relying on the inventory and samples of the tobacco exhibited to him by the defendants, the
plaintiff completed the transaction by accepting the property and paying the purchase price.

Subsequently and some time in December, 1901, the plaintiff engaged to sell this same tobacco
to another company, and that company rejected the two lots of tobacco n question, as herein
before mentioned, because they were not of the quality indicated in the inventory. It was proved
by experts who examined this tobacco that it was of little or no value. Mr. Grazewell, the expert
who examined the samples when the plaintiff took over the tobacco from the defendant, testified
that he examined this tobacco and did not find it equal to the samples he had seen; that it was a
different class of tobacco, which was worthless for manufacturing purposes; that he examined
the fourth-class superior Angadanan tobacco and the first, second, and third class Isabela
tobacco and opened at least 20 bales, and found that it was different grades of the worst class;
that it was absolutely worthless for manufacturing purposes; that i his opinion the tobacco was
’98 tobacco, with a slight mixture of ’99 tobacco, and that the two lots in question did not in any
degree correspond to the samples which he had formerly examined.

Other expert witnesses corroborated the testimony of Mr. Grazewell regarding the quality of the
tobacco, testifying that it was musty, in bad order, unfit for cigars, the greater part of it being of
the crop of 1898 and only a mixture of the crop of 1899; that it was not fourth-class superior but
fourth-class very inferior; that as to 77 bales marked first, second and third class revealed, it
was found the bales did not contain any of the classes mentioned, but only broken leaves such
as are sent back from cigars makers’ shops as unfit for making cigars. It was also shown that
the tobacco crop of 1898 had been injured by excessive rain, and that it brought very low prices.
This proof shows clearly a breach of warranty on the part of the defendant, whether the sale be
considered as a sale by sample or by the description in the inventory or under the legal warranty
against hidden faults or defects.

The sale was to completed until delivery. (Cullom v. Guillot, 18 La. Ann., 608.)

First. As to sale by sample: The defendant, before the delivery of the tobacco and on completion
of the inventory, produced for the plaintiff samples of all bales of tobacco for examination, and
stated that these samples represented the quality of the tobacco; and these samples were
examined and found to be satisfactory, but the tobacco in question was not equal to the quality
of the samples.

The plaintiff relied upon these representations and upon the samples produced, and was
entitled to receive tobacco equal in quality to this samples. He did not examine the remainder of
the bales of tobacco on account of this representation of the defendant.

If a sale be made by samples, it amounts to an undertaking on the part of the seller that all the
goods shall correspond in kind, character, and quality with those exhibited. And the liability of
the seller is the same whether he knew or did not know that the samples differed from the bulk.
(15 Am. and Eng. Enc. of Law, 1226; Whittaker v. Hueske, 29 Tex., 355; Barnard v. Kellog, 10
Wallace, 383; Gould v. Stein, 149 Mass., 570; Benjamine on sales, sec. 969; Campbell on
Sales, 305.)

Second. There was a warranty that the tobacco in question was to correspond with its
description in the inventory.

A warranty in a sale of personal property is an express or implied statement of something which

party undertakes shall be a part of a contract, and, though part of the contract, collateral to the
express object of it. (Benjamin on Sales, sec. 600; 60 N. Y. Court of Appeals, 450. 1)

Where an article is sold by a particular description, as was the tobacco in this case, by which
description it is known to the trade, it is a condition precedent to the vendor’s right of recovery
that the article delivered should answer such description, such words of description being part of
the contract. (Carleton v. Lombard, etc., 19 App. Div. (N. Y.) , 297.)

The word "warranty" or any particular form of words is not necessary to constitute an express
warranty. All agree that any positive affirmation of a material fact as a fact intended by the
vendors as and for a warranty and relied upon as such is sufficient, as some hold the actual
intent to warrant unnecessary. (Benjamin on Sales, sec. 664; Shippen v. Bower, 122 U. S.,
575.)

It is enough if the words used import an undertaking on the part of the owner that the chattel is
what it is represented to be, or an equivalent to such undertaking. (1 Parsos on Cotracts, 580,
8th ed.)

Thus it has been held that where the description on a sale was "winter-pressed oil," it imported
and warranted not only that the article was "winter oil," but also that it was" winter pressed" and
not summer pressed, the words "winter pressed" denoting a quality of oil. (Osgood v. Lewis, 2
Harr. & Gill, 495. 1) This is an authority for holding that the description of the crop of ’99 calls for
tobacco of that year and not of the crop of ’98.

So where the contract called for boxes of "Kingan’s Cumberland cut bacon" and boxes of
Thallmer’s staf. for middles," all to be of choice quality, and the required quantity of "Taylor’s
Cumberland cut bacon, Indianapolis," and of "Empire Packing House Stafford Middles" were
sent, it was held to be a breach of warranty. (Walker v. Gooch, 48 Fed. Rep., 656.)

In Hastings v. Lovering (2 Pick. Mass., 214) the sale note read "2,000 gallons prime quality
winter oil." Held, a warranty not only that the article was winter oil but it was prime quality. The
court stated that a description of an article inserted in a bill of parcels in a sale note ought to be
considered evidence that the thing sold was agreed to be such as represented.

In Winsor v. Lombard (18 pick., 57) it was said that upon a sale of goods by written
memorandum or bill of parcels (inventory) the vendors undertakes, in the nature of warranty,
that the thing sold and delivered is that which is described, and that this rule applies whether th
description be more or less particular and exact enumerating the qualities of the goods sold.

In Gould v. Stein (149 Mass., 570) the sale note described "bales of Ceara scrap rubber as per
sample of second quality." Held, a two-fold warranty of conformity to sample and to quality,
which was broken by failure to deliver rubber of sound quality, irrespective of whether it was
equal to the samples, Chief Justice Allen holding that a sale of goods by a particular description
imports a warranty that the goods are of that description.

As again affecting the question of crop or age of the tobacco, the case of Millaudon v. Price (3
La. Ann., 4) may be cited. There salt in bags had been purchased and it was represented that it
had been stored only five or six months, when in fact it had been stored fifteen to eighteen
months. Held, that the purchaser was not bound to examine the salt, as salt in bags was not
susceptible of inspection and examination without much trouble and in convinience.

In Trading Company v. Farquar (8 Blachf., Ind., 89) it was held that where wool was sold in
sacks and the sacks marked by the seller and described in the invoice as being of a certain
quality, that amounted to an express warranty that it was such quality.

So where the articles sold were described as "58 bales of prime singed bacon," it was held that
this amounted to a warranty that the bacon was "prime singed." Yates v. Pym, 6 Taunt., 446.)

The English rule is laid down by Campbell in his work on sales as follows:jgc:chanrobles.com.ph

"Where there is a sale of goods by description-that is to say, where the goods in general are
sold under certain description or where the sale is of specific goods whose character is
presumably only known to the buyer by the description under which they are sold to him — e.g.,
bales of goods specified by marks in a bill of lading, and described in the contract as being of a
certain kind — it is of the essence of the contract that the goods furnished shall agree with the
description." (Campbell on Sales, 300, ed. of 1881.)

In view of these decisions and the fact that the two lots of tobacco in question did not
correspond in quality or in the year of the crop with the description on the bales, it follows that
there was a breach of warranty on the part of the defendant which justified the judgment of the
court below.

Third. There was a breach of warranty which the law creates. By article 1461 of the Civil Code a
vendor is bound to deliver and warrant the thing which is the object of the sale.

Article 1474 of this Code provides that by virtue of this warranty the vendor shall warrant the
vendee not only as to the legal title but also that there are no hidden faults or defects therein.

Article 1484 of the Civil Code provides that the vendor is bound to give a warranty against
hidden defects which the things sold may have, should they render it unfit for the use to which it
was destined or if they should diminish said use in such manner that had the vendee had
knowledge thereof he would not have acquired it or would have given a lower price for it; but
said vendor shall not be liable for the patent defects or those which may be visible, neither for
those which are not visible if the vendee should be an expert and by reason of his trade or
profession should easily perceive them.

Article 1485 of the Civil Code provides that the vendor is liable to the vendee for the warranty
against faults or hidden defects in the thing sold, even when they should be unknown to him.
This shall not be obtain if the contrary should have been stipulated and the vendor should not
have been aware of said faults or hidden defects.

By article 1486 of this code it is provided that in the case of the two preceding articles the
vendee may choose between withdrawing from the contract, the expense of which he may have
incurred from the contract, the expense of which he may have incurred being returned to him, or
demand a proportional reduction of the price, according to judgment of experts.

The plaintiff in this case followed the latter course.

There can be no doubt in this case but that there were hidden faults or defects in the bales of
tobacco in question.

Baled tobacco that is "musty and bad odor;" that is "almost worthless;" That, as witnesses
testified, is "only fit to be thrown into the river;" that is" not fit for the manufacture of cigars;" that
consists of" broken leaves sent back as useless;" that was "in the bad condition and smelt bad;"
that the greater part of it was of an inferior crop of a year earlier than was represented by the
marks on the bales, and that it was broken tobacco mixed with the tobacco of the another year;
that cost the plaintiff $40 and $42 a quintal, when in fact the highest estimate of its value was
from nothing to $6 to $8 per quintal — such tobacco must surely be considered as having faults
or defects.

Apparent defects are those apparent to the senses without opening packages to discover them,
and are not those which are concealed without such examination; so the unsoundness of
potatoes in barrels is not an apparent defect a hidden one. (Richards v. Burke, 7 La. Ann., 243.)

Were this hidden faults or defects? Undoubtedly they were, because the tobacco was in bales,
which cold not be "easy examined" (Civil Code, art. 1484), and therefore, even if the plaintiff
were an expert dealer and examiner of tobacco, which he is not, the law did not require him to
open this bales and make the examination. This is demonstrated by the provisions of article 336
of the Code of Commerce, which provides that "a purchaser who, at the time of receiving the
merchandise, fully examines the same shall not have a right of action against the vendor
alleging a defect in the quality or quantity of the merchandise.

"A purchaser shall have a right of action against a vendors or defects in the quantity or quality of
merchandise received in bales or packages, provided he bring his action within four days
following its receipt (this time was extended by the Code of Civil Procedure) and the loss is not
due to accident or nature of the merchandise or to fraud.

"In such cases the purchaser may choose between rescission of the contract or its
fulfillment, . . . but always with the payment of the damages he may have suffered by reason of
the defects or faults.

"The vendor may avoid this liability by demanding when making the delivery that the
merchandise be examined full by the purchaser with regard to the quantity and quality."cralaw
virtua1aw library

Thus the vendor, if he saw fit to protect himself against this action, could have demanded that
the plaintiff examine all the tobacco instead of good samples of tobacco produced by
examination by the defendant. He had a right to protect himself, but he not only failed to do so,
but misled the plaintiff by the samples produced and which did not correspond with the
remainder of the tobacco of this lots.

The provisions of the civil code of Louisiana, regarding sales and warranties, are very like those
of the Philippine Civil Code, and in construing the sections of the former code the court of that
State have frequently passed upon question involving hidden faults and defects, and have
invariably held that where merchandise was packed in bales, barrels, or boxes the purchaser
was not bound to examine the property, and that if the vendor desired to protect himself he
should take from the purchaser a warranty of exclusion of liability.

Thus it was held that salt in bags was not susceptible of examination and inspection without
much trouble and in convinience, and so the purchaser was not bound to examine it. (See
Millaudeon case, 3 La. Ann., 4.)

In the case of Fuller v. Cowell (8 La. Ann., 136) cotton in bales was sold. It was sound on the
outside of the bales but bad in the interior, though the vendor was not aware of the hidden
defects. Held, that he was liable to pay the difference between the actual value of the bales and
what they would have been worth had they corresponded with the outside. (See also Peterkin v.
Martin, 30 La. Ann., 894; Bulkley v. Honold, 19 How. (U. S.) , 390.)

The common law doctrine of caveat emptor has been greatly modified by the courts within half a
century. The harshness of the rule, which formerly had many exceptions and has more now,
requiring the purchaser to take a warranty if he desired to be protected against fault seems not
to prevail in the civil law. That law rightfully places obligation on the vendor to deal fairly and
justly with the vendee, and requires the vendor to expose the quality of the goods sold, when
the faults or defects are hidden, so that the vendee may inspect and examine them, and if the
vendor fails to do this or fails to obtain from the purchaser a warranty of exclusion he may pay
the damages.

This law seems so just and so much in favor of fair and honest dealing among merchants that
the courts of Louisiana have held that even in certain cases where the vendor had a warranty of
exclusion he was still liable for damages.

Thus in the case of Lanata v. O’Brien (13 La. Ann., 229) barrels of potatoes and onions were
sold. There was a warranty of exclusion, except as to the number of barrels to be taken, good or
bad, at a certain price. On arrival at destination almost all of the onions were found to be
decomposed and only a few of them sound in each barrel. Held, that the sale could not be
enforced, notwithstanding the warranty of exclusion, inasmuch as the onions were so bad that
they could hardly be called onions.

Under the contention in behalf of the defendant, in the case at bar, the plaintiff would be bound
to accept rotten and broken tobacco instead of leaf tobacco or possibly tobacco dust, but the
civil law does not favor such unfair dealing.

This doctrine is further illustrated by the decision in the case of Melancon v. Robichaux (17 La.
Rep., 97). It was held that where the thing sold turns out to be so defective that have the defects
been made known to the purchaser he would not have bought, the sale will be rescinded. Even
if the warranty be excluded, the seller is bound to disclose the defects or vices of the thing sold.

It has been held that the payment of a sound price entitles the purchaser to a sound article.
(Hosmer v. Baer, s La. Ann., 35) This is the rule of civil law. (Dig. 21, 2; 1, Bouvier’ Law
Dictionary, title "Warranty;" 1 La. Ann., 27. 1)

The conclusion follows that the plaintiff is entitled to recover his damages whether under the
warranty created by the samples given for examination, the description and quality of the
tobacco mentioned in the inventory, of the warranty which the civil law required for his
protection. The judgment below should be affirmed.

COOPER, J., dissenting:chanrob1es virtual 1aw library

The agreement entered into between the plaintiff and the defendant on the 27th day of August,
1901, was a perfected contract of sale of the tobacco in question.

By the provisions of article 1450 of the Civil Code: "The sale shall be perfected between the
vendor and the vendee, and shall be binding upon both of them if they have agreed upon the
thing, object of the contract, and as to the price, even when neither one nor the other has been
delivered."cralaw virtua1aw library

The thing, the object of the contract, was "the stock of tobacco in leaf . . . belonging to the said
factory." The price was "fixed at the invoice price" at which the defendant had previously
purchased the tobacco.

That the transaction was an absolute sale is also clearly expressed in the contract itself. It
states that R. Aenlle & Co. "sell absolutely and in fee simple to E. C. McCullough, the tobacco
and cigarette factory known as ’La Maria Cristina’ located at No. 36 Calle Echague, Plaza de
Goiti, Santa Cruz . . . as shown in inventory to be drawn up for the purpose of making formal
delivery of the said property."cralaw virtua1aw library

It is further stated in the contract that "the value of the tobacco, both in leaf and in process of
manufacture, . . . will be fixed at the invoice price."cralaw virtua1aw library

The inventory which was to be drawn up was for the purpose of ascertaining with exactness
(among other property conveyed) the amount of the tobacco in leaf and the invoice price at
which the plaintiff’s had purchased it.

It was the intention of the defendants to sell and the plaintiffs to buy the leaf tobacco on hand in
the factory known as "La Maria Cristina" without reference to its description or kind. It is true that
the inventory afterwards made out contained a description of the tobacco, and that kind
delivered was not in accordance with this description. If the contract was doubtful in its terms
the act of the parties in making the inventory as placing this construction upon the part relating
to the inventory might be important, but the contract is too plain in this particular to invoke rules
of construction.

To this extent my views are in accord with those expressed in the majority opinion, but I can not
concur in the view that the provisions relating the warranty, contained in the Civil Code, articles
1461, 1474, and 1484, are not applicable to this case. Article 1461 reads as
follows:jgc:chanrobles.com.ph

"A vendor is bound to deliver and warrant the thing which is the object of the sale."cralaw
virtua1aw library

Article 1474 reads as follows:jgc:chanrobles.com.ph

"By virtue of the warranty referred to in article 1461, the vendor shall warrant to the vendee —

"1. The legal and peace full possession of the thing sold.
"2. That there are no hidden faults or defects therein."cralaw virtua1aw library

Article 1484 reads as follows:jgc:chanrobles.com.ph

"The vendor is bound to give a warranty against hidden defects which the thing sold may have
should they render it unfit for the use to which it was intended, or if they should diminish said
use in such manner that had the vendee had knowledge thereof he would not have acquired it
or would have given a lower price for it; but said vendor shall not be liable for the patent defects
or those which may be visible, neither for those which are not visible if the vendee should be an
expert and who by reason of his trade or profession should easily perceive them."cralaw
virtua1aw library

I think these articles are directly applicable to the case, and furnish the law for its determination.

There was no stipulation in the contract on the part of the vendor by way of exclusion of
warranty, and it is only "when the contrary has been stipulated and the vendor was not aware of
such vices or hidden defects" that such warranty shall not exist. (Article 1485, Civil Code.)

It may be admitted, as before stated, that by the contract of sale no particular description or kind
of tobacco was conveyed; yet the plaintiff should recover, under the provisions of the Civil Code
above cited, if the tobacco, the object of the sale, was defective in quality, and this defect was a
hidden defect; and if such hidden defect rendered it unfit for the use for which it was intended,
or diminished the use in such a way that had the vendee known of it he would not have
purchased or would have given a lower price for it.

The proof shows that the tobacco purchased was of such an inferior quality and so badly
damaged that instead of it being worth the sum of $40 to $42 per quintal, the price paid by the
plaintiff, it was only worth $6 to $8 per quintal. It is clear that if the plaintiff would have
purchased at all, he would have given a lower price for the tobacco.

The remaining question to be determined is whether such defects in the quality of the tobacco
were hidden defects.

According to the testimony, the defects were not of such a nature as to be visible. Nor was the
plaintiff, McCullough, an expert, so that, by reason of his profession he ought easily to have
perceived them. The tobacco was in bales and it was only after the bales had been opened up
could the hidden defects be discovered.

It has been held by the supreme court of the State of Louisiana, the laws of which State are
based upon the civil law, and in whose code there are to be found like provisions to those
contained in our Civil Code with reference to warranties, that potatoes, in barrels, of bad quality,
the character of which could not be discovered except by opening the barrels, come within the
definition of hidden defects. (Richards v. Burke, 7 La. Ann., 243.)

It has also been held by the same court that cotton in bales of a defective quality, the character
of which could not be discovered except by opening the bales, must be regarded as a hidden
defect. (Fuller v. Cowell, 8 La Ann., 136.)

The vendor is responsible to the vendee for the warranty against vices or hidden defects in the
thing sold, even when the same were unknown to him, unless the contrary has been stipulated
and the vendor was not aware of such vices or hidden defects. (Civil Code, art. 1485.)
And the vendee may elect either to withdraw from the contract, the expenses which he incurred
being returned to him, or to demand a proportionate reduction of the price, according to the
judgment of experts. (Civil Code, art. 1486.)

The conclusion which I reach in this case are:chanrob1es virtual 1aw library

First. That there was a perfected contract of sale made by the defendants to the plaintiff on the
27th day of August, 1901, of all of the tobacco belonging to the company "La Maria Cristina"
and contained in its factory, and in which contract of sale no particular kind or description of
tobacco was sold; nor was there any sample of the tobacco shown the plaintiff at or before the
purchase.

Second. That the tobacco sold had defects which diminished its value in such a way that had
the plaintiff known of them he would not have given the price which he paid, but would have
given a lower price for it.

Third. That the defects in said tobacco, by reason of the tobacco being contained in bales, were
hidden defects.

Fourth. There being no sample of the tobacco exhibited by the defendants at or before the sale,
and no description of the kind of tobacco contained in the contract of sale, the plaintiff was
entitled to receive the tobacco contained in the factory of "La Maria Cristina" free from hidden
defects; and the measure of his damages is the difference between the value of the tobacco,
had it been free from hidden defects, and the value of the tobacco delivered as reduced in value
by the hidden defects.

The proof in the lower court should have been directed to this difference and not to the question
of the difference between the tobacco as delivered and the kind of tobacco as described in the
inventory; the plaintiff is entitled to a judgment for the former sum and not the latter.
 [G.R. No. 1698. September 26, 1905. ]

JULIAN BORROMEO, Plaintiff-Appellant, v. JOSE FRANCO Y FRANCO ET

AL., Defendants-Appellees.

Jose Maria Rosado, for Appellant.

Jose Maria Memije, for Appellees.

SYLLABUS

1. PURCHASE AND SALE; PROMISE TO SELL OR TO PURCHASE. — A promise to sell or

to purchase a certain thing for a certain gives each of the contracting parties a right to
demand from the other the fulfillment of the obligation.

2. ID.; ID.; OBLIGATIONS. — An agreement on the part of the purchaser to perfect the
title papers to a certain property within a certain time is not a condition subsequent or
essential of the obligation to sell but an incidental undertaking not contrary to law or
public policy, and his failure to comply therewith is not a bar to the sale agreed upon,
the performance of which the purchaser insists upon.

DECISION

TORRES, J. :

On the 29th of April, 1902, and before the notary public Jose Maria Rosado y Calvo, a
resident attorney of the city of Manila, Jose Franco, Cesar Franco, Antonio Franco,
Manuel Franco, Soledad Franco, and Catalina Franco, as parties of the first part, the
latter in her own behalf and in behalf of her minor child, Concepcion Franco, and Julian
Borromeo y Galan, as party of the second part, executed a contract as follows: chanrob1es virtual 1aw library

(1) The six Francos, parties of the first part, declare themselves to be the joint owners
of two frame houses, with nipa roofs, built upon lots belonging to the said parties of the
first part in Plaza Recoletes of the city of Cebu, and within the jurisdiction of the
Registry of Property of the Province of Cebu. (2) That no description is given of the said
property for lack of the necessary data; that the property is free from any lien or
incumbrance; that they have agreed to sell the said property to Borromeo y Galan, the
party of the second part, and that as evidence of such agreement they have executed
the present instrument, and in virtue thereof they solemnly bind themselves to transfer
absolutely and forever to the said Borromeo, the party of the second part, the aforesaid
property under the following terms and conditions, to wit: (a) The consideration for the
sale to be the sum of 2,500 pesos, Mexican currency, the payment of which shall be
under upon the execution of the final deed of sale. (b) The expenses incurred in the
execution of the said deed, as well as in any judicial and extrajudicial proceedings
which may be necessary for the purpose of perfecting the title papers to the said
property, including their inscription in the Registry of Property in the name of the
purchaser, Borromeo, shall be borne exclusively by the latter, whatever the amount of
such expense may be. (c) Borromeo, the party of the second part, is hereby given six
months from the date of the execution of this instrument within which to arrange and
complete the documents and papers relating to the said property. (d) Whatever rent
there may be due from the said property from the aforesaid date shall be paid to
Borromeo, the party of the second part, who in consideration thereof shall defray such
expenses as may be or may have been incurred for the preservation and repair of the
said property, and who shall pay all taxes and make all other necessary disbursements,
whatever the amount may be, the parties of the first part assuming no liability therefor.
(e) The parties of the first part do not guarantee the title which they undertake to
transfer to Borromeo, party of the second part, nor this promise to sell. (f) Julian
Borromeo shall defray whatever expenses may be incurred by Catalina Franco in
obtaining the necessary judicial authority for the sale of the interest of her minor child
in the said property. The foregoing conditions were accepted by the said Borromeo (p.
13 of the bill of exceptions).

On the 7th day of January, 1903, Jose Maria Rosado y Calvo, as counsel for Julian
Borromeo y Galan, filed a complaint in the Court of First Instance praying that
judgment be rendered in his favor and against the defendants Jose, Cesar, Manuel, and
Catalina Franco, the latter in her own behalf and in her capacity as guardian of her
minor children Antonio and Soledad Franco, compelling the said defendants to sell to
him the property in question under the terms of the agreement entered into April 29,
1902, and also to pay the costs of proceedings and such damages as the plaintiff may
have sustained and that, in case the property had been transferred to a third party, a
notice of the pendency of this action be served upon the registrar of property of Cebu
and alleging that the plaintiff, under the terms of the aforesaid agreement, had taken
some judicial and extra-judicial steps and defrayed the necessary expenses for the
completion of the papers and other documents relating to the property which the
defendant had agreed to sell to him; that although the plaintiff had been unable to
complete the said documents he had, nevertheless, called upon the defendants to
comply with their aforesaid promise to sell by executing to him the necessary deed, but
that the defendants refused to do so, alleging that he had not completed the documents
in question within the six months allowed him for this purpose; that defendants
intended to sell, or had already sold the property in question to another person and
that Antonio Franco and Soledad Franco had died on the 9th of June and on the 14th of
July, 1903, respectively, without leaving wills and without descendants; Catalina
Franco, the mother of the deceased, Antonio and Soledad Franco, being the only heir of
the said deceased.

Jose Maria Memije, counsel for the defendants, filed his answer on the 22d of January,
1903, and asked that the complaint be dismissed and plaintiff ordered to pay the costs
of proceedings, and damages, alleging that if the terms of the aforesaid agreement are
true, the defendants still deny that the plaintiff has made any disbursements in
connection with the judicial and extra-judicial steps taken by him as alleged; that,
assuming that the plaintiff had made such disbursements, the promise of sale made by
the defendants was conditional and the plaintiff failed to comply with such condition;
that Catalina Franco was in fact the heir of her deceased minor children, Antonio and
Soledad; and that the defendants admit the allegations contained in the fourth
paragraph of the complaint, because the plaintiff has failed to comply with the
conditions under which the promise to sell the property to him was made, the
defendants being, therefore, at liberty to dispose of this property in any was they might
see fit.

This is an action by the plaintiff to compel the defendants, the owners of the two
houses and lots in question, to comply with their agreement to sell to the former the
said property and, inasmuch as the said agreement is perfectly valid and binding upon
the contracting parties in the absence of any allegation or proof which would preclude
the performance of the same, we hold that plaintiff’s petition is in conformity with the
law.

It was agreed in the aforesaid instrument, among other things, that the purchaser,
Borromeo, as set out in clause (c), should have six months’ time to complete the
documents and other papers relating to the property in question. The six months
having expired, and the plaintiff not having completed the title deeds to the said
property, he now seeks to compel the defendants to carry out their agreement to sell
by executing to him the necessary deed of sale.

The agreement on the part of the purchaser to complete the title papers to the said
property within the six months allowed him for this purpose in clause (c) of the
agreement is not a condition subsequent of the obligation to sell, but a mere incidental
stipulation which the parties saw fit to include in the agreement.

By virtue of the provisions of article 1255 of the Civil Code which gives to every person
the right to freely contract, the parties to the aforesaid agreement could have
stipulated, among other things, what they actually stipulated in clause (c). That
stipulation is not contrary to law, public morals, or public policy. But a failure to comply
with such a stipulation, and the fact that the purchaser was unable to complete his title
papers to the property in question do not preclude the performance of the sale which
the purchaser now demands.

The vendors should comply with their agreement under such terms and conditions as
may be legally possible in view of the statements made by them as owners of the
property in question in the aforesaid instrument and accepted by the purchaser, that
they did not described the property by metes and bounds for lack of sufficient
information, and that they did not guarantee the deed of sale which they might execute
in favor of the vendee, Borromeo, nor the present promise to sell.

If the purchaser accepts the transfer of the property under the terms and conditions
stipulated in the agreement in question and in such a form as to enable the vendors to
make such transfer, even though the documents and other papers relating to the
property are not yet completed, the defendants can not, under the circumstances,
refuse to comply with their agreement.

The stipulation contained in the clause in question was merely incidental and not
inherent or essential to the agreement or promise to sell. Such an agreement could
have existed without the clause in question. The purchaser having failed to comply with
the said stipulation, and having sought to enforce the sale agreed upon, the vendors
are bound to effect such sale after all the other conditions stipulated have been
complied with.
Article 1451 of the Civil Code provides as follows: jgc:chanrobles.com.ph

"A promise to sell or buy, there being an agreement as to the thing and price, gives a
right to the contracting parties to mutually demand the fulfillment of the contract.

"Whenever the promise to purchase and sell can not be fulfilled, the provisions relating
to obligations and contracts of this book shall be observed by the vendor and by the
vendee, as the case may be." cralaw virtua1aw library

The purchaser having demanded the fulfillment of the promise to sell the two houses
herein referred to, the question arises whether the defendants can properly refuse so to
do for the reason that the purchaser has failed to complete the title papers thereto as
stipulated. We think not. When the plaintiff, Borromeo, demanded the execution of the
sale, even though the documents were not in proper shape, it must be assumed that he
was willing to buy the property even with a defective title, the perfection of which he
expressly undertook to obtain.

The contract in question contains various clauses and stipulations but the defendants
refused to fulfill their promise to sell on the ground that the vendee had not perfected
the title papers to the property in question within the six months agreed upon in clause
(c). That stipulation was not an essential part of the contract and a failure to comply
therewith is no obstacle to the fulfillment of the promise to sell.

The contract in question is a bilateral one containing mutual obligations and the
fulfillment of which may be demanded after the expiration of the aforesaid six months.
The obligation to buy the property in question is correlative with the obligation to sell it,
so that upon the execution of the deed of transfer the purchaser shall pay the sum of
2,500 pesos, Mexican currency, as stipulated in the written contract referred to.

The obligation which the purchaser, Borromeo, imposed upon himself, to perfect the
papers to the property within a period of six months, is not correlative with the
obligation to sell the property. These obligations do not arise from the same cause.
They create no reciprocal rights between the contracting parties, so that a failure to
comply with the stipulation contained in clause (c) on the part of the plaintiff purchaser
within the period of six months provided for in the said contract, as he the plaintiff,
himself admits, does not give the defendants the right to cancel the obligation which
they imposed upon themselves to sell the two houses in question in accordance with
the provisions of article 1124 of the Civil Code, since no real juridical bilaterality or
reciprocity existed between the two obligations, because the obligation to perfect the
title papers to the houses in question is not correlative with the obligation to fulfill the
promise to sell such property. One obligation is entirely independent of the other. The
latter obligation is not subordinate to nor does it depend upon the fulfillment of the
obligation to perfect the title deeds to the property.

Obligations arising from contracts have legal force between the contracting parties, and
must be fulfilled in accordance with their stipulations. (Art. 1091 of the Civil Code.)

The six months provided for in clause (c) having expired and all the other conditions
stipulated in the agreement of the 29th of April, 1902, having been complied with, and
the purchaser, Borromeo, who was the one principally interested in the perfecting of
the title papers to the property, having demanded the execution of the sale agreed
upon in the said instrument, the vendors must comply with the obligation by them
contracted.

In case the aforesaid promise to sell can not be fulfilled, both vendor and vendee may
seek their remedy under the provisions of the Civil Code relating to contracts and
obligations, as contemplated in the last paragraph of article 1451 of the Civil Code
above cited.

For the reasons above stated we are of the opinion that the judgment of the court
below, dated October 5, 1903, should be reversed and it is held that the defendants
Jose, Cesar, Manuel, and Catalina Franco are under obligation to sell to the plaintiff,
Julian Borromeo, the two houses in question and the lots upon which they stand, and
referred to in the agreement of the 29th of April, 1902, under the terms and conditions
therein stipulated, and without any special order as to costs.

After the expiration of twenty days let judgment be entered in accordance herewith and
the case be remanded to the court below for proper action. So ordered.

Arellano, C.J., Mapa, Johnson and Carson, JJ., concur.

Willard, J., did not sit in this case.

 [G.R. No. L-3383. September 13, 1907. ]

TAN LEONCO, Plaintiff-Appellee, v. GO INQUI, Defendant-Appellant.

Chicote & Miranda, for Appellant.

Federico Olbes, for Appellee.

SYLLABUS

SALE AND DELIVERY OF MERCHANDISE; DESTRUCTION AFTER DELIVERY IN

WAREHOUSE OF PURCHASER. — T. sold and delivered into the warehouse of J.C. a
certain quantity of hemp and received thereof a bill of exchange in payment. Later, and
after the said delivery, the warehouse and its contents was destroyed. Held, That the
loss so incurred was that of J.C., inasmuch as the title to the hemp passed to the latter
upon the delivery thereof in the warehouse.

DECISION

JOHNSON, J. :

On the 23d of July, 1904, the plaintiff and appellee commenced an action in the Court
of First Instance of the Province of Sorsogon against the defendant, Go Inqui, as
representative of the mercantile company "J.C.," for ]the purpose of recovering the sum
of 800 pesos, with interest. This indebtedness is evidenced by a bill of exchange,
executed and delivered by said company of the plaintiff upon 3d day of March, 1901.
The bill of exchange was drawn upon one Lim Uyco, of Manila.

The bill of exchange was duly presented to Lim Uyco, refused payment because he had
received instructions to that effect from the said company.

Upon the 15th day of August, 1906, the defendant filed an answer to the said
complaint, admitting all of the facts of said complaint, and setting up a counterclaim,
claiming that the plaintiff owed the defendant the sum P2,369, with interested at 6 per
cent. To this answer the plaintiff filed of the defendant, and setting up a counterclaim to
that of the defendant, amounting to P5,500.

Upon the 26th day of October, 1904, the Hon. Grant Trent, judge of the Court of First
Instance of said province, appointed arbitrators in accordance with the provisions of the
Civil Code, for the purpose of setting, if possible, the differences between the plaintiff
and defendant. On the 31st day of March, 1905, the said arbitrators mare a report of
the facts in said cause.

On the 5th day of June, 1905, upon petition to the said judge signed by the attorneys
for the respective parties, the cause was set down for hearing without the intervention
of the arbitrators, and was duly tried before the judge of the Court of First Instance of
said province.

On the 6th day of November, 1905, the judge indicated a sentence in the cause against
the defendant and in favor of the plaintiff for the sum of 800 pesos, Mexican currency,
or its value in the Conant, at the rate of P1.30, with interest 6 per cent from 3d day of
march, 1901, and costs, including the fees of the arbitrators appointed at its request of
the respective the counterclaim presented by the defendant.

The decision of the lower court contains the following finding of facts: jgc:chanrobles.com.ph

"In the year 1897 the plaintiff left the Philippine for China, and prior to his departure
turned over to Tan Tonguan, for his management, the plantations of abaca (hemp)
which the plaintiff then possessed in this province. While the plaintiff was in China, Tan
Tonguan worked the abaca and obtained 800 pesos worth of fiber, which he caused to
be stored, by direction of the defendants, in a warehouse in Buhang, and after storing
said abaca he called on the defendants and obtained the draft or check in question,
handing it to the plaintiff, who in the mean time had returned from China. The plaintiff
then, desiring to leave again for China, presented the draft for payment in Manila, but
as the defendants had suspended the payment of the same, the plaintiff was unable to
collect the amount thereof. When the said abaca was stored by Tan Tonguan in Buhang
it became the property of the defendants (although it did not go through their hands),
and on the face of the draft they acknowledge having received the amount of said draft.
Therefore, it is evident that the defendants can not alleged now that they had not
received the amount of the said draft.

"In the years 1896 and 1897 the plaintiff entered into an agreement with the then head
of the firm, of J.C., wherein it was agreed that the plaintiff could transfer the shop at
San Isidro to the Chinaman Tan Tonguan, and the shop of Buhang to the Chinaman Lim
Joco and Tim Bico; and by reason by such transfers it was agreed between them that
the said Chinamen to whom the two should had been transferred would become liable
for the debt of the plaintiff directly in connection with the said two shops, one being for
the sum of about 600 pesos and the under these conditions, the plaintiff can not now
be held to the liable for the 2,390 odd pesos claimed by the defendants in their
counterclaim; they must look for payment of this sum to the Chinamen in whose favor
the two shops were transferred.

"When the draft in question was presented by the plaintiff in Manila for payment,
having failed to collect the amount,. he did not cause the protest to be drawn up in the
manner provided by the Code of Commerce. Whether this draft or check is considered
as a bill of exchange, it is my opinion that said draft or check should the plaintiff should
therefore be relieved from the formalities of the protest for want of payment of the
same, as provided for with regard to bills of exchange." cralaw virtua1aw library

When the defendant received notice of the decision of the lower court he presented a
motion for a new trial upon the ground that the facts found by the court were openly
and manifestly contrary to the weight of the evidence presented during the trial, and
presented a motion for a new trial. The motion for a new trial was denied by the lower
court. the defendant then appealed to this court.

An examination of the proof adduced during the trial shows to the issues presented to
the court; lower, considering the fact that the judge of the lower court saw and heard
the witnesses, we adopt his findings as the facts which constitute the preponderance of
evidence adduced in the cause.

From this decision the defendant appealed to this court assigned several errors which
are alleged to have been committed by the lower court, the first four of which relates to
the consideration which the defendant received for the said bill of exchange or check.

The evidence shows that the plaintiff, through his agent before the date on which the
bill of exchange was executed and delivered, deposited in a warehouse in the pueblo of
Buhang a quantity of abaca (hemp), the value of which was 800 pesos, and that the bill
of exchange was executed in payment for the abaca. The evidence also shows that the
warehouse in the said pueblo where the hemp was deposited belonged to the defendant
and that it had been the customs of the plaintiff to make deposit in the warehouses of
the defendant.

After the deposit of the hemp in the manner above stated, and before the same was
removed from the warehouse by the defendant, the warehouse and its content s were
destroyed by the insurrectos. The defendant alleged that he never received the hemp
and therefore there was no consideration for the bill of exchange. The plaintiff claims
that when the hemp was deposited in the warehouse it became the property of the
defendant and that the defendant recognized this fact when he stated in the bill of
exchange that it was given for "value received." cralaw virtua1aw library

It is not disputed that the warehouse in which the hemp was deposited was the
warehouse of the defendant. The hemp became the property of the defendant upon the
delivery thereof in the warehouse of the defendant (arts. 1462 and 1463, Civil Code),
and was property of the defendant at the time of its destruction by the insurrectos.
There had been a complete delivery of the said abaca to the defendant, and the loss
occurring thereafter,. without any fault of the plaintiff, was loss of the defendant. We
that the delivery of the hemp as above stated was duly made to the defendant and
constituted a valuable consideration for the said bill of exchange or check.

It was alleged that the said bill of exchange, after being presented to the drawee in
Manila, was not protested and that there is some question of the right of the p[plaintiff
to recover upon said bill of exchange without the same having been duly protested. The
action was not brought upon the bill of exchange; the bill of exchange was used only as
evidence of the indebtedness. We believe, however, that inasmuch as the defendant
had himself ordered the drawee not to pay the said bill of exchange, that protest and
notice of nonpayment under these conditions was unnecessary in order to render the
drawer, or defendant in this case, liable.

As to the assignment of error relating to the counterclaim presented by the defendant,

we are of the opinion that the evidence did not support said contention on the part of
the defendant.

The judgment of the lower court is therefore affirmed, with costs. So ordered.

Arellano, C.J., Torres and Willard, JJ., concur.

 [G.R. No. 10907. January 29, 1916. ]

ONG JANG CHUAN, Plaintiff-Appellee, v. WISE & CO. (LTD.) , Defendant-Appellant.

A. J. Burke for Appellant.

Beaumont & Tenney for Appellee.

SYLLABUS

1. SALES; REQUISITES AND VALIDITY OF CONTRACT. — A contract of sale is no

perfected where the parties have agreed upon the price and the thing sold, unless the latter has
been selected and is capable of being physically designated and distinguished from all others of
the same class.

DECISION

TRENT, J.  :

An appeal from a judgment of the Court of First Instance of Manila condemning the
defendant to pay the plaintiff the sum of P1,237.50, together with interest and costs, as
damages for a breach of contract.

The contract which forms the basis of this action reads: jgc:chanrobles.com.ph

"Between Messrs. Wise & Co. (Ltd.) , Manila, and Mr. Ong Jang Chuan, Manila.

"We, Wise & Co. (Ltd.) , have sold to Mr. Ong Jang Chuan the following goods, on this
29th day of July, 1914: jgc:chanrobles.com.ph

"On thousand (1,000) sacks of flour, ’Mano’ brand, at the net price of P11.05 (eleven
pesos and five centavos) per barrel, the expenses of transportation from the Binondo
Canal to be borne by the purchaser, 500 sacks to be delivered in September and 500 in
October, which we bind ourselves to deliver . . . for which we shall receive a
commission of . . . per cent of the total amount. Payment of the goods mentioned shall
be made within 30 days counted from the date of delivery, and interest at the rate of . .
. per annum on any unpaid amount that may still be due after the . . . days
mentioned." cralaw virtua1aw library

The pertinent facts, as found by the trial court, are these: jgc:chanrobles.com.ph

"It has been established by a preponderance of evidence that the reason for the
nonfulfilment, on the part of Wise & Co., of the contract made with the plaintiff, was
that the ’Mano’ brand of flour which the defendant bound itself to deliver during the
months of September and October had to come from Australia, and at the time the
contract was executed Wise & Co. did not have a sufficient stock of the said brand of
flour; and that, as the government of Australia prohibited the exportation of flour,
because of the scarcity of grain in that country, due to the war that had been declared
between Great Britain, of which Australia is an integral part, and the German Empire, it
was impossible for the importers to supply Wise & Co. with a sufficient quantity of flour
to enable the latter, in turn, to serve its customers." cralaw virtua1aw library

It is urged that the trial court erred (1) in holding that the contract above set forth was
an agreement to sell and not a perfected sale, (2) in not finding that the noncompliance
of the contract was due to a fortuitous event, and (3) in condemning the defendant to
pay to the plaintiff the sum of P1,237.50.

In the argument, as appears in defendant’s printed brief filed in this court, the third
alleged error is made dependent upon the result of the first and second, or, in other
words, it is not insisted that the judgment is excessive or that the plaintiff has not
established that he is entitled to P1,237.50, in case he is entitled to any amount.
Neither does counsel contend that the defendant is relieved from all liability for the
noncompliance with the contract on account of the order of the Australian government
prohibiting the exportation of flour if the sale is not a perfected one. As thus presented,
our inquiry is limited to the determination of the question whether or not the contract
and the facts found show a perfected sale.

In the case of Yu Tek & Co. v. Gonzalez (29 Phil. Rep., 384), we said: jgc:chanrobles.com.ph

"This court has consistently held that there is a perfected sale with regard to the ’thing’
whenever the article of sale has been physically segregated from all other articles." cralaw virtua1aw library

In the case under consideration, the undertaking of the defendant was to sell to the
plaintiff 1,000 sacks of "Mano" flour at P11.05 per barrel, 500 sacks to be delivered in
September and 500 in October. There was no delivery at all under the contract. If
called upon to designate the article sold, the defendant could only say that it was
"Mano" flour. There was no appropriation of any particular lot of flour. The flour
mentioned in the contract was not "physically segregated from all other articles." In
fact, the defendant did not have in its possession in Manila, at the time the contract
was entered into, the 1,000 sacks of flour which it agreed to deliver in September and
October. It is therefore clear that under the rule laid down in the case of Yu Tek & Co.,
supra, and the cases cited in that opinion, the sale here i question was not a perfected
one.

For the foregoing reasons, the judgment appealed from is affirmed, with costs against
the Appellant. So ordered.

Arellano, C.J., Torres, and Carson, JJ., concur.

Separate Opinions

MORELAND, J., concurring: chanrob1es virtual 1aw library

If the conclusions of law set out in the syllabus in this case are correct the judgment
should be reversed instead of affirmed. The action is for breach of contract of sale. The
only defense offered is that the breach has, in law, been excused. The court holds, if its
syllabus may be taken as a guide, that there never was a contract at all between the
parties; which, if true, precludes a recovery by plaintiff. The syllabus says: jgc:chanrobles.com.ph

"A contract of sale is not perfected where the parties have agreed upon the price and
the thing sold, unless the latter has been selected and is capable of being physically
designated and distinguished from all others of the same class." cralaw virtua1aw library

Note that this says that the contract of sale is not perfected, etc. In the body of the
decision the court says: "It is therefore clear that under the rules laid down . . . the sale
here in question was not a perfected one." Note that this says that the "sale is not a
perfected one." There is a very wide difference between an unperfected (imperfect)
contract and an unperfected sale. If a contract is not complete, that is, perfected, it is
no contract, and creates no obligations; while a "sale" will bind the parties to it even
though not "perfected." There is a manifest inconsistency, if not contradiction, between
the decision of the court and the syllabus. If the syllabus is correct then the decision is
wrong; and if the decision is correct the syllabus is wrong. If the contract was not
perfected, completed, it was not binding and no action would lie for its breach; whereas
if, as the court holds, an action for breach lies, then the contract was a complete and
perfect contract.

The contract was a perfect contract. The essentials of a contract are found in article
1261 of the Civil Code. It reads: jgc:chanrobles.com.ph

"There is no contract unless the following requisites exist: (1) The consent of the
contracting parties. (2) A definite object which may be the subject of the contract. (3)
The consideration for the obligation which may be established." cralaw virtua1aw library

Article 1254 provides that: jgc:chanrobles.com.ph

"A contract exists from the moment one or more persons consent to bind himself or
themselves, with regard to another or others, to give something or to render some
service;" while article 1258 declares when contracts are perfected. It provides: jgc:chanrobles.com.ph

"Contracts are perfected by mere consent, and from that time they are binding, not
only with regard to the fulfillment of what has been expressly stipulated, but also with
regard to all the consequences which, according to their character, are in accordance
with good faith, use, and law." cralaw virtua1aw library

There is nowhere in the Civil Code a requirement that, in order that a contract, of
whatever kind, shall be perfect, that is, binding on the parties, the subject-matter
thereof must be segregated or set apart by itself, or be "capable of being physically
designated and distinguished from all others of the same class." There is no such
requirement even with respect to a contract of sale. This contract is perfected in the
same manner as all other contracts by mere consent; and the essentials thereof are
those of all other contracts, consent, subject-matter, and consideration: a contract of
sale is perfected and binding "there having been an agreement as to the thing and
price." Article 1451 provides this in express terms. It says: jgc:chanrobles.com.ph
"A promise to sell or buy, there being an agreement as to the thing and price, gives a
right to the contracting parties to mutually demand the fulfillment of the contract." cralaw virtua1aw library

Nothing is said about the necessity of the "thing" being "segregated" or "set apart by
itself," or of being "capable of being physically designated or distinguished from all
others of the same class." It is not even essential that the "thing" be in existence at the
time the contract is made. Innumerable binding contracts are made daily concerning
matters not in existence.

From what has been said I am forced to conclude that the statement of the syllabus
that "a contract of sale is not perfected where the parties have agreed upon the price
and the thing sold, unless the latter has been selected and is capable of being
physically designated or distinguished from all others of the same class," is not, as I
understand it, a correct statement of what the court decided or of the law on the
subject.

The decision, however, is correct in saying that a sale (not a contract of sale) is not
perfected unless the subject-matter thereof "has been physically segregated from all
other articles." But the objection I make is that, while the statement, as a statement, is
correct, it has nothing to do with and bears no relation to the case before the court or
the question raised or to be decided therein. Otherwise, I am unable to follow the
reasoning of the court in its decision. The action, as I have said, is for a breach of
contract of sale. The legality and validity of the contract are admitted, as is also the
breach thereof. The only question before the court, indeed, the only question raised by
anybody, is whether the breach has been excused. The only question discussed by the
court, as I understand it, is one altogether different. If the contract of sale is valid, and
no one questions that, and if there was a breach, and no one questions that (laying to
one side the claim of defendant that plaintiff waived the breach), what is there left for
consideration more than the justifiability of the breach and, in case it was not
justifiable, the amount of damages? Nothing; and the parties have raised and discussed
nothing else, as I understand the case. This, however, is precisely the question which
the court has not touched.

What has the question whether the sale was perfected or not to do with this case? The
parties are not concerned with a perfected sale or any other kind of sale, but with a
contract of sale only. Indeed, the action is expressly brought for a breach of a contract
of sale without regard to the ownership of the property or the rights of the parties
therein. Whether or not the sale was a "perfected" sale is of no consequence in the
resolution of this case. That question can be material only when it is to be determined
who must suffer if the thing sold is lost, destroyed, or damaged, or who shall be
entitled to the increase thereof or the profit produced by it before actual delivery.
Except for this purpose the question whether a sale is "perfected" or not is immaterial
— indeed, it cannot arise in any way in any case. To determine who shall run the risk of
loss or have the opportunity to claim the profits produced by the thing sold before
actual delivery thereof has been made, the Civil Code contains various cogent
provisions. Article 1462 defines a delivery. It provides: jgc:chanrobles.com.ph

"A thing sold shall be considered as delivered when it is placed in the hands and
possession of the vendee. When the sale should be made by means of a public
instrument, the execution thereof shall be equivalent to the delivery of the thing which
is the object of the contract, if in said instrument the contrary does not appear or may
be clearly inferred." cralaw virtua1aw library

It then tells us, by article 1450, when the title passes, i. e., from what instant the
purchaser takes the risk of the loss of the thing bought and is entitled to the profits
produced by it. It states: jgc:chanrobles.com.ph

"The sale (not contract) 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

Article 1452 declares what law shall govern the rights which accrue by virtue of article
1450. It is as follows: jgc:chanrobles.com.ph

"The injury to or the profit of the thing sold shall, after the contract has been perfected,
be governed by the provisions of articles 1096 and 1182." cralaw virtua1aw library

Articles 1182 to 1186 declare the various conditions under which the vendor is excused
from delivery. They provide: jgc:chanrobles.com.ph

"ART. 1182. An obligation, consisting in the delivery of a specified thing, shall be

extinguished when said thing should be lost or destroyed without fault of the debtor
and before he should be in default.

"ART. 1183. Whenever the thing should be lost, when in the possession of the debtor, it
shall be presumed that the loss occurred by his fault and not by a fortuitous event,
unless there is proof to the contrary and without prejudice to the provisions of article
1096.

"ART. 1184. In obligations to do, the debtor shall also be released when the prestation
appears to be legally or physically impossible.

"ART. 1185. When the debt for a certain and specified thing arises from a crime or
misdemeanor the debtor shall not be exempted from the payment of its value,
whatever the cause of the loss may have been, unless, having offered the thing to the
person who should have received it, the latter should have refused to accept it without
reason.

"ART. 1186. After the obligation is extinguished by the loss of the thing, all the actions
which the debtor may have against third persons, by reason thereof shall pertain to the
creditor."
cralaw virtua1aw library

Article 1096 defines the rights of the parties to the sale under other conditions: jgc:chanrobles.com.ph

"Should the thing to be delivered be a specified one the creditor, independently of the
right granted him by article 1101, may compel the debtor to make the delivery. Should
the thing be undetermined or generic he may ask that the obligation be fulfilled at the
expense of the debtor. Should the person obligated be in default, or be bound to deliver
the same thing to two or more different persons, he shall be liable therefor with regard
to unforeseen events until the delivery is made." cralaw virtua1aw library

Article 1105 deals with the liability of the parties when there intervenes fortuitous and
unavoidable events and is as follows: jgc:chanrobles.com.ph

"No one shall be liable for events which could not be foreseen, or which having been
foreseen were inevitable, with the exception of the cases expressly mentioned in the
law or those in which the obligation so declares." cralaw virtua1aw library

As is seen from article 1450, the relative rights of the parties to a contract of sale in the
thing sold date from the moment when the sale is perfected. Prior to that moment the
purchaser has no interest in the thing sold. It is owned absolutely by the vendor. After
that moment the purchaser has rights in it. Articles 1096 and 1182 determine what
they are. The only reason for the existence of article 1450 is to fix in as definite a way
as possible the time when the purchaser acquires rights, not in the contract of sale
(rights in that contract date from the instant it was perfected as provided in article
1451), but in the thing sold. This being so it is clear that whether the sale is perfected
or not has no significance, consequence, or materiality unless the parties, or either of
them, assert an interest in the property itself. If the sale is perfected the purchaser
may lay claim to the thing sold; if it is not perfected he cannot. It is only in the
determination of the rights of the parties in the thing sold that the question of whether
the sale is perfected becomes material. The articles quoted, and especially article 1450,
have nothing to do with the responsibility of the parties under the contract as defined
by article 1445. Article 1450 simply paves the way for article 1452 which provides, as
we have seen, that "the injury to or the profit of the thing sold shall, after the contract
has been perfected, be governed by the provision of articles 1096 and 1182." Article
1450 simply states when the sale shall be deemed to be perfected, the sole purpose of
which is, as already set out, to determine definitely who shall sustain the loss which the
thing sold may suffer and who shall take the profits which it produces, before actual
delivery. These articles have nothing to do with the validity of the contract of sale or
with the consequences flowing from a breach thereof as that contract is defined by
article 1445.

The action before us is one for simple breach of contract. There is no question here as
to plaintiff’s or defendant’s interest in the flour itself. The plaintiff claims no interest
therein. The defendant claims none. Both parties admit that defendant never obtained
delivery of the flour; that its delivery was prevented by the action of the Australian
government as a war measure. Not being able to secure delivery itself the defendant
could not deliver it to plaintiff in pursuance of the contract. This being so no question
arose or could arise as to who must assume the responsibility for loss of or damage to
the flour or who take the increase of or the profits produced by it. Therefore, no
question arose or could arise as to whether the sale was perfected or not, as that
question presents itself only when it must be determined at whose risk the property is,
or questions involving an interest in the property.

I repeat, the only question raised or argued is, Was the breach of the contract excused
by the intervention of the European war by reason of which the exportation of flour
from Australia was prohibited? Whether the sale was a perfected sale or not has
nothing to do with that question; inasmuch as, if the completion of the contract was
prevented by a fortuitous event, if we may call the prohibition of the Australian
government a fortuitous event as defined by the Civil Code (art. 1105), the vendor
would be excused whether the sale was perfected or not. No one contends, least of all
the appellant, that the title to the flour passed under the contract and much less that
there was a delivery. Neither does appellant contend that the flour was at the vendee’s
risk. Appellant in its answer and in many places in its brief admits that title had not
passed and that no delivery had been made; indeed, its whole case is based on the
proposition that it had broken its contract with plaintiff and that it was liable in damage
unless the breach was excused by the supervention of war or by agreement of the
parties. It is true that the appellant discussed in its brief the question whether the
document on which the action is brought is an executory contract of sale or a
"perfected sale," but not, however, for the purpose of claiming that the title to the flour
passed to plaintiff and that it was, therefore, at his risk, as appellant nowhere claims
that but admits the contrary, but under the wholly mistaken belief that the law relating
to fortuitous events as found in the Civil Code applies only to a "perfected sale" ad does
not to an executory contract of sale. In other words, he argues for a "perfected sale"
not to put the flour at plaintiff’s risk, but to bring his admitted breach of the contract
within the provisions of the Civil Code relating to fortuitous events. Appellant sums up
its whole contention in the last two paragraphs of its brief preceding the prayer for
relief, which prove conclusively that the only question really raised or presented by
appellant was as I have stated. They read: "Having arrived at the conclusion that
Exhibit A is a contract of sale it is unquestionable that it is subject to the law relating to
fortuitous events; in other words, that the contracting parties are not responsible for
unforeseen events, or those which, if foreseen, were unavoidable, except in those cases
where the law provides the contrary." "It having been proved, as we have said, that the
failure to comply with the contract was due to a fortuitous event, the defendant is
relieved of all responsibility, and the court erred in giving judgment against it . . . ." It
is clear from these quotations that the appellant never intended to raise the question
exclusively considered by the court, the sole purpose in speaking of perfected sale
being to excuse the breach which, if excusable at all, would be as much so whether the
sale was perfected or not.

The remarks already made apply, generally speaking, with equal force to the case of Yu
Tek & Co. v. Gonzalez (29 Phil. Rep., 384), cited in the opinion of the court in this case.
There defendant agreed to sell and deliver to plaintiff a certain quantity of sugar which
he did not have and which, so far as is known, was not in existence at the time the
contract was made. No question, therefore, of injury, loss, or profit could arise. His
defense was that he was prevented from delivering the sugar not because it was lost or
destroyed but because the weather never permitted him to produce it. Such a defense,
if it is a defense at all, falls under article 1105 and not under articles 1450, 1452, 1096,
and 1182, cited by the court in that case, or any of them. Neither in the case cited nor
in the one at bar was there a claim that the thing sold was lost or injured. The sole
claim and defense was that the fulfillment of the contract was rendered impossible by
an act of God which prevented the thing sold from coming into existence. In one case
the weather prevented the growth of the sugar and in the other the war prevented the
delivery of the flour. In neither case was there a claim that the thing sold was specified
or set apart or even in existence; and the only question presented in that case as well
as in this was whether the defendants were relieved under article 1105 and not under
1450, 1452, 1182 and 1096.

The contract in the case at bar is one for the sale and delivery of a thing which in all
probability did not exist at the time the parties contracted. Certainly the parties did not
know whether it existed or not. It seems that the flour had to be manufactured in
Australia before the delivery agreed upon could be made. The whole trouble was caused
by the failure of the manufacturers in Australia to deliver to the defendant. To this kind
of contract articles 1450, 1452, 1096, and 1182 do not apply; there can be no
perfected sale when the thing sold is not yet in existence and, consequently, there can
be no question over the loss or injury to the thing or the profits which it produces
before delivery. The flour never had an existence and the relations between the
contracting parties never proceeded further than the mere words which formed the
contract. There was, therefore, never a moment when the question as to whether it was
a perfected contract could arise. The only articles applicable or claimed to be applicable
were 1445 and 1105, to which I see no reference in the decision.
G.R. No. 74470 March 8, 1989

NATIONAL GRAINS AUTHORITY and WILLLAM CABAL, petitioners

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

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

Plaridel Mar Israel for respondent Leon Soriano.

MEDIALDEA, J.:

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

The antecedent facts of the instant case are as follows:

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

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

In the afternoon of August 23, 1979 and on the following day, August 24, 1979, Soriano delivered
630 cavans of palay. The palay delivered during these two days were not rebagged, classified and
weighed. when Soriano demanded payment of the 630 cavans of palay, he was informed that its
payment will be held in abeyance since Mr. Cabal was still investigating on an information he
received that Soriano was not a bona tide farmer and the palay delivered by him was not produced
from his farmland but was taken from the warehouse of a rice trader, Ben de Guzman. On August
28, 1979, Cabal wrote Soriano advising him to withdraw from the NFA warehouse the 630 cavans
Soriano delivered stating that NFA cannot legally accept the said delivery on the basis of the
subsequent certification of the BAEX technician, Napoleon Callangan that Soriano is not a bona fide
farmer.
Instead of withdrawing the 630 cavans of palay, private respondent Soriano insisted that the palay
grains delivered be paid. He then filed a complaint for specific performance and/or collection of
money with damages on November 2, 1979, against the National Food Authority and Mr. William
Cabal, Provincial Manager of NFA with the Court of First Instance of Tuguegarao, and docketed as
Civil Case No. 2754.

Meanwhile, by agreement of the parties and upon order of the trial court, the 630 cavans of palay in
question were withdrawn from the warehouse of NFA. An inventory was made by the sheriff as
representative of the Court, a representative of Soriano and a representative of NFA (p. 13, Rollo).

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

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

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

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

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

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

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

and attorney's fees; and

6. That there is no pronouncement as to costs.

SO ORDERED (pp. 9-10, Rollo)

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

Petitioners' appealed the trial court's decision to the Intermediate Appellate Court. In a decision
promulgated on December 23, 1986 (pp. 9-21, Rollo) the then Intermediate Appellate Court upheld
the findings of the trial court and affirmed the decision ordering NFA and its officers to pay Soriano
the price of the 630 cavans of rice plus interest. Petitioners' motion for reconsideration of the
appellate court's decision was denied in a resolution dated April 17, 1986 (p. 28, Rollo).

Hence, this petition for review filed by the National Food Authority and Mr. William Cabal on May 15,
1986 assailing the decision of the Intermediate Appellate Court on the sole issue of whether or not
there was a contract of sale in the case at bar.

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

The petition is not impressed with merit.

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

In the case at bar, Soriano initially offered to sell palay grains produced in his farmland to NFA.
When the latter accepted the offer by noting in Soriano's Farmer's Information Sheet a quota of
2,640 cavans, there was already a meeting of the minds between the parties. The object of the
contract, being the palay grains produced in Soriano's farmland and the NFA was to pay the same
depending upon its quality. The fact that the exact number of cavans of palay to be delivered has not
been determined does not affect the perfection of the contract. Article 1349 of the New Civil Code
provides: ". . .. The fact that the quantity is not determinate shall not be an obstacle to the existence
of the contract, provided it is possible to determine the same, without the need of a new contract
between the parties." In this case, there was no need for NFA and Soriano to enter into a new
contract to determine the exact number of cavans of palay to be sold. Soriano can deliver so much
of his produce as long as it does not exceed 2,640 cavans.
In its memorandum (pp. 66-71, Rollo) dated December 4, 1986, petitioners further contend that there
was no contract of sale because of the absence of an essential requisite in contracts, namely,
consent. It cited Section 1319 of the Civil Code which states: "Consent is manifested by the meeting
of the offer and the acceptance of the thing and the cause which are to constitute the contract. ... "
Following this line, petitioners contend that there was no consent because there was no acceptance
of the 630 cavans of palay in question.

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

Art. 1475. The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price.

xxx

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

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

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

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

ACCORDINGLY, the instant petition for review is DISMISSED. The assailed decision of the then
Intermediate Appellate Court (now Court of Appeals) is affirmed. No costs.

SO ORDERED.

Narvasa, Cruz, Gancayco and Griño-Aquino, JJ., concur.

G.R. No. L-24732             April 30, 1968

PIO SIAN MELLIZA, petitioner,

vs.
CITY OF ILOILO, UNIVERSITY OF THE PHILIPPINES and THE COURT APPEALS, respondents.

Cornelio P. Ravena for petitioner.

Office of the Solicitor General for respondents.

BENGZON, J.P., J.:

Juliana Melliza during her lifetime owned, among other properties, three parcels of residential land in
Iloilo City registered in her name under Original Certificate of Title No. 3462. Said parcels of land
were known as Lots Nos. 2, 5 and 1214. The total area of Lot No. 1214 was 29,073 square meters.

On November 27, 1931 she donated to the then Municipality of Iloilo, 9,000 square meters of Lot
1214, to serve as site for the municipal hall. 1 The donation was however revoked by the parties for
the reason that the area donated was found inadequate to meet the requirements of the
development plan of the municipality, the so-called "Arellano Plan". 2

Subsequently, Lot No. 1214 was divided by Certeza Surveying Co., Inc. into Lots 1214-A and 1214-
B. And still later, Lot 1214-B was further divided into Lots 1214-B-1, Lot 1214-B-2 and Lot 1214-B-3.
As approved by the Bureau of Lands, Lot 1214-B-1 with 4,562 square meters, became known as Lot
1214-B; Lot 1214-B-2, with 6,653 square meters, was designated as Lot 1214-C; and Lot 1214-B-13,
with 4,135 square meters, became Lot 1214-D.

On November 15, 1932 Juliana Melliza executed an instrument without any caption containing the
following:

Que en consideracion a la suma total de SEIS MIL CUATRO CIENTOS VEINTIDOS PESOS
(P6,422.00), moneda filipina que por la presente declaro haber recibido a mi entera
satisfaccion del Gobierno Municipal de Iloilo, cedo y traspaso en venta real y difinitiva a
dicho Gobierno Municipal de Iloilo los lotes y porciones de los mismos que a continuacion se
especifican a saber: el lote No. 5 en toda su extension; una porcion de 7669 metros
cuadrados del lote No. 2, cuya porcion esta designada como sub-lotes Nos. 2-B y 2-C del
piano de subdivision de dichos lotes preparado por la Certeza Surveying Co., Inc., y una
porcion de 10,788 metros cuadrados del lote No. 1214 — cuya porcion esta designada
como sub-lotes Nos. 1214-B-2 y 1214-B-3 del mismo plano de subdivision.

Asimismo nago constar que la cesion y traspaso que ariba se mencionan es de venta
difinitiva, y que para la mejor identificacion de los lotes y porciones de los mismos que son
objeto de la presente, hago constar que dichos lotes y porciones son los que necesita el
Gobierno Municipal de Iloilo para la construccion de avenidas, parques y City Hall site del
Municipal Government Center de iloilo, segun el plano Arellano.

On January 14, 1938 Juliana Melliza sold her remaining interest in Lot 1214 to Remedios Sian
Villanueva who thereafter obtained her own registered title thereto, under Transfer Certificate of Title
No. 18178. Remedios in turn on November 4, 1946 transferred her rights to said portion of land to
Pio Sian Melliza, who obtained Transfer Certificate of Title No. 2492 thereover in his name.
Annotated at the back of Pio Sian Melliza's title certificate was the following:

... (a) that a portion of 10,788 square meters of Lot 1214 now designated as Lots Nos. 1214-
B-2 and 1214-B-3 of the subdivision plan belongs to the Municipality of Iloilo as per
instrument dated November 15, 1932....

On August 24, 1949 the City of Iloilo, which succeeded to the Municipality of Iloilo, donated the city
hall site together with the building thereon, to the University of the Philippines (Iloilo branch). The site
donated consisted of Lots Nos. 1214-B, 1214-C and 1214-D, with a total area of 15,350 square
meters, more or less.

Sometime in 1952, the University of the Philippines enclosed the site donated with a wire fence. Pio
Sian Melliza thereupon made representations, thru his lawyer, with the city authorities for payment of
the value of the lot (Lot 1214-B). No recovery was obtained, because as alleged by plaintiff, the City
did not have funds (p. 9, Appellant's Brief.)

The University of the Philippines, meanwhile, obtained Transfer Certificate of Title No. 7152 covering
the three lots, Nos. 1214-B, 1214-C and 1214-D.

On December 10, 1955 Pio Sian Melliza filed an action in the Court of First Instance of Iloilo against
Iloilo City and the University of the Philippines for recovery of Lot 1214-B or of its value.

The defendants answered, contending that Lot 1214-B was included in the public instrument
executed by Juliana Melliza in favor of Iloilo municipality in 1932. After stipulation of facts and trial,
the Court of First Instance rendered its decision on August 15, 1957, dismissing the complaint. Said
court ruled that the instrument executed by Juliana Melliza in favor of Iloilo municipality included in
the conveyance Lot 1214-B. In support of this conclusion, it referred to the portion of the instrument
stating:

Asimismo hago constar que la cesion y traspaso que arriba se mencionan es de venta
difinitiva, y que para la major identificacion de los lotes y porciones de los mismos que son
objeto de la presente, hago constar que dichos lotes y porciones son los que necesita el
Gobierno municipal de Iloilo para la construccion de avenidas, parques y City Hall site del
Municipal Government Center de Iloilo, segun el plano Arellano.

and ruled that this meant that Juliana Melliza not only sold Lots 1214-C and 1214-D but also such
other portions of lots as were necessary for the municipal hall site, such as Lot 1214-B. And thus it
held that Iloilo City had the right to donate Lot 1214-B to the U.P.

Pio Sian Melliza appealed to the Court of Appeals. In its decision on May 19, 1965, the Court of
Appeals affirmed the interpretation of the Court of First Instance, that the portion of Lot 1214 sold by
Juliana Melliza was not limited to the 10,788 square meters specifically mentioned but included
whatever was needed for the construction of avenues, parks and the city hall site. Nonetheless, it
ordered the remand of the case for reception of evidence to determine the area actually taken by
Iloilo City for the construction of avenues, parks and for city hall site.

The present appeal therefrom was then taken to Us by Pio Sian Melliza. Appellant maintains that the
public instrument is clear that only Lots Nos. 1214-C and 1214-D with a total area of 10,788 square
meters were the portions of Lot 1214 included in the sale; that the purpose of the second paragraph,
relied upon for a contrary interpretation, was only to better identify the lots sold and none other; and
that to follow the interpretation accorded the deed of sale by the Court of Appeals and the Court of
First Instance would render the contract invalid because the law requires as an essential element of
sale, a "determinate" object (Art. 1445, now 1448, Civil Code).

Appellees, on the other hand, contend that the present appeal improperly raises only questions of
fact. And, further, they argue that the parties to the document in question really intended to include
Lot 1214-B therein, as shown by the silence of the vendor after Iloilo City exercised ownership
thereover; that not to include it would have been absurd, because said lot is contiguous to the others
admittedly included in the conveyance, lying directly in front of the city hall, separating that building
from Lots 1214-C and 1214-D, which were included therein. And, finally, appellees argue that the
sale's object was determinate, because it could be ascertained, at the time of the execution of the
contract, what lots were needed by Iloilo municipality for avenues, parks and city hall site "according
to the Arellano Plan", since the Arellano plan was then already in existence.

The appeal before Us calls for the interpretation of the public instrument dated November 15, 1932.
And interpretation of such contract involves a question of law, since the contract is in the nature of
law as between the parties and their successors-in-interest.

At the outset, it is well to mark that the issue is whether or not the conveyance by Juliana Melliza to
Iloilo municipality included that portion of Lot 1214 known as Lot 1214-B. If not, then the same was
included, in the instrument subsequently executed by Juliana Melliza of her remaining interest in Lot
1214 to Remedios Sian Villanueva, who in turn sold what she thereunder had acquired, to Pio Sian
Melliza. It should be stressed, also, that the sale to Remedios Sian Villanueva — from which Pio
Sian Melliza derived title — did not specifically designate Lot 1214-B, but only such portions of Lot
1214 as were not included in the previous sale to Iloilo municipality (Stipulation of Facts, par. 5,
Record on Appeal, p. 23). And thus, if said Lot 1214-B had been included in the prior conveyance to
Iloilo municipality, then it was excluded from the sale to Remedios Sian Villanueva and, later, to Pio
Sian Melliza.

The point at issue here is then the true intention of the parties as to the object of the public
instrument Exhibit "D". Said issue revolves on the paragraph of the public instrument aforequoted
and its purpose, i.e., whether it was intended merely to further describe the lots already specifically
mentioned, or whether it was intended to cover other lots not yet specifically mentioned.

First of all, there is no question that the paramount intention of the parties was to provide Iloilo
municipality with lots sufficient or adequate in area for the construction of the Iloilo City hall site, with
its avenues and parks. For this matter, a previous donation for this purpose between the same
parties was revoked by them, because of inadequacy of the area of the lot donated.

Secondly, reading the public instrument in toto, with special reference to the paragraphs describing
the lots included in the sale, shows that said instrument describes four parcels of land by their lot
numbers and area; and then it goes on to further describe, not only those lots already mentioned,
but the lots object of the sale, by stating that said lots are the ones needed for the construction of the
city hall site, avenues and parks according to the Arellano plan. If the parties intended merely to
cover the specified lots — Lots 2, 5, 1214-C and 1214-D, there would scarcely have been any need
for the next paragraph, since these lots are already plainly and very clearly described by their
respective lot number and area. Said next paragraph does not really add to the clear description that
was already given to them in the previous one.
It is therefore the more reasonable interpretation, to view it as describing those other portions of
land contiguous to the lots aforementioned that, by reference to the Arellano plan, will be found
needed for the purpose at hand, the construction of the city hall site.

Appellant however challenges this view on the ground that the description of said other lots in the
aforequoted second paragraph of the public instrument would thereby be legally insufficient,
because the object would allegedly not be determinate as required by law.

Such contention fails on several counts. The requirement of the law that a sale must have for its
object a determinate thing, is fulfilled as long as, at the time the contract is entered into, the object of
the sale is capable of being made determinate without the necessity of a new or further agreement
between the parties (Art. 1273, old Civil Code; Art. 1460, New Civil Code). The specific mention of
some of the lots plus the statement that the lots object of the sale are the ones needed for city hall
site, avenues and parks, according to the Arellano plan, sufficiently provides a basis, as of the time
of the execution of the contract, for rendering determinate said lots without the need of a new and
further agreement of the parties.

The Arellano plan was in existence as early as 1928. As stated, the previous donation of land for city
hall site on November 27, 1931 was revoked on March 6, 1932 for being inadequate in area under
said Arellano plan. Appellant claims that although said plan existed, its metes and bounds were not
fixed until 1935, and thus it could not be a basis for determining the lots sold on November 15, 1932.
Appellant however fails to consider that the area needed under that plan for city hall site was then
already known; that the specific mention of some of the lots covered by the sale in effect fixed the
corresponding location of the city hall site under the plan; that, therefore, considering the said lots
specifically mentioned in the public instrument Exhibit "D", and the projected city hall site, with its
area, as then shown in the Arellano plan (Exhibit 2), it could be determined which, and how much of
the portions of land contiguous to those specifically named, were needed for the construction of the
city hall site.

And, moreover, there is no question either that Lot 1214-B is contiguous to Lots 1214-C and 1214-D,
admittedly covered by the public instrument. It is stipulated that, after execution of the contract
Exhibit "D", the Municipality of Iloilo possessed it together with the other lots sold. It sits practically in
the heart of the city hall site. Furthermore, Pio Sian Melliza, from the stipulation of facts, was the
notary public of the public instrument. As such, he was aware of its terms. Said instrument was also
registered with the Register of Deeds and such registration was annotated at the back of the
corresponding title certificate of Juliana Melliza. From these stipulated facts, it can be inferred that
Pio Sian Melliza knew of the aforesaid terms of the instrument or is chargeable with knowledge of
them; that knowing so, he should have examined the Arellano plan in relation to the public
instrument Exhibit "D"; that, furthermore, he should have taken notice of the possession first by the
Municipality of Iloilo, then by the City of Iloilo and later by the University of the Philippines of Lot
1214-B as part of the city hall site conveyed under that public instrument, and raised proper
objections thereto if it was his position that the same was not included in the same. The fact remains
that, instead, for twenty long years, Pio Sian Melliza and his predecessors-in-interest, did not object
to said possession, nor exercise any act of possession over Lot 1214-B. Applying, therefore,
principles of civil law, as well as laches, estoppel, and equity, said lot must necessarily be deemed
included in the conveyance in favor of Iloilo municipality, now Iloilo City.

WHEREFORE, the decision appealed from is affirmed insofar as it affirms that of the Court of First
Instance, and the complaint in this case is dismissed. No costs. So ordered.
Reyes, J.B.L., Actg. C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ.,
concur.
Concepcion , C.J., is on leave.

G.R. No. 108169           August 25, 1999

SPOUSES VENANCIO DAVID and PATRICIA MIRANDA DAVID and FLORENCIA VENTURA
VDA. DE BASCO, petitioners,
vs.
ALEJANDRO and GUADALUPE TIONGSON, respondents.

PARDO, J.:

Before the Court is a petition for review on certiorari of the decision of the Court of
Appeals1 modifying that of the trial court2 in an action for specific performance with damages filed by
petitioners against respondents.

The facts are as follows:

On February 23, 1989, three sets of plaintiffs, namely, spouses Feliciano and Macaria Ventura,
spouses Venancio and Patricia David and Florencia Ventura Vda. de Basco, filed with the Regional
Trial Court, San Fernando, Pampanga, a complaint for specific performance with damages, against
private respondents spouses Alejandro and Guadalupe Tiongson, alleging that the latter sold to
them lots located in Cabalantian, Bacolor, Pampanga, as follows:

(a) a parcel of residential land with an area of 300 square meters (sq. m.), more or less, for a
total purchase price of P16,500.00, sold to spouses Feliciano and Macaria Ventura;

(b) a parcel of land consisting of 308 sq.m., more or less, which is a portion of Lot No. 1547-
G-2-G covered by TCT No. 187751-R, for a total consideration of P15,000.00, sold to
spouses Venancio and Patricia M. David;

(c) two parcels of land with a total area of 169 sq. m., 109 sq. m., which is a portion of Lot
No. 1547-G-2-G and a 60 sq. m., which is part of a lot covered by TCT No. 200835-R, for a
total consideration of P10,400.00, sold to Florencia Ventura Vda. de Basco.

The parties expressly agreed that as soon as the plaintiffs fully paid the purchase price on their
respective lots, respondents would execute an individual deed of absolute sale and cause the
issuance of the corresponding certificate of title in plaintiffs' favor.

Spouses Ventura immediately took possession of the lot, erected their house thereon and fenced the
perimeters. As of October 28, 1985, the Venturas had fully paid the price of their lot, evidenced by a
certification3 issued by Alejandro Tiongson. Sometime in November 1985, the Venturas demanded
the execution of a deed of sale and the issuance of the corresponding certificate of title, but the latter
refused to issue the same.

Spouses David claimed that, as agreed by the parties, the P15,000.00 purchase price would be paid
as follows: P3,800.00, as downpayment and a monthly amortization of P365.00, starting on March 8,
1983, until fully paid. On October 31, 1985, the Davids had paid a total of P15,050.00, evidenced by
the receipts issued by Alejandro Tiongson.4 On the first week of November 1985, the Davids
demanded the execution of a deed of sale and the issuance of the corresponding certificate of title,
but respondents refused. Unlike the Venturas, they were not able to take possession of the property.

Plaintiff Florencia Ventura Vda. de Basco averred that she bought two parcels of land, a 109 sq. m.
lot and a 60 sq. m. lot, for P6,425.00 and P6,500.00, respectively. As of February 6, 1984, Florencia
had paid P12,945.00 for the two lots, evidenced by receipts issued by Alejandro
Tiongson.5 Sometime in March 1984, she demanded the execution of the deeds of sale and
issuance of the corresponding certificates of title over the lots. However, respondents failed to
comply with their obligation.

After no settlement was reached at the barangay level, on February 23, 1989, plaintiffs filed a
complaint with the Regional Trial Court, San Fernando, Pampanga, for specific performance with
damages. On April 18, 1989, upon motion of the plaintiffs, respondents Tiongsons were declared in
default for failure to file their answer, despite the fifteen (15) days extension granted by the trial
court.
1âwphi1.nêt

On June 14, 1989, the trial court rendered a decision, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs

and against the defendants:

1) Ordering the defendants to execute the deeds of absolute sale covering the lots
respectively sold to plaintiffs and to cause the issuance of the title covering the
aforesaid lots at their own expense;

2) Ordering the defendants to pay unto the plaintiffs P15,000.00 as moral damages.

Defendants are likewise ordered to pay the costs of suit. 6

Respondents Tiongsons appealed the decision to the Court of Appeals. They claimed that their
failure to file an answer in due time amounted to excusable negligence. 7 They contended that the
plaintiffs had not fully paid the agreed price of P120 per sq. m. They argued that the Venturas were
still in arrears for P30,000.00, the Davids for P21,000.00 and Florencia for P9,880.00. Hence, the
deeds of sale and certificates of title were not issued.

On October 19, 1992, the Court of Appeals 8 modified the trial court's decision. Although it blamed
respondents for their failure to file an answer in due time, it held that there was no perfected
contracts of sale entered into by the Davids and Florencia Vda. de Basco with respondents.
However, the Court of Appeals upheld the sale involving the Venturas and ordered respondents to
execute a deed of sale and cause the issuance of the corresponding certificate of title in Venturas'
favor.

With respect to spouses David, the Court of Appeals said that there was no agreement as to the
price, as well as the manner and time of payment of the installments. It held that Patricia David's
testimony regarding the price, P15,000.00, payable in monthly installments of P365.00, contradicted
a receipt stating: ". . . the balance to be paid on installment to be agreed upon later on." 9 The
appellate court referred to another receipt10 wherein only P300.00 was paid but with the following
statement — "Subject to further discussion later on." It stated that there was no agreement as to the
price, since it was subject to further discussion by the parties. It held that the P115.00
overpayment11 illustrate the lack of an agreed price. The receipts failed to state the total purchase
price or prove that full payment was made. Thus, there was no meeting of minds regarding the price.
Consequently, there was no perfected contract of sale.

In ruling against the Davids, the Court of Appeals applied the doctrine in Yuvienco v. Dacuycuy12 that
in sale of real property on installments, the statute of frauds read together with the requirements of
Article 1475, must be understood and applied in the sense that the payment on installments must be
in the requisite form of a note or memorandum. In other words, there must be a note or
memorandum evidencing the agreement to pay on installment, otherwise, the contract is
unenforceable under the statute of frauds. In the instant case, the agreement to pay in installment
was not reduced in writing.

As regards Florencia Ventura Vda. de Basco, the Court of Appeals ruled that there was no meeting
of the minds with regard to both object and consideration of the contract. It held that the 109 sq. m.
lot could not be specifically determined or identified by the parties.

As to the sixty (60) sq. m. lot, the Court of Appeals held that the object was not determinate nor
determinable. Assuming arguendo that the lot was determinate or determinable, the Court of
Appeals held that there was no purchase price agreed upon. The receipts indicated a price of
P70.00 per sq. m., or a total of P4,200.00. However, Florencia paid P6,500.00 for the lot. The
discrepancy between Florencia's claim of full payment and the last receipt 13 stating that only a partial
payment was made, bolstered the finding that there was no agreed price.

The Court of Appeals, however, upheld the contract of sale with respect to the spouses Ventura. It
held that the Venturas had fully paid for the lot, evidenced by the certification issued by Alejandro
Tiongson. There was also actual delivery when the Venturas took possession, erected their house
thereon and fenced the perimeters.

The Court of Appeals decreed as follows:

PREMISES CONSIDERED, the appealed decision is hereby MODIFIED. The contracts of

sale not having been perfected between plaintiff-appellee spouses Venancio and Patricia M.
David, and plaintiff-appellee Florencia Ventura Vda. de Basco (vendees) and defendant-
appellants Alejandro and Guadalupe D. Tiongson (vendors), hence, inefficacious, the
former's action for specific performance must fail, but defendants-appellants must return to
plaintiffs-appellees spouses Venancio and Patricia David the amount of fifteen thousand one
hundred fifteen pesos (P15,115.00) and to plaintiff-appellee Florencia Ventura Vda. de
Basco, the amount of twelve thousand nine hundred twenty five pesos (P12,925.00) with
legal interest from the time of the filing of the complaint until the return of the said amounts.

As to plaintiff-appellee spouses Feliciano and Macaria Ventura, the decision of the court a
quo is AFFIRMED. We hereby order: (a) Plaintiff-appellee spouses Feliciano and Macaria
Ventura to have the lot purchased by them segregated by a licensed surveyor from the rest
of the Lot 8 described in TCT No. 200835-R and to have the corresponding subdivision plan,
duly approved by the Land Registration Authority, submitted to the court of origin for
approval; (b) the defendants-appellants Alejandro and Guadalupe D. Tiongson to be
divested of their title to the lot purchased under Rule 39, Section 10, Rules of Court; and (c)
 the Register of Deeds of Pampanga to cancel TCT No. 200835-R and issue, in lieu thereof,
one title to the names of Feliciano and Macaria Ventura for the lot they purchased another
title in the names of Alejandro and Guadalupe D. Tiongson.

In the light of the above, moral damages in the amount of three thousand pesos (P3,000.00)
to be paid to plaintiffs-appellees Feliciano and Macaria Ventura by defendant-appellant
spouses Tiongson is considered fair and reasonable. Without costs.14

On November 6, 1992, Venancio and Patricia M. David and Florencia Ventura Vda. de Basco filed a
motion for reconsideration of the foregoing decision. On December 11, 1992, the Court of Appeals
denied the motion.15

Hence, this petition for review.

We shall discuss the sales transactions between petitioners and respondents in seriatim.

As to the Spouses Venancio and Patricia David

Petitioners Davids contend that there was an implied agreement on the price and manner of
installment payments. The receipts issued by respondents and Patricia David's testimony clearly
indicate the agreement.

We disagree with the finding of the Court of Appeals that there was no agreement as to the price of
the lots. The Court of Appeals relied heavily on the receipts issued by Alejandro Tiongson. However,
Patricia David testified that there was an agreement to purchase the lot for P15,000.00, payable as
follows: P3,800.00 as down payment, with P385.00 monthly installments thereafter. 16 The
respondents failed to rebut such declaration, as the default order rendered them without personality
to adduce evidence in their behalf.

However, in the brief filed with the appellate court, the Tiongsons alleged that the agreed
price was P120.00 per sq. m. Hence, they are now estopped to deny the existence of an
agreed price. The question to be determined should not be whether there was an agreed
price, but what that agreed price was, whether for a total of P15,000.00, as claimed by the
Davids or P120.00 per sq. m., as alleged by respondents. The sellers could not render
invalid a perfected contract of sale by merely contradicting the buyers' allegation regarding
the price, and subsequently raising the lack of agreement as to the price.

It is a fact that for three consecutive years, the Davids had religiously paid P385.00 as monthly
installments, until it amounted to P15,050.00, including the downpayment. As to the first installment
receipt, wherein only P300.00 was paid and a notation was written, to wit — "Subject to further
discussion later on," Patricia David explained that what was subject to further discussion was not the
total purchase price, but only the P65.00 underpayment.

The Court of Appeals held that the P115.00 overpayment confirmed the lack of agreement as to the
price. However, the receipts showed that Davids paid only P15,050.00. It perplexes this Court how
the appellate court came up with the P15,115.00 figure. At any rate, an overpayment of P50.00, as
in this case, does not negate the existence of an agreed purchase price. Instead, this entitles the
buyer to claim reimbursement of any overpayment made.
Furthermore, the Court of Appeals erred in applying the statute of frauds. The rule presupposes the
existence of a perfected contract and requires only that a note or memorandum be executed in order
to compel judicial enforcement thereof.17

At any rate, we rule that there was a perfected contract. However, the statute of frauds is
inapplicable. The rule is settled that the statute of frauds applies only to executory and not to
completed, executed, or partially executed contracts.18 In the case of spouses David, the payments
made rendered the sales contract beyond the ambit of the statute of frauds.

The Court of Appeals erred in concluding that there was no perfected contract of sale. However, in
view of the stipulation of the parties that the deed of sale and corresponding certificate of title would
be issued after full payment, then, they had entered into a contract to sell and not a contract of
sale.19

As to Florencia Ventura Vda. de Basco

Petitioner Florencia Ventura Vda. de Basco contends that the receipts described the two (2) lots that
she bought. The receipts also indicated the price of each lot, to wit, P6,425.00 for the 109 sq. m. lot,
and P6,500.00 for the 60 sq. m. lot.

As regards the 109 sq. m. lot, Florencia presented the following receipts as evidence of full payment:

Received from Mrs. Florencia Ventura-Basco of Cabalantian, Bacolor Pampanga, the sum of
FIVE HUNDRED PESOS (P500.00), Philippine Currency, as additional partial payment on
the parcel of land located at Cabalantian, Bacolor Pampanga, being the portion of Lot 1547-
G-2-G of Psd-03-004803.

It is understood that this lot is the portion formerly earmarked for Mrs. Rosita Ventura-Muslan
wherein she already paid the sum of P1,500.00; hence, by agreement of Mrs. Basco and
Mrs. Muslan, who are sisters, the sum of P1,500.00 are applied herein as additional payment
for and in behalf of Mrs. Basco, thereby making the total payments made by Mrs. Basco to
said lot in the sum of P2,000.00, as of this date.

San Fernando, Pampanga, June 4, 1983.

(signed)

C O N F O R M E:

ALEJANDRO C. TIONGSON
(signed)

FLORENCIA VENTURA-BASCO
(signed)

ROSITA VENTURA-MUSLAN20

Received from Mrs. Florencia Ventura-Basco of Cabalantian, Bacolor Pampanga, the sum of FOUR
THOUSAND FOUR HUNDRED TWENTY FIVE PESOS (P4,425.00), Philippine Currency,
representing the last and full payment on the purchase price of Lot 1547-G-2-G-2, Plan Psd-03-
05957, located at Cabalantian, Bacolor Pampanga, with an area of 109 square meters, more or less,
as regards the sum of P3,625 and the sum of P800.00 applied for the payment of the segregation
survey of said lot.

Title over this lot shall be issued upon the survey and segregation of the additional portion which
Mrs. Florencia V. Basco is also buying to be taken from Lot 1547-G-2-G-I, wherein the said portion
of said Lot 1547-G-2-G-2 shall be consolidated into one lot only at the expense of the buyer.

San Fernando, Pampanga, September 1, 1983.

C O N F O R M E: FOR ALEJANDRO TIONGSON

Seller

(signed) By: (signed)

FLORENCIA VENTURA-BASCO PORFIRIO C. PINEDA
Buyer21

According to the Court of Appeals, the object is neither determinate nor determinable. It held that the
receipts described two different lots, one described as Psd-03-004803, while the other as Psd-03-
05957. It stated that the discrepancy showed there was no meeting of the minds as regards the
object of the contract.

We disagree. We find that the 109 sq. m. lot was adequately described in the receipt, or at least, can
be easily determinable. The receipt issued on June 4, 1983 stated that the lot being purchased by
Florencia was the one earlier earmarked for her sister, Rosita Muslan. Thus, the subject lot is
determinable. Any mistake in the designation of the lot does not vitiate the consent of the parties or
affect the validity and binding effect of the contract of sale. 22 The receipt issued on September 1,
1983 clearly described the lot area as 109 sq. m. It also showed that Florencia had fully paid the
purchase price.

With respect to the sixty (60) sq. m. lot, Florencia presented the following receipts to prove full
payment:

Received from Mrs. Florencia Basco of Cabalantian, Bacolor, Pampanga, the sum of THREE
THOUSAND PESOS (P3,000.00), Philippine Currency, as partial and down payment on the
purchase price of the additional portion adjacent to Lot 1547-G-2-G. The price on this portion
shall be computed at P70.00 per square meter, and said portion shall be determined later as
to its area, but in no case shall it be extended farther than the gate opening at Juan
Cunanan's lot and the acacia tree on the north.

San Fernando, Pampanga, November 8, 1983.

(signed)

ALEJANDRO TIONGSON
Seller

xxx     xxx     xxx

Received from Mrs. Florencia Basco of Cabalantian, Bacolor, Pampanga, the sum of ONE
THOUSAND PESOS (P1,000.00), Philippine Currency, as partial and down payment on a
 portion of Lot 1547-G-2-I, which is a portion of Lot 6 of the provisional plan with marking of
Lot 35 on the sketch plan. The price shall be computed at P70.00 per square meter. The
final area shall be determined in the final survey to be conducted.

This portion shall be across the road opposite the portion of same lot purchased by Macaria
Ventura.

San Fernando, Pampanga, November 8, 1983.

(signed)

ALEJANDRO TIONGSON
Seller

xxx     xxx     xxx

Received from Mrs. Florencia Basco of Cabalantian, Bacolor, Pampanga, the sum of TWO
THOUSAND FIVE HUNDRED PESOS (P2,500.00), to be applied as partial payment on the
purchase price of Lots 8-A (60 square meters), computed at P70.00 and Lot 6-U (338 square
meters), computed at P70.00 per square meter.

San Fernando, Pampanga, February 6, 1984.

(signed)

ALEJANDRO TIONGSON
Seller23

Regarding this lot, we find that there was also a perfected contract of sale. In fact, in the last receipt
the parties agreed on the specific lot area. This suffices to identify the specific lot involved. It was
unnecessary for the parties to enter into another agreement to determine the exact property bought.
What remained to be done was the actual segregation of the 60 square meters.

Furthermore, the parties agreed on the price. The receipts clearly indicate the price as P70.00 per
sq. m., hence the total price should be P4,200.00. However, Florencia paid P6,500.00 for the lot.
Hence, there was even an overpayment of P2,300.00.

WHEREFORE, we REVERSE and SET ASIDE the decision of the Court of Appeals in CA — G.R.
CV No. 24667. In lieu thereof, we render judgment ordering the respondents Tiongsons to execute
deeds of absolute sale covering the following lots respectively sold to petitioners, and cause the
issuance of the corresponding certificates of title, to wit:

1. 300 sq. m. lot sold to spouses Venancio and Patricia David;

2. 109 sq. m. lot sold to Florencia Ventura Vda. de Basco.

With respect to the 60 sq. m. lot sold to Florencia Ventura Vda. de Basco, respondent Tiongson is
ordered to cause the segregation of the lot, and thereafter, to execute a deed of absolute sale to
Florencia Ventura Vda. de Basco and cause the issuance of a certificate of title thereto.

We delete the award for moral damages, for lack of basis. 1âwphi1.nêt
No costs.

SO ORDERED.

Davide, Jr., C.J., Puno, Kapunan and Ynares-Santiago, JJ., concur.

G.R. No. L-59534 May 10, 1990

COMPAÑIA GENERAL DE TABACOS DE FILIPINAS, petitioner,

vs.
COURT OF APPEALS, PHILIPPINE NATIONAL BANK and DEVELOPMENT BANK OF THE
PHILIPPINES, respondents.

Siguion Reyna, Montecillo & Ongsiako for petitioner.

Pelaez, Adriano & Gregorio for respondents San Carlos Planters' Association & Theo Davis & Co.,
Far East Ltd. et al.

NARVASA, J.:

The conflicting claims of the mortgagees of a sugar quota or production allowance, on the one hand, and the mortgagors' subsequent
vendees of the same, on the other, are the subject of the petition for review on certiorari at bar.

It appears that an unregistered partnership known as Gomez & Torres — composed of Francisco M.
Gomez and Hector Torres — was the "principal and majority stockholder of the Philippine Milling
Company, a domestic corporation which owns and operates in the Mindoro Mill District a sugar mill
where all the sugar cane planters of that mill district mill their sugar cane."   "Gomez & Torres" was
1

also "registered in the Sugar Quota Administration as the owner and holder of the entire production
allowance or quota appertaining to Plantation No. 30-15 of the Mindoro Mill District."  2

As security for a loan of P2,000,000.00 obtained from the Rehabilitation Finance Corporation (RFC),
said Philippine Milling Company (thru its president, Hector A. Torres), and the above mentioned
Hector A. Torres and Francisco Gomez, executed on August 7, 1950, a deed of mortgage
hypothecating to the RFC, particularly described real and personal property, "together with all the
buildings and improvements now existing or which may hereafter be constructed on the mortgaged
property, all easements, sugar quotas, agricultural or land indemnities, aids or subsidies and all
other rights or benefits annexed to or inherent therein, now existing or which may hereafter exist."  3

The mortgagors above named also assigned to the RFC on August 16, 1950, in a public
instrument,   the sugar quota of the mill district aggregating no less than 148,000 piculs and sugar
4

warehouse receipts covering, the first 29,500 piculs of sugar milled by the sugar central annually and
such additional sugar as may be necessary to cover the annual amortization of the loan, taking into
consideration the fluctuating sugar prices, which assignments shall remain in full force and effect as
long as . . . (their) aforementioned loan has not been settled in full."

Some fifteen months later, or on November 2, 1951, the same mortgagors executed in favor of the
same mortgagee (the R.F.C) a second mortgage, this time as security for another loan of
P1,860,000.00. The mortgage covered real and/or personal properties listed in the deed, "together
with all the buildings and improvements now existing or which may hereafter be constructed on the
mortgaged property, all easements, sugar quotas, agricultural or land indemnities, aids or subsidies,
and all other rights or benefits annexed to or inherent therein, now existing or which may hereafter
exist . . . and also other assets acquired with the proceeds of such loan . . . " 
5

The mortgagors also executed on November 2, 1951 an assignment in favor of the RFC, like that of
August 16, 1950, supra, respecting "its rights and interests on all the sugar quota of the Mindoro Mill
District aggregating no less than 148,000 piculs and additional sugar warehouse receipts covering
the first 27,350 piculs of sugar milled by the sugar central annually, and such additional sugar may
be necessary to cover the annual amortization on the loan, until the full amount of the additional loan
has been fully paid." 
6

Both deeds of (real estate and chattel) mortgages were registered in the Register of Deeds of
Occidental Mindoro on August 20, 1950 and November 9, 1951, respectively.  7

Earlier, or on or about January 13, 1951, the real estate and personal property subject of the two (2)
mortgages just described, were again mortgaged by Philippine Milling Co., Francisco M. Gomez and
Hector A. Torres, this time in favor of the Philippine National Bank as collateral for a loan of
P235,000.00. This real estate and chattel mortgage was amended on April 6, 1951 by increasing its
consideration from P235,000.00 to P335,000.00, and still later, on January 18, 1952, by further
increasing the consideration to P1,405,0,00.00.   The original deed and its two (2) amendments were
8

all registered with the Register of Deeds of Occidental Mindoro.

In July, 1957, two (2) letters-agreements were executed between Gomez & Torres (represented by
Francisco M. Gomez) on the one hand, and Theo H. Davies & Co., Ltd. ("for itself and representing
[or as authorized representative of) San Carlos Planters' Association"]), on the other, by virtue of
which the former sold to the latter a total of 18,000 piculs of the production allowance (or sugar
quota) of Plantation No. 30-15, to wit:

1) On July 3, 1957: 8,250 piculs of "our ''A" quota and 1,750.00 piculs of our "B" quota
corresponding to Plantation No. 30-15 of the Mindoro Mill District which is duly registered in our
name;"   and
9

2) on July 11, 1957: 6,600.00 piculs of "our "A" quota and 1,400.00 piculs of our "B" quota . . ."

In the later agreement, Gomez & Torres guaranteed "that said 8,000.00 piculs of quotas as well as
the 10,000.00 piculs sold to you on July 3, 1957, belong to us and are free from any lien or
incumbrance whatsoever."  10

The transferees presented the two (2) agreements for recording in the District Office of the Sugar
Quota Administration, on July 12, 1957. But the Sugar Quota Administration declined to give due
course to the transfer until "necessary corrections" were made in the registration documents (known
as DTRs: "district transfer registries"), and "the written conformity of the PNB," secured. 
11
In a letter to the Philippine Mining Company dated September 10, 1957, the Administrator cited
several reasons for his refusal:  12

1. There is no signature nor initial of the Permit Agent assigned to your District.

2. There is no distribution of coefficients in Columns F, I, and J in both of your DTR's.

3. This Office received a letter from the Philippine National Bank advising this Office
that the allotments of Plantations Nos. 30-4, 30-8c, 30-9c, 30-14, 30-15 and 30-16a
are mortgaged to the PNB and to advise the PNB of any sale, transfer or conveyance
affecting the quota of the Philippine Milling Company, Hector A. Torres and
Francisco M. Gomez and to withhold the registration without the consent of the PNB.

The letter of the PNB above referred to (par. 3) was that written by its Vice President, J.V.
Buenaventura, dated September 4, 1957.  13

On October 2, 1957, San Carlos Planters' Association and Theo H. Davies Co. Ltd. submitted "two
copies of the mill district coefficients and allowances of the 1957-1958 crop of the San Carlos Mill
District." In response, the Sugar Quota Administrator sent them a letter dated October 3, 1957
advising that it was inappropriate for them to include "in said list, sugar allotments rights in the
quantity of 14,850 piculs for 'A' and 3,150 for 'B' purchased by San Carlos Milling Co., Ltd. from
Mindoro Mill District," because "this purchase has not been given due course by this office in view of
the defects . . . (which) have not yet been corrected."  14

The Governor of the RFC also wrote to the SQA, under date of October 9, 1957, informing it of the
mortgage to it of the sugar quota in question "aggregating no less than 148,000 piculs," and
requesting "that no transfer or conveyance affecting the said sugar quota rights of the Philippine
Milling Co. and Messrs. Hector A. Torres and Francisco Gomez that may have been presented
or . . . may be presented . . . be given due course without the written consent of this Corporation."  15

On October 17, 1957, the San Carlos Milling Co. Ltd. and Theo H. Davies & Co. Far East Ltd. wrote
to the SQA, in reply to the latter's communication of October 3, 1957. Adverting to a letter of the
Philippine Milling Co. "of Sept. 15th, 1957 and . . . memorandum enclosure of the same date
addressed to the Phil. Milling Co., the transferor central, by Torres and Gomez, owners and sellers
of the quota rights in question, " they demanded "that the transfer of said quotas be given effect
immediately from Mindoro Plantation Audit 30-15 of Torres and Gomez to Plantation Audit No. 38-E-
24 of the San Carlos Mill District for account of the San Carlos Planters
Association." 16

The matter of registration remained in a state of flux until about a year later, or more precisely,
August 5, 1958, when the Administrator ultimately authorized the transfer.  17

On January 6 and 7, 1959, the San Carlos Planters' Association in turn executed sales of portions of
the sugar quota of 18,000 piculs acquired by it in favor of various individual sugar planters, all of
which sales were recorded in the San Carlos District Transfer Registry.   Then on January 16, 1959,
18

San Carlos effected a change in the Plantation Number of its remaining portion of the sugar quota
purchased by it (57.06 piculs of "A" quota and 12.12, piculs of "B" quota) from No. 38-E-24 to No.
38-343. 19

Eventually, the Development Bank of the Philippines (formerly RFC) caused the extrajudicial
foreclosure of its mortgages of August 7, 1950 and November 2, 1951 by the Provincial Sheriff of
Occidental Mindoro. The foreclosure sale was held on November 28, 1958. The DBP was the
highest bidder. A certificate of sale was accordingly drawn up in its favor by the Sheriff on January
19, 1959.   As might be expected, among the properties specified in the certificate of sale, as having
20

been sold to DBP, were.  21

All sugar quota rights of the Philippine Milling Company including those of Spouses,
Francisco M. Gomez and Francisca Villanueva and the Spouses, Hector A. Torres
and Galinica Romano, as well as those of Gomez and Torres partnership in the
Mindoro Mill District aggregating to no less than 148,000 piculs of sugar, which are
attached to any and or all parcels of land described above and mortgaged to the
Rehabilitation Finance Corporation now Development Bank, of the Philippines as
well as the said sugar central's share in the above sugar and quota rights.

On June 17, 1960 — the one-year redemption period granted by law to the mortgagors, having
expired without a redemption having been attempted, and the DBP having consolidated its
ownership over the real and personal property subject of the mortgage sale — the DBP executed a
deed of sale in favor of the PNB covering all the foreclosed property, for P5,147,309.07 and other
valuable consideration. 22

Now, as regards the sugar quota in question, said deed stipulated inter alia that:

1) The "sugar quota rights pertaining to the Philippine Milling

Company shall not be covered-by this agreement until after the
expiration of the 1959-1960 crop year, but in no case earlier than
June 30, 1960;"   and
23

2) ". . . while the l8,000 piculs of "A" and "B" sugar are expressly
excluded in this Deed of Sale because of certain circumstances, the
Vendee may, however, take such action as it may deem proper in
order to recover the said 18,000 piculs of "A" and "B" sugar
quota and Vendor agrees to join such action whenever requested by
the Vendee, it being understood, however, that Vendor shall not in
any way be responsible for said 18,000 piculs nor be liable for the
outcome of such action . . . 
24

After about two (2) years, in March, 1962, PNB wrote to the San Carlos Planters' Association and
the planters to whom the latter had sold portions of the 18,000 piculs of the sugar quota in
question, supra, demanding the restoration and delivery to it (the PNB) of their respective portions of
said quota. As already mentioned,   the 18,000 piculs consisted of 14,850 piculs of 'A' quota and
25

3,150 piculs of 'B' quota.

When the latter failed to do so, the PNB together with the DBP brought suit in the Court of First
Instance of Occidental Mindoro against Francisco M. Gomez and Hector A. Torres and their
spouses; the partnership of Gomez & Torres; the Philippine Planters' Association; all the sugar
planters to whom as aforementioned had been sold parts of the 18,000 piculs of the sugar quota in
question; and the Sugar Quota Administration.   It set out three (3) causes of action in its complaint
26

and prayed for judgment as follows:

ON THE FIRST CAUSE OF ACTION

a. Declare the plaintiff PNB owner of the sugar quota in question in the quantity equal
to 14,850 piculs of "A" quota and 3,150 piculs of "B" quota presently registered in the
Sugar Quota Administration in the names of the defendants PLANTERS and
defendant San Carlos Planters' Ass'n in the quantity and under the plantation
numbers indicated in par. 3 of the First Cause of Action of this Complaint;

b. Order the defendants PLANTERS of the San Carlos Mill District and the defendant
San Carlos Planters' Ass'n to return and restore to the plaintiff PNB the sugar quota
in question;

c. Order the cancellation of the District Transfer Registry . . . (regarding the transfers
to the defendants) and declare same of no force and effect.

ON THE SECOND AND ALTERNATIVE CAUSE OF ACTION

a. Declare the plaintiff PNB owner of the sugar quota in question in the quantity equal
to 14,850 piculs of "A" quota and 3,150 piculs of "B" quota presently registered in the
Sugar Quota Administration in the names of the defendants PLANTERS and
defendant San Carlos Planters' Assn. in the quantity and under the plantation
numbers indicated in par. 3 of the First Cause of Action of this Complaint;

b. Declare the sale of the sugar quota in question made by defendant TORRES &
GOMEZ on July 3, 1957 and July 11, 1957 null and void;

c. Declare the transfer of the sugar quota in question from the Mindoro Mill District to
the San Carlos Mill District null and void;

d. Declare the subsequent transfer of the sugar quota in question made by defendant
San Carlos Planters' Assn. to the defendant PLANTERS of the San Carlos Mill
District null and void;

e. Order the said defendants PLANTERS and the defendant San Carlos Planters'
Assn. to return and restore to the plaintiff PNB the sugar quota in question; and

f. Order the cancellation of the. District Transfer Registry, Annexes "F", "G", "H", "I"
and "J" and declare same of no force and effect.

ON THE THIRD CAUSE OF ACTION

a. Order the defendants TORRES & GOMEZ, Francisco Gomez, Hector A. Torres,
Conrado Manalansan, as Sugar Quota Administrator, Theo H. Davies & Co. Ltd. and
the San Carlos Planters' Assn. to pay jointly and severally the plaintiff PNB the sum
of P50,400.00 as lost and/or unrealized rental of the sugar quota in question for the
1958-1959 crop year;

b. Order the defendants TORRES & GOMEZ, Francisco Gomez, Hector A. Torres,
Conrado Manalansan, as Sugar Quota Administrator, Theo H. Davies & Co. Ltd. and
the San Carlos Planters' Assn. to pay jointly and severally the plaintiff PNB the sum
of P93,465.00 as unrealized profits on the sugar quota in question in connection with
the agreement for conversion for 1959-1960 crop year;

c. Order the defendants TORRES & GOMEZ, Francisco Gomez, Hector A. Torres,
Conrado Manalansan, as Sugar Quota Administrator, Theo H. Davies & Co. Ltd. and
 the San Carlos Planters' Assn. to pay jointly and severally the plaintiff PNB the sum
of P93,465.00 as unrealized profits on the sugar quota in question in connection with
the agreement for conversion entered with the BISCOM for the 1960-1961 crop year;

d. Order the defendants TORRES & GOMEZ, Francisco Gomez, Hector A. Torres,
Conrado Manalansan, as Sugar Quota Administrator, Theo H. Davies & Co. Ltd.,
San Carlos Planters' Assn. and the defendants PLANTERS to pay jointly and
severally the Plaintiff PNB the sum of P9,000.00 annually for three crop years
beginning with the 1961-1962 as lost and/or unrealized rental of the sugar quota in
question.

Plaintiff further pray for such other relief which this Honorable Court may deem just
and proper to grant in the premises, with costs against the defendants.

Answers were in due course filed by the several defendants. At the pre-trial, the parties entered into
a partial stipulation of facts which contained, in substance:

1) an admission of all the relevant documents appended to the complaint, as well as other
documents, already above specified;

2) an acknowledgment that the consideration fixed in the two (2) letters-contracts between
Gomez & Torres and Theo H. Davies & Co., Ltd. and the San Carlos Planters' Association,
dated July 3 and 11, 1957,   had been paid;
27

3) a statement that the transfer of a part of the sugar quota to Cia. General de Tabacos de
Filipinos (TABACALERA) was for valid consideration, and was accompanied by the usual
warranty of the vendor's full right of disposition thereof and of absence of any lien or
encumbrance thereon; and

4) a request that the court "take judicial notices of all executive orders, circulars and
regulations which are pertinent to sugar quotas or which are otherwise in implementation of,
or connected with, legislation on sugar trade and industry." 
28

Trial ensued after which judgment was rendered. The Trial Court's judgment, rendered on April 8,
1968,   went against the plaintiffs.   It made the following explicit findings:
29 30

1. That while the defendants, Philippine Milling Company and Gomez and Torres
assigned the rights over the Sugar Quota to the R.F.C., said assignment of rights,
not having been duly registered in accordance with the rules and regulations of the
Sugar Quota Administration, did not effect third parties who acquired said sugar
quota in good faith and for value;

2. That the San Carlos Planters Association, the Theo H. Davies, the TABACALERA
and all the transferees had acquired the sugar quota in question legally and in good
faith, hence, the plaintiff has no cause of action against them; (and)

3. That nevertheless, a valid cause of action exists as against defendants Francisco

M. Gomez and Hector Torres on the basis of the mortgage and assignment executed
by them in favor of the Development Bank of the Philippines and the Philippine
National Bank.
And on said findings, the Court:

1) dismissed the case "as against the San Carlos (Planters') Association, Theo H. Davies
Co., Ltd., TABACALERA, the Sugar Quota Administrator and all the other private defendants
who are the transferees;" but

2) ordered defendants 'Francisco M. Gomez and Hector Torres . . . to pay the value of the
18,000 piculs of 'A' and 'B' sugar quota allowance in the amount of P270,000.00 to the
Philippine National Bank, plus interest at the legal rate from 1958 up to the actual payment
thereof and to pay the costs."

PNB and Francisco Gomez appealed to the Court of Appeals.   The PNB ascribed to the Trial Court
31

the following errors to wit:

1) not finding that a valid mortgage was duly constituted also on the sugar quota allowances in
question with binding effect against third persons including the defendants-appellees;

2) not finding that the defendants-appellees had both actual and constructive notice of the mortgage
in favor of the Philippine National Bank and the Development Bank of the Philippines which covered
the sugar quota allowances;

3) not finding that the PNB is the owner of the sugar quota allowance and in not ordering the
defendants-appellees to return or reconvey the said sugar quota allowances to the PNB.

The decision of the Court of Appeals   was rendered on October 30, 1980.   It modified the Trial
32 33

Court's judgment as follows:

IN VIEW OF THE FOREGOING CONSIDERATIONS, the judgment appealed from is

hereby modified, in these aspects:

1. declaring the Philippine National Bank the owner of the sugar

quota or production allowances in question;

2. ordering the defendants-appellees (excepting the defendant-

appellee Administrator of the Sugar Quota Office) to reconvey to
plaintiff-appellant PNB, the said sugar quota or production allowance
in question registered in their names, or if the same can not now be
legally done, directing the defendants-appellees (excepting appellee
Administrator of the Sugar Quota Office) to jointly and severally pay
to PNB the value of the sugar quota or production allowance in
question.

The appealed judgment is hereby affirmed in all other respects.

From this judgment, the Compañia General de Tabacos (TABACALERA) has appealed to this Court.
Here it submits that said judgment should be reversed on the basis of the following considerations,
to wit:

1) that sugar quotas are not "ordinary property . . . which may be appropriated, transferred,
conveyed and/or encumbered by the private grantee at his whim and discretion without the
intervention of the State," it being "regulated property, the disposal or encumbrance of which is
made subject to certain restrictions and regulations provided for by law;" hence, "any form of
alienation thereof should be made subject to governmental regulations and should be processed and
approved by the implementing arm of the government, the Sugar Quota Administration;" and the
mortgage constituted over the sugar quota in this case by the parties to whom the same had
originally been awarded — the partnership of Gomez and Torres or the Philippine Milling Company
— was void, "(a)pproval or sanction of the Sugar Quota Administration . . . (being) sorely and fatally
lacking;"

a) moreover, "the very terms of the deed of sale executed by the DBP in favor of
PNB on June 17, 1966 specifically and expressly excluded the 18,000 piculs in
question;

2) even if the mortgage be accorded validity, it was "binding only as between the mortgagors and the
mortgagees and did not have any effect in third persons who subsequently acquired the same,"
because the mortgages had not yet been "duly registered with the Sugar Quota Administration"
when TABACALERA and others purchased parts of the quota in question from the Philippine
Planters' Association; indeed, the transferees from the latter had "received the sanction and
approval of the Sugar Quota Administrator;"

3) the direction by the Court of Appeals for TABACALERA among others, to reconvey the quota to
the PNB is vague and indefinite since it does not state the point of time to be considered in
computing the value thereof; furthermore, since it "benefited only to the extent of the . . . (precise
quantity purchased by it, out of the 18,000 piculs), it would be "clearly contrary to law and grossly
iniquitous" for it to be made solidarily liable for the value of the entire sugar quota in question; and

4) if TABACALERA reconveys or pays the value of the sugar quota acquired from San Carlos
Planters' Association, the latter should, upon its implied and express warranty against eviction,
reimburse it therefor.

The argument that Theo H. Davies & Co., Ltd., San Carlos Planters' Association, and their privies
and successors in interest like TABACALERA, are purchasers in good faith of the sugar quota in
question because they could not he deemed to have prior knowledge of the encumbrances thereon,
is untenable.

For one thing, as the Court of Appeals has pointed out, the intangible property that is the sugar
quota in question should be considered as real property by destination, "an improvement attaching
to the land entitled
thereto."   Moreover, as is axiomatic, the recording in the Registry of Deeds of a mortgage over
34

lands and other immovables operates to charge "the whole world" with notice thereof.   The 35

registration therefore of the mortgages executed by the Philippine Milling Company, Hector A. Torres
and Francisco Gomez in favor of the RFC and later of the PNB, thus had the effect of charging all
persons, including Theo H. Davies & Co., Ltd., San Carlos Planters' Association, and their privies
and successors in interest, with notice of the encumbrance, not only over the lands belonging to the
mortgagors but also of the sugar quotas as well as "all the buildings and improvements . . . existing
or which may hereafter be constructed on the mortgaged property, all; elements,
. . . agricultural or land indemnities, aids or subsidies and all other rights or benefits annexed to or
inherent therein, now existing or which may hereafter exist." So, none of the parties in this case can
plead lack of knowledge of the mortgage lien over the sugar quota or production allowance.

Even if the sugar quota is assumed to be personal, not raid property, and hence not embraced in the
mortgage of the immovables created by the corresponding deeds, it would nevertheless still be
covered by the chattel mortgage created in and by the same deeds. Since, like the recording of a
real estate mortgage, registration of a chattel mortgage also puts all persons on notice of its
existence, the legal situation would be exactly the same: the registration of the above described
deeds of chattel (and real estate) mortgage over the sugar quota, among other things, would also
have charged all persons with notice thereof from the time of such registration.  36

Again, being themselves engaged and possessed of no little experience in the sugar industry, said
Theo H. Davies & Co., Ltd., San Carlos Planters' Association (and their own transferees) could not
but have known, when negotiations for their respective purchases of the sugar quota in question
commenced, that the sugar quota they were dealing with had perforce to pertain to some specific
sugar plantation or farm, i.e., Plantation 30-15 of the Mindoro Mill District. Sugar quota allocations do
not have existence independently of any particular tract of land. They are essentially ancillary, not
principal, assets, necessarily annexed to a specific sugar plantation or land, improvements
"attaching to the land entitled thereto."   Hence, the very first inquiry in any negotiation affecting
37

sugar quotas necessarily would have to do with the identification of the district, plantation or land to
which the quotas appertain. No transaction can be had of sugar quotas in the abstract, without
reference whatsoever to any particular land. Indeed, any deed of conveyance of sugar quota would
unavoidably have to describe the sugar plantation and district to which it refers or relates. There can
be no sale simply of sugar quota of a certain number of piculs without specification of the land to
which it relates. Such a sale would be inconsistent with established usage, and would be void for
want of a determinate subject matter.   Theo H. Davies & Co., Ltd. and San Carlos Planters'
38

Association can not therefore plead ignorance of the fact that the quota they were buying pertained
to land belonging to the sellers, Plantation No. 30-15 of the Mindoro Mill District.

Furthermore, Theo H. Davies & Co., Ltd. and San Carlos Planters' Association were obviously of the
belief that a mortgage or sale of a sugar quota is void if "(a)pproval or sanction of the Sugar Quota
Administration . . . (is) lacking," this being in fact a proposition TABACALERA lays before this Court,
although it cites no particular authority for it and has thus failed to convince this Court of its validity.
Be this as it may, it was with this proposition in mind that Theo H. Davies & Co. Ltd. and San Carlos
Planters' Association submitted the deed of conveyance in their favor of the sugar quota in question,
to the SQA, precisely to obtain the latter's approval of that transaction. That approval, as already
stated, was not given until a year later. But long before that approval, they were clearly and
categorically informed that the sugar quota, subject of the sale to them for which they were seeking
approval by the SQA was already mortgaged to the RFC and then to the PNB. Since good faith is
obviously a state of the mind, and since — prior to the approval of the conveyance to them of the
sugar quota by the SQA which approval they thought to be essential for the validity of said
conveyance-they came to know of the earlier encum brance thereof to other parties, it is not possible
for them without, contradicting themselves, to claim good faith in the transaction.

Turning now to TABACALERA and the other vendees of Theo H. Davies & Co. Ltd. and San Carlos
Planters' Association, it is self-evident that they are also quite familiar with sugar quotas, including
the nature and process of transferring the same, these being an important factor in their operations
and transactions. They therefore had to know that the sugar quotas they were purchasing had
originally to be part and parcel of some sugar plantation. Hence, apart from being charged with
knowledge, as above discussed, of the mortgage of the land to which the sugar quota in question
was an integrated adjunct — and that the mortgage extended to said sugar quotas like the buildings
and improvements thereon standing — it may reasonably be assumed as a fact, too, that they
inquired about and were duly informed of the origin of, and immediately preceding transactions
involving, the sugar quotas they were acquiring.

They should therefore all be regarded as buyers in bad faith — the original vendees of Gomez and
Torres and the Philippine Milling Company (i.e., the Philippine Planters Association and Theo H.
Davies & Co. Ltd.) as well as the latter's own vendees (TABACALERA, et al.). The Court of Appeals
was thus quite correct in "ordering the defendants-appellees (excepting the defendant-appellee
Administrator of the Sugar Quota Office) to reconvey to plaintiff-appellant PNB, the said sugar quota
or production allowance in question registered in their names, or if the same can not now be legally
done, directing the defendants-appellees (excepting appellee Administrator of the Sugar Quota
Office) to jointly and severally pay to PNB the value of the sugar quota or production allowance in
question."

The fact that "the very terms of the deed of sale executed by the DBP in favor of PNB on June 17,
1966 specifically and expressly excluded the 18,000 piculs in question," of which TABACALERA
would make capital, is of no moment. As also held by the Court of Appeals, the exclusion is more
apparent than real. It is true that the deed of June 17, 1966 does provide that "the 18,000 piculs of
'A' and 'B' sugar are expressly excluded . . . because of certain circumstances." It is however pointed
out that "the Vendee may . . . take such action as it may deem proper in order to recover the said
18, 000 piculs of 'A' and 'B' sugar quota and Vendor agrees to join such action whenever requested
by the Vendee." The clear implication is that notwithstanding those "certain circumstances" causing
the exclusion of the 18,000 piculs, there was an express assertion that a right to recover the same
existed in favor of the vendor and/or its vendee; a declaration, in other words, that the sugar quota of
18,000 piculs rightfully belonged to the vendor and, by the sale, to the vendee. The ambivalent
stipulation, in the mind of the Court of Appeals, merely evidenced the DBP's intention not be
rendered liable to PNB on any warranty of legal title considering that the quota had in point of fact
already been sold to third persons before foreclosure; the ostensible exclusion of the 18,000 piculs
was a mere cautionary proviso. This Court agrees, after undertaking a review and analysis of the
relevant facts.

However, TABACALERA's argument that it should not be made solidarily liable for the value of the
entire sugar quota in question, because it benefited only to the extent of the precise quantity
purchased by it, out of the 18,000 piculs is well taken. It does not appear that it acted in concert with
the other vendees in the acquisition of all the 18,000 piculs comprising the sugar quota in question.
For aught that appears on the record, it dealt separately and individually with its vendor. Its liability
should indeed be limited to a return of the exact quantity and quality of the sugar quota separately
purchased by it, as indubitably appears on record, or the payment of the value thereof computed as
of the time that its obligation to return that quota was adjudged by the Court of Appeals.

One final question remains to be resolved, that posed by TABACALERA, to wit: if it reconveys the
sugar quota acquired from San Carlos Planters' Association, or pays its value, should not it be
reimbursed therefor by the latter, upon its implied and express warranty against eviction? The
answer win have to be in the negative. They, vendor and vendee, are in pari delicto. At the time of
the transaction between them they were well aware of the encumbrance on the property dealt with,
they had the common intention of negating the rights that they knew had earlier and properly been
acquired by the mortgagee of the property they were treating of; they were both consequently acting
in bad faith. The object or purpose of their contract was "contrary to law, morals, good customs,
public order or public policy."   The law says that in such a case, where "the unlawful or forbidden
39

cause consists does not constitute a criminal offense, . . . and the fault is on the part of both
contracting parties, neither may recover what he has given by virtue of the contract, or demand the
performance of the other's undertaking."   No relief can be granted to either party; the law will leave
40

them where they are.  41

WHEREFORE, the challenged judgment of the Court of Appeals is hereby AFFIRMED, with the
modification that the liability of petitioner Compañia General de Tabacos de Filipinas
(TABACALERA) is limited to the return to the Philippine National Bank of the exact quantity and
quality of the sugar quota purchased by it from the Philippine Planters Association and/or Theo H.
Davies & Co., Ltd., as indubitably appears on record, or the payment of the value thereof to said
Philippine National Bank computed as of the time that its obligation to return that quota was
adjudged by the Court of Appeals.

IT IS SO ORDERED.

Griño-Aquino and Medialdea, JJ., concur.

Cruz, J., took no part.

Gancayno, J., is on leave.

G.R. No. 135634 May 31, 2000

HEIRS OF JUAN SAN ANDRES (VICTOR S. ZIGA) and SALVACION S. TRIA, petitioners,

vs.
VICENTE RODRIGUEZ, respondent.

MENDOZA, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals  reversing the
1 

decision of the Regional Trial Court, Naga City, Branch 19, in Civil Case No. 87-1335, as well as the
appellate court's resolution denying reconsideration.

The antecedent facts are as follows:

Juan San Andres was the registered owner of Lot No. 1914-B-2 situated in Liboton, Naga City. On
September 28, 1964, he sold a portion thereof, consisting of 345 square meters, to respondent
Vicente S. Rodriguez for P2,415.00. The sale is evidenced by a Deed of Sale.  2

Upon the death of Juan San Andres on May 5, 1965, Ramon San Andres was appointed judicial
administrator of the decedent's estate in Special Proceedings No. R-21, RTC, Branch 19, Naga City.
Ramon San Andres engaged the services of a geodetic engineer, Jose Peñero, to prepare a
consolidated plan (Exh. A) of the estate. Engineer Peñero also prepared a sketch plan of the 345-
square meter lot sold to respondent. From the result of the survey, it was found that respondent had
enlarged the area which he purchased from the late Juan San Andres by 509 square meters.  3

Accordingly, the judicial administrator sent a letter,  dated July 27, 1987, to respondent demanding
4 

that the latter vacate the portion allegedly encroached by him. However, respondent refused to do
so, claiming he had purchased the same from the late Juan San Andres. Thereafter, on November
24, 1987, the judicial administrator brought an action, in behalf of the estate of Juan San Andres, for
recovery of possession of the 509-square meter lot.
In his Re-amended Answer filed on February 6, 1989, respondent alleged that apart from the 345-
square meter lot which had been sold to him by Juan San Andres on September 28, 1964, the latter
likewise sold to him the following day the remaining portion of the lot consisting of 509 square
meters, with both parties treating the two lots as one whole parcel with a total area of 854 square
meters. Respondent alleged that the full payment of the 509-square meter lot would be effected
within five (5) years from the execution of a formal deed of sale after a survey is conducted over said
property. He further alleged that with the consent of the former owner, Juan San Andres, he took
possession of the same and introduced improvements thereon as early as 1964.

As proof of the sale to him of 509 square meters, respondent attached to his answer a receipt (Exh.
2)  signed by the late Juan San Andres, which reads in full as follows:
5 

Received from Vicente Rodriguez the sum of Five Hundred (P500.00) Pesos
representing an advance payment for a residential lot adjoining his previously paid lot
on three sides excepting on the frontage with the agreed price of Fifteen (15.00)
Pesos per square meter and the payment of the full consideration based on a survey
shall be due and payable in five (5) years period from the execution of the formal
deed of sale; and it is agreed that the expenses of survey and its approval by the
Bureau of Lands shall be borne by Mr. Rodriguez.

Naga City, September 29, 1964.

(Sgd.)

JUAN
R. SAN
ANDR
ES

Vendor

Noted:

(Sgd.)

VICENTE RODRIGUEZ

Vendee

Respondent also attached to his answer a letter of judicial administrator Ramon San Andres
(Exh. 3),  asking payment of the balance of the purchase price. The letter reads:
6 

Dear Inting,

Please accommodate my request for Three Hundred (P300.00) Pesos as I am in

need of funds as I intimated to you the other day.

We will just adjust it with whatever balance you have payable to the subdivision.

Thanks.
 Sincerel
y,

(Sgd.)

RAMO
N SAN
ANDRE
S

Vicente Rodriguez

Penafrancia Subdivision, Naga City

P.S.

You can let bearer Enrique del Castillo sign for the amount.

Received One Hundred Only

(Sgd.)

RAMON SAN ANDRES

3/30/66

Respondent deposited in court the balance of the purchase price amounting to P7,035.00 for the
aforesaid 509-square meter lot.

While the proceedings were pending, judicial administrator Ramon San Andres died and was
substituted by his son Ricardo San Andres. On the other band, respondent Vicente Rodriguez died
on August 15, 1989 and was substituted by his heirs.  7

Petitioner, as plaintiff, presented two witnesses. The first witness, Engr. Jose Peñero,  testified that
8 

based on his survey conducted sometime between 1982 and 1985, respondent had enlarged the
area which he purchased from the late Juan San Andres by 509 square meters belonging to the
latter's estate. According to Peñero, the titled property (Exh. A-5) of respondent was enclosed with a
fence with metal holes and barbed wire, while the expanded area was fenced with barbed wire and
bamboo and light materials.

The second witness, Ricardo San Andres,  administrator of the estate, testified that respondent had
9 

not filed any claim before Special Proceedings No. R-21 and denied knowledge of Exhibits 2 and 3.
However, he recognized the signature in Exhibit 3 as similar to that of the former administrator,
Ramon San Andres. Finally, he declared that the expanded portion occupied by the family of
respondent is now enclosed with barbed wire fence unlike before where it was found without fence.

On the other hand, Bibiana B. Rodriguez,  widow of respondent Vicente Rodriguez, testified that
10 

they had purchased the subject lot from Juan San Andres, who was their compadre, on September
29, 1964, at P15.00 per square meter. According to her, they gave P500.00 to the late Juan San
Andres who later affixed his signature to Exhibit 2. She added that on March 30, 1966; Ramon San
Andres wrote them a letter asking for P300.00 as partial payment for the subject lot, but they were
able to give him only P100.00. She added that they had paid the total purchase price of P7,035.00
on November 21, 1988 by depositing it in court. Bibiana B. Rodriquez stated that they had been in
possession of the 509-square meter lot since 1964 when the late Juan San Andres signed the
receipt. (Exh. 2) Lastly, she testified that they did not know at that time the exact area sold to them
because they were told that the same would be known after the survey of the subject lot.

On September 20, 1994, the trial court  rendered judgment in favor of petitioner. It ruled that there
11 

was no contract of sale to speak of for lack of a valid object because there was no sufficient
indication in Exhibit 2 to identify the property subject of the sale, hence, the need to execute a new
contract.

Respondent appealed to the Court of Appeals, which on April 21, 1998 rendered a decision
reversing the decision of the trial court. The appellate court held that the object of the contract was
determinable, and that there was a conditional sale with the balance of the purchase price payable
within five years from the execution of the deed of sale. The dispositive portion of its decision's
reads:

IN VIEW OF ALL THE FOREGOING, the judgment appealed from is hereby

REVERSED and SET ASIDE and a new one entered DISMISSING the complaint
and rendering judgment against the plaintiff-appellee:

1. to accept the P7,035.00 representing the balance of the purchase price of the
portion and which is deposited in court under Official Receipt No. 105754 (page 122,
Records);

2. to execute the formal deed of sale over the said 509 square meter portion of Lot
1914-B-2 in favor of appellant Vicente Rodriguez;

3. to pay the defendant-appellant the amount of P50,000.00 as damages and

P10,000.00 attorney's fees as stipulated by them during the trial of this case; and

4. to pay the costs of the suit.

SO ORDERED.

Hence, this petition. Petitioner assigns the following errors as having been allegedly committed by
the trial court:

I. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT

THE DOCUMENT (EXHIBIT "2") IS A CONTRACT TO SELL
DESPITE ITS LACKING ONE OF THE ESSENTIAL ELEMENTS OF
A CONTRACT, NAMELY, OBJECT CERTAIN AND SUFFICIENTLY
DESCRIBED.

II. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT

PETITIONER IS OBLIGED TO HONOR THE PURPORTED
CONTRACT TO SELL DESPITE NON-FULFILLMENT BY
RESPONDENT OF THE CONDITION THEREIN OF PAYMENT OF
THE BALANCE OF THE PURCHASE PRICE.
 III. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT
CONSIGNATION WAS VALID DESPITE NON-COMPLIANCE WITH
THE MANDATORY REQUIREMENTS THEREOF.

IV. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT

LACHES AND PRESCRIPTION DO NOT APPLY TO RESPONDENT
WHO SOUGHT INDIRECTLY TO ENFORCE THE PURPORTED
CONTRACT AFTER THE LAPSE OF 24 YEARS.

The petition has no merit.

First. Art. 1458 of the Civil Code provides:

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

A contract of sale may be absolute or conditional.

As thus defined, the essential elements of sale are the following:

a) Consent or meeting of the minds, that is, consent to transfer ownership in

exchange for the price;

b) Determinate subject matter; and,

c) Price certain in money or its equivalent.  12

As shown in the receipt, dated September 29, 1964, the late Juan San Andres received P500.00
from respondent as "advance payment for the residential lot adjoining his previously paid lot on
three sides excepting on the frontage; the agreed purchase price was P15.00 per square meter; and
the full amount of the purchase price was to be based on the results of a survey and would be due
and payable in five (5) years from the execution of a deed of sale.

Petitioner contends, however, that the "property subject of the sale was not described with sufficient
certainty such that there is a necessity of another agreement between the parties to finally ascertain
the identity; size and purchase price of the property which is the object of the alleged sale." 1 He
argues that the "quantity of the object is not determinate as in fact a survey is needed to determine
its exact size and the full purchase price therefor"  In support of his contention, petitioner cites the
14 

following provisions of the Civil Code:

Art. 1349. The object of every contract must be determinate as to its kind. The fact
that the quantity is not determinable shall not be an obstacle to the existence of a
contract, provided it is possible to determine the same without the need of a new
contract between the parties.

Art. 1460. . . . The requisite that a thing be determinate is satisfied if at the time the
contract is entered into, the thing is capable of being made determinate without the
necessity of a new and further agreement between the parties.
Petitioner's contention is without merit. There is no dispute that respondent purchased a portion of
Lot 1914-B-2 consisting of 345 square meters. This portion is located in the middle of Lot 1914-B-2,
which has a total area of 854 square meters, and is clearly what was referred to in the receipt as the
"previously paid lot." Since the lot subsequently sold to respondent is said to adjoin the "previously
paid lot" on three sides thereof, the subject lot is capable of being determined without the need of
any new contract. The fact that the exact area of these adjoining residential lots is subject to the
result of a survey does not detract from the fact that they are determinate or determinable. As the
Court of Appeals explained:  15

Concomitantly, the object of the sale is certain and determinate. Under Article 1460
of the New Civil Code, a thing sold is determinate if at the time the contract is
entered into, the thing is capable of being determinate without necessity of a new or
further agreement between the parties. Here, this definition finds realization.

Appellee's Exhibit "A" (page 4, Records) affirmingly shows that the original 345 sq.
m. portion earlier sold lies at the middle of Lot 1914-B-2 surrounded by the remaining
portion of the said Lot 1914-B-2 on three (3) sides, in the east, in the west and in the
north. The northern boundary is a 12 meter road. Conclusively, therefore, this is the
only remaining 509 sq. m. portion of Lot 1914-B-2 surrounding the 345 sq. m. lot
initially purchased by Rodriguez. It is quite difined, determinate and certain. Withal,
this is the same portion adjunctively occupied and possessed by Rodriguez since
September 29, 1964, unperturbed by anyone for over twenty (20) years until appellee
instituted this suit.

Thus, all of the essential elements of a contract of sale are present, i.e., that there was a meeting of
the minds between the parties, by virtue of which the late Juan San Andres undertook to transfer
ownership of and to deliver a determinate thing for a price certain in money. As Art. 1475 of the Civil
Code provides:

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. . . .

That the contract of sale is perfected was confirmed by the former administrator of the estates,
Ramon San Andres, who wrote a letter to respondent on March 30, 1966 asking for P300.00 as
partial payment for the subject lot. As the Court of Appeals observed:

Without any doubt, the receipt profoundly speaks of a meeting of the mind between
San Andres and Rodriguez for the sale of the property adjoining the 345 square
meter portion previously sold to Rodriguez on its three (3) sides excepting the
frontage. The price is certain, which is P15.00 per square meter. Evidently, this is a
perfected contract of sale on a deferred payment of the purchase price. All the pre-
requisite elements for a valid purchase transaction are present. Sale does not require
any formal document for its existence and validity. And delivery of possession of land
sold is a consummation of the sale (Galar vs. Husain, 20 SCRA 186 [1967]). A
private deed of sale is a valid contract between the parties (Carbonell v. CA, 69
SCRA 99 [1976]).

In the same vein, after the late Juan R. San Andres received the P500.00
downpayment on March 30, 1966, Ramon R. San Andres wrote a letter to Rodriguez
and received from Rodriguez the amount of P100.00 (although P300.00 was being
requested) deductible from the purchase price of the subject portion. Enrique del
Castillo, Ramon's authorized agent, correspondingly signed the receipt for the
 P100.00. Surely, this is explicitly a veritable proof of he sale over the remaining
portion of Lot 1914-B-2 and a confirmation by Ramon San Andres of the existence
thereof. 16

There is a need, however, to clarify what the Court of Appeals said is a conditional contract of sale.
Apparently, the appellate court considered as a "condition" the stipulation of the parties that the full
consideration, based on a survey of the lot, would be due and payable within five (5) years from the
execution of a formal deed of sale. It is evident from the stipulations in the receipt that the vendor
Juan San Andres sold the residential lot in question to respondent and undertook to transfer the
ownership thereof to respondent without any qualification, reservation or condition. In Ang Yu
Asuncion v. Court of Appeals,  we held:
17 

In Dignos v. Court of Appeals (158 SCRA 375), we have said that, although

denominated a "Deed of Conditional Sale," a sale is still absolute where the contract
is devoid of any proviso that title is reserved or the right to unilaterally rescind is
stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to
the buyer upon actual or constructive delivery (e.g., by the execution of a public
document) of the property sold. Where the condition is imposed upon the perfection
of the contract itself, the failure of the condition would prevent such perfection. If the
condition is imposed on the obligation of a party which is not fulfilled, the other party
may either waive the condition or refuse to proceed with the sale. (Art. 1545, Civil
Code).

Thus, in. one case, when the sellers declared in a "Receipt of Down Payment" that they received an
amount as purchase price for a house and lot without any reservation of title until full payment of the
entire purchase price, the implication was that they sold their property.  In People's Industrial
18 

Commercial Corporation v. Court of Appeals,  it was stated:

19 

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 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.

Applying these principles to this case, it cannot be gainsaid that the contract of sale between the
parties is absolute, not conditional. There is no reservation of ownership nor a stipulation providing
for a unilateral rescission by either party. In fact, the sale was consummated upon the delivery of the
lot to respondent.  Thus, Art. 1477 provides that the ownership of the thing sold shall be transferred
20 

to the vendee upon the actual or constructive delivery thereof.

The stipulation that the "payment of the full consideration based on a survey shall be due and
payable in five (5) years from the execution of a formal deed of sale" is not a condition which affects
the efficacy of the contract of sale. It merely provides the manner by which the full consideration is to
be computed and the time within which the same is to be paid. But it does not affect in any manner
the effectivity of the contract. Consequently, the contention that the absence of a formal deed of sale
stipulated in the receipt prevents the happening of a sale has no merit.

Second. With respect to the contention that the Court of Appeals erred in upholding the validity of a
consignation of P7,035.00 representing the balance of the purchase price of the lot, nowhere in the
decision of the appellate court is there any mention of consignation. Under Art. 1257 of this Civil
Code, consignation is proper only in cases where an existing obligation is due. In this case,
however, the contracting parties agreed that full payment of purchase price shall be due and payable
within five (5) years from the execution of a formal deed of sale. At the time respondent deposited
the amount of P7,035.00 in the court, no formal deed of sale had yet been executed by the parties,
and, therefore, the five-year period during which the purchase price should be paid had not
commenced. In short, the purchase price was not yet due and payable.

This is not to say, however, that the deposit of the purchase price in the court is erroneous. The
Court of Appeals correctly ordered the execution of a deed of sale and petitioners to accept the
amount deposited by respondent.

Third. The claim of petitioners that the price of P7,035.00 is iniquitous is untenable. The amount is
based on the agreement of the parties as evidenced by the receipt (Exh. 2). Time and again, we
have stressed the rule that a contract is the law between the parties, and courts have no choice but
to enforce such contract so long as they are not contrary to law, morals, good customs or public
policy. Otherwise, court would be interfering with the freedom of contract of the parties. Simply put,
courts cannot stipulate for the parties nor amend the latter's agreement, for to do so would be to alter
the real intentions of the contracting parties when the contrary function of courts is to give force and
effect to the intentions of the parties.

Fourth. Finally, petitioners argue that respondent is barred by prescription and laches from enforcing
the contract. This contention is likewise untenable. The contract of sale in this case is perfected, and
the delivery of the subject lot to respondent effectively transferred ownership to him. For this reason,
respondent seeks to comply with his obligation to pay the full purchase price, but because the deed
of sale is yet to be executed, he deemed it appropriate to deposit the balance of the purchase price
in court. Accordingly, Art. 1144 of the Civil Code has no application to the instant case.  Considering
21 

that a survey of the lot has already been conducted and approved by the Bureau of Lands,
respondent's heirs, assign or successors-in-interest should reimburse the expenses incurred by
herein petitioners, pursuant to the provisions of the contract.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the modification that
respondent is ORDERED to reimburse petitioners for the expenses of the survey.

SO ORDERED.

Bellosillo and Buena, JJ., concur.

Quisumbing and De Leon, Jr., JJ., are on leave.

Article 1461

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

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

Alejo Mabanag for plaintiff-appellee.

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

REYES, J.B.L., J.:

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

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

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

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

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

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

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

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

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

(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00 become due
and demandable when the defendants failed to renew the surety bond underwritten by the Far
Eastern Surety and Insurance Co., Inc. (Exhibit "B"), which expired on December 8, 1955; and
(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant Fonacier were
actually in existence in the mining claims when these parties executed the "Revocation of Power of
Attorney and Contract", Exhibit "A."

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

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

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

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

The main issues presented by appellants in this appeal are:

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

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

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

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

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

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

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

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

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

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

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

and there can be no question that greater reciprocity obtains if the buyer' obligation is deemed to be
actually existing, with only its maturity (due date) postponed or deferred, that if such obligation were
viewed as non-existent or not binding until the ore was sold.
The only rational view that can be taken is that the sale of the ore to Fonacier was a sale on credit,
and not an aleatory contract where the transferor, Gaite, would assume the risk of not being paid at
all; and that the previous sale or shipment of the ore was not a suspensive condition for the payment
of the balance of the agreed price, but was intended merely to fix the future date of the payment.

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

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

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

(1) . . .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Bengzon, C.J., Padilla, Labrador, Concepcion, Barrera, Paredes, Dizon, De Leon and Natividad,
JJ., concur.
G.R. No. L-36902 January 30, 1982

LUIS PICHEL, petitioner,
vs.
PRUDENCIO ALONZO, respondent.

GUERRERO, J.:

This is a petition to review on certiorari the decision of the Court of First Instance of Basilan City
dated January 5, 1973 in Civil Case No. 820 entitled "Prudencio Alonzo, plaintiff, vs. Luis Pichel,
defendant."

This case originated in the lower Court as an action for the annulment of a "Deed of Sale" dated
August 14, 1968 and executed by Prudencio Alonzo, as vendor, in favor of Luis Pichel, as vendee,
involving property awarded to the former by the Philippine Government under Republic Act No. 477.
Pertinent portions of the document sued upon read as follows:

That the VENDOR for and in consideration of the sum of FOUR THOUSAND TWO
HUNDRED PESOS (P4,200.00), Philippine Currency, in hand paid by the VENDEE
to the entire satisfaction of the VENDOR, the VENDOR hereby sells transfers, and
conveys, by way of absolute sale, all the coconut fruits of his coconut land,
designated as Lot No. 21 - Subdivision Plan No. Psd- 32465, situated at Balactasan
Plantation, Lamitan, Basilan City, Philippines;

That for the herein sale of the coconut fruits are for all the fruits on the
aforementioned parcel of land presently found therein as well as for future fruits to be
produced on the said parcel of land during the years period; which shag commence
to run as of SEPTEMBER 15,1968; up to JANUARY 1, 1976 (sic);

That the delivery of the subject matter of the Deed of Sale shall be from time to time
and at the expense of the VENDEE who shall do the harvesting and gathering of the
fruits;

That the Vendor's right, title, interest and participation herein conveyed is of his own
exclusive and absolute property, free from any liens and encumbrances and he
warrants to the Vendee good title thereto and to defend the same against any and all
claims of all persons whomsoever. 1

After the pre-trial conference, the Court a quo issued an Order dated November 9, 1972 which in part
read thus:

The following facts are admitted by the parties:

Plaintiff Prudencio Alonzo was awarded by the Government that parcel of land
designated as Lot No. 21 of Subdivision Plan Psd 32465 of Balactasan, Lamitan,
Basilan City in accordance with Republic Act No. 477. The award was cancelled by
the Board of Liquidators on January 27, 1965 on the ground that, previous thereto,
 plaintiff was proved to have alienated the land to another, in violation of law. In 197 2,
plaintiff's rights to the land were reinstated.

On August 14, 1968, plaintiff and his wife sold to defendant an the fruits of the
coconut trees which may be harvested in the land in question for the period,
September 15, 1968 to January 1, 1976, in consideration of P4,200.00. Even as of
the date of sale, however, the land was still under lease to one, Ramon Sua, and it
was the agreement that part of the consideration of the sale, in the sum of
P3,650.00, was to be paid by defendant directly to Ramon Sua so as to release the
land from the clutches of the latter. Pending said payment plaintiff refused to snow
the defendant to make any harvest.

In July 1972, defendant for the first time since the execution of the deed of sale in his
favor, caused the harvest of the fruit of the coconut trees in the land.

xxx xxx xxx

Considering the foregoing, two issues appear posed by the complaint and the
answer which must needs be tested in the crucible of a trial on the merits, and they
are:

First.— Whether or nor defendant actually paid to plaintiff the full sum of P4,200.00
upon execution of the deed of sale.

Second.— Is the deed of sale, Exhibit 'A', the prohibited encumbrance contemplated
in Section 8 of Republic Act No. 477? 2

Anent the first issue, counsel for plaintiff Alonzo subsequently 'stipulated and agreed that his client ...
admits fun payment thereof by defendant. 3 The remaining issue being one of law, the Court below
considered the case submitted for summary judgment on the basis of the pleadings of the parties, and the
admission of facts and documentary evidence presented at the pre-trial conference.

The lower court rendered its decision now under review, holding that although the agreement in
question is denominated by the parties as a deed of sale of fruits of the coconut trees found in the
vendor's land, it actually is, for all legal intents and purposes, a contract of lease of the land itself.
According to the Court:

... the sale aforestated has given defendant complete control and enjoyment of the
improvements of the land. That the contract is consensual; that its purpose is to allow
the enjoyment or use of a thing; that it is onerous because rent or price certain is
stipulated; and that the enjoyment or use of the thing certain is stipulated to be for a
certain and definite period of time, are characteristics which admit of no other
conclusion. ... The provisions of the contract itself and its characteristics govern its
nature. 4

The Court, therefore, concluded that the deed of sale in question is an encumbrance prohibited by
Republic Act No. 477 which provides thus:

Sec. 8. Except in favor of the Government or any of its branches, units, or

institutions, land acquired under the provisions of this Act or any permanent
improvements thereon shall not be thereon and for a term of ten years from and after
 the date of issuance of the certificate of title, nor shall they become liable to the
satisfaction of any debt contracted prior to the expiration of such period.

Any occupant or applicant of lands under this Act who transfers whatever rights he
has acquired on said lands and/or on the improvements thereon before the date of
the award or signature of the contract of sale, shall not be entitled to apply for
another piece of agricultural land or urban, homesite or residential lot, as the case
may be, from the National Abaca and Other Fibers Corporation; and such transfer
shall be considered null and void. 5

The dispositive portion of the lower Court's decision states:

WHEREFORE, it is the judgment of this Court that the deed of sale, Exhibit 'A',
should be, as it is, hereby declared nun and void; that plaintiff be, as he is, ordered to
pay back to defendant the consideration of the sale in the sum of P4,200.00 the
same to bear legal interest from the date of the filing of the complaint until paid; that
defendant shall pay to the plaintiff the sum of P500.00 as attorney's fees.

Costs against the defendant. 6

Before going into the issues raised by the instant Petition, the matter of whether, under the admitted facts
of this case, the respondent had the right or authority to execute the "Deed of Sale" in 1968, his award
over Lot No. 21 having been cancelled previously by the Board of Liquidators on January 27, 1965, must
be clarified. The case in point is Ras vs. Sua  7 wherein it was categorically stated by this Court that a
cancellation of an award granted pursuant to the provisions of Republic Act No. 477 does not
automatically divest the awardee of his rights to the land. Such cancellation does not result in the
immediate reversion of the property subject of the award, to the State. Speaking through Mr. Justice
J.B.L. Reyes, this Court ruled that "until and unless an appropriate proceeding for reversion is instituted
by the State, and its reacquisition of the ownership and possession of the land decreed by a competent
court, the grantee cannot be said to have been divested of whatever right that he may have over the
same property." 8

There is nothing in the record to show that at any time after the supposed cancellation of herein
respondent's award on January 27, 1965, reversion proceedings against Lot No. 21 were instituted
by the State. Instead, the admitted fact is that the award was reinstated in 1972. Applying the
doctrine announced in the above-cited Ras case, therefore, herein respondent is not deemed to
have lost any of his rights as grantee of Lot No. 21 under Republic Act No. 477 during the period
material to the case at bar, i.e., from the cancellation of the award in 1965 to its reinstatement in
1972. Within said period, respondent could exercise all the rights pertaining to a grantee with respect
to Lot No. 21.

This brings Us to the issues raised by the instant Petition. In his Brief, petitioner contends that the
lower Court erred:

1. In resorting to construction and interpretation of the deed of sale in question where

the terms thereof are clear and unambiguous and leave no doubt as to the intention
of the parties;

2. In declaring — granting without admitting that an interpretation is necessary — the

deed of sale in question to be a contract of lease over the land itself where the
respondent himself waived and abandoned his claim that said deed did not express
the true agreement of the parties, and on the contrary, respondent admitted at the
 pre-trial that his agreement with petitioner was one of sale of the fruits of the coconut
trees on the land;

3. In deciding a question which was not in issue when it declared the deed of sale in
question to be a contract of lease over Lot 21;

4. In declaring furthermore the deed of sale in question to be a contract of lease over

the land itself on the basis of facts which were not proved in evidence;

5. In not holding that the deed of sale, Exhibit "A" and "2", expresses a valid contract
of sale;

6. In not deciding squarely and to the point the issue as to whether or not the deed of
sale in question is an encumbrance on the land and its improvements prohibited by
Section 8 of Republic Act 477; and

7. In awarding respondent attorney's fees even granting, without admitting, that the
deed of sale in question is violative of Section 8 of Republic Act 477.

The first five assigned errors are interrelated, hence, We shall consider them together. To begin
with, We agree with petitioner that construction or interpretation of the document in question is not
called for. A perusal of the deed fails to disclose any ambiguity or obscurity in its provisions, nor is
there doubt as to the real intention of the contracting parties. The terms of the agreement are clear
and unequivocal, hence the literal and plain meaning thereof should be observed. Such is the
mandate of the Civil Code of the Philippines which provides that:

Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its stipulation shall control ... .

Pursuant to the afore-quoted legal provision, the first and fundamental duty of the courts is the
application of the contract according to its express terms, interpretation being resorted to only when
such literal application is impossible. 9

Simply and directly stated, the "Deed of Sale dated August 14, 1968 is precisely what it purports to be. It
is a document evidencing the agreement of herein parties for the sale of coconut fruits of Lot No. 21,
and not for the lease of the land itself as found by the lower Court. In clear and express terms, the
document defines the object of the contract thus: "the herein sale of the coconut fruits are for an the fruits
on the aforementioned parcel of land during the years ...(from) SEPTEMBER 15, 1968; up to JANUARY
1, 1976." Moreover, as petitioner correctly asserts, the document in question expresses a valid contract of
sale. It has the essential elements of a contract of sale as defined under Article 1485 of the New Civil
Code which provides thus:

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

A contract of sale may be absolute or conditional.

The subject matter of the contract of sale in question are the fruits of the coconut trees on the land
during the years from September 15, 1968 up to January 1, 1976, which subject matter is a
determinate thing. Under Article 1461 of the New Civil Code, things having a potential existence may
be the object of the contract of sale. And in Sibal vs. Valdez, 50 Phil. 512, pending crops which have
potential existence may be the subject matter of the sale. Here, the Supreme Court, citing Mechem
on Sales and American cases said which have potential existence may be the subject matter of sale.
Here, the Supreme Court, citing Mechem on Sales and American cases said:

Mr. Mechem says that a valid sale may be made of a thing, which though not yet
actually in existence, is reasonably certain to come into existence as the natural
increment or usual incident of something already in existence, and then belonging to
the vendor, and the title will vest in the buyer the moment the thing comes into
existence. (Emerson vs. European Railway Co., 67 Me., 387; Cutting vs. Packers
Exchange, 21 Am. St. Rep. 63) Things of this nature are said to have a potential
existence. A man may sell property of which he is potentially and not actually
possess. He may make a valid sale of the wine that a vineyard is expected to
produce; or the grain a field may grow in a given time; or the milk a cow may yield
during the coming year; or the wool that shall thereafter grow upon sheep; or what
may be taken at the next case of a fisherman's net; or fruits to grow; or young
animals not yet in existence; or the goodwill of a trade and the like. The thing sold,
however, must be specific and Identified. They must be also owned at the time by the
vendor. (Hull vs. Hull 48 Conn. 250 (40 Am. Rep., 165) (pp. 522-523).

We do not agree with the trial court that the contract executed by and between the parties is
"actually a contract of lease of the land and the coconut trees there." (CFI Decision, p. 62, Records).
The Court's holding that the contract in question fits the definition of a lease of things wherein one of
the parties binds himself to give to another the enjoyment or use of a thing for a price certain and for
a period which may be definite or indefinite (Art. 1643, Civil Code of the Philippines) is erroneous.
The essential difference between a contract of sale and a lease of things is that the delivery of the
thing sold transfers ownership, while in lease no such transfer of ownership results as the rights of
the lessee are limited to the use and enjoyment of the thing leased.

In Rodriguez vs. Borromeo, 43 Phil. 479, 490, the Supreme Court held:

Since according to article 1543 of the same Code the contract of lease is defined as
the giving or the concession of the enjoyment or use of a thing for a specified time
and fixed price, and since such contract is a form of enjoyment of the property, it is
evident that it must be regarded as one of the means of enjoyment referred to in said
article 398, inasmuch as the terms enjoyment, use, and benefit involve the same and
analogous meaning relative to the general utility of which a given thing is capable.
(104 Jurisprudencia Civil, 443)

In concluding that the possession and enjoyment of the coconut trees can therefore be said to be the
possession and enjoyment of the land itself because the defendant-lessee in order to enjoy his right
under the contract, he actually takes possession of the land, at least during harvest time, gather all
of the fruits of the coconut trees in the land, and gain exclusive use thereof without the interference
or intervention of the plaintiff-lessor such that said plaintiff-lessor is excluded in fact from the land
during the period aforesaid, the trial court erred. The contract was clearly a "sale of the coconut
fruits." The vendor sold, transferred and conveyed "by way of absolute sale, all the coconut fruits of
his land," thereby divesting himself of all ownership or dominion over the fruits during the seven-year
period. The possession and enjoyment of the coconut trees cannot be said to be the possession and
enjoyment of the land itself because these rights are distinct and separate from each other, the first
pertaining to the accessory or improvements (coconut trees) while the second, to the principal (the
land). A transfer of the accessory or improvement is not a transfer of the principal. It is the other way
around, the accessory follows the principal. Hence, the sale of the nuts cannot be interpreted nor
construed to be a lease of the trees, much less extended further to include the lease of the land
itself.

The real and pivotal issue of this case which is taken up in petitioner's sixth assignment of error and
as already stated above, refers to the validity of the "Deed of Sale", as such contract of sale, vis-a-
vis the provisions of Sec. 8, R.A. No. 477. The lower Court did not rule on this question, having
reached the conclusion that the contract at bar was one of lease. It was from the context of a lease
contract that the Court below determined the applicability of Sec. 8, R.A. No. 477, to the instant
case.

Resolving now this principal issue, We find after a close and careful examination of the terms of the
first paragraph of Section 8 hereinabove quoted, that the grantee of a parcel of land under R.A. No.
477 is not prohibited from alienating or disposing of the natural and/or industrial fruits of the land
awarded to him. What the law expressly disallows is the encumbrance or alienation of the land itself
or any of the permanent improvements thereon. Permanent improvements on a parcel of land are
things incorporated or attached to the property in a fixed manner, naturally or artificially. They
include whatever is built, planted or sown on the land which is characterized by fixity, immutability or
immovability. Houses, buildings, machinery, animal houses, trees and plants would fall under the
category of permanent improvements, the alienation or encumbrance of which is prohibited by R.A.
No. 477. While coconut trees are permanent improvements of a land, their nuts are natural or
industrial fruits which are meant to be gathered or severed from the trees, to be used, enjoyed, sold
or otherwise disposed of by the owner of the land. Herein respondents, as the grantee of Lot No. 21
from the Government, had the right and prerogative to sell the coconut fruits of the trees growing on
the property.

By virtue of R.A. No. 477, bona fide occupants, veterans, members of guerilla organizations and
other qualified persons were given the opportunity to acquire government lands by purchase, taking
into account their limited means. It was intended for these persons to make good and productive use
of the lands awarded to them, not only to enable them to improve their standard of living, but
likewise to help provide for the annual payments to the Government of the purchase price of the lots
awarded to them. Section 8 was included, as stated by the Court a quo, to protect the grantees from
themselves and the incursions of opportunists who prey on their misery and poverty." It is there to
insure that the grantees themselves benefit from their respective lots, to the exclusion of other
persons.

The purpose of the law is not violated when a grantee sells the produce or fruits of his land. On the
contrary, the aim of the law is thereby achieved, for the grantee is encouraged and induced to be
more industrious and productive, thus making it possible for him and his family to be economically
self-sufficient and to lead a respectable life. At the same time, the Government is assured of
payment on the annual installments on the land. We agree with herein petitioner that it could not
have been the intention of the legislature to prohibit the grantee from selling the natural and
industrial fruits of his land, for otherwise, it would lead to an absurd situation wherein the grantee
would not be able to receive and enjoy the fruits of the property in the real and complete sense.

Respondent through counsel, in his Answer to the Petition contends that even
granting arguendo that he executed a deed of sale of the coconut fruits, he has the "privilege to
change his mind and claim it as (an) implied lease," and he has the "legitimate right" to file an action
for annulment "which no law can stop." He claims it is his "sole construction of the meaning of the
transaction that should prevail and not petitioner. (sic). 10 Respondent's counsel either misapplies the
law or is trying too hard and going too far to defend his client's hopeless cause. Suffice it to say that
respondent-grantee, after having received the consideration for the sale of his coconut fruits, cannot be
allowed to impugn the validity of the contracts he entered into, to the prejudice of petitioner who
contracted in good faith and for a consideration.

The issue raised by the seventh assignment of error as to the propriety of the award of attorney's
fees made by the lower Court need not be passed upon, such award having been apparently based
on the erroneous finding and conclusion that the contract at bar is one of lease. We shall limit
Ourselves to the question of whether or not in accordance with Our ruling in this case, respondent is
entitled to an award of attorney's fees. The Civil Code provides that:

Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation,
other than judicial costs, cannot be recovered, except:

(1) When exemplary damages are awarded;

(2) When the defendant's act or omission has compelled the plaintiff to litigate with
third persons or to incur expenses to protect his interest;

(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiff's plainly valid, just and demandable claim;

(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and skilled
workers;

(8) In actions for indemnity under workmen's compensation and employer's liability
laws;

(9) In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that attorney's
fees and expenses of litigation should be recovered.

In all cases, the attorney's fees and expenses of litigation must be reasonable.

We find that none of the legal grounds enumerated above exists to justify or warrant the grant of
attorney's fees to herein respondent.

IN VIEW OF THE FOREGOING, the judgment of the lower Court is hereby set aside and another
one is entered dismissing the Complaint. Without costs.

SO ORDERED.

Teehankee (Chairman), Makasiar, Fernandez, Melencio-Herrera and Plana, JJ., concur.

Art 1466

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

ANDRES QUIROGA, plaintiff-appellant,
vs.
PARSONS HARDWARE CO., defendant-appellee.

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

Crossfield & O'Brien for appellee.

AVANCEÑA, J.:

On January 24, 1911, in this city of manila, a contract in the following tenor was entered into by and
between the plaintiff, as party of the first part, and J. Parsons (to whose rights and obligations the
present defendant later subrogated itself), as party of the second part:

CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J.

PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE
EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by the
contract, the effect of its breach would only entitle the plaintiff to disregard the orders which the
defendant might place under other conditions; but if the plaintiff consents to fill them, he waives his
right and cannot complain for having acted thus at his own free will.
For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the
defendant was one of purchase and sale, and that the obligations the breach of which is alleged as a
cause of action are not imposed upon the defendant, either by agreement or by law.

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

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

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

GONZALO PUYAT & SONS, INC., petitioner,

vs.
ARCO AMUSEMENT COMPANY (formerly known as Teatro Arco), respondent.

Feria & Lao for petitioner.

J. W. Ferrier and Daniel Me. Gomez for respondent.

LAUREL, J.:

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

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

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

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

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

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

The petitioner now claims that the following errors have been incurred by the appellate court:

I. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, segun hechos,

entre la recurrente y la recurrida existia una relacion implicita de mandataria a mandante en
la transaccion de que se trata, en vez de la de vendedora a compradora como ha declarado
el Juzgado de Primera Instncia de Manila, presidido entonces por el hoy Magistrado
Honorable Marcelino Montemayor.

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

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

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

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

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

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

In the second place, to hold the petitioner an agent of the respondent in the purchase of equipment
and machinery from the Starr Piano Company of Richmond, Indiana, is incompatible with the
admitted fact that the petitioner is the exclusive agent of the same company in the Philippines. It is
out of the ordinary for one to be the agent of both the vendor and the purchaser. The facts and
circumstances indicated do not point to anything but plain ordinary transaction where the respondent
enters into a contract of purchase and sale with the petitioner, the latter as exclusive agent of the
Starr Piano Company in the United States.
It follows that the petitioner as vendor is not bound to reimburse the respondent as vendee for any
difference between the cost price and the sales price which represents the profit realized by the
vendor out of the transaction. This is the very essence of commerce without which merchants or
middleman would not exist.

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

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

Avanceña, C.J., Diaz, Moran and Horrilleno, JJ., concur.

G.R. No. L-7144             May 31, 1955

FAR EASTERN EXPORT & IMPORT CO., petitioner,

vs.
LIM TECK SUAN, respondent.

Juan Nabong and Crisolito Pascual for petitioner.

Jose P. Laurel, Marciano Almario and Jose T. Lojom for respondent.

MONTEMAYOR, J.:

This is a petition for certiorari to review a decision of the Court of Appeals dated September 25,
1953, reversing the decision of the Court of First Instance of Manila, and sentencing the defendant-
petitioner Far Eastern Export & Import Co. later referred to as export company, to pay the plaintiff-
respondent Lim Teck Suan later to be referred to as Suan, the sum of P11,4476.60, with legal
interest from the date of the filing of the complaint and to pay the costs.

As to the facts and the issue in the case we are reproducing the findings of the Court of Appeals,
which findings are binding on this Tribunal in case of similar appeals:

Sometime in November, 1948, Ignacio Delizalde, an agent of the Far Eastern Export &
Import Company, went to the store of Lim Teck Suan situated at 267 San Vicente Street,
Manila, and offered to sell textile, showing samples thereof, and having arrived at an
agreement with Bernardo Lim, the General Manager of Lim Teck Suan, Delizalde returned
on November 17 with the buyer's order, Exhibit A, already prepared which reads:

FAR EASTERN EXPORT & IMPORT COMPANY

75 Escolta 2nd Floor Brias Roxas Bldg., Manila

Ship to LIM TECK SUAN Date Written 11/17/48

475 Nueva St., Manila Your No.
Our No. 276

I hereby commission you to procure for me the following merchandise, subject to the terms
and conditions listed below:

======================================================

Quantity Unit Particulars Amount

10,000 yds Ashtone Acetate & Rayon-No. 13472
Width: 41/42 inches; Weight:
Approximately 8 oz. per yd; Ten (10)
colors, buyers choice, as per attached
samples, equally assorted; at $1.13
per yard F.A.S. New York U. S. $11,500.00
Item herein sold are FOB-FAS X C. & F
CIF

======================================================

TERMS AND CONDITIONS

Acceptance

This Buyer's Order is subject to confirmation by the exporter. Shipment

Period of Shipment is to be within December. Bank Documents should be for a line of 45

days to allow for presentation and payment against "ON BOARD" bills of lading. Partial
shipments permitted.

Payment

Payment will be by "Confirmed Irrevocable Letter of Credit" to be opened in favor of Frenkel

International Corporation, 52 Broadway, New York, 4, N. Y. for the full amount of the above
cost of merchandise plus (approximately) for export packing: insurance, freight,
documentation, forwarding, etc. which are for the buyers accounts, IMMEDIATELY upon
written Confirmation. Our Guarantee In case shipment is not affected, seller agrees to
reimburse buyer for all banking expenses. Confirmed Accepted

Signed Nov. 17, 1948

Authorized official

Confirmed

Accepted (Sgd.) Illegible Date Nov. 1948 to be signed by our representative upon
confirmation.

In accordance with said Exhibit A, plaintiff established a letter of credit No. 6390 (Exhibit B)
in favor of Frenkel International Corporation through the Hongkong and Shanghai Bangking
Corporation, attached to the agreed statement of facts. On February 11, 1949, the textile
arrived at Manila on board the vessel M. S. Arnold Maersk, covered by bill of lading No. 125
(Exhibit C), Invoice No. 1684-M (Exhibit D) issued by Frenkel International Corporation direct
to the plaintiff. The plaintiff complained to the defendant of the inferior quality of the textile
received by him and had them examined by Marine Surveyor Del Pan & Company. Said
surveyor took swatches of the textile and had the same analyzed by the Institute of Science
(Exhibit E-1) and submitted a report or survey under date of April 9, 1949 (Exhibit E). Upon
instructions of the defendants plaintiff deposited the goods with the United Warehouse
Corporation (Exhibits H, H-1 to H-6. As per suggestion of the Far Eastern Export and Import
Company contained in its letter dated June 16, 1949, plaintiff withdrew from the United
Bonded Warehouse, Port Area, Manila, the fifteen cases of Ashtone Acetate and Rayon
Suiting for the purpose of offering them for sale which netted P11,907.30. Deducting this
amount from the sum of P23,686.96 which included the amount paid by plaintiff for said
textile and the warehouse expenses, a difference of P11,476.66 is left, representing the net
direct loss.
 The defense set up is that the Far Eastern Export and Import Company only acted as a
broker in this transaction; that after placing the order the defendants took no further action
and the cargo was taken directly by the buyer Lim Teck Suan, the shipment having been
made to him and all the documents were also handled by him directly without any
intervention on the part of the defendants; that upon receipt of Lim Teck Suan's complaint
the defendants passed it to its principal, Frenkel International Corporation, for comment, and
the latter maintained that the merchandise was up to standard called for.

The lower court acquitted the defendants from the complaint asking for damages in the sum
of P19,500.00 representing the difference in price between the textile ordered and those
received, plus profits unrealized and the cost of this suit, and dismissed the counterclaim
filed by the defendants without pronouncement as to costs.

As already stated, the Court of Appeals reversed the judgment entered by the Court of First Instance
of Manila, basing its decision of reversal on the case of Jose Velasco, vs. Universal Trading Co.,
Inc., 45 Off. Gaz. 4504 where the transaction therein involved was found by the court to be one of
purchase and sale and not of brokerage or agency. We have carefully examined the Velasco case
and we agree with the Court of Appeals that the facts in that case are very similar to those in the
present case. In the case of Velasco, we have the following statement by the court itself which we
reproduced below:

Prior to November 8, 1945 a salesman or agent of the Universal Trading Co., Inc. informed
Jose Velasco, Jr. that his company was in a position to accept and fill in orders for
Panamanian Agewood Bourbon Whisky because there were several thousand cases of this
article ready for shipment to the company by its principal office in America. Acting upon this
offer and representative Velasco went to the Universal Trading Co., Inc., and after a
conversation with the latter's official entered into an agreement couched in the following
terms:

"Agreement is hereby made between Messrs. Jose Velasco, Jr., 340 Echaque, Manila, and
the Universal Trading Company, Manila, for order as follows and under the following terms:

Quantity Merchan
dise and Unit Unit Amount
Price
Description
100 Panamanian Agewood Bourbon
Whisky ..........................Case $17.00 $1,700
_______
Total amount of order ........... $1,700

Terms of Agreement:

"1. That the Universal Trading Company agrees to order the above merchandise from their
Los Angeles Office at the price quoted above, C.I.F. Manila, for December shipment;

"2. That Messrs. Jose Velasco, Jr., 340 Echaque, Manila, obligates myself/themselves to
take the above merchandise when advised of its arrival from the United States and to pay in
cash the full amount of the order in the Philippine Currency at the office of the Universal
Trading Company;
 "3. This order may be subject to delay because of uncertain shipping conditions. War risk
insurance, transhipping charges, if any, port charges, and any storage that may be incurred
due to your not taking delivery of the order upon being notified by us that the order is ready
for delivery, and government taxes, are all for your account;

"4. The terms of this agreement will be either of the following:

"a. To open up irrevocable letter of credit for the value of the order with any of the local
banks, or thru bills of lading payable to A. J. Wilson Company, 1263 South North Avenue,
Los Angeles, California;
"b. To put up a cash deposit equivalent to 50 % of the order;

"5. Reasonable substitute, whenever possible, will be shipped in lieu of items called for, if
order is not available."

Accordingly, Velasco deposited with the defendant the sum of $1,700 which is 50% of the
price of the whisky pursuant to agreement made, instead of 'to open up irrevocable letter of
credit for the value of the order with any of the local banks, or through bills of lading payable
to A. J. Wilson Company.' On November 6, 1945, the same date that the contract or
agreement, Exhibit A, was signed an invoice under the name of the Universal Trading Co.,
Inc. was issued to Velasco for the 100 cases of Panamanian Agewood Bourbon Whisky for
the price of $1,700 which invoice manifested that the article was sold to Jose Velasco, Jr. On
January 15, 1946 another invoice was issued containing besides the list price of $1,700 or
P3,400, a statement of bank charges, customs duties, internal revenue taxes, etc., giving a
total amount of P5,690.10 which after deducting the deposit of $1,700, gives a balance of
P3,990.01.

On January 25, 1946 the Universal Trading Co., Inc. wrote Exhibit 4 to Mr. Velasco advising
him that the S. S. Manoeran had docked and that they would appreciate it if he would pay
the amount of P3,990.10 direct to them. It turned out, however, that after the ship arrived,
what the Universal Trading Co., Inc. tried to deliver to Velasco was not Panamanian
Agewood Bourbon Whisky but Panamanian Agewood Blended Whisky. Velasco refused to
receive the shipment and in turn filed action against the defendant for the return of his
deposit of $ 1,700 with interest. For its defense, defendant contends that it merely acted as
agent for Velasco and could not be held responsible for the substitution of Blended Whisky
for Bourbon Whisky and that furthermore the Blended Whisky was a reasonable substitute
for Bourbon. After due hearing the Court of First Instance of Manila held that the transaction
was purchase and sale and ordered the defendant to refund to the plaintiff his deposit of
P1,700 with legal interest from the date of the filing of the suit with costs, which decision on
appeal was affirmed by this Court.

We notice the following similarities. In the present case, the export company acted as agent for
Frenkel International Corporation, presumably the supplier of the textile sold. In the Velasco case,
the Universal Trading Co., was acting as agent for A. J. Wilson Company, also the supplier of the
whisky sold. In the present case, Suan according to the first part of the agreement is said merely to
be commissioning the Export Company to procure for him the merchandise in question, just as in the
other case, Velasco was supposed to be ordering the whisky thru the Universal Trading Co. In the
present case, the price of the merchandise bought was paid for by Suan by means of an irrevocable
letter of credit opened in favor of the supplier, Frenkel International Corporation. In the Velasco case,
Velasco was given the choice of either opening a similar irrevocable letter of credit in favor of the
supplier A. J. Wilson Company or making a cash deposit. It is true that in the Velasco case, upon the
arrival of the whisky and because it did not conform to specifications, Velasco refused to received it;
but in the present case although Suan received the merchandise he immediately protested its poor
quality and it was deposited in the warehouse and later withdrawn and sold for the best price
possible, all at the suggestion of the Export company. The present case is in our opinion a stronger
one than that of Velasco for holding the transaction as one of purchase and sale because as may be
noticed from the agreement (Exhibit "A"), the same speaks of the items (merchandise) therein
involved as sold, and the sale was even confirmed by the Export company. In both cases, the agents
Universal Trading Co. and the export company dealt directly with the local merchants Velasco and
Suan without expressly indicating or revealing their principals. In both cases there was no privity of
contract between the buyers — Suan and Velasco and the suppliers Frenkel International
Corporation and A. J. Wilson Company, respectively. In both cases no commission or monetary
consideration was paid or agreed to be paid by the buyers to the Export company and the Universal
Trading Co., proof that there was no agency or brokerage, and that the profit of the latter was
undoubtedly the difference between the price listed to the buyers and the net or special price quoted
to the sellers, by the suppliers. As already stated, it was held in the Velasco case that the transaction
therein entered into was one of purchase and sale, and for the same reasons given there, we agreed
with the Court of Appeals that the transaction entered into here is one of purchase and sale.

As was held by this Tribunal in the case of Gonzalo Puyat & Sons Incorporated vs. Arco
Amusement, 72 Phil., 402, where a foreign company has an agent here selling its goods and
merchandise, that same agent could not very well act as agent for local buyers, because the
interests of his foreign principal and those of the buyer would be in direct conflict. He could not serve
two masters at the same time. In the present case, the Export company being an agent of the
Frenkel International Corporation could not, as it claims, have acted as an agent or broker for Suan.

Finding no reversible error in the decision appealed from, the same is hereby affirmed, with costs.

Pablo, Bengzon, Reyes, A., Bautista Angelo, Labrador, Concepcion, and Reyes, J. B. L.,
JJ., concur.
Art 1469

.R. No. L-13753            February 15, 1919

MITSUI BUSSAN KAISHA, plaintiff-appellee,

vs.
THE MANINA ELECTRIC RAILROAD AND LIGHT COMPANY,
defendant-appellant.

Lawrence & Ross for appellant.

Hartigan & Welch for appellee.

STREET, J.:

Prior to December 23, 1914, the plaintiff corporation, Mitsui Bussan Kaisha, had contracted to sell
large quantities of coal to the defendant, the Manila Electric Railroad and Light Company. Deliveries
under this contract were made from time to time to meet the requirements of the defendant company
from shipments arriving from Japan. The basic price fixed in the contract was P9.45 per long ton, but
it was stipulated that the price was subject to modification "in proportion to variations in calories and
ash content, and not otherwise." This means of course and ash contend, and not otherwise." This
means of course that the price could be made certain by the application of known factors (Civil
Code, art. 1447), and for the purposes of this case it may be assumed that the price was fixed at
P9.45 per long ton.

While extensive deliveries were still to be made under the contract above referred to, the
Legislature, by Act No. 2432, passed December 23, 1914, imposed a specific tax of one pose per
metric ton on coal. Shortly thereafter this Act was amended in certain respects by Act No. 2445; and
in this later Act the following provision was inserted:

Whenever any person has prior to the enactment of this law entered into a contract whereby
he has bound himself to furnish another any article herein made subject to a specific tax or
an increase rate of specific tax, the burden of said tax or increased rate to tax shall be borne
by the person to whom said article is furnished pursuant to such contract, unless the parties
have agreed or shall agreed otherwise.

In the deficiency appropriation act of March 4, 1915 (see Public laws of the Philippine Islands, vol.
10, p. 315), the Congress of the United States ratified the foregoing statutes in the following
language :

The internal-revenue taxes imposed by the Philippine Legislature under the law enacted by
that body on December twenty-third, nineteen hundred and fourteen (No 2432), as amended
by the law enacted by it on January sixteenth, nineteenth hundred and fifteen (No. 2445), are
hereby legalized and ratified, and the collection of all such taxes, heretofore or hereafter is
 hereby legalized, ratified and confirmed as fully to all intents and purposes as if the same
had by prior Act of Congress been specifically authorized and directed.

In the period embracing the months from March to October, inclusive, of the year 1915, the plaintiff
company brought to Manila from Japan large quantities of coal amounting in all to 11,874.75 metric
tons for delivery to the defendant company upon the contract above-mentioned. In order to effect the
entrance of said coal, through the Bureau of Customs, at the port of Manila, it was necessary for the
plaintiff company to pay the new internal-revenue tax imposed by Acts Nos. 2432 and 2445; and it
did in fact pay in satisfaction of said tax the aggregate sum of P11,874.75. The plaintiff then
demanded reimbursement of said sum from the defendant, basing its claim upon the provision
above quoted from Act No. 2445. The defendant refused to accede to this demand, and the present
action was instituted by the plaintiff to recover the amount so paid out by it. From judgment entered
in favor of the plaintiff the defendant has appealed.

The case admittedly turns upon the interpretation of Act No. 2445 and in particular upon the
meaning to be attributed to the words "unless the parties have agreed . . . otherwise." It is evident
that the plaintiff, prior to the enactment of Act No. 2432, had entered into a contract whereby it
bound itself to furnish to the defendant an article, coal, made subject by said Act to a specific tax.
Therefore, by the express terms of the Act, the burden of the tax should be borne by the defendant,
unless the parties had agreed otherwise.

It is insisted for the defendant that, inasmuch as the contract stated a fixed price per ton for the coal,
the plaintiff was obligated to deliver the coal at that price and incidentally was bound to bear any
expense necessary to enable it so to deliver the coal to the defendant. And it is admitted that by the
terms of the original contract the plaintiff was bound to "deliver the coal on defendant's premises in
Manila for a price of P9.45 per long ton, to be modified in proportion to variations in calories and ash
content, and not otherwise." From this it is argued the parties had in effect agreed that the internal-
revenue tax should be paid by the seller; and that the case is within the exception created by the
closing words of the provision already quoted from Act No. 2445.

Notwithstanding the vigor and ability with which the point has been argued, we are unable to accept
interpretation which the appellant thus asks us to place upon the statute in question. We think that
the words "unless the parties have agreed or shall agree otherwise" contemplate the case where
express provision has been made with direct reference to the burden of such internal-revenue taxes
as the Legislature might impose. The original contract contained no express provision on this point,
and the parties made no contract with reference thereto after Act No. 2445 was posted. The case is,
therefore, directly within the operative words or the provisions quoted; and the seller is, in our
opinion, relieved of the burden of the tax. It is true that, from the agreement of the plaintiff to deliver
coal at a fixed price, there was to be deduced an implication to the effect that the plaintiff should
bear all expense necessary to enable it to fulfill the principal obligation; and without the aid of the
amendatory statute the plaintiff would have been compelled to satisfy the tax in this case. But the
very purpose of the words quoted was to evade the effect of this implication and to put the burden of
the new tax on the purchaser in the absence of express stipulation to the contrary.

The interpretation proposed would defeat the end which the Legislature had in view is obvious, for
the very situation calling for relief from the burden of this new tax was that where a fixed price had
been stated in contracts for future deliveries. The seller who had contracted to make deliveries in
stated quantities at the current market price, and not at a fixed price, needed no relief, because
immediately upon the imposition of the tax, the market price would necessarily rise and the seller
would of course recoup the tax to which he would be liable by charging to the purchaser the increase
current price. Evidently the only person whom the Legislature could have intended to relieve was the
person who had bound himself to make deliveries at a fixed price. Nevertheless, the statute, in the
words already quoted, recognizes the right of the interested parties to stipulate especially with
reference to the burden of the tax, and where such a stipulation is inserted in the contract the parties
are bound thereby.

The solution of the case is not in our judgment in any wise affected by the stipulation contained in
the original contract to the effect that the price stated should be subject to modification in proportion
to variations of the coal in calories and as content and not otherwise. This provision has exclusive
reference to the quality of the coal delivered, and has no other purpose than to supply a means of
ascertaining the value of the coal by determining its utility combustion. It has no bearing upon liability
for the internal-revenue tax.

But it is said that the interpretation which we have adopted is objectionable in that the provision in
question thereby obnoxious to criticism as impairing the obligation of contracts; and it is correctly
observed that as between two feasible interpretations of any statute the court should adopt that
which avoids the impairment of existing obligation. While the last propositions undoubtedly
expresses a sound rule of interpretation, we do not think this a proper place for its application. In our
opinion the language used in the enactment under consideration is clear and the purpose of the
Legislature so manifest that there is really no room for any legitimate process of construction. The
language in question can operate only in one sense; and in this sense it must be given effect, if
valid.

Now, upon the point of the validity of the statute, there really can be no question, in view of the
action of the Congress of the United States in legalizing it, by the enactment of the provision already
quoted from the Deficiency Appropriation Act of March 4, 1915. In the absence of Congressional
ratification two questions might have been raised, namely, (1) whether the provision under
consideration impaired the obligation of existing contracts and (2) whether the tax imposed by the
same provision had been levied consistently with the rule of uniformity; for it will be remembered that
section 5 of the Philippine Bill contains the following restrictions upon legislative power in these
Islands:

No law impairing the obligation of contracts shall be enacted, and

The rule of taxation in said Islands shall be uniform.

In view of the ratification and legalization of Acts Nos. 2432 and 2445 by the Congress of the United
States, these questions become academic; and it is unnecessary here to decide or even to discuss
them. The legislation of Congress is subject to neither of the restrictions above mentioned; and by
Congressional ratification both these Act acquired all the force of Congressional enactments. The
ratifying clause appears to us clear, precise, and effective; and we think the ratifications goes not
only to the recognition of the validity of the tax on coal but also to its personal incidence, that is, the
point as to the person by whom it should be paid.

Our interpretation of Act No. 2445 being such as we have already stated, it follows that the burden of
the tax in question should be borne by the defendant, as the purchaser of the coal; and as the
plaintiff has paid said tax to the amount stated in the complaint, it is entitled to recover said amount
from the defendant, as money paid to the use of the latter. The clearly contemplates that while the
tax may paid by the seller — as is the practice under our revenue system — the ultimate liability
should, in such a case as that now under consideration, fall on the purchaser. The right of action in
favor of the plaintiff to recover the money so paid out by it is, therefore, deducible by implication from
the language of the statute itself. This, however, is unimportant, since by the article 1158 of the Civil
Code any person who makes payment for the account of another may, in any case, recover from the
debtor the sum so paid out, at lead in the extent to which the payment may have been beneficial to
the debtor.

Our conclusion is that judgment was rightly entered in the trial court in favor of the plaintiff, for the
sum of P11,874.75 with interest from August 21, 1917. Said judgment is accordingly affirmed, with
costs. So ordered.

Arellano, C.J., Torres, Carson, Araullo, Malcolm, Avanceña and Moir, JJ., concur.

G.R. No. 103338 January 4, 1994

FEDERICO SERRA, petitioner,
vs.
THE HON. COURT OF APPEALS AND RIZAL COMMERCIAL BANKING
CORPORATION, respondents.

Andres R. Amante, Jr. for petitioner.

R.C. Domingo, Jr. & Associates for private respondent.

NOCON, J.:

A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An
accepted unilateral promise to buy and sell a determinate thing for a price certain is binding upon the
promisor if the promise is supported by a consideration distinct from the price. (Article 1479, New
Civil Code) The first is the mutual promise and each has the right to demand from the other the
fulfillment of the obligation. While the second is merely an offer of one to another, which if accepted,
would create an obligation to the offeror to make good his promise, provided the acceptance is
supported by a consideration distinct from the price.

Disputed in the present case is the efficacy of a "Contract of Lease with Option to Buy", entered into
between petitioner Federico Serra and private respondent Rizal Commercial Banking Corporation.
(RCBC).

Petitioner is the owner of a 374 square meter parcel of land located at Quezon St., Masbate,
Masbate. Sometime in 1975, respondent bank, in its desire to put up a branch in Masbate, Masbate,
negotiated with petitioner for the purchase of the then unregistered property. On May 20, 1975, a
contract of LEASE WITH OPTION TO BUY was instead forged by the parties, the pertinent portion
of which reads:

1. The LESSOR leases unto the LESSEE, an the LESSEE hereby accepts in lease,
the parcel of land described in the first WHEREAS clause, to have and to hold the
same for a period of twenty-five (25) years commencing from June 1, 1975 to June 1,
2000. The LESSEE, however, shall have the option to purchase said parcel of land
within a period of ten (10) years from the date of the signing of this Contract at a
price not greater than TWO HUNDRED TEN PESOS (P210.00) per square meter.
For this purpose, the LESSOR undertakes, within such ten-year period, to register
said parcel of land under the TORRENS SYSTEM and all expenses appurtenant
thereto shall be for his sole account.
 If, for any reason, said parcel of land is not registered under the TORRENS SYSTEM
within the aforementioned ten-year period, the LESSEE shall have the right, upon
termination of the lease to be paid by the LESSOR the market value of the building
and improvements constructed on said parcel of land.

The LESSEE is hereby appointed attorney-in-fact for the LESSOR to register said
parcel of land under the TORRENS SYSTEM in case the LESSOR, for any reason,
fails to comply with his obligation to effect said registration within reasonable time
after the signing of this Agreement, and all expenses appurtenant to such registration
shall be charged by the LESSEE against the rentals due to the LESSOR.

2. During the period of the lease, the LESSEE covenants to pay the LESSOR, at the
latter's residence, a monthly rental of SEVEN HUNDRED PESOS (P700.00),
Philippine Currency, payable in advance on or before the fifth (5th) day of every
calendar month, provided that the rentals for the first four (4) months shall be paid by
the LESSEE in advance upon the signing of this Contract.

3. The LESSEE is hereby authorized to construct as its sole expense a building and
such other improvements on said parcel of land, which it may need in pursuance of
its business and/or operations; provided, that if for any reason the LESSEE shall fail
to exercise its option mentioned in paragraph (1) above in case the parcel of land is
registered under the TORRENS SYSTEM within the ten-year period mentioned
therein, said building and/or improvements, shall become the property of the
LESSOR after the expiration of the 25-year lease period without the right of
reimbursement on the part of the LESSEE. The authority herein granted does not,
however, extend to the making or allowing any unlawful, improper or offensive used
of the leased premises, or any use thereof, other than banking and office purposes.
The maintenance and upkeep of such building, structure and improvements shall
likewise be for the sole account of the LESSEE.  1

The foregoing agreement was subscribed before Notary Public Romeo F. Natividad.

Pursuant to said contract, a building and other improvements were constructed on the land which
housed the branch office of RCBC in Masbate, Masbate. Within three years from the signing of the
contract, petitioner complied with his part of the agreement by having the property registered and
placed under the TORRENS SYSTEM, for which Original Certificate of Title No. 0-232 was issued
by the Register of Deeds of the Province of Masbate.

Petitioner alleges that as soon as he had the property registered, he kept on pursuing the manager
of the branch to effect the sale of the lot as per their agreement. It was not until September 4, 1984,
however, when the respondent bank decided to exercise its option and informed petitioner, through
a letter,   of its intention to buy the property at the agreed price of not greater than P210.00 per
2

square meter or a total of P78,430.00. But much to the surprise of the respondent, petitioner replied
that he is no longer selling the property.
3

Hence, on March 14, 1985, a complaint for specific performance and damages were filed by
respondent against petitioner. In the complaint, respondent alleged that during the negotiations it
made clear to petitioner that it intends to stay permanently on property once its branch office is
opened unless the exigencies of the business requires otherwise. Aside from its prayer for specific
performance, it likewise asked for an award of P50,000.00 for attorney's fees P100,000.00 as
exemplary damages and the cost of the suit. 4
A special and affirmative defenses, petitioner contended:

1. That the contract having been prepared and drawn by RCBC, it took undue
advantage on him when it set in lopsided terms.

2. That the option was not supported by any consideration distinct from the price and
hence not binding upon him.

3. That as a condition for the validity and/or efficacy of the option, it should have
been exercised within the reasonable time after the registration of the land under the
Torrens System; that its delayed action on the option have forfeited whatever its
claim to the same.

4. That extraordinary inflation supervened resulting in the unusual decrease in the

purchasing power of the currency that could not reasonably be forseen or was
manifestly beyond the contemplation of the parties at the time of the establishment of
the obligation, thus, rendering the terms of the contract unenforceable, inequitable
and to the undue enrichment of RCBC.  5

and as counterclaim petitioner alleged that:

1. The rental of P700.00 has become unrealistic and unreasonable, that justice and
equity will require its adjustment.

2. By the institution of the complaint he suffered moral damages which may be

assessed at P100,000.00 and award of attorney's fee of P25,000.00 and exemplary
damages at P100,000.00. 6

Initially, after trial on the merits, the court dismissed the complaint. Although it found the contract to
be valid, the court nonetheless ruled that the option to buy in unenforceable because it lacked a
consideration distinct from the price and RCBC did not exercise its option within reasonable time.
The prayer for readjustment of rental was denied, as well as that for moral and exemplary damages. 7

Nevertheless, upon motion for reconsideration of respondent, the court in the order of January 9,
1989, reversed itself, the dispositive portion reads:

WHEREFORE, the Court reconsiders its decision dated June 6, 1988, and hereby
renders judgment as follows:

1. The defendant is hereby ordered to execute and deliver the proper deed of sale in
favor of plaintiff selling, transferring and
conveying the property covered by and described in the Original Certificate of Title 0-
232 of the Registry of Deeds of Masbate for the sum of Seventy Eight Thousand Five
Hundred Forty Pesos (P78,540,00), Philippine Currency;

2. Defendant is ordered to pay plaintiff the sum of Five Thousand (P5,000.00) Pesos
as attorney's fees;

3. The counter claim of defendant is hereby dismissed; and

4. Defendants shall pay the costs of suit. 8

In a decision promulgated on September 19, 1991,  the Court of Appeals affirmed the findings of the
9

trial court that:

1. The contract is valid and that the parties perfectly understood the contents thereof;

2. The option is supported by a distinct and separate consideration as embodied in

the agreement;

3. There is no basis in granting an adjustment in rental.

Assailing the judgment of the appellate court, petitioner would like us to consider mainly the
following:

1. The disputed contract is a contract of adhesion.

2. There was no consideration to support the option, distinct from the price, hence
the option cannot be exercised.

3. Respondent court gravely abused its discretion in not granting currency

adjustment on the already eroded value of the stipulated rentals for twenty-five years.

The petition is devoid of merit.

There is no dispute that the contract is valid and existing between the parties, as found by both the
trial court and the appellate court. Neither do we find the terms of the contract unfairly lopsided to
have it ignored.

A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in the
contract, while the other party merely affixes his signature or his "adhesion" thereto. These types of
contracts are as binding as ordinary contracts. Because in reality, the party who adheres to the
contract is free to reject it entirely. Although, this Court will not hesitate to rule out blind adherence to
terms where facts and circumstances will show that it is basically one-sided.  10

We do not find the situation in the present case to be inequitable. Petitioner is a highly educated
man, who, at the time of the trial was already a CPA-Lawyer, and when he entered into the contract,
was already a CPA, holding a respectable position with the Metropolitan Manila Commission. It is
evident that a man of his stature should have been more cautious in transactions he enters into,
particularly where it concerns valuable properties. He is amply equipped to drive a hard bargain if he
would be so minded to.

Petitioner contends that the doctrines laid down in the cases of

Atkins Kroll v. Cua Hian Tek,   Sanchez v. Rigos,   and Vda. de Quirino v. Palarca   were
11 12 13

misapplied in the present case, because 1) the option given to the respondent bank was not
supported by a consideration distinct from the price; and 2) that the stipulated price of "not greater
than P210.00 per square meter" is not certain or definite.

Article 1324 of the Civil Code provides that when an offeror has allowed the offeree a certain period
to accept, the offer maybe withdrawn at anytime before acceptance by communicating such
withdrawal, except when the option is founded upon consideration, as something paid or promised.
On the other hand, Article 1479 of the Code provides that an accepted unilateral promise to buy and
sell a determinate thing for a price certain is binding upon the promisor if the promise is supported
by a consideration distinct from the price.

In a unilateral promise to sell, where the debtor fails to withdraw the promise before the acceptance
by the creditor, the transaction becomes a bilateral contract to sell and to buy, because upon
acceptance by the creditor of the offer to sell by the debtor, there is already a meeting of the minds
of the parties as to the thing which is determinate and the price which is certain.   In which case, the
14

parties may then reciprocally demand performance.

Jurisprudence has taught us that an optional contract is a privilege existing only in one party — the
buyer. For a separate consideration paid, he is given the right to decide to purchase or not, a certain
merchandise or property, at any time within the agreed period, at a fixed price. This being his
prerogative, he may not be compelled to exercise the option to buy before the time
expires. 15

On the other hand, what may be regarded as a consideration separate from the price is discussed in
the case of Vda. de Quirino v. Palarca   wherein the facts are almost on all fours with the case at
16

bar. The said case also involved a lease contract with option to buy where we had occasion to say
that "the consideration for the lessor's obligation to sell the leased premises to the lessee, should he
choose to exercise his option to purchase the same, is the obligation of the lessee to sell to the
lessor the building and/or improvements constructed and/or made by the former, if he fails to
exercise his option to buy leased premises."  17

In the present case, the consideration is even more onerous on the part of the lessee since it entails
transferring of the building and/or improvements on the property to petitioner, should respondent
bank fail to exercise its option within the period stipulated.  18

The bugging question then is whether the price "not greater than TWO HUNDRED PESOS" is
certain or definite. A price is considered certain if it is so with reference to another thing certain or
when the determination thereof is left to the judgment of a specified person or persons.   And19

generally, gross inadequacy of price does not affect a contract of sale.  20

Contracts are to be construed according to the sense and meaning of the terms which the parties
themselves have used. In the present dispute, there is evidence to show that the intention of the
parties is to peg the price at P210 per square meter. This was confirmed by petitioner himself in his
testimony, as follows:

Q. Will you please tell this Court what was the offer?

A. It was an offer to buy the property that I have in Quezon City (sic).

Q. And did they give you a specific amount?

x x x           x x x          x x x

A. Well, there was an offer to buy the property at P210 per square
meters (sic).

Q. And that was in what year?

A . 1975, sir.
 Q. And did you accept the offer?

A. Yes, sir. 
21

Moreover, by his subsequent acts of having the land titled under the Torrens System, and in
pursuing the bank manager to effect the sale immediately, means that he understood perfectly the
terms of the contract. He even had the same property mortgaged to the respondent bank sometime
in 1979, without the slightest hint of wanting to abandon his offer to sell the property at the agreed
price of P210 per square meter.  22

Finally, we agree with the courts a quo that there is no basis, legal or factual, in adjusting the
amount of the rent. The contract is the law between the parties and if there is indeed reason to
adjust the rent, the parties could by themselves negotiate for the amendment of the contract. Neither
could we consider the decline of the purchasing power of the Philippine peso from 1983 to the time
of the commencement of the present case in 1985, to be so great as to result in an extraordinary
inflation. Extraordinary inflation exists when there in an unimaginable increase or decrease of the
purchasing power of the Philippine currency, or fluctuation in the value of pesos manifestly beyond
the contemplation of the parties at the time of the establishment of the obligation. 
23

Premises considered, we find that the contract of "LEASE WITH OPTION TO BUY" between
petitioner and respondent bank is valid, effective and enforceable, the price being certain and that
there was consideration distinct from the price to support the option given to the lessee.

WHEREFORE, this petition is hereby DISMISSED, and the decision of the appellate court is hereby
AFFIRMED.

SO ORDERED.

Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur.

 [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.

Art 1470

G.R. No. L-67888 October 8, 1985

IMELDA ONG, ET AL., petitioners,

vs.
ALFREDO ONG, ET AL., respondents.

Faustino Y Bautista and Fernando M. Mangubat for private respondent.

RELOVA, J.:

This is a petition for review on certiorari of the decision, dated June 20, 1984, of the Intermediate
Appellate Court, in AC-G.R. No. CV-01748, affirming the judgment of the Regional Trial Court of
Makati, Metro Manila. Petitioner Imelda Ong assails the interpretation given by respondent Appellate
Court to the questioned Quitclaim Deed.

Records show that on February 25, 1976 Imelda Ong, for and in consideration of One (P1.00) Peso
and other valuable considerations, executed in favor of private respondent Sandra Maruzzo, then a
minor, a Quitclaim Deed whereby she transferred, released, assigned and forever quit-claimed to
Sandra Maruzzo, her heirs and assigns, all her rights, title, interest and participation in the ONE-
HALF (½) undivided portion of the parcel of land, particularly described as follows:

A parcel of land (Lot 10-B of the subdivision plan (LRC) Psd 157841, being a portion
of Lot 10, Block 18, Psd-13288, LRC (GLRC) Record No. 2029, situated in the
Municipality of Makati, Province of Rizal, Island of Luzon ... containing an area of
ONE HUNDRED AND TWENTY FIVE (125) SQUARE METERS, more or less.

On November 19, 1980, Imelda Ong revoked the aforesaid Deed of Quitclaim and, thereafter, on
January 20, 1982 donated the whole property described above to her son, Rex Ong-Jimenez.

On June 20, 1983, Sandra Maruzzo, through her guardian (ad litem) Alfredo Ong, filed with the
Regional Trial Court of Makati, Metro Manila an action against petitioners, for the recovery of
ownership/possession and nullification of the Deed of Donation over the portion belonging to her and
for Accounting.

In their responsive pleading, petitioners claimed that the Quitclaim Deed is null and void inasmuch
as it is equivalent to a Deed of Donation, acceptance of which by the donee is necessary to give it
validity. Further, it is averred that the donee, Sandra Maruzzo, being a minor, had no legal
personality and therefore incapable of accepting the donation.
Upon admission of the documents involved, the parties filed their responsive memoranda and
submitted the case for decision.

On December 12, 1983, the trial court rendered judgment in favor of respondent Maruzzo and held
that the Quitclaim Deed is equivalent to a Deed of Sale and, hence, there was a valid conveyance in
favor of the latter.

Petitioners appealed to the respondent Intermediate Appellate Court. They reiterated their argument
below and, in addition, contended that the One (P1.00) Peso consideration is not a consideration at
all to sustain the ruling that the Deed of Quitclaim is equivalent to a sale.

On June 20, 1984, respondent Intermediate Appellate Court promulgated its Decision affirming the
appealed judgment and held that the Quitclaim Deed is a conveyance of property with a valid cause
or consideration; that the consideration is the One (P1.00) Peso which is clearly stated in the deed
itself; that the apparent inadequacy is of no moment since it is the usual practice in deeds of
conveyance to place a nominal amount although there is a more valuable consideration given.

Not satisfied with the decision of the respondent Intermediate Appellate Court, petitioners came to
Us questioning the interpretation given by the former to this particular document.

On March 15, 1985, respondent Sandra Maruzzo, through her guardian ad litem Alfredo Ong, filed
an Omnibus Motion informing this Court that she has reached the age of majority as evidenced by
her Birth Certificate and she prays that she be substituted as private respondent in place of her
guardian ad litem Alfredo Ong. On April 15, 1985, the Court issued a resolution granting the same.

A careful perusal of the subject deed reveals that the conveyance of the one- half (½) undivided
portion of the above-described property was for and in consideration of the One (P 1.00) Peso and
the other valuable considerations (emphasis supplied) paid by private respondent Sandra Maruzzo
through her representative, Alfredo Ong, to petitioner Imelda Ong. Stated differently, the cause or
consideration is not the One (P1.00) Peso alone but also the other valuable considerations. As aptly
stated by the Appellate Court-

... although the cause is not stated in the contract it is presumed that it is existing
unless the debtor proves the contrary (Article 1354 of the Civil Code). One of the
disputable presumptions is that there is a sufficient cause of the contract (Section 5,
(r), Rule 131, Rules of Court). It is a legal presumption of sufficient cause or
consideration supporting a contract even if such cause is not stated therein (Article
1354, New Civil Code of the Philippines.) This presumption cannot be overcome by a
simple assertion of lack of consideration especially when the contract itself states
that consideration was given, and the same has been reduced into a public
instrument with all due formalities and solemnities. To overcome the presumption of
consideration the alleged lack of consideration must be shown by preponderance of
evidence in a proper action. (Samanilla vs, Cajucom, et al., 107 Phil. 432).

The execution of a deed purporting to convey ownership of a realty is in itself prima facie evidence of
the existence of a valuable consideration, the party alleging lack of consideration has the burden of
proving such allegation. (Caballero, et al. vs. Caballero, et al., (CA), 45 O.G. 2536).

Moreover, even granting that the Quitclaim deed in question is a donation, Article 741 of the Civil
Code provides that the requirement of the acceptance of the donation in favor of minor by parents of
legal representatives applies only to onerous and conditional donations where the donation may
have to assume certain charges or burdens (Article 726, Civil Code). The acceptance by a legal
guardian of a simple or pure donation does not seem to be necessary (Perez vs. Calingo, CA-40
O.G. 53). Thus, Supreme Court ruled in Kapunan vs. Casilan and Court of Appeals, (109 Phil. 889)
that the donation to an incapacitated donee does not need the acceptance by the lawful
representative if said donation does not contain any condition. In simple and pure donation, the
formal acceptance is not important for the donor requires no right to be protected and the donee
neither undertakes to do anything nor assumes any obligation. The Quitclaim now in question does
not impose any condition.

The above pronouncement of respondent Appellate Court finds support in the ruling of this Court in
Morales Development Co., Inc. vs. CA, 27 SCRA 484, which states that "the major premise thereof
is based upon the fact that the consideration stated in the deeds of sale in favor of Reyes and the
Abellas is P1.00. It is not unusual, however, in deeds of conveyance adhering to the Anglo-Saxon
practice of stating that the consideration given is the sum of P1.00, although the actual consideration
may have been much more. Moreover, assuming that said consideration of P1.00 is suspicious, this
circumstance, alone, does not necessarily justify the inference that Reyes and the Abellas were not
purchasers in good faith and for value. Neither does this inference warrant the conclusion that the
sales were null and void ab initio. Indeed, bad faith and inadequacy of the monetary consideration
do not render a conveyance inexistent, for the assignor's liberality may be sufficient cause for a valid
contract (Article 1350, Civil Code), whereas fraud or bad faith may render either rescissible or
voidable, although valid until annulled, a contract concerning an object certain entered into with a
cause and with the consent of the contracting parties, as in the case at bar."

WHEREFORE. the appealed decision of the Intermediate Appellate Court should be, as it is hereby
AFFIRMED, with costs against herein petitioners.

SO ORDERED.

Teehankee (Chairman), Melencio-Herrera, Plana, De la Fuente and Patajo, JJ., concur.

Gutierrez, Jr., J., in the result.

Art 1475

FIRST DIVISION

[G.R. No. L-58452. September 30, 1982.]

RAZA APPLIANCE CENTER, represented by Atty. MIGUEL RANILLO, Petitioner,

v. HON. ROLANDO R. VILLARAZA, in his capacity as the Presiding Judge of
Branch II of the City Court of Cagayan de Oro City and R. A. UY APPLIANCE
CENTER, Respondents.

Narciso P. Barbaso & Associates for Petitioner.

Jo-Jac Atom B. Balmorida and Waldo G. Rebolos for Respondents.

SYNOPSIS

Petitioner Raza Appliance Center of Dipolog City issued a purchase order addressed to
R.A. Uy Appliance Center of Cagayan de Oro City directing the latter to furnish the
petitioner one piano. The order was honored by respondent which issued a delivery
receipt for the item. Upon the alleged refusal of petitioner to pay for the piano, the
respondent filed a complaint for collection with the City Court of Cagayan de Oro.
Petitioner filed a motion to dismiss alleging that the venue of the case property falls in
Dipolog City, the address appearing in the purchase order. The motion to dismiss was
denied by the respondent court for lack of merit. Hence this petitioner.

The Supreme court held that the venue is Cagayan de Oro City, the place of execution
of the contract sued upon, since it is the place where the meeting of the minds took
place.

SYLLABUS

1. REMEDIAL LAW; CIVIL ACTIONS; VENUE; ACTIONS TO ENFORCE CONTRACTS;

PLACE OF EXECUTION OF CONTRACT SUED UPON. — In the absence of a written
agreement specifying where the action arising out of a alleged violation of the contract
should be filed b, the venue of actions under Section 1(b), Rule 4, Rules of Court, is the
place of the execution of the contract sued upon as appears therefrom. In the case at
bar, the purchase order is not the contract sued upon. By itself, it was only an offer to
buy.
 2. CIVIL LAW; CIVIL ACTIONS; VENUE; ACTIONS TO ENFORCE CONTRACTS; PLACE
WHERE MEETING OF THE MINDS TOOK PLACE; CASE AT BAR. — Under Article 1475,
Civil Code, the contract of sale is perfected at the moment there is meeting of minds
upon the thing which is the object of the contract and upon the price. Here, the
meeting of minds of took place in Cagayan de Oro City, when the vendor received the
purchase order, agreed to its terms and acted upon it. As a matter of fact, it was not
alone the meeting of minds but also the consummation of the contract which happened
in Cagayan de Oro. The petitioner’s representative received the piano at Cagayan de
Oro and assumed the responsibility and expenses of bringing it to Dipolog City. He
signed the delivery receipt at Cagayan de Oro. Under the circumstances of this case,
the documents evidencing the contract show the place of execution to be Cagayan de
Oro City. The purchase order was an offer to buy directed to R.A. Uy Appliance Center
with address at Cagayan de Oro City. It was brought to the latter city to be acted upon
at that place. The delivery of the piano also at Cagayan de Oro City. The entry on the
delivery receipt showing that the purchased item was delivered to Raza Appliance
Center of Dipolog City merely indicates the name and address of the buyer but not the
place of the execution of the contract.

DECISION

GUTIERREZ, JR., J.:

On November 21, 1979, petitioner Raza Appliance Center of Dipolog City issued a
purchase order addressed to R.A Uy Appliance Center of Cagayan de Oro City directing
the latter to furnish the petitioner one Weinstein Accousticon Piano worth P7,710.00.
The order was honored by respondent R.A. Uy Appliance Center which issued a delivery
receipt for the item.

Upon the alleged refusal of Raza to pay for the piano inspite of repeated demands made
by Uy, the latter filed a complaint for collection and/or sum of money on January 19,
1981 with the City Court of Cagayan de Oro City. The complaint was docketed as Civil
Case No. 7602 of the respondent court.

Raza filed a motion to dismiss Civil Case No. 7602, alleging that the venue of the case
properly falls in Dipolog City and not Cagayan de Oro City. The motion to dismiss was
denied by the respondent court for lack of merit. Hence, this petition was filed.

Section 1(b) of Rule 4 provides: chanrob1es virtual 1aw library

x          x           x

"(b) Personal actions. — All other civil actions in inferior courts shall be brought: jgc:chanrobles.com.ph

"(1) In the place specified by the parties by means of a written agreement, whenever
the court shall have jurisdiction to try the action by reason of its nature or the amount
involved;
"(2) If there is no such agreement, in the place of the execution of the contract sued
upon as appears therefrom;

"(3) When the place of execution of the written contract sued upon does not appear
therein, or the action is not upon a written contract, then in the municipality where the
defendant or any of the defendants resides or may be served with summons." cralaw virtua1aw library

The petitioner and respondent are agreed that they have no written agreement
specifying where the action arising out of an alleged violation of the contract should be
filed.

The issued is whether or not to apply the second paragraph on "the place of execution
of the contract sued upon as appears therefrom." cralaw virtua1aw library

There are two documents evidencing the transaction.

Annex A of the complaint is a purchase order on a printed form of Raza Appliance

Center directed to the private respondent asking that Raza be furnished the piano as
described in the order. The purchase order form understandably carries the address of
Raza in Dipolog City.

Annex B is the delivery receipt on a printed form of R.A. Uy Appliance Center directed
to the petitioner stating the delivery of the piano. The printed receipt carries the
address of the private respondent in Cagayan de Oro City.

Where was the contract of sale executed?

Petitioner Raza Appliance Center contends that;

"The contract ‘sued upon’, no doubt, is none other than the purchase order marked as
Annex A to the complaint. But as has already been stated, there is nothing in said
document to point out the place of execution of the contract. Indeed the said Annex A
points and indicates clearly the residence of the petitioner which is Dipolog City, in the
same manner that the residence of the private respondent is very well noted as
Cagayan de Oro City. It is precisely for this reason why the rule insists on the
phraseology ‘in the place of execution of the contract sued upon as appears therefrom.’
When the place of the execution of the contract does not appear on its face then the
Rule says in the municipality where the defendant or any of the defendants resides or
may be served with summons." cralaw virtua1aw library

On the other hand, respondent R.A. Uy Appliance Center states that the place of
execution of the contract sued upon is Cagayan de Oro. It argues: chanrob1es virtual 1aw library

x          x           x

"The reason being that the unilateral act merely of petitioner of preparing in Dipolog
City the purchase order, that it relied so much in the instant petition, partaking as it
does, simply of an order, offer or proposal to buy, did not and cannot yet give rise to a
valid contract for without the conformity of the other party, the same was still wanting
of the meeting of the minds of the parties, that negates the essential element of a
contract.

"That is why petitioner had to address its purchase order to private respondent in
Cagayan de Oro City where it could obtain the latter’s conformity and ascertain whether
or not its order could be granted and finally executed by its delivery.

"The fact that private respondent issued a delivery receipt in Cagayan de Oro City itself
clearly indicates that it conformed to petitioner’s order only in Cagayan de Oro City.

"Consequently, it is only in Cagayan de Oro City where the meeting of the minds of the
parties took place, where the elements of a valid contract were complied with, and the
agreement of the parties finally executed by its delivery. It is incidentally in Cagayan de
Oro City where ownership was transferred, as in obedience to law and jurisdiction, it is
delivery that generally transfer ownership (Art. 1496, New Civil Code).

"Execution is not limited to signing alone, as when petitioner prepared and signed its
purchase order.’Execution imports,’ includes or involves delivery. (Miller v. Jansen, 21
Cal. 2d 473, 132 P. 2d 801, 802; McCarthy Co. v. Commissioner of Internal Revenue,
C.C.A. 9, 80F. 2d 618, 620; Stocks v. Luzer, 232 Ala. 482, 168 So. 877, 878; p. 678
Black Law Dictionary, 4th ed)"

We agree with the private Respondent. The respondent court did not act without
jurisdiction or with grave abuse of discretion. The petition has no merit.

The purchase order is not, as contended by the petitioner, the contract sued upon. By
itself, it was only an offer to buy. Under Article 1475, the contract of sale is perfected at
the moment there is a meeting of minds upon the thing which is the object of the
contract and upon the price. In Philippine Virginia Tobacco Administration v. De los
Angeles (87 SCRA 197, 210) this Court, speaking through the Senior Associate Justice
and now Chief Justice Enrique M. Fernando, emphasized that this has been the rule
since the 1902 decision of Irureta v. Tambunting (1 Phil. 490) and cited subsequent
cases adhering to the doctrine. (Cf. Barretto v. Santa Marina, 26 Phil. 200 [1913];
Cruzado v. Bustos and Escaler, 34 Phil. 17 [1916]; Ocejo, Perez and Co. v.
International Banking Corp., 37 Phil. 631 [1918]; Warner, Barnes and Co. v. Inza, 43
Phil. 505 [1922]; Earnshaw Docks v. Collector of Internal Revenue, 54 Phil. 696
[1930]; Chua Ngo v. Universal Trading Co., Inc., 87 Phil. 331 [1950]; and Soriano v.
Latoño, 98 Phil. 757 [1950]).

The meeting of minds took place in Cagayan de Oro City when the vendor received the
purchase order, agreed to its terms, and acted upon it. As a matter of fact, it was not
alone the meeting of minds but also the consummation of the contract which happened
in Cagayan de Oro. The petitioner’s representative received the piano at Cagayan de
Oro and assumed the responsibility and expenses of bringing it to Dipolog City. He
signed the delivery receipt at Cagayan de Oro.

Under the circumstances of this case, the documents evidencing the contract show the
place of execution to be Cagayan de Oro City. The purchase order (Exhibit A) was an
offer to buy directed to R.A. Uy Appliance Center with address at Cagayan de Oro City.
It was brought to the latter city to be acted upon at that place. The delivery receipt
(Exhibit B) indicates the acceptance of the offer and the delivery of the piano also at
Cagayan de Oro City. The entry on the delivery receipt showing that the purchased item
was delivered to Raza Appliance Center of Dipolog City merely indicates the name and
address of the buyer but not the place of the execution of the contract.

WHEREFORE, the petition is hereby dismissed for lack of merit. The temporary
restraining order dated October 28, 1981 is set aside. Costs against the petitioner.

SO ORDERED.

Teehankee (Chairman), Makasiar, Melencio-Herrera, Plana, Vasquez and Relova, JJ.,

concur.

[G.R. No. L-30786. February 20, 1984.]

OLEGARIO B. CLARIN, Petitioner, v. ALBERTO L. RULONA and THE HONORABLE

COURT OF APPEALS, Respondents.

Bengzon, Villegas & Zarraga Law Office for Petitioner.

Tirol, Tirol and Bernaldez & Tirol for Respondents.

SYLLABUS

1. CIVIL LAW; CONTRACTS; SALES; PERFECTION THEREOF, CASE AT BAR. — A

contract of sale is perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price. Such contract is binding in
whatever form it may have been entered into. Construing Exhibits A and B together, it
can be seen that the petitioner agreed to sell and the respondent agreed to buy a
definite object, that is, ten hectares of land which is part and parcel of Lot 20 PLD No.
4, owned in common by the petitioner and his sisters although the boundaries of the
ten hectares would be delineated at a later date. The parties also agreed on a definite
price which is P2,500.00. Exhibit B further shows that the petitioner has received from
the respondent as initial payment, the amount of P800.00. Hence, it cannot be denied
that there was a perfected contract of sale between the parties and that such contract
was already partially executed when the petitioner received the initial payment of
P800.00. The latter’s acceptance of the payment clearly showed his consent to the
contract thereby precluding him from rejecting its binding effect.

2. ID.; ID.; ID.; ID.; PARTIAL EXECUTION; EFFECTS. — With the contract being
partially executed, the same is no longer covered by the requirements of the Statute of
Frauds in order to be enforceable. Therefore, with the contract being valid and
enforceable, the petitioner cannot avoid his obligation by interposing that Exhibit A is
not a public document. On the contrary, under Article 1357 of the Civil Code, the
petitioner can even be compelled by the respondent to execute a public document to
embody their valid and enforceable contract.
3. ID.; PROPERTY; CO-OWNERSHIP; CO-OWNER CANNOT BIND PROPERTY OWNED IN
COMMON. — Although as a co-owner, the petitioner cannot dispose of a specific portion
of the land, his share shall be bound by the effect of the sale. This is anchored in Article
493 of the Civil Code.

DECISION

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the decision of the Court of Appeals which
affirmed the finding of the trial court that there was a perfected contract of sale
between the petitioner and the respondent with regard to the ten (10) hectares of land
constituting the petitioner’s share of Lot 20 PLD No. 4, Carmen Cadastre in Carmen,
Bohol.chanrobles virtual lawlibrary

On May 31, 1959 the petitioner executed two documents, namely, Exhibits "A" and "B"
which respectively provide: jgc:chanrobles.com.ph

"TO WHOM THIS MAY CONCERN: jgc:chanrobles.com.ph

"This is to authorize Mr. Gustavo Decasa, surveyor from Batuan, Bohol to survey on
behalf of Mr. & Mrs. Alberto L. Rulona of Suba, Katipunan, Carmen, Bohol, a portion of
the share of the undersigned of Lot 20 PLD No. 4 (Carmen Cadastre) from the CLARIN
HERMANOS of which the undersigned is one of the heirs in a decision rendered in Cad.
Case No. 20, Reg. Rec. No. 200 promulgated by Judge Hipolito Alo of the Court of First
Instance of this province dated January 6, 1956; of the ten hectares (10) awarded to
Mr. & Mrs. Alberto L. Rulona which the couple purchased from the undersigned for TWO
THOUSAND FIVE HUNDRED PESOS (P2,500.00). The portion of land to be surveyed is
situated where the house and vicinity of Mr. & Mrs. A. Rulona are located in said lot.

(SGD.) OLEGARIO B. CLARIN

(SGD.) ZOILA L. CLARIN

"Received from Mr. Alberto Rulona of Carmen, Bohol, the sum of Eight Hundred
(P800.00) Pesos as an initial payment for the ten hectares of land in Carmen, Bohol
which he is going to purchase from the undersigned. The value of the land in question
is P2,500.00." cralaw virtua1aw library

Respondent Rulona filed a complaint for specific performance and recovery of

improvements on the ground that the petitioner and his wife violated the terms of the
agreement of sale "by returning by their own volition and without the consent of
plaintiff, the amount of P1,100.00 in six postal money orders, covering the
downpayment of P1,000.00 and first installment of P100.00." cralaw virtua1aw library

In his complaint, the respondent alleged that the petitioner sold ten hectares of his
share of the disputed lot to him for P2,500.00. The conditions of the sale were that a
downpayment of P1,000.00 was to be made and then the balance of P1,500.00 was to
be paid in monthly installment of P100.00. As shown by Exhibit B, the respondent
delivered to the petitioner a downpayment of P800.00 and on the first week of June the
amount of P200.00 was also delivered thereby completing the downpayment of
P1,000.00. On the first week of August, another delivery was made by the respondent
in the amount of P100.00 as payment for the first installment. Respondent further
alleged that despite repeated demands to let the sale continue and for the petitioner to
take back the six postal money orders, the latter refused to comply. cralawnad

In his answer, the petitioner alleged that while it is true that he had a projected
contract of sale of a portion of land with the respondent, such was subject to the
following conditions: (1) that the contract would be realized only if his co-heirs would
give their consent to the sale of a specific portion of their common inheritance from the
late Aniceto Clarin before partition of the said common property and (2) that should his
co-heirs refuse to give their consent, the projected contract would be discontinued or
would not be realized. Petitioner further contended that the respondent knew fully well
the above terms and accepted them as conditions precedent to the perfection or
consummation of the contract; that respondent delivered the amount of P1,000.00 as
earnest money, subject to the above conditions and that the amount was returned by
the petitioner upon his learning definitely that his co-heirs and co-owners refused to
give their consent to the projected sale.

The trial court rendered judgment in favor of the respondent on the ground that the
contract of sale, Exhibit A, is a pure sale of a portion of Lot No. 20, containing an area
of ten hectares for the sum of P2,500.00, and that the sale is not subject to any
condition nor is it vitiated by any flaw. Therefore, it declared the same binding upon the
parties under Articles 1356 and 1458 of the Civil Code. The trial court also ruled that
the fact that petitioner returned the sum of P1,100.00 paid by the respondent indicated
an intention to rescind the contract. The court stated, however, that rescission under
Article 1191 of the Civil Code can be authorized by the court only if either party violates
his obligation. Since there had been no violation, the court ruled that the petitioner
could not rescind the contract. Lastly, the court held that although as co-owner the
petitioner could not dispose of a specific portion of the land, nevertheless, his share was
bound by the effect of the sale.chanrobles lawlibrary : rednad

On appeal, the Court of Appeals sustained the findings of the trial court, stating that: chanrob1es virtual 1aw library

x          x           x

". . . We believe that the trial court did not incur any error when it arrived at the
conclusion that there was a perfected contract of sale between the plaintiff and the
defendant, for indeed the terms of the agreement (Exh. A) were clearly drafted in an
equivocal manner that leaves no room for interpretation other than those terms
contained therein, the real substance of which satisfied all the elements and requisites
of a contract. Appellant, however, argues that Exhibit A was a mere authority to
survey. It is not addressed to any definite party, it does not contain the proper heading,
there is no statement of the manner of paying the purchase price, no personal
circumstances of the parties, and it is not notarized. All these grounds relied upon to
suit the theory of appellant, anchored as it were on a weak foundation, deserve scant
consideration. Suffice it to state that a contract to be binding upon the contracting
parties need not be notarized. Neither should it specify the manner of payment of the
consideration nor should it specify the manner of payment of the consideration nor
should it contain the proper heading." (sic)

It is maintained in this petition that the appellate court erred in holding there was a
perfected contract of sale between the petitioner and the respondent, principally relying
on Exhibit A and that even assuming that the latter were a perfected contract of sale,
such was subject to a condition precedent with which there was no compliance. The
petitioner alleges that the two documents introduced in evidence could not effectively
convey title to the land because they were not public documents. Lastly, the petitioner
contends that he could not have validly disposed of a definite portion of the community
property and therefore, there arose a legal impossibility for him and the respondent to
agree on a definite object.chanrobles.com.ph : virtual law library

The petitioner’s contentions are without merit.

While it is true that Exhibits A and B are, in themselves, not contracts of sale, they are,
however, clear evidence that a contract of sale was perfected between the petitioner
and the respondent and that such contract had already been partially fulfilled and
executed. A contract of sale is perfected at the moment there is a meeting of minds
upon the thing which is the object of the contract and upon the price. (Article 1475,
Civil Code; Phil. Virginia Tobacco Administration v. De los Angeles, 87 SCRA 210). Such
contract is binding in whatever form it may have been entered into. (Lopez v. Auditor
General, 20 SCRA 655).

Construing Exhibits A and B together, it can be seen that the petitioner agreed to sell
and the respondent agreed to buy a definite object, that is, ten hectares of land which
is part and parcel of Lot 20 PLD No. 4, owned in common by the petitioner and his
sisters although the boundaries of the ten hectares would be delineated at a later date.
The parties also agreed on a definite price which is P2,500.00. Exhibit B further shows
that the petitioner has received from the respondent as initial payment, the amount of
P800.00. Hence, it cannot be denied that there was a perfected contract of sale
between the parties and that such contract was already partially executed when the
petitioner received the initial payment of P800.00. The latter’s acceptance of the
payment clearly showed his consent to the contract thereby precluding him from
rejecting its binding effect. (See Federation of United Namarco Distributors, Inc. v.
National Marketing Corporation, 4 SCRA 884). With the contract being partially
executed, the same is no longer covered by the requirements of the Statute of Frauds
in order to be enforceable. (See Khan v. Asuncion, 19 SCRA 996). Therefore, with the
contract being valid and enforceable, the petitioner cannot avoid his obligation by
interposing that Exhibit A is not a public document. On the contrary, under Article 1357
of the Civil Code, the petitioner can even be compelled by the respondent to execute a
public document to embody their valid and enforceable contract.

The petitioner’s contention that he was only forced to receive money from the
respondent due to the insistence of the latter merits little consideration. It is highly
improbable that the respondent would give different sums on separate dates to the
petitioner with no apparent reason, without a binding assurance from the latter that the
disputed lot would be sold to him. We agree with the trial court and the appellate court
that the payments were made in fulfillment of the conditions of the sale, namely, a
downpayment of P1,000.00 and the balance of P1,500.00, to be paid in monthly
installments of P100.00 each. chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

We, therefore, find no error in the lower court’s holding that a contract of sale was
perfected between the petitioner and the respondent and that the sale did not depend
on a condition that the petitioner’s co-owners would have to agree to the sale. The
latter finding is strengthened by the fact that although the petitioner has been stressing
that he made it clear to the respondent that the consent of his sisters as co-owners was
necessary in order for the sale to push through, his letter to respondent marked Exhibit
C stated another reason, to wit: jgc:chanrobles.com.ph

"My dear Mr. Rulona: chanrob1es virtual 1aw library

Replying to your letter of recent date, I deeply regret to inform you that my daughter,
Alice, who is now in Manila, could not be convinced by me to sell the land in question,
that is, the ten (10) hectares of land referred to in our tentative agreement. It is for
this reason that I hereby authorize the bearer, Mr. Paciano Parmisano, to return to you
in person the sum of One Thousand and One Hundred (P1,100.00) Pesos which you
have paid in advance for the proposed sale of the land in question." cralaw virtua1aw library

x          x           x

The reasons given by the petitioner cannot operate against the validity of the contract
in question. A contract is valid even though one of the parties entered into it against his
better judgment. (See Lagunzad v. Vda. de Gonzales, 92 SCRA 476; citing Martinez v.
Hongkong and Shanghai Bank, 15 Phil. 252).

Finally, we agree with the lower court’s holding that although as a co-owner, the
petitioner cannot dispose of a specific portion of the land, his share shall be bound by
the effect of the sale. This is anchored in Article 493 of the Civil Code which provides:
library
chanrob1es virtual 1aw

Art. 493. Each co-owner shall have the full ownership of his part and the fruits and
benefits pertaining thereto, and he may therefore alienate, assign or mortgage it, and
even substitute another person in its enjoyment, except when personal rights are
involved. But the effect of the alienation or the mortgage, with respect to the co-
owners, shall be limited to the portion which may be alloted to him in the division upon
the termination of the co-ownership.

WHEREFORE, the petition is hereby DISMISSED for lack of merit. Costs against the
petitioner.

SO ORDERED.

Melencio-Herrera Plana and Relova, JJ., concur.

Teehankee, J., concurs in the result.

G.R. No. 105387 November 11, 1993

JOHANNES SCHUBACK & SONS PHILIPPINE TRADING CORPORATION, petitioner,

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

Hernandez, Velicaria, Vibar & Santiago for petitioner.

Ernesto M. Tomaneng for private respondent.

ROMERO, J.:

In this petition for review on certiorari, petitioner questions the reversal by the Court of Appeals   of
1

the trial court's ruling that a contract of sale had been perfected between petitioner and private
respondent over bus spare parts.

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

Sometime in 1981, defendant   established contact with plaintiff   through the

2 3

Philippine Consulate General in Hamburg, West Germany, because he wanted to

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

On October 16, 1981, defendant submitted to plaintiff a list of the parts (Exhibit B) he
wanted to purchase with specific part numbers and description. Plaintiff referred the
list to Schuback Hamburg for quotations. Upon receipt of the quotations, plaintiff sent
to defendant a letter dated 25 November, 1981 (Exh. C) enclosing its offer on the
items listed by defendant.

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

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

On December 17, 1981, plaintiff submitted its formal offer (Exh. E) containing the
item number, quantity, part number, description, unit price and total to defendant. On
December, 24, 1981, defendant informed plaintiff of his desire to avail of the prices of
the parts at that time and enclosed Purchase Order No. 0101 dated 14 December
1981 (Exh. F to F-4). Said Purchase Order contained the item number, part number
and description. Defendant promised to submit the quantity per unit he wanted to
order on December 28 or 29 (Exh. F).

On December 29, 1981, defendant personally submitted the quantities he wanted to

Mr. Dieter Reichert, General Manager of plaintiff, at the latter's residence (t.s.n., 13
December, 1984, p. 36). The quantities were written in ink by defendant in the same
Purchase Order previously submitted. At the bottom of said Purchase Order,
defendant wrote in ink above his signature: "NOTE: Above P.O. will include a 3%
discount. The above will serve as our initial P.O." (Exhs. G to G-3-a).

Plaintiff immediately ordered the items needed by defendant from Schuback

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

An order confirmation (Exhs. I, I-1) was later sent by Schuback Hamburg to plaintiff
which was forwarded to and received by defendant on February 3, 1981 (t.s.n., 13
Dec. 1984, p. 42).

On February 16, 1982, plaintiff reminded defendant to open the letter of credit to
avoid delay in shipment and payment of interest (Exh. J). Defendant replied,
mentioning, among others, the difficulty he was encountering in securing: the
required dollar allocations and applying for the letter of credit, procuring a loan and
looking for a partner-financier, and of finding ways 'to proceed with our orders" (Exh.
K).

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

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

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

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

Demand letters sent to defendant by plaintiff's counsel dated March 22, 1983 and
June 9, 1983 were to no avail (Exhs R and S).
Consequently, petitioner filed a complaint for recovery of actual or compensatory damages,
unearned profits, interest, attorney's fees and costs against private respondent.

In its decision dated June 13, 1988, the trial court  ruled in favor of petitioner by ordering private
4

respondent to pay petitioner, among others, actual compensatory damages in the amount of DM
51,917.81, unearned profits in the amount of DM 14,061.07, or their peso equivalent.

Thereafter, private respondent elevated his case before the Court of Appeals. On February 18,
1992, the appellate court reversed the decision of the trial court and dismissed the complaint of
petitioner. It ruled that there was no perfection of contract since there was no meeting of the minds
as to the price between the last week of December 1981 and the first week of January 1982.

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

We reverse the decision of the Court of Appeals and reinstate the decision of the trial court. It bears
emphasizing that a "contract of sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price. . . . " 
5

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

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

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

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

When petitioner forwarded its purchase order to NDK, the price was still pegged at the old one.
Thus, the pronouncement of the Court Appeals that there as no confirmed price on or about the last
week of December 1981 and/or the first week of January 1982 was erroneous.
While we agree with the trial court's conclusion that indeed a perfection of contract was reached
between the parties, we differ as to the exact date when it occurred, for perfection took place, not on
December 29, 1981. Although the quantity to be ordered was made determinate only on December
29, 1981, quantity is immaterial in the perfection of a sales contract. What is of importance is the
meeting of the minds as to the object and cause, which from the facts disclosed, show that as of
December 24, 1981, these essential elements had already occurred.

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

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

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

WHEREFORE, the petition is GRANTED and the decision of the trial court dated June 13, 1988 is
REINSTATED with modification.

SO ORDERED.

Feliciano, Bidin, Melo and Vitug, JJ., concur.

 [G.R. No. L-6536.  January 25, 1956.]
EMILIANO N. RAMIREZ, Petitioner, vs. THE COURT OF APPEALS and OLGA MULLER NEASE, assisted by
her husband DARIUS NEASE, Respondents.
 
DECISION
REYES, J. B. L., J.:
Emiliano N. Ramirez, Petitioner herein, and Respondent Olga Muller Nease, were co-owners in equal
shares of a motor boat named “Olga” of 32 gross (20 net) tons. By written contract dated February 19,
1947, Muller Nease sold her undivided half-interest in the “Olga” to Ramirez, for the sum of P4,500,
payable in three installments of P1,500 each, on the 19th of February, March, and April of the year
1947. Inter alia, the contract stipulated that:
chanroblesvirtuallawlibrary

“In the event of first default of payment, the buyer shall pay six per centum per annum of all the
amounts due and payable to the seller. On the second default of payments, the buyer hereby authorizes
the seller to recover her half participation of ownership of the boat without obligation to reimburse the
payments made by the buyer.”
The first installment was duly paid. Only P750 was paid on account of the second, and nothing on the
third. Later, the “Olga” was damaged by a typhoon. On March 19, 1948, the vendor Nease filed action in
the Court of First Instance of Baguio (Case No. 108) where she resided, to recover the balance of P2,250,
plus 6 per cent interest from default on March 19, 1947. Defendant answered that he was unable to pay
due to causes independent of his will, and had notified Plaintiff (Nease) to take over her half-interest in
the boat, which she refused to do.
The action was dismissed by the Court of First Instance, on the theory that —
“It is the Defendant who has the option either to pay the purchase price in full or to return to her the
half ownership of the boat he had purchased from the Plaintiff. The paragraph of the contract above-
quoted, in the opinion of the Court, clearly specifies that in the event of second default in payment
the Defendant must return to the Plaintiff the half ownership of the boat plus the penalty of losing what
he had previously paid to her.” (Rec. App., p. 15).
Upon resort to the Court of Appeals (G.R. — C.A. No. 4009-R), the latter reversed the judgment of the
Court of First Instance, and expressly found that Ramirez was not relieved of the obligation to pay the
balance of the purchase price, because it was Plaintiff Nease who had the right to choose to collect full
payment or recover her half participation of the boat, and “the evidence failed to satisfactorily show
that there was reconveyance of the half ownership of the said boat by the Defendant in favor of
said Plaintiff.”
Thereupon, Defendant Ramirez sued out a writ of certiorari to review the decision of the Court of
Appeals.
We find no warrant for disturbing the decision of the Court of Appeals. The contract of sale gives rise to
reciprocal obligations between seller and buyer, since each party assumes obligations conditioned upon
those of the other, and the obligations of both are derived from a common origin, the perfected
contract. It follows that, pursuant to Article 1124 of the Civil Code of 1889 (now 1191 of the new Civil
Code), the breach by either party of his obligation entitles the other to a choice of alternative
remedies:  specific performance or rescission, “with damages in either case.” The seller in the present
chanroblesvirtua llawlibrary

case chose to exact specific performance of the contract in view of the Petitioner’s defaults in the
payment of the price, and demanded the balance thereof. She had the right to do so, unless she had
waived such remedy, either in the contract or by subsequent choice on her part.
But it is axiomatic that waivers are not presumed, but must be clearly and convincingly shown, either by
express stipulation or by acts admitting no other reasonable explanation but the intent to waive. 1
Hence, the sole fact that the contract of sale between the parties only provides that in case of default,
“the buyer authorizes the seller to recover her half participation — without obligation to reimburse the
payments made by the buyer,” and is silent on the seller’s right to exact payment of the outstanding
balance, there being no other stipulations incompatible therewith, does not import that the seller has
thereby lost the alternative right to demand full payment (see Cui vs. Sun Chuan, 41 Phil., 523). This
becomes more apparent from the circumstance that the contract as written merely confers upon the
seller the right (“the buyer authorizes the seller”) to rescind the sale and recover her half interest, but
does not obligate her to do so.
Of course, the seller could renounce specific performance even after the contract was made. But the
findings of fact of the Court of Appeals controvert such possibility, and we cannot alter the same. The
Court of Appeals expressly declared in its decision that there was no satisfactory evidence of the
reconveyance of the seller’s half interest;  and that the contention of Ramirez that he had
chan roblesvirtualawlibrary

authorized Respondent Muller Nease to sell the boat, and that she took the specifications of the boat for
the purpose of selling it, “was untenable”. Such pronouncements conclusively settle that the seller did
not agree to rescind the sale and become once more a part of the m/s “Olga”.
Since the seller chose and now insists upon full payment, as she is entitled to do, the loss of the boat
without fault of the buyer (Petitioner herein) is irrelevant to the case. The generic obligation to pay
money is not excused by fortuitous loss of any specific property of the debtor.
The decision of the Court of Appeals is affirmed. Costs against Petitioner, Emiliano N. Ramirez. SO
ORDERED.
Paras, C.J., Montemayor, Reyes, A., Bautista Angelo, Labrador, and Concepcion, JJ., concur.
 
Endnotes: chanroblesvirtuallawlibrary

    1.    Fernandez vs. Sebido, 70 Phil., 151;  chan roblesvirtualawlibrary Lang vs. Sheriff of Surigao, 49 Off. Gaz., (8) 3323.