Sales 1

1.) G.R. No.
200602 December 11, 2013
ACE FOODS, INC., Petitioner,

vs.
MICRO PACIFIC TECHNOLOGIES CO., LTD. , Respondent. 1
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari are the Decision dated October 21, 2011 and Resolution dated
2 3 4
February 8, 2012 of the Court of Appeals (CA) in CA-G.R. CV No. 89426 which reversed and set aside the
Decision dated February 28, 2007 of the Regional Trial Court of Makati, Branch 148 (RTC) in Civil Case No. 02-
5
1248, holding petitioner ACE Foods, Inc. (ACE Foods) liable to respondent Micro Pacific Technologies Co., Ltd.
(MTCL) for the payment of Cisco Routers and Frame Relay Products (subject products) amounting to ₱646,464.00
pursuant to a perfected contract of sale.
The Facts
ACE Foods is a domestic corporation engaged in the trading and distribution of consumer goods in wholesale and
retail bases, while MTCL is one engaged in the supply of computer hardware and equipment.
6 7
On September 26, 2001, MTCL sent a letter-proposal for the delivery and sale of the subject products to be
8
installed at various offices of ACE Foods. Aside from the itemization of the products offered for sale, the said
proposal further provides for the following terms, viz.: 9
TERMS : Thirty (30) days upon delivery
VALIDITY : Prices are based on current dollar rate and subject to changes without prior notice.
DELIVERY : Immediate delivery for items on stock, otherwise thirty (30) to forty-five days upon receipt of [Purchase
Order]
WARRANTY : One (1) year on parts and services. Accessories not included in warranty.
On October 29, 2001, ACE Foods accepted MTCL’s proposal and accordingly issued Purchase Order No.
100023 (Purchase Order) for the subject products amounting to ₱646,464.00 (purchase price). Thereafter, or on
10
March 4, 2002, MTCL delivered the said products to ACE Foods as reflected in Invoice No. 7733 (Invoice
11
Receipt). The fine print of the invoice states, inter alia, that "[t]itle to sold property is reserved in MICROPACIFIC
TECHNOLOGIES CO., LTD. until full compliance of the terms and conditions of above and payment of the
price" (title reservation stipulation). After delivery, the subject products were then installed and configured in ACE
12
Foods’s premises. MTCL’s demands against ACE Foods to pay the purchase price, however, remained
unheeded. Instead of paying the purchase price, ACE Foods sent MTCL a Letter dated September 19, 2002,
13 14
stating that it "ha[s] been returning the [subject products] to [MTCL] thru [its] sales representative Mr. Mark Anteola
who has agreed to pull out the said [products] but had failed to do so up to now."
Eventually, or on October 16, 2002, ACE Foods lodged a Complaint against MTCL before the RTC, praying that
15
the latter pull out from its premises the subject products since MTCL breached its "after delivery services"
obligations to it, particularly, to: (a) install and configure the subject products; (b) submit a cost benefit study to
justify the purchase of the subject products; and (c) train ACE Foods’s technicians on how to use and maintain the
subject products. ACE Foods likewise claimed that the subject products MTCL delivered are defective and not
16
working. 17
For its part, MTCL, in its Answer with Counterclaim, maintained that it had duly complied with its obligations to ACE
18
Foods and that the subject products were in good working condition when they were delivered, installed and
configured in ACE Foods’s premises. Thereafter, MTCL even conducted a training course for ACE Foods’s
Special Civil Actions
representatives/employees; MTCL, however, alleged that there was actually no agreement as to the purported "after
delivery services." Further, MTCL posited that ACE Foods refused and failed to pay the purchase price for the
subject products despite the latter’s use of the same for a period of nine (9) months. As such, MTCL prayed that
ACE Foods be compelled to pay the purchase price, as well as damages related to the transaction. 19
The RTC Ruling
On February 28, 2007, the RTC rendered a Decision, directing MTCL to remove the subject products from ACE
20
Foods’s premises and pay actual damages and attorney fees in the amounts of ₱200,000.00 and ₱100,000.00,
respectively. 21
At the outset, it observed that the agreement between ACE Foods and MTCL is in the nature of a contract to sell. Its
conclusion was based on the fine print of the Invoice Receipt which expressly indicated that "title to sold property is
reserved in MICROPACIFIC TECHNOLOGIES CO., LTD. until full compliance of the terms and conditions of above
and payment of the price," noting further that in a contract to sell, the prospective seller explicitly reserves the
transfer of title to the prospective buyer, and said transfer is conditioned upon the full payment of the purchase
price. Thus, notwithstanding the execution of the Purchase Order and the delivery and installation of the subject
22
products at the offices of ACE Foods, by express stipulation stated in the Invoice Receipt issued by MTCL and
signed by ACE Foods, i.e., the title reservation stipulation, it is still the former who holds title to the products until full
payment of the purchase price therefor. In this relation, it noted that the full payment of the price is a positive
suspensive condition, the non-payment of which prevents the obligation to sell on the part of the seller/vendor from
materializing at all. Since title remained with MTCL, the RTC therefore directed it to withdraw the subject products
23
from ACE Foods’s premises. Also, in view of the foregoing, the RTC found it unnecessary to delve into the
allegations of breach since the non-happening of the aforesaid suspensive condition ipso jure prevented the
obligation to sell from arising. 24
Dissatisfied, MTCL elevated the matter on appeal. 25
The CA Ruling
In a Decision dated October 21, 2011, the CA reversed and set aside the RTC’s ruling, ordering ACE Foods to pay
26
MTCL the amount of ₱646,464.00, plus legal interest at the rate of 6% per annum to be computed from April 4,
2002, and attorney’s fees amounting to ₱50,000.00. 27
It found that the agreement between the parties is in the nature of a contract of sale, observing that the said contract
had been perfected from the time ACE Foods sent the Purchase Order to MTCL which, in turn, delivered the subject
products covered by the Invoice Receipt and subsequently installed and configured them in ACE Foods’s
premises. Thus, considering that MTCL had already complied with its obligation, ACE Foods’s corresponding
28
obligation arose and was then duty bound to pay the agreed purchase price within thirty (30) days from March 5,
2002. In this light, the CA concluded that it was erroneous for ACE Foods not to pay the purchase price therefor,
29
despite its receipt of the subject products, because its refusal to pay disregards the very essence of reciprocity in a
contract of sale. The CA also dismissed ACE Foods’s claim regarding MTCL’s failure to perform its "after delivery
30
services" obligations since the letter-proposal, Purchase Order and Invoice Receipt do not reflect any agreement to
that effect.31
Aggrieved, ACE Foods moved for reconsideration which was, however, denied in a Resolution dated February 8,
32
2012, hence, this petition.
The Issue Before the Court
The essential issue in this case is whether ACE Foods should pay MTCL the purchase price for the subject
products.
The Court’s Ruling
The petition lacks merit.

A contract is what the law defines it to be, taking into consideration its essential elements, and not what the
contracting parties call it. The real nature of a contract may be determined from the express terms of the written
33
agreement and from the contemporaneous and subsequent acts of the contracting parties. However, in the
construction or interpretation of an instrument, the intention of the parties is primordial and is to be pursued.
The denomination or title given by the parties in their contract is not conclusive of the nature of its contents.
34
The very essence of a contract of sale is the transfer of ownership in exchange for a price paid or
promised. This may be gleaned from Article 1458 of the Civil Code which defines a contract of sale as follows:
35
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership 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. (Emphasis supplied)
Corollary thereto, a contract of sale is classified as a consensual contract, which means that the sale is perfected
by mere consent. No particular form is required for its validity. Upon perfection of the contract, the parties may
reciprocally demand performance, i.e., the vendee may compel transfer of ownership of the object of the sale, and
the vendor may require the vendee to pay the thing sold. 36
In contrast, a contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly
reserving the ownership of the property despite delivery thereof to the prospective buyer, binds himself to sell the
property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, i.e., the full payment of
the purchase price. A contract to sell may not even be considered as a conditional contract of sale where the
seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition,
because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the
happening of a contingent event which may or may not occur. 37
In this case, the Court concurs with the CA that the parties have agreed to a contract of sale and not to a
contract to sell as adjudged by the RTC. Bearing in mind its consensual nature, a contract of sale had been
perfected at the precise moment ACE Foods, as evinced by its act of sending MTCL the Purchase Order,
accepted the latter’s proposal to sell the subject products in consideration of the purchase price of
₱646,464.00. From that point in time, the reciprocal obligations of the parties – i.e., on the one hand, of MTCL to
deliver the said products to ACE Foods, and, on the other hand, of ACE Foods to pay the purchase price therefor
within thirty (30) days from delivery – already arose and consequently may be demanded. Article 1475 of the Civil
Code makes this clear:
Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing
the form of contracts.
At this juncture, the Court must dispel the notion that the stipulation anent MTCL’s reservation of ownership of the
subject products as reflected in the Invoice Receipt, i.e., the title reservation stipulation, changed the complexion of
the transaction from a contract of sale into a contract to sell. Records are bereft of any showing that the said
stipulation novated the contract of sale between the parties which, to repeat, already existed at the precise moment
ACE Foods accepted MTCL’s proposal. To be sure, novation, in its broad concept, may either be extinctive or
modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the
place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with
the amendatory agreement. In either case, however, novation is never presumed, and the animus novandi, whether
totally or partially, must appear by express agreement of the parties, or by their acts that are too clear and
unequivocal to be mistaken. 38
In the present case, it has not been shown that the title reservation stipulation appearing in the Invoice Receipt had
been included or had subsequently modified or superseded the original agreement of the parties. The fact that the
Invoice Receipt was signed by a representative of ACE Foods does not, by and of itself, prove animus

novandi since: (a) it was not shown that the signatory was authorized by ACE Foods (the actual party to the
transaction) to novate the original agreement; (b) the signature only proves that the Invoice Receipt was received by
a representative of ACE Foods to show the fact of delivery; and (c) as matter of judicial notice, invoices are
generally issued at the consummation stage of the contract and not its perfection, and have been even treated as
documents which are not actionable per se, although they may prove sufficient delivery. Thus, absent any clear
39
indication that the title reservation stipulation was actually agreed upon, the Court must deem the same to be a
mere unilateral imposition on the part of MTCL which has no effect on the nature of the parties’ original agreement
as a contract of sale. Perforce, the obligations arising thereto, among others, ACE Foods’s obligation to pay the
purchase price as well as to accept the delivery of the goods, remain enforceable and subsisting.
40
1âwphi1
As a final point, it may not be amiss to state that the return of the subject products pursuant to a rescissory action is
41
neither warranted by ACE Foods’s claims of breach – either with respect to MTCL’s breach of its purported "after
delivery services" obligations or the defective condition of the products - since such claims were not adequately
proven in this case. The rule is clear: each party must prove his own affirmative allegation; one who asserts the
affirmative of the issue has the burden of presenting at the trial such amount of evidence required by law to obtain a
favorable judgment, which in civil cases, is by preponderance of evidence. This, however, ACE Foods failed to
42
observe as regards its allegations of breach. Hence, the same cannot be sustained.
WHEREFORE, the petition is DENIED. Accordingly, the Decision dated October 21, 2011 and Resolution dated
February 8, 2012 of the Court of Appeals in CA-G.R. CV No. 89426 are hereby AFFIRMED.

2.) [G.R. No. 177685 : January 26, 2011]
HEIRS OF RAMON C. GAITE, CYNTHIA GOROSTIZA GAITE AND RHOGEN BUILDERS,

PETITIONERS, VS. THE PLAZA, INC. AND FGU INSURANCE CORPORATION, RESPONDENTS.
DECISION
VILLARAMA, JR., J.:
This is a petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as amended, which
seeks to reverse and set aside the Decision [1] dated June 27, 2006 and Resolution[2] dated April 20,
2007 of the Court of Appeals (CA) in CA-G.R. CV No. 58790. The CA affirmed with modification the
Decision[3] dated July 3, 1997 of the Regional Trial Court (RTC) of Makati City, Branch 63, in Civil
Case Nos. 1328 (43083) and 40755. cralaw
The facts are as follows:
On July 16, 1980, The Plaza, Inc. (The Plaza), a corporation engaged in the restaurant business,
through its President, Jose C. Reyes, entered into a contract[4] with Rhogen Builders (Rhogen),
represented by Ramon C. Gaite, for the construction of a restaurant building in Greenbelt, Makati,
Metro Manila for the price of P7,600,000.00. On July 18, 1980, to secure Rhogen's compliance with
its obligation under the contract, Gaite and FGU Insurance Corporation (FGU) executed a surety bond
in the amount of P1,155,000.00 in favor of The Plaza. On July 28, 1980, The Plaza paid
P1,155,000.00 less withholding taxes as down payment to Gaite. Thereafter, Rhogen commenced
construction of the restaurant building.
In a letter dated September 10, 1980, Engineer Angelito Z. Gonzales, the Acting Building Official of
the Municipality of Makati, ordered Gaite to cease and desist from continuing with the construction of
the building for violation of Sections 301 and 302 of the National Building Code (P.D. 1096) and its
implementing rules and regulations.[5] The letter was referred to The Plaza's Project Manager,
Architect Roberto L. Tayzon.
On September 15, 1980, Engr. Gonzales informed Gaite that the building permit for the construction
of the restaurant was revoked for non-compliance with the provisions of the National Building
Code and for the additional temporary construction without permit. [6] The Memorandum Report of
Building Inspector Victor Gregory enumerated the following violations of Rhogen in the construction
of the building:
1) No permit for Temporary Structure.
2) No notice of concrete pouring.
3) Some workers have no safety devices.
4) The Secretary and Construction Foreman refused to [receive] the Letter of Stoppage dated
September 10, 1980.
5) Mr. Ramon Gaite [is] questioning the authority of the Building Official's Inspector.
6) Construction plans use[d] on the job site is not in accordance to the approved plan. [7]
On September 19, 1980, the Project Manager (Tayzon) in his Construction Memo #23 reported on his
evaluation of Progress Billing #1 submitted by Rhogen. Tayzon stated that actual jobsite assessment
showed that the finished works fall short of Rhogen's claimed percentage of accomplishment and
Rhogen was entitled to only P32,684.16 and not P260,649.91 being demanded by Rhogen. Further,
he recommended that said amount payable to Rhogen be withheld pending compliance with
Construction Memo #18, resolution of cases regarding unauthorized withdrawal of materials from
jobsite and stoppage of work by the Municipal Engineer's Office of Makati. [8]
On October 7, 1980, Gaite wrote Mr. Jose C. Reyes, President of The Plaza regarding his
actions/observations on the stoppage order issued. On the permit for temporary structure, Gaite
said the plans were being readied for submission to the Engineering Department of the Municipality
of Makati and the application was being resent to Reyes for his appropriate action. As to the notice
for concrete pouring, Gaite said that their construction set-up provides for a Project Manager to
whom the Pouring Request is first submitted and whose job is to clear to whoever parties are
involved (this could still be worked out with the Building Inspector). Regarding the safety devices for
workers, Gaite averred that he had given strict rules on this but in the course of construction some
workers have personal preferences. On the refusal of the secretary and construction foreman to
receive the stoppage order dated September 10, 1980, Gaite took responsibility but insisted it was
not a violation of the National Building Code. Likewise, questioning the authority of the Building
Inspector is not a violation of the Code although Gaite denied he ever did so. Lastly, on the
construction plans used in the jobsite not being in accordance with the approved plan, Gaite said he
had sent Engr. Cristino V. Laurel on October 3, 1980 to Reyes' office and make a copy of the only
approved plan which was in the care of Reyes, but the latter did not give it to Engr. Laurel. Gaite
thus thought that Reyes would handle the matter by himself. [9]
On the same day, Gaite notified Reyes that he is suspending all construction works until Reyes and
the Project Manager cooperate to resolve the issue he had raised to address the problem. [10] This was
followed by another letter dated November 18, 1980 in which Gaite expressed his sentiments on
their aborted project and reiterated that they can still resolve the matter with cooperation from the
side of The Plaza.[11] In his reply-letter dated November 24, 1980, Reyes asserted that The Plaza is
not the one to initiate a solution to the situation, especially after The Plaza already paid the agreed
down payment of P1,155,000.00, which compensation so far exceeds the work completed by Rhogen
before the municipal authorities stopped the construction for several violations. Reyes made it clear
they have no obligation to help Rhogen get out of the situation arising from non-performance of its
own contractual undertakings, and that The Plaza has its rights and remedies to protect its interest.
[12]
Subsequently, the correspondence between Gaite and Reyes involved the custody of remaining bags
of cement in the jobsite, in the course of which Gaite was charged with estafa for ordering the
removal of said items. Gaite complained that Reyes continued to be uncooperative in refusing to
meet with him to resolve the delay. Gaite further answered the estafa charge by saying that he only
acted to protect the interest of the owner (prevent spoilage/hardening of cement) and that Reyes did
not reply to his request for exchange.[13]
On January 9, 1981, Gaite informed The Plaza that he is terminating their contract based on the
Contractor's Right to Stop Work or Terminate Contracts as provided for in the General Conditions of
the Contract. In his letter, Gaite accused Reyes of not cooperating with Rhogen in solving the
problem concerning the revocation of the building permits, which he described as a "minor problem."
Additionally, Gaite demanded the payment of P63,058.50 from The Plaza representing the work that
has already been completed by Rhogen.[14]
On January 13, 1981, The Plaza, through Reyes, countered that it will hold Gaite and Rhogen fully
responsible for failure to comply with the terms of the contract and to deliver the finished structure
on the stipulated date. Reyes argued that the down payment made by The Plaza was more than
enough to cover Rhogen's expenses.[15]
In a subsequent letter dated January 20, 1981, Reyes adverted to Rhogen's undertaking to complete
the construction within 180 calendar days from July 16, 1980 or up to January 12, 1981, and to pay
the agreed payment of liquidated damages for every month of delay, chargeable against the
performance bond posted by FGU. Reyes invoked Section 121 of the Articles of General Conditions
granting the owner the right to terminate the contract if the contractor fails to execute the work
properly and to make good such deficiencies and deducting the cost from the payment due to the
contractor. Reyes also informed Gaite that The Plaza will continue the completion of the structure
utilizing the services of a competent contractor but will charge Rhogen for liquidated damages as
stipulated in Article VIII of the Contract. After proper evaluation of the works completed by Rhogen,
The Plaza shall then resume the construction and charge Rhogen for all the costs and expenses
incurred in excess of the contract price. In the meantime that The Plaza is still evaluating the extent
and condition of the works performed by Rhogen to determine whether these are done in accordance
with the approved plans, Reyes demanded from Gaite the reimbursement of the balance of their
initial payment of P1,155,000.00 from the value of the works correctly completed by Rhogen, or if
none, to reimburse the entire down payment plus expenses of removal and replacement. Rhogen
was also asked to turn over the jobsite premises as soon as possible. [16] The Plaza sent copy of said
letter to FGU but the latter replied that it has no liability under the circumstances and hence it could
not act favorably on its claim against the bond. [17]
On March 3, 1981, The Plaza notified Gaite that it could no longer credit any payment to Rhogen for
the work it had completed because the evaluation of the extent, condition, and cost of work done
revealed that in addition to the violations committed during the construction of the building, the
structure was not in accordance with plans approved by the government and accepted by Ayala.
Hence, The Plaza demanded the reimbursement of the down payment, the cost of uprooting or
removal of the defective structures, the value of owner-furnished materials, and payment of
liquidated damages.[18]
On March 26, 1981, The Plaza filed Civil Case No. 40755 for breach of contract, sum of money and
damages against Gaite and FGU in the Court of First Instance (CFI) of Rizal.[19] The Plaza later
amended its complaint to include Cynthia G. Gaite and Rhogen. [20] The Plaza likewise filed Civil Case
No. 1328 (43083) against Ramon C. Gaite, Cynthia G. Gaite and/or Rhogen Builders also in the CFI
of Rizal for nullification of the project development contract executed prior to the General
Construction Contract subject of Civil Case No. 40755, which was allegedly in violation of the
provisions of R.A. No. 545 (Architectural Law of the Philippines). [21] After the reorganization of the
Judiciary in 1983, the cases were transferred to the RTC of Makati and eventually consolidated.
On July 3, 1997, Branch 63 of the RTC Makati rendered its decision granting the claims of The Plaza
against Rhogen, the Gaites and FGU, and the cross-claim of FGU against Rhogen and the Gaites. The
trial court ruled that the Project Manager was justified in recommending that The Plaza withhold
payment on the progress billings submitted by Rhogen based on his evaluation that The Plaza is
liable to pay only P32,684.16 and not P260,649.91. The other valid grounds for the withholding of
payment were the pending estafa case against Gaite, non-compliance by Rhogen with Construction
Memorandum No. 18 and the non-lifting of the stoppage order.[22]
Regarding the non-lifting of the stoppage order, which the trial court said was based on simple
infractions, the same was held to be solely attributable to Rhogen's willful inaction. Instead of readily
rectifying the violations, Rhogen continued with the construction works thereby causing more
damage. The trial court pointed out that Rhogen is not only expected to be aware of standard
requirements and pertinent regulations on construction work, but also expressly bound itself under
the General Construction Contract to comply with all the laws, city and municipal ordinances and all
government regulations. Having failed to complete the project within the stipulated period and
comply with its obligations, Rhogen was thus declared guilty of breaching the Construction Contract
and is liable for damages under Articles 1170 and 1167 of the Civil Code.[23]
The dispositive portion of the trial court's decision reads:
WHEREFORE, in Civil Case No. 40755, defendants Ramon Gaite, Cynthia Gaite and Rhogen Builders
are jointly and severally ordered to pay plaintiff:
1. the amount of P525,422.73 as actual damages representing owner-furnished materials with
legal interest from the time of filing of the complaint until full payment;
2. the amount of P14,504.66 as actual damages representing expenses for uprooting with
interest from the time of filing the complaint until full payment;
3. the amount of P1,155,000.00 as actual damages representing the downpayment with legal
interest from the time of filing the complaint until full payment;
4. the amount of P150,000.00 for moral damages;
5. the amount of P100,000.00 for exemplary damages;
6. the amount of P500,000.00 as liquidated damages;
7. the amount of P100,000.00 as reasonable attorney's fees; and,
8. the cost of suit.
Under the surety bond, defendants Rhogen and FGU are jointly and severally ordered to pay plaintiff
the amount of P1,155,000.00 with legal interest from the time of filing the complaint until full
payment. In the event [that] FGU pays the said amount, third-party defendants are jointly and
severally ordered to pay the same amount to FGU plus P50,000.00 as reasonable attorney's fees, the
latter having been forced to litigate, and the cost of suit.
Civil Case No. 1328 is hereby ordered dismissed with no pronouncement as to cost.
SO ORDERED.[24]
Dissatisfied, Ramon and Cynthia Gaite, Rhogen and FGU appealed to the CA. [25] In view of the death
of Ramon C. Gaite on April 21, 1999, the CA issued a Resolution dated July 12, 2000 granting the
substitution of the former by his heirs Cynthia G. Gaite, Rhoel Santiago G. Gaite, Genevieve G. Gaite
and Roman Juan G. Gaite.[26]
In their appeal, the heirs of Ramon C. Gaite, Cynthia G. Gaite and Rhogen assigned the following
errors, to wit:
I. THE TRIAL COURT ERRED IN DECLARING THAT THE GROUNDS RELIED UPON BY DEFENDANT-
APPELLANT RHOGEN BUILDERS IN TERMINATING THE CONTRACT ARE UNTENABLE;
II. THE TRIAL COURT ERRED IN DECLARING THAT THE NON-LIFTING OF THE STOPPAGE ORDER
OF THE THEN MUNICIPAL GOVERNMENT OF MAKATI WAS SOLELY ATTRIBUTABLE TO
DEFENDANT-APPELLANT RHOGEN'S WILLFUL INACTION;
III. THE TRIAL COURT ERRED IN FAILING TO CONSIDER THAT IT WAS THE WILLFUL INACTION OF
PLAINTIFF-APPELLEE WHICH MADE IT IMPOSSIBLE FOR DEFENDANT-APPELLANT RHOGEN TO
PERFORM ITS OBLIGATIONS UNDER THE CONTRACT;
IV. THE TRIAL COURT ERRED IN AWARDING ACTUAL DAMAGES AS WELL AS MORAL, EXEMPLARY,
AND LIQUIDATED DAMAGES AND ATTORNEY'S FEES SINCE THERE WERE NO FACTUAL AND
LEGAL BASES THEREFOR; AND
V. THE TRIAL COURT ERRED IN FAILING TO AWARD ACTUAL, MORAL AND EXEMPLARY DAMAGES
AND ATTORNEY'S FEES IN FAVOR OF DEFENDANTS-APPELLANTS. [27]
For its part, FGU interposed the following assignment of errors:
I. THE REGIONAL TRIAL COURT ERRED IN NOT RULING THAT DEFENDANT-APPELLANT RAMON
GAITE VALIDLY TERMINATED THE CONTRACT BETWEEN HIM AND PLAINTIFF-APPELLEE.

II. THE REGIONAL TRIAL COURT ERRED IN HOLDING DEFENDANT-APPELLANT RAMON GAITE
RESPONSIBLE FOR THE STOPPAGE OF THE CONSTRUCTION.
III. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANT-APPELLANT RAMON GAITE
TO PAY THE AMOUNT OF P525,422.73 FOR THE OWNER FURNISHED MATERIALS.
IV. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANT-APPELLANT RAMON GAITE
TO PAY PLAINTIFF-APPELLEE THE AMOUNT OF P14,504.66 AS ALLEGED EXPENSES FOR
UPROOTING THE WORK HE PERFORMED.
V. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANT-APPELLANT RAMON GAITE

TO REFUND THE DOWN PAYMENT OF P1,155,000.00 PLAINTIFF-APPELLEE PAID HIM.
VI. THE REGIONAL TRIAL COURT ERRED IN AWARDING MORAL DAMAGES TO PLAINTIFF-
APPELLEE.
VII. THE REGIONAL TRIAL COURT ERRED IN AWARDING EXEMPLARY DAMAGES TO PLAINTIFF-
APPELLEE.
VIII. THE REGIONAL TRIAL [COURT] ERRED IN AWARDING LIQUIDATED DAMAGES TO PLAINTIFF-
APPELLEE.
IX. THE REGIONAL TRIAL COURT ERRED IN AWARDING ATTORNEY'S FEES TO PLAINTIFF-
APPELLEE.
X. THE REGIONAL TRIAL COURT ERRED IN HOLDING DEFENDANT-APPELLANT FGU INSURANCE

CORPORATION LIABLE TO PLAINTIFF-APPELLEE. [28]
On June 27, 2006, the CA affirmed the Decision of the trial court but modified the award of damages
as follows:
WHEREFORE, the Decision dated July 3, 1997 rendered by the Regional Trial Court of Makati City,
Branch 63 in Civil Case Nos. 40755 and 1328 is AFFIRMED with the modification that: (a) the
award for actual damages representing the owner-furnished materials and the expenses for
uprooting are deleted, and in lieu thereof, the amount of P300,000.00 as temperate damages is
awarded; and (b) the awards for moral, exemplary, liquidated and attorney's fees are likewise
deleted.
SO ORDERED.[29]
According to the CA, The Plaza cannot now be demanded to comply with its obligation under the
contract since Rhogen has already failed to comply with its own contractual obligation. Thus, The
Plaza had every reason not to pay the progress billing as a result of Rhogen's inability to perform its
obligations under the contract. Further, the stoppage and revocation orders were issued on account
of Rhogen's own violations involving the construction as found by the local building official. Clearly,
Rhogen cannot blame The Plaza for its own failure to comply with its contractual obligations. The CA
stressed that Rhogen obliged itself to comply with "all the laws, city and municipal ordinances and all
government regulations insofar as they are binding upon or affect the parties [to the contract] , the
work or those engaged thereon."[30] As such, it was responsible for the lifting of the stoppage and
revocation orders. As to Rhogen's act of challenging the validity of the stoppage and revocation
orders, the CA held that it cannot be done in the present case because under Section 307 of
the National Building Code, appeal to the Secretary of the Department of Public Works and Highways
(DPWH) - whose decision is subject to review by the Office of the President -- is available as remedy
for Rhogen.[31]

However, the CA modified the award of damages holding that the claim for actual damages of
P525,422.73 representing the damaged owner-furnished materials was not supported by any
evidence. Instead, the CA granted temperate damages in the amount of P300,000.00. As to moral
damages, no specific finding for the factual basis of said award was made by the trial court, and
hence it should be deleted. Likewise, liquidated damages is not proper considering that this is not a
case of delay but non-completion of the project. The Plaza similarly failed to establish that Rhogen
and Gaite acted with malice or bad faith; consequently, the award of exemplary damages must be
deleted. Finally, there being no bad faith on the part of the defendants, the award of attorneys' fees
cannot be sustained.[32]
The motion for reconsideration of the aforesaid Decision was denied in the Resolution dated April 20,
2007 for lack of merit. Hence, this appeal.
Before us, petitioners submit the following issues:
I.
Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave abuse of
discretion amounting to lack of or excess of jurisdiction, when it found that Petitioner Rhogen had no
factual or legal basis to terminate the General Construction Contract.
II.
discretion amounting to lack of or excess of jurisdiction, when, as a consequence of its finding that
Petitioners did not have valid grounds to terminate the Construction Contract, it directed Petitioners
to return the downpayment paid by The Plaza, with legal interest.
III.
discretion amounting to lack of or excess of jurisdiction, when, in addition thereto, it awarded
temperate damages to The Plaza.
IV.
discretion amounting to lack of or excess of jurisdiction, when it failed to award damages in favor of
Petitioners.[33]
Petitioners contend that the CA gravely erred in not holding that there were valid and legal grounds
for Rhogen to terminate the contract pursuant to Article 1191 of the Civil Code and Article 123 of the
General Conditions of the Construction Contract. Petitioners claim that Rhogen sent Progress Billing
No. 1 dated September 10, 1980 and demanded payment from The Plaza in the net amount of
P473,554.06 for the work it had accomplished from July 28, 1980 until September 7, 1980. The
Plaza, however, failed to pay the said amount. According to petitioners, Article 123 of the General
Conditions of the Construction Contract gives The Plaza seven days from notice within which to pay
the Progress Billing; otherwise, Rhogen may terminate the contract. Petitioners also invoke Article
1191 of the Civil Code, which states that the power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is incumbent upon him.
We deny the petition.
Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor

and a creditor of the other, such that the obligation of one is dependent upon the obligation of the
other. They are to be performed simultaneously such that the performance of one is conditioned
upon the simultaneous fulfillment of the other. Respondent The Plaza predicated its action on Article
1191[34] of the Civil Code, which provides for the remedy of "rescission" or more
properly resolution, a principal action based on breach of faith by the other party who violates the
reciprocity between them. The breach contemplated in the provision is the obligor's failure to comply
with an existing obligation. Thus, the power to rescind is given only to the injured party. The
injured party is the party who has faithfully fulfilled his obligation or is ready and willing
to perform his obligation.[35]
The construction contract between Rhogen and The Plaza provides for reciprocal obligations whereby
the latter's obligation to pay the contract price or progress billing is conditioned on the former's
performance of its undertaking to complete the works within the stipulated period and in accordance
with approved plans and other specifications by the owner. Pursuant to its contractual obligation,
The Plaza furnished materials and paid the agreed down payment. It also exercised the option of
furnishing and delivering construction materials at the jobsite pursuant to Article III of the
Construction Contract. However, just two months after commencement of the project, construction
works were ordered stopped by the local building official and the building permit subsequently
revoked on account of several violations of the National Building Code and other regulations of the
municipal authorities.
Petitioners reiterate their position that the stoppage order was unlawful, citing the fact that when the
new contractor (ACK Construction, Inc.) took over the project, the local government of Makati
allowed the construction of the building using the old building permit; moreover, the basement depth
of only two meters was retained, with no further excavation made. They cite the testimony of the
late Ramon Gaite before the trial court that at the time, he had incurred the ire of then Mayor of
Makati because his (Gaite) brother was the Mayor's political opponent; hence, they sought to file
whatever charge they could against him in order to call the attention of his brother. This "political
harassment" defense was raised by petitioners in their Amended Answer. Gaite's testimony was
intended to explain the circumstances leading to his decision to terminate the construction contract
and not to question the revocation of the building permit. As the available remedy was already
foreclosed, it was thus error for the CA to suggest that Rhogen should have appealed the stoppage
and revocations orders issued by the municipal authorities to the DPWH and then to the OP. [36]
Article 123 of the Articles of General Conditions states the grounds for the termination of the work or
contract by the Contractor:
123. CONTRACTOR'S RIGHT TO STOP WORK OR TERMINATE CONTRACT
If work should be stopped under order of any court, or other public authority, for period of three (3)
months through no act or fault of Contractor or of anyone employed by him, or if Owner's
Representative should fail to issue any certificate of payment within seven (7) days after its maturity
and presentation of any sum certified by Owner's Representative or awarded arbitrator, then
contractor, may, stop work or terminate Contract, recover from Owner payment for work executed,
loss sustained upon any plant or materials, reasonable profit, damages. [37] (Emphasis supplied.)
Petitioners may not justify Rhogen's termination of the contract upon grounds of non-payment of
progress billing and uncooperative attitude of respondent The Plaza and its employees in rectifying
the violations which were the basis for issuance of the stoppage order. Having breached the
contractual obligation it had expressly assumed, i.e., to comply with all laws, rules and regulations of
the local authorities, Rhogen was already at fault. Respondent The Plaza, on the other hand, was
justified in withholding payment on Rhogen's first progress billing, on account of the stoppage order
and additionally due to disappearance of owner-furnished materials at the jobsite. In failing to have
the stoppage and revocation orders lifted or recalled, Rhogen should take full responsibility in
accordance with its contractual undertaking, thus:
In the performance of the works, services, and obligations subject of this Contract, the CONTRACTOR
binds itself to observe all pertinent and applicable laws, rules and regulations promulgated by duly
constituted authorities and to be personally, fully and solely liable for any and all violations of
the same.[38] (Emphasis supplied.)
Significantly, Rhogen did not mention in its communications to Reyes that Gaite was merely a victim
of abuse by a local official and this was the primary reason for the problems besetting the project. On
the contrary, the site appraisal inspection conducted on February 12 and 13, 1981 in the presence of
representatives from The Plaza, Rhogen, FGU and Municipal Engineer Victor Gregory, disclosed that
in addition to the violations committed by Rhogen which resulted in the issuance of the stoppage
order, Rhogen built the structure not in accordance with government approved plans and/or without
securing the approval of the Municipal Engineer before making the changes thereon. [39]
Such non-observance of laws and regulations of the local authorities affecting the construction
project constitutes a substantial violation of the Construction Contract which entitles The Plaza to
terminate the same, without obligation to make further payment to Rhogen until the work is finished
or subject to refund of payment exceeding the expenses of completing the works. This is evident
from a reading of Article 122 which states:
122. OWNER'S RIGHT TO TERMINATE CONTRACT
A. If Contractor should be adjudged bankrupt, or if he should make general assignment for

benefit of his creditors, or if receiver should be appointed on account of his insolvency, or if he
should persistently or repeatedly refuse or should fail, except in cases for which extension of
time is provided, to supply enough properly skilled workmen or proper materials, or if he
should fail to make prompt payment to Sub-Contractors or for materials of labor,
or persistently disregard laws, ordinances, or instructions of Owner's Representative or
otherwise be guilty of substantial violation of any provision of [the]
Contract, then Owner, upon certification by Owner's Representative that sufficient cause
exists to justify such action, may, without prejudice to any right or remedy, after giving
Contractor seven days written notice, terminate contract with Contractor, take
possession of premises, materials, tools, appliances, thereon, finish work by
whatever method he may deem expedient. In such cases, Contractor shall not be
entitled to receive any further payment until work is finished.
B. If unpaid balance of Contract sum shall exceed expense of finishing work including
compensation for additional managerial and administrative services, such excess, paid to
Contractor. Refund the difference to Owner if such expense shall exceed unpaid
balance.[40] (Emphasis supplied.)
Upon the facts duly established, the CA therefore did not err in holding that Rhogen committed a
serious breach of its contract with The Plaza, which justified the latter in terminating the contract.
Petitioners are thus liable for damages for having breached their contract with respondent The Plaza.
Article 1170 of the Civil Code provides that those who in the performance of their obligations are
guilty of fraud, negligence or delay and those who in any manner contravene the tenor thereof are
liable for damages.
Petitioners assail the order for the return of down payment, asserting that the principle of quantum
meruit demands that Rhogen as contractor be paid for the work already accomplished.
We disagree.
Under the principle of quantum meruit, a contractor is allowed to recover the reasonable value of the
thing or services rendered despite the lack of a written contract, in order to avoid unjust
enrichment. Quantum meruit means that in an action for work and labor, payment shall be made in
such amount as the plaintiff reasonably deserves. To deny payment for a building almost completed
and already occupied would be to permit unjust enrichment at the expense of the contractor. [41]
Rhogen failed to finish even a substantial portion of the works due to the stoppage order issued just
two months from the start of construction. Despite the down payment received from The Plaza,
Rhogen, upon evaluation of the Project Manager, was able to complete a meager percentage much
lower than that claimed by it under the first progress billing between July and September 1980.
Moreover, after it relinquished the project in January 1981, the site inspection appraisal jointly
conducted by the Project Manager, Building Inspector Engr. Gregory and representatives from FGU
and Rhogen, Rhogen was found to have executed the works not in accordance with the approved
plans or failed to seek prior approval of the Municipal Engineer. Article 1167 of the Civil Code is
explicit on this point that if a person obliged to do something fails to do it, the same shall be
executed at his cost.
Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has been poorly done be undone.
In addition, Article 122 of the Articles of General Conditions provides that the contractor shall not be
entitled to receive further payment "until the work is finished." As the works completed by Rhogen
were not in accordance with approved plans, it should have been executed at its cost had it not
relinquished the project in January 1981. The CA thus did not err in sustaining the trial court's order
for the return of the down payment given by The Plaza to Rhogen.
As to temperate damages, Article 2224 of the Civil Code provides that temperate or moderate

damages, which are more than nominal but less than compensatory damages, may be recovered
when the court finds that some pecuniary loss has been suffered but its amount cannot, from the
nature of the case, be proved with certainty. The rationale behind temperate damages is precisely
that from the nature of the case, definite proof of pecuniary loss cannot be offered. When the court
is convinced that there has been such loss, the judge is empowered to calculate moderate damages,
rather than let the complainant suffer without redress from the defendant's wrongful act.
[42]
Petitioners' contention that such award is improper because The Plaza could have presented
receipts to support the claim for actual damages, must fail considering that Rhogen never denied the
delivery of the owner-furnished materials which were under its custody at the jobsite during the work
stoppage and before it terminated the contract. Since Rhogen failed to account either for those
items which it had caused to be withdrawn from the premises, or those considered damaged or lost
due spoilage, or disappeared for whatever reason - there was no way of determining the exact
quantity and cost of those materials. Hence, The Plaza was correctly allowed to recover temperate
damages.
Upon the foregoing, we find petitioners' claim for actual, moral and exemplary damages and
attorney's fees lacking in legal basis and undeserving of further discussion.cralaw
WHEREFORE, the petition is DENIED. The Decision dated June 27, 2006 and the Resolution dated
April 20, 2007 of the Court of Appeals in CA-G.R. CV No. 58790 are AFFIRMED.

3.) [G.R. No. 191696, April 10, 2013]
ROGELIO DANTIS, Petitioner, v. JULIO MAGHINANG, JR., Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari seeking to reverse and set aside the January 25, 2010
Decision1 and the March 23, 2010 Resolution2 of the Court of Appeals (CA), in CA-G.R. CV No. 85258,
reversing the March 2, 2005 Decision3 of the Regional Trial Court, Branch 18, Malolos,
Bulacan (RTC), in an action for quieting of title and recovery of possession with damages.
The Facts
The case draws its origin from a complaint4 for quieting of title and recovery of possession with
damages filed by petitioner Rogelio Dantis (Rogelio) against respondent Julio Maghinang, Jr. (Julio,
Jr.) before the RTC, docketed as Civil Case No. 280-M-2002. Rogelio alleged that he was the
registered owner of a parcel of land covered by Transfer Certificate of Title (TCT) No. T-125918, with
an area of 5,657 square meters, located in Sta. Rita, San Miguel, Bulacan; that he acquired
ownership of the property through a deed of extrajudicial partition of the estate of his deceased
father, Emilio Dantis (Emilio), dated December 22, 1993; that he had been paying the realty taxes
on the said property; that Julio, Jr. occupied and built a house on a portion of his property without
any right at all; that demands were made upon Julio, Jr. that he vacate the premises but the same
fell on deaf ears; and that the acts of Julio, Jr. had created a cloud of doubt over his title and right of
possession of his property. He, thus, prayed that judgment be rendered declaring him to be the true
and real owner of the parcel of land covered by TCT No. T-125918; ordering Julio, Jr. to deliver the
possession of that portion of the land he was occupying; and directing Julio, Jr. to pay rentals from
October 2000 and attorney’s fees of P100,000.00.
He added that he was constrained to institute an ejectment suit against Julio, Jr. before the Municipal
Trial Court of San Miguel, Bulacan (MTC), but the complaint was dismissed for lack of jurisdiction and
lack of cause of action.
In his Answer,5 Julio, Jr. denied the material allegations of the complaint. By way of an affirmative
defense, he claimed that he was the actual owner of the 352 square meters (subject lot) of the land
covered by TCT No. T-125918 where he was living; that he had been in open and continuous
possession of the property for almost thirty (30) years; the subject lot was once tenanted by his
ancestral relatives until it was sold by Rogelio’s father, Emilio, to his father, Julio Maghinang, Sr.
(Julio, Sr.); that later, he succeeded to the ownership of the subject lot after his father died on March
10, 1968; and that he was entitled to a separate registration of the subject lot on the basis of the
documentary evidence of sale and his open and uninterrupted possession of the property.
As synthesized by the RTC from the respective testimonies of the principal witnesses, their
diametrically opposed positions are as follows: chanroblesvirtuallawlibrary
Plaintiff Rogelio Dantis testified that he inherited 5,657 square meters of land, identified as Lot 6-D-1
of subdivision plan Psd-031421-054315, located at Sta. Rita, San Miguel, Bulacan, through an
Extrajudicial Partition of Estate of Emilio Dantis, executed in December 1993 which land was titled
later on under his name, Rogelio Dantis, married to Victoria Payawal, as shown by copy of Transfer
Certificate of Title No. T-125918, issued by the Register of Deeds of Bulacan on September 29, 1998,
declared for taxation purposes as Tax Declaration with ARP No. C20-22-043-07-046. According to
him, defendant and his predecessor-in-interest built the house located on said lot. When he first saw
it, it was only a small hut but when he was about 60 years old, he told defendant not to build a
bigger house thereon because he would need the land and defendant would have to vacate the land.
Plaintiff, however, has not been in physical possession of the premises.
Defendant Julio Maghinang, Jr., presented by plaintiff as adverse witness, testified that he has no
title over the property he is occupying. He has not paid realty taxes thereon. He has not paid any
rental to anybody. He is occupying about 352 square meters of the lot. He presented an
affidavit executed on September 3, 1953 by Ignacio Dantis, grandfather of Rogelio Dantis
and the father of Emilio Dantis. The latter was, in turn, the father of Rogelio Dantis. The
affidavit, according to affiant Ignacio Dantis, alleged that Emilio Dantis agreed to sell 352
square meters of the lot to Julio Maghinang on installment. Defendant was then 11 years
old in 1952.
Defendant Julio Maghinang, Jr. likewise testified for the defendant’s case as follows: He owns that
house located at Sta. Rita, San Miguel, Bulacan, on a 352 square meter lot. He could not say that he
is the owner because there is still question about the lot. He claimed that his father, Julio Maghinang
(Sr.), bought the said lot from the parents of Rogelio Dantis. He admitted that the affidavit was not
signed by the alleged vendor, Emilio Dantis, the father of Rogelio Dantis. The receipt he presented
was admittedly a mere photocopy. He spent P50,000.00 as attorney’s fees. Since 1953, he has not
declared the property as his nor paid the taxes thereon because there is a problem. 6
On March 2, 2005, the RTC rendered its decision declaring Rogelio as the true owner of the entire
5,657-square meter lot located in Sta. Rita, San Miguel, Bulacan, as evidenced by his TCT over the
same. The RTC did not lend any probative value on the documentary evidence of sale adduced by
Julio, Jr. consisting of: 1) an affidavit allegedly executed by Ignacio Dantis (Ignacio), Rogelio’s
grandfather, whereby said affiant attested, among others, to the sale of the subject lot made by his
son, Emilio, to Julio, Sr. (Exhibit “3”)7; and 2) an undated handwritten receipt of initial downpayment
in the amount of P100.00 supposedly issued by Emilio to Julio, Sr. in connection with the sale of the
subject lot (Exhibit “4”).8 The RTC ruled that even if these documents were adjudged as competent
evidence, still, they would only serve as proofs that the purchase price for the subject lot had not yet
been completely paid and, hence, Rogelio was not duty-bound to deliver the property to Julio, Jr. The
RTC found Julio, Jr. to be a mere possessor by tolerance. The dispositive portion of the RTC decision
reads:chanroblesvirtuallawlibrary
WHEREFORE, Judgment is hereby rendered as follows:
1. quieting the title and removing whatever cloud over the title on the parcel of land, with area of
5,647 sq. meters, more or less, located at Sta. Rita, San Miguel, Bulacan, covered by Transfer
Certificate of Title No. T-125918 issued by the Register of Deeds of Bulacan in the name of
“Rogelio Dantis, married to Victoria Payawal”; cralawlibrary
2. declaring that Rogelio Dantis, married to Victoria Payawal, is the true and lawful owner of the
aforementioned real property; and
3. ordering defendant Julio Maghinang, Jr. and all persons claiming under him to peacefully
vacate the said real property and surrender the possession thereof to plaintiff or latter’s
successors-in-interest.
No pronouncement as to costs in this instance.
SO ORDERED.9
Julio, Jr. moved for a reconsideration of the March 2, 2005 Decision, but the motion was denied by
the RTC in its May 3, 2005 Order.10 Feeling aggrieved, Julio, Jr. appealed the decision to the CA.
On January 25, 2010, the CA rendered the assailed decision in CA-G.R. CV NO. 85258, finding the
appeal to be impressed with merit. It held that Exhibit “4” was an indubitable proof of the sale of the
352-square meter lot between Emilio and Julio, Sr. It also ruled that the partial payment of the
purchase price, coupled with the delivery of the res, gave efficacy to the oral sale and brought it
outside the operation of the statute of frauds. Finally, the court a quo declared that Julio, Jr. and his
predecessors-in-interest had an equitable claim over the subject lot which imposed on Rogelio and
his predecessors-in-interest a personal duty to convey what had been sold after full payment of the
selling price. The decretal portion of the CA decision reads:chanroblesvirtuallawlibrary
IN VIEW OF THE FOREGOING, the decision appealed from is reversed. The heirs of Julio Maghinang
Jr. are declared the owners of the 352-square meter portion of the lot covered by TCT No. T-125968
where the residence of defendant Julio Maghinang is located, and the plaintiff is ordered to reconvey
the aforesaid portion to the aforesaid heirs, subject to partition by agreement or action to determine
the exact metes and bounds and without prejudice to any legal remedy that the plaintiff may take
with respect to the unpaid balance of the price.
SO ORDERED.11
The motion for reconsideration12 filed by Rogelio was denied by the CA in its March 23, 2010
Resolution. Unfazed, he filed this petition for review on certiorari before this Court.
Issues:
The fundamental question for resolution is whether there is a perfected contract of sale between
Emilio and Julio, Sr. The determination of this issue will settle the rightful ownership of the subject
lot.
Rogelio submits that Exhibit “3” and Exhibit “4” are devoid of evidentiary value and, hence, deserve
scant consideration. He stresses that Exhibit “4” is inadmissible in evidence being a mere photocopy,
and the existence and due execution thereof had not been established. He argues that even if Exhibit
“4” would be considered as competent and admissible evidence, still, it would not be an adequate
proof of the existence of the alleged oral contract of sale because it failed to provide a description of
the subject lot, including its metes and bounds, as well as its full price or consideration. 13
cralawvllred
Rogelio argues that while reconveyance may be availed of by the owner of a real property wrongfully
included in the certificate of title of another, the remedy is not obtainable herein since he is a
transferee in good faith, having acquired the land covered by TCT No. T-125918, through a Deed of
Extrajudicial Partition of Estate.14 He asserts that he could not be considered a trustee as he was not
privy to Exhibit “4.” In any event, he theorizes that the action for reconveyance on the ground of
implied trust had already prescribed since more than 10 years had lapsed since the execution of
Exhibit “4” in 1953. It is the petitioner’s stance that Julio, Jr. did not acquire ownership over the
subject lot by acquisitive prescription contending that prescription does not lie against a real property
covered by a Torrens title. He opines that his certificate of title to the subject lot cannot be
collaterally attacked because a Torrens title is indefeasible and must be respected unless challenged
in a direct proceeding.15
cralawvllred
The Court’s Ruling
In the case at bench, the CA and the RTC reached different conclusions on the question of whether or
not there was an oral contract of sale. The RTC ruled that Rogelio Dantis was the sole and rightful
owner of the parcel of land covered by TCT No. T-125918 and that no oral contract of sale was
entered into between Emilio Dantis and Julio Maghinang, Sr. involving the 352-square meter portion
of the said property. The CA was of the opposite view. The determination of whether there existed an
oral contract of sale is essentially a question of fact.
In petitions for review under Rule 45, the Court, as a general rule, does not venture to re-examine
the evidence presented by the contending parties during the trial of the case considering that it is not
a trier of facts and the findings of fact of the CA are conclusive and binding upon this Court. The rule,
however, admits of several exceptions. One of which is when the findings of the CA are contrary to
those of the trial court.16 Considering the incongruent factual conclusions of the CA and the RTC, this
Court is constrained to reassess the factual circumstances of the case and reevaluate them in the
interest of justice.
The petition is meritorious.
It is an age-old rule in civil cases that he who alleges a fact has the burden of proving it and a mere
allegation is not evidence.17 After carefully sifting through the evidence on record, the Court finds
that Rogelio was able to establish a prima facie case in his favor tending to show his exclusive
ownership of the parcel of land under TCT No. T-125918 with an area of 5,657 square meters, which
included the 352-square meter subject lot. From the records, it appears that TCT No. T-125918 is a
derivative of TCT No. T-256228, which covered a bigger area of land measuring 30,000 square
meters registered in the name of Emilio Dantis; that Emilio died intestate on November 13, 1952;
that Emilio’s five heirs, including Rogelio, executed an extra-judicial partition of estate on December
22, 1993 and divided among themselves specific portions of the property covered by TCT No. T-
256228, which were already set apart by metes and bounds; that the land known as Lot 6-D-1 of the
subdivision plan Psd-031421-054315 with an area of 5,657 sq. m. went to Rogelio, the property now
covered by TCT No. T-125918; and that the property was declared for realty tax purpose in the name
of Rogelio for which a tax declaration was issued in his name; and that the same had not been
transferred to anyone else since its issuance.
In light of Rogelio’s outright denial of the oral sale together with his insistence of ownership over the
subject lot, it behooved upon Julio, Jr. to contravene the former’s claim and convince the court that
he had a valid defense. The burden of evidence shifted to Julio, Jr. to prove that his father bought
the subject lot from Emilio Dantis. In Jison v. Court of Appeals,18 the Court held: chanroblesvirtuallawlibrary
Simply put, he who alleges the affirmative of the issue has the burden of proof, and upon the plaintiff
in a civil case, the burden of proof never parts. However, in the course of trial in a civil case, once
plaintiff makes out a prima facie case in his favor, the duty or the burden of evidence shifts to
defendant to controvert plaintiff’s prima facie case, otherwise, a verdict must be returned in favor of
plaintiff. Moreover, in civil cases, the party having the burden of proof must produce a
preponderance of evidence thereon, with plaintiff having to rely on the strength of his own evidence
and not upon the weakness of the defendant’s. The concept of “preponderance of evidence” refers to
evidence which is of greater weight, or more convincing, that which is offered in opposition to it; at
bottom, it means probability of truth. 19
Julio, Jr. failed to discharge this burden. His pieces of evidence, Exhibit “3” and Exhibit “4,” cannot
prevail over the array of documentary and testimonial evidence that were adduced by Rogelio. The
totality of Julio, Jr.’s evidence leaves much to be desired.
To begin with, Exhibit “3,” the affidavit of Ignacio, is hearsay evidence and, thus, cannot be
accorded any evidentiary weight. Evidence is hearsay when its probative force depends on the
competency and credibility of some persons other than the witness by whom it is sought to be
produced. The exclusion of hearsay evidence is anchored on three reasons: 1) absence of cross-
examination; 2) absence of demeanor evidence; and 3) absence of oath. 20 cralawvllred
Jurisprudence dictates that an affidavit is merely hearsay evidence where its affiant/maker did not
take the witness stand.21 The sworn statement of Ignacio is of this kind. The affidavit was not
identified and its averments were not affirmed by affiant Ignacio. Accordingly, Exhibit “3” must be
excluded from the judicial proceedings being an inadmissible hearsay evidence. It cannot be deemed
a declaration against interest for the matter to be considered as an exception to the hearsay rule
because the declarant was not the seller (Emilio), but his father (Ignacio).

Exhibit “4,” on the other hand, is considered secondary evidence being a mere photocopy which, in
this case, cannot be admitted to prove the contents of the purported undated handwritten receipt.
The best evidence rule requires that the highest available degree of proof must be produced. For
documentary evidence, the contents of a document are best proved by the production of the
document itself to the exclusion of secondary or substitutionary evidence, pursuant to Rule 130,
Section 322.
A secondary evidence is admissible only upon compliance with Rule 130, Section 5, which states
that: when the original has been lost or destroyed, or cannot be produced in court, the offeror, upon
proof of its execution or existence and the cause of its unavailability without bad faith on his part,
may prove its contents by a copy, or by a recital of its contents in some authentic document, or by
the testimony of witnesses in the order stated. Accordingly, the offeror of the secondary evidence is
burdened to satisfactorily prove the predicates thereof, namely: (1) the execution or existence of the
original; (2) the loss and destruction of the original or its non-production in court; and (3) the
unavailability of the original is not due to bad faith on the part of the proponent/offeror. Proof of the
due execution of the document and its subsequent loss would constitute the basis for the introduction
of secondary evidence.23 In MCC Industrial Sales Corporation v. Ssangyong Corporation,24 it was held
that where the missing document is the foundation of the action, more strictness in proof is required
than where the document is only collaterally involved.
Guided by these norms, the Court holds that Julio, Jr. failed to prove the due execution of the original
of Exhibit “4” as well as its subsequent loss. A nexus of logically related circumstance rendered Julio,
Jr.’s evidence highly suspect. Also, his testimony was riddled with improbabilities and contradictions
which tend to erode his credibility and raise doubt on the veracity of his evidence.
First, the claim of Julio, Jr. that Emilio affixed his signature on the original of Exhibit “4” in 1953 is
highly improbable because record shows that Emilio died even before that year, specifically, on
November 13, 1952. Excerpts from Julio, Jr.’s testimony relative to this matter are as follows: chanroblesvirtuallawlibrary
Atty. Vicente Millora

(On Cross-examination)
Q: You don’t remember how old you were when this according to you you witnessed Emilio Dantis
signed this?
A: Eleven years old, Sir.
Q: So that was 1953?

A: Yes, Sir.
Q: And you were then…?

A: I was born October 1942, Sir.
Q: You were eleven (11) years old?

A: Yes, Sir.
Q: And you mean to say that you witnessed the signing allegedly of the original of Exhibit “4” when
you were eleven (11) years old?
A: Yes, Sir.
Q: And you remember what was signed in this receipt. From your memory can you tell the title of
this Exhibit “4”?
A: What I can say that it is a Sale, Sir.
Q: So, when you said that you witnessed an alleged sale you are referring to Exhibit “4”?
A: Yes, Sir.25 (Emphasis supplied)
Second, Julio, Jr.’s testimony pertinent to the alleged loss of the original of Exhibit “4” is laden with
inconsistencies that detract from his credibility. His testimony bears the earmarks of falsehood and,
hence, not reliable. Julio, Jr. testified in this wise:
chanroblesvirtuallawlibrary
Atty. Roldan Villacorta

(On Direct examination)
Q: Mr. Witness, I noticed that this document marked as Exhibit “4” is only a photocopy, where is the
original of this document?
A: The original was with the safekeeping of my parents because of the lapse of time the original
was misplaced, Sir.26
The above testimony of Julio, Jr. tends to give the impression that the original of the document was
lost while it was in the possession of his parents. During cross-examination, however, he testified
that it was lost while it was in his possession.

Q: x x x Where did you keep that document?

A: I was the one keeping that document because I live in different places, [the said] it was lost
or misplaced, Sir.
Q: In other words, it was lost while the same was in your possession??
A: Yes, Sir.27 (Emphasis supplied)
Still, later, Julio, Jr. claimed that his sister was the one responsible for the loss of the original of
Exhibit “4” after borrowing the same from him.

Q: So, who is your sister to whom you gave the original?
A: Benedicta Laya, Sir.
Q: In other words now, you did not lost the document or the original of Exhibit “4” but you gave it to
your sister, am I correct?
A: I just lent to her the original copy, Sir.
Q: So, you lent this original of Exhibit “4” to your sister and your sister never returned the same to
you?
A: Yes, Sir, because it was lost, that was the only one left in her custody.
Interpreter: cralaw
Witness referring to the xerox copy.
Q: In other words, it was your sister who lost the original, is that correct?
A: Yes, Sir, when I lent the original.28 (Emphasis supplied)
The Court also notes the confused narration of Julio, Jr. regarding the last time he saw the original of
Exhibit “4.”

Q: And when did you last see the original?

A: When my mother died in 1993 that was the last time I tried to see the original of the document
after her interment, Sir.
Q: Where did you see this document?

A: From the safekeeping of my mother, Sir.29 cralawvllred
xxxx
Q: When did you get this Exhibit “4” now, the photocopy from your sister?
A: When the interment of my mother in September 1993, Sir.
Q: Now, let us reform. Which one did you get after the interment of your mother, this Exhibit “4” or
the original?
A: I asked that xerox copy because I have lost the original and I could not find the same, Sir.
Q: So, from the safe of your mother after her interment, what used you found and got this Exhibit
“4”?
A: Yes, Sir, from my sister.
Q: So, not from your mother safe?

A: The original was taken from the safe of my mother, Sir.
Q: So after your mother’s death you never saw the original?
A: I did not see it anymore because the original was lost before she died, Sir. 30 (Underscoring
supplied)
Third, it is quite strange that two receipts were prepared for the initial payment of P100.00 in
connection with the sale of the subject lot. The Court notes that the contents of Exhibit “4” were
similar to those of Annex “A”31 of Julio, Jr.’s Answer, dated June 9, 2002. Annex “A,” however, was
typewritten and the name of the recipient indicated therein was a certain Cornelio A. Dantis, whose
identity and participation in the alleged sale was never explained.
Fourth, apart from the lone testimony of Julio, Jr., no other witness who knew or read Exhibit “4,”
much less saw it executed, was presented. In the absence of any shred of corroborative evidence,
the Court cannot help but entertain doubts on the truthfulness of Julio, Jr.’s naked assertion.
Assuming, in gratia argumenti, that Exhibit “4” is admissible in evidence, there will still be
no valid and perfected oral contract for failure of Julio, Jr. to prove the concurrence of the
essential requisites of a contract of sale by adequate and competent evidence.
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.32 A contract of sale is a consensual contract and, thus, is perfected by mere consent
which is manifested by the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract.33 Until the contract of sale is perfected, it cannot, as an
independent source of obligation, serve as a binding juridical relation between the parties. 34 The
essential elements of a contract of sale are: 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.35 The absence of any of the essential elements shall negate the existence of
a perfected contract of sale.36
cralawvllred

Seemingly, Julio, Jr. wanted to prove the sale by a receipt when it should be the receipt that should
further corroborate the existence of the sale. At best, his testimony only alleges but does not prove
the existence of the verbal agreement. Julio, Jr. miserably failed to establish by preponderance of
evidence that there was a meeting of the minds of the parties as to the subject matter and the
purchase price.
The chief evidence of Julio, Jr. to substantiate the existence of the oral contract of sale is Exhibit “4.”
For a better understanding and resolution of the issue at hand, Exhibit “4” is being reproduced
here: chanroblesvirtuallawlibrary
Alamin ng sino mang

Makababasa
Akong si Emilio Dantis may sapat na Gulang may asawa naninirahan sa Sta Rita San Miguel
Bul. ay kusang nagsasasay ng sumosunod.
Na ako Tumanggap Kay Julio Maghinang ng P100.00 peso cuartang Pilipino, bilang
paunang bayad sa Lupa niyang nilote sa akin 400 apat na raan mahigit na metro cudrado.
Testigo Tumangap,
Emilio a Dantis
A perusal of the above document would readily show that it does not specify a determinate
subject matter. Nowhere does it provide a description of the property subject of the sale,
including its metes and bounds, as well as its total area. The Court notes that while Julio,
Jr. testified that the land subject of the sale consisted of 352 square meters, Exhibit “4,”
however, states that it’s more than 400 square meters. Moreover, Exhibit “4” does not
categorically declare the price certain in money. Neither does it state the mode of payment
of the purchase price and the period for its payment.
In Swedish Match, AB v. Court of Appeals,37 the Court ruled that the manner of payment of the
purchase price was an essential element before a valid and binding contract of sale could exist. Albeit
the Civil Code does not explicitly provide that the minds of the contracting parties must also meet on
the terms or manner of payment of the price, the same is needed, otherwise, there is no sale. 38 An
agreement anent the manner of payment goes into the price so much so that a disagreement on the
manner of payment is tantamount to a failure to agree on the price. 39 Further, in Velasco v. Court of
Appeals,40 where the parties already agreed on the object of sale and on the purchase price, but not
on how and when the downpayment and the installment payments were to be paid, this Court
ruled: chanroblesvirtuallawlibrary
Such being the situation, it cannot, therefore, be said that a definite and firm sales agreement
between the parties had been perfected over the lot in question. Indeed, this Court has already ruled
before that a definite agreement on the manner of payment of the purchase price is an essential
element in the formation of a binding and enforceable contract of sale. The fact, therefore, that the
petitioners delivered to the respondent the sum of P10,000.00 as part of the down-payment that
they had to pay cannot be considered as sufficient proof of the perfection of any purchase and sale
agreement between the parties herein under Art. 1482 of the new Civil Code, as the petitioners
themselves admit that some essential matter – the terms of payment – still had to be mutually
covenanted.41
The CA held that partial performance of the contract of sale – giving of a downpayment coupled with
the delivery of the res - took the oral contract out of the scope of the Statute of Frauds. This
conclusion arose from its erroneous finding that there was a perfected contract of sale. The above
disquisition, however, shows that there was none. There is, therefore, no basis for the application of
the Statute of Frauds. The application of the Statute of Frauds presupposes the existence of a
perfected contract.42 As to the delivery of the res, it does not appear to be a voluntary one pursuant
to the purported sale. If Julio, Jr. happened to be there, it was because his ancestors tenanted the
land. It must be noted that when Julio, Jr. built his house, Rogelio protested.
WHEREFORE, the petition is GRANTED. The assailed January 25, 2010 Decision and the March 23,
2010 Resolution of the Court Appeals, in CA-G.R. CV No. 85258, are REVERSED and SET ASIDE.
The March 2, 2005 Decision of the Regional Trial Court of Malolos, Bulacan, Branch 18, in Civil Case
No. 280-M-2002, is REINSTATED.

4.) [G.R. NO. 124242 - January 21, 2005]
SAN LORENZO DEVELOPMENT CORPORATION, Petitioner, v. COURT OF

APPEALS, PABLO S. BABASANTA, SPS. MIGUEL LU and PACITA
ZAVALLA LU, Respondents.
DECISION
TINGA, J.:
From a coaptation of the records of this case, it appears that respondents

Miguel Lu and Pacita Zavalla, (hereinafter, the Spouses Lu) owned two (2)
parcels of land situated in Sta. Rosa, Laguna covered by TCT No. T-39022 and
TCT No. T-39023 both measuring 15,808 square meters or a total of 3.1616
hectares.
On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to
respondent Pablo Babasanta, (hereinafter, Babasanta) for the price of fifteen
pesos (P15.00) per square meter. Babasanta made a downpayment of fifty
thousand pesos (P50,000.00) as evidenced by a memorandum receipt issued
by Pacita Lu of the same date. Several other payments totaling two hundred
thousand pesos (P200,000.00) were made by Babasanta.
Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the

execution of a final deed of sale in his favor so that he could effect full
payment of the purchase price. In the same letter, Babasanta notified the
spouses about having received information that the spouses sold the same
property to another without his knowledge and consent. He demanded that the
second sale be cancelled and that a final deed of sale be issued in his favor.
In response, Pacita Lu wrote a letter to Babasanta wherein she

acknowledged having agreed to sell the property to him at fifteen
pesos (P15.00) per square meter. She, however, reminded Babasanta
that when the balance of the purchase price became due, he requested
for a reduction of the price and when she refused, Babasanta backed
out of the sale. Pacita added that she returned the sum of fifty thousand
pesos (P50,000.00) to Babasanta through Eugenio Oya.
On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional

Trial Court (RTC), Branch 31, of San Pedro, Laguna, a Complaint for Specific
Performance and Damages1 against his co-respondents herein, the Spouses
Lu. Babasanta alleged that the lands covered by TCT No. T - 39022 and T-
39023 had been sold to him by the spouses at fifteen pesos (P15.00) per
square meter. Despite his repeated demands for the execution of a final deed
of sale in his favor, respondents allegedly refused.
In their Answer,2 the Spouses Lu alleged that Pacita Lu obtained loans from

Babasanta and when the total advances of Pacita reached fifty thousand pesos
(P50,000.00), the latter and Babasanta, without the knowledge and consent of
Miguel Lu, had verbally agreed to transform the transaction into a contract to
sell the two parcels of land to Babasanta with the fifty thousand pesos
(P50,000.00) to be considered as the downpayment for the property and the
balance to be paid on or before 31 December 1987. Respondents Lu added
that as of November 1987, total payments made by Babasanta amounted to
only two hundred thousand pesos (P200,000.00) and the latter allegedly failed
to pay the balance of two hundred sixty thousand pesos (P260,000.00) despite
repeated demands. Babasanta had purportedly asked Pacita for a reduction of
the price from fifteen pesos (P15.00) to twelve pesos (P12.00) per square
meter and when the Spouses Lu refused to grant Babasanta's request, the
latter rescinded the contract to sell and declared that the original loan
transaction just be carried out in that the spouses would be indebted to him in
the amount of two hundred thousand pesos (P200,000.00). Accordingly, on 6
July 1989, they purchased Interbank Manager's Check No. 05020269 in the
amount of two hundred thousand pesos (P200,000.00) in the name of
Babasanta to show that she was able and willing to pay the balance of her loan
obligation.
Babasanta later filed an Amended Complaint dated 17 January 19903 wherein

he prayed for the issuance of a writ of preliminary injunction with temporary
restraining order and the inclusion of the Register of Deeds of Calamba,
Laguna as party defendant. He contended that the issuance of a preliminary
injunction was necessary to restrain the transfer or conveyance by the
Spouses Lu of the subject property to other persons.
The Spouses Lu filed their Opposition4 to the amended complaint contending

that it raised new matters which seriously affect their substantive rights under
the original complaint. However, the trial court in its Order dated 17 January
19905 admitted the amended complaint.
On 19 January 1990, herein petitioner San Lorenzo Development Corporation

(SLDC) filed a Motion for Intervention6 before the trial court. SLDC alleged that
it had legal interest in the subject matter under litigation because on 3 May
1989, the two parcels of land involved, namely Lot 1764-A and 1764-B, had
been sold to it in a Deed of Absolute Sale with Mortgage.7 It alleged that it was
a buyer in good faith and for value and therefore it had a better right over the
property in litigation.
In his Opposition to SLDC's motion for intervention,8 respondent Babasanta
demurred and argued that the latter had no legal interest in the case because
the two parcels of land involved herein had already been conveyed to him by
the Spouses Lu and hence, the vendors were without legal capacity to transfer
or dispose of the two parcels of land to the intervenor.
Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to
intervene. SLDC filed its Complaint-in-Intervention on 19 April
1990.9 Respondent Babasanta's motion for the issuance of a preliminary
injunction was likewise granted by the trial court in its Order dated 11 January
199110 conditioned upon his filing of a bond in the amount of fifty thousand
pesos (P50,000.00).
SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the

Spouses Lu executed in its favor an Option to Buy the lots subject of the
complaint. Accordingly, it paid an option money in the amount of three
hundred sixteen thousand one hundred sixty pesos (P316,160.00) out of the
total consideration for the purchase of the two lots of one million two hundred
sixty-four thousand six hundred forty pesos (P1,264,640.00). After the
Spouses Lu received a total amount of six hundred thirty-two thousand three
hundred twenty pesos (P632,320.00) they executed on 3 May 1989
a Deed of Absolute Sale with Mortgage in its favor. SLDC added that the
certificates of title over the property were delivered to it by the spouses clean
and free from any adverse claims and/or notice of lis pendens. SLDC further
alleged that it only learned of the filing of the complaint sometime in the early
part of January 1990 which prompted it to file the motion to intervene without
delay. Claiming that it was a buyer in good faith, SLDC argued that it had no
obligation to look beyond the titles submitted to it by the Spouses Lu
particularly because Babasanta's claims were not annotated on the certificates
of title at the time the lands were sold to it.
After a protracted trial, the RTC rendered its Decision on 30 July 1993

upholding the sale of the property to SLDC. It ordered the Spouses Lu to pay
Babasanta the sum of two hundred thousand pesos (P200,000.00) with legal
interest plus the further sum of fifty thousand pesos (P50,000.00) as and for
attorney's fees. On the complaint-in-intervention, the trial court ordered the
Register of Deeds of Laguna, Calamba Branch to cancel the notice of lis
pendens annotated on the original of the TCT No. T-39022 (T-7218) and No.
T-39023 (T-7219).
Applying Article 1544 of the Civil Code, the trial court ruled that since both
Babasanta and SLDC did not register the respective sales in their favor,
ownership of the property should pertain to the buyer who first acquired
possession of the property. The trial court equated the execution of a public
instrument in favor of SLDC as sufficient delivery of the property to the latter.
It concluded that symbolic possession could be considered to have been first
transferred to SLDC and consequently ownership of the property pertained to
SLDC who purchased the property in good faith.
Respondent Babasanta appealed the trial court's decision to the Court of

Appeals alleging in the main that the trial court erred in concluding that SLDC
is a purchaser in good faith and in upholding the validity of the sale made by
the Spouses Lu in favor of SLDC.
Respondent spouses likewise filed an appeal to the Court of Appeals. They

contended that the trial court erred in failing to consider that the contract to
sell between them and Babasanta had been novated when the latter
abandoned the verbal contract of sale and declared that the original loan
transaction just be carried out. The Spouses Lu argued that since the
properties involved were conjugal, the trial court should have declared the
verbal contract to sell between Pacita Lu and Pablo Babasanta null and void ab
initio for lack of knowledge and consent of Miguel Lu. They further averred
that the trial court erred in not dismissing the complaint filed by Babasanta; in
awarding damages in his favor and in refusing to grant the reliefs prayed for in
their answer.
On 4 October 1995, the Court of Appeals rendered its Decision11 which set

aside the judgment of the trial court. It declared that the sale between
Babasanta and the Spouses Lu was valid and subsisting and ordered the
spouses to execute the necessary deed of conveyance in favor of Babasanta,
and the latter to pay the balance of the purchase price in the amount of two
hundred sixty thousand pesos (P260,000.00). The appellate court ruled that
the Absolute Deed of Sale with Mortgage in favor of SLDC was null and void on
the ground that SLDC was a purchaser in bad faith. The Spouses Lu were
further ordered to return all payments made by SLDC with legal interest and
to pay attorney's fees to Babasanta.
SLDC and the Spouses Lu filed separate motions for reconsideration with the
appellate court.12 However, in a Manifestation dated 20 December 1995,13 the
Spouses Lu informed the appellate court that they are no longer contesting the
decision dated 4 October 1995.
In its Resolution dated 11 March 1996,14 the appellate court considered as

withdrawn the motion for reconsideration filed by the Spouses Lu in view of
their manifestation of 20 December 1995. The appellate court denied SLDC's
motion for reconsideration on the ground that no new or substantial

arguments were raised therein which would warrant modification or reversal of
the court's decision dated 4 October 1995.
Hence, this petition.
SLDC assigns the following errors allegedly committed by the appellate court:
THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A
BUYER IN GOOD FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU
OBTAINED FROM IT THE CASH ADVANCE OF P200,000.00, SAN LORENZO
WAS PUT ON INQUIRY OF A PRIOR TRANSACTION ON THE PROPERTY.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE

ESTABLISHED FACT THAT THE ALLEGED FIRST BUYER, RESPONDENT
BABASANTA, WAS NOT IN POSSESSION OF THE DISPUTED PROPERTY WHEN
SAN LORENZO BOUGHT AND TOOK POSSESSION OF THE PROPERTY AND NO
ADVERSE CLAIM, LIEN, ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED
ON THE TITLES.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT

RESPONDENT BABASANTA HAS SUBMITTED NO EVIDENCE SHOWING THAT
SAN LORENZO WAS AWARE OF HIS RIGHTS OR INTERESTS IN THE DISPUTED
PROPERTY.
THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS

FULL CONCURRENCE ON THE FINDINGS OF FACT OF THE TRIAL COURT, IT
REVERSED AND SET ASIDE THE DECISION OF THE TRIAL COURT UPHOLDING
THE TITLE OF SAN LORENZO AS A BUYER AND FIRST POSSESSOR IN GOOD
FAITH.15
SLDC contended that the appellate court erred in concluding that it had prior
notice of Babasanta's claim over the property merely on the basis of its having
advanced the amount of two hundred thousand pesos (P200,000.00) to Pacita
Lu upon the latter's representation that she needed the money to pay her
obligation to Babasanta. It argued that it had no reason to suspect that Pacita
was not telling the truth that the money would be used to pay her
indebtedness to Babasanta. At any rate, SLDC averred that the amount of two
hundred thousand pesos (P200,000.00) which it advanced to Pacita Lu would
be deducted from the balance of the purchase price still due from it and should
not be construed as notice of the prior sale of the land to Babasanta. It added
that at no instance did Pacita Lu inform it that the lands had been previously
sold to Babasanta.

Moreover, SLDC stressed that after the execution of the sale in its favor it
immediately took possession of the property and asserted its rights as new
owner as opposed to Babasanta who has never exercised acts of ownership.
Since the titles bore no adverse claim, encumbrance, or lien at the time it was
sold to it, SLDC argued that it had every reason to rely on the correctness of
the certificate of title and it was not obliged to go beyond the certificate to
determine the condition of the property. Invoking the presumption of good
faith, it added that the burden rests on Babasanta to prove that it was aware
of the prior sale to him but the latter failed to do so. SLDC pointed out that the
notice of lis pendens was annotated only on 2 June 1989 long after the sale of
the property to it was consummated on 3 May 1989. ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the

Spouses Lu informed the Court that due to financial constraints they have no
more interest to pursue their rights in the instant case and submit themselves
to the decision of the Court of Appeals.16
On the other hand, respondent Babasanta argued that SLDC could not have
acquired ownership of the property because it failed to comply with the
requirement of registration of the sale in good faith. He emphasized that at the
time SLDC registered the sale in its favor on 30 June 1990, there was already
a notice of lis pendens annotated on the titles of the property made as early as
2 June 1989. Hence, petitioner's registration of the sale did not confer upon it
any right. Babasanta further asserted that petitioner's bad faith in the
acquisition of the property is evident from the fact that it failed to make
necessary inquiry regarding the purpose of the issuance of the two hundred
thousand pesos (P200,000.00) manager's check in his favor.
The core issue presented for resolution in the instant petition is who between
SLDC and Babasanta has a better right over the two parcels of land subject of
the instant case in view of the successive transactions executed by the
Spouses Lu.
To prove the perfection of the contract of sale in his favor, Babasanta

presented a document signed by Pacita Lu acknowledging receipt of the sum of
fifty thousand pesos (P50,000.00) as partial payment for 3.6 hectares of farm
lot situated at Barangay Pulong, Sta. Cruz, Sta. Rosa, Laguna.17 While the
receipt signed by Pacita did not mention the price for which the property was
being sold, this deficiency was supplied by Pacita Lu's letter dated 29 May
198918 wherein she admitted that she agreed to sell the 3.6 hectares of land to
Babasanta for fifteen pesos (P15.00) per square meter.

An analysis of the facts obtaining in this case, as well as the evidence
presented by the parties, irresistibly leads to the conclusion that the
agreement between Babasanta and the Spouses Lu is a contract to sell
and not a contract of sale.
Contracts, in general, are perfected by mere consent,19 which is manifested by

the meeting of the offer and the acceptance upon the thing which are to
constitute the contract. The offer must be certain and the acceptance
absolute.20 Moreover, contracts shall be obligatory in whatever form they may
have been entered into, provided all the essential requisites for their validity
are present.21
The receipt signed by Pacita Lu merely states that she accepted the
sum of fifty thousand pesos (P50,000.00) from Babasanta as partial
payment of 3.6 hectares of farm lot situated in Sta. Rosa, Laguna.
While there is no stipulation that the seller reserves the ownership of
the property until full payment of the price which is a distinguishing
feature of a contract to sell, the subsequent acts of the parties
convince us that the Spouses Lu never intended to transfer ownership
to Babasanta except upon full payment of the purchase price.
Babasanta's letter dated 22 May 1989 was quite telling. He stated therein that
despite his repeated requests for the execution of the final deed of sale in his
favor so that he could effect full payment of the price, Pacita Lu allegedly
refused to do so. In effect, Babasanta himself recognized that ownership of the
property would not be transferred to him until such time as he shall have
effected full payment of the price. Moreover, had the sellers intended to
transfer title, they could have easily executed the document of sale in its
required form simultaneously with their acceptance of the partial payment, but
they did not. Doubtlessly, the receipt signed by Pacita Lu should legally be
considered as a perfected contract to sell.
The distinction between a contract to sell and a contract of sale is quite

germane. In a contract of sale, title passes to the vendee upon the delivery of
the thing sold; whereas in a contract to sell, by agreement the ownership is
reserved in the vendor and is not to pass until the full payment of the
price.22 In a contract of sale, the vendor has lost and cannot recover ownership
until and unless the contract is resolved or rescinded; whereas in a contract to
sell, title is retained by the vendor until the full payment of the price, such
payment being a positive suspensive condition and failure of which is not a
breach but an event that prevents the obligation of the vendor to convey title
from becoming effective.23

The perfected contract to sell imposed upon Babasanta the obligation to pay
the balance of the purchase price. There being an obligation to pay the price,
Babasanta should have made the proper tender of payment and consignation
of the price in court as required by law. Mere sending of a letter by the vendee
expressing the intention to pay without the accompanying payment is not
considered a valid tender of payment.24 Consignation of the amounts due in
court is essential in order to extinguish Babasanta's obligation to pay the
balance of the purchase price. Glaringly absent from the records is any
indication that Babasanta even attempted to make the proper consignation of
the amounts due, thus, the obligation on the part of the sellers to convey title
never acquired obligatory force.
On the assumption that the transaction between the parties is a contract of

sale and not a contract to sell, Babasanta's claim of ownership should
nevertheless fail.
Sale, being a consensual contract, is perfected by mere consent25 and from

that moment, the parties may reciprocally demand performance.26 The
essential elements of a contract of sale, to wit: (1) consent or meeting of the
minds, that is, to transfer ownership in exchange for the price; (2) object
certain which is the subject matter of the contract; (3) cause of the obligation
which is established.27
The perfection of a contract of sale should not, however, be confused

with its consummation. In relation to the acquisition and transfer of
ownership, it should be noted that sale is not a mode, but merely a
title. A mode is the legal means by which dominion or ownership is
created, transferred or destroyed, but title is only the legal basis by
which to affect dominion or ownership.28 Under Article 712 of the Civil
Code, "ownership and other real rights over property are acquired and
transmitted by law, by donation, by testate and intestate succession,
and in consequence of certain contracts, by tradition." Contracts only
constitute titles or rights to the transfer or acquisition of ownership,
while delivery or tradition is the mode of accomplishing the
same.29 Therefore, sale by itself does not transfer or affect ownership;
the most that sale does is to create the obligation to transfer
ownership. It is tradition or delivery, as a consequence of sale, that
actually transfers ownership.
Explicitly, the law provides that the ownership of the thing sold is acquired by
the vendee from the moment it is delivered to him in any of the ways specified
in Article 1497 to 1501.30 The word "delivered" should not be taken
restrictively to mean transfer of actual physical possession of the property.
The law recognizes two principal modes of delivery, to wit: (1) actual delivery;
and (2) legal or constructive delivery.
Actual delivery consists in placing the thing sold in the control and possession
of the vendee.31 Legal or constructive delivery, on the other hand, may be had
through any of the following ways: the execution of a public instrument
evidencing the sale;32 symbolical tradition such as the delivery of the keys of
the place where the movable sold is being kept;33 traditio longa manu or by
mere consent or agreement if the movable sold cannot yet be transferred to
the possession of the buyer at the time of the sale;34 traditio brevi manu if the
buyer already had possession of the object even before the sale;35 and traditio
constitutum possessorium, where the seller remains in possession of the
property in a different capacity.36
Following the above disquisition, respondent Babasanta did not acquire

ownership by the mere execution of the receipt by Pacita Lu acknowledging
receipt of partial payment for the property. For one, the agreement between
Babasanta and the Spouses Lu, though valid, was not embodied in a public
instrument. Hence, no constructive delivery of the lands could have been
effected. For another, Babasanta had not taken possession of the property at
any time after the perfection of the sale in his favor or exercised acts of
dominion over it despite his assertions that he was the rightful owner of the
lands. Simply stated, there was no delivery to Babasanta, whether
actual or constructive, which is essential to transfer ownership of the
property. Thus, even on the assumption that the perfected contract between
the parties was a sale, ownership could not have passed to Babasanta in the
absence of delivery, since in a contract of sale ownership is transferred to the
vendee only upon the delivery of the thing sold.37
However, it must be stressed that the juridical relationship between the

parties in a double sale is primarily governed by Article 1544 which lays down
the rules of preference between the two purchasers of the same property. It
provides:
Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person

acquiring it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who
in good faith was first in the possession; and, in the absence thereof, to the
person who presents the oldest title, provided there is good faith.
The principle of primus tempore, potior jure (first in time, stronger in right)

gains greater significance in case of double sale of immovable property. When
the thing sold twice is an immovable, the one who acquires it and first records
it in the Registry of Property, both made in good faith, shall be deemed the
owner.38 Verily, the act of registration must be coupled with good faith' that is,
the registrant must have no knowledge of the defect or lack of title of his
vendor or must not have been aware of facts which should have put him upon
such inquiry and investigation as might be necessary to acquaint him with the
defects in the title of his vendor.39
Admittedly, SLDC registered the sale with the Registry of Deeds after it had
acquired knowledge of Babasanta's claim. Babasanta, however, strongly
argues that the registration of the sale by SLDC was not sufficient to confer
upon the latter any title to the property since the registration was attended by
bad faith. Specifically, he points out that at the time SLDC registered the sale
on 30 June 1990, there was already a notice of lis pendens on the file with the
Register of Deeds, the same having been filed one year before on 2 June
1989.
Did the registration of the sale after the annotation of the notice of lis
pendens obliterate the effects of delivery and possession in good faith which
admittedly had occurred prior to SLDC's knowledge of the transaction in favor
of Babasanta? chanroblesvirtualawlibrary
We do not hold so.
It must be stressed that as early as 11 February 1989, the Spouses Lu

executed the Option to Buy in favor of SLDC upon receiving P316,160.00 as
option money from SLDC. After SLDC had paid more than one half of the
agreed purchase price of P1,264,640.00, the Spouses Lu subsequently
executed on 3 May 1989 a Deed of Absolute Sale in favor or SLDC. At the time
both deeds were executed, SLDC had no knowledge of the prior transaction of
the Spouses Lu with Babasanta. Simply stated, from the time of execution of
the first deed up to the moment of transfer and delivery of possession of the
lands to SLDC, it had acted in good faith and the subsequent annotation of lis
pendens has no effect at all on the consummated sale between SLDC and the
Spouses Lu.

A purchaser in good faith is one who buys property of another without notice
that some other person has a right to, or interest in, such property and pays a
full and fair price for the same at the time of such purchase, or before he has
notice of the claim or interest of some other person in the
property.40 Following the foregoing definition, we rule that SLDC qualifies as a
buyer in good faith since there is no evidence extant in the records that it had
knowledge of the prior transaction in favor of Babasanta. At the time of the
sale of the property to SLDC, the vendors were still the registered owners of
the property and were in fact in possession of the lands. ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Time and again, this Court has ruled that a person dealing with the owner of
registered land is not bound to go beyond the certificate of title as he is
charged with notice of burdens on the property which are noted on the face of
the register or on the certificate of title.41 In assailing knowledge of the
transaction between him and the Spouses Lu, Babasanta apparently relies on
the principle of constructive notice incorporated in Section 52 of the Property
Registration Decree (P.D. No. 1529) which reads, thus:
Sec. 52. Constructive notice upon registration. 'Every conveyance, mortgage,

lease, lien, attachment, order, judgment, instrument or entry affecting
registered land shall, if registered, filed, or entered in the office of the Register
of Deeds for the province or city where the land to which it relates lies, be
constructive notice to all persons from the time of such registering, filing, or
entering.
However, the constructive notice operates as such by the express wording of

Section 52 from the time of the registration of the notice of lis pendens which
in this case was effected only on 2 June 1989, at which time the sale in favor
of SLDC had long been consummated insofar as the obligation of the Spouses
Lu to transfer ownership over the property to SLDC is concerned.
More fundamentally, given the superiority of the right of SLDC to the claim of
Babasanta the annotation of the notice of lis pendens cannot help Babasanta's
position a bit and it is irrelevant to the good or bad faith characterization of
SLDC as a purchaser. A notice of lis pendens, as the Court held in Nataño v.
Esteban,42 serves as a warning to a prospective purchaser or incumbrancer
that the particular property is in litigation; and that he should keep his hands
off the same, unless he intends to gamble on the results of the litigation."
Precisely, in this case SLDC has intervened in the pending litigation to protect
its rights. Obviously, SLDC's faith in the merit of its cause has been vindicated
with the Court's present decision which is the ultimate denouement on the
controversy.

The Court of Appeals has made capital43 of SLDC's averment in its Complaint-
in-Intervention44 that at the instance of Pacita Lu it issued a check
for P200,000.00 payable to Babasanta and the confirmatory testimony of
Pacita Lu herself on cross-examination.45 However, there is nothing in the said
pleading and the testimony which explicitly relates the amount to the
transaction between the Spouses Lu and Babasanta for what they attest to is
that the amount was supposed to pay off the advances made by Babasanta to
Pacita Lu. In any event, the incident took place after the Spouses Lu had
already executed the Deed of Absolute Sale with Mortgage in favor of SLDC
and therefore, as previously explained, it has no effect on the legal position of
SLDC.
Assuming ex gratia argumenti that SLDC's registration of the sale had been

tainted by the prior notice of lis pendens and assuming further for the same
nonce that this is a case of double sale, still Babasanta's claim could not
prevail over that of SLDC's. In Abarquez v. Court of Appeals,46 this Court had
the occasion to rule that if a vendee in a double sale registers the sale after he
has acquired knowledge of a previous sale, the registration constitutes a
registration in bad faith and does not confer upon him any right. If the
registration is done in bad faith, it is as if there is no registration at all, and
the buyer who has taken possession first of the property in good faith shall be
preferred.
In Abarquez, the first sale to the spouses Israel was notarized and registered
only after the second vendee, Abarquez, registered their deed of sale with the
Registry of Deeds, but the Israels were first in possession. This Court awarded
the property to the Israels because registration of the property by Abarquez
lacked the element of good faith. While the facts in the instant case
substantially differ from that in Abarquez, we would not hesitate to rule in
favor of SLDC on the basis of its prior possession of the property in good faith.
Be it noted that delivery of the property to SLDC was immediately effected
after the execution of the deed in its favor, at which time SLDC had no
knowledge at all of the prior transaction by the Spouses Lu in favor of
Babasanta. ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
The law speaks not only of one criterion. The first criterion is priority of entry
in the registry of property; there being no priority of such entry, the second is
priority of possession; and, in the absence of the two priorities, the third
priority is of the date of title, with good faith as the common critical element.
Since SLDC acquired possession of the property in good faith in contrast to
Babasanta, who neither registered nor possessed the property at any time,
SLDC's right is definitely superior to that of Babasanta's.

At any rate, the above discussion on the rules on double sale would be purely
academic for as earlier stated in this decision, the contract between Babasanta
and the Spouses Lu is not a contract of sale but merely a contract to sell.
In Dichoso v. Roxas,47 we had the occasion to rule that Article 1544 does not
apply to a case where there was a sale to one party of the land itself while the
other contract was a mere promise to sell the land or at most an actual
assignment of the right to repurchase the same land. Accordingly, there was
no double sale of the same land in that case.
WHEREFORE, the instant petition is hereby GRANTED. The decision of the

Court of Appeals appealed from is REVERSED and SET ASIDE and the decision
of the Regional Trial Court, Branch 31, of San Pedro, Laguna is REINSTATED.
No costs.

5.) G.R. No. 126083 July 12, 2006
ANTONIO R. CORTES (in his capacity as Administrator of the estate of Claro S. Cortes), petitioner,
vs.
HON. COURT OF APPEALS and VILLA ESPERANZA DEVELOPMENT CORPORATION, respondents.
DECISION
YNARES-SANTIAGO, J.:
The instant petition for review seeks the reversal of the June 13, 1996 Decision1 of the Court of Appeals in CA-G.R.
CV No. 47856, setting aside the June 24, 1993 Decision2 of the Regional Trial Court of Makati, Branch 138, which
rescinded the contract of sale entered into by petitioner Antonio Cortes (Cortes) and private respondent Villa
Esperanza Development Corporation (Corporation).
The antecedents show that for the purchase price of P3,700,000.00, the Corporation as buyer, and Cortes as seller,
entered into a contract of sale over the lots covered by Transfer Certificate of Title (TCT) No. 31113-A, TCT No.
31913-A and TCT No. 32013-A, located at Baclaran, Parañaque, Metro Manila. On various dates in 1983, the
Corporation advanced to Cortes the total sum of P1,213,000.00. Sometime in September 1983, the parties
executed a deed of absolute sale containing the following terms:3
1. Upon execution of this instrument, the Vendee shall pay unto the Vendor sum of TWO MILLION AND
TWO HUNDRED THOUSAND (P2,200,000.00) PESOS, Philippine Currency, less all advances paid by the
Vendee to the Vendor in connection with the sale;
2. The balance of ONE MILLION AND FIVE HUNDRED THOUSAND [P1,500,000.00] PESOS, Phil.
Currency shall be payable within ONE (1) YEAR from date of execution of this instrument, payment of which
shall be secured by an irrevocable standby letter of credit to be issued by any reputable local banking
institution acceptable to the Vendor.
xxxx
4. All expense for the registration of this document with the Register of Deeds concerned, including the
transfer tax, shall be divided equally between the Vendor and the Vendee. Payment of the capital gains shall
be exclusively for the account of the Vendor; 5% commission of Marcosa Sanchez to be deducted upon
signing of sale.4
Said Deed was retained by Cortes for notarization.
On January 14, 1985, the Corporation filed the instant case5 for specific performance seeking to compel Cortes to
deliver the TCTs and the original copy of the Deed of Absolute Sale. According to the Corporation, despite its
readiness and ability to pay the purchase price, Cortes refused delivery of the sought documents. It thus prayed for
the award of damages, attorney's fees and litigation expenses arising from Cortes' refusal to deliver the same
documents.
In his Answer with counterclaim,6 Cortes claimed that the owner's duplicate copy of the three TCTs were
surrendered to the Corporation and it is the latter which refused to pay in full the agreed down payment. He added
that portion of the subject property is occupied by his lessee who agreed to vacate the premises upon payment of
disturbance fee. However, due to the Corporation's failure to pay in full the sum of P2,200,000.00, he in turn failed to
fully pay the disturbance fee of the lessee who now refused to pay monthly rentals. He thus prayed that the
Corporation be ordered to pay the outstanding balance plus interest and in the alternative, to cancel the sale and
forfeit the P1,213,000.00 partial down payment, with damages in either case.
On June 24, 1993, the trial court rendered a decision rescinding the sale and directed Cortes to return to the
Corporation the amount of P1,213,000.00, plus interest. It ruled that pursuant to the contract of the parties, the
Corporation should have fully paid the amount of P2,200,000.00 upon the execution of the contract. It stressed that
such is the law between the parties because the Corporation failed to present evidence that there was another
agreement that modified the terms of payment as stated in the contract. And, having failed to pay in full the amount
of P2,200,000.00 despite Cortes' delivery of the Deed of Absolute Sale and the TCTs, rescission of the contract is
proper.
In its motion for reconsideration, the Corporation contended that the trial court failed to consider their agreement
that it would pay the balance of the down payment when Cortes delivers the TCTs. The motion was, however,
denied by the trial court holding that the rescission should stand because the Corporation did not act on the offer of
Cortes' counsel to deliver the TCTs upon payment of the balance of the down payment. Thus:
The Court finds no merit in the [Corporation's] Motion for Reconsideration. As stated in the decision sought
to be reconsidered, [Cortes'] counsel at the pre-trial of this case, proposed that if [the Corporation]
completes the down payment agreed upon and make arrangement for the payment of the balances of the
purchase price, [Cortes] would sign the Deed of Sale and turn over the certificate of title to the [Corporation].
[The Corporation] did nothing to comply with its undertaking under the agreement between the parties.
WHEREFORE, in view of the foregoing considerations, the Motion for Reconsideration is hereby DENIED.
SO ORDERED.7
On appeal, the Court of Appeals reversed the decision of the trial court and directed Cortes to execute a Deed of
Absolute Sale conveying the properties and to deliver the same to the Corporation together with the TCTs,
simultaneous with the Corporation's payment of the balance of the purchase price of P2,487,000.00. It found that
the parties agreed that the Corporation will fully pay the balance of the down payment upon Cortes' delivery of the
three TCTs to the Corporation. The records show that no such delivery was made, hence, the Corporation was not
remiss in the performance of its obligation and therefore justified in not paying the balance. The decretal portion
thereof, provides:
WHEREFORE, premises considered, [the Corporation's] appeal is GRANTED. The decision appealed from
is hereby REVERSED and SET ASIDE and a new judgment rendered ordering [Cortes] to execute a deed of
absolute sale conveying to [the Corporation] the parcels of land subject of and described in the deed of
absolute sale, Exhibit D. Simultaneously with the execution of the deed of absolute sale and the delivery of
the corresponding owner's duplicate copies of TCT Nos. 31113-A, 31931-A and 32013-A of the Registry of
Deeds for the Province of Rizal, Metro Manila, District IV, [the Corporation] shall pay [Cortes] the balance of
the purchase price of P2,487,000.00. As agreed upon in paragraph 4 of the Deed of Absolute Sale, Exhibit
D, under terms and conditions, "All expenses for the registration of this document (the deed of sale) with the
Register of Deeds concerned, including the transfer tax, shall be divided equally between [Cortes and the
Corporation]. Payment of the capital gains shall be exclusively for the account of the Vendor; 5%
commission of Marcosa Sanchez to be deducted upon signing of sale." There is no pronouncement as to
costs.
SO ORDERED.8
Cortes filed the instant petition praying that the decision of the trial court rescinding the sale be reinstated.
There is no doubt that the contract of sale in question gave rise to a reciprocal obligation of the parties. Reciprocal
obligations are those which arise from the same cause, and which each party is a debtor and a creditor of the other,
such that the obligation of one is dependent upon the obligation of the other. They are to be performed
simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other.9
Article 1191 of the Civil Code, states:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.

xxxx
As to when said failure or delay in performance arise, Article 1169 of the same Code provides that –
ART. 1169
xxxx
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply
in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his
obligation, delay by the other begins. (Emphasis supplied)
The issue therefore is whether there is delay in the performance of the parties' obligation that would justify
the rescission of the contract of sale. To resolve this issue, we must first determine the true agreement of the
parties.
The settled rule is that the decisive factor in evaluating an agreement is the intention of the parties, as shown not
necessarily by the terminology used in the contract but by their conduct, words, actions and deeds prior to, during
and immediately after executing the agreement. As such, therefore, documentary and parol evidence may be
submitted and admitted to prove such intention.10
In the case at bar, the stipulation in the Deed of Absolute Sale was that the Corporation shall pay in full the
P2,200,000.00 down payment upon execution of the contract. However, as correctly noted by the Court of Appeals,
the transcript of stenographic notes reveal Cortes' admission that he agreed that the Corporation's full payment of
the sum of P2,200,000.00 would depend upon his delivery of the TCTs of the three lots. In fact, his main defense in
the Answer is that, he performed what is incumbent upon him by delivering to the Corporation the TCTs and the
carbon duplicate of the Deed of Absolute Sale, but the latter refused to pay in full the down payment.11 Pertinent
portion of the transcript, reads:
[Q] Now, why did you deliver these three titles to the plaintiff despite the fact that it has not been paid in full
the agreed down payment?
A Well, the broker told me that the down payment will be given if I surrender the titles.
Q Do you mean to say that the plaintiff agreed to pay in full the down payment of P2,200,000.00 provided
you surrender or entrust to the plaintiff the titles?
A Yes, sir.12
What further confirmed the agreement to deliver the TCTs is the testimony of Cortes that the title of the lots will be
transferred in the name of the Corporation upon full payment of the P2,200,000.00 down payment. Thus –
ATTY. ANTARAN
Q Of course, you have it transferred in the name of the plaintiff, the title?
A Upon full payment.
xxxx
ATTY. SARTE
Q When you said upon full payment, are you referring to the agreed down payment of P2,200,000.00?
A Yes, sir.13
By agreeing to transfer title upon full payment of P2,200,000.00, Cortes' impliedly agreed to deliver the TCTs to the
Corporation in order to effect said transfer. Hence, the phrase "execution of this instrument" 14 as appearing in the
Deed of Absolute Sale, and which event would give rise to the Corporation's obligation to pay in full the amount of
P2,200,000.00, can not be construed as referring solely to the signing of the deed. The meaning of "execution" in
the instant case is not limited to the signing of a contract but includes as well the performance or implementation or
accomplishment of the parties' agreement.15 With the transfer of titles as the corresponding reciprocal obligation of
payment, Cortes' obligation is not only to affix his signature in the Deed, but to set into motion the process that
would facilitate the transfer of title of the lots, i.e., to have the Deed notarized and to surrender the original copy
thereof to the Corporation together with the TCTs.
Having established the true agreement of the parties, the Court must now determine whether Cortes delivered the
TCTs and the original Deed to the Corporation. The Court of Appeals found that Cortes never surrendered said
documents to the Corporation. Cortes testified that he delivered the same to Manny Sanchez, the son of the broker,
and that Manny told him that her mother, Marcosa Sanchez, delivered the same to the Corporation.
Q Do you have any proof to show that you have indeed surrendered these titles to the plaintiff?
A Yes, sir.
Q I am showing to you a receipt dated October 29, 1983, what relation has this receipt with that receipt that
you have mentioned?
A That is the receipt of the real estate broker when she received the titles.
Q On top of the printed name is Manny Sanchez, there is a signature, do you know who is that Manny
Sanchez?
A That is the son of the broker.
xxxx
Q May we know the full name of the real estate broker?
A Marcosa Sanchez
xxxx
Q Do you know if the broker or Marcosa Sanchez indeed delivered the titles to the plaintiff?
A That is what [s]he told me. She gave them to the plaintiff.
x x x x.16
ATTY. ANTARAN
Q Are you really sure that the title is in the hands of the plaintiff?
xxxx
Q It is in the hands of the broker but there is no showing that it is in the hands of the plaintiff?
A Yes, sir.
COURT

Q How do you know that it was delivered to the plaintiff by the son of the broker?
A The broker told me that she delivered the title to the plaintiff.
ATTY. ANTARAN
Q Did she not show you any receipt that she delivered to [Mr.] Dragon17 the title without any receipt?
A I have not seen any receipt.
Q So, therefore, you are not sure whether the title has been delivered to the plaintiff or not. It is only upon
the allegation of the broker?
A Yes, sir.18
However, Marcosa Sanchez's unrebutted testimony is that, she did not receive the TCTs. She also denied
knowledge of delivery thereof to her son, Manny, thus:
Q The defendant, Antonio Cortes testified during the hearing on March 11, 1986 that he allegedly gave you
the title to the property in question, is it true?
A I did not receive the title.
Q He likewise said that the title was delivered to your son, do you know about that?
A I do not know anything about that.19
What further strengthened the findings of the Court of Appeals that Cortes did not surrender the subject documents
was the offer of Cortes' counsel at the pre-trial to deliver the TCTs and the Deed of Absolute Sale if the Corporation
will pay the balance of the down payment. Indeed, if the said documents were already in the hands of the
Corporation, there was no need for Cortes' counsel to make such offer.
Since Cortes did not perform his obligation to have the Deed notarized and to surrender the same together with the
TCTs, the trial court erred in concluding that he performed his part in the contract of sale and that it is the
Corporation alone that was remiss in the performance of its obligation. Actually, both parties were in delay.
Considering that their obligation was reciprocal, performance thereof must be simultaneous. The mutual inaction
of Cortes and the Corporation therefore gave rise to a compensation morae or default on the part of both
parties because neither has completed their part in their reciprocal obligation.20 Cortes is yet to deliver the
original copy of the notarized Deed and the TCTs, while the Corporation is yet to pay in full the agreed down
payment of P2,200,000.00. This mutual delay of the parties cancels out the effects of default, 21 such that it is
as if no one is guilty of delay.22
We find no merit in Cortes' contention that the failure of the Corporation to act on the proposed settlement at the
pre-trial must be construed against the latter. Cortes argued that with his counsel's offer to surrender the original
Deed and the TCTs, the Corporation should have consigned the balance of the down payment. This argument
would have been correct if Cortes actually surrendered the Deed and the TCTs to the Corporation. With such
delivery, the Corporation would have been placed in default if it chose not to pay in full the required down payment.
Under Article 1169 of the Civil Code, from the moment one of the parties fulfills his obligation, delay by the other
begins. Since Cortes did not perform his part, the provision of the contract requiring the Corporation to pay in full the
down payment never acquired obligatory force. Moreover, the Corporation could not be faulted for not automatically
heeding to the offer of Cortes. For one, its complaint has a prayer for damages which it may not want to waive by
agreeing to the offer of Cortes' counsel. For another, the previous representation of Cortes that the TCTs were
already delivered to the Corporation when no such delivery was in fact made, is enough reason for the Corporation
to be more cautious in dealing with him.

The Court of Appeals therefore correctly ordered the parties to perform their respective obligation in the contract of
sale, i.e., for Cortes to, among others, deliver the necessary documents to the Corporation and for the latter to pay
in full, not only the down payment, but the entire purchase price. And since the Corporation did not question the
Court of Appeal's decision and even prayed for its affirmance, its payment should rightfully consist not only of the
amount of P987,000.00, representing the balance of the P2,200,000.00 down payment, but the total amount of
P2,487,000.00, the remaining balance in the P3,700,000.00 purchase price.
WHEREFORE, the petition is DENIED and the June 13, 1996 Decision of the Court of Appeals in CA-G.R. CV No.
47856, is AFFIRMED.

6.) [G.R. NO. 169790 : April 30, 2008]
CONGREGATION OF THE RELIGIOUS OF THE VIRGIN MARY and/or THE SUPERIOR

GENERAL OF THE RELIGIOUS OF THE VIRGIN MARY, represented by The REVEREND
MOTHER MA. CLARITA BALLEQUE, Petitioner, v. EMILIO Q. OROLA, JOSEPHINE FATIMA
LASERNA OROLA, MYRNA ANGELINE LASERNA OROLA, MANUEL LASERNA OROLA,
MARJORIE MELBA LASERNA OROLA & ANTONIO LASERNA OROLA, Respondents.
DECISION
NACHURA, J.:
Challenged in this Petition for Review on Certiorari is the Court of Appeals (CA) Decision1 in CA-G.R.
CV. No. 71406 which modified the Regional Trial Court (RTC) Decision 2 in Civil Case No. V-7382
ordering the rescission of the contract of sale between the parties in an action for Specific
Performance or Rescission with Damages filed by respondents Emilio, Josephine Fatima Laserna,
Myrna Angeline Laserna, Manuel Laserna, Marjorie Melba Laserna, & Antonio Laserna, all surnamed
Orola, (respondents) against petitioner Congregation of the Religious of the Virgin Mary (RVM). 3
The undisputed facts, as found by the CA and adopted by RVM in its petition, follow.
Sometime in April 1999, [petitioner] Religious of the Virgin Mary (RVM for brevity), acting through its
local unit and specifically through Sr. Fe Enhenco, local Superior of the St. Mary's Academy of Capiz
and [respondents] met to discuss the sale of the latter's property adjacent to St. Mary's Academy.
Said property is denominated as Lot 159-B-2 and was still registered in the name of [respondents']
predecessor-in-interest, Manuel Laserna.
In May of 1999, [respondent] Josephine Orola went to Manila to see the Mother Superior General of
the RVM, in the person of Very Reverend Mother Ma. Clarita Balleque [VRM Balleque] regarding the
sale of the property subject of this instant case.
A contract to sell dated June 2, 1999 made out in the names of herein [petitioner] and [respondents]
as parties to the agreement was presented in evidence pegging the total consideration of the
property at P5,555,000.00 with 10% of the total consideration payable upon the execution of the
contract, and which was already signed by all the [respondents] and Sr. Ma. Fe Enhenco, R.V.M. [Sr.
Enhenco] as witness.
On June 7, 1999, [respondents] Josephine Orola and Antonio Orola acknowledged receipt of RCBC
Check No. 0005188 dated June 7, 1999 bearing the amount of P555,500.00 as 10% down payment
for Lot 159-B-2 from the RVM Congregation (St. Mary's Academy of Cadiz [SMAC]) with the
"conforme" signed by Sister Fe Enginco (sic), Mother Superior, SMAC.
[Respondents] executed an extrajudicial settlement of the estate of Trinidad Andrada Laserna dated
June 21, 1999 adjudicating unto themselves, in pro indiviso shares, Lot 159-B-2, and which paved
the transfer of said lot into their names under Transfer Certificate of Title No. T-39194 with an entry
date of August 13, 1999.4
Thereafter, respondents, armed with an undated Deed of Absolute Sale which they had signed,
forthwith scheduled a meeting with VRM Balleque at the RVM Headquarters in Quezon City to finalize
the sale, specifically, to obtain payment of the remaining balance of the purchase price in the amount
of P4,999,500.00. However, VRM Balleque did not meet with respondents. Succeeding attempts by
respondents to schedule an appointment with VRM Balleque in order to conclude the sale were
likewise rebuffed.
In an exchange of correspondence between the parties' respective counsels, RVM denied
respondents' demand for payment because: (1) the purported Contract to Sell was merely signed by
Sr. Enhenco as witness, and not by VRM Balleque, head of the corporation sole; and (2) as discussed
by counsels in their phone conversations, RVM will only be in a financial position to pay the balance
of the purchase price in two years time. Thus, respondents filed with the RTC a complaint with
alternative causes of action of specific performance or rescission.
After trial, the RTC ruled that there was indeed a perfected contract of sale between the parties, and
granted respondents' prayer for rescission thereof. It disposed of the case, to wit:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the [respondents] and
against the [petitioner].
1. Dismissing the counterclaim;
2. Ordering the rescission of the Contract to Sell, Exh. "E".
3. Ordering the forfeiture of the downpayment of P555,500 in favor of the [respondents];
4. Ordering [petitioner] corporation sole, the Superior General of the Religious of the Virgin Mary, to
pay [respondents]:
A. P50,000.00 as exemplary damages;
b. P50,000.00 as attorney's fees.
5. Costs against the [petitioner].
Dissatisfied, both parties filed their respective Notices of Appeal. The CA dismissed the respondents'
appeal because of their failure to file an Appeal Brief. However, RVM's appeal, where respondents
accordingly filed an Appellee's Brief, continued. Subsequently, the CA rendered judgment setting
aside the RTC Decision, to wit:
WHEREFORE, with all the foregoing, the decision of the Regional Trial Court, Branch 15, Roxas City
dated March 1, 2001 in [C]ivil [C]ase [N]o. V-7382 for Specific Performance or Rescission with
Damages is hereby SET ASIDE and a new one entered GRANTING [respondents'] action for specific
performance. [Petitioner RVM] [is] hereby ordered to pay [respondents] immediately the balance of
the total consideration for the subject property in the amount of P4,999,500.00 with interest of
6% per annum computed from June 7, 2000 or one year from the downpayment of the
10% of the total consideration until such time when the whole obligation has been fully
satisfied. In the same way, [respondents] herein are ordered to immediately deliver the title of the
property and to execute the necessary documents required for the sale as soon as all requirements
aforecited have been complied by [RVM]. Parties are further ordered to abide by their reciprocal
obligations in good faith.
All other claims and counterclaims are hereby dismissed for lack of factual and legal basis.
No pronouncement as to cost.
In modifying the RTC Decision, the CA, albeit sustaining the trial court's finding on the existence of a
perfected contract of sale between the parties, noted that the records and evidence adduced did not
preponderate for either party on the manner of effecting payment for the subject property. In short,
the CA was unable to determine from the records if the balance of the purchase price was due in two
(2) years, as claimed by RVM, or, upon transfer of title to the property in the names of respondents,
as they averred. Thus, the CA applied Articles 1383 5 and 13846 of the Civil Code which pronounce
rescission as a subsidiary remedy covering only the damages caused.
The appellate court then resolved the matter in favor of the greatest reciprocity of interest pursuant
to Article 13787 of the Civil Code. It found that the 2-year period to purchase the property, which
RVM insisted on, had been mooted considering the time elapsed from the commencement of this
case. Thus, the CA ordered payment of the balance of the purchase price with 6% interest per
annum computed from June 7, 2000 until complete satisfaction thereof.
Hence, this recourse.
RVM postulates that the order to pay interest is inconsistent with the professed adherence by the CA
to the greatest reciprocity of interest between the parties. Since mutual restitution cannot be had
when the CA set aside the rescission of the contract of sale and granted the prayer for specific
performance, RVM argues that the respondents should pay rentals for the years they continued to
occupy, possess, and failed to turn over to RVM the subject property.
Effectively, the only issue for our resolution is whether RVM is liable for interest on the balance of the
purchase price.
At the outset, we must distinguish between an action for rescission as mapped out in Article 1191 of
the Civil Code and that provided by Article 1381 of the same Code. The articles read:
Art. 1191. The power to rescind obligations is impled in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing,
in accordance with articles 1385 and 1388 and the Mortgage Law.
Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom they represent suffer
lesion by more than one fourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion state in the
preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the
claims due them;
(4) Those which refer to things under litigation if they have been entered into by the defendant
without the knowledge and approval of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission.

Article 1191, as presently worded, speaks of the remedy of rescission in reciprocal obligations within
the context of Article 1124 of the Old Civil Code which uses the term "resolution." The remedy of
resolution applies only to reciprocal obligations 8 such that a party's breach thereof partakes of a tacit
resolutory condition which entitles the injured party to rescission. The present article, as in the Old
Civil Code, contemplates alternative remedies for the injured party who is granted the option to
pursue, as principal actions, either a rescission or specific performance of the obligation, with
payment of damages in each case. On the other hand, rescission under Article 1381 of the Civil Code,
taken from Article 1291 of the Old Civil Code, is a subsidiary action, and is not based on a party's
breach of obligation.
The esteemed Mr. Justice J.B.L. Reyes, ingeniously cuts through the distinction in his concurring
opinion in Universal Food Corporation v. CA:9
I concur with the opinion penned by Mr. Justice Fred Ruiz Castro, but I would like to add that the
argument of petitioner, that the rescission demanded by the respondent-appellee, Magdalo Francisco,
should be denied because under Article 1383 of the Civil Code of the Philippines[,] rescission can not
be demanded except when the party suffering damage has no other legal means to obtain
reparation, is predicated on a failure to distinguish between a rescission for breach of contract under
Article 1191 of the Civil Code and a rescission by reason of lesiÃ³n or economic prejudice, under
Article 1381, et seq. The rescission on account of breach of stipulations is not predicated on injury to
economic interests of the party plaintiff but on the breach of faith by the defendant, that violates the
reciprocity between the parties. It is not a subsidiary action, and Article 1191 may be scanned
without disclosing anywhere that the action for rescission thereunder is subordinated to anything
other than the culpable breach of his obligations by the defendant. This rescission is a principal action
retaliatory in character, it being unjust that a party be held bound to fulfill his promises when the
other violates his. As expressed in the old Latin aphorism: "Non servanti fidem, non est fides
servanda." Hence, the reparation of damages for the breach is purely secondary.
On the contrary, in the rescission by reason of lesiÃ³n or economic prejudice, the cause of action is
subordinated to the existence of that prejudice, because it is the raison d' etre as well as the
measure of the right to rescind. Hence, where the defendant makes good the damages caused, the
action cannot be maintained or continued, as expressly provided in Articles 1383 and 1384. But the
operation of these two articles is limited to the cases of rescission for lesiÃ³n enumerated in Article
1381 of the Civil Code of the Philippines, and does not apply to cases under Article 1191.
It is probable that the petitioner's confusion arose from the defective technique of the new Code that
terms both instances as "rescission" without distinctions between them; unlike the previous Spanish
Civil Code of 1889, that differentiated "resolution" for breach of stipulations from "rescission" by
reason of lesiÃ³n or damage. But the terminological vagueness does not justify confusing one case
with the other, considering the patent difference in causes and results of either action.
In the case at bench, although the CA upheld the RTC's finding of a perfected contract of sale
between the parties, the former disagreed with the latter that fraud and bad faith were attendant in
the sale transaction. The appellate court, after failing to ascertain the parties' actual intention on the
terms of payment for the sale, proceeded to apply Articles 1383 and 1384 of the Civil Code declaring
rescission as a subsidiary remedy that may be availed of only when the injured party has no other
legal means to obtain reparation for the damage caused. In addition, considering the absence of
fraud and bad faith, the CA felt compelled to arrive at a resolution most equitable for the parties. The
CA's most equitable resolution granted respondents' prayer for specific performance of the sale and
ordered RVM to pay the remaining balance of the purchase price, plus interest. It set aside and
deleted the RTC's order forfeiting the downpayment of P555,500.00 in favor of, and payment of
exemplary damages, attorney's fees and costs of suit to, respondents.

Nonetheless, RVM is displeased. It strenuously objects to the CA's imposition of interest. RVM latches
on to the CA's characterization of its resolution as most equitable which, allegedly, is not embodied in
the dispositive portion of the decision ordering the payment of interest. RVM is of the view that since
the CA decreed specific performance of the contract without a finding of bad faith by either party,
and respondents retained possession of the subject property for the duration of the litigation, the
imposition of interest is not keeping with equity without simultaneously requiring respondents to pay
rentals for their continued and uninterrupted stay thereon. In all, RVM phrases the issue in
metaphysical terms, i.e., the most equitable solution.
We completely disagree. The law, as applied to this factual milieu, leaves no room for
equivocation. Thus, we are not wont to apply equity in this instance.
As uniformly found by the lower courts, we likewise find that there was a perfected contract of sale
between the parties. A contract of sale carries the correlative duty of the seller to deliver the
property and the obligation of the buyer to pay the agreed price. 10 As there was already a binding
contract of sale between the parties, RVM had the corresponding obligation to pay the remaining
balance of the purchase price upon the issuance of the title in the name of respondents. The
supposed 2-year period within which to pay the balance did not affect the nature of the agreement as
a perfected contract of sale.11 In fact, we note that this 2-year period is neither reflected in any of the
drafts to the contract,12 nor in the acknowledgment receipt of the downpayment executed by
respondents Josephine and Antonio with the conformity of Sr. Enhenco. 13 In any event, we agree with
the CA's observation that the 2-year period to effect payment has been mooted by the lapse of time.
However, the CA mistakenly applied Articles 1383 and 1384 of the Civil Code to this case because
respondents' cause of action against RVM is predicated on Article 1191 of the same code for breach
of the reciprocal obligation. It is evident from the allegations in respondents' Complaint 14 that the
instant case does not fall within the enumerated instances in Article 1381 of the Civil Code. Certainly,
the Complaint did not pray for rescission of the contract based on economic prejudice.
Moreover, contrary to the CA's finding that the evidence did not preponderate for either party, the
records reveal, as embodied in the trial court's exhaustive disquisition, that RVM committed a
breach of the obligation when it suddenly refused to execute and sign the agreement and
pay the balance of the purchase price.15 Thus, when RVM refused to pay the balance and
thereby breached the contract, respondents rightfully availed of the alternative remedies
provided in Article 1191. Accordingly, respondents are entitled to damages regardless of
whichever relief, rescission or specific performance, would be granted by the lower
courts.16
Yet, RVM stubbornly argues that given the CA's factual finding on the absence of fraud or bad faith
by either party, its order to pay interest is inequitable.
The argument is untenable. The absence of fraud and bad faith by RVM notwithstanding, it is liable to
respondents for interest. In ruling out fraud and bad faith, the CA correspondingly ordered the
fulfillment of the obligation and deleted the RTC's order of forfeiture of the downpayment along with
payment of exemplary damages, attorney's fees and costs of suit. But RVM's contention disregards
the common finding by the lower courts of a perfected contract of sale. As previously adverted to,
RVM breached this contract of sale by refusing to pay the balance of the purchase price despite the
transfer to respondents' names of the title to the property. The 2-year period RVM relies on had long
passed and expired, yet, it still failed to pay. It did not even attempt to pay respondents the balance
of the purchase price after the case was filed, to amicably end this litigation. In fine, despite a clear
cut equitable decision by the CA, RVM refused to lay the matter to rest by complying with its
obligation and paying the balance of the agreed price for the property.

Lastly, to obviate confusion, the clear language of Article 1191 mandates that damages shall be
awarded in either case of fulfillment or rescission of the obligation. 17 In this regard, Article 2210 of
the Civil Code is explicit that "interest may, in the discretion of the court, be allowed upon damages
awarded for breach of contract." The ineluctable conclusion is that the CA correctly imposed interest
on the remaining balance of the purchase price to cover the damages caused the respondents by
RVM's breach.
WHEREFORE, premises considered, the petition is DENIED. The order granting specific performance
and payment of the balance of the purchase price plus six percent (6%) interest per annum from
June 7, 2000 until complete satisfaction is hereby AFFIRMED. Costs against petitioner.

7.) G.R. No. 113564. June 20, 2001
INOCENCIA YU DINO and her HUSBAND doing business under the

trade name "CANDY CLAIRE FASHION GARMENTS", petitioners,
vs. COURT OF APPEALS and ROMAN SIO, doing business under the
name "UNIVERSAL TOY MASTER MANUFACTURING", Respondents.
D E C I S I O N*
PUNO, J.:
Though people say, "better late than never", the law frowns upon those who
assert their rights past the eleventh hour. For failing to timely institute their
action, the petitioners are forever barred from claiming a sum of money from
the respondent.
This is a petition for review on certiorari to annul and set aside the amended
decision of the respondent court dated January 24, 1994 reversing its April 30,
1993 decision and dismissing the plaintiff-petitioners' Complaint on the ground
of prescription.
The following undisputed facts gave rise to the case at bar:
Petitioners spouses Dino, doing business under the trade name "Candy Claire
Fashion Garment" are engaged in the business of manufacturing and selling
shirts. 1 Respondent Sio is part owner and general manager of a
manufacturing corporation doing business under the trade name "Universal
Toy Master Manufacturing." 2 cräläwvirtualibräry
Petitioners and respondent Sio entered into a contract whereby the latter
would manufacture for the petitioners 20,000 pieces of vinyl frogs and 20,000
pieces of vinyl mooseheads at P7.00 per piece in accordance with the sample
approved by the petitioners. These frogs and mooseheads were to be attached
to the shirts petitioners would manufacture and sell. 3 cräläwvirtualibräry
Respondent Sio delivered in several installments the 40,000 pieces of frogs

and mooseheads. The last delivery was made on September 28, 1988.
Petitioner fully paid the agreed price. 4 Subsequently, petitioners returned to
respondent 29,772 pieces of frogs and mooseheads for failing to comply with
the approved sample. 5 The return was made on different dates: the initial one
on December 12, 1988 consisting of 1,720 pieces, 6 the second on January
11, 1989, 7 and the last on January 17, 1989. 8 cräläwvirtualibräry

Petitioners then demanded from the respondent a refund of the purchase price
of the returned goods in the amount of P208,404.00. As respondent Sio
refused to pay, 9 petitioners filed on July 24, 1989 an action for collection of a
sum of money in the Regional Trial Court of Manila, Branch 38.
The trial court ruled in favor of the petitioners, viz:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs Vicente

and Inocencia Dino and against defendant Toy Master Manufacturing, Inc.
ordering the latter to pay the former:
1. The amount of Two Hundred Eight Thousand Four Hundred Four

(P208,404.00) Pesos with legal interest thereon from July 5, 1989, until fully
paid; and
2. The amount of Twenty Thousand (P20,000.00) Pesos as attorney's fees and

the costs of this suit.
The counterclaim on the other hand is hereby dismissed for lack of merit."10 cräläwvirtualibräry
Respondent Sio sought recourse in the Court of Appeals. In its April 30, 1993
decision, the appellate court affirmed the trial court decision. Respondent then
filed a Motion for Reconsideration and a Supplemental Motion for
Reconsideration alleging therein that the petitioners' action for collection of
sum of money based on a breach of warranty had already prescribed. On
January 24, 1994, the respondent court reversed its decision and dismissed
petitioners' Complaint for having been filed beyond the prescriptive period.
The amended decision read in part, viz:
"Even if there is failure to raise the affirmative defense of prescription in a

motion to dismiss or in an appropriate pleading (answer, amended or
supplemental answer) and an amendment would no longer be feasible, still
prescription, if apparent on the face of the complaint may be favorably
considered (Spouses Matias B. Aznar, III, et al. vs. Hon. Juanito A. Bernad,
etc., supra, G.R. 81190, May 9, 1988). The rule in Gicano vs. Gegato (supra)
was reiterated in Severo v. Court of Appeals, (G.R. No. 84051, May 19, 1989).
WHEREFORE the Motion For Reconsideration is granted. The judgment of this

Court is set aside and judgment is hereby rendered REVERSING the judgment
of the trial court and dismissing plaintiff's complaint."11
cräläwvirtualibräry
Hence, this petition with the following assignment of errors:
I.
The respondent Court of Appeals seriously erred in dismissing the
complaint of the Petitioners on the ground that the action had prescribed.
II.
The respondent Court of Appeals seriously erred in holding that the defense
of prescription would still be considered despite the fact that it was not
raised in the answer, if apparent on the face of the complaint.
We first determine the nature of the action filed in the trial court to resolve the
issue of prescription. Petitioners claim that the Complaint they filed in the trial
court on July 24, 1989 was one for the collection of a sum of money.
Respondent contends that it was an action for breach of warranty as the sum
of money petitioners sought to collect was actually a refund of the purchase
price they paid for the alleged defective goods they bought from the
respondent.
We uphold the respondent's contention.
The following provisions of the New Civil Code are apropos:
"Art. 1467. A contract for the delivery at a certain price of an article which the
vendor in the ordinary course of his business manufactures or procures for the
general market, whether the same is on hand at the time or not, is a contract
of sale, but if the goods are to be manufactured specially for the customer and
upon his special order, and not for the general market, it is a contract for a
piece of work."
"Art. 1713. By the contract for a piece of work the contractor binds himself to
execute a piece of work for the employer, in consideration of a certain price or
compensation. The contractor may either employ only his labor or skill, or also
furnish the material."
As this Court ruled in Engineering & Machinery Corporation v. Court of

Appeals, et al., 12 "a contract for a piece of work, labor and materials
may be distinguished from a contract of sale by the inquiry as to
whether the thing transferred is one not in existence and which would
never have existed but for the order of the person desiring it. In such
case, the contract is one for a piece of work, not a sale. On the other hand, if
the thing subject of the contract would have existed and been the
subject of a sale to some other person even if the order had not been
given then the contract is one of sale." 13 The contract between the
petitioners and respondent stipulated that respondent would manufacture
upon order of the petitioners 20,000 pieces of vinyl frogs and 20,000 pieces of
vinyl mooseheads according to the samples specified and approved by the
petitioners. Respondent Sio did not ordinarily manufacture these
products, but only upon order of the petitioners and at the price
agreed upon. 14 Clearly, the contract executed by and between the
petitioners and the respondent was a contract for a piece of work. At any rate,
whether the agreement between the parties was one of a contract of sale or a
piece of work, the provisions on warranty of title against hidden defects in a
contract of sale apply to the case at bar, viz:
"Art. 1714. If the contractor agrees to produce the work from material
furnished by him, he shall deliver the thing produced to the employer and
transfer dominion over the thing. This contract shall be governed by the
following articles as well as by the pertinent provisions on warranty of title and
against hidden defects and the payment of price in a contract of sale."
"Art. 1561. The vendor shall be responsible for warranty against the hidden
defects which the thing sold may have, should they render it unfit for the use
for which it is intended, or should they diminish its fitness for such use to such
an extent that, had the vendee been aware thereof, he would not have
acquired it or would have given a lower price for it; but said vendor shall not
be answerable for patent defects or those which may be visible, or for those
which are not visible if the vendee is an expert who, by reason of his trade or
profession, should have known them."
Petitioners aver that they discovered the defects in respondent's products

when customers in their (petitioners') shirt business came back to them
complaining that the frog and moosehead figures attached to the shirts they
bought were torn. Petitioners allege that they did not readily see these hidden
defects upon their acceptance. A hidden defect is one which is unknown or
could not have been known to the vendee. 15 Petitioners then returned to the
respondent 29,772 defective pieces of vinyl products and demanded a refund
of their purchase price in the amount of P208,404.00. Having failed to collect
this amount, they filed an action for collection of a sum of money.
Article 1567 provides for the remedies available to the vendee in case of
hidden defects, viz:
"Art. 1567. In the cases of Articles 1561, 1562, 1564, 1565 and 1566, the
vendee may elect between withdrawing from the contract and demanding a
proportionate reduction of the price, with damages in either case."
By returning the 29,772 pieces of vinyl products to respondent and asking for
a return of their purchase price, petitioners were in effect "withdrawing from

the contract" as provided in Art. 1567. The prescriptive period for this kind of
action is provided in Art. 1571 of the New Civil Code, viz:
"Art. 1571. Actions arising from the provisions of the preceding ten articles
shall be barred after six months from the delivery of the thing sold."
(Emphasis supplied)
There is no dispute that respondent made the last delivery of the vinyl
products to petitioners on September 28, 1988. It is also settled that
the action to recover the purchase price of the goods petitioners
returned to the respondent was filed on July 24, 1989, 16 more than
nine months from the date of last delivery. Petitioners having filed the
action three months after the six-month period for filing actions for
breach of warranty against hidden defects stated in Art. 1571, 17 the
appellate court dismissed the action.
Petitioners fault the ruling on the ground that it was too late in the day for
respondent to raise the defense of prescription. The law then applicable to the
case at bar, Rule 9, Sec. 2 of the Rules of Court, provides:
"Defenses and objections not pleaded either in a motion to dismiss or in the

answer are deemed waived; except the failure to state a cause of
action . . . "
Thus, they claim that since the respondent failed to raise the defense of
prescription in a motion to dismiss or in its answer, it is deemed waived and
cannot be raised for the first time on appeal in a motion for reconsideration of
the appellate court's decision.
As a rule, the defense of prescription cannot be raised for the first time on
appeal. Thus, we held in Ramos v. Osorio, 18 viz:
"It is settled law in this jurisdiction that the defense of prescription is waivable,
and that if it was not raised as a defense in the trial court, it cannot be
considered on appeal, the general rule being that the appellate court is not
authorized to consider and resolve any question not properly raised in the
lower court (Subido vs. Lacson, 55 O.G. 8281, 8285; Moran, Comments on the
Rules of Court, Vol. I, p. 784, 1947 Edition)."
However, this is not a hard and fast rule. In Gicano v. Gegato, 19 we held:
". . .(T)rial courts have authority and discretion to dimiss an action on the
ground of prescription when the parties' pleadings or other facts on record
show it to be indeed time-barred; (Francisco v. Robles, Feb, 15, 1954; Sison
v. McQuaid, 50 O.G. 97; Bambao v. Lednicky, Jan. 28, 1961; Cordova v.
Cordova, Jan. 14, 1958; Convets, Inc. v. NDC, Feb. 28, 1958; 32 SCRA 529;
Sinaon v. Sorongan, 136 SCRA 408); and it may do so on the basis of a
motion to dismiss (Sec. 1,f, Rule 16, Rules of Court), or an answer which sets
up such ground as an affirmative defense (Sec. 5, Rule 16), or even if the
ground is alleged after judgment on the merits, as in a motion for
reconsideration (Ferrer v. Ericta, 84 SCRA 705); or even if the defense
has not been asserted at all, as where no statement thereof is found in
the pleadings (Garcia v. Mathis, 100 SCRA 250; PNB v. Pacific
Commission House, 27 SCRA 766; Chua Lamco v. Dioso, et al., 97 Phil.
821); or where a defendant has been declared in default (PNB v. Perez, 16
SCRA 270). What is essential only, to repeat, is that the facts
demonstrating the lapse of the prescriptive period be otherwise
sufficiently and satisfactorily apparent on the record; either in the
averments of the plaintiff's complaint, or otherwise established by the
evidence." (emphasis supplied)
In Aldovino, et al. v. Alunan, et al., 20 the Court en banc reiterated

the Garcia v. Mathis doctrine cited in the Gicano case that when the plaintiff's
own complaint shows clearly that the action has prescribed, the action may be
dismissed even if the defense of prescription was not invoked by the
defendant.
It is apparent in the records that respondent made the last delivery of vinyl
products to the petitioners on September 28, 1988. Petitioners admit this in
their Memorandum submitted to the trial court and reiterate it in their Petition
for Review. 21 It is also apparent in theComplaint that petitioners instituted
their action on July 24, 1989. The issue for resolution is whether or not the
respondent Court of Appeals could dismiss the petitioners' action if the defense
of prescription was raised for the first time on appeal but is apparent in the
records.
Following the Gicano doctrine that allows dismissal of an action on the ground

of prescription even after judgment on the merits, or even if the defense was
not raised at all so long as the relevant dates are clear on the record, we rule
that the action filed by the petitioners has prescribed. The dates of delivery
and institution of the action are undisputed. There are no new issues of fact
arising in connection with the question of prescription, thus carving out the
case at bar as an exception from the general rule that prescription if not
impleaded in the answer is deemed waived. 22 cräläwvirtualibräry
Even if the defense of prescription was raised for the first time on appeal in
respondent's Supplemental Motion for Reconsideration of the appellate court's
decision, this does not militate against the due process right of the petitioners.
On appeal, there was no new issue of fact that arose in connection with the
question of prescription, thus it cannot be said that petitioners were not given
the opportunity to present evidence in the trial court to meet a factual issue.
Equally important, petitioners had the opportunity to oppose the defense of
prescription in their Opposition to the Supplemental Motion for Reconsideration
filed in the appellate court and in their Petition for Review in this Court.
This Court's application of the Osorio and Gicano doctrines to the case at bar

is confirmed and now enshrined in Rule 9, Sec. 1 of the 1997 Rules of Civil
Procedure, viz:
"Section 1. Defense and objections not pleaded. - Defenses and objections not
pleaded whether in a motion to dismiss or in the answer are deemed waived.
However, when it appears from the pleadings that the court has no jurisdiction
over the subject matter, that there is another action pending between the
same parties for the same cause, or that the action is barred by a prior
judgment or by statute of limitations, the court shall dismiss the claim."
(Emphasis supplied)
WHEREFORE , the petition is DENIED and the impugned decision of the Court
of Appeals dated January 24, 1994 is AFFIRMED. No costs.

8.) G.R. No. L-27044 June 30, 1975
THE COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ENGINEERING EQUIPMENT AND SUPPLY COMPANY AND THE COURT OF TAX APPEALS, respondents.
G.R. No. L-27452 June 30, 1975
ENGINEERING EQUIPMENT AND SUPPLY COMPANY, petitioner,

vs.
THE COMMISSIONER OF INTERNAL REVENUE AND THE COURT OF TAX APPEALS, respondent.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete,
Solicitor Lolita O. Gal-lang, and Special Attorney Gemaliel H. Montalino for Commissioner of Internal
Revenue, etc.
Melquides C. Gutierrez, Jose U. Ong, Juan G. Collas, Jr., Luis Ma. Guerrero and J.R. Balonkita for
Engineering and Supply Company.
ESGUERRA, J.:
Petition for review on certiorari of the decision of the Court of Tax Appeals in CTA Case No. 681, dated
November 29, 1966, assessing a compensating tax of P174,441.62 on the Engineering Equipment and
Supply Company.
As found by the Court of Tax Appeals, and as established by the evidence on record, the facts of this case
are as follows:
Engineering Equipment and Supply Co. (Engineering for short), a domestic corporation, is an engineering
and machinery firm. As operator of an integrated engineering shop, it is engaged, among others, in the
design and installation of central type air conditioning system, pumping plants and steel fabrications. (Vol. I
pp. 12-16 T.S.N. August 23, 1960)
On July 27, 1956, one Juan de la Cruz, wrote the then Collector, now Commissioner, of Internal Revenue
denouncing Engineering for tax evasion by misdeclaring its imported articles and failing to pay the correct
percentage taxes due thereon in connivance with its foreign suppliers (Exh. "2" p. 1 BIR record Vol. I).
Engineering was likewise denounced to the Central Bank (CB) for alleged fraud in obtaining its dollar
allocations. Acting on these denunciations, a raid and search was conducted by a joint team of Central
Bank, (CB), National Bureau of Investigation (NBI) and Bureau of Internal Revenue (BIR) agents on
September 27, 1956, on which occasion voluminous records of the firm were seized and confiscated. (pp.
173-177 T.S.N.)
On September 30, 1957, revenue examiners Quesada and Catudan reported and recommended to the then
Collector, now Commissioner, of Internal Revenue (hereinafter referred to as Commissioner) that
Engineering be assessed for P480,912.01 as deficiency advance sales tax on the theory that it misdeclared
its importation of air conditioning units and parts and accessories thereof which are subject to tax under
Section 185(m) of the Tax Code, instead of Section 186 of the same Code. (Exh. "3" pp. 59-63 BIR rec. Vol. I) This
1
assessment was revised on January 23, 1959, in line with the observation of the Chief, BIR Law Division, and was
raised to P916,362.56 representing deficiency advance sales tax and manufacturers sales tax, inclusive of the 25%
and 50% surcharges. (pp. 72-80 BIR rec. Vol. I)
On March 3, 1959. the Commissioner assessed against, and demanded upon, Engineering payment of the
increased amount and suggested that P10,000 be paid as compromise in extrajudicial settlement of Engineering's
penal liability for violation of the Tax Code. The firm, however, contested the tax assessment and requested that it
be furnished with the details and particulars of the Commissioner's assessment. (Exh. "B" and "15", pp. 86-88 BIR
rec. Vol. I) The Commissioner replied that the assessment was in accordance with law and the facts of the case.
On July 30, 1959, Engineering appealed the case to the Court of Tax Appeals and during the pendency of the case
the investigating revenue examiners reduced Engineering's deficiency tax liabilities from P916,362.65 to
P740,587.86 (Exhs. "R" and "9" pp. 162-170, BIR rec.), based on findings after conferences had with Engineering's
Accountant and Auditor.
On November 29, 1966, the Court of Tax Appeals rendered its decision, the dispositive portion of which reads as
follows:
For ALL THE FOREGOING CONSIDERATIONS, the decision of respondent appealed from is
hereby modified, and petitioner, as a contractor, is declared exempt from the deficiency
manufacturers sales tax covering the period from June 1, 1948. to September 2, 1956. However,
petitioner is ordered to pay respondent, or his duly authorized collection agent, the sum of
P174,141.62 as compensating tax and 25% surcharge for the period from 1953 to September 1956.
With costs against petitioner.
The Commissioner, not satisfied with the decision of the Court of Tax Appeals, appealed to this Court on January
18, 1967, (G.R. No. L-27044). On the other hand, Engineering, on January 4, 1967, filed with the Court of Tax
Appeals a motion for reconsideration of the decision abovementioned. This was denied on April 6, 1967, prompting
Engineering to file also with this Court its appeal, docketed as G.R. No. L-27452.
Since the two cases, G.R. No. L-27044 and G.R. No. L-27452, involve the same parties and issues, We have
decided to consolidate and jointly decide them.
Engineering in its Petition claims that the Court of Tax Appeals committed the following errors:
1. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company liable
to the 30% compensating tax on its importations of equipment and ordinary articles used in the
central type air conditioning systems it designed, fabricated, constructed and installed in the
buildings and premises of its customers, rather than to the compensating tax of only 7%;
2. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company guilty
of fraud in effecting the said importations on the basis of incomplete quotations from the contents of
alleged photostat copies of documents seized illegally from Engineering Equipment and Supply
Company which should not have been admitted in evidence;
to the 25% surcharge prescribed in Section 190 of the Tax Code;
4. That the Court of Tax Appeals erred in holding the assessment as not having prescribed;
for the sum of P174,141.62 as 30% compensating tax and 25% surcharge instead of completely
absolving it from the deficiency assessment of the Commissioner.
The Commissioner on the other hand claims that the Court of Tax Appeals erred:
1. In holding that the respondent company is a contractor and not a manufacturer.
2. In holding respondent company liable to the 3% contractor's tax imposed by Section 191 of the
Tax Code instead of the 30% sales tax prescribed in Section 185(m) in relation to Section 194(x)
both of the same Code;

3. In holding that the respondent company is subject only to the 30% compensating tax under
Section 190 of the Tax Code and not to the 30% advance sales tax imposed by section 183 (b), in
relation to section 185(m) both of the same Code, on its importations of parts and accessories of air
conditioning units;
4. In not holding the company liable to the 50% fraud surcharge under Section 183 of the Tax Code
on its importations of parts and accessories of air conditioning units, notwithstanding the finding of
said court that the respondent company fraudulently misdeclared the said importations;
5. In holding the respondent company liable for P174,141.62 as compensating tax and 25%
surcharge instead of P740,587.86 as deficiency advance sales tax, deficiency manufacturers tax
and 25% and 50% surcharge for the period from June 1, 1948 to December 31, 1956.
The main issue revolves on the question of whether or not Engineering is a manufacturer of air conditioning
units under Section 185(m), supra, in relation to Sections 183(b) and 194 of the Code, or a contractor under
Section 191 of the same Code.
The Commissioner contends that Engineering is a manufacturer and seller of air conditioning units and
parts or accessories thereof and, therefore, it is subject to the 30% advance sales tax prescribed by Section
185(m) of the Tax Code, in relation to Section 194 of the same, which defines a manufacturer as follows:
Section 194. — Words and Phrases Defined. — In applying the provisions of this Title, words and
phrases shall be taken in the sense and extension indicated below:
xxx xxx xxx
(x) "Manufacturer" includes every person who by physical or chemical process alters the exterior
texture or form or inner substance of any raw material or manufactured or partially manufactured
products in such manner as to prepare it for a special use or uses to which it could not have been
put in its original condition, or who by any such process alters the quality of any such material or
manufactured or partially manufactured product so as to reduce it to marketable shape, or prepare it
for any of the uses of industry, or who by any such process combines any such raw material or
manufactured or partially manufactured products with other materials or products of the same or of
different kinds and in such manner that the finished product of such process of manufacture can be
put to special use or uses to which such raw material or manufactured or partially manufactured
products in their original condition could not have been put, and who in addition alters such raw
material or manufactured or partially manufactured products, or combines the same to produce such
finished products for the purpose of their sale or distribution to others and not for his own use or
consumption.
In answer to the above contention, Engineering claims that it is not a manufacturer and setter of air-conditioning
units and spare parts or accessories thereof subject to tax under Section 185(m) of the Tax Code, but a contractor
engaged in the design, supply and installation of the central type of air-conditioning system subject to the 3% tax
imposed by Section 191 of the same Code, which is essentially a tax on the sale of services or labor of a contractor
rather than on the sale of articles subject to the tax referred to in Sections 184, 185 and 186 of the Code.
The arguments of both the Engineering and the Commissioner call for a clarification of the term contractor as well as
the distinction between a contract of sale and contract for furnishing services, labor and materials. The distinction
between a contract of sale and one for work, labor and materials is tested by the inquiry whether the thing
transferred is one not in existence and which never would have existed but for the order of the party
desiring to acquire it, or a thing which would have existed and has been the subject of sale to some other
persons even if the order had not been given. If the article ordered by the purchaser is exactly such as the
2
plaintiff makes and keeps on hand for sale to anyone, and no change or modification of it is made at defendant's
request, it is a contract of sale, even though it may be entirely made after, and in consequence of, the defendants
order for it.
3

Our New Civil Code, likewise distinguishes a contract of sale from a contract for a piece of work thus:
Art. 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary
course of his business manufactures or procures for the general market, whether the same is on
hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the
customer and upon his special order and not for the general market, it is a contract for a piece of
work.
The word "contractor" has come to be used with special reference to a person who, in the pursuit of the independent
business, undertakes to do a specific job or piece of work for other persons, using his own means and methods
without submitting himself to control as to the petty details. (Arañas, Annotations and Jurisprudence on the National
Internal Revenue Code, p. 318, par. 191 (2), 1970 Ed.) The true test of a contractor as was held in the cases
of Luzon Stevedoring Co., vs. Trinidad, 43, Phil. 803, 807-808, and La Carlota Sugar Central vs. Trinidad, 43, Phil.
816, 819, would seem to be that he renders service in the course of an independent occupation, representing the
will of his employer only as to the result of his work, and not as to the means by which it is accomplished.
With the foregoing criteria as guideposts, We shall now examine whether Engineering really did "manufacture" and
sell, as alleged by the Commissioner to hold it liable to the advance sales tax under Section 185(m), or it only had
its services "contracted" for installation purposes to hold it liable under section 198 of the Tax Code.
After going over the three volumes of stenographic notes and the voluminous record of the BIR and the CTA as well
as the exhibits submitted by both parties, We find that Engineering did not manufacture air conditioning units
for sale to the general public, but imported some items (as refrigeration compressors in complete set, heat
exchangers or coils, t.s.n. p. 39) which were used in executing contracts entered into by it. Engineering,
therefore, undertook negotiations and execution of individual contracts for the design, supply and installation of air
conditioning units of the central type (t.s.n. pp. 20-36; Exhs. "F", "G", "H", "I", "J", "K", "L", and "M"), taking into
consideration in the process such factors as the area of the space to be air conditioned; the number of persons
occupying or would be occupying the premises; the purpose for which the various air conditioning areas are to be
used; and the sources of heat gain or cooling load on the plant such as sun load, lighting, and other electrical
appliances which are or may be in the plan. (t.s.n. p. 34, Vol. I) Engineering also testified during the hearing in the
Court of Tax Appeals that relative to the installation of air conditioning system, Engineering designed and
engineered complete each particular plant and that no two plants were identical but each had to be engineered
separately.
As found by the lower court, which finding We adopt —

4
Engineering, in a nutshell, fabricates, assembles, supplies and installs in the buildings of its various
customers the central type air conditioning system; prepares the plans and specifications therefor
which are distinct and different from each other; the air conditioning units and spare parts or
accessories thereof used by petitioner are not the window type of air conditioner which are
manufactured, assembled and produced locally for sale to the general market; and the imported air
conditioning units and spare parts or accessories thereof are supplied and installed by petitioner
upon previous orders of its customers conformably with their needs and requirements.
The facts and circumstances aforequoted support the theory that Engineering is a contractor rather than a
manufacturer.
The Commissioner in his Brief argues that "it is more in accord with reason and sound business management to say
that anyone who desires to have air conditioning units installed in his premises and who is in a position and willing
to pay the price can order the same from the company (Engineering) and, therefore, Engineering could have mass
produced and stockpiled air conditioning units for sale to the public or to any customer with enough money to buy
the same." This is untenable in the light of the fact that air conditioning units, packaged, or what we know as self-
contained air conditioning units, are distinct from the central system which Engineering dealt in. To Our mind, the
distinction as explained by Engineering, in its Brief, quoting from books, is not an idle play of words as claimed by

the Commissioner, but a significant fact which We just cannot ignore. As quoted by Engineering Equipment &
Supply Co., from an Engineering handbook by L.C. Morrow, and which We reproduce hereunder for easy reference:
... there is a great variety of equipment in use to do this job (of air conditioning). Some devices are
designed to serve a specific type of space; others to perform a specific function; and still others as
components to be assembled into a tailor-made system to fit a particular building. Generally,
however, they may be grouped into two classifications — unitary and central system.
The unitary equipment classification includes those designs such as room air conditioner, where all
of the functional components are included in one or two packages, and installation involves only
making service connection such as electricity, water and drains. Central-station systems, often
referred to as applied or built-up systems, require the installation of components at different points in
a building and their interconnection.
The room air conditioner is a unitary equipment designed specifically for a room or similar small
space. It is unique among air conditioning equipment in two respects: It is in the electrical appliance
classification, and it is made by a great number of manufacturers.
There is also the testimony of one Carlos Navarro, a licensed Mechanical and Electrical Engineer, who was once
the Chairman of the Board of Examiners for Mechanical Engineers and who was allegedly responsible for the
preparation of the refrigeration and air conditioning code of the City of Manila, who said that "the central type air
conditioning system is an engineering job that requires planning and meticulous layout due to the fact that usually
architects assign definite space and usually the spaces they assign are very small and of various sizes. Continuing
further, he testified:
I don't think I have seen central type of air conditioning machinery room that are exactly alike
because all our buildings here are designed by architects dissimilar to existing buildings, and usually
they don't coordinate and get the advice of air conditioning and refrigerating engineers so much so
that when we come to design, we have to make use of the available space that they are assigning to
us so that we have to design the different component parts of the air conditioning system in such a
way that will be accommodated in the space assigned and afterwards the system may be
considered as a definite portion of the building. ...
Definitely there is quite a big difference in the operation because the window type air conditioner is a
sort of compromise. In fact it cannot control humidity to the desired level; rather the manufacturers,
by hit and miss, were able to satisfy themselves that the desired comfort within a room could be
made by a definite setting of the machine as it comes from the factory; whereas the central type
system definitely requires an intelligent operator. (t.s.n. pp. 301-305, Vol. II)
The point, therefore, is this — Engineering definitely did not and was not engaged in the manufacture of air
conditioning units but had its services contracted for the installation of a central system. The cases cited by
the Commissioner (Advertising Associates, Inc. vs. Collector of Customs, 97, Phil. 636; Celestino Co & Co. vs.
Collector of Internal Revenue, 99 Phil. 841 and Manila Trading & Supply Co. vs. City of Manila, 56 O.G. 3629), are
not in point. Neither are they applicable because the facts in all the cases cited are entirely different. Take for
instance the case of Celestino Co where this Court held the taxpayer to be a manufacturer rather than a contractor
of sash, doors and windows manufactured in its factory. Indeed, from the very start, Celestino Co intended itself to
be a manufacturer of doors, windows, sashes etc. as it did register a special trade name for its sash business and
ordered company stationery carrying the bold print "ORIENTAL SASH FACTORY (CELESTINO CO AND
COMPANY, PROP.) 926 Raon St., Quiapo, Manila, Tel. No. etc., Manufacturers of All Kinds of Doors, Windows ... ."
Likewise, Celestino Co never put up a contractor's bond as required by Article 1729 of the Civil Code. Also, as a
general rule, sash factories receive orders for doors and windows of special design only in particular cases, but the
bulk of their sales is derived from ready-made doors and windows of standard sizes for the average home, which
"sales" were reflected in their books of accounts totalling P118,754.69 for the period from January, 1952 to
September 30, 1952, or for a period of only nine (9) months. This Court found said sum difficult to have been
derived from its few customers who placed special orders for these items. Applying the abovestated facts to the
case at bar, We found them to he inapposite. Engineering advertised itself as Engineering Equipment and Supply
Company, Machinery Mechanical Supplies, Engineers, Contractors, 174 Marques de Comillas, Manila (Exh. "B" and
"15" BIR rec. p. 186), and not as manufacturers. It likewise paid the contractors tax on all the contracts for the
design and construction of central system as testified to by Mr. Rey Parker, its President and General Manager.
(t.s.n. p. 102, 103) Similarly, Engineering did not have ready-made air conditioning units for sale but as per
testimony of Mr. Parker upon inquiry of Judge Luciano of the CTA —
Q — Aside from the general components, which go into air conditioning plant or
system of the central type which your company undertakes, and the procedure
followed by you in obtaining and executing contracts which you have already testified
to in previous hearing, would you say that the covering contracts for these different
projects listed ... referred to in the list, Exh. "F" are identical in every respect? I mean
every plan or system covered by these different contracts are identical in standard in
every respect, so that you can reproduce them?
A — No, sir. They are not all standard. On the contrary, none of them are the same.
Each one must be designed and constructed to meet the particular requirements,
whether the application is to be operated. (t.s.n. pp. 101-102)
What We consider as on all fours with the case at bar is the case of S.M. Lawrence Co. vs.
McFarland, Commissioner of Internal Revenue of the State of Tennessee and McCanless, 355 SW 2d, 100, 101,
"where the cause presents the question of whether one engaged in the business of contracting for the establishment
of air conditioning system in buildings, which work requires, in addition to the furnishing of a cooling unit, the
connection of such unit with electrical and plumbing facilities and the installation of ducts within and through walls,
ceilings and floors to convey cool air to various parts of the building, is liable for sale or use tax as a contractor
rather than a retailer of tangible personal property. Appellee took the Position that appellant was not engaged in the
business of selling air conditioning equipment as such but in the furnishing to its customers of completed air
conditioning systems pursuant to contract, was a contractor engaged in the construction or improvement of real
property, and as such was liable for sales or use tax as the consumer of materials and equipment used in the
consummation of contracts, irrespective of the tax status of its contractors. To transmit the warm or cool air over the
buildings, the appellant installed system of ducts running from the basic units through walls, ceilings and floors to
registers. The contract called for completed air conditioning systems which became permanent part of the buildings
and improvements to the realty." The Court held the appellant a contractor which used the materials and the
equipment upon the value of which the tax herein imposed was levied in the performance of its contracts with its
customers, and that the customers did not purchase the equipment and have the same installed.
Applying the facts of the aforementioned case to the present case, We see that the supply of air
conditioning units to Engineer's various customers, whether the said machineries were in hand or not, was
especially made for each customer and installed in his building upon his special order. The air conditioning
units installed in a central type of air conditioning system would not have existed but for the order of the
party desiring to acquire it and if it existed without the special order of Engineering's customer, the said air
conditioning units were not intended for sale to the general public. Therefore, We have but to affirm the
conclusion of the Court of Tax Appeals that Engineering is a contractor rather than a manufacturer, subject
to the contractors tax prescribed by Section 191 of the Code and not to the advance sales tax imposed by
Section 185(m) in relation to Section 194 of the same Code. Since it has been proved to Our satisfaction that
Engineering imported air conditioning units, parts or accessories thereof for use in its construction business and
these items were never sold, resold, bartered or exchanged, Engineering should be held liable to pay taxes
prescribed under Section 190 of the Code. This compensating tax is not a tax on the importation of goods but a tax
5
on the use of imported goods not subject to sales tax. Engineering, therefore, should be held liable to the payment
of 30% compensating tax in accordance with Section 190 of the Tax Code in relation to Section 185(m) of the same,
but without the 50% mark up provided in Section 183(b).
II
We take up next the issue of fraud. The Commissioner charged Engineering with misdeclaration of the imported air
conditioning units and parts or accessories thereof so as to make them subject to a lower rate of percentage tax
(7%) under Section 186 of the Tax Code, when they are allegedly subject to a higher rate of tax (30%) under its
Section 185(m). This charge of fraud was denied by Engineering but the Court of Tax Appeals in its decision found
adversely and said"
... We are amply convinced from the evidence presented by respondent that petitioner deliberately
and purposely misdeclared its importations. This evidence consists of letters written by petitioner to
its foreign suppliers, instructing them on how to invoice and describe the air conditioning units
ordered by petitioner. ... (p. 218 CTA rec.)
Despite the above findings, however, the Court of Tax Appeals absolved Engineering from paying the 50%
surcharge prescribe by Section 183(a) of the Tax Code by reasoning out as follows:
The imposition of the 50% surcharge prescribed by Section 183(a) of the Tax Code is based on
willful neglect to file the monthly return within 20 days after the end of each month or in case a false
or fraudulent return is willfully made, it can readily be seen, that petitioner cannot legally be held
subject to the 50% surcharge imposed by Section 183(a) of the Tax Code. Neither can petitioner be
held subject to the 50% surcharge under Section 190 of the Tax Code dealing on compensating tax
because the provisions thereof do not include the 50% surcharge. Where a particular provision of
the Tax Code does not impose the 50% surcharge as fraud penalty we cannot enforce a non-
existing provision of law notwithstanding the assessment of respondent to the contrary. Instances of
the exclusion in the Tax Code of the 50% surcharge are those dealing on tax on banks, taxes on
receipts of insurance companies, and franchise tax. However, if the Tax Code imposes the 50%
surcharge as fraud penalty, it expressly so provides as in the cases of income tax, estate and
inheritance taxes, gift taxes, mining tax, amusement tax and the monthly percentage taxes.
Accordingly, we hold that petitioner is not subject to the 50% surcharge despite the existence of
fraud in the absence of legal basis to support the importation thereof. (p. 228 CTA rec.)
We have gone over the exhibits submitted by the Commissioner evidencing fraud committed by Engineering and
We reproduce some of them hereunder for clarity.
As early as March 18, 1953, Engineering in a letter of even date wrote to Trane Co. (Exh. "3-K" pp. 152-155, BIR
rec.) viz:
Your invoices should be made in the name of Madrigal & Co., Inc., Manila, Philippines, c/o
Engineering Equipment & Supply Co., Manila, Philippines — forwarding all correspondence and
shipping papers concerning this order to us only and not to the customer.
When invoicing, your invoices should be exactly as detailed in the customer's Letter Order dated
March 14th, 1953 attached. This is in accordance with the Philippine import licenses granted to
Madrigal & Co., Inc. and such details must only be shown on all papers and shipping documents for
this shipment. No mention of words air conditioning equipment should be made on any shipping
documents as well as on the cases. Please give this matter your careful attention, otherwise great
difficulties will be encountered with the Philippine Bureau of Customs when clearing the shipment on
its arrival in Manila. All invoices and cases should be marked "THIS EQUIPMENT FOR RIZAL
CEMENT CO."
The same instruction was made to Acme Industries, Inc., San Francisco, California in a letter dated March 19, 1953
(Exh. "3-J-1" pp. 150-151, BIR rec.)
On April 6, 1953, Engineering wrote to Owens-Corning Fiberglass Corp., New York, U.S.A. (Exh. "3-1" pp. 147-149,
BIR rec.) also enjoining the latter from mentioning or referring to the term 'air conditioning' and to describe the goods
on order as Fiberglass pipe and pipe fitting insulation instead. Likewise on April 30, 1953, Engineering threatened to
discontinue the forwarding service of Universal Transcontinental Corporation when it wrote Trane Co. (Exh. "3-H" p.
146, BIR rec.):
It will be noted that the Universal Transcontinental Corporation is not following through on the
instructions which have been covered by the above correspondence, and which indicates the
necessity of discontinuing the use of the term "Air conditioning Machinery or Air Coolers". Our
instructions concerning this general situation have been sent to you in ample time to have avoided
this error in terminology, and we will ask that on receipt of this letter that you again write to Universal
Transcontinental Corp. and inform them that, if in the future, they are unable to cooperate with us on
this requirement, we will thereafter be unable to utilize their forwarding service. Please inform them
that we will not tolerate another failure to follow our requirements.
And on July 17, 1953 (Exh- "3-g" p. 145, BIR rec.) Engineering wrote Trane Co. another letter, viz:
In the past, we have always paid the air conditioning tax on climate changers and that mark is
recognized in the Philippines, as air conditioning equipment. This matter of avoiding any tie-in on air
conditioning is very important to us, and we are asking that from hereon that whoever takes care of
the processing of our orders be carefully instructed so as to avoid again using the term "Climate
changers" or in any way referring to the equipment as "air conditioning."
And in response to the aforequoted letter, Trane Co. wrote on July 30, 1953, suggesting a solution, viz:
We feel that we can probably solve all the problems by following the procedure outlined in your letter
of March 25, 1953 wherein you stated that in all future jobs you would enclose photostatic copies of
your import license so that we might make up two sets of invoices: one set describing equipment
ordered simply according to the way that they are listed on the import license and another according
to our ordinary regular methods of order write-up. We would then include the set made up according
to the import license in the shipping boxes themselves and use those items as our actual shipping
documents and invoices, and we will send the other regular invoice to you, by separate
correspondence. (Exh- No. "3-F-1", p. 144 BIR rec.)
Another interesting letter of Engineering is one dated August 27, 1955 (Exh. "3-C" p. 141 BIR rec.)
In the process of clearing the shipment from the piers, one of the Customs inspectors requested to
see the packing list. Upon presenting the packing list, it was discovered that the same was prepared
on a copy of your letterhead which indicated that the Trane Co. manufactured air conditioning,
heating and heat transfer equipment. Accordingly, the inspectors insisted that this equipment was
being imported for air conditioning purposes. To date, we have not been able to clear the shipment
and it is possible that we will be required to pay heavy taxes on equipment.
The purpose of this letter is to request that in the future, no documents of any kind should be sent
with the order that indicate in any way that the equipment could possibly be used for air conditioning.
It is realized that this a broad request and fairly difficult to accomplish and administer, but we believe
with proper caution it can be executed. Your cooperation and close supervision concerning these
matters will be appreciated. (Emphasis supplied)
The aforequoted communications are strongly indicative of the fraudulent intent of Engineering to misdeclare its
importation of air conditioning units and spare parts or accessories thereof to evade payment of the 30% tax. And
since the commission of fraud is altogether too glaring, We cannot agree with the Court of Tax Appeals in absolving
Engineering from the 50% fraud surcharge, otherwise We will be giving premium to a plainly intolerable act of tax
evasion. As aptly stated by then Solicitor General, now Justice, Antonio P. Barredo: 'this circumstance will not free it
from the 50% surcharge because in any case whether it is subject to advance sales tax or compensating tax, it is
required by law to truly declare its importation in the import entries and internal revenue declarations before the
importations maybe released from customs custody. The said entries are the very documents where the nature,
quantity and value of the imported goods declared and where the customs duties, internal revenue taxes, and other
fees or charges incident to the importation are computed. These entries, therefore, serve the same purpose as the
returns required by Section 183(a) of the Code.'
Anent the 25% delinquency surcharge, We fully agree to the ruling made by the Court of Tax Appeals and hold
Engineering liable for the same. As held by the lower court:
At first blush it would seem that the contention of petitioner that it is not subject to the delinquency,
surcharge of 25% is sound, valid and tenable. However, a serious study and critical analysis of the
historical provisions of Section 190 of the Tax Code dealing on compensating tax in relation to

Section 183(a) of the same Code, will show that the contention of petitioner is without merit. The
original text of Section 190 of Commonwealth Act 466, otherwise known as the National Internal
Revenue Code, as amended by Commonwealth Act No. 503, effective on October 1, 1939, does not
provide for the filing of a compensation tax return and payment of the 25 % surcharge for late
payment thereof. Under the original text of Section 190 of the Tax Code as amended by
Commonwealth Act No. 503, the contention of the petitioner that it is not subject to the 25%
surcharge appears to be legally tenable. However, Section 190 of the Tax Code was subsequently
amended by the Republic Acts Nos. 253, 361, 1511 and 1612 effective October 1, 1946, July 1,
1948, June 9, 1949, June 16, 1956 and August 24, 1956 respectively, which invariably provides
among others, the following:
... If any article withdrawn from the customhouse or the post office without payment
of the compensating tax is subsequently used by the importer for other purposes,
corresponding entry should be made in the books of accounts if any are kept or a
written notice thereof sent to the Collector of Internal Revenue and payment of the
corresponding compensating tax made within 30 days from the date of such entry or
notice and if tax is not paid within such period the amount of the tax shall be
increased by 25% the increment to be a part of the tax.
Since the imported air conditioning units-and spare parts or accessories thereof are subject to the compensating tax
of 30% as the same were used in the construction business of Engineering, it is incumbent upon the latter to comply
with the aforequoted requirement of Section 190 of the Code, by posting in its books of accounts or notifying the
Collector of Internal Revenue that the imported articles were used for other purposes within 30 days. ...
Consequently; as the 30% compensating tax was not paid by petitioner within the time prescribed by Section 190 of
the Tax Code as amended, it is therefore subject to the 25% surcharge for delinquency in the payment of the said
tax. (pp. 224-226 CTA rec.)
III
Lastly the question of prescription of the tax assessment has been put in issue. Engineering contends that it was not
guilty of tax fraud in effecting the importations and, therefore, Section 332(a) prescribing ten years is inapplicable,
claiming that the pertinent prescriptive period is five years from the date the questioned importations were made. A
review of the record however reveals that Engineering did file a tax return or declaration with the Bureau of Customs
before it paid the advance sales tax of 7%. And the declaration filed reveals that it did in fact misdeclare its
importations. Section 332 of the Tax Code which provides:
Section 332. — Exceptions as to period of limitation of assessment and collection of taxes. —
(a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the
tax may be assessed, or a proceeding in court for the collection of such tax may be begun without
assessment at any time within ten years after the discovery of the falsity, fraud or omission.
is applicable, considering the preponderance of evidence of fraud with the intent to evade the higher rate of
percentage tax due from Engineering. The, tax assessment was made within the period prescribed by law and
prescription had not set in against the Government.
WHEREFORE, the decision appealed from is affirmed with the modification that Engineering is hereby also made
liable to pay the 50% fraud surcharge.

9.) G.R. No. 170405 February 2, 2010
RAYMUNDO S. DE LEON, Petitioner,
vs.
BENITA T. ONG.1 Respondent.
DECISION
CORONA, J.:
On March 10, 1993, petitioner Raymundo S. de Leon sold three parcels of land2 with improvements situated in
Antipolo, Rizal to respondent Benita T. Ong. As these properties were mortgaged to Real Savings and Loan
Association, Incorporated (RSLAI), petitioner and respondent executed a notarized deed of absolute sale with
assumption of mortgage3 stating:
x x x x x x x x x
That for and in consideration of the sum of ONE MILLION ONE HUNDRED THOUSAND PESOS (₱1.1 million),
Philippine currency, the receipt whereof is hereby acknowledged from [RESPONDENT] to the entire satisfaction of
[PETITIONER], said [PETITIONER] does hereby sell, transfer and convey in a manner absolute and
irrevocable, unto said [RESPONDENT], his heirs and assigns that certain real estate together with the buildings
and other improvements existing thereon, situated in [Barrio] Mayamot, Antipolo, Rizal under the following terms
and conditions:
1. That upon full payment of [respondent] of the amount of FOUR HUNDRED FIFTEEN THOUSAND FIVE
HUNDRED (₱415,000), [petitioner] shall execute and sign a deed of assumption of mortgage in favor of
[respondent] without any further cost whatsoever;
2. That [respondent] shall assume payment of the outstanding loan of SIX HUNDRED EIGHTY FOUR
THOUSAND FIVE HUNDRED PESOS (₱684,500) with REAL SAVINGS AND LOAN,4 Cainta, Rizal…
(emphasis supplied)
x x x x x x x x x
Pursuant to this deed, respondent gave petitioner ₱415,500 as partial payment. Petitioner, on the other hand,
handed the keys to the properties and wrote a letter informing RSLAI of the sale and authorizing it to accept
payment from respondent and release the certificates of title.
Thereafter, respondent undertook repairs and made improvements on the properties.5 Respondent likewise
informed RSLAI of her agreement with petitioner for her to assume petitioner’s outstanding loan. RSLAI required her
to undergo credit investigation.
Subsequently, respondent learned that petitioner again sold the same properties to one Leona Viloria after March
10, 1993 and changed the locks, rendering the keys he gave her useless. Respondent thus proceeded to RSLAI to
inquire about the credit investigation. However, she was informed that petitioner had already paid the amount due
and had taken back the certificates of title.
Respondent persistently contacted petitioner but her efforts proved futile.
On June 18, 1993, respondent filed a complaint for specific performance, declaration of nullity of the second sale
and damages6 against petitioner and Viloria in the Regional Trial Court (RTC) of Antipolo, Rizal, Branch 74. She
claimed that since petitioner had previously sold the properties to her on March 10, 1993, he no longer had the right
to sell the same to Viloria. Thus, petitioner fraudulently deprived her of the properties.

Petitioner, on the other hand, insisted that respondent did not have a cause of action against him and consequently
prayed for the dismissal of the complaint. He claimed that since the transaction was subject to a condition (i.e., that
RSLAI approve the assumption of mortgage), they only entered into a contract to sell. Inasmuch as respondent did
apply for a loan from RSLAI, the condition did not arise. Consequently, the sale was not perfected and he could
freely dispose of the properties. Furthermore, he made a counter-claim for damages as respondent filed the
complaint allegedly with gross and evident bad faith.
Because respondent was a licensed real estate broker, the RTC concluded that she knew that the validity of the
sale was subject to a condition. The perfection of a contract of sale depended on RSLAI’s approval of the
assumption of mortgage. Since RSLAI did not allow respondent to assume petitioner’s obligation, the RTC held that
the sale was never perfected.
In a decision dated August 27, 1999,7 the RTC dismissed the complaint for lack of cause of action and ordered
respondent to pay petitioner ₱100,000 moral damages, ₱20,000 attorney’s fees and the cost of suit.
Aggrieved, respondent appealed to the Court of Appeals (CA),8 asserting that the court a quo erred in dismissing the
complaint.
The CA found that the March 10, 2003 contract executed by the parties did not impose any condition on the sale
and held that the parties entered into a contract of sale. Consequently, because petitioner no longer owned the
properties when he sold them to Viloria, it declared the second sale void. Moreover, it found petitioner liable for
moral and exemplary damages for fraudulently depriving respondent of the properties.
In a decision dated July 22, 2005,9 the CA upheld the sale to respondent and nullified the sale to Viloria. It likewise
ordered respondent to reimburse petitioner ₱715,250 (or the amount he paid to RSLAI). Petitioner, on the other
hand, was ordered to deliver the certificates of titles to respondent and pay her ₱50,000 moral damages and
₱15,000 exemplary damages.
Petitioner moved for reconsideration but it was denied in a resolution dated November 11, 2005.10 Hence, this
petition,11 with the sole issue being whether the parties entered into a contract of sale or a contract to sell.
Petitioner insists that he entered into a contract to sell since the validity of the transaction was subject to a
suspensive condition, that is, the approval by RSLAI of respondent’s assumption of mortgage. Because RSLAI did
not allow respondent to assume his (petitioner’s) obligation, the condition never materialized. Consequently, there
was no sale.
Respondent, on the other hand, asserts that they entered into a contract of sale as petitioner already conveyed full
ownership of the subject properties upon the execution of the deed.
We modify the decision of the CA.
Contract of Sale or Contract to Sell?
The RTC and the CA had conflicting interpretations of the March 10, 1993 deed. The RTC ruled that it was a
contract to sell while the CA held that it was a contract of sale.
In a contract of sale, the seller conveys ownership of the property to the buyer upon the perfection of the contract.
Should the buyer default in the payment of the purchase price, the seller may either sue for the collection thereof or
have the contract judicially resolved and set aside. The non-payment of the price is therefore a negative resolutory
condition.12
On the other hand, a contract to sell is subject to a positive suspensive condition. The buyer does not acquire
ownership of the property until he fully pays the purchase price. For this reason, if the buyer defaults in the payment
thereof, the seller can only sue for damages.13

The deed executed by the parties (as previously quoted) stated that petitioner sold the properties to
respondent "in a manner absolute and irrevocable" for a sum of ₱1.1 million.14 With regard to the manner of
payment, it required respondent to pay ₱415,500 in cash to petitioner upon the execution of the deed, with
the balance15 payable directly to RSLAI (on behalf of petitioner) within a reasonable time. 16 Nothing in said
instrument implied that petitioner reserved ownership of the properties until the full payment of the
purchase price.17 On the contrary, the terms and conditions of the deed only affected the manner of payment, not
the immediate transfer of ownership (upon the execution of the notarized contract) from petitioner as seller to
respondent as buyer. Otherwise stated, the said terms and conditions pertained to the performance of the contract,
not the perfection thereof nor the transfer of ownership.
Settled is the rule that the seller is obliged to transfer title over the properties and deliver the same to the buyer.18 In
this regard, Article 1498 of the Civil Code19 provides that, as a rule, the execution of a notarized deed of sale is
equivalent to the delivery of a thing sold.
In this instance, petitioner executed a notarized deed of absolute sale in favor of respondent. Moreover, not
only did petitioner turn over the keys to the properties to respondent, he also authorized RSLAI to receive
payment from respondent and release his certificates of title to her. The totality of petitioner’s acts clearly
indicates that he had unqualifiedly delivered and transferred ownership of the properties to respondent.
Clearly, it was a contract of sale the parties entered into.
Furthermore, even assuming arguendo that the agreement of the parties was subject to the condition that RSLAI
had to approve the assumption of mortgage, the said condition was considered fulfilled as petitioner prevented its
fulfillment by paying his outstanding obligation and taking back the certificates of title without even notifying
respondent. In this connection, Article 1186 of the Civil Code provides:
Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.
Void Sale Or Double Sale?
Petitioner sold the same properties to two buyers, first to respondent and then to Viloria on two separate
occasions.20 However, the second sale was not void for the sole reason that petitioner had previously sold the same
properties to respondent. On this account, the CA erred.
This case involves a double sale as the disputed properties were sold validly on two separate occasions by the
same seller to the two different buyers in good faith.
Article 1544 of the Civil Code provides:
Article 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the
person who may have first taken possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith
first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the
possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good
faith. (emphasis supplied)
This provision clearly states that the rules on double or multiple sales apply only to purchasers in good faith.
Needless to say, it disqualifies any purchaser in bad faith.
A purchaser in good faith is one who buys the property of another without notice that some other person has a right
to, or an interest in, such property and pays a full and fair price for the same at the time of such purchase, or before
he has notice of some other person’s claim or interest in the property.21 The law requires, on the part of the buyer,
lack of notice of a defect in the title of the seller and payment in full of the fair price at the time of the sale or prior to
having notice of any defect in the seller’s title.
Was respondent a purchaser in good faith? Yes.
Respondent purchased the properties, knowing they were encumbered only by the mortgage to RSLAI. According
to her agreement with petitioner, respondent had the obligation to assume the balance of petitioner’s outstanding
obligation to RSLAI. Consequently, respondent informed RSLAI of the sale and of her assumption of petitioner’s
obligation. However, because petitioner surreptitiously paid his outstanding obligation and took back her certificates
of title, petitioner himself rendered respondent’s obligation to assume petitioner’s indebtedness to RSLAI impossible
to perform.
Article 1266. The debtor in obligations to do shall be released when the prestation become legally or physically
impossible without the fault of the obligor.
Since respondent’s obligation to assume petitioner’s outstanding balance with RSLAI became impossible without
her fault, she was released from the said obligation. Moreover, because petitioner himself willfully prevented the
condition vis-à-vis the payment of the remainder of the purchase price, the said condition is considered fulfilled
pursuant to Article 1186 of the Civil Code. For purposes, therefore, of determining whether respondent was a
purchaser in good faith, she is deemed to have fully complied with the condition of the payment of the remainder of
the purchase price.
Respondent was not aware of any interest in or a claim on the properties other than the mortgage to RSLAI which
she undertook to assume. Moreover, Viloria bought the properties from petitioner after the latter sold them to
respondent. Respondent was therefore a purchaser in good faith. Hence, the rules on double sale are applicable.
Article 1544 of the Civil Code provides that when neither buyer registered the sale of the properties with the registrar
of deeds, the one who took prior possession of the properties shall be the lawful owner thereof.
In this instance, petitioner delivered the properties to respondent when he executed the notarized deed22 and
handed over to respondent the keys to the properties. For this reason, respondent took actual possession and
exercised control thereof by making repairs and improvements thereon. Clearly, the sale was perfected and
consummated on March 10, 1993. Thus, respondent became the lawful owner of the properties.
Nonetheless, while the condition as to the payment of the balance of the purchase price was deemed fulfilled,
respondent’s obligation to pay it subsisted. Otherwise, she would be unjustly enriched at the expense of petitioner.
Therefore, respondent must pay petitioner ₱684,500, the amount stated in the deed. This is because the provisions,
terms and conditions of the contract constitute the law between the parties. Moreover, the deed itself provided that
the assumption of mortgage "was without any further cost whatsoever." Petitioner, on the other hand, must deliver
the certificates of title to respondent. We likewise affirm the award of damages.
WHEREFORE, the July 22, 2005 decision and November 11, 2005 resolution of the Court of Appeals in CA-G.R.
CV No. 59748 are hereby AFFIRMED with MODIFICATION insofar as respondent Benita T. Ong is ordered to pay
petitioner Raymundo de Leon ₱684,500 representing the balance of the purchase price as provided in their March
10, 1993 agreement.

10.) [G.R. NO. 172733 : August 20, 2008]
SPS. CORNELIO JOEL I. ORDEN and MARIA NYMPHA V. ORDEN, and REGISTER OF DEEDS
OF NEGROS ORIENTAL, Petitioners, v. SPS. ARTURO AUREA and MELODIA C. AUREA, SPS.
ERNESTO P. COBILE and SUSANA M. COBILE, and FRANKLIN M. QUIJANO, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure
which seeks to set aside the Decision1 of the Court of Appeals dated 20 April 2006 in CA-G.R. CV No.
75788 affirming in toto the Decision2 of Branch 33 of the Regional Trial Court (RTC) of Dumaguete
City in Civil Case No. 12056. The RTC decision ordered petitioners Sps. Cornelio Joel I. Orden and
Maria Nympha V. Orden to return to respondents-spouses Ernesto Cobile and Susana M. Cobile the
amount of P738,596.28 plus twenty percent interest per annum from the filing of the complaint until
fully paid.
The antecedents are as follows:
Petitioners spouses Cornelio Joel I. Orden and Maria Nympha V. Orden are the owners of two parcels
of land located at the Municipality of Sibulan, Negros Oriental covered by Transfer Certificate of Title
Nos. T-27159 and T-27160, and the residential house standing thereon.
On 29 September 1994, petitioners Orden executed a Deed of Absolute Sale selling,

transferring and conveying the aforementioned properties to respondents-spouses Arturo
Aurea and Melodia C. Aurea, their heirs, successors and assigns. The Deed of Absolute Sale
contained, among others, the following:
That for and in consideration of the sum of ONE MILLION NINE HUNDRED THOUSAND PESOS
(P1.9M), receipt of which is hereby acknowledged to the satisfaction of the VENDORS, WE, the
spouses CORNELIO JOEL I. ORDEN and MARIA NYMPHA VELARDO ORDEN, by these present, do
hereby SELL, TRANSFER and CONVEY, in a manner, absolute, and irrevocable, unto and in favor of
herein VENDEES, the spouses ARTURO AUREA and MELODIA C. AUREA, their heirs, successors and
assigns, the above-described two (2) parcels of land, together with the residential house standing
thereon, and declared under Tax Declaration ______, and assessed at ___________. 3
Simultaneous with the execution of the Deed of Absolute Sale, respondents-spouses Aurea
executed a Joint Affidavit whereby they declared that the true and real purchasers of the
abovementioned properties described in the Deed of Absolute Sale are respondents-
spouses Ernesto P. Cobile and Susana M. Cobile. The pertinent portions of the affidavit read:
That we are the Vendees in a document denominated "DEED OF ABSOLUTE SALE" from the Vendors,
the spouses CORNELIO JOEL I. ORDEN and MARIA NYMPHA VELARDO ORDEN, involving two (2)
parcels of land under TCT-27159 (Tax Dec. No. 93-2-04-094) and TCT-27160 (Tax Dec. No. 93-2-04-
095) and a residential house under Tax Dec. No. _____ for the sum of ONE MILLION NINE HUNDRED
THOUSAND PESOS (P1.9M), per Doc. No. 384; Page No. 78, Book No. _____; Series of 1994, dated
September _____, 1994 of Notary Public Atty. Jose G. Hernando, Jr.
That the true and real vendees in said "DEED OF ABSOLUTE SALE" adverted to above are one
ERNESTO P. COBILE and SUSANA M. COBILE who are both American Citizens and residents of
Honolulu, Hawaii, U.S.A.

We are executing this Joint Affidavit to prove and show that the real and true purchasers of the
afore-mentioned two (2) parcels of land and the residential house sold by the spouses CORNELIO
JOEL I. ORDEN are one ERNESTO P. COBILE and SUSANA M. COBILE. 4
Immediately after the signing of the Deed of Absolute Sale and Joint Affidavit, respondents Cobile
paid petitioners Orden the amount of P384,000.00 as partial payment of the purchase price
of P1,900,000.00 as evidenced by a receipt signed by petitioners Orden. The receipt reads:
RECEIPT
RECEIVED from ERNESTO P. COBILE and SUSANA M. COBILE, the sum of THREE HUNDRED EIGHTY
FOUR THOUSAND PESOS (P384,000.00) representing partial payment of the purchase price re "Deed
of Absolute Sale" of two parcels of land and a residential house located at Sibulan, Negros Oriental,
Philippines.5
Respondents Cobile then executed a document entitled "PROMISSORY" whereby they promised to
pay petitioners Orden the amount of P566,000.00 on or before 31 October 1994, and the
remaining P950,000.00 to be paid as soon as the titles of the properties shall have been transferred
to them. Said document reads:
PROMISSORY
WE, ERNESTO P. COBILE and SUSANA M. COBILE, residents of Hawaii, U.S.A., by these presents, do
hereby promise to pay to the spouses CORNELIO JOEL I. ORDEN and MARIA NYMPHA VELARDO
ORDEN, the sum of FIVE HUNDRED SIXTY SIX THOUSAND PESOS (P566,000.00) on or before
October 31, 1994, said amount representing the one-half balance of the purchase price of the sale of
two (2) parcels of land and a residential house located at the Municipality of Sibulan, Negros Oriental,
per Doc. No. 384; Page No. 78; Book No. IV; Series of 1994 of Notary Public JOSE G. HERNANDO,
JR., the remaining balance of NINE HUNDRED FIFTY THOUSAND PESOS (P950,000.00) to be paid as
soon as the titles of the properties subject-matter of the sale shall have been transferred to us. 6
The Deed of Absolute Sale, Joint Affidavit, receipt for P384,000.00 and the promissory note were all
prepared by Atty. Jose G. Hernando, Jr., counsel of petitioners Orden. It was the suggestion and
advice of Atty. Hernando that respondents Aurea be indicated as the vendees in the Deed of Absolute
Sale in lieu of respondents Cobile. Atty. Hernando explained that respondents Cobile, being American
citizens, could not own land in the Philippines. 7 To show true ownership of the properties to be
purchased, respondents executed the Joint Affidavit declaring that the real vendees were
respondents Cobile.
Respondents Cobile failed to pay the P566,000.00 which was due on or before 31 October 1994.
On 13 December 1994, respondents Cobile, through Arturo Aurea, paid petitioners

Orden P354,596.28 representing partial payment of the purchase price. The same was evidenced by
a receipt executed by the petitioners Orden which reads:
RECEIPT
RECEIVED from SPS. ERNESTO P. COBILE and SUSANA M. COBILE, the sum of PESOS: THREE
HUNDRED FIFTY FOUR THOUSAND FIVE HUNDRED NINETY SIX & 28/100 (P354,596.28) representing
partial payment of the purchase price re "Deed of Absolute Sale" of two (2) parcels of land and a
residential house located at Sibulan, Negros Oriental, per Doc. No. 384; Page No. 78; Book No. IV;
Series of 1994 of the notary public JOSE G. HERMANDO, Jr.
Balance after this payment = P1,161,403.728

Failing to pay the balance of the purchase price, petitioners Orden wrote respondents Cobile a letter
dated 11 March 1995 informing the latter of their intention to dispose of the properties to other
interested parties if respondents Cobile did not comply with their promise to pay the remaining
balance of the purchase price. Petitioners Orden, however, gave respondents Cobile ten days from
receipt of the letter to pay; otherwise, their non-payment shall be construed as refusal on their part
and the properties shall be sold to others. The letter reads:
Please be informed that we have decided to dispose of the property (Lot 1 and 4, Block B of the
Consolidation Subdivision Plan, (LRC) Pcs-7321, all located at Barrio Maslog, Sibulan, Negros
Oriental, Philippines, entered by Transfer Certificate of Title No. T-27160 and T-272159, respectively)
to other [interested] parties, in view of your failure to make good the conditions imposed on the
"Deed of Sale" we have executed as vendors, in your favor as vendees, sometime last September 29,
1994.
However, if only to give you a chance to fully consummate our transaction, notice is hereby given
upon your goodness to pay us the remaining balance of the aforesaid "Deed of Sale" ten (10) days
upon receipt of this letter. Your failure to do so within said period shall be constrained (sic) as your
refusal and we then shall proceed to dispose of the property.
Rest assured that you will be reimbursed of the advance payments you made, after the properties
shall have been sold and after deductions be made concerning damages, attorney's fees, etc. 9
Respondents Cobile did not make any further payment. All in all, they paid petitioners
Orden P738,596.28 (P384,000.00 + P354,596.28). Petitioners Orden did not transfer the titles to the
properties to respondents Cobile.
On 21 May 1996, petitioners sold the properties to Fortunata Adalim Houthuijzen and the titles
thereto transferred to her name.10
On 30 September 1997, respondents-spouses Aurea and spouses Cobile, and respondent Franklin M.
Quijano filed a Complaint before the Regional Trial Court of Dumaguete City for Enforcement of
Contract and Damages with a Prayer for a Writ of Preliminary Attachment, Prohibitory Injuction and
Restraining Order against petitioners Orden and the Register of Deeds of Negros Oriental. Franklin
Quijano was the attorney-in-fact of respondents spouses Aurea and Cobile. The complaint was
docketed as Civil Case No. 12056 and was raffled to Branch 44 of said court.
The complaint, among other things, asked the trial court to order petitioners Orden and the Register
of Deeds of Negros Oriental for the delivery of the titles to the properties involved in the names of
respondents Cobile; in the alternative, if the titles to the properties could not be delivered in
respondents Cobile's name, to order petitioners Orden to pay the whole consideration of the sale plus
interest of 20% per annum. The restraining order and writ of preliminary injunction were sought to
restrain petitioners Orden from selling, transferring, conveying or encumbering the properties
involved to other person during the pendency of the case and to prohibit the Register of Deeds of
Negros Oriental from recording, registering and transferring the titles to the properties to other
persons except to respondents Cobile.
On 29 October 1997, petitioners Orden filed their Answer with Counterclaim. 11 They asked that the
complaint be dismissed for lack of cause of action and that the Deed of Absolute Sale be declared
rescinded. They likewise ask for damages.
On 9 September 1998, following the trial court's order to amend the complaint, impleaded therein
were spouses Henricus C. Houthuijzen and Fortunata Adalim Houthuijzen, the subsequent purchasers
of the subject properties and holders of the titles thereto. 12

On 23 February 1999, the trial court dismissed the case for lack of interest to prosecute.13 On 12
March 1999, respondents filed a motion for reconsideration which the trial court granted. 14 Thus, the
case was reinstated.15
On 13 April 1999, spouses Henricus C. Houthuijzen and Fortunata Adalim Houthuijzen filed their
Answer with Motion to Dismiss.16
In an Order dated 1 June 1999, the trial court granted the spouses Houthuijzen's motion to dismiss,
ruling that said spouses were buyers in good faith who were able to register the sale with the
Register of Deeds, and that respondents Cobile's complaint could be enforced only against petitioners
Orden.17
On 8 July 1999, respondents moved for the reconsideration 18 of the 1 June 1999 Order which the trial
court denied for lack of merit.19
During the pre-trial conference, the parties agreed only on the identities of the parties and of the
subject properties.20
On 25 April 2000, respondents filed a Motion for Inhibition 21 which was granted by the Presiding
Judge of Branch 44. The case was re-raffled to Branch 33. Trial ensued.
In a decision dated 26 April 2002, the trial court disposed of the case as follows:
ACCORDINGLY, from the foregoing disquisition, judgment is hereby rendered ordering the
defendants:
(1) to return to plaintiffs, spouses Ernesto Cobile and Susana M. Cobile the amount of SEVEN
HUNDRED THIRTY EIGHT THOUSAND FIVE HUNDRED NINETY-SIX PESOS and TWENTY-EIGHT
CENTAVOS (P738,596.28) representing the total amount advanced by the plaintiffs to defendants;
andcralawlibrary
(2) to pay plaintiffs interest of the aforecited amount at the rate of Twenty (20%) percent per annum
from the filing of the complaint until fully paid. 22
The trial court found that petitioners Orden and respondents Cobile entered into a contract of sale.
The contract, it explained, was subject to the conditions laid down in the promissory note - that
respondents Cobile would pay the amount of P566,000.00 on or before 31 October 1994, and the
petitioners Ordens would undertake the transfer of the titles to the properties in the names of
respondents Cobile, after which the latter would pay the remaining balance of P950,000.00. It said
that this was an example of reciprocal obligations. Since respondents Cobile already violated the
terms of the promissory note when they failed to pay the total amount of P566,000.00 on the agreed
date, petitioners Orden should have filed for rescission. This, the trial court said, petitioner Orden
failed to do. The letter that petitioners Orden sent to respondents Cobile - - informing them that
should they fail to comply with the terms and conditions of the promissory note, petitioners Orden
would be constrained to sell the properties to other interested persons - - was not the rescission
envisaged by law. The rescission made by petitioners Orden was thus open to contest.
The trial court likewise ruled that the properties subject matter of the case could not be given to
respondents Cobile because the ownership thereof had passed to Fortunata Adalim-Houthuijzen
whom it regarded as an innocent purchaser for value.
Furthermore, the trial court declared that respondents Cobile could not demand specific performance
or rescission of contract, for they themselves failed to comply with the terms and conditions set forth

in the promissory note when they failed to pay the entire balance of one-half (P950,000.00) of the
total price agreed upon.
The trial court ruled that it could not in conscience grant respondents Cobile's prayer that should
petitioners Orden fail to deliver the titles in respondents Cobile's names, the Ordens be ordered to
pay the Cobiles the entire purchase price plus 20% interest per annum. It likewise said that neither
could petitioners Orden forfeit the P738,596.28 paid by respondents because they had not rescinded
the contract of sale between them either judicially or by notarial act.
On 23 May 2002, petitioners Orden filed a Notice of Appeal. 23
On 20 April 2006, the Court of Appeals rendered its Decision 24 affirming in toto the decision of the
trial court. The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us AFFIRMING

(sic) EN TOTO the decision dated April 26, 2002 of the Regional Trial Court in Civil Case No.
12056.25
The Court of Appeals justified the return of what had been paid by respondents Cobile (P738,596.28)
on the ground that the deed of sale or promissory note did not contain any provision regarding
forfeiture in case the full purchase price was not paid. Moreover, it ruled that petitioners Orden had
no just or legal ground to keep the payments made by respondents Cobile because they failed to
transfer the titles of the properties in the names of respondents Cobile. To allow petitioners Orden to
retain said payments would unjustly enrich them at the expense of respondents Cobile.
On 16 June 2006, petitioners Orden filed before us a Petition for Review on Certiorari under Rule 45
of the Revised Rules of Court.26 Per our resolution dated 10 July 2006, we required respondents to
comment on the petition within ten days from notice of the resolution. 27
On 3 October 2006, respondents filed their Comment28 to which petitioners were directed to file a
Reply.29 The Reply was filed on 7 July 2007.30
On 17 September 2007, the Court gave due course to the petition and required the parties to submit
their respective memoranda within thirty days from notice. 31 The parties submitted their respective
memoranda.32
Petitioners argue that the Court of Appeals erred in holding that the case at bar involves a perfected
contract of sale and that an action for rescission should have been pursued by them
(petitioners).33 They claimed that what they entered into with respondents Cobile was a Conditional
Contract of Sale. They added that although captioned "Deed of Absolute Sale," the contract is truly
one of a conditional sale, if not a contract to sell real property on installments. The full payment of
the purchase price as laid down in the promissory note is a positive suspensive condition, the failure
of which is not considered a breach, casual or serious, but simply an event which prevented the
obligation of the vendor to convey title from acquiring any obligatory force.
In the resolution of this case, what is to be determined is the kind of contract petitioners
Orden and respondents Cobile entered into. Did they enter into a Contract of Sale or a
Contract to Sell? cra lawlibrary
Both lower courts ruled that the contract entered into by the parties was a Contract of Sale. On the
other hand, petitioners Orden insist that they entered into a Contract to Sell.
In the case at bar, on 29 September 1994, a Deed of Absolute Sale was entered into by respondents
Aurea, as vendees, and petitioners Orden, as vendors. Respondents Aurea then executed a Joint
Affidavit declaring respondents Cobile as the true and real buyers of the subject properties.
Respondent Cobile then executed a promissory note in which they promised to pay petitioners Orden
the amount of P566,000.00 on or before October 31, 1994, and the remaining P950,000.00 to be
paid as soon as the titles to the properties shall have been transferred to them.
In order to determine the real nature of the contract entered into by the parties, all three documents,
not merely the Deed of Absolute Sale, should be considered. The Joint Affidavit of respondents
Aurea and the promissory note signed by respondents Cobile veritably show that the latter
are indeed the true purchasers of the subject properties. The contents of the promissory note
must be taken into account inasmuch as the true buyer signed said document.
In the promissory note, respondents Cobile obligated themselves to do two things: (1) to pay
petitioners Orden the amount of P566,000.00 on or before October 31, 1994; and (2) to pay the
remaining P950,000.00 as soon as the titles to the properties shall have been transferred to them.
From the records of the case, it is without question that respondents Cobile failed to fulfill
what they promised. Having failed to fulfill their first obligation, petitioners Orden no
longer transferred the titles to the properties to their names. The non-payment, therefore,
by respondents Cobile of the balance of one-half of the purchase price triggered all
subsequent actions of the parties that eventually led to respondents Cobile filing the complaint
for Enforcement of Contract and Damages with a Prayer for a Writ of Preliminary Attachment,
Prohibitory Injunction and Restraining Order.
It is clear from the promissory note that the parties agreed to a conditional sale, the
consummation of which is subject to the conditions contained therein - full payment of the
purchase price.
A contract to sell is akin to a conditional sale, in which the efficacy or obligatory force of the vendor's
obligation to transfer title 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. The suspensive condition is commonly full payment of the purchase price. 34 One
form of conditional sale is what is now popularly termed as a "Contract to Sell," in which ownership
or title is retained until the fulfillment of a positive suspensive condition, normally the payment of the
purchase price in the manner agreed upon.35
The distinction between a contract of sale and a contract to sell is well-settled. In a contract of sale,
the title to the property passes to the vendee upon the delivery of the thing sold; in a contract to
sell, ownership is, by agreement, reserved to the vendor and is not to pass to the vendee until full
payment of the purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership
over the property and cannot recover it until and unless the contract is resolved or rescinded;
whereas, in a contract to sell, title is retained by the vendor until full payment of the price. In the
latter contract, payment of the price is a positive suspensive condition, failure of which is not a
breach but an event that prevents the obligation of the vendor to convey title from becoming
effective.36
It is thus clear that in a contract to sell, ownership is retained by the seller and is not
passed to the buyer until full payment of the price.
In the case at bar, we find that petitioners Orden and respondents Cobile entered into
a contract to sell. The real character of the contract is not the title given, but the intention of the
parties.37 Although there is a document denominated as "Deed of Absolute Sale," and there is no
provision therein of reservation of ownership to the seller, we are persuaded that the true intent of
the parties was to transfer the ownership of the properties only upon the buyer's full payment of the
purchase price. This is evident from the promissory note executed by respondents Cobile. It is only
upon payment of the full purchase price that title to the properties shall be transferred to their

names. Furthermore, circumstances show ownership over the properties was never transferred to
respondents Cobile. Respondents neither had possession of nor title to the properties. In fact,
petitioners Orden, per their letter to respondents Cobile, even gave the latter the chance to pay the
balance of the purchase price before they would sell the properties to other interested persons. From
the foregoing, it is evident that the true agreement of the parties is for the petitioners Orden to
retain ownership over the properties until respondents shall have fully paid the purchase price.
Respondents Cobile failed to pay the balance of the purchase price. Such payment is a positive
suspensive condition, failure of which is not a breach, serious or otherwise, but an event that
prevents the obligation of the seller to convey title from arising. 38 The non-fulfillment by respondents
Cobile of their obligation to pay, which is a suspensive condition for the obligation of petitioners
Orden to sell and deliver the title to the properties, rendered the contract to sell ineffective and
without force and effect.39 The parties stand as if the conditional obligation had never
existed.40 Inasmuch as the suspensive condition did not take place, petitioners Orden cannot be
compelled to transfer ownership of the properties to respondents Cobile.
The trial court further ruled that petitioners Orden should have filed a case for rescission or sent a
notarial act of rescission to respondents Cobile when they incurred a delay by failing to pay the
balance of the purchase price. Having extra-judicially rescinded their contract with respondents
Cobile, such act, according to the trial court, was subject to contest.
The trial court is mistaken. Rescission, whether judicially or by notarial act, is not required
to be done by petitioners Orden. There can be no rescission of an obligation that is still
non-existing, the suspensive condition not having happened.41 In the case before us, there
was no contract to rescind, judicially or by notarial act, because from the moment
respondent Cobile failed to pay on time the correct amount of the balance of the purchase
price, the contract between the parties was deemed ipso facto rescinded. 42 The reason for
this is not that petitioners Orden have the power to rescind such contract, but because their
obligation thereunder did not arise. The remedy of rescission under Article 1191 43 of the Civil Code is
predicated on a breach of faith by the other party that violates the reciprocity between them. Such a
remedy does not apply to contracts to sell.44 Neither does the provision of Article 1592 45 apply to this
case because what said article contemplates is a contract of sale. 46
In the exercise of the seller's right to automatically cancel the contract to sell, at least a written
notice must be sent to the defaulter informing him of the same. 47 The act of petitioners Orden in
notifying respondents Cobile of their intention to sell the properties to other interested persons if
respondents failed to pay the balance of the purchase price was sufficient notice for the cancellation
or resolution of the their contract to sell. Since respondents Cobile failed to fulfill their obligation even
after said notice, petitioners were justified in canceling their contract (to sell) and selling to a buyer
who was willing to pay the full purchase price. Hence, we sustain petitioners Orden's action.
We now go to the partial payments (P738,596.28) made by respondents Cobile. We decree that said
amount be returned to respondents Cobile, there being no provision regarding forfeiture of payments
made in any of the documents executed by the parties. We find such action to be just and equitable
under the premises. If we rule otherwise, there will be unjust enrichment on the part of petitioners
Orden at the expense of respondents Cobile. Interest thereon at the rate of 12% per annum shall
also be paid from 30 September 1997 until fully paid.
Lest we forget, the source of all the troubles was respondents Cobile failure to pay the balance of the
purchase price. Consequently they are liable for damages. Under the circumstances obtaining in this
case, we find it equitable and just to award petitioners Orden moral damages and attorney's fees in
the amounts of P50,000.00 and P20,000.00, respectively. Their claim for litigation expenses is denied
for failure to present proof in support thereof. Exemplary damages cannot also be awarded because it

was not shown that respondents Cobile acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner.48
WHEREFORE, the decision of the Court of Appeals dated 20 April 2006 in CA-G.R. CV No. 75788 is
hereby MODIFIED as follows:
(1) Petitioners-spouses Cornelio Joel I. Orden and Maria Nympha V. Orden are ordered to return to
respondents-spouses Ernesto P. Cobile and Susana M. Cobile the amount of P738,596.28,
representing the total amount advanced by the latter to the former, with interest at the rate of 12%
per annum from 30 September 1997 until fully paid; and cralawlibrary
(2) Respondents-spouses Ernesto P. Cobile and Susana M. Cobile are ordered to pay moral damages
and attorney's fees in the amounts of P50,000.00 and P20,000.00, respectively, to petitioners-
spouses Cornelio Joel I. Orden and Maria Nympha V. Orden.

11.) G.R. No. 123672 December 14, 2005
FERNANDO CARRASCOSO, JR., Petitioner,

vs.
THE HONORABLE COURT OF APPEALS, LAURO LEVISTE, as Director and Minority Stockholder and On
Behalf of Other Stockholders of El Dorado Plantation, Inc. and EL DORADO PLANTATION, INC., represented
by one of its minority stockholders, Lauro P. Leviste, Respondents
x---------------------------------------x
G.R. No. 164489
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, Petitioner,

vs.
LAURO LEVISTE, as Director and Minority Stockholder and On Behalf of Other Stockholders of El Dorado
Plantation, Inc., EL DORADO PLANTATION, INC., represented by Minority Stockholder, Lauro P. Leviste,
and FERNANDO CARRASCOSO, JR., Respondents.
DECISION
CARPIO MORALES, J.:
El Dorado Plantation, Inc. (El Dorado) was the registered owner of a parcel of land (the property) with an area of
approximately 1,825 hectares covered by Transfer Certificate of Title (TCT) No. T-93 situated in Sablayan,
1
Occidental Mindoro.
On February 15, 1972, at a special meeting of El Dorado’s Board of Directors, a Resolution was passed authorizing
2
Feliciano Leviste, then President of El Dorado, to negotiate the sale of the property and sign all documents and
contracts bearing thereon.
On March 23, 1972, by a Deed of Sale of Real Property, El Dorado, through Feliciano Leviste, sold the property to
3
Fernando O. Carrascoso, Jr. (Carrascoso).
The pertinent provisions of the Deed of Sale read:
NOW, THEREFORE, for and in consideration of the sum of ONE MILLION EIGHT HUNDRED THOUSAND
(1,800,000.00) PESOS, Philippine Currency, the Vendor hereby sells, cedes, and transfer (sic) unto the herein
VENDEE, his heirs, successors and assigns, the above-described property subject to the following terms and
consitions (sic):
1. Of the said sum of P1,800,000.00 which constitutes the full consideration of this sale, P290,000.00 shall be paid,
as it is hereby paid, to the Philippines (sic) National Bank, thereby effecting the release and cancellation fo (sic) the
present mortgage over the above-described property.
2. That the sum of P210,000.00 shall be paid, as it is hereby paid by the VENDEE to the VENDOR, receipt of which
amount is hereby acknowledged by the VENDOR.
3. The remaining balance of P1,300,000.00 plus interest thereon at the rate of 10% per annum shall be paid by the
VENDEE to the VENDOR within a period of three (3) years, as follows:
(a) One (1) year from the date of the signing of this agreement, the VENDEE shall pay to the VENDOR the sum of
FIVE HUNDRED NINETEEN THOUSAND EIGHT HUNDRED THIRTY THREE & 33/100 (P519,833.33) PESOS.

(b) Two (2) years from the date of signing of this agreement, the VENDEE shall pay to the VENDOR the sum of
FIVE HUNDRED NINETTEN (sic) THOUSAND EIGHT HUNDRED AND THIRTY-THREE & 33/100 (P519,833.33)
PESOS.
(c) Three (3) years from the date of signing of this agreement, the VENDEE shall pay to the VENDOR the sum of
FIVE Hundred NINETEEN THOUSAND EIGHT HUNDRED AND THIRTY-THREE & 33/100 (P519,833.33) PESOS.
4. The title of the property, subject of this agreement, shall pass and be transferred to the VENDEE who shall have
full authority to register the same and obtain the corresponding transfer certificate of title in his name.
xxx
6. THE VENDOR certifies and warrants that the property above-described is not being cultivated by any tenant and
is therefore not covered by the provisions of the Land Reform Code. If, therefore, the VENDEE becomes liable
under the said law, the VENDOR shall reimburse the VENDEE for all expenses and damages he may incur
thereon. (Underscoring supplied)
4
From the above-quoted provisions of the Deed of Sale, Carrascoso was to pay the full amount of the purchase price
on March 23, 1975.
On even date, the Board of Directors of El Dorado passed a Resolution reading:
"RESOLVED that by reason of the sale of that parcel of land covered by TCT No. T-93 to Dr. FERNANDO O.
CARRASCOSO, JR., the corporation interposes no objection to the property being mortgage (sic) by Dr.
FERNANDO O. CARRASCOSO, JR. to any bank of his choice as long as the balance on the Deed of Sale
shall be recognized by Dr. FERNANDO O. CARRASCOSO, JR.;
"RESOLVED, FURTHER, that the corporation authorizes the prefered (sic) claim on the property to be subordinated
to any mortgage that may be constituted by Dr. FERNANDO O. CARRASCOSO, JR.;
"RESOLVED, FINALLY, that in case of any mortgage on the property, the corporation waives the preference of any
vendor’s lien on the property." (Emphasis and underscoring supplied)
5
Feliciano Leviste also executed the following affidavit on the same day:
1. That by reason of the sale of that parcel of land covered by Transfer Certificate of Title T-93 as evidenced by the
Deed of Sale attached hereto as Annex "A" and made an integral part hereof, the El Dorado Plantation, Inc. has no
objection to the aforementioned property being mortgaged by Dr. Fernando O. Carrascoso, Jr. to any bank
of his choice, as long as the payment of the balance due the El Dorado Plantation, Inc. under the Deed of
Sale, Annex "A" hereof, shall be recognized by the vendee therein, Dr. Fernando O. Carrascoso, Jr. though
subordinated to the preferred claim of the mortgagee bank.
2. That in case of any mortgage on the property, the vendor hereby waives the preference of any vendor’s lien on
the property, subject matter of the deed of sale.
3. That this affidavit is being executed to avoid any question on the authority of Dr. Fernando O. Carrascoso, Jr. to
mortgage the property subject of the Deed of Sale, Annex "A" hereof, where the purchase price provided therein has
not been fully paid.
4. That this affidavit has been executed pursuant to a board resolution of El Dorado Plantation, Inc. (Emphasis and
6
underscoring supplied)
On the following day, March 24, 1972, Carrascoso and his wife Marlene executed a Real Estate Mortgage over the
7
property in favor of Home Savings Bank (HSB) to secure a loan in the amount of ₱1,000,000.00. Of this amount,
₱290,000.00 was paid to Philippine National Bank to release the mortgage priorly constituted on the property and

₱210,000.00 was paid to El Dorado pursuant to above-quoted paragraph Nos. 1 and 2 of the terms and conditions
of the Deed of Sale. 8
The March 23, 1972 Deed of Sale of Real Property was registered and annotated on El Dorado’s TCT No. T-93 as
Entry No. 15240 on April 5, 1972. On even date, TCT No. T-93 covering the property was cancelled and TCT No. T-
9
6055 was in its stead issued by the Registry of Deeds of Occidental Mindoro in the name of Carrascoso on which
10
the real estate mortgage in favor of HSB was annotated as Entry No. 15242. 11
On May 18, 1972, the real estate mortgage in favor of HSB was amended to include an additional three year loan of
₱70,000.00 as requested by the spouses Carrascoso. The Amendment of Real Estate Mortgage was also
12
annotated on TCT No. T-6055 as Entry No. 15486 on May 24, 1972. 13
The 3-year period for Carrascoso to fully pay for the property on March 23, 1975 passed without him having
complied therewith.
In the meantime, on July 11, 1975, Carrascoso and the Philippine Long Distance Telephone Company (PLDT),
through its President Ramon Cojuangco, executed an Agreement to Buy and Sell whereby the former agreed to sell
14
1,000 hectares of the property to the latter at a consideration of ₱3,000.00 per hectare or a total of ₱3,000,000.00.
The July 11, 1975 Agreement to Buy and Sell was not registered and annotated on Carrascoso’s TCT No. T-6055.
Lauro Leviste (Lauro), a stockholder and member of the Board of Directors of El Dorado, through his counsel, Atty.
Benjamin Aquino, by letter dated December 27, 1976, called the attention of the Board to Carrascoso’s failure to
15
pay the balance of the purchase price of the property amounting to ₱1,300,000.00. And Lauro’s lawyer manifested
that:
Because of the default for a long time of Mr. Carrascoso to pay the balance of the consideration of the sale, Don
Lauro Leviste, in his behalf and in behalf of the other shareholders similarly situated like him, want a rescission of
the sale made by the El Dorado Plantation, Inc. to Mr. Carrascoso. He desires that the Board of Directors take the
corresponding action for rescission. 16
Lauro’s desire to rescind the sale was reiterated in two other letters addressed to the Board dated January 20, 1977
17
and March 3, 1977.
Jose P. Leviste, as President of El Dorado, later sent a letter of February 21, 1977 to Carrascoso informing him that
18
in view of his failure to pay the balance of the purchase price of the property, El Dorado was seeking the rescission
of the March 23, 1972 Deed of Sale of Real Property.
The pertinent portions of the letter read:
xxx
I regret to inform you that the balance of P1,300,000.00 and the interest thereon have long been due and payable,
although you have mortgaged said property with the Home Savings Bank for P1,000,000.00 on March 24, 1972,
which was subsequently increased to P1,070,000.00 on May 18, 1972.
You very well know that the El Dorado Plantation, Inc., is a close family corporation, owned exclusively by the
members of the Leviste family and I am one of the co-owners of the land. As nothing appears to have been done on
your part after our numerous requests for payment of the said amount of P1,300,000.00 and the interest of 10% per
annum due thereon, please be advised that we would like to rescind the contract of sale of the land. (Underscoring
19
supplied)
Jose Leviste, by letter dated March 10, 1977, informed Lauro’s counsel Atty. Aquino of his (Jose’s) February 21,
20
1977 letter to Carrascoso, he lamenting that "Carrascoso has not deemed it fit to give [his] letter the courtesy of a
reply" and advis[ing] that some of the Directors of [El Dorado] could not see their way clear in complying with the

demands of your client [Lauro] and have failed to reach a consensus to bring the corresponding action for rescission
of the contract against . . . Carrascoso."
21
Lauro and El Dorado finally filed on March 15, 1977 a complaint for rescission of the March 23, 1972 Deed of Sale
22
of Real Property between El Dorado and Carrascoso with damages before the Court of First Instance (CFI) of
Occidental Mindoro, docketed as Civil Case No. R-226.
Lauro and El Dorado also sought the cancellation of TCT No. T-6055 in the name of Carrascoso and the revival of
TCT No. T-93 in the name of El Dorado, free from any liens and encumbrances. Furthermore, the two prayed for the
issuance of an order for Carrascoso to: (1) reconvey the property to El Dorado upon return to him of ₱500,000.00,
(2) secure a discharge of the real estate mortgage constituted on the property from HSB, (3) submit an accounting
of the fruits of the property from March 23, 1972 up to the return of possession of the land to El Dorado, (4) turn over
said fruits or the equivalent value thereof to El Dorado and (5) pay the amount of ₱100,000.00 for attorney’s fees
and other damages. 23
Also on March 15, 1977, Lauro and El Dorado caused to be annotated on TCT No. T-6055 a Notice of Lis
Pendens, inscribed as Entry No. 39737. 24
In the meantime, Carrascoso, as vendor and PLDT, as vendee forged on April 6, 1977 a Deed of Absolute
Sale over the 1,000 hectare portion of the property subject of their July 11, 1975 Agreement to Buy and Sell. The
25
pertinent portions of the Deed are as follows:
WHEREAS, the VENDOR and the VENDEE entered into an agreement To Buy and Sell on July 11, 1975, which is
made a part hereof by reference;
WHEREAS, the VENDOR and the VENDEE are now decided to execute the Deed of Absolute Sale referred to in
the aforementioned agreement to Buy and Sell;
WHEREFORE, for and in consideration of the foregoing premises and the terms hereunder stated, the VENDOR
and the VENDEE have agreed as follows:
1. For and in consideration of the sum of THREE MILLION PESOS (P3,000,000.00), Philippine currency, of which
ONE HUNDRED TWENTY THOUSAND PESOS P120,000.00 have (sic) already been received by the VENDOR,
the VENDOR hereby sells, transfers and conveys unto the VENDEE one thousand hectares (1,000 has.) of his
parcel of land covered by T.C.T. No. T-6055 of the Registry of Deeds of Mindoro, delineated as Lot No. 3-B-1 in the
subdivision survey plan xxx
2. The VENDEE shall pay to the VENDOR upon the signing of this agreement, the sum of TWO MILLION FIVE
HUNDRED THOUSAND PESOS (P2,500,000.00) in the following manner:
a) The sum of TWO MILLION THREE HUNDRED THOUSAND PESOS (P2,300,000.00) to Home Savings Bank in
full payment of the VENDOR’s mortgaged obligation therewith;
b) The sum of TWO HUNDRED THOUSAND PESOS (P200,000.00) to VENDOR;
The remaining balance of the purchase price in the sum of THREE HUNDRED EIGHTY THOUSAND PESOS
(P380,000.00), less such expenses which may be advanced by the VENDEE but which are for the account of the
VENDOR under Paragraph 6 of the Agreement to Buy and Sell, shall be paid by the VENDEE to the VENDOR upon
issuance of title to the VENDEE. (Underscoring supplied)
26
In turn, PLDT, by Deed of Absolute Sale dated May 30, 1977, conveyed the aforesaid 1,000 hectare portion of the
27
property to its subsidiary, PLDT Agricultural Corporation (PLDTAC), for a consideration of ₱3,000,000.00, the
amount of ₱2,620,000.00 of which was payable to PLDT upon signing of said Deed, and ₱380,000.00 to
Carrascoso upon issuance of title to PLDTAC.

In the meantime, on October 19, 1977, the El Dorado Board of Directors, by a special meeting, adopted and
28
approved a Resolution ratifying and conferring "the prosecution of Civil Case No. R-226 of the Court of First
Instance of Occidental Mindoro, entitled ‘Lauro P. Leviste vs. Fernando Carascoso (sic), etc.’ initiated by
stockholder Mr. Lauro P. Leviste." 29
In his Answer with Compulsory Counterclaim, Carrascoso alleged that: (1) he had not paid his remaining
30
₱1,300,000.00 obligation under the March 23, 1972 Deed of Sale of Real Property in view of the extensions of time
to comply therewith granted him by El Dorado; (2) the complaint suffered from fatal defects, there being no showing
of compliance with the condition precedent of exhaustion of intra-corporate remedies and the requirement that a
derivative suit instituted by a complaining stockholder be verified under oath; (3) El Dorado committed a gross
misrepresentation when it warranted that the property was not being cultivated by any tenant to take it out of the
coverage of the Land Reform Code; and (4) he suffered damages due to the premature filing of the complaint for
which Lauro and El Dorado must be held liable.
On February 21, 1978, the April 6, 1977 and May 30, 1977 Deeds of Absolute Sale and the respective Articles of
Incorporation of PLDT and PLDTAC were annotated on TCT No. T-6055 as Entry Nos. 24770, 42774, 42769 and
31 32 33
24772, respectively. On even date, Carrascoso’s TCT No. T-6055 was cancelled and TCT No. T-12480 covering
34 35
the 1,000 hectare portion of the property was issued in the name of PLDTAC. The March 15, 1977 Notice of Lis
Pendens was carried over to TCT No. T-12480.
On July 31, 1978, PLDT and PLDTAC filed an Urgent Motion for Intervention which was granted by the trial court by
36
Order of September 7, 1978.

37
PLDT and PLDTAC thereupon filed their Answer In Intervention with Compulsory Counterclaim and
Crossclaim against Carrascoso on November 13, 1978, alleging that: (1) when Carrascoso executed the April 6,
38
1977 Deed of Absolute Sale in favor of PLDT, PLDT was not aware of any litigation involving the 1,000 hectare
portion of the property or of any flaw in his title, (2) PLDT is a purchaser in good faith and for value; (3) when PLDT
executed the May 30, 1977 Deed of Absolute Sale in favor of PLDTAC, they had no knowledge of any pending
litigation over the property and neither were they aware that a notice of lis pendens had been annotated on
Carrascoso’s title; and (4) Lauro and El Dorado knew of the sale by Carrascoso to PLDT and PLDT’s actual
possession of the 1,000 hectare portion of the property since June 30, 1975 and of its exercise of exclusive rights of
ownership thereon through agricultural development. 39
By Decision of January 28, 1991, Branch 45 of the San Jose Occidental Mindoro Regional Trial Court to which the
40
CFI has been renamed, dismissed the complaint on the ground of prematurity, disposing as follows,
quoted verbatim:
WHEREFORE, in view of all the foregoing considerations, judgment is hereby rendered:
1. Dismissing the plaintiffs’ complaint against the defendant on the ground of prematurity;
2. Ordering the plaintiffs to pay to the defendant the sum of P2,980,000.00 as actual and compensatory damages,
as well as the sum of P100,000.00 as and for attorneys fees; provided, however, that the aforesaid amounts must
first be set off from the latter’s unpaid balance to the former;
3. Dismissing the defendants-intervenors’ counterclaim and cross-claim; and
4. Ordering the plaintiffs to pay to (sic) the costs of suit.
SO ORDERED. (Underscoring supplied)

41
Carrascoso, PLDT and PLDTAC filed their respective appeals to the Court of Appeals.
By Decision of January 31, 1996, the appellate court reversed the decision of the trial court, disposing as follows,
42
quoted verbatim:

WHEREFORE, not being meritorious, PLDT’s/PLDTAC’s appeal is hereby DISMISSED and finding El Dorado’s
appeal to be impressed with merit, We REVERSE the appealed Decision and render the following judgment:
1. The Deed of Sale of Real Property (Exhibit C) is hereby rescinded and TCT No. T-12480 (Exhibit Q) is cancelled
while TCT No. T-93 (Exhibit A), is reactivated.
2. Fernando Carrascoso, Jr. is commanded to:
2.1. return the possession of the 825 [hectare-] remaining portion of the land to El Dorado Plantation, Inc. without
prejudice to the landholdings of legitimate tenants thereon;
2.2. return the net fruits of the land to El Dorado Plantation, Inc. from March 23, 1972 to July 11, 1975, and of the
825-hectare-remaining portion minus the tenants’ landholdings, from July 11, 1975 up to its delivery to El Dorado
Plantation, Inc. including whatever he may have received from the tenants if any by way of compensation under the
Operation Land Transfer or under any other pertinent agrarian law;
2.3 Pay El Dorado Plantation, Inc. an attorney’s fee of P20,000.00 and litigation expenses of P30,000.00;
2.4 Return to Philippine Long Distance Telephone Company/PLDT Agricultural Corporation P3,000,000.00 plus
legal interest from April 6, 1977 until fully paid;
3. PLDT Agricultural Corporation is ordered to surrender the possession of the 1000-hectare Farm to El Dorado
Plantation, Inc.;
4. El Dorado Plantation, Inc. is directed to return the P500,000.00 to Fernando Carrascoso, Jr. plus legal interest
from March 23, 1972 until fully paid. The performance of this obligation will however await the full compliance by
Fernando Carrascoso, Jr. of his obligation to account for and deliver the net fruits of the land mentioned above to El
Dorado Plantation, Inc.
5. To comply with paragraph 2.2 herein, Carrascoso is directed to submit in (sic) the court a quo a full accounting of
the fruits of the land during the period mentioned above for the latter’s approval, after which the net fruits shall be
delivered to El Dorado, Plantation, Inc.
6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone Co. and PLDT Agricultural
Corporation in writing within ten (10) days after finality of this decision regarding the exercise of its option under Art.
448 of the Civil Code.
SO ORDERED. (Underscoring supplied)

43
PLDT and PLDTAC filed on February 22, 1996, a Motion for Reconsideration of the January 31, 1996 CA Decision,
44
while Carrascoso went up this Court by filing on March 25, 1996 a petition for review, docketed as G.R. No.
45
123672, assailing the January 31, 1996 CA Decision and seeking the reinstatement of the January 28, 1991
Decision of the trial court except with respect to its finding that the acquisition of PLDT and PLDTAC of the 1,000
hectare portion of the property was subject to the notice of lis pendens.
Lauro, in the meantime, died, hence, on April 16, 1996, a Motion for Substitution of Party was filed praying that his
46
heirs, represented by Conrad C. Leviste, be substituted as respondents. The Motion was granted by Resolution of 47
July 10, 1996.
PLDT and PLDTAC filed their Comment to Carrascoso’s petition and prayed that judgment be rendered finding
48
them to be purchasers in good faith to thus entitle them to possession and ownership of the 1,000 hectare portion of
the property, together with all the improvements they built thereon. Reiterating that they were not
purchasers pendente lite, they averred that El Dorado and Lauro had actual knowledge of their interests in the said
portion of the property prior to the annotation of the notice of lis pendens to thereby render said notice ineffective.

El Dorado and the heirs of Lauro, both represented by Conrad C. Leviste, also filed their Comment to Carrascoso’s
49
petition, praying that it be dismissed for lack of merit and that paragraph 6 of the dispositive portion of the January
31, 1996 CA Decision be modified to read as follows:
6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone Co. and PLDT Agricultural
Corporation in writing within ten (10) days after finality of this decision regarding the exercise of its option under Arts.
449 and 450 of the Civil Code, without right to indemnity on the part of the latter should the former decide to keep
the improvements under Article 449. (Underscoring supplied)
50
Carrascoso filed on November 13, 1996 his Reply to the Comment of El Dorado and the heirs of Lauro.
51
In the meantime, as the February 22, 1996 Motion for Reconsideration filed by PLDT and PLDTAC of the CA
decision had remained unresolved, this Court, by Resolution of June 30, 2003, directed the appellate court to
52
resolve the same.
By Resolution of July 8, 2004, the CA denied PLDT and PLDTAC’s Motion for Reconsideration for lack of merit.
53
PLDT thereupon filed on September 2, 2004 a petition for review before this Court, docketed as G.R. No. 164489,
54 55
seeking to reverse and set aside the January 31, 1996 Decision and the July 8, 2004 Resolution of the appellate
court. It prayed that judgment be rendered upholding its right, interest and title to the 1,000 hectare portion of the
property and that it and its successors-in-interest be declared owners and legal possessors thereof, together with all
improvements built, sown and planted thereon.
By Resolution of August 25, 2004, G.R. No. 164489 was consolidated with G.R. No. 123672.
56
In his petition, Carrascoso faults the CA as follows:
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND COMMITTED A MISTAKE OF
LAW IN NOT DECLARING THAT THE ACTION FOR RESCISSION WAS PREMATURELY FILED.
II
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND COMMITTED A MISTAKE OF
LAW IN DISREGARDING THE CRUCIAL SIGNIFICANCE OF THE WARRANTY OF NON-TENANCY EXPRESSLY
STIPULATED IN THE CONTRACT OF SALE.
III
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION IN REVERSING THE DECISION OF
THE TRIAL COURT. (Underscoring supplied)
57
PLDT, on the other hand, faults the CA as follows:
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT PETITIONER AND PLTAC
(sic) TOOK THEIR RIGHT, INTEREST AND TITLE TO THE FARM SUBJECT TO THE NOTICE OF LIS PENDENS,
THE SAME IN DISREGARD OF THE PROTECTION ACCORDED THEM UNDER ARTICLES 1181 AND 1187 OF
THE NEW CIVIL CODE.
II

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT PETITIONER AND
PLDTAC TOOK THEIR RIGHT, INTEREST AND TITLE TO THE FARM SUBJECT TO THE NOTICE OF LIS
PENDENS, THE SAME IN DISREGARD OF THE LEGAL PRINCIPLE THAT RESPONDENTS EL DORADO ET
AL.’s PRIOR, ACTUAL KNOWLEDGE OF PETITIONER PLDT’S AGREEMENT TO BUY AND SELL WITH
RESPONDENT CARRASCOSO RESULTING IN THE DELIVERY TO, AND POSSESSION, OCCUPATION AND
DEVELOPMENT BY, SAID PETITIONER OF THE FARM, IS EQUIVALENT TO REGISTRATION OF SUCH RIGHT,
INTEREST AND TITLE AND, THEREFORE, A PRIOR REGISTRATION NOT AFFECTED BY THE LATER NOTICE
OF LIS PENDENS. (Underscoring supplied)
58
Carrascoso posits that in the El Dorado Board Resolution and the Affidavit of Feliciano Leviste, both dated March
23, 1972, no objection was interposed to his mortgaging of the property to any bank provided that the balance of the
purchase price of the property under the March 23, 1972 Deed of Sale of Real Property is recognized, hence, El
Dorado could collect the unpaid balance of ₱1,300,000.00 only after the mortgage in favor of HSB is paid in full; and
the filing of the complaint for rescission with damages on March 15, 1977 was premature as he fully paid his
obligation to HSB only on April 5, 1977 as evidenced by the Cancellation of Mortgage signed by HSB President
59
Gregorio B. Licaros.
Carrascoso further posits that extensions of the period to pay El Dorado were verbally accorded him by El Dorado’s
directors and officers, particularly Jose and Angel Leviste.
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance
with Articles 1385 and 1388 and the Mortgage Law.
Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a
creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be
60
performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the
other.61
The right of rescission of a party to an obligation under Article 1191 is predicated on a breach of faith by the other
party who violates the reciprocity between them. 62
A contract of sale is a reciprocal obligation. The seller obligates itself to transfer the ownership of and deliver a
determinate thing, and the buyer obligates itself to pay therefor a price certain in money or its equivalent. The non-
63
payment of the price by the buyer is a resolutory condition which extinguishes the transaction that for a time existed,
and discharges the obligations created thereunder. Such failure to pay the price in the manner prescribed by the
64
contract of sale entitles the unpaid seller to sue for collection or to rescind the contract. 65
In the case at bar, El Dorado already performed its obligation through the execution of the March 23, 1972 Deed of
Sale of Real Property which effectively transferred ownership of the property to Carrascoso. The latter, on the other
hand, failed to perform his correlative obligation of paying in full the contract price in the manner and within the
period agreed upon.
The terms of the Deed are clear and unequivocal: Carrascoso was to pay the balance of the purchase price of the
property amounting to ₱1,300,000.00 plus interest thereon at the rate of 10% per annum within a period of three (3)
years from the signing of the contract on March 23, 1972. When Jose Leviste informed him that El Dorado was
seeking rescission of the contract by letter of February 21, 1977, the period given to him within which to fully satisfy
his obligation had long lapsed.
The El Dorado Board Resolution and the Affidavit of Jose Leviste interposing no objection to Carrascoso’s
mortgaging of the property to any bank did not have the effect of suspending the period to fully pay the purchase
price, as expressly stipulated in the Deed, pending full payment of any mortgage obligation of Carrascoso.
As the CA correctly found:
The adverted resolution (Exhibit 2) does not say that the obligation of Carrascoso to pay the balance was extended.
Neither can We see in it anything that can logically infer said accommodation.
A partially unpaid seller can agree to the buyer’s mortgaging the subject of the sale without changing the time fixed
for the payment of the balance of the price. The two agreements are not incompatible with each other such that
when one is to be implemented, the other has to be suspended. In the case at bench, there was no impediment for
Carrascoso to pay the balance of the price after mortgaging the land.
Also, El Dorado’s subordinating its "preferred claim" or waiving its superior "vendor’s lien" over the land in favor of
the mortgagee of said property only means that in a situation where the unpaid price of the Land and loan secured
by the mortgage over the Land both become due and demandable, the mortgagee shall have precedence in going
after the Land for the satisfaction of the loan. Such accommodations do not necessarily imply the modification of the
period fixed in the contract of sale for the payment by Carrascoso of the balance.
The palpable purpose of El Dorado in not raising any objection to Carrascoso’s mortgaging the land was to
eliminate any legal impediment to such a contract. That was so succinctly expressed in the Affidavit (Exhibit 2-A) of
President Feleciano (sic) Leviste. El Dorado’s yielding its "superior lien" over the land in favor of the mortgagee was
plainly intended to overcome the natural reluctance of lending institutions to accept a land whose price has not yet
been fully paid as collateral of a loan. (Underscoring supplied)
66
Respecting Carrascoso’s insistence that he was granted verbal extensions within which to pay the balance of the
purchase price of the property by El Dorado’s directors and officers Jose and Angel Leviste, this Court finds the
same unsubstantiated by the evidence on record.
It bears recalling that Jose Leviste wrote Carrascoso, by letter of February 21, 1977, calling his attention to his
failure to comply, despite "numerous" requests, with his obligation to pay the amount of ₱1,300,000.00 and 10%
annual interest thereon, and advising him that "we would like to rescind the contract of sale." This letter reiterated
the term of payment agreed upon in the March 23, 1972 Deed of Sale of Real Property and Carrascosos’s non-
compliance therewith.
Carrascoso, harping on Jose Leviste’s March 10, 1977 letter to Lauro’s counsel wherein he (Jose Leviste) stated
that "some of the Directors of the corporation could not see their way clear in complying with the demands of [Lauro]
and have failed to reach a consensus to bring the corresponding action for rescission of the contract against Dr.
Fernando Carrascoso," argues that the extensions priorly given to him "no doubt lead to the logical conclusion on
some of the directors’ inability to file suit against him."
67
The argument is specious. As the CA found, even if some officers of El Dorado were initially reluctant to file suit
against him, the same should not be interpreted to mean that this was brought about by a prior extension of the
period to pay the balance of the purchase price of the property as such reluctance could have been due to a myriad
of reasons totally unrelated to the period of payment of the balance.
The bottomline however is, if El Dorado really intended to extend the period of payment of the balance there was
absolutely no reason why it did not do it in writing in clear and unmistakable terms. That there is no such writing
negates all the speculations of the court a quo and pretensions of Carrascoso.
xxx

The unalterable fact here remains that on March 23, 1973, with or without demand, the obligation of Carrascoso to
pay P519,933.33 became due. The same was true on March 23, 1974 and on March 23, 1975 for equal amounts.
Since he did not perform his obligation under the contract of sale, he, therefore, breached it. Having breached the
contract, El Dorado’s cause of action for rescission of that contract arose. (Underscoring supplied)
68
Carrascoso goes on to argue that the appellate court erred in ignoring the import of the warranty of non-tenancy
expressly stipulated in the March 23, 1972 Deed of Sale of Real Property. He alleges that on March 8, 1972 or two
weeks prior to the execution of the Deed of Sale, he discovered, while inspecting the property on board a helicopter,
that there were people and cattle in the area; when he confronted El Dorado about it, he was told that the occupants
were caretakers of cattle who would soon leave; four months after the execution of the Deed of Sale, upon inquiry
69
with the Bureau of Lands and the Bureau of Soils, he was informed that there were people claiming to be tenants in
certain portions of the property; and he thus brought the matter again to El Dorado which informed him that the
70
occupants were not tenants but squatters. 71
Carrascoso now alleges that as a result of what he concludes to be a breach of the warranty of non-tenancy
committed by El Dorado, he incurred expenses in the amount of ₱2,890,000.00 for which he should be reimbursed,
his unpaid obligation to El Dorado amounting to ₱1,300,000.00 to be deducted therefrom. 72
The breach of an express warranty makes the seller liable for damages. The following requisites must be
73
established in order that there be an express warranty in a contract of sale: (1) the express warranty must be an
affirmation of fact or any promise by the seller relating to the subject matter of the sale; (2) the natural tendency of
such affirmation or promise is to induce the buyer to purchase the thing; and (3) the buyer purchases the thing
relying on such affirmation or promise thereon. 74
Under the March 23, 1972 Deed of Sale of Real Property, El Dorado warranted that the property was not being
cultivated by any tenant and was, and therefore, not covered by the provisions of the Land Reform Code. If
Carrascoso would become liable under the said law, he would be reimbursed for all expenses and damages
incurred thereon.
Carrascoso claims to have incurred expenses in relocating persons found on the property four months after the
execution of the Deed of Sale. Apart from such bare claim, the records are bereft of any proof that those persons
were indeed tenants. The fact of tenancy not having been priorly established, El Dorado may not be held liable for
75 76 77
actual damages.
Carrascoso further argues that both the trial and appellate courts erred in holding that the sale of the 1,000 hectare
portion of the property to PLDT, as well as its subsequent sale to PLDTAC, is subject to the March 15, 1977 Notice
of Lis Pendens.
PLDT additionally argues that the CA incorrectly ignored the Agreement to Buy and Sell which it entered into with
Carrascoso on July 11, 1975, positing that the efficacy of its purchase from Carrascoso, upon his fulfillment of the
condition it imposed resulting in its decision to formalize their transaction and execute the April 6, 1977 Deed of
Sale, retroacted to July 11, 1975 or before the annotation of the Notice of Lis Pendens. 78
The pertinent portions of the July 11, 1975 Agreement to Buy and Sell between PLDT and Carrascoso read:
2. That the VENDOR hereby agrees to sell to the VENDEE and the latter hereby agrees to purchase from the
former, 1,000 hectares of the above-described parcel of land as shown in the map hereto attached as Annex "A"
and made an integral part hereof and as hereafter to be more particularly determined by the survey to be conducted
by Certeza & Co., at the purchase price of P3,000.00 per hectare or for a total consideration of Three Million Pesos
(P3,000,000.00) payable in cash.
3. That this contract shall be considered rescinded and cancelled and of no further force and effect, upon failure of
the VENDOR to clear the aforementioned 1,000 hectares of land of all the occupants therein located, within a period
of one (1) year from the date of execution of this Agreement. However, the VENDEE shall have the option to extend
the life of this Agreement by another six months, during which period the VENDEE shall definitely inform the

VENDOR of its decision on whether or not to finalize the deed of absolute sale for the aforementioned 1,000
hectares of land.
The VENDOR agrees that the amount of P500.00 per family within the aforementioned 1,000 hectares of land shall
be spent by him for relocation purposes, which amount however shall be advanced by the VENDEE and which shall
not exceed the total amount of P120,000.00, the same to be thereafter deducted by the VENDEE from the
aforementioned purchase price of P3,000,000.00.
The aforementioned advance of P120,000.00 shall be remitted by the VENDEE to the VENDOR upon the signing of
this Agreement.
xxx
It is likewise further agreed that the VENDEE shall have the right to enter into any part of the aforementioned 1,000
hectares at any time within the period of this Agreement for purposes of commencing the development of the same.
xxx
5. Title to the aforementioned land shall also be cleared of all liens or encumbrances and if there are any unpaid
taxes, existing mortgages, liens and encumbrances on the land, the payments to be made by the VENDEE to the
VENDOR of the purchase price shall first be applied to liquidate said mortgages, liens and/or encumbrances, such
that said payments shall be made directly to the corresponding creditors. Thus, the balance of the purchase price
will be paid to the VENDOR after the title to the land is cleared of all such liens and encumbrances.
xxx
7. The VENDOR agrees that, during the existence of this Agreement and without the previous written permission
from the VENDEE, he shall not sell, cede, assign and/or transfer the parcel of land subject of this Agreement. 79
A notice of lis pendens is an announcement to the whole world that a particular real property is in litigation, and
serves as a warning that one who acquires an interest over said property does so at his own risk, or that he gambles
on the result of the litigation over said property.
80
Once a notice of lis pendens has been duly registered, any cancellation or issuance of title over the land involved as
well as any subsequent transaction affecting the same would have to be subject to the outcome of the suit. In other
words, a purchaser who buys registered land with full notice of the fact that it is in litigation between the vendor and
a third party stands in the shoes of his vendor and his title is subject to the incidents and result of the pending
litigation.
81
x x x Notice of lis pendens has been conceived and, more often than not, availed of, to protect the real rights of the
registrant while the case involving such rights is pending resolution or decision. With the notice of lis pendens duly
recorded, and while it remains uncancelled, the registrant could rest secure that he would not lose the property or
any part of it during the litigation.
The filing of a notice of lis pendens in effect (1) keeps the subject matter of litigation within the power of the
court until the entry of the final judgment so as to prevent the defeat of the latter by successive alienations; and (2)
binds a purchaser of the land subject of the litigation to the judgment or decree that will be promulgated thereon
whether such a purchaser is a bona fide purchaser or not; but (3) does not create a non-existent right or lien.
The doctrine of lis pendens is founded upon reason of public policy and necessity, the purpose of which is to keep
the subject matter of the litigation within the power of the court until the judgment or decree shall have been entered;
otherwise by successive alienations pending the litigation, its judgment or decree shall be rendered abortive and
impossible of execution. The doctrine of lis pendens is based on considerations of public policy and convenience,
which forbid a litigant to give rights to others, pending the litigation, so as to affect the proceedings of the court then
progressing to enforce those rights, the rule being necessary to the administration of justice in order that decisions
in pending suits may be binding and may be given full effect, by keeping the subject matter in controversy within the
power of the court until final adjudication, that there may be an end to litigation, and to preserve the property that the
purpose of the pending suit may not be defeated by successive alienations and transfers of title. (Italics in the
82
original)
In ruling against PLDT and PLDTAC, the appellate court held:
PLDT and PLDTAC argue that in reality the Farm was bought by the former on July 11, 1975 when Carrascoso and
it entered into the Agreement to Buy and Sell (Exhibit 15). How can an agreement to buy and sell which is a
preparatory contract be the same as a contract of sale which is a principal contract? If PLDT’s contention is correct
that it bought the Farm on July 11, 1975, why did it buy the same property again on April 6, 1977? There is simply
no way PLDT and PLDTAC can extricate themselves from the effects of said Notice of Lis Pendens. It is admitted
that PLDT took possession of the Farm on July 11, 1975 after the execution of the Agreement to Buy and Sell but it
did so not as owner but as prospective buyer of the property. As prospective buyer which had actual on (sic)
constructive notice of the lis pendens, why did it pursue and go through with the sale if it had not been willing to
gamble with the result of this case? (Underscoring supplied)
83
Further, in its July 8, 2004 Resolution, the CA held:
PLDT cannot shield itself from the notice of lis pendens because all that it had at the time of its inscription was an
Agreement to Buy and Sell with CARRASCOSO, which in effect is a mere contract to sell that did not pass to it the
ownership of the property.
xxx
Ownership was retained by CARRASCOSO which EL DORADO may very well recover through its action for
rescission.
xxx
PLDT’s possession at the time the notice of lis pendens was registered not being a legal possession based on
ownership but a mere possession in fact and the Agreement to Buy and Sell under which it supposedly took
possession not being registered, it is not protected from an adverse judgment that may be rendered in the case
subject of the notice of lis pendens. (Underscoring supplied)
84
In a contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell,
ownership is not transferred upon delivery of the property but upon full payment of the purchase price. In the 85
former, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded;
whereas in the latter, title is retained by the vendor until the full payment of the price, such payment being a positive
suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to
convey title from becoming effective. 86
PLDT argues that the July 11, 1975 Agreement to Buy and Sell is a conditional contract of sale, thus calling for the
application of Articles 1181 and 1187 of the Civil Code as held in Coronel v. Court of Appeals.
87 88 89
The Court is not persuaded.
For in a conditional contract of sale, if the suspensive condition is fulfilled, the contract of sale is thereby perfected,
such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership
thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the
seller. Whereas in a contract to sell, upon fulfillment of the suspensive condition, ownership will not
90
automatically transfer to the buyer although the property may have been previously delivered to him. The
prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale. 91
A perusal of the contract adverted to in Coronel reveals marked differences from the Agreement to Buy and Sell in
92
the case at bar. In the Coronel contract, there was a clear intent on the part of the therein petitioners-sellers to
transfer title to the therein respondent-buyer. In the July 11, 1975 Agreement to Buy and Sell, PLDT still had to
"definitely inform Carrascoso of its decision on whether or not to finalize the deed of absolute sale for the 1,000
hectare portion of the property," such that in the April 6, 1977 Deed of Absolute Sale subsequently executed, the
parties declared that they "are now decided to execute" such deed, indicating that the Agreement to Buy and Sell
was, as the appellate court held, merely a preparatory contract in the nature of a contract to sell. In fact, the parties
even had to stipulate in the said Agreement to Buy and Sell that Carrascoso, "during the existence of the
Agreement, shall not sell, cede, assign and/or transfer the parcel of land," which provision this Court has held to be
a typical characteristic of a contract to sell.
93
Being a contract to sell, what was vested by the July 11, 1975 Agreement to Buy and Sell to PLDT was merely the
beneficial title to the 1,000 hectare portion of the property.
The right of Daniel Jovellanos to the property under the contract [to sell] with Philamlife was merely an inchoate and
expectant right which would ripen into a vested right only upon his acquisition of ownership which, as aforestated,
was contingent upon his full payment of the rentals and compliance with all his contractual obligations thereunder. A
vested right is an immediate fixed right of present and future enjoyment. It is to be distinguished from a right that is
expectant or contingent. It is a right which is fixed, unalterable, absolute, complete and unconditional to the exercise
of which no obstacle exists, and which is perfect in itself and not dependent upon a contingency. Thus, for a
property right to be vested, there must be a transition from the potential or contingent to the actual, and the
proprietary interest must have attached to a thing; it must have become fixed or established and is no longer open
to doubt or controversy. (Underscoring supplied)
94
In the case at bar, the July 11, 1975 Agreement to Buy and Sell was not registered, which act of registration is the
operative act to convey and affect the land.
An agreement to sell is a voluntary instrument as it is a willful act of the registered owner. As such voluntary
instrument, Section 50 of Act No. 496 [now Section 51 of PD 1529] expressly provides that the act of registration
shall be the operative act to convey and affect the land. And Section 55 of the same Act [now Section 53 of PD
1529] requires the presentation of the owner’s duplicate certificate of title for the registration of any deed or
voluntary instrument. As the agreement to sell involves an interest less than an estate in fee simple, the same
should have been registered by filing it with the Register of Deeds who, in turn, makes a brief memorandum thereof
upon the original and owner’s duplicate certificate of title. The reason for requiring the production of the owner’s
duplicate certificate in the registration of a voluntary instrument is that, being a willful act of the registered owner, it is
to be presumed that he is interested in registering the instrument and would willingly surrender, present or produce
his duplicate certificate of title to the Register of Deeds in order to accomplish such registration. However, where the
owner refuses to surrender the duplicate certificate for the annotation of the voluntary instrument, the grantee may
file with the Register of Deeds a statement setting forth his adverse claim, as provided for in Section 110 of Act No.
496. xxx (Underscoring supplied)
95
In Valley Golf Club, Inc. v. Salas, where a Deed of Absolute Sale covering a parcel of land was executed prior to
96
the annotation of a notice of lis pendens by the original owner thereof but which Deed was registered after such
annotation, this Court held:
The advance payment of P15,000.00 by the CLUB on October 18, 1960 to ROMERO, and the additional payment
by the CLUB of P54,887.50 as full payment of the purchase price on October 26, 1960, also to ROMERO, cannot be
held to be the dates of sale such as to precede the annotation of the adverse claim by the SISTERS on October 25,
1960 and the lis pendens on October 27, 1960. It is basic that it is the act of registration of the sale that is the
operative act to convey and affect the land. That registration was not effected by the CLUB until December 4, 1963,
or three (3) years after it had made full payment to ROMERO. xxx
xxx
As matters stand, therefore, in view of the prior annotations of the adverse claim and lis pendens, the CLUB must be
legally held to have been aware of the flaws in the title. By virtue of the lis pendens, its acquisition of the property
was subject to whatever judgment was to be rendered in Civil Case No. 6365. xxx The CLUB’s cause of action lies,
not against the SISTERS, to whom the property had been adjudged by final judgment in Civil Case No. 6365, but
against ROMERO who was found to have had no right to dispose of the land. (Underscoring supplied)
97

PLDT further argues that El Dorado’s prior, actual knowledge of the July 11, 1975 Agreement to Buy and Sell is
equivalent to prior registration not affected by the Notice of Lis Pendens. As such, it concludes that it was not a
purchaser pendente lite nor a purchaser in bad faith.
PLDT anchors its argument on the testimony of Lauro and El Dorado’s counsel Atty. Aquino from which it infers that
Atty. Aquino filed the complaint for rescission and caused the notice of lis pendens to be annotated on Carrascoso’s
title only after reading newspaper reports on the sale to PLDT of the 1,000 hectare portion of the property.
The pertinent portions of Atty. Aquino’s testimony are reproduced hereunder:
Q: Do you know, Atty. Aquino, what you did after the filing of the complaint in the instant case of Dr. Carrascoso?
A: Yes, I asked my associates to go to Mamburao and had the notice of Lis Pendens covering the property as a
result of the filing of the instant complaint.
Q: Do you know the notice of Lis Pendens?
A: Yes, it is evidenced by a [Transfer] Certificate Copy of Title of Dr. Carrascoso entitled "Notice of Lis Pendens".
Q: As a consequence of the filing of the complaint which was annotated, you have known that?
A: Yes.
xxx
Q: After the annotation of the notice of Lis Pendens, do you know, if any further transaction was held on the
property?
A: As we have read in the newspaper, that Dr. Carrascoso had sold the property in favor of the PLDT, Co.
Q: And what did you do?
A: We verified the portion of the property having recorded under entry No. 24770 xxx and we also discovered that
the articles incorporated (sic) and other corporate matters had been organized and established of the PLDT, Co.,
and had been annotated.
xxx
Q: Do you know what happened to the property?
A: It was sold by the PLDT to its sub-PLDT Agitating (sic) Co. when at that time there was already notice of Lis
Pendens.
xxx
Q: In your testimony, you mentioned that you had come cross- (sic) reading the sale of the subject litigation (sic)
between Dr. Fernando Carrascoso, the defendant herein and the PLDT, one of defendants-intervenor, may I say
when?
A: I cannot remember now, but it was in the newspaper where it was informed or mentioned of the sold property to
PLDT.
xxx
Q: Will you tell to the Honorable Court what newspaper was that?
A: Well, I cannot remember what is that newspaper. That is only a means of [confirming] the transaction. What was
[confirmed] to us is whether there was really transaction (sic) and we found out that there was in the Register of
Deeds and that was the reason why we obtained the case.
Q: Well, may I say, is there any reason, the answer is immaterial. The question is as regard the matter of time when
counsel is being able (sic) to read the newspaper allegedly (interrupted)
xxx
Q: The idea of the question, your Honor, is to establish and ask further the notice of [lis pendens] with regards (sic)
to the transfer of property to PLDT, would have been accorded prior to the pendency of the case.
xxx
A: I cannot remember. 98
PLDT also relies on the following testimony of Carrascoso:
Q: You mentioned Doctor a while ago that you mentioned to the late Governor Feliciano Leviste regarding your
transaction with the PLDT in relation to the subject property you allegedly mention (sic) your intention to sell with the
PLDT?
A: It was Dr. Jose Leviste and Dr. Angel Leviste that was constantly in touched (sic) with me with respect to my
transaction with the PLDT, sir.
Q: Any other officer of the corporation who knows with instruction aside from Dr. Angel Leviste and Dr. Jose
Leviste?
A: Yes, sir. It was Trinidad Andaya Leviste and Assemblyman Expedito Leviste.
xxx
Q: What is the position of Mrs. Trinidad Andaya Leviste with the plaintiff-corporation?
A: One of the stockholders and director of the plaintiff-corporation, sir.
Q: Will you please tell us the other officers?
A: Expedito Leviste, sir.
A: Will you tell the position of Expedito Leviste?
A: He was the corporate secretary, sir.
Q: If you know, was Dr. Jose Leviste also a director at that time?
A: Yes, sir. 99
On the other hand, El Dorado asserts that it had no knowledge of the July 11, 1975 Agreement to Buy and Sell prior
to the filing of the complaint for rescission against Carrascoso and the annotation of the notice of lis pendens on his
title. It further asserts that it always acted in good faith:
xxx The contract to sell between the Petitioner [Carrascoso] and PLDT was executed in July 11, 1975. There is no
evidence that El Dorado was notified of this contract. The property is located in Mindoro, El Dorado is based in
Manila. The land was planted to rice. This was not an unusual activity on the land, thus it could have been the
Petitioner who was using the land. Not having been notified of this sale, El Dorado could not have stopped PLDT
from developing the land.
The absolute sale of the land to PLDT took place on April 6, 1977, or AFTER the filing of this case on March 15,
1977 and the annotation of a notice of lis pendens on March 16, 1977. Inspite of the notice of lis pendens, PLDT
then PLDTAC persisted not only in buying the land but also in putting up improvements on the property such as
buildings, roads, irrigation systems and drainage. This was done during the pendency of this case, where PLDT and
PLDTAC actively participated as intervenors. They were not innocent bystanders. xxx 100
This Court finds the above-quoted testimony of Atty. Aquino to be susceptible of conflicting interpretations. As such,
it cannot be the basis for inferring that El Dorado knew of the July 11, 1975 Agreement to Buy and Sell prior to the
annotation of the notice of lis pendens on Carrascoso’s title.
Respecting Carrascoso’s allegation that some of the directors and officers of El Dorado had knowledge of his
dealings with PLDT, it is true that knowledge of facts acquired or possessed by an officer or agent of a corporation
in the course of his employment, and in relation to matters within the scope of his authority, is notice to the
corporation, whether he communicates such knowledge or not. In the case at bar, however, apart from
101
Carrascoso’s claim that he in fact notified several of the directors about his intention to sell the 1,000 hectare portion
of the property to PLDT, no evidence was presented to substantiate his claim. Such self-serving, uncorroborated
assertion is indubitably inadequate to prove that El Dorado had notice of the July 11, 1975 Agreement to Buy and
Sell before the annotation of the notice of lis pendens on his title.
PLDT is, of course, not without recourse. As held by the CA:
Between Carrascoso and PLDT/PLDTAC, the former acted in bad faith while the latter acted in good faith. This is so
because it was Carrascoso’s refusal to pay his just debt to El Dorado that caused PLDT/PLDTAC to suffer
pecuniary losses. Therefore, Carrascoso should return to PLDT/PLDTAC the P3,000,000.00 price of the farm plus
legal interest from receipt thereof until paid. (Underscoring supplied)
102
The appellate court’s decision ordering the rescission of the March 23, 1972 Deed of Sale of Real Property between
El Dorado and Carrascoso being in order, mutual restitution follows to put back the parties to their original situation
prior to the consummation of the contract.
The exercise of the power to rescind extinguishes the obligatory relation as if it had never been created, the
extinction having a retroactive effect. The rescission is equivalent to invalidating and unmaking the juridical tie,
leaving things in their status before the celebration of the contract.
Where a contract is rescinded, it is the duty of the court to require both parties to surrender that which they have
respectively received and to place each other as far as practicable in his original situation, the rescission has the
effect of abrogating the contract in all parts. (Underscoring supplied)
103
The April 6, 1977 and May 30, 1977 Deeds of Absolute Sale being subject to the notice of lis pendens, and as the
Court affirms the declaration by the appellate court of the rescission of the Deed of Sale executed by El Dorado in
favor of Carrascoso, possession of the 1,000 hectare portion of the property should be turned over by PLDT to El
Dorado.
As regards the improvements introduced by PLDT on the 1,000 hectare portion of the property, a distinction should
be made between those which it built prior to the annotation of the notice of lis pendens and those which it
introduced subsequent thereto.
When a person builds in good faith on the land of another, Article 448 of the Civil Code governs:
Art. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right
to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546
and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper
rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of
the building or trees. In such a case, he shall pay reasonable rent, if the owner of the land does not choose to
appropriate the building or trees after the proper indemnity. The parties shall agree upon the terms of the lease and
in case of disagreement, the court shall fix the terms thereof.
The above provision covers cases in which the builders, sowers or planters believe themselves to be owners of the
land or, at least, to have a claim of title thereto. Good faith is thus identified by the belief that the land is owned; or
104
that by some title one has the right to build, plant, or sow thereon. 105
The owner of the land on which anything has been built, sown or planted in good faith shall have the right to
appropriate as his own the building, planting or sowing, after payment to the builder, planter or sower of the
necessary and useful expenses, and in the proper case, expenses for pure luxury or mere pleasure.
106 107
The owner of the land may also oblige the builder, planter or sower to purchase and pay the price of the land.
If the owner chooses to sell his land, the builder, planter or sower must purchase the land, otherwise the owner may
remove the improvements thereon. The builder, planter or sower, however, is not obliged to purchase the land if its
value is considerably more than the building, planting or sowing. In such case, the builder, planter or sower must
pay rent to the owner of the land.
If the parties cannot come to terms over the conditions of the lease, the court must fix the terms thereof.
The right to choose between appropriating the improvement or selling the land on which the improvement of the
builder, planter or sower stands, is given to the owner of the land. 108
On the other hand, when a person builds in bad faith on the land of another, Articles 449 and 450 govern:
Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown
without right to indemnity.
Art. 450. The owner of the land on which anything has been built, planted or sown in bad faith may demand the
demolition of the work, or that the planting or sowing be removed, in order to replace things in their former condition
at the expense of the person who built, planted or sowed; or he may compel the builder or planter to pay the price of
the land, and the sower the proper rent.
In the case at bar, it is undisputed that PLDT commenced construction of improvements on the 1,000 hectare
portion of the property immediately after the execution of the July 11, 1975 Agreement to Buy and Sell with the full
consent of Carrascoso. Thus, until March 15, 1977 when the Notice of Lis Pendens was annotated on
109
Carrascoso’s TCT No. T-6055, PLDT is deemed to have been in good faith in introducing improvements on the
1,000 hectare portion of the property.
After March 15, 1977, however, PLDT could no longer invoke the rights of a builder in good faith.
Should El Dorado then opt to appropriate the improvements made by PLDT on the 1,000 hectare portion of the
property, it should only be made to pay for those improvements at the time good faith existed on the part of PLDT or
until March 15, 1977, to be pegged at its current fair market value.
110 111
The commencement of PLDT’s payment of reasonable rent should start on March 15, 1977 as well, to be paid until
such time that the possession of the 1,000 hectare portion is delivered to El Dorado, subject to the reimbursement of
expenses as aforestated, that is, if El Dorado opts to appropriate the improvements. 112
If El Dorado opts for compulsory sale, however, the payment of rent should continue up to the actual transfer of
ownership. 113
WHEREFORE, the petitions are DENIED. The Decision dated January 13, 1996 and Resolution dated July 8, 2004
of the Court of Appeals are AFFIRMED with MODIFICATION in that

1) the Regional Trial Court of San Jose, Occidental Mindoro, Branch 45 is further directed to:
a. determine the present fair price of the 1,000 hectare portion of the property and the amount of the expenses
actually spent by PLDT for the improvements thereon as of March 15, 1977;
b. include for determination the increase in value ("plus value") which the 1,000 hectare portion may have acquired
by reason of the existence of the improvements built by PLDT before March 15, 1977 and the current fair market
value of said improvements;
2. El Dorado is ordered to exercise its option under the law, whether to appropriate the improvements, or to oblige
PLDT to pay the price of the land, and
3) PLDT shall pay El Dorado the amount of Two Thousand Pesos (₱2,000.00) per month as reasonable
compensation for its occupancy of the 1,000 hectare portion of the property from the time that its good faith ceased
to exist until such time that possession of the same is delivered to El Dorado, subject to the reimbursement of the
aforesaid expenses in favor of PLDT or until such time that the payment of the purchase price of the 1,000 hectare
portion is made by PLDT in favor of El Dorado in case the latter opts for its compulsory sale.

12.)

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1.) G.R. No.

200602 December 11, 2013

ACE FOODS, INC., Petitioner,

TERMS : Thirty (30) days upon delivery

The RTC Ruling

Dissatisfied, MTCL elevated the matter on appeal. 25

2012, hence, this petition.

The Issue Before the Court

The Court’s Ruling

The petition lacks merit.

A contract of sale may be absolute or conditional. (Emphasis supplied)

Special Civil Actions

Special Civil Actions

HEIRS OF RAMON C. GAITE, CYNTHIA GOROSTIZA GAITE AND RHOGEN BUILDERS,

The facts are as follows:

1) No permit for Temporary Structure.

2) No notice of concrete pouring.

3) Some workers have no safety devices.

The dispositive portion of the trial court's decision reads:

For its part, FGU interposed the following assignment of errors:

Special Civil Actions

V. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANT-APPELLANT RAMON GAITE

X. THE REGIONAL TRIAL COURT ERRED IN HOLDING DEFENDANT-APPELLANT FGU INSURANCE

Special Civil Actions

Before us, petitioners submit the following issues:

We deny the petition.

Special Civil Actions

123. CONTRACTOR'S RIGHT TO STOP WORK OR TERMINATE CONTRACT

122. OWNER'S RIGHT TO TERMINATE CONTRACT

A. If Contractor should be adjudged bankrupt, or if he should make general assignment for

As to temperate damages, Article 2224 of the Civil Code provides that temperate or moderate

Special Civil Actions

ROGELIO DANTIS, Petitioner, v. JULIO MAGHINANG, JR., Respondent.

WHEREFORE, Judgment is hereby rendered as follows:

No pronouncement as to costs in this instance.

The Court’s Ruling

The petition is meritorious.

Special Civil Actions

Atty. Vicente Millora

Q: So that was 1953?

Q: And you were then…?

Q: You were eleven (11) years old?

Atty. Roldan Villacorta

Atty. Vicente Millora

Q: x x x Where did you keep that document?

Atty. Vicente Millora

Witness referring to the xerox copy.

Atty. Vicente Millora

Special Civil Actions

Q: And when did you last see the original?

Q: Where did you see this document?

Q: So, not from your mother safe?

Special Civil Actions

Alamin ng sino mang

Special Civil Actions

SAN LORENZO DEVELOPMENT CORPORATION, Petitioner, v. COURT OF

From a coaptation of the records of this case, it appears that respondents

Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the